Austal USA Clinches AU$62M Contract Modification | KOSEC

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Austal USA Clinches AU$62M Contract Modification

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Barely seven months into the year, Australia’s largest aluminium shipbuilder, Austal Limited has delivered great news once again. Specifically, the United States Department of Defence has awarded Austal USA a modification to a previously awarded Littoral Combat Ship (LCS) contract. The changes will exercise options for LCS Class design services, material to assist LCS Class design services and the US Navy’s Integrated Data Product Model Environment (IPDME). Austal will also be maintaining an IPDME which will provide the US Navy access to LCS data management at their discretion.

Additionally, the company will provide LCS Class design services to all LCS services and ships. These could potentially include fitting out services, program management, software maintenance, change processing, engineering and lifecycle efforts. At present, the contract is due for completion by June 2021. More broadly speaking, the modification yields significant financial benefits. According to Austal, the changes will boost the value of the project by an additional US$43,362,000.

For many years now, Austal has been the only foreign-owned firm is responsible for constructing, designing and sustaining ships for the US Navy. Yet, Austal is also highly favoured by government bodies outside the United States. Back in May, Austal Australia clinched a A$324 million contract to design and build six Cape-class Patrol Boats (CCPBs) for the Royal Australian Navy. This marks the largest contract for an Australian vessel construction program awarded to the firm in its thirty years of operation.

Amid the coronavirus pandemic, Austal is one of the few firms to have sailed out of the pandemic unscathed. At the peak of the pandemic in March, Austal USA has been advised by the US Navy that its operations and shipbuilding activities are regarded to be essential industries during the pandemic.

More importantly, at a time when firms scrap earnings guidance, Austal has increased its FY20 revenue guidance to that of $2.0 billion. Besides, earnings before interest and tax (EBIT) will likely come in above $125 million. This was relative to the previous revenue and earnings guidance of $1.9 billion and $110 million, respectively. More broadly speaking, while the revision does not represent a massive change, it emerged at a time where most companies downgrade and narrow their guidance.

Within the firm, Austal has witnessed a shift in leadership roles. Specifically, John Rothwell, the Chairman of Austal has announced that Chief Operating Officer, Patrick Gregg will take up the role of Chief Executive Officer (CEO) effective 1 January 2021. This follows after a six-month transition from present CEO and Managing Director, David Singleton. Having served as Director for nine years including his five-year tenure as CEO, Mr Singleton will be moving on to new endeavours. Moving forward, Austal remains to be in a good position and is poised to scale greater heights under the leadership of Mr Gregg.

By Caroline Wong 

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Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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