Delivering on
our strategic priorities
L
a
m
p
r
e
l
l
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
8
Lamprell plc Annual Report and Accounts 2018
Who we are
Lamprell is a key player in the 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
Lamprell provides engineering, procurement, construction
and other contracting services to the energy industries.
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, rig refurbishment projects, and provide
related oil & gas contracting services.
Contents
Strategic report
Corporate governance
Remuneration
Financial statements
56 Directors’ Remuneration Report
57 Directors’ Remuneration Policy
Our primary financial statements
and supporting notes.
Report
62 Directors’ Annual Report on
70
Remuneration
68 Statutory information and
Directors’ statements
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 financial statements
131 Glossary
132 Additional information
Introduction and 2018 highlights
01
02 Our core services
04 Our strategic positioning
06 Our markets, pipeline and future
opportunities
08 Our business model
10 Our strategy in action
18 Statement from our Chairman
20 Report from our Chief Executive
22 Review of our finances
24 Our key performance indicators
26 Review of our operations
28 Our sustainable approach
34 Principal risks and uncertainties
37 Viability statement
Including information on our Board,
Committees, leadership team and
remuneration.
38 Our Board of Directors
40 Directors’ Report,
letter from the Chairman
42 Directors’ Report
50 Nomination and Governance
Committee Report
52 Audit and Risk Committee Report
* Throughout the Annual Report we use
a range of financial and non-financial
measures to assess our performance. A
number of the financial measures, including
underlying profitability, underlying gross
profit, underlying gross profit margin,
underlying EBITDA and net cash are
not defined under IFRS, and are termed
‘Alternative Performance Measures’ (APMs).
Management uses these measures to
monitor the Group’s financial performance
alongside IFRS measures because they help
evaluate the ongoing financial performance
and position of the Group. We have defined
and explained the purpose of each of
these measures on page 132, where we
provide more detail, including reconciliations
to the closest equivalent measure under
IFRS. These APMs should be considered
in addition to, and not as a substitute for,
or as superior to, measures of financial
performance, financial position or cash flows
reported in accordance with IFRS. APMs
are not uniformly defined by all companies,
including those in the Group’s industry.
Accordingly, APMs may not be comparable
with similarly titled measures and disclosures
by other companies.
Cover image: Master Marine “Haven”
accommodation vessel
Inside cover image: EDC Mercury jackup rig
Strategic report
2018 highlights
Record safety performance with TRIR of 0.15
Progressed in the Renewables market with the contract
award of 48 jacket foundations
Delivered on Saudi strategy with inclusion on LTA programme
Maintained leading rig position with the new LOI for two new
orders in 2018
Nearing completion on challenging East Anglia One project
In advanced discussions with lenders for new debt facility
Increased bid pipeline to USD 6.4 billion by year-end
L
a
m
p
r
e
l
l
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
8
2018 financial highlights*
Revenue
234.1
(USD million)
EBITDA
(35.1)
(USD million)
Net (loss)/profit
(70.7)
(USD million)
2017: USD 370.4m
2017: USD (70.5)m
2017: USD (98.1)m
(Loss)/earnings
per share – diluted
(20.67)
(US cents)
Net cash
80.0
(USD million)
2017: (28.70)c
2017: USD 257.0m
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
Turn to page 6
to learn more about our
markets and opportunities
Turn to page 22
for a more detailed
review of our finances
Turn to page 34
for a review
of our key risks
01
Oil & Gas
Oil & Gas
Renewables
Renewables
Our core services
Rigs
32%
Group revenue
Markets
EPC(I) projects
43%
Group revenue
Markets
Jackup rigs and vessels: Lamprell is a leading and reliable builder
of drilling rigs and multi-purpose vessels for the international market.
As part of our commitment to continuous improvement in our yards,
Lamprell invested in the installation of an automatic panel line which
improves the efficiency of construction of the rig hulls. To date, the
Company has successfully delivered a total of 34 self-elevating units
since its listing in 2006, comprising of 21 LeTourneau Super 116E’s,
seven Friede & Goldman Super M2’s and six multi-purpose GustoMSC
vessels.
Refurbishment: Lamprell provides a full suite of refurbishment
services for jackup rigs including re-certification, conversions
and major upgrades. Lamprell was originally founded as a rig
refurbishment company in the mid-1970’s and is a trusted leader
in the region, delivering safe, high-quality products.
Land rigs: We build and refurbish land rigs from our UAE facilities as
well as provide field and drilling equipment refurbishment services
across the Middle East.
KEY
Oil & gas markets
Renewable market
Engineering: Lamprell provides a range of solutions from design
engineering to detailed and construction engineering. This is delivered
by a team of experienced multi-discipline engineers and designers
using the latest engineering software and 3D modelling techniques.
Procurement: We provide value-driven purchasing solutions and
volume leveraged pricing through tested processes, systems and
market knowledge. From bid phase through to project award and
execution, our use of automation and optimal logistic solutions help to
ensure cost certainty, on-time delivery and completion of projects.
Construction: Construction and fabrication are core service offerings,
and Lamprell provides efficiency and automation through our highly
sophisticated yards. We are fully equipped with an API certified
mechanical workshop, a T-beam fabrication system, automated beam
cutting systems and we use the latest modern welding equipment.
We also have a new state-of-the-art pipe shop for both carbon and
stainless steel pipe fabrication, complete with testing, blasting and
painting facilities.
Installation: Lamprell partners with leading installation service
providers to submit bids on a collaborative basis, demonstrating our
complementary strengths.
What size is Lamprell’s
workforce?
Lamprell is a multicultural
organisation which at its peak
employs more than 11,000 people
from over 40 nationalities around
the world.
What is a land rig?
A land rig comes in the form of
a large industrial structure or a
smaller mobile unit and is
designed to drill holes for water
wells, oil wells, or natural gas
extraction wells in onshore
locations.
What are jackup drilling rigs
used for?
Jackup drilling rigs are used for
offshore exploration and
development in shallow waters.
They typically drill deep into rock
formations beneath the seabed.
How many has Lamprell delivered?
Lamprell has successfully delivered six
multi-purpose self-elevating vessels since
its listing in 2006, to stringent DNV
regulations for use in both the renewables
and oil & gas markets.
Engineering
Procurement
Workforce
Training
Land rigs
Modules
4,410
Total employees
as at 31 December 2018
What kind of training
does Lamprell provide?
Lamprell’s Assessment
and Training Centre in the
UAE provides both HSE
and technical training. In
2018 the centre delivered
over 150,000 hours of
training in both fields.
What types of modules
does Lamprell fabricate?
Lamprell constructs complex process
modules as well as onshore packaged,
pre-assembled and modularised units.
We also manufacture pressure vessels
and columns that typically form
part of a module.
USD 540m
Total order book
as at 31 December 2018
02
Rig
refurbishment
New build
jackup rigs
Platforms
Multi-purpose
self-elevating vessels
Installation
What types of platforms
does Lamprell fabricate?
Platforms we fabricate include topsides,
wellhead decks, living quarters, HVDC
platforms and other offshore fixed facilities.
They can be used for a broad array of
purposes such as the extraction, storage and
processing of hydrocarbons or accommodation
of the workforce performing these activities.
Jackets and piles
What is the purpose of an offshore wind
turbine jacket and pile?
Jackets and piles are support structures that
form the base of offshore wind turbines. The
jacket is generally made up of three or four
legs and sits on top of piles and below the
breakwater supporting the wind turbine.
41
Total employee nationalities
as at 31 December 2018
Oil & Gas
Renewables
Strategic report
Contracting
services
25%
Group revenue
Markets
United by our values
How we do business is as important as what
we do. Our values unite us, define who we
are and make us distinctive. They guide our
behaviours and actions.
Site services: Site services encompass Lamprell’s smaller business
streams including Sunbelt Safety and minor E&C services. They have
an excellent reputation for bringing our strong safety and quality
culture into the yards in which they operate.
Operations & maintenance: Lamprell’s O&M team has a proven
record of high-quality performance and service, with a core workforce
including tradesmen and administrative staff. O&M provides
manpower, equipment and material services to a diverse customer
base at oil & gas and petrochemical facilities and plants, on drilling
rigs, offshore facilities, marine docks and marine vessels.
Safety: We deliver world class safety standards and leave nothing
to chance, so everybody goes home safely.
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, fairly and transparently, 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 strive to work together with our stakeholders and
believe great teams can achieve incredible results.
L
a
m
p
r
e
l
l
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
8
What size is Lamprell’s
workforce?
Lamprell is a multicultural
organisation which at its peak
employs more than 11,000 people
from over 40 nationalities around
the world.
What is a land rig?
A land rig comes in the form of
a large industrial structure or a
smaller mobile unit and is
designed to drill holes for water
wells, oil wells, or natural gas
extraction wells in onshore
locations.
What are jackup drilling rigs
used for?
Jackup drilling rigs are used for
offshore exploration and
development in shallow waters.
They typically drill deep into rock
formations beneath the seabed.
How many has Lamprell delivered?
Lamprell has successfully delivered six
multi-purpose self-elevating vessels since
its listing in 2006, to stringent DNV
regulations for use in both the renewables
and oil & gas markets.
Rig
refurbishment
New build
jackup rigs
Platforms
Multi-purpose
self-elevating vessels
Installation
What types of platforms
does Lamprell fabricate?
Platforms we fabricate include topsides,
wellhead decks, living quarters, HVDC
platforms and other offshore fixed facilities.
They can be used for a broad array of
purposes such as the extraction, storage and
processing of hydrocarbons or accommodation
of the workforce performing these activities.
Jackets and piles
What is the purpose of an offshore wind
turbine jacket and pile?
Jackets and piles are support structures that
form the base of offshore wind turbines. The
jacket is generally made up of three or four
legs and sits on top of piles and below the
breakwater supporting the wind turbine.
41
Total employee nationalities
as at 31 December 2018
Turn to page 10
to see our strategy in action
Turn to page 26
for a full review
of our operations
Turn to page 28
to learn about our
sustainable approach
03
Engineering
Procurement
Workforce
Training
Land rigs
Modules
What kind of training
does Lamprell provide?
Lamprell’s Assessment
and Training Centre in the
UAE provides both HSE
and technical training. In
2018 the centre delivered
over 150,000 hours of
training in both fields.
What types of modules
does Lamprell fabricate?
Lamprell constructs complex process
modules as well as onshore packaged,
pre-assembled and modularised units.
We also manufacture pressure vessels
and columns that typically form
part of a module.
4,410
Total employees
as at 31 December 2018
USD 540m
Total order book
as at 31 December 2018
Our strategic positioning
Lamprell’s major yards are situated in the UAE
and Saudi Arabia, which are prime locations for
accessing the major oil & gas markets in
the Middle East and other parts of the
world. We have modern quayside
facilities ensuring safe and
efficient load out of our projects
onto vessels for onward
transportation.
T a r g e t markets: Northern Europ
e s
e
a
s
North Sea
Baltic
Sea
Bid pipeline from
the North Sea and Europe
USD1.85bn
Bay of
Biscay
Rigs
EPC(I)
Contracting services
Land: Lamprell yard area (m2)
Quayside: Lamprell yard area (metres)
LATC – Lamprell's Assessment and Training Centre
04
Target markets: the Gulf, the Kingdo
m of S
a
u
di
A
r
a
b
ia
, t
h
e
Erbil
3,000m2
Ras Al Khair**
5,000,000m2
Jubail
8,600,000
metres
131,000m2
Damman
750m2
Arabian Gulf
U
n
it
e
d
A
r
a
b
E
m
i
r
a
t
e
s
a
n
d
o
t
h
e
r
r
e
g
i
o
n
s
Bid pipeline from the
Middle East and other regions
USD 4.55bn
this includes USD 600m from
specific projects in other regions
Total land m2
933,750*
Total quayside m
1,560*
Hamriyah
Sharjah
442,000m2
165,000m2
Dubai
Investment Park
Jebel Ali
1,250 metres
310 metres
29,000m2
163,000m2
* Excluding IMI yard in Saudi Arabia
** Under construction a Joint Venture
with Saudi Aramco, Bahri and HHI
Strategic report
Target markets: the Gulf, the Kingdo
m of S
a
u
di
A
r
a
b
ia
, t
h
e
U
n
it
e
d
A
r
a
b
E
m
i
r
a
t
e
s
T a r g e t markets: Northern Europ
e s
e
a
s
North Sea
Baltic
Sea
Bid pipeline from
the North Sea and Europe
USD1.85bn
Bay of
Biscay
Rigs
EPC(I)
Contracting services
Land: Lamprell yard area (m2)
Quayside: Lamprell yard area (metres)
LATC – Lamprell's Assessment and Training Centre
Erbil
3,000m2
Ras Al Khair**
5,000,000m2
Jubail
8,600,000
metres
131,000m2
Damman
750m2
Arabian Gulf
Bid pipeline from the
Middle East and other regions
USD 4.55bn
this includes USD 600m from
specific projects in other regions
Total land m2
933,750*
Total quayside m
1,560*
Hamriyah
Sharjah
442,000m2
165,000m2
Dubai
Investment Park
Jebel Ali
1,250 metres
310 metres
29,000m2
163,000m2
* Excluding IMI yard in Saudi Arabia
** Under construction a Joint Venture
with Saudi Aramco, Bahri and HHI
L
a
m
p
r
e
l
l
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
8
a
n
d
o
t
h
e
r
r
e
g
i
o
n
s
05
Our markets, pipeline
and future opportunities
Global upstream spending remains subdued
with little expectation of material changes in the
mid-term. However, in our key target markets of
Saudi Arabia and the UAE, over USD 500 billion
of investment has been announced over the next
ten years and, with local content a key factor
in award, Lamprell is well-placed to continue
to win work and build backlog.
Macro-economic factors and strategy
Primary energy demand is expected to grow
through 2040 at an annual rate of 1.2%1,
mainly driven by demand in non-OECD
regions. World GDP growth rates across the
period are a healthy 3.6%, with China and
India expecting to increase their collective
share of world GDP to 40% from 25% today1.
The world population also continues to grow,
predicted to reach 9.2 billion by 2040, driven
by people living longer (OECD and China
populations ageing) and with higher birth
rates from young populations in Africa and
the Middle East. Against this backdrop, the
Middle East is well-placed as the world’s
primary energy provider to support these
adjacent fast-growing markets, while using
the growing regional human capital to fill the
jobs that will be needed to deliver the energy
supply of the future.
Energy prices are an important driver to
page 08
Lamprell’s business model
and the oil price story in 2018 was a tale of
steady but robust increase for most of the
year, with Brent crude spot prices climbing
from USD 67/bbl at the start of the year to
reach USD 86/bbl in October 2018, a four year
high, before falling sharply to end the year at
USD 54/bbl2. The driving force for the initial
increase was the squeeze on oil supply due
to sanctions being re-imposed on Iran and the
continuing significant production decreases
witnessed in Libya and Venezuela. However,
in June OPEC decided to commit to raising
capacity by 1mbpd and this was followed
by US producers increasing production to
11mbpd to take advantage of the higher oil
prices3. This sudden extra production caused
an overshoot in supply which expanded
inventories and, set against concerns about
a possible global recession, the market
sentiment rapidly changed from concern
about undersupply to one of oversupply,
leading to price falls later in the year.
Despite high volatility in energy prices in 2018,
major producers continued to demonstrate
rapid corrective actions which helped to
stabilise the oil price within a reasonable
range. OPEC and Russia continue to work
together to align their production targets with
the aim to keep prices above USD 50/bbl4,
and US shale production is highly correlated
to USD/bbl. Essentially, while they have
different drivers, the behaviour of the
swing-producers Saudi Arabia, the US
and Russia helps to keep prices in the
range USD 50-80/bbl, and this is not
expected to change through to 20255.
Bid pipeline USD 6.4bn*
USD billion as at 31 December 2018
84%
16%
2%
60%
38%
Renewables
USD 1.85bn
Oil & gas*
USD 4.55bn
The renewable energy market continues to
attract significant attention and investment,
and is predicted to grow 6.8% annually
through 20406. Much of this growth is in
Lamprell’s area of focus, offshore wind,
where year-on-year growth in the known
global portfolio is approximately 10GW, and
now stands at 104GW6, with approximately
70% in Lamprell’s European target market.
In May 2019 the UK Contract for Difference
(CfD) Round 3 auctions will be held, and with
the improving economics of offshore wind
projects, Lamprell anticipates a significant
number of jacket-based wind farm projects
will be awarded and move to Final Investment
Decision (“FID”) shortly after.
References
1. October 2017, OPEC World Oil Outlook 2040
2.
eia (US Energy Information Administration),
Europe Brent Spot Price FOB
Petroleum Economist: https://www.petroleum-
economist.com/articles/markets/trends/2018/
the-rise-and-fall-of-oil-prices-in-2018
Bloomberg, www.bloomberg.com/news/
articles/2018-12-07/opec-said-to-agree-larger-
than-expected-output-cut-with-allies
IEA World Energy Outlook 2018, New
Policies Scenario
Renewables UK Offshore Wind Global
Intelligence, June 2018
IEA World Energy Outlook 2018
3.
4.
5.
6.
7.
8. Wood Mackenzie Research Note, October
2018, www.woodmac.com/press-releases/
upstream-capital-investment
Rystad Energy Macro Presentation,
September 2018
9.
Rigs: USD 0.3bn
EPC(I): USD 1.6bn
Rigs: USD 1.7bn
EPC(I): USD 2.7bn
Contracting services: USD 0.1bn
*Includes LTA
10. MEED https://www.meed.com/saudi-aramco-
raises-10-year-expenditure-budget-414bn
11. Press release, ADNOC Business Plan
2019-2023, www.adnoc.ae/en/news-and-
media/press-releases/2018/supreme-
petroleum-council-approves-adnocs-2019-
2023-business-plan
06
Primary energy consumption by fuel
2000
Low carbon
Gas
Oil
Coal
20
15
10
5
0
Renewables
Gas
Oil
Other
e
o
t
n
o
i
l
l
i
B
2000
2010
2020
2030
2040
Source: BP Outlook 2019
Oil & Gas
e
o
t
M
Renewables
Low carbon
Renewables market
Lamprell’s renewables focus is in the offshore wind market where
typical projects will require the supply of 50-100 jackets of circa
750-1,000 MT across a two-year project schedule6. There are
a limited number of yards in Europe and the wider fabrication
Coal
community that can serial-produce jackets on this scale, so
although the market remains competitive, successful participants
will be able to win work that allows them to continue to invest
in their production lines as well as make a reasonable return.
While Lamprell’s primary focus remains on building jacket-based
foundations, we also seek discrete opportunities to leverage
our fabrication capacity to move up the value chain into a wider
EPC(I) role, in partnership with a transportation and installation
provider
500
page 10.
Gas
Oil
1500
1000
In December 2018 Lamprell was delighted to be selected by
GeoSea Procurement and Shipping Luxembourg (“GPSL”) for the
Moray East wind farm project, whereby Lamprell will build 45 wind
0
turbine jacket foundations and three offshore substation jacket
foundations for delivery in 2020
the continuing steady stream of high-quality project enquiries
Dev
Dev
Dev
confirm our view that the market for Lamprell’s products is strong,
Advanced and developing economies
and that we will continue to bid and secure renewables projects
for the foreseeable future.
page 16. This success, and
Change in total primary energy demand 2017- 40 in the NPS
Adv
Adv
Adv
Adv
Dev
-500
Industry
Power
Other
Passenger Cars
Petrochemicals
Other
Renewables
Power
The opportunity pipeline is based largely on the European
Other
Nuclear
market, although we are pursuing work opportunistically in other
geographies that are committing to offshore wind such as the
USA and Taiwan. The UK leads the world in offshore wind6,
and investment is expected to continue when the Round 3 CfD
auction is launched May 2019; a number of jacket-based
projects are expected to be successful in the auction, and they
will reach FID in 2019/20. European projects typically carry
certain in-country spending requirements which benefit local
fabrication yards; however, we believe that the regional mass-
fabrication capacity will be greatly restrained by the large volume
of work expected between 2020 and 2023. This is likely to lead
to upward price pressure and/or projects being implemented
over longer schedules.
Outside of jacket-based projects, Lamprell is selectively pursuing
HVAC/DC substation projects where we can participate in an
EPC(I)-type role, consistent with our strategic objective to move
up the supply chain. We also continue to receive enquiries to
construct wind transport installation vessels which are evaluated
through our bid/no-bid process.
1500
The energy shift to
gas and renewables
The global energy mix is undergoing a dramatic change, with the
mix of energy sources becoming more diversified than ever. This
transformation is being driven by a variety of factors including
transportation electrification, the rise of renewables, the upheaval in oil
supply dynamics and the globalisation of gas supply. Through the period
to 2040, energy demand will grow by more than 25%, and the majority
of the new supply required to fill this demand will come from gas and
renewables, requiring over USD 2 trillion/year7 of new investment. In
particular the change in energy mix will support continued rapid growth
in areas such as LNG and offshore wind. While the change presents
major investment opportunities, the pace of change will increase
volatility and uncertainty in meeting the shifting demand mix, and
governments will play a critical role in how they plan and implement
policies to manage the transformation.
1000
500
0
-500
-1000
Advanced
economies
Emerging
economies
Oil & Gas
Oil & gas market
Global upstream investment is expected to remain restrained
in 2019, with spending of USD 425 billion essentially flat
with 2016 and 2017, and significantly reduced from the
USD 770 billion high of 20148. IOC’s remain committed to
Renewables
returning cash to shareholders and will continue to make
disciplined spending decisions, accumulating record levels of
free cash9. The recent lack of investment means that, for the
seventh year in a row, liquids discoveries have fallen far below
liquids demand9 suggesting in the mid- to long-term that there
will be a supply issue and considerable volatility in energy prices.
2040
2020
There have been no orders for new build jackup rigs over the
past four years and the majority of the current fleet has been
in operation for over 20 years. Whilst in a capex-constrained
environment the market is relying on refurbishment and upgrade
rather than new equipment, the utilisation rate of premium rigs
9
clearly exceeds that of more basic ageing models. As technology
advances, we expect the efficiency of the new generation rigs
to take priority over the coming years, with new build orders
resuming gradually in the mid- to long-term.
2000
6
0
3
Energy consumption by region
Billion tonnes of oil equivalent
12
15
18
OECD
Other Asia
India
Rest of world
Africa
Saudi Aramco announced plans to invest USD 400 billion over
the next ten years10 and, a significant portion will be directed
towards local companies using its “In-Kingdom Total Value Add”
(“IKTVA”) programme.
China
Lamprell has demonstrated its commitment to Saudi Arabia with
the USD 140 million equity investment in the IMI yard. Over a 10-
year period, Saudi Aramco (through its ARO Drilling joint venture)
will place orders with the IMI yard to construct a minimum of
20 jackup drilling rigs. Furthermore, in December 2018 Saudi
Aramco selected Lamprell (with our partner) for inclusion on the
page 14. The LTA is the contractual vehicle
LTA programme
by which Saudi Aramco awards EPCI contracts for major offshore
capital projects in support of its “Offshore Maintain Potential
Program”. The LTA contract has a duration of 6+3+3 years and,
while not guaranteeing work for Lamprell, it does increase our bid
pipeline potentially by more than USD 3 billion per annum.
ADNOC has similarly announced a major capital investment
programme of USD 132 billion across 2019-202311, and this
will translate into opportunities in both drilling (land rigs, rig
refurbishment and potentially new build jack-ups) and EPC(I)
projects, including major offshore developments. In 2017 ADNOC
implemented their In-Country Value (“ICV”) programme that
encourages investment in the UAE and gives preference to
bidders who have high UAE content. Lamprell has been a major
investor in the UAE for four decades and has a correspondingly
high ICV score, thereby enhancing our prospects for benefiting
from this programme.
07
Lamprell plc Annual Report and Accounts 2018Strategic report
Our business model
Our flexible business model adapts to changing
circumstances and we aim to deliver predictable,
sustainable and profitable growth through a robust
strategy, strong management
and leading operational
performance.
s
e
ur core s e r v i c
O
We reinvest profits and
experience back into our
business for continuous
improvement
What we aim to deliver
to our stakeholders
Clients
High quality assets and services
that help them to produce energy
safely, efficiently and
cost-effectively
Shareholders
Profits, cash flow and dividends
W
e
o
u
t
p
u
t
h
i
g
h
-
q
u
a
l
i
t
y
r
e
l
i
a
Rigs
EPC(I)
Contracting
services
page 2
page 2
page 3
What we are good at:
Clients trust us to listen to them, adapt to
their needs and deliver value for money.
They seek safe execution of projects,
a competitive delivery model, reliability,
delivery excellence, local content and
risk transfer.
We deliver excellence in safety, quality,
fiscal accountability, reliability, integrity,
productivity, accountability, client
relationships, teamwork and continuous
improvement.
page 03 for
our values
Employees
Secure jobs, investment in training and health care
b
l
e
Suppliers
a
s
s
e
t
s
Repeat contracts with growth of projects
Joint venture partners
a
n
Exchange of skills and experiences
d
s
ervic
es w
Community
Employment and charitable
support
How we generate profit
Profitability derives initially from
understanding the project scope at the
bidding stage and submitting a proposal to
clients which is underpinned by a cost base
reflecting the scope and which includes a
reasonable and competitive margin. After
award, the Project Managers lead our
teams to execute projects in accordance
with the cost base in the proposal, leaving
the margin which generates profit.
hich aim to deliver value to all our stakeholders
08
We input people, intellectual property, financial assets, relationships, processes, infra
What we need to operate effectively
People
• Values driven Board of Directors
• Experienced management teams
• Qualified, experienced workforce
Intellectual property
• Specialist industry knowledge
• High levels of technical expertise
Financial assets
• Solid balance sheet
• Targeted capital investment
Relationships
• Close partnerships with clients
• Effective relationships with key
Infrastructure
• Geographically well
positioned facilities
• Deep water quaysides
• State-of-the-art facilities
• Owned plant and equipment
stru
ctu
r
e
,
s
u
p
Business development
• Compelling and competitive bids
• Risk-based estimation process
• Experienced proposals team
p
li
e
s
a
n
d
stakeholders
Processes
• Enterprise resources planning
• Powerful IT infrastructure
• Project management systems
• Embedded risk management
Supplies
• Wide range of materials suppliers
• Strong supply chain network
Key target
markets
Oil & Gas
Renewables
How we identify and secure opportunities
Rigs
• Invitation to tender
comes via a rig broker
• Fluid bidding process
• 2-3 month bidding
process
B I D BID
BID
BID
BID
EPC(I)
• Invitation to tender
comes directly from
ultimate client or via
an EPCI contractor
requiring third party
services
• Rigid bidding process
• 6-12 month bidding
process
Contracting services
• Invitation to tender
comes directly from
the client or via a
contractor requiring
third party services
• Bidding is based on a
time and material basis
• Very short bidding
process
How we execute projects
The agreement between Lamprell and its customers
They also feed back lessons learned on their
provides the contractual structure and roadmap
project(s) to improve future performance.
for the Project Managers to complete their respective
projects. The Project Manager roles are crucial: they
are accountable for setting up a project and executing
it in accordance with the bid cost basis, for liaising
with clients on progress and change management
and for involving all other functions, whether internal
or external, to provide such specialist support as may
be required.
We rely on our supply chain to deliver materials
and/or services as agreed, both in terms of quality
and time. The network of suppliers feeds into our
automated project management and entterprise
resource planning systems, which are two of
the foundations for successful
project execution.
s to d eliver useful prod
We create value by combining our skills, cost discipline, exp e r i e n c e a n d c
e
a l u
e v
r
o
b
u
s
i
n
e
s
s
d
e
v
e
l
o
p
m
e
n
t
s
e
vic
r
e
cts or s
u
s
e
ur core s e r v i c
O
We reinvest profits and
experience back into our
business for continuous
improvement
What we aim to deliver
to our stakeholders
Clients
High quality assets and services
that help them to produce energy
safely, efficiently and
cost-effectively
Shareholders
Profits, cash flow and dividends
W
e
o
u
t
p
u
t
h
i
g
h
-
q
u
a
l
i
t
y
r
e
l
i
a
Rigs
EPC(I)
Contracting
services
page 2
page 2
page 3
What we are good at:
Clients trust us to listen to them, adapt to
their needs and deliver value for money.
They seek safe execution of projects,
a competitive delivery model, reliability,
delivery excellence, local content and
risk transfer.
We deliver excellence in safety, quality,
fiscal accountability, reliability, integrity,
productivity, accountability, client
relationships, teamwork and continuous
improvement.
page 03 for
our values
Employees
Secure jobs, investment in training and health care
b
l
e
Suppliers
Repeat contracts with growth of projects
a
s
s
e
t
s
a
n
d
s
Joint venture partners
Exchange of skills and experiences
ervic
es w
Community
Employment and charitable
support
How we generate profit
Profitability derives initially from
understanding the project scope at the
bidding stage and submitting a proposal to
clients which is underpinned by a cost base
reflecting the scope and which includes a
reasonable and competitive margin. After
award, the Project Managers lead our
teams to execute projects in accordance
with the cost base in the proposal, leaving
the margin which generates profit.
hich aim to deliver value to all our stakeholders
We input people, intellectual property, financial assets, relationships, processes, infra
What we need to operate effectively
People
• Values driven Board of Directors
• Experienced management teams
• Qualified, experienced workforce
Intellectual property
• Specialist industry knowledge
• High levels of technical expertise
Financial assets
• Solid balance sheet
• Targeted capital investment
Relationships
• Close partnerships with clients
• Effective relationships with key
stakeholders
Processes
• Enterprise resources planning
• Powerful IT infrastructure
• Project management systems
• Embedded risk management
Key target
markets
Supplies
• Wide range of materials suppliers
• Strong supply chain network
stru
ctu
r
e
,
s
Infrastructure
• Geographically well
positioned facilities
• Deep water quaysides
• State-of-the-art facilities
• Owned plant and equipment
Business development
• Compelling and competitive bids
• Risk-based estimation process
• Experienced proposals team
u
p
p
li
e
s
a
n
d
b
u
s
i
n
e
s
s
d
e
v
e
l
o
p
m
e
n
t
Oil & Gas
Renewables
How we identify and secure opportunities
Rigs
• Invitation to tender
comes via a rig broker
• Fluid bidding process
• 2-3 month bidding
process
B I D BID
BID
BID
BID
EPC(I)
• Invitation to tender
comes directly from
ultimate client or via
an EPCI contractor
requiring third party
services
• Rigid bidding process
• 6-12 month bidding
process
Contracting services
• Invitation to tender
comes directly from
the client or via a
contractor requiring
third party services
• Bidding is based on a
time and material basis
• Very short bidding
process
How we execute projects
The agreement between Lamprell and its customers
provides the contractual structure and roadmap
for the Project Managers to complete their respective
projects. The Project Manager roles are crucial: they
are accountable for setting up a project and executing
it in accordance with the bid cost basis, for liaising
with clients on progress and change management
and for involving all other functions, whether internal
or external, to provide such specialist support as may
be required.
They also feed back lessons learned on their
project(s) to improve future performance.
We rely on our supply chain to deliver materials
and/or services as agreed, both in terms of quality
and time. The network of suppliers feeds into our
automated project management and entterprise
resource planning systems, which are two of
the foundations for successful
project execution.
s to d eliver useful prod
e
a l u
We create value by combining our skills, cost discipline, exp e r i e n c e a n d c
e v
r
o
s
e
vic
r
e
cts or s
u
09
Lamprell plc Annual Report and Accounts 2018Strategic report
Our strategy in action
Strategic objectives:
Maintain market
leadership in new build
jackup rigs
Read about our new rig design
page 12
2018 priorities
Leverage our investment in the
Our progress this year
• LJ43 basic design complete
IMI yard
Progress our proprietary
LJ43 rig design
Receive IMI award for Saudi Rigs 1
and 2 as part of the 20+ new build
jackup rig programme
• Provided technical support and
know-how for rigs to IMI
• LOI received in December 2018
from IMI for Rigs 1 and 2 to be built
collaboratively between IMI and
Lamprell with approximately 15%
Saudi content
Broaden our presence
in Saudi Arabia
Read about the progress in the JV
with Saudi Aramco
page 14
2018 priorities
Be selected by Saudi Aramco as
LTA contractor
Our progress this year
•
In November 2018 Lamprell was
included on the LTA programme
Build partnerships within
Saudi Arabia
• Support for IMI under USD 140
million committed investment
Investment in Saudi Arabia in
support of “Vision 2030” and the
IKTVA programme
• Formed Lamprell Saudi Arabia, a joint
venture with local Saudi company
Deliver our
renewables strategy
Read about business improvement based
on key learnings
page 27
2018 priorities
Use our lessons learned on EA1
and core capabilities to differentiate
our offering
Our progress this year
• Awarded contract to build 48 jackets
for the UK Moray East wind farm
project
Continue to build the renewables
bid pipeline
• Large number of high-quality projects
similar to Moray East identified and
now under bid
Continue to be an EPC(I)
provider to the energy
industry
Read about our growing
expertise in EPC(I)
page 16
2018 priorities
Bid on Saudi Aramco EPCI projects
under the LTA
Leverage LTA role to qualify as a
bidder on other EPCI projects with
IOC and NOC clients
Pursue EPCI in HVAC/DC
renewables
Our progress this year
•
Inclusion on LTA programme in 2018
will result in bidding during 2019 and
beyond
• A number of HVAC/DC opportunities
identified in the bid/no-bid process,
bidding on a selective basis
Build on our rig
refurbishment and
land rig position
Read about delivering the “Haven”
accommodation unit with a perfect safety record
page 27
2018 priorities
Continue to secure rig
refurbishment work
Our progress this year
• Lamprell has been awarded a record
23 rig refurbishment projects in 2018
Build on long-term relationship
• Minimal awards for land rig projects
with drilling community
in 2018 – NOC’s have delayed
awards into 2019
10
KEY
Achieved/complete
Made good progress
Not completed
Key data
Full set of KPIs
page 24
s
g
i
r
a
e
S
5
s
m
r
o
f
t
a
P
l
10
s
p
u
k
c
a
J
39
Source: Offshore Energy Today
54
Rigs sold
for scrapping
or conversion
in 2018
USD140 million
Equity investment into the IMI yard
from existing financial resources
and future cash flows
On hold
2,382MW
Fully commissioned
18,565MW
Development
23,604MW
Offshore global
wind market increase
of 10GW to
104GW
Source: Renewables UK October 2018
In planning
17,935MW
Under construction
8,848MW
Pre-construction
3,600MW
Approved at JR
2,198MW
Consented
29,781MW
Global portfolio by status
Saudi Aramco offshore
CAPEX spend
4.3 billion
USD as at 31 December 2018
2019 priorities
Support IMI for construction of its near
term rig programme
Promote LJ43 rig design for use on
future jackup rigs
Key risks
• LJ43 rig design is not adopted as part
of the new build programme
• Delays to awards due to client caution
around continuing energy price volatility
2019 priorities
Secure EPC(I) work under the LTA
Further develop Lamprell Saudi Arabia
Actively participate in Saudi Arabia’s
IKTVA programme
Board visit to Saudi Arabia planned for 2019
Key risks
• LTA work is bid competitively, and we are
unsuccessful in winning work
• Saudi Arabian geopolitical situation
deteriorates
2019 priorities
Secure a further major foundations
project
Partnering on EPC(I) basis to bid
HVAC/DC projects
Key risks
• Awards delayed due to capacity
constraints
• USD strengthens against GBP/Euro
reducing our cost advantage over
European yards
2019 priorities
Bidding for work under LTA programme
Qualify to bid for EPCI projects
with ADNOC
Bid on HVAC/DC opportunities
Key risks
• LTA work is bid competitively, and
we are unsuccessful in winning work
• We fail to qualify for EPCI prospects
with other clients
2014
2015
Source: MEED Projects, Dec 2017
Upstream Online, July 2018
2016
2017
2018 E
170
160
s
h
t
n
o
m
/
s
g
R
i
150
140
130
120
110
100
J
F M A M J
J A S O N D J
Mediterranean and Middle East jack up demand
2019-2020
Source: Petrodaily International Rigs Weekly Brief, 25 January 2019
Global rig
demand 2018
19.7%
80.3%
Middle East
Rest of world
2019 priorities
Maintain market share of awards
in rig refurbishment
Convert land rig awards
Key risks
• Further delays to awards because of
continuing energy price volatility
• Significant global competition in the
land rigs market particularly from
Far East fabricators
11
Lamprell plc Annual Report and Accounts 2018Strategic report
Our strategy in action continued
Strategic objective:
Maintain market leadership
in new build jackup rigs
Lamprell awarded only jackup
rig orders in 2018
In spite of the challenging market backdrop in
2018, Lamprell is living up to its strategic goal of
maintaining its leading position as a new build
jackup rig builder.
During the year the Group finalised its
proprietary ‘LJ43’ rig design in collaboration
with GustoMSC. This is a major milestone in
Lamprell’s history. Early in 2018, IMI and their
client, ARO Drilling, indicated that the LJ43
design was expected to be the base for the
jackup rigs to be built at the IMI yard in eastern
Saudi Arabia. All parties will work together to
agree the optimal rig design and specifications
to meet the clients’ requirements for drilling
offshore Saudi Arabia.
Late in the year, the Group extended its support
and investment in the IMI joint venture in which
page 14, with the
Lamprell is a partner
binding letter of intent from IMI to construct
the first two rigs for ARO Drilling. These rigs
will substantially be built at Lamprell’s facility
in Hamriyah with approximately 15% to be
constructed in Saudi Arabia – this reflects the
increasing prominence of in-country value as a
key driver for clients and also the commitment
by Lamprell to support the establishment of this
new major maritime yard.
12
Project Manager
Zadok van Winden
Safety and Integrity
Best safety record in
company history
Having spent over a decade working for
Lamprell, I have seen a lot of improvements
in our safety culture over the years. The safety
message is being driven harder than ever before,
direct from our management team, and the
efforts have paid off. In 2018 Lamprell achieved
page 31.
its lowest recorded TRIR of 0.15
Our new “Safe Start” and “Shields for Life”
initiatives
us reach these statistics and it was great to see
our efforts noticed by our clients, in particular
Master Marine. Lamprell completed 2.6 million
page 27
manhours on the “Haven” project
for this client with zero recordable incidents.
I have seen employees put tremendous
effort into making this possible and am proud
to be part of the team producing these
outstanding results.
page 30 have certainly helped
Investing in technology
At Lamprell we view digitisation as a key enabler
for growth and a differentiator that will enhance our
competitiveness. We are piloting a number of digital
initiatives encompassing robotics, face identification
and real time analytics that will optimise the manner
in which we utilise assets and human capital across
our business. Over time our digitisation strategy will
align with and enhance our business strategy to
create further value for our shareholders.
Strategic report
L
a
m
p
r
e
l
l
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
8
Strategic objective:
Build on our rig refurbishment
and land rig position
Record number of rigs
refurbished in 2018
2018 saw a major comeback in the rig
refurbishment arena which is a welcome sign
for the oil & gas industry. Lamprell completed
upgrades and modifications on 23 jackup rigs,
a record number for the business, compared to
13 in the prior year. A number of the refurbishment
projects resulted in increased scopes of work
as Lamprell progressed their delivery, which
supported revenue flow and underpinned our view
that the wider market recovery has commenced.
We also housed many stacked rigs throughout
the year for numerous clients at our Hamriyah
and Sharjah facilities and delivered a number
of small but significant land rig services for four
different clients.
