Highlights

• Austal USA has attracted two indicative, non-binding bids from US-based parties, and no binding agreement has been announced.

• Group Revenue rose 11% to a record $2.03 billion in FY2026, but the group recorded an EBIT loss of $125.2 million.

• Australasia delivered record EBIT of $85.3 million, up 137 per cent, supported by Australian defence programmes.

• The board is committed to returning to profitability in FY2027, though it is not providing group Earnings guidance.

Why would a shipbuilder with a record order book consider selling the Business that generates two-thirds of its revenue? For Austal Limited (ASX:ASB), the answer lies in the contrast between its two halves. Its Australian operations posted record earnings in FY2026, while Austal USA, its shipyard in Mobile, Alabama, swung to a heavy loss on legacy contracts. Two US-based parties have now put indicative prices on that American business.

No binding agreement has been announced.

Two businesses under one name

Austal designs, builds and maintains naval and government vessels. Revenue comes from shipbuilding contracts and from support work maintaining fleets already in service.

In the year to 30 June 2026, group revenue rose 11 per cent to a record $2.03 billion. Austal USA contributed $1.38 billion, covering programmes for the US Navy and Coast Guard as well as submarine module construction. Australasia, which includes yards in Western Australia, the Philippines and Vietnam, contributed $650.7 million, up 49 per cent.

The profit picture was very different. The group reported an EBIT loss of $125.2 million, compared with a $113.4 million profit in FY2025, and a net loss of $53.6 million. No Dividend was declared.

What went wrong in the United States

Austal USA's EBIT loss was $202.8 million, against a $97.7 million profit a year earlier, and shipbuilding alone lost $224.9 million. The company booked a non-cash provision against onerous contracts after the US Department of War declined to agree to accelerated contractual relief.

Austal has started a formal process to recover additional costs from its move to become lead yard on the T-ATS towing and salvage ship, the Coast Guard's Offshore Patrol Cutter and a landing craft programme. Management said on its results call that the provision was its best estimate of the cost of completing those contracts, and that it did not expect further deterioration. It also said discussions were under way over a possible restructure of the cutter contract, as the Coast Guard had not yet taken delivery of any vessels.

US support revenue fell 16.5 per cent to $242.4 million as Littoral Combat Ship deployments changed.

The bids for Austal USA

Hanwha Defense USA lodged a conditional, non-binding proposal in August 2026 to buy Austal USA for an Enterprise value of US$1.05 billion to US$1.20 billion on a cash-free, debt-free basis. The proposal excludes the listed parent and its Australian, Philippine and Vietnamese operations. It is subject to due diligence, final agreements and US clearances, including from the Committee on Foreign Investment in the United States and the Defense Counterintelligence and Security Agency.

In September, Wildcat Infrastructure made a separate non-binding indication of interest at US$1.25 billion to US$1.35 billion, conditional on four weeks of due diligence.

In mid-October, Austal extended Hanwha's Due Diligence period and said commercial negotiations had begun. It said the original parameters had not changed and that it was taking tax advice. Austal has said any sale would not affect its Strategic Shipbuilding Agreement with the Australian Government.

The Australian growth story

Australasia delivered record EBIT of $85.3 million, up 137 per cent, as shipbuilding revenue rose about 80 per cent. The business has a long programme of Australian Defence work under the strategic shipbuilding arrangement, including about $1.03 billion for 18 Landing Craft Medium, with final delivery in 2032, and about $4 billion for eight Landing Craft Heavy, running to 2038.

Austal has also won four more Evolved Cape-class patrol boats for the Australian Border Force, worth more than $285 million. It has selected a site in the Henderson defence precinct south of Perth and secured $245 million of Debt funding from the National Reconstruction Fund Corporation for infrastructure supporting the heavy landing craft contract.

The group order book stood at a record $16.5 billion including options, according to the AGM presentation. Chief executive Paddy Gregg has described a pathway to doubling Australasian revenue within five years.

Cash, spending and the outlook

Heavy investment has drawn down cash. Net cash fell from $453.1 million to $186.3 million over FY2026, as Operating Cash Flow dropped to $62.5 million and Capital Expenditure rose to $352.7 million. Much of that went into a third module Manufacturing Facility in Mobile for US submarine work, due for completion in December 2026. Austal had $435 million of undrawn debt facilities, and reported net cash of $240 million at 31 July.

The board has said it is committed to returning to profitability in FY2027, but it is not providing group earnings guidance because a sale of the US business would materially change the numbers. The AGM presentation said Australasian EBIT was expected to grow by more than 30 per cent from the $44 million base used in that document, apparently a different measure from the $85.3 million segment result.

Risks and what to monitor

The sale process is the central uncertainty. Both offers are indicative and conditional, and Austal has warned there is no certainty a transaction will proceed. Any deal needs US approvals, and price, tax and use of proceeds will determine what shareholders receive.

If no sale proceeds, Austal keeps exposure to the loss-making US contracts while it pursues cost recovery from the US Government, a process with uncertain timing and outcome. The submarine module work offers growth, but depends on hiring: the workforce for that programme rose from about 200 in February to more than 600 by October, with a target above 1,000 by December.

In Australia, the challenge is delivery. Austal has said it needs to recruit about 1,000 more people over three to four years to meet its landing craft schedule, and fixed-price defence contracts can erode margins if costs run ahead of plan.

Developments to watch include any binding agreement on Austal USA, progress on US cost recovery and the Offshore Patrol Cutter, completion of the Mobile module facility, the start of landing craft construction, and the next half-year result.