LAM.L Regulatory News (LAM)

8 August 2022

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

2021 FINANCIAL RESULTS

Lamprell today announces its audited financial results for the year ended 31 December 2021.

Chairman's introduction

Dear Shareholders,

I would like to thank you for your continued support as Lamprell delivers on its strategic priorities against the continuing COVID-19 disruptions. The Group has transformed noticeably over the past five years and, having announced a strategic reorganisation in early 2021, is now on course, subject to resolving its acute liquidity and funding requirements, for an even closer alignment with the energy transition. The transformation has not been straightforward and we, like everyone in the energy landscape, have fought the COVID-19 pandemic headwinds and their impacts on our productivity, new awards and financial performance. Multiple lockdowns, severe travel restrictions, self-isolation requirements and, more noticeably, the loss of productivity in our supply chain were the main drivers of our USD 19.9 million adjusted EBITDA loss. The Group net loss was USD 60.0 million.

I would like to commend everyone at Lamprell for another year of excellent safety performance. In a period of strict COVID-19 restrictions and a multitude of impacts on daily operations, the uncompromising effort to deliver our projects safely really stands out. I am also pleased with the progress made by our Sustainability Committee in setting out our priorities for responsible operations.

We started the year by announcing that we would drive the Group towards three distinct business units - Renewables, Oil & Gas and Digital - as a means to implement our strategic goals. Our roots as a Middle Eastern regional rig builder are valued by our long-standing customers and recognised by new and prospective clients. Today Lamprell firmly stands as a global energy partner with a clear growth strategy and a foothold in markets with significant barriers to entry. Our capacity and track record in serial renewables fabrication have earned us solid credentials in an industry with double-digit annual growth rates. Our investment in Saudi Arabia and our four-decade history in serving our clients in the Middle East have enabled us to become one of the select few partners on Saudi Aramco's LTA programme. With the development of our digital business, Lamprell is aiming to ensure it remains a quality partner to its clients, one that is able to address their growing need for new technology and unlock its significant value.

Our renewables business has seen steady growth in its bid pipeline since we took on our first offshore wind project in 2016. In 2021, as net zero carbon targets and the energy transition dominated the headlines, our pipeline of renewables projects grew from USD 2.5 billion to USD 4.6 billion, exceeding the value of prospective oil & gas projects for the first time in our history. This is the beginning of a significant increase in opportunity as offshore wind is set to ramp up commissioned capacity through the coming decade. There are currently around a dozen yards globally that can provide adequate facilities and demonstrate proven experience for the complex serial work that Lamprell specialises in. With nearly 10,000 foundations required over the next ten years, global fabrication capacity will be put under significant pressure. Lamprell, with its track record in jacket fabrication for the UK's leading offshore wind farms, is well positioned to benefit from this growth.

The oil & gas industry has experienced some of the most dramatic shockwaves over the last eight years, only to see a steep recovery in oil prices recently as the energy crisis unravelled to expose significant underinvestment and the global supply squeeze was amplified by the war in Ukraine. Hydrocarbons will continue to play a critical role in supplying the world with energy for many years and will therefore remain a core pillar of Lamprell's operations in the near term. Our Board too has evolved to better match our strategic ambition. We welcomed Motassim Al Maashouq as an independent Non-Executive Director. Motassim brings nearly four decades of experience at Saudi Aramco, and his insight has been extremely helpful in progressing the strategy for our Oil & Gas business unit. We were also pleased to broaden our Board credentials with the appointment of Jean Marc Lechene a former renewables executive. James Dewar has decided to step down from his role as a Non-Executive Director after more than four years on the Board and as Chair of our Audit and Risk Committee. We had commenced a process to find a replacement but this process has been put on hold pending outcome of the offer process detailed below. In the meantime, Debra Valentine has agreed to step into the role on an interim basis.

In 2021 our primary focus was to ensure our business development goals were matched by a funding strategy. In Q4, we were pleased to receive in the support of our shareholders and lenders during the first phase of this strategy when we raised USD 30.1 million of equity and a USD 45 million working capital facility, which helped alleviate the immediate pressure on our ongoing working capital requirements.

Management then continued to pursue a number of financing and strategic options with a view to finalising these in Q2 2022. In the absence of adequate debt finance solutions, the Group management and Board consulted extensively with the major shareholders to gauge their support for an equity raise as a means to meet its USD 120-150 million balance sheet and growth funding target. In light of the challenging equity markets and the acute liquidity pressure, this option did not receive sufficient support from our shareholders.

The Group then received a combined all cash offer to acquire the entire issued and to be issued share capital of Lamprell PLC from Blofeld Investment Management, a 25% shareholder, and AlGihaz Holding Closed Joint-Stock Company, a 19.7% shareholder. The offer includes a Bridge Loan Facility to assist with immediate working capital and capital expenditure requirements. Without an agreement on an equity-based financing solution, and mindful of the acute liquidity needs of the Group, the Board views this offer as a viable pathway to resolve the immediate funding obligations and severe liquidity concerns. In the absence of any alternatives, the Group will not be in the position to trade solvently should this offer not proceed to completion. On 21 July 2022, Thunderball Investments Limited (a newly formed company owned by Blofeld Investment Management Limited and AlGihaz Holding Closed Joint-Stock Company) (collectively referred to as "Thunderball") and Lamprell's Board of Directors announced the terms of a recommended cash offer to be made by Thunderball to acquire the issued and to be issued share capital of Lamprell PLC. Further details are set out on the Company website and its impact on going concern, including the related material uncertainty, are set out in the going concern section of the Financial Review.

