LAM.L Regulatory News (LAM)

21 March 2019

LAMPRELL PLC("Lamprell" and with its subsidiaries the "Group")

2018 FINANCIAL RESULTS

Major strategic milestones delivered in Saudi Arabia and the renewables market

Financial results reflect low levels of activity and reduced margin contribution

Balance sheet continues to support delivery of strategic initiatives

Financial highlights

· Net loss of USD 70.7 million (2017: loss of USD 98.1 million) for the Group as a result of lower revenues and loss from East Anglia One project impacting results

· Revenue of USD 234.1 million (2017: USD 370.4 million) in line with guidance

· Year-end net cash position of USD 80.0 million (2017: USD 257.0 million)

· Significantly improved backlog of USD 540.0 million at year-end (30 Jun 2018: USD 61.7 million)

Operational highlights

· Excellent safety performance continues with best-ever total recordable incident rate of 0.15 (31 December 2017: 0.30)

· Major upgrade project on Master Marine's mobile operating unit "Haven" successfully completed in H1 2018

· East Anglia One offshore windfarm project summary:

o Project 99% complete

o All 42 jackets and 182 piles fabricated in UAE delivered to client's facility in Vlissingen and undergoing final certification and handover protocols prior to installation

o Belfast-based assembly for remaining 18 jackets by Harland and Wolff continues with Lamprell support

o Project loss increased by USD 9.4 million, primarily reflecting additional cost of supporting Harland and Wolff through its restructuring

o Overall project delivery remains on track to meet client installation campaign in 2019

· Record year for rig refurbishment segment with 23 rigs passing through the yards in 2018, 11 currently stacked and five refurbishment projects ongoing/commencing shortly

· Continued to upskill our workforce and bring in experienced personnel to deliver the strategic initiatives

Corporate strategy and business development

· Major progress on all key strategic objectives

· Now included on Saudi Aramco's prestigious LTA offshore programme, increasing bid pipeline by USD 3 billion to USD 6.4 billion, with bidding on new LTA projects already under way

· New circa USD 200 million contract won in the renewables market, to deliver jackets for the Moray East wind farm

o Embedding lessons learnt on the East Anglia One project in pricing against in-depth understanding of the market and in managing project risk profile effectively

o Project on track for first steel cutting in Q2 2019

· Progress with IMI joint venture:

o Early construction is ongoing, with dredging and reclamation works progressing as planned

o Commissioning of individual yard zones under regular review, with overall yard completion on track for 2022

o LOI signed for the subcontract of the two new build jackup rigs from IMI in December 2018, with the rig design and final contract terms expected to be concluded in Q2 2019

· Lamprell's new LJ43 proprietary jackup rig design completed in collaboration with MSC Gusto

Outlook

· FY2019 revenue is expected to be in the range of USD 250-400 million

· Financial results will remain under pressure at the current revenue levels and cost base requirements for the Group

· In advanced negotiations with lenders for new debt facilities which are expected to be signed in Q2 2019

· Once achieved, balance sheet will continue to support strategic initiatives as the business returns to growth

· Main focus for 2019 will be generation of healthy and sustainable backlog along with continuing discipline around costs and cash management, including monetising the LAM2K land rig and Super 116E rig kits

· Additional opportunities expected to develop in both oil and gas and renewables markets in H2 2019, supporting underlying strength of bid pipeline and anticipated return to growth

Organisational update

· Hani El Kurd promoted to the role of Chief Operating Officer for the Group

o Career spans almost 20 years in the industry including 13 years working in the Lamprell group

o Held a number of key operational and management roles, this appointment reflects his broad execution capabilities underpinned by strong commercial acumen and management expertise

2018 FINANCIAL RESULTS

*EBITDA is calculated as profit from continuing operations before tax and exceptional items, net finance costs (finance income and interest on bank borrowings as per note 11 to the financial statements), adjusted to add back share of loss or profit in associates and charges for depreciation and amortisation (as per notes 16, 14 and 15 to the financial statements respectively).

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

"2018 was marked by further volatility in the oil and gas industry and by the ongoing challenges in the EA1 project, both of which impacted our profitability for the year. Against this backdrop I am pleased to report significant strategic progress for Lamprell, which will help diversify our exposure away from a single source of revenue and secure solid, commercially strong prospects in years to come. As we deliver our strategy, we continue to focus on risk management throughout the business to ensure current and future opportunities help us return to profitability in the medium term."

Christopher McDonald, Chief Executive Officer for Lamprell, said:

"I am pleased to report that the business repositioning we have been working on over the past two years is finally beginning to translate into tangible growth opportunities for Lamprell. Having completed the UAE scope on our two major projects in the first half of 2018, our yard activity levels hit a historic low, however by the end of the year we had achieved three major strategic milestones, which made a significant improvement to both our backlog and bid pipeline.

"Our IMI joint venture has provided us with an LOI for two new build jackup rig orders, the first order globally since 2015. Our investment in new talent since 2017 has helped secure a place on Saudi Aramco's LTA programme and our challenging experience with East Anglia One has ensured we were able to win a new project in the renewables industry with confidence over its commercial viability. Although our current revenue levels will continue to affect profitability in the near term, I strongly believe in the growth prospects for our business"

The management team will hold a presentation on 21 March 2019 at 9.30am at the London Stock Exchange (10 Paternoster Square, London EC4M 7LS). The live webcast will be accessible on our company website, at www.lamprell.com or on the following link:  

http://webcasting.brrmedia.co.uk/broadcast/5c6d4222e6e1d92d38f4f4e5

Phone: 0800 358 6377; confirmation code 7135175

The Company is planning to hold its 2019 annual general meeting on Tuesday 21 May 2019 in Dubai, United Arab Emirates.

- Ends -

Enquiries:

Notes to editors

Lamprell, based in the United Arab Emirates ("UAE") and with over 40 years' experience, is a leading provider of fabrication, engineering and contracting services to the offshore and onshore oil & gas and renewable energy industries. The Group has established leading market positions in the fabrication of shallow-water drilling jackup rigs, liftboats, land rigs, and rig refurbishment projects, and it also has an international reputation for building complex offshore and onshore process modules and fixed platforms.

Lamprell employs more than 4,000 people across multiple facilities, with its primary facilities located in Hamriyah, Sharjah and Jebel Ali, all of which are in the UAE. In addition, the Group has facilities in Saudi Arabia (through a joint venture agreement). Combined, the Group's facilities cover approximately 800,000m2 with over 1.5 km of quayside.

