REG - Harland & Wolff - Execution of FSS Subcontract

Harland & Wolff groupAnnouncement

01/02/2023 07:00

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RNS Number : 4984O  Harland & Wolff Group Holdings PLC  01 February 2023

This announcement contains inside information

1 February 2023

 

Harland & Wolff Group Holdings plc

("Harland & Wolff" or the "Company")

Execution of the Fleet Solid Support Programme ("FSS" or "Programme")
Subcontract

Harland & Wolff Group Holdings plc (AIM: HARL), the UK quoted company
focused on strategic infrastructure projects and physical asset lifecycle
management, is pleased to announce that, further to its announcement on 18
January 2023 regarding the execution of the Fleet Solid Support Programme's
Manufacture Contract between the Ministry of Defence ("MOD") and Navantia UK
Limited ("Navantia"), the Company has now formally executed the Subcontract
with Navantia UK Limited (the "Subcontract").

Under the terms of the Subcontract, the Company will be responsible for
delivering works which are expected to generate revenues of between £700
million and £800 million to the Company by the time the final vessel is
delivered. This is a significant win for Harland & Wolff and will propel
the Company to the next stage of its development.

The Subcontract is for a duration of seven years commencing in 2023 and ending
in 2031. As part of this Programme, the Company will be responsible for the
fabrication of various blocks including some mega blocks (i.e., a block
incorporating several standard sized blocks) as well as the procurement of a
number of items of equipment to be installed on each vessel in Belfast. Given
Appledore's experience in the fabrication of the bow sections for the Queen
Elizabeth Class aircraft carriers - HMS Queen Elizabeth and the Prince of
Wales, all three bow sections for this Programme will be fabricated in
Appledore prior to being transported to Belfast. The three vessels will have
all the blocks assembled, consolidated, fully integrated and commissioned
before proceeding to sea trials from the Belfast facility, marking a return to
shipbuilding in Belfast after over twenty years.

Full scale fabrication is due to commence in 2025 with the vessels due to be
delivered to meet the MOD's objective to bring three ships into service by
2032. However, the Company expects to generate approximately £25 million in
revenues from pre-fabrication works in 2023, and a similar sum in 2024. The
Programme's gross margins are expected to maintain the Group's previously
advised overall blended gross margins.

The Belfast and Appledore facilities will benefit from a £77 million capital
investment programme ("Recapitalisation Plan") during the next 24 months., In
Belfast, an extension to the fabrication halls will be undertaken to
facilitate a highly dynamic material and sub-structure production flow along
with a highly efficient manufacturing and production process. Investments will
be made in technologically advanced robotic and autonomous equipment that
includes material movement, marking, plate cutting, panel lines and robotic
welding. In addition, new larger paint buildings will be constructed to
facilitate larger and more efficient block painting.  The investments in this
site will ensure that the Company has one of the most technologically advanced
marine fabrication facilities in the United Kingdom with the latest
state-of-the-art machinery and production flows.  Appledore will benefit from
upgrades to the shipyard roof along with investments in additional automated
machinery that includes the relocation of the existing micro panel line from
Belfast.

This Subcontract will be a significant and historic step change to Harland and
Wolff's capabilities and will make the Company an important participant in the
international shipbuilding industry. Specifically, with modern shipyards and a
proven track record post FSS, the Company will be able to capitalise on
further multi-billion-pound fabrication and heavy engineering opportunities
within the defence, renewables and commercial maritime markets globally.
Following the planned investments and upgrades to its sites, the Company hopes
to capitalise on the significant number of floating wind projects for which
fabrication is expected to commence between 2024 and 2030, which would
diversify and complement the Company's revenues from FSS. Work has been
ongoing in relation to the Recapitalisation Plan with Mott McDonald acting as
consultant and owner's engineer, whilst Royal Haskoning, a specialist shipyard
designer, has been engaged to define the production flow as well as plant
& machinery requirements. The Company's partnership with Navantia will
further lead to invaluable transfer of technology over the next seven years.
Pre-planning applications have already been submitted and demolition works are
expected to start shortly in Belfast, with the new facility coming to life
over the next two years.

