LAM.L Regulatory News (LAM)

1 October 2020

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

INTERIM FINANCIAL RESULTS

FOR SIX MONTHS TO 30 JUNE 2020

Improved financial performance with positive EBITDA

Operations continue with COVID-19 impact being well managed

Significant progress with strategic objectives

Financial highlights

· 34% revenue growth to USD 142.5 million (1H 2019: USD 106.4 million)

· EBITDA positive at USD 0.3 million despite headwinds of COVID-19 and low oil prices (1H 2019: negative EBITDA of USD 29.6 million)

· Net loss of USD 27.1 million (1H 2019: net losses of USD 51.9 million); net losses of USD 19.6 million excluding exceptional non-cash impairments and restructuring costs

· Debt-free as of 30 June 2020; pursuing future project funding arrangements

· Net cash increased to USD 71.4 million from USD 42.5 million at 31 December 2019, with restricted cash of USD 36.1 million as at 30 June 2020; net cash as at 30 September USD 125 million, with restricted cash of USD 47 million

· Backlog increased to USD 580 million at period end (31 December 2019: USD 470 million)

Operational highlights

· Swift and decisive action taken to respond to the COVID-19 pandemic, operations continue with moderate impact on business being effectively managed

· Exemplary safety performance: 12-month rolling total recordable incident rate (TRIR) of 0.16

· Moray East project operationally complete in September and fully handed over to client

· IMI rigs progressing through fabrication phase in line with expectations

· Two new project awards since the beginning of the year:

o Seagreen windfarm in the UK North Sea

o Mahani gas field in Sharjah

· Steady stream of new awards from rig refurbishment segment continues

Strategic update

· Addressable market in the renewables industry continues to grow, with new geographies (Asia and US) gaining traction

· Saudi Aramco's Long Term Agreement (LTA) bidding continues

· Progressing digital strategy with successful employment of digital twin technologies and robotic welding

· Discussions to defer 2020 IMI equity contribution are continuing

Current trading and outlook

· 2H 2020 secured backlog of USD 182.5 million, resulting in full year 2020 secured revenue of USD 325 million; 2021 and 2022 secured backlog of around USD 400 million

· High quality bid pipeline of USD 5.5 billion with renewables-driven growth anticipated from 2021, currently renewables pipeline of USD 1.3 billion

· Actively engaged in multiple bidding processes in our addressable markets, although predictability of timing of awards impacted by COVID-19

· 2020 overheads estimated to be circa USD 80 million (2019: US$104 million), with 2021 overheads expected to be maintained at a similar level

For the definitions of EBITDA, overheads and net cash, please refer to the 'Alternative performance measures' in the notes to interim financial information.

Christopher McDonald, Chief Executive Officer said:

"2020 has been a challenging year for the global energy industry and in this context it is pleasing to have returned to positive EBITDA for the period. Like never before, we were able to demonstrate our operational flexibility as we were forced to adapt to new working arrangements without compromising on safety, quality and timely delivery for our clients. Our strong operational delivery and focused approach to overhead reduction has enabled us to deliver a much improved financial performance whilst demonstrating further progress in delivering our strategy. The strategy we set out for the business three years ago has enabled us to grow our backlog and revenue in challenging environment and we continue to evolve with developments in the energy industry. Over this three year period, Lamprell has become established as one of the leading suppliers of foundations for offshore wind and we expect to build on our strong position in renewables. The Group is focused on reinforcing our position and capitalising on growth fundamentals in our addressable markets and rapidly advancing digital initiatives for our client base."

The management team will hold a presentation on 1 October 2020 at 9.00 am (UK time). Due to the ongoing global health crisis and the wide-spread travel restrictions and prevention measures in place, we will be holding the presentation in Dubai and it can be accessed via a live webcast on our Company's website, at www.lamprell.com or on the following link:

Webcast link: https://webcasting.brrmedia.co.uk/broadcast/5f64c07483507b593b46bc85

Tollfree/freephone 0800 358 6377, UK Local +44 (0)330 336 9125 - Confirmation code 1058068

- 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 renewable energy and oil & gas industries. As well as its exposure to the renewable energy industry, the Group has established leading market positions in the fabrication of shallow-water drilling jackup rigs, liftboats, land rigs, and rig refurbishment projects. 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, in the UAE. Combined, the Group's facilities cover approximately 800,000m2 with over 1.5 km of quayside. In addition, the Group has facilities in Saudi Arabia (through a joint venture agreement).

