INFA.L Regulatory News (INFA)

25 August 2020

InfraStrata plc

("InfraStrata" or the "Company")

Acquisition of Assets of Appledore Shipyard

InfraStrata plc (AIM: INFA), the UK quoted company focused on strategic infrastructure projects and physical asset lifecycle management, is pleased to announce the acquisition of substantially all the assets of Appledore Shipyard located in Bideford, North Devon, to be renamed H&W (Appledore), (the "Acquisition").

Key highlights:

· Highly strategic asset with a rich shipbuilding heritage

· Significant opportunity to build a prominent presence in mainland UK

· Ship and block building, ship repair and fabrication activities for the renewable industry and commercial market, with particular focus on vessels

· Significant synergies between Appledore and Harland & Wolff (H&W)

· 29 acres of freehold land

· 322,975 square feet of undercover fabrication halls

· 119 metre length of undercover dry-dock

· 500 metre quayside at the Newquay yard for ship repairs

· Total consideration payable of £7million, of which £5.60million in cash and £1.40million in Ordinary Shares

· Consideration payable in 5 tranches over 30 months

Rationale for the Acquisition

Since the Company acquired H&W (Belfast) in December 2019 and announced its maiden revenues, H&W(Belfast) has welcomed a number of vessels, including but not limited to, ferries, cruise vessels and offshore support vessels. H&W (Belfast's) core competence lies in vessels that require a dock length in excess of 300 metres. With two dry docks at 356 metres and 556 metres in length respectively, H&W (Belfast) has the largest drydock capability in the UK, the second largest in Europe and, therefore, puts it in a unique position in relation to larger vessels.

The Company considers the mid-sector space of shipyards having dock lengths between 120 metres and 300 metres to be busy, crowded and highly competitive. The Company believes that entering the market of mid-sized shipyards would not lead to any significant competitive advantage, vis-à-vis other established players and this will not be an area of focus for the Company at this time. H&W (Appledore), on the other hand, will focus on the smaller end of the market, with a dock length of 119 metres. There are very few shipyards in the UK that can offer this type of undercover building dock and repair facility and, given the number of sovereign vessels required in this category over the next ten years, the Company believes that this is a market segment that cannot be ignored. Having studied several smaller facilities, the Directors believe that H&W (Appledore) is, by far, the most suitable, from a locational, strategic and operational point of view and is well positioned to win contracts in this sector.

With this Acquisition, the Company believes that it can achieve a dominant position at two distinct ends of the shipyard market; the lower end of the market at less than 119 metres of dock length (with H&W (Appledore)) and the upper end of the market, requiring dock lengths of 300+ metres (with H&W (Belfast)). With less competition at both ends of the market, the Company believes that it is now in a unique situation to attract, win and retain business specifically targeting both ends of the size spectrum.

H&W (Appledore) is strategically situated in North Devon and the Company believes that it is ideally placed to win and service contracts across the five key markets that the Company has laid out as its strategy for the future: ferry, defence, commercial fabrication, oil & gas and renewables. As with H&W (Belfast), H&W (Appledore) will offer the Company's six core services to each of these markets that include technical services, fabrication & construction, repairs & maintenance, in-service support, conversions and decommissioning. Given H&W (Appledore's) size and capabilities, the Company believes that it will be the "go-to" yard in the region for small vessel requirements across these five markets and six sectors.

Just like H&W (Belfast), H&W (Appledore) enjoys the advantage of an existing and robust supply chain and a skilled workforce in the area. Whilst the yard has been dormant in recent months and the Acquisition therefore only comes with one employee (who is the current site manager), the Company believes that the workforce can be very quickly ramped up upon execution of contracts, discussions for which are already being undertaken with both Government and private vessel owners. There was no turnover attributable to the assets over the last 12 months.

H&W(Belfast) has been involved in the bidding process for a number of large contracts and, should they come to fruition, the facilities would have limited room for incremental business. H&W (Appledore) would be ideally placed to handle any spill-over of work from H&W (Belfast) in addition to tendering and bidding for its own set of contracts. Whilst the two yards are completely distinct in terms of their respective sizes, both have a number of common capabilities that are expected to create operating synergies and economies of scale.

