Wednesday, September 27th 2023

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Is The Good Ship Infrastrata about to finally leave the Dock?


“…More than 30 vessels have been serviced at the Belfast dock since 2019, with repeat business secured from key clients such as Stena, P&O, Irish Ferries and Sea Trucks. Infrastrata hopes for a further boost after the recommencement of the cruising sector this month…”


Focused for most of the past decade on slow burning gas storage projects in Northern Ireland and North West England, infrastructure company InfraStrata (AIM:INFA) transformed itself two years ago through the bold acquisition of docks operated by Harland & Wolff, one of the best known names in marine engineering.

InfraStrata CEO John Wood, who once apprenticed at Harland & Wolff, has held senior posts with BAE Systems, and was more recently the Global Head of Oil and Gas with international engineering firm Aurecon. Chairman Clive Richardson is the former CEO of V.Group, one of the world’s largest providers of commercial ship management services, and has held executive roles at QinetiQ, formerly known as the Defence Evaluation and Research Agency.

Planning for the UK’s future gas needs


Before its Harland & Wolff acquisitions the company’s primary focus was the Islandmagee Storage Project, a planned natural gas storage facility on the east coast of County Antrim, Northern Ireland. Some 10 years ago exploration revealed a salt layer 1500 metres below the location that would be ideal for the establishment of gas storage caverns. The site, which has capacity for at least seven storage caverns, would provide more than a quarter of the UK’s natural gas storage capacity, critical, the company says, for the future energy security of the UK and Ireland. According to the 2019 UK Department for Business Energy & Industrial Strategy (BEIS) survey, 85pc UK residents still rely on natural gas for central heating, indicating its importance as a transition fuel as the country ramps up its renewables capacity. With British indigenous production declining, gas storage will ensure the UK does not suffer from interruptions in power supply.

An application for a Marine License is at an advanced stage, currently lodged with the Northern Ireland Executive’s Department for Agriculture, Environment and Rural Affairs with a final decision expected this year. If the outcome is favourable the company will will move to agree investment and equity terms with its identified pool of investors with a view to first gas in 2024. The facility would also have the capacity to store hydrogen should it emerge as an alternative to natural gas.

InfraStrata has an interest in another significant gas storage project, having signed terms for the acquisition of Meridian Holdings Co which owns the proposed Floating Storage and Regasification Unit (FSRU) Project, a floating Liquid Natural Gas (LNG) receiving facility that would be located offshore Barrow-in-Furness, Cumbria, in North West England. The facility, which has a projected capacity of approximately 5-6 million tonnes per year, would deliver regasified natural gas into the UK market. A third of the UK’s natural gas supplies arrive through LNG cargoes. A consortium of partners is discussing the capital requirements of the £350m-£450m project, which has the capacity to generate yearly revenues in the region of £80-£100m over a 25-30 year project life.

InfraStrata’s bold shift


InfraStructure’s audacious move into shipbuilding began in December 2019, when it acquired Harland and Wolff’s Belfast shipyard. The Belfast site, which has the largest drydock capability in the UK, and the second largest in Europe, is one of history’s best known docks. Ships have been built there since 1861, including the Titanic and two other Olympic-class vessels. At its peak it employed 35,000 workers.

InfraStrata, which bought the struggling business from administrators for £6m, plans to use the dock – located some 24 miles from the site of the Islandmagee project – to build steelwork, pipelines and structural equipment for the projected gas storage plant. The company estimates that bringing the work in-house would cut its costs by 15pc, more than the expense of acquiring Harland and Wolff.

Last August it followed the deal with the acquisition of another Harland & Wolff dock, the Appledore facility in north Devon. InfraStrata believes the £7m purchase will allow it to offer a comprehensive fabrication service, Belfast handling projects requiring dock lengths of more than 300 metres, Appledore smaller ventures requiring less than 120 metres. Remedial work is currently underway at Appledore with a view to the dock’s reopening early next year.

The company further enhanced its shipyard capacity in February, acquiring the Methil and Arnish docks on Scotland’s east and west coasts from Burntisland Fabrication Limited. The £650,000 deal positions InfraStrata close to wind farm projects currently ongoing and planned in the Irish Sea and North Sea. The company intends to use the docks as fabrication centres for sectors beyond shipbuilding, CEO John Wood telling the Financial Times that ‘One of the reasons why shipyards in the UK and globally have failed in the past is because they concentrate really, solely on shipbuilding, for one particular sector … If one market takes a hit, the others will be buoyant. We are looking at a more sustainable model that is able to survive.’

InfraStrata has positioned itself across England, Scotland and Northern Ireland in order to provide a range of services to five core markets: cruise and ferry, commercial fabrication, oil and gas, defence and renewables. The acquisitions give it the largest fabrication footprint across the whole of the UK and one of the biggest across Europe, capable of servicing the complete lifecycle of assets from design, construction, and maintenance, through to decommissioning and recycling. It plans to employ several hundred skilled workers over the next five years, the workforce at Belfast having risen from 60 to about 200 since 2019.

