Austal Limited (ASB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Austal FY 2020 Half Year Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Singleton. Thank you, and please go ahead.

Good morning, everybody, and welcome to the interim results for FY 2020. It's David Singleton here, Chief Executive of Austal; and Greg Jason, the Chief Financial Officer of Austal who will be talking after me. This is our first full results period since being included in the ASX 200 in late 2019. So we're obviously pleased that we're able to present a good financial result during that period. And particularly, having coming off a period where we had a net profit increase in the full year last year of 64% increase in net profit, to see that continue to improve during this first half is -- it demonstrates some of the momentum that we've been seeing in the business over the past few years. So if I turn now to second page titled Financial Headlines. This is the first half year period, I think, in the history of the company where we've seen a revenue result of over $1 billion. That represents a 22% increase in revenue to the same period last year and comes on the back of what was a 33% revenue increase between FY '18 and FY '19. So again, sustaining strong momentum in the revenue line. That improvement in revenue and improving margins pretty well across the group has led to yet another very substantial increase in net profit after tax, up 72% to $40.8 million for the half year. Group is left in a -- continues to be in a net cash position of over $150 million at the end of that period. Positive operating cash flow during the period as well. Not quite as strong as the corresponding period last year, but that was a bumper half year we had a year ago. There's always the downside, of course, of having a slightly out-of-cycle bumper period, but you then have to report a normalization of that a year later, and that's essentially what we've seen. For the company continuing to generate very strong cash out of the order book, we're seeing the profits turn into cash. There's in the company announcement a statement in there that we've seen the business generate around about $425 million worth of cash over the past 6 years of trading. If I turn now to the next page, FY 2020 half 1 key facts. Order book at $4.3 billion. 3 new ships ordered during the period. So it was 2 Cape Class Patrol vessels for the Government of Trinidad and Tobago and a very large ferry for Molslinjen of Denmark, is the largest -- this will be the largest vessel ever built by Austal when it goes into production. And it's the first time we've built a vessel that has LNG capability as well. So quite a significant step forward. And 6 ships delivered during the half year period, EPF 11 out of the United States, 2 Guardian Class Patrol Boats out of Australia and Aremiti, very fast ferry out of the Philippines and 2 smaller vessels out of joint venture in China. If I turn the page now to operational highlights for the United States. Really continuing a theme that we've seen in the last couple of years of just outstanding and solid and continuous operational performance improvements out of the U.S. Great credit to the management team there who are delivering both the EPF and the LCS programs pretty well to schedule and at levels of -- generally speaking, of improving margins across those 2 programs. And that has lifted the shipbuilding margin from 7.1% in the corresponding period last year to 8.1% this year. Always some volatility in that number. And we've seen that last half to this half, but nonetheless, the general trend of EBIT margin growth in the U.S. is continuing. And we're confident of that performance going forward into the future. We've seen 2 vessels delivered out of the United States recently. Both of them, though, post the full year. So 2 vessels, LCS 22 and EPF 11 delivered in February 2020. We went into the year -- so our guidance when we went into the year was that we did not expect to see any new order intake in this financial year following a very strong period in the 3 years before. We were very pleased that EPF 15, so that's the next vessel in the series, was appropriated in the congressional budget. We were less pleased when very recently in the last week or so that vessel was removed from the budget and the money transferred to the President's budget for building the wall between the United States and Mexico. So we don't now believe that, that vessel will be part of the 2020 budget. And we'll, of course, be focused on that during the 2021 budget. We have seen, however, significant funding for modifications to improve the utility and capability of the EPF platform. I think that all goes well for the EPF program into the future. So very significant modifications, changes, improvements to that vessel, including a $49 