TIDMLAM
RNS Number : 4023A
Lamprell plc
24 March 2017
24 March 2017
LAMPRELL PLC
("Lamprell" and with its subsidiaries the "Group")
2016 FINANCIAL RESULTS
Underlying performance in line with expectations
Strong balance sheet and cash position maintained
Management actions to position the business for ongoing market
challenges
2016 FINANCIAL RESULTS
2016 2015
(USD million, unless stated)
Revenue 705.0 871.1
EBITDA** 30.6 90.0
EBITDA margin 4.3% 10.3%
Profit from continuing operations
after income tax and before exceptional
items*
Non-cash goodwill impairment 1.7 66.5
(Loss)/Profit from continuing (180.5) Nil
operations after income tax and
exceptional items*
(182.2) 66.5
Reported diluted earnings/(loss)
per share (US cents) (53.9) 18.8
Net cash as at 31 December 275.2 210.3
Dividend per share (US Cents) Nil Nil
Results excluding settlement with
Ensco
Adjusted EBITDA** 73.2 90.0
Profit from continuing operations
after income tax and before exceptional
items 44.3 66.5
Adjusted EBITDA margin 10.4% 10.3%
*Exceptional items comprise the non-cash goodwill impairment
(USD 180.5 million) and G&A cost of staff restructuring (USD
3.4 million)
**EBITDA is calculated as profit from continuing operations
before tax and exceptional items, net finance costs (finance income
and interest on bank borrowings as per note 10 to the financial
statements) but after our share of results from associates,
adjusted to add back charges for depreciation and amortisation (as
per note 13 and 14 to the financial statements respectively).
Adjusted EBITDA is EBITDA excluding settlement with Ensco (USD 42.6
million)
Financial highlights
-- Solid underlying financial performance impacted by one-off events and exceptional items
-- Revenue of USD 705 million (2015: USD 871 million) in line
with latest guidance, reduced by the USD 25 million settlement with
Ensco as a result of Cameron equipment issues
-- Profit after tax impacted by an exceptional non-cash goodwill
impairment charge of USD 180.5 million arising on the acquisition
of Maritime Industrial Services in 2011, in line with continued
market downturn
-- Profit from continuing operations of USD 44.3 million before
exceptional items and one-off charges relating to Ensco
settlement
-- EBITDA decreased to USD 30.6 million from USD 90.0 million in
2015; EBITDA margin down to 4.3% (2015: 10.3%) as a result of the
impact on profitability of the settlement with Ensco, slightly
offset by cost savings and improved efficiencies
-- Total impact of the settlement with Ensco revised to USD 42.6
million as a result of a finalised cost estimate of additional
services (USD 17.6 million from USD 10.0 million) comprised in the
settlement, in addition to the price reduction of USD 25
million
-- Management actions on costs to align the business with
near-term outlook, whilst retaining core strengths to enable
Lamprell to rebound quickly; administrative reductions (20%) and
other overhead cuts expected to deliver the full benefit of USD
23.4 million of annualised savings in 2017
-- Robust net cash position of USD 275.2 million; strengthened
with inflow from final milestones on project deliveries in 2H
2016
Operational highlights
-- Safety performance for the Group continues to be world-class
with an outturn total recordable incident rate of 0.29 (31 Dec.
2015: 0.31)
-- Record high levels of activity in Hamriyah with seven
concurrent jackup rigs under construction during FY2016
-- Solid operational performance with four jackup rigs delivered
in 2H2016; the modules fabrication project for Petrofac is now
completed safely and to high quality standards with final
deliveries underway
-- Technical issues with Cameron jacking equipment successfully
resolved; settlement discussions with Cameron ongoing
-- Backlog of USD 393 million at year-end (31 Dec. 2015: USD 740
million) of which 76% is attributable to 2017
-- Phase 2 of Project Evolution re-commencing in 2H2017 to help
maintain Group's competitiveness through further efficiencies
Corporate strategy and business development
-- Measures implemented to adapt the business to the market environment:
o flattened the management structure for greater efficiency
o restructured and strengthened the commercial and business
development functions
o refocused the pipeline to target higher potential
opportunities where Lamprell has clear competitive advantages
-- Two significant contract awards - from Master Marine
(approximately USD 90 million) and ScottishPower Renewables
(approximately USD 225 million) demonstrating ability to identify
and convert prospects
-- As at 31 December 2016, bid pipeline decreased to USD 2.5
billion (31 Dec. 2015: USD 5.4 billion) - reflecting the refocusing
of business development strategy and recognising the challenging
market which is expected to continue through 2017
-- Working to leverage core strengths and transferable expertise
into new areas, such as EPC and renewables
-- JV negotiations for Maritime Complex in Saudi Arabia
continued to progress since the signing of Joint Development
Agreement in 2016 and nearing final stages
Current trading and outlook
-- Group has restructured its overhead to remain competitive in
lower price environment; tight cost control measures will be a high
priority in 2017 as the Group looks to maintain its lower cost
base
-- Group is well-positioned to respond to an improvement in its
core energy markets, with a strong balance sheet, a sustained
robust cash position and its core competencies retained
-- Working to bring the Saudi Maritime Complex opportunity to a successful conclusion
-- Further jackup rig delivered to NDC post-period and remaining
two will be delivered in 1H2017, with both projects progressing as
planned
-- The two new major projects scheduled to ramp up in 2Q2017
-- 14 rigs currently stacked in Lamprell's facilities on behalf
of clients offering potential refurbishment works in the event of
redeployment of the rigs
-- As previously announced, revenues for FY2017 currently
expected to be in the lower half of the USD 400-500 million range
in the absence of large project deliveries in 2H2017
John Kennedy, Executive Chairman for Lamprell, said:
"2016 was an extremely busy year for Lamprell on all fronts:
operationally, commercially and strategically. The handover to the
Group's new Chief Executive Officer went very smoothly, and Chris
has hit the ground running with decisive actions to protect
Lamprell's competitive position. Our yards remained at record-high
activity levels throughout the year with seven concurrent jackup
rigs and a large onshore modules project.
The past year's underlying performance was strong, albeit
affected by one-off events, with market challenges expected to
continue in the upcoming year. We are now fully focused on building
a clear path to medium and long-term growth of the business. With
this goal in mind, the board has worked hard to progress one of our
key strategic priorities: the step-change opportunity offered by
our potential participation in the Maritime Complex in the Kingdom
of Saudi Arabia. Lamprell's board is focused on progressing the
partnership negotiations on this impressive project."
Christopher McDonald, Chief Executive Officer for Lamprell,
said:
"Since joining Lamprell in September 2016, I have been impressed
with the strength of its operational capabilities which I am
confident will support our drive for growth. We are now building on
this platform to protect the business against the near-term
challenges and, more importantly, position the Company to grow in
the medium and long term.
Our short-term performance will be inevitably affected by the
tough market environment, but we have implemented a set of
effective measures to stand the Company in good stead to navigate
the sector downturn. Our targeted cost-cutting and recent
restructuring have aligned Lamprell with immediate challenges in a
fast-paced and highly competitive bidding environment. We are
leaner, more flexible and therefore more adaptable to target a
broader set of new business opportunities. Our discussions with the
Saudi Maritime Complex partnership continue to progress and show
the ambitious approach of the management team to securing a
successful future for Lamprell."
The management team will hold a presentation for research
analysts at 9.30am at Holborn Bars (138-142 Holborn, London EC1
2NQ). The live webcast will be accessible on Lamprell's website and
on the following link:
http://webcasting.brrmedia.co.uk/broadcast/58cacb919980965ef1182120.
The Company is planning to hold its 2017 annual general meeting
on 21 May 2017 in Dubai, United Arab Emirates.
- Ends -
Enquiries:
Lamprell plc
John Kennedy, Executive Chairman +971 (0) 4 803 9308
Christopher McDonald, Chief Executive Officer +971 (0) 4 803 9308
Tony Wright, Chief Financial Officer +971 (0) 4 803 9308
Natalia Erikssen, Investor Relations +44 (0) 7885 522 989
Tulchan Communications, London +44 (0) 207 353 4200
Martin Robinson
Martin Pengelley
Notes to editors
Lamprell, based in the United Arab Emirates ("UAE") and with
over 40 years' experience, is a leading provider of fabrication,
engineering and contracting services to the offshore and onshore
oil & gas and renewable energy industries. The Group has
established leading market positions in the fabrication of
shallow-water drilling jackup rigs, liftboats, land rigs, and rig
refurbishment projects, and it also has an international reputation
for building complex offshore and onshore process modules and fixed
platforms.
