TIDMHARL
Harland & Wolff Group Holdings PLC
09 October 2023
RNS REACH
9 October 2023
Harland & Wolff Group Holdings plc
("Harland & Wolff" or the "Company")
Maritime Operations Commencement & Isles of Scilly
Harland & Wolff Group Holdings plc (AIM: HARL), the UK
quoted company focused on strategic infrastructure projects and
physical asset lifecycle management, provides an update on its
proposed strategy regarding the ferry build and operate programme
to service the Isles of Scilly, as well as an update on its
maritime operations.
Update on Maritime Operations
As part of the Group's strategy, the Company aims to establish
its own marine operations business when it has a critical mass of
maritime operation activity. To date, it has been contracting with
various organisations to assist with its docking and undocking
operations, as well as towing vessels and barges between its yards
and for the transportation of materials between its sites. As the
Company progresses towards cutting first steel on the FSS Programme
in 2025, the demand for such marine operations will only increase
as the Company commences moving blocks and major component parts
around the different sites.
The Directors believe that sub-contracting of marine operations
beyond a certain level is inefficient from not only a physical
efficiency perspective but also a financial one. The Company is now
in the position where significant savings can be made by commencing
its own marine operations division. To this end, and as a matter of
priority, a tug has been identified to acquire. This tug will have
a bollard pull of around seventy-five tonnes and will be utilised
internally by the Company in addition to being operated on the spot
market when internal demand is low. The spot market for tug hire is
highly lucrative, given that demand for tugs far exceeds their
supply. The Company expects this tug to be in operation by the end
of 2023. For the avoidance of doubt, this tug is in addition to the
two green tugs that were announced earlier this year.
Isles of Scilly - Proposed Ferry Build & Operate
Programme
The Directors believe that the Isles of Scilly to Penzance route
is significantly underserved by its current operation. The route
typically sees a surge of demand in the summer from tourists
wishing to take day trips to the island. Furthermore, the ability
to move freight across the route is limited by current capacity.
Noting also the limited accommodation on the islands, the directors
believe that fast transit on and off the islands is essential.
Further, the long-term ability to move freight across this route is
limited by current capacity. By replacing old for new vessels on a
broadly "like for like" basis, the same problems relating to the
lack of connectivity and poor freight service will continue to
persist.
Given the existing state of operations and proposed new plans,
both of which are inadequate for the islands' needs, its tourism
sector and movement of freight, the Company has identified an
opportunity to provide necessary improvements within the Isles of
Scilly ferry market through the build and operation of two ferries
on the Penzance to Scilly ferry route as well as one inter-island
vessel. The Company has been considering the opportunity to build
and operate ferries its own right, having spent three years working
on and developing its own specific design and costing model for
these vessels. The Company sees a significant opportunity to
provide upgraded services on this route to all islanders and
tourists.
Future plans that are currently being proposed to service this
route indicate that the new vessels will be built outside the UK
and will not utilise any levelling up funding that is available.
Instead, commercial debt will be taken with the potential for a
steep fare increase to service and repay this loan. Instead, the
Company sees an opportunity to utilise levelling up funding of
approximately GBP48m that is available to build and operate ferries
on this route and, accordingly, a detailed analysis of the market
has been undertaken including on-island initial consultations, the
outcome of which demonstrates that there is a place in the market
for a second operator.
The route is currently unregulated and is available for anyone
to operate, although a monopoly continues to exist. The Company has
had initial discussions with several ports including St Mary's and
has received positive feedback that fair and equal access will be
provided to any operators wishing to dock in the ports.
Fast Ferry
Having conducted detailed analysis on the met ocean data and
other information, the Company proposes to introduce a new fast
ferry service between either Penzance or Newlyn to cover the summer
season between May and September, commencing in 2024. This route is
around thirty-eight nautical miles depending on the departure port.
The Company currently has four vessels that are under evaluation
with speeds of up to forty knots depending on weather conditions.
The Company's offering will be to undertake three round trips per
day providing the day trip market with the ability to spend the
entire day on the islands rather than struggling with a window of
only a few hours that currently exists. The vessel of choice would
be capable of taking at least 250 passengers. The Company believes
that it could provide this improved service at a cheaper price than
what is currently charged, with the advantage of a significantly
shorter journey time and greater timetable optionality.