million program to install a medical capability onto the EPF platform. And we think that's important because we think there are a number of these vessels required in the inventory and the conversion of EPF will be the first of several more. So we have some expectation of that going forward. In terms of new programs, the picture has changed over the past couple of years. The Future Frigate Program continues to roll forward. We -- we're expecting a decision of that probably in the period July to September this year, but that's our expectation. We are one of -- and I need to emphasize that we are one of 4 bidders in that program. So we have a position in the program, but no certainty at all in that. Nonetheless, we're beginning to see other programs emerge and particularly around Unmanned Surface Vessels, which is of particular interest to us, still. We have been involved in the Unmanned Surface Development program for some period of time. And we're bidding both construction contracts for a medium Unmanned Surface Vessel and design contracts at the moment. And you may have seen recently, we were named as a participant in a -- what is a nearly $1 billion program for systems development for unmanned vessels for the United States Navy. And there's no doubt that this is a trend that the U.S. Navy and other navies will follow in the short term. U.S. revenue continues to surprise on the upside with revenue up -- sorry, U.S. service revenue up 44% and improvements in the profitability. I will caution, however, that the margin level of 9.4% is above the trend and expectation of that business. It's been a good half year period, but there's been some one-off opportunities that have come through during that period of time. We shouldn't expect that to continue. I'll move on now to this next slide, operational highlights for Australasia. Very much been a transition period for this business. I -- it stuns me the amount of change really that this business has been through. We are getting towards the end of building the first vessel in a brand-new shipyard in Vietnam that -- we got that shipyard started operations in November 2018 and is close to delivering its first vessel around about the middle of this year. That's going particularly well. We have been very cautionary about the expansion of our Philippines shipyard. And that caution has been well placed. It's been a difficult period in the Philippines. But again, we're getting towards the end of the delivery of the first ship out of that new shipyard. It's a substantial increase in the size in Philippines. So the capacity is about 3x what it was before major new facilities being built and implemented at the same time that we have -- that we are building what is the largest vessel that Austal has ever built that's in production in that facility at the moment. And we've talked about a number of other issues through the period. And we've been working through those. I guess it would be -- it's been very positive that we've seen the EBIT increase through the period, probably not as strong as we would have liked, but we've been very cautionary about the way we've been taking profit in that business. Still quite a lot of work to do, particularly out of Australia. Australia has gone through a big ramp-up in numbers over the last 18 months or so. Extra ship -- additional shipyard opened down the way from us in Henderson to build a Japanese ferry. And they have 2 large ferries that they are going to be delivering over the next few months as well in addition to Cape Class Patrol Boats for Trinidad and Guardian Class vessels, which are in production in the yard as well. And just a footnote there that the commercial market continues to remain positive. It was very buoyant 2 -- but, sorry, 3 to 4 years ago that we predicted about 4 years ago. That did come through. That's what's driven the production -- the strength of production over the last year or so. That market is still good and positive, not quite as strong perhaps as it was 3 or 4 years ago, but definitely will continue as a significant part of our business into the future. I think the important takeaway though for Australasia is that now we've got those new facilities in place, the commercial ferry building business is now in a much stronger position to compete around the world. If I turn to Page 6 just before we go into the financials, interesting picture there on Page 6 of the President of the United States handing over -- gifting a scale model of an Austal designed and built Littoral Combat Ship to Prime Minister Morrison during a state visit in September 2019. So if any picture ever captures the importance of this program between Australia and the United States, I think that one does. So I'll hand over now to Greg Jason who will take you through the detailed -- the detail of the financial report.