13
Our strategy in action continued
Ascension to Saudi Aramco’s
Offshore LTA Programme
The LTA is part of Saudi Aramco’s offshore investment
programme and involves the award of EPCI contracts
to an exclusive list of contractors to support Saudi
Aramco’s offshore activities. Lamprell’s bid pipeline
will increase by more than USD 3 billion per annum
as a result of its inclusion on the LTA, with an initial
programme duration of six years, with Saudi Aramco
having the option to extend for a further three plus
three years.
D
C
B A
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
Strategic investment in IMI yard
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.
We are working with our partners to deliver the joint venture
established as “International Maritime Industries” or “IMI”.
This is a cornerstone project in the Saudi 2030 Vision and
will help us to establish Lamprell’s business in Saudi Arabia.
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.
14
Strategic report
Strategic objective:
Broaden our presence
in Saudi Arabia
Making great strides in the
Kingdom of Saudi Arabia
Saudi Arabia is core to our growth strategy, and we
pursued multiple opportunities to gain a stronger
foothold and build capabilities in the country during 2018.
We started the process of strengthening our in-Kingdom
capabilities by partnering with strong local businesses
through the formation of Lamprell Saudi Arabia. This joint
venture company, which includes our local partners,
is expected to help us achieve the IKTVA targets for
Saudi Aramco. We also became an LTA contractor for
Saudi Aramco alongside transportation and installation
partner, Boskalis.
EPC(I) Project Director
Massimo Bettolini
JV with local Saudi partner
Saudi Arabia is a strategic geography for Lamprell
and, with local content increasing in prominence, we
are committed to developing a strong competitive
position in-country. This forms part of the In-Kingdom
Total Value Added programme, which is a core
component and key requirement in Saudi Aramco’s
LTA programme. Lamprell is investing USD 140 million
into the Saudi maritime yard at Ras Al Khair and,
in H2 2018, we formed the Lamprell Saudi Arabia
joint venture with a Saudi partner, which brings local
expertise in working on major projects in Saudi Arabia.
Teamwork
It’s all about our people
People are the foundation of Lamprell’s business and
success. We have invested in the upskilling of our workforce
and added new resources in support of our strategic
page 10 in the EPCI and renewables
objectives
sectors. The Group is using data-gathering and improved
lessons learned processes to measure performance. This
helps to ensure that our workforce is ‘future fit’, which drives
improved productivity.
page 18 is a game changer for the
Securing Lamprell’s position on Saudi Aramco’s prestigious
LTA programme
Company and would not have been possible without a
high level of teamwork shown from the top down including
Lamprell’s Board, senior management and the many
departments within the Company. In 2019 we will not rest on
our laurels; the hard work lies ahead as we start to bid on
new LTA projects. This will require close alignment between
our Proposals Team and the Projects Department that will be
executing the work.
L
a
m
p
r
e
l
l
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
8
15
Our strategy in action continued
Strategic objective:
Deliver our
renewables strategy
Won new contract for Moray East
wind farm project
Lamprell ended 2018 on a high note seeing its
renewables strategic objectives bearing fruit following
a contract award by GeoSea for the Moray East
offshore wind farm project. Valued at more than
USD 200 million, we will be fabricating 48 out of
around 100 jacket foundations. Out of the 48 jackets
awarded, 45 will be built for the wind farm while the
other three will form part of the offshore substations
also being installed for use on the project. The Moray
East wind farm is expected to generate power at
less than half the price of power generated by other
offshore wind farms under construction today.
The East Anglia One project is nearing completion
and Lamprell is supporting Harland & Wolff with their
assembly activities and working with the client on the
final certification and handover protocols in time for
its installation campaign. There have been significant
challenges on the project but, with the knowledge
and experience gained, we have significantly
improved the pricing structure and reduced the
overall risk profile
projects like Moray East.
page 36 on renewables
EPC(I) Project Manager
Angela De Vincentis
page 34 of this new project. Many steps
Fiscal responsibility and accountability
We deliver what we say we will
As Lamprell’s Project Manager on the Moray East
project, my team and I helped to ensure that the
lessons learned recently on East Anglia One were used
to make us more competitive and reduce the overall risk
profile
were taken including considerable investment in EPCI
sector resources, improved manpower forecasting,
greater scrutiny of benchmark data for bidding
norms and closer alignment between our functional
teams during bidding and handover. I am looking
forward to leading the team and delivering the 48
jacket foundations to our client’s expectations; we are
committed to making this strategic market a success for
Lamprell and we will deliver what we say we will.
16
Investing in people
Lamprell’s people are our most important asset, the power of our
organisation and we strongly believe in investing in the right talent
for the job. We hired 185 new professional and support employees
in 2018 to support our strategic objectives; we have also upskilled
our workforce through both external and internal training via our
very own Lamprell Assessment and Training Centre
page 28.
Strategic report
Strategic objective:
Continue to be an an
EPC(I) provider to the
energy industry
Collaborating with leading
partners on EPC(I) projects
Lamprell has a clear strategic objective
to be an EPC(I) contractor to the energy industry
page 10. We measure our performance
against various metrics and most notably 2018
saw our inclusion on Saudi Aramco’s exclusive
LTA programme alongside transportation and
installation partner Boskalis. The LTA is one of
the most sought-after and selective processes
in the industry and, following a competitive
bidding process, Saudi Aramco has chosen
an elite few contractors to bid for and execute
EPCI projects in the waters offshore Saudi
Arabia. Selected LTA contractors have the right
to bid for tenders put out by Saudi Aramco
without further technical prequalification or
preselection, considerably shortening the lead
time through to award. While we are proud to
participate in the LTA programme, inclusion does
not guarantee work and 2019 will be the next
crucial step forward as we bid on LTA projects
and demonstrate our ability to win awards and
execute them successfully.
We were pleased to cement our relationship with
Boskalis, a leading industry partner, as part of
the LTA process. Broadly Lamprell is expected
to focus on the engineering, procurement and
construction elements while Boskalis will be
primarily responsible for transportation and
installation. These projects can only be executed
effectively with close collaboration and an
integrated execution plan between the partners
– we are excited by this opportunity and will
dedicate our many new resources with EPC(I)
specialist knowledge to ensuring that these
projects will be a success.
In 2019 Lamprell will also focus on leveraging
our LTA role to qualify as a bidder on other
EPCI projects with other major clients, in
both the renewables and oil & gas markets.
We are actively engaged with other potential
partners to target and win such new projects and
we believe that we have a differentiated offering
for projects in the UAE and in the offshore wind
farm sector.
L
a
m
p
r
e
l
l
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
8
17
Statement from our Chairman
2018 was marked by continued industry uncertainty
and by the ongoing challenges in the East Anglia One
project, both of which impacted our profitability for the
year. Against this backdrop, Lamprell made significant
strategic progress, which will help diversify our revenue
sources and secure commercially strong prospects
in years to come. We will continue to focus on risk
management throughout the business to help us return
to profitability in the medium term.
The oil & gas industry is now in its fifth year
of downturn and instability. We experienced
widespread optimism early in the year only
to see the oil price slump dramatically late
in the year. The current uncertainty affects
capital expenditure in the sector, meaning
that our traditional sources of revenue remain
inaccessible in the near future. We anticipated
financial pressure to continue in 2018 as,
despite firm fiscal control and responsibility,
our current low revenue levels and reduced
margin contributions significantly affected
our profitability. With that in mind, our goal
for 2018 has been to make major advances
in delivering against our strategic objectives
page 10, taking into account the changing
dynamics of the energy industry.
Delivering our strategy
The prolonged downturn in the oil & gas
sector has highlighted our over-exposure to a
single source of revenue. Our long-term goal
is to grow the business’ geographical reach,
expand the markets and industries we can
access as well as move the Company higher
up the value chain to access larger, more
complex projects.
One of our top priorities for 2018 was to
further strengthen our presence in Saudi
Arabia, a region with a clear commitment
to investment in major oil & gas projects.
We are making good progress with our joint
venture, the IMI yard, and are pleased to have
received a letter of intent for the construction
of two jackup rigs at Lamprell’s UAE facilities
with approximately 15% to be completed
in Saudi Arabia. These are the first jackup
rigs awarded since 2015 globally – a clear
demonstration of growth fundamentals in the
page 14.
region. I am also very pleased to report that
following a very rigorous selection process
we were able to deliver on our objective of
being selected as one of the partners on
Saudi Aramco’s LTA programme
The LTA covers one of the largest offshore
oil & gas capital expenditure programmes
in the world, has added over USD 3 billion
of opportunities to our bid pipeline and puts
Lamprell and its LTA partner Boskalis on a par
with other leading EPCI industry players. The
programme does not guarantee contracts but
I am confident we will soon begin to see the
benefit of our efforts to submit an attractive
proposition to the client and convert the
pipeline into new awards, realising strong
revenue opportunities for the Group.
page 34 of
Our third major achievement for the year
was the award of a new major contract in
the renewables market. Taking into account
the challenges we have faced on a similar
contract since 2017, the Board considered the
commercial and risk profile
the Moray East project very seriously. The role
of renewables in the global energy landscape
will continue to gain prominence. The pipeline
of projects in Europe, presently the largest
page 07, is growing
wind farm market
and large offshore wind farms are gradually
spreading across the globe with the US
market now also taking a more proactive step
towards cleaner energy. Having assessed the
growth forecasts for the renewables industry
and incorporated the lessons learned from
our first project in this industry, I firmly believe
in retaining this product offering as one of our
strategic focus areas and I have full trust in
Lamprell’s ability to deliver this new project
and regain shareholder confidence.
Culture and core values
This is my sixth year with Lamprell and second
year as Chairman. It has not been an easy
period for the Group and I am very pleased to
note that, despite the pressures resulting from
a volatile market, the Company adhered to its
most inspiring values: commitment to safety
at our sites is unquestionable
page 30
and without doubt makes us stand out for our
prospective clients, and fiscal responsibility
has provided us with a cash position solid
enough to weather the consequences of
the market downturn. Lamprell’s culture of
delivering a product to every client with full
accountability and integrity has now opened
new opportunities in Saudi Arabia and in the
renewables industry and a fresh focus on
teamwork is helping us reduce project risk
profiles from the early bidding stage. Our
core values are fundamental to ensuring that
our strategic goals and shareholder value will
continue to be delivered in the long-term.
Board changes and talent development
I was pleased to note the stability on
Lamprell’s Board in 2018. Following Ellis
Armstrong’s planned retirement at the
Company Annual General Meeting in May,
Debra Valentine assumed the role of Senior
Independent Director and James Dewar
now chairs the Audit and Risk Committee.
Further detail on the Board and its main
focus areas throughout 2018 can be found
on
page 38.
Succession planning and talent development
was a stated Board priority last year, not just at
the Board level but also within management.
The successful delivery of some of our main
18
“Lamprell is now a
business focused on
growth and further
progress in our strategic
goals. I am confident
we will soon begin to
see the benefits of our
efforts and will be able to
demonstrate strong new
revenue opportunities to
our shareholders.”
John Malcolm
Chairman
Generating a healthy and sustainable
backlog, along with cost discipline, will be
our main focus in 2019 and, as we convert
current significant opportunities into projects,
we are striving to become a cash generative
business in the medium term. Over the course
of 2018 I have seen very clear evidence
of a business striving to improve its process
and risk assessment as it enters a new era
in its history.
John Malcolm
Chairman
page 28 that we brought on board
objectives in 2018 would not have been
possible without the highly experienced
existing Lamprell team as well as the new
talent
to deliver our strategic transformation. The
focus and dedication that the combined team
continues to demonstrate in its effort to turn
the page on the challenges of the past years
is commendable. The Company will continue
its work to enhance the leadership team in
2019 through a series of workshops which will
build on the strengths identified in 2018.
Focus for 2019
The outlook for the oil & gas industry, although
improving, still shows elements of volatility. I
do not expect the global new build jackup rig
market to recover in 2019, but our presence
in Saudi Arabia has provided us with rare
revenue opportunities in this segment. Our
focus on the renewables market will continue
and, with our traditional sources of revenue
expected to resume in the medium term,
global fabrication capacity may come under
pressure which will improve the market and
pricing dynamics throughout the value chain.
19
Lamprell plc Annual Report and Accounts 2018Strategic report Report from our Chief Executive
“In 2018, the Company
continued on its journey
of transformation and
delivered on its strategic
objectives into key markets
with the ascension to Saudi
Aramco’s LTA programme,
award of a major new
wind farm foundation
project and the LOI for the
first two rigs to IMI.”
Christopher McDonald
Chief Executive Officer
Lamprell has delivered
a number of significant
milestones on its growth
strategy, which, despite
continued pressure in the oil
& gas industry, has allowed us
to plot a clear path to return to
growth in 2019 and beyond.
2018 has been a pivotal year in establishing
the building blocks for Lamprell’s strategic
aspirations, and we are pleased to report
significant progress in delivering our strategy
page 10. Operationally and financially we
are still feeling the effects of the prolonged
downturn in the oil & gas industry, which
resulted in pressure on our backlog and
revenue levels. However, we finished the
year with a significant new contract in the
renewables industry and a stronger position
in Saudi Arabia with a binding Letter of Intent
(“LOI”) for the major portions of the first two
IMI rigs and our entry to the LTA opening
up further revenue opportunities in 2019
and beyond.
Health and safety
I am proud to report an exceptional safety
performance in 2018. A TRIR of 0.15 for
the year is a top-tier result for our industry
and is our best result since becoming a
publicly listed company. I would like to thank
both our health and safety team and all our
employees for delivering this result. Safe
operations are a cornerstone for the success
of our business, which is why our “Safe Start”
programme
page 30 has been developed
to involve every employee, with particular
focus on safety leadership from the senior
management.
Operational update
In the first half of 2018 we completed the
UAE-based works on two major projects:
the mobile operating unit “Haven” for Jacktel
AS, a wholly owned subsidiary of Master
Marine AS, and the jacket foundations for East
Anglia One on behalf of client ScottishPower
Renewables. The “Haven” upgrade was
completed in April on time and on budget
with an exceptional safety performance.
Over 2.5 million manhours were completed
with zero recordable incidents, and the unit
is now in operation offshore Norway.
Project execution and control on the East
Anglia One project
page 26 improved
during the year, as the project proceeded
towards completion. We completed all UAE
20
Safety TRIR
(Rate per 200,000 hours)
$
KPI
Revenue
(USD million)
Net (loss)/profit
(USD million)
$
KPI
Net cash
(USD million)
$
KPI
0.31
0.29
0.30
0.28
1,084.9
871.1
705.0
0.15
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
118.0
64.7
272.6
275.2
257.0
210.3
370.4
234.1
(70.7)
(98.1)
(184.3)
80.0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
EBITDA
(USD million)
137.0
90.0
2014
2015
Total shareholder return
(%)
$
KPI
based works in H2 2018 and this included
fabrication and delivery of 42 jackets to the
client in Vlissingen and the delivery of the
flat-pack components for 18 jackets to our
subcontractor in Belfast. With the project
nearing completion, we are supporting
Harland & Wolff with their assembly activities
and working with the client on the final
certification and handover protocols in time
for its installation campaign. Final delivery
(14.2)
30.6
remains on track to meet the campaign
requirements although the exposure to
liquidated damages will remain unchanged
until project completion. The results for
the year include a further provision of
USD 9.4 million for the project.
2016
The yard activity levels were at a historical
low following the completion of the above-
mentioned works, but we have seen an
increase in rig refurbishment work with a
record 23 rigs going through the yards in
2018, with many more in various stages of
warm or cold stacking throughout the year.
(35.1)
(70.5)
2018
2017
2014
(17.8)
2015
We continue to build on our traditional areas
of expertise in anticipation of their recovery
in the medium term. As such, we developed
an exclusive jackup rig design in collaboration
with GustoMSC and completed the basic
design process early in the year. The LJ43 rig
page 12 utilises a custom-designed hull
and living quarters developed by Lamprell
along with GustoMSC’s leg design. It has
been designed to accommodate specific
requirements of the Middle Eastern market
but Lamprell believes that this state-of-the
art design is highly adaptable and capable
of being used in a wide array of offshore
locations around the world.
Strategic priorities
In 2018 our business has made remarkable
progress in advancing its strategic goals.
Firstly, we set out to diversify our revenue
stream away from jackup rigs by expanding
the type and scope of work that we do.
In preparation for this transformation we
have made a number of changes within the
business: we now have a leadership team
in place with a significant track record of
delivering complex EPC(I) projects in our
key markets; our internal bidding and project
execution approach has been upgraded to
reinforce controls at every stage, and we are
highly selective in developing our bid pipeline.
The effort that we put into transforming
Lamprell from within is beginning to show
results – firstly, we became one of Saudi
Aramco’s preferred suppliers on its LTA
programme for offshore projects
page 14.
$
KPI
This is a highly sought-after opportunity
in the industry, and I would like to thank the
team that worked on this bid over the past
18 months. The Middle East, and Saudi Arabia
in particular, will remain our major focus as
(3.4)
countries with clear growth projections, and it
will be intrinsic to our recovery story.
(16.8)
(21.8)%
Local content and in-country spending are
rapidly gaining prominence in the Middle
East, and we are proud to have established
a number of partnerships in both Saudi
Arabia and Abu Dhabi to help us address our
clients’ requirements in an efficient manner
while contributing to the development of
local economies. By partnering with local
companies and committing to the USD 140
2016
million equity investment in the Saudi maritime
yard, we have demonstrated our commitment
for this key market and supported our effort
to bid for Saudi Aramco’s LTA programme. In
Abu Dhabi, our long history of working with
ADNOC Drilling has established our high
levels of in-country performance and we will
build on this to realise opportunities for new
business there.
2018
2017
page 16 is one of the most
Secondly, our effort to build upon our
experience and access further projects in
the fast-growing renewables industry has
resulted in a major project in our backlog.
Moray East
prominent wind farms recently committed
for construction, and we are delighted to be
part of this large-scale, high profile project.
With the knowledge and experience we
gained through East Anglia One we have
been able to significantly reduce the risk
page 34 on this project, and I am
profile
confident we can deliver in a timely and cost-
effective manner.
Thirdly, we are proud to continue to support
the IMI joint venture with a LOI for the award
of the first two new build jackup rigs to be
substantially built at Lamprell’s facility in
Hamriyah with approximately 15% to be
constructed in Saudi Arabia. These are the
first jackup rig orders to be awarded in the
last four years. In this way, IMI will build its
capabilities in the rig market and Lamprell will
cement its relationships with key stakeholders
in Saudi Arabia. Lamprell is committed to
support the establishment of this new major
maritime yard in Saudi Arabia, both directly
and indirectly, as it looks to build its expertise
and develop its capabilities and personnel
within the Kingdom.
We continue to ensure that our operations
follow major industry developments and
technological advances. As such, we have
dedicated a specialist team with a focus on
Bid pipeline
(USD billion)
Order book
(USD million)
$
KPI
Total awards
(USD million)
$
KPI
6.4
1,205.2
1,400.0
5.2
5.4
3.6
2.5
739.7
540.0
393.4
137.9
639.2
407.0
359.0
114.8
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
page 13
developing digital solutions
for both our operations and the products we
fabricate. The team is working with industry
experts to identify potential opportunities
which leverage such solutions into the real
working environment. We believe that in this
rapidly evolving industry, this will improve our
operational efficiency and competitiveness, as
well as potentially create new revenue streams
for the Company.
Outlook
After two years of no major contract awards,
we are finally beginning to see traction in
the bid pipeline
page 06, although we
expect that potential new contracts will be
in the EPC(I) side of the business in the
near team, rather than in Rigs. We forecast
a revenue range of USD 250-400 million for
2019, which will be mainly supported by the
Moray East project and walk-in work. With
the backlog now returning to growth we have
demonstrated our ability to rebound from
the operational challenges as well as the
longest industry downturn since Lamprell
became public. We are well positioned for the
anticipated coming upturn.
Christopher McDonald
Chief Executive Officer
21
Lamprell plc Annual Report and Accounts 2018Strategic report Review of our finances
Group financial performance was in line with our
guidance. Current sales levels and no margin
contribution from revenue on the East Anglia One
project affected our profitability, but we are pleased
to report significant increases in our order book and
in our bid pipeline which are expected to improve
financial results from 2020.
Revenue
USD 234.1m
2017: USD 370.4m
Net cash
USD 80.0m
2017: USD 257.0m
The Group’s financial performance in
2018 reflected the ongoing pressure in the
oil & gas industry, as well as the impact
of a significant part of the Group’s revenue
making no contribution to the bottom line.
Our revenue levels fell to USD 234.1 million
from USD 370.4 million reported during the
same period in 2017.
During the first half of 2018 Lamprell
completed two major projects in its UAE
facilities and with no further significant
projects booked into backlog until the end
of the year, the Group’s revenue is biased
towards H1 2018.
The award of two new projects in the later
part of the year provides improved backlog
to deliver revenue growth in 2019.
Within our strategic markets, Renewables
generated USD 94.8 million, down from
USD 130.7 million in 2017 as the EA1 project
reaches its conclusion; and Oil & Gas
generated USD 139.3 million, down from
USD 239.7 million in 2017 with Master Marine,
which completed in H1 2018, being the only
major project in the segment.
Our reporting segment for Rigs delivered
revenue of USD 76.0 million compared
to USD 160.8 million in 2017. EPC(I)
revenues were USD 99.8 million, down
from USD 154.3 million in 2017. Improved
trading in our O&M manpower and siteworks
businesses delivered USD 58.3 million of
revenue, up from USD 55.4 million in 2017.
Margin performance
Capital expenditure
The gross loss for the year is USD 9.1 million,
an improvement when compared with the
gross loss for 2017 of USD 50.2 million. The
gross loss in 2018 is driven by a combination
of low levels of revenue from our profitable
projects which have been insufficient to
recover our operational overheads and an
increase in the estimated loss on the EA1
project of USD 9.4 million which brings
the overall estimated loss for the project
to USD 89.4 million. The primary cause for
the increase in the loss is the additional
cost incurred supporting the Belfast based
subcontractor due to their financial difficulties.
We have kept operational overheads
under control with the USD 40 million
recorded in 2018, in line with 2017. As we
signalled in last year’s report, our overall
overhead has increased to USD 86.4 million
from USD 82.4 million in 2017 largely due to
strategic upskilling.
Group EBITDA from continuing operations
amounted to a loss of USD 35.1 million
(2017: loss of USD 70.5 million). EBITDA
margin has improved to (15.0)% when
compared to (19.0)% reported in 2017.
Finance costs and financing activities
As our levels of debt and committed
facilities reduced during 2018, as expected
our net finance cost has also reduced to
USD 3.5 million (2017: USD 5.1 million).
Gross finance costs were USD 5.7 million
(2017: USD 9.0 million).
Net loss
Lower revenue levels, as well as a modest
deterioration in the margin performance
on the East Anglia One project in 2018,
resulted in a loss attributable to the equity
holders of USD 70.7 million (2017: loss of
USD 98.1 million). The fully diluted loss
per share for the year was 20.67 cents
(2017: loss per share – 28.70 cents).
The Group’s operational capital expenditure
for the year ended 31 December 2018
decreased to USD 10.0 million, compared
to USD 23.7 million in 2017. As project activity
levels remained subdued, capital expenditure
focused on bringing the pipe shop to the
commissioning phase, essential operating
equipment and the development cost
of the LJ43 rig.
Strategic capital expenditure of USD 39
million is attributable to the Group’s investment
in the IMI maritime yard in Saudi Arabia
page 14. To date, Lamprell has
invested USD 59 million of the USD 140
million committed. We expect to continue to
fund this investment from our balance sheet.
We continue to review our capital expenditure
very carefully with a focus on initiatives that
improve our efficiency and productivity.
Cash flow and liquidity
The Group’s net cash flow from operating
activities for the full year ended 2018 reflected
a net outflow of USD 125.1 million (2017: net
inflow of USD 32.4 million), which was driven
primarily by payment for rig kit inventory and
working capital funding for the EA1 and
other projects.
Prior to working capital movements and
the payment of employees’ end of service
benefits, the Group’s net cash outflow
was USD 28.2 million (2017: outflow of
USD 56.3 million).
Cash and bank balances decreased by
USD 196.6 million to USD 99.8 million.
Net cash will continue to reduce in 2019 as
we continue our strategic initiatives, some
targeted capital expenditure and working
capital requirements on new projects but we
still expect to finish the year in a net cash
position.
In 2019 a critical focus will be to monetise
the strategic asset inventory (the S116E rig
kits and our proprietary LAM2K land rig) and
finalise the refinancing.
22
“Although net cash is
reducing in line with
scheduled investments,
the Group balance sheet
remains sufficiently robust
to support ongoing
projects, strategic
investments which are
already in place and
immediate opportunities
in the pipeline.”
Tony Wright
Chief Financial Officer
Balance sheet
Debt refinancing
Net cash position at the end of the reporting
period reduced to USD 80.0 million from
USD 257.0 million at 31 December 2017.
This reduction has been primarily caused
by the anticipated investment made in the
IMI maritime yard of USD 39 million as
well as payment for rig kit inventory of
USD 34.3 million and funding of the EA1
project totalling USD 40.2 million. Although
net cash is reducing in line with scheduled
investments, the Group’s balance sheet
remains sufficiently robust to support
ongoing projects, strategic investments
which have been committed to and
immediate opportunities in the pipeline.
The Group’s total current assets at
31 December 2018 were USD 313.3 million
(31 December 2017: USD 498.9 million).
Trade and other receivables decreased
to USD 68.1 million (31 December 2017:
USD 164.7 million). Contract Assets increased
to USD 54.9 million (31 December 2017: nil).
Shareholders’ equity reduced to USD 393.0
million (31 December 2017: USD 460.8 million).
Borrowings
Borrowings at 31 December 2018 were
USD 19.8 million (31 December 2017:
USD 39.5 million). The outstanding debt
reflects the final instalment of the Group’s
term loan which is due for payment in August
2019 when the facility expires. The Group
retains a USD 50 million revolving credit
facility for general working capital purposes
which also expires in August 2019.
The Group’s debt to equity ratio at
31 December 2018 was very low at 5.03%.
The Group’s balance sheet continues
to support ongoing project work and the
current bidding activity but in anticipation
of the market recovery together with
implementation of the strategy, the Board
believes that maintaining significant liquidity
is essential to the Group.
To deliver this, we are in advanced
negotiations with our lenders for a new debt
facility, additional details of which are set out
under the Going Concern section below.
We expect to sign the full facility agreement
in Q2 2019 with the syndicate of lending
banks that will support the Lamprell Group
as it looks to implement its growth strategy.
The final details of the facility, which would
comprise a term loan and a revolving credit
facility on terms broadly similar to our existing
facility, will be available only upon signing of
the binding agreement.
Going concern
The Group’s consolidated financial statements
have been prepared on a going concern
basis as further discussed in Note 2.1. The
Group has received non-binding indicative
term sheets and the legal documentation
necessary prior to seeking final approval from
certain banking institutions is in progress
to replace the existing facility which expires
in August 2019. After reviewing its cash
flow forecasts for a period of not less than
12 months from the date of signing these
financial statements and taking into account
other key assumptions which include; the sale
of the LAM2K land rig and timing of receipt
of the sale proceeds, the cash advances
expected to be received from new IMI rigs
once a contract is signed and the timing of
cash calls forecast for investment in the IMI
joint venture in addition to the planned debt
refinancing, the Directors have concluded
they do not represent a material uncertainty
that may cast significant doubt upon the
continuing use of the going concern basis
of accounting. Further details regarding
the going concern basis are set out on
page 69.
Dividend
In the context of ongoing market challenges,
the low revenue levels in 2018 and the
investment for future growth in the IMI, the
Directors do not recommend the payment of
a dividend for the period in relation to financial
year ending 31 December 2018. The Directors
will continue to review this position in light of
market conditions and Group performance at
the relevant time.
Tony Wright
Chief Financial Officer
Refer to the footnote on the inside front cover
for use of Alternative Performance Measures (APMs).
23
Lamprell plc Annual Report and Accounts 2018Strategic report Our key performance indicators
Safety TRIR
(Rate per 200,000 hours)
$
KPI
Revenue
(USD million)
Net (loss)/profit
(USD million)
$
KPI
Net cash
(USD million)
$
KPI
0.31
0.29
0.30
0.28
1,084.9
871.1
705.0
0.15
118.0
64.7
272.6
275.2
257.0
210.3
370.4
234.1
(70.7)
(98.1)
(184.3)
80.0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
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.
EBITDA
(USD million)
$
KPI
Total shareholder return
(%)
$
KPI
Bid pipeline
(USD billion)
Order book
(USD million)
$
KPI
Total awards
(USD million)
$
KPI
137.0
90.0
(3.4)
1,400.0
30.6
(14.2)
(35.1)
(70.5)
(17.8)
(16.8)
(21.8)%
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
6.4
1,205.2
5.2
5.4
3.6
2.5
739.7
540.0
393.4
137.9
639.2
407.0
359.0
114.8
Definition:
EBITDA is defined as the Group (loss)/profit
for the year from continuing operations before
depreciation, amortisation, net finance expense
and taxation.
Strategic relevance:
EBITDA indicates the effectiveness of cost
management as well as operational efficiency
and revenue growth.
Definition:
Share price appreciation and dividends
paid to shareholders.
Strategic relevance:
Maximising shareholder value is a key metric
we consider when addressing Group strategy.
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 ).
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
24
Safety TRIR
(Rate per 200,000 hours)
$
KPI
Revenue
(USD million)
Net (loss)/profit
(USD million)
$
KPI
Net cash
(USD million)
$
KPI
0.31
0.29
0.30
0.28
1,084.9
871.1
705.0
0.15
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
118.0
64.7
272.6
275.2
257.0
210.3
370.4
234.1
(70.7)
(98.1)
(184.3)
80.0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Definition:
Total earnings during the reporting period after
cost of sales, overheads, interest, taxes and
other expenses.
Strategic relevance:
Profitability is a key indicator of business
efficiency and cost management and
a major requirement for business growth
and sustainability.
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.
2018 highlights
Record safety performance in
Lamprell’s corporate history
Net cash continues to support
our balance sheet for ongoing
operations and growth
Backlog starting to rebuild with
two major contract wins
Bid pipeline almost doubled
to include Saudi Aramco’s
LTA programme
Profitability impacted by
prolonged market downturn and
East Anglia One project
EBITDA
(USD million)
$
KPI
Total shareholder return
(%)
$
KPI
Bid pipeline
(USD billion)
Order book
(USD million)
$
KPI
Total awards
(USD million)
$
KPI
137.0
90.0
30.6
(14.2)
(35.1)
(70.5)
(17.8)
(16.8)
(21.8)%
(3.4)
1,400.0
6.4
1,205.2
5.2
5.4
3.6
2.5
739.7
540.0
393.4
137.9
639.2
407.0
359.0
114.8
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Definition:
Total value of commercial bids ongoing which
are expected to be awarded in the next 12 to
18 months.
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 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.
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.
25
Lamprell plc Annual Report and Accounts 2018Strategic report Review of our operations
The prolonged downturn in the energy
industry has continued to impact our business
as we experienced record low activity levels
in H2 2018. However we persevered with our
strategic initiatives, and we ended the year on
a high note with two new contract awards and
inclusion on Saudi Aramco’s prestigious
LTA programme.
Safety first
Our values are always at the heart of everything we do and our safety
performance in 2018 has been exemplary. At 31 December 2018, our
TRIR stood at 0.15 compared to 0.30 at the same point in 2017. This
is our best result since becoming a public company. We took every
department through our “Safe Start” programme, held engagement
sessions with our subcontractors to embed high safety performance
throughout our supply chain and also launched our “Shields for
Life” programme
successful as employees continued to take safety into account in their
daily activities, all of which contributed to the improved TRIR.
page 30. These initiatives proved extremely
Enhancing our capabilities
Our strategy and our business model are fundamentally linked
page 08 and a key component is the need to continually enhance
the capabilities of the business to make us more competitive. That may
be through the refinement of the strategy to reflect prevailing market
conditions, through improvements to our processes and procedures
embracing digitisation and robotics or the upskilling of our workforce.
We have a robust bid pipeline, and we aim to convert this into projects
which we execute as planned. Institutionalising the way we have
automated the ‘Lessons Learned’ system into our processes will enhance
our capabilities, reliability, competitiveness and reduce our risks.
We saw this process in action during 2018 as we continued to execute
the East Anglia One project, with its challenges, and used those
learnings to improve our performance. These included considerable
investment in new resources, transparent automated manpower
forecasting, greater scrutiny of benchmark data for bidding norms,
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.
Throughout 2018 we continued to invest in acquiring additional skills
page 28. We are increasingly moving into the EPC(I) space, and
we are working to ensure that our people are equipped to win and
execute such projects.
Converting our pipeline into new awards
The enhancements to our capabilities implemented during 2018
culminated in a number of major positive achievements at the end of the
year. In November, Lamprell was included on Saudi Aramco’s exclusive
LTA programme, and this was quickly followed by the award of a major
contract in each of our target markets. In the renewables market,
Lamprell won the contract for the fabrication of 48 jacket foundations,
with an estimated contract value of more than USD 200 million for the
Moray East offshore wind farm project. In our traditional oil & gas market,
we were successful in winning a project for the substantial construction
of two new build jackup rigs for the IMI yard in Saudi Arabia. All three
achievements form part of our growth strategy
page 10.
We will continue to focus on streamlining our internal processes and
procedures, especially in our bidding activities in 2019 and beyond. Our
bid pipeline has increased materially to approximately USD 6.4 billion,
with the inclusion on the LTA programme
identified further ways to maintain our competitiveness, in areas such
as automation and digitalisation
page 13 as well as partnering up
with other leading companies with complementary strengths. We firmly
believe that, by taking these steps, Lamprell will return to growth.
page 17 and we have
Inverness
Aberdeen
Scotland
Moray Firth
EASTERN
DEVELOPMENT
WESTERN
DEVELOPMENT
Total wind farm area 295km2
Moray Firth is approximately
22km offshore
Moray East contract award
Client name: GeoSea
Project name: Moray East wind farm
Scope of work: 48 jacket foundations
In late 2018 Lamprell received a new contract award from GeoSea
Procurement and Shipping Luxembourg for the procurement, fabrication
and supply of wind farm jacket foundations for the Moray East project.
Valued at more than USD 200 million, we will be fabricating 48 out of around
100 jacket foundations.
This is our second project in the renewables sector, and as such we
have been able to significantly reduce the risk profile. The project will run
with a new real time production control system which helps address any
issues at an early stage, all fabrication will take place in Lamprell’s UAE
yards and we will deliver the jackets to client at our quayside in Hamriyah.
Throughout 2018, we upskilled our workforce and enhanced our systems
and processes in order to enable us to deliver projects competitively and
safely in this growing sector of the market.
Oil & Gas
Renewables
26
Oil & Gas
Renewables
Delivering a perfect
safety record
Client name: Jacktel AS
Project name: Master Marine “Haven”
Scope: Accommodation unit conversion
In H1 2018 Lamprell completed the
major upgrade to the mobile operating
unit “Haven” for Jacktel AS, a wholly
owned subsidiary of Master Marine AS.
The project was completed on time,
on budget and with a perfect safety
record – even with 2.5 million manhours
on the project. The unit was successfully
delivered for operation offshore Norway in
April 2018 with a TRIR of 0.0.
Renewables market
Oil & Gas
Renewables
Throughout 2018 Lamprell continued to fabricate and deliver wind
turbine jacket foundations and piles for the East Anglia One wind
farm project to its client ScottishPower Renewables (“SPR”). The total
workscope consisted of 42 jackets, 18 flatpack jackets as well as
significant grillage and sea fastening totalling over 70,000 tonnes of
steel. This project helped create jobs in the UK through Lamprell’s
collaboration with Harland & Wolff, our subcontractor in Belfast.
The UAE-based fabrication was fully completed in H2 with all 42
jackets delivered to Vlissingen where they have been undergoing
inspections and final handover protocols prior to installation by the
client. The other 18 jacket components were delivered to Harland
& Wolff for assembly at its facility in Northern Ireland. Following
the announcement in H2 2018 by Harland & Wolff regarding its
restructuring, Lamprell allocated additional resources to their
facility in Belfast where we actively managed the assembly of the
outstanding jackets. There have been significant challenges on
the project but, as it nears completion, we are actively supporting
activities in both Vlissingen and in Belfast to complete the final
certification and handover protocols in time for the client’s installation
campaign. This will be achieved pursuant to a detailed process
for delivery of the jackets set out in a comfort letter which aims to
ensure that the project can be completed successfully with minimal
impact on either party. With this in mind, our top operational priority
is for the timely delivery and installation of all the jackets, and we
will be working closely with SPR to achieve this during 2019.
Operationally the project has been challenging, and Lamprell has
gained many valuable lessons which we have implemented to ensure
that we can participate effectively and profitably in similar contracts in
what continues to be a large and fast-growing market. This has been
successful with the contract award in December 2018 from GeoSea
for a renewables sector project involving the fabrication of jacket
foundations for the Moray East offshore wind farm project. Lamprell
will fabricate 45 out of approximately 100 jacket foundations required
for the wind farm, plus three jackets for the offshore substations also
being installed for use on the project. The jackets will be delivered
from Lamprell’s Hamriyah facility in the UAE and then transported by
GeoSea to the wind farm offshore Scotland.
This demonstrates our commitment to the renewables industry which,
based on lessons learned, remains a strategic focus area
for Lamprell.
page 10
Supporting our Saudi clients
Client name: International Maritime Industries
Project name: IMI Rig 1 and 2
Scope: Two new build jackup rigs
In December 2018 Lamprell received an
award from IMI confirming its intent to award a
Oil & Gas
subcontract to Lamprell for the construction of
two jackup units, with a strong focus on local
Saudi work.
Renewables
Oil & gas market
Rigs
Oil & Gas
Following the completion of upgrade works to the accommodation
service vessel “Haven”, Lamprell transported the unit to Norway where
it was successfully delivered to our client, Master Marine, in April 2018
on time and on budget. The Group was pleased to celebrate
a significant project safety milestone of zero recordable incidents.
Renewables
The construction of the IMI maritime venture is progressing. The
delivery dates for the individual zones of the yard are constantly being
reviewed to meet local capacity requirements, although the overall
delivery date remains unchanged.
The IMI joint venture has proven our commitment to invest in and
establish our local presence in Saudi Arabia and in December 2018
IMI and Lamprell signed a letter of intent for the award of two rigs.
Early in 2018 Lamprell finalised its proprietary LJ43 jackup rig design
in collaboration with GustoMSC. This is a major milestone in Lamprell’s
history as it looks to create value for its shareholders through the
development of intellectual property in its core areas of expertise. This
is an advanced drilling rig with the highest level of safe, efficient and
reliable drilling capabilities. It combines Lamprell’s system integration
capability, detailed engineering expertise and construction experience
with the robust and advanced technology of GustoMSC designs, all of
which will enable highly efficient drilling. This state-of-the art design is
highly adaptable for use in a wide array of offshore locations around the
world and strengthens our competitive position in our core rig market.
In 2018 Lamprell refurbished a record 23 jackup drilling rigs and
stacked rigs for various clients. In our land rig division, Lamprell worked
on several small but important projects.
EPC(I)
In November 2018, Lamprell and its consortium partner Boskalis were
selected as LTA contractors by Saudi Aramco. The consortium has
the right to bid on offshore EPCI oil & gas projects without additional
technical evaluation, reducing the length of time between tender and
award, and expects to bid on more than USD 3 billion worth of
LTA capital projects per annum, commencing in 2019.
Contracting Services
Our minor business lines including O&M and Sunbelt continued
to supply skilled workers and provide safety services, safely and
reliably to our clients during 2018, consistent with our core values.
These lines, while small, deliver a regular and profitable return to
Lamprell’s stakeholders.
