Good afternoon, ladies and gentlemen. Wow, that's a little loud. On behalf of the board, I'd like to welcome you to the 2026 Annual General Meeting for Austal Limited. My name is Richard Spencer, and I'm the Non-Executive Chair of Austal Limited. This is a shareholders' meeting, and only shareholders, their proxies, attorneys, and authorized representatives are entitled to speak. This meeting is being webcast to shareholders who are unable to attend in person. As it is a webcast, virtual participants will be able to listen to the meeting live and view the presentation materials, but not be able to ask questions, make comments, or vote through the webcast facility. I'd like to introduce my fellow directors who you can see at the table. Lee Goddard, if you could raise your hand, Lee, who's been on the board since January of 2023 and will be put forward for reelection today.
Kath Toohey, who joined us in February of 2024 and also Chair of the Nomination and Remuneration Committee. Brent Cubis, who commenced in October of 2024. Richard Gibb, who commenced in June of last year, and Sue Murphy, who joined us September of last year and chairs the Risk and Audit Committee. And of course, ladies and gentlemen, Paddy Gregg, our Chief Executive Officer. Each of the board members present is able to assist in answering your questions going forward. We also have representatives from the company's auditors and external legal advisors. Austal shareholders, guests, ladies and gentlemen, when I stood in this position in 2025, I remarked at the high level of activity that occurred in the past 12 months. Well, to quote an American colloquialism, 2026 looked at 2025 and said, "Hold my beer. I'll show you activity." The breadth and cadence of activity actually increased.
Also, when I stood here in 2025, we had just signed the Strategic Shipbuilding Agreement with the Commonwealth of Australia. I said at that time, the importance of the SSA to Austal could not be overstated because it effectively anointed Austal as the shipbuilder of tier two vessels for the next 20+ years, providing outstanding forward visibility of our production schedule and potential order book in the tens of billions of dollars when those programs are combined.
That description was quickly franked six weeks later when Austal signed a AUD 1 billion contract to build 18 Landing Craft Medium for the Australian Army. Then two months later, we signed a AUD 4 billion contract to build eight of the Damen-designed Heavy Landing Craft here in Henderson. So that was AUD 5 billion of new contracts for Australian construction in just two months. The benefits of those contracts for Austal are enormous.
Just to highlight, they fill our order book and facilities for the next 10+ years. They provide see-through revenue visibility for the next 10+ years. They provide certainty to invest in capital upgrades at Henderson. They give our employees the opportunity to develop meaningful careers with Austal. They offer opportunities for our supply chain partners. They give us the ability to showcase our skills and efficiency so that the future award of the General Purpose Frigate build program can be in Austal's grasp. It also strengthens Austal's position as a leading local employer and contributor to Western Australian and Australian economies. We spent most of calendar year 2026 refining the designs for the Landing Craft Medium and getting into the minutia for the already mature Landing Craft Heavy design from Damen. Landing Craft Medium will be built at our existing facilities in Henderson.
Modules for the Landing Craft Heavy will be built both at Henderson and our Hope Valley Road operations. The modules will then be assembled at the Common User Facility in the Henderson precinct. Shareholders may have seen last week's announcement that the National Reconstruction Fund was contributing AUD 245 million to finance the infrastructure required to turn the Common User Facility into a major shipbuilding facility to be used by Austal. The next opportunity for us, ladies and gentlemen, is the Mogami-class General Purpose Frigate, which will be built in Henderson. Winning the contract to build is a significant opportunity for Austal and one that we'll be pursuing vigorously. Early discussions have been promising, and it's likely that this contract will be awarded in fiscal year 2028.
The other major development during the year, which has dominated investors' attention of late, has been the offer we received in February by Hanwha for the purchase of Austal USA's business. This was followed by a subsequent offer from Wildcat Infrastructure to purchase Austal USA from Austal Limited. The level of activity in Australia, the Strategic Shipbuilding Agreement with the Commonwealth, the associated Landing Craft Medium and Landing Craft Heavy contracts, and the Mogami opportunity that I've just talked about allowed Austal to view these offers in an entirely different prism than we would have 12 months ago. Prior to that, the SSA I beg your pardon.
Prior to the SSA, a sale of Austal USA, despite its contracting issues, would have been difficult to entertain and harder to navigate because the size and scale of the Australian business would not have been sufficient to support it as a continued listing on the ASX. But now with a AUD 5 billion order book, 10+ year runway of work, and the opportunity to secure the General Purpose Frigate, Austal Australia can definitely stand alone as an independent financial organization. Turning our attention to those two non-binding indicative offers that Austal has received to sell Austal USA business. Austal remains in negotiations with both companies. But I can say the Hanwha negotiations are significantly more advanced as we announced to the marketplace October 14th that we have afforded Hanwha more time to submit a binding proposal offer.
