AUSTAL SETS NEW REVENUE AND PROFIT RECORDS

COMPANY ANNOUNCEMENT

24 AUGUST 2020

AUSTAL SETS NEW REVENUE AND PROFIT RECORDS

FY2020 RESULTS SUMMARY:

• Revenue of $2.086 billion (FY2019: $1.851 billion), up 13%.

• EBIT of $130.4 million (FY2019: $92.8 million), up 41%.

• NPAT of $89.0 million (FY2019: $61.4 million), up 45%.

• Cash flow from operations of $164.5 million (FY2019: $164.5 million), almost identical.

• Strong net cash* position of $272.4 million, increased from $150.7 million at 30 June 2019.

• Increased final dividend of 5 cents per share (unfranked), bringing total FY2020 dividends to 8 cents per share (unfranked) (FY2019: 6.0 cents per share, unfranked).

• Good operations momentum into FY2021, with the business underpinned by multi-vessel defence programs and a secured order book of $4.3 billion running to FY2024.

• Strong financial position enabling Austal to strategically position itself to capture future steel shipbuilding opportunities in USA and Australasia and continue to grow its support business.

*  Excluding the $(40.9) million notional debt of the Cape Class Patrol Boat 9 & 10 leasing program.

Austal Limited (Austal) (ASX:ASB) has exceeded $2 billion of revenue for the first time and delivered record earnings for FY2020.

Austal Chief Executive Officer David Singleton said: “I’m delighted that Austal has generated a record full-year result amidst significant global economic volatility, exceeding the record revenue and profit milestones that we set in FY2019.

I am particularly proud of the fact that we kept all of our sites open during the pandemic, kept all of our people employed, and have been in a position to pay full time employees a bonus to reflect their exemplary performance in this difficult time.”

“The strong performance shows good operational momentum across all of our USA and Australasia operations as we constructed and delivered naval vessels and large ferries, and provided ongoing support services to the US Navy, Royal Australian Navy and the Australian Border Force.”

Austal Chief Operating Officer and CEO-designate Patrick Gregg said: “The financial results highlight the success of our ongoing strategy to grow our defence business, which now makes up approximately 88 per cent of the Group’s revenue across construction and support. The value of this is clear as we see that the broader Defence Market is strengthening and has largely been shielded from the economic impacts of COVID-19.”

“Importantly, these record earnings have translated into significant cash flow, enhancing our strong balance sheet position with $397 million of cash. This financial strength is enabling Austal to target strategic investment opportunities to drive the Company’s next phase of growth whilst at the same time increasing dividends and considering debt reductions in FY2021.”

“These opportunities include the development of a modern steel shipbuilding capability at our shipyard in Mobile, Alabama, which has already begun. This investment in steel shipbuilding will supplement our existing aluminium capability and allow Austal USA to compete for a number of new, major steel shipbuilding programs in Austal’s size range, that are expected to be tendered in the medium term.”

“There are also defence opportunities closer to home. The Commonwealth of Australia has demonstrated a commitment to defence with the $324 million contract for six Cape Class Patrol Boats awarded to Austal this year, adding to the 21-vessel Guardian Class Patrol Boat program. The recent Defence White Paper and Force Structure Plan identified more heavy steel ships to be built in Australia. In Asia, our shipbuilding facility in the Philippines also has the potential to open up defence opportunities, building on our investments in the region.”

Mr Singleton said the support business was making a growing contribution to Austal’s earnings.

“Austal’s strategic expansion of our support business has continued, achieving year over year revenue growth of 28% and almost quadrupling over the last 6 years. Revenue from Support activities now constitutes 17% of Total Revenue (FY2019: 15%). We have seen the continued development of our operations in San Diego and growth of our Singapore Service Centre to support Littoral Combat Ships deployed to the region. Our Australasia support business is also now operating well with a 10.8 ppt increase in margin to 18.4%. Total Group Support EBIT margin was 8.2% which was just above the target band of 7 – 8%” Mr Singleton said.

SEGMENT RESULTS

USA

Austal’s USA segment reported revenue of $1,603.8 million (FY2019: $1,472.7 million) and EBIT of $123.0 million (FY2019: $106.4 million). Shipbuilding margin from Austal USA was 8.1% which is an increase from 7.9% in FY2019. This performance reflects the increasingly efficient and stable production of the Littoral Combat Ship (LCS) and Expeditionary Fast Transport (EPF) programs for the US Navy. Austal successfully delivered EPF 11 (USNS Puerto Rico), LCS 22 (USS Kansas City) and LCS 24 (USS Oakland) during the period. Support work also continued to increase with the growing number of Austal designed and built vessels being commissioned and deployed by the US Navy. Support revenue was $293.0 million in FY2020, 30 per cent higher than FY2019. EBIT margin for USA Support was down in the year, largely due to timing associated with funding of certain projects and operational start up difficulties in Singapore which we do not believe will be repeated.