27
Lamprell plc Annual Report and Accounts 2018Strategic report Our sustainable approach
To ensure an enduring and sustainable
business, it’s essential that we align our
strategy, our core values and the culture of
the business and, by doing so, we create a
motivated, skilled and productive workforce
enabling us to achieve our strategic objectives,
as demonstrated by the progress in 2018.
Employee gender split*
as at 31 December 2018
91%|9%
female
male
2017: 92% | 8%
* Based on corporate function staff numbers. Gender
distribution for our total workforce, including yard staff,
is 98% male and 2% female.
Understanding what matters to our stakeholders
During 2018 we continued a highly visible and successful programme
of audits across HSES and Quality functions, alongside client visits and
staff training. We encourage and listen to feedback, striving continually
to improve, and in doing so maintaining our many business critical
certifications which form part of our operating business model.
The health and well-being of our workforce matter deeply to us.
Working closely with various service providers and in-house
professionals we have rolled out numerous well-being initiatives during
2018. This has included routine awareness sessions supported by
diagnostic testing for conditions such as diabetes, blood pressure,
vision, and thus helping to mitigate and manage a host of lifestyle-
related ailments.
We’re particularly proud of the work we’ve done in the year around
Human Rights and Labour Standards (“HRLS”) awareness. Our key
labour supply partners have all participated in a detailed qualification
questionnaire so that we can understand their current HRLS activities
and support them, where required, to meet our expectations. Across
both our office and yard-based populations, we’ve rolled out a
comprehensive communications and training programme to ensure
everyone has a proper understanding of the Company’s expectations
around HRLS and how it impacts each of them in their day-to-
day work. This is now embedded as part of our HSESQ induction
programme so that employees receive this at their first point of entry
into the organisation.
It’s all about our people
page 03. Defining the culture. Our people
Living our values
are at the very heart of what we do. Today we have more than 350
employees with over 15 years’ service each. As a service business,
it is our people, their attitude and skills which set us apart from our
competitors. We are therefore committed to developing, identifying and
nurturing future leaders, and enabling everyone within the business to
perform to their true potential.
We maintain strong employee engagement, optimise project
performance, execute work safely and thereby manage our risks
page 34. By doing this and through our large, diverse, multinational
and multitalented workforce we strive to deliver sustainable value to all
our stakeholders.
Investing in our people
Across the year, we delivered over 150,000 hours of training in both
the trade discipline and HSES fields through our dedicated Lamprell
Training and Assessment Centre. This equates to approximately four
days of training for every employee in the Group and highlights the
focus which we continue to place on upskilling our personnel. Looking
forward to 2019 we anticipate this number increasing significantly.
Against a corporate KPI of a maximum of 8%, voluntary attrition in the
Group was 6.64% (2017: 5.30%).
It is only through working closely with the many stakeholders that we can deliver long-lasting and sustainable results:
Waste division 2018
for our shareholders, employees, customers, contractors and the communities in which we operate.
(tonnes)
Waste division 2018
(tonnes)
Corporate social
responsibility
Landfill
Recycled
Wherever we work, we
are committed to being a
12%
responsible corporate citizen.
88%
We encourage a culture
of active community
engagement and support
a number of initiatives that
support local communities.
Recycled
8,400 tonnes
2017:13,745
A sustainable environment
is the preserve and right of
everyone.
We are committed to working
in an environmentally
Greenhouse gas emissions
responsible way and limiting
(tonnes CO2e gross)
any environmental impact
related to operations. Our
target is zero environmental
incidents reliably and
competitively.
Health & safety
Quality
Environment
We deliver world class
safety standards and leave
nothing to chance so we
can all go home safely. We
are relentless in keeping
our people safe. That’s our
commitment to everyone
who works for us and
alongside us.
00.0
million
Port Khalid
Quality is integral in
everything that we do. We are
driven by excellence and a
right-first-time attitude. Our
reputation is contingent on
how well we deliver value
to our customers and wider
stakeholders.
Jebel Ali
Hamriyah
00.0
million
00.0
million
Port Khalid
00.0
million
Manhours worked without injury
Million manhours
Jebel Ali
Hamriyah
00.0
million
00.0
million
Landfill
Recycled
12%
Employee welfare
88%
We are committed to the
Recycled
well-being and welfare of
8,400 tonnes
all our employees. Through
2017:13,745
a number of regular
corporate wellness initiatives
underpinned by employment
benefits, we watch out for the
benefit of all our employees.
Waste division 2018
(tonnes)
Landfill
Recycled
12%
88%
Recycled
8,400 tonnes
2017:13,745
Waste division 2018
(tonnes)
Landfill
Recycled
12%
88%
Recycled
8,400 tonnes
2017:13,745
Waste division 2018
(tonnes)
Landfill
Recycled
12%
88%
Recycled
8,400 tonnes
2017:13,745
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
TRIR Actual
TRIR Target
0.29
0.29
0.28
28
28
28
Port Khalid
3
3
00.0
million
t
o
o
f
d
a
7
e
h
Greenhouse gas emissions
(tonnes CO2e gross)
Rolling monthly total recordable injury rate (TRIR)
0.27
January 2018 to December 2018
Year 2018
0.25
TRIR Target, 0.27
TRIR Actual
TRIR Target
Port Khalid
4
6
9
,
9
5
00.0
5
0
million
0
,
2
5
4
5
9
,
8
7
Jebel Ali
00.0
million
4
5
9
,
8
7
Hamriyah
3
2
0
,
3
00.0
3
million
5
3
3
,
1
2
4
6
9
,
9
5
5
0
0
,
2
5
Greenhouse gas emissions
(tonnes CO2e gross)
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
Year 2018
TRIR Actual
TRIR Target
TRIR Target, 0.27
0.29
0.29
0.21
0.28
0.27
0.18
0.25
0.16
0.29
0.16
0.29
0.16
0.16
0.21
0.15
0.18
0.27
0.28
0.16
0.25
0.16
0.21
0.15
0.18
Year 2018
TRIR Target, 0.27
0.16
0.16
0.15
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
0.16
0.16
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
0.16
0.16
7
7
5
5
3
28
Manhours worked without injury
Greenhouse gas emissions
Million manhours
(tonnes CO2e gross)
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
TRIR Actual
TRIR Target
28
Port Khalid
e
b
y
d
o
e
l
k
n
a
e
y
e
g
e
e
Jebel Ali
l
c
a
f
d
n
a
)
s
(
r
d
g
n
n
a
fi
h
00.0
million
Incidents breakdown
00.0
million
(by body part throughout 2018)
Jebel Ali
Hamriyah
00.0
million
00.0
million
7
7
Manhours worked without injury
5
5
Million manhours
3
3
3
2
2
2
2
2
2
1
1
1
1
1
1
e
h
e
Hamriyah
u
7
t
n
k
o
5
m
h
g
i
h
t
5
Greenhouse gas emissions
r
(tonnes CO2e gross)
w
o
b
l
e
3
m
r
a
e
o
f
2
e
s
o
n
t
s
i
r
w
2
2
k
c
a
b
3
e
c
a
f
r
a
e
3
t
o
o
f
7
d
a
e
h
7
e
e
n
k
h
t
u
5
o
m
4
h
5
g
9
i
,
h
8
t
7
5
00.0
million
y
d
o
e
l
k
n
e
y
e
g
e
l
Manhours worked without injury
d
b
a
Million manhours
a
fi
d
n
a
)
s
(
r
e
g
n
n
h
Incidents breakdown
(by body part throughout 2018)
1
k
c
a
b
1
1
1
1
1
r
a
e
w
o
b
l
e
m
r
a
e
r
o
f
e
s
o
n
s
i
r
w
1
k
c
a
b
r
a
e
3
3
4
6
9
,
9
5
1
1
1
1
1
w
o
b
l
e
3
m
r
a
e
r
o
f
2
e
s
o
n
t
s
i
r
w
2
2
5
0
0
,
d
2
a
5
e
h
e
e
n
k
h
t
u
o
m
3
2
0
,
3
3
1
k
c
a
b
h
g
i
h
t
5
3
3
,
1
2
2014
2015
2016
2017
2018
y
d
o
b
e
l
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
4
5
9
,
8
7
d
n
a
)
s
(
r
e
d
g
n
n
a
fi
h
4
6
9
,
5
Incidents breakdown
9
0
(by body part throughout 2018)
2
t
5
0
,
5
3
2
0
,
3
3
5
3
3
,
1
2
2014
2015
Manhours worked without injury
2016
2017
2018
Million manhours
Rolling monthly total recordable injury rate (TRIR)
4
,
4
0.29
5
0.29
9
,
8
7
3
2
0
3
5
3
3
,
1
2
0.27
6
9
,
9
5
0.28
5
0
0
,
2
5
January 2018 to December 2018
3
0.29
2014
0.29
2015
0.28
2016
2017
2018
0.27
0.25
1
1
1
1
1
r
a
e
w
o
b
l
e
m
r
a
e
r
o
f
e
s
o
n
t
s
i
r
w
TRIR Actual
0.25
TRIR Target
Year 2018
TRIR Target, 0.27
0.21
3
2
0
,
3
3
5
3
Year 2018
3
,
0.18
TRIR Target, 0.27
2
1
2014
0.21
2015
2016
2017
2018
0.16
0.16
0.16
0.16
0.15
0.18
Jan
Feb Mar
0.16
Apr May
0.16
0.16
0.16
Jun
0.15
Jul
Aug
Sep Oct Nov Dec
2014
2015
2016
2017
2018
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
28
d
n
a
)
s
(
r
e
d
g
n
n
a
fi
h
7
7
5
5
y
d
o
b
e
l
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
d
a
e
h
e
e
n
k
h
t
u
o
m
h
g
i
h
t
2
2
2
y
d
o
b
e
l
k
n
a
Incidents breakdown
e
y
e
g
e
l
(by body part throughout 2018)
c
o
e
t
t
o
f
e
n
k
h
u
o
m
h
g
i
h
t
1
k
c
a
b
1
1
1
1
1
r
a
e
w
o
b
l
e
m
r
a
e
r
o
f
e
s
o
n
t
s
i
r
w
d
n
a
)
s
(
r
e
d
g
n
n
a
fi
3
h
3
d
a
e
h
3
e
a
f
Incidents breakdown
(by body part throughout 2018)
Investing in our people –
an interview with
Kaye Krause-Whiteing
Vice President,
Human Resources & Corporate Services
What makes Lamprell a good place to
work and sets you apart?
Lamprell promotes a culture which values
fairness, diversity and inclusivity. We have
low attrition rates across the business,
compared to industry norms, and a work-
life balance is respected. For example,
we can engage with our on-site clinic to
ensure support is given to employees with
pre-existing health challenges as well as
to those who may develop a condition
during employment. This is particularly
important considering that the majority
of our employees are expatriates and so
don’t necessarily have the usual family
support networks in place to deal with
problems, should they find themselves in a
predicament.
We repeatedly hear from our yard teams
that they like working for Lamprell. Our
resolute focus on safety, our yard staff
accommodation and associated recreation,
transportation facilities and quality of our
medical and life insurances are attractive to
employees and differentiate us. We believe
that this helps us to be an employer of
choice in the region.
And while time in the workplace needs
to be focused and serious, it also needs
to be enjoyable. To this end we have a
number of extra-curricular events running
throughout the year catering for a variety
of preferences: sporting events, quizzes
and talent shows, to name but a few. In fact,
two of our winning entries in Lamprell’s Got
Talent 2018, secured themselves invitations
from a local Dubai radio station to perform in
their local talent sessions.
In the past Lamprell has won the
prestigious Daman Corporate Health
Award on three consecutive occasions.
Is Lamprell still making progress on
employee welfare initiatives?
Everyone is fully aligned with the mantra that
a healthy employee is a happy employee
and our team is very proactive in the
welfare space. We continue to build on the
philosophy of promoting employee wellness
through a number of campaigns which are
underpinned by well-attended and popular
workshops throughout the year. A new route
to faster medical assessment was also
established in the year via empanelment
of our on-site clinic into the insurance
network. This has paved the way for faster
and free GP consultations, the prompt issue
of prescriptions and referrals to external
facilities as necessary.
How does Lamprell approach succession
planning and employee development?
This is an area that has received
increased focus in 2018. We’ve initiated
the development of competency matrices
for all our functions so that everyone
understands what is required of them for
any particular role and what they need to
do in order to progress. We have kicked
off a tailored management development
programme which will run for approximately
eight months, initially with the Executive
Committee, and in January 2019 this is also
being expanded to cover the next level of
management, a cohort of around 50.
What has been the highlight of your first
year with the organisation?
There have been many highlights but
from my first day, the prevailing culture of
‘one Lamprell’ that has embraced me is
compelling. That’s testimony to everyone
and their drive to take the Group’s values
page 03 into account in their daily
roles. Of course, we have lots of things we
want to do as a leadership team and in our
respective functional areas. It’s an exciting
time for the organisation, and that brings
with it a real vitality.
29
Lamprell plc Annual Report and Accounts 2018Strategic report Sustainability report continued
influence to obtain a commitment from our
workers and subcontractors to work safely.
HSES improvement plans will be revisited
and refreshed where needed, and risk
workshops will be carried out in conjunction
with operations supervision to address any
potential risk areas.
We plan to invest in and run Institution of
Occupational Safety and Health managing
safety courses to upskill many of our
supervisors making them more effective
safety leaders, building on what they
already know. Our new ‘Shields for Life’
programme will become the cornerstone
of our approach to managing high-risk
activities safely and will be enforced across
the Group. Finally, project readiness reviews
will be undertaken in advance to ensure all
HSESQ risks are understood with mitigation
plans in place.
First class safety –
an interview with
Iain Walker
Vice President,
HSESQ
It has been a record year for safety at
Lamprell, what key actions did you take to
achieve this?
When we speak about safety, we have
redirected the focus to demonstrate how
good safety approaches can benefit your
life, rather than how a negative approach
can destroy it. We continued reviewing
our previous HSES improvement plans
to ensure they were still valid, improved
our planning by taking a more proactive
approach and increased direct engagement
with our workforce. We rolled out a ‘Safe
Start’ initiative in H1 and encouraged a
‘Finish Strong’ initiative in H2. We enhanced
how we promoted and ran our campaigns
by turning them into events involving the
whole workforce. Our leadership spoke
authentically about safety, our core values
page 03 and our expectations. We also
held project and general management as
well as supervisory levels more accountable
for the safety of those under their control.
We kept safety conversations alive.
What are the main challenges you
foresee in 2019 when it comes to safety?
We expect the manpower level to begin
increasing in 2019 to help execute the new
projects which were announced towards
page 20. Moving
the back end of 2018
from a low period of activity to more typical
higher levels will be our main challenge.
Although our systems and processes are
robust, new subcontractors and personnel
who have been on long leave will be
required to undergo refresher inductions in
the Lamprell way of working, ensuring they
meet and maintain our safety standards
and expectations.
Keeping people safe and informed will be
an ongoing effort as we begin to execute
work activities which range from low to high
risk. Improving on our safety performance
from 2018, where we achieved the best
performance in the Company’s history, will
also be a challenge. Setting good safety
standards and demonstrating strong safety
leadership will be key success factors.
How do you plan to mitigate these
challenges?
In January 2019 we rolled out our already
successful ‘Safe Start’ programme across
the Group and invited all subcontractor
leadership who we anticipate will be
working with us, to participate in the
programme. We are committed to gaining
a ‘one vision’ buy-in for our safety goals,
consistently share information and use our
30
Leading in
safety
Following on from six months’
consecutive improvement in
H2 2017, the goal in 2018 was
to keep the momentum going
and to deliver our best safety
performance ever. At the end
of 2018 we achieved a
historical record within the
Group, our lowest ever TRIR of
0.15. Our goal in 2019 will be
to continue to reduce injuries
and incidents and continue to
have a safety performance
which is recognised by our
industry peers as world class.
down
66%
down
86%
down
69%
Total recordable injury rate
Nine cases compared to
27 cases in 2017.
Day away from work cases
One case compared to
seven cases in 2017.
Hand injury
frequency rate
unchanged
0%
High potential incident frequency rate
Road transport incident
frequency rate
unchanged
0%
down
66%
down
27%
down
45%
Dropped object incident
frequency rate
down
24%
Environmental incident
frequency rate
Security incident
frequency rate
Asset damage incident frequency rate
Health and safety
Highlights
Exceeded TRIR target of 0.27 and obtained the lowest rate in
Company history of 0.15, a 51% reduction
Recordable injuries reduced by 66% compared to 2017
Surveillance audits for OHSAS 18001 completed with a
recommendation by Bureau Veritas to retain certification
Jebel Ali site recognised with coveted “A” grade safety standard by
Dubai Municipality
Great strides were made in 2018 to break the four-year plateau in
Lamprell’s safety performance which had previously stayed in the
range of 0.29 – 0.30 between 2014 and 2017. At the end of 2018,
our goal was achieved, and we completed the year with a TRIR of
0.15, our safety best performance since becoming a listed company.
All efforts will be made to ensure this trend continues throughout
2019 and beyond. Recordable injuries were reduced by 66% with a
significant contributing factor being the massive reduction in hand and
finger injuries compared to the previous year, as well as a incident-free
year for the Contracting Services business unit which supports remote
site activities.
Greenhouse gas emissions
(tonnes CO2e gross)
Port Khalid
4
5
9
,
8
7
Jebel Ali
00.0
million
00.0
million
4
6
9
,
9
5
Greenhouse gas emissions
(tonnes CO2e gross)
We were successful in the mid-year surveillance audit for our
OHSAS 18001 Safety Management System. We comply with changes
in international standards and, to this end, training was completed
in December to enable us to progress with the transition from
OHSAS 18001 to the new ISO 45001 standard in time for the next full
recertification audit which is due in 2019. With around 45 different
certifications in the organisation to maintain, it is testament to the effort
and determination of everyone involved whenever another successful
audit is completed. 2019 is set to be another very busy year for third
party audits.
00.0
million
Dubai Municipality conducted a surprise visit to our Jebel Ali facility to
review the safety standards being employed. The visit received very
positive feedback, and the auditors subsequently granted the site
an “A” grade rating. This level of rating is recognised as the highest
Hamriyah
5
0
0
,
2
5
5
3
3
,
1
2
3
2
0
,
3
3
4
5
9
,
8
7
Manhours worked without injury
Million manhours
2014
2016
2015
2017
2018
4
6
9
,
9
5
5
0
0
,
2
5
3
2
0
,
3
3
5
3
3
,
1
2
Waste division 2018
(tonnes)
Landfill
Recycled
12%
88%
Recycled
8,400 tonnes
2017:13,745
standard which can be achieved. We know our Company values
page 03 are taken seriously and never more so when it comes to
Landfill
safety, but this result from a surprise visit was validation that we truly do
Recycled
what we say.
Waste division 2018
(tonnes)
12%
As a result of the 2017 commitment to improve the quality of Lamprell’s
HSES campaigns, in 2018 we switched the focus from quantity to
quality and limited ourselves to two in an effort to drive key messages
more effectively. We turned them into major events and allowed for
more time to communicate and embed the messaging. This approach
paid its dividends, and the change helped to achieve significant
improvements. The hand injury prevention campaign saw a 69%
decrease in the number of hand and finger injuries, and our heat stress
awareness campaign helped deliver a 100% decrease in the number
of heat stress cases from four in 2017 to zero in 2018.
Recycled
8,400 tonnes
2017:13,745
88%
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
TRIR Actual
TRIR Target
0.29
0.29
0.28
0.27
0.25
Year 2018
TRIR Target, 0.27
0.21
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
TRIR Actual
TRIR Target
0.18
0.29
0.29
0.28
0.16
0.16
0.16
0.16
0.27
0.15
0.25
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Year 2018
TRIR Target, 0.27
0.21
0.18
0.16
0.16
0.16
0.16
0.15
Jun
Jul
Aug
Sep Oct Nov Dec
3
3
3
2
2
2
y
d
o
b
e
l
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
d
a
e
h
e
e
n
k
h
t
u
o
m
h
g
i
h
t
1
k
c
a
b
1
1
1
1
1
r
a
e
w
o
b
e
l
m
r
a
e
r
o
f
e
s
o
n
t
s
i
r
w
2014
2015
2016
2017
2018
Jan
Feb Mar
Apr May
31
28
d
n
)
s
(
r
a
e
d
g
n
n
a
fi
h
7
7
5
5
3
3
3
2
2
2
y
d
o
b
e
l
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
d
a
e
h
e
e
n
k
h
t
u
o
m
h
g
i
h
t
Incidents breakdown
(by body part throughout 2018)
Port Khalid
00.0
million
Jebel Ali
Hamriyah
00.0
million
00.0
million
Manhours worked without injury
Million manhours
1
1
1
1
1
e
s
o
n
t
s
i
r
w
r
a
e
w
o
b
l
e
m
r
a
e
r
o
f
7
7
5
5
28
1
k
c
a
b
d
n
a
)
s
(
r
e
d
g
n
n
a
fi
h
Incidents breakdown
(by body part throughout 2018)
Lamprell plc Annual Report and Accounts 2018Strategic report
Waste division 2018
(tonnes)
Landfill
Recycled
12%
88%
Recycled
8,400 tonnes
2017:13,745
0.29
0.29
0.28
0.27
0.25
Waste division 2018
(tonnes)
0.21
Year 2018
TRIR Target, 0.27
Landfill
Recycled
12%
0.18
0.16
0.16
0.16
0.16
0.15
88%
Recycled
8,400 tonnes
Jan
Feb Mar
2017:13,745
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
TRIR Actual
TRIR Target
0.29
0.29
0.28
0.27
0.25
Year 2018
TRIR Target, 0.27
0.21
0.18
0.16
0.16
0.16
0.16
0.15
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
TRIR Actual
TRIR Target
Year 2018
TRIR Target, 0.27
Port Khalid
00.0
million
Greenhouse gas emissions
(tonnes CO2e gross)
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
TRIR Actual
TRIR Target
Sustainability report continued
Jebel Ali
28
)
s
(
r
e
g
n
fi
d
n
a
d
n
a
h
We successfully
obtained these
new certifications
in 2018: ISO 3834
and EN 1090
7
7
5
5
3
3
3
2
2
2
y
d
o
b
l
e
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
d
a
e
h
e
e
n
k
h
t
u
o
m
h
g
h
t
i
1
k
c
a
b
Waste division 2018
Hamriyah
(tonnes)
Waste division 2018
(tonnes)
Landfill
Recycled
00.0
million
00.0
million
Landfill
Recycled
12%
Manhours worked without injury
Million manhours
88%
88%
12%
Recycled
8,400 tonnes
Recycled
2017:13,745
8,400 tonnes
2017:13,745
1
1
1
1
1
r
a
e
l
w
t
s
i
r
e
s
o
n
m
r
a
e
r
o
f
w
o
b
e
88% of waste was diverted from
landfill. 8,400 tonnes was recycled
and 1,100 tonnes was landfilled.
Incidents breakdown
(by body part throughout 2018)
Quality
Greenhouse gas emissions
(tonnes CO2e gross)
Highlights
4
5
9
,
8
7
4
6
9
,
9
5
5
0
0
,
2
5
3
2
0
,
3
3
5
3
3
,
1
2
2014
2015
2016
2017
2018
Lamprell reduced ‘gross CO2e emissions’ by 40% and
‘intensity CO2e emissions’ by 1.5% from its operations
in 2018. Intensity emissions are measured by tonnes
of CO2e emitted per manhour worked.
Waste division 2018
(tonnes)
Environment
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
Highlights
TRIR Actual
TRIR Target
Landfill
Recycled
12%
40% reduction in annual gross emissions from Group operations
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
0.27
0.25
88% of waste was diverted from landfill
Year 2018
TRIR Target, 0.27
Zero environmental non-compliance events
TRIR Actual
TRIR Target
0.28
Maintained certification to latest ISO:14001 2015 EMS standard
Greenhouse gas emissions
(tonnes CO2e gross)
0.21
88%
Recycled
8,400 tonnes
2017:13,745
28
Port Khalid
00.0
million
Port Khalid
Jebel Ali
00.0
million
00.0
million
Hamriyah
00.0
million
Jebel Ali
Hamriyah
Manhours worked without injury
Million manhours
00.0
million
00.0
million
7
7
5
5
Manhours worked without injury
3
Million manhours
3
3
2
2
2
7
7
d
n
a
)
s
(
r
e
d
g
n
n
a
fi
h
5
5
y
d
o
b
e
l
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
d
a
e
h
e
e
n
k
h
t
u
o
m
h
g
i
h
t
3
3
3
2
2
2
Incidents breakdown
(by body part throughout 2018)
y
d
o
b
e
l
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
d
a
e
h
e
e
n
k
h
t
u
o
m
h
g
i
h
t
1
k
c
a
b
1
1
1
1
1
r
a
e
w
o
b
l
e
m
r
a
e
r
o
f
e
s
o
n
t
s
i
r
w
1
k
c
a
b
1
1
1
1
1
r
a
e
w
o
b
l
e
m
r
a
e
r
o
f
e
s
o
n
t
s
i
r
w
28
d
n
)
s
(
a
r
e
d
g
n
n
a
fi
h
Incidents breakdown
(by body part throughout 2018)
00.0
million
28
d
n
a
)
s
(
r
e
d
g
n
n
a
fi
h
Manhours worked without injury
Million manhours
7
7
5
5
3
3
3
2
2
2
y
d
o
b
e
l
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
d
a
e
h
e
e
n
k
h
t
u
o
m
h
g
i
h
t
1
k
c
a
b
1
1
1
1
1
r
a
e
w
o
b
l
e
m
r
a
e
r
o
f
e
s
o
n
t
s
i
r
w
Greenhouse gas emissions
(tonnes CO2e gross)
4
5
9
,
8
7
4
6
9
,
9
5
5
0
0
,
2
5
3
2
0
,
3
3
4
5
9
,
8
7
2014
2015
2016
2017
3
2
0
,
3
3
5
3
3
,
1
2
2014
2015
2016
2017
2018
4
6
9
,
9
5
5
0
0
,
2
5
Port Khalid
00.0
million
Jebel Ali
Hamriyah
Achieved CE certification allowing us to target European markets
more efficiently when bidding for new work
0.29
0.29
0.28
Considerable improvements made to 2018 quality strategy which
aims to ensure HSESQ performance remains competitive
0.29
0.29
Port Khalid
Successfully retained API Q1, monogram licences API4F, 16C
along with ISO 9001:2015 and ISO/TS 29001 certifications
00.0
0.27
million
As part of Lamprell’s strategy to target clients in the European market,
we successfully gained a number of important certifications in 2018
relating to our facilities including the CE marking (EN 1090-1:2009/
28
A1:2011) and welding quality management system (ISO 3834-2:2005)
which were certified by DNV-GL. These certifications assure that our
systems and practices comply with strict European Union regulations
and qualify us to supply products to Europe. The certifications secured
by Lamprell cover nine different welding processes.
00.0
million
Feb Mar
Jebel Ali
5
3
3
,
1
2
2018
Hamriyah
00.0
million
Jan
Manhours worked without injury
Million manhours
Apr May
00.0
million
Incidents breakdown
(by body part throughout 2018)
3
5
5
7
7
Jan
Greenhouse gas emissions
(tonnes CO2e gross)
3
3
2
Throughout 2018 various quality-related training activities were
undertaken. The American Society of Quality conducted root
cause analysis training in 2018 which enhanced the Quality team’s
skills to perform effective analysis. Also, Lamprell’s internal Quality
Feb Mar
Management System auditors attended an ISO 9001:2015 auditor
transition training led by Bureau Veritas. The course qualified ten
internal auditors who are now capable of performing effective audits
m
d
d
a
n
across Lamprell’s facilities. A number of additional training sessions
r
e
a
a
h
e
d
were delivered across various functions by the Quality department
r
n
o
a
f
including API Q1, API 4F, API 16C, API product specification, non-
h
destructive testing, Saudi Aramco requirements, welding engineering,
counterfeit awareness and substandard materials training. These
activities ensure that Lamprell is applying best practices in its
quality training.
)
s
(
r
e
g
n
fi
4
5
9
,
8
7
h
t
u
o
m
w
o
b
e
e
k
n
a
y
d
o
b
h
g
h
t
k
c
a
b
e
e
n
k
e
c
a
f
t
o
o
f
e
y
e
r
a
e
g
e
2
2
1
1
1
1
i
l
l
l
4
6
9
,
9
5
5
0
0
,
2
5
Following an intense four-day audit by multiple Bureau Veritas auditors,
Lamprell passed several surveillance tests and retained its ISO
9001:2015 and ISO TS29001 certifications. We were also successful
in retaining the API Q1, API 4F and API 16C licenses for our Land Rig
Services division following stringent audits by API.
3
2
0
,
3
3
5
3
3
,
1
2
Incidents breakdown
(by body part throughout 2018)
32
Year 2018
TRIR Target, 0.27
0.16
0.16
0.16
0.18
0.21
0.25
2018 was another successful year for Lamprell in improving its
environmental performance, including a reduction in both gross and
0.16
intensity CO2e emissions from Company operations. In addition, the
Group remained fully compliant with all applicable environmental
regulations and once again diverted the majority of operational waste
from landfill through onsite segregation and recycling efforts. We also
4
5
participated in the Carbon Disclosure Project whilst implementing a
9
0.16
,
Sep Oct Nov Dec
8
number of new onsite pollution prevention controls. These included
7
integrity audits of all hazardous material storage areas and marine
operation vessels and monthly ‘litter hunts’ of active project areas to
prevent environmental contamination.
Aug
0.16
4
6
9
,
9
5
0.16
0.18
0.16
0.15
0.15
Jun
Jul
,
5
0
0
2
5
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
3
2
0
,
3
3
Apr May
1
e
s
o
n
1
Jul
Jun
Aug
Sep Oct Nov Dec
In 2018 Lamprell finalised a major third party energy audit and began
instituting a range of energy conservation measures, including
replacing all diesel generators and instead running electricity off
the grid, to further promote the strength and sustainability of the
organisation moving forward. When fully implemented, these initiatives
will help the Company save an estimated USD 0.6 million on energy
costs over four years, with an associated abatement of 830 tonnes of
CO2e, which would otherwise have been emitted to the atmosphere.
5
3
3
,
1
2
2017
2018
2014
2015
2016
0.25
0.28
0.29
0.27
0.29
t
s
i
r
w
In Q4 2018, following a rigorous assessment of the pipe shop’s
environmental impact, regulators granted environmental clearance
for the pipe shop to commence operations. This is a major milestone
in the permission approvals process for the facility and demonstrates
the importance which Lamprell places around strong environmental
protection measures.
0.21
0.18
0.16
0.16
0.16
0.16
0.15
2014
2015
2016
2017
2018
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
Cricket at Lamprell is a long established institution and teams battle it out
each year to be crowned as the indoor cricket champions.
Lamprell takes employee welfare seriously and organises a wide range of
wellness activities and events throughout the year.
Corporate social responsibility
Employee welfare
Highlights
Highlights
Our social investment focuses on science, technology, engineering
and mathematics (“STEM”) education initiatives as well as
supporting those communities which may be less privileged
Our employees and Lamprell supported the flood-stricken state of
Kerala through donations amounting to USD 50,000
We donated surplus furniture to UAE based Al Ihsan Charity
Association which supports community individuals with low incomes
Regular programme of events and campaigns running throughout
the year
Diagnostic testing and workshops held for a range of lifestyle-
related conditions
Numerous fitness-promoting team engagement competitions:
football, cricket, basketball, athletics
Waste division 2018
(tonnes)
Landfill
Recycled
12%
88%
Recycled
8,400 tonnes
2017:13,745
Waste division 2018
(tonnes)
Landfill
Recycled
12%
88%
Recycled
8,400 tonnes
2017:13,745
28
d
n
a
)
s
(
r
e
d
g
n
n
a
fi
h
7
7
5
5
3
3
3
y
d
o
b
e
l
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
d
a
e
h
2
e
e
n
k
Incidents breakdown
(by body part throughout 2018)
Port Khalid
One of the most rewarding exercises of the year was the response to
the devastating flooding in the Indian state of Kerala. Across the entire
workforce, people wanted to help, donating USD 44,500 with Lamprell
contributing to bring the total up to USD 50,000 which was donated to
the distress relief fund. This is another excellent illustration of how our
workforce embraces our values
page 03 in their daily actions.
00.0
million
Jebel Ali
Hamriyah
Port Khalid
Greenhouse gas emissions
(tonnes CO2e gross)
00.0
million
We had a number of furniture and white goods items in storage in
one of our warehouse facilities which were no longer required in the
business. Having identified what could be safely passed on we offered
them to Al-Ihsan Charity Association to be placed with low-income
Manhours worked without injury
families. These were donated and gratefully received during the Holy
28
Million manhours
month of Ramadan.
4
5
Jebel Ali
9
,
8
7
00.0
million
00.0
million
We continue to build on our strategy of promoting employee well-being
and work-life balance underpinned by a series of wellness campaigns.
This kicked off in January with a health camp at the Thumbay Hospital
Day Care facility. Free consultation was offered across all medical
specialities. There were health awareness events focusing on areas
such as ergonomics, blood pressure, cholesterol, summer heat
awareness and eyesight testing. The Group also helped to provide
influenza vaccinations across the workforce.
Greenhouse gas emissions
(tonnes CO2e gross)
Hamriyah
A major success was the inclusion of our Hamriyah medical facility
into the insurance network towards the end of the year. All employees
working at that location were given access to doctor consultations,
prompt issue of prescriptions and onward referral. For the Company,
it helps us maintain better control of our medical insurance thereby
keeping it competitive and able to offer optimum benefits to employees.
4
5
9
,
8
7
3
2
0
,
3
3
Once again the Group maintained its highly regarded and successful
heat stress awareness campaign during the hot summer months in
the UAE from June to September. A critical component is a focus
on early warning signs and the “Stop Work Authority” system when
temperatures and humidity exceed certain tolerance points. In a
country with the temperatures experienced in the UAE, we cannot
become complacent to such dangers.
5
3
3
,
1
2
4
6
9
,
9
5
5
0
0
,
2
5
2016
2017
2018
3
2
0
,
3
3
2015
00.0
million
4
6
9
,
9
5
00.0
5
0
million
0
,
2
5
Manhours worked without injury
Million manhours
Community is important to all Lamprell employees, and right on our
doorstep in Dubai we recently provided support to K9 Friends, a
shelter that rescues abandoned and stray dogs in the UAE and finds
them new homes. Our contribution helped towards the purchase and
2
1
1
installation of new air conditioning units.
2
1
1
1
1
h
t
u
o
m
h
g
h
t
i
k
c
a
b
r
a
7
e
w
7
o
b
e
l
m
r
a
e
5
r
o
f
e
s
o
n
5
t
s
i
r
w
3
3
3
2
2
2
y
d
o
b
l
e
k
n
a
e
y
e
g
e
l
e
c
a
f
t
o
o
f
d
a
e
h
e
e
n
k
h
t
u
o
m
h
g
h
t
i
)
s
(
r
e
g
n
fi
d
n
a
d
n
a
h
2014
1
k
c
a
b
Incidents breakdown
(by body part throughout 2018)
1
1
1
1
1
r
a
e
w
o
b
e
l
m
r
a
e
r
o
f
e
s
o
n
t
s
i
r
w
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
TRIR Actual
TRIR Target
0.29
0.29
0.28
0.27
0.25
Rolling monthly total recordable injury rate (TRIR)
January 2018 to December 2018
Year 2018
TRIR Actual
TRIR Target
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
5
3
3
,
1
2
TRIR Target, 0.27
0.29
0.29
0.28
0.21
0.18
0.16
0.16
0.16
0.16
0.27
0.15
0.25
0.21
Year 2018
TRIR Target, 0.27
0.18
0.16
0.16
0.16
0.16
0.15
2014
2015
2016
2017
2018
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
33
Lamprell plc Annual Report and Accounts 2018Strategic report
Principal risks and uncertainties
With the Board identifying the Group’s risk
management processes as a key priority for
2018, there were developments to embed the
lessons learned from the challenges faced
in 2017 and 2018 and to ensure that risk
management is a primary consideration in
everyday business decisions.
Linking the strategy and risk management
We believe that our approach to risk management provides a clear
framework that allows for effective decisions to be made on an
informed basis. Every employee within the organisation is authorised
and encouraged to highlight perceived risks which potentially need
to be managed. Typically, risks are identified either during project risk
management workshops, across departments or through the annual
strategy review and planning process; these are then logged and
allocated to the ‘risk owner’ within the business who is best placed
to manage each identified risk – for example, a Project Manager has
ultimate accountability for his/her project risks, but may delegate
day-to-day responsibility for a specific risk to someone within the
project team. Risk owners work with other key stakeholders including
management and our Board of Directors
that there is a full understanding of recorded risks. In addition, such
communication ensures that the approach to appropriate mitigation
and contingency strategies amongst stakeholders is aligned.
page 38 to ensure
The ERM process and all major risks are reviewed by senior
management and the Audit and Risk Committee
a year, as a minimum. The Audit and Risk Committee conducted
a series of ‘deep dive’ reviews for certain, high-value enterprise risks
and dedicated significant time in assessing the probability and an
impact (and on a gross/pre-mitigation and net/post-mitigation basis)
and the existing mitigations and controls as well as future actions to
offset the potential risk.
page 52 twice
2019 will see further rigour applied to our risk management processes
with the appointment of a new Group Risk Manager responsible for
the coordination of functional and operational risk registers within our
centralized Compass Risk Module, helping to lead the development of
executive risk dashboards and ensuring upwards alignment of major
risks within the ERM system. The ‘deep dive’ reviews will also continue
in 2019.
Principal risks and uncertainties for Lamprell
Strategic risks
1 Economic conditions
2 Mergers and aquisitions
Also, risk training and development plays a key part of learning and
Risk heat map
To help visualise our principal risks,
awareness within the Company, and our Project Execution University
we have plotted them on the heat
has recently rolled out a Project Risk Management training module.
map below. The individual risks
We continue to use the challenges experienced on the East Anglia One
are described in more detail on
t
project to ensure lessons learned are embedded into our processes.
c
a
the following pages.
p
While we use a single repository for all major risks that the Lamprell
m
Group faces – our Enterprise Risk Management (“ERM”) system – each
project risk register provides a valuable audit trail of our management
of risks through their respective lifecycles and these are then reviewed
by key stakeholders to transfer the lessons learned on to subsequent
similar projects.
4 Third party alliances
Financial risks
5 Ability to fund business
3 Ability to win new work
7 Project execution
Operational risks
6 Geopolitical
I
7
3
Lamprell faces a variety of risks, and these change annually
depending on internal and external factors. Our profiling of project
risks confirms that, as in previous years, the strategic category has the
highest number of key risks for this reporting period; however as we
move into 2019 we believe that there are signs of improvements with
the various strategic GCC investments and awards in the industrial
and energy sectors and, in addition, to the continued growth in the
renewable sector
8
page 07.
1
4
5
2
6
Analysis of risks within our business
Legal risks
8 Contractual commitments
Likelihood
High risk
Medium risk
Low risk
33%
67%
25%
50%
40%
20%
33%
67%
Strategic
Financial
Operational
Compliance
and legal
25%
40%
Note: The graphic represents all enterprise
risks faced by the Group.
highlight higher priority risks.
pages 35 and 36
34
Risk heat map
Strategic risks
To help visualise our principal risks,
1 Economic conditions
we have plotted them on the heat
map below. The individual risks
are described in more detail on
the following pages.
t
c
a
p
m
I
2 Mergers and aquisitions
3 Ability to win new work
4 Third party alliances
Financial risks
5 Ability to fund business
Operational risks
6 Geopolitical
7 Project execution
Legal risks
8 Contractual commitments
Analysis of risks within our business
3
1
7
5
2
4
8
6
Likelihood
Level of risk
High risk
Medium risk
Low risk
Strategic risks
Risk description
33%
67%
25%
50%
40%
20%
33%
67%
Strategic
Financial
Operational
Compliance
and legal
Business implication
Mitigation
Economic conditions
Risk to strategy
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
Lack of approval and implementation of
significant investment initiatives by its target
client market may affect the Group’s position
in the marketplace.