At this point in time, we have yet to receive that binding proposal from Hanwha. There's no guarantee that we will receive a binding proposal, but based on the negotiations that are occurring and the fact that we are down to discussing transaction documentation, I have confidence that it is not far away. Our October 14th announcement also noted that the negotiations were proceeding under the original parameters of the transaction. That wording, ladies and gentlemen, is important, as it clearly signaled that after conducting significant due diligence, the original price range of $1.05 billion-$1.2 billion remained on foot and would be the basis on which the transaction documentation could progress. The board will assess any final and binding offer against the usual metrics used to assess whether the transaction meets the board's requirement to act in the best interest of you, the shareholders.
Austal USA is also a strategic asset that has much value. No other asset is available for a foreign shipbuilder to immediately become the United States' fifth largest military shipbuilder overnight, and it is unlikely to become again available ever. In describing Austal USA as an asset, it is not limited to the land and infrastructure at Mobile, Alabama. It is the contracts it possesses now, the contracts available to it in the future, our role in accelerating the delivery of strategically crucial nuclear U.S. submarines, and the ability, skills, and workmanship of the 5,000 men and women in Mobile, Alabama, that deliver high-quality ships and submarine modules on a regular cadence to our key partners. Austal, if you remember, was the first international shipbuilder contracted to deliver vessels for the United States Defense Force.
Our shipyard in the United States was established in 1999, and we have invested considerable capital and technology effort over nearly three decades to build the business where it stands today. At the same time, we have acknowledged that the U.S. operations lost a significant amount of money in fiscal year 2026. The contracts are onerous, and the request for equitable adjustment process, which is to receive money back from the government for our efforts, is a long and uncertain road. We had hoped to negotiate accelerated contractual relief instead of going down this formal REA process. Earlier this year to our question, the Department of War indicated that they would not agree to that, at least at the time being, and it narrowed our options to go forward.
This was obviously disappointing, but it's important to also note that Austal's contractual right to be made whole for the numerous variations and for assuming the role of the lead yard instead of the follow-on yard for three different programs has not been disputed. Only the process used to recover the variations has changed at this point in time. I want to acknowledge the work that our executive team members at both corporate headquarters and Austal USA have been working day and night to respond to the data request as part of the due diligence process in this effort. It has been a massive task that they have tackled stoically. While our defense business has been in the spotlight, I do want to shine some light on our smaller commercial ferry operations in both Vietnam and the Philippines.
The trend towards the construction of low, and in some cases, zero emission commercial ferries is now well established. This is evident in our build of a 130-m combined cycle hydrogen-ready vehicle passenger ferry for Gotland. Horizon X program they call it. This high-speed RoPax catamaran isn't just the largest vessel ever constructed by Austal. We are unaware of any other companies in the marketplace enjoying this highly efficient combined cycle propulsion system for high-speed craft anywhere in the world. The construction of a 67-m wind-powered trimaran for VELA is a next- generation cargo ship designed to slash emissions on transatlantic routes. It has been engineered to operate on 100% wind propulsion, supported by solar generation and a hydro generator to transport high-value, low-volume cargo, which will include cosmetics and luxury goods across the Atlantic Ocean. These are important contracts and they are important trends.
I look forward to the continued contribution from that part of the Australasian business. Excuse me. Paddy will go into our fiscal year 2026 results in more detail, but I think it's important to acknowledge the following. For the only second time in Austal history, revenue topped the AUD 2 billion mark in 2026. As explained earlier, contract issues in the U.S. meant that we didn't derive the earnings we should have from the revenue figure, so our operations there incurred a $173 million earnings before interest and tax loss. However, the AUD 62 million EBIT recorded by Australasia was 72% higher than the previous corresponding period. Australasian profits will be increasingly relevant going forward, particularly if the Austal USA business is divested.
When we put it together, the group reported a loss of AUD 112.8 million at the earnings before interest and tax level, and a loss of AUD 106.4 million after interest and tax. Austal does retain a robust balance sheet, and the liquidity position and significant cash at the banks and undrawn debt facilities of AUD 435 million, which provides significant liquidity to support ongoing operations and growth embedded in its excellent order book. There was a large expected cash spend in fiscal year 2026 as we progressed on our two largest expansion programs in Mobile. The build of Final Assembly Plant 2, which we call FA2, which will service vessels such as the Offshore Patrol Cutter, and Module Manufacturing 3, which is solely dedicated to submarine modules. These will be tremendous assets for Austal USA now and into the future.
