Contents
Contents ....................................................................................................................................................................................................................... 2
Index to the notes to the financial statements .............................................................................................................................................. 3
Chairman
................................................................................................................................................................................................... 16
........................................................................................................................................................................ 18
Review of operations ............................................................................................................................................................................................. 21
..................................................................................................................................................................................................... 25
.................................................................................................................... 30
Remuneration report [audited].......................................................................................................................................................................... 31
Auditor independence .......................................................................................................................................................................................... 60
Consolidated statement of profit and loss and other comprehensive income for the year ended 30 June 2020 ............. 61
Consolidated statement of financial position as at 30 June 2020 ..................................................................................................... 62
Consolidated statement of changes in equity for the year ended 30 June 2020 ......................................................................... 63
Consolidated statement of cash flows for the year ended 30 June 2020 ....................................................................................... 64
Notes to the consolidated financial statements ........................................................................................................................................ 65
......................................................................................................................................................................................... 132
Independent audit report to the members of Austal Limited .............................................................................................................. 133
Shareholder information ................................................................................................................................................................................... 139
Corporate governance statement and ESG report .................................................................................................................................. 140
Corporate directory ............................................................................................................................................................................................ 140
2 Austal Limited | Contents
Index to the notes to the financial statements
Basis of preparation ............................................................................................................................................................................................. 65
Current year performance ................................................................................................................................................................................. 72
Capital structure .................................................................................................................................................................................................... 92
Working capital....................................................................................................................................................................................................... 99
Infrastructure & other assets ......................................................................................................................................................................... 102
Other liabilities ....................................................................................................................................................................................................... 112
Financial risk management ............................................................................................................................................................................... 114
Unrecognised items ............................................................................................................................................................................................ 124
The Group, management and related parties ............................................................................................................................................ 127
Austal Limited | Index to the notes to the financial statements 3
4 Austal Limited | Annual Report 2020
Austal Limited | Annual Report 2020 5
6 Austal Limited | Annual Report 2020
Austal Limited | Annual Report 2020 7
8 Austal Limited | Annual Report 2020
Austal Limited | Annual Report 2020 9
10 Austal Limited | Annual Report 2020
Austal Limited | Annual Report 2020 11
12 Austal Limited | Annual Report 2020
Austal Limited | Annual Report 2020 13
14 Austal Limited | Annual Report 2020
Austal Limited | Annual Report 2020 15
was
$88.978 million in FY2020, 45.0% higher than the
prior corresponding period (pcp), and Earnings
Before Interest, Tax, Depreciation and Amortisation
(EBITDA) of $176.139 million, up 30.5% on the
pcp. Apart from being another record result, FY2020
was the fourth time that EBITDA exceeded the
$100
third year in a row. These strong results helped
enable the Board to increase the dividend payment
irrespective of the pandemic, with a total of
8.0 cents per share (unfranked) in FY2020, up from
6.0 cents per share (unfranked) in FY2019.
$2,086.001 million in revenue, the first time in the
$2 billion. The investments made in our Australasia
shipyards to increase throughput is translating into
stronger financial performance, accounting for
one-quarter of Group revenue in FY2020 despite
ongoing revenue growth from Austal USA. By way of
comparison, Australasia contributed just over 11%
Looking at our two segments, Austal USA reached a
significant milestone during FY2020, celebrating
20 years of operations in December 2019. In just
two decades Austal USA has grown to become a
world-leading shipbuilder, being the only foreign-
owned prime contractor designing, constructing and
sustaining ships for the US Navy during that time.
Austal USA has become the core driver of our
financial performance, constituting approximately
three-quarters of our revenue in FY2020 as it
continued the efficient delivery of high-quality
aluminium vessels to the US Navy, delivering three
Expeditionary Fast Transport and Littoral Combat
Ships during the year.
Meanwhile, we saw increasing contribution and
improved margins from Australasia resulting from
the completion of the investment and reorganisation
of this division over the past three years. Led by a
high-calibre team, the reinvigorated Australasian
business is in a robust position to adapt and
navigate through future obstacles. In Australasia, we
are conscious that COVID-19 presents both logistical
challenges for our integrated network of shipyards as
well as the impact travel restrictions may have in
softening demand for large vehicle ferries.
Ch
Financial Year Highlights
Record earnings amid unprecedented global
economic volatility.
Ongoing strong contribution from LCS and EPF
programs in the USA and enhanced earnings
from expanded commercial operations in
Australasia.
Strong $4.3 billion order book to underpin
business as Austal pursues vessel opportunities
and invests in steel shipbuilding capability in
USA.
Challenges presented by COVID-19 well
navigated, with a strong team in place to
mitigate ongoing impacts that Austal is not
immune to.
I am pleased to present the FY2020 Annual Report
to shareholders on behalf of the Board of Austal
Limited.
Despite significant global disruption and economic
uncertainty due to the COVID-19 pandemic, the
2020 financial year saw Austal surpass its record
earnings set in FY2019. This result is testament to
increasingly volatile global environment, whilst
maintaining efficiency and consistency across our
shipbuilding programs and support services.
It reflects the work done in each of our shipyards -
the USA, Australia, Philippines, and Vietnam all of
which remained fully operational throughout the
year, including during the COVID-19 pandemic.
We are cognisant though, that the COVID-19
situation remains dynamic and has the potential to
have an impact on our operations by way of a
slowdown of ferry orders and the health of our
workforce. Austal continues to implement a range of
health and wellbeing measures to protect our
6,800-strong workforce and will continue to monitor
the situation closely and adapt as we seek to
mitigate the potential impacts from the virus.
16 Austal Limited |
Our support business also continued to grow in the
year, with revenue up 28.4% compared to FY2019,
and 28.0% on a compounded basis over the last
four years. This revenue growth highlights the
success in our strategy to grow our global support
business as an increasing number of Austal-
designed and built vessels are being commissioned
and deployed by the US Navy. We have grown
such as on the west
coast of the USA and Singapore and are further
building our support capabilities in Australia.
Providing support services will deliver a long-term,
stable income stream that will underpin sustained
shareholder returns.
Looking ahead, Austal has entered FY2021 with a
$4.3 billion order book. This was lower than
12 months ago, reflecting the delivery of our work in
hand and the award of no additional vessels in the
USA as the US Navy Guided-Missile Frigate Program
competitive tender process took place. While the
award of this program to an alternate bidder in
May 2020 was clearly disappointing, our contracted
orders for the US Navy extend through to 2024.
The LCS and EPF contracts are at a mature phase
and Austal is undertaking initiatives to expand our
Mobile, Alabama shipyard. This includes the
agreement we reached with the US Government
during FY2020 to co-invest in building steel
shipbuilding capability at the facility.
These initiatives provide Austal with reasonable
confidence that we will be positioned to participate
in other US Navy programs in the medium-term.
Outside of the USA, in FY2020 we secured a
$324 million contract to design and construct six
evolved Cape Class Patrol Boats (CCPB) for the
Royal Australian Navy. This is the largest contract
for an Australian vessel construction program ever
-year history,
and will assist in providing stability for our
Australian shipyard and workforce in the years ahead
as we look to navigate the economic challenges
presented by COVID-19.
Austal continues to invest across the business and
advance strategic initiatives that position us to win
future vessel programs and support work.
Chief Executive Officer David Singleton goes into
more detail about these initiatives in his report.
Refining and building on this strategy will be a key
focus for our incoming CEO, Patrick Gregg, who will
take the helm from David Singleton on
1 January 2021 following a planned six month
transition period, as announced in June 2020.
Prior to joining Austal as Chief Operating Officer in
February 2017, Mr Gregg most notably served in
several senior project manager roles at BAE
Vietnam, expanded its operations in the Philippines
and won a new Cape class contract with the
Australian Government.
Australia, the Philippines, Vietnam and China are
working well whilst producing quality defence and
commercial vessels, which is a reflection of
Mr
engender similar characteristics from the workforce.
Mr Gregg was appointed as COO with a view to him
being a natural successor for the CEO role in the
future and his achievements, skills and personal
qualities exhibited over the past 3.5 years made him
an ideal choice to take over from Mr Singleton.
I would like to take this opportunity to thank
Mr Singleton for his contribution on what will be
almost five years as CEO at Austal when he finishes
at the Company and wish him all the best for the
future.
In order to maintain growth in the longer term,
Austal must focus on ensuring its operations
continue to evolve in a sustainable manner.
Following the release of our inaugural
Environmental, Social, and Governance (ESG) report
last year, our focus is to build on these initiatives
with a particular focus on environmental and social
risks and opportunities in the year ahead.
For example, Austal has active research and
development projects targeting ways to design and
construct vessels with increased fuel efficiency and
reduced emissions, such as battery-powered smaller
(up to 60 metres) ferries and larger vessels that
could convert from diesel to LNG. Further details on
our achievements and initiatives are contained in
our FY2020 ESG report, which I encourage you to
read.
We further enhanced t
remuneration structures in this area led by
Sarah Adam-Gedge as Chair of the Nomination &
Remuneration Committee. As always, we welcome
further feedback from shareholders about the
Remuneration Report.
On behalf of the Board I would like to thank each
and every one of our people for their adaptability
and resilience during a period of unprecedented
global uncertainty.
are testament to their commitment during the year.
I would like to acknowledge the Austal executive
team and support managers for their leadership in
guiding the Company through an unprecedented
period. I also want to express my appreciation to
shareholders.
companies, over a period of 11 years. Since his
appointment, Austal has set up operations in
John Rothwell AO
Chairman
Austal Limited | 17
A key development in this strategy has been
growing our defence business, which is on a
different economic cycle to other sectors and now
represents circa 85% of our revenue base, a
percentage which is set to grow further.
FY2020 operational performance was strong, with
these record earnings importantly translating into
robust cashflow and a further enhanced balance
sheet. During FY2019, we indicated that this
balance sheet strength would enable the next
growth phase for the business by allowing Austal
to focus on the strategic opportunities ahead.
USA
The US Congress now requires the US Navy to
increase the number of ships in its fleet to 355,
an increase of around 20%, with some reports of
an intent to do this by as early as 2030.
Further to this, it is being reported that the
US
highly-lethal and possibly unmanned vessels.
This is due to the Navy seeking a more distributed
lethality model than is represented by the large
aircraft carrier style of its fleet, which has formed
the core of naval sea power since the Second
World War. This reorientation to mid-size ships,
manufacturing capabilities both today and in the
future.
Following the award of the Guided Missile Frigate
FFG(X) contract to an Austal competitor,
Austal USA committed to a major investment that
represents the biggest strategic step with our
most valuable customer since we expanded our
Mobile, Alabama shipyard over a decade ago.
On 22 June 2020, Austal announced its intention
to invest US$100 million in building a modern
steel ship extension to the current shipyard in
contribute to a significant series of new
shipbuilding programs for the US Navy.
The investment is being funded in part through a
Defense Production Act (DPA) agreement between
Austal USA and the Department of Defense that
would see the US Government contribute up to
US$50 million of this investment.
Financial Year Highlights
New records set for Group revenue and
profit, profit increased by 45.0%.
Support revenue has grown at 28.0%
compound annual growth rate (CAGR) over
4 years to $360.158 million.
Repositioning in Asia complete with
expanded shipyards successfully launching
their first major vessels.
Austal investing in steel shipbuilding as a
foundation for new growth.
USA and Australia increasing defence
expenditure, including in shipbuilding.
When we announced a record annual profit and
revenue result this time last year, I told
shareholders that it represented not a peak but
rather a new normal for the business. I am
delighted to announce that Austal has not only
delivered but exceeded on this commitment, with
the Company setting a new revenue and profit
benchmark in the 2020 financial year. This was
all the more impressive given the unprecedented
events in the second half of FY2020, as the
COVID-19 virus spread globally.
Austal exceeded its original revenue guidance for
FY2020 by 10%, delivering more than $2 billion
revenue for the first time in its history and a
Net Profit After Tax of $88.978 million, up
45.0% on FY2019.
This record performance was driven by a clear
strategy and strong operational momentum across
our USA and Australasia operations, as we
constructed and delivered naval vessels, large
ferries, and provided ongoing support services.
18 Austal Limited |
This represents a significant strategic step to
augment our current aluminium based operations
to include a steel shipbuilding future,
significantly broadening the opportunity horizon
for the Company. This is at a time when a number
of new, major steel shipbuilding programs in our
size range are expected to come up for tender in
the medium term. The strategic investment by the
US Government
industrial base. Austal is well primed to capitalise
on these growth opportunities as we continue to
develop new vessels, including EPF variants and
unmanned ships.
The DPA agreement is designed to create
employment and defence industrial capability at a
time of increasing global tensions and an
expanding US Navy. The published US Navy and
Coast Guard acquisition plan includes multiple
new ship types that will begin to be manufactured
during the FY2023 timescale. Many of these
ships can be built in the new Austal steel
shipbuilding facilities, which is planned to be
completed in CY2022. This strategic move to
steel ships in the United States, in addition to our
aluminium shipbuilding heritage, is an exciting
long-term opportunity for Austal.
Australasia
The same macro factors driving growth of the
US Navy are also apparent in Australia. We have
seen the Australian Government commit to a
major increase in defence expenditure to counter
the increasing threats in the region. For example,
-vessel Guardian Class Patrol Boat
commitment to the South Pacific islands.
The more recent, $324 million Cape Class Patrol
Boat (CCPB) contract for the Royal Australian
Navy which will help underpin the Henderson
shipyard over the next three years is another
example of the Australian Government stepping
up its commitment to Defence.
The Defence White Paper has committed
significant additional funds for new heavy steel
ships, which has potential to be a very important
area for Austal in the future.
This focus on large steel ships also presents an
opportunity for Austal in Asia, where in a not
dissimilar way to the USA we could for the first
time have the capacity to build large steel navy
vessels. This could open up a whole new area for
us, not only for Australia, but also in Asia which
we believe will be a strong naval market for many
years to come. The Offshore Patrol Vessel
program in the Philippines is a good example of
how this can develop over time a substantial
growth opportunity which could potentially be
replicated with the new large naval vessels for the
Royal Australian Navy.
Support
Our strategic initiative to build our support
business continues but with increased emphasis.
This emphasis has been successful based on a
compounded annual growth rate of 28.0% over
the last four years, and our ratio of support
revenue to new build revenue in the USA has
increased from 11.6% two years ago to 18.3%
now.
For some years building this long term income
stream in support has been a priority and the
focus has seen further milestones in the year
operations in San Diego and our presence in
Singapore to support the Littoral Combat Ships
when they are deployed to the region. In addition,
we were recently accredited by the US Navy to
Australian locations. We also continue to plan and
focus on more opportunities out of the Philippines
and in other areas, which have the ability to see
major growth over the next few years again
primarily for the US Navy.
Austal Limited |
19
Another positive which has come from our
financial success has been the ability to invest
aggressively in Research and Development, both
in the USA and Australia. Austal has now, for the
first time, appointed a Chief Digital Officer.
This move recognises the tangible advances that
bolstering our R&D capabilities has, and will
continue to have, in improving both our products
and our processes.
The MARINELINK-Smart system, which started
development 3 years ago, is now being fitted to
production vessels and offers Austal a unique
competitive advantage by reducing fuel usage and
improving passenger comfort, with further
software applications to be developed to create
expanded functionality. In addition to this, we are
developing a sophisticated, cloud native,
maintenance planning system that directly
interacts with the ship it is installed in. This
product was initially developed through our R&D
department and has now been sold to the Royal
Australian Navy.
has been in the USA and now Australia
developing large autonomous or unmanned
defence vessels that can operate at sea for
extended durations. Together with electric boats,
LNG vessels and other technologies, we are
determined that Austal maintains its leading
technology focus to build and support the
advanced vessels demanded by defence and
commercial operators alike.
Conclusion
Whilst business performance improvement at
Austal over the last few years has been very
obvious to investors, I believe that the strategic
steps that we have taken and have underway
across the board for steel shipbuilding, support
and technology development will continue to see
the business flourish in the future.
David Singleton
Managing Director and Chief Executive Officer
20 Austal Limited |
Review of operations
Group financial results
Total revenue for the year increased by 12.7% to
$2,086.001 million in FY2020.
FY2020 earnings before interest and tax (EBIT)
increased by 40.5% to $130.396 million
compared to $92.795 million in FY2019.
Austal reported a net profit after tax (NPAT) of
$88.978 million in FY2020 compared to
$61.384 million in FY2019.
The Group delivered operating cash flow of
$164.472 million, in-line with FY2019, and
FY2020 net cash flow of $121.002 million up
by 6.5% on FY2019.
Austal has maintained a strong cash balance of
$396.667 million at 30 June 2020
demonstrating the ongoing cash generating
strength of the business
(30 June 2019: $275.665 million).
Net cash (excluding the accounting treatment of
the notional CCPB 9 & 10 leasing program) was
$272.412 million at 30 June 2020
(30 June 2019: $150.709 million).
Total unfranked dividends of 8.0 cents per share
were declared in respect of FY2020,
representing a 32.0% payout ratio
(FY2019: 6.0 cents per share, unfranked).
People & Safety
The COVID-19 pandemic has rapidly emerged as one
of the biggest global health challenges in modern
history and was a major focus in FY2020. As at the
date of this report, 156 Austal employees have tested
positive to COVID-19 (2 in the Philippines, 3 in
Australia, and 151 in Mobile, USA). All of these
employees are currently in isolation or have completed
a comprehensive isolation period and are recovering
well or have already recovered. Austal has placed a
strong emphasis on supporting the health and
wellbeing of these employees and their colleagues,
with comprehensive sanitisation at worksites
implemented in addition to the isolation measures.
in conjunction with other preventative measures, such
as social distancing and the broad use of virtual
meetings, has helped to mitigate the risk of a large-
scale virus outbreak among our employees.
We have seamlessly integrated these significant
measures into our existing Health, Safety,
Environment & Quality (HSEQ) Integrated
approach to health and safety has been maintained as
the primary value of our Company.
Our HSEQ department has continued to regularly
reinforce this important program to all of our 6,800 -
strong workforce.
The department undertakes daily pre-start meetings,
monthly HSEQ Toolbox sessions, offers nationally
accredited training, and provides ongoing education
and awareness briefings to underpin this hands-on,
data-driven approach to managing safety risks.
This has yielded tangible results, as we made positive
progress on our
during FY2020.
Austal Limited | Review of operations 21
20202019000000Revenue2,086,001$ 1,851,021$ EBITDA 1176,139 135,001 EBIT 2130,396 92,795 NPAT 388,978 61,384 EBITDA margin8.4%7.3%EBIT margin6.3%5.0%Net assets748,743$ 630,783$ Net cash position 4272,412 150,709 Net cash flow121,002 113,641 Earnings per share ($ per share)0.250$ 0.176$ Dividends per share ($ per share)0.080 0.060 Payout ratio32.0%34.2%1. Earnings before interest, tax, depreciation and amortisation (EBITDA).2. Earnings before interest and tax (EBIT).3. Net Profit / (loss) after tax (NPAT)4. Excludes CCPB 9 & 10 notional lease debtEBIT and EBITDA are non-AASB measures. EBIT is used to understand segment performanceEBITDA is used by management to understand cash flows within the Group.The information is unaudited but is extracted from the audited accounts.
