August 23, 2004

Turnaround at Austal

Australia's Austal Limited today reported a net profit after tax and outside equity interests of A$20.1 million (US$14.55 million) for the financial year ended June 30, 2004. Austal said the significantly improved result came from a shift from building luxury yachts to patrol boats. Austal has consistently performed well in commercial vessels and patrol boats, which now constitute the greater part of the company's revenue. Contracts already in hand guarantee work through to 2007 which contributes to a positive outlook overall.

Managing Director, Bob McKinnon, said continued improvement in productivity in the commercial and defense contracts, particularly in the United States operation, and lower losses from the luxury yacht construction activities contributed to the turnaround from last year.

Contracts on hand at June 30, 2004 amounted to A$460 million (US$333 million) to be completed across the 2005, 2006 and 2007 financial years. Approximately 70 percent of this is derived from defense-related projects and the remainder from commercial vessel construction.

"This workload provides a solid foundation for the future and a firm basis to further our strategy for growth through both commercial and defense opportunities in the United States, Australia and other markets around the world," McKinnon said.

Significant developments during the year included:

  • Securing the contract to build 12 new 56 meter patrol boats for the Royal Australian Navy (RAN). Construction commenced on schedule in April 2004 and will continue until mid-2007

  • Progressing in the U.S. Navy's Littoral Combat Ship (LCS) project through the award of a final design contract to the General Dynamics team in which Austal is the ship designer and builder. This contract includes provision for options for the construction of two 127 meter vessels following the completion of the design phase in October 2005. The U.S. Navy may ultimately purchase 60 ships over a 15 year period

  • Considerable interest in Austal's trimaran technology from current ferry operators, particularly the 126.7 meter ferry ordered by Fred. Olsen, S.A. in June 2003 for operation in Canary Islands. Construction of this vessel has progressed according to plan and sea trials are scheduled for November 2004

Commenting on these developments, Austal's Executive Chairman John Rothwell said, "The value of the RAN order extends beyond the purely monetary. It guarantees a base level of income for over three years and thus reduces our exposure to the large fluctuations in work flow that typify the shipbuilding industry."

"The LCS project also promises to provide ongoing work on a very much larger scale," aid Rothwell. "Our selection for the final design contract has substantially increased the likelihood of our being involved in the construction of these ships. If this eventuates our U.S. operations will expand well beyond the scope of our current Australian activities.

While the defense market is considered to offer particular potential, Rothwell said ferries and other vessels for commercial applications continued to be central to Austal's business.

Last year the company delivered five vehicle-passenger ferries and four passenger-only catamarans and secured contracts for one 85 meter vehicle ferry and four smaller commercial vessels. An additional contract, subject only to finance, was signed for two 105 meter vehicle ferries for Hawaii to be built at the U.S. shipyard.

"The construction of the 126.7 mmeter trimaran ferry has, as expected, generated renewed interest in larger fast vessels," Rothwell commented. "We expect that successful sea trials will be a catalyst for further trimaran orders. At the same time it will enhance our prospects for the LCS project because the two hull designs are very closely aligned."

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