Austal Limited Annual Report 2019
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
Nomination & Remuneration Committee Chair’s message ..................................................................................................................... 29
Remuneration report [audited] ........................................................................................................................................................................... 31
Auditor independence ........................................................................................................................................................................................... 59
Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2019 ................. 60
Consolidated statement of financial position as at 30 June 2019 ........................................................................................................ 61
Consolidated statement of changes in equity for the year ended 30 June 2019 ........................................................................... 62
Consolidated statement of cash flows for the year ended 30 June 2019 ......................................................................................... 63
Notes to the financial statements .................................................................................................................................................................... 64
Directors’ declaration ...........................................................................................................................................................................................135
Independent audit report to the members of Austal Limited ................................................................................................................136
Shareholder information .....................................................................................................................................................................................142
Corporate governance statement and ESG Report ...................................................................................................................................143
Corporate directory ...............................................................................................................................................................................................143
2
Austal Limited | Annual Report 2019
Index to the notes to the financial statements
Basis of preparation .....................................................................................................................................................................................64
Note 1
Corporate information ..............................................................................................................................................................64
Note 2 Basis of preparation ..................................................................................................................................................................64
Current year performance ......................................................................................................................................................................... 73
Note 3 Operating segments .................................................................................................................................................................. 73
Note 4 Revenue ......................................................................................................................................................................................... 76
Note 5 Other profit and loss ................................................................................................................................................................. 78
Note 6 Earnings per share .....................................................................................................................................................................81
Note 7 Reconciliation of net profit after tax to net cash flows from operations ...............................................................83
Note 8 Dividends paid and proposed ................................................................................................................................................84
Note 9
Income and other taxes ...........................................................................................................................................................85
Capital Structure ............................................................................................................................................................................................92
Note 10 Cash and cash equivalents .....................................................................................................................................................92
Note 11
Interest bearing loans and borrowing .................................................................................................................................92
Note 12 Reconciliation of financing cash flow to interest bearing debt .................................................................................95
Note 13 Contributed equity and reserves ..........................................................................................................................................96
Note 14 Government grants relating to assets ................................................................................................................................98
Working Capital ..............................................................................................................................................................................................99
Note 15 Trade and other receivables ...................................................................................................................................................99
Note 16 Vessel construction and support contracts in progress ............................................................................................100
Note 17
Inventories and work in progress ........................................................................................................................................ 101
Note 18 Trade and other payables ....................................................................................................................................................... 101
Infrastructure & other assets .................................................................................................................................................................. 102
Note 19 Property, plant and equipment ............................................................................................................................................ 102
Note 20 Intangible assets and goodwill ............................................................................................................................................106
Note 21
Impairment testing of non-current assets ......................................................................................................................108
Note 22
Investments and other financial assets ............................................................................................................................ 110
Note 23 Other non-current assets ........................................................................................................................................................ 111
Other liabilities ............................................................................................................................................................................................... 112
Note 24 Provisions .................................................................................................................................................................................... 112
Financial Risk Management ..................................................................................................................................................................... 115
Note 25 Financial risk management ................................................................................................................................................... 115
Note 26 Derivatives and hedging ........................................................................................................................................................ 124
Note 27 Fair value measurements ...................................................................................................................................................... 125
Unrecognised items .................................................................................................................................................................................... 126
Note 28 Commitments and contingencies ...................................................................................................................................... 126
Note 29 Corporate investigations ........................................................................................................................................................127
Note 30 Events after the balance date .............................................................................................................................................. 128
The Group, management and related parties .................................................................................................................................... 129
Note 31 Parent interests in subsidiaries .......................................................................................................................................... 129
Note 32 Related party disclosures ...................................................................................................................................................... 130
Note 33 Business combination ............................................................................................................................................................ 130
Note 34 KMP compensation .................................................................................................................................................................. 131
Note 35 Share based payments .......................................................................................................................................................... 132
Note 36 Parent entity information....................................................................................................................................................... 134
Austal Limited | Annual Report 2019 3
Company Overview
Austal celebrated 30 years of shipbuilding in August 2018 -
a significant milestone for a young but successful company
that has designed, constructed and continues to support the
world’s most impressive high speed craft. Orders have now
surpassed 330 vessels for more than 100 operators in 56
countries.
Austal has grown from a small business, building cray fishing
boats in Henderson, Western Australia in 1988 to become the
world’s largest aluminium shipbuilder and a leading defence
Prime contractor, delivering a diverse range of commercial
and naval ships from seven shipyards around the world.
Renowned for innovative, iconic vessel designs and
industry-leading technology, Austal has revolutionised
maritime transportation and security – and continues to set
new benchmarks for vessel capability and performance,
seakeeping and customer experience.
s
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H
9
1
0
2
$1.85B
Revenue
$4.9B
Order Book
11
New ships
ordered
58
Ships scheduled or
under construction
12
Ships
delivered
25
Vessels under
sustainment
4
Austal Limited | Annual Report 2019
7 shipyards
in 5 countries
6 Service Centres
5,700 Employees
Austal Limited | Annual Report 2019 5
Shipyards
M
O
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L
E
I
H
E
N
D
E
R
S
O
N
N
A
V
A
L
B
A
S
E
Only foreign
owned Prime
Contractor
designing, building
and sustaining
ships for the US
5th Largest
shipyard in the
USA
Largest industrial
employer in South
Alabama
4
2
Orders placed
for 4 x Littoral
Combat Ships and
2 x Expeditionary
Fast Transport
Ships
3
Australian
Shipyards
Austal Henderson South
is the latest addition to
Austal Australia’s ship
building facilities
118
Naval Architects,
Designers and
Draftspeople
25%
Female workforce target
12.5% of the workforce
are currently women
3
of 21 Guardian
Class
Patrol Boats
(GCPBs) Delivered
3
months
Pacific Patrol Boat
Replacement Program
Between each
GCPB delivery
Cairns service centre
expanded and now
sustaining GCPB Fleet
6
Austal Limited | Annual Report 2019
30 Years of Austal | Annual Report 2018
B
A
L
A
M
B
A
N
V
U
N
G
T
A
U
A
U
L
O
N
G
5
New Construction Bays
>900
Employees
Infrastructure upgrade
complete and officially
opened in July 2019
98%
Local Filipino
Awarded government
license to engage in
shipbuilding and ship repair
of naval combat vessels in
the Philippines
Shipyard officially
opened in October
2018
>300
Employees
97%
Local Vietnamese
Hull 397
94m vehicle/passenger
ferry for Trinidad and
Tobago currently under
construction
40%
Austal’s investment in
Joint Venture
7
Vessels under
construction in
FY2019
2
40 metre passenger
ferries delivered in
FY2019
Austal Limited | Annual Report 2019 7
30 Years of Austal | Annual Report 2018 9
Ships in build
e
c
n
e
f
e
D
Littoral Combat Ship (LCS)
US Navy
LCS 16 and 18 commissioned
LCS 18 and 20 delivered
LCS 22, 24, 26, 28 and 30 under
construction
Expeditionary Fast Transport (EPF)
US Navy
EPF 10 delivered
EPF 11 and 12 under construction
Guardian Class Patrol Boat (GCPB)
Commonwealth of Australia
GCPB 1 , 2 and 3 delivered
GCPB 4 launched
GCPB 5, 6, 7 and 8 under
construction
Austal Patrol 58
Trinidad and Tobago Coast Guard
Hull 398 and 399 under construction
USS Cincinnati (LCS 20) and USNS Burlington (EPF 10)
8
Austal Limited | Annual Report 2019
30 Years of Austal | Annual Report 2018
l
i
a
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r
e
m
m
o
C
300
SHIPS
30m Passenger Ferry
VS Grand Ferries Corporation
Hull 420 delivered
109m Passenger and Vehicle Ferry
Molslinjen
Hull 393 delivered
100
CUSTOMERS
54
COUNTRIES
50m Passenger Ferry
Braveline
Hull 680 delivered
Hull 681 delivered
40m Passenger Ferry
Blue Sea Jet
AL002 delivered
5 SHIPYARDS
42m Passenger Ferry
Xidao Dazhou Tourism Co Ltd
AL003 delivered
AL004, AL005 and AL006 under
construction
49m Passenger Ferry
SNC Aremiti
Hull 421 under construction
5,250 EMPLOYEES
109m Passenger and Vehicle Ferry
Fjord Line
Hull 419 under construction
117m Passenger and Vehicle Ferry
Fred Olsen S.A
Hull 394 under construction
Hull 395 under construction
83m Passenger Ferry
JR Kyushu Jet Ferry
Hull 396 under construction
94m Passenger and Vehicle Ferry
National Infrastructure
Development Company (NIDCO)
Hull 397 under construction
42m Passenger Ferry
Shenzhen Airport
AL007 under construction
81m Passenger Ferry
Beibi Gulf
AL008 under construction
Austal Limited | Annual Report 2019
9
30 Years of Austal | Annual Report 2018 11
Leadership in Vessel Design,
Flexibility in Vessel Construction
Austal has led the international market in high speed
aluminium ferries since the early 1990s and has developed
a range of sought after monohull, catamaran and trimaran
designs from 30 to 130 metres in length.
Building upon commercial vessel success, the company
diversified into aluminium naval vessels and is now the
only foreign owned prime contractor to be building defence
vessels for the United States Navy, including the Littoral
Combat Ship and Expeditionary Fast Transport.
Now, as we further strengthen our defence portfolio, Austal
is offering steel solutions for military applications to meet
growing export demand. In 2019 we commenced delivery
of Guardian Class Patrol Boats for the Commonwealth
of Australia’s Pacific Patrol Boat Replacement Project,
comprising 21 vessels for 12 Pacific Island nations and Timor
Leste.
Austal Hull 521 — the Guardian Class
Patrol Boat “HMPNGS Ted Diro”, delivered
to Papua New Guinea in November 2018
Construction of a steel-hulled Guardian Class Patrol Boat
at Austal’s Naval Base Production Facility
10
Austal Limited | Annual Report 2019
Innovation in
Maritime Technology
Austal is continuing to drive innovation and develop ‘smart ship’ technology to further improve vessel
performance, customer experience and operator returns. Our proprietary systems such as Motion
Control and MARINELINK Smart are evolving to include new features that are helping our customers to
achieve greater operating efficiencies while providing a more comfortable and enjoyable journey.
MARINELINK Smart provides live,
shore-based tracking of fleet
performance and asset health
MARINELINK Smart provides crews with
live advice helping to reduce fuel costs
and improving passenger comfort.
MARINELINK Smart is tailored to the
unique needs of High Speed Craft
Austal Limited | Annual Report 2019
11
30 Years of Austal
12
Austal Limited | Annual Report 2019
30 year anniversary birthday celebration event at Austal Henderson, 8 August 2018
Austal Limited | Annual Report 2019
13
Sustainment
One of Austal’s greatest assets and area of opportunity is in sustainment – ensuring the ongoing
availability and optimum capability of our customers’ ships. Austal is unique as an OEM in offering
sustainment and in-service support for vessels, throughout the world. Austal is well positioned to
expand support services to both commercial and defence customers, globally, from dedicated
service centres located in Australia, the USA, Philippines, Vietnam, Singapore and the Middle East.
U
S
A
A
U
S
T
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L
A
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A
I
$225m
Turnover support
contracts FY2019
14
Austal Limited | Annual Report 2019
$70m
Turnover support
contracts FY2019
Business Priorities in 2020
Expand footprint in USA through
participation in new USN programs
Drive Asian investment to enhance
competitiveness
Group wide cost efficiency
Build world’s best through major expansion
of R&D investment
Austal Limited | Annual Report 2019
15
Austal USA was born in December 1999, when less
than 100 employees started work at a 6-hectare yard
in Mobile, Alabama that had a single assembly bay
fronted by a wharf measuring 115 metres.
Since then, we have grown the shipyard into
arguably one of the world’s most advanced
manufacturing facilities. Austal USA now has
3,400 staff working at a 66-hectare facility, with
four final assembly bays, a 65,000 square metre
Module Manufacturing Facility, two office buildings,
an administration building housing the US Navy's
program support staff, and a drive-through
warehouse, all fronted by a combined wharf length
of 230 metres.
It is fitting that our FY2019 financial results reflect
the continued strong, major contribution from our
USA shipyard. Austal delivered record results across
the business, including Net Profit After Tax (NPAT)
of $61.384 million, 63.5% higher than the prior
corresponding period (pcp), and Earnings Before
Interest Tax Depreciation and Amortisation (EBITDA)
of $135.001 million, up 33.9% on the pcp. This is
the third time that EBITDA has exceeded the
$100 million mark in the Company’s history and the
second year in a row. These earnings were generated
off a record $1,852.074 million in revenue, with
79.5% of that revenue coming from Austal’s USA
shipyard. The Board is delighted with the Company’s
financial performance in FY2019, which reflected
the ongoing strong delivery of our significant order
book.
Notwithstanding the strength of our USA shipyard,
the particularly pleasing part of our financial results
was the substantial and growing contribution from
our commercial operations. We expanded
construction of our commercial ferry contracts in the
year, facilitated by a strong order book and the
investments made in our Australasia shipyards to
increase throughput. This included a trebling of
construction capacity at our Philippines shipyard
and the opening of leased shipyards in Vietnam and
Western Australia. These investments have provided
greater capacity and scalability for Austal whilst
ensuring prudent capital expenditure.
Chairman’s report
Financial Year Highlights
Reliable performance from the LCS and EPF
programs in the USA.
Expanded commercial shipbuilding operations
across Australasia and continued growth in
support work.
Largest ever workforce, with 5,700 committed
staff across the business.
Strong outlook underpinned by $4.9 billion
order book.
It is my pleasure to present the 2019 Annual Report
to shareholders on behalf of the Board of Austal
Limited.
Austal had its 30th birthday last year, and this year
the Company is approaching another major
milestone, celebrating 20 years of operations in the
United States of America.
16 Austal Limited | Chairman’s report
We also grew our workforce as we expanded capacity
in Australasia, which stood at 2,300 at the end of
FY2019. This dedicated team worked on seventeen
commercial ferries in the year, of which six were
delivered. The commercial vessels currently under
construction are expected to drive significant
revenue and earnings growth from Australasia in
FY2020. This includes three large 100+ metre
ferries, all of which are scheduled to be delivered in
the next 18 months. These large, high speed,
innovative catamaran and trimaran ferries set Austal
apart in the global landscape. The breadth and
quality of our commercial customers in Japan,
Taiwan, Korea, and Europe shows the strength of our
business, given that all of the regions have strong
shipbuilding industries of their own.
Austal finished FY2019 with a near-record
$4.9 billion order book, $2 billion higher than
12 months earlier and putting the Company in a
strong position for the future. Notably, we were
awarded six additional vessels from the US Navy in
the year – four Littoral Combat Ships (LCS) and two
Expeditionary Fast Transports (EPF). These contracts
secure work at our USA shipyard through to 2024,
with consistent and highly predictable production
providing us with reliable earnings visibility. Other
naval vessel works included early-stage construction
of two 58-metre Cape Class Patrol Boats vessels for
Trinidad and Tobago. We also progressed well with
the ongoing delivery of the 21-vessel Guardian Class
Patrol Boat (GCPB) program for the Commonwealth
of Australia, handing over the first three vessels in
FY2019 and generating increasing efficiencies as
the program matures at full rate production.
The ongoing support work we are performing is often
missed given our major vessel programs form such
a large part of Austal’s order book. One of our most
significant achievements in the year was being
selected as the prime contractor for dry docking of
LCS 14 to carry out support and sustainment work.
This was the first time that Austal has acted as
prime contractor for this type of work and points to
the potential of the support business in the USA.
This potential only increases in scale as more Austal
designed and built US Navy vessels are deployed
and operate for decades to come. It is why we have
made significant investments in this area and will
continue to do so.
We are also targeting the right strategic investments
now to ensure that Austal is best placed to win the
vessel programs of the future. Chief Executive
Officer (CEO) David Singleton goes into more detail
about the major opportunities we have right across
the business in his CEO Report. Austal has a proud
history of backing innovation in the past, which have
become the competitive strengths for the Company
today. Lightweight and high speed aluminium ships,
innovative trimaran and catamaran designs, and our
expansion into the USA and Asia are only a few
examples. With this as our base and a strong
financial capacity, we have clear initiatives in place
that have the potential to propel Austal further
forward for tomorrow. This is an exciting phase in
our development but of course one that does carry
risk.
Austal has maintained a stable Board that has a
strong mix of skills and experience, and I would like
to thank them for their support. In particular, this
year the Board has closely reviewed the Company’s
executive remuneration structures in light of
shareholder feedback. Led by Sarah Adam-Gedge as
the new Chair of the Nomination & Remuneration
Committee, we have completed significant
restructuring of our executive pay and incentive
schemes to strike the best possible balance between
meeting shareholders’ expectations, paying our
employees competitively, and responding
appropriately to the regulatory environment.
I encourage you to read the Remuneration report to
see the changes we have made and we welcome
feedback.
I would like to acknowledge the Austal executive
team, all of our support managers, and the
Company’s entire workforce spread across the globe
in seven separate shipyards and six service centres
for their hard work and dedication in making the
year such a great success. I look forward to what we
can achieve next year and beyond.
And finally, I would like to thank shareholders for
your ongoing support.
John Rothwell AO
Chairman
Austal Limited | Chairman’s report 17
Chief Executive Officer’s report
Importantly, we do not see this as a peak but as a
new normal for the business. We have greater
visibility and reliability of earnings in the medium
term than we have perhaps ever experienced.
Shipbuilding by its nature has an element of
cyclicality to it but we believe our predictability
has never been greater due to our $4.9 billion
order book, embedded position in US naval
shipbuilding, and strengthening long-term support
revenues as vessels are commissioned.
USA
Austal has always invested for the future and
there is no better example than in the USA, where
we are the only foreign prime contractor to build
major vessels for the US Navy. We have now
achieved a position where robust and consistent
performance, on-cost budgets, and on-time
delivery are expected. We believe that this
performance is known and appreciated by the
US Navy, which has continued to support what we
do as the only all-aluminium naval shipbuilder in
the USA. This is exemplified by the US Navy
awarding Austal six vessels in FY2019 – four
Littoral Combat Ships (LCS) and two
Expeditionary Fast Transports (EPF) – securing
work through to 2024.
Whilst the EPF catamarans have been deployed
extensively for some time we are now seeing a
broader engagement of our Independence Class
LCS trimarans in Asia, with recent visits to Davao,
Singapore, and Darwin, amongst others. It is good
to see our innovative vessels doing what they were
designed to do and building Austal’s international
reputation in the process.
Australasia
Shipbuilding in Australasia has also been
performing well. We delivered three GCPB on
time and to the exacting standards of the
Australian Defence Department under a
21-vessel, $341 million shipbuilding and
associated in-service support contract. We have
built a production line for the vessels in a facility
leased for the program that is enabling impressive
improvements in efficiency levels ship-by-ship.
At the same time our Henderson shipyard is full
and we have leased a new facility nearby to build
the 83-metre JR Kyushu ferry for Japan.
Performance has been impressive given the
workload.
Financial Year Highlights
Record company profitability and cash flow.
Growth in order book to a record level during
the year with award of four LCS and two EPF
orders and additional commercial ferry
contracts awarded in FY2019.
USA business running well and ahead of
plan.
Australasia expansion nearing completion
enabling significant sales and throughput
growth.
Austal has made a leap forward in FY2019 with
record financial results and $1.9 billion growth to
our order book after celebrating 30 years as a
company in CY2018. This feels like just reward
for the many years of development, with an array
of strategic initiatives coming together to deliver a
step change for the Company. Our strong
financial results were underpinned by impressive
performance on our naval shipbuilding contracts
in the USA and enhanced by a growing
contribution from commercial shipbuilding in
Australasia.
18 Austal Limited | Chief Executive Officer’s report
We have also made giant steps in Asia, a market
that we regard as core for the future with
significant growth opportunities as the travelling
public expands in the thousands of islands in the
region. I believe our decision to make a major
expansion in the Philippines has been both bold
and well timed, and decisive in our positioning.
The facilities we have established are some of the
best in the world for large commercial vessels and
will give us enormous competitive advantage in
speed and quality when fully optimised.
Equally, our new purpose-built, leased facility in
Vietnam has demonstrated that we can scale our
business without major upfront capital costs.
Within a year of starting in Vietnam, we ended the
year employing close to 300 people and building
a 94-metre catamaran. I believe that Vietnam will
become a key home for us.
Support
Austal has had a consistent strategy to expand
our support business across the globe, with the
Company now having a presence in San Diego,
Oman, Darwin, Cairns and Singapore, in addition
to our established shipyards. Support keeps us in
touch with our customers and our products, and
provides a long-term, stable income stream.
This is particularly important as an increasing
number of Austal designed and built vessels are
commissioned and deployed by the US Navy.
It has taken us some time and significant
investment to get the capability that we need,
which is quite different to ship construction, but
will be a valuable source of business in the
future.
Strategy and outlook
As I stated above, Austal is experiencing not only
profit growth but arguably the greatest visibility
and reliability of earnings in our 30-plus year
history. It is important that we use this as a
springboard to set the business up for its next
phase of growth, as we have done in the past.
In doing so we recognise that with shipbuilding,
such opportunity always comes with a level of
risk.
In the USA, the landscape for Austal has
developed significantly over the last few years,
with our performance on trimaran and catamaran
naval vessels opening up opportunities as they
evolve into the potential programs of the future.
The US Navy is in the process of transitioning the
small surface combatant program (currently LCS)
to a Fast Frigate (FFG) through a request for
tender.
We are one of four bidders being evaluated by the
US Navy over the next year and, if we are
successful, our USA business could grow
substantially.
The EPF vessel will in our opinion, continue to
evolve as a highly flexible platform capable of
performing multiple roles beyond what was
anticipated at its inception. The US Navy has
already indicated that the latest vessels are likely
to be hospital variants and we see the opportunity
for further applications. The US Navy’s growing
interest in unmanned vessels may also provide
significant opportunities for the vessel types that
we build and we are testing these technologies.
In Australasia, I believe our ability to scale
defence shipbuilding capability into new markets
has given us a novel way to think about serving
key customer areas. Asian countries aspire to
build vessels in their own country as they expand
their Navies, like in Australia and the USA.
We have a proven ability to provide a sovereign
shipbuilding option and will market this
increasingly in the future as opportunities arise.
It means a different approach – one that is not
solely focused in Australia but rather leverages
our deep skills in design and shipbuilding to meet
the needs of new markets.
Meanwhile, in commercial ferries, we have been
steadily increasing R&D investments to build on
our competitive advantage in designing and
constructing fast, lightweight ferries as the
world’s largest aluminium shipbuilder. We are
seeing the market change as new emission laws
require cleaner fuels such as LNG and electric
batteries. In addition, new digital technologies are
enabling us to do things we could not do in the
past with our ferry designs. It is critical Austal
continues to invest in this field so we can capture
new markets and opportunities.
Our ability to deliver strong profitability has
provided Austal with the balance sheet strength to
make investments across the business that will
drive the Company’s next phase of growth.
For example, if we are successful with the US
Navy’s new frigate program, Austal has the
financial capacity behind us to expand the
Company’s USA facilities accordingly. We will
also use this capacity to further broaden our core
in support activities, given its ongoing potential
as a source of substantial revenue growth.
David Singleton
Managing Director and Chief Executive Officer
Austal Limited | Chief Executive Officer’s report 19
Review of operations
Group financial results
2019
’000
1
Restated
2018
’000
Total revenue
$
1,852,074
$
1,390,455
135,001
100,797
92,795
63,489
EBITDA 2
EBIT 3
NPAT 4
Net cash (excluding the notional accounting
treatment of the CCPB 9 & 10 leasing program)
was $150.709 million at 30 June 2019
(30 June 2018: $33.880 million).
Total dividends of 6.0 cents per share
(unfranked) were declared in respect of FY2019,
representing a 34.2% payout ratio
(FY2018: 2.0 cents per share fully franked and
3.0 cents per share unfranked).
61,384
37,533
People & Safety
Safety is and must remain an important value for
everyone at Austal. To this end, we continue to
develop our ‘Zero Harm' approach to health and
safety, underscoring Austal’s commitment to
customers, employees, regulators and the
communities in which it operates.
Austal USA was awarded its 8th Safety Award from
the Shipbuilders Council of America for Excellence in
Safety in April 2019. Austal USA also saw a year on
year reduction of recordable injuries by over 15%,
resulting in 5 consecutive years of year over year
improvement.