‘Build, build, build’


InfraStrata is placing significant hope in the construction work that might come its way through the government’s ‘levelling up’ agenda, pledging to ‘build, build, build’ regional economies outside London. Last November Boris Johnson visited Appledore stating with characteristic gusto that the dock would help drive the UK’s ambitions ‘to become a shipbuilding superpower’. The company is also encouraged by the Prime Minister’s enthusiasm for a ‘Green Industrial Revolution’, an ambitious £12bn net zero blueprint aiming to quadruple the UK’s offshore wind power capacity and invest more than £700m in green hydrogen.

And although InfraStrata says it will not be reliant on Ministry of Defence contracts for its long-term sustainability, last November’s defence review, pledging an extra £16.5bn in defence spending, the biggest investment programme in British defence since the end of the Cold War, would have been highly welcome. The review included plenty of encouraging noises from InfraStrata’s perspective, stating an ambition to position Britain as the ‘foremost naval power in Europe’ and by enabling a ‘renaissance of British shipbuilding’, and making explicit reference to the two Harland & Wolff shipyards in Belfast and Appledore.

The review had concrete proposals as well, announcing eight Type 26 frigates designed for anti-submarine warfare and five general purpose Type 31 frigates. The Ministry has already awarded Babcock the contract to design and build the Type 31 frigate, and contracted BAE Systems to build the first three Type 26 ships, but Harland & Wolff is in the running for the Fleet Solid Support Warship programme worth around £1.5bn: the Ministry has committed to awarding the programme to a British shipyard. Indeed InfraStrata may get a slice on contracts it misses out on: a 2016 government-commissioned review into naval shipbuilding recommended that work on larger vessels should be spread out among a bigger group of contractors.

Risk and reward


InfraStrata has clearly thought carefully about how it can position itself to take advantage of the big infrastructure projects the UK is likely to commit to under any government for the foreseeable future in the fields of regional reconstruction, green energy and defence, and has had the courage to follow up its analysis by spending big.

It has taken an undoubted risk. The shipbuilding industry is notorious for its low profits and unpredictable supply chain: the Prime Minister’s bold claims notwithstanding, the UK’s shipbuilding capabilities account for less than 0.01pc of global output, according to UN statistics. What remains is largely focused on defence work, concentrated at Scottish naval yards run by BAE Systems on the River Clyde and by Babcock International at Rosyth. InfraStrata needs the cruise industry to return to full strength after the pandemic, a decent share of the government spending that seems to be in the pipeline, and its gas storage projects to take off.

In its 2019 annual report InfraStrata’s auditor raised concerns about its ability to continue functioning without external funding, a challenge acknowledged by John Wood in the company’s most recent trading update, where he said that a ‘revenue-led turnaround is the most challenging type of turnaround, especially when one takes assets out of administration with an order book of zero to begin with.’

There are positive signs. The company’s interim results to 31 January 2021 stated revenues of more than £5m, up from £1.4m announced in the annual results of 31 July 2020. InfraStrata’s latest trading update announced revenues for the eight-months to 31 March 2021 of £6.5m. The gross margin for the period was £1.18m, up from £84,053 at 31 January 2020, a decent performance given the disruption caused by the pandemic. The increased overheads brought by the company’s new investments showed up in an operating loss for the period of £6.20m, up from £2.67m at 31 January 2020. The company has has achieved a cash break-even position within the cruise and ferry market since October last year, with the market’s contract values gradually rising to between £600,000 and £1m as the pandemic eases.

2021 progress


InfraStrata’s big news so far this year came in an April announcement that it had won a £26m contract with Saipem Limited for the fabrication and load-out of eight wind turbine generator jacket foundations to supply the Neart na Gaoithe Offshore Wind Farm project located in the outer Firth of Forth in Scotland. The work, which will begin in July at the Methil facilities in Scotland, is an early vindication of the company’s strategy to expand its fabrication footprint into regions that located near major wind farm projects. InfraStrata undertook a £9m fundraise in support of the deal in May, £4m of which will be used as cash collateral, and £2m for site improvements to ensure that the works can be carried out to the requisite standard. The remainder will be serve as additional working capital.

The company’s half-year report published in April highlighted the its progress in securing regular contract work. More than 30 vessels have been serviced at the Belfast dock since 2019, with repeat business secured from key clients such as Stena, P&O, Irish Ferries and Sea Trucks. The company hopes for a further boost after the recommencement of the cruising sector this month. Looking ahead, the report stated that negotiations are being conducted with ‘a large number of wind farm developers’ regarding fabrication capacity for jackets, transition pieces, load-out of equipment and components for fixed and floating wind. Another positive April update stated that ‘a number of contracts for Appledore are currently in advanced negotiations’, and that the Northern Ireland Executive is closing on a decision regarding the Islandmagee Marine License application.

InfraStrata face a big challenge to secure a timely return on investments that weigh particularly heavily on a £35m market cap company. But they are well considered, positioned to take advantage of the pattern of the UK’s medium to long term infrastructure spend. The company’s share price has fallen back after touching 48p following news of the Sapiem contract. Now at less than 30p, well below the average of 40p achieved for the past year or so, that price could spike sharply upwards on news of the green light being given for the Islandmagee project, or another big contract win.