LAM.L Regulatory News (LAM)

20 September 2018

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

INTERIM FINANCIAL RESULTS

FOR SIX MONTHS TO 30 JUNE 2018

Business performance in line with expectations

Foundations for growth in place

Financial highlights

· Revenue of USD 155.1 million

· Net cash of USD 167.8 million

· Gross margin of 4.6%, reflecting zero margin on the East Anglia One project

· Net loss of USD 21.9 million reflecting low activity levels

Operational highlights

· World class total recordable incident rate (TRIR) of 0.21 for the period

· UAE-based fabrication on the East Anglia One project completed with project costs in line with previous guidance

· Major upgrade to mobile operating unit "Haven" for Master Marine completed on time and on budget

· 21 refurbishment projects completed (with two more ongoing), improved scope and margin

· As at 30 June 2018, backlog of USD 61.7 million (31 December 2017: USD 137.9 million)

Strategic update

· Advancing our strategic aspirations with respect to Saudi Arabia, EPCI and renewables markets

· Continued progress in the major maritime yard in Saudi Arabia (IMI)

o Discussions with IMI in advanced stages regarding subcontracting significant portions of the first two rigs to be built in Lamprell's UAE Hamriyah yard, expected to be finalized late Q4 2018

o Basic engineering for the two rigs is almost complete and based on Lamprell's LJ-43 proprietary jackup design

· Pre-qualification process for LTA with Saudi Aramco nearing completion

· Established Saudi In-Kingdom joint venture with local partner to develop and pursue Saudi offshore EPCI opportunities

· Continuing investment in additional resources to strengthen execution capabilities aligned with strategic initiatives

· Addressing increasing digitalisation in the market by forming a dedicated team to develop and implement a new technology strategy

Current trading and outlook

· Revenue guidance range narrowed at USD 225-250 million, with 100% coverage for the bottom end

· Return to revenue growth in 2019 with a projected range of USD 250-400 million

· Bid pipeline at USD 4.1 billion, with increased activity in both of our end markets of renewables and oil & gas

* USD 257.0 million at 31 December 2017

Christopher McDonald, Chief Executive Officer said:

"The business has performed in line with our expectations over the first six months of this year. Although we are facing very low activity levels at our yards following the completion of our major projects, we are encouraged by the increasing optimism in the industry as evidenced by the improvements in our bid pipeline. During this period, we have taken further steps to build our capabilities, to underpin future bids and project execution. Progress with our strategic initiatives has allowed us to reach preferred bidder status on opportunities of approximately USD 500 million, subject to client final investment decisions, and we firmly believe that Lamprell will return to growth in 2019."

The management team will hold a presentation on 20 September 2018 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/preview/5b8e8266d658a7750a25bc3f. (Conference call: +44 (0)330 336 9127 (UK local) Confirmation code: 5201528)

- 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 3,000 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 812,000 m2 with 1.6 km of quayside.

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

Chief Executive Officer's Review

We completed one major project in 1H 2018 and our second ongoing major project is nearing completion so we are entering a period of very low activity levels across our yards in the UAE. We continue to focus on delivering our strategic objectives and are pleased to see early progress evidenced in the growing bid pipeline as well as through anticipated awards on a number of opportunities in the oil & gas and the renewables markets.

Operational performance in 1H

In the first six months of 2018, the Group maintained its world class safety performance having achieved a TRIR of 0.21. This is our best result since becoming a public company. We continue to put a strong focus on our safety performance and have taken every department through our "Safe start" programme this year. We also held engagement sessions with our subcontractors to address safety performance in our supply chain.

In April 2018 the Group completed the major upgrade to the mobile operating unit "Haven" for Jacktel AS, a wholly owned subsidiary of Master Marine AS. The project was completed on time and on budget with a TRIR of 0 across 2.5 million manhours. The unit was successfully commissioned for operation in offshore Norway in April 2018.

The UAE-based fabrication on the East Anglia One project has also completed, with 42 jackets delivered to Vlissingen. These jackets are undergoing final inspection and handover protocols prior to installation by the client. Meanwhile, the flat-pack components have been safely delivered to our subcontractor in Northern Ireland for assembly. We are now focused on supervising the assembly of the outstanding 18 jackets at our subcontractor's facility in Belfast which are progressively scheduled for delivery over the coming months. Project costs remain in line with previous guidance.