Austal USA's safety performance continues to lead the
industry and our current incident rate is less than half
of the industry average.
Goal Zero is an ongoing initiative at Austal designed to
reinforce our Health, Safety, Environment & Quality
(HSEQ) culture. This HSEQ program calls on all
employees to strive for zero injuries, illnesses,
incidents, and deaths on the job. We strive for
“Goal Zero - Zero Harm, Zero Waste” from the way
that we operate, to the products we develop and the
way in which we partner with our customers.
Our HSEQ department communicates key topics
regularly to reinforce this important program —
including workplace hazards, processes, and personal
safety — to our workforce. These messages are
designed to keep employees engaged and focused on
working safely. Daily pre-start meetings, monthly
HSEQ Toolbox sessions, nationally accredited training,
and ongoing education and awareness briefings
reinforce this hands-on, data-driven approach to
managing safety risks and driving continuous
improvement.
Earnings per share ($ per share)
$
0.176
$
0.108
Dividends per share ($ per share)
$
0.060
$
0.050
EBIT margin
Net assets
5.0%
4.6%
$
630,783
$
545,578
Net cash / (debt)
101,911
(23,254)
Net cash flow
105,455
9,750
1.
2.
Financial results for the prior corresponding period have been
restated in accordance with AASB 15. Further information is
provided in Note 2.
Earnings before interest, tax, depreciation and amortisation
(EBITDA).
Earnings before interest and tax (EBIT).
3.
4. Net Profit / (loss) after tax (NPAT).
EBIT and EBITDA are non-IFRS measures.
The information is unaudited but is extracted from the audited accounts.
EBIT is used to understand segment performance and EBITDA is used by
management to understand cash flows within the Group.
Total revenue for the year increased by 33.2% to
$1,852.074 million in FY2019.
FY2019 earnings before interest and tax (EBIT)
increased by 46.2% to $92.795 million
compared to $63.489 million in FY2018.
Austal reported a net profit after tax (NPAT) of
$61.384 million in FY2019 compared to
$37.533 million in FY2018.
The Group delivered operating cash flow of
$164.517 million, up by 250.5% on FY2018,
and FY2019 net cash flow of $105.455 million
up by 1081.6% on FY2018.
Austal has maintained a strong cash balance of
$275.665 million at 30 June 2019
demonstrating the ongoing cash generating
strength of the business
(30 June 2018: $162.024 million).
20 Austal Limited | Review of operations
Group Safety performance indicators as shown below
have improved over the course of this year, with trends
improving - FY2019 Lost Time Injury Frequency Rate
at 2.03 injuries per million hours worked compared to
our FY2018 result of 3.62.
21.7
19.7
17.8
16.0
14.3
14.1 14.2
10.7 10.4
9.5
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Medical Treatment Injury Frequency Rate
(Injuries per million hours worked)
3.92 3.90
3.62
3.11
2.20 2.30 2.30
2.10
1.75
2.03
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Lost Time Injury Frequency Rate
(Injuries per million hours worked)
Further details on Health, Safety and Environmental
initiatives at Austal can be found in Austal’s
Environmental, Social and Governance Report.
New contract awards
Austal received $3.354 billion of new contract awards
during the period to increase the order book to
$4.885 billion at 30 June 2019.
USA
Austal was awarded contracts in FY2019 to build
LCS 32, 34, 36 and 38 within a total
congressional cost cap of US$2.3 billion.
Austal has delivered ten LCS and has a forward
order book of a further nine ships. The total value
of the LCS order book was ~US$2.5 billion at
30 June 2019.
Two contracts totalling US$360 million were
awarded for the construction of EPF 13 and 14
which have added additional backlog to the
remaining EPF currently under construction in
the USA. The total value of the EPF order book
was US$419 million at 30 June 2019.
Austal was awarded two LCS service contracts
totalling US$31 million, for engineering and
management services of LCS 16 USS Tulsa and
LCS 18 USS Charleston. These contracts are to
support work specification development,
prefabrication effort and materials procurement
for post-shakedown maintenance availabilities
which occurs after each vessel delivery.
A US$21 million support activities contract was
awarded to undertake a dry-docking of
LCS 14 USS Manchester. This award was
particularly significant because it marked the
first time that Austal has acted as the prime
contractor for the docking of an LCS.
A further large service contract orders totalling
US$16 million were awarded for extended
industrial post-delivery availability on LCS 20
USS Cincinnati.
Australasia
A $98 million contract was awarded for a
94 metre catamaran ferry for the Government of
the Republic of Trinidad and Tobago being built
in Austal’s new shipyard in Vung Tau, Vietnam.
A $126 million contract to purchase two
58 metre Cape Class Patrol Boats was awarded
to enhance border protection capabilities from
the Government of the Republic of Trinidad and
Tobago.
Four high speed vessels were awarded to the
Aulong joint venture for Shenzhen airport, Beibi
Gulf, Shenzhen Pengxing and Blue Sea Jet for a
combined value of $58 million.
A financial breakdown for each segment 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 performance across the operating
segments.
US operations
Segment financial performance
Revenue
EBIT
EBIT Margin
2019
$’000
Restated 1
2018
$’000
$
1,472,679
$
1,161,102
106,422
7.2%
81,455
7.0%
1.
Financial results for the prior corresponding period have been
restated in accordance with AASB 15. Further information is
provided in Note 2.
Austal Limited | Review of operations 21
Australasia operations
Reporting of Austal’s Australia, Philippines, Vietnam,
Aulong Joint Venture and Muscat operations have
been combined into a single Australasia operations
reporting segment.
These locations act as a single business unit for
tendering, scheduling, resource planning and
management accountability.
Segment financial performance
Revenue
EBIT
EBIT Margin
2019
$’000
2018
$’000
$
393,155
$
237,845
11,673
3.0%
(8,458)
N/A
The Australasia segment reported revenue of
$393.155 million (FY2018: $237.845 million), and
EBIT of $11.673 million
(FY2018 EBIT loss: $(8.458) million).
Revenue and earnings in FY2019 were higher than
the prior corresponding period, principally due to:
Increased shipbuilding capacity to four large
100+ metre ferries through the expansion of Asia
facilities.
High level of production activity and throughput
across all of the Australasian shipbuilding
operations.
Delivery of three Guardian Class Patrol Boats
(GCPB) within the $341 million 21-ship
program.
Launch and sea trials of the $108 million,
109 metre Molslinjen vehicle passenger ferry
delivered in January 2019.
Completion and delivery of additional five high
speed passenger ferries from the Philippines and
People’s Republic of China.
USA revenue increased by $311.577 million (26.8%)
compared to FY2018 to deliver $1,472.679 million in
FY2019.
EBIT also increased by $24.967 million (30.7%) on
FY2018 to $106.422 million representing further
year on year improvement in profitability.
Revenue and earnings in FY2019 were higher than
the prior corresponding period, principally due to:
Increased throughput on the EPF and LCS
programs.
Higher support earnings due to the award of new
contracts that increased throughput.
A weaker average USD / AUD exchange rate
positively impacted the translation of USD
earnings into AUD by $6.623 million.
Vessel construction & deliveries
The USA operations had ten vessels under
construction during the year and delivered three of
those vessels to the United States Navy (USN) in
FY2019; LCS 18 USS Charleston in September 2018,
EPF 10 USNS Burlington in November 2018 and
LCS 20 USS Cincinnati in June 2019.
Construction and assembly of LCS 22, 24, 26, 28
and 30 was progressed. Long lead time materials were
ordered for LCS 32, 34, 36 and 38.
EPF 11 and 12 were in construction during FY2019
and long lead time materials were ordered for the
newly awarded EPF 13 and EPF 14.
Sustainment
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.
Sustainment revenue increased by $90.040 million
(66.9%) compared to FY2018 to $224.625 million in
FY2019.
EBIT increased by $7.652 million (88.3%) on
FY2018 to contribute $16.322 million.
Future US defense programs
Austal is demonstrating the versatility and adaptability
of the LCS to meet the Fast Frigate FFG design
requirements specified by the US Navy with a highly
capable and affordable platform.
The FFG acquisition plan indicates a requirement for
1 initial vessel then 2 vessels per annum thereafter up
to a total of 20 vessels. Austal USA is currently
preparing a response to the US Navy’s Request for
Proposal which is due for submission in CY2019 and
Contract Award scheduled for late CY2020.
22 Austal Limited | Review of operations
Facilities expansion
Vessel construction
Recent investments made in the Company’s
Australasia shipyards underpinned growth in
shipbuilding throughput. These investments include:
Expanding the Philippines assembly hall to
120 metres long, 40 metres wide and 42 metres
high.
Austal Vietnam’s shipyard relocated to a purpose
built leased facility capable of building
100+ metre ferries.
An additional leased facility in Henderson,
Western Australia for the construction of an
83 metre trimaran vessel for JR Kyushu of Japan.
The facilities expansion fundamentally changes the
business because two large ferries can now be built
simultaneously in Asia.
The shipyards in Australia, Philippines and Vietnam
now form a ‘shipbuilding system’ that allows the
optimisation of work flow, risk and profitability.
The expansion also provides potential for the creation
of new home markets as customers prefer to purchase
locally but to international quality standards.
Austal invested $22.880 million in FY2019 and
estimates an additional $5.595 million to complete
the expansion in FY2020.
Vessel deliveries
Seven vessels were delivered from Australasia during
the year:
A 30 metre high speed catamaran for VS Grand
Ferries of the Philippines in September 2018.
Three GCPB for the Commonwealth of Australia
in November 2018, April 2019 and June 2019.
A 109 metre vehicle passenger ferry for
Molslinjen of Denmark in January 2019.
Two 50 metre high speed catamarans for
Braveline of Taiwan in March 2019 and
April 2019.
Two vessels were delivered during the year to
Blue Sea Jet from Austal’s China joint venture,
Aulong located in Guandong Province, in the
People’s Republic of China.
Significant progress was made on the vessels currently
under construction:
Two 117 metre Fred Olsen trimaran ferries,
$190 million contract (awarded in
October 2017).
The 109 metre $108 million Fjord Line ferry
(awarded in August 2017).
The 94 metre $98 million ferry for Trinidad and
Tobago (awarded in December 2018).
The 83 metre $68 million trimaran ferry for
JR Kyushu of Japan (awarded in March 2018).
The 49 metre ferry for SNC Aremiti, $30 million
contract (awarded in December 2017).
Five vessels currently under construction in the
Aulong Joint Venture.
Sustainment
Sustainment activity in FY2019 included the
continuation of servicing and support for the
Cape Class Patrol Boat (CCPB) fleet 1 to 8, operated
by the Australian Border Force throughout Northern
Australia, plus a sustainment contract worth up to
$18 million over three years for CCPB 9 & 10,
Cape Fourcroy and Cape Inscription being operated by
the Royal Australian Navy.
Innovating for the future
Austal continues to see opportunities to innovate its
product and services to meet the future needs of its
customers. The business has been built on a great
history of innovation, through its class leading hull
designs, construction techniques and technology
integration.
Three of the current vessels being constructed for
customers are large trimaran designs. Austal is the
only company that currently designs and builds high
speed trimaran ferries. This is testament to the hard
work and dedication of the Austal teams in conceiving
and bringing these incredible products to life.
Austal continues to prioritise and focus on innovation
in hull designs, energy efficiency and smart
technology.
Austal Limited | Review of operations 23
Directors’ report
The Board of Directors of Austal Limited submit their report for the year ended 30 June 2019.
Directors
The names and details of the Company’s Directors in office at the date of this report are detailed below:
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 1999.
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 in 2008 to continue as Non-Executive Chairman after managing the
Company for 20 years.
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, 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.
24 Austal Limited | Directors’ report
SHAREHOLDER INFORMATION
Giles Everist – Independent Non-Executive Director
Giles has a breadth of board and executive experience gained over his 30 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 of the Company in November 2013 and
Audit & Risk Committee Chair in November 2015. Giles holds a mechanical engineering
degree and is a qualified chartered accountant. Giles is currently a Non-Executive Director
of Norwood Systems and Chief Financial Officer of Macmahon Holdings Limited. 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.
Sarah Adam-Gedge – Independent Non-Executive Director
Sarah was appointed as a Non-Executive Director of the Company in August 2017.
Sarah brings a strong consulting, enterprise technology, and digital background to Austal
through her experience in executive roles in the information technology and consulting
sectors. She is currently the Managing Director for Publicis Sapient Australia, which is the
digital business transformation hub of the Publicis Groupe. Previously, she has been the
Managing Director of Avanade Australia, Managing Partner and Vice President, Global
Business Services at IBM and has also previously held senior executive roles at PwC and
Arthur Andersen, leading the development and implementation of numerous digital
enterprise transformation engagements across different geographies, and industries.
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, is a member of the Diversity Council for the Australian Computer Society, and on the Finance,
Audit and Risk Committee of Ovarian Cancer Australia.
Chris Indermaur – Independent Non-Executive Director
Chris was appointed as a Non-Executive Director of the Company in October 2018.
Chris has over 30 years of experience in large Australian companies in Engineering and
Commercial roles. Amongst these roles he was the Engineering and Contracts Manager for
the QNI Nickel Refinery at Yabulu, Company Secretary for QAL and General Manager for
Strategy and Development at Alinta Limited.
Chris holds a Bachelor of Engineering (Mechanical) and a Graduate Diploma of Engineering
(Chemical) from the West Australian Institute of Technology (now Curtin University).
He also holds a Bachelor of Laws and a Master of Laws from the Queensland University of
Technology and a Graduate Diploma in Legal Practice from the Australian National
University.
Chris is also a Director of Austin Engineering Limited and of Centrex Metals Limited.
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
Mr John Rothwell
Mr David Singleton
Mr Giles Everist
Mrs Sarah Adam-Gedge
Mr Chris Indermaur
32,307,692
-
-
28,600
10,000
10,000
-
1,819,769
1,088,932
20,441
20,441
6,857
-
-
-
Principal activities
The principal activities of the companies within the consolidated entity during the year were the design,
manufacture and support of high performance vessels for commercial and defence customers worldwide.
These activities are unchanged from the previous year.
Results
The net profit after tax of the consolidated entity for the financial year was $61.384 million.
(FY2018: $37.533 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 2019
The closing share price of Austal at 30 June 2019 was $3.41 (30 June 2018: $1.86).
Dividends
A dividend of 3.0 cents per share was paid after the FY2019 H1 results (FY2018 H1: 2.0 cents per share) and a
further dividend of 3.0 cents per share has been proposed for FY2019 (FY2018 final: 3.0 cents per share).
Significant events after the balance date
The Directors have declared an unfranked dividend of 3.0 cents per share in respect of the year ended
30 June 2019 as described above.
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 | Directors’ report
SHAREHOLDER INFORMATION
Significant changes in the state of the affairs
There were no significant changes to the 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 2019.
Share rights, share options and performance rights
There were 5,020,315 un-vested performance rights at 30 June 2019. There were 1,374,196 ordinary shares
issued under options exercised during the year. There were 159,095 share rights granted as part of the CEO
remuneration and 31,891 share rights granted as part of the Non-Executive Directors’ remuneration during
FY2019. Further information relating to the options exercised is provided in Note 35.
Indemnification and insurance of Directors and Officers
An indemnification agreement has been entered into between the parent entity and each of the Directors and
Officers 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
Mr Giles Everist 1 - Chairman
Mrs Sarah Adam-Gedge 1 - Chair from September 2018
Mrs Sarah Adam-Gedge
Mr Chris Indermaur 2
Mr Jim McDowell 3
Mr John Rothwell
Mr Giles Everist
Mr Jim McDowell 3 - Chairman until August 2018
1. Designates the Chair of the committee.
2. Appointed on 19 October 2018.
3. Resigned on 31 August 2018.
Austal Limited | Directors’ report 27
Directors’ meetings
The number of Board and committee meetings of Directors and the attendance by each Director during the year was
as follows:
Meeting
Audit & Risk
Committee
Nomination &
Remuneration
Committee
4
-
4 1
4
4
3
1
7
7
7 1
7
7
5 1
-
Board
6
6
6
6
6
5
1
Number of meetings held
Number of meetings attended:
Mr John Rothwell
Mr David Singleton
Mr Giles Everist
Mrs Sarah Adam-Gedge
Mr Chris Indermaur 2
Mr Jim McDowell 3
1. Attended as a guest.
2. Mr Chris Indermaur was appointed as a Non-Executive Director on 19 October 2018.
3. Mr Jim McDowell resigned as a Non-Executive Director (and from all subcommittees) on 31 August 2018.
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 | Directors’ report
SHAREHOLDER INFORMATION
Nomination & Remuneration Committee Chair’s
message
Dear Shareholders,
The Board of Directors is pleased to present the Remuneration Report for FY2019, outlining the nature and amount
of remuneration for Austal’s Non-Executive Directors and other Key Management Personnel (KMP).
I commenced the role of Chair of the Nomination and Remuneration Committee (NRC) in September 2018.
Around this time, we received feedback from shareholders indicating a desire for change regarding certain elements
of remuneration and ultimately a strike was recorded against Austal’s FY2018 Remuneration Report.
As a result of these events, the Board decided to take the opportunity to undertake a comprehensive review of
remuneration policies, practices and disclosures in the interests of all stakeholders. This review commenced in
October 2018 and included advice from Austal’s independent remuneration consultants, consultation with
shareholders, management and other stakeholders. This process took over 6 months to complete, and has resulted
in significant changes to all aspects of executive KMP remuneration. The Board decided to take immediate action
and as a result, many of these changes have been implemented during FY2019 and are detailed in this
Remuneration Report, with the balance of changes being implemented in FY2020 where immediate change was not
possible or practical.
The scope of the review included executive and NED remuneration benchmarking, review of STI and LTI plans,
metrics and vesting scales and associated policies, the alignment of Company’s remuneration practices to
shareholders’ interests, as well as taking account of best-practices evident in the market.
In summary, the major changes are:
Reduction in Total Remuneration (TR) for executive KMP. For the CEO this resulted in a reduction of the TR
opportunity from 300% of Total Fixed Remuneration (TFR) to 270% of TFR.
50% of STI awards are now settled with equity, which is deferred over 3 years. STI awards were previously
100% cash. STI Stretch awards have been reduced from 100% to 50% over Target. In addition, a minimum
of 50% of STI metrics will be financial, and we have improved the transparency of the metrics and their
measurement in this Report. Certain elements of the STI changes have not been implemented for US KMP
because remuneration practices and regulations are different in the USA.
LTI metrics have been changed from rTSR (Relative Total Shareholder Return) and ROIC (Return on Invested
Capital), to three new metrics being iTSR (Indexed TSR), EPS (Earnings per Share) Growth, and ROE (Return
on Equity), with each metric constituting 1/3 weighting. These metrics ensure alignment with shareholders’
interest, are more specific to Austal’s industry (in relation to iTSR), and their measurement is more
transparent. The Board discretion for retesting has also been removed.
A list of the material shareholder concerns and actions by the NRC is summarised on the next page and additional
disclosures have also been included to provide shareholders with a greater understanding of FY2019 remuneration.
The Board is satisfied that the outcomes for remuneration in relation to FY2019 demonstrates an appropriate link
between performance and reward in respect of the executive KMP of the Company given the results for FY2019.
The Board will consider what further improvements to remuneration governance, policies, procedures and practices
should be made over the course of FY2020 and likely into FY2021, implement them, provide updates and respond
to feedback in future Remuneration Reports.
The Board will be pleased to receive feedback in relation to this report, and commit to engaging with shareholders
and their representatives on these matters. We look forward to your comments and support for remuneration related
resolutions at the upcoming AGM.
Yours sincerely,
Sarah Adam-Gedge
Chair, Nomination & Remuneration Committee
Austal Limited | Nomination & Remuneration Committee Chair’s message 29
Material shareholder concerns and NRC responses
Overall Remuneration
Concern
Action in FY2019
CEO award opportunities are too high.
Proportion of cash to CEO.
No minimum equity holding required.
Total CEO remuneration opportunity at the stretch level has been reduced from
300% of Total Fixed Remuneration (TFR) to 270% of TFR.
Cash: equity ratio at target has been changed from 75% / 25% to 50% / 50%.
The CEO has been required to accumulate and then maintain equity holdings with
value equivalent to 1 year of TFR since his appointment in FY2016. The CEO’s
equity holding was equivalent to 571% of TFR at 30 June 2019.
The CFO has been required to accumulate and then maintain equity holdings with
value equivalent to ½ a year of TFR since FY2018. The CFO’s equity holding was
equivalent to 222% of TFR at 30 June 2019.
All Non-Executive Directors (NED) have been required to accumulate and then
maintain equity holdings with value equivalent to 1 year of Board fees since
FY2018.
CEO’s FY2018 TFR increase was excessive.
Statutory remuneration tables in the FY2018 disclosed an apparent increase in TFR
that was higher than the actual increase due to movements in the leave accrual.
The CEO’s TFR was actually only increased by the CPI index of 2.1%.
A realised remuneration table has been added to the FY2019 Remuneration Report
to improve disclosure of concepts that may be opaque in the accounting disclosures.
FY2019 TFR increase was 1.9% and TFR has been frozen for FY2020.
Short Term incentives (STI)
Concern
Action in FY2019
100% of STI was paid in cash, some STI
should be equity.
No profit gate for STI payout.
Exposure to financial KPI should be at least
50% to increase alignment with
shareholders.
No visibility of KPI targets and actuals.
Non-financial growth and efficiency KPI
should be simple.
Long Term Incentives (LTI)
STI award for Australian based KMP changed to 50% cash and 50% equity and the
equity component is subject to a 3 year holding lock.
An EBIT gate set at 85% of Budget has been established.
Financial KPI weight increased to 60% for FY2019 with a policy that the minimum
weight will be 50%.
KPI targets and results are now disclosed.
Non-financial measures are more specific.
Concern
Action in FY2019
Austal Total Shareholder Return (TSR) is
susceptible to a free carry on market
movements.
Modified TSR metric for the FY2019 LTI plan to be Austal’s premium above the
market index (i.e. Indexed TSR).
All Ordinaries TSR is too broad.
No positive TSR gate for award.
Board has discretion to re-test.
Adopted the ASX 300 Industrials index for the TSR calculation.
Added a positive TSR gate for TSR component.
Re-testing and extension of measurement period has been removed.
30 Austal Limited | Nomination & Remuneration Committee Chair’s message
SHAREHOLDER INFORMATION
Remuneration report [audited]
This Remuneration Report for the year ended 30 June 2019 outlines the remuneration arrangements of the
Company 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.
1.
2.
Key management personnel in FY2019 ....................................................................................................................................... 32
Executive KMP remuneration in FY2019 ..................................................................................................................................... 33
3.
Non-Executive Director remuneration ......................................................................................................................................... 41
4.
Remuneration governance framework ....................................................................................................................................... 43
5.
Executive KMP remuneration policy ............................................................................................................................................ 45
6.
Equity instruments held by KMP .................................................................................................................................................... 52
7.
Other related matters ........................................................................................................................................................................ 57
Austal Limited | Remuneration report [audited] 31
1.
Key management personnel in FY2019
This report covers all Key Management Personnel (KMP) as defined in the Accounting Standards, including
all Directors, as well as those Senior Executives who have specific responsibility for planning, directing, and
controlling material activities of the Group.
The KMP for the year ended 30 June 2019 were:
Senior Executives
Mr David Singleton
Chief Executive Officer and Managing Director since April 2016
Independent Non-Executive Director from December 2011 to April 2016
Mr Greg Jason
Group Chief Financial Officer since January 2013
Mr Craig Perciavalle
President USA since November 2012
Mr Patrick Gregg
Chief Operating Officer Australasia since February 2017
Non-Executive Directors
Mr John Rothwell
Chairman since 1998
Member of the Nomination & Remuneration Committee since December 1998
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
Chair of the Nomination & Remuneration Committee since September 2018
Mr Chris Indermaur
Independent Non-Executive Director since October 2018
Member of the Audit & Risk Committee since October 2018
Persons ceasing to be Non-Executive Directors during the period:
Mr Jim McDowell
Independent Non-Executive Director ceased 31 August 2018
Chairman of the Nomination & Remuneration Committee ceased 31 August 2018
32 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
2.
Executive KMP remuneration in FY2019
I.
FY2019 Award opportunities
i.
Target remuneration
The table below depicts the Target remuneration for KMP in FY2019 including:
The Total Fixed Remuneration,
STI award opportunity if Target STI KPI results are achieved,
LTI award opportunity if Target LTI results are achieved.
Target awards are applied to Total Fixed Remuneration.