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

Chief Executive Officer's Review

We started this year with a formal contract award for two new build jackup rigs subcontracted through our IMI joint venture in Saudi Arabia and, despite the devastating effects of COVID-19 on public health and global industries over the past eight months, we are pleased to report an encouraging set of results for the first half of 2020. We took swift action to restructure and reduce our overheads early in the year and to address the operational challenges we anticipated from the pandemic: in both cases we significantly cut costs to ensure the Group continues to deliver on its strategic objectives. As a result, we improved our financial position, progressed our projects without major disruption or undue risk to the health and wellbeing of our employees and were successful in securing our third major contract award in the renewables industry. We remain focused on improving the Company's financial position and our commitment to lowering our cost base on a permanent basis is central to this objective.

Operational performance in 1H

I am pleased to report that, despite the significant challenges faced by most industries globally as a result of the COVID-19 pandemic, we made strong progress with our major projects and our wider business. We started the year with a restructuring programme aimed at streamlining our operations and achieving significant overhead reductions. This resulted in us mothballing the Jebel Ali yard and we are now also exiting the Sharjah yard as the final works on the Moray East project have drawn to a close. The restructuring will result in an overhead reduction of USD 24 million for the full year 2020 and will give us an opportunity to develop a more efficient yard set-up.

Midway through 1H 2020, we looked to address the effects of COVID-19 early on during the pandemic, introducing a temporary 25% reduction in fees and salaries for the Directors, senior management and all professional staff. As with all of our peers, the lockdown and self-distancing measures affected the efficiency of our operations but nonetheless we were able to progress existing projects safely, to schedule, and successfully commence works on those projects contracted since the beginning of the year. Further as a result of COVID-19 and as reported previously, the Board decided to delay the award of long-term incentives awards until such time as the market had stabilised. The Board continues to actively monitor the state of the market and the appropriate time for making such awards.

The Moray East project is now operationally complete with the final loadout of jackets having left our quayside last month. I would like to thank the team for their exceptional efforts in delivering this critical project, further demonstrating our ability to deliver large scale renewables fabrication projects as planned despite the tumultuous last six months and enhancing our reputation and market-leading position in this fast-growing sector.

While completing final fabrication works on Moray East, we were also contracted to fabricate 30 jackets for the Seagreen wind farm, our third project in the offshore windfarm sector. As we had undertaken some pre-engineering works on the project prior to contract signing, this allowed us to promptly progress with steel orders and we have now cut first steel on the project. Over the last few years we have fabricated over 100 foundations for UK's leading offshore wind farms, which has enabled us to improve our execution and gain a strong foothold in the market for delivery of jackets for offshore windfarms.

The two new build jackup rigs subcontracted to Lamprell through the IMI joint venture in Saudi Arabia are also progressing as planned. Since the period end, we have cut steel for both rigs and commenced cantilever fabrication on rig one and started laying out the hull.

We were also pleased to be selected as an engineering, procurement, installation and commissioning (EPIC) partner for the strategically significant Mahani gas and condensate field in Sharjah, United Arab Emirates. The project includes hook-up and installation at the well, existing systems upgrade, associated tie-ins and a new 25 km export pipeline and is scheduled for completion in early 2021.

The refurbishment segment continues to deliver good results, and we have seen a steady flow of new work from our clients, although rig deployment has slowed down with completed projects going through additional scopes while they await commissioning. Encouragingly, we received awards for several rig refurbishment projects from ADNOC, continuing our long-standing relationship with a major regional client.

Our focus on digital initiatives has proven to be timely as the world has promptly embraced remote working arrangements during these last 6 months, highlighting the need for rapid development in the field. During the reporting period we signed an exclusive deal with Akselos, a leading developer of simulation technologies, to market digital twins, which we have been successfully employing to support our clients. The deal will enable us to offer our clients engineering simulations for the optimised design, delivery and maintenance of wind farm foundations, jackup rigs, FPSO modules and a number of other offshore assets. Our digital strategy has become a larger part of our planning and we are excited about the major opportunities open to us.

To this end, we are progressing innovative digital solutions in our yards that drive improvements across our business. These include successful deployment of adaptive robotic welding, installation of facial recognition technology within our yards, digitising our proprietary QA/QC quality management system and implementing smart non-destructive testing techniques.

