INFA.L Regulatory News (INFA)

12 February 2021

InfraStrata plc

("InfraStrata" or the "Company" or the "Group")

Acquisition of assets of Burntisland Fabrication Limited (Bifab)

InfraStrata plc (AIM: INFA), the UK quoted company focused on strategic infrastructure projects and physical asset lifecycle management, announces that it has acquired substantially all of the assets of Burntisland Fabrication Limited (the "Acquisition"), providing the Company with increased capacity across two sites in prime locations in Scotland. The consideration paid for the assets is £650,000 in cash with a further deferred consideration of up to £200,000 in cash, subject to achievement of future revenues targets. These facilities will trade under the Harland & Wolff brand and represent the final fabrication piece of its UK footprint, positioning the Company to fully deliver on its existing strategy quicker than it would have done with only its two existing sites: Harland & Wolff (Belfast) and Harland & Wolff (Appledore).

Key highlights:

· Strategic acquisition of assets and leases across two sites in prime locations in Scotland with particular regard to renewable and defence projects; Methil on the east coast of Scotland and Arnish on the west coast of Scotland. The Burntisland site will not form part of the transaction.

· Over 25,000m2 of undercover fabrication capacity acquired, with 580,000 m2 of total site area and 24,000 tonnes of quayside load-out capabilities and annual throughput tonnage potential estimated at over 100,000 tonnes.

· Waterfront sites acquired that are capable of load in, load out and launching activities.

· Sites are in close proximity to an array of wind farm projects currently ongoing and planned in the Irish Sea and North Sea; and significant fabrication capabilities added through the Acquisition.

· Substantial increase in the probability-to-win rate (Pwin rate) by offering clients multiple fabrication sites and management estimate reducing major project fabrication timelines by as much as 30%; Acquisition offers project developers a faster route to project monetisation and de-risking fabrication projects by spreading work across three distinct but close-proximity geographies.

· Acquisition brings numerous historic pre-qualification and live tender opportunities in addition to the track record in the oil & gas and renewables markets that Bifab has already established.

· The Acquisition is expected to accelerate Harland & Wolff's renewable market penetration by opening up projects previously at the planning stage before the Belfast site was acquired in December 2019 but are now ready to commence tendering for fabrication works.

· Assignment of long-term leases of 12 years at Methil and Arnish subject to completion of due diligence and board approval of the respective landlords; an MOU has been entered into at this stage which sets out the basis of future agreements which will be on no worse conditions than that of the previous tenant.

· The assets acquired and up to 29 existing employees will come under the newly formed Harland & Wolff (Methil) Limited, a fully owned subsidiary of the Company; employees are currently on furlough and will be brought back as required to re-establish operations at the sites.

· The Acquisition fulfils the Company's strategic ambition to have fabrication sites across various geographical locations of the United Kingdom, leading to local and cross government support; aligned even closer to the UK Government's "levelling-up" agenda and the "Green Industrial Revolution".

· Extensive consultation has been undertaken with key stakeholders who will look to use the facility going forward, including projects that were set to utilise the facilities prior to Bifab entering into administration in late 2020.

Acquisition rationale:

A shortage of UK shipbuilding and heavy fabrication capacity

In 2019, the Company set out its objective of being revenue generating as quickly as possible and the acquisition of Harland & Wolff (Belfast) was quickly followed by the acquisition of Harland & Wolff (Appledore). As the year has evolved, it has become more obvious than ever that the UK lacks sufficient shipbuilding and heavy fabrication capacity. This has been exacerbated by the Government's twin strategy of rejuvenating the shipbuilding sector coupled with the "Green Industrial Revolution".

Growth in UK Shipbuilding

Following recent announcements in relation to shipbuilding with a specific reference to Belfast and Appledore, management believes that the shipbuilding strategy that it has put in place is closely aligned to Government policy and could lead to some large contracts, both from Government and the private sector. Accordingly, a number of negotiations are currently taking place with a view to consummating multiple shipbuilding contracts, conversion projects and significant fabrication works in due course.

Growth in wind farm fabrication demand

Management's view that wind farm fabrication is set to grow exponentially has been reinforced by:

· The announcement of the Government's "Green Industrial Revolution"

· Legislation expected to be put in place to promote local content for wind farm developments

· The latest Crown Estates Round 4 leases awarded to BP and RWE for 3GW each of wind projects in the Irish Sea and Dogger Bank region in the North Sea, respectively.

Management is pleased to report that, since the various announcements by Government, Harland & Wolff has seen a significant increase in the number of inquiries from wind farm developers for fabrication capabilities across the Company's sites.