Lamprell employs more than 5,000 people across multiple
facilities, with its primary facilities located in Hamriyah,
Sharjah and Jebel Ali, all of which are in the UAE. In addition,
the Group has facilities in Saudi Arabia (through a joint venture
agreement). Combined, the Group's facilities cover approximately
828,000 m2 with 1.9 km of quayside.
Lamprell is listed on the London Stock Exchange (symbol
"LAM").
Chairman's statement
In tough times, it is easy to lose sight of long-term ambitions
amid immediate challenges. As the downturn continued to affect the
energy industry, Lamprell worked hard to retain its strong position
and focus on its future.
Adapting to market environment
The turbulence in the oil & gas market continued throughout
2016 and Lamprell has had to adapt its business to respond to the
changing market. Looking ahead, whilst there are early signs of
recovery appearing, we expect that 2017 will probably be the
toughest year to date for Lamprell. The timing of our projects
partially shielded us from the full impact of the downturn, but the
Group is now shifting from a period of record activity in its
facilities to a quieter 2017 as projects have progressed to final
stages.
This temporary scaling down is a consequence of a general
slowdown in project awards around the world. Bid pipeline
conversions have been challenging, with many projects suffering
delays. In the near term, diversification has proven difficult.
However, we are able to draw on well-established and solid
foundations as well as a long history of technical and operational
expertise, both to broaden our offering and to maintain performance
during difficult times.
In this context, the Group has adapted its strategy to the new
environment and the Board has done an extensive analysis of our
core skills, to identify those transferable to other industries
that are less affected by this downturn. This innovative approach
led Lamprell to win a major windfarm contract from ScottishPower
Renewables, following a very competitive process. As we expect the
global jackup rig market to remain subdued for some time, we will
be focusing our efforts on similar diversification strategies in
the future.
With profitability, prudent management and investor
accountability in mind, the Board has also reviewed Lamprell's cost
base closely. We started the process of reducing overheads early in
2016; in addition, we took a number of difficult decisions to
shrink and adapt the size of the organisation to align with the
expectations for the year ahead. We were strategic in our approach
to personnel reductions to retain our competitive strengths so that
Lamprell remains well positioned should industry conditions
improve.
We were also able to draw on our past experience to overcome the
jacking equipment failures caused by the supplier which affected
multiple rig projects in our yards in 2016. Under Jim Moffat's
leadership, our team showed extraordinary dedication, knowledge and
teamwork to address the issues on all the jackup rigs impacted.
Since then, Lamprell has successfully delivered the rig
projects.
Aiming higher
I would like to thank Jim Moffat for his excellent work over the
past four years to build strong foundations that will enable a
promising future for Lamprell. I am delighted to welcome the new
Chief Executive Officer, Christopher McDonald, whose primary task
is to define and lead the way to a successful recovery and then
growth of the business.
Many elements of this path to success are already in place. One
of Lamprell's major strengths is its position within one of the
most important regions in the world of oil & gas, the Middle
East, with its vast reserves of and economic reliance on
hydrocarbons. Lamprell's position here is optimal for an oilfield
services business, and Saudi Arabia, the largest regional player,
represents a significant potential source for growing our
business.
Last year, I outlined our focus on strategic partnerships and
over the past year we have worked to deliver on this objective.
Having signed a Memorandum of Understanding on the Saudi Maritime
Yard in January 2016, within months we had progressed it to the
stage of a Joint Development Agreement. This involved operational
work-streams, with a focused team dedicated to due diligence and
planning work, to ensure the project is viable for Lamprell as a
company with public listing duties, and is in the interest of its
shareholders. The negotiations have progressed significantly since
then and the partnership is working its way towards project final
investment decision (FID).
This project would offer Lamprell significant growth
opportunities with a potential step-change in scale, but it is not
the only strategic opportunity being explored and developed by the
Group. With Christopher's extensive experience in EPC, Lamprell is
aiming to use its broad range of capabilities to move up the value
chain on larger projects.
Enabling growth
Whilst 2017 will be a tough year in terms of revenue
performance, the Board remains firmly focused on the Company's
longer-term vision. The Company has a strong balance sheet and we
have implemented the necessary short-term measures to ensure
Lamprell can ride out the storm; accordingly, we are able to focus
on our strategic objectives, combining the benefits of a fresh
approach from Christopher McDonald and the strong foundations laid
by Jim Moffat.
Recognising that Lamprell celebrated its 40th anniversary in
2016, I would like to thank the many people that have contributed
to its rich history. This depth of experience and expertise
provides me with confidence as we look to delivering our vision in
the future.
John Kennedy
Executive Chairman
Chief Executive Officer's Review
After a difficult 2016 and in anticipation of a tougher 2017,
Lamprell is focused on ensuring it is positioned to grow in the
medium term. We have adapted the business structure to the tough
current environment whilst investing time and effort into building
for the future.
Strong foundations
Lamprell has built excellent reputation for providing a 'value
for money', safe and quality service, which is clearly appreciated
by our clients and has been created over four decades of
experience. With these strong foundations and an established track
record, the Board sees a large number of growth opportunities
within Lamprell's reach in the coming years.
Over the past three years, Jim Moffat has taken Lamprell to the
next level, ensuring that the Group remains competitive
notwithstanding the changing market landscape. Jim has also
implemented a step change improvement in the HSE culture across the
Lamprell Group. The Company now has a strong base to deploy in new
projects.
Over the same period Lamprell has gradually undergone a material
restructuring as a result of which the Company has emerged more
streamlined and efficient. The management team has spent
considerable time and effort on developing the Group's
infrastructure and making it more productive and efficient through
initiatives such as Project Evolution (productivity improvements
and cost efficiencies installed in our yards) and the new ERP
system.
Near-term priorities
The management is focused on the immediate challenges facing the
business, as well as on developing and implementing a strategy for
Lamprell's growth in the medium term. Together with the rest of the
sector, we believe that we are approaching the bottom of the market
downturn. Whilst we have healthy cash balances, we need to ensure
that the business exits this period in a position of strength by
retaining core competencies and maintaining our solid financial
position.
The overhead reduction effort has continued this year. As the
market downturn deepened and in anticipation of a difficult year in
2017, we had to right-size the organisation to align it with the
expected lower levels of activity. It was a tough but necessary
decision. Our administrative staff was reduced by approximately 20%
through several rounds of redundancies and the management structure
was amended to become more flexible at a lower cost. Lamprell has
approached this exercise with careful consideration, aiming to
achieve the right balance in adjusting our cost-base without
jeopardising our ability to rebound quickly with the early signs of
recovery. We have been mindful of the importance of preserving the
Group's core skill-sets and the management team would like to thank
all the staff for their hard work through these tough times.
Market environment and strategy for growth
Without underestimating the difficulties the sector has
undergone over the past few years, the management remains fully
confident that the long-term outlook will offer Lamprell
significant opportunities for growth. 2017 is anticipated to be the
Group's most difficult year yet in terms of top-line performance,
as there is often a substantial lag in awards for a typical E&C
business model, but we are starting to see early indications that a
market recovery isn't too far away. 2018 is expected to start
seeing a pick-up in market activity.
In this context, it is important that the Company stays on top
of its operational performance to eliminate any potential factors
which could impact its results. In mid-2016, a significant issue
with essential jackup rig equipment supplied by Cameron LeTourneau
resulted in Lamprell having to reach a settlement with a client,
Ensco, for delayed delivery. The technical issue was resolved, with
the remaining rig deliveries on track, and operational performance
remains a key strength for Lamprell. That also applies to the
Company's ability to ramp up as new projects kick off as Lamprell
will be able to leverage its flexible labour structure to grow
capacity quickly as yards start filling up again.
The management team has been working to define the path for
Lamprell's growth and ensure that all the right resources are in
place. This translated into a keen focus on Lamprell's business
development capabilities and pipeline conversion, particularly in a
prolonged downturn when competition for new projects will be
fierce. In order to set Lamprell in the strongest possible position
to win new, profitable and strategically important business, the
Group recognises the need to strengthen the Company in three
directions: expanding the business development function,
maintaining a competitive and attractive offering, and broadening
Lamprell's addressable markets. A number of potential improvements
to the business development function have been identified. The
Company has already started diversifying its offering, and its
renewables win from ScottishPower Renewables demonstrates how
versatile its expertise is.
The possibilities of diversification for Lamprell are also in
the scaling up of its services, by targeting larger EPC projects
and by tapping new markets where its skills are transferrable.
