Lamprell plc Annual Report and Accounts 2017
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A STRONG TEAM
BUILDS STRONG
FOUNDATIONS
Strategic report
[Section title]
Contents
Strategic report
01
Introduction
02 Highlights 2017
03 Lamprell at a glance
04 Markets, pipeline and opportunities
06 Business model
08 Strategy
10
16 Chairman’s statement
18 Chief Executive’s report
20 Financial review
22 Key Performance Indicators (“KPIs”)
24 Operational review
28 Sustainability report
34 Principal risks and uncertainties
37 Viability statement
International Maritime Industries
Corporate governance
Including information on our Board, Committees,
leadership team and remuneration.
38 Board of Directors
40 Directors’ Report
50 Nomination and Governance
Committee Report
4
53 Audit and Risk Committee Report
58 Directors’ Remuneration Report
59 Directors’ Remuneration Policy
64 Directors’ Annual Report on Remuneration
70 Statutory information and Directors’
statements
Financial statements
Our primary financial statements
and supporting notes.
73
Independent Auditor’s Report
to the members of Lamprell plc
80 Consolidated income statement
81 Consolidated statement of
comprehensive income
82 Consolidated balance sheet
83 Company balance sheet
84 Consolidated statement of changes in equity
85 Company statement of changes in equity
86 Consolidated cash flow statement
87 Company cash flow statement
88 Notes to the consolidated financial statements
125 Glossary
127 Additional information
For further reading on specific topics,
please follow the
throughout the document.
Online shareholder information
To keep shareholders fully up to date,
we have comprehensive financial and Company
information on our website. Our shareholders
can access all the information they require,
24 hours a day. www.lamprell.com
Cover image: Lamprell’s employees consist of
a diverse team of highly skilled people from
over 40 countries who are committed to working
closely with key stakeholders and delivering
our projects safely, on time and to the highest
standards of quality.
REALISING
OUR
STRATEGIC
OBJECTIVES
01
2017 has marked a pivotal
milestone in Lamprell’s journey
of transformation.
We are strengthening Lamprell’s
position in our core rig market and
working to enter the EPC(I) sector.
We are expanding into new
geographic markets through
strategic partnerships.
We are investing in our workforce to
ensure that we have the right people
with the right skillset and experience
to match our strategy. They are
fundamental to everything we do.
Christopher McDonald
Chief Executive Officer
Lamprell plc Annual Report and Accounts 2017
Lamprell plc Annual Report and Accounts 2017
Strategic report
Highlights and Lamprell at a glance
RESILIENT
BUSINESS TO
WEATHER THE
DOWNTURN
Strong balance sheet with net cash of USD 257 million
at 31 December 2017 available for strategic investment
Maintained high standards of safety with TRIR of 0.30
Significant losses on renewables project severely impacted
overall 2017 profitability
02
Progressed strategy implementation with signature of
transformational JV agreement with Saudi partners
Bid pipeline increased to USD 3.6 billion by year-end
Appointed new Non-Executive Chairman
Revenue
(USD million)
1,072.8
1,084.9
871.1
705.0
370.4
2013
2014
2015
2016
2017
Note: See
22 for further details and definitions.
EBITDA
(USD million)
Net (loss)/profit
(USD million)
137.0
137.0
90.0
90.0
2014
2014
2015
2015
76.0
76.0
2013
2013
30.6
30.6
2016
2016
2017
2017
(70.5)
(70.5)
118.0
118.0
2014
2014
64.7
64.7
2015
2015
36.4
36.4
2013
2013
2016
2016
2017
2017
(98.1)
(98.1)
(184.3)
(184.3)
(Loss)/earnings
per share – diluted (cents)
Net cash
(USD million)
272.6
275.2
257.0
183.8
210.3
2013
2014
2015
2016
2017
37.38c
37.38c
18.84c
18.84c
2014
2014
2015
2015
12.67c
12.67c
2013
2013
2016
2016
2017
2017
(28.70)c
(28.70)c
(53.94)c
(53.94)c
Who we are
Lamprell is a key player in the offshore and onshore oil & gas
and renewable energy markets with over 40 years’ experience
delivering world class projects. We design and provide assets
and services that help our clients to produce energy safely,
efficiently and cost-effectively.
What we do
We build high-quality complex onshore and offshore process
modules, platforms and wind farm foundations for our clients,
and hold leading market positions in jackup rig and liftboat
projects. We also deliver land rigs and rig refurbishment
projects, and provide related oil & gas services.
Total quayside (m)
1,600
Total land (m2)
810,000
Strategically
located to deliver
Lamprell’s yards are situated in the UAE and Saudi Arabia,
which is a prime location for accessing the major oil & gas
markets in the Middle East and other parts of the globe. We
have modern quayside facilities ensuring safe and efficient load
out of our projects onto vessels for onward transportation to our
international client base.
Client locations
Lamprell operations
Ras Al Khair*
Jubail
Hamriyah
Sharjah
Dubai
Jebel Ali
*Under development
12
03
Our core services
Rigs
Bid pipeline
EPC(I) projects
Bid pipeline
Contracting services
Bid pipeline
47%
2%
USD 1,680m
USD 1,840m
USD 90m
51%
We have a reputation as
a leading and reliable builder
of jackup drilling rigs, multi-
purpose jackup liftboats and
land rigs for the international
market. We also have a long
history of completing rig
refurbishment projects
safely, within budget and
on schedule.
We provide engineering,
procurement and construction
services to the oil & gas and
renewable energy industries
and have successfully
delivered multiple high-quality
process modules, platforms
and foundations. We partner
with leading transportation
and installation companies
to provide a full suite of
services to our clients.
Our smaller business
units, O&M and Sunbelt
Safety Services, provide
technically advanced
services within our sectors
including specialist welding
and fabrication as well as
gas detection monitoring
and equipment. Both bring
Lamprell’s strong safety and
quality culture wherever they
operate.
Note: The way we view the business going forward has changed in line with our
strategic objectives; see
8 and Note 36 for further details on this.
Order book
138
(USD million)
as at 31 December 2017
Total bid pipeline
3.6
(USD billion)
as at 31 December 2017
Total employees
7,153
as at 31 December 2017
Employee
nationalities
42
as at 31 December 2017
Lamprell plc Annual Report and Accounts 2017 Strategic report
Markets, pipeline and opportunities
ALIGNING OUR
STRATEGIC OBJECTIVES
WITH MARKET
DYNAMICS
The medium-term forecast for the global energy industry is predicting
modest growth. Bidding in our traditional oil & gas market remains key
to our business but is highly competitive due to limited project flows.
Conversely, the renewables sector is developing rapidly and offers us
an opportunity to diversify.
04
Macro-economic factors and strategy
In 2017 energy prices were significantly
less volatile than in 2016, when they
hit ten-year lows, with Brent crude oil
rising through a range of USD 47-67/
bbl1. The recovery in oil prices has been
driven by OPEC and non-OPEC countries,
mainly Russia, first agreeing to and then
extending their production cuts at the
end of 20171, which also supported
a strong year-end finish in the oil price.
In addition to production cuts, IOCs
continue to invest selectively with typical
projects being sanctioned on the basis of
an oil price of USD 60/bbl2 or less which
further supports energy prices. However,
North American shale capacity and the
ability to ramp up production quickly acts
as a natural brake to significant price
increases and this dynamic between
shale and OPEC’s self-imposed cuts is
expected to continue throughout 2018.
Within the Middle East, NOC investment
is driven more by considerations related
to market share and funding government
budgets, and investment in the region is
expected to continue or even grow from
recent years3,4.
While the traditional oil industry faces
some uncertainty, the renewables industry
continues to develop rapidly and attract
investment, especially in the offshore
wind environment which is Lamprell’s
area of focus in this growing market.
The known global portfolio of offshore
wind has the potential to deliver 92GW,
with circa 75GW still to be awarded and
built. Europe leads the way globally, with
the UK and Germany by far the largest
participants to date in this market5.
The offshore wind industry is undergoing
a fundamental shift from an industry that
needs subsidies to attract investment,
to one that is commercial and attracts
investment in its own right. The 2017 UK
Contract for Difference (CfD) Round 2
auction delivered a strike price of
£57.50/MWh for two wind farms, some
50% below that achieved two years
earlier6, and these cost reductions are
expected to continue through technology
innovation, economies of scale and
higher project volumes7. As offshore wind
power reaches parity with traditional
power generation, and with some national
governments setting policy to eliminate
petrol and diesel cars from the roads in
the next decades8, the future of offshore
wind as a source of abundant green
energy appears assured and is a long-
term market opportunity for Lamprell.
Bid pipeline (USD million)
as at 31 December 2017
86%
14%
Renewables
USD 1,830m
5%
80%
15%
Oil & gas
USD 1,780m
Rigs: USD 250m
EPC(I): USD 1,580m
Rigs: USD 1,430m
EPC(I): USD 260m
Contracting services: USD 90m
References
1. Goldman Sachs Research, Bloomberg
2. BP Strategy Update 2017
3. ADNOC Strategic Investments
November 2017
4. Reuters November 2017
5. Renewables UK March 2017
6. KPMG CfD allocation Round 2
7.
8. The Guardian July 2017
IRENA Renewables Cost Database
What we are doing differently
Key target markets
We have restructured
to better serve
our key target markets
Lamprell core services
We serve these key target markets
through our three core services
Strong leadership
We have dedicated
leadership teams
for each core service
Oil & gas
Renewables
Rigs
EPC(I)
Contracting
services
Market sectors and our opportunities
Oil & gas
Renewables
New initiatives
Design
Launch the LJ43, a new proprietary
jackup rig design in collaboration
with GustoMSC
Investment
We have invested in hiring the right people
throughout 2017 with the right skillset and
experience in EPC(I) and LTA projects
People
Technology
05
The discipline shown by IOCs over the last few years has meant
a significant drop in annual spend on capital projects, with some
IOCs reporting reductions of 35% from 20131, and this continues
to translate into reduced project flow into the supply chain for
contractors such as Lamprell. With oil prices expected to be
relatively flat over the near future within our oil & gas market,
activity is mainly focused on the shallow water and shelf projects
in the Middle East, UK and Norwegian sea sectors where
projects are proceeding.
In 2017 Saudi Aramco awarded nearly USD 3 billion worth of
shallow water EPC(I) projects2 to support offshore oil production.
They have also committed to continue additional investment
in the Arabian Gulf to increase their offshore production and
in the Red Sea to progress offshore development in 2018
and beyond. Lamprell is well positioned in Saudi Arabia to
take advantage of this through our investment with our newly
inaugurated International Maritime Industries (“IMI”) marine
yard joint venture with Saudi Aramco, Bahri and Hyundai
Heavy Industries. We also see opportunities in the UAE where
ADNOC has recently committed significant capital spending
in its onshore and offshore oil & gas programmes3. Being a
UAE-based company with a long history of working and
delivering to ADNOC, Lamprell is well placed to participate
in this next wave of investment in the UAE.
In the Norwegian and Barents Sea, Statoil is progressing with
its major field developments at Castberg and Johan Sverdrup
Phase 2, recently awarding several EPC(I) packages3. In
addition, other field developers such as AkerBP, OMV and Lundin
are moving towards final investment decisions in 2018 and 2019
on various Barents Sea projects. With Lamprell’s history of
delivering projects in the North Sea, we are making use of our
cost-effective, safe and high-quality offering as the basis for
selectively bidding work in the region.
The renewables offshore wind market has gathered pace over
the past 12 months with a large number of new enquiries
received as a result of Lamprell’s proactive marketing efforts in
this area, in line with our strategic objectives. The main driver is
the improving economics of wind farms due to the economies of
scale and technological advancements across the supply chain.
Up until recently, government subsidies were a political barrier
to projects reaching sanction, and while they are still in place in
the latest round of UK awards, they represent a fraction of those
seen in earlier projects. As subsidies are expected to decrease
or be eliminated in the medium term, we anticipate a continued
high volume of enquiries and a more traditional bid cycle where
timelines are less drawn-out. We also expect less governmental
involvement, consistent with its role in the oil & gas industry.
Within the offshore wind market, Lamprell is pursuing options
across three areas of supply: (i) providing foundations for the
wind farm turbines similar to those on our current East Anglia
One project for Scottish Power Renewables; (ii) delivering HVAC
and HVDC substations leveraging our offshore experience in the
North Sea; and (iii) constructing Wind Turbine Installation Vessels
(“WTIV”) consistent with our significant experience building such
vessels for the likes of Seajacks and Fred Olsen. For foundations,
we are only pursuing jacket-based projects where our fabrication
expertise is a differentiator. As wind turbines are expected to get
larger, and wind farms expected to migrate into deeper water
offshore, jacket-based projects will predominate over monopiles.
We have a number of enquiries in hand for jacket foundations
and substations, predominantly focused in the European market.
For WTIVs, vessel owners are positioning for the next generation
of turbine installation, with turbines evolving from 8 MW to larger
10, 12 or even 15 MW turbines4 although capital investment in
larger and more costly vessels (which would be required for
larger turbines) is unlikely to proceed without commitments from
offshore developers. Lamprell’s approach is, therefore, to focus
on foundations and substations and to take a more selective view
of projects to construct WTIVs.
References
1. BP Annual Report 2016
2. MEED 2017
3. Upstream 2017
4. Wind Europe 2017
Lamprell plc Annual Report and Accounts 2017 Strategic report
Business model
COMMITMENT TO
SAFETY, QUALITY
AND LONG-TERM
COLLABORATION
Lamprell relies on its marketing expertise to identify
and convert prospects into awards. We are committed
to working collaboratively and transparently,
with a view to ensuring project success and
long-term growth, and value for our shareholders.
06
Commitment to safety, employee
well-being and quality
WHAT OUR
CLIENTS WANT
Safety, Competitive delivery
model, Reliability, Delivery
excellence, Local content,
Risk transfer
OUR
VALUES
Safety
Fiscal responsibility
Integrity
Accountability
Teamwork
Lamprell will continue to put the
safety of our employees at the forefront
of our thinking, targeting year-on-year
improvements in our TRIR performance
30. We aim to be a regional employer
of choice, our commitment to safety
is a key factor to enable us to achieve this
and we are proud of our staff retention
record
this. Similarly, we train our people and
measure their performance which
translates into the high quality of the
products and services we provide.
31, which demonstrates
Competitive offering
Lamprell operates in markets which have
suffered from the depressed energy
prices since mid-2014, and so we
recognise the importance of maintaining
a competitive offering to our clients. We
are strategically located in the Middle
East which will continue to be the world’s
largest producer of oil with a 37% market
share by 20351. This allows us to recruit
highly skilled people from across the
globe at attractive remuneration levels
but also to flex our workforce to reflect
changing workloads. We recognise
that the energy market supply chain is
currently under a great deal of pressure
to reduce costs and so we strive to
manage our supply chain on a global
basis to support our products and
services in ways which are consistent
with our key strengths.
References
1. BP Energy Outlook 2017
WHAT WE
ARE GOOD AT
Safety, Quality, Teamwork,
Client relationships, Balance sheet,
Transparency, State-of-the-art facilities,
Continuous improvement, Productivity,
Reliability, Collaboration
OUR CORE
PURPOSE
To provide high quality
and reliable products
and services as well
as returns
Potential risks to the business model
The prolonged downturn in the oil &
gas market for more than three years
threatens Lamprell’s business model as
we are dependent on clients’ decisions
to sanction major capital programmes.
There are various potential risks to
Lamprell’s business
to mitigate or control them through our
risk management processes.
34, and we look
Working closely with clients and partners
We seek to establish long-term business
relationships with our clients and partners,
as evidenced by the repeat business
from existing clients. We are proud of
our relationship with ADNOC Drilling,
for whom we have delivered nine new
build jackup drilling rigs between
2007-2017, and with Saudi Aramco
who is our lead partner at the IMI yard
in Saudi Arabia
12. We aim to build
our relationships on a collaborative
and transparent basis as this allows
us to resolve issues with our business
partners more effectively and to deliver
what the clients want. This is reflected
in the quality of our workforce where
Lamprell is selectively building internal
capability to support our strategic goal
of moving up the value chain to directly
access EPC(I) opportunities. We are in
discussions with strategic partners who
will help us build more rapidly and allow
us to offer a single one-stop delivery
model for our clients
08.
WHAT MAKES
US DIFFERENT
Clients trust us:
to listen to them, adapt
to their needs and deliver
value for money
E S S
S I N
U
Strategic
location
O B
AC K IN T
B U S INESS DEVELOPMEN
Provide a
competitive
cost structure
leveraging our
key strengths
T IN
S
I
G
H
T
S
Focus on
countries with
growth markets
T B
N
E
M
T
S
E
V
N
I
D
I
F
F
E
R
Client
satisfaction
Reliable
solutions
WHAT WE
DELIVER
Expanding
geographical
reach
Partnering
to target EPC(I)
projects
E
N
T
I
A
T
E
Strong management
and highly skilled,
cost effective
workforce
P
R
O
D
U
C
T B
A
S
E
World class
safety and
quality
D ON KEY STRENGTH S
Focus on
broader brand
awareness/
recognition
WHAT OUR
CLIENTS WANT
Safety, Competitive delivery
model, Reliability, Delivery
excellence, Local content,
Risk transfer
OUR
VALUES
Safety
Fiscal responsibility
Integrity
Accountability
Teamwork
WHAT WE
ARE GOOD AT
Safety, Quality, Teamwork,
Client relationships, Balance sheet,
Transparency, State-of-the-art facilities,
Continuous improvement, Productivity,
Reliability, Collaboration
OUR CORE
PURPOSE
To provide high quality
and reliable products
and services as well
as returns
WHAT MAKES
US DIFFERENT
Clients trust us:
to listen to them, adapt
to their needs and deliver
value for money
B U S INESS DEVELOPMEN
T IN
S
I
G
Provide a
competitive
cost structure
leveraging our
key strengths
WHAT WE
DELIVER
H
T
S
Focus on
countries with
growth markets
Expanding
geographical
reach
Partnering
to target EPC(I)
projects
07
E S S
S I N
U
O B
Strategic
location
AC K IN T
T B
N
E
M
T
S
E
V
N
I
Client
satisfaction
Reliable
solutions
D
I
F
F
E
R
E
N
T
I
A
T
E
Strong management
and highly skilled,
cost effective
workforce
P
R
O
D
U
C
T B
A
S
E
Focus on
broader brand
awareness/
recognition
World class
safety and
quality
D ON KEY STRENGTH S
How our strengths add value
First class safety and quality
Client satisfaction
Strategic location
Lamprell has a strong commitment
to health, safety and quality. We are
committed to continuously improving
the performance of both our employees
and contractors.
Reliability
Lamprell has a proven reputation for
quality standards and the delivery
of competitive products. We have a
strong track record in our core markets
for completing projects on time, to
specification and on budget.
Lamprell is committed to customer
service and close client relationships
throughout the project lifecycle. This
has resulted in substantial support from
our major clients and a record of repeat
business.
Lamprell is advantageously located in the
Middle East and has excellent facilities
including 1,600m of deep water quayside
access. Our geographic proximity to
Saudi Arabia, a strategic future market for
Lamprell, is crucial.
Skilled workforce
Lamprell has a strong leadership team
focused on delivering the Company’s
strategy. We value our highly qualified,
dedicated and flexible workforce and
invest in their continued development to
ensure project delivery. Our access to
an international workforce supports a
competitive cost structure.
Lamprell plc Annual Report and Accounts 2017
Strategic report
Strategy
REPOSITIONING
IN A HIGHLY
COMPETITIVE
MARKET
Lamprell aims to be a leading EPC(I) provider to the energy industry,
delivering safe, high-quality, competitive, on time solutions to our
customers while providing steady growth and predictable returns for
our shareholders.
08
In light of the continuing delays to project
awards in the oil & gas market, recovery
will be slow for the foreseeable future. We
are confident that we can convert bids
into profitable awards in markets where
we have a differentiated offering and
strong track record.
11, and we will
Our business is structured to approach
opportunities by way of our strategic
objectives in rigs, selected EPC(I) projects
and in Saudi Arabia
maintain our bidding discipline to ensure
we target projects that fit this profile. While
oil & gas has traditionally underpinned
our business, it is crucial we continue to
diversify into the renewables market and
other geographies, notably Saudi Arabia.
We have repositioned the way that
we approach the markets
05, by
simplifying our business units around
Rigs, EPC(I) and Contracting Services
and by populating those business units
with specialist and experienced personnel.
This has included the investment into
additional resources in order to strengthen
our competencies as required.
Rigs
Through our 20% investment in the
IMI yard, the joint venture has signed
an offtake agreement with Saudi Aramco
to build 20 jackup drilling rigs over the
coming ten years. Lamprell will support
this by constructing significant parts
of the first two rigs using Lamprell’s
new proprietary rig design. The LJ43,
developed in collaboration with GustoMSC,
has been selected as the base design
for the 20 rigs to be constructed at the
IMI yard in Saudi Arabia
traditional areas of strength in the rig
refurbishment and land rig businesses
remain important revenue streams for
Lamprell. We are proactively seeking to
agree long-term cooperation agreements
in the drilling community.
12. Our other
EPC(I)
Lamprell is well placed to support the
offshore investment programmes by
ADNOC, Saudi Aramco and other leading
clients, and we aim to move up the value
chain to be a prime EPC(I) contractor.
We will leverage our track record and
relationships in the region, and selectively
invest in key resources and our people
to bolster our EPC(I) capability. Lamprell
was proud to secure our first renewables
contract, East Anglia One, with Scottish
Power Renewables late in 2016. While
this project has been challenging with
the Company incurring significant losses,
this market segment is attractive going
forward. As a result of the experience
gained on this project, we have moved far
up the learning curve as we strengthened
our capabilities and made changes to
personnel to improve our competencies.
Contracting services
Our smaller business streams comprising
of O&M and Sunbelt Safety Services
continue to support both Lamprell and
our clients by providing highly skilled
specialists for various projects.
Strategic objective
Why this is important to us
How we achieve it
Our measure of success
Achieved?
1
2
3
4
5
Maintain market leadership in new build jackup rigs
We have successfully delivered 28 new build jackup rigs and six WTIVs and have a
track record of constructing profitable, high-quality units
Broaden our presence in Saudi Arabia
We aim to participate and invest in the world’s largest oil & gas market where there
is a stated multi-billion dollar investment programme
Leverage and support our investment in the IMI yard; progress
proprietary LJ43 rig design1; IMI delivers 20+ new build jackup
rigs over next ten years
Become a LTA contractor for Saudi Aramco; expand bid pipeline
with LTA work; implement a plan for investing in Saudi Arabia and
partnering with local Saudi companies
Deliver our renewables strategy
Diversification into strategic market with significant fabrication requirements and
multi-decade investment future
Actively market our East Anglia One project experience; utilise our core
fabrication capability and competitive cost base to differentiate our offering
New renewables contract
at acceptable profitability
Continue to be a EPC(I) provider
to the energy industry
Move up the value chain, work directly for IOC and NOC clients, access more
substantial contract values, be in better control of our bid pipeline
Bid on EPC(I) projects for Saudi Aramco; selectively work with leading
partners to market capability into other EPC(I) projects
Increase EPC(I) bids
In progress
Build on our rig refurbishment and land rig position
Maintain base-load of contracts in rig refurbishment and land rigs as the market
recovers
Leverage key strengths to service the rig refurbishment sector; build on
our long-term relationship with drilling community
Repeat customer contracts
New rig/WTIV orders
In progress
Enter the LTA
In progress
In progress
3
Deliver our
renewables
strategy
2
Broaden our
presence in
Saudi Arabia
4
Continue to
be a EPC(I)
provider to the
energy industry
1
Maintain market
leadership in
new build
jackup rigs
5
Build on our rig
refurbishment
and land rig
position
09
Our five
strategic
objectives
drive our
business
We will achieve
these objectives by...
Building rigs
through the
IMI yard and
winning new
WTIV orders
Entering
LTA and
implementing
IKTVA plan
Using our
market
expertise and
lessons learned
on EA1 project
Up-skilling
resources,
partnering with
complementary
contractors
Building on our
long-term
relationships
with the drilling
community
1
2
3
4
5
Strategic objective
Why this is important to us
Maintain market leadership in new build jackup rigs
We have successfully delivered 28 new build jackup rigs and six WTIVs and have a
track record of constructing profitable, high-quality units
Broaden our presence in Saudi Arabia
We aim to participate and invest in the world’s largest oil & gas market where there
is a stated multi-billion dollar investment programme
How we achieve it
Leverage and support our investment in the IMI yard; progress
proprietary LJ43 rig design1; IMI delivers 20+ new build jackup
rigs over next ten years
Become a LTA contractor for Saudi Aramco; expand bid pipeline
with LTA work; implement a plan for investing in Saudi Arabia and
partnering with local Saudi companies
Our measure of success
Achieved?
New rig/WTIV orders
In progress
Enter the LTA
In progress
In progress
Deliver our renewables strategy
Diversification into strategic market with significant fabrication requirements and
multi-decade investment future
Actively market our East Anglia One project experience; utilise our core
fabrication capability and competitive cost base to differentiate our offering
New renewables contract
at acceptable profitability
Continue to be a EPC(I) provider
to the energy industry
Move up the value chain, work directly for IOC and NOC clients, access more
substantial contract values, be in better control of our bid pipeline
Bid on EPC(I) projects for Saudi Aramco; selectively work with leading
partners to market capability into other EPC(I) projects
Increase EPC(I) bids
In progress
Build on our rig refurbishment and land rig position
recovers
Maintain base-load of contracts in rig refurbishment and land rigs as the market
Leverage key strengths to service the rig refurbishment sector; build on
our long-term relationship with drilling community
Repeat customer contracts
References
1. The LJ43 is an advanced and reliable jackup design for safe and efficient drilling
co-developed and licensed by partners Lamprell and GustoMSC
Lamprell plc Annual Report and Accounts 2017 Strategic report
International Maritime Industries
NEW
MANAGEMENT
TEAM
IN PLACE
10
“Lamprell has been working collaboratively
with its partners on the establishment of
the IMI business since 2015, and we are
pleased to see such tangible progress
towards the operational phase. This is a
transformational project in many aspects
and we are proud to be part of it as IMI is
capable of becoming a leading regional
and global service provider to the rig and
vessel markets.”
Peter Ireton
VP Business Development
Standing: General Counsel & Company
Secretary Alex Ridout, Chief Executive
Officer Christopher McDonald, Chief
Financial Officer Tony Wright, Vice
President Human Resources John
Macdonald and Vice President Human
Resources Kaye Krause Whiteing
(taking over from John Macdonald
who will retire in 2018).
Sitting: Vice President Commercial &
Risk Management Ian Wilkinson, Vice
President Business Development Peter
Ireton, Vice President IST & Business
Optimisation Shumon Zaman, Vice
President Supply Chain Management
Lawrence Himsworth, Vice President
Engineering Sabih Lahman, Vice
President Operations Hani El Kurd and
Vice President HSESQ Iain Walker.
11
On 31 May 2017 Lamprell signed
a joint venture agreement with
Saudi Aramco, Bahri and HHI
which will establish and operate
a maritime yard in the Kingdom
of Saudi Arabia. Our new
management team is in place
to help deliver the joint venture
established as “International
Maritime Industries” or “IMI”.
This is a cornerstone project in
the Saudi Vision 2030 and will
help us to establish Lamprell’s
business in Saudi Arabia.
Progressing towards operational phase
Once fully operational, IMI will provide
a broad range of services to the oil &
gas and maritime industries with the
primary focus being the construction
and maintenance, repair and overhaul
(“MRO”) of offshore rigs, commercial
vessels and offshore service vessels.
The yard is part of a development
known as “The King Salman International
Complex for Maritime Industries &
Services”. The yard will comprise of four
main production zones – A, B, C and
D. Lamprell has been chosen to be a
technical partner for zones A and D and
so our team will have a key ongoing role in
developing the yard’s capabilities. Zone A
will be used to provide MRO services for
jackup drilling rigs and vessels whereas
zone D will be used for the construction
of new build jackup drilling rigs.
Lamprell plc Annual Report and Accounts 2017
“Our partnership joint venture with
Saudi Aramco, HHI and Bahri for the
creation of the IMI yard creates significant
opportunities to continue our proven track
record in our core markets of new build
jackup rigs and rig refurbishment projects
both in Saudi Arabia and the UAE, which
will ultimately lead to increased revenue
and profitability for the Group.”
Hani Elkurd
VP Operations
Strategic report
International Maritime Industries
LAMPRELL SIGNS
TRANSFORMATIONAL
JOINT VENTURE
AGREEMENT
IMI will provide a full suite of services for offshore rigs,
commercial vessels and offshore service vessels including
engineering, manufacturing, construction and MRO activities.
Located at Ras Al-Khair, the yard is expected to be partially
operational in 2019 and fully functional by 2022.
12
The partners
Lamprell
Participation in this joint venture
will enable growth in scale beyond
Lamprell’s capability as a stand-
alone entity and will allow the Group
to strengthen its competitive position
through efficiencies, diversification and
new markets.
Saudi Aramco
Saudi Aramco is the state-owned oil
company of the Kingdom of Saudi Arabia
and a fully integrated, global petroleum
and chemicals enterprise. Over the past
80 years, it has become a world leader
in hydrocarbons exploration, production,
refining, distribution and marketing.
Bahri
Bahri is one of the world’s leading
transportation and logistics companies.
Established as the national shipping
carrier of Saudi Arabia, Bahri has played
a leading role in the transformation and
growth of the global shipping industry.
HHI
Since its establishment in 1972,
Hyundai Heavy Industries has grown
into the world’s leading heavy industries
company by successfully diversifying
from shipbuilding into offshore and
engineering, industrial plant and
engineering, and engine and machinery.
Share of JVCo
20.0%
Share of JVCo
50.1%
Share of JVCo
19.9%
Share of JVCo
10.0%
Infrastructure and facilities at IMI yard
Approximate area of IMI yard: 10,500,000m2
Approximate area of basin: 4,200,000m2
Approximate workshop
and warehouse area: 630,000m2
Total quayside walls and wharfs: 19
Approximate length of quayside: 8,600m
Total dry docks: 4
Yard total area (million m2)
10.5m2
Management
IMI will be run by a nine-member Board and, as per
the terms of the joint venture agreement, Lamprell is
represented by two of the nine members including
the Deputy Chair.
“In 2017 Lamprell reached a monumental
turning point in its 40+ year history in
the Middle East following the signing of
the joint venture agreement with Saudi
Aramco, Bahri and HHI. The Board views
the investment in the IMI yard as a game
changer for the Group and fully supports
its management team in bringing the
project to fruition.”
John Malcolm
Non-Executive Chairman
Yard total area (million m2)
10.5m2
D
C
B A
13
Zone D
Technical Partner:
Lamprell
New build jackups
Zone C
Technical Partner:
HHI
New build commercial vessels
Zone B
Technical Partner:
HHI
MRO and new build OSVs
Zone A
Technical Partner:
Lamprell
MRO jackups and
commercial vessels
Partial
completion
date:
Full
completion
date:
Partial
completion
date:
Full
completion
date:
Partial
completion
date:
Full
completion
date:
Partial
completion
date:
Full
completion
date:
1H
2019
1H
2020
1H
2020
2H
2020
2H
2021
1H
2022
2H
2021
2H
2022
140m
3.5bn
20
new build
jackup rigs
Capital Investment by Lamprell (USD)
Lamprell will invest up to USD 140 million
over the course of the construction of the
IMI yard from existing financial resources
and future cash flows.
Government investment (USD)
USD 3.5 billion of the USD 5.2 billion
aggregate construction cost will
be funded by the Government
of Saudi Arabia as it invests in the
yard infrastructure.
Future pipeline
Over a 10-year period, Saudi Aramco
(through ARO Drilling) will place orders
with the IMI yard to construct a minimum
of 20 jackup drilling rigs based on the
LJ43 design and use IMI for all its MRO
work on regional jackup rigs.
Lamprell plc Annual Report and Accounts 2017 Strategic report
International Maritime Industries
“The IMI yard will become the largest
in the region in terms of production
capacity and scale. The facility will serve
offshore oil & gas rigs, offshore support
vessels, and commercial vessels including
very large crude carriers (“VLCCs”).
By becoming the technical partner for
the rig building and MRO zones within
the maritime yard, Lamprell is enhancing
its reputation both regionally and
globally as a company of choice
for rig builds and services.”
George Gourlay
Chief Operating Officer for IMI
Zones A and D
14
IMI has been identified as a
priority initiative towards the
Saudi Government’s Vision
2030 programme for economic
development and represents
a fully integrated engineering,
fabrication and services shipyard
for vessels and offshore rigs.
Project overview
The integrated maritime yard will be
the largest in the region in terms of
production capacity and scale, providing
an unprecedented mix of products and
services in the area. IMI will enable its
customers to meet their engineering,
manufacturing, construction and MRO
requirements for offshore drilling rigs,
offshore support and commercial vessels,
as well as VLCCs.
The yard is unique in scale and
integration as it will have:
• the largest combined drydock
area compared to any other yard
in the region;
• the largest ship lift in the world with
a capacity of 25,000te;
• the largest combined lift capability
over a drydock of 2,150te; and
• the region’s longest quayside of
approximately 8,600 million metres.
The new facility will have the annual
capacity to manufacture four offshore rigs,
over 40 vessels including three VLCCs,
and service over 260 maritime products.
A unique combination of expertise and
capabilities are made available through
IMI, with Lamprell and HHI offering their
technical expertise, track record and
capabilities while Saudi Aramco and Bahri
will conclude offtake agreements with
IMI and make available their operational
knowledge and market access. Also,
IMI is in the process of establishing
long-term strategic partnerships with
original equipment manufacturers and
supply chain companies with the aim to
positively influence the overall lifecycle
costs of the fleets of IMI’s customers and
create a fully integrated maritime industry
ecosystem in Saudi Aramco.
Highly skilled and experienced staff
from Lamprell are working with the
joint venture partners to establish and
implement IT systems, engineering
capabilities, procurement systems,
production processes and quality
assurance policies and procedures that
have been proven to be successful at
both Lamprell and partner facilities.
IMI will have its first order intake
from Saudi Aramco and Bahri in
2018 and 2019 respectively, for the
procurement of new rigs and tanker
vessels. Lamprell’s new proprietary rig
design, LJ43, developed in collaboration
with GustoMSC, has been selected
as the base design for the 20 rigs. The
fabrication capabilities are expected
to commence in 2H 2019 with the facility
reaching its full production capacity
by 2022.
Financial overview
The IMI joint venture company has been
officially established by four joint venture
parties in collaboration with the Saudi
Government. The partners committed
to a total investment of more than
USD 1.7 billion (of which USD 1 billion
will be provided by the Saudi Industrial
Development Fund) for the start up of
operations as well as the procurement of
equipment, while the Saudi Government
has started constructing the infrastructure
for the industrial complex and developing
the surrounding industrial city.
IMI activities are projected to provide
a robust return on the investment for its
shareholders as well as a solid impact
on the gross domestic product of Saudi
Arabia, especially in terms of import
substitution, job creation/training of Saudi
nationals to form a high percentage of the
workforce and supply chain management.
Strategic highlights
Lamprell directly benefits from its
participation in IMI as a technical partner
due to the diversification of markets and
exposure to new but complementary
market segments. Synergies are created
in production methodologies, product
development, engineering activities
and skills development of the staff. It
is expected that the partnership in IMI
is an initial step in the collaboration
between the partners in the future, and
that multiple commercial initiatives will be
developed among the partners directly.
The joint venture is expected
to increase revenue generating
opportunities for Lamprell
within the UAE with significant
component parts for the first two
jackup drilling rigs expected to
be subcontracted to Lamprell’s
UAE facilities during the initial
construction phase of the IMI yard.
IMI brand
The new Saudi maritime yard was officially
branded as “International Maritime
Industries” or “IMI” late in 2017 and
provides the organisation with a global
brand which will be vital to the marketing
of the yard when we are ready to go to
the external market for new build and
repair projects.
Our people at IMI
The combination of world-leading
oilfield operators, vessel owners, rig and
shipbuilders bring a vibrant multicultural
mix of people together and as a technical
partner, Lamprell is contributing an array
of technical experts who are focused
on preparing the IMI yard for the start
of operations.
Saudi Vision 2030
The IMI yard is a cornerstone project
of the Vision 2030 programme which is
being driven by the Government of the
Kingdom of Saudi Arabia to stimulate
its economy and diversify its revenues.
Lamprell’s investment in the yard in Saudi
Arabia demonstrates its commitment to
support the country. At the same time
Lamprell will aim to grow and diversify
its ongoing business at its existing UAE
facilities.
52
10 years
of sales guaranteed
Future pipeline
Over a 10-year period, Bahri will place
orders with the IMI yard to construct a
minimum of 52 different vessels including
20 VLCCs plus use IMI for most of its
vessel MRO requirements.
IMI Board
Lamprell has two representatives on the IMI Board, CEO Christopher McDonald and
CFO Tony Wright. The new IMI Board consists of a total of nine members; they are
pictured here with the newly appointed IMI CEO and CFO following their first Board
meeting which was held in December 2017.
References
1.
2. Reuters December 2017
IHS Petrodata March 2017
5.2bn
Aggregate cost (USD)
The aggregate cost of constructing the
IMI yard is expected to be approximately
USD 5.2 billion, of which about
USD 3.5 billion will be funded by the
Government of the Kingdom of Saudi
Arabia to establish, prepare and construct
the site and shared infrastructure. The
remaining cost of about USD 1.7 billion,
relating to the specific requirements of
each zone, will be funded by the joint
venture partners and the IMI lenders,
the Saudi Industrial Development Fund.
Commitment to local investment
Lamprell is committed to developing
businesses and personnel in Saudi
Arabia as part of this project. It is actively
working with Saudi companies to develop
the local supply chain network and
has partnered with a Saudi company
to develop its presence in-Kingdom. In
addition, a further goal of IMI is training
of the Saudi workforce. We will see the
first group of Saudi apprentices join the
IMI yard training academy, which hopes
to deliver 750 trades personnel within the
next two years and increase Saudization
in line with Vision 2030.
15
Top users of jackup rigs1
44 Saudi Aramco
32 ONGC
21 PEMEX
20 CNOOC
17 Adma-Opco
9 Total
6 Chevron
3 Shell
3 Statoil
2 BP
1 Petrobras
414bn
Expected spending (USD)
Saudi Aramco, as the national energy
company within the Kingdom of Saudi
Arabia, is expected to play a vital role in
supporting the continued strength of the
Saudi Arabian energy market and has
stated that it plans to spend more than
USD 414 billion over the next decade2.
2017
2016
2015
2014
2013
Lamprell plc Annual Report and Accounts 2017 Strategic report
Chairman’s statement
A YEAR OF
CHANGE
TO THE
BUSINESS
16
Lamprell’s operational and financial performance was disappointing
in 2017. Lamprell is now entering a critical phase where it must
learn from 2017 and deliver the strategic objectives on the path
to long-term growth.
We expected 2017 to be the toughest
year to date for Lamprell. It was.
Unfortunately, in addition to the revenue
pressures anticipated by the broader
industry, we encountered major
operational challenges on the East
Anglia One project which resulted in
a significant loss for the Group and
negatively impacted our financial
statements accordingly. The Group’s
operational and financial performance in
2017 fell well short of our expectations
even though we made good progress
in delivering our strategic goals.
Clear strategy
It is critical to preserve the long-term
perspective amid immediate challenges,
and 2017 has been a year of change and
strategic repositioning for Lamprell. Our
immediate priority was the operational
demands of our ongoing projects. In
a global energy environment marked
by complexity and uncertainty, the
Board focused on developing a clear
strategy with solid deliverables to
ensure Lamprell’s future. Despite initial
indications of a recovery in the oil & gas
industry, we do not expect the new build
jackup rig sector to recover in the near to
mid-term as capital expenditure amongst
oil producers remains restrained and new
project awards continue to slip
We therefore are determined to access
alternative markets, in particular in the
renewables sector, and broaden our
service offering by participating in larger
and higher value EPC(I) contracts through
partnership options.
04.
Another pillar of our strategic vision is
gaining access to resilient markets and
in particular Saudi Arabia. In spite of
being one of the most influential regional
players in the Middle East with a 40+ year
track record in fabrication, Lamprell has
not previously done business with Saudi
Aramco, one of the most significant global
oil majors. This finally changed in 2017
and we are delighted to have entered
into a joint venture agreement with the
company along with Bahri and Hyundai
Heavy Industries to build a new maritime
facility in eastern Saudi Arabia, which
will become one of the largest yards in
12. For a company of our
the world
size, this is a critical point of entry into a
dynamic market committed to ongoing
growth and a major stepping stone
towards our strategic goals.
Our investment will enable Lamprell to
build on its core expertise in jackup
rigs and will also provide consistent
contributions to our revenue streams.
Our commitment to invest in this project
has also offered an inroad into one of
the most sought-after and selective
processes in the industry as Lamprell
has pre-qualified for a shortlist of
companies being considered for a
long-term agreement to deliver EPC(I)
projects to Saudi Aramco. Our confidence
in the prospects of this partnership was
almost unanimously supported by our
shareholders when they voted for the final
investment decision in June last year.
We were pleased to receive full backing
of our banking syndicate for this venture
as well.
Ability to deliver
26.
We experienced significant challenges
on the East Anglia One project
This was a very disappointing outcome
for our shareholders which resulted
in a total USD 98.1 million loss for the
Group. We have undertaken a root cause
analysis to determine the factors causing
the significant, additional costs on the
project which started with insufficient
rigour during the bidding phase,
compounded by inexperienced project
leadership in this new market. With these
learnings, we have already implemented
many performance improvement
initiatives to return to productivity levels
close to historic norms and to prevent
recurrence,
and experiences from this project,
although painful, have confirmed our
commitment and our ability to deliver to
the industry in general. The fundamentals
of the renewables market are solid and,
backed by European policy
05, it is
anticipated to become a major pillar of
global energy supply over the coming
years. Therefore, we now view this as an
investment in securing Lamprell’s position
in this emerging industry.