25%
Levels of expenditure by oil & gas
companies and those involved in
renewable energy directly affect the
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. In addition,
the potential impact from Brexit remains
unclear but could negatively impact our
commercial advantage for sales into the
UK or Europe.
• Target markets include geographies with low cost
40%
hydrocarbon reserves and stated plans for investment
such as Saudi Arabia and the UAE
page 04.
• Diversified portfolio to cover multiple market sectors –
new contracts for rigs and renewables won in late 2018.
• Robust bid pipeline increased to USD 6.4 billion by
31 December 2018.
• Client Relationship Management system ensures that we
retain close contact with clients and understand their needs.
• Active development of business partnerships to realise
our strategic objectives, to complement our existing
operational strengths.
With the prolonged downturn, recovering
levels of backlog and new strategic
opportunities, Lamprell is vulnerable to
an opportunistic approach for purchase
at a suppressed price.
• Our growth strategy and business model demonstrates
clearly how to generate value for the shareholders in the
longer term.
• The Group has made significant progress in its strategic
initiatives in 2018 and will take further steps in 2019.
Mergers and acquisitions
Risk to strategy
An opportunistic purchase could significantly
alter the intended strategic direction of the
Group, thus rendering current initiatives and
goals obsolete.
Risk change Unchanged
Risk to business model
A purchase of the Group 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
Lack of competitiveness may impede
Lamprell’s efforts in progressing existing
business areas and making a meaningful
entry into new markets.
Risk change Decreased
Risk to business model
Failing to provide reliable, on time, competitive
solutions may negatively affect the Group’s
reputation in the marketplace amongst current
and target clients.
The Group is dependent on a relatively
small number of contracts at any
given time, some of which are for the
same customers, and so 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.
• Lamprell’s major shareholder
page 49 can act as a
negative veto to hostile approaches based on unreasonably
low valuations.
• Our professional advisory and broking team provides
advice to the Board and senior management.
• Robust and diversified bid pipeline with high bidding activity.
• A highly customer focused business development team
targets markets with stated plans for investment.
• Use of benchmarking and estimating tools to establish
competitive pricing.
• Regular cost competitiveness workshops help to prioritise
key initiatives and drive down our cost base.
• Dedicated training and project reviews enhance the skillsets
for personnel.
• Increased frequency and greater depth of quality audits to
ensure standards and certifications are maintained.
• Focus on digitisation and robotics to increase efficiencies
and competitiveness.
Third party alliances
Risk to strategy
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
The success of the Group’s infiltration into
growth markets and diversification of business
offerings may be adversely affected by
inefficient relationships.
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
ineffective.
• Conclusion of consortium agreement with Boskalis de-risks
aspects of Saudi Aramco’s LTA programme.
• Lamprell Saudi Arabia joint venture agreement includes
clear strategic goal and partner obligations.
• External experts engaged as needed.
• Partner relationships developed at senior
management level.
• Board oversight of all joint venture/consortium initiatives –
to be developed further in 2019
page 47.
35
Lamprell plc Annual Report and Accounts 2018Strategic report 33%
67%
25%
50%
40%
20%
33%
67%
Strategic
Financial
Operational
Compliance
and legal
25%
40%
Principal risks and uncertainites continued
Risk heat map
Strategic risks
To help visualise our principal risks,
1 Economic conditions
we have plotted them on the heat
map below. The individual risks
are described in more detail on
the following pages.
t
c
a
p
m
I
2 Mergers and aquisitions
3 Ability to win new work
4 Third party alliances
Financial risks
5 Ability to fund business
Operational risks
6 Geopolitical
7 Project execution
Legal risks
8 Contractual commitments
Analysis of risks within our business
Level of risk
High risk
Medium risk
Low risk
3
1
7
5
2
4
8
6
Likelihood
Financial risks
Risk description
Ability to fund business
Risk to strategy
Inability to fund strategic objectives could
lead to significant downgrading of the
Group’s intended direction for growth and
re-assessment of the long-term viability
of the business.
Risk change Unchanged
Risk to business model
Development of business units, moves into
growth markets and ability to meet liabilities
could be significantly impeded or even
prevented if sufficient funding does not exist.
Operational risks
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, this potential threatens
both the near-term and long-term
viability of the business.
• The Company maintains a solid balance sheet including
a net cash position.
• New debt facility being discussed with banking syndicate;
expected to be concluded in H1 2019.
• Debt to equity ratio in the business is very low at 5.03%.
• Effective cash management processes in place and
operating, including frequent cash flow reviews by senior
management with the Finance team.
• Options to monetise certain assets are available.
Risk description
Business implication
Mitigation
Geopolitical
Risk to strategy
Instability in emerging regions may affect the
viability of target key projects in those emerging
regions which, in turn, may significantly impact
plans for geographical expansion.
Risk change Increased
Risk to business model
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
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 Unchanged
Risk to business model
Failure to deliver major projects successfully
may negatively impact the Group’s reputation
and/or potential future Group revenues or, in
the worst case, threaten the Company as a
going concern.
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 the Saudi maritime yard
and the LTA
page 14, the Group
is dependent on a stable political and
business environment in that country.
• Strong partner relationships developed and maintained,
especially with our Saudi clients and business partners.
• Phased investment into the IMI yard over a number of years.
• HSESQ monitors and advises on security and political risks.
• Major operations take place in the UAE, which has been
politically and financially stable for many years.
• Regular input from advisers for any key changes in
regulatory or contractual regimes.
• Diversification of target markets
As the Group diversifies into new
markets and product offerings, it faces
additional risks surrounding project
execution including bid estimation,
scheduling, training of specialist workers
and delivery planning. Failure to execute
and deliver a project to contractual
terms and conditions may expose the
Group to additional costs, losses or
reduced revenues.
• Improved bidding processes including automated manpower
forecasting, scrutiny of benchmark bidding norms and a
focus on individual project risks (especially during bidding
and handover phases).
• Technology Committee oversees initiatives including
enhanced production controls, investments in new
automated technologies such as robotics and digitisation,
upgrading Non-Destructive Testing.
• Enforcing strict adherence to Change Management
procedures and contractual requirements.
• Transparent project risk management processes and “gap
identification and analysis” exercises ensure awareness of
contemplated issues.
• Investment in new talent with specialist sector experience
and upskilling of existing workforce.
Compliance and legal risks
Risk description
Business implication
Mitigation
Contractual commitments
Risk to strategy
Lack of recognition of onerous contractual
terms prevents development of a robust
execution strategy that aims to mitigate the
potential impact that these terms could present.
Risk change Unchanged
Risk to business model
Failure to provide reliable, quality solutions
may lead to project losses which could affect
the availability of funding for investment in
other initiatives.
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.
• Risk analysis of contract terms across stakeholder functions
including projects, commercial and legal.
• Use of appropriate mitigation strategies including insurance
and/or supply chain management where possible.
• Employment of personnel with specialist knowledge and/
or upskilling for workforce to improve risk analysis and
commercial awareness.
• Effective project risk processes; adopting lessons learned
for a culture of continuous improvement; development/use
of project contingencies.
36
Viability statement
Based on the results of their analysis, 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 2021.
1) Assessment of prospects
Lamprell’s strategy and business model are central to an
understanding of its prospects. Lamprell has been operating
for more than 40 years and its business model
page 08 has
proven to be resilient and able to withstand the industry’s project
page 10 centres around the delivery of
cycles. Our strategy
three business streams – Rigs, EPC(I) and Contracting Services
– and applying them to service clients in two markets – Oil & Gas
and Renewables. Our commitments to high standards of safety and
quality, maintaining close client relationships and delivering value for
money enable us to implement the strategy. Further, as is the norm in
our sector, cost control and providing a competitive product are also
critical to the long-term viability of the business and these have been
focus areas in 2018 in light of the challenges faced in 2017. 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.
The Company highlighted various strategic initiatives which help to
measure its performance in implementing the strategy and there has
been considerable progress during 2018. These initiatives are medium
term in nature, as is appropriate for a defined strategy, and the Board
will continue to monitor developments, refine the measurement and set
new targets. Further development of the Company’s business in the
Saudi Arabia market remains the highest priority,
key part of the strategy is the diversification of the portfolio and the
Company made progress in 2018 with the contract award of a new
renewables project.
page 14. Another
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 are a key output from the strategy
review process. The Board’s assessment considers the Group’s current
position, 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 to understand the impact on cash flows and
working capital requirements. While the balance sheet remains solid,
access to future funding is essential. Therefore the Company has
received non-binding indicative term sheets and legal documentation
from certain banking institutions for a new debt facility, to replace the
existing facility which expires in August 2019.
In accordance with the Code and taking into account a robust
assessment of those risks that would threaten the business model
page 34, the Board determines the prospects of the Company
over a longer period than the 12 months required by the ‘Going
Concern’ statement
page 69. The Board 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, particularly in light of the recent inclusion on the LTA list of
contractors
page 17.
The key assumptions in the financial forecasts, reflecting the overall
strategy, include:
•
•
•
•
•
The global outlook for the energy industry remains relatively flat
during 2019 and becomes positive in the medium to long term.
The improvement of the overall competitiveness of the business
as it institutionalises the lessons learned from the East Anglia
One project, to ensure that the risk profile for each new project is
addressed through its bidding, handover and execution phases.
The new debt refinancing package will be available on reasonable
terms and concluded in H1 2019.
Flexibility around the timing of cash calls forecast for investment in
the IMI joint venture.
Cash advances will be received in H1 from IMI in respect of the
two jackup rigs currently under LOI.
•
Sale of the LAM2K land rig during H1 2019.
2) Assessment of viability
Although the strategy reflects the Directors’ best estimate of the
Group’s prospects, the Board considered the current trading position
and reviewed certain future scenarios which stress-tested the viability
of the business in severe but plausible scenarios. These scenarios
considered changes to the key assumptions above and the potential
financial and operational impacts of the Group’s principal risks and
page 34 arising and the degree of effectiveness
uncertainties
of mitigating actions. The 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.
Whilst the principal risks all have the potential to affect future
performance, none of them are considered likely either individually or
collectively to threaten the viability of the business over the assessment
period. Based on the results of this detailed assessment, the Directors
have a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the next
three years.
37
Lamprell plc Annual Report and Accounts 2018Strategic report Member of the Remuneration
and Development Committee
Member of the Nomination
and Governance Committee
Member of the
Audit and Risk Committee
Indicates Committee Chairman
Our Board of Directors
John Malcolm
Non-Executive Chairman
Aged 68
Appointed: May 2013
Strengths: international oil & gas,
Middle East operations
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: Director of
Bellwood Enterprises Ltd., Chairman
of Abraj Energy Services SAOC.
Member of the Remuneration
and Development Committee
Member of the Nomination
and Governance Committee
Member of the
Audit and Risk Committee
Indicates Committee Chairman
Mel Fitzgerald
Non-Executive Director
Aged 68
Appointed: August 2015
Strengths: EPC, international
oil & gas
Experience: Mel Fitzgerald has over
30 years’ experience in the energy
industry. Mr Fitzgerald served as
CEO and Board Director at Subsea 7
for seven 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: Director/
shareholder of Cathx Ocean.
38
Christopher McDonald
Chief Executive Officer
Aged 51
Appointed: October 2016
Strengths: business development,
EPC, international oil & gas
Experience: Christopher McDonald
has over 25 years’ experience in the
EPC and oilfield services sectors.
Before joining Lamprell, Christopher
held the position of Executive Vice-
President 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
Member of the Remuneration
and Development Committee
Member of the Nomination
and Governance Committee
Member of the
Audit and Risk Committee
Indicates Committee Chairman
Debra Valentine
Non-Executive Director
Aged 65
Appointed: August 2015
Strengths: risk management, legal,
public company boards
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.
Member of the Remuneration
and Development Committee
Member of the Nomination
and Governance Committee
Member of the
Audit and Risk Committee
Indicates Committee Chairman
Tony Wright
Chief Financial Officer
Aged 47
Appointed: August 2015
Strengths: finance and accounting,
Middle East operations
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. From
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
Member of the Remuneration
and Development Committee
Member of the Nomination
and Governance Committee
Member of the
Audit and Risk Committee
Indicates Committee Chairman
James Dewar
Non-Executive Director
Aged 62
Appointed: November 2017
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; Interim
Independent Non-Executive Chairman
of Cabot Energy plc.
Nick Garrett
Non-Executive Director
Aged 56
Appointed: March 2017
Strengths: public markets, financial
and accounting
Experience: In his 23-year career
at J.P. Morgan Cazenove, Mr 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. From 1989 to 2001,
Mr Garrett 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. Mr Garrett 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; Deputy Chairman/
Senior Independent Director of Tri-
Pillar Infrastructure Fund.
39
Lamprell plc Annual Report and Accounts 2018Corporate governance Directors’ Report,
letter from the Chairman
The Directors oversaw
improvements in many
aspects of the governance
regime, building on lessons
learned and feedback from
the previous Board evaluation
process. This helped to align
the governance framework
more closely with the
Company’s strategy
and values.
Dear Shareholders,
In 2018, we saw a year of significant
developments in our strategic objectives
under Christopher’s executive leadership,
see the Strategic Report
and the Board also dedicated significant
time to measuring progress against
implementation of the 2018 Board priorities
which support our strategy.
page 02,
Progress against strategic objectives
page 10
With the Group’s entry into Saudi Aramco’s
LTA programme for offshore EPCI projects
and the award of the two rigs to be built
for the IMI joint venture, the focus on Saudi
Arabia as a key strategic market
is starting to deliver benefits to Lamprell and
this is expected to continue for many years.
Lamprell has made a deep commitment to
the country with the establishment of a joint
venture called Lamprell Saudi Arabia with
a local partner. We have also advanced
our strategy in the renewables market
with the award for the construction of
48 foundations for the Moray East project;
we have successfully implemented the
lessons learned from the East Anglia One
project into this new project, in a fast-growing
market with strong long-term fundamentals.
Governance in joint ventures
With so many of our objectives reliant on
relationships with new business partners,
the Board recognised the importance of
understanding how best to manage those
relationships and establish structures which
aim to ensure their long-term success. While
Lamprell is a minority shareholder in the
IMI joint venture, it is expected to bring its
decades of experience and expertise in
running fabrication yards and constructing
jackup rigs to the Saudi Arabian project.
We have seconded people into key roles
where they have been helping to set up
the operating framework and procedures
in accordance with best practices. The
governance framework for our joint ventures
must be fit for purpose and Lamprell is in a
prime position to assist.
Lamprell Saudi Arabia is less mature than
page 14 but represents an
IMI
opportunity for Lamprell to influence the
company’s policies and procedures at an
early stage and ensure that Lamprell’s high
standards and culture will be embedded
into the way that business operates. This
company is central to our plans for bidding
and executing new projects within Saudi
Arabia and will be aligned with the way that
Lamprell operates its own business. Progress
on bids involving Lamprell Saudi Arabia will
be reported directly to the Board and many
of our key compliance, capital investment and
risk management policies will be imported
directly into it. This is an exciting project and
the Board wants to give it the tools necessary
to be successful.
Performance against 2018 priorities
The Board made considerable progress
on its agreed priorities in 2018. Following
the lessons learned arising out of the East
Anglia One project, bidding & estimating was
identified as an area requiring investment and
attention. Experienced people were recruited
into the bidding teams and additional
resources have been allocated to enhance
the tender reviews. The strong bidding
process witnessed on the Moray East project
is testament to the enhancements in this
function and we are confident of our ability to
deliver this project successfully and profitably.
40
United by our values
How we do business is as important as what we do.
Our values unite us, define who we are and what
makes us distinctive. They guide our behaviours and actions.
Safety
We deliver world class
safety standards and
leave nothing to chance,
so everybody goes
home safely.
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, fairly and
transparently, 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 strive to work
together with our
stakeholders and believe
great teams can achieve
incredible results.
Similarly, the Audit and Risk Committee has
overseen changes in the risk management
function, with a series of ‘deep dives’ into
a number of specific enterprise risks: each
risk owner presented to the Committee
highlighting the nature of the individual risk,
how it could potentially impact the strategy
and/or business model and, most importantly,
the mitigations and/or controls that were being
implemented to address the risk.
Finally, in support of our continuing upskilling
of our workforce, the Remuneration and
Development Committee kicked off a
leadership evaluation and development
programme with the support of a leading
external training firm. This programme will
continue into 2019 with a series of interactive
workshops, aiming to identify strengths and
areas for development for management
and help them to become a more effective
leadership team. Succession planning and
talent development are continuing processes
and with the solid foundations laid in 2018 will
remain critically important over the next few
years as the Group cements its position in
the key strategic markets of renewables and
EPC(I) projects.
Corporate Governance Code
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). Your Board has reported
its compliance with the Code during the
course of 2018 as set out in this Corporate
Governance Report; the Company’s maintains
high standards of governance but is vigilant
for ways to improve where practicable
and in the best interests of the Company.
Our governance structure must remain
appropriate for the size and complexity of the
Company, taking into account the prevailing
market conditions and our growth strategy.
The Financial Reporting Council published
an updated version of the Code in mid-2018
which will apply in respect of accounting
periods beginning after 1 January 2019.
At the heart of this Code is an updated
set of Principles that emphasise the value
of good corporate governance. The Board
has reviewed the structures of the Board
and Committees to ensure that it takes into
account the new Code and will continue
to do so in 2019.
We achieved a great deal during 2018 but we
recognise that we still have much to do. With
a strong executive team now in place, the
Board will work to deliver improved returns to
shareholders. In the mean time, I would like to
thank our investors, our workforce and all our
stakeholders and other providers of capital for
their continued support of Lamprell.
John Malcolm
Non-Executive Chairman
20 March 2019
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 2018.
Results and dividends
The financial statements of the Group for
the year ended 31 December 2018 are
pages 80 to 87. The Group’s
set out
losses from continuing and discontinued
operations after income tax and
exceptional items for the year amounted
to USD 70.7 million (2017: losses of
USD 98.1 million). The Directors do not
recommend the payment of any dividend
for the financial year ended 31 December
2018.
Other information
The following sections of the Annual
Report contain all other information
relating to and forming part of the
Directors’ Report:
Further reading
Pages
Principal risks and uncertainties
Board of Directors
Corporate Governance Report
Directors’ Remuneration Report
34
38
40
56
Directors’ Remuneration Policy Report 57
Directors’ Annual Report
on Remuneration
Statutory Information and
Directors’ Statements
62
68
41
Lamprell plc Annual Report and Accounts 2018Corporate governance Directors’ Report
The Board leads the business
through implementation of a
transparent and achievable
strategy aligned with a strong
governance structure and
culture, thereby working to
demonstrate how the governance
of the Company contributes to its
long-term sustainable success
and achieves its wider objectives.
As a unitary Board, our Directors share equal
responsibility for all decisions, with Directors
collectively responsible for the strategic
direction of the Company. Having an effective
working relationship between our Executive
and Non-Executive Directors provides a
robust governance framework, which is
essential for the promotion of and progression
towards the long-term sustainable success
of the company, generation of value for
shareholders and contribution to the wider
community in which Lamprell operates. This
also enables the Board to ensure that the
Company’s purpose, values, strategy and
culture are aligned.
The Board 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 management team and
transparency in its decision-making. Board
meeting agendas are structured to be
forward-looking and based around the growth
strategy as well as ways to deal with near-
term challenges. The Chairman leads Board
discussion to ensure that sufficient time is
allocated to consider all business-critical
issues.
Board composition
The Board is comprised of the Non-Executive
Chairman, CEO, CFO, three independent
Non-Executive Directors (“NEDs”) and
another NED;
page 38 for biographical
details. 2018 was a stable year for the Board
in that there were minimal changes among
the Directors: Ellis Armstrong stepped
down as Senior Independent Director and
left the Board on 23 May, at which point
Debra Valentine assumed the role of Senior
Independent Director. All other Directors
served as usual throughout 2018. The CEO
and the CFO are the Executive Directors
currently on the Board.
Board size and membership
Through the channel of the Nomination and
page 50, the
Governance Committee
Board assesses its structure, composition
and breadth of experience regularly and the
Board considers that there continues to be
a strong combination of industry, regional,
financial and operational experience among
the Directors enhanced by the diverse
professional competences of each Board
member.
The Board 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. This ties into the 2018
Board priority around succession planning.
In support of the strategy, the Board has
identified that it could potentially benefit in the
future from a Director either with experience
in the offshore wind farm market and/or with
page 47.
a Middle Eastern background
However, the Board is not actively recruiting at
the current time given the market conditions
and the continuing need to manage overhead
costs.
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 and as agreed
by the Board. This ensures that strong
governance and the segregation of duties is
maintained at Board level. The UK Companies
Act 2006 sets out a number of general duties
to which all directors are expected to adhere.
As an Isle of Man company, Lamprell is
not required to comply with this legislation;
nevertheless, our Directors are guided by
UK best practices and in particular act
to promote the long-term success of the
Board composition
during 2018
71%
29%
50%
50%
86%
14%
Executive Directors
Non-Executive Directors
Independent NEDs
(excluding Chairman)
Other directors
Female directors
Male directors
42
Board attendance
For period 2018
Number of meetings attended
Number of meetings in which the Director was eligible to participate
Number of meetings attended as observer
10
10
10
10
10
10
10
10
10
10
1
08
09
2
08
08
John
Malcolm
Christopher
McDonald
Tony
Wright
Mel
Fitzgerald
Debra
Valentine
Nick
Garrett
James
Dewar
Former Directors
Ellis Armstrong attended 4 out 5 Board meetings before retiring from the Board on 23 May 2018.
Footnotes:
Directors may be ineligible to participate in meetings if they are in the UK but may be invited as guests. On such occasions, they are not included in the
quorum of the meeting and do not participate in the formal business.
All Directors attended the 2018 strategy day held in Dubai.
Company for the benefit of our shareholders
and other stakeholders. The Board has been
structured to ensure that no single individual
can dominate the decision-making processes.
are primarily responsible for challenging
constructively all recommendations presented
to the Board, based on their broad experience
and individual expertise.
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 and 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 ensuring
an effective counterbalance to executive
management on the Board. The NEDs
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. Ms Valentine was
appointed as Senior Independent Director in
mid-2018 and continues to hold this role.
The biographical information of each Director
as well as the memberships for each Board
Committee are detailed on
page 38.
Board meetings and attendance
The Directors met in person on five occasions
during the course of 2018 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.
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.
It is common for members of the Executive
Committee or other key members of
management 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.
Board tenure and nationalities
John
Malcolm
Non-Executive
Chairman
Tony
Wright
Director
and CFO
Debra
Valentine
Senior
Independent
Director
Mel
Fitzgerald
Independent
NED
Christopher
McDonald
Director
and CEO
Nick
Garrett
NED
James
Dewar
Independent
NED
6 years
Joined May 2013
3.5 years
Joined Aug 2015
3.5 years
Joined Aug 2015
3.5 years
Joined Aug 2015
2.5 years
Joined Oct 2016
2 years
Joined Mar 2017
1.5 years
Joined Nov 2017
43
Lamprell plc Annual Report and Accounts 2018Corporate governance Directors’ Report continued
July 2018 meeting
Review of the impact
of the 2018 version of
the UK Corporate
Governance Code
Debra Valentine’s view on the issue
What corporate governance standards
does Lamprell comply with? For FY2018,
Lamprell complied with the 2016 version of
the UK Corporate Governance Code (the
‘Code’). However the 2018 version of the
Code came into force in July 2018 and will
apply for all financial periods commencing
after 1 January 2019. Lamprell is already
making changes to ensure maximum
compliance with the updated Code.
Will the 2018 Code have a major impact
on Lamprell’s governance structure?
No, the changes that we will be making
build on Lamprell’s existing high standards
of corporate governance. The Code is the
gold standard of corporate governance
for listed companies and the 2018 Code
includes an updated set of Principles that
emphasises the value of good corporate
governance. Each year, Lamprell’s Board
looks to make incremental enhancements to
its performance, such as the deep dives on
key enterprise risks by the Audit and Risk
page 52.
Committee during 2018
By doing so with the new Code, we aim
to demonstrate how the governance of
the Company contributes to its long-term
sustainable success and achieves
wider objectives.
In what areas will the Board be making
changes to ensure compliance with the
2018 Code? A very positive development
highlighted in the 2018 Code is the focus
on aligning a company’s culture, core
values, strategy and remuneration structure.
Our employees are committed to our core
values in their everyday work and the
Company strategy is well defined. Aligning
all these with the remuneration structure
should translate into a broader role for
Lamprell’s Remuneration and Development
Committee, which is responsible for the
compensation philosophy within executive
management and is tasked with developing
and managing the talent within the Group.
Another of the Code’s key Provisions
requires the Board to understand the
views of other key stakeholders including
the workforce. In relation to workforce
engagement, the Code indicates how
the Board may choose to do so and the
Board will report on that in the subsequent
Directors’ Report.
What is Lamprell doing to prepare for
these changes? The Remuneration and
Development Committee has already
kicked off a series of leadership excellence
workshops, which will assist the executive
management team to drive the strategy
forward based on a clear set of values.
Secondly, the Board will target a deeper
engagement with its key stakeholders
and the wider community as one of its
priorities for 2019
importance of the Saudi Arabian market
to our strategy, the Board is planning to
visit this key geography and meet with
our local business partners. Closer to
home, individual Non-Executive Directors
are participating in the regular Lamprell
Employee Welfare Committee forums held
in our UAE facilities; these forums provide
an opportunity for the wider workforce to
convey messages or concerns to senior
management, and now the Board.
page 47. Given the
Read more on DRR
page 56
How the Board operates
There is a formal schedule of matters
reserved to the Board; this was reviewed in
detail by the Audit and Risk Committee initially
and then by the full Board in mid 2018 and
updated along with the corporate delegation
of authority matrix. The Board retains
discretion to approve decisions on key subject
matters such as the Group’s strategy, annual
budget, major capital investments and the
financial statements.
The Board also reviews other matters
including standing agenda items and key
topics for discussion at relevant times of
the year or as a result of current business
requirements. In all cases, the agenda
focuses on topics in pursuit of the Company’s
page 10 underpinned
strategic objectives
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.
page 34. During
At each meeting, the Executive Directors
provide an update on business, operational
and financial matters, thereby enabling
the Board to understand progress within
the business but also anticipate likely
forthcoming risks
2018, major topics of discussion included
the progress on the East Anglia One project
(both from an operational and a financial
perspective), the Group’s strategy and cash
management activities. In addition, there were
detailed presentations from key managers
including the Vice Presidents of IST/
Business Optimisation, Operations, Business
Development, Supply Chain Management
and HR & Corporate Services on a variety
of business-critical matters such as the
bid pipeline, the strategy and opportunities
for the Group in the field of digitalisation,
operational issues and talent development
44
Agenda items
Standing
Periodic
Frequency
Review of actions from previous meetings
Full-year/interim financial statements
Every 6 months
Safey update on enterprise-wide statistics
Group budget, strategy and progress updates
Every 3 months
Reports from the CEO and the CFO, including investor feedback
Corporate transactions
Reports from each of the principal Board Committees
Report on legal and corporate governance matters
Risk management
Funding proposals
Ad hoc
Every 6 months
Every 12 months
Business development and prospects
Every 2 to 3 months
and performance management. This year,
the Company’s brokers (J.P. Morgan Cazenove
(JPMC) and Investec Bank plc (Investec))
presented to the Board on the subject of
the global energy markets, investors’ views
of the Company and the structure of the
Company’s shareholder base. In addition,
in May 2018, the Board met with senior
managers from ScottishPower Renewables
who presented the client’s views on the future
of the wind farm renewables market. The
Board was able to engage directly with
a major client for Lamprell and understand
their key drivers during the subsequent
questions & answers session.
The Board actively works to understand the
ground-level aspects of the business. In
May, the Directors visited a transportation
vessel which was sitting alongside the Jebel
Ali facility quayside and being loaded with
completed jackets for delivery to the client on
the East Anglia One project. Key operational
personnel accompanied the Directors,
who had the opportunity to understand the
complexities of the project directly from the
project team.
Decision-making is based on the reports
or presentations produced, or on the
recommendations from one of the principal
Committees. It is therefore critical 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 tender bid to construct
foundations for the Moray East offshore wind
farm project renewables strategy and the
Board was able to review and approve the
bid on an informed and risk-assessed basis
taking into account the lessons learned on
the East Anglia One project. Between Board
The Board
Has ownership of the global policies.
Provides leadership and direction for the Group. Sets overall strategy and oversees its
implementation. Ensures appropriate systems and processes are in place to monitor and
manage Group risk. Responsible for financial performance and corporate governance.
Board committees Support the Board in its work with specific review and oversight. Each
Committee is responsible for reviewing and overseeing activities within its particular terms of
reference. The chairman of each Committee provides a summary at each scheduled Board
meeting of any Committee meeting held since the previous meeting.
Nom
Aud
Rem
AdH
Nomination and
Governance
Committee
Takes primary
responsibility for
succession planning,
Board composition
Audit and Risk
Committee
Monitors the integrity
of the Company’s
financial statements,
financial and
regulatory compliance
and oversees risk
management
page 50
page 52
Remuneration and
Development
Committee
Sets remuneration
policy and
compensation levels
for members of senior
management and
drives talent
development for wider
management
page 57
Ad hoc Board
committees
Set up for defined,
time-specific tasks
Executive leadership team Responsible for implemention of the global policies
Chief Executive Officer
Primarily responsible for running the business with the objective of creating shareholder value
Executive
Committee
Bid Approval
Committee
Quality and 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
Responsible for the financial stewardship, navigation and control activities
of the Group as well as investor relations
Project managers
Responsible for executing
and delivering projects
Function managers
Departmental head for enterprise-wide
support services
s
e
i
c
i
l
o
p
l
a
b
o
g
l
,
t
c
u
d
n
o
C
f
o
e
d
o
C
s
s
e
n
i
s
u
B
,
s
e
u
l
a
v
,
n
o
i
s
i
v
,
e
r
u
t
l
u
C
Project teams
Structured around project execution
Function teams
Departmental policy and procedures
s
e
r
u
d
e
c
o
r
p
y
r
o
t
a
d
n
a
m
l
a
b
o
G
l
s
e
i
c
i
l
o
p
l
a
n
o
i
t
c
i
d
s
i
r
u
j
l
a
c
o
L
s
e
r
u
d
e
c
o
r
p
d
n
a
45
Lamprell plc Annual Report and Accounts 2018Corporate governance
Directors’ Report continued
meetings, management distributes a monthly
report to the Board providing a summary
of the financial performance of the Group,
highlighting developments and key risks
page 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. The
Committee members discuss and approve
matters transparently, in an environment of
trust and using delegated responsibilities
where that is more efficient. 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
Aside from its Committees, the Board is ably
supported by the management team which
makes use of a number of management level
committees
page 45.
It is a core principle for all that there is an
effective working relationship between
each of the Directors, between the Board
and management 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 NEDs, with a view to reaching a
mutual understanding of views prior to wider
discussions at meetings. At “in person” Board
meetings, there is a dedicated agenda item
for a private session between the NEDs and
the Non-Executive Chairman, without the CEO
or CFO present, to share insights on matters
of governance or raise concerns regarding
management of the business, if any.
46
September 2018 meeting
Audit and Risk
Committee’s deep dive
into specific risks
James Dewar’s view on the issue
What is a ‘deep dive’ and how is that
different from previous risk reviews by
the Audit and Risk Committee? A ‘deep
dive’ allows the Audit and Risk Committee
to approach enterprise risks from a different
perspective – there is direct engagement
with each Risk Owner in relation to
a single major risk. The Risk Owner
presents a summary of each individual
risk, addressing both the unmitigated and
mitigated impacts and likelihood, to the
Committee. There is an assessment of the
effectiveness of the controls and mitigations
and whether they need to be enhanced.
Finally the Risk Owner can highlight how,
if Lamprell was to manage a particular risk
very well, this could create opportunities or
competitive advantages for the business.
Which risks did the Audit and Risk
Committee deep dive into and why?
The Committee decided to target the
higher risk areas for the business and so,
during the course of 2018, the relevant
Risk Owners presented on the following
subjects: Lamprell’s ability to win new work
in light of the energy industry downturn;
Lamprell’s historic reliance on a single
product line; counterparty credit risk taking
into account the contractual supply chain;
project execution risk; onerous contractual
commitments, particularly in new target
markets; and the recruitment and retention
of talent in anticipation of an improving
business environment.
How has this helped Lamprell’s risk
management processes? Is there a
commercial benefit? The most important
result from the deep dive process has
been the additional assurance provided
to the Board, via the Audit and Risk
Committee, that major business risks
are approached and evaluated in an
appropriate, transparent and detailed
manner. The process has improved the
risk reporting lines from projects all the
way up to Board and there is increased
confidence that lessons are being
learned and implemented in diverse
areas such as project management,
contract administration and the structuring
of remuneration packages. These all
contribute to make Lamprell a more
cost competitive and effective business.
Will the deep dives continue into 2019
and, if so, what risks will the Audit and
Risk Committee be looking at? The Board
considers that the deep dive process has
been very successful and has asked the
Audit and Risk Committee to continue
them in 2019. The Committee will follow up
on certain actions arising out of the 2018
deep dives to get a better understanding
of matters such as the automated project
risk management system, which assists
Project Managers in the execution of
projects. The Committee is also planning
to invite other Risk Owners to present on
the following: the risk of an opportunistic
approach for the Company which could
alter the strategy; the Group’s reliance on
various IT infrastructure and systems in light
of the ever-present cyber threats; doing
business in developing economies, from
a geopolitical and regulatory viewpoint
and considering the establishment of new
business relationships. It is expected to be
a busy year!
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 Board
independence was 50% or more excluding
the Chairman throughout 2018.
At the date of publication, 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 during 2018 save that each Director
was excluded from any discussions or
Board priorities for 2019
Matters considered:
decisions around his or her change of role in
the Company and/or remuneration. All conflict
management procedures were adhered to
and operated effectively.
Appointments to the Board
There is a formal, rigorous and transparent
process for the appointment of new Directors
to the Board. This is led by the Nomination
page 50
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 & Corporate Services
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.
There were no appointments to the Board in
2018 but, in light of Ellis Armstrong’s decision
to leave the Company prior to the 2018 AGM
in May 2018, the Nomination and Governance
Committee considered the options for
appointment of a new Senior Independent
and, after due consideration, recommended
that Debra Valentine be appointed into
the role because of her knowledge of the
Company and high level of integrity.
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 Company provides
Directors with the necessary resources to
maintain and enhance their knowledge and
capabilities. The individual Directors also
regularly update and refresh their skills and
make efforts to remain current with the latest
regulatory obligations and accounting matters
for quoted companies with the assistance of
our professional advisers. This year, various
Directors attended updates on, among
other subjects, changes to the IFRS, the UK
Corporate Governance Code and recent
developments in governance and compliance.
The Audit and Risk Committee benefits from
regular briefings from the external auditors
on any new accounting requirements as well
as developments in the area of corporate
governance.
All Directors are also entitled to seek
independent professional advice concerning
the affairs of the Company at the Company’s
expense, as and when needed. No Director
sought independent advice during the
financial year.
Induction of new Directors
Upon joining, Directors are given a tailored
induction programme welcoming and
introducing them into the Group’s business
and this includes visits to the Group’s
main facilities in the UAE, presentations
from key managers and a meeting with the
Chairman and Company Secretary to discuss
governance and regulatory matters, as well
as Board procedural matters. The process is
documented and will be reported upon the
arrival of any new Director(s).
Board performance evaluation
The Board decided to run an internally driven
process to evaluate its performance in 2018,
similar to the process used the previous year.
This process was considered to be effective
and cost-conscious in light of the ongoing
drive to manage costs in the business, and
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 Director feedback on
Succession planning and talent
management
Develop deeper connections
within key geographies
Board visibility among
key stakeholders
Improve Board processes and
regular performance feedback
Observation
This is a continuing matter and the
Board wanted to build on the
foundations laid in 2018 to ensure that
key staff are developed to their full
potential and properly incentivised to
deliver the strategic objectives.
Observation
The UAE and KSA are central to
Lamprell’s strategy and so it is
appropriate for the Group to develop
deeper bonds with clients and
business partners in each jurisdiction.
Board priority
Oversight of the executive leadership
training programme and provide
direct mentoring to senior managers.
Formulation of the Board’s own
succession plan for the medium term.
Board priority
Implementation of ways to connect
the Company with key stakeholders in
the UAE and Saudi Arabia, for
example direct advice from
experienced, regional personnel to
the Board; meetings with local
business partners and key clients;
consider appointing an Emirati or
Saudi Director in the medium term.
Observation
It is beneficial for the Directors to
have direct engagement with key
stakeholders especially our workforce
and shareholders. This demonstrates
the Board’s desire and commitment to
hear their views and act on them, as
appropriate.
Board priority
Establish and implement a plan for
stakeholder engagement including
meetings between NEDs and major
shareholders; NEDs to continue
participating in the Employee Welfare
Committee forums; rotation of Board
meetings around the facilities.
Observation
Similar to the rest of the business, the
Board considers that it should have a
culture of continuous improvement
and learn lessons from each round of
meetings.
Board priority
Enhance processes for improved,
risk-based decision-making: amend
the capex approval procedure to
align with strategic goals; standing
agenda item at each meeting for the
Board to review its performance;
Director training by external lawyers
on latest regulatory developments.
47
January
February
March
April
May
June
July
August
September October
November
December
Annually
Once a month
Periodically
Preliminary
Results
Annual
Report
announced
published
Sell-side
and
buy-side
roadshow
AGM
attended
by all
Directors
Sell-side
and
buy-side
roadshow
Interim
Results
announced
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
Regular press releases regarding Company’s business
Lamprell plc Annual Report and Accounts 2018Corporate governance Interim Results
announced
Sell-side and buy-side
roadshow
Directors’ Report continued
Communications with our shareholders
January
February
March
April
May
June
July
August
September
October
November
December
Pre-close trading
statement
Preliminary Results
announced
Annual Report
published
Pre-close trading
statement
AGM attended by
all Directors
Sell-side and buy-side
roadshow
Key
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
Regular press releases regarding Company’s business
quantitative ranking and qualitative feedback
to the Board, principal Board Committees
and the Directors). It also included feedback
from 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 provided to the Board
which then discussed the results in open
session, and also summarised the Board’s
performance against the previous year’s
Board priorities.
As a result of this process, the Board has
been able to structure its priorities for 2019
page 47. The NEDs,
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 quality and
transparency of discussions and decision-
making at the Board level. In 2019 there will
be a more regular evaluation of performance
by the Board after each round of meetings.
Annual General Meetings of the Company
In May 2018, the Company held its AGM
in Dubai, United Arab Emirates and all the
Directors attended and stood for re-election.
Ellis Armstrong left the Board prior to
the AGM.
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 the results from the proxy voting were
announced at the AGM and subsequently
published. All resolutions passed but our 2017
Directors’ Annual Report on Remuneration
was approved by shareholders with 73.3% of
votes cast in favour of the resolution. While the
Board was disappointed not to have received
a higher level of support for the resolution
given the report’s conformity with the existing
remuneration policy, the Board understood the
specific concern raised by the shareholders
and agreed to continue actively engaging
with them on executive remuneration and
other issues.