Finally, the efforts to broaden Lamprell's market reach will
continue and its potential partnership in Saudi Arabia is a prime
example of a step-change strategic initiative. In the longer term
Lamprell has the potential to materially grow in size compared to
its best year outturn by performing value-added, profitable EPC
work as a primary contractor for NOCs, IOCs and large international
drillers. In the meantime the Group needs to secure ways and means
to achieve this target. Lamprell has a strong financial and
operational platform which it needs to leverage to grow the scale
at which the business operates. The Saudi Maritime Yard, one of the
largest projects of its kind in the world, is a partnership with
leading global companies in their respective fields, and so
represents an extremely attractive opportunity to elevate Lamprell
to the next level. Accordingly, the Board feels it is the
directors' duty to shareholders to explore it. Whilst Lamprell's
participation is still uncertain at this stage, the negotiations
are progressing well and an update will be provided in due
course.
To conclude, as the market recovers from the downturn, the
management team is focused on ensuring Lamprell is positioned for
future growth.
Christopher McDonald
Chief Executive Officer
Lamprell plc
Financial Review
In these difficult times, Lamprell managed to maintain a
commendable level of underlying profitability. Our operating
margins were driven by solid execution, and supported by
cost-cutting, as well as savings from efficiency and productivity
measures.
Results from operations
As the industry downturn continued, Lamprell performed steadily,
albeit with lower inflow of work than expected. Our overall
underlying profitability has been stable but was affected by the
impact from the settlement with Ensco following a delay caused by
an issue with essential jackup equipment provided by Cameron
LeTourneau.
Lamprell's total revenue for the year was USD 705.0 million.
Revenue was impacted by the USD 25 million settlement with Ensco as
a result of delayed delivery, with total revenue from new build
jackup rigs, the main revenue stream, finishing the year below
management expectations.
The extension of scope on the Zadco project for Petrofac and the
award of the additional pipe racks supported revenue levels of USD
40.8 million from the modular construction business. E&C (which
forms part of the Oil & Gas Contracting Services business unit)
maintained good top-line performance generating USD 15.6 million in
revenue.
The global slowdown in activity resulted in significantly lower
levels of walk-in business when compared to our historical
performance. Most of the stacked rigs in our yards remained
inactive, and therefore their contribution to our rig refurbishment
business was negligible. Overall the Rig Refurbishment business
unit generated USD 20.2 million, down significantly from USD 53.4
million in 2015. Throughout 2016 we completed nine refurbishment
projects and by 31 December 2016 we had 12 stacked rigs in our
yards. Our largest current refurbishment project is the Master
Marine conversion and we expect performance from Rig Refurbishment
to improve in 2017.
Margin performance
The Group's gross profit decreased to USD 57.2 million from USD
123.5 million the previous year, due to the impact of the Ensco
settlement and lower revenues arising from the difficult market
conditions. The Ensco settlement has resulted in a USD 42.6 million
reduction in our profitability for the year. Excluding the effect
of the Ensco settlement, our underlying gross profit was USD 99.8
million. The underlying gross profit margin was 13.7%, slightly
below 2015 levels.
Our underlying EBITDA, excluding the settlement with Ensco, was
USD 73.2 million (2015: USD 90.0 million). The Group's underlying
EBITDA margin remained stable at 10.4% versus 10.3% in 2015, but
post-settlement with Ensco it reduced to 4.3%.
Finance costs and financing activities
Net finance costs in the period decreased to USD 9.9 million
(2015: USD 12.0 million). Gross finance costs were lower due to a
reduction in charges for bank guarantees. Finance income was
marginally up due to higher interest rates on cash deposits.
Net (loss)/profit before exceptional items
The Group recorded a loss before exceptional items for 2016
attributable to the equity holders of USD 0.4 million (2015: profit
of USD 64.7 million), having been significantly impacted by the USD
42.6 million settlement with Ensco. The fully diluted loss per
share for the year was 53.94 cents (2015 earnings per share: 18.84
cents).
Goodwill impairment
The ongoing challenging market conditions, in particular within
the new build jackup business segment has resulted in the goodwill
that arose on the acquisition of MIS (USD 180.5 million) in 2011
being impaired in full. Further details are provided in Note 17 of
the financial statements.
Capital expenditure
Our investment in Project Evolution was mostly complete by the
end of last year, with USD 6.3 million invested in 2016, mainly on
the connection of the Hamriyah facility to the national electricity
grid. In light of the prevailing market conditions, we felt it
prudent to defer part of our investment in Project Evolution Phase
2, postponing almost USD 18 million of expenditure. As a result,
Lamprell managed to reduce its capital expenditure significantly in
2016, with a total of USD 25.6 million spent compared to USD 59.3
million in 2015. At the same time, we continued to benefit from
savings generated from last year's investment in yard efficiencies,
which was one of the factors that allowed us to maintain our
normalised underlying margins in the ongoing tough environment.
Cash flow and liquidity
The Group's net cash flow from operating activities for 2016
reflected a net inflow of USD 99.9 million (2015: net outflow of
USD 0.8 million), which was driven by decreased working capital
requirements due to a number of projects reaching their final
stages and milestones due on delivery being collected. Prior to
working capital movements and the payment of employees' end of
service benefits, the Group's net cash inflow was USD 41.1 million
(2015: inflow of USD 95.0 million).
Balance sheet
The Group's total current assets at the period end were USD
616.8 million (2015: USD 725.3 million), with a significant
reduction in trade receivables as projects have reached their
completion. The Group's net cash position has strengthened further
as our working capital position has reduced as projects are
delivered. Our closing net cash of USD 275.2 million at the end of
the reporting period (2015: USD 210.3 million) includes low levels
of advance payments from customers. Shareholders' equity decreased
from USD 737.6 million in 2015 to USD 555.4 million in 2016. The
movement mainly reflects a reduction in retained earnings from USD
410.4 million to USD 229.8 million due to the impairment of USD
180.5 million recognised during the year.
Borrowings and debt
In 2016, following the refinancing in 2014, the Group's
facilities comprised (a) a USD 100 million term loan amortised over
five years, of which USD 40 million had been repaid by the end of
the year; (b) USD 50 million for general working capital purposes
which remained unutilised; and (c) USD 200 million of working
capital for project financing, also undrawn. During 2016, the USD
250 million committed bonding facility to be used in connection
with new contract awards funded by the above working capital
facility, was reduced by USD 100 million as it was replaced by
lower cost bilateral bonding facilities. The outstanding borrowings
were USD 59.5 million in the form of term loans (2015: USD 79.3
million). The Group's debt to equity ratio at the end of the year
was a healthy 10.7%.
Going concern
After reviewing its cash flow forecasts for a period of not less
than 12 months from the date of signing these financial statements,
the Directors have a reasonable expectation that the Group will
have adequate resources to continue in operational existence for
the foreseeable future. The Group therefore continues to adopt the
going concern basis in preparing its financial statements.
Dividends
In the context of ongoing market challenges and the anticipated
lower revenue in 2017, the Directors do not recommend the payment
of a dividend for 2016. The Directors will continue to review this
position in light of market conditions at the relevant time.
