Execution of the Fleet Solid Support Programme (“FSS” or “Programme”) Subcontract
Harland & Wolff Group Holdings plc (AIM: HARL), the UK quoted company focused on strategic infrastructure projects and physical asset lifecycle management, is pleased to announce that, further to its announcement on 18 January 2023 regarding the execution of the Fleet Solid Support Programme’s Manufacture Contract between the Ministry of Defence (“MOD”) and Navantia UK Limited (“Navantia”), the Company has now formally executed the Subcontract with Navantia UK Limited (the “Subcontract”).
Under the terms of the Subcontract, the Company will be responsible for delivering works which are expected to generate revenues of between £700 million and £800 million to the Company by the time the final vessel is delivered. This is a significant win for Harland & Wolff and will propel the Company to the next stage of its development.
The Subcontract is for a duration of seven years commencing in 2023 and ending in 2031. As part of this Programme, the Company will be responsible for the fabrication of various blocks including some mega blocks (i.e., a block incorporating several standard sized blocks) as well as the procurement of a number of items of equipment to be installed on each vessel in Belfast. Given Appledore’s experience in the fabrication of the bow sections for the Queen Elizabeth Class aircraft carriers – HMS Queen Elizabeth and the Prince of Wales, all three bow sections for this Programme will be fabricated in Appledore prior to being transported to Belfast. The three vessels will have all the blocks assembled, consolidated, fully integrated and commissioned before proceeding to sea trials from the Belfast facility, marking a return to shipbuilding in Belfast after over twenty years.
Full scale fabrication is due to commence in 2025 with the vessels due to be delivered to meet the MOD’s objective to bring three ships into service by 2032. However, the Company expects to generate approximately £25 million in revenues from pre-fabrication works in 2023, and a similar sum in 2024. The Programme’s gross margins are expected to maintain the Group’s previously advised overall blended gross margins.
The Belfast and Appledore facilities will benefit from a £77 million capital investment programme (“Recapitalisation Plan”) during the next 24 months., In Belfast, an extension to the fabrication halls will be undertaken to facilitate a highly dynamic material and sub-structure production flow along with a highly efficient manufacturing and production process. Investments will be made in technologically advanced robotic and autonomous equipment that includes material movement, marking, plate cutting, panel lines and robotic welding. In addition, new larger paint buildings will be constructed to facilitate larger and more efficient block painting. The investments in this site will ensure that the Company has one of the most technologically advanced marine fabrication facilities in the United Kingdom with the latest state-of-the-art machinery and production flows. Appledore will benefit from upgrades to the shipyard roof along with investments in additional automated machinery that includes the relocation of the existing micro panel line from Belfast.
This Subcontract will be a significant and historic step change to Harland and Wolff’s capabilities and will make the Company an important participant in the international shipbuilding industry. Specifically, with modern shipyards and a proven track record post FSS, the Company will be able to capitalise on further multi-billion-pound fabrication and heavy engineering opportunities within the defence, renewables and commercial maritime markets globally. Following the planned investments and upgrades to its sites, the Company hopes to capitalise on the significant number of floating wind projects for which fabrication is expected to commence between 2024 and 2030, which would diversify and complement the Company’s revenues from FSS. Work has been ongoing in relation to the Recapitalisation Plan with Mott McDonald acting as consultant and owner’s engineer, whilst Royal Haskoning, a specialist shipyard designer, has been engaged to define the production flow as well as plant & machinery requirements. The Company’s partnership with Navantia will further lead to invaluable transfer of technology over the next seven years. Pre-planning applications have already been submitted and demolition works are expected to start shortly in Belfast, with the new facility coming to life over the next two years.
The UK government has implemented the National Ship Building Strategy to, inter alia, improve productivity rates in UK shipbuilding & fabrication, reduce waste and to drive the transition to Net Zero. In line with this strategy, the Company has been working with numerous parties to maximise investments in the shipyard to achieve these goals alongside delivering projects on time and on budget. The Company will be receiving a significant proportion of the investment required for the Recapitalisation Plan from the project directly. The Company will also look to capitalise on production savings with new plant and equipment. It is envisaged that £32m will be financed through additional long term leasehold improvements, medium term asset finance and the Company’s proposed new enlarged debt facility with Astra, which is expected to be completed by the end of Q1 2023. Further, there may be opportunities to access other external funding such as new technology grants and carbon reduction grants that the Company will be working through over the next twelve months in order to maximise funding and optimise the Group’s capital stack.
In collaboration with its partners in Team Resolute, Navantia and BMT, the Company will continue to engage as a team in future phases of this Programme as well as on other opportunities in the UK and globally. Further announcements will be made in due course should any of these opportunities materialise.
The Company will be measured on its social value contribution through the life of the Programme. This will include, inter alia, deepening and strengthening of the UK supply chain, taking on graduates and apprentices as the next generation of ship-builders and crucial technology transfer between Navantia and the Company. At the peak of the Programme, the Company will be providing employment to over 1,200 personnel (900 in Belfast and 300 in Appledore) and over 100 graduates and apprentices in Belfast and Appledore generating substantial social value across the UK. This Programme not only provides the Company with a significant baseload revenue line for the next seven years, but also enables the Company to leave a positive and lasting legacy in communities across the UK.
John Wood, Group Chief Executive Officer, Harland & Wolff comments: “I am delighted that we have formally signed the Subcontract with Navantia, a very significant project that will provide a substantial baseload revenue for the business for the next seven years. The addition of this Programme moves us materially closer to our target of £1bn of contracted backlog of work by the end of 2023, enabling us to take long-term decisions and continue to invest in our facilities to ensure that we are at the forefront of the development of state-of-the-art marine fabrication facilities in the UK . We can now commence work on the Programme with the key focus on completing the Recapitalisation Plan over the next two years in preparedness for the start of production in 2025. As the final strategic piece in the carrier strike force, I look forward to working closely with our partners in Team Resolute over the coming years to deliver these state-of-the-art vessels to the crews of the Royal Navy on time and on budget”.
Harland & Wolff Group Holdings plc
John Wood, Chief Executive Officer
Seena Shah, Head of Marketing & Communications
+44 (0)20 3900 2122
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