AUSTAL LIMITED — Interim / Quarterly Report 2017

Feb 26, 2017

APPENDIX 4D AND HALF YEAR REPORT

AUSTAL LIMITED A.B.N. 73 009 250 266

FOR THE PERIOD ENDED 31 DECEMBER 2016

APPENDIX 4D

1. The reporting period is 1 July 2016 to 31 December 2016. The previous corresponding period is 1 July 2015 to 31 December 2015. Both of these periods were prepared in accordance with AASB 134 Interim Financial Reporting. The information contained in this document should be read in conjunction with the Austal Limited FY2016 Annual Report.

2.	Results	for announcement to the market.			A$'000
	2.1	Revenue from ordinary activities		down 13.1% to	649,234
	2.2	Profit (loss) from ordinary activities after tax attributable	to members	down 44.1% to	9,345
	2.3	Net profit (loss) for the period attributable to members		down 44.1% to	9,345
	2.4	Dividend distributions			6,968
		The directors declared a fully franked dividend of 2 cents	per share
	2.5	Record date for determining entitlements to the dividends:			14 September 2016
	2.6	Explanation of figures in 2.1 to 2.4 that may be required.	Refer to
		attached half year report page 2.
3.	Net tangible assets per ordinary security:
		Current period (cents / share)			135.3
		Previous corresponding period (cents / share)			160.1
4.	Control	gained or lost over entities during the period			N/A
5.	Details	of dividends or distributions:	As per Appendix 3A.1 lodged 28 August 2016.
6.	Details	of dividend or distribution reinvestment plans:	As per announcement to ASX lodged		on 28 August 2016.
7.	Details	of associates and joint venture entities:
		Austal Holdings China Pty Ltd, a subsidiary of Austal Limited, acquired a 40% ownership interest in a joint venture
		with Jianglong Shipbuilding Company in Aulong Shipbuilding Co. Ltd during the period ended			31 December 2016.
		The aim of the joint venture is to pursue commercial passenger and non-military vessel opportunities in mainland
		China.

1. Accounting standards used by foreign entities

The financial statements of subsidiaries are prepared using consistent accounting policies for the same reporting period as the parent company. The foreign entities including Austal USA prepare their accounts under accounting standards that are equivalent to International Financial Reporting Standards.

1. Qualifications of review No qualifications

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AUSTAL LIMITED 31 DECEMBER 2016 HALF YEAR REPORT

Contents

Contents .................................................................................................................................................................... 1 Directors’ report ....................................................................................................................................................... 2 Auditor independence ............................................................................................................................................. 6 Consolidated statement of profit and loss and other comprehensive income for the half-year ended 31 December 2016 .................................................................................................................................................... 7 Consolidated statement of financial position as at 31 December 2016 ............................................................... 8 Consolidated statement of changes in equity for the half-year ended 31 December 2016 ............................... 9 Consolidated statement of cash flows for the half-year ended 31 December 2016 ......................................... 10 Notes to the financial statements for the half-year ended 31 December 2016 ................................................. 11 Directors’ Declaration ............................................................................................................................................ 25

Independent review report to the members of Austal Limited .......................................................................... 26

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1 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Directors’ report

It is my pleasure to present the financial report for the half-year ended 31 December 2016 to you on behalf of the Board of Austal Limited.

Directors

The directors in office during the half-year and until the date of this report were:

John Rothwell (Chairman) David Singleton (Chief Executive Officer) Giles Everist Jim McDowell

Principal Activities

The principal activities of entities within the consolidated entity during the financial half-year were the design, manufacture and support of high performance vessels. These activities are unchanged from the previous reporting period.

Results

Austal reported a Net Profit After Tax (NPAT) of $9.345 million for the half-year ended 31 December 2016 compared with a NPAT for the prior corresponding period (PCP – half-year ended 31 December 2015) of $16.810 million.

FY2017 H1 revenue was $649.234 million which is 13.1 per cent lower than the PCP (FY2016 H1: $747.396 million).

The Group Profit Before Tax (PBT) for FY2017 H1 was $15.045 million compared with $26.758 million for the PCP.

Earnings Before Interest and Tax (EBIT) was $18.079 million (FY2016 H1: $29.041 million). The primary driver of the reduction in EBIT from the PCP was the inclusion of a $(13.154) million non-recurring provision for full and final settlement of arbitration relating to a latent defect in a vessel delivered in CY2010 that was booked in FY2017 H1.

$(43.844) million of Operating cash flow was recognised in the period (FY2016 H1: $51.773 million). The negative operating cash flow was primarily driven by working capital movements in the USA. A reduction in Debtors more than offset a pay down of Creditors whilst there was a significant build-up of work in progress in the USA as major projects were advanced and one vessel was delivered just prior to the end of the half.

$5.895 million cash (net of participation in the dividend reinvestment plan) was returned to shareholders via a fully franked dividend and US$7.500 million of cash was applied to the repayment of Go Zone Bonds. Austal finished the period in a net debt position of $(32.627) million which included $(45.465) million of debt related to the Cape Class Patrol Boats 9 & 10 financing arrangement.

2 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Reconciliation of EBIT and EBITDA (unaudited)

Profit before income tax Finance costs Finance income EBIT Depreciation Amortisation EBITDA	31 December 2016 31 December 2015 $’000 $’000 15,045 $ 26,758 $ 3,762 $ 2,581 $ (728) (298) 18,079 $ 29,041 $ 14,694 $ 12,099 $ 555 647 33,328 $ 41,787 $

Non-IFRS measures

Austal uses a number of non-IFRS measures to assess performance. Non-IFRS measures are defined as follows:

• EBIT – earnings before interest and tax

• EBITDA – earnings before interest, tax, depreciation and amortisation

The information is unaudited but is extracted from the financial statements which have been reviewed by the auditors of the Group. EBIT and EBITDA are used by management to understand operating performance of the Group.