KMP
TFR
STI Opportunity
LTI Opportunity
Total
Target
$
Target
$
Mr David Singleton
$
1,103,046
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
567,878
927,939
483,000
60%
40%
30%
40%
$
661,828
227,151
278,382
193,200
40%
35%
35%
35%
$
441,218
$
2,206,092
198,757
324,779
169,050
993,787
1,531,099
845,250
% of Total
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
50%
57%
61%
57%
30%
23%
18%
23%
20%
20%
21%
20%
100%
100%
100%
100%
ii.
Stretch (Maximum) remuneration in FY2019
The table below depicts the Stretch (Maximum) remuneration for KMP in FY2019 including:
The Total Fixed Remuneration
STI award opportunity if Stretch STI KPI results are achieved
LTI award opportunity if Stretch LTI results are achieved
Stretch awards are applied to Total Fixed Remuneration.
KMP
TFR
STI Opportunity
LTI Opportunity
Total
Stretch
$
Stretch
$
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
$
1,103,046
567,878
927,939
483,000
90%
60%
60%
60%
$
992,741
340,727
556,763
289,800
80%
70%
70%
70%
$
882,437
397,515
649,557
338,100
$
2,978,224
1,306,119
2,134,260
1,110,900
% of Total
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
37%
43%
43%
43%
33%
27%
27%
27%
30%
30%
30%
30%
100%
100%
100%
100%
Austal Limited | Remuneration report [audited] 33
II.
CEO remuneration
This chart depicts the Minimum, Target and Maximum remuneration opportunity that was available to
the CEO as well as the realised remuneration and the breakdown between fixed and variable
remuneration (STI & LTI).
The concept of realised remuneration is described in section V on page 38 below.
A comparison of the two charts depicts the reduction in total award opportunities at Stretch from
300% of Total Fixed Remuneration (TFR) in FY2018 to 270% in FY2019.
FY2019 CEO Remuneration
Legend
Fixed
STI
LTI
Realised
35%
24%
41%
$3,157,360
Refer below
Minimum
100%
$1,103,046
Target
Stretch (Maximum)
50%
37%
30%
20%
$2,206,092
33%
30%
$2,978,224
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
FY2018 CEO Remuneration
Legend
Fixed
STI
LTI
Realised
54%
46%
$2,003,555
Minimum
100%
$1,091,151
Target
Stretch (Maximum)
50%
33%
25%
25%
$2,182,303
33%
33%
$3,273,453
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
The FY2019 Realised Remuneration exceeds the FY2019 Stretch Remuneration for the following
reasons:
The FY2019 Stretch Remuneration was calculated using the FY2019 LTI award opportunity
which was 80% of TFR as depicted on page 33 whereas the FY2017 LTI Grant was issued
based on the FY2017 LTI award opportunity which was 100% of TFR as depicted in the table
on page 30 of the FY2017 Annual Report.
Mr David Singleton assumed the role of CEO on 4 April 2016, and so the FY2017 LTI grant
was based upon approximately 15 months of service rather than 12 months of service to
account for the FY2016 service period.
The FY2019 Realised Remuneration would have been $2,898,697 if the portion of the
FY2017 LTI grant relating to the FY2016 service period was excluded.
34 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
III.
STI KPI targets and results
The following KPI were selected because they were the most significant matters for each of the KMP
that were expected to contribute to the success of the Company during FY2019, given the business
plans approved by the Board at the commencement of the financial year.
Chief Executive Officer - Mr David Singleton
Measures
Weight
Below Stretch
Award
Threshold Target
Stretch
Actual
Actual Performance
Targets
Group EBIT
Group Free Cashflow
Australasia EBIT margin
Group Order Intake
Business Development
Overhead Cost Reduction
Total
30%
10%
20%
10%
20%
10%
100%
Chief Financial Officer - Mr Greg Jason
$ 75 m $ 81 m $ 90 m $ 93 m
$ 49 m $ 53 m $ 59 m $ 120 m
3.0%
3.5%
5.0%
2.9%
Further detail is provided below
Further detail is provided below
Further detail is provided below
100%
100%
-
84%
67%
100%
72%
Measures
Weight
Below Stretch
Award
Threshold Target
Stretch
Actual
Actual Performance
Targets
Group EBIT
Group Free Cashflow
Australasia EBIT margin
Group Order Intake
Individual Targets
Total
30%
10%
20%
10%
30%
100%
President USA - Mr Craig Perciavalle
$ 75 m $ 81 m $ 90 m $ 93 m
$ 49 m $ 53 m $ 59 m $ 120 m
3.0%
3.5%
5.0%
2.9%
Further detail is provided below
Further detail is provided below
100%
100%
-
84%
80%
72%
Measures
Weight
Below Stretch
Award
Threshold Target
Stretch
Actual
Actual Performance
Targets
USA EBIT (USD)
USA Free Cashflow (USD)
Sustainment Revenue (USD)
Sustainment Growth
Productivity
USA Order Intake
New Vessel Programs
Total
30%
20%
10%
5%
15%
10%
10%
100%
$ 57 m $ 60 m $ 66 m $ 76 m
$ 8 m $ 16 m $ 23 m $ 24 m
$ 78 m $ 87 m $ 95 m $ 160 m
Further detail is provided below
Further detail is provided below
Further detail is provided below
Further detail is provided below
100%
100%
100%
-
100%
100%
100%
95%
Chief Operating Officer - Australasia - Mr Patrick Gregg
Measures
Weight
Below Stretch
Award
Threshold Target
Stretch
Actual
Actual Performance
Targets
Australasia EBIT margin
Australasia Free Cashflow
Group Order Intake
Individual Targets
Total
25%
15%
20%
40%
100%
-
3.0%
3.5%
5.0%
2.9%
100%
$ (20) m $ (6) m $ 10 m $ 115 m
Further detail is provided below
Further detail is provided below
84%
95%
70%
Austal Limited | Remuneration report [audited] 35
Chief Executive Officer - Mr David Singleton
Growth & Order Intake KPI (84% Award)
Award of LCS 32, LCS 34 and EPF 13.
Award of two $100 m ferry (margins commercial in confidence).
Award of $30 m of passenger ferries (margins commercial in confidence).
Philippines facility expansion completed on schedule.
Business Development KPI (67% Award)
Win LCS Planning Yard contract.
Implementation of USA dry dock strategy.
Overhead Cost Reduction KPI (100% Award)
Corporate & Australasia overhead reduction program.
Chief Financial Officer - Mr Greg Jason
Growth & Order Intake KPI (84% Award)
As per the CEO.
Major Personal KPI (80% Award)
Deliver significant progress to resolve the ATO Royalties dispute.
Complete re-financing of 50% of Go Zone Debt.
Major capital projects appropriately funded as required.
Implementation of cyber security program initiatives.
Complete scoping study to select new Enterprise Resource Planning system.
President USA - Mr Craig Perciavalle
Sustainment Growth (0% Award)
LCS Planning Yard Contract Awarded to Austal.
Productivity (100% Award)
LCS & EPF cost & productivity performance - (commercial in confidence).
USA Order Intake (100% Award)
Award of LCS 32, 34, 36 & 38 and EPF 13 & 14.
New Vessel Program Development (100% Award)
Positioning for FFG Program.
Design development of next generation EPF.
Chief Operating Officer - Australasia - Mr Patrick Gregg
Growth & Order Intake KPI (84% Award)
As per the CEO.
Major Personal KPI (95% Award)
Australasia cost & productivity performance - (commercial in confidence).
Deliver Australasia vessel programs to schedule.
Expand Philippines shipbuilding operations.
Establish Vietnam shipbuilding operations.
Establish Strategic Purchasing function.
Aulong Joint Venture self sustaining.
36 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
IV.
FY2017 LTI plan vesting in FY2019
i.
Performance rights grant
1,859,629 performance rights were granted to KMP in FY2017, who were still employed by
Austal at 30 June 2019.
ii.
Measurement periods
100% of the performance rights granted in FY2017 had a 3 year measurement period from
1 July 2016 – 30 June 2019.
iii.
FY2017 LTI Vesting performance
The Return on Invested Capital (ROIC) and Indexed Total Shareholder Return (iTSR)
performance criteria relating to the FY2017 grant of performance rights to KMP are detailed
below. The actual vesting performance is indicated by the red dot. iTSR is calculated by
dividing Austal TSR by Market TSR (XAOA All Ordinary Total Return Index). ROIC is calculated
by dividing Net Operating Profit after Tax (NOPAT) by Invested Capital.
Indexed TSR
Award
Actual
100%
Stretch
Award
100%
75%
50%
Target
Threshold
25%
0%
Award
100%
75%
50%
25%
0%
ROIC
Award
Actual
100%
Stretch
Target
Threshold
0% 100% 200% 300% 400% 500%
0%
2%
4%
6%
8%
10%
Indexed TSR
ROIC
Indexed TSR = Austal TSR / Market TSR
ROIC = NOPAT / Invested Capital
iv.
FY2017 LTI Vesting Awards
KMP
Tranche Weight
Granted
%
Number
Vesting
Value @
Grant Date
$
1.10
VWAP @ Grant Date
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
iTSR
ROIC
Total
iTSR
ROIC
Total
iTSR
ROIC
Total
40%
60%
40%
60%
40%
60%
477,648
716,473
100%
100%
477,648
716,473
$
524,001
786,001
1,194,121
100%
1,194,121
$
1,310,002
105,155
157,732
100%
100%
105,155
157,732
$
115,359
173,039
262,887
100%
262,887
$
288,398
161,048
241,573
100%
100%
161,048
241,573
$
176,677
265,015
402,621
100%
402,621
$
441,692
Austal Limited | Remuneration report [audited] 37
V.
Realised remuneration (non-statutory disclosure)
The Realised Remuneration tables below are provided to convey the actual remuneration awarded to
KMP during FY2019 and FY2018 rather than the accounting expense required under the accounting
standards and includes:
The portion of Total Fixed Remuneration (TFR) paid in cash.
The portion of TFR converted and granted as share rights.
The portion of TFR contributed to superannuation plans or pension schemes.
STI awarded but not yet paid for Key Performance Indicators (KPI) results.
The value of LTI rights vesting following the conclusion of the relevant measurement period
using the volume weighted average price (VWAP) at the grant date.
FY2019
KMP
Cash
Value @ Grant VWAP1
Total Fixed Remuneration
FY2019 STI Awarded
LTI
Total
Share
Rights
Super-
annuation /
Pension
Other
Total
Cash
Share
Rights
Total
FY2017
Vesting
$
1.10
$
747,448
$
334,767
$
20,831
$
-
$
1,103,046
$
372,156
$
372,156
$
744,312
$
1,310,002
$
3,157,360
496,397
50,950
797,203
447,173
-
-
20,531
97,154
35,827
-
33,582
-
567,878
927,939
483,000
127,238
127,237
478,322
-
109,862
109,862
254,475
478,322
219,724
288,398
1,110,751
441,692
1,847,953
-
702,724
34.9%
51.1%
50.2%
68.7%
23.6%
22.9%
25.9%
31.3%
41.5%
26.0%
23.9%
-
100.0%
100.0%
100.0%
100.0%
Mr David Singleton
Mr Greg Jason 2
Mr Craig Perciavalle
Mr Patrick Gregg
% of Total
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
FY2018
KMP
Cash
Value @ Grant VWAP1
Total Fixed Remuneration
FY2018 STI Awarded
LTI
Total
Share
Rights
Super-
annuation /
Pension
Other
Total
Cash
Share
Rights
Total
FY2016
Vesting
$
1.77
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
% of Total
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
$
750,749
$
315,402
$
25,000
$
-
$
1,091,151
$
912,404
$
-
$
912,404
$
-
$
2,003,555
476,065
41,667
651,648
435,000
-
-
25,010
85,841
25,000
-
23,554
-
542,742
761,043
460,000
280,500
398,658
234,600
-
-
-
280,500
398,658
234,600
54.5%
65.9%
65.6%
66.2%
45.5%
34.1%
34.4%
33.8%
-
-
-
-
-
-
-
823,242
1,159,701
694,600
100.0%
100.0%
100.0%
100.0%
1. Value @ Grant VWAP is Volume Weighted Average Share Price utilised for the LTI grant.
2. Mr Greg Jason's TFR increase at the end of FY2018 was 2%. The FY2018 realised remuneration reflects a TFR increase that was granted part way through FY2018,
and therefore did not represent an entire year at the increased rate and the FY2019 TFR appears to be more than 2% higher than the TFR in FY2018.
38 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
VI.
Statutory remuneration disclosure
The following table outlines the remuneration received by Executive KMP during FY2019 and
FY2018, prepared according to statutory disclosure requirements and accounting standards:
FY2019
KMP
Salary1
Fixed Remuneration
Super-
annuation /
Pension
Other
Monetary
Benefits
Share
Rights
Variable Remuneration
Total
STI
Accrued
LTI
Accounting
Expense2
Other
Long
Service Leave
Accrued
Total
Mr David Singleton
$
814,049
$
334,767
$
20,831
$
-
$
1,169,647
$
744,312
$
1,776,504
$
18,231
$
3,708,694
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
493,029
797,203
478,758
50,950
-
-
20,531
97,154
35,827
-
33,582
-
564,510
927,939
514,585
254,475
478,322
219,724
420,664
672,126
218,086
9,350
1,248,999
-
8,050
2,078,387
960,446
Total
% of Total
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
FY2018
$
2,583,039
$
385,717
$
174,343
$
33,582
$
3,176,681
$
1,696,833
$
3,087,380
$
35,631
$
7,996,526
31.5%
45.2%
44.6%
53.6%
20.1%
20.4%
23.0%
22.9%
47.9%
33.7%
32.3%
22.7%
0.5%
0.7%
-
0.8%
Salary1
Share
Rights
Fixed Remuneration
Super-
annuation /
Pension
Other
Monetary
Benefits
Variable Remuneration
Total
STI
Accrued
LTI
Accounting
Expense2
Other
Long
Service Leave
Accrued
100.0%
100.0%
100.0%
100.0%
Total
Mr David Singleton
$
780,572
$
315,402
$
25,000
$
-
$
1,120,974
$
912,404
$
330,961
$
17,885
$
2,382,224
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
442,977
647,910
450,083
41,667
-
-
25,010
85,841
25,000
-
23,554
-
509,654
757,305
475,083
280,500
398,658
234,600
121,379
168,895
43,162
9,167
-
7,667
920,700
1,324,858
760,512
Total
% of Total
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
$
2,321,542
$
357,069
$
160,851
$
23,554
$
2,863,016
$
1,826,162
$
664,397
$
34,719
$
5,388,294
47.1%
55.4%
57.2%
62.5%
38.3%
30.5%
30.1%
30.8%
13.9%
13.2%
12.7%
5.7%
0.8%
1.0%
-
1.0%
100.0%
100.0%
100.0%
100.0%
1. Salary represents cash based salary expensed during the reporting period including annual leave provision adjustments and therefore may not
equal the cash received by the KMP during the reporting period.
2. The LTI expense represents the portion of the actuarial valuation of active LTI plans expensed through the Profit and Loss in accordance with AASB 2.
The Corporations Act mandate the manner in which the cost of all forms of remuneration are disclosed
within the Remuneration Report such as the following matters:
Share based payments expense for LTI plans represents the portion of the actuarial valuation of
all relevant Performance Rights (grants across multiple years) expensed within the reporting
period including adjustments for forfeiture and vesting outcomes for internal measures of
performance.
Salary represents the amount expensed in the Profit and Loss statement during the reporting
period which will be influenced by the number of leave days taken (e.g. salary and fees
expensed will be higher for a KMP who didn’t take any annual leave days during the reporting
period because the expense will represent the 12 months worked plus the value of leave
accrued (e.g. 4 weeks in Australia)).
Austal Limited | Remuneration report [audited] 39
VII. Reconciliation of realised remuneration and statutory remuneration
The following table reconciles the realised remuneration received by Executive KMP during FY2019
and FY2018 with the statutory remuneration disclosures for those years.
FY2019
Remuneration
KMP
Realised
Statutory
Variance
Explanation of Variance
LTI Vesting
Long Service
Leave
Versus
Expense
Leave
Provision
Provision
Movement
Mr David Singleton
$
3,157,360
$
3,708,694
$
(551,334)
$
(466,502)
$
(18,231)
$
(66,601)
Mr Greg Jason
1,110,751
1,248,999
Mr Craig Perciavalle
1,847,953
2,078,387
Mr Patrick Gregg
702,724
960,446
(138,248)
(230,434)
(257,722)
(132,266)
(230,434)
(218,087)
(9,350)
-
3,368
-
(8,050)
(31,585)
FY2018
Remuneration
KMP
Realised
Statutory
Variance
Explanation of Variance
LTI Vesting
Long Service
Leave
Versus
Expense
Leave
Movement
Provision
Movement
Mr David Singleton
$
2,003,555
$
2,382,224
$
(378,669)
$
(330,961)
$
(17,885)
$
(29,823)
Mr Greg Jason
823,242
920,700
Mr Craig Perciavalle
1,159,701
1,324,858
Mr Patrick Gregg
694,600
760,512
(97,458)
(165,157)
(65,912)
(121,379)
(168,895)
(43,162)
(9,167)
-
33,088
3,738
(7,667)
(15,083)
Total
$
(551,334)
(138,248)
(230,434)
(257,722)
Total
$
(378,669)
(97,458)
(165,157)
(65,912)
40 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
3. Non-Executive Director remuneration
I.
Application
The Non-Executive Director Remuneration Policy applies to Non-Executive Directors (NED) of the
Company in their capacity as directors and as members of committees.
II.
Fee policy
The fee policy is designed to ensure that remuneration is reasonable, appropriate, and produces
outcomes that fall within the fee limit, at each point of being assessed.
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.
Board & committee fees
Remuneration is composed of Board fees and Committee fees.
Both fee types include superannuation to the extent applicable to the incumbent.
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.
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 retained the FY2019 total remuneration fee at $200,000, inclusive of 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.
iii.
FY2019 fee rates
The following table outlines the NED fee policy rates that were applicable for FY2019:
Role
Chair
Member
Main Board
Audit & Risk Committee
Nomination & Remuneration Committee
$
192,500
20,000
15,000
$
95,000
10,000
7,500
iv.
Termination benefits
Termination benefits are not paid to NED.
Austal Limited | Remuneration report [audited] 41
III.
Share rights
Share rights were introduced as a component of NED remuneration during FY2018.
The NED have agreed annually with the Company to receive 25% of their Board fees (excluding
Committee fees) in the form of share rights in order to accumulate equity holdings equivalent to one
year of Board fees (excluding Committee fees). The issuance of share rights to NED was approved by
shareholders at the 2017 and 2018 Annual General Meetings.
The Chairman of the Board does not presently receive share rights because of his significant
shareholding in the Company.
IV.
NED remuneration in FY2019
The following table outlines the remuneration received by NED of the Company during FY2019 and
the previous year, prepared according to statutory disclosure requirements and applicable accounting
standards:
FY2019
Board Fees
Super-
annuation
Share
Rights
Cash
Total
Cash
Committee Fees
Super-
annuation
Total
Total
Mr John Rothwell
$
175,799
$
16,701
$
-
$
192,500
$
6,849
$
651
$
7,500
$
200,000
Mr Giles Everist
Mrs Sarah Adam-Gedge
Mr Chris Indermaur 1
Mr Jim McDowell 2
65,068
65,068
45,681
10,845
6,182
6,182
4,340
1,030
23,750
23,750
15,833
3,958
95,000
95,000
65,854
15,833
25,114
20,758
6,355
3,805
2,386
1,972
604
361
27,500
22,731
6,959
4,167
122,500
117,731
72,812
20,000
Total
$
362,461
$
34,434
$
67,292
$
464,187
$
62,882
$
5,974
$
68,856
$
533,043
1. Mr Chris Indermaur became a NED in October 2018.
2. Mr Jim McDowell resigned in August 2018.
FY2018
Board Fees
Super-
annuation
Share
Rights
Cash
Total
Cash
Committee Fees
Super-
annuation
Total
Total
Mr John Rothwell
$
175,799
$
16,701
$
-
$
192,500
$
6,849
$
651
$
7,500
$
200,000
Mr Giles Everist
Mrs Sarah Adam-Gedge 1
Mr Jim McDowell
72,298
59,173
72,298
6,868
5,621
6,868
15,833
15,833
15,833
95,000
80,628
95,000
25,114
7,751
22,831
2,386
736
2,169
27,500
8,487
25,000
122,500
89,115
120,000
Total
$
379,568
$
36,059
$
47,500
$
463,127
$
62,545
$
5,942
$
68,487
$
531,614
1. Mrs Sarah Adam-Gedge became a NED in August 2017.
42 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
4.
Remuneration governance framework
The following framework and strategy broadly outlines the principles and policies that the Board applies in
overseeing KMP remuneration.
I.
Nomination & Remuneration Committee Charter
The role and responsibilities of the committee are outlined in the Nomination & Remuneration
Committee Charter (the Charter), which is available on the Austal website.
The role of the Nomination & Remuneration Committee (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 NRC also includes succession planning which was undertaken for the Directors of
the Board during FY2019. Succession planning for Executive Management was deferred until later in
CY2019 so that the NRC could focus on the structural changes to remuneration during FY2019.
The Charter specifies that the NRC is to be composed of at least three members with the majority
being independent directors.
II.
Share trading policy
The Share Trading Policy of Austal is available on the Austal website. The Policy contains the
standard references to insider trading restrictions that are a legal requirement under the Corporations
Act, as well as conditions associated with good corporate governance. The Policy specifies
‘Closed Periods’ during which Directors and related parties, KMP, Senior Executives, and any
employee in possession of inside information must not trade in the securities of the Company, unless
written permission is provided by the Board following an assessment of the circumstances.
All equity based remuneration awards which have vested are subject to the Group’s Share Trading
Policy.
III.
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 to provide clarity to the NRC 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 NED.
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).
IV.
Stakeholder engagement
The Company seeks input regarding the governance of KMP remuneration from a wide range of
sources, including:
Shareholders,
NRC Members,
Stakeholder groups including proxy advisors,
External remuneration consultants (ERC),
Other experts and professionals such as tax advisors and lawyers,
Company management to understand roles and issues facing the Company.
Austal Limited | Remuneration report [audited] 43
V.
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. The Company’s remuneration structures and practices were
thoroughly reviewed and substantially modified in FY2019 following feedback at the 2018 Annual
General Meeting.
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
Aligned with business performance
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
44 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
5.
Executive KMP remuneration policy
I.
Structure
The following policy applies to executive KMP:
Total Remuneration Packages (TRP) should be composed of:
Total Fixed Remuneration (TFR) which is inclusive of superannuation, allowances, social
security, benefits and any applicable fringe benefits tax (FBT) as well as any salary
sacrifice arrangements.
STI which provides a reward for performance against annual objectives.
LTI which provides an equity-based reward for performance against indicators of
shareholder benefit or value creation, over a three year period.
Internal TRP relativities and external market factors should be considered.
TRP should be structured with reference to market practices and the particular circumstances
of the Group where appropriate.
II.
Total fixed remuneration
i.
Framework
Base Packages should be set with reference to the market practice of ASX listed
companies at the 50th percentile, where 50% of the comparator group are above
the median level and 50% are below the median 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.
CEO Minimum Equity Holding
The CEO must accumulate and hold a minimum equity holding that is equal to or greater in
value than 1 year of TFR.
The minimum equity holding includes shares, share rights and vested indeterminate rights, but
does not include unvested performance rights.
The minimum equity holding may be achieved by vesting of LTI grants, personal purchase of
shares on market by the CEO, or 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’s shares in the last 5 share trading days of each month.
The balance of the CEO’s TFR is to be paid in cash (i.e. TFR less the component granted in
equity).
Mr Singleton and the Board of Directors agreed that 30% of Mr Singleton’s TFR would be paid
in share rights for FY2019.
Austal Limited | Remuneration report [audited] 45
III.
Short term incentive (STI) policy
The short term incentive policy provides for a component of annual remuneration of executives to be
at-risk, payable in a mix of cash and equity and based upon an assessment of performance measured
using key performance indicators (KPI) that are aligned to the relevant business unit of each
individual and the Company performance.
i.
Purpose
The purpose of the STI Plan is to incentivise KMP to deliver and outperform 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 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.
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 even if hurdles are met in order to
avoid inappropriate outcomes.
iii.
Form of remuneration - cash and equity
STI awarded to KMP will be paid as follows:
50% in cash.
50% as indeterminate rights (refer to the definition below) with a minimum holding
period of 3 years irrespective of continued employment.
iv.
