12 Jan 2015 07:00
12 January 2015
LAMPRELL PLC("Lamprell" and with its subsidiaries the "Group")
PRE-CLOSE TRADING UPDATE
Lamprell (ticker: LAM), a leading provider of fabrication, engineering and contracting services to the onshore and offshore energy industry, publishes a trading update ahead of its results for the year ended 31 December 2014.
Operational highlights
Lamprell delivered a robust operational and financial performance in 2014 as a result of strong project execution, favourable phasing of rig construction cycles and some one-off elements.
The Group has seen a strong rate of conversion of its bid pipeline with six new build jackup rig orders won and several smaller awards signed recently. In the second half of the year, we commenced construction for four new build jackup rigs, two for Ensco rigs and two for Shelf Drilling. Consequently, seven new build jackup rigs are currently under construction in our Hamriyah facility and a module construction project for 29 piperacks is being fabricated for Petrofac in our Jebel Ali yard. Additionally, there are ten rig refurbishment projects underway across our Hamriyah and Sharjah facilities. All the projects are progressing well and are expected to be delivered on time and on budget. The construction of the two new build jackup rigs recently awarded by NDC is due to start shortly.
The year saw the Company also achieve significant milestones by completing its largest rig conversion project ("MOS Frontier") and delivering the last of the legacy projects (the Caspian Sea jackup rig "Mercury"). Both the Land Rigs and Engineering & Construction divisions, while still relatively small contributors, saw significant growth during 2014.
Financial position
The debt refinancing and the rights issue conducted in 2014 provide the Group with a strong balance sheet. The Group's net cash position at the end of December 2014 was around US$275 million, in line with our prior expectations. The net cash position will strengthen further in the short term as a result of the multiple milestone payments from a number of major projects as referred to above. This will then decrease through the rest of 2015 as different execution phases are funded and completed.
Energy Market environment
2014 had a positive start, both for our industry and global equity capital markets, which, together with Lamprell's return to profitability, created a receptive environment for the Group's successful rights issue and refinancing. However, the final quarter of the year saw a significant deterioration in the energy market following the dramatic fall in oil prices.
We have already seen some of the global drillers and IOC's announce reductions in their capital expenditure programmes and this trend is expected to increase. While short-term tendering activity will continue at a pace required to meet current demand, our ability to carry on winning new business is contingent on the state of the broader industry. The scale of the readjustment will remain unclear until the market and the commodity price stabilise. In this context, the outlook for the broad services sector looks challenging while the industry adjusts to the new realities.
Outlook
The Group is expected to report financial performance for 2014 slightly ahead of expectations following a strong finish to the year. This was an exceptionally strong year for Lamprell and this level of performance will not be replicated in 2015 due to our projects being at different stages in their construction cycles and the weaker market environment.
The Group's focus will be on maintaining a competitive position in the current market conditions which are expected to be challenging throughout 2015. The effects of the announced reductions in capital expenditure from many operators are already having an impact on global markets and are expected to affect Lamprell's bid pipeline. We anticipate intense competition with a large number of players chasing fewer projects, leading to increased pressure on margins. Lamprell will strive to maintain a competitive position in this environment leveraging its strong client relationships and a solid operational track record of safety, quality and delivery.
Lamprell is entering this period in a position of relative strength. We have a strong balance sheet. As a result of our successful tendering in 2014, the proportion of revenue coverage achieved at the end of the year was in line with normal seasonal levels. The Group however anticipates that securing the remaining part of the expected revenue for 2015 will be challenging in the current environment.
As a result, the Board now expects the revenue for 2015 to be around 10% below current expectations. Our financial performance is anticipated to be below current expectations by a similar order of magnitude, with a heavy weighting towards the second half of the year due to the phasing in the construction cycle. The Company will undertake mitigating actions to preserve margins and to offset the impact on our financial performance in the event of a further downturn in the market. We will provide an update on this outlook with the full year results announcement on 19 March 2015.
Jim Moffat, Chief Executive Officer, Lamprell, said:
"With the recent slump in the oil price, winning work in 2015 is going to be a challenge as the industry adjusts to the new realities. We are entering this period in a position of relative strength with a strong balance sheet and a high backlog. We will continue to focus on maintaining our competitive position in the sector."
Full year results for 2014 will be announced on 19 March 2015. Further, the Group is planning to hold the 2015 Annual General Meeting for Lamprell plc on Tuesday 12 May 2015.
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