Associated Banc-Corp
Annual Report 2021

Plain-text annual report

Austal Limited Annual Report 2021 Contents Index to the notes to the financial statements Contents.........................................................................................................................................................................................................................2 Basis of preparation .....................................................................................................................................................................................80 Index to the notes to the financial statements ...............................................................................................................................................3 Chairman’s report .................................................................................................................................................................................................. 24 Note 1 Corporate information ..............................................................................................................................................................80 Note 2 Basis of preparation ..................................................................................................................................................................80 Current year performance .........................................................................................................................................................................85 Chief Executive Officer’s report ........................................................................................................................................................................ 26 Note 3 Operating segments ..................................................................................................................................................................85 Review of operations .............................................................................................................................................................................................. 31 Directors’ report ...................................................................................................................................................................................................... 34 Nomination & Remuneration Committee Chair’s message ..................................................................................................................... 40 Remuneration report .............................................................................................................................................................................................. 41 Auditor independence ........................................................................................................................................................................................... 75 Consolidated statement of profit and loss and other comprehensive income for the year ended 30 June 2021 ...............76 Consolidated statement of financial position as at 30 June 2021 ........................................................................................................77 Consolidated statement of changes in equity for the year ended 30 June 2021 ............................................................................78 Consolidated statement of cash flows for the year ended 30 June 2021 ..........................................................................................79 Notes to the consolidated financial statements .......................................................................................................................................... 80 Directors’ declaration ...........................................................................................................................................................................................155 Independent audit report to the members of Austal Limited ................................................................................................................156 Note 4 Revenue .........................................................................................................................................................................................89 Note 5 Other profit and loss .................................................................................................................................................................95 Note 6 Earnings per share ....................................................................................................................................................................98 Note 7 Reconciliation of net profit after tax to net cash flows from operations ...............................................................99 Note 8 Dividends paid and proposed ..............................................................................................................................................100 Note 9 Income and other taxes .......................................................................................................................................................... 101 Capital Structure ..........................................................................................................................................................................................109 Note 10 Cash and cash equivalents ...................................................................................................................................................109 Note 11 Interest bearing loans and borrowing ................................................................................................................................ 110 Note 12 Reconciliation of financing cash flow to interest bearing debt ................................................................................ 112 Note 13 Contributed equity and reserves ......................................................................................................................................... 113 Note 14 Government grants relating to assets ............................................................................................................................... 115 Working Capital ............................................................................................................................................................................................. 