Lamprell is listed on the London Stock Exchange (symbol "LAM").

Statement from our Chairman

The oil & gas industry is now in its fifth year of downturn and instability. We experienced widespread optimism early in the year only to see the oil price slump dramatically late in the year. The current uncertainty affects capital expenditure in the sector, meaning that our traditional sources of revenue remain inaccessible in the near future. We anticipated financial pressure to continue in 2018 as, despite firm fiscal control and responsibility, our current low revenue levels and reduced margin contributions significantly affected our profitability. With that in mind, our goal for 2018 has been to make major advances in delivering against our strategic objectives, taking into account the changing dynamics of the energy industry.

Delivering our strategy

The prolonged downturn in the oil & gas sector has highlighted our over-exposure to a single source of revenue. Our long-term goal is to grow the business' geographical reach, expand the markets and industries we can access as well as move the Company higher up the value chain to access larger, more complex projects.

One of our top priorities for 2018 was to further strengthen our presence in Saudi Arabia, a region with a clear commitment to investment in major oil & gas projects. We are making good progress with our joint venture, the IMI yard, and are pleased to have received a letter of intent for the construction of two jackup rigs at Lamprell's UAE facilities with approximately 15% to be completed in Saudi Arabia. These are the first jackup rigs awarded since 2015 globally - a clear demonstration of growth fundamentals in the region. I am also very pleased to report that following a very rigorous selection process we were able to deliver on our objective of being selected as one of the partners on Saudi Aramco's LTA programme. The LTA covers one of the largest offshore oil & gas capital expenditure programmes in the world, has added over USD 3 billion of opportunities to our bid pipeline and puts Lamprell and its LTA partner Boskalis on a par with other leading EPCI industry players. The programme does not guarantee contracts but I am confident we will soon begin to see the benefit of our efforts to submit an attractive proposition to the client and convert the pipeline into new awards, realising strong revenue opportunities for the Group.

Our third major achievement for the year was the award of a new major contract in the renewables market. Taking into account the challenges we have faced on a similar contract since 2017, the Board considered the commercial and risk profile of the Moray East project very seriously. The role of renewables in the global energy landscape will continue to gain prominence. The pipeline of projects in Europe, presently the largest wind farm market, is growing and large offshore wind farms are gradually spreading across the globe with the US market now also taking a more proactive step towards cleaner energy. Having assessed the growth forecasts for the renewables industry and incorporated the lessons learned from our first project in this industry, I firmly believe in retaining this product offering as one of our strategic focus areas and I have full trust in Lamprell's ability to deliver this new project and regain shareholder confidence.

Culture and core values

This is my sixth year with Lamprell and second year as Chairman. It has not been an easy period for the Group and I am very pleased to note that, despite the pressures resulting from a volatile market, the Company adhered to its most inspiring values: commitment to safety at our sites is unquestionable and without doubt makes us stand out for our prospective clients, fiscal responsibility has provided us with a cash position solid enough to weather the consequences of the market downturn. Lamprell's culture of delivering a product to every client with full accountability and integrity has now opened new opportunities in Saudi Arabia and in the renewables industry and a fresh focus on teamwork is helping us reduce project risk profiles from the early bidding stage. Our core values are fundamental to ensuring that our strategic goals and shareholder value will continue to be delivered in the long term.

Board changes and talent development

I was pleased to note the stability on Lamprell's Board in 2018. Following Ellis Armstrong's planned retirement at the Company Annual General Meeting in May, Debra Valentine assumed the role of Senior Independent Director and James Dewar now chairs the Audit and Risk Committee.

Succession planning and talent development was a stated Board priority last year, not just at the Board level but also within management. The successful delivery of some of our main objectives in 2018 would not have been possible without the highly experienced existing Lamprell team as well as the new talent that we brought on board to deliver our strategic transformation. The focus and dedication that the combined team continues to demonstrate in its effort to turn the page on the challenges of the past years is commendable. The Group will continue its work to enhance the leadership team in 2019 through a series of workshops which will build on the strengths identified in 2018.

Focus for 2019

The outlook for the oil & gas industry, although improving, still shows elements of volatility. I do not expect the global new build jackup rig market to recover in 2019, but our presence in Saudi Arabia has provided us with rare revenue opportunities in this segment. Our focus on the renewables market will continue and, with our traditional sources of revenue expected to resume in the medium term, global fabrication capacity may come under pressure which will improve the market and pricing dynamics throughout the value chain.

Generating a healthy and sustainable backlog, along with cost discipline, will be our main focus in 2019 and, as we convert current significant opportunities into projects, we are striving to become a cash generative business in the medium term. Over the course of 2018 I have seen very clear evidence of a business striving to improve its process and risk assessment as it enters a new era in its history.

John Malcolm

Chairman

Report from our Chief Executive

2018 has been a pivotal year in establishing the building blocks for Lamprell's strategic aspirations, and we are pleased to report significant progress in delivering our strategy. Operationally and financially we are still feeling the effects of the prolonged downturn in the oil & gas industry, which resulted in pressure on our backlog and revenue levels. However, we finished the year with a significant new contract in the renewables industry and a stronger position in Saudi Arabia with a binding Letter of Intent for the major portions of the first two IMI rigs and our entry to the LTA opening up further revenue opportunities in 2019 and beyond.

Health and safety

I am proud to report an exceptional safety performance in 2018. A TRIR of 0.15 for the year is a top-tier result for our industry and is our best result since becoming a publicly listed company. I would like to thank both our health and safety team and all our employees for delivering this result. Safe operations are a cornerstone for the success of our business, which is why our "Safe Start" programme has been developed to involve every employee, with particular focus on safety leadership from the senior management.

Operational update

In the first half of 2018 we completed the UAE-based works on two major projects: the mobile operating unit "Haven" for Jacktel AS, a wholly owned subsidiary of Master Marine AS, and the jacket foundations for East Anglia One on behalf of client, ScottishPower Renewables. The "Haven" upgrade was completed in April on time and on budget with an exceptional safety performance. Over 2.5 million manhours were completed with zero recordable incidents, and the unit is now in operation offshore Norway.