New contract awards
Austal received $852 million of new contract awards
during FY2020 to bring the order book to $4.3 billion
at 30 June 2020.
USA
Austal was awarded a modification contract
worth up to US$43 million. The modification
relates to a previously awarded Littoral Contract
Ship contract and exercises options for LCS
Class design services, material to support LCS
Integrated Data Product Model Environment
(IDPME).
The Company received a Post Shakedown
Availability service contract totalling
US$23 million for support activities, including
dry docking, on the USS Tulsa. The USS Tulsa is
an Independence Class Littoral Combat Ship
manufactured by Austal.
Australasia
A $324 million contract was awarded to design
and construct six Cape Class Patrol Boats (CCPB)
for the Royal Australian Navy (RAN). The six
vessels will be added to the RA
of two CCPB delivered in 2017 and extends
lass Patrol Boat program to a
total of 16 vessels in Australia.
A contract worth approximately $126 million to
construct two CCPB for the Government of the
Republic of Trinidad & Tobago.
A $136 million contract secured for the design
and construction of a 115 metre high-speed
catamaran for Molslinjen of Denmark.
The catamaran will be designed in Henderson
and then built at our shipbuilding facility in
Balamban in the Philippines.
Awarded a $16 million contract for a 41 metre,
high-
Vietnam shipyard.
A financial summary for each segment has been
included below, including AASB and non-AASB
information. This information has been extracted from
the audited financial statements and included in order
to demonstrate performance across the operating
segments.
Across our Group operations, the 12-month rolling
Medically Treated Injury Frequency Rate (MTIFR) was
reduced by 32.4% compared to the prior
corresponding period, and our Lost Time Injury
Frequency Rate (LTIFR) was reduced by 18.8%
compared to the prior corresponding period.
The Company is not taking these positive results for
granted we are perennially enhancing our HSEQ
policies to ensure our Group Safety performance
indicators continue to improve.
For example, Austal Australia launched a new health
and safety campaign during FY2020
is
incorporates refined messaging to individual
employees, ensuring everyone in Austal is aware of the
specific role they have to play in the Group achieving
its Zero Harm goal.
Continuous improvement in our Group Safety
performance indicators will grow our business in a
sustainable way. This benefits our employees,
shareholders, and the broader community in which we
operate
Further details on Health, Safety and Environmental
Environmental, Social and Governance (ESG) Report.
22 Austal Limited | Review of Operations
21.7 14.1 14.2 10.7 10.4 10.1 6.8 FY14FY15FY16FY17FY18FY19FY20Medical Treatment Injury Frequency Rate(Injuries per million hours worked)3.90 2.10 1.75 3.11 3.62 2.07 1.68 FY14FY15FY16FY17FY18FY19FY20Lost Time Injury Frequency Rate(Injuries per million hours worked)
US operations
US segment financial performance
USA revenue increased by $131.085 million (8.9%)
compared to FY2019 to deliver $1,603.764 million in
FY2020.
EBIT also increased by $16.595 million (15.6%) on
FY2019 to $123.017 million representing further
year on year improvement in profitability.
Revenue and earnings in FY2020 were higher than
the prior corresponding period, principally due to:
Increased throughput on the EPF program.
Increasing maturity of the LCS and EPF
programs, delivering greater efficiencies.
Strong support earnings as the Austal fleet of
vessels grow.
A weaker average USD / AUD exchange rate
positively impacted the translation of USD EBIT
into AUD by $7.258 million.
Vessel construction & deliveries
Austal USA delivered three vessels to the United
States Navy (USN) in FY2020; EPF 11 USNS Puerto
Rico in December 2019, LCS 22 USS Kansas City in
February 2020, and LCS 24 USS Oakland in
June 2020.
Two additional EPF remain under construction at
Aust
EPF 12, the USNS Newport,
is in final assembly, while construction recently began
on EPF 13, the future USNS Apalachicola and
EPF 14, the future USNS Cody is under contract.
Five LCS are presently under various stages of
construction. LCS 26, the future USS Mobile, is
preparing for sea trials. Assembly is underway on
LCS 28, the future USS Savannah, and LCS 30, the
future USS Canberra. Modules are under construction
in the module manufacturing facility (MMF) for
LCS 32, the future USS Santa Barbara and LCS 34,
the future USS Augusta. LCS 36, the future
USS Kingsville and LCS 38, the future USS Pierre,
are under contract.
Sustainment
With a growing fleet of LCS and EPF
sustainment business has continued to experience
organ
growing service
presence in San Diego, California, which is the home
port for the Independence-class LCS constructed by
Austal.
Sustainment revenue increased by $68.417 million
(30.5%) compared to FY2019 to $293.017 million in
FY2020. EBIT increased by $0.546 million (3.3%) on
FY2019 to contribute $16.868 million.
Future US defense programs
In June 2020, Austal entered into a significant
strategic investment that will see the US Government
contribute up to US$50 million under a Defense
Production Act Title III Agreement (DPA Agreement)
between Austal USA and the Department of Defense.
Austal will match the DPA Agreement funding, which
would take the total co-investment to circa
US$100 million. This investment has the potential to
shipbuilding future because a number of new, major
steel shipbuilding programs are expected to be
tendered in the medium term.
Further details about the purpose and specific use of
these funds will be released as they are agreed
between Austal and the DoD in FY2021.
Australasia operations
hilippines, Vietnam,
Aulong Joint Venture and Muscat operations are
combined into a single Australasia operations
reporting segment.
These locations act as a single business unit for
tendering, scheduling, resource planning and
management accountability.
Austal Limited | Review of Operations 23
20202019$000$000RevenueShipbuilding1,310,747$ 1,248,079$ Support293,017 224,600 Total1,603,764$ 1,472,679$ EBITShipbuilding106,802$ 98,633$ Support16,868 16,322 Other(653) (8,533) Total123,017$ 106,422$ EBIT MarginShipbuilding8.1%7.9%Support5.8%7.3%Total7.7%7.2%
Australasia financial performance
The Australasia segment reported revenue increase of
$103.619 million (26.4%) compared to FY2019, to
reach $496.774 million for FY2020.
EBIT also increased by $19.213 million (164.6%)
relative to FY2019. EBIT for FY2020 was
$30.886 million.
Revenue and earnings in FY2020 were higher than
the prior corresponding period, predominantly due to:
The award of a $324 million contract to design
and construct six evolved CCPB for the Royal
Australian Navy (RAN) on 1 May 2020, the
largest contract for an Australian vessel
construction program ever awarded to Austal in
-year history.
Higher sustainment activity, including the
continuation of servicing and support the CCPB
fleet of vessels operated by the Australian Border
Force and the RAN.
Expanded shipyard in the Philippines and new
shipyard in Vietnam both launching their first
major commercial ferry vessels and experiencing
strong construction activity.
Significant progress on a $126 million contract
to construct two 58 metre aluminium monohull
CCPB for the Government of the Republic of
Trinidad and Tobago, which was awarded in
August 2019.
Vessel deliveries
Four vessels were delivered from Australasia during
the year:
Three GCPB for the Commonwealth of Australia
in August 2019, November 2019, and
March 2020. The first 6 vessels of the 21-ship
Guardian Class Patrol Boat (GCPB) program have
now been delivered.
24 Austal Limited | Review of Operations
A 49 metre high-speed passenger ferry to
SNC Aremiti in August 2019.
Vessel construction
Progress was made on the vessels currently under
construction:
109 metre, $108 million Fjord Line ferry
(awarded in August 2017).
Two 117 metre Fred Olsen trimaran ferries in a
$190 million total contract (awarded in
October 2017).
83 metre, $68 million trimaran ferry for
JR Kyushu of Japan (awarded in March 2018).
Two Cape Class Patrol Boats for the Government
of the Republic of Trinidad & Tobago in a
contract worth $126 million (awarded in
August 2019).
$136 million contract for a 115 metre
high-speed catamaran for Molslinjen of Denmark
(awarded in October 2019).
41 metre, $16 million high-speed catamaran
ferry for STGM Mauritius (awarded in
January 2020).
$324 million contract for six CCPB for the Royal
Australian Navy (awarded in May 2020).
Sustainment
Sustainment activity in FY2020 included the
continuation of servicing and support for the fleet of 8
Cape Class Patrol Boats operated by the Australian
Border Force throughout Northern Australia, plus a
sustainment contract worth up to $24 million over two
years for CCPB 9 & 10, Cape Fourcroy and Cape
Inscription, being operated by the Royal Australian
Navy.
Innovating for the future
Austal continues to invest in bolstering its
technological capabilities in order to enhance our
products and our processes. This will provide us with
substantial competitive advantages in the future.
The company is prioritising innovative solutions to
increase the energy efficiency and broader artificial
intelligence/machine learning capabilities of its
vessels.
In Australasia, we have developed a sophisticated
maintenance planning system that directly interacts
with the ship it is installed in, which has been sold to
the Royal Australian Navy.
20202019$000$000RevenueShipbuilding426,020$ 323,055$ Support70,754 70,100 Total496,774$ 393,155$ EBITShipbuilding17,839$ 6,352$ Support13,047 5,321 Total30,886$ 11,673$ EBIT MarginShipbuilding4.2%2.0%Support18.4%7.6%Total6.2%3.0%
SHAREHOLDER INFORMATION
report
The Board of Directors of Austal Limited submit their report for the year ended 30 June 2020.
Directors
The names and details of the
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 approaching 50 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
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. H
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
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
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.
Italy, USA and Germany.
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.
On 3 June 2020 the Company announced that David will be stepping down from the CEO role and leaving Austal on
31 December 2020, following 9 years with Austal including 5 years as CEO.
Austal Limited |
25
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 2018, became
Chair of the Nomination and Remuneration Committee in September 2018 and Deputy Chair
of the Austal Limited Board in September 2019. She brings strong consulting, customer
experience, digital and technology expertise to Austal through her experience in executive
roles in the information technology and consulting sectors.
Sarah 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 many industries. Sarah has worked extensively
across Asia-Pacific, as well as the Middle East and Africa, and Latin America.
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, was previously a Non-Executive Director, and Chair of the Finance, Audit and Risk Committee for Ovarian
Cancer Australia.
Chris Indermaur
Independent Non-Executive Director
Chris was appointed as a Non-Executive Director of the Company in October 2018 and to
the Nomination and Remuneration Committee in August 2019. 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.
26 Austal Limited | Directors
SHAREHOLDER INFORMATION
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:
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 $88.978 million
(FY2019: $61.384 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 21.
Share price at 30 June 2020
The closing share price of Austal at 30 June 2020 was $3.23 (30 June 2019: $3.41).
Dividends
An unfranked dividend of 3.0 cents per share was paid after the FY2020 H1 results
(FY2019 H1: 3.0 cent per share) and a further dividend of 5.0 cents per share has been proposed for FY2020
(FY2019 final: 3.0 cents per share).
Austal Limited |
27
DirectorOrdinary SharesShare RightsIndeterminate RightsMr John Rothwell32,307,692 - - Mr David Singleton1,222,721 1,222,192 106,251 Mr Giles Everist30,441 - - Mrs Sarah Adam-Gedge10,000 27,909 - Mr Chris Indermaur - 13,741 -
Significant events after the balance date
The Directors have declared an unfranked dividend of 5.0 cents per share in respect of the year ended
30 June 2020 as described above.
Austal entered into a purchase agreement with Modern American Recycling and Repair Services (MARRS) to
acquire over 15 acres of waterfront land, buildings and assets including an existing dry dock on the MARRS Mobile
riverfront property in Mobile, Alabama on 21 August 2020.
Further information is provided on Page 126 and in the ASX announcement dated 21 August 2020.
Likely developments and future results
A general discussion of the Group
page 18 and the Review of Operations on page 21.
report on page 16
report on
Significant changes in the state of the affairs
Mr David Singleton gave notice from his role as CEO on 3 June 2020 and will remain in this role until
31 December 2020. Please refer to
further information.
2020 for
There were no other 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 2020.
Share rights, performance rights, indeterminate rights and service rights
There were 3,117,967 un-vested performance rights, 3,032,101 share rights, 214,440 indeterminate rights and
330,704 service rights at 30 June 2020.
1,229,304 performance rights and 14,352 share rights, 214,440 indeterminate rights and 338,677 service rights
were granted during FY2020.
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 and Officers 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.
28 Austal Limited |
SHAREHOLDER INFORMATION
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:
The number of Board and committee meetings of Directors and the attendance by each Director during the year was
as follows:
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 /
trument 2016 / 191. The Company is an entity to which the instrument applies.
Austal Limited |
29
Audit & RiskNomination & RemunerationMr Giles Everist 1Mrs Sarah Adam-Gedge 1 Mrs Sarah Adam-GedgeMr John RothwellMr Chris IndermaurMr Giles EveristMr Chris Indermaur 21. Chair of the committee.2. Appointed on 28 August 2019.MeetingNomination &Audit & RiskRemunerationBoardCommitteeCommitteeNumber of meetings held843Number of meetings attended:Mr John Rothwell8- 3Mr David Singleton84 13 1Mr Giles Everist 843Mrs Sarah Adam-Gedge843Mr Chris Indermaur8431. Attended as a guest.
Nomination
message
Dear Shareholder,
The Board of Directors is pleased to present the Remuneration Report for FY2020, outlining the nature and amount
Non-Executive Directors and other Key Management Personnel (KMP).
2019 remuneration r esolutions
I would like to thank shareholders for the overwhelmingly positive support provided in favour of remuneration
related resolutions at the 2019 AGM.
KMP remuneration
Despite the global pandemic impacting many industries, Austal achieved record performance and has been largely
unaffected by COVID-19 to date. This performance has led to the KMP being awarded short-term incentives through
the achievement of objectives detailed within this report. In addition, the consistent and improved performance over
the last three years supports the achievement of long-term incentives, aligned to the interests of shareholders.
KMP update
In June 2020 Austal announced that its Chief Operating Officer (COO) Patrick Gregg, will be promoted to the
position of Chief Executive Officer (CEO) effective 1 January 2021, following a six month transition with current
Managing Director and CEO David Singleton. The details of
remuneration are included within this report.
CEO
Austal announced the promotion of Andrew Malcolm to the newly created KMP role of Chief Digital Officer in
July 2020. This new role re
products and within operational business processes.
Given the uncertainty created by COVID-19, the Board determined to freeze remuneration for KMP for FY2021.
This applies to KMP outside of the USA, and does not apply to KMP who change roles during the course of the year.
NED update
As part of the remuneration reviews undertaken by the Board, NED remuneration was also subject to external
benchmarking analysis, and appropriate fee increases were provided at the 50th percentile (where 50% of the
comparator group are above the median level and 50% are below the median level) for FY2020. This is the first
time NED remuneration has been increased since 2016.
During the year, NE
Corporate Governance Statement, which confirmed the appropriate mix of skills exist within the Board.
In support of Chairman John Rothwell, the Board decided to create a role of Deputy Chair to the Board and I was
appointed into this role in September 2019.
Commitment to ongoing feedback, and shareholder support
In noting the excellent performance of the Company together with the ongoing moderation of KMP remuneration,
the Board looks forward to the continued support of shareholders for remuneration related resolutions at the
upcoming AGM. The Board will continue to consider further improvements to remuneration governance, policies,
and practices, and commits to engaging with shareholders and their representatives on these matters.
The Board will be pleased to receive feedback in relation to this report.
Yours sincerely,
Sarah Adam-Gedge
Chair, Nomination & Remuneration Committee
30 Austal Limited |
SHAREHOLDER INFORMATION
Remuneration report [audited]
This Remuneration Report for the year ended 30 June 2020 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 ................................................................................................................................................................ 32
Remuneration governance framework ............................................................................................................................................ 33
3.
Executive KMP remuneration policy ................................................................................................................................................. 35
5.
Executive KMP remuneration .............................................................................................................................................................. 42
6.
Non-Executive Director remuneration ............................................................................................................................................. 50
8.
Equity instruments held by KMP ........................................................................................................................................................ 53
9.
Other related matters ............................................................................................................................................................................. 58
Austal Limited | Remuneration report [audited] 31
1.
Key management personnel
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 2020 were:
32 Austal Limited | Remuneration report [audited]
Senior ExecutivesMr David SingletonIndependent Non-Executive Director from December 2011 to April 2016Chief Executive Officer and Managing Director since April 2016Mr Singleton has tendered his resignation and will continue as CEO until 31 December 2020.Mr Greg JasonGroup Chief Financial Officer since January 2013Mr Craig PerciavallePresident USA since November 2012Mr Patrick GreggChief Operating Officer Australasia since February 2017Non-Executive DirectorsMr John RothwellChairman since 1998Member of the Nomination & Remuneration Committee since December 1998Mr Giles EveristIndependent Non-Executive Director since November 2013Member of the Nomination & Remuneration Committee since February 2014Chair of the Audit & Risk Committee since October 2014Mrs Sarah Adam-GedgeIndependent Non-Executive Director since August 2017Member of the Audit & Risk Committee since August 2017Chair of the Nomination & Remuneration Committee since September 2018Deputy Chair of the Board since September 2019Mr Chris IndermaurIndependent Non-Executive Director since October 2018Member of the Audit & Risk Committee since October 2018Member of the Nomination & Remuneration Committee since August 2019
SHAREHOLDER INFORMATION
2.
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 FY2020.
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
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.
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] 33
V.
Remuneration framework
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.
culture and goals. The Remuneration Policy Framework set out below summarises the key features of
thoroughly reviewed and substantially modified in FY2019 following feedback at the
2018 Annual General Meeting.
34 Austal Limited | Remuneration report [audited]
Our VisionMaintain a responsible, performance-based Remuneration Policy aligned with the long-term interests of shareholders. Certain incentive metrics are utilised on the Remuneration framework to capture the impact of the Groups strategy. Our GoalStrike the right balance between meeting shareholders' expectations, paying our employees competitively, and responding appropriately to the regulatory environment.Our ApproachGovernanceClearly defined and documented governance procedure.Independent Nomination and Remuneration Committee (NRC).Independent External Remuneration Consultants (ERC).Annual assessment of Remuneration Policy.Individual RemunerationReward 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 DeterminationTotal remuneration based approach.Facilitate competitiveness by paying remuneration 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 StructureProvide the appropriate balance of fixed and variable remuneration consistent with the position and role.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.
SHAREHOLDER INFORMATION
3.
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 the 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
ASX trading days of each
month.
equity).
FR less the component granted in
Mr Singleton exceeded his minimum equity holding target by the end of FY2019 and therefore
TFR was paid in share rights during FY2020.
Austal Limited | Remuneration report [audited] 35
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
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 all non-USA Executive KMP will be paid as follows:
50% in cash.
50% in Indeterminate Rights (refer to the definition below) with a minimum holding
period of 3 years irrespective of continued employment.
The Austal USA President receives 100% of STI in cash.
iv.
Indeterminate Rights
Indeterminate Rights are contractual rights to the value of a share in the Company which are
cash. All issuances of equity under STI and LTI arrangements from FY2019 onwards are in the
form of Indeterminate Rights, based on the recommendations of an independent External
Remuneration Consultant (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
p
the expectations and outcomes of shareholders.
36 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 FY2020 KPI are contained in the STI KPI target and outcomes section on page 44.
