GCIHarland & Wolff on course for significant growth
( ), a shipbuilder and marine engineer, released a positive trading update this morning for the year ended 31 December 2022 (FY22), as well as outlining its plans for FY23 and FY24 and reiterating its positive outlook.
Harland & Wolff secured three significant contracts in quick succession this year: Cory phase 1 for £8.5m, Cory phase 2 for £9.5m, and the M55 Regeneration Programme for £55m (with an option to increase the contract value at the client's discretion). In addition to these large contracts, the company continues to maintain a steady flow of revenue from smaller contracts at its Belfast and Arnish sites.
Harland & Wolff said Q4 and Q1 were busiest for its Belfast repair dock, and the company expects business from multiple cruise and ferry vessels during these periods. Additionally, Arnish is set to become busier in Q3 and Q4 with multiple projects fabricating at the facility, the company said.
That leaves it on track to hit current market guidance of revenues between £65m and £75m for FY22.
Outlook for FY23 and FY24
Due to recent multi-year contract wins, Harland & Wolff has a strong order backlog of £40m for FY23. Management has identified a further £1.2b of opportunities across the company's five key markets: cruise & ferry, commercial fabrication, energy, defence, and renewables.
Following the company's first contract with the Ministry of Defence, it has submitted a bid for the Fleet Solid Support (FSS) Programme, which is expected to reach "preferred bidder" status in Q4 2022.
Harland & Wolff has one of the largest fabrication footprints in the UK and "enormous flexibility and optionality" to offer fabrication solutions, especially in defence and renewables. That supports the company's view that it is well placed to play an important part in the FSS Programme, given the UK's continued shortage of fabrication capacity going into 2023/24.
The recent Scotwind auction results announcement identified Belfast, Methil, and Arnish as three highly strategic fabrication sites, given their coastal positions. Management is therefore confident that the company will be a beneficiary in the FSS programme, and will update the market accordingly.
Revenue aspiration
Harland & Wolff sees potential revenues of £100-115m in FY23 given the significant levels of revenues contracted, the relative stability of the cruise & ferry and ship repair markets, and confidence regarding potential orders within the defence and renewables markets.
While difficult to project farther into the future, Harland & Wolff aspires to generate revenues of between £200-230m in FY24. The company believes this is achievable given the trajectory of major defence and renewable programmes commencing from 2024 onwards and beyond.
At £200m turnover and above, the company expects to be in a position to initiate returns to shareholders.
Profitability
Harland & Wolff said profitability remained contingent on a number of factors, including wage and energy inflation, the macro-economic backdrop, and the distribution of work across the company's five core segments. For instance, cruise & ferry work is shorter in duration but attracts higher margins, whereas defence contracts attract lower margins, but benefit from longer-term cashflow visibility and tenure.
Harland & Wolff continues to target a blended gross margin of 24-27%. Consequently, the company believes that annualised cashflow break-even is achievable on revenues of between £80-100m, depending on the mix of contract wins.
The company sees the M55 contract as an important milestone and springboard in executing its plan to create a sustainably profitable company by the end of next year and beyond.
Harland and Wolff CEO John Wood was a recent guest on the Vox Markets podcast in July and spoke with John Hughman regarding the significance of the M55 contract, and how heavy investment in its sites has prepared the company to answer Britain's huge demand for major infrastructure projects. Click here for that conversation.
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