Antony Wright
Chief Financial Officer
Lamprell plc
Consolidated income statement
Year ended 31 December Year ended 31 December
2016 2015
Pre-exceptional Exceptional Pre-exceptional Exceptional
items items Total items items Total
Notes USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Continuing
operations
Revenue 5 704,994 - 704,994 871,058 - 871,058
Cost of sales 6 (647,791) - (647,791) (747,538) - (747,538)
-------------------- ------------------------ -------------------- -------------------- -------------------- --------------------
Gross profit 57,203 - 57,203 123,520 - 123,520
Selling and
distribution
expenses 7 (798) - (798) (1,771) - (1,771)
General and
administrative
expenses 8,26 (48,402) (3,361) (51,763) (44,318) - (44,318)
Impairment loss 14,26 - (180,539) (180,539) - - -
Other
gains/(losses)
- net 11 1,944 - 1,944 260 - 260
-------------------- ------------------------- -------------------- -------------------- -------------------- --------------------
Operating
(loss)/profit 9,947 (183,900) (173,953) 77,691 - 77,691
Finance costs 10 (12,822) - (12,822) (14,647) - (14,647)
Finance income 10 2,895 - 2,895 2,679 - 2,679
-------------------- ------------------------ -------------------- -------------------- -------------------- --------------------
Finance costs -
net (9,927) - (9,927) (11,968) - (11,968)
Share of profit
of
investments
accounted
for using the
equity method 1,944 - 1,944 1,318 - 1,318
-------------------- ----------------------- -------------------- -------------------- -------------------- --------------------
(Loss)/profit
before
income tax 1,964 (183,900) (181,936) 67,041 - 67,041
Income tax
expense (254) - (254) (541) - (541)
-------------------- ----------------------- -------------------- -------------------- -------------------- --------------------
(Loss)/profit
for
the year from
continuing
operations 1,710 (183,900) (182,190) 66,500 - 66,500
Discontinued
operations
Loss for the
year
from
discontinued
operations - - - (1,866) - (1,866)
(Loss)/gain on
disposal
of subsidiary (2,125) - (2,125) 66 - 66
-------------------- ----------------------- -------------------- -------------------- -------------------- --------------------
(Loss)/profit
for
the year
attributable
to the equity
holders of the
Company (415) (183,900) (184,315) 64,700 - 64,700
========= ========== ========= ========= ========= =========
(Loss)/earnings
per
share for
(losses)/profit
from continuing
operations
attributable to
the
equity holders
of
the Company
during
the period 12
Basic (53.32)c 19.46c
========== =========
Diluted (53.32)c 19.36c
========== ==========
(Loss)/earnings
per
share
attributable
to the equity
holders
of the Company
during
the period 12
Basic (53.94)c 18.93c
========== =========
Diluted (53.94)c 18.84c
========== ==========
Consolidated statement of comprehensive income
Year ended 31 December
2016 2015
Notes USD'000 USD'000
(Loss)/profit for the year (184,315) 64,700
Other comprehensive income:
Items that will not be
reclassified
to profit or
loss:
Remeasurement of
post-employment
benefit
obligations 21 1,523 (1,988)
Items that may be
reclassified
subsequently
to profit or loss:
Currency translation
differences 20 (290) (489)
Net loss on cash flow hedges 20 (1,259) -
--------------------------- -------------------------
Other comprehensive income
for the year (26) (2,477)
---------------------------- -------------------
Total comprehensive
(loss)/income
for the year (184,341) 62,223
========== ==========
Total comprehensive
(loss)/income
for the
year attributable to the
equity holders of
the Company arises from:
Continuing operations (182,216) 64,023
Discontinued operations (2,125) (1,800)
========= =========
Consolidated balance sheet
As at 31 December
2016 2015
Notes USD'000 USD'000
ASSETS
Non-current assets
Property, plant and
equipment 13 172,328 175,286
Intangible assets 14 24,951 205,884
Investment accounted
for using the equity
method 7,229 5,285
Trade and other receivables 16 10,905 12,712
Term and margin deposits 17 6,777 8,950
Derivative financial
instruments 22 115 -
------------------------ ------------------------
Total non-current assets 222,305 408,117
------------------------ ------------------------
Current assets
Inventories 15 24,415 29,066
Trade and other receivables 16 264,417 415,614
Derivative financial
instruments 22 58 -
Cash and bank balances 17 327,893 280,668
------------------------ ------------------------
Total current assets 616,783 725,348
------------------------ ------------------------
Total assets 839,088 1,133,465
------------------------ ------------------------
LIABILITIES
Current liabilities
Borrowings 25 (20,321) (20,136)
Trade and other payables 23 (180,021) (264,943)
Derivative financial
instruments 22 (465) (4)
Provision for warranty
costs and other liabilities 24 (7,958) (8,334)
Current tax liability (223) (451)
------------------------ ------------------------
Total current liabilities (208,988) (293,868)
------------------------ ------------------------
Net current assets 407,795 431,480
------------------------ ------------------------
Non-current liabilities
Borrowings 25 (39,163) (59,163)
Derivative financial
instruments 22 (794) (14)
Provision for employees'
end of service benefits 21 (34,745) (42,863)
------------------------ ------------------------
Total non-current liabilities (74,702) (102,040)
------------------------ ------------------------
Total liabilities (283,690) (395,908)
------------------------ ------------------------
Net assets 555,398 737,557
========== ==========
EQUITY
Share capital 19 30,346 30,346
Share premium 19 315,995 315,995
Other reserves 20 (20,693) (19,144)
Retained earnings 229,750 410,360
------------------------ ------------------------
Total equity attributable
to the equity holders
of the Company 555,398 737,557
========== ==========
Consolidated statement of changes in equity
Share Share Other Retained
capital premium reserves earnings Total
Notes USD'000 USD'000 USD'000 USD'000 USD'000
At 1 January 2015 30,346 315,995 (18,655) 344,474 672,160
---------------- ------------------ ------------------ ------------------ ------------------
Profit for the
year - - - 64,700 64,700
Other comprehensive
income:
Remeasurement of
post-employment
benefit obligations 21 - - - (1,988) (1,988)
Currency translation
differences 20 - - (489) - (489)
---------------- ------------------ ------------------ ------------------ ------------------
Total comprehensive
income for the
year - - (489) 62,712 62,223
---------------- ------------------ ------------------ ------------------ ------------------
Transactions with
owners:
Share-based payments:
* value of services provided - - - 3,174 3,174
---------------- ------------------ ------------------ ------------------ ------------------
Total transactions
with owners - - - 3,174 3,174
---------------- ------------------ ------------------ ------------------ ------------------
At 31 December
2015 30,346 315,995 (19,144) 410,360 737,557
---------------- ------------------ ------------------ ------------------ ------------------
Loss for the year - - - (184,315) (184,315)
Other comprehensive
income:
Remeasurement of
post-employment
benefit obligations 21 - - - 1,523 1,523
Currency translation
differences 20 - - (290) - (290)
Net loss on cash
flow hedges 20 - - (1,259) - (1,259)
---------------- ------------------ ------------------ ------------------ ------------------
Total comprehensive
loss for the year - - (1,549) (182,792) (184,341)
---------------- ------------------ ------------------ ------------------ ------------------
Transactions with
owners:
Share-based payments:
- value of services
provided - - - 2,725 2,725
- treasury shares
purchased - - - (543) (543)
---------------- ------------------ ------------------ ------------------ ------------------
Total transactions
with owners - - - 2,182 2,182
---------------- ------------------ ------------------ ------------------ ------------------
At 31 December
2016 30,346 315,995 (20,693) 229,750 555,398
======== ======== ======== ======== ========
Consolidated cash flow statement
2016 2015
Notes USD'000 USD'000
Operating activities
Cash generated from/(used
in) operating activities 29 100,124 (522)
Tax paid (222) (257)
------------------------ ------------------------
Net cash generated from/(used
in) operating activities 99,902 (779)
------------------------ ------------------------
Investing activities
Additions to property, plant
and equipment 13 (22,871) (55,681)
Proceeds from sale of property,
plant and equipment 1,349 543
Additions to intangible
assets 14 (2,753) (3,782)
Finance income 10 2,895 2,679
Dividend received from joint
ventures - 1,151
Proceeds from disposal of
a subsidiary - net - 2,091
Movement in deposit with
original maturity of more
than three months 17 (24,506) (6,706)
Movement in margin/short-term
deposits under lien 17 804 1,519
------------------------ ------------------------
Net cash used in investing
activities (45,082) (58,186)
------------------------ ------------------------
Financing activities
Treasury shares purchased (543) -
Repayments of borrowings (20,000) (20,000)
Finance costs (12,637) (14,386)
------------------------ ------------------------
Net cash used in financing
activities (33,180) (34,386)
------------------------ ------------------------
Net increase/(decrease)
in cash and cash equivalents 21,640 (93,351)
Cash and cash equivalents,
beginning of the year from
continuing operations 224,164 312,352
Cash and cash equivalents,
beginning of the year from
discontinued operations - 5,652
Exchange rate translation 20 (290) (489)
------------------------ ------------------------
Cash and cash equivalents,
end of the year from
continuing operations 17 245,514 224,164
========== ==========
Notes to the consolidated financial statements
1 Legal status and activities
Lamprell plc ("the Company") and its subsidiaries (together
referred to as "the Group") are engaged in the assembly and new
build construction for the offshore oil and gas and renewable
sectors; fabricating packaged, pre-assembled and modularised units;
constructing accommodation and complex process modules for onshore
downstream projects; construction of complex living quarters,
wellhead decks, topsides, jackets and other offshore fixed
facilities; rig refurbishment; land rig services; engineering and
construction and operations and maintenance.
2 Basis of preparation
The Group is required to present its annual consolidated
financial statements for the year ended 31 December 2016 in
accordance with EU adopted International Financial Reporting
Standards ("IFRS"), International Financial Reporting
Interpretations Committee ("IFRIC") interpretations and those parts
of the Isle of Man Companies Acts 1931-2004 applicable to companies
reporting under IFRS.
This financial information set out in this preliminary
announcement does not constitute the Group's statutory accounts for
the year ended 31 December 2016. The financial information has been
extracted from the consolidated financial statements for the year
ended 31 December 2016 approved by the Board of Directors on 23
March 2017 upon which the auditors' opinion is not modified and did
not contain a statement under section 15(4) or 15(6) of the Isle of
Man Companies Act 1982.