Energy market fundamentals have demonstrated significant growth both in renewables and oil & gas in recent months and the Board is confident in the increasing opportunity set that lies ahead for Lamprell. The Group's credentials and experience coupled with a timely funding strategy will enable it to deliver returns on this opportunity in the near to medium term.

John Malcolm

Chairman

Chief Executive Officer's review

As we complete our second year of working with COVID-19, I am pleased to report solid operational results, year-on-year revenue and bid pipeline growth and, more importantly, a number of significant milestones as we deliver our growth strategy. 2021 marked a significant reorganisation for Lamprell that put us on a firm course towards the energy transition. Lamprell is a transformed business, not only as a result of a significant shift in its addressable markets, but also as a result of continuing investment in people, our yard and the intense commercial focus. In 2021 alone, our bid pipeline grew by over 30% to USD 7.9 billion, with the renewables component growing by a remarkable 85% to provide USD 4.6 billion of opportunities. Only five years ago, we would not have been in the position to bid on over 90% of the projects in our current pipeline. In that timeframe, we built a solid track record in complex serial renewables fabrication that can be matched by few yards globally. We also invested in and secured partnerships in Saudi Arabia, where Lamprell had no direct involvement previously. And we recognised the significant potential of digital solutions for the energy industry, again establishing strategic partnerships to develop this high-potential business unit.

COVID-19 and safety

I would like to thank our operational team for another year of excellent safety performance and delivering a Total Recordable Injury Rate (TRIR) of 0.10, another historic result. This performance is particularly noteworthy in the context of the ongoing COVID-19 pandemic, which once again affected our productivity and financial results. Our yards operated throughout the year without any outages to deliver for our clients, but it came at a cost and the Group made an adjusted EBITDA loss of USD 19.9 million and a net loss of USD 60.0 million.

Renewables

I am highly encouraged by the bidding dynamics and the continuous upward adjustments for the outlook in the renewables industry. Presently there is circa 35 GW of installed offshore wind capacity across the globe. This is expected to reach 200 GW by the end of the decade. For context, 1 GW represents approximately 100 jacket foundations, or over 1 year of Lamprell's current capacity. We recognise the significant fabrication capacity crunch the industry is likely to face in the near and medium term. In recent months we have seen a clear preference for reservation agreements, contracts reserving yard capacity ahead of full award, as our prospective clients try to address the limited global fabrication capacity in offshore wind. That is why Lamprell has continuously adapted its operational set-up to improve efficiencies to ensure we are capable of executing larger projects within shorter timeframes. With these factors in mind, we approved, subject to securing the necessary funding, the construction of a renewables production line as a capex priority for 2022. This critical change to our yard will significantly increase our revenue-generating capacity by allowing us to access monopile projects and, in future, compete for larger scale components for floating foundations.

Oil & Gas

Our oil & gas legacy business, and specifically our proximity to the low-cost producers, has provided us with exceptional operational expertise and crucial strategic partnerships. We are currently working on three major projects worth over USD 500 million, all directly or indirectly commissioned by Saudi Aramco, our partner in the IMI joint venture. In 2021 we were successful in securing our first two awards from Aramco's selective LTA programme. We continue to bid on circa USD 3 billion of opportunities within this programme and are starting to notice a ramp-up in bidding activity due to the favourable oil price environment. Around the turn of the year, we saw circa USD 10 billion contracts awarded by major oil producers in the MENA region to develop some of the largest projects. We were not bidding on these projects but crucially these awards will take up much of the available yard capacity and so we are confident of our competitive standing on future awards.

Our IMI joint venture is progressing despite a period of disruptions during the pandemic, and we anticipate the commissioning of certain zones to commence in 2022. Lamprell invested USD 85 million out of its USD 140 million commitment in the joint venture to date. Our shareholding in IMI has opened up a number of opportunities for Lamprell: it has enabled us to join the exclusive Saudi Aramco LTA programme, it has been an effective conduit of dialogue with major influencers in the Kingdom to develop a relocation strategy for Lamprell Oil & Gas, and it has provided us with revenue opportunities at a time when much of the oil & gas industry was recovering from a crisis.

Digital

Since 2019, Lamprell has been actively developing commercial digital solutions to improve efficiencies in our business and for its clients across the energy industry. We were pleased to have secured strategic financial and technical partnerships with Injazat/G42 and Akselos to complement our fabrication and engineering know-how. The Digital business unit, through its joint venture partners and independently, is currently focusing on four core areas of dynamic digital twin technology, asset integrity, the connected worker, and robotic welding. Over the next few years, we plan to invest in the development of specific digital solutions and anticipate seeing positive contribution to Group financial performance from 2024.

Funding our future

Our business requires funding and we have been severely cash-constrained for several years; we have pursued several options to alleviate these acute liquidity pressures and deliver a funding strategy with a view to raise USD 120-150 million to strengthen our balance sheet, assist with major legacy projects working capital requirements and invest in our yard to deliver significant growth. As we look ahead at the significant growth in our opportunity set and the increasing scopes, complexity and value within our bid pipeline and also our near-term working capital requirements, we realise the need for a much stronger balance sheet. In late 2021, we successfully completed the first stage of our funding strategy by securing a circa USD 45 million working capital facility and raising USD 30 million through an oversubscribed placing of shares.