Indeterminate Rights
Indeterminate Rights are contractual rights to the value of a share in the Company which are
typically settled in the form of shares but which may, at the Board’s discretion, be settled in
cash. All issuances of equity under STI and LTI arrangements will be in the form of
indeterminate rights from FY2019 onwards based on the recommendations of an independent
ERC engaged by the Board during FY2019 and issuance subject to shareholder approval where
required.
v.
Measurement period
The measurement period for STI awards is the financial year of the Group.
vi.
Determination of STI award
The Board reviews and approves performance targets and objectives annually for the CEO; other
executive KMP targets and objectives are also reviewed annually. The final STI award is
determined subsequent to financial 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.
46 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
vii.
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 whilst ensuring that financial metrics always constitute at least 50% of
the total.
Satisfaction of KPI performance conditions are assessed qualitatively and quantitatively against
the targets defined at the start of the financial year.
The FY2019 KPI are contained in the STI KPI target and results section on page 35.
viii. Cessation of employment during a measurement period
STI awards will only be made to those participants that are still employed at the end of the
Measurement Period.
ix.
Cessation of employment post measurement period
Resignation after the completion of the measurement period will not impact the 50% of STI
that is paid in cash.
STI recipients who resign after the completion of the measurement period will be subject to
good leaver / bad leaver provisions. An employee may forfeit their indeterminate rights if they
are a ‘bad leaver’. A bad leaver is defined as an employee whose employment is terminated for
cause, resigns upon being asked to do so or an ex-employee who acts against the interests
of the company.
STI awards may be determined at the discretion of the Board in the case of either resignation
or termination due to serious illness or disability.
x.
Change of control
The Board has determined that in the event of a Change of Control (including a takeover),
indeterminate rights will vest on a pro-rata basis at the ‘Target’ level for the portion of the
Performance Period that has elapsed at the date of the change of control. The Board retains
discretion to vary this approach if it considers it would generate an inappropriate outcome.
xi.
Profit gate
The Company’s FY2019 EBIT (Earnings Before Interest and Tax) result must attain at least
85% of budget in order for STI to be awarded for FY2019.
xii.
Individual performance gate
Individual performance ratings for the year must be at least “Meets Expectations” on the
following scale:
Does not meet expectations.
Meets expectations.
Exceeds expectations.
The Board will have discretion to vary award outcomes in the circumstances that the outcomes
would otherwise be inappropriate.
Austal Limited | Remuneration report [audited] 47
xiii. Fraud or gross misconduct
All entitlements in relation to the Measurement Period will be forfeited by a participant if the
Board forms the view that a participant has committed fraud, defalcation or gross misconduct
in relation to the Company.
xiv. Clawback policy
The Board has implemented a Clawback policy which provides for the potential forfeiture of the
unvested equity based STI entitlements in the event of a material misstatement in the
Company’s financial statements for any of the three financial years contained within the
holding lock period.
The Clawback policy only applies to the Indeterminate Rights awarded from STI and does not
apply to the cash portion of STI that has already been paid to participants.
xv.
STI award opportunities
The FY2019 STI award opportunities are contained in the STI KPI target and results section on
page 35.
IV.
Long term incentive (LTI) policy
The LTI policy of the Company is to set 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. A share disposal restriction applies for one year from the expiry of the
performance measurement period which extends the effective remuneration deferral to a total of four
years.
The Board has conducted a review of the LTI plan and a new plan has been introduced for FY2019
with details disclosed below.
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 is a grant of Indeterminate Performance Rights that vest based on an assessment of
performance against objectives over a defined Measurement Period. No dividends are payable
nor accrued on Performance Rights which are unvested.
iii. Measurement period
The Measurement Period is three financial years.
iv.
LTI grant
The number of LTI Rights granted are calculated with reference to the stretch (maximum) LTI
value divided by the volume weighted average closing share price in the first month of the
measurement period less the expected value of dividends that will not accrue to Rights holders
(Rights are not eligible to receive dividends).
Details of the FY2019 LTI grant are contained on page 53.
48 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
v.
FY2017 & FY2018 measures of long term performance
The Company used two long term performance measures for FY2017 & FY2018:
Total Shareholder Return (TSR) as an external measure of performance.
Return on Invested Capital (ROIC) as an internal measure of performance.
vi.
FY2019 measures of long term performance
The NRC undertook a comprehensive review of LTI metrics with the assistance of an external
remuneration consultant and selected three equally weighted (i.e. 1/3 each) measures of long
term performance for the FY2019 LTI plan:
Indexed Total Shareholder Return (iTSR).
Return on Equity (ROE).
Earnings per Share Growth (EPSG).
Metrics are set so that Target performance is expected to be achieved 50 – 60% of the time
and Stretch or Maximum performance is expected to be achieved 10 – 20% of the time.
The metrics are disclosed below.
vii.
Total Shareholder Return (TSR) measure
The Board believes that TSR is the measure that has the strongest alignment with
shareholders.
The FY2019 grant was offered based on iTSR, which sets an absolute TSR premium to indexed
TSR outcomes, and avoids windfall gains / (losses) from changes in broad market movements
in share prices.
Austal’s iTSR will be computed by comparing Austal’s TSR index against the ASX 300
Industrials Total Return Index.
Austal’s TSR is the sum of Share price appreciation and dividends (assumed to be reinvested
in Shares) during the Measurement Period. Share price appreciation is measured utilising a
1 month VWAP at the beginning and the end of the measurement period (i.e. July in year 1 and
June in year 3). TSR is converted into a cumulative annual growth rate (CAGR) for the purposes
of the vesting scale.
viii. Earnings per Share Growth (EPSG) measure
EPSG is an internal measure of performance that is commonly used and which the Board
encourages management to focus on. Earnings per share links to the Company’s ability to
satisfy its dividend policy and is therefore highly relevant.
EPSG will be calculated by dividing EPS in the final year of the 3 year measurement period by
the EPS in the last financial year prior to the 3 year measurement period. EPSG is converted
into a cumulative annual growth rate (CAGR) for the purposes of the vesting scale.
EPS will equal Basic EPS as reported in the financial accounts.
Actual EPSG results will be compared against internal targets set by the Board.
Austal Limited | Remuneration report [audited] 49
ix.
Return on equity (ROE) measure
Sustainability of ROE is a key element of creating sustainable shareholder wealth and hence
ROE was adopted to help ensure that this is taken into account by management. ROIC was
used previously however it was decided that ROE is more easily understood by both internal
and external stakeholders, since it is subject to fewer accounting adjustments.
ROE will be calculated by dividing:
The average NPAT over the 3 year measurement period by
The day weighted average Contributed Equity + Retained Profits + Reserved Shares
balance over the 3 year measurement period.
Actual ROE results are compared against internal targets set by the Board.
x.
TSR Gate
A gate of Company TSR being positive for the measurement period applies to the iTSR tranche,
to ensure that the LTI will not reward executives when shareholders have lost value.
xi.
Board Discretion
The Board retains a discretion to adjust vesting outcomes in the circumstances that the
outcomes from applying the vesting scales alone would be deemed to be inappropriate.
In exercising this discretion, the Board is required to take into account the Company
performance from the perspective of Shareholders over the relevant Measurement Period and
consider whether specific participants:
engaged in any activities or communications that may cause harm to the operations or
reputation of the Company or the Board,
took actions that caused harm or will cause harm to the Company’s stakeholders,
took excessive risks or contributed to or may otherwise benefit from unacceptable
cultures within the Company,
exposed employees, the broader community or environment to excessive risks, including
risks to health and safety.
The Board will also consider whether there has been a material misstatement in the Company’s
financial reports, which would unduly increase any award under the scheme.
xii.
Vesting of Performance Rights
Performance Rights meeting the performance hurdles will vest at the end of the measurement
period.
Participants are not required to make any payments at grant or at vesting.
xiii. Holding period
A one year holding period applies to all vesting performance rights:
Recipients are permitted to exercise their rights in order to receive shares, however
Recipients are prevented from selling their shares during the holding period.
This effectively extends the incentive period to four years and increases the accumulation of
equity by executives to strengthen their alignment with shareholders.
50 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
xiv. Specified Disposal Restrictions
Performance Rights may not be disposed of or otherwise dealt with prior to exercise.
Vested Performance Rights may not be exercised in the 12 months following the end of the
3 year measurement period.
All shares acquired by Participants as a consequence of exercising vested Rights, shall be
subject to a dealing restriction related to the share trading policy and insider trading
restrictions.
xv.
Cessation of employment during a measurement period
A Participant who resigns prior to the elapsing of the measurement period in respect of which
the grant is made will forfeit their entire unvested performance rights grant.
The Board may exercise its discretion to award some proportion of LTI under certain
circumstances including consideration of whether the KMP was a good leaver up to the point of
vesting.
Vested rights held by a Participant are not forfeited.
xvi. Clawback policy
The Board may determine that a Participant found to have harmed the interests of the
Company or its Shareholders, will forfeit some or all of their unvested entitlements at any time.
This includes fraud, defalcation, joining a competitor etc.
Unvested Rights held that are not forfeited, will be retained for testing against the vesting
conditions at the normal time.
xvii. Change of Control of the Company
Target LTI will vest in proportion to the portion of the measurement period that has elapsed in
the event that a change of control of the Company occurs.
The LTI will be valued based upon the value of the share price immediately before the change
of control event occurs.
Austal Limited | Remuneration report [audited] 51
6.
Equity instruments held by KMP
I.
FY2017 Performance rights vesting
Further information relating to the FY2017 Performance Rights vesting is provided on page 37.
II.
FY2018 Performance rights grant
i.
Performance Rights grant
1,219,045 performance rights were granted to KMP in FY2018, who were still employed by
Austal and remained unvested at 30 June 2019.
ii.
Measurement period
100% of the performance rights granted in FY2018 have a 3 year measurement period from
1 July 2017 – 30 June 2020.
iii.
Performance criteria
The Return on Invested Capital (ROIC) and Relative Total Shareholder Return (rTSR)
performance criteria relating to the FY2018 grant of performance rights to KMP are detailed
below.
Relative TSR
Award
Stretch
Target
Threshold
Award
100%
75%
50%
25%
0%
ROIC
Award
Stretch
Target
Threshold
Award
100%
75%
50%
25%
0%
0%
25%
50%
75%
100%
0% 2% 4% 6% 8% 10% 12%
XAOA TSR Percentile
ROIC
Relative TSR = Austal TSR Percentile of Market
XAOA - All Ordinaries Total Return Index
ROIC = NOPAT / Invested Capital
52 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
III.
FY2019 Performance rights grant
Performance rights granted to KMP in FY2019 are depicted in the table below. The Fair Value per
right has been determined by an independent actuary in accordance with AASB 2 Share Based
Payments and does not match the Stretch LTI opportunity as detailed earlier in the report.
Name
iTSR
ROE
EPSG
Total
Rights granted
Value @
grant date
Fair Value per right
$
1.88
$
2.13
$
2.13
Mr David Singleton
Mr Greg Jason
Mr Craig Perciavalle
Mr Paddy Gregg
164,134
73,653
101,054
63,418
164,134
73,653
101,054
63,418
164,134
73,653
101,054
63,418
492,402
220,958
303,163
190,253
$
1,007,619
452,154
620,373
389,321
Total
402,259
402,259
402,259
1,206,776
$
2,469,466
i.
Measurement period
100% of the Performance Rights granted in FY2019 have a 3 year measurement period from
1 July 2018 – 30 June 2021.
ii.
Performance criteria
The performance criteria relating to the FY2019 grant of performance rights to KMP are
detailed below.
Indexed TSR
Award
Award
100%
Stretch
75%
Target
50%
Threshold
25%
0%
ROE
Award
Stretch
Target
Threshold
EPSG
Award
Stretch
Target
Threshold
Award
100%
75%
50%
25%
0%
Award
100%
75%
50%
25%
0%
0%
5%
10%
15%
20%
0% 2% 4% 6% 8% 10% 12% 14% 16%
0% 10% 20% 30% 40% 50% 60%
TSR Premium to market
ROE
EPSG
Indexed TSR = Austal TSR Premium to Market
ROE = NPAT / Equity (Excluding Reserves)
EPSG = CAGR EPS (Base Year) / EPS (Final Year)
Austal Limited | Remuneration report [audited] 53
IV.
TFR share rights earned during the period
Details of share rights provided as fixed remuneration to KMP in FY2019 are shown below.
Further information is provided in Note 35.
These share rights are in lieu of TFR normally paid in cash and are not a bonus nor performance
based. The measurement date for the share rights is the volume weighted average share price of the
last 5 trading days of each month. The share rights provided to the CEO were approved by
shareholders during the 2016 Annual General Meeting. The share rights provided to the NED were
approved by shareholders during the 2017 and 2018 Annual General Meetings.
KMP
Mr David Singleton
Mr Greg Jason
Mr Giles Everist
Mrs Sarah Adam-Gedge
Mr Chris Indermaur
Mr Jim McDowell
Earned
159,095
24,127
11,385
11,385
6,857
2,264
Average fair
value per right
$ 2.10
2.11
2.09
2.09
2.31
1.75
Fair value
$
334,767
50,950
23,750
23,750
15,833
3,958
54 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
V.
Changes in equity held by KMP
Balance at
30 June 2018
Granted
Vested
Lapsed
Bought
(Sold)
Balance at
Vested and
30 June 2019
Exercisable
Unvested
FY2019 Movements
Executives
Mr David Singleton
Shares
Share Rights
28,600
466,553
-
-
159,095
1,194,121
Performance Rights
1,790,651
492,402
(1,194,121)
Total
2,285,804
651,497
-
-
Mr Greg Jason
Shares
Share Rights
85,033
23,477
-
24,127
262,887
Performance Rights
621,890
220,958
(262,887)
(152,244)
Total
730,400
245,085
Mr Craig Perciavalle
Shares
Share Rights
152,444
-
-
-
-
402,621
Performance Rights
872,643
303,163
(402,621)
(233,211)
(152,244)
(25,944)
-
-
-
-
-
-
-
-
-
-
-
-
(25,944)
-
-
(40,000)
-
-
28,600
1,819,769
1,088,932
28,600
1,819,769
-
-
-
1,088,932
2,937,301
1,848,369
1,088,932
59,089
310,491
427,717
797,297
112,444
402,621
539,974
59,089
310,491
-
-
-
427,717
369,580
427,717
112,444
402,621
-
-
-
539,974
Total
1,025,087
303,163
Mr Patrick Gregg
Performance Rights
178,945
190,253
Total
178,945
190,253
Non-Executive Directors
Mr John Rothwell
Shares
Total
Mr Giles Everist
Shares
Share Rights
Total
Mrs Sarah Adam-Gedge
Shares
Share Rights
Total
Mr Chris Indermaur
Share Rights
Total
Mr Jim McDowell 1
Shares
Share Rights
Total
32,807,692
32,807,692
10,000
9,056
19,056
-
9,056
9,056
-
-
33,751
9,056
42,807
-
-
-
11,385
11,385
-
11,385
11,385
6,857
6,857
-
2,264
2,264
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(233,211)
(40,000)
1,055,039
515,065
539,974
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
369,198
369,198
-
-
369,198
369,198
(500,000)
32,307,692
32,307,692
(500,000)
32,307,692
32,307,692
-
-
-
10,000
-
10,000
-
-
(33,751)
(11,320)
(45,071)
10,000
20,441
30,441
10,000
20,441
30,441
6,857
6,857
-
-
-
10,000
20,441
30,441
10,000
20,441
30,441
6,857
6,857
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1. Mr Jim McDowell resigned on 31 August 2018, therefore the balance of his shares and share rights have been removed from the table at 30 June 2019.
Austal Limited | Remuneration report [audited] 55
VI. Minimum equity holdings
Some KMP and all NED are required to accumulate and maintain a minimum level of equity holding
with value equivalent to a specified percentage of annual TFR as detailed in the table below:
Balance at
Value @
30 Jun 2019
30 Jun 2019
FY2019
TFR
Equity Holding % of TFR
Target
30 Jun 2019
Target
Introduced
Value / share
Executives
$
3.41
Mr David Singleton
1,848,369
$ 6,302,938
$ 1,103,046
Mr Greg Jason
Mr Craig Perciavalle
Mr Patrick Gregg
369,580
515,065
-
1,260,268
1,756,372
-
567,878
927,939
483,000
571%
222%
189%
-
100%
50%
Feb 2016
Sep 2017
-
-
-
-
Balance at
Value @
30 Jun 2019
30 Jun 2019
FY2019
Board Fees 1
Equity Holding % of TFR
Target
30 Jun 2019
Target
Introduced
Non-Executive Directors
Mr John Rothwell
Mr Giles Everist
Mrs Sarah Adam-Gedge
Mr Chris Indermaur
32,307,692
$ 110,169,230
$ 192,500
57231%
30,441
30,441
6,857
103,804
103,804
23,382
95,000
95,000
65,854
109%
109%
36%
100%
100%
100%
100%
Nov 2017
Nov 2017
Nov 2017
Oct 2018
1. Includes Board Fees and excludes Committee Fees
56 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
7.
Other related matters
I.
Board composition
The 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 NED on the Board should
remain following the FY2019 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.
II.
Details of contractual provisions for KMP
Name
Employer
Duration
Group
Individual
Termination Notice Period
Termination
Benefits 1
Mr David Singleton
Austal Limited
Mr Greg Jason
Austal Limited
Mr Craig Perciavalle
Austal USA LLC
Unlimited
Unlimited
Unlimited
3 months
12 weeks
None
3 months
12 weeks
None
3 months
12 weeks
None
Mr Patrick Gregg
Austal Ships Pty Ltd
Unlimited
3 months
3 months
3 months
1. Termination Benefit Limit under the Corporations Act is 12 months of average prior 3 years salary
unless Shareholder approval is obtained.
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 of STI or LTI
permitted under the remuneration policy upon termination of employment is described in the relevant
sections of this report.
All NED enter into a service agreement with the Company in the form of a letter of appointment on
appointment to the Board. The letter summarises the Board policies and terms, including
compensation relevant to each director. The appointment letters specify a term of three years before
each NED is required to be put forward for re-election in accordance with regulatory requirements.
III.
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.
Austal Limited | Remuneration report [audited] 57
IV.
Use of external remuneration consultants
The Board approved and engaged an external remuneration consultant to provide KMP remuneration
recommendations and advice during the reporting period. The consultants and the amount payable for
the information and work that led to their recommendations are listed below:
i.
Godfrey Remuneration Group Pty Limited (GRG)
GRG were engaged for the following services during FY2019:
Market benchmarking of KMP remuneration.
Review and modification of the Company’s STI and LTI plans.
Development of a General Employee Equity Plan (GEEP) for FY2020.
At-cost return economy flights for workshop in Perth.
Total fees $74,409 excluding GST.
ii.
Independence from Executive KMP
The Board is satisfied that the KMP remuneration recommendations received were free from
undue influence from KMP to whom the recommendations related for the following reasons:
the policy for engaging external remuneration consultants is being adhered to and is
operating as intended,
the Board has been closely involved in all dealings with the external remuneration
consultants,
each KMP remuneration recommendation received during the year was accompanied by
a legal declaration from the consultant to the effect that their advice was provided free
from undue influence from the KMP to whom the recommendations related.
End of Remuneration Report
58 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
Auditor independence
The Board of Directors
Austal Limited
100 Clarence Beach Rd
Henderson, WA
6166, Australia
29 August 2019
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 2019, 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
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
Austal Limited | Auditor independence 59
Consolidated statement of profit and loss and other
comprehensive income for the year ended
30 June 2019
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)
Notes
2019
’000
Restated 1
2018
’000
4
5
5
31
$
1,852,074
$
1,390,455
(1,661,113)
(1,260,178)
$
190,961
$
130,277
$
13,301
$
13,698
(92,265)
(18,149)
(8,284)
-
(64,061)
(15,854)
(8,532)
(266)
$
85,564
$
55,262
9
$
(24,180)
$
(17,729)
Profit / (loss) after tax attributable to the owners of the parent
$
61,384
$
37,533
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
$
(10,269)
$
(7,500)
8,576
460
706
1,698
$
(1,233)
$
(5,096)
$
27,912
$
15,543
$
27,912
$
15,543
$
2,103
$
63,286
(578)
(10,067)
$
1,525
$
53,219
Other comprehensive income net of tax for the period attributable to the owners of the parent
$
28,204
$
63,666
Total comprehensive income for the year
$
89,588
$
101,199
Earnings per share ($ per share)
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
$
0.176
$
0.108
0.173
0.108
1. Financial results for the prior corresponding period have been restated in accordance with AASB 15. Further details are provided in Note 2.
The Consolidated statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes.
60 Austal Limited | Consolidated statement of profit and loss and other comprehensive income for the year ended 30 June 2019
SHAREHOLDER INFORMATION
Consolidated statement of financial position as at
30 June 2019
Assets
Current
Cash and cash equivalents
Trade and other receivables
Inventories and work in progress
Prepayments
Derivatives
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 attributable to owners of the parent
Contributed equity
Reserves
Retained earnings
Total
Notes
10
15
17
26, 27
9
22
31
26, 27
19
20
9
23
2019
’000
Restated 1
2018
’000
$
275,665
$
162,024
225,268
167,042
9,480
1,932
1,701
97,349
241,896
7,557
1,608
4,523
$
681,088
$
514,957
$
11,859
$
10,160
1,729
258
588,384
20,743
8,402
14,838
1,804
1,077
565,778
20,812
7,844
21,751
$
646,213
$
629,226
$
1,327,301
$
1,144,183
18
$
(202,308)
$
(178,140)
26, 27
11
24
14
16
(8,992)
(51,211)
(85,305)
(6,445)
(120,402)
(5,605)
(72,758)
(69,758)
(8,903)
(53,759)
$
(474,663)
$
(388,923)
26, 27
$
(7,552)
$
(6,298)
11
24
14
9
(122,543)
(1,707)
(56,214)
(33,839)
(112,520)
(1,546)
(58,050)
(31,268)
$
(221,855)
$
(209,682)
$
(696,518)
$
(598,605)
$
630,783
$
545,578
13
$
130,570
$
118,329
189,520
310,693
156,719
270,530
$
630,783
$
545,578
1. The financial position of the prior corresponding period has been restated in accordance with AASB 15. Further details are provided in Note 2.
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 2019 61
Consolidated statement of changes in equity for the
year ended 30 June 2019
Foreign
Currency
Employee
Cash Flow
Common
Issued
Capital
’000
Reserved
Shares 1
’000
Retained
Earnings 2
’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 2017
$
128,276
$
(11,892)
$
247,006
$
66,647
$
2,561
$
(693)
$
(17,594)
$
40,716
$
455,027
Comprehensive Income
Profit for the year
$
-
$
-
$
37,533
$
-
$
-
$
-
$
-
$
-
$
37,533
Other Comprehensive Income
-
-
-
15,543
-
(5,096)
-
53,219
63,666
Total
$
-
$
-
$
37,533
$
15,543
$
-
$
(5,096)
$
-
$
53,219
$
101,199
Other equity transactions
Shares issued
Dividends
Share based payments expense
Shares issued to employee share trust
Shares issued for vested performance rights
Dividend retained in relation to AGMSP 3
AGMSP options exercised
Transfer between reserves 4
Other
Total
Movement
$
1,209
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
1,209
-
-
812
201
14
147
(494)
-
-
-
(812)
-
127
247
494
-
(14,000)
-
-
-
-
-
(1)
(8)
-
-
-
-
-
-
-
-
-
1,617
-
(201)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(14,000)
1,617
-
-
140
394
-
(8)
$
1,889
$
56
$
(14,009)
$
-
$
1,416
$
-
$
-
$
-
$
(10,648)
$
1,889
$
56
$
23,524
$
15,543
$
1,416
$
(5,096)
$
-
$
53,219
$
90,551
Equity at 30 June 2018
$
130,165
$
(11,836)
$
270,530
$
82,190
$
3,977
$
(5,789)
$
(17,594)
$
93,935
$
545,578
Comprehensive Income
Profit for the year
$
-
$
-
$
61,384
$
-
$
-
$
-
$
-
$
-
$
61,384
Other Comprehensive Income
-
-
-
27,912
-
(1,233)
-
1,525
28,204
Total
$
-
$
-
$
61,384
$
27,912
$
-
$
(1,233)
$
-
$
1,525
$
89,588
Other equity transactions
Shares issued for dividend reinvestment plan
$
1,922
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
1,922
Dividends
Share based payments expense
Shares issued to employee share trust
AGMSP shares sold 3
Dividend retained in relation to AGMSP 3
Tax expense on sale of AGMSP shares 3
Options exercised
Transfer between reserves 5
Transfer between reserves 6
Remeasurement gain on retirement benefits
.
