LAM.L Regulatory News (LAM)

21 March 2013

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

2012 FINANCIAL RESULTS

Lamprell (ticker: LAM), a leading provider of diversified engineering and contracting services to the onshore and offshore oil & gas and renewable energy industries, announces its Financial Results for the year ended 31 December 2012.

2012 FINANCIAL RESULTS

Note, exceptional items during 2012 relate to a regulator's fine (US$ 3.7 million) and related legal expenses (US$ 1.0 million). For the year 2011, they relate to the MIS acquisition costs (US$ 10.5 million)

2012 CORPORATE AND OPERATIONAL MATTERS

·; An exceptional year of challenges faced by the Group, including underperforming key contracts, deteriorating financial position and investigation by the FSA

·; Changes were made at the Board level and within the management structure to address these issues

·; Challenges successfully overcome or being addressed, including:

o Two key underperforming projects have been delivered and others being addressed or on track

o Stabilised financial position, refinancing progressing

o Settlement of FSA investigation, as announced on 18 March

o Review and upgrading of management systems ongoing

o Renewed focus on core capabilities

·; Since 1 January 2012 to date, Lamprell delivered the following major projects:

o four new build jackup rigs

o two prototype wind farm installation vessels and one non-prototype wind farm installation vessel

o two new build land rigs

o numerous upgrade and refurbishment projects, relating both to jackup and land rigs

·; Contracts secured since the start of 2012 include the following:

o Four new build jackups, with an option for a further one

o Seajacks "Hydra" windfarm vessel

o North Sea process modules

o Multiple jackup and land rig refurbishment projects

·; Current backlog of US$ 1.3 billion, with bid pipeline approximately US$ 4.1 billion

·; Continued strong focus on safety with improvements made across the Group, resulting in several major projects being delivered without lost-time incident

UPDATE ON CURRENT MAJOR PROJECTS

·; Lamprell is constructing an additional four rigs for a key client, National Drilling Company (NDC), and construction on all four rigs is underway at the Group's Hamriyah facility in the United Arab Emirates. NDC rigs 3 and 4 are on track for delivery in Q1 and Q2 2014 respectively. With regard to NDC rigs 5 and 6, first steel was cut for both rigs in early January 2013. The Group is progressing the works on these two rigs in parallel in order to manage working capital more effectively. NDC rigs 5 and 6 are scheduled for delivery in Q4 2014 and Q1 2015 respectively.

·; The first Caspian Sea rig was successfully loaded out in December 2012 in extremely challenging weather conditions. Work progresses as planned and the commissioning team has been mobilised for delivery in Q3 2013. Keel laying on the second Caspian Sea rig has taken place and the rig is on track for delivery Q3 2014, as planned. The project recently achieved one million manhours without lost-time incident (LTI).

·; Construction on the first jackup rig for the Jindal Group is progressing on schedule and, in February 2013, the project achieved an important milestone of two million manhours without LTI. The expected delivery date is in Q4 2013. The Company announced in late February 2013 that the Jindal Group had awarded Lamprell a new contract for one firm additional jackup rig plus an option for one more. The engineering and procurement phase of that newly-awarded contract has commenced and construction will also take place at Lamprell's Hamriyah facility, with planned delivery being in Q1 2015.

·; Construction activities in connection with "Seajacks Hydra", a GustoMSC NG-2500X design self-elevating and self-propelled offshore wind turbine installation vessel, started during 2012 and keel laying took place in January 2013. The project is currently in the construction phase with construction of the hull blocks in progress. The project is on track for delivery in Q2 2014.

·; Completion of the project for a wellhead deck and for the production, utilities and quarters (PUQ) deck to an international, North Sea operator is proceeding on schedule in the Group's Jebel Ali facility. The wellhead deck is undergoing mechanical completion and will be commissioned in time for delivery in Q3 2013. The PUQ deck is proceeding as planned with intended delivery in Q2 2014. The combined total manhours on the two projects now exceed 4.5 million and there have been zero LTIs, a major achievement.

John Kennedy, Non-executive Chairman for Lamprell, said:

"2012 was unquestionably the most challenging year in Lamprell's history. After years of sustained growth and profitability, the Company experienced a number of significant, unexpected operational issues, which resulted in substantial financial losses and a refreshment of the management team. We were forced to re-evaluate the projects that we wanted to pursue and we have made many significant changes to the business structure with a view to focus on our core capabilities.

Nevertheless, it is important to re-affirm the underlying strength of the Company's franchise and its sustainable competitive advantages in the marketplace. The Board expects 2013 to be a recovery year, with stable revenues as compared to 2012 and a gradual return to profitability during the year."

James Moffat, Chief Executive Officer for Lamprell, said:

"As I join Lamprell as its new Chief Executive, I see a business with an attractive regional footprint and significant potential, whose financial health was seriously undermined in 2012 by several, very serious issues. Despite this, the Company managed to retain the trust of its clients and its leading market position and that is a testament to the fundamentals of this business and its historic ability to execute projects. Our current order book of US$ 1.3 billion and the bid pipeline of US$ 4.1 billion, together with Lamprell's strong, historic track record of delivery and continued commitment to quality, represent a solid foundation for the business to grow in the coming years.