Review of Operations

USA Operations

USA Revenue decreased across the period with a 6.9 per cent decrease from the PCP to $594.277 million (FY2016 H1: $638.435 million).

The decrease in revenue was driven by lower production activity resulting from the decline in order intake from 2 LCS up to FY2015 to 1 LCS in FY2016.

USA EBIT was $41.115 million (FY2016 H1: $26.867 million) and total segment EBIT margin was 6.9 per cent (FY2016 H1: 4.2 per cent). The segment result is a weighted average of shipbuilding, systems and support activities.

Construction progressed on two Expeditionary Fast Transports (EPF 8 and 9) in FY2017 H1, following the delivery of EPF 7, USNS Carson City, on 24 June 2016. EPF 2, USNS Choctaw County was deployed to the US Fifth Fleet in Bahrain during FY2017 H1.

EPF 8 USNS Yuma was christened in August and subsequently launched in September 2016. Full contracts and orders were received from the US Navy for EPF 11 (the future USNS Puerto Rico) and EPF 12 (to be named) in September 2016.

Seven Independence-variant LCS were under construction during FY2017 H1, LCS 10, 12, 14, 16, 18, 20 and 22. USS Montgomery (LCS 8) was commissioned on 10 September 2016, following its delivery on 23 June 2016, whilst USS Gabrielle Giffords (LCS 10) was delivered on 24 December 2016. LCS 12 and 14 are being prepared for sea trials in CY2017. USS Coronado (LCS 4) was deployed to the US Seventh Fleet and arrived in Singapore during FY2017 H1.

Funding for LCS 26, to be named USS Mobile was appropriated in CY2016, which was added as an option to the original contract for 10-vessels in FY2016.

Austal USA was awarded a US$11.239 million cost-plus-fixed-fee contract from the US Navy in July 2016 to provide emergent availability planning and full ship shock trials (FSST) support for tests to be conducted on LCS USS Jackson (LCS 6). The ship successfully completed the third FSST during FY2017 H1, including a series of rigorous tests designed to demonstrate the ship’s ability to withstand the effects of nearby underwater explosions and retain required capability. Austal USA is currently tendering for a further 13 LCS, with the award of at least one LCS expected during CY2017.

3 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Australia Operations

Revenue in the Australia operations was 55.1 per cent lower than the PCP at $47.386 million (FY2016 H1: $105.631 million). EBIT was $1.744 million (FY2016 H1 EBIT profit: $11.304 million) and the EBIT margin was 3.7 per cent (FY2016 H1: 10.7 per cent) which was consistent with expectations.

The down turn in profit was a result of:

• The ramp down of production activities for the two Royal Navy of Oman High Speed Support Vessels with the first vessel delivered during FY2016 H2 and the second vessel delivered in FY2017 H1.

• Construction of Cape Class Patrol Boats 9 & 10 without any profit contribution due to the financing arrangement whereby charter income will be recognised over an initial term of 3 years.

• The Pacific Patrol Boat and Mols Linien ferry projects being in the design phase and hence not contributing to EBIT generation.

Major production activity during the period included progress on Cape Class Patrol Boats (CCPB) 9 and 10 for the Royal Australian Navy, the completion and delivery of the second of two 72 metre High Speed Support Vessels (HSSV), the RNOV Al Naasir, for the Royal Navy of Oman and the completion of a 70 metre high speed crew transfer vessel for Caspian Marine Services in Azerbaijan.

Construction of the Danish Mols Linien vessel is due to commence during FY2017 H2 at the Henderson shipyard. The contract for the new 109 metre high speed vehicle passenger ferry, valued at ~ A$100 million, was awarded on 24 June 2016, following a competitive, international tender.

Sustainment activity included the continuation of servicing and support for the 8 vessel CCPB fleet, operated by the Australian Border Force and Royal Australian Navy throughout Northern Australia. Austal was also awarded a contract in October 2016 to deliver mid-life remediation works for up to seven Armidale Class Patrol Boats for the Royal Australian Navy; works commenced in October and continue through CY2017.

Philippines Operations

The Philippines Operations generated revenue of $12.724 million (FY2016 H1: $16.290 million) and an EBIT loss of $(2.819) million (FY2016 H1: $0.574 million).

A 57 metre offshore crew transfer vessel for Swire Pacific Offshore was completed and delivered in November 2016. The contract was onerous and hence did not contribute to profit generation during the half.

Construction of one 50 metre high speed passenger ferry for Seaspovill of South Korea, and two 30 metre high speed passenger ferries for 2Go of the Philippines commenced during FY2017 H1 however the production level generated from order intake was below full capacity and inadequate to generate a profit.

The pipeline of opportunities in target markets has been stronger in the past twelve months than in the previous 7 years and hence a return to profitability is anticipated over the next twelve months.

A $22 million contract to design and build one 56 metre high speed passenger ferry for FRS of Germany was awarded to Austal in December 2016. Construction is due to commence in FY2017 H2, with delivery scheduled for March 2018.

Dividend

The Board declared a fully franked dividend of 2 cents per share on 28 August 2016, compared to a dividend of 3 cents per share on 27 August 2015 in the previous corresponding period. The dividend was paid to shareholders on 7 October 2016. A further fully franked interim dividend of 2 cents per share has been declared.

4 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Rounding of Amounts

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Group under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which the instrument applies.

Auditor’s Declaration of Independence

Austal has obtained an independence declaration from its auditors, Ernst & Young, which is on page 6 and forms part of the Directors’ Report.

This report has been made in accordance with a resolution of directors.

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John Rothwell

Chairman 24 February 2017

5 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Auditor independence

The Directors received the following declaration from the auditor of Austal Limited.

Ernst & Young Tel: +61 8 9429 2222 11 Mounts Bay Road Fax: +61 8 9429 2436 Perth WA 6000 Australia ey.com/au GPO Box M939 Perth WA 6843

Auditor’s Independence Declaration to the Directors of Austal Limited

As lead auditor for the review of Austal Limited for the half-year ended 31 December 2016, I declare to the best of my knowledge and belief, there have been:

a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

b) no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Austal Limited and the entities it controlled during the financial period.

