28 October 2021
LAMPRELL PLC
("Lamprell" and with its subsidiaries the "Group")
INTERIM FINANCIAL RESULTS
FOR SIX MONTHS TO 30 JUNE 2021
Solid operational delivery against considerable supply chain disruption
1H results negatively impacted by loss of productivity following global lockdowns and restrictions on movement of labour
Liquidity position remains challenging. Announced proposed 19.99% equity raise to strengthen balance sheet, respond to short term liquidity challenges and provide access to growing opportunity set in all addressable markets
Financial highlights
· Improved revenue of USD 171.7 million (1H 2020: USD 142.5 million), with approximately USD 232 million secured for 2H 2021
· EBITDA negative at USD (8.3) million due to COVID-19 supply chain disruptions (1H 2020: positive EBITDA of USD 0.3 million)
· Net loss of USD 28.7 million (1H 2020: net loss of USD 27.1 million)
· Net cash of USD 81.1 million (USD 112.4 million at 31 December 2020), with unrestricted cash of USD 26.8 million as at 30 June 2021; net cash of USD 70.8 million as at 30 September 2021 of which USD 24.4 million is unrestricted
· 2H 2021 secured backlog of USD 232 million; 2022 secured backlog of around USD217 million underpins confidence in future workload
· As noted in the financial review section and as further detailed below, ongoing material uncertainty relating to the going concern assumption has been identified
Liquidity position and balance sheet recapitalisation
· To meet its near-term working capital requirements, the Group is in the process of completing a balance sheet recapitalisation, comprising:
o USD 45 million initial working capital facility secured for the two IMI rigs, which is contingent on a 19.99% equity raise and is repayable when project milestone payments are received (expected to be in Q4 2022)
o Option for an additional accordion facility of USD 45 million, currently uncommitted but expected to be agreed in Q1 2022, in line with project working capital requirements
o A proposed 19.99% equity placing as separately announced today, with funds expected to be received in November 2021
· Timing and quantum of new awards will continue to have a significant influence on the future capital requirements and funding strategy of the Group. Against this backdrop, the Group continues to look at the most appropriate mix of financing alternatives which will be required in 1H 2022 and include additional equity, project-specific financing and hybrid facilities.
· The Company will also look to secure new Group facilities when the improvement in its financial position permits. The Group will continue to explore financing opportunities within the Kingdom of Saudi Arabia.
Operational highlights
· Excellent safety performance despite ongoing COVID-19 challenges; total recordable incident rate (TRIR) of 0.12 at period end
· Solid operational delivery against the backdrop of widespread distress in the supply chain
· Global COVID-19 lockdowns, and in particular restricted travel emanating from the Indian subcontinent, early in the year affected workforce availability and progress on major projects
· Additional costs incurred to accelerate timely delivery, which has necessitated the consumption of contingencies on major contracts
· Seagreen progressing to completion, with first two batches delivered to client in Hamriyah and third batch in process of being handed over
· IMI rigs in peak fabrication phase
· Two Saudi Aramco LTA projects awarded in Q1 and Q2 2021 progressing to plan
· Rig refurbishment business unit continues to deliver a steady flow of projects from repeat and new customers
· Digital unit is making notable progress founded on solid financial and industry partnerships, early client discussions and first pilots being deployed
Current trading and outlook
· EBITDA for 2H 2021 expected to be broadly breakeven and therefore full-year EBITDA anticipated to remain at a similar level reported for first half of the year
· Bid pipeline continues to grow, boosted by a number of significant opportunities in the renewables industry:
o USD 6.9 billion at end of June 2021; currently around USD 7.6 billion
o Renewables component, at USD 3.9 billion, has grown to just over 50% of the total for the first time and is expected to grow to up to USD 6 billion in 2022
o Over 70% of Oil & Gas component made up of bids on LTA projects for Saudi Arabia, a key strategic market for Lamprell
o Over USD 4 billion of pipeline opportunities due for award by the end of 1H 2022
o Improving margin mix on bids in pipeline
· Completing the balance sheet recapitalisation and reducing our cost base remain the top priorities for the business
· The proposed funding arrangements announced today, including debt facilities and the proposed equity raise, are critical for strengthening the Group balance sheet to address current severe liquidity constraints and then for the delivery of structural growth associated with the Lamprell Reimagined strategy. Preserving liquidity remains a key focus and creditor payments continue to be significantly deferred, with creditor support, in order to manage this.
o If the Group is unable to secure the project-related debt and/or the planned equity raise in November, and the future funding alternatives outlined above for 1H 2022 do not materialise, there is significant risk that the Group will be unable to meet its contractual obligations as they arise/fall due.
o Due to these circumstances, a material uncertainty exists in respect of the Company's and Group's going concern position. The key assumptions made in adopting the going concern basis include that the equity raise announced today will be successful, that the second working capital facility will be secured by the Group by the end of Q1 2022 and further funding alternatives will be put in place in 1H 2022. Should any element of this strategy not crystallise, the Group may not be able to maintain sufficient liquidity in order to continue trading.
· Further assumptions and detail regarding the Group's liquidity position and going concern assumption are provided in the financial review section below.
| 1H 2021 FINANCIAL RESULTS
| 1H 2021 | 1H 2020 | |
| (USD million, unless otherwise stated) | | | |
| Revenue | 171.7 | 142.5 | |
| Gross margin | 1.2% | 4.0% | |
| EBITDA | (8.3) | 0.3 | |
| (Loss) from continuing operations after income tax | (28.7) | (27.1) | |
| Reported basic and diluted (loss) per share (US cents) | (8.41) | (7.93) | |
| Net cash as at 30 June | 81.1 | 71.4 | |
| Unrestricted cash as at 30 June | 26.8 | 35.3 | |
For the definitions of EBITDA, overheads, net cash and unrestricted cash, please refer to the 'Alternative performance measures' in the notes to interim financial information.
Brackets ( ) denotes negative financial metric or losses.
Christopher McDonald, Chief Executive Officer said:
"We are proud of the operational excellence and flexibility we were able to demonstrate despite the ongoing wide-ranging effects of the COVID-19 pandemic. Our results in the reporting period were affected by workforce availability and other COVID-19 associated costs and these unplanned costs, both for the Group and for our subcontractors, have intensified the pressures on our liquidity position. While these near-term cashflow constraints are placing additional strain on our operations, if these can be resolved we are firmly on the recovery path with anticipated year on year revenue growth. Therefore full-year EBITDA is anticipated to remain at a similar level reported for first half of year. We are making progress with our funding arrangements in the face of current liquidity constraints and look forward to delivering the growth associated with our Lamprell Reimagined strategy with a stronger balance sheet.
The current energy crisis has exposed the decade-long underinvestment in the hydrocarbon industry and, although our clients in the Middle East retained robust levels of spending throughout the downturn, we are seeing early signs of a significant step up in investment plans and activity in the region.
The renewables business unit is also looking at dramatically increasing opportunity sets across the globe and we look forward to sharing in this growth with a stronger balance sheet backed by our recently agreed debt facilities and the planned equity raise."
The management team will hold a presentation on 29 October 2021 at 9.00 am (UK time). Due to the ongoing global health crisis, we will be holding the presentation in Dubai and it can be accessed via a live webcast on our Company's website, at www.lamprell.com or on the following link:
Webcast link: https://webcasting.brrmedia.co.uk/broadcast/6176cd43df7b150b81e93dd1
- Ends -
Enquiries:
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Notes to editors
Lamprell is a leading provider of services to the international energy sector. Driving strategy and growth through its Renewables, Oil & Gas and Digital business units, underpinned by almost half a century of expertise, the Group has worked hard to establish its reputation for delivering projects safely, on time and to budget.
The Group has firmly established its international credentials in the renewables sector as well as continuing to build on its traditional oil and gas credentials. We are recognised for building complex offshore and onshore process modules and platforms, fabricating and refurbishing jack-up rigs and liftboats.
Lamprell employs more than 5,000 people across multiple facilities, with its primary facilities located in Hamriyah, in the UAE. Combined, the Group's facilities cover approximately 800,000m2 with over 1.5 km of quayside. In addition, the Group has facilities in Saudi Arabia (through a joint venture agreement).
Lamprell is listed on the London Stock Exchange (symbol "LAM").
Chief Executive Officer's Review
Amid continuing challenges presented by the COVID-19 restrictions across our supply chain, Lamprell continues to evolve the business in line with its "Lamprell Reimagined" strategy whilst delivering solid operational performance. Earlier this year, societies and industries across the globe battled with the impact of a new wave of restrictions, which resulted in significant reduction in workforce availability for ourselves as well as our subcontractors as we entered peak phases on two of our major projects. The team worked effectively to manage our cashflows to respond to the ongoing liquidity constraints which were announced previously, including a significant level of creditor payment deferral and a disciplined approach towards cash collection from ongoing projects, while the Company worked to finalise its balance sheet recapitalisation plans. These plans are coming to fruition with the recent announcement of the first tranche of a project debt facility and today's announcement of an equity raise in support of our working capital requirements. The Company is likely to continue experiencing these liquidity challenges until its full balance sheet recapitalisation programme has been implemented as planned.
Despite these challenges we continued to focus on aligning our operational capability with the significant growth opportunities in our addressable markets. We introduced a number of changes in the yards to improve efficiencies and make us more competitive in the Renewables business unit, and we made good progress with developing our Digital arm. The Oil & Gas unit secured two sizeable projects during 2021, both from Saudi Arabia, and our engagement in the country is increasing as we seek to migrate the centre of gravity for this business unit towards the Kingdom.
Lamprell Reimagined
Earlier this year we launched our Lamprell Reimagined strategy. Inspired by the energy transition, it is a strategy that builds on Lamprell's 45-year track record operating in the Middle East and specifically the recently established strategic partnerships in Saudi Arabia, whilst growing its reputation in the renewables industry in Europe, US and Asia and utilising its unique understanding of physical assets to develop sought-after digital solutions for the global energy industry.
We commenced the process of segregating the company into three distinct business units of Renewables, Oil & Gas and Digital. This structure allows us to deliver our product offerings in each segment with a sharper focus as we accelerate our presence in our addressable markets. Our UAE yards will have fabricated nearly 150 foundations for UK wind farms by the end of this year and Lamprell is becoming a household name in the offshore wind industry across the globe. Our Oil & Gas operations are increasingly leaning towards Saudi Arabia, where our expertise and experience is held in high regard by our partners and we are assessing a number of options to maximise the value of this unit, including a potential listing on Tadawul, the Saudi Stock Exchange. The Digital business unit has gained the support of UAE investors and is commencing engagement with a global customer base.