Earlier this year we finalised an exclusive jackup rig design in collaboration with GustoMSC. The LJ43 rig utilises a custom-designed hull and living quarters developed by Lamprell along with GustoMSC's leg design. It has been designed with the view to incorporate specific requirements of the Middle Eastern market and we are pleased to note that International Maritime Industries (IMI) and their client, ARO Drilling, have selected the LJ43 design as the base for the 20 jackup rigs which are to be built at the IMI yard in Ras Al Khair, eastern Saudi Arabia. Significant components for the first two rigs are expected to be subcontracted to Lamprell's UAE facilities in late Q4 2018.

We completed refurbishment on 21 rigs to date this year and are currently working on two further rigs. This compares to 7 refurbishment projects completed in 1H 2017. A number of the refurbishment projects have resulted in increased scope of works as we progressed their delivery, which supported revenue flow and underpinned our view of the wider market recovery.

Strategic initiatives

We continue to strengthen our strategic exposure to key oil & gas growth markets.

The construction of the major IMI maritime yard in Saudi Arabia is progressing. The delivery date for the individual zones of the yard are being reviewed to meet local capacity requirements, although the overall delivery date remains unchanged and the yard is due to be fully commissioned in 2022. This will not affect our funding commitments and our next scheduled payment of USD 39.0 million has recently been paid, as planned. The offtake agreements also remain intact with the first two of the 20 new build jackup rigs expected to be contracted in late Q4 2018. Lamprell is expected to undertake the majority of works on the first two rigs at its facilities in the UAE. Basic engineering for the project is underway.

The pre-qualification process for Saudi Aramco's Long-term Agreement (LTA) programme covering offshore EPCI contracts in excess of USD 3 billion annually continues. Our recent investment in skill and expertise has allowed us to see our bid through to an advanced stage and we now await a final decision on this.

In the course of 2018 we established Lamprell Saudi Arabia, a joint venture with our local partner. We are committed to developing our capabilities in the region to both demonstrate a strong competitive position on the In-Kingdom Total Value Added programme, which is a key requirement in Saudi Aramco's LTA process, and pursue further opportunities.

As we target growth for the business from 2019 onwards, we are proactively addressing the rapid development of technology in the market. We have formed a dedicated team assessing requirements for digital technology and big data in the market and are looking at partnership options to advance our offering in the field.

Market overview and bid pipeline

We continue to be encouraged by the activity levels in our key addressable markets. The bid pipeline at 30 June 2018 was USD 4.1 billion (31 December 2017: USD 3.6 billion). The results of the recent strategic review of the business are evidenced in the disciplined assessment of new business opportunities. Further, we are pleased to have reached preferred bidder status on a number of opportunities totalling approximately USD 500 million, both in our core markets and in renewables, subject to client final investment decisions.

Recovery in the oil & gas sector has been slow but we are seeing increased interest in refurbishment projects, with scopes of contracted works slowly increasing. The new build jackup market is largely inactive, but for the first time in four years we are beginning to see niche opportunities.

At USD 1.7 billion, the renewables segment in our bid pipeline is very encouraging. We continue to view this as a key growth market for Lamprell and will only pursue opportunities that fit with our cost expectations and experience in the sector.

Outlook

Our backlog has decreased to USD 61.7 million given continued weakness in the sector generally and more specifically in our traditional new build jackup market. However, we are encouraged by the significant uptick in bidding activity in the last six months across all of our market segments although any new awards would have minimal impact on 2018. We have therefore narrowed our 2018 revenue guidance to USD 225-250 million, with 100% coverage for the bottom end of this range at present.

Our revenue projections for 2019 are underpinned by our preferred bidder status on the above mentioned opportunities due for award in late 2018/early 2019. Successful conversion and timing of each opportunity may have a significant impact on our guidance. We thus project a revenue range of USD 250-400 million for 2019. We remain focused on successfully completing the East Anglia One project in line with the client's expectations and on rebuilding our order book to return the business to growth next year.

Christopher McDonald

Chief Executive Officer

Lamprell plc

Financial Review

The Group's financial performance in 1H 2018 was in line with our expectations. Revenue levels and backlog have been affected by the prolonged period of inactivity in our core markets. The loss on the East Anglia One project we reported in 2017 impacted our results in 1H 2018 as the revenue recognised on this project was at zero margin. Net cash is trending in line with forecast, with the balance sheet continuing to support the business as we enter a period of improved activity in the market.