Ernst & Young

Robert A Kirkby Partner 24 February 2017

6 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Consolidated statement of profit and loss and other comprehensive income for the half-year ended 31 December 2016

Profit and loss Revenue Cost of sales Gross Profit Other income and expense Administration expenses Marketing expenses Finance costs Profit before income tax Income tax expense Profit after tax Profit attributable to: Owners of the parent Non-controlling interests Total Other comprehensive income Amounts that may subsequently be reclassified to profit and loss: Cash flow hedges: - (Loss) / gain on cash flow hedges taken to equity - Loss / (gain) recycled out of equity - Income tax benefit / (expense) - Net Foreign currency translations: - Gain taken to equity - Income tax benefit / (expense) - Net Asset Revaluation Reserve: - Gain taken to equity - Income tax benefit / (expense) - Net Other comprehensive income for the period, net of tax Total comprehensive income for the period Total comprehensive income attributable to: Owners of the parent Non-controlling interests Total Earnings per share (cents per share) - basic for the period attributable to ordinary equity holders of the parent - diluted for the period attributable to ordinary equity holders of the parent	Notes 4 4 4	31 December 2016 ’000 $ 649,234 (592,653) $ 56,581 $ (4,078) (26,379) (7,317) (3,762) $ 15,045 $ (5,700) $ 9,345 $ 9,345 - $ 9,345 $ 556 2,680 (959) $ 2,277 $ 11,999 (46) $ 11,953 $ - - $ - $ 14,230 $ 23,575 $ 23,575 - $ 23,575 cents/share 2.7 2.6	31 December 2015 ’000
			$ 747,396 (691,431)
			$ 55,965 $ 10,646 (30,486) (6,786) (2,581)
			$ 26,758 $ (9,948)
	11
			$ 16,810
			$ 16,711
			99
			$ 16,810
			$ (6,330) 9,825 (1,162)
			$ 2,333 $ 21,045 (19)
			$ 21,026 $ 29,667 (10,710)
			$ 18,957
			$ 42,316
			$ 59,126
			$ 59,027
			99
			$ 59,126
			cents/share
			4.8 4.7

The Consolidated statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes.

7 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Consolidated statement of financial position as at 31 December 2016

Assets Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Income tax receivable Derivatives Assets held for sale Total Non - Current Assets Other financial assets Investment in joint venture Derivatives Property, plant and equipment Intangible assets and goodwill Deferred tax assets Total Total Assets Liabilities Current Liabilities Trade and other payables Derivatives Interest bearing loans and borrowings Provisions Deferred grant income Income tax payable Progress payments received in advance Total Non - Current Liabilities Derivatives Interest bearing loans and borrowings Provisions Deferred grant income Total Total Liabilities Net Assets Equity Contributed equity Reserves Retained earnings Total Equity	Notes 12 6 7 6 6 8 6 8 9	31 December 2016 30 June 2016 ’000 ’000 $ 153,468 $ 224,318 37,427 128,340 232,095 108,974 5,852 5,408 14,686 - 316 147 2,908 2,908 $ 446,752 $ 470,095 $ 9,190 $ 7,638 280 - 1,944 340 522,064 490,798 8,946 9,296 19,003 34,959 $ 561,427 $ 543,031 $ 1,008,179 $ 1,013,126 $ (168,611) $ (229,774) (7,528) (10,690) (2,662) (2,545) (58,548) (42,291) (8,637) (8,543) (3,437) (98) (22,589) (12,812) $ (272,012) $ (306,753) $ (5,827) $ (5,712) (183,433) (170,066) (1,082) (1,052) (70,008) (71,991) $ (260,350) $ (248,821) $ (532,362) $ (555,574) $ 475,817 $ 457,552 $ 115,890 $ 114,738 111,303 100,672 248,624 242,142 $ 475,817 $ 457,552

The Consolidated statement of financial position should be read in conjunction with the accompanying notes.

8 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Consolidated statement of changes in equity for the half-year ended 31 December 2016

Equity as at 1 July 2015 Comprehensive income Profit for the period Other comprehensive income Total Other equity transactions Shares issued Dividends declared Acquisition of minority stake Vesting performance rights Share based payments expense Total Equity as at 31 December 2015 Equity as at 1 July 2016 Comprehensive income Profit for the period Other comprehensive income Total Other equity transactions Shares issued Dividends Repayment of shareholder loans Transfer of reserves2 Share based payments expense Total Equity as at 31 December 2016	Foreign Currency Employee Cash flow Common Asset Issued Reserved Retained Translation Benefits Hedge Control Reval'n Capital Shares1 Earnings Reserve Reserve Reserve Reserve Reserve ’000 ’000 ’000 ’000 ’000 ’000 ’000 ’000 121,753 $ (9,230) $ 343,798 $ 63,676 $ 6,016 $ (19,678) $ (15,925) $ 21,757 $ - $ - $ 16,711 $ - $ - $ - $ - $ - $ - - - 21,026 - 2,333 - 18,957 - $ - $ 16,711 $ 21,026 $ - $ 2,333 $ - $ 18,957 $ 541 $ - $ - $ - $ - $ - $ - $ - $ - - (10,423) - - - - - - - - - - - (1,669) - 378 - - - (378) - - - - - - - 132 - - - 919 $ - $ (10,423) $ - $ (246) $ - $ (1,669) $ - $ 122,672 $ (9,230) $ 350,086 $ 84,702 $ 5,770 $ (17,345) $ (17,594) $ 40,714 $ 123,739 $ (9,001) $ 242,142 $ 77,978 $ 6,434 $ (6,860) $ (17,594) $ 40,714 $ - $ - $ 9,345 $ - $ - $ - $ - $ - $ - - - 11,953 - 2,277 - - - $ - $ 9,345 $ 11,953 $ - $ 2,277 $ - $ - $ 1,073 $ - $ - $ - $ - $ - $ - $ - $ - - (6,968) - - - - - - 79 - - - - - - - - 4,105 - (4,105) - - - - - - - 506 - - - 1,073 $ 79 $ (2,863) $ - $ (3,599) $ - $ - $ - $ 124,812 $ (8,922) $ 248,624 $ 89,931 $ 2,835 $ (4,583) $ (17,594) $ 40,714 $	Total ’000 512,167 $ 16,711 $ 42,316 59,027 $ 541 $ (10,423) (1,669) - 132 (11,419) $ 559,775 $ 457,552 $ 9,345 $ 14,230 23,575 $ 1,073 $ (6,968) 79 - 506 (5,310) $ 475,817 $	Non Controlling Total Interest Equity ’000 ’000 232 $ 512,399 $ 99 $ 16,810 $ - 42,316 99 $ 59,126 $ - $ 541 $ - (10,423) (331) (2,000) - - - 132 (331) $ (11,750) $ - $ 559,775 $ - $ 457,552 $ - $ 9,345 $ - 14,230 - $ 23,575 $ - $ 1,073 $ - (6,968) - 79 - - - 506 - $ (5,310) $ - $ 475,817 $