116 Note 15 Trade and other receivables .................................................................................................................................................. 116 Note 16 Vessel construction and support contracts in progress ............................................................................................. 117 Note 17 Inventories and work in progress ........................................................................................................................................ 117 Note 18 Trade and other payables ....................................................................................................................................................... 118 Shareholder information .....................................................................................................................................................................................162 Note 19 Provisions .................................................................................................................................................................................... 119 Corporate governance statement and ESG Report ...................................................................................................................................163 Corporate directory ...............................................................................................................................................................................................163 Infrastructure & other assets .................................................................................................................................................................. 122 Note 20 Property, plant and equipment ............................................................................................................................................ 122 Note 21 Leases .......................................................................................................................................................................................... 125 Note 22 Intangible assets and goodwill ............................................................................................................................................ 128 Note 23 Impairment testing of non-current assets ...................................................................................................................... 130 Note 24 Investments and other financial assets ........................................................................................................................... 133 Note 25 Assets held for sale ................................................................................................................................................................. 134 Note 26 Other non-current assets ...................................................................................................................................................... 134 Financial Risk Management .................................................................................................................................................................... 135 Note 27 Financial risk management .................................................................................................................................................. 135 Note 28 Derivatives and hedging ........................................................................................................................................................ 143 Note 29 Fair value measurements ...................................................................................................................................................... 144 Unrecognised items .................................................................................................................................................................................... 145 Note 30 Commitments and contingencies ...................................................................................................................................... 145 Note 31 Corporate investigations ....................................................................................................................................................... 146 Note 32 Events after the balance date .............................................................................................................................................. 147 The Group, management and related parties .................................................................................................................................... 148 Note 33 Business combinations .......................................................................................................................................................... 148 Note 34 Parent interests in subsidiaries .......................................................................................................................................... 150 Note 35 Related party disclosures ....................................................................................................................................................... 151 Note 36 Key management personnel (KMP) compensation ...................................................................................................... 151 Note 37 Share based payments ........................................................................................................................................................... 152 Note 38 Parent entity information....................................................................................................................................................... 