Project execution and control on the East Anglia One project improved during the year, as the project proceeded towards completion. We completed all UAE-based works in H2 2018 and this included fabrication and delivery of 42 jackets to the client in Vlissingen and the delivery of the flat-pack components for 18 jackets to our subcontractor in Belfast. With the project nearing completion, we are supporting Harland & Wolff with their assembly activities and working with the client on the final certification and handover protocols in time for its installation campaign. Final delivery remains on track to meet the campaign requirements although the exposure to liquidated damages will remain unchanged until project completion. The results for the year include an additional loss of USD 9.4 million on the project.

The yard activity levels were at a historical low following the completion of the abovementioned works, but we have seen an increase in rig refurbishment work with a record 23 rigs going through the yards in 2018, with many more in various stages of warm or cold stacking throughout the year.

We continue to build on our traditional areas of expertise in anticipation of their recovery in the medium term. As such, we developed an exclusive jackup rig design in collaboration with GustoMSC and completed the basic design process early in the year. The LJ43 rig utilises a custom-designed hull and living quarters developed by Lamprell along with GustoMSC's leg design. It has been designed to accommodate specific requirements of the Middle Eastern market but Lamprell believes that this state-of-the art design is highly adaptable and capable of being used in a wide array of offshore locations around the world.

Strategic priorities

In 2018 our business has made remarkable progress in advancing its strategic goals. Firstly, we set out to diversify our revenue stream away from jackup rigs by expanding the type and scope of work that we do. In preparation for this transformation we have made a number of changes within the business: we now have a leadership team in place with a significant track record of delivering complex EPCI projects in our key markets; our internal bidding and project execution approach has been upgraded to reinforce controls at every stage, and we are highly selective in developing our bid pipeline.

The effort that we put into transforming Lamprell from within is beginning to show results - firstly, we became one of Saudi Aramco's preferred suppliers on its LTA programme for offshore projects. This is a highly sought-after opportunity in the industry, and I would like to thank the team that worked on this bid over the past 18 months. The Middle East, and Saudi Arabia in particular, will remain our major focus as countries with clear growth projections, and it will be intrinsic to our recovery story.

Local content and in-country spending are rapidly gaining prominence in the Middle East, and we are proud to have established a number of partnerships in both Saudi Arabia and Abu Dhabi to help us address our clients' requirements in an efficient manner while contributing to the development of local economies. By partnering with local companies and committing to the USD 140 million equity investment in the Saudi Maritime yard, we have demonstrated our commitment for this key market and supported our effort to bid for Saudi Aramco's LTA programme. In Abu Dhabi, our long history of working with ADNOC Drilling has established our high levels of in-country performance and we will build on this to realise opportunities for new business there.

Secondly, our effort to build upon our experience and access further projects in the fast-growing renewables industry has resulted in a major project in our backlog. Moray East is one of the most prominent wind farms recently committed for construction, and we are delighted to be part of this large-scale, high profile project. With the knowledge and experience we gained through East Anglia One we have been able to significantly reduce the risk profile on this project, and I am confident we can deliver in a timely and cost effective manner.

Thirdly, we are proud to continue to support the IMI joint venture with a LOI for the award of the first two new build jackup rigs to be substantially built at Lamprell's facility in Hamriyah with approximately 15% to be constructed in Saudi Arabia. These are the first jackup rig orders to be awarded in the last four years. In this way, IMI will build its capabilities in the rig market and Lamprell will cement its relationships with key stakeholders in Saudi Arabia. Lamprell is committed to support the establishment of this new major maritime yard in Saudi Arabia, both directly and indirectly, as it looks to build its expertise and develop its capabilities and personnel within the Kingdom.

We continue to ensure that our operations follow major industry developments and technological advances. As such, we have dedicated a specialist team with a focus on developing digital solutions for both our operations and the products we fabricate. The team is working with industry experts to identify potential opportunities which leverage such solutions into the real working environment. We believe that in this rapidly evolving industry, this will improve our operational efficiency and competitiveness, as well as potentially create new revenue streams for the Company.

Outlook

After two years of no major contract awards, we are finally beginning to see traction in the bid pipeline, although we expect that potential new contracts will be in the EPC(I) side of the business in the near team, rather than in Rigs. We forecast a revenue range of USD 250-400 million for 2019, which will be mainly supported by the Moray East project and walk-in work. With the backlog now returning to growth we have demonstrated our ability to rebound from the operational challenges as well as the longest industry downturn since Lamprell became public. We are well positioned for the anticipated coming upturn.

Christopher McDonald

Chief Executive Officer

Review of our finances

The Group's financial performance in 2018 reflected the ongoing pressure in the oil & gas industry, as well as the impact of a significant part of the Group's revenue making no contribution to the bottom line. Our revenue levels fell to USD 234.1 million from USD 370.4 million reported during the same period in 2017.

During the first half of 2018 Lamprell completed two major projects in its UAE facilities and with no further significant projects booked into backlog until the end of the year, the Group's revenue is biased towards H1 2018.

The award of two new projects in the later part of the year provides improved backlog to deliver revenue growth in 2019.

Within our strategic markets, Renewables generated USD 94.8 million, down from USD 130.7 million in 2017 as the EA1 project reaches its conclusion; and Oil & Gas generated USD 139.3 million, down from USD 239.7 million in 2017 with Master Marine, which completed in H1 2018, being the only major project in the segment.

Our reporting segment for Rigs delivered revenue of USD 76.0 million compared to USD 160.8 million in 2017. EPC(I) revenues were USD 99.8 million, down from USD 154.3 million in 2017. Improved trading in our O&M manpower and siteworks businesses delivered USD 58.3 million of revenue, up from USD 55.4 million in 2017.

Margin performance

The gross loss for the year is USD 9.1 million, an improvement when compared with the gross loss for 2017 of USD 50.2 million. The gross loss in 2018 is driven by a combination of low levels of revenue from our profitable projects which have been insufficient to recover our operational overheads and an increase in the estimated loss on the EA1 project of USD 9.4 million which brings the overall estimated loss for the project to USD 89.4 million. The primary cause for the increase in the loss is the additional cost incurred supporting the Belfast based subcontractor due to their financial difficulties.

We have kept operational overheads under control with the USD 40 million recorded in 2018, in line with 2017. As we signalled in last year's report, our overall overhead has increased to USD 86.4 million from USD 82.4 million in 2017 largely due to strategic upskilling.