We intend to monetise our unique experience and know-how to develop new revenue streams. To this end, we partnered with Injazat, the region's leading digital developer backed by Mubadala Investment Company, to progress a portfolio of digital ventures including asset integrity and various initiatives to enhance fabrication efficiencies in our core markets, with limited investment at this stage. We are piloting these initiatives already in our yards and have already started to discuss them with a number of clients.

Strategic Initiatives

The global pandemic crisis has reinforced our commitment to the strategy we set out three years ago. Since the beginning of the year and amidst a global economic crisis, we have secured contracts with a total value of circa USD 575 million. These include new build jackup rigs destined for operation in Saudi Arabia, the above-mentioned EPIC project with the Sharjah National Oil Company and the major renewables contract for the Seagreen offshore wind farm in Scotland. All three projects are well-aligned with our strategic objectives.

Our focus and investment in the Middle East, a region with the lowest hydrocarbon lifting costs across the oil industry, continues to deliver robust revenue-generating opportunities. For three years, we have seen a steady flow of offshore wind farm fabrication projects through our yards, each adding to our expertise and building on our reputation in this market with rapid global growth. Our timely focus on digital solutions will also ensure we are capable of not only addressing our clients' emerging requirements and delivering cost effective innovative solutions for the global energy industry, but also open up new revenue streams to the Group. Our strategy fits the evolving energy landscape and we are well positioned both geographically and through our skillset and expertise to benefit from continued growth in global renewables and regional oil and gas opportunities.

Market Overview and Bid Pipeline

The bid pipeline at 30 June 2020 reduced to USD 5.5 billion from USD 6.2 billion at 31 December 2019. Although the COVID-19 pandemic has slowed down new project commissioning globally, our pipeline of prospective projects remains strong and we continue to apply stringent selection criteria to our bid/no bid decisions. Approximately USD 3.7 billion of the pipeline originates from oil and gas projects in the Middle East, with the LTA component remaining strong.

Our renewables bid pipeline at 30 June 2020 was USD 1.3 billion. It has almost doubled over the last three years and includes a number of active bids in Europe and Asia. This year, we are also beginning to see strong interest from the US and expect these projects to progress to a bidding stage in early 2021. The scale of the US offshore renewables projects is significantly larger than our current and previous experience in Europe and our track record, location, cost and flexibility give a similar advantage as seen with previous bids. We therefore expect our renewables pipeline to grow in the medium term.

Outlook

Over the past few months, we have seen gradual easing of operating and social distancing restrictions although uncertainty and caution prevail across our own business and our supply chain. Monitoring the health and safety of our employees and managing costs and liquidity will remain our top priority. We have a strong pipeline of potential projects with a number of active discussions in both oil & gas and renewables end markets, but we expect major project awards to push out until 2021. Our backlog at the end of June 2020 increased to USD 580 million from USD 470 million at 31 December 2019, with secured revenue for 2H 2020 of USD 182.5 million. Approximately USD 400 million is scheduled to be delivered in 2021 and 2022, providing the Group with a strong base for growth.

Christopher McDonald

Chief Executive Officer

Financial Review

In 1H 2020 Lamprell demonstrated exceptional fiscal control and discipline, continuing to navigate successfully the challenges of the COVID-19 pandemic. With year-on-year growth in revenue and significant overhead reductions, our EBITDA for the period was positive. The Group is debt-free with net cash of USD 71.4 million at the period-end, of which USD 36.1 million was restricted.

Results from operations

Total revenue for the six-month period ended 30 June 2020 was USD 142.5 million (1H 2019: USD 106.4 million), of which 60% was generated by the Moray East project, 22% by newbuild and refurbishment works in the oil and gas business stream and 17% by the services segment. With the Seagreen project commencing in 2H 2020 and the IMI rigs moving into fabrication phase, we expect full year revenue to be weighted towards the second half.

Margin performance

Notwithstanding the significant challenges created by COVID-19, gross profit for the reporting period was USD 5.7 million (1H 2019: gross loss of USD 13.0 million), with the improvement over the previous period being primarily driven by Moray East as the project moved to final stages of fabrication and client handover. Gross margin was also positive at 4.0%, a significant improvement on the previous year.