154 2 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 3 Company Overview s t h g In what has been a challenging year for the shipbuilding industry, let alone the world’s population, Austal has successfully kept our teams safe, maintained business operations and delivered on our commitments to employees, customers, suppliers, stakeholders and shareholders. FY2021 will go down as a milestone year for Austal, not only for rising to meet the challenges of the COVID-19 pandemic, but for a number of significant achievements across the business and around the world, that position the company for further growth. The Austal Group safely and efficiently delivered a record 19 vessels worldwide in FY2021. This included 7 naval vessels and 2 commercial ferries from Australia, 3 naval vessels from Austal USA, 2 commercial ferries from Vietnam, the largest-ever commercial ferry (by volume) constructed by the Austal Group from the Philippines and 4 commercial ferries from Aulong in China. The company continued to expand both steel shipbuilding capability and sustainment services in the United States and Australia which further strengthens Austal’s capacity to design, construct and support steel naval vessels for home and export markets. New steel shipbuilding facilities are under construction in Mobile, Alabama which enable steel vessel construction to commence from April 2022. New sustainment facilities acquired in both Mobile and Cairns in Queensland, Australia will allow Austal to offer an enhanced vessel sustainment service to key customers including the United States Navy, Royal Australian Navy and Australian Border Force. New and emerging maritime technologies continue to be a focus for our Austal teams and supply chain partners around the world. In FY2021, a number of exciting new product developments were announced, including the VOLTA series of electric ferries that offer commercial operators an attractive, cost- effective zero-emission transportation solution; and new autonomous vessel technology that is being applied to the latest Expeditionary Fast Transport ship (EPF-13), under construction for the United States Navy. Based on the company’s ongoing success in shipbuilding, technology and sustainment, and in response to converging trends that are impacting the global shipbuilding industry, in 2021 Austal developed and has implemented Growth Strategy 2050. The strategy confidently states Austal’s intent to become the Indo-Pacific region’s leading naval defence prime contractor and outlines the priorities for the business over the coming three decades; expand shipbuilding, enhance systems and extend support. With communities, cities, states and nations around the world moving quickly to establish a “new normal” way of life under COVID-19, Austal is ready to deliver innovative, cost effective solutions that will help defence and commercial vessel operators continue to help protect and transport people, every day. i l i h g H 1 2 0 2 $1.57B Revenue $2.5B Order Book 29 Ships scheduled or under construction 19 Ships delivered 35 Vessels under sustainment 8 Service Centres 5,500 Employees 4 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 5 Heading Austal Australia delivering Sovereign Capability In FY2021, Austal Australia continued to develop Australia’s sovereign naval shipbuilding capability through the delivery of two Cape-class Patrol Boats for the Trinidad and Tobago Coast Guard and ongoing construction of six Cape-class Patrol Boats for the Royal Australian Navy. TTS Port of Spain (CG41) and TTS Scarborough (CG42) – Austal Hulls 398 and 399 – departed Australia in June 2021, just over 2 years since the start of construction in Henderson, Western Australia in April 2019. The successful, A$126 million defence export contract highlights the successful collaboration between Austal, local defence industry and the Australian Government, including the Department of Defence, Department of Foreign Affairs and Trade and Export Finance Australia. 6 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 7 Heading Guardians – Pride of the Pacific The Australian Government’s Pacific Patrol Boat Replacement Project (SEA3036-1) continues on schedule, with five Guardian-class Patrol Boats delivered in FY2021 bringing the total vessels delivered in the project since 2018 to eleven. The success of the project to date and the ongoing collaboration between Austal Australia and the Department of Defence’s Capability Acquisition and Sustainment Group (CASG) Project Team, have earned industry-wide accolades, including recognition as a finalist in the Essington Lewis Awards 2021 (Defence Acquisition Projects > A$50 million). The project is achieving Australian Industry Capability (AIC) content of over 68% and with a new Guardian being launched approximately every 3 months, is on track for completion in CY2023. VOEA Ngahau Siliva for Tongan Maritime Force Papua New Guinea Tuvalu Tonga Samoa Solomon Islands Fiji Palau Kiribati Tonga Papua New Guinea Solomon Islands 8 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 9 Heading Sustainment reaching new heights In December 2020 Austal Australia completed the acquisition of BSE Maritime Solutions, including additional shipbuilding, sustainment and service facilities, infrastructure and capabilities in Cairns and Brisbane, Queensland. The new Austal Queensland shipyards now offer the Pacific region’s largest mobile boat hoist, capable of lifting vessels up to 1,120 tonnes. The growing team of more than 100 personnel provide support to both the Australian Border Force’s and Royal Australian Navy’s Cape-class Patrol Boats, as well as the Guardian-class Patrol Boats being delivered to 12 Pacific Island nations and Timor Leste through to CY2023. 10 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 11 Austal Cairns team with Mobile Boat Hoist Heading Austal USA In another milestone year for Austal USA, the shipyard delivered two Independence-class Littoral Combat Ships – the USS Mobile (LCS 26) and USS Savannah (LCS 28) - and one Spearhead- class Expeditionary Fast Transport, USNS Newport (EPF 12) to the United State Navy; while also taking significant first steps towards constructing steel naval vessels and offering enhanced vessel support services in Mobile, Alabama. Construction of new steel shipbuilding facilities (from a combined US$100 million investment by Austal USA and the US Government) commenced in March 2021 and is expected to be completed by April 2022. In addition to a new undefinitised contract for the detailed design of the 15th Expeditionary Fast Transport vessel in February 2021, Austal USA has been awarded a swathe of design contracts that further strengthens the shipyard’s position to pursue autonomous and steel vessel contracts with the US Navy, including; a Contract Modification to Develop Autonomous Capability in EPF-13, a Functional Design Contract for the steel hull Navajo-class Towing, Salvage and Rescue Ship (T-ATS) and a Concept Studies and Preliminary Design Contract for the Development of the US Navy’s new Light Amphibious Warship (LAW) Program. Start of construction of new steel shipbuilding facility in Mobile USNS Newport (EPF 12) USS Mobile (LCS 26) 12 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 13 Austal Philippines Bañaderos Express for Fred. Olsen Express Austal Philippines has had a momentous year, constructing the shipyard’s largest commercial ferries, three times. Firstly through the delivery of the 109 metre catamaran FSTR for Fjord Line; followed by the launch of the 118 metre trimaran Bañaderos Express for Fred. Olsen Express - the largest trimaran ferry ever constructed in the Philippines, and now the 115 metre catamaran Express 5 for Molslinjen, the largest ferry (by volume) constructed by any Austal shipyard. Three record-breaking ships constructed under a challenging but still very safe and supportive environment that is developing the Philippines sovereign shipbuilding capability. 