AUSTAL LIMITED — Annual Report 2016

Aug 28, 2016

2016 full year results

David Singleton, Chief Executive Officer Greg Jason, Chief Financial Officer

29 August 2016

2016 highlights

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• Revenue: $1.34 billion

Financial

• EBIT: $(120.9) million

• NPAT: $(84.2) million

• Net cash: $51.7 million

• Final dividend: 2.0 cents per share fully franked

• US GZB Debt reduction: US$7.2 million

• Order book: $3.4 billion, securing work through CY2021

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2017 Outlook

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 Maturing major programs:

Operational

• Drive LCS program down the learning curve

• Cape Class Patrol Boats 9 & 10 in production at Henderson for Royal Australian Navy, delivery in FY2017 H2

• HSSV for Royal Navy of Oman nearing completion following delivery of first vessel in May 2016

• Two oil & gas support vessels to be delivered in FY2017 H1

• 6 Armidale Class Patrol Boats now likely to come to Henderson for extensive remediation

• Mols ferry will commence construction in April 2017 with a 15 month construction phase

• PPB production commencing in FY2017 H2

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FY2017 Outlook

Orders

 Pipeline:

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• Extension of US Navy programs (LCS & EPF)

• Defence vessels to Middle East

• Australian OPV contract to be bid with potential down selection in FY2017

• Commercial ferry market strengthening with 5 ferries so far signed in CY2016 and more being bid

Capital

• Cash: Continued cash generation

 Debt: Further debt reduction planned

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LCS program update

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Shock trials completed

• USS Jackson (LCS 6) successfully completed Full Ship Shock Trials in July 2016

• USS Jackson is due to re-join the US Navy in September

• Final data analysis by the US Navy may take several months

• Modification program to ships under construction is well advanced and levels of new modifications has dropped dramatically

Profitability

• Year end audit has supported guidance profitability

• Profit will be recognised conservatively in FY2017

• LCS is expected to be profitable over the remaining life of the program

Future vessels

• US Navy appears likely to place additional LCS orders in US Government fiscal year 2017

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Financials

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Earnings in line with guidance

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Income statement	FY2016 (A$m)*	FY2015 (A$m)^	Change
Revenue	1,339.9	1,414.9	(5)%
EBITDA	(91.0)	109.5	(183)%
- Underlying	65.0	97.9	(34)%
EBIT	(120.9)	85.2	(242)%
- Underlying	35.1	73.6	(52)%
NPAT	(84.2)	53.1	(258)%
- Underlying	25.0	45.0	(44)%
Reported EPS	(24.2)¢	15.5¢	(256)%

• Revenue decrease driven by write down of LCS work in progress (WIP) with FX offset

• Primary drivers of EBIT reduction:

• LCS WIP write down ($156 million in USA and $3 million in Australia)

• Lower activity in Australia following CCPB 1 – 8 and Oman HSSV

• CCPB 9 & 10 – no profit recognition in FY2016 under financing arrangement

• Warranty provision

• FY2016 underlying earnings removes the impact of a downward adjustment to revenue made to account for a change in the estimated cost to completion for the Littoral Combat Ship program

• ^ FY2015 underlying earnings removes the benefit from the foreign exchange mark-to-market revaluation of intercompany loans. Those loans were converted to equity in FY2015 H2 and have not impacted the FY2016 result.

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Segment breakdown

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($m) Ships Systems Support	Other1	Total
USA Revenue 821.4 213.9 97.8 EBIT (90.8) 2.2 6.0 EBIT Margin % (11.1) 1.0 6.2	-	1,133.0
	(8.0)	(90.5)
	-	(8.0)
Australia Revenue 139.0 - 48.0 EBIT 5.6 - 2.1 EBIT Margin % 4.0 - 4.4	-	187.1
	(1.0)	6.8
	-	3.6
Philippines Revenue 31.9 - 2.0 EBIT (4.4) - 0.7 EBIT Margin % (13.9) - 32.8	-	33.9
	-	(3.8)
	-	(11.1)

 USA: LCS work in progress write-down, support revenue grew over 100% year on year  Australia: Transition from CCPB 1-8 & RNO to new projects with zero or low profit take up  Philippines: Low throughput in FY2016