As a result of the operational restructuring and significant overhead reduction put in place at the beginning of the year as well as COVID-19 specific temporary cost-cutting measures, total overheads (excluding exceptional restructuring costs of USD 3.2 million and non-cash impairments of USD 4.2 million) have reduced by USD 16 million (1H 2019: USD 51.1 million). General and administrative expenses (excluding the exceptional items referred to above) have reduced to USD 15.3 million (1H 2019: USD 29.3 million) with total overheads for the year on track to reducing to USD 80.0 million, as per our previous guidance.

During 1H 2020, the Company achieved a positive EBITDA from continuing operations (excluding exceptional items) of USD 0.3 million (1H 2019: USD (29.6 million)) as a result of successful long and short term overhead reduction initiatives and solid financial performance from our projects.

Finance costs and financing activities

The Group repaid its outstanding debt on 11 March 2020 and therefore had no debt by the end of 1H 2020. Net finance cost (excluding interest expense on leases) therefore reduced to a neutral position (1H 2019: USD 1.7 million). We are assessing a number of options for future project funding as a key priority for the Company and its wider business.

Net loss and loss per share

The Group generated a net loss of USD 27.1 million (1H 2019: net loss of USD 51.9 million) which equates to a loss per share of (7.93) US cents (1H 2019: loss per share of (15.20) US cents). The losses are driven by the continuing low revenue levels, a non-cash asset impairment of USD 4.2 million based on an interim review of the business's property, plant and equipment and investments in associates (see Note 25) and USD 3.2 million of one-off expenses related to the overhead restructuring programme (see Note 26). Net loss before impairment and restructuring costs during the reporting period was USD 19.6 million.

Capital expenditure

As the Group intensified efforts to preserve liquidity, all but essential capital expenditure has been put on hold. Capital expenditure in 1H 2020 amounted to USD 3.2 million (1H 2019: USD 9.6 million). We anticipate capital expenditure to be low for the remainder of the year with incremental only investments in our yards aimed at improving our efficiency with renewables projects.

IMI equity contributions

There was no equity contribution to the IMI joint venture during the reporting period. To date, total contribution to the IMI joint venture amounts to approximately USD 59.0 million, out of a USD 140.0 million total maximum commitment. The Company's next equity contribution of USD 25.8 million remains under discussion with the IMI partners, with ongoing construction activities funded through the prior equity contributions and IMI debt facility with the SIDF. The Company's share of the losses for the IMI joint venture in 1H 2020 was USD 6.7 million.

Cash flow and liquidity

The Group's net cash flow from operating activities for the six months period ending 30 June 2020 reflected a net inflow of USD 33.0 million which was driven by savings from the reduction in cash overheads, the final settlement payment from the East Anglia One contract as well as milestone receipts on major projects. Prior to working capital movements and the payment of employees' end-of-service benefits, the Group's net cash inflow was USD 0.9 million. Cash, together with bank, term and margin deposits, increased by USD 8.9 million to USD 71.4 million.

Balance sheet

The Group's net cash increased to USD 71.4 million from USD 42.5 million as at 31 December 2019 aided by stringent cost management, the final settlement payment from the East Anglia One contract as well as milestone receipts on major projects. The element of cash restricted through project guarantees and bonds was USD 36.1 million as at 30 June 2020. Subject to the timing of project receipts, we anticipate the net cash position at the end of 2020 to be at similar levels as at 30 June 2020.

The Group's total assets at the period-end were USD 501.0 million (31 December 2019: USD 434.6 million). Inventories on the balance sheet have reduced to USD 22.0 million following monetisation of the two Super 116E rig kits on award of the IMI rigs and we continue to market our proprietary LAM2K land rig which is held in inventory.

Shareholders' equity at the period-end was USD 186.8 million (31 December 2019: USD 211.4 million).

Borrowings

Following the repayment of the USD 30 million debt facility on 11 March 2020, the Company currently holds no debt.

New debt

The balance sheet retains sufficient headroom to support ongoing projects and we remain focused on achieving a level of financial performance that will support an efficient and prudent capital structure. To this end, we have made progress in securing additional project-specific funding options to improve working capital liquidity over the medium term with a small project facility for the Seagreen project secured. Furthermore, discussions around alternative financing options are ongoing with various potential sources of finance notwithstanding the impact of COVID-19.