Good morning, everybody. I am on Slide 8, which is the group earnings slide. As David said, we had record revenue for the first half and record NPAT. We missed the $1 billion mark in the second half of FY '19 by something like $86,000 and certainly cleared the hurdle by $39 million in the first half of 2020. 22% increase in revenue had $44 million of FX tailwinds on translation predominantly from USA. Within that, we had almost $80 million improved contribution from USA, which is the strength of the orders gained in FY '19 flowing into 2020 as the work commences. Australasia contributed about $100 million to that increase, which is reflective of the expansion that we've gone through in Philippines, Vietnam and Western Australia. At the EBIT level, you can see the 48% increase. So just to help understand why we've got 48% increase at EBIT level, clearly, we got the benefit of the improved throughput and revenue. And we've also got an EBIT margin improvement. At a group level, the math works out to about a 1 percentage point improvement in EBIT margin. And when we go across to the next slide, which is the segment breakdown, you can see that, that was symmetrical with a 1 percentage point increase on both Australasia and USA. Going down to NPAT, extra $17.1 million and an even greater percentage increase. So clearly, the volume and the margin benefit that was reflected in EBIT flowed through to NPAT and EPS, but we also had improvement at net interest expense with greater cash returns on cash invested in financial institutions like the banks. And we have also seen a reduction in the effective tax rate. So I know that the analysts will love the number of 29 because it can't get much closer to the 30%. So it won't cause too much consternation. But the decrease there from 35% really is driven by 2 factors. One is that we had less deliveries out of the USA during the first half, and they generate royalties between our 2 countries for IP. And per the annual report and the half year notes, we've got some additional tax expense there as we work through a double tax issue with the ATO. And we've been cautious there about the way we recognize tax to reflect that double tax until we do get resolution. And we also got benefit from the improved performance out of Australia driving a lower effective rate. In terms of that 29% rate, about 13 percentage points of that is paid in cash, about 12 percentage points is being offset with R&D credits in USA, and the balance of it is deferred tax expense for future periods. Turning across to Slide 9, which is the segment breakdown. Starting top left quadrant, U.S. shipbuilding, 13% increase in revenue to $675 million and the 1 percentage point increase in EBIT margin. There's 2 key drivers to that EBIT margin improvement. One is that as we progress through the LCS within the original block buy contracts, which goes up to LCS 26, we've got progressively improved margins. They're small increments, but ship by ship, they're better than the one before. And the second factor is that there is a growing influence and contribution from the LCS that we've won after 26. So I'm referring to vessels 28 and below. And as they represent a greater share of the work, they're having a positive impact on the margin. Support for the first half in USA was absolute bumper level. We went up from $90 million to almost $130 million in throughput and also saw a really substantial lift in the margin there. We don't see that 9.4% is a permanent shift in the margins from that business. We still think that somewhere around 7% to 8% is a typical level versus the inflated level we've had here. A couple of drivers for the higher level in FY '20 first half were some award fee on some work previously done and also a greater mix of some fixed price where you'd expect, of course, that we'd get slightly higher margins than cost-plus work where the risks are fairly lower. Moving down to Australasia. We had more than 50% increase in throughput, going up to almost $210 million of revenue. That was driving a 91% improvement in EBIT. But we recognized at an EBIT margin level, the increase was modest, only going from 1.9% to 2.4%. And David referred to some of the drivers there. We've doubled the workforce over a couple of years, and we have had growing pains there, which has influenced productivity. We have also had some supply chain issues also contributing to delays, which we referred to in the ASX release. We've been cautious and flagged to the market that we've been cautious over the past couple of years. And we've still got some work to do and risks that remain in the second half as we've got 4 large vehicle passenger ferries that are either delivered or very close to being delivered by 30 June. So whilst the business has climbed the mountain, there is still some work to be done to get those vessels across the land. Support business has been flat in terms of total throughput, but there has been some mix change within that. We've done some more work on Guardian Class Patrol Boats, ISS work, and that has contributed additional margin. We've done a bit more work on Cape Class, and we've got the Armidale Class work that contributed to '19 falling away. We've still got the in-service support contracts with each of the Australian Border Force for the first 8 Capes and with the Royal Australian Navy for Capes 9 and 10. The bumper margin that went from 5% to over 10% for the first half was predominantly driven by some one-off jobs that we did, clearly strong margin during the first half. And it won't necessarily stay off at that level going forward. Looking at page -- onto Slide 10, which is the cash flow slide. $22 million of operating cash flow. Clearly a lot lower than the first half '19, but very simple driver in there was the fact that we had a lot of progress payments in advance during FY '19, and we are always going to be consuming those progress payments in advance within Australasia during 2020. So progress payments in advance have gone down by $40 million. Meaning we've consumed $40 million of cash for the half, and there's still some more on the balance sheet, which you can say, which will be consumed through second half of 2020. We had the build-up of USA with some significant Support jobs sitting in work in progress at December 31. We liberated a lot of cash out of debtors, but also paid down a significant chunk of creditors at the same time. So the net working capital movement across work in progress, progress payments in advance, debtors and creditors was $30 million negative without a provision and then you can see the interest and tax within the full -- half year report getting us down to $22 million. Investing at sustaining CapEx level with typical levels, enhancing capital is significantly reduced with Asia now being expanded. We didn't repeat the Go Zone debt repayments during the first half of 2020. As flagged 6 months ago, we've suspended the debt reduction in lieu of the pending decision on FFG that can have some capital requirements around facilities and work in progress. If we win that, we'll be moving to a higher magnitude contract that could cause some build-up of the balance sheet. Lease principle split out simply because of the new lease standard that's applied for 2020 first half. Dividends reflect the $0.03 that was paid a few months ago. And all of that gives us a net cash flow position just under 0, and hence, a movement of cash at bank same number. So still very strong cash at bank position. Support $0.03 for the same reason that we suspended the Go Zone repayments. We have not changed the interim dividend about $0.03. We need to get the outcome of the FFG position and then consider the position going forward from the full year. Net cash was almost flat, $152 million. I remind you that, that excludes the notional debt associated with Cape Class Patrol Boats 9 and 10. We had a really positive step forward with those ships during the half in that the original 3-year lease term was due to mature April and May 2020 for each of the 2 ships. And in August of '19, we announced that NAB, the Commonwealth of Australia and Austal have agreed terms to add 2 years to the life of those leases, which means they now run out to April and May 2022 as the significant reduction in commercial risk is the fact that the residual buyback guarantee for 2020 was $42 million, and that is now reducing to $24.3 million by 2022. And we see potential for those ships to carry on for perhaps another 2 to 3 years after that, which would further improve the position. Finally, Slide 11, the net cash/net debt slide. We've talked about the fact that cash is flat from June to December, and you can see the typical levels of volatility, with a very nice high and a not so pretty low in that time. But if you look back over the entire period, you can see that is consistent with our trends. Handing back to you, David.

