Registered Office:
Fort Anne
Douglas
Isle of Man
IM1 5PD
Operations:
PO Box 5427
Dubai
United Arab Emirates
Telephone: +971 6 5282323
Fax: +971 6 5284325
Email: lamprell@lamprell.com
Website: www.lamprell.com
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Lamprell plc
Annual report and
accounts 2010
10
Lamprell plc is a leading
contractor in the Arabian
Gulf, providing specialist
services to the offshore
and onshore oil and gas
and renewables industry.
The principal markets in which
Lamprell operates are:
> new build construction of
jackup rigs and liftboats and
upgrade and refurbishment
of jackup rigs.
> other new build construction
for the offshore oil and gas
sector including FPSO,
tender assist drilling units
and other offshore and
onshore structures.
> oilfield engineering services,
including the new build
construction, upgrade and
refurbishment of land rigs.
Company Overview
01 Highlights
02 Lamprell at a Glance
04 Chairman’s Statement
06 Our Strategy and Performance
Chief Executive Officer’s
08
Statement
Business Review
12 Strategic Procurement
14 Operating Review
20 Risk Factors
22 Financial Review
26 Corporate Social Responsibility
30 Directors’ Biographies
Corporate Governance
32 Directors’ Report
36 Corporate Governance Report
42 Directors’ Remuneration Report
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Financial Statements
54 Independent Auditor’s Report
55 Consolidated Income Statement
56
57
58 Company Balance Sheet
59
60
61
62
63
96 Definitions
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
01
Lamprell plc Annual report and accounts 2010
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Highlights
Operating profit USD million
2010*
2009
2008
0
20
40
60
80
100
EBITDA USD million
2010*
2009
2008
0
20
40
60
80
100
Earnings per share US cents
2010*
2009
2008
0
10
20
30
40
50
Net profit USD million
2010*
2009
2008
0
20
40
60
80
100
* Before exceptional charges arising from the closure of Lamprell Asia Limited amounting to USD 1.4 million.
>
>
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A record order book of USD 850 million at the
year end.
Increased capacity from the significantly
enlarged Hamriyah facility.
Delivered “Offshore Mischief” S116E jackup
drilling rig.
43 rig upgrade and refurbishment projects
undertaken in 2010.
Completed construction of the Livorno process
modules for Saipem S.p.A.
For more information visit: www.lamprell.com
02
Lamprell plc Annual report and accounts 2010
lamprell at a glance
Lamprell has three facilities located in
the UAE in the Arabian Gulf, one of
the most important oil and gas
regions in the world.
Jordan
Iraq
Egypt
Saudi Arabia
Iran
Qatar
UAE
Oman
Sudan
Yemen
Jebel Ali
Hamriyah
This portside facility of 335,000m²
has direct quayside access, and
primarily undertakes jackup rig
upgrade and refurbishment
projects together with new build
projects and oilfield engineering
related works.
The core workforce at this facility
as with both the Sharjah and the
Jebel Ali facilities workforce is
supplemented from the local
labour market when required
to meet the demands of
specific projects.
Hamriyah includes a deepwater
berthing quay wall 1,439m in
length and 9m deep which
enables Lamprell to work on
multiple rigs and simultaneously
undertake new build
construction projects.
Lamprell’s Jebel Ali facility was
purpose built in 2002 and is one
of the most modern in the region.
It is located in the Jebel Ali Free
Zone and is 25km from the
centre of Dubai.
The facility occupies an area of
178,900m² that includes more
than 16,000m² of covered work
spaces with internal overhead
cranes suitable for carrying out
fabrication and assembly
activities under cover.
The covered areas also contain
the latest welding and CNC
cutting machinery. This protected
work environment is cooler, safer
and more productive than an
outside location, and it allows the
production of a higher quality
product at less cost. The yard
was designed to allow optimum
production based on a clear and
logical flow of material through
the facility. In addition to the
covered fabrication areas it has
extensive open fabrication areas
that are equipped with gantry and
mobile crawler cranes
03
Lamprell plc Annual report and accounts 2010
Jordan
Iraq
Egypt
Saudi Arabia
Iran
Qatar
UAE
Oman
Sudan
Yemen
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Sharjah
Lamprell’s facility in Sharjah is
located in Port Khalid, a
designated free zone, and it has
360m of direct quayside access
at which many of Lamprell’s
jackup rig upgrade and
refurbishment projects are
executed.
The facility has a total surface
area of 36,000m² that includes
28,000m² of open fabrication
areas that are serviced by mobile
crawler cranes and tower cranes,
as well as 3,500m² of covered
fabrication areas. Lamprell’s
senior management team and the
service departments such as
finance, human resources and
procurement are all located at
the Sharjah facility.
For more information visit: www.lamprell.com
04
Lamprell plc Annual report and accounts 2010
chairman’s statement
a year of significant progress
The Company’s careful management
of capital expenditure during the
economic crisis, coupled with a
carefully phased expansion of its
Hamriyah facility, provided a strong
foundation from which to meet the
opportunities of an improving
market.
It was particularly pleasing, in that
context, to see a number of sizeable
new build contracts awarded in
2010 for both jackup rigs and
offshore wind turbine installation
vessels. These included the award
in July, of the USD 317 million
contract by National Drilling
Company, Abu Dhabi, for the
construction and delivery of two
jackup rigs. This contract supported
our view that there were (and
continue to be) a growing number of
opportunities in the new build rig
market. This view was reinforced by
the award, in November, of a USD
210 million contract by Eurasia
Drilling Company Limited for a
jackup rig (the largest contract in
Lamprell’s history for the
construction of a single unit), and by
the award, in February of this year,
by Greatship Global Energy
Services Pte. Ltd. of a contract for
the construction of a new build
jackup rig.
These wins came on top of
important awards earlier in the year
in one of the Company’s newer
markets. In February 2010, the
Company won a significant contract
Jonathan Silver Chairman
‘‘’’2010 was a year of
significant progress for
the Company, with
Lamprell starting to
feel the commercial
benefits of the
expansion both of its
physical presence and
its service offering.
2010 was a year of significant
progress for the Company, with
Lamprell starting to feel the
commercial benefits of the
expansion both of its physical
presence and its service offering.
The Company reported revenues of
USD 503.8 million for the year, an
increase of 18.4 per cent on 2009,
and net profit of USD 65.2 million,
129.6 per cent higher than the prior
year. At the close of the year the
Company’s order book stood at a
record high of USD 850 million.
05
Lamprell plc Annual report and accounts 2010
a year of significant progress
I am pleased to announce that,
having considered the current
market conditions, profit earned
and cash generated during the
year ended 31 December 2010,
the Board is recommending a final
dividend of 9.50 cents per share. If
approved, the final dividend will
be paid on 17 June 2011 to
shareholders who were on the
register on 13 May 2011.
Having been appointed Chief
Operating Officer in March 2010,
I was delighted to welcome Chris
Hand to the Board in January 2011.
I am confident that Lamprell’s
reputation for quality, its technical
capabilities and expertise and
timely project execution and
delivery, will enable the Company
to continue to deliver value for all its
stakeholders.
I am particularly grateful, once again,
for the dedication and hard work of
all Lamprell’s management and staff.
Jonathan Silver
Chairman
Lamprell plc
Steven Lamprell President
amounting to USD 320.4 million
from Fred Olsen Windcarrier AS for
the construction of two offshore
wind turbine installation vessels.
In June 2010, the Company was
awarded a USD 129.0 million
contract by Seajacks for the design,
construction and delivery of an
offshore wind turbine installation
vessel. Both these contracts
reinforce Lamprell’s strong position
in a market with significant medium
to long-term potential.
The Company experienced a slow
down in rig refurbishment in 2010,
with jackup rig upgrade and
refurbishment activity at a lower level
of average expenditure than in 2009,
however there are now signs of
recovery in this segment, and the
Company has continued to see
evidence of improvements in most
of its other operating markets.
Lamprell’s bid activity is at a
record high.
For more information visit: www.lamprell.com
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06
Lamprell plc Annual report and accounts 2010
our strategy and performance
Our strategy is centred on sustainable, profitable
growth. In delivering this strategy our main aim is to
secure value enhancement for our shareholders
and other stakeholders.
We use financial and non-financial KPI’s to measure
our success in the delivery of our strategy and the
management of our business.
maintaining a leading
position in the epc
market
Objectives
>
Focus on maintaining relations with
all market participants
Expansion of facilities and service
offering
Investment in capital equipment to
improve service levels
>
>
maintaining a focus
on repeat business and
continued expansion
of services
Objectives
>
> Focus on timeliness of delivery and
Differentiated service offering
>
>
>
price competitiveness
Focus on achieving leading HSE
standards
Focus on quality assurance and
quality control
Expansion of engineering services to
include detailed design
During 2010 we successfully completed and
delivered on a number of major projects, including
the “Offshore Mischief” S116E jackup drilling rig
and secured additional new build projects,
including a USD 317 million contract award from
National Drilling Company, Abu Dhabi for two
jackup rigs.
Lamprell adopts a client focused approach to its
business, reflecting the value it places on its
relationships, and in 2010 this strategy resulted in
contract awards from a number of repeat
customers in various segments. At the year end
our order book included USD 329 million of
business from repeat customers.
07
Lamprell plc Annual report and accounts 2010
investment in a new
facility in Hamriyah
free Zone
continuing
to expand its
client base
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Objectives
>
>
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Production focused design
Emphasis on operating efficiency
Yard layout and quayside design
focused on rig related operations
Increased capacity to accommodate
multiple new build projects
Improved staff welfare facilities
Focus on semi-automated processes
>
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>
Objectives
>
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>
Maintain customer focus
Broad service offering
International marketing in multiple
sectors
Transfer of skills to alternative energy
markets
Strategic marketing across sectors
>
>
Our significantly enlarged Hamriyah facility now
enables us to work on multiple rigs at one time.
We continue to invest in this facility to reflect the
increasing level of fabrication activity experienced
by the Company.
We continue actively to market our products and
services on an international basis, with prominent
new clients in 2010 including Eurasia Drilling
Company Limited and Fred Olsen Windcarrier
and, in 2011, Greatship Global Energy Services
Pte. Ltd. At the year end our order book included
USD 521 million of business from new customers.
For more information visit: www.lamprell.com
08
Lamprell plc Annual report and accounts 2010
chief executive officer’s
statement
strong commercial foundations
this rigorous control remains central
to our activities.
We also continue to focus on
delivering best in class execution
of projects, on time and on budget.
This has long been our operating
benchmark, and yet again in 2010
we saw the benefits of this
delivery-led strategy as repeat
business contributed significantly to
revenues. We believe that this close
attention to providing our customers
with exactly what they require is
fundamental in ensuring the long
term growth of our business.
Throughout 2010 the Company
continued to place great emphasis
on the development and application
of practices designed to provide a
workplace that is both safe and
which minimises environmental
impact. In 2011 the Company
remains focused on these key
aspects of the operation of
its business.
Significant project milestones
during the year included the
Company delivering its first new
build tender assist drilling barge,
BassDrill Alpha, in January 2010 as
well as resolving the outstanding
payment issue relating to the
barge. The Company received a
cash payment of USD 55 million
and 28,000,000 shares in BassDrill,
representing 20% of BassDrill’s
equity. The Company has recently
exercised its put option in respect
of these shares, receiving
USD 2.6 million as consideration
for its shareholding.
totalling USD 504 million, resulting
in a net profit for the period of
USD 66.6 million (USD 65.2 million
after exceptional charges),
reinforcing the strong commercial
foundations of the business and
the benefits of our tight
management of operational and
capital expenditure over the last
two years.
The prevailing economic climate,
whilst still uncertain in a number of
ways, has provided a more stable
backdrop in recent months, and
the strengthening oil price has
encouraged more operator activity,
improving sentiment throughout
the industry’s supply chain.
Our long-standing strategy of
maintaining a strong balance sheet
has continued to underpin our
disciplined fiscal approach even as
markets became more active, and
In April 2010 we were very pleased
to deliver our second new build
LeTourneau Super 116E jackup
drilling rig, the Offshore Mischief, to
Scorpion Rigs LTD. Other notable
Nigel McCue Chief Executive Officer
2010 proved to be a very positive
year for the Company as we saw
significant improvement in many of
our operating markets after the
turbulent period experienced
during the economic crisis.
Strengthening oil prices have
contributed to unprecedented levels
of enquiries and bid activity. A
positive development was the
unforeseen turnaround in the new
build jackup market in the second
half of the year. This was in part
triggered by a post Macondo effect
but moreover by a continuing drive
for more modern, cost effective and
efficient drilling units designed to
meet the ever increasing technical
demands of the drilling industry.
Given the continuing emergence
from the global financial crisis the
results for the year were very
pleasing with revenues for the year
09
Lamprell plc Annual report and accounts 2010
strong commercial foundations
projects executed during the year
included the fabrication of the
Livorno FPSO process modules for
Saipem S.p.A. with the final module
being delivered in September 2010
together with the construction of
two offshore well-head platforms for
a leading oil and gas operator in
India, which were completed and
delivered in Q1 2011.
2010 was our most successful year
in terms of new orders amounting
to USD 1.2 billion, with our order
book standing at USD 850 million
at the end of the period.
Particularly pleasing were a
number of new build construction
contracts for both self-propelled
offshore wind turbine installation
vessels and jackup drilling rigs.
In February, the Company
announced that it had received
two significant new contract
awards from Fred Olsen
Windcarrier AS (“Windcarrier”),
which in aggregate totalled
USD 320.4 million.
The Engineering, Procurement &
Construction (“EPC”) contract
awards from Windcarrier were for
the design, construction and
delivery of two Gusto MSC NG-
9000 design self elevating and
self-propelled offshore wind turbine
installation vessels. Both vessels will
be constructed at Lamprell’s Jebel
Ali facility and will be delivered in Q2
and Q3 of 2012.
In addition to these contracts for
two units, Lamprell and Windcarrier
executed an option agreement for
two further vessels, the first of
which has now lapsed, whereas the
second may be exercised up until
August 2011.
‘‘Our long-standing strategy
of maintaining a strong
balance sheet has
continued to underpin our
disciplined fiscal approach
even as markets became
more active, and this
rigorous control remains
central to our activities.
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For more information visit: www.lamprell.com
’’ 10
Lamprell plc Annual report and accounts 2010
chief executive officer’s
statement
We believe that our early entry
into this new and promising
construction market, with the
Company now regarded as one of
the leading providers of liftboats for
offshore wind turbine installation,
positions the Company well as the
offshore wind sector matures in the
medium and longer term.
This early positioning and the
revenue benefits of repeat business
were reinforced by the receipt in July
of a USD 129.0 million new contract
award from Seajacks 3 LTD for the
design, construction and delivery
of a Gusto MSC NG-5500 design
self-elevating and self-propelled
offshore wind turbine installation
vessel. The vessel, named “Seajacks
Zaratan”, will be constructed at
Lamprell’s Hamriyah facility and is
due to be delivered in 2012.
It was also pleasing to see more
positive signs of a strengthening of
the new build jackup rig market with
the Company receiving a USD 317
million contract award from National
Drilling Company (“NDC”), Abu
Dhabi in July. This contract with NDC
is for the construction and delivery of
two jackup rigs valued at USD 158.5
million each. The rigs will be
completely outfitted and equipped,
LeTourneau designed, self-elevating
Mobile Offshore Drilling Platforms of
a Super 116E (Enhanced) Class
design. Work on the first rig
commenced in August with delivery
scheduled for the middle of Q2 2012.
As part of the contract, NDC has
options for Lamprell to build two
further jackup rigs, valued at
USD 158.5 million per rig, exercisable
during the 12 month period
commencing on 1 August 2010.
The NDC contract award facilitated
the resolution of the Riginvest
contract issue. Lamprell and
Riginvest agreed that the contract
for the construction of a
LeTourneau Super 116E jackup
drilling rig terminated upon
signature of the contract between
NDC and Lamprell. The rig that
was being built for Riginvest would
now be built for NDC. Riginvest
received a portion of the contract
advance it initially paid to Lamprell
as part of the termination
agreement. From an accounting
perspective, pursuant to
International Financial Reporting
Standards, the cancellation of the
Riginvest contract created a
material one-off accounting gain in
the Company’s financial statements
for 2010, totalling USD 20.4 million,
reflecting the gain net of additional
provisions arising as a result of the
contract cancellation.
A further positive development for
our EPC business saw the award in
November of a USD 210 million
contract from Eurasia Drilling
Company Limited for the
construction and delivery of a
completely outfitted and equipped,
LeTourneau designed, self-elevating
Mobile Offshore Drilling Platform of a
Super 116E (Enhanced) Class
design. Lamprell will fabricate the
jackup rig in modular form in its new
yard in Hamriyah and then complete
the construction and commissioning
in a shipyard, which is yet to be
determined, in the Caspian Sea. The
project is planned to be completed
24 months from the commencement
of construction.
February 2011 saw the award of a
further contract for the construction
of a LeTourneau Super 116 E
(Enhanced) Class design rig for a
new client, Greatship Global
Energy Services Pte. Ltd., based in
Singapore. The unit is scheduled
for delivery in Q4 2012.
Having phased the expenditure on
the expansion of our facility in the
Hamriyah Free Zone to reflect the
prevailing economic conditions, we
are now seeing the benefits of the
increased capacity. The significantly
enlarged quayside has enabled us
to work on as many as 11 rigs at
one time, thereby increasing the
potential of both our rig
refurbishment and new build
construction businesses.
Due to the increasing level of
fabrication activity the Company is
in advanced negotiation to acquire
an additional 40,000m2 of land
immediately adjacent to our
existing yard bringing the total
area within the Hamriyah Free Zone
to 335,000m2.
In rig refurbishment we have
worked on a total of 43 jackup rigs
in 2010 and these projects have
included work scopes covering the
full range of our upgrade and
refurbishment services. Projects
11
Lamprell plc Annual report and accounts 2010
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have been shared between our
UAE facilities, with Sharjah working
on 21 rigs and the Hamriyah facility
working on 22 jackups. As
previously guided, the jackup rig
upgrade and refurbishment activity
in 2010 was at a lower level of
average expenditure than in the
prior year. It remains challenging to
anticipate activity in this segment
given the relatively short cycle
between bidding and the award of
work. There are, however,
encouraging signs of renewed
activity in this market, with the
Company well placed to receive
further awards in the near future.
Throughout 2010 we continued to
construct FPSO process modules
for Saipem S.p.A and Saipem
Energy Services S.p.A at our
Jebel Ali facility and believe that
this segment of our business will
benefit from the strengthening oil
price in the medium term.
Towards the end of 2010 the
Company established a core
Strategic Development Group
comprising industry specialists
who are currently working on a
number of bespoke engineering
solutions for the upstream
petroleum sector.
We continue to review all our
operations to ensure they are
creating value for our shareholders.
After a review by management, the
Board has now agreed to terminate
the Group’s operation in Thailand
with effect from 31 December
2010. The total cost of closing the
facility was not material.
Officer, informed the Board that he
wishes to leave the Company by
the end of 2011 to pursue other
interests. Scott will, by then, have
spent almost five years with the
Company and played a significant
part in taking the Company on to
The London Stock Exchange AIM
market, on to the Main List and
through one of the most difficult
periods the industry has ever
faced. We would like to thank Scott
for his hard work and
professionalism undertaken during
this very demanding period in the
Company's history. The Company
is currently seeking a successor to
Scott. Scott will facilitate the
handover to the new person when
he or she has been appointed.
market overview
The Company has a record bid
pipeline at this time. In particular
we have seen an increase in
activity levels in the new build
jackup market, reflecting the
current buoyancy of that market
segment. While the full impact of
the deepwater Macondo oil spill in
the US Gulf of Mexico on the wider
rig market has yet to fully unwind,
many sector analysts are predicting
a continuation in the new build
programmes as the market for
higher specification rigs remains
strong. As the search for oil and
gas becomes increasingly more
technically demanding rigs that can
drill deeper, horizontal wells more
cost effectively in deeper, harsh
environment, waters will demand
higher day-rates and hence will
help drive the new build rig
construction market.
the board
In March 2010 Chris Hand was
appointed as Chief Operating
Officer, and joined the Board in
January 2011. Chris brings to the
Board 15 years of experience with
Lamprell and I am certain he will
make a very valuable contribution
in the coming years. In December,
Scott Doak, our Chief Financial
As previously reported, we
experienced a slowdown in the
rig refurbishment market in the
second half of 2010, however
there are now encouraging signs
of renewed activity in this market.
We continue to see significant
potential for Lamprell in the liftboat
market in the medium and longer
term and aim to build on our early
leadership position in this part of
our business.
The Company is actively pursuing a
number of exciting prospects for its
oilfield engineering business
including new build land rigs,
refurbishment projects and
equipment overhaul and is
confident that new business for this
segment can be secured in the
coming months.
Dividend
The Board of Directors is
recommending a final dividend
payment of 9.50 cents per ordinary
share. This will be payable, when
approved, on 17 June 2011 to
eligible shareholders on the register
at 13 May 2011.
outlook
Building upon the success of 2010,
2011 has started encouragingly.
We maintain our focus on existing
core business, together with
complementary markets. The
Company is confident in its
prospects for future growth and
success, both for the current year
and in the longer term, based upon
both its record order book position,
and the strengthening which it sees
in its key markets.
I would again like to take this
opportunity to express my
personal thanks, together with
those of the Board of Directors, to
all of our management, staff and
employees for their hard work and
dedication which they have given
throughout the year. With over
5,000 employees it is indeed a
credit and achievement that
everyone has played their part in
the success of the Company. On a
final note I would like to thank our
founder and President, Steven
Lamprell, for his continuing
encouragement and support.
Nigel Robert McCue
Chief Executive Officer
For more information visit: www.lamprell.com
12
Lamprell plc Annual report and accounts 2010
case study
strategic procurement
Lamprell’s Procurement and Supply Chain
(“PSC”) business model revolves around
three discrete but nonetheless linked
activities of: Source, Buy, and Deliver.
Source involves the development and execution of
global sourcing strategies for products and materials
required for both our projects and our operations.
It also involves the effective management of
supplier relationships.
Buy involves the creation of purchase orders, the
expediting of deliveries, the maintenance of data
and support for the estimating process.
Deliver involves the management of all inbound
freight, warehousing and inventory management
processes plus the optimisation of all associated
logistics processes.
As a means to deliver more value from procurement
and supply chain work, Lamprell has established a
Strategic Procurement initiative to deliver savings
through the consolidation of spend to a smaller
number of contracted suppliers where volume is
exchanged for both price and other commercial
benefits.
Having segmented our suppliers in terms of the value
of spend and risk to the business, the PSC team have
researched, tendered and negotiated Framework
Agreements for commodities and services which are
both critical and strategic to the business.
Through the Framework Agreements we have
delivered savings in two ways:
1. The delivery of direct and tangible measurable
benefits to the business including:
> unit price reduction;
> working capital reduction;
> product substitution; and
> demand reduction.
2. The delivery of less tangible but valuable benefits
to the business including:
> improving safety;
> reducing risk;
> providing innovation;
> enhancing brand image;
> positively contributing to the environment; and
> enhancing Corporate Social Responsibility.
Although the strategic procurement initiative is at an
early stage 16 Framework Agreements have been
completed capturing direct savings and other benefits
such as extended warranty terms and enhanced
safety by eliminating all acetylene gases from
our facilities.
Our strategic procurement work continues for the
benefit of the Company, its employees, its clients
and the maximisation of shareholder value.
13
Lamprell plc Annual report and accounts 2010
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14
Lamprell plc Annual report and accounts 2010
operating review
Chris Hand Chief Operating Officer
‘‘’’The strength of
Lamprell's operations
is reflected in the
order book, which
was at a record high
at the year end.
Lamprell continues to focus on
maintaining high standards of
project execution, with a particular
emphasis on safety, high quality
standards and delivering projects
both on time and on budget.
This focus on project execution, as
well as client satisfaction, ensures
that Lamprell maintains and
strengthens relationships with
existing customers, and enables
Lamprell to secure new customers
and expand its customer base.
The strength of Lamprell’s
operations is reflected in the order
book, which was at a record high
of USD 850 million at the year end
and included USD 521 million from
new customers and USD 329
million from repeat customers.
During the year Lamprell has
continued to focus on the execution
of Engineering, Procurement and
Construction (“EPC”) new build
projects, including the construction
of jackup drilling rigs and liftboats,
whilst continuing our traditional rig
refurbishment and fabrication
projects for the offshore oil and
gas sector.
The principal markets in which
Lamprell operates, and the
principal services provided are:
>
EPC new build construction of
jackup drilling rigs, liftboats and
tender assist drilling units;
upgrade and refurbishment of
offshore jackup rigs;
new build construction for the
offshore oil and gas sector; and
oilfield engineering services,
including the upgrade and
refurbishment of land rigs.
>
>
>
The operational aspects of these
business activities are reviewed
as follows:
engineering procurement
and construction
Lamprell secured four major EPC
projects during 2010 and these
projects are under construction at
Lamprell’s Jebel Ali and Hamriyah
facilities.
fred olsen liftboats
The first EPC award in 2010, from
Fred Olsen Windcarrier, for two
GustoMSC NG-9000 design
self-elevating and self-propelled
offshore wind turbine installation
vessels, was confirmed in February
2010, for execution at the Jebel Ali
facility. Subsequently the engineering
and procurement phase of the
project has proceeded according to
schedule and construction activities
relating to this USD 320.4 million
contract commenced in Q3 2010
for unit 1 and Q4 2010 for unit 2.
