lamprell plc half-yearly report 2012 h1 …/media/files/l/lamprell-v3/...jackup rig, two new build...

28 August 2012

LAMPRELL PLC

(“Lamprell”, the “Company” or the “Group”)

HALF-YEARLY REPORT 2012

Lamprell (ticker: LAM), a leading provider of specialist engineering services to the international oil &

gas and renewable industry based in the UAE, announces its Interim Results for the six month period

to 30 June 2012.

H1 2012 FINANCIAL RESULTS

Revenue: US$ 528.1 million (H1 2011: US$ 383.6 million).

Operating loss: US$ 33.8 million (H1 2011: US$ 21.6 million profit).

Net loss: US$ 47.1 million (H1 2011: US$ 18.6 million profit).

Diluted EPS: negative 18.10 cents (H1 2011: 8.55 cents).

No interim dividend proposed (H1 2011: 4.00 cents).

Cash and bank balances as at 30 June 2012 US$ 134.0 million, including restricted cash of

US$ 101.4 million. (YE 2011: US$ 149.4 million, including restricted cash of US$ 105.5

million).

Net debt at 30 June 2012: US$ 35.7 million (YE 2011: US$ 101.7 million).

Banking waivers received following certain covenant breaches at 30 June. The Group`s

banking covenants will be tested again at 31 December 2012, ahead of which the Group will

seek to restructure its covenants on a long term basis to avoid a year end breach.

H1 2012 OPERATIONAL SUMMARY

As announced, delays on Windcarrier 1 and 2 have resulted in additional costs and liquidated

damages, resulting in US$ 46.2 million of gross contract losses in the period.

Supply chain delays relating to major components for new build jackups, delivery dates to

Lamprell’s customers maintained.

Successful delivery of Hull 108, Seajacks “Zaratan”, two new build land rigs, NDC

“Makasib” and several rig refurbishment projects

Increasing demand for the Company’s service businesses.

NEW CONTRACT AWARDS

Major new contract awards during 2012 amounting to US$ 743.1 million. These include:

the exercise of two options at US$ 166.7 million each, by National Drilling Company, to

build a further two LeTourneau S116E jackup drilling rigs;

the contract award by Seajacks for the construction of a modified Gusto MSC NG 2500X

self-elevating and self-propelled jackup for offshore oil and gas and offshore wind turbine

installation valued at US$ 120.9 million;

a US$ 227.0 million contract award for an international drilling contractor for the

construction of a LeTourneau S116E jackup drilling rig; and

an award by Leighton of a contract for the fabrication of two topsides and jackets valued at

US$ 62.0 million.

Commenting on the half year results, Nigel McCue, Lamprell CEO, said:

"These results are undoubtedly a disappointment to the Board and our Shareholders. After an

extended period of sustained growth and profitability, the performance in the 6 month period to 30

June 2012 comes as a setback to the Group.

Management is addressing the causes which have given rise to the under performance in the first half

of the year. Changes are being introduced across the business, which include management re-

organisation and the implementation of improved processes, systems and controls.

The Group’s order book remains at an historically high level of US$ 1.5 billion and bid activity

remains positive across all our main businesses.”

There will be an analyst presentation held at M:Communications, 11th Floor, Citypoint, 1 Ropemaker

Street, London, EC2Y 9AW at 09:00am.

Enquiries:

Lamprell +44 (0) 207 920 2347

Nigel McCue

Jon Cooper

M:Communications, London Patrick d’Ancona +44 (0) 207 920 2347

Andrew Benbow +44 (0) 207 920 2344

CHIEF EXECUTIVE OFFICER’S STATEMENT

The Company reported revenues of US$ 528.1 million for the first half of 2012, with a net loss of

US$ 47.1 million. As previously disclosed the results reflect the negative impact of additional costs

arising from the delayed deliveries of the Windcarrier 1 and 2 projects (gross contract losses

amounting to US$ 46.2 million in the period), delays in key specialised supplier equipment deliveries

for new build jackup projects and the slippage in the timing of expected new project awards.

Revenue for 2012 is still anticipated to be approximately US$ 1.1 billion, however, the Company

anticipates a loss for the year in the range of US$ 12 million to US$ 17 million.

These results are undoubtedly a disappointment to the Board and our Shareholders. After an extended

period of sustained growth and profitability, the performance in the 6 month period to 30 June 2012

comes as a setback to the Group.

Management is addressing the causes which have given rise to the under performance in the first half

year. Changes are being introduced across the business, which include management re-organisation

and the implementation of improved processes, systems and controls.

Market Overview

The Group’s order book remains at an historically high level of US$ 1.5 billion, predominantly

representing the new build jackup segment, and bid activity remains positive across all our main

businesses.

The Company continues to win significant new build construction contracts. In April, Lamprell

announced the exercise of two options at US$ 166.7 million each, by National Drilling Company

("NDC"), Abu Dhabi, to build a further two jackup rigs in addition to the four rigs currently under

construction. The Company’s bid pipeline continues to reflect its current position as the major yard in

the world for building jackup rigs in the <350 ft water depth segment.

The recent US$ 120.9 million contract award by Seajacks for the construction of a fourth unit, a

modified Gusto MSC NG 2500X self-elevating and self-propelled jackup vessel for offshore oil & gas

and offshore wind turbine installation and maintenance operations, demonstrates Lamprell’s

leadership in this sector. The vessel, which is a repeat design of the first generation of smaller vessels

that the Company successfully delivered on time and budget (Seajacks “Kraken” and “Leviathan”),

will be constructed at the Hamriyah facility.

In February, Lamprell announced the award by Leighton Offshore, a Singapore based company, of a

contract for the fabrication of two topsides and jackets at a contract value of US$ 62 million. The

works are being undertaken at the Sharjah facility.

The rig refurbishment market for both the onshore and offshore segments remains positive and orders

have been secured from multiple clients to undertake a number of jackup rig upgrade and

refurbishment projects. These projects highlight the Company’s strength in securing repeat business

from customers in this sector including Rowan, Noble, Hercules and Nabors.

The outlook for our service businesses, which provide specialised services to customers, remains

strong. These businesses include O&M, INSPEC, Sunbelt and Engineering Services. The Engineering

& Construction (“E&C”) market, offers opportunities for growth in the MENA region. The Group

recently signed a US$ 20 million contract with Abu Dhabi Gas Industries (“GASCO”), an existing

customer, for the procurement and installation of pipeline pumps at GASCO’s Ruwais gas plant.

Board

We are delighted to welcome John Kennedy as Chairman, who was appointed in June. John brings to

the Board a wealth of experience drawn from many years in the sector at an important time for the

Company. I would like to take this opportunity to thank Jonathan Silver for his contribution as

Chairman over the last 3 years, and I am pleased he remains with us on the Board as Deputy

Chairman. I would also like to thank Brian Fredrick, who stood down from the Board in June, for his

work as a Non-Executive Director over the last three years.

OPERATING REVIEW

Lamprell’s reputation is founded upon its ability to deliver high quality projects to its customers on

time and on budget and is focused on ensuring delivery of its existing contracts. The successful

completion of the Seajacks “Zaratan” wind farm installation vessel, PEMSA’s “Hull 108” new build

jackup rig, two new build land rigs for Weatherford, several rig refurbishment projects and NDC

“Makasib” earlier this month, has reinforced the Company’s reputation for delivering high quality

work.

We have experienced operational challenges during the period and are very focused on taking the

steps needed to ensure we maintain first class standards of execution for all our customers.

During the first half of 2012 the Company experienced significant supply chain delays relating to

major components for its new build jackup projects in Hamriyah, resulting in the underutilisation of

resources and reduced productivity. As a consequence, we have improved the systems controlling key

vendor deliveries and internal resource utilisation. Deliveries of equipment for the jackup drilling rigs

that the Company is constructing are currently being received in accordance with the revised delivery

schedules.

A key task for management is to continue to improve the management processes and systems that

provide timely information within the Group. The Company continues to develop its project controls

to enhance its financial performance on projects and to provide greater financial visibility to support

the financial management function.

The Company retains its focus on project execution, with a particular emphasis on safety, quality and

delivering projects on time and on budget.

We are in the process of reorganising and strengthening the engineering function. A new Vice

President Engineering with major Engineering Procurement Construction project experience has been

appointed and the department resources and processes are being enhanced.

New Build Offshore Drilling Rigs

Lamprell is currently constructing nine LeTourneau Super 116E class design jackup rigs, eight of

which are under construction at the Hamriyah facility. The ninth, built in modular form in the UAE, is

currently being assembled at a facility in Astrakhan, Russia. The rigs represent contracts from both

regional and international drilling operators including NDC, Eurasia Drilling, Greatship and Jindal.