Since then, the Group has explored a number of alternative financing and strategic options, including asset monetisation, debt financing and/or additional equity to deliver its funding strategy. Working capital needs and the working capital facility repayment schedule required us to deliver these options by the end of July 2022. Bearing in mind the uncompromising time pressure to improve our liquidity position and in the absence of viable funding options, the Board of Directors unanimously recommended to accept a takeover offer from two of its major shareholders, Blofeld and AlGihaz which included a USD 145 million bridge financing loan. The new ownership structure can assist in delivering Lamprell's capital-intensive growth strategy, whilst securing a future for its employees, delivering some cash value for its shareholders and honouring its many other stakeholder obligations.

Christopher McDonald

Chief Executive Officer

Financial review

COVID-19 and low margin projects affected our financial performance and put significant pressure on our liquidity.

Liquidity update

2021 presented major challenges across our supply chain and, although Lamprell continued to deliver operationally, additional costs associated with COVID-19 disruptions significantly affected our financial performance. In 2021, the Group was successful in securing a USD 45 million working capital facility for the delivery of the two IMI rig contracts and raising USD 30.1 million before expenses through a placing of shares. This assisted with some of the working capital requirements on our legacy low margin projects but in order to continue to meet its obligations to customers and creditors, and deliver its strategic capital expenditure programme, the Group total funding requirement was previously estimated to be in the range USD of 120-150 million. Of that amount, the Group was required to meet funding obligations of USD 95 million by the end of July 2022.

Over the past 18 months, the Group has been focused on a number of financing options in order to meet this funding requirement, including asset monetisation, project-specific financing, hybrid facilities and additional equity. However, none of the funding alternatives set out above were capable of delivering a solution to the urgent and severe liquidity constraints within the time required. As a result and in order to avoid implementing alternatives which seek to protect the interests of financial creditors, commercial counterparties and employees at the cost of no value being attributed to the existing equity, on 21 July 2022 the Board recommended an offer for Lamprell's entire issued and to be issued share capital, from Thunderball. The offer included a Bridge Loan Facility allowing Lamprell to resolve the immediate liquidity pressure and continue to deliver its transformational yard capex programme. See going concern section below for further details of the Offer and Bridge Loan Facility.

Revenues

In 2021 the Group generated USD 388.8 million in revenues, delivering a 15% increase compared to the previous year and a third year of continuous revenue growth (2020: USD 338.6 million). Throughout the year we experienced a number of significant impacts on productivity and cost as we worked around lockdowns and continuous COVID-19 restrictions. Much of our labour is deployed from India, where the emergence of the Delta variant affected workforce availability early in the year. Ongoing self-isolation requirements further impacted our ability to deploy staff effectively in the UAE and caused significant disruptions to our supply chain. Lamprell continued to manage these disruptions effectively; however, reduced productivity and rephasing of work have impacted revenue recognition and profitability in 2021.

Revenues from the Renewables business unit, which focused on the Seagreen project, amounted to USD 141.3 million. The Oil & Gas business unit, with contribution from the two IMI newbuild jackup rigs, two Saudi Aramco LTA projects, as well as our operations and maintenance business and rig refurbishment, generated USD 247.5 million in revenues. Total new contract awards during the year amounted to USD 135 million and we closed the period with a backlog of USD 342.9 million.

Margin performance

The Group remains focused on cost discipline following the significant overhead reduction programme in 2020. Overheads for the year amount to USD 69.0 million of which USD 35.5 million pertains to general and administrative expenses and the balance attributable to direct overheads included in cost of sales. In 2021, much of the temporary COVID-19 cost cutting measures, including remuneration reductions introduced in 2020, also remained in place. Nonetheless, our margin performance was affected by loss of productivity and additional costs associated with COVID-19 measures, as well as low margin contribution from ongoing major projects in the Oil & Gas business unit. We report a gross loss of USD 0.8 million for the year (2020: gross profit of USD 14.6 million), with a negative adjusted EBITDA from continuing operations of USD 19.9 million.

Finance cost

In Q4 2021, the Group secured a USD 45 million working capital facility for the delivery of the two IMI rigs and subsequently raised USD 30.1 million through a placing of shares. Net finance cost (excluding interest expense on leases) for the full year 2021 amounted to USD 2.1 million (2020: USD 1.4 million).

Net loss

Net loss for the year ended 31 December 2021 was USD 60.0 million (2020: loss of USD 53.4 million). The loss is driven by the low revenue levels which did not generate sufficient margin contribution to cover the Group's overhead of USD 69.0 million and our share of loss of investments accounted for using the equity method of USD 17.0 million. The diluted loss per share for the year was 16.98 US cents (2020: diluted loss per share 15.63 US cents).

Capital expenditure

We continued to make incremental investment in our yard with a particular focus on improving throughput and efficiencies in serial renewables fabrication. Capital expenditure in 2021 was USD 13.3 million (2020: USD 14.2 million) and is largely attributable to the construction of a proprietary lifting frame and the additional yard taken in Hamriyah. Investments in digital amounted to USD 1.8 million.

The Group did not make any equity contributions to the IMI joint venture in 2021. To date, Lamprell has invested USD 85 million of the USD 140 million committed.

Cash flow and liquidity

The Group's net cash flow from operating activities for the year ended 31 December 2021 reflected a net outflow of USD 56.1 million which was driven by the substantial working capital draw, as well as delays in certification of variations and resolution of claims, on ongoing projects. Prior to working capital movements and the payment of employees' end-of-service benefits, the Group's net cash outflow was USD 11.9 million. Cash, together with bank, term and margin deposits, decreased by USD 40.5 million to USD 72.8 million, of which USD 47 million is cash restricted in project bonds and guarantees.

