LAM.L Regulatory News (LAM)

28 August 2014

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

2014 INTERIM FINANCIAL RESULTS

FOR SIX MONTHS TO 30 JUNE 2014

Excellent operational performance delivers strong financial results for H1 2014

H1 2014 FINANCIAL RESULTS

1 Note that H1 2013 has been re-presented with Inspec and Litwin businesses included as discontinued operations in accordance with IFRS.

Financial highlights

· Results for the first half of 2014 ahead of expectations due to strong operational performance and early results from savings initiatives, generating improved margins

· Revenues are up by US$ 125.7 million against H1 2013 as a result of the high H1 activity levels and phasing of construction activity during the period

· Successful rights issue and refinancing provides a strong financial platform and enables delivery of long-term growth strategy

Operational highlights

· Strong operational performance in all core markets enhances Lamprell's track record for project execution

· Successful delivery of two jackup rigs to National Drilling Company, the 13,200 tonne production utilities and quarters deck to Nexen for use in North Sea sector and a new self-propelled jackup vessel to Seajacks

· Largest and one of the most complex rig conversion and refurbishment projects in Lamprell's history delivered to the client after the period end

· Over US$ 900 million of new awards since January 2014 including multi-rig awards from each of Ensco and Shelf Drilling, as well as an award from Petrofac for modules to be deployed in Abu Dhabi

· As at 30 June 2014, backlog of US$ 1.2 billion (31 December 2013: US$ 0.9 billion) with bid pipeline increasing to approximately US$ 4.9 billion (31 December 2013: US$ 4.7 billion)

· World class safety record continues on various projects including ten million manhours without a lost-time incident on Nexen project

· Project Evolution, a programme to deliver material productivity improvements and cost efficiencies, is progressing well and generating some early returns

Current trading and outlook

· Five new build jackup drilling rigs to be delivered between November 2014 and March 2015

· Order book rebuilt and now extending out to Q2 2017

· Continued strong demand for our core markets as demonstrated by increased bid pipeline

· All ongoing major projects progressing well

· Revenue expectations for FY 2014 unchanged; lower revenue levels expected in H2 2014 compared to H1 2014 due to timing of build cycles and reduced activity in onshore and offshore construction market

· Full year outturn anticipated to be ahead of expectations predominantly due to projected continuing strong operational performance and initial savings from procurement activities

· As previously announced, revenue for FY2015 expected to be broadly flat on FY2014 with significantly fewer major project completions in FY2015

· Drive to target further reductions in overheads

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

"Lamprell has achieved a great deal in the first half of 2014. We have delivered a strong operational and financial performance, made good progress in converting our pipeline and successfully completed a rights issue and a major debt refinancing. The business is now well-positioned to deliver on its refreshed growth strategy and to create long-term value for all stakeholders."

James Moffat, Chief Executive Officer for Lamprell, said:

"Our continued focus on operational excellence has resulted in a strong first half performance that has exceeded our expectations. At the same time our safety track record has been world class. In 2014, we are delighted to have rebuilt our order book, winning significant awards from both new and existing customers. We are making good progress implementing our refreshed growth strategy based on our core markets and are already beginning to see the benefits of a stronger balance sheet. While we anticipate lower revenues in the second half of the year, we expect the outturn for the full year to be ahead of our expectations."

A conference call for analysts and investors will be held at 7.30am. Dial-in 02031394830, passcode 87954567#.

Presentation slides can be accessed at the following website:

http://www.anywhereconference.com?UserAudioMode=DATA&Name=&Conference=131649986&PIN=87954567

- Ends -

Enquiries:

Notes to editors

Lamprell, based in the United Arab Emirates ("UAE"), and with operations throughout the region, has played a prominent role in the development of the offshore industry in the Arabian Gulf for over 30 years and is the regional market leader in the rig market. Lamprell is a leading provider of diversified engineering and contracting services to the onshore and offshore oil & gas and renewable energy industries.

