14 Apr 2020 07:00
14 April 2020
LAMPRELL PLC("Lamprell" and with its subsidiaries the "Group")
UPDATE ON OPERATIONAL RESTRUCTURING & COVID 19 SELF-HELP MEASURES
Further to our announcement on 16 January 2020, Lamprell provides an update on the implementation of its self-help programme aimed at achieving a significant reduction in the Group overhead and an improvement in operational efficiencies, as well as on the impact of the ongoing global health crisis on the business.
Overhead reduction programme
Having reviewed its current operational footprint against medium term fabrication requirements, the Group has made the decision to consolidate its operations within one yard for the time being. As such, the Jebel Ali facility has been mothballed from January 2020. The Sharjah facility currently hosts some of the work on the Moray East project and will be closed upon its completion later this year. The Hamriyah yard is our largest facility and continues to operate, offering various expansion opportunities should the Group require additional space. These actions allow for the Group to gradually grow fabrication volumes whilst significantly improving efficiency and reducing its cost base.
The measures are associated with significant headcount and allowance reductions, most of which have already been implemented.
Further, the measures translate into an approximately USD 23 million reduction in overheads for 2020, of which over 90% relates to cash overheads.
Subject to audit, the restructuring will result in a non-cash impairment charge of Intangible and Immovable assets in Sharjah of approximately USD 13.2 million in the 2019 financial statements. In 2020 there will be an estimated one-off charge of USD 7.5 million which relates to the demolition costs in Sharjah and staff termination costs.
We are also planning for low levels of critical-only capital expenditure at our facilities, with a total value below USD 10 million in 2020.
These steps will help preserve our cash and maximise liquidity in a period of low revenue and slow pace of major contract awards, whilst retaining core capacity for future growth.
Covid 19 actions
The health and wellbeing of our employees is a key priority for us and we have been taking numerous steps since February in light of the increasing threat of the Covid-19 virus. We have a programme to screen and protect our workforce, clients and contractors on site as a result of the coronavirus pandemic. Most of our corporate and administration functions are working remotely wherever possible, with engineering and fabrication activities in Hamriyah and Sharjah moderately affected by lockdown and social distancing measures in the UAE so far. As such, all works, including the two IMI rigs and the Moray East project, continue with the first jackets delivered to the client on time and on budget. However, we believe it is too early to make a comprehensive and final assessment of the impact of the virus on our business, and despite the swift the decisive actions taken to protect our business and our workforce it is inevitable that there will be some impact on productivity and increased costs as we act prudently to respond to the threat.
Further to the earlier overhead cost savings detailed above, and in order to conserve cash and protect the business during this period of unprecedented market conditions, we have taken the following additional actions:
· Reduced fees, salaries and allowances for our Board, senior management, and all of our professional staff by 25% for the next six months.
· Where operationally feasible, we have also placed staff on reduced working hours for those that are under-utilised and used other measures such as unpaid leave.
· Redundancies, regrettably, have also been implemented where there is no medium-term horizon for staff to be used.
We expect these measures to save approximately USD 10 million in 2020, and we will continue to consider scope for further action as the crisis develops.
Balance sheet and liquidity
The Group is now debt free as our facility was fully repaid in March 2020. As at 31 March 2020 the Group's cash balances stood at USD 77 million, of which USD 35 million is restricted. Challenges in the traditional term debt segment persist as a result of market-wide impact of the COVID-19 crisis and Lamprell is assessing alternative project funding options.
We have commenced negotiations with the other IMI shareholders regarding the deferral of the next instalment of our strategic capital expenditure in the Saudi maritime yard currently scheduled for this year.
Outlook
Bidding activity continues in both of our end markets of oil & gas and renewables but we are seeing signs of deceleration and delays in some awards. Given the macro environment uncertainty, we withdraw our previously announced FY2020 revenue guidance. Our 2019 year end backlog stands at USD 470.1 million with approximately USD 275 million scheduled to run off in 2020.
Further to the Financial Conduct Authority's (FCA) directive for listed companies to defer release of their results due to the ongoing impacts of COVID 19, Lamprell will confirm the date for the release of its preliminary results for the year ended 31 December 2019 as soon as the reporting schedule has been finalised with the Group auditors.
Christopher McDonald, CEO of Lamprell said:
"We are operating in a period of unprecedented global uncertainty, focusing on the safety and sustainability of our operations and the health and wellbeing of our employees. Amidst industry-wide insecurity and distress, we continue to deliver our projects safely and reliably and we remain focused on strict financial discipline to sustain a healthy balance sheet and progress our strategy."
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
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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 4,000 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 1.6 km of quayside.
Lamprell is listed on the London Stock Exchange (symbol "LAM").