HSE, in particular safety, has always been a core value for me. Hence I am pleased to see that, despite the operational challenges faced by the Group in 2012 as well as the total number of manhours increasing significantly, Lamprell has maintained and in fact improved its strong safety track record."

- Ends -

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Chairman's Statement

A Challenging Year for Lamprell

2012 was unquestionably the most challenging year in Lamprell's history. After years of sustained growth and profitability, the Company experienced a number of significant operational and reporting issues, which resulted in substantial financial losses prompting the Board to make major changes to the way in which the business is structured and managed. 

At the time I took over as Lamprell's Non-executive Chairman in the middle of June 2012, the Company had already announced that there were significant operational difficulties and delays in delivery of the wind farm installation vessel Windcarrier 1 Brave Tern. Unfortunately, as the summer progressed, it became clear that the scale of these issues was far greater than previously anticipated, and that it affected other key contracts, including notably the Windcarrier 2 Bold Tern and the Caspian Sea jack-up project.

On 3 October, the Board made the difficult but necessary decision to replace the entire senior management team and directed the newly appointed, interim management team to re-assess Lamprell's business in light of the deteriorating financial position. At the same time the Board appointed PricewaterhouseCoopers to conduct an independent review of the financial performance of the underperforming projects. The results of this comprehensive assessment were announced on 19 November, revealing total projected losses far in excess of what had been previously anticipated or announced.

Despite the disappointing update, the Board worked closely with the interim management team to address the problems facing the business as efficiently and effectively as possible. During the following months, we have made excellent progress in mitigating the losses from the underperforming key projects and stabilising the Group's financial position. With support from Lamprell's lenders, we also began the process of restructuring the Group's financial arrangements which is expected to be completed in Q2 2013.

In spite of the setbacks of 2012, the durability of our industrial franchise continues to prove strong and our clients, especially our existing clients, have continued to place their trust in our ability to perform to high standards. As a result, Lamprell has maintained its competitive position and support from its customers by winning new contracts with an aggregate value in excess of US$930 million during 2012. Notably in our recent statement on 6 February 2013, we were pleased to announce that the Jindal Group had awarded a new contract to Lamprell for one confirmed, together with one optional, jack-up rig.

In another positive development, Lamprell signed a joint venture agreement for the fabrication, refurbishment and repair of land drilling rigs in Saudi Arabia, enhancing our strong presence in that market. We plan to leverage on our long-term relationships with our Saudi partners and our well-established expertise in the land rig sector.

Board and Management Changes

It has been a very busy year with changes both at the Board and at the management levels, some planned and others required in response to the events of 2012. 

In October, Nigel McCue, Jon Cooper and Chris Hand stood down from their respective positions as Chief Executive Officer, Chief Financial Officer and Chief Operating Officer respectively. At the same time, Peter Whitbread, who had previously served as Lamprell's Chief Executive from 1992 to 2009, was appointed to the Board as Interim Chief Executive Officer. In November, Frank Nelson was appointed as Interim Chief Financial Officer. Their efforts have ensured a smooth transition of the stabilised business to the new management team led by James (Jim) Moffat, whose appointment as the new Chief Executive Officer was announced in early December. I am absolutely delighted that someone of Jim's expertise and calibre has agreed to join our team. He assumed his responsibilities on 1 March 2013, and will bring the highest standards of leadership, engineering and project execution to Lamprell. 

It was also pleasing that, after stepping down from his interim CEO role, Peter Whitbread has agreed to stay on as an Director to support Jim and his team in rebuilding the business and positioning it for future success. 

Other Board changes in 2012 included the retirement of Richard Raynaut and resignation of Brian Frederick as Directors, and the appointment of Deena Mattar as a Non-executive Director with effect from 1 April 2012. Jonathan Silver stepped down from the position of Chairman to become Deputy Chairman, followed closely by my appointment on 15 June as Non-executive Chairman.

Further board changes will be taking place during the next few months. As a result of the considerable time commitment required of the Non-executive Directors during the past year, Colin Goodall and Deena Mattar have informed the Board that they will not be standing for re-election at the forthcoming Annual General Meeting. A search is underway for additional independent Non-executive Directors.

As a Board, it is our objective to deliver long-term, sustainable success for the benefit of all Lamprell's stakeholders. While there have been many changes at the most senior levels in the Company, I consider that the Board has reasserted its position to provide a clear direction and strong and effective leadership for the future of the business.

FSA Investigation

In November 2012, Lamprell announced an investigation by the Financial Services Authority ("FSA") into the Company's handling of inside information. Having completed the investigation, the FSA imposed a fine of approximately US$3.7 million on Lamprell for failing in its obligations as a listed company to keep the market full informed of its deteriorating financial position during early 2012.

From early in 2012, Lamprell's financial performance began to deteriorate due to operational issues and to delays in completing key projects. It became clear that the Company's systems did not allow management to assess fully the impact of these operational issues. Lamprell was, therefore, unable to update the market in a timely manner as to its financial performance. When the extent of the financial deterioration was recognised, the FSA concluded that Lamprell did not act sufficiently quickly to update the market or to prevent employees from continuing to deal in its shares once the inside information regarding the poor financial performance had been recognised. The steps that the Company has taken to improve its systems and controls are set out in the Corporate Governance report.