Lamprell currently employs approximately 9,000 people, including contract labour, across six facilities, with its primary facilities located in Hamriyah, Sharjah and Jebel Ali, all of which are in the UAE. In addition, the Group has facilities in Saudi Arabia (through JV agreements) and Kuwait. Combined, the Group's facilities provide a total area of over 900,000 m² with 2.2 km of quayside.

Chief Executive Officer's Review

During the first half of 2014, Lamprell has continued to recover strongly, building on our 2013 performance. This operational outperformance has resulted in financial results for the period being ahead of expectations. The successful completion of both a US$ 120 million rights issue and a US$ 350 million refinancing package (along with a US$ 250 million bonding facility) has enabled us to implement our refreshed growth strategy and we are already starting to see positive initial results, both operationally and financially. We are also pleased to see the support shown by our clients, who have placed their confidence in Lamprell with a number of major contract awards. Collectively, these developments have established a solid foundation for the Group to grow sustainably in the coming years.

Operational outperformance continues

Lamprell has a proven track record for reliable project execution in its core markets and this has been enhanced further with four major deliveries during the first six months of 2014. In February, Lamprell completed the "Qarnin" jackup rig, a LeTourneau Super 116E (Enhanced), to our largest client, National Drilling Company ("NDC"). This was followed by delivery of its sister rig of identical design, the "Marrawah" jackup rig, in May 2014. This latest rig represents the 16th new build jackup drilling rig that Lamprell has successfully constructed since 2006 and is the fourth in a series of six rigs that Lamprell has been commissioned to build for NDC.

In April 2014, the Group delivered the 13,000 plus tonne production, utilities and quarters ("PUQ") deck to Nexen as part of the Golden Eagle Area Development in the North Sea. Our safety record on the combined Nexen project (namely the wellhead platform handed over in June 2013 and the PUQ deck) has been world class reaching the milestone of ten million man-hours without a lost time incident. In completing this project, Lamprell also achieved a world record for the heaviest load moved by self-propelled modular trailers.

The fourth major delivery during H1 2014 was for the self-propelled jackup vessel "Hydra" to another key client, Seajacks. The "Hydra" is the fourth vessel that Lamprell has built for Seajacks and these vessels have been specifically designed to work in the harsh environment of the North Sea. They are flexible and multipurpose, capable of operating in both the offshore wind and the oil and gas sectors.

We have experienced a busy period in the rig refurbishment market, buoyed predominantly by the recent completion of the conversion of the jackup drilling rig, "MOS Frontier", into an accommodation support vessel. This was handed over to our client, Millennium Offshore Services, in July. This has been the largest rig conversion and refurbishment project in Lamprell's history and we have seen significant operational achievements on this highly complex and technically challenging project including an excellent safety record of 3.8 million man hours without a day away from work case. With the departure of the "MOS Frontier", we anticipate lower levels of activity in rig conversions and refurbishments in H2 2014 based on current projections.

During the H1 period, the Group experienced a high number of major projects either in late stages of construction and/or being completed. As already noted, the Group's operations also outperformed in the project execution and delivery of four of these projects, meaning not only that they were delivered on time but also ahead of budget. Consequently, the project contingencies have not been used and so these projects have been delivered ahead of budgeted margins. This has also been supported by some early savings from productivity enhancements and costs efficiencies ('Project Evolution') being implemented across the Group and by our efforts to reduce overheads, as well as improved performance in both our land rigs and other minor fabrication businesses. The Group intends to deliver a similar, strong operational performance during the second half of the year.

Our next major delivery period commences in November with the planned handover of the second Caspian Sea rig, which is now in the commissioning phase. This project had been identified as a key project with significant potential risk around completion, due to the losses suffered on and lessons learned from delivery of the first Caspian Sea rig in 2013. While we have been making good progress on the project, we continue to take a conservative view on completion because of previous experience on the first Caspian Sea rig and weather extremes in the region. We are understandably working hard towards the scheduled delivery date and, if delivered successfully as planned, this could have a material positive impact on the financial results of the Company for 2014.

