Harland & Wolff Regulatory News (HARL)

This announcement contains inside information

23 May 2022

Harland & Wolff Group Holdings plc

("Harland & Wolff", "H&W" or the "Company")

Unaudited Annual Results for the 17-month period ended 31 December 2021

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 its unaudited annual results for the 17-month period ended 31 December 2021 ("FY 21").

Key highlights:

· Revenue of £18.5 million for the 17-month period (31 July 2020: £1.48 million*)

· Improvement in gross margins to 28% (31 July 2020: 20%)

· Operating loss of £22.37 million following significant investment to support future growth of the business (31 July 2020: loss of £9.18 million*)

· Three major acquisitions completed; H&W Appledore, H&W Methil and H&W Arnish

· Two equity placings raising a total of £20.27 million (before expenses)

*Figure represents the 12-month period under the Company's historic accounting reference date 

Key milestones achieved:

· Significant capital investment in all yards across plant and equipment including a robotic welding panel line installation in Belfast and a robotic pipe profiler in Methil

· All four sites became fully operational during the period

· Marine license awarded from Department of Agriculture, Environment and Rural Affairs (DAERA) for the Islandmagee gas storage project - under judicial review

· First major renewables contract executed with Saipem for the fabrication of 8 wind turbine generator jackets valued at £26.50 million

· First pontoon build announced and commenced during the period at H&W Appledore

· Executed contracts in four out of five key markets, final market breakthrough (defence) expected H1/ early Q3'22

· First third-party fabrication contracts announced and commenced at H&W Arnish

Post-period end:

· $70m debt facility signed with Riverstone Holdings LLC

· Significant growth achieved in the cruise and ferry repair market in Q1'22

· Repair dock at H&W Belfast operating at near-full capacity since Q4 2021

· Largest ever cruise vessel to enter the Belfast drydock facility in over twenty five years

· Significant progress being made on converting advanced negotiations in defence and commercial fabrication into executed contracts

The Company expects to publish its audited annual report and accounts in June, which will be sent to Shareholders and available to view on the Company's website at https://www.harland-wolff.com/ . A further announcement will be made once published. No material amendments to the disclosures contained within this announcement are expected within the audited financial statements.

Overview

The Company's management team has laid out a consistent strategy since 2018: to own and operate a series of key UK infrastructure assets, each in their own right capable of generating revenues and profits after an initial incubation period. Thus, after the acquisition of the assets of Harland & Wolff (Belfast) in 2019, the Company swiftly took advantage of other opportunities that arose and acquired the assets of Harland & Wolff (Appledore) in August 2020 and the assets of Harland & Wolff (Methil) and Harland & Wolff (Arnish) in February 2021. Following these acquisitions, the Company now has one of the largest shipyard and fabrication footprints in the UK.

Each of these facilities required significant capital expenditure and maintenance works to bring them back to full operational levels following acquisition. The Company took advantage of the imposed downtime during the COVID-19 pandemic to complete all the necessary works, resulting in all facilities now being fully operational, with each having a portfolio of projects that it is working on.

While COVID-19 facilitated the completion of site refurbishment, it also had an adverse impact on the Group's ability to do business hindering the Company's ability to complete ongoing works and progress its pipeline of contracts. Compounding the problem is the ongoing supply chain crisis that has affected fabrication facilities globally. As a consequence, the Company has seen certain clients, especially within the commercial fabrication market, cancel contracts, amend contract scopes or defer the award of a contract in the expectation that raw material prices will decline. Each of the Company's facilities has been impacted and whilst the journey to full operational status was slower than expected, management believes that each facility is now well positioned and, as a result, the Company has made significant strides towards generating material revenues.

Operating Review

The operating loss widened to £22.37 million for the 17-month period (12 months to 31 July 2020: £9.18 million). The Company's asset base has grown substantially, and its personnel count has increased commensurately in the period. Investment in people is one of the most expensive and time-consuming processes for a company like H&W and needs to happen well before contracts come to fruition. As a result, there has been a timing mismatch between making these key investments and securing contracts and management expects this dynamic to narrow significantly in FY2022 on the back of the current contracts and those that are in the pipeline.