1. Reserved Shares are in relation to the Austal Group Management Share Plan

2. Transfer of completed unvested equity benefit schemes, which had not met their respective performance criteria, to Retained Earnings.

The Consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

9 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Consolidated statement of cash flows for the half-year ended 31 December 2016

Notes Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received 4 Interest paid Income tax refunded / (paid) Net cash from operating activities Cash flows from investing activities Receipts of Infrastructure government grants Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Purchase of intangible assets Construction of Cape Class Patrol Boats 9 & 10 Investment in joint venture 7 Net cash used in investing activities Cash flows from financing activities Repayment of borrowings Loan origination fees Loans received Dividends paid Net cash used in financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents Cash and cash equivalents at beginning of year Net foreign exchange differences Net increase in cash and cash equivalents Cash and cash equivalents at end of the period 12

31 December 2016 31 December 2015 ’000 ’000 $ 627,186 $ 815,584 (671,528) (744,435) 728 298 (2,322) (2,067) 2,092 (17,607) $ (43,844) $ 51,773 $ - $ 9,149 155 234 (2,533) (11,052) (133) (740) (30,003) - (280) - $ (32,794) $ (2,409) $ (11,657) $ (9,707) - (2,624) 18,900 - (5,895) (9,882) $ 1,348 $ (22,213) $ (75,290) $ 27,151 $ 224,318 $ 148,468 4,440 5,852 (75,290) 27,151 $153,468 $181,471

The Consolidated statement of cash flows should be read in conjunction with the accompanying notes.

10 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Notes to the financial statements for the half-year ended 31 December 2016

Note 1 Corporate information

The Half-Year Financial Report of Austal Limited and its controlled entities (the Company or Group) for the period ended 31 December 2016 was authorised for issue in accordance with a resolution of the directors on 24 February 2017.

Austal Limited is a company limited by shares, incorporated and domiciled in Australia whose shares are publicly traded on the Australian stock exchange.

Note 2 Basis of preparation

The Half-Year Financial Report is a general purpose condensed financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and AASB 134 “Interim Financial Reporting”.

The Half-Year Financial Report does not include all of the notes of the type normally included within the Annual Financial Report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the Annual Financial Report.

The Half-Year Financial Report should be read in conjunction with the Annual Financial Report of Austal Limited at 30 June 2016 and considered together with any public announcements made by Austal Limited and its controlled entities during the half-year ended 31 December 2016 in accordance with the continuous disclosure obligations arising under the Corporations Act 2001 and Australian Stock Exchange Listing Rules.

The Half-Year Financial Report has been prepared using the same accounting policies as used in the Annual Financial Report for the year ended 30 June 2016. The Group has adopted all of the mandatory Standards and Interpretations for annual reporting periods beginning 1 July 2016. The new standards applied during the period are set out below.

The Group has adopted all of the mandatory Standards and Interpretations for annual reporting periods beginning 1 July 2016. The new standards applied during the period had no impact on the Group’s financial position or performance.

11 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Note 3 Operating segments

Half-Year ended 31 December 2016 Revenues External customers Inter-segment Finance income Total Segment result EBIT Finance income Finance expenses Total Balance Sheet Segment Assets Segment Liabilities Half-Year ended 31 December 2015 Revenues External customers Inter-segment Finance income Total Segment result EBIT Finance income Finance expenses Total Balance Sheet as at 30 June 2016 Segment Assets Segment Liabilities

Elimination / Australia USA Philippines Unallocated Adjustments Total ’000 ’000 ’000 ’000 ’000 ’000 40,065 $ 594,277 $ 12,724 $ 1,395 $ 45 $ 648,506 $ 7,321 - - - (7,321) - - - - 728 - 728 47,386 $ 594,277 $ 12,724 $ 2,123 $ (7,276) $ 649,234 $ 1,744 $ 41,115 $ (2,819) $ (21,912) $ (49) $ 18,079 $ - - - 728 - 728 - - - (3,762) - (3,762) 1,744 $ 41,115 $ (2,819) $ (24,946) $ (49) $ 15,045 $ 113,587 $ 736,511 $ 30,535 $ 142,016 $ (14,470) $ 1,008,179 $ (77,192) (394,239) (15,292) (21,985) (23,654) (532,362) Elimination / Australia USA Philippines Unallocated Adjustments Total ’000 ’000 ’000 ’000 ’000 ’000 95,761 $ 638,435 $ 11,813 $ 3,490 $ (2,401) $ 747,098 $ 9,870 - 4,477 - (14,347) - - - - 298 - 298 105,631 $ 638,435 $ 16,290 $ 3,788 $ (16,748) $ 747,396 $ 11,304 $ 26,867 $ 574 $ (7,283) $ (2,421) $ 29,041 $ - - - 298 - 298 - - - (2,581) - (2,581) 11,304 $ 26,867 $ 574 $ (9,566) $ (2,421) $ 26,758 $ 87,054 $ 770,286 $ 24,509 $ 166,286 $ (35,009) $ 1,013,126 $ (47,738) (456,563) (6,599) (9,781) (34,893) (555,574)

Inter-segment revenues, investments, receivables and payables are eliminated on consolidation.