26. The lessons learned
The prudent approach we have taken
towards cost management in the past
two years has allowed us to preserve
the strength of our balance sheet
20, which in turn enables us to focus
on delivery of strategic growth amid
market and operational challenges.
We are being selective in our new
business pursuits, targeting only realistic
opportunities that fit with our core
competencies and our diversification
“It is critical to preserve the long-
term, forward-looking perspective amid
immediate challenges, and 2017 has
been a year of change and strategic
repositioning for Lamprell. We are being
selective in our new business pursuits
targeting only realistic opportunities that
are aligned with our strategic objectives
while generating robust margins.”
John Malcolm
Non executive Chairman
goals while generating robust margins.
This approach has refocused our bid
pipeline
04, and we have upskilled
our workforce and invested in additional
resources to broaden our in-house
expertise and match our capabilities with
the strategic goals set for the business.
Addressing new markets is rarely
straightforward and often comes at a cost.
In its 40+ year growth history, the Group
has faced setbacks, most notably as we
diversified from rig refurbishment into
new build jackup fabrication in the late
1990s. Our efforts and investment proved
worthwhile then and I am confident they
will do so again.
The lessons we learnt in 2017 are not
only applicable to the renewables sector;
they have led us to review our overall
approach to accessing new opportunities.
The Board is now closely involved in
senior leadership planning to ensure
our in-house expertise matches our
strategic objectives and we are capable
of delivering not only on quality but also
on cost.
Board changes
In September 2017 I replaced John
Kennedy as Lamprell’s Chairman. John’s
leadership has taken the Group onto a
new strategic path as the industry entered
a significant downturn. I thank John for
his efforts over the last five years and very
much look forward to taking the vision
to the next level. In 2017 we welcomed
Nick Garrett and James Dewar as new
Non-Executive Directors; their collective
experience in delivering strategic
transformations within major industry
players will be highly valuable. Following
these appointments, the Board has made
a number of changes to the composition
of its Committees which are detailed on
page
42 of this report.
Final dividend
Given the significant challenges the
Group encountered in 2017 and the
uncertainty in the industry, the Board does
not recommend a final dividend for the
year. We are grateful for the confidence
and support of our shareholders and our
lending banks as we work through the
near-term issues facing the Group and
look to deliver long-term growth.
Looking to the future
We experienced significant challenges
throughout 2017 and these have had
a profound effect on the way that we
approach and implement our vision. We
streamlined the business over the past two
years and we have adapted and added
to our resources to support the strategic
objectives. We are now entering into a
phase of delivering on our goals. The
Board is confident that transformational
growth and diversification is the right
strategy for Lamprell for future success.
John Malcolm
Non-Executive Chairman
Total shareholder return
(16.8)%
2016: (3.4)%
17
Lamprell plc Annual Report and Accounts 2017 Strategic report
Chief Executive’s report
CONFRONTING
CHALLENGES,
LEARNING FOR
THE FUTURE
As the downturn in the oil industry continues to affect our traditional
sources of revenue, in 2017 we struggled to execute on our entry
into the renewable foundations market. This is a major new market for
Lamprell which presents both significant opportunities and challenges.
18
2017 was my first full year as CEO, and
it has been a year of repositioning for
Lamprell. It has also been dominated
by the problems on the East Anglia One
project which we have worked hard to
overcome, as detailed below. Despite
early signs of recovery in the wider oil
industry, the global jackup rig market
remained dormant. Therefore, building
upon our core competencies, Lamprell
has adopted a strategy of geographical
and sector diversification by addressing
opportunities in the renewables sector
as well as broadening our expertise and
partnership options to access EPC(I)
projects. We have also strengthened our
position in our core geographic region
and the new build jackup rig market by
partnering with major energy industry
players to establish a large-scale
maritime yard in Saudi Arabia
will broaden our global reach, product
expertise, and secure a foothold in one
of the few oil & gas markets committed
to growth in the current environment.
Investing in people will be vital to
implement our strategy
08.
11. This
Total awards
(USD million)
1,400.0
739.8
407.0
359.0
114.8
2013
2014
2015
2016
2017
Health and safety
I am pleased to report that we achieved
a TRIR of 0.30 for 2017, in line with
industry best practice. This achievement
is particularly noteworthy given the large
numbers of new employees hired during
2017. In May 2017 we appointed a new
Vice President of HSESQ
29 who has
brought new energy to drive improvement
in our safety standards. Although the
results of this effort are impressive, we
are looking for new ways to improve safety
performance as our TRIR statistics should
not be allowed to stagnate. An area of
specific focus will be safety practices at
remote site locations where the risks of
an incident can be higher due to reduced
oversight. We are striving to provide
a best practice safety and wellbeing
environment for our employees
30.
Operational update
2017 saw the completion of three new
build jackup rigs, two for NDC (now known
as ADNOC Drilling) and one to Shelf
Drilling. We also completed the large-scale
UZ-750 module fabrication project for
Petrofac
27.
With the delivery of the above projects,
our operational focus moved onto the
execution of the two major projects
awarded at the end of 2016: the
USD 90 million rig upgrade project for
Master Marine and the contract for the
fabrication of 60 foundations for the
UK’s East Anglia One offshore wind farm
project. While we made good progress on
Master Marine,
27, I am disappointed
with the outcome of the East Anglia One
project which has resulted in a significant
loss for the Company, especially as we
successfully delivered five major projects
in 1H 2017 including the above three rigs.
Renewables is a new sector for us and
one which we believe offers significant
long-term potential. It turned out that our
first project involved a steep learning
curve. Having said this, we have learned
the hard way how to be competitive in
future in this sector.
Based on our root cause analysis for this
project, we did not spend enough time
and effort during the bidding stage to
develop a robust project execution plan
that adequately addressed project risks.
We compounded this problem by initially
assigning a project leadership team that
was experienced in our traditional core
competencies but not this new market.
We have learned by experience that the
risks and challenges associated with
constructing and shipping 60 jackets
in an assembly line process are very
different from constructing multiple rigs
concurrently.
26. As a result,
We identified a number of performance
improvement opportunities, and we have
already taken actions to deliver these
including the replacement of the project
leadership team,
we have seen substantial performance
improvement as the project has
progressed and we are now delivering
overall productivity close to our historical
norms, and we can see opportunities
to improve this further. With correct
project pricing at the beginning of the
project and execution at the levels of
productivity that we are now seeing
“Over the years we have proved time and
again our ability to address temporary
challenges to emerge a more resilient and
reliable industry player. With many of our
strategic opportunities coming into focus,
2018 is set to become a critical year for
Lamprell.”
Christopher McDonald
Chief Executive Officer
towards the end of the project, we would
have made a profit in line with our return
expectations. This gives me confidence
that going forward we can compete
successfully in this important and fast-
growing sector.
Our rig refurbishment segment continues
to demonstrate solid performance, and
we noted a recovery in new orders
towards the end of the year, although
the scope of work requested remains
below historical norms.
In other segments, we reported
successful completion of a mid-size
project for Schlumberger comprising of
two land rigs of their new design. The
client is deploying them for operation in
the region. This project has reinforced
our emerging reputation for constructing
high-quality land rigs in a safe and timely
manner, and we will be looking to build on
this in the coming years.
Implementing the strategic objectives
During 2017, the Group successfully
implemented a number of steps towards
fulfilment of its strategy as it looked to
diversify and de-risk its exposure to oil
price volatility and to access revenue
generating opportunities in new sectors
and geographies.
Our most ambitious step in the journey
of transformation was the joint venture in
May 2017 to establish a major maritime
yard in Saudi Arabia see
11. This
was the culmination of many months
of negotiation and due diligence, and
so it was pleasing not only to sign the
agreement with the partners, but also
to see such overwhelming support
from our shareholders for the project.
When fully operational, the yard will
provide Lamprell with an unprecedented
opportunity to access a major growth
market. Construction works have
already commenced, and we expect full
commissioning of all zones by 2022.
Not only has this strengthened our
position in new build jackup rigs, it has
also led to further regional opportunities
which are aligned with our long-term
strategy. We prequalified for a long-term
agreement with Saudi Aramco which,
if successful, would make us one of a
limited number of companies bidding for
approximately USD 3 billion of offshore
EPC(I) contracts each year. To access
this opportunity, we are partnering with a
renowned offshore installation partner to
complement our construction expertise.
In addition to the LTA, we are also
pursuing EPC(I) work in other regions
representing an annual opportunity
set of approximately USD 3 billion. We
have reinforced our in-house resources
to be able to address the bidding and
execution to a high standard and have
invested in building a team with expertise
in the segment, as well as specifically in
working within an LTA framework.
Our first win in the renewables sector in
2016 has affirmed our intention to solidify
our position in this fast-growing industry
and having learned from the substantial
project challenges we encountered at the
start we remain enthusiastic about future
opportunities – around 45% of our current
bids are focused on this sector.
19
Outlook
With many of our strategic opportunities
coming into focus, 2018 is set to become
a critical year for Lamprell. Our revenue
levels will come under further pressure in
2018 in the absence of significant new
awards in 2017. That said, we are working
to convert some key opportunities during
the year: the first two jackup rigs from the
Saudi joint venture are expected to be
awarded with portions of the work to be
subcontracted to our facilities in the UAE,
and we will also know the outcome of
the highly competitive selection process
for the LTA in 2H 2018. In addition, some
of the bids in our current pipeline are
expected to be awarded towards the
end of 2018. We are, however, seeing an
increase in activity in our bid pipeline,
which stood at USD 3.6 billion at the
end of 2017 and are confident that the
diversification strategy along with market
recovery in the medium term will allow us
to deliver on our growth ambition. Over
the years Lamprell has proved time and
again its ability to address temporary
challenges and to emerge a more resilient
and reliable industry player. That was only
possible with an exceptionally committed
31, and
and experienced workforce
I thank the team for their full dedication
during these challenging times.
Christopher McDonald
Chief Executive Officer
Lamprell plc Annual Report and Accounts 2017 Strategic report
Financial review
BALANCE SHEET
STRENGTH
FOR STRATEGIC
INVESTMENT
Lower levels of capital expenditure in the oil & gas industry led to a fall
in revenues for Lamprell with further margin pressure resulting from
operational challenges. We have a strong focus on cash conservation
aligned with our strategic investment.
20
As anticipated, the Group’s financial
performance came under pressure as the
capital expenditure cuts in the oil & gas
industry over the last four years affected
our levels of new project awards and
therefore our revenues. Our revenue for
2017 was USD 370.4 million, a significant
but expected reduction on USD 705.0
million reported in the prior year.
25 and the
The first half of the year showed steady
revenue flows with a number of major
project completions
resulting final milestone payments. Second
half revenues were driven primarily by
the East Anglia One and Master Marine
projects, the contract with Schlumberger
for the construction of two land rigs and
the slow recovery of the rig refurbishment
segment where we saw an increase in
activity towards the end of the year
27.
The newbuild jackup rig segment
generated USD 49.4 million in revenue
during the reporting period, a sharp
reduction (2016: USD 567.6 million)
driven by the prolonged market downturn.
Revenue for oil & gas contracting
services, which includes the Master
Marine project, increased to USD 131.3
million (2016: USD 47.6 million). The
offshore platforms segment, which
includes the East Anglia One project,
generated USD 140.7 million in revenue
(2016: USD 12.8 million).
Net cash (USD million)
257.0
2016: 275.2 million
Modules revenue amounted to
USD 3.0 million (2016: USD 40.8 million)
and operations, maintenance and
manpower supply USD 46.1 million
(2016: USD 36.2 million).
Margin performance
Despite strong margin contributions
from project completions in the first half
of 2017, the Group made a gross loss
of USD 50.2 million for the year ended
2017 as a result of reduced revenues as
well as the significant losses incurred on
the East Anglia One project (2016 gross
profit: USD 57.2 million). The negative
net margin was thus 13.5%. The Group
has delivered a reduction in overheads
for the sixth consecutive year; in 2017
our overheads amounted to USD 82.4
million (2016: USD 98.4 million). We will
continue to control overheads in line with
current market outlook but expect an
increase in 2018 as we continue to invest
in Lamprell’s strategic initiatives.
Group EBITDA from continuing
operations amounted to USD (70.5)
million (2016: USD 30.6 million1). EBITDA
margin was (19.0)% compared to 4.3%
reported in 2016.
Finance cost and financing activities
In 2017, lower levels of debt, facilities
commitment fees and bonding
commissions resulted in a reduction
in net finance cost to USD 5.1 million
(31 December 2016: USD 9.9 million).
Gross finance costs were USD 9.0 million.
Our higher levels of cash in 2017 have
resulted in our finance income increasing
to USD 3.9 million (2016: USD 2.9 million).
Net (loss)/profit before exceptional items
Due to the operational challenges on
the East Anglia One project the Group
recorded a loss before exceptional items
for 2017 attributable to the equity holders
of USD 98.1 million (2016: loss of
USD 0.4 million). The fully diluted loss
per share for the year was 28.70 cents
(2016: loss per share of 53.94 cents).
Capital expenditure
The Group’s operational capital expenditure
for the year ended 31 December 2017
decreased to USD 23.7 million, compared
to USD 25.6 million in 2016. Strategic
capital expenditure of USD 20 million is
attributable to the Group’s first installment
of our capital injection into the IMI yard
11 to fund the joint venture formation
activities. Over the coming years the
Group will be required to make further
contributions on an annual basis totaling
up to USD 140 million over the five to six
year construction period. We expect to
fund this project from our balance sheet.
Lamprell retains considerable flexibility
in capital expenditure on its existing
operations and our current commitments
reflect the strength of the balance sheet
and our net cash position.
Cash flow and liquidity
The Group’s net cash flow from operating
activities for the full year ended 2017
reflected a net inflow of USD 32.4 million
(2016: net inflow of USD 99.9 million),
which was driven primarily by the
conversion of working capital into cash
on the completion of projects, offset in
part by increased working capital on
References
1. EBITDA reported in 2016 includes the settlement with Ensco.
“The Group’s balance sheet remains
strong with USD 257.0 million in net cash.
The Board believes that maintaining
significant liquidity is beneficial to
the Group. As a result, in 2017 and
2018, the Group obtained debt facility
amendments from its lenders in relation
to certain of the financial covenants,
to provide financial flexibility.”
Tony Wright
Chief Financial Officer
the East Anglia project. Prior to working
capital movements and the payment of
employees’ end of service benefits, the
Group’s net cash outflow was USD 56.3
million (2016: inflow of USD 41.1 million).
Cash and bank balances decreased by
USD 38.2 million to USD 296.4 million.
Throughout 2017 we continued to focus
on cash flow and on preserving our
strong cash position. We will diligently
protect the cash position of the Group
in 2018, but there will be a reduction in
our net cash as a result of the funding
requirement of USD 30 million on the East
Anglia One project, an equity contribution
of USD 38 million in the Saudi Maritime
Yard (“IMI”) and continued investment
of USD 10 million in capital expenditure
to deliver efficiency improvements in our
yard facilities. The final payment of
USD 41 million for the two S116E rig kits
(which we contracted for in 2015 from
Cameron Le Tourneau to secure our
supply chain) will come due in 2018 in
line with the amended delivery schedule.
Whilst the cash flows relating to the
East Anglia One project will reduce the
Group’s tangible net worth in 2018, the
cash out flows into the IMI, the S116E
rig kits and the operational capital
expenditure will increase our tangible
asset base. We believe it is important to
use our financial strength to make these
investments and position the Group to
take advantage of future opportunities.
Balance sheet
At USD 257.0 million the Group’s net
cash was marginally below 2016 levels
(31 December 2016: USD 275.2 million).
This reflects the initial investment in the
Saudi Maritime Yard
11 as well as
working capital requirements on our
major projects.
The Group’s total current assets
at 31 December 2017 were USD 498.9
million (31 December 2016: USD 616.8
million). Trade and other receivables
decreased to USD 164.7 million
(31 December 2016: USD 275.3 million).
Shareholders’ equity reduced to
USD 460.8 million (31 December 2016:
USD 555.4 million).
Borrowings
Borrowings at 31 December 2017 were
USD 39.5 million (31 December 2016:
USD 59.5 million). The Group’s facilities
comprised (a) a USD 100 million term
loan amortised over five years, of which
USD 60 million had been repaid
by the end of the reporting period;
(b) USD 50 million for general working
capital purposes which remained
unutilised; and (c) USD 100 million of
working capital for project financing
(reduced from USD 200 million), also
undrawn. In 2017 the USD 150 million
committed bonding facility (which
reduced from USD 250 million in 2016) to
be used in connection with new contract
awards funded by the above working
capital facility, was reduced by a further
USD 100 million to 50 million as it was
replaced by lower cost bilateral bonding
facilities. The Group’s debt to equity ratio
at 31 December 2017 was low at 8.6%.
Amendments to debt facility covenants
The Group’s balance sheet remains
strong. The Board believes that
maintaining significant liquidity is
21
beneficial to the Group. As a result, in
2017 the Group obtained debt facility
amendments from its lenders in relation
to certain of the financial covenants, to
provide financial flexibility. These include
a waiver of the ratio of EBITDA to debt
service covenant up to the period ended
31 December 2018 and the ratio of
borrowings to EBITDA covenant for the
periods ended 31 December 2017 and
30 June 2018. The tangible net worth
covenant was also amended to a level
of USD 325 million for the remaining
duration of the facility. Securing these
waivers further demonstrates the strong,
continuing support that the Group
receives from its lender group.
Going concern
The Group continues to adopt the going
concern basis as detailed on
72.
Dividends
In the context of ongoing market
challenges, the low revenue levels in 2017
and the investment for future growth in the
Saudi maritime yard, the Directors do not
recommend the payment of a dividend for
the period in relation to the financial year
ended 31 December 2017.
Tony Wright
Chief Financial Officer
Lamprell plc Annual Report and Accounts 2017 Strategic report
Key Performance Indicators
EVALUATING
OUR
PERFORMANCE
IN 2017
22 We use a number of key
performance indicators to
measure our performance and
track the delivery of strategic
goals. Most are linked either
to the short-term or long-term
incentives for the remuneration
of the executive team (these are
marked with KPI ).
Safety TRIR
(rate per 200,000 hours)
KPI
0.67
Revenue
(USD million)
1,072.8
1,084.9
0.28
0.31
0.29
0.30
871.1
705.0
370.4
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Definition:
Number of injuries per 200,000 hours worked.
This includes any injury that requires more than
first aid treatment, which would be designated
a medical treatment case or requires restrictions
in work activities due to injury and days away
from work.
Strategic relevance:
Safe operations are efficient operations. We
want all our employees to return home safely
after each shift. Our safety track record often
forms part of the bidding and evaluation
process by our clients.
Definition:
Income from existing operations during the
reporting period before deduction of costs.
Strategic relevance
Revenue is a key metric underpinning our
ability to operate efficiently on a daily basis
and generate sufficient working capital for new
contracts and business growth.
Total shareholder return
(%)
KPI
Bid pipeline
(USD million)
23.8
23.8
2013
2013
2014
2014
2015
2015
(14.2)
(14.2)
(17.8)
(17.8)
2016
2016
(3.4)
(3.4)
2017
2017
(16.8)
(16.8)
Definition:
Share price appreciation and dividends paid
to shareholders.
Strategic relevance:
Maximising shareholder value is a key metric
we consider when addressing Group strategy.
4.7
5.2
5.4
3.6
2.5
2013
2014
2015
2016
2017
Definition:
Total value of commercial bids ongoing
which are expected to be awarded in the
next 12 to 18 months.
Strategic relevance:
Our goal is to sustain a robust bid pipeline
that includes realistic prospects matching
our core expertise and allowing us to expand
into new strategic sectors, whilst maintaining
strong margins.
Consistently maintained a world class safety record
in its operations
Decline in awards and order book due to the global
energy market downturn since 2014
Profitability in 2017 significantly impacted by loss
on wind farm project
Balance sheet strength supported by year-end
net cash position
Net (loss)/profit
(USD million)
KPI
Net cash
(USD million)
KPI
EBITDA
(USD million)
KPI
23
118.0
118.0
2014
2014
64.7
64.7
2015
2015
36.4
36.4
2013
2013
272.6
275.2
257.0
183.8
210.3
2016
2016
2017
2017
2013
2014
2015
2016
2017
137.0
137.0
90.0
90.0
2014
2014
2015
2015
76.0
76.0
2013
2013
30.6
30.6
2016
2016
2017
2017
Definition:
Total earnings during the
reporting period after
cost of sales, overheads,
interest, taxes and
other expenses.
(184.3)
(184.3)
Strategic relevance:
Profitability is a key indicator of business
efficiency and cost management and a
major requirement for business growth and
sustainability.
(98.1)
(98.1)
Definition:
Cash generated from our funding activities
and operations, after deduction of debt.
Strategic relevance:
Net cash is a core indicator of capital
and balance sheet management. The
strength of our balance sheet allows us to
remain competitive and to address capital
requirements for strategic growth.
Definition:
EBITDA is defined as the Group
(loss)/profit for the year from
continuing operations before
depreciation, amortisation, net finance
expense and taxation.
(70.5)
(70.5)
Strategic relevance:
EBITDA indicates the effectiveness of cost
management as well as operational efficiency
and revenue growth.
Order book
(USD million)
KPI
Total awards
(USD million)
KPI
1,205.2
862.0
739.7
1,400.0
739.8
393.4
137.9
407.0
359.0
114.8
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Definition:
Total value of current works to be undertaken
on firm contracts and 50% of projected walk-in
work as at the end of the reporting period.
Strategic relevance:
Our order book provides short- to medium-term
visibility of our financial position and activity
levels in our yards.
Definition:
Total value of all contracts awarded in the
reporting period.
Strategic relevance:
Converting the bid pipeline into contract awards
ensures sustainable operation of our business.
The metric is of particular relevance during
the industry downturn as we look at revenue
streams outside of our traditional sectors of
expertise.
Lamprell plc Annual Report and Accounts 2017 Strategic report
Operational review
WE CONTINUE
TO DELIVER
QUALITY AND
VALUE FOR MONEY
24
“We had over 2,000 people join Lamprell
throughout 2017, many of them welders
who went through rigorous training at
Lamprell’s Assessment and Training
Centre. Using mostly FCAW technology,
our welding teams have been given
specific KPI targets which results in
increased productivity and a reduction
in consumable wastage for the Group.”
Krishna Kumar
Senior Welding Engineer
“2017 saw the completion of our largest
and longest-running project so far with
delivery of the final two jackup rigs for
ADNOC Drilling. Bringing the eight-year
project for construction of nine rigs in
total to a successful conclusion was a
memorable milestone for the team. Our
project management teams are dedicated
to delivering Lamprell’s projects safely,
within budget and on schedule.”
Piotr Jaworski
Project Manager
25
We started 2017 well with
the successful delivery of the
final two jackup drilling rigs
for ADNOC Drilling out of
a series of nine, as well as
handover of the second rig
“Shelf Drilling Krathong” to
Shelf Drilling. We also completed
the UZ750 module project and
the Kaombo project for HMC.
As we brought those projects
to a successful completion, we
turned our attention to the new
Master Marine and East Anglia
One projects.
Overview
Project completions early on in the year
and the slow pace of new contract
awards brought yard activities to a
relatively low level in 1H 2017. However,
once fabrication work commenced on
the East Anglia One project, as well
as our major upgrade for the “Haven”
mobile operating unit on behalf of Master
Marine, yard activity quickly picked up.
We had over 2,000 new employees join
us throughout 2017, and our Lamprell
Assessment and Training Centre was
kept busy with ongoing induction, safety
and other training throughout the second
half of the year. While the upgrade of
the “Haven” unit proceeded as planned,
we experienced a steep learning curve
on the East Anglia One project which
was our first foray into the wind farm
foundation market
18.
Lamprell plc Annual Report and Accounts 2017 Strategic report
Operational review
Major execution and project management
challenges experienced on East Anglia One
Final two rigs out of a total of nine delivered
to our biggest client
Successfully completed second rig for Shelf Drilling
Delivery of final modules for UZ750 project finalised
Launched the LJ43 new proprietary jackup
rig design
Five million manhours without a day away from work
case achieved on East Anglia One project
Two land rigs delivered to Schlumberger
“Throughout 2017, Lamprell has
been upgrading the “Haven”, a jackup
accommodation unit, on behalf of our
client Master Marine. The project team
celebrated 2.4 million manhours without
a day away from work case at the close
of 2017. Work in our UAE yards is
complete and our team will work through
the Norwegian winter to complete final
installation works.”
Daniel O’Doherty
Deputy Project Manager
26
Safety first
Lamprell considers the safety of its
employees as its top priority. In early
2017, a large number of our employees
had been contracted to work at a client’s
worksite but, following a deterioration in
various safety processes at the site, we
responded proactively to address these
concerns and protect our workforce. We
attempted to collaborate with the client
to improve safety standards, but once
it became clear that this would not be
possible, we decided to terminate the
relationship with the client and withdraw
our employees from the site. The health
and well-being of our employees is
of paramount importance, even when
working on remote locations. At Lamprell
yards we saw a significant ramp-up in
our manpower as we staffed up to work
on the East Anglia One and Master
Marine projects and, as part of that, we
implemented a number of campaigns
to educate and train the new employees
up to the rigorous safety standards that
Lamprell expects and maintains. This
proved to be highly successful and,
while our rolling TRIR increased early
in 2017 due to the remote site issues,
the exemplary performance in our own
yards ensured that our safety track record
returned to historical strong performance
levels as we ended the year with a TRIR
of 0.30
30.
Transformational joint venture
After lengthy discussions, the Group
signed a joint venture agreement with
Saudi Aramco, Bahri and HHI to establish
and operate a maritime yard in the
Kingdom of Saudi Arabia through a joint
venture company
11. Lamprell will
be the technical partner in two zones,
focusing on construction of offshore
jackup rigs as well as MRO services
for rigs and commercial vessels. The
construction process at the site is under
way with dredging and associated
activities in progress. A full briefing
on this project can be found on pages
10 to 15.
Amicable settlement
In August 2017, we reached an amicable
settlement with Cameron, a subsidiary of
Schlumberger, in respect of the issues
associated with their jacking equipment
supplied in 2016. We are pleased to
have successfully resolved the issues
and to preserve a healthy relationship
with Schlumberger, who commissioned
Lamprell to fabricate two land rigs in
accordance with the client’s proprietary
rig design. We completed the rigs and
this further strengthened Lamprell’s
credentials in the land rig sector.
New proprietary rig design
In November 2017, Lamprell and
technology partner GustoMSC unveiled
the “LJ43”, an advanced jackup rig
design, at the Abu Dhabi International
Petroleum Exhibition and Conference.
Lamprell’s new proprietary rig design,
LJ43, developed in collaboration with
GustoMSC, has been selected as
the base design for the 20 rigs to be
constructed at the IMI yard in Saudi
Arabia
rig design helps to underpin Lamprell’s
future in the new build rig market for the
foreseeable future.
12. Our investment in a new
Renewables market
East Anglia One is Lamprell’s first major
renewable foundations contract, and we
are disappointed that our performance
on this project in 2017 was below
historical levels, given our delivery of five
major projects in early 2017. The poor
performance originated at bidding stage
when we underestimated the complexities
of the work scope and planning
requirements as this represented a new
sector for us. During the early stages
of project execution, our initial project
management team was slow to address
key issues such as change management,
management of the supply chain and
recruitment of specialist welders which
compounded the difficulties.
As a result, we have faced a steep
learning curve incurring significant
additional costs and experiencing
inefficiencies as we worked to deliver the
project as per our client requirements.
We are very disappointed with our
execution on this project, however, we
have already implemented many steps
to improve performance. These include
considerable investment in resources
and new talent with specialist sector
experience, improved and transparent
manpower forecasting, greater scrutiny
of benchmark data for bidding norms
on these kinds of projects, a focus on
key individual project risks as part of the
initial bidding processes, closer alignment
between our functional teams during
bidding and into the handover phase;
and closer engagement with our clients
to manage change orders. Not only has
this raised productivity on this project
close to our historical norms, but we have
also learned the hard way how to be
competitive in the future in this sector.
Lamprell has fabricated and successfully
delivered a total of 22 new build jackup
drilling units to the oil & gas market.
The land rigs “501” and “502” which were
awarded to Lamprell by Schlumberger
in 2017 are complete after being fully
assembled in Lamprell’s Hamriyah yard.
The client is deploying them for operation
in the region and we are looking to foster
this collaborative partnership into a long-
term relationship.
The Master Marine project progressed well
throughout the year, and all construction
work in our UAE yards was completed
successfully. There were significant
safety milestones including the 2.4 million
manhours reached by the close of 2017
without any DAFWCs. The Lamprell project
team mobilised to Norway where they will
carry out final installation work during the
first half of 2018.
While 1H was relatively quiet in rig
refurbishment projects, the second half
of 2017 saw a significant increase in
bids and projects with clients coming
back to Lamprell due to our proven track
record of quality, completing projects on
a compressed timetable and because of
our first class quayside facilities that allow
us to conveniently stack rigs.
By the close of 2017, our rig
refurbishment business completed a total
of 13 projects and our stacking facility
housed approximately 14 rigs for various
lengths of time throughout the year.
We have recognised the importance of
meeting our client’s expectations in terms
of schedule and quality, and we have
embedded the many lessons learned
to create a production line mentality
for the construction and delivery of
the 60 foundations. Completion of this
renewables project is one of our primary
focus areas for 2018 to demonstrate our
capabilities in this market. With these
performance improvement measures in
place, we can compete effectively and
profitably in similar future projects in what
is a strategic, growing market.
With regard to rigs destined for the
renewables market, Lamprell will bid
for WTIVs on a selective basis, similar
to those that we have constructed in the
past. There are limited numbers included
in our bid pipeline
a potentially attractive market given
the likely expansion of the renewables
market
04 but this is also
05.
Oil & gas market
Rigs
February and April 2017 saw the delivery
of new build jackup drilling rigs “Al
Hudairiyat” and “Al Lulu” respectively to
ADNOC Drilling. Also in April, Lamprell
successfully delivered the rig “Shelf
Drilling Krathong” which was deployed
alongside its previously constructed sister
rig operating offshore Thailand. To date,
Note: The Operational Review is reported in line with our
strategic objectives
segments is reported in the Financial Review
segment Note (5) is shown on Note 36.
8. A comparison with the previous
20, and
EPC(I)
27
In 1H 2017 Lamprell delivered the
final modules for the UZ750 Abu Dhabi-
based project to Petrofac, bringing the
total number of module deliveries to
45. The project team celebrated the
achievement of over 6.5 million manhours
DAFWC free during the final celebration
and awards ceremony held in Lamprell’s
Jebel Ali facility.
The E&C business unit successfully
delivered the final buoyancy tanks for the
HMC Kaombo project located in Angola
in 1H 2017. They also delivered numerous
pressure vessels and provided fabrication
and maintenance services to various
clients throughout 2017.
Contracting services
Throughout the year the O&M business
unit continued to provide skilled labourers
and supervisors to various clients spread
across the UAE. They also played a
crucial role in assisting with initial ramp-
up requirements for tradesmen and
particularly specialist welders on the East
Anglia One and Master Marine projects.
Sunbelt Safety Services did better than
anticipated in 2017 winning nine new
contracts after a slow start to the year.
Project locations were spread across the
Middle East in KSA, the UAE and Qatar.
Lamprell plc Annual Report and Accounts 2017
Strategic report
Sustainability report
SAFETY IN
NUMBERS
“Paying attention to detail is how we will
move towards improving our safety record
and being recognised as a leader in
HSES. We use vital tools such as toolbox
talks, Take 5, SOAP and risk assessments
to prepare for our projects and execute
our work. We then audit to ensure
implementation and effectiveness.”
Phil Baron
HSES Manager
28
Reduction in recordable
incidents compared to 2016
23%
Reduction in high
potential incidents
46%
Manhours of training provided
at Lamprell Assessment
& Training Centre
398,645
“At Lamprell, we have the systems needed
to create sustainable improvement in our
safety and environmental performance,
and to compete on a global stage by
measuring our progress against agreed
targets. Safety has strategic relevance
for Lamprell because safe operations are
efficient operations and our performance
forms an important differentiator during
the bidding and evaluation process
by our clients.”
Iain Walker
Vice President HSESQ
29
Maintaining the highest
standards of safety remains a
core value for Lamprell but we
go further and aim to link safe
activities with supplying high-
quality products on time and
budget. Our approach follows
the belief that exceptional safety
management contributes to good
business performance, giving
a higher probability of better
returns for all of our stakeholders.
Robust sustainability structure
2017 included numerous audits
across HSES and Quality, client visits
and staff training which were all very
successful. In terms of environment,
our ongoing commitment to reduce
our carbon footprint improved further
reducing our waste to landfill percentage
from previous years. We delivered against
our HSES activity targets and maintained
our key certifications.
We took particular interest in the
occupational health of our employees
and continued this approach with
various health-related campaigns and
the reinforcement of our successful heat
stress campaign which is key to ensuring
the safety of our employees during the hot
summer months in the UAE.
Lamprell plc Annual Report and Accounts 2017
Strategic report
Sustainability report
Rolling monthly total recordable injury rate (TRIR)
January 2017 to December 2017
TRIR Actual
TRIR Target
0.50
0.40
0.41
0.39
0.40
0.39
0.35
0.33
0.35
0.37
0.35
0.32
0.30
Year 2017
TRIR Target, 0.27
0.20
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Description
TRIR: Total number of recordable incidents (27)
÷ number of manhours worked (18,000,000) x
200,000 = 0.30.
30
Rising 1H 2017 TRIR figures
seen in the graph above were
heavily influenced by incidents
occurring on external project
sites not controlled by Lamprell.
Following crucial decisions
by our leadership team,
our performance improved
significantly in 2H 2017 resulting
in a year-end figure consistent
with historic trends.
92|08
male %
female %
Employee gender split
as at 31 December 2017
Q What was the most significant
HSES challenge in 2017?
Iain Walker Although we marginally
failed to meet the annual TRIR target, we
turned our HSES performance around in
2H 2017 to bring us back within range.
The 0.30 outcome by year-end was a
remarkable recovery. The turning point
in the year came with a pivotal decision
to withdraw Lamprell personnel from
a remote site which was not under our
supervision. This was the main contributor
of recordable incidents in 1H 2017 and
almost single-handedly drove the TRIR
trend upwards. This move demonstrated
that Lamprell management will not put
commercial considerations before the
safety of its workforce. In addition, we
implemented a self-imposed HSES
improvement plan called “Back to
Basics”. The aim was to refocus on what
we do to manage risk and behaviours to
a detailed level. After the first month of
implementation the improvement began,
and by December there had been a five-
month sustained improvement despite a
steady month on month increase in new
personnel, manhours and activity. The
ongoing challenge will be to take the
momentum and positive changes forward
and continue improving our performance
into 2018. We have kicked this off with our
‘Safe Start 2018’ initiative.
Q How much of an impact and
influence does the management
team have in leading HSES within
Lamprell?
Iain Walker The management team
10 has a significant impact on and
desire to be part of developing an
embedded safety culture. At Lamprell, we
believe safety is not owned by the HSES
department, but rather by our employees,
the leadership, managers and supervision
teams. HSES is a support function role
which effectively helps identify trends and
areas of improvement, then provides the
tools, guidance and assistance to the
management and supervisory personnel
to roll out and implement. We all want
our employees to go home injury-free at
the end of each shift. Our management
plays an active role every day and each
manager regularly does site inspections
across all Lamprell’s facilities and staff
accommodation. Examples of key
activities they led in 2017 include:
• Weekly worksite walkabout inspections;
• Attendance at HSES inductions to
welcome new employees, communicate
their expectations and support the
“Stop Work Authority” programme;
• Hosting of regular HSES Town Halls to
communicate HSES performance; and
• Contributing to the observation and
intervention card system.
“At Lamprell, as a senior management
team, we aim to ensure that employees
have sufficient channels of communication
available to contribute ideas, ask questions
or raise issues and concerns. Employees
must feel comfortable interacting with
senior management on any topic, and
we place a high priority on management
visibility and accessibility.”
John Macdonald
Vice President HR & Admin
Q What are the key focus areas to
take forward into 2018?
Q How do you make Lamprell an
attractive place to work?
Iain Walker Observation and
intervention, if done correctly, is an
effective and efficient way to identify
unsafe acts or conditions and correct
them at an early stage to prevent potential
accidents. We will continue to empower
the workforce to use their “Stop Work
Authority” where there are legitimate
safety concerns. There were many
improvements in HSES performance in
2017 compared to prior years, however
high-level focus will be on the reduction
of all incidents as they affect the
organisation in various ways whether it
be reputational, monetary or in human
safety terms. Hand and finger injuries
were the most common and accounted
for approximately 38% of all injuries (see
graph on
campaigns on this topic in 2018 through
a refreshed approach. Additionally, the
most frequent root cause of incidents
was “lack of care and attention”. The data
collected from our incident investigations
showed that the majority were not caused
by HSES management system failures,
but rather were behaviour-related.
They are therefore avoidable but this
requires further training and education
for our workforce. With that in mind,
improvements in behaviours, procedural
compliance, hazard and situational
awareness will be high focus areas. Asset
damage incidents decreased from 2016,
and we will focus on further reducing
this with a goal of eliminating these
types of incidents.
32). We plan to extend our
John Macdonald For the last five years
we have continually placed emphasis
on employee work-life balance. We
coordinated an annual calendar of
employee sports and social events,
including football, cricket, rugby, bowling
and badminton tournaments, as well
as talent shows and quizzes. 2017
concluded with over 1,000 employees as
well as senior management participating
in and watching the annual sports day
at our Jebel Ali yard. These events bring
together our multi-cultural workforce of
over 40 nationalities, and we believe that
they have a positive impact on employee
engagement and loyalty towards the
Group as evidenced by our low employee
attrition rates, long service culture and
nationally recognised employee welfare
awards received between 2014-2016 at
the Daman Corporate Health event.
Q What differentiates Lamprell
from other employers in the
Middle East?
John Macdonald Initiatives that we
believe differentiate us from many other
employers within our regional industry
sector are our yard staff accommodation
and daily transportation facilities, the
quality of our medical and life insurance
provisions which are significantly ahead
of the minimum requirements, and the
channels of communication that we
maintain for our workforce to interact with
management. Examples of this include
“We believe that employee work-life
balance is key to ensuring our workforce
deliver our projects safely. In addition
to our full calendar of sports and
entertainment events, we regularly have
medical professionals come and speak to
our staff about health and well-being. We
believe in promoting a healthy lifestyle and
appreciate the full support we receive from
our senior management team in carrying
out these activities.”
Nipa Joshi
Compensation & Benefits Analyst
31
our employee welfare committees for
our yard workforce, our “Bright Ideas”
suggestion scheme, the twice-yearly CEO
Town Hall meetings, the frequency of our
yard staff and supervision toolbox talks
and our whistle-blowing hotline which
enables employees to raise concerns or
issues confidentially and securely.
Q What was Lamprell’s employee
attrition rate in 2017?
John Macdonald Voluntary attrition
remains at around 5% for our admin
workforce for the second year running
and, in 2017, was down to 5.15%
amongst our yard workforce compared
to 8.04% in 2016. Our employee loyalty is
evidenced by the fact that 28% of admin
employees and 34% of yard employees
have more than ten years’ service. This
is formally recognised through our Long
Service Award programme.
Lamprell plc Annual Report and Accounts 2017 Strategic report
Sustainability report
Incidents breakdown
by body part throughout 20171
Out of all the body-related injuries, hand and fingers were the most
common followed by body (core) and ankle. Injuries occurred from a
number of different causes resulting in slip, trips and falls, burns and
entrapment between pinch points.
Greenhouse gas emissions
In 2017, Lamprell was once again successful
in decreasing gross CO₂e emissions. This was
achieved through a combination of investment
in cleaner energy options and efficient use
of resources.
28
28
28
28
14
14
7
7
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The Jebel Ali site managed to complete
one year without a single recordable injury
which was a remarkable achievement.
Our inability to reach and improve on
our TRIR target in 2017 was primarily
due to a 46% increase in incidents at
remote sites where the activities operated
under the supervision and systems
of the client. We have reviewed our
current approach to recording hours and
incidents in contracts where we do not
have management control or influence,
and a new approach will be adopted in
2018 which brings the organisation more
in line with current industry practices.
However, we will also continue our focus
and training on employees assigned
offsite where Lamprell is not providing
the supervision, empowering them
to intervene when they consider an
operation to be unsafe.
Lamprell’s ultimate goal is to reach zero
injuries in the workplace. In pursuit of this,
our sites across Hamriyah, Jebel Ali and
Sharjah have all achieved the following
significant milestones showing total
manhours expended without a DAFWC:
Jebel Ali 17,200,000hrs
Sharjah 16,600,000hrs
Hamriyah 7,300,000hrs
Note: Each clock represents 1 million manhours worked.
32
Health and Safety
Highlights
Successfully recertified by third party
certification body to OHSAS 18001
standards with zero non-conformances
Strong safety performance achieved
across all Lamprell managed sites
despite increased levels of activity
and potential risks
We successfully retained the leading
international safety management system
standard, OHSAS 18001, with no
non-conformances. Such certifications
indicate our systems are being
implemented, monitored and managed
properly. The award is based on the ability
to comply with the clauses within the
standard through auditing and interviews
with key personnel within the organisation.
The requirement to show evidence of the
system in action is key to verifying we do
what we say we do.
The third party certifying authority
auditors were highly complimentary
on how Lamprell’s systems were being
managed and maintained in all areas.
They further support our commitment
to manage our approach to safety in a
conscientious manner as a responsible
employer and contractor.
In 2017 the Group reduced the number of
recordable injuries by 23% in comparison
to 2016. This is significant as it reflects
a reduction in the number of personnel
hurt who required treatment more than
minor first aid. Incidents classified as high
potential (Level 3) were reduced by 46%.
References
1. Due to rounding, the remaining 1% is made up
of decimals.