Group EBITDA from continuing operations amounted to a loss of USD 35.1 million (2017: loss of USD 70.5 million). EBITDA margin has improved to (15.0)% when compared to (19.0)% reported in 2017.

Finance costs and financing activities

As our levels of debt and committed facilities reduced during 2018, as expected our net finance cost has also reduced to USD 3.5 million (2017: USD 5.1 million). Gross finance costs were USD 5.7 million (2017: USD 9.0 million).

Net loss

Lower revenue levels, as well as a modest deterioration in the margin performance on the East Anglia project in 2018, resulted in a loss attributable to the equity holders of USD 70.7 million (2017: loss of USD 98.1 million). The fully diluted loss per share for the year was 20.67 cents (2017: loss per share - 28.70 cents).

Capital expenditure

The Group's operational capital expenditure for the year ended 31 December 2018 decreased to USD 10.0 million, compared to USD 23.7 million in 2017. As project activity levels remained subdued, capital expenditure focused on bringing the pipe shop to the commissioning phase, essential operating equipment and the development cost of the LJ43 rig.

Strategic capital expenditure of USD 39 million is attributable to the Group's investment in the IMI maritime yard in Saudi Arabia. To date, Lamprell has invested USD 59 million of the USD 140 million committed.

We expect to continue to fund this investment from our balance sheet. We continue to review our capital expenditure very carefully with a focus on initiatives that improve our efficiency and productivity.

Cash flow and liquidity

The Group's net cash flow from operating activities for the full year ended 2018 reflected a net outflow of USD 125.1 million (2017: net inflow of USD 32.4 million), which was driven primarily by payment for rig kit inventory and working capital funding for the EA1 and other projects.

Prior to working capital movements and the payment of employees' end of service benefits, the Group's net cash outflow was USD 28.2 million (2017: inflow of USD 56.3 million).

Cash and bank balances decreased by USD 196.6 million to USD 99.8 million.

Net cash will continue to reduce in 2019 as we continue our strategic initiatives, some targeted capital expenditure and working capital requirements on new projects but we still expect to finish the year in a net cash position.

In 2019 a critical focus will be to monetise the strategic asset inventory (the S116E rig kits and our proprietary LAM2K land rig) and finalise the refinancing.

Balance sheet

Net cash position at the end of the reporting period reduced to USD 80.0 million from USD 257.0 million at 31 December 2017. This reduction has been primarily caused by the anticipated investment made in the IMI maritime yard of USD 39 million as well as payment for rig kit inventory of USD 34.3 million and funding of the EA1 project totalling USD 40.2 million. Although net cash is reducing in line with scheduled investments, the Group's balance sheet remains sufficiently robust to support ongoing projects, strategic investments which have been committed to and immediate opportunities in the pipeline.

The Group's total current assets at 31 December 2018 were USD 313.3 million (31 December 2017: USD 498.9 million). Trade and other receivables decreased to USD 68.1 million (31 December 2017: USD 164.7 million). Contract Assets increased to USD 54.9 million (31 December 2017: nil).

Shareholders' equity reduced to USD 393.0 million (31 December 2017: USD 460.8 million).

Borrowings

Borrowings at 31 December 2018 were USD 19.8 million (31 December 2017: USD 39.5 million). The outstanding debt reflects the final instalment of the Group's term loan which is due for payment in August 2019 when the facility expires. The Group retains a USD 50 million revolving credit facility for general working capital purposes which also expires in August 2019.

The Group's debt to equity ratio at 31 December 2018 was very low at 5.03%.

Debt refinancing

The Group's balance sheet continues to support ongoing project work and the current bidding activity but in anticipation of the market recovery together with implementation of the strategy, the Board believes that maintaining significant liquidity is essential to the Group.

To deliver this, we are in advanced negotiations with our lenders for a new debt facility, additional details of which are set out under the Going Concern section below. We expect to sign the full facility agreement in Q2 2019 with the syndicate of lending banks that will support the Lamprell group as it looks to implement its growth strategy. The final details of the facility, which would comprise a term loan and a revolving credit facility on terms broadly similar to our existing facility, will be available only upon signing of the binding agreement.

Going concern

The Group's consolidated financial statements have been prepared on a going concern basis as further discussed in Note 2.1. The Group has received non-binding indicative term sheets and the legal documentation necessary prior to seeking final approval from certain banking institutions is in progress to replace the existing facility which expires in August 2019. After reviewing its cash flow forecasts for a period of not less than 12 months from the date of signing these financial statements and taking into account other key assumptions which include; the sale of the LAM2K land rig and timing of receipt of the sale proceeds, the cash advances expected to be received from new IMI rigs once a contract is signed and the timing of cash calls forecast for investment in the IMI joint venture in addition to the planned debt refinancing, the Directors have concluded they do not represent a material uncertainty that may cast significant doubt upon the continuing use of the going concern basis of accounting.

Dividend

In the context of ongoing market challenges, the low revenue levels in 2018, the investment for future growth in the IMI, the Directors do not recommend the payment of a dividend for the period in relation to financial year ending 31 December 2018. The Directors will continue to review this position in light of market conditions and Group performance at the relevant time.

Tony Wright

Chief Financial Officer

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

* The Group has initially applied IFRS 15 and IFRS 9 with the cumulative effect of initially applying these standards recognised through retained earnings on the date of the initial application. Under this method, the comparative information is not restated. See Note 3.2 to the consolidated financial statements.

Consolidated statement of changes in equity

Consolidated cash flow statement

Non-cash transaction

Additions to intangible assets in 2017 as disclosed in Note 15 included an amount of USD 8.7 million prepaid to Sharjah Electricity & Water Authority. This was treated as a non-cash item in 2017. Notes to the consolidated financial statements for the year ended 31 December 2018

1 Legal status and activities

The principal activities of the Company and its subsidiaries (together referred to as "the Group") are: assembly and new build construction for the offshore oil and gas and renewable sectors; fabricating packaged, pre-assembled and modularised units; constructing accommodation and complex process modules for onshore downstream projects; construction of complex living quarters, wellhead decks, topsides, jackets and other offshore fixed facilities; rig refurbishment; land rig services; engineering and construction and operations and maintenance.

2 Basis of preparation

The Group is required to present its annual consolidated financial statements for the year ended 31 December 2018 in accordance with EU adopted International Financial Reporting Standards ("IFRS"), International Financial Reporting Interpretations Committee ("IFRIC") interpretations and those parts of the Isle of Man Companies Acts 1931-2004 applicable to companies reporting under IFRS.