During the five-month period after completion of the second Caspian Sea rig, Lamprell is scheduled to hand over four further new build jackup drilling rigs. This will be a critical time for Lamprell with delivery of so many major projects in such a short space of time; however all these projects are progressing well.

Corporate activities

We have also been busy during H1 2014 with completion of several important corporate achievements. Early in the year and in line with the Group's strategy to focus on its core markets, we entered into an agreement to sell the non-core "Inspec" service business for US$ 66.2 million. This resulted in the early repayment of a substantial part of the high cost portion of our existing debt facility.

In June, the Company successfully completed a rights issue which raised gross proceeds of approximately US$ 120 million. The rights issue was well supported by shareholders and puts the Group on a stronger footing to deliver its growth strategy. Project Evolution is a key component of our strategy as it will produce significant productivity improvements across major projects and also entails a significant capital investment programme to automate some of our facilities. Under Project Evolution, the Group has rolled out new welding equipment and associated training, as well as updating its welding techniques, across the facilities. This has reduced the welding manhours on one of the ongoing jackup rig projects by 2% and it is expected to result in further reductions on other projects once the techniques have been fully embedded. We have also recently entered a contract with a value of more than US$ 5 million for upgrading the panel line in our Hamriyah facility. This facility enhancement will be installed by mid-2015.

As a result of the rights issue, the outstanding portion of existing debt Facility B was repaid and this immediately reduced the Group's bonding costs which will be further reduced going forward under the improved terms of the new debt facility announced on 12 August 2014. This new debt facility replaces the entire existing debt facility and comprises a funded US$ 350 million debt facility as well as a committed US$ 250 million bonding arrangement to be used for new project awards. The rights issue, in conjunction with the new debt arrangements, has strengthened the Group's balance sheet by providing it with a more cost effective and sustainable capital structure which enhances the Group's working capital flexibility and enables the Company to broaden its addressable markets.

Market overview, order book and bid pipeline

Over the last twelve months, the highest priority for the management team has been to convert a substantial proportion of its strong bid pipeline into backlog and I am pleased with our achievement in winning new projects with a total value of more than US$ 900 million since the beginning of the year. We announced previously that we have seen strong demand for our products and services in our core markets and we have maintained a buoyant pipeline, notwithstanding the broader negative sentiment across the sector. We are attracting a variety of clients, both new and existing, and will continue to focus on converting more awards, led by two new, senior business development appointments.

The Group has secured two, multiple-rig orders in H1 2014. Firstly in April, Ensco awarded a US$ 390 million contract for two Super 116E high specification jackup rigs with two options. Later, in May, we were awarded a contract by Shelf Drilling, with an estimated value of more than US$ 370 million for two more Super 116E jackup rigs. More recently, the Company announced that it had received a new contract award from Petrofac for the fabrication and delivery of 29 piperack modules to be deployed to a project in Abu Dhabi.

A fundamental element of our updated strategy is to leverage our key strengths, namely our high build quality, strong safety record, commitment to reliability, our reputation for working collaboratively with our clients for success, our skilled workforce and our strategically-located facilities. Broader market conditions around our core markets remain competitive but these new contract awards demonstrate our clients' confidence in our project execution, the value we offer and our renewed financial strength.

As at 30 June 2014, the Group's order book was valued at US$ 1.2 billion (31 December 2013: US$ 0.9 billion), of which a substantial proportion relates to the construction of the four new build jackup rigs for Ensco and Shelf Drilling. With the increased focus on business development, the bid pipeline has grown to approximately US$ 4.9 billion (31 December 2013: US$ 4.7 billion).