0
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,
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3
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
Quality
Highlights
Strengthened and restructured quality
engineering and welding management
as part of Lamprell’s strategy to enhance
EPC(I) capabilities
Additional ISO 3834 and EN 1090
certifications targeting European market
kick-started
Our Hamriyah facility achieved ASME
certification
Competitiveness and customer focus
As part of Lamprell’s business strategy
to develop its EPC(I) capabilities and
maximise competitiveness, the overall
QA/QC functional leadership team has
been strengthened. The significant
changes included a transfer of welding
engineering from the production
department to the QA/QC function and
the development of in-house non-
destructive testing capability. In May
2017, our Hamriyah facility attained ASME
approval, which certifies Lamprell’s
ability to manufacture, repair and modify
products according to the American
Society of Mechanical Engineers (ASME)
‘U’, ‘U2’, ‘S’ and National Board ‘R’ and
‘NB’ standards. The ASME accolade
is highly regarded as the hallmark of
acceptance and certification. As part of
Lamprell’s strategy to target the European
market, we are working towards additional
certifications such as ISO 3834 and
EN 1090 (CE Marking). This certification
process was kick-started in 2017 with the
aim to be certified in 1H 2018. Lamprell
also successfully completed a number of
audit assessments as part of our ongoing
business development efforts. These
audits support the Group’s participation in
bidding activities with prospective clients.
“We at Lamprell believe in preventing
quality problems from happening,
eliminating activities which do not add
value and reducing waste. We are
determined to consistently exceed
customer expectations and enhance
their overall experience with us through
continual improvement of the quality
of our products, services, people
and processes.”
Mathew Shajee Varghese
Group Quality Manager
Environment
Highlights
Corporate social responsibility
Employee welfare
Highlights
Highlights
33
36% reduction in annual gross CO₂e
emissions from Company operations
Group continues to support local and
global CSR initiatives
Continued focus on promoting employee
health and wellness
90% waste recycling
Zero environmental non-compliance
events
Certification to latest ISO:14001 2015
EMS standard
Maintained C Carbon Disclosure Score
In 2017, Lamprell was successful in
improving its environmental performance
across a range of sustainability metrics.
These improvements include an increase
in waste recycling from 85% to 90%
diversion from landfill and a decrease
in gross CO₂e emissions for the third
year running, with emissions decreasing
by approximately 36% in 2017 from the
previous year’s 14% decrease.
Lamprell also completed the transition
to the new ISO 14001:2015 certification
standard for Environmental Management
Systems. The certification to this latest
international standard highlights the
best-practice approach to environmental
protection taken by the Group.
In 2017, we launched the inaugural
UAE Clean Coastline Initiative, in which
volunteers from Lamprell partnered with
a government agency to clear a beach of
assorted waste. This successful initiative
resulted in the removal of 300 kilograms
of waste, thereby reducing a serious risk
to both bird and marine life.
Employees sponsored to take part in CSR
events
Recognition of International Women’s Day
and Breast Cancer Awareness month
During 2017, Lamprell employees
participated, with the financial support
of the Group, in a number of local
community initiatives, two of which
were global events. In May, Lamprell-
sponsored employees took part in a
fund-raising event for the “Wings for Life”
Foundation, a non-profit organisation that
funds spinal cord research. The event
took place concurrently in 58 countries
and 111 locations worldwide.
In November our employees participated
in the Relay for Life 24 hour walk, the
world’s largest fundraising event which
is organised on behalf of the “Friends of
Cancer Patients” group. 100% of funds
are donated to those impacted by cancer,
either as patients or their support network.
Waste diversion 2017
(tonnes)
90%
10%
Recycled
13,745 tonnes
2016:14,508
2015: 19,047
Landfill
Recycled
Over 2,000 employees take up company
subsidised flu vaccinations
Having been nationally recognised by a
leading corporate health organisation for
our high standards of employee wellness
on three occasions in the last four years,
we continued to build on our strategy of
promoting employee wellness through a
series of health awareness campaigns
throughout 2017.
In March, the Group hosted a Women’s
Wellness Seminar to recognise
International Women’s Day with talks
on nutrition, diet, sleep and exercise.
This was followed by a Breast Cancer
Awareness seminar held in September.
Aside from a number of other health
awareness events focusing specifically on
posture, bone mineral density and summer
heat awareness, the Group subsidised flu
vaccinations and made them available to
the whole workforce resulting in take-up of
over 2,000 participants.
Once again the Group maintained its
highly regarded and successful heat
stress awareness campaign during the
hot summer months of June to September.
This provides an early warning and
"Stop Work Authority" system when
temperatures and humidity rise above
certain tolerance levels and also mandates
all of our yard workforce to carry adequate
supplies of drinking water at all times.
Lamprell plc Annual Report and Accounts 2017
Strategic report
Principal risks and uncertainties
EMBEDDING
RISK MANAGEMENT
INTO OUR
PROCESSES
Lamprell’s risk management processes have been developed to
ensure that clear alignment exists between the strategic objectives of
the Group and its everyday business decisions in order to ensure risks
are highlighted prior to making judgements.
34
A robust risk management framework
We continue to have a single depository
for all major risks that the Lamprell Group
faces – our Enterprise Risk Management
(“ERM”) system. A robust assessment
of all major risks is undertaken by senior
management and the Audit and Risk
Committee twice a year, as a minimum.
The process reported in previous years
has been retained whereby all risks
are ranked taking into account both a
probability and an impact assessment,
and on a gross (pre-mitigation) and net
(post-mitigation) basis. Regular review
and updates to our risk management
procedures improve our ability to identify
risks promptly and help ensure that we
maintain our processes in line with best
industry practices.
26 highlighted a
The poor performance on the East
Anglia One project
number of weaknesses in our processes
notably around bidding and estimation,
in change management procedures and
in welding engineering. The Group has
also been taking steps to address the
issues that were identified in the 2016
rig projects, specifically around supply
chain management. We have taken
steps to embed these lessons learned
into our processes and enhance our risk
management systems to ensure that
we are able to bid competitively and
effectively on future workscopes.
The register provides an efficient
analytical tool to assess the position of
our business risks at any given time, with
identified risks being evaluated to develop
adequate mitigation plans. In addition,
the register provides a valuable audit trail
of our management of risks through their
lifecycles.
Internal communication of business risks
is essential for the effectiveness of our
risk management process. Individuals
within the business who are best placed
to manage identified risks work with
project managers, senior management
and our Board of Directors to ensure that
there is a full understanding of recorded
risks. In addition, such communication
ensures that the approach to appropriate
mitigation strategies amongst stakeholders
is aligned.
We believe that our approach to
risk management provides a clear
framework that allows for decisions
to be made on an informed basis.
Internal participation in the process
improves stakeholder relations and
ensures effective collaboration in order
to protect Lamprell’s business interests.
Principal risks and uncertainties
for Lamprell
Lamprell faces a variety of risks, and
these may change annually depending on
internal and external factors. Our profiling
of project risks confirms that, like 2016,
the strategic category had the highest
number of key risks for this reporting
period. We believe that this is due to
the anticipated upturn in the energy
sector being slower than initial market
predictions. This has had a significant
impact on Lamprell’s ability to win new
work
04.
Analysis of risks within our business
14%
57%
40%
60%
60%
20%
33%
67%
Strategic
Financial
Operational
Compliance
& Legal
29%
20%
Note: The graphic represents all enterprise risks faced by the
Group. Risks
35 and 36 highlight higher priority risks.
High risk
Medium risk
Low risk
Strategic risks
Risk description
Economic conditions
Risk to strategy
high
Slow market recovery may lead to continued bid
pipeline instability, meaning that project awards may be
significantly delayed and even suspended indefinitely.
Risk change
unchanged
Risk to business model
high
Lack of approval and implementation of significant
investment initiatives by its target client market may
affect the Group’s position in the marketplace.
Business implication
Mitigation
Levels of expenditure by oil & gas
companies and those involved in
renewable energy directly affect
demand for the Group’s products
and services. The oil & gas and
renewables sectors remain unstable,
and such instability could contribute
to more cautious spending habits.
• We aim to ensure that Lamprell has a diversified
portfolio to cover multiple market sectors.
• We actively work to maintain and develop a
robust bid pipeline.
• Utilisation of our Client Relationship
Management system ensures that we retain
regular contact with our client.
• Active investigation of potential partnerships/
alliances to aid diversification of products,
services and territories.
• Focus on leveraging in our key locations in
Saudi Arabia and the UAE where capital
expenditure remains in a growth mode.
Mergers and acquisition
Risk to strategy
high
An opportunistic transaction could significantly alter the
intended strategic direction of the Group, thus rendering
current initiatives and goals obsolete.
With the prolonged downturn,
low levels of backlog and current
operational challenges, the Group
could see an opportunistic approach
for purchase at a suppressed price.
• The Group has a clear long-term growth
strategy with plans to achieve strategic
objectives.
• Lamprell’s majority shareholder can act as a
negative veto to hostile approaches based on
unreasonably low valuations.
35
Risk change
increased
Risk to business model
medium
A proposed acquisition of the Company may lead to
decreased focus on targeted initiatives, and could result
in loss of traction in the marketplace.
Ability to win new work
Risk to strategy
high
Lack of competitiveness may impede Lamprell’s efforts
in progressing existing business areas and making a
meaningful entry into new markets.
Risk change
unchanged
Risk to business model
high
Failing to provide reliable, on time, competitive solutions
may negatively affect the Group’s reputation in the
marketplace amongst current and target clients.
Third party alliances
Risk to strategy
medium
The Group’s ability to make meaningful inroads to
current and new markets may be adversely affected by
ineffectual management of alliances.
Risk change
unchanged
Risk to business model
medium
The success of the Group’s infiltration into growth
markets and diversification of business offerings may be
adversely affected by inefficient relationships.
• We have appointed a professional advisory and
broking team who provide advice to the Board
of Directors and senior management.
• We actively maintain a robust bid pipeline with
high bidding activity.
The Group is dependent on a
relatively small number of contracts
at any given time, some of which are
for the same customers, and strong
client relationships are critical for a
sustainable business. In addition,
Lamprell’s ability to retain current
clients and compete successfully
in the market depends on its ability
to provide on time, low cost, high-
quality products and services. If
the Group fails to be competitive
(technically and commercially), it will
not win new project awards.
• A highly customer focused business development
team targets strategic and growth markets.
• Leverage on our quality and safety performances.
• We work to ensure that benchmarking and
estimating tools are current to provide
competitive pricing.
• Continual improvement of the skillsets of our
personnel through dedicated training initiatives
and project reviews.
• Dedicated internal initiatives have been
implemented to improve cost control,
productivity and overall efficiency.
• Implementation of thorough QA/QC procedures
ensures that adequate quality is maintained
throughout all projects.
To conduct business in certain
jurisdictions, the Group places
reliance on key relationships with
local partners, agents and the
members of joint ventures and
consortia that Lamprell forms part
of. Ineffective management of these
relationships could leave Lamprell
exposed to additional contractual
and/or execution liability or render
the Group’s operations in certain
jurisdictions uncompetitive.
• All agreements have a clear strategic goal and
are documented through a formal contractual
process.
• Advice is obtained from external experts where
necessary.
• We work to retain strong partner relations at
senior management level.
• Board has oversight of all proposed and current
joint venture/consortium initiatives and is given
appropriate opportunity to review and challenge
proposals.
Lamprell plc Annual Report and Accounts 2017
Strategic report
Principal risks and uncertainties
Financial risks
Risk description
Ability to fund business
Risk to strategy
medium
Inability to fund strategic objectives could lead to
significant re-evaluation and re-alignment of the Group’s
intended direction for growth.
Risk change
unchanged
Risk to business model
medium
Continued development of current business units and
movement into growth markets could be significantly
impeded if sufficient funding does not exist.
Operational risks
Risk description
Geopolitical
Risk to strategy
medium
36
Instability in emerging regions may affect the viability of
target key projects there, which in turn may significantly
impact plans for geographical expansion.
Risk change
unchanged
Risk to business model
high
Unstable target markets may impact the risk profiles of
growth initiatives which may adversely affect anticipated
diversification plans and desired market infiltration.
Project execution
Risk to strategy
high
Delivery of reliable, on time solutions cannot be
achieved if project scopes are not fully understood or
if risks are not identified and translated into effective
execution plans.
Risk change
increased
Risk to business model
high
Failure to deliver projects successfully may negatively
impact the Group’s reputation in the marketplace and
could negatively impact available revenue for future
Group development initiatives.
Legal risks
Risk description
Contractual commitments
Risk to strategy
medium
Onerous contract terms prevent development of a
robust execution plan that aims to mitigate the potential
impact these terms could present.
Risk change
unchanged
Risk to business model
medium
Failure to protect the Group from liability may lead to
project losses which could affect availability of funding
for investment in other initiatives.
Business implication
Mitigation
The Group’s continuing operations
and future growth, including strategic
investments, may be dependent on
the ability to fund the business, either
through its balance sheet or through
the availability of funding. As the
Group’s assets and particularly cash
decline, or if the Company cannot
raise debt or equity funding, a lack
of funds could threaten the long-term
viability of the business.
• Balance sheet is strong and includes significant
net cash as at 31 December 2017.
• Debt facility in place until mid-2019.
• Good relations and regular dialog with
banking syndicate.
• Debt to equity ratio in the business is low
at 8.6%.
• Effective cash management processes in place
and operating.
Business implication
Mitigation
The Group is subject to the legal,
economic and political conditions
of operating in emerging markets,
in which regulatory or contractual
enforcement may be difficult, and
such emerging markets may be
prone to corruption issues. Also, with
the Group’s increasing exposure to
the Kingdom of Saudi Arabia due to
its IMI investment and ongoing LTA
09, the Group is dependent
bid
on a stable political and business
environment in that country.
• Regular input from advisers for any key changes
in regulatory or contractual regimes.
• Strong partner relationships developed and
maintained, including with our partners at the
IMI yard.
• Phased investment into IMI yard over a number
of years.
• HSESQ monitors and advises on security and
political risks.
• Major operations take place in the UAE, which
is considered to be politically and financially
stable.
As the Group diversifies into new
markets and product offerings, it
faces additional risks surrounding
project execution including bid
estimation, scheduling, supply
chain management including
optimal use of vessels, training
of specialist workers and delivery
planning. Failure to execute, project-
manage and deliver a project in
accordance with contractual terms
and conditions may expose the
Group to additional costs, damage
to reputation, losses or reduced
revenues.
• Improved bidding and estimation procedures to
account for all relevant costs and remove silos
between departments.
• Implementation of the “lessons learned” on
previous projects aims to avoid repeats of any
identified inefficiencies.
• Transparent project risk management processes
and “gap identification and analysis” exercises
ensure awareness of contemplated issues.
• Upskilling of existing workforce and additional,
experienced resources hired.
• Development of strong relationships with
clients allows a better understanding of their
requirements.
Business implication
Mitigation
The continuing market downturn
has led to clients adopting a firm
line on contractual terms, meaning
that acceptance of certain risks
cannot be negotiated. As part of
contractual arrangements, Lamprell
may, therefore, be subject to some
onerous terms which could impact
revenue or earnings as a result of
breach or non-performance. This
may include liability for product
defects, faulty workmanship or
errors in design.
• A thorough risk analysis of contract terms and
conditions is implemented, with development
of appropriate mitigation strategies where
possible.
• Upskilling and employee training programmes
to improve project execution.
• Implementation of the “lessons learned” on
previous projects aims to avoid repeats of any
identified inefficiencies.
• Effective project risk processes are developed
and actively implemented across all projects.
VIABILITY
STATEMENT
Based on the results of the analysis below, the Directors have a
reasonable expectation that the Company will be able to continue
in operation and meet its liabilities as they fall due over the three-year
period of their assessment ending on 31 December 2020.
1) Assessment of prospects
6. Lamprell has been
Lamprell’s strategy and business model
are central to an understanding of its
prospects
operating for more than 40 years and its
business model has proven to be resilient
and able to withstand the industry’s
project cycles. Our strategy focuses
heavily around safety, quality, close
client relationships and value for money.
Further, as is the norm in our industry,
cost control and providing a competitive
product are also critical to the long-term
viability of the business model. Decisions
relating to major new projects are made
by reference to a review of the key risks
and are subject to an escalating system
of approvals.
10, due to the substantial
The Company’s current top priority
is to develop its presence in the Saudi
market
opportunities noted in that market. The
Board has considered the changes
in the risk profile that this entails and
determined that they are acceptable as
part of the expansion into new markets
and entry into new geographies.
The Group’s prospects are assessed
primarily through its strategic review
process. This includes an annual review
of the strategy and budget, led by the
CEO and Executive Committee. The Board
participates through a dedicated strategy
review each year as well as assessment
of progress against the agreed strategic
objectives during regular meetings. These
objectives
the strategy review process. The Board’s
assessment considers the Group’s cash
flows, available debt, capital recycling
levels and other financial ratios over
the period. These metrics are subject
to sensitivity analysis which involves
flexing the main assumptions underlying
the forecasts.
8-9, are a key output from
72. The Board
In accordance with provision C.2.2
of the Code and taking into account
the Group’s principal risks
34, the
Board determines the prospects of the
Company over a longer period than the
12 months required by the ‘Going
Concern’ statement
considers that an assessment period of
three years is appropriate for the following
reasons: (i) the strategic review covers a
period with visibility on likely prospects for
the coming three or more years; (ii) most
major projects undertaken by the Group
last for a period of approximately two
years; (iii) the long-term incentive awards
for management are structured around
a three-year performance period; and
(iv) the Company has a reasonable ability
to evaluate its likely backlog for a period
of two to three years.
The key assumptions in the financial
forecasts, reflecting the overall strategy,
include:
• The global outlook for the energy
industry remains weak in 2018 and
becomes positive in the medium to
long term, driven by growth within
emerging markets and demand from
developed markets;
• Actions taken over the past two years
to reduce the Group’s cost base enable
the business to remain competitive
in the face of the ongoing weak
commodity prices;
• The lessons learned and implemented
following the significant losses on the
East Anglia One project allow us to
maintain high standards of safety and
execution in the delivery of projects; and
• A debt refinancing package will
be available on reasonable terms
after expiry of the current terms in
August 2019.
37
These key assumptions are reflected in
34. The
the Group’s principal risks
purpose of the risks report is primarily
to summarise those matters that could
prevent Lamprell from delivering on its
strategy or could threaten its ability to
continue in business in its current form
(considered further below).
2) Assessment of viability
Although the strategy reflects the
Directors’ best estimate of the Group’s
prospects, the Board has also examined
several scenarios which represent severe
but possible adverse circumstances
potentially faced by the Group including:
• Continued depression of energy prices,
increasing pressure on customer
spending and impacting prospects for
future awards;
• Project delivery failure resulting
in delayed payments, settlement
payments, reputational damage and
reduced future work; and
• Risk of cost overruns on lump
sum contracts.
The results of this stress testing showed
that, due to the core strength of the
Company’s balance sheet and business
model, and taking into account actions
taken by management and the Board
to mitigate the stress events, the Group
would be able to withstand the impact of
these scenarios over the viability period.
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Board of Directors
RECONFIGURED
BOARD
WORKING LIKE AN
ESTABLISHED TEAM
38
1
4
Nom
Nom
Nom
Member of the Remuneration
& Development Committee
Nom
Member of the Nomination
& Governance Committee
7
Nom
Nom
Member of the Audit & Risk
Committee
Indicates Committee
Chairman
3
6
1
2
3
4
5
6
7
8
John Malcolm
Christopher McDonald
Tony Wright
Ellis Armstrong
Debra Valentine
Mel Fitzgerald
Nick Garrett
James Dewar
2
5
8
John Malcolm
Non-Executive Chairman
Aged 67
Nom
Nom
Christopher McDonald
Chief Executive Officer
Aged 50
Tony Wright
Chief Financial Officer
Aged 46
Ellis Armstrong
Nom
Senior Independent Director
Aged 60
Nom
Nom
Appointed: May 2013
Appointed: October 2016
Appointed: August 2015
Appointed: May 2013
Strengths: international oil & gas,
Middle East operations
Strengths: business development,
EPC, international oil & gas
Strengths: finance & accounting,
Middle East operations
Strengths: finance & accounting,
international oil & gas
Nom
Nom
Nom
Experience: After 25 years
with Shell, John Malcolm retired
in 2010 to become an independent
consultant to the energy industry.
During his tenure at Shell, he
held several senior positions
including Managing Director for
Petroleum Development Oman.
In 2015 he joined the Oman Oil
Co. Exploration & Production as
Executive Managing Director.
Dr Malcolm is a Chartered
Engineer with the UK Engineering
Council and has a PhD in Process
Control Systems, from Heriot-Watt
University which he obtained
in 1975.
External appointments: Non-
Executive Director of Partex
Oil & Gas (Holdings) Corp.,
Director of Bellwood Enterprises
Ltd., Chairman of Abraj Energy
Services SAOC.
Nom
Nom
Nom
Nom
Mel Fitzgerald
Nom
Non-Executive Director
Aged 67
Nom
Experience: Christopher McDonald
has over 24 years’ experience
in the EPC and oilfield services
sectors. Before joining Lamprell,
Christopher held the position
of Executive Vice-President
and Group Head of Business
Development with Petrofac. From
2007 to 2010, Mr McDonald
co-founded and helped to run
a boutique private equity firm in
London. Prior to that he spent 18
years with Halliburton/KBR starting
his career in Engineering and the
Sales function before becoming
Vice President with responsibility
for the KBR Development Co. and
the KBR/JGC gas alliance, during
which time he served on the board
of MW Kellogg Ltd. Christopher
has a Bachelor’s degree in
Mechanical Engineering from
Cornell University.
External appointments: None
Nom
Nom
Nom
Nom
Nom
Experience: Tony Wright joined
Lamprell in January 2013 as
Vice-President, Finance and in
November 2014 he stepped into
the role of Deputy CFO, followed
by a promotion to Chief Financial
Officer in August 2015. Mr Wright
is a qualified Chartered Certified
Accountant with over 15 years’
experience working in the oil &
gas and construction industries.
Since 2010 Mr Wright worked
with Leighton Holdings Group in
Malaysia and the UAE, thereafter
with the Habtoor Leighton Group.
Prior to joining Leighton, he spent
five years as Group CFO with
Dubai-based oilfield EPC firm,
Global Process Systems. When in
the UK, Tony held senior finance
positions with Input/Output Inc.
and the Expro Group.
External appointments: None
Experience: Ellis Armstrong
is a senior executive within the
energy industry with broad
international experience.
Mr Armstrong worked for more
than 30 years with BP, where
he held a range of operational
and leadership roles including
line operating roles in the North
Sea and Alaska, VP for Latin
America and Caribbean, Head of
Technology and, most recently,
CFO (Exploration & Production).
Mr Armstrong is a Chartered
Engineer with a BSc and a PhD,
both in Civil Engineering, from
Imperial College, and a Master’s
in Business Administration
from Stanford.
External appointments: Non-
Executive Director of Lloyds
Register Group, Non-Executive
Director of Pacific Energy Limited.
39
Nom
Debra Valentine
Nom
Non-Executive Director
Aged 64
Nom
Nick Garrett
Non-Executive Director
Aged 55
Nom
Nom
Nom
James Dewar
Nom
Non-Executive Director
Aged 61
Appointed: August 2015
Appointed: August 2015
Appointed: March 2017
Appointed: November 2017
Strengths: EPC, international
oil & gas
Strengths: risk management, legal,
public company boards
Strengths: public markets, financial
and accounting
Experience: Mel Fitzgerald has
over 30 years’ experience in the
energy industry and currently
acts as a director of a number
of companies, notably in the role
of Chairman for Suretank Group
Limited. Mr Fitzgerald served
as CEO and Board Director at
Subsea 7 for five years until
2012 and has a Bachelor of
Engineering from the University
of Ireland and a MBA from the
University of Kingston. He is
also a chartered engineer. In July
2015 Mr Fitzgerald was awarded
the Honorary Doctor of Business
Administration (HonDBA) by
Robert Gordon University in
Aberdeen in recognition for
his contribution to the UK
oil & gas industry.
External appointments: Chairman
for Suretank Group Limited,
Director/shareholder of
Cathx Ocean.
Experience: Debra Valentine
has experience in heavy
industries having led government
relations, governance, risk and
legal functions across global
jurisdictions. She also has
expertise in competition and
anti-trust issues. Ms Valentine
worked at United Technologies
Corporation and as a partner with
the law firm O’Melveny & Myers,
as well as serving as general
counsel at the US Federal Trade
Commission from 1997 until 2001.
Most recently, she was Group
executive, Legal & Regulatory
Affairs for Rio Tinto. Ms Valentine
has an AB magna cum laude from
Princeton University, a JD from
Yale University, and is a member
of the District of Columbia bar,
Council on Foreign Relations and
the American Law Institute.
External appointments: None.
Experience: In his 23-year career
at J.P. Morgan Cazenove, Nick
Garrett advised a wide range
of companies on the delivery of
their growth strategy, corporate
transactions and access to capital.
In his role as the Head of the
IPO/Execution team he worked
on Lamprell’s listing in 2006, as
well as being involved in listings
of numerous companies on the
London market. Prior to this, from
1989 to 2001, Nick worked at
J.P. Morgan Cazenove in a variety
of corporate finance advisory
and broking roles. Since 2012,
he has consulted for various
private companies on their growth
strategy and access to funding.
Nick has a Bachelor’s degree
in Human Geography from the
University of Reading and is a
member of both the Institute of
Chartered Accountants and the
Chartered Institute for Securities
and Investment.
External appointments: Director
of Garrett & Read Ltd., Director of
Colburn East Ltd.
Strengths: public company
boards, international oil & gas,
Middle East operations, financial
and accounting
Experience: James spent nearly
30 years working in the oil &
gas industry, notably as VP
Transformation and VP Global
Financial Systems for BP and as
Group CFO for Dana Gas PJSC.
Mr Dewar retired in 2011 to take up
Board and advisory positions for
companies operating in the energy
sector including PICO Petroleum
Corporation and Cheiron Petroleum
in Egypt, Equus Petroleum PLC
in London and Kazakhstan, and
Viking International in the UAE.
In many cases he acted as chair
of their audit committees, driving
world class corporate governance
at board committee level. Mr
Dewar has a Bachelor’s degree
in Accountancy & Marketing
from Strathclyde University and
is a member of the Institute of
Chartered Accountants of Scotland.
External appointments: Non-
Executive Director for PICO
International Petroleum, Cheiron
Petroleum Corporation; Senior
Independent Director for Ambit
Energy Corporation; Chairman
of lifetile.
Lamprell plc Annual Report and Accounts 2017
Corporate governance
Directors’ Report
Letter from the Chairman
STRENGTHENING
GOVERNANCE
IN CHANGING
TIMES
As detailed in the Strategic Report 08, last year was a period of
significant change for the Group and the Board has demonstrated a
critical leadership and governance role as the Company responded to
major issues, both from a corporate and an operational perspective.
40
Dear Shareholders,
Lamprell saw key changes in 2017
including my appointment to the role of
Chairman. I took over last September
at a time when the Company faced
significant challenges driven initially
by the prolonged market downturn but
compounded by our own business issues.
The Board has an important leadership
role to play in overcoming the current
challenges and overseeing this longer-
term transformation.
Investment in people
People are the foundation of our business.
It is therefore critical that every one of us
applies high standards of governance
to assure effective implementation of our
strategy to the benefit of shareholders.
We have invested in the upskilling of our
workforce; we added new resources in
support of our strategic objectives in
the EPC(I) and renewables sectors; we
are supporting management in its use
of data-gathering and lessons learned
processes to measure performance
and improve results. The Board has
also recognised the importance of
adapting the Company’s governance
structure to support the business and so
changed the scope of the Remuneration
and Development Committee
oversee senior leadership performance
management and development, ensuring
that talent management is aligned with the
Group’s strategy and business plans.
58 to
Succession planning was a Board
priority for 2017 and this change to
the Remuneration and Development
Committee’s terms of reference was an
important first step towards that. However,
the Board has decided to retain this as
a Board priority for 2018 because of the
need to prepare for the market recovery
and the Group’s move into new markets.
At Board level, I was pleased to welcome
Nick Garrett and James Dewar as
Directors. Nick’s knowledge of growth
strategies for companies, corporate
transactions and access to capital will
prove invaluable as Lamprell looks to
implement its growth strategy in the
coming years. James has worked for
many years in senior roles in the global
energy industry. We are already making
considerable use of his business and
finance experience as he has taken
over Ellis Armstrong’s role as the chair
of the Audit and Risk Committee, as
Ellis has decided to transition out of the
Company in 2018. I would like to take
this opportunity to thank Ellis for his
contribution over the last five years.
Implementing our strategy
Christopher McDonald was brought in as
CEO to develop our strategy and expand
the Lamprell franchise into new markets.
As a result, the Directors have spent
considerable time during 2017 reviewing
Lamprell’s strategy and this was a regular
agenda item at Board meetings, plus the
Board held its annual two-day strategy
review during its July meeting.
The Goup is aiming to diversify away from
its historic reliance on jackup rigs and
instead is focussing on strategic moves
into EPC(I) projects, the renewables
sector and accessing the Saudi Arabian
market
08. 2017 has seen the Group
make progress on all three although
notably our first project in the renewables
market – the East Anglia One wind
farm foundation project – has come
at a significant cost as there was a far
steeper learning curve than anticipated,
resulting in a USD 80 million loss. This is a
disappointing result for shareholders and
it is imperative that the Group learns the
lessons to generate profitable returns on
future projects in this alternative market.
On the positive side, the Group made
a major entry into the Saudi Arabian
market with the conclusion of the
joint venture agreement with partners
including Saudi Aramco
project is expected to be transformational
for Lamprell and the Board noted the
shareholders’ emphatic support of
the decision with a nearly unanimous
vote in favour at the extraordinary
general meeting in June last year.
11. This
Governance structure
In 2015, the Board adopted a formal
gender policy for the first time. Last
year, the Directors considered that it
was important to update and extend the
policy in order to improve gender diversity
levels among the workforce where female
representation has been stagnant.
Accordingly, in mid-2017, the Board
reviewed and updated the gender policy,
details at
51.
The Company is incorporated in the
Isle of Man and has a Premium Listing
on the Official List of the London
Stock Exchange. The Board makes
considerable efforts to ensure that
during the relevant period the Company
applies and complies with the UK
Corporate Governance Code 2016 as
the pre-eminent set of global standards
for corporate governance (the “Code”,
available at www.frc.org.uk). Where
the Company does not comply, this is
explained in this Annual Report and
Accounts, and typically in this Corporate
Governance Report specifically.
A company’s governance structure should
be appropriate for the size and complexity
of its business. The Board continues
to evaluate its composition, size and
performance regularly, bearing in mind
the current challenges but also the long-
term growth strategy. As this is my first
letter to the shareholders in my capacity
as Chairman, I would like to thank you
for your continued support of Lamprell
and I hope to meet with you in 2018, to
ask for feedback on ways to enhance our
governance structure.
John Malcolm
Non-Executive Chairman
Our core values
Safety
We deliver world class safety performance
and leave nothing to chance so everyone
goes home safely.
The Directors present their report
on the affairs of the Company
and the Group together with
the financial statements and
the Auditor’s report for the year
ended 31 December 2017.
41
Fiscal responsibility
Because every employee influences
our costs, we are all accountable to
ensure that we achieve the most cost
effective solutions.
Integrity
We conduct our business honestly,
with professional integrity, fairness and
transparency and we are open and
ethical in our day-to-day dealings with
all stakeholders.
Accountability
We deliver what we say we will.
Teamwork
We will strive to work together with our
stakeholders and believe great teams will
achieve incredible things.
Results and dividends
The financial statements of the
Group for the year ended 31 December
80 to 87. The
2017 are set out on
Group’s losses from continuing and
discontinued operations after income
tax and exceptional items for the
year amounted to USD 98.1 million
(2016: losses of USD 184.3 million).
The Directors do not recommend the
payment of any dividend for the financial
year ended 31 December 2017.
Other information
The following sections of the Annual
Report contain all other information
relating to and forming part of the
Directors’ Report:
Further reading
Principal risks and
uncertainties
Board of Directors
Corporate Governance Report
Directors’ Remuneration
Report
Directors’ Remuneration Policy
Report
Directors’ Annual Report on
Remuneration
Statutory Information and
Directors’ Statements
Pages
34
38
40
58
59
64
70
Lamprell plc Annual Report and Accounts 2017
Corporate governance
Directors’ Report
TOGETHER
AS A
LEADERSHIP
TEAM
The Directors collaborate to reach collective decisions that they
consider to be in the best interests of the Group as a whole following
evaluation of all relevant factors. In this way, the Board works as an
effective leadership team for the business.
42
The Board operates together as a team
and is collectively responsible for the
long-term success of the Group, aiming
to achieve this through effective risk
management, robust and constructive
dialogue with the executive team and
transparency in its decision-making.
Given the prolonged market downturn and
the operational challenges on the East
Anglia One project, the Board meeting
agendas were structured predominantly
around the growth strategy and ways to
deal with near-term issues. In this way, the
Directors had adequate time to discuss
all business-critical issues.
Board composition
The Board is comprised of the Non-
Executive Chairman, CEO, CFO, four
independent Non-Executive Directors
(“NEDs”) and another Non-Executive
Director;
During 2017, there were a number of
changes among the Directors. John
Kennedy stepped down from Executive
39 for biographical details.
Chairman to Non-Executive Chairman
on 24 April and then left the Board on
20 September, at which point John
Malcolm took over as Non-Executive
Chairman. Nick Garrett was appointed
as a Non-Executive Director on 24 March
2017 and James Dewar was appointed as
a Non-Executive Director on 1 November
2017. All other Directors served as usual
throughout 2017. The CEO and the CFO
are the Executive Directors currently on
the Board.
Roles and responsibilities
The roles and duties of the Chairman and
CEO are separate, in line with the best
practices set out in the Code, as agreed
by the Board. This will ensure that strong
governance is maintained at Board level.
The Chairman is a Non-Executive Director
and his primary responsibility is to provide
effective leadership for the Board and the
Group as a whole including strategy and
direction. He chairs all Board and general
meetings within an effective corporate
governance framework. In addition, the
Chairman is responsible for ensuring the
integrity and effectiveness of the Board/
Executive relationship.
The CEO is responsible for the day-to-
day running of the Group’s business,
including execution of the Group’s
strategic objectives, its business plans
and for communicating decisions from/
recommendations to the Board. The
CEO is also the primary conduit for
communications with the shareholders
and other key stakeholders.
The CFO is responsible for the financial
stewardship, navigation and control
activities of the Group as well as the
investor relations activities. The role of
all NEDs is critical to ensure an effective
counterbalance to executive management
on the Board. The NEDs are primarily
responsible for challenging constructively
all recommendations presented to the
Board, based on their broad experience
and individual expertise.
Board composition
Tenure on the Board
75%
25%
50%
50%
87%
13%
0-3
years
3-6
years
Executive Directors
Independent NED
Female Directors
Non-Executive Directors
Other Directors
Male Directors
Christopher McDonald
Tony Wright
Debra Valentine
Mel Fitzgerald
Nick Garrett
James Dewar
John Malcolm
Ellis Armstrong
John Malcolm
Christopher McDonald
Non-Executive Chairman
Director and CEO
Mel Fitzgerald
Independent NED
Tony Wright
Director and CFO
Debra Valentine
Independent NED
Ellis Armstrong
Senior Independent Director
Nick Garrett
Non-Executive Director
James Dewar
Independent NED
Board attendance in 2017
Number of
meetings
attended
Number of
meetings
possible
Number of
strategy days
attended
out of 2
John
Malcolm
12
13
Christopher
McDonald
14
14
Tony
Wright
14
14
Ellis
Armstrong
13
13
Nick
Garrett1
10
11
Debra
Valentine
13
13
Mel
Fitzgerald
11
12
James
Dewar2
2
2
John
Kennedy3
2
2
2
2
2
2
2
2
2
n/a
n/a
Note:
1. Nick Garrett joined the Board on 22 March 2017
2. James Dewar joined the Board on 1 November 2017
3. John Kennedy left the Board on 20 September 2017
The Senior Independent Director acts as
a sounding board and confidante to the
Chairman and is available to shareholders
to answer questions which cannot be
addressed by the Chairman or CEO.
Mr Armstrong was appointed as Senior
Independent Director in mid-2015 and
continues to hold this role.
Board meetings and attendance
The Directors met in person on six
occasions during the course of 2017 and
all meetings took place in Dubai, UAE.
However, where required and in order
to receive an interim update on ongoing
matters, the Directors convened ad hoc
at short notice by way of conference
call with attendance outside of the UK.
Meetings in person generally take place
over the course of two days and will
ordinarily include meetings of both the
Board and the Committees.
Directors are expected to attend all
scheduled Board and relevant Committee
meetings, unless they are prevented from
doing so by unavoidable prior business
commitments or other valid reasons. All
Directors are provided with full papers
in advance of each meeting. Where a
Director is unable to attend a meeting,
he/she is encouraged to discuss any
issues arising with the Chairman or
CEO as appropriate.
Nationalities on the Board
43
The Company Secretary is responsible
to the Board and provides the Board
and each of the Directors with advice
and assistance on governance matters.
He ensures that all Board materials and
other information are delivered in a timely
fashion, typically five to seven days before
scheduled Board meetings through a
secure, online software system.
As well as the Directors and the Company
Secretary, it is common for members of
the Executive Committee to attend parts
of the Board meetings and to deliver
presentations on operational or business
topics in greater detail. In this way, the
Board gains an in-depth understanding
of business-critical functions and the
presenting managers are able to interact
with the Directors and gain experience
for their own personal development. From
time to time, the Board may also invite
guest external presenters on key subject
matters.
How the Board operates
There is a formal schedule of matters
reserved to the Board and the Board
retains discretion to approve decisions
on key subject matters such as the
Group’s strategy, annual budget and
financial statements. The Board also
reviews other relevant matters including
standing agenda items and key topics
for discussion at that relevant time of
year or as a result of current business
requirements. In all cases, the agenda
focuses on topics in pursuit of the
Company’s strategic objectives
08 underpinned by our core values,
rather than administrative matters. The
Chairman sets the agenda for each
meeting in consultation with the CEO and
the Company Secretary. At the meeting,
the Executive Directors give an update
on business, operational and financial
matters, thereby enabling the Board to
understand progress within the business
but also anticipate likely forthcoming
risks
34.
During 2017, there were detailed
presentations from key managers
including the Vice Presidents of Business
Development, Operations, Supply Chain
Management and HR & Administration on
matters such as strategy and in particular
the Group’s renewables strategy, its entry
into Saudi Arabia, operational issues
around the East Anglia One project and
talent development and performance
management. In addition, from time to
time, the Board invites external presenters
to speak to the Directors. Experts from
the oil & gas industry and the Company’s
brokers (J.P. Morgan Cazenove (JPMC)
and Investec Bank plc (Investec)) and
lawyers presented to the Board.
75%
25%
50%
50%
87%
13%
Executive Directors
Independent NED
Female Directors
Non-Executive Directors
Other Directors
Male Directors
0-3
years
3-6
years
Christopher McDonald
Tony Wright
Debra Valentine
Mel Fitzgerald
Nick Garrett
James Dewar
John Malcolm
Ellis Armstrong
John Malcolm
Non-Executive Chairman
Christopher McDonald
Director and CEO
Mel Fitzgerald
Independent NED
Tony Wright
Director and CFO
Debra Valentine
Independent NED
Ellis Armstrong
Senior Independent Director
Nick Garrett
Non-Executive Director
James Dewar
Independent NED
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Directors’ Report
Board functions
The Board Has ownership of the global policies
Ellis
Armstrong
Nick
Garrett
Debra
Valentine
John
Malcolm
Christopher
McDonald
Tony
Wright
Mel
Fitzgerald
James
Dewar
Board committees Support the board in its work with specific review and oversight
Nom
Aud
Rem
AdH
Nomination &
Governance Committee
Takes primary responsibility for
succession planning,
Board/Director selection and
Board composition
Audit & Risk Committee
Monitors the integrity of the
Company’s financial
statements, reviews, financial
and regulatory compliance and
oversees risk management
Remuneration &
Development Committee
Agrees remuneration policy
and sets individual
compensation levels for
members of senior
management
Ad hoc Board committees
Set up for defined,
time-specific tasks
Group leadership team Responsible for implemention of the global policies
Chief Executive Primarily responsible for running the business with the objective of creating shareholder value
Executive
Committee
Bid Approval
Committee
Risk Review
Panel
HSES Management
Review
Management level committees Responsible for the communication and implementation of decisions,
administrative matters and matters for recommendation to the Board and its Committees
Chief Financial Officer
Business managers
Responsible for leading and delivering
business streams
Function managers
Departmental head for enterprise-wide
support services
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44
Business teams
Structured around project execution
Function teams
Departmental policy and procedures
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The Board makes decisions based on
the reports or presentations produced,
or on the recommendations from one of
the principal Committees. It is therefore
critically important that such reports
and presentations are comprehensive
and the requests for approval are clear.
By way of example, the VP of Business
Development made a detailed and high
quality presentation to the Board in
relation to the Company’s renewables
strategy at the November Board meeting
and the Board was able to give clear
direction and feedback on implementation
of this strategy.
Between Board meetings, management
distributes a monthly report to the Board
providing a summary of the financial
performance of the Group, highlighting
developments and key risks
34.
Principal Board Committees
There are three principal Board Committees
– the Audit and Risk Committee, the
Nomination and Governance Committee
and the Remuneration and Development
Committee – and much of the Board
oversight of the executive management
team is conducted by delegation through
these Committees. It is important for the
Directors to operate in an environment of
trust and for delegated responsibilities
to be effective. Certain authorities are
delegated either to the Committees or to
the executive management team.
An open and forthright environment is
encouraged in meetings of the Board
Committees. Each of the Committees
has written terms of reference, which are
reviewed annually and are available on
the Company’s website.
In addition, the Company has a
Disclosure Committee, comprising the
CEO, CFO and Company Secretary. The
Company is required to make timely and
accurate disclosure of all information that
is required to be so disclosed to meet the
legal and regulatory requirements arising
from its listing on the London Stock
Exchange.