This financial information set out in this preliminary announcement does not constitute the Group's statutory accounts for the year ended 31 December 2018. The financial information has been extracted from the consolidated financial statements for the year ended 31 December 2018 approved by the Board of Directors on 20 March 2019 upon which the auditors' opinion is not modified and did not contain a statement under section 15(4) or 15(6) of the Isle of Man Companies Act 1982.

The financial information comprises the Group balance sheets as of 31 December 2018 and 31 December 2017 and related Group income statement, statement of comprehensive income, cash flows, statement of changes in equity and related notes for the twelve months then ended, of Lamprell plc. This financial information has been prepared under the historical cost convention except for the measurement at fair value of share options, financial assets at fair value through profit or loss and derivative financial instruments.

The preliminary results for the year ended 31 December 2018 have been prepared in accordance with the Listing Rules of the London Stock Exchange.

These financial statements have been prepared on a going concern basis which assumes that the Group will continue to have adequate resources to continue in operational existence for the foreseeable future notwithstanding the decrease in cash resources which is discussed below.

The Group incurred a loss before tax of USD 70.6 million during the year ended 31 December 2018 and was in a net cash position of USD 80.0 million at 31 December 2018 (2017: net cash position of USD 257.0 million). This constitutes a significant decrease in its cash resources and is mainly attributable to expected cash outflows from operating activities of USD 125.1 million (2017: inflows of USD 32.4 million). The Group has bank facilities of USD 540.1 million (Note 29) of which a further USD 50 million is available to be drawn as cash under a revolving credit facility. The bank facilities are secured by liens/cash margin over term deposits of USD 50.8 million (Note 24).

The Group's bank facilities are subject to covenant clauses, whereby the Group is required to meet certain key financial ratios. The Group did not fulfil the borrowing to EBITDA financial covenant contained within its facilities at 31 December 2018. Due to this breach of the covenant clause, the banks were entitled to request for immediate repayment of the outstanding loan amount of USD 20 million. A waiver of this covenant was subsequently obtained.

In view of the anticipated cash position and in addition to other planned cash initiatives, the Group has been in discussions with various banking institutions to renegotiate its facilities that are scheduled to expire in August 2019 and these have been positive. At this time management has received non-binding indicative term sheets and the legal documentation necessary prior to seeking final approval from certain of the banking institutions is in progress. Based on this, the Directors have a reasonable expectation that they will be able to complete the debt refinancing and sign the full facility agreement in the near term, which is expected to comprise of a term loan and revolving credit facility to support the business. At the date of approval of these financial statements, the conversion from non-binding term sheets to committed facilities with lenders represents a key assumption in the Group's forecast cash flows. Other key assumptions include:

· the sale of the LAM2K land rig and timing of receipt of the sale proceeds;

· the cash advance expected to be received from International Maritime Industries ("IMI") once a contract to construct two new rigs is approved by both parties; and

· the timing of further cash calls forecast for investment in the IMI joint venture.

After considering the realistic availability and likely effectiveness of actions that the directors could take to avoid, or reduce the impact or likelihood of a significant deterioration in cash flow arising from these matters, the directors have concluded they do not represent a material uncertainty that may cast significant doubt upon the continuing use of the going concern basis of accounting. The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting polices below.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated and parent company financial statements are disclosed in Note 4.

3 Accounting policies

The accounting policies used are consistent with those set out in the audited financial statements for the year ended 31 December 2017 except for the adoption of new standards and interpretations effective 1 January 2018 as stated in the reviewed interim financial information for the period ended 30 June 2018. These financial statements are available on the Company's website, www.lamprell.com.

3.1 Impact of IFRS 9, Financial Instruments

In the current year, the Group has applied IFRS 9, Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRSs. IFRS 9 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities, 2) impairment for financial assets and 3) general hedge accounting. The Group applied IFRS 9 prospectively, with an initial application date of 1 January 2018 and has not restated comparative information, which continues to be reported under IAS 39.

The adoption of IFRS 9 has resulted in changes in accounting policies for financial instruments as detailed below:

(a) Financial assets at fair value through profit or loss ("FVTPL")

Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are measured at FVTPL.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses presented in the consolidated income statement to the extent they are not part of a designated hedging relationship within 'other gains/(losses) - net' in the period in which they arise. Transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are recognised immediately in the consolidated income statement.

(b) Financial assets at amortised cost

The Group measures financial assets at amortised cost if both of the following conditions are met:

- The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost are subsequently measured using the effective interest ("EIR") method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

(c) Impairment of financial assets

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the Group and the Company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

In particular, IFRS 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses ("ECL") if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit-impaired financial asset. However, if the credit risk on a financial instrument has not increased significantly since initial recognition (except for a purchased or originated credit-impaired financial asset), the Group is required to measure the loss allowance for that financial instrument at an amount equal to 12 months ECL.

Specifically for trade receivables and contract assets, the Group applies a simplified approach in calculating expected credit losses (ECLs). Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

The Group considers financial assets to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. In doing so, the Group also takes into account the days the contractual payments are past due.

The Group applied ECL model under IFRS 9 for the first time in the current year which did not have a material impact on the consolidated financial statements of the Group. No additional credit loss allowance as at 1 January 2018 has been recognised against retained earnings nor any loss allowance has been recognised upon the initial application of IFRS 9 as a result from a change in the measurement attribute of the loss allowance relating to each financial asset. As the Group's historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished between the Group's different customer segments.

The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery.

(d) General hedge accounting

The new general hedge accounting requirements retain the three types of hedge accounting. However, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been replaced with the principle of an 'economic relationship'. Retrospective assessment of hedge effectiveness is also no longer required.

In accordance with IFRS 9's transitional provisions for hedge accounting, the Group has elected to continue applying the hedge accounting requirements of IAS 39 instead of the requirements set out in IFRS 9. This election applies to all of the Group's hedging relationships at 1 January 2018. Therefore this has had no impact on the results and financial position of the Group for the current or prior year.

(e) Credit Risk

The Group assesses internally the credit quality of each customer, taking into account its financial position, past experience and other factors. An impairment analyses is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on the days past due for grouping of various customer segments. The calculation reflects the probability weighted outcome and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecast of future economic conditions.