14 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 15 FSTR for Fjord Line Austal Vietnam Building upon the successful establishment of a brand new shipyard, Austal Vietnam delivered 2 high speed commercial ferries to the market within the FY2021 financial year. Firstly, the sleek APT James, a 94 metre catamaran for the Government of Trinidad and Tobago and then the 41 metre Maria Galanta Express, to Oceanoi Limited of Mauritius. Maria Galanta Express for Oceanoi Limited of Mauritius A.P.T. James for the Government of Trinidad and Tobago 16 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 17 Beyond Electric Support Austal’s support business, comprising vessel sustainment, in-service support (ISS), integrated logistics support, repairs and maintenance for both commercial and defence markets continues to grow, with additional facilities, infrastructure and people joining the company’s established network in FY2021. Austal USA continued to win new service contracts with the US Navy to support both the Littoral Combat Ship and Expeditionary Fast Transport fleets in the US and internationally. In August 2020, Austal USA purchased an additional 15 acres of waterfront land and shipbuilding and maintenance facilities, including a dry dock capable of launching and servicing large steel vessels opposite and adjacent to the existing shipyard. Austal Australia released the new VOLTA series of electric-powered ferries in FY2021, heralding an environmentally friendly and efficient alternative to traditional maritime public transport. Austal’s VOLTA series goes beyond electric power plant options to provide a complete turnkey solution that includes new optimised hull designs and superstructure configurations, fully integrated shored- based charging infrastructure and vessel monitoring and control systems such as MARINELINK-Smart that offer a cost effective operation and a unique customer experience. U S A A U S T R A L A S A I $164m Revenue support contracts FY2021 Austal USA Shipyard $94m Revenue support contracts FY2021 18 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 19 GROWTH STRATEGY 2050 Our Strategic intent is to be the Indo-Pacific Region’s Leading Naval Defence Prime Contractor Strategic Context A number of converging macro trends are impacting the shipbuilding industry: Strategic Priorities REGIONAL TECHNOLOGY ENVIRONMENTAL LOCALISATION Increasing importance of the Indo-Pacific region as a nexus of naval operations and demand for commercial maritime transport. Arrival of autonomous vessels and increasing automation of manufacturing process to build vessels. International regulatory, economic and societal pressure to decarbonise all maritime transport by 2050. Worldwide trend towards building and sustaining vessels locally to foster employment and supply chain resilience. EXPANDING EXPAND SHIPBUILDING SHIPBUILDING ENHANCING ENHANCE SYSTEMS SYSTEMS EXTENDING EXTEND SUPPORT SUPPORT EXPAND our shipbuilding capabilities to be a world leading designer and builder, in both steel and aluminium, of large, complex naval and commercial vessels, including autonomous naval ships and zero emission fast ferries. ENHANCE our systems and digital products to become Australia’s sovereign supplier of naval vessel systems, the global leader in fleet life cycle management solutions for complex assets and a regional champion of Industry 4.0 in shipbuilding. EXTEND our support and sustainment services to become the leading Indo- Pacific regional supplier to the US Navy, the Australian Commonwealth across all Defence domains and regional navies wherever Austal has a shipyard presence. 20 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 21 Our people, our values Excellence Customer Focus Integrity Teamwork Austal has relaunched our company’s values that reaffirm our focus on Excellence, our Customers, working with Integrity and as a Team. The updated values have been promoted throughout the business, at all locations and provide guidance for all of our decisions and actions. We believe that putting our values into practice creates the greatest benefits for our people, our customers, our suppliers, stakeholders and shareholders - and the communities in which we live and work. 22 Austal Limited | Annual Report 2021 Austal Limited | Annual Report 2021 23     . |         21.7 14.1 14.2 10.7 10.4 10.1 6.8 7.1 FY14FY15FY16FY17FY18FY19FY20FY21Medical Treatment Injury Frequency Rate(Injuries per million hours worked)3.90 2.10 1.75 3.11 3.62 2.07 1.68 1.70 FY14FY15FY16FY17FY18FY19FY20FY21Lost Time Injury Frequency Rate(Injuries per million hours worked)                                                                   ​​​​​​     ​​​​​​​​​               ​​​​​​​​​ ​​​​​​​​​            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 The Board of Directors Austal Limited 100 Clarence Beach Rd Henderson, WA 6166, Australia 23 August 2021 Dear Board Members, 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 2021, 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                                                                                                                                                       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 Independent Auditor’s Report to the members of Austal Fax: +61 8 9365 7001 www.deloitte.com.au 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 2021, 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 other explanatory information, 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 2021 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 & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How the scope of our audit responded to the Key Audit Matter Revenue recognition As