In addition to these projects, Lamprell has successfully delivered two rigs in 2012. The first was a

Friede & Goldman design Super M2 rig that was delivered in June to Perforadora Mexico. The second

was a LeTourneau Super 116E class design jackup rig which was delivered to NDC in August 2012.

Wind Farm Installation Vessels

In May, the Company delivered the offshore wind turbine installation vessel Seajacks “Zaratan”, a

Gusto MSC NG-5500 design.

The first of the two Fred. Olsen Windcarrier self-elevating and self-propelled offshore wind turbine

installation vessels, the “Brave Tern”, was loaded out at the Company’s Jebel Ali Facility in February

2012. The vessel, a Gusto MSC NG-9000 prototype design, suffered engineering delays which in turn

caused delays in construction. Following the load out, the Company experienced significant

challenges relating primarily to the completion of the vessel’s integrated power management,

automation and control systems, all of which have resulted in the Company incurring additional costs

and liquidated damages. It is expected the vessel will be delivered to Fred. Olsen during Q3 2012.

The second vessel, the “Bold Tern” was successfully loaded out at the Jebel Ali facility in August

2012. The major outstanding work, post load out, comprises the installation of the vessel’s 800 tonne

main crane and the remaining cylindrical leg sections, the completion and subsequent commissioning

of the vessel’s integrated power management, automation and control systems. Delivery of the vessel

has been delayed and is now expected in Q4 2012. The anticipated additional costs associated with

this delay have been provided for in these financial statements.

Fixed offshore platforms

The construction of an offshore topside structure comprising a two level utility deck and a five level

accommodation module for 38 personnel for a leading integrated energy provider continues on

schedule at the Jebel Ali facility.

Construction is also proceeding, at Jebel Ali, on two contracts for Nexen Petroleum. The first

contract comprises a two level wellhead deck weighing approximately 4,000 tonnes and the second is

a Production, Utilities and Quarters (“PUQ”) deck weighing approximately 10,000 tonnes. Both

projects are currently proceeding on schedule and on budget with completion expected in Q2 2013

and Q2 2014 respectively.

At the Sharjah facility work has commenced on the contract with Leighton Offshore to fabricate two

topsides and jackets in connection with the Iraq crude export facility reconstruction.

These contracts are remeasurable with the client providing the project engineering and principal

procurement services with Lamprell undertaking the fabrication work.

Upgrade and refurbishment of offshore jackup rigs

During the first six months of 2012, Lamprell has executed 15 upgrade and refurbishment projects at

our Sharjah and Hamriyah facilities. Notable projects have included rigs "657” for Nabors and the

"Gilbert Rowe" for Rowan Drilling. The combined work scopes on these projects include living

quarters’ extensions, upgrade and refurbishment, as well as high volumes of condition-driven work

such as structural steel renewal, piping replacement and painting.

Land Rig Services

The Land Rig Services business unit has focused on the core activities of land rig upgrade &

refurbishment and the inspection and overhaul of mechanical and rotary equipment, executing a wide

range of projects for clients including NDC and Weatherford. In addition, Lamprell has delivered two

3000HP new build land drilling rigs to Weatherford.

The Group is expanding the reach of the Land Rig Services business into neighbouring territories,

with both Saudi Arabia and the Kurdish region of Northern Iraq offering strong future growth

prospects.

Service businesses

The Group continues to see increasing demand for its service business offerings across a range of

complementary markets. The Group has a strong regional market presence through O&M, INSPEC

and Sunbelt services, and has opportunities for growth across the wider MENA region. These

businesses offer a substantially different profile in terms of margin, earnings visibility and contracting

risk compared to the Group’s core new build operations. To further strengthen our focus across these

sectors the Group has appointed a new Vice President to lead the strategic development of this

division, and we anticipate continued strong growth across these disciplines and a steady increase in

the mix of services business within the Group.

FINANCIAL REVIEW

The Group’s results for the half year ended 30 June are set out, in summary, below

Six months ended 30 June

2012 2011

US$ million US$ million

Revenue

528.1 383.6

Gross (loss) / profit

(15.1) 44.5

Gross (loss) / profit margin

(2.9)% 11.6%

EBITDA (24.3) 25.2

EBITDA margin

(4.6)% 6.6%

Operating (loss) / profit

(33.8) 21.6

Operating (loss) / profit margin

(6.4)% 5.6%

Net profit

(47.1) 18.6

Net margin (8.9)% 4.8%

Diluted (loss) / earnings per share (18.10)c 8.55c

June 30 2012 December 31 2011

US$ million US$ million

Cash at bank and bank balances

134.0 149.4

Net debt

(35.7) (101.7)

The period to 30 June 2012 has been a challenging period for Lamprell financially. The deterioration

in the Group’s performance in relation to certain key fixed price contracts during the first half of 2012

caused the Group to seek waivers for certain of its banking covenants for the period to 30 June 2012.

These covenant waivers have now been agreed. The Group’s covenants will be tested again at 31

December 2012, ahead of which the Group will seek to restructure its covenants and debt facilities on

a long term basis. Based on the existing covenants and the most recent forecasts, it is anticipated that

the Group will breach its covenants at 31 December 2012 if they are not amended. However, based on

the projected trading for the Group the Directors have no reason to believe that the required

amendments will not be agreed.

Group revenue increased by 37.7% to US$ 528.1 million (H1 2011: US$ 383.6 million) reflecting an

increase in activity from the prior period. The increase was largely driven by new build activity,

attributable to oil and gas activities and offshore construction, and also by the service businesses that

were acquired as part of the MIS acquisition.

The Group made a gross loss of US$ 15.1 million in the period (H1 2011: US$ 44.5 million profit)

resulting in a negative gross margin of 2.9% (H1 2011: 11.6% positive). The decline in gross margin

was primarily due to problems on fixed price contracts. Specifically US$ 46.2 million of additional

losses in the period on the Windcarrier 1 and 2 projects, a decline in margin on the LeTourneau Super

116E jackup rig built in modular form in the UAE and being assembled in Astrakhan and issues with

delayed deliveries during the period.

Other operating income of US$ 5.7 million (H1 2011: US$ 1.9 million) includes a one off gain of

US$ 4.3 million in relation to the KSAM2 insurance claim, where “Hull 107” was declared a total

loss.

The operating loss for the period was US$ 33.8 million for the period (H1 2011: US$ 21.6 million

profit.

EBITDA, decreased to negative US$ 24.3 million (H1 2011: US$ 25.2 million positive). The

EBITDA margin declined to negative 4.6% from positive 6.6% in 2011 reflecting the operating

performance of the business.

The net loss for the period was US$ 47.1 million (H1 2011: US$ 18.6 million profit), in line with the

operating performance in the period and also reflects increased net finance costs in the current period

of US$ 13.0 million (H1 2011: US$ 3.0 million). These largely arise as a result of increased facility

and interest charges related to the MIS acquisition facilities and increased facility and guarantee

charges related to new contact awards in the year.

Interest income of US$ 0.4 million (H1 2011: US$ 1.0 million) relates mainly to bank interest earned

on surplus funds, margin deposits and fixed deposits maintained against guarantees. The decrease

reflects a lower level of average cash balances during the year when compared to the prior period.

Taxation

The tax charge of US$ 0.3 million arising in the period is in respect of tax on the Group’s service

operations in Kazakhstan and Qatar. The Group is not currently subject to income tax in respect of its

operations carried out in the United Arab Emirates, and does not anticipate any liability to income tax

arising on these operations in the foreseeable future. The Company, which is incorporated in the Isle

of Man, has no income tax liability for the year ended 31 December 2011 as it is taxable at 0% in line

with local Isle of Man tax legislation.

Loss per share

Fully diluted loss per share, amounts to 18.10 cents for the period (2011: 8.55 cents profit) reflecting

the operational performance of the Group during the period.

Operating cash flow and liquidity

The Group's net cash flow from operating activities for the period reflected a net inflow of US$ 92.9

million (H1 2011: US$ 21.7 million net outflow). The net cash inflow was significantly higher than

the prior six month period reflecting the final payments that were received on the completion of “Hull

108” and Seajacks “Zaratan”. These final receipts were for 80% of the contract price.

Net cash used in financing activities totalled US$ 135.9 million (H1 2011: US$ 193.5 million

generated from), primarily comprising mandatory debt repayments under the Group’s MIS acquisition

facilities of US$ 173.5 million (H1 2011: Nil), proceeds from borrowings of US$ 60.9 million, US$

20.8 million (H1 2011: US$ 19.0 million) of dividend payments, and US$ 13.4 million (H1 2011:

US$ 4.1 million) of finance costs.

Capital expenditure

Capital expenditure on property, plant and equipment during the six month period amounted to US$

11.9 million (H1 2011: US$ 28.0 million). The main area of expenditure was the investment on

buildings and related infrastructure at Group facilities amounting to US$ 5.3 million (H1 2011: US$

15.8 million), including capital work-in-progress. Further expenditure on operating equipment

amounted to US$ 5.4 million (H1 2011: US$ 11.2 million).

