Austal hit with huge fine over US accounting fraud

Austal is facing a profit wipeout after agreeing to pay a $US24 million ($35m) fine to settle a long-running fraud investigation involving the government-anointed defence shipbuilder in the US.

The settlement with the Securities and Exchange Commission and the US Department of Justice in its biggest market avoids a damaging prosecution as the Forrest family-backed Austal awaits potentially billions of dollars of new contracts to build the Royal Australian Navy’s new generation of warships.

The fraud probe related to three senior managers at Austal’s flagship US business who are accused of manipulating financial information to overstate its financial results between 2013 and 2016, thereby inflating revenue and profit figures at the listed Australian parent.

Austal said on Monday that under its plea deal, the group has also agreed to appoint an independent monitor for three years to scrutinise its compliance program.

The fine is payable in instalments over the next 12 months.

However, Austal will take a $US32m provision in its upcoming 2024 accounts to cover the penalty, and legal and compliance costs.

The Austal US management trio, including the company’s former US president Craig Perciavalle, was charged last year with conspiring to understate the costs of building littoral combat ships for the US Navy to meet their budget, hiding the deception from the board and then lying to auditors.

All three – Perciavalle, former director of financial analysis Joseph Runkel and Austal’s one-time head of the LCS program William Adams - have since left the company.

The charges have yet to be proven.

The SEC alleges that the men understated the LCS costs by more than $US400m in the 2014 to 2016 financial years, boosting Austal’s earnings before interest and tax for the period by $US100m.

The alleged fraud enabled the US group to meet analyst forecasts, sending Austal shares higher.

“Settling this action is the best outcome for Austal,” the company’s founder and recently retired chairman, John Rothwell, said.

“Upon learning of this issue, Austal conducted its own independent investigation.

“The responsible individuals are no longer with the company and we have made numerous governance changes to prevent similar issues from occurring again.

“Austal is committed to maintaining strong financial systems and controls.”

Mr Rothwell said Austal’s customers remained supportive.

“Prior to resolving this action we satisfied ourselves, through discussions with our main customers, that it would not affect current or potential build programs,” he said.

Austal has gained strategic importance since the Government earmarked the company to become its shipbuilder of choice for billions of dollars in new warships expected to be built at Henderson for the RAN.

That has spurred takeover interest in the company, which has rejected a $1 billion takeover approach by South Korea’s Hanwha.

Austal has refused to engage with the suitor, arguing that there is little prospect of it winning the defence approvals it needs in the US and Australia to complete a takeover.

Founder and outgoing chairman John Rothwell said two months ago that while he would be guided by the interests of shareholders, he preferred if need be, the business was owned by Australian or US interests.

Mr Rothwell has 9 per cent of Austal and is its biggest individual shareholder behind the 19.9 per cent stake held by Andrew and Nicola Forrest.