Construction will continue
throughout 2011 prior to load out
and delivery in 2012.
seajacks liftboat
Following the successful delivery on
time and on budget in 2009 of the
wind turbine installation vessels,
“Seajacks Kraken” and “Seajacks
Leviathan”, Lamprell secured a USD
129.0 million contract award in June
2010 from Seajacks 3 LTD for the
delivery of “Seajacks Zaratan”, a
GustoMSC NG-5500C design
self-elevating and self-propelled
offshore wind turbine installation
vessel. The engineering and
procurement activities associated
with this project have proceeded
according to schedule and
construction activities commenced
at Lamprell’s Hamriyah facility in Q4
2010. Construction will continue
throughout 2011 prior to load out
and delivery in 2012.
15
Lamprell plc Annual report and accounts 2010
our strategy in action
maintaining a leading
position in the epc
market
Our strategy is centred on sustainable,
profitable growth. In delivering this strategy
our main aim is to secure value enhancement
for our shareholders and other stakeholders.
We use financial and non-financial KPI’s
to measure our success in the delivery
of our strategy and the management of
our business.
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For more information visit: www.lamprell.com
16
Lamprell plc Annual report and accounts 2010
operating review
‘‘’’Lamprell focuses on safety, high
quality standards, and delivering
projects both on time and on budget.
scorpion s116 e jackup
drilling rig
Following the delivery of the
Offshore Freedom in 2009
Lamprell was very pleased to
deliver the Scorpion Offshore
Mischief on time and on budget in
April 2010 at the Hamriyah facility.
nDc s116e jackup drilling rigs
In July Lamprell signed a contract
with the National Drilling Company,
Abu Dhabi to construct two
LeTourneau S116E jackup
drilling rigs. The engineering and
procurement phases of this contract
are now well advanced and
construction at Lamprell’s Hamriyah
facility is under way. Both rigs are
on schedule for delivery in 2012.
eDc s116e jackup drilling rig
In November Lamprell signed a USD
210 million new contract award with
Eurasia Drilling Company for the
construction and delivery of a
LeTourneau S116E. The unit will be
constructed in modular form at
Lamprell’s Hamriyah facility and then
transported, via the Volga Don canal,
to the Caspian Sea for final assembly
and delivery. The construction of the
hull modules commenced in Q1
2011 and the transportation to the
Caspian Sea is scheduled in Q1
2012 with delivery in 2013.
upgrade and refurbishment
of offshore jackup rigs
In rig upgrade and refurbishment
Lamprell worked on a total of 43
jackup rigs throughout the year, and
these projects have included work
scopes covering the full range of our
upgrade and refurbishment services.
Projects have been shared between
our UAE facilities, with the Hamriyah
facility working on 22 jackups and
Sharjah working on 21 rigs.
Refurbishment and upgrade
projects such as these vary greatly
in scope from project to project and
depend on the existing condition of
each rig and the owner’s upgrade
requirements. A minor project can
have a work schedule lasting a few
days, whereas a major upgrade
project with a significant engineering
requirement can last for 12 months
or more. Throughout 2010 average
work volumes on individual rigs was
reduced, whilst the higher rig count
compensated for this trend. Typical
upgrade and refurbishment projects
include some of the following
work scopes:
>
leg extensions and/or
strengthening;
>
>
>
>
>
>
conversion of slot rigs to
cantilever mode;
living quarters extension,
upgrade and refurbishment;
engine replacement and
repower works;
mud process system upgrade
and/or refurbishment;
helideck replacement, upgrade
and/or refurbishment; and,
condition-driven refurbishment,
including structural steel and
piping replacement and painting.
new build construction for the
offshore oil and gas sector
Our Jebel Ali facility continues to
work on projects that require the
utilisation of the state-of-the-art
facility, along with the high levels of
project management control that
ensure safety and quality standards
are maintained whilst keeping a
strong focus on delivery.
17
Lamprell plc Annual report and accounts 2010
our strategy in action
investment in
Hamriyah
Throughout 2010 we continued to invest in
the phased construction of our Hamriyah
facility. At the year end the facility was fully
operational with the key components of the
yard completed. The construction process
continues and completion of the facility
including a new administration building, main
stores and state-of-the-art structural
fabrication and piping workshops is
scheduled for the fourth quarter of 2011.
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‘‘’’The structured capital
investment programme
at all facilities continued
throughout 2010.
For more information visit: www.lamprell.com
18
Lamprell plc Annual report and accounts 2010
operating review
We aim to provide a safe and
supportive work environment to
our employees, who are from
diverse cultural backgrounds,
and to do so in an environment
that provides a competitive
compensation programme that is
affordable to the Company. We
believe this continues to be a
market differentiator and will
strengthen our position as an
“employer of choice” into 2011
and beyond.
The HR department continues to
work closely with senior business
leaders on strategy execution, in
particular designing HR systems
and processes that address
strategic business issues,
organisational and people
capability-building, as well as
longer term resource and
succession management planning.
operating facilities
In accordance with our organic
growth model, the structured
capital investment programme at
all facilities continued throughout
2010. The primary aims of this
investment include higher levels of
safety and productivity, as well as
improving the working environment
for both operational and
administrative personnel.
The main area of investment
throughout 2010 remained the
phased construction of the new
Hamriyah facility. At the year end
the facility was fully operational
with the key components of the
yard completed. The construction
process continues and completion
of the facility including a new
administration building, main stores
and state-of-the-art structural
fabrication and piping workshops is
scheduled for Q4 2011.
After a review by management, the
Board agreed to terminate the
Group’s operation in Thailand with
effect from 31 December 2010.
Chris Hand
Chief Operating Officer
In Q4 2010 Lamprell was awarded
a USD 39 million contract from a
leading integrated energy provider
for the construction of an offshore
topside structure comprising of a
two level utility deck and five level
accommodation module for 38
personnel. The project will be
constructed to North Sea
standards and is scheduled for
delivery alongside the Jebel Ali
quay in Q1 2012. At the end of
2010 fabrication had commenced
following initial engineering and
procurement activities.
Human resources
Attracting, developing and
retaining talented staff is of
paramount importance to the
success of Lamprell as a business.
At Lamprell we consider our
employees to be our greatest
asset and the continuous
development and multi-skilling of
our staff remains a focus for our
success. The Human Resources
(“HR”) Department has developed
policies and best practices for
effective employee management
enabling managers to capitalise
on the strengths of the employees
and their ability to contribute to
the accomplishment of work.
It is recognised that successful
employee management helps
employee motivation,
development, and retention.
Lamprell continues to provide
purpose-built accommodation and
transportation for the labour force
and this enhances our ability to
attract and retain our workforce,
and dramatically improves the
quality and work/life balance
expectations of the employees.
‘‘’’We aim to provide a
safe and supportive
work environment to
our employees.
This focus on delivery ensured
that work on the Livorno process
modules for Saipem S.p.A. was
completed on time and on budget
with final delivery taking place in
September 2010. The Aquila process
modules for Saipem Energy Services
S.p.A. were similarly delivered on
time and on budget with the final
module delivered in Q1 2011.
Throughout 2010 two offshore well
head platforms with associated
jackets and piles were under
construction for a leading oil and
gas operator. These platforms will
be delivered in Q1 2011.
19
Lamprell plc Annual report and accounts 2010
our strategy in action
continuing to
expand our
client base
We continue actively to market our products
and services on an international basis, with
prominent new clients in 2010 including
Eurasia Drilling Company Limited and, in
2011, Greatship Global Energy Services
Pte. Ltd.
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For more information visit: www.lamprell.com
20
Lamprell plc Annual report and accounts 2010
risk factors
As an oil, gas and renewable
energy related business with
current operations concentrated
in the United Arab Emirates, the
Company is, by virtue of the nature
of its business and the regions in
which it operates, subject to a
variety of business risks. Outlined
below is a description of the
principal risk factors that may affect
the Group’s business. Such risk
factors are not intended to be
presented in any assumed order
of priority.
Any of the risks and uncertainties
discussed in this document, could
have a material adverse effect on
the Company’s business. In
addition, the risks set out below
may not be exhaustive and
additional risks and uncertainties,
not presently known to the
Company, or which the Company
currently deems immaterial, may
arise or become material in the
future. In particular, the Company’s
performance might be affected by
changes in market and/or
economic conditions and in legal,
regulatory and tax requirements
The management conducts an
annual risk assessment and review
and, where practicable, deploys
strategies to mitigate or transfer
risks. Such strategies may include,
for example, the purchase of
insurance, the development of
contractual mechanisms to limit
liabilities, and the employment of
expertise either in-house or
externally sourced, tasked with
identifying and managing potential
hazards, whether operational,
financial or legal.
business risks
The Company is subject to
counterparty credit risk. Before
entering into major contracts, the
Company may undertake credit
checks with a view to determining
the risk of counterparty default;
The Group’s growth in the longer
term may be dependent on the
availability of financing both for
its own future projects and for
its customers;
Demand for the Company’s
services may be adversely impacted
by a fall in the levels of expenditure
by oil and gas companies;
On certain projects, the Company
operates on the basis of lump sum
contracts and is therefore subject
to financial risk if it fails to operate
within budget. The Company may
also be subject to liquidated
damages payments if it fails to
complete its contracts on time or
to specification;
The Company may be adversely
affected by inflation and rising
labour costs;
The Company operates in a highly
competitive industry and its ability
to compete successfully depends
on its ability to provide and service
high quality products and systems;
The Company is subject to a variety
of local and federal regulations in
the UAE, and operates in markets
where legal systems are still
developing and which do not offer
the certainty or predictability of legal
systems in mature markets; and
Certain countries in which the
Company’s customers operate
have experienced armed conflict,
terrorism or civil disorder.
Human resources risks
The Company faces significant
challenges in attracting and
retaining sufficient numbers of
skilled personnel;
The Company is dependent on a
relatively small number of contracts
at any given time, many of which
are for the same customers;
The Company operates on a
project-by-project basis for EPC
contracts and it does not have
long-term commitments with the
majority of its customers, which
may cause its visible order book to
fluctuate significantly;
The Company depends on the
performance of its President,
Directors, Senior Managers and
other essential employees and if it
loses any of these key personnel,
its business may be impaired; and
The Company’s ability to perform
its contractual obligations may be
adversely affected by work
stoppages and other labour
problems.
The Company’s visible order book
for upgrade and refurbishment
work is usually relatively short and
can fluctuate significantly;
In each case highlighted above, the
Company seeks to mitigate the
applicable risk by developing
appropriate remuneration
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Lamprell plc Annual report and accounts 2010
structures, and providing an
appealing work environment
conducive to development of
individual skills and experience.
liability risks
The Company could be subject to
substantial liability claims due to
the hazardous nature of its
business, and liability to customers
under warranties may materially
and adversely affect the
Company’s earnings. The
Company seeks to mitigate these
risks through the operation of
working practices and processes
designed to deliver high quality
products and services, as well as
seeking contractual limits to its
liability, and maintaining an
appropriate insurance programme;
The Company’s business is subject
to risks resulting from product
defects, faulty workmanship or
errors in design as well as warranty
claims and other liabilities; and
The Company conducts its
business within an increasingly
strict environmental and health and
safety regime and may be exposed
to potential liabilities and increased
compliance costs. The Company
employs professionals dedicated to
ensuring that it maintains high
standards in these important areas.
taxation risks
Changes in the fiscal regime of the
UAE could adversely impact the
financial condition of the Group.
risks relating to the ordinary
shares in the company
The Company’s reporting currency
is different to the currency in which
dividends will be paid;
Lamprell Holdings Ltd, the principal
shareholder, whose interests may
conflict with the interests of other
shareholders and investors, holds a
significant shareholding in the
Company;
The Group may, in the longer term,
seek to raise further funds through
the issue of additional shares or
other securities. Any funds raised
in this way may have a dilutive
effect on existing shareholdings,
particularly in circumstances in
which a non pre-emptive issue is
made, or where shareholders do
not take up their rights to subscribe
for shares as part of a pre-emptive
issue; and
Pre-emptive rights may not be
available to US holders.
Hazards
Hazards constitute perils such as
fire and flood. Hazards are
managed through prevention,
mitigation, continuity planning and
risk transfer through the purchase
of insurance
financial risks
An analysis of the financial risks
can be found on pages 73 to 75.
For more information visit: www.lamprell.com
22
Lamprell plc Annual report and accounts 2010
financial review
Group revenue increased by
18.4% to USD 503.8 million (2009:
USD 425.5 million) reflecting an
increase in activity from the prior
year. The increase was largely driven
by a higher level of revenues
generated from the offshore new
build activity, based in Jebel Ali,
including construction of Floating
Production, Storage and Offloading
units, accommodation units and also
two offshore wellhead platforms.
Revenue from Oilfield Engineering
services, related to the refurbishment
and construction of land rigs and
land camps, reflected a decline from
the prior year in line with the market
conditions which existed during the
year. Revenue from International
Inspection Services Limited
(“Inspec”) also declined, reflecting
reduced demand in the year for
inspection and non-destructive
testing services.
Revenue generated from EPC
projects was marginally lower
than the prior year as three major
projects were delivered in 2009,
including one new build jackup and
two new build liftboats. Revenue in
2010 largely reflects the delivery of
one new build jackup and the
commencement of a number of
new projects including three
liftboats for the windfarm
installation sector and two new
build jackups, all with deliveries
scheduled for 2012. The prior year
also reflected an adjustment to
revenue arising from a price
discount given on the completion
of a self erecting tender assist
drilling unit for BassDrill Alpha Ltd
amounting to USD 23 million.
Revenue from jackup rig upgrade
and refurbishment activity was
largely in line with the prior year but
reflected a higher number of rigs
refurbished with a continued low
level of average expenditure.
Revenue from refurbishment activity
generated in H2 2010 reflected a
reduction in activity from H1 2010
due to a reduction in the number of
refurbishment projects.
Gross profit increased by 29.0% to
USD 79.7 million (2009: USD 61.8
million) resulting in a gross margin of
15.8% (2009: 14.5%). The gross
margin on EPC projects in 2010,
which is generally lower as a result
of a higher level of procurement
both in respect of material
purchases and sub-contractor
work, reflected a positive
contribution on the successful
completion of the Scorpion Mischief
project. However, the gross margin
also reflected initial revenues on the
commencement of three new EPC
projects contracted with lower
margins, with two of these contracts
reflecting no margin, as the projects
were less than 20% complete at the
year end. The gross margin was
also impacted positively by a
number of other one-off projects
including land rig refurbishment.
The gross margin on rig
refurbishment continues to be lower
than in prior years as a result of the
reduced scopes of work being
undertaken and generally tighter
market conditions.
Adjusted EBITDA (before
exceptional charges) increased to
Scott Doak Chief Financial Officer
‘‘’’Group revenue
increased by 18.4% to
USD 503.8 million,
with the increase
largely driven by
offshore new build
activity.
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Lamprell plc Annual report and accounts 2010
Revenue USD million
Capex USD million
2010
2009
2008
2010
2009
2008
0
200
400
600
800
1000
0
10
20
30
40
50
60
results for the year from operations
2010
(USD million)
2009
(USD million)
Change
Revenue
Gross profit
Gross margin
Adjusted EBITDA*
Adjusted EBITDA margin*
Adjusted Operating profit*
Adjusted Operating margin*
Adjusted Net profit*
Adjusted Net margin*
Adjusted Diluted Earnings per share*
90.3%
503.8
79.7
18.4%
29.0%
425.5
61.8
15.8% 14.5%
41.2
9.7%
27.9 149.1%
6.6%
28.4 134.5%
6.7%
78.4
15.6%
69.5
13.8%
66.6
13.2%
33.25c
14.20c 134.2%
* For the current year stated before reflecting exceptional charges arising from the closure of Lamprell
Asia Limited amounting to USD 1.4 million.
USD 78.4 million (2009: USD 41.2
million) a rise of 90.3% over the
prior year reflecting an improved
operating performance and also a
gain related to the cancellation of
the contract with Riginvest G.P.
(“Riginvest”), amounting to
USD 23.9 million, net of additional
costs, arising as a result of the
gain from the contract cancellation
amounting to USD 3.5 million. The
prior year results also reflected a
price discount on an EPC project
amounting to USD 23 million.
Exceptional charges in 2010
reflect the cost of closure of
Lamprell Asia Limited amounting
to USD 1.4 million. Adjusted
EBITDA margin (before exceptional
charges) for the year was 15.6%
(2009: 9.7%) reflecting the
increase in operating margin.
Adjusted operating profit (before
exceptional charges) for the
year increased by 149.1% to
USD 69.5 million (2009: USD 27.9
million) largely comprising the
increase in gross profit, the net
gain related to the cancellation of
the contract with Riginvest and the
price discount reflected in the prior
year results. The adjusted
operating margin (before
exceptional charges) of 13.8%
reflects an increase from the
operating margin in the prior year
of 6.6%.
The adjusted net profit (before
exceptional charges) increased by
134.5% to USD 66.6 million (2009:
USD 28.4 million) in line with the
operating profit and also reflects
net interest costs in the current
period of USD 2.9 million (2009:
USD 0.5 million net income) largely
arising as a result of facility and
guarantee charges related to new
contract awards in the year. The
adjusted net margin (before
exceptional charges) of 13.2%
reflects an increase from the net
margin in the prior year of 6.7%.
interest income
Interest income of USD 2.2 million
(2009: USD 1.4 million) relates
mainly to bank interest earned on
surplus funds deposited on a short
term basis. The increase reflects a
lower level of average deposit rates
but higher cash balances during
the year when compared to 2009.
taxation
The Company, which is
incorporated in the Isle of Man, has
no income tax liability for the year
ended 31 December 2010 as it is
taxable at 0% in line with local Isle
of Man tax legislation. The Group is
not currently subject to income tax
in respect of its operations carried
out in the United Arab Emirates,
and does not anticipate any liability
to income tax arising in the
foreseeable future. In December
2008, Lamprell Asia Limited, was
granted Board of Investment
privileges which allowed the
Company’s wholly owned
subsidiary in Thailand to operate
with a tax exempt status for a
period of up to eight years.
Lamprell Asia Limited ceased
operations in December 2010.
earnings per share
Fully diluted adjusted earnings per
share (before exceptional charges)
for 2010 increased to 33.25 cents
(2009: 14.20 cents) reflecting the
increased profit of the Group for
the year.
For more information visit: www.lamprell.com
24
Lamprell plc Annual report and accounts 2010
financial review
EBITDA margin %
Earnings per share (diluted) US cents
2010
2009
2008
2010
2009
2008
0
5.0
10.0
15.0
20.0
0
10.0
20.0
30.0
40.0
50.0
operating cash flow and
liquidity
The Group’s net cash flow from
operating activities for the year
reflected a net inflow of USD 232.8
million (2009: USD 23.9 million net
outflow). The net cash inflow from
operations was significantly higher
than the prior year and mainly
reflects increased profit for the year
and movements in working capital.
Changes in working capital were
largely comprised of a decrease in
inventory, resulting from the issue
of stock for new build jackups, and
an increase in trade and other
receivables, mainly related to
amounts due from customers on
contracts and contract work-in-
progress from predominantly EPC
projects, as five major projects
were commenced during the year.
Trade and other payables reflect a
significant increase largely arising
from increased amounts due to
customers on contracts at
31 December 2010 amounting
to USD 79.8 million (2009
USD 20.2 million), and an increase
in advances received for contract
work of USD 43.6 million (2009
USD nil) largely in respect of a cash
advance on a contract which had
not commenced at the year end.
Other working capital movements
reflect timing differences in respect
to other receivables and also
supplier commitments primarily on
the larger EPC contracts.
Investing activities for the year
absorbed USD 99.4 million (2009:
USD 20.1 million) as a result of the
continued investment in property,
plant and equipment amounting to
USD 29.7 million (2009: USD 18.5
million), largely comprising
investment in the new Hamriyah
facility and the purchase of
operating equipment, and also
increased deposits of USD 63.6
million and a held-to-maturity
investment of USD 6.9 million. This
investment activity was offset by
interest income of USD 2.2 million
received from surplus funds.
Net cash used in financing
activities reflected an amount of
USD 46.3 million (2009: USD 3.0
million generated from financing
activities). This represents dividend
payments of USD 15.2 million
(2009: USD 6.3 million), the
purchase of treasury shares to
meet the settlement of share
awards to certain Directors and
staff of USD 3.5 million (2009:
USD 1.7 million) and the decrease
in short-term borrowings of USD
22.5 million (2009: USD 11.9 million
increase) and increased finance
costs of USD 5.1 million (2009:
USD 0.9 million) largely arising as
a result of facility and guarantee
charges related to new contract
awards in the year.
capital expenditure
Capital expenditure on property,
plant and equipment during the
year amounted to USD 29.7 million
(2009: USD 18.5 million). The main
area of expenditure was the
investment on buildings and related
25
Lamprell plc Annual report and accounts 2010
Net profit margin %
2010
2009
2008
0
4.0
6.0
10.0
12.0
14.0
infrastructure at Group facilities
amounting to USD 20.2 million
(2009: USD 14.4 million), including
capital work-in-progress, with
additional committed expenditure
amounting to USD 13.6 million,
reflecting the development of the
infrastructure of the Group at all
facilities but primarily expenditure
at the new Hamriyah facility.
Further expenditure on operating
equipment amounted to USD 8.6
million to support the growth in
activities experienced during the
year and to replace hired
equipment, where this was
deemed cost effective, and to
enhance the useful life of a barge.
shareholders’ equity
Shareholders’ equity increased from
USD 234.8 million at 31 December
2009 to USD 284.0 million at 31
December 2010. The movement
mainly reflects the profit for the year
of USD 65.2 million net of dividends
declared of USD 15.2 million and
treasury shares purchased of
USD 3.5 million. The movement also
reflects a credit for the accounting
for share based payments of USD
2.1 million made to certain Directors
and employees of the Group and
charged to General and
Administrative expenses.
Dividends
For the year ended 31 December
2010, the Board of Directors of the
Group having duly considered the
current market conditions, profit
earned, cash generated during the
year and taking note of the capital
commitments for the year 2011,
recommend a final dividend of 9.50
cents per share. If approved this
will be paid to shareholders on 17
June 2011 provided they were on
the register on 13 May 2011.
Scott Doak
Chief Financial Officer
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For more information visit: www.lamprell.com
26
Lamprell plc Annual report and accounts 2010
corporate social responsibility
‘‘’’We are fortunate to
have a local business
with a global
perspective, and a
rich variety of cultures
and backgrounds
from which to draw
expertise and
experience.
a commitment to the local
community
At Lamprell, we recognise the value
of fulfilling our responsibilities as a
corporate citizen, believing that by
doing so we will bring benefits to all
our stakeholders. Having been
based in Dubai since 1977, the
Company is rooted in a community
within which it has worked for over
thirty years and it has both
benefited from, and been a
contributor to, that community’s
development during that period. As
a result of both this history and the
international nature of our
business, we believe we are
fortunate to have a local business
with a genuinely global perspective,
and a rich variety of cultures and
backgrounds from which to draw
expertise and experience.
our principles
Our commitment to act as a
responsible corporate player has
long been reflected throughout the
entire organisation, and the Group
has a formalised set of policies that
state the principles by which we
seek to manage our operational
activities, work with our staff and
host communities, and minimise
our impact on the environment.
Our business, the provision of
construction services to the oil and
gas and renewables industry,
requires the highest standards of
engineering skill and Health, Safety
and Environment awareness. Our
fundamental principle is to carry
out these activities in a way that
delivers the best possible product
to our customers whilst minimising
risks and maximising rewards to
our wider stakeholders.
Accordingly, when we make all
our investment and operational
decisions, we take account of the
social and environmental impacts
that they may have, and minimising
these is a central part of our
decision-making process.
As a publicly listed company our
aim is to ensure that our reporting
meets all the requisite levels of
scrutiny for a business of our size
and areas of activity. Maintaining
our reputation by aligning our
commercial goals with our ethical
standards is an essential part of
achieving this aim.
social initiatives
In 2010, we continued to work
closely with local communities,
business partners and regulatory
authorities to make a positive
difference within the localities where
we operate. In particular we at
Lamprell are aware of the cultural
mix of our employees with some
80% originating from India.
Don Bosco Snehalaya is a project
focused on the street children and
youth, living in the city of Vadodara.
With Lamprell’s support, the basic
objective of Snehalaya is to provide
shelter to the young living on the
railway platforms and in the streets,
and other vulnerable children who
are in need of care and protection.
Snehalaya provides food, clothes,
medicines, recreational facilities,
27
Lamprell plc Annual report and accounts 2010
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counseling, job placement, contact
with their families, and training in
trades according to their capacities
and individual circumstances. They
are given opportunities to interact
with the public, to express their
potential and their talents. This
helps them to develop their self
confidence and the awareness that
they too can contribute something
to society. Ultimately, Snehalaya
aims at enabling these street
children to return to a decent life
within mainstream society.
charity
Each year we donate a cheque to
a worthy local establishment, with
the recipients this year being the
Dubai Center for Special Needs.
The Center caters for children and
young people with special needs
and is run entirely on donations. It
offers a range of services to suit
the needs of each child in all areas
including education, social, speech
and language, occupational
therapy, physiotherapy and
behavioural management.
people
Attracting, developing and retaining
talented staff is a major challenge
for the oil and gas industry and at
Lamprell we are fortunate to have
high quality people across the
whole range of our services. It is
therefore vital for our continued
success that we encourage our
staff’s personal development and
career progression, and treat our
people with respect, maturity and
openness. We also invest
significantly in building their skill
sets. We are confident that this
approach is the one most likely to
enable us to achieve our business
objectives by providing quality,
continuity and growth. Our policy is
to ensure equal opportunity in
career development, promotion,
training and reward for all of our
employees. We aim to ensure that
all our employees understand our
business goals and our business
principles through ongoing
communications programmes.
