SEVEN years ago, Greg Norman taught listed Henderson-based shipbuilder Austal a valuable lesson; and it had nothing to do with backswings or fairways.
The golfer commissioned Austal operation Oceanfast to build a 70-metre aluminium-hulled luxury yacht, engineered for long-range ocean cruising, and meticulously fitted out.
The contract was considered a coup that would result in huge publicity, even if the local shipbuilder made minimal profit from the $70 million sale price.
In late 2002, Austal financial documents revealed it had blown its budget on the extravagant yacht, named Aussie Rules by the golfing legend. Investors sold down the shipbuilder's stock, causing a 20 per cent one-day dive in its share price, as shareholders contemplated the lost millions.
Mr Norman fared much better. He was rumoured to have pocketed several million dollars when he sold the yacht to Wayne Huizenga, founder of Blockbuster Video.
"That one is still burnt deep into our psyche," US-based Austal managing director Bob Browning told WA Business News on a recent trip to Western Australia.
Mr Browning joined the Austal board in 2003, while he was at the helm of energy company Alinta. He took charge of the shipbuilder's US operations in 2007 after an ill-fated management buyout attempt at the energy company.
Austal appears to have learned its lesson, as the shipbuilder now earns bigger margins on leisure craft than commercial and defence contracts.
Nonetheless, while the Aussie Rules story will remain an interesting incident in Austal's history, defence contracts appear to represent its future.
Mr Browning said income generated from US defence contracts would increase from about one-third to two-thirds of annual turnover in the next three years.
"It's important to get them on budget because they are fixed-fee contracts," he said.
On top of a string of publicised US Navy contracts - including the construction of two Littoral Combat Ships - the US Department of Defence has options for several further contracts potentially worth billions of dollars to the shipbuilder over the next four years.
Austal's US-based shipyard, in Mobile, Alabama, employs almost 1,000 workers. The global business expects to double its total workforce to 5,000 in the next couple of years.
Austal reported a substantial fall in net profit during the slowdown, which it blamed on increasing costs to administer military contract compliance, higher tendering costs and provisions for doubtful debts.
Mr Browning said the comforting thing about the economic downturn was that decisions concerning construction contracts had been pushed back, not cancelled.
"We think we've been through the bottom of cycle," he said. "The order book is starting to come back now."
The shipbuilder was also weighed down by the collapse of client Hawaii Superferry, to which Austal provided a $US21 million loan for the construction of two high-speed vessels, resulting in a write-down of the loan.
Mr Browning described the incident as "frustrating", and has not ruled out eventually getting Austal's money back if a viable legal action is put together.
"If that eventually grows legs that would put us back in the game," Mr Browning said.
Meanwhile, the shipbuilder has other ferry contracts to concentrate on, such as the construction of a high-speed vehicle-passenger ferry for a Maltese operator, and a ferry for a Danish operator, both of which are to be built in Henderson.
Austal appears to have cemented strong relations in the US, which included a recent visit to the Henderson offices by Alabama governor Bob Riley.
Alabama is financially backing a new Austal manufacturing facility in the US, which it expects will provide even further employment to its residents.
Mr Browning said even though the US was a very important market to the shipbuilder, he remained resistant to a dual stock market listing.
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