Lamprell is also in the process of refreshing the composition of the Board to be further aligned with the Lamprell Reimagined strategy. On 14 September 2021, Lamprell announced the appointment of Motassim Almaashouq as an independent Non-Executive Director and his extensive experience and expertise in the global energy industry and in Saudi Arabia will complement the capabilities of the current Board in driving Lamprell's strategy forward both in the near and long-term.
The Board composition will continue to evolve to ensure that the Group has the appropriate experience and skills to support its strategy and operations. In this regard, a search is under way for an independent Non-Executive Director with renewables experience. In addition, the Board intends to a make a further appointment to the Board which will be a representative of Blofeld Investment Management (which currently holds 25.16 per cent. of the current issued share capital of Lamprell). The Board expects this appointment to provide additional relevant experience and skills to the Board.
Operational performance in 1H
Safety is a top priority at all times. The TRIR for the first six months of the year was at 0.12 and represents the best performance in the Group's history. COVID-19 continues to affect our business and the wide-spread severe travel restrictions have impacted productivity. We remain resolute in providing our employees with safe working conditions.
Renewables
Seagreen, the Group's third major renewables project, is making good progress with delivery being made to our client in spite of the impact experienced by the Group and its subcontractors as a result of the lockdowns in India which affected the workforce supply. The cost of these challenges has been absorbed to date with contingency; any further delays would now erode margin. Two of the six batches have been delivered with the third batch in process of being handed over to the client. The project is on track to complete early next year.
Throughout the delivery of this large scale renewables project, we have continued to optimise the operational set-up to improve throughput efficiencies for fabrication of renewables products. The yard and our operational mindset have evolved greatly since Lamprell's entry into serial renewables fabrication almost five years ago. We have made a number of incremental investments that have allowed us to almost double the number of jackets in assembly at any one time, a critical enhancement to address the rapid expansion in offshore windfarm projects and to improve our capacity and capability. Most recently we added a lifting frame that not only allows us to reduce costs during project execution but also serves as a working example of our digital product offering to our clients, which is detailed further below.
Oil & Gas
The two IMI rigs are now well into the peak fabrication phase. Critical equipment packages are currently being installed and the project is progressing broadly in line with current expectations although there is pressure felt throughout the supply chain due to COVID and its impact on productivity and workforce availability. The cost impact of these delays has absorbed the remaining contingency such that the end margin on these projects is now expected to be minimal and highly sensitive to any future cost increases. Construction of the IMI yard itself, which subcontracted the rigs to Lamprell from Saudi Aramco, faced some delays due to the effects of the COVID-19 pandemic causing operational impacts in Saudi Arabia during 2020-21. Works on site have now resumed and the first of the four zones is expected to start commissioning in early 2022.
Earlier this year we were awarded two medium-sized EPCI projects from Saudi Aramco, as part of our participation in its Long-Term Agreement programme (LTA). Lamprell was selected as one of the few contractors on this prestigious programme in 2018 and since then we have seen a steady and sizeable contribution to our bid pipeline. The first project has now gone through steel cutting, with the second closing out the initial engineering and procurement phase of the project. We look forward to demonstrating our capability and paving the way for future cooperation with Saudi Aramco.
Rig refurbishment continues to deliver reliable results and performance with a steady flow of projects from repeat and new clients in this segment. We have seen a gradual increase in scopes recently and expect this segment to perform well as a result of the steep oil price recovery in recent months. We expect the offshore rig count in the region to steadily climb in the near term which underscores our confidence in this part of the business.
Digital
Our Digital business unit is proving to be a critical part of the Lamprell Reimagined strategy. We are looking at value accretive ventures which address the demand for data integration in the energy industry. Recent engagement with our existing and prospective clients in both the renewables and oil and gas end markets has indicated an uncompromising focus on greater efficiencies, with a shift towards integrated digital solutions. This year we made very good progress with developing our Digital business unit. We now have the backing and support from leading digital investors and developers. As such, we formed a joint venture with Injazat/G42, a UAE-based regional leader in digital transformation, part-owned by Mubadala, the UAE sovereign wealth fund, and Silverlake Partners. We also signed an exclusive agreement with Akselos, a global leader in engineering simulation technology, for the provision of digital twin technology, which is expected to be a significant contributor to improving the efficiency and design life span of project installations.
Our Digital unit is driven by a dual focus, aiming to develop solutions that enhance our own operations and those that enable our clients to achieve cost efficiencies. Our site solutions include robotic welding, which we are now deploying on the Seagreen project with noticeable efficiency improvements. Earlier this year we built our own lifting frame, a critical asset in renewables fabrication process but something that was previously rented from a third party. We created a digital twin for the frame in order to better demonstrate the benefits of digital twin technology to clients. The twin collects critical data enabling us to maximise asset performance and reduce maintenance time and cost. The technology is increasingly becoming a core requirement in our pipeline of projects. We are also developing an asset integrity platform, a subscription-based solution that monitors asset performance from construction to decommissioning.
Outlook
We continue to see strongly improving fundamentals across all our end markets and our current bid pipeline is around USD 7.6 billion (31 December 2020: USD 6 billion). In renewables, we have seen a sharp increase in bidding opportunities since the beginning of the year - circa USD 1.6 billion has been added to the pipeline in the period from January to September 2021, and, for the first time since diversifying into this growing industry, the proportion of renewables opportunities in our pipeline is higher than in oil and gas. The oil and gas pipeline consists of USD 3.7 billion of high quality active bids, mostly from our key target market of Saudi Arabia. Bidding activity is at the highest level since we took a new strategic direction five years ago. We expect decisions on some of the projects in the pipeline to commence in Q4 2021. These are likely to be preliminary awards awaiting final investment decisions in 2022.
Secured revenue for 2021 is circa USD 400 million, a reduction on previously reported figures due to project scheduling impacts of COVID-19 and the resulting rescheduling of payments into 2022. Backlog for 2022 is currently USD 217 million.
The impact of COVID-19 and the associated supply chain bottlenecks and the minimal margins on the IMI rig projects caused us to incur negative EBITDA in 1H 2021. We expect EBITDA for 2H 2021 to be broadly breakeven and therefore that full year EBITDA will be held at a similar level reported in H1 2021.
Much of our current backlog consists of minimal and low margin projects, which benefited Group liquidity by monetising significant equipment held in inventory and provided an entry into strategic markets. As we look at the continuously growing pipeline in renewables and a stronger footing in Saudi Arabia, we expect to see a noticeable improvement in margin performance with new contract awards into 2022 and beyond. We will continue to demonstrate uncompromising cost discipline and in particular we will introduce further process and throughput improvements in renewables fabrication that we believe will translate into an improved financial performance for the Group.
Balance sheet recapitalisation
As previously announced, the Group has been seeking new debt and/or equity funding in order to maintain sufficient liquidity to continue trading. On 28 October 2021, subject to fulfilment of certain conditions precedent, Lamprell secured a USD 45 million revolving trade loan facility (the "Initial Facility"). As part of the terms of the Initial Facility, there is an option of a further USD 45 million accordion funding subject to the provision of additional security to the banks similar to that for the Initial Facility. The Company anticipates the second tranche to be agreed and made available in Q1 2022.
The drawdown of the Initial Facility will be conditional on, amongst other things, the Group successfully completing a 19.99% equity raise (the 'Capital Raising'). Together with the above short term debt facilities, the Capital Raising is intended to strengthen the Group's balance sheet, enabling the Group to navigate the current severe liquidity challenges, successfully deliver ongoing major projects and take advantage of the significant opportunities which the Board believes are available to the Group in the markets in which it operates.
The timing and quantum of new awards will continue to have a significant influence on the future capital requirements and funding strategy of the Group. Against this backdrop, the Group continues to look at the most appropriate mix of financing alternatives which will be required in 1H 2022 and includes additional equity, project-specific financing and hybrid facilities. The new funding arrangements will provide the Group with a stronger and more sustainable capital structure, paving the way for structural growth and the continued delivery of its "Lamprell Reimagined" strategy. The Company will also look to secure new Group facilities when the improvement in its financial position permits. The Group will continue to explore financing opportunities within the Kingdom of Saudi Arabia.
As a result, Lamprell today announced the Capital Raising, details of which are available in a separate market announcement and summarised in note 27 to the interim financial information.
Christopher McDonald
Chief Executive Officer
Financial Review
The balance sheet recapitalisation, through a combination of debt and equity, is our absolute priority. As we progressed discussions with regional banks regarding working capital facilities for the two IMI rigs, fiscal discipline and careful working capital management through significant creditor deferral measures were our main focus. COVID-19 continued to impact our operations and the Company's financial performance although we expect this to improve slightly in the second half of the year.
As announced on 28 October 2021, we secured the Initial Facility for the two IMI rigs as well as an uncommitted accordion of USD 45 million which we expect to have secured for utilisation in Q1 2022. We also announced the Capital Raising today, which together with the debt facilities, will provide our balance sheet with additional strength as we prepare for major growth in our addressable markets.
Results from operations
Total revenue for the six-month period ended 30 June 2021 was USD 171.7 million (1H 2020: USD 142.5 million). Most of the 2021 full year revenue is weighted towards the second half, with the Seagreen project scheduled for completion in early 2022 and the IMI rig projects also anticipated to generate strong revenues in 2H 2021. Overall, revenues of USD 232 million are currently scheduled to run off in 2H 2021.
Margin performance
We report a gross profit for the reporting period of USD 2.1 million, down from the comparative period (1H 2020: USD 5.7 million). At 1.2% gross margin was lower than in the first half of 2020 (1H 2020: USD 4.0%) as profitability continues to be impacted by the effects of COVID-19 restrictions and workforce availability and some of the current backlog projects that were bid at minimal or low margin to enable us to monetise significant inventory. These costs have absorbed the contingency on major projects such that any future cost increases will further erode margin. The Group expects a gradual improvement in financial performance as it converts its high quality bid pipeline into backlog.
We continue to prioritise fiscal discipline to mitigate the effects of the additional COVID-19 costs. The temporary cost-cutting measures, which were introduced in 1H 2020, remain in place. Overheads for the period were USD 37.7 million (1H 2020: USD 42.6 million). Underlying overheads, adjusting for restructuring costs, COVID-19 related salary reductions and impairment of non-financial assets, were USD 39.1 million (1H 2020: USD 38.1 million) (refer to APM disclosures). General and administrative expenses of USD 21.2 million remaining at broadly the same levels as in 1H 2020 (USD 22.8 million).