Balance sheet

Net cash at 31 December 2021 was USD 53 million, of which USD 6 million is unrestricted. The Group's total current assets at 31 December 2021 were USD 244.4 million (31 December 2020: USD 286.4 million). Trade and other receivables decreased to USD 59.4 million (31 December 2020: USD 73.9 million). Contract assets increased to USD 99.4 million (31 December 2020: USD 85.4 million) and this is attributable to contract work in progress on ongoing projects. Trade and other payables increased by USD 100.9 million to USD 171.8 million as the Group continued deferral of creditor payments in view of the liquidity challenges summarised in the going concern Note 2.1. Shareholders' equity reduced to USD 128.8 million (31 December 2020: USD 160.4 million).

Going concern

The Group's consolidated financial statements have been prepared on a going concern basis as further discussed in Note 2.1. In performing their assessment of going concern, the Directors have considered the forecast cashflows for the Group for the 15 months to 31 October 2023 which include the key assumptions detailed below.

Balance sheet recapitalisation

In 2021, the Group launched a balance sheet recapitalisation programme to fulfil its near-term working capital needs and to meet medium term strategic objectives with the intention of completing a new funding arrangement of USD 120 -150 million by the end of Q3 2021.

In order to temporarily address the most immediate capital requirements, the Group entered a USD 45 million Export Credit Agency ("ECA") backed revolving trade loan facility ("ECI Facility") with two regional banks in October 2021 and raised gross proceeds of approximately USD 30.1 million through a placing of new Lamprell shares.

The Group intended to secure further capital in the form of a second working capital facility of USD 45 million by the end of Q1 2022, with additional funding to be put in place by the end of H1 2022.

Accordingly, during 1H 2022 the Directors continued to explore a number of potential financing and strategic options, including equity financing, debt financing, the potential sale of the Group's oil and gas business, asset monetisation and project-specific financing with a view to delivering the required funding by Q2 2022 in line with the Group's working capital requirements.

Despite significant efforts by the Group to secure this additional finance, these discussions did not result in new financing for the Group. As a result, the Group faces urgent and severe liquidity constraints and in the absence of reaching an immediate alternative funding solution, the Group will not be able to meet its funding obligations.

Recommended Cash Offer for Lamprell plc ("the Offer")

On 21 July 2022, the Board of Directors of Lamprell plc 'the Company" and the Board of Directors of Thunderball announced a recommended all-cash offer of 9p per share to be made by Thunderball for the Company's issued and to be issued share capital. It is intended that the Offer will be implemented by way of a takeover offer. The Offer includes provision of a secured USD 145 million Bridge Loan Facility on the terms and conditions summarised below.

Bridge Loan Facility

On 21 July 2022, the Group entered into the bridge loan facility agreement (the "Bridge Loan Facility Agreement") with Maverick Investment Holding Ltd ("Maverick"), a company under the control of a member of the AlSayed family, and AlGihaz Holding Closed Joint-Stock Company ("AlGihaz"). Pursuant to this Maverick and AlGihaz each agreed to make available a total loan facility of up to USD145 million to the Group. The Bridge Loan Facility is available for drawdown in tranches, of which USD 85 million has already been drawn down and a further USD 10 million has been requested and is expected to be paid on or around 8 August 2022. Further amounts of USD 35 million and USD 15 million are forecast to be drawn down at the end of August and September 2022 respectively. The Bridge Loan Facility is secured on the majority of the Group's assets.

The Bridge Loan Facility is being made available (i) to repay the ECI Facility described above in full, which occurred on 4 August 2022; and (ii) to fund expenditures projected to fall due after 21 July 2022, in accordance with a schedule of expenditures agreed between the parties. The Bridge Loan Facility is repayable on the earlier of (i) the date falling three months after the date on which the Offer becomes wholly unconditional; or (ii) the date falling three months after the date on which the Offer lapses or is withdrawn. Interest will accrue at the rate of 12 per cent per annum.

The Directors believe the Offer and Bridge Loan Facility are the only viable funding solutions available to the Group and as a result this forms the basis of the forecast cash flows used in performing their assessment of going concern. The Directors have considered the forecast cashflows for the Group for the 15 months to October 2023 which include key assumptions detailed below:

· The Offer proceeds to completion: The Offer is subject to more than 50 per cent of shareholders approving the Offer. Based on the current shareholdings of Thunderball, which in aggregate represent approximately 45.18% of the Company's issued share capital, and irrevocable undertakings by certain other shareholders to vote in favour of the Offer representing an additional 4.82% of issued share capital, the Directors have forecast that the Offer will be accepted by the Shareholders. The Offer is subject to certain additional conditions precedent which are considered usual and customary for this type of transaction.