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 (30 June each year).
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
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-
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
in order for STI to be awarded.
xii.
Individual performance gate
following scale:
Does not meet expectations.
Meets expectations.
Exceeds expectations.
be at least 85% of budget
the
The Board will have discretion to vary award outcomes in the circumstances that the outcomes
would otherwise be inappropriate.
Austal Limited | Remuneration report [audited] 37
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
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 FY2020 STI award opportunities are contained in the STI KPI target and outcomes section
on page 44.
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 was introduced from FY2019
onwards 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 FY2020 LTI grant are contained on page 54.
38 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
v.
FY2018 measures of long term performance
The Company used two long term performance measures for FY2018:
Relative Total Shareholder Return (rTSR) as an external measure of performance.
Return on Invested Capital (ROIC) as an internal measure of performance.
vi.
FY2019 & FY2020 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 and FY2020 LTI plans:
Indexed Total Shareholder Return (iTSR).
Earnings per Share Growth (EPSG).
Return on Equity (ROE).
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 and FY2020 grants were 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.
Industrials Total Return Index.
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).
viii. Earnings per share growth (EPSG) measure
EPSG is an internal measure of performance which the Board encourages management to
focus on.
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] 39
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
The Company TSR metric must be positive for the measurement period, to ensure that the LTI
will not reward executives when shareholders have lost value. If the Company TSR metric is
negative then none of the iTSR tranche will vest.
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
,
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
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.
40 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.
All shares acquired by Participants as a consequence of exercising vested Performance Rights,
shall be subject to a dealing restriction
trading restrictions.
Share Trading Policy and insider
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 already 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 Performance 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] 41
5.
Executive KMP remuneration
I.
FY2020 award opportunities
i.
Target remuneration
The table below depicts the Target remuneration for KMP in FY2020 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.
ii.
Stretch (Maximum) remuneration
The table below depicts the Stretch (Maximum) remuneration for KMP in FY2020 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.
42 Austal Limited | Remuneration report [audited]
KMPTFRSTI OpportunityLTI OpportunityTotalTarget$Target$Mr David Singleton1,093,833$ 60%656,300$ 40%437,533$ 2,187,666$ Mr Greg Jason568,006 40%227,202 35%198,802 994,011 Mr Craig Perciavalle1,092,173 30%327,652 50%546,087 1,965,911 Mr Patrick Gregg510,000 40%204,000 35%178,500 892,500 % of TotalMr David Singleton50%30%20%100%Mr Greg Jason57%23%20%100%Mr Craig Perciavalle56%17%28%100%Mr Patrick Gregg57%23%20%100%KMPTFRSTI OpportunityLTI OpportunityTotalStretch$Stretch$Mr David Singleton1,093,833$ 90%984,450$ 80%875,066$ 2,953,349$ Mr Greg Jason568,006 60%340,804 70%397,604 1,306,414 Mr Craig Perciavalle1,092,173 60%655,304 100%1,092,173 2,839,650 Mr Patrick Gregg510,000 60%306,000 70%357,000 1,173,000 % of TotalMr David Singleton37%33%30%100%Mr Greg Jason43%27%30%100%Mr Craig Perciavalle38%24%38%100%Mr Patrick Gregg43%27%30%100%
SHAREHOLDER INFORMATION
II.
CEO remuneration
This chart depicts the Minimum, Target and Maximum remuneration opportunity that was available to
the CEO and the breakdown between fixed remuneration (TFR) and variable remuneration
(STI and LTI).
Austal Limited | Remuneration report [audited] 43
FY2020 CEO RemunerationFY2019 CEO Remuneration37% 50% 100% 33% 30% 30% 20% $2,953,349$2,187,666$1,093,833$0$500,000$1,000,000$1,500,000$2,000,000$2,500,000$3,000,000$3,500,000Stretch (Maximum)TargetMinimumLegendFixedSTILTI37% 50% 100% 33% 30% 30% 20% $2,978,224$2,206,092$1,103,046$0$500,000$1,000,000$1,500,000$2,000,000$2,500,000$3,000,000$3,500,000Stretch (Maximum)TargetMinimumLegendFixedSTILTI
III.
STI targets and outcomes
The following KPI were selected because they were the most significant matters for each of the KMP
that were expected to contribute to the success of the Company during FY2020, given the business
plans approved by the Board at the commencement of the financial year.
44 Austal Limited | Remuneration report [audited]
Chief Executive Officer - Mr David SingletonActual PerformanceTargetsMeasuresWeightBelow StretchAwardThresholdTargetStretchActualGroup EBIT20%100%$ 105 m$ 112 m$ 120 m$ 130 mGroup Free Cashflow20%100%$ 35 m$ 53 m$ 73 m$ 139 mAustralasia EBIT margin10%-7.6%7.6%9.0%6.2%Group Order Intake27%88%Further detail is provided belowBusiness Development18%86%Further detail is provided belowOverhead Cost Reduction5%100%Further detail is provided belowTotal100%84%Chief Financial Officer - Mr Greg JasonActual PerformanceTargetsMeasuresWeightBelow StretchAwardThresholdTargetStretchActualGroup EBIT30%100%$ 105 m$ 112 m$ 120 m$ 130 mGroup Free Cashflow10%100%$ 35 m$ 53 m$ 73 m$ 139 mGroup Order Intake20%88%Further detail is provided belowIndividual Targets40%66%Further detail is provided belowTotal100%84%President USA - Mr Craig PerciavalleActual PerformanceTargetsMeasuresWeightBelow StretchAwardThresholdTargetStretchActualUSA EBIT (USD)20%67%$ 75 m$ 79 m$ 86 m$ 82 mUSA Free Cashflow (USD)20%100%$ 117 m$ 130 m$ 143 m$ 145 mSustainment Revenue (USD)15%100%$ 151 m$ 168 m$ 185 m$ 195 mSustainment Growth10%70%Further detail is provided belowProductivity20%100%Further detail is provided belowUSA Order Intake15%70%Further detail is provided belowTotal100%86%Chief Operating Officer - Australasia - Mr Patrick GreggActual PerformanceTargetsMeasuresWeightBelow StretchAwardThresholdTargetStretchActualAustralasia EBIT margin25%-7.6%7.6%9.0%6.2%Australasia Free Cashflow15%100%$ (97) m$ (87) m$ (77) m$ (43) mAustralasia Order Intake20%100%Further detail is provided belowIndividual Targets40%88%Further detail is provided belowTotal100%70%
SHAREHOLDER INFORMATION
Austal Limited | Remuneration report [audited] 45
Chief Executive Officer - Mr David SingletonGrowth & Order Intake KPI (88% Award)Multiple ship awards (commercial in confidence).Significant progress on new defence vessel programs.Growth in USA sustainment revenue by 20%.Business Development KPI (86% Award)Future development of US business.Future continuity of Henderson operations. Overhead Cost Reduction KPI (100% Award)Corporate & Australasia overhead reduction program.Chief Financial Officer - Mr Greg JasonGrowth & Order Intake KPI (88% Award)As per the CEO.Major Personal KPI (66% Award)Corporate & Australasia overhead reduction program.Deliver CCPB funding structure.Governance improvements.President USA - Mr Craig PerciavalleSustainment Growth (70% Award)Growth in USA sustainment revenue by 20%.Productivity (100% Award)LCS & EPF Productivity targets met - (commercial in confidence).USA Order Intake (70% Award)Vessel design awards for Offshore Patrol Cutter & Unmanned systems.Steel shipbuilding capability grant under US Defense Production Act.Chief Operating Officer - Australasia - Mr Patrick GreggGrowth & Order Intake KPI (100% Award)As per the CEO (Australasia only).Major Personal KPI (88% Award)Australasia cost & productivity performance - (commercial in confidence).Deliver Australasia vessel programs to quality and schedule (noting COVID-19 impact).Develop world class procurement against metrics.Enterprise Resource Planning software implementation progress.Future continuity of Henderson operations. Maintain safety standards in bigger and broader based business.
IV.
LTI grant and outcomes
i.
Performance rights grant
2,363,476 Performance Rights were granted to KMP in FY2018, who were still employed by
Austal at 30 June 2020.
ii.
Measurement period
100% of the Performance Rights granted in FY2018 had a 3 year Measurement Period from
1 July 2018 30 June 2020.
iii.
FY2018 LTI vesting performance
The Return on Invested Capital (ROIC) and Relative Total Shareholder Return (rTSR)
performance criteria relating to the FY2018 Performance Rights grant to KMP are detailed
below. The actual vesting performance is indicated by the red dot.
percentile ranking against the Market TSR results. The Market TSR references the XAOA All
Ordinaries Total Return Index. ROIC is calculated by dividing Net Operating Profit after Tax
(NOPAT) by average Invested Capital over the measurement period.
iv.
FY2018 LTI vesting awards
46 Austal Limited | Remuneration report [audited]
Relative TSR = Austal TSR Percentile of MarketROIC = NOPAT / Invested CapitalXAOA - All Ordinaries Total Return Index ThresholdTargetStretch100% 0%25%50%75%100%0%25%50%75%100%AwardXAOA TSR PercentileRelative TSRAwardThresholdTargetStretch100% 0%25%50%75%100%0%2%4%6%8%10%12%AwardROICROICAwardVestingValue @KMPTrancheWeightGranted%NumberGrant DateVWAP @ Grant Date1.80$ Mr David SingletonrTSR40%238,612 100%238,612 428,604$ ROIC60%357,918 100%357,918 642,907 Total596,530 100%596,530 1,071,511$ Mr Greg JasonrTSR40%82,704 100%82,704 148,556$ ROIC60%124,055 100%124,055 222,833 Total206,759 100%206,759 371,389$ Mr Craig PerciavallerTSR40%94,725 100%94,725 170,149$ ROIC60%142,086 100%142,086 255,221 Total236,811 100%236,811 425,369$ Mr Patrick GreggrTSR40%71,578 100%71,578 128,571$ ROIC60%107,367 100%107,367 192,857 Total178,945 100%178,945 321,428$
SHAREHOLDER INFORMATION
V.
Realised remuneration (non-statutory disclosure)
The Realised Remuneration tables below are provided to convey the actual remuneration awarded to
KMP during FY2020 and FY2019 rather than the statutory disclosure 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 results on page 44.
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.
The CEO and the CFO had a leave loading entitlement embedded in their employment contracts. The leave
loading entitlement was terminated during FY2020. All accrued leave loading entitlements were paid to
Mr Singleton and Mr Jason during FY2020 and are disclosed in the realised and statutory remuneration
tables. Future leave loading entitlements were converted into a TFR increase for FY2021 onwards of
$14,724 for Mr Singleton and $7,651 for Mr Jason.
Austal Limited | Remuneration report [audited] 47
FY2020Total Fixed RemunerationLegacy Buy Out 1FY2020 STI AwardedLTITotalSuper-Shareannuation /LeaveIndeterminateFY2018KMPCashRightsPensionOtherTotalLoadingCashRightsTotalVestingValue @ Grant VWAP21.80$ Mr David Singleton1,072,830$ - $ 21,003$ - $ 1,093,833$ 45,278$ 413,016$ 413,016$ 826,032$ 1,071,511$ 3,036,654$ Mr Greg Jason547,003 - 21,003 - 568,006 25,497 143,139 143,139 286,278 371,389 1,251,170 Mr Craig Perciavalle894,188 - 109,230 88,755 1,092,173 - 505,395 - 505,395 425,369 2,022,937 Mr Patrick Gregg488,998 - 21,002 - 510,000 - 107,100 107,100 214,200 321,428 1,045,628 Total3,003,019$ - $ 172,238$ 88,755$ 3,264,012$ 70,775$ 1,168,650$ 663,255$ 1,831,905$ 2,189,697$ 7,356,389$ % of TotalMr David Singleton36.0%1.5%27.2%35.3%100.0%Mr Greg Jason45.4%2.0%22.9%29.7%100.0%Mr Craig Perciavalle54.0%-25.0%21.0%100.0%Mr Patrick Gregg48.8%-20.5%30.7%100.0%FY2019Total Fixed RemunerationLegacy Buy OutFY2019 STI AwardedLTITotalSuper-Shareannuation /LeaveIndeterminateFY2017KMPCashRightsPensionOtherTotalLoadingCashRightsTotalVestingValue @ Grant VWAP21.10$ Mr David Singleton747,448$ 334,767$ 20,831$ - $ 1,103,046$ - $ 372,156$ 372,156$ 744,312$ 1,310,002$ 3,157,360$ Mr Greg Jason496,397 50,950 20,531 - 567,878 - 127,237 127,237 254,474 288,398 1,110,750 Mr Craig Perciavalle3797,203 - 97,154 67,478 961,835 - 478,322 - 478,322 441,692 1,881,849 Mr Patrick Gregg447,173 - 35,827 - 483,000 - 109,862 109,862 219,724 - 702,724 Total2,488,221$ 385,717$ 174,343$ 67,478$ 3,115,759$ - $ 1,087,577$ 609,255$ 1,696,832$ 2,040,092$ 6,852,683$ % of TotalMr David Singleton34.9%-23.6%41.5%100.0%Mr Greg Jason51.1%-22.9%26.0%100.0%Mr Craig Perciavalle51.1%-25.4%23.5%100.0%Mr Patrick Gregg68.7%-31.3%-100.0%1.Refer to the explanation below.2.Value @ Grant VWAP is the Volume Weighted Average Share Price utilised for the respective LTI grant.3.Mr Perciavalle's prior year disclosure in 'Other' TFR has been updated to include $33,897 of healthcare related post-employment benefits.
VI.
Statutory remuneration disclosure
The following table outlines the remuneration received by Executive KMP during FY2020 and
FY2019, prepared according to statutory disclosure requirements and accounting standards:
The CEO and the CFO had a leave loading entitlement embedded in their employment contracts. The leave
loading entitlement was terminated during FY2020. All accrued leave loading entitlements were paid to
Mr Singleton and Mr Jason during FY2020 and are disclosed in the realised and statutory remuneration
tables. Future leave loading entitlements were converted into a TFR increase for FY2021 onwards of
$14,724 for Mr Singleton and $7,651 for Mr Jason.
48 Austal Limited | Remuneration report [audited]
FY2020Fixed RemunerationLegacy Buy Out 1Variable RemunerationOtherTotalSuper-OtherLTILongShareannuation /MonetaryLeaveSTIAccountingService LeaveKMP Salary2RightsPensionBenefitsTotalLoadingAccruedExpense3AccruedMr David Singleton4983,402$ - $ 21,003$ - $ 1,004,405$ 45,278$ 826,032$ (41,090)$ 14,071$ 1,848,696$ Mr Greg Jason550,834 - 21,003 - 571,837 25,497 286,278 353,673 13,200 1,250,485 Mr Craig Perciavalle913,712 - 109,230 88,755 1,111,697 - 505,395 556,346 - 2,173,438 Mr Patrick Gregg508,344 - 21,002 - 529,346 - 214,200 309,153 3,959 1,056,658 Total2,956,292$ - $ 172,238$ 88,755$ 3,217,285$ 70,775$ 1,831,905$ 1,178,082$ 31,230$ 6,329,277$ % of TotalMr David Singleton54.3%2.4%44.7%(2.2%)0.8%100.0%Mr Greg Jason45.7%2.0%22.9%28.3%1.1%100.0%Mr Craig Perciavalle51.1%-23.3%25.6%-100.0%Mr Patrick Gregg50.1%-20.3%29.3%0.4%100.0%FY2019Fixed RemunerationLegacy Buy OutVariable RemunerationOtherTotalSuper-OtherLTILongShareannuation /MonetaryLeaveSTIAccountingService Leave Salary2RightsPensionBenefitsTotalLoadingAccruedExpense3AccruedMr David Singleton4814,049$ 334,767$ 20,831$ - $ 1,169,647$ - $ 744,312$ 1,776,504$ 18,231$ 3,708,694$ Mr Greg Jason493,029 50,950 20,531 - 564,510 - 254,474 420,664 9,350 1,248,998 Mr Craig Perciavalle5821,011 - 97,154 67,478 985,643 - 478,322 672,126 - 2,136,091 Mr Patrick Gregg478,758 - 35,827 - 514,585 - 219,724 218,086 8,050 960,446 Total2,606,847$ 385,717$ 174,343$ 67,478$ 3,234,385$ - $ 1,696,832$ 3,087,380$ 35,631$ 8,054,229$ % of TotalMr David Singleton31.5%-20.1%47.9%0.5%100.0%Mr Greg Jason45.2%-20.4%33.7%0.7%100.0%Mr Craig Perciavalle46.1%-22.4%31.5%-100.0%Mr Patrick Gregg53.6%-22.9%22.7%0.8%100.0%1.Refer to the explanation below.2.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.3.The LTI expense represents the portion of the independent valuation of active LTI plans expensed through the Profit and Loss in accordance with AASB 2.4.Mr Singleton's FY2019 and FY2020 LTI grants were forfeited in accordance with his resignation in June 2020 and the life to date Profit and Loss expense of these plans were reversed. 5.Mr Perciavalle's prior year disclosure in 'Other Monetary Benefits' has been updated to include $33,897 of healthcare post-employment benefits and the movemement in leave balances of $23,808.
SHAREHOLDER INFORMATION
The Corporations Act mandate the manner in which the cost of all forms of remuneration are disclosed
within the Remuneration Report such as the following matters:
Share based payments expense for LTI plans represents the portion of the actuarial valuation of
all relevant Performance Rights (grants across multiple years) expensed within the reporting
period including adjustments for forfeiture and vesting outcomes for internal measures of
performance.
Salary represents the amount expensed in the Profit and Loss statement during the reporting
period which will be influenced by the number of leave days taken (e.g. salary and fees
expensed will be highe
period because the expense will represent the 12 months worked plus the value of leave
accrued (e.g. 4 weeks in Australia)).
VII. Reconciliation of realised remuneration and statutory remuneration
The following table reconciles the realised remuneration received by Executive KMP during FY2020
and FY2019 with the statutory remuneration disclosures for those years.
Austal Limited | Remuneration report [audited] 49
FY2020RemunerationExplanation of VarianceLTI VestingLong ServiceLeaveVersusLeaveProvisionKMPRealisedStatutoryVarianceExpenseProvisionMovementTotalMr David Singleton13,036,654$ 1,848,696$ 1,187,958$ 1,112,601$ (14,071)$ 89,428$ 1,187,958$ Mr Greg Jason1,251,170 1,250,485 685 17,716 (13,200) (3,831) 685 Mr Craig Perciavalle2,022,937 2,173,438 (150,501) (130,977) - (19,524) (150,501) Mr Patrick Gregg1,045,628 1,056,658 (11,030) 12,275 (3,959) (19,346) (11,030) 1.Mr Singleton's significant 'LTI Vesting Versus Expense' variance represents the difference between the FY2018 LTI grant fully vesting as shown in the Realised Remuneration table and the reversal of the previously booked Share Based Payment expense in relation to the forfeited FY2019 and FY2020 grants within the Statutory Remuneration table.FY2019RemunerationExplanation of VarianceLTI VestingLong ServiceLeaveVersusLeaveProvisionKMPRealisedStatutoryVarianceExpenseMovementMovementTotalMr David Singleton3,157,360$ 3,708,694$ (551,334)$ (466,502)$ (18,231)$ (66,601)$ (551,334)$ Mr Greg Jason1,110,750 1,248,998 (138,248) (132,266) (9,350) 3,368 (138,248) Mr Craig Perciavalle1,881,849 2,136,091 (254,242) (230,434) - (23,808) (254,242) Mr Patrick Gregg702,724 960,446 (257,722) (218,087) (8,050) (31,585) (257,722)
VIII. CEO Transition
i.