Freight Service
The Directors believe that the current freight service is
inadequate as it does not deliver year-round capacity into St
Mary's or the outer islands in a cost effective or time efficient
manner. The Company proposes to collaborate with local south-west
organisations to offer an end-to-end freight service, with a view
to offering a superior service to that which is currently
available. This proposal would involve the introduction of
additional vessels of different sizes and specifications to ensure
that a minimum capacity of 550 tonnes of cargo per week is made
available with the ability to upscale this should demand increase.
Should the demand be less than expected, vessels could be deployed
on the spot market on other routes given that they have the ability
to be general purpose commercial cargo and work vessels. In line
with this strategy, the Company had entered into Heads of Terms
(HoT) with Kraken Marine Services Limited ("KMS" or the "Seller")
for the acquisition of the entire business including the assets of
the Seller. Subject to completion of this acquisition, KMS' assets
will be used immediately to move component parts, steel and
equipment between the yards. Additionally, the Company will help
grow the existing freight and marine business of the Seller with
external contracts across the south-west region and the Isles of
Scilly. Further details will be made available upon completion of
the acquisition.
New Vessels and Levelling up Funding (LUF)
Given the nature of the route, the Company does not believe that
it is financially viable to operate the type of new build vessels
currently envisaged without utilising levelling up funding or
increasing fares substantially. Further the Company believes that
the foreign built vessels being proposed are not sustainable
because the volumes in the market will not be available for those
size of vessels. The Company believes that given the seasonal
nature of this route on the one hand, and the stable demand of the
islands on the other, a responsible service provider should be
offering optionality and dynamic operations depending on the time
of the year. Future plans by other parties competing this route
have severe deficiencies in this respect.
Having undertaken discussions with certain stakeholders, the
Directors firmly believe that levelling up funding could be made
available to the Company in connection with its proposals. Through
receipt of levelling up funding, the Company would not own the
vessels; rather it would be responsible for managing them on behalf
of a Special Purpose Vehicle. For the avoidance of doubt, the
Company would need to tender for the operation and management of
these vessels and there is no guarantee that the Company will be
awarded this piece of work and be involved within this element of
the overall project. The Company remains in competition with others
for the award of this work and is currently working on its
submission to the local council.
In summary, from an operational perspective, the Company's plans
will be significantly different from the future replacement
programme that is currently being currently proposed. It will
include multiple sailings per day on smaller vessels carrying both
freight and passengers. Vessels will depart everyday both from the
mainland and St Mary's during peak periods. In addition, the
vessels will not only be embedded with current technologies but
will also have the optionality to upgrade to new technologies in
the future. These vessels will be future proofed from a design
perspective to be able to adapt to any future shoreside
infrastructure upgrades.
Should the company be successful in its manufacturing bid, these
vessels will be built and maintained in the UK, growing the UK
economy and facilitating the development of the country's next
generation of ship builders.
Air link to the islands
For the avoidance of doubt, this is not a business that the
Company has any desire to be involved in. The Company is aware that
other operators have expressed interest and wish to understand the
Company's future plans with a view to building synergies between
the sea and air routes. The Company will enter into discussions
about future partnership programmes with air route operators as
soon as it as more certainty on its bid for the ferry replacement
programme.
John Wood, Group Chief Executive Officer, Harland & Wolff
commented:
"As part of our continued growth and the route to the GBP500m
turnover strategy, we are excited about launching our marine
operations to reduce internal costs and to provide a better service
at an affordable cost externally. Whilst there is no guarantee that
we will win the bid to build and operate the new vessels, we are
excited about the revenue generating capacity of the fast ferry and
freight services offering. The team that we already have in the
Company has extensive knowledge of marine operations and this is a
natural extension of our business. We will provide further updates
on ownership and chartering details in due course as the project
develops."
For further information, please visit www.harland-wolff.com or contact:
Harland & Wolff Group Holdings plc +44 (0)20 3900
John Wood, Chief Executive Officer 2122
Arun Raman, Chief Finance Officer investor@harland-wolff.com
media@harland-wolff.com
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.
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