· Sufficiency of the Bridge Loan Facility: The Directors have assumed that the Bridge Loan Facility will be timely paid following draw-down requests and sufficient to cover the funding requirements for the time required to conclude the Offer. After repayment of the ECI facility, USD 101 million of the Bridge Loan Facility remains to pay the Group's other creditors, which amounted to USD 176 million as of 30 June 2022, and to partially meet the ongoing funding requirements of the Group. A significant proportion of the Group's creditors at 30 June 2022 were many months overdue and, whilst it is anticipated that the Bridge Loan Facility will enable a number of these to be settled in the period prior to the completion of the Offer, the Directors expect payment to certain overdue key suppliers on the IMI Rigs projects (who were owed USD 51 million at 30 June 2022) will need to be extended in line with the expected timing of milestone receipts on these projects in late 2022 and early 2023. The Directors have assumed that the Group will be able to achieve this based on its track record of doing so, but its ability to do this is critical and dependent on the reaction of the key suppliers as the payables are unsecured and contractual credit terms are exceeded, which is outside the Group's control. The level of creditor deferral in the period prior to completion of the Offer is also dependent on the outcome of contract claims and the extent of new contract awards as discussed below.

· Post completion funding: The Directors do not have visibility of Thunderball's plans for the business after the Offer is completed, including the extent and terms of any funding that will be provided post completion. The intentions statement in the 21 July announcement indicates that Thunderball is aware that Lamprell must be recapitalised and that this would be most effectively undertaken after the Company's shares are de-listed such that Lamprell can execute its strategy, with appropriate support, capital and assistance from Thunderball. The Directors have therefore assumed that upon conclusion of the Offer, Thunderball continues to support the business, and in particular:

o That Thunderball will extend or waive the repayment of the Bridge Loan Facility as the Group will be unable to repay the loan when it falls due (which is forecast to be in December 2022).

o That significant additional funding will be provided by Thunderball during the 15 months to October 2023 in order that the business may continue to trade. The level and timing of funding required will depend on a number of factors, including the outcome of Thunderball's review of the business, successful execution of the Group's ongoing contracts, the speed with which they are required to settle overdue creditors, and (as discussed below) the outcome of contract claims and extent of new contract awards, but may be up to approximately USD 100 million.

· Contract claims: The Directors assume that settlement of contract claims on certain major contracts will result in significant cash inflows in the forecast period. These are not yet agreed and the amount and timing of such settlements is not wholly within the control of the Directors.

· New awards: The Directors assume conversion of a portion of the bid pipeline in line with the expected timing of awards, including achieving similar historical levels of revenue for the contracting services and rig refurbishment businesses. These contract awards are not committed and there is therefore some uncertainty as to their commencement.

In preparing the forecasts, the Directors have further considered broader economic factors including the ongoing pandemic, conflict in Ukraine and the effects of climate change. Technological improvements or innovations that support the transition to a lower carbon economy, and customer preferences or regulatory incentives that alter fuel or power choices, could impact demand for oil and gas. Depending on the nature and speed of any such changes and our response, these changes could increase costs, reduce our profitability, reduce demand for certain products, limit our access to new opportunities, require us to write down certain assets or curtail or cease certain operations, and affect investor sentiment, our access to capital markets, our competitiveness and financial performance. On the contrary, these risks provide a significant opportunity to our Renewables segment which would benefit from the increased demand and accelerated award of projects to meet the net zero emission targets.

If the Offer does not proceed and the Bridge Loan Facility falls due for repayment within its current terms, there can be no guarantee that the Group will be able to implement any alternative funding in the available timeframe. In such an event, the Directors believe that the Group will be unable to meet its financial commitments as they fall due and consequently will be unable to continue to operate as a going concern resulting in the appointment of receivers, liquidators or administrators. Accordingly, the Directors consider that the Offer represents the only executable funding solution available to the Group given that Thunderball has procured the Bridge Loan Facility and there is no present viable alternative.

The Directors believe that : (1) the risk that the Offer does not complete; (2) the requirement for significant levels of ongoing creditor deferral during the period prior to the completion of the Offer; and (3) the lack of visibility of Thunderball's plans for the business after the Offer is completed, all of which depend on factors outside management's control, constitute in aggregate a material uncertainty that may cast significant doubt upon the Group's and Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern.

Dividend

The Group made progress in delivering its strategy in 2021, however, due to the current financing requirements coupled with prevailing COVID-19 uncertainties, the Directors do not recommend the payment of a dividend for the period in relation to financial year ending 31 December 2021. The Directors will continue to review this position in light of market conditions and Group performance at the relevant time.

Tony Wright

Chief Financial Officer

Consolidated income statement

*General and administrative expenses include a net reversal of impairment losses of USD 0.5 million (31 December 2020: impairment charge USD 4.6 million) recognised in respect of property, plant and equipment as a result of year end assessments - refer Note 39.

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes to the consolidated financial statements for the year ended 31 December 2021

1 Legal status and activities

The principal activities of the Company and its subsidiaries (together referred to as "the Group") are: assembly and new build construction for the onshore/offshore oil and gas and renewable sectors; fabricating packaged, pre-assembled and modularised units; constructing accommodation and complex process modules for onshore downstream projects; construction of complex living quarters, wellhead decks, topsides, jackets and other offshore fixed facilities; rig refurbishment; land rig services; engineering and construction, operations and maintenance and proprietary technologies for industrial application - refer to Note 5.

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

The Group is required to present its annual consolidated financial statements for the year ended 31 December 2021 in accordance with United Kingdom adopted international accounting standards, International Financial Reporting Standards ("IFRS") as issued by the IASB and the Isle of Man Companies Acts 1931 to 2004.

