Lamprell announces 2017 financial results
Thursday, Mar 22, 2018
Financial highlights

· Net loss of USD 98.1 million for the Group primarily driven by loss of USD 80 million on East Anglia One project

· Revenue of USD 370.4 million (2016: USD 705.0 million) in line with guidance

· Reductions in the overhead cost base for sixth consecutive year, with a USD 16 million year-on-year decrease in 2017

· Robust balance sheet supported by strong year-end net cash position of USD 257.0 million

·Net cash to reduce in 2018 with key investments in the Saudi Maritime Yard (USD 38 million), payment for Cameron rig kits (USD 41 million) and remaining funding of East Anglia One (USD 30 million)

· Successfully obtained amendment and waivers to banking covenants from lending group

Operational highlights

·Group safety performance remains world-class, outturn total recordable incident rate of 0.30 (31 Dec. 2016: 0.29)

· East Anglia One offshore windfarm project summary:

o  Project is currently 73% complete

o  Eight jackets and all 182 piles have been delivered to client in Vlissingen

o  Group incurred significant additional costs relating to investment in staffing and equipment requirements, as well as significant additional shipping and subcontractor costs

o  Constructive discussions with our client are ongoing to meet their expectations around the schedule but, as with any contract, liquidated damages exposure remains in case of delays

o  Lessons have been learned and various performance improvement opportunities implemented to mitigate current project costs and to allow us to compete successfully on future projects in this strategically-important growing sector

· Completion of the Master Marine major upgrade project in respect of the mobile operating unit "Haven" expected in April 2018, on schedule

· 1H 2017 saw the completions of several major projects with the delivery of two new build jackup rigs to National Drilling Company and one to Shelf Drilling, buoyancy tanks to HMC Kaombo and the final modules to Petrofac on Abu Dhabi's UZ750 project

· Backlog of USD 137.9 million at year-end (31 Dec. 2016: USD 393 million) primarily as a result of energy market downturn ongoing since mid-2014

Corporate strategy and business development

· Repositioned business to align with strategic initiatives in Saudi Arabia, EPC(I) and renewable markets

· Retained core competencies in rigs and invested in additional resources to strengthen capabilities and partner with other leading contractors as we look to access the EPC(I) sector

· Launched the LJ43, a new proprietary jackup rig design, in collaboration with MSC Gusto, a well-established rig design company

· Good progress for the establishment of the major maritime yard development in Saudi Arabia (IMI)

o  Construction process at the site is under way with dredging and associated activities in progress

o  Board, management structure and business plan were approved at first board meeting in December 2017

o  Lamprell's first tranche of USD 20 million invested in 2017, with second tranche of USD 38 million to be made in 2018 as planned

o  All conditions precedent have been met following IMI's signature of USD 1 billion loan agreement with Government lender, Saudi Industrial Development Fund

o  Discussions for first two rigs ongoing with IMI and with the ultimate client, ARO Drilling

o  ARO Drilling and IMI have selected LJ43 as the base design for the 20 jackup rigs to be constructed at IMI's yard in Saudi Arabia

· Pre-qualification process for Long Term Agreement (LTA) with Saudi Aramco continues with a final decision expected later in 2018

· During 2017 John Malcolm assumed the role of Non-Executive Chairman and two new Non-Executive Directors were appointed

Current trading and outlook

· Bid pipeline has increased to USD 3.6 billion (31 December 2016: USD 2.5 billion), following repositioning of the business towards new strategic initiatives, with prospects starting to flow through to bid pipeline

· In line with industry trends, the Company expects major project awards to be pushed out to late 2018 and only creating revenue growth from 2019

· Revenues for FY2018 now expected to be in the range of USD 225-300 million, reflecting latest views on timing of contract awards and low levels of activity from July 2018 following completion of the East Anglia One and Master Marine major projects in our UAE facilities

· Overhead cost base to be managed tightly but expected to rise in 2018 due to investment in improved bidding process and the hiring of further personnel with specific experience in EPC(I) and specifically LTA projects

· Our strong balance sheet supports investment in strategic initiatives and future growth; the Board is committed to the Saudi Arabian market through significant investment in the IMI maritime yard, which it views as integral to Lamprell's future

John Malcolm, Non-Executive Chairman for Lamprell, said:

"We experienced significant challenges throughout 2017 and these have had a profound effect on the way that we approach and implement our vision. We streamlined the business over the past two years and we have adapted and added to our resources to support the strategic objectives. We are now entering into a phase of delivering on our goals. The Board is confident that transformational growth and diversification is the right strategy for Lamprell for future success."

Christopher McDonald, Chief Executive Officer for Lamprell, said:

"2017 was my first full year as CEO and it has been a year of repositioning for Lamprell.  It has also been dominated by the losses on the East Anglia One project where I am disappointed with our performance. The project involved a steep learning curve and since my arrival we have been implementing steps to transform our processes and increase our rigour in the bidding activities. With this in place, I continue to believe Lamprell is well positioned to be competitive in the future in this strategic sector, one which we believe offers significant long-term potential.  Across Lamprell, we have taken concrete actions to adopt the lessons learned and to enhance the business for growth, both in our core rig market, through our investment in Saudi Arabia and the development of a new proprietary jackup rig design, and in new sectors like renewables and EPC(I) where we are investing in additional resources and improved bidding processes to compete successfully in these strategically-important sectors." 

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