Shipbuilder and marine engineer Harland & Wolff (HARL ) announced today unaudited interim results for the 6 months ended 30 June 2022 (1H22).

 

Highlights

Harland's revenues increased 3.5x to £15.41 from £4.14 in 1H21. Gross profit for the period stood at £3.38m, a 2.4x increase from £1.39m in 1H21, representing a gross margin of 22%. This is in line with company expectations for contracts delivered.

Harland obtained a credit facility of US$70m from Riverstone Credit Partners in March, and said drawdowns were being utilised to fund ongoing working capital requirements.

Harland continues to maintain guidance of achieving revenues between US$65-75m in FY22, having signed a series of large contracts post-period e.g. Cory Phase 1 and 2 and the M55 Regeneration Programme.

Operating loss increased to £14.06m in 1H22, reflecting an increase in the number of personnel, and overheads associated with servicing the company's five assets - Belfast, Appledore, Methil, Arnish, and London. The operating loss includes increased non-capitalised insurance, IT, recruitment, legal, and asset maintenance costs on a much larger asset base relative to 1H22.

Harland has also significantly increased its forward backlog position to £100m.

 

Operational Review

Cruise & Ferry Market

Harland said its Belfast repair dock was full during 1H22. In addition to its regular ferry servicing business, Harland welcomed its first cruise vessel during the period, Queen Victoria. Harland said it has been negotiating a further series of cruise vessel dockings with multiple owners, with new vessels arriving in 1Q 2023.

Renewables

Following the announcement of the Scotwind auction results in 1H22, Harland is now formally engaged with a number of developers who have been awarded licenses. Projects being developed consist of both  fixed and floating wind structures.

While large fabrication contracts are 18-24 months away, Harland expects to see a number of demonstrator models and prototypes being contracted for Methil, Arnish, and Belfast in FY23.

Saipem Contract

Harland signed a contract with Saipem in 2021 for the fabrication of eight wind turbine generator jackets for the NNG offshore wind project. Harland said the two parties agreed to de-scope the contract down to four jackets, now valued at £23m. Harland expects to deliver the jackets in sequence through 1Q 2023.

In an effort to maximise revenue, Harland said it has decided to focus on smaller contracts for Methil and Arnish of c. £4-10m due to their shorter turnaround times. These contracts will be for the fabrication of specific component parts for wind farm projects.

Defence

With the milestone M55 contract, Harland entered the defence market and is already in negotiations for further sub-contract programmes.

Harland is also formally engaged in the Fleet Solid Support Programme (FSS) under the Team Resolute umbrella, with Navantia as the Prime Contractor and Harland as its sub-contractor. The final set of bid documents was delivered to the MOD in July, with the preferred bidder to be announced in 4Q 2022.

Commercial

Harland said it sees significant opportunities for fabrication and repair of commercial vessels. Post period, Harland signed two contracts with the Cory Group Cory Phases 1 and 2 for the fabrication of 23 barges in Belfast.

Harland also said it is seeing significant traction for its dry-docking operations for tankers, FPSOs, and LNG carriers under European and American ownership.

Energy

Harland successfully completed two energy-related projects from its Arnish facility in 1H22, as well as structures for an oil and gas project in the Black Sea, and fabrication of super duplex structures for a nuclear power plant in the UK.

Harland said it is in discussions for contracts for life of field extensions, new exploration programmes, and support for the fast-growing renewables market by repurposing existing offshore platforms.

 

John Wood, CEO, commented:

"Our business model and strategy remain robust and has been validated not only by the fact that we are now operational in all five markets, but also by external counterparties such as Riverstone who have invested on the basis of a sound business strategy. We have a growing reputation in our markets and I remain very optimistic about the trajectory of the Company.

After a slow start this year, we have now gained significant momentum with the rapid execution of three major contracts. As we announce these interim results, we have a backlog of over £100 million, a record level for the Company, affording us strong future visibility of revenue."


View from Vox

Despite inflationary pressures, Harland delivered 22% gross margin in the period as forecast, tripled revenues, and nearly tripled gross profit. While markets will focus on the wider operational loss, the additional expenses supported a much larger asset base relative to H121. The associated new large and diverse contracts will convert to further revenues in the near term. Harland has significantly increased its forward backlog position to £100m, and should comfortably reach its goal of £65-75m of revenues in FY22.

With a series of contract announcements made post-1H, Harland's revenues this year will be weighted towards 3Q and 4Q 2022. Going into 2H22, the company is already seeing a significant increase in revenues from projects that were contracted at the beginning of 3Q 2022. In addition, 4Q 2022 is the beginning of the peak cruise and ferry repair season, and Harland already has a number of repair contracts in place.

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 geo-political upheaval in the Ukraine has focused the Government's attention on boosting the UK's defence capabilities, and there is 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 involved in both of these fields as detailed above, and continues to make inroads in wind generation as well.

Harland believes that with the twin political agendas of shipbuilding and levelling-up, it is well-positioned to bid for defence and government-related contracts.

Analysts from Cenkos are forecasting revenue of £70m for FY22, with net debt as at 31st December 2022 of £25.5m.

Looking further 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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