With a diverse range of nationalities
working within the group, we also
respect and recognise the value of
different cultures.
trade staff accommodation
Due to the rising cost and shortage
of residential accommodation in
the UAE, combined with a
municipality directive forbidding
trade labour employees from living
in what are termed “family
communities”, Lamprell decided to
provide purpose built community
accommodation for its core trade
workforce. This accommodation
provides a secure and clean
environment for our employees.
These facilities are capable of
housing up to 400 people,
complete with all amenities
including an in-house laundry
service, restaurants, cinema,
recreational equipment, communal
rooms with full access to internet,
satellite TV and a medical centre.
Lamprell provides transport
between the accommodation
facilities and its workplaces with
additional scheduled transport
provided for airport and shopping
trips etc.
medical and life insurance
In addition to the in-house medical
team, Lamprell provides private
medical cover and life insurance for
its workforce enabling them to take
advantage of locally available high
quality medical facilities, whilst giving
peace of mind to family dependants.
Health, safety, environment
and security summary
(“Hses”)
Given the nature and demands of
our business, ensuring a high level
of performance in health, safety,
environment and security is
absolutely essential, and Lamprell
has a strong track record in these
areas. We are very conscious
though that there is no room for
complacency in HSES and we
seek to continually improve our
performance.
Health and safety
Internal measures for health
and safety performance are very
important to ensure focus on this
area of our business. Our objective
for 2010 was to maintain and
improve the developed “safety
culture” within the organisation,
with all staff encouraged to report
any activities they perceive as
not conforming to best practice
through the incentive linked
in-house Safety Observation
Audit Programme so that any areas
of oversight can be rectified and
brought up to the highest possible
standard as quickly as possible.
For more information visit: www.lamprell.com
28
Lamprell plc Annual report and accounts 2010
corporate social responsibility
The facilities individually achieved LTI statistics as follows:
Sharjah LTI
Jebel Ali LTI
Hamriyah LTI
LOEF LTI
Thailand LTI
4
2
8
0
0
LTI Frequency Rate 1.79
LTI Frequency Rate 0.60
LTI Frequency Rate 1.68
LTI Frequency Rate 0.00
LTI Frequency Rate 0.00
A contributory factor again this year
was the encouraged use of the
centralised reporting system for
leading indicators under a Total
Recordable Incident Ratio. This
ratio facilitates the analysis of First
Aid Cases, Medical Treatment
Cases and Restricted Work Cases
as well as Lost Time Incidents
(“LTI”) and allows management to
identify trends and take the
appropriate action.
As a result of this approach, we
have maintained a strong track
record in the area of safety.
Lamprell has established a safety
record which is exceptional for the
oil and gas construction industry.
In line with our standardise and
centralise programme, the Lamprell
Group of companies achieved an
overall performance LTI Frequency
Rate of 1.33.
However, whilst our own
measurement of our safety
performance is essential, we also
recognise the importance of
external analysis of our methods
and have achieved relevant
accreditation by third parties of our
capabilities.
In 2010 Lamprell maintained the
accreditation with the management
system certificate ISO 14001: 2004
and the updated Occupational,
Health and Safety Assessment
Series, OHSAS 18001; 2007.
environment
Across all our activities we seek to
minimise the mark we leave on the
sites at which we work. A good
example is at Hamriyah where, as
we expand our existing facility, we
are seeking ways to minimise our
impact on the local environment
and increase our energy efficiency
and recycling capability.
By delivering the best possible
product to our customers and
utilising the most up to date
technologies, we also have a direct
impact on the environmental
performance of the rigs we refurbish
by improving their systems and
ensuring they conform to all relevant
international legislation.
Our policy is to strive to achieve
continual improvement in
environmental performance. We
are committed to preventing
pollution and reducing the overall
impact of our operations on the
environment. In addition, we
maintain an internal management
structure for the management of
environmental issues which
includes clearly defined
responsibilities for environmental
management capable of delivering
this policy commitment.
At all times Lamprell aims to
comply with, and where possible
exceed, applicable legal and other
requirements relating to the
organisation. We are also
committed to monitoring and
reporting of our environmental
performance, setting objectives
and targets for improvement and at
all times provide appropriate
training and awareness
programmes for our staff.
Feasibility plans are currently in
progress to join the Carbon
Disclosure Project.
waste management policy
All businesses affect the
environment through the use of
resources and discharge of waste
products. Our Waste Management
Policy is therefore consistent with
our broader Environmental Policy,
which includes a stated
commitment to minimise the
environmental impacts of our
operations and prevent pollution.
Our aim is to limit our discharge of
waste material wherever we can
and the policy lays out how we
seek to achieve this goal.
29
Lamprell plc Annual report and accounts 2010
security
During 2010, Lamprell maintained
a high level of internal and external
security controls of its assets on
behalf of all stakeholders. These
controls were in the form of
security procedures, a corporate
wide security access system
and continued physical
security presence.
Quality
Lamprell aims to achieve maximum
customer satisfaction and quality
of product. In the pursuit of this
objective the Company will comply
with all national and international
standards and requirements with
respect to quality assurance.
Lamprell will also strive to optimise
resources and reduce wastage in
the development of our facilities
and training of personnel. Whilst
aiming to meet these objectives the
Company ensures cost effective
jobs and services, and delivery
on time.
Lamprell meets these objectives
by understanding customer
requirements, working together
with our customers to meet those
requirements, understanding our
processes well and monitoring and
measuring our activities. Ultimately
the Company strives to continually
improve the Quality Management
Systems and operations.
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For more information visit: www.lamprell.com
30
Lamprell plc Annual report and accounts 2010
Directors’ biographies
2
4
6
1
3
5
7
1 Jonathan silver (58)
Chairman
Jonathan Silver joined the Board
on 24 August 2007 and was
appointed as the Chairman of the
Company on 27 March 2009.
Jonathan trained with a leading
City of London law firm and
qualified as a solicitor in 1978,
working first in London and later in
the United Arab Emirates.
In 1981, he started his own practice
in the United Arab Emirates and
merged that practice with Clyde &
Co in 1989. Since then he has
headed up Clyde & Co’s operations
in the region, creating the largest
international law firm operating in
the Middle East. Jonathan chairs
Clyde & Co’s regional management
board and represents the region on
the firm’s global management
board. Throughout his career in the
legal profession, Jonathan has
worked in the areas of international
banking and finance, mergers &
acquisitions, private equity, project
and construction work involving him
in most sectors of commercial
activity including international trade,
energy, construction, shipping,
commodities and insurance.
He has advised the boards of
public and private companies from
around the world extensively on
their obligations, responsibilities and
governance arrangements. Jonathan
has, for more than 20 years, been
associated with the Lamprell Group,
providing legal advice on numerous
matters including on the Company’s
listing on AIM and more recently,
the Official List. Jonathan is
currently a Director of Tri-Emirates
Property Corporation.
2 nigel robert mccue (59)
Chief Executive Officer
Nigel McCue was appointed to the
role of Chief Executive Officer in
May 2009. He joined the Board of
Lamprell on 7 July 2006 as a
Non-Executive Director prior to
being appointed to the Executive
position of Chief Operating Officer
31
Lamprell plc Annual report and accounts 2010
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in May 2008. Nigel has over 30
years of experience in the
petroleum industry. He was a
Director and the Chief Executive
Officer of Jura Energy Corporation,
a company listed on the Toronto
Stock Exchange, and is now its
Chairman and a member of the
Compensation Committee. Prior to
this, he was a Director and the
Chief Financial Officer of Lundin
Petroleum AB. Nigel has also held
various positions with Chevron
Overseas Inc. and Gulf Oil
Corporation. Nigel is the Senior
Independent Non-Executive
Director, within the definition of the
FRC Combined Code, of Dragon
Oil plc, where he is the Chairman of
its Audit Committee and a member
of the Remuneration and
Nomination Committees. He is also
a Director of Nemmoco Petroleum
Limited, a private exploration and
production company, Frontier
Acquisition Company Limited,
Frontier Holdings Limited, and
Mavignon Shipping Limited.
3 scott Doak (49)
Chief Financial Officer
Scott Doak joined Lamprell in
March 2007. Scott is responsible
for the finance and administration
activities of Lamprell. Prior to joining
Lamprell, he worked for Reuters
Limited, based in Dubai, in the
position of Head of Finance for
Middle East & Africa, where he
was a member of the Senior
Management Group involved in
strategic planning and market
development. Previously he has
held senior financial roles with
Telerate Limited, Dubai, Price
Waterhouse, Dubai and Whinney
Murray & Company (Saudi affiliate to
Ernst & Young). Scott is a member
of the Institute of Chartered
Accountants of Scotland and has a
Bachelor of Accountancy degree
from the University of Glasgow.
4 christopher Hand (40)
Chief Operating Officer
Chris Hand was appointed to the
Board on 26 January 2011. As Chief
Operating Officer, Chris takes
responsibility for all operational
activities undertaken by the Group,
including projects, production,
engineering and quality assurance.
Chris initially held the position of
project Quantity Surveyor at
Lamprell, before being promoted to
Chief Quantity Surveyor in 1999, to
Commercial Manager in 2002 and
to Chief Operating Officer in 2010.
Prior to joining Lamprell in 1996,
Chris worked for a major
construction company in the United
Kingdom. He has a BSc honours
degree in quantity surveying, a post
graduate diploma in arbitration from
the College of Estate Management
and an MBA from the Edinburgh
Business School.
5 colin goodall (66)
Senior Independent Non-
Executive Director
Colin Goodall was appointed to the
Board on 14 September 2008. He
Chairs the Nomination Committee
of the Company and is a member
of the Audit and Remuneration
Committees. He is also the
Chairman of Sindicatum Carbon
Capital Ltd, and was Chairman of
Dana Petroleum plc and Parkmead
Group plc until 2010. Colin qualified
as a chartered accountant and is a
member of the Chartered Institute
of Taxation. He spent most of his
career in the upstream oil & gas
industry with BP plc, where he
joined the finance team in 1975,
later becoming the first Chief of
Staff within the BP Group. From
1995 to 1999 he served as Chief
Financial Officer for BP Europe and
then as BP’s senior representative
in Russia. His career has involved
assignments in Africa, the Middle
East, Europe, Russia and the
Americas.
6 richard germain Daniel
raynaut (55)
Non-Executive Director
Richard Raynaut was appointed to
the Board on 7 July 2006. He
Chairs the Audit Committee of the
Company and is a member of the
Nomination and Remuneration
Committees. Richard has been
involved in the oil and gas industry
since 1977 when he was appointed
as an accountant at IHC Caland.
Between 1977 and 2004, he held a
variety of positions at IHC Caland
(renamed SBM Offshore), including
Chief Accountant, Treasurer and
Financial Controller. From 2000 to
2004, he was appointed the Chief
Financial Officer of the offshore
division and was an Executive
board member of Single Buoy
Moorings Inc. From January 2005
onwards he has been involved in
Sri Lanka, with the charity Monaco
Aide et Presence.
7 brian fredrick (59)
Non-Executive Director
Brian Fredrick was appointed to
the Board on 1 January 2009. He
Chairs the Remuneration
Committee of the Company and is
a member of the Audit and
Nomination Committees. Brian
spent most of his career in the
financial services industry in Asia
and the Middle East and worked in
the United Arab Emirates in the
1980s and 1990s. He has also
worked for HSBC in Hong Kong,
where he was HSBC Asia-Pacific
Head of International between
2003 and 2007 and in Brunei, and
Vietnam. He was the Chief
Executive Officer of HSBC’s
operations in Mauritius, the
Philippines and Indonesia for over
ten years. He has served on the
boards of a number of companies
including A. Soriano Corporation
and Concrete Aggregates Inc, both
quoted on the Philippine Stock
Exchange, Techcombank, one of
the largest private sector banks in
Vietnam and was Chairman of
HSBC Bank (Mauritius) Ltd.
For more information visit: www.lamprell.com
32
Lamprell plc Annual report and accounts 2010
Directors’ Report
The Directors present their Annual Report on the
affairs of the Company and the Group together with
the financial statements and Auditor’s Report, for the
year ended 31 December 2010. Lamprell plc is the
holding company of the Group and all its issued, and
authorised, ordinary shares were admitted to listing on
the main market of the London Stock Exchange on 6
November 2008.
Principal activities
The principal activity of the Group is the provision of
specialised refurbishment and construction services to
the oil and gas and renewables industry. The Group
operates through a number of subsidiaries which are
set out in Note 1 to the financial statements.
The principal activity of the Company is to act as a
holding company for the Group.
Results and dividends
The financial statements of the Group for the year
ended 31 December 2010 are as set out on pages 55
to 62. The Group net profit for the year amounted to
USD 65.2 million (2009: USD 28.4 million).
The Directors recommend a final dividend of 9.50
cents per ordinary share with a Sterling equivalent of
5.88 pence per ordinary share which, if approved, will
be paid on 17 June 2011 to eligible shareholders on
the register at 13 May 2011. The Company paid an
interim dividend of 3.80 cents (2.44 pence) per
ordinary share during the year.
There was a transfer of USD 48.6 million (2009: USD
22.4 million) to retained earnings for the year ended 31
December 2010 representing the profit for the year, less
dividends paid, adjustments for share-based payments
and the purchase of treasury shares. For details refer to
the Consolidated Statement of Changes in Equity on
page 59.
Business review and future developments
A full review of the Group’s activities during the year,
recent events and future developments is contained in
the Chairman’s statement on pages 4 to 5, the Chief
Executive Officer’s statement on pages 8 to 11, the
Operating Review on pages 14 to 18, and the Financial
Review on pages 22 to 25.
Corporate governance and corporate social
responsibility
The Corporate Governance Report on pages 36 to 41
and the Corporate Social Responsibility report on
pages 26 to 29 provide full details on the efforts made
by the Company in these areas.
Directors’ remuneration report
Details of Directors’ remuneration for the year ended
31 December 2010 can be found in the Directors’
Remuneration Report on pages 42 to 53.
Directors
The Company’s Articles of Association provide for a
Board of Directors consisting of not fewer than two but
not more than 12 Directors, who manage the business
and affairs of the Company. The Directors may appoint
additional or replacement Directors, who shall serve
until the next Annual General Meeting (“AGM”) of the
Company at which point they will be required to stand for
election by the members. At each AGM one-third or the
number nearest to one third of the Directors are required
to retire by rotation and they may stand for re-election.
A Director may be removed from office at a general
meeting by the passing of an Ordinary Resolution.
The Directors who served in office during the financial
year were as follows:
Jonathan Silver
Peter Whitbread (Retired 7 June 2010)
Nigel McCue
Scott Doak
Colin Goodall
Richard Raynaut
Brian Fredrick
Christopher Hand was appointed to the Board of
Directors on 26 January 2011.
Directors’ interests
The Directors’ interests in the Ordinary Shares of the
Company are set out in the Directors’ Remuneration
Report on page 51.
33
Lamprell plc Annual report and accounts 2010
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Capital structure and significant shareholders
Details of the authorised and issued share capital together with details of movements in share capital during the
year are included in note 26 to the financial statements. The Company has one class of share in issue, ordinary
shares of 5 pence each, all of which are fully paid. Each ordinary share in issue carries equal rights including one
vote per share on a poll at general meetings of the Company, subject to the terms of the Company’s Articles of
Association and applicable laws. Votes may be exercised by shareholders attending or otherwise duly
represented at general meetings. Deadlines for the exercise of voting rights by proxy on a poll at a general
meeting are detailed in the notice of meeting and proxy cards issued in connection with the relevant meeting.
There are no restrictions on the transfer of shares.
Details of employee share schemes are disclosed on pages 47 to 48 of the Directors’ Remuneration Report
and in note 9 to the financial statements. During the year the following awards of ordinary shares of 5 pence
were granted:
Lamprell plc Free Share Award Plan
Lamprell plc Retention Share Plan
Lamprell plc Executive Share Option Plan
Lamprell plc Performance Share Plan
Granted
Outstanding
2010
2009
2010
2009
299,000 763,052 342,000 917,148
nil 600,000 600,000 600,000
nil 550,000 635,784 635,784
nil
nil 502,572
502,572
The awards under the Lamprell plc Free Share Plan, the Lamprell plc Retention Share Plan and the Lamprell plc
Performance Share Plan are granted at nil price.
Pursuant to the Company’s share schemes, the Employee Benefit Trust as at the year-end, held a total of 1,277,138
(2009: 1,336,259) ordinary shares of 5 pence, representing 0.64% (2009: 0.67%) of the issued share capital. The
voting rights attaching to these shares cannot be exercised directly by the employees, but can be exercised by
the Trustees. However, in line with good practice, the Trustees do not exercise these voting rights. In the event of
another company taking control of the Company, the employee share schemes operated by the Company have set
change of control provisions. In short, awards may, in certain circumstances and in approved proportions, be
allowed to vest early or be allowed to be exchanged for awards of equivalent value in the acquiring company.
The Company was given authority at the 2010 AGM to make market purchases of up to 20,000,000 ordinary
shares of 5 pence. This authority will expire at the 2011 AGM, where approval from shareholders will be sought to
renew the authority.
Approval from shareholders is also proposed to be sought to authorise the Directors to allot the Company’s
unissued shares up to a maximum nominal amount of £3,000,000, representing approximately 30% of the
Company’s current issued ordinary share capital (excluding treasury shares) and to issue equity securities of the
Company for cash to persons other than existing shareholders, other than in connection with existing exemptions
contained in the Company’s Articles of Association or in connection with a rights, scrip dividend, or other similar
issue, up to an aggregate nominal value of £500,000 representing approximately 5% of the current issued
ordinary share capital of the Company. Similar authorities were given by the shareholders at the AGM in 2010 and
the authorities now sought, if granted, will expire on the earlier of the conclusion of the AGM of the Company next
year and the date which is 15 months after the granting of the authorities.
For more information visit: www.lamprell.com
34
Lamprell plc Annual report and accounts 2010
Directors’ Report
As at 25 March 2011, being the latest practicable date prior to the publication of this Annual Report, the
significant interests in the voting rights of the Company’s issued ordinary shares as per notification received by
the Company (at or above the 3% notification threshold) were as follows:
Lamprell Holdings Limited
Standard Life Investments Ltd
Royce & Associates LLC
Ignis Investment Services Ltd
Voting
rights attaching to
issue of total
ordinary shares
66,333,944
18,025,077
10,054,900
8,592,941
% of total
voting
rights
33.12
9.00
5.02
4.29
Nature of holding
Direct
Direct/
Indirect
Direct
Indirect
articles of association
The Company’s Articles of Association may only be amended by a resolution of the shareholders. A resolution to
amend the Articles of Association is being proposed at the 2011 AGM and full details can be found in the
accompanying Notice of AGM.
annual general meeting
The Company’s fifth Annual General Meeting (“AGM”) as a listed public company will be held at the Suite 102,
City Tower 2, Sheikh Zayed Road, Dubai, United Arab Emirates on Tuesday, 7 June 2011 at 12.00 noon (UAE
time). The notice of meeting and an explanatory circular to shareholders setting out the AGM business
accompanies this Annual Report.
Principal risks and uncertainties
The Board has established a process for identifying, evaluating and managing the significant risks the Group
faces. A detailed analysis of the risks and uncertainties can be found on pages 20 to 21.
Payment policy
The Group’s policy in respect of its vendors is to agree and establish terms of payment when contracting for the
goods or services and to abide by those payment terms. The Company is the holding Company of the Group and
has no trade creditors.
Charitable and political donations
During the year the Group made no political donations (2009: nil) and made charitable donations amounting to
USD 2,724 (2009: nil).
auditor
As far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware.
In addition, each Director has taken all the steps that he ought to have taken as a Director in order to make himself
aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information.
35
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During the year the directors received notice from the
Company's auditor, PricewaterhouseCoopers, of its
intention to retire at the Company's forthcoming
Annual General Meeting. PricewaterhouseCoopers
LLC, being eligible, has indicated its willingness to
accept appointment as successor auditor in
accordance with Section 12(1) of the Isle of Man
Companies Act 1982, and a resolution to appoint
it will be proposed at the forthcoming Annual
General Meeting.
going concern
After making appropriate enquiries, the Directors
consider that the Company and the Group have
adequate resources to remain in operation for the
foreseeable future. For this reason they continue to
adopt the going concern basis in preparing the
financial statements.
the Group’s activities are sustainable and, secondly,
that adequate resources are available to continue in
operational existence for the foreseeable future.
The Directors are responsible for the maintenance and
integrity of the Company website. Your attention is
drawn to the fact that legislation in the Isle of Man
governing the preparation and dissemination of
financial statements may differ from other jurisdictions
and uncertainty regarding the legal requirements is
compounded as information published on the internet
is accessible in many countries with different legal
requirements relating to the preparation and
dissemination of financial statements.
subsequent events
Subsequent events are as set out in note 37 to the
Financial Statements.
statement of Directors’ responsibilities
The Directors confirm that suitable accounting policies
have been used and applied consistently. They also
confirm that reasonable and prudent judgments and
estimates have been made in preparing the financial
statements for the year ended 31 December 2010
and that applicable accounting standards have
been followed.
The Directors are responsible for keeping proper
accounting records which disclose with reasonable
accuracy at any time the financial position of the
Company and the Group and to enable them to ensure
that the financial statements comply with the Isle of
Man Companies Acts 1931 to 2004. They are also
responsible for safeguarding the assets of the
Company and the Group and hence for taking
reasonable steps for the prevention and detection
of fraud and other irregularities.
The financial statements have been prepared on
the going concern basis since the Directors have
reasonable expectation that, firstly, the Company’s and
By order of the Board
Justin Tyler
Company Secretary
25 March 2011
Justin Tyler Company Secretary
For more information visit: www.lamprell.com
36
Lamprell plc Annual report and accounts 2010
Corporate governance Report
The current membership of the Board and the
commitments of the Directors are stated on page 37,
which record the names of the Chairman, the Senior
Independent Director and the Chief Executive Officer.
The names of the Chairmen and members of each of
the Audit, Remuneration and Nomination Committees
are detailed below under the respective Committee
summaries.
The Board met six times during the year and one
of these meetings was conducted by telephone via a
conference call. This meeting was required to deal with
a specific business matter which arose as part of the
normal business of the Group and which needed to be
addressed between scheduled Board meetings. In
addition, the Board executes a number of resolutions
in writing to conduct Company business. The
Chairman and Non-Executive Directors have met
without the executives present when necessary and
the Executive Directors maintain frequent verbal and
written contact with the Non-Executive Directors to
discuss various issues affecting the Company and its
business. The agenda and appropriate supporting
Board papers are distributed by the Secretary to the
Board on a timely basis.
The Company is incorporated in the Isle of Man,
where there is no formal Code covering Corporate
Governance. However, as the shares of the Company
are listed on the Official List of the London Stock
Exchange and as the Board is strongly committed to
the highest standards of corporate governance, the
Board applies the provisions of the Combined Code on
Corporate Governance published in 2008 (the “Code”)
as if the Company was incorporated in the United
Kingdom. The Company is aware of the terms of the
UK Corporate Governance Code published in 2010.
The Code seeks to ensure that the Company is run
in a manner whereby the interests of shareholders are
protected and as such the Code sets out principles
of good corporate governance together with
specific provisions.
statement of compliance with the provisions
of good governance
The Directors consider that throughout 2010 and up to
the date hereof, the Company has applied the
principles and complied with the provisions of the
Code, subject to exceptions identified in this report.
the Board
The Board plans to meet at least six times in a year.
The role of the Board is to provide leadership of the
Company, set values and standards, and to ensure that
the Company’s obligations to its shareholders and other
stakeholders are met. The Board has a formal schedule
of matters reserved to itself for decision, including but
not limited to, matters of a strategic nature, approval of
the annual budget, approval of major acquisitions,
investments and disposals, major changes to the
Group’s capital structure, the preparation of financial
statements, the recommendation or declaration of
dividends, the entry into contracts which are deemed to
be material strategically or by reason of size, succession
planning and appointments to the Board, executive
remuneration, ensuring the maintenance of a sound
system of internal controls, reviewing its own and
its Committees’ performance, and reviewing the
Company’s overall corporate governance arrangements.
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Attendance by the Directors at the meetings of the Board and its Committees are summarised in the table below:
Meeting description
Total number of meetings
Jonathan Silver
Chairman of the Company
Colin Goodall
Senior Independent Non-Executive Director
Richard Raynaut
Non Executive Director
Brian Fredrick
Non Executive Director
Nigel McCue
Chief Executive Officer
Peter Whitbread1
Director of International Development
Scott Doak
Chief Financial Officer
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
6
6
5
6
5
6
1
6
3
n/a
3
3
3
n/a
n/a
n/a
5
n/a
5
5
5
n/a
n/a
n/a
2
n/a
2
2
2
n/a
n/a
n/a
1 Peter Whitbread retired from the Board of Directors on 7 June 2010 and was eligible to attend three meetings of the Board.
The Group maintains Directors’ and Officers’ Liability insurance cover, the level of which is reviewed annually.
Chairman and Chief executive
Section 1 A.2.2 of the Code states that the roles of Chairman and Chief Executive should not be exercised by the
same individual and responsibilities between these roles should be clearly established, set out in writing and
agreed by the Board. The Chairman on appointment should meet the independence criteria set out in Section 1
A.3.1 of the Code.
Nigel McCue is the Chief Executive Officer and Jonathan Silver is the Non-Executive Chairman.
Jonathan Silver is a partner of a firm that represents the Company as one of its legal advisers. Jonathan Silver
was therefore not deemed independent on appointment as the Chairman of the Company. However, the Board
and the Nomination Committee, considering his performance, experience and his detailed knowledge of the
Company and the Middle East, believe that, despite his lack of independence on appointment, Jonathan Silver’s
appointment as the Chairman of the Company is in the best interests of the Company and its shareholders.