As a matter of good governance and in
accordance with the changes to the Code,
voting on resolutions 8, 10 and 12 (which
related to the re-election of the independent
NEDs) was conducted by independent
shareholders only (i.e. excluding the
“controlling shareholders”)
page 49.
The Company plans to hold its next AGM
on 21 May 2019 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 but,
in line with the Code and best practices, all
Directors will retire and stand for re-election
at the 2019 AGM. The Company will make
the terms and conditions of Directors’
engagements 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.
Communications with shareholders
Investor relations activities are primarily
handled by the CEO and CFO with the support
of a dedicated investor relations team.
The Group provides scheduled performance
updates to the market twice a year, presenting
half yearly and annual results to analysts.
These presentations are webcast and can
48
be accessed, along with any materials, via
our website.
As in previous years, Lamprell focused heavily
on effective and open communications with its
shareholders and 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 and significant announcements
to the market.
The Group CFO provides investor updates
to the Board as part of his regular reporting.
We also survey equity analyst opinions
following each set of financial results, which
are communicated to the Board. In addition,
the Chairman and Senior Independent
Director communicated from time to time with
shareholders on specific issues during 2018.
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 the Company’s listing in 2006. JPMC
has supported and advised the Board
through a number of complex corporate
transactions since 2012. Investec acted
as the Company’s broker and adviser in
relation to the IMI joint venture in Saudi
Arabia which was overwhelmingly approved
by shareholders at an extraordinary general
meeting in mid-2017. The Company also
views the AGM as an important process for
liaising with shareholders.
The Board strives to give due regard to
comments from investors 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.
January
February
March
April
May
June
July
August
September
October
November
December
Pre-close trading
statement
Preliminary Results
announced
Annual Report
published
Pre-close trading
statement
AGM attended by
all Directors
Interim Results
announced
Sell-side and buy-side
roadshow
Sell-side and buy-side
roadshow
Key
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
Regular press releases regarding Company’s business
Voting rights attaching to
issued ordinary shares
% of total
voting rights
Lamprell Holdings Limited
Schroders plc
Blofeld Investment Management
Prudential plc group (including
M&G Investment Management)
113,182,291
43,502,487
41,541,541
23,889,020
33.12
12.73
12.16
6.99
Significant shareholders
As at 20 March 2019, 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 set out in the
table above.
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”).
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 looks to engage with the other key
stakeholders in the business; in particular
the Board places considerable importance
on positive and effective interaction with
the Group’s workforce and it encourages
the management team to hear the views of
employees through a number of channels
page 28. During the course of 2018, our
internal Corporate Communications team
coordinated campaigns for the management
team to cascade key messages throughout
the organisation. One of particular note has
been our human rights and labour standards
awareness campaign and training. This is
continuous programme to ensure all our
workforce are very clear about their rights in
this area.
A primary conduit for the employees to
question the management team is by way
of the “CEO townhalls”. Twice a year at
each of the three main facilities in the UAE,
Christopher McDonald, CEO, presents a
summary of the key developments within
or affecting the business and the ways
that employees can help to achieve the
Company’s strategic objectives. At the end of
each event, there is a Q&A session and this
enables staff employees to voice concerns on
any subject directly to the CEO. In line with
the new 2018 Code, the NEDs have begun to
participate in the regular Lamprell Employee
Welfare Committee forums, where the wider
workforce is able to convey messages or
concerns to senior management, and now
the Board.
Our 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
they include 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.
2019 represents a significant year between
Lamprell and its lending group because the
current debt facility expires in August and the
Company will be looking to put a new facility
in place
page 23.
Directors’ remuneration
The Remuneration and Development
Committee is primarily responsible for
determining the Company’s remuneration
policy, taking into account best practices
as well as advice from external consultants.
Details of the Company’s policy on
remuneration, the Directors’ remuneration
for the year ended 31 December 2018 and
their interests in the ordinary shares of the
Company can be found in the Directors’
Annual Report on Remuneration
page 62.
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.
49
Lamprell plc Annual Report and Accounts 2018Corporate governance Nomination and Governance Committee Report
Committee members
Mel Fitzgerald
Committee Chair and Non-Executive Director
Debra Valentine
Senior Independent Director
John Malcolm
Non-Executive Chairman
and regionally respectively, and both have
proven assessment processes and broad
contact networks from which to source
candidates. Save in relation to executive
search processes, Lamprell had no other
connection with either company.
The Committee’s written terms of reference are
available on the Company’s website.
Activities during 2018
Aside from its standing agenda items, in 2018 the
Committee dedicated much of its time to review
of three key areas: joint venture governance, the
Group’s physical and cyber security measures
and the impact of the new Corporate Governance
Code published in July 2018.
JV Governance
With the investment in the IMI yard and the
establishment of Lamprell Saudi Arabia
page 15, the Group is participating in
two new, complex joint ventures which require
support and resources from the Group.
Accordingly, the Committee considered
each venture to understand the key drivers
for success, to recommend actions for
enhancing the governing policies for each and
to identify governance lessons which could
be learned and implemented on future joint
ventures. As there are Lamprell secondees
working in the joint ventures, it was important
In support of our strategy,
the Committee reviewed
the governance regime for
joint ventures, in particular
the Group’s two new Saudi
joint ventures, monitored the
security arrangements to
protect Group assets and
considered the implications
for the Company of the 2018
version of the UK’s Corporate
Governance Code.
Committee attendance
The Committee comprises of three members.
Two members – Mel Fitzgerald and Debra
Valentine – are considered to be wholly
Committee attendance (unaudited)
independent (with Mel as the Committee
6
For period 2018
Chair), plus the Chairman of the Board. Aside
6
Number of
from the members, the Company Secretary
meetings attended
and the Group’s VP of HR & Corporate
Number of
Services are typically invited to attend
meetings possible
meetings.
Debra
Valentine
James
Dewar
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. There has been stability
on the Board during 2018 with the only change
being the appointment of Debra Valentine
as Senior Independent Director following the
departure of Ellis Armstrong after five years on
the Board. The Committee, and the Board as
a whole, is confident that Debra will apply her
keen analytical skills and high integrity very
effectively to excel in this role.
In addition, the Committee considers the
implications of any changes in the regulatory
and governance framework and advises the
Board on the same. The Committee also has
delegated responsibility for overseeing the
Group’s security activities and this was an area
of particular interest to the Committee in 2018.
6
The Committee takes a leadership role in
6
Board and senior management succession
planning, making use of executive recruitment
specialists, Korn Ferry and the McNair
ARCo
Partnership, as the Company’s primary (but
not exclusive) search consultants. These firms
have strong industry profiles internationally
Mel
Fitzgerald
6
6
Former Director
Ellis Armstrong attended two out of a possible three meetings
before retiring from the Board in May 2018.
Committee attendance
For period 2018
Number of
meetings attended
Number of
meetings possible
5
5
5
5
5
5
Board expertise
Mel
Fitzgerald
John
Malcolm
Debra
Valentine
Former Director
Ellis Armstrong attended one out of a possible three meetings
before retiring from the Board in May 2018.
Committee attendance
For period 2018
Number of
meetings attended
Number of
meetings possible
50
6
6
6
6
6
6
Debra
Valentine
Mel
Fitzgerald
James
Dewar
RemCo
Former Director
Ellis Armstrong attended one out of a possible three meetings
before retiring from the Board in May 2018.
NGCo
Oil & gas markets
Risk management
Middle East
Public Company Boards
Fabrication / EPC
Financial
Legal
14%
57%
57%
57%
42%
42%
42%
for the Committee to verify that there are
adequate controls and procedures in place
to incentivise them but also to address any
potential conflict of interest issues.
of two female senior managers in 2018 –
the VP of HR & Corporate Services and
the Project Manager for the new renewables
project for the Moray East offshore wind farm
•
•
Security framework
With the allocation of security matters to
the Committee, there were presentations
by the VP of IST/Business Optimisation on
cyber security and VP of HSESQ on physical
security matters within the Group. The
Committee had the opportunity to discuss and
review the continuing challenges to security
faced in certain regions or as a result of
increasing technology threats. The Committee
agreed that its cyber and physical security
measures and policies were robust and
helped to reinforce security awareness among
employees. In addition the Committee noted
that the relevant departments had created
plans to improve the measures further, to the
extent that resources so permitted.
UK’s Corporate Governance Code 2018
As directed by the Board, the Committee has
taken the lead role to understand the potential
implications of the new Code on the Company
and its governance regime, recognising that
it applies for financial periods commencing
on or after 1 January 2019. To complement
the Company’s strong framework of policies
and procedures and on recommendation of
the Committee, the Board is committed to,
and has been taking steps to, implementing
new standards in preparation for the new
Code coming into effect. Such developments
demonstrate how the governance of the
Company contributes to its long-term
sustainable success.
Diversity and inclusion policy
Our people are fundamental to the long-term
success of the Company and we believe
that it is crucial to hire new talent based
on merit and with a wide range of relevant
skills and experience, regardless of their
background or gender. The Committee has
continued to review ways to implement its
diversity and inclusion and, while our industry
is predominantly male-dominated, the
Committee was pleased to note the arrival
page 16.
As noted previously, 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.
Diversity was a key factor discussed during
the Board’s strategy review day and the
Directors recognised the potential benefits
of having regional representation on the
Board. Accordingly, the Committee will take
diversity in its widest sense into account when
reviewing the Board composition.
Looking ahead, as the Group grows and as
new positions become available, the Board
diversity and inclusion 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, 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;
Board gender split
86%
14%
87%
13%
2018
2017
Female directors
Male directors
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.
NEDs 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 NEDs currently
serving were re-elected at the 2018 AGM. All
existing Directors and new Directors will be
proposed for election by the shareholders at
the 2019 AGM.
51
Lamprell plc Annual Report and Accounts 2018Corporate governance Audit and Risk Committee Report
Committee members
James Dewar
Committee Chair and Non-Executive Director
Debra Valentine
Senior Independent Director
Mel Fitzgerald
Non-Executive Director
There was a change in the
Committee Chair but the
Committee retained its central
role in reviewing the financial
aspects and significant
judgements affecting the
business on an ongoing
basis throughout the year.
The Committee also provides
Board-level support for the
internal audit and enterprise
risk management functions.
Committee attendance
Throughout 2018, membership of the
Committee was comprised solely of
independent NEDs, in accordance with the
requirements of the Code. 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
of the Company for the Committee to have at
least three members. The only membership
change was the departure of Ellis Armstrong
in May.
James Dewar has been Committee Chairman
since 1 January 2018 and he has relevant
financial experience for the purposes of
the Code, thereby ensuring the strong
background in both financial metrics and
industry experience, as required to assess
the matters presented to the Committee.
Aside from the members, the Group’s CFO
and the Company Secretary are typically
invited to attend the 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.
against potential ethical or fraudulent
activities. This includes assessment of the
whistleblowing hotline activities.
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
Remit of the Committee
3rd line of defence
Audit and Risk Committee
Monitors the integrity of the Company’s
financial statements, reviews financial and
regulatory compliance and overseas risk
management
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. The Committee also
oversees the Company’s enterprise risk
management system
page 34 as well as
its internal control systems, and monitors the
effectiveness of such systems, particularly
Committee attendance (unaudited)
For period 2018
Number of
meetings attended
Number of
meetings possible
6
6
6
6
6
6
Debra
Valentine
James
Dewar
Mel
Fitzgerald
Former Director
Ellis Armstrong attended two out of a possible three meetings
before retiring from the Board in May 2018.
Committee attendance
For period 2018
Number of
meetings attended
Number of
meetings possible
5
5
5
5
5
5
52
Mel
Fitzgerald
John
Malcolm
Debra
Valentine
Former Director
Ellis Armstrong attended one out of a possible three meetings
before retiring from the Board in May 2018.
Committee attendance
For period 2018
Number of
meetings attended
Number of
meetings possible
6
6
6
6
6
6
Debra
Valentine
Mel
Fitzgerald
James
Dewar
Former Director
Ellis Armstrong attended one out of a possible three meetings
before retiring from the Board in May 2018.
ARCo
NGCo
RemCo
Activities during 2018
The Committee’s main activities during 2018
were as follows:
Significant judgements
considered by the Committee
during 2018
Views/actions of the Committee with respect to
significant judgements
•
•
•
•
•
•
•
•
•
•
•
reviewing the year-end/interim financial
statements for the Company including
ongoing risks and opportunities;
assessing the costs and forecasts from
the East Anglia One project and their
likely financial impact on the Company
page 22;
performing a ‘deep dive’ evaluation of
five high-rating enterprise risks to ensure
that the risks were properly identified,
managed and being mitigated;
overseeing management’s effort to
forecast and manage its cash and cash
equivalents through the continuing,
prolonged market downturn;
evaluating the external auditor’s
independence, objectivity and
effectiveness;
receiving a ‘VAT health check’ for the
Group following 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
page 34;
considering the schedule of
matters reserved for the Board and
recommending changes to the same, for
approval by the Board;
reviewing the internal audit reports,
outstanding action points and approving
the 2019 audit plan;
ongoing assessment of the control
environment and systems; and
reviewing the whistleblowing statistics
and reported cases.
Significant accounting judgements in 2018
The Committee considered the significant
judgements – see table opposite – during
2018. 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 services
Deloitte LLP have been the Company’s
auditors following a formal tender process in
2015. During 2018, Deloitte LLP presented to
the Committee on various matters (including
their audit report on the 2017 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.
Going concern basis
of accounting
Revenue recognition and
estimated cost to complete on
major projects including onerous
contracts
Review of subjective provisions
with management and external
auditors
Impairment of property, plant and
equipment and intangibles
The Committee reviewed the appropriateness of the
going concern basis of accounting used in preparing
these financial statements. In particular, the Committee
focused on the base model liquidity forecast which
included a review of its ability to complete the debt
refinancing and sign the full facility agreement in the
near term which is expected to comprise of a term loan
and revolving credit facility to support the business
and other key assumptions disclosed in Note 2.1.
After considering the realistic availability and likely
effectiveness of actions that the Directors could take to
avoid, or reduce the impact or likelihood of a significant
deterioration in cash flow arising from these matters,
the Committee concluded they do not represent a
material uncertainty that may cast significant doubt
upon the continuing use of the going concern basis of
accounting.
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 continue 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.
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,
2017 and 2018 and the limited recovery projected
for revenues in 2019, 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.
53
Lamprell plc Annual Report and Accounts 2018Corporate governance Audit and Risk Committee Report continued
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 express 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. 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 2018, Deloitte LLP provided non-audit
services with a total value of USD 36,943
(2017: USD 0) against an annual audit fee
including Group audit fees with a total value
of USD 547,400 (2017: USD 596,000). This
continues the Committee’s efforts to minimise
the amount of non-audit services conducted
by the external auditors compared to audit
services.
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 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.
Given the oversight by the Committee and
the minimal non-audit services undertaken
by Deloitte LLP, the Committee considers
that the objectivity and independence of
the external auditor were safeguarded
throughout the financial year. In addition, the
Committee remains satisfied of Deloitte LLP’s
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 10 years. As
noted above, the Company retendered for its
external audit services in 2015 which is in line
with best practice.
Deloitte LLP has expressed its willingness to
be appointed and continue to act as external
auditor and a resolution to appoint Deloitte
54
Subcontractor Payment Review Process;
page 34.
LLP will be proposed at the forthcoming 2019
AGM for their services in respect of the 2019
financial year.
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 2018:
•
•
•
•
•
•
•
•
•
Consumables management;
Risk management;
Security management;
Cost review for certain projects;
Procurement & Supply Chain;
Follow-up audits;
Surprise cash count;
Sales and proposals.
As in previous years, the IA and Group risk
functions collaborate closely to determine
the 2019 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 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
The Board has delegated the oversight
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.
Each of the Directors acknowledges and
accepts that the Board as a whole takes
responsibility for risk management in line with
the Code requirements.
As per the agreed Committee annual
cycle, 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 2017 financial results in March and the
2018 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
Embedding and institutionalizing the risk
management culture is a core objective of
the business to ensure our risk management
performance stays in line with the dynamic
risk profile of the business. In addition risk
training and development also plays a key
part of learning and awareness within the
company and our Project Execution University
has recently rolled out a Project Risk
Management training module.
We have used the challenges experienced
on the East Anglia One project to ensure that
the lessons learned are embedded into our
processes to make our risk management
system more effective and to ensure that
we are able to bid more competitively in
the future. The business improvement
workshops have continued throughout 2018
and management uses them to identify the
risks on major projects 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 serves as an analytical
tool to assess and quantify the position of
our business risks at any given time, with
identified risks being evaluated for probability,
frequency, consequence, ranking as well as
supporting development of contingency and
mitigation plans.
Anti-bribery and Corruption Policy
Lamprell is committed to a zero tolerance
approach with regard to bribery and
corruption throughout our business. We
publicise our bribery and corruption policy
on a regular basis, and we educate our
employees and business partners on it, so as
to ensure that all our business is conducted in
an honest and ethical manner.
Managing risk appropriately during 2018
At Board level
The Board regularly receives comprehensive written
reports from the CEO and the CFO on the strategic
and financial risks within the business respectively
Audit and Risk Committee
Audit and Risk Committee conducts an annual review of the
effectiveness of the systems of financial, operational and
compliance controls and risk management systems
At executive
management level
VP Commercial & Risk Management
is a member of the ExCom – 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
At the project/
operational level
Project managers are directly
responsible for identification and
ensuring that risks are captured in
the risk database
3
1
7
t
c
a
p
m
I
5
2
4
8
6
Likelihood
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
Presentation by management
to the Audit and Risk
Committee on the status
of the Group’s risk
management systems
May
Nov
Bi-annual report identifying
the major, current risks and
opportunities within the
business is submitted by
senior management to the
Audit and Risk Committee
1
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 Executive Management and
the Group Risk Manager
Internal Audit ensures
application and
consistency of Group’s risk
policies and procedures by
undertaking internal audits
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;
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, the disclosure policy and
the whistleblowing policy. The Company
also publishes its annual modern slavery
policy statement on the Company’s
website www.lamprell.com, in accordance
with the Modern Slavery Act 2015.
The Group employs various 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 Company’s core
values – Integrity, Safety, Fiscal Responsibility,
page 03 –
Accountability and Teamwork
are central to the way in which the business
is operated and are integrated in all decision-
making processes.
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
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
2018, the internal control environment is
operating effectively.
55
Lamprell plc Annual Report and Accounts 2018Corporate governance Directors’ Remuneration Report
Committee members
Debra Valentine
Committee Chair and Non-Executive Director
Mel Fitzgerald
Non-Executive Director
James Dewar
Non-Executive Director
Dear Shareholders,
I am pleased to introduce the Directors’
Remuneration Report for the year ended
31 December 2018.
Performance and reward in 2018
Whilst the external environment in 2018
continued to create a very challenging year
for the business, as reported elsewhere
in this Annual Report and Accounts, the
Group achieved a level of gross margin such
that STIP pay-outs were made to the CEO,
Christopher McDonald and CFO, Tony Wright
at 35.6% and 36.8% respectively of their
maximum targets. Details of these pay-outs
are given
page 65.
However, as a consequence of the Group’s
cumulative performance in the three years
to 31 December 2018, and its impact on
cumulative EBITDA, end of period backlog
and relative TSR, the performance shares
awarded to Christopher McDonald and
Tony Wright on 10 October 2016, with a
performance period ending on 31 December
2018, failed to achieve the minimum vesting
requirements in all three metrics and as such,
subject to the approval of the Board, will
result in nil vesting on 9 October 2019.
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
page 65.
vested in 2018 are given on
Long-term incentive awards were granted in
April 2018 to Christopher McDonald and Tony
Wright, in accordance with the rules of the
performance share plan
page 66.
From 2018, the Committee extended its
responsibility for setting remuneration to the
wider senior management team and also
sought to ensure an appropriate focus on
executive and senior management talent
development and succession planning. This
focus included a number of presentations
and discussions, complemented by the
implementation of a leadership excellence
programme in Q4, which is being rolled
out to ExCom and senior leaders in the
business throughout 2019. During Q4 2018
and Q1 2019, the Committee discussed at
length the need to ensure that the incentive
arrangements that the Group has in place
for 2019 and beyond continue to be fully
aligned with shareholders’ interests and that
they continuously drive executive behaviour
and reward towards the achievement of the
Group’s strategic goals
page 10.
Remuneration Policy for 2019-2022
At the AGM on 21 May 2019, the
Remuneration Policy that is set out
elsewhere in this report will be subject to
a three-year binding shareholders’ vote.
The Committee has actively undertaken a
comprehensive review of the Policy and,
in doing so, has continued to monitor and,
where appropriate, take on board emerging
trends in UK executive remuneration
practices. As part of that process, in
September 2018, in the interests of good
governance, the Committee undertook a
review of its external advisors given that
the existing advisor, Aon, had advised the
Company for five years. After consulting
with five advisory firms, including Aon, on all
aspects of the current Policy and following a
rigorous comparative assessment process,
the Committee decided to retain Aon.
As a result of the overall review and
consultation process, combined with the
proposed changes to the executive share
ownership guidelines including post-
employment shareholding requirements for
new Directors and the description of the
Committee’s discretionary authority, the
Committee is satisfied that the Remuneration
Policy, which will take effect from the 2019
AGM, is clear and transparent and well
aligned with UK market practices and
norms. In completing the review process, we
acknowledged the emerging requirement for
companies with more than 250 UK employees
to disclose CEO pay ratios but underline that
Lamprell currently has no UK employees
defined by the regulations. We shall continue
to monitor UK practices and norms on an
ongoing basis.
The Committee also continues to be satisfied
that the Remuneration Policy 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.
Implementation of Policy in 2019
In accordance with the Remuneration Policy,
the Board has approved a one-off exceptional
LTIP award, for 2019 only, of 150% of base
salary to the CEO and 120% to the CFO
in recognition of the need to maximise
incentives around out-performance at a
critical point in the business.
Below are the other main components of the
implementation of our Policy in 2019:
•
•
•
•
Base salaries: no increases for the
third consecutive year
STIP:
– Maximum opportunity levels:
CEO 100%; CFO 85%
– Performance metrics: Closing backlog
(25%); EBITDA (25%); Cash headroom
(25%); personal goals (25%)
LTIP:
– Performance metrics: Relative TSR
50%; Cumulative Net Profit 25%;
Cumulative Sales 25%
Non-Executive Directors’ fees: No
changes for the sixth consecutive year
The Board is therefore recommending a
resolution for approval of the Remuneration
Policy by the shareholders at the AGM on
21 May. We shall be seeking your support
for each part of this report. On behalf of the
Committee, I recommend this Remuneration
Policy and report to you and I hope that you
will find it clear, concise and understandable.
Debra Valentine
Chair of the Remuneration and
Development Committee
20 March 2019
56
•
•
•
•
•
•
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
has been developed taking into account the
principles of the UK Corporate Governance
Code and the views of our major shareholders
and describes the Policy to be applied from
the 2019 AGM. The Policy will be put to a
binding shareholder vote at the AGM on
21 May 2019.
Policy overview
The Committee is responsible, on behalf
of the Board
appropriate remuneration arrangements
for the Executive Directors and other senior
management in the Group.
page 38, for establishing
page 08 and maximise
Our Remuneration Policy aims to drive
continuous improvements in business
performance
shareholder value by offering remuneration
packages that are designed to enable the
recruitment, retention and motivation of
high calibre executive directors and senior
management and are tied to challenging
performance targets aligned with the Group’s
strategic vision.
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
page 34.
page 31 standards where
To maintain the highest possible health
and safety
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.
To maintain appropriate governance and
risk management through the application
of holding periods and clawback
provisions on incentive plan awards.
Consideration of shareholder views
The Company is committed to maintaining
good communications with investors and
this Committee, in particular, does so around
remuneration 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 from
shareholder representative bodies more
generally. This feedback, together with
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
page 62.
Summary of the Directors’ Remuneration
Policy
The following table sets out the key aspects
of the Directors’ Remuneration Policy.
A description of how the Company intends
to implement the above policy is set out in
the Annual Report on Remuneration. The
key changes to the policy approved at the
2016 AGM are an increase in executive
share ownership guidelines for the CFO from
150% to 200%, a requirement for Executive
Directors hired after 1 January 2019 to retain
certain shares for two years post-employment,
an updated description of circumstances that
may give rise to invoking clawback or malus
conditions, and a more robust description of
the Committee’s discretionary authorities.
57
Lamprell plc Annual Report and Accounts 2018Remuneration Directors’ Remuneration Report continued
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
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
Long-Term
Incentive Plan
(“LTIP”)
To balance
performance
pay between the
achievement of
strong financial
performance and
delivering sustainable
stock market out-
performance
To encourage
share ownership
and alignment with
shareholder interests
Operation
Maximum opportunity Performance framework
No prescribed
minimum or maximum
annual increase. The
Committee is guided
by market position,
the average increase
for the workforce
generally and may
recognise an increase
due to, for example,
assumed additional
responsibilities or an
increase in the scale
or scope of the role
Maximum opportunity
of 100% for all
Executive Directors
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
Company performance
appraisal process
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 and management’s
performance
The financial metrics incorporate
an appropriate sliding scale
around a challenging target.
On each element, only 20% of the
maximum target will pay out for
achieving threshold performance
increasing pro-rata with 100%
pay-out on achievement of
maximum stretch targets
Performance is assessed against
challenging independent financial
metrics that may include relative
or absolute total shareholder
return (“TSR”), EPS, cumulative
EBITDA, cumulative sales awards
and other equally challenging
metrics
On each element only 20% of
an award will vest for achieving
threshold performance,
increasing and vesting pro
rata with full vesting for
achieving maximum stretch
performance targets
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
Normally payable in cash
Performance targets are approved
annually by the Committee
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,
error, negligence, fraud, serious
misconduct or other adverse
circumstances at the discretion
of the Committee
Annual awards of conditional shares
or nil (or nominal cost) options with
vesting dependent on the achievement
of performance conditions over a three-
year period
An additional mandatory holding period
of two years will apply to all vested
awards (net of tax)
Performance targets and metrics are
approved annually by the Committee
The Committee has discretion to
override the formulaic outturn and 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 error,
misstatement, negligence, fraud,
serious misconduct or other adverse
circumstances at the discretion of the
Committee
Dividends may accrue during the
vesting period and will typically be paid
in shares at the time of vesting, to the
extent that shares vest
58
Maximum opportunity Performance framework
None
Company
contributions are
limited to two years
base salary by UAE
Labour Law
Actual value of
benefits provided
None
Element of pay
End of service
gratuity
Benefits and
Allowances
Purpose and link to
strategy
Operation
To offer Executive
Directors a retirement
benefit as required
under the UAE
Labour Law
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
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
Current benefits include a housing
allowance, private medical/life
insurance, use of a company car
(or car allowance), fuel allowance,
annual leave air fares, children’s
education and utility expenses
Executive Directors will be eligible
for other benefits introduced for the
wider workforce on broadly similar
terms and at times additional benefits
might be provided if the Committee
decides payment of such benefits is
appropriate and in line with emerging
market practice
Share
ownership
guidelines
To further strengthen
the long-term
alignment between
executives and
shareholders
Executive Directors are required to
retain the net proceeds of vested share
awards which vest under the Group’s
discretionary share plans until the share
ownership guidelines are reached
Expected to achieve
200% of base salary
within five years
None
Non-Executive
Directors’
(“NEDs”) fees
Set to attract, retain
and motivate talented
individuals through
the provision of
market competitive
fees
Directors hired after 1 January 2019 will
be required to hold the lower of shares
to the value of 200% of base salary or
their actual vested shareholding at the
date of employment termination until the
second anniversary of their separation
from the Group
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
Annual evaluation of Board
performance
No prescribed
minimum or maximum
annual increase. The
Executive Directors
and Chairman
are guided by
market position
but may recognise
an increase, e.g.
assumed additional
responsibilities or an
increase in the scale
or scope of the role
59
Lamprell plc Annual Report and Accounts 2018Remuneration Directors’ Remuneration Report continued
Performance metric selection
The annual bonus (“STIP”) is predominantly
based on key financial performance indicators
page 63, to reflect how well the Group
succeeded in managing its operations and
meeting its short-term strategic goals. The
balance is determined on performance
against individually determined strategic
objectives and annual operational targets,
including HSE.
The LTIP performance measures reward
significant long-term returns to shareholders
and long-term financial growth. Targets
take account of internal strategic planning
page 10 and external market expectations
page 06 and
page 34 prevailing at the
for the Company and are set appropriate
to the economic outlook
risk factors
time, ensuring that such targets remain
challenging, whilst 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
In addition to the formulaic assessment of
performance against the respective plan
metrics, the Committee recognises its
obligation to assess the appropriateness
of the awards relative to the Company’s
underlying business performance over the
respective plan’s performance period. When
determining the final performance outcome
under the respective plan, the Committee has
discretion over the payment amount or the
number of shares vesting considering other
important internal or external factors. Any
discretion to the formulaic outcome will be
reported transparently.
The Committee operates the incentive plans in
accordance with their respective rules, the UK
Listing Rules and HMRC rules where relevant.
The Committee, consistent with market
practice, retains discretion over several areas.
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 any or all
performance conditions 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,
e.g. 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);
the ability to adjust existing performance
conditions for exceptional events and
changes in circumstances so that they
can still fulfil their original purpose; and
the ability to cash settle awards where
payment in shares is impractical for legal
or regulatory reasons.
the ability to disapply, in full or part,
the post-employment shareholding
requirements at the time of departure if
the Committee believes it is in the best
interests of the Company.
In approving this Directors’ Remuneration
Policy, shareholders give the Company
authority 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 remuneration
affecting the wider employee population.
When considering the Executive Directors’
remuneration structure and levels, the
Committee reviews base salary and
incentive arrangements across the Group
to ensure that there is a coherent approach.
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.
Executive and senior management maintain
open channels of communication with the
wider workforce so that employees are
clear on the design of pay and incentive
arrangements and the contribution required
from them to achieve an appropriate share
in any rewards. The Committee seeks to
ensure that, when setting executive and
senior management pay, overall business
performance and market conditions have
a broadly similar impact on salary reviews,
bonus and incentive arrangements at all
levels across the organisation. The differences
that exist between executive and senior
management remuneration and that of the
general workforce are derived mainly from the
need to incentivize executives around longer-
term strategic goals which, in turn, places a
greater proportion of executive pay “at risk”.
Consultation about remuneration between
executive management and the general
workforce focuses on how at all levels,
pay and reward are set by comparisons to
industry peers and efforts to maintain equity
across the same levels in the workforce,
taking into account experience and
performance. The Committee is reviewing
appropriate methods of facilitating future
consultation in light of the new 2018 UK
Corporate Governance Code; for example,
Non-Executive Directors now attend employee
welfare consultative meetings on a rotational
basis.
Remuneration scenarios for the Executive
Directors
The charts below show an estimate of the
potential range of remuneration payable for
the Executive Directors in 2019 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.
Chief Executive Officer
Total remuneration USD’000
Max 2
3,259
Max 1
2,734
Target
984
30%
984
39%
700
21%
700
28%
984
420
2,034
52% 22%
Minimum
984
100%
630
26%
1,575
49%
1,050
33%
0
650
1300
1950
2600
3250
Total fixed pay
Annual bonus
Long-Term Incentive Plan
Chief Financial Officer
Total remuneration USD’000
Max 2
1,741
Max 1
1,495
Target
1,159
655
38%
655
44%
348
20%
348
23%
655
209
57% 18%
295
25%
Minimum
655
100%
738
42%
492
33%
0
350
700
1050
1400
1750
Total fixed pay
Annual bonus
Long-Term Incentive Plan
Assumptions:
1 Base salary levels applying on 1 January 2019.
2 Benefits are estimated, based on the annualised value
for the year ended 31 December 2018.
3 The end of service gratuity is estimated, based on the
accrual for the year ended 31 December 2018.
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 60% vesting is achieved under the LTIP; and
at maximum full vesting under both plans.
“Maximum 2” reflects the estimated impact on the LTIP
values of a 50% increase in share price.
5
60
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 the individuals.
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
to any Executive Director. Flexibility would
be retained to set base salaries at the level
necessary to facilitate the hiring of candidates
of appropriate calibre in external markets.
The Committee may also make, in respect of
deferred remuneration forfeited on leaving
a previous employer, payments or awards
under the approved share plans (the LTIP and
ESOP) or an award under Listing Rule 9.4.2.
In terms of remuneration to compensate for
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 awards
would have vested or been paid.
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.
Executive 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 a maximum of
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. The Committee also has discretion to
pay for outplacement services if it considers
them appropriate and settle legal fees or
outstanding legal claims which it considers
have a reasonable prospect of success.
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. In
such circumstances, 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 Incentive Plan
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, retirement,
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 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
Antony Robert William Wright 13 August 2015
Christopher Michael
McDonald
2 August 2016
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.
Non-Executive Directors’ (NEDs) terms of
engagement
NEDs 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 NEDs currently
serving were re-elected at the 2018 AGM. All
existing Directors and new Directors will be
proposed for election by the shareholders at
the 2019 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, three 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
Mel Fitzgerald¹
Date of
appointment
27 May 2013
13 August 2015
Debra Valentine1
1 September 2015
Nicholas Garrett
James Dewar1
24 March 2017
1 November 2017
1
Mel Fitzgerald, Debra Valentine and James Dewar are
considered to be independent NEDs of the Company.
61
Lamprell plc Annual Report and Accounts 2018Remuneration 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 2019
AGM. The information on
as where indicated, has been audited.
pages 62 to 67, save
Responsibilities of the Committee
Members and activities of the Committee
•
•
•
•
•
•
Determining and agreeing with the Board
the Company’s Remuneration Policy
Ensuring full compliance with the UK
Corporate Governance Code in relation
to remuneration
Determining and approving remuneration
packages for the Executive Directors and
the Non-Executive Chairman’s fee
Setting and approving remuneration
levels across the wider senior
management team
Reviewing remuneration arrangements
across the broader workforce, consulting
with employees to solicit their views
on pay, benefits and welfare and
aligning incentives and rewards with
the companies overall strategy, goals
and culture
Ensuring an appropriate level of
Board attention is given to executive
performance, 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.
The members of the Committee during
the relevant period were Debra Valentine
(Committee Chair), Ellis Armstrong (until
23 May 2018), Mel Fitzgerald and James
Dewar. 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 Corporate Services attends
meetings on a regular basis to present and
provide related support. In addition, the
Committee’s independent external advisers
attend as necessary to provide support and
independent advice.
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 the London office of Aon (formerly New
Bridge Street). Aon did not provide other
services to the Group during the year under
review and there is no other connection
between Aon and the Company or the
Directors. The Committee also received
advice from John Macdonald, the Company’s
former Vice President of Human Resources
and Administration who attends meetings
on a regular basis and was engaged to
provide ongoing advice. Mr Macdonald,
who retired from the Company on 9 April
2018, also provided general remuneration
consulting support on an ad hoc basis after
his retirement, to enable a smooth transition
to his successor. The Committee considers
Mr Macdonald’s advice to be independent.
The Committee also consulted with the CEO,
CFO and Non-Executive Chairman but not in
relation to their own remuneration.
Aon 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 Aon and is satisfied
that the advice it receives is objective and
independent.
The fees paid to Aon during the year were
£11,300. The fees paid to John Macdonald in
respect of Committee support during the year
were USD 11,183.
Both Aon’s and John Macdonald’s fees were
chargeable on the basis of time provided.
Committee attendance (unaudited)
For period 2018
Number of
meetings attended
Number of
meetings possible
6
6
6
6
6
6
Debra
Valentine
James
Dewar
Mel
Fitzgerald
Former Director
Ellis Armstrong attended two out of a possible three meetings
before retiring from the Board in May 2018.
Committee attendance
For period 2018
Number of
meetings attended
Number of
meetings possible
62
5
5
5
5
5
5
Mel
Fitzgerald
John
Malcolm
Debra
Valentine
Former Director
Ellis Armstrong attended one out of a possible three meetings
before retiring from the Board in May 2018.
Committee attendance
For period 2018
Number of
meetings attended
Number of
meetings possible
6
6
6
6
6
6
Debra
Valentine
Mel
Fitzgerald
James
Dewar
Former Director
Ellis Armstrong attended one out of a possible three meetings
before retiring from the Board in May 2018.
ARCo
NGCo
RemCo
Shareholder voting at AGM (unaudited)
Annual bonus for 2019 (STIP) (unaudited)
At last year’s AGM held on 23 May 2018, the Directors’ Remuneration
Report received the following votes from shareholders:
For 2019 the annual bonus plan will be structured as follows:
Total number of votes % of votes cast
Executive Director
Maximum opportunity
(% of base salary)
Metrics/ Weights
For
Against
204,758,392
74,650,086
Total votes cast (for and against)
279,408,478
Votes withheld¹
Total votes cast
(including withheld votes)
1,259
279,409,737
73.3%
26.7%
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.
The Committee noted that the majority of the votes against the
Remuneration Report related directly to an ex gratia payment made
to the outgoing Executive Chairman in recognition of his services. In
response, the Company consulted with key shareholder representatives
to explain the nature of the payment which it felt was reasonable in the
circumstances and in compliance with policy. However, as a result of
shareholder feedback, the Committee has reviewed its discretionary
authority, and made appropriate changes to the relevant wording in the
Remuneration Policy.
Votes on Remuneration Policy at 2016 AGM
Total number of votes % of shares cast
For
Against
300,865,886
2,805,311
Total votes cast (for and against)
303,671,197
Votes withheld
656
Total votes cast (including withheld) 303,671,853
99.0%
1.0%
100%
–
–
Implementation of the
Remuneration Policy for 2019
Base salary (unaudited)
In setting base salaries for 2019, the Committee considered external
market data as well as the market environment that has driven the
continued need for overhead cost reductions. Accordingly, the base
salaries of the Executive Directors in 2019 will remain the same for the
third successive year as follows:
Base salary from
1 January 2018
Base salary from
1 January 2019
% increase
Christopher
McDonald
USD 700,000
USD 700,000
Tony Wright
USD 410,000
USD 410,000
0%
0%
Christopher McDonald
100%
• Closing backlog (25%)
Tony Wright
85%
• EBITDA (25%)
• Cash headroom (25%)
• Personal goals
including safety (25%)
The Committee considers any disclosure of certain financial 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.
The personal goals for the Executive Directors are summarised below:
Christopher McDonald
Tony Wright
HSE:
25% HSE:
Strategic initiatives:
25% Liquidity:
LTA implementation:
10% Strategic initiatives:
Renewables growth:
10% Six Sigma leadership:
20%
30%
30%
20%
Liquidity:
20%
Executive Committee development: 10%
Clawback provisions will apply to all bonus pay-outs. Clawback
provisions apply for overpayments due to misstatement, error,
negligence, fraud, serious misconduct or other adverse circumstances
at the discretion of the Committee.
Long-term incentives (unaudited)
Subject to compliance with the Listing Rules, awards will be made in
2019 and the maximum LTIP potential will be 150% of base salary
for the CEO and 120% for the CFO. In the case of the CEO and
in accordance with the Remuneration Policy, the Board approved
the implementation of a one-off exceptional award at this level in
recognition of the need to maximise the level of incentive around
stretching long-term strategic goals at a critical point in the business
whilst maintaining full alignment with shareholders’ interests. For
similar reasons, the Board approved a one-off increase in the CFO’s
opportunity level to 120% for 2019 only. The performance conditions
for these awards are set out in the table below.
