Harland & Wolff Regulatory News (HARL)

16 August 2022

Harland & Wolff Group Holdings plc

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

Group 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 and trading update for the year ended 31 December 2022 and an outline of management's aspirations for financial year 2023 ("FY23") and financial year 2024 ("FY24"). Given the many variables which need to be considered, these aspirations should not be construed as forecasts but as management's framework for the direction of the business.

Current trading and FY22

As announced previously, the Company has secured three material contracts in quick succession; Cory phase 1 at £8.5 million; Cory phase 2 at £9.6 million and the M55 Regeneration Programme at £55 million (with the potential to further increase the contract value at the client's option). In addition, a number of smaller contracts have been executed - and will continue to be executed - at the Belfast and Arnish sites which continue to provide a steady stream of work and cashflow for the Group. The first and fourth quarters are normally the busiest for the Belfast repair dock and we expect to welcome multiple cruise and ferry vessels into Belfast during these periods. Arnish is also set to become busier in the last two quarters with the facility fabricating across multiple projects simultaneously.

Therefore, management maintains that it remains comfortable with market guidance of revenues between £65 million - £75 million for FY22.

Outlook for FY23 and FY24

Background

The Company has announced previously that it has built a strong backlog* of £40 million for FY23 due to recent multi-year contract wins. More broadly, management has identified opportunities amounting to approximately £1.2 billion, across the Company's five key markets; cruise & ferry, commercial fabrication, energy, defence and renewables.

The Company recently secured its first contract from the Ministry of Defence as a 'Prime contractor' and has also submitted its bid in relation to the Fleet Solid Support (FSS) Programme, with the FSS contract award expected to reach 'preferred bidder' status in Q4 2022. The Company is also collaborating with other 'Prime contractors' to take on sub-contracting work in relation to their own respective programmes, with much of that work to be carried out in the UK in line with local content requirements and broader UK Government policy. The UK continues to suffer from insufficient fabrication capacity to take on all the fabrication work that is due to commence from 2023/24. Harland & Wolff retains one of the largest fabrication footprints in the country and has enormous flexibility and optionality across the yards to offer optimum fabrication solutions, particularly for its defence and renewables clients. In summary, the Board believes that the Company is well placed to play an important part in the FSS Programme.

Following the recent Scotwind auction results announcement, Belfast, Methil and Arnish have been identified as three highly strategic fabrication sites given their respective coastal positions. Management is confident that the Company will be a beneficiary in this programme and will update the market as appropriate.

Revenue aspiration

With significant levels of revenue contracted, the relative stability of the cruise & ferry and ship repair markets and confidence around potential orders within the defence and renewables markets, management has an aspiration of generating revenues of between £100 million - £115 million for FY23.

While it is clearly more difficult to project FY24 revenues given the lumpiness and scale of certain contracts, the aspiration is to generate revenues of between £200 million - £230 million for FY24. Whilst this is a significant step-change from the FY23 aspiration, it reflects the trajectory of major defence and renewable programmes commencing from 2024 onwards and beyond.

At turnover levels of £200 million and above, the Company would expect to be in a position to generate sufficient cashflow to initiate returns to shareholders.

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 Group remains contingent upon a number of factors including wage and energy inflation, the macro-economic backdrop and the mix of work within the Company's portfolio across its five core verticals. For instance, cruise & ferry work is shorter in duration but attracts higher margins, whereas with significant defence contracts, margins tend to be lower but benefit from longer term cashflow visibility and tenure. The Company continues to target and achieve a Group blended gross margin of between 24% and 27% across the broad spread of work it undertakes.

Consequently, the Company believes that annualised cashflow break-even is achievable on revenues of between £80 million - £100 million depending on the mix of contract wins.

Summary

Harland and Wolff now has a growing reputation in the markets in which it operates and was delighted to secure the M55 contract as a milestone and validation of its strategy. The Board believes that this will be an important springboard in executing on its plan to create a sustainably profitable company by the end of next year and beyond.

The combination of the material investments made in the Group's yards and the scaling up of personnel - more of which will be needed in the execution of a substantial contract - as well as the increased yard utilisation and the successful contract wins in all five verticals, gives the Board confidence that the Group is now primed to accelerate the conversion of its pipeline of opportunities to firm contracts.

*Backlog is defined as confirmed contracted revenues for future periods.

For further information, please visit  www.harland-wolff.com  or contact:

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.