HARL Harland & Wolff Group Holdings Plc

This announcement contains inside information

16^th September 2024

Harland & Wolff Group Holdings plc

("Harland & Wolff" the "Company")

Business Update

Harland & Wolff Group Holdings plc (AIM: HARL), the UK quoted company focused on strategic infrastructure projects and physical asset lifecycle management, provides the following update in relation to its trading, the Company and the strategic options available to it given the work being undertaken by Rothschild & Co.

Trading

The absence of an appropriate funding structure following the rejection of the Company's request for a £200m UKEF facility has left the loss-making Company in a difficult financial position. 

As previously announced, the appointment of Messrs Downs and Fort to the Board enabled additional funding to be made available by its current lender, Riverstone Credit Partners, of US$25m, which has since been committed and continues to be utilised to support the business.  The newly appointed directors highlighted in late July that there was no evidence of any other potential funding available to support the business at that time.  Whilst that remains the case, the Company is currently in discussions with several parties to secure interim funding to support the business whilst the Rothschild & Co process (described below) is ongoing.

Trading has been challenging given a significant value of overdue creditors across the Group overall and the Company in particular.  Suppliers to the operating companies have been supportive to date through agreeing adjustment to certain contractual terms.  This ongoing support will be essential as the Group moves to a more stable financial footing and continues to focus on preserving core operations.  Increasingly, the Group's funding has been used to cover essential supplies and to ensure that the Boards of the Company and each subsidiary are trading within the parameters of their statutory duties.  In addition, certain of the Group's customers raised concerns that some remittances may have been applied to other areas of the Group's business.  This in turn led to temporary or continuing suspension of ongoing payments.

The Board has reprioritised activities to protect its core operations.  Non-core operations are being wound down on an expedited basis or otherwise being exited for value. These comprise smaller scale operations which are not considered material to the Group given the current circumstances.

Non-core operations

Specific examples of non-core activities include:

·      Scilly Ferries business:  further to the earlier announcement, the Isles of Scilly ferry has been returned to its leasing counterparty and the subsidiary is expected to enter insolvent liquidation in the coming days.  Insolvency practitioners from Azets are the liquidators designate.

·      Marine Services business: the Group is in discussion with several interested parties to secure an accelerated sale of this business unit to protect those 14 employed in this business.

·      US business:  The Group's business based in the US will be transitioned for value.

·      Australian business:  this is currently dormant.

·      Certain other developmental activities which are non-revenue generating are also in the process of being wound down and contracts exited.

Core operations

The Group's core operations comprise its four yards and its interests in the Islandmagee Gas Storage project.  In respect of these activities:

·      In Belfast:

o  We have been in discussions with Navantia on the terms of a plan to enable work to resume on the preparatory stages of the FSS programme as commented on below; and

o  Significant activity has been undertaken on the Sea Rose FPSO mid life extension work and this is nearly concluded.

·      In Appledore, work has continued on the M55 Project (converting the HMS Quorn/Atherstone for the Lithuanian Navy).

·      The Group's shipyards in Scotland (Arnish and Methil) have continued to deliver on the Cory barges and other projects.

The Group has undertaken significant planning over the last eight weeks to review and revise its plans for building the three FSS vessels.  When the announcement of new directors was made in July, preparatory work at Belfast was almost at a standstill and production slots on key equipment were suspended due to certain delayed payments.  The Board is in regular discussion with Navantia and UK MOD on its plans to ensure that key milestones of cutting steel, production readiness and delivery of the vessels remain on track. The plan for delivery of the FSS contract has been tested and been subject to significant review.  This project would see over 6 million hours deployed in our Belfast and Appledore yards in delivery of the vessels capturing a wealth of learning, experience and expertise across many aspects of shipbuilding which will endure for years to come.

Activity on Islandmagee is gearing up somewhat with a further court hearing in coming weeks although the outcome will not be known for some considerable time thereafter.

Headcount reduction

The Group's headcount grew significantly in recent years to enable it to pursue its ambitious strategy.  Not all aspects of that strategy came to fruition, however, and accordingly steps are now being taken to reduce headcount in non-core and certain central support areas which were announced to our staff today.  A further reduction in headcount in our core activities may be necessary, depending on the outcome of the strategic objectives as discussed in this announcement.

Rothschilds & Co process

Rothschild & Co were engaged on 25 July 2024 to assess strategic options for the Group. 

A number of parties have expressed an interest in acquiring some or all of the Group's subsidiaries and a first-round bid deadline is due shortly.

The Board is of the view that there is a credible pathway to continuing core operations built around a four-yard operation delivering the FSS contract, ongoing projects, and other (as of yet) uncontracted revenue across its sites. 

With the growth ambition set there is a material funding need to ensure that the Group can overcome its present trading challenges and compete for business with a stable financial covenant provided by a new investor or acquirer of the business.

Following initial discussions with its advisers, the Board is of the view that interested parties are likely to acquire some or all of the Group's subsidiary companies which hold the shipyard sites.  This is influenced by:

·      The significant funding for working capital and capex and amounts required to refinance the Company's RCP secured facility;

·      The presence of certain legacy onerous contracts and obligations owed by the Company which have little utility to its future success; and

·      A cost structure which is no longer relevant to the needs of the business.

Outcome for the Company

The Board has concluded that the Company is insolvent on a balance sheet basis per its last audited accounts and most recent management accounts. 