Meetings structure
The Board is primarily responsible for the
leadership of the Company and wider
Group; however it is ably supported
both by the Board Committees and the
management team which makes use of a
number of management level committees
– see above for details. It is a core principle
for all that there is an effective working
relationship between each of the Directors,
between the Board and management
“Every year the Board evaluates its
composition, size and independence
to determine whether any changes are
required to maintain an appropriate
balance. A key development last year
was the return of the Chairman role to a
non-executive capacity, in line with best
practice governance standards, as well
as the adoption of an updated gender
diversity policy.”
Debra Valentine
Independent Non-Executive Director
Board size and composition There continues to be a
strong combination of industry, regional and operational
experience among the Directors enhanced by the diverse
professional competences of each Board member. Following
John Kennedy’s decision to step down from the Board,
the Board prioritised the process to identify a suitable
replacement as Chairman. The Board considered the options
for identifying potential candidates and evaluated the market
conditions, and determined that the appointment of a highly
qualified, internal candidate in John Malcolm was in the best
interests of the Company. The Board also aims to refresh its
membership on a regular and phased basis in order to bring
relevant experience and independence to the Board while
at the same time ensuring continuity and stability. With this
in mind, the Board welcomed the addition of James Dewar
and Nick Garrett as Non-Executive Directors during 2017
and noted that Ellis Armstrong decided not to stand for
re-election at the 2018 AGM.
45
and at the management level. Structurally
and from a governance perspective, this
provides a robust framework for achieving
the Company’s strategic objectives.
Accordingly, there are regular discussions
outside of scheduled Board meetings,
particularly between the Chairman and
the CEO, as well as between the Chairman
and the other Directors, with a view to
reaching a mutual understanding of views
prior to wider discussions at meetings.
At in person Board meetings, the NEDs
and the Non-Executive Chairman meet
without the CEO or CFO present and
share insights on matters of governance
and discuss concerns regarding
management of the business, if any.
Independence and conflicts
In accordance with the Code, at least half
of the Board (excluding the Chairman)
is comprised of independent NEDs
who are free from any business or other
relationships that could materially interfere
in the exercise of their independent
judgement. The percentage proportion
of independence on the Board is
50% including the Chairman and 57%
excluding the Chairman. Throughout
2017, the percentage proportion of
independence on the Board (excluding
the Chairman) always exceeded 50%
although the actual figure varied as a
result of the changes at the Board level.
At the date of publication, Ellis Armstrong,
Debra Valentine, James Dewar and Mel
Fitzgerald are all considered by the Board
to be independent NEDs as defined by
the Code.
At the beginning of each year, the
Company asks each of the independent
NEDs to re-confirm their independence.
The Chairman of the Board was
considered to be independent on his
original appointment in May 2013.
Integrity is a core value for the Group.
Each Director recognises the importance
of transparency in trying to avoid any
actual or potential conflict of interest and
will promptly declare such conflict, if one
arises. This enables the Board to assess
the possible impact of any conflict and
take appropriate and timely action. The
following procedures are in place for
dealing with conflicts:
• Any new Director is required to provide
information on any conflicts of interest
by means of a questionnaire prior to
appointment;
• Conflicts are declared and addressed
during Board meetings and noted in the
minutes; and
• For conflicts arising between Board
meetings, these are submitted to the
Chairman for consideration, prior to
deliberation at the next meeting.
No conflicts of interest were noted
from the Directors in 2017, save that
each Director was excluded from any
discussions or decisions around his or
her change of role in the Company and/
or remuneration. All conflict management
procedures were adhered to and
operated effectively.
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Directors’ Report
Board priorities 2018
Matter(s) considered
Observation(s)
Board Priority(ies)
Bidding and estimating
on future projects
Incorporating lessons
learned into risk
management
There should be a more structured
approach to bidding with clearer
bidding pack to the Board allowing
informed decision to be made based on
complete information and on review of
individual project risks.
The challenges on the East Anglia One
project had highlighted some gaps in the
risk management processes which had
to be incorporated to ensure earlier
warning of key risks. Also, high level risk
assessments could result in superficial
analysis which had to be addressed.
The bidding on new projects (and especially major/non-core
projects) must be conducted through more systematic and
‘deep-dive’ processes based on all key information being
provided to the Board by management with a focus on the risks
and proposed mitigations.
The ERM and project risk management processes will be
improved to take on board all lessons learned from the
East Anglia One project. Further value would be achieved
by spending more time on deeper dives into individual risks,
rather than high level assessments.
Identifying and developing
internal candidates as
part of succession planning
Effective succession planning would be
critical for the business, both in terms
of talent development and retention of
key personnel in a market which could
recover in the coming 12-18 months.
The overall succession planning should operate in a way to
identify potential internal candidates that could step into senior
roles and develop those candidates so as to achieve their full
potential. Remuneration packages should be structured to
retain candidates within the Company.
46
Appointments to the Board
There is a formal, rigorous and
transparent process for the appointment
of new Directors to the Board and this
is led by the Nomination and Governance
Committee which then makes any such
recommendations to the full Board for
approval. Prior to embarking on a search,
the Committee on the advice of the
VP HR & Administration will prepare
a list of key criteria for any candidates,
taking into account the Board’s
composition, and will ordinarily appoint
external search consultants to prepare
candidate lists and assist with the
recruitment/evaluation process.
Following the announcement in April 2017
that John Kennedy was planning to step
down from the Board in September, the
Nomination and Governance Committee
considered the options for appointment
of a new Chairman, and, after due
consideration, the Nomination and
Governance Committee recommended
the appointment of an internal candidate,
John Malcolm, given his knowledge of the
Company and long industry experience.
In addition, the Board made two further
appointments to the Board:
• Nick Garrett was nominated as a
potential candidate for the role of
a Non-Executive Director by the
Company’s major shareholder, Lamprell
Holdings Limited
nomination prevents Mr Garrett from
49. While this
being considered as ‘independent’ in
accordance with the Code, the Board
considered Mr Garrett’s knowledge of
strategy, corporate transactions and
access to capital would be a valuable
addition to the Board. Mr Garrett was
also part of the JPMC team that led
the Company’s initial public offering in
2006 and he continued to advise the
Company until 2012.
• James Dewar joined Lamprell as
a Non-Executive Director on the
Board following an extensive and
in-depth recruitment process which
was overseen by the Nomination and
Governance Committee and which
made use of senior management
recruitment specialists, Korn Ferry,
to advise the Committee on potential
candidates.
Training and development
All Directors are encouraged to attend
relevant external seminars and, on
an ongoing basis, there is training for
the Directors as a whole by way of
presentations to the Board from guest
presenters. The individual Directors
also make efforts to remain current with
the latest regulatory obligations for UK
listed companies with the assistance of
our brokers and lawyers. Similarly, any
Director is entitled to take independent
professional or legal advice on Company
matters, as and when needed. Nick
Garrett took advice in relation to his
position as a Non-Executive Director
that had been nominated by the major
shareholder. John Kennedy took advice
as part of the process for his decision
to step down from the Board. No other
director sought independent advice during
the financial year.
The Audit and Risk Committee also
benefits from regular briefings from the
external auditors on any new accounting
requirements as well as developments in
the area of corporate governance.
Board performance evaluation
As the Board had made use of an
external facilitator to assist with its
2015 performance evaluation process,
it continued with the internally driven,
cost-effective evaluation process for
2017. This process was conducted under
the stewardship of the Nomination and
Governance Committee.
The evaluation included a review of the
Board’s activities, performance and
teamwork and made use of an online
questionnaire (with questions asking for
quantitative ranking and for qualitative
feedback to the Board, principal Board
Committees and the Directors). It also
included feedback from each Director as
well as specific, invited key executives
who have had regular interaction with
either the Board or the Board Committees.
The final report summarised the results
of the evaluation on an aggregated and
confidential basis and was subsequently
“The Company had arranged a thorough
and personalised induction programme
for me when I joined which ensured that I
could get up to speed on business issues
quickly. I was particularly pleased to spend
time walking around the yards and talking
directly with operations managers; in this
way I got a good sense of the real issues
facing the workforce.”
James Dewar
Independent Non-Executive Director
Induction of new Directors Upon joining, Mr Dewar
was given an induction into the Group’s business and this
included visits to the Group’s main facilities in the UAE,
presentations from all key managers and a meeting with the
Chairman and Company Secretary to discuss governance
and regulatory matters, as well as Board procedural
matters. Mr Garrett completed similar activities following
his appointment to the Board, although his prior knowledge
of the Group provided a solid, existing knowledge base
of the business.
47
provided to the Board which then
discussed the results in open session.
46. The NEDs,
As a result of this process, the Board has
been able to structure its priorities for
2018 around the results
led by the Senior Independent Director,
evaluated the Chairman’s performance
and confirmed that he was performing
effectively. The Board considers that it
is beneficial to take time to evaluate its
own performance as this strengthens
and enhances the performance and
transparency of discussions and
decision-making at the Board level.
General Meetings of the Company
In May 2017, the Company held its AGM
in Dubai, United Arab Emirates and the
Directors able to attend were present and
stood for re-election. As John Kennedy
had previously advised that he would be
standing down in September 2017, he did
not stand for re-election. We encourage
our shareholders to attend the AGM as an
opportunity to engage in a constructive
dialogue with the Board members. As
has been the norm, all resolutions were
passed on a show of hands; however
as a matter of good governance and
in accordance with the changes to the
Code, voting on resolutions 7, 9, 11
and 13 (which related to the re-election
of the independent Non-Executive
Directors) was conducted by independent
shareholders only (i.e. excluding the
“controlling shareholders”)
49.
The Company plans to hold its 2018
AGM on 23 May 2018 in Dubai and full
details will be set out in the Notice of
Meeting which accompanies this report
and is also available on our website. All
Directors are planning to attend and will
be available to answer questions from
shareholders. Each item will be presented
as a separate resolution. Any shareholder
unable to attend in person but wishing to
submit a question for consideration by the
Directors, is invited to submit questions to
investorrelations@lamprell.com.
Pursuant to the Company’s Articles of
Association, the Directors are required
to submit themselves for re-election by
shareholders at least every three years
and, in the case of James Dewar, at
the first available AGM of the Company.
However, in line with the Code and best
practices, the Board has decided that
all Directors will retire and stand for re-
election at the 2018 AGM.
As also required, the Company makes
the terms and conditions of Directors’
engagement available for inspection at
the registered office of the Company
during normal business hours and also
at the Company’s AGM 15 minutes prior
to the meeting and during the meeting.
In June 2017, the Company held an
extraordinary general meeting in Dubai,
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Directors’ Report
Consistent communication with our shareholders
January
February
March
April
May
June
July
August
September
October
November
December
Interim Results
announced
Key
Preliminary Results
announced
Annual Report
published
Sell-side and buy-side roadshow
Corporate presentations, market announcements including
trading updates and contract wins, and other Company
information on our website at www.lamprell.com
Regular, ongoing dialogue and phone calls with major
shareholders and analysts
Results announced
Annual Report published
AGM attended by all Directors
Regular press releases regarding Company’s business
48
United Arab Emirates. This EGM was held
in order for shareholders to consider the
proposal for the Company to enter into the
proposed joint venture in Saudi Arabia
11. Shareholders voted overwhelmingly
to approve the proposal with more than
99.9% of shareholders voting in favour of
the resolution.
Communications with shareholders
11. Whilst the Chairman
As in previous years, Lamprell focused
heavily on effective and open
communications with its shareholders,
not least because of the conclusion of
the joint venture relating to the IMI yard in
Saudi Arabia
assumes overall responsibility for
communication of shareholder views to
the Board, investor relations activities are
primarily handled by the CEO and CFO
with the support of a dedicated investor
relations team. During 2017, over 100
investor and analyst meetings were held
by the investor relations team face-to-face
or over the phone; of these, the CEO and/
or CFO attended over 55%.
As in previous years, Company
representatives met with major institutional
shareholders and market analysts
following the announcement of our
financial results and at other key times
during the year such as around trading
updates to the market. To the extent
possible, the Company will aim to make
analyst site visits (similar to the ones
organised in previous years) a regular
occurrence. In addition, the Chairman
and Senior Independent Director are
available to speak with shareholders
and did communicate from time to time
with shareholders on specific issues
during 2017.
The Company has made use of the
services of JPMC and Investec as its
joint corporate brokers, with JPMC
acting as the lead broker since its listing
in 2006. JPMC has supported and
advised the Board through a number of
challenging corporate transactions since
2012 including the rights issue of 2014.
Investec acted as the Company’s broker
and adviser in relation to the proposed
joint venture in Saudi Arabia leading to the
above-mentioned EGM in June 2017.
The Company also views the AGM
as an important process for liaising
with shareholders. The Company has
strived to take on board comments from
shareholders and has engaged with
investor advisory groups to understand
any concerns with the aim of maximising
the votes in favour of resolutions
submitted for approval at the AGM.
With the exception of the resolution 2
(relating to the Directors’ Annual Report
on Remuneration for 2016), all resolutions
were passed with at least 98% of the
votes cast in favour of the respective
resolutions. Resolution 2 received more
than 90% of the votes cast in favour and
this is discussed further in the Directors’
Remuneration Report
58.
Significant shareholders
As at 21 March 2018, being the latest
practicable date prior to the publication
of this Annual Report, the significant
interests in the voting rights of Company’s
issued ordinary shares based on the
last request for confirmation as to the
beneficial ownership of voting rights in
the Company (at or above 5% beneficial
ownership) were as follows:
Voting rights
attaching to issued
ordinary shares
% of total
voting
rights
Lamprell Holdings
Limited
Schroders plc
MFS Investment
Management
Prudential plc
group (including
M&G Investment
Management)
Blofeld Investment
Management
113,182,291
33.12
53,623,713
24,780,026
15.69
7.25
23,258,915
6.81
22,606,729
6.62
By virtue of the size of its shareholding
in the Company, Lamprell Holdings
Limited and its ultimate owner, Steven
Lamprell, are “controlling shareholders”
for the purposes of the UK’s Listing
Rules. Accordingly, they were required
to enter into an agreement with the
Company to ensure compliance with the
independence provisions set out in the
Listing Rules (“Controlling Shareholder
Agreement”).
January
February
March
April
May
June
July
August
September
October
November
December
Key
Preliminary Results
announced
Annual Report
published
Sell-side and buy-side roadshow
Corporate presentations, market announcements including
trading updates and contract wins, and other Company
information on our website at www.lamprell.com
Results announced
Annual Report published
AGM attended by all Directors
Regular, ongoing dialogue and phone calls with major
Regular press releases regarding Company’s business
shareholders and analysts
Interim Results
announced
The Controlling Shareholder Agreement
regulates the ongoing relationship
between the Company and these
controlling shareholders. The Company
has complied with the independence
and all other provisions in the Controlling
Shareholder Agreement. So far as the
Company is aware, the controlling
shareholders have also complied
with the independence and all other
provisions in the Controlling Shareholder
Agreement. The Controlling Shareholder
Agreement represents a key component
of the Company’s corporate governance
structure.
Communications with other key
stakeholders
Lamprell’s core lending group is
another key stakeholder for the
business and the debt facility terms
represent a fundamental part of the
Group’s governance structure as it
includes certain banking covenants
and restrictions. The management team
provides regular updates on key aspects
of the business to the lending group and
the CFO communicates frequently with
each of the lending banks to address
any queries.
Finally, the Board places considerable
importance on positive and effective
interaction with the Group’s workforce
and Lamprell’s internal Corporate
Communications team coordinates
campaigns for the management team
to cascade key messages throughout
the organisation. In 2017, there were
campaigns relating to significant safety
matters such as the risk of heat stress
in the hot summer months in the UAE
and cyber attacks. In continuation of
the process undertaken by the previous
CEO, Christopher McDonald conducted
a regular series of “townhall meetings”
at each of the three main facilities
in the UAE, which were focused on
the Company’s performance and on
developments within the business. The
management team considers that such
close communication with the workforce
enables employees to voice concerns
but also allows the CEO to set out key
developments within the business and the
ways that employees can help to deliver
the Company’s strategic goals.
49
Directors’ remuneration
The Remuneration and Development
Committee is primarily responsible for
determining the Company’s remuneration
policy, taking into account the best
practices as well as the advice from
external consultants. Details of the
Company’s policy on remuneration, the
Directors’ remuneration for the year ended
31 December 2017 and their interests in
the ordinary shares of the Company can
be found in the Directors’ Annual Report
on Remuneration
64.
Directors’ and Officers’ insurance cover
Each year, the Board reviews and
approves the level of the Directors’
and Officers’ liability insurance cover to
ensure that it is appropriate in light of
the circumstances, size and risks within
the business. This is subject to the usual
exclusions such as fraud or dishonesty
by a Director.
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Nomination and Governance
Committee Report
NOMINATION
AND GOVERNANCE
COMMITTEE
REPORT
The Committee was involved in managing the Board
succession process, with the transition from the previous
Chairman to the new Chairman, as well as the appointment
of two new Non-Executive Directors.
50
Committee attendance
The Committee is comprised of
four members, three of whom are
considered to be wholly independent,
plus the Chairman of the Board. Aside
from the members, the Company
Secretary and the Group’s VP of HR
are typically invited to attend meetings.
Following John Malcolm’s appointment
as the new Chairman in September,
Mel Fitzgerald became chair of the
Committee in his place.
Remit of the Committee
The Committee has primary responsibility
for the structure, balance, diversity and
experience on the Board and Committees,
and for leading the evaluation of the
Board’s performance and effectiveness.
It also assesses the succession planning
needs at the most senior level. In addition,
the Committee considers the implications
of any changes in the regulatory and
governance framework and advises the
Board on the same. With the increased
global concerns around security, the
Board also delegated responsibility for
overseeing the Group’s security activities
to the Committee. The Committee’s written
terms of reference are available on the
Company’s website.
Activities during 2017
As required by the Code, the Committee
took a leadership role with regard to
succession planning at the Board level
during 2017. This was important to ensure
the transition from the previous Chairman,
John Kennedy, to the new Chairman, John
Malcolm, which followed Mr Kennedy’s
decision to step down from the Board in
September. The Committee also advised
the Board in connection with the change
from Executive Chairman to Non-
Executive Chairman which took place
earlier in the year.
The appointment of John Malcolm as
the new Non-Executive Chairman was
made following consideration of various
factors, notably his deep knowledge
of the Company and long experience
of working in the oil & gas market, a
core market for the Group. Accordingly,
the Committee determined that the
appointment of an internal candidate,
rather than a potentially time-consuming
external search process, was the optimal
solution for hiring the new Chairman for
the Company.
The Committee devoted considerable
time to the appointment of the two new
Non-Executive Directors. The appointment
of James Dewar followed a review and
interviews of a number of short-listed
candidates, all with the assistance of
Korn Ferry, a recruitment specialist firm.
Once Mr Dewar had been identified as
the preferred candidate, the Committee
acted as the primary evaluating body
for his candidacy, but regularly reported
to the full Board on progress. The
Company made use of Korn Ferry
Committee members
Mel Fitzgerald
Committee Chair and Non-Executive Director
Ellis Armstrong
Senior Independent Director
Debra Valentine
Non-Executive Director
John Malcolm
Non-Executive Chairman
Mel Fitzgerald
Committee Chair and Non-Executive Director
because of its strong profile in the
industry, proven assessment processes
and broad contact networks from which
to source candidates. Save in relation
to this process, Lamprell had no other
connection with this company.
In relation to Mr Garrett, the Committee
carefully considered Mr Garrett’s
credentials to be a Non-Executive
Director in light of his candidacy being
proposed by the major shareholder,
The Committee concluded that, while he
would not be considered as independent
for the purposes of the Code, he brought
additional strengths and expertise
to the Board as well as his long history
of working with the Group.
48.
Leadership succession planning
The Board considers succession planning
and internal talent management to be
significant for delivery of the Group’s
strategy. This was a Board priority for
2017 and the Committee recommended
that it should continue to manage
succession planning for the Directors
and especially for Executive Directors.
However, talent development, notably
for the next level of management, was
best suited to the Remuneration &
Development Committee, hence the
amendment to its terms of reference,
58. While the Board considered that
positive progress was made in this area
during 2017 as a result, this remains a top
priority for the business, particularly for
any key retention risks in anticipation of
a market recovery in 2019 and beyond.
Gender diversity
Lamprell recognises that the quality of
our people is fundamental to our success
and aims to recruit on merit and hire the
best candidates with the widest range
of skills and experience, whatever their
background or gender. Our sector of
fabrication, engineering and construction
51
projects continues to be a predominantly
male-dominated profession; however,
the Group is committed to building its
diversity pipeline as a long-term objective
for the whole organisation. We believe that
diversity creates a dynamic and creative
environment which contributes to solving
issues as they arise and thereby will
support the future growth of our business.
The Board has also considered the
recommendations of the Hampton-
Alexander Review and in 2017 issued
its gender diversity policy for Board
appointments. Given the current
size and balance of experience of
Lamprell’s Board and the refreshing
of the Board’s independent Non-
Executive Directors in 2015 and 2017,
it is unlikely that Lamprell will be fully
compliant with the recommendations
of the Hampton-Alexander Review
in the short-to-medium term.
Committee attendance
Number of
meetings
attended
Number of
meetings
possible
Mel
Fitzgerald
19
19
Ellis
Armstrong
19
19
Debra
Valentine
19
19
John
Malcolm
19
19
John
Kennedy1
5
5
Note:
1. John Kennedy left the Board on 20 September 2017
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Nomination and Governance
Committee Report
Board gender split
Board expertise
87%
13%
91%
9%
2017
2016
Female directors
Female directors
Male directors
Male directors
Oil & gas markets
Risk management
Public company boards
ME
Middle East
Fabrication/EPC(I)
Financial
Legal
13%
38%
50%
63%
52
However, looking ahead as the Group
grows and as new positions become
available, the Board diversity policy
commits the Group to:
• A corporate culture which hires
candidates on merit based on the
most appropriate range of skills and
experience for a role, and offers
equal opportunities for all employees,
regardless of gender (as well as
ethnic origin, background or physical
disabilities);
• Secure senior leadership commitment
to the diversity agenda and to raise
awareness about the benefits of a
diverse workforce;
• Require external recruitment consultants
to submit their diversity policies to the
Group before taking on any Board or
executive management search;
• Ensure that external consultants submit
candidate shortlists reflecting an
appropriate gender balance, relative
to the target recruitment market, for
consideration by the Nomination
and Governance Committee in
connection with any Board or executive
management appointment;
• A target of at least one female Director
on the Board; and
• An annual review by the Nomination
and Governance Committee of its
progress complying with the best
practice recommendations for
gender diversity.
Service agreements and letters
of appointment
Executive Directors are employed
under Directors’ service contracts with
termination notice periods of not more
than 12 months.
Non-Executive Directors are engaged
pursuant to letters of appointment which
do not have fixed terms but they are
subject to re-election by the Company’s
shareholders at intervals of not more than
three years.
All existing Directors and new Directors
will be proposed for election by the
shareholders at the 2018 AGM.
Corporate governance
Audit and Risk Committee
Report
AUDIT
AND RISK
COMMITTEE
REPORT
The Committee takes a leading role to ensure that the financial
statements are fair, balanced and understandable. It must also
oversee other key aspects of the business such as the enterprise
risk management process, consideration of significant judgements
affecting the business and assessment of findings from internal audits.
Committee attendance
Throughout 2017, membership of the
Committee was comprised solely of
independent NEDs. Debra Valentine
was appointed to the Committee when
John Malcolm stepped down to take
up the role of Chairman of the Board.
James Dewar was added as a member
of the Committee when he joined the
Company in November and became
Committee Chairman effective
1 January 2018. Both James Dewar and
Ellis Armstrong have relevant financial
experience for the purposes of the Code,
thereby ensuring the strong background
in both financial metrics and industry
experience, to assess the matters
presented to the Committee.
As a “smaller company” under the Code,
the Committee needs only have two
members but the Board determined
that it was in the best interests for
the Committee to have at least three
members. Aside from the members, the
Company Secretary and the Group’s
CFO are typically invited to attend the
Committee attendance
meetings. In addition, the external and
internal auditors are invited to meetings
at key times during the year. On occasion,
other Board members and managers
attend by invitation.
Remit of the Committee
The Committee has primary responsibility
for overseeing the integrity of all of the
Company’s announcements relating to
its financial performance, including its
financial results, and for considering
all matters relating to the terms of
appointment for, performance and
independence of the Company’s external
auditors. The Committee advises the
Board on whether the Annual Report
and Accounts, taken as a whole, are fair,
balanced and understandable.
34 as well as its internal control
The Committee also oversees the
Company’s enterprise risk management
system
systems, and monitors the effectiveness
of such systems particularly against
potential ethical or fraudulent activities.
This includes assessment of the
whistleblowing hotline activities.
Number of
meetings
attended
Number of
meetings
possible
James
Dewar1
1
1
Ellis
Armstrong
6
6
Debra
Valentine
1
1
Mel
Fitzgerald
6
6
John
Malcolm
5
5
Note:
1. James Dewar joined the Board on 1 November 2017
The Committee’s written terms of
reference are available on the Company’s
website.
53
1st line of defence
Executive
Committee
Internal controls
and annual self
assessments
Internal policies
and training
2nd line of defence
Financial
control
Health, safety
and environment
Technology
Risk
management
Internal audit
Legal
3rd line of defence
Audit and Risk Committee
Monitors the integrity of the Company’s
financial statements and reviews financial and
regulatory compliance and controls
Committee members
James Dewar
Committee Chair and Non-Executive Director
Ellis Armstrong
Senior Independent Director
Debra Valentine
Non-Executive Director
Mel Fitzgerald
Non-Executive Director
Lamprell plc Annual Report and Accounts 2017
Corporate governance
Audit and Risk Committee
Report
James Dewar
Committee Chair and Non-Executive Director
54
Activities during 2017
The Committee’s main activities during
2017 were as follows:
• overseeing management’s effort to
forecast and manage its cash and cash
equivalents through the continuing,
prolonged market downturn;
• assessing the basis and impact of the
goodwill impairment as part of the 2016
financial results;
• reviewing the year-end/interim financial
statements for the Company including
ongoing risks and opportunities;
• considering the funding scenarios
for the potential joint venture in Saudi
Arabia
11;
• evaluating the external Auditor’s
independence, objectivity and the
effectiveness;
• assessing the basis and impact of the
additional costs on the East Anglia One
project
26;
• monitoring the Group’s progress for
implementing systems and processes
to cater for the introduction of VAT in
the UAE as from 1 January 2018;
• assessing the Group’s enterprise
risk management database and
how enterprise risks are identified
and mitigated;
• reviewing the internal audit reports,
outstanding action points and the 2018
audit plan;
• ongoing assessment of the control
environment and systems; and
• reviewing the whistleblowing statistics
and reported cases.
Significant judgements in 2017
55 during
The Committee considered the
significant judgements
2017. The Committee was satisfied that
the judgements made by management
were reasonable and that appropriate
disclosures have been included in the
accounts.
External auditor – activities and
performance
Deloitte LLP has been the Company’s
auditors following a formal tender process
in 2015. During 2017, Deloitte LLP
presented to the Committee on various
matters (including their audit report
on the 2016 financial results) on two
occasions. Deloitte LLP also provided
the Committee with updates on changes
to accounting, regulatory and corporate
governance laws and regulations that
impact the Company and the Group. The
Committee remains satisfied as to the
Auditor’s effectiveness and, in making
this assessment, had due regard to
their expertise and understanding of
the Group, their resourcing capabilities,
independence and objectivity.
The Company’s Policy on Auditor
Independence, which is available on
the Group’s website, is designed to
safeguard the objectivity of our external
auditors and to ensure the independence
of the audit is not compromised. Under
the policy, all audit-related services or
non-audit services must receive specific
pre-approval from the Audit and Risk
Committee if the total annual fee for all
such services exceeds 50% of the sum
of the annual fees for audit services. Any
and all audit-related services or non-audit
services in excess of this amount must
be expressly pre-approved by the Audit
and Risk Committee. Further, in respect
of all such other services, a tender
process is required for any project or
scope of work which is anticipated to
generate fees in excess of USD 250,000.
Accordingly, Deloitte LLP could, under
certain conditions, be engaged to
undertake non-audit services provided
that it does not compromise the integrity
of their audit work. However, the policy
also sets out services that Deloitte LLP is
prohibited from undertaking under any
circumstances. There was no breach of
the policy.
In 2017, Deloitte LLP provided
non-audit services with a total value
of USD 0 (2016: USD 0) against an
annual audit fee including Group audit
fees with a total value of USD 596,000
(2016: USD 520,000). This continues the
positive developments to minimise the
amount of non-audit services conducted
by the external auditors (as compared
to audit services) commenced in 2015.
During the year, the Committee reiterated
the importance of ensuring that the
non-audit fees remain below 50% of
the total audit fee.
Significant judgments considered
by the Committee during 2017
View/actions of the Committee
with respect to significant judgements
Revenue recognition
and estimated cost to
complete on major projects
including onerous contracts
The Committee reviewed the reasonableness of judgements made regarding the cost to complete estimates,
recognition of variation orders and contractual claims, and the adequacy of contingency provisions to
mitigate contract specific risks. In particular the Committee focused on any onerous contract to ensure
that the assumptions made to assess the contract loss were appropriate. The Committee concluded that
the quantification and timing of revenue, margin and loss recognition continues to be in line with IFRS
requirements and satisfied itself that Company’s financial statements had been prepared on the basis
of the accounting policy and noted that the external auditors had audited the methodology on that basis.
Review of subjective
provisions
Impairment of property,
plant and equipment
At each meeting, the Committee evaluated management’s report on material subjective provisions taken
in respect of matters including doubtful debts, contract accruals, project risks and warranty issues. The
Committee considers the appropriateness, adequacy and consistency of approach to provisioning at each
meeting and all material provisions are discussed and challenged. Given the uncertain economic climate
for supply chain companies in the oil & gas sector, there was a focus in the year on the recoverability of
receivables and on the processes in place to monitor credit risk.
At both the half year and the year end, the Committee considered whether indicators of impairment
existed and the results of any impairment reviews conducted. Given the decline in both revenues
and profits in 2016 and 2017; and the projected fall in revenues in 2018, the Group had considered it
appropriate to review for the possible impairment of property, plant and equipment and the Committee
considered the appropriateness of the assumptions and challenged the factors used in the review process.
After discussion, it was satisfied that the assumptions and the disclosures in the year-end financial
statements were appropriate.
Given the oversight by the Committee, the
minimal non-audit services undertaken
by Deloitte LLP and the change of auditor
in 2015, the Committee considers that
the objectivity and independence of
the external auditor were safeguarded
throughout the financial year.
Deloitte LLP has expressed its willingness
to be appointed and continue to act
as external auditor and a resolution
to appoint Deloitte LLP will be proposed
at the forthcoming 2018 AGM for
their services in respect of the
2018 financial year.
55
Interaction with internal auditors
The Company has a well-established and
embedded internal audit (“IA”) function
and the Head of IA presents to the
Committee at least on a bi-annual basis,
providing updates and analysis for the
internal audits, as well as making key
recommendations and observations to
the Committee and submitting a proposal
for the internal audits proposed for the
subsequent year.
Aside from leading the annual control self-
assessment exercises undertaken during
the year, the IA function conducted the
following audits during 2017:
FRC review and findings
During the year the Financial Reporting
Council (“FRC”) conducted a review of
the audit performed by Deloitte LLP of the
Group’s financial statements for the year
ended 31st December 2016. The scope
of the FRC review covered the audit work
performed in the following areas:
Performance and effectiveness of the
external auditor
Under the Committee’s terms of
reference, it assesses the auditor’s
independence, performance and
effectiveness at least on an annual basis,
by reference to the activities of Deloitte
LLP and also by way of feedback from
several sources: the Committee relies
on self-assessment by Deloitte LLP
of its performance, on feedback from
certain senior managers that work closely
alongside the auditors including the
CFO and the Company Secretary, and
on its own evaluation of Deloitte LLP’s
services based on the results of its audit
work and the challenges presented
to the views and positions of the
Group’s management.
In light of the accumulated feedback, the
Committee remains satisfied of Deloitte
LLP’s independence and effectiveness
and the Board concurs with the
assessment by the Committee.
Auditor tender process
The Code provides that a listed company
should put its external audit contract out
to public tender at least every ten years.
As noted above, the Company retendered
for its external audit services in 2015
which is in line with best practice.
• Estimate of project costs and
• Surprise cash count;
revenue recognition;
• Operations & Maintenance
• Recoverability of goodwill and
business unit;
other assets;
• Review of subjective provisions;
• End of service liability benefits; and
• Yard labour management;
• Procurement function;
• Projects management: new build and
• First year audit procedures.
onshore/offshore;
The review also covered the quality of
communication with the Committee,
plus certain matters relating to ethics,
independence, quality control and
completion. The outcome of the review
was that the audit work in two of the areas
covered required limited improvements.
These were the impairment of non-current
assets and the end of service liability
benefits. Deloitte LLP and Lamprell have
taken actions to make improvements
in these areas. The Committee would
like to thank the FRC for the rigorous
and professional manner in which they
conducted the review.
• Inventory management: ERP
configuration and utilisation;
• Third party QC inspection services;
• Camp assets disposal process; and
• Late project costs review.
There has been close interaction between
the IA and Group risk functions in order
to formulate the 2018 planned internal
audits. Necessary amendments to the
IA plan are made during the year, subject
to the Committee’s approval, in instances
where the level of risk had increased, or
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Audit and Risk Committee
Report
Managing risk appropriately during 2017
At Board level
Aud
Audit & Risk Committee conducts an annual
review of the effectiveness of the systems of
financial, operational and compliance
controls and risk management systems
The Board regularly receives comprehen-
sive written reports from the CEO and the
CFO on the strategic and financial risks
within the business respectively
Risk to strategy
high
Risk change
unchanged
Presentation by management to the
Audit & Risk Committee on the status of
the Group’s risk management systems
Jan
Jun
Bi-annual report identifying the major, current
risks and opportunities within the business is
submitted by senior management to the Audit &
Risk Committee
At executive management level
VP Commercial & Risk Management is a
member of the Executive Committee –
forum for management oversight of project
and department risks
Business unit/department heads are
responsible for the identification,
evaluation and mitigation of risks within
their businesses/departments
Creation of an online, interactive risk
database which is used to capture
all project and department risks and
provide reports on risk trends and
severity/likelihood of risk
At the project/operational level
Project managers are directly responsible for
identification and ensuring that risks are
captured in the risk database
As project risk owners, project managers
implement the risk mitigation plans within
their respective projects
Project managers report on project risks
on a monthly basis to the Group Risk
1
Manager
Internal Audit ensures application and
consistency of Group’s risk policies and
procedures by undertaking internal audits
56
decreased significantly, or circumstances
within the Group have changed, or as
specifically requested by management.
The Committee will assess, by reference
to the highlighted risk trends within the
business and best practice, the key
recommendations, and approve actions
and the forward-looking internal
audit plan.
As a matter of best practice the
Committee meets with the internal auditor
without executives present to discuss any
sensitive matters or concerns. Equally
and in much the same way as with the
external auditors, the Committee reviews
the performance and effectiveness of the
IA function and remains satisfied with the
effectiveness of the IA function.
Enterprise risk management
Each of the Directors acknowledges
and accepts that the Board as a whole
takes responsibility for risk management
in line with the Code requirements. The
Board has delegated the administration
and monitoring of the effectiveness of
the Group’s internal control and risk
management systems to the Committee.
However, the day-to- day responsibility for
developing and implementing the internal
control and risk management procedures
resides with the executive management
team which then reports on risk to the
Committee. In 2017, management formally
presented on two separate occasions to
the Committee (in May and November).
The purpose of such presentations was to
ensure that the Committee, and therefore
the Board, has appropriate oversight of
enterprise risks and their potential impact
on the business, with a particular focus
on the risks that are specific to the Group.
In addition, the Board discussed the key
risks facing the Company and business
as part of the processes for release of the
2016 financial results in March and the
2017 half-year results in September.
This two-way disclosure and monitoring
system for enterprise risks facing the
Group provides the Directors with
reasonable (but not absolute) assurance
against material misstatements and
losses. The structure of the risk
management mechanisms as well
as the results of this system can be seen
in the information relating to the principal
risks and uncertainties faced by the
Group
34.
The executive team has been working to
embed risk management into the daily
activities of all Lamprell employees.
However, in light of the significant
losses incurred on the East Anglia One
project, it was recognised that additional
improvements had to be made around
project risk reporting, measurement
of performance against metrics and
feeding lessons learned from previous
projects into future bidding activities.
There have been a series of workshops
in the management team to identify the
risks on the EA1 project as well as the
systems and controls required to identify
potential hazards and risks on a project
at an early stage and take mitigating
actions accordingly.
Risk is assessed formally at the business
unit level through the maintenance of
project and department risk registers. The
updating of the risk registers is a regular
process, involving the regular effective
identification, evaluation and management
of risks by individual managers.
Internal controls framework
The Company has a system of internal
controls based around the following key
features:
• a strategy defined and implemented
by the Board;
• financial planning including annual
budgets, quarterly reviews and
three-year forecasting;
• oversight and approval of projects
and/or contract awards either through
executive management and/or, where
required on major projects, the Board;
• implementation and use of an
integrated enterprise resources
planning system, linking the various
business functions;
At Board level
Aud
At executive management level
At the project/operational level
Audit & Risk Committee conducts an annual
review of the effectiveness of the systems of
financial, operational and compliance
controls and risk management systems
The Board regularly receives comprehen-
sive written reports from the CEO and the
CFO on the strategic and financial risks
within the business respectively
Risk to strategy
high
Risk change
unchanged
Presentation by management to the
Audit & Risk Committee on the status of
the Group’s risk management systems
Jan
Jun
Bi-annual report identifying the major, current
risks and opportunities within the business is
submitted by senior management to the Audit &
Risk Committee
VP Commercial & Risk Management is a
member of the Executive Committee –
forum for management oversight of project
and department risks
Business unit/department heads are
responsible for the identification,
evaluation and mitigation of risks within
their businesses/departments
Creation of an online, interactive risk
database which is used to capture
all project and department risks and
provide reports on risk trends and
severity/likelihood of risk
Project managers are directly responsible for
identification and ensuring that risks are
captured in the risk database
As project risk owners, project managers
implement the risk mitigation plans within
their respective projects
1
Project managers report on project risks
on a monthly basis to the Group Risk
Manager
Internal Audit ensures application and
consistency of Group’s risk policies and
procedures by undertaking internal audits
57
safeguards which will then be re-tested by
the audit teams. The Committee reports
on its monitoring and observations to the
Board at least annually. The Directors are
satisfied that, as a result of the systems
and the oversight functions, and the
improvements made in light of the issues
and learnings on the East Anglia One
project, the internal control environment is
operating effectively.
• policies and procedures which define
the Group’s standards of business
including a schedule of matters
reserved for the Board, a clear
organisation structure and a
delegation of authority matrix; and
• the Company’s Business Code of
Conduct framed according to the
Group’s core values.
There are also various policies and
procedures which embed regulatory
requirements into the daily operations
of the Group such as the anti-bribery
and corruption policy, the share dealing
code, the insider dealing and market
abuse policy and the whistleblowing
policy. They are all available on the
Company’s website www.lamprell.com.
With the issuance of the Market Abuse
Regulation (“MAR”) in July 2016, the
Board updated and reissued its share
dealing code to comply with MAR and
has also implemented a more formalistic
process for identifying and disclosing
inside information which includes the use
of a Disclosure Committee.
The Modern Slavery Act 2015 was
enacted during 2016 and requires
companies to evaluate internal and
external risks related to human trafficking
and modern slavery. Lamprell has
amended its procedures and practices
to highlight risks among the workforce
in relation to trafficking and slavery. The
Group also employs other processes to
educate the workforce on the importance
of high standards of behaviour and ethics
such as training around the Company’s
Business Code of Conduct and annual
conflict of interest declarations for
managers and key personnel. The
Modern Slavery and Human Trafficking
policy statement for Lamprell, which
includes the Board’s assessment of our
practices and procedures in this area,
was published and is available on the
Company’s website.
There is a multi-lingual, secure
whistleblowing hotline which was set
up to allow staff members to report
ethical breaches, irregularities or simply
concerns on a confidential basis without
any fear of recrimination. They are all
key elements of an internal control
system which is designed to assist
in the achievement of the Group’s
business objectives.
Finally, the Committee undertakes an
annual review of the effectiveness of
the systems of internal control including
financial, operational and compliance
controls and risk management systems.
This is performed in collaboration with
both the internal and external auditors
and, where weaknesses have been
identified, the management team
is tasked with implementing further
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Directors’ Remuneration
Report
DIRECTORS’
REMUNERATION
REPORT
The Remuneration & Development Committee now has a collective
focus on executive reward and retention as well as succession
planning and development. This ensures that the Committee
maintains a more holistic oversight of executive performance
and talent management.
58
Dear Shareholder,
On behalf of the Board, I am pleased to
introduce the Directors’ Remuneration
Report for the year ended 31 December
2017. We have listened to your comments
in previous years and we shall be seeking
your support for each part of this report
at the forthcoming AGM on 23 May 2018.
Performance and reward in 2017
As a result of major, unplanned costs on
the East Anglia One project that caused
22, the Company did
significant losses
not meet the minimum threshold required
in relation to the EBITDA target to trigger
any STIP pay-out. As such no STIP pay-
outs were made to any of the Executive
Directors in respect of the 2017 plan.
As a further consequence of the
Group’s 2017 performance and its
impact on cumulative EBITDA, end
of period backlog and relative TSR,
the performance shares awarded to
Tony Wright on 9 April 2015, with a
performance cycle related to the three
years ending 31 December 2017,
failed to achieve the minimum vesting
requirements in all three metrics and as
such resulted in nil vesting.
Long-term incentive awards were granted
in October 2017 to the CEO, Christopher
McDonald, and the CFO, Tony Wright,
in accordance with the rules of the
performance share plan,
66.
potential changes in policy for 2018.
