Austal plunges on US issues

Shares in shipbuilder Austal plummeted 25 per cent today on news that problems at its operations in the US could shave up to 2 per cent off its profit margin there.

The company said this year’s earnings would be lower than the previous year, with its Ebit margin at its US operations to come in between 4.5 and 6.5 per cent.

In the 2015 financial year the margin had been 6.5 per cent in the US on revenue of more than $900 million for earnings before interest and taxes (Ebit) of about $60 million.

That was from a total Ebit of about $88 million, making the US the company’s most lucrative location.

The reduction was due to productivity enhancements and lessons on an earlier batch of combat vessels not throwing through to a new class, the company said.

Austal chief executive Andrew Bellamy said there would be some flow on, but most of the benefit would occur in vessels at earlier stages in construction.

“The LCS (littoral combat ship) program is maturing more slowly than we had expected, however we are working hard to manage the risks and expect an improvement across the program after the delivery of LCS 10,” he said.

Mr Bellamy said the company had a strong balance sheet with good cash flow, and was having some success at another build program at the shipyard, expeditionary fast transport vessels.

At the time its annual report was released, Austal flagged schedule pressures on the littoral combat class 6 vessels, with improved profitability of its support business.

At the close of trading, shares in Austal were changing hands at $1.70 each.