Resignation of Mr David Singleton
In June 2020 Austal announced that its Chief Operating Officer (COO) Patrick Gregg will be
promoted to the position of Chief Executive Officer (CEO) effective 1 January 2021, following a
six month transition from current Managing Director and CEO David Singleton.
Mr Singleton will be eligible to receive an FY2021 STI of up to a maximum of 6 months TFR
for achievement of the following objectives:
Subic Bay Acquisition
Progress Philippines Offshore Patrol Vessel Program
San Diego Dry Dock Strategy
Post LCS Strategy and USA Steel Shipbuilding Capability
Refresh Company Strategy
Effective transition to new CEO
ii.
Appointment of Mr Patrick Gregg
remuneration from 1 January 2021 are included below:
Total Fixed Remuneration $875,000
Target STI award 45% / Stretch STI award 67.5%
Target LTI award 50% / Stretch LTI award 100%
6. 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.
NED remuneration was externally benchmarked, and appropriate fee increases were
provided at the 50th percentile (where 50% of the comparator group are above
the median level and 50% are below the median level) for FY2020. This is the first time
NED remuneration has been increased since 2016.
Remuneration for the current Chairman of the Board reflects his continued high level of
contribution to the company and the Board. The Board increased the Chairman s
FY2020 total remuneration fee to $210,000, inclusive of committee fees.
Committee fees recognise additional contributions to the work of the Board by members
of committees. They are similarly referenced to the benchmark group as above.
50 Austal Limited | Remuneration report [audited]
SHAREHOLDER INFORMATION
iii.
NED fee rates
The following table outlines the NED fee policy rates that were applicable:
iv.
Termination benefits
Termination benefits are not paid to NED.
III.
Share rights
The NED have agreed annually with the Company to receive 25% of their Board fees (excluding
Committee fees) in the form of share rights in order to accumulate equity holdings up to the
equivalent of one year of Board fees (excluding Committee fees). The issuance of share rights to NED
was approved by shareholders at the 2018 and 2019 Annual General Meetings.
The Chairman of the Board does not presently receive share rights because of his significant
shareholding in the Company.
Austal Limited | Remuneration report [audited] 51
FY2020RoleChairDeputy ChairMemberMain Board200,000$ 110,000$ 100,000$ Audit & Risk Committee20,000 N/A10,000 Nomination & Remuneration Committee20,000 N/A10,000 FY2019RoleChairDeputy ChairMemberMain Board192,500$ N/A95,000$ Audit & Risk Committee20,000 N/A10,000 Nomination & Remuneration Committee15,000 N/A7,500
IV.
NED remuneration in FY2020
The following table outlines the remuneration received by NED of the Company during FY2020 and
the previous year, prepared according to statutory disclosure requirements and applicable accounting
standards:
52 Austal Limited | Remuneration report [audited]
FY2020Board FeesCommittee FeesTotalSuper-ShareSuper-CashannuationRightsTotalCashannuationTotalMr John Rothwell182,648$ 17,352$ - $ 200,000$ 9,132$ 868$ 10,000$ 210,000$ Mr Giles Everist91,324 8,676 - 100,000 27,397 2,603 30,000 130,000 Mrs Sarah Adam-Gedge75,723 7,194 27,083 110,000 29,456 126 29,583 139,583 Mr Chris Indermaur68,493 6,507 25,000 100,000 18,626 1,374 20,000 120,000 Total418,189$ 39,728$ 52,083$ 510,000$ 84,613$ 4,970$ 89,583$ 599,583$ FY2019Board FeesCommittee FeesTotalSuper-ShareSuper-CashannuationRightsTotalCashannuationTotalMr John Rothwell175,799$ 16,701$ - $ 192,500$ 6,849$ 651$ 7,500$ 200,000$ Mr Giles Everist65,068 6,182 23,750 95,000 25,114 2,386 27,500 122,500 Mrs Sarah Adam-Gedge65,068 6,182 23,750 95,000 20,758 1,972 22,731 117,731 Mr Chris Indermaur 145,681 4,340 15,833 65,854 6,355 604 6,959 72,812 Mr Jim McDowell 210,845 1,030 3,958 15,833 3,805 361 4,167 20,000 Total362,461$ 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.
SHAREHOLDER INFORMATION
8.
Equity instruments held by KMP
I.
FY2018 performance rights vesting
Further information relating to the FY2018 Performance Rights vesting is provided on page 46.
II.
FY2019 performance rights
i.
Performance rights
714,374 Performance Rights were granted to KMP in FY2019, who were still employed by
Austal and whose rights were not lapsed, forfeited or vested at 30 June 2020.
ii.
Measurement period
100% of the Performance Rights granted in FY2019 have a 3 year Measurement Period from
1 July 2018 30 June 2021.
iii.
Performance criteria
The performance criteria relating to the FY2019 grant of Performance Rights to KMP are
detailed below:
Austal Limited | Remuneration report [audited] 53
ThresholdIndexed TSR = Austal TSR Premium to MarketROE = NPAT / Equity (Excluding Reserves)EPSG = EPS (Final Year) / CAGR EPS (Base Year)ThresholdTargetStretch0%25%50%75%100%0%5%10%AwardTSR Premium to marketIndexed TSRAwardThresholdTargetStretch0%25%50%75%100%0%2%4%6%8%10%12%14%16%AwardROEROEAwardThresholdTargetStretch0%25%50%75%100%0%10%20%30%AwardEPSGEPSGAward
III.
FY2020 performance rights grant
i.
Performance rights grant
Performance rights granted to KMP in FY2020 are depicted in the table below.
The Fair Value per right has been determined by an independent valuer in accordance with
AASB 2 Share Based Payments and does not match the Stretch LTI opportunity as detailed
earlier in the report.
422,925 Performance Rights were granted to KMP in FY2020, who were still employed by
Austal and whose rights were not lapsed, forfeited or vested at 30 June 2020.
ii.
Measurement period
100% of the Performance Rights granted in FY2020 have a 3 year Measurement Period from
1 July 2019 30 June 2022.
iii.
Performance criteria
The performance criteria relating to the FY2020 grant of Performance Rights to KMP are
detailed below:
54 Austal Limited | Remuneration report [audited]
Rights grantedValue @NameiTSRROEEPSGTotalgrant dateFair Value per right2.33$ 3.81$ 3.81$ 3.31$ 3.31$ Mr David Singleton176,410 76,410 76,411 229,231 759,519$ Mr Greg Jason34,718 34,718 34,720 104,156 345,105 Mr Craig Perciavalle75,082 75,082 75,084 225,248 746,323 Mr Patrick Gregg31,173 31,173 31,175 93,521 309,867 Total217,383 217,383 217,390 652,156 2,160,814$ 1. Mr Singleton's FY2020 LTI grant was forfeited in accordance with his resignation in June 2020.ThresholdIndexed TSR = Austal TSR Premium to MarketROE = NPAT / Equity (Excluding Reserves)EPSG = EPS (Final Year) / CAGR EPS (Base Year)ThresholdTargetStretch0%25%50%75%100%0%5%10%AwardTSR Premium to marketIndexed TSRAwardThresholdTargetStretch0%25%50%75%100%0%2%4%6%8%10%12%14%16%AwardROEROEAwardThresholdTargetStretch0%25%50%75%100%0%10%20%30%AwardEPSGEPSGAward
SHAREHOLDER INFORMATION
IV.
TFR share rights
Details of Share Rights earned during the period and provided to KMP in FY2020 are shown below
and further information is provided in Note 34.
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 VWAP of the last 5 trading days of each
month. The share rights provided to the NED were approved by Shareholders during
the 2019 Annual General Meeting.
Austal Limited | Remuneration report [audited] 55
Average fairKMPEarnedvalue per rightFair valueMrs Sarah Adam-Gedge7,468$ 3.6327,083$ Mr Chris Indermaur6,884 3.6325,000
V.
Changes in equity held by KMP
56 Austal Limited | Remuneration report [audited]
FY2020 MovementsBalance atLapsed /BoughtBalance at30 June 2019GrantedVestedExercisedForfeited(Sold)30 June 2020VestedUnvestedExecutivesMr David SingletonShares 28,600 - - 1,194,121 - - 1,222,721 1,222,721 - Share Rights1,819,783 - 596,530 (1,194,121) - - 1,222,192 1,222,192 - Performance Rights1,088,932 229,231 (596,530) - (721,633) - - - - Indeterminate Rights1 - 106,251 - - - - 106,251 106,251 - Total2,937,315 335,482 - - (721,633) - 2,551,164 2,551,164 - Mr Greg JasonShares 59,089 - - 310,491 - (106,693) 262,887 262,887 - Share Rights310,491 - 206,759 (310,491) - - 206,759 206,759 - Performance Rights427,717 104,156 (206,759) - - - 325,114 - 325,114 Indeterminate Rights1 - 36,664 - - - - 36,664 36,664 - Total797,297 140,820 - - - (106,693) 831,424 506,310 325,114 Mr Craig PerciavalleShares 112,444 - - 402,621 - (313,755) 201,310 201,310 - Share Rights402,621 236,811 (402,621) - - 236,811 236,811 - Performance Rights539,974 225,248 (236,811) - - - 528,411 528,411 - Total1,055,039 225,248 - - - (313,755) 966,532 966,532 - Mr Patrick GreggShares - - - - - - - - - Share Rights - - 178,945 - - - 178,945 178,945 - Performance Rights369,198 93,521 (178,945) - - - 283,774 - 283,774 Indeterminate Rights1 - 30,406 - - - - 30,406 30,406 - Total369,198 123,927 - - - - 493,125 209,351 283,774 Non-Executive DirectorsMr John RothwellShares32,307,692 - - - - - 32,307,692 32,307,692 - Total32,307,692 - - - - - 32,307,692 32,307,692 - Mr Giles EveristShares10,000 - - 20,441 - - 30,441 30,441 - Share Rights20,441 - - (20,441) - - - - - Total30,441 - - - - - 30,441 30,441 - Mrs Sarah Adam-GedgeShares10,000 - - - - - 10,000 10,000 - Share Rights20,441 7,468 - - - - 27,909 27,909 - Total30,441 7,468 - - - - 37,909 37,909 - Mr Chris IndermaurShare Rights6,857 6,884 - - - - 13,741 13,741 - Total6,857 6,884 - - - - 13,741 13,741 - 1.Indeterminate rights are contractual rights to the value of a share with a minimum holding period of 3 years irrespective of continued employment.
SHAREHOLDER INFORMATION
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:
Austal Limited | Remuneration report [audited] 57
Balance atValue @FY2020Equity Holding % of TFRTarget30 Jun 202030 Jun 2020TFR30 Jun 2020TargetIntroducedValue / share$ 3.23ExecutivesMr David Singleton2,551,164 $ 8,240,260$ 1,093,833753%100%Feb 2016Mr Greg Jason506,310 1,635,381 568,006 288%50%Sep 2017Mr Craig Perciavalle966,532 3,121,898 1,092,173 286%--Mr Patrick Gregg1209,351 676,204 510,000 133%--Balance atValue @FY2020Equity Holding % of TFRTarget30 Jun 202030 Jun 2020Board Fees 230 Jun 2020TargetIntroducedNon-Executive DirectorsMr John Rothwell32,307,692 $ 104,353,845$ 200,00052177%100%Nov 2017Mr Giles Everist30,441 98,324 100,000 98%100%Nov 2017Mrs Sarah Adam-Gedge37,909 122,446 110,000 111%100%Nov 2017Mr Chris Indermaur13,741 44,383 100,000 44%100%Oct 20181. Mr Gregg will be required to maintain a minimum level of equity holding at a value equivalent to 1 year TFR once be becomes CEO.2. Includes Board Fees and excludes Committee Fees
9.
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 FY2020 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
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.
During the year Mrs Sarah Adam-Gedge was appointed as Deputy Chair of the Board.
II.
Details of contractual provisions for KMP
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.
58 Austal Limited | Remuneration report [audited]
TerminationNameEmployerDurationGroupIndividualBenefits 1Mr David SingletonAustal LimitedUnlimited3 months3 months3 monthsMr Greg JasonAustal LimitedUnlimited12 weeks12 weeks12 weeksMr Craig PerciavalleAustal USA LLCUnlimitedNoneNoneNoneMr Patrick GreggAustal Ships Pty LtdUnlimited3 months3 months3 months1. Termination Benefit Limit under the Corporations Act is 12 months of the average prior 3 years salary unless Shareholder approval is obtained.Termination Notice Period
SHAREHOLDER INFORMATION
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 FY2020:
NED and Executive Remuneration Recommendations.
Total fees $77,550 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
Austal Limited | Remuneration report [audited] 59
Auditor independence
The Board of Directors
Austal Limited
100 Clarence Beach Rd
Henderson, WA
6166, Australia
21 August 2020
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 2020, 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 Asia Pacific Limited and the Deloitte Network
60 Austal Limited | Auditor independence
SHAREHOLDER INFORMATION
Consolidated statement of profit and loss and other
comprehensive income for the year ended
30 June 2020
Austal Limited | Consolidated statement of profit and loss and other comprehensive income for the year ended 30 June 2020 61
20202019Notes000000Continuing operationsRevenue42,086,001$ 1,851,021$ Cost of sales(1,846,707) (1,661,113) Gross Profit239,294$ 189,908$ Other income and expenses59,771$ 13,301$ Administration expenses(94,793) (92,265) Marketing expenses(23,876) (18,149) Finance income 151,384 1,053 Finance costs5(8,267) (8,284) Profit / (loss) before income tax123,513$ 85,564$ Income tax benefit / (expense)9(34,535)$ (24,180)$ Profit / (loss) after tax88,978$ 61,384$ Other comprehensive income (OCI)Amounts that may subsequently be reclassified to profit and loss:Cash flow hedges - Net gain / (loss) 4,907$ (1,693)$ - Income tax benefit / (expense) (1,474) 460 3,433$ (1,233)$ Foreign currency translations - Net gain / (loss) 9,245$ 27,912$ 9,245$ 27,912$ Amounts not to be reclassified to profit and loss in subsequent periods:Asset revaluation reserve - Net gain / (loss) 42,556$ 2,103$ - Income tax benefit / (expense) (10,713) (578) 31,843$ 1,525$ Other comprehensive income for the period44,521$ 28,204$ Total comprehensive income for the year133,499$ 89,588$ Earnings per share ($ per share)Basic earnings per share60.250$ 0.176$ Diluted earnings per share60.247 0.173 1. Finance income was previously included within Revenue and has been reclassified below Gross Profit for the current and comparative period.
Consolidated statement of financial position as at
30 June 2020
62 Austal Limited | Consolidated statement of financial position as at 30 June 2020
20202019Notes000000AssetsCurrentCash and cash equivalents10396,667$ 275,665$ Inventories and work in progress17143,799 167,042 Trade and other receivables15144,217 225,268 Prepayments11,444 9,480 Derivatives26, 271,218 1,932 Income tax refundable9 - 1,701 Total697,345$ 681,088$ Non - currentProperty, plant and equipment19610,199$ 588,384$ Intangible assets and goodwill2022,192 20,743 Investment in joint venture311,729 1,729 Derivatives26, 271,186 258 Right of use lease assets29,736 - Other financial assets2213,197 11,859 Other non-current assets237,767 14,838 Deferred tax assets94,757 8,402 Total670,763$ 646,213$ Total1,368,108$ 1,327,301$ LiabilitiesCurrentInterest bearing loans and borrowings11(8,719)$ (51,211)$ Progress payments received in advance16(94,502) (120,402) Trade and other payables18(156,910) (202,308) Provisions24(80,132) (85,305) Derivatives26, 27(3,352) (8,992) Income tax payable9(259) - Lease liabilities2(2,627) - Deferred grant income14(3,232) (6,445) Total(349,733)$ (474,663)$ Non - currentInterest bearing loans and borrowings11(156,461)$ (122,543)$ Provisions24(2,521) (1,707) Derivatives26, 27(6,026) (7,552) Lease liabilities2(7,449) - Deferred grant income14(54,046) (56,214) Deferred tax liabilities9(43,129) (33,839) Total(269,632)$ (221,855)$ Total(619,365)$ (696,518)$ Net assets748,743$ 630,783$ Equity attributable to owners of the parentContributed equity13135,340$ 130,570$ Reserves235,122 189,520 Retained earnings378,281 310,693 Total748,743$ 630,783$
SHAREHOLDER INFORMATION
Consolidated statement of changes in equity for the
year ended 30 June 2020
Austal Limited | Consolidated statement of changes in equity for the year ended 30 June 2020 63
ForeignCurrencyEmployeeCash FlowCommonAssetIssuedReservedRetainedTransl'nBenefitsHedgeControlReval'nTotalCapitalShares 1EarningsReserveReserveReserveReserveReserveEquityEquity at 1 July 2018130,165$ (11,836)$ 270,530$ 82,190$ 3,977$ (5,789)$ (17,594)$ 93,935$ 545,578$ Comprehensive incomeProfit 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 transactionsShares issued for dividend reinvestment plan1,922$ - $ - $ - $ - $ - $ - $ - $ 1,922$ Dividends - - (21,133) - - - - - (21,133) Share based payments expense - - - - 5,975 - - - 5,975 Shares issued to employee share trust454 (454) - - - - - - - AGMSP shares sold 2(2,763) 10,929 - - - - - - 8,166 Dividend retained in relation to AGMSP 213 95 - - - - - - 108 Tax expense on sale of AGMSP shares 2(65) - - - - - - - (65) Rights exercised2,110 - - - (1,142) - - - 968 Transfer between reserves 4 - - 313 - (313) - - - - Transfer between reserves 5 - - (401) - 401 - - - - Remeasurement gain on retirement benefits - - - - (324) - - - (324) Total1,671$ 10,570$ (21,221)$ - $ 4,597$ - $ - $ - $ (4,383)$ Movement1,671$ 10,570$ 40,163$ 27,912$ 4,597$ (1,233)$ - $ 1,525$ 85,205$ Equity at 30 June 2019131,836$ (1,266)$ 310,693$ 110,102$ 8,574$ (7,022)$ (17,594)$ 95,460$ 630,783$ Comprehensive incomeProfit for the year - $ - $ 88,978$ - $ - $ - $ - $ - $ 88,978$ Other comprehensive income - - - 9,245 - 3,433 - 31,843 44,521 Total - $ - $ 88,978$ 9,245$ - $ 3,433$ - $ 31,843$ 133,499$ Other equity transactionsShares issued for dividend reinvestment plan804$ - $ - $ - $ - $ - $ - $ - $ 804$ Dividends - - (21,390) - - - - - (21,390) Share based payments expense - - - - 4,599 - - - 4,599 Shares issued to employee share trust1,861 (1,861) - - - - - - - Shares or proceeds transferred to beneficiaries(1,096) 1,771 - - (675) - - - - Shares issued for vested performance rights3,291 - - - (3,291) - - - - Reclassification of long term incentives 6 - - - - 751 - - - 751 Remeasurement gain on retirement benefits - - - - (303) - - - (303) Total4,860$ (90)$ (21,390)$ - $ 1,081$ - $ - $ - $ (15,539)$ Movement4,860$ (90)$ 67,588$ 9,245$ 1,081$ 3,433$ - $ 31,843$ 117,960$ Equity at 30 June 2020136,696$ (1,356)$ 378,281$ 119,347$ 9,655$ (3,589)$ (17,594)$ 127,303$ 748,743$ 1.Reserved shares are held in relation to employee share trusts. 2.The Trustee sold all of the shares in the Austal Group Management Share Plan (AGMSP) during FY2019.3.Transfer of reserved shares relating to vested AGMSP.4.Transfer of lapsed LTI balance.5.Transfer of retirement reserve opening balance.6.Reclassification of FY2019 Indeterminate Rights to equity from provisions
Consolidated statement of cash flows for the year
ended 30 June 2020
64 Austal Limited | Consolidated statement of cash flows for the year ended 30 June 2020
20202019Notes000000Cash flows from operating activitiesReceipts from customers (exclusive of GST)2,165,269$ 1,865,442$ Payments to suppliers and employees (exclusive of GST)(1,982,563) (1,688,944) Income tax refunded / (paid)(13,584) (7,261) Interest paid(6,034) (5,773) Interest received51,384 1,053 Net cash from / (used in) operating activities7164,472$ 164,517$ Cash flows from investing activitiesPurchase of property, plant and equipment19(16,700)$ (41,542)$ Payment for intangible assets20(1,661) (1,556) Proceeds from sale of property, plant and equipment186 3,867 Receipts of government infrastructure grants - 1,482 Net cash from / (used in) investing activities(18,175)$ (37,749)$ Cash flows from financing activitiesDividends paid (net of dividend reinvestment program)(20,586)$ (19,211)$ Principal component of lease payments (6,010) - Repayment of borrowings12 - (10,744) Payment of borrowing costs12(642) - Sale of surplus AGMSP Shares 1 - 7,674 Exercise of rights - 968 Net cash from / (used in) financing activities(27,238)$ (21,313)$ Net increase / (decrease) in cash and cash equivalents119,059$ 105,455$ Cash and cash equivalentsCash and cash equivalents at beginning of year275,665$ 162,024$ Net increase / (decrease) in cash and cash equivalents119,059 105,455 Net foreign exchange differences1,943 8,186 Cash and cash equivalents at end of year10396,667$ 275,665$ 1. The Trustee sold all of the shares in the Austal Group Management Share Plan (AGMSP) during FY2019.