Results from operations

Our reporting has been aligned with our strategy and going forward we will report on performance from the following segments: EPC(I), Rigs and Contracting Services. We will also provide a breakdown of our end markets into the oil & gas and renewables markets.

The Group's total revenue for the six-month period ended 30 June 2018 was USD 155.1 million (1H 2017: USD 159.2 million), with 53% generated in the oil & gas business stream and 47% in renewables. Due to the scheduling of project completions and the timing of potential new awards, we expect our full year revenue to be heavily weighted to the first half of the year.

Revenue contribution from the EPC(I) segment was USD 74.7 million, largely represented by the contribution from the East Anglia One project.

The rig segment, which includes the Master Marine project, generated USD 52.0 million. The contracting services businesses reported another strong six months with USD 28.5 million contributed to total Group revenue.

Margin performance 

Gross profit of USD 7.2 million has reduced from USD 20.6 million in the comparative period, driven by the zero margin on the East Anglia One project.

This has reduced our gross margin to 4.6%, a decrease from 13.0% reported for the same period last year. The impact of the East Anglia One project has been partially offset by a strong performance in rig refurbishment, where we have seen a number of additions to original scope of works as well as solid results from our operations & maintenance business.

General and Administrative expenses have increased to USD 22.7 million in line with the previous guidance. The increase reflects investment in specialist talent to address our strategic objectives as well as investment in systems to enhance our bidding processes. We continue to manage our overheads without compromising our growth strategy.

EBITDA from continuing operations was USD (6.2) million (1H 2017: USD 11.5 million). The Group's EBITDA margin of (4.0)% was affected by no margin contribution from the East Anglia One project and low revenue levels, down from 7.2% in the comparative period in 2017.

Finance costs and financing activities

Net finance costs in the first half of 2018 have reduced in the period at USD 1.8 million (1H 2017: USD 3.1 million) due to reductions in our levels of debt and facility commitment fees.

Net profit/loss after exceptional items and earnings per share

The Group generated a net loss of USD 21.9 million (1H 2017: net profit of USD 1.1 million) which equates to a loss per share of 6.42c (1H 2017: earnings per share of 0.30c).

Capital expenditure

The Group's capital expenditure during 1H 2018 was USD 4.5 million (1H 2017: USD 13.7 million) with the majority of spending on the completion of the pipe shop which is now in the final stages of commissioning.

IMI equity contributions

There was no equity contribution to the IMI joint venture during the reporting period. The Group's next equity contribution to IMI of USD 39 million (guidance of USD 38 million) was made in early September, as planned.

Cash flow and liquidity

We report a net cash outflow from operating activities of USD 82.8 million, which was driven predominately by USD 19.1 million paid to Cameron LeTourneau for the inventory S116E rig kits, USD 34.4 million working capital funding for the East Anglia One project and USD 27.0 million for working capital requirements on other projects.

The Group's net cash will continue to reduce through 2H 2018 as we make the scheduled investments in IMI of USD 39.0 million and a further USD 21.9 million for the final payments to Cameron LeTourneau for the inventory rig kits.

Balance sheet

The Group's net cash decreased further to USD 167.8 million from USD 257.0 million reported at the end of 2017. This reflects the working capital requirements of the Group, operating cash outflows as well as the investment in inventory and modest capital expenditure.

The Group's total assets at the period-end were USD 638.8 million (31 December 2017: USD 742.7 million).

Shareholders' equity reduced to USD 439.3 million (31 December 2017: USD 460.8 million).

Borrowings

Borrowings at the end of the reporting period were USD 29.6 million (31 December 2017: USD 39.5 million), with our repayment schedule including a payment of USD 10 million on 31 December 2018 with the balance payable in August 2019.

At 30 June 2018 the Group's facilities comprised (a) a USD 100 million term loan amortised over five years, of which USD 70 million had been repaid by the end of the reporting period; (b) USD 50 million for general working capital purposes which remained unutilised.

At the 31 December 2017 the Group maintained an undrawn facility of USD 100 million of working capital for project financing (reduced from USD 200 million in 2016). On 30 May 2018 this facility was cancelled to reduce commitment fees.

In 1H 2018 the USD 50 million committed bonding facility (which reduced from USD 250 million to USD 150 million in 2016 and to USD 50 million in 2017) to be used in connection with new contract awards funded by the above working capital facility, was also cancelled to reduce commitment fees.