To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due with reference to past default experience of the debtor, an analysis of the debtor's current financial position and general current and forecast economic conditions of the industry in which the debtors operate. As the Group's historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished between the Group's different customer segments.

Balances in over 6 months have objective evidence of impairment and hence have been individually assessed. All other aging categories have been collectively assessed as the expected credit losses are not material.

3.2 Impact of IFRS 15, Revenue from Contracts with Customers

(a) Changes in accounting policy

The Group has adopted IFRS 15, Revenue from Contracts with Customers from 1 January 2018. This resulted in changes in its accounting policy for revenue as detailed below:

Contract revenue

The Group reviews lump-sum construction contracts and allocates the revenue to each performance obligation of the contract depending on whether the contract is viewed as containing a single or multiple performance obligations. Revenue from each performance obligation is recognised either over time or at a point in time depending on the nature and timing of when the performance obligation is satisfied.

In the case of a performance obligation satisfied over time, contract revenue is recognised under the input method by measuring the proportion of costs incurred for work performed to total estimated costs.

When the contract is at an early stage and its outcome cannot be reliably estimated, due to their uncommon nature, risk profiling, including first-of-a-kind projects, the Group recognises revenue to the extent of cost incurred up to the year end which are considered recoverable. For these contracts, the Group recognises gross margin only when progress towards complete satisfaction of the performance obligation can be measured reliably. This is mainly the case with respect to fixed price construction contracts with an expected contract duration of 18 months or greater.

Revenue related to variation orders is recognised when it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur and the amount of revenue arising from the variation can be reliably measured. If revenue cannot be reliably measured, the Group defers revenue recognition until the uncertainty is resolved. Such provisions give rise to variable consideration under IFRS 15 and are required to be estimated at contract inception. The estimated variable consideration is however, constrained to prevent over-recognition of revenue. The Group continues to assess individual contracts to determine the estimated variable consideration and related constraint.

Contract modification are accounted for as a separate contract only if the scope of contract changes due to the addition of the promised goods or services that are distinct; and the price of the contract increases by an amount of consideration that reflects a standalone selling price.

Claims are accounted for as variable consideration. They are included in contract revenue using the expected value or most likely amount approach (whichever is more predictive of the amount the entity expects to be entitled to receive) and it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the claim is subsequently resolved.

Losses on contracts are assessed on an individual contract basis and provision is made for the full amount of the anticipated losses, including any losses relating to future work on a contract, in the period in which the loss is first foreseen.

The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against progress billings at each reporting period. Where the sum of the costs incurred and recognised profit or recognised loss exceeds the progress billings, the balance is shown under contract assets as amounts due from customers on contracts. Where the progress billings exceed the sum of costs incurred and recognised profit or recognised loss, the balance is shown under contract liabilities as amounts due to customers on contracts.

In determining contract costs incurred up to the reporting date, any amounts incurred, including advances paid to suppliers and advance billings received from subcontractors relating to future activity on a contract, are excluded and are presented under contract assets as contract work-in-progress.

The incremental costs of obtaining a contract with a customer are recognised as an asset if those costs are expected to be recovered.

Products and services

Revenue from sale of products and services is recognised in the accounting period in which the control is transferred or the service is rendered net of value added tax.

Interest income

Interest income is recognised on a time proportion basis using the effective interest rate method.

Warranty obligations

The Group generally offers a warranty range of one to seven years for defects on work carried out and does not provide extended warranties or maintenance services in its contracts with customers. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims. For first of a kind projects, estimates are based on market observable trends and complexity of the project. In all cases, the Group mitigates its exposure to warranty claims through back-to-back warranties with the original equipment manufacturers and subcontractors. These costs are included in estimated contract costs. As such, the warranties are assurance-type warranties under IFRS 15, which the Group accounts for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, consistent with its practice prior to the adoption of IFRS 15.

(b) Impact of adoption of IFRS 15

The Group has adopted IFRS 15 from 1 January 2018 and applied the modified retrospective approach permitted by IFRS 15 upon adoption. Following practical expedients available under the modified retrospective approach of IFRS 15 have been adopted by the Group:

· The requirement of new standard have been applied to contracts that are not completed as at date of initial application (1 January 2018); and

· The Group has not restated the contracts in accordance with the revenue standard for contract modifications which took place before the date of initial application.

Set out below are the amounts by which each financial statement line item is affected as at 31 December 2018 as a result of the adoption of IFRS 15. The adoption of IFRS 15 did not have an impact on OCI, earning per share or the Group's operating, investing and financing cash flows. The first column shows amounts prepared under IFRS 15 and the second column shows what the amounts would have been had IFRS 15 not been adopted:

Variable consideration

The current major contracts were at an advanced stage of negotiation as it was highly probable that significant reversal of revenue will not occur and, therefore, met requirements of the constraint. Based on` this key judgement, no adjustments have been made to revenue previously reported for the year ended 31 December 2017.

Revenue recognition

Management has assessed the construction contracts and considered IFRS 15's guidance on contract combinations, contract modifications arising from variation orders, variable consideration, and the assessment of whether there is a significant financing component in the contracts, particularly taking into account the reason for the difference in timing between the transfer of control of goods and services to the customer and the timing of the related payments. Management has assessed that revenue from these construction contracts should be recognised over time and the percentage of completion method used under IAS 11 to measure the progress towards complete satisfaction of these performance obligations continues to be appropriate under IFRS 15. Based on these key judgements, no adjustments have been made to revenue or cost previously reported for the year ended 31 December 2017.

The Group disaggregated revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Group also disclosed information about the relationship between the disclosure of disaggregated revenue and revenue information disclosed for each reportable segment - refer to Note 5.

4 Critical accounting judgements and key sources of estimation uncertainty

The Group makes judgements, estimates and assumptions concerning the future. These 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 resulting accounting estimates will, by definition, seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

4.1 Critical judgements in applying accounting policies

Apart from those involving estimation (see Note 4.2), the Group has made following critical judgements in applying accounting policies in the process of preparing these consolidated financial statements.

4.1.1 Liquidated damages claims ("LDs")

The Group recognises liquidated damages where there have been significant delays against defined contractual delivery dates or unfulfilled contractual obligations and it is considered probable that the customer will successfully pursue these penalties. This requires management to estimate the amount of liquidated damages payable under the contract based on a combination of an assessment of the contractual terms, the reasons for any delays and evidence of cause of the delays to assess who is liable under the contract for the delays and consequently whether the Group is liable for the liquidated damages or not.