SHAREHOLDER INFORMATION
Notes to the consolidated 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 2020 was authorised for issue in accordance with a resolution of the Directors on 21 August 2020.
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
(unless otherwise stated) under the option available to the Group under ASIC Corporations
/ 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.
Austal Limited | Notes to the consolidated financial statements 65
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 2020.
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.
66 Austal Limited | Notes to the consolidated financial statements
SHAREHOLDER INFORMATION
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 subsidiaries undert
Philippines is United States Dollars (USD).
USA, Vietnam and the
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 G
assumptions are based on historical experience and other factors that are considered relevant. Actual results
may differ from these estimates.
. The estimates and associated
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:
Austal Limited | Notes to the consolidated financial statements 67
Key accounting judgements and estimatesNoteLeases2Contract revenue and expected construction profits at completion4Research and development tax credits5Deferred tax assets9Impairment of non-financial assets19, 21Estimation of useful lives of assets19Provisions24Share based payments34
VI
New and amended standards adopted by the Group
The nature and effect of changes as a result of the adoption of new accounting standards are described
below. The Group has not early adopted any standards, interpretations or amendments that have been issued
but are not yet effective.
1.
AASB 16 Leases
AASB 16 Leases is applicable for financial years commencing from 1 January 2019. This note
explains the impact of the adoption of AASB 16 on the G
new accounting policies.
The Group has adopted AASB 16 retrospectively with a cumulative effect applied from 1 July 2019,
but has not restated the prior corresponding period, as is permitted under the specific transitional
provisions in the standard. The reclassifications and the adjustments arising from the new leasing
rules are therefore recognised in the opening balance sheet on 1 July 2019.
Adjustments recognised on adoption of AASB 16
The Group recognised lease liabilities in relation to the adoption of AASB 16 which had been
der the principles of AASB 117 Leases. These lease
liabilities were measured at the present value of the remaining lease payments, discounted using the
(IBR) as of 1 July 2019. The weighted average IBR applied to
the lease liabilities on 1 July 2019 was 3.31%.
For leases previously classified as finance leases the Group recognised the carrying amount of the
lease asset and lease liability immediately before transition as the carrying amount of the Right-of-Use
Asset and the Lease Liability at the date of initial application, 1 July 2019. The measurement
principles of AASB 16 are only applied after that date. The re-measurements to the lease liabilities
were recognised as adjustments to the related right-of-use assets immediately after the date of initial
application.
The table below reconciles the operating lease commitments disclosed at 30 June 2019 and the
opening lease liability position under AASB 16:
68 Austal Limited | Notes to the consolidated financial statements
1 July 2019Operating lease commitments disclosed at 30 June 2019(11,661)$ Less: short-term leases recognised on a straight-line basis as expense1,059$ Less: discount using IBR at the date of initial application1,591 Add: finance lease liabilities recognised as at 30 June 2019(2,670) Lease liability recognised as at 1 July 2019(11,681)$
SHAREHOLDER INFORMATION
Accounting treatment of the G
In applying AASB 16, for all leases (except as noted below), the Group:
Recognises right-of-use assets and lease liabilities in the consolidated statement of financial
position;
o Lease liabilities are initially measured at the present value of the future lease payments.
o Right-of-use assets are initially measured at the amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments relating to that lease
recognised in the balance sheet as at 30 June 2019.
Recognises depreciation of right-of-use assets and interest on lease liabilities in profit or loss;
Separates the total amount of cash paid into a principal portion (presented within financing
activities) and interest (presented within operating activities) in the consolidated statement of
cash flows.
There were no onerous lease contracts.
The table below shows the split of the lease liability between current and non-current:
The table below shows the right-of-use asset composition:
Austal Limited | Notes to the consolidated financial statements 69
30 June 20201 July 2019000000Lease liabilityCurrent lease liability(2,627)$ (4,852)$ Non-current lease liability(7,449) (6,829) Total(10,076)$ (11,681)$ 30 June 2020 1 July 2019000000Right-of-use assetsProperties9,346$ 9,011$ Equipment262 2,670 Motor vehicles128 - Total9,736$ 11,681$
The tables below show the impact to the Profit and Loss:
Practical expedients applied
The Group has used the following practical expedients permitted by the standard in applying
AASB 16 Leases for the first time:
The accounting for operating leases with a remaining lease term of less than 12 months as at
1 July 2019 are classified as short-term leases and excluded.
The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of
initial application, and
The use of hindsight in determining the lease term where the contract contains options to extend
or terminate the lease.
Payments associated with leases with a lease term of 12 months and leases of low-value assets
are recognised on a straight-line basis as an expense in the Profit and Loss.
Significant accounting judgements and estimates
The Group determines the lease term as the non-cancellable term of the lease. The non-cancellable
term is adjusted for periods covered by an option to extend the lease if it is reasonably certain the
option will be exercised, or any periods covered by an option to terminate the lease, if it is reasonably
certain not to be exercised.
The Group applies judgement in evaluating whether it is reasonably certain that it will exercise the
option to renew or terminate the lease. After the commencement date, the Group reassesses the lease
term if there is a significant event or change in circumstances that is within its control and affects its
ability to exercise or not to exercise the option to renew or to terminate.
70 Austal Limited | Notes to the consolidated financial statements
2020000Amounts recognised in the Profit and LossDepreciation for right-of-use assetsProperties(3,112)$ Equipment(2,524) Motor vehicles(87) Total(5,723)$ Interest expense (included in finance cost)(436)$ 2020000Profit and Loss impact assessmentRental expense decreased6,010$ EBITDA6,010$ Depreciation increased(5,723) EBIT287$ Interest expense increased(436) PBT(149)$
SHAREHOLDER INFORMATION
The interest rate implicit in the lease cannot readily be determined. The Group therefore uses an IBR
to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow
the funds necessary to obtain an asset of a similar value to the right-of-use asset, in a similar
economic environment, over a similar term and with a similar security. The use of an IBR therefore
requires estimation when no observable rates are available.
2.
IFRIC Interpretation 23 Uncertainty over Inco me Tax Treatment
International Financial Reporting Interpretations Committee (IFRIC) 23 became applicable from
1 July 2019 and addresses the accounting for income taxes under AASB 12 Income Taxes when tax
treatments involve uncertainty. IFRIC 23 does not apply to taxes outside the scope of AASB 12 nor
does it specifically include the treatment of interest and penalties associated with uncertain tax
treatments.
IFRIC 23 specifically addresses the following:
Whether an entity considers uncertain tax treatments separately.
The assumptions an entity makes about the examination of tax treatments by taxation
authorities.
How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates.
How an entity considers changes in facts and circumstances.
Since the Group operates in a multinational environment, it has assessed whether IFRIC 23 had an
impact on the consolidated financial statements. The Group considers that it is probable that the tax
treatments applied by the Group will be accepted by the respective tax authorities of the Group
entities. IFRIC 23 did not have an impact on the consolidated financial statements.
VII Other new accounting standards in issue but not yet effective :
The following new or amended standards in issue but not yet effective are not expected to have a
Definition of a Business AASB 2018-6 Amendments to AASB 3
Definition of Material AASB 2018-7 Amendments to AASB 1 and AASB 8
Interest Rate Benchmark Reform AASB 2019-3 Amendments to AASB 7 and AASB 9
Conceptual Framework for Financial Reporting AASB 2019-1 Amendments to References
Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia AASB 2019-5
Amendments to the Australian Accounting Standards
Austal Limited | Notes to the consolidated financial statements 71
Current year performance
Operating segments
I
Disclosures
72 Austal Limited | Notes to the consolidated financial statements
Elimination / USAAustralasiaUnallocatedAdjustmentsTotal000000000000000Year ended 30 June 2020RevenueExternal customers1,603,764$ 482,216$ - $ 21$ 2,086,001$ Inter-segment 1 - 14,558 - (14,558) - Total1,603,764$ 496,774$ - $ (14,537)$ 2,086,001$ Profit / (loss) before taxEarnings before interest and tax123,017$ 30,886$ (23,074)$ (433)$ 130,396$ Finance income - - 1,384 - 1,384 Finance expenses - - (8,267) - (8,267) Profit / (loss) before income tax123,017$ 30,886$ (29,957)$ (433)$ 123,513$ Depreciation and amortisation(27,230)$ (17,015)$ (1,498)$ - $ (45,743)$ Balance sheetSegment assets977,872$ 321,851$ 77,890$ (9,505)$ 1,368,108$ Segment liabilities(355,020) (207,093) (57,252) - (619,365) Elimination / USAAustralasiaUnallocatedAdjustmentsTotal000000000000000Year ended 30 June 2019RevenueExternal customers1,472,679$ 378,076$ 108$ 158$ 1,851,021$ Inter-segment 1 - 15,079 - (15,079) - Total1,472,679$ 393,155$ 108$ (14,921)$ 1,851,021$ Profit / (loss) before taxEarnings before interest and tax106,422$ 11,673$ (25,267)$ (33)$ 92,795$ Finance income - - 1,053 - 1,053 Finance expenses - - (8,284) - (8,284) Profit / (loss) before income tax106,422$ 11,673$ (32,498)$ (33)$ 85,564$ Depreciation and amortisation(29,381)$ (10,003)$ (2,822)$ - $ (42,206)$ Balance sheetSegment assets913,301$ 320,408$ 103,200$ (9,608)$ 1,327,301$ Segment liabilities(411,658) (242,372) (42,488) - (696,518) 1.Inter-segment revenues, investments, receivables and payables are eliminated on consolidation.
SHAREHOLDER INFORMATION
Austal Limited | Notes to the consolidated financial statements 73
20202019000000Analysis of unallocatedRevenueCharter vessel revenue - $ 108$ Total - $ 108$ Profit / (loss) before taxAdministration expenses(19,618)$ (19,415)$ Marketing expenses(12,746) (9,758) Research and development credits9,314 6,037 Foreign exchange gains / (losses)(24) (776) Write down of charter vessels - (1,157) Charter vessel profit / (loss) - (198) Finance expenses(8,267) (8,284) Finance income1,384 1,053 Total(29,957)$ (32,498)$ Segment assetsCash63,690$ 77,202$ Other non-current assets 17,767 14,838 Deferred tax assets4,757 8,402 Other receivables172 33 Income tax receivable1 2,324 Other1,503 401 Total77,890$ 103,200$ Segment liabilitiesDeferred tax liabilities(43,129)$ (33,839)$ Creditors and provisions(14,123) (8,649) Total(57,252)$ (42,488)$ 1. Balance relates to research and development (R&D) credits. Further information is provided in Note 23.20202019000000Revenue from external customers By geographical location of customersNorth America1,603,764$ 1,472,679$ Europe131,240 150,922 Australia158,085 108,647 Asia55,013 81,059 South and Central America132,346 36,050 Middle East2,981 1,664 Africa2,572 - Total2,086,001$ 1,851,021$
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
combined into a single Australasia reporting segment. These locations act as a single business unit for
tendering, scheduling, resource planning and management accountability.
lia, Philippines, Vietnam, Aulong Joint Venture and Muscat operations is
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
in
the accounts of the Group. Inter-
ng policy.
Certain unallocated items are not considered to be part of the core operations of any segment.
74 Austal Limited | Notes to the consolidated financial statements
20202019000000Non-current assets 1Geographical locationNorth America478,775$ 451,188$ Australia97,054 106,635 Asia56,562 51,304 Total632,391$ 609,127$ CompositionProperty, plant and equipment610,199$ 588,384$ Intangible assets22,192 20,743 Total632,391$ 609,127$ 1. Excludes financial instruments, prepayments and deferred tax assets.
SHAREHOLDER INFORMATION
Revenue
I
Disclosure
II
Recognition and measurement
1.
Vessel construction revenue
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
with AASB 15 is as follows:
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 man
/ or manufactured under
-alone selling prices are typically
estimated based on expected costs plus contract margin consistent
principles.
Austal Limited | Notes to the consolidated financial statements 75
20202019000000RevenueVessel construction1,716,462$ 1,560,219$ Vessel support360,158 280,574 Charter vessels CCPB 9 & 109,381 10,120 Other charter vessels - 108 Total Revenue from customers2,086,001$ 1,851,021$
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
performance as it performs;
created or enhanced; or
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
it per
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
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
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
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.
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.
76 Austal Limited | Notes to the consolidated financial statements
SHAREHOLDER INFORMATION
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.
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.
Vessel support revenue
Revenue from support contracts 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 receive, net of goods and services tax or similar tax.
3.
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 was leasing them to the RAN for an initial 3 year term
which was subsequently extended in August 2020 to April 2023 and May 2023. The contract
extension reduces the total residual value to $24.335 million.
This arrangement results in non-
charter period for notional revenue, notional depreciation and notional interest. Notional revenue of
$9.381 million was reported in FY2020 (FY2019: $10.120 million).
Further information is provided in Note 11 and Note 30.
III
Remaining performance obligations (w ork in hand)
The transaction price allocated to remaining performance obligations (unsatisfied or partially satisfied) at
30 June 2020 is set out below:
Austal Limited | Notes to the consolidated financial statements 77
Transaction price allocated to remaining performance obligations pursuant to customer contracts20202019000000Committed but not recognised as liabilities payable:- Within one year1,657,917$ 1,795,768$ - One to five years2,593,180 3,089,116 Total4,251,097$ 4,884,884$ The transaction price associated with unsatisfied or partially satisfied performance obligations does not include variableconsideration that is constrained.
IV
Significant accounting judgements and estimates
1.
Contract revenu e and expected construction profits at completion
significant estimates to be made for total contract revenues, total contract costs and the current
percentage of completion, 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
e.
2.
Contingencies
Significant judgement is required in relation to the determination of cost contingencies that are
included within the estimated total contract costs for each vessel project at balance date.
The Group includes contingencies in individual vessel projects to allow for risks associated with
estimates of material volumes and costs, labour hours including productivity improvements from ship
to ship in multi-vessel programs, labour rates, liquidated damages for contractual commitments and
other risks that may be identified for each individual project on a case by case basis such as the
incorporation and development of novel technologies and production methods and achievement of key
milestones.
Contingencies held for undelivered LCS and EPF at 30 June 2020 equated to a maximum potential
future EBIT of $209 million. This was equivalent to 7.4% of the Total Cost Estimate to Completion
(ETC). This takes into account the potential for reductions in vessel prices that may arise through the
risk sharing mechanism embedded in those US Navy shipbuilding programs if the cost contingencies
are ultimately not required. An average contingency of approximately $1 million was held for each
LCS and EPF that had already been delivered but were not contractually closed at balance date.
The maximum potential future EBIT from those contingencies was $20 million.
Contingencies held at 30 June 2020 for undelivered vessels from the Australasia business unit
equated to a maximum potential future EBIT of $26 million. This was equivalent to 4.9% of ETC.
Contingencies will either be consumed or released as progress is made on each vessel, and the risks
are either realised or retired and / or certain milestones are achieved. Successful mitigation of the
risks and / or successful achievement of the milestones can be estimated with greater certainty in the
latter stages of the completion of each particular vessel. The profit recognised on relevant vessels will
decrease in future reporting periods in the event that initial contingency estimates do not adequately
cover cost increases. The profit recognised on relevant vessels will increase in future reporting periods
in the event that initial contingency estimates exceed any cost increases that may eventuate.
78 Austal Limited | Notes to the consolidated financial statements
SHAREHOLDER INFORMATION
Other profit and loss
I
Disclosure
Austal Limited | Notes to the consolidated financial statements 79
20202019000000Other income and expensesGovernment infrastructure grants amortised6,587$ 9,270$ Training reimbursement grants3,047 2,631 Sale of scrap materials3,023 3,008 Sundry income2,512 2,296 Vessel warranties(5,107) (2,569) Write down of assets - (1,200) Gain / (loss) on disposal of property, plant and equipment(147) 439 Net foreign exchange gain / (loss)(144) (574) Total9,771$ 13,301$ Finance incomeFinance income1,384$ 1,053$ Finance costsInterest to unrelated parties(7,543)$ (7,557)$ Amortisation of capitalised loan origination costs(724) (727) Total(8,267)$ (8,284)$ Net finance costs(6,883)$ (7,231)$ Depreciation and amortisationDepreciation(37,188)$ (39,905)$ Depreciation of right-of-use assets(5,723) - Amortisation of intangible assets(2,832) (2,301) Total(45,743)$ (42,206)$ Employee benefits 1Wages and salaries(449,966)$ (428,212)$ Annual leave expense(27,308) (23,612) Post-retirement benefits(10,434) (8,459) Workers' compensation costs(4,561) (6,566) Share based payments expense(4,599) (5,975) Long service leave expense(1,771) (2,249) Total(498,639)$ (475,073)$ Research and development credits 2Research and development credits11,103$ 6,037$ 1.Disclosed within cost of sales and administrative expenses2.Disclosed within cost of sales
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 credit incentives are accounted for
Government grant under AASB 120 rather than as an income tax benefit under AASB 112.
as a
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 FY2020 was $11.103 million (FY2019: $6.037 million).