Dividends

Given the post-tax losses in 2012, Lamprell will not pay a dividend for the year. We look into the future with optimism, and will review our dividend policy once the business returns to profitability.

Outlook

As a result of the events of 2012, the Company has been forced to re-evaluate its business structure and the projects that it wishes to pursue. We have had to make many significant changes to the business, to return to our core activities, but it is important to re-affirm the underlying strength of the Company's franchise and its sustainable competitive advantages in the marketplace. As previously mentioned, the continued and on-going support of our customers has been particularly heartening. On behalf of all the employees and Directors of Lamprell, I would like to express our appreciation.

Despite continued global macroeconomic uncertainty, demand for our products and services remains strong in the midst of a robust and expansive oil and gas industry. In particular, we see a steady stream of new-build and refurbishment projects in our home market of the Middle East as well as increased activity in the North Sea. In recent years there have been significant changes in our competitive landscape, in particular the entry of Asian players who can offer very competitive financial incentives to clients. However, we are confident that Lamprell's strong, historic track record of delivery and continued commitment to quality positions the Company well to benefit from continued growth in the oil and gas industry. Our current order book of US$1.3 billion and the bid pipeline of US$4.1 billion collectively represent a solid foundation for the business to grow in the coming years.

In light of the above, I sincerely believe that Lamprell can look forward to 2013 and beyond with renewed confidence. During 2013, we will be focusing on our traditional areas of strength, namely new-build jack-up rigs, rig refurbishment and offshore platform construction. With the strong bidding activity across the business in these areas, we expect this year to show signs of stability returning with the first shoots of growth appearing towards the end of the year.

On behalf of the Board, I would like to thank all of Lamprell's stakeholders and in particular our employees for their continued trust and support during these challenging times. 

John Kennedy

Chairman of the Board

Lamprell plc

Chief Executive's Review

Peter Whitbread, Interim Chief Executive Officer, October 2012 - March 2013

Although our yards remained busy throughout 2012 and generated revenues for the year of US$1,045 million, the Group suffered a loss before tax and exceptionals of US$105 million as a result of a series of operational hurdles, the failure to appreciate certain project risk and project delays. The challenges that Lamprell experienced in 2012 led to major changes within the Company, including a complete change of leadership and a comprehensive review of our projects and operations. With a new management team in place and a number of improvements to our business processes underway, we are now confident that Lamprell is well-placed to overcome these challenges and leverage its leading market position to return to profitability.

2012 Challenges/Overview

Starting in mid-2012, Lamprell experienced significant delays on several of its largest projects, including the wind farm installation vessels Windcarrier 1 and 2 for Fred Olsen, as well as the jack-up rig that was built in modular form in the UAE and is being assembled at a facility in Astrakhan, Russia. As the year progressed, it became clear that these delays would result in material financial losses. However, the previous management team struggled to quantify the losses or prevent the situation from deteriorating further.

As a result of the departure of the previous senior management team in October 2012, Lamprell's Board asked me to rejoin on an interim basis to assess the full extent of the issues facing the Company, and to help stabilise its operations while it recruited a new, permanent management team. With the Board's support, the interim management team conducted a comprehensive assessment of Lamprell's operations, with a primary focus on the key underperforming projects and their effect on the Group's financial position. The results of the assessment, published on 19 November, revealed a series of operational and financial issues contributing to major losses in 2012.

One of the cornerstones of Lamprell's success has always been its rigorous approach to project execution. Since my retirement as Lamprell's CEO in 2009, the Company's business has undergone significant change; over the past several years, the Company's operations have grown significantly as the Group has taken on a number of increasingly large and complex projects. This has generated higher revenues but the growth came at a price as the Company's existing project management systems were unable to cope with these larger projects of a prototype nature. This left Lamprell struggling to fulfill its commitments to its stakeholders.

Having established the scale of the problems and identified key areas of weakness, my team negotiated revised delivery schedules for the key underperforming projects still under construction, and fully focused its efforts on their completion under these new terms. In spite of the financial setbacks arising from certain key projects, Lamprell continued to deliver major projects to a consistently high standard, including the first two new build jack-up rigs to NDC, as well as the Seajacks "Zaratan" and the Windcarrier 1 Brave Tern liftboats. Most recently, and perhaps most significantly, the Group fulfilled its promises to deliver the Windcarrier 2 Bold Tern vessel to the client in mid-February 2013. This only became possible as a result of improved project management and strict financial controls, as well as the dedication and commitment of the project team who worked tirelessly on this complex project.

New Contract Awards

The recent operating environment has been demanding, both because of the Company's internal issues which we are now resolving and also due to the increasingly competitive nature of the sectors in which the Company operates. Nevertheless, the Company managed to maintain the support of its clients and was awarded more than US$930 million in new contract wins during 2012. This included various, major new build projects in both the oil and gas industry, such as two more fully-outfitted and equipped LeTourneau rigs for our key client, NDC, and the fabrication of two topsides and jackets for a new client, and the renewables sector where Seajacks awarded us a new contract for a fourth liftboat vessel, of a similar design as those already delivered to Seajacks. 

The rig refurbishment market for both the onshore and offshore segments remained positive in 2012, which allowed Lamprell to win multiple orders for jackup rig upgrade and refurbishment projects. This has historically been a keystone for our franchise and we continue to be the regional leader by market share for this type of business.

