AUSTAL LIMITED — Earnings Release 2015

Aug 25, 2015

FY2015 results presentation

Andrew Bellamy, Chief Executive Officer Greg Jason, Chief Financial Officer

26 August 2015

Highlights

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• Record earnings: driven by multiple vessel programs

Financial

• Revenue: $1.4 billion

• EBIT: $84.8 million ($73.2 million underlying)

• NPAT: $53.2 million ($45.0 million underlying)

• Net debt: $6.1 million

• Final dividend: 3.0 cents per share fully franked

Operational

• Delivering on major programs: Growth in earnings from Australia operations and solid performance on JHSV project helped offset anticipated margin pressure on LCS 6

• Order book: $3.1 billion, securing work through CY2020

• Strategy: Sustain, Strengthen, Diversify and Scale the business

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Outlook
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• Pipeline: Extension of US Navy programs, variant defence vessels to Middle East, defence vessels under Australian Government's continuous shipbuilding program

• Cash: Expect net cash position by end FY2016 SHIPS  SYSTEMS  SUPPORT

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Record revenue driving performance

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Revenue (A$m) EBITDA (A$m) NPAT (A$m)
FY2014 FY2015 FY2014 FY2015 FY2014 FY2015
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1,122.9
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1,414.9
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79.3
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109.1
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31.9
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53.2
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• Record revenue, with 26.0% increase over FY2014 driven by growing work on major navy defence and patrol boat programs and relative depreciation of AUD

• Record profit, with 66.8% increase in NPAT over FY2014

• Headline earnings include some non-cash benefit from mark-to-market revaluation on intercompany loans to reflect currency movements

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Objectives for sustained growth

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Strengthen Ongoing Target operations and objectives opportunities balance sheet

• Shipbuilding margin achieved

• •

• Maintain cash Invest in R&D to grow generation to support intellectual property programs and dividends base

• Successfully applied •

• learning from first-inReduce debt class vessels

• •

• learning from first-inReduce debt Refresh product range class vessels to deliver increased • Deliver on maturing capability

• • Won new programs by programs and exploit •

• leveraging off existing learning from first in Grow long term support vessels class ships and engineering services business

• •

• Strong cash generation Extend existing program used to strengthen pipeline balance sheet Delivered Priority Focus

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Financials

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Earnings summary

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Income statement	FY2015 (A$m)*	FY2014 (A$m)^	Change
Revenue	1,414.9	1,122.9	+26.0%
EBITDA	109.1	79.3	+37.5%
- Underlying	97.4	89.1	+9.3%
EBIT	84.8	55.6	+52.6%
- Underlying	73.2	65.3	+12.0%
NPAT	53.2	31.9	+66.8%
- Underlying	45.0	38.7	+16.3%
Reported EPS	15.5¢	9.2¢	+68.5%

• Record Revenue, EBIT and NPAT

• Underlying EBIT margin fell to 5.2% (FY2014: 5.8%) reflecting impact of LCS 6 – now delivered

• Ability to grow Group earnings despite margin pressure demonstrates Austal’s evolution into a defence prime contractor delivering multiple vessel programs

• Reduced interest expense through debt reduction and lower average interest rate

Notes:

• FY2015 underlying earnings removes the benefit from the foreign exchange mark-to-market revaluation of intercompany loans

• ^ FY2014 underlying earnings removes the following one-off items: the profit on the sale of Austal’s former satellite service base and a write down on the carrying value of inventory

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Segment breakdown

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($m) Ships Systems Support	Other1	Total
USA Revenue 914.2 160.0 45.5 EBIT 59.6 2.0 4.3 EBIT Margin% 6.5 1.3 9.5	-	1,119.7
	(7.5)	58.4
	-	5.2
Australia Revenue 171.2 - 40.6 EBIT 26.3 - 5.7 EBIT Margin% 15.4 - 14.0	-	211.8
	(0.2)	31.8
	-	15.0
Philippines Revenue 29.3 - 9.4 EBIT 2.3 - (1.3) EBIT Margin% 8.0 - (14.2)	-	38.7
	-	1.0
	-	2.6

• USA: Schedule pressure on LCS 6, and a significant growth in profitability of the Support business

• Australia: Significant margin improvement from efficiencies on Cape Class Patrol Boat program

• Philippines: Delivering commercial vessels at profitable margin

1 unallocated overhead targeting growth

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Cash and debt

Cash flow	FY2015 (A$m)	FY2014 (A$m)	Change
Operating	110.4	41.6	68.8
Investing	(21.8)	19.0	(40.8)
Financing	(24.1)	(84.3)	60.2
Net increase	64.5	(23.7)	88.2
Debt	At June 2015	At June 2014	At June 2013
Net debt ($m)	(6.1)	(71.5)	(137.1)
Leverage ratio	0.06	0.90	2.19