As previously announced, EBITDA for the period was negative at USD (8.3) million (1H 2020: USD 0.3 million). This was mainly driven by COVID-19 and the associated supply chain bottlenecks and the minimal margins on the IMI rig projects. We expect EBITDA for 2H 2021 to be broadly breakeven and therefore that full year EBITDA will be held at a similar level reported in H1 2021.
Net loss and loss per share
The Group generated a net loss of USD (28.7) million (1H 2020: net loss of USD (27.1) million) which equates to a loss per share of (8.41) US cents (1H 2020: loss per share of (7.93) US cents). The losses were driven by the continuing low revenue levels due to project scheduling impacts of COVID-19 coupled with the lower margins on some of the current backlog projects and our share of the IMI joint venture losses (amounting to USD 6.8 million).
Capital expenditure
We continue to make targeted investments in our yard and operations to align them with the energy transition and achieve noticeable improvements in throughput and efficiencies. Capital expenditure in 1H 2021 was USD 9.4 million and is largely attributable to the fabrication and digitisation of a lifting frame, a critical piece of equipment for the assembly of renewables assets, thus removing the need for rentals.
IMI equity contributions
No equity contribution was made to the IMI joint venture during the reporting period. To date, total contribution to the IMI joint venture amounts to approximately USD 85.0 million, out of a USD 140.0 million total maximum commitment.
Balance sheet
Net cash at 30 June 2021 reduced to USD 81.1 million from USD 112.4 million at 31 December 2020. The reduction is driven by an intensive working capital phase on the IMI rigs project. USD 54.3 million of the USD 81.1 million was restricted on project bonds and guarantees. Of this, net unrestricted cash at 30 June 2021 was USD 26.8 million (31 December 2020: USD 56.8 million). As at 30 September it has reduced to USD 24.4 million.
The Group's total assets at the end of the first half of 2021 were USD 499.3 million (31 December 2020: USD 504.8 million). Inventories amount to 15.8 million and include the Group's LAM2K land rig.
Trade and other payables have increased as significant creditors have been deferred, such that creditor days were 257 at 30 June 2021.
Shareholders' equity at the period-end was USD 132.1 million (31 December 2020: USD 160.4 million).
Borrowings
As at 30 June 2021 the Group had no term debt and a very small working capital liability of USD 0.7 million. This is a similar position to that held by the Group at 31 December 2020.
Balance sheet recapitalisation
On 28 October 2021 we completed the documentation for the Initial Facility with First Abu Dhabi Bank and Emirates Development Bank. Drawdown against the Initial Facility is dependent upon certain conditions precedent which we expect to conclude before the end of November. One of the conditions precedent to drawdown is completion of the Capital Raising which is launched today as mentioned above and detailed in a separate announcement.
The Initial Facility also includes an uncommitted accordion of USD 45 million which the Group expects to secure and utilise in Q1 2022.
Timing and quantum of new awards will continue to have a significant influence on the future capital requirements and funding strategy of the Group. Against this backdrop, the Group continues to look at the most appropriate mix of financing alternatives which will be required in 1H 2022 and include additional equity, project-specific financing and hybrid facilities.
Going concern
The Group's interim financial statements have been prepared on a going concern basis as further discussed in Note 2.1. In performing their assessment of going concern, the Directors have considered the forecast cash flows for the 15 months to 31 January 2023 and reviewed the progress against the key assumptions discussed below:
Balance sheet recapitalisation
As highlighted previously, the Group has been assessing its funding options, both in terms of meeting near and medium term working capital challenges and also meeting its longer-term strategic objectives. Despite a significant level of current creditor deferral being undertaken and a committed programme of overhead reductions aimed at preserving liquidity, in 2H 2021 and 1H 2022, a number of major projects will have substantial working capital requirements, in particular the IMI rigs, thereby putting significant pressure on the balance sheet in the remainder of Q4 2021 and 2022. The proposed recapitalisation is as follows:
- On 28 October 2021, a revolving trade loan agreement was signed with First Abu Dhabi Bank and Emirates Development Bank for the Initial Facility, which is ring-fenced for working capital requirements on the IMI rigs and will be due for repayment by November 2022;
- The initial drawdown on the Initial Facility is dependent upon certain conditions precedent which we expect to conclude before the end of November 2021, one of which is completion of the Capital Raising launched today which is detailed in note 27 and is expected to raise around USD 33 million; and
- The Initial Facility also includes an uncommitted accordion facility of USD 45 million which the Group expects to secure and utilise in Q1 2022. This will also be ring fenced for the funding of the working capital requirements of the IMI rigs and will be due for repayment by November 2022.
Timing and quantum of new awards will continue to have a significant influence on the future capital requirements and funding strategy of the Group. Against this backdrop, the Group continues to look at the most appropriate mix of financing alternatives which will be required in 1H 2022 and include additional equity, project-specific financing and hybrid facilities.
While the Board expects to be able to complete its proposed recapitalisation plan as outlined above, there can be no certainty of this until the Capital Raising (which is subject to a shareholder meeting in late November 2021) is completed; all the conditions precedent for the Initial Facility are met; the terms for the follow on uncommitted accordion are finalised; and the later financing alternatives in 1H 2022 are successful.
If the Group is unsuccessful in concluding the Initial Facility and the Capital Raising, the Group will need to renegotiate the milestone receipts for the IMI rigs with its client, IMI, to manage the project's substantial working capital requirements in the next twelve months. Should these funding options not be executed successfully during the course of Q4 2021, the Group may not be able to maintain sufficient liquidity in order to continue trading beyond that period. Assuming the above funding options are completed successfully, the Group's ability to continue trading will still be at risk for the remainder of the going concern period unless the follow on accordion and the later financing alternatives referred to above proceed to completion.
In aggregate, the proceeds from the funding routes being pursued as outlined above will be used to fund initially the working capital requirements of the IMI rig projects, which draw their peak working capital requirement in 2H 2021, other ongoing projects and working capital requirements as well as the outstanding final committed contractual equity contributions to the IMI joint venture in Saudi Arabia.
Deferral of creditor payments
A key part of the Group's strategy to address current liquidity challenges is the extension of credit terms with certain suppliers, and the deferral of payments. This activity must continue until the proceeds of the new funding arrangements outlined above are received, and should the timing or quantum be different to forecast, will need to increase to a point that may not be sustainable. Current creditor days are 257 days, and this is forecast to increase to a maximum of 265 days within the going concern period, assuming the successful execution of the recapitalisation as set out above. The Group's ability to do this is critical and dependent on the reaction of key suppliers, which is outside the Group's control. Should the Group be unable to sustain this, there is a significant risk that the Group will be unable to meet its contractual obligations as they fall due.
Other assumptions
Further key assumptions included in the forecast cash flows are summarised as follows and explained in further detail at Note 2.1:
- conversion of a portion of the bid pipeline to contract awards in line with our strategy;
- execution of existing major projects in accordance with agreed milestones, forecast costs and payment receipts;
- revenues from our Contracting Services and Rig Refurbishment business units continue in line with those achieved in prior periods; and
- the commercial closeout of claims related to the IMI and Seagreen projects in line with current forecasts.
The impact of the COVID-19 pandemic continues to increase the uncertainty around our future cashflow assumptions, particularly the timing of new funding arrangements, new major contract awards, our ability to meet project milestones and vendors' ability to accept extended credit periods. In view of this, the Directors have considered downside sensitivities to certain of the assumptions outlined above which include no new significant contract wins in the going concern period and the inability of the Group to secure new funding arrangements. The Directors have considered the realistic availability and likely effectiveness of drastic and severe mitigating actions that they could take to avoid or reduce the impact or likelihood of a significant deterioration in the cash flows, along with the Group's ability to carry out those actions. These include:
- continued fiscal discipline and targets for managing working capital, particularly with respect to the delivery of the two IMI rigs;
- delaying planned contributions to our IMI joint venture;
- deferring implementation of the 'Lamprell reimagined' strategy until a time the funding can be secured;
- self-help measures including extending periods of reductions in overheads, fees, salaries and allowances for the Board, senior management and professional staff, use of a deferred salary savings scheme and where operationally feasible, placing staff on reduced working hours or unpaid leave;
- reduced levels of capital expenditure and digital spend; and
- sale of non-core businesses or assets.
Following consideration of these actions, the Directors are satisfied they have appropriate available mitigating actions in place to ensure that the Group remains liquid for the 15 months to 31 January 2023 and have therefore prepared the interim financial information on the going concern basis of accounting. However, the Directors highlight that these mitigating actions are severe and, even if successfully implemented, will still require significant additional deferrals of creditor payments to vendors to manage working capital requirements for the business, which may not be sustainable.
The Directors have concluded that, in aggregate, assumptions in management's forecasts regarding the Group's plans to raise capital, and its ability to continue to defer payment to certain suppliers as set out above, which are outside their control, represent a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as a going concern. Significant disruption to the timing or realisation of the anticipated cash flows could result in the business being unable to realise its assets and discharge its liabilities in the normal course of business.
Dividends
In the context of the current focus on balance sheet recapitalisation and the macroeconomic environment and uncertainty, the Directors do not recommend the payment of an interim dividend for the period in relation to current financial year ending 31 December 2021. The Directors will continue to review this position in light of market conditions at the relevant time.
Principal risks and uncertainties
Principal risks are a risk or combination of risks that could materially threaten the Company's business model, performance, solvency or liquidity, or prevent it from meeting its strategic objectives. The Group has an established risk management framework which requires all risk owners to identify, evaluate and monitor risks and take steps to reduce, manage or eliminate the risk. This framework is overseen by the Audit & Risk Committee and the Board as a whole, but is implemented and actioned by the executive team.
For full details of the Group's principal risks and uncertainties, please refer to the Notes to Financial Statements and the Risk Report in the Company's 2020 Annual Report (which is available on our website at www.lamprell.com). By way of summary, the key principal risks and uncertainties facing the Group are as follows:
· The ability to fund the business
· The ability to win new work
· The macro economic conditions
· Counterparty risk, up and down the supply chain
· Project execution
· Cyber threats
· Onerous contractual commitments
· Ineffectual third-party alliances
· The failure to invest for the future
· The threat from M&A activity
Since publication of the 2020 Annual Report in late June 2021, the Board does not consider that any significant changes or new risks have been identified which need to be highlighted at this time although the Board has noted that the risk around the Company's ability to fund the business and its ongoing projects has increased and will continue to increase until the balance sheet recapitalisation plans have been implemented, as highlighted elsewhere in this announcement. However the Audit & Risk Committee and the Board will continue to review and monitor the ongoing impact of COVID-19 on the principal risks and uncertainties facing the Group.
