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Shipbuilder and marine engineer Harland & Wolff (HARL ) said it has activated the accordion facility provided to it by Riverstone Credit Partners, with an initial sum of US$15m (before costs) drawn down.
Harland said it would use the capital for a full settlement of the remaining Appledore deferred consideration and for working capital needs as required.
A total of £4.5m had remained payable to satisfy the deferred consideration to Appledore's vendors. Harland has thus made a £3.9m cash payment and issued 9.2m ordinary shares at 6.464p (equating to £600K based on HARL average price 29 September - 18 October 2022).
As part of the transaction, Harland has issued 8.57m warrants to Riverstone over new shares in the company at an exercise price of 5.65p. The warrants are exercisable in cash and expire after 36 months with no lock-up period.
On admission of the new shares to AIM, the total number of HARL ordinary shares will be 172m with an equal number of voting rights. Appledore Land Ltd will hold 9.2m or c. 5.39% of Harland's issued shared capital.
Harland & Wolff, group CEO John Wood, commented:
"I am delighted that we have formally completed the acquisition of all the assets of Appledore. With the M55 and HMS Atherstone in the yard, the completion of this transaction and bringing these assets formally under the Harland & Wolff umbrella is a significant milestone. It also provides additional confidence to our clients to progress and execute new contracts destined for Appledore.
I am also pleased that we have been approved by Riverstone to activate the accordion facility which puts the Group in a solid position ahead of a very busy Q4 2022 and Q1 2023."
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This is a significant milestone for Harland. The acquisition of Appledore's assets will consolidate Harland's military industrial business e.g. the £55m M55 Regeneration Programme contract, and the acquisition of HMS Atherstone from the MOD. The extra cash afforded by Riverstone's accordion facility will ensure the company remains well-funded to execute on its £100m backlog of contracts going into 2023.
Despite inflationary pressures, Harland delivered 22% gross margin in 1H22 as forecast, tripled revenues, and nearly tripled gross profit. The company is looking at a busy 4Q22 and FY23 with the aforementioned £100m forward backlog position expected to convert to revenues in the near term.
With a series of contract announcements made post-1H, Harland's revenues this year will be weighted towards 3Q and 4Q. The company is already seeing a material increase in revenues from projects that were contracted at the beginning of 3Q22. In addition, 4Q22 is the beginning of the peak cruise and ferry repair season, and Harland already has a number of repair contracts in place.
Harland should comfortably reach its goal of £65-75m of revenues in FY22.
Harland now has a significant presence in defence, energy, renewables, and cruise ship maintenance, with an estimated £1.2bn of opportunities across these markets. Harland's reputation in the defence field continues to grow, following the signing of the £55m M55 Regeneration Programme contract in July. Payments from that contract will be spread across FY22, FY23, and FY24.
The ongoing geopolitical upheaval in Ukraine has focused the Government's attention on boosting the UK's defence capabilities, with a growing cross-party desire to boost the country's sovereign capabilities for shipbuilding. Additionally, the Ukraine crisis has highlighted the need for self-reliance with regards to gas production. Harland is increasingly involved in both of these sectors, and continues to make inroads in wind energy as well.
Looking ahead, Harland sees potential revenues of £100-115m in FY23. At £200m turnover and above, the company expects to be in a position to initiate returns to shareholders.
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