Total
-
-
-
-
454
(454)
(2,763)
10,929
13
(65)
2,110
-
-
-
95
-
-
-
-
-
(21,133)
-
-
-
-
-
313
(401)
-
-
-
-
-
-
-
-
-
-
-
-
5,975
-
-
-
-
(1,142)
(313)
401
(324)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(21,133)
5,975
-
8,166
108
(65)
968
-
-
(324)
$
1,671
$
10,570
$
(21,221)
$
-
$
4,597
$
-
$
-
$
-
$
(4,383)
Movement
$
1,671
$
10,570
$
40,163
$
27,912
$
4,597
$
(1,233)
$
-
$
1,525
$
85,205
Equity at 30 June 2019
$
131,836
$
(1,266)
$
310,693
$
110,102
$
8,574
$
(7,022)
$
(17,594)
$
95,460
$
630,783
1. Reserved Shares are held in relation to employee share trusts.
2. Financial results for the prior corresponding period have been restated in accordance with AASB 15. Further details are provided in Note 2.
3. The Trustee sold all of the shares in the Austal Group Management Share Plan during the year. Further details are provided in Note 35.
4. Transfer of Reserved Shares relating to vested AGMSP.
5. Transfer of lapsed LTI balance.
6. Transfer of retirement reserve opening balance.
The Consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
62 Austal Limited | Consolidated statement of changes in equity for the year ended 30 June 2019
SHAREHOLDER INFORMATION
Consolidated statement of cash flows for the year
ended 30 June 2019
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax refunded / (paid)
Net cash from / (used in) operating activities
Cash flows from investing activities
Receipts of government infrastructure grants
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Construction of Cape Class Patrol Boats 9 & 10
Investment in joint venture
Business acquisition
Notes
2019
’000
2018
’000
$
1,865,442
$
1,343,239
(1,688,944)
(1,265,900)
1,053
(5,773)
(7,261)
305
(4,931)
(7,030)
$
164,517
$
65,683
$
1,482
$
2,318
3,867
(41,542)
(1,556)
-
-
-
262
(19,924)
(3,438)
(3,005)
(299)
(9,826)
4
7
19
20
33
Net cash from / (used in) investing activities
$
(37,749)
$
(33,912)
Cash flows from financing activities
Repayment of borrowings
12
$
(10,744)
$
(9,230)
Dividends paid (net of dividend reinvestment program)
Sale of surplus AGMSP 1 Shares
Exercise of options
(19,211)
7,674
968
(12,791)
-
-
Net cash from / (used in) financing activities
$
(21,313)
$
(22,021)
Net increase / (decrease) in cash and cash equivalents
$
105,455
$
9,750
Cash and cash equivalents
Cash and cash equivalents at beginning of year
$
162,024
$
150,471
Net foreign exchange differences
Net increase / (decrease) in cash and cash equivalents
8,186
105,455
1,803
9,750
Cash and cash equivalents at end of year
10
$
275,665
$
162,024
1. Austal Group Management Share Plan. Further details are provided in Note 35.
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 2019 63
Notes to the financial statements
Basis of preparation
Corporate information
The financial report of the Austal Limited Group of Companies (the Group or the Company) for the year ended
30 June 2019 was authorised for issue in accordance with a resolution of the Directors on 29 August 2019.
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 were 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 the Australian Accounting Standards Board (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.
64 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
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 Government grants.
3. Working capital
This section focuses on shorter term working capital concepts such as trade receivables,
trade payables, work in progress and inventories.
4.
Infrastructure & other assets
This section focuses on property, plant and equipment, intangible assets of the Group, impairment
and other assets.
5.
Other liabilities
This section focuses on provisions such as employee benefits, workers compensation and warranty.
6.
Financial risk management
This section focuses on the Group’s approach to financial risk management, fair value measurements,
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 2019.
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 65
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 most appropriate 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 applicable at the date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling applicable at the balance date. All exchange
differences arising from the above procedures are taken to the Other Comprehensive Income.
The functional currency of the USA, Vietnam and the Philippines operations is United States Dollars (USD).
The assets and liabilities of the overseas subsidiaries are translated into the presentation currency of
Austal Limited at the closing foreign exchange rate for the reporting date. The Profit and Loss 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 Profit and Loss 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 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
Provisions
Note
4
5
9
19, 21
19
24
66 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
VI
Change of comparative financial information
1.
Provisions
Prior corresponding period information within the Balance Sheet has been reclassified to be
comparable to the current year as follows:
Provisions – an amount relating to payroll tax payable has been reclassified from Provisions to
Trade and other payables.
2.
Adoption of AASB 15 Revenue from customers
Comparative information within the following notes has been changed to be comparable to the current
year as follows:
AASB 15 Revenue from customers – impact of adoption,
Austal has utilised a full retrospective approach for the adoption on 1 July 2018 as part of the
FY2019 financial report. Opening retained earnings, work in progress and revenue have been
restated as depicted below:
Statement of Profit and Loss
Revenue
Income tax (expense) / benefit
FY2018
Original
'000
Restated
'000
$
1,391,977
$
1,390,455
(17,756)
(17,738)
1 July 2017
30 June 2018
Statement of Financial Position
Original
'000
Restated
'000
Original
'000
Restated
'000
Inventories (WIP)
Deferred tax assets
Retained Earnings
$
170,422
$
167,331
$
246,509
$
241,896
5,630
248,893
6,834
247,006
7,844
273,912
9,075
270,530
3.
Operating segments
The operating segments of Australia, Philippines, Vietnam, Muscat and the Aulong Joint Venture
operations have been combined into a single Australasia reporting segment from 1 July 2018.
The Australasia reporting segment integrates capabilities across multiple shipyards and service
centres with each individual location contributing value to the vessel dependant on the unique skill
set of each location.
Management and reporting structures are aligned with the Australasia reporting segment.
The COO Australasia is the decision maker for the combined Australasia business, monitoring and
evaluating performance of the overall segment and allocating resources according to the best overall
segment outcome.
Further information is provided in Note 3.
Austal Limited | Notes to the financial statements 67
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 2018, including:
1.
AASB 15 Revenue from Contracts with Customers
The Group has adopted AASB 15 fully retrospectively in accordance with paragraph C3(a) of
AASB 15.
Comparatives have been restated as outlined in the section above. The following expedients have been
used in accordance with paragraph C5 of AASB 15:
Revenue in respect of completed contracts that begin and end in the same accounting period
has not been restated; and
Revenue in respect of completed contracts with variable consideration reflects the transaction
price at the date the contracts were completed.
The Group’s accounting policy in respect of revenue after adopting AASB 15 is as follows:
Revenue represents income derived from contracts for the provision of goods and services by the
Company and its subsidiary undertakings to customers in exchange for consideration in the ordinary
course of the Group’s activities.
Performance obligations
Upon approval by the parties to a contract, the contract is assessed to identify each promise to
transfer either a distinct good or service or a series of distinct goods or services that are substantially
the same and have the same pattern of transfer to the customer. Goods and services are distinct and
accounted for as separate performance obligations in the contract if the customer can benefit from
them either on their own or together with other resources that are readily available to the customer
and they are separately identifiable in the contract. Contracts are combined into one performance
obligation for the purposes of revenue and profit recognition where individual contracts do not result
in a performance obligation on the basis that it is not distinct and do not have independent utility to
the customer.
Transaction price
The total transaction price at the start of the contract is estimated as the amount of consideration to
which the Group expects to be entitled in exchange for transferring the promised goods and services
to the customer, excluding sales taxes. Variable consideration, such as price escalation, is included
based on the expected value or most likely amount only to the extent that it is highly probable that
there will not be a reversal in the amount of cumulative revenue recognised. The transaction price
does not include estimates of consideration resulting from contract modifications, such as change
orders, until they have been approved by the parties to the contract. The total transaction price is
allocated to the performance obligations identified in the contract in proportion to their relative stand-
alone selling prices. There are typically no observable stand-alone selling prices given the bespoke
nature of many of the Group’s products and services, which are designed and / or manufactured under
contract to the customer’s individual specifications. Instead, stand-alone selling prices are typically
estimated based on expected costs plus contract margin consistent with the Group’s pricing
principles.
68 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Revenue and profit recognition
Revenue is recognised as performance obligations are satisfied as control of the goods and services is
transferred to the customer.
The Group determines whether each performance obligation within a contract is satisfied over time or
at a point in time. Performance obligations are satisfied over time if one of the following criteria is
satisfied:
The customer simultaneously receives and consumes the benefits provided by the Group’s
performance as it performs;
The Group’s performance creates or enhances an asset that the customer controls as the asset is
created or enhanced; or
The Group’s performance does not create an asset with an alternative use to the Group and it has
an enforceable right to payment for performance completed to date.
The Group has determined that most of its contracts satisfy the over time criteria, either because the
customer simultaneously receives and consumes the benefits provided by the Group’s performance as
it performs (typically sustainment contracts) or the Group’s performance does not create an asset with
an alternative use to the Group and it has an enforceable right to payment for performance completed
to date (typically shipbuilding contracts).
The Group recognises revenue using an input method, based on costs incurred in the period for each
performance obligation to be recognised over time. Revenue and attributable margin are calculated by
reference to reliable estimates of transaction price and total expected costs, after making suitable
allowances for technical and other risks. Revenue and associated margin are therefore recognised
progressively as costs are incurred, and as risks have been mitigated or retired. The Group does not
include long lead time materials where they do not represent progress. The Group has determined that
this method faithfully depicts the Group’s performance in transferring control of the goods and
services to the customer.
Revenue is recognised at the point in time that control is transferred to the customer if the over time
criteria for revenue recognition are not met, which is usually when legal title passes to the customer
and the business has the right to payment, for example, on delivery.
Expected losses are recognised immediately as an expense when it is probable that total contract
costs will exceed total contract revenue.
Contract modifications
The Group’s contracts are often amended for changes in customers’ requirements and specifications.
A contract modification exists when the parties to the contract approve a modification that either
changes existing or creates new enforceable rights and obligations. The effect of a contract
modification on the transaction price and the Group’s measure of progress towards the satisfaction of
the performance obligation to which it relates is recognised in one of the following ways:
Prospectively as an additional, separate contract;
Prospectively as a termination of the existing contract and creation of a new contract; or
As part of the original contract using a cumulative catch up.
The majority of the Group’s contract modifications are treated under either 1 (for example, the
requirement for additional distinct goods or services) or 3 (for example, a change in the specification
of the distinct goods or services for a partially completed contract), although the facts and
circumstances of any contract modification are considered individually as the types of modifications
will vary contract-by-contract and may result in different accounting outcomes.
Costs to obtain a contract
The Group expenses pre-contract bidding costs which are incurred regardless of whether a contract is
awarded. The Group does not typically incur costs to obtain contracts that it would not have incurred
had the contracts not been awarded.
Austal Limited | Notes to the financial statements 69
Costs to fulfil a contract
Contract fulfilment costs in respect of over time contracts are expensed as incurred. Contract
fulfilment costs in respect of point in time contracts are accounted for under AASB 2 Inventories.
Inventories
Inventories includes raw materials and work-in-progress recognised in accordance with AASB 2 in
respect of contracts with customers which have been determined to fulfil the criteria for point in time
revenue recognition under AASB 15. The Group does not typically build inventory to stock. Inventories
are stated at the lower of cost and net realisable value.
2.
AASB 9: Financial Instruments [AASB 9] (effective 1 July 2018):
Investments and other financial assets
Classification
The Group classifies its financial assets in the following measurement categories from 1 July 2018:
Those to be measured subsequently at fair value (either through Other Comprehensive Income, or
through the Profit and Loss); and
Those to be measured at amortised cost.
Measurement
The Group measures a financial asset at initial recognition at its fair value plus transaction costs that
are directly attributable to the acquisition of the asset not measured at fair value through the Profit
and Loss.
The Group subsequently measures derivative financial instruments at fair value. Gains and losses on
derivative financial instruments that do not qualify for hedge accounting are recognised in the Profit
and Loss for the period. The effective portion of any change in the fair value of a derivative financial
instrument designated as a cash flow hedge is recognised in Other Comprehensive Income and
presented in the hedging reserve in equity. Amounts recognised in equity are reclassified from
reserves into the cost of the underlying transaction and recognised in the Profit and Loss when the
underlying transaction affects the Profit and Loss. The ineffective portion of any change in the fair
value of the instrument is recognised in the Profit and Loss immediately. Where a derivative financial
instrument is designated as a fair value hedge, changes in the fair value of the underlying asset or
liability attributable to the hedge risk, and gains and losses on the derivative financial instrument,
are recognised in the Profit and Loss for the period.
The Group subsequently measures trade and other receivables, contract receivables and amounts due
from equity accounted investments at amortised cost.
Impairment
The Group applies the simplified approach permitted by AASB 9 for trade and other receivables,
contract receivables and amounts due from equity accounted investments, which requires expected
lifetime losses to be recognised from initial recognition of the receivables.
Derivatives and hedging
Cash flow hedges
The effective portion of any change in the fair value of a derivative financial instrument designated as
a hedge of cash flows relating to a highly probable forecast transaction (income or expense) is
recognised in Other Comprehensive Income and presented in the hedging reserve in equity.
The ineffective portion of any change in the fair value of the instrument is recognised in Profit and
Loss immediately.
Fair value hedges
Where a derivative financial instrument is designated as a fair value hedge, changes in the fair value
of the underlying asset or liability attributable to the hedged risk, and gains and losses on the
derivative instrument, are recognised in the Profit and Loss for the period.
70 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Fair value through Profit and Loss
Gains and losses on derivative financial instruments that do not qualify for hedge accounting are
recognised in the Profit and Loss for the period.
Financial liabilities
There are no changes to the accounting policies in respect of loans, overdrafts, and trade and other
payables, which continue to be measured at amortised cost, except where fair value hedge accounting
is applied.
VIII Pronouncements issued and not effective
The following new or amended accounting standards issued by the AASB are relevant to current operations
and will impact the Group in the period of initial application. They are available for early adoption but have
not been applied in preparing this Financial Report.
1.
AASB 16 Leases (effective date 1 July 2019):
AASB 16 applies to annual reporting periods beginning on or after 1 January 2019 and replaces
AASB 117 Leases and the related interpretations. AASB 16 Leases specifies how to recognise,
measure and disclose leases. The standard provides a single lessee accounting model, excluding those
that are classified as short-term leases or leases for low-value assets, requiring lessees to recognise
right-of-use assets and lease liabilities, similar to the accounting for finance leases under AASB 117.
The key features of AASB 16 lessee accounting are as follows:
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.
Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as
finance or operating leases. In cases where the Group is a lessor (for both operating and finance
leases), it is not anticipated that the application of AASB 16 will have a significant impact on the
amounts recognised in the Group's consolidated financial statements.
The Group will adopt the new standard with effect from 1 July 2019 and make significant judgements
and estimates when measuring the opening lease liability and corresponding right-of-use asset under
AASB 16. Consequently, the Group plans to adopt the new standard using the modified retrospective
approach, electing to measure the right of use asset retrospectively, by calculating what the right-of-
use asset balance would have been on the adoption date if the new standard had always applied.
Under this approach, any differences that exist between the lease liability and right-of-use asset
balances are recognised as an adjustment to the opening balance on retained earnings on
1 July 2019.
The Group has non-cancellable operating lease commitments of $11.7 million as at the reporting
date. Based on estimates, the Group will recognise a right of use asset of $5.0 million and an equal
and opposite lease liability for these respective leases upon adoption of AASB 16.
The Net profit / (loss) after tax impact is estimated to be less than $(0.3) million in FY2020.
The impact is zero over the life of the lease.
Austal Limited | Notes to the financial statements 71
The following effects to the Group’s financial statements and disclosures are expected:
Total assets and liabilities on the balance sheet will be grossed-up, due to the recognition of the
right-to-use assets (non-current assets) and the corresponding fair value of lease liabilities.
Current liabilities will also show an increase due to a portion of the lease liability being classified
as a current liability.
EBITDA will increase as operating lease costs are replaced with incremental interest and
depreciation charges.
Compared to the current net earnings profile, interest expense will be greater earlier in a lease’s
life due to the higher principal value, causing profit variability over the course of the lease.
Cash flow will not be impacted because the contracts with third parties will not change.
Further information relating to the Group’s Operating Lease commitments is provided in Note 28.
2.
Other new accounting standards (effective date 1 July 2019):
The following new or amended standards are not expected to have a significant impact on the Group’s
consolidated financial statements:
AASB 2016-5 Amendments to Australian Accounting Standards – Classification and
Measurement of Share-based Payment Transactions,
AASB 2017-5 Amendment to Australian Accounting Standards – Effective Date of Amendments
to AASB 10 and AASB 128 and Editorial Corrections and
Interpretation 22 Foreign Currency Transactions and Advance Consideration.
72 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Current year performance
Operating segments
I
Disclosures
USA
’000
Australasia
Unallocated
Adjustments
’000
’000
’000
Total
’000
Elimination /
$
1,472,679
$
378,076
$
108
$
158
$
1,851,021
-
-
15,079
-
-
1,053
(15,079)
-
-
1,053
$
1,472,679
$
393,155
$
1,161
$
(14,921)
$
1,852,074
Year ended 30 June 2019
Revenue
External customers
Inter-segment 1
Finance income
Total
Profit / (loss) before tax
Earnings before interest and tax
$
106,422
$
11,673
$
(25,267)
$
(33)
$
92,795
Finance income
Finance expenses
-
-
-
-
1,053
(8,284)
-
-
1,053
(8,284)
Profit / (loss) before income tax
$
106,422
$
11,673
$
(32,498)
$
(33)
$
85,564
Depreciation and amortisation
$
(29,381)
$
(10,003)
$
(2,822)
$
-
$
(42,206)
Balance sheet
Segment assets
Segment liabilities
$
913,301
$
320,408
$
103,200
$
(9,608)
$
1,327,301
(411,658)
(242,372)
(42,488)
-
(696,518)
USA 2
’000
Australasia 3
’000
Unallocated
Adjustments
’000
’000
Total
’000
Elimination /
$
1,161,102
$
228,377
$
853
$
(182)
$
1,390,150
-
-
9,468
-
-
305
(9,468)
-
-
305
$
1,161,102
$
237,845
$
1,158
$
(9,650)
$
1,390,455
Year ended 30 June 2018 Restated
Revenue
External customers
Inter-segment 1
Finance income
Total
Profit / (loss) before tax
Earnings before interest and tax
$
81,455
$
(8,458)
$
(9,755)
$
247
$
63,489
Finance income
Finance expenses
-
-
-
-
305
(8,532)
-
-
305
(8,532)
Profit / (loss) before income tax
$
81,455
$
(8,458)
$
(17,982)
$
247
$
55,262
Depreciation and amortisation
$
(25,899)
$
(9,088)
$
(2,321)
$
-
$
(37,308)
Balance sheet
Segment assets
Segment liabilities
$
834,542
$
261,956
$
51,777
$
(4,092)
$
1,144,183
(384,045)
(178,332)
(36,228)
-
(598,605)
1. Inter-segment revenues, investments, receivables and payables are eliminated on consolidation.
2. Financial results for the prior corresponding period have been restated in accordance with AASB 15.
Further information is provided in Note 2.
3. The Australasia operating segment has been restated for the prior corresponding period to include Australia, Philippines,
Vietnam, Muscat and Aulong Joint Venture. Further information is provided in Note 2.
Austal Limited | Notes to the financial statements 73
Analysis of Unallocated
Revenue
Support and sustainment revenue
$
-
$
9
2019
’000
2018
’000
Charter vessel revenue
Finance income
Total
Profit / (loss) before tax
Foreign exchange gains / (losses)
Write down of charter vessels
Administration expenses
Marketing expenses
Charter vessel profit / (loss)
Research and development credits
Finance income
Finance expenses
Total
Segment assets
Cash
Property, plant and equipment
Other receivables
Deferred tax assets
Income tax receivable
Other non-current assets 1
Other
Total
Segment liabilities
Deferred tax liabilities
Creditors & provisions
Total
108
1,053
844
305
$
1,161
$
1,158
$
(776)
$
(561)
(1,157)
(19,415)
(9,758)
(198)
6,037
1,053
(8,284)
(1,064)
(11,979)
(10,667)
400
14,116
305
(8,532)
$
(32,498)
$
(17,982)
$
77,202
$
11,381
-
33
8,402
2,324
14,838
401
5,856
283
7,844
4,464
21,751
198
$
103,200
$
51,777
$
(33,839)
$
(31,268)
(8,649)
(4,960)
$
(42,488)
$
(36,228)
1. Balance relates to research and development (R&D) credits. Further information is provided in Note 23.
Revenue from external customers
By geographical location of customers
North America
Europe
Australia
Asia
South and Central America
Middle East
Total
2019
’000
Restated 1
2018
’000
$
1,472,679
$
1,160,944
150,922
108,647
81,059
36,050
1,664
99,767
104,525
21,032
-
3,882
$
1,851,021
$
1,390,150
1. Financial results for the prior corresponding period have been restated in accordance with AASB 15. Further information is provided in Note 2.
One customer in the USA segment contributed revenue of $1,472.679 million during FY2019
(FY2018: $1,160.944 million).
74 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Non-current assets 1
Geographical location
North America
Australia
Asia
Europe
Total
Composition
Property, plant and equipment
Intangible assets
Total
2019
’000
2018
’000
$
451,188
$
446,019
106,635
51,304
-
107,459
27,255
4,882
$
609,127
$
585,615
$
588,384
$
565,778
20,743
20,812
$
609,127
$
586,590
1. Excludes financial instruments, prepayments and deferred tax assets.
II
Identification of reportable segments
The Group is organised into two business segments for management purposes based on the location of the
production facilities, related sales regions and types of activity.
The Chief Executive Officer, who is the Chief Operating Decision Maker (CODM), monitors the performance
of the business segments separately for the purpose of making decisions. Segment performance is evaluated
based on operating Profit and Loss. Finance costs, finance income and income tax are managed on a Group
basis (i.e. Unallocated).
III
Reportable segments
The reportable segments are:
1.
USA
The USA manufactures high performance aluminium defence vessels for the US Navy and provides
training and on-going support and maintenance of these high performance vessels to the US Navy.
2.
Australasia
Reporting of Austal’s Australia, Philippines, Vietnam, Aulong Joint Venture and Muscat operations is
combined into a single Australasia reporting segment. These locations act as a single business unit for
tendering, scheduling, resource planning and management accountability.
The Australasia business manufactures high performance vessels for markets worldwide, excluding the
USA, and provides training, on-going support and maintenance for high performance vessels.
IV
Accounting policies, inter-segment transactions and unallocated items
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 in
accordance with the Group’s transfer pricing policy.
Certain unallocated items are not considered to be part of the core operations of any segment.
Austal Limited | Notes to the financial statements 75
Revenue
I
Disclosure
Revenue
Vessel construction and support
$
1,840,793
$
1,379,186
2019
’000
Restated 1
2018
’000
CCPB 9 & 10
Other charter vessels
Total Revenue from customers
Finance income
Total
10,120
108
10,120
844
$
1,851,021
$
1,390,150
$
1,053
$
305
$
1,852,074
$
1,390,455
1. Financial results for the prior corresponding period have been restated in accordance with AASB 15. Further information is provided in Note 2.
II
Recognition and measurement
1.
Vessel construction and support revenue
Revenue from contracts with customers is recognised in the Profit and Loss statement when the
performance obligations are considered met. Revenue is recognised at an amount that reflects the
consideration the Group expects to be entitled to, net of goods and services tax or similar tax.
Further information on the application of AASB 15 on the major activities of the Group (construction
and support) are provided in Note 2.
2.
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.
This arrangement results in non-cash entries being recorded in Austal’s statutory reporting during the
charter period for notional revenue, notional depreciation and notional interest. Notional revenue of
$10.120 million was reported in FY2019 (FY2018: $10.120 million).
Further information is provided in Note 11 and Note 30.
3.
Other charter vessel revenue
Charter vessel revenue is generated from operating rentals received on charter of vessels (other than
CCPB 9 & 10) and is recognised over time. All other charter vessels were disposed of during FY2019.