Antony Wright
Chief Financial Officer
Condensed consolidated interim income statement
| | |
| |
| | Notes | Six months ended 30 June | |
| | | 2021 | 2020 |
| | | USD'000 | USD'000 |
| | | (Unaudited) | (Unaudited) |
| | | | |
Revenue | 5 | 171,665 | 142,455 |
| Cost of sales | | (169,589) | (136,776) |
| | | -------------------- | -------------------- |
Gross profit | | 2,076 | 5,679 |
General and administrative expenses | 6 | (21,164) | (22,767) |
| Other gains - net | | 463 | 130 |
| | | -------------------- | -------------------- |
Operating loss | | (18,625) | (16,958) |
| | | | |
Finance costs | 24 | (3,236) | (2,286) |
Finance income | | 37 | 295 |
| | | -------------------- | -------------------- |
Finance costs - net | | (3,199) | (1,991) |
Share of loss of investments accounted for using the equity method - net |
9 |
(6,845) |
(8,111) |
| | | -------------------- | -------------------- |
Loss before income tax | | (28,669) | (27,060) |
Income tax expense | | (53) | (32) |
| | | -------------------- | -------------------- |
Loss for the period | | (28,722) | (27,092) |
| | | ========= | ========= |
Loss for the period attributable to the equity holders of the Company | |
(28,722) |
(27,092) |
| | | ========= | ========= |
Loss per share attributable to the equity holders of the Company during the period | | | |
| | | | |
| Basic | 7 | (8.41)c | (7.93)c |
| | | ========= | ========= |
| Diluted | 7 | (8.41)c | (7.93)c |
| | | ========= | ========= |
Condensed consolidated interim statement of other comprehensive income
| | | Six months ended 30 June | |
| | Notes | 2021 | 2020 |
| | | USD'000 | USD'000 |
| | | (Unaudited) | (Unaudited) |
| | | | |
Loss for the period | | (28,722) | (27,092) |
| | | | |
| Other comprehensive (expense) / income: | | | |
| Items that may be reclassified subsequently to profit or loss: | | | |
| Currency translation differences | 16 | (26) | 2 |
| | | -------------- | -------------- |
Other comprehensive (loss) / income for the period | | (26) | 2 |
| | | -------------- | -------------- |
Total comprehensive loss for the period | | (28,748) | (27,090) |
| | | ======= | ======= |
Total comprehensive loss for the period attributable to the equity holders of the Company | | (28,748) | (27,090) |
| | | ======= | ======= |
| | | | |
Condensed consolidated interim balance sheet
| | | At 30 June | At 31 December |
| | Notes | 2021 | 2020 |
| | | USD'000 | USD'000 |
| | | (Unaudited) | (Audited) |
| ASSETS | | | |
| Non-current assets | | | |
| Property, plant and equipment | 8 | 160,792 | 162,024 |
| Intangible Assets | | 77 | 82 |
| Investment accounted for using the equity method | 9 | 49,188 | 55,888 |
| Term and margin deposits | 12 | 5,901 | 447 |
| | | ------------------------ | ------------------------ |
Total non-current assets | | 215,958 | 218,441 |
| | | ------------------------ | ------------------------ |
Current assets | | | |
| Inventories | 13 | 15,847 | 14,252 |
| Trade and other receivables | 10 | 64,683 | 73,890 |
| Contract assets | 11 | 126,981 | 85,426 |
| Cash and cash equivalents | 12 | 27,433 | 57,625 |
| Term and margin deposits | 12 | 48,418 | 55,193 |
| | | ------------------------ | ------------------------ |
| Total current assets | | 283,362 | 286,386 |
| | | ------------------------ | ------------------------ |
| Total assets | | 499,320 | 504,827 |
| | | ------------------------ | ------------------------ |
| LIABILITIES | | | |
| Current liabilities | | | |
| Borrowings | 20 | (672) | (880) |
| Trade and other payables | 17 | (154,479) | (70,866) |
| Contract liabilities | 18 | (102,602) | (159,991) |
| Lease liabilities | | (2,135) | (2,136) |
| Current tax liability | | (266) | (253) |
| Provision for warranty costs | 19 | (3,472) | (3,555) |
| | | ------------------------ | ------------------------ |
| | | | |
| Total current liabilities | | (263,626) | (237,681) |
| | | ------------------------ | ------------------------ |
|
Net current assets | | 19,736 | 48,705 |
| | | ------------------------ | ------------------------ |
| Non-current liabilities | | | |
| Lease liabilities | | (65,440) | (68,849) |
| Provision for employees' end-of-service benefits | | (38,136) | (37,848) |
| | | ------------------------ | ------------------------ |
| Total non-current liabilities | | (103,576) | (106,697) |
| | | ------------------------ | ------------------------ |
| Total liabilities | | (367,202) | (344,378) |
| | | ------------------------ | ------------------------ |
| Net assets | | 132,118 | 160,449 |
| | | ========== | ========== |
| EQUITY | | | |
| Share capital | 15 | 30,346 | 30,346 |
| Share premium | 15 | 315,995 | 315,995 |
| Other reserves | 16 | (19,318) | (19,292) |
| Retained losses | | (194,905) | (166,600) |
| | | ----------------------- | ----------------------- |
| Total equity attributable to the equity holders of the Company | | 132,118 | 160,449 |
| | | ========= | ========= |
Condensed consolidated interim statement of changes in equity
|
| Note | Share capital | Share premium | Other reserves | Retained (losses) / earnings |
Total |
| | | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 |
| | | | | | | |
| At 1 January 2020 | | 30,346 | 315,995 | (19,335) | (115,626) | 211,380 |
| | | -------------- | -------------- | -------------- | -------------- | -------------- |
| Loss for the period | | - | - | - | (27,092) | (27,092) |
| Other comprehensive income: | | | | | | |
| Currency translation differences | 16 | - | - | 2 | - | 2 |
| | | -------------- | -------------- | -------------- | -------------- | -------------- |
| Total comprehensive loss for the period ended 30 June 2020 | | - | - | 2 |
(27,092) | (27,090) |
| | | -------------- | -------------- | -------------- | -------------- | -------------- |
| Transactions with owners: | | | | | | |
| Share-based payments: | | | | | | |
| - value of services provided | | - | - | - | 2,467 | 2,467 |
| | | -------------- | ----------------- | -------------- | --------------- | ----------------- |
| Total transactions with owners | | - | - | - | 2,467 | 2,467 |
| | | -------------- | ----------------- | -------------- | ---------------- | ----------------- |
| At 30 June 2020 (unaudited) | | 30,346 | 315,995 | (19,333) | (140,251) | 186,757 |
| | | ======= | ======== | ======= | ======== | ======== |
| Loss for the period | | - | - | - | (26,294) | (26,294) | |||||||
| Other comprehensive income: | | | | | | | |||||||
| Re-measurement of post-employment benefit obligations | | - | - | - | (1,676) | (1,676) | |||||||
| Share of other comprehensive loss accounted for using the equity method | | - | - | - | (352) | (352) | |||||||
| Currency translation differences | 16 | - | - | 41 | - | 41 | |||||||
| | | -------------- | ----------------- | -------------- | ---------------- | ----------------- | |||||||
| Total comprehensive loss for the period ended 31 December 2020 | | - | - | 41 | (28,322) | (28,281) | |||||||
| | | -------------- | ----------------- | -------------- | ---------------- | ----------------- | |||||||
| Transactions with owners: | | | | | | | |||||||
| Share-based payments: | | | | | | | |||||||
| - value of services provided | | - | - | - | 1,973 | 1,973 | |||||||
| | | -------------- | ----------------- | -------------- | ---------------- | ----------------- | |||||||
| Total transactions with owners | | - | - | - | 1,973 | 1,973 | |||||||
| | | -------------- | ----------------- | -------------- | ---------------- | ----------------- | |||||||
| At 31 December 2020 (audited) | | 30,346 | 315,995 | (19,292) | (166,600) | 160,449 | |||||||
| | | ======= | ======== | ======= | ======== | ======== | |||||||
|
| Note | Share capital | Share premium | Other reserves | Retained (losses) / earnings |
Total |
| ||||||
| | | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 |
| ||||||
| | | | | | | |
| ||||||
| At 1 January 2021 | | 30,346 | 315,995 | (19,292) | (166,600) | 160,449 |
| ||||||
| | | -------------- | -------------- | -------------- | -------------- | -------------- |
| ||||||
| Loss for the period | | - | - | - | (28,722) | (28,722) |
| ||||||
| Other comprehensive income: | | | | | | |
| ||||||
| Currency translation differences | 16 | - | - | (26) | - | (26) |
| ||||||
| | | -------------- | -------------- | -------------- | -------------- | -------------- |
| ||||||
| Total comprehensive loss for the period ended 30 June 2021 | | - | - | (26) |
(28,722) | (28,748) |
| ||||||
| | | -------------- | -------------- | -------------- | -------------- | -------------- |
| ||||||
| Transactions with owners: | | | | | | |
| ||||||
| Share-based payments: | | | | | | |
| ||||||
| - value of services provided | | - | - | - | 1,336 | 1,336 |
| ||||||
| - Treasury shares issued | | - | - | - | (919) | (919) |
| ||||||
| | | -------------- | ----------------- | -------------- | --------------- | ----------------- |
| ||||||
| Total transactions with owners | | - | - | - | 417 | 417 |
| ||||||
| | | -------------- | ----------------- | -------------- | ---------------- | ----------------- |
| ||||||
| At 30 June 2021 (unaudited) | | 30,346 | 315,995 | (19,318) | (194,905) | 132,118 |
| ||||||
| | | ======= | ======== | ======= | ======== | ======== |
| ||||||
Condensed consolidated interim statement of cash flows
| | Notes | Six months ended 30 June |
| |
| | | 2021 | 2020 | |
| | | USD'000 | USD'000 | |
| | | (Unaudited) | (Unaudited) | |
Operating activities | | | | |
Cash (used in) / generated from operating activities | 26 | (17,269) | 32,986 | |
Tax paid | | (40) | (51) | |
| | | ---------------- | ---------------- | |
Net cash (used in) / generated from operating activities | | (17,309) | 32,935 | |
| | | ---------------- | ---------------- | |
Investing activities | | | | |
| Purchases of property, plant and equipment | 8 | (6,498) | (2,962) | |
| Proceeds from sale of property, plant and equipment | | 56 | 260 | |
| Additions to intangible assets | | - | (206) | |
| Finance income | | 37 | 295 | |
| Inflows from margin deposits under lien (with original maturity more than three months) | | 284 | 3,715 | |
| Outflows from margin deposits under lien (with original maturity more than three months) | | (1,151) | (4,078) | |
| Inflows from margin deposits under lien (with original maturity less than three months) | | 12,603 | 810 | |
| Outflows from margin deposits under lien (with original maturity less than three months) | | (10,415) | (227) | |
| | | ---------------- | ---------------- | |
| Net cash used in investing activities | | (5,084) | (2,393) | |
| | | ---------------- | ---------------- | |
Financing activities | | | | |
| Repayment of borrowings | 20 | (208) | (20,000) | |
| Bank charges | | (761) | (264) | |
| Repayment of lease liabilities | | (3,410) | (350) | |
| Payment of interest expense on leases | | (2,475) | (814) | |
| Treasury shares purchased | | (919) | - | |
| | | ---------------- | ---------------- | |
| Net cash used in financing activities | | (7,773) | (21,428) | |
| | | ---------------- | ---------------- | |
| (Decrease)/increase in cash and cash equivalents | | (30,166) | 9,114 | |
| | | | | |
| Cash and cash equivalents at beginning of the period | 12 | 57,625 | 26,162 | |
| Exchange rate translation | | (26) | 2 | |
| | | ------------------ | ------------------ | |
Cash and cash equivalents at end of the period | 12 | 27,433 | 35,278 | |
| | | ========= | ========= | |
1 Legal status and activities
There has been no change in the legal status or to the Company and its subsidiaries (together referred to as "the Group") or principal activities of the Company since the publication of our most recent annual financial statements.