Saudi Arabia Joint Venture

In another positive development, in September 2012 Lamprell signed a joint venture agreement with Shoaibi Group, a Saudi industry and energy services provider, and Al Yusr Townsend and Bottum, a Saudi integrated logistical services provider, to form Lamprell Arabia Ltd. The joint venture, which will be based in the oil-rich Eastern province of Saudi Arabia, intends to establish a presence for fabrication, refurbishment and repair of land drilling rigs. I am excited by the opportunities presented by the joint venture which builds on the Group's existing business in a country where we foresee extensive needs for such services, which are a core part of our offering.

Our People

Our employees are the foundation of our business. Their hard work over the past four decades has built Lamprell into the business we are proud of today, and their wellbeing is essential for the continued success of our company. Since my return to the business in October 2012, a primary focus has been to re-energise the workforce, with a view to improving morale and thereby increasing productivity. These efforts have produced results such as delivery of the Windcarrier 2 vessel on the promised revised delivery date.

At the same time, we have been forced to take some tough decisions to control costs in the Group at a time when it was struggling financially. This put additional pressure on our operations and has been a delicate balance to manage. However, once we re-established control over the key operational issues, we have been able to reassure our staff of the attractiveness of Lamprell as an employer. Today, Lamprell employs over 11,000 staff.

Ongoing Changes and Outlook

In 2012 we encountered numerous operational and financial problems, which forced us to reassess how we run our business. The interim management team has introduced new initiatives aimed at strengthening Lamprell's project reporting systems, organisational structure, financial controls and risk management. One such initiative was the introduction of a new organisational structure which prioritised project management and aligned project execution with the Group's reporting structures.

These initiatives will take some time to bed down into the business but, as I pass the mantle of leadership to the permanent CEO, James Moffat, I am proud of the genuine progress that we have made over the last six months and I believe that the outlook for our business remains strong for 2013 and beyond.

James Moffat, Chief Executive Officer since 1 March 2013

As I join Lamprell as its new Chief Executive, I see a business with an attractive regional footprint and significant potential where several, very serious issues undermined its financial health in 2012 and threatened its ability to win and execute work. Despite this, the Company managed to retain the trust of its clients and its leading market position and that is a testament to the fundamentals of this business and its historic ability to execute projects.

HSE, in particular safety, has always been a core value for me. Hence I was pleased to see that, despite the operational challenges faced by the Group in 2012 as well as increasing the total number of manhours worked to over 37 million, Lamprell maintained and in fact improved its strong safety track record. The total recordable incident rate (TRIR) in 2012 declined by nearly 80% over 2011, having already improved by 58% in 2011 over the previous year. This is a significant achievement.

Given the nature of our business there are inherently significant health, safety and environment risks and despite our recent successes we must continue to improve. To this end, I have already tasked the management to implement several new HSE strategic objectives and key initiatives such as personal HSE contracts and hazard identification, which I expect to deliver results during 2013. Across the group, I will be driving a culture where HSE will be a key consideration in making everyday decisions, both at a corporate and at an individual level.

The interim management team has done a great deal to stabilise Lamprell's operations and financial position after the events of 2012. Our key priority this coming year is to implement and complete the initiatives introduced by them, in order to avoid similar issues in the future, and to position the Company for the next stage in its development. We will continue to improve operations by increasing focus on risk management, project execution and financial controls.

I would like to thank Peter and his team for their efforts during the challenging transition period, and I look forward to working closely with them to rebuild Lamprell's reputation for operational excellence and profitable growth. 

FINANCIAL REVIEW

Significant operational issues and delays on a number of Lamprell's large projects adversely affected the Group's financial performance in 2012, resulting in a loss before income tax and exceptional items for the year of US$ 105.0 million, as we anticipated in our announcement to shareholders in November 2012.

Results from operations

In 2012, Lamprell's Group total revenue was down on the previous year to US$ 1,045.5 million (2011: US$ 1,147.9 million). Revenue arises from various business streams with the majority generated from new build construction projects, which included 10 new build jack-up rigs, 4 liftboats for the offshore wind farm installation sector and 2 land rigs. Revenue from new build fabrication projects across the Group decreased by 29% to US$ 560.0 million (2011: US$ 789.7 million).

The reduction in new build revenue was driven primarily by the renewables segment, which saw a substantial reduction to US$ 66.4 million (2011: US$ 289.1 million). This segment suffered not only from lower levels of activity but also from the Group's contractual obligations to pay liquidated damages for delays in delivery to a number of significant projects, in particular the Windcarrier 1 and Windcarrier 2 wind farm installation vessels which are deducted from the final value of the contract.

The revenues for the Company's new-build oil and gas segment, which comprises the fabrication and construction of offshore jack-up and land rigs, were broadly in line with the previous year, totalling US$ 493.6 million compared to US$ 500.6 million in 2011. The small decline in revenues in this segment was a result of the Caspian Sea jack-up rig project where, as announced by the Company in November 2012, there were delays which deferred revenues for that project from 2012 to 2013.

The Group has historically performed well in the field of rig refurbishment (which includes both repair and maintenance as well as rig upgrades). However the 2012 revenues for this segment were impacted by lower volumes following a strong performance experienced in 2011, resulting in US$ 176.9 million in revenue for the year (2011: US$ 191.0 million).