MMF 3 is already part operational after phase one was opened this past June. When completed, the building will support approximately 1,000 new jobs. As I have noted previously, our prime focus is ensuring that our employees go home safely every single day. Safety at Austal is non-negotiable. Our medical treatment injury rate for fiscal 2026 was in line with the prior year. While it was pleasing to see that the lost time injury frequency rate declined after an unexpected increase the year before. On behalf of the board, I want to thank each and every Austal employee for their contribution to our company. Without them, this would be impossible. I would also like to thank you, our shareholders, for your ongoing support. I'd also like to thank our customers for recognizing our capabilities and the talents of our people and trusting us with their shipbuilding needs.
As a former Marine, I know more than most the importance of a quality vessel to defend our nation's borders and protect those who serve aboard. Austal is absolutely invested in making sure we meet the demands of our customers to meet that mark. At the same time, ladies and gentlemen, we also need to meet the requirements of you shareholders to build and sustain these vessels profitably. That hasn't occurred in 2026, for the reasons explained earlier. Know that the board and management are 100% focused on returning Austal to profitability in 2027, and then growing our business from whatever form it might take in the future. Thank you very much. Now I would like to introduce Paddy Gregg, our CEO.
Good afternoon, everybody. I' m going to take you through results from last year, a bit of an overview in the business, what's happening, and then leave you with a video at the end, which highlights what's coming here in Western Australia. I' m sure most of you will know this, but Austal at a glance, AUD 2 billion of revenue, a fantastic order book, both in the U.S. and here in Australia based on the two Landing Craft programs we signed this year. It gives us about 4,500 employees globally, and five shipyards around the world. Why only four flags? As Richard highlighted, there are two facilities we operate out of here in Perth, the 100 Clarence Beach Road that you will all know, and the Hope Valley Yard in the naval base. So a good year of delivery, 32 ships ordered, six ships delivered.
It is very important that we are delivering for our customers. The AUD 16.5 billion order book corresponds to about 75 ships that are either under construction or scheduled for construction going forward. Not only are we building, we're sustaining ships in maintenance, so 78 ships that we're working on around the globe through eight service centers around the world. Key locations, as I'm sure most of you are aware, head office here in Perth, with operations Brisbane, Cairns, and Darwin doing maintenance. Coverage with the customer in Canberra, our commercial yards in Vũng Tàu and Balamban in Vietnam and the Philippines, and then maintenance operations in San Diego, the main shipyard in Mobile, some smaller operations out of Trinidad and Tobago, and additive manufacturing up in Danville, just outside of Washington. So, lots going on around the world and continuing to invest in the business.
The overview, Richard talked through the highlights of this. Revenue increasing and will continue to increase going forward based on the order book. So very exciting time. There is growth in the business. Record order book, absolutely fantastic for us. Very pleased with how that's looking. But with some of the challenges in the U.S. then, the overall EBIT position, pretty unhealthy for the company. But really done to be as transparent as possible around due diligence and the Hanwha operations. For me, the growth in the Australasia business is incredibly exciting and the performance in Australasia last year was exceptional. So my congratulations to the team that delivered that. And lots more to come.
It is really a very exciting time for us as the revenue grows, the profit grows, the support business grows, record level order book, and all underpinned by that strong relationship we have got with the Commonwealth of Australia through the Strategic Shipbuilding Agreement, our enduring relationship with Navy, our new relationship that's forming very nicely with the Army because the two Landing Craft programs get delivered to Army, and of course, the Australian Border Force with the Capes that we're still delivering. The U.S. business, we see that shipbuilding revenue growing as the program options that are in the order book are exercised. The submarine module production facilities is mind-blowing. I was in that facility a couple of weeks ago when I was over there. We've opened phase one of that.
Phase two should open at the back end of this year. That will see 1,000 people building submarine modules. Remember, those submarine modules, some of them are for the Virginia-class submarines that will actually be delivered to Australia. Very nice feeling that an Australian company building bits of the submarines that under AUKUS will ultimately come to Australia. Some challenges in the support revenue as ships are deployed based on some of the conflicts we've seen around the world.
As Richard pointed out, either there'll be a transaction or we will focus on returning that business to profitability, and we' ve got a lot of work to do with our customers on those contracts. Again, Richard has talked about the Hanwha position, but sort of underpinning last year's results and overview of the business. You see it coming through the segments. Fantastic in Australasia, which is very exciting going forward.
As Richard said, that gives us the confidence it truly can stand on its own two feet and will be in very good shape going forward. Then you see some of the challenges coming through the U.S. business. I really look at the business as four parts. We've got the shipbuilding bit of the business, which is having challenging times at the minute based on the contracts. But the maintenance part of the business, the additive manufacturing part of the business, and the submarines part of the business still performing well. But shipbuilding being such a key part of it, pretty challenging time. Overall, the business is about 95% defense these days. We've stood up here for years and talked about ferries and where they've gone all over the world. But a real change over the last couple of years in the business.