The UK government has implemented the National Ship Building Strategy to,
inter alia, improve productivity rates in UK shipbuilding & fabrication,
reduce waste and to drive the transition to Net Zero. In line with this
strategy, the Company has been working with numerous parties to maximise
investments in the shipyard to achieve these goals alongside delivering
projects on time and on budget. The Company will be receiving a significant
proportion of the investment required for the Recapitalisation Plan from the
project directly. The Company will also look to capitalise on production
savings with new plant and equipment. It is envisaged that £32m will be
financed through additional long term leasehold improvements, medium term
asset finance and the Company's proposed new enlarged debt facility with
Astra, which is expected to be completed by the end of Q1 2023.  Further,
there may be opportunities to access other external funding such as new
technology grants and carbon reduction grants that the Company will be working
through over the next twelve months in order to maximise funding and optimise
the Group's capital stack.

In collaboration with its partners in Team Resolute, Navantia and BMT, the
Company will continue to engage as a team in future phases of this Programme
as well as on other opportunities in the UK and globally. Further
announcements will be made in due course should any of these opportunities
materialise.

The Company will be measured on its social value contribution through the life
of the Programme.  This will include, inter alia, deepening and strengthening
of the UK supply chain, taking on graduates and apprentices as the next
generation of ship-builders and crucial technology transfer between Navantia
and the Company. At the peak of the Programme, the Company will be providing
employment to over 1,200 personnel (900 in Belfast and 300 in Appledore) and
over 100 graduates and apprentices in Belfast and Appledore generating
substantial social value across the UK. This Programme not only provides the
Company with a significant baseload revenue line for the next seven years, but
also enables the Company to leave a positive and lasting legacy in communities
across the UK.

John Wood, Group Chief Executive Officer, Harland & Wolff comments: "I am
delighted that we have formally signed the Subcontract with Navantia, a very
significant project that will provide a substantial baseload revenue for the
business for the next seven years.  The addition of this Programme moves us
materially closer to our target of £1bn of contracted backlog of work by the
end of 2023, enabling us to take long-term decisions and continue to invest in
our facilities to ensure that we are at the forefront of the development of
state-of-the-art marine fabrication facilities in the UK. We can now commence
work on the Programme with the key focus on completing the Recapitalisation
Plan over the next two years in preparedness for the start of production in
2025. As the final strategic piece in the carrier strike force, I look forward
to working closely with our partners in Team Resolute over the coming years to
deliver these state-of-the-art vessels to the crews of the Royal Navy on time
and on budget".

 

 Harland & Wolff Group Holdings plc                                        +44 (0)20 3900 2122

 John Wood, Chief Executive Officer                                        investor@harland-wolff.com (mailto:investor@harland-wolff.com)

 Seena Shah, Head of Marketing & Communications                            media@harland-wolff.com (mailto:media@harland-wolff.com)

 Cenkos Securities plc (Nominated Adviser & Broker)                        +44 (0)20 7397 8900

 Stephen Keys / Callum Davidson / Dan Hodkinson (Corporate Finance)

 Michael Johnson (Sales)

 Liberum Capital Limited (Joint Broker)                                    +44 (0)20 3100 2000

 Nicholas How / Edward Mansfield / Lucas Bamber / Antonia Brown

About Harland & Wolff

 

Harland & Wolff is a multisite fabrication company, operating in the
maritime and offshore industry through five markets: commercial, cruise and
ferry, defence, energy and renewables and six services: technical services,
fabrication and construction, decommissioning, repair and maintenance,
in-service support and conversion.

 

Its Belfast yard is one of Europe's largest heavy engineering facilities,
with deep water access, two of Europe's largest drydocks, ample quayside and
vast fabrication halls. As a result of the acquisition of Harland & Wolff
(Appledore) in August 2020, the company has been able to capitalise on
opportunities at both ends of the ship-repair and shipbuilding markets where
there will be significant demand.

 

In February 2021, the company acquired the assets of two Scottish-based yards
along the east and west coasts. Now known as Harland & Wolff (Methil) and
Harland & Wolff (Arnish), these facilities will focus on fabrication work
within the renewables, energy and defence sectors.

 

In addition to Harland & Wolff, it owns the Islandmagee gas storage
project, which is expected to provide 25% of the UK's natural gas storage
capacity and to benefit the Northern Irish economy as a whole when completed.

 

 

 

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