In its interim results for the twelve-month period to 31 July 2021, Harland & Wolff Group reported a seven-fold increase in revenues to £10.18m and a gross margin of 24%, in line with Company's expectations for the portfolio of contracts delivered during the period.
As a result of its performance, the Directors of the shipyard and energy infrastructure group now believe that the Company will achieve a cash break-even on an annualised basis by the end of the current financial year (31 December 2021) and will be EBITDA positive in 2022.
Meanwhile, the Directors also believe that the Harland & Wolff Group now has the largest fabrication footprint in the United Kingdom which is dedicated to the marine and renewables industries capable of delivering large, complex ship building and fabrication contracts.
The operating loss for the period stood at £14.68m compared to £9.18m in 2020, with the increased loss reflecting a rise in the number of personnel and overall overheads, given that, for the period, it had five assets to service (Belfast, Appledore, Methil, Arnish and London).
Administrative expenses for the period stood at £15.25m (31 July 2020: £9.48m) due to its broader asset base and its strategy to service, grow and maintain a developing business.
A number of key strategic acquisitions were made over the 12 month period including the acquisition of Harland & Wolff (Appledore) back in August 2020 for £7 million as well as the acquisition of Harland & Wolff (Methil and Arnish) back in February 2021 for f £0.65 million.
Harland signed its first major fabrication contract in April 2021 for eight wind turbine generator jackets for the NNG project in Scotland with Saipem UK for £26.5m. It said fabrication has commenced ‘at pace, with a significant contribution expected in the second half of 2021.’
To date, Harland & Wolff said it holds a strong pipeline of contracts across five distinct markets and six service sectors developed which are now being ‘actively progressed.’
Harland & World said it expects to welcome around nine ferry vessels in November and December, spanning a range of works across them. The firm is also currently in the process of generating a contracted revenue stream backlog for 2022 in the ferry repair market.
In the renewables space, the Company said it continues to make ‘good progress’ on the first Saipem contract which was awarded back in April 2021 and commenced later in the summer.
The recently acquired Methil facility is now geared up to escalate fabrication of the contracted eight jackets in 4Q and 1Q22, with a view to completing this phase by April 2022, it outlined.
It said the contracts in the fast-growing renewables sector that are being negotiated are complex and multi-year, with values ranging from approximately £30 million to £200 million.
Harland said project developers are making efforts to book capacity in order to meet their local content requirements. It expects this market to be a key growth market going forward.
The Company raised £8.40m and £12.07m during the period, respectively. The proceeds will be used, inter alia, to cover capex for the Methil facility, to boost productivity on the current Saipem contract and to cover essential repairs and maintenance at Belfast and Appledore.
By period end, the Group had the largest fabrication footprint in the country, two of the largest dry docks in Europe and two of the largest specialist fabrication sites in the UK. Today, all sites are fully operational with each winning work and servicing clients, both new and repeat.
All sites have been fully paid for except Appledore, where there is a deferred consideration of £5.5m payable to the vendors over 2021, 2022 and 2023. The deferred consideration portion for 2021 amounting to £1.5m is due to the vendors at the end of the year, Harland noted.
‘With over nine vessels coming into Belfast in the last two months of this financial year and with a ramping up of the first Saipem fabrication contract, we expect to achieve an annualised cash break even position by the end of the year,’ Harland highlighted to investors today.
In particular, with commodity prices at an all-time high, the Company highlighted to investors that it is now starting to see enquiries focusing on repurposing of facilities and electrification of existing assets to complement the growing portfolio of offshore wind farms in the North Sea as well as for fabrication of infrastructure to extend the life of various oil and gas fields.
Harland added that the defence and renewables markets are coming into play quicker than originally envisaged with significantly larger opportunities brought forward by the Government in its commitment to naval defence spending and transitioning to green energy by 2030.
Going into the second half of the current financial year and into the next year, the Company said it expects to have greater visibility and certainty of monthly cash flows. Currently, it is in discussions to structure a group revolving credit facility that it will be able to draw-down on as and when required, ‘especially to fulfil the working capital requirements of larger contracts.’
‘It is the Board's view that the Company will benefit from having the ability to draw-down debt on an ongoing basis as the Company scales and wins larger contracts,’ the Company added.
Going forward, Harland & Wolff informed investors that it expects more robust activity and contracts as the global economy normalises in 2022 and beyond. It said it is confident that revenue for the 17-month period to December 2021 will be in line with market expectations.
Last month, Harland & Wolff announced that it has been awarded a ‘key’ contract for the fabrication of four suction piles for a subsea template of an energy project in the Black Sea.
The shipyard and energy infrastructure group said that whilst the contract is small, the win forms part of its expected pipeline for this year and validates its strategy of getting its Arnish facility into a state of operational preparedness for the wider renewables sector in the UK.
The contract marked Arnish's first external contract in addition to the work that is already being undertaken for its Methil facility. The execution of this contract now concludes the reactivation process of all yards, ‘which are winning work in their own right,’ said Harland.
Shares in Harland & Wolff jumped last month after it unveiled to investors that its subsidiary, Islandmagee Energy, had received confirmation that it will receive the Environmental Consent Decision, Marine Licence for its Islandmagee Gas Storage project within the next 28 days.
Islandmagee is a wholly-owned subsidiary of Harland & Wolff Group, formerly known as InfraStrataThe project is a salt cavern gas storage facility in County Antrim, Northern Ireland.
The Islandmagee facility is expected to provide over 25% of the UK’s current natural gas storage capacity and will support the growing demand for gas-fired power development and renewable energy generation throughout the United Kingdom and the Irish Republic.
The issuance of this licence, which is expected to occur in the next 38 days, will facilitate the abstraction and discharge of seawater and brine respectively during the cavern formation.
Given the ongoing gas supply crisis within Europe and the critically low levels of gas storage currently available in the UK compared with the rest of Europe, the Company believes that it is vital that its Islandmagee gas storage project is constructed and commercialised to help ensure security of supply in the UK, as well as support the transition to a Net-Zero economy.
Harland outlined that the gas project is expected to create at least 400 direct and 1,600 indirect jobs during the construction phase and around 60 direct and 180 indirect jobs during its expected 40-year operational life, thereby supporting investment into Northern Ireland.
‘A crucial element of moving towards a green hydrogen-based economy is the ability to have large scale storage during periods of surplus production, which can then be injected back into the grid during periods of high demand, very much like natural gas,’ the Company highlighted.
Subject to regulatory approvals, the Company detailed that it believes that its Islandmagee Gas Storage project could be well utilised to transition from the storage of natural gas to a blend of natural gas and hydrogen, and, finally, to hydrogen storage in all its caverns.
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