disclosed in Note 4, Shipbuilding revenue for the year ended 30 June 2021 was $1,315 million (USA Shipbuilding $1,013 million, Australasia Shipbuilding $302 million – refer Note 3). Vessel construction revenues are recognised over time as performance obligations are fulfilled after assessing all factors relevant to each contract, including specifically assessing the following as Applicable the: Our audit procedures performed included but were not limited to:  Evaluating the design and implementation of processes and controls in respect of the underlying project costs and the recognition of revenue and, where selected, the operating effectiveness of controls;  Discussions with selected project managers on the risks and opportunities in relation to certain individual contracts;  Determination of stage of completion and measurement of progress towards satisfaction of performance obligations;   Estimation of total contract revenue and costs including the estimation of contingencies which incorporate risk contingencies for which the most significant elements are in relation to: o the cost contingencies on the LCS program in USA Shipbuilding; and o future overhead rates used in the estimation of forecast costs for the LCS and EPF programs in USA Shipbuilding.  Determination of contractual entitlement and assessment of the probability of customer approval of contract modifications, variations and acceptance of claims; and  Estimation of project completion dates. We focused on recognition of vessel construction revenue as a key audit matter due to the number and type of estimation events over the course of a contract life, the unique nature of individual contract terms and the high level of judgement required in estimating and accounting for cost contingencies. Selecting a sample of contracts for testing based on a number of quantitative and qualitative factors which may indicate that a greater level of judgement is required in recognising revenue, including consideration of historical issues identified, variations and claims, delay risk, high potential impact and high likelihood of risk events and potential loss making contracts; o Utilising engineering specialists in the USA to assist in the assessment of the stage of completion of selected vessels in USA Shipbuilding given the significance of the revenue contribution to the Group; o Obtaining an understanding of the contract terms and conditions of relevant contracts to evaluate whether these were reflected in the Group’s estimate of forecast costs and revenue; o Testing a sample of costs incurred to date and agreeing these to supporting documentation; o Testing contractual entitlement relating to contract modifications, variations and claims recognised within contract revenue to supporting documentation and by reference to the underlying contracts; o Evaluating the probability of recovery of contract assets by reference to the status of contract negotiations, historical recoveries and other supporting documentation; o Challenging the level of cost contingencies on the LCS program in USA Shipbuilding; o Evaluating the reasonableness of the future overhead rates used in the estimation of costs for the LCS and EPF programs in USA Shipbuilding; o Evaluating significant exposures to liquidated damages for potential late delivery of vessels where relevant; and o Evaluating historical accuracy of forecast costs to complete. We also assessed the adequacy of the relevant disclosures in the financial statements. Our procedures included, but were not limited to:  Understanding the process that the Group undertakes to develop the value in use model;  Assessing historical forecasting accuracy by comparing actual performance to budgets; In conjunction with our valuation specialists:  o Challenging the forecast revenue with consideration of contracted work, uncontracted work (including the probability assigned to securing the forecast uncontracted work) and external industry data where available; o Assessing the discount rate against that of comparable companies; and o Evaluating operating margins with reference to past performance and knowledge of the business.  Sample testing the models for mathematical accuracy; and  Performing sensitivity analysis on the forecast revenue, operating margins and terminal growth assumptions. We also assessed the appropriateness of the disclosures in Note 20 and 22. Carrying amount of non-current assets – Australasia Shipbuilding As at 30 June 2021 the carrying value of goodwill, other intangible assets and property, plant and equipment was $681.8 million as disclosed in Notes 20 and 22. Property, plant and equipment in relation to the Australasia Shipbuilding CGU was $120.7 million. The Group prepared a value in use model to assess the recoverable value of the CGU. This requires the Group to exercise significant judgement, with key assumptions including the level of uncontracted revenue included in the forecast and the operating margins. Provisions As disclosed in Note 19, the Group recognised a provision of $11.48 million as at 30 June 2021 for the probable incremental professional services costs (“costs”) relating to the regulatory investigations. The Group had to apply significant judgement when considering whether and how much to provide for costs. As a result of the high level of estimation uncertainty the provision could change substantially over time as new facts emerge and the investigations progress. Our procedures included, but were not limited to the following:  Discussing the potential costs with in-house legal counsel, other management and the directors;  Challenging the assumptions and the basis for the provision; and  Where possible, corroborating the assumptions to external sources and input from the Group’s professional advisors. We also assessed the appropriateness of the disclosures in Note 19. 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 2021 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. 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’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, 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 on pages 41 to 74 of the Directors’ Report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Austal Limited, for the year ended 30 June 2021, 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 A T Richards Partner Chartered Accountants Perth, 23 August 2021   Email: info@austal.com Tel: +61 8 9410 1111 AUSTAL.COM 

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