This financial information set out in this preliminary announcement does not constitute the Group's statutory accounts for the year ended 31 December 2021 or 31 December 2020, but is derived from those accounts. A copy of the statutory accounts required to be annexed to the Company's annual return to the Companies Registration Office in respect of the year ended 31 December 2020 has been annexed to the Company's annual return for 2020. The consolidated financial statements for the year ended 31 December 2021 approved by the Board of Directors on 7 August 2022 and a copy will be annexed to the Company's annual return for 2021. The auditors have reported on these accounts; their reports were not modified and did not contain a statement under section 15(4) or 15(6) of the Isle of Man Companies Act 1982, but did draw attention to the material uncertainty with respect to going concern (see below).

The financial information comprises the Group balance sheets as of 31 December 2021 and 31 December 2020 and related Group income statement, statement of comprehensive income, cash flows, statement of changes in equity and related notes for the twelve months then ended, of Lamprell plc. This financial information has been prepared under the historical cost convention except for the measurement at fair value of share options, financial assets at fair value through profit or loss and derivative financial instruments.

The preliminary results for the year ended 31 December 2021 have been prepared in accordance with the Listing Rules of the London Stock Exchange.

Going concern

These financial statements have been prepared on a going concern basis which assumes that the Group will continue to have adequate resources to continue in operational existence for at least the next twelve months from the date of approval of these consolidated financial statements notwithstanding the material uncertainty discussed below.

The Group incurred a loss before tax of USD 59.9 million during the year ended 31 December 2021 (31 December 2020: USD 53.4 million) and was in a Net Cash position of USD 52.9 million on 31 December 2021 (2020: Net Cash position of USD 112.4 million). Of the Net Cash position on 31 December 2021, USD 47.1 million was restricted. The level of net unrestricted cash on 31 December 2021 was therefore USD 5.8 million (2020: USD 56.8 million). At 30 June 2022 the level of net unrestricted cash was USD 6.5 million and the Group faces acute liquidity challenges as outlined further below.

Balance sheet recapitalisation

In 2021, the Group launched a balance sheet recapitalisation programme to fulfil its near-term working capital needs and to meet medium term strategic objectives with the intention of completing a new funding arrangement of USD 120 -150 million by the end of Q3 2021.

In order to temporarily address the most immediate capital requirements, the Group entered a USD 45 million Export Credit Agency ("ECA") backed revolving trade loan facility ("ECI Facility") with two regional banks in October 2021 and raised gross proceeds of approximately USD 30.1 million through a placing of new Lamprell shares.

The Group intended to secure further capital in the form of a second working capital facility of USD 45 million by the end of Q1 2022, with additional funding to be put in place by the end of H1 2022.

Accordingly, during H1 2022 the Directors continued to explore a number of potential financing and strategic options, including equity financing, debt financing, the potential sale of the Group's oil and gas business, asset monetisation and project-specific financing with a view to delivering the required funding by the end of H1 2022 in line with the Group's working capital requirements.

Despite significant efforts by the Group to secure this additional finance, prior to the developments outlined below these discussions had not resulted in new financing for the Group. As a result, the Group now faces urgent and severe liquidity constraints and in the absence of reaching an immediate alternative funding solution, the Group will not be able to meet its funding obligations.

Recommended Cash Offer for Lamprell plc ("the Offer")

On 21 July 2022, the Board of Directors of the Company and the Board of Directors of Thunderball Investments Limited (a newly formed company owned by Blofeld Investment Management Limited and AlGihaz Holding Closed Joint-Stock Company) (collectively referred to as "Thunderball") announced a recommended all-cash offer of 9p per share to be made by Thunderball for the Company's issued share capital. The Offer includes provision of a secured USD 145 million Bridge Loan Facility on the terms and conditions summarised below.

Bridge Loan Facility

On 21 July 2022, the Group entered into the bridge loan facility agreement (the "Bridge Loan Facility Agreement") with Maverick Investment Holding Ltd ("Maverick"), a company under the control of a member of the AlSayed family, and AlGihaz Holding Closed Joint-Stock Company ("AlGihaz"). Pursuant to this Maverick and AlGihaz each agreed to make available a total loan facility of up to USD145 million to the Group. The Bridge Loan Facility is available for drawdown in tranches, of which USD 85 million has already been drawn down and a further USD 10 million has been requested and is expected to be paid on or around 8 August 2022. Further amounts of USD 35 million and USD 15 million are forecast to be drawn down at the end of August and September 2022 respectively. The Bridge Loan Facility is secured on the majority of the Group's assets.

The Bridge Loan Facility is being made available (i) to repay the ECI Facility described above in full, which occurred on 5 August 2022; and (ii) to fund expenditures projected to fall due after 21 July 2022, in accordance with a schedule of expenditures agreed between the parties. The Bridge Loan Facility is repayable on the earlier of (i) the date falling three months after the date on which the Offer becomes wholly unconditional; or (ii) the date falling three months after the date on which the Offer lapses or is withdrawn. Interest will accrue at the rate of 12 per cent per annum.

The Directors believe the Offer and Bridge Loan Facility are the only viable funding solutions available to the Group and as a result this forms the basis of the forecast cash flows used in performing their assessment of going concern. The Directors have considered the forecast cashflows for the Group for the 15 months to October 2023 which include key assumptions detailed below:

- The Offer proceeds to completion: The Offer is subject to more than 50 per cent of shareholders approving the Offer. Based on the current shareholdings of Thunderball, which in aggregate represent approximately 45.18% of the Company's issued share capital, and irrevocable undertakings by certain other shareholders to vote in favour of the Offer representing an additional 4.82% of issued share capital, the Directors have forecast that the Offer will be accepted by the Shareholders. The Offer is subject to certain additional conditions precedent which are considered usual and customary for this type of transaction.