12 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

• i Identification of reportable segments

The Group is organised into three business segments for management purposes based on the location of the production facilities, related sales regions and types of activity.

The Chief Executive Officer, who is the Chief Operating Decision Maker (CODM), monitors the performance of the business segments separately for the purpose of making decisions about resources to be allocated and of assessing performance. Segment performance is evaluated based on operating profit or loss. Finance costs, finance income and income tax are managed on a Group basis.

ii Reportable segments

The reportable segments are Australia, USA and Philippines.

1. Australia

The Australia business manufactures high performance vessels for markets worldwide, excluding the USA and provides training and on-going support and maintenance for high performance vessels.

1. USA

The USA manufactures high performance aluminium defence vessels for the US Navy and provides training and on-going support and maintenance of these performance vessels for the US Navy.

1. Philippines

The Philippines business manufactures high performance aluminium commercial vessels for global markets excluding the USA.

iii Accounting policies and inter-segment transactions

The accounting policies used for reporting segments internally are the same as those utilised for reporting the accounts of the Group.

Inter-entity sales are recognised based on an arm’s length pricing structure.

iv Unallocated

The key assets included in unallocated are Cash $64.312 million, Property Plant & Equipment $38.187 million, Deferred Tax Assets $18.780 million, and Income Tax Receivable $14.686 million.

The key liabilities included in unallocated are Provisions ($15.755) million and Income Tax Payable ($3.437) million.

The key profit before income tax items in unallocated are Corporate Overheads of ($14.208) million, and the commercial settlement of arbitration proceedings arising from warranty defects by payment of ($13.154) million (denominated in Euro) including legal costs. Refer to Note 13 for further information.

13 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Note 4 Revenue and expenses

Profit before income tax expense from continuing operations includes the following revenues and expenses whose disclosure is relevant in explaining the performance of the entity:

Note 5 Dividends (i) Revenue Vessel construction and support Charter vessels Finance income Total (ii) Cost of sales Vessel construction and support Charter vessels Total (iii) Other income and expenses Net foreign exchange gains Government grants Settlement of warranty defects Sale of scrap Other income Other expenses Total (iv) Depreciation and amortisation Depreciation Amortisation Total Dividends Fully franked dividend: 2 cents per share (FY2016 H1: 3 c	31 December 2016 ’000	31 December 2015 ’000 $ 731,973 15,125 298 $ 747,396 $ (679,537) (11,894) $ (691,431) $ 2,232 6,063 - 1,930 422 (1) $ 10,646 $ (12,099) (647) $ (12,746) 31 December 2016 31 December 2015 ’000 ’000 6,968 $ 10,423 $
	$ 647,955 551 728
	$ 649,234
	$ (592,227) (426)
	$ (592,653)
	$ 682 6,495 (13,154) 1,948 244 (293)
	$ (4,078)
	$ (14,694) (555)
	$ (15,249)
	ents per share)

The dividend has been declared and paid on ordinary shares only.

14 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Note 6

Financial instruments

An overview of financial instruments other than cash and short-term deposits held by the Group at 31 December 2016 is set out below:

Financial assets Current Trade and other receivables Derivatives Total Non-current Derivatives Total Total Financial liabilities Current Finance leases Trade and other payables Derivatives Total Non-current Finance leases Go Zone Bonds Vessel finance for Cape Class Patrol Boats 9 & 10 Derivatives Total Total	31 December 2016 Loans and receivables $’000 37,427 $ - 37,427 $ - $ - $ 37,427 $ (2,662) $ (168,611) - (171,273) $ (7,035) $ (130,933) (45,465) - (183,433) $ (354,706) $	31 December 2016 Fair value in other comprehensive income $’000 - $ 316 316 $ 1,944 $ 1,944 $ 2,260 $ - $ - (7,528) (7,528) $ - $ - - (5,827) (5,827) $ (13,355) $		30 June 2016 30 June 2016 Loans and receivables Fair value in other comprehensive income $’000 $’000 128,340 $ - $ - 147 128,340 $ 147 $ - $ 340 $ - $ 340 $ 128,340 $ 487 $ (2,545) $ - $ (229,774) - (10,690) (10,690) (243,009) $ (10,690) $ (8,110) $ - $ (136,113) - (25,843) - - (5,712) (170,066) $ (5,712) $ (413,075) $ (16,402) $

Instruments allocated to the column ‘fair value in other comprehensive income’ are derivative financial instruments designated as cash flow hedges, and represents the full value of those derivative financial instruments. No other financial instruments have their movement in fair value recognised within the profit and loss.

• i Cash flow hedges for currency risks

Austal designated foreign currency forward contracts as hedges of highly probable purchases and receipts in USD, EUR, NOK, SEK, DKK, GBP and CNH from suppliers and customers in the United States, Europe, Norway, the United Kingdom and Denmark, respectively. The forecast purchases and receipts are expected to occur from the date of this report through to June 2020.