LTIP 2019 (unaudited)
Performance condition (weighting)
% vesting
Performance
% vesting
Performance
Threshold
Maximum
End
measurement point
TSR vs. FTSE World Oil Equipment &
Services Index (25%)
TSR vs. FTSE 250 Index (25%)
Cumulative sales (25%)
Cumulative net profit (25%)
20
20
20
20
Median
Median
USD 2bn
see Note 2
100
100
100
100
Upper quintile
31 December 2021
Upper quintile
31 December 2021
USD 3.5bn
31 December 2021
see Note 2
31 December 2021
1 The awards will be subject to clawback provisions and a mandatory holding restriction of two years beyond vesting will apply to the 2019 awards.
2 The Committee considers any disclosure of net profit targets to be commercially sensitive, however, full retrospective disclosure of performance against targets will be disclosed in the
Remuneration Report following the end of the performance period.
63
Lamprell plc Annual Report and Accounts 2018Remuneration Directors’ Annual Report on Remuneration continued
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 2016, 2017 and
2018 as follows. In all cases the TSR metric weighting is 50%, Cumulative EBITDA and End of period backlog 25% each.
LTIP 2016
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 300m
USD 1.2bn
100
100
100
Upper quintile
31 December 2018
USD 360m
31 December 2018
USD 1.6bn
31 December 2018
The outcome of the performance conditions applicable to the 2016 LTIP awards is shown below:
Performance condition
TSR vs. FTSE World Oil Equipment & Services Index
Cumulative EBITDA
End of period backlog
LTIP 2017
Outcome
% Vesting
Below median
USD 257m
USD 393m
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 2018
20
20
20
Median
USD 65m
USD 600m
100
100
100
Upper quintile
31 December 2019
USD 100m
31 December 2019
USD 1.050bn
31 December 2019
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
End of Service Gratuity
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
Outside appointments (unaudited)
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.
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 Executive Directors do not
currently hold any outside appointments.
Directors’ Contracts
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 2018, Mr McDonald vested in
94,452 retention shares and 63,252 performance shares,
page 65.
Fees for the Chairman and Non-Executive Directors (unaudited)
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 are as follows:
Non-Executive Chairman
Deputy Chairman
Senior Independent Director
Base fee
Committee Chair fee
64
Fee at 1 January 2019
£000
Fee at 1 January 2018
£000
% increase
180
88
80
65
8
180
88
80
65
8
0%
0%
0%
0%
0%
Directors’ remuneration earned in 2018
The table below summarises Directors’ remuneration received in 2018 with comparisons, where appropriate, to 2017.1
Base salary
and fees
USD’000
Benefits and
allowances2
USD’000
Annual
bonus3
USD’000
Long-term
incentives4
USD’000
End of service
gratuity5
USD’000
Total
remuneration
USD’000
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Executive Directors
John Kennedy
Christopher McDonald
Antony Wright
–
700
410
347
700
410
Lamprell plc Total
1,110
1,457
Non- Executive Directors
John Kennedy
John Malcolm
Ellis Armstrong7
Mel Fitzgerald
Debra Valentine
Nicholas Garrett
James Dewar
Lamprell Energy Total
–
247
42
100
114
89
100
692
39
137
116
89
88
67
15
551
–
244
215
459
–
237
213
450
–
249
128
377
–
–
–
–
–
526
–
52
–
586
–
586
–
39
30
69
–
41
31
72
–
347
1,284
1,564
783
654
2,067
2,565
–
247
42
100
114
89
100
692
39
137
116
89
88
67
15
551
Total
1,802
2,008
459
450
377
–
52
586
69
72
2,759
3,116
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 Malcolm, Mel Fitzgerald, Nicholas 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 and driver, private fuel card, airfare tickets, children’s
schooling and utility expenses. The table below summarises the main benefits and allowances.
3 The annual bonus for 2018 was based on performance against financial and non-financial performance targets. Performance against these targets is set out in the table below.
4 The LTIP awarded in 2016 failed to achieve the minimum necessary for the shares that were due to vest in 2019.
5 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 2018 and 2017. 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 0% p.a. (2017: 0%). The expected
liability on the date of termination has been discounted to its net present value using a discount rate of 3.9% p.a. (2017: 3.2% p.a).
6 On 1 October 2018, Christopher McDonald vested in 63,252 performance shares, as detailed on page 66, at a vesting share price of £0.63 per share and USD/GBP exchange rate of
USD 1.303/£1.00 delivering a value of USD 51,922. At the date of grant (1 October 2016), the face value of the grant was USD 57,209 based on the share price of £0.73 and exchange rate
of USD 1.239/£1.00.
7 Ellis Armstrong stood down as a Non-Executive Director on 23 May 2018.
Summary of benefits and allowances
Christopher McDonald
Tony Wright
Housing
USD’000
Vehicle
USD’000
Children’s
education
USD’000
Annual leave
tickets
USD’000
Medical/Life
Insurance
Other
USD’000
Total
USD’000
125
105
27
21
20
25
36
39
24
17
12
8
244
215
Annual Bonus 2018: Performance against targets
CEO and CFO
Metric
Sales1
Net Cash2
Gross Margin3
Personal Goals – CEO
Personal Goals – CFO
Weighting
Stretch target
Actual
performance
Pay-out outcome as % of
maximum annual opportunity
40%
15%
20%
25%
25%
USD 750m
USD 185m
USD 40m
n/a
n/a
USD 343m
USD 80m
USD 31.8m
80%
85%
1 Sales targets were in the range of USD 375 million (threshold) to USD 500 million (target) and USD 750 million (stretch).
2 Net Cash targets were in the range of USD 105 million (threshold) to USD 125 million (target) and USD 185 million (stretch).
3 Gross Margin targets were in the range of USD 10 million (threshold) to USD 25 million (Target) and USD 40 million (stretch). Refer to Note 5 of Financial Statements.
4 At “Threshold” performance, the pay-outs would have been USD 140,000 for Christopher McDonald and USD 69,000 for Tony Wright.
5 At “Target” performance, the pay-outs would have been USD 420,000 for Christopher McDonald and USD 209,000 for Tony Wright.
6 Actual pay-outs were USD 249,200 (35.6% of maximum) for Christopher McDonald and USD 128,422 (36.8% of maximum) for Tony Wright.
0%
0%
15.6%
20%
21.3%
65
Lamprell plc Annual Report and Accounts 2018Remuneration
Directors’ Annual Report on Remuneration continued
The outcome of achievement against the personal goals of the CEO and CFO was as follows:
CEO
Personal goal focus
HSE – TRIR (0.27)
HSE – Safety leadership
Strategy – Saudi business/renewables awards
Cash conservation: > USD 105m
ExCom team development
Total
CFO
Personal goal focus
HSE – TRIR (0.27)
HSE – Safety leadership
Liquidity
Overhead costs – max USD 85m
Treasury strategy
IT system implementation
Total
Weighting
Performance outcome
Pay-out outcome as a % of maximum
10%
15%
45%
20%
10%
100%
TRIR 0.15
Exceeded targets
Achieved
USD 80m
Achieved
2.5%
3.75%
11.25%
0%
2.5%
20.0%
Weighting
Performance outcome
Pay-out outcome as a % of maximum
5%
10%
15%
10%
50%
10%
100%
TRIR 0.15
Achieved
Achieved
USD 86.4m
Achieved
Partly achieved
1.25%
2.5%
3.75%
0%
12.5%
1.25%
21.25%
Long-term incentive awards granted during the year
On 9 April 2018, an award of 801,645 performance shares was made to Christopher McDonald, at a face value of £594,900, and an award of
391,279 performance shares was made to Tony Wright at a face value of £290,368 and in accordance with the Company’s performance share
plan rules with associated performance conditions. These 2018 LTIP conditional share awards vest in full on 8 April 2021, subject to achieving
the performance conditions detailed on
The calculation of the awards to the CEO and CFO was based on:
page 63. The awards are subject to a holding period of two years following the date of vesting.
i) 120% and 100% of annual base salary at 1 April 2018 respectively;
ii) The average closing mid-market share price quote in the 10 dealing days prior to the date of grant (£0.7421); and
iii) The average mid-market USD/GBP exchange rate quoted by XE.com in the 10 dealing days prior to the date of grant (USD 1.412/£1.00)
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 2018 as set out below.
LTIP awards
The following table sets out the interests of the Executive Directors in relation to the LTIP award(s):
Executive Director
Christopher McDonald
Antony Wright
At 1 January
2018
Awarded in
2018
Date of vesting
Vested in 2018
Lapsed in 2018
At 31 December
2018
1,628,718
868,9761
801,645
391,279
09.04.21
09.04.21
0
0
0
141,601
2,430,363
1,118,654
1 Opening balance of LTIPs for Antony Wright takes into account the 51,787 performance shares which lapsed in 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. Further details are set out above.
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. Until such time as this 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 guidelines.
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 2018 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 2019 to 20 March 2019, being the last practicable date that the Company is able to report on Directors’ interests.
Beneficially at
31 Dec 2018
Beneficially at
31 Dec 2017
Ordinary
shares held
Outstanding
awards
(retention only)
Outstanding
awards (subject
to conditions)
Shareholding
as % of
base salary1
Shareholder
requirement
met?
Executive Directors
Christopher McDonald
Antony Wright
Non-Executive Directors
John Malcolm
Debra Valentine
Mel Fitzgerald
Nicholas Garrett
James Dewar
Ellis Armstrong
3,319,189
1,160,039
2,356,311
910,361
0
0
11,770
0
40,000
N/A1
0
0
0
0
40,000
0
694,684
41,385
0
0
11,770
0
40,000
0
46,811
0
2,577,694
1,118,654
–
–
–
–
–
–
–
–
–
–
–
–
71
7.2
–
–
–
–
–
–
No
No
–
–
–
–
–
–
1 Calculated at share price of £0.55 and exchange rate of USD 1.30/£1.00.
2 Ellis Armstrong stepped down from the Board on 23 May 2018.
66
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.
Performance graph and CEO pay (unaudited)
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 2018.
Payments for loss of office
There were no payments for loss of office during the year.
Percentage change in remuneration levels (unaudited)
The table below shows the movement in base salary, benefits and
annual bonus for the CEO between the 2018 and 2017 financial years,
compared to that for the average employee of the Group.
Chief Executive Officer
Base salary
Benefits
Bonus
All employees
Base salary
Benefits
Bonus
% change
0%
0%
see Note 1
+1.2%
+1.0%
see Note 2
1 CEO bonus pay-out in respect of 2018 was 35.6% of annual base salary compared
to 0% in 2017.
2 Average all employees bonus pay-outs in respect of 2018 were 4% of annual base
salary compared to 0% in 2017.
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
2018
USD 000
112,405
0
2017
USD 000
120,170
0
% change
-6.5%
0%
1 Staff costs include wages, salaries and other benefits.
Share price performance: Jan 2009 – Dec 2018
Lamprell
FTSE World Oil,
Equipment and Services Index
(Rebased to 100)
400
350
300
250
200
150
100
50
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
The total remuneration figures for the CEO during the last ten financial
years are shown in the table below. Consistent with the calculation
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 bonus pay-out and long-term incentive award vesting level as a
percentage of the maximum opportunity are also shown for each year.
2018
2017
2016
2016
2015
2014
2013
2013
2012
2012
2011
2010
2009
2009
CEO
McDonald McDonald McDonald1 Moffat2 Moffat Moffat Moffat Whitbread3 Whitbread McCue4 McCue McCue McCue Whitbread
Total remuneration
Annual bonus %
LTIP vesting %
1,285
35.6%
7.4%
1,564
0%
0%
262
0%
891
0%
0% 100%
1,349
1,716
1,652
1,504
352
2,739
2,094
1,824
45%
0%
91%
0%
99%
0%
0%
0%
0%
0% 72.3% 100%
0% 100% 100%
0%
514
0%
0%
1,211
0%
0%
Year ending 31 December (USD’000)
1 Christopher McDonald was appointed as CEO on 1 October 2016.
2
3 Peter Whitbread was appointed as interim CEO on 4 October 2012 and his employment ceased on 30 June 2013.
James Moffat was appointed CEO on 1 March 2013 and stepped down on 30 September 2016.
4 Nigel McCue’s employment ceased on 3 October 2012.
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 20 March 2019.
Debra Valentine
Chair of the Remuneration and Development Committee
20 March 2019
67
Lamprell plc Annual Report and Accounts 2018Remuneration
Statutory information and Directors’ statements
Our Directors provide other
statutory information and the
Directors’ statements for the
year ended 31 December
2018, in addition to the
information provided in the
Strategic Report
and the Corporate Governance
page 38.
Report
page 04
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,
see Note 26 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.
Details of the Company’s employee share
schemes are disclosed in the Directors’
Remuneration Report
Note 9 to the financial statements. The awards
under the Lamprell plc Free Share Award
Plan, Retention Share Plan and Long-Term
Incentive Plan are granted at nil (or nominal)
cost. Pursuant to the Company’s share
page 60 and see
schemes, the Employee Benefit Trust as at
the year-end, held a total of 16,268 (2017:
16,268) ordinary shares of 5p, representing
less than 0.01% (2017: <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
2018 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 2019
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
Lamprell plc Free Share Plan
Lamprell plc Retention Share Plan
Granted
2018
Nil
2017
Nil
Outstanding
2018
2017 and prior
Nil
Nil
2,939,323
1,303,758
2,879,323
1,577,819
Lamprell plc Executive Share Option Plan
Nil
Nil
Nil
Nil
Lamprell plc Long-Term Incentive Plan
2,603,861
2,577,122
2,603,861
5,538,371
68
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 2018 AGM to issue 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
In 2017, the Group entered into a joint
venture agreement for the establishment of
a major new maritime yard in Saudi Arabia
page 14. This agreement commits the
Company to invest up to USD 140 million
in equity into this new yard over the course
of five to six years (of which approximately
USD 59.0 million has already been invested)
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
extraordinary general meeting in mid-2017.
Except for this joint venture agreement,
the debt facility agreements which were
concluded in 2014 and the Controlling
Shareholder Agreement
Company or Group does not have contractual
or other arrangements which are significant to
its business with any person.
page 49, the
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 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 IFRS 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.
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
page 38, confirms that, to the best
of his/her knowledge:
•
•
the Group financial statements, which
have been prepared in accordance with
IFRS 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
The Company’s business activities, together
with the factors likely to affect its future
development, performance and competitive
position are set out in the Strategic Report
page 04. The financial position of the
Company, its cash flows, liquidity position
and borrowing facilities are described in the
Financial Review
page 22. The Group’s
consolidated financial statements have
been prepared on a going concern basis as
further discussed in Note 2.1. The Group has
received non-binding indicative term sheets
and the legal documentation necessary prior
to seeking final approval from certain banking
institutions is in progress to replace the
existing facility which expires in August 2019.
After reviewing its cash flow forecasts for a
period of not less than 12 months from the
date of signing these financial statements and
taking into account other key assumptions
which include; the sale of the LAM2K land rig
and timing of receipt of the sale proceeds,
the cash advances expected to be received
from new IMI rigs once a contract is signed
and the timing of cash calls forecast for
investment in the IMI joint venture in addition
to the planned debt refinancing, the Directors
have concluded they do not represent a
material uncertainty that may cast significant
doubt upon the continuing use of the going
concern basis of accounting. The financial
information has been prepared 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
page 37.
Alex Ridout
Company Secretary
By Order of the Board
20 March 2019
69
Lamprell plc Annual Report and Accounts 2018Remuneration Independent Auditor’s Report
to the members of Lamprell plc
Report on the audit of the financial statements
We have audited the financial statements which comprise:
Opinion
In our opinion:
• the financial statements of Lamprell plc (the ‘parent company’) and
its subsidiaries (the ‘Group’) give a true and fair view of the state of
the Group’s and of the parent company’s affairs as at 31 December
2018 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 parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union; and
• 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 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 accounting policies; and
• the related notes 1 to 38.
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 Financial Reporting Council’s (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.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Going concern basis of accounting;
Materiality
Scoping
• Estimation of project costs and revenue recognition in respect of the East Anglia ONE Project;
and
• Recoverability of non-current assets: Property, plant and equipment (PP&E) and Intangibles.
The materiality that we used for the Group financial statements was USD 4.3m (2017: USD 4.6m)
which was determined as 1.1% 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.
Significant changes in our approach
The appropriateness of the going concern assumption has been elevated to a key audit matter
as a result of the Group’s uncertainty relating to the availability of finance facilities which are
contingent on successful negotiations with banking institutions.
70
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
Going concern has been
identified as a key audit matter.
Please see below.
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 2.1 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 considered as part of our risk assessment the nature of the Group, its business model and related
risks including where relevant the impact of Brexit, the requirements of the applicable financial reporting
framework and the system of internal control. We evaluated the Directors’ assessment of the Group’s ability
to continue as a going concern, including challenging the underlying data and key assumptions used
to make the assessment, and evaluated the Directors’ plans for future actions in relation to their going
concern assessment.
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 pages 34 to 36 that describe the principal risks and explain how they are being
managed or mitigated;
• the Directors’ confirmation on page 69 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.
71
Lamprell plc Annual Report and Accounts 2018Financial statements Independent Auditor’s Report continued
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.
Going concern basis of accounting
Key audit matter description
Note 2.1 to the financial statements includes the Directors’ assessment of whether they considered
it appropriate to adopt the going concern basis of accounting in preparing the financial statements.
The Group incurred a loss after tax of USD 70.6 million during the year ended 31 December 2018
and was in a net cash position of USD 80.0 million at 31 December 2018 (2017: net cash position
of USD 257.0 million). This constitutes a significant decrease in its cash resources and is mainly
attributable to expected cash outflows from operating activities of USD 125.1 million (2017: inflows
of USD 32.4 million). The Group has bank facilities of USD 540.1 million (Note 33) of which
USD 50 million is available to be drawn as cash under a revolving credit facility. The bank facilities
are secured by liens/cash margin over term deposits of USD 50.8 million (Note 24).
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 borrowing to EBITDA financial covenant
contained within its debt facilities at 31 December 2018. Due to this breach of the covenant clause,
the banks were contractually entitled to request for immediate repayment of the outstanding loan
amount of USD 20 million. A waiver of this covenant was subsequently obtained.
In view of the anticipated cash position and in addition to other planned cash initiatives, the Group
has been in discussions with various banking institutions to renegotiate its bank facilities that
are scheduled to expire in August 2019 and these have been positive. At this time management
has received non-binding indicative term sheets and the legal documentation necessary prior to
seeking final approval from certain of the banking institutions is in progress. Based on this, the
Directors have a reasonable expectation that they will be able to complete the debt refinancing and
sign the full facility agreement in the near term, which is expected to comprise of a term loan and
revolving credit facility to support the business. The conversion from non-binding term sheets to
committed facilities with lenders represents a key assumption in the Group’s forecast cash flows.
Other key assumptions include:
• the sale of the LAM2K land rig and timing of receipt of the sale proceeds;
• the cash advance expected to be received from International Maritime Industries (“IMI”) once a
contract to construct two new rigs is approved by both parties; and
• the timing of cash calls forecast for further investment in IMI.
After performing a detailed forecast of liquidity for a period of 12 months from the date of approval
of the 2018 Annual Report and Accounts, and considering the realistic availability and likely
effectiveness of actions that the Directors could take to avoid, or reduce the impact or likelihood of
a significant deterioration in cash flow arising from these matters, the Directors have concluded that
the going concern basis remains appropriate.
72
How the scope of our audit responded
to the key audit matter
Key observations
In response to this, we:
• understood the current status of the negotiations in respect of both the sale of the LAM2K land
rig and the contract with IMI for the fabrication and sale of the two new build rigs, to consider the
reasonableness of management’s assumptions as to the timing of the related cash flows;
• considered the impact of a delay of six months to the forecast sale of the LAM2K rig and a
three-month delay to the cash flows from the new build’s to the Group’s cash position, which we
assessed as being reasonably possible given the current status of negotiations;
• challenged management’s assumption that no further cash contributions may be required to fund
the IMI joint venture prior to July 2020 and considered the contractual consequences of needing
to delay this further;
• assessed the design and implementation of the controls in place to address this key audit matter;
• engaged in regular discussions with the Directors on the status of negotiations in respect
of new facilities, including review of indicative term sheets and other correspondence with
potential lenders;
• obtained an understanding of the existing financing facilities, including the nature of facilities,
repayment terms, covenants and attached conditions;
• reviewed documentation evidencing the waiver of the covenant breach disclosed in Note 33;
• with the assistance of a specialist, challenged the appropriateness of management’s key
assumptions in the cash flow forecasts as described in Note 2.1 by assessing historical
forecasting accuracy, reviewed supporting and contradictory evidence in relation to these key
assumptions and understanding management’s consideration of downside sensitivity analyses;
• assessed the existing facility and covenant headroom calculations on both a base case scenario,
and management’s adjusted base case;
• considered the consistency of management’s forecasts with other areas of the audit, including
the impairment financial models, the forecasts underpinning the viability statement, and the
assumptions underpinning the accounting treatment for the East Anglia ONE project;
• reviewed the wording of the going concern Note 2.1 in the financial statements, including the
uncertainties described therein and assessed its consistency with management’s forecasts;
• considered as part of our risk assessment the nature of the Group, its business model and
related risks, including where relevant the impact of Brexit, the requirements of the applicable
financial reporting framework and the system of internal control; and
• evaluated the Directors’ plans for future actions in relation to their going concern assessment.
We are satisfied that the going concern assumption remains appropriate given the headroom
available in management’s base case, together with the mitigating actions available to management
should a liquidity shortfall arise in reasonable downside scenarios as discussed in Note 2.1.
We are satisfied that the disclosures in respect of the going concern assumption in Note 2.1 have
been made in accordance with the requirements of IAS 1: Presentation of financial statements.
73
Lamprell plc Annual Report and Accounts 2018Financial statements Independent Auditor’s Report continued
Estimation of project costs and revenue recognition in respect of the East Anglia ONE Project
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 as discussed in the
principal risks and uncertainties on page 34.
The Group’s accounting policy for revenue recognition is included in Note 2.1 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.
Management is required to forecast expected total costs to complete the East Anglia ONE
project, 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.
The Group has encountered major operational challenges on the East Anglia ONE project
which resulted in a total forecast loss on this contract for the Group at 31 December 2018 of
USD 89.4m (2017: USD 80.0m). The increase in the forecast loss on the contract has been charged
to the income statement in the year.
The status of the East Anglia ONE contract is updated on a regular basis. In doing so, management
is 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 the project within contracted timescales.
As at 31 December 2018, the customer was contractually entitled to claim liquidated damages up
to a maximum of USD 33.8m. However, management has not included these liquidated damages
in their contract forecast, as they believe that these damages will not be claimed. In coming to
this conclusion, management has considered correspondence with the customer regarding the
customer’s willingness to enter into a deed of variation to the contract to set a number of milestone
dates aligned with the new installation window and include a defined process for acceptance of
the jackets to ensure that the project can be completed successfully with minimal impact on either
party (the “comfort letter”).
Further significant project judgements include:
• the likelihood of acceptance of the jackets by the customer as conforming to the technical
specifications stipulated in the contract; and
• the ability of the Group’s subcontractor to deliver on time and in accordance with the project’s
revised delivery dates.
Management have assessed that the outcome of events in respect of the conditions noted above
will meet the requirements of the customer. This assessment has required significant management
judgement and is described further “critical accounting judgements and key sources of estimation
uncertainty” section of the Annual Report in Note 4.1 and the “significant judgements” section in
the Audit and Risk Committee report on page 53.
74
How the scope of our audit responded
to the key audit matter
Our work on the recognition of the East Anglia ONE contract revenue, margin and related
receivables and liabilities included:
• an assessment of the design and implementation of relevant controls over the recognition of
contract revenue and margin;
• meeting with operational project management to understand contract performance;
• challenging management’s key judgements inherent in the forecast 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 contract revenue and contract costs via
inspection of customers’ instructions and contracts with customers and the supply chain;
• testing the financial forecast costs by agreeing a sample of 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;
• involving an internal engineer specialist to review management’s expert’s report on the Group’s
compliance with certain technical specifications required in the contract and comfort letter;
• assessing 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 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;
• reviewing the terms of the comfort letter, assessing its reliability and evaluating its impact on
defining the process for acceptance of the jackets and defining the delivery dates for the
installation campaign;
• reviewing post-balance sheet contract performance to challenge year end judgements; and
• 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.
We concur with management’s judgement that the conditions of the comfort letter are more likely
to be met, and therefore that the contract accounting adopted in the financial statements are
appropriate.
We concur with management’s disclosures in Note 4.2.2 to the financial statements, which
describes the estimation uncertainty related to future costs and liabilities of the East Anglia ONE
project and the critical accounting judgement in Note 4.1.1 regarding liquidated damages.
Key observations
75
Lamprell plc Annual Report and Accounts 2018Financial statements Independent Auditor’s Report continued
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 159.4m
(Note 17) and intangible assets of USD 29.9m (Note 18) as at 31 December 2018. Due to the
expected low levels of activity in 2018 and slow recovery in the market, the Group identified
impairment indicators for these non-current assets. Management performed an impairment
assessment as at 31 December 2018, in accordance with IAS 36.
As disclosed in Note 2.1 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 2.21 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 4.1
and the “significant judgements” section in the Audit and Risk Committee report on page 53.
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;
• 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;
• reviewing the forecast revenue and the yard capacity required to deliver this, to challenge their
ability to achieve the forecast revenue in the current operational facilities;
• 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.
76
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:
Group financial statements
Parent company financial statements
Materiality
USD 4.3m (2017: USD 4.6m)
USD 4.1m (2017: USD 4.4m)
Basis for determining materiality
The Group materiality that we used in the current
year was determined as 1.1% (2017: 1.0%) of net
assets. There has been no change to this.
The parent company materiality was determined
as 1.5% of net assets and then has been capped
at 95% Group materiality.
Rationale for the benchmark applied
Given the volatility in the Group’s performance,
we considered a number of performance and
asset measures and determined that a net asset
measure appropriate reflection of the size of
the Group’s operations. Our determined Group
materiality is equivalent to 1.8% of Revenue.
Parent company materiality was determined using
net assets on the basis that it acts as a holding
company for the Group.
Net assets USD 393.2m
Group materiality USD 4.3m
Component materiality range
USD 4.1m to USD 1.7m
Audit Committee reporting threshold USD 0.2m
Net assets
Group materiality
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of USD 0.2m (2017: USD 0.2m), 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 misstatements
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.
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.
77
Lamprell plc Annual Report and Accounts 2018Financial statements Independent Auditor’s Report continued
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 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:
• 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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
78
Report on other legal and regulatory requirements
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:
• 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; or
• certain disclosures of Directors’ loans and remuneration specified by law are not been complied with.
We have nothing to report
in respect of these matters.
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.
Dean Cook MA FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
20 March 2019
79
Lamprell plc Annual Report and Accounts 2018Financial statements Consolidated income statement
Continuing operations
Revenue
Cost of sales
Gross loss
Selling and distribution expenses
General and administrative expenses
Other gains – net
Operating loss
Finance costs
Finance income
Finance costs – net
Share of loss of investments accounted for using the equity method – net
Loss before income tax
Income tax expense
Loss for the year from continuing operations
Loss per share attributable to the equity holders of the Company during the period
Basic
Diluted
The notes on pages 88 to 130 form an integral part of these financial statements.
Year ended 31 December
2018
USD’000
2017
USD’000
Notes
6
7
8
10
13
12
12
20
14
234,074
(243,187)
(9,113)
(1,144)
(45,171)
32
370,439
(420,605)
(50,166)
(717)
(40,197)
877
(55,396)
(90,203)
(5,678)
2,165
(3,513)
(10,576)
(69,485)
(1,171)
(70,656)
(9,019)
3,875
(5,144)
(2,559)
(97,906)
(191)
(98,097)
(20.67)c
(20.67)c
(28.70)c
(28.70)c
80
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 on cash flow hedges
Other comprehensive income for the year
Total comprehensive loss for the year
The notes on pages 88 to 130 form an integral part of these financial statements.
Notes
28
27
27
Year ended 31 December
2018
USD’000
(70,656)
2017
USD’000
(98,097)
851
(829)
(160)
–
691
(49)
2,619
1,741
(69,965)
(96,356)
81
Lamprell plc Annual Report and Accounts 2018Financial statements Consolidated balance sheet
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
Contract assets1
Derivative financial instruments
Cash and bank balances
Total current assets
Total assets
Liabilities
Current liabilities
Borrowings
Trade and other payables
Contract liabilities1
Provision for warranty cost and other liabilities
Current tax liabilities
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 reserves
Retained earnings
Total equity attributable to the equity holders of the Company
As at 31 December
2018
USD’000
2017
USD’000
Notes
17
18
20
22
24
29
21
22
23
29
24
33
30
31
32
28
26
26
27
159,462
29,945
53,321
–
333
–
171,725
31,715
25,908
839
13,426
153
243,061
243,766
90,623
68,050
54,931
218
99,471
313,293
556,354
(19,768)
(83,892)
(26,539)
–
(1,114)
(131,313)
181,980
(32,088)
(163,401)
392,953
30,346
315,995
(19,643)
66,255
392,953
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)
(281,859)
460,812
30,346
315,995
(18,123)
132,594
460,812
1. The Group has initially applied IFRS 15 and IFRS 9 with the cumulative effect of initially applying these standards recognised through retained earnings on the date of the initial application.
Under this method, the comparative information is not restated. See Note 2 to the consolidated financial statements.
The financial statements on pages 80 to 130 were approved and authorised for issue by the Board of Directors on 20 March 2019 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 130 form an integral part of these financial statements.
82
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
As at 31 December
2018
USD’000
2017
USD’000
Notes
19
558,355
555,710
25
25
28
26
26
27
190
14,817
201
15,208
573,563
(493)
(787)
(1,280)
13,928
(280)
(1,560)
242
16,936
163
17,341
573,051
(1,241)
(3,155)
(4,396)
12,945
(217)
(4,613)
572,003
568,438
30,346
315,995
189,052
36,610
572,003
30,346
315,995
189,059
33,038
568,438
The financial statements on pages 80 to 130 were approved and authorised for issue by the Board of Directors on 20 March 2019 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 130 form an integral part of these financial statements.
83
Lamprell plc Annual Report and Accounts 2018Financial statements Consolidated statement of changes in equity
At 1 January 2017
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
Loss for the year
Other comprehensive income:
Remeasurement of post-employment benefit obligations
Currency translation differences
Reclassification of 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 2018
Notes
Share
capital
USD’000
30,346
Share
premium
USD’000
315,995
Other
reserves
USD’000
(20,693)
–
–
(49)
2,619
2,570
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30,346
315,995
(18,123)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(160)
(1,360)
(1,520)
–
–
–
30,346
315,995
(19,643)
Retained
earnings
USD’000
229,750
(98,097)
(829)
–
–
Total
USD’000
555,398
(98,097)
(829)
(49)
2,619
(98,926)
(96,356)
2,425
(655)
1,770
132,594
(70,656)
851
–
–
(69,805)
3,688
(222)
3,466
66,255
2,425
(655)
1,770
460,812
(70,656)
851
(160)
(1,360)
(71,325)
3,688
(222)
3,466
392,953
28
27
27
9
28
27
27
9
The notes on pages 88 to 130 form an integral part of these financial statements.
84
Company statement of changes in equity
At 1 January 2017
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
Total transactions with owners
At 31 December 2017
Profit for the year
Other comprehensive income:
Remeasurement of post-employment benefit obligations
Currency translation differences
Total comprehensive income for the year
Transactions with owners:
Share-based payments:
– value of services provided
– investment in subsidiaries
– treasury shares issued
Total transactions with owners
At 31 December 2018
Notes
Share
capital
USD’000
30,346
Share
premium
USD’000
315,995
Other
reserve
USD’000
189,059
28
9
19
28
27
9
19
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30,346
315,995
189,059
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7)
(7)
–
–
–
–
30,346
315,995
189,052
Retained
earnings
USD’000
32,626
(1,306)
Total
USD’000
568,026
(1,306)
(52)
(1,358)
(52)
(1,358)
1,163
1,262
(655)
1,770
33,038
100
6
–
106
1,043
2,645
(222)
3,466
36,610
1,163
1,262
(655)
1,770
568,438
100
6
(7)
99
1,043
2,645
(222)
3,466
572,003
The notes on pages 88 to 130 form an integral part of these financial statements.
85
Lamprell plc Annual Report and Accounts 2018Financial statements Consolidated cash flow statement
Operating activities
Cash (used in)/generated from operating activities
Tax paid
Net cash (used in)/generated from operating activities
Investing activities
Additions to property, plant and equipment
Proceeds from sale of property, plant and equipment
Additions to intangible assets
Investment in an associate or joint venture
Dividend received from an associate
Finance income
Movement in deposit with original maturity of more than three months
Movement in margin deposits under lien (with original maturity more than three months)
Movement in margin deposits under lien (with original maturity less than three months)
Net cash generated/(used in) investing activities
Financing activities
Treasury shares purchased
Repayments of borrowings
Finance costs
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Exchange rate translation
Cash and cash equivalents, end of the year from continuing operations
Non-cash transaction
Year ended 31 December
2018
USD’000
2017
USD’000
Notes
38
(124,836)
(248)
(125,084)
32,619
(223)
32,396
17
18
20
20
12
24
(7,979)
(22,060)
50
(2,019)
(39,102)
1,113
2,165
288
(1,772)
(23,375)
2,137
3,875
131,651
(139,660)
(5,391)
4,301
84,789
(222)
(20,000)
(5,401)
(25,623)
(65,918)
104,762
(160)
38,684
(4,840)
41,975
(143,432)
(655)
(20,000)
(9,012)
(29,667)
(140,703)
245,514
(49)
104,762
Additions to intangible assets in 2017 as disclosed in Note 18 included an amount of USD 8.7 million prepaid to Sharjah Electricity & Water
Authority. This was treated as a non-cash item in 2017.
The notes on pages 88 to 130 form an integral part of these financial statements.
86
Company cash flow statement
Operating activities
Profit/(loss) for the year
Adjustments for:
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
Exchange rate translation
Cash and cash equivalents, end of the year
The notes on pages 88 to 130 form an integral part of these financial statements.
Year ended 31 December
2018
USD’000
2017
USD’000
Notes
34
9
28
25
25
100
(1,306)
1,043
69
1,212
–
52
(748)
2,119
(2,368)
267
(222)
(222)
45
163
(7)
201
1,163
58
(85)
(66)
115
677
(3,242)
3,155
554
(655)
(655)
(101)
264
–
163
87
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements
for the year ended 31 December 2018
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 27). 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.
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 and 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”)
Sunbelt Safety Services LLC (“SSSL”)
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
701
100
100
100
100
100
100
100
2
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
Sultanate of Oman
1. The remaining legal ownership 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 25).
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.
These financial statements have been prepared on a going concern basis which assumes that the Group will continue to have adequate resources
to continue in operational existence for the foreseeable future notwithstanding the decrease in cash resources which is discussed below.
The Group incurred a loss after tax of USD 70.6 million during the year ended 31 December 2018 and was in a net cash position of USD 80.0
million at 31 December 2018 (2017: net cash position of USD 257.0 million). This constitutes a significant decrease in its cash resources and is
mainly attributable to expected cash outflows from operating activities of USD 125.1 million (2017: inflows of USD 32.4 million). The Group has
bank facilities of USD 540.1 million (Note 33) of which a further USD 50 million is available to be drawn as cash under a revolving credit facility.
The bank facilities are secured by liens/cash margin over term deposits of USD 50.8 million (Note 24).
The Group’s bank facilities are subject to covenant clauses, whereby the Group is required to meet certain key financial ratios. The Group did not
fulfil the borrowing to EBITDA financial covenant contained within its facilities at 31 December 2018. Due to this breach of the covenant clause,
the banks were entitled to request for immediate repayment of the outstanding loan amount of USD 20 million. A waiver of this covenant was
subsequently obtained.
88
2
Summary of significant accounting policies continued
2.1 Basis of preparation continued
In view of the anticipated cash position and in addition to other planned cash initiatives, the Group has been in discussions with various banking
institutions to renegotiate its facilities that are scheduled to expire in August 2019 and these have been positive. At this time management has
received non-binding indicative term sheets and the legal documentation necessary prior to seeking final approval from certain of the banking
institutions is in progress. Based on this, the Directors have a reasonable expectation that they will be able to complete the debt refinancing and
sign the full facility agreement in the near term, which is expected to comprise of a term loan and revolving credit facility to support the business.
At the date of approval of these financial statements, the conversion from non-binding term sheets to committed facilities with lenders represents
a key assumption in the Group’s forecast cash flows. Other key assumptions include:
•
•
the sale of the LAM2K land rig and timing of receipt of the sale proceeds;
the cash advance expected to be received from International Maritime Industries (“IMI”) once a contract to construct two new rigs is
approved by both parties; and
•
the timing of further cash calls forecast for investment in IMI.
After considering the realistic availability and likely effectiveness of actions that the Directors could take to avoid, or reduce the impact or
likelihood of a significant deterioration in cash flow arising from these matters, the Directors have concluded they do not represent a material
uncertainty that may cast significant doubt upon the continuing use of the going concern basis of accounting.
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
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 Group has adopted amendments for annual periods beginning 1 January 2018. The application of these amendments has had no
effect on the Group’s consolidated financial statements 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 (“FVTOCI”) and fair value through P&L (“FVTPL”).
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.
Impact of IFRS 9, Financial Instruments
In the current year, the Group has applied IFRS 9, Financial Instruments (as revised in July 2014) and the related consequential amendments
to other IFRSs. IFRS 9 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities,
2) impairment for financial assets, and 3) general hedge accounting. The Group applied IFRS 9 prospectively, with an initial application date
of 1 January 2018 and has not restated comparative information, which continues to be reported under IAS 39.
The adoption of IFRS 9 has resulted in changes in accounting policies for financial instruments as detailed below:
(a) Financial assets at fair value through profit or loss (“FVTPL”)
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are measured at FVTPL.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses presented in the
consolidated income statement to the extent they are not part of a designated hedging relationship within ‘other gains/(losses) – net’ in the period
in which they arise. Transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are recognised
immediately in the consolidated income statement.
89
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
2
Summary of significant accounting policies continued
2.1 Basis of preparation continued
(a) New and amended standards adopted by the Group continued
IFRS 9, ‘Financial Instruments’ continued
Impact of IFRS 9, Financial Instruments continued
(b) Financial assets at amortised cost
The Group measures financial assets at amortised cost if both of the following conditions are met:
•
•
The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on
the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest (“EIR”) method and are subject to impairment. Gains
and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the
consideration received and receivable is recognised in profit or loss.
(c)
Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model
under IAS 39. The expected credit loss model requires the Group and the Company to account for expected credit losses and changes in those
expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is
no longer necessary for a credit event to have occurred before credit losses are recognised.
In particular, IFRS 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit
losses (“ECL”) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a
purchased or originated credit-impaired financial asset. However, if the credit risk on a financial instrument has not increased significantly since
initial recognition (except for a purchased or originated credit-impaired financial asset), the Group is required to measure the loss allowance for
that financial instrument at an amount equal to 12 months ECL.
Specifically for trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group
does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has
established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors
and the economic environment.
The Group considers financial assets to be in default when internal or external information indicates that the Group is unlikely to receive the
outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. In doing so, the Group also takes
into account the days the contractual payments are past due.
The Group applied ECL model under IFRS 9 for the first time in the current year which did not have a material impact on the consolidated
financial statements of the Group. No additional credit loss allowance as at 1 January 2018 has been recognised against retained earnings nor
any loss allowance has been recognised upon the initial application of IFRS 9 as a result from a change in the measurement attribute of the loss
allowance relating to each financial asset. As the Group’s historical credit loss experience does not show significantly different loss patterns for
different customer segments, the provision for loss allowance based on past due status is not further distinguished between the Group’s different
customer segments.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic
prospect of recovery.