Balance sheet

Total non-current assets at the end of the period were US$ 406.2 million (YE 2011: US$ 417.1

million). Trade and other receivables decreased to US$ 637.6 million (YE 2011: US$ 668.8 million),

primarily reflecting the deliveries of Hull 108 and Seajacks Zaratan where 80% of the contract price

was received on delivery.

At the end of the period the Group had US$ 134.0 million of cash and bank balances (YE 2011: US$

149.4 million). Of the cash balances a total of US$ 101.4 million (YE 2011: US$ 105.5 million) was

restricted in the form of margin deposits primarily for guarantees on major projects. The total

contingent liability associated with these bank guarantees at the period end was US$ 735.4 million

(YE 2011: US$ 749.0 million). The period end net debt was US$ 35.7 million (YE 2011: net debt

US$ 101.7 million). The net debt comprised total outstanding borrowings of US$169.7 million (YE

2011: US$ 251.1 million) less cash and bank balances of US$ 134.0 million (YE 2011: US$ 149.4

million).

Shareholders’ equity decreased from US$ 533.9 million at 31 December 2011 to US$ 467.8 million at

30 June 2012. The movement arises primarily as a result of the total comprehensive loss for the period

of US$ 45.8 million (H1 2011: US$ 33.7 million profit) and payment of the final dividend for 2011 of

US$ 20.8 million.

Dividend

Given the financial performance of the Group the Company will not be paying a dividend for the

period ended 30 June 2012.

Going concern

The condensed consolidated interim financial information has been prepared on a going concern

basis. The ability of the Group to continue as a going concern is reliant upon the continued

availability of external debt financing and access to bank guarantees for its major projects. The

deterioration in the Group’s performance in relation to certain key projects during the first half of

2012 caused the Group to seek waivers for certain of its banking covenants for the period to 30 June

2012. These covenant waivers were agreed with the lenders by August 2012. The Group’s covenants

will be tested again at 31 December 2012, ahead of which the Group will seek to restructure its

covenants and debt facilities on a long term basis. Based on the existing covenants and the most

recent forecasts for the twelve months ending 31 December 2012, it is anticipated that the Group

would breach its covenants if they are not amended. If a covenant breach were to occur then the

lenders would be able to request early repayment of all outstanding borrowings. If the Group is not

able to agree the required covenant amendments, and in the absence of other financing alternatives,

the Group would be unable to repay its borrowings and its commitments under its guarantees. As a

result, there exists a material uncertainty which may cast doubt over the ability of the Group to

continue as a going concern such that the Group may be unable to realise its assets and discharge its

liabilities in the normal course of business. Accordingly, assets may be realised at significantly less

than book value and additional liabilities may arise.

Based on the projected trading for the Group, the Directors have no reason to believe that the required

amendments to covenants and facilities will not be agreed.

The Group has continued to meet all interest and other payment obligations and after reviewing its

cash flow forecasts for a period of not less than 12 months, from the date of the signing of this interim

financial information, 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 interim financial information.

Principal risks and uncertainties

Those key risks and uncertainties that could lead to a material adverse financial impact or that could

prevent the company from executing its strategy and creating shareholder value are set out below.

These key risks and uncertainties have not materially changed since the publication of our 2011

Annual Report and the Prospectus dated 20 May 2011 related to the acquisition of MIS. A Risk

Assessment describing the principal risks that may affect the Group’s business is set out on pages 26

and 27 of the 2011 Annual Report and on pages 8 to 22 of the MIS Acquisition Prospectus. Both

documents are available for download at www.lamprell.com.

Business Risks

The Company is subject to counterparty credit risk.

Lamprell’s revenue, cash flow and earnings may vary in any period depending on a number of factors, including performance

on major contracts and revenue recognised on lump sum contracts using the “percentage of completion” method of

accounting. This involves recognising a proportion of revenue and earnings as the contract progresses to completion.

Revenue and profit/ loss are based on estimates of the percentage of completion and an estimate of costs to completion which

may not reflect actual revenue, earnings or losses for the contract.

Lamprell may be affected by the actions and performance of third parties, including sub-contractors and manufacturers.

On certain projects, Lamprell operate on the basis of lump sum contracts and are therefore subject to financial risk if they fail

to operate within budget. Lamprell may also be subject to liquidated damages payments if it fails to complete contracts on

time or to specification or ultimately contract cancellation.

The Group’s viability and continued growth is dependent on the availability of financing both for its own future projects and

for its customers.

Demand for the Company’s services may be adversely impacted by a fall in the levels of expenditure by oil and gas

companies and companies involved in renewable energy.

The Company is dependent on a relatively small number of contracts at any given time, some of which are for the same

customers.

The Company operates on a project-by-project basis for EPC contracts and it does not have long-term commitments with the

majority of its customers, which may cause its visible order book to fluctuate significantly.

The Company’s visible order book for upgrade and refurbishment work and service business is usually relatively short and

can fluctuate significantly.

The Company may be adversely affected by inflation and rising labour costs.

The Company operates in a highly competitive industry and its ability to compete successfully depends on its ability to

provide and service high quality products and systems.

The Company is subject to a variety of local and federal regulations in the UAE, and operates in markets where legal systems

are still developing and which do not offer the certainty or predictability of legal systems in mature markets; and

http://www.lamprell.com/

Certain countries in which the Company’s customers operate have experienced armed conflict, terrorism or civil disorder.

Human Resources Risks

The Company faces significant challenges in attracting and retaining sufficient numbers of skilled personnel.

The Company depends on the performance of its Directors, Senior Managers and other essential employees and if it loses any

of these key personnel, its business may be impaired.

The Company’s ability to perform its contractual obligations may be adversely affected by work stoppages and other labour

problems.

Liability Risks

The Company could be subject to substantial liability claims due to the hazardous nature of its business, and liability to

customers under warranties may materially and adversely affect the Company’s earnings.

The Company’s business is subject to risks resulting from product defects, faulty workmanship or errors in design as well as

warranty claims and other liabilities.

The Company conducts its business within an increasingly strict environmental and health and safety regime and may be

exposed to potential liabilities and increased compliance costs.

Lamprell may be subject to litigation in the future in respect of employee related claims, contractual disputes, personal injury

and/or fatality claims.

Taxation Risks

Changes in the fiscal regime of the UAE and other countries in which it operates could adversely impact the financial

condition of the Group.

Risks relating to the ordinary shares in the Company

The Company’s reporting currency is different to the currency in which dividends would ordinarily be paid.

Lamprell Holdings Ltd, the principal shareholder, whose interests may conflict with the interests of other shareholders and

investors, holds a significant shareholding in the Company

The Group may, in the longer term, seek to raise further funds through the issue of additional shares or other securities. Any

funds raised in this way may have a dilutive effect on existing shareholdings, particularly in circumstances in which a non

pre-emptive issue is made, or where shareholders do not take up their rights to subscribe for shares as part of pre-emptive

issue; and Pre-emptive rights may not be available to US holders.

Risks relating to geographical territories

Economic sanction restrictions imposed by the Isle of Man, EU, UAE and, on certain occasions, the USA affect the ability of

Lamprell to conduct business activities in certain territories. Restrictions can change on a regular basis, meaning that long

term clarity on acceptable business territories is difficult to determine.

Hazards

Hazards constitute perils such as fire and flood. Hazards are managed through prevention, mitigation, continuity planning and

risk transfer through the purchase of insurance.

Financial Risks

An analysis of the financial risks is set out in pages 71-74 of the 2011 Annual Report and Note 3 of this interim financial

report.

Independent review report to Lamprell plc

Introduction

We have been engaged by Lamprell plc to review the condensed consolidated interim financial

information in the interim financial report for the half year ended 30 June 2012, which comprises the

consolidated income statement, the consolidated statement of comprehensive income, the

consolidated balance sheet, the consolidated statement of changes in equity, the consolidated

statement of cash flows and related notes. We have read the other information contained in the interim

financial report and considered whether it contains any apparent misstatements or material

inconsistencies with the information in the condensed consolidated interim financial information.

Directors’ responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The

directors are responsible for preparing the interim financial report in accordance with the Disclosure

and Transparency Rules of the United Kingdom’s Financial Services Authority.

As disclosed in note 2.1, the annual financial statements of the Group are prepared in accordance with

IFRSs as adopted by the European Union. The condensed consolidated interim financial information

included in this interim financial report has been prepared in accordance with International

Accounting Standard 34, “Interim Financial Reporting”, as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated interim

financial information in the interim financial report based on our review. This report, including the

conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and

Transparency Rules of the United Kingdom’s Financial Services Authority and for no other purpose.