15 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

ii Fair values

A comparison of the carrying amounts and fair values of financial instruments as at 31 December 2016 is set out below:

Financial assets Current Cash and cash equivalents Trade and other receivables Derivatives Total Non-current Other financial assets Derivatives Total Total Financial liabilities Current Finance leases Trade and other payables Derivatives Total Non-current Finance leases Go Zone bonds Vessel finance for Cape Class Patrol Boats 9 & 10 Derivatives Total Total	31 December 2016 Carrying amount $’000 153,468 $ 37,427 316 191,211 $ 9,190 $ 1,944 11,134 $ 202,345 $ (2,662) $ (168,611) (7,528) (178,801) $ (7,035) $ (130,933) (45,465) (5,827) (189,260) $ (368,061) $	31 December 2016 Fair value $’000 153,468 $ 37,427 316 191,211 $ 9,190 $ 1,944 11,134 $ 202,345 $ (2,662) $ (168,611) (7,528) (178,801) $ (7,035) $ (130,933) (45,465) (5,827) (189,260) $ (368,061) $		30 June 2016 30 June 2016 Carrying amount Fair value $’000 $’000 224,318 $ 224,318 $ 128,340 128,340 147 147 352,805 $ 352,805 $ 7,638 $ 7,638 $ 340 340 7,978 $ 7,978 $ 360,783 $ 360,783 $ (2,545) $ (2,545) $ (229,774) (229,774) (10,690) (10,690) (243,009) $ (243,009) $ (8,110) $ (8,110) $ (136,113) (136,113) (25,843) (25,843) (5,712) (5,712) (175,778) $ (175,778) $ (418,787) $ (418,787) $

iii Fair value hierarchy

All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 — Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities.

Level 2 — Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable).

Level 3 — Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable).

The Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation for financial instruments that are recognised at fair value on a recurring basis (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

There were no transfers between any of the levels for recurring fair value measurements during the year.

16 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

The Group held the following classes of financial instruments measured at fair value at 31 December 2016:

31 December 2016 Financial assets Derivatives Total Financial liabilities Derivatives Total 30 June 2016 Financial assets Derivatives Total Financial liabilities Derivatives Total	Level 1 $’000 - $ - $ - $ - $ - $ - $ - $ - $	Level 2 $’000 2,260 $ 2,260 $ (13,355) $ (13,355) $ 487 $ 487 $ (16,402) $ (16,402) $	Level 3 $’000 - $ - $ - $ - $ - $ - $ - $ - $	Total $’000
				2,260 $
				2,260 $
				(13,355) $
				(13,355) $
				487 $
				487 $
				(16,402) $
				(16,402) $

iv Valuation techniques

The Group enters into derivative financial instruments including forward exchange contracts and currency swaps, with counterparty banks with investment grade credit ratings. Derivatives are valued using techniques with market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves and forward rate curves of the underlying currency.

The fair value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value.

Note 7 Investment in joint venture

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----- Start of picture text -----

31 December 2016 31 December 2015
’000 ’000
Investment in joint venture
Investment in Aulong joint venture $ 280 $ -
----- End of picture text -----

The investment in Aulong joint venture represents the Group's 40% interest in the Chinese joint venture, Aulong Shipbuilding Co Ltd. The remaining 60% of the joint venture is held by Chinese company Jianglong Shipbuilding Co Ltd.

17 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Note 8 Interest bearing loans and borrowings

Current Finance leases Total Non - Current Finance leases Go Zone Bonds Vessel finance for Cape Class Patrol Boats 9 & 10 Total Total	31 December 2016 30 June 2016 ’000 ’000 (2,662) $ (2,545) $ (2,662) $ (2,545) $ (7,035) $ (8,110) $ (130,933) (136,113) (45,465) (25,843) (183,433) $ (170,066) $ (186,095) $ (172,611) $

• i Finance leases

Austal USA entered into finance leases to fund mobile equipment and a plot of land in Mobile, Alabama, USA. The leases entered into in late FY2015 have a term of 5 years each, and the following average interest rates were incurred in FY2017 H1:

• mobile equipment 1.75%

• land 1.50%

• ii Go Zone Bonds

The Gulf Opportunity Zone Bonds (Go Zone Bonds or GZB) are a form of indebtedness that was authorised by the US Federal Government to incentivise private investment in infrastructure in geographical areas that were affected by Hurricane Katrina in 2005. Austal qualified to borrow US$225.000 million with a 30 year maturity to invest in the development of shipbuilding infrastructure in Austal USA between FY2008 & FY2013.

Go Zone Bonds are tax-exempt municipal bonds in the United States and attracted an average coupon rate of 0.62% in FY2017. GZB bondholders are secured by letters of credit issued by Austal’s banking syndicate with a maturity date of 18 November 2018. The average cost of the letters of credit in FY2017 H1 was 1.57%.

Austal has redeemed (repaid) a cumulative amount of ~ US$128 million of GZB funds and owes US$97.1 million at 31 December 2016.

Austal has the option of redeeming the outstanding GZB balance, in whole or in part, at any time during the term of the indebtedness with a 30 day notice to bondholders.

Austal re-financed the Syndicated Facility in November 2015 and extended the letters of credit securing the GZB by a minimum term of three years.

iii Vessel finance for Cape Class Patrol Boats 9 & 10

Austal entered into a finance arrangement with National Australia Bank (NAB) and the Australian Border Force for the construction of two Cape Class Patrol Boats (9 & 10) in December 2015. The arrangement is such that NAB finances the construction of the vessels and will lease them to the Australian Border Force for an initial 3 year term. The contract contains an option for NAB to sell the vessels back to Austal at the end of the 3 year term at an option price equal to the residual value of $21.843 million per vessel, however extensions or a future sale of the two vessels are probable. The notional effective interest rate incurred in FY2017 H1 for accounting purposes was 3.5%. No cash interest was or is actually payable on the debt.

18 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Note 9 Contributed equity

Ordinary Shares on Issue Opening Shares issued during the year(i) Closing Reserved Shares Opening Movement in Reserved Shares(ii) Closing Net	Shar	es 30 June 2016 346,923,451 1,469,998 348,393,449 (4,015,539) - (4,015,539) 344,377,910		’000
	31 December 2016 348,393,449 705,814 349,099,263 (4,015,539) - (4,015,539) 345,083,724			31 December 2016 30 June 2016 123,739 $ 121,753 $ 1,073 1,986 124,812 $ 123,739 $ (9,001) $ (9,230) $ 79 229 (8,922) $ (9,001) $ 115,890 $ 114,738 $

• (i) The following shares were issued during the period ended 31 December 2016:

• a. 705,814 shares were issued as part of the Group’s Dividend Reinvestment Plan on 21 October 2016.