On a more positive note, the Group's offshore platform construction business saw significantly higher levels of revenue during the year following the award of two large projects. Revenue in this segment increased from US$ 52.5 million in 2011 to US$ 179.7 million in 2012.

Other revenue increased to US$ 128.9 million (2011: US$ 114.6 million) driven by additional revenue streams from the other businesses that were acquired in 2011 as part of the MIS group of companies.

Group's losses for 2012

Delays and cost overruns caused by operational issues on a number of major projects resulted in a gross loss of US$ 19.6 million for the year (2011: profit of US$ 132.9 million), and a corresponding negative gross margin of 1.9% (2011: positive 11.5%). The major components of this loss, which are in line with the Company's announcement to shareholders in November 2012, relate to the following key projects:

• Windcarrier 1 "Brave Tern": US$ 36.3 million;

• Windcarrier 2 "Bold Tern": US$ 32.5 million;

• Seajacks "Zaratan" : US$ 7.1 million;

• Caspian Sea jack up project: US$ 25.8 million;

• Minor EPC projects: US$ 12.0 million;

The operating loss for the year before exceptional items and income tax was US$ 84.5 million (2011: profit of US$ 90.2 million before exceptional items) and includes marginally higher overhead costs resulting primarily from changes in the executive management team, the consulting fees associated with the external review of the business and an impairment of US$ 4.4 million in relation to the continued implementation of the Group's ERP system together with certain lease-hold rights. These costs are partially offset by the effect of other income including a one-off gain of US$ 4.3 million in relation to an insurance claim.

EBITDA for the year before exceptional items was negative US$ 62.3 million (2011: positive US$ 100.8 million before exceptional items). The EBITDA margin declined from 8.8% in 2011 to a negative 6.0% in 2012, reflecting the operating performance of the business.

Finance costs

Net finance costs in the 2012 period increased to US$ 21.5 million (2011: US$ 16.2 million). This increase is largely the result of the banking facilities relating to the acquisition of MIS, utilisation of new facilities and increased facility and guarantee charges related to new contract awards in the year.

Taxation

The tax charge of US$ 0.8 million in 2012 is in respect of tax on the Group's service operations in Kazakhstan and Qatar acquired in 2011 as part of the MIS group of companies (2011: US$ 0.2 million). The Group is not currently subject to income tax in respect of its operations which are substantially undertaken in the United Arab Emirates, and the Company does not anticipate any liability to income tax arising on these operations in the foreseeable future. The Company, which is incorporated in the Isle of Man, had no income tax liability, or benefit for the year ended 31 December 2012, as it is taxable at a 0% rate in line with the local tax legislation.

Net loss and loss per share

The Group recorded a loss before income tax and exceptional items for the year of US$ 105.0 million (2011: profit before exceptional items of US$ 74.0 million) in line with our expectation as announced in November and the operating losses noted above.

The fully diluted loss per share amounts to 42.45 cents (2011: earnings per share before exceptional items of 26.47 cents) reflecting the operational performance of the Group for the year.

Exceptional items in these financial statements relates to a regulatory fine recorded in the relevant year amounting to GB£2.43 million (equivalent US$ 3.72 million converted at an exchange rate of US$ 1.53 per GB£) and related legal expenses of US$ 1.0 million. In the prior year, exceptional items related to the acquisition of MIS. 

Operating cash flow and liquidity

The Group's net cash flow from operating activities for the year reflected a net inflow of US$ 250.7 million (2011: net outflow of US$ 54.6 million) generated by a combination of successful post-MIS project completions, in particular the sale proceeds of Hull 108 for US$ 126.5 million in May 2012, and improved working capital management. Prior to working capital movements, the Group's net cash outflow was US$ 50.8 million (2011: inflow of US$ 101.4 million) due to the losses described above.

Net cash outflow from investing activities totaled US$ 18.5 million (2011: US$ 408.8 million). The change is a result of lower levels in investment activity compared to 2011, which included the acquisition of MIS, as well as reduced margin deposits of US$ 22.3.

Net cash used in financing activities was an outflow of US$ 148.9 million (2011: inflow of US$ 371.1 million). This largely arose from repayment of borrowing of US$ 173.9 million including mandatory repayment of debt under the MIS acquisition facilities, which were drawn in July 2011, and an increase in finance costs due to servicing of this debt.

Capital expenditure

Following significant investment in 2011 resulting from the completion of our Hamriyah facility, and as a result of losses made during 2012, the Group had reduced capital expenditure in 2012. Expenditure on property plant and equipment during the year amounted to US$ 16.8 million (2011: US$ 55.5 million). The main areas of expenditure were buildings and related infrastructure at Group facilities (including capital work in progress completions) amounting to US$ 8.2 million (2011: US$ 26.0 million) and operating equipment of US$ 6.5 million (2011: US$ 9.9 million)

Balance sheet

Total non-current assets at the end of 2012 were US$ 390.4 million (2011: US$ 417.1 million), which have been negatively impacted by a US$ 9.5 million decrease in the net book value of property, plant and equipment and a US$ 11.0 million decrease in identified intangible assets due to higher depreciation and amortisation charges following the completion of the MIS acquisition and the minor impairment of intangibles referenced above.