We do not, in producing this report, accept or assume responsibility for any other purpose or to any

other person to whom this report is shown or into whose hands it may come save where expressly

agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410,

‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued

by the International Auditing and Assurance Standards Board. A review of interim financial

information consists of making enquiries, primarily of persons responsible for financial and

accounting matters, and applying analytical and other review procedures. A review is substantially

less in scope than an audit conducted in accordance with International Standards on Auditing and

consequently does not enable us to obtain assurance that we would become aware of all significant

matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed

consolidated interim financial information in the interim financial report for the half year ended 30

June 2012 is not prepared, in all material respects, in accordance with International Accounting

Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the

United Kingdom’s Financial Services Authority.

Emphasis of matter

Without qualifying our conclusion, we draw attention to Note 2.1 of the condensed consolidated

interim financial information which states that the ability of the Group to continue as a going concern

is reliant upon the continued availability of external debt financing and access to bank guarantees for

its major projects. The deterioration in the Group’s performance in relation to certain key projects

during the first half of 2012 caused the Group to seek waivers for certain of its banking covenants for

the period to 30 June 2012. These covenant waivers were agreed with the lenders in June and August

2012. The Group’s covenants will be tested again at 31 December 2012, ahead of which the Group

will seek to restructure its covenants and debt facilities on a long term basis. Based on the existing

covenants and the most recent forecasts for the twelve months ending 31 December 2012, it is

anticipated that the Group would breach its covenants if they are not amended. If a covenant breach

were to occur then the lenders would be able to request early repayment of all outstanding

borrowings. If the Group is not able to agree the required covenant amendments, and in the absence of

other financing alternatives, the Group would be unable to repay its borrowings and its commitments

under its guarantees. As a result, there exists a material uncertainty which may cast doubt over the

ability of the Group to continue as a going concern such that the Group may be unable to realise its

assets and discharge its liabilities in the normal course of business. Accordingly, assets may be

realised at significantly less than book value and additional liabilities may arise. Based on the

projected trading for the Group, the Directors have no reason to believe that the required amendments

to covenants and facilities will not be agreed.






PricewaterhouseCoopers LLC

Chartered Accountants

Douglas, Isle of Man

27 August 2012

a) The maintenance and integrity of Lamprell Plc's website is the responsibility of the directors; the

work carried out by the auditor does not involve consideration of these matters and, accordingly, the

auditor accepts no responsibility for any changes that may have occurred to the financial statements

since they were initially presented on the website.

b) Legislation in the Isle of Man governing the preparation and dissemination of financial statements

may differ from legislation in other jurisdictions.

PricewaterhouseCoopers LLC, Sixty Circular Road, Douglas, Isle of Man, IM1 1SA

Telephone +44 (0) 1624 689689 Facsimile +44 (0) 1624 689690 www.pwc.com/im

PricewaterhouseCoopers LLC is a member of PricewaterhouseCoopers International Limited, a company limited by guarantee

registered in England and Wales. The principal place of business of PricewaterhouseCoopers LLC is at the above address.

Incorporation number 00934L. Members: D B Churcher, I G Clague, K M Cowley, P C Craig, N M Halsall and M Simpson.

Lamprell plc Consolidated income statement Six months ended 30 June

Note 2012 2011

USD’000 USD’000

(Unaudited) (Unaudited)

Revenue 5 528,144 383,618

Cost of sales (543,283) (339,079)

-------------- --------------

Gross (loss)/profit (15,139) 44,539

Selling and distribution expenses (1,057) (1,156)

General and administrative expenses (23,228) (23,685)

Other gains/(losses) – net 6 5,653 1,945

-------------- --------------

Operating (loss)/profit (33,771) 21,643

Analysed as:

Operating (loss)/profit before exceptional items (33,771) 30,050

- Exceptional items 22 - (8,407)

-------------- --------------

Operating (loss)/profit after exceptional items (33,771) 21,643

Finance costs (13,433) (4,056)

Finance income 441 1,007

-------------- --------------

Finance costs – net (12,992) (3,049)

Share of profit of joint venture 17 -

-------------- --------------

(Loss)/profit before income tax (46,746) 18,594

Income tax expense (342) -

-------------- --------------

(Loss)/profit for the period attributable to the

equity holders of the Company (47,088) 18,594

======= =======

(Loss)/earnings per share attributable to the

equity holders of the Company

Basic 7 (18.10)c 8.58c

======= =======

Diluted 7 (18.10)c 8.55c

======= =======

Lamprell plc Consolidated statement of comprehensive income


2012 2011

USD’000 USD’000

(Unaudited) (Unaudited)

(Loss)/profit for the period (47,088) 18,594

Other comprehensive income

Currency translation differences 79 (288)

Cash flow hedges:

Net gain recognised in other comprehensive income 1,086 18,351

Net amount transferred to the income statement 94 (2,915)

-------------- --------------

Other comprehensive income for the period 1,259 15,148

-------------- --------------

Total comprehensive (loss)/income for the period

attributable to the equity holders of the Company (45,829) 33,742

======= =======

Lamprell plc

Consolidated balance sheet At 30 June At 31 December

Note 2012 2011

USD’000 USD’000 (Unaudited) (Audited)

ASSETS

Non-current assets

Property, plant and equipment 9 173,871 175,356

Intangible assets 10 228,453 230,861

Investment in joint ventures 3,887 3,870

Due from a related party 14 - 7,025

---------------------- ---------------------- 406,211 417,112

---------------------- ---------------------- Current assets

Inventories 15,482 12,056

Trade and other receivables 11 637,631 668,753

Derivative financial instruments - 699

Held-to-maturity investment 6,879 6,879

Financial asset at fair value through profit or loss 12 264 8,172

Cash and bank balances 13 133,955 149,377

---------------------- ---------------------- 794,211 845,936

---------------------- ---------------------- Total assets 1,200,422 1,263,048

========== ========== EQUITY AND LIABILITIES

Capital and reserves

Share capital 15 23,552 23,552

Share premium 15 211,776 211,776

Legal reserve 35 35

Merger reserve (22,422) (22,422)

Translation reserve 2 (77)

Hedging reserve - (1,180)

Retained earnings 254,827 322,214

---------------------- ---------------------- Total equity 467,770 533,898

---------------------- ---------------------- Non-current liabilities

Borrowings 18 - 36

Provision for employees’ end of service benefits 16 36,363 39,597

---------------------- ---------------------- 36,363 39,633

---------------------- ---------------------- Current liabilities

Borrowings 18 169,691 251,089

Derivative financial instruments - 1,449

Trade and other payables 17 526,188 436,911

Current tax liability 410 68

---------------------- ---------------------- 696,289 689,517

---------------------- ---------------------- Total liabilities 732,652 729,150

---------------------- ---------------------- Total equity and liabilities 1,200,422 1,263,048

========== ==========

Lamprell plc

Consolidated statement of changes in equity

Note

Share capital

Share premium

Legal reserve

Merger reserve

Translation reserve

Hedging reserve

Retained earnings

Total

USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

At 1 January 2011 18,682 - 33 (22,422) 777 (134) 287,032 283,968

-------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------

Profit for the period - - - - - - 18,594 18,594

Other comprehensive income:

Currency translation differences - - - - (288) - - (288)

Cash flow hedges - - - - - 15,436 - 15,436

-------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------

Total other comprehensive income/(loss) - - - - (288) 15,436 - 15,148

-------------- -------------- -------------- -------------- -------------- -------------- ---------------- -------------- Total comprehensive income/(loss) for the period ended 30 June 2011 - - - - (288) 15,436 18,594 33,742

-------------- -------------- -------------- -------------- -------------- -------------- ---------------- -------------- Transactions with owners: Share based payments:

– value of services provided - - - - - - 771 771

Treasury shares purchased 15 - - - - - - (455) (455) Proceeds received from exercise of share options 15 - - - - - - 187 187

Proceeds from shares issued (net) 15 4,870 211,962 - - - - - 216,832

Dividends - - - - - - (18,928) (18,928)

-------------- -------------- -------------- -------------- -------------- -------------- ---------------- -------------- Total transactions with owners 4,870 211,962 - - - - (18,425) 198,407

-------------- -------------- -------------- -------------- -------------- -------------- ---------------- -----------------

At 30 June 2011 (Unaudited) 23,552 211,962 33 (22,422) 489 15,302 287,201 516,117

-------------- -------------- -------------- -------------- -------------- -------------- ---------------- ------------------

Lamprell plc

Consolidated statement of changes in equity (continued)

Note

Share

capital

Share

premium

Legal

reserve

Merger

reserve

Translation

reserve

Hedging

reserve

Retained

earnings

Total


At 1 July 2011 23,552 211,962 33 (22,422) 489 15,302 287,201 516,117

-------------- -------------- -------------- -------------- -------------- -------------- ---------------- --------------