(ii) The movement in Reserved Shares relates to the payment of dividends to the Austal Group Management Share Plan (AGMSP). Refer to Note 30 in the FY2016 Annual Report for further information regarding the AGMSP.

19 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Note 10 Share based payments

• i FY2014 and FY2015 Long Term Incentive (LTI) measurement period extension

The Board decided during FY2017 H1 to extend the measurement period of LTI performance rights due to vest at 30 June 2016 by one year. The decision was taken due to the trading halt that was initiated on 30 June 2016 pending the release of the FY2016 earnings guidance, and the subsequent reduction in share price on 4 July 2016 which was outside of the original measurement period. The vesting criteria for the performance rights have been adjusted pro-rata for the one year extension in the measurement period. This has resulted in the Total Shareholder Return (TSR) vesting criteria being compounded (increased) for an additional year, the new vesting criteria for the two impacted awards are detailed in the below table; there was no change to the Return on Invested Capital (ROIC) vesting criteria of the FY2014 and FY2015 LTI. The participants were notified of the changes to the LTI in writing on 1 September 2016.

TSR measure Below Threshold Threshold Below Threshold and Target Target Between Target and Stretch Stretch	FY2014 <=20.5% 20.5% 20.5% < TSR < 27.6% 27.6% 27.6% <TSR < 34.7% >= 34.7%		FY2015 <=15.0% 15.0% 15.0% < TSR < 20.0% 20.0% 20.0% <TSR < 25.0% >= 25.0%	Vesting 0% 25% Pro-rata 50% Pro-rata 100%

The decision impacted 296,425 performance rights relating to the FY2014 Long Term Incentive (LTI) plan and 136,961 performance rights relating to the FY2015 LTI, which were due to be measured at 30 June 2016. The following table lists the inputs and outputs to the original valuation model used in each award:

Monte Carlo simulation method assumptions: Discount Rate Share Price Volatility Grant Date Measurement date The fair values of the rights at grant date were as follows: Fair value per performance right - TSR Fair value per performance right - ROIC Share price at grant date	FY2014 - Tranche A 2.9% p.a. 40% p.a. 18 November 2013 30 June 2016 $0.32 $0.70 $0.70		FY2014 - Tranche B 2.8% p.a. 40% p.a. 13 December 2013 30 June 2016 $0.47 $0.84 $0.84		FY2015 - Tranche A 1.8% p.a. 40% p.a. 30 October 2014 30 June 2016 $0.86 $1.30 $1.30	FY2015 - Tranche B 1.8% p.a. 40% p.a. 21 October 2014 30 June 2016 $0.77 $1.24 $1.23

The affected rights were required to be revalued as a result of the extension. The following table outlines the inputs to the updated valuation model used for each award:

Monte Carlo simulation method assumptions: Discount Rate Share Price Volatility Grant Date Measurement date The fair values of the rights at grant date were as follows: Fair value per performance right - TSR Fair value per performance right - ROIC Share price at grant date	FY2014 1.4% p.a. 45% p.a. 1 September 2016 30 June 2017 $1.26 $1.43 $1.45	FY2015 1.4% p.a. 45% p.a. 1 September 2016 30 June 2017 $1.10 $1.43 $1.45

20 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

• ii FY2017 Performance Rights Grant

• Rights issued and valuation

Two tranches of performance rights were granted under the LTI in September and October 2016, comprised of the following allocations:

• Tranche A – 1,908,990 rights were granted to Corporate, Australia, USA and Filipino senior executives, and

• Tranche B – 1,194,121 rights were granted to the Chief Executive Officer.

Indexed Total Shareholder Return (iTSR) and Return on Invested Capital (ROIC) measured over a three year period will be used to determine performance rights under the LTI Plan to determine whether or not the rights will vest.

1. Indexed Total Shareholder Return (iTSR)

Indexed Total Shareholder Return (iTSR): 40% of the LTI plan performance rights issued will be determined by iTSR. This is calculated by comparing the actual shareholder return of Austal Limited, measured over the three year measurement period, to the All Ordinary Share Cumulative Index (ASX XAOA) for the same period.

Performance Level Below Threshold Threshold Between Threshold and Target Mor Target Between Target and Stretch Mor Stretch	Company TSR v iTSR Less than 100% 100% e than 100% but less than 150% 150% e than 150% but less than 200% 200% or greater	Vesting % 0% 25% Pro-rata 50% Pro-rata 100%

1. Return on Invested Capital (ROIC)

Return on Invested Capital (ROIC): 60% of the LTI Plan will be determined by ROIC (calculated as – net operating profit after tax (NOPAT) / net assets (excluding cash, debt, derivatives and tax accounts)).

Performance Level Below Threshold Threshold Between Threshold and Target Mo Target Between Target and Stretch Mo Stretch	Company TSR v iTSR Less than 6.6% 6.6% re than 6.6% but less than 7.4% 7.4% re than 7.4% but less than 8.3% 8.3% or greater	Vesting % 0% 25% Pro-rata 50% Pro-rata 100%

21 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

1. Fair value of performance rights

The fair value of the rights with iTSR vesting conditions is estimated at the date of grant using the Monte Carlo simulation method for iTSR, taking into accounts the terms and conditions upon which the rights were granted. The share price at the grant date was adopted as the fair value for rights with ROIC vesting conditions. ROIC is accounted for based on estimating the amount of grants that will vest using company forecasted ROIC through the measurement period.

