ferret's stock to watch: austal limited

Ferret's Stock to Watch: AUSTAL LIMITED
08:32, Monday, 30 May 2005

WORLD'S LARGEST FAST FERRY SHIPBUILDER FACING SMOOTHER WATERS

Sydney - Monday - May 30: (RWE Aust Business News)
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OVERVIEW
********

Boat building is not all plain sailing but WA based Austal Ltd
(ASB) has become the world's largest builder of fast ferries despite some
heavy going at times.

The company now boasts it has among its customers many of the
world's leading fast ferry and shipping operators.

Last Friday Austal told the Australian Stock Exchange that it has
received confirmation of a Letter of Intent worth $11 million, naming
Austal as the preferred builder for the design, construction and supply
of six, 16-metre aluminium monohull offshore patrol boats for the New
South Wales Police.

The Letter of Intent states the notification is an interim
measure and is subject to the establishment of a formal agreement in
accordance with the terms of the Conditions of Tender.

It is expected this will be confirmed in the coming weeks
following contractual negotiations.

Depending on these discussions and final details of the vessel
specification the contract will be in the vicinity of $11 million.

The vessels will be built over a period of approximately 10
months by the Austal-Image shipyard, which built and delivered nine
similar vessels in 2000 for the same customer.

Austal produced a stunning half-year profit to February of $21.6
million compared with a mere $3 million in the same period a year ago.

Revenues were up 6.4 per cent to $162.8 million.

Chairman John Rothwell explained the sharp jump in earnings
against the modest rise in revenue.

He said the main factor driving Austal's net profit included of
big contracts in the period and the solid margins achieved on various
projects.

These involved completed defence projects when compared with the
contracts Austal had in the first half of last year.

In addition, group operating profit included some favourable
items such as a write-back of the provision in the Austal Group
Management Share Plan loans of $1.3 million and a $4.8 million reduction
in tax liability due to R&D tax allowances.

"We still expect sound earnings in the second half, but not at
the same level as in the first," Rothwell told Corporatefile.

He said that in the first half, the company was awarded several
mid-sized ferry contracts overseas.

"We've identified a growing market for vessels in the range of 50
to 70 metres in size," Mr Rothwell.

"Whilst there has been a slowdown in the market for large vehicle
ferries, we've received a growing number of inquiries from the market for
mid-sized ferries.

"One of our key strengths is our extensive design experience and
our ability to rapidly produce customised designs that suit the
particular requirements of our customers.

"We're well-positioned to cater to this particular market, given
our flexibility in construction and diversity in the total shipbuilding
market," Rothwell declared.

Defence contracts now make up about 40 per cent of Austal's total
order book, but the mix remains a moving target.

An obvious benefit provided by defence projects is that they're
generally longer term, involving multiple orders, as distinct from the
one-year horizon of commercial vessels.

"On the whole, we have a relatively long-term order book with
work on both commercial and defence contracts taking us through to 2007,"
Mr Rothwell said.

"We've traditionally been an Australian commercial shipbuilding
business generating around $300 million in revenue, with margins of
between 8 per cent and 10 per cent before tax."

SHARE PRICE MOVEMENTS
*********************

Shares of Austal rose 3c to $1.75 on Friday. Rolling high has
been $2.10 and low of $1.06. Shares on issue total 190.8 million with a
market capitalisation of $328.2 million.

The chairman also revealed that the joint bid with Raytheon
Australia for the Australian government's Amphibious Ships valued at $1.5
billion has been delayed.

He said the issuance of the Amphibious Ships tender is now
scheduled for September 2006, well over 12 months away.

"We're now in the process completing a 'request for quotation'
required by the Commonwealth.

"We partnered with Raytheon Australia to jointly bid for the
project and it's inconceivable that we might add another party to our
team," he added.

As part of the US Department of Defence's requirement of 57
Littoral Combat Ships (LCS) over 15 years, it recently awarded the
construction of the first vessel to Lockheed.

The final design contracts, awarded to the Austal-General
Dynamics team and the Lockheed Martin team, include options to construct
prototype vessels.

Mr Rothwell said the US Navy has always said that a contract for
a prototype LCS vessel would be issued to the Austal-General Dynamics in
October 2005, and the company is still of the opinion that the timeframe
will be met, in light of the fact that it's met every other scheduled
date so far.

The Austal-General Dynamics team is on track to complete the LCS
design phase by October.

Asked about how Austal intends to manage the execution of new
contracts as it ramps up resources for the LCS construction phase in
October, Mr Rothwell said the timing of the Hawaii Superferry contract
enabled it to expand the US workforce at an optimal rate and on time for
the expected commencement of the construction of the first LCS vessel
towards the end of this year.

"But as Austal USA continues to evolve with the execution of the
Hawaiian Superferry contract and the LCS project over the next few years,
we expect to generate another $250 million a year in revenue with minimal
additional capital required.

"We're also seeing opportunities in the naval shipbuilding sector
in Australia, and the Federal Government's privatisation of the
Australian Submarine Corporation (ASC) will continue to be of interest to
us," the chairman said.

BACKGROUND
**********

Austal commenced operations in 1988 with a vision to build
high-quality commercial vessels for the international market.

The company was listed on the Australian Stock Exchange on
December 8, 1998.

By the company's fifth anniversary, Austal had become the world's
leading manufacturer of 40-metre passenger catamarans and the dominant
supplier to Asia.

It was in Hong Kong as early as 1993 that Austal introduced gas
turbine propulsion and the first two installations of the
Austal-developed ride control system.

The success in Asia and the introduction of a range of
sophisticated, large vehicle-carrying fast ferries were the springboard
for ongoing growth in Europe, the Mediterranean and Asia-Pacific.

Austal has diversified its product base through acquisitions of
Image Marine and luxury motor yacht builder Oceanfast and, in partnership
with Bender Shipbuilding & Repair, the establishment of a new US shipyard
in Mobile, Alabama.

In 1998 Austal entered the patrol boat market securing an order
for eight Bay Class vessels for the Australian Customs Service.

Sizeable orders from other Australian and International agencies,
including the Royal Australian Navy, have cemented the company's place
among the world's elite patrol vessel builders.

In 2001 Austal became the first company to supply the US military
with a high speed vessel, the Theatre Support Vessel.

In 2004 the US Department of Defence awarded a $US78.8 million
final design contract for the US Navy's Littoral Combat Ship (LCS)
project to prime contractor Bath Iron Works, a General Dynamics company
teamed with Austal.

The contract includes an option to complete detail design and
construction of a lead ship of this new high-speed surface ship class.

The completion of a 127-metre fast ferry based on the same
trimaran hullform as proposed for the US Navy provides full-scale
validation of the LCS proposal and adds further impetus to the already
strong interest being shown in trimarans by ferry operators.

This includes passenger and vehicle-passenger ferries, coastal
combat ships, high speed military support vessels, patrol boats, cruise
vessels, live-aboards, offshore crew/supply boats and private vessels.

There is little doubt that Austal provides one of the most
substantial product bases of any shipbuilder worldwide.

Austal's success in aluminium ship building is based on:

* In-house design offering customisation and flexibility;

* High quality technologically advanced and market-proven
diversified product range;

* Focus on meeting agreed customer requirements;

* Productive, skilled and stable workforce;

* On-time and on-budget delivery, and

* Financial strength and sound management along with price
competitiveness.

ENDS

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I don't hold ASB