95% defense, 5% commercial work these days. That growth story in Australasia, very, very exciting for us. We just expect revenue to grow year- on- year. That is based on the existing Landing Craft Medium contracts that have been signed. That sees us through the next 10 years. Getting into General Purpose Frigate and negotiations there, that will be enormous. That could be in the AUD 15 billion-AUD 20 billion contract range. Biggest contract Austal would have ever signed globally. The team have embarked on that piece of work, ready to submit a response to the Commonwealth in April 2028. That could put 20 years of work into this business. Something we've never been able to talk about before. When I have stood up here in years gone by, I have talked about maybe an 18-month, two-year look ahead.
To be standing here today talking about the possibility of a 20-year look ahead is really very exciting for this business going forward. Looking in Australasia, what is going on? We completed the Guardian-c lass program this year. That was an excellent program. 24 of those delivered to Pacific Island nations, r eally demonstrating steel capability, so steel-hulled vessels with an aluminum superstructure. The Evolved Cape-c lass program continues. We are still building Capes for the Australian Border Force at the minute, and just cut metal on the Landing Craft Medium project and indeed the Landing Craft Heavy project. Those are absolutely getting through the design, signed off as ready for start of construction. Then, as I talked about, moving into contract negotiations on General Purpose Frigate.
The picture down at the bottom is me and Gavin from our defense team over in the Mitsubishi shipyard in Nagasaki in Japan, just commencing that relationship and those negotiations with Mitsubishi. Commercial world, some exciting and interesting stuff. The VELA sailing trimaran will be an amazing project. We've got some keen sailors in our business that have never seen ships of this size, and Gordon tells me he's ready to go to the top of the mast if there are any problems. Good luck, Gordon. Aluminum ships, steel ships, high-speed ships, and as Richard said, very exciting, the Gotland vessel, the 130-m low-emission vessel. Really exciting going forward. Looking at defense over time, you can sort of see how far that order book is going to go out, the number of vessels, the volume that we've got.
Very exciting whenever we can build 18 vessels, we can really demonstrate how efficiently we can do that. 24 in the Guardian-c lass program, and we saw excellent learning curve and our team's really getting used to how we build those. Very nice in the defense world where we get multiple vessels, 18, eight, eight, six. A very nice business to have, rather than the hard work in the commercial world where we've got to go out and win one and win one. No matter what I say to the sales team, it's a different design every time. A lot more risk but very exciting and you just see that amazing growth in the order book and the backlog that we've got. Recently you would've seen announcements around the defense precinct.
It's been a long time coming, but we are very pleased that they have announced the overall layout. We will be building Landing Craft Medium in our existing shipyard up here. We know in the future we will be moving into a new built facility in this area. We'd previously announced that we had secured the common user facility for the build of the Landing Craft Heavy vessels. Good to see that the shipbuilding sustainment precinct that will be developed by the Commonwealth is right where we're building those ships. There'll be a bit of a jigsaw as we develop and build the shipyard while we deliver the Landing Craft Heavy program.
We've already started working with the Commonwealth in terms of what does that look like, and a little artist's impression of the existing common user facility main building with some of the new block building facilities, blast and paint facilities, that we will be establishing on that site to help deliver that program. Looking at the U.S., submarine modules, very, very exciting for us. A real area of growth and an order book that we think will just continue forever. You have all read in the press how late the Virginia-class programs are, how many submarines they are behind. We're very proud that we're a big part of that program and trying to help accelerate it. Indeed, the investment, the $450 million that's being invested on our site in a bespoke facility to enable advancement in submarine module manufacturing is a great opportunity for our U.S. team.
Shipbuilding, five of the Landing Craft under construction. Started work on the second OPC this year. The T-ATS vessels still continuing. As Richard said, some of these programs are pretty challenging, all based on the design information that we were supplied with. While it's not going to be easy and it's going to take time, we believe we've got good contractual entitlement to get those contracts resolved and get that business back to profitability. The floating dock that we've talked about for a long time received its certification and has been used and is in use. So a good opportunity for us to keep growing the support business in the United States. What does that order book look like? We finished the LCS program this year. That has been a great program with 19 of those ships delivered.
We are on the last EPF vessel at the minute. Then Towing, Salvage and Rescue vessels underway, LCU underway, TAGOS still in design, Offshore Patrol Cutter underway, and the submarines modules underway. So again, good opportunity for us to recruit the people and grow the revenue in the United States, all based on orders that we've got today, not me promising you that I'm going to go and win work and grow this order book. We see years and years and years of revenue growth based on how successful we've been in the last couple of years. Sustainment business, you see the bottom right, that is the new floating dock in San Diego. I can assure you that it did come back up after it went under, which is the main trick for these things.