Okay. If I can wrap up, I guess, Page 12, FY 2020 update. You can see from that, that we have increased or upgraded our EBIT guidance from what was $105 million to $110 million for the full year and retained our revenue and U.S. shipbuilding margin guidance. Probably what I'd just like to spend the last couple of minutes talking about though is significant what I think are some strong overall macro drivers that remain strong across our business. First of all, it remains the case that the United States Navy, who is such an important customer to us, have declared -- there's a congressional law that they will increase the size of the United States Navy over what appears to be in the next 10 to 15 years by about 20% to 355 ships. That can be nothing but positive for our business over there. In addition, the pivot of the U.S. Navy -- part of the U.S. Navy to Asia is well underway, and that means that more vessels are being deployed in Asia. And that is increasing the maintenance opportunities for Austal. And we've made note of the fact that our new position in Singapore is -- for the U.S. is showing significantly increased levels of revenue. And that comes at the same time when we're seeing a marked change in posture, defense posture across Asia -- across that Asian region, as countries are now increasingly focused on improving the capability and improving -- and increasing the size of their naval forces in the region. And it's almost every country that we see in Asia from Japan to Korea to Indonesia to Philippines and Vietnam across that area, looking at how they improve and increase the size of their navies. And what we've seen is -- and I think that puts us, too, in a very strong position. We've really refocused our efforts on defense out of what was strongly the Middle East a few years ago to Asia and that appears to be having some success. And I think one of the reasons why this is going to be an interesting period for us is it comes at the same time that the Commonwealth of Australia has invested heavily in a policy program for supporting defense exports around the world and particularly in Asia. And we've seen a completely different level of involvement and support of the Commonwealth over the last couple of years, really since Christopher Pyne announced the Defense Export Strategy about 3 years ago. And proof -- the best proof is always in the pudding, and the sales that we made of vessels to Trinidad and Tobago, and I know that's not Asia, but nonetheless was undoubtedly enabled and triggered by the Commonwealth. The original contact with Trinidad and Tobago around those vessels was through Prime Minister Turnbull at the time and foreign secretary Bishop at the time who then invited Prime Minister of Trinidad to this country. There was -- they were hosted by the Navy here. And the result of that -- and supported by export finance, credits from Export Finance Australia. And the result of all of that was the sale of 2 Cape vessels, which are now in production in Henderson and a 94-meter ferry that is in production in Vietnam. And I think that's a model that we'll see more of in the future and is going to create some real strength in our export opportunities. In addition to that, the ferry market is still there. We predicted a strong growth in it 4 years ago. That bow wave of activity has come through, and we're seeing that in sales now. But we're also seeing the underlying dynamics of that business strengthen. And we're seeing significant passenger number increases in Europe and in Asia on the ferry market as more people choose to travel and travel by ferry. Quite significant increases that will drive vessel growth over the next few years. And of course, we've done that at the same time as we've completely repositioned the cost base of our ferry business by creating 2 very efficient new facilities in Asia. And I can tell you that the fundamental cost base of those facilities will compete with anything that China can produce. So that puts us in a strong position for a long period of time. We've always been successful in the large ferry market where we have such a differentiated position. But these low-cost yachts also allow us, I think, to gather more volume through the sort of smaller end of the market as well where there's more competition. And we continue to be, as I said, continue to be very differentiated in that market given that we're still the only designer and builder of trimaran ferries around the world. And over half of our ferry production now -- in fact, I think it's half of our ferry production now is trimarans, a market that -- in which we have no competition with a product that gives great benefits to ferry owners, particularly in ocean-going-type environments. And I'll finish by saying that the strength of the business has allowed us to invest in research and development. We're seeing, as you know, around the world unprecedented changes in technology, driven by artificial intelligence and big data type analytics as well as the move to low-carbon footprint. And so our R&D programs very much match that. Unmanned vessel capabilities in the United States being developed over there. New large steel patrol boats that we think are particularly useful in Asia, larger derivatives of the Cape Class vessel but steel vessels. But also investing heavily in digital control and monitoring systems that improves the efficiency and capability of our vessels. Investing in LNG-powered, understanding how to power vessels by using LNG and battery power as well, which we believe will have an increasing feature in the small end of the ferry market, particularly around Europe over the next couple of years. So making sure that we're using the position that we have at the moment, the strength that we have at the moment to invest and properly and wisely in having the capability for the longer term as the market continues to evolve both in the defense market and in the commercial market as well. Okay. That brings our presentation to an end, and I think we'll turn over to Q&A.