The financial information comprises the Group balance sheets as
of 31 December 2016 and 31 December 2015 and related Group income
statement, statement of comprehensive income, cash flows, statement
of changes in equity and related notes for the twelve months then
ended, of Lamprell plc. This financial information has been
prepared under the historical cost convention except for the
measurement at fair value of share options, financial assets at
fair value through profit or loss and derivative financial
instruments.
The preliminary results for the year ended 31 December 2016 have
been prepared in accordance with the Listing Rules of the London
Stock Exchange.
After reviewing its cash flow forecasts for a period of not less
than 12 months from the date of signing of these financial
statements, the Directors have a reasonable expectation that the
Group will have adequate resources to continue in operational
existence for the foreseeable future. Therefore, the Group
continues to adopt the going concern basis in preparing its
financial statements.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated and
parent company financial statements, are disclosed in Note 4.
3 Accounting policies
The accounting policies used are consistent with those set out
in the audited financial statements for the year ended 31 December
2015 and reviewed interim financial information for the period
ended 30 June 2016, which are available on the Company's website,
www.lamprell.com.
4 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. The Group makes estimates and assumptions concerning
the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are as follows:
Settlement agreement with Ensco
As stated in Note 5, the Group signed a contract settlement
agreement for the Ensco 140 rig, which confirmed a reduction in
contract revenue by USD 25.0 million.
The settlement agreement also increased estimated contract costs
by USD 17.6 million. The additional estimated contract costs have
been based on the historical experience for similar modifications
and activities based on current working practice.
Revenue recognition
The Group uses the percentage-of-completion method in accounting
for its contract revenue. Use of the percentage-of-completion
method requires the Group to estimate the stage of completion of
the contract to date as a proportion of the total contract work to
be performed in accordance with the accounting policy. As a result,
the Group is required to estimate the total cost to completion of
all outstanding projects at each period end. The application of a
10% sensitivity to management estimates of the total costs to
completion of all outstanding projects at the year-end would result
in the revenue and profit increasing by USD 3.8 million (2015: USD
30.5 million) if the total costs to complete are decreased by 10%
and the revenue and profit decreasing by USD 6.9 million (2015: USD
28.5 million) if the total costs to complete are increased by
10%.
Impairment of goodwill
The Group carries out an impairment review whenever events or
changes in circumstance indicate that the carrying value of
goodwill may not be recoverable. In addition, the Group carries out
an annual impairment review as required by IAS 36.
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash-generating units to which goodwill
has been allocated. The value in use calculation requires the
Directors to estimate the future cash flows expected to arise from
the cash-generating unit and a suitable discount rate in order to
calculate present value.
The market downturn has resulted in a decrease in bidding
activities and a reduction in new project awards which the Group
had included in the expected pipeline at half year. The estimate of
future cash flows and terminal value growth rate for each of the
CGUs have been significantly affected by the current assumptions
relating to market outlook, contract awards and contract margins.
The Group had anticipated new project awards based on a visible bid
pipeline as well as market knowledge. However, the awards have not
crystalised and the market has continued to slow down reducing the
Group's confidence for new build awards in the short term. The
outlook for the Group is discussed in the Chief Executive Officer
review.
As a result of the above, the carrying amount of goodwill at 31
December 2016 was nil (31 December 2015: USD 180.5 million) after
an impairment loss of USD 180.5 million was recognised during 2016
(2015: nil). The goodwill arose from the acquisition of MIS.
If the discount rate used was to differ by 0.5% from
management's estimates, in isolation, there would be a reduction in
the headroom of USD 9.2 million (2015: USD 48.0 million) if the
discount rate was to increase or, an increase in the headroom by
USD 10.2 million (2015: USD 54.2 million) if the discount rate was
to decrease.
If the net profit as a percentage of revenue used was to differ
by 0.5% from management's estimates, in isolation, there would be
an increase of USD 34.6 million (2015: USD 66.4 million) in the
headroom if the net profit was to increase or, there would be an
reduction in the headroom of USD 34.6 million (2015: USD 66.4
million) in the headroom if the net profit was to decrease.
If the terminal value growth rate used was to differ by 0.5%
from management's estimates, in isolation, there would be a
reduction in the headroom of USD 6.9 million (2015: USD 35.5
million) if the terminal value growth rate was lower or, an
increase in the headroom of USD 7.6 million (2015: USD 40.8
million) if the terminal value growth rate was higher.
Owing to the significant negative headroom in management's base
case, in all of the above scenarios, the goodwill as at 31 December
2016 would be fully impaired.
The substantial negative headroom represents an indicator of
impairment of other non-current assets and an impairment test was
performed using the same assumptions as above. In all cases there
was significant residual headroom and consequently no impairment of
other non-current assets was recorded.
Employees' end of service benefits
The rate used for discounting the employees' post-employment
defined benefit obligation should be based on market yields on high
quality corporate bonds. In countries where there is no deep market
for such bonds, the market yields on government bonds should be
used. In the UAE, there is no deep market for corporate bonds and
no market for government bonds and therefore, the discount rate has
been estimated using the US AA-rated corporate bond market as a
proxy. On this basis, the discount rate applied was 3.5% (2015:
3.5%). If the discount rate used was to differ by 0.5 points from
management's estimates, the carrying amount of the employees' end
of the service benefits provision at the balance sheet date would
be an estimated USD 0.3 million (2015: USD 1.0 million) lower or
USD 1.5 million (2015: USD 1.4 million) higher. If the salary
growth rate used was to differ by 0.5 points from management's
estimates, the carrying amount of the employees' end of the service
benefits provision at the balance sheet date would be an estimated
USD 1.3 million (2015: USD 1.4 million) higher or USD 0.3 million
(2015: USD 1.0 million) lower.
5 Segment information
The Group is organised into business units, which are the
Group's operating segments and are reported to the Board of
Directors, the chief operating decision maker. These operating
segments are aggregated into two reportable segments - 'Fabrication
& Engineering' and 'Services' based on similar nature of the
products and services, type of customer and economic
characteristics. During 2015, the segments were reported as Segment
A and Other segment and as a result, comparatives have been
restated.
The Fabrication & Engineering segment contains business from
New Build Jack up Rigs ("NBJR"), Modules, ("MOD"), Offshore
Platforms ("OP") and Oil and Gas Contracting Services ("OGCS")
excluding that from the Operations & Maintenance manpower
business. The Services segment contains business from Operations
and Maintenance and safety services.
NBJR derives its revenue from assembly and new build
construction for the offshore oil and gas and renewables sectors;
MOD derives its revenue from fabricating packaged, pre-assembled
and modularised units and constructing accommodation and complex
process modules for onshore downstream projects; OP derives its
revenue from construction of complex living quarters, wellhead
decks, topsides, jackets and other offshore fixed facilities; and
OGCS derives its revenue from rig refurbishment, land rig services,
engineering and construction. Operations and maintenance derives
its revenue from manpower supply and ancillary services.
Fabrication
& Engineering Services Total
USD'000 USD'000 USD'000
Year ended 31 December
2016
Revenue from external
customers* 668,835 36,159 704,994
========= ====== =========
Gross operating profit* 99,436 14,174 113,610
========= ====== =========
*As a result of the late delivery of the Ensco 140 rig which
were caused by failures in the jacking equipment supplied by the
original equipment manufacturer, Cameron LeTourneau ("Cameron") the
Group entered into a settlement agreement on 26 August 2016.
*The impact of the settlement agreement was that the Group's
Fabrication & Engineering segment incurred a reduction of
revenue amounting to USD 25.0 million, which was a deduction from
the final 'Ensco 140' rig milestone payment and is likely to incur
additional estimated contract costs amounting to USD 17.6 million
as a result of an increase in the contract scope which the Group
committed to provide for the 'Ensco 140 and 141' rigs.
Year ended 31 December 2015
(restated)
Fabrication
& Engineering Services Total
USD'000 USD'000 USD'000
Revenue from external
customers 828,160 42,898 871,058
========= ====== =========
Gross operating
profit 151,131 23,744 174,875
========= ====== =========
Sales between segments are carried out on agreed terms. The
revenue from external parties reported to the Board of Directors is
measured in a manner consistent with that in the consolidated
income statement.