Trade and other receivables decreased to US$ 398.3 million (2011: US$ 668.8m) as a result of a number of successful project completions, namely the disposal of Hull 108 and the completion of the Seajacks Zaratan project, and the improved debtor management within the business. The working capital position improved significantly in the last quarter of 2012 as the Group's collection of trade debtors and other receivables improved and accordingly the Group ended the year with a strong net cash position of US$ 104.1 million (2011: net debt of US$ 101.7 million).

Of the total cash of US$ 263.4 million at 31 December 2012, US$ 115.3 million was restricted in the form of margin deposits primarily for guarantees on major projects.

The period end outstanding borrowings was US$ 159.3 million (2011: US$ 251.1 million), which has reduced as a result of the part repayment of the debt facility used for the MIS acquisition.

Shareholders' equity decreased from US$ 533.9 million at 31 December 2011 to US$ 406.1 million at 31 December 2012. The movement reflects lower retained earnings of US$ 192.8 million (2011: US$ 322.2 million) and a total comprehensive loss for the year of US$ 109.0 million (2011: comprehensive income of US$ 61.4 million).

Restructuring of debt facilities and going concern

The consolidated financial statements have been prepared on a going concern basis. The ability of the Group to continue as a going concern is reliant upon the continued availability of external debt financing and access to bank guarantees for its major projects. The deterioration of the Group's performance in 2012 arising as a result of the underperformance of certain key projects the majority of which have now been completed caused the Group to seek waivers for certain of its banking covenants for the year ended 31 December 2012. These waivers were obtained prior to 31 December 2012. The group is currently in discussions with its lenders to restructure its debt facilities and agree revised covenants on a long term basis and has agreed further covenant waivers to facilitate the continuation of the negotiations.

The Group expects to conclude discussions with lenders in a satisfactory manner and has continued to meet all interest and other payment obligations. After reviewing its cash flow forecasts for a period of not less than 12 months, from the date of signing of these financial statements, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its financial statements. 

Dividends

Given the post-tax losses in 2012, the Board of Directors of Lamprell recommends that the Group makes no dividend payment for the year. We look to the future with optimism, and will review our dividend policy once the business returns to profitability.

Financial outlook

The Board anticipates that in the early part of 2013 revenue levels will decrease due to reduced activity. However, activity levels are expected to improve towards the middle of the year in line with the solid order book which is already US$ 1.3 billion. In the longer-term, the Company is encouraged by the strong bidding activity across the business with the pipeline totalling more than US$ 4.1 billion. The Company has taken and will continue to take further action to stabilise the business and prepare the foundations for growth in the coming years, by focussing on its traditional areas of strength.

With all this in mind, the Company expects 2013 to be a recovery year, with stable revenues as compared to 2012 and a gradual return to profitability during the year.

Frank Nelson

Chief Financial Officer

Lamprell plc

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Notes to the financial statements for the year ended 31 December 2012

1 Legal status and activities

Lamprell plc ("the Company") and its subsidiaries ("the Group") are engaged in the upgrade and refurbishment of offshore jackup rigs; fabrication; assembly and new build construction for the offshore oil and gas sector and renewable sector, including jackup rigs and lift boats; Floating Production, Storage and Offloading ("FPSO") and other offshore and onshore structures; and oilfield engineering services, including the upgrade and refurbishment of land rigs.

During 2011, the group acquired 100% of the shares in Maritime Industrial Services Company Ltd Inc. ("MIS") through its wholly owned subsidiary Lamprell Investments Holding Limited. MIS is registered in Panama and has operations in the Middle East and Kazakhstan. The principal activities of MIS are the upgrade and refurbishment of offshore jackup rigs; fabrication; assembly and new build construction for the offshore oil and gas sector; engineering and construction; safety and training services and other operating and maintenance services. At the time of acquisition, MIS was listed on the Norwegian Stock Exchange and was subsequently delisted in September 2011.

2 Basis of preparation

The Group is required to present its annual consolidated financial statements for the year ended 31 December 2012 in accordance with EU adopted International Financial Reporting Standards ("IFRS"), International Financial Reporting Interpretations Committee ("IFRIC") interpretations and those parts of the Isle of Man Companies Acts 1931-2004 applicable to companies reporting under IFRS.

This financial information set out in this preliminary announcement does not constitute the Group's statutory accounts for the year ended 31 December 2012. The financial information has been extracted from the consolidated financial statements for the year ended 31 December 2012 approved by the Board of Directors on 19 March 2013 upon which the auditors' opinion is notmodified and includes an emphasis of matter paragraph in respect of going concern, and did not contain a statement under section 15(4) or 15(6) of the Isle of Man Companies Act 1982.The financial information comprises the Group balance sheets as of 31 December 2012 and 31 December 2011 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 conventionexcept 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 2012 have been prepared in accordance with the Listing Rules of the London Stock Exchange.

The consolidated financial statements have been prepared on a going concern basis. The ability of the Group to continue as a going concern is reliant upon the continued availability of external debt financing and access to bank guarantees for its major projects. The deterioration of the Group's performance in 2012 arising as a result of the underperformance of certain key projects the majority of which have now been completed caused the Group to seek waivers for certain of its banking covenants for the year ended 31 December 2012. These waivers were obtained prior to 31 December 2012. The Group is currently in discussions with its lenders to restructure its debt facilities and agree revised covenants on a long term basis and has agreed further covenant waivers to facilitate the continuation of the negotiations.

