UAE: Lamprell Releases Interim Management Statement
Lamprell, a leading provider of diversified engineering and contracting services to the onshore and offshore oil & gas and renewable energy industries, issues its latest Interim Management Statement in accordance with the EU Transparency Directive, which also provides a trading update in light of the previous announcement on 3 October 2012. The statement covers the period from 1 July 2012 to date.
John Kennedy, Chairman, Lamprell, commented: “Over the last month or so, the Company has worked closely with external consultants to assess more accurately the potential impact of the underperforming projects on the Company’s financial performance. This review has revealed a much greater loss for the year than previously announced or anticipated, and naturally I am very disappointed. However, having now identified the issues and their potential financial impact, the Group is in a much better position to draw a line under these events and to take appropriate steps to mitigate or address the issues. The Group also is keen to focus on new projects which are more aligned with its core competencies.
The outcome of this review vindicates the Board’s earlier decision to restructure the management team. In so stating, it is also important to re-affirm that the fundamental, underlying strength of the Lamprell business and its
on-going competitive advantage in the marketplace is as strong as it ever has been. The bidding pipeline remains highly active and the Board has full confidence in the new management team, with the assistance of the wider
dedicated and capable workforce, to take robust action to see that the performance of this Company fulfils its significant potential.”
Key points for the relevant period
· Completion of review of major projects by external consultants validating the Group’s revised financial position
· Projected losses for the full year 2012 increase significantly, with a gradual return to profitability during 2013
· Progress made in making new appointments to the Board and strengthening the management team
· Initial management actions to enhance project control and improve broader risk management
· Discussions continue with lenders to obtain a waiver of certain of its year-end banking covenants and a reset of applicable covenants in Q1 2013
MATERIAL EVENTS AND TRANSACTIONS
Financial impact assessment
Following the Company’s trading update on 3 October 2012, the Board appointed a major international accountancy and consultancy firm to undertake an independent assessment of the expected outturn on specific, major projects and their impact on the financial position of the Group. The external consultants have worked closely with the Company over the intervening period to review all relevant data and they have now completed their assessment. The Company has also conducted its own broader assessment of its business and, together with the external consultants, has ‘stress-tested’ the review of the major projects. In all material respects, the conclusions from the review by the external consultants and the Company’s own assessment are aligned.
In light of the new data provided, the Board anticipates a total projected loss for 2012 in the region of US$105 million (with EBITDA loss in the region of US$64 million). This increased estimate has arisen as a result of additional losses and delays or deferrals on a number of individual projects as follows:
• Windcarrier 1: additional losses amounting to US$9.7 million;
• Windcarrier 2: now forecast by management to be delivered in February 2013 resulting in an additional
loss for 2012 of US$18.2 million;
• Caspian Sea jack-up project: due to low labour productivity and restricted availability of equipment at a
third-party facility, the project for the first rig is expected to result in a shortfall for 2012 of US$24.6
• Offshore platform project: client delay caused a deferral from 2012 to 2013 of a gross margin figure of
• Minor EPC project: a delay in reaching mechanical completion caused extra costs this year in the
amount of US$6.1 million;
• Timing shift on projects: adversely impacted the current year by US$8.0 million;
• Increased advisory and banking fees for 2012: US$4.0 million; and
• Bad debts and other losses: US$8.1 million.
The Company is taking various steps to mitigate the potential losses above. Despite the challenges the Group faces, it is encouraged by the significant support that it continues to receive from its customers, as evidenced by the recent award of a contract by Seajacks. The Group’s strong order book is approximately US$1.4 billion, with most of the potential projects in core disciplines in which the Group has a strong track record.
In addition, the Group remains in discussions with its lending banks in order to seek waiver of certain of its banking covenants before the year-end, and a reset of applicable covenants in Q1 2013. The Group remains confident of support from its lenders during this challenging time for the business.
As announced on 3 October, the Board has been seeking to make appointments to replace the previous Executive Directors and to strengthen the management team. In this regard, Peter Whitbread (former Lamprell CEO) was re-appointed to the position of Chief Executive Officer and re-appointed to the Board; the Group also recently welcomed the appointment of Frank Nelson as Chief Financial Officer and Alex Ridout as the new
Company Secretary & General Counsel.
The Board notes the on-going investigation by the Financial Services Authority (“FSA”) into the Company’s handling of inside information prior to 7 June 2012 and further notes that the Company is fully cooperating with the
FSA. The Company will update the market on the outcome in due course. On 6 September 2012, the Company announced that it had signed a joint venture agreement with Shoaibi Group and Al Yusr Townsend and Bottum L.L.C to establish a joint venture for new-build fabrication, refurbishment and repair of land drilling rigs in Saudi Arabia.
Early in Q3 2012, a new contract was awarded to Lamprell by Seajacks for the design, construction and delivery of a new liftboat of a non-prototype nature, similar to the vessels that the Company has already constructed and
The execution and completion of the current projects in a timely and high quality manner is of paramount importance to the Group. Moving into 2013, the Company will refocus on projects which are closer to the core business of Lamprell. In this way, the Company can leverage its historical strengths and move forward positively. The Company considers the focus on new-build jack-up rigs and rig refurbishment as a key priority for the Group.
In the short-to-medium term, the Group’s order book of secured contracts is expected to support the business’ recovery through to the end of 2013. Longer-term, the Company is encouraged by the strong bidding activity across the business with the pipeline totalling more than US$4.0 billion. With that in mind, the Company expects 2013 to be a recovery year, with revenue broadly flat compared to 2012 and a gradual return to profitability during the year.
Press release, November 19, 2012; Image: Lamprell