The Group's debt to equity ratio at 30 June 2018 was low at 6.7%.

Going concern

After reviewing its cash flow forecasts for a period of not less than 12 months from the date of signing these half-yearly financial statements, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its financial statements.

Dividends

In the context of the low revenue levels in 2018, the delays in major project awards and the investment for future growth in IMI, the Directors do not recommend the payment of an interim dividend for the period in relation to current financial year ending 31 December 2018. The Directors will continue to review this position in light of market conditions at the relevant time.

Principal risks and uncertainties

Principal risks are a risk or combination of risks that could materially threaten the Company's business model, performance, solvency or liquidity, or prevent it from meeting its strategic objectives. The Group has an established risk management framework which requires all risk owners to identify, evaluate and monitor risks and take steps to reduce, manage or eliminate the risk. This framework is overseen by the Audit & Risk Committee and the Board as a whole.

For details of the Group's principal risks and uncertainties, please refer to the Notes to Financial Statements and the Risk Report in the Company's 2017 Annual Report (which is available on our website at www.lamprell.com). The Board has continued to review the Group's risks during the first half of 2018 and there have been limited changes in respect of these risks, or the Group's risk mitigation activities, since the Annual Report was published.

Antony Wright

Chief Financial Officer

Lamprell plc

Condensed consolidated interim income statement

Condensed consolidated interim statement of other comprehensive income

Condensed consolidated interim balance sheet

Condensed consolidated interim statement of changes in equity

Condensed consolidated interim statement of cash flows

1 Legal status and activities

There has been no change in the legal status or to the Company and its subsidiaries (together referred to as "the Group") or principal activities of the Company since the publication of our most recent annual financial statements.

This condensed consolidated interim financial information has been reviewed, not audited. The information for the year ended 31 December 2017 included in these condensed consolidated interim financial statement does not constitute statutory accounts as defined in the Isle of Man Companies Acts 1931-2004. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report.

2 Summary of significant accounting policies

2.1 Basis of preparation

The condensed consolidated interim financial information for the six months ended 30 June 2018 have been prepared in accordance with the Disclosure Guidance and Transparency Rules ("DTR") of the United Kingdom's Financial Conduct Authority ("FCA") and with International Accounting Standard ("IAS") 34, "Interim Financial Reporting" as adopted by the European Union ("EU"). The consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which have been prepared in accordance with IFRSs as adopted by the EU.

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

2.2 Accounting policies

The accounting policies applied in the preparation of the condensed consolidated interim financial information are consistent with those of the annual financial statements for the year ended 31 December 2017 except for the adoption of new standards and interpretations effective as of 1 January 2018. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The annual financial statements for the year ended 31 December 2017 are available on the Company's website (www.lamprell.com).

(a) New and amended standards adopted by the Group

· IFRS 9 Financial Instruments (see Note 2.3).

· IFRS 15 Revenue from contracts with customer (see Note 2.4).

· IFRS 15 (Clarifications) Revenue from Contracts with Customers.

· IFRIC 22 Foreign Currency Translations and Advance Consideration.

· IFRS 2 (Amendments) Classification and Measurement of Share-based Payment Transactions.

· IFRS 4 (Amendments) Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts.

· IAS 40 (Amendments) Transfers of Investment Property.

· IFRS 1 and IAS 28 (Amendments) Annual Improvements to IFRSs: 2014-16 Cycle.

2.3 Impact of IFRS 9 - Financial Instruments

In the current period 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 adoption of IFRS 9 has resulted in changes in accounting policies in relation to the impairment of trade receivables and contract assets, as detailed below.

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 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. Therefore, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

As at 1 January 2018, the directors of the Company reviewed and assessed the Group's existing trade receivables for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of IFRS 9 to determine the credit risk of the respective items at the date they were initially recognised.

Trade receivables and contract assets

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets.

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. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets.

On that basis, the loss allowance as at 1 January 2018 was determined as follows for both trade receivables and contract assets:

No additional credit loss allowance as at 1 January 2018 has been recognised against retained earnings. Furthermore, no additional 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.

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, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings.

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.

2.4 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 obligation. 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, revenue is recognised to the extent of costs incurred up to the year end which are considered recoverable.