That should allow us to keep increasing that support revenue both in the U.S. as we get more work through the San Diego yard with the floating dock, and as we deliver more vessels to Border Force here in Australia, the number of Capes that are out there for us to look at is still growing. Technology. Always got one eye on the future, can not stand still. So, I think it will be no surprise to you that we have a team looking at autonomous capability. Some of you may remember we did a project with an amazing company, Greenroom , based here in Freo, and did an old Armidale vessel as an autonomous demonstrator for the Commonwealth. We are developing these proposals right now.
The technology team and the research and development team very focused on what that looks like because we think it is going to be a big part of the future. MARINELINK Prime, one of our existing products, making sure that we continue to develop these and our offerings are match fit and absolutely correct for customers going forward. No surprise, we've done a lot of work with motion control over the years and leading the world in T-foils and trim tabs, et cetera, and algorithms that help keep ships stable at sea. So, going forward, increasing defense expenditure, massive order book, and our strategic position is in an absolutely fantastic place. I think both in the U.S. and here in Australia. We see defense spend tailwinds. The world isn't getting safer anytime soon.
A lot of the geographies that these troubles are surrounded by ocean, so we think it's a great time to be in shipbuilding in the defense sector. That Shipbuilding Agreement with the Commonwealth is a wonderful thing, and having that long-term partnership put so much certainty into our business going forward. The business performing well, starting to ramp up on Landing Craft Medium and Heavy. The U.S. business, we need to focus on those contractual issues and getting them resolved. But very strong outlook in the submarines world. Just a huge volume of work that we can go and attack as the building comes online. Technology business performing very well, and some of the opportunities of what we've learned in the United States on the 3D printing additive manufacture work, can we bring that back to Australia?
Trying to demonstrate to the Commonwealth the advantages of having us as a strategic partner and what we can bring back to Australia from what we've learned around the globe. The precinct upgrades, a lot of focus to be put on that. Strong government investment coming. Absolutely fantastic position to be in. Great that government have announced it, and we'll be working alongside them to make sure that gets delivered in time for the back end of the Landing Craft Heavy program, and indeed, the General Purpose Frigate program, building the Mogami- class from Japan after that. So lots of exciting things happening. Traditionally, we give financial guidance at the AGM to help people out. We recognize it's a complex business.
We're not going to do that for the U.S. business at this time based on what's happening, but we are pleased to announce that we see an EBIT growth in excess of 30% in the Australasia business going forward. So all underpinned by that fantastic order book and all of these programs coming online. Very exciting time for the business to grow going forward. Just before I finish with the video, we had the Land Forces conference here in Perth a couple of weeks ago. We had amazing support from the Commonwealth of Australia, whether that was through the Deputy Prime Minister, Richard Marles, whether that was with the Minister for Defence Industry, Pat Conroy.
You see our Premier, Roger Cook, also supporting us, and great to start building that relationship with the Chief of Army there, who spent a lot of time with us at the show and brought a large team of people down to the shipyard the day after the show finished to just really cement that relationship, get the teams working together, building that partnership for delivering what's going to be a really exciting Landing Craft Medium and Landing Craft Heavy program. So I will finish with a little video to help you understand what these Landing Craft Medium and Landing Craft Heavy ships will look like.
Inspiring. Ladies and gentlemen, at this time, we would like to take questions from you, the shareholders. My request is that you stand, and when given the microphone, state your full name and then ask your question. We have our expertise here at the table to answer your questions. Who is manning the mics? There we go.
Good afternoon. I'm Ros Ferguson, representing the Australian Shareholders’ Association with proxy votes from 15 shareholders today, representing about 223,000 shares. We congratulate Austal on your record order book and the strong results for the Australasian segment this year. Couple of questions, please. What proportion of the order book is onerous? If the Offshore Patrol Cutter contract also became onerous, how much of the order book would be at risk? What assurance can you give that Austal USA can still build steel hulled vessels profitably?
I'm happy to answer that. Yes, so good question. I don't know what proportion of the order book it would be, but we've declared everything in the full year results. That is audited. As a business, you would expect we've been through every program with a fine-tooth comb to understand any potential challenges that we have in there. We've brought in external experts from the industry to help assist with that analysis, and all of that gets audited by our auditors at Deloitte. We' re not overly proud of what has happened in the U.S., but we've taken every measure we possibly can to ensure we fully understand it and we won't have these issues going forward.
Thank you. Question two, on the potential sale of Austal USA, you've given us a good update today about where we're at. Just wondering, can you share any of the points that are still open for negotiation?