The Group has encountered major operational and commercial challenges on the East Anglia ONE ("EA1") project which resulted in a total forecast loss for the Group at 31 December 2018 of USD 89.4 million (2017: USD 80.0 million).

Due to delays on the project and concerns over technical specifications stipulated in the contract, the client is contractually entitled to claim liquidated damages to a maximum of USD 33.8 million. Management has not recorded an adjustment in relation to the liquidated damages as it believes that based on the recent correspondence with the customer regarding the customer's willingness to enter into a deed of variation to the contract to set a number of milestone dates aligned with the new installation window and include a defined process for acceptance of the jackets to ensure that the project can be completed successfully with minimal impact on either party ("the comfort letter") received from the client, they will not be claimed if the works under the contract are completed in a timely manner which enables the client to install the jackets during an agreed new installation campaign window ("new installation campaign window"), which is due to commitments with other EA1 Contractors which would be impacted if not achieved.

In view of the above, management have made a significant judgement within the forecast loss calculation in ascertaining:

· The ability of the Group's subcontractor to deliver on time and in accordance with the project's revised delivery dates: The Group is working with Harland & Wolff, its subcontractor in Belfast, to complete the assembly of the outstanding18 jackets for the EA1 project. Given the recent announcement by Harland & Wolff regarding its restructuring, the Group has had to allocate additional resources to Belfast to support and actively manage the assembly of the outstanding 18 jackets to ensure overall project performance stays in line with the new installation campaign window; and

· The acceptance of the jackets by the client as conforming to the technical specifications stipulated in the contract within the revised dates aligned with the new installation campaign window. In its assessment, management has considered the client's willingness to enter into a deed of variation to the contract that in addition to revised milestone dates would define a process for acceptance of the jackets to ensure the project can be completed successfully with minimal impact on either party.

Based on the discussions to date, management believe the risk of LDs being levied has been mitigated and continue to work with the client and the subcontractors to ensure the installation programme is not compromised due to the effect of operational challenges in meeting certain key dates. The maximum potential exposure to the Group would amount to a reduction in contract revenue by USD 33.8 million and a corresponding reduction to net assets

4.2 Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year.

4.2.1 Revenue and margin recognition

The Group uses the input method in accounting for its contract revenue. Use of the input 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.

If the estimated total costs to completion of all outstanding projects were to decrease by 10%, this would result in contract assets increasing by USD 3.0 million (2017: USD 6.4 million) or contract liabilities decreasing by USD 3.0million (2017: USD 6.4 million).

If the estimated total costs to completion of all outstanding projects were to increase by 10%, contract assets would decrease by USD 3.0 million (2017: USD 19.7 million) or contract liabilities would increase by USD 3.0 million (2017: USD 19.7 million).

4.2.2 Onerous contract provisions

The Group provides for future losses on long-term contracts where it is considered probable that the contract costs are likely to exceed revenues in future years. Estimating these future losses involves a number of assumptions about the achievement of contract performance targets and the likely levels of future cost escalation over time.

The outstanding provision has decreased to USD 9.5 million (31 December 2017: USD 41.7 million) due to utilisation of the onerous contract provision related to the EA1 project as the contract progresses partially offset by an increase in the total loss of the project to USD 89.4 million.

The application of a 10% sensitivity to management estimates of the total costs to completion on this project would result in provision for onerous contract included in other payables decreasing by USD 1.2 million (2017: 4.1 million) if the total costs to complete are decreased by 10% and provision for onerous contract included in other payables increasing by USD 1.2 million (2017: USD 4.1million) if the total costs to completion increased by 10%.

4.2.3 Impairment of property, plant and equipment and intangible assets

The Group determines at the end of the reporting period whether there are indicators of impairment in the carrying amount of its property, plant and equipment, intangible assets and other financial assets. Where indicators exist, an impairment test is undertaken which requires management to estimate the recoverable amount of its assets which is initially based on its value in use. When necessary, fair value less costs of disposal is estimated. Management performs the review at the cash generating unit ("CGU") relating to an operating segment's assets located in a particular geography.

An indicator of impairment exists in that the market downturn and instability in the oil and gas market continues to affect capital expenditure in the sector. This has had an impact on our backlog and utilisation of our assets attributable to the United Arab Emirates CGU albeit an increase in awards and pipeline compared to the prior year. The estimate of future cash flows and terminal value growth rate for the CGU has been affected by the current assumptions relating to market outlook, contract awards and margins.

Determining an estimation of value in use of the CGU requires the estimation of future cash flows expected to arise from the CGU and a suitable discount rate to calculate the present value of expected future cash flows. These calculations use pre-tax cash flow projections based on financial budgets approved by the Board covering a three-year period.

Revenue for the first three-year period and the revenue growth rate beyond the three-year period is determined based upon past performance and management expectations of future market development which includes various assumptions relating to market outlook, contract awards and contract margins. As at 31 December 2018, the Group's pipeline of opportunities amounts to USD 6.4 billion (2017: USD 3.6 billion) - see the Strategic Report, page 6.

The bid pipeline comprises a mixture of opportunities in the renewables and oil and gas market sectors and management have made various assumptions relating to the timing, expected values and the probable outcome of these prospective awards. These assumptions are based on medium-term forecasts for the global energy industry, macro-economic factors, opportunities and market insights obtained from bidding activities. A change in management assumptions relating to the bid pipeline and outlook could result in the property, plant and equipment and/or intangible assets being impaired. Refer to the Strategic Report on page 6 for a detailed discussion of the market pipeline and opportunities.

A discount rate of 9.35% (2017: 10.00%) is used to discount the pre-tax cash flow projections to the present value. In determining the appropriate discount rate, the Group considers the weighted average cost of capital employed, which takes into consideration the risk free rate of US treasury bonds with a long-term maturity period, the UAE inflation rate, the equity risk premium on the entities operating from the UAE, the Group's beta and the cost of Group's debt. The decrease in discount rate is attributable to a decrease in the risk free rate of US treasury bond and levered equity beta. The following are the key assumptions.

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In determining the terminal value growth rate, the Group considers the long-term average CPI growth rate for the UAE which is estimated to be c.3% by the Economist Intelligence Unit 'EIU'. Although the forecast cash flows are USD based, the terminal value growth rate is within the UAE long-term forecasts and is considered to be more appropriate given the location of the business and factors driving revenue and long-term growth.