Profit for the period - - - - - - 44,696 44,696


Currency translation differences - - - - (566) - - (566)

Cash flow hedges - - - - - (16,482) - (16,482)

-------------- -------------- -------------- -------------- -------------- -------------- ---------------- --------------

Total other comprehensive loss - - - - (566) (16,482) - (17,048)

-------------- -------------- -------------- -------------- -------------- -------------- ---------------- --------------

Total comprehensive income/(loss) for the

period ended 31 December 2011 - - - - (566) (16,482) 44,696 27,648

-------------- -------------- -------------- -------------- -------------- -------------- ---------------- --------------

Transactions with owners:

Share based payments:


Transfer to legal reserve - - 2 - - - (2) -

Expenditure with respect to shares issued 15 - (186) - - - - - (186)

Dividends - - - - - - (10,349) (10,349)

-------------- -------------- -------------- -------------- -------------- -------------- -------------- ----------------

Total transactions with owners - (186) 2 - - - (9,683) (9,867)

-------------- ---------------- -------------- -------------- -------------- -------------- ----------------- ---------------- At 31 December 2011 (Audited) 23,552 211,776 35 (22,422) (77) (1,180) 322,214 533,898 -------------- ---------------- -------------- -------------- -------------- -------------- ----------------- ----------------

Lamprell plc

Consolidated statement of changes in equity (continued)

Note Share

capital

Share

premium

Legal

reserve

Merger

reserve

Translation

reserve

Hedging

reserve

Retained

earnings

Total


At 1 January 2012 23,552 211,776 35 (22,422) (77) (1,180) 322,214 533,898 -------------- -------------- ------------- -------------- ------------ -------------- -------------- --------------

Loss for the period - - - - - - (47,088) (47,088)


Currency translation differences - - - - 79 - - 79

Cash flow hedges - - - - - 1,180 - 1,180

-------------- -------------- ------------- -------------- ------------ -------------- -------------- --------------

Total other comprehensive income - - - - 79 1,180 - 1,259 -------------- -------------- ------------- -------------- ------------ -------------- -------------- --------------

Total comprehensive income/(loss) for the

period ended 30 June 2012 - - - - 79 1,180 (47,088) (45,829)

-------------- -------------- ------------- -------------- ------------ -------------- -------------- --------------

Transactions with owners:

Share based payments:


Treasury shares purchased 15 - - - - - - (946) (946) Proceeds received from exercise of share options 15 - - - - - - 556 556

Dividends 19 - - - - - - (20,829) (20,829)

-------------- ----------------- ------------- -------------- ------------ -------------- --------------- -----------------

Total transactions with owners - - - - - - (20,299) (20,299)

-------------- ----------------- ------------- -------------- ------------ -------------- ---------------- -----------------

At 30 June 2012 (Unaudited) 23,552 211,776 35 (22,422) 2 - 254,827 467,770

======= ======== ====== ======= ====== ======= ======== ========

Lamprell plc

Consolidated statement of cash flows Notes Six months ended 30 June 2012 2011 USD’000 USD’000 (Unaudited) (Unaudited) Operating activities Net cash generated from/(used in) operating activities 23 92,881 (21,700) Investing activities Additions to property, plant and equipment 9 (11,876) (27,960) Additions to intangible assets 10 (1,771) (28) Proceeds from sale of property, plant and equipment 32 27 Finance income 441 1,007 Proceeds from financial asset at fair value through profit and

loss 12 7,908 2,589 Proceeds from disposal of a subsidiary 6,9 1,627 - Deposits with an original maturity of more than three months 13 2,048 6,959 Movement in margin deposits 13 2,040 (1,317) ---------------- ------------- Net cash provided by/(used in) investing activities 449 (18,723) ---------------- ------------- Financing activities Proceeds from shares issued (net of expenses) 15 - 216,832 Treasury shares purchased 15 (946) (455) Proceeds received from exercise of share options 15 556 187 Dividends paid 19 (20,826) (18,979) Received from a related party 14 11,290 - Repayment of borrowings, excluding bank overdrafts 18 (173,506) - Proceeds from borrowings, excluding bank overdrafts 18 60,921 - Finance costs (13,433) (4,056) ----------------- ----------------- Net cash (used in)/generated from financing activities (135,944) 193,529 ----------------- ----------------- Net (decrease)/increase in cash and cash equivalents (42,614) 153,106 Cash and cash equivalents, beginning of the period 13 43,505 136,804 Exchange rate translation 129 (288) ----------------- ----------------- Cash and cash equivalents, end of the period 13 1,020 289,622 ======== ========

Lamprell plc

Notes to the interim financial information

1 Legal status and activities

Lamprell plc (“the Company”) is incorporated and registered in the Isle of Man as a public company

limited by shares under the Isle of Man Companies Acts with the registered number 117101C and is

listed on the London Stock Exchange (“LSE”) main market for listed securities. The address of the

registered office of the Company is Fort Anne, Douglas, Isle of Man, IM1 5PD and the Company is

managed from the United Arab Emirates (“UAE”). The address of the principal place of the business

is PO Box 33455, Dubai, UAE.

The principal activities of the Company and its subsidiaries (together referred to as “the Group”) are:

the upgrade and refurbishment of offshore jackup rigs; fabrication; assembly and new build

construction for the offshore oil and gas and renewable sector, including jackup rigs and liftboats;

Floating Production, Storage and Offloading (“FPSO”) and other offshore and onshore structures; and

oilfield engineering services, including the upgrade and refurbishment of land rigs.

2 Summary of significant accounting policies

2.1 Basis of preparation

This condensed consolidated interim financial information for the six months ended 30 June 2012 has

been prepared in accordance with the Disclosure and Transparency Rules (“DTR”) of the United

Kingdom’s Financial Services Authority (“FSA”) and with International Accounting Standard

(“IAS”) 34, “Interim Financial Reporting” as adopted by the European Union (“EU”). The condensed

consolidated interim financial information should be read in conjunction with the annual financial

statements for the year ended 31 December 2011, which have been prepared in accordance with

IFRSs as adopted by the EU.

The condensed consolidated interim financial information has been prepared on a going concern

basis. The ability of the Group to continue as a going concern is reliant upon the continued

availability of external debt financing and access to bank guarantees for its major projects. The

deterioration in the Group’s performance in relation to certain key projects during the first half of

2012 caused the Group to seek waivers for certain of its banking covenants for the period to 30 June

2012. These covenant waivers were agreed with the lenders by August 2012. The Group’s covenants

will be tested again at 31 December 2012, ahead of which the Group will seek to restructure its

covenants and debt facilities on a long term basis. Based on the existing covenants and the most

recent forecasts for the twelve months ending 31 December 2012, it is anticipated that the Group

would breach its covenants if they are not amended. If a covenant breach were to occur then the

lenders would be able to request early repayment of all outstanding borrowings. If the Group is not

able to agree the required covenant amendments, and in the absence of other financing alternatives,

the Group would be unable to repay its borrowings and its commitments under its guarantees. As a

result, there exists a material uncertainty which may cast doubt over the ability of the Group to

continue as a going concern such that the Group may be unable to realise its assets and discharge its

liabilities in the normal course of business. Accordingly, assets may be realised at significantly less

than book value and additional liabilities may arise.

Based on the projected trading for the Group, the Directors have no reason to believe that the required

amendments to covenants and facilities will not be agreed.






The interim financial information has been prepared under the historical cost convention, except as

disclosed in the accounting policies below.

2.2 Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the

year ended 31 December 2011, as described in those financial statements. The annual financial

statements for the year ended 31 December 2011 are available on the Company’s website

(www.lamprell.com).

The preparation of condensed consolidated interim financial information 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, are disclosed in Note 4.

The following new standards, amendments to standards and interpretations are mandatory for the first

time for the financial year beginning 1 January 2012, but are not currently relevant for the Group.

IFRS 1 (Amendments), ‘First time adoption of International Financial Reporting Standards: on

hyperinflation and fixed dates’ (effective 1 July 2011);

IFRS 7 (Amendments), ‘Financial instruments: Transfers of financial assets’ (effective 1 July

2011);

IAS 12 (Amendments), ‘Income taxes: Deferred tax’ (effective 1 January 2012);

The following new standards, amendments to standards and interpretations have been issued, but are

not effective for the financial year beginning 1 January 2012 and have not been early adopted:

IFRS 9, ‘Financial instruments’, (effective 1 January 2013);

IFRS 10 - ‘Consolidated financial statements’. The standard is applicable beginning on or after

1 January 2013. Early application is permitted.

IFRS 11 - ‘Joint arrangements’. The standard is applicable beginning on or after 1 January

2013. Early application is permitted.

IFRS 12 - ‘Disclosure of interests in other entities’. The standard is applicable beginning on or

after 1 January 2013. Early application is permitted.