Cruise & ferry

The Belfast repair dock has been full for the last six months and we are encouraged by the pace at which contracts are being executed and vessels redelivered to the clients, on time and on budget.

As a series of firsts, the Belfast facility welcomed the largest LNG carrier to have dry docked in the UK, the Eduard Toll. This vessel was successfully docked, repaired and redelivered to the client on time and on budget. As a result, the Company is in discussions with the client on a fleet-wide multi-year deal. Given the sanctions placed by the UK Government on Russia and Russian related assets as part of the ongoing crisis in Ukraine, management is particularly sensitive to compliance with these sanctions. Accordingly, management has put in place procedures and protocols to ensure that any vessel / asset coming into any of the facilities is in compliance with UK Government requirements relating to Russian ownership or any ongoing Russian connections that would breach these sanctions. The Company was also delighted to announce the signing of its first major cruise contract with Carnival UK for the docking of Queen Victoria which successfully undocked yesterday, on time and on budget, which is a major milestone that has been achieved by the facility.

Since the beginning of FY22, over 22 vessels have docked in Belfast to undergo both minor and major repairs and with the cruise and ferry market now returning to normality, management is focussed not only on bringing in revenues for this year, but also on building contracted revenues for 2023 and beyond. A key trend being experienced is that contract values are getting larger as confidence grows in the Harland and Wolff brand within the ship owning community, which in time will lead to higher value conversion type projects in addition to regular ship repair contracts.

Renewables

Following the acquisition of the assets of Harland & Wolff (Methil) and Harland & Wolff (Arnish) in February 2021, the Company signed its first large renewable fabrication contract with Saipem UK for the fabrication of eight wind turbine generator jackets valued at £26.50 million. The contract stipulated for the delivery of materials by the client. With the materials now being delivered against a challenging supply chain backdrop, and cleared for fabrication after quality inspection, the Company has ramped up fabrication and expects to complete the project in the current financial year. Therefore, the majority of revenues from this Phase I of the Saipem contract of circa £20 million - £22 million are expected to be recognised in FY22 as opposed to the previous financial period.

Following the announcement of the list of awardees of the recently concluded Scotwind licensing round, the Company has signed multiple Memoranda of Understanding with the majority of the awardees. The Company's renewables team is working closely with each to determine costs, capacities and local content requirements for their respective projects. In the meantime, the Company expects to receive contracts for the fabrication of 'demonstrator models' that will validate the design basis for these offshore wind farm projects and allow for engineering optimisation prior to any full-scale fabrication. With four facilities across the UK, the Company is extremely well positioned to secure large fabrication contracts for the renewables sector which will start generating a contracted backlog of work for Methil and Arnish in 2023 and beyond.

Defence

The Company has made great strides in the defence sector since 2019. It reached a dual bidder stage for the Queen Elizabeth Aircraft Carrier contract but narrowly lost the bid to its closest competitor. Whilst the Company scored very well on its technical capabilities, project management skills and geography of the Belfast docks, it was marginally out-priced given the capital investment that it would have had to make relative to readily available government-funded infrastructure at the competitor's dock that had already been provided during the construction phase of the original program.

One of the biggest advantages of Harland & Wolff is that any capital investment will eventually go towards a distributed market base, i.e., across its five key markets. Therefore, over time, the cost/capital recovery of assets that can be used generically will be spread across the Company's five markets as opposed to a concentrated cost recovery from defence. This will enable the Company to bid more competitively for repair and refurbishment programmes of the existing fleet of vessels in addition to being more cost competitive for new build programmes such as the Fleet Solid Support (FSS) programme.

The Company continues to make good progress on the FSS Programme, the National Flagship Project and the M55 contract. Given the highly sensitive nature of all these contracts and counterparties, the Company will make any further announcements in conjunction with the Ministry of Defence in due course.

