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Summary
- InfraStrata Plc in a £7 million deal bought Devon shipyard, payable in 5 tranches and stretched over a period of 30 months
- Appledore facility’s ability to cater to smaller vessels could make it a market leader in this segment
- H&W (Appledore) would allow the company to leverage upon dock lengths of less than 120 metres and focus on the smaller end of the market
- British government is likely to lend support to the shipyard through contracts which could help in driving growth and job creation at the Devon’s facility
Natural gas storage company, InfraStrata Plc bought a historic shipbuilding yard in North Devon, which is likely to reopen after 18 months. The company bought the Devon shipyard for a total consideration of £7 million which is payable in 5 tranches and stretched over a period of 30 months. Out of £7 million, £1.40 million is to be paid in the form of ordinary shares while the remaining amount is to be paid in cash (£5.60 million).
London Stock Exchange-quoted group InfraStrata Plc (LON:INFA) is focused on physical asset life-cycle management and strategic infrastructure projects. The company's maiden revenues stood at £515,230 for the six-month period ended 31 January 2020. The Group's total comprehensive income stood at £3.12 million for the first half of 2020.
The shares of the company were trading at GBX 41.00 before market close as on 27 August 2020 at GMT+ 1 9:51 AM, up by 0.50 per cent from previous day closing price. Since the lockdown in March, the shares of the company have delivered a price return of 95.24 per cent.
In 2018, FTSE 250 listed UK’s leading defence firm, Babcock International closed the historic shipyard in Devon. The former owner Babcock had said that its future was not secure, despite a £60 million contract offered by Ministry of Defence the Appledore shipyard was closed in March 2019. It was said that the Appledore facility’s ability to cater to smaller vessels could make it a market leader in this segment.
Importance of Appledore facility
Belfast’s Harland & Wolff (H&W) owner aims to resurrect operations at the Appledore facility. The British Prime Minister, Boris Johnson believes that the Appledore facility is an important part of UK’s history and has a great future.
The dormant site dates back to the nineteenth century and has provided the Royal Navy with latest aircraft carriers along with several vessels during the second world war. The British government is likely to support the shipyard by passing on several contracts which could help in driving growth and job creation at the Devon’s facility. InfraStrata Plc is likely to ramp up the workforce and resume operations at the dormant site as soon as the contracts are secured.
Over the past few decades, the dominance in the worldwide shipbuilding industry has moved to the Far East – particularly China and South Korea from the West, which once ruled the world in this sector. However, there are a significant number of shipyards engaged in building large ships and specialist vessels which are used by the Royal Navy. The UK has been amongst the dominant countries that lead in warship production.
The UK’s new generation of destroyers, HMS Daring could defer any aircraft and missile attack on the city of London. Apart from warship production, UK has smaller shipyards which emphasise on building smaller vessels.
UK shipbuilding saw a major decline in the twentieth century. With the onslaught of globalisation, the businesses looked up to lower cost of operations in emerging economies. Therefore, the demand for bulk carriers or tankers declined over a period of time. The industry is limited to only the defence sector as of now, as commercial shipbuilding has declined. As part of a wider post-Brexit industrial strategy, there is a chance to leave the past behind and revive elements of commercial shipbuilding.
Why did InfraStrata Plc get interested in acquiring the dormant Appledore shipyard?
Acquired by the company in December 2019, H&W(Belfast) core competence lies in vessels that require a dock length in excess of 300 metres which puts it in a unique position in relation to larger vessels and has the largest drydock capability in the UK.
The mid-sector space of shipyards having dock lengths between 120 metres and 300 metres is considered to be busy, crowded and highly competitive by the company. The market of mid-sized shipyards would not lead to any significant competitive edge in the market as per the company’s belief.
H&W (Appledore) would allow the company to leverage upon dock lengths of less than 120 metres and focus on the smaller end of the market. H&W (Appledore) are among the few shipyards in the UK that can offer this type of undercover building dock and repair facility. The company anticipates a huge surge in demand for sovereign vessels required in this category during the course of the next ten years and therefore, went to grab the opportunity.
According to the study carried out by the management of the company, from a locational, strategic, and operational point of view, H&W (Appledore) is well-positioned to win contracts and deliver growth for all its stakeholders.
An advantage for the company
Having acquired the Devon shipyard, the company is likely to achieve a dominant position at two distinct ends of the shipyard market; the upper end of the market, requiring dock lengths of more than 300 metres with H&W (Belfast) and the lower end of the market at less than 120 metres of dock length with H&W (Appledore).
The company is likely to have the upper hand by winning contracts and attracting businesses. With less competition at both ends of the market, the company is likely to target both ends of the size spectrum. Moreover, the company has chalked out its strategy in five key markets for the future: oil & gas, defence, ferry, commercial fabrication, and renewables.
All core services such as technical services, fabrication & construction, repairs & maintenance, in-service support, conversions, and decommissioning would be offered by H&W (Appledore). The company has underpinned high hopes on Devon shipyard. Given its size and capabilities, it believes that the shipyard would prove to be a great asset for small vessel requirements in the region.
Natural gas storage company, InfraStrata Plc acquired a highly strategic asset with a rich shipbuilding heritage to capitalise on a significant opportunity of gaining market share in the mainland UK region. The company aims to build on significant synergies between Appledore and Harland & Wolff (H&W) and gain control over both ends of the market. The recommencing of activities at the dormant port might also offer support for the fishing industry.