IFRS 13 – ‘Fair value measurement’. This standard is applicable beginning on or after 1

January 2013. Early application is permitted.

3 Financial risk management

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign

exchange and cash flow interest rate risk), credit risk and liquidity risk. These risks are evaluated by

management on an ongoing basis to assess and manage critical exposures.

The condensed interim financial information does not include all financial risk management

information and disclosures required in the annual financial statements; they should be read in

conjunction with the Group’s annual financial statements as at 31 December 2011. There have been

no changes in any risk management policies since the year end.

(a) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group is currently financed from Shareholders’ equity and borrowings. The borrowings are subject to meeting certain financial covenants. The deterioration in the Group’s performance in relation to certain key projects during the first half of 2012 caused the Group to seek waivers for certain of its banking covenants for the period to 30 June 2012. As a result of the covenant breach, the facilities became technically payable on demand. These covenant waivers were agreed with the lenders by August 2012. The Group’s covenants will be tested again at 31 December 2012, ahead of which the Group will seek to restructure its covenants on a long term basis. The table below analyses the Group’s other financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Carrying

amount Contractual cash flows

Less than 1 year

1 to 2 years

USD’000 USD’000 USD’000 USD’000 30 June 2012 Trade and other payables (excluding due to customers on contracts and dividend payable) (Note 17) 273,132 273,132 273,132 - Borrowings (Note 18) 169,691 169,691 169,691 - ----------------- ----------------- ----------------- ----------------- 442,823 442,823 442,823 - ========= ========= ========= ========= 31 December 2011 Trade and other payables (excluding

due to customers on contracts and dividend payable) (Note 17) 318,198 318,198 318,198 -

Borrowings (Note 18) 251,125 254,635 254,599 36 ----------------- ----------------- ----------------- ----------------- 569,323 572,833 572,797 36

========= ========= ========= =========

3.2 Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a

going concern in order to provide returns for shareholders and to maintain an optimal capital structure

to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends

paid to shareholders, or issue new shares to reduce debt.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt

divided by total capital. Net debt is calculated as total borrowings (including current and non-current

borrowings as shown in the balance sheet) less cash and bank balances. Total capital is calculated as

“equity” as shown in the balance sheet plus net debt. The net debt to total capital at the balance sheet

date was as follows:

At 30 June At 31 December

2012 2011

USD’000 USD’000

Total borrowings (Note 18) 169,691 251,125

Less: cash and bank balances (Note 13) (133,955) (149,377)

---------------- ----------------

Net debt 35,736 101,748

Total equity 467,770 533,898

---------------- ----------------

Total capital 503,506 635,646

======== ========

Gearing ratio 7% 16%

The deterioration in the Group’s performance in relation to certain key projects during the first half of 2012 caused the Group to seek waivers for certain of its banking covenants for the period to 30 June 2012. As a result of the covenant breach, the facilities became technically payable on demand. These covenant waivers were agreed with the lenders by August 2012. The Group’s covenants will be tested again at 31 December 2012, ahead of which the Group will seek to restructure its covenants on a long term basis.

3.3 Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method. The

different levels have been defined as follows:

a. Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

b. Inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2);

and

c. Inputs for the asset or liability that are not based on observable market data (that is,

unobservable inputs) (Level 3).

The following table presents the Group’s assets that are measured at fair value at 30 June 2012:

Level 1 Level 2 Level 3 Total USD’000 USD’000 USD’000 USD’000 Assets Financial assets at fair value through

profit or loss (Note 12) - - 264 264

========= ========= ========= ========= There were no liabilities measured at fair value as on 30 June 2012.

The following table presents the Group’s assets and liabilities that are measured at fair value at 31

December 2011.

Level 1 Level 2 Level 3 Total USD’000 USD’000 USD’000 USD’000 Assets Financial assets at fair value through

profit or loss (Note 12) - - 8,172 8,172 Derivative financial instruments - 699 - 699 ----------------- ----------------- ----------------- ----------------- Total assets - 699 8,172 8,871

========= ========= ========= ========= Liabilities Derivative financial instruments - 1,449 - 1,449

========= ========= ========= =========

The fair value of financial instruments that are not traded in an active market is determined by using

valuation techniques. These valuation techniques maximise the use of observable market data where it

is available and rely as little as possible on entity specific estimates. If all significant inputs required

to fair value an instrument are observable, the instrument is included in level 2. If one or more of the

significant inputs is not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

a. Quoted market prices or dealer quotes for similar instruments; and

b. Other techniques, such as discounted cash flow analysis, are used to determine fair value for the

remaining financial instruments.

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 period are as follows:

4.1 Critical accounting estimates and assumptions

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

Group’s 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 period end would result in

an increase in revenue and a decrease in loss by USD 15 million (H1 2011: Increase in revenue and

profit by USD 13 million) if the total costs to completion are decreased by 10% and the revenue

would decrease and the loss would increase by USD 22 million (H1 2011: Decrease in revenue and

profit by USD 11.8 million) if the total costs to completion are increased by 10%.

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 in

such bonds, the market yields on government bonds should be used. In the UAE there is no deep

market either for corporate or 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

3.75% (2011: 4.25%). If the discount rate used were to differ by 0.5 points from management’s

estimates, the carrying amount of the employees’ end of service benefits provision at the balance

sheet date would be an estimated USD 1.1 million (2011: USD 1.4 million) lower or USD 1.2 million

(2011: USD 1.5 million) higher. If the salary growth rate used were to differ by 0.5 points from

management’s estimates, the carrying amount of the employees’ end of service benefits provision at

the balance sheet date would be an estimated USD 1.2 million (2011: USD 1.5 million) higher or

USD 1.1 million (2011: USD 1.4 million) lower.

5 Segment information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Executive Directors who make strategic decisions. The Executive Directors review the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports. The Executive Directors consider the business mainly on the basis of the facilities from where the services are rendered. Management considers the performance of the business from Sharjah (SHJ), Hamriyah (HAM) and Jebel Ali (JBA) in addition to the performance of Land Rig Services (LRS) and International Inspection Services Limited (Inspec).

SHJ, HAM, JBA and LRS meet all the aggregation criteria required by IFRS 8 and are reported as a single segment (Segment A). Services provided from Inspec do not meet the quantitative thresholds required by IFRS 8, and the results of these operations are included in the “all other segments” column.

Inspec derives its revenue from various services such as non-destructive pipeline testing, ultrasonic testing and heat treatment.

During the 2011, the Company through its wholly owned subsidiary, Lamprell Investments Holding Limited (“LIH”), acquired Maritime Industrial Services Co Ltd Inc (“MIS”). The revenue of MIS is mainly derived from the upgrade and refurbishment of offshore jackup rigs, fabrication, assembly and new build construction for the offshore oil and gas sector, engineering and construction. The Executive Directors consider these services to be similar to the services provided by Lamprell from SHJ, HAM, JBA and LRS and hence been considered under the reporting segment (Segment A). Additionally, MIS also provides safety and training services (Sunbelt) and other operating and maintenance services (O&M). As services provided by Sunbelt and O&M do not meet the quantitative thresholds required by IFRS 8, the results of these operations are included in the “all other segments” column.

Segment A

All other

segments Total

USD’000 USD’000 USD’000

Six months ended 30 June 2012

Total segment revenue 480,915 55,413 536,328

Inter-segment revenue - (8,184) (8,184)

----------------- -------------- -----------------

Revenue from external customers 480,915 47,229 528,144

======== ====== ========

Gross profit 768 14,154 14,922

======== ====== ========

Six months ended 30 June 2011

Total segment revenue 375,745 9,828 385,573

Inter-segment revenue - (1,955) (1,955)

----------------- ------------ -----------------

Revenue from external customers 375,745 7,873 383,618

======== ====== ========

Gross profit 51,958 2,525 54,483

======== ====== ======== Sales between segments are carried out on agreed terms. The revenue from external parties reported to the Executive Directors is measured in a manner consistent with that in the consolidated income statement.

The Executive 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 reconciliation of the gross profit is provided as follows.


2012 2011

USD’000 USD’000

Gross operating profit for the reportable segments as

reported to the Executive Directors 768

51,958

Gross operating profit for other segments as reported to the

Executive Directors 14,154

2,525

Unallocated:

Under-absorbed employee and equipment costs (17,303) (2,725)

Repairs and maintenance (8,990) (5,562)

Yard rent (3,614) (1,523)

Others (154) (134)

----------------- ---------------

Gross (loss)/profit (15,139) 44,539

Selling and distribution expenses (1,057) (1,156)

General and administrative expenses (23,228) (23,685)

Other gains/(losses) – net 5,653 1,945

Finance costs (13,433) (4,056)

Finance income 441 1,007

Others (325) -

--------------- ---------------


======= =======

Information about segment assets and liabilities is not reported to or used by the Executive Directors

and accordingly no measures of segment assets and liabilities are reported.