Yes. The present status is we are developing the purchase and sale agreement, the purchase and sale contract that will define the actual transaction itself. So we're in a first-round drafting session. We generate it, we flip it over to Hanwha, and we have some back and forth, obviously. That's a very meaningful part of a transaction right there. They have spent six weeks? Eight weeks.
Eight.
Eight weeks in due diligence on the company, so they have a good handle on where we stand and where the contract stands. So we feel comfortable that we'll go forward with this. Obviously, I can't guarantee anything, but if you ask me where the comfort zone is, I think we're leaning positively in that regard.
Mm-hmm. Thank you.
In the back. Yep.
My name's Anne Pryor. I'm a long-term shareholder. In fact, I precede all of the faces up the front in terms of association with this company. Not Mr. Rothwell, I have to say. Look, I'm really concerned about these contracts. Having an order book and having revenue is fine, but the objective of the exercise is to make a profit. Now, I know that we've got a wonderful example of how not to make a profit with Snowy 2.0, but I'm just absolutely astounded that the T-ATS program, the contract loss was 106% of the contract. Then the auxiliary floating dry dock overrun was something like 85% of the contract price, and the Landing Craft Utility was 35%. So we've got actually three contracts there, and I suppose you could say that moving from 106% overrun to a 35% overrun is a slight improvement.
I think the shareholders deserve an explanation and a walkthrough o f how this happened. I could understand on one occasion, but not three occasions, how you've got such significant overruns. Could you give us a walkthrough how this happened? What have you learned? Are these lessons transferable to work in Australasia?
Excellent question. Let me walk you through some of the somewhat arcane processes of the federal acquisition process in the U.S. We bid two of the programs, let's talk LCU and T-ATS. We bid those contracts as a follow-on contract because there was already a lead yard, and the importance of that data point is the lead yard contract allows for cost recoup because you're building it for the first time. Yes, you have a should-cost number that the provider provides, and at the end of the day, much like building a house, there's going to be change orders, and you actually add those in, and the government compensates you for that. When you've got a follow-on contract, most the "bugs" have been worked out, and you enjoy the learning curve of speed of assembly and efficiency of assembly going forward with the other hulls.
What happened here, and it's a compliment in an ironic way at Austal, is in T-ATS and LCU, our speed of building the ship surpassed the lead shipyard by a factor, in the case of T-ATS, somewhere around 14 months we were ahead of the lead yard. Now, all of a sudden, we are first of ship, and we are incurring all the costs as first of ship without a contractual vehicle to capture that. Were we stupid to do that? No. Traditionally, the way the U.S. government acquisition system works is you keep track of all your costs, and then there's a settle-up period. Sometimes costs, an REA, a request for equitable adjustment, but sometimes in a negotiation, a renegotiation and restructuring of the contract.
We had started with the United States Navy in January of this year to restructure the T-ATS and LCU contracts to make them profitable. We had progress to the point we were talking about how we would take possible losses on the existing ships we had, and the Navy was going to make up margin on the follow-on ships, so as a portfolio would have a healthy, sustainable margin. The Secretary of the Navy, who we were dealing with, got fired in the end of March. All of a sudden, the tide changed, and the Department of War took over the contract. They turned around and told us, "There'll be no renegotiation of contract." We had no idea where this came from.
We had no idea their standing as to why this would happen, because right now the biggest penalty is being handed to the United States Navy, which also doesn't understand why they're not getting their ships due to a contract renegotiation. The OPC, which is the Coast Guard ship, was in a similar fashion, where it was a follow-on contract. Our speed to delivery overtook the lead yard, and we were again in the number one lead ship capability. The Coast Guard sat down with us, and we're in the process now of renegotiating the contract to make it profitable. As arcane as that might sound, that is military shipbuilding in the United States of America. You will make money at the end of the day, and there' s a process to do it. This administration has chosen a different path, to be very frank with you.
We don't know why they're doing it, but that's the path that they've taken. Unfortunately, at our position in the contract, we had to sustain that loss. Do we have avenues and equities available to us going forward? Yes, we do. Can I tell you exactly when those will happen and the dollar amount? That, I cannot at this point in time. I hope that provides some insight.
Can I just add something? We haven't actually lost all of that money at this point in time. The way accounting standards work is if a contract's deemed onerous, you run out the forward part of the expenditure and the forward part of the revenue you would expect to get, and that's all taken in one year. So although we have lost some money, we haven't lost AUD 200 million. It would be if we continued and did nothing else and ran those contracts out as per the contract we have at the moment, that would be what we would lose. That's correct. I'm checking my auditor here. Yes.
Could I ask why were the two T-ATS program ships canceled?
