REG - Harland & Wolff - Trading Update

Harland & Wolff groupAnnouncement

30/12/2022 07:00

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RNS Number : 2603L  Harland & Wolff Group Holdings PLC  30 December 2022

This announcement contains inside information

30 December 2022

 

Harland & Wolff Group Holdings plc

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

 Trading update, termination of Saipem contract and update on Debt Financing

Harland & Wolff Group Holdings plc (AIM: HARL), the UK quoted company
focused on strategic infrastructure projects and physical asset lifecycle
management, announces a trading update in respect of its year end to 31(st)
December 2022 ("FY 2022"), as well as an update on its debt refinancing
programme announced on 9(th) November 2022.

Trading update

On 13 July 2022, the Group announced that it had been awarded the M55
Regeneration Programme (M55 Contract) by the Ministry of Defence (MOD) on
behalf of the Lithuanian Defence Materiel Agency, with a contract value of
£55m and contractual payments spread across FY 2022, FY 2023 and FY 2024.
Whilst work on the contract commenced in August, the Company has not been able
to undertake certain key workstreams during the fourth quarter of FY 2022 due
primarily to a lack of material availability and specialist Original Equipment
Manufacturers' parts, which have been impacted by global supply chain issues.
As a result, management expects  approximately £20m of revenues from the M55
contract to be deferred into H1 FY 2023. Whilst it is unfortunate that the
Company could not advance these workstreams to book revenues in 2022, the
overall project is still on track and in line with the  base redelivery
schedule for the vessel. In addition to the M55 project, the Appledore
facility has been successful in winning other smaller fabrication works which
are essential to ensuring that the Company continues to build the skills
required for the Fleet Solid Support Programme ("FSS") and keep a
multi-skilled workforce readily available.

Ongoing geo-political uncertainties and global inflation have also caused
certain other clients within the cruise and ferry market to either defer their
contracts into 2023 or reduce the scope of works. As a result, management
estimates the loss of revenues on this account for the fourth quarter for FY
2022 to be between £8m and £10m. The Company expects this amount to be
deferred to H1 2023 when clients are scheduled to place contracts for dry
docking in Belfast with new FY23 budgets.

The Company has also decided, in mutual agreement with Saipem, to terminate
the contract for the fabrication of four wind turbine generator jackets for
the offshore NNG Project.  The original contract was entered into in April
2021, based on the economic assumptions at that time, and since that date has
encountered numerous issues with payments, delays and defective materials,
with resultant cost escalations which the Company has determined it will not
bear given that it has not been possible to find a mutually acceptable
methodology to split these additional costs between the parties. The Company
has therefore determined that continuing with the project will be sub-economic
from a target margin perspective and would, therefore, not be in the best
interests of the Group. Management has determined that the capacity in Methil
could be far better utilised on more economically viable projects, which are
expected to come to fruition in H1 2023 onwards. Accordingly, the Company and
Saipem have commenced the process of negotiating and reaching a mutually
acceptable commercial settlement in order to evacuate the materials from
Methil and make way for other projects. The estimated revenue for Q4 2022
against this project was c£5m, part of which the Company expects to recover
on final settlement during H1 2023.

As an immediate step, the Company will move the fabrication of two barges of
the Cory contract into Methil commencing January 2023. This will keep
production flowing through Methil's fabrication halls and is also expected to
speed up delivery of the barges to the Cory Group, with two sites (Belfast and
Methil) working on six barges in tandem.  This will have the added benefit of
freeing up the Belfast facility sooner for contracts that Management believes
it is well positioned to win in 2023.

The Methil facility was acquired in February 2021 with a view to providing
fabrication capacity and capability for a large number of Scotwind related
contracts that will commence from 2024 onwards. The renewables market is
complex and is not dissimilar to other large projects in that the gestation
period from commencement of negotiations to formal contract takes between 18
and 24 months. Whilst negotiations are ongoing with a large number of Scotwind
awardees with contract start dates in 2024 and 2025, the Company continues to
build its skills and capabilities through the performance of smaller and
shorter length contracts. The Company remains firmly of the belief that the
Methil facility is ideally suited for large and complex offshore fabrication
programmes, and is, accordingly, in discussions with developers who remain
committed to local content and reinforcing the local supply chain alongside
the Company.   Whilst renewables are the core focus, Methil has many
opportunities in component and block manufacturing for the shipbuilding and
conversion sector. Given the  large offshore programmes currently underway in
Scotland, this facility is ideally suited to benefit from these opportunities.
A large number of such fabrication programmes have already been tendered for
in 2022 with award decisions to be made in 2023.

