Austal : FY2016 Annual Results Announcement

• Revenue of $1.34 billion (FY2015: $1.41 billion)

• EBIT loss of $(120.9) million (FY2015: $85.3 million EBIT profit), in line with guidance

• Net loss after tax of $(84.2) million (FY2015: $53.2 million NPAT)

• FY2016 earnings impacted by costs of implementing design modifications across the LCS program to meet the US Naval Vessel Rules , as announced on 4 July 2016

• Net cash position of $51.7 million (30 June 2015: $(4.2) million net debt)

• Fully franked final dividend of 2.0 cents per share (FY2015 Final: 3.0 cents per share)

• Order book of $3.4 billion, securing construction work through to CY2021

• Maintain FY2017 outlook of $45 - 55 million EBIT and continued cash generation from operations

  Austal Limited (Austal) (ASX:ASB) has reported its FY2016 financial results in line with guidance.

  The primary driver of Austal's FY2016 loss was a change of estimate to complete construction of the Littoral Combat Ship program (LCS 6 - 26) in accordance with the US Naval Vessel Rules, as announced on 4 July 2016.

  Austal Chief Executive Officer David Singleton said outlook for the US shipyard and the group remained positive despite the FY2016 financial adjustment on the LCS program.

  "The impact of the one-off downward adjustment to the LCS program has had on our earnings this year was disappointing, but Austal still has a strong order book and is generating strong cash flows from its efficient vessel construction," Mr Singleton said.

  "Austal's US$4 billion LCS program will be profitable across its remaining life because we now have a much clearer understanding of the design required and margins that will be generated from the remaining LCS vessels."

  "Our US$1.6 billion Expeditionary Fast Transport program in the US has matured well, is delivering stable and predictable returns, and has good prospects for expansion."

  "Austal's Australia operations are in a period of transition as the shipyard is gearing up to construct a number of export and domestic defence contracts as well as commercial ferries following the conclusion of the initial eight-vessel Cape Class program early in FY2016."

  "Importantly, Austal continued to generate strong operational cash flow in the year, which has supported a further reduction in debt, ongoing dividends to shareholders, and enabled the business to end the year in a strong net cash position."

  Segment results USA USA reported revenue of $1,133.0 million (FY2015: $1,119.7 million), with a segment EBIT loss of

  $(90.5) million (FY2015: $58.5 million EBIT profit). The FY2016 EBIT loss was recognised following the completion of a comprehensive review of Austal's ~ US$4 billion LCS block buy contract, which was announced on 4 July 2016.

  The USA operations progressed 17 vessel construction projects during the year. Austal delivered four vessels to the US Navy in FY2016 - two Littoral Combat Ships (LCS 6 and 8) and two Expeditionary Fast Transport (EPF) vessels (EPF 6 and 7). The order book was replenished when an option to fund LCS 26 was exercised by the US Navy, representing Austal's eleventh LCS as prime contractor (Austal constructs the Independence variant, being the even-numbered vessels) and Austal was also awarded contracts to procure long-lead items for an eleventh and twelfth Expeditionary Fast Transport (EPF) from the US Navy, providing confidence that Austal will be awarded contracts to construct the vessels.

  Australia

  Financial performance from Australia was impacted by a contraction in production activity and profit generation following the conclusion of the original 8-vessel Cape Class Patrol Boat block-buy contract in August 2015 as well as a reduction in profit share associated with components supplied to Austal USA as a result of the LCS downgrade. FY2016 segment revenue was $187.1 million (FY2015: $211.8 million) and an EBIT of $6.8 million (FY2015: $32.1 million EBIT profit).

  Operations in Australia in FY2016 included the construction of two, 72-metre High Speed Support Vessels (HSSV) for the Royal Navy of Oman, under a US$125 million contract. The first HSSV was delivered in May 2016 with the second vessel to be delivered in FY2017 H1. Austal also undertook its first 'hybrid' build, demonstrating the integration of the Australia and Philippines shipyards in constructing a 70-metre fast crew boat for Caspian Marine Services, under a US$34 million contract. The forward hull module was fabricated at the Philippines shipyard and the superstructure and aft hull module were constructed and integrated at the Australia shipyard, with delivery scheduled for FY2017 H1.

  Austal was also successful in winning a $305 million competitive tender from the Commonwealth of Australia to construct 19 steel hulled Pacific Patrol Boats, a $63 million contract to construct two additional Cape Class Patrol Boats (to be chartered to the Royal Australian Navy), and a

  $100 million commercial contract to design and build a 109 metre vehicle passenger ferry for Mols Linien A/S (Mols) of Denmark.

  The two additional CCPB did not contribute to revenue nor profit generation during FY2016 because they are accounted for as a financing arrangement with charter income to be recognised over the three year term of the charter period. The Pacific Patrol Boats and Mols contracts have a long design period with construction due to commence late in FY2017, hence they did not contribute to profit in FY2016.

  Philippines

  Austal's Philippines shipyard reported revenue of $33.9 million (FY2015: $38.7 million) and a segment EBIT loss of $(3.8) million (FY2015: $1.0 million profit). The EBIT loss was driven by labour productivity, material cost and schedule issues relating to the construction of one vessel. A business wide review of the Philippines was conducted in response to the disappointing result and a remediation plan is being executed through FY2017 including a change of senior management which has already been completed.

  The shipyard delivered two 45-metre high speed crew transfer vessels to the Abu Dhabi National Oil Company, commenced construction on two catamaran crew boats valued at US$54 million, and built the forward hull section for the 70-metre fast crew boat that was then transferred to Austal's Australia shipyard. The Philippines shipyard was awarded two contracts to construct three new high speed passenger ferries valued at approximately US$20 million in June 2016.

  Cash and Capital Management

  Austal transitioned from a net debt position of $(4.2) million at 30 June 2015 to a net cash position of $51.7 million at 30 June 2016. This improvement was driven by Austal's ongoing strong cash flow from operations of $102.1 million in FY2016 (FY2015: 110.4 million) generated from the Company's diverse, long-term vessel programs. The FY2015 result was enhanced by the $54.1 million contribution from the sale of Hull 270, the 102-metre trimaran stock vessel sold to ferry operator Condor.

  Austal ended FY2016 with cash at bank of $224.3 million (30 June 2015: $148.5 million) and gross debt of $(172.6) million (30 June 2015: $152.6 million). Austal paid down a further US$7.5 million in infrastructure-related, long term debt held in US dollars (Go Zone Bonds) during the year. The Company entered into a contract to construct two additional Cape Class Patrol Boats which will then be chartered by NAB to the Commonwealth of Australia (Royal Australian Navy) for a minimum term of three years with a right to sell the two vessels back to Austal at the end of the charter period for an agreed residual value. The contract is accounted for as a financing arrangement which results in the construction costs being recognised as capital expenditure and the progress payments from NAB recognised as vessel finance (debt). This vessel finance totalled $(25.8) million at 30 June 2016.

  Final Dividend & Debt Reduction

  Austal's strong cash generation from operations and net cash position has enabled the Board to declare a final FY2016 fully franked dividend of 2 cents per share and approve the repayment of a further US$7.5 million in debt (Go Zone Bonds) during FY2017 H1 with further repayments anticipated later in the financial year.

  Details of key dates regarding the dividend are:

  • Ex-dividend date: Tuesday, 13 September 2016

  • Record date: Wednesday, 14 September 2016

  • Payment date: Friday, 7 October 2016

Shareholders may reinvest dividends in accordance with the dividend reinvestment plan established in February 2015. Further details are set out later in this announcement.