The Committee is satisfied that the current
remuneration policy that was approved
at the 2016 AGM is broadly aligned with
the UK market.
John Kennedy stood down as Executive
Chairman on 24 April 2017 and as a
non-executive director on 20 September
2017. Mr Kennedy was eligible for a
share-based and performance-related
short-term incentive award in relation to
his period of appointment as Executive
Chairman and he vested in 116,047
retention shares under the Company’s
2009 Retention Share Plan. Details of
both these awards are given
66.
As reported in last year’s Directors’
Remuneration Report, Christopher
McDonald was eligible for certain
compensatory awards in relation to
forfeited incentives with his previous
employer. Details of awards that vested
in 2017 are given
66.
Remuneration policy for 2018
The Remuneration & Development
Committee has continued to monitor
emerging trends in UK executive
remuneration practices and has engaged
actively in reviewing the need for any
The Committee is also satisfied that the
remuneration policy continues to maintain
a strong link between executive reward
and high performance and will ensure that
we can recruit and retain the right calibre
of senior management to maximise
shareholder value and deliver sustainable
growth over the longer term.
During the year, the Committee’s terms of
reference were extended to incorporate
a focus on executive succession and
development. This has enabled the
Committee to establish and maintain
effective oversight of talent management
and retention.
On behalf of the Board, I recommend
this remuneration report to you and
I hope that you will find it clear, concise
and understandable.
Debra Valentine
Chair of the Remuneration
& Development Committee
21 March 2018
Debra Valentine
Committee Chair and Non-Executive Director
59
Remuneration Policy
This part of the report sets out the
remuneration policy for the Company and
has been prepared in accordance with
the Large and Medium-sized Companies
and Groups (Accounts and Reports)
(Amendment) Regulations 2013. The
Remuneration Policy for the Company
has been developed taking into account
the principles of the Code and the views
of our major shareholders and describes
the policy applied from the 2016 AGM
onwards. The Policy Report was put
to a binding shareholder vote and
approved at the 2016 AGM1.
Policy overview
The Committee is responsible, on behalf
of the Board, for establishing appropriate
remuneration arrangements for the
Executive Directors and other senior
management in the Group.
Our remuneration policy aims to drive
continuous improvements in business
performance and maximise shareholder
value by offering remuneration packages
that are appropriately balanced and
are designed to enable the recruitment,
retention and motivation of talented
executive directors and senior
management.
In setting the remuneration policy, the
Committee considers the remuneration
policy and levels of remuneration for the
wider employee population, compensation
policies and practices in the UAE and
also in the wider market. The Committee
will ensure that the arrangements are in
the best interests of both the Group and
its shareholders, by taking into account
the following general principles:
• To attract, retain and motivate the best
talent without paying more than is
necessary;
• To ensure total remuneration packages
are simple and fair in design and
valued by participants;
• To ensure that the fixed element of
remuneration is determined broadly in
line with market rates, taking account of
individual performance, responsibilities
and experience; and that a significant
proportion of the total remuneration
package is linked to performance-
related incentives;
• To balance performance pay
between the achievement of
financial performance objectives
and delivering sustainable stock market
out-performance; creating a clear line
of sight between performance and
reward and providing a focus on
sustained improvements in profitability
and returns;
• To calibrate carefully all performance
metrics and associated sliding scale
ranges to ensure that performance
is incrementally rewarded through
stretching targets and that executives
are not inadvertently incentivised to
take inappropriate business risks;
Committee members
Debra Valentine
Committee Chair and
Non-Executive Director
Ellis Armstrong
Senior Independent Director
Mel Fitzgerald
Non-Executive Director
James Dewar
Non-Executive Director
John Malcolm
Non-Executive Chairman
1. The Company’s Remuneration Policy was approved at the 2016 AGM, based on the following votes from
shareholders:
For
Against
Total votes cast (for and against)
Votes withheld*
Total votes cast (including withheld)
Total number
of votes
% of
votes cast
300,865,886
2,805,311
303,671,197
656
303,671,853
99.1%
0.9%
100%
–
–
* A vote withheld is not a vote in law and is not counted in the calculation of the proportion of the votes cast
‘For’ and ‘Against’ a resolution.
Lamprell plc Annual Report and Accounts 2017 • To maintain the highest possible health
and safety standards where any fatality
that takes place in a facility operated by
the Company or any of its subsidiaries
may result in discretionary withdrawal
of incentive eligibility;
• To provide a significant proportion
of performance linked pay in shares
allowing senior management to build
significant shareholding in the business
and therefore aligning management
with shareholders’ interests and the
Group’s performance; and
• To maintain appropriate governance
and risk management through the
application of holding periods and
clawback provisions on incentive
plan awards.
60
Element of pay
Base salary
Purpose and link to
strategy
To attract, retain and motivate
talented individuals who
are critical to the Group’s
success
Summary of the Directors’
Remuneration Policy
The following table sets out the
key aspects of the Directors’
Remuneration Policy1.
Corporate governance
Directors’ Remuneration
Report
Consideration of shareholder views
The Company is committed to maintaining
good communications with investors
and in particular around compensation
matters. The Committee also considers
the AGM to be an opportunity to meet
and communicate with investors and
consider shareholder feedback received
as a result of the AGM each year and
guidance from shareholder representative
bodies more generally. This feedback,
together with any additional feedback
received from time to time, is then
considered as part of the Company’s
annual review of its remuneration policy.
The Committee will also seek to engage
directly with major shareholders and
their representative bodies should
any material changes be made to the
Directors’ Remuneration Policy. Details
of the votes cast for and against the
resolution to approve last year’s Directors’
Remuneration Report are set out in the
Annual Report on Remuneration.
Operation
Maximum opportunity
Performance framework
Company performance
appraisal process
Reviewed annually by the
Committee or, if appropriate,
in the event of a change in
an individual’s position or
responsibilities
Base salary levels set by
reference to competitive
market rates, taking into
account level of responsibility,
individual performance,
skills and experience, Group
performance and the pay and
conditions in the workforce
There is no prescribed
minimum or maximum annual
increase. The Committee is
guided by market position
and the average increase
for the workforce generally
but on occasions may
recognise an increase in
certain circumstances such
as assumed additional
responsibility or an increase in
the scale or scope of the role
Annual bonus
To reward the achievement of
the Group’s annual financial
and non-financial objectives
linked to the delivery of the
Group’s strategic plan
Normally payable in cash
Performance targets are
approved annually by the
Committee
Maximum opportunity of 100%
for all Executive Directors
The Committee has discretion
to override the formulaic outturn
of the bonus and determine
the appropriate level of
bonus payable if it believes
exceptional circumstances
warrant it, or if it is deemed
necessary based on safety,
environmental, social and
governance issues
Clawback provisions apply
for overpayments due to
misstatement or error and other
circumstances
At least two thirds of the
annual bonus will be based on
Group financial performance
or other key business metrics
with the remainder dependent
on the achievement of
individual performance
objectives to provide a
rounded assessment of the
Group’s and management’s
performance
The financial metrics
incorporate an appropriate
sliding scale around a
challenging target
1. A description of how the Company intends to implement the above policy is set out in the Annual Report on Remuneration.
Purpose and link to
strategy
Operation
Maximum opportunity
Performance framework
Element of pay
Long-Term Incentive
Plan (LTIP)
To balance performance
pay between the
achievement of strong
financial performance
and delivering
sustainable stock market
out-performance
Annual awards of conditional
shares or nil (or nominal cost)
options (or possibly cash)
with vesting dependent on the
achievement of performance
conditions over a three-year
period
To encourage share
ownership and alignment
with shareholder
interests
An additional mandatory
holding period of two years will
apply to all vested awards (net
of tax)
Normal maximum opportunity
of 120% of base salary for the
CEO and 100% of base salary
for other Executive Directors
Exceptional maximum
opportunity of 150% of base
salary
Performance is assessed
against challenging
independent financial metrics
that may include relative or
absolute total shareholder
return (“TSR”), cumulative
EBITDA, end of period
backlog and other equally
challenging metrics
On each element, between
0 and 20% of an award will
vest for achieving threshold
performance, increasing and
vesting pro rata at a further
target with full vesting for
achievement of maximum
stretch performance targets
61
Performance targets and
metrics are approved annually
by the Committee
The Committee has discretion
to scale back (potentially to
zero) the vesting of any awards
if it believes the results are
not an accurate reflection of
the Company’s underlying
performance
Clawback provisions apply
for overpayments due to
misstatement or error and other
circumstances
Dividends that accrue during
the vesting period may be paid
in cash or shares at the time
of vesting, to the extent that
shares vest
The Company has no Group-
wide pension scheme
A lump sum cash payment
is awarded following end of
service, based on the length of
service and final base salary in
accordance with UAE Labour
Law
Current benefits include a
housing allowance, private
medical/life insurance, use of
a company car, fuel allowance,
annual leave air fares and utility
expenses
Company contributions are
limited to two years’ base
salary by UAE Labour Law
None
Actual value of benefits
provided
None
None
None
Executive Directors are
required to retain the net
proceeds of vested share
awards which vest under the
Group’s discretionary share
plans
Reviewed periodically by
the Executive Directors and
Chairman (except for his
own fee) or, if appropriate,
in the event of a change in
an individual’s position or
responsibilities
Fee levels set by reference
to market rates, taking into
account the individual’s
experience, responsibility, time
and travel commitments
Expected to achieve 200%
of base salary for the CEO
and 150% of base salary for
the other Executive Directors
within five years
As for the Executive Directors,
there is no prescribed
minimum or maximum annual
increase. The Executive
Directors and Chairman are
guided by market position
but on occasions may
recognise an increase in
certain circumstances such
as, assumed additional
responsibility or an increase in
the scale or scope of the role
End of service gratuity
To offer executives a
retirement benefit as
required under the UAE
Labour Law
Benefits and
allowances
Share ownership
guidelines
To offer a market-
competitive level of
benefits to ensure the
Executive Directors’
well-being and provide
additional allowances
in line with local market
practice
To further strengthen
the long-term alignment
between executives and
shareholders
Non-Executive
Directors’ (“NEDs”)
fees
Set to attract, retain
and motivate talented
individuals through the
provision of market
competitive fees
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Directors’ Remuneration
Report
For the avoidance of doubt, in approving
this Directors’ Remuneration Policy,
authority is given to the Company
to honour any commitments entered
into with current or former directors
(such as, the vesting or exercise of
past share awards).
Relative to pay and employment
conditions in the Group
The Committee takes account of
remuneration levels offered to the
senior management team in the Group
as well as the awards affecting the
wider employee population. When
considering the Executive Directors’
remuneration structure and levels,
the Committee reviews base salary
and incentive arrangements for the
management team, to ensure that
there is a coherent approach across
the Group. Employees may be eligible
to participate in an annual bonus
arrangement and receive awards under
the LTIP, Executive Share Option Plan
(“ESOP”), Retention Share Plan (“RSP”)
or Free Share Plan (“FSP”). Opportunities
and performance metrics may vary by
workforce level with specific business
metrics incorporated where possible.
While the Company sees communication
among its employees as a key priority it
does not formally consult with employees
in respect of the design of the Executive
Director remuneration policy, although the
Committee will keep this under review.
Remuneration scenarios for the
Executive Directors*
The charts below show an estimate
of the potential range of remuneration
payable for the Executive Directors in
2018 at different levels of performance.
The charts highlight that the performance-
related elements of the package
comprise a significant portion of the
Executive Directors’ total remuneration
at maximum performance.
Directors’ recruitment and promotions
The Committee takes into account
the need to attract, retain and motivate
Executive Directors and senior managers
of the highest calibre, while at the same
time ensuring a close alignment between
the interests of shareholders and
management.
If a new Executive Director were to be
appointed, the Committee would seek
to align the remuneration package with
the remuneration policy approved by
shareholders, including discretion to
award an annual bonus up to 100% of
base salary and an LTIP award up to
120% for the CEO and 100% for other
Executive Directors, with discretion, in
exceptional circumstances, to grant an
award of up to 150% of base salary.
Flexibility would be retained to set base
salaries at the level necessary to facilitate
62
Performance metric selection
The annual bonus is predominantly based
on key financial performance indicators,
to reflect how successful the Group has
been in managing its operations. The
balance is determined on performance
against individually determined strategic
objectives and annual operational targets,
including HSES.
The LTIP performance measures
reward significant long-term returns to
shareholders and long-term financial
growth. Targets take account of internal
strategic planning and external market
expectations for the Company and
are set appropriate to the economic
outlook and risk factors prevailing at
the time, ensuring that such targets
remain challenging in the circumstances,
whilst remaining realistic enough to
motivate and incentivise management.
Only modest rewards are available for
achieving threshold performance with
maximum rewards requiring substantial
out-performance of challenging strategic
plans approved at the start of each year.
Discretion
The Committee will operate the incentive
plans in accordance with their respective
rules, the UK Listing Rules and the HMRC
rules where relevant. The Committee,
consistent with market practice, retains
discretion over a number of areas relating
to the operation and administration of
certain plan rules. These include (but are
not limited to) the following:
• who participates;
• the timing of the grant of award
and/or payment;
• the size of an award (up to plan/policy
limits) and/or a payment;
• the result indicated by the relative
TSR performance condition may be
scaled back (potentially to zero) in the
event that the Committee considers
that financial performance has been
unsatisfactory and/or the outcome has
been distorted due to the TSR for the
Company or any comparator company
being considered abnormal;
• discretion relating to the measurement
of performance in the event of a
change of control or reconstruction;
• determination of a good leaver (in
addition to any specified categories)
for incentive plan purposes and the
treatment of leavers;
• adjustments required in certain
circumstances (e.g. rights issues,
corporate restructuring and special
dividends); and
• the ability to adjust existing
performance conditions for exceptional
events so that they can still fulfil their
original purpose.
*Remuneration scenarios
Chief Executive Officer
Total remuneration USD’000
0
0
7
Maximum
,
8
9
39%
28%
33%
USD 2,518
19%
0
24%
0
0
,
0
6
USD 1,734
On target
57%
Minimum 100%
USD 978
1,300
2,600
Total fixed pay
Annual bonus
Long-Term Incentive Plan
Chief Financial Officer
Total remuneration USD’000
Maximum
48%
23%
29%
USD 1,412
On target
60%
Minimum 100%
USD 654
15%
0
25%
0
0
0
6
,
USD 1,027
0
0
0
,
2
5
0
0
0
,
3
3
750
1,500
Total fixed pay
Annual bonus
Long-Term Incentive Plan
Assumptions:
1. Base salary levels applying on 1 January 2018.
2. Benefits are estimated, based on the annualised
value for the year ended 31 December 2017.
3. The end of service gratuity is estimated, based on
the accrual for the year ended 31 December 2017.
4. Minimum performance assumes no award is earned
under the annual bonus plan and no vesting is
achieved under the LTIP; at on-target, typically, 60%
of the maximum is earned under annual bonus plan
and typically 40% vesting is achieved under the
LTIP; and at maximum full vesting under both plans.
5. As per the legislation, share price movement and
dividend accrual have been excluded from the
above analysis.
the hiring of candidates of appropriate
calibre in external markets and to
make awards or payments in respect
of deferred remuneration forfeited on
leaving a previous employer. In terms of
remuneration to compensate forfeited
awards, the Committee would look to
replicate the arrangements being forfeited
as closely as possible and, in doing so,
would take account of relevant factors
including the nature of the remuneration,
performance conditions and the time over
which the awards would have vested or
been paid.
In exceptional circumstances and only
on recruitment (e.g. to buy out the value
of awards forfeited) the Committee
may also award share options of up to
150% of base salary under the ESOP.
Options will vest dependent on the
achievement of agreed performance and/
or retention conditions over a three-year
period and will be exercisable up to the
10th anniversary of the date of grant.
Dividends that accrue during the vesting
period may be paid in cash or shares at
the time of vesting, to the extent that the
options become exercisable.
For an internal appointment, any incentive
amount awarded in respect of a prior
role may be allowed to vest on its original
terms, or adjusted as relevant to take
into account the appointment. Any other
ongoing remuneration obligations existing
prior to appointment may continue.
The Committee may also agree that the
Company will meet certain relocation and
incidental expenses as appropriate.
For the appointment of a new
Non-Executive Chairman or NED,
the fee arrangement would be set
in accordance with the approved
remuneration policy at that time.
Directors’ service agreements and
payments for loss of office
The Committee reviews the contractual
terms of the service agreements to
ensure these reflect best practice.
The Group’s policy is that Executive
Directors should be employed on
a rolling term, with a notice period not
exceeding 12 months and in the event
of early termination, the Company will
not make any payments beyond its
contractual obligations.
The Executive Directors’ service
agreements are terminable on up to
12 months’ notice. In circumstances of
termination on notice, the Committee will
determine an equitable compensation
package, having regard to the particular
circumstances of the case. The
Committee has discretion to require
notice to be worked or to make payment
in lieu of notice or to place the Director
on garden leave for the notice period.
In case of payment in lieu or garden
leave, base salary, benefits and end of
service gratuity will be paid for the period
of notice served on garden leave or paid
in lieu. If the Committee believes it would
be in shareholders’ interests the Company
may elect to make payments 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.
The annual bonus may be payable in
respect of the period of the bonus plan
year worked by the Director; there is no
provision for an amount in lieu of bonus
to be payable for any part of the notice
period not worked. The bonus will be
scaled back pro-rata for the period of
the incentive year worked by the Director
and will still be payable at the normal
payment date.
Long-term incentives
Long-term incentives granted under the
LTIP will be determined by the plan rules
which contain discretionary good leaver
provisions for designated reasons (e.g.
participants who leave early on account
of injury, disability or ill health, or any
other reason at the discretion of the
Committee). In these circumstances a
participant’s awards will not be forfeited
on cessation of employment and
instead will vest on the normal vesting
date. In exceptional circumstances,
the Committee may decide that the
participant’s award will vest early on the
termination date. In either case, the extent
to which the awards will vest depends
on the extent to which the performance
conditions have been satisfied and a
pro-rata reduction of the awards will
be applied by reference to the time
of cessation (although the Committee
has discretion to disapply performance
conditions and time pro-rating if the
circumstances warrant it). In the case of
death of the participant, the award will
vest at that time, irrespective of whether
or not any performance conditions have
been satisfied, and the award will not be
time pro-rated.
In respect of legacy options outstanding
under the ESOP, the options will be
determined by the plan rules which
contain discretionary good leaver
provisions for designated reasons
(e.g. participants who leave early on
account of injury, disability or ill health,
a sale of their employer or business in
which they were employed or any other
reason at the discretion of the Board).
In these circumstances a participant’s
options will not be forfeited on cessation
of employment but will vest on the
termination date instead. The extent to
which the options become exercisable
depends, unless the Board determines
otherwise, on the extent to which the
performance conditions have been
satisfied up until the termination date
or such longer period as the Board
may decide within six weeks of the
grant date. The performance period
will end on the termination date unless
the Board determines otherwise. In
the case of death of a participant, the
option will become exercisable at that
time, irrespective of whether or not
any performance conditions have been
satisfied, and the option will not be time
pro-rated.
In the event of a change of control all
unvested awards under the long-term
incentive arrangements would vest, to the
extent that any performance conditions
attached to the relevant awards have
been achieved. The awards will, other
than in exceptional circumstances, be
scaled back pro-rata for the period of
the incentive year worked by the Director
(although the Committee has discretion to
disapply performance conditions and time
pro-rating if the circumstances warrant it).
The table below sets out the details of the
Executive Directors’ service contracts:
Director
Date of contract
John William Kennedy*
13 August 2015
Antony Robert William
Wright
Christopher Michael
McDonald
13 August 2015
2 August 2016
* John Kennedy stepped down as Executive Chairman
on 24 April 2017 and as a Non-Executive Director on
20 September 2017.
The service contracts are available for
inspection during normal business hours
at the Company’s registered office, and
available for inspection before and at the
AGM.
Remuneration payments under all Service
Agreements are enforceable only insofar
as they fall within a shareholder-approved
Remuneration Policy.
63
Non-Executive Directors’ (“NEDs”) terms
of engagement
The NEDs do not have service contracts
and instead are appointed by letters of
appointment for an initial term of three
years, which are terminable by three
months’ notice on either side. At the end
of the initial period the appointment may
be renewed by mutual consent for an
additional three-year term, subject to
re-election at the AGM.
Upon termination or resignation, NEDs
are not entitled to compensation and no
fee is payable in respect of the unexpired
portion of the term of appointment.
Currently, four NEDs are considered to be
independent of the Company.
The following table shows the effective
date of appointment for each NED:
Non-Executive Director
John Malcolm
Ellis Armstrong1
Mel Fitzgerald1
Date of
appointment
27 May 2013
27 May 2013
13 August 2015
Debra Valentine1
1 September 2015
Nick Garrett
James Dewar1
24 March 2017
1 November 2017
1. Ellis Armstrong, Mel Fitzgerald, Debra Valentine and
James Dewar are considered to be independent
NEDs of the Company.
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Directors’ Remuneration
Report
DIRECTORS’
ANNUAL REPORT
ON REMUNERATION
This report has been prepared in accordance with Part 3 of the Large
and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 and 9.8.6R of the UK’s Listing
Rules. The Annual Report on Remuneration will be put to an advisory
shareholder vote at the 2018 AGM. The information 64 to 69, save as
where indicated, has been audited.
64
Responsibilities of the Committee
The Committee is responsible for determining and agreeing
with the Board the policy on Executive Directors’ remuneration,
including setting the over-arching principles, parameters and
governance framework and determining the initial remuneration
package of each Executive Director. In addition, the Committee
monitors the structure and level of remuneration for the senior
management team and is aware of pay and conditions in
the workforce generally. The Committee also ensures full
compliance with the UK Corporate Governance Code in relation
to remuneration. From 2017, the Committee’s terms of reference
were extended to ensure the appropriate level of Board attention
is given to executive performance, talent development and
retention through effective succession planning and identification
of succession issues. The Committee’s terms of reference are
available for review on the Company’s website.
Members and activities of the Committee
The members of the Committee throughout the relevant period
were John Malcolm (Committee Chair and member until
19 September), Debra Valentine (Committee Chair from 20
September), Ellis Armstrong, Mel Fitzgerald (from 20 September)
and James Dewar (from 1 November). Membership is comprised
solely of independent NEDs. None of the current Committee
members has day-to-day involvement with the business nor do
they have any personal financial interest in the matters to be
recommended. The Company Secretary acts as Secretary to
the Committee and the Vice-President, Human Resources and
Administration attends meetings on a regular basis to present
and provide related support. The number of formal meetings
held and the attendance by each member is shown in the table
below. The Committee also held informal discussions as required.
External advice received (unaudited)
During the year, the Committee received independent advice
on remuneration matters from New Bridge Street (“NBS”), a
trading name of Aon plc. NBS did not provide other services to
the Group during the year under review and there is no other
connection between NBS and the Company or the Directors.
The Committee also consulted with the CEO, CFO and Executive
Chairman but not in relation to their own remuneration.
NBS is a signatory to the Remuneration Consultants’ Code of
Conduct and adheres to the Voluntary Code of Conduct in
relation to executive remuneration consulting in the UK. The
Committee has reviewed the operating processes in place at
NBS and is satisfied that the advice it receives is objective and
independent.
The fees paid to NBS during the year were £11,900.
Committee attendance (unaudited)
Number of
meetings
attended
Number of
meetings
possible
Debra
Valentine
6
6
Ellis
Armstrong
6
6
Mel
Fitzgerald1
1
1
James
Dewar2
1
1
John
Malcolm
5
5
Note:
1. Mel Fitzgerald was appointed to the Committee on 20 September 2017.
2. James Dewar was appointed to the Committee on 1 November 2017.
Shareholder voting at AGM (unaudited)
Annual bonus for 2018 (“STIP”) (unaudited)
At last year’s AGM held on 21 May 2017, the Directors’
Remuneration Report received the following votes from
shareholders:
Total number
of votes
% of votes
cast
For
Against
281,190,584
25,339,966
Total votes cast (for and against)
306,530,550
Votes withheld¹
0
Total votes cast (including withheld)
306,530,530
91.7%
8.3%
100%
–
–
1. A vote withheld is not a vote in law and is not counted in the calculation of the
proportion of votes cast ‘For’ and ‘Against’ a resolution.
Implementation of the
Remuneration Policy for 2018
Base salary (unaudited)
In setting base salaries for 2018, the Committee considered
external market data as well as the challenging market
environment that has driven the continued need for overhead
cost reductions. Accordingly the base salaries of the Executive
Directors in 2018 will remain the same for the second
successive year.
The base salaries for 2018 are as follows:
Base salary
from 1 January
2017
700,000
410,000
2016
700,000
410,000
%
increase
0%
0%
Christopher McDonald
Tony Wright
USD
USD
LTIP 2018 (unaudited)
For 2018 the annual bonus opportunity will be 100% of base
salary for the CEO and 85% of base salary for the CFO,
payable in cash. 40% of the bonus will be based on sales,
20% will be based on gross profit, set in relation to the Group’s
budget, 15% will be based on net cash at 31 December 2018
and the remaining 25% will be based on strategic and/or
personal targets, including safety performance. This structure
is intended to provide a rounded assessment of the Group and
management’s performance against challenging targets which
are aligned with the Group’s strategic objectives.
The sales targets will be within a range from USD 375 million
to USD 750 million with associated pay-outs within the range
of 20-100% of target. The Committee considers any disclosure
of future gross profit and net cash targets to be commercially
sensitive, however, full retrospective disclosure of targets and
performance against them will be disclosed in next year’s Annual
Report on Remuneration.
Clawback provisions will apply to all bonus pay-outs. Clawback
may apply in a number of circumstances, for example, where a
misstatement of performance or events arises after the payment
of a bonus or in circumstances where misconduct may lead to
significant reputational damage.
Long-term incentives (unaudited)
Subject to compliance with the Listing Rules, awards will be
made in 2018 and the maximum LTIP potential will be 120%
of base salary for the CEO and 100% for the CFO. 50% of the
award will be based on relative TSR (relative to the FTSE World
Oil Equipment & Services Index), 25% on cumulative EBITDA
and 25% on end of period backlog.
Relative TSR, cumulative EBITDA and end of period backlog
are considered to be the most appropriate measures of
long-term performance for the Group in that they ensure
the Executive Directors are incentivised and rewarded for
the financial performance of the Group as well as returning
value to shareholders.
Performance condition
% vesting
Performance
% vesting
Performance
Threshold
Maximum
End
measurement point
TSR vs. FTSE World Oil
Equipment & Services
Index
Cumulative EBITDA
End of period backlog
20
20
20
Median
USD 10m
USD 600m
100
100
100
Upper quintile
31 December 2020
USD 75m
31 December 2020
USD 1.0bn
31 December 2020
The awards will be subject to clawback provisions and a mandatory holding restriction of two years beyond vesting will apply to the
2018 awards.
Performance conditions for outstanding LTIPs
For the sake of completeness, the Company discloses the performance conditions which are attached to the awards of LTIPs in 2015,
2016 and 2017 as follows:
LTIP 2015
Performance condition
% vesting
Performance
% vesting
Performance
Threshold
Maximum
End
measurement point
TSR vs. FTSE World Oil
Equipment & Services
Index
Cumulative EBITDA
End of period backlog
20
20
20
Median
USD 320m
USD 1.0bn
100
100
100
Upper quintile
31 December 2017
USD 420m
31 December 2017
USD 1.4bn
31 December 2017
65
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Directors’ Remuneration
Report
The outcome of the performance conditions applicable to the 2015 LTIP awards is shown below:
Performance condition
TSR vs. FTSE World Oil Equipment & Services Index
Cumulative EBITDA
End of period backlog
LTIP 2016
Outcome
% Vesting
Below median
USD 50m
USD 138m
0%
0%
0%
Performance condition
% vesting
Performance
% vesting
Performance
Threshold
Maximum
End
measurement point
TSR vs. FTSE World Oil
Equipment & Services
Index
Cumulative EBITDA
End of period backlog
LTIP 2017
20
20
20
Median
USD 300m
USD 1.2bn
100
100
100
Upper quintile
31 December 2018
USD 360m
31 December 2018
USD 1.6bn
31 December 2018
Performance condition
% vesting
Performance
% vesting
Performance
Threshold
Maximum
End
measurement point
66
TSR vs. FTSE World Oil
Equipment & Services
Index
Cumulative EBITDA
End of period backlog
20
20
20
Median
USD 65m
USD 600m
100
100
100
Upper quintile
31 December 2019
USD 100m
31 December 2019
USD 1.05bn
31 December 2019
End of service gratuity
As required under the UAE Labour Law, the Company contributes
to the End of Service Gratuity Fund on behalf of the Executive
Directors, whereby the gratuity shall be 21 days’ base salary
for each year of the first five years of employment and 30 days’
base salary for each additional year of employment thereafter,
on the condition that the total gratuity does not exceed two years’
base salary, payable upon termination of employment.
Directors’ contracts
The following information regarding the service contracts of
Executive Directors should be noted.
Service contract for outgoing Executive Chairman, John Kennedy
Mr Kennedy stood down as Executive Chairman on 24 April
2017 and as a Non-Executive Director on 20 September 2017.
As reported in the 2016 Directors’ Remuneration Report,
Mr Kennedy was eligible for a short-term incentive award that
was calculated by reference to 100% of base salary earned
during the period of his Executive Chairman appointment and
was payable in performance shares of the Company based
on achievement against pre-defined performance goals.
Mr Kennedy’s maximum award was 426,400 performance
shares that were awarded in two instalments of 292,570 on
21 September 2015 and 133,830 on 10 October 2016 both
with a vesting date of three months after his termination
date, i.e. 20 December 2017, subject to performance
conditions. The outcome of the award was as follows:
In addition, as previously reported, on 18 November 2014,
Mr Kennedy was awarded 122,499 shares under the Company’s
2009 Retention Share Plan. These shares were due to vest on
17 November 2017. In accordance with the rules of the plan, the
shares vested pro-rata to the termination date of 20 September
2017. Accordingly Mr Kennedy vested in 116,047 shares. After
seeking external advice, the Company also made an ex gratia
payment of £85,682 to Mr Kennedy by way of compensation to
recognise his contribution.
Service contract for CEO Christopher McDonald
As reported in last year’s Annual Report on Remuneration, the
incoming CEO Christopher McDonald was eligible for certain
compensatory awards in respect of forfeited incentives with his
previous employer. As such, during 2017, Mr McDonald received
a cash payment of USD 112,500 and, on 1 October 2017, vested
in 123,647 retention shares in compensation for forfeiting his STIP
eligibility to 30 September 2016 with his previous employer. In
addition, he was eligible for a performance-based incentive of up
to USD 175,000 in respect of the three months to 31 December
2016 from which he received USD 123,375. The breakdown of
his performance criteria and outcomes are detailed in the table
below. In addition, in compensation for forfeited LTIP incentives
with his previous employer, on 10 October 2017, Mr McDonald
vested in 158,114 retention shares and 55,219 performance
shares measured by the Company’s relative TSR performance
during the first year of his employment.
Performance metric
Weight
Performance
Shares vested
Performance metric
Weight Performance
Strategy development
Leadership succession
and development
TSR growth
Total shares vested
20%
13%
67%
100%
100%
0%
85,280
Financial
HSES
55,432
Nil
140,712
Strategy development
Role transition
Total
35%
20%
20%
25%
100%
32%
0%
16%
22.5%
70.5%
Amount
USD’000
56
0
28
39.375
123.375
Outside appointments (unaudited)
Fees for the Chairman and Non-Executive Directors (unaudited)
The Board allows Executive Directors to accept appropriate
external, commercial non-executive director appointments
provided the aggregate commitment is compatible with their
duties and does not cause a conflict of interest with the role
of an Executive Director. Such Executive Directors may retain
fees paid for these services, which will be subject to approval
by the Board.
The Non-Executive Chairman’s remuneration is determined by
the Committee and the Non-Executive Directors’ remuneration is
determined by the Executive Directors and the Chairman, all of
which is based on the responsibility and time committed to the
Group’s affairs and appropriate market comparisons. Individual
Non-Executive Directors do not take part in discussions
regarding their own fees. Non-Executive Directors receive no
other benefits. A summary of the current fees is as follows:
Non-Executive Chairman
Deputy Chairman
Senior Independent Director
Base fee
Committee Chair fee
Fee at 1 January 2018
£000
Fee at 1 January 2017
£000
% increase
180
88
80
65
8
180
88
80
65
8
0%
0%
0%
0%
0%
Directors’ remuneration earned in 2017
The table below summarises Directors’ remuneration received in 2017 with comparisons, where appropriate, to (2016)1.
Base salary
and fees
USD’000
Benefits and
allowances2
USD’000
End of service
gratuity3
USD’000
Annual
bonus4
USD’000
Long-term
incentives
USD’000
Other
USD’000
Total
USD’000
67
Executive Directors
Christopher McDonald
700 (197)
237 (56)
John Kennedy6
Tony Wright
347 (680)
– (–)
410 (410)
213 (243)
Lamprell Energy total
1,457 (1,287)
450 (299)
Non- Executive Directors
John Kennedy
John Malcolm
Ellis Armstrong
Debra Valentine
Mel Fitzgerald
Nick Garrett7
James Dewar8
39 (000)
137 (103)
116 (133)
88 (99)
89 (92)
67 (–)
15 (–)
Lamprell plc total
551 (427)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
41 (9)
– (–)
31 (21)
72 (30)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
Total
2,008 (1,714)
450 (299)
72 (30)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
350⁵ (–)
236⁵ (–)
1,564 (262)
– (–)
– (2)
– (–)
– (–)
347 (680)
654 (676)
350 (2)
236 (–)
2,565 (1,618)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
– (–)
39 (000)
137 (103)
116 (133)
88 (99)
89 (92)
67 (–)
15 (–)
551 (427)
350 (2)
236 (–)
3,116 (2,045)
1. All Directors’ pay is reported above in USD. Christopher McDonald’s pay is
determined in USD and paid in AED. Tony Wright is remunerated in AED; Ellis
Armstrong and Debra Valentine’s remuneration is determined in GBP and paid
in USD and the remuneration of John Kennedy, John Malcolm, Mel Fitzgerald,
Nick Garrett and James Dewar is determined and paid in GBP.
2. Benefits and allowances included housing, private medical insurance, life
insurance, club membership, the use of a company car, private fuel card,
airfare tickets and utility expenses. The table below summarises the main
benefits and allowances.
3. End of service gratuity is the provision accrued during the year. In accordance
with the provisions of IAS 19, the present value of Directors’ end of service
gratuity obligations under UAE Labour Law have been valued using the projected
unit credit method, as at 31 December 2017 and 2016. Under this method an
assessment has been made of a Director’s expected service with the Group and
the expected base salary on the date of termination. As part of the valuation we
have assumed an average base salary increment of 2% p.a. (2016: 2%).
The expected liability on the date of termination has been discounted to its net
present value using a discount rate of 3.2% p.a. (2016: 3.5% p.a).
4. The annual bonus for 2017 was based on performance against financial
and non-financial performance targets. Performance against these targets
is set out in the tables below. No annual bonus payments were made in respect
of the 2017 plan.
5. Details of the long-term incentives and other payments to Christopher McDonald
are given on page 66. Vested share-based long-term incentive amounts are
calculated by reference to average share price and £/USD exchange rate in 10
dealing days to 7 March 2018.
6. John Kennedy stood down as an Executive Director on 24 April 2017 and
as a Non-Executive Director on 20 September 2017.
7. Nick Garrett was appointed a Director on 24 March 2017.
8. James Dewar was appointed Director on 1 November 2017.
Summary of benefits and allowances
Housing
USD’000
Vehicle
USD’000
Schooling
USD’000
Annual leave
tickets
USD’000
Medical & life
insurance
USD’000
Other
USD’000
Total
USD’000
Christopher McDonald
Tony Wright
125
105
27
21
–
23
36
39
17
17
32
8
237
213
Lamprell plc Annual Report and Accounts 2017
Corporate governance
Directors’ Remuneration
Report
Annual bonus 2017: Performance against targets
CEO and CFO
Metric
Sales1
Net cash2
EBITDA3
Personal goals
Total
Weighting as % of
maximum annual opportunity
Actual
performance
Pay-out outcome as % of
maximum annual opportunity
40%
15%
20%
25%
100%
0%
87%
0%
N/A
N/A
0%
0%
0%
N/A
0%4
1. Sales targets were in the range of USD 400 million (threshold) to USD 600 million (target) and USD 700 million (stretch). Threshold target was not achieved.
2. Net Cash targets were in the range of USD 220 million (threshold) to USD 250 million (target) and USD 300 million (stretch). USD 257 million was achieved.
3. EBITDA targets were in the range of USD 3 million (threshold) to USD 6 million (target) and USD 25 million (stretch). Threshold was not achieved.
4. Whilst the personal goals of the CEO and CFO were achieved in excess of 50% of target, no bonus pay-out was made due to the failure to achieve the threshold EBITDA.
Had Threshold and Target been achieved, the pay-outs would have been at 30% and 75% respectively.
Long-term incentive awards granted during the year
An award of 705,484 performance shares was made to
Christopher McDonald and an award of 344,343 performance
shares was made to Tony Wright on 2 October 2017 in
accordance with the Company’s performance share plan rules
with associated performance conditions. These 2017 LTIP
conditional share awards vest in full on 1 October 2020, subject
to achieving the performance conditions relating to relative TSR,
68
LTIP awards
three-year cumulative EBITDA and end of period backlog
The awards are subject to a holding period of two years following
the date of vesting.
66.
Directors’ interests in share plan awards
The Directors hold interests in long-term incentive awards under
the Company’s incentive plans as at 31 December 2017 as set
out below.
The following table sets out the interests of the Executive Directors in relation to LTIP award(s):
Executive Director
Christopher McDonald
Tony Wright
John Kennedy3
At 1 January
2017
Awarded in
2017
923,234
577,805
548,899
705,4841
344,3432
nil
Date of vesting
Vested in 2017
Lapsed in 2017
At 31 December
2017
01.10.2020
01.10.2020
20.09.2017
20.12.2017
0
1,385
256,759
nil
nil
292,140
1,628,718
920,763
–
1. Christopher McDonald’s award of performance shares was based on 120% of his annual base salary, share price of £0.8846 and foreign exchange rate of USD 1.346/£1.00.
2. Tony Wright’s award of performance shares was based on 100% of his annual base salary, share price of £0.8846 and foreign exchange rate of USD 1.346/£1.00.
3. John Kennedy stepped down as Executive Chairman on 24 April 2017 and as a Non-Executive director on 20 September 2017.
In the ordinary course, 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
66.
threshold is achieved there is a requirement for executives to
retain the net proceeds of all vested share awards. Mr McDonald
and Mr Wright have not currently achieved these targets.
Directors’ interests in ordinary shares
The Committee has adopted a formal policy requiring the
Executive Directors to build and maintain, through the award
of shares by the Company, a shareholding in the Company
equivalent to 200% of base salary for the CEO and 150% of
base salary for the CFO, when appointed. Until such time as this
In accordance with the Listing Rules, the Company discloses
the beneficial interests of the Directors in the share capital of
the Company as at 31 December 2017 as set out below. There
were no changes to the interests of the Directors in the ordinary
shares of the Company in the period from 1 January 2018 to
21 March 2018, being the last practicable date that the Company
is able to report on Directors’ interests.
Beneficially
owned at
31 Dec 2017
Beneficially
owned at
31 Dec 2016
Ordinary
shares owned
(directly or
beneficially)
Outstanding
share awards
including options
(retention
condition only)
Outstanding
share awards
including
options (subject
to vesting
conditions)
Shareholding
as a % of
base salary
Shareholding
requirement
met?
Executive Directors
Christopher McDonald
2,356,311
1,650,827
Tony Wright
John Kennedy2
910,361
617,805
N/A
2,150,838
336,980
41,385
N/A
Non-Executive Directors
John Kennedy2
Ellis Armstrong
John Malcolm
Debra Valentine
Mel Fitzgerald
Nick Garrett
James Dewar
N/A
2,150,838
N/A
–
–
–
–
–
–
–
–
–
–
40,000
N/A3
40,000
141,263
–
–
–
–
–
–
–
–
–
1,878,0681
868,976
–
–
–
–
–
–
–
–
67%
14%
N/A
–
–
–
–
–
–
–
No
No
N/A
–
–
–
–
–
–
–
1. This comprises the LTIPs awarded in 2016 and 2017, as well as the compensatory awards issued by the Company to Mr McDonald on appointment.
2. John Kennedy stepped down as an Executive Director on 24 April 2017 and from the Board on 20 September 2017.
3. James Dewar was appointed Director on 1 November 2017.
Full details of the Directors’ shareholdings and share allocations
are given in the Company’s Register of Directors’ Interests, which
is open to inspection at the Company’s registered office during
business hours.
Payments to former directors
There were no payments made to former directors during the
year other than the consultancy arrangement for James Moffat
disclosed
58 of the 2016 Annual Report.
Payments for loss of office
A payment of £85,682 was made to John Kennedy by way of
compensation to recognise his contribution
66.
Percentage change in remuneration levels (unaudited)
The table below and opposite shows the movement in base
salary, benefits and annual bonus for the CEO between the 2017
and 2016 financial years, compared to that for the average
employee of the Group.
All employees
Base salary
Benefits
Bonus
% change
0.34%
0.3%
0%
Relative importance of the spend on pay
The table below shows the spend on staff costs in the financial
year, compared to dividends:
Staff costs¹
Dividends
2017
USD’000
120,170
–
2016
USD’000
151,915²
–
% change
-21%
0.00%
1. Staff costs includes wages, salaries and other benefits.
2. 2016 figure is restated in accordance with Note 10 to the Annual Report and Accounts.
Chief Executive Officer
Base salary
Benefits
Bonus
Share price performance: Jan 2009 – Dec 2017
% change
Performance graph and CEO pay (unaudited)
0%
0%
0%
The graph below shows the growth in value of a notional £100
invested in the Company compared to the FTSE World Oil
Equipment & Services Index, which is used as the basis for
one of the Company’s LTIP metrics. The graph covers the time
period from 1 January 2009 to 31 December 2017.