1 unallocated overhead targeting growth

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Cash and debt

Cash flow	FY2016 (A$m)	FY2015 (A$m)	Change
Operating	102.1	110.4	(8.4)
Investing	(25.0)	(21.8)	(3.2)
Financing	(1.2)	(24.1)	22.9
Net increase	75.9	64.5	11.4
Cash (Debt)	June 2016	June 2015	June 2014
Net cash (debt) ($m)	51.7	(4.2)	(71.5)
Leverage ratio	N/A	0.04	0.90

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• Strong Operating cash flow – driven by USA and Australia

• Sustaining capital of ~ $14 million plus capitalisation of $18 million of CCPB 9 & 10 under financing accounting

• Financing includes:

• ~ $(16) million of dividends paid

• ~ $(11) million of US infrastructure debt reduction

• ~ $23 million CCPB 9 & 10 finance drawn

• Strong Net Cash

• Includes CCPB 9 & 10 finance with more to be drawn in FY2017

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Discipline in long-term debt reduction

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120
114
112
Forecast
105 105
100 97
80
60
45
40
26
20
- - -
0
Dec 2014 June 2015 Dec 2015 June 2016 Dec 2016
USD US Infrastructure AUD CCPB 9 & 10
Gross debt ($millions)
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O erations u date p p

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Overview – shipbuilding programs

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• Order book of $3.4 billion at 30 June 2016 secures revenue through CY2021, including:

• 11 Littoral Combat Ships for US Navy

  • 11 funded, with 2 delivered

• 10 Expeditionary Fast Transports (formerly Joint High Speed Vessel) for US Navy Fully funded, with 7 delivered, EPF 11 & 12 have been appropriated but not contracted

• 10 Cape Class Patrol Boats for Australian Government

  • 8 vessels delivered, plus through-life support

  • 2 vessels in construction for lease to Royal Australian Navy (RAN)

• 2 High Speed Support Vessels for Royal Navy of Oman Fully funded, one delivered

• Commercial vessels

  • 2 oil & gas crew transfer vessels nearing completion

  • 5 passenger ferries on order (1 Australia, 3 Philippines and 1 China)

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LCS test programs largely complete

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• Naval vessel rules modifications incorporated

• Physical shock trials complete. Analysis by US Navy will continue.

• Modification requirement has dropped dramatically

• Financial impacts understood

• Expect residual risks reducing

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Progress across the business

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• Awarded PPBR contract

• Awarded EPF procurement contract

• Awarded support

• • Awarded additional LCS contract for LCS 8 • Awarded contract sustainment orders • USS Montgomery (LCS modification for LCS 6

• • Awarded LCS services 8) completes acceptance shock trials contract trials • USS Jackson (LCS 6)

• • Delivery of USNS • US Navy funds one • First HSSV delivered to completed full ship shock Brunswick (EPF 6) additional LCS the Royal Navy of Oman trials

January March May July 2016 February April June August

• Austal announced as • Awarded LCS post • 1 ferry export awarded, preferred tenderer for shakedown availability for China Pacific Patrol Boat contracts Replacement (PPBR) • Joint venture with

• • Awarded LCS services Jianglong Shipbuilding contract • 3 export ferries awarded,

• 3 export ferries awarded, for Philippines

• Mols Linien ferry awarded, for Henderson

• Delivery of USS Montgomery (LCS 8)

• • Delivery of USNS Carson City (EPF 7)

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US Navy – Littoral Combat Ship

• 11 ship contract awarded as prime contractor, worth approximately US$4 billion

• LCS 6 & 8 delivered

• LCS 10, 12 & 14 preparing for sea trials

• LCS 16, 18 & 20 under construction

• LCS 26 funded

• Additional 2 LCS constructed and previously delivered by Austal for GD (LCS 2 and LCS 4)

• Potential additional ship(s) to be ordered in FY2017

• US Navy supportive of 52 ship program

• Later ships (LCS 33 – 52) will be “upgunned” as fast frigate, Austal is undertaking design work to modify LCS