The contractual life for each right granted for all the three tranches is three years. The fair value for iTSR was estimated on the date of grant for the rights granted using the following assumptions:

Monte Carlo simulation method assumptions: Discount Rate Share Price Volatility Grant Date Expected life of options (years) The fair values of the rights at grant date were as follows: Fair value per performance right - TSR Fair value per performance right - ROIC Share price at grant date	Tranche A 1.4% p.a. 45% p.a. 1 September 2016 3 $0.97 $1.37 $1.45	Tranche B 1.7% p.a. 45% p.a. 28 October 2016 3 $1.11 $1.45 $1.53

22 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Note 11 Income tax

Major components of income tax expense for the half years ended 31 December 2016 and 31 December 2 Consolidated Profit & Loss Current Income Tax Current income tax charge Adjustments in respect of current income tax of the previous year Deferred Income Tax Relating to origination and reversal of temporary differences Adjustments in respect of deferred income tax of the previous year Total income tax (expense) Other comprehensive income (OCI) Current and deferred income tax related items charged or credited directly to OCI Current and deferred gains and losses on derivatives and consolidation adjustments Current gains and losses in FCTR Deferred gains on revaluation of property, plant and equipment Total (expense) charged to OCI Accounting profit before income tax from continuing operations Income Tax at the Group’s statutory income tax rate of 30% (FY2016 H1: 30%) Adjustment for Austal USA statutory income tax rate of 36.9% (FY2016 H1: 36.9%) Other foreign tax rate differences US section 199 domestic manufacturing deduction Adjustments in respect of current and deferred income tax of the previous year Other non-assessable or non-deductible items Total Adjustments Income tax (expense) reported in the statement of comprehensive income A reconciliation between tax expense and the product of accounting profit before income tax multiplied b as follows:	31 December 2016 31 December 2015 ’000 ’000 015 are: (544) $ (6,362) $ 1,092 (429) (7,179) $ (3,157) $ 932 - (5,700) $ (9,948) $ (959) $ (1,162) $
	(46) (19)
	- (10,710) (1,005) $ (11,891) $ 15,045 $ 26,758 $ (4,514) $ (8,027) $ (2,677) $ (941) $ (988) (351) - 426 2,024 (487) 455 (568) (1,186) $ (1,921) $ (5,700) $ (9,948) $ y the Group’s applicable income tax rate is

i ATO Audit

The Group establishes a provision based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues depending on the conditions prevailing in the respective domicile of the Group companies.

An ongoing Australian Taxation Office (ATO) audit of Austal Limited has resulted in differing interpretations of technical items. Independent advice has been received which supports the Group’s position. The matters under dispute are currently undergoing an ATO independent review process.

Management has taken a conservative position which has increased the income tax position and effective tax rate for the Group to take into account an adverse outcome following the conclusion of the independent review process.

23 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Note 12 Cash and cash equivalents

Cash and cash equivalents comprise the following at 31 December:

Current Cash at bank and cash equivalents Total cash per the cash flow statement	31 December 2016 30 June 2016 ’000 ’000 153,468 $ 224,318 $ 153,468 $ 224,318 $

Cash at bank earns interest at variable on daily bank deposit rates. Cash equivalents include term deposits, which earn interest at fixed rates for terms of up to 90 days.

Note 13 Commitments and contingencies

The US Government has announced proposed legislation to reduce the federal income tax rate from 35% to 15%, however proceedings to enact the legislation had not commenced during the reporting period.

These changes do not impact the measurement of current tax liabilities and deferred tax assets and liabilities in respect of the USA operations at 31 December 2016 on the basis that the proposed rate changes have not been enacted or substantively enacted during the period.

Management estimates that restated balances for the period taking into account the proposed tax rate would give rise to a net reduction of approximately $14.896 million (US$10.747 million) in deferred tax asset balances in the statement of financial position and a corresponding debit to income tax expense.

The proposed change would have no immediate cash impact although US tax payments would be lower in future years due to the reduction in tax rate. Group Net Profit After Tax would increase in future years as a result of a lower US tax charge.

There is no impact on the Australian tax position.

The Group had recognised a contingent liability in relation to consequential damages arising from a warranty defect at 30 June 2016. The liability has been extinguished during the FY2017 H1 period, and hence does not exist at 31 December 2016. Agreement was reached on the basis that no liability is admitted by the Company however the precise terms of the settlement are subject to confidentiality restrictions.

There have been no other material changes in commitments and contingencies since the last annual reporting date.

Note 14 Related party disclosure

The Group has a policy that all transactions with related parties are conducted on commercial terms and conditions.

No related party transactions occurred with the consolidated entity other than the remuneration of Directors and Key Management Personnel and the matters disclosed in this report.

Note 15 Events after the reporting date

The directors declared an interim dividend for FY2017 of 2 cents per ordinary share on 24 February 2017. The dividend has not been provided for in the 31 December 2016 financial statements.

24 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Directors’ Declaration

In accordance with a resolution of the Directors of Austal Limited, I state that in the opinion of the Directors:

• The financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including:

• Giving a true and fair view of the financial position as at 31 December 2016 and the performance for the half-year ended on that date of the consolidated entity

• Complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001

• There are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

On behalf of the Board

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John Rothwell Chairman 24 February 2017

25 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Independent review report to the members of Austal Limited

Ernst & Young Tel: +61 8 9429 2222 11 Mounts Bay Road Fax: +61 8 9429 2436 Perth WA 6000 Australia ey.com/au GPO Box M939 Perth WA 6843

To the members of Austal Limited

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Austal Limited, which comprises the statement of financial position as at 31 December 2016, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the half-year end or from time to time during the half-year.

Directors’ Responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation of the half year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001and for such internal controls as the directors determine are necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of Austal Limited and the entities it controlled during the half-year, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the Directors’ Report.

26 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Austal Limited is not in accordance with the Corporations Act 2001, including:

• a) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016 and of its performance for the half-year ended on that date; and

• b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

Ernst & Young

Robert A Kirkby Partner Perth 24 February 2017

27 | AUSTAL LIMITED HALF YEAR REPORT 31 DECEMBER 2016