[Operator Instructions] We will take our first question today from the line of Russell Gill from JPMorgan.

A couple of questions. The U.S. shipbuilding margin has improved rapidly over the last couple of years. You did call out some one-off benefits in the first half, but is a very high number at the top of your guidance range. If we think forward into the FFG(X) program, obviously, you've got the LCS and the EPF at, I guess, peak efficiencies, how we should be thinking about the margin that the shipbuilding program could basically be delivering in a post-2024 world under the FFG(X) given the ramp-up in that on the basis that you guys are the sole provider of the program?

I think it's too early really, Russell, to start thinking about how that might blend in. Program hasn't been awarded yet. And there's a lot of water to go under that bridge. We're one of 4 contestants in that. So I think it's early days. I mean, obviously, the great advantage we have in EPF and LCS is they're very mature programs and they're performing extremely well. And we've got a few years of that ahead of us before we would see a substantial impact of the LCS program -- sorry, of the FFG program.

Yes, yes, sure. And then you did indicate that you're not paying back the Go Zone bonds on the chance that you might need the capital for the program. Can you just give us a feel for what sort of capital investment you think would be required into the shipyard?

So we haven't announced a number for that, Russell. What we have said is that it's the net of grants that we would get from local authorities in the United States. The investment is not huge. It's more really actually about working capital going forward. But I think the dividend story is partly about FFG, but it's also about opportunities to invest in the business to continue to grow from where we are. And we've talked about, for instance, that growing our Support sustainment business around the world, particularly in the United States, but around the world, in general, is a key focus for us, and we're always conscious of the sort of medium term -- medium- to long-term volatility around the capital projects business and the components of that business. And so growing the Support business is a real focus for us. And we believe that there are opportunities to use capital to lead that forward from the position that we're in today.

And I guess just if we work through scenarios, what would the shipyard look like? You just mentioned that there's autonomous vessels going, but it's a much smaller program in that basis and you mentioned the maintenance work, but what would the shipyard look like, I guess, in FY '25 if you weren't successful? And secondly, if another bid was successful, I guess, on the design element, do you think you're in a position to construct somebody else's vessel if it's made out of steel and your focus has been in aluminum? Just some comments around those potential alternatives.