The future tax benefit of carry forward R&D credits are recognised in Other Non Current Assets.
Further information relating to the R&D credits is provided in Note 23.
80 Austal Limited | Notes to the consolidated financial statements
20202019Auditor's remuneration1Amounts received or due and receivable by Deloitte Touche Tohmatsu Australia and relatednetwork firms for:Audit or review of the financial statements - Group(255,136)$ (192,200)$ - Controlled entities(976,196) (916,845) Total audit and review of financial statements(1,231,332)$ (1,109,045)$ Other assurance services(7,500)$ -Non-audit services - Taxation advice and compliance services(258,199)$ (425,904)$ - Consulting services(32,491) (133,653) Total non-audit services(290,690)$ (559,557)$ Total (1,529,522)$ (1,668,602)$ 1.Auditor's remuneration payable in USD was converted at USD / AUD exchange rate of 0.6710 in FY2020 (FY2019: 0.7150).
SHAREHOLDER INFORMATION
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 FY2020.
Finance costs include interest payments, amortisation of capitalised loan origination costs and other
costs that an entity incurs in connection with the borrowing of funds.
4.
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.
5.
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.
Austal Limited | Notes to the consolidated financial statements 81
Earnings per share
I
Calculation
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 t he classification of securities
1.
Performance rights
the calculation of diluted earnings per share where the conditions would have been met at the
reporting date. There were 4,373,764 performance rights that were potentially dilutive at
30 June 2020. These rights are included in the determination of diluted earnings per share.
Further information relating to the performance rights is provided in Note 34.
2.
Share rights
Share rights may be provided to KMP as part of total fixed remuneration. The share rights are treated
as effective shares and therefore included in the calculation of basic earnings per share.
Further information relating to the share rights is provided in Note 34.
3.
Service Rights
Further information relating to the share rights is provided in Note 34.
4.
Other equity transactions
Austal issued 2,370,494 shares to the trust during August 2020 in relation to the vesting of the
FY2018 LTI plan and share rights issued to Non-Executive Directors.
There have been no additional 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 consolidated financial statements
20202019Net profit / (loss) after taxNet profit attributable to ordinary equity holders of the parent$00088,978$ 61,384$ Weighted average number of ordinary sharesBasicNumber356,243,475 349,598,590 Effect of dilutionNumber4,568,163 4,476,326 DilutedNumber360,811,638 354,074,916 Earnings per shareBasic earnings per share$ / share0.250$ 0.176$ Diluted earnings per share$ / share0.247$ 0.173$
SHAREHOLDER INFORMATION
Reconciliation of net profit after tax to net cash flows from operations
Austal Limited | Notes to the consolidated financial statements 83
20202019000000Net profit / (loss) after tax88,978$ 61,384$ Adjustments for non cash profit and loss items:Depreciation and amortisation45,743$ 42,206$ Write down of charter vessels - 1,200 Net (gain) / loss on disposal of property, plant and equipment147 (439) Share based payments expense4,599 5,975 Net foreign exchange differences140 574 CCPB 9 & 10 notional charter income(9,381) (10,120) CCPB 9 & 10 notional interest expense1,509 1,785 Amortisation of borrowing costs724 727 Research and development tax credits recognised(11,103) (6,037) Non-cash mark to market revaluations(2,333) 3,903 Total30,045$ 39,774$ Changes in assets and liabilities:Increase / (decrease) in income tax (current and deferred)20,951$ 12,073$ (Increase) / decrease in provisions(5,103) 15,708 (Increase) / decrease in trade and other receivables86,012 (115,180) (Increase) / decrease in inventories and work in progress28,698 75,604 (Increase) / decrease in prepayments(2,074) (1,923) (Increase) / decrease in other financial assets(1,098) (1,699) Increase / (decrease) in trade and other payables(49,271) 16,427 Increase / (decrease) in progress payments in advance(26,078) 66,643 Increase / (decrease) in government grants(6,588) (4,294) Total45,449$ 63,359$ Net cash inflow / (outflow) from operating activities164,472$ 164,517$
Dividends paid and proposed
I
Dividends on ordinary shares
II
Franking credit balance
84 Austal Limited | Notes to the consolidated financial statements
20202019Dividends paid on ordinary shares000000Unfranked final dividend for the prior year, 3 cps (2019: unfranked, 3 cps)(10,693)$ (10,549)$ Unfranked interim dividend for the current year, 3 cps (2019: unfranked, 3 cps)(10,697) (10,584) Total(21,390)$ (21,133)$ Dividend declared subsequent to the reporting period end (not recorded as liability)Unfranked final dividend for the current year 5 cps (2019: unfranked, 3 cps)(17,835)$ (10,601)$ 20202019000000Opening balance1,170$ 1,170$ Franking credits distributed - $ - $ Franking credits movement from the payment / (refund) of income tax - - Movement - $ - $ Closing balance1,170$ 1,170$
SHAREHOLDER INFORMATION
Income and other taxes
I
Income tax expense
Austal Limited | Notes to the consolidated financial statements 85
20202019000000Major components of tax (expense) / benefit are:Consolidated profit and lossCurrent income taxCurrent income tax charge(14,052)$ (10,851)$ Adjustments in respect of current income tax of the previous year(1,765) 745 Total(15,817)$ (10,106)$ Deferred income taxRelating to origination and reversal of temporary differences(19,302)$ (13,737)$ Adjustments in respect of deferred income tax of the previous year584 (337) Total(18,718)$ (14,074)$ Total income tax (expense) / benefit(34,535)$ (24,180)$ Other comprehensive income (OCI)Current and deferred income tax related items charged or credited directly to OCICurrent and deferred gains and losses on foreign currency contracts and consolidation adjustments(1,474)$ 460$ Deferred gains on revaluation of property, plant and equipment(10,713) (578) Total income tax (expense) / benefit charged to OCI(12,187)$ (118)$ A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Groups applicableincome tax rate is as follows:Accounting profit / (loss) before income tax from continuing operations123,513$ 85,564$ Income tax at the Groups statutory income tax rate of 30% (2019: 30%)(37,054)$ (25,669)$ Adjustment for USA statutory income tax rate of 25.4% (2019: 25.3%)3,702$ 3,456$ Adjustment for Philippines income tax rate of 5%1,218 4,507 Other foreign tax rate differences 191 48 Non-assessable R&D credits in cost of sales3,328 1,652 USA revalue deferred balances for change in weighted average state tax rates434 (367) USA withholding tax leakage due to losses in Australia - (787) Carry forward tax losses not recognised(39) (1,776) Transfer pricing adjustments in respect of intercompany royalties(2,907) (2,727) Non-deductible share based payment expense(1,134) (1,712) Non-deductible capital expenses (459) - Other non-assessable or non-deductible items(634) (1,213) Adjustments in respect of current and deferred income tax of the previous year(1,181) 408 Total Adjustments2,519$ 1,489$ Income tax (expense) / benefit reported in the profit and loss(34,535)$ (24,180)$ Income tax receivable / (payable)Income tax receivable / (payable)(259)$ 1,701$
II
Analysis of temporary differences
86 Austal Limited | Notes to the consolidated financial statements
Movement inStatement of Financial PositionProfit and Loss2020201920202019000000000000Deferred income tax - USADeferred tax assetsDeferred grant income14,520$ 15,924$ (1,725)$ (1,899)$ Payables5,845 5,782 (37) 155 Provisions4,606 3,337 1,247 2,713 Deferred gains and losses on foreign currency contracts 2,202 2,158 (7) (41) Facility lease45 - 46 - Losses available for offset against future taxable income34 33 - (573) R&D - - (16,852) (14,004) Alternative minimum tax credits - - - (1,420) Work in progress - - - (1,214) Other56 - 58 - Total27,308$ 27,234$ (17,270)$ (16,283)$ Deferred tax liabilitiesProperty, plant and equipment(65,550)$ (56,845)$ 3,070$ 2,473$ Work in progress(3,706) (3,012) (661) (2,964) Intangibles(876) (938) 80 75 Payables(305) (273) - - Deferred gains and losses on foreign currency contracts - (5) (3) (3) Total(70,437)$ (61,073)$ 2,486$ (419)$ Net deferred tax asset / (liability)(43,129)$ (33,839)$ (14,784)$ (16,702)$ Deferred income tax - AustraliaDeferred tax assetsProvisions8,587$ 8,013$ 573$ 380$ Payables512 289 177 (400) Cash394 511 (117) 597 Deferred gains and losses on foreign currency contracts207 2,368 - - Facility lease8 - 8 - CCPB 9 & 10(27) 407 (433) (327) Work in progress - 2,820 (2,820) 2,820 R&D - - (1,789) - Other258 219 38 109 Total9,939$ 14,627$ (4,363)$ 3,179$ Deferred tax liabilitiesProperty, plant and equipment(4,518)$ (4,771)$ 253$ (849)$ Deferred gains and losses on foreign currency contracts(721) (554) - - Other(389) (1,196) - - Total(5,628)$ (6,521)$ 253$ (849)$ Net deferred tax asset / (liability)4,311$ 8,106$ (4,110)$ 2,330$ Deferred income tax - OtherDeferred tax assets477$ 328$ 166$ 308$ Deferred tax liabilities(31) (32) 10 (10) Net deferred tax asset / (liability)446$ 296$ 176$ 298$ Net deferred tax asset / (liability)(38,372)$ (25,437)$ (18,718)$ (14,074)$
SHAREHOLDER INFORMATION
III
Austal Group Tax Strategy
applies to Austal Limited and its worldwide subsidiary companies.
(ARC). This strategy
1.
Tax risk management and governance
oversight responsibilities by reviewing, monitoring and making recommendations in relation to tax risk
management and governance practices.
processes are supported through its Tax Risk
ARC. The ARC assists the Board in fulfilling its
The standard includes:
ensuring the roles and responsibilities for the management of tax risks are documented and
understood;
maintaining a qualified and adequately resourced tax team to manage the tax control framework
and day to day tax affairs;
requiring tax review of specified transactions and events and obtaining external advice where
appropriate; and
regular reporting of key tax issues to the Chief Financial Officer and to the Board of Directors and
Audit and Risk Committee.
2.
Tax principles
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, transparent and collaborative relationship with tax authorities.
act with integrity and protect the reputation of Austal.
3.
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.
4.
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 practices prudent management of its tax affairs through the application of its Tax Risk
Management Standard. Austal proactively seeks to identify, evaluate, manage and monitor tax
uncertainties and risks to ensure that they are appropriately addressed. Transfer pricing is calculated
underlying economic consequences.
Austal Limited | Notes to the consolidated financial statements 87
5.
Relationship with tax authorities
Austal is committed to engaging with the regulatory authorities with integrity, honesty, respect,
fairness, transparency and a spirit of co-operation.
6.
UK specific comments
Schedule 19 Finance Act
Qualif
) for Austal UK Limited.
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 consolidated financial statements
SHAREHOLDER INFORMATION
4.
Deferred income tax asset and liability measurement
The US federal rate of income tax is 21.0% and the weighted average of individual US states in which
Austal operates was 25.4% for FY2020. 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 Austal Limited 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
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 consolidated 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.
The Group has not recognised a deferred tax asset on the carry forward tax losses because there is
sufficient uncertainty
to assess the recognition criteria against the probability of future taxable profits.
ability to utilise these in the short term. The Group will continue
Unrecognised deferred tax assets in respect of the Australian Consolidated Tax Group losses at
30 June 2020 were:
90 Austal Limited | Notes to the consolidated financial statements
20202019000000Unrecognised tax losses (tax effected values)Opening balance5,714$ 6,175$ True-up of prior year tax losses(195)$ (2,180)$ Losses incurred / (utilised) in the current year - 1,719 Total(195)$ (461)$ Closing balance5,519$ 5,714$ The future tax benefit of carried forward research and development credits are recognised in Other Non Current Assets in accordance with the Group's accounting policy of recognising research and development credits as government grants underAASB 120 Government Grants.
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.
Austal has applied for and received approval from the Competent Authorities of Australia (ATO) and
the United States of America (Internal Revenue Service) for entry into the Mutual Agreement
Procedures (MAP) program in relation to double taxation of intercompany royalties associated with
intellectual property deployed from Australia to the USA.
Austal has notified both Competent Authorities of its intention to enter into a Bilateral Advance
Pricing Arrangement (BAPA) in respect of future inter-company royalties. Formal BAPA applications
will be submitted with the Competent Authorities during FY2021.
Australia or the USA if the outcome of the MAP and BAPA 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.
The total additional tax relating to royalties up to 30 June 2020 was $(18.3) million. $(7.6) million of
this has already been paid in cash in periods up to and including FY2020. The remaining
$(10.7) million has reduced the available losses that have been carried forward but not recognised at
30 June 2020.
VII Other taxes
Revenues, expenses and assets are recognised net of the amount of Goods and Services Tax (GST) or
Value Added Tax (VAT) except when:
the GST or VAT incurred on a purchase of goods and services is not recoverable from the taxation
authority, in which case the GST or VAT is recognised as part of the cost of acquisition of the asset or
as part of the expense item; and
receivables and payables which are stated with the amount of GST or VAT included.
The net amount of GST or VAT recoverable from, or payable to, the relevant taxation authority is included as
part of receivables or payables in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross profit basis and the GST or VAT component
of cash flows arising from investing and financing activities, which is recoverable from, or payable to,
the relevant taxation authority, are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST or VAT recoverable from, or payable
to, the relevant taxation authority.
Austal Limited | Notes to the consolidated financial statements 91
Capital structure
Cash and cash equivalents
I
Net carrying amount
II
Recognition and measurement
Cash and short-term deposits in Balance Sheet comprise cash at bank, cash in hand and short-term deposits
with an original maturity of three months or less.
Cash and cash equivalents for the purposes of the Cash Flow Statement consists of cash and cash
equivalents (as defined above) net of any cash held as a guarantee.
Interest bearing loans and borrowings
I
Net carrying amount
92 Austal Limited | Notes to the consolidated financial statements
20202019000000Cash Cash at bank and in hand396,667$ 275,665$ Total396,667$ 275,665$ 20202019000000CurrentVessel finance for CCPB 9 & 10(8,719)$ (48,798)$ Finance leases 1 - (2,413) Total(8,719)$ (51,211)$ Non - currentGo Zone Bonds(124,255)$ (122,286)$ Vessel finance for CCPB 9 & 10(32,206) - Finance leases 1 - (257) Total(156,461)$ (122,543)$ Total(165,180)$ (173,754)$ 1.Finance leases are disclosed under lease liabilities due to the adoption of AASB 16 Leases in FY2020.
SHAREHOLDER INFORMATION
II
Facilities a vailable
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 a $128.049 million limit for letters of credit to
secure the $124.255 million of Gulf Opportunity Zone Bonds (Go Zone Bonds or GZB), and a
$280.000 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 $20.000 million of any unused part of the facility can be used for contingent financial
instruments. The Syndicated Facility Agreement matures in November 2022.
Contingent non-financial instruments (excluding the letters of credit supporting the Go Zone Bonds) are
issued to support concepts such as refund payment guarantees, performance bonds and warranty bonds.
Further information relating to commitments and contingencies is provided in Note 28.
Austal Limited | Notes to the consolidated financial statements 93
20202019000000Facilities used at reporting dateRevolving credit facility(222,695)$ (58,900)$ Go Zone bonds(124,255) (122,286) Surety facilities(243,658) (126,263) Finance leases - (2,670) Total 1(590,608)$ (310,119)$ Facilities unused at reporting dateRevolving credit facility(57,305)$ (121,100)$ Go Zone bonds - - Surety facilities(6,342) (23,737) Finance leases - - Total(63,647)$ (144,837)$ Total facilities availableRevolving credit facility(280,000)$ (180,000)$ Go Zone bonds(124,255) (122,286) Surety facilities 2(250,000) (150,000) Finance leases - (2,670) Total(654,255)$ (454,956)$ 1.The balance sheet carrying amount of total facilities used is $(124.255) million at 30 June 2020 being Go Zone Bonds and Finance leases(30 June 2019: $(124.956) million).2.The Group had total Surety facilities of $400 million at 30 June 2020. However only $250 million may be utilised in accordance with alimitation in the Groups Syndicated Facility Agreement.
V
Go Zone Bonds (GZB)
The 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 1.23% in
FY2020
maturity date of November 2022. The average cost of the letters of credit in FY2020 was 1.54%.
No GZB amounts were redeemed (repaid) during FY2020. Austal has redeemed a cumulative amount of
US$137.5 million and owed US$87.5 million at 30 June 2020. 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 letters of credit during FY2020. 100% of the letters of credit securing
GZB now mature in November 2022 and all of the GZB debt is classified as non-current at 30 June 2020.
VI
Surety facility
Austal had a total of $400.000 million of uncommitted and unsecured Surety facilities at 30 June 2020.
Only $250.000 million of the Surety facilities are available for the issuance of non-financial contingent
instruments to support vessel contracts in accordance with the limitation within the
Syndicated
Facility Agreement.
VII 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 was leasing them to the RAN for an initial 3 year term which
was subsequently extended in August 2020 to April 2023 and May 2023. The contract extension reduces
the total residual value to $24.335 million.
The notional effective interest rate incurred in FY2020 was 3.19%.
VIII Fair value of borrowings
The fair values of all classes of borrowings are not materially different to their carrying amounts since the
interest payable on those borrowings is either close to current market rates or the borrowings are of a
short-term nature. The interest rates on Go Zone Bonds are reset on a weekly basis.
94 Austal Limited | Notes to the consolidated financial statements
SHAREHOLDER INFORMATION
Reconciliation of financing cash flow to interest bearing debt
I
Reconciliation
Austal Limited | Notes to the consolidated financial statements 95
Cash chargesNon-cash changesFY2020DebtPaymentReclassificationCCPB 9 & 10 ForeignAmortisationRepay / of borrowingofDebt exchangeof borrowing30 June 2019(Draw)costsfinance leasesReduction1movementcostsReclassification30 June 2020000000000000000000000000000Current borrowings(51,211)$ - $ - $ 2,793$ 7,873$ (123)$ - $ 31,949$ (8,719)$ Non-current borrowings(122,543) - 642 - - (1,887) (724) (31,949) (156,461) Total financing liabilities(173,754)$ - $ 642$ 2,793$ 7,873$ (2,010)$ (724)$ - $ (165,180)$ Cash chargesNon-cash changesFY2019DebtPaymentReclassificationCCPB 9 & 10 ForeignAmortisationRepay / of borrowingofDebt exchangeof borrowing30 June 2018(Draw)costsfinance leasesReduction1movementcostsReclassification30 June 2019000000000000000000000000000Current borrowings(72,758)$ 426$ - $ - $ 8,335$ (139)$ - $ 12,925$ (51,211)$ Non-current borrowings(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)$ 1.CCPB 9 & 10 debt reduction is equal to the difference between the notional charter income and the notional interest expense.