6 Other gains/(losses) - net


2012 2011

USD’000 USD’000

Gain on settlement of receivable from KSAM2 (Note 14) 4,265 -

Gain on disposal of a subsidiary 853 -

Recovery of doubtful debts 124 -

Profit on disposal of property, plant and equipment 27 237

Exchange (loss)/gain – net (47) 1,518

Others 431 190

---------------- ----------------

5,653 1,945

======== ========

During the period, the Group disposed of a fully owned subsidiary along with its fixed assets (of net

book value USD 0.8 million) for USD 1.6 million. The gain of USD 0.8 million is recorded in ‘other

gains/(losses) – net’.

7 (Loss)/earnings per share

(a) Basic

Basic (loss)/earnings per share is calculated by dividing the profit attributable to equity holders of the

Company by the weighted average number of ordinary shares in issue during the period excluding

ordinary shares purchased by EBT and held as treasury shares (Note 15).

(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 free share awards,

options under executive share option plan and performance share plan, a calculation is done 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. Since the Company has incurred a loss from continuing operations during the six

months ended 30 June 2012, all the Company’s existing potential ordinary shares are not dilutive as

they decrease the loss from continuing operations.


2012 2011

USD’000 USD’000

The calculations of earnings per share are based on the

following profit and numbers of shares:


---------------------- ----------------------

Weighted average number of shares for basic (loss)/earnings

per share

260,089,431

216,658,038

Adjustments for:

- Assumed exercise of free share awards - 203,338

- Assumed vesting of executive share options - 448,149

- Assumed vesting of performance share plan - 243,023

------------------------- -------------------------

Weighted average number of shares for diluted earnings

per share

260,089,431

217,552,548

------------------------- ------------------------

(Loss)/earnings per share:

Basic (18.10)c 8.58c

=========== ===========

Diluted (18.10)c 8.55c

=========== ===========

8 Operating (loss)/profit

Operating (loss)/profit is stated after charging:


2012 2011

USD’000 USD’000

Depreciation (Note 9) 12,532 7,527

======== ======

Operating lease rentals – land and buildings 11,199 6,550

======== ======

9 Property, plant and equipment USD’000

Net book amount at 1 January 2011 113,304

Additions 27,960

Net book amount of disposals (41)

Depreciation (7,527)

------------------

Net book amount at 30 June 2011 133,696

Additions 27,523

Acquired through a business combination 26,010

Net book amount of disposals (117)


------------------

Net book amount at 31 December 2011 175,356

Additions 11,876

Exchange differences (50)

Net book amount of assets disposed as a part of disposal of a

subsidiary (Note 6)

(774)

Net book amount of other disposals (5)


------------------

Net book amount at 30 June 2012 173,871

=========

The additions of USD 11.9 million during the current period comprise USD 7.8 million of additions to

capital work-in-progress, USD 3.2 million of additions to operating equipment, and USD 0.9 million

of additions to other fixed assets.

10 Intangible assets

Goodwill Others Total

USD’000 USD’000 USD’000

Net book amount at 1 January 2011 - 2,413 2,413

Additions - 28 28

Amortisation - (44) (44)

------------------ ------------------ ------------------

Net book amount at 30 June 2011 - 2,397 2,397

Additions - 1,772 1,772

Acquired through a business combination 180,539 49,996 230,535

Amortisation - (3,843) (3,843)

------------------ ------------------ ------------------

Net book amount at 31 December 2011 180,539 50,322 230,861

Additions - 1,771 1,771

Amortisation - (4,179) (4,179)

------------------ ------------------ ------------------

Net book amount at 30 June 2012 180,539 47,914 228,453

========= ======== =========

11 Trade and other receivables


2012 2011

USD’000 USD’000

Trade receivables 242,383 121,722

Other receivables and prepayments 23,330 18,577

Advances to suppliers 7,228 6,641

Receivables from related parties (Note 14) 336 484

------------------ ------------------

273,277 147,424

Less: Provision for impairment of trade receivables (3,839) (3,109)

------------------ ------------------

269,438 144,315

Amounts due from customers on contracts 192,374 386,171

Contract work in progress 175,819 138,267

------------------ ------------------

637,631 668,753

========= =========

Amounts due from customers on contracts comprise:

Costs incurred to date 1,386,937 1,088,265

Attributable profits 149,541 115,552

--------------------- ---------------------

1,536,478 1,203,817

Less: Progress billings (1,344,104) (817,646)

--------------------- ---------------------

192,374 386,171

========== ==========

12 Financial asset at fair value through profit or loss


2012 2011

USD’000 USD’000

Unlisted equity security 264 8,172

====== ====== The amount at 31 December 2011 represents the fair value of the Group’s investment (held through

MIS) in 8.7% of the equity in Middle East Jack-up Ltd (“MEJU”), which owned a jack-up rig built by

MIS. This rig was sold by MEJU in January 2012 following the successful delivery of the rig by the

Group in the last quarter of 2011. Following the sale of rig, management of MEJU took a decision to

liquidate MEJU in 2012. During 2012, an amount of USD 7.9 million was received from MEJU as

part of liquidation proceeds.

13 Cash and bank balances


2012 2011

USD’000 USD’000

Cash at bank and on hand 32,462 43,897

Short term and margin deposits 101,493 105,480

------------------- ------------------

Cash and bank balances 133,955 149,377

Less: Margin deposits (16,087) (18,127)

Less: Deposits with an original maturity of more than 3

months

(85,305)

(87,353)

Less: Bank overdraft (31,543) (392)

------------------ ------------------

Cash and cash equivalents (for purpose of the consolidated

statement of cash flows)

1,020

43,505

========= ====--===

At 30 June 2012, the cash at bank and short term deposits were held with fourteen banks (31

December 2011: twelve banks). The effective average interest rate earned on short term deposits was

0.99% (31 December 2011: 1.04%) per annum. Margin deposits of USD 16.1 million (2011: USD

18.1 million) and deposits with an original maturity of more than 3 months amounting to USD 85.3

million (2011: 76.8 million) are held under lien against guarantees issued (Note 21).

14 Related party balances and transactions Related parties comprise Lamprell Holdings Limited (“LHL”) (which owns 33% of the issued share capital of the Company), certain legal shareholders of Group companies, Directors and key management personnel of the Group and entities controlled by Directors and key management personnel. Key management includes directors (executive and non-executive) and members of the executive committee. Other than 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:


2012 2011

USD’000 USD’000

Key management compensation 3,147 4,389

====== ======

Legal and professional services 355 75

====== ======

Sales to joint ventures 217 -

====== ======

Purchases from joint ventures 202 -

====== ======

Sponsorship fees and commissions paid to legal shareholders of

subsidiaries 154 72

====== ======

Key management compensation comprises:

Salaries and other short term benefits 2,543 3,829

Share based payments - value of services provided 493 374

Post-employment benefits 111 186

------------ -------------

3,147 4,389

====== ======

The terms of the employment contracts of the key management include reciprocal notice period of

between six to twelve months.

Due from related parties At 30 June At 31 December 2012 2011 USD’000 USD’000 Current (Note 11) MIS Arabia Co. Ltd 219 484 KSAM2 117 -

---------- ---------- 336 484

===== =====

Non-current KSAM2 - 7,025

===== ===== During 2012, the Group received USD 11.3 million from KSAM2, out of which an amount of USD 4.3 million received in excess of amortised cost is recognised in the consolidated income statement as a part of ‘other gains/(losses) – net’ (Note 6). Dividends paid by the Company include an amount of USD 7.0 million (2011: USD 10.0 million) in respect of shares held by key management personnel (including those held by the EBT in respect of shares gifted) of which USD 6.9 million (2011: USD 9.7 million) was paid to LHL, a company controlled by Steven Lamprell who is a member of key management.

15 Share capital and share premium Issued and fully paid ordinary shares

Equity share capital

Number USD’000

At 1 January 2011 200,279,309 18,682

Issued during the year 60,083,792 4,870

--------------------------- ---------------

At 31 December 2011 and 30 June 2012 260,363,101 23,552

============ =======

The total authorised number of ordinary shares is 400 million shares (2011: 400 million shares) with a

par value of 5 pence per share (2011: 5 pence per share).

During 2012, Lamprell plc employee benefit trust (‘EBT’) acquired 170,000 shares (2011: 171,565

shares) of the Company. The total amount paid to acquire the shares was USD 0.95 million (2011:

USD 0.46 million) and has been deducted from the consolidated retained earnings. During 2012,

605,048 shares (2011: 998,969 shares) amounting to USD 2.1 million (2011: USD 2.5 million) were

issued to employees on vesting of the free shares and 14,686 shares (2011: 449,734 shares) are held as

treasury shares at 30 June 2012. The Company has the right to reissue these shares at a later date.