The Group expects to conclude discussions with lenders in a satisfactory manner and has continued to meet all interest and other payment obligations. After reviewing its cash flow forecasts for a period of not less than 12 months, from the date of signing of these financial statements, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its financial statements.

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

3 Accounting policies

The accounting policies used are consistent with those set out in the audited financial statements for the year ended 31 December 2011 and reviewed interim financial information for the period ended 30 June 2012, which are available on the Company's website, www.lamprell.com.

4 Critical accounting estimates and judgements

Estimates and judgements 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 Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The 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:

Revenue recognition

The Group uses the percentage-of-completion method in accounting for its contract revenue. Use of the percentage-of-completion 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 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 year-end would result in the revenue and profit increasing by USD 24.4 million (2011: USD 32.9 million) if the total costs to complete are decreased by 10% and the revenue and profit decreasing by USD 45.2 million (2011: USD 24.3 million) if the total costs to complete are increased by 10%.

Estimated impairment of goodwill

The Group tests goodwill for impairment annually or more frequently if events or changes in circumstances indicate a potential impairment. Goodwill is monitored by management at the 'cash generating unit relating to upgrade and refurbishment of offshore jackup rigs, fabrication, assembly and new build construction for the offshore oil and gas and renewables sectors, including FPSO and other offshore and onshore structures, oilfield engineering services, including the upgrade and refurbishment of land rigs' (CGU1).

The recoverable amount of CGU1 has been determined based on value-in-use calculations. These calculations require the use of estimates. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a three-year period. Cash flows beyond the three-year period are extrapolated using the estimated growth rate of 5%. A discount rate of 12.96% has been used to discount the pre-tax cash flows projection to the present value. Changing the assumptions selected by management used in the cash flow projections, could significantly affect the Group's impairment evaluation. If the growth rate used was to differ by 0.5% from management's estimates, there would be a reduction or increase of USD 1.6 million in headroom. If the discount rate used was to differ by 0.5% from management's estimates, there would be a reduction of USD 23.6 million or increase of USD 26.3 million in headroom. If the net profit as a percentage of revenue used was to differ by 0.5% from management's estimates, there would be a reduction or increase of USD 61.9 million in headroom. If the terminal value growth rate used was to differ by 0.5% from management's estimates, there would be a reduction of USD 16.7 million or increase of USD 18.6 million in headroom.

Employees' end of service benefits

The rate used for discounting the employees' post-employment defined benefit obligation should be based on market yields on high quality corporate bonds. In countries where there is no deep market for such bonds, the market yields on government bonds should be used. In the UAE, there is no deep market either for corporate or government bonds and therefore, the discount rate has been estimated using the US AA-rated corporate bond market as a proxy. On this basis, the discount rate applied was 3.00% (2011: 4.25%). If the discount rate used was to differ by 0.5 points from management's estimates, the carrying amount of the employee's end of the service benefits provision at the balance sheet date would be an estimated USD 1.2 million (2011: USD 1.4 million) lower or USD 1.3 million (2011: USD 1.5 million) higher.

5 Segment information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Executive Directors who make strategic decisions. The Executive Directors review the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The Executive Directors consider the business mainly on the basis of the facilities from where the services are rendered. Management considers the performance of the business from Sharjah (SHJ), Hamriyah (HAM) and Jebel Ali (JBA) in addition to the performance of Land Rig Services (LRS) and International Inspection Services Limited (Inspec).

SHJ, HAM, JBA and LRS meet all the aggregation criteria required by IFRS 8 and are reported as a single segment (Segment A). Services provided from Inspec do not meet the quantitative thresholds required by IFRS 8, and the results of these operations are included in the "all other segments" column.

The reportable operating segments derive their revenue from the upgrade and refurbishment of offshore jackup rigs, fabrication, assembly and new build construction for the offshore oil and gas and renewables sectors, including FPSO and other offshore and onshore structures, oilfield engineering services, including the upgrade and refurbishment of land rigs.

Inspec derives its revenue from various services such as non-destructive pipeline testing, ultrasonic testing and heat treatment.

During 2011, the Company through its wholly owned subsidiary, LIH, acquired MIS. The revenue of MIS is mainly derived from the upgrade and refurbishment of offshore jackup rigs, fabrication, assembly and new build construction for the offshore oil and gas sector, engineering and construction. The Executive Directors consider these services to be similar to the services provided by Lamprell from SHJ, HAM, JBA and LRS and hence they have been considered under the reporting segment (Segment A). Additionally, MIS also provides safety and training services (Sunbelt) and other operating and maintenance services (O&M). As services provided by Sunbelt and O&M do not meet the quantitative thresholds required by IFRS 8, the results of these operations are included in the "all other segments" column.

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

The Executive Directors assess the performance of the operating segments based on a measure of gross profit. The staff, equipment and certain subcontract 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 reconciliation of the gross operating (loss)/profit is provided as follows:

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 breakdown of revenue from all services is as follows:

The Group's principal place of business is in the UAE. The revenue recognised in the UAE with respect to services performed to external customers is USD 1,030.9 million (2011: USD 1,139.3 million), and the revenue recognised from the operations in other countries is USD 14.6 million (2011: USD 8.6 million).