For contracts as to which the Group is unable to estimate the final profitability due to their uncommon nature, including first-of-a-kind projects, the Group recognises equal amounts of revenue and cost until the final results can be estimated more precisely. For these contracts, the Group only recognises gross margin when reliably estimable and the level of uncertainty has been significantly reduced. With respect to fixed price construction contracts with an expected contract duration of 18 months or greater, the Group generally determines this when the contract has progressed to 20% based on the total estimated cost of the contract.

Revenue related to variation orders is recognised when it is probable that the customer will approve the variation 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 is 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.

Consistent with the provisions of IFRS 15, adjustments are only made for a contract modification when either new enforceable rights and obligations are created, or existing ones are changed. Variation orders are accounted for as a separate contract only if the scope of the contract changes due to the addition of the promised goods or if services that are distinct of the price of the contract increases by an amount of consideration that reflects a stand alone price. A claim is recognised as contract revenue when settled or when negotiations have reached an advanced stage such that it is probable that the customer will accept the claim and the amount can be measured reliably.

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.

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 five 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 elected to restate comparative information from prior periods upon adoption of IFRS 15 and has applied the practical expedient under which contracts that began and ended in 2017 or that were completed prior to 1 January 2017 are not restated. In summary, the following adjustments were made to the amounts recognised in the balance sheet at the date of initial application (1 January 2018):

Variable consideration

The current major contracts were at an advanced stage of negotiation and therefore, met requirements of the constraint. Based on this key judgement, no adjustments have been made to revenue previously reported for the six months ended 30 June and 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 six months ended 30 June 2017 and year ended 31 December 2017.

As required for the condensed interim financial statements, 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.

3 Critical accounting judgements and key sources of estimation uncertainty

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

Apart from those relating to the implementation of IFRS 9 and IFRS 15, the critical judgements in accounting policies and key sources of estimation uncertainity applied in these interim financials were the same as those that applied to the consolidated financial statements for the year ended 31 December 2017, except as updated or stated otherwise below:

3.1 Critical judgements in applying accounting policies

Liquidated damages claims (LDs)

As further detailed in Note 4.1.1 of the consolidated financial statements for the year ended

31 December 2017, the Group experienced significant challenges on the East Anglia One ('EA1') project and that caused the Group to incur additional costs as it worked to rectify the shortcomings. While the Group is maintaining an overall delivery schedule for the client, certain key dates have been affected and are still subject to ongoing discussions with our client with a view to determining the implications these might have on the overall project master programme.

In view of the above, management have made a significant judgement within the forecast loss calculation in ascertaining the extent to which liquidated damages will arise on the project. In making this judgement, management has considered the following and believe the estimates made at 31 December 2017 are still appropriate:

· The outcome of ongoing constructive discussions with our client regarding certain key delivery dates and how the delays to the progress of works can be mitigated without impacting any related contractors or any other project activity which minimises the risk of these related contractors pursuing liquidated damages against our client, which the client would in turn seek to recover; and

· The progress of the insurance claim related to the first shipment of the flat packs to our UK subcontractor and the possibility of reimbursement from the insurer.

Based on the discussions and contract progress to date, management believe the risk of the full extent of LDs being levied has been mitigated and we continue to work with the client and the subcontractors to ensure the overall project master programme is not compromised due to the effect of our 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.

Impairment of financial assets

The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group's past history, existing market conditions as well as forward looking estimates at the end of each reporting period. Details of the key assumptions and inputs used are disclosed in the table in note 2.3.

3.2 Key sources of estimation uncertainty

Revenue recognition

The Group uses the input method to account 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. 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 assets by USD 1.8 million (1H 2017: USD 2.6 million) if the total costs to completion are decreased by 10% and a decrease liabilities by USD 1.5 million (1H 2017: USD 2.1 million) if the total costs to completion are increased by 10%.

Onerous contract provisions

Other than a decrease in the outstanding amount of USD 17.3 million (31 December 2017: USD 41.7 million) due to utilisation of the onerous contract provision related to EA1 project as the contract progresses, there has been no change to the estimated losses to completion on the EA1 project previously disclosed in Note 4.2.2 of the consolidated financial statements for the year ended 31 December 2017.

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 1.7 million (31 December 2017: USD 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 1.7 million (31 December 2017: USD 4.1 million) if the total costs to completion increased by 10%.

