Shipbuilder and marine engineer Harland & Wolff (HARL ) noted an announcement by the Secretary of State Rt Hon Ben Wallace MP at Harland's Appledore shipyard that Team Resolute, a Harland-led consortium, has been awarded preferred bidder status on the £1.6bn Fleet Solid Support (FSS) Royal Navy contract.
Harland expects to complete negotiations on the contract by Q1 2023, which will provide more precise details on the works to be carried out, key timelines, and other factors.
View from Vox
This is an enormous milestone for Harland & Wolff. Shares soared nearly 100% on the news, which is an appropriate market reaction given the scale and scope of the £1.6bn FSS contract. The contract will see three Royal Navy 216-metre 40,000-tonne resupply ships built primarily at Harland's facilities in Appledore and Belfast. The project will create 2,000 jobs across the UK.
The news is not a surprise, given Harland's growing reputation in the defence sector and already established relationship with the MOD, following the signing of the £55m M55 Regeneration Programme contract, and the acquisition of HMS Atherstone.
Last week, Harland restructured its debt through a deal with Astra Asset Management that left it in a better position to execute on its then £100m backlog of contracts going into 2023. With the massive FSS contract now won, the company is in an excellent position to deliver for the government, as it will have access to a £70m facility in 4-6 weeks, later to be increased to £100m.
In October, Harland consolidated its Appledore assets after fully settling the remaining deferred consideration to Appledore's vendors. That deal could not have been better timed, as Appledore will now play a major role in the FSS contract.
Despite inflationary pressures, Harland delivered 22% gross margin in 1H22 as forecast, tripled revenues, and nearly tripled gross profit. Even before today's announcement, the company was looking at a busy 4Q22 and FY23.
Harland should comfortably reach its goal of £65-75m of revenues in FY22. At £200m turnover and above, the company expects to be in a position to initiate returns to shareholders.
Harland investors are happy today, and we continue to recommend that readers interested in defence the company. With the UK's twin political agendas of local shipbuilding and levelling-up, Harland is well-positioned to win more defence and government-related contracts.