The Company envisages each yard to be a standalone business unit in its own right, i.e., each yard will have its own profit and loss account, balance sheet, business contracts and lines of financing. H&W (Belfast's) contracts will tend to be large and spread over a number of months and years, given the scale of the business that it is currently negotiating. H&W (Appledore's) contractual profile, on the other hand, is expected to consist of smaller contracts and will tend to be fast-moving in addition to larger new build contracts that will be spread over several years.

The Government's policy in relation to levelling up, "build, build, build" and, most importantly, the rolling out of its national shipbuilding policy, are further drivers to the success of Appledore in due course. The Company has always taken a position that it will not be reliant on Ministry of Defence (MoD) contracts for the long-term sustainability of its business. However, with Appledore's strategic presence in mainland UK, it offers the MoD and other government departments such as the Home Office and Department for Transport an exciting and cost-effective domestic option for a number of smaller vessel builds that are in the pipeline in the months to come. In addition, a number of wind farm projects in the surrounding areas are planned in the near future and they will require UK fabrication with load-out capacity. Whilst Government policy stipulates the requirement for a substantial proportion of locally fabricated content, the availability of such fabrication capability across the UK is highly limited. As such, the Company believes that H&W (Appledore) is ideally positioned to fill that gap and bid for these fabrication contracts. Discussions have already commenced with wind farm developers and the Company hopes to make tangible progress in due course.

Consideration

The Company has agreed to pay a total Consideration of £7million for the Acquisition of substantially all the assets of Appledore. The Consideration will be payable in the following tranches:

Tranche 1 on Completion:

A total of £1.50million consisting of cash of £1.20million and 784,404 ordinary shares of 1 penny each in the capital of the Company ("Ordinary Shares") equivalent to £300,000

Tranche 2 on the first anniversary of Completion of £1.50million:

A total of £1.50million consisting of cash of £1.20million and Ordinary Shares in the Company equivalent to £300,000

Tranche 3 on the second anniversary of Completion:

A total of £2million consisting of cash of £1.60million and Ordinary Shares in the Company equivalent to £400,000

Tranche 4 on the 30th month anniversary of Completion:

A total of £2million consisting of cash of £1.60million and Ordinary Shares in the Company equivalent to £400,000

The number of Ordinary Shares that are issued on each respective tranche date will be calculated using the Volume Weighted Average Price ("VWAP") of InfraStrata's Ordinary Shares for the 14 trading days prior to the third business day before the respective tranche date (or before completion in respect of the first tranche).

Accordingly, an application has been made for 784,404 new Ordinary Shares to be admitted to trading on AIM, which is expected to occur on 28 August 2020. Upon admission, the Company's issued share capital will consist of 64,944,486 Ordinary Shares with one voting right each. The Company does not hold any Ordinary Shares in treasury. Therefore, the total number of Ordinary Shares and voting rights in the Company will be 64,944,486. This figure may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FCA's Disclosure Guidance and Transparency Rules.

Acquisition Assets:

The Acquisition will include, amongst other things, the following key assets:

· 29 acres of freehold land situated on waterfront

· 322,975 square feet of undercover fabrication halls

· 118 metre length of undercover dry-dock

· 500 metre quayside at the Newquay yard for ship repairs

· Panel hall and bar preparation area

· Burning hall and design offices

· Minor assembly and cold frame bending shop

· Steel stockyard and shot blast plant

· Pipeline fabrication equipment

· Fitting and machining equipment

· Other assets including but not limited to stock, main stores, electrical substation and back-up generators, office and training centre buildings

H&W (Belfast) update

The Company announced in its interim results statement on 30 April 2020 that a further eight vessels were contracted to come into the yard and the Company is pleased to report that it has successfully met that milestone. Whilst COVID-19 saw a drop in vessel volumes through Q2'20 and the beginning of Q3'20, the Company is now experiencing a resurgence of vessels coming into the yard. The Company has always maintained a position of undertaking minor repair works in the first phase of re-starting H&W (Belfast) in order to de-risk operations. With that first phase successfully completed, the Company is now negotiating with clients on larger value contracts. The Company continues to be in advanced discussions with the UK Export Finance Department to secure lines of financing on behalf of the Company's overseas clients in order to provide working capital for larger works scopes that are in the range of £20million - £100million.