76 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
III
Remaining performance obligations (work in hand)
The transaction price allocated to remaining performance obligations (unsatisfied or partially satisfied) at
30 June 2019 is set out below:
Transaction price allocated to remaining performance obligations pursuant to customer contracts
Committed at the reporting date but not recognised as liabilities; payable:
- Within one year
- One to five years
Total
2019
’000
2018
’000
$
1,795,768
$
1,288,598
3,089,116
1,713,872
$
4,884,884
$
3,002,470
The transaction price associated with unsatisfied or partially satisfied performance obligations does not include variable consideration that is constrained.
IV
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 Profit and Loss for FY2019 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. Specific risks that are considered in determining total contract costs
including schedule, material costs, labour hours and rates, learning curve (where applicable),
liquidated damages and other general risks and contingencies.
Austal Limited | Notes to the financial statements 77
Other profit and loss
I
Disclosure
Other income and expenses
Government infrastructure grants amortised
$
9,270
$
8,662
2019
’000
2018
’000
Training reimbursement grants
Gain / (loss) on disposal of property, plant and equipment
Net foreign exchange gain / (loss)
Sale of scrap materials
Gain on cessation of foreign operations
Other income
Warranty
Write down of assets
Total
Finance costs
2,631
439
(574)
3,008
-
2,296
(2,569)
(1,200)
2,839
(46)
(387)
3,736
817
811
(1,670)
(1,064)
$
13,301
$
13,698
Interest to unrelated parties
Amortisation of capitalised loan origination costs
Total
$
(7,557)
$
(6,993)
(727)
(1,539)
$
(8,284)
$
(8,532)
Share of profit from joint venture 1
Share of profit / (loss) of Aulong Joint Venture
$
-
$
(266)
Total
$
-
$
(266)
Depreciation and amortisation
Depreciation
Amortisation of intangible assets
Total
Employee benefits 2
Wages and salaries
Post-retirement benefits
Share based payments expense
Workers’ compensation costs
Annual leave expense
Long service leave expense
Total
Research and development credits 2
$
(39,905)
$
(35,712)
(2,301)
(1,596)
$
(42,206)
$
(37,308)
$
(428,212)
$
(387,699)
(8,459)
(5,975)
(6,566)
(23,612)
(2,249)
(7,137)
(1,617)
(5,691)
(20,765)
(1,235)
$
(475,073)
$
(424,144)
Research and development credits
$
6,037
$
14,116
1. Further information relating to the share of profit from joint venture is provided in Note 31.
2. Includes items that are disclosed within cost of sales.
78 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
2019
2018
Auditor's remuneration
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
$
(192,200)
$
(180,000)
Other services in relation to the entity and any other entity in the Group
Tax advice
Total
(130,059)
-
(62,813)
(6,530)
$
(322,259)
$
(249,343)
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
$
(916,845)
$
(716,031)
Other services in relation to the entity and any other entity in the Group
Tax advice
Total
(3,594)
(425,904)
(8,595)
(120,830)
$
(1,346,343)
$
(845,456)
Auditors remuneration was converted at USD / AUD 0.7150 in FY2019 (FY2018: 0.7751)
II
Recognition & measurement
The following recognition and measurement criteria must be met before the following specific items are
recognised in the Profit and 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 they relate 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) credits
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 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 FY2019 is $6.037 million (FY2018: $14.116 million).
Further information relating to the R&D credits is provided in Note 23.
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. All other finance costs are expensed in the period that
they occur. There were no qualifying assets in FY2019.
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.
Austal Limited | Notes to the financial statements 79
4.
Depreciation and amortisation
Further information relating to depreciation is provided in Note 19.
Further information relating to amortisation of intangible assets is provided in Note 20.
5.
Employee benefits
Further information relating to employee benefits is provided 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 Profit and Loss on a straight-line basis
over the lease term.
Further information is provided in Note 28.
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.
8.
Foreign exchange gains and losses
Foreign exchange gains and losses included in the Profit and Loss comprise fair value adjustments on
non-derivative financial assets (such as foreign currency denominated loans) and 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 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.
80 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Earnings per share
I
Calculation
2019
’000
Restated 1
2018
’000
Net profit / (loss) after tax
Net profit attributable to ordinary equity holders of the parent
$’000
$
61,384
$
37,533
Weighted average number of ordinary shares
Basic
Effect of dilution
Diluted
Earnings per share
Basic earnings per share
Diluted earnings per share
Number
Number
349,598,590
346,229,344
4,476,326
1,816,757
Number
354,074,916
348,046,101
$ / share
$
0.176
$
0.108
$ / share
$
0.173
$
0.108
1. Financial results for the prior corresponding period have been restated in accordance with AASB 15.
Further information is provided in Note 2.
II
Measurement
Basic earnings per share is 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 is calculated by dividing the 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 plus the weighted average number of ordinary shares that would be issued on the conversion of all
potentially dilutive ordinary shares into ordinary shares.
III
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 the
reporting date. There were 8,052,757 performance rights that are potentially dilutive at
30 June 2019. These rights are included in the determination of diluted earnings per share.
Further information relating to the performance rights is provided in Note 35.
Austal Limited | Notes to the financial statements 81
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 fixed 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. 159,095 share rights were issued during the year.
Share rights are also a component of Non-Executive Directors’ (NED) and the CFO’s remuneration.
31,891 share rights were issued to NED and 24,127 share rights were issued to the CFO during the
year.
Austal has issued 212,998 shares to an Employee Share Trust (EST) to support the share rights.
Shares in the EST that support the share rights are not dilutive because share rights are already
treated as dilutive (this avoids double dilution).
Further information relating to the share rights is provided in Note 35.
3.
Employee Share Trust
Austal established an 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 212,998 shares to the trust during the year ended
30 June 2019.
4.
Austal Group Management Share Plans (AGMSP)
Further information relating to shares held on trust under the AGMSP is provided in Note 35.
5.
Other equity transactions
There have been no transactions involving ordinary shares or potential ordinary shares between the
reporting date and the date of completion of these financial statements.
82 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Reconciliation of net profit after tax to net cash flows from operations
Net profit / (loss) after tax
Adjustments for non cash profit and loss items:
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 Notional charter income
CCPB 9 & 10 Notional interest expense
Amortisation of borrowing costs
Non-cash mark to market of trade payables and receivables
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 and other receivables
(Increase) / decrease in inventories and work in progress
(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 government grants
2019
’000
Restated 1
2018
’000
$
61,384
$
37,533
$
42,206
$
37,308
1,200
(439)
5,975
574
1,064
46
1,617
387
(10,120)
(10,121)
1,785
727
3,903
2,063
1,539
(151)
$
45,811
$
33,752
$
6,036
$
1,478
431
(2,146)
8,135
9,288
(115,180)
75,604
(1,923)
(1,699)
16,427
66,643
(4,294)
(500)
(2,112)
10,120
1,189
(4,274)
(74,565)
(1,480)
(534)
30,733
38,205
(3,862)
Total
$
57,322
$
(5,602)
Net cash inflow / (outflow) from operating activities
$
164,517
$
65,683
1. Financial results for the prior corresponding period have been restated in accordance with AASB 15. Further information is provided in Note 2.
Austal Limited | Notes to the financial statements 83
Dividends paid and proposed
I
Dividends on ordinary shares
Dividends paid on Ordinary Shares
2019
’000
2018
’000
Unfranked final dividend for the prior year, 3 cps (2018: fully franked, 2 cps)
$
(10,549)
$
(6,989)
Unfranked interim dividend for the current year, 3 cps (2018: fully franked, 2 cps)
(10,584)
(7,011)
Total
$
(21,133)
$
(14,000)
Dividend declared subsequent to the reporting period end (not recorded as liability)
Unfranked final dividend for the current year 3 cps (2018: unfranked 3 cps)
$
(10,601)
$
(10,526)
II
Franking credit balance
Opening Balance
Franking credits distributed
Franking credits movement from the payment / (refund) of income tax
Movement
Closing Balance
2019
’000
2018
’000
$
1,170
$
4,377
$
-
$
(2,995)
-
(212)
$
-
$
(3,207)
$
1,170
$
1,170
84 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Income and other taxes
I
Income tax expense
Major components of tax (expense) / benefit are:
Consolidated Profit and 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)
2019
’000
Restated 1
2018
’000
$
(10,851)
$
(5,850)
745
(196)
$
(10,106)
$
(6,046)
$
(13,737)
$
(11,970)
(337)
287
$
(14,074)
$
(11,683)
$
(24,180)
$
(17,729)
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
$
460
$
1,698
Deferred gains on revaluation of property, plant and equipment
(578)
(10,067)
Total income tax (expense) / benefit charged to OCI
$
(118)
$
(8,369)
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
$
85,564
$
55,262
Income Tax at the Group’s statutory income tax rate of 30% (2018: 30%)
$
(25,669)
$
(16,579)
Adjustment for USA statutory income tax rate of 25.3% (2018: 31.6% )
$
3,089
$
(1,702)
Adjustment for Philippines income tax rate of 5%
Other foreign tax rate differences
Non-assessable R&D credits in cost of sales
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-deductible share based equity expense
Other non-assessable or non-deductible items
Adjustments in respect of current and deferred income tax of the previous year
4,507
48
1,652
-
-
(787)
(1,776)
(2,727)
(1,712)
(1,213)
408
(27)
693
4,219
2,265
1,580
(876)
(4,495)
(3,413)
134
381
91
Total Adjustments
$
1,489
$
(1,150)
Income tax (expense) / benefit reported in the Profit and Loss
$
(24,180)
$
(17,729)
Income tax receivable / (payable)
Income tax receivable / (payable)
$
1,701
$
4,523
1. Financial results for the prior corresponding period have been restated in accordance with AASB 15. Further information is provided in Note 2.
Austal Limited | Notes to the financial statements 85
II
Analysis of temporary differences
Deferred income tax - USA
Deferred tax assets
Trade & other receivables
Work in Progress
Payables
Provisions
Deferred Grant Income
Losses available for offset against future taxable income
Alternative minimum tax credits
R&D
Deferred gains and losses on foreign currency contracts
Property, plant and equipment
Other
Total
Deferred tax liabilities
Property, plant and equipment
Work in Progress
Intangibles
Payables
Deferred gains and losses on foreign currency contracts
Statement of Financial Position
2019
’000
2018
’000
Movement in
Profit and Loss
2019
’000
2018
’000
$
-
$
-
$
-
$
(11,075)
-
5,782
3,337
15,924
33
-
-
2,158
-
-
1,231
5,334
550
16,932
584
1,368
-
406
-
-
(1,214)
155
2,713
(1,899)
(573)
(1,420)
(14,004)
(41)
-
-
25
(25)
(3,401)
(9,411)
(1,974)
(420)
-
(101)
(1,794)
(108)
$
27,234
$
26,405
$
(16,283)
$
(28,284)
$
(56,845)
$
(56,345)
$
2,473
$
16,535
(3,012)
(938)
(273)
(5)
-
(962)
(234)
(132)
(2,964)
75
-
(3)
-
12
101
-
Total
$
(61,073)
$
(57,673)
$
(419)
$
16,648
Net deferred tax asset / (liability)
$
(33,839)
$
(31,268)
$
(16,702)
$
(11,636)
Deferred income tax - Australia
Deferred tax assets
Cash
Work in Progress
Payables
Provisions
Deferred gains and losses on foreign currency contracts
CCPB 9 & 10
Other
Total
Deferred tax liabilities
Property, plant and equipment
Deferred gains and losses on foreign currency contracts
Other
Total
$
511
$
(86)
$
597
$
-
2,820
289
8,013
2,368
407
219
-
690
7,633
2,410
732
110
2,820
(400)
380
-
(327)
109
-
289
(319)
(72)
(237)
(420)
$
14,627
$
11,489
$
3,179
$
(759)
$
(4,771)
$
(3,290)
$
(849)
$
806
(554)
(1,196)
(429)
(11)
-
-
52
(173)
$
(6,521)
$
(3,730)
$
(849)
$
685
Net deferred tax asset / (liability)
$
8,106
$
7,759
$
2,330
$
(74)
Deferred income tax - Other
Deferred tax assets
Deferred tax liabilities
$
328
$
122
$
308
$
-
(32)
(37)
(10)
27
Net deferred tax asset / (liability)
$
296
$
85
$
298
$
27
Net deferred tax asset / (liability)
$
(25,437)
$
(23,424)
$
(14,074)
$
(11,683)
86 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
III
Austal Group Tax Strategy
1.
Tax risk management and governance
Austal’s tax risk management and governance processes are supported through its Tax Risk
Management Standard that is approved by Austal’s Board of Directors. The Audit and Risk Committee
assists the Board in fulfilling its oversight responsibilities by reviewing, monitoring and making
recommendations in relation to tax risk management and governance practices.
Austal’s approach to tax is that it will:
fulfil its tax obligations in accordance with tax laws and practice of the tax jurisdictions in which
it operates.
pay the amount of tax which is legally due at the correct time.
maintain an open and collaborative relationship with tax authorities.
act with integrity and protect the reputation of Austal.
2.
Tax planning
Austal seeks to manage its business in a tax-efficient manner, compliant with the tax laws, rules and
regulations of the jurisdiction it operates in. Transactions are undertaken for commercial and
economic business reasons; Austal will not knowingly participate in, facilitate nor promote artificial or
contrived tax planning arrangements for the purposes of tax avoidance.
3.
Tax risk appetite
Tax risk will inevitably arise given the scale of the business and the number of tax jurisdictions in
which Austal operates, the judgments that are required to interpret complex tax regulations and the
continually changing nature of tax laws.
Austal applies a prudent management of its tax affairs and proactively seeks to identify, evaluate,
manage and monitor tax uncertainties and risks to ensure that they are appropriately addressed.
Transfer pricing is calculated using the “arm’s length” principle and structured so that the tax results
are consistent with the underlying economic consequences.
4.
Relationship with tax authorities
Austal is committed to engaging with the regulatory authorities with integrity, honesty, respect,
fairness and a spirit of co-operation.
5.
UK specific comments
Austal Group’s tax strategy is regarded as satisfying the statutory obligation under Paragraph 22(2) of
Schedule 19 Finance Act 2016 (‘Qualifying Company’) for Austal UK Limited.
Austal Limited | Notes to the financial statements 87
IV
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 at the balance date.
2.
Deferred income tax
Deferred income tax is provided on all temporary differences at the balance date between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes, except
when:
the deferred income tax liability arises from the initial recognition of goodwill, or 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 and Loss; or
the 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 and carry-forward
tax assets and losses to the extent that the availability of taxable profit against which the deductible
temporary differences is probable; and the deferred tax assets 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 and Loss;
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.
88 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
4.
Deferred income tax asset and liability measurement
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 was able to
apply the new 21% rate for all of FY2019.
The combination of the Federal rate of income tax at 21% and the weighted average of individual
US states in which Austal operates was 25.3% for FY2019. The weighted average tax rate changes
year on year based on the apportionment of activity between the states.
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.
Amounts arising from the re-measurement of deferred balances is disclosed separately in the tax
expense reconciliation.
5.
Income taxes relating to equity items
Income taxes relating to items recognised directly in equity are only recognised in equity and not in
the Profit and Loss.
V
Tax consolidation
Austal Limited is the head entity in a Tax Consolidated Group comprising of the head entity 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 reporting 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 or deferred tax assets or liabilities 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. 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 or from the head entity to be 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 or distribution adjustments in preparing
the accounts for the head entity for the current year.
Austal Limited | Notes to the financial statements 89
VI
Significant accounting judgements and estimates
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.
1.
Deferred tax assets
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.
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable
profit will be available against which the losses can be utilised. Significant management judgement is
required to determine the amount of deferred tax assets that can be recognised, based upon the likely
timing and the level of future taxable profits together with future tax planning strategies.
A deferred tax asset has not been recognised for the Australian Consolidated Tax Group in FY2019
because the group incurred a taxable loss and the standard for recognising carry forward tax losses as
a deferred tax asset is higher when a business is emerging from creating taxable losses.
The company has assessed that the criteria for recognising the tax losses will be met when the
Australian Consolidated Tax Group generates a taxable profit.
Unrecognised deferred tax assets in respect of the Australian Consolidated Tax Group losses at
30 June 2019 were:
Unrecognised Deferred Tax Assets (Tax effected values)
Opening Balance
Prior year true-up
Current year loss
Total
Closing Balance
2019
’000
2018
’000
$
6,175
$
1,918
$
(2,180)
$
-
1,719
4257
$
(461)
$
4,257
$
5,714
$
6,175
90 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
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 that was concluded in CY2017, has
resulted in differing interpretations of inter-company royalties associated with intellectual property
deployed from Australia to the USA. The ATO’s position creates economic double taxation for Austal
because the ATO requires that a higher level of royalty income be recognised in the Australian taxable
income than may be taken as a deduction in the USA.
Austal has applied for entry into Mutual Agreement Procedures (MAP) between the Competent
Authorities of Australia (ATO) and the United States of America (Internal Revenue Service) in order to
seek relief from the double taxation.
Austal have accounted for and paid tax based on the ATO’s position and may receive tax refunds in
Australia or the USA if the outcome of the MAP process results in the removal of economic double
taxation. Austal is currently unable to determine what the outcome of this process may be and the
timeline to resolution.
VII Other taxes
Revenues, expenses and assets are recognised net of the amount of Goods and Services Tax (GST) or
Value Added Tax (VAT) except when:
the GST or VAT incurred on a purchase of goods and services is not recoverable from the taxation
authority, in which case the GST or VAT is recognised as part of the cost of acquisition of the asset or
as part of the expense item; and
receivables and payables which are stated with the amount of GST or VAT included.
The net amount of GST or VAT recoverable from, or payable to, the relevant 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 or VAT component
of cash flows arising from investing and financing activities, which is recoverable from, or payable to,
the relevant taxation authority, are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST or VAT recoverable from, or payable
to, the relevant taxation authority.
Austal Limited | Notes to the financial statements 91
Capital structure
Cash and cash equivalents
I
Net carrying amount
Cash
Cash at bank and in hand
$
275,665
$
162,024
Total
$
275,665
$
162,024
2019
’000
2018
’000
II
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 any cash held as a guarantee.
Interest bearing loans and borrowings
I
Net carrying amount
Current
Go Zone Bonds 1
Vessel finance for Cape Class Patrol Boats 9 & 10
2
Finance leases
Total
Non - Current
Go Zone Bonds 1
Vessel finance for Cape Class Patrol Boats 9 & 10
2
Finance leases
Total
Total
2019
’000
2018
’000
$
-
$
(61,723)
(48,798)
(2,413)
(8,336)
(2,699)
$
(51,211)
$
(72,758)
$
(122,286)
$
(60,888)
-
(257)
(48,798)
(2,834)
$
(122,543)
$
(112,520)
$
(173,754)
$
(185,278)
1. Tenor of the Go Zone Bonds letters of credit was restored to three years during the period and the carrying amount reclassified as non-current.
2. Reclassified to non-current post balance date after extension was signed.
92 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
II
Facilities available
Facilities used at reporting date
Revolving Credit Facility
Go Zone Bonds
Surety Facility
Finance leases
Total 1
Facilities unused at reporting date
Revolving Credit Facility
Go Zone Bonds
Surety Facility
Finance leases
Total
Total Facilities Available
Revolving Credit Facility
Go Zone Bonds
Surety Facility
Finance Leases
Total
2019
’000
2018
’000
$
(58,900)
(122,286)
(126,263)
(2,670)
$
(102,359)
(122,611)
-
(5,533)
$
(310,119)
$
(230,503)
$
(121,100)
-
(23,737)
-
$
(77,641)
-
(100,000)
-
$
(144,837)
$
(177,641)
$
(180,000)
(122,286)
(150,000)
(2,670)
$
(180,000)
(122,611)
(100,000)
(5,533)
$
(454,956)
$
(408,144)
1. The balance sheet carrying amount of total facilities used is $(124.956) million at 30 June 2019 being Go Zone Bonds and Finance leases
(30 June 2018: $(128.144) million).
III
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 Profit and Loss when the liabilities are derecognised.
IV
Banking facilities
Austal has a Syndicated Facility Agreement which includes US$88.379 million for letters of credit to secure
the Go Zone Bonds and 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. The Syndicated Facility Agreement matures in May 2021.
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 and warranty bonds.
Further information relating to commitments and contingencies is provided in Note 28.
Austal Limited | Notes to the financial statements 93
V
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 million with a 30 year maturity to
invest in the development of shipbuilding infrastructure in Austal USA between FY2008 and FY2013.
GZB are tax-exempt municipal bonds in the United States and attracted an average coupon rate of 1.58% in
FY2019. GZB bondholders are secured by letters of credit issued by Austal’s banking syndicate with a
maturity date of May 2021. The average cost of the letters of credit in FY2019 was 1.53%.
US$5.000 million of GZB was redeemed (repaid) during FY2019 and Austal has now redeemed a cumulative
amount of US$136.6 million and owed US$88.4 million at 30 June 2019. Austal has the option of
redeeming the outstanding GZB balance, in whole or in part, at any time during the term of the indebtedness
with a 30 day notice to bondholders.
Austal re-financed 50% of the GZB Syndicated Facility during FY2019. 100% of the letters of credit
securing GZB mature in May 2021 and all of the GZB debt has been classified as non-current at
30 June 2019.
VI
Surety facility
Austal had $150.000 million of uncommitted and unsecured Surety facilities for the issuance of non-
financial contingent instruments to support commercial vessel contracts at 30 June 2019.
An additional $100.000 million uncommitted and unsecured Surety facility was established in July 2019.
This has been disclosed as a post balance sheet event in Note 30.
VII
Finance leases
Austal USA entered into 5 year finance leases in FY2015 to fund mobile equipment and land in Mobile,
Alabama, USA, and the average interest rate incurred in FY2019 was 3.34%.
VIII 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 FY2019 was 3.19%.
RAN, NAB and Austal executed agreements on 16 August 2019 to extend the vessel finance contract to
April 2023 and May 2023. The contract extension reduces the total residual value to $24.335 million at the
end of the 2 year term and re-classifies the net carrying amount from current to non-current interest bearing
loans and borrowings.
IX
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.
94 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Reconciliation of financing cash flow to interest bearing debt
I
Reconciliation
FY2019
30 June 2018
’000
Cashflows
Repay /
(Draw)
’000
CCPB 9 & 10
Debt
Reduction1
’000
Foreign
exchange
movement
’000
Amortisation
of borrowing
costs
’000
Reclassification
’000
30 June 2019
’000
Non-cash changes
Current borrowings
Non-current borrowings
$
(72,758)
$
426
$
8,335
$
(139)
$
-
$
12,925
$
(51,211)
(112,520)
10,318
-
(6,689)
(727)
(12,925)
(122,543)
Total financing liabilities
$
(185,278)
$
10,744
$
8,335
$
(6,828)
$
(727)
$
-
$
(173,754)
FY2018
Non-cash changes
30 June 2017
’000
Cashflows
Repay /
(Draw)
’000
CCPB 9 & 10
Debt
Reduction1
’000
Foreign
exchange
movement
’000
Amortisation
of borrowing
costs
’000
Reclassification
’000
30 June 2018
’000
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)
1. CCPB 9 & 10 debt reduction is equal to the difference between the notional charter income and the notional interest expense.
Austal Limited | Notes to the financial statements 95
Contributed equity and reserves
I
Contributed equity
1.
Net carrying amount
Shares
’000
2019
2018
2019
2018
Ordinary shares on issue
1 July
350,857,529
349,472,643
$
130,165
$
128,276
Shares issued for dividend reinvestment plan
Shares issued to Employee Share Trust
Transfer of Reserved Shares related to vested AGMSP
Shares issued for vested Performance Rights
Options exercised
Dividend retained in relation to AGMSP
Tax expense on AGMSP1
AGMSP shares sold 1
912,560
212,998
-
-
1,374,196
-
-
-
703,878
463,697
-
217,311
-
-
-
-
$
1,922
$
1,209
454
-
-
2,110
13
(65)
(2,763)
812
(494)
201
-
23
(9)
147
30 June
353,357,283
350,857,529
$
131,836
$
130,165
Reserved shares
1 July
(4,165,697)
(4,015,539)
$
(11,836)
$
(11,892)
Shares issued to Employee Share Trust
(212,998)
(463,697)
$
(454)
$
(812)
Dividend retained in relation to AGMSP
AGMSP shares sold 2
Transfer of Reserved Shares related to vested AGMSP
-
-
3,702,000
313,539
-
-
95
10,929
-
127
247
494
30 June
Net
(676,695)
(4,165,697)
$
(1,266)
$
(11,836)
352,680,588
346,691,832
$
130,570
$
118,329
1. The Trustee sold all of the shares in the Austal Group Management Share Plan during the year. Further information is provided in Note 35.