Board balance and independence
The Board currently has seven Directors, consisting of four Non-Executive Directors and three Executive
Directors. The Board considers all the Non-Executive Directors, excluding the Chairman, Jonathan Silver, to be
independent in accordance with the definition of the Code and their appointment to be in the best interests of
the shareholders. To that end, half of the Board excluding the Chairman (as cited above), is comprised of Non-
Executive Directors determined by the Board to be independent. The Directors believe that the extensive
knowledge and experience of the Non-Executive Directors combined with the focus and experience of the
Executive Directors, enable the Board to lead and give direction to the Group without any imbalance that may
allow any individual or Group of individuals to dominate its decision making. Any Director having a concern in this
or any other regard may raise this with the Chairman or the Senior Independent Director.
For more information visit: www.lamprell.com
38
Lamprell plc Annual report and accounts 2010
Corporate governance Report
Colin Goodall has been appointed as the Senior
Independent Non-Executive Director and is available to
shareholders if they have any concerns for which
contact through the normal channels of Chairman and
Chief Executive Officer or Chief Financial Officer
cannot be resolved or for which such contact is
inappropriate.
The Board considers that independence is a matter of
judgment and therefore it believes that the Non-
Executive Directors should be free from any business
or other relationships that could materially interfere in
the exercise of their independent judgment. It is the
Board’s policy to provide its Non-Executive Directors
fair remuneration for the contribution they make with
respect to the business and affairs of the Company
and the responsibilities they undertake in performing
their duties as Non-Executive Directors.
appointments to the Board
All appointments to the Board are based on the
recommendation of the Nomination Committee. The
composition and working of the Nomination
Committee are explained under “Principal Board
Committees” on page 39. The terms and conditions of
appointment of the Non-Executive Directors are
available for inspection at the registered office of the
Company during normal business hours and will be
available at the AGM 15 minutes prior to the meeting
and during the meeting.
induction and professional development
A formal induction programme is provided to new
Directors on their appointment. The programme is
designed to cover Companies Act requirements,
dealing restrictions as outlined in the Disclosure Rules
and the Model Code on Directors’ dealings in securities
contained in the Listing Rules of the Financial Services
Authority in the United Kingdom, Board and business
related matters, meetings with senior management,
site visits and the opportunity to meet with major
shareholders. The Company encourages Directors
to refresh their knowledge and skills and to keep up
to date with the latest developments in corporate
governance, financial reporting, the industry and market
conditions. The Company reimburses any expenses
incurred in this regard.
Major shareholders have had discussions with the
Chairman, the Senior Independent Non-Executive
Director Colin Goodall and the Chairman of the
Remuneration Committee Brian Fredrick. All the
Non-Executive Directors will be available at the AGM to
meet with shareholders.
The Directors are entitled to take independent
professional advice, at the Company’s expense, if
required. Directors have access to the advice and
services of the Secretary to the Board, who is
responsible for ensuring that the Board procedures
and applicable rules and regulations are observed, and
for advising the Board, through the Chairman, on
governance matters. The agenda for each Board and
Committee meeting is considered by the relevant
Chairman and papers for each scheduled formal
Board and Committee meeting are provided
beforehand. In addition, the Chairman maintains
regular contact with the Executive Directors to discuss
specific issues.
Directors are free to meet individual members of the
senior management team and have done so during the
year under review. The Board and its Committees
receive briefings on legislative and regulatory
developments and new accounting requirements as
appropriate and believe that, given the experience and
skills of its Directors, the identification of general
training needs is best left to individual discretion.
No Director took independent professional advice
during the year.
Performance evaluation
A performance evaluation of the Chairman, the Board,
its members and the Committees was conducted
through a questionnaire led interview with other
members of the Board. The questionnaires included a
review of the Directors’ attendance at Board meetings,
the Board agenda, those areas on which the Board
should focus during its meetings, the effectiveness of
the roles of the Chairman and Non-Executive
Directors, Board procedures and administration, and
the operation of the Board’s Nominations, Audit and
Remuneration Committees. The results were
considered satisfactory by the Board.
The performance evaluation of the Board, its members
and its Committees takes place on an annual basis.
Retirement and re-election
In accordance with the Company’s Articles of
Association, all Directors are subject to election at the
first AGM after their appointment and one third, or the
number nearest to one third of the Board, shall retire
39
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from office at every AGM. Any Director in office for more
than three years at the start of an AGM shall also retire.
Accordingly, Nigel McCue and Colin Goodall will retire at
the forthcoming AGM. Furthermore Christopher Hand,
who was appointed to the Board on 26 January 2011,
also stands for election. Nigel McCue and Colin
Goodall, being eligible, both offer themselves for
reappointment. The biographical details of Nigel McCue
and Colin Goodall, the Directors proposed for re-
election, and Christopher Hand, can be found on pages
30 and 31. The Chairman confirms that following formal
performance evaluation, the performance of both Nigel
McCue and Colin Goodall continues to be effective and
that they demonstrate commitment to their roles. The
Board supports the re-election of the retiring Directors,
Nigel McCue and Colin Goodall, together with the
election of the new Director Christopher Hand.
Directors’ remuneration
The principles and details of Directors’ remuneration
are contained in the Directors’ Remuneration Report
on pages 42 to 53. The composition and working of
the Remuneration Committee are explained under
“Principal Board Committees” on page 40.
Principal Board Committees
The Board is assisted by the Audit, Remuneration and
Nomination Committees. A summary of the activities of
each committee is set out below. The Committees are
constituted with appropriate written terms of reference,
which are reviewed annually and are available on the
Company’s website. The Committee terms of
references did not require any material changes further
to the annual review. The minutes of meetings and/or
reports from the Chairmen of the Committees are
made available to the Board for its next scheduled
meeting following the Committee meeting in question,
or as soon as practicable thereafter.
Audit Committee
The members of the Audit Committee are Richard
Raynaut, who acts as Chairman, Colin Goodall and
Brian Fredrick. Others may be co-opted onto the
Committee by the Committee members. The Board
considers all the members of the Audit Committee
who are Non-Executive Directors to be independent in
character and judgment and free from any relationship
or circumstance which may, or could or would be likely
to, or which appears to, affect their judgment. Richard
Raynaut, the Chairman of the Audit Committee, has
relevant and recent financial experience having retired
from his position as Chief Financial Officer in 2004.
Other members of the Audit Committee also have
relevant financial experience.
Meetings of the Audit Committee are held not less than
three times a year. The Chief Financial Officer is invited
to attend meetings, where appropriate, and the
Company’s auditors are regularly invited to attend
meetings, including once at the planning stage before
the audit and once after the audit at the reporting stage.
Other Board members may also be invited to attend,
although at least once a year the Audit Committee
meets the Company’s external auditors without
management being present. The terms of reference of
the Audit Committee include consideration of matters
relating to the appointment of the Company’s auditors
and the independence of the Company’s auditors,
reviewing the integrity of the Company’s annual and
interim reports, preliminary results’ announcements and
any other formal announcement relating to its financial
performance. The Audit Committee also reviews the
effectiveness of the Group’s system of internal audit,
internal control and compliance procedures.
The Audit Committee has established and monitors
the Group’s policy in relation to non-audit services
provided by the external auditor, with a view to
ensuring objectivity, independence and cost
effectiveness.
The Audit Committee also monitors the procedure to
ensure that employees may raise ethical concerns in
confidence. The Audit Committee has designated the
Chief Financial Officer as the Compliance Officer;
employees also have access to the Audit Committee
if the Compliance Officer has not dealt with their
concerns satisfactorily.
The Company has adopted a code of conduct
covering all employees including senior executives;
the compliance with this code of conduct is monitored
by the Human Resource department. The code of
conduct includes amongst others, the prohibition of
bribery and political donations.
The Audit Committee met (including meetings by
conference call) three times during the year and the
attendance at its meetings is reported on page 37.
Nomination Committee
The current members of the Nomination Committee
are Colin Goodall, who acts as Chairman, Richard
Raynaut and Brian Fredrick. The Nomination
For more information visit: www.lamprell.com
40
Lamprell plc Annual report and accounts 2010
Corporate governance Report
Committee’s terms of reference are to periodically
review the structure, size and composition, including
the skills, knowledge and experience required of the
Board compared to its current position and make its
recommendations to the Board with regard to any
changes. The Nomination Committee also considers
the future composition of the Board, taking into
account the challenges and opportunities facing the
Company, and skills and expertise needed on the
Board. The Nomination Committee also makes
recommendations to the Board about the membership
of the Audit and Remuneration Committees.
On 26 January 2011, Christopher Hand was appointed
to the Board, based on the recommendation of the
Nomination Committee.
The Nomination Committee met (including meetings by
conference calls) twice during the year and the
attendance at its meetings is reported on page 37.
Remuneration Committee
The members of the Remuneration Committee are
Brian Fredrick, who acts as Chairman, Colin Goodall
and Richard Raynaut. Brian Fredrick took over the
Chairmanship of the Committee from Richard Raynaut
in June 2009. The terms of reference of the
Remuneration Committee provide for it to determine
and agree with the Board the framework or broad
policy for the remuneration of the Company’s Chief
Executive Officer, the Chief Operating Officer and the
Chief Financial Officer, other Executive Directors, the
Company Secretary and other such members of the
executive management as it is designated to consider.
The remuneration of the Non-Executive Directors is a
matter for the Executive Directors. No Director or
manager may be involved in any decisions as to his
own remuneration.
The Remuneration Committee met (including meetings
by conference call) five times during the year. The
attendance at its meetings is reported on page 37.
accountability and audit
The Board plays a direct role in the development of the
Group’s internal controls and risk management systems
in addition to overseeing controls and risk management
procedures via the Audit Committee. However, the
primary responsibility for developing and implementing
internal control and risk management procedures
covering strategic, commercial, operational and financial
aspects of the business, lies with the management.
financial reporting
The statement on the responsibilities of the Directors in
relation to the preparation of the accounts and the
Directors’ evaluation of the business as a going
concern is contained in the Directors’ Report on pages
32 to 35.
internal audit
The Audit Committee evaluated the performance of
the internal audit function from the quality of reports
received from the Group’s internal auditors, feedback
from management, and an assessment of work
planned and undertaken. During the year the
Company has undertaken Internal Control Self
Assessment in the absence of internal audit. In March
2010, as per the Company’s long-term plan, an
independent internal audit function was established
within the organisation, and Ravindra Dabir was
appointed as the Vice President-Internal Audit.
internal control
The control environment, risk management system
and assurance processes, being the three key
elements leading to a robust system of internal control
in the Group, are described below.
There exists a clear organisational structure for the
control and monitoring of the Group’s businesses,
including defined lines of responsibility and delegation
of authority. The business follows policies and
procedures which amongst other matters, include
policies for the Company and its employees on health
and safety, security, the environment, corporate social
responsibility and areas of legal compliance.
The Group has an ongoing process for identifying,
evaluating and managing the significant risks faced by
the Group. This has been in place for the year under
review and up to the date of this annual report and is in
accordance with the Revised Turnbull Guidance. The
Directors are aware that the Group’s risk management
systems cannot completely eliminate risks and thus
there can never be an absolute assurance against the
Group failing to achieve its objectives or a material loss
arising. In the Board’s regular review of the Group’s
strategic plans, consideration is given to those risks
which have been identified as potential impediments
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Lamprell plc Annual report and accounts 2010
to achieving the Group’s strategic objectives.
The Board receives regular formal updates from
management on the key risks and the related controls
in relation to the Group’s existing business and, if
appropriate, on potential new business. Management
thoroughly considers risks associated with undertaking
new business.
Oman. The Audit Committee, in accordance with the
Policy on Auditor Independence and adopted by the
Group, and having considered the nature of work to be
carried out believes that, whilst being cost effective, the
appointment of the external auditor to provide this
advice did not affect the objectivity, or the
independence, of the external auditor.
The Directors receive assurances from the following
internal and external controls:
>
Annual self assessment of agreed internal controls
by process owners and review of such results by
the internal auditors;
Regular executive reports from management in
areas covering key issues, performance, business
outlook, human resources and health, safety and
environment;
Financial performance reports including analyses of
significant variances regularly reported by the
management;
External audit reports, presentations and
management letters from the Group’s auditors;
Reports from the internal audit function;
Reports from internal quality audits;
Reports from the Audit Committee.
>
>
>
>
>
>
The Board conducts an annual review of the
effectiveness of the systems of internal control
including financial, operational and compliance
controls and risk management systems. Where
material weaknesses have been identified, safeguards
are implemented and monitored.
audit Committee and auditor
The composition and working of the Audit Committee
are explained under “Principal Board committees” on
page 39.
The Audit Committee has reviewed the performance
of PricewaterhouseCoopers, the external auditor,
who retires at the end of the AGM.
PricewaterhouseCoopers LLC, being eligible,
has indicated its willingness to accept appointment
as successor auditor and the Audit Committee
recommends its appointment. The Board concurs
with the recommendation of the Audit Committee.
During the year, the external auditor
PricewaterhouseCoopers, was also engaged to provide
tax advice in connection with the Group's activities in
Dialogue with institutional shareholders
The Chairman, the Senior Independent Non-Executive
Director, the Chief Executive Officer and the Chief
Financial Officer have regular meetings with major
shareholders and research analysts. The Board receives
regular feedback from analysts and major shareholders,
compiled by the Company’s brokers and financial
public relations consultants, in particular, following
presentations and meetings after the publication of
financial results. The principal method of communicating
with the majority of shareholders is via the annual report
and accounts and the Company’s website, which
contains details of financial presentations to analysts,
press releases and other information about the Group.
All shareholders have the opportunity to attend the
AGM. All Directors were present at the 2010 AGM and
all Directors intend to be present at the 2011 AGM to
answer shareholders’ questions.
Constructive use of the agm
The Board uses the AGM as an occasion to
communicate with all shareholders, including private
investors, who are provided with the opportunity to
question the Directors. At the AGM the total number
of proxy votes lodged on each resolution categorised
as for, against, and votes withheld will be made
available both at the meeting and subsequently on
the Company’s website. Each separate issue is
presented as a separate resolution and the Chairmen
of the Audit, Nomination and Remuneration
Committees will be available to answer questions
from shareholders.
The Notice of the AGM, and related papers containing
the text of resolutions to be proposed at the AGM, and
explanatory notes, where necessary, will be posted to
the shareholders at least 20 working days before the
AGM. The interim and preliminary results of the
Company, along with all other press releases, are
posted on the Company’s website, www.lamprell.com,
as soon as they are announced and are available
for download.
For more information visit: www.lamprell.com
42
Lamprell plc Annual report and accounts 2010
Directors’ Remuneration Report
letter to shareholders
Dear Shareholder,
I am pleased to present to you, on behalf of the Board
and the Remuneration Committee, the Remuneration
Committee’s report on our Board Directors’
remuneration for the financial year 2010.
We believe it is important to continue to foster
shareholder confidence in the integrity of our
remuneration decisions and therefore we consulted
major shareholders in the autumn of 2010 regarding
the remuneration packages offered to Executive
Directors. The purpose of the consultations was to
discuss with investors the approach the Committee
has established to setting executive remuneration and
its individual components which:
>
>
>
is in the best interests of the Company;
takes account of pay in the rest of the business;
is reasonable and in line with shareholder
guidelines; and
will be applied consistently for the future.
>
The Remuneration Committee has continued to work
with and been advised by Mercer Ltd. on Executive
Remuneration related matters and consulted them for
advice on market trends, incentive design questions
and other relevant matters.
The terms of reference of the Remuneration
Committee (the “Committee”) determine the policy for
the remuneration of Lamprell’s Executive Directors,
the Company Secretary and such other members of
senior management as it is designated to consider.
There have been some amendments to the terms of
reference since the last Remuneration Report to clarify
the role of the Committee and to address requirements
arising from changes to the management structure.
These changes were supported by the Board. The full
terms of reference of the Committee are available on
the Company’s website – www.lamprell.com.
Members of the Remuneration Committee in 2010
have been Brian Fredrick, Colin Goodall and Richard
Raynaut. Members have attended all Remuneration
Committee meetings. In addition, the Company
Chairman, Jonathan Silver and the Chief Executive
Officer, Nigel McCue attended meetings by invitation
but were at no stage present when elements of their
own remuneration were discussed.
The following pages provide a more detailed overview
over current Lamprell Executive Remuneration including
changes that have been agreed upon during 2010.
Brian Fredrick
Chairman of the Remuneration Committee
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Lamprell plc Annual report and accounts 2010
executive remuneration policy and pay principles
Our remuneration policy for Executive Directors gives consideration to remuneration policy and levels for the
wider employee population and is designed to enable the recruitment, retention and motivation of Executive
Directors and senior managers of the highest calibre. Our remuneration policy aims to drive business
performance and maximise shareholder value through offering remuneration packages to our senior
management that are appropriately balanced between base salary and variable compensation and taking
into account policy and practice in the UAE.
Our key remuneration principles are:
>
base salaries should be competitive and bonus should reflect both collective financial performance and
personal performance. Personal performance will be determined based on stretching, quantitative and
qualitative targets set individually at the beginning of each year;
the Individual Performance Targets for the Executive Directors are recommended by the Company Chairman
and approved by the Remuneration Committee. Individual Performance Targets for the Vice Presidents are
recommended by the Chief Executive Officer;
maintaining the highest possible health and safety standards is of paramount importance to the Company
and its business and is the collective responsibility of all Executive Directors, Vice Presidents and Employees.
Any fatality that takes place in a facility operated by the Company or any of its subsidiaries will be taken into
account when considering whether to pay the whole or part of the Personal Performance Bonus; and
performance shares are awarded in order to align the interests of senior staff and shareholders and to encourage
the recipients to remain with the Company.
>
>
>
The Remuneration Committee has met five times during this financial year. Items covered in the meetings included:
>
>
>
>
>
>
Executive Director benchmarking;
investor consultation;
variable pay;
consideration of the ABI Guidelines;
review of PSP awards; and
review and agreement of financial targets for the annual bonus plan.
For more information visit: www.lamprell.com
44
Lamprell plc Annual report and accounts 2010
Directors’ Remuneration Report
main elements of remuneration
Total remuneration, in line with our remuneration policy, is made up of a balance of fixed and variable
compensation. The current Executive Remuneration packages for Lamprell Executives and Senior Managers
are structured as follows:
Component
Objective
Performance period
Performance measure
Delivery vehicle
Base salary
n/a
Reflect competitive
market, level of
responsibility and
individual contribution
to fulfilling role
requirements
Allowances
Provide additional
payments in line with
local market practice
n/a
Annual bonus plan
Focus and motivate
achievement of annual
targets
One year
Performance share
plan
Three years
Reward executives
for achievement of
longer-term earnings,
value creation and
share price growth.
Aligns executives’ and
shareholder interests
Monthly cash payment
Normally reviewed
annually taking into
account individual
performance,
competitive
positioning and roles
and responsibilities
n/a
Monthly cash payment
Annual cash payment
Pre-defined
performance targets
split between financial
and individual
objectives
Full value shares
Growth in Earnings
Per Share (“EPS”)
over the three year
performance period
Retirement benefits Offer executives a
n/a
n/a
retirement benefit in
line with minimum
legal requirement
Lump sum cash
payment following
retirement based on
length of service and
final salary
Each element is described in further detail in separate sections below. The Committee considers all elements of
the pay structure to be important in supporting the Company’s remuneration policy.
45
Lamprell plc Annual report and accounts 2010
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Pay mix
In 2010, the remuneration mix for Lamprell Executive Directors, including long-term and short-term incentives
(“LTI” and “STI” respectively), was as follows:
CEO
CFO
Basic Salary
Target STI
Target LTI
0%
10%
20%
30% 40%
50% 60%
70% 80% 90% 100%
Benchmarking
The Committee aims to provide our Executive Directors with a remuneration package that is competitive to those
offered to directors in similar positions in comparable companies and that takes into account internal company
conditions. As such, in 2010, the Committee conducted a review of the pay and benefits of senior management.
The findings of that review were taken into consideration and will be reflected, as appropriate, in the revised
remuneration packages for 2011.
Mercer benchmarked Total Remuneration and all its components for our senior management against the
remuneration levels offered to senior mangers in a peer group consisting of companies that were of an industry
relevant to Lamprell’s operations:
>
Hargreaves Services Limited
>
Wellstream Holdings Plc
>
Hunting Plc
>
Fortune Oil plc
>
Gulfsands Petroleum Plc
>
Emerald Energy Plc
>
Afren Plc
Salamander Energy Plc
Melrose Resources Plc
Energy XX1 (Bermuda) Limited
JKX Oil & Gas Plc
Premier Oil Plc
Venture Production Plc
>
>
>
>
>
>
elements of remuneration
Base salary
Provide a market competitive base salary that reflects the role, skills, experience and contribution of
the individual
In 2009, after a review of the overall package, especially in the light of a highly volatile market in that year, the
Remuneration Committee decided to adjust the CEO and CFO basic salaries to be competitive at the upper
quartile of the market and limit bonus opportunities (further detail below) to bring the remuneration packages
more in line with the Company’s benchmarking peer group. For 2011, following the 2010 review of base salaries
For more information visit: www.lamprell.com
46
Lamprell plc Annual report and accounts 2010
Directors’ Remuneration Report
against a new comparator group, the Committee has decided to continue to position base salaries at upper
quartile, largely to recognise the following:
>
Lamprell being larger than the majority of peer group companies, positioning pay at upper quartile to reflect
the size and performance of the Company;
the results of the benchmarking exercises undertaken by Mercer in both 2009 and 2010 had indicated
anomalies between the base salaries and bonus amounts paid by the Company, and that of its comparator
group, with base salaries significantly lower and variable pay through bonus significantly higher than the
comparator group; and
the Committee considers that too high a level of variable pay (i.e. pay which is “at risk”) could lead to the loss
of key Executive Directors in difficult economic circumstances when continuity is most important.
>
>
The table below shows the base salaries of each current Executive Director effective as at 1 April 2010, and those
that will apply from 1 January 2011.
Name
Position
Nigel McCue
Scott Doak
Chris Hand1
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Base
salary from
1 January
2010
Base
salary from
1 January
2011
$785,662 $801,375
$472,153 $472,153
n/a $400,000
% increase
2%
0%
n/a
1 Chris Hand was appointed to the Board of Directors with effect from 26 January 2011.
Annual bonus
Focus and motivate Executive Directors to achieve annual performance targets
Performance measures
The Committee establishes performance measures and targets under the annual bonus plan for Executive
Directors. Performance measures used are designed to reward the delivery of key strategic priorities for the year. In
the 2010 plan year, payout of 60% of the bonus was based on financial targets, with the remaining 40% dependent
on the achievement of personal objectives. In setting financial targets, the Board focuses on key annual strategic
objectives. For 2010, financial metrics were based upon achievement of a net profit target, and the Committee
determined that in order to achieve the maximum payout in respect of the portion of bonus dependent on the
achievement of financial targets, such targets would be required to be exceeded by at least 20%.
In setting the personal objectives for the Executive Directors, the Board focuses on the Company’s strategic plan
and taking into account the Company’s corporate values. Personal objectives cover a variety of financial and
operational targets that contribute to the achievement of goals in the strategic plan and in 2010 included,
amongst other matters, the introduction of a new management system, and effective risk control.
Bonus opportunities
In reviewing total remuneration arrangements, the Committee decided in 2009 to reduce the bonus opportunity
for Executive Directors from a maximum of 200% of base salary to a maximum of 100% of base salary.
For 2010, there was no change to the annual maximum bonus opportunity for Executive Directors with bonus
opportunities capped at a maximum of 100% of base salary. The annual bonus plan is discretionary and the
Committee reserves the right to make adjustments to payouts if it believes exceptional circumstances warrant
doing so. In particular, the Committee has an overriding discretion to consider, if deemed necessary,
performance on environmental, social and governance issues when determining the annual bonus payments
for the Executive Directors.
47
Lamprell plc Annual report and accounts 2010
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2010 performance
In view of the Company’s financial performance during
2010 the Committee has determined that the following
bonuses will be paid:
structured in an economically equivalent form subject
to an assessment of local tax and regulatory issues.
Annual awards are capped at 100% of salary (150%
of salary in exceptional circumstances).
Name
Nigel McCue
Scott Doak
Target
bonus as a
percentage
of salary
Bonus
paid as a
percentage
of salary
100%
100%
100%
92%
Changes to the 2011 annual bonus
The Committee has reviewed the balance of
performance measures under the plan and, for the
2011 plan year, payout of two thirds of the bonus will
be based on financial targets, with the remaining third
dependent on the achievement of personal objectives.
Long-term incentives
Reward and motivate executives for achievement of
longer-term value creation and align executives and
shareholder interests
Long-term Incentives are provided to eligible employees
under the provisions of three different share-based
plans: The Lamprell plc Executive Share-Option Plan,
the Lamprell plc Retention Share Plan and the Lamprell
plc 2008 Performance Share Plan. The Performance
Share Plan is intended to be the Company’s primary
long-term incentive vehicle for Executive Directors and
senior management. Executive Directors will not receive
regular grants of Options under the Executive Share
Option Plan or receive regular Awards under the
Retention Share Plan. Awards under these two plans
will only be used in exceptional circumstances. The
Committee regularly reviews both the overall suitability
of the Company’s share-based remuneration, the level
of awards made under the plan operated and the
performance conditions attached to those awards.
Any value earned under the Company’s long-term
incentive plans is not pensionable.
The Lamprell plc 2008 Performance Share Plan
(“PSP”)
In 2008, the PSP was agreed to be the primary
long-term incentive vehicle for Executive Directors.