As announced previously, the Board believes that the jackup rig market will continue to provide the Group's primary revenue stream in the medium term and we have already been successful in starting to diversify our client base with the contract award from Shelf Drilling. However in the longer term, our goal is to broaden our addressable markets into related fields, based around our proven expertise in project execution, and to attract new major clients with our improved offering and renewed financial strength. With this in mind, our pipeline includes a more balanced representation from our core markets, in particular from new build onshore and offshore construction projects and new build jackup rigs. The Board expects that 2015 revenue will remain heavily weighted towards new build jackup rigs in line with these recent contract awards. We continue discussions with prospective clients about upcoming projects.

Refurbishment projects typically have a short bid to award profile and therefore limited order book or pipeline values. This has typically been one of the Group's traditional areas of strength but, notwithstanding the successes with the recent MOS project, we are seeing increasing competition for all such projects and clients are increasingly driven by cost as the primary factor. While we expect rig refurbishment and conversion projects to remain a core market for the Group, we will only take on such projects which include a balanced and reasonable level of risk and reward.

Outlook

The Company has performed very well in the year to date and we aim to repeat the high levels of operational performance during H2 2014 through our focus on project execution and embedding the Project Evolution initiatives into the business. However, with the delivery of the five major projects already this year and the new projects at a very early stage of construction, the business will experience lower revenue levels in H2 2014. This is being driven by the timing of build cycles for the major projects, in particular where cycles for the new build jackup rigs coincide, and the lower revenues from the onshore and offshore construction market. Nevertheless the Board expects that the outturn for the full year will be ahead of expectations (with a heavy weighting towards the first half of the year). This is predominantly as a result of the projected continuing operational outperformance and margin improvements on our new build projects and savings in procurement activities. As announced previously, revenue for 2015 is expected to be broadly flat on the current year, with significantly fewer major project completions scheduled during 2015. Alongside our continuing focus on conversion of the strong bid pipeline, our drive to target further reductions in overhead is a high priority for the management team.

James Moffat

Chief Executive Officer

Lamprell plc

Financial Review

Results from operations

The first half of the year marked the continued financial recovery of the Group, with significantly improved profitability and a strengthened balance sheet. The Group's strong operational performance was the main reason for the delivery of H1 2014 financial results being ahead of expectations, with a contribution from some procurement gains and early results from the programme of productivity improvements and cost efficiencies.

The Group's total revenue of US$ 632.3 million showed significant improvement on last year's performance (H1 2013: US$ 506.6 million), driven mainly by the new build segment with a contribution from rig refurbishment, partially offset by weaker revenues in the onshore and offshore construction market. Although we were building a similar number of jack-up rigs in both H1 2014 and H1 2013, due to the phasing of construction and the low percentage of completion on four rigs in H1 2013, the six months to 30 June 2014 delivered materially higher revenues than the same period the previous year. An accelerated build schedule on two rigs in H1 2014 added further to the volume growth. The refurbishment business also contributed to the stronger revenues, driven by a strong performance on the large-scale rig conversion project for MOS which was largely completed in the period.

Gross margin increased to 13.6% from the 9.1% reported in the corresponding period in 2013. Lower onshore/offshore construction revenues had a negative mix impact on margins but this was more than offset by a strong improvement in margins in our new build jackup rig business. This was partially driven by a more favourable phasing of the construction cycle described above but in the main resulted from the Group's continuing improvement in project execution, which allowed a release of technical contingencies as we successfully delivered five projects on time and ahead of budget. We also benefited from procurement savings and some early productivity gains as we delivered higher revenues with a slightly lower overhead base. A strong performance from land rigs and our E&C minor fabrication business added further to the margin improvement.

Savings to ongoing corporate overhead costs have been more than offset in H1 2014 by a bad debt provision of US$ 4.0 million and other costs, resulting in a slight increase for the period. However, ongoing costs reduced by more than 20% on H1 2013.

EBITDA excluding discontinued operations and exceptional items for the period was US$ 66.2 million (H1 2013: US$ 30.4 million). The Group's EBITDA margin increased from 6% in 2013 to 10.5% in 2014, reflecting the improved operating performance of the business.

Gross profit for the six-month period was US$ 85.8 million (H1 2013: US$ 46.2 million). The reduction in revenues arising from the sale of Inspec had a net impact of a US$ 1.7 million reduction in profit.

Finance costs and financing activities

Net finance costs in the period increased to US$ 8.6 million (H1 2013: US$ 5.8 million). Interest costs were US$ 1.3 million higher due to the higher cost of debt following the refinancing in July 2013. The amortised cost of bank fees was US$ 1.2 million higher in H1 2014.

Net profit after exceptional items and earnings per share

The Group recorded a profit for the six-month period ended 30 June 2014 attributable to the equity holders of US$ 77.7 million (H1 2013: US$ 7.3 million), including a US$ 31.3 million gain from the disposal of Inspec. The fully diluted earnings per share for the six-month period ended 30 June 2014 were 26.86 cents (H1 2013: 2.52 cents).

Capital expenditure

The Group's capital expenditure during the six-month period ended 30 June 2014 increased to US$ 9.6 million (H1 2013: US$ 7.1 million). The main area of investment consisted of additions to operating equipment with the major items being new cranes and to a lesser extent to buildings and infrastructure. The major capital investment programme enabled by the rights issue will reduce costs as it is implemented with the major part of it being committed over the course of the next eighteen months.

Cash flow and liquidity

The Group's net cash flow from operating activities for the six-month period ended 30 June 2014 reflected a net outflow of US$ 51.9 million (H1 2013: net inflow of US$ 62.9 million) primarily driven by increased working capital due to the natural cycle on major projects and also advance procurement on key pieces of equipment for the new build jackup rigs. Prior to working capital movements, the Group's net cash inflow was US$ 81.6 million (H1 2013: inflow of US$ 33.5 million).

Cash and bank balances increased by US$ 16.9 million in the six-month period. The net cash outflow from operations was offset by the US$ 111.0 million net proceeds from the rights issue, less a repayment of US$ 80 million of senior debt.

Balance sheet

The Group's total non-current assets at 30 June 2014 were US$ 380.9 million (31 December 2013: US$ 367.0 million). This increase is mainly attributable to US$ 14.0 million (31 December 2013: US$ Nil) in secured trade receivables.

The Group's total current assets at the period-end were US$ 738.8 million (31 December 2013: US$ 707.9 million). Trade and other receivables increased to US$ 352.3 million (31 December 2013: US$ 327.3 million) due to unfavourable timing on milestone payments as well as payments to suppliers for equipment procured for inventory. At 30 June 2014 the Group had a net cash position of US$ 280.6 million (31 December 2013: US$ 183.8 million) reflecting among other things the proceeds from the rights issue received in June.

Shareholders' equity increased from US$ 442.8 million at 31 December 2013 to US$ 635.0 million at 30 June 2014. The movement mainly reflects increased retained earnings of US$ 307.2 million (31 December 2013: US$ 229.6 million) and the proceeds from the rights issue received in June.

Borrowing and debt refinancing

Last year, the Group concluded a refinancing through a syndicate of banks for an aggregate amount of US$ 181.0 million, consisting of: (a) a term facility A of US$ 100.0 million with a final maturity on 30 June 2016, which was subject to an amortisation schedule commencing on 30 June 2014; (b) a term loan facility B of US$ 60.0 million with an original final maturity on 30 June 2016; and (c) a revolving facility of US$ 21.0 million maturing on 30 June 2016.

In May 2014, the Group agreed with a range of banks a new set of funded facilities amounting to US$ 350 million. The new arrangement replaces the Group's funded facilities described above. It comprises (a) a US$ 100 million term loan ('Facility A'); (b) US$ 50 million for general working capital purposes; and (c) US$ 200 million of working capital for project financing. In addition, the lending banks committed a US$ 250 million bonding facility which may be used by the Group for project bonding requirements in connection with new contract awards funded by the working capital facility. The refinancing was completed post period-end, on 11 August 2014. Along with greater financial flexibility, the new facilities are expected to result in material savings from reduced interest margins and from lower bonding costs.

The period-end outstanding borrowing was US$ 80.9 million in the form of term loans (31 December 2013: US$ 160.8 million). The balance was fully repaid on 14 August by drawing down from Facility A on the same date.

Going concern

After reviewing its cash flow forecasts for a period of not less than 12 months from the date of signing 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

Whilst the proposed repayment of the balance of term loan facility B under the 2013 debt facility agreement removes the restriction on the payment of dividends, the Directors do not currently anticipate that the Company will pay a final dividend in the current financial year ending 31 December 2014. However, the Directors recognise the importance of dividends and remain optimistic about the future of the Group and will seek to review and restore the payment of a dividend at the most appropriate time.

Principal risks and uncertainties

For details of the principal risks and uncertainties faced by the Group, please refer to the Notes to Financial Statements in the Company's 2013 Annual Report as well as the Risk Report in the same document.

Independent review report to Lamprell plc

Introduction

We have been engaged by Lamprell plc ('the Company') to review the condensed consolidated interim financial information in the interim financial report for the half year ended 30 June 2014, which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated statement of cash flows and related notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial information.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2.1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated interim financial information included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated interim financial information in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information in the interim financial report for the half year ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

PricewaterhouseCoopers LLC

Chartered Accountants

Douglas, Isle of Man

27 August 2014

a) The maintenance and integrity of Lamprell Plc's website is the responsibility of the directors; the work carried out by the auditor does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

b) Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated statement of changes in equity

Consolidated statement of cash flows

1 Legal status and activities

Lamprell plc ("the Company/the parent company") was incorporated and registered on 4 July 2006 in the Isle of Man as a public company limited by shares under the Isle of Man Companies Acts with the registered number 117101C; and is listed on the London Stock Exchange ("LSE") main market for listed securities. The address of the registered office of the Company is Fort Anne, Douglas, Isle of Man and the Company is managed from the United Arab Emirates ("UAE"). The address of the principal place of the business is PO Box 33455, Dubai, UAE.

The principal activities of the Company and its subsidiaries (together referred to as "the Group") are: the upgrade and refurbishment of offshore jackup rigs; fabrication; assembly and new build construction for the offshore oil and gas and renewable sector, including jackup rigs and liftboats; Floating Production, Storage and Offloading ("FPSO") and other offshore and onshore structures; and oilfield engineering services, including the upgrade and refurbishment of land rigs.

2 Summary of significant accounting policies

2.1 Basis of preparation

This condensed consolidated interim financial information for the six months ended 30 June 2014 has been prepared in accordance with the Disclosure and Transparency Rules ("DTR") of the United Kingdom's Financial Conduct Authority ("FCA") and with International Accounting Standard ("IAS") 34, "Interim Financial Reporting" as adopted by the European Union ("EU"). The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2013, which have been prepared in accordance with IFRSs as adopted by the EU.

After reviewing its cash flow forecasts for a period of not less than 12 months, from the date of signing of this interim financial information, 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 interim financial information.

The interim financial information has been prepared under the historical cost convention, except as disclosed in the accounting policies below.

2.2 Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2013. The annual financial statements for the year ended 31 December 2013 are available on the Company's website (www.lamprell.com).

The preparation of condensed consolidated interim financial information 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, are disclosed in Note 4. 

(a) The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2014, but do not have a material impact to the Group or are not currently relevant for the Group.

· IAS 32, 'Financial Instruments: Presentation', amendments relating to offsetting financial assets and financial liabilities (effective 1 January 2014);

· IAS 39, 'Financial Instruments: Recognition and Measurement', amendments relating to novation of derivatives and hedge accounting (effective 1 January 2014);

· IFRIC 21, 'Levies' (effective 1 January 2014); and

· IFRS 10, IFRS 12 and IAS 27, amendments relating to Investment entities (effective 1 January 2014);

(b) The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2014 and have not been early adopted:

· IFRS 9, 'Financial instruments', (effective 1 January 2018), subject to EU endorsement;

· IFRS 11 'Joint arrangements', amendments relating to acquisition of an interest in a joint operation, (effective 1 January 2016), subject to EU endorsement;

· IAS 16, 'Property, Plant and Equipment, amendments relating to method of depreciation (effective 1 January 2016), subject to EU endorsement;

· IAS 38, 'Intangible Assets', amendments relating to method of amortisation (effective 1 January 2016), subject to EU endorsement; and

· Annual improvements 2012 and 2013. It includes changes to, IFRS 1, 'First-time Adoption of International Financial Reporting Standards'; IFRS 2, 'Share based payments'; IFRS 3, 'Business Combinations'; IFRS 8, 'Operating segments'; IFRS 13, 'Fair Value Measurement'; ' IAS 16, 'Property plant and equipment'; IAS 38, 'Intangible Assets'; IAS 24, 'Related Party Disclosures', and; IAS 40, 'Investment Property', effective from 1 July 2014.

3 Financial risk management

3.1 Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange and cash flow interest rate risk), credit risk and liquidity risk. These risks are evaluated by management on an ongoing basis to assess and manage critical exposures.

The condensed interim financial information does not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2013. There have been no changes in any risk management policies since the year ended 31 December 2013.

3.2 Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. There have been no changes in capital risk management policies since the year ended 31 December 2013.

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 period are as follows:

Revenue recognition

The Group uses the percentage-of-completion method for accounting 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 Group's accounting policy. As a result, the Group is required to estimate the total cost to completion of all outstanding projects at each period end. The application of a 10% sensitivity to management estimates of the total costs to completion of all outstanding projects at the period end would result in an increase in revenue and profit by USD 23 million (H1 2013: increase in revenue and profit by USD 28 million) if the total costs to completion are decreased by 10% and a decrease in revenue and profit by USD 22 million (H1 2013: decrease in revenue and profit by USD 39 million) if the total costs to completion 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. Testing for impairment was performed on 31 December 2013 and is detailed in the annual financial statements for the year ended 31 December 2013.

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 in 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 4.25% (2013: 3%). If the discount rate used were to differ by 0.5 points from management's estimates, the carrying amount of the employees' end of service benefits provision at the balance sheet date would be an estimated USD 1.2 million (2013: USD 1.2 million) lower or USD 1.3 million (2013: USD 1.3 million) higher.

Warranty provisions

The Company has provided for amounts that are expected to be potential future warranty claims. These provisions are mainly on new-build contracts. These amounts are based on management's best estimates based on the complexity of the projects still under warranty, remaining period of warranty and history of past warranty claims. Due to the inherent uncertainty associated with these estimates, the actual amount of future claims could be different than the amount provided. Management believes that the amounts provided are reasonable.

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), Sunbelt, Engineering and Construction (E&C) and Operations and Management (O&M).

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 Sunbelt, E&C and O&M 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.

Sunbelt derives its revenue from safety and training services; E&C derives its revenues from the site works, compression and chemicals and; O&M derives its revenue from the labour supply and other operations and maintenance services.

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

The Executive Directors 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 profit is provided as follows:

The reconciliation of the gross profit:

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.

6 Other gains/(losses) - net

7 Earnings per share 

(a) Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period excluding ordinary shares purchased by EBT and held as treasury shares (Note 16).

(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.