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

The revenue from these customers is attributable to Segment A. The above customers in 2012 are not necessarily the same customers in 2011.

6 Cost of sales

7 Selling and distribution expenses

8 General and administrative expenses

Exceptional items:

Items that are material either because of their size or their nature or that are non-recurring are presented within their relevant consolidated income statement category, but highlighted separately in the consolidated income statement. The separate reporting of exceptional items helps provide a better picture of the Group's underlying performance.

Exceptional items in these financial statements, relates to a regulatory fine recorded in the current year amounting to GBP 2.43 million (USD equivalent 3.72 million converted at an exchange rate of USD 1.53 per GBP) and related legal expenses of USD 1.0 million. In the prior year exceptional items relate to acquisition of MIS. An analysis of the nature of expense is as follows:

9 Staff costs

10 Finance costs - net

Finance income

Finance income comprises of interest income on bank deposits of USD 0.9 million (2011: USD 1.5 million) and interest accretion on loan to KSAM2 of USD Nil (2011: USD 0.3 million)

11 Other gains/(losses) - net

12 (Loss)/earnings per share

(a) Basic

Basic (loss)/earnings per share is calculated by dividing the (loss)/profit attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased by the Company and held as treasury shares (Note 19).

(b) Diluted

Diluted earnings 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 free share awards, options under executive share option plan and performance share plan, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share awards/options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share awards/options. Since the Company has incurred a loss from continuing operations during the year ended 31 December 2012, all the Company's existing potential ordinary shares are not dilutive as they decrease the loss from continuing operations.

On 19 May 2011, the Company announced a rights issue of three shares for every ten shares held at a discounted price of 232 pence per share resulting in the issue of 60,083,792 new ordinary shares. The calculation of the weighted average number of ordinary shares for the year 2011 was affected by the issue of the new ordinary shares. The Group has treated the discount element of the rights issue as if it was a bonus issue, using the theoretical ex-rights price of 324 pence per share.

13 Property, plant and equipment

14 Intangible assets

Management reviews the business performance based on the type of business. Goodwill is monitored by the management at the operating segment level. Goodwill of USD 180.5 million arising due to the acquisition of MIS has been allocated to the CGU1 within Segment A.

The recoverable amount of CGU1 has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a three-year period. Cash flows beyond the three-year period are extrapolated using the estimated growth rate of 5% (2011: 4.3%) for Segment A. A discount rate of 12.96% (2011: 9%) has been used to discount the pre-tax cash flows projection to the present value. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates.

15 Trade and other receivables

16 Financial asset at fair value through profit or loss

The amount at 31 December 2011 represented the fair value of the Group's investment (held through MIS) in 8.7% of the equity in Middle East Jack-up Ltd (MEJU), which owned a jack-up rig built by MIS. This rig was sold by MEJU in January 2012 following the successful delivery of the rig by the Group in the last quarter of 2011.

During 2011, a fair value gain of USD 8.2 million was recorded in 'other gains/(losses) - net' (Note 11) in the consolidated income statement based on management's estimate of the carrying value which represents the amounts expected to be received from MEJU upon winding of its operations.

During the year, the management of MEJU took a decision to liquidate MEJU. An amount of USD 8.0 million was received from MEJU as part of the liquidation proceeds and the balance of USD 0.2 million was recorded in 'other gains/(losses) - net' in the consolidated income statement as irrecoverable.

Financial assets at fair value through profit or loss are presented within 'operating activities' as part of changes in working capital in the consolidated cash flow statement.

17 Related party balances and transactions

Related parties comprise LHL (which owns 33% of the issued share capital of the Company), certain legal shareholders of the Group companies, Directors and key management personnel of the Group and entities controlled by Directors and key management personnel. Key management includes the directors (executive and non-executive) and members of the executive committee. Related parties for the purpose of the parent company financial statements also include subsidiaries owned directly or indirectly and joint ventures. Other than disclosed elsewhere in the financial statements, the Group entered into the following significant transactions during the year with related parties at prices and on terms agreed between the related parties:

Key management compensation comprises:

The terms of the employment contracts of the key management include reciprocal notice periods of between six to twelve months.

Due from related parties

At 31 December 2011, the balance receivable from KSAM2 represents an interest free loan amounting to USD 13.2 million with no fixed repayment terms. The amortised cost of this loan using an effective interest rate of 9% per annum on the date of business combination amounted to USD 6.7 million. During 2011, the Group recognised an interest accretion on this loan amounting to USD 0.3 million which is included as part of finance income (Note 10).

During 2012, the Group received USD 11.3 million from KSAM2, out of which an amount of USD 4.3 million was received in excess of the amortised cost and is recognised in the consolidated income statement as a part of 'other gains/(losses) - net' - (Note 11).

Further, the Company has provided performance guarantees on behalf of its subsidiary. These guarantees, issued in the normal course of business, are outstanding at the year end and no outflow of resources embodying economic benefits in relation to these guarantees is expected by the Company.

Dividends paid by the Company include an amount of USD 6.9 million (2011: USD 9.7 million) in respect of shares held by LHL, a company controlled by Steven Lamprell who is a member of key management.

18 Cash and bank balances