Yes. I think, as I indicated earlier, kind of the macro view that you need to take here is that there is a significant increase in the size of the United States Navy planned. And this is the biggest increase plan since the -- since Ronald Reagan was President and the Cold War was underway. And that will need all of the shipyard capacity in the United States to be running hard in order to make that happen. So -- however, the next few years work out, it's always difficult to tell when you're in competitive programs. But, however, the next few years work out, I think there will be substantial opportunities for Austal. And built on the back of the fact that the reputation of the business in the United States is so strong as well is delivering vessels, is delivering them on time, is delivering to quality. The cost base of our shipyard in the United States is very low compared to other competitors. So we're in a very sort of positive and strong and appreciated position. And I think the combination of that growth in the United States and how well the shipyard is doing says what, however, this kind of plays out over the next 2 or 3 years, whatever the programs are that come through, we'd expect to see the continuing into the future. Quite how that will be will really depend on the way those programs kind of play out. I think the other thing that I mentioned on the way through is we're much more confident about the future of EPF and the variations to EPF than perhaps we were a few years ago. And we're seeing the upgrade, the medical enhancements to EPF 14 of particular note because that isn't a one-ship program. That's likely to -- in our view, is likely to be a multi-ship program which will take EPF production well into the future. And that's a great strength of the business as well. So hard for me to sit here and give you an exact answer to that other than to say, as I've said, that the kind of macro picture across the board is strong.

Great. And just 2 final questions. Just some comments, I'll just ask at the same time. Just some comments on press reports about LCSes 1 through 4 being retired. Obviously, they were concept vessels and was done in conjunction with General Dynamics. But just some comments around that. Or whether there'll be some retrofitting of those vessels? And then secondly, you did mention about partnerships and importance of governments. The Philippine OPV program is, of course, going to be quiet. I was wondering if you possibly can give an update of that and where that basically sits at the moment?

So as far as LCS is concerned, you're right, the first 4 LCSs, so 2 of us and 2 of the Lockheed Martin vessels that announced are going to retire them from service. One of those vessels was being used as a training vessel and one of them had never been -- our vessels have never been upgraded to the full and current LCS standard. So I don't think we're particularly surprised by that. We have seen commentary recently that, that is the end of it. There is no intention to retire any more vessels. And indeed, what we've actually been seeing is greater levels of deployment of these vessels around the world. So there are 2 LCS vessels now deployed, fully deployed in the Asian Pacific region, and that's been good. That's been buoying our Support business in Singapore. And I think that will continue now. The pivot to Asia means that we -- I anticipate that we will see LCS deployed and increasingly deployed across the region. As far as the Philippines is concerned, you're right that the Philippine government made statements about the OPV program several months ago. These things don't happen as quickly as the commercial ferry orders. What -- but there's no negative news for us to give you on that. That program is continuing to move forward. We have a reasonable degree of confidence about that. But defense programs by their very nature are things that are hard to predict in terms of order intake and certainty. But we're certainly putting a lot of effort, a lot of time, and there's a number of people putting personal time into that program. And I think it's a good another example really of us focusing very hard on the Asian region and looking at some very significant programs in a growing market.

Our next question today will come from the line of Sam Teeger from Citi.

Very strong result today. You guys are doing a great job over there. In terms of the first question, yes, just keen to explore the guidance in a bit more detail. Firstly, just wanting to understand what's the source of the upgrade to $110 million? Is it Support or something else? And secondly, given Austal has already printed $60 million in EBIT for the first half, you only need $50 million to hit the low end of the range, which is below what you did last year, and considering that margins in Australasia and the U.S. are heading up, you could argue that the guidance is conservative. What are you seeing out there right now that makes you want to be conservative? And what are the key risks you're focused on?

Yes, sure. So I think the simple answer to the first part of your question is the $60 million in the first half is what gives us the $110 million basis to go from $105 million to $110 million to continue that. The obvious math is to say $60 million can become $120 million for the full year. We would say that's possible, but we don't have the confidence today to say that $120 million is a floor. And so when you think about the bumper Support profit and margin in USA for the first half, if that had come back to the typical margins that we expect from that part of the business, that would be almost $5 million of the result. If you look at the first half LCS EPS shipbuilding margin aggregated at 8.1%, and you took that back to the lower end of the range, then that would also take off about $5 million. So you can see how $60 million in the first half could have been $50 million, and hence, the basis for saying $110 million for the full year. We're also cautious about Australasia as when I was going through that particular slide of the segment note, saying we are being very careful about navigating through those ships that are under construction. There is still distance to go. The good news is that a couple of them have been launched with -- so I mean, 2 of the big 4 with 2 more to come over the next few months. But we're still going to go through the commissioning and trials and ultimately, technical acceptance by the customer. That is the trigger for delivery. And we just don't want to get ahead of ourselves at all. So we are seeing risks that still exist in Australasia as we get through the completion of those ships. Have I touched on to the points that you raised, Sam?