Executive Directors and other key individuals may
participate in this plan that offers awards over Lamprell
shares on an annual basis. The awards will take the
form of a promise to deliver free shares, but may be
Performance shares will normally vest on the third
anniversary of the date of grant of the award, subject
to any applicable performance conditions having been
satisfied. In addition the Committee will have an
overriding discretion, in exceptional circumstances
(relating to either the Company or a particular
participant) to reduce the number of shares that vest
(or to provide that no shares vest).
PSP performance measures
The Committee believes that the performance
conditions for vesting of PSP awards should strike a
balance between achieving alignment with shareholder
returns and reward for delivery of strong underlying
performance.
The Committee has determined that awards made in
2010 will vest subject to achieving predefined Earnings
Per Share (“EPS”) growth over a three-year period.
The Committee considers EPS to be one of the key
measures of the Company’s success, particularly
because it incentivises strong earnings growth over a
sustained period which is in line with the generation of
future shareholder value.
For the PSP awards, EPS growth is calculated using
the point-to-point method. This method compares
the adjusted EPS in the Company’s accounts for the
financial year ended prior to the date of grant with the
adjusted EPS for the financial year ending three years
later and calculates the total growth over the three
year period.
The intended EPS targets for awards made in respect
of 2010 and their associated vesting levels are illustrated
in the table below (straight-line vesting applies between
the hurdles). The EPS growth hurdles have been set
taking into account the long-term strategic plans of the
Company but also the cyclical nature of the business in
which the Company operates.
For more information visit: www.lamprell.com
48
Lamprell plc Annual report and accounts 2010
Directors’ Remuneration Report
EPS growth over three-year period
Less than 15%
15%
45% or more
Percentage
of award
vesting
0%
25%
100%
allowances, housing allowances, utilities for housing,
school fees for children up to the age of 18 years old,
annual airline tickets, medical and life insurance, petrol
costs and club memberships. The cash value of the
benefits received by each Executive Director in 2010
is shown in the summary annual remuneration table
on page 50.
The Lamprell plc Executive Share Option Plan
The plan provides for Options over Lamprell shares to
be granted at market value to eligible employees. The
Options will normally vest after three years and be
exercisable up to the 10th anniversary of the date of
grant. No awards were made to Executive Directors
under this plan in 2010.
The Lamprell plc Retention Share Plan
The plan provides for the conditional allocation of shares
to eligible employees selected by the Board. Awards
will normally vest and the shares be released with any
accumulated dividends, if determined by the Board, two
years after the date of grant. No awards were made to
Executive Directors under this plan in 2010.
Retirement benefits
Provide retirement benefits in line with local
market practice
Under employment law in the United Arab Emirates,
the Executive Directors participate in a terminal gratuity
scheme operated by the Company as a pension
equivalent. This is operated as a cash payment based
on the length of service and final salary of the Executive
Director and the value of these cash provisions is c. 8%
of base salary per annum.
Under the terms of the local UAE labour law the terminal
gratuity accrues benefit to an employee as follows:
>
21 days per annum for the first five years
of employment
30 days per annum for the remainder of
their employment
>
Directors’ contracts
The policy set out below provides the framework for
contracts for the Executive Directors. It is the Company’s
policy that Executive Directors should have contracts
with a rolling term. Maximum notice period is one year.
Aspect of contract
Policy
Notice period (both parties) 12 calendar months
Termination payment
Up to one times annual
basic salary, plus benefits
but excluding bonus.
The Company may elect
to pay sums in lieu of
notice in three separate
tranches: 50% within
seven working days of
the Termination Date;
25% three months after
the Termination Date; and
25% six months after the
Termination Date
In line with the rules of the
relevant equity incentive
scheme – generally
pro-rated for time and
performance for good
leavers
Based on existing
arrangements and terms
of the UAE Labour Law
with respect to terminal
gratuity
Vesting of long-term
incentive scheme awards
Pension
The benefit accrues for incomplete years on a pro rata
basis, is calculated using the current base salary and
has a maximum benefit amounting to two years of the
annual base salary.
Other remuneration elements
In line with market practice in the U.A.E., the Executive
Directors also receive other benefits including car
The general policy on termination is that the Company
does not make payments beyond its contractual
obligations, i.e. no ex-gratia payments are made. The
Committee will seek to ensure that there have been no
unjustified payments for failure, and as such none of the
Executive Directors’ contracts provides for liquidated
damages, longer periods of notice on a change of
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Lamprell plc Annual report and accounts 2010
control of the Company, or additional compensation on
an Executive Director’s cessation of employment.
The table below sets out the details of the Executive
Directors’ service contracts:
Director
Date of contract
Effective date
Peter Whitbread1 11 September
11 September
2006
2006
Nigel McCue
Scott Doak
16 May 2008
10 December
16 May 2008
1 March 2007
2006
non-executive Directors’ fees and contracts
The Company aims to provide Non-Executive Directors
with fees that are competitive with other companies of
a similar size and complexity. The Company reviewed
the Non-Executive fee structure during 2008 and
determined to operate a fee structure with basic fees
and additional fees for chairing a committee of the
Board. Non-Executive Director fees remained
unchanged in 2010. The table below sets out the
annual fees payable in respect of different roles and
responsibilities:
Chris Hand
26 January 2011 26 January 2011
Fee Category
1 Peter Whitbread retired 7 June 2010.
Outside appointments for Executive Directors
Outside appointments of Lamprell Directors must be
approved by the Board. It is the Company’s policy that
remuneration earned from such appointments may be
kept by the individual Executive Director. The external
appointments of the Directors are noted below.
During 2010 Nigel McCue received CAD 43,687 and
£90,000 and Scott Doak received £10,400 in respect
of these appointments.
Director
Current Directorships
Nigel McCue Dragon Oil Plc
Dragon (Holdings) Limited
Dragon Oil Limited
Dragon Oil (Turkmenistan) Limited
Dragon (Far East) Limited
Dragon Oil (Nominees) Limited
Dragon Resources (Holdings) Limited
Tampimex Oil Trading Limited
D & M Drilling Limited
Frontier Holdings Limited
Frontier Acquisition Company Limited
Jura Energy Corporation
Mavignon Shipping Limited
Nemmoco Petroleum Limited
Scott Doak Caledonian Developments (Dubai) Limited
Caledonian Management (Dubai) Limited
Caledonian Investments (Gulf) Limited
Non-Executive Chairman
Senior Independent Director
Basic Member Fee
Committee Chair Fee (Excluding
Nominations Committee)
£
100,000
75,000
37,750
7,000
Non-Executive Directors are not eligible to participate
in any of the Company’s incentive schemes.
The Non-Executive Directors do not have service
contracts, but instead have specific letters of
appointment which are available upon request.
Non-Executive Directors are appointed for an initial
term of three years, terminable by either the Company
or the Non-Executive Director at will. In normal
circumstances, and subject to performance and
re-election at the Annual General Meeting, the Non-
Executive Directors can be asked to serve additional
three-year terms. Upon termination or resignation,
Non-Executive Directors are not entitled to
compensation and no fee is payable in respect of the
unexpired portion of the term of appointment.
The following table shows the date of the letter of
appointment for each Non-Executive Director:
Non-Executive Director
Date of letter of appointment
Jonathan Silver
Colin Goodall
Richard Raynaut
Brian Fredrick
24 August 2007
14 September 2008
7 July 2006
14 September 2008
For more information visit: www.lamprell.com
50
Lamprell plc Annual report and accounts 2010
Directors’ Remuneration Report
audited information
Annual remuneration
The table below summarises Executive Directors’ remuneration for 2010 and the prior year for comparison.
No payments for loss of office were made during the year to 31 December 2010.
Base salary/
fees
Allowances and
other benefits
Annual bonus
Total
emoluments
2010
Total
emoluments
2009
Executive Directors
Peter Whitbread1
Nigel McCue
Scott Doak
Total
1 Retired 7 June 2010.
Non-Executive Directors
Jonathan Silver
Colin Goodall
Richard Raynaut
Brian Fredrick
Total
$378,001
$785,661
$472,154
$165,024
$150,322
$217,780
$0
$785,661 $1,721,644
$434,381 $1,124,315
$543,025 $1,156,992
$498,904
$476,206
$1,635,816
$533,126 $1,220,042 $3,388,983 $2,132,102
$155,969
$118,608
$70,894
$70,143
$415,614
–
–
–
–
–
–
–
–
–
–
$155,969
$118,608
$70,894
$70,143
$139,208
$134,533
$76,041
$66,368
$415,614
$415,150
Pension equivalents
The table below summarises the Executive Directors’ pension equivalent contributions for the current year, and
the prior year for comparison.
Executive Director
Peter Whitbread
Nigel McCue
Scott Doak
Total
Total 2010
Total 2009
$54,534
$102,761
$59,119
$53,629
$14,688
$34,930
$216,414
$103,247
In accordance with the provisions of IAS 19, management has carried out an exercise to assess the present
value of its obligations at 31 December 2010 and 2009, using the projected unit credit method, in respect of
employees’ end of service benefits payable under the UAE Labour Law. Under this method, an assessment has
been made of an employee’s expected service life with the Group and the expected basic salary at the date of
leaving the service. Management has assumed average increment/promotion costs of 5% (2009: 4% to 5%). The
expected liability at the date of leaving the service has been discounted to its net present value using a discount
rate of 5.25% (2008: 5.75%).
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Lamprell plc Annual report and accounts 2010
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Directors’ interests
The following interests of the Directors of the Company are shown in the table below according with the listing rules.
Executive Directors
Nigel McCue
Scott Doak
Chris Hand1
Non-Executive Directors
Jonathan Silver
Colin Goodall
Richard Raynaut
Brian Fredrick
1 Christopher Hand appointed 26 January 2011.
At 25 March
2011
At 31
December
2010
At 1 January
2010
188,461
130,725
346,533
188,461
130,725
–
188,461
108,000
–
12,673
6,000
–
–
12,673
6,000
–
–
–
6,000
–
–
The table above does not include unvested interests held under the Company’s equity-based incentive schemes.
These interests are set out separately below.
Lamprell Holdings Limited Share Option Plan
Prior to the Company’s listing on the Alternative Investment Market, a one-off grant of options was made
to selected key employees of the Company, including the Executive Directors. These awards, in aggregate,
accounted for approximately 5% of the Company’s share capital, and were satisfied with shares beneficially held
by Steven Lamprell. The awards to the Executive Directors vested immediately on Admission, however, carried
restrictions on how the shares could be disposed over the first two years following Admission. At the date of his
retirement from the Board, on 7 June 2010, Peter Whitbread held an interest in 1,550,000 shares under the
Lamprell Holdings Limited Share Option Plan, all of which were granted on 10 October 2006. There are no
other outstanding awards to Executive Directors under this share plan.
Share awards
On 20 May 2008 Nigel McCue and Scott Doak were granted conditional rights to receive shares at no cost. The
earliest dates that the shares vest under the conditional rights are 20 May 2011 and 10 January 2010 respectively.
Receipt of the shares is conditional upon them remaining in employment with the Company until that date.
The following table sets out the interests of Nigel McCue and Scott Doak in relation to their awards:
Executive Director
Nigel McCue
Scott Doak
At 1 January 2010
Granted in year
Share price at
grant
Date of vesting
Vested
At 31 December
2010
70,000
22,275
nil
nil
£5.25
£4.36
20.05.2011
10.01.2010
nil
22,275
70,000
nil
The share award to Scott Doak vested on 10 January 2010. On vesting an amount of £2,688 was paid which is
equal to the aggregate amount of dividends that would have been paid on the shares to which they are entitled
between the grant date and vesting date.
For more information visit: www.lamprell.com
52
Lamprell plc Annual report and accounts 2010
Directors’ Remuneration Report
Share option awards
On 31 March 2009 Nigel McCue and Scott Doak were granted options under the Executive Share Option Plan
(“ESOP”). The earliest date that they will be entitled to receive the shares under the conditional rights are 31 March
2012. Receipt of the shares is conditional upon them remaining in employment with the Company until that date. In
addition, Scott Doak was also granted an option under the ESOP on 16 May 2007.
The following table sets out the interests of Nigel McCue and Scott Doak in relation to their awards:
Executive Director
Nigel McCue
Scott Doak
Scott Doak
At 1 January
2010
Granted in year
Exercise price at
grant
Date of vesting
Vested
At
31 December
2010
nil
nil
19,585
275,000
275,000
nil
£0.57 31.03.2012
£0.57 31.03.2012
£3.22 16.05.2010
nil
nil
19,585
275,000
275,000
nil
On vesting, the Options become exercisable and, subject to the rules of the Plan, will remain exercisable until
31 March 2019 (being the 10th anniversary of the grant date) for shares granted on 31 March 2009 and exercisable
until 16 May 2017 (being the 10th anniversary of the grant date) for shares granted on 16 May 2007. To the extent
not exercised by those dates, the grants will lapse.
Performance share plan awards
For the year ended 31 December 2009 Nigel McCue and Scott Doak were granted share awards under the PSP.
The earliest date that they will be entitled to receive the shares under the conditional rights is 15 April 2013.
Receipt of the shares is conditional upon them satisfying the performance conditions related to the PSP.
The following table sets out the interests of Nigel McCue and Scott Doak in relation to their awards:
Executive Director
Nigel McCue
Scott Doak
At
31 December
2010
190,211
97,163
Awarded for
2010
Exercise price at
grant
Date of vesting
Vested
–
–
nil 15.04.2013
nil 15.04.2013
nil
nil
Awards will normally vest on the third anniversary of the date of grant of the award, subject to any applicable
performance conditions having been satisfied. If the Company achieves outstanding earnings per share
performance over the performance period then the full award will vest. If threshold levels of performance are
achieved then 25% of the award will vest.
Share price information
On 31 December 2010, the closing price of a Lamprell plc ordinary share was 321.5 pence. The highest and
lowest price of an ordinary share during 2010 was 390 pence and 185.2 pence respectively, based on the
London Stock Exchange Daily Official List.
53
Lamprell plc Annual report and accounts 2010
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tsR performance graph
The graph below sets out the performance of Lamprell’s Total Shareholder Return, comprising share price
growth plus reinvested dividends, relative to the Total Return of the FTSE 250 Index of which the Company is a
constituent. The graph covers time between the date the Company originally listed on the Alternative Investment
Market (10 October 2006) to 31 December 2010. The graphs are not an indication of the likely vesting of awards
granted under any of the Company’s incentive plans.
lamprell – tsR since aim listing
)
0
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Lamprell
FTSE 250
approval
This report has been approved by the Committee, on behalf of the Board, on the date shown below and signed
on the Board’s behalf by:
Brian Fredrick
Chairman of the Remuneration Committee
25 March 2011
For more information visit: www.lamprell.com
54
Lamprell plc Annual report and accounts 2010
Independent Auditor’s Report
to the Members of Lamprell plc
Report on the Financial Statements
We have audited the accompanying financial statements
of Lamprell plc and its subsidiaries ("the Group") which
comprise the consolidated and parent company
balance sheets as of 31 December 2010 and the
consolidated income statement, consolidated statement
of comprehensive income, consolidated and parent
company statements of changes in equity and
consolidated and parent company cash flow statements
for the year then ended and a summary of significant
accounting policies and other explanatory notes.
Directors’ Responsibility for the Financial
Statements
The directors are responsible for the preparation and
fair presentation of these financial statements in
accordance with applicable Isle of Man law and
International Financial Reporting Standards as adopted
by the European Union, and for such internal control
as the directors determine necessary to enable the
preparation of consolidated and parent company
financial statements that are free from material
misstatement, whether due to fraud and error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these
financial statements based on our audit. This report,
including the opinion, has been prepared for and only
for the Company’s members as a body in accordance
with Section 15 of the Isle of Man Companies Act 1982
and for no other purpose. We do not, in giving this
opinion, accept or assume responsibility for any other
purpose or to any other person to whom this report is
shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
We conducted our audit in accordance with
International Standards on Auditing. Those Standards
require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable
assurance whether the financial statements are free
from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in
the financial statements. The procedures selected
depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and
fair presentation of the financial statements in order to
design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the
appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the
directors, as well as evaluating the overall presentation
of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our
audit opinion.
We review whether the Corporate Governance Statement
reflects the company’s compliance with the nine
provisions of the Combined Code (2008) specified for our
review by the Listing Rules of the Financial Services
Authority, and we report if it does not. Under the Listing
Rules we are required to review the directors’ statement
set out on page 35 in relation to going concern. We are
not required to consider whether the board’s statements
on internal control cover all risks and controls, or form an
opinion on the effectiveness of the company’s or group’s
corporate governance procedures or its risk and control
procedures. We also review whether the Directors’
Remuneration Report includes the six disclosures
specified for our review by the Listing Rules of the
Financial Services Authority and we report if it does not.
Opinion
In our opinion:
>
the consolidated financial statements give a true
and fair view of the financial position of the Group as
of 31 December 2010, and of its financial
performance and its cash flows for the year then
ended in accordance with International Financial
Reporting as adopted by the European Union; and
the parent company financial statements give a true
and fair view of the financial position of the company
as of 31 December 2010, and of its cash flows for
the year then ended in accordance with
International Financial Reporting Standards as
adopted by the European Union as applied in
accordance with the provisions of the Isle of Man
Companies Act 1931-2004; and
the financial statements have been properly
prepared in accordance with the Isle of Man
Companies Acts 1931-2004.
>
>
Matters on which we are required to report
by exception
We have nothing to report in respect of the following
matters where the Isle of Man Companies Acts 1931-
2004 require us to report to you if, in our opinion:
>
proper books of account have not been kept by the
parent company or, proper returns adequate for our
audit have not been received from branches not
visited by us; or
the parent company's balance sheet is not in
agreement with the books of account and returns; or
we have not received all the information and
explanations necessary for the purposes of our
audit; and
certain disclosure of directors' loans and remuneration
specified by law have not been complied with.
>
>
>
PricewaterhouseCoopers
David Bruce Churcher
For and on behalf of PricewaterhouseCoopers
Chartered Accountants and Recognised Auditor
Douglas, Isle of Man
25 March 2011
55
Lamprell plc Annual report and accounts 2010
Consolidated income statement
Revenue
Cost of sales
Gross profit
Other operating income
Selling and distribution expenses
General and administrative expenses
Other (losses)/gains – net
Operating profit
Finance costs
Finance income
Profit for the year attributable to the equity holders of the Company
Earnings per share attributable to the equity holders of the Company
Basic
Diluted
The notes on pages 63 to 96 form an integral part of these financial statements.
Year ended 31 December
Note
2010
USD’000
2009
USD’000
5 503,820 425,518
7 (424,112) (363,669)
6
8
10
13
14
79,708
23,925
(1,183)
(32,527)
(1,801)
68,122
(5,088)
2,193
61,849
–
(1,322)
(30,266)
(2,358)
27,903
(925)
1,445
65,227
28,423
32.78c
14.28c
32.56c
14.20c
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For more information visit: www.lamprell.com
56
Lamprell plc Annual report and accounts 2010
Consolidated statement of
comprehensive income
Profit for the year
Other comprehensive income
Currency translation differences
Cash flow hedges:
Net losses arising on hedges recognised in other comprehensive income
Net amount reclassified to the income statement
Other comprehensive income for the year
Total comprehensive income for the year attributable to the equity
holders of the Company
The notes on pages 63 to 96 form an integral part of these financial statements.
Year ended 31 December
Note
2010
USD’000
2009
USD’000
65,227
28,423
31
31
679
145
(304)
170
545
–
–
145
65,772
28,568
57
Lamprell plc Annual report and accounts 2010
Consolidated balance sheet
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Held-to-maturity investment
Derivative financial instruments
Current assets
Inventories
Trade and other receivables
Financial asset at fair value through profit or loss
Cash and bank balances
Total assets
EQUITY AND LIABILITIES
Capital and reserves
Share capital
Legal reserve
Merger reserve
Translation reserve
Hedging reserve
Retained earnings
Total equity
Non-current liabilities
Provision for employees’ end of service benefits
Derivative financial instruments
Current liabilities
Trade and other payables
Borrowings
Total liabilities
Total equity and liabilities
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As at 31 December
Note
2010
USD’000
2009
USD’000
17 113,304
18
2,413
20
6,875
31
2,517
97,690
1,310
–
–
125,109
99,000
9,458
21
43,060
22 251,124 193,776
2,500
23
2,500
67,842
25 210,223
473,305 307,178
598,414 406,178
26
27
29
18,682
33
(22,422)
777
(134)
18,682
31
(22,422)
98
–
287,032 238,401
283,968 234,790
30
31
18,524
2,651
15,150
–
21,175
15,150
32 293,271 124,610
31,628
33
–
293,271 156,238
314,446 171,388
598,414 406,178
The financial statements on pages 55 to 62 were approved and authorised for issue by the Board of Directors on
25 March 2011 and signed on its behalf by:
nigel McCue
Chief Executive Officer and Director
Scott Doak
Chief Financial Officer and Director
The notes on pages 63 to 96 form an integral part of these financial statements.
For more information visit: www.lamprell.com
58
Lamprell plc Annual report and accounts 2010
Company balance sheet
ASSETS
Non-current assets
Investment in subsidiaries
Current assets
Other receivables
Due from related parties
Cash at bank
Total assets
EQUITY AND LIABILITIES
Capital and reserves
Share capital
Other reserve
Retained earnings
Total equity
Non-current liabilities
Provision for employees’ end of service benefits
Current liabilities
Other payables and accruals
Total liabilities
Total equity and liabilities
As at 31 December
Note
2010
USD’000
2009
USD’000
19 750,018 748,401
24
25
17
22,619
189
5
19,193
107
22,825
19,305
772,843 767,706
18,682
26
18,682
28 708,852 708,852
39,018
43,050
770,584 766,552
30
808
592
1,451
2,259
562
1,154
772,843 767,706
The financial statements on pages 55 to 62 were approved and authorised for issue by the Board of Directors on
25 March 2011 and signed on its behalf by:
nigel McCue
Chief Executive Officer and Director
Scott Doak
Chief Financial Officer and Director
The notes on pages 63 to 96 form an integral part of these financial statements.
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59
Lamprell plc Annual report and accounts 2010
Consolidated statement of
changes in equity
Legal
reserve
USD’000
Merger
reserve
USD’000
Translation
reserve
USD’000
Hedging
reserve
USD’000
Retained
earnings
USD’000
Total
USD’000
At 1 January 2009
Profit for the year
Other comprehensive
income:
Currency translation difference
Total comprehensive
income for the year
Transactions with owners:
Share-based payments:
– value of services provided
Treasury shares purchased
Transfer to legal reserve
Dividends
Total transactions with
owners
At 31 December 2009
Profit for the year
Other comprehensive
income:
Currency translation difference
Cash flow hedges
Total comprehensive
income for the year
Transactions with owners:
Share-based payments:
– value of services provided
Treasury shares purchased
Transfer to legal reserve
Dividends
Total transactions with
owners
Note
Share
capital
USD’000
18,682
29
(22,422)
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
2
–
–
–
–
–
–
–
–
18,682
31
(22,422)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
2
–
–
–
–
–
–
–
–
–
9
26
27
12
31
9
26
27
12
(47)
–
145
145
–
–
–
–
–
98
–
– 216,012 212,254
–
–
–
–
–
–
–
–
28,423
28,423
–
145
28,423
28,568
1,941
(1,689)
(2)
(6,284)
1,941
(1,689)
–
(6,284)
(6,034)
(6,032)
– 238,401 234,790
–
65,227
65,227
679
–
–
(134)
–
–
679
(134)
679
(134)
65,227
65,772
–
–
–
–
–
–
–
–
–
–
2,060
(3,475)
(2)
(15,179)
2,060
(3,475)
–
(15,179)
(16,596)
(16,594)
At 31 December 2010
18,682
33
(22,422)
777
(134) 287,032 283,968
The notes on pages 63 to 96 form an integral part of these financial statements.
For more information visit: www.lamprell.com
60
Lamprell plc Annual report and accounts 2010
Company statement of
changes in equity
At 1 January 2009
Total comprehensive income for the year
Transactions with owners:
Share-based payments:
– value of services provided
– investment in subsidiaries
Treasury shares issued
Dividends
Total transactions with owners
At 31 December 2009
Total comprehensive income for the year
Transactions with owners:
Share-based payments:
– value of services provided
– investment in subsidiaries
Treasury shares issued
Dividends
Total transactions with owners
At 31 December 2010
Share
capital
USD’000
Other
reserve
USD’000
Retained
earnings
USD’000
Total
USD’000
Note
18,682 708,852
38,989 766,523
34
9
19
26
12
34
9
19
26
12
–
–
–
–
–
–
–
–
–
–
–
–
6,579
6,579
319
1,622
(2,207)
(6,284)
319
1,622
(2,207)
(6,284)
(6,550)
(6,550)
18,682 708,852
39,018 766,552
–
–
–
–
–
–
–
19,048
19,048
–
–
–
–
–
443
1,617
(1,897)
(15,179)
443
1,617
(1,897)
(15,179)
(15,016)
(15,016)
18,682 708,852
43,050 770,584
The notes on pages 63 to 96 form an integral part of these financial statements.
