Austal (ASX:ASB) executives highlighted a record order book, rising revenue and earnings, and expanding Australian defense work during the company’s FY2026 half-year results call, while also addressing weaker margins in U.S. shipbuilding, cash flow pressure from delayed milestone payments, and an auditor qualification tied to judgment on two U.S. programs.
Record order book driven by Australian landing craft contracts
Chief Executive Officer Paddy Gregg said the company’s Strategic Shipbuilding Agreement has “provided the backbone for significant contract awards in Australia,” including the signing of the Landing Craft Medium contract before Christmas and the Landing Craft Heavy contract the prior week. Gregg said the two contracts total about AUD 5 billion and lift the order book to a record AUD 17.7 billion.
The CEO also noted that Austal signed two additional Evolved Cape-class vessels before Christmas, and said the company expects to start general purpose frigate contract discussions with the Commonwealth of Australia in the current financial year.
Financial performance: double-digit growth, segment mix shifting
Chief Financial Officer Christian Johnstone said Austal delivered “double-digit growth across all key financial performance metrics” in the half, including revenue, earnings, and NPAT. Group revenue increased 34.4%, which he described as “solid growth across the group,” with all segments experiencing growth.
Johnstone said USA shipbuilding revenue rose 29%, driven by increased revenue from the OPC, T-ATS, and submarine contracts, which more than offset completion of the LCS and EPF programs. USA support revenue increased 11%, primarily due to the additive manufacturing business, which he said is “performing strongly.”
In Australasia, Johnstone said shipbuilding revenue increased 83%, citing two drivers: the appointment of Austal as the Commonwealth of Australia’s sovereign shipbuilder, and early work performed on the Landing Craft Medium and Landing Craft Heavy contracts for the Australian Army. He said work completed from Asian shipyards also contributed strongly. Australasia support revenue improved 27% due to higher servicing work from an expanding fleet requiring sustainment services.
On profitability, Johnstone reported EBITDA of AUD 60 million for the half, up 41% across the group. He said earnings growth was mixed by segment, and that geographic diversification helped manage variances. He singled out Australasia shipbuilding earnings growth of “over 600%,” helped by the landing craft programs and commercial shipbuilding activity in the Philippines and Vietnam. Australasia support posted earnings growth of “over 400%.”
By contrast, he said U.S. shipbuilding earnings contracted due to margin compression from the wind-down of LCS and EPF, early-stage ramp-up of the OPC and TAGOS programs, and “two onerous contracts that continue to dampen margins.” The U.S. support business was “steady” during the six months.
Johnstone said the group is now 96% defense-weighted and, with growth in Australasia, is nearing a 70/30 split between the U.S. and Australasia.
Auditor qualification tied to T-ATS and AFDM judgment
Johnstone noted that the company’s auditors included a qualification in their review opinion “relating specifically to the judgment on the T-ATS and AFDM programs.” He said the company is in ongoing discussions with its sole U.S. customer and is seeking some contractual relief, and that while Austal believes it has sufficient evidence to support its judgments related to that relief, Deloitte “concluded that they need additional evidence above what has been provided.” He directed investors to the notes in the half-year report for further detail.
Gregg separately said the company has settled a Request for Equitable Adjustment on T-ATS, describing it as evidence of a strong customer relationship. He also said Austal has become the lead yard for the program and is discussing the implications with the customer.
Cash, receivables, and capital projects
Johnstone said the balance sheet remained stable, with net assets “over AUD 1.3 billion.” Austal ended the period with a cash balance of $371.6 million (as stated on the call), though cash reduced during the half. Johnstone attributed the decline to investment in U.S. growth infrastructure and working capital needs as production increased.
Trade receivables rose 43% to $211 million, which Johnstone said reflected higher production in the six-month period. He said the overall cash position decreased by $212 million, including $131 million of capital expenditure on the MMF3 and FA2 projects. Cash flow from operations was -$63 million, which Johnstone said reflected the two onerous U.S. contracts and late receipt of customer payments. He said collections would be “a key focus” in the second half.
During Q&A, executives confirmed that delayed milestone payments referenced by an analyst had since been received, though not in time to be included in the December balance. Gregg also said the company does not provide cash flow guidance.
On capital projects, Gregg said both MMF3 and FA2 are fully funded, under construction, and tracking to budget, adding that MMF3 is ahead of schedule. He said phase I is targeted to open in the fourth quarter of the current financial year, earlier than previously expected, and that earlier opening could support earnings in the fourth quarter if achieved.
Margins, ramp-up timing, and guidance revision explanation
Addressing margin concerns, Gregg said U.S. shipbuilding was “slightly lower than we wanted it to be,” but he expects improvement as programs come online and stability returns. He said both the U.S. and Australian businesses target EBIT margins in the “7%–10%” range common in defense shipbuilding, and later characterized the typical band as “7%, 8%, 9%.” He also said the new Australian contracts are expected to be in a similar range, driven by government procurement rules and risk allocation.
On production timing, Gregg said both Landing Craft Medium and Landing Craft Heavy are expected to “cut metal” in the last quarter of the calendar year and reach steady-state production over about 18 months. He said the Heavy design is more mature, as it is an existing vessel that has previously been built.
Executives also addressed the previously announced guidance revision, which Gregg said was caused by a forecasting error. In response to a question, Johnstone said the error occurred during the half-year close process and involved inadvertent double counting on one U.S. program in an onerous contract position, due to the need to book both earned revenue for the half and forecast revenue over the full program. He said additional internal control and program checks are being implemented to prevent recurrence.
In closing remarks, Gregg said the company’s growth pillars include rising defense expenditure, a record order book, and ongoing investment in capacity and capability. He also pointed to additional opportunities including AUKUS-related submarine modules and technology initiatives, adding that the company is executing the strategy it set out five years ago.
About Austal (ASX:ASB)
Austal Limited engages in the design, manufacture, and support of vessels for commercial and defense customers worldwide. It operates in four segments: USA Shipbuilding, USA Support, Australasia Shipbuilding, and Australasia Support. The company offers passenger only ferries, vehicle passenger ferries, and offshore and windfarm vessels; and naval and other defense vessels, as well as patrol boats for government law enforcement and border protection agencies. It also develops and integrates advanced vessel control and information management systems, including MARINELINK, an integrated monitoring and control system; and motion control systems and interceptors.