2. 3,000,000 options exercised from AGMSP Plan 1 and 702,000 options exercised from AGMSP Plan 2.
2.
Recognition and measurement
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax, from the proceeds of the new shares
or options. Ordinary shares have no par value and the company does not have a limited amount of
authorised capital.
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
Reserved shares
Own equity instruments which are issued and held by a trustee under the Austal Group Management
Share Plan (AGMSP) and the Employee Share Trust (EST) are classified as Reserved shares and are
deducted from Equity. No gain or loss is recognised in the Statement of Comprehensive Income on
the purchase, sale, issue or cancellation of the Group’s own equity instruments.
Further information relating to the AGMSP is provided in Note 35.
96 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
3.
Movements in ordinary share capital
The movement in ordinary shares during year ended 30 June 2019 is comprised of shares issued as
part of dividends declared and paid during the year.
The Group announced a FY2018 final dividend of 3 cents per share with an option for dividend
reinvestment of $1.98 per share on 28 September 2018, followed by a FY2019 interim dividend of
3 cents per share with an option for dividend reinvestment of $2.20 per share, which was announced
on 1 April 2019.
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 212,998 shares to the trust
during the year ended 30 June 2019.
The movement in ordinary shares also includes 1,374,196 options exercised from
KM Engineering (NT) Pty Ltd (KME) and Hydraulink (NT) Pty Ltd Option Plan.
II
Reserves
The reserves are shown within the Consolidated Statement of Changes in Equity for the year ended
30 June 2019.
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, and
record the re-measurement of the retirement benefits liability.
Further information relating to share based payment plans for the Group is provided in Note 35.
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.
6.
Re-measurement reserve
This reserve is used to record re-measurement of defined benefit plan, comprising actuarial gains and
losses.
Austal Limited | Notes to the financial statements 97
Government grants relating to assets
I
Net carrying amount
Deferred grant income
Current
2019
’000
2018
’000
Infrastructure development
$
(6,445)
$
(8,903)
Total
Non - Current
$
(6,445)
$
(8,903)
Infrastructure development
$
(56,214)
$
(58,050)
Total
Total
Movements in Grants
1 July
Grants received during the year
Amortised to the profit and loss
Exchange rate adjustment
Net movement
30 June
$
(56,214)
$
(58,050)
$
(62,659)
$
(66,953)
$
(66,953)
$
(70,815)
$
(1,482)
$
(2,318)
9,270
(3,494)
8,662
(2,482)
$
4,294
$
3,862
$
(62,659)
$
(66,953)
II
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
the 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 they are 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.
98 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Working capital
Trade and other receivables
I
Net carrying amount
Trade and other receivables
Trade amounts owing by unrelated entities
Allowance for doubtful debts
Total
II
Recognition and measurement
2019
’000
2018
’000
$
226,020
$
98,700
(752)
(1,351)
$
225,268
$
97,349
Trade receivables represent receivables in respect of which the Group’s right to consideration is
unconditional subject only to the passage of time. Trade receivables are non-derivative financial assets
accounted for in accordance with the Group’s accounting policy for non-derivative financial assets as set out
in AASB 9 Financial Instruments.
Trade and other receivables are measured at amortised cost. A gain or loss on trade and other financial
assets that is subsequently measured at amortised cost is recognised in the Profit and Loss when the asset is
derecognised or impaired. Interest income from these financial assets is included in finance income using
the effective interest rate method.
The average credit period on trade receivables ranges from 30 to 75 days in most cases. In determining the
recoverability of a trade receivable, the Group used the expected credit loss model as per AASB 9.
The expected credit loss model requires the Group to account for expected credit losses at each reporting
date to reflect changes in credit risk since initial recognition of the financial assets, meaning that a credit
default does not need to have occurred before credit losses are recognised.
Further information relating to AASB 9 Financial Instruments is provided in Note 2.
III
Ageing analysis of trade & other receivables
Days outstanding
0-30
31-60
61-90
90+
Impaired
Total
30 June 2019
30 June 2018
’000
$
195,680
$
23,462
$
1,111
$
5,767
$
(752)
$
225,268
’000
74,338
11,025
2,443
10,894
(1,351)
97,349
Past due is defined under AASB 9 to mean any amount outstanding for one or more days after the
contractual due date. Past due amounts relate to a number of trade receivable balances where for various
reasons the payment terms may not have been met. These receivables have been assessed to be fully
recoverable.
IV
Fair values of 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 99
Vessel construction and support contracts in progress
I
Net carrying amount
Work in Progress
Construction and support revenue recognised to date
less Progress payments received & receivable
Total due from customers
Progress Payments Received in Advance
2019
’000
Restated 1
2018
’000
$
11,297,883
$
9,468,076
(11,134,798)
(9,228,968)
$
163,085
$
239,108
Construction and support revenue recognised to date
$
584,639
$
170,805
less Progress payments received & receivable
(705,041)
(224,564)
Total due to customers
$
(120,402)
$
(53,759)
Total due from / (to) customers
$
42,683
$
185,349
1. Financial results for the prior corresponding period have been restated in accordance with AASB 15. Further information is provided in Note 2.
II
Recognition and measurement
Construction and support work in progress represents the Group’s right to consideration for services provided
to customers for which the Group’s right remains conditional upon something other than the passage of time.
Amounts are generally reclassified to trade receivables when contract performance obligations have been
certified or invoiced to the customer.
Progress payments received in advance arise where payment is received prior to work being performed.
III
Significant accounting judgements and estimates
Further information relating to the details of estimates made regarding construction and support contracts is
provided in Note 4.
100 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Inventories and work in progress
I
Net carrying amount
Inventories and work in progress
Work in progress
Other inventory
Total
2019
’000
Restated 1
2018
’000
$
163,085
$
239,108
3,957
2,788
$
167,042
$
241,896
1. Financial results for the prior corresponding period have been restated in accordance with AASB 15. Further information is provided in Note 2.
II
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.
Further information relating to work in progress is provided in Note 16.
Trade and other payables
I
Disclosure
2019
’000
2018
’000
Trade and other payables
Trade & other payables owed to unrelated entities 1
$
(202,308)
$
(178,140)
Total
$
(202,308)
$
(178,140)
1. Trade payables are unsecured and non-interest bearing.
II
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.
III
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 101
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
$
440,455
$
-
$
-
$
-
$
440,455
-
48,609
235,340
10,503
(25,639)
(19,990)
(123,500)
-
294,452
(169,129)
$
414,816
$
28,619
$
111,840
$
10,503
$
565,778
Balance 30 June 2018
Gross carrying amount at fair value
Gross carrying amount at cost
Accumulated Depreciation & Impairment
Net Carrying Amount
Balance 30 June 2019
Gross carrying amount at fair value
Gross carrying amount at cost
Accumulated Depreciation & Impairment
$
463,085
$
3,254
$
-
$
-
$
466,339
-
67,646
260,743
(36,585)
(29,578)
(143,419)
3,238
-
331,627
(209,582)
Net Carrying Amount
$
426,500
$
41,322
$
117,324
$
3,238
$
588,384
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 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
Additions
Transfer in / (out)
Disposals
Depreciation charge for the year
Impairment
Revaluation
Exchange Adjustment
Total
$
709
$
55
$
5,485
$
34,544
$
40,793
569
-
19,591
-
(12,287)
(8,396)
-
2,103
20,590
-
-
1,453
21,997
(3,934)
(19,222)
(1,200)
-
2,358
(42,157)
-
-
-
-
348
-
(3,934)
(39,905)
(1,200)
2,103
24,749
$
11,684
$
12,703
$
5,484
$
(7,265)
$
22,606
Balance 30 June 2019
$
426,500
$
41,322
$
117,324
$
3,238
$
588,384
102 Austal Limited | Notes to the financial statements
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 of land and building would be recognised as detailed in the table below if they were
measured using the historic cost model.
Land & Buildings valued using cost model
Cost
Accumulated Depreciation & Impairment
Net Carrying Amount
2019
’000
2018
’000
$
429,832
$
371,442
(91,551)
(84,147)
$
338,281
$
287,295
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 Profit and Loss, in which case the increase is recognised in the Profit and Loss.
A revaluation deficit is recognised in the Profit and Loss 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 103
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.
Further information relating to impairment testing of non-current assets is provided in Note 21.
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 Profit and Loss.
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. 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
reporting date as appropriate.
104 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
3.
Revaluation of land and buildings
The Company’s land and buildings consist of shipyard facilities in Australia and USA.
The Company 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 in between obtaining independent valuations to ensure that the latest
independent valuation remains appropriate and representative of fair value as at the reporting date.
The last independent revaluation of the Australian land and buildings occurred during FY2019.
This resulted in an increase in the valuation of $2.103 million.
The last independent revaluation of the USA land and buildings occurred during FY2018.
This resulted in an increase in the valuation of $63.286 million.
Austal Limited | Notes to the financial statements 105
Intangible assets and goodwill
I
Net carrying amount
Balance 1 July 2018
Cost
Computer
Software
’000
Other
Goodwill
Intangibles
’000
’000
Total
’000
$
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
Balance 30 June 2019
Cost
$
23,186
$
12,797
$
4,061
$
40,044
Accumulated Amortisation & Impairment
(18,930)
-
(371)
(19,301)
Net Carrying Amount
$
4,256
$
12,797
$
3,690
$
20,743
II
Reconciliation of movement for the year
Computer
Software
’000
Other
Goodwill
Intangibles
’000
’000
Total
’000
Balance 1 July 2017
$
2,446
$
6,463
$
-
$
8,909
Additions
Amortisation for the year
Disposals
Business Acquisition
Amortisation for the year
Exchange Adjustment
Total
$
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
Balance 30 June 2018
$
4,467
$
12,543
$
3,802
$
20,812
Additions
Disposals
Business Acquisition
Amortisation for the year
Exchange Adjustment
Total
$
1,556
$
-
$
-
$
1,556
(27)
-
(1,987)
247
-
(76)
-
330
-
-
(314)
202
(27)
(76)
(2,301)
779
$
(211)
$
254
$
(112)
$
(69)
Balance 30 June 2019
$
4,256
$
12,797
$
3,690
$
20,743
106 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
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 the Profit
and 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 is 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 results in 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.
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 (CGU) that are expected to benefit from the combination from the acquisition date for the
purpose of impairment testing, irrespective of whether other assets or liabilities acquired are assigned
to those units.
Goodwill is tested annually for impairment regardless of whether impairment triggers are identified.
The Impairment is determined for goodwill by assessing the recoverable amount of each CGU or group
of CGU to which the goodwill relates. An impairment loss is recognised when the recoverable amount
of the CGU is less than its carrying amount. Impairment losses relating to goodwill cannot be reversed
in future periods.
Goodwill allocated to a cash-generating unit that has a partial disposal of the operation within that
unit is included in the carrying amount of the operation when determining the gain or loss on
disposal. Goodwill disposed in these circumstances is measured based on the relative values of the
disposed operation and the portion of the cash-generating unit retained.
Austal Limited | Notes to the financial statements 107
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:
USA
Australasia
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:
USA - a carrying amount of $6.080 million,
Australasia - a carrying amount of $6.463 million.
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.
108 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
V
Significant accounting judgement and estimates
1.
Recoverable amount of the CGU
The following table sets out the key assumptions used to assess the recoverable amounts:
CGU
USA
Australasia
Growth assumptions
Award of projected vessels
Award of projected vessels
Perpetuity growth rate
Pre-tax discount factor
Inflation on costs
0.0%
13.6%
1.5%
0.0%
11.6%
2.5%
2.
Growth assumptions
Growth assumptions are based on future vessel construction and service projects not yet awarded.
The assumptions are based on historical experience of the size of the vessel that customers typically
contract and the corresponding average tender pricing.
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. 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.
Austal Limited | Notes to the financial statements 109
Investments and other financial assets
I
Net carrying amount
Other financial assets
Collateral 1
Security deposits
Total
2019
’000
2018
’000
$
11,313
$
10,000
546
160
$
11,859
$
10,160
1. Austal USA has a legal obligation to provide cash collateral to ensure that workers' compensation claims will
be paid if they are upheld.
II
Recognition and measurement
The Group classifies its financial assets in the following measurement categories:
Financial Assets to be measured subsequently at fair value (either through Other Comprehensive
Income, or through the Profit and Loss); and
Financial Assets to be measured at amortised cost.
The Group measures a financial asset at initial recognition at its fair value plus transaction costs that are
directly attributable to the acquisition of the financial asset in the case of a financial asset not measured
at fair value through the Profit and Loss.
The Group subsequently measures derivative financial instruments at fair value. Gains and losses on
derivative financial instruments that do not qualify for hedge accounting are recognised in the Profit and
Loss for the period. The effective portion of any change in the fair value of a derivative financial instrument
designated as a cash flow hedge is recognised in Other Comprehensive Income and presented in the Cash
Flow Hedge Reserve in equity. Amounts recognised in equity are reclassified from reserves into the cost of
the underlying transaction and recognised in the Profit and Loss when the underlying transaction affects the
Profit and Loss. The ineffective portion of any change in the fair value of the instrument is recognised in the
Profit and Loss immediately. Where a derivative financial instrument is designated as a fair value hedge,
changes in the fair value of the underlying asset or liability attributable to the hedge risk, and gains and
losses on the derivative financial instrument, are recognised in the Profit and Loss for the period.
The Group subsequently measures trade and other receivables or contract receivables at amortised cost.
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.
III
Impairment
The Group applies the simplified approach permitted by AASB 9 for trade and other receivables,
and contract receivables and amounts due from equity accounted investments, which requires expected
lifetime losses to be recognised from initial recognition of the receivables.
110 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Other non-current assets
I
Net carrying amount
Research and development credits
Recognised
USA
Total
Unrecognised
Australia
USA
Total
2019
’000
2018
’000
$
14,838
$
21,751
$
14,838
$
21,751
$
7,037
$
6,702
-
3,410
$
7,037
$
10,112
II
Recognition and measurement
The Group recognised a non-current asset of $14.838 million for research and development (R&D) credits at
30 June 2019.
III
Unrecognised R&D credits
A non-current asset has not been recognised in relation to $7.037 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 Australian operating entities and the majority of the
Group Corporate overhead which is reported within the Unallocated segment. The Australian Consolidated
Tax Group generated a taxable loss in FY2019 and was deemed to have not met the recognition criteria for
an asset.
Austal Limited | Notes to the financial statements 111
Other liabilities
Provisions
I
Net carrying amount
Employee
Workers'
Benefits
Compensation
Warranty
’000
’000
’000
Other
’000
Total
’000
Provisions at 30 June 2018
$
(49,249)
$
(3,294)
$
(11,422)
$
(7,339)
$
(71,304)
Arising during the year
$
(115,581)
$
(6,566)
$
(9,408)
$
(54,570)
$
(186,125)
Utilised
Unused amounts reversed
Effects of foreign exchange
109,502
4
(2,060)
6,292
-
(157)
11,654
45,219
64
(164)
320
(257)
172,667
388
(2,638)
Movement
$
(8,135)
$
(431)
$
2,146
$
(9,288)
$
(15,708)
Provisions at 30 June 2019
$
(57,384)
$
(3,725)
$
(9,276)
$
(16,627)
$
(87,012)
Employee
Workers'
Benefits
Compensation
Warranty
’000
’000
’000
Other
’000
Total
’000
$
(48,023)
$
(3,294)
$
(11,422)
$
(7,019)
$
(69,758)
(1,226)
-
-
(320)
(1,546)
$
(49,249)
$
(3,294)
$
(11,422)
$
(7,339)
$
(71,304)
$
(55,677)
$
(3,725)
$
(9,276)
$
(16,627)
$
(85,305)
(1,707)
-
-
-
(1,707)
$
(57,384)
$
(3,725)
$
(9,276)
$
(16,627)
$
(87,012)
Provisions at 30 June 2018
Current
Non-Current
Total
Provisions at 30 June 2019
Current
Non-Current
Total
II
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.
112 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
III
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. 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.
3. Warranties
A 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. The Company subsequently monitors the provision to
ensure it is adequate for all known and an estimation for unknown warranty claims. Any increases or
decreases in the provision are recognised in the Profit and Loss for the period.
4.
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 3.0 cents per share
was issued for the half year 31 December 2018 (FY2018 H1: 2.0 cents per share).
An unfranked dividend of 3.0 cents per share is proposed and not recognised as a liability for the year
ended 30 June 2019 (FY2018 H2: 3.0 cents per share).
5.
Other provisions
The following concepts are included within Other provisions:
Corporate investigations
The Group is assisting ASIC and certain US Regulatory Authorities with their investigations.
An $11.031 million provision has been recorded based on the best estimate of the probable
incremental professional services costs relating to this matter. The Group has had to apply significant
judgement when considering whether, and how much, to provide for costs. The provision could change
substantially over time as new facts emerge and the investigations progress as a result of the high
level of estimation uncertainty.
The Group is not aware of any wrongdoing or all of the specific matters currently being investigated
and accordingly no provision has been made for any penalties or damages that may arise from the
investigations. Further information is provided in Note 29.
Austal Limited | Notes to the financial statements 113
Onerous contract loss provisions
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 Profit and Loss.
Other provisions at 30 June 2019 includes a $(3.244) million loss provision for the Cape Class Patrol
Boat In Service Support Contract (CCPB ISS) with the Australian Border Force (ABF) which was
deemed to be onerous at 30 June 2017.
The contract contains options to extend in one-year increments up to 2031 and was extended for one
year during FY2019 to 1 August 2020. The ABF has an option to extend the contract in unspecified
increments up to a total duration of 11 years from 1 August 2020. A loss provision for an extension
period beyond 1 August 2020 has not been recognised.
114 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
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
Sustainable gearing levels
through business cycles
Market risk - interest rate
Cash, trade receivables and derivative financial
instruments
Sensitivity analysis
Excess cash investment within
high interest deposit accounts
Market risk - foreign currency
Future commercial transactions,
recognised financial assets and liabilities not
denominated in the functional currency
Cash flow forecast,
Sensitivity analysis
Cash, short term deposits, trade receivables
and derivative financial instruments
Ageing analysis, credit
ratings
Forward foreign exchange
contracts, forward currency
options
Monitoring credit allowances
Borrowings, trade payables and derivative
financial instruments
Rolling cash flow forecasts
Availability of committed credit
lines and borrowing facilities
Credit risk
Liquidity
Objectives and policy
The objective of the Group’s financial risk management policy is to reduce the impacts of external threats to
the Group and to afford the opportunity to seek further investments.
Ultimate responsibility for identification and control of financial risks rests with the Board of Directors. The Board
reviews and agrees policies for managing each of the risks identified below, including hedging cover of foreign
currency, credit allowances and future cash flow forecast projections.
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis
of measurement and the basis on which income and expenses are recognised, in respect of each class of financial
asset, financial liability and equity instrument are disclosed in the relevant notes to the financial statements.
I
Market risk
Market risk is the risk that changes in interest rates and foreign exchange rates will affect the Group’s
earnings, cash flows and carrying values of its financial statements.
1.
Interest rate risk exposure
Source of risk
The Austal Group is exposed to interest rate risk from changes in interest rates on its outstanding
borrowings, derivative instruments and investments from the possibility that changes in interest rate
risk will affect future cash flows or the fair value of financial instruments.
Austal Limited | Notes to the financial statements 115
Risk mitigation
The cash, debt and bank covenants of the Group are monitored and re-forecasted on a monthly basis
in order to monitor interest rate risk. A variable interest rate policy is maintained to ensure repayments
are carried out as soon as practicable, where fixed interest rates are less flexible. Consideration is
given to potential renewal of existing positions and alternative financing structures.
Exposure
The Group had the following exposures to interest rate risk at the end of the reporting period:
Financial Assets
Cash & Cash Equivalents
Derivative Contracts
2019
’000
2018
’000
$
275,665
$
162,024
2,189
2,685
Total
$
277,854
$
164,709
Financial Liabilities
Interest Bearing Liabilities
Derivative Contracts
Total
Net Exposure
Sensitivity
$
(137,658)
$
(130,553)
(16,544)
(11,903)
$
(154,202)
$
(142,456)
$
123,652
$
22,253
Profit and Loss is sensitive to higher or 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 following table demonstrates the sensitivity to a reasonable change in interest rates to the Profit
and Loss after tax. 50 basis points was deemed to be a reasonable level of volatility based on FY2019
observations.
Post tax gain / (loss)
AUD
+0.50% (50 basis points)
-0.50% (50 basis points)
2019
’000
2018
’000
$
483
$
84
(483)
(84)
The sensitivity analysis assumes that the change in interest rates is effective from the beginning of
the financial year and the balances are constant over the year.
116 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
2.
Foreign currency risk
Source of 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. The Group is also exposed to foreign exchange movements
(primarily in USD) on the translation of the earnings, assets and liabilities of its foreign operations.
The Group’s transactions are primarily denominated in AUD, USD and EUR.
Risk mitigation
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.
using natural hedges.
using financial instruments, such as foreign currency exchange contracts and swaps.
Austal Limited | Notes to the financial statements 117
Exposure
The Group’s financial assets and liabilities exposed to foreign currency risk at 30 June 2019 were as
follows:
Balance 30 June 2019
Financial assets
AUD
’000
All values are stated in AUD equivalent
USD 1
’000
EUR 2
’000
Other
’000
Total
’000
Cash and cash equivalents
$
-
$
33,634
$
31
$
1,537
$
35,202
Trade and other receivables
Derivatives
Total
Financial liabilities
1,044
362
784
84
-
84
2,190
$
1,044
$
33,996
$
815
$
1,621
$
37,476
Trade and other payables
$
-
$
(23)
$
(20)
$
(1,756)
$
(1,799)
Derivatives
Total
(4,982)
(11,560)
(1)
-
(16,543)
$
(4,982)
$
(11,583)
$
(21)
$
(1,756)
$
(18,342)
Balance 30 June 2018
Financial assets
AUD
’000
All values are stated in AUD equivalent
USD 1
’000
EUR 2
’000
Other
’000
Total
’000
Cash and cash equivalents
$
123
$
8,287
$
4,460
$
2,216
$
15,086
Trade and other receivables
Derivatives
Total
Financial liabilities
-
39
41
1,274
385
1,372
1,276
-
1,702
2,685
$
162
$
9,602
$
6,217
$
3,492
$
19,473
Trade and other payables
$
(381)
$
(407)
$
(2,513)
$
(538)
$
(3,839)
Derivatives
Total
(8,009)
(3,894)
-
-
(11,903)
$
(8,390)
$
(4,301)
$
(2,513)
$
(538)
$
(15,742)
1. Spot USD / AUD rate at 30 June 2019 was 0.7020 (30 June 2018: 0.7402)
2. Spot EUR / AUD rate at 30 June 2019 was 0.6183 (30 June 2018: 0.6339)
118 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Sensitivity
A 10 per cent strengthening of the Australian Dollar against the following currencies would have
increased / (decreased) net profit after tax and equity below at balance date with all other variables
held constant as illustrated:
NPAT higher / (lower)
Equity higher / (lower)
2019
’000
2018
’000
2019
’000
2018
’000
Judgement of reasonable possible movements
EUR
USD
$
(34)
$
(259)
$
(8,731)
$
18,046
(1,567)
(371)
(40,762)
(39,734)
A 10 per cent weakening of the Australian Dollar would have the equal but opposite effect on the
above currencies to the amounts shown above, on the basis of all other variable held constant.
The foreign currency translation of USD denominated net assets would have significantly affected the
equity at the reporting date. The Group had US$550.3 million of USD denominated net assets at
30 June 2019 (US$478.3 million at 30 June 2018).
Austal Limited | Notes to the financial statements 119
Summary of forward foreign exchange contracts
The following table summarises the AUD equivalent value of the 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.