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61
Lamprell plc Annual report and accounts 2010
Consolidated cash flow statement
Operating activities
Profit for the year
Adjustments for:
Share-based payments – value of services provided
Depreciation
Amortisation of intangible assets
Loss/(profit) on disposal of property, plant and equipment
Gain on cancellation of a contract
Fair value loss on financial asset at fair value through profit or loss
Provision for slow moving and obsolete inventories
Provision for impairment of trade receivables, net
Provision for employees’ end of service benefits
Finance costs
Finance income
Operating cash flows before payment of employees’ end
of service benefits and changes in working capital
Payment of employees’ end of service benefits
Changes in working capital:
Inventories before movement in provision
Trade and other receivables before movement in provision
for impairment of trade receivables
Trade and other payables excluding unpaid dividend
Derivative financial instruments
Financial asset at fair value through profit or loss before fair value adjustment
Net cash generated from/(used in) operating activities
Investing activities
Additions to property, plant and equipment
Proceeds from sale of property, plant and equipment
Additions to intangible assets
Held-to-maturity investment
Finance income
Deposit with original maturity of more than three months
Movement in margin deposits
Net cash used in investing activities
Financing activities
Treasury shares purchased
Dividends paid
Borrowings – revolving facility
Finance costs
Net cash (used in)/generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Exchange rate translation
Year ended 31 December
Note
2010
USD’000
2009
USD’000
9
17
18
13
6
23
21
15
30
65,227
28,423
2,060
13,694
88
562
(23,925)
–
682
202
4,446
5,088
(2,193)
1,941
13,186
90
(33)
–
2,500
207
100
3,173
925
(1,445)
65,931
(1,072)
49,067
(2,352)
30
21
32,920
(22,761)
23
17
18
20
25
25
26
12
33
95,936
(37,908)
172,927 (138,854)
50
(5,000)
–
–
232,798
(23,914)
(29,724)
89
(1,191)
(6,875)
2,193
(63,599)
(300)
(18,483)
92
–
–
1,445
(3,847)
695
(99,407)
(20,098)
(3,475)
(15,162)
(22,547)
(5,088)
(1,689)
(6,259)
11,854
(925)
(46,272)
2,981
87,119
49,241
444
(41,031)
90,225
47
Cash and cash equivalents, end of the year
25 136,804
49,241
The notes on pages 63 to 96 form an integral part of these financial statements.
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62
Lamprell plc Annual report and accounts 2010
Company cash flow statement
Operating activities
Profit for the year
Adjustments for:
Share-based payments – value of services provided
Provision for employees’ end of service benefits
Dividends received from LEL
Operating cash flows before payment of employees’ end of service benefits and
changes in working capital
Payment of employees’ end of service benefits
Changes in working capital:
Other receivables
Other payables and accruals
Due from related parties
Net cash generated from operating activities
Investing activities
Dividends received from LEL
Net cash generated from investing activities
Financing activities
Treasury shares issued
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
The notes on pages 63 to 96 form an integral part of these financial statements.
Year ended 31 December
Note
2010
USD’000
2009
USD’000
9
30
30
24
19,048
6,579
443
216
(15,169)
319
103
(6,284)
4,538
–
717
(269)
(12)
889
(3,426)
25
(1,928)
3,644
1,989
2,189
15,169
15,169
6,284
6,284
26
12
(1,897)
(15,179)
(2,207)
(6,284)
(17,076)
(8,491)
82
107
189
(18)
125
107
25
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63
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
1 Legal status and activities
Lamprell plc (the “Company”) was incorporated and registered on 4 July 2006 in the Isle of Man as a public
company limited by shares under the Isle of Man Companies Acts with the registered number 117101C. The
Company acquired 100% of the legal and beneficial ownership in Lamprell Energy Limited (“LEL”) from Lamprell
Holdings Limited (“LHL”), under a share for share exchange agreement dated 25 September 2006 and this
transaction was accounted for in the consolidated financial statements using the uniting of interests method
(Note 29). The Company was admitted to the Alternative Investment Market (“AIM”) of the London Stock
Exchange with effect from 16 October 2006. From 6 November 2008, the Company moved from AIM and was
admitted to trading on the London Stock Exchange (“LSE”) plc’s main market for listed securities. The address of
the registered office of the Company is Fort Anne, Douglas, Isle of Man and the Company is managed from the
United Arab Emirates (“UAE”). The address of the principal place of the business is PO Box 33455, Dubai, UAE.
The principal activities of the Company and its subsidiaries (together referred to as the “Group”) are: the upgrade
and refurbishment of offshore jackup rigs; fabrication; assembly and new build construction for the offshore oil
and gas and renewable sector, including jackup rigs and liftboats; Floating Production, Storage and Offloading
(“FPSO”) and other offshore and onshore structures; and oilfield engineering services, including the upgrade and
refurbishment of land rigs.
The Company has either directly or indirectly the following subsidiaries:
Name of the subsidiary
Lamprell Energy Limited
Lamprell Dubai LLC (“LD”)
Lamprell Sharjah WLL (“LS”)
Maritime Offshore Limited (“MOL”)
Maritime Offshore Construction Limited
(“MOCL”)
International Inspection Services Limited
(“Inspec”)
Cleopatra Barges Limited (“CBL”)
Lamprell plc employee benefit trust
(“EBT”)
Jebel Ali Investments Limited (“JIL”)
Lamprell Energy FZCO (“LE FZCO”)
Lamprell Asia Limited (“LAL”)
Percentage
of legal
ownership
%
Percentage
of beneficial
ownership
%
Country of
incorporation
100
49*
49*
100
100
100
100
100
100
90+
100++
Isle of Man
100
100 UAE
100 UAE
100
Isle of Man
100
Isle of Man
Isle of Man
100
100 British Virgin Islands
† Unincorporated
100 British Virgin Islands
100 UAE
100
Thailand
*
The balance of 51% in each case is registered in the name of a UAE National who has assigned all the economic benefits attached to his shareholding to the
Group entity. LEL has the power to exercise control over the financial and operating policies of the entities incorporated in the UAE through management
agreements and accordingly, these entities are consolidated as wholly owned subsidiaries in these consolidated financial statements. The UAE National
shareholders of these entities receive sponsorship fees from the Group (Note 24).
The beneficiaries of the EBT are the employees of the Group.
†
+ A UAE free zone company (“FZCO”) is required to have a minimum of two shareholders and consequently, the balance of 10% is held by an employee of LEL
in trust for the beneficial interest of the Group.
++ A Thailand registered company is required to have a minimum of three shareholders and consequently, of the total 867,000 shares, 2 shares are held by
employees of the Lamprell plc Group in trust for the beneficial interest of the Group and the balance of 866,998 shares are held by LE FZCO.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated and parent company financial
statements are set out below. These policies have been consistently applied to all the years presented, unless
otherwise stated.
2.1 Basis of preparation
The consolidated financial statements of the Group and the financial statements of the parent Company have
been prepared in accordance with International Financial Reporting Standards as adopted by the European
Union (“IFRS”), International Financial Reporting Interpretations Committee interpretations (“IFRIC”) and the Isle of
Man Companies Acts 1931-2004. In accordance with the provisions of the Isle of Man Companies Act 1982, the
Company has not presented its own income statement. After making enquiries, the Directors have a reasonable
For more information visit: www.lamprell.com
64
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
2 Summary of significant accounting policies (continued)
expectation that the Group has adequate resources to continue in operational existence for the foreseeable
future. The Group therefore continues to adopt the going concern basis in preparing its financial statements.
The financial statements have been prepared under the historical cost convention, except as disclosed in the
accounting polices below.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Group’s
accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions
and estimates are significant to the consolidated and parent company financial statements are disclosed in
Note 4.
(a) New and amended standards, and interpretations mandatory for the first time for the financial year
beginning 1 January 2010 but not currently relevant to the Group
IFRS 2 (amendments), “Group Cash-Settled Share-Based Payment Transactions”, effective from 1 January 2010.
In addition to incorporating IFRIC 8, “Scope of IFRS 2”, and IFRIC 11, “IFRS 2 – Group and Treasury Share
Transactions”, the amendments expand on the guidance in IFRIC 11 to address the classification of Group
arrangements that were not covered by that interpretation.
IFRS 3 (revised), “Business Combinations”, and Consequential Amendments to IAS 27, “Consolidated and
Separate Financial Statements”, IAS 28, “Investments In Associates”, and IAS 31, “Interests in Joint Ventures”,
are effective prospectively to business combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after 1 July 2009. The revised standard continues to apply the
acquisition method to business combinations but with some significant changes compared with IFRS 3. For
example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent
payments classified as debt subsequently remeasured through the statement of comprehensive income. There is
a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at
fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-
related costs should be expensed. This revised IFRS is currently not applicable to the Group, as the Group has
no such business combinations.
IFRS 5 (amendment), “Non-Current Assets Held For Sale and Discontinued Operations”. The amendment clarifies
that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified
as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in
particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty)
of IAS 1.
IAS 1 (amendment), “Presentation of financial statements”. The amendment clarifies that the potential settlement
of a liability by the issue of equity is not relevant to its classification as current or non-current. By amending the
definition of current liability, the amendment permits a liability to be classified as non-current (provided that the
entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after
the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in
shares at any time.
IAS 27 (revised), “Consolidated and Separate Financial Statements”, effective 1 July 2010. The revision requires
the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control
and these transactions will no longer result in goodwill on acquisitions from non-controlling interests or gains and
losses on disposals to non-controlling interests. The standard also specifies the accounting when control is lost.
Any remaining interest in the entity is remeasured to fair value, and a gain or loss is recognised in profit or loss.
The revision is currently not applicable to the Group, as there are no non-controlling interests.
IAS 36 (amendment), “Impairment of Assets”, effective 1 January 2010. The amendment clarifies that the largest
cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment
testing is an operating segment, as defined by paragraph 5 of IFRS 8, “Operating Segments” (that is, before the
aggregation of segments with similar economic characteristics).
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2 Summary of significant accounting policies (continued)
IAS 38 (amendment), “Intangible Assets”, effective 1 January 2010. The amendment clarifies guidance in
measuring the fair value of an intangible assets acquired in a business combination and permits the grouping
of intangible assets as a single asset if each asset has similar useful economic lives.
IFRIC 9, “Reassessment of Embedded Derivatives and IAS 39, Financial Instruments: Recognition and
Measurement”, effective 1 July 2009. This amendment to IFRIC 9 requires an entity to assess whether an
embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial
asset out of the “Fair value through profit or loss” category. This assessment is to be made based on
circumstances that existed on the later of the date the entity first became a party to the contract and the date of
any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make
this assessment, the hybrid instrument must remain classified as at fair value through profit or loss in its entirety.
IFRIC 16, “Hedges of a Net Investment in a Foreign Operation” effective 1 July 2009. This amendment states that,
in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or
entities within the Group, including the foreign operation itself, as long as the designation, documentation and
effectiveness requirements of IAS 39 that relate to a net investment hedge are satisfied. In particular, the Group
should clearly document its hedging strategy because of the possibility of different designations at different levels
of the Group.
IFRIC 17, “Distribution of Non-Cash Assets to Owners” (effective on or after 1 July 2009). The interpretation was
published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an
entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has
also been amended to require that assets are classified as held for distribution only when they are available for
distribution in their present condition and the distribution is highly probable.
IFRIC 18, “Transfers of Assets from Customers”, effective for transfer of assets received on or after 1 July 2009.
This interpretation clarifies the requirements of IFRSs for agreements in which an entity receives from a customer
an item of property, plant and equipment that the entity must then use either to connect the customer to a
network or to provide the customer with ongoing access to a supply of goods or services (such as a supply
of electricity, gas or water). In some cases, the entity receives cash from a customer that must be used only to
acquire or construct the item of property, plant, and equipment in order to connect the customer to a network
or provide the customer with ongoing access to a supply of goods or services (or to do both).
(b) New standards, amendments and interpretations issued but not effective for the financial year beginning
1 January 2010 and not early adopted
The Group’s and parent entity’s assessment of the impact of these new standards and interpretations is set
out below.
IFRS 9, “Financial Instruments”, issued in November 2009. This standard is the first step in the process to
replace IAS 39, “Financial Instruments: Recognition and Measurement”. IFRS 9 introduces new requirements
for classifying and measuring financial assets and is likely to affect the Group’s accounting for its financial assets.
The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has
not yet been endorsed by the EU. The Group will apply IFRS 9 from 1 January 2013, subject to EU endorsement.
IAS 24 (revised), “Related Party Disclosures”, issued in November 2009. It supersedes IAS 24, “Related party
disclosures”, issued in 2003. IAS 24 (revised) is mandatory for periods beginning on or after 1 January 2011.
Earlier application, in whole or in part, is permitted. However, the standard has not yet been endorsed by the
EU. The revised standard clarifies and simplifies the definition of a related party and removes the requirement
for government-related entities to disclose details of all transactions with the government and other
government-related entities. The Group will apply the revised standard from 1 January 2011. When the revised
standard is applied, the Group and the parent will need to disclose any transactions between its subsidiaries
and its associates. The Group is currently putting systems in place to capture the necessary information. It is,
therefore, not possible at this stage to disclose the impact, if any, of the revised standard on the related party
disclosures. The Group will apply IAS 24 (revised) from 1 January 2011, subject to EU endorsement.
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66
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
2 Summary of significant accounting policies (continued)
“Classification of Rights Issues” (amendment to IAS 32), issued in October 2009. The amendment applies to
annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses
the accounting for rights issues that are denominated in a currency other than the functional currency of the
issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the
currency in which the exercise price is denominated. Previously, these issues had to be accounted for as
derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 “Accounting Policies,
Changes in Accounting Estimates and Errors”. The Group will apply the amended standard from 1 January 2011.
“Prepayments of a Minimum Funding Requirement” (amendments to IFRIC 14). The amendments correct
an unintended consequence of IFRIC 14, “IAS 19 – The limit on a defined benefit asset, minimum funding
requirements and their interaction”. Without the amendments, entities are not permitted to recognise as an
asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14
was issued, and the amendments correct this. The amendments are effective for annual periods beginning
1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the
earliest comparative period presented. The Group will apply these amendments for the financial reporting period
commencing on 1 January 2011 but it is not expected that these amendments will have any impact on the Group
or the parent entity’s financial statements.
IFRIC 19, “Extinguishing Financial Liabilities with Equity Instruments”, effective 1 July 2010. The interpretation
clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity
issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity
swap). It requires a gain or loss to be recognised in profit or loss, which is measured as the difference between
the carrying amount of the financial liability and the fair value of the equity instruments issued. If the fair value of
the equity instruments issued cannot be reliably measured, the equity instruments should be measured to reflect
the fair value of the financial liability extinguished. The Group will apply the interpretation from 1 January 2011,
subject to endorsement by the EU. It is not expected to have any impact on the Group or the parent entity’s
financial statements. The Group will apply IFRIC 19 subject to EU endorsement.
2.2 Revenue recognition
(a) Contract revenue
Contract revenue is recognised under the percentage-of-completion method. When the outcome of the contract
can be reliably estimated, revenue is recognised by reference to the proportion that accumulated costs up to the
year end bear to the estimated total costs of the contract. When the contract is at an early stage and its outcome
cannot be reliably estimated, revenue is recognised to the extent of costs incurred up to the year end which are
considered recoverable.
Revenue related to variation orders is recognised when it is probable that the customer will approve the variation
and the amount of revenue arising from the variation can be reliably measured.
A claim is recognised as contract revenue when settled or when negotiations have reached an advanced stage
such that it is probable that the customer will accept the claim and the amount can be measured reliably.
Losses on contracts are assessed on an individual contract basis and provision is made for the full amount of the
anticipated losses, including any losses relating to future work on a contract, in the period in which the loss is
first foreseen.
The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against
progress billings at the year end. Where the sum of the costs incurred and recognised profit or recognised loss
exceeds the progress billings, the balance is shown under trade and other receivables as amounts recoverable
on contracts. Where the progress billings exceed the sum of costs incurred and recognised profit or recognised
loss, the balance is shown under trade and other payables as amounts due to customers on contracts.
In determining contract costs incurred up to the year end, any amounts incurred including advances paid to
suppliers and advance billings received from sub-contractors relating to future activity on a contract are excluded
and are presented as contract work-in-progress.
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2 Summary of significant accounting policies (continued)
(b) Inspection services
Revenue from inspection services is recognised when the services have been rendered; the customer has
accepted the service and the collectability of the related receivable are reasonably assured.
(c) Interest income
Interest income is recognised on a time proportion basis using the effective interest rate method.
2.3 Consolidation
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies
generally accompanying a shareholding of more than one half of the voting rights.
The Group uses the acquisition method of accounting to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and
the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or
liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group
recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's
proportionate share of the acquiree's net assets.
Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in
consideration arising from contingent consideration amendments. Cost also includes directly attributable costs
of investment.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of
the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the
subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the consolidated
statement of comprehensive income.
Business combinations involving entities under common control do not fall within the scope of IFRS 3. Consequently,
the Directors have a responsibility to determine a suitable accounting policy. The Directors have decided to follow
the uniting of interests method for accounting for business combinations involving entities under common control.
Under the uniting of interests method, there is no requirement to fair value the assets and liabilities of the acquired
entities and hence no goodwill is created as balances remain at book value. Consolidated financial statements
include the profit or loss and cash flows for the entire year (pre- and post-merger) as if the subsidiary had always
been part of the Group. The aim is to show the combination as if it had always been combined.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are
eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred.
Accounting policies of subsidiaries have been changed or adjustments have been made to the financial
statements of subsidiaries, where necessary, to ensure consistency with the policies adopted by the Group.
2.4 Investment in subsidiaries
In the Company’s separate financial statements, the investment in subsidiaries is stated at cost less provision for
impairment. Cost is the amount of cash paid or the fair value of the consideration given to acquire the investment.
Income from such investments is recognised only to the extent that the Company receives distributions from
accumulated profits of the investee company arising after the date of acquisition. Distributions received in excess
of such profit i.e. from pre-acquisition reserves are regarded as a recovery of investment and are recognised as a
reduction of the cost of the investment.
2.5 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (the “functional currency”). The Group’s activities are
primarily carried out from the UAE and its currency the UAE Dirham, which is pegged to the US Dollar, is the
functional currency of all the entities in the Group (except LAL whose functional currency is the Thailand Baht and
the EBT whose functional currency is the British Pound). The consolidated and parent company financial
statements are presented in US Dollars.
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68
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
2 Summary of significant accounting policies (continued)
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the consolidated income statement, except when deferred into other
comprehensive income as qualifying cash flow hedges.
(c) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
>
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that
balance sheet;
income and expenses for each income statement are translated at average exchange rates for the year; and
all resulting exchange differences are recognised as a separate component of equity.
>
>
On consolidation, exchange differences arising from the translation of the net investment in foreign operations,
are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, exchange
differences that were recorded in equity are recognised in the consolidated statement of comprehensive income
as part of the gain or loss on sale.
2.6 Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. The cost of property, plant and
equipment is the purchase cost, together with any incidental expenses of acquisition. Depreciation is calculated
on a straight-line basis over the expected useful economic lives of the assets as follows:
Buildings and infrastructure
Operating equipment
Fixtures and office equipment
Motor vehicles
Years
10–25
3–10
3–5
5
The assets’ residual values, if significant, and useful lives are reviewed and adjusted if appropriate, at each
balance sheet date. Subsequent costs are included in the asset’s carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All repairs and maintenance are charged to the
consolidated income statement during the financial period in which they are incurred.
Capital work-in-progress is stated at cost. When commissioned, capital work-in-progress is transferred to
property, plant and equipment and depreciated in accordance with Group policies.
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down
immediately to its recoverable amount (Note 2.21).
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
recognised within “other (losses)/gains – net” in the income statement.
2.7 Intangible assets
Intangible assets representing operating leasehold rights are carried at cost (being the fair value on the date of
acquisition where intangibles are acquired in a business combination) less accumulated amortisation and
impairment, if any. Amortisation is calculated using the straight-line method to allocate the cost of the leasehold
right over its estimated useful life (17 years).
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2 Summary of significant accounting policies (continued)
Work-in-progress is stated at cost. When commissioned, work-in-progress is transferred to software and
amortised in accordance with Group policies.
2.8 Inventories
Inventories comprise raw materials and consumables which are stated at the lower of cost and estimated net
realisable value. Cost is determined on the weighted average basis and comprises direct purchase and other
costs incurred in bringing the inventories to their present location and condition.
2.9 Trade receivables
Trade receivables are amounts receivable from customers for billing in the ordinary course of business for
construction contracts, rig refurbishment and inspection services performed. If collection is expected in one year
or less they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will not be able to collect all amounts due according
to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will
enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators
that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted at the effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the
loss is recognised in the consolidated income statement within “general and administrative expenses”. When a
trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent
recoveries of amounts previously written off are credited against “general and administrative expenses” in the
consolidated income statement.
2.10 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or
less. If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method.
2.11 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past
events, it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate of the amount of the obligation can be made.
2.12 Employee benefits
(a) Provision for staff benefits
A provision is made for the estimated liability for employees’ entitlements to annual leave and related benefits as a
result of services rendered by the employees up to the balance sheet date. Provision is also made, using actuarial
techniques, for the end of service benefits due to employees in accordance with the UAE Labour Law for their
periods of service up to the balance sheet date. The provision relating to annual leave and leave passage is
disclosed as a current liability and included in trade and other payables, while that relating to end of service
benefits is disclosed as a non-current liability.
Actuarial gains and losses arising from changes in assumptions are charged or credited in the consolidated
income statement in the period in which they arise.
For more information visit: www.lamprell.com
70
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
2 Summary of significant accounting policies (continued)
(b) Share-based payments
The Group operates a number of equity-settled, share-based compensation plans. The fair value of the employee
services received in exchange for the grant of the shares/options is recognised as an expense. The total amount
to be expensed over the vesting period is determined by reference to the fair value of the shares/options granted,
excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets).
Non-market vesting conditions are included in assumptions about the number of shares/options that are
expected to vest. At each balance sheet date, the entity revises its estimates of the number of shares/options that
are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement,
with a corresponding adjustment to Retained earnings.
The Company has granted rights to its equity instruments to the employees of subsidiary companies conditional
upon the completion of continuing service with the Group for a specified period. The total amount of the grant
over the vesting period is determined by reference to the fair value of the equity instruments granted and is
recognised in each period as an increase in the investment in the subsidiary with a corresponding credit to
Retained earnings. In the separate financial statements of the subsidiary, the fair value of the employee services
received in exchange for the grant of the equity instruments of the Company (i.e. parent) is recognised as an
expense with a corresponding credit to Equity.
2.13 Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under operating leases (net of any incentives received from the
lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease.
2.14 Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, current accounts with banks less margin deposits, other
short-term highly liquid investments with original maturity of three months or less and bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities on the balance sheet.
2.15 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently
stated at amortised cost; any difference between the proceeds (net of transaction costs) and the repayment value
is recognised in the consolidated statement of comprehensive income over the period of the borrowings using
the effective interest method. The Group capitalises borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset as part of the cost of that asset. The Group previously recognised
all borrowing costs as an expense.
2.16 Dividend distribution
Dividend distributions are recognised as a liability in the Group’s consolidated and parent company financial
statements in the period in which the dividends are approved by the shareholders.
2.17 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and
accessing performance of the operating segments, has been identified as the Executive Directors that make
strategic decisions.
2.18 Taxation
The Company, which is incorporated in the Isle of Man is taxable at 0% in the Isle of Man.
The Group is subject to income tax in respect of its operations through LAL in Thailand which was incorporated
in May 2009. However, LAL has been granted the “Investment promotion certificate” (effective 25 November
2009) which exempts LAL from Corporate Income Tax on net profit derived from the promoted activity for a
period of eight years.
The Group is not currently subject to income tax in respect of its operations carried out in the UAE.
71
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2 Summary of significant accounting policies (continued)
2.19 Financial assets
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and
receivables and held-to-maturity. Currently, the Group does not have any available-for-sale financial assets. The
classification depends on the purpose for which the financial assets were acquired. Management determines the
classification of its financial assets at initial recognition.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is
classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also
categorised as held for trading unless they are designated as hedges. Assets in this category are classified as
current assets.
Financial assets carried at fair value through profit or loss is initially recognised at fair value and transaction costs are
expensed in the consolidated income statement. Financial assets are derecognised when the rights to receive cash
flows from the investments have expired or have been transferred and the Group has transferred substantially all
risks and rewards of ownership.
Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss”
category are presented in the consolidated income statement within “other (losses)/gains – net” in the period in
which they arise.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. They are included in current assets, except for maturities greater than 12 months after the
balance sheet date. These are classified as non-current assets. The Group’s loans and receivables comprise
trade receivables (Note 2.9), other receivables (excluding prepayments) and cash and cash equivalents (Note 2.14)
in the Group balance sheet and amounts due from related parties (Note 24) and cash at bank (Note 25) in the
Company balance sheet.
Loans and receivables are initially measured at fair value plus transaction costs and subsequently carried
at amortised cost less provision for impairment. The amortised cost is computed using the effective
interest method.
Loans and receivables are derecognised when the rights to receive cash flows from the counterparty have
expired or have been transferred and the Group has transferred substantially all risks and rewards of
the ownership.
(c) Held-to-maturity
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed
maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group
were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be
tainted and reclassified as available for sale. Held-to-maturity financial assets are included in non-current assets,
except for those with maturities less than 12 months from the end of the reporting period, which are classified as
current assets.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a
group of financial assets is impaired.
2.20 Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on
whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The
Group designates certain derivatives as hedges of a particular risk associated with a recognised asset or liability
or a highly probable forecast transaction (cash flow hedge).
For more information visit: www.lamprell.com
72
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
2 Summary of significant accounting policies (continued)
The Group documents at the inception of the transaction the relationship between hedging instruments
and hedged items, as well as its risk management objectives and strategy for undertaking various hedging
transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair
values or cash flows of hedged items.
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 31. The full fair
value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is
more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less
than 12 months.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is
recognised immediately in the consolidated income statement within “other (losses)/gains-net”.
Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit
or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the ineffective
portion is recognised in the consolidated income statement within “other (losses)/gains-net”. However, when the
forecast transaction that is hedged results in the recognition of a non-financial asset (for example, contracts
work-in-progress or fixed assets), the gains and losses previously deferred in equity are transferred from equity
and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised
in cost of goods sold in the case of contracts work in progress or in depreciation in the case of fixed assets.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when
the forecast transaction is ultimately recognised in the consolidated income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately
transferred to the consolidated income statement within “other (losses)/gains-net”.