This condensed consolidated interim financial information has been reviewed, not audited. The information for the year ended 31 December 2020 included in these condensed consolidated interim financial information does not constitute statutory accounts as defined in the Isle of Man Companies Acts 1931-2004. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not modified but referred to the Company's disclosures in respect of a material uncertainty relating to going concern.
2 Summary of significant accounting policies
2.1 Basis of preparation
The condensed consolidated interim financial information for the six months ended 30 June 2021 have been prepared in accordance with the Disclosure Guidance 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 United Kingdom ("UK"). The consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2020, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The annual financial statements of the Group for the year ending 31 December 2021 will be prepared in accordance with United Kingdom adopted International Financial Reporting Standards.
Going concern
The Group incurred a loss of USD 28.7 million during the six months ended 30 June 2021 (30 June 2020: USD 27.1 million) and was in a net cash position of USD 81.1 million at 30 June 2021 (31 December 2020: USD 112.4 million) - see Alternative Performance Measures (APMs) on page 29. The reduction in cash resources is attributable to net cash outflows generated from operating activities, purchases of property plant and equipment and repayment of lease liabilities.
Of the net cash position at 30 June 2021, USD 54.3 million of the balance was restricted. The level of net unrestricted cash at 30 June 2021 was therefore USD 26.8 million (31 December 2020: USD 56.8 million).
As at 30 September 2021, net unrestricted cash has fallen to USD 24.4 million, as our ongoing projects have continued to draw working capital through the second half of 2021.
The interim financial information has been prepared on the going concern basis of accounting. In performing their assessment of going concern, the Directors have considered the forecast cash flows for the Group for the 15 months to 31 January 2023 which include the key assumptions detailed below:
Balance sheet recapitalisation
As highlighted previously, the Group has been assessing its funding options, both in terms of meeting near and medium term working capital challenges and also meeting its longer-term strategic objectives.
Despite a significant level of current creditor deferral being undertaken and a committed programme of overhead reductions aimed at preserving liquidity, in 2H 2021 and 1H 2022, a number of major projects will have substantial working capital requirements, in particular the IMI rigs, thereby putting significant pressure on the balance sheet in the remainder of Q4 2021 and 2022. The proposed recapitalisation is as follows:
- On 28 October 2021 a revolving trade loan agreement was signed with First Abu Dhabi Bank and Emirates Development Bank for an Export Credit Agency backed Project Facility ("the initial project finance facility") for USD 45 million, ring-fenced to working capital requirements on the IMI Rigs, which will be due for repayment by November 2022.
- The initial drawdown on the above facility is dependent upon certain Conditions Precedent which we expect to conclude before the end of November 2021, one of which is completion of the 19.99% equity raise launched today as set out in note 27, which is expected to raise USD 33 million.
- The facility also includes an uncommitted accordion facility of USD 45 million which the Group expects to secure and utilise in Q1 2022, which will also be ring fenced for the funding of the working capital requirements of the IMI Rigs, and which will be due for repayment by November 2022.
- Timing and quantum of new awards will continue to have a significant influence on the future capital requirements and funding strategy of the Group. Against this backdrop, the Group continues to look at the most appropriate mix of financing alternatives which will be required in 1H 2022 and include additional equity, project-specific financing and hybrid facilities.
While the Board expects to be able to complete its proposed recapitalisation plan as outlined above, there can be no certainty of this until:
- the 19.99% equity raise is completed (refer Note 27);
- all the Conditions Precedent for the initial project finance facility are met, including but not limited to the completion of the 19.9% equity raise, issuance of the insurance policy by the Export Credit Agency, and assignment of the IMI Rig receivables;
- the terms for the follow on uncommitted accordion are finalised; and
- the later financing alternatives in 1H 2022 is successful
If the Group is unsuccessful in concluding the initial project finance facility and the 19.99% equity raise, the Group will need to renegotiate the milestone receipts for the IMI Rigs with its client, IMI, to manage the project's substantial working capital requirements in the next twelve months. Should these funding options not be executed successfully during the course of Q4 2021, the Group may not be able to maintain sufficient liquidity in order to continue trading beyond that period. Assuming the above funding options are completed successfully, the Group's ability to continue trading will still be at risk for the remainder of the going concern period unless the follow on accordion and the later financing alternatives referred to above proceed to completion.
In aggregate, the proceeds from the funding routes being pursued as outlined above will be used to fund initially the working capital requirements of the IMI Rig Projects, which draw their peak working capital requirement in 2H 2021, other ongoing projects and working capital requirements as well as the outstanding final committed contractual equity contributions to the IMI joint venture in Saudi Arabia.
Deferral of creditor payments
A key part of the Group's strategy to address current liquidity challenges is the extension of credit terms with certain suppliers, and the deferral of payments. This activity must continue until the proceeds of the new funding arrangements outlined above are received, and should the timing or quantum be different to forecast, will need to increase to a point that may not be sustainable. Current creditor days are 257 days, and this is forecast to increase to a maximum of 265 days within the going concern period, assuming the successful execution of the recapitalisation as set out above. The group's ability to do this is critical and dependent on the reaction of key suppliers, which is outside the Group's control. Should the Group be unable to sustain this, there is a significant risk that the Group will be unable to meet its contractual obligations as they fall due.
Other assumptions
Other assumptions included in the forecast cash flows are as follows:
- conversion of a portion of the bid pipeline to contract awards in line with our strategy: This includes opportunities from the renewables and oil and gas markets. We continue to bid on selective quality projects in these markets and we expect decisions on some of the projects in the pipeline to commence in Q4 2021;
- execution of existing major projects in accordance with agreed milestones, forecast costs and payment receipts: despite the wide-ranging effects of Covid-19, all our on-going projects are tracking in line with their current customer expectations which form the basis of the forecast cash flow assumptions. Upon achieving milestones, we do not anticipate delays in receipt of payments, based on historical payment receipts from these customers - refer to report on operations in the Chief Executive Officer's review;
- revenues from our Contracting Services and Rig Refurbishment business units continue in line with those achieved in prior periods: these business units continue to deliver good financial performance, and we have seen a steady flow of work from our clients; and
- the commercial closeout of claims related to the IMI and Seagreen projects in line with current forecasts.
The impact of the COVID-19 pandemic continues to increase the uncertainty around our future cashflow assumptions, particularly the timing of new funding arrangements, new major contract awards, our ability to meet project milestones and vendors' ability to accept extended credit periods.
In view of this, the Directors have considered downside sensitivities to certain of the assumptions outlined above which include no new significant contract wins in the going concern period and the inability of the Group to secure new funding arrangements.
The Directors have considered the realistic availability and likely effectiveness of drastic and severe mitigating actions that they could take to avoid or reduce the impact or likelihood of a significant deterioration in the cash flows, along with the Group's ability to carry out those actions. These include:
- continued fiscal discipline and targets for managing working capital particularly with respect to the delivery of the two IMI rigs which draw their peak working capital requirement in 2H 2021. This includes extending credit periods with vendors in the months where our cash requirements are significant and re-negotiating milestone payments with IMI;
- delaying planned contributions to our IMI joint venture;
- deferring implementation of the 'Lamprell reimagined' strategy until a time the funding can be secured;
- self-help measures including extending periods of reductions in overheads, fees, salaries and allowances for the Board, senior management and professional staff, use of a deferred salary savings scheme and where operationally feasible, placing staff on reduced working hours or unpaid leave;
- reduced levels of capital expenditure and digital spend; and
- sale of non-core businesses or assets.
Following consideration of these actions, the Directors are satisfied they have appropriate available mitigating actions in place to ensure that the Group remains liquid for the 15 months to 31 January 2023 and have therefore prepared the interim financial information on the going concern basis of accounting. However, the Directors highlight that these mitigating actions are severe and, even if successfully implemented, will still require significant additional deferrals of creditor payments to vendors to manage working capital requirements for the business, which may not be sustainable.
The Directors have concluded that, in aggregate, assumptions in management's forecasts regarding the Group's plans to raise capital, and its ability to continue to defer payment to certain suppliers as set out above, which are outside their control, represent a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as a going concern.
Significant disruption to the timing or realisation of the anticipated cash flows could result in the business being unable to realise its assets and discharge its liabilities in the normal course of business.
2.2 Accounting policies
The accounting policies applied in the preparation of the condensed consolidated interim financial information are consistent with those of the annual financial statements for the year ended 31 December 2020 except for the adoption of new standards and interpretations effective as of 1 January 2021. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The annual financial statements for the year ended 31 December 2020 are available on the Company's website (www.lamprell.com).
(a) New and amended standards adopted by the Group
· IFRS 16 (Amendments) Covid-19-Related Rent Concessions.
· IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (Amendments) Interest Rate Benchmark Reform phase 2.
The adoption of these amendments have not had any impact on the Group.
3 Critical accounting judgements and key sources of estimation uncertainty
The preparation of condensed consolidated interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
3.1 Critical judgements in applying accounting policies
Apart from those involving estimation (see Note 3.2), the Group has made following critical judgements in applying accounting policies in the process of preparing these condensed consolidated interim financial information.
3.1.1 Contract claims
A claim is an amount that the Group seeks to collect from the customer or another party as reimbursements for costs not included in the contract price. A claim may arise from, for example, customer caused delays, prolongation cost, cost of accelerating a project, program errors in specifications or design, and disputed variations in contract work.