69
Lamprell
FTSE World Oil, Equipment & Services Index
Share price performance
(Rebased to 100)
400
350
300
250
200
150
100
50
0
Jan 09
Oct 09
Aug 10
Jun 11
Apr 12
Feb 13
Nov 13
Sep 14
Jul 15
May 16
Mar 17
Dec 17
The total remuneration figures for the CEO during the last nine financial years are shown in the table below. Consistent with the calculation
400
methodology for the single figure for total remuneration, the total remuneration figure includes the total annual bonus award based on that
year’s performance and the long-term incentive award based on the three-year performance period ending in the relevant year. The annual
350
bonus pay-out and long-term incentive award vesting level as a percentage of the maximum opportunity are also shown for each year.
300
Year ending 31 December (USD’000)
250
200
CEO
2017
2016
2016
2015
2014
2013
2013
2012
2012
2011
2010
2009
2009
McDonald McDonald1 Moffat2 Moffat Moffat Moffat Whitbread3 Whitbread McCue4 McCue McCue McCue Whitbread
0%
262
891
1,564
Total remuneration
150
Annual bonus %
100
LTIP vesting %
50
1. Christopher McDonald was appointed as CEO on 1 October 2016.
2. James Moffat was appointed CEO on 1 March 2013 and stepped down on 30 September 2016.
3. Peter Whitbread was appointed as interim CEO on 4 October 2012 and his employment ceased on 30 June 2013.
4. Nigel McCue’s employment ceased on 3 October 2012.
1,349
1,716
1,504
1,652
91%
45%
99%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0
352
0%
2,739
2,094
1,824
0% 72.3% 100%
0% 100% 100%
0%
514
0%
0%
1,211
0%
0%
Approval of the Directors’ Remuneration Report
The Directors’ Remuneration Report, including both the Directors’ Remuneration Policy and
the Annual Report on Remuneration, was approved by the Board on 21 March 2018.
Debra Valentine
Chair of the Remuneration & Development Committee
By order of the Committee
21 March 2018
Lamprell plc Annual Report and Accounts 2017
Corporate governance
Statutory information and
Directors’ statements
STATUTORY
INFORMATION
AND DIRECTORS’
STATEMENTS
Our Directors provide other statutory information and the Directors’
statements for the year ended 31 December 2017, in addition to
the information provided in the strategic report 2 to 37 and the
Corporate Governance Report 38 to 69.
70
Memorandum and Articles of Association
The Company’s Memorandum of
Association sets out the objectives and
powers of the Company. The Articles of
Association detail the rights attaching to
each share class, the method by which
the Company’s shares can be purchased
or re-issued and the provisions which
apply to the holding of and voting at
general meetings. The Articles also
set out the rules relating to Directors
(including by way of example, their
appointment, election, retirement, duties
and powers).
Capital structure and corporate
authorities
Details of the authorised and issued
share capital together with details of
movements in share capital during the
year are included in Note 24 to the
financial statements. The Company has
one class of shares 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
Articles and applicable laws. There are no
restrictions on the transfer of shares.
Lamprell plc Free Share Plan
Lamprell plc Retention Share Plan
Lamprell plc Executive Share Option Plan
Lamprell plc Long-Term Incentive Plan
Details of the Company’s employee share
schemes are disclosed in the Directors’
Remuneration Report
to the financial statements.
64 and in Note 8
The awards under the Lamprell plc Free
Share Award Plan, Retention Share Plan
and Long-Term Incentive 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 16,268
(2016: 16,268) ordinary shares of 5p,
representing less than 0.01% (2016:
0.01%) 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 approved
proportions, be allowed to vest early or to
be exchanged for awards of equivalent
value in the acquiring company.
The Company was given authority at the
2017 AGM to make market purchases of
up to 33,000,000 ordinary shares of 5p,
which represented approximately 10%
of the Company’s then issued ordinary
share capital. This authority will expire
at the 2018 AGM, where approval from
shareholders will be sought to renew the
authority for approximately 10% of the
Company’s current issued ordinary share
capital.
Approval from shareholders will be
sought to authorise the Directors
to allot the unissued shares up to a
maximum nominal amount of £4,900,000,
representing approximately 30% of
the Company’s current issued ordinary
share capital (excluding treasury shares)
to existing shareholders 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
Articles or with a rights, scrip dividend,
or other similar issue, up to an aggregate
nominal value of £825,000 representing
approximately 5% of the current
issued ordinary share capital of the
Company. Authorities were given by the
shareholders at the 2017 AGM to issue
Granted
Outstanding
2017
Nil
2016
Nil
2017
2016 and prior
Nil
1,303,758
898,024
1,303,758
Nil
Nil
Nil
2,577,122
3,940,072
2,577,122
4,550,548
Nil
876,263
340,855
Alex Ridout
Company Secretary
a similar percentage of the Company’s
then issued ordinary share capital. 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.
Contracts of significance
11. This agreement commits the
In 2017, the Group entered into a joint
venture agreement for the establishment
of a major new maritime yard in Saudi
Arabia
Company to invest up to USD 140 million
into this new yard (subject to satisfaction
of conditions precedent) over the course
of the coming 5-6 years and includes
certain provisions which may impact
the Company’s fair market value upon a
change of control in the Company. Details
are available on the Company’s website
and were approved by shareholders at
the EGM in June 2017
47. Except for
this joint venture agreement, the debt
facility agreements which were concluded
in 2014 and the Controlling Shareholder
Agreement
does not have contractual or other
arrangements which are significant to its
business with any person.
49, the Company or Group
71
Directors’ responsibility statements
The Directors are responsible for
preparing the Annual Report and the
financial statements in accordance
with applicable law and regulations.
Company law requires the Directors
to prepare financial statements for
each financial year. Under that law the
Directors have elected to prepare the
financial statements in accordance
with International Financial Reporting
Standards (“IFRS”) as adopted by the
European Union. The financial statements
are required by law to give a true and fair
view of the state of affairs of the Group
and the Company and of the profit or loss
of the Group for that period. In preparing
these financial statements, the Directors
are required to:
• select suitable accounting policies and
then apply them consistently;
• present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
• state that the financial statements
comply with IFRSs as adopted by the
European Union, subject to any material
departures disclosed and explained in
the financial statements; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the Company will continue
in business.
The Directors confirm that they have
complied with the above requirements in
preparing the financial statements.
The Directors are responsible for keeping
adequate accounting records that
are sufficient to show and explain the
Company and the Group’s transactions
and disclose with reasonable accuracy
at any time the financial position of
the Company and the Group and
enable them to ensure that the financial
statements comply with the Isle of Man
Companies Acts 1931 to 2004. They
are also responsible for the system of
internal control, 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 Directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the Isle of Man governing
the preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Lamprell plc Annual Report and Accounts 2017 Corporate governance
Statutory information and
Directors’ statements
under the historical cost convention,
except as disclosed in the accounting
policies below.
The Directors’ Viability Statement and
accompanying basis of assessment can
be found in the Strategic Report
37.
Alex Ridout
Company Secretary
By Order of the Board
21 March 2018
72
In accordance with the principles of
the Code, the Group has arrangements
in place to ensure that the information
presented in this Annual Report is fair,
balanced and understandable. The
Audit and Risk Committee oversees the
implementation of this approach. The
Directors consider, on the advice of the
Audit and Risk Committee, that the Annual
Report, taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy.
Each of the Directors, whose names and
functions are listed
the best of his/her knowledge:
39, confirms that, to
• the Group financial statements, which
have been prepared in accordance with
IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken
as a whole; and
• the Strategic Report includes a
fair review of the development and
performance of the business and the
position of the Group, together with a
description of the principal risks and
uncertainties that it faces.
As far as each Director is aware, there
is no relevant audit information of which
the Company’s auditors are unaware. In
addition, each Director has taken all the
steps that he/she ought to have taken as
a Director in order to make him/herself
aware of any relevant audit information
and to establish that the Company’s
auditors are aware of that information.
Going concern and Viability Statement
20.
The Company’s business activities,
together with the factors likely to affect
its future development, performance
and position are set out in the Strategic
8. The financial position of
Report
the Company, its cash flows, liquidity
position and borrowing facilities are
described in the Financial Review
The Company’s consolidated financial
statements have been prepared on a
going concern basis. After reviewing its
cash flow forecasts for a period of not
less than 12 months from the date of
signing these financial statements, the
Directors have a reasonable expectation
that the Group will have adequate
resources to continue in operational
existence for the foreseeable future. The
Directors have concluded therefore that
it is appropriate for the Group to continue
to adopt the going concern basis in
preparing its financial statements. The
financial information has been prepared
INDEPENDENT
AUDITOR’S REPORT
to the members of Lamprell plc
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion:
We have audited the financial statements of Lamprell plc
(the ‘parent company’) and its subsidiaries (the ‘Group’)
which comprise:
73
• the financial statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs
as at 31 December 2017 and of the Group’s loss for the
year then ended;
• the Group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes
in equity;
• the consolidated cash flow statement;
• the parent company financial statements have been properly
• the statement of accounting policies; and
prepared in accordance with IFRSs as adopted by the
European Union; and
• the related Notes 1 to 37.
• the financial statements have been prepared in accordance
with the requirements of the Isle of Man Companies Act
1931-2004 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the
European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Independent Auditor’s
Report
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Recoverability of non-current assets: Property, plant and equipment (PP&E) and
intangibles; and
• Estimation of project costs and revenue recognition, most notably in respect of the
East Anglia One project.
Within this report, any new key audit matters are identified with
matters which are the same as the prior year identified with
.
and any key audit
The materiality that we used in the current year was USD 4.6 million
(2016: USD 3.4 million) which was determined as 1% of net assets.
We performed a full scope audit of the consolidated Lamprell Group, covering 100% of
the Group’s net assets and 100% of revenue.
Materiality
Scoping
Significant changes in our approach
Previously we identified a key audit matter relating to goodwill; this was fully written off in
the year ended 31 December 2016.
74
Due to the expected low levels of activity in 2018 and ongoing market downturn,
we identified a key audit matter in the current year relating to the recoverability of other
non-current assets.
As noted above, we determined materiality with reference to net assets. This is a change
from the prior year where we used adjusted profit before taxation.
We confirm that we have nothing
material to report, add or draw
attention to in respect of these matters.
We confirm that we have nothing
material to report, add or draw
attention to in respect of these matters.
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the directors’ statement in Note 2 to the financial statements about
whether they considered it appropriate to adopt the going concern basis of accounting
in preparing them and their identification of any material uncertainties to the Group’s
and company’s ability to continue to do so over a period of at least twelve months from
the date of approval of the financial statements.
We are required to state whether we have anything material to add or draw attention
to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the
statement is materially inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the directors’ assessment of the Group’s and
the company’s ability to continue as a going concern, we are required to state whether
we have anything material to add or draw attention to in relation to:
• the disclosures on page 34 that describe the principal risks and explain how they are
being managed or mitigated;
• the directors’ confirmation on page 34 that they have carried out a robust assessment
of the principal risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity; or
• the directors’ explanation on page 37 as to how they have assessed the prospects of
the Group, over what period they have done so and why they consider that period to
be appropriate, and their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the prospects
of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Recoverability of non-current assets: PP&E and Intangibles
Key audit matter
description
The Group has property, plant and equipment ‘PP&E’ with a carrying amount of USD 171.7 million
(Note 16) and intangible assets of USD 31.7 million (Note 17) as at 31 December 2017. Due to the
expected low levels of activity in 2018 and ongoing market downturn, the Group identified impairment
indicators for these non-current assets. Management performed an impairment assessment as at
31 December 2017, in accordance with IAS 36.
As disclosed in Note 17 the recoverability of non-current assets is driven by management’s assumptions
over expected business activity, including the anticipated timing and value of future contract awards,
assumptions over the forecast contract margin, discount rate, terminal growth rate and yard capacity.
The Group’s accounting policy for impairment of non-financial assets is included in Note 2.22 in the
summary of significant accounting policies. The assessment of the recoverability of non-current assets
requires management to exercise judgement as described in the “critical accounting judgements and
key sources of estimation uncertainty” section of the Annual Report in Note 4 and the “significant
judgements” section in the Audit & Risk Committee report on page 55.
75
How the scope of our
audit responded to the
key audit matter
Our audit work assessed the reasonableness of management’s key assumptions in preparation of the
PP&E and intangibles impairment assessment. Specifically, our work included, but was not limited to,
the following procedures:
• an assessment of the design and implementation of relevant controls over the preparation of the
PP&E and intangibles impairment assessment;
• benchmarking and analysis of revenue growth assumptions against market data and analyst
forecasts;
• benchmarking of the discount rate, the terminal growth rate applied and review of management’s
cash flow model with involvement from our valuation specialists and recalculation of the recoverable
amount of PP&E and intangibles;
• evaluating management’s historical forecasting accuracy, specifically including revenue, gross profit
margins and overheads;
• agreement of estimated new contract awards to tender requests or enquiries received where
applicable;
• review of the forecast revenue and the yard capacity required to deliver this forecast revenue to
assess the potential impact on the currently mothballed Sharjah Yard, mothballed operational assets
and challenging the operational capacity to deliver forecast revenue;
• verification of estimated future costs by agreement to approved budgets and where applicable,
third party data; and
• assessment of any evidence contradictory to management’s assumptions.
Key observations
We are satisfied that the recoverability of non-current assets has been assessed in accordance with the
requirements of IAS 36: Impairment of Assets.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Independent Auditor’s
Report
Estimation of project costs and revenue recognition
Key audit matter
description
The Group’s operations are characterised by contract risk with significant judgements involved in the
assessment of both current and future contract financial performance.
76
How the scope of our
audit responded to the
key audit matter
The Group’s accounting policy for revenue recognition is included in Note 2.2(a) in the “summary of
significant accounting policies”.
Revenue is recognised based on the stage of completion of individual contracts, calculated on the
proportion of total costs at the reporting date compared to the estimated total costs of the contract.
The status of contracts is updated on a regular basis. In doing so, management are required to
exercise significant judgement in their assessment of the valuation of contract variations, claims and
liquidated damages (revenue items); the completeness and accuracy of forecast costs to complete;
and the ability to deliver contracts within forecast timescales.
Management is required to forecast expected total costs to complete projects, based on professional
judgement and historical experience. This drives the calculation of percentage of completion and
ultimately revenue recognition. In light of the inherent judgement in estimating future contract costs,
there is a risk around the completeness and accuracy of the forecast costs, and consequently the
recognition of revenue.
Furthermore, there is a risk around the timing and valuation in recognition of variation orders and
variable revenue. In the current year the Group encountered major operational challenges on the
East Anglia One project which resulted in a significant loss for the Group (USD 80.4 million). The most
significant project judgement included in the recognised loss is in respect of potential liquidated
damages on the East Anglia One project as disclosed in Note 4 and the ability of the Group’s
subcontractor to deliver on time and in accordance with the project’s revised delivery dates.
The assessment of revenue recognition requires management to exercise judgement as described in
the “critical accounting judgements and key sources of estimation uncertainty” section of the Annual
Report in Note 4 and the “significant judgements” section in the Audit & Risk Committee report on
page 55. Management’s assessment requires an estimation of the total cost to complete each project,
and the Group’s right to revenue as a result of variation orders and claims. Management has included
the impact of sensitivity to the costs to complete in Note 4.2 as a key source of estimation uncertainty.
Our work on the recognition of contract revenue, contract costs, margin and related receivables and
liabilities included:
• an assessment of the design and implementation of relevant controls over the recognition of contract
revenue, contract costs and forecast margin;
• meeting with operational project management to understand contract performance;
• selecting a sample of contracts based on qualitative and quantitative factors in order to challenge
both current and future financial performance on the most significant and more complex contract
positions. For sampled contracts, we challenged management’s key judgements inherent in
the forecast revenue and costs to complete that drive the accounting under the percentage of
completion method, including the following procedures:
• reviewing the contract terms and conditions by reference to contract documentation;
• testing the valuation of claims and variations both within forecast contract revenue and forecast
contract costs via inspection of customers’ instructions and contracts with customers and the
supply chain;
• reviewing insurance experts’ reports received on contentious matters;
• testing the forecast costs by agreeing a sample of forecast costs to subcontractor agreements
and through interviews with commercial and operational management to assess the impact of any
commercial and operational risk on the cost estimates;
• assessing the ability to deliver contracts within budgeted timescales and any exposures to
liquidated damages for late delivery of contract works;
• Involvement of our internal engineers and quantity surveyor specialists to review the East Anglia
One contract to assess the specific contractual and commercial risks and then to determine
the reasonableness of the completeness and accuracy of the management forecast and
assessments of these risks in the project cost estimates;
• Reviewing of key contractual terms around delivery dates and any contractual milestone dates
and the terms for liquidated damages under the contract;
• Reviewing the actual achievement of the contractual delivery dates or milestone dates against
the contractual dates to assess the exposure to liquidated damages;
Estimation of project costs and revenue recognition (continued)
How the scope of our
audit responded to
the key audit matter
(continued)
Key observations
• reviewing post-balance sheet contract performance to challenge year end judgements.
• assessing the recoverability of related receivables, including testing of post year end cash receipts,
and completeness and validity of any contract loss provisions through completion of the above
procedures; and
• on the East Anglia One project, understanding the basis for and obtaining evidence in respect of
management’s judgement that the maximum potential exposure of USD 33.8 million of LDs that could
be levied under the contract have been reduced through ongoing work with their client and their
subcontractor to meet revised key delivery dates, as explained in the key judgement Note 4.
Management have made certain judgements in relation to estimated project revenue, estimated
project costs and the estimated margins recognised on projects including the significant loss making
project, East Anglia One. Based on audit work performed we are satisfied that that the estimation
of project costs, project margins and the recognition of revenue are appropriate and in accordance
with IAS 11: Construction contracts.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit
work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
77
Materiality
Group: USD 4.6 million (2016: USD 3.4 million).
Basis for determining materiality
Rationale for the benchmark applied
Parent company: USD 4.4 million (2016: USD 3.2 million).
The Group materiality that we used in the current year was determined as 1% of net
assets. This is a change from the prior year where we determined materiality based
on adjusted forecast profit before taxation.
The parent company materiality was determined as 1% of net assets and then has
been capped at 95% Group materiality.
Given the volatility in the Group’s performance, we considered a number of
performance and asset measures and determined that a net asset measure
provided a stable basis and the most appropriate reflection of the size of the
Group’s operations. Our determined Group materiality is equivalent to 1.2% of
Revenue and 4.7% of the Group’s loss before tax.
Parent company materiality was determined using net assets on the basis that it acts
as a holding company for the Group.
We agreed with the audit committee that we would report to the committee all audit differences in excess of USD 230,400
(2016: USD 168,000) for the Group, as well as differences below that threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the audit committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment and assessing the risks of material
misstatement at the Group level.
We performed a full scope audit of the Group’s operations which is primarily in the United Arab Emirates (“UAE”) and comprises
100% of the Group’s net assets and 100% of revenue.
The Group team was responsible for the work performed on the components. The Group team also tested the consolidation process.
We have obtained an understanding of the Group’s system of internal controls and undertaken a combination of procedures, all of
which are designed to target the Group’s identified risks of material misstatement in the most effective manner possible.
Lamprell plc Annual Report and Accounts 2017
Financial statements
Independent Auditor’s
Report
Other information
The directors are responsible for the other information. The other information comprises
the information included in the Annual Report, other than the financial statements and
our auditor’s report thereon.
We have nothing to report in respect
of these matters.
Our opinion on the financial statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected
material misstatements of the other information include where we conclude that:
78
• Fair, balanced and understandable – the statement given by the directors that
they consider the Annual Report and financial statements taken as a whole is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance, business model and
strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting – the section describing the work of the audit committee
does not appropriately address matters communicated by us to the audit committee;
or
• Directors’ statement of compliance with the UK Corporate Governance Code –
the parts of the directors’ statement required under the Listing Rules relating to
the company’s compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with Listing Rule
9.8.10R(2) do not properly disclose a departure from a relevant provision of the
UK Corporate Governance Code.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Section 15 of the Isle of Man Companies Act
1982. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Opinions on other matter prescribed by our engagement letter
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
provisions of the UK Companies Act 2006 as if that Act had applied to the company.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Isle of Man Companies Act 1931 to 2004 we are required to report in respect
of the following matters if, in our opinion:
We have nothing to report in respect
of these matters.
• proper books of account have not been kept by the company and that proper returns
adequate for our audit have not been received from branches not visited by us; or
• the financial statements are not in agreement with the books of account and returns;
or
• we have not received all the information and explanations which to the best of our
knowledge and belief, are necessary for the purpose of our audit.
Directors’ loans and remuneration
Under the Isle of Man Companies Act 1931 to 2004 we are required to report in respect
of the following matter if, in our opinion certain disclosures of directors’ loans and
remuneration specified by law are not been complied with.
Dean Cook MA FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
21 March 2018
We have nothing to report in respect
of this matter.
79
Lamprell plc Annual Report and Accounts 2017 Financial statements
Consolidated income statement
CONSOLIDATED
INCOME STATEMENT
Year ended 31 December 2017
Year ended 31 December 2016
Continuing operations
Revenue
Cost of sales
Gross (loss)/profit
80
Selling and distribution expenses
General and administrative expenses
Impairment loss
Other gains/(losses) – net
Operating loss
Finance costs
Finance income
Finance costs – net
Share of (loss)/profit of investments
accounted for using the equity method – net
Loss before income tax
Income tax expense
Loss for the year from continuing operations
Discontinued operations
Loss on disposal of subsidiary
Loss for the year attributable to the
equity holders of the Company
Loss per share for losses from
continuing operations attributable
to the equity holders of the Company
during the period
Basic
Diluted
Loss per share attributable to the
equity holders of the Company
during the period
Basic
Diluted
Pre-
exceptional
items
USD’000
Exceptional
items
USD’000
370,439
(420,605)
(50,166)
(717)
(40,197)
–
877
(90,203)
(9,019)
3,875
(5,144)
(2,559)
(97,906)
(191)
(98,097)
–
(98,097)
–
–
–
–
–
–
–
–
–
–
–
–
Notes
5
6
7
9,33
17,33
12
11
11
19
13
13
The notes on pages 88 to 124 form an integral part of these financial statements.
Total
USD’000
370,439
(420,605)
(50,166)
(717)
(40,197)
–
877
(90,203)
(9,019)
3,875
(5,144)
(2,559)
(97,906)
(191)
(98,097)
Pre-
exceptional
items
USD’000
Exceptional
items
USD’000
704,994
(647,791)
57,203
(798)
(48,402)
Total
USD’000
704,994
(647,791)
57,203
(798)
–
–
–
–
(3,361)
(51,763)
–
(180,539)
(180,539)
1,944
9,947
(12,822)
2,895
(9,927)
1,944
1,964
(254)
1,710
–
1,944
(183,900)
(173,953)
–
–
–
–
(12,822)
2,895
(9,927)
1,944
(183,900)
(181,936)
–
(254)
(183,900)
(182,190)
–
(2,125)
–
(2,125)
(98,097)
(415)
(183,900)
(184,315)
(28.70)c
(28.70)c
(28.70)c
(28.70)c
(53.32)c
(53.32)c
(53.94)c
(53.94)c
Financial statements
Consolidated statement of
comprehensive income
CONSOLIDATED
STATEMENT OF
COMPREHENSIVE
INCOME
Loss for the year
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurement of post-employment benefit obligations
Items that may be reclassified subsequently to profit or loss:
Currency translation differences
Net profit/(loss) on cash flow hedges
Other comprehensive income for the year
Total comprehensive loss for the year
Total comprehensive loss for the year attributable
to the equity holders of the Company arises from:
Continuing operations
Discontinued operations
The notes on pages 88 to 124 form an integral part of these financial statements.
Notes
Year ended 31 December
2017
USD’000
2016
USD’000
(98,097)
(184,315)
26
25
25
81
(829)
1,523
(49)
2,619
1,741
(290)
(1,259)
(26)
(96,356)
(184,341)
(96,356)
(182,216)
–
(2,125)
Lamprell plc Annual Report and Accounts 2017 Financial statements
Consolidated balance sheet
CONSOLIDATED
BALANCE SHEET
82
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investments accounted for using the equity method
Trade and other receivables
Term and margin deposits
Derivative financial instruments
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and bank balances
Total current assets
Total assets
LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Provision for warranty costs and other liabilities
Current tax liability
Total current liabilities
Net current assets
Non-current liabilities
Borrowings
Derivative financial instruments
Provision for employees’ end of service benefits
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Share premium
Other reserves
Retained earnings
Total equity attributable to the equity holders of the Company
As at 31 December
2017
USD’000
2016
USD’000
Notes
16
17
19
21
22
27
20
21
27
22
30
28
27
29
30
27
26
24
24
25
171,725
31,715
25,908
839
13,426
153
243,766
50,509
163,866
1,513
283,017
498,905
742,671
(39,491)
(200,573)
–
(7,475)
(191)
(247,730)
251,175
–
–
(34,129)
(34,129)
(281,859)
460,812
30,346
315,995
(18,123)
132,594
460,812
172,328
24,951
7,229
10,905
6,777
115
222,305
24,415
264,417
58
327,893
616,783
839,088
(20,321)
(180,021)
(465)
(7,958)
(223)
(208,988)
407,795
(39,163)
(794)
(34,745)
(74,702)
(283,690)
555,398
30,346
315,995
(20,693)
229,750
555,398
The financial statements on pages 80 to 124 were approved and authorised for issue by the Board of Directors on 21 March 2018
and signed on its behalf by:
Christopher McDonald
Chief Executive Officer and Director
Antony Wright
Chief Financial Officer and Director
The notes on pages 88 to 124 form an integral part of these financial statements.
Financial statements
Company balance sheet
COMPANY
BALANCE SHEET
ASSETS
Non-current assets
Investment in subsidiaries
Current assets
Other receivables
Due from related parties
Cash and bank balance
Total current assets
Total assets
LIABILITIES
Current liabilities
Accruals
Due to related parties
Total current liabilities
Net current assets
Non-current liabilities
Provision for employees’ end of service benefits
Total liabilities
Net assets
EQUITY
Share capital
Share premium
Other reserve
Retained earnings
Total equity attributable to the equity holders of the Company
83
As at 31 December
2017
USD’000
2016
USD’000
Notes
18
555,710
554,448
23
26
24
24
25
242
16,936
163
17,341
573,051
(1,241)
(3,155)
(4,396)
12,945
(217)
(4,613)
357
13,694
264
14,315
568,763
(564)
–
(564)
13,751
(173)
(737)
568,438
568,026
30,346
315,995
189,059
33,038
568,438
30,346
315,995
189,059
32,626
568,026
The financial statements on pages 80 to 124 were approved and authorised for issue by the Board of Directors on 21 March 2018
and signed on its behalf by:
Christopher McDonald
Chief Executive Officer and Director
Antony Wright
Chief Financial Officer and Director
The notes on pages 88 to 124 form an integral part of these financial statements.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Consolidated statement of
changes in equity
CONSOLIDATED
STATEMENT OF
CHANGES IN EQUITY
At 1 January 2016
Loss for the year
Other comprehensive income:
Remeasurement of post-employment benefit obligations
84
Currency translation differences
Net loss on cash flow hedges
Total comprehensive loss for the year
Transactions with owners:
Share-based payments:
– value of services provided
– treasury shares purchased
Total transactions with owners
At 31 December 2016
Loss for the year
Other comprehensive income:
Remeasurement of post-employment benefit obligations
Currency translation differences
Net gain on cash flow hedges
Total comprehensive loss for the year
Transactions with owners:
Share-based payments:
– value of services provided
– treasury shares purchased
Total transactions with owners
At 31 December 2017
Share
capital
Notes
USD’000
Share
premium
USD’000
Other
reserves
USD’000
Retained
earnings
USD’000
30,346
315,995
(19,144)
410,360
Total
USD’000
737,557
26
25
25
8
26
25
25
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(290)
(1,259)
(1,549)
–
–
–
30,346
315,995
(20,693)
–
–
(49)
2,619
2,570
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(184,315)
(184,315)
1,523
–
–
1,523
(290)
(1,259)
(182,792)
(184,341)
2,725
(543)
2,182
229,750
(98,097)
(829)
–
–
2,725
(543)
2,182
555,398
(98,097)
(829)
(49)
2,619
(98,926)
(96,356)
–
–
–
2,425
(655)
1,770
2,425
(655)
1,770
30,346
315,995
(18,123)
132,594
460,812
The notes on pages 88 to 124 form an integral part of these financial statements.
Financial statements
Company statement of
changes in equity
COMPANY
STATEMENT OF
CHANGES IN EQUITY
At 1 January 2016
Loss for the year
Other comprehensive income:
Remeasurement of post-employment benefit obligations
Total comprehensive loss for the year
Transactions with owners:
Share-based payments:
– value of services provided
– investment in subsidiaries
– treasury shares issued
Impairment during the year
Total transactions with owners
At 31 December 2016
Loss for the year
Other comprehensive income:
Remeasurement of post-employment benefit obligations
Total comprehensive loss for the year
Transactions with owners:
Share-based payments:
– value of services provided
– investment in subsidiaries
– treasury shares issued
Impairment during the year
Total transactions with owners
At 31 December 2017
Share
capital
Notes
USD’000
Share
premium
USD’000
Other
reserve
USD’000
Retained
earnings
USD’000
30,346
315,995
329,153
30,299
Total
USD’000
705,793
26
8
18
25
26
8
18
25
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(140,094)
(140,094)
30,346
315,995
189,059
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30,346
315,995
189,059
(140,020)
(140,020)
16
16
(140,004)
(140,004)
85
752
1,973
(488)
140,094
142,331
32,626
(1,306)
752
1,973
(488)
–
2,237
568,026
(1,306)
(52)
(1,358)
(52)
(1,358)
1,163
1,262
(655)
–
1,770
33,038
1,163
1,262
(655)
–
1,770
568,438
The notes on pages 88 to 124 form an integral part of these financial statements.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Consolidated cash flow
statement
CONSOLIDATED CASH
FLOW STATEMENT
Operating activities
Cash generated from operating activities
Tax paid
Net cash generated from operating activities
86
Investing activities
Additions to property, plant and equipment
Proceeds from sale of property, plant and equipment
Additions to intangible assets
Investment in an associate
Dividend received from an associate
Finance income
Movement in deposit with original maturity of more than three months
Movement in margin/short-term deposits under lien
Net cash used in investing activities
Financing activities
Treasury shares purchased
Repayments of borrowings
Finance costs
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents, beginning of the year from continuing operations
Exchange rate translation
Year ended 31 December
Notes
USD’000
2017
2016
USD’000
37
16
17
19
19
11
32,619
(223)
32,396
100,124
(222)
99,902
(22,060)
(22,871)
288
(1,772)
(23,375)
2,137
3,875
(105,407)
2,882
1,349
(2,753)
–
–
2,895
(24,506)
804
(143,432)
(45,082)
(655)
(20,000)
(9,012)
(29,667)
(140,703)
245,514
(49)
(543)
(20,000)
(12,637)
(33,180)
21,640
224,164
(290)
Cash and cash equivalents, end of the year from continuing operations
22
104,762
245,514
Non-cash transaction
Additions to intangible assets as disclosed in Note 17 include an amount of USD 8.7 million prepaid to Sharjah Electricity & Water
Authority during the prior year. This has been treated as a non-cash item as the cash outflow was in 2016.
The notes on pages 88 to 124 form an integral part of these financial statements.
Financial statements
Company cash flow
statement
COMPANY CASH
FLOW STATEMENT
Operating activities
Loss for the year
Adjustments for:
Impairment of investment in subsidiaries
Share-based payment – value of services provided
Provision for employees’ end of service benefits
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
Accruals
Due from related parties
Due to related parties
Net cash generated from operating activities
Financing activities
Treasury shares purchased
Net cash used in financing activities
Net increase 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 88 to 124 form an integral part of these financial statements.
Year ended 31 December
Notes
USD’000
2017
2016
USD’000
31
8
26
23
23
87
(1,306)
(140,020)
–
1,163
58
(85)
(66)
115
677
(3,242)
3,155
554
(655)
(655)
(101)
264
163
140,094
752
68
894
–
277
547
(1,184)
–
534
(488)
(488)
46
218
264
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
NOTES TO THE
CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
1
Legal status and activities
Lamprell plc (“the Company”/“the parent 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 interest method (Note 25). 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 First Names House, Victoria Road, Douglas, IM2 4DF, 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.
88
The principal activities of the Company and its subsidiaries (together referred to as “the Group”) are: assembly and new build
construction for the offshore oil & gas and renewable sectors; fabricating packaged, pre-assembled and modularised units; constructing
accommodation and complex process modules for onshore downstream projects; construction of complex living quarters, wellhead
decks, topsides, jackets and other offshore fixed facilities; rig refurbishment; land rig services; engineering and construction and
operations and maintenance.
The Company has either directly or indirectly the following subsidiaries:
Name of the subsidiary
Lamprell Energy Limited (“LEL”)
Lamprell Investment Holdings Ltd. (“LIH”)
Lamprell Dubai LLC (“LD”)
Lamprell Sharjah WLL (“LS”)
Maritime Offshore Limited (“MOL”)
Maritime Offshore Construction Limited (“MOCL”)
Cleopatra Barges Limited (“CBL”)
Lamprell plc Employee Benefit Trust (“EBT”)
Maritime Industrial Services Co. Ltd Inc (“MIS”)
Maurlis International Ltd. Inc (“MIL”)
Rig Metals LLC (“RIM”)
Maritime Industrial Services Co. Ltd. & Partners (“MISCLP”)
Global Investment Co. Ltd. Inc (“GIC”)
Sunbelt Safety Services Co. Ltd. Inc. (“SSS”)
MIS Qatar LLC (“MISQWLL”)
Lamprell Kazakhstan LLP (“LAK”)
Lamprell Energy (UK) Limited (“LUK”)
Lamprell International (Netherlands) B.V. (“LIN”)
Sunbelt Safety Services LLC (“SSSL”)
Lamprell Saudi Arabia LLC (“LSAL”)
Percentage
of legal
ownership
Percentage
of beneficial
ownership
%
100
100
491
491
100
100
100
100
100
100
491
701
100
100
491
100
100
100
701
100
2
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Place of incorporation
Isle of Man
British Virgin Islands
UAE
UAE
Isle of Man
Isle of Man
British Virgin Islands
Unincorporated
Republic of Panama
Republic of Panama
UAE
Sultanate of Oman
Republic of Panama
Republic of Panama
Qatar
Kazakhstan
England and Wales
Netherlands
Sultanate of Oman
Kingdom of Saudi Arabia
1. The remaining balance of 51% in each case is registered in the name of a Gulf Cooperation Council (“GCC”) national/entities owned by a GCC national, who has assigned all
the economic benefits attached to their shareholdings to the Group entity. The Group is exposed to, or has rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity via management agreements and, accordingly, these entities are consolidated as wholly owned subsidiaries
in these consolidated financial statements. These shareholders receive sponsorship fees from the Group (Note 23).
2. The beneficiaries of the EBT are the employees of the Group.
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”) and the Isle of Man
Companies Acts 1931 to 2004. In accordance with the provisions of the Isle of Man Companies Act 1982, the Company has not
presented its own statement of comprehensive income.
After reviewing its cash flow forecasts for a period of not less than 12 months from the date of signing of these financial statements,
the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the
foreseeable future. Therefore, the Group 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 adopted by the Group
IAS 7 (amendments), ‘Statement of Cash Flows’ to ‘disclosure initiative’, these disclosures enable the users of financial statements to
evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.
Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior period.
Apart from the additional disclosure in Borrowings (Note 30), the application of these amendments has had no impact on the Group’s
consolidated financial statements.
89
IAS 12 (amendments), ‘Income Taxes’ – Recognition of Deferred Tax Assets for Unrealised Losses, the amendments clarify how
an entity should evaluate whether there will be sufficient future taxable profits against which it can utilise a deductible temporary
difference. The application of these amendments has had no impact on the Group’s consolidated financial statements as the Group
has no deductible temporary differences on assets that are in the scope of amendments.
IFRS 12 (amendments), Disclosure of Interest in Other Entities, clarifies that an entity need not provide summarised financial
information for interests in subsidiaries, associates and joint ventures that are classified (or included in a disposal group that is
classified) as held for sale. The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12
for such interests. The application of these amendments has had no effect on the Group’s consolidated financial statements as the
Group has no interest classified, as held for sale.
(b)
New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2017
and not early adopted
IFRS 2 (amendments), ‘Share-based Payment’ – Classification and Measurement of Transactions, addresses three main areas:
the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a
share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification
to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled.
On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted
if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after
1 January 2018, with early application permitted. The Group does not anticipate that application of the amendments in future will have
a material impact as it does not have any cash-settled share-based arrangements.
IFRS 9, ‘Financial Instruments’, addresses the classification, measurement and recognition of financial assets and financial
liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification
and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary
measurement categories for financial assets: amortised cost, fair value through other comprehensive income (“OCI”) and fair value
through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the
financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable
option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that
replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and
measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair
value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness
tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same
as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different
to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018.
Early adoption is permitted.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
2
Summary of significant accounting policies continued
2.1 Basis of preparation continued
(b)
New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2017
and not early adopted continued
IFRS 9, ‘Financial Instruments’ continued
Impact assessment of IFRS 9 Financial Instruments
Based on an analysis of the Group’s financial assets and financial liabilities as at 31 December 2017 on the basis of the facts
and circumstances that exist at that date, the management have assessed the impact of IFRS 9 to the Group’s financial statements
as follows:
Classification and measurement:
All financial assets and financial liabilities will continue to be measured on the same basis as is currently adopted under IAS 39.
Impairment:
Financial assets classified as loans and receivables (Note 15) and amounts due from customer under construction contracts (Note 21)
will be subject to the impairment provisions of IFRS 9.
The Group expects to apply the simplified approach to recognise lifetime expected credit losses for its trade receivables, due
from related parties and amounts due from customer under construction contracts as required or permitted by IFRS 9. In general,
management anticipate that the application of the expected credit loss model of IFRS 9 will result in earlier recognition of credit losses
for the respective items and will increase the amount of loss allowance recognised for these items.
Hedge accounting:
Existing hedge relationships (Note 27) would appear to qualify as continuing hedge relationships upon adoption of the new standard.
90
IFRS 15, ‘Revenue from contracts with customers’, deals with revenue recognition and establishes principles for reporting useful
information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from
an entity’s contracts with customers. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Revenue is recognised when a customer obtains control of a good or service and thus has
the ability to direct the use and obtain the benefits from the goods or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11
‘Construction Contracts’ and related interpretations. The Group intends to adopt these amendments no later than the accounting
period beginning on or after 1 January 2018.
Impact assessment of IFRS 15, Revenue from Contracts with Customers
Based on analysis of the Group’s revenues from contracts with customers as at 31 December 2017, management of the Group has
assessed the impact of IFRS 15 to the Group’s financial statements as follows:
• Contract revenue
The Group provides lump-sum fabrication and engineering services to the oil & gas and renewable energy industry. Currently,
the Group accounts for the lump-sum construction contracts as a single performance obligation and recognises the contract
revenue by reference to the stage of completion on the overall contract (see current revenue recognition policies on Note 2.2).
Management has assessed the construction contracts and considered IFRS 15’s guidance on contract combinations, contract
modifications arising from variation orders, variable consideration, and the assessment of whether there is a significant financing
component in the contracts, particularly taking into account the reason for the difference in timing between the transfer of control
of goods and services to the customer and the timing of the related payments. Management has assessed that revenue from
these construction contracts should be recognised over time and the input method currently used to measure the progress
towards complete satisfaction of these performance obligations will continue to be appropriate under IFRS 15.
•
Variable consideration
Currently, the Group recognises revenue from the construction contracts measured based on the fair value of the consideration
received or receivable, net of any allowances. If revenue cannot be reliably measured, the Group defers revenue recognition
until the uncertainty is resolved. Such provisions give rise to variable consideration under IFRS 15, and will be required to be
estimated at contract inception.
IFRS 15 requires the estimated variable consideration to be constrained to prevent over-recognition of revenue. The Group
continues to assess individual contracts to determine the estimated variable consideration and related constraint. As the current
major contracts are at an advanced stage of negotiation and in our view would meet the requirements of the constraint, we do
not anticipate, based on our current knowledge, there to be any variable consideration that could materially affect the revenue
recognised to date.
• Warranty obligations
The Group generally offers a one year warranty for defects on work carried out and does not provide extended warranties
or maintenance services in its contracts with customers. Management estimates the related provision for future warranty claims
based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ
from future claims. These costs are included in estimated contract costs. As such, the Group expects that such warranties will be
assurance-type warranties which will continue to be accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent
Assets consistent with its current practice.
2
Summary of significant accounting policies continued
2.1 Basis of preparation continued
(b)
New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2017
and not early adopted continued
IFRS 15, ‘Revenue from contracts with customers’ continued
Conclusion
Other than providing more extensive disclosures on the Group’s revenue transactions, management do not anticipate that the
application of IFRS 15 will have a significant impact on the financial position and/or financial performance of the Group.
Management intends to use the modified transition approach as permitted by IFRS 15. Therefore, the cumulative impact of any
required adjustments at the date of initial application, though not expected to be significant, will be recognised in 2018 without
restating comparatives.
IFRS 16, ‘Leases’, specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides
a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months
or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach
to lessor accounting substantially unchanged from its predecessor, IAS 17.
Impact assessment of IFRS 16 Leases
As at 31 December 2017, the Group has non-cancellable operating lease commitments of USD 109.4 million. IAS 17 does not require
the recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as
operating lease commitments in Note 34.
A preliminary assessment indicates that these arrangements will meet the definition of a lease under IFRS 16, and hence the
Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value
or short-term leases upon the application of IFRS 16.
91
The new requirement to recognise a right-of-use asset and a related lease liability is expected to have a significant impact on the
amounts recognised in the consolidated financial statements and the Directors are currently assessing its potential impact. It is not
practicable to provide a reasonable estimate of the financial effect until the Directors complete the review.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019.