2.21 Impairment of non-financial assets
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for
the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of an asset’s fair value less cost to sell and its value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating
units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at
each reporting date. Any material impairment loss is recognised in the consolidated income statement and
separately disclosed.
2.22 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration
paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity
attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such shares are
subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs
and the related income tax effects, is included in equity attributable to the Company’s equity holders.
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3 Financial risk management
3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange, cash flow
interest rate risk), credit risk and liquidity risk. These risks are evaluated by management on an ongoing basis
to assess and manage critical exposures. The Group’s liquidity and market risks are managed as part of the
Group’s treasury activities. Treasury operations are conducted within a framework of established policies
and procedures.
(a) Market risk – foreign exchange risk
The Group has foreign exchange risk primarily with respect to commitments in Euro with certain suppliers. To
manage the foreign exchange risk exposure arising from future commercial transactions and recognised liabilities,
the Group uses forward exchange contracts (Note 31).
(b) Market risk – cash flow interest rate risk
The Group holds its surplus funds in short-term bank deposits. During the year ended 31 December 2010, if
interest rates on deposits had been 0.5% higher/lower, the interest income would have been higher/lower by
USD 527,000 (2009: USD 293,000).
The Group does not have any long-term borrowings and does not have significant interest rate risk exposure on
bank overdrafts and revolving term facilities.
(c) Credit risk
The Group’s exposure to credit risk is detailed in Notes 16, 20, 22, 23, 25 and 31. The Group has a policy for
dealing with customers with an appropriate credit history. The Group has policies that limit the amount of credit
exposure to any financial institution.
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, deposits with banks,
held-to-maturity investment, investment carried at fair value through profit or loss and trade receivables. The
Group has a formal procedure of monitoring and follow up of customers for outstanding receivables. For banks
and financial institutions, only independently rated parties with a minimum rating of “A” are accepted. The Group
assesses internally the credit quality of each customer, taking into account its financial position, past experience
and other factors.
At 31 December 2010, the Group had a significant concentration of credit risk with nine of its largest customer
balances accounting for 72% (2009: 82%) of trade receivables outstanding at that date. Management believes
that this concentration of credit risk is mitigated as the Group has long-standing relationships with
these customers.
The table below shows the rating and balance of the 13 major counterparties at the balance sheet date.
Counterparty
Bank A*
Bank B
Bank C
Bank D
Includes USD 6.9 million (2009: Nil) with respect to held-to-maturity investment (Note 20).
*
+ Based on Standard & Poor’s/Fitch long-term ratings.
2010
External
rating+
AA
A+
A+
A+
USD’000
71,848
65,813
43,213
34,847
215,721
2009
External
rating+
AA+
A+
A+
A
USD’000
5,281
5,153
734
56,283
67,451
For more information visit: www.lamprell.com
74
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
3 Financial risk management (continued)
Customer 1
Customer 2
Customer 3
Customer 4
Customer 5
Customer 6
Customer 7
Customer 8
Customer 9
2010
2009
Internal
rating++
USD’000
Internal
rating++
Group B
Group A
Group B
Group C
Group B
Group A
Group C
Group B
Group C
11,455 Group A
6,669 Group A
5,803 Group C
4,340 Group B
3,354 Group C
2,376 Group B
1,973 Group A
1,755 Group B
1,713 Group C
39,438
USD’000
60,000
11,535
6,247
5,189
3,459
3,330
3,283
3,078
2,773
98,894
++ Refer to Note 16 for the description of internal ratings.
The counterparties in 2010 are not necessarily the same counterparties in 2009.
Management does not expect any losses from non-performance by these counterparties, except for one
customer with a balance of USD 2.8 million at 31 December 2010 and 31 December 2009 which has been fully
provided for.
(d) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an
adequate amount of committed credit facilities. Due to the nature of the underlying business and through
progress billings, the Group maintains adequate bank balances to fund its operations.
Management monitors the forecast of the Group’s liquidity position on the basis of expected cash flow.
The Group's liquidity risk on derivative financial instruments is disclosed in Note 31.
The Group is currently financed from Shareholders’ equity. The table below analyses the Group’s other financial
liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the
contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows
Carrying
amount
USD’000
Contractual
cash flows
USD’000
Less than
one year
USD’000
One to two
years
USD’000
31 December 2010
Trade and other payables (excluding due to customers on contracts,
advances received for contract work and dividend payable) (Note 32)
149,677 149,677 149,677
31 December 2009
Trade and other payables (excluding due to customers on contracts,
advances received for contract work and dividend payable) (Note 32)
Borrowings (Note 33)
104,393 104,393 104,393
31,628
31,770
31,628
136,021 136,163 136,021
–
–
–
–
3.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an
optimal capital structure. Total capital for the Group and the Company is calculated as “total equity” as shown
in the consolidated balance sheet and in the Company balance sheet respectively.
75
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3 Financial risk management (continued)
Presently, the Group has a dividend policy which takes into account the Group’s capital requirements, cash flows
and earnings.
At the balance sheet date, the Group has no net debt and was therefore un-geared.
3.3 Fair value estimation
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have
been defined as follows:
a. Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
b. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
c. Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
(Level 3).
The following table presents the Group’s assets and liabilities that are measured at fair value at
31 December 2010.
Assets
Financial assets at fair value through profit or loss (Note 23)
Derivatives used for hedging (Note 31)
Total assets
Liabilities
Derivatives used for hedging (Note 31)
Total liabilities
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
–
–
–
–
–
–
2,517
2,517
2,651
2,651
2,500
–
2,500
–
–
2,500
2,517
5,017
2,651
2,651
The following table presents the Group’s assets and liabilities that are measured at fair value at
31 December 2009.
Assets
Financial assets at fair value through profit or loss (Note 23)
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
–
–
2,500
2,500
The fair value of financial instruments that are not traded in an active market is determined by using valuation
techniques. These valuation techniques maximise the use of observable market data where it is available and rely
as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2. If one or more of the significant inputs is not based on
observable market data, the instrument is included in level 3.
Specific valuation techniques used to value financial instruments include:
a. Quoted market prices or dealer quotes for similar instruments; and
b. Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining
financial instruments.
4 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
For more information visit: www.lamprell.com
76
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
4 Critical accounting estimates and judgements (continued)
4.1 Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
as follows:
Revenue recognition
The Group uses the percentage-of-completion method in accounting for its contract revenue. Use of the
percentage-of-completion method requires the Group to estimate the stage of completion of the contract to date
as a proportion of the total contract work to be performed in accordance with the accounting policy set out in
Note 2.2. As a result, the Group is required to estimate the total cost to completion of all outstanding projects at
each period end. The application of a 10% sensitivity to management estimates of the total costs to completion
of all outstanding projects at the year end would result in the revenue and profit increasing by USD 12.1 million
(2009: USD 4.7 million) if the total costs to completion are decreased by 10% and the revenue and profit
decreasing by USD 10.7 million (2009: USD 4.4 million) if the total costs to completion are increased by 10%.
Employees’ end of service benefits
The rate used for discounting the employees’ post employment defined benefit obligation should be based on
market yields on high quality corporate bonds. In countries where there is no deep market in such bonds, the
market yields on government bonds should be used. In the UAE, there is no deep market either for corporate or
government bonds and therefore, the discount rate has been estimated using the US AA-rated corporate bond
market as a proxy. On this basis, the discount rate applied was 5.25% (2009: 5.75%). If the discount rate used
was to differ by 0.5 points from management’s estimates, the carrying amount of the employee’s end of the
service benefits provision at the balance sheet date would be an estimated USD 0.6 million (2009: USD 0.5
million) lower or USD 0.7 million (2009: USD 0.5 million) higher.
5 Segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker has been identified as the Executive Directors who
make strategic decisions. The Executive Directors review the Group’s internal reporting in order to assess
performance and allocate resources. Management has determined the operating segments based on
these reports.
The Executive Directors consider the business mainly on the basis of the facilities from where the services are
rendered. Management considers the performance of the business from Sharjah (“SHJ”), Hamriyah (“HAM”),
Jebel Ali (“JBA”) and Thailand (“THL”) in addition to the performance of Oil Field Engineering (“OFE”) and
International Inspection Services Limited (“Inspec”).
SHJ, HAM, JBA and OFE meet all the aggregation criteria required by IFRS 8 and are reported as a single
segment (“Segment A”). Services provided from Inspec and THL do not meet the quantitative thresholds required
by IFRS 8, and the results of these operations are included in the “all other segments” column.
The reportable operating segments derive their revenue from the upgrade and refurbishment of offshore jackup
rigs, fabrication, assembly and new build construction for the offshore oil and gas sector, including FPSO and
other offshore and onshore structures, oilfield engineering services, including the upgrade and refurbishment of
land rigs.
Inspec derives its revenue from various services such as non-destructive pipeline testing, ultrasonic testing and
heat treatment. THL derives its revenue from the upgrade and refurbishment of offshore jackup rigs, fabrication,
assembly and new build construction for the offshore oil and gas sector and other offshore structures.
77
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5 Segment information (continued)
Year ended 31 December 2010
Total segment revenue
Inter-segment revenue
Revenue from external customers
Gross operating profit
Year ended 31 December 2009
Total segment revenue
Inter-segment revenue
Revenue from external customers
Gross operating profit
Segment A
USD’000
All other
segments
USD’000
Total
USD’000
490,349
–
15,947 506,296
(2,476)
(2,476)
490,349
13,471 503,820
93,643
2,176
95,819
406,425
–
20,232 426,657
(1,139)
(1,139)
406,425
19,093 425,518
75,973
5,927
81,900
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 staff, equipment and certain subcontract 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 reconciliation of the gross profit is provided as follows:
Gross operating profit for the reportable segments as reported to the Executive Directors
Gross operating profit for other segments as reported to the Executive Directors
Unallocated:
Finance cost absorbed in reportable segments
Under-absorbed employee and equipment costs
Repairs and maintenance
Yard rent
Others
Gross profit
Gross profit
Other operating income (Note 6)
Selling and distribution expenses (Note 8)
General and administrative expenses (Note 10)
Other (losses)/gains – net (Note 13)
Finance costs
Finance income
Profit for the year
2010
USD’000
2009
USD’000
93,643
2,176
75,973
5,927
3,850
(5,768)
(7,844)
(3,129)
(3,220)
–
(9,913)
(4,494)
(3,343)
(2,301)
79,708
61,849
2010
USD’000
2009
USD’000
79,708
23,925
(1,183)
(32,527)
(1,801)
(5,088)
2,193
61,849
–
(1,322)
(30,266)
(2,358)
(925)
1,445
65,227
28,423
Information about segment assets and liabilities is not reported to or used by the Executive Directors and
accordingly, no measures of segment assets and liabilities are reported.
For more information visit: www.lamprell.com
78
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
5 Segment information (continued)
The breakdown of revenue from all the services is as follows:
New build activities
Upgrade and refurbishment activities
Offshore construction
Others
2010
USD’000
2009
USD’000
206,589 226,461
163,598 146,235
37,921
117,120
14,901
16,513
503,820 425,518
The entity is domiciled in the UAE. The total revenue from external customers in respect of services performed in
the UAE is USD 495 million (2009: USD 404 million), and the total revenue from external customers for work
performed in other countries is USD 9 million (2009: USD 22 million).
Certain customers individually accounted for greater than 10% of the Group’s revenue, shown in the table below:
External customer A
External customer B
External customer C
2010
USD’000
2009
USD’000
110,316 118,128
63,207
47,196
76,627
50,493
237,436 228,531
The revenue from these customers is attributable to Segment A. The above customers in 2010 are not
necessarily the same customers in 2009.
6 Other operating income
Other operating income of USD 23.9 million represents a gain on the cancellation of a contract with a customer
during the year.
7 Cost of sales
Materials and related costs
Staff costs (Note 11)
Sub-contract costs
Sub-contract labour
Depreciation (Note 17)
Equipment hire
Repairs and maintenance
Yard rent
Others
8 Selling and distribution expenses
Advertisement and marketing
Entertainment
Travel
Others
2010
USD’000
2009
USD’000
152,652 125,257
92,719
91,460
13,375
9,238
6,882
5,085
3,425
16,228
86,950
129,296
10,666
10,160
6,361
8,323
3,204
16,500
424,112 363,669
2010
USD’000
2009
USD’000
524
112
376
171
592
171
376
183
1,183
1,322
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Lamprell plc Annual report and accounts 2010
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9 Share-based payments
Group
Proportionate amount of share-based charge for the year:
– relating to free share plan
– relating to executive share option plan
– relating to performance share plan
Company
Proportionate amount of share-based charge for the year:
– relating to free share plan
– relating to executive share option plan
– relating to performance share plan
2010
USD’000
2009
USD’000
1,592
92
376
2,060
1,791
150
–
1,941
2010
USD’000
2009
USD’000
155
73
215
443
246
73
–
319
Free share plan
The Company awarded shares to selected Directors, key management personnel and employees under the free
share plan that provides an entitlement to receive these shares at no cost. These free shares are conditional on
the Directors/key management personnel/employee completing a specified period of service (the vesting period).
The award does not have any performance conditions and does not entitle participants to dividend equivalents
during the vesting period (except for 92,725 shares awarded to two Directors during 2008 which entitles them to
dividend equivalents during the vesting period). The fair value of the share awards made under this plan is based
on the share price at the date of the grant less the value of the dividends foregone during the vesting period. The
details of the shares granted under this scheme are as follows:
Grant date
2008
10 January 2008
7 April 2008
27 April 2008
20 May 2008
2009
22 January 2009
15 April 2009
2010
21 March 2010
Number
of shares
99,337
25,301
123,620
70,000
318,258
600,000
763,052
1,363,052
Vesting
period
Fair value
per share
Expected
withdrawal
rate
24 months
24 months
18 months
36 months
£4.00
£3.96
£4.28
£5.08
24 months
18 months
£0.89
£0.94
5%
5%
5%
5%
5%
5%
299,000
18 months
£2.49
5%
During 2009, 18,241 shares which vested immediately were issued to an employee following his resignation as he
was considered a “good leaver”.
A charge of USD 1,592,000 (2009: USD 1,791,000) is recognised in the consolidated income statement for the
year with a corresponding credit to the consolidated Retained earnings. This includes a charge recognised in the
income statement of the Company with a corresponding credit to Retained earnings of USD 155,000 (2009: USD
246,000).
For more information visit: www.lamprell.com
80
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
9 Share-based payments (continued)
The Group has no legal or constructive obligation to settle the free share awards in cash.
An analysis of the number of shares gifted/granted, vested during the year and expected to vest in future periods
is provided below:
Shares expected to vest in future periods at 1 January 2009
Shares gifted under free share plan
Shares relating to dividend entitlement on deferred share award
Shares vested and issued out of treasury shares (Note 26)
Shares lapsed during the year due to non-satisfaction of vesting conditions
Shares expected to vest in future periods at 31 December 2009
Shares gifted under free share plan
Shares vested and issued out of treasury shares (Note 26)
Shares lapsed during the year due to non-satisfaction of vesting conditions
Shares expected to vest in future periods at 31 December 2010
The shares are expected to vest as follows:
Year
2010
2011
Number of
shares
870,717
1,381,293
24,385
(724,251)
(34,996)
1,517,148
299,000
(781,574)
(92,574)
942,000
Number of shares
2010
–
942,000
942,000
2009
847,148
670,000
1,517,148
Executive share option plan
Share options are granted by the Company to certain employees under the executive share option plan. This
option plan does not entitle the employees to dividends. These options are conditional on the employee
completing three years of service (the vesting period) and hence the options are exercisable starting three years
from the grant date and have a contracted option term of 10 years. The Group has no legal or constructive
obligation to repurchase or settle the options in cash.
The movement in the number of share options outstanding and their related weighted average exercise price is as follows:
Average
exercise
price in
£ per share
Options
Vesting date
Expiry date
At 1 January 2009
Granted in 2009
Forfeited in 2009
At 31 December 2009 and 2010
3.22 105,369
0.57 550,000
(19,585)
3.22
0.93 635,784
16 May 2010
31 March 2012
16 May 2017
31 March 2019
The weighted average fair value of options granted during 2009 determined using a binomial valuation model
was £0.28 per option. The significant inputs into the model were an average share price for a period of one year
immediately preceding the grant date of £2.91, an exercise price of £0.57, volatility of 50%, dividend yield of
3.31%, an expected option term of 10 years, an annual risk-free interest rate of 3.28% and a withdrawal rate of
5% per annum. The risk free rate is derived from the yield on UK Government Bonds as detailed by the Bank of
England, using a 10-year maturity in line with the life of the option. The volatility assumption is based on an
analysis of the historic daily share price volatility of the Company since its listing date, capped at 50%. A charge
of USD 92,000 (2009: USD 150,000) is recognised in the consolidated income statement for the year with a
corresponding credit to the consolidated Retained earnings. This includes a charge recognised in the income
statement of the Company with a corresponding credit to Retained earnings of USD 73,000 (2009: USD 73,000).
81
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9 Share-based payments (continued)
Performance share plan
The Company granted share awards to Directors, key management personnel and selected employees that give
them an entitlement to receive a certain number of shares subject to the satisfaction of a performance target and
continued employment. The performance target related to the growth in the Group’s earnings per share. The
award does not entitle participants to dividend equivalents during the vesting period. The fair value of the share
awards made under this plan is based on the share price at the date of the grant less the value of the dividends
foregone during the vesting period. The details of the shares granted under this scheme are as follows:
Grant date
2010
15 April 2010
Number
of shares
Vesting
period
Fair value
per share
Expected
withdrawal
rate
502,572
36 months
£2.57
5%
Accordingly, a charge of USD 376,000 (2009: Nil) is recognised in the consolidated income statement for the year
with a corresponding credit to the consolidated Retained earnings. This includes a charge recognised in the income
statement of the Company with a corresponding credit to Retained earnings of USD 215,000 million (2009: Nil).
The Group has no legal or constructive obligation to settle the free share awards in cash.
10 general and administrative expenses
Staff costs (Note 11)
Utilities and communication
Depreciation (Note 17)
Others
2010
USD’000
2009
USD’000
20,224
2,356
3,534
6,413
17,918
2,409
3,948
5,991
32,527
30,266
During the year, the Group incurred total expenditure of USD 1.4 million for the closure of the LAL operations in
Thailand. General and administrative expenses include USD 0.8 million and USD 0.6 million is included in “other
(losses)/gains – net” due to the loss on disposal of property, plant and equipment (Note 13).
11 Staff costs
Wages and salaries
Employees’ end of service benefits (Note 30)
Share-based payments – value of services provided (Note 9)
Other benefits
Staff costs are included in:
Cost of sales (Note 7)
General and administrative expenses (Note 10)
Number of employees at 31 December
2010
USD’000
2009
USD’000
61,077
4,446
2,060
39,591
59,647
3,173
1,941
45,876
107,174 110,637
86,950
20,224
92,719
17,918
107,174 110,637
4,476
4,515
For more information visit: www.lamprell.com
82
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
11 Staff costs (continued)
Directors’ remuneration comprises:
Salary
2010
USD’000
Fees
2010
USD’000
Allowances
and
benefits
2010
USD’000
Bonus
2010
USD’000
Share-
based
payments –
value of
services
provided
2010
USD’000
Post
employ-
ment
benefits
2010
USD’000
Total
2010
USD’000
Total
2009
USD’000
786
378
472
–
–
–
–
–
–
1,636
–
–
–
–
156
119
71
70
–
416
150
165
218
–
–
–
–
–
–
786
–
434
–
–
–
–
–
–
374
–
112
–
–
–
–
–
–
103
54
59
–
–
–
–
–
–
2,199
597
1,295
–
156
119
71
70
–
717
1,211
626
34
139
135
76
66
12
533
1,220
486
216
4,507
3,016
Executive Directors
Nigel McCue*
Peter Whitbread**
Scott Doak
David Moran***
Non-Executive Directors
Jonathan Silver^
Colin Goodall
Richard Raynaut
Brian Fredrick^^
Peter Birch
The emoluments of the highest paid Director were USD 2.2 million (2009: USD 1.2 million) and these principally
comprised salary, benefits, bonus and share-based payments.
* Appointed as Chief Executive Officer on 1 May 2009 and served as Chief Operating Officer with effect from 16 May 2008 following resignation as a
Non-Executive Director.
** Appointed as Director of International Development on 1 May 2009 and served as Chief Executive Officer until 1 May 2009 and resigned with effect from
7 June 2010.
*** Appointed as a Director on 4 July 2006 and served as Chief Operating Officer until 15 May 2009 and resigned with effect from 1 January 2009.
^ Appointed as Chairman of the Company on 27 March 2009 and has served as a Non-Executive Director since 24 August 2007.
^^ Appointed as a Non-Executive Director on 1 January 2009.
12 Dividends
During the year (on 26 March 2010 and 20 August 2010), the Board of Directors of the Company approved
dividends of USD 15.2 million comprising USD 7.6 million (US cents 3.8 per share) relating to 2009 and an interim
dividend of USD 7.6 million (US cents 3.8 per share) for 2010. At 31 December 2010, unpaid dividends amounted
to USD 51,000 (Note 32).
During 2009, (on 27 March 2009), the Board of Directors of the Company approved dividends of USD 6.3 million
(US cents 3.15 per share) relating to 2008. At 31 December 2009, the unpaid dividend amounted to
USD 34,000 (Note 32).
13 Other (losses)/gains – net
Fair value loss on financial asset at fair value through profit or loss (Note 23)
(Loss)/profit on disposal of property, plant and equipment
Others
2010
USD’000
–
(562)
(1,239)
2009
USD’000
(2,500)
33
109
(1,801)
(2,358)
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14 earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the profit attributable to the equity holders of the Company by
the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased by
the Company and held as treasury shares (Note 26).
(b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding
to assume conversion of all dilutive potential ordinary shares. For the free share awards, options under executive
share option plan and performance share plan, a calculation is done to determine the number of shares that
could have been acquired at fair value (determined as the average annual market share price of the Company’s
shares) based on the monetary value of the subscription rights attached to outstanding share awards/options.
The number of shares calculated as above is compared with the number of shares that would have been issued
assuming the exercise of the share awards/options.
The calculations of earnings per share are based on the following profit
and numbers of shares:
Profit for the year
Weighted average number of shares for basic earnings per share
Adjustments for:
Assumed exercise of free share awards
Assumed vesting of executive share options
Assumed vesting of performance share plan
2010
USD’000
2009
USD’000
65,227
28,423
198,987,337
199,105,090
763,842
411,526
140,844
843,477
199,030
–
Weighted average number of shares for diluted earnings per share
200,303,549
200,147,597
Earnings per share:
Basic
Diluted
15 Operating profit
Operating profit is stated after charging:
Depreciation (Note 17)
Auditor’s remuneration – audit services
Auditor’s remuneration – taxation and other services
Operating lease rentals – land and buildings
Gain on cancellation of a contract (Note 6)
Provision for impairment of trade receivables (Note 22)
Release of provision for impairment of trade receivables (Note 22)
32.78c
32.56c
14.28c
14.20c
2010
USD’000
2009
USD’000
13,694
13,186
345
3
419
21
15,482
18,849
23,925
202
–
202
–
101
(1)
100
For more information visit: www.lamprell.com
84
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
16 Financial instruments by category
The accounting policies for financial instruments have been applied to the line items below:
Group
Assets as per balance sheet
31 December 2010
Derivative financial instruments (Note 31)
Held-to-maturity investment (Note 20)
Financial asset at fair value through profit or loss (Note 23)
Trade receivables – net of provision (Note 22)
Other receivables excluding prepayments
Cash and bank balances (Note 25)
Total
31 December 2009
Financial asset at fair value through profit or loss (Note 23)
Trade receivables – net of provision (Note 22)
Other receivables excluding prepayments
Cash and bank balances (Note 25)
Total
Liabilities as per balance sheet
Assets at
fair value
through
profit or loss
USD’000
Loans and
receivables
USD’000
Held-to-
maturity
investment
USD’000
Derivatives
used for
hedging
USD’000
Total
USD’000
–
–
–
51,669
5,660
210,223
267,552
–
118,204
4,193
67,842
190,239
–
–
2,500
–
–
–
2,500
2,500
–
–
–
2,500
–
6,875
–
–
–
–
6,875
2,517
2,517
–
6,875
–
2,500
–
51,669
5,660
–
– 210,223
2,517 279,444
–
–
–
–
–
–
2,500
– 118,204
4,193
–
67,842
–
– 192,739
31 December 2010
Derivative financial instruments (Note 31)
Trade payables (Note 32)
Other payables and accruals (Note 32)
Total
31 December 2009
Trade payables (Note 32)
Other payables and accruals (Note 32)
Borrowings (Note 33)
Total
Company
Cash at bank
Due from related parties (Note 24)
Total
Derivatives
used
for hedging
Liabilities at
amortised
cost
Total
2,651
–
–
–
57,791
91,886
2,651
57,791
91,886
2,651 149,677 152,328
–
–
–
53,035
51,358
31,628
53,035
51,358
31,628
– 136,021 136,021
Loans and receivables
2010
USD’000
2009
USD’000
189
22,619
107
19,193
22,808
19,300
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16 Financial instruments by category (continued)
Other payables and accruals
Liabilities at amortised cost
2010
USD’000
2009
USD’000
1,451
562
Credit quality of financial assets
Group
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to
historical information about counterparty default rates:
Trade receivables
Group A
Group B
Group C
Derivative financial assets
Group A
Group A – Last six months average debtor days is less than 45.
Group B – Last six months average debtor days is between 46 and 90.
Group C – Last six months average debtor days is above 90.