Contributed equity and reserves
I
Contributed equity
1.
Net carrying amount
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
Austal Limited equity instruments which are issued and held by a trustee under 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
96 Austal Limited | Notes to the consolidated financial statements
Shares0002020201920202019Ordinary shares on issue1 July353,357,283 350,857,529 131,836$ 130,165$ Shares issued for dividend reinvestment plan254,485 912,560 804$ 1,922$ Shares issued to Employee Share Trust 479,686 212,998 1,861 454 Shares or proceeds transferred for beneficiaries - - (1,096) - Shares issued for vested performance rights2,617,035 1,374,196 3,291 2,110 AGMSP shares sold1 - - - (2,763) Tax expense on AGMSP1 - - - (65) Dividend retained in relation to AGMSP1 - - - 13 30 June356,708,489 353,357,283 136,696$ 131,836$ Reserved shares1 July(676,695) (4,165,697) (1,266)$ (11,836)$ Shares issued to Employee Share Trust or sold(479,686) (212,998) (1,861)$ (454)$ Shares or proceeds transferred for beneficiaries494,774 - 1,771 - AGMSP shares sold1 - 3,702,000 - 10,929 Dividend retained in relation to AGMSP1 - - - 95 30 June(661,607) (676,695) (1,356)$ (1,266)$ Net356,046,882 352,680,588 135,340$ 130,570$ 1. The Trustee sold all of the shares in the Austal Group Management Share Plan during FY2019.
SHAREHOLDER INFORMATION
3.
Movements in ordinary share capital
The movement in ordinary shares during year ended 30 June 2020 is comprised of shares issued as
part employee share plans and the dividend reinvestment plan.
The Group announced an unfranked FY2019 final dividend of 3.0 cents per share with an option for
dividend reinvestment priced at $4.19 per share on 2 October 2019, followed by an unfranked
FY2020 interim dividend of 3.0 cents per share with an option for dividend reinvestment of
$2.63 per share, which was announced on 31 March 2020.
Austal established an Employee Share Trust (EST) during FY2019 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 479,686 shares to the trust
during the year ended 30 June 2020.
II
Reserves
The reserves are shown within the Consolidated Statement of Changes in Equity for the year ended
30 June 2020.
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 for the Philippines.
Further information relating to share based payment plans for the Group is provided in Note 34.
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 historical minority interests in a
controlled entity.
5.
Asset revaluation reserve
This reserve is used to record increases in the fair value of land and buildings.
Austal Limited | Notes to the consolidated financial statements 97
Government grants relating to assets
I
Net carrying amount
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
, 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 consolidated financial statements
20202019000000Deferred grant incomeCurrentInfrastructure development(3,232)$ (6,445)$ Total(3,232)$ (6,445)$ Non - currentInfrastructure development(54,046)$ (56,214)$ Total(54,046)$ (56,214)$ Total(57,278)$ (62,659)$ Movements in grants1 July(62,659)$ (66,953)$ Grants received during the year - $ (1,482)$ Amortised to the profit and loss6,587 9,270 Foreign exchange rate adjustment(1,206) (3,494) Net movement5,381$ 4,294$ 30 June(57,278)$ (62,659)$
SHAREHOLDER INFORMATION
Working capital
Trade and other receivables
I
Net carrying amount
II
Recognition and measurement
Trade
unconditional subject only to the passage of time. Trade receivables are non-derivative financial assets
icy 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 45 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.
III
Ageing analysis of trade & other receivables
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 consolidated financial statements 99
20202019Trade and other receivables000000Trade amounts owing by unrelated entities144,302$ 226,020$ Expected credit losses(85) (752) Total144,217$ 225,268$ Days outstanding0-3031-6061-9090+ImpairedTotal30 June 2020000141,660$ 711$ 4$ 1,927$ (85)$ 144,217$ 30 June 2019000195,680 23,462 1,111 5,767 (752) 225,268
Vessel construction and support contracts in progre ss
I
Net carrying amount
II
Recognition and measurement
Construction and support work in progress
upon something other than the passage of time.
for services provided
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 of estimates made regarding construction and support contracts is provided in Note 4.
100 Austal Limited | Notes to the consolidated financial statements
20202019000000Work in progressConstruction and support revenue recognised to date12,561,659$ 11,297,883$ less: Progress payments received and receivable(12,423,524) (11,134,798) Total due from customers138,135$ 163,085$ Progress payments received in advanceConstruction and support revenue recognised to date791,677$ 584,639$ less: Progress payments received and receivable(886,179) (705,041) Total due to customers(94,502)$ (120,402)$ Total due from / (to) customers43,633$ 42,683$
SHAREHOLDER INFORMATION
Inventories and work in progress
I
Net carrying amount
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
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 consolidated financial statements 101
20202019Inventories and work in progress000000Work in progress138,135$ 163,085$ Other inventory5,664 3,957 Total143,799$ 167,042$ 20202019000000Trade and other payablesTrade and other payables owed to unrelated entities 1(156,910)$ (202,308)$ Total(156,910)$ (202,308)$ 1. Trade payables are unsecured and non-interest bearing.
Infrastructure & other assets
Property, plant and equipment
I
Net carrying amount
II
Reconciliation of movement for the year
102 Austal Limited | Notes to the consolidated financial statements
Freehold Land andLeasehold Plant andCapitalBuildingsImprovementsEquipmentWIPTotal000000000000000Balance 30 June 2019Gross carrying amount at fair value463,085$ 3,254$ - $ - $ 466,339$ Gross carrying amount at cost - 67,646 260,743 3,238 331,627 Accumulated depreciation and impairment(36,585) (29,578) (143,419) - (209,582) Net carrying amount426,500$ 41,322$ 117,324$ 3,238$ 588,384$ Balance 30 June 2020Gross carrying amount at fair value591,314$ - $ - $ - $ 591,314$ Gross carrying amount at cost - 49,886 267,917 2,341 320,144 Accumulated depreciation and impairment(128,027) (9,508) (163,724) - (301,259) Net carrying amount463,287$ 40,378$ 104,193$ 2,341$ 610,199$ Freehold Land andLeasehold Plant andCapitalBuildingsImprovementsEquipmentWIPTotal000000000000000Balance 1 July 2018414,816$ 28,619$ 111,840$ 10,503$ 565,778$ Additions709$ 55$ 5,485$ 34,544$ 40,793$ Transfer in / (out)569 19,591 21,997 (42,157) - Disposals - - (3,934) - (3,934) Depreciation charge for the year(12,287) (8,396) (19,222) - (39,905) Impairment - - (1,200) - (1,200) Revaluation2,103 - - - 2,103 Effects of foreign exchange20,590 1,453 2,358 348 24,749 Total11,684$ 12,703$ 5,484$ (7,265)$ 22,606$ Balance 30 June 2019426,500$ 41,322$ 117,324$ 3,238$ 588,384$ Additions287$ - $ 3,332$ 10,292$ 13,911$ Transfer in / (out)349 4,178 6,325 (10,852) - Transfers to intangibles - - (2,481) - (2,481) Disposals - - (331) - (331) Depreciation charge for the year(12,183) (5,544) (19,461) - (37,188) Revaluation42,556 - - - 42,556 Effects of foreign exchange5,778 422 (515) (337) 5,348 Total36,787$ (944)$ (13,131)$ (897)$ 21,815$ Balance 30 June 2020463,287$ 40,378$ 104,193$ 2,341$ 610,199$
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.
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 consolidated financial statements 103
20202019000000Land and Buildings and Leasehold Improvements valued using cost modelCost441,137$ 429,832$ Accumulated depreciation and impairment(100,208) (91,551) Net carrying amount340,929$ 338,281$
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-
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.
reporting date as appropriate.
es and amortisation methods are reviewed, and adjusted at the
104 Austal Limited | Notes to the consolidated financial statements
SHAREHOLDER INFORMATION
3.
Revaluation of land and buildings
land and buildings consist of shipyard facilities in Australia and USA.
The
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
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 FY2020.
This resulted in an increase in the valuation of $42.556 million.
Austal Limited | Notes to the consolidated financial statements 105
Intangible assets and goodwill
I
Net carrying amount
II
Reconciliation of movement for the year
106 Austal Limited | Notes to the consolidated financial statements
ComputerOtherSoftwareGoodwillIntangiblesTotal000000000000Balance 1 July 2019Cost23,186$ 12,797$ 4,061$ 40,044$ Accumulated amortisation and impairment(18,930) - (371) (19,301) Net carrying amount4,256$ 12,797$ 3,690$ 20,743$ Balance 30 June 2020Cost29,692$ 12,904$ 4,159$ 46,755$ Accumulated amortisation and impairment(23,861) - (702) (24,563) Net carrying amount5,831$ 12,904$ 3,457$ 22,192$ ComputerOtherSoftwareGoodwillIntangiblesTotal000000000000Balance 1 July 20184,467$ 12,543$ 3,802$ 20,812$ Additions1,556$ - $ - $ 1,556$ Disposals(27) (76) - (103) Amortisation for the year(1,987) - (314) (2,301) Effects of foreign exchange247 330 202 779 Total(211)$ 254$ (112)$ (69)$ Balance 30 June 20194,256$ 12,797$ 3,690$ 20,743$ Additions1,661$ - $ - $ 1,661$ Disposals(3) - - (3) Transfers from plant and equipment2,481 - - 2,481 Amortisation for the year(2,526) - (306) (2,832) Effects of foreign exchange(38) 107 73 142 Total1,575$ 107$ (233)$ 1,449$ Balance 30 June 20205,831$ 12,904$ 3,457$ 22,192$
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.
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.
G
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 consolidated financial statements 107
Impairment testing of non-current assets
I
Review cycle
Non-current assets are reviewed on an annual basis i
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 CG U
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 $6.441 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.
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:
108 Austal Limited | Notes to the consolidated financial statements
CGUUSAAustralasiaGrowth assumptions Award of projected vesselsAward of projected vesselsPerpetuity growth rate0.0%0.0%Pre-tax discount factor10.5%10.5%Inflation on costs2.5%2.5%
SHAREHOLDER INFORMATION
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
Austal 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 publicly 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.
7.
COVID-19 discussion
The Board assessed a number of scenarios to quantify the potential impact of COVID-19 on the
impairment assessment of the Group to understand the point at which an impairment issue may arise.
The scenarios included:
Current forecast (Base case)
Various extended periods without the award of new vessels
Curtailment of current programs
The Board was satisfied that there were no indicators of impairment at 30 June 2020.
Austal Limited | Notes to the consolidated financial statements 109
Investments and o ther financial assets
I
Net carrying amount
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 consolidated financial statements
20202019000000Other financial assetsCollateral 112,950$ 11,313$ Security deposits247 546 Total13,197$ 11,859$ 1.Austal USA has a legal obligation to provide cash collateral to ensure that workers' compensation claims will be paid if they are upheld.
SHAREHOLDER INFORMATION
Other non-current assets
I
Net carrying amount
II
Recognition and measurement
The Group recognised a non-current asset of $7.767 million for research and development (R&D) tax credits
at 30 June 2020.
III
Unrecognised R&D credits
A non-current asset has not been recognised in relation to $5.248 million of carry forward R&D tax credits
that have been generated in the Australian Consolidated Tax Group because there is sufficient uncertainty in
. The Group will continue to assess the recognition
criteria against the probability of future taxable profits.
Austal Limited | Notes to the consolidated financial statements 111
20202019000000Research and development creditsRecognisedUSA7,767$ 14,838$ Total7,767$ 14,838$ UnrecognisedAustralia5,248$ 7,037$ Total5,248$ 7,037$
Other liabilities
Provisions
I
Net carrying amount
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 consolidated financial statements
EmployeeWorkers'BenefitsCompensationWarrantyOtherTotal000000000000000Provisions at 30 June 2019(57,384)$ (3,725)$ (9,276)$ (16,627)$ (87,012)$ Arising during the year(123,879)$ (4,560)$ (6,755)$ (17,706)$ (152,900)$ Utilised124,592 4,143 6,970 17,253 152,958 Unused amounts reversed742 21 825 3,908 5,496 Effects of foreign exchange(800) (67) (82) (246) (1,195) Movement655$ (463)$ 958$ 3,209$ 4,359$ Provisions at 30 June 2020(56,729)$ (4,188)$ (8,318)$ (13,418)$ (82,653)$ EmployeeWorkers'BenefitsCompensationWarrantyOtherTotal000000000000000Provisions at 30 June 2019Current(55,677)$ (3,725)$ (9,276)$ (16,627)$ (85,305)$ Non-current(1,707) - - - (1,707) Total(57,384)$ (3,725)$ (9,276)$ (16,627)$ (87,012)$ Provisions at 30 June 2020Current(54,208)$ (4,188)$ (8,318)$ (13,418)$ (80,132)$ Non-current(2,521) - - - (2,521) Total(56,729)$ (4,188)$ (8,318)$ (13,418)$ (82,653)$
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
eporting 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.
Corporate investigations
The Group is assisting ASIC and certain US Regulatory Authorities into certain market disclosures
made in late CY2015 and mid CY2016. An $11.253 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.
legal costs will be recoverable under its Directors & Officers insurance cover. The Group has not
recognised the contingent asset as a receivable at 30 June 2020 because the receipt of the amount is
dependent on the insurance claim approval process.
The Group is not aware of any wrongdoing, nor is it aware of 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.
3.
and claims incurred but not reported at the balance date.
4. Warranties
A provision for warranty is made upon delivery of each vessel based on the estimated future costs of
made
warranty repairs.
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.
5.
Dividends
A provision for dividends is not recognised as a liability unless the dividends are declared, determined
or publicly recommended on or before the reporting date. An interim dividend of 3.0 cents per share
was issued for the half year 31 December 2019 (FY2019 H1: 3.0 cents per share).
An unfranked dividend of 5.0 cents per share is proposed and not recognised as a liability for the year
ended 30 June 2020 (FY2019 H2: 3.0 cents per share).
Austal Limited | Notes to the consolidated financial statements 113
Financial risk management
Financial risk management
This note explains the
performance. Current year Profit and Loss information has been included where relevant to add further context.
Objectives and policy
the Group and to afford the opportunity to seek further investments.
nancial risk management policy is to reduce the impacts of external threats to
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
earnings, cash flows and carrying values of its financial statements.
1.
Interest rate risk
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.
114 Austal Limited | Notes to the consolidated financial statements
RiskExposure arising fromMonitoringManagementMarket risk - interest rateLong-term borrowings at variable ratesSensitivity analysisSustainable gearing levelsacross business cyclesMarket risk - interest rateCash, trade receivables and derivative financial Sensitivity analysisExcess cash invested in instrumentshigh-interest deposit accountsMarket risk - foreign currencyFuture commercial transactions andCash flow forecast,Forward foreign exchange recognised financial assets and liabilities not Sensitivity analysiscontracts and forward currency denominated in the functional currencyoptionsCredit riskCash, short term deposits, trade receivables Ageing analysis,Monitoring of credit allowancesand derivative financial instrumentsCredit ratingsLiquidityBorrowings, trade payables and derivative Rolling cash flow forecastsAvailability of committed credit financial instrumentslines and borrowing facilities
SHAREHOLDER INFORMATION
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:
Sensitivity
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. A normal level of volatility has been assessed as 100 basis points and the
sensitivity below has been calculated on that basis. The Board notes that COVID-19 caused volatility
in excess of normal levels during FY2020.
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.
Austal Limited | Notes to the consolidated financial statements 115
20202019000000Financial assetsCash and cash equivalents396,667$ 275,665$ Derivative contracts2,404 2,190 Total399,071$ 277,855$ Financial liabilitiesInterest bearing liabilities(165,180)$ (173,754)$ Derivative contracts(9,378) (16,544) Total(174,558)$ (190,298)$ Net exposure224,513$ 87,557$ 20202019000000Post tax gain / (loss)AUD+1.00% (100 basis points)944$ 966$ -1.00% (100 basis points)(944) (966)
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.
s are primarily denominated in USD, AUD and EUR.
Risk mitigation
convert foreign currency revenues and expenses and assets or liabilities to the functional currency of
each Group entity by utilising the following techniques:
ign exchange used to
negotiation of contracts to adjust for adverse exchange rate movements.
using natural hedges.
using financial instruments, such as foreign currency exchange contracts and swaps.
116 Austal Limited | Notes to the consolidated financial statements
SHAREHOLDER INFORMATION
Exposure
The
financial assets and liabilities exposed to foreign currency risk at 30 June 2020 were:
Austal Limited | Notes to the consolidated financial statements 117
All values are stated in AUD equivalentAUDUSD 1EUR 2OtherTotalBalance 30 June 2020000000000000000Financial assetsCash and cash equivalents - $ 4,683$ 23$ 1,262$ 5,968$ Trade and other receivables - - - 10 10 Derivatives2,401 3 - - 2,404 Total2,401$ 4,686$ 23$ 1,272$ 8,382$ Financial liabilitiesTrade and other payables(3)$ (4)$ (10)$ (1,320)$ (1,337)$ Derivatives(558) (8,819) (0) - (9,377) Total(561)$ (8,823)$ (10)$ (1,320)$ (10,714)$ All values are stated in AUD equivalentAUDUSD 1EUR 2OtherTotalBalance 30 June 2019000000000000000Financial assetsCash and cash equivalents - $ 33,634$ 31$ 1,537$ 35,202$ Trade and other receivables84 84 Derivatives1,044 362 784 - 2,190 Total1,044$ 33,996$ 815$ 1,621$ 37,476$ Financial liabilitiesTrade and other payables - $ (23)$ (20)$ (1,756)$ (1,799)$ Derivatives(4,982) (11,560) (1) - (16,543) Total(4,982)$ (11,583)$ (21)$ (1,756)$ (18,342)$ 1. Spot USD / AUD exchange rate at 30 June 2020 was 0.6902 (30 June 2019: 0.7020)2. Spot EUR / AUD exchange rate at 30 June 2020 was 0.6143 (30 June 2019: 0.6183)
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:
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$450.5 million of USD denominated net assets at
30 June 2020 (US$550.3 million at 30 June 2019).
Summary of forward foreign exchange contracts
The following table summarises the AUD equivalent value of the forward foreign exchange agreements
by currency. Foreign currency amounts are translated at rates current at the reporting date.
B
S
ivalent of commitments to sell foreign currencies.
118 Austal Limited | Notes to the consolidated financial statements
NPAT higher / (lower)Equity higher / (lower)2020201920202019000000000000Judgement of reasonable possible movementsUSD290$ (1,567)$ (37,041)$ (40,762)$ EUR - (34) 3,350 (8,731) 1. Spot USD / AUD exchange rate at 30 June 2020 was 0.6902 (30 June 2019: 0.7020)2. Spot EUR / AUD exchange rate at 30 June 2020 was 0.6143 (30 June 2019: 0.6183)20202019BuySellBuySellAverageAUDAverageAUDAverageAUDAverageAUDForwardEquivalentForwardEquivalentForwardEquivalentForwardEquivalentRate'000Rate'000Rate'000Rate'000USDBuy USD(Sell USD)Buy USD(Sell USD)less than 3 months0.7184 7,244$ 0.6931 (24,121)$ 0.7223 20,664$ 0.7201 (29,540)$ 3 - 12 months0.7203 9,007 0.7138 (51,138) 0.7444 33,246 0.7372 (112,610) > 12 months0.7217 6,800 0.7249 (64,927) 0.7209 15,542 0.7309 (172,221) Total23,052 (140,186) 69,451 (314,371) EURBuy EUR(Sell EUR)Buy EUR(Sell EUR)less than 3 months0.6065 472$ 0.6177 (17,072)$ 0.6109 13,197$ 0.6312 (15,088)$ 3 - 12 months0.5887 27,488 0.6048 (31,827) 0.6066 50,021 0.6271 (86,661) > 12 months0.5736 53,497 0.5965 (67,243) 0.5852 134,971 0.6135 (32,166) Total81,457 (116,142) 198,189 (133,915)
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
Trade receivables
The Group only trades with recognised, creditworthy third parties
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.
