Austal reports revenue growth in FY2020

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.