That was part of the request for equitable adjustment that we went through the year before, and we were doing that for portfolio balancing to go forward to make it a profitable program. That is a perfect example of the standard process. Last year, we were behind the curve quite a bit, and we sat down with the Navy and said, "How can we get whole on this?" And part of the outcome was the canceling of those two ships in order for us to regain footing going forward. We would expect to have another renegotiation, which was the one that was supposed to happen this spring, when all of a sudden the Department of War overrode the Navy and said, "You're not going to restructure contracts."
Good afternoon. Andrew Jenkin, shareholder. A relatively recent shareholder. So my question is, this impairment that we're talking about, how does that factor in with the Hanwha deal? I'm assuming that there's going to be some discount applied by the buyer, and they take the responsibility for recovering those costs. So, when the deal with Hanwha is made, effectively that disappears off Austal's balance sheet?
That's another great question. A discount, no, because they have the same availability to them to restructure the contract. Which in the irony of everything, the Department of War is actually entertaining restructuring the contracts for them. The good news is we get full value on the sale. Does that answer your question?
Yes.
Thank you. Any other questions? Okay, we'll move on. The next item on the agenda, which is the Directors' Report and the financial statements of the company. The annual financial statements of the company for the year ended 30 June 2026 were released on the ASX on 31 August 2026. There's no voting on this item. Instead, shareholders have the opportunity to ask questions of those reports. Are there any questions of the financial reports? Excellent. There being no further questions, we'll now proceed to the resolutions to be considered. All resolutions will be put to the poll. However, there will be an opportunity to ask questions relating to each resolution before the poll is taken. I will ask a representative from the company's share registry to conduct the poll at the end of the meeting after all resolutions have been considered.
Please bear with me, because I'm going to be reading word for word off this to make sure we get it correctly, because my chief counsel is watching me. Resolution number one is for the adoption of the Remuneration Report. The resolution is set out on the screen next to me, and I will give you a moment to read it. I note that a vote on this resolution is not binding on the company. The proxies shown on the slide beside me have been received in respect to the resolution. Although I am personally excluded from voting on this resolution, I will vote the undirected proxies I hold in favor of this resolution. Are there any questions for this resolution? Yes.
Ros Ferguson, representing ASA. We are concerned that the board exercised discretion to allow the FY 2026 STI assessment to proceed despite the profit gate. However, we weighed this against the Australasian segment's strong performance and the board's further downward discretion, so we will be voting in favor of resolution one. Going forward, we have concerns about the FY 2027 framework. The reduced STI equity component and deferral period, and the LTI relative TSR vesting beginning at the 30th percentile do not meet ASA guidelines. The LTI issue bears directly on resolution nine, and for that reason, we'll be voting against that. We would welcome any comments. Thank you.
Look, thank you for that comment. Thank you for your support of resolution one. I would say that this was a difficult decision for the board, but I think it was the right decision to award STI the way we did. Where we ended up in FY 2026 was a large loss for our U.S. business, albeit an accounting loss, and a loss that we believe we have strong legal claim to recoup. For the U.S. business, we awarded no STI as a result. For our Australian business, as you've heard, it was a record profit. We' re very conscious that we need to win General Purpose Frigate. The winning of General Purpose Frigate is based on performance with the Landing Craft. So we chose to award STI, albeit the president of Australasia had 1/3 of his STI deducted.
Then, of course, for the limited execs, they were given no payout for the U.S. business, payout for the Australian business plus revenue. So it was a balanced approach, and I put my hand on my heart, we believe it is the right approach for the company. With respect to the remuneration framework moving forward, we've spent the last 18 months working with a global remuneration consultancy. A lot of work and a lot of thought has gone into that framework. It started with benchmarking all of our base salaries, and then we looked at the incentive frameworks for both the U.S. business and the Australasian business. I have heard that the relative TSR hurdles are maybe different to what you are used to.
A threshold of relative TSR at the 30th percentile is normal for the U.S., and of course, the U.S. is a big part of our business. We also looked at the payout for the last 10 years against relative TSR, and using a range of between the 50th and the 75th percentile. In all but one of those years, the payout was zero or stretch. The reason for that is our shares are really volatile compared to the index. So what we have done with the framework moving forward is we have expanded our range. It used to be 50th to the 75th percentile. We have changed it to the 30th to the 85th percentile.
So we want to make sure that the LTI operates as designed. We want to retain our people, and hence, we've decided to expand the range of the payout. It has been different to what people have been used to, but we've been pleasantly surprised that when we explain it to folk, generally they are quite supportive.