The measurement of the amounts of revenue arising from claims is subject to a high level of uncertainty and often depends on the outcome of negotiations. Therefore, claims are only included in contract revenue when the amount has been accepted by the customer or the customer's representative, there is a clear contractual entitlement, and / or negotiations have reached a stage that it is highly probable that a significant reversal of revenue will not occur.
As at 30 June 2021, the balance due from customers on construction contracts includes an amount of unapproved contract claims as negotiations continue with our clients on the Seagreen and IMI projects.
3.1.2 Liquidated damages (LDs)
The Group recognises liquidated damages where there have been significant delays against defined contractual delivery dates or unfulfilled contractual obligations and it is considered probable that the customer will successfully pursue these penalties. This requires management to estimate the amount of liquidated damages payable under the contract based on a combination of an assessment of the contractual terms, the reasons for any delays and evidence of cause of the delays to assess who is liable under the contract for the delays and consequently whether the Group is liable for the liquidated damages or not.
While certain contracts have been subject to delays and/or unfulfilled contractual obligations in the first half of 2021, based on a review of the status of and risk on ongoing projects, the current status of discussions with customers and information at hand, no provision for LDs have been made in the financial statements as at 30 June 2021.
3.2 Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial period.
3.2.1 Revenue and margin recognition
The Group uses the input method to account for its contract revenue. Use of the input method requires the Group to estimate the stage of completion of the contract to date based on costs incurred as a proportion of the total contract costs that will be incurred over the life of the contract. As a result, the Group is required to estimate the total cost to completion of all outstanding projects at each period end. These cost estimates will often include a contingency relating to identified risks which are adjusted throughout the life of a project to reflect the remaining risk profile.
If the estimated total costs to completion of all outstanding projects were to decrease by 5% this would result in contract assets increasing by USD 8.2 million (30 June 2020: USD 1.9 million) or contract liabilities decreasing by USD 8.2 million (30 June 2020: USD 1.9 million). If the estimated total costs to completion of all outstanding projects were to increase by 5%, contract assets would either decrease by USD 10.1 million (30 June 2020: USD 5.1 million) or contract liabilities would increase by USD 10.1 million (30 June 2020: USD 5.1 million).
For the Group's two largest projects, the margin is lower than average, as they were bid at competitive levels to monetise existing inventory. During the current period the existing contingency on both these projects was absorbed as a result of supply chain issues which impacted productivity and workforce availability.
At period end, the Group has reassessed the remaining risks on those projects, and have concluded that, although there is still a significant period of time to completion, the degree of remaining risk has reduced to such an extent that it is it appropriate that there is no contingency included in the remaining forecast cost to complete. The margin on those two projects is therefore highly sensitive to future changes in costs and would be reduced to nil if the forecast costs to complete were to increase by USD 1.5 million (1.5%) or USD 3.3 million (2.8%) respectively, absent any changes to the total revenue of each contract. If forecast costs to complete for these contracts were each to increase by 5%, an onerous contract provision of USD 6.3 million would be recorded.
4 Segment information
In January 2021, as part of the Lamprell reimagined strategy the Group was re-organised into three strategic markets it seeks to address i.e. 'Oil and Gas' and 'Renewables' and 'Digital'. Accordingly, this has changed how the business is reported and viewed by the Executive Directors, the chief operating decision-maker, and therefore the make up of the reportable segments.
The segments are based on strategic objectives, similar nature of the products and services, type of customer and economic characteristics.
During 2020, the segments were reported as Rigs, EPC(I) and Contracting services and as a result,
comparatives have been restated.
The Oil and Gas segment contains business from New Build Jack Up rigs, land rigs, refurbishment and engineering and construction (excluding site works) used by customers operating in the Oil and Gas business. The Renewables segment contains business from foundations and offshore platforms mainly used by customers operating offshore wind power projects. The Digital segment comprises business from use of proprietary technologies for industrial application.
| | Oil and Gas | Renewables | Digital | Total |
| | USD'000 | USD'000 | USD'000 | USD'000 |
| Six months ended 30 June 2021 | | | | |
| Revenue from external customers | 87,413 | 84,252 | - | 171,665 |
| | ========= | ========= | ========= | ========= |
| Gross operating profit | 13,042 | 6,431 | - | 19,473 |
| | ========= | ========= | ========= | ========= |
|
Six months ended 30 June 2020 (restated) | | | | |
| Revenue from external customers | 56,690 | 85,765 | - | 142,455 |
| | ========= | ========= | ========= | ========= |
| Gross operating profit | 14,038 | 9,342 | - | 23,380 |
| | ========= | ========= | ========= | ========= |
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 labour, project management and equipment 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 Group uses the standard costing method for recording labour, project management and equipment cost on project. Standard cost is based on estimated or predetermined cost rates for performing an operation under normal circumstances. Standard costs are developed from historical data analysis adjusted with expected changes in the future circumstances. The difference between total cost charged to the projects at standard rate and the actual cost incurred are reported as under or over absorption.
The reconciliation of the gross operating profit is provided as follows:
| | Six months ended 30 June | |
| | 2021 | 2020 |
| | USD'000 | USD'000 |
| Gross operating profit for Oil and Gas segment as reported to the Executive Directors | 13,042 | 14,038 |
| Gross operating profit for the Renewables segment as reported to the Executive Directors | 6,431 | 9,342 |
| Gross operating profit for the Digital segment as reported to the Executive Directors | - | - |
| | -------------- | -------------- |
| Gross operating profit before absorptions | 19,473 | 23,380 |
| | -------------- | -------------- |
| (Under)/over absorbed employee and equipment costs | (3,400) | 210 |
| Release / (provision) for slow moving and obsolete inventories | 345 | (198) |
| Project related bank guarantee charges shown as part of operating profit | (749) | (367) |
| | -------------- | -------------- |
| Gross operating profit | 15,669 | 23,025 |
| | ------------------ | ------------------- |
| Unallocated: | | |
| Operational overheads | (3,890) | (8,888) |
| Repairs and maintenance | (2,620) | (1,845) |
| Yard rent and depreciation | (3,580) | (3,619) |
| Others | (4,252) | (3,361) |
| Add back: | | |
| Project related bank guarantee charges shown as part of finance costs | 749 | 367 |
| | ----------------- | ----------------- |
| Gross profit | 2,076 | 5,679 |
| | ----------------- | ----------------- |
|
General and administrative expenses - excluding impairment of non-financial assets and restructuring costs (Note 6) |
(18,185) |
(15,304) |
| Other gains - net | 463 | 130 |
| Finance costs (Note 24) | (3,236) | (2,286) |
| Finance income | 37 | 295 |
| Share of loss of investment accounted for using the equity method (Note 9) |
(6,845) |
(8,111) |
| Impairment of non-financial assets (Note 25) | (2,491) | (4,239) |
| Restructuring costs (Note 6) | (488) | (3,224) |
| | ------------------- | ------------------- |
| Loss before income tax | (28,669) | (27,060) |
| | ========== | ========== |
The breakdown of revenue from all services is as disclosed in note 5.
Certain customers individually accounted for greater than 10% of the Group's revenue and are shown in the table below:
| | Six months ended 30 June | |
| | 2021 | 2020 |
| | USD'000 | USD'000 |
| | | |
| External customer A | 83,922 | 84,725 |
| External customer B | 41,906 | 15,140 |
| External customer C | - | 14,539 |
| | ________ | ________ |
| | 125,828 | 114,404 |
| | ========= | ========== |
The revenue in 2021 from customer A and B is attributable to the Renewables and Oil and Gas segment respectively.
30 June 2020 disclosure has been restated as a result of the change in reportable segment discussed in the preliminary paragraphs of note 4.
5 Disaggregation of revenue
A split of revenue by key strategic markets is given in the segment note. The table below summarises revenue by major value streams for these markets.
| Major value streams | | | | | | | | |
| |
| | Six months ended 30 June 2021 | | Six months ended 30 June 2020 (restated) | | ||||||
| | Oil and Gas | Renewables | Total | | Oil and Gas | Renewables | Total | | ||
| | USD'000 | USD'000 | USD'000 | | USD'000 | USD'000 | USD'000 | | ||
| New build jackups, refurbishment and land rigs | 58,182 | - | 58,182 | | 31,918 | - | 31,918 | | ||
| Foundations | - | 84,252 | 84,252 | | - | 85,765 | 85,765 | | ||
| Operations and maintenance, site work and safety services | 29,231 | - | 29,231 | | 24,772 | - | 24,772 | | ||
| | 87,413 | 84,252 | 171,665 | | 56,690 | 85,765 | 142,455 | | ||
| Timing of revenue recognition
| | | | | | | |
All the revenue is recognised over time and there was no revenue recognised at a point in time during the six months period ended 30 June 2021 and 30 June 2020.
6 General and administrative expenses
| | Six months ended 30 June | |
| | 2021 | 2020 |
| | USD'000 | USD'000 |
| Staff costs | 10,037 | 9,260 |
| Impairment of non-financial assets (Note 25) | 2,491 | 4,239 |
| Legal, professional and consultancy fees | 3,899 | 1,555 |
| Depreciation | 971 | 1,030 |
| Insurance | 738 | 426 |
| Utilities and communication | 664 | 556 |
| Restructuring costs | 488 | 3,224 |
| Non-executive director fees | 307 | 283 |
| IT support and maintenance | 303 | 811 |
| Office rent and maintenance | 266 | 363 |
| Recruitment cost | 177 | 95 |
| Gate pass and other port charges | 139 | 232 |
| Sponsor fees | 125 | 125 |
| Selling and distribution expenses | 99 | 255 |
| Trade licence | 98 | 138 |
| Subscriptions and membership fees | 71 | 55 |
| Bank charges | 51 | 55 |
| Amortisation of intangible assets | 5 | 9 |
| Provision for impairment of trade receivables - net | (92) | 4 |
| Others | 327 | 52 |
| | ---------------- | ---------------- |
| | 21,164 | 22,767 |
| | ======== | ======== |
7 Earnings per share
The calculation of the basic and diluted loss per share is based on the following data:
| | Six months ended 30 June | |
| | 2021 | 2020 |
| | USD'000 | USD'000 |
| Loss for the period | (28,722) | (27,092) |
| | ------------------------- | ------------------------- |
| Weighted average number of shares for basic loss per share | 341,710,302 | 341,710,302 |
| Adjustments for: | | |
| - Assumed vesting of performance share plan | - | - |
| - Assumed vesting of retention share plan | - | - |
| | ------------------------- | ------------------------- |
| Weighted average number of shares for diluted loss per share | 341,710,302 | 341,710,302 |
| | ------------------------- | ------------------------- |
| Loss per share: | | |
| Basic | (8.41)c | (7.93)c |
| | =========== | =========== |
| Diluted | (8.41)c | (7.93)c |
| | =========== | =========== |
Assumed vesting of performance and retention share plans amounting to 3,199,269 shares and 2,880,031 shares respectively have been excluded in the current period as these are anti-dilutive as the Group made a loss.