Going concern

Consistent with 31 December 2019, the Group's interim financial statements have been prepared on a going concern basis, notwithstanding the material uncertainty as further discussed in Note 2.1. While the Group has made progress against the assumptions included in the year-end annual report, in reaching the going concern conclusion for the interim financial information the Directors have made certain assumptions including securing new financing for the business in the first quarter of 2021 and new contract wins in the going concern period. Should these assumptions not crystallise, plans are in place to implement mitigating measures to maintain liquidity. Detail on the assumptions and mitigating measures are provided in further detail in Note 2.1 of the interim financial statements.

Following consideration of these measures, the Directors are satisfied that they have appropriate available mitigating actions in place to maintain the Group's liquidity in the short term, but highlight that current market circumstances, together with assumptions in management's forecasts that are outside their control, represent material uncertainties that may cast significant doubt on the Group's ability to continue as a going concern.

Dividends

In the context of the current macroeconomic environment and uncertainty, the Directors do not recommend the payment of an interim dividend for the period in relation to current financial year ending 31 December 2020. 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, but is implemented and actioned by the executive team.

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 2019 Annual Report (which is available on our website at www.lamprell.com). Early in 2020, the Audit & Risk Committee undertook a number of deep dives into key risks to the Company with the risk owners and subsequently reported back to the Board on these risks and the Group's risk mitigation activities, confirming that no significant changes or new risks had been identified. The Audit & Risk Committee and the Board will continue to review and monitor the impact of COVID-19 on these principal risks.

Antony Wright

Chief Financial Officer

Condensed consolidated interim income statement

*General and administrative expenses include an impairment charge of USD 4.2 million (30 June 2019: nil) (Note 25) recognised in respect of property, plant and equipment, intangible assets and an investment accounted using equity method and a restructuring cost of USD 3.2 million (30 June 2019: nil) (Note 26) relating to staff redundancies and costs of closing down Sharjah.

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 2019 included in these condensed consolidated interim financial information 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 unqualified but referred to the Company's disclosures in respect of a material uncertainty relating to going concern.

2 Summary of significant accounting policies

2.1 Basis of preparation

The condensed consolidated interim financial information for the six months ended 30 June 2020 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 2019, which have been prepared in accordance with IFRSs as adopted by the EU.

Going concern

The Group incurred a loss of USD 27.1 million during the six months ended 30 June 2020 (30 June 2019: USD 51.9 million) and was in a net cash position of USD 71.4 million at 30 June 2020 (31 December 2019: USD 42.5 million) - see Alternative Performance Measures (APMs) on page 28. The increase in cash resources is largely attributable to net cash inflows generated from operating activities of USD 32.9 million.

Of the net cash position at 30 June 2020, USD 36.1 million of the balance was restricted. The level of net unrestricted cash at 30 June 2020 was therefore USD 35.3 million (31 December 2019: USD 6.1 million).

The consolidated financial statements for the year ended 31 December 2019 contained a material uncertainty statement relating to going concern. In performing their assessment at 30 June 2020, the Directors have considered the forecast cashflows for the 15 months to December 2021 and reviewed the progress against the key assumptions for which an update is provided below:

- Completion and signing of a new financing agreement in the fourth quarter of the year: we have secured a small project facility for the Seagreen project and are making progress in securing additional project-specific funding options to improve working capital liquidity over the medium term. Due to the extended effects of the pandemic, the Directors now assume the new financing will be completed in the first quarter of 2021. 

- Conversion of a portion of the bid pipeline to contract awards in line with our strategy: This includes opportunities from oil and gas and renewables markets. We have thus far made progress on our strategy as noted by the award of Seagreen in June 2020 and we continue to bid on selective quality projects in these markets which match our capabilities.

- Subsequent receipt of a portion of restricted cash relating to the EA1 project: workstreams are ongoing in accordance with the settlement agreement and we expect this to be released during second half of the year.

- Execution of existing major projects in accordance with the milestones in the contract and payment receipts in accordance with the contract: despite the wide-ranging effects of COVID-19, all our on-going projects remain on track and no delays in meeting milestones or payment receipts have been encountered and/or are expected at the time of approving the condensed consolidated interim financial information.

- No further cash investment in IMI in the period: negotiations are ongoing with the other IMI shareholders to defer our investment that was due in Q2 2020 to Q3 2021.