(d) General hedge accounting
The new general hedge accounting requirements retain the three types of hedge accounting. However, greater flexibility has been introduced to
the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and
the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been replaced
with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required.
In accordance with IFRS 9’s transitional provisions for hedge accounting, the Group has elected to continue applying the hedge accounting
requirements of IAS 39 instead of the requirements set out in IFRS 9. This election applies to all of the Group’s hedging relationships at 1 January
2018. Therefore this has had no impact on the results and financial position of the Group for the current or prior year.
The Group’s previous financial instruments accounting policy applied until 31 December 2017 is stated below:
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.
90
2
Summary of significant accounting policies continued
2.1 Basis of preparation continued
(a) New and amended standards adopted by the Group continued
IFRS 9, ‘Financial Instruments’ continued
Impact of IFRS 9, Financial Instruments continued
(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.
(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.
(c)
Impairment of financial assets
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.
(d) 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).
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.
91
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
2
Summary of significant accounting policies continued
2.1 Basis of preparation continued
(a) New and amended standards adopted by the Group continued
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.
Impact of IFRS 15, Revenue from Contracts with Customers
(a) Changes in accounting policy
The Group has adopted IFRS 15, Revenue from Contracts with Customers from 1 January 2018. This resulted in changes in its accounting policy
for revenue as detailed below:
Contract revenue
The Group reviews lump-sum construction contracts and allocates the revenue to each performance obligation of the contract depending
on whether the contract is viewed as containing a single or multiple performance obligations. Revenue from each performance obligation is
recognised either over time or at a point in time depending on the nature and timing of when the performance obligation is satisfied.
In the case of a performance obligation satisfied over time, contract revenue is recognised under the input 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, due to their uncommon nature, risk profiling, including
first-of-a-kind projects, the Group recognises revenue to the extent of cost incurred up to the year end which are considered recoverable.
For these contracts, the Group recognises gross margin only when progress towards complete satisfaction of the performance obligation
can be measured reliably. This is mainly the case with respect to fixed price construction contracts with an expected contract duration of
18 months or greater.
Revenue related to variation orders is recognised when it is highly probable that a significant reversal in the amount of cumulative revenue
recognised will not occur and the amount of revenue arising from the variation can be reliably measured. 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
are required to be estimated at contract inception. The estimated variable consideration is, however, constrained to prevent over-recognition of
revenue. The Group continues to assess individual contracts to determine the estimated variable consideration and related constraint.
Contract modification are accounted for as a separate contract only if the scope of contract changes due to the addition of the promised goods
or services that are distinct; and the price of the contract increases by an amount of consideration that reflects a stand-alone selling price.
Claims are accounted for as variable consideration. They are included in contract revenue using the expected value or most likely amount
approach (whichever is more predictive of the amount the entity expects to be entitled to receive) and it is highly probable that a significant
reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the claim is subsequently resolved.
Losses on contracts are assessed on an individual contract basis and provision is made for the full amount of the anticipated losses, including
any losses relating to future work on a contract, in the period in which the loss is first foreseen.
The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against progress billings at each reporting
period. Where the sum of the costs incurred and recognised profit or recognised loss exceeds the progress billings, the balance is shown under
contract assets as amounts due from customers on contracts. Where the progress billings exceed the sum of costs incurred and recognised
profit or recognised loss, the balance is shown under contract liabilities as amounts due to customers on contracts.
In determining contract costs incurred up to the reporting date, 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 under contract assets as contract
work-in-progress.
The incremental costs of obtaining a contract with a customer are recognised as an asset if those costs are expected to be recovered.
Products and services
Revenue from sale of products and services is recognised in the accounting period in which the control is transferred or the service is rendered
net of value added tax.
Interest income
Interest income is recognised on a time proportion basis using the effective interest rate method.
Warranty obligations
The Group generally offers a warranty range of one to seven years 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.
For first-of-a-kind projects, estimates are based on market observable trends and complexity of the project. In all cases, the Group mitigates
its exposure to warranty claims through back-to-back warranties with the original equipment manufacturers and subcontractors. These costs
are included in estimated contract costs. As such, the warranties are assurance-type warranties under IFRS 15, which the Group accounts for
under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, consistent with its practice prior to the adoption of IFRS 15.
92
2
Summary of significant accounting policies continued
2.1 Basis of preparation continued
(a) New and amended standards adopted by the Group continued
IFRS 15, ‘Revenue from contracts with customers’ continued
Impact of IFRS 15, Revenue from Contracts with Customers continued
(b)
Impact of adoption of IFRS 15
The Group has adopted IFRS 15 from 1 January 2018 and applied the modified retrospective approach permitted by IFRS 15 upon adoption.
Following practical expedients available under the modified retrospective approach of IFRS 15 have been adopted by the Group:
•
•
The requirement of new standard have been applied to contracts that are not completed as at date of initial application (1 January 2018);
and
The Group has not restated the contracts in accordance with the revenue standard for contract modifications which took place before the
date of initial application.
Set out below are the amounts by which each financial statement line item is affected as at 31 December 2018 as a result of the adoption
of IFRS 15. The adoption of IFRS 15 did not have an impact on OCI, earning per share or the Group’s operating, investing and financing
cash flows. The first column shows amounts prepared under IFRS 15 and the second column shows what the amounts would have been
had IFRS 15 not been adopted:
31 December 2018
Current assets
Trade and other receivables
Contract assets
Impact on total assets
Current liabilities
Trade and other payables
Provision for warranty costs and other liabilities
Contract liabilities
Impact on total liabilities
As per
IFRS 15
USD’000
68,050
54,931
122,981
83,892
–
26,539
110,431
As per
previous
IFRS
USD’000
122,981
–
122,981
106,265
4,166
–
110,431
Increase/
(decrease)
USD’000
(54,931)
54,931
–
(22,373)
(4,166)
26,539
–
Variable consideration
The current major contracts were at an advanced stage of negotiation as it was highly probable that significant reversal of revenue will not occur
and, therefore, met requirements of the constraint. Based on this key judgement, no adjustments have been made to revenue previously reported
for the year ended 31 December 2017.
Revenue recognition
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 percentage of completion method used under IAS 11 to measure the progress towards complete satisfaction of these performance
obligations continues to be appropriate under IFRS 15. Based on these key judgements, no adjustments have been made to revenue or cost
previously reported for the year ended 31 December 2017.
The Group disaggregated revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by economic factors. The Group also disclosed information about the relationship between
the disclosure of disaggregated revenue and revenue information disclosed for each reportable segment – refer to Note 6.
The Group’s previous revenue accounting policy applied until 31 December 2017 and is stated below:
(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.
93
Lamprell plc Annual Report and Accounts 2018Financial statements
Notes to the consolidated financial statements continued
2
Summary of significant accounting policies continued
2.1 Basis of preparation continued
(a) New and amended standards adopted by the Group continued
IFRS 15, ‘Revenue from contracts with customers’ continued
Impact of IFRS 15, Revenue from Contracts with Customers continued
(b)
Impact of adoption of IFRS 15 continued
(a) Contract revenue continued
A claim is recognised as contract revenue when settled or when negotiations have reached an advanced stage such that it is probable that
the customer will accept the claim and the amount can be measured reliably.
Losses on contracts are assessed on an individual contract basis and provision is made for the full amount of the anticipated losses, including
any losses relating to future work on a contract, in the period in which the loss is first foreseen.
The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against progress billings at the year end.
Where the sum of the costs incurred and recognised profit or recognised loss exceeds the progress billings, the balance is shown under trade
and other receivables as amounts recoverable on contracts. Where the progress billings exceed the sum of costs incurred and recognised profit
or recognised loss, the balance is shown under trade and other payables as amounts due to customers on contracts.
In determining contract costs incurred up to the year end, any amounts incurred, including advances paid to suppliers and advance billings
received from 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.
IAS 28 (Amendments) ‘Investments in Associates and Joint Ventures’. The amendments clarify that the option for a venture capital organisation
and other similar entities to measure investments in associates and joint ventures at fair value through profit or loss (“FVTPL”) is available
separately for each associate or joint venture, and that election should be made at initial recognition. In respect of the option for an entity that
is not an investment entity (“IE”) to retain the fair value measurement applied by its associates and joint ventures that are IEs when applying the
equity method, the amendments make a similar clarification that this choice is available for each IE associate or IE joint venture. The application
of these amendments has had no impact on the Group’s consolidated financial statements.
IAS 40 (Amendments) ‘Transfers of 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 amendments clarify that a transfer to, or from,
investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property,
supported by observable evidence that a change in use has occurred. The application of these amendments has had no effect on the Group’s
consolidated financial statements 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 application of these amendments has had no effect on the Group’s consolidated
financial statements as it currently accounts for such transactions in a way consistent with the amendments.
(b)
New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2018 and
not early adopted
IFRS 9 (amendments), ‘Prepayment features with Negative Compensation’. The amendments clarify that for the purpose of assessing whether
a prepayment feature meets the ‘Solely Payments of Principal and Interest’ (“SPPI”) condition, the party exercising the option may pay or receive
reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, prepayment features with negative
compensation do not automatically fail SPPI. The amendment applies to annual periods beginning on or after 1 January 2019. The Group does
not anticipate that the application of the amendments in the future will have an impact as it currently accounts for such transactions in a way
consistent with the amendments.
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.
94
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 2018 and
not early adopted continued
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. Detailed below is management’s assessment of the impact of IFRS 16 on the Group.
(a)
Impact assessment of IFRS 16, Leases
As at 31 December 2018, the Group has non-cancellable operating lease commitments of USD 113.7 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 36.
Our 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 except those classified as low value or short-term leases. Management
intends to use the modified transition approach as permitted by IFRS 16. Therefore, comparatives will not be restated and the right of use asset
will be recognised based on the remaining lease period with no cumulative adjustment in retained earnings.
Based on this approach, management of the Group has assessed the impact of IFRS 16 to the Group financial statements as follows:
Impact on consolidated income statement
Administrative expenses would be broadly decreased as a result of the lease expense of between USD 6.5 million and USD 7.5 million being
replaced by an increase in depreciation on the right-of-use asset of between USD 3.5 million and USD 4.5 million. Finance costs would increase
by less than/more than USD 5.3 million to reflect the current year unwind of the discounted lease liability.
Balance sheet
At 31 December 2018, a right-of-use asset of between USD 56.0 million and USD 58.0 million would be recognised as a non-current asset,
along with a lease liability in the same range.
Cash flow statement
The lease payments would be reclassified from operating activities to financing activities.
Critical accounting judgements and key sources of estimation uncertainty
Management has made key judgements in determining the right of use asset and liability as follows:
(a)
Interest rate implicit in the lease has been determined as 10% based on the Group’s incremental borrowing rate; and
(b) Certain long-term leases have escalation clauses which allow for rent reviews every five years. Management has used historical trends for
the respective leases in estimating the future cash flows for these leases.
A change in these assumptions could result in an increase or decrease in the right of use assets, liabilities and finance costs recognised in the
consolidated financial statements.
(b) Changes in accounting policy
The Group will adopt IFRS 16, Leases with effect from 1 January 2019. This will result in changes in its accounting policy for leases as
detailed below:
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
For a contract that is, or contains, a lease, the Group accounts for each lease component within the contract as a lease separately from non-lease
components of the contract.
The Group determines the lease term as the non-cancellable period of a lease, together with both:
a)
b)
periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
95
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
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 2018 and
not early adopted continued
IFRS 16, ‘Leases’ continued
(b) Changes in accounting policy continued
The Group as a lessee:
For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration
in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone
price of the non-lease components.
The relative stand-alone price of lease and non-lease components is determined on the basis of the price the lessor, or a similar supplier, would
charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the Group
estimates the stand-alone price, maximising the use of observable information.
The non-lease components are accounted for in accordance with the Group’s policies.
For determination of the lease term, the Group reassesses whether it is reasonably certain to exercise an extension option, or not to exercise a
termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
a)
b)
is within the control of the Group; and
affects whether the Group is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to
exercise an option previously included in its determination of the lease term.
At the commencement date, the Group recognises a right-of-use asset and a lease liability under the lease contract.
Lease liability
Lease liability is initially recognised at the present value of the lease payments that are not paid at the commencement date. The lease payments
are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the
Group uses its incremental borrowing rate.
After initial recognition, the lease liability is measured by (a) increasing the carrying amount to reflect interest on the lease liability; (b) reducing
the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease
modifications or to reflect revised in-substance fixed lease payments. Where (a) there is a change in the lease term as a result of reassessment
of certainty to exercise an exercise option, or not to exercise a termination option as discussed above; or (b) there is a change in the assessment
of an option to purchase the underlying asset, assessed considering the events and circumstances in the context of a purchase option, the Group
re-measures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The
Group determines the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily
determined, or its incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.
Where (a) there is a change in the amounts expected to be payable under a residual value guarantee; or (b) there is a change in future lease
payments resulting from a change in an index or a rate used to determine those payments, including a change to reflect changes in market rental
rates following a market rent review, the Group re-measures the lease liabilities by discounting the revised lease payments using an unchanged
discount rate, unless the change in lease payments results from a change in floating interest rates. In such case, the Group use a revised
discount rate that reflects changes in the interest rate.
The Group recognises the amount of the re-measurement of lease liability as an adjustment to the right-of-use asset. Where the carrying amount
of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Group recognises any
remaining amount of the re-measurement in profit or loss.
The Group accounts for a lease modification as a separate lease if both:
a)
b)
the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any
appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.
For lease modifications that are not accounted for as a separate lease, the Group, at the effective date of the lease modification: (a) allocates the
consideration in the modified contract; (b) determines the lease term of the modified lease; and (c) re-measures the lease liability by discounting
the revised lease payments using a revised discount rate.
The revised discount rate is determined as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily
determined, or the lessee’s incremental borrowing rate at the effective date of the modification, if the interest rate implicit in the lease cannot be
readily determined.
96
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 2018 and
not early adopted continued
IFRS 16, ‘Leases’ continued
Right-of-use assets
The right-of-use asset is initially recognised at cost comprising of:
a)
b)
c)
d)
amount of the initial measurement of the lease liability;
any lease payments made at or before the commencement date, less any lease incentives received;
any initial direct costs incurred by the Group; and
an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located
or restoring the underlying asset to the condition required by the terms and conditions of the lease. These costs are recognised as part of
the cost of right-of-use asset when the Group incurs an obligation for these costs. The obligation for these costs are incurred either at the
commencement date or as a consequence of having used the underlying asset during a particular period.
For assets that meet the definition of property, plant and equipment, right of use asset is amortised over the term of the lease.
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.
IAS 19 (amendments), ‘Employee Benefits Plan Amendment, Curtailment or Settlement’. The amendments clarify that the past service cost
(or of the gain or loss on settlement) is calculated by measuring the defined benefit liability (asset) using updated assumptions and comparing
benefits offered and plan assets before and after the plan amendment (or curtailment or settlement) but ignoring the effect of the asset ceiling
(that may arise when the defined benefit plan is in a surplus position). IAS 19 is now clear that the change in the effect of the asset ceiling that
may result from the plan amendment (or curtailment or settlement) is determined in a second step and is recognised in the normal manner in
other comprehensive income. The amendments to IAS 19 must be applied to annual periods beginning on or after 1 January 2019. The Group
does not anticipate that the application of the amendments in the future will have an impact on the Group’s consolidated financial statements.
IAS 28 (amendments), ‘Long-term Interests in Associates and Joint Ventures’. The amendment clarifies that IFRS 9, including its impairment
requirements, applies to long-term interests. Furthermore, in applying IFRS 9 to long-term interests, an entity does not take into account
adjustments to their carrying amount required by IAS 28 (i.e. adjustments to the carrying amount of long-term interests arising from the allocation
of losses of the investee or assessment of impairment in accordance with IAS 28). The amendments apply retrospectively to annual reporting
periods beginning on or after 1 January 2019. The Group does not anticipate that the application of the amendments in the future will have an
impact on the Group’s consolidated financial statements.
IFRIC 23 ‘Uncertainty over Income Tax Treatments’, deals with how to determine the accounting tax position when there is uncertainty
over income tax treatments. The Interpretation requires an entity to determine whether uncertain tax positions are assessed separately or as
a group and assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity
in its income tax filings. The Interpretation is effective for annual periods beginning on or after 1 January 2019. Entities can apply the Interpretation
with either full retrospective application or modified retrospective application without restatement of comparatives retrospectively or prospectively.
The Group does not anticipate the amendments will have a material impact.
2.2 Revenue recognition
The Group revenue recognition policy has been updated following the adoption of IFRS 15, ‘Revenue from contracts with customers’. Refer to the
Group’s revised accounting policy for revenue detailed in Note 2.1(a) – 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.
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.
97
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
2
Summary of significant accounting policies continued
2.3 Consolidation continued
(a) Subsidiaries continued
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 re-measured 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.
(c) Joint arrangements
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.
(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.
2.4
Investment in subsidiaries
In the Company’s separate financial statements, the investment in subsidiaries is stated at cost less provision for impairment. Cost is the amount
of cash paid or the fair value of the consideration given to acquire the investment. Income from such investments is recognised as dividend in the
statement of comprehensive income.
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 the Omani Riyal, MISQWLL whose functional currency is the Qatari Riyal, LAK whose functional currency is the Kazakh
Tenge and for EBT and LUK whose functional currency is the Great British Pound). The consolidated and parent company financial statements are
presented in USD.
(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’.
98
2
Summary of significant accounting policies continued
2.5 Foreign currency translation continued
(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.
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.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All repairs and
maintenance are charged to the consolidated income statement during the financial period in which they are incurred.
Capital work-in-progress is stated at cost. When commissioned, capital work-in-progress is transferred to property, plant and equipment and
depreciated in accordance with Group policies.
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount
(Note 2.21).
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘other gains/
(losses) – net’ in the consolidated income statement.
2.7
Intangible assets
(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.
99
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
2
Summary of significant accounting policies continued
2.7
Intangible assets continued
(e) Development cost and patents
Development expenditures and patent fee are recognised as an intangible asset when the Group can demonstrate:
•
•
•
•
•
The technical feasibility of completing the asset
Its intention to complete and its ability and intention to use or sell the asset
How the asset will generate future economic benefits
The availability of resources to complete the asset
The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure and patent fee as an asset, the asset is amortised over the period of expected future
benefit and carried at cost less any accumulated amortisation.
(f) 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.
2.8
Inventories
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.
2.9 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 losses. The Group measures the
loss allowance for trade receivables based on the expected credit loss model using a provision matrix by reference to past default experience of
the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors and general economic
conditions of the industry in which the debtors operate. The Group writes off a trade receivable when there is information indicating that the
debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has
entered into bankruptcy proceedings. The amount of the provision is the difference between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the
consolidated income statement within ‘general and administrative expenses’. When a trade receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘general and administrative
expenses’ in the consolidated income statement.
2.10 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts
payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade
payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
2.11 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be
made.
2.12 Employee benefits
(a) Provision for staff benefits
A provision is made for the estimated liability for 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’.
100
2
Summary of significant accounting policies continued
2.12 Employee benefits continued
(b) Share-based payments
The Group operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received in exchange
for the grant of the shares/options is recognised as an expense. The total amount to be expensed over the vesting period is determined by
reference to the fair value of the shares/options granted, excluding the impact of any non-market vesting conditions (for example, profitability and
sales growth targets). Non-market vesting conditions are included in assumptions about the number of shares/options that are expected to vest.
At each balance sheet date, the entity revises its estimates of the number of shares/options that are expected to vest. It recognises the impact of
the revision to original estimates, if any, in the 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 an assessment 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.
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 Executive Directors that make 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.
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.
101
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
2
Summary of significant accounting policies continued
2.18 Current and deferred income tax continued
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 at amortised cost or fair value on the basis of the entity’s business model for managing the financial
assets and the contractual cash flow characteristics of the financial assets. The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. Refer to Note 2.1(a), 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. Refer to Note 2.1(a), Impact of IFRS 9, ‘Financial Instruments’.
2.21 Impairment of non-financial assets
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and its value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Non-financial
assets 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.
2.22 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds. 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.
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.
(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 2018, if foreign exchange rates on foreign balances had been 10% higher/lower, the
exchange difference would have been higher/lower by USD 0.3 million (2017: USD 0.2 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 2018, if interest rates on deposits had been
0.5% higher/lower, the interest income would have been higher/lower by USD 0.6 million (2017: USD 1.2 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 2018, if interest rates on borrowings had been 0.5% higher/lower, the interest expense
would have been higher/lower by USD 0.2 million (2017: USD 0.3 million).
(c) Credit risk
The Group’s exposure to credit risk is detailed in Notes 16, 22, 24 and 29. The Group has a policy for only 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, contract assets, related party balances 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 the bank is situated in a frontier market
where minimal balances are held.
102
3
Financial risk management continued
3.1 Financial risk factors continued
(c) Credit risk continued
The Group assesses internally the credit quality of each customer, taking into account its financial position, past experience and other factors.
An impairment analyses is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates
are based on the days past due for grouping of various customer segments. The calculation reflects the probability weighted outcome and
reasonable and supportable information that is available at the reporting date about past events, current conditions and forecast of future
economic conditions.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics
and the days past due with reference to past default experience of the debtor, an analysis of the debtor’s current financial position and general
current and forecast economic conditions of the industry in which the debtors operate. As the Group’s historical credit loss experience does not
show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further
distinguished between the Group’s different customer segments.
31 December 2018
Expected credit loss rate
Gross carrying amount
Loss allowance
1 January 2018
Expected credit loss rate
Gross carrying amount
Loss allowance
Contract
assets
USD’000
–
54,931
–
Contract
assets
USD’000
–
102,851
–
Current
USD’000
–
8,789
–
Current
USD’000
–
23,379
–
Up to
3 months
USD’000
–
26,132
–
3 to
6 months
USD’000
Over
6 months
USD’000
–
3,160
–
48.4%
8,656
4,189
Up to
3 months
USD’000
3 to
6 months
USD’000
Over
6 months
USD’000
–
7,459
–
–
757
–
69.4%
7,664
5,317
Total
USD’000
101,668
4,189
Total
USD’000
142,110
5,317
Balances in over six months have objective evidence of impairment and hence have been individually assessed. All other ageing categories have
been collectively assessed as the expected credit losses are not material.
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
2018
External
rating1
AA-
A+
AA-
A+
USD’000
40,867
21,839
17,810
14,583
95,099
2017
External
rating1
A+
A
AA-
A+
2018
2017
Internal
rating2
Group A
Group B
Group A
Group A
Group A
Group C
Group B
Group C
Group B
USD’000
9,652
4,382
3,247
2,647
2,396
1,589
1,453
1,365
1,111
27,842
Internal
rating2
Group A
Group B
Group A
Group B
Group C
Group A
Group C
Group C
Group B
USD’000
91,927
62,624
42,858
38,377
235,786
USD’000
7,896
4,577
2,756
2,574
2,376
1,164
1,045
963
935
24,286
2. Refer to Note 16 for the description of internal ratings.
The above represents 60% (2017: 62%) of trade receivables of USD 46.7 million (2017: USD 39.3 million) (Note 22).
The counterparties in 2018 are not necessarily the same counterparties in 2017.
The customers in 2018 are not necessarily the same customers in 2017.
Management does not expect any losses from non-performance by these counterparties.
103
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
3
Financial risk management continued
3.1 Financial risk factors continued
(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 29.
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 2018
Trade and other payables (Note 30)
Borrowings (Note 33)
31 December 2017
Trade and other payables (Note 30)
Borrowings (Note 33)
3.2 Capital risk management
Carrying
amount
USD’000
Contractual
cash flows
USD’000
Less than
1 year
USD’000
Between
1 to 5 years
USD’000
83,892
19,768
103,660
197,758
39,491
237,249
83,892
19,964
103,856
197,758
40,008
237,766
83,892
19,964
103,856
197,758
40,008
237,766
–
–
–
–
–
–
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:
31 December 2018
Derivative financial instruments (Note 29)
31 December 2017
Derivative financial instruments (Note 29)
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
–
–
218
1,666
–
–
218
1,666
There were no liabilities that are measured at fair value as at 31 December 2018 and 31 December 2017:
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.
104
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 Liquidated damages claims (“LDs”)
The Group recognises liquidated damages where there have been significant delays against defined contractual delivery dates or unfulfilled
contractual obligations and it is considered probable that the customer will successfully pursue these penalties. This requires management to
estimate the amount of liquidated damages payable under the contract based on a combination of an assessment of the contractual terms, the
reasons for any delays and evidence of cause of the delays to assess who is liable under the contract for the delays and consequently whether
the Group is liable for the liquidated damages or not.
The Group has encountered major operational and commercial challenges on the East Anglia ONE (“EA1”) project which resulted in a total
forecast loss for the Group at 31 December 2018 of USD 89.4 million (2017: USD 80.0 million).
Due to delays on the project and concerns over technical specifications stipulated in the contract, the client is contractually entitled to claim
liquidated damages to a maximum of USD 33.8 million. Management has not recorded an adjustment in relation to the liquidated damages as
it believes that based on the recent correspondence with the customer regarding the customer’s willingness to enter into a deed of variation to
the contract to set a number of milestone dates aligned with the new installation window and include a defined process for acceptance of the
jackets to ensure that the project can be completed successfully with minimal impact on either party (“the comfort letter”) received from the client,
they will not be claimed if the works under the contract are completed in a timely manner which enables the client to install the jackets during an
agreed new installation campaign window (“new installation campaign window”), which is due to commitments with other EA1 contractors which
would be impacted if not achieved.
In view of the above, management have made a significant judgement within the forecast loss calculation in ascertaining:
• The ability of the Group’s subcontractor to deliver on time and in accordance with the project’s revised delivery dates: The Group is working
with Harland & Wolff, its subcontractor in Belfast, to complete the assembly of the outstanding 18 jackets for the EA1 project. Given the
recent announcement by Harland & Wolff regarding its restructuring, the Group has had to allocate additional resources to Belfast to support
and actively manage the assembly of the outstanding 18 jackets to ensure overall project performance stays in line with the new installation
campaign window; and
• The acceptance of the jackets by the client as conforming to the technical specifications stipulated in the contract within the revised dates
aligned with the new installation campaign window. In its assessment, management has considered the client’s willingness to enter into a deed
of variation to the contract that in addition to revised milestone dates would define a process for acceptance of the jackets to ensure the project
can be completed successfully with minimal impact on either party.
Based on the discussions to date, management believe the risk of LDs being levied has been mitigated and continues to work with the client and
the subcontractors to ensure the installation programme is not compromised due to the effect of 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 and a corresponding
reduction to net assets.
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.
4.2.1 Revenue and margin recognition
The Group uses the input method in accounting for its contract revenue. Use of the input 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 Group’s accounting policy.
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 contract assets increasing by
USD 3.0 million (2017: USD 6.4 million) or contract liabilities decreasing by USD 3.0 million (2017: USD 6.4 million).
If the estimated total costs to completion of all outstanding projects were to increase by 10%, contract assets would decrease by USD 3.0 million
(2017: USD 19.7 million) or contract liabilities would increase by USD 3.0 million (2017: USD 19.7 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.
The outstanding provision has decreased to USD 9.5 million (31 December 2017: USD 41.7 million) due to utilisation of the onerous contract
provision related to the EA1 project as the contract progresses partially offset by an increase in the total loss of the project to USD 89.4 million.
105
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
4
Critical accounting judgements and key sources of estimation uncertainty continued
4.2 Key sources of estimation uncertainty continued
4.2.2 Onerous contract provisions continued
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 1.2 million (2017: 4.1 million) if the total costs to complete are decreased by 10% and
provision for onerous contract included in other payables increasing by USD 1.2 million (2017: USD 4.1 million) 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 segment’s assets located in
a particular geography.
An indicator of impairment exists in that the market downturn and instability in the oil and gas market continues to affect capital expenditure in
the sector. This has had an impact on our backlog and utilisation of our assets attributable to the United Arab Emirates CGU, albeit an increase in
awards and pipeline compared to the prior year. The estimate of future cash flows and terminal value growth rate for the CGU has been affected
by the current assumptions relating to market outlook, contract awards and margins.
Determining an estimation of value in use of the CGU requires the estimation of future cash flows expected to arise from the CGU and a suitable
discount rate to calculate the present value of expected future cash flows. These calculations use pre-tax cash flow projections based on financial
budgets approved by the Board covering a three-year period.
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 2018, the Group’s pipeline of opportunities amounts to USD 6.4 billion (2017: USD 3.6 billion) – see the
Strategic Report, page 6.
The bid pipeline comprises a mixture of opportunities in the renewables and oil and 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 6 for a detailed discussion of the market pipeline and opportunities.
A discount rate of 9.35% (2017: 10.00%) 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
Terminal value growth rate
2018
0%
9.35%
3%
3%
2017
0%
10.00%
3%
3%
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 during the year. The carrying amount of property, plant and equipment at
31 December 2018 was USD 159.5 million (31 December 2017: USD 171.7 million). The carrying amount of intangible assets at 31 December
2018 was USD 29.9 million (31 December 2017: USD 31.7 million). The headroom attributable to property, plant and equipment and intangible
assets as at 31 December 2018 is USD 151.9 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 34.8 million if the discount rate was to increase or an increase in the headroom by USD 40.6 million if the discount rate were 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 55.3 million in the headroom if the net profit was to increase or there would be a reduction in the headroom of USD 46.5 million if the
net profit were 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 27.5 million if the terminal value growth rate was lower or an increase in the headroom of USD 32.2 million if the terminal
value growth rate were higher.
106
4
Critical accounting judgements and key sources of estimation uncertainty continued
4.2 Key sources of estimation uncertainty continued
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 claims would result in an increase in provision for warranty claims by USD 0.4 million or
a decrease of USD 0.4 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, a write down of USD 3.0 million (2017: Nil) has been recognised during
the year. 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 by USD 1.5 million if the net realisable value was higher or a decrease in inventory by USD 2.4 million if the net realisable
value was lower.
5
Segment information
On 2 February 2018, the Group was structured to approach opportunities by way of our strategic objectives and this constitutes a change
in the strategic objectives of the business and how it is reported and viewed by the Executive Directors, the chief operating decision-maker.
The Group is organised into business units, which are the Group’s operating segments and are reported to the Executive Directors, the chief
operating decision-maker. These operating segments are aggregated into three reportable segments – Rigs and Engineering, Procurement,
Construction & Installation “EPC(I)” and Contracting Services based on strategic objectives, similar nature of the products and services, type
of customer and economic characteristics.
The Rigs segment contains business from New Build Jack Up rigs, land rigs and refurbishment. The EPCI segment contains business from
foundations, process modules, offshore platforms, pressure vessels and engineering and construction (excluding site works). The Contracting
Services segment comprises of Site works, Operations and Maintenance, manpower supply and safety services.
Year ended 31 December 2018
Revenue from external customers
Gross operating profit/(loss) before absorptions
Rigs
USD’000
EPC(I)
USD’000
Contracting
Services
USD’000
Total
USD’000
75,957
19,655
99,847
(5,453)
58,270
26,985
234,074
41,187
Segment comparatives are restated to reflect the organisational changes that have occurred since the prior reporting period to present
a like-for-like view.
Year ended 31 December 2017 (restated)
Revenue from external customers
Gross operating profit/(loss) before absorptions
Segment comparatives as previously stated are as below.
Year ended 31 December 2017
Revenue from external customers
Gross operating (loss)/profit before absorptions
160,773
54,351
154,260
(75,866)
55,406
18,012
370,439
(3,503)
Fabrication &
Engineering
USD’000
Services
USD’000
Total
USD’000
324,351
(19,599)
46,088
16,096
370,439
(3,503)
The Group uses standard costing method for recording labour, project management and equipment cost on project. Standard cost is based on
an estimated or predetermined cost rates for performing an operation under normal circumstances. Standard costs are developed from historical
data analysis adjusted with expected changes in the future circumstances. The difference between total cost charged to the projects at standard
rate and the actual cost incurred are reported as under or over absorption.
107
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
5
Segment information continued
The reconciliation of the gross operating profit is provided as follows:
Gross operating profit for Rigs segment as reported to the Executive Directors
Gross operating loss for the EPC(I) segments as reported to the Executive Directors
Gross operating profit for the Contracting services segments as reported to the Executive Directors
Gross operating profit/(loss) before absorptions
Under absorbed employee and equipment costs
Provision for slow moving and obsolete inventories
Release of provision for impairment losses shown as part of operating profit (Note 10)
Project related bank guarantee charges shown as part of operating profit (Note 12)
Gross operating profit/(loss)
Unallocated:
Unallocated operational overheads
Repairs and maintenance
Yard rent and depreciation
Others
Add back:
Release of provision for impairment losses shown as part of G&A (Note 10)
Project related bank guarantee charges shown as part of finance costs (Note 12)
Gross loss
Selling and distribution expenses (Note 8)
General and administrative expenses (Note 10)
Other gains – net (Note 13)
Finance costs (Note 12)
Finance income (Note 12)
Share of loss of investment accounted for using the equity method (Note 20)
Loss before income tax
The breakdown of revenue from all services is as disclosed in Note 6.
2018
USD’000
2017
USD’000
19,655
(5,453)
26,985
41,187
(8,600)
(1,425)
1,015
(344)
31,833
(17,108)
(3,041)
(14,060)
(6,066)
(1,015)
344
(9,113)
(1,144)
(45,171)
32
(5,678)
2,165
(10,576)
(69,485)
54,351
(75,866)
18,012
(3,503)
(5,483)
(1,229)
(51)
(1,796)
(12,062)
(12,271)
(6,151)
(13,689)
(7,840)
51
1,796
(50,166)
(717)
(40,197)
877
(9,019)
3,875
(2,559)
(97,906)
Sales between segments are carried out on agreed terms. The revenue from external parties reported to the Executive Directors is measured
in a manner consistent with that in the consolidated income statement.
Information about segment assets and liabilities is not reported to or used by the Executive Directors and, accordingly, no measures of segment
assets and liabilities are reported.
The Executive Directors assesses the performance of the operating segments based on a measure of gross profit. The labour, project
management and equipment costs are measured based on standard cost. The measurement basis excludes the effect of the common expenses
for yard rent, repairs and maintenance and other miscellaneous expenses.
The Group’s principal place of business is in the UAE. The revenue recognised in the UAE with respect to external customers is USD 233.2 million
(2017: USD 366.2 million), and the revenue recognised from other countries is USD 3.8 million (2017: USD 4.2 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
2018
USD’000
97,052
31,180
–
128,232
2017
USD’000
130,715
65,115
34,170
230,000
The revenue from these customers is attributable to the EPC(I) and contracting services segment. The above customers in 2018 are not
necessarily the same customers as in 2017.
108
6
Disaggregation of revenue
Strategic markets
– Renewables
– Oil and gas
Major value streams
New build jackups, refurbishment and land rigs
Process modules
Platforms
Foundations
Pressure Vessels
Operations and maintenance, site work
and safety services
Timing of revenue recognition
Year ended 31 December 2018
Year ended 31 December 2017
Rigs
USD’000
EPC(I)
USD’000
Contracting
Services
USD’000
Total
USD’000
Rigs
USD’000
EPC(I)
USD’000
Contracting
Services
USD’000
–
75,957
75,957
94,753
5,094
99,847
–
58,270
58,270
94,753
139,321
234,074
–
160,773
160,773
130,715
23,545
154,260
–
55,406
55,406
Year ended 31 December 2018
Year ended 31 December 2017
EPC(I)
USD’000
Contracting
Services
USD’000
Rigs
USD’000
75,957
–
–
–
–
–
–
–
3,268
94,753
1,826
–
75,957
99,847
Total
USD’000
75,957
Rigs
USD’000
160,773
–
3,268
94,753
1,826
58,270
–
–
–
–
–
EPC(I)
USD’000
–
2,960
9,938
130,715
10,647
–
234,074
160,773
154,260
–
–
–
–
–
58,270
58,270
Contracting
Services
USD’000
–
–
–
–
–
Total
USD’000
130,715
239,724
370,439
Total
USD’000
160,773
2,960
9,938
130,715
10,647
55,406
55,406
55,406
370,439
Recognised over time
Year ended 31 December 2018
Year ended 31 December 2017
Rigs
USD’000
75,957
EPC(I)
USD’000
Contracting
Services
USD’000
Total
USD’000
99,847
58,270
234,074
Rigs
USD’000
160,773
EPC(I)
USD’000
154,260
Contracting
Services
USD’000
55,406
Total
USD’000
370,439
There was no revenue recognised at a point in time during the years ended 31 December 2018 and 31 December 2017.
The transaction prices allocated to the remaining performance obligations (unsatisfied or partially unsatisfied), to be recognised over time, as at
31 December, are as follows:
Performance obligations (unsatisfied)
Within one year
More than one year
Year ended 31 December 2018
Year ended 31 December 2017
Rigs
USD’000
35,794
251,700
287,494
EPC(I)
USD’000
162,272
72,100
234,372
Contracting
Services
USD’000
18,112
–
Total
USD’000
216,178
323,800
Rigs
USD’000
31,022
–
EPC(I)
USD’000
Contracting
Services
USD’000
96,507
10,341
–
–
Total
USD’000
137,870
–
18,112
539,978
31,022
96,507
10,341
137,870
109
Lamprell plc Annual Report and Accounts 2018Financial statements
Notes to the consolidated financial statements continued
7
Cost of sales
Staff costs (Note 11)
Subcontract costs
Materials and related costs
Depreciation (Note 17)
Subcontract labour
Equipment hire
Yard rent
Repairs and maintenance
Write-down of inventory to net realisable value (Note 21)
Warranty provision released/utilised
Others
8
Selling and distribution expenses
Travel
Advertising and marketing
Entertainment
Others
9
Share-based payments
Group
Amount of share-based charge (Note 11):
– 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
Retention share plan
2018
USD’000
90,218
65,313
32,610
17,563
16,518
7,946
6,680
3,069
3,066
(5,921)
6,125
2017
USD’000
105,549
99,102
135,776
18,790
28,563
10,578
6,662
6,151
–
(1,483)
10,917
243,187
420,605
2018
USD’000
2017
USD’000
902
134
82
26
1,144
500
136
75
6
717
2018
USD’000
2017
USD’000
1,447
–
2,241
3,688
734
115
1,576
2,425
2018
USD’000
2017
USD’000
49
994
1,043
264
899
1,163
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.
110
9
Share-based payments continued
Retention share plan continued
The details of the shares granted under this scheme are as follows:
Grant date
2014
2015
2016
2017
2018
Number
of shares
470,000
122,499
592,499
495,000
475,000
281,761
94,452
46,811
898,024
1,252,429
24,972
11,825
37,032
1,326,258
2,898,074
10,000
10,000
30,000
2,948,074
Vesting
period
36 months
36 months
36 months
36 months
12 months
24 months
36 months
36 months
17 months
30 months
5 months
36 months
34 months
22 months
10 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
£0.77
£0.77
£0.77
£0.77
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
A charge of USD 1,446,785 (2017: USD 733,912) 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 49,023 (2017: USD 264,070).
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 2017
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
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 2018
Executive share option plan
Number of
shares
1,834,276
1,326,258
(407,808)
(550,205)
2,202,521
2,948,074
(141,484)
(758,750)
4,250,361
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, 2016, 2017
Shares lapsed during the year
At 31 December 2018
Exercise
price in
£ per share
1.41
Options
–
340,855
340,855
(340,855)
–
Vesting date
Expiry date
17 Nov 2017
27 Nov 2027
The outstanding options as at 31 December 2018 have a fair value per option of £0.73 (2017: £0.73). A charge of USD Nil (2017: USD 114,742)
is recognised in the consolidated income statement for the year with a corresponding credit to the consolidated retained earnings.