- Sufficiency of the Bridge Loan Facility: The Directors have assumed that the Bridge Loan Facility will be timely paid following draw-down requests and sufficient to cover the funding requirements for the time required to conclude the Offer. After repayment of the ECI facility, USD 101 million of the Bridge Loan Facility remains to pay the Group's other creditors, which amounted to USD 176 million as of 30 June 2022, and to partially meet the ongoing funding requirements of the Group. A significant proportion of the Group's creditors at 30 June 2022 were many months overdue and, whilst it is anticipated that the Bridge Loan Facility will enable a number of these to be settled in the period prior to the completion of the Offer, the Directors expect payment to certain overdue key suppliers on the IMI Rigs projects (who were owed USD 51 million at 30 June 2022) will need to be extended in line with the expected timing of milestone receipts on these projects in late 2022 and early 2023. The Directors have assumed that the Group will be able to achieve this based on its track record of doing so, but its ability to do this is critical and dependent on the reaction of the key suppliers as the payables are unsecured and contractual credit terms are exceeded, which is outside the Group's control. The level of creditor deferral in the period prior to completion of the Offer is also dependent on the outcome of contract claims and the extent of new contract awards as discussed below.

- Post completion funding: The Directors do not have visibility of Thunderball's plans for the business after the Offer is completed, including the extent and terms of any funding that will be provided post completion. The intentions statement in the 21 July announcement indicates that Thunderball is aware that Lamprell must be recapitalised and that this would be most effectively undertaken after the Company's shares are de-listed such that Lamprell can execute its strategy, with appropriate support, capital and assistance from Thunderball. The Directors have therefore assumed that upon conclusion of the Offer, Thunderball continues to support the business, and in particular:

o That Thunderball will extend or waive the repayment of the Bridge Loan Facility as the Group will be unable to repay the loan when it falls due (which is forecast to be in December 2022).

o That significant additional funding will be provided by Thunderball during the 15 months to October 2023 in order that the business may continue to trade. The level and timing of funding required will depend on a number of factors, including the outcome of Thunderball's review of the business, successful execution of the Group's ongoing contracts, the speed with which they are required to settle overdue creditors, and (as discussed below) the outcome of contract claims and extent of new contract awards, but may be up to approximately USD 100 million.

- Contract claims: The Directors assume that settlement of contract claims on certain major contracts will result in significant cash inflows in the forecast period. These are not yet agreed and the amount and timing of such settlements is not wholly within the control of the Directors.

- New contract awards: The Directors assume conversion of a portion of the bid pipeline in line with the expected timing of awards, including achieving similar historical levels of revenue for the contracting services and rig refurbishment businesses. These contract awards are not committed and there is therefore some uncertainty as to their commencement.

In preparing the forecasts, the Directors have further considered broader economic factors including the ongoing pandemic, conflict in Ukraine and the effects of climate change. Technological improvements or innovations that support the transition to a lower carbon economy, and customer preferences or regulatory incentives that alter fuel or power choices, could impact demand for oil and gas. Depending on the nature and speed of any such changes and our response, these changes could increase costs, reduce our profitability, reduce demand for certain products, limit our access to new opportunities, require us to write down certain assets or curtail or cease certain operations, and affect investor sentiment, our access to capital markets, our competitiveness and financial performance. On the contrary, these risks provide a significant opportunity to our Renewables segment which would benefit from the increased demand and accelerated award of projects to meet the net zero emission targets.

If the Offer does not proceed and the Bridge Loan Facility falls due for repayment within its current terms, there can be no guarantee that the Group will be able to implement any alternative funding in the available timeframe. In such an event, the Directors believe that the Group will be unable to meet its financial commitments as they fall due and consequently will be unable to continue to operate as a going concern resulting in the appointment of receivers, liquidators or administrators. Accordingly, the Directors consider that the Offer represents the only executable funding solution available to the Group given that Thunderball has procured the Bridge Loan Facility and there is no present viable alternative.

The Directors believe that : (1) the risk that the Offer does not complete; (2) the requirement for significant levels of ongoing creditor deferral during the period prior to the completion of the Offer; and (3) the lack of visibility of Thunderball's plans for the business after the Offer is completed, all of which depend on factors outside management's control, constitute in aggregate a material uncertainty that may cast significant doubt upon the Group's and Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern.

Impact of climate change on going concern

Technological improvements or innovations that support the transition to a lower carbon economy, and customer preferences or regulatory incentives that alter fuel or power choices, could impact demand for oil and gas. Depending on the nature and speed of any such changes and our response, these changes could increase costs, reduce our profitability, reduce demand for certain products, limit our access to new opportunities, require us to write down certain assets or curtail or cease certain operations, and affect investor sentiment, our access to capital markets, our competitiveness and financial performance. On the contrary, these risks provide a significant opportunity to our Renewables segment which would benefit from the increased demand and accelerated award of projects to meet the net zero emission targets.

3 Basis of accounting

The accounting policies used are consistent with those set out in the audited financial statements for the year ended 31 December 2020 except for the adoption of new standards and interpretations effective 1 January 2021 as stated in the reviewed interim financial information for the period ended 30 June 2021. These financial statements are available on the Company's website, www.lamprell.com.