The reconciliation of the gross operating profit is provided as
follows:
2016 2015
USD'000 USD'000
Gross operating profit for the
Fabrication & Engineering segment
as reported to the Executive
Directors 99,436 151,131
Gross operating profit for the
service segment as reported
to the Executive Directors 14,174 23,744
Unallocated:
Employee and equipment costs (23,151) (14,523)
Repairs and maintenance (10,147) (18,636)
Yard rent and depreciation (12,798) (12,667)
Others (10,311) (5,529)
----------------- -----------------
Gross profit 57,203 123,520
----------------- -----------------
Impairment loss* (Note 14) (180,539) -
Selling and distribution expenses
(Note 7) (798) (1,771)
General and administrative expenses
(Note 8) (51,763) (44,318)
Other gains/(losses) - net (Note
11) 1,944 260
Finance costs (Note 10) (12,822) (14,647)
Finance income (Note 10) 2,895 2,679
Others 1,690 777
------------------- -----------------
(Loss)/profit for the year from
continuing operations (182,190) 66,500
======== =======
* The impairment loss of USD 180.5 million recognised for the
year in respect of goodwill is attributable to the Fabrication
& Engineering reportable segment.
Information about segment assets and liabilities is not reported
to or used by the Board of Directors and, accordingly, no measures
of segment assets and liabilities are reported. The breakdown of
revenue from all services is as follows:
2016 2015
USD'000 USD'000
Fabrication & Engineering
New build jackup rigs 567,585 675,821
Oil and Gas contracting services 47,648 93,318
Modules 40,809 47,121
Offshore platforms 12,793 11,900
Services
Operations & Maintenance manpower
supply 36,159 42,898
------------------- -------------------
704,994 871,058
======== ========
The Board of Directors assess the performance of the operating
segments based on a measure of gross profit. The staff, equipment
and certain subcontract costs are measured based on standard cost.
The measurement basis excludes the effect of the common expenses
for yard rent, repairs and maintenance and other miscellaneous
expenses.
The Group's principal place of business is in the UAE. The
revenue recognised in the UAE with respect to external customers is
USD 700.4 million (2015: USD 865.8 million), and the revenue
recognised from other countries is USD 4.6 million (2015: USD 5.3
million).
Certain customers individually accounted for greater than 10% of
the Group's revenue and are shown in the table below:
2016 2015
USD'000 USD'000
External customer A 333,432 275,296
External customer B 161,529 196,462
External customer C 77,486 147,251
------------------- -------------------
572,447 619,009
======== ========
The revenue from these customers is attributable to the
Fabrication & Engineering segment. The above customers in 2016
are not necessarily the same customers in 2015.
6 Cost of sales
2016 2015
USD'000 USD'000
Materials and related costs 304,144 445,461
Staff costs (Note 9) 134,945 150,979
Subcontract costs 128,064 77,561
Subcontract labour 26,998 20,968
Depreciation (Note 13) 22,071 16,818
Repairs and maintenance 10,147 18,636
Yard rent 6,379 6,754
Equipment hire 8,748 5,136
Write-down of inventory to net 2,000 -
realisable value (Note 15)
Release of warranty provision (3,876) (4,000)
Others 8,171 9,225
------------------- -------------------
647,791 747,538
======== ========
7 Selling and distribution expenses
2016 2015
USD'000 USD'000
Travel 575 628
Advertising and marketing 153 359
Entertainment 66 143
Others 4 641
--------------- ---------------
798 1,771
====== ======
8 General and administrative expenses
2016 2015
USD'000 USD'000
Staff costs (Note 9) 25,770 34,054
Provision/(release) for impairment
of trade receivables, net
of amounts recovered 977 (6,100)
Legal, professional and consultancy
fees 3,736 3,346
Staff redundancy expenses (Note 3,361 -
26)
Amortisation of intangible assets
(Note 14) 3,147 2,624
Potential partnership expenses* 3,373 -
Depreciation (Note 13) 3,030 2,560
Utilities and communication 1,744 932
Bank charges 181 184
Others 6,444 6,718
_----------------------- _-----------------------
51,763 44,318
========= =========
* Potential partnership expenses pertain to the cost incurred on
establishing the Maritime yard, in Ras Al Khair, in eastern Saudi
Arabia.
9 Staff costs
2016 2015
USD'000 USD'000
Wages and salaries 115,796 120,611
Employees' end of service benefits
(Note 21) 6,075 6,313
Share-based payments - value
of services provided 2,725 3,174
Other benefits 36,119 54,935
------------------- -------------------
160,715 185,033
======== ========
Staff costs are included in:
Cost of sales (Note 6) 134,945 150,979
General and administrative expenses
(Note 8) 25,770 34,054
-------------------- -------------------
160,715 185,033
-------------------- -------------------
Number of employees at 31 December 5,189 7,736
========= ========
10 Finance costs - net
2016 2015
USD'000 USD'000
Finance costs
Bank guarantee charges 3,731 5,300
Commitment fees 3,637 3,829
Interest on bank borrowings 3,317 3,588
Others 2,137 1,930
_----------------- _-----------------
12,822 14,647
======= =======
Finance income
Finance income comprises interest income of USD 2.9 million
(2015: USD 2.7 million) from bank deposits.
11 Other gains/(losses) - net
2016 2015
USD'000 USD'000
Profit on disposal of assets 621 315
Exchange gain/(loss) - net 539 (16)
Loss on derivative financial instruments (234) (780)
Others 1,018 741
_---------------- _--------------
1,944 260
======= ======
12 Earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the
(loss)/profit attributable to the equity holders of the Company by
the weighted average number of ordinary shares in issue during the
year excluding ordinary shares purchased by the Company and held as
treasury shares (Note 19).
(b) Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. For the
retention share awards, options under executive share option plan
and performance share plan, a calculation is performed to determine
the number of shares that could have been acquired at fair value
(determined as the average annual market share price of the
Company's shares) based on the monetary value of the subscription
rights attached to outstanding share awards/options. The number of
shares calculated as above is compared with the number of shares
that would have been issued assuming the exercise of the share
awards/options.
2016 2015
USD'000 USD'000
The calculations of (loss)/earnings
per share are based on the
following (loss)/profit and
numbers of shares:
(Loss)/profit for the year (184,315) 64,700
------------------------- -------------------------
Loss for the year from discontinued
operations (2,125) (1,800)
------------------------- -------------------------
Weighted average number of
shares for basic (loss)/earnings
per share 341,655,353 341,710,302
Adjustments for:
* Assumed vesting of performance share plan - 51,331
* Assumed vesting of retention share plan - 1,683,467
------------------------- -------------------------
Weighted average number of
shares for diluted (loss)/earnings
per share 341,655,353 343,445,100
------------------------- -------------------------
Assumed vesting of performance and retention share plans
amounting to 2,467,849 shares and 700,303 shares respectively have
been excluded in the current period as these are anti-dilutive.
(Loss)/earnings per share:
Basic (53.94)c 18.93c
=========== ===========
Diluted (53.94)c 18.84c
=========== ===========
(Loss)/earnings per share from
continuing operations:
Basic (53.32)c 19.46c
=========== ===========
Diluted (53.32)c 19.36c
=========== ===========
Loss per share from discontinued
operations:
Basic (0.62)c (0.53)c
=========== ===========
Diluted (0.62)c (0.52)c
=========== ===========
13 Property, plant and equipment
Fixtures Capital
Buildings and
& Operating office Motor work-in-
infrastructure equipment equipment vehicles progress Total
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Cost
At 1 January
2015 126,620 126,384 17,410 3,089 5,387 278,890
Additions 10,793 25,104 2,121 1,372 16,159 55,549
Disposals (370) (1,760) (3,118) (295) - (5,543)
Transfers 1,088 3,597 129 83 (4,897) -
------------------- --------------------- ------------------- ------------------- ------------------- -------------------
At 31
December
2015 138,131 153,325 16,542 4,249 16,649 328,896
Additions 4,166 4,643 155 196 13,711 22,871
Disposals (147) (19,803) (711) (1,040) - (21,701)
Transfers 3,973 8,551 982 36 (13,542) -
------------------- ---------------------- ------------------- ------------------- ------------------- -------------------
At 31
December
2016 146,123 146,716 16,968 3,441 16,818 330,066
------------------- ---------------------- ------------------- ------------------- ------------------- -------------------
Depreciation
At 1 January
2015 (36,273) (84,278) (16,586) (2,410) - (139,547)
Charge for
the year (7,209) (10,906) (803) (460) - (19,378)
Disposals 331 1,723 3,001 260 - 5,315
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
At 31
December
2015 (43,151) (93,461) (14,388) (2,610) - (153,610)
Charge for
the year (7,661) (15,652) (1,315) (473) - (25,101)
Disposals 98 19,216 711 948 - 20,973
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
At 31
December
2016 (50,714) (89,897) (14,992) (2,135) - (157,738)
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Net book
value
At 31
December
2016 95,409 56,819 1,976 1,306 16,818 172,328
======== ======== ======== ======== ======== ========
At 31
December
2015 94,980 59,864 2,154 1,639 16,649 175,286
======== ======== ======== ======== ======== ========
Buildings have been constructed on land, leased on a renewable
basis from various Government Authorities. The remaining lives of
the leases range between two to twenty one years. The Group has
renewed these land leases upon expiry in the past and its present
intention is to continue to use the land and renew these leases for
the foreseeable future.