Our Arnish facility continues to perform well and win new projects as well as
being awarded extensions to existing projects. Given the specialist nature of
this fabrication facility, the Company sees strong demand in 2023 and beyond.

The Group previously announced in its interim results on 30 September 2022
that it expected to achieve revenues of between £65m and £75m in FY 2022. As
a result of the issues detailed above, which have led to material deferments
in December 2022, the revenue out-turn for FY 2022 is expected to be
materially below expectations at between £29m and £31m. Despite lower than
expected revenues the Company has achieved a 56% increase in turnover in a
12-month period in comparison to the 17-month period ended 31 December 2021
(FY 2021: £18.51 million).

Whilst the out-turn for FY 2022 is disappointing, the Company remains
confident that the bulk of the revenues attributable to FY 2022 will be booked
during the course of H1 2023. Despite global pressures, the Company's pipeline
of opportunities remains strong and contract negotiations continue with a
large number of clients across all five of the Company's markets. The
Company's current focus is to ensure the right blend of converting smaller and
shorter-term opportunities into formal contracts across the Group with a view
to generating cash as quickly as possible, whilst larger and more complex
projects come to fruition during the course of 2023 and beyond.

Finally, contract negotiations in relation to FSS are continuing to progress
between MOD, Navantia, BMT and the Company (Team Resolute). The Company
remains excited about this transformational £1.6 billion programme and
significant resources are being deployed to take this programme to execution
stage as quickly as possible. Further announcements on contract execution will
be made in due course.

Debt refinancing - proposed expansion of facility

On 9 November 2022 the Company announced it had executed a term sheet with
Astra Asset Management UK Limited (Astra) for a £70m facility whilst working
together to increase this to £100m.  Following the announcement of Team
Resolute's Preferred Bidder status for the FSS and a review of the potential
contracted order book for 2023 and 2024, the Company and Astra are jointly
working to further increase the new facility to between £150m and £200m. As
the Company executes larger contracts, it believes that it is crucial to
maintain a significant quantum of liquidity with a larger committed facility
that can be drawn down as and when needed.

Given the export orientation of the Company's potential order book over the
next 2-5 years, the Company and Astra are also formally engaged with UK Export
Finance (UKEF) as part of the Company's export growth strategy across its five
key markets.  Whilst discussions with UKEF have already commenced, there can
be no guarantee of UKEF's formal participation at this stage and such
participation will be subject to UKEF's own due diligence processes and formal
credit committee approval. The Company is currently working with UKEF to
fulfil its due diligence obligations.

On the basis of these discussions, the proposed debt financing is now expected
to close in Q1 2023. Financial close is contingent upon completion of due
diligence and credit committee approvals of Astra and UKEF respectively. The
Company will provide further updates in due course.

John Wood, Group Chief Executive Officer, Harland & Wolff Group Holdings
plc comments: "Whilst it is disappointing that we have not met our aspirations
for FY 2022 due to timing issues, we have made significant progress over the
last twelve months, and I am confident that we will see a robust 2023 with
deferred revenue from 2022 which will start getting booked during the course
of H1 2023. Despite the external challenges that we face, I believe that we
are now at the cusp of a major transformation of the entire Group and the team
is working hard to convert bids into contracts. We have now developed a track
record of delivering projects for our clients and are at the stage of reaching
that critical volume of work that we need for the Group to acquire stability
and accelerate  organic growth.

Key to our development and a successful transformation is having a balanced
funding stack in place so we are very focused on concluding the new expanded
Astra and UKEF Facility to support our growth aspirations over the months and
years ahead."

For further information, please visit www.harland-wolff.com
(http://www.harland-wolff.com) or contact:

 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

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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