- Capex, staff and overhead reduction: we remain on track to deliver a USD 24 million reduction in overheads as a result of our operational restructuring announced earlier this year, with approximately a USD 20 million reduction in cash overheads.

- Ongoing revenues from contracting services and rig refurbishment in line with those achieved in recent period: these business units continue to deliver good results, and we have seen a steady flow of work from our clients. The business unit has also benefited from the slow rig deployment with completed projects going through additional scopes as they await commissioning.

Notwithstanding the measures implemented by the Group to prevent and/or detect the virus, the conditions and material uncertainty due to COVID-19 and the lower oil and gas prices noted in Note 2.1 of the consolidated financial statements for the year ended 31 December 2019 remain present. At the date of approval of the condensed consolidated interim financial information, our yards continue to operate though these have been moderately affected by lockdowns implemented during the period and social distancing measures in the UAE.

The Directors believe that the timing and realisation of these assumptions remain reasonable as noted with the progress achieved to date and reflect their assessment of the most likely outcome. However, the timing and realisation of these matters are not wholly within management's control and so the Directors have also considered downside sensitivities to the key assumptions which include no new significant contract wins in the going concern period and the inability of the Group to secure new financing. The Directors have concluded that, in aggregate, such matters beyond management's control represent a material uncertainty that may cast significant doubt on the entity's ability to continue as a going concern.

Significant disruption to the timing or realisation of the anticipated cash flows could result in the business being unable to realise its assets and discharge its liabilities in the normal course of business.

In view of this, the Directors have considered the realistic availability and likely effectiveness of mitigating actions that they could take to avoid or reduce the impact or likelihood of a significant deterioration in the cash flows. These include:

· potential alternative financing options with various possible sources of funding;

· pre-emptive stock issue in accordance with the special resolution passed at the annual general meeting of shareholders;

· self-help measures including extended 25% reductions in fees, salaries and allowances for the Board, senior management and professional staff, use of a deferred salary savings scheme and where operationally feasible, placing staff on reduced working hours or unpaid leave;

· reduced levels of capital expenditure; and

· sale of non-core businesses or assets.

Following consideration of these actions, the Directors are satisfied they have appropriate available mitigating actions in place to maintain the Group's liquidity in the short term. However, the Directors highlight that current market circumstances influenced by the COVID-19 pandemic and the global oil price crash, together with assumptions in management's forecasts which are outside their control, represent material uncertainties that may cast significant doubt on the entity's ability to continue as a going concern.

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 2019 except for the adoption of new standards and interpretations effective as of 1 January 2020. 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 2019 are available on the Company's website (www.lamprell.com).

(a) New and amended standards adopted by the Group

· IAS 1 and IAS 8 (Amendments) Definition of Material.

· IFRS 3 (Amendments) Definition of a Business.

· IFRS 7, IFRS 9 and IAS 39 (Amendments) Interest Rate Benchmark Reform.

· Amendments to References to the Conceptual Framework in IFRS Standards.

The adoption of these amendments have not had any impact on the Group.

3 Critical accounting judgements and key sources of estimation uncertainty

The preparation of condensed consolidated interim financial information 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.

3.1 Critical judgements in applying accounting policies

Contract claims

A claim is an amount that the Group seeks to collect from the customer or another party as reimbursements for costs not included in the contract price. A claim may arise from, for example, customer caused delays, prolongation cost, cost of acceleration of project, program errors in specifications or design, and disputed variations in contract work. The measurement of the amounts of revenue arising from claims is subject to a high level of uncertainty and often depends on the outcome of negotiations. Therefore, claims are only included in contract revenue when the amount has been accepted by the customer or the customer's representative, there is a clear contractual entitlement, and / or negotiations have reached a stage that it is highly probable that a significant reversal of revenue will not occur.

As at 30 June 2020, the balance of due from customers on construction contracts includes an amount of unapproved contract claims.

3.2 Key sources of estimation uncertainty

Revenue and margin recognition

The Group uses the cost to cost (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 0.3 million (H1 2019: USD 7.8 million) if the total costs to completion are decreased by 10% and a decrease in liabilities by USD 1.7 million (H1 2019: USD 1.4 million) if the total costs to completion are increased by 10%.