IFRS 17, ‘Insurance Contracts’, replaces IFRS 4 ‘Insurance Contracts’ and covers recognition and measurement, presentation and
disclosure of all types of insurance contracts. The new standard is effective for annual periods beginning on or after 1 January 2021.
The standard is not applicable to the Group as it pertains to insurance companies.
IFRS 10 and IAS 28 (amendments), deal with situations where there is a sale or contribution of assets between an investor and its
associate or joint venture. The amendments state that the gains or losses resulting from the loss of control of a subsidiary that does
not contain a business in a transaction with an associate or joint venture that is accounted for using the equity method are recognised
in the parent’s profit or loss to the extent of the unrelated investors interest. The effective date of the amendment has yet to be set by
the IASB. The Group does not anticipate the amendments will have a material impact.
IAS 40 (amendments), ‘Investment property’ regarding transfers of Investment Property, clarify that transfers to, or from, investment
property can only be made if there has been a change in use that is supported by evidence. The amendment is effective for annual
periods beginning on or after 1 January 2018. Application of these amendments will have no impact on the Group as it does not have
investment property.
IFRIC 22, ‘Foreign Currency Transactions and Advance Consideration’, addresses how to determine the date of transaction for the
purpose of determining the exchange rate to use on initial recognition of an asset, expense or income when consideration for the item
is paid or received in advance in foreign currency which resulted in recognition of a non-monetary asset or liability. The interpretation
specifies the date of transaction is the date on which the receipt is initially recognised. The interpretation is effective for annual periods
beginning 1 January 2018 and the Group does not anticipate this will have an impact as it currently accounts for such transactions
in a way consistent with the amendments.
2.2 Revenue recognition
(a) Contract revenue
Contract revenue is recognised under the percentage-of-completion method by measuring the proportion of costs incurred for work
performed to total estimated costs. 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.
For contracts as to which the Group is unable to estimate the final profitability due to their uncommon nature, including first-of-a-kind
projects, the Group recognise equal amounts of revenue and cost until the final results can be estimated more precisely. For these
contracts, the Group only recognise gross margin when reliably estimable and the level of uncertainty has been significantly reduced.
With respect to fixed price construction contracts with an expected contract duration of 18 months or greater, the Group generally
determine this when the contract has progressed to 20% based on the total estimated cost of the contract.
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.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
2
Summary of significant accounting policies continued
2.2 Revenue recognition continued
(a) Contract revenue continued
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 subcontractors relating to future activity on a contract, are excluded and are presented as contract
work-in-progress.
(b) Products and services
Revenue from sale of products and services is recognised in the accounting period in which the risks and rewards are transferred
or the service is rendered net of value added tax.
Interest income
(c)
Interest income is recognised on a time proportion basis using the effective interest rate method.
Refer to Note 2.1(b) for a statement on the impact of IFRS 15 ‘Revenue from Contracts with customers’.
2.3 Consolidation
(a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases.
92
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 to the former owner of the acquiree 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. 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 recognised amount of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.
The excess of the consideration transferred over 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 to account for business combinations involving
entities under common control.
Under the uniting of interest method, there is no requirement to fair value the assets and liabilities of the acquired entities and hence
no goodwill is recorded 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.
(b) Disposal of subsidiaries
When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is
lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purpose of
subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously
recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of related
asset or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
Joint arrangements
(c)
The Group has applied IFRS 11 to all joint arrangements. Under IFRS 11, investments in joint arrangements are classified as either
joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Company has assessed the
nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
Under the equity method of accounting, interest in joint ventures are initially recognised at cost and adjusted thereafter to recognise
the Group’s share of the post-acquisition profits or losses in the consolidated income statement. When the Group’s share of losses in
a joint venture equals or exceeds its interest in the joint ventures (which includes any long-term interest that, in substance, forms part
of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or
made payments on behalf of the joint ventures.
2
Summary of significant accounting policies continued
2.3 Consolidation continued
(d) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding
of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting.
Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to
recognise the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s investment in associates
includes goodwill identified on acquisition.
The Group’s share of post-acquisition profit or loss is recognised in the consolidated income statement, and its share of post-
acquisition movements in other comprehensive income is recognised in the consolidated statement of comprehensive income
with a corresponding adjustment to the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured
receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments
on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is
impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount
of the associate and its carrying value and recognises the amount adjacent to ‘share of profit/(loss) of an associate’ in the
consolidated income statement.
Investment in subsidiaries
2.4
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 as dividend in the statement of comprehensive income.
93
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,
whose currency, the UAE Dirham, is pegged to the United States Dollar (“USD”) and is the functional currency of all the entities in the
Group (except MISCLP whose functional currency is Omani Riyal, MISQWLL whose functional currency is Qatari Riyal, LAK whose
functional currency is Kazakh Tenge, LIN whose functional currency is Euro, LSAC whose functional currency is Saudi Riyal and for
EBT and LUK whose functional currency is the Great British Pound). The consolidated and parent company financial statements are
presented in US Dollars.
(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.
Foreign exchange gains and losses that relate to cash and cash equivalents are presented in the consolidated income statement
within ‘finance income or costs’. All other foreign exchange gains and losses are presented in the consolidated income statement
within ‘other gains/(losses) – net’.
(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 in other comprehensive income.
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.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
2
Summary of significant accounting policies continued
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
3 – 25
3 – 20
3 – 5
5
The assets’ residual values, if significant, and useful lives are reviewed and adjusted if appropriate, at each balance sheet date. This
review indicated that the actual lives of certain operating equipment were longer than the estimated useful lives used for depreciation
purposes in the Group’s financial statements. As a result, effective 1 January 2017, the Group changed its estimates of the useful lives
of its operating equipment to better reflect the estimated periods during which these assets will remain in service. The estimated useful
lives of the operating equipment that previously averaged 3 – 15 years were increased to an average of 3 – 20 years. The effect of this
change in estimate was to reduce 2017 depreciation expense and net loss by USD 1.4 million.
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.
94
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 2.22).
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within
‘other gains/(losses) – net’ in the consolidated income statement.
Intangible assets
2.7
(a) Trade name
A trade name acquired as part of a business combination is capitalised, separately from goodwill, at fair value at the date of
acquisition if the asset is separable or arises from contractual or legal rights and its fair value can be measured reliably. Amortisation
is calculated on a straight-line method to allocate the fair value at acquisition over its estimated useful life. The useful life of a trade
name is reviewed on an annual basis.
(b) Customer relationships
Customer relationships acquired as part of a business combination are capitalised, separately from goodwill, at fair value at the
date of acquisition if the asset is separable or arises from contractual or legal rights and its fair value can be measured reliably.
Amortisation is calculated on a straight-line method to allocate the fair value at acquisition over their estimated useful life. The useful
life of customer relationships is reviewed on an annual basis.
(c) Operating lease rights
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.
(d) Computer software
Directly attributable costs that are capitalised as part of the software product include the software development employee costs.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as an asset in a subsequent period. Computer software development
costs recognised as assets are amortised over their estimated useful lives.
(e) Work-in-progress
Work-in-progress pertains to assets in the course of development and stated at cost. When commissioned, work-in-progress is
transferred to intangible assets in accordance with Group policies.
Inventories
2.8
Inventories comprise raw materials, finished goods, work-in-progress 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, direct
labour and other costs incurred in bringing the inventories to their present location and condition.
2
Summary of significant accounting policies continued
2.9 Trade receivables
Trade receivables are amounts receivable from customers for billing in the ordinary course of business. 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.
95
2.12 Employee benefits
(a) Provision for staff benefits
A provision is made for the estimated liability for performance related bonus and employees’ entitlements to annual leave and air fare
as a result of services rendered by the employees up to the balance sheet date. This provision is disclosed as a current liability and
included in trade and other payables.
Labour laws in the countries in which the Group operates require the Group to provide for other long-term employment benefits.
Provision is made, using actuarial techniques, for the end of service benefits due to employees, for their periods of service up to the
balance sheet date. The provision relating to end of service benefits is disclosed as a non-current liability. Actuarial gains and losses
arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive
income in the period in which they arise. The current service cost and interest cost is recognised in the income statement in
‘Employees’ end of service benefits’.
(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 consolidated 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 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.
Refer to Note 2.1(b) for a statement on the impact of IFRS 16, Leases.
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.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
2
Summary of significant accounting policies continued
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 income over the period of the borrowings using the effective interest method. The Group capitalises general and specific
borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that
asset. All other borrowing costs are recognised in consolidated income statement in the period in which they are incurred.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan. The fee is capitalised and amortised
over the period of the facility to which it relates.
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 assessing performance of the operating
segments, has been identified as the Board of Directors that makes strategic decisions.
2.18 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent
that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively.
96
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which the applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if
they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset
or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable
profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet
date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except for deferred income tax
liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on
either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
2.19 Financial assets
The Group classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables.
Currently, the Group does not have any available-for-sale and held-to-maturity 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 are 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 gains/(losses) – net’ in the period in which they arise.
2
Summary of significant accounting policies continued
2.19 Financial assets continued
(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), receivables
from a related party and cash and cash equivalents (Note 2.14) in the consolidated balance sheet and amounts due from related
parties (Note 23), other receivables and cash at bank (Note 22) 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.
Impairment of financial assets
(c)
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is
objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss
event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
Refer to Note 2.1(b) for a statement on the impact of IFRS 9, ‘Financial Instruments’.
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 re-measured 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).
97
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.
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 gains/(losses) – net’.
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 27. 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 gains/(losses) – net’.
Amounts accumulated in equity are reclassified to profit or loss in the periods when the 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 gains/(losses) – 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.
2.21 Discontinued operations
Discontinued operations is a component of the Group’s business that has been disposed of, or meets the criteria to be classified
as held for sale. Discontinued operations are presented on the consolidated income statement as a separate line and are shown
net of tax.
2.22 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 are reviewed for possible reversal of the impairment at each reporting date.
Any impairment loss is recognised in the consolidated income statement and separately disclosed.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
2
Summary of significant accounting policies continued
2.23 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. The excess of proceeds received net of any directly attributable transaction
costs over the par value of the shares are credited to the share premium.
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.
2.24 Exceptional items
Exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to enable a full
understanding of the Group’s financial performance. Material transactions which may give rise to exceptional items include write
downs or impairments of assets including goodwill, restructuring costs or provisions and litigation settlements. See Note 33 for full
details of exceptional items.
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 and 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.
98
(a) Market risk – foreign exchange risk
The Group has foreign exchange risk primarily with respect to balances in Euro, Great British Pound, Norwegian Kroner and Saudi
Riyal with certain suppliers. During the year ended 31 December 2017, if foreign exchange rates on foreign balances had been 10%
higher/lower, the exchange difference would have been higher/lower by USD 0.2 million (2016: USD 0.1 million).
(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 2017, if interest rates on deposits
had been 0.5% higher/lower, the interest income would have been higher/lower by USD 1.2 million (2016: USD 1.0 million).
The Group’s interest rate risk arises from long-term borrowings. Borrowings at variable rates expose the Group to cash flow interest
rate risk which is covered by taking fixed interest rate swaps against the variable rates. Under these swaps, the Group agrees with
other parties to exchange, at specified intervals, the difference between fixed contract rates and floating rate interest amounts
calculated by reference to the agreed notional principal amounts. During the year ended 31 December 2017, if interest rates on
borrowings had been 0.5% higher/lower, the interest expense would have been higher/lower by USD 0.3 million (2016: USD 0.4
million).
(c) Credit risk
The Group’s exposure to credit risk is detailed in Notes 15, 21, 22 and 27. 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, financial assets
carried at fair value through profit or loss, trade and other receivables and derivative financial instruments. 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 the equivalent of investment grade and above are accepted unless if the bank is situated in a frontier
market where minimal balances are held. The Group assesses internally the credit quality of each customer, taking into account its
financial position, past experience and other factors.
At 31 December 2017, the Group had a concentration of credit risk with nine of its largest customer balances accounting for 62%
(2016: 86%) of trade receivables outstanding at that date. Management believes that this concentration of credit risk is mitigated
as the Group conducts credit checks internally and through expert third party providers for new counterparties or in support of
major contracts, payment terms under contract are carefully managed and protection against non-payment is built into contractual
documentation to ensure the Group has a right to remedy in the event of delayed/non-payment.
3
Financial risk management continued
3.1 Financial risk factors continued
(c) Credit risk continued
The following table shows the rating and balance of the 13 major counterparties at the balance sheet date:
Counterparty
Bank A
Bank B
Bank C
Bank D
1. Based on Fitch’s long-term ratings.
Customer 1
Customer 2
Customer 3
Customer 4
Customer 5
Customer 6
Customer 7
Customer 8
Customer 9
2017
External
rating1
A+
A
AA-
A+
USD’000
91,927
62,624
42,858
38,377
235,786
2016
External
rating1
A+
A+
A
AA-
2017
2016
Internal
rating2
Group A
Group B
Group A
Group B
Group C
Group A
Group C
Group C
Group B
USD’000
7,896
4,577
2,756
2,574
2,376
1,164
1,045
963
935
24,286
Internal
rating2
Group A
Group A
Group C
Group C
Group C
Group A
Group C
Group B
Group C
USD’000
175,429
74,025
33,369
32,479
315,302
USD’000
37,149
18,048
11,219
4,470
1,525
1,293
1,209
1,065
1,045
77,023
99
2.
Refer to Note 15 for the description of internal ratings.
The above represents 62% (2016: 86%) of trade receivables of USD 39.3 million (2016: USD 89.4 million) (Note 21).
The counterparties in 2017 are not necessarily the same counterparties in 2016.
The customers in 2017 are not necessarily the same customers in 2016.
Management does not expect any losses from non-performance by these counterparties.
(d) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of
committed credit facilities. The Group is currently financed from shareholders’ equity and borrowings.
The Group’s liquidity risk on derivative financial instruments is disclosed in Note 27.
The following table 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.
31 December 2017
Trade and other payables (excluding due to customers
on contracts) (Note 28)
Borrowings (Note 30)
31 December 2016
Trade and other payables (excluding due to customers
on contracts) (Note 28)
Derivative financial instruments (Note 27)
Borrowings (Note 30)
Carrying
amount
USD’000
Contractual
cash flows
USD’000
Less than
Between
1 year
USD’000
2 to 5 years
USD’000
197,758
39,491
237,249
197,758
40,008
237,766
197,758
20,008
217,766
142,912
1,259
59,484
203,655
142,912
1,259
60,321
204,492
142,912
465
20,321
163,698
–
20,000
20,000
–
794
40,000
40,794
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
3
Financial risk management continued
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 to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, or issue new
shares to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is
calculated as total borrowings (including current and non-current borrowings as shown in the balance sheet) less cash and bank
balances. Total capital is calculated as “equity” as shown in the balance sheet plus net debt.
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
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
(c)
The following table presents the Group’s assets that are measured at fair value at:
100
31 December 2017
Derivative financial instruments (Note 27)
31 December 2016
Derivative financial instruments (Note 27)
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
–
–
1,666
173
–
–
1,666
173
The following table presents the Group’s liabilities that are measured at fair value at:
31 December 2017
Derivative financial instruments (Note 27)
31 December 2016
Derivative financial instruments (Note 27)
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
–
–
–
1,259
–
–
–
1,259
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 judgements and key sources of estimation uncertainty
The Group makes judgements, estimates and assumptions concerning the future. These 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. The resulting accounting estimates will, by definition, seldom equal the related actual results. The judgements,
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:
4.1 Critical judgements in applying accounting policies
Apart from those involving estimation (see Note 4.2), the Group has made following critical judgements in applying accounting policies
in the process of preparing these consolidated financial statements.
4.1.1 Provisions for liquidated damages claims (LDs)
The Group provides for liquidated damages where there have been significant delays against defined contractual delivery dates
or contractual milestones and it is considered probable that the customer will successfully pursue these penalties. This requires
management to estimate the amount of liquidated damages payable under the contract based on a combination of an assessment
of the contractual terms, the reasons for any delays and evidence of cause of the delays to assess who is liable under the contract
for the delays and consequently whether the Group is liable for the liquidated damages or not. Furthermore, there is an assessment
by management of any liquidated damages which can be recovered against subcontractors or the supply chain due to late delivery
against contractual delivery dates or milestones which are the direct cause of the delays under the contract with the customer and
which the supply chain are liable for.
4 Critical accounting judgements and key sources of estimation uncertainty continued
4.1 Critical judgements in applying accounting policies continued
4.1.1 Provisions for liquidated damages claims (LDs) continued
The Group experienced significant challenges on the East Anglia One (“EA1”) project and that caused the Group to incur additional
costs as it worked to rectify the shortcomings – see page 26 and Note 4.2.2. While the Group is maintaining an overall delivery
schedule for the client, certain key dates have been affected and are subject to ongoing discussions with the client with a view to
determining the implications these might have on the overall project master programme.
In view of the above, management have made a significant judgement within the forecast loss calculation in ascertaining the extent
to which liquidated damages will arise on the project. In making this judgement, management has considered the following:
•
•
The outcome of ongoing constructive discussions with our client regarding certain key delivery dates and how the delays to the
progress of works can be mitigated without impacting any related contractors or any other project activity which minimises the risk
of these related contractors pursuing liquidated damages against the client, which the client would in turn seek to recover; and
The progress of the insurance claim related to the first shipment of the flat packs to our UK subcontractor and the possibility of
reimbursement from the insurer.
Based on the discussions to date, management believe the risk of the full extent of LDs being levied has been mitigated and we
continue to work with the client and the subcontractors to ensure the overall project master programme is not compromised due
to the effect of our operational challenges in meeting certain key dates. The maximum potential exposure to the Group would amount
to a reduction in contract revenue by USD 33.8 million.
4.2 Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the
reporting period that may have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities
within the next financial year.
101
4.2.1 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.
If the estimated total costs to completion of all outstanding projects were to decrease by 10%, this would result in amounts due from
customers on contracts increasing by USD 6.4 million (2016: USD 3.8 million) or amounts due to customers on contract decreasing
by USD 6.4 million (2016: USD 3.8 million).
If the estimated total costs to completion of all outstanding projects were to increase by 10%, amounts due from customers on
contracts would decrease by USD 19.7 million (2016: USD 6.9 million) or amounts due to customers on contracts would increase
by USD 19.7 million (2016: USD 6.9 million).
4.2.2 Onerous contract provisions
The Group provides for future losses on long-term contracts where it is considered probable that the contract costs are likely
to exceed revenues in future years. Estimating these future losses involves a number of assumptions about the achievement
of contract performance targets and the likely levels of future cost escalation over time.
A provision of USD 41.7 million (2016: Nil) was held at 31 December 2017 relating to estimated losses to completion on the
EA1 project. The estimated total losses at completion amount to USD 80.0 million (2016: USD Nil) and the additional costs on
the project have been caused by a number of variable factors including investment in further unplanned staffing and equipment
requirements, as well as significant additional shipping, subcontractor costs and an assessment by management on the full extent
of LDs being levied. See Note 4.1.1 for key judgements on liquidated damages claims.
The application of a 10% sensitivity to management estimates of the total costs to completion on this project would result in
provision for onerous contract included in other payables decreasing by USD 4.1 million (2016: Nil) if the total costs to complete
are decreased by 10% and provision for onerous contract included in other payables increasing by USD 4.1 million (2016: USD Nil)
if the total costs to completion increased by 10%.
4.2.3 Impairment of property, plant and equipment and intangible assets
The Group determines at the end of the reporting period whether there are indicators of impairment in the carrying amount of its
property, plant and equipment, intangible assets and other financial assets. Where indicators exist, an impairment test is undertaken
which requires management to estimate the recoverable amount of its assets which is initially based on its value in use. When
necessary, fair value less costs of disposal is estimated. Management performs the review at the cash generating unit (“CGU”)
relating to an operating segments’ assets located in a particular geography.
The market downturn has resulted in a decrease in bidding activities and a reduction in new project awards for the United Arab
Emirates CGU. The estimate of future cash flows and terminal value growth rate for the CGU has been significantly affected by the
current assumptions relating to market outlook, contract awards and margins.
Determining whether property, plant and equipment and intangible assets are impaired requires an estimation of value in use of
the cash-generating unit and fair value of assets. The value in use calculation requires the estimation of future cash flows expected
to arise from the cash generating unit and a suitable discount rate to calculate present value of expected future cash flows. These
calculations use pre-tax cash flow projections based on financial budgets approved by management covering a three-year period.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
4 Critical accounting judgements and key sources of estimation uncertainty continued
4.2 Key sources of estimation uncertainty continued
4.2.3 Impairment of property, plant and equipment and intangible assets continued
Revenue for the first three-year period and the revenue growth rate beyond the three-year period is determined based upon
past performance and management expectations of future market development which includes various assumptions relating
to market outlook, contract awards and contract margins. As at 31 December 2017, the Group’s pipeline amounts to USD 3.6 billion
(2016: USD 2.5 billion) – see the strategic report page 5.
The bid pipeline comprises a mixture of opportunities in the renewables and oil & gas market sectors and management have
made various assumptions relating to the timing, expected values and the probable outcome of these prospective awards. These
assumptions are based on medium-term forecasts for the global energy industry, macro-economic factors, opportunities and market
insights obtained from bidding activities. A change in management assumptions relating to the bid pipeline and outlook could result
in the property, plant and equipment and/or intangible assets being impaired. Refer to the strategic report on page 5 for a detailed
discussion of the market pipeline and opportunities.
A discount rate of 10.00% (2016: 11.54%) is used to discount the pre-tax cash flow projections to the present value. In determining the
appropriate discount rate, the Group considers the weighted average cost of capital employed, which takes into consideration the risk
free rate of US treasury bonds with a long-term maturity period, the UAE inflation rate, the equity risk premium on the entities operating
from the UAE, the Group’s beta and the cost of Group’s debt. The decrease in discount rate is attributable to a decrease in the risk
free rate of US treasury bond and levered equity beta. The following are the key assumptions.
Revenue growth rate
Discount rate
Net profit rate
102
Terminal value growth rate
2017
0%
2016
5%
10.00%
11.54%
3%
3%
3%
2%
In determining the terminal value growth rate, the Group considers the long-term average CPI growth rate for the UAE which is
estimated to be c.3% by the Economist Intelligence Unit (“EIU”). Although the forecast cash flows are USD based, the terminal value
growth rate is within the UAE long-term forecasts and is considered to be more appropriate given the location of the business and
factors driving revenue and long-term growth.
As a result of the above, no impairment has been recorded and the carrying amount of property, plant and equipment at 31 December
2017 was USD 171.7 million (31 December 2016: USD 172.3 million). The carrying amount of intangible assets at 31 December 2017
was USD 31.7 million (31 December 2016: USD 24.9 million).
The headroom attributable to property, plant and equipment and intangible assets as at 31 December 2017 is USD 131.1 million.
If the discount rate used were to differ by 0.5% from management’s estimates, in isolation, there would be a reduction in the headroom
of USD 24.2 million if the discount rate was to increase or an increase in the headroom by USD 27.8 million if the discount rate was to
decrease.
If the net profit as a percentage of revenue used were to differ by 0.5% from management’s estimates, in isolation, there would
be an increase of USD 48.1 million in the headroom if the net profit was to increase or there would be a reduction in the headroom
of USD 48.1 million if the net profit was to decrease.
If the terminal value growth rate used were to differ by 0.5% from management’s estimates, in isolation, there would be a reduction in
the headroom of USD 18.6 million if the terminal value growth rate was lower or an increase in the headroom of USD 21.5 million if the
terminal value growth rate was higher.
4.2.4 Provision for warranty
Warranty provisions are recognised in respect of assurance warranties provided in the normal course of business relating to contract
performance. They are based on previous claims history and it is expected that most of the costs in respect of these provisions
will be incurred over the next one to two years. For first-of-a-kind projects, management makes use of a number of assumptions in
determining the provision for potential warranty claims based on the scope and nature of work, confidence gathered from inspections
and quality control during project execution and previous claim history for projects that closely mirror the type of works involved.
The application of a 10% sensitivity to management estimates of the provision for warranty claim would result in an increase in
provision for warranty claims by USD 0.7 million or a decrease of USD 0.7 million.
4.2.5 Carrying amount of inventory
Inventories comprise raw materials, finished goods, work-in-progress and consumables which are stated at the lower of cost and
estimated net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated
costs of completion and the estimated costs necessary to make the sale. Determining these estimates involves use of assumptions
pertaining to the expected realisable values of inventory in the current market. Based on the review performed at year end, no write
down or reversal of previous write downs has been recognised (2016: write down of USD 2.0 million). The application of a 10%
sensitivity to management estimates of the net realisable value of inventory would result in a reversal of the previous write down of
USD 2.0 million if the net realisable value was higher or a decrease in inventory by USD 2.6 million if the net realisable value was lower.
5
Segment information
The Group is organised into business units, which are the Group’s operating segments and are reported to the Board of Directors, the
chief operating decision maker. These operating segments are aggregated into two reportable segments – ‘Fabrication & Engineering’
and ‘Services’ based on similar nature of the products and services, type of customer and economic characteristics.
The Fabrication & Engineering segment contains business from New Build Jackup Rigs (“NBJR”), Modules, (“MOD”), Offshore
Platforms (“OP”) and Oil and Gas Contracting Services (“OGCS”) excluding that from the Operations & Maintenance manpower
business. The Services segment contains business from Operations & Maintenance, manpower supply and safety services.
NBJR derives its revenue from assembly and new build construction for the offshore oil & gas and renewables sectors; MOD derives
its revenue from fabricating packaged, pre-assembled and modularised units and constructing accommodation and complex
process modules for onshore downstream projects; OP derives its revenue from construction of complex living quarters, wellhead
decks, topsides, jackets and other offshore fixed facilities; and OGCS derives its revenue from rig refurbishment, land rig services,
engineering and construction. Operations and maintenance derives its revenue from manpower supply and ancillary services.
Year ended 31 December 2017
Revenue from external customers
Gross operating (loss)/profit
Year ended 31 December 2016
Revenue from external customers
Gross operating profit
Fabrication &
Engineering
USD’000
Services
USD’000
Total
USD’000
324,351
(19,599)
46,088
16,096
370,439
(3,503)
668,835
99,436
36,159
14,174
704,994
113,610
103
Sales between segments are carried out on agreed terms. The revenue from external parties reported to the Board of Directors is
measured in a manner consistent with that in the consolidated income statement.
The reconciliation of the gross operating profit is provided as follows:
Gross operating (loss)/profit for the Fabrication & Engineering segment as reported to the Board of Directors
Gross operating profit for the Service segments as reported to the Board of Directors
Unallocated:
Employee and equipment costs
Repairs and maintenance
Yard rent and depreciation
Others
Gross (loss)/profit
Impairment loss1 (Note 17)
Selling and distribution expenses (Note 7)
General and administrative expenses (Note 9)
Other gains/(losses) – net (Note 12)
Finance costs (Note 11)
Finance income (Note 11)
Others
2017
USD’000
(19,599)
16,096
(17,754)
(6,151)
(13,689)
(9,069)
(50,166)
–
(717)
(40,197)
877
(9,019)
3,875
(2,750)
2016
USD’000
99,436
14,174
(23,151)
(10,147)
(12,798)
(10,311)
57,203
(180,539)
(798)
(51,763)
1,944
(12,822)
2,895
1,690
Loss for the year from continuing operations
(98,097)
(182,190)
1. The impairment loss of USD 180.5 million recognised during the prior year in respect of goodwill was attributable to the Fabrication & Engineering reportable segment.
Information about segment assets and liabilities is not reported to or used by the Board of Directors and, accordingly, no measures
of segment assets and liabilities are reported. The breakdown of revenue from all services is as follows:
Fabrication & Engineering
New build jackup rigs
Oil and Gas Contracting Services
Modules
Offshore platforms
Services
Operations & Maintenance, manpower supply and safety services
2017
USD’000
2016
USD’000
49,437
131,300
2,960
140,653
46,089
370,439
567,585
47,648
40,809
12,793
36,159
704,994
The Board of Directors assesses 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.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
5
Segment information continued
The Group’s principal place of business is in the UAE. The revenue recognised in the UAE with respect to external customers
is USD 366.2 million (2016: USD 700.4 million), and the revenue recognised from other countries is USD 4.2 million
(2016: USD 4.6 million).
Certain customers individually accounted for greater than 10% of the Group’s revenue and are shown in the table below:
External customer A
External customer B
External customer C
2017
USD’000
130,715
65,115
34,170
230,000
2016
USD’000
333,432
161,529
77,486
572,447
The revenue from these customers is attributable to the Fabrication & Engineering segment. The above customers in 2017 are not
necessarily the same customers in 2016.
Subsequent to year end, segmental reporting has changed in line with the Group’s strategic objectives. See Note 36 to the
consolidated financial statements and the strategic report page 8.
6
Cost of sales
104
Materials and related costs
Staff costs (Note 10)
Subcontract costs
Subcontract labour
Depreciation (Note 16)
Equipment hire
Yard rent
Repairs and maintenance
Write-down of inventory to net realisable value (Note 20)
Release of warranty provision
Others
7
Selling and distribution expenses
Travel
Advertising and marketing
Entertainment
Others
8
Share-based payments
Group
Amount of share-based charge (Note 10):
– relating to retention share plan
– relating to executive share option plan
– relating to performance share plan
Company
Amount of share-based charge:
– relating to retention share plan
– relating to performance share plan
2017
USD’000
135,776
105,549
99,102
28,563
18,790
10,578
6,662
6,151
–
(1,483)
10,917
2016
USD’000
304,144
134,945
128,064
26,998
22,071
8,748
6,379
10,147
2,000
(3,876)
8,171
420,605
647,791
2017
USD’000
2016
USD’000
500
136
75
6
717
575
153
66
4
798
2017
USD’000
2016
USD’000
734
115
1,576
2,425
790
–
1,935
2,725
2017
USD’000
2016
USD’000
264
899
1,163
178
574
752
8
Share-based payments continued
Retention share plan
The Company awarded shares to selected Directors, key management personnel and employees under the retention share plan that
provides an entitlement to receive these shares at no cost. These retention shares are conditional on the Directors/key management
personnel/employee completing a specified period of service (the vesting period). The awards do not entitle participants to dividend
equivalents during the vesting period and some of the awards have a performance condition. 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
2014
2015
2016
2017
Number
of shares
470,000
122,499
592,499
495,000
475,000
281,761
94,452
46,811
898,024
1,229,929
24,972
11,825
37,032
1,303,758
Vesting
period
36 months
36 months
36 months
36 months
12 months
24 months
36 months
36 months
17 months
30 months
5 months
Fair value
per share
Expected
withdrawal
rate
£1.55
£1.41
£1.20
£0.17
£0.73
£0.73
£0.73
£0.90
£0.90
£0.90
£0.90
–
–
–
–
–
–
–
–
–
–
–
105
A charge of USD 733,912 (2016: USD 789,612) 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 264,070 (2016: USD 177,749).
The Group has no legal or constructive obligation to settle the retention share awards in cash.
An analysis of the number of shares 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 2016
Shares granted under the retention share awards
Shares lapsed during the year
Shares expected to vest in future periods at 31 December 2016
Shares granted under the retention share awards
Shares vested during the year
Shares lapsed during the year
Shares expected to vest in future periods at 31 December 2017
Number of
shares
956,252
898,024
(20,000)
1,834,276
1,303,758
(407,808)
(550,205)
2,180,021
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
8
Share-based payments continued
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 have a vesting condition, 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:
At 1 January 2014
Granted in 2014
At 31 December 2014, 2015 and 2016
At 31 December 2017
–
1.41
340,855
340,855
340,855
17 Nov 2017
27 Nov 2027
Exercise
price in
£ per share
Options
Vesting date
Expiry date
The outstanding options as at 31 December 2017 have a fair value per option of £0.73 (2016: £0.73). A charge of USD 114,742
(2016: USD Nil) is recognised in the consolidated income statement for the year with a corresponding credit to the consolidated
retained earnings.
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 is assessed against financial metrics that may include relative or absolute total shareholder return, cumulative EBIDTA and end
of period backlog. 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.
106
The details of the shares granted under this scheme are as follows:
Grant date
2014
30 June 2014
18 November 2014
18 November 2014
2015
9 April 2015
9 April 2015
21 September 2015
2016
10 October 2016
10 October 2016
10 October 2016
10 October 2016
10 October 2016
10 October 2016
2017
2 October 2017
2 October 2017
Number of
shares
Vesting
period
Fair value
per share
Dividend
entitlement
Expected
withdrawal
rate
1,080,142
321,691
321,691
1,723,524
416,569
1,537,739
292,570
2,246,878
1,306,266
2,255,602
55,219
102,019
147,330
133,830
4,000,266
1,049,827
1,527,295
2,577,122
36 months
24 months
36 months
36 months
36 months
–
36 months
36 months
12 months
24 months
36 months
–
36 months
36 months
£1.35
£1.41
£1.23
£1.05
£1.05
£0.67
£0.45
£0.45
£0.38
£0.42
£0.44
£0.41
£0.76
£0.76
No
No
No
No
No
No
No
No
No
No
No
No
No
No
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Accordingly, a charge of USD 1,576,344 (2016: USD 1,935,350) 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 898,603 (2016: USD 574,798).
8
Share-based payments continued
Performance share plan continued
The Group has no legal or constructive obligation to settle the retention 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 2016
Shares granted under performance share plan
Shares vested under performance share plan
Shares lapsed due to non-satisfaction of vesting conditions
Shares expected to vest in future periods at 31 December 2016
Shares granted under performance share plan
Shares vested under performance share plan
Shares lapsed due to non-satisfaction of vesting conditions
Shares expected to vest in future periods at 31 December 2017
9
General and administrative expenses
Staff costs (Note 10)
Depreciation (Note 16)
Amortisation of intangible assets (Note 17)
Legal, professional and consultancy fees
Utilities and communication
Bank charges
Provision for impairment of trade receivables, net of amounts recovered
Staff redundancy expenses (Note 33)
Potential partnership expenses
Others
10 Staff costs
Wages and salaries
Employees’ end of service benefits (Note 26)
Share-based payments – value of services provided (Note 8)
Other benefits
Staff costs are included in:
Cost of sales (Note 6)
General and administrative expenses (Note 9)
Number of employees at 31 December
Subcontracted employees at 31 December
Total number of employees (staff and subcontracted) at 31 December
107
Number of
shares
3,828,414
4,000,266
(321,691)
(1,089,193)
6,417,796
2,577,122
(225,335)
(1,641,912)
7,127,671
2017
USD’000
22,200
2016
USD’000
25,770
3,849
3,535
3,504
1,375
137
51
–
–
5,546
40,197
2017
USD’000
111,046
5,154
2,425
9,124
127,749
105,549
22,200
127,749
5,320
1,833
7,153
3,030
3,147
3,736
1,744
181
977
3,361
3,373
6,444
51,763
2016
USD’000
136,638
6,075
2,725
15,277
160,715
134,945
25,770
160,715
5,189
573
5,762
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
10 Staff costs continued
Directors’ remuneration comprises:
Executive Directors
John Kennedy1
Christopher McDonald
Jim Moffat
Antony Wright
Non-Executive Directors
John Kennedy1
John Malcolm2
Ellis Armstrong
Mel Fitzgerald
Debra Valentine
Nicholas Garrett3
James Dewar4
Salary
2017
Fees
2017
USD’000
USD’000
Allowances
& benefits
2017
USD’000
Share-based
payments
value of
services
provided
2017
Post
employment
benefits
2017
Total
2017
Total
2016
USD’000
USD’000
USD’000
USD’000
347
700
–
410
39
–
–
–
–
–
–
1,496
–
–
–
–
–
137
116
89
88
67
15
512
–
237
–
213
–
–
–
–
–
–
–
60
577
–
174
–
–
–
–
–
–
–
–
41
–
31
–
–
–
–
–
–
–
407
1,555
–
828
39
137
116
89
88
67
15
1,014
420
1,020
805
–
103
133
92
99
–
–
450
811
72
3,341
3,686
1. Changed to Non-Executive Chairman on 23 April 2017 and retired as Non-Executive Director on 20 September 2017.
2. Appointed as Non-Executive Chairman and Director from 20 September 2017.
3. Appointed as Non-Executive Director with effect from 24 March 2017.
4. Appointed as Non-Executive Director with effect from 1 November 2017.
The emoluments of the highest paid Director were USD 1.6 million (2016: USD 1.0 million) and these principally comprised salary,
share-based payment and benefits.
108
11 Finance costs – net
Finance costs
Interest on bank borrowings
Commitment fees
Others
Bank guarantee charges
2017
USD’000
2016
USD’000
2,587
2,417
2,219
1,796
9,019
3,317
3,637
2,137
3,731
12,822
Finance income
Finance income comprises interest income of USD 3.9 million (2016: USD 2.9 million) from bank deposits.
12 Other gains/(losses) – net
Exchange gain – net
Profit on disposal of assets
Gain/(loss) on derivative financial instruments
Others
13 Earnings per share
2017
USD’000
2016
USD’000
727
263
89
(202)
877
539
621
(234)
1,018
1,944
(a) Basic
Basic earnings/(loss) per share is calculated by dividing the (loss)/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 24).
(b) Diluted
Diluted earnings/(loss) 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 retention share awards, options under executive share option plan and
performance share plan, a calculation is performed 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 loss per share are based on the following loss and numbers of shares:
Loss for the year
Loss for the year from discontinued operations
Weighted average number of shares for basic loss per share
Adjustments for:
– Assumed vesting of performance share plan
– Assumed vesting of retention share plan
Weighted average number of shares for diluted loss per share
2017
USD’000
2016
USD’000
(98,097)
(184,315)
–
(2,125)
341,710,302
341,655,353
–
–
–
–
341,710,302
341,655,353
Assumed vesting of performance and retention share plans amounting to 3,786,640 (2016: 2,467,849) shares and 609,471
(2016: 700,303) shares respectively have been excluded in the current period as these are anti-dilutive.
109
Loss per share:
Basic
Diluted
Loss per share from continuing operations:
Basic
Diluted
Loss per share from discontinued operations:
Basic
Diluted
2017
USD’000
2016
USD’000
(28.70)c
(28.70)c
(28.70)c
(28.70)c
–
–
(53.94)c
(53.94)c
(53.32)c
(53.32)c
(0.62)c
(0.62)c
Lamprell plc Annual Report and Accounts 2017
Financial statements
Notes to the consolidated
financial statements
14 Operating (loss)/profit
(a) Operating (loss)/profit
Operating loss (from continuing operations) is stated after charging/recognising:
Provision for onerous contract (Note 4)
Depreciation (Note 16)
Operating lease rentals – land and buildings
Provision for impairment of trade receivables
Impairment of goodwill (Note 17)
Write-down of inventory to net realisable value (Note 20)
(b) Auditor’s remuneration
Services provided by the Group’s auditor and its associates comprised:
Audit of parent company and consolidated financial statements
Audit of Group companies pursuant to legislation
Interim review of parent company and consolidated financial statements
Other audit related service
110
15 Financial instruments by category
The accounting policies for financial instruments have been applied to the line items below:
Group
Assets as per balance sheet
Trade receivables – net of provision (Note 21)
Other receivables excluding prepayments
Due from related parties (Note 23)
Derivative financial instruments (Note 27)
Cash and bank balances (Note 22)
Liabilities as per balance sheet
Derivative financial instruments (Note 27)
Trade payables (Note 28)
Due to a related party (Note 23)
Accruals (Note 28)
Classification
Loans and receivables
Loans and receivables
Loans and receivables
Fair value through profit or loss
Loans and receivables
Classification
Derivatives used for hedging
Liabilities at amortised cost
Liabilities at amortised cost
Liabilities at amortised cost
Provision for warranty costs and other liabilities (Note 29)
Liabilities at amortised cost
Borrowings (Note 30)
Liabilities at amortised cost
2017
USD’000
2016
USD’000
80,000
22,638
10,195
33
–
–
–
25,101
11,872
977
180,539
2,000
2017
USD’000
2016
USD’000
419
49
116
12
596
302
90
116
12
520
2017
USD’000
2016
USD’000
33,942
4,275
12,951
1,666
296,443
349,277
83,943
17,967
109
173
334,670
436,862
2017
USD’000
2016
USD’000
–
47,897
28
149,833
7,475
39,491
244,724
1,259
31,662
228
111,022
7,958
59,484
211,613
15 Financial instruments by category continued
Company
Assets as per balance sheet
Cash and bank balance
Due from related parties (Note 23)
Other receivables
Liabilities as per balance sheet
Accruals
Due to related parties (Note 23)
Classification
Loans and receivables
Loans and receivables
Loans and receivables
Classification
Liabilities at amortised cost
Liabilities at amortised cost
2017
USD’000
2016
USD’000
163
16,936
242
17,341
264
13,694
357
14,315
2017
USD’000
2016
USD’000
1,241
3,155
4,396
564
–
564
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
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.
None of the financial assets that are fully performing have been renegotiated in the last year.
Cash at bank and short-term bank deposits
Fitch’s ratings
AA-
A+
A
BBB
BBB-
B
Not rated
Cash in hand
Cash and bank balances and term and margin deposits (Note 22)
Company
Due from related parties (Note 23)
Due from related parties is neither past due nor impaired.
