Austal Limited (AUTLF) Shareholder/Analyst Call Transcript

2025-11-03 17:06:22 ET

Austal Limited (AUTLF) Shareholder/Analyst Call October 28, 2025 2:00 AM EDT

Company Participants

Richard Spencer
Patrick Gregg - CEO, MD & Executive Director

Conversation

Richard Spencer ...

Good afternoon, ladies and gentlemen. On behalf of the Board, I'd like to welcome you to the 2025 Annual General Meeting of Austal Limited. How did you get in here? My name is Richard Spencer, and I'm the Non-Executive Chairman of Austal. This is a shareholders' meeting and only shareholders, their proxies, attorneys and authorized representatives are entitled to speak. The meeting is being webcast to shareholders who are unable to attend in person. As it is a webcast, virtual participants will be able to listen to the meeting, view the presentation materials, but not be able to ask questions or make comments or vote through the webcast facilities.

I'd like to introduce my fellow directors, who you can see at the table beside me. Lee Goddard, who's been on the Board since 2023; Kath Toohey, who joined us in February 2024 and is Chair of the Nomination and Remuneration Committee; Brent Cubis, who joined us in October of 2024 and is also Chair of the Risk and Audit Committee; Richard Gibb, who commenced in June of this year; and Sue Murphy, who just joined us in September of this year. And of course, Paddy Gregg, our Chief Executive. Each of our Board members is present and able to assist in answering any questions that you may have. We also have representatives from the company's auditors and external legal advisers present in the audience. Ladies and gentlemen, this is my second address to you as Chairman of Austal. When I stood here 12 months ago, I was just 4 months into the job. And it was taking over from long-standing Chairman, John Rothwell. Those were big shoes to fill.

As a result, my comments at that time were very limited to my preliminary observations, and I made a few remarks on where I saw the opportunities for this amazing company. I knew being Chairman of Austal wasn't going to be a lifestyle role or I wouldn't have taken it. But wow, it's been one hell of a ride for 12 months since I last took this podium, and we want to share that with you today.

There will be a slide in your fiscal year '25 results presentation, which Paddy will discuss when he speaks a bit later that details every major announcement that we made in fiscal year 2025. Not all of them, just the major announcements. And to our shareholder last year who complained about the font of the size of the slide, I apologize in advance because there's a lot on that slide.

It was a graphic designers nightmare because the slide is quite busy because the company has been quite busy. especially over the last 12 months. Busy developing the foundations for future success, busy closing out some of the issues from the past and busy building high-quality vessels and commercial ferries for our valued customers. Today, I want to expand on 3 of those events and what they mean to Austal and to you as our shareholders.

Just prior to our 2024 Annual General Meeting, Austal announced that through General Dynamics Electric Boat, the U.S. government was investing $450 million or AUD 680 million to build module manufacturing facility #3 as Austal was to expand our role in manufacturing for the U.S. submarine base. MMF3, as we love to caller, will provide 392,000 square feet. That's close to 36,500 square meters of indoor manufacturing space.

The U.S. needs to increase the delivery rate of the Virginia-class submarines from its current rate of 1.2 submarines per year to the required production rate of 2.3 per year to meet the U.S.'s commitment to AUKUS, including the transfer of submarines to Australia, while also fulfilling its own domestic needs.

Outsourcing modules is the key strategy in the United States for employing speed to enhance the production rate. When MMF3 is up and running in late '26 or '27, it will be a case of when, not if contracts flow to Austal to build more modules for more submarines. To give you some perspective as to what that means for Austal, MMF3 will be capable of delivering up to 3 million work hours per annum, work hours which contribute to Austal's revenue and profits to deliver up to 14 modules a year.

Relatedly, in March of this year, we announced a successful $220 million placement and share purchase plan to fund the construction of Final Assembly Plant 2. And then in June, we announced a $488 million debt refinance with most of the debt also earmarked for FA2. That debt includes $160 million from the Australian government's Export Finance Agency. And it is truly great to have them on board, and it further demonstrates support from Canberra, and I'll speak about more of that later.

FA2 is larger than module manufacturing Unit 3, coming in at more than 400,000 square feet or 37,500 square meters with a ship lift that can launch new build U.S. Navy and U.S. Coast Guard vessels and also size for the capacity of an Arleigh Burke-class destroyer, the T-AGOS submarine sweeper and it can handle the length of a Frigate. We plan to assemble modules for the Offshore Patrol Cutters and Ocean-going Surveillance Vessels, i.e., the T-AGOS in final assembly Plant 2. So it's crucial for our infrastructure -- in our infrastructure for growth. With the combination of equity capital, debt funding and future cash flow from operations, construction of FA2 is fully funded and is well underway.

The last significant announcement I want to touch on is the signing of the strategic shipbuilding agreement with the Commonwealth of Australia. The SSA, as it is known to us, appoints a new Austal subsidiary, Austal Defense Shipbuilding Australia as the Commonwealth's strategic shipbuilder for Tier 2 surface combatants at Henderson. The Tier 2 vessels, including Landing Craft-Medium, Landing Craft-Heavy and general purpose Frigates with Optionally Crewed Vessels are in the mix.

