Lamprell narrows loss as it seeks to return to growth

Oil rig construction company Lamprell reported a net loss of $70.7m in its results for the year ended 31 December on Thursday, as a result of lower revenues and a loss from the East Anglia One project.

The London-listed firm said the loss was still narrower than the $98.1m it reported in 2017.

Revenue fell to $234.1m from $370.4m year-on-year, which was in line with guidance, while the company’s year-end net cash position slid to $80m from $257m a year earlier.

Lamprell said it had a “significantly improved” backlog of $540m at year-end, up from $61.7m on 30 June.

On the operational front, Lamprell reported “excellent” safety performance during the year, with a best-ever total recordable incident rate of 0.15, down from 0.30 year-on-year.

A major upgrade project on Master Marine's mobile operating unit ‘Haven’ was successfully completed in the first half, while at the East Anglia One offshore wind farm, the company said the project was 99% complete.

It said all 42 jackets and 182 piles fabricated in the United Arab Emirates had been delivered to the client's facility in Vlissingen, and were undergoing final certification and handover protocols prior to installation.

Belfast-based assembly for the remaining 18 jackets by Harland and Wolff was continuing, with Lamprell support.

The loss on the project had risen by $9.4m, which the board put down to the additional cost of supporting Harland and Wolff through its restructuring, with Lamprell saying the overall project delivery remained on track to meet the client installation campaign in 2019.

It claimed to have enjoyed a “record year” in its rig refurbishment segment, with 23 rigs passing through the yards in 2018, 11 currently stacked and five refurbishment projects ongoing or beginning shortly.

The company also continued to upskill its workforce, and bring in experienced personnel to deliver on its strategic initiatives.

Looking at its strategy, the board said it had made “major progress” on all of its key strategic objectives, noting it was now included on Saudi Aramco's LTA offshore programme, increasing the bid pipeline by $3bn to $6.4bn, with bidding on new LTA projects already underway.

A new $200m contract was won in the renewables market, to deliver jackets for the Moray East wind farm, with the board saying it was now embedding lessons learnt on the East Anglia One project in pricing against its in-depth understanding of the market, and in managing project risk profile effectively.

That project was on track for first steel cutting in the second quarter of 2019.

At its IMI joint venture, Lamprell said early construction was ongoing, with dredging and reclamation works progressing as planned.

Commissioning of individual yard zones was said to be under regular review, with overall yard completion on track for 2022.

A letter of intent had been signed for the subcontract of the two new-build jackup rigs from IMI in December, with the rig design and final contract terms expected to be concluded in the second quarter.

Lamprell said its new LJ43 proprietary jack up rig design was completed in collaboration with MSC Gusto during the period.

Looking ahead, the board said 2019 revenue was expected to be between $250m and $400m, with the financial results expected to remain remain under pressure at the current revenue levels and cost base requirements for the group.

It said it was in “advanced negotiations” with lenders for new debt facilities, which were expected to be signed in the second quarter, adding that once achieved, its balance sheet would continue to support strategic initiatives as the business returned to growth.

Lamprell said its primary focus for 2019 would be the generation of a “healthy and sustainable” backlog, along with continuing discipline around costs and cash management, including monetising the LAM2K land rig and Super 116E rig kits.

Additional opportunities were also expected to develop in both the oil and gas and renewables markets in the second half, which the directors said would support the underlying strength of its bid pipeline and its anticipated return to growth.

Finally, Lamprell confirmed the promotion of Hani El Kurd to the role of chief operating officer.

“2018 was marked by further volatility in the oil and gas industry and by the ongoing challenges in the EA1 project, both of which impacted our profitability for the year,” said non-executive chairman John Malcolm.

“Against this backdrop I am pleased to report significant strategic progress for Lamprell, which will help diversify our exposure away from a single source of revenue and secure solid, commercially strong prospects in years to come.

“As we deliver our strategy, we continue to focus on risk management throughout the business to ensure current and future opportunities help us return to profitability in the medium term.”

Christopher McDonald, Lamprell chief executive office, added that the business repositioning that the firm had been working on for two years was finally beginning to translate into tangible growth opportunities.

“Having completed the UAE scope on our two major projects in the first half of 2018, our yard activity levels hit a historic low, however by the end of the year we had achieved three major strategic milestones, which made a significant improvement to both our backlog and bid pipeline.

“Our IMI joint venture has provided us with an LOI for two new build jack up rig orders, the first order globally since 2015.”

The company’s investment in new talent since 2017 had helped secure a place on Saudi Aramco's LTA programme, McDonald claimed, and its challenging experience with East Anglia One had ensured it was able to win a new project in the renewables industry with confidence over its commercial viability.

“Although our current revenue levels will continue to affect profitability in the near term, I strongly believe in the growth prospects for our business.”