Derivative financial instruments
The credit quality of derivative financial instruments is disclosed in Note 31.
None of the financial assets that is fully performing has been renegotiated in the last year.
Cash at bank and short-term bank deposits
Standard & Poor/Fitch ratings
AA+
AA
AA–
A+
A
A–
BBB+
BBB
Cash in hand
Cash at bank and in hand
Held-to-maturity investment
AA
Company
Due from related parties
2010
USD’000
2009
USD’000
7,681
15,933
2,959
79,547
10,557
4,621
26,573
94,725
2,517
–
2010
USD’000
2009
USD’000
–
64,973
109
144,854
–
122
15
–
210,073
150
5,281
–
41
5,887
56,283
–
–
208
67,700
142
210,223
67,842
6,875
–
2010
USD’000
2009
USD’000
22,619
19,193
For more information visit: www.lamprell.com
86
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
16 Financial instruments by category (continued)
Due from related parties is neither past due nor impaired.
Cash at bank
Standard & Poor ratings
A+
A
17 Property, plant and equipment
2010
USD’000
2009
USD’000
189
–
189
–
107
107
Cost
At 1 January 2009
Additions
Exchange differences
Transfers
Disposals
At 31 December 2009
Additions
Exchange differences
Transfers
Disposals
At 31 December 2010
Depreciation
At 1 January 2009
Charge for the year
Exchange differences
Disposals
At 31 December 2009
Charge for the year
Exchange differences
Disposals
At 31 December 2010
Net book amount
At 31 December 2010
At 31 December 2009
Buildings and
infrastructure
USD’000
Operating
equipment
USD’000
Fixtures
and office
equipment
USD’000
Motor
vehicles
USD’000
Capital
work-in-
progress
USD’000
Total
USD’000
19,338
501
6
1,334
–
21,179
6,348
94
22,383
(750)
67,711
2,872
27
1,796
(677)
71,729
8,598
172
–
(276)
8,836
929
25
56
(126)
9,720
486
42
130
–
3,840
233
–
–
(145)
3,928
406
–
1
(136)
27,731 127,456
18,483
13,948
99
41
–
(3,186)
(948)
–
38,534 145,090
29,724
13,886
308
–
–
(22,514)
(1,173)
(11)
49,254
80,223
10,378
4,199
29,895 173,949
6,385
1,499
–
–
7,884
2,404
12
(159)
22,154
9,244
1
(633)
30,766
9,264
45
(247)
10,141
39,828
5,105
1,758
–
(126)
6,737
1,287
16
–
8,040
1,458
685
–
(130)
2,013
739
–
(116)
2,636
–
–
–
–
–
–
–
–
–
35,102
13,186
1
(889)
47,400
13,694
73
(522)
60,645
39,113
40,395
13,295
40,963
2,338
2,983
1,563
29,895 113,304
1,915
38,534
97,690
Buildings have been constructed on land leased, on a renewable basis, from various Government Authorities. The
remaining lives of the leases range between three to 23 years. The Group has renewed these land leases, upon
expiry, in the past and its present intention is to continue to use the land and renew these leases for the
foreseeable future.
A depreciation expense of USD 10,160,000 (2009: USD 9,238,000) has been charged to cost of sales and
USD 3,534,000 (2009: USD 3,948,000) to general and administrative expenses – others (Notes 7 and 10).
87
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18 Intangible assets
Cost
At 1 January 2009 and 31 December 2009
Additions
At 31 December 2010
Amortisation
At 1 January 2009
Charge for the year
At 31 December 2009
Charge for the year
At 31 December 2010
Net book amount
At 31 December 2010
At 31 December 2009
Leasehold
right
USD’000
Work-in-
progress
USD’000
Total
USD’000
1,534
–
1,534
–
1,191
1,191
1,534
1,191
2,725
134
90
224
88
312
–
–
–
–
–
134
90
224
88
312
1,222
1,310
1,191
–
2,413
1,310
Leasehold right represents a favourable operating right acquired upon the acquisition of JIL and LE FZCO in
2008. The value of the intangible assets have been determined by calculating the present value of the expected
future economic benefits to arise from the favourable lease term (17 years).
Work-in-progress represents the cost incurred towards the implementation of an Enterprise Resource
Planning software.
19 Investment in subsidiaries
Balance at 1 January
Effect of share-based payments to employees of subsidiaries under IFRIC 11
2010
USD’000
2009
USD’000
748,401 746,779
1,622
1,617
750,018 748,401
The Company granted free shares/share options to employees of its subsidiaries under various plans (Note 9).
These shares and options have a vesting period of 18 to 36 months. Accordingly, the proportionate share-based
charge for the year of USD 1.6 million (2009: USD 1.6 million) has been recorded as an increase in investment in
subsidiaries with a corresponding credit to Retained earnings.
20 Held-to-maturity investment
Deposit with a fixed interest rate of 1.75% and a maturity date of 3 October 2012
2010
USD’000
2009
USD’000
6,875
–
The held-to-maturity investment represents a structured deposit with 100% capital protection, a guaranteed
return of 1.75% and a variable return, which is linked to the performance of an underlying equity basket, which
consists of 10 equally weighted shares. The capital protected status of the investment is valid only if the
investment is held to maturity. The variable component is considered as an embedded derivative, the fair value of
which at the balance sheet date was Nil.
There is no provision for impairment against the held-to-maturity investment.
At 31 December 2010, the fair value of the held-to-maturity investment is USD 6.75 million (2009: Nil).
For more information visit: www.lamprell.com
88
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
20 Held-to-maturity investment (continued)
The held-to-maturity investment is denominated in UAE Dirhams.
The maximum exposure to credit risk at the reporting date is the carrying amount of the held-to-maturity
investment.
The held-to-maturity investment is held by the bank as a lien against a guarantee issued by the bank in the
ordinary course of business.
21 Inventories
Raw materials and consumables
Less: provision for slow moving and obsolete inventories
2010
USD’000
2009
USD’000
10,889
(1,431)
43,809
(749)
9,458
43,060
The cost of inventories recognised as an expense and included in contract costs amounted to USD 51 million
(2009: USD 14.8 million). In the opinion of the Directors, the replacement cost of the inventories does not differ
significantly from its carrying value.
22 trade and other receivables
Trade receivables
Other receivables and prepayments
Advances to suppliers
Less: provision for impairment of trade receivables
Amounts due from customers on contracts
Contract work in progress (Note 2.2)
Amounts due from customers on contracts comprise:
Costs incurred to date
Attributable profits
Less: progress billings
An analysis of trade receivables is as follows:
Fully performing (Note 16)
Past due but not impaired
Impaired
2010
USD’000
2009
USD’000
54,666 120,999
10,715
13,936
4,492
1,563
70,165 136,206
(2,795)
(2,997)
67,168 133,411
16,389
58,013
43,976
125,943
251,124 193,776
2010
USD’000
2009
USD’000
241,300 209,337
53,601
47,640
288,940 262,938
(230,927) (246,549)
58,013
16,389
2010
USD’000
2009
USD’000
26,573
25,096
2,997
94,725
23,479
2,795
54,666 120,999
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22 trade and other receivables (continued)
Trade receivables that are less than three months past due are generally not considered impaired. As of 31
December 2010, trade receivables of USD 25.1 million (2009: USD 23.5 million) were past due but not impaired.
These relate to a number of independent customers for whom there is no recent history of default. The ageing
analysis of these trade receivables is as follows:
Up to 3 months
3 to 6 months
Over 6 months
2010
USD’000
2009
USD’000
19,713
2,375
3,008
17,335
4,953
1,191
25,096
23,479
At 31 December 2010, trade receivables of USD 3 million (2009: USD 2.8 million) were impaired and provided for.
The individually impaired receivables are over six months (2009: over six months) old and mainly relate to
customers who are in an unexpectedly difficult economic situation.
The carrying amounts of the Group’s trade and other receivables are primarily denominated in US Dollars or UAE
Dirhams, which is pegged to the US Dollar.
Movements on the provision for impairment of trade receivables are as follows:
At 1 January
Provision for receivables impairment (Note 15)
Receivables written off during the year as uncollectible
Unused amounts reversed (Note 15)
At 31 December
2010
USD’000
2009
USD’000
2,795
202
–
–
2,997
2,788
101
(93)
(1)
2,795
The creation and release of the provision for impaired receivables have been included in general and
administrative expenses in the consolidated income statement (Note 10). Amounts charged to the allowance
account are generally written off when there is no expectation of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable
mentioned above. During 2009, a receivable from one customer amounting to USD 60 million was secured by the
lien on the new build unit under construction and the related procured materials.
The carrying value of trade receivables approximates to their fair value.
23 Financial asset at fair value through profit or loss
Unlisted equity security
2010
USD’000
2009
USD’000
2,500
2,500
On 27 November 2009, LEL subscribed for 28,000,000 shares in BassDrill Alpha Limited (“BassDrill”) amounting
to USD 5 million at the subscription price of USD 0.1786 per share. LEL entered into an option agreement with
certain shareholders of BassDrill granting LEL the option to sell the BassDrill shares after 12 months at an option
price of USD 0.0893 plus three month LIBOR + 3% per annum. Further LEL also granted certain shareholders of
BassDrill the option to purchase the BassDrill shares held by LEL in the period starting from the date of issuance
and ending after 24 months at an option price of USD 0.1786 plus three month LIBOR + 3% per annum.
For more information visit: www.lamprell.com
90
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
23 Financial asset at fair value through profit or loss (continued)
During 2009, a fair value loss of USD 2.5 million was recorded in “other (losses)/gains – net” (Note 13) in the
consolidated income statement based on management’s estimate of the carrying value.
Financial assets at fair value through profit or loss are presented within “operating activities” as part of changes in
working capital in the consolidated cash flow statement.
In January 2011, LEL exercised the put option and realised USD 2.6 million in respect of this investment.
24 Related party balances and transactions
Related parties comprise LHL (which owns 33% of the issued share capital of the Company), certain legal
shareholders of the Group companies, Directors and key management personnel of the Group. Related parties
for the purpose of the parent company financial statements also include subsidiaries owned directly or indirectly.
Other than disclosed elsewhere in the financial statements, the Group entered into the following significant
transactions during the year with related parties at prices and on terms agreed between the related parties:
Key management compensation
Sponsorship fees paid to legal shareholders of LD and LS (Note 1)
Key management compensation comprises:
Salaries and other short-term employee benefits
Share-based payments – value of services provided
Post-employment benefits
Due from related parties
Company
LEL (receivable in respect of management fees charged by the Company)
EBT*
2010
USD’000
9,506
143
2009
USD’000
5,946
141
7,988
965
553
9,506
4,621
1,007
318
5,946
2010
USD’000
2009
USD’000
19,144
3,475
17,202
1,991
22,619
19,193
* Includes USD 3,388,744 (2009: USD 1,810,926) due in respect of payments made for treasury shares acquired by EBT on behalf of the Group.
Further, the Company has provided performance guarantees on behalf of its subsidiary. These guarantees,
issued in the normal course of business, are outstanding at the year end and no outflow of resources embodying
economic benefits in relation to these guarantees is expected by the Company.
Dividends paid by the Company include an amount of USD 5.2 million (2009: 2.2 million) in respect of shares
held by key management personnel (including those held by the EBT in respect of shares gifted) of which
USD 5 million (2009: 2.1 million) was paid to LHL, a company controlled by Steven Lamprell who is a member
of key management.
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25 Cash and bank balances
Group
Cash at bank and on hand
Short-term and margin deposits
Cash and bank balances
Less: margin deposits
Less: deposits with an original maturity of more than three months
Less: bank overdrafts (Note 33)
Cash and cash equivalents (for cash flow purpose)
2010
USD’000
36,916
173,307
210,223
(5,973)
(67,446)
–
2009
USD’000
18,336
49,506
67,842
(5,673)
(3,847)
(9,081)
136,804
49,241
At 31 December 2010, the cash at bank and short-term deposits were held with eight (2009: seven) banks.
The effective interest rate on short-term deposits was 2.08% (2009: 2.46%) per annum. Margin deposits of
USD 6 million (2009: USD 5.7 million) and deposits with an original maturity of more than three months
amounting to USD 42 million (2009: Nil) are held under lien against guarantees issued (Note 36).
Company
Cash and cash equivalents comprise cash held with one bank.
26 Share capital
Issued and fully paid ordinary shares
Company
At 1 January 2009, 31 December 2009 and 2010
Equity share capital
Number
USD’000
200,279,309
18,682
The total authorised number of ordinary shares is 400 million shares (2009: 400 million shares) with a par value of
5 pence per share (2009: 5 pence per share).
During 2010, EBT acquired 722,453 shares (2009: 1,391,253 shares) of the Company. The total amount paid to
acquire the shares was USD 3.5 million (2009: USD 1.7 million) and has been deducted from the Consolidated
Retained earnings. During the year 781,574 shares (2009: 724,251 shares) amounting to USD 1.9 million (2009:
USD 2.2 million) were issued to employees on vesting of the free shares and 1,277,138 shares (2009: 1,336,259
shares) are held as treasury shares at 31 December 2010. The Company has the right to reissue these shares at
a later date. These shares will be issued on the vesting of the awards granted under free shares/share options/
performance share plan to certain employees of the Group (Note 9).
27 Legal reserve
The Legal reserve of USD 33,436 (2009: USD 31,436) relates to subsidiaries incorporated as limited liability
companies in the UAE. In accordance with the Articles of Association of the respective subsidiaries and the UAE
Federal Law No. (8) of 1984, as amended, 10% of the profit for the year of such companies is transferred to a
Legal reserve. Such transfers are required to be made until the reserve is equal to, at least, 50% of the issued
share capital of such companies. During the year, an amount of USD 2,000 (2009: USD 2,000) was transferred
to the Legal reserve.
28 Other reserve
The Other reserve of USD 708,852,000 represents the difference between the cost of the investment in
LEL (USD 727,506,000) and the nominal value of Share capital issued by the Company to acquire LEL
(USD 18,654,000). The Other reserve is not available for distribution.
For more information visit: www.lamprell.com
92
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
29 Merger reserve
Nominal value of shares of the Company
Share capital of LEL
Merger reserve on acquisition of LEL
Purchase consideration relating to acquisition of Inspec
Share capital of Inspec
Merger reserve on acquisition of Inspec
Total
2010
USD’000
2009
USD’000
18,654
(82)
18,654
(82)
18,572
18,572
4,000
(150)
3,850
4,000
(150)
3,850
22,422
22,422
On 11 September 2006, LEL acquired 100% of the legal and beneficial ownership of Inspec from LHL for a
consideration of USD 4 million. This acquisition has been accounted for using the uniting of interests method and
the difference between the purchase consideration (USD 4 million) and the share capital of Inspec (USD 150,000)
has been recorded in the Merger reserve.
On 25 September 2006, the Company entered into a share for share exchange agreement with LEL and LHL
under which it acquired 100% of the 49,003 shares of LEL from LHL in consideration for the issue to LHL of
200,000,000 shares of the Company. This acquisition has been accounted for using the uniting of interests
method and the difference between the nominal value of shares issued by the Company (USD 18,654,000) and
the nominal value of LEL shares acquired (USD 82,000) has been recorded in the Merger reserve.
30 Provision for employees’ end of service benefits
In accordance with the provisions of IAS 19, management has carried out an exercise to assess the present
value of its obligations at 31 December 2010 and 2009, using the projected unit credit method, in respect of
employees’ end of service benefits payable under the UAE Labour Law. Under this method, an assessment has
been made of an employee’s expected service life with the Group and the expected basic salary at the date of
leaving the service.
The movement in the employees’ end of service benefit liability over the year is as follows:
Group
At 1 January
Current service cost
Interest cost
Actuarial losses/(gains)
Curtailments
Benefits paid
At 31 December
Company
At 1 January
Current service cost
Interest cost
Actuarial losses
Benefits paid
At 31 December
2010
USD’000
2009
USD’000
15,150
2,297
958
1,191
–
(1,072)
14,329
2,762
960
(384)
(165)
(2,352)
18,524
15,150
2010
USD’000
2009
USD’000
592
35
22
159
–
808
758
30
17
56
(269)
592
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30 Provision for employees’ end of service benefits (continued)
The amounts recognised in the consolidated income statement are as follows:
Group
Current service cost
Interest cost
Actuarial losses/(gains)
Gain on curtailments
Total (included in staff costs) (Note 11)
2010
USD’000
2009
USD’000
2,297
958
1,191
–
4,446
2,762
960
(384)
(165)
3,173
Of the total charge, USD 3.2 million (2009: USD 2.6 million) and USD 1.2 million (2009: USD 0.6 million) are
included in cost of sales and general and administrative expenses respectively.
Company
Current service cost
Interest cost
Actuarial losses
Total (included in staff costs)
2010
USD’000
2009
USD’000
35
22
159
216
30
17
56
103
The above charge of USD 0.2 million (2009: USD 0.1 million) is included in general and administrative expenses.
The principal actuarial assumptions used were as follows:
Discount rate
Future salary increase:
Management and administrative employees
Yard employees
2010
2009
5.25% 5.75%
5.00% 5.00%
3.50% 4.00%
Due to the nature of the benefit, which is a lump-sum payable on exit for any cause, a combined single
decrement rate has been used as follows:
Age
Management, yard and administrative employees:
Below 20 years
20–29 years
30–39 years
40–44 years
45–54 years
55–59 years
60 years and above
Executive directors:
35–39 years
40–64 years
65 years and above
Percentage of employees
at each age exiting the
plan per year
2010
2009
0%
15%
10%
10%
7%
2%
0%
15%
10%
7%
7%
7%
100% 100%
10%
7%
0%
7%
100% 100%
For more information visit: www.lamprell.com
94
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
31 Derivative financial instruments
2010
2009
Notional
contract
amount
USD’000
Credit
rating
Assets
USD’000
Liabilities
USD’000
Notional
contract
amount
USD’000
Assets
USD’000
Liabilities
USD’000
Derivatives designated as hedging
instruments in cash flow hedges
– Forward foreign exchange contracts
– Forward foreign exchange contracts
A+
AA, A+
36,310
85,301
Total
121,611
2,517
–
2,517
–
2,651
2,651
–
–
–
–
–
–
–
–
–
During the year, the Company entered into three forward contracts to hedge its foreign currency exposure with
respect to certain supplier commitments in Euros. The notional principal amount at the date of inception of these
contracts was Euro 142.02 million. These contracts mature within 24 months from the date of inception.
The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of
the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is
less than 12 months.
An amount of USD 304,000 was recorded in equity and an amount of USD 170,000 was recycled from equity to
profit or loss during the year. The net movement in the fair value reserve during the year was USD 134,000.
The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at
various dates during the next 18 months. Gains and losses recognised in the hedging reserve in the consolidated
statement of changes in equity on forward foreign exchange contracts as of 31 December 2010 are recognised in
the consolidated income statement in the period or periods during which the hedged forecast transaction affects
the consolidated income statement.
This risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional
amount of the contracts and the liquidity of the market. To control the level of credit risk taken, the Group
assesses counterparties, using the same techniques as for other counterparties.
32 trade and other payables
Trade payables
Other payables and accruals
Amounts due to customers on contracts
Advances received for contract work
Dividend payable++ (Note 12)
Amounts due to customers on contracts comprise:
Progress billings
Less: Cost incurred to date
Less: Attributable profits
2010
USD’000
2009
USD’000
57,791
91,886
99,986
43,557
51
53,035
51,358
20,183
–
34
293,271 124,610
2010
USD’000
2009
USD’000
252,521 250,892
(133,894) (213,733)
(16,976)
(18,641)
99,986
20,183
++ The dividend payable represents an amount held by the EBT in respect of treasury shares. This dividend will be paid by the EBT to the employees upon
completion of the vesting period.
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33 borrowings
Bank overdrafts
Revolving facilities
2010
USD’000
–
–
–
2009
USD’000
9,081
22,547
31,628
The bank facilities relating to overdrafts and revolving facilities carry interest at LIBOR/EIBOR + 1.5% to 4.0%
(2009: LIBOR/EIBOR + 2.0% to 3.5%).
The carrying amounts of borrowings in the prior year approximated to their fair value and were denominated in
US Dollars or UAE Dirhams, which is pegged to the US Dollar.
34 Profit of the Company
The profit of USD 19,048,000 (2009: USD 6,579,000) in respect of the Company has been included in these
consolidated financial statements.
35 Commitments
(a) Operating lease commitments
The Group leases land and staff accommodation under various operating lease agreements. The remaining lease
terms of the majority of the leases are between 6 to 23 years and are renewable at mutually agreed terms. The
future minimum lease payments payable under operating leases are as follows:
Not later than one year
Later than one year but not later than five years
Later than five years
(b) Other commitments
Letters of credit for purchase of materials and operating equipment
Capital commitments for purchase of operating equipment
Capital commitments for construction of facilities
36 bank guarantees
Performance/bid bonds
Advance payment, labour visa and payment guarantees
2010
USD’000
6,886
10,816
31,108
2009
USD’000
7,826
13,019
33,728
48,810
54,573
2010
USD’000
2009
USD’000
3,433
13,285
2,416
929
13,555
18,262
2010
USD’000
2009
USD’000
126,284 112,319
5,882
292,126
418,410 118,201
The various bank guarantees, as above, were issued by the Group’s bankers in the ordinary course of business.
Certain guarantees are secured by 100% cash margins, assignments of receivables from some customers and,
in respect of guarantees provided by banks to the Group companies, they have been secured by parent and
certain Group company guarantees. In the opinion of the Directors, the above bank guarantees are unlikely to
result in any liability to the Group.
For more information visit: www.lamprell.com
96
Lamprell plc Annual report and accounts 2010
notes to the financial statements for
the year ended 31 December 2010
37 events after balance sheet date
The Board of Directors of the Company has proposed a dividend of 9.5 cents per share amounting to
USD 19 million at a meeting held on 24 March 2011. In accordance with the accounting policy under IFRS set out
at Note 2.16, this dividend has not been accrued at 31 December 2010 (2009: 3.80 cents per share amounting to
USD 7.6 million declared on 26 March 2010 was not accrued at 31 December 2009). This is in accordance with
the Isle of Man Companies (Amendment) Act 2009 which required that such proposed dividends should not be
recognised until paid or approved by the shareholders.
Definitions
The following definitions apply throughout this document unless the context requires otherwise:
“AGM” – Annual General Meeting
“IAS” – International Accounting Standards
“AIM” – Alternative Investment Market – a market
operated by London Stock Exchange Plc
“IFRIC” – International Financial Reporting
Interpretations Committee interpretation
“API” – American Petroleum Institute
“IFRS” – International Financial Reporting Standards
“BassDrill” – BassDrill Alpha Limited
“Inspec” – International Inspection Services Limited
“Board” or “Directors” – the Board of Directors of
the Company
“IPO” – Initial Public Offering
“CAD” – Canadian Dollars
“CEO” – Chief Executive Officer
“CFO” – Chief Financial Officer
“ISO” – International Organisation for Standards
“KPI” – Key Performance Indicators
“Labour Law” – Labour Law (Federal Law No.8 of
1980 (as amended))
“CSR” – Corporate Social Responsibility
“LAL” – Lamprell Asia Limited
“Company” – Lamprell plc
“COO” – Chief Operating Officer
“Lamprell” – the Company and its subsidiary
undertakings
“EBITDA” – Earnings before Interest, Taxes,
Depreciation and Amortisation
“LD” – Lamprell Dubai LLC
“LEL” – Lamprell Energy Limited
“EBT” – Lamprell plc Employee Benefit Trust
“LHL” – Lamprell Holdings Limited
“EPC” – Engineering, Procurement and Construction
“LS” – Lamprell Sharjah WLL
“EPS” – Earnings Per Share
“LSE” – London Stock Exchange Limited
“ESOP” – Lamprell plc Executive Share Option Plan
“LTI” – Lost Time Incident
“FPSO” – Floating, Production, Storage and Offloading
“Mercer” – Mercer Consulting Middle East Limited
“FTSE” – Financial Times Stock Exchange index
“PSP” – Lamprell plc 2008 Performance Share Plan
“FZCo” – Free Zone Company
“TSR” – Total Shareholder Return
“Group” – The Company and its subsidiaries
“UAE” – the Federation of the United Arab Emirates
“HSE” – Health, Safety and Environment
“United States” or “US” – the United States of America
Lamprell plc is a leading
contractor in the Arabian
Gulf, providing specialist
services to the offshore
and onshore oil and gas
and renewables industry.
The principal markets in which
Lamprell operates are:
> new build construction of
jackup rigs and liftboats and
upgrade and refurbishment
of jackup rigs.
> other new build construction
for the offshore oil and gas
sector including FPSO,
tender assist drilling units
and other offshore and
onshore structures.
> oilfield engineering services,
including the new build
construction, upgrade and
refurbishment of land rigs.
Company Overview
01 Highlights
02 Lamprell at a Glance
04 Chairman’s Statement
06 Our Strategy and Performance
Chief Executive Officer’s
08
Statement
Business Review
12 Strategic Procurement
14 Operating Review
20 Risk Factors
22 Financial Review
26 Corporate Social Responsibility
30 Directors’ Biographies
Corporate Governance
32 Directors’ Report
36 Corporate Governance Report
42 Directors’ Remuneration Report
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Financial Statements
54 Independent Auditor’s Report
55 Consolidated Income Statement
56
57
58 Company Balance Sheet
59
60
61
62
63
96 Definitions
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
Registered Office:
Fort Anne
Douglas
Isle of Man
IM1 5PD
Operations:
PO Box 5427
Dubai
United Arab Emirates
Telephone: +971 6 5282323
Fax: +971 6 5284325
Email: lamprell@lamprell.com
Website: www.lamprell.com
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Lamprell plc
Annual report and
accounts 2010
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