Yes, that's very helpful, Greg. But just when you say the $60 million could become $120 million for the full year, would you say that's the higher end of it -- of what it could be or it could be even more than $120 million?

I don't have any comment about where it will end up other than what we put in the ASX that says we see a floor of $110 million.

Okay, cool. Just in terms of the second question, can you guys please give an update on Subic Bay and on OPV? We can see that some of the Thais are making a bid. And what do you think of their prospects? And will they be building their OPV relatively like you or in Thailand?

Yes. There's -- when you're dealing with government programs, there's nothing confidential is there? I think the Thai thing is noise, and it's not something we're concerned or involved in at all. I just think it's noise. You always get -- when you're going through the defense programs, you always get companies making announcements about offers that they're making in order to create some profile in a program. But look, I think that the thing about the Philippines for us is that we've invested heavily in the Philippines. We've been there for 7 or 8 years. We've bought a shipyard. We've taken the workforce from 2 or 3 to nearly 1,000 people over that period of time. We've gone from building small, relatively simple ships to extremely large, very complex ships there. We've done a lot of training, a lot of development. There's all sorts of outreach programs that we do in the Philippines. And that has put us in a great position. We're the only yard there capable of making large military ships for defense. And like every nation in the world, the Filipino government would like to see more of its naval forces -- vessels going into its naval forces built in its own country. And we're capable of doing that. And that puts us in a great position out of Cebu. There's been nothing but success out of Cebu and both for the country and for us. And I think that's going to help us in defense programs going forward. There has been a lot of commentary about Subic Bay, which is a very large shipyard just North of Manila. We'll see how that goes. I think there's a few months to travel before we see the outcome of that, and we'll talk about that when there's certainty rather than when there's speculation.

But would Subic Bay be before or after OPV?

Hard to tell. It could go either way and it could go no way, Sam. I -- they are different programs, though. The OPV program, if it went ahead with Austal, could be built in our existing facilities in Cebu. Subic Bay is a bigger, heavier facility capable of building bigger, heavier ships than we would normally be able to build in, in Cebu. So that's how it would fit in.

Sure. And you mentioned before that the EPF 15 funding will be taken to pay for the border wall. And can you talk about whether -- even if you're in the Frigate whether you're going to have to scale down Mobile for a period of time in a few years and for how long? Or do you think the medical ships fill the gap? And with the medical ships, when you say, it could be a multiship program, should we be thinking 5, 10, 20? Can you give maybe some type of magnitude? And just in terms of scaling down Mobile, just in the context that, I think Congressman Byrne had some concerns that jobs could be endangered?

Yes, he's playing politics. I mean, remember, he's a Democrat who's playing politics against the Republican president. So we shouldn't get too worried about the politics going on around all of that. I think it's unfortunate that EPF 15 went -- came out of the budget. I think it's a short-term issue. We've had well over $10 billion worth of orders in the United States, and this is the first time we're seeing something go backwards. I just hope that part of the world gets built out of aluminum plate and not out of steel. In terms of how the yard goes in the future, I think in a year's time, we'll have a much better understanding of that as we see a few programs come to fruition in one way or another, and then we'll be able to talk about it with a degree of certainty.

Right. I'm sorry, just the medical ships in terms of -- when you say multiships, what were you thinking?

So we don't have a view yet on the number of ships. I think the point is, one medical variant for a fleet the size of the United States Navy seems like a long way short of what they'll require. And as long as the vessel meets the demands that they have for it, and I'm sure it will, then I think there are a lot more opportunities. There is a 4-structure review due to be published sometime in the next few months that will give more detail about how they see the structure of the United States Navy going forward. And I think that will give us some real insights into EPF going forward.