8 Property, plant and equipment
|
| USD'000 |
| Net book amount at 1 January 2020 | 160,077 |
| Additions | 2,962 |
| Remeasurements | (1,824) |
| Disposal | (81) |
| Depreciation | (9,826) |
| Impairment (Note 25) | (3,250) |
| | ------------------------------------------------------- |
| Net book amount at 30 June 2020 | 148,058 |
| | =========== |
| Additions | 24,513 |
| Disposal | (33) |
| Impairment | (309) |
| Depreciation | (10,205) |
| | ------------------------------------------------------- |
| Net book amount at 31 December 2020 | 162,024 |
| | =========== |
| Additions | 9,376 |
| Disposal | (1) |
| Impairment | (2,491) |
| Depreciation | (8,116) |
|
| ------------------------------------------------------- |
| Net book amount at 30 June 2021 | 160,792 |
| | =========== |
Depreciation expense of USD 7.1 million (30 June 2020: USD 8.8 million) has been charged to cost of sales and USD 1.0 million (30 June 2020: USD 1.0 million) to general and administrative expenses. Depreciation charge on right-of-use assets for period ended 30 June 2021 is USD 2.1 million (30 June 2020: USD 1.9 million).
9 Investments accounted for using the equity method
|
| At 30 June | At 31 December | |
|
| 2021 | 2020 | |
|
| USD'000 | USD'000 | |
| At 1 January | 55,888 | 44,420 | |
| Share of loss of investments accounted for using the equity method - net |
(6,845) |
(15,697) | |
| Increase in investment in an associate | - | 25,814 | |
| Impairment (Note 25) | - | (792) | |
| Excess loss reclassified to other liabilities (MISA) | - | 2,123 | |
| Excess loss reclassified to other liabilities (LSAL) | 145 | 372 | |
| Share of loss of other comprehensive loss accounted for using the equity method - net |
- |
(352) | |
| | _------------- | _------------- | |
|
| 49,188 | 55,888 | |
| | ========= | ======== | |
| Breakdown of the investment carrying amount is as follows: | |
| |
| International Maritime Industries ('IMI') | 49,188 | 55,888 | |
| | ========= | ========= | |
Investment in Lamprell Saudi Arabia LLC ('LSA') has been accounted to nil as share of losses exceed investment value and investment in Maritime Industrial Services Arabia Co. Ltd. ('MISA') has been impaired to nil as a result of impairment review during period ended 31 December 2020.
10 Trade and other receivables
|
| At 30 June | At 31 December |
|
| 2021 | 2020 |
|
| USD'000 | USD'000 |
| | | |
| Trade receivables | 44,519 | 55,275 |
| Other receivables and prepayments | 19,346 | 13,191 |
| Advances to suppliers | 299 | 194 |
| Receivable from related parties | 3,799 | 8,602 |
|
| --------------- | --------------- |
|
| 67,963 | 77,262 |
| Less: Provision for impairment losses | (3,280) | (3,372) |
|
| --------------- | --------------- |
|
| 64,683 | 73,890 |
========= =========
The Group considers that the carrying amount of trade receivables approximates to their fair value.
| 11 Contract Assets |
At 30 June | At 31 December |
|
| 2021 | 2020 |
|
| USD'000 | USD'000 |
| | | |
| Contract work in progress | 107,883 | 54,567 |
| Amounts due from customers on contracts | 19,098 | 30,859 |
|
| --------------- | --------------- |
|
| 126,981 ======= | 85,426 ======= |
12 Cash and bank balances
|
| At 30 June | At 31 December |
|
| 2021 | 2020 |
|
| USD'000 | USD'000 |
| (a) Cash and cash equivalents |
|
|
| Cash at bank and on hand | 27,433 | 57,625 |
|
| ======= | ======== |
| (b) Term and margin deposits |
| |
| Margin/short-term deposits under lien (with original maturity less than three months) | 3,907 | 3,040 |
| Margin deposits - under lien (with original maturity more than three months) | 50,412 |
52,600 |
|
| ---------------- | ---------------- |
| Term and margin deposits | 54,319 | 55,640 |
|
| ======= | ======== |
| Split as follows: | | |
| Non-current | 5,901 | 447 |
| Current | 48,418 | 55,193 |
|
| ---------------- | ---------------- |
| Term and margin deposits | 54,319 | 55,640 |
|
| ======= | ======= |
13 Inventories
| | At 30 June | At 31 December |
| | 2021 | 2020 |
| | USD'000 | USD'000 |
| Raw materials, consumables and finished goods | 18,208 | 16,995 |
| Less: Provision for slow moving and obsolete inventories | (2,361) | (2,743) |
| | ----------------- | ---------------- |
| | 15,847 | 14,252 |
| | ======= | ======== |
The cost of inventories recognised as an expense amounts to USD 10.2 million (30 June 2020: USD 7.8 million).
14 Related party transactions
The Group entered into the following transactions during the period with related parties at prices and on terms agreed between the related parties.
|
| Six months ended 30 June | |
|
| 2021 | 2020 |
|
| USD'000 | USD'000 |
|
|
|
|
| Key management compensation | 2,622 | 3,948 |
|
| ====== | ====== |
| Revenue from associates | 41,906 | 10,534 |
|
| ====== | ====== |
| Purchases from associates | 118 | - |
|
| ====== | ====== |
| Re-chargeable expenses to a joint venture | 876 | 1,018 |
|
| ====== | ====== |
| Sponsorship fees and commissions paid to legal shareholders of subsidiaries | 166 | 163 |
|
| ====== | ====== |
Contract liabilities and contract assets on the balance sheet include an amount of USD 84.6 million and USD 88.1 million respectively related to these rigs in line with IFRS 15 accounting.
15 Share capital
There is no movement in issued and fully paid ordinary shares and share premium for the period ended 30 June 2021 and year ended 31 December 2020.
During 2021, Employee Benefit Trust ('EBT') acquired no shares (31 December 2020: nil) of the Company. The total amount paid to acquire the shares was nil (31 December 2020: nil) and has been deducted from the consolidated retained earnings. During 2021, no shares (31 December 2020: nil) were issued to employees on vesting of the performance shares and 16,268 shares (31 December 2020: 16,268 shares) were held as treasury shares at 30 June 2021.
16 Other reserves
|
| Legal reserve | Merger reserve | Translation reserve |
Total |
|
| USD'000 | USD'000 | USD'000 | USD'000 |
| | | | | |
| At 1 January 2020 | 98 | (18,572) | (861) | (19,335) |
| Currency translation differences | - | - | 2 | 2 |
|
| ------------- | ----------------- | ------------- | ---------------- |
| At 30 June 2020 | 98 | (18,572) | (859) | (19,333) |
|
|
|
| |
|
| Currency translation differences | - | - | 41 | 41 |
|
| ------------- | ----------------- | ------------- | ---------------- |
| At 31 December 2020 | 98 | (18,572) | (818) | (19,292) |
| Currency translation differences | - | - | (26) | (26) |
|
| ------------- | ----------------- | ------------- | ---------------- |
| At 30 June 2021 | 98 | (18,572) | (844) | (19,318) |
|
| ======== | =========== | ======== | ========== |
17 Trade and other payables
|
| At 30 June | At 31 December |
|
| 2021
| 2020 |
|
| USD'000 | USD'000 |
| Trade payables | 84,660 | 26,586 |
| Accruals and other payables | 69,584 | 44,163 |
| Payables to a related party | 235 | 117 |
| | ---------------------------------------------------- | ---------------------------------------------------- |
|
| 154,479 | 70,866 |
|
| ======= | ======= |
The Group considers that the carrying amount of trade payables approximates to their fair value.
18 Contract liabilities
|
| At 30 June | At 31 December |
|
| 2021
| 2020 |
|
| USD'000 | USD'000 |
| Amounts due to customers on contracts | 102,602 | 159,991 |
|
| ======= | ======= |
The movement in amounts due to customers on contracts is mainly due to revenue recognition against receipt of milestone payments on the major projects relating to the Oil and Gas, Renewables and Digital segment.
19 Provision for warranty costs
| | USD'000 |
| | |
| At 1 January 2020 | 11,440 |
| Released/utilised during the period | (1,140) |
| | ------------------ |
| At 30 June 2020 | 10,300 |
| Charge during the period | 1,154 |
| Released/utilised during the period | (7,899) |
| | ------------------ |
| At 31 December 2020 | 3,555 |
| Released/utilised during the period | (83) |
| | ------------------ |
| At 30 June 2021 | 3,472 |
| | ========= |
20 Borrowings
As at 30 June 2021, the Group has a trade credit facility of USD 0.7 million (31 December 2020: USD 0.9 million).
The Group has separate bilateral unfunded facilities of USD 18.6 million (31 December 2020: USD 321.3 million) with commercial banks. The facilities include letters of guarantees and letters of credit (see Note 23) and there has been no change in the nature of security pledged against these facilities as at 30 June 2021.
21 Dividends
There were no dividends declared or paid during the six months period ended 30 June 2021 or year ended 31 December 2020.
22 Commitments
(a) International Maritime Industries' commitments
In 2017, the Group entered into commitments associated with the investment in International Maritime Industries. Under the Shareholders' Agreement, the Group will invest up to a maximum of USD 140.0 million in relation to its commitment over the course of construction of the Maritime Yard between 2017 and 2023 with USD 84.8 million already paid to date. The forecast contributions are as follows:
| | At 30 June | At 31 December |
| | 2021 | 2020 |
| | USD'000 | USD'000 |
| Within one year | 17,000 | 17,000 |
| Later than one year but not later than four years | 38,200 | 38,200 |
| | ------------------ | ------------------ |
| | 55,200 | 55,200 |
| | ========= | ========= |
(b) Other commitments
| | At 30 June | At 31 December |
| | 2021 | 2020 |
| | USD'000 | USD'000 |
| Capital commitments for restructuring programme | 60 | 1,304 |
| | ====== | ====== |
| Capital commitments for purchase of operating equipment and computer software | 199 | 2,433 |
| | ====== | ====== |
| Capital commitments for construction of facilities | 49 | 883 |
| | ====== | ====== |
23 Bank guarantees
| | At 30 June | At 31 December |
| | 2021 | 2020 |
| | USD'000 | USD'000 |
|
|
|
|
| Performance/bid bonds | 86,775 | 84,673 |
| Advance payment, labour visa and payment guarantees | 4,828 | 8,754 |
|
| --------------- | --------------- |
|
| 91,603 | 93,427 |
|
| ======= | ======== |
The various bank guarantees, as above, were issued by the Group's bankers in the ordinary course of business. Certain guarantees are secured by margins deposits, assignments of receivables from some customers and, in respect of guarantees provided by banks to the Group companies, some have been secured by parent company guarantees. In the opinion of the management, the above bank guarantees are unlikely to result in any liability to the Group.