During 2012, the Company received USD 0.6 million (2011: USD 0.2 million) in respect of the

exercise price on vesting of share options. These shares will be issued on the vesting of the awards

granted under free shares/share options/performance share plan to certain employees of the Group.

During 2011, the Company issued new ordinary shares of 60,083,792 under a fully underwritten

rights issue. The new ordinary shares were issued at a price of 232 pence per share which amounted

to net proceeds of USD 216.6 million. The differential between the issue price of 232 pence per share

and the par value of 5 pence per share amounting to USD 211.8 million was accounted for as share

premium which is net of transaction costs amounting to USD 9.3 million.

16 Provision for employees’ end of service benefits

USD’000 At 1 January 2011 18,524

Current service cost 1,362

Interest cost 519 Payments during the period (1,168) --------------- At 30 June 2011 19,237

Acquired through a business combination 16,400


Interest cost 520

Actuarial losses 3,171 Payments during the period (2,667) --------------- At 31 December 2011 39,597


Interest cost 916

Actuarial gains (4,015) Payments during the period (2,984) --------------- At 30 June 2012 36,363 ======= In accordance with the provisions of IAS 19, management has carried out an exercise to assess the present value of its obligations at the period end, using the projected unit credit method, in respect of employees’ end of service benefits payable under the UAE Labour Law. 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. Management has assumed average increment/promotion costs of 2% to 2.5% (2011: 3.5% to 5%). The expected liability at the date of leaving the service has been discounted to its net present value using a discount rate of 3.75% (2011: 4.25%). During the six months ended 30 June 2012 an actuarial gain of USD 4.0 million (H1 2011: Nil; H2 2011: loss of USD 3.2 million) was recognised in the consolidated income statement.

17 Trade and other payables At 30 June At 31 December 2012 2011 USD’000 USD’000 Trade payables 64,019 79,974 Other payables and accruals 209,113 238,151

Amounts due to customers on contracts 253,041 118,701 Dividend payable (Note 19) 15 12 Payable to related parties - 73 ------------------ ----------------- 526,188 436,911 ======== ======== Amounts due to customers on contracts comprise: Progress billings 666,349 427,359 Less: Costs incurred to date (420,405) (271,926) Less: Recognised losses/(profits) 7,097 (36,732) ----------------- ----------------- 253,041 118,701 ======== ========

18 Borrowings At 30 June At 31 December 2012 2011 USD’000 USD’000 Bank overdrafts 31,543 392

Bank term loans 138,148 247,396

Trust receipts - 3,337

----------------- ----------------- 169,691 251,125

======== ======== The bank borrowings are repayable as follows:

On demand or within one year (current) 169,691 251,089

In the second year (non-current) - 36

---------------- ----------------- 169,691 251,125

======== ======== As of 30 June 2012, the Group has funded and non-funded banking facilities totalling to USD 1,168 million (2011: USD 1,372 million) with commercial banks. The banks’ facilities include bank overdrafts, letters of guarantees, letters of credit and short-term loans.

Bank facilities are secured by lien over term deposits in the amount of USD 101.3 million (2011: USD 94.9 million), the Group’s counter indemnities for guarantees issued on their behalf, the Group’s corporate guarantee, letter of undertaking, letter of credit payment guarantee, cash margin held against letters of guarantee, assignment of insurance policies over property, plant and equipment and over inventories, leasehold rights for land and certain contract receivables.

The facilities are subject to meeting certain financial covenants. The deterioration in the Group’s

performance in relation to certain key projects during the first half of 2012 caused the Group to seek

waivers for certain of its banking covenants for the period to 30 June 2012. These covenant waivers

were agreed with lenders by August 2012. The Group’s covenants will be tested again at 31

December 2012, ahead of which the Group will seek to restructure its covenants on a long term basis.

As a result of the covenant breaches the Group borrowings are classified as current liabilities. The bank facilities relating to overdrafts and revolving facilities carry interest at 1 – 6 months LIBOR/EIBOR + 3.0% to 4.0% (2011: LIBOR/EIBOR + 2.5% to 4.0%). The carrying amounts of borrowings in the year approximated to their fair value and were denominated in US Dollars or UAE Dirhams, which is pegged to the US Dollar.

19 Dividends

During the period on 23 March 2012, the Board of Directors of the Company approved a final

dividend of USD 20.8 million (US cents 8 per share) relating to the year ended 31 December 2011

which was paid on 22 June 2012. At 30 June 2012, unpaid dividends in relation to the shares held by

EBT amounted to USD 15,000.

20 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 6 to 23 years and are renewable at

mutually agreed terms. The future minimum lease payments payable under operating leases are as

follows:


2012 2011

USD’000 USD’000

Not later than one year 7,169 10,239

Later than one year but not later than five years 13,346 13,986

Later than five years 45,219 46,580

--------------- ---------------

65,734 70,805

======= =======

(b) Other commitments

Letters of credit for purchase of materials and

operating equipment - 11,902

====== =======

Capital commitments for purchase of operating

equipment 3,285 18,730

====== =======

Capital commitments for construction of facilities 7,224 4,165

====== =======

21 Bank guarantees


2012 2011

USD’000 USD’000

Performance/bid bonds 166,149 206,964 Advance payment, labour visa and payment guarantees 569,277 542,071

------------------ ------------------

735,426 749,035

========= =====-===

The various bank guarantees, as above, were issued by the Group’s bankers in the ordinary course of

business. Certain guarantees are secured by 100% 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 on the basis that it continues as a going

concern.

22 Exceptional items Items that are material either because of their size or their nature or that are non-recurring are presented within their relevant consolidated income statement category, but highlighted separately in the consolidated income statement. The separate reporting of exceptional items helps provide a better picture of the Group’s underlying performance.

An analysis of the amounts presented as exceptional items in these financial statements is given below.


2012 2011

USD’000 USD’000

MIS acquisition-related costs

Financial advisory fees - 5,024

Legal fees - 1,362

Professional fees - 1,220

Other expenses - 801 ---------------- ----------------- - 8,407 ======== ========

23 Cash flow from operating activities Note Six months ended 30 June 2012 2011 USD’000 USD’000

Operating activities (Loss)/profit for the period before income tax (46,746) 18,594 Adjustments for:

Share based payments - value of services provided 920 771 Depreciation 9 12,532 7,527 Amortisation of intangible assets 10 4,179 44

(Profit)/loss on disposal of property, plant and equipment (27) 14 Provision for slow moving and obsolete inventories (309) 639 Provision for impairment of trade receivables 11 730 48 Provision for employees’ end of service benefits 16 (250) 1,881 Unrealised gain on derivative financial instruments - (1,519) Loss on derivative financial instruments 430 - Gain on settlement of receivable from KSAM2 6 (4,265) - Gain on disposal of a subsidiary 6 (853) - Fair value gain on financial assets at fair value through profit or loss - (89) Share of profit from joint ventures (17) - Finance costs 13,433 4,056 Finance income (441) (1,007) --------------- --------------- Operating cash flows before payment of employees’ end of service benefits and changes in working capital (20,684) 30,959

Payment of employees’ end of service benefits 16 (2,984) (1,168) Changes in working capital: Inventories before movement in provision (3,117) 917 Trade and other receivables before movement in

provision for impairment of trade receivables 11 30,392 (60,217) Trade and other payables excluding unpaid dividend 17 89,274 7,809 ---------------- ---------------- Net cash generated from/ (used in) operating activities 92,881 (21,700)

---------------- ----------------

Statement of Directors’ responsibilities

The directors confirm that, to the best of their knowledge, this consolidated interim financial

information has been prepared in accordance with IAS 34 as adopted by the EU. The interim

management report includes a fair review of the information required by Disclosure and Transparency

Rules 4.2.7R and 4.2.8R, namely:

an indication of important events that have occurred during the first six months of the financial

year and their impact on the consolidated interim financial information, and a description of the

principal risks and uncertainties for the remaining six months of the financial year; and

material related party transactions in the first six months of the financial year and any material

changes in the related party transactions described in the last annual report.

The directors of Lamprell plc are set out in the 2011 Annual Report. On 1st April 2012 Deena Mattar

was appointed as a Non-Executive Director whilst Richard Raynaut and Brian Fredrick resigned on

the 7th June and 13

th June respectively.

John Kennedy was appointed as Non-Executive Chairman on 7th June 2012 in place of Jonathan

Silver who became Deputy Chairman.

A list of current directors is maintained on the Lamprell plc website: www.lamprell.com.

On behalf of the Board

Nigel McCue

Chief Executive Officer

Jonathan Cooper

Chief Financial Officer

27 August 2012

http://www.lamprell.com/

lamprell plc half-yearly report 2012 h1 …/media/files/l/lamprell-v3/...jackup rig, two new build...

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