TIDMINFA
RNS Number : 0779X
Infrastrata PLC
25 August 2020
25 August 2020
InfraStrata plc
("InfraStrata" or the "Company")
Acquisition of Assets of Appledore Shipyard
InfraStrata plc (AIM: INFA), the UK quoted company focused on
strategic infrastructure projects and physical asset lifecycle
management, is pleased to announce the acquisition of substantially
all the assets of Appledore Shipyard located in Bideford, North
Devon, to be renamed H&W (Appledore), (the "Acquisition").
Key highlights:
-- Highly strategic asset with a rich shipbuilding heritage
-- Significant opportunity to build a prominent presence in mainland UK
-- Ship and block building, ship repair and fabrication
activities for the renewable industry and commercial market, with
particular focus on vessels <119m and, therefore, complementary
to H&W (Belfast)
-- Significant synergies between Appledore and Harland & Wolff (H&W)
-- 29 acres of freehold land
-- 322,975 square feet of undercover fabrication halls
-- 119 metre length of undercover dry-dock
-- 500 metre quayside at the Newquay yard for ship repairs
-- Total consideration payable of GBP7million, of which
GBP5.60million in cash and GBP1.40million in Ordinary Shares
-- Consideration payable in 5 tranches over 30 months
Rationale for the Acquisition
Since the Company acquired H&W (Belfast) in December 2019
and announced its maiden revenues, H&W(Belfast) has welcomed a
number of vessels, including but not limited to, ferries, cruise
vessels and offshore support vessels. H&W (Belfast's) core
competence lies in vessels that require a dock length in excess of
300 metres. With two dry docks at 356 metres and 556 metres in
length respectively, H&W (Belfast) has the largest drydock
capability in the UK, the second largest in Europe and, therefore,
puts it in a unique position in relation to larger vessels.
The Company considers the mid-sector space of shipyards having
dock lengths between 120 metres and 300 metres to be busy, crowded
and highly competitive. The Company believes that entering the
market of mid-sized shipyards would not lead to any significant
competitive advantage, vis-à-vis other established players and this
will not be an area of focus for the Company at this time. H&W
(Appledore), on the other hand, will focus on the smaller end of
the market, with a dock length of 119 metres. There are very few
shipyards in the UK that can offer this type of undercover building
dock and repair facility and, given the number of sovereign vessels
required in this category over the next ten years, the Company
believes that this is a market segment that cannot be ignored.
Having studied several smaller facilities, the Directors believe
that H&W (Appledore) is, by far, the most suitable, from a
locational, strategic and operational point of view and is well
positioned to win contracts in this sector.
With this Acquisition, the Company believes that it can achieve
a dominant position at two distinct ends of the shipyard market;
the lower end of the market at less than 119 metres of dock length
(with H&W (Appledore)) and the upper end of the market,
requiring dock lengths of 300+ metres (with H&W (Belfast)).
With less competition at both ends of the market, the Company
believes that it is now in a unique situation to attract, win and
retain business specifically targeting both ends of the size
spectrum.
H&W (Appledore) is strategically situated in North Devon and
the Company believes that it is ideally placed to win and service
contracts across the five key markets that the Company has laid out
as its strategy for the future: ferry, defence, commercial
fabrication, oil & gas and renewables. As with H&W
(Belfast), H&W (Appledore) will offer the Company's six core
services to each of these markets that include technical services,
fabrication & construction, repairs & maintenance,
in-service support, conversions and decommissioning. Given H&W
(Appledore's) size and capabilities, the Company believes that it
will be the "go-to" yard in the region for small vessel
requirements across these five markets and six sectors.
Just like H&W (Belfast), H&W (Appledore) enjoys the
advantage of an existing and robust supply chain and a skilled
workforce in the area. Whilst the yard has been dormant in recent
months and the Acquisition therefore only comes with one employee
(who is the current site manager), the Company believes that the
workforce can be very quickly ramped up upon execution of
contracts, discussions for which are already being undertaken with
both Government and private vessel owners. There was no turnover
attributable to the assets over the last 12 months.
H&W(Belfast) has been involved in the bidding process for a
number of large contracts and, should they come to fruition, the
facilities would have limited room for incremental business.
H&W (Appledore) would be ideally placed to handle any
spill-over of work from H&W (Belfast) in addition to tendering
and bidding for its own set of contracts. Whilst the two yards are
completely distinct in terms of their respective sizes, both have a
number of common capabilities that are expected to create operating
synergies and economies of scale.
The Company envisages each yard to be a standalone business unit
in its own right, i.e., each yard will have its own profit and loss
account, balance sheet, business contracts and lines of financing.
H&W (Belfast's) contracts will tend to be large and spread over
a number of months and years, given the scale of the business that
it is currently negotiating. H&W (Appledore's) contractual
profile, on the other hand, is expected to consist of smaller
contracts and will tend to be fast-moving in addition to larger new
build contracts that will be spread over several years.
The Government's policy in relation to levelling up, "build,
build, build" and, most importantly, the rolling out of its
national shipbuilding policy, are further drivers to the success of
Appledore in due course. The Company has always taken a position
that it will not be reliant on Ministry of Defence (MoD) contracts
for the long-term sustainability of its business. However, with
Appledore's strategic presence in mainland UK, it offers the MoD
and other government departments such as the Home Office and
Department for Transport an exciting and cost-effective domestic
option for a number of smaller vessel builds that are in the
pipeline in the months to come. In addition, a number of wind farm
projects in the surrounding areas are planned in the near future
and they will require UK fabrication with load-out capacity. Whilst
Government policy stipulates the requirement for a substantial
proportion of locally fabricated content, the availability of such
fabrication capability across the UK is highly limited. As such,
the Company believes that H&W (Appledore) is ideally positioned
to fill that gap and bid for these fabrication contracts.
Discussions have already commenced with wind farm developers and
the Company hopes to make tangible progress in due course.
Consideration
The Company has agreed to pay a total Consideration of
GBP7million for the Acquisition of substantially all the assets of
Appledore. The Consideration will be payable in the following
tranches:
Tranche 1 on Completion:
A total of GBP1.50million consisting of cash of GBP1.20million
and 784,404 ordinary shares of 1 penny each in the capital of the
Company ("Ordinary Shares") equivalent to GBP300,000
Tranche 2 on the first anniversary of Completion of
GBP1.50million:
A total of GBP1.50million consisting of cash of GBP1.20million
and Ordinary Shares in the Company equivalent to GBP300,000
Tranche 3 on the second anniversary of Completion:
A total of GBP2million consisting of cash of GBP1.60million and
Ordinary Shares in the Company equivalent to GBP400,000
Tranche 4 on the 30(th) month anniversary of Completion:
A total of GBP2million consisting of cash of GBP1.60million and
Ordinary Shares in the Company equivalent to GBP400,000
The number of Ordinary Shares that are issued on each respective
tranche date will be calculated using the Volume Weighted Average
Price ("VWAP") of InfraStrata's Ordinary Shares for the 14 trading
days prior to the third business day before the respective tranche
date (or before completion in respect of the first tranche).
Accordingly, an application has been made for 784,404 new
Ordinary Shares to be admitted to trading on AIM, which is expected
to occur on 28 August 2020. Upon admission, the Company's issued
share capital will consist of 64,944,486 Ordinary Shares with one
voting right each. The Company does not hold any Ordinary Shares in
treasury. Therefore, the total number of Ordinary Shares and voting
rights in the Company will be 64,944,486 . This figure may be used
by shareholders in the Company as the denominator for the
calculations by which they will determine if they are required to
notify their interest in, or a change to their interest in, the
share capital of the Company under the FCA's Disclosure Guidance
and Transparency Rules.
Acquisition Assets:
The Acquisition will include, amongst other things, the
following key assets:
-- 29 acres of freehold land situated on waterfront
-- 322,975 square feet of undercover fabrication halls
-- 118 metre length of undercover dry-dock
-- 500 metre quayside at the Newquay yard for ship repairs
-- Panel hall and bar preparation area
-- Burning hall and design offices
-- Minor assembly and cold frame bending shop
-- Steel stockyard and shot blast plant
-- Pipeline fabrication equipment
-- Fitting and machining equipment
-- Other assets including but not limited to stock, main stores,
electrical substation and back-up generators, office and training
centre buildings
H&W (Belfast) update
The Company announced in its interim results statement on 30
April 2020 that a further eight vessels were contracted to come
into the yard and the Company is pleased to report that it has
successfully met that milestone. Whilst COVID-19 saw a drop in
vessel volumes through Q2'20 and the beginning of Q3'20, the
Company is now experiencing a resurgence of vessels coming into the
yard. The Company has always maintained a position of undertaking
minor repair works in the first phase of re-starting H&W
(Belfast) in order to de-risk operations. With that first phase
successfully completed, the Company is now negotiating with clients
on larger value contracts. The Company continues to be in advanced
discussions with the UK Export Finance Department to secure lines
of financing on behalf of the Company's overseas clients in order
to provide working capital for larger works scopes that are in the
range of GBP20million - GBP100million.
Islandmagee Gas Storage Project Update
The Company is pleased to announce that Mark Jessop, formerly at
SSE, will be joining as Director of Project Management on 01
September. Mark brings with him decades of experience in gas
storage related salt cavern construction and operation projects.