With the publication of the National Shipbuilding Strategy earlier this year, the Company believes that the defence and government market is set to be buoyant with contracts to start flowing through in coming years. 

Whilst Harland and Wolff are content to bid and confident to win defence programmes in its own right, we are also working together and collaborating with other Prime Contractors in the UK and expect subcontract work to be placed on us. This will provide an optimum blend of bidding directly for defence contracts which normally have a lengthy procurement cycle on the one hand, and taking on subcontracting work whose bidding and procurement process is much quicker and with shorter delivery timelines, on the other.

Commercial

The commercial market is beginning to grow with a number of inquiries being progressed. At Appledore, the new pontoon build for the Royal National Lifeboat Institution (RNLI) is nearing completion. At Arnish, work is progressing at pace for the fabrication of super duplex structures for the Hinkley Point C nuclear power project, with similar work being tendered for currently.

The Company has found commercial operators to be sensitive to raw material prices and a number of projects have either been put on hold or downsized due to record steel prices. The Company remains involved in negotiations across a broad range of commercial fabrication projects including new build of vessels, steel structures and piping and expects these discussions to firm up as steel prices begin to reduce.

Energy

The Company's energy team is predominantly involved in the oil and gas industry which has been in an uncertain phase trying to determine the best course of action for its existing asset base in the North Sea. Whilst discussions have been ongoing to repurpose the asset base to complement the growing renewables market, the war in Ukraine and subsequent energy security debate has reignited conversations and contract discussions surrounding new exploration programmes and extending the life of existing oil and gas assets. The Company's facilities in Belfast, Methil and Arnish have rich and deep experience in the sector and regardless of the future direction of the 'energy mix', the facilities are well-invested and primed for work.

Islandmagee gas storage project

Following the announcement in October 2021 that DAERA had issued the requisite license, the Islandmagee gas storage project is now under a formal judicial review process, to determine if the Minister for DAERA had the jurisdiction to grant the marine licence on his own or if he was required to seek approval from the Executive Committee at Stormont. It is expected the hearing dates will be around the end of October or early November 2022. The judicial review process has not precluded management from progressing discussions with potential financing counterparties. Whilst management current expect that the review process will determine that the Marine Licence may be retained by Harland and Wolff, there is a possibility that it will result in a withdrawal of the licence. Should the Marine Licence be withdrawn, the Company would need to take the necessary next steps as directed by the courts in order to reinstate the Marine Licence. Further announcements will be made as soon as the Company is made aware of the court's decision after the judicial review has been completed.

In order to meet the UK's Net Zero objectives, management believes that the transition from natural gas to hydrogen is inevitable. However, to date, there is no evidence of large-scale hydrogen production which will underpin hydrogen demand (with hydrogen storage as a mid-stream balancing asset). Until the hydrogen sector is capable of producing the volumes required to meet potential demand, and at prices that are at par with natural gas, natural gas will continue to be the fuel of choice for heating and power production. As evidenced by the volatility in gas prices over the last 12 months, the UK economy stands exposed to lack of gas supply. Management has consistently maintained that gas storage reduces these imbalances that will be even more pronounced when the UK economy transitions to hydrogen. The Islandmagee project, whilst currently licensed to store natural gas, has the technical capability of storing hydrogen as well. Conversations are currently ongoing with partners to determine the most cost-effective and technically feasible solution to transition the project from natural gas to hydrogen, subject to variations to store hydrogen in the future. As part of this, the Company is part of the BEIS-sponsored Power to X project in Northern Ireland that is designing a hydrogen market across the entire value chain, from supply to demand with hydrogen storage as a critical mid-stream asset. Further announcements will be made on Islandmagee once discussions with counterparties are formally concluded.

Outlook

At the time of the last fundraise in November 2021, the Company expected 2022 revenue to be c. £70m to £75m and the Company entered FY22 with a renewed sense of optimism, a well-invested footprint and a desire to scale the business as quickly as possible. Since then, while the impact of the pandemic has eased somewhat, the tragic Ukraine crisis has erupted, energy prices have increased materially and ongoing supply chain issues have further raised raw material prices. This inevitably has a lengthening impact on sales cycles and makes clients more cautious to commit.

However, the Company has made good progress across the five markets in which it operates, and now has an attractive pipeline of tangible commercial opportunities to execute against, with visibility improving.

As a result, and despite the difficult background, the Company currently expects 2022 revenue to be in the range of £65m to £75m. Whilst the Company faces wage escalation issues similar to others, its overhead base is relatively small. Wage and cost inflation have started feeding through the business since the end of Q1'22 and management continues to maintain a close watch on them.

John Wood, CEO of the Harland & Wolff Group of Companies comments:

"The last two years have been very challenging, yet I am pleased to have delivered growth in the business over the period to 31 December 2021. I have always maintained that reactivating all the assets and moving along the growth to profit curve is effectively a five-year journey and we are now in year three.

Whilst we appear to be battling the next global crisis as soon as the previous one has ended, I am certain that our strategic presence and work in the sunrise sectors of defence and renewables will be increasingly valuable. However, all our five markets are key to us, allowing for a healthy mix and diversity of contracts within the overall portfolio and distribution of our capital cost base across the five sectors. This dynamic should reduce the overall cost of bidding for projects and help us win the more price sensitive ones.

I fully expect to complete one of our biggest milestones by the end of H1 / early Q3'22 so as to have all key markets fully active. As we ramp up, our focus remains on converting opportunities into a contracted backlog whilst at the same time keeping a close eye on costs. The key focus is to contract for projects as quickly as possible to get to a critical mass where revenues and associated margins more than cover our maturing cost base.

Given the hard work that the Harland & Wolff team have put in to bring all the yards back into operation and to progress a number of negotiations to contract stage, I am more confident than ever that we are well positioned to deliver across all five of our markets."

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.

Harland & Wolff Group Holdings Plc

Unaudited Consolidated Statement of Comprehensive Income

for the Period Ended 31 December 2021

Harland & Wolff Group Holdings Plc

(Registration number: 06409712)

Unaudited Consolidated Statement of Financial Position as at 31 December 2021

Harland & Wolff Group Holdings Plc

Unaudited Consolidated Statement of Changes in Equity for the Period Ended 31 December 2021

Harland & Wolff Group Holdings Plc

Unaudited Consolidated Statement of Changes in Equity for the Period Ended 31 December 2021

Share capital: This represents the nominal value of equity shares in issue.

Share premium: This represents the premium paid above the nominal value of shares in issue.

Revaluation reserve: This represents the difference between the carrying value and fair value of certain assets.

Merger Reserve: The merger reserve represents the difference between the nominal value of the shares issued on the demerger and the combined share capital and share premium of Harland & Wolff Group Holdings Plc at the date of the demerger.

Share-based payments reserve: This represents the value of share-based payments provided to employees and Directors as part of their remuneration as part of the consideration paid. The reserve represents the fair value of options and performance share rights recognised as an expense. Upon exercise of options or performance share rights, any proceeds received are credited to share capital and share premium.

Retained earnings: This represents the accumulated profits and losses since inception of the business and adjustments relating to options and warrants.

Harland & Wolff Group Holdings Plc

Unaudited Consolidated Statement of Cash Flows for the Period Ended 31 December 2021

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021

Basis of preparation

The unaudited interim financial information in this report has been prepared using accounting policies consistent with UK adopted IFRS. IFRS is subject to amendment and interpretation by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee and there is an ongoing process of review. The financial information has been prepared on the basis of UK adopted IFRS applicable as at 31 December 2021.

Non-statutory accounts

The financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The financial information for the seventeen months ended 31 December 2021 is unaudited and the information relating to the financial year ended 31 July 2020 is extracted from the audited financial statements for that year. A copy of the statutory accounts of the Company for the year ended 31 July 2020 has been delivered to the Registrar of Companies. The audit report on these accounts is unqualified and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006. In their report, which was not qualified, the auditors included a material uncertainty in respect of going concern

The financial information for the seventeen months ended 31 December 2021 is unaudited and 31 July 2020 is audited.