Impairment of non-financial assets

At the end of the reporting period, where indicators exist, management performs an impairment test which requires 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 ("FVLCD") is estimated. Management performs the review at the cash generating unit ("CGU") relating to an operating segment's assets located in a particular geography - refer Note 25. At 30 June 2020 impairment indicators existed that predominantly arose from the ongoing COVID-19 pandemic and sharp fall in oil prices.

Based on this review, an impairment loss of USD 3.4 million (2019: nil) attributable to operating equipment and intangible assets and USD 0.8 million relating to an investment accounted using the equity method has been recorded during the period (Note 25) .

The recoverable amount has been determined based on FVLCD. In determining FVLCD, management has used an independent valuer sighting that their report contained a general industry-wide material valuation uncertainty due to the effects of COVID-19. As confirmed by the valuer, this is a general clause in line with market practice, not specific to the Group and is required until such a time that the pandemic is contained.

If the FVLCD were to increase by 5% there would be a decrease in the impairment by USD 1.4 million and if the fair values were to decrease by 5% there would be an increase in the impairment by USD 1.4 million.

4 Segment information 

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 Site works, Operations and Maintenance, manpower supply and safety services.

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 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 uses standard costing method for recording labor, 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 5.

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), contracting services and Rigs segment.

The above customers in 2020 are not necessarily the same customers as in 2019.

5 Disaggregation of revenue

There was no revenue recognised at a point in time during the six months period ended 30 June 2020 and 30 June 2019.

Performance Obligations (unsatisfied)  

The transaction prices allocated to the remaining performance obligations (unsatisfied or partially unsatisfied), to be recognised over time, as at 30 June 2020 are, as follows:

6 General and administrative expenses

General and administrative expenses excluding the impairment of non-financial assets and restructuring costs amount to USD 15.3 million. (30 June 2019: USD 29.8 million).

7 Earnings per share 

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

8 Property, plant and equipment

Depreciation expense of USD 8.8 million (30 June 2019: USD 10.6 million) has been charged to cost of sales and USD 1.0 million (30 June 2019: USD 1.2 million) to general and administrative expenses. Depreciation charge on right-of-use assets for period ended 30 June 2020 is USD 1.9 million (30 June 2019: USD 2.4 million).

9 Investments accounted for using the equity method

* Investment has been accounted to nil as share of losses exceed investment value.

** Investment has been impaired to nil as a result of impairment review at reporting date- refer Note 25.

10 Trade and other receivables

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The Group considers that the carrying amount of trade receivables approximates to their fair value.

11 Contract Assets

The increase in contract assets is mainly due to the transfer of the elevating kits from inventory into contract work in progress on award of the IMI rigs (see Note 13).

12 Cash and bank balances

13 Inventories

Inventories have reduced to USD 22.0 million following monetisation of the elevating kits USD 69.6 million on award of the IMI rigs. The cost of inventories recognised as an expense amounts to USD 7.8 million (30 June 2019: USD 4.1 million) and this includes nil (30 June 2019: USD 2.5 million) in respect of write-down of inventory to net realisable value.

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 ended 30 June 2020 and year ended 31 December 2019.

During 2020, Employee Benefit Trust ('EBT') acquired no shares (31 December 2019: 101,783 shares) of the Company. The total amount paid to acquire the shares was nil (31 December 2019: USD 71,023) and has been deducted from the consolidated retained earnings. During 2020, no shares (31 December 2019: 101,783 shares) were issued to employees on vesting of the performance shares and 16,268 shares (31 December 2019: 16,268 shares) were held as treasury shares at 30 June 2020.

16 Other reserves

17 Trade and other payables

The Group considers that the carrying amount of trade payables approximates to their fair value.

18 Contract liabilities

The increase in amounts due to customers on contracts is mainly due to receipt of milestone payments on the major projects awarded in 2020 relating to the Rigs and EPC(I) segment.

19 Provision for warranty costs

20 Borrowings

As at 30 June 2020, the Group has no debt following repayment of borrowings during the period.

The Group has separate bilateral unfunded facilities of USD 275.9 million (31 December 2019: USD 305.9 million) with commercial banks. The facilities include letters of guarantees and letters of credit (see Note 23) and there has been no change in the nature of security pledged against these facilities as at 30 June 2020.

21 Dividends

There were no dividends declared or paid during the six months period ended 30 June 2020 or year ended 31 December 2019.