Under the SSA, Austal will be the prime contractor for Landing Craft-Medium and Landing Craft-Heavy. And then provided we perform and the Henderson Precinct is consolidated, we will build the Mogami-class general-purpose Frigate and Optionally Crewed Vessels. The importance of the SSA cannot be overstated. Subject to our performance, it has effectively announced Austal as the shipbuilder of the aforementioned vessels for the next 20-plus years, providing outstanding forward visibility of our production schedule and potential order book in the tens of billions of dollars when those programs are all combined. And it provides longevity for shipbuilders, ship designers, fabricators, fitters, all looking for long, successful careers in the Australian shipbuilding industry. It is a terrific agreement for all parties.

The Board, management and I are extremely conscious that contract announcements, SSAs and capital work announcements are fantastic. But if they don't ultimately generate value for our shareholders, then we must question their real value. I'm pleased to report -- I was pleased to report in August that our fiscal year 2025 earnings before interest and taxes had doubled to $113 million, and our profits had increased fivefold to $90 million.

In addition, our contract wins have outpaced the work performed. So our order book, inclusive of options grew to $13 billion. It was a great financial success, which reflected the hard work of ship designers, builders, commercial and finance teams as well as our executives to execute on the base that they had established in previous years. And the base we are establishing now will underpin future positive financial results. While it may be challenging to repeat the same rate of earnings and profit that we have in fiscal '26, there will be growth nonetheless, which Paddy is going to provide you more insight after I speak. While it's not an Austal-specific topic, every time I'm here in Australia, I get the question about the United States commitment to AUKUS. I'm on the record of saying I truly believe that AUKUS is some of the best state craft that has been put together in the past 70 years, circling 3 tremendous allies.

And certainly, President Trump's recent statements on AUKUS, when Prime Minister Anthony Albanese he was in D.C. 2 weeks ago, indicates that the United States remains firmly committed to AUKUS and removes a lot of questions about the studies that have been underway. And I must say there's been a lot of focus on the politics of AUKUS, but little on how it positively impacts on the ability of U.S. and Australia to defend their nations.

One of the key areas impacting naval battle strategy is how long a vessel can remain on station before it needs to be resupplied. Some facts. On sailing times alone, the journey to free metal from the South China Sea is approximately 1/3 to 1/2 the time taken to transit back to the West Coast of the United States. And then that figure is the same on the return journey. This massive advantage in any Asian engagement, and that figure alone is a reason enough for us to continue backing AUKUS. When you combine that fact with other strategic and operational rationale, I think it's safe to say that AUKUS is here. And the expanding role that Austal can play in AUKUS is on our shoulders, and we will take advantage of it. That said, Australia should not be complacent either.

The pace of progress in Australia to increase its force posture has been slow. And while there are various reasons why that inertia exists, it exists nonetheless. As the saying goes, no Snowflake feels responsible for an avalanche. So while most of these delays are likely to be individually justified, the net effect is that programs that should be underway to equip Australia's armed service men and women with the infrastructure they need to defend this nation and contribute to Austal -- beg your pardon, Australia's strategic position across the region, AUKUS and the globe remain in the planning stage when they should be in the build stage.

In addition to impacts on our frontline troops, geopolitics, defense and AUKUS, the delays also impact prime contractors such as Austal in terms of labor requirements, revenue and even ability to meet our ESG commitments. Supply chain participants are also impacted. Those who've been gearing up to partner with us, those that have been installing new equipment, purchasing their own long lead items and expanding their workforce are at risk. So it's time for Australia to pick up the pace and to match the pace of our allies as well as the pace of our adversaries.

Back to Austal. Before I finish my address, it's important to note that there is a significant change to the composition of the Board members seated in front of you today. But most markedly, for the first time in the company's history, Austal Founder and former Chairman, John Roth isn't sitting up here. John retired from the Board at the start of September. Ending his formal association with the company that he founded 38 years ago.

As I said at that time, and I want to publicly repeat today, John has left an indelible mark on Austal specifically, but also shipbuilding in Australia, the United States and in general. His drive and commitment, his capacity to innovate, his fierce desire to build the best designed and crafted vessels using the best people and his seasoned business acumen are embedded deep in the DNA of Austal, and it will serve the company well as we go forward. Ladies and gentlemen, I feel it appropriate today to offer John Rothwell a hearty applause. And once some old faces have departed -- oh sorry, John, some familiar faces have departed. There are some new faces on the Board with the appointment of Richard Gibb and Sue Murphy since our last AGM. Both Richard and Sue possess important skills and are well round out our Board and have already hit the ground running, ladies and gentlemen, and making substantial contributions to the Board.

I want to thank them and the remainder of the Board for their hard, hard work. Thank you all very much. Lastly, I want to thank also staff. As I've moved about Austal's operations over the last 12 months, it has become abundantly clear that we have staff and management who are energized, smart, innovative and hard working. And as a result, they're delivering some of the most amazing vessels to our clients and to keep us safe as we go forward. I'm looking forward to the next 12 months as we build on the foundations that we have laid it. Thank you very much, ladies and gentlemen.

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