111
Lamprell plc Annual Report and Accounts 2018Financial statements
Notes to the consolidated financial statements continued
9
Share-based payments continued
Performance share plan
The Company granted share awards to Directors, key management personnel and selected employees that give them an entitlement to receive
a certain number of shares subject to the satisfaction of a performance target and continued employment. The performance target is assessed
against financial metrics that may include relative or absolute total shareholder return, cumulative EBITDA 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.
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
2018
9 April 2018
9 April 2018
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
1,192,924
1,410,937
2,603,861
36 months
24 months
36 months
36 months
36 months
–
36 months
36 months
12 months
24 months
36 months
–
36 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
£0.77
£0.77
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Accordingly, a charge of USD 2,240,779 (2017: USD 1,576,344) 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 993,977 (2017: USD 898,603).
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 2017
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
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 2018
112
Number
of shares
6,417,796
2,577,122
(225,335)
(1,641,912)
7,127,671
2,603,861
(63,252)
(2,739,757)
6,928,523
10 General and administrative expenses
Staff costs (Note 11)
Amortisation of intangible assets (Note 18)
Legal, professional and consultancy fees
Depreciation (Note 17)
Utilities and communication
Bank charges
(Release)/provision for impairment losses, net of amounts recovered
Others
11 Staff costs
Wages and salaries
Employees’ end of service benefits (Note 28)
Share-based payments – value of services provided (Note 9)
Other benefits
Staff costs are included in:
Cost of sales (Note 7)
General and administrative expenses (Note 10)
Number of employees at 31 December
Sub-contracted employees at 31 December
Total number of employees (staff and subcontracted) at 31 December
Directors’ remuneration comprises:
2018
USD’000
30,494
2017
USD’000
22,200
3,789
3,466
2,656
1,365
133
(1,015)
4,283
45,171
3,535
3,504
3,849
1,375
137
51
5,546
40,197
2018
USD’000
109,329
4,619
3,688
3,076
2017
USD’000
111,046
5,154
2,425
9,124
120,712
127,749
90,218
30,494
120,712
4,410
205
4,615
105,549
22,200
127,749
5,320
1,833
7,153
Salary
2018
USD’000
Fees
2018
USD’000
Allowances
& benefits
2018
USD’000
Share-based
payments
value of
services
provided
2018
USD’000
Short-term
incentive
plans
2018
USD’000
Post-
employment
benefits
2018
USD’000
Total
2018
USD’000
Total
2017
USD’000
–
700
410
–
–
–
–
–
–
–
1,110
–
–
–
–
247
42
100
114
89
100
692
–
244
215
–
–
–
–
–
–
–
–
691
283
–
–
–
–
–
–
–
–
257
115
–
–
–
–
–
–
–
–
39
30
–
–
–
–
–
–
–
–
1,931
1,053
–
247
42
100
114
89
100
407
1,555
828
39
137
116
89
88
67
15
459
974
372
69
3,676
3,341
Executive Directors
John Kennedy
Christopher McDonald
Antony Wright
Non-Executive Directors
John Kennedy
John Malcolm
Ellis Armstrong1
Mel Fitzgerald
Debra Valentine
Nicholas Garrett
James Dewar
1. Retired as Non-Executive Director with effect from 23 May 2018.
The emoluments of the highest paid Director were USD 1.9 million (2017: USD 1.6 million) and these principally comprised salary, share-based
payment and benefits.
113
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
12 Finance costs and income
Finance costs
Interest on bank borrowings
Others
Commitment fees
Bank guarantee charges
Finance income
Finance income comprises interest income of USD 2.2 million (2017: USD 3.9 million) from bank deposits.
13 Other gains/(losses) – net
Exchange (loss)/gain – net
(Loss)/gain on derivative financial instruments
Profit on disposal of assets
Others
14 Earnings per share
(a) Basic
2018
USD’000
2017
USD’000
2,001
1,922
1,411
344
5,678
2,587
2,219
2,417
1,796
9,019
2018
USD’000
2017
USD’000
(333)
(29)
26
368
32
727
89
263
(202)
877
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 26).
(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
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
2018
USD’000
2017
USD’000
(70,656)
(98,097)
341,710,302
341,710,302
–
–
–
–
341,710,302
341,710,302
Assumed vesting of performance and retention share plans amounting to 6,700,436 (2017: 3,786,640) shares and 2,481,705 (2017: 609,471)
shares respectively have been excluded in the current period as these are anti-dilutive.
Loss per share:
Basic
Diluted
Loss per share from continuing operations:
Basic
Diluted
114
2018
USD’000
2017
USD’000
(20.67)c
(20.67)c
(20.67)c
(20.67)c
(28.70)c
(28.70)c
(28.70)c
(28.70)c
15 Operating loss
(a) Operating loss
Operating loss (from continuing operations) is stated after charging/recognising:
Provision for onerous contract (Note 4)
Depreciation (Note 17)
Operating lease rentals – land and buildings
(Release)/provision for impairment losses
Write-down of inventory to net realisable value (Note 21)
(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
Non audit related service
16 Financial instruments by category
The accounting policies for financial instruments have been applied to the line items below:
Group
Assets as per balance sheet
Trade receivables – net of provision (Note 22)
Other receivables excluding prepayments
Due from related parties (Note 25)
Derivative financial instruments (Note 29)
Cash and bank balances (Note 24)
1. Under IAS 39 these were classified as loans and receivables.
Liabilities as per balance sheet
Classification
Amortised cost1
Amortised cost1
Amortised cost1
Fair value through profit or loss
Amortised cost1
Accruals (Note 30)
Trade payables (Note 30)
Contract liabilities excluding amount due to customers (Note 31)
Due to a related party (Note 25)
Borrowings (Note 33)
Classification
Liabilities at amortised cost
Liabilities at amortised cost
Liabilities at amortised cost
Liabilities at amortised cost
Liabilities at amortised cost
2018
USD’000
9,381
20,218
10,367
(1,015)
3,066
2017
USD’000
80,000
22,638
10,195
51
–
2018
USD’000
2017
USD’000
346
62
127
12
37
584
419
49
116
12
–
596
2018
USD’000
42,548
14,195
875
218
99,804
157,640
2018
USD’000
59,897
23,572
4,166
423
19,768
107,826
2017
USD’000
33,942
4,275
12,951
1,666
296,443
349,277
2017
USD’000
149,833
47,897
7,475
28
39,491
244,724
115
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
16 Financial instruments by category continued
Company
Assets as per balance sheet
Due from related parties (Note 25)
Cash and bank balance
Other receivables
Liabilities as per balance sheet
Due to related parties (Note 25)
Accruals
1. Under IAS 39 these were classified as loans and receivables.
Credit quality of financial assets
Group
Classification
Amortised cost1
Amortised cost1
Amortised cost1
Classification
Liabilities at amortised cost
Liabilities at amortised cost
2018
USD’000
14,817
201
190
2017
USD’000
16,936
163
242
15,208
17,341
2018
USD’000
2017
USD’000
787
493
1,280
3,155
1,241
4,396
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-
B
Not rated
Cash in hand
Cash and bank balances and term and margin deposits (Note 24)
Company
Due from related parties (Note 25)
Due from related parties is neither past due nor impaired.
Cash at bank
Fitch’s ratings
AA-
116
2018
USD’000
2017
USD’000
4,199
2,263
2,327
8,789
13,482
7,575
2,322
23,379
2018
USD’000
2017
USD’000
59,470
37,268
1,110
399
665
201
99,113
691
99,804
73,923
157,474
62,773
404
737
202
295,513
930
296,443
2018
USD’000
14,817
2017
USD’000
16,936
2018
USD’000
2017
USD’000
201
163
17 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 2017
Additions
Disposals
Transfers
At 31 December 2017
Additions
Disposals
Transfers
At 31 December 2018
Depreciation
At 1 January 2017
Charge for the year
Disposals
At 31 December 2017
Charge for the year
Disposals
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
146,123
146,716
16,968
295
–
6,798
153,216
388
–
637
8,011
(3,394)
896
152,229
1,033
(892)
729
154
–
44
17,166
836
(48)
487
154,241
153,099
18,441
(50,714)
(9,204)
–
(59,918)
(8,580)
–
(89,897)
(11,750)
3,393
(98,254)
(10,162)
867
(14,992)
(1,218)
–
(16,210)
(995)
48
(68,498)
(107,549)
(17,157)
85,743
93,298
45,550
53,975
1,284
956
3,441
49
(135)
112
3,467
125
(262)
28
3,358
(2,135)
(466)
111
(2,490)
(481)
263
(2,708)
650
977
Total
USD’000
330,066
22,060
(3,529)
–
348,597
7,979
(1,202)
–
355,374
(157,738)
(22,638)
3,504
(176,872)
(20,218)
1,178
(195,912)
16,818
13,551
–
(7,850)
22,519
5,597
–
(1,881)
26,235
–
–
–
–
–
–
–
26,235
22,519
159,462
171,725
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 95.5 million (2017: USD 104.4 million) are under lien against the bank facilities
(Note 33).
A depreciation expense of USD 17.6 million (2017: USD 18.8 million) has been charged to cost of sales; USD 2.6 million (2017: USD 3.8 million)
to general and administrative expenses (Notes 7 and 10).
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.
18
Intangible assets
Cost
At 1 January 2017
Additions
At 31 December 2017
Additions
Transfers
At 31 December 2018
Amortisation
At 1 January 2017
Charge for the year (Note 10)
At 31 December 2017
Charge for the year (Note 10)
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
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
–
–
22,335
–
22,335
–
–
19,323
–
19,323
–
–
8,338
8,694
17,032
–
–
180,539
22,335
19,323
17,032
180,539
–
180,539
–
180,539
–
–
14,143
1,804
15,947
1,804
17,751
4,584
6,388
19,323
–
19,323
–
19,323
–
–
2,942
831
3,773
999
4,772
12,260
13,259
14,281
65
14,346
71
1,540
15,957
2,918
900
3,818
986
4,804
11,153
10,528
–
1,540
1,540
1,948
(1,540)
1,948
–
–
–
–
–
44,954
10,299
55,253
2,019
–
57,272
20,003
3,535
23,538
3,789
27,327
1,948
1,540
29,945
31,715
117
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
18
Intangible assets continued
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.
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.
Development cost and patent represent the costs incurred on patent fees and in developing the Group’s proprietary designs. The economic
benefit for these is expected to be derived from use of this intellectual property in our ‘Rig’ operating segment. As at 31 December 2018, an
amount of USD 0.6 million (2017: Nil) related to development costs and patent is included in work in progress.
The Group amortises intangible assets with a limited useful life using the straight-line method over the following periods:
Trade name
Leasehold rights
Software
Development cost and patents
Years
10
10 – 16
15
10
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 Rigs, EPC(I) and contracting services segments assets
located in the United Arab Emirates.
Recoverable amount of the 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
2018
0%
9.35%
3%
3%
2017
0%
10%
3%
3%
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
2.
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.
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 (2017: Nil) and the carrying amount of intangible assets at
31 December 2018 was USD 29.9 million (31 December 2017: USD 31.7 million).
19
Investment in subsidiaries
Balance at 1 January
Share-based payments to employees of subsidiaries in accordance with IFRS 2
Balance at 31 December
2018
USD’000
555,710
2,645
2017
USD’000
554,448
1,262
558,355
555,710
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% (2017: 0%). A discount rate of 9.35%
(2017: 10.00%) 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 the 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.
118
19
Investment in subsidiaries continued
Based on these calculations, no impairment has been recorded during the year (2017: Nil).
The Company granted retention and performance shares to employees of its subsidiaries under various plans (Note 9). These shares have
a vesting period that ranges five to thirty six months. Accordingly, the proportionate share-based charge for the year of USD 2.6 million
(2017: USD 1.3 million) has been recorded as an increase in investment in subsidiaries with a corresponding credit to retained earnings.
20
Investment accounted for using the equity method
Group
At 1 January
Dividend received during the year
Investment in an associate
Share of loss of investments accounted for using the equity method – net
At 31 December
2018
USD’000
2017
USD’000
25,908
(1,113)
39,102
(10,576)
53,321
7,229
(2,137)
23,375
(2,559)
25,908
Details of the associates and joint venture during the year and at the balance sheet date are as follows:
Name of Company
Maritime Industrial Services Arabia Co. Ltd. (“MISA”)1
International Maritime Industries (“IMI”)2
Lamprell Saudi Arabia LLC (“LSAL”)3
Proportion of
Place of incorporation and operation
ownership Classification
Status
Jubail, Kingdom of Saudi Arabia
Ras Al Khair, Kingdom of Saudi Arabia
Riyadh, Kingdom of Saudi Arabia
30%
20%
Associate
Operational
Associate
Operational
50% Joint venture
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.
3. Commissioning works, industrial works, oil and gas piping works, marine works and installation services.
Investment in an associate – MISA
At 1 January
Dividend received during the year
Share of (loss)/profit 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 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
(Loss)/profit before tax
Group’s share of associate’s net (loss)/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
2018
USD’000
2017
USD’000
7,025
(1,113)
(1,148)
4,764
7,229
(2,137)
1,933
7,025
2018
USD’000
5,800
23,640
(2,999)
(10,561)
15,880
–
15,880
4,764
–
4,764
23,081
(26,907)
(3,826)
(1,148)
2017
USD’000
7,532
39,443
(3,260)
(18,690)
25,025
(1,047)
23,978
7,508
(483)
7,025
60,089
(52,034)
8,055
1,933
2018
USD’000
4,263
338
2017
USD’000
4,040
290
119
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
20
Investment accounted for using the equity method continued
Investment in an associate – IMI
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 non-current liabilities
Total current liabilities
Net assets
Group’s share of associate’s net assets – 20%
Acquisition cost capitalisation
Carrying amount at 31 December
Expenses
Loss before tax
Group’s share of associate’s net loss – net of the Group’s share of income tax
2018
USD’000
2017
USD’000
18,883
39,034
(9,425)
48,492
–
23,375
(4,492)
18,883
2018
USD’000
32,589
229,802
(340)
(36,466)
225,585
45,117
3,375
48,492
(47,124)
(47,124)
(9,425)
2017
USD’000
36,077
100,000
(58,539)
77,538
15,508
3,375
18,883
(22,462)
(22,462)
(4,492)
IMI is a private company and there is no quoted market price available for its shares. Its yard is under construction and as such it has not
generated revenue for the years ended 31 December 2018 and 2017.
The Group has the following contingencies and commitments relating to the Group’s interest in the associate.
Operating lease commitments
Investment in a joint venture – LSAL
2018
USD’000
318
2017
USD’000
977
During the year, the Group along with its partner, Mada Al Sharq Company LLC, formed a joint venture – Lamprell Saudi Arabia LLC.
The investment has been accounted by the Group as a joint venture and the details 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 joint venture is set out below:
Total non-current assets
Total current assets
Total current liabilities
Net assets
Group’s share of joint venture’s net assets – 50%
Revenue
Expenses
Loss before tax
Group’s share of joint venture’s net loss – net of the Group’s share of income tax
LSAL is a private company and there is no quoted market price available for its shares.
The Group has no contingencies and commitments relating to the Group’s interest in the joint venture.
120
2018
USD’000
–
68
(3)
65
2018
USD’000
–
136
(6)
130
65
–
(6)
(6)
(3)
21
Inventories
Raw materials, consumables and finished goods
Work in progress
Less: Provision for slow moving and obsolete inventories
2018
USD’000
2017
USD’000
23,996
69,343
(2,716)
90,623
26,267
26,287
(2,045)
50,509
The cost of inventories recognised as an expense amounts to USD 11.0 million (2017: USD 17.1 million) and this includes USD 3.1 million
(2017: Nil) in respect of write-down of inventory to net realisable value.
The work in progress inventories include two rig kits which will be utilised upon award of new contracts.
22 Trade and other receivables
Trade receivables
Other receivables and prepayments
Advance to suppliers
Receivables from a related party (Note 25)
Less: Provision for impairment losses
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
Impaired
2018
USD’000
2017
USD’000
46,737
22,217
2,410
875
72,239
(4,189)
68,050
–
–
39,259
12,559
2,402
12,951
67,171
(5,317)
61,854
67,800
35,051
68,050
164,705
–
839
68,050
163,866
Reclassified
under
IFRS 15
As at
31 December
2018
As at
31 December
2017
–
–
–
–
–
951,263
57,099
1,008,362
(940,562)
67,800
2018
USD’000
8,789
33,759
4,189
46,737
2017
USD’000
23,379
10,563
5,317
39,259
As per
IAS 18
951,263
57,099
(951,263)
(57,099)
1,008,362
(1,008,362)
(940,562)
67,800
940,562
(67,800)
At 31 December 2018, trade receivables of USD 33.8 million (2017: USD 10.6 million) were past due but not impaired. These relate to a number
of independent customers for whom the Group is not expecting any credit losses.
Up to 3 months
3 to 6 months
Over 6 months
2018
USD’000
26,132
3,160
4,467
33,759
2017
USD’000
7,459
757
2,347
10,563
At 31 December 2018, trade receivables of USD 4.2 million (2017: USD 5.3 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 over six months.
The carrying amounts of the Group’s trade and other receivables are primarily denominated in USD or UAE Dirhams, which are pegged to the USD.
121
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
22 Trade and other receivables continued
Movements on the provision for impairment losses are as follows:
At 1 January
Provision for impairment losses
Receivables written off during the year as uncollectable
Amounts recovered during the year
At 31 December
2018
USD’000
5,317
–
(113)
(1,015)
4,189
2017
USD’000
5,488
83
(204)
(50)
5,317
The creation and release of the provision for impairment losses have been included in general and administrative expenses in the consolidated
income statement (Note 10).
Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The other classes
within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value
of each class of receivables mentioned above. The carrying value of trade receivables approximates to their fair value.
Refer to Note 3.1(c) for an assessment on expected credit losses.
23
Contract assets
Amounts due from customers on contracts
Contract work in progress
Amounts due from customers on contracts comprise:
Costs incurred to date
Attributable (loss)/profit
Less: Progress billings
2018
USD’000
48,081
6,850
54,931
2018
USD’000
389,326
(74,731)
314,595
(266,514)
48,081
The Group does not expect any credit losses from contract assets due to history of payment from these customers. Refer to Note 3.1(c) for an
assessment on expected credit losses.
24
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 deposits – under lien (with original maturity less than three months)
Less: Margin deposits – under lien (with original maturity more than three months)
Less: Deposits with original maturity of more than three months
Cash and cash equivalents (for the purpose of the cash flow statement)
2018
USD’000
26,557
72,914
99,471
333
(3,800)
(46,987)
(10,333)
38,684
2017
USD’000
45,087
237,930
283,017
13,426
(8,101)
(41,596)
(141,984)
104,762
At 31 December 2018, the cash at bank and short-term deposits were held with 15 banks (2017: 14 banks). The effective interest rate on
short-term deposits was 1.85% (2017: 1.54%) per annum. Margin and short-term deposits of USD 6.2 million (2017: USD 8.1 million) and
deposits with an original maturity of more than three months amounting to USD 46.9 million (2017: USD 41.6 million) are held under lien against
guarantees issued by the banks (Note 37).
Cash and cash equivalents are assessed to have low credit risk as further detailed in Note 3.1c. Accordingly the management of the Company
does not estimate the loss allowance on cash and cash equivalents at the end of reporting period as material.
Company
Cash and bank balance comprises of cash held with one bank (2017: one bank).
122
25 Related party balances and transactions
Related parties comprise LHL (which owns 33.12% 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
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)
Key management compensation comprises:
Group
Salaries and other short-term benefits
Share-based payments – value of services provided
Short-term incentive plans
Post-employment benefits
Company
Salaries and other short-term benefits
Share-based payments – value of services provided
Short-term incentive plans
Post-employment benefits
2018
USD’000
2017
USD’000
8,087
827
395
18,008
325
6,828
427
147
12,951
308
2018
USD’000
2,984
4,912
2017
USD’000
2,829
7,619
2018
USD’000
2017
USD’000
4,918
2,198
772
199
8,087
2018
USD’000
1,569
974
372
69
2,984
5,252
1,335
–
241
6,828
2017
USD’000
1,947
811
–
71
2,829
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
Group (Note 22)
MISA (in respect of sales to associate)
IMI (In respect of expenses on behalf of associate)
Mada Al Sharq Company LLC (in respect of investment in joint venture)
Company
MIS1
EBT2
MOL3
IMI3
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.
2018
USD’000
2017
USD’000
653
154
68
875
11,319
126
3,372
–
14,817
–
12,951
–
12,951
11,241
210
3,375
2,110
16,936
123
Lamprell plc Annual Report and Accounts 2018Financial statements
Notes to the consolidated financial statements continued
25 Related party balances and transactions continued
Due from/due to related parties continued
Due from related parties continued
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 30)
Company
CBL (in respect of expenses incurred on behalf of the Company)
LEL (in respect of expenses incurred on behalf of the Company)
26 Share capital and share premium
Issued and fully paid ordinary shares
Group/Company
At 1 January 2017 and 31 December 2017
At 31 December 2018
2018
USD’000
2017
USD’000
423
470
317
787
28
–
3,155
3,155
Equity
Number
341,726,570
341,726,570
Share
capital
USD’000
30,346
30,346
Share
premium
USD’000
315,995
315,995
The total authorised number of ordinary shares is 400 million shares (2017: 400 million shares) with a par value of 5 pence per share
(2017: 5 pence per share).
During 2018, Lamprell plc employee benefit trust (“EBT”) acquired 353,828 shares (2017: 474,551 shares) of the Company. The total amount paid
to acquire the shares was USD 222,420 (2017: USD 654,817) and has been deducted from the consolidated retained earnings. During 2018,
353,828 shares (2017: 474,551) were issued to employees and 16,268 shares (31 December 2017: 16,268 shares) were held as treasury shares
at 31 December 2018. 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.
27 Other reserves
Group
At 1 January 2017
Currency translation differences
Profit on cash flow hedges
At 31 December 2017
Currency translation differences
Reclassification of hedge reserve
At 31 December 2018
Legal reserve
Legal
reserve
USD’000
98
–
–
98
–
–
98
Merger
reserve
USD’000
(18,572)
–
–
(18,572)
–
–
(18,572)
Hedge
reserve
USD’000
(1,259)
–
2,619
1,360
–
(1,360)
–
Translation
reserve
USD’000
(960)
(49)
–
(1,009)
(160)
–
(1,169)
Total
USD’000
(20,693)
(49)
2,619
(18,123)
(160)
(1,360)
(19,643)
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.
124
27 Other reserves continued
Company
Other reserve
At 1 January
Currency translation differences
At 31 December
2018
USD’000
189,059
(7)
2017
USD’000
189,059
–
189,052
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 impairment recognised.
28 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 2018 and 2017, 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
2018
USD’000
34,129
3,648
971
(851)
(5,809)
32,088
2017
USD’000
34,745
3,414
1,740
829
(6,599)
34,129
Remeasurements consist of actuarial gain from a change in financial assumptions USD 1.2 million (2017: loss of USD 1.9 million) and an actuarial
loss from a change in other experiences USD 0.3 million (2017: gain of USD 1.1 million).
Company
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 11)
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)
The above charge of USD 0.1 million (2017: USD 0.1 million) is included in general and administrative expenses.
2018
USD’000
2017
USD’000
217
61
8
(6)
–
280
173
53
5
52
(66)
217
2018
USD’000
2017
USD’000
3,648
971
4,619
3,414
1,740
5,154
2018
USD’000
2017
USD’000
61
8
69
53
5
58
125
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
28 Provision for employees’ end of service benefits continued
Company continued
The principal actuarial assumptions used were as follows:
Discount rate
Future salary increase:
Management and administrative employees
Yard employees
2018
3.90%
2.00%
2.00%
2017
3.20%
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 3.9% (2017: 3.2%).
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% (2017: 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
29 Derivative financial instruments
Forward contracts
Interest rate swaps
Total
Non-current portion:
Interest rate swaps
Current portion
Percentage of employees at each
age exiting the plan per year
2018
16%
10%
6%
100%
8%
6%
4%
1%
2017
16%
10%
6%
100%
8%
6%
4%
1%
100%
100%
10%
7%
100%
10%
7%
100%
2017
Notional
contract
amount
USD’000
28,950
40,000
68,950
20,000
48,950
Assets
USD’000
Liabilities
USD’000
1,359
307
1,666
153
1,513
–
–
–
–
–
Notional
contract
amount
USD’000
–
20,000
20,000
–
20,000
2018
Assets
USD’000
Liabilities
USD’000
–
218
218
–
218
–
–
–
–
–
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 57 months from the date of inception. The fair value at
31 December 2018 of this derivative was USD 0.2 million (2017: USD 0.3 million).
126
30 Trade and other payables
Trade payables
Accruals and other payables
Payables to a related party (Note 25)
Amounts due to customers on contracts (Note 31)
Amounts due to customers on contracts comprise:
Progress billings
Less: Cost incurred to date
Less: Recognised losses
2018
USD’000
23,572
59,897
423
–
2017
USD’000
47,897
149,833
28
2,815
83,892
200,573
As per
IAS 18
Reclassified
under
IFRS 15
As at
31 December
2018
As at
31 December
2017
130,924
(130,924)
(89,313)
(19,238)
22,373
89,313
19,238
(22,373)
–
–
–
–
133,597
(112,711)
(18,071)
2,815
Accruals and other payables include a provision of USD 9.5 million (2017: USD 41.7 million) relating to estimated losses to completion on the
EA1 project (Note 4.2.2).
31 Contract liabilities
Provision for warranty cost and other liabilities (Note 32)
Amounts due to customers on contracts
Amounts due to customers on contracts comprise:
Progress billings
Less: Cost incurred to date
Less: Recognised losses
32 Provision for warranty costs and other liabilities
At 1 January 2017
Charge during the year
Released/utilised during the year
At 31 December 2017
Charge during the year
Released/utilised during the year
At 31 December 2018
2018
USD’000
4,166
22,373
26,539
130,924
(89,313)
(19,238)
22,373
Total
USD’000
7,958
1,000
(1,483)
7,475
2,612
(5,921)
4,166
Warranty
costs
USD’000
7,724
1,000
(1,483)
7,241
2,612
(5,687)
4,166
Minimum
purchase
obligations
USD’000
234
–
–
234
–
(234)
–
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 7.
127
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
33 Borrowings
Bank term loans
The bank borrowings are repayable as follows:
Current (less than 1 year)
2018
USD’000
19,768
2017
USD’000
39,491
19,768
39,491
At 31 December 2018, the Group has banking facilities of USD 540.1 million (2017: USD 924 million) with commercial banks. The facilities include
bank overdrafts, letters of guarantees, letters of credit and short-term loans. These are summarised below:
31 December 2018
Funded facilities
Term loan
Revolving credit facility
Unfunded facilities
Letters of credit/guarantees
Total
Facility
USD’000
20,000
50,000
470,100
540,100
Amount
utilised
USD’000
Amount
available to
be used
USD’000
20,000
–
108,100
128,100
–
50,000
362,000
412,000
The facilities available to the Group as at 31 December 2018 that are capable of being drawn as cash is USD 50.0 million. Bank facilities are
secured by liens over term deposits of USD 50.7 million (2017: USD 49.7 million) (Note 24), 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. These facilities expire in August 2019.
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 borrowing to EBITDA financial covenant contained within its debt facilities. 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 19.8 million. However, Management are in
process of negotiating debt re-financing with the banks and we do not expect it to pay before due date. Subsequent to year end, the Group has
received confirmation from its lenders agreeing to waiver this EBITDA financial covenant.
The borrowings are stated net of the unamortised arrangement fees and other transaction costs of USD 0.2 million (2017: USD 0.5 million)
and including accrued interest of USD (0.1) million (2017: USD 0.1 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%
(2017: 1.2375%).
The carrying amounts of borrowings in the year approximated to their fair value and were denominated in USD or UAE Dirhams, which are
pegged to the USD.
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
1. Other changes include interest accruals, payments and adjustment to capitalised borrowing costs.
1 January
2018
USD’000
Repayment
during
the year
USD’000
Other
changes1
USD’000
31 December
2018
USD’000
31 December
2017
USD’000
39,491
(20,000)
277
19,768
39,491
128
34 Profit of the Company
The profit of USD 0.1 million (2017: loss of USD 1.3 million) in respect of the Company is included in these consolidated financial statements.
35 Dividends
There were no dividends declared or paid during the year ended 31 December 2018 or 31 December 2017.
36 Commitments
(a) Operating lease commitments
The Group leases land and staff accommodation under various operating lease agreements. The remaining lease terms of the majority of
the leases are between four to twenty years and are renewable at mutually agreed terms. The future minimum lease payments payable under
operating leases are as follows. Refer to Note 2.1 for IFRS 16 assessment.
Not later than one year
Later than one year but not later than five years
Later than five years
2018
USD’000
5,583
23,774
84,369
2017
USD’000
7,943
23,982
77,493
113,726
109,418
(b)
International Maritime Industries commitments
In 2017, the Group has entered into commitments associated with the investment in International Maritime Industries. Under the Shareholders’
Agreement, the Group will invest up to a maximum of USD 140.0 million in relation to its commitment over the course of construction of the
maritime yard between 2017 and 2022 with USD 59.0 million already paid to date. 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
37 Bank guarantees
Performance/bid bonds
Advance payment, labour visa and payment guarantees
2018
USD’000
31,456
49,510
80,966
2018
USD’000
1,198
3,273
–
2018
USD’000
75,269
31,905
107,174
2017
USD’000
38,500
81,500
120,000
2017
USD’000
8,937
144
41,199
2017
USD’000
120,012
50,350
170,362
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.
129
Lamprell plc Annual Report and Accounts 2018Financial statements Notes to the consolidated financial statements continued
38 Cash generated from operating activities
Operating activities
Loss before income tax
Adjustments for:
Share-based payments – value of services provided
Depreciation
Amortisation of intangible assets
Share of loss of investments accounted for using the equity method – net
Release for warranty costs and other liabilities
Profit on disposal of property, plant and equipment
Provision/(release) for slow moving and obsolete inventories
Release for impairment of trade receivables, net of amounts recovered
Provision for employees’ end of service benefits
(Release)/gain 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 losses
Contract assets
Trade and other payables
Contract liabilities
Provision for warranty
Year ended 31 December
2018
USD’000
2017
USD’000
Notes
(69,485)
(97,906)
9
17
18
20
21
28
12
12
21
29
22
23
30
31
32
3,688
20,218
3,789
10,576
(3,309)
(26)
671
(1,128)
4,619
(1,360)
5,678
(2,165)
(28,234)
(5,809)
(40,785)
1,448
97,783
(54,931)
(116,681)
26,539
(4,166)
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
–
–
Cash (used in)/generated from operating activities
(124,836)
32,619
130
Glossary
“ADNOC”
“AGM”
“AIM”
“API”
“APM”
“CBL”
“CE”
“CEO”
“CFO”
“CfD”
“CGU”
“CO₂e”
“Code”
“Company”
“CPI”
“DNV”
“DNV GE”
“EA1”
“EBITDA”
“EBT”
“ECL”
“E&C”
“eia”
“EIR”
“EIU”
“EPC(I)”
“EPC”
“EPS”
“ERM”
“ESOP”
“EU”
“FID”
“FSP”
“FTSE”
“FVTOCI”
“FVTPL”
“FY”
“G&A”
“GBP”
“GCC”
“GDP”
“GIC”
“GP”
“GPSL”
“GW”
“HHI”
“HMRC”
“HR”
“HRLS”
“HSE”
“HSES”
“HSESQ”
“HVAC”
“HVDC”
“ICV”
“IA”
“IAS”
"IASB”
“IE”
“IEA”
“IFRS”
Abu Dhabi National Oil Company
Annual General Meeting
Alternative Investment Market
American Petroleum Institute
Alternative Performance Measures
Cleopatra Barges Limited
Conformité Européenne
Chief Executive Officer
Chief Financial Officer
Contract for Difference
Cash Generating Unit
Carbon Dioxide Equivalent
UK Corporate Governance Code 2014
Lamprell plc
Consumer Price Index
Det Norske Veritas
Det Norske Veritas Germanischer Lloyd
East Anglia One
Earnings before Interest, Taxes, Depreciation and
Amortisation
Lamprell plc Employee Benefit Trust
Expected Credit Losses
Engineering & Construction
Energy Information Administration
Effective Interest Rate
Economist Intelligence Unit
Engineering, Procurement, Construction
and Installation
Engineering, Procurement, Construction
Earnings Per Share
Enterprise Risk Management
Lamprell plc Executive Share Option Plan
European Union
Final Investment Decision
Free Share Plan
Financial Times Stock Exchange Index
Fair Value Through Other Comprehensive Income
Fair Value Through Profit or Loss
Financial Year
General and administrative
Great Britain Pound
Gulf Cooperation Council
Gross Domestic Product
Global Investment Co. Ltd. Inc.
General Practitioner
GeoSea Procurement and Shipping Luxembourg
Gigawatt
Hyundai Heavy Industries
Her Majesty’s Revenue & Customs
Human Resources
Human Rights and Labour Standards
Health Safety & Environment
Health Safety Environment & Security
Health Safety Environment Security & Quality
Heating Ventilation & Air Conditioning
High Voltage Direct Current
In-Country Value
Internal Audit
International Accounting Standards
International Accounting Standards Board
Investment Entity
International Energy Agency
International Financial Reporting Council
“IKTVA”
“IMI”
“IOC”
“ISO”
“IST”
“IT”
“JD”
“JPMC”
“JV”
“KBR”
“KSA”
“LAK”
“LATC”
“LD”
“LDs”
“LEL”
“LHL”
“LIBOR”
“LIH”
“LNG”
“LOI”
“LS”
“LSAL”
“LSE”
“LTA”
“LTIP”
“LUK”
“MIL”
“MIS”
“MISA”
“MISCLP”
“MISQWLL”
“MOCL”
“MOL”
“MRO”
“MT”
“NED”
“NOC”
“OCI”
“OECD”
“OHSAS”
“O&M”
“OPEC”
“OSV”
“Q&A”
“RIM”
“RSP”
“SPPI”
“SPR”
“STEM”
“SSS”
“SSSL”
“STIP”
“TRIR”
“TSR”
“UAE”
“UK”
“United States”
or “US”
“USD”
“VAT”
“VP”
In Kingdom Total Value Add
Industrial Maritime Industries
International Oil Company
International Organization for Standardization
Information Systems Technology
Information Technology
Juris Doctor
J.P. Morgan Cazenove
Joint Venture
Kellogg Brown & Root
Kingdom of Saudi Arabia
Lamprell Kazakhstan LLP
Lamprell Assessment and Training Centre
Lamprell Dubai LLC
Liquidated Damages
Lamprell Energy Limited
Lamprell Holdings Limited
London Interbank Offered Rate
Lamprell Investment Holdings Ltd.
Liquid Natural Gas
Letter of Intent
Lamprell Sharjah WLL
Lamprell Saudi Arabia LLC
London Stock Exchange
Long Term Agreement
Long-Term Incentive Plan
Lamprell Energy (UK) Limited
Maurlis International Ltd. Inc.
Maritime Industrial Services Co. Ltd. Inc.
Maritime Industrial Services Arabia Co. Ltd.
Maritime Industrial Services Co. Ltd. & Partners
MIS Qatar LLC
Maritime Offshore Construction Limited
Maritime Offshore Limited
Maintenance, Repair & Overhaul
Metric Tonnes
Non-Executive Director
National Oil Company
Other Comprehensive Income
Organisation for Economic Co-operation and
Development
Occupational Health and Safety Assessment Series
Operations & Maintenance
Organization of the Petroleum Exporting Countries
Offshore Supply Vessel
Question and Answer
Rig Metals LLC
Retention Share Plan
Solely Payments of Principal and Interest
ScottishPower Renewables
Science Technology Engineering and Mathematics
Sunbelt Safety Services Co. Ltd. Inc.
Sunbelt Safety Services LLC
Short-Term Incentive Plan
Total Recordable Injury Rate
Total Shareholder Return
United Arab Emirates
United Kingdom
the United States of America
US Dollar
Value Added Tax
Vice-President
131
Lamprell plc Annual Report and Accounts 2018Financial statements Additional information
Alternative performance measures
As set out in our most recent annual report, we use a range of financial and non-financial measures to assess our performance. The tables below
set out the definitions of such measures, reconciliations to amounts presented in the interim financial statements and the reason for their inclusion
in the report. The metrics presented are consistent with those presented in our previous annual report and there has been no change to the basis
of calculation.
EBITDA
In addition to measuring financial performance of the Group based on operating profit, we also measure performance based on EBITDA. EBITDA
is defined as the Group (loss)/profit for the year from continuing operation before depreciation, amortisation, net finance expense and taxation.
We consider EBITDA to be useful measures of our operating performance because it approximates the operating cash flow by eliminating
depreciation and amortisation. EBITDA is not a direct measure of our liquidity, which is shown by our cash flow statement, and need to be
considered in the context of our financial commitments.
Reconciliation from Group (loss)/profit for the year from continuing operation, the most directly comparable IFRS measure, to reported and
EBITDA, is set out below:
Loss for the year from continuing operations
Depreciation (Note 17)
Amortisation (Note 18)
Interest on bank borrowings (Note 12)
Finance income (Note 12)
Tax
Share of loss of investments accounted for using the equity method – net (Note 20)
EBITDA
EBITDA margin
Net cash
Year ended 31 December
2018
USD’000
(70,656)
20,218
3,789
2,001
(2,165)
1,171
10,576
(35,066)
(15.0%)
2017
USD’000
(98,097)
22,638
3,535
2,587
(3,875)
191
2,559
(70,462)
(19.0%)
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 24)
Margin deposits – under lien (with original maturity less than three months) (Note 24)
Margin deposits – under lien (with original maturity more than three months) (Note 24)
Deposits with original maturity of more than three months (Note 24)
Borrowings (Note 33)
Net cash
Overheads
2018
USD’000
38,684
3,800
46,987
10,333
(19,768)
80,036
2017
USD’000
104,762
8,101
41,596
141,984
(39,491)
256,952
Overheads are costs required to run our business, but which cannot be directly attributed to any specific project or service. A reconciliation from
unallocated expenses per the segment note in the consolidated financial statements to reported overheads, is set out below:
General and administrative expenses (Note 10)
Selling and distribution expenses (Note 8)
Direct overheads included in cost of sales:
Unallocated operational overheads
Yard rent and maintenance
Repairs and maintenance
Other
Overheads
An analysis of overheads is as follows:
Overhead nature
Fixed
Semi variable
Variable
Overheads
132
2018
USD’000
45,171
1,144
17,108
14,060
3,041
5,881
86,405
2017
USD’000
40,197
717
12,271
13,689
6,151
9,375
82,400
2018
USD’000
2017
USD’000
29,204
9,579
47,622
86,405
30,403
12,782
39,215
82,400
Designed and produced by www.farraday.com
This document is printed on GalerieArt Matt which has been
independently certified according to the rules of the Forest
Stewardship Council® (FSC). The virgin fibre is Elemental
Chlorine Free (ECF) bleached.
Printed in the UK by CPI Colour using vegetable inks throughout.
CPI Colour is a CarbonNeutral® company.
Both manufacturing paper mill and the printer are registered
to the Environmental Management System ISO 14001 and are
Forest Stewardship Council® (FSC) chain-of-custody certified.
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