Multi-site competitive edge

Whilst advanced discussions are currently taking place between the Company and wind farm developers, one of the key requirements that has emerged is the need to split large works programmes across multiple sites. This helps de-risk the overall fabrication strategy and enables the Company to fabricate as quickly as the developer would like, thereby helping the developer monetise the project earlier than scheduled.

Most importantly for the Company, management estimates that multiple fabrication facilities in the correct geographical locations significantly enhance the Probability-to-win rate (Pwin rate) given that only a handful of the Company's competitors in the UK have the ability to offer fabrication across multiple sites that are strategically located to additionally support construction activities.

Management has critically evaluated its weighted pipeline across the five core markets in which it operates and believes the Company would run short of fabrication capacity should (as is expected) multiple large contracts come to fruition at the same time.

Methil and Arnish's competitive advantages

Both Methil and Arnish have a rich history of heavy engineering and fabrication. Initially fabricating for the oil and gas industry, the facilities added to their fabrication portfolio a number of energy companies that were developing wind farm projects around the UK. Whilst Methil is the larger of the two sites and will be heavily focussed on fabrication for the oil and gas, commercial and renewables markets, Arnish lends itself to multiple opportunities across all five of the Company's chosen markets. Given Arnish's locational advantages and sophisticated plant and equipment, it is a highly suitable location for a cost-effective fabrication supply chain for defence programmes and vessel block assembly, as well as having a rich history of providing rolled structures for the renewables and offshore oil and gas markets.

Additionally, given Arnish's access to Stornoway Port and deep-water areas, it is an attractive location for the repairs, maintenance and new build programmes for local ferry and maritime operators. A full business case will be developed for a floating dock in this area and will be presented to the local authorities including the influential Highlands and Islands Enterprise board in due course. The intention is to capitalise on the large numbers of vessels required, bearing in mind key criteria related to providing as much local content as possible and enhancing the substantial economic and social benefits that these programmes will bring to the local area.

Consideration:

The Company has agreed with the administrators a total consideration of £850,000 split into two tranches:

· The first tranche is for the sum of £650,000 to be paid upon completion

· The second tranche will be for the sum of £200,000 upon the occurrence of either of the following events, whichever occurs earlier:

o Consolidated Group turnover is or exceeds £75 million in the next 24 months

o Consolidated turnover of Methil and Arnish is or exceeds £40 million in the next 24 months

Acquisition of assets, personnel, and leases:

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

· 580,000m2 of leased area in Methil and Arnish

· 25,000m2 of undercover fabrication halls

· Plate rolling and forming equipment

· Plate cutting and sub-assembly fabrication shop

· Shotblasting and painting facilities

· Storage and quayside

· Welding and cutting machines

· Cranes

· Material handling equipment

· Multi-wheel trailers

· Office buildings and stores warehouses

· 29 skilled personnel transferred under TUPE regulations

· 12-year leases on both Methil and Arnish facilities; assignment of leases / entering into of new leases to commence upon finalisation of landlords' due diligence, expected to complete within the next four weeks, after which assignments of the leases are expected to commence. As a back stop should the negotiations not prove fruitful, the leases will be assigned on the same basis as the previous tenant.

John Wood, CEO of InfraStrata, commented: "I am very pleased to have completed the acquisition of the assets of Bifab, which is in keeping with our stated strategy of capitalising on complementary opportunities when they present themselves. Whilst the total consideration is not material, relative to our balance sheet size and market cap, it nevertheless is a very important and highly strategic acquisition for InfraStrata. With this acquisition, we now have a footprint in Scotland, which is the hotbed for major wind farm projects as well as for shipbuilding programmes.

We have now positioned ourselves strategically across the UK, with four sites capable of servicing our five core markets. This acquisition gives us the flexibility to optimise our operations across the Group and offer our clients the ability to fabricate faster and de-risk their exposure by offering multiple sites. As we move into larger contracts, it is crucial that we demonstrate the capacity to bid for and deliver on these projects. The acquisition of Bifab's assets delivers that capability to us and will open up a larger demographic of tender opportunities. Most importantly, it is expected to substantially boost our existing sales pipeline success rate given that the fabrication risk carried by the project developers will drop significantly since we will now be more favourably located geographically than others. Finally, I wish to warmly welcome the personnel whom we have taken on at Methil and Arnish and I am confident that we will turn these facilities into highly successful businesses that generate jobs and investment into their local economies in due course."

This announcement contains inside information.

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