Islandmagee Gas Storage Project Update

The Company is pleased to announce that Mark Jessop, formerly at SSE, will be joining as Director of Project Management on 01 September. Mark brings with him decades of experience in gas storage related salt cavern construction and operation projects. Mark will lead the project team during the construction phase and will commence with enabling works as soon as possible.

The Company's position around licensing remains robust and the Company sees no reason why a marine license will not be issued in due course and that no additional consultations are needed to refresh other licenses. With that in mind, the Company has recently instructed Grant McBurney and Garry McGhee of Carson McDowell LLP to carry out an independent review. To ensure further transparency and to strengthen its legal position, they have further instructed leading barrister David Elvin QC from Lanmark Chambers to provide a legal opinion on aspects of the Marine Licence in order to mitigate against any further potential delays. The opinion returned has provided third-party assurance to the Company that there is no reason why the outstanding Marine License process cannot be completed without further delay. The Company continues to maintain dialogue with DAERA and remains optimistic that a recommendation for the issuance of the Marine Licence will be made within the next few weeks.

Despite the global pandemic, gas markets have shown strong resilience, further demonstrating their robustness. However, UK gas prices have been highly volatile during this period, which the Company believes further signifies the fragility of gas supply security in the UK. This volatility is likely to be exacerbated by the end of 2020 when the UK leaves the European Union (EU), given that EU countries will be given priority of gas supplies over the UK in times of gas network stress. Simply put, when excess demand arises, for example, during a cold spell like the Beast from the East, EU supply routes are likely to be utilised to satisfy EU demand in the first instance and thereby put UK supply under further pressure. The Company continues to maintain that the Islandmagee gas storage project is critical to ensure the security of gas supply to the island of Ireland and mainland UK, and that the commercial and physical market metrics support this.

With a number of construction projects cancelled, the Company has decided to return to the market in September to re-tender for construction related activities for the project in order to ensure it is ready to proceed to construction as soon as possible. The COVID-19 situation has created a nebulous period for all investment decisions and, whilst the Company is focused on taking FID as previously updated, that timeline may change depending on how the pandemic unfolds in the forthcoming few months. However, with the government's push to "build, build, build", the Company remains confident that this project will progress to construction in due course and provide Northern Ireland, the Republic of Ireland and mainland UK with much needed security of gas supply and employment opportunities.

FSRU Project

The Company has been working diligently with the project promotor Westface Capital to complete the Sale and Purchase Agreement (SPA) announced on the 28 May 2020. A number of workstreams are required to be completed before the execution of the SPA. Upon further due diligence and discussions with counterparties over the recent weeks, the Company now has the possibility of tying the FSRU project into existing infrastructure, both offshore and onshore. This has the advantage of bringing project CAPEX down substantially and fast-tracking the project to FID earlier than envisaged. Further value engineering work is being conducted to determine the technical and commercial viability of such tie-ins into existing infrastructure.

The Company is highly encouraged by the level of global interest received from potential consortium members to use the facility when in place. A part of the engineering works that are underway is to consider an increase in capacity of the project based on market soundings. This surge in interest is due to the UK's high gas price volatility coupled with some significant global LNG supplies coming on-stream in 2022/23.

Whilst the Company is keen to progress this project, it needs to ensure that all the fundamentals are in place and that it has the optimal solution to offer further LNG import capacity in the UK, which is not only technically competent but also economically viable. Accordingly, the Company shall be undertaking the various workstreams as discussed above and shall proceed to execution of the SPA in Q4. This timeline may come forward should the Company complete these workstreams ahead of time and COVID-19 travel restrictions be eased enabling access to specialists on-site.

John Wood, Chief Executive Officer, commented: "I am delighted that the Company has acquired Appledore shipyard and this is another important milestone in the growth of the Company. We have been fortunate that these assets have become available. The acquisition at this point in time is opportunistic for the Company and one that should not be missed. It not only gives us a strategic foothold in mainland UK but also makes the overall business highly competitive in the smaller and higher ends of the shipyard market, respectively. I look forward to growing this business along with our flagship Harland & Wolff (Belfast), with the primary aim of attaining a cash break-even status as soon as possible."

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Following the publication of this announcement, this inside information is now considered to be in the public domain.

For further information, please visit www.infrastrataplc.com or contact: