24 Jan 2018 16:15
24 January 2018
LAMPRELL PLC("Lamprell" and with its subsidiaries the "Group")
PRE-CLOSE TRADING UPDATE
Lamprell announces the following update on its performance for 2017 and an update on the East Anglia One offshore windfarm project (EA1 Project). As previously announced, the issues on the EA1 Project will significantly impact the Group's profitability in 2017, with total losses on the EA1 Project to completion estimated to be approximately US$80 million, which will be booked in full in 2017. The additional costs on the project have been caused by a number of variable factors including investment in further, unplanned staffing and equipment requirements, as well as significant additional shipping and subcontractor costs. This forecast loss on the project does not include any potential liquidated damages. We remain in constructive discussions with our client and are confident of meeting their expectations around the delivery schedule requirements.
EA1 Project update
Operationally, we are making good progress on the EA1 Project. The first shipment of part-assembled jackets is well on its way to Belfast for final assembly by Harland & Wolff. The first shipment of 8 fully-assembled jackets has been loaded out from our Jebel Ali facility and the vessel will set sail for the client's facility at Vlissingen in the Netherlands shortly. The final load of piles is also in the process of being transported to Vlissingen in accordance with the project schedule.
While the EA1 Project has been challenging, subject to the losses, we are going to significant lengths to deliver a successful outcome for our client on the project. In order to rectify the challenges on the EA1 Project, we have strengthened our capabilities in certain key areas including bidding, risk and change management. This has resulted in some personnel changes to improve our competency in these areas.
Financial position and outlook
Revenue for 2017 is expected to be at the lower end of the guidance range of US$370-390 million. The Company has maintained its strong balance sheet and expects to have a year-end net cash position of around US$255 million, subject to audit, which is after taking account of approximately US$50 million of negative cash flow from the EA1 Project in 2017. This puts Lamprell in a strong position to weather ongoing market challenges and to invest in its strategic initiative in Saudi Arabia. The net cash position is planned to trend downwards during the course of 2018 as a result of the investment in the Saudi Maritime Yard, payment for inventory and the cash impact of the remaining losses on the EA1 Project which are expected to total US$30 million.
The magnitude of the approximate loss on the EA1 Project is likely to cause the Company to breach the Tangible Net Worth financial covenant contained within its debt facilities. Due to the strength of the Company's balance sheet, this breach does not impact the Company's short term liquidity but the Company will seek a waiver from its banking syndicate to retain its undrawn working capital facilities, to enable it to take advantage of future growth opportunities that may arise.
Given the expected low activity levels later this year, Lamprell remains heavily focussed on converting our bid pipeline and rebuilding our order book. Bidding activity levels are positive in our key markets and we aim to leverage our client relationships and strengthen our competitive position in order to rebuild our backlog, although we do not expect to see revenue growth until 2019 on the basis of awards no earlier than late 2018. As a result, we maintain our previous guidance for 2018 revenues and expect trading to be significantly impacted by the lower activity levels and the fact that the 2018 revenues on the EA1 Project (which comprise approximately 25% of our 2018 projected revenues) will be at zero margin. In addition to increased bidding costs, we also plan to maintain our overheads at existing levels in order for the Group to retain its core competitive strengths and continue to upskill its workforce in order to be able to deliver our strategy. Our focus is on developing our presence in Saudi Arabia and in the renewables sector whilst also being ready for the recovery in oil-related markets.
Other projects
The refurbishment project for Master Marine is progressing well following the departure of the vessel carrying the fabricated products from Lamprell's Hamriyah facility on 23 December. The vessel is heading to Norway for final installation of the products on to the 'Haven' rig at our subcontractor's yard and for completion in Q2 2018, as planned. Construction of the two land rigs for Schlumberger has also been completed and the client is expected to take delivery shortly in anticipation of deployment later this year.
The Group has experienced an increase in the number of other rig refurbishment projects towards the end of last year, with 13 such projects completed in 2017, 4 under way currently and 14 jackup rigs stacked at Lamprell's facilities. Although the scope of work on these projects is typically smaller than in previous years, we view this activity as a positive early indication of a broader rig market recovery.
Maritime Yard
During 2017, the Group signed a transformational joint venture agreement with Saudi Aramco, Bahri and Hyundai Heavy Industries (HHI) for a major maritime yard development in Saudi Arabia (Maritime Yard). The Maritime Yard continues to progress positively and to schedule and the newly-formed joint venture company has been named "International Maritime Industries" (or IMI) following the initial board meeting. We will continue to update the market as regards the progress of this project as appropriate.
Christopher McDonald, Chief Executive Officer said:
"We anticipated a challenging 2017 given the weakness of our end markets, and this was compounded by the significant issues we have experienced on the EA1 Project. This is a disappointing outcome for the Company. We have taken the lessons from that project and the Group's financial position remains robust.
"We expect the market to remain challenging in 2018. However, the increased activity in our bid pipeline and the progress with the Maritime Yard in Saudi Arabia provide us with optimism and a path to support long-term, sustainable growth."
Lamprell will announce its full year 2017 financial results on 22 March 2018.
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
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Legal Entity Identifier of the Company: 2138008NUMXRMIEDF538
Classification: Additional regulated information required to be disclosed under the laws of a Member State
Notes to editors
Lamprell PLC, based in the United Arab Emirates ("UAE") and with over 40 years' experience, is a leading provider of fabrication, engineering and contracting services to the offshore and onshore oil & gas and renewable energy industries. The Group has established leading market positions in the fabrication of shallow-water drilling jackup rigs, liftboats, land rigs, and rig refurbishment projects, and it also has an international reputation for building complex offshore and onshore process modules and fixed platforms.
Lamprell employs more than 7,000 people across multiple facilities, with its primary facilities located in Hamriyah, Sharjah and Jebel Ali, all of which are in the UAE. In addition, the Group has facilities in Saudi Arabia (through a joint venture agreement). Combined, the Group's facilities cover approximately 828,000 m2 with 1.9 km of quayside.
Lamprell is listed on the London Stock Exchange (symbol "LAM").