AUSTRALASIA

The Australasia segment reported revenue of $496.8 million (FY2019: $393.2 million), which is 24% of Total Revenue and a 26 per cent increase on FY2019. EBIT significantly improved to $30.9 million (FY2019: $11.7 million), which was a 164% increase. After 3 years of implementation activity we have now successfully completed the repositioning of our Australasia business to increase our competitiveness, reduce our cost base and set the business up for sustained profitability. Australasia growth and profitability was driven by the successful expansion of our Philippines and Vietnam shipyards, which launched their first large ferries in FY2020. This represented a significant milestone for each of those shipyards and allows the Henderson shipyard in Western Australia to focus on Defence projects, primarily for the Commonwealth of Australia. The Henderson shipyard continued to deliver the Guardian Class Patrol Boat program and was bolstered by the award of a $324 million contract during FY2020 to design and construct six Cape Class Patrol Boats (CCPB) for the Royal Australian Navy. This is the Company’s largest ever contract for a vessel construction program in Australia.

CASH AND CAPITAL MANAGEMENT

Austal’s cash at bank increased by 44% to $396.7 million (30 June 2019: $275.7 million), with a reduction in gross debt to $165.2 million (30 June 2019: $173.8 million). This resulted in the net cash position exclusive of the CCPB 9 & 10 debt increasing substantially to $272.4 million (30 June 2019: $150.7 million). The strong cash position has enabled an increase to the FY2020 Final dividend distribution to 5 cents per share (an increase of 66.7% on FY2019 H2). In addition, we are reviewing the option to repay another portion of the Go Zone Bond debt, but we will revisit this during FY2021 H1 given the current global uncertainty. Austal has committed to a significant investment in steel capability in the USA and is retaining cash whilst evaluating some significant investment opportunities for the next phase of growth.

Austal reported operating cash flow of $164.5 million (FY2019: $164.5 million). Austal has now generated more than $600 million of operating cash flow over the past seven years, demonstrating ability to deliver value from its order book over time.

FINAL DIVIDEND

Austal has declared a final unfranked dividend of 5 cents per share, bringing dividends relating to FY2020 to 8.0 cents per share (FY2019: 6.0 cents per share).

Details of key dates regarding the dividend are:

• Ex-dividend date: Tuesday, 8 September 2020

• Record date: Wednesday, 9 September 2020

• Payment date: Thursday, 22 October 2020

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

OUTLOOK

There has been limited impact from COVID-19 on Austal’s operational and financial performance to date. However, the Company is alert to the potential impact of COVID-19, with the situation remaining dynamic. Austal remains committed to the safety of its 6,800-strong workforce and ensuring that the Company continues operating safely to provide business continuity to Austal’s employees, suppliers and customers to the greatest extent possible. Whilst much has been learnt about how to manage successfully during this COVID period, the future remains unpredictable.

Austal’s $4.3 billion order book is largely comprised of defence vessel programs for the US Navy and Commonwealth of Australia, which helps shield the business from the emerging broader global economic challenges. Austal USA’s defence ship building activities have been identified as essential industries, which supports the Company’s facilities to continue to operate during the COVID-19 pandemic. In Australia the Department of Defence has also been particularly supportive towards keeping the industry running. In Australasia, Austal continues to manage commissioning and acceptance delays caused primarily by restrictions on the movement of people, and in some cases goods. Austal typically receives milestone progress payments for vessel construction, so it is not reliant on a balloon payment upon customer acceptance of a vessel.

Austal enters FY2021 with a $4.3 billion order book that will be delivered through FY2021 to FY2024. Defence orders in Australia and the USA run through FY2021 – FY2024 whilst the current commercial order book will be completed by FY2022.

The Company has resolved not to provide EBIT guidance for FY2021 given the global economic uncertainty. Austal will keep shareholders abreast of any material impacts to the business and at this stage anticipate that the next market update will be provided at the 2020 Annual General Meeting in October.

Strategically, Austal intends to invest US$100m in building modern steel shipbuilding capability in Mobile, Alabama. Development of the steel shipbuilding facility is expected to take approximately two years and will position Austal USA to bid for work in a series of significant new steel shipbuilding programs for the US Navy. The investment is being partly funded through a Defense Production Act (DPA) agreement between Austal USA and the US Department of Defense, which will fund up to US$50 million of the total investment.

In Australasia, the Henderson shipyard will remain busy with the $324 million contract for six Cape Class Patrol Boats recently awarded to Austal, adding to the 21-vessel Guardian Class Patrol Boat program. COVID-19 has the potential to impact the award of new ferry programs, however the Philippines shipyard is full with existing orders and is being supported by the Vietnam facility, where there is additional capacity following the launch of a 94 metre ferry for Trinidad and Tobago. It is too early to see how commercial orders for new vessels will be affected but we continue to work on potential programs that appear to be proceeding.

Support revenue provides a stable source of long term revenue and we anticipate that support revenue will continue to grow substantially over the next few years.

This ASX announcement has been approved and authorised for release by David Singleton, Austal Limited’s Chief Executive Officer.

-Ends-

MEDIA CONTACT

Cameron Morse / Adrian Watson

+61 (0)8 9321 8533 +61 (0)433 886 871 / +61 (0)419 040 807

cameron.morse@fticonsulting.com / adrian.watson@fticonsulting.com