Mark will lead the project team during the construction phase and
will commence with enabling works as soon as possible.
The Company's position around licensing remains robust and the
Company sees no reason why a marine license will not be issued in
due course and that no additional consultations are needed to
refresh other licenses. With that in mind, the Company has recently
instructed Grant McBurney and Garry McGhee of Carson McDowell LLP
to carry out an independent review. To ensure further transparency
and to strengthen its legal position, they have further instructed
leading barrister David Elvin QC from Lanmark Chambers to provide a
legal opinion on aspects of the Marine Licence in order to mitigate
against any further potential delays. The opinion returned has
provided third-party assurance to the Company that there is no
reason why the outstanding Marine License process cannot be
completed without further delay. The Company continues to maintain
dialogue with DAERA and remains optimistic that a recommendation
for the issuance of the Marine Licence will be made within the next
few weeks.
Despite the global pandemic, gas markets have shown strong
resilience, further demonstrating their robustness. However, UK gas
prices have been highly volatile during this period, which the
Company believes further signifies the fragility of gas supply
security in the UK. This volatility is likely to be exacerbated by
the end of 2020 when the UK leaves the European Union (EU), given
that EU countries will be given priority of gas supplies over the
UK in times of gas network stress. Simply put, when excess demand
arises, for example, during a cold spell like the Beast from the
East, EU supply routes are likely to be utilised to satisfy EU
demand in the first instance and thereby put UK supply under
further pressure. The Company continues to maintain that the
Islandmagee gas storage project is critical to ensure the security
of gas supply to the island of Ireland and mainland UK, and that
the commercial and physical market metrics support this.
With a number of construction projects cancelled, the Company
has decided to return to the market in September to re-tender for
construction related activities for the project in order to ensure
it is ready to proceed to construction as soon as possible. The
COVID-19 situation has created a nebulous period for all investment
decisions and, whilst the Company is focused on taking FID as
previously updated, that timeline may change depending on how the
pandemic unfolds in the forthcoming few months. However, with the
government's push to "build, build, build", the Company remains
confident that this project will progress to construction in due
course and provide Northern Ireland, the Republic of Ireland and
mainland UK with much needed security of gas supply and employment
opportunities.
FSRU Project
The Company has been working diligently with the project
promotor Westface Capital to complete the Sale and Purchase
Agreement (SPA) announced on the 28 May 2020. A number of
workstreams are required to be completed before the execution of
the SPA. Upon further due diligence and discussions with
counterparties over the recent weeks, the Company now has the
possibility of tying the FSRU project into existing infrastructure,
both offshore and onshore. This has the advantage of bringing
project CAPEX down substantially and fast-tracking the project to
FID earlier than envisaged. Further value engineering work is being
conducted to determine the technical and commercial viability of
such tie-ins into existing infrastructure.
The Company is highly encouraged by the level of global interest
received from potential consortium members to use the facility when
in place. A part of the engineering works that are underway is to
consider an increase in capacity of the project based on market
soundings. This surge in interest is due to the UK's high gas price
volatility coupled with some significant global LNG supplies coming
on-stream in 2022/23.
Whilst the Company is keen to progress this project, it needs to
ensure that all the fundamentals are in place and that it has the
optimal solution to offer further LNG import capacity in the UK,
which is not only technically competent but also economically
viable. Accordingly, the Company shall be undertaking the various
workstreams as discussed above and shall proceed to execution of
the SPA in Q4. This timeline may come forward should the Company
complete these workstreams ahead of time and COVID-19 travel
restrictions be eased enabling access to specialists on-site.
John Wood, Chief Executive Officer, commented: "I am delighted
that the Company has acquired Appledore shipyard and this is
another important milestone in the growth of the Company. We have
been fortunate that these assets have become available. The
acquisition at this point in time is opportunistic for the Company
and one that should not be missed. It not only gives us a strategic
foothold in mainland UK but also makes the overall business highly
competitive in the smaller and higher ends of the shipyard market,
respectively. I look forward to growing this business along with
our flagship Harland & Wolff (Belfast), with the primary aim of
attaining a cash break-even status as soon as possible."
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014. Following the
publication of this announcement, this inside information is now
considered to be in the public domain.
For further information, please visit www.infrastrataplc.com or
contact:
InfraStrata plc +44 (0)20 3900 2122
John Wood, Chief Executive media@infrastrataplc.com
Seena Shah, Interim Head of Marketing &
Communications
Cenkos Securities plc (Nominated Adviser
& Broker)
Stephen Keys / Cameron MacRitchie (Corporate
Finance)
Michael Johnson (Sales) +44 (0)20 7397 8900
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END
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