Accordingly, contingency planning for the making of an administration order and appointment of administrators from Teneo is underway for the Company.  This process will likely commence this week.

Should administrators be formally appointed then the Company's shares would not resume trading on AIM, the 2023 accounts would not be finalised and admission of the Company's shares to trading on AIM would be cancelled in due course.

In these circumstances, the Board expects there will be no return likely for shareholders having reviewed strategic options from the Rothschild & Co process.

Appropriate plans are in place for a number of the Group's employees who are employed by the Company (as opposed to other subsidiaries within the Group) with the unfortunate but inevitable consequence of redundancies.  The administrators, once in office, are likely to transition the remaining activities undertaken by the Company to other companies in the Group.

For the avoidance of doubt, the administration process referred to above is confined solely to the Company (Harland & Wolff Group Holdings plc) and in no way affects the core operational companies within the Group, all of which are expected to continue to trade in the ordinary course of their respective businesses.  In particular, the core operations undertaken by the four yards and Islandmagee will continue to trade as usual.

Board activity

As notified, on 11 September 2024, the Group's Chief Financial Officer resigned with immediate effect.  His responsibilities have been covered by other suitably experienced team members.

The Board is aware of a request from certain shareholders that a shareholder representative be appointed as a director of the Company.  Should a formal notice to requisition a general meeting of the Company to consider such a resolution be received, a meeting of shareholders would be held to consider such a proposal.

Independent investigations

Russell Downs, after consulting Alan Fort as the new in post independent director, took steps to appoint PwC LLP and Simmons & Simmons LLP to conduct separate focussed independent investigations responding to concerns raised in the early stages of his appointment by customers over the alleged misapplication of remittances in excess of £25m and certain other lower value matters (such as the disbursement of funds for little or no corporate benefit).  The Board will review those findings in due course.

In any event, in view of the anticipated appointment of administrators who are empowered and obliged to carry out an investigation into the Company's affairs and the conduct of its officers who were in post in the previous three years leading up to the insolvency, it is the Board's full intention to transition this matter to the duly appointed officeholder in due course.

Conclusions 

Since the rejection of the Company's request for a UKEF facility in July, the Group's outlook has been challenging given a very high level of overdue sums owed to creditors and material losses across its business activities.

With interim funding and new leadership brought to the Board, the Group has been able to continue trading, making difficult choices where necessary to ensure the best outcome for the Group as a whole.

The Board is enormously grateful to all the Group's stakeholders over this difficult time as we have identified our new priorities and worked on our strategic objectives.  Whilst these workstreams are not yet complete, there are a number of conclusions arising which need to be actioned and plans are in place to address those in the coming weeks.

The Rothschilds & Co strategic process is expected to deliver preliminary bids shortly where upon attention will focus on agreeing binding terms as quickly as possible in the coming weeks.  

Each of the Group's shipyards are significant employers within the communities they serve and we are working towards securing them a brighter future under a new strong and capable sponsor. 

Future announcements and informal meeting of shareholders

The Company will make further announcements as soon as practicable on the above.

The Board has also arranged to host an informal meeting of shareholders to discuss the contents of this announcement and provide a limited opportunity to answer questions from shareholders.  The meeting will be held online/remotely rather than in person on 19th September 2024 at 11am.

If you would like to attend please register by clicking on this link https://www.investormeetcompany.com/harland-wolff-group-holdings-plc/register-investor. 

Questions may also be submitted in advance via this registration link.

Concluding quote

Russell Downs commented:

"The Group faces a very challenging time given the overhang of significant historic losses and its failure to secure long term financing.  Good progress has been made to test the market for investor appetite.  The Board has reluctantly concluded that the Company's own future as an AIM-listed company will likely come to an end in the near future, but that the core operations undertaken by the four yards and Islandmagee will continue to trade as usual. 

"It is important to recognise that this is extremely difficult news for the Company's staff directly affected and will impact many others within group. We will work to support our staff through this transition.  Unfortunately, extremely difficult decisions have had to be taken to preserve the future of our four yards.

"This will clearly be very unwelcome news for shareholders who have shown significant commitment to the business over the last five years.

"The Board, the senior management and rest of the team are committed to deliver the best outcome for the four yards and communities they serve to ensure their continued operation into the long term under new ownership."

For further information, please visit  www.harland-wolff.com  or contact:

About Harland & Wolff

Harland & Wolff is a multisite fabrication company, operating in the maritime and offshore industry through five markets: commercial, cruise and ferry, defence, energy and renewables and six services: technical services, fabrication and construction, decommissioning, repair and maintenance, in-service support and conversion.

Its Belfast yard is one of Europe's largest heavy engineering facilities, with deep water access, two of Europe's largest drydocks, ample quayside and vast fabrication halls. As a result of the acquisition of Harland & Wolff (Appledore) in August 2020, the company has been able to capitalise on opportunities at both ends of the ship-repair and shipbuilding markets where there will be significant demand.

In February 2021, the company acquired the assets of two Scottish-based yards along the east and west coasts. Now known as Harland & Wolff (Methil) and Harland & Wolff (Arnish), these facilities will focus on fabrication work within the renewables, energy and defence sectors.

In addition to Harland & Wolff, it owns the Islandmagee gas storage project, which is expected to provide 25% of the UK's natural gas storage capacity and to benefit the Northern Irish economy as a whole when completed.