On 26 June 2014, the Company announced a rights issue of five shares for every sixteen shares held at a discounted price of 88 pence per share resulting in the issue of 81,363,469 new ordinary shares (Note 16). The calculation of the weighted average number of ordinary shares for the current period was affected by the issue of the new ordinary shares. The Group has treated the discount element of the rights issue as if it were a bonus issue, using the theoretical ex-rights price of 132 pence per share. The effect of this is to increase the weighted average number of shares reported in the prior period, with a resulting reduction in the reported basic and diluted earnings per share for the previous period. The adjustment factor, to effect the increase in the weighted average number of shares, has been calculated by dividing the share price immediately before the shares were quoted ex-rights (146p) with the theoretical ex-rights price (132p), giving an adjustment factor of 1.104. These adjustments to the comparative EPS calculations do not impact the consolidated income statement and consolidated balance sheet previously reported.

8 Operating profit

Operating profit (from continuing operations) is stated after charging:

9 Property, plant and equipment

The additions of USD 9.6 million during the current period comprise USD 0.4 million of additions to capital work-in-progress, USD 1.2 million of additions to buildings and infrastructure, USD 7.6 million of additions to operating equipment and USD 0.4 million of additions to other fixed assets.

10 Intangible assets

11 Investments accounted for using the equity method

Investment in joint ventures

During 2012, the Group entered into a joint venture agreement through its subsidiary Lamprell Sharjah WLL with the Saudi Arabia based Shoaibi Group, Al Yusr Townsend and Bottum L.L.C., to form Lamprell Arabia Ltd ("LAR"). The JV did not form in the stipulated time and this agreement was allowed to lapse on 6 Feb 2014. There has been no outflow from the Group in the form of investment. The Group is still actively engaged in the setup of these operations outside the JV structure.

Details of the Group's joint ventures during the period and at the balance sheet date is as follows:

* Production, manufacturing and erection of heat exchangers, pressure vessels, tanks, structural steel, piping and other related activities.

Summarised financial information in respect of the Group's joint ventures is set out below:

MIS Arabia Co. Ltd.

MIS Arabia Co. Ltd. is a private company and there is no quoted market price available for its shares.

The Group has the following contingencies and commitments relating to Group's interest in the joint venture.

12 Trade and other receivables

Amounts due from customers on contracts comprise:

As required under our current contracts with Ensco we note that all related materials and equipment and the vessel itself being constructed under these contracts are the exclusive property of Ensco.

13 Cash and bank balances

At 30 June 2014, the cash at bank and term deposits were held with fifteen banks (31 December 2013: fifteen banks). The effective average interest rate earned on term deposits was 0.28% (31 December 2013: 0.54%) per annum. Margin and short term deposits of USD 18.0 million (31 December 2013: USD 16.5 million) and deposits with an original maturity of more than 3 months amounting to USD 39.5 million (31 December 2013: USD 50.6 million) are held under lien against guarantees issued by the banks (Note 24).

14 Non-current assets held for sale and discontinued operations

Discontinued operations

Profit/(loss) from discontinued operations comprises:

Inspec

During 2013, the Group decided to dispose one of its subsidiaries (Inspec). This transaction was completed on 3 March 2014. Financial information relating to Inspec operations for the period to the date of disposal and prior year comparatives are set out below.

The main elements of the cash flow of the Inspec are as follows:

Analysis of the result of discontinued operations related to Inspec is as follows:

Litwin

During the period, the Group decided to dispose one of its subsidiaries (Litwin). The completion date for this transaction is expected to be before December 2014 and consequently meets the criteria for assets held for sale and discontinued operations as per IFRS 5. Financial information relating to the operations for the period and prior period comparatives are set out below.

The main elements of the cash flow of the Litwin are as follows:

Analysis of the result of discontinued operations related to Litwin is as follows:

Disposal Group

Inspec

Cash flow on disposal of Inspec is as follows:

At 31 December 2013, the major classes of assets and liabilities of Inspec disposal group were as follows: