Austal boosts profit amid regulatory probe

Shipbuilder Austal has lifted its interim profit despite disruption caused by COVID-19 and amid a regulatory probe into a major US contract.

Shipbuilder Austal has maintained its full-year earnings guidance, despite the disruption to supply chains and vessel deliveries caused by COVID-19.

The company lifted net profit to $52.4m in the six months to December, up from $40.8m in the prior year, with stronger shipbuilding margins in the US and Australasia making up for a 19.1 per cent fall in revenue to $840.3m.

While full-year revenue is expected to come in lower than previously expected, down from $1.8bn to $1.65bn, Austal has maintained its full-year EBIT guidance of $125m.

EBIT was up 17.6 per cent in the first half to $70.5m.

Austal chief executive Paddy Gregg said the improved bottom line in the first half was driven by “excellent shipbuilding operating margins in both of our USA and Australasia operations”.

“This highlights the success of the pragmatic initiatives Austal has implemented to increase our efficiency, reduce our cost base and set the business up for sustained profitability,” he said.

“Revenue was lower compared to the prior corresponding period, which was a product of a higher USD/AUD exchange rate, lower throughput in the US, a reduction in Australasia commercial shipbuilding volume following the delivery of three large ferries and some COVID-19 delays.”

Austal’s Henderson shipyard in WA. Picture: Colin Murty

Austal said the macroeconomic impact of the pandemic, and the uncertainty surround travel restrictions, had dampened demand for commercial ferries in the past 12 months.

“The company does however have a number of live inquiries, principally from operators of government-backed routes where logistics, rather than tourists, form the backbone of the vessels’ operations,” it said.

“Austal continues to navigate challenges created by COVID-19 which have included some short duration shutdowns, restrictions on the mobility of commissioning engineers, delays in supply chain logistics channels, which ultimately resulted in delays to vessel deliveries, and travel restrictions which limited the ability to conduct maintenance support activities.”

Austal is Australia’s largest defence exporter with shipyards in Australia, the US, the Philippines and Vietnam. It has built more than 300 vessels for more than 100 commercial and defence operators in 54 countries.

Shares in the company slid more than 10 per cent on Tuesday after it announced it had accepted the resignation of its US president Craig Perciavalle following a regulatory probe into the company’s $11.4bn combat vessel project for the US Navy.

The investigation found the company had built Navy vessels with parts that did not meet military specifications, underestimated costs and misallocated labour hours.

A separate probe by US regulatory authorities and the Australian Securities and Investments Commission (ASIC) is ongoing.

Austal chief executive Paddy Gregg, left, took over from long-serving CEO David Singleton, right, last month. Picture: Colin Murty

Austal has spent $3.9m supporting the various investigations and has provisioned a further $7.1m to cover future costs.

While warning that the investigations could lead to civil or criminal penalties along with debarment from future US government contracts, it has not set aside financial provisions for potential penalties.

In its interim report, the company reiterated that its relationship with the US Defence Department remained strong and it had already expanded its compliance and governance practices in the US.

“The group is confident that the proactive steps it has already implemented to strengthen its internal reporting and compliance practices will be taken into account in determining whether there are any potential consequences arising from the matters identified by the investigation in the US, as well as ensuring such circumstances do not happen again,” the company said.

Austal increased its interim dividend to 4c, unfranked, up from 3c in the previous year.

On Friday its shares closed up 3.5 per cent at $2.38.