4 Critical accounting judgements and key sources of estimation uncertainty

The Group makes certain critical judgements, estimates and assumptions concerning the future. These are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

4.1 Critical judgements in applying accounting policies

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

4.1.1 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 31 December 2021, the balance due from customers on construction contracts includes an amount of USD 22.1 million (2020: USD 5.0 million) unapproved contract claims as negotiations continue with our clients on the Seagreen and IMI projects.

4.1.2 Liquidated damages (LDs)

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

While certain contracts have been subject to delays and/or unfulfilled contractual obligations in 2021, based on a review of the status of and risk on ongoing projects, the current status of discussions with customers and information at hand, no provision for LDs have been made in the financial statements as at 31 December 2021 (2020: nil).

4.2 Key sources of estimation uncertainty

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

4.2.1 Revenue and margin recognition

The Group uses the input method in accounting for its contract revenue. Use of the input method requires the Group to estimate the stage of completion of the contract to date based on costs incurred as a proportion of the total contract costs that will be incurred over the life of the contract.  As a result, the Group is required to estimate the total cost to completion of all outstanding projects at each period end. These cost estimates will often include a contingency relating to identified risks which are adjusted throughout the life of a project to reflect the remaining risk profile.

The Group uses a 5% sensitivity to assess the effect a change in estimate of this magnitude would have on the revenue and margin recognised. A 3% cost increase is considered to be the minimum figure that could turn a project onerous where margins are low.

If the estimated total costs to completion of all outstanding projects were to decrease by 5% this would either result in contract assets increasing by USD 6.8 million (2020: USD 5.4 million) or contract liabilities decreasing by USD 6.8 million (2020: USD 5.4 million).

If the estimated total costs to completion of all outstanding projects were to increase by 5%, contract assets would either decrease by USD 7.8 million (2020: USD 5.8 million) or contract liabilities would increase by USD 7.8 million (2020: USD 5.8 million). Based on this scenario, contract liabilities would include an onerous contract provision of USD 4.2 million on the Group's two newbuild projects where the margin is lower than average, as they were bid at competitive levels to monetise existing inventory. 

5 Segment information

In January 2021, as part of the Lamprell reimagined strategy the Group was re-organised into three strategic markets it seeks to address i.e., 'Oil and Gas', 'Renewables' and 'Digital'. Accordingly, this has changed how the business is reported and viewed by the Executive Directors, the chief operating decision-maker, and therefore the make up of the reportable segments.

The segments are based on strategic objectives, similar nature of the products and services, type of customer and economic characteristics.

During 2020, the segments were reported as Rigs, EPC(I) and Contracting services and as a result, comparatives have been restated.

The Oil and Gas segment contains business from New Build Jack Up rigs, land rigs, refurbishment and engineering and construction (excluding site works) used by customers operating in the Oil and Gas business. The Renewables segment contains business from foundations and offshore platforms mainly used by customers operating offshore wind power projects. The Digital segment comprises business from use of proprietary technologies for industrial application.

The Executive Directors assesses the performance of the operating segments based on a measure of gross profit. The labour, project management and equipment costs in this gross profit measure are measured based on standard cost. 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 measurement basis 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 6.

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

Information about segment assets and liabilities is not reported to or used by the Executive Directors and, accordingly, no measures of segment assets and liabilities are reported.

The Group's principal place of business is in the UAE. The revenue recognised in the UAE with respect to external customers is USD 386.3 million (2020: USD 336.5 million), and the revenue recognised from other countries is USD 2.5 million (2020: USD 2.1 million).

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

In 2021, revenue from customers A and C is attributable to the Oil and Gas segment, and revenue from customer B to the Renewables segment, whereas in 2020, revenue from customers A and C relates to Renewable segment and customer B to the Oil and Gas segment. Customers A, B and C are not the same in the two years presented.

6 Disaggregation of revenue

There was no revenue recognised at a point in time during the years ended 31 December 2021 and 31 December 2020.

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

7 Cost of Sales

8 Selling and distribution expenses

9 Share-based payments

10 General and administrative expenses

11 Staff costs

Staff costs for the year ending 31 December 2021 is net of the COVID-19 savings realised from payroll deductions implemented at the onset of the pandemic amounting to USD 8.7 million (31 December 2020: 7.7 million). This contributes USD 6.2 million (31 December 2020: USD 5.4 million) to cost of sales and USD 2.5 million (31 December 2020: USD 2.3 million) to general and administrative expenses.

The other benefits primarily consist of non-cash benefits for employees such as insurance, air fare, VISA costs and rental of villas and apartments.

During the year, the average head count for administrative employees was 5,780 (2020: 5,552) while the average head count for subcontracted employees was 1,875 (2020: 717).

12 Finance costs and income

Finance income

Finance income comprises interest income of USD 0.1 million (2020: USD 0.4 million) from bank deposits.

13 Other gains - net

14 Loss per share

(a) Basic

Loss per share is calculated by dividing the loss attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased by the Company and held as treasury shares (Note 26).

(b) Diluted

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

Assumed vesting of performance and retention share plans amounting to 3,813,324 (2020: 3,199,269) shares and 1,817,370 (2020: 2,880,301) shares respectively have been excluded in the current period as these are anti-dilutive.

15 Operating loss

(a) Operating loss

Operating loss is stated after charging/recognising:

 (b) Auditor's remuneration

Services provided by the Group's auditor and its associates comprised:

The above fees exclude non-recoverable UK VAT amounting to USD 0.3 million.

16 Financial instruments by category

Assets as per balance sheet

Liabilities as per balance sheet

17 Property, plant and equipment