Property, plant and equipment with a carrying amount of USD
109.3 million (2015: USD 115.2 million) are under lien against the
bank facilities (Note 25).
A depreciation expense of USD 22.1 million (2015: USD 16.8
million) has been charged to cost of sales; USD 3.0 million (2015:
USD 2.6 million) to general and administrative expenses (Notes 6
and 8) and USD Nil (2015: USD 0.04 million) is presented within
profit for the year from discontinued operations.
Capital work-in-progress represents the cost incurred towards
construction and upgrade of infrastructure and operating
equipment.
14 Intangible assets
Trade Customer Leasehold Work-in-
Goodwill name relationships rights Software progress Total
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Cost
At 1
January
2015 180,539 22,335 19,323 8,338 4,369 3,377 238,281
Additions - - - - 6 3,776 3,782
Transfers - - - - 7,153 (7,153) -
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31
December
2015 180,539 22,335 19,323 8,338 11,528 - 242,063
Additions - - - - 2,753 - 2,753
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31
December
2016 180,539 22,335 19,323 8,338 14,281 - 244,816
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Amortisation and impairment
At 1
January
2015 - 10,535 19,323 1,966 1,731 - 33,555
Charge for
the year
(Note 8) - 1,804 - 488 332 - 2,624
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31
December
2015 - 12,339 19,323 2,454 2,063 - 36,179
Charge for
the year
(Note 8) - 1,804 - 488 855 - 3,147
Impairment 180,539 - - - - - 180,539
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31
December
2016 180,539 14,143 19,323 2,942 2,918 - 219,865
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Net book
value
At 31
December
2016 - 8,192 - 5,396 11,363 - 24,951
======== ======== ======== ======== ======== ======== ========
At 31
December
2015 180,539 9,996 - 5,884 9,465 - 205,884
======== ======== ======== ======== ======== ======== ========
Goodwill is monitored by management at the operating segment
level. Goodwill of USD 180.5 million arising due to the acquisition
of MIS has been allocated to the Fabrication & Engineering cash
generating units (CGU) as follows:
USD'000
New build jackup rigs 122,645
Oil and Gas contracting services 22,054
Modules 17,581
Offshore platforms 18,259
-------------------
180,539
========
The market downturn has resulted in a decrease in bidding
activities and new project awards for each of the CGUs, resulting
in an impairment loss of USD 180.5 million.
15 Inventories
2016 2015
USD'000 USD'000
Raw materials, consumables and
finished goods 27,989 21,917
Work in progress - 9,604
Less: Provision for slow moving
and obsolete inventories (3,574) (2,455)
---------------- ------------------
24,415 29,066
======== =========
The cost of inventories recognised as an expense amounts to USD
21.8 million and this includes USD 2.0 million (2015: USD Nil) in
respect of write-down of inventory to net realisable value.
16 Trade and other receivables
2016 2015
USD'000 USD'000
Trade receivables 89,431 94,146
Other receivables and prepayments 38,244 30,206
Advance to suppliers 17,556 19,435
Receivables from a related
party (Note 18) 109 13
------------------- -------------------
145,340 143,800
Less: Provision for impairment
of trade receivables (5,488) (5,220)
_------------------- -------------------
139,852 138,580
Amounts due from customers
on contracts 127,809 133,487
Contract work in progress 7,661 156,259
------------------ ------------------
275,322 428,326
========= =========
Non-current portion:
Prepayments 10,905 12,712
------------------ ------------------
Current portion 264,417 415,614
------------------ ------------------
The non-current portion includes an amount of USD 8.5 million
paid to Sharjah Electricity and Water Authority for construction,
installation and maintenance of an electric mainline at its
Hamriyah facility. The Group has decided to amortise this amount
over the remaining period of the leasehold rights for the
facility.
Amounts due from customers on
contracts comprise:
2016 2015
USD'000 USD'000
Costs incurred to date 1,644,890 1,098,234
Attributable profits 299,154 204,586
----------------------- -----------------------
1,944,044 1,302,820
Less: Progress billings (1,816,235) (1,169,333)
----------------------- -----------------------
127,809 133,487
=========== ===========
17 Cash and bank balances
2016 2015
USD'000 USD'000
Cash at bank and on hand 88,491 92,301
Term deposits and margin deposits-Current 239,402 188,367
------------------ --------------------
Cash and bank balances 327,893 280,668
Term deposits and margin deposits-Non
current 6,777 8,950
Less: Margin/short-term deposits
under lien (10,983) (11,787)
Less: Deposits with original
maturity of more than 3 months (78,173) (53,667)
------------------ -------------------
Cash and cash equivalents (for
the purpose of the cash flow
statement) 245,514 224,164
========= =========
18 Related party balances and transactions
Related parties comprise LHL (which owns 33% of the issued share
capital of the Company), certain legal shareholders of the Group
companies, Directors and key management personnel of the Group and
entities controlled by Directors and key management personnel. Key
management includes the Directors (Executive and Non-Executive) and
members of the executive committee. Related parties, for the
purpose of the parent company financial statements, also include
subsidiaries owned directly or indirectly and joint ventures. Other
than those disclosed elsewhere in the financial statements, the
Group entered into the following significant transactions during
the year with related parties at prices and on terms agreed between
the related parties:
2016 2015
USD'000 USD'000
Key management compensation 6,824 7,099
======= =======
Legal and professional services 58 -
======= =======
Sales to joint ventures 109 315
======= =======
Purchases from joint ventures 243 342
======= =======
Sponsorship fees and commissions
paid to legal
shareholders of subsidiaries 326 294
======= =======
Key management compensation comprises:
2016 2015
USD'000 USD'000
Salaries and other short-term
benefits 5,313 5,075
Share based payments - value of
services provided 1,337 1,832
Post-employment benefits 174 192
------------ ------------
6,824 7,099
======= ======
Due from/due to related parties
Due from related parties
2016 2015
USD'000 USD'000
MISA (in respect of sales) (Joint
venture) (Note 16) 109 13
========= =========
Due to a related party
2016 2015
USD'000 USD'000
MISA (in respect of purchases)
(Joint venture) (Note 23) 228 122
========== ==========
19 Share capital and share premium
Issued and fully paid ordinary shares
Share Share
Equity capital premium
Number USD'000 USD'000
At 1 January 2015 and 31
December 2015 341,726,570 30,346 315,995
---------------------------- ----------------- -------------------
At 31 December 2016 341,726,570 30,346 315,995
============= ======== =========
The total authorised number of ordinary shares is 400 million
shares (2015: 400 million shares) with a par value of 5 pence per
share (2015: 5 pence per share).
20 Other reserves
Legal Merger Hedge Translation Total
reserve reserve reserve reserve
USD'000 USD'000 USD'000 USD'000 USD'000
At 1 January 2015 98 (18,572) - (181) (18,655)
Currency translation
differences - - - (489) (489)
------------------ -------------- -------------- ------------------ ---------------
At 31 December
2015 98 (18,572) - (670) (19,144)
Currency translation
differences - - - (290) (290)
Loss on cash flow
hedges (Note 22) - - (1,259) - (1,259)
------------------ -------------- -------------- ------------------ ---------------
At 31 December
2016 98 (18,572) (1,259) (960) (20,693)
======== ======== ======== ======== ========
Legal reserve
The Legal reserve relates to subsidiaries (other than the
subsidiaries incorporated in free zones) in the UAE and the State
of Qatar. In accordance with the laws of the respective countries,
the Group has established a statutory reserve by appropriating 10%
of the profit for the year of such companies. Such transfers are
required to be made until the reserve is equal to, at least, 50%
(UAE) and 33.3% (State of Qatar) of the issued share capital of
such companies. The legal reserve is not available for
distribution.
Merger reserve
On 11 September 2006, the Group acquired 100% of the legal and
beneficial ownership of Inspec from LHL for a consideration of USD
4 million. This acquisition was accounted for using the uniting of
interest method.
On 25 September 2006, the Company entered into a share for share
exchange agreement with LEL and LHL under which it acquired 100% of
the 49,003 shares of LEL from LHL in consideration for the issue to
LHL of 200,000,000 shares of the Company. This acquisition has been
accounted for using the uniting of interest method.