As a result of the above, no impairment has been recorded during the year. The carrying amount of property, plant and equipment at 31 December 2018 was USD 159.5 million (31 December 2017: USD 171.7 million). The carrying amount of intangible assets at 31 December 2018 was USD 29.9 million (31 December 2017: USD 31.7 million). The headroom attributable to property, plant and equipment and intangible assets as at 31 December 2018 is USD 151.9 million.

If the discount rate used were to differ by 0.5% from management's estimates, in isolation, there would be a reduction in the headroom of USD 34.8 million if the discount rate was to increase or an increase in the headroom by USD 40.6 million if the discount rate were to decrease.

If the net profit as a percentage of revenue used were to differ by 0.5% from management's estimates, in isolation, there would be an increase of USD 55.3 million in the headroom if the net profit was to increase or there would be a reduction in the headroom of USD 46.5 million if the net profit were to decrease.

If the terminal value growth rate used were to differ by 0.5% from management's estimates, in isolation, there would be a reduction in the headroom of USD 27.5 million if the terminal value growth rate was lower or an increase in the headroom of USD 32.2 million if the terminal value growth rate were higher.

4.2.4 Provision for warranty

Warranty provisions are recognised in respect of assurance warranties provided in the normal course of business relating to contract performance. They are based on previous claims history and it is expected that most of the costs in respect of these provisions will be incurred over the next one to two years. For first-of-a-kind projects, management makes use of a number of assumptions in determining the provision for potential warranty claims based on the scope and nature of work, confidence gathered from inspections and quality control during project execution and previous claim history for projects that closely mirror the type of works involved. The application of a 10% sensitivity to management estimates of the provision for warranty claims would result in an increase in provision for warranty claims by USD 0.4 million or a decrease of USD 0.4 million.

4.2.5 Carrying amount of inventory

Inventories comprise raw materials, finished goods, work-in-progress and consumables which are stated at the lower of cost and estimated net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Determining these estimates involves use of assumptions pertaining to the expected realisable values of inventory in the current market. Based on the review performed, a write down of USD 3.0 million (2017: Nil) has been recognised during the year. The application of a 10% sensitivity to management estimates of the net realisable value of inventory would result in a reversal of the previous write down BY USD 1.5 million if the net realisable value was higher or a decrease in inventory by USD 2.4 million if the net realisable value was lower.

5 Segment information

On 2 February 2018, the Group was structured to approach opportunities by way of our strategic objectives and this constitutes a change in the strategic objectives of the business and how it is reported and viewed by the Executive Directors, the chief operating decision-maker.

The Group is organised into business units, which are the Group's operating segments and are reported to the Executive Directors, the chief operating decision-maker. These operating segments are aggregated into three reportable segments - 'Rigs' and 'Engineering, Procurement, Construction & Installation [EPC(I)]' and 'Contracting Services' based on strategic objectives, similar nature of the products and services, type of customer and economic characteristics.

The Rigs segment contains business from New Build Jack Up rigs, land rigs and refurbishment. The EPCI segment contains business from foundations, process modules, offshore platforms, pressure vessels and engineering and construction (excluding site works). The Contracting Services segment comprises of Site works, Operations and Maintenance, manpower supply and safety services.

Segment comparatives are restated to reflect the organisational changes that have occurred since the prior reporting period to present a like-for-like view.

Segment comparatives as previously stated are as below.

The Group uses standard costing method for recording labour, project management and equipment cost on project. Standard cost is based on an estimated or predetermined cost rates for performing an operation under normal circumstances. Standard costs are developed from historical data analysis adjusted with expected changes in the future circumstances. The difference between total cost charged to the projects at standard rate and the actual cost incurred are reported as under or over absorption.

The reconciliation of the gross operating profit is provided as follows:

The breakdown of revenue from all services is as disclosed in Note 6.

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.

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.

The Executive Directors assesses the performance of the operating segments based on a measure of gross profit. The labour, project management and equipment costs are measured based on standard cost. The measurement basis excludes the effect of the common expenses for yard rent, repairs and maintenance and other miscellaneous expenses.

The Group's principal place of business is in the UAE. The revenue recognised in the UAE with respect to external customers is USD 233.2 million (2017: USD 366.2 million), and the revenue recognised from other countries is USD 3.8 million (2017: USD 4.2 million).

Certain customers individually accounted for greater than 10% of the Group's revenue and are shown in the table below:

The revenue from these customers is attributable to the EPC(I) and contracting services segment. The above customers in 2018 are not necessarily the same customers as in 2017.

6 Disaggregation of revenue

There was no revenue recognised at a point in time during the years ended 31 December 2018 and 31 December 2017.

The transaction prices allocated to the remaining performance obligations (unsatisfied or partially unsatisfied), to be recognised over time, as at 31 December are, as follows:

7 Cost of Sales

8 Selling and distribution expenses

9 General and administrative expenses

10 Staff costs

11 Finance costs and income

Finance income

Finance income comprises interest income of USD 2.2 million (2017: USD 3.9 million) from bank deposits.

12 Other gains/(losses) - net

13 Earnings per share

(a) Basic

Basic earnings/(loss) per share is calculated by dividing the (loss)/profit attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased by the Company and held as treasury shares.

(b) Diluted

Diluted earnings/(loss) per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For the retention share awards, options under executive share option plan and performance share plan, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share awards/options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share awards/options.

Assumed vesting of performance and retention share plans amounting to 6,700,436 (2017: 3,786,640) shares and 2,481,705 (2017: 609,471) shares respectively have been excluded in the current period as these are anti-dilutive.

14 Property, plant and equipment

Buildings have been constructed on land, leased on a renewable basis from various Government Authorities. The remaining lives of the leases range between two to twenty one years. The Group has renewed these land leases upon expiry in the past and its present intention is to continue to use the land and renew these leases for the foreseeable future.

Property, plant and equipment with a carrying amount of USD 95.5 million (2017: USD 104.4 million) are under lien against the bank facilities (Note 29).

A depreciation expense of USD 17.6 million (2017: USD 18.8 million) has been charged to cost of sales; USD 2.6 million (2017: USD 3.8 million) to general and administrative expenses (Notes 7 and 9).

Capital work-in-progress represents the cost incurred towards construction and upgrade of infrastructure and operating equipment.

15 Intangible assets