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• Strong operating cash flow which was enhanced by the sale of Hull 270 trimaran stock vessel

• Significant reduction in Net Debt

• Maintained low sustaining capital expenditure

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Discipline in long-term debt reduction

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180
160 154
140 135
120 114
112
100
80
60
40
20
4
1 0 0
0
Dec 2013 Jun 2014 Dec 2014 Jun 2015
AUD Denominated (AUD) USD Denominated (USD)
Gross debt ($millions)
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Operations update

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Order book

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• Order book of $3.1 billion secures revenue through CY2020, including:

• 11 Littoral Combat Ships for US Navy 10 funded, with 1 delivered, funding expected in FY2016 for eleventh vessel

• 10 Joint High Speed Vessels for US Navy Fully funded, with 5 delivered

• 8 Cape Class Patrol Boats for Australian Border Force

Fully funded, with 7 delivered, plus through-life support

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

• Commercial vessels 2 high speed catamaran crew boats

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Progress across the business

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• Delivery of Cape • Delivery of Cape Jervis (CCPB 5) Leveque (CCPB 6)

• Awarded LCS • Agreement finalised contract for class with General • Delivery of Cape

• • USNS Trenton services support Dynamics Bath Iron Wessel (CCPB 7) (JHSV 5) christened • USNS Trenton Works for LCS • USS Jackson

• • Launch of Cape (JHSV 5) completes Planning Yard (LCS 6) completes Leveque (CCPB 6) acceptance trials Design Services acceptance trials January March May July 2015

• February April June August

• • Keel laid on USS • US Navy funds two • Contracts for high • Delivery of USS Omaha (LCS 12) further LCS speed crew boats Jackson (LCS 6)

• • Launch of USS • Delivery of USNS • Keel laid on USS • Delivery of both high Gabrielle Giffords Trenton (JHSV 5) Manchester speed catamaran (LCS 10) • Awarded LCS (LCS 14) ferries to Abu Dhabi contract for post • USS Gabrielle National Oil shakedown Giffords (LCS 10) Company availability support christened

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US Navy – Littoral Combat Ship

• 10 ship contract awarded as prime contractor, worth US$3.5 billion and additional 1 ship option

• Margin and schedule pressure on LCS 6, first in the block-buy contract. Austal implementing experience from LCS 6 to incrementally grow margin on subsequent vessels

• LCS 8 preparing for trials in late CY2015

• LCS 10 launched and christened

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• LCS 12, 14, 16 & 18 under construction

• LCS program expected to be 52 ships

• Later ships (LCS 33 – 52) will be “upgunned” as future frigate

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US Navy – Joint High Speed Vessel

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• 10 ship award to Austal valued at US$1.6 billion (fully funded), securing work through to CY2017

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

• JHSV 1, 2, 3, 4 & 5 – delivered

• JHSV 6 – launched & christened

• JHSV 7, 8 & 9 – under construction

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• US Navy interested in growing size and role of JHSV fleet (strong potential for program expansion), while variants are gaining traction in the Middle East

• Confident of extension to program beyond existing block buy – JHSV 11 funded by Congress (not yet contracted)

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Austal strongly positioned in US

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Austal-built vessels have
continued to be funded and
programs are maturing well
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US Foreign Policy remains
focused on Asia-Pacific
defence strategy
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US Navy committed to
upgrading final 20 LCS as
future frigates and meet 52
vessel target – rate of
acquisition to be decided by
Congress
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Option awarded to Austal on
LCS 26 (can be exercised in
CY2016), while JHSV 11
approved by Congress (yet to
be contracted)
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Winning service contracts on
LCS and investing in support
business to best position
Austal for additional work
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LCS variants attractive to
international market through
US Foreign Military Sales
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Australia – Cape Class Patrol Boats

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• $330 million contract for the design, construction and through-life support of 8 Cape Class Patrol Boats for the Australian Border Force (formerly Australian Customs and Border Protection Service)

• Program has matured significantly, delivering significant efficiency gains that drove margin expansion

• Delivered CCPB 1 to 7

• 1 remaining vessel under construction

• Opportunities exist for new contracts at home and abroad

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Australia – High Speed Support Vessels

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• US$124.9 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 progressing well at Henderson shipyard

• Completion of keel laying for both vessels in December 2014

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• Final vessel to be delivered in late CY2016

• Deployed with a similar mission to the JHSV program

• Strategy demonstrated of leveraging Austal’s intellectual property and technology to new defence markets

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Australian defence shipbuilding

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• The Federal Government's plan for a strong and sustainable naval shipbuilding industry was announced 4 August 2015

Initiative	Impact on Austal
The Government will invest over $89 billion in ships and submarines for the Navy over the next 20 years.	A large, long-term order book of work available to naval shipbuilders in Australia. Austal in a competitive position to win a large portion as Australia’s only global, prime defence contractor.
The Government will implement a continuous build of surface warships in Australia.	Replacement of project-based orders with continuous build program offers long-term operational and revenue stability and efficiencies.