The report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 July 2020, which was prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and any public announcements made by Harland & Wolff Group Holdings Plc during the reporting period.

2 Accounting policies

The interim financial information has been prepared under the historical cost convention except for certain items that are shown at fair value as disclosed in the accounting policies.

The same accounting policies, presentation and methods of computation are followed in preparing the interim financial information as were applied in preparation of the Group's financial statements for the year ended 31 July 2020.

The financial statements are presented in Sterling which is the functional currency of the group and all values are rounded to the nearest Pound Sterling (£).

Basis of consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform to the group's accounting policies.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Going concern

The financial statements have been prepared on a going concern basis. The Group's assets are now generating revenue following the acquisition of Harland & Wolff (Belfast), Harland & Wolff (Appledore), Harland & Wolff (Methil) and Harland & Wolff (Arnish). Operating cash outflows have been incurred in the year and an operating loss has been recorded in the profit and loss account for the year. The Group has raised £20.27 million (before expenses) in the 17-month period to 31 December 2021. There is a baseload level of work flowing through all the facilities and there is a robust pipeline of opportunities for which the Group is bidding. However, given the uncertainty surrounding bid success and the lack of bid to success history, management have prepared a worst-case scenario for a period of 12 months from the date of these financial statements in respect of their going concern assumptions. This assumes no bid contract wins and that the sole revenue generated by the Group will arise from the existing contracts that the Company has in place currently. The scenario includes all expected costs associated with such works as well as the repayment of all liabilities that fall due within this twelve month period and takes into account all cost savings and process efficiencies considered achievable as well as any residual COVID-19 related impacts, continued global supply chain issues and the ongoing crisis in Ukraine.Based on this worst case forecast scenario the Directors have a reasonable expectation that the Group has access to adequate resources to continue in operational existence for the foreseeable future. Should the Group be unable to continue trading, adjustments would have to be made to reduce the value of the assets to their recoverable amounts, to provide for further liabilities which might arise and to classify fixed assets as current.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Amortisation Amortisation is provided on intangible assets so as to write off the cost, less any estimated residual value, over their useful economic lives as follows:

Harland Heritage ProjectProject costs related to Harland Heritage are capitalised as incurred. The Harland Heritage Project has been put on hold temporarily and no material costs are being incurred except for maintenance and safeguarding of the various assets and artefacts that will be utilised for this project.

Amortisation

Amortisation is provided on intangible assets so as to write off the cost, less any estimated residual value, over their expected useful economic life as follows:

Tangible assets

Property, plant and equipment

Property, plant and equipment is stated in the statement of financial position at cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.The cost of property, plant and equipment includes directly attributable incremental costs incurred in their acquisition and installation.

Depreciation

Depreciation is charged so as to write off the cost of assets, other than land and properties under construction over their estimated useful lives, as follows:

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Trade receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for the impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method.The cost of finished goods and work in progress comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. At each reporting date, inventories are assessed for impairment. If inventory is impaired, the carrying amount is reduced to its selling price less costs to complete and sell; the impairment loss is recognised immediately in profit or loss.

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.Trade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the effective interest method.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Leases

Definition

A lease is a contract, or a part of a contract, that conveys the right to use an asset or a physically distinct part of an asset ("the underlying asset") for a period of time in exchange for consideration. Further, the contract must convey the right to the group to control the asset or a physically distinct portion thereof. A contract is deemed to convey the right to control the underlying asset if, throughout the period of use, the group has the right to:· Obtain substantially all the economic benefits from the use of the underlying asset, and;· Direct the use of the underlying asset (e.g. direct how and for what purpose the asset is used)Where contracts contain a lease coupled with an agreement to purchase or sell other goods or services (i.e., non-lease components), the group has made an accounting policy election, by class of underlying asset, to account for both components as a single lease component.