22 Commitments

(a) International Maritime Industries' commitments

In 2017, the Group 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 59.0 million already paid to date. The forecast contributions are as follows:

Negotiations are ongoing with the other IMI shareholders to defer the Group's investment that was due in Q2 2020 to Q3 2021. This commitment has been profiled under later than one year based on the progress of these negotiations.

(b) 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 margins deposits, 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 Finance costs

25 Impairment of non-financial 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 non-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 - ("FVLCD") is estimated and the higher of value in use and FVLCD is used as the recoverable amount.

At 30 June 2020, impairment indicators existed, that predominantly arose from the ongoing COVID-19 pandemic and low oil prices which continue to impact NOC budgets and spending. This has had an impact on our backlog and utilisation of our assets attributable to the United Arab Emirates cash generating unit ("CGU").

Based on this review, an impairment loss of USD 3.4 million (30 June 2019: nil) has been recorded during the period largely as a result of operating equipment valuation reductions. The recoverable amount is based on fair value less costs of disposal except for intangible assets where value in use has been used given the nature of the assets.

FVLCD represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date net of costs of disposal e.g. dismantling costs, brokerage and legal fees. The fair value of the Group's property, plant and equipment at 30 June 2020 has been arrived at based on a valuation carried out at that date by Cavendish Maxwell, independent valuers not connected with the Group.

The valuation conforms to international valuation standards and the key assumptions and techniques remain the same as those used at year end - refer to Note 41 of the consolidated financial statements for the year ended 31 December 2019.

In addition to that an impairment of USD 0.8 million has been recorded towards an investment accounted using equity method based on the decision to dispose of the investment for a nominal value.

26 Restructuring costs

During January 2020, the Group undertook a major review of its current operational footprint against medium term fabrication requirements and decided to consolidate its operations within one yard in order to streamline operations and achieve significant overhead reductions. As such, the Jebel Ali facility has been mothballed from January 2020 and we are in the process of exiting the Sharjah Yard as final works on the Moray East project are completed. These measures have also resulted in headcount reductions most of which have already been implemented.

The Hamriyah yard, being the largest facility, will continue to operate and gives us the opportunity to expand our yard capacity if needed. These actions allow for the Group to gradually grow fabrication volumes whilst significantly improving efficiency and reducing its cost base.

The total estimated one-off charge/exceptional item is expected to be USD 7.5 million of which USD 3.2 million has been incurred in the six months period ended 30 June 2020. These expenses pertain to staff redundancies and costs of closing down Sharjah. Capital commitments related to the restructuring programme amounts to USD 6.2 million (Note 22).

27 Cash flow from operating activities

* Movement in inventories includes an amount of USD 69.6 million for two rig kits.

28 Events after the balance sheet date

Subsequent to the balance sheet date, the Board of Directors have approved the disposal of the Group's investment in Maritime Industrial Services Arabia Co. Ltd. ("MISA") for a nominal value.

Alternative performance measures

As set out in our most recent annual report, we use a range of financial and non-financial measures to assess our performance. The tables below set out the definitions of such measures, reconciliations to amounts presented in the interim financial statements and the reason for their inclusion in the report. The metrics presented are consistent with those presented in our previous annual report and there have been no changes to the bases of calculation.

EBITDA

In addition to measuring financial performance of the Group based on operating profit, we also measure performance based on EBITDA. EBITDA is defined as the Group profit / (loss) for the year from continuing operation before depreciation, amortisation, impairment, exceptional items, net finance expense, taxation, and share of loss of investments accounted for using the equity method.

We consider EBITDA to be a useful measure of our operating performance because it approximates the operating cash flow by eliminating depreciation and amortisation. EBITDA is not a direct measure of our liquidity, which is shown by our cash flow statement, and needs to be considered in the context of our financial commitments.

Reconciliation from Group loss for the year, the most directly comparable IFRS measure, to EBITDA is set out below:

Six month ended 30 June:

Net cash

Net cash measures financial health after deduction of liabilities such as borrowings. A reconciliation from the cash and cash equivalents per the consolidated cash flow statement, the most directly comparable IFRS measure, to reported net cash, is set out below:

Overheads

Overheads are costs required to run our business but which cannot be directly attributed to any specific project or service. A reconciliation from unallocated expenses per the segment note in the consolidated financial statements to reported overheads, is set out below:

Six months ended 30 June