2019
2018
Buy
Sell
Buy
Sell
Average
Forward
Rate
AUD
Equivalent
'000
Average
Forward
Rate
AUD
Equivalent
'000
Average
Forward
Rate
AUD
Equivalent
'000
Average
Forward
Rate
AUD
Equivalent
'000
USD
Buy USD
(Sell USD)
Buy USD
(Sell USD)
less than 3 months
0.7223
$
20,664
0.7201
$
(29,540)
-
$
-
0.7521
$
(3,655)
3 - 12 months
> 12 months
0.7444
0.7209
33,246
15,542
0.7372
0.7309
(112,610)
(172,221)
0.7954
0.7864
36,366
23,285
0.7714
0.7697
(36,931)
(99,552)
Total
$
69,451
$
(314,371)
$
59,651
$
(140,138)
EUR
Buy EUR
(Sell EUR)
Buy EUR
(Sell EUR)
less than 3 months
0.6109
$
13,197
0.6312
$
(15,088)
0.6239
$
2,951
-
$
-
3 - 12 months
> 12 months
0.6066
0.5852
50,021
134,971
0.6271
0.6135
(86,661)
(32,166)
0.6011
0.6111
21,878
74,331
0.6389
0.6251
(146,398)
(133,001)
Total
$
198,189
$
(133,915)
$
99,160
$
(279,400)
SEK
Buy SEK
(Sell SEK)
Buy SEK
less than 3 months
6.0278
$
151
$
-
6.3149
$
479
3 - 12 months
> 12 months
6.0693
6.3123
10,729
287
-
-
6.1595
6.0054
828
15,032
(Sell SEK)
$
-
-
-
-
-
-
Total
$
11,167
$
-
$
16,338
$
-
GBP
Buy GBP
(Sell GBP)
Buy GBP
less than 3 months
$
-
$
-
-
$
-
3 - 12 months
> 12 months
0.5340
0.5356
4,790
3,214
-
-
0.5910
0.5659
380
823
(Sell GBP)
$
-
-
-
-
-
-
Total
$
8,004
$
-
$
1,203
$
-
120 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
II
Credit risk
Credit risk is the risk of financial loss to the Group as a result of customers or counterparties to financial
assets failing to meet their contractual obligations.
1.
Source of risk
The Group is exposed to counterparty credit risk from trade and other receivables and financial
instrument contracts that are outstanding at the reporting date.
2.
Risk mitigation
The Group only trades 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’s credit rating of at least A-2, and for a period not exceeding
3 months to manage this risk. The Group is able to undertake investments in short term deposits 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 counterparty 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 15.
Cash and term deposits are predominantly held with two tier-one financial institutions which are
considered to be low concentrations of credit risk.
Austal Limited | Notes to the financial statements 121
III
Liquidity risk
Liquidity risk is the risk that the Group is not able to refinance its debt obligation or meet other cash outflow
obligations when required.
This is the risk that the Group is not able to refinance its debt obligation or meet other cash outflow
obligations when required.
1.
Source of risk:
Exposure to liquidity risk derives from the Group’s operations and from the external interest bearing
liabilities that it holds.
2.
Risk mitigation:
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.
Critical assumptions include input costs, project pipeline, exchange rates and capital expenditure.
The Group aims to hold a minimum liquidity buffer of at least $75 million between cash on hand and
undrawn non-current committed funding to meet any unforeseen cash flow requirements.
Further information relating to the Group’s committed finance facilities, including the maturity dates
of these facilities, is provided in Note 10 and Note 11.
122 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
3.
Exposure
The contractual cash flow and maturities of financial liabilities, including interest payments are as
follows:
Years to maturity
0 - 1
’000
1 - 5
’000
> 5
’000
Total1
’000
Balance 30 June 2019
Derivative financial assets / (liabilities)
Outflow
Inflow
$
(292,059)
$
(222,028)
$
(1,305)
$
(515,392)
284,793
208,320
1,121
494,234
Net derivative financial assets / (liabilities)
$
(7,266)
$
(13,708)
$
(184)
$
(21,158)
Non Derivative financial liabilities
Trade & other payables
Go Zone Bond facility
Finance leases
Vessel finance for Cape Class Patrol Boats 9 & 102
$
(202,308)
$
-
$
-
$
(202,308)
-
(122,287)
(2,413)
(43,032)
(257)
(5,766)
-
-
-
(122,287)
(2,670)
(48,798)
Total
$
(247,753)
$
(128,310)
$
-
$
(376,063)
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 leases
Vessel finance for Cape Class Patrol Boats 9 & 102
$
(178,140)
$
-
$
-
$
(178,140)
(61,723)
(2,699)
(8,336)
(60,888)
(2,834)
(48,798)
-
-
-
(122,611)
(5,533)
(57,134)
Total
$
(250,898)
$
(112,520)
$
-
$
(363,418)
1. Contractual cash flows include interest
2. Contractual cashflows are equal to the residual value of the vessels. Further information is provided in Note 11.
The Group had $50.000 million (FY2018: $50.000 million) of unused cash loan credit facilities
available for immediate use at the reporting date and $275.665 million (FY2018: $162.024 million)
in cash and cash equivalents, which can be used to meet its liquidity needs.
Austal Limited | Notes to the financial statements 123
IV
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 liquidity risk table represent the derivative financial assets and liabilities of the
Group that are subject to those arrangements and are presented on a gross basis.
Derivatives and hedging
I
Cash flow hedges
The effective portion of any change in the fair value of a derivative financial instrument designated as a
hedge of cash flows relating to a highly probable forecast transaction (income or expense) is recognised in
Other Comprehensive Income and presented in the Cash Flow Hedge Reserve in equity. The ineffective
portion of any change in the fair value of the instrument is recognised in the Profit and Loss immediately.
II
Fair value hedges
Where a derivative financial instrument is designated as a fair value hedge, changes in the fair value of the
underlying asset or liability attributable to the hedged risk, and gains and losses on the derivative
instrument, are recognised in the Profit and Loss for the period.
III
Fair value through profit and loss
Gains and losses on derivative financial instruments that do not qualify for hedge accounting are recognised
in the Profit and Loss for the period.
IV
Financial liabilities
Loans, overdrafts, and trade and other payables are measured at amortised cost, except where fair value
hedge accounting is applied.
124 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
Fair value measurements
I
Fair value
The value of the Group’s financial assets and liabilities is calculated using the following techniques
depending on the type of financial instrument as follows:
1.
The fair value of financial assets and financial liabilities traded in active markets is the quoted market
price at the reporting date.
The fair value of forward exchange contracts is calculated using discounted cash flows, reflecting the
credit risk of various counterparties. Future cash flows are calculated based on the contract rate,
observable forward interest rates and foreign exchange rates. Adjustments for the currency basis are
made at the end of the reporting period.
The nominal value less expected credit losses of trade receivables and payables are assumed to
approximate their fair values due to their short term maturity.
Fair value hierarchy
The table below analyses financial instruments carried at fair value by valuation method. The different
levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data.
Balance 30 June 2019
Financial assets
Derivatives
Financial liabilities
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
$
-
$
2,190
$
-
$
2,190
Derivatives
$
-
$
(16,544)
$
-
$
(16,544)
Balance 30 June 2018
Financial assets
Derivatives
Financial liabilities
$
-
$
2,685
$
-
$
2,685
Derivatives
$
-
$
(11,903)
$
-
$
(11,903)
There were no transfers between any of the levels for recurring fair value measurements during the
year.
2.
Fair value of financial assets and liabilities carried at amortised cost
Cash and cash equivalents, trade and other receivables, and trade and other payables are carried at
amortised cost which equals their fair value.
Interest bearing liabilities are carried at amortised cost and have a carrying value of $173.754 million
(2018: $185.278 million). Further information is provided in Note 11.
The fair value of the interest bearing financial liabilities at 30 June 2019 was $(14.355) million
based on the level 2 valuation methodology (2018: $(9.218) million).
Austal Limited | Notes to the financial statements 125
Unrecognised items
Commitments and contingencies
Operating lease commitments
Future minimum rentals payable under non-cancellable leases as at 30 June were 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
Bank performance guarantees1
Sureties
Total
2019
’000
2018
’000
$
(3,610)
$
(4,176)
(4,164)
(3,887)
(4,567)
(3,857)
$
(11,661)
$
(12,600)
$
(1,496)
$
(1,470)
$
(1,496)
$
(1,470)
$
(58,900)
$
(102,359)
(126,263)
-
$
(185,163)
$
(102,359)
1. The bank performance guarantees are secured by a mortgage over land and buildings and floating charges over cash, receivables,
work in progress and plant and equipment.
I
Commitments
1.
Operating lease commitments
AASB 16 Leases will be effective in reporting periods commencing 1 July 2019 onwards requiring
lessees to recognise assets and liabilities for all leases with a term of more than 12 months,
unless the underlying asset is of low value.
Further information relating to AASB 16 is provided in Note 2.
2.
Guarantees
Austal has a Syndicated Facility Agreement which includes a $180.000 million revolving credit
facility. The entire revolving credit facility can be used for non-financial contingent 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 financial contingent instruments.
Austal had $150.000 million of uncommitted and unsecured Surety facilities for the issuance of
non-financial contingent instruments to support commercial vessel contracts at 30 June 2019.
Bank performance guarantees and Sureties are issued to support concepts such as refund payment
guarantees, performance bonds and warranty bonds. The Group had $(185.163) million of issued
guarantees at 30 June 2019 (FY2018: $(102.359) million).
Further information relating to interest bearing loans and borrowings is provided in Note 11.
126 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
II
Contingencies
The Group occasionally receives claims and writs for damages and other matters arising from its operations
in the course of its normal business.
The Group entities may also have potential financial liabilities that could arise from historical commercial
contracts. No material losses are anticipated in respect of any of those contingencies.
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 2019
requiring disclosure in the financial statements.
Corporate investigations
In January 2019, ASIC advised the Company that it had opened a preliminary investigation into certain market
disclosures in late CY2015 and mid CY2016.
In particular, ASIC advised that it is investigating the calculation of earnings over the period from FY2009-FY2016
and whether the Company placed too much emphasis on the additional construction costs required to meet design
and build requirements to withstand shock, when other factors had a greater impact.
As also announced in January 2019, US regulatory authorities have also commenced a separate but related
investigation into a number of areas of the Group’s US operations including the procurement of certain ship
components for use in connection with US Government contracts, charging and allocation of labor hours, and the
write-back of work-in-progress that was announced by the Company to the ASX on 4 July 2016. Some of these
issues have been the subject of previous investigations and audits by US Defense audit authorities, with no adverse
findings against the Group. Investigations in the USA were initially commenced by the Office of the Inspector
General of the Department of Defense (US Defense Department). Since that investigation was opened, the Company
has been contacted by the US Securities Exchange Commission to request a standstill agreement in contemplation
of a preliminary investigation into the Company’s activities in the USA.
ASIC has not provided any further detail regarding the matters being investigated since the Company’s
announcements to the ASX in January 2019.
Pursuant to compulsory document production notices issued by or on behalf of ASIC and US regulators, the Group
has provided ASIC and the US Defense Department with a variety of financial and operational documents and
associated information relating to the areas of investigation described above. There has been some disagreement
between the Company and ASIC as to the application of legal privilege to certain documents and those issues are
likely to be determined by the Federal Court in the second half of CY2019.
The Group rejects any assertion of wrongdoing but will continue to cooperate with government agencies in Australia
and the USA to provide further details, documents and information as required. The Group is unable to predict what
action, if any, might be taken in the future as a result of these matters or how long they may take to resolve.
Depending on the outcome of the investigations, authorities in Australia or the USA may in future elect to pursue
formal proceedings against Group companies or some of its officers. While the Group is not aware of any
wrongdoing or all of the specific matters currently being investigated, it is possible that those proceedings could
lead to civil or criminal penalties, damages, and / or suspension or debarment from future US Government
contracts, which could have a material adverse effect on its consolidated financial position, results of operations, or
cash flows. However the Company notes that the investigation has not impacted Austal’s relationship with its
principal customer in the USA and in fact, the Group has been awarded more work for the US Navy in FY2019,
including new orders for 4 Littoral Combat Ships in the second half of the CY2018.
A provision has been recorded in relation to the estimated costs of supporting the investigation.
Further information is provided in Note 24.
Austal Limited | Notes to the financial statements 127
Events after the balance date
I
Dividend proposed
An unfranked final dividend of 3 cents per share has been proposed (FY2018 final: unfranked, 3 cents).
II
Surety Limit Extension
An additional $100.000 million Surety facility was established in July 2019 for the issuance of
non-financial contingent instruments to support commercial vessel contracts.
Austal now has total unsecured Surety facilities of $250.000 million at August 2019.
III
CCPB 9 & 10 Vessel Contract Extension
RAN, NAB and Austal executed agreements on 16 August 2019 to extend the vessel finance contracts to
April 2023 and May 2023. The contract extension reduces the total residual value to $24.335 million at the
end of the 2 year term and changes the classification to non-current interest bearing loans and borrowing.
Further information is provided in Note 11.
128 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
The Group, management and related parties
Parent interests in subsidiaries
The consolidated financial statements include the financial statements of Austal Limited and the subsidiaries listed
in the following table.
Company
Austal Ships Pty Ltd
Austal Cyprus Ltd
Austal Egypt LLC
Austal Muscat LLC
Austal Service Pty Ltd
Austal Service Darwin Pty Ltd
Hydraulink (NT) Pty Ltd
KM Engineering (NT) Pty Ltd
Austal Systems Pty Ltd
Austal UK Ltd
Austal Holdings Vietnam Pty Ltd
Austal Viet Nam Co Ltd
Austal Holdings Inc
Austal USA LLC
Austal USA Service LLC
ElectraWatch Inc
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
Country
Australia
Cyprus
Egypt
Oman
Australia
Australia
Australia
Australia
Australia
United Kingdom
Australia
Vietnam
USA
USA
USA
USA
Australia
Australia
Australia
Australia
Australia
Australia
I
Investment in joint venture
Equity Interest
2019
2018
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%
100%
100%
100%
Investment In Joint Venture
2019
’000
2018
’000
Investment in Aulong Shipbuilding Co Ltd Joint Venture
$
1,729
$
1,804
Total
$
1,729
$
1,804
Share of profit of joint venture
2019
’000
2018
’000
Share of profit / (loss) of joint venture
$
-
$
(266)
Total
$
-
$
(266)
The investment in Aulong joint venture represents the Group's 40% interest in the Chinese joint venture,
Aulong Shipbuilding Co Ltd (Aulong). The remaining 60% of the joint venture is held by Chinese company
Jianglong Shipbuilding Co Ltd.
The Aulong joint venture is currently in the start-up phase of its operations. The Board have taken this into
account and considered it appropriate to hold the carrying amount of the investment constant until Aulong
declares dividends or displays any signs of impairment, at which time the carrying amount will be adjusted
accordingly.
No dividends or impairments have occurred during FY2019 and therefore the Profit and Loss recognised is
$0.000 million (FY2018: $(0.266) million).
Austal Limited | Notes to the financial statements 129
Related party disclosures
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
I
Consideration transferred
Austal USA LLC acquired 100% interest of ElectraWatch Inc, a United States based non-destructive
aluminium testing technology company on 1 May 2018.
Cash
Total purchase consideration
2019
’000
$
-
$
-
2018
’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 the Profit and Loss, within the ‘Other expenses’ line
item.
Current assets
Cash and cash equivalents
Trade receivables1
Other current assets
Non-current assets
Intangible assets
Total Assets
Non-current liabilities
Other long-term liabilities
Total Liabilities
Net Assets
2019
’000
2018
’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.
130 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
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.
2019
’000
2018
’000
Consideration transferred
Less: fair value of identifiable net assets acquired
Establish deferred tax liability on other intangible assets
$
-
$
9,013
-
-
(3,968)
974
Goodwill arising on acquisition
$
-
$
6,019
IV
Net cash flow arising on acquisition
Consideration paid in cash
Less: cash and cash equivalent balances acquired
Net cash outflow arising on acquisition
2019
’000
$
-
-
$
-
2018
’000
$
9,013
(66)
$
8,947
V
Impact of acquisition on the results of the Group
ElectraWatch contributed $0.047 million to the Profit and Loss for the 2 months from 1 May 2018 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 payments
Total
2019
’000
2018
’000
$
4,700
$
4,528
174
-
36
3,087
161
-
35
664
$
7,997
$
5,388
Detailed remuneration disclosures are provided in the Remuneration Report commencing on page 31.
Austal Limited | Notes to the financial statements 131
Share based payments
I
Performance rights
The following changes in performance rights took place during the year:
Balance at
Grant
30 June 2018
Issued
Vested
Forfeited
/ Lapsed
Balance at
30 June 2019
Expiry date
FY2016
FY2017
FY2018
FY2019
Total
759,212
3,032,442
2,363,476
-
-
-
-
2,656,839
-
(759,212)
(3,032,442)
-
-
-
-
-
-
-
2,363,476
2,656,839
30 Jun 2018
30 Jun 2019
30 Jun 2020
30 Jun 2021
6,155,130
2,656,839
(3,032,442)
(759,212)
5,020,315
The Board has the discretion to decide if Performance Rights will lapse or vest.
II
Acquisition Options
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. One 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. 343,549 options were exercised on
4 July 2018 and the remaining 343,549 options were exercised on 11 September 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 were exercised at $1.41 per share on 20 March 2019.
The total options of 1,374,196 were exercised during the year. No additional options exist at the reporting
date.
III
Austal Group Management Share Plans (AGMSP)
The trustee held a total of 3,702,000 shares at 30 June 2018 on behalf of the AGMSP plans.
The trustee sold all of the shares from AGMSP plans during the year.
There were no shares in AGMSP plans remaining at 30 June 2019.
132 Austal Limited | Notes to the financial statements
SHAREHOLDER INFORMATION
IV
CEO fixed remuneration share rights issue
The structure of fixed remuneration for the CEO, David Singleton, for FY2019 was:
Cash remuneration equal to 70% of Total Fixed Remuneration (TFR); and
Share based remuneration equal to 30% of TFR.
30% of the CEO’s fixed remuneration was provided in share rights which are subject to a 12 month holding
period from the date at which the share rights are released to the CEO and no performance conditions exist
because it is considered to be part of his base remuneration. 159,095 share rights were earned during
FY2019. The number of share rights are based upon the volume weighted average closing price of
Austal Limited shares in the last 5 trading days of each month.
V
Recognition - equity settled transactions
The Group provides benefits to employees (including 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 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 will
ultimately vest in the opinion of the Directors of the Group. 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 Profit and Loss 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 Employee Share Trust (EST) are classified and disclosed as Reserved Shares
and deducted from equity in the Statement of Changes in Equity. Further information relating to Reserved
Shares is provided in Note 13.
Austal Limited | Notes to the financial statements 133
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
$
(5,975)
$
(1,617)
2019
’000
2018
’000
Parent entity information
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
2019
’000
2018
’000
$
82,655
$
22,051
310,903
312,779
$
393,558
$
334,830
$
(7,434)
$
(4,981)
(18,641)
(19,173)
$
(26,075)
$
(24,154)
$
367,483
$
310,676
$
130,570
$
118,329
8,498
12,128
64
3,977
10,656
29
216,223
177,685
$
367,483
$
310,676
$
59,359
$
(6,712)
60,866
(6,530)
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.
134 Austal Limited | Notes to the financial statements
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 2019 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 2019.
John Rothwell AO
Chairman
on behalf of the Board
29 August 2019
Austal Limited | Directors’ declaration 135
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 2019,
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 2019 and of its
financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
136 Austal Limited | Independent audit report to the members of Austal Limited
SHAREHOLDER INFORMATION
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.
Key audit matter
How the scope of our audit responded
to the Key Audit Matter
Revenue recognition
As disclosed in Note 4, construction
revenues are recognised over time as
performance obligations are fulfilled over
time.
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 and measurement of
progress towards satisfaction of
performance obligations;
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 and other risks, contract
percentage of completion,
appropriateness of contingencies, 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;
Austal Limited | Independent audit report to the members of Austal Limited 137
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.
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.
Taxation
The Group’s geographic operations
resulted in an income tax expense totalling
$24.2 million across two main jurisdictions,
being the USA and Australia for the year
ended 30 June 2019.
As at 30 June 2019 the carrying value of
deferred tax assets recognised in relation
to the Group’s USA Research and
Development (R&D) credits was
$14.8 million (refer Note 23), whilst
unused tax losses in Australia for which no
deferred tax assets have been recognised
equated to $12.5 million.
In addition, the Group continue to pay
additional tax in relation to intercompany
royalties between the USA and Australia
(refer Note 9).
138 Austal Limited | Independent audit report to the members of Austal Limited
SHAREHOLDER INFORMATION
Significant judgement is required to
assess:
We also assessed the appropriateness of the
disclosures in Note 9 and Note 23 to the
financial statements.
The extent to which R&D credits
will be utilised;
The recoverability of carry forward
tax losses and the extent to which
tax losses 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.
Provisions
As disclosed in Note 24, the Group
recognised a provision of $11.0 million as
at 30 June 2019 for the probable
incremental professional services costs
(“costs”) relating to the matters set out in
Note 29.
The Group had to apply significant
judgement when considering whether and
how much to provide for costs. As a result
of the high level of estimation uncertainty
the provision could change substantially
over time as new facts emerge and the
investigations progress.
Our procedures included, but were not
limited to the following:
Discussing the potential costs with
in-house legal counsel, other
management and the directors;
Challenging the assumptions and the
basis for the provision; and
Where possible, corroborating the
assumptions to external sources and
input from the Group’s professional
advisors.
We focused on this area given the
judgement necessary to determine the
appropriate amount to be provided.
We also assessed the appropriateness of the
disclosures in Note 24 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 139
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.
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.
140 Austal Limited | Independent audit report to the members of Austal Limited
SHAREHOLDER INFORMATION
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 pages 31 to 58 of the Directors’ Report for the
year ended 30 June 2019.
In our opinion, the Remuneration Report of Austal Limited, for the year ended 30 June 2019, complies
with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance
with Australian Auditing Standards.
Deloitte Touche Tohmatsu
Tim Richards
Partner
Chartered Accountants
Perth, 29 August 2018
Austal Limited | Independent audit report to the members of Austal Limited 141
Shareholder information
The following information was extracted from the Company’s share register at 30 June 2019:
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
% of Total
shares
issued capital
Number of
holders
744,733
5,121,807
5,622,535
17,795,907
324,072,301
0.21%
1.45%
1.59%
5.04%
91.71%
353,357,283
100.00%
1,746
1,896
740
714
56
5,152
Twenty largest shareholders
Rank
Shareholder
Number of
% of Total
shares
issued capital
Substantial
shareholder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Ltd
National Nominees Limited
Austro Pty Ltd
BNP Paribas Nominees Pty Ltd
Onyx (WA) Pty Ltd
Mr William Robert Chambers
BNP Paribas Noms Pty Ltd
AMP Life Limited
Mr Garry Heys & Mrs Dorothy Heys
Mossisberg Pty Ltd
CS Third Nominees Pty Limited
Kenny Nominees (NT) Pty Ltd
Lavinia Shipping Limited
ACE Property Holdings Pty Ltd
UBS Nominees Pty Ltd
Gregory McKechnie
Neweconomy Com Au Nominees
Upora Pty Ltd
Total
Voting rights
Yes
Yes
Yes
Yes
Yes
102,053,614
66,448,809
43,587,357
33,144,484
32,307,692
13,502,497
6,600,000
3,100,000
3,049,314
2,682,848
2,044,670
1,650,000
1,526,675
1,207,881
1,141,000
900,000
813,051
687,098
669,302
537,999
28.88%
18.80%
12.34%
9.38%
9.14%
3.82%
1.87%
0.88%
0.86%
0.76%
0.58%
0.47%
0.43%
0.34%
0.32%
0.25%
0.23%
0.19%
0.19%
0.15%
317,654,291
89.88%
All ordinary shares issued by Austal Limited carry one vote per share without restriction.
142 Austal Limited | Shareholder information
SHAREHOLDER INFORMATION
Corporate governance statement and ESG Report
The Company has elected to post its Corporate Governance Statement and on its website in accordance with
ASX Listing Rule 4.10.3 along with its Environmental, Social and Governance Report (ESG Report). The Corporate
Governance Statement and ESG Report can be found at the following URL: www.austal.com/corporategovernance.
Use of images disclaimer
The appearance of U.S. Department of Defense (DoD) visual information in this document does not imply or
constitute DoD endorsement.
Corporate directory
Directors
Non-Executive Directors
Mr John Rothwell
Mr Giles Everist
Mrs Sarah Adam-Gedge
Mr Chris Indermaur
Executive Directors
Mr David Singleton
Auditor
Deloitte Touche Tohmatsu
Brookfield Place, Tower 2
123 St Georges Terrace
Perth 6000
Australia
Company Secretary
Mr Adrian Strang
Registered office
100 Clarence Beach Road
Henderson 6166
Australia
Telephone: +61 8 9410 1111
Share registry
Link Market Services Limited
QV1 Building, Level 12
250 St Georges Terrace
Perth 6000
Australia
Telephone: +61 1300 554 474
ABN
73 009 250 266
Austal Limited | Corporate governance statement and ESG Report 143
Email: info@austal.com
Tel: +61 8 9410 1111
AUSTAL.COM