Vessel sales contracts are structured to ensure that the Group is paid milestone progress payments
from the client to cover the ongoing cost of the vessel construction.
Financial instruments
that funds will not be available when required whilst at the same time obtaining the maximum return
s policy is to restrict its investment of surplus cash funds to financial
institutions with a Standard and Poor
credit rating of at least A-2, and for a period not exceeding
3 months to manage this risk. The Group is able to undertake investments in short term deposits to
achieve this objective.
Other financial assets
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 credit risk.
Austal Limited | Notes to the consolidated financial statements 119
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.
1.
Source of risk:
Exposure to liquidity risk derives from th
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.
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 $75 million between cash on hand and
undrawn non-current committed funding to meet any unforeseen cash flow requirements.
Further information relating to
of these facilities, is provided in Note 10 and Note 11.
120 Austal Limited | Notes to the consolidated financial statements
SHAREHOLDER INFORMATION
3.
Exposure
The contractual cash flow and maturities of financial liabilities, including interest payments are as
follows:
The Group had $50.000 million (FY2019: $50.000 million) of unused cash loan credit facilities
available for immediate use at the reporting date and $396.667 million (FY2019: $275.665 million)
in cash and cash equivalents, which can be used to meet its liquidity needs.
Austal Limited | Notes to the consolidated financial statements 121
Years to maturity0 - 11 - 5> 5Total1000000000000Balance 30 June 2020Derivative financial assets / (liabilities)Outflow(144,609)$ (142,379)$ - $ (286,988)$ Inflow142,627 137,733 - 280,360 Net derivative financial assets / (liabilities)(1,982)$ (4,646)$ - $ (6,628)$ Non-derivative financial liabilitiesTrade and other payables(157,410)$ - $ - $ (157,410)$ Go Zone Bond facility - (126,837) - (126,837) Finance leases(938) (7,666) - (8,604) Vessel finance for CCPB 9 & 102(8,720) (32,206) - (40,926) Total(167,068)$ (166,709)$ - $ (333,777)$ Years to maturity0 - 11 - 5> 5Total1Balance 30 June 2019000000000000Derivative financial assets / (liabilities)Outflow(292,059)$ (222,028)$ (1,305)$ (515,392)$ Inflow284,793 208,320 1,121 494,234 Net derivative financial assets / (liabilities)(7,266)$ (13,708)$ (184)$ (21,158)$ Non-derivative financial liabilitiesTrade and other payables(202,308)$ - $ - $ (202,308)$ Go Zone Bond facility - (122,287) - (122,287) Finance leases(2,413) (257) - (2,670) Vessel finance for CCPB 9 & 102(43,032) (5,766) - (48,798) Total(247,753)$ (128,310)$ - $ (376,063)$ 1. Contractual cash flows include interest2. Contractual cashflows are equal to the residual value of the CCPB 9 & 10 vessels. Further information is provided in Note 11.
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.
122 Austal Limited | Notes to the consolidated financial statements
SHAREHOLDER INFORMATION
Fair value measurements
I
Fair value
depending on the type of financial instrument as follows:
he following techniques
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.
1.
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.
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 $165.180 million
(30 June 2019: $173.754 million). Further information is provided in Note 11.
The fair value of the interest bearing financial liabilities at 30 June 2020 was $(6.974) million based
on the level 2 valuation methodology (30 June 2019: $(14.355) million).
Austal Limited | Notes to the consolidated financial statements 123
Level 1Level 2Level 3Total000000000000Balance 30 June 2020Financial assetsDerivatives - $ 2,404$ - $ 2,404$ Financial liabilitiesDerivatives - $ (9,378)$ - $ (9,378)$ Balance 30 June 2019Financial assetsDerivatives - $ 2,190$ - $ 2,190$ Financial liabilitiesDerivatives - $ (16,544)$ - $ (16,544)$
Unrecognised items
Commitments and contingencies
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 $280.000 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 $250.000 million of uncommitted and unsecured Surety facilities for the issuance of
non-financial contingent instruments to support commercial vessel contracts at 30 June 2020.
Bank performance guarantees and Sureties are issued to support concepts such as refund payment
guarantees, performance bonds and warranty bonds. The Group had $(466.353) million of issued
guarantees at 30 June 2020 (FY2019: $(185.163) million).
Further information relating to interest bearing loans and borrowings is provided in Note 11.
124 Austal Limited | Notes to the consolidated financial statements
20202019000000Operating lease commitmentsFuture minimum rentals payable under non-cancellable leases:1Within one year - $ (3,610)$ After one year but not more than five years - (4,164) More than five years - (3,887) Total - $ (11,661)$ Capital commitmentsIntangibles(17,500)$ - $ Property, plant and equipment(330) (1,496) Total(17,830)$ (1,496)$ GuaranteesBank performance guarantees2(222,695)$ (58,900)$ Sureties(243,658) (126,263) Total(466,353)$ (185,163)$ 1.Operating lease commitments have been reclassified in accordance with AASB 16 Leases.2.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.
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.
1.
Vessel delivery postponement
Extended Government imposed comprehensive quarantine measures implemented as a result of
COVID-19, have postponed a
potential cancellation right notwithstanding the absence of default by either party. Despite this
contractual entitlement, both parties have acknowledged the unique circumstances brought about by
the COVID-19 virus and continue to cooperate constructively to explore ways to avoid this outcome
and the customer has repeatedly advised they have no intention to cancel the contract.
Cancellation would require Austal to repay milestone payments received to date
Austal then taking possession of the vessel for resale.
with
2.
Other
The Directors are not aware of any other material contingent liabilities in existence as at
30 June 2020 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. US Regulatory authorities, including the Securities Exchange
Commission, have also commenced separate but apparently related investigations. The Company provided an
update on the state of these investigations in Note 29 to the financial statements in its 2019 Annual Financial
Report (August 2019 Update), and again in Note 10 to the H1 interim report in February 2020 (February 2020
Update).
Since the February 2020 Update, the progress of the investigation centred on ASIC collecting further information
from individuals and the Company, and on resolving disagreements regarding the application of legal privilege to
efforts to
agree on these matters, the application of legal privilege over many of these documents remains unresolved and the
matter was brought before the Federal Court in Victoria for determination. Determination was scheduled for
June 2020 however the matter was delayed due to COVID-19 restrictions. Following continued discussions between
ASIC and the Company, this issue is now expected to be resolved via the appointment of an independent expert in
the second half of calendar year 2020.
In relation to the substantive investigation, Austal continues its efforts to cooperate with regulators in Australia and
the USA and other than the legal privilege matters discussed above, the matters being investigated have not
substantively changed since the February 2020 Update, largely due to restrictions brought about by the
COVID-19 pandemic. 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.
Austal Limited | Notes to the consolidated financial statements 125
The Company notes that as far as it is aware, the investigation has not impacted Austal
principal customer in the USA and in fact, the Group continues to work closely with the US Department of Defence,
million to implement a steel
shipbuilding capability to complement existing aluminium shipbuilding facilities.
The Group had to apply significant judgement when considering whether and how much to provide for costs. The
provision could change over time as new facts emerge and the investigations progress. The prolonged nature of the
investigations and significant resourcing required have driven an increase in the provision.
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.
The provision is recorded based on the best estimate of the probable incremental professional services costs
relating to this matter. Further information is provided in Note 24.
Events after the balance date
I
Dividend proposed
An unfranked final dividend of 5.0 cents per share has been proposed for FY2020
(FY2019 final: 3.0 cents per share, unfranked).
II
Modern American Recycling and Repair Services (MARRS) Purchase Agreement
Austal entered into an agreement with MARRS to acquire over 15 acres of waterfront land, buildings and
assets including an existing dry dock on the MARRS Mobile riverfront property in Mobile, Alabama on
21 August 2020.
The acquisition will
water berthing capability in support of future new construction efforts including steel ships, whilst also
providing Austal USA with increased service and repair capacity in Mobile.
The acquisition is subject to a number of conditions that are required to be satisfied before completion.
The acquisition price is under US$10 million and will be funded from cash holdings.
Further information is provided in the ASX announcement dated 21 August 2020.
126 Austal Limited | Notes to the consolidated 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.
Austal Limited | Notes to the consolidated financial statements 127
Equity InterestCompanyCountry20202019Austal Ships Pty LtdAustralia100%100%Austal Cyprus LtdCyprus100%100%Austal Egypt LLCEgypt100%100%Austal Muscat LLCOman100%100%Austal Service Pty LtdAustralia100%100%Austal Service Darwin Pty LtdAustralia100%100%Hydraulink (NT) Pty LtdAustralia100%100%KM Engineering (NT) Pty LtdAustralia100%100%Austal Systems Pty LtdAustralia100%100%Austal UK LtdUnited Kingdom100%100%Austal Holdings Vietnam Pty Ltd Australia100%100%Austal Viet Nam Co LtdVietnam100%100%Austal Holdings IncUSA100%100%Austal USA LLCUSA100%100%Austal USA Service LLCUSA100%100%ElectraWatch Inc USA100%100%Austal Philippines Pty LtdAustralia100%100%Austal Middle East Pty LtdAustralia100%100%Austal Holdings China Pty LtdAustralia100%100%Austal Subic Bay Holdings Pty Ltd 1Australia100%100%Austal Australasia Pty Ltd 2Australia100%100%Seastate Pty LtdAustralia100%100%1.Previously named Oceanfast Luxury Yachts Pty Ltd2.Previously named Oceanfast Pty Ltd
I
Investment in joint venture
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 Board has determined to maintain the carrying amount at the historical cost of
Aulong declares dividends or displays any signs of impairment, at which time the carrying amount will be
adjusted accordingly.
investment until
No dividends or impairments have occurred during FY2020 and therefore the Profit and Loss recognised is
$0.000 million (FY2019: $(0.000) million).
Related party disclosures
Group policy is that all transactions with related parties are conducted on commercial terms and conditions.
No related party transactions occurred with the consolidated entity other than the remuneration of Directors and
KMP and the matters disclosed in this report.
KMP compensation
Detailed remuneration disclosures are provided in the Remuneration Report commencing on page 31.
128 Austal Limited | Notes to the consolidated financial statements
20202019Investment In Joint Venture000000Investment in Aulong Shipbuilding Co Ltd Joint Venture1,729$ 1,729$ Total1,729$ 1,729$ 20202019000000Short-term employee benefits4,947$ 4,757$ Post-employment benefits172 174 Long term benefits31 36 Share-based payments1,178 3,087 Total6,328$ 8,054$
SHAREHOLDER INFORMATION
Share based payments
I
Performance rights
The following changes in performance rights took place during the year:
The Board has the discretion to decide if performance rights will lapse or vest.
II
Service rights
The following changes in service rights took place during the year:
Service rights were introduced in FY2020 to offer a long-term incentive to non-KMP. Service rights have a
vesting period of 5 years. The only vesting criteria is fulfilment of the 5 year service period. 330,704 service
rights were issued in FY2020.
III
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)
The Short Term Incentive Plan (STI Plan)
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).
Austal Limited | Notes to the consolidated financial statements 129
Balance atForfeitedBalance atGrant30 June 2019IssuedVested/ Lapsed30 June 2020Expiry dateFY20182,363,476 - (2,363,476) - - 30 Jun 2020FY20192,656,839 - - (523,554) 2,133,285 30 Jun 2021FY2020 - 1,229,304 - (244,622) 984,682 30 Jun 2022Total5,020,315 1,229,304 (2,363,476) (768,176) 3,117,967 Balance atForfeitedBalance atGrant30 June 2019IssuedVested/ Lapsed30 June 2020Expiry dateFY2020 - 338,677 - (7,973) 330,704 30 Jun 2024Total - 338,677 - (7,973) 330,704
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.
IV
Recognised share-based payment expenses
The expense recognised for share based payments during the year is shown in the table below:
V
Significant accounting judgements and estimates
The Group is required to estimate the fair value of equity-settled share-based payment transactions with
employees at the grant date. Estimating the fair value requires determination of the most appropriate
valuation model which is dependent on the terms and conditions of the grant. This estimate also requires
determination of the most appropriate inputs to the valuation model including the expected life of the share
rights, volatility and dividend yield.
The Group has applied the Black Scholes option pricing model to estimate the fair value of the rights with
non-market based vesting conditions. A hybrid employee share option pricing model and the Monte Carlo
simulation have been applied to estimate the fair value of rights with market based vesting conditions.
130 Austal Limited | Notes to the consolidated financial statements
20202019000000Share-based payments expenseExpense arising from equity-settled share-based payment transactions(4,599)$ (5,975)$
SHAREHOLDER INFORMATION
Parent entity information
Information relating to Austal Limited, the parent entity, is detailed below:
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.
Austal Limited | Notes to the consolidated financial statements 131
20202019Balance sheet000000AssetsCurrent60,688$ 82,655$ Non - current300,842 310,903 Total361,530$ 393,558$ LiabilitiesCurrent(14,197)$ (7,434)$ Non - current(16,237) (18,641) Total(30,434)$ (26,075)$ Net assets331,096$ 367,483$ EquityContributed equity135,340$ 130,570$ Employee benefits reserve9,881 8,498 Asset revaluation reserve12,128 12,128 Cash flow hedge reserve44 64 Retained earnings173,703 216,223 Total331,096$ 367,483$ IncomeNet profit / (loss) after tax(21,131)$ 59,359$ Total comprehensive income(21,151) 60,866
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:
performance for the year ended on that date; and
cial position at 30 June 2020 and of its
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 2020.
John Rothwell AO
Chairman
on behalf of the Board
21 August 2020
132 Austal Limited |
SHAREHOLDER INFORMATION
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 2020,
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 2020 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.
Austal Limited | Independent audit report to the members of Austal Limited 133
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
For the year ended 30 June 2020
construction revenue recognised totals
$1.7 billion as disclosed in Note 4.
Construction revenues are recognised
over time as performance obligations are
fulfilled over time.
Management judgement is required 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:
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
(which incorporate risk
contingencies, the most significant
element is in relation to the LCS
program in Austal USA);
Determination of contractual
entitlement and assessment of the
probability of customer approval
of variations and acceptance of
claims; and
Our audit procedures included, but were not
limited to:
Evaluating the design and operating
effectiveness of processes and
relevant 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.
Reading relevant agreements to
understand the key terms and
conditions, and confirming our
understanding with management;
Testing on a sample basis, contracts
for delay and other risks, contract
percentage of completion,
appropriateness of cost contingencies,
history of contract issues and
significant unapproved variations or
claims;
134 Austal Limited | Independent audit report to the members of Austal Limited
SHAREHOLDER INFORMATION
Estimation of project completion
Assessing the accuracy of the forecast
date.
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.
Taxation
The Group’s geographic operations
resulted in an income tax expense
totalling $34.5 million across two main
jurisdictions, being the USA and Australia
for the year ended 30 June 2020.
As at 30 June 2020 the carrying value of
deferred tax assets recognised in relation
to the Group’s USA Research and
Development (R&D) credits was
$7.7 million (refer Note 23), whilst
unused tax losses and R&D credits in
Australia for which no deferred tax assets
have been recognised equated to
$5.2 million and $5.5 million respectively.
In addition, the Group continue to pay
additional tax in relation to intercompany
royalties between the USA and Australia
(refer Note 9).
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
Significant judgement is required to
assess:
Testing the underlying accuracy of the
tax effect calculations.
The extent to which R&D credits
will be utilised;
Austal Limited | Independent audit report to the members of Austal Limited 135
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 $11.3 million as
at 30 June 2020 for the probable
incremental professional services costs
(“costs”) relating to the regulatory
investigations 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.
We also assessed the appropriateness of the
disclosures in Note 9 and Note 23 to the
financial statements.
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 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 Group’s annual report for the year ended 30 June 2020 but does not
include the financial report and our auditor’s report thereon. The annual report is expected to be
made available to us after the date of this auditor's report.
Our opinion on the financial report does not cover the other information and we will 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.
136 Austal Limited | Independent audit report to the members of Austal Limited
SHAREHOLDER INFORMATION
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.
Austal Limited | Independent audit report to the members of Austal Limited 137
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, actions
taken to eliminate threats or safeguards applied.
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 59 of the Directors’ Report for the
year ended 30 June 2020.
In our opinion, the Remuneration Report of Austal Limited, for the year ended 30 June 2020, 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, 21 August 2020
138 Austal Limited | Independent audit report to the members of Austal Limited
SHAREHOLDER INFORMATION
Shareholder information
Distribution of shares
share register at 30 June 2020:
Twenty largest shareholders
Voting rights
All ordinary shares issued by Austal Limited carry one vote per share without restriction.
Austal Limited | Shareholder information 139
Number of % of TotalNumber ofIndividual shareholdingsharesissued capitalholders1 - 10001,443,774 0.40%3,246 1,001 - 5,0007,687,271 2.16%2,971 5,001 - 10,0006,526,888 1.83%862 10,001 - 100,00019,419,213 5.44%748 100,001 and over321,631,343 90.17%73 Total356,708,489 100.00%7,900 Number of% of TotalSubstantial RankShareholdersharesissued capitalshareholder1HSBC Custody Nominees (Australia) Limited109,222,966 30.62%Yes2J P Morgan Nominees Australia Pty Limited75,729,127 21.23%Yes3Austro Pty Ltd32,307,692 9.06%Yes4Citicorp Nominees Pty Limited31,868,745 8.93%Yes5National Nominees Limited27,102,862 7.60%Yes6BNP Paribas Nominees Pty Ltd15,528,229 4.35%7Onyx (WA) Pty Ltd5,600,000 1.57%8Sandhurst Trustees Ltd2,168,506 0.61%9Mr Garry Heys + Mrs Dorothy Heys2,044,670 0.57%10Mr William Robert Chambers2,000,000 0.56%11Mossisberg Pty Ltd1,501,577 0.42%12Mr David Singleton1,222,721 0.34%13Warbont Nominees Pty Ltd1,007,177 0.28%14Lavinia Shipping Limited991,000 0.28%15Morgan Stanley Australia Securities (Nominee) Pty Limited981,858 0.28%16CS Third Nominees Pty Limited921,700 0.26%17Kenny Nominees (Nt) Pty Ltd857,881 0.24%18Pacific Custodians Pty Limited844,072 0.24%19Washington H Soul Pattinson and Company Limited640,000 0.18%20AMP Life Limited582,567 0.16%Total313,123,350 87.78%
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.
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
140 Austal Limited | Corporate governance statement and ESG report