Perth international shipbuilder Austal’s shares dropped on the ASX this morning following a company report of specification changes and inflation which has hit its US steel naval shipbuilding operation.
In early trading Austal’s shares were down 11 percent to $2.28, with the company announcing a ‘substantial revision in earnings’ following these changes and ‘inefficiencies’ in its steel ship construction.
Austal is known for its large multi-hulled aluminium ships, however the company is building a number of steel vessels at a new extension to its aluminium construction yard at Mobile, Alabama.
The company is building five Towing, Salvage and Rescue Ships (T-ATS) for the US Navy in the new yard – it also builds some small steel patrol vessels at Henderson in Perth.
Now Austal has told investors: “The efficiency assumptions for the newly commissioned steel manufacturing line, such as labour hours and consequently, recovery of overheads, did not meet forecasts and have been subsequently revised.
“So although these efficiency issues are expected to increasingly improve as Austal progresses construction of T-ATS vessels, which is Austal USA’s first steel shipbuilding project, they are slowing progress on the first vessels in production.
“The exercise of the option to construct the fifth and final vessel in the contract has also added in the associated cost issues to the onerous contract.”
Austal told investors that it was reducing profit guidance for FY 23 from earnings of approximately $58 million to between $10 million and zero profit.
Austal retains a cash at bank position of approximately $179 million as at 30 June, 2023.
CEO Paddy Gregg said: This is clearly a disappointing financial result for Austal given the success that we have had recently winning new projects to expand our US operations.
“The underlying issue is that the T-ATS award was received just prior to a period of unprecedented hyperinflation, some inaccurate assumptions were made regarding the efficiency of the new steel panel line in this first project, and the project has been subject to some specification changes from the original award.”
Austal has submitted Requests for Equitable Adjustments to seek recoveries for some of the additional costs incurred, but the timing and success of the requests is uncertain.
Picture: Opening day of steel ship production in Mobile Alabama