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US Navy – Expeditionary Fast Transport

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• 10 ship award to Austal valued at US$1.6 billion (fully funded), securing work through to CY2019

• Program progressing well – matured into a phase of efficient production and predictable delivery

• EPF 6 & 7 – delivered in FY2016

• EPF 8 – due for launch later CY2016

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• EPF 9 & 10 – under construction

• EPF 11 & 12 – long lead materials ordered (expecting full ship contracts in FY2017)

• US Navy interested in growing size and role of EPF fleet (strong potential for program expansion)

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Austal remains strongly positioned in US

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Austal-built vessels have
continued to be funded and
programs are maturing
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US Foreign Policy remains
focused on Asia-Pacific
defence strategy
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Winning service contracts on
LCS and investing in support
business to enhance
prospects for additional work
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US Navy and Congress
commitment appear to be
focused on ‘upgunning’ final
20 LCS as fast frigates and
meet 52 vessel target – rate of
acquisition to be decided by
Congress
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FY2017
Appropriation of 3 additional
LCS by Congress is likely
EPF 11 & 12 production
contract expected
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LCS variants attractive to
international market through
US Foreign Military Sales
(longer term)
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Australia & Ex ort Defence Contracts p

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Transition period in Australia

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HSSV 1
HSSV 2
CCPB 9 & 10 Charter
CCPB 9
CCPB 10
Mols
PPB 1
PPB 2
PPB 3
PPB 4
OPV 1 Design
OPV 2
OPV 3
OPV 4
CCPB ISS
ACPB Rem
2016 2017 2018 2019 2020 2021
HSSV High speed support vessels for Oman Financial Year
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HSSV High speed support vessels for Oman CCPB Cape class patrol boats for Royal Australian Navy Mols 109m Passenger and Vehicle ferry for Mols Linen in Denmark PPB Pacific Patrol Boats for Commonwealth of Australia OPV Offshore Patrol Vessels for Royal Australian Navy (prospective) CCPB ISS. Support contract for Cape Class vessels for Australian Border Force ACPB Rem Armidale remediation. Support for Royal Australian Navy.

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Design work load Australia and Philippines

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Full Time Equivalent Design personnel
120
100
80
Potential Order Intake
60
Current Design Load
Current Manpower
40
20
0
Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17
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Once in a generation opportunity – “Continuous Shipbuilding” in Australia

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Designer Build location Adelaide Submarine Adelaide Future Frigate Adelaide initial 2 vessels Henderson next 10 vessels Offshore Patrol Vessel

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Austal today is by far Australia’s largest shipbuilder

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all vessels to
Austal vessels currently under construction in Alabama approximate scale
×7 ×3
127m LCS
102m EPF
Austal vessels currently under construction in Henderson
Upcoming Australian vessels
×1
72m HSSV
×1
+ 1 more in
Philippines
×1
109m Mols
70m Oil & Gas
×
2 39m PPB-R ×19
58m Cape
ASC Air Warfare Destroyer. Size comparison
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×3
147m AWD
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Austal is Australia’s leading shipbuilding exporter

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Australian OPV
CCPB PPB-R
Defence Frigate
Defence Export CCPB Additional
Oman HSSV
exports and other Patrol HSSV
Commercial New fast ferry O&G
O&G fast crew boats
market cat & trimarans crew boats
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High Speed Support Vessels

• US$125 million contract for the design, construction and integrated logistics support of two 72 metre High Speed Support Vessels for the Royal Navy of Oman

• Construction is nearing completion at the Henderson shipyard

• HSSV 1 delivered and undergoing hot weather trials in Oman

• HSSV 2 expected to deliver late CY2016

• Deployed with a similar mission to the EPF program

• Demonstrated strategy of leveraging Austal’s intellectual property and technology to new defence markets

• Austal currently bidding additional HSSV style vessels to the Middle East

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Commercial Exports

• Renewed confidence and growing opportunity in the international commercial ferry market

• Approximately $130million in new contracts secured during CY2016:

• 109 m vehicle passenger ferry for Mols Linien to be built in Henderson

• 2 contracts for three commercial passenger ferries to be constructed in the Philippines

• Oil and Gas crew boats market promising with four vessels delivered (2 still in production) and market expansion likely

• Additional tenders underway

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Systems and Support

• Austal investing extensively in sustainment capability with new people, facilities and software

• USA:

• LCS support has commenced

• EPF may transition into OEM support

• Australia:

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• CCPB sustainment for Border Force

• PPB sustainment for Navy

• Armidale Remediation won

• Other contracts bid

• Footprint spanning Darwin, Henderson, Oman, Philippines and Singapore well positioned to support increasing regional forward deployment of LCS and EPF

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• Turnover across group up 55% year on year

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Strategy and Outlook

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Strategy

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Sustain the business

Strengthen the business

Diversify the Scale the business business

• Deliver our current programs to the high quality our customers expect from Austal

• Maintain a strong pipeline of future work for Austal’s existing businesses based upon our industry leading Defence and Commercial product portfolio

• •Improve margins through procurement and production efficiencies without impacting safety and quality

• •Invest in IT, upskilling staff, and selected infrastructure to continue to differentiate Austal’s shipbuilding model from competitors

• •Grow annuity-style revenue by expanding our global support offering for Austal-built vessels

• •Expand into selected new market segments where Austal quality and performance is a differentiator, e.g., high speed Oil & Gas crew transfer vessels

• Position Austal for a leading role in upcoming major Navy programs in Australia

• Pursue targeted organic and acquisitive growth opportunities and partnerships

Growth strategy to be supported by maturing vessel programs, significant order book, strong financial position and effective risk management

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Pipeline

United States 1 Defence

Middle East 2 Defence

Australia 3 Defence

Global 4 Commercial

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• •Strong potential to continue extending the LCS and EPF programs

• •Exports from Austal’s portfolio of aluminium high performance naval vessels including HSSV and CCPB variants

• •Steel vessels for the RAN’s fleet renewal programs; OPV, Frigate & PPB including Austal build of 3[rd] party designs

• •Many opportunities in a resurgent global high speed ferry market

• •Innovative new offering in the Oil & Gas crew transfer market

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Outlook

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LCS program to stabilise
and mature
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Export opportunities from
Australian and Philippines
shipyards demonstrated and
growing
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Good opportunity for award
of additional LCS and EPF
in addition to existing block
buy contracts
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Opportunities to continue to
grow naval support business
in Australia & USA
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Position Austal for Future
Frigate and OPV programs
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Maintain a strong cash
position to support growth
opportunities, underpin
dividends and further reduce
US infrastructure debt
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Disclaimer

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David Singleton, Chief Executive Officer

Telephone: +61 8 9410 1111

For further information visit www.austal.com

Disclaimer

This presentation and any oral presentation accompanying it has been prepared by Austal Limited (“Austal”). It should not be considered as an offer or invitation to subscribe for or purchase any securities in Austal or as an inducement to make an offer or invitation with respect to those securities. No agreement to subscribe for securities in Austal will be entered into on the basis of this presentation.

Our presentation contains “forward-looking” statements or projections based on current expectations. These statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially due to: the availability of US government funding due to budgetary or debt ceiling constraints; changes in customer priorities; additional costs or schedule revisions. Actual results may also effect the capitalization changes on earnings per share; the allowability of costs under government cost accounting divestitures or joint ventures; the timing and availability of future impact of acquisitions; the timing and availability of future government awards; economic, business and regulatory conditions and other factors. We disclaim any duty to update forward looking statements to reflect new developments.

Accordingly, to the maximum extent permitted by applicable laws, Austal makes no representation and can give no assurance, guarantee or warrant, express or implied, as to, and takes not responsibility and assumes no liability for, the authenticity, validity, accuracy, suitability or completeness of, or any errors in or omission, from any information, statement or opinion contained in this presentation.

You should not act or refrain from acting in reliance on this presentation material. This overview of Austal does not purport to be all inclusive or to contain all information which its recipients may require in order to make an informed assessment of Austal’s prospects. You should conduct your own investigation and perform your own analysis in order to satisfy yourself as to the accuracy and completeness of the information, statements and opinions contained in this presentation before making any investment decision.

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