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Australian defence shipbuilding

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Initiative	Impact on Austal
Bringing forward the Future Frigate programme to replace the ANZAC class frigates from 2023 to 2020. The Future Frigates will be built in South Australia based on a Competitive Evaluation Process (CEP), which will begin in October 2015.	Variant of Austal’s LCS a potential platform for future frigate. (Upgunned LCS soon to be classed as a frigate by US Navy) Early CEP provides early revenue potential if successful. Possible expansion to South Australia to utilise Common User Facility at Techport, South Australia, in response to Government’s geographic requirement for the vessels’ construction.
Bringing forward construction of Offshore Patrol Vessels (SEA1180) to replace the Armidale class patrol boats by two years, with a continuous onshore build commencing in 2018 following a Competitive Evaluation Process.	Early CEP provides early revenue potential if successful plus revenue stability through continuous build. Austal will submit a competitive proposal: • It has built all of the patrol boats for Australian Navy and Customs for the past 17 years • Company’s export competitiveness demonstrates cost competitiveness • Capacity constraints in SA may limit construction to one class of vessel (future frigate) Capability requirements of Offshore Patrol Vessel expected in Government Defence White Paper to be released later this year.

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Philippines

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• Delivered two 45 metre high speed catamaran ferries to Abu Dhabi National Oil Company in August 2015 under a $30 million design and construct contract

• Completed customisation of Hull 270 and delivered wind farm vessel to Turbine Transfers

• Commenced construction on two crew boats, to be delivered in Q3 CY2016:

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• 70 metre catamaran under US$34 million contract

• 58 metre catamaran under US$20 million contract

• Targeting new commercial vessel contracts, including fielding growing interest from the European ferry market

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Systems and Support

• Austal is steadily adding experience and capability to deliver a growing portfolio of Naval sustainment contracts

• US expanding activity beyond own vessels:

• Prime contractor for Post Shakedown Availability (PSA) and other post delivery test and trial programs on all Independence Class LCS

• Teamed with GD awarded Planning Yard services contract for the entire LCS fleet

• Australia transitioning Cape Class from construction phase to support phase, demonstrating value of Austal’s integrated design, build and sustainment products

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

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Strate and Outlook gy

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Strategy

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Sustain the business

Strengthen the business

Diversify the business

Scale the business

• Maintain current annual revenue in medium to longterm through new contracts

• Additional defence vessel contracts in existing markets

• Export variant defence vessels

• Capture new opportunities in commercial vessels

• Improve margins by driving efficiencies / productivity in procurement and labour without impacting safety and quality

• Grow annuity-style revenue by building on existing expertise, including sustainment work on Austal-built vessels

• Focus on strategic partnerships, investments in infrastructure and IT, upskilling staff, and differentiating from competitors

• Position Austal for future Navy programs in Australia

• Organic and acquisitive growth opportunities

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

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Pipeline for vessel programs

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• Pursuing opportunities to deliver on strategy by growing Austal’s order book and securing additional long-term revenue

Target markets

Vessels

• US: strong potential to extend existing LCS and JHSV programs

• Future frigate evolved from modified Littoral Combat Ship

• Australia: replacement of Navy vessels including patrol boats and future frigates under continuous shipbuilding program

• Middle East: opportunity for frigates, support vessels and patrol boats

• Europe and Asia Pacific: commercial vessels and work boats

• Joint High Speed Vessel for US Navy

• Patrol boats developed from experience with Bay, Armidale and Cape Class vessels

• Variant high speed support vessels developed from Westpac Express and JHSV

• Commercial vessels: potential new market for LNG-powered ferries and crew transfer vessels

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Outlook

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Margin improvement at US
operations as lessons learnt
from LCS 6 are applied –
greatest effect to be on
vessels at early stage
construction
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Target export opportunities
from Australia shipyard
through variant-style
defence vessels
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Good opportunity for award
of additional LCS and JHSV
in addition to existing block
buy contracts
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Pursue organic and
acquisition opportunities to
grow support business in
US, with sustainment on
vessels reaching critical
mass
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Best position Austal for
Pacific Patrol Boat
replacement, Future Frigate,
and OPV, and seek
extension of Cape Class
Patrol Boat program
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Net cash position by end of
FY2016 to support growth
opportunities and underpin
dividends
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Disclaimer

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Andrew Bellamy, 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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