21 Provision for employees' end of service benefits
In accordance with the provisions of IAS 19, management has
carried out an exercise to assess the present value of its
obligations at 31 December 2016 and 2015, using the projected unit
credit method, in respect of employees' end of service benefits
payable under the Labour Laws of the countries in which the Group
operates. Under this method, an assessment has been made of an
employee's expected service life with the Group and the expected
basic salary at the date of leaving the service. The obligation for
end of service benefit is not funded.
The movement in the employees' end of service benefit liability
over the periods is as follows:
2016 2015
USD'000 USD'000
At 1 January 42,863 38,752
Current service cost 4,879 4,871
Interest cost 1,196 1,442
Remeasurements (1,523) 1,988
Benefits paid (12,670) (4,190)
------------------- ------------------
At 31 December 34,745 42,863
========= =========
22 Derivative financial instruments
2016 2015
Notional Notional
contract contract
amount Assets Liabilities amount Assets Liabilities
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Forward
contracts 51,731 - 1,259 - - -
Interest
rate
swaps 60,000 173 - 80,000 - 18
------------------------ ---------------- ------------------ ----------------------- ------------------ ------------------
Total 111,731 173 1,259 80,000 - 18
======== ====== ====== ======== ====== ======
Non-current
portion:
Forward
contracts 40,179 - 794 - - -
Interest
rate
swaps 40,000 115 - 60,000 - 14
---------------- ------------ ------------ ---------------- ------------ ------------
Current
portion 31,552 58 465 20,000 - 4
------------------------ ------------------- ------------------- ----------------------- ------------------ ------------------
The Group has an interest rate swap to switch floating interest
rates to fixed interest rates on the Group's borrowings. This
derivative did not qualify for hedge accounting and is carried at
fair value through profit or loss. The notional principal amount at
the date of inception of these contracts was USD 100 million. This
contract matures in various installments within fifty seven months
from the date of inception. The fair value at 31 December 2016 of
this derivative was USD 0.2 million (2015: USD 0.02 million)
During 2016, the Group designated foreign currency forward
contracts as hedges of highly probable purchases of fixed assets
and material in EUR, GBP and NOK. The forecast purchases are
expected to occur during 2017 and 2018. The terms of the forward
contracts have been negotiated to match the terms of the forecast
transactions. Consequently, the hedges were assessed to be highly
effective and an unrealised loss of USD 1.2 million relating to the
forward contracts is included in other comprehensive income.
23 Trade and other payables
2016 2015
USD'000 USD'000
Trade payables 31,662 44,065
Accruals 111,022 127,155
Payables to a related party (Note
18) 228 122
Amounts due to customers on contracts 37,109 93,601
------------------- -------------------
180,021 264,943
========= =========
Amounts due to customers on contracts
comprise:
Progress billings 339,528 357,154
Less: Cost incurred to date (247,867) (226,975)
Less: Recognised profits (54,552) (36,578)
------------------- -------------------
37,109 93,601
========== ==========
24 Provision for warranty costs and other liabilities
Minimum
Warranty purchase
costs obligations Total
USD'000 USD'000 USD'000
At 1 January 2015 12,389 3,423 15,812
Charge during the year 1,200 - 1,200
Released/utilised during
the year (5,489) (3,189) (8,678)
------------------ ---------------- -------------------
At 31 December 2015 8,100 234 8,334
Charge during the year 3,500 - 3,500
Released/utilised during
the year (3,876) - (3,876)
------------------ ---------------- ------------------
At 31 December 2016 7,724 234 7,958
========= ======== ========
Warranty costs charged during the year relates to management's
assessment of potential claims under contractual warranty
provisions. The charge during the year is included in subcontract
cost in Note 6.
25 Borrowings
2016 2015
USD'000 USD'000
Bank term loans 59,484 79,299
========= =========
The bank borrowings are repayable as follows:
Current (less than 1 year) 20,321 20,136
Non-current (later than 1 year
but not later than 5 years) 39,163 59,163
------------------- -------------------
59,484 79,299
========== ==========
26 Exceptional items
Exceptional item comprises of:
2016 2015
USD'000 USD'000
Impairment of goodwill (Note 180,539 -
14)
Staff redundancy expenses (Note 3,361 -
8)
-------------- --------------
183,900 -
======== ========
Impairment of goodwill
The market downturn has resulted in a decrease in bidding
activities and new project awards for the Fabrication &
Engineering segment, causing an impairment loss of USD 180.5
million (Note 14).
Staff redundancy expenses
During 2016, the Group undertook a major review of how the
future organisation should be structured in view of the market
downturn and the costs relating to this exercise pertaining to
staff redundancy amounted to US$ 3.4 million (Note 8).
27 Commitments
(a) Operating lease commitments
The Group leases land and staff accommodation under various
operating lease agreements. The remaining lease terms of the
majority of the leases are between four to twenty years and are
renewable at mutually agreed terms.
The future minimum lease payments payable under operating leases
are as follows:
2016 2015
USD'000 USD'000
Not later than one year 6,528 6,988
Later than one year but not later
than five years 23,997 9,992
Later than five years 76,264 36,530
------------------- -------------------
106,789 53,510
========= =========
(b) Other commitments
2016 2015
USD'000 USD'000
Capital commitments for construction
of facilities 10,347 196
========= =========
Capital commitments for purchase
of operating equipment
and computer software 345 4,791
========= =========
Purchase commitments 51,659 54,200
========= =========
28 Bank guarantees
2016 2015
USD'000 USD'000
Performance/bid bonds 163,812 126,375
Advance payment, labour visa
and payment guarantees 240,383 315,200
------------------- -------------------
404,195 441,575
========== ==========
The various bank guarantees, as above, were issued by the
Group's bankers in the ordinary course of business. Certain
guarantees are secured by cash margins, assignments of receivables
from some customers and in respect of guarantees provided by banks
to the Group companies, they have been secured by parent company
guarantees. In the opinion of the management, the above bank
guarantees are unlikely to result in any liability to the
Group.
29 Cash generated from operating activities
Year ended 31
December
2016 2015
Notes USD'000 USD'000
Operating activities
(Loss)/profit before income
tax including discontinued
operations (184,061) 65,241
Adjustments for:
Release of excess tax provision (260) -
Impairment of goodwill 14 180,539 -
Share based payments - value
of services provided 2,725 3,174
Depreciation 13 25,101 19,386
Amortisation of intangible
assets 14 3,147 2,624
Share of profit from investment
in joint ventures (1,944) (1,318)
Release for warranty costs
and other liabilities (376) (7,478)
Profit on disposal of property,
plant and equipment (621) (315)
Provision for slow moving and
obsolete inventories 15 1,119 714
Provision/(release) for impairment
of trade receivables, net of
amounts recovered 977 (6,100)
Provision for employees' end
of service benefits 21 6,075 6,313
Gain on disposal of a subsidiary - (66)
(Loss)/gain on derivative financial
instruments (1,259) 780
Finance costs 12,822 14,706
Finance income 10 (2,895) (2,679)
-------------- ---------------
Operating cash flows before
payment of employees' end of
service benefits and changes
in working capital 41,089 94,982
Payment of employees' end of
service benefits 21 (12,670) (4,225)
Changes in working capital:
Inventories before movement
in provision/(release) 3,532 (15,220)
Derivative financial instruments 1,068 (962)
Trade and other receivables
before movement in provision/(release)
for impairment of trade receivables 152,027 (14,768)
Trade and other payables (84,922) (60,329)
-------------- ---------------
Cash generated from/(used in)
operating activities 100,124 (522)
======= =======
30 Statutory Accounts
This financial information is not the statutory accounts of the
Company and the Group, a copy of which is required to be annexed to
the Company's annual return to the Companies Registration Office in
Isle of Man. A copy of the statutory accounts in respect of the
year ended 31 December 2016 will be annexed to the Company's annual
return for 2016. Consistent with prior years, the full financial
statements for the year ended 31 December 2016 and the audit report
thereon will be circulated to shareholders at least 20 working days
before the AGM. A copy of the statutory accounts required to be
annexed to the Company's annual return to the Companies
Registration Office in respect of the year ended 31 December 2015
has been annexed to the Company's annual return for 2015.
31 Directors' responsibilities statement
We confirm that to the best of our knowledge
The financial statements, have been prepared in accordance with
the applicable set of accounting standards, give a true and fair
view of the assets, liabilities and financial position and profit
or loss of the company and the undertakings included in the
consolidation taken as a whole; and, This announcement includes a
fair review of the development and performance of the business and
the position of the company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Further information is available on the Company's website,
www.lamprell.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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