24 Finance costs
| | At 30 June | At 30 June |
| | 2021 | 2020 |
| | USD'000 | USD'000 |
| | | |
| Interest expense on leases | 2,475 | 2,080 |
| Bank guarantee charges | 750 | 35 |
| Interest on bank borrowings | 11 | 129 |
| Commitment fees | - | 42 |
| | _----------------- | _----------------- |
| | 3,236 | 2,286 |
| | ======= | ======= |
| | | |
25 Impairment of non-financial assets
|
| At 30 June | At 30 June |
|
| 2021 | 2020 |
| Impairment comprise of the following: | USD'000 | USD'000 |
|
|
|
|
| Impairment of property, plant and equipment (Note 8) | 2,491 | 3,250 |
| Impairment of intangible assets | - | 197 |
| Impairment of an investment accounted for using equity method (Note 9) |
- |
792 |
|
| ----------------- | ----------------- |
|
| 2,491 | 4,239 |
|
| ======== | ======== |
The Group determines at the end of the reporting period whether there are indicators of impairment in the carrying amount of its property, plant and equipment, intangible assets and other non-financial assets. Where indicators exist, an impairment test is undertaken which requires management to estimate the recoverable amount of its assets which is initially based on its value in use. When necessary, fair value less costs of disposal - ("FVLCD") is estimated and the higher of value in use and FVLCD is used as the recoverable amount.
At 30 June 2021, impairment indicators existed that predominantly arose as a result of the delay or cancellation of awards due to the recent history of low oil prices and the effect of COVID-19 pandemic. This has had an impact on our backlog and utilisation of our assets attributable to the United Arab Emirates cash generating unit ("CGU").
Based on this review, an impairment loss of USD 2.5 million (30 June 2020: USD 4.2 million) has been recorded during the period largely as a result of building and infrastructure and operating equipment valuation reductions. The recoverable amount is based on fair value less costs of disposal except for intangible assets where value in use has been used given the nature of the assets.
FVLCD represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date net of costs of disposal e.g. dismantling costs, brokerage and legal fees. The fair value of the Group's property, plant and equipment at 30 June 2021 has been arrived at based on a valuation carried out at that date by Cavendish Maxwell Real Estate Valuation Services LLC "Cavendish Maxwell", independent valuers not connected with the Group. The valuation conforms to International Valuation Standards and has been determined using valuation methodologies consistent with those of the annual financial statements for the year ended 31 December 2020.
26 Cash flow from operating activities
| | Notes | Six months ended 30 June | |
| | | 2021 | 2020 |
| | | USD'000 | USD'000 |
| | | (Unaudited) | (Unaudited) |
Operating activities | | | |
| Loss for the period before income tax | | (28,669) | (27,060) |
| Adjustments for: | | | |
| Depreciation | 8 | 8,116 | 9,826 |
| Amortisation of intangible assets | | 5 | 9 |
| Impairment of non-financial assets | 25 | 2,491 | 4,239 |
| Share of loss from investment accounted for using equity method |
9 |
6,845 |
8,111 |
| Share-based payments value of services provided | | 1,336 | 2,467 |
Gain on disposal of property, plant and equipment | | (55) | (179) |
| Release for warranty costs and other liabilities | 19 | (83) | (1,140) |
(Release) / provision for slow moving and obsolete inventories | |
(382) |
123 |
| (Release) / provision for impairment losses | | (92) | 4 |
| Provision for employees' end of service benefits | | 2,268 | 2,499 |
| Finance costs | | 3,236 | 2,286 |
| Finance income | | (37) | (295) |
| | | ------------- | ------------- |
| Operating cash flows before payment of employees' end of service benefits and changes in working capital | |
(5,021) |
890 |
| Payment of employees' end of service benefits | | (1,980) | (2,150) |
| Changes in working capital: | | | |
| Inventories before movement in provision | | (1,213) | 67,624 |
| Trade and other receivables before movement in provision for impairment losses | |
9,299 |
(52,027) |
| Contract assets | | (41,555) | (93,701) |
| Trade and other payables | | 80,590 | (11,939) |
| Contract liabilities | | (57,389) | 124,289 |
| | | ------------- | ------------- |
Cash (used in) / generated from operating activities | | (17,269) | 32,986 |
| | | --------------- | --------------- |
27 Events after the balance sheet date
Directorate change
On 14 September 2021, the Group announced the appointment of Motassim Al Maashouq as an independent Non-Executive Director. This is in line with the Group's reorganisation strategy, which has structured the business into the Oil & Gas, Renewables and Digital business units.
Balance sheet recapitalisation programme
New debt facility signed
On 28 October 2021 a revolving trade loan agreement was signed with First Abu Dhabi Bank and Emirates Development Bank for an Export Credit Agency backed Project Facility ("Initial Facility") for USD 45 million, ring-fenced to working capital requirements on the IMI Rigs. The drawdown of the Initial Facility will be conditional on, amongst other things, the Group successfully completing a 19.99% equity raise, which the Group expects to complete in Q4 2021. Refer to note 2.1 Going concern section for further details.
As part of the terms of the Initial Facility, there is an option of an additional accordion facility of USD 45 million subject to the provision of additional security to the banks similar to that for the Initial Facility, currently uncommitted but which will be agreed in due course and is expected to be available in Q1 2022.
Equity raise
On 28 October 2021 the Directors of the Group approved the proposed launch of a 19.9% equity placing. This will be announced along with the release of these interim financials to the market with funds expected in November 2021
Alternative performance measures
As set out in our most recent annual report, we use a range of financial and non-financial measures to assess our performance. The tables below set out the definitions of such measures, reconciliations to amounts presented in the interim financial statements and the reason for their inclusion in the report. The metrics presented are consistent with those presented in our previous annual report and there have been no changes to the bases of calculation.
EBITDA
In addition to measuring financial performance of the Group based on operating profit, we also measure performance based on EBITDA. EBITDA is defined as the Group profit / (loss) for the year from continuing operation before depreciation, amortisation, impairment, exceptional items, net finance expense (excluding guarantee charges), taxation, and share of loss of investments accounted for using the equity method.
We consider EBITDA to be a useful measure of our operating performance because it approximates the operating cash flow by eliminating depreciation and amortisation. EBITDA is not a direct measure of our liquidity, which is shown by our cash flow statement, and needs to be considered in the context of our financial commitments.
Reconciliation from Group loss for the year, the most directly comparable IFRS measure, to EBITDA is set out below:
| | 2021 | 2020 |
| | USD'000 | USD'000 |
| Loss for the period from continuing operations | (28,722) | (27,092) |
| Depreciation (Note 8) | 8,116 | 9,826 |
| Amortisation | 5 | 9 |
| Interest on bank borrowings and leases (Note 24) | 2,486 | 2,209 |
| Finance income | (37) | (295) |
| Tax | 53 | 32 |
| Restructuring cost | 488 | 3,224 |
| Impairment of non-financial assets (Note 25) | 2,491 | 4,239 |
| Share of loss of investment accounted for using the equity method |
6,845 |
8,111 |
| EBITDA | (8,275) | 263 |
| EBITDA margin | (4.8%) | 0.2% |
Net cash
Net cash measures financial health after deduction of liabilities such as borrowings. A reconciliation from the cash and cash equivalents per the consolidated cash flow statement, the most directly comparable IFRS measure, to reported net cash, is set out below:
| | 30 June 2021 | 31 December 2020 |
| | USD'000 | USD'000 |
| Cash and cash equivalents (Note 12) | 27,433 | 57,625 |
| Borrowings | (672) | (880) |
| Unrestricted cash | 26,761 | 56,745 |
| Margin deposits - under lien (with original maturity less than three months) (Note 12) |
3,907 |
3,040 |
| Margin deposits - under lien (with original maturity more than three months) (Note 12) |
50,412 |
52,600 |
| | | |
| Net cash | 81,080 | 112,385 |
Overheads
Overheads are costs required to run our business but which cannot be directly attributed to any specific project or service. A reconciliation from unallocated expenses per the segment note in the consolidated financial statements to reported overheads, is set out below:
Six months ended 30 June
| | | 2021 | 2020 |
| | | USD'000 | USD'000 |
| General and administrative expenses (Note 6) | | 21,164 | 22,767 |
| Direct overheads included in cost of sales: | | | |
| Unallocated operational overheads | | 3,890 | 8,888 |
| Yard rent and maintenance | | 3,580 | 3,619 |
| Repairs and maintenance | | 2,620 | 1,845 |
| Interest expense on leases | | 2,475 | 2,080 |
| Other | | 3,984 | 3,359 |
| | | | |
| Overheads | | 37,713 | 42,558 |
| Restructuring cost (Note 6) | | (488) | (3,224) |
| Covid-19 related salary reductions | | 4,363 | 2,962 |
| Impairment of non-financial assets (Note 25) | | (2,491) | (4,239) |
| Underlying overheads | | 39,097 | 38,057 |
An analysis of overheads is as follows:
| | | 2021 | 2020 |
| Overhead nature: | | USD'000 | USD'000 |
| Fixed | | 14,332 | 13,321 |
| Semi variable | | 4,225 | 3,211 |
| Variable | | 20,540 | 21,525 |
| Underlying overheads | | 39,097 | 38,057 |
An analysis of overheads types is as follows:
| | | 2021 | 2020 |
| Overhead type: | | USD'000 | USD'000 |
| Cash | | 27,840 | 25,769 |
| Non-cash | | 11,257 | 12,288 |
| Underlying overhead | | 39,097 | 38,057 |
Statement of Directors' responsibilities
The directors confirm that, to the best of their knowledge, this condensed consolidated interim financial information has been prepared in accordance with the United Kingdom adopted IAS 34. The interim management report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R and 4.2.8R, namely:
· an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated interim financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
· material related party transactions in the first six months of the financial year and any material changes in the related party transactions described in the last annual report.
The Directors of Lamprell plc are listed in the Lamprell plc Annual Report for 31 December 2020. A list of current directors is maintained on the Lamprell plc website www.lamprell.com.
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