TIDMHARL
RNS Number : 4074R
Harland & Wolff Group Holdings PLC
01 March 2023
This announcement contains inside information
1 March 2023
Harland & Wolff Group Holdings plc
("Harland & Wolff" or the "Company")
Business update and outlook
Harland & Wolff Group Holdings plc (AIM: HARL), the
UK-quoted company focused on strategic infrastructure projects and
physical asset lifecycle management, is pleased to provide a
business update and management outlook for financial year 2023
("FY23") and financial year 2024 ("FY24").
Highlights
-- Backlog of confirmed contracted revenues ("Backlog")
totalling circa GBP900m, extending over a seven-year period, of
which circa GBP750m is represented by the previously announced FSS
contract
-- In addition, the Company has a weighted pipeline of new
business in excess of GBP3.6bn of revenues over the next five
years; at the current win ratio of 34%, this equates to a projected
Backlog of cGBP1.24bn
-- Updated outlook for FY23 and FY24
o Target revenues of GBP100m - GBP115m in FY23
o Target revenues of GBP200m - GBP230m in FY24
-- Cashflow breakeven expected in FY24
-- Target Group blended gross margin of between 24% and 27% over the medium term
-- Upsizing of debt facility with Riverstone Credit Partners LLC
to a committed $100m (previously $75m) whilst the Company closes
its proposed GBP200m refinancing in early Q2 2023
Group Projections
The Company issued a Business Update on 16 August 2022 in which
it stated that the aspirations for FY23 and FY24 were revenues of
GBP100m-GBP115m and GBP200-GBP230m respectively. At that time, the
Company had confirmed a Backlog of circa GBP40m for FY23 and had
identified further opportunities amounting to approximately
GBP1.2bn over the next five years across the Company's five key
markets.
The Company has since made significant progress in increasing
its Backlog following the FSS Programme contract win and the recent
announcement of additional smaller contract wins. The Company is
pleased to report that its Backlog now amounts to circa GBP900m
over a seven-year period, providing significant revenue visibility.
In addition, the Company has a weighted pipeline of new business in
excess of GBP3.6bn in revenues, which on a current win ratio of 34%
represents a total of GBP1.24bn of possible revenues over the next
five years, in addition to the Company's existing Backlog of
GBP900m (total current and projected Backlog: GBP2.14bn), in order
to help deliver its medium-term targets.
FY23
The year has started well, with an uptick in the level of
enquiries flowing through and all four yards are busy on a range of
different contracts across the Company's target markets. Despite
well-documented delays experienced across the supply-chain and the
recently announced termination of the Saipem contract, the Company
continues to maintain its target of delivering between
GBP100m-GBP115m of revenue in FY23.
For FY23, the Company already has a Backlog of circa GBP75m
comprising defence contracts of GBP45m, commercial fabrication of
GBP15m, cruise & ferry work of GBP10m and smaller renewables
programmes of GBP5m, as well as a number of advanced opportunities
which leave the management team confident in meeting these
expectations.
FY24
The Backlog for FY24 currently sits at circa GBP75m, of which
GBP25-30m represents FSS-related revenue with the balance from
other defence contracts of GBP20m, cruise & ferry contracts of
GBP10m, commercial fabrication of GBP10m and renewables of GBP10m.
With the momentum in the business, the Company is confident of
growing revenues to between GBP200m-GBP230m in FY24.
Cashflow and profitability
Management continually evaluates the projects in the Company's
pipeline and contract mix with a view to striking an optimum
balance between cashflow and margins.
The profitability of the Company remains contingent upon a
number of macroeconomics factors, including the rate of inflation,
and also the mix of work within the Company's portfolio across its
five core sectors. The Company continues to target a Group blended
gross margin of between 24% and 27% over the medium term and recent
contract wins confirm that this target remains achievable, even
against a challenging backdrop.
Management expects gross margins to be between 20% and 23% in
FY23 given the business mix and as new charge-out rates based on
higher wage costs gradually work their way into new and existing
contracts through the year. The Company is also actively
negotiating with its energy suppliers on energy costs and the new,
improved rates agreed will also gradually feed into the various
contracts across all the yards through the year.
Typically, large defence, energy and renewables contracts
attract lower initial gross margins with higher upfront overheads
relative to other markets. Therefore, upon review of the structure
of the Backlog and pipeline, the Company believes a slightly more
conservative view of the annualised cash break-even threshold is
prudent at this stage and believes that annualised cashflow
break-even will be achieved in FY24.
Group financing
The Company is also pleased to announce that it has amended its
debt facility with Riverstone Credit Partners LLC, upsizing the
loan to $100 million (previously $75m). This upsized facility is
fully committed and will be used to accommodate the Company's
near-term working capital requirements whilst the Company concludes
its GBP200m refinancing with UK Export Finance and Astra Asset
Management. The Company has agreed further terms with Riverstone in
which the interest payable will be accrued and paid on maturity
thereby reducing the Company's cash outflow on a monthly basis.
This GBP200m refinancing is now expected to close in early Q2
2023, subject to credit committee approvals and finalisation of the
credit agreement and other ancillary documentation.
As part of the GBP77m FSS Recapitalisation Plan over the next 24
months, alongside other capital expenditure requirements in the
medium term, the Company is evaluating a number of different
financing mechanisms, including long-term asset financing, in order
to achieve a balanced capital structure for the Company's further
development.
Market Outlook
The Board considers there to be a continuing improvement in
market conditions across the five markets in which the Company is
engaged. Higher charge-out rates are working their way through the
contracts (new and existing) to reflect the inflationary
environment and preserve a blended gross margins target range of
between 24% and 27% in the medium term. Further detail of the
Company's five markets is set out below:
Cruise & Ferry
Cruise
Enquiries have increased significantly following on from the
successful dry docking of the Queen Victoria cruise vessel in 2022,
the largest ever cruise ship in the UK, for standard dry-docking
works and hull painting. Currently, the Company has over
twenty-four cruise docking enquiries that will be negotiated over
the next 12-24 months..
Whilst there is no certainty that these negotiations will
convert into contracted revenues, the level of engagement and
ongoing negotiations provides significant comfort on the prospects
for Belfast. Certain of the opportunities involve multi-year and
multi-ship group deals. This has the potential to provide greater
contractual visibility as well as being more efficient for
management.
Ferry
The ferry market remains buoyant, with the Company securing
repeat business from long-standing clients on a regular basis. In
addition, there are now enquiries coming in from operators on the
cross-Channel route, a new market segment for the Company, which
shows promise.
Defence
Following entry into the FSS contract and work having commenced
on the GBP77m FSS Recapitalisation Plan, the Company is in the
process of developing its defence pipeline. There are a number of
export opportunities that are in advanced stages of negotiation and
the Company has already secured a collection of small value
sub-contracts from prime contractors which provide the basis for a
more substantial workflow from this area in the future.
To date, the Company has focused on fabrication and repair and
maintenance services. The Company is now actively seeking
through-life support opportunities (multi-year repairs and
maintenance contracts of between five and ten years) and has
identified over GBP300m of multi-year contracts that will have
invitations to tender over the next 24-36 months. This is a new
sector for the Company and provides the opportunity to secure
additional long-term and multi-year contracted revenue flow.
The Company is currently evaluating design options and potential
partners for the T32 project, as well as three other types of Royal
Navy vessels. There are a large number of customs and Border Force
vessels needed in a relatively short span of time and the Company's
distributed ship-build capabilities across all four yards plays
into its strengths of offering expedited delivery if required.
The former HMS Atherstone that was acquired at the time of
executing the M55 contract is undergoing the process of final
removal works of parts and spares to aid the M55 Programme. The
current progress development on the M55 Programme has spurred
international interest to refurbish the former HMS Atherstone and
reinstate its mine hunting capabilities; however, the Company
retains the optionality of converting this vessel to something that
can be monetised in the commercial market.
Commercial
The Company is now able to leverage off the successful delivery
of a number of large projects in the commercial tanker market to
develop its market position. As a result of establishing its
credentials, the Company is gaining traction from international
customers for large commercial vessels - including LNG - with a
view to maximising the utilisation of the larger of the two docks
in Belfast ("building dock").
Another segment pertains to work vessels where the Company has
completed its first in-house design for a 26m vessel with the
optionality of various propulsion systems; diesel-mechanical,
diesel-electric and full electric and this design basis has been
used to tender for a dredger vessel for a UK based client. Given
the flexibility of the design and the optionality on equipment and
propulsion, the Company will be marketing its bespoke design to a
larger commercial market; aquaculture, survey, dredging, freight
and general work boat. The Company will also be looking at
licensing this design globally as it continues to build its
repository of designs and Intellectual Property (IP).
The Company's two Scottish yards are now both actively involved
in aspects of shipbuilding, supported by the larger teams in
Belfast and Appledore. Management will bid for the next parcel of
ferries that will be put out to tender for Calmac shortly,
positioning itself to deliver the project in Scotland and provide a
substantial boost to the local economy.
In Arnish, work continues at pace for the ongoing mining-based
project, which when completed and installed, will demonstrate the
Company's capabilities not only in the marine fabrication market
but also in the land-based large structural steel market.
Following on from the successful delivery of the super duplex
structures to an ongoing nuclear power plant project, the Company
continues to be in discussion with the developer for additional
work. There is a significant opportunity within the nuclear
decommissioning market which the Company is evaluating with its
joint venture partners.
The Company is also making a detailed evaluation of ramping up
its aluminium fabrication capabilities should it be successful in
winning projects in that market. This could be achieved through
repurposing of a portion of the Appledore facility, as well as
ringfencing a section at the Company's Methil facility. The Company
is currently seeing substantial demand for aluminium vessels across
the defence and renewables markets and will pursue opportunities in
this area.
Renewables
The Company is selectively tendering for opportunities in this
fast-growing market in order to increase the win ratio and to
reduce overall bid costs. The Company remains actively involved in
discussions with project developers post the Scotwind announcement
last year and hopes to see contracts coming to fruition in the next
18-24 months. Whilst large fabrication contracts continue to be the
focus from a longer-term perspective, the Company is actively
engaged in the secondary steel and sub-contracting markets for
ongoing projects to maintain a balanced risk profile in the yards
and ensure continuity of work. This mix of projects also helps to
ensure that the Company is partnering with the right clients from a
longer-term perspective.
Energy
The energy markets are slowly but surely showing signs of
increasing activity. Currently, the Company has eight enquiries at
various stages in the contractual lifecycle and comprise of, inter
alia, subsea structures, platform repairs and repairs and
refurbishments of FPSOs, one of which has been in Belfast
previously.
John Wood, Group CEO of Harland & Wolff comments:
"It is gratifying to see the levels of activity that are already
present in all of our yards, with the knowledge that this is only
going to increase steadily - and materially - from this point.
The Harland and Wolff machine is really starting to hum and our
ability to operate flexibly across multiple facilities will become
increasingly important as an industry differentiator as our
workload expands. We look forward to the future with increasing
confidence."
Harland & Wolff Group Holdings plc +44 (0)20 3900
John Wood, Chief Executive Officer 2122
Seena Shah, Head of Marketing & Communications investor@harland-wolff.com
media@harland-wolff.com
Cenkos Securities plc (Nominated Adviser
& Broker)
Stephen Keys / Callum Davidson / Dan Hodkinson
(Corporate Finance) +44 (0)20 7397
Michael Johnson (Sales) 8900
----------------------------
Liberum Capital Limited (Joint Broker)
Nicholas How / Edward Mansfield / Lucas +44 (0)20 3100
Bamber / Antonia Brown 2000
----------------------------
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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