Thank you, Kath. Moving to resolution two. It concerns the reelection of Lee Goddard as a director. The resolution is set out on the screen next to me. I will vote the undirected proxies in favor of the resolution. Are there any questions? Thank you. Resolutions three, four, five, six, and seven deal with the issue of share rights to some of the non-executive directors of Austal. At the last six annual general meetings, shareholders approved the grants of share rights to non-executive directors so that participating directors will be remunerated through a combination of 75% cash and 25% share rights. Resolutions three, four, five, six, and seven seek shareholder approval to continue the grant share rights for 12 months following this annual meeting. Do I have any questions? Moving on to resolution three. It concerns the approval of the issue of the share rights to Lee Goddard.
I will vote the undirected proxies in favor of this resolution. Are there any questions in this specific case? Thank you. We will move to resolution number four, which concerns the approval of the issue of share rights to Kath Toohey. I will vote the undirected proxies in favor of the resolution. Are there any questions? Thank you. We'll move to resolution five, which concerns the approval of the issue of rights shares to Brent Cubis. I will vote the undirected proxies in favor of the resolution. Are there any questions? Thank you. We'll move to resolution number six, which concerns the approval of issue of share rights to Richard Gibb. I will vote the undirected proxies in favor of the resolution. Are there any questions? Thank you. Moving to resolution seven, concerns the approval of the issue of share rights to Sue Murphy.
I will vote the undirected proxies in favor of the resolution. Are there any questions in this case? Thank you. We'll now move to resolution eight. Resolution eight concerns the approval to issue the STI rights to Mr. Patrick Gregg. The resolution is set out on the screen next to me. I will vote the undirected proxy in favor of the resolution. Are there any questions in relations to this resolution? Thank you. We'll now move to resolution nine, which concerns the approval to issue the LTI rights to Mr. Patrick Gregg. The resolution is set out on the screen next to me. I will be voting the undirected proxies in favor of the resolution. Are there any questions relating to this resolution? Thank you.
We will now move to resolution 10, which concerns the approval of potential benefits under the equity incentive plans in connection with the transfer of the undertaking or property. Resolution is set out on the screen before me. I will be voting the undirected proxy. Excuse me? Oh, sorry.
Thank you. Ros Ferguson, representing ASA. Although we understand the context, we are concerned about the lack of detail in resolution 10. Could you explain why a three-year general approval with no cap is preferable to seeking approval for a specific transaction once the terms are known? We would prefer proposed benefits to be subject to specific shareholder approval, which we understand the Corporations Act permits. Thank you for your time today.
Appreciate that. Duly noted. I will be voting the undirected proxies in favor of this resolution. We had a statement, duly noted. Any questions? Other questions.
Richard, would you let me just-
Certainly.
Maybe at the heart of your question, we see this as a bit of housekeeping to make sure that the board has maximum flexibility related to payouts against the incentive plan. We don't know if there is a transaction, and if there is a transaction, we don't know what it will look like. We want to make sure that if a transaction is in the best interest of shareholders, we can move as quickly as we need to. I would highlight that this does not provide for any additional remuneration benefits, and the LTI plan is not changed at all by this resolution. So the board still has discretion in terms of the award of equity rights.
Any other questions? I now direct the poll be held in relation to each one of these resolutions. Lyndal Weston from MUFG Corporate Markets, Austal share registry provider, will conduct the poll. I retain the right to make all final decisions on who may vote, the votes cast, and the declaration of the results of the poll. I ask Lyndal to come forward to announce the directions in relation to the conduct of the poll procedure. Lyndal?
The persons entitled to vote on this poll are all shareholders, representatives, and proxy holders who hold yellow voting cards. Please indicate on your card how you wish to vote by marking the appropriate square for all resolutions. You must mark either the for or against box for your vote to count. If you wish to cast some of your votes for the resolution and some of your votes against the resolution, you must write the number of votes you are casting in the for box, and again, write the number of votes you are casting in the against box. The sum of the votes cast for or against the resolution must not exceed your voting entitlement. If you are a proxy holder, a summary of the votes to which you are entitled has been provided with the voting card.
If you only have directed votes, you would need to do nothing other than submit the voting card. Votes at your discretion or open votes are shown in the column titled Votes Open on your proxy summary and can be cast at your discretion by marking either the for or against box. Once you have finished marking your card, please place it in one of the ballot boxes circulating the room. If you need assistance, please speak to one of the MUFG representatives. Thank you.
It passed. I believe all those persons who wish to vote in the poll have now done so. If there's anyone present who has not yet had their completed poll paper collected from them by the MUFG staff, would you please raise your hand? Seeing no hands. All persons have now voted. I declare the poll is now closed. I do not intend to keep the meeting open while the poll results are collected. The results of the poll will be announced to the ASX as required. There being no further business, I now declare the meeting closed, and thank you for your attendance. I would like to invite you to enjoy an afternoon tea and refreshments, and be advised, unfortunately, we must vacate the premises by 5:00 P.M. Thank you all very much.