Cash at bank
Fitch’s ratings
AA-
2017
USD’000
2016
USD’000
111
13,482
7,575
2,322
23,379
57,315
975
17,733
76,023
2017
USD’000
2016
USD’000
73,923
157,474
62,773
–
404
737
202
39,884
259,389
33,420
395
13
620
202
295,513
333,923
930
747
296,443
334,670
2017
USD’000
16,936
2016
USD’000
13,694
2017
USD’000
2016
USD’000
163
264
Lamprell plc Annual Report and Accounts 2017
Financial statements
Notes to the consolidated
financial statements
16 Property, plant and equipment
Buildings &
infrastructure
USD’000
Operating
equipment
USD’000
Fixtures
and office
equipment
USD’000
Motor
vehicles
USD’000
Capital
work-in-
progress
USD’000
Cost
At 1 January 2016
Additions
Disposals
Transfers
At 31 December 2016
Additions
Disposals
Transfers
At 31 December 2017
Depreciation
At 1 January 2016
Charge for the year
Disposals
At 31 December 2016
Charge for the year
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
112
138,131
4,166
(147)
3,973
146,123
295
–
6,798
153,216
(43,151)
(7,661)
98
(50,714)
(9,204)
–
(59,918)
93,298
95,409
153,325
4,643
(19,803)
8,551
146,716
8,011
(3,394)
896
16,542
155
(711)
982
16,968
154
–
44
152,229
17,166
(93,461)
(15,652)
19,216
(89,897)
(11,750)
3,393
(98,254)
53,975
56,819
(14,388)
(1,315)
711
(14,992)
(1,218)
–
(16,210)
956
1,976
4,249
196
(1,040)
36
3,441
49
(135)
112
3,467
(2,610)
(473)
948
(2,135)
(466)
111
(2,490)
977
1,306
Total
USD’000
328,896
22,871
(21,701)
–
330,066
22,060
(3,529)
–
348,597
(153,610)
(25,101)
20,973
(157,738)
(22,638)
3,504
(176,872)
16,649
13,711
–
(13,542)
16,818
13,551
–
(7,850)
22,519
–
–
–
–
–
–
–
22,519
16,818
171,725
172,328
Buildings have been constructed on land, leased on a renewable basis from various Government Authorities. The remaining lives of
the leases range between two to twenty one 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.
Property, plant and equipment with a carrying amount of USD 104.4 million (2016: USD 109.3 million) are under lien against the
bank facilities (Note 30).
A depreciation expense of USD 18.8 million (2016: USD 22.1 million) has been charged to cost of sales; USD 3.8 million
(2016: USD 3.0 million) to general and administrative expenses (Notes 6 and 9).
Capital work-in-progress represents the cost incurred towards construction and upgrade of infrastructure and operating equipment.
Refer to Note 4 for details of the impairment assessments performed at year end and key assumptions.
17
Intangible assets
Cost
At 1 January 2016
Additions
At 31 December 2016
Additions
At 31 December 2017
Amortisation and impairment
At 1 January 2016
Charge for the year (Note 9)
Impairment
At 31 December 2016
Charge for the year (Note 9)
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Goodwill
USD’000
Trade name
USD’000
Customer
relationships
USD’000
Leasehold
rights
USD’000
Software
USD’000
Work-in-
progress
USD’000
Total
USD’000
180,539
–
180,539
–
180,539
–
–
180,539
180,539
–
180,539
–
–
22,335
–
22,335
–
22,335
12,339
1,804
–
14,143
1,804
15,947
6,388
8,192
19,323
–
19,323
–
19,323
19,323
–
–
19,323
–
19,323
8,338
–
8,338
8,694
17,032
2,454
488
–
2,942
831
3,773
11,528
2,753
14,281
65
14,346
2,063
855
–
2,918
900
3,818
–
–
–
1,540
1,540
–
–
–
–
–
–
–
–
13,259
5,396
10,528
11,363
1,540
–
242,063
2,753
244,816
10,299
255,115
36,179
3,147
180,539
219,865
3,535
223,400
31,715
24,951
Trade name represents the expected future economic benefit to be derived from the continued use of the MIS trade name acquired
through the acquisition of MIS.
113
Leasehold rights represent a favourable operating right acquired upon the acquisition of MIS and existing leasehold rights in the books
of MIS on acquisition of Rig Metals LLC in 2008. The value of the intangible assets has been determined by calculating the present
value of the expected future economic benefits to arise from the favourable lease terms of 10 to 15 years.
During the period, Sharjah Electricity and Water Authority completed the construction and installation of an electric mainline to the
Group’s Hamriyah facility. The Group has right of use and the cost incurred by the Group of USD 8.7 million has been capitalised as
an intangible asset and will be amortised over the remaining period of the leasehold rights of the facility.
The Group amortises intangible assets with a limited useful life using the straight-line method over the following periods:
Trade name
Leasehold rights
Software
Years
10
10 – 16
15
The Group carries out an impairment review whenever events or changes in circumstance indicate that the carrying value of intangible
assets may not be recoverable. Management performs review at cash generating unit relating to fabrication and engineering segments
assets located at United Arab Emirates.
Recoverable amount of the cash generating unit (CGU) has been determined based on value in use calculations. These calculations
require the use of estimates. These calculations use pre-tax cash flow projections based on financial budgets approved by
management covering a three-year period. Cash flows beyond the three-year period are extrapolated using the estimated growth
rate stated below. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates.
The discount rate used is pre-tax and reflects the specific risks to the relevant cash generating unit.
The key assumptions, revenue growth rate, discount rate, net profit rate and terminal value growth rate used in the value-in-use
calculations for the CGU is as follows:
Revenue growth rate¹
Discount rate2
Net profit rate³
Terminal value growth rate⁴
2017
0%
10%
3%
3%
2016
5%
11.54%
3%
2%
1. Revenue growth rate for the first three-year period is based on the Group budget. Beyond this period, the growth rate is determined based upon past performance
and management expectations of future market development which includes various assumptions relating to market outlook, contract awards and contract margins.
In determining the appropriate discount rate, the Group considers the weighted average cost of capital employed, which takes into consideration the risk free rate
of US treasury bonds with a long-term maturity period, the UAE inflation rate, an equity risk premium on the entities operating from the UAE, the Group’s beta and
the cost of the Group’s debt.
2.
3. Net profit rate for the first three-year period is based on the Group budget. Beyond this period, the net profit rate is determined based upon management expectations
of future market development.
4. Terminal value growth rate is based upon management expectations of future market development. See Note 4.2.3 for details.
As a result of the above, no impairment has been recorded during the year (2016: USD 180.5 million) and the carrying amount
of intangible assets at 31 December 2017 was USD 31.7 million (31 December 2016: USD 24.9 million).
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
18
Investment in subsidiaries
Balance at 1 January
Share-based payments to employees of subsidiaries in accordance with IFRS 2
Impaired during the year
Balance at 31 December
2017
USD’000
554,448
1,262
–
555,710
2016
USD’000
692,569
1,973
(140,094)
554,448
The recoverable amount of the investment in subsidiaries is determined based on value-in-use calculations. These calculations use
pre-tax cash flow projections based on financial budgets approved by management covering a three-year period.
Cash flows beyond the three-year period are extrapolated using the estimated revenue growth rate of 0% (2016: 5%). A discount
rate of 10.00% (2016: 11.54%) is used to discount the pre-tax cash flows projections to the present value. In determining the
appropriate discount rate, the Group considers the weighted average cost of capital employed, which takes into consideration
the risk free rate of US treasury bonds with a long-term maturity period, the UAE inflation rate, the equity risk premium on the
entities operating from the UAE, the Group’s beta and the cost of Group’s debt. In determining the terminal value growth rate, the
Group considers the long-term average CPI growth rate for the UAE which is estimated to be c.3% by the Economist Intelligence Unit
(“EIU”). Although the forecast cash flows are USD based, the terminal value growth rate is within the UAE long-term forecasts and is
considered to be more appropriate given the location of the business and factors driving revenue and long-term growth. Based on
these calculations, an impairment charge of USD Nil (2016: USD 140.1 million) with respect to the investment in LEL was recognised
during the year (Note 25).
114
The Company granted retention and performance shares to employees of its subsidiaries under various plans (Note 8). These
shares have a vesting period that ranges five to thirty six months. Accordingly, the proportionate share-based charge for the year
of USD 1.3 million (2016: USD 2.0 million) has been recorded as an increase in investment in subsidiaries with a corresponding
credit to retained earnings.
19
Investment accounted for using the equity method
Group
At 1 January
Dividend received during the year
Investment in an associate
Share of (loss)/profit of investments accounted for using the equity method – net
At 31 December
Details of the associates during the year and at the balance sheet date are as follows:
Name of the associate
Place of incorporation and operation
Maritime Industrial Services Arabia Co. Ltd. (“MISA”)¹
Jubail, Kingdom of Saudi Arabia
International Maritime Industries (“IMI”)²
Ras Al Khair, Kingdom of Saudi Arabia
2017
USD’000
7,229
(2,137)
23,375
(2,559)
25,908
2016
USD’000
5,285
–
–
1,944
7,229
Proportion of
ownership
Status
30%
20%
Operational
Operational
1. Production, manufacturing and erection of heat exchangers, pressure vessels, tanks, structural steel, piping and other related activities.
2. Establishment, development and operation of a maritime yard for the construction, maintenance and repair of offshore drilling rigs and vessels.
Refer to the Chief Executive’s review on page 18 for further details on IMI.
Investment in an associate – MISA
At 1 January
Dividend received during the year
Share of profit for the year
At 31 December
2017
USD’000
2016
USD’000
7,229
(2,137)
1,933
7,025
5,285
–
1,944
7,229
19
Investment accounted for using the equity method continued
Investment in an associate – MISA continued
Summarised financial information in respect of the Group’s associate is set out below:
Total non-current assets
Total current assets
Total non-current liabilities
Total current liabilities (excluding income tax payable)
Net assets (excluding income tax payable)
Income tax payable
Net assets
Group’s share of associate’s net assets (excluding income tax payable) – 30%
Group’s share of associate’s income tax payable
Group’s share of associate’s net assets – net of the Group’s share of income tax
Revenue
Expenses
Profit before tax
Group’s share of associate’s net profit – net of the Group’s share of income tax
MISA is a private company and there is no quoted market price available for its shares.
This Group has the following contingencies and commitments relating to the Group’s interest in the associate.
Letters of guarantee
Operating lease commitments
2017
USD’000
7,305
47,236
(26,511)
(3,005)
25,025
(1,047)
23,978
7,508
(483)
7,025
60,089
2016
USD’000
7,305
46,553
(25,140)
(3,005)
25,713
(1,053)
24,660
7,714
(485)
7,229
56,221
(52,034)
(48,122)
8,055
1,933
8,099
1,944
115
2017
USD’000
2016
USD’000
4,040
290
2,172
284
Investment in an associate – IMI
During the year, the Group along with its partners formed International Maritime Industries. The investment has been accounted
by the Group as an associate and the details of the associate are as follows:
At 1 January
Investment made during the year
Share of loss for the year
At 31 December
Summarised financial information in respect of the Group’s associate is set out below:
Total non-current assets
Total current assets
Total current liabilities
Net assets
Group’s share of associate’s net assets – 20%
Acquisition cost capitalisation
Carrying amount at 31 December
Revenue
Expenses
Loss before tax
Group’s share of associate’s net loss – net of the Group’s share of income tax
IMI is a private company and there is no quoted market price available for its shares.
The Group has the following contingencies and commitments relating to the Group’s interest in the associate.
Operating lease commitments
2017
USD’000
–
23,375
(4,492)
18,883
2017
USD’000
36,077
100,000
(58,539)
77,538
15,508
3,375
18,883
–
(22,462)
(22,462)
(4,492)
2017
USD’000
977
Lamprell plc Annual Report and Accounts 2017 20
Inventories
Raw materials, consumables and finished goods
Work in progress
Less: Provision for slow moving and obsolete inventories
Financial statements
Notes to the consolidated
financial statements
2017
USD’000
26,267
26,287
(2,045)
50,509
2016
USD’000
27,989
–
(3,574)
24,415
The cost of inventories recognised as an expense amounts to USD 17.1 million (2016: USD 21.8 million) and this includes USD Nil
(2016: USD 2.0 million) in respect of write-down of inventory to net realisable value.
21 Trade and other receivables
Trade receivables
Other receivables and prepayments
Advance to suppliers
Receivables from a related party (Note 23)
Less: Provision for impairment of trade receivables
116
Amounts due from customers on contracts
Contract work in progress
Non-current portion:
Prepayments
Current portion
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
Past due but not impaired
Impaired
2017
USD’000
2016
USD’000
39,259
12,559
2,402
12,951
67,171
(5,317)
61,854
67,800
35,051
164,705
89,431
38,244
17,556
109
145,340
(5,488)
139,852
127,809
7,661
275,322
839
163,866
10,905
264,417
2017
USD’000
951,263
57,099
2016
USD’000
1,644,890
299,154
1,008,362
1,944,044
(940,562)
(1,816,235)
67,800
127,809
2017
USD’000
23,379
10,563
5,317
39,259
2016
USD’000
76,023
7,920
5,488
89,431
At 31 December 2017, trade receivables of USD 10.6 million (2016: USD 7.9 million) were past due but not impaired. These relate
to a number of independent customers for whom there is no recent history of default.
Up to 3 months
3 to 6 months
Over 6 months
2017
USD’000
2016
USD’000
7,459
757
2,347
10,563
5,863
566
1,491
7,920
At 31 December 2017, trade receivables of USD 5.3 million (2016: USD 5.5 million) were impaired and provided for. The individually
impaired receivables mainly relate to customers who are in a difficult economic situation. The ageing analysis of these trade
receivables is as follows:
Over 6 months
2017
USD’000
5,317
2016
USD’000
5,488
The carrying amounts of the Group’s trade and other receivables are primarily denominated in US Dollars or UAE Dirhams, which are
pegged to the US Dollar.
21 Trade and other receivables continued
Movements on the provision for impairment of trade receivables are as follows:
At 1 January
Provision for impairment of receivables
Receivables written off during the year as uncollectable
Amounts recovered during the year
At 31 December
2017
USD’000
2016
USD’000
5,488
83
(204)
(50)
5,317
5,220
1,894
(709)
(917)
5,488
The creation and release of the provision for impaired receivables have been included in general and administrative expenses
in the consolidated income statement (Note 9). 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 receivables mentioned above.
The carrying value of trade receivables approximates to their fair value.
22 Cash and bank balances
Group
Cash at bank and on hand
Term deposits and margin deposits – Current
Cash and bank balances
Term deposits and margin deposits – Non-current
Less: Margin/short-term deposits under lien
Less: Deposits with original maturity of more than three months
Cash and cash equivalents (for the purpose of the cash flow statement)
117
2017
USD’000
45,087
237,930
283,017
13,426
(8,101)
(183,580)
104,762
2016
USD’000
88,491
239,402
327,893
6,777
(10,983)
(78,173)
245,514
At 31 December 2017, the cash at bank and short-term deposits were held with 14 banks (2016: 13 banks). The effective
interest rate on short-term deposits was 1.54% (2016: 1.46%) per annum. Margin and short-term deposits of USD 8.1 million
(2016: USD 11.0 million) and deposits with an original maturity of more than three months amounting to USD 41.6 million
(2016: USD 75.8 million) are held under lien against guarantees issued by the banks (Note 35).
Company
Cash and bank balance comprises of cash held with one bank (2016: one bank).
23 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 and entities controlled by Directors and key management
personnel. Key management includes the Directors and members of the Executive Committee. Related parties, for the purpose of
the parent company financial statements, also include subsidiaries owned directly or indirectly and joint ventures. Other than those
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:
Group
Key management compensation
Legal and professional services
Sales to associates
Purchases from associates
Re-chargeable expenses to associates
Sponsorship fees and commissions paid to legal shareholders of subsidiaries (Note 1)
Company
Key management compensation
Revenue (management fees charged to subsidiaries)
2017
USD’000
6,828
–
427
147
12,951
308
2016
USD’000
6,824
58
109
243
–
326
2017
USD’000
2016
USD’000
2,829
7,619
3,258
6,723
Lamprell plc Annual Report and Accounts 2017 23 Related party balances and transactions continued
Key management compensation comprises:
Group
Salaries and other short-term benefits
Share-based payments – value of services provided
Post-employment benefits
Company
Salaries and other short-term benefits
Share-based payments – value of services provided
Post-employment benefits
Financial statements
Notes to the consolidated
financial statements
2017
USD’000
2016
USD’000
5,252
1,335
241
6,828
5,313
1,337
174
6,824
2017
USD’000
2016
USD’000
1,947
811
71
2,829
2,438
752
68
3,258
The terms of the employment contracts of the key management include reciprocal notice periods of between three to twelve months.
Due from/due to related parties
Due from related parties
118
Group
MISA (in respect of sales to associate) (Note 21)
IMI (In respect of expenses on behalf of associate)
Company
MIS1
EBT2
LEL
MOL3
IMI3
2017
USD’000
2016
USD’000
–
12,951
12,951
11,241
210
–
3,375
2,110
16,936
109
–
109
11,231
210
2,253
–
–
13,694
1. Primarily comprises a receivable in respect of management fees charged by the Company.
2. Primarily comprises of payments made for treasury shares acquired by EBT on behalf of the Group.
3. Primarily comprises of a receivable in respect of expenses incurred for IMI.
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.
Due to a related party
Group
MISA (in respect of purchases) (associate) (Note 28)
Company
LEL (in respect of expenses incurred on behalf of the Company)
2017
USD’000
2016
USD’000
28
3,155
228
–
24 Share capital and share premium
Issued and fully paid ordinary shares
Group/Company
At 1 January 2016 and 31 December 2016
At 31 December 2017
Equity
Number
Share capital
USD’000
341,726,570
341,726,570
30,346
30,346
Share
premium
USD’000
315,995
315,995
The total authorised number of ordinary shares is 400 million shares (2016: 400 million shares) with a par value of 5 pence per share
(2016: 5 pence per share).
During 2017, Lamprell plc employee benefit trust (“EBT”) acquired 474,551 shares (2016: 376,691 shares) of the Company. The total
amount paid to acquire the shares was USD 654,817 (2016: USD 542,539) and has been deducted from the consolidated retained
earnings. During 2017, 474,551 shares (2016: 361,691) were issued to employees and 16,268 shares (31 December 2016: 16,268
shares) were held as treasury shares at 31 December 2017. The Company has the right to reissue these shares at a later date. These
shares will be issued on vesting of the retention shares/performance shares/share options granted to certain employees of the Group.
25 Other reserves
Group
At 1 January 2016
Currency translation differences
Loss on cash flow hedges (Note 27)
At 31 December 2016
Currency translation differences
Gain on cash flow hedges (Note 27)
At 31 December 2017
Legal
reserve
USD’000
98
–
–
98
–
–
98
Merger
reserve
USD’000
(18,572)
–
–
(18,572)
–
–
(18,572)
Hedge
reserve
USD’000
Translation
reserve
USD’000
119
Total
USD’000
(19,144)
(290)
(1,259)
(20,693)
(49)
2,619
(670)
(290)
–
(960)
(49)
–
(1,009)
(18,123)
–
–
(1,259)
(1,259)
–
2,619
1,360
Legal reserve
The Legal reserve relates to subsidiaries (other than the subsidiaries incorporated in free zones) in the UAE and the State of Qatar.
In accordance with the laws of the respective countries, the Group has established a statutory reserve by appropriating 10% of the
profit for the year of such companies. Such transfers are required to be made until the reserve is equal to, at least, 50% (UAE) and
33.3% (State of Qatar) of the issued share capital of such companies. The legal reserve is not available for distribution.
Merger reserve
On 11 September 2006, the Group acquired 100% of the legal and beneficial ownership of Inspec from LHL for a consideration of
USD 4 million. This acquisition was accounted for using the uniting of interest method.
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 interest method.
Company
Other reserve
At 1 January
Transferred to retained earnings (Note 18)
At 31 December
2017
USD’000
189,059
–
189,059
2016
USD’000
329,153
(140,094)
189,059
The other reserve arose on acquisition of LEL and is not available for distribution. However, transfers may be made to retained
earnings in an amount equal to any impairments recognised.
Lamprell plc Annual Report and Accounts 2017 Financial statements
Notes to the consolidated
financial statements
26 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 2017 and 2016, using the projected unit credit method, in respect of employees’ end of service benefits payable under
the Labour Laws of the countries in which the Group operates. 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 obligation for end of service
benefit is not funded.
The movement in the employees’ end of service benefit liability over the periods is as follows:
Group
At 1 January
Current service cost
Interest cost
Remeasurements
Benefits paid
At 31 December
2017
USD’000
34,745
3,414
1,740
829
(6,599)
34,129
2016
USD’000
42,863
4,879
1,196
(1,523)
(12,670)
34,745
Remeasurements consist of actuarial loss from a change in demographic assumptions USD Nil (2016: actuarial gain of
USD 1.8 million), a change in financial assumptions USD 1.9 million (2016: Nil) and a change in other experiences USD 1.2 million
(2016: actuarial loss of USD 0.3 million).
Company
120
At 1 January
Current service cost
Interest cost
Remeasurements
Benefits paid
At 31 December
Group
The amounts recognised in the consolidated income statement are as follows:
Current service cost
Interest cost
Total (included in staff costs) (Note 10)
The above charges are included in cost of sales and general and administrative expenses.
Company
Current service cost
Interest cost
Total (included in staff costs)
2017
USD’000
2016
USD’000
173
53
5
52
(66)
217
121
61
7
(16)
–
173
2017
USD’000
2016
USD’000
3,414
1,740
5,154
4,879
1,196
6,075
2017
USD’000
2016
USD’000
53
5
58
61
7
68
The above charge of USD 0.1 million (2016: 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
2017
3.20%
2.00%
2.00%
2016
3.50%
2.00%
2.00%
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 for such bonds, the market yields on government bonds
should be used. In the UAE, there is no deep market for corporate bonds and no market for 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 3.2% (2016: 3.5%).
26 Provision for employees’ end of service benefits continued
The rates used for future salary increase are long-term assumptions which take into account inflation, relevant factors in the
employment market and the Group’s own expectations. There are no changes in the future salary increase rate for Yard employees.
It is retained at 2% (2016: 2%).
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:
Yard employees:
20 – 29 years
30 – 44 years
45 – 59 years
60 years and above
Management and administrative employees:
20 – 29 years
30 – 44 years
45 – 54 years
55 – 59 years
60 years and above
Executive Directors:
35 – 39 years
40 – 64 years
65 years and above
27 Derivative financial instruments
Forward contracts
Interest rate swaps
Total
Non-current portion:
Forward contracts
Interest rate swaps
Current portion
Notional
contract
amount
USD’000
28,950
40,000
68,950
–
20,000
48,950
2017
Assets
USD’000
Liabilities
USD’000
1,359
307
1,666
–
153
1,513
–
–
–
–
–
–
Percentage of employees at each
age exiting the plan per year
2017
16%
10%
6%
100%
8%
6%
4%
1%
2016
16%
10%
6%
100%
8%
6%
4%
1%
100%
100%
121
10%
7%
100%
10%
7%
100%
2016
Notional
contract
amount
USD’000
51,731
60,000
111,731
40,179
40,000
31,552
Assets
USD’000
Liabilities
USD’000
–
173
173
–
115
58
1,259
–
1,259
794
–
465
The Group has an interest rate swap to switch floating interest rates to fixed interest rates on the Group’s borrowings. This derivative
did not qualify for hedge accounting and is carried at fair value through profit or loss. The notional principal amount at the date of
inception of these contracts was USD 100 million. This contract matures in various instalments within fifty seven months from the date
of inception. The fair value at 31 December 2017 of this derivative was USD 0.3 million (2016: USD 0.2 million).
During 2016, the Group designated foreign currency forward contracts as hedges of highly probable purchases of fixed assets
and material in EUR, GBP and NOK. The forecast purchases are expected to occur during 2017 and 2018. The terms of the forward
contracts have been negotiated to match the terms of the forecast transactions. Consequently, the hedges were assessed to be highly
effective and an unrealised gain of USD 1.3 million (2016: unrealised loss of USD 1.2 million) relating to the forward contracts
is included in other comprehensive income.
Lamprell plc Annual Report and Accounts 2017 28 Trade and other payables
Trade payables
Accruals and other payables
Payables to a related party (Note 23)
Amounts due to customers on contracts
Amounts due to customers on contracts comprise:
Progress billings
Less: Cost incurred to date
Less: Recognised profits
Financial statements
Notes to the consolidated
financial statements
2017
USD’000
47,897
149,833
28
2,815
200,573
133,597
(112,711)
(18,071)
2,815
2016
USD’000
31,662
111,022
228
37,109
180,021
339,528
(247,867)
(54,552)
37,109
Accruals and other payables includes provision of USD 41.7 million (2016: Nil) relating to estimated losses to completion on the
EA1 project (Note 4.2.2).
29 Provision for warranty costs and other liabilities
122
At 1 January 2016
Charge during the year
Released/utilised during the year
At 31 December 2016
Charge during the year
Released/utilised during the year
At 31 December 2017
Warranty
costs
USD’000
8,100
3,500
(3,876)
7,724
1,000
(1,483)
7,241
Minimum
purchase
obligations
USD’000
234
–
–
234
–
–
234
Total
USD’000
8,334
3,500
(3,876)
7,958
1,000
(1,483)
7,475
Warranty costs charged during the year relates to management’s assessment of potential claims under contractual warranty
provisions. The charge during the year is included in subcontract cost in Note 6.
30 Borrowings
Bank term loans
The bank borrowings are repayable as follows:
Current (less than 1 year)
Non-current (later than 1 year but not later than 5 years)
2017
USD’000
39,491
2016
USD’000
59,484
39,491
–
39,491
20,321
39,163
59,484
At 31 December 2017, the Group has banking facilities of USD 924 million (2016: USD 1,362 million) with commercial banks.
The facilities include bank overdrafts, letters of guarantees, letters of credit and short-term loans.
Bank facilities are secured by liens over term deposits of USD 54.5 million (2016: USD 91.2 million) (Note 22), the Group’s counter
indemnities for guarantees issued on their behalf, the Group’s corporate guarantees, letter of undertakings, letter of credit payment
guarantees, cash margin held against letters of guarantees, shares of certain subsidiaries, certain property, plant and equipment,
movable assets, leasehold rights for land and certain contract related receivables.
The Group’s debt facilities are subjected to covenant clauses, whereby the Group is required to meet certain key financial ratios.
The Group did not fulfil the tangible net worth financial covenant contained within its debt facilities due to the magnitude of the loss
on the EA1 Project stated in Note 4.
Due to this breach of the covenant clause, the banks are contractually entitled to request for immediate repayment of the outstanding
loan amount of USD 39.4 million. However, Management are in discussion with the banks to waive this requirement. The outstanding
balance has been reclassified and presented as current liability as at 31 December 2017.
On 14 March 2018, subsequent to the year end, the Group obtained a waiver from its lenders which reduces the tangible net worth
covenant (see Note 36).
The borrowings are stated net of the unamortised arrangement fees and other transaction costs of USD 0.5 million
(2016: USD 0.8 million) and including accrued interest of USD 0.1 million (2016: USD 0.3 million).
The bank facilities relating to overdrafts, term loans and revolving facilities carry interest at LIBOR +3.5%. However, the Group has
entered into an interest rate swap against the variable interest rate on its term loan facility to convert the LIBOR component into a fixed
interest rate of 1.2375% (2016: 1.2375%).
The carrying amounts of borrowings in the year approximated to their fair value and were denominated in US Dollars or UAE Dirhams,
which are pegged to the US Dollar.
30 Borrowings continued
Reconciliation of liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s
consolidated cash flows as cash flows from financing activities.
Bank terms loans
Current
Non-current
Total
1 January
2017
USD’000
Repayment
during the
year
USD’000
Other
changes1
USD’000
Classification
adjustment
USD’000
31 December
2017
USD’000
31 December
2016
USD’000
20,321
39,163
59,484
–
(20,000)
(20,000)
(313)
320
7
19,483
(19,483)
–
39,491
–
39,491
20,321
39,163
59,484
1. Other changes include interest accruals, payments and adjustment to capitalised borrowing costs.
31 Profit of the Company
The loss of USD 1.3 million (2016: loss of USD 140.0 million) in respect of the Company is included in these consolidated
financial statements.
32 Dividends
There were no dividends declared or paid during the year ended 31 December 2017 or 31 December 2016.
123
33
Exceptional items
Exceptional items comprises of:
Impairment of goodwill (Note 17)
Staff redundancy expenses (Note 9)
34 Commitments
2017
USD’000
–
–
–
2016
USD’000
180,539
3,361
183,900
(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 four to twenty 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
2017
USD’000
2016
USD’000
7,943
23,982
77,493
6,528
23,997
76,264
109,418
106,789
Maritime yard commitments
(b)
The Group has entered into commitments associated with the investment in International Maritime Industries (Note 19). Under the
Shareholders’ Agreement, the Group will invest up to a maximum of USD 140.0 million in relation to its commitment over the course of
construction of the Maritime Yard between 2017 and 2022 with USD 20.0 million already paid to date. This excludes expenses directly
attributable to formation of yard of USD 3.0 million which have been capitalised. The forecast contributions are as follows:
Not later than one year
Later than one year but not later than four years
(c) Other commitments
Capital commitments for construction of facilities
Capital commitments for purchase of operating equipment and computer software
Purchase commitments for rig kits
2017
USD’000
2016
USD’000
38,500
81,500
120,000
–
–
–
2017
USD’000
8,937
144
41,199
2016
USD’000
10,347
345
51,659
Lamprell plc Annual Report and Accounts 2017 35 Bank guarantees
Performance/bid bonds
Advance payment, labour visa and payment guarantees
Financial statements
Notes to the consolidated
financial statements
2017
USD’000
120,012
50,350
170,362
2016
USD’000
163,812
240,383
404,195
The various bank guarantees, as above, were issued by the Group’s bankers in the ordinary course of business. Certain guarantees
are secured by 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 company guarantees. In the opinion of the management, the above bank
guarantees are unlikely to result in any liability to the Group.
36 Events after the balance sheet date
Reportable segment
On 2 February 2018, the Group has been structured to approach opportunities by way of our strategic objectives in Rigs, EPC(I)
and Contracting Services.
This constitutes a change in strategic objectives of the business and how it is reported and viewed by the Directors. This has had
no financial impact to the reportable segments disclosed in Note 5 as the revised segments will be reported effective from 2018
financial statements, being the period in which the strategic structuring of the business occurred. These will comprise of:
Rigs: contains business from new build jackup rigs, land rigs and rig refurbishment. These have been reported under
Fabrication & Engineering segment in Note 5;
EPC(I): contains business from modules, offshore platforms and engineering and construction (excluding site works). These have
been reported under Fabrication & Engineering segment in Note 5;
Contracting Services: comprises of site works, operations and maintenance, manpower supply and safety services. These have been
reported under Services segment in Note 5 except for site works which is reported under Fabrication & Engineering segment.
124
Refer to strategic report on page 8 for further details.
Waiver of loan covenant
As explained in Note 30, as at 31 December 2017 the Group did not fulfil the tangible net worth financial covenant contained within its
debt facility. On 14 March 2018, subsequent to the year end, the Group obtained a waiver from its lenders which reduces the tangible
net worth covenant for the periods ended 31 December 2017, 30 June 2018 and 31 December 2018.
37 Cash generated from operating activities
Operating activities
Loss before income tax including discontinued operations
Adjustments for:
Release of excess tax provision
Impairment of goodwill
Share-based payments – value of services provided
Depreciation
Amortisation of intangible assets
Share of profit/(loss) from investment in joint ventures
Release for warranty costs and other liabilities
Profit on disposal of property, plant and equipment
Provision for slow moving and obsolete inventories
(Release)/provision for impairment of trade receivables, net of amounts recovered
Provision for employees’ end of service benefits
Gain/(loss) on derivative financial instruments
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/(release)
Derivative financial instruments
Trade and other receivables before movement in provision for impairment of trade receivables
Trade and other payables
Cash generated from operating activities
Year ended 31 December
Notes
USD’000
2017
2016
USD’000
(97,906)
(184,061)
17
8
16
17
19
20
26
11
26
–
–
2,425
22,638
3,535
2,559
(483)
(263)
(1,529)
(171)
5,154
2,619
9,019
(3,875)
(56,278)
(6,599)
(24,565)
(2,752)
102,261
20,552
32,619
(260)
180,539
2,725
25,101
3,147
(1,944)
(376)
(621)
1,119
977
6,075
(1,259)
12,822
(2,895)
41,089
(12,670)
3,532
1,068
152,027
(84,922)
100,124
Financial statements
Glossary
GLOSSARY
“AED”
United Arab Emirates Dirham
“ADNOC”
Abu Dhabi National Oil Company
“AGM”
“AIM”
“API”
“ASME”
“bn”
“Board” or
“Directors”
“BP”
“BSc”
“CBL”
“CDP”
“CEO”
“CfD”
“CFO”
“CGU”
“CO₂e”
“Code”
Annual General Meeting
Alternative Investment Market – a market
operated by the London Stock Exchange
Group plc
American Petroleum Institute
American Society of Mechanical Engineers
Billion
the Board of Directors of the Company
British Petroleum
Bachelor of Science
Cleopatra Barges Limited
Carbon Disclosure Project
Chief Executive Officer
Contract for Difference
Chief Financial Officer
Cash Generating Unit
Carbon Dioxide equivalent
UK Corporate Governance Code 2014
“Company”
Lamprell plc
“CSR”
Corporate Social Responsibility
“DAFWC”
Day away from work case
“EA1”
“E&C”
“EBITDA”
“EBT”
“EGM”
“EMS”
“EPC”
“EPC(I)”
“EPS”
“ERM”
“ERP”
East Anglia One
Engineering & Construction
Earnings before Interest, Taxes, Depreciation
and Amortisation
Lamprell plc Employee Benefit Trust
Extraordinary General Meeting
Environmental Management System
Engineering, Procurement and Construction
Engineering, Procurement, Construction
and Installation
Earnings Per Share
Enterprise Risk Management
Enterprise Resource Planning
“ESOP”
“EU”
“FCAW”
“FID”
“FPSO”
“FPU”
“FRC”
“FSP”
“FTSE”
“FZCO”
“GBP”
“GCC”
“GIC”
“Group”
“GW”
“HR”
“HSES”
“HSESQ”
“HVAC”
“HVDC”
“HHI”
“HMC”
“HMRC”
“IA”
“lAS”
“IFRS”
“IHS”
“IKTVA”
“IMI”
“IOC”
“ISO”
“IST”
“IT”
“JD”
“JGC”
125
Lamprell plc Executive Share Option Plan
European Union
Flux Cored Arc Welding
Final Investment Decision
Floating, Production, Storage and Offloading
Floating Production Units
Financial Reporting Council
Free Share Plan
Financial Times Stock Exchange index
Free Zone Company
Great Britain Pound
Gulf Cooperation Council
Global Investment Co. Ltd. Inc
The Company and its subsidiaries
Gigawatts
Human Resources
Health, Safety, Environment, and Security
Health, Safety, Environment, Security
and Quality
Heating Ventilation & Air Conditioning
High Voltage Direct Current
Hyundai Heavy Industries
Heerema Marine Contractors
Her Majesty's Revenue & Customs
Internal Audit
International Accounting Standards
International Financial Reporting Standards
Information Handling Services
In Kingdom Total Value Add
Industrial Maritime Industries
International Oil Company
International Organization for Standardization
Information Systems & Technology
Information Technology
Juris Doctor
Japanese Gas Corporation
Lamprell plc Annual Report and Accounts 2017 Financial statements
Glossary
“OGCS”
“OHSAS”
“OP”
“OPEC”
“OSV”
“PhD”
Oil and Gas Contracting Services
Occupational Health and Safety
Assessment Series
Offshore Platforms
Organization of the Petroleum
Exporting Countries
Offshore Supply Vessel
Philosophiae doctor
“QA/QC”
Quality Assurance Quality Control
“QC”
“RIM”
“RSP”
Quality Control
Rig Metals LLC
Retention Share Plan
“SOAP”
Safety Observation Audit Programme
“SPR”
“STIP”
“TRIR”
“TSR”
“UAE”
“UK”
“United States”
or “US”
“USD”
“UZ750”
“VAT”
ScottishPower Renewables
Short-Term Incentive Plan
Total Recordable Injury Rate
Total Shareholder Return
the Federation of the United Arab Emirates
United Kingdom
the United States of America
US Dollar
Upper Zakum 750
Value Added Tax
“VLCC’s”
Very Large Crude Carriers
“VP”
“WTIV”
Vice-President
Wind Turbine Installation Vessel
“JPMC”
J.P. Morgan Cazenove
“JV”
“KBR”
“KPI”
“KSA”
Joint Venture
Kellogg Brown & Root
Key Performance Indicators
Kingdom of Saudi Arabia
126
“Labour Law”
UAE Labour Law (Federal Law No. 8 of 1980
(as amended))
“Lamprell”
the Company and its subsidiary undertakings
“LD”
“LEL”
“LHL”
“LIH”
“LNG”
“LS”
“LSE”
“LTA”
“LTIP”
“m”
“MAR”
“MENA”
“MIL”
“MIS”
“MISA”
“MISCLP”
Lamprell Dubai LLC
Lamprell Energy Limited
Lamprell Holdings Limited
Lamprell Investment Holdings Limited
Liquid Natural Gas
Lamprell Sharjah WLL
London Stock Exchange Group plc
Long Term Agreement
Long-Term Incentive Plan
Million
Market Abuse Regulation
Middle East North Africa
Maurlis International Ltd. Inc.
Maritime Industrial Services Co. Ltd. Inc.
Maritime Industrial Services Arabia Co. Ltd.
Maritime Industrial Services Co. Ltd. &
Partners
“MISQWLL”
MIS Qatar LLC
“MOCL”
“MOD”
“MOL”
“MRO”
“MW”
“NBJR”
“NBS”
“NDC”
“NED”
“NOC”
“O&M”
Maritime Offshore Construction Limited
Modules
Maritime Offshore Limited
Maintenance, Repair & Overhaul
Megawatts
New Build Jackup Rigs
New Bridge Street
National Drilling Company
Non-Executive Director
National Oil Company
Operations & Maintenance
Financial statements
Additional information
ADDITIONAL
INFORMATION
Alternative performance measures
EBITDA
In addition to measuring financial performance of the Group based on operating profit, we also measure performance based on
EBITDA and underlying EBITDA (also referred to as adjusted EBITDA). EBITDA is defined as the Group (loss)/profit for the year from
continuing operation before depreciation, amortisation, net finance expense and taxation. Underlying EBITDA is defined as EBITDA
before non-recurring items or certain accounting adjustments that do not reflect changes in performance.
We consider EBITDA and underlying EBITDA to be useful measures of our operating performance because they approximate the
operating cash flow by eliminating depreciation and amortisation. EBITDA and underlying EBITDA are not direct measures of our
liquidity, which is shown by our cash flow statement, and need to be considered in the context of our financial commitments.
127
A reconciliation from Group (loss)/profit for the year from continuing operation, the most directly comparable IFRS measure, to reported
and underlying EBITDA, is set out below:
(Loss)/profit for the year from continuing operations
Exceptional items (Note 33)
Depreciation (Note 16)
Amortisation (Note 17)
Interest on bank borrowings (Note 11)
Finance income (Note 11)
Tax
Share of loss/(profit) of investments – net (Note 19)
EBITDA
Settlement agreement with Ensco
Underlying EBITDA
Underlying EBITDA margin
Year ended 31 December
2017
USD’000
(98,097)
–
22,638
3,535
2,587
(3,875)
191
2,559
(70,462)
–
(70,462)
(19.0%)
2016
USD’000
(182,190)
183,900
25,101
3,147
3,317
(2,895)
254
–
30,634
42,629
73,243
4.3%
2015
USD’000
66,500
–
19,378
2,624
3,588
(2,679)
541
–
89,952
–
89,952
10.3%
Net cash
Measures financial health after deduction of liabilities such as borrowings. A reconciliation from the cash and cash equivalents per the
consolidated cash flow statement, the most directly comparable IFRS measure, to reported net cash, is set out below:
Cash and cash equivalents (Note 22)
Margin/short-term deposits under lien (Note 22)
Deposits with original maturity of more than three months (Note 22)
Borrowings (Note 30)
Net cash
2017
USD’000
104,762
8,101
183,580
(39,491)
256,952
2016
USD’000
245,514
10,983
78,173
(59,484)
275,186
2015
USD’000
224,126
11,787
53,667
(79,299)
210,281
Lamprell plc Annual Report and Accounts 2017 Financial statements
Additional information
Underlying gross (loss)/profit
Underlying gross (loss)/profit is defined as gross (loss)/profit before non-recurring items or certain accounting adjustments that can
mask underlying changes in performance. A reconciliation from Group gross (loss)/profit, the most directly comparable IFRS measure,
to reported and underlying gross (loss)/profit, is set out below:
Gross (loss)/profit
128
Settlement agreement with Ensco
Underlying gross (loss)/profit
Normalised underlying margins
2017
USD’000
(50,166)
–
(50,166)
(13.54%)
2016
USD’000
57,203
42,629
99,832
14.16%
2015
USD’000
123,520
–
123,520
14.18%
Normalised underlying margins are calculated as underlying gross (loss)/profit shown above as a percentage of the Group’s revenue.
Underlying profitability
Underlying profitability is defined as (loss)/profit for the year from continuing operation before non-recurring items or certain
accounting adjustments that do not reflect changes in performance. A reconciliation from (loss)/profit for the year from continuing
operations, the most directly comparable IFRS measure, to reported and underlying profitability, is set out below:
(Loss)/profit for the year from continuing operations
Exceptional items (Note 33)
Settlement agreement with Ensco
Underlying profitability
2017
USD’000
(98,097)
–
–
(98,097)
2016
USD’000
(182,190)
183,900
42,629
44,339
2015
USD’000
66,500
–
–
66,500
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Lamprell plc
Registered office
First Names House
Victoria Road
Douglas
Isle of Man
IM2 4DF
Operations
PO Box 33455
Dubai
United Arab Emirates
Tel +971 6 528 2323
Fax +971 6 528 4325
Email lamprell@lamprell.com
www.lamprell.com
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Certifications:
Bureau Veritas
ISO 9001:2015
ISO/TS 29001:2010
OHSAS 18001:2007
ISO 14001:2015
ISO 27001:2013
ASME
National Board
Monogram Licences
API QMS
API - Q1
TRACE
U,S,PP,U2
NB, R
8C-0182
16C-0202
16D-0075
4F-0094
4F-0227
4F-0281
7K-0303
2B-0133
2C-0113
2427
Q1-1322