Initial recognition and measurement

The group initially recognises a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term.The lease liability is measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments, purchase options at exercise price (where payment is reasonably certain), expected amount of residual value guarantees, termination option penalties (where payment is considered reasonably certain) and variable lease payments that depend on an index or rate.The right-of-use asset is initially measured at the amount of the lease liability, adjusted for lease prepayments, lease incentives received, the group's initial direct costs (e.g., commissions) and an estimate of restoration, removal and dismantling costs.

Subsequent measurement

After the commencement date, the group measures the lease liability by:(a) Increasing the carrying amount to reflect interest on the lease liability;(b) Reducing the carrying amount to reflect the lease payments made; and(c) Re-measuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in substance fixed lease payments or on the occurrence of other specific events.Interest on the lease liability in each period during the lease term is the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. Interest charges are [presented separately as non-operating /included in finance cost] in the income statement, unless the costs are included in the carrying amount of another asset applying other applicable standards. Variable lease payments not included in the measurement of the lease liability, are included in operating expenses in the period in which the event or condition that triggers them arises.The related right-of-use asset is accounted for using the Cost model in IAS 16 and depreciated and charged in accordance with the depreciation requirements of IAS 16 Property, Plant and Equipment as disclosed in the accounting policy for Property, Plant and Equipment. Adjustments are made to the carrying value of the right of use asset where the lease liability is re-measured in accordance with the above. Right of use assets are tested for impairment in accordance with IAS 36 Impairment of assets as disclosed in the accounting policy in impairment.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Lease modifications

If a lease is modified, the modified contract is evaluated to determine whether it is or contains a lease. If a lease continues to exist, the lease modification will result in either a separate lease or a change in the accounting for the existing lease.The modification is accounted for as a separate lease if both:(a) The modification increases the scope of the lease by adding the right to use one or more underlying assets; and(b) The consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.If both of these conditions are met, the lease modification results in two separate leases, the unmodified original lease and a separate lease. The group then accounts for these in line with the accounting policy for new leases.If either of the conditions are not met, the modified lease is not accounted for as a separate lease and the consideration is allocated to the contract and the lease liability is re-measured using the lease term of the modified lease and the discount rate as determined at the effective date of the modification.For a modification that fully or partially decreases the scope of the lease (e.g., reduces the square footage of leased space), IFRS 16 requires a lessee to decrease the carrying amount of the right-of-use asset to reflect partial or full termination of the lease. Any difference between those adjustments is recognised in profit or loss at the effective date of the modification.For all other lease modifications which are not accounted for as a separate lease, IFRS 16 requires the lessee to recognise the amount of the re-measurement of the lease liability as an adjustment to the corresponding right-of-use asset without affecting profit or loss.

Short term and low value leases

The group has made an accounting policy election, by class of underlying asset, not to recognise lease assets and lease liabilities for leases with a lease term of 12 months or less (i.e., short-term leases).The group has made an accounting policy election on a lease-by-lease basis, not to recognise lease assets on leases for which the underlying asset is of low value.Lease payments on short term and low value leases are accounted for on a straight-line basis over the term of the lease or other systematic basis if considered more appropriate. Short term and low value lease payments are included in operating expenses in the income statements.

Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• Fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• Variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the

commencement date;

• Amounts expected to be payable by the Group under residual value guarantees;

• The exercise price of a purchase option if the Group is reasonably certain to exercise that option; and

• Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily

determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period.

Right-of-use assets are measured at cost which comprises the following:

• The amount of the initial measurement of the lease liability;

• Any lease payments made at or before the commencement date less any lease incentives received;

• Any initial direct costs; and

• Restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

The analysis of the group's revenue for the period from continuing operations is as follows:

The above income is wholly generated in the UK and no single customer accounted for more than 10% of revenue.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

4 Directors remuneration

The directors' remuneration for the year was as follows:

All amounts are short term in nature except for pension benefits which are considered to be long term.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (Continued)

5 Earnings per Share

Given the Group made a loss during the current financial year no diluted EPS is shown.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Group

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Intangible assets carried at revalued amounts

The fair value of the company's Artefacts was revalued on 30 June 2019 by Hilco Valuation services.

Had this class of asset been measured on a historical cost basis, their carrying amount would have been £200,000.

The revaluation surplus (gross of tax) recognised in profit and loss amounted to £447,395.

The revaluation surplus (gross of tax) recognised in other comprehensive income amounted to £447,395.

The fair value of the company's Trademarks was revalued on 30 June 2019 by Hilco Valuation Services.

Had this class of asset been measured on a historical cost basis, their carrying amount would have been £170,000.

The revaluation surplus (gross of tax) recognised in profit and loss amounted to £693,192.

The revaluation surplus (gross of tax) recognised in other comprehensive income amounted to £693,192.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period from 1 August 2020 to 31 December 2021 (continued)

Group

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Included within the net book value of Plant and machinery above is £3,267,466 (2020: £Nil) in respect of work in progress which has been capitalised.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

The trade and other receivables classified as financial instruments are disclosed below. The group's exposure to credit and market risks, including maturity analysis, relating to trade and other receivables is disclosed in note 24 "Financial risk review".

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Group

Other borrowings

Riverfort Global Opportunities PCC Limited Loan Harland & Wolff (Belfast) Ltd ("HWB") obtained an unsecured short term loan amounting to £530,000. The loan had an interest rate of 1.5% per month. The loan balance remaining at 31 December 2021 of £27,000 and was repaid in full in February 2022.

HWB also secured a new loan of £2,000,000 from Riverfort Global Opportunities PCC Limited at a fixed interest rate of 1.5% per month and a guarantee has been provided by the ultimate parent, Harland & Wolff Group Holdings Plc. As at 31 December 2021 £1,750,000 remained outstanding. This loan has been paid off in March 2022

Portnum Capitis Ltd LoanHWB obtained a term loan amounting to £2,090,000 and has been secured by Portnum Capitis Ltd by way of a debenture over the assets of HWB and a guarantee has been provided by Harland & Wolff Group Holdings Plc.The Portnum Capitis Ltd loan is an interest only loan and is repayable in full by February 2022. The loan has a fixed interest rate of 13.2% per annum. This loan has been paid off in March 2022.Moyle InvestmentsIn December 2017, The Company's wholly owned subsidiary, InfraStrata UK Limited increased its ownership in Islandmagee Energy UK Limited from 90% to 100% by acquiring the remaining interest from Moyle Energy Investments Limited ("Moyle") at par value. In recognition of the support by Moyle of the gas storage project at Islandmagee, Harland & Wolff Group Holdings Plc will pay Moyle £200,000 on first gas being injected into storage.

The loans and borrowings classified as financial instruments are disclosed in the financial instruments note.

The group's exposure to market and liquidity risk; including maturity analysis, in respect of loans and borrowings is disclosed in the financial risk management and impairment note.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Allotted, called up and fully paid shares

Authorised share capital

The Company's articles do not specify an authorised share capital.

Harland & Wolff Group Holdings Plc

Notes to the Unaudited Interim Financial Statements for the Period Ended 31 December 2021 (continued)

Objectives, policies and processes for managing capital

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to achieve its operational objectives.

The Group defines capital as being share capital plus reserves. The Board of Directors monitors the level of capital as compared to the Group's forecast cash flows and long-term commitments and when necessary issues new shares. Dilution of existing shareholder value is considered during all processes which may result in an alteration of share capital in issue.

Ordinary share capital in issue is managed as capital and the redeemable preference shares in issue are managed as current liabilities.

The Group is not subject to any externally imposed capital requirements and there are no restrictions in place over the different types of shares.

12. Dividend

The Directors do not recommend payment of a dividend for the period to 31 December 2021.

13. Publication of this announcement

This announcement is available on the Company's website https://www.harland-wolff.com