Impairment of property, plant and equipment and intangible assets

Impairments tests of property, plant and equipment and intangible assets were performed as at 31 December 2017 and disclosed in Note 4.2.3 of the consolidated financial statements for the year ended 31 December 2017. As at 30 June 2018, management have reviewed the key assumptions used in estimating the value in use of the cash generating unit as at 31 December 2017 and these are consistent with the latest projections. As a result of the above, no impairment tests have been performed as at 30 June 2018.

4 Segment information 

On 2 February 2018, the Group has been structured to approach opportunities by way of our strategic objectives and this consititutes a change in the strategic objectives of the business and how its 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 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 interim reporting period to present a like-for-like view.

Segment comparatives as previously stated are as below.

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 operating profit. The staff, equipment and certain subcontract costs are measured based on standard cost. The measurement basis of gross profit excludes the effect of the common expenses for yard rent, repairs and maintenance and other miscellaneous expenses.

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

The breakdown of revenue from all services is as disclosed in note 5.

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

5 Disaggregation of revenue

There were no revenue recognised at a point in time during the six months period ended 30 June 2018.

6 General and administrative expenses

7 (Loss)/earnings per share 

The calculation of the basic and diluted (loss)/earnings per share is based on the following data:

Due to the loss for the period, assumed vesting of performance and retention share plans amounting to 5,744,324 shares and 1,805,292 shares respectively are anti-dilutive and therefore excluded from loss per share calculation.

8 Property, plant and equipment

A depreciation expense of USD 8.3 million has been charged to cost of sales and USD 1.4 million to general and administrative expenses.

9 Investments accounted for using the equity method

There were no changes in investments held during six months ended 30 June 2018. 

10 Trade and other receivables

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

12 Cash and bank balances

13 Inventories

14 Related party transactions

The Group entered into the following transactions during the period with related parties at prices and on terms agreed between the related parties.

15 Share capital

There is no movement in issued and fully paid ordinary shares and share premium for the period ending 30 June 2018 and year ended 31 December 2017.

During 2018, Employee Benefit Trust ('EBT') acquired 196,124 shares (2017: nil shares) of the Company. The total amount paid to acquire the shares was USD 241,917 (2017: USD nil) and has been deducted from the consolidated retained earnings. During 2018, 196,124 shares (2017: nil shares) were issued to employees on vesting of the performance shares and 16,268 shares

(31 December 2017: 16,268 shares) were held as treasury shares at 30 June 2018.

16 Other reserves

17 Trade and other payables

18 Contract liabilities

19 Derivative financial instruments

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:

There were no liabilities as at 30 June 2018 and 31 December 2017 measured at fair value.

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.

There were no transfers between Level 1, 2 and 3 during the period.

There were no changes in valuation techniques during the period.

20 Borrowings

Repayments of borrowings amounting to USD 10.0 million were made during the period. As at 30 June 2018, the Group's borrowings amount to USD 29.6 million.

At 30 June 2018, the Group has banking facilities of USD 879 million (31 December 2017: USD 1,049 million) with commercial banks. The facilities include bank overdrafts, letters of guarantees, letters of credit and short-term loans and there has been no significant change in the nature of security pledged against these facilities as at 30 June 2018.

On 2 March 2018, the Group obtained a waiver from its lenders which reduces the tangible net worth covenant for the periods 31 December 2017, 30 June 2018 and 31 December 2018. The outstanding balance as at 30 June 2018 has therefore, been presented split between current and non-current portion. Prior to this waiver and as at 31 December 2017, the outstanding balance was presented as a current liability.

21 Dividends

There were no dividends declared or paid during the six months period ended 30 June 2018.

22 Commitments

(a) Operating lease commitments

The Group leases land and staff accommodation under various operating lease agreements. The future minimum lease payments payable under operating leases are as follows:

(b) International Maritime Industries commitments

In 2017, the Group has entered into commitments associated with the investment in International Maritime Industries. Under the Shareholders' Agreement, the Group will invest up to a maximum of USD 140.0 million in relation to its commitment over the course of construction of the Maritime Yard between 2017 and 2022 with USD 20.0 million already paid to date. The forecast contributions are as follows:

(c) Other commitments

23 Bank guarantees

The various bank guarantees, as above, were issued by the Group's bankers in the ordinary course of business. Certain guarantees are secured by cash margins, assignments of receivables from some customers and in respect of guarantees provided by banks to the Group companies, some 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.

24 Cash flow from operating activities