Lamprell Reports 91% Jump in Earnings for 2006
Lamprell plc on Thursday announced its maiden preliminary results for the year ended 31 December 2006. This follows the Company's successful flotation on AIM in October 2006.
--Revenue: US$ 329.6 million up 57.5% (2005: US$ 209.2 million) --Operating profit: US$ 56.1 million up 90.6%* (2005: US$ 29.4 million) --Net profit: US$ 56.9 million up 91.0%* (2005: US$ 29.8 million) --EPS (fully diluted): 28.47 cents up 91.1%* (2005: 14.90 cents) --Proposed final dividend: 3.8 cents (1.93 pence) per ordinary share --Strong cash flow from operations continues to support investment program for operating equipment --Successful projects completed in 2006 included major refurbishments of jackup drilling rigs for National Drilling Company and Gulf Drilling International; the substantial completion of the Vitoria FPSO project for Saipem, the Single Buoy Moorings, Inc. ("SBM") Kashagan project and the Tapti topside process decks for British Gas Exploration and Production India Ltd.
* For the current year stated before reflecting exceptional charges for share based payments of US$15.6 million, and US$ 7.5 million incurred for various legal and professional charges incurred in connection with the admission of Lamprell to AIM.
Lamprell started the year with the highest level of confirmed orders in the company's history and since then has won several lucrative and high profile contracts:
- Lump sum turnkey construction contracts for two harsh environment special purpose self-propelled four legged jackup vessels from Seajacks International ("Seajacks") amounting to US$224 million. There is also an option for three more rigs
- Contract for the rehabilitation of the Hurricane Katrina damaged Nabors 660 jackup rig (formerly the Ocean Warwick) which is now expected to exceed US$ 65 million in value when completed
- Refurbishment of 4 Global Sante Fe jackups amounting to US$ 36.4 million
- Fabrication of an FPSO vessel topside module for a new client, Aker FP
- Further contracts have been awarded for the fabrication of topside process modules for FPSO vessels for Saipem and SBM in the region of US$ 55.1 million
Commenting on the results Peter Whitbread, Chairman and Chief Executive, Lamprell said:
"2006 was a very exciting year for Lamprell. Our business expanded across all key activities in what has been a very buoyant market for our services. This has enabled us to achieve very significant growth in both turnover and profit.
"In October 2006 we successfully floated the Company on London's AIM market, which was an important step in the development of our business and we believe this provides Lamprell with an important foundation for future growth. We have also broadened our client base during the year - a trend that has continued into 2007 - improving our earnings visibility.
"We have entered 2007 with the highest level of confirmed orders in the Company's history and we are well positioned to take advantage of very positive market dynamics that we envisage will enable us to continue delivering growth through 2007 and beyond."
CHAIRMAN and CHIEF EXECUTIVE OFFICER'S STATEMENT
It is with a considerable degree of pride that we see Lamprell's well established and widely recognized record of quality, growth and profitability being maintained as we made the transition into a publicly listed company and our results for the year 2006 exceeded all of our expectations. Throughout 2006 the Company has made significant progress operationally, through the acquisition of new equipment and the strengthening of our management capabilities and work force.
Throughout the period we have continued to expand our client base and construction activities, as demonstrated by the award of the two new build jackup liftboats for Seajacks. All of this has been achieved whilst satisfying the needs of our existing clients and maintaining our outstanding safety record.
During the past year we have seen an unparalleled period of activity in the oil and gas industry worldwide but particularly in the Middle Eastern market. In this region drilling activity, both onshore and offshore, is at an all time high and we expect this will continue for a considerable period to come.
We have also witnessed a period of major growth in the number of oil and gas field developments taking place in different parts of the world. Lamprell has been particularly well placed to take full advantage of the increase in rig refurbishment, FPSO projects and offshore construction activity.
This trend of high levels of drilling and construction activity has continued into 2007with an even greater level of activity taking place in the regional drilling segment. This supports our belief that we will see further growth and development in one of our core business activities of rig refurbishment and upgrade throughout 2007 and 2008.
We are also witnessing a significant increase in the planned number of FPSO field developments through 2007 and beyond, with an estimated US$ 6 billion worth of worldwide development expenditure budgeted each year up to 2010. This again provides us with a high level of confidence that our new build process module fabrication facility in Jebel Ali will see significant additional growth.
We have entered 2007 with the highest level of confirmed orders in the Company's history, with projects extending into 2009. This provides us with a secure foundation to expand the Company further and to develop significant long-term visibility.
There is currently a well-recognized shortage of marine construction yard space worldwide and Lamprell is moving quickly to develop its new 330,000 m2 facility at the Hamriyah Free Zone in the United Arab Emirates. The yard construction remains on plan and will greatly increase Lamprell's quay side facilities and enable us to handle more jackup rig refurbishment projects as well as further new build marine projects.
This development will enable us to extend further our client base, particular targeting to those companies who are entering the Middle Eastern oil and gas market for the first time.
We continue to retain a clear focus on our core business competencies in offshore jackup and land rig refurbishment, new build FPSO modules and offshore structures. Our primary focus will be in maintaining our strong regional position in these markets. There are also areas of related opportunity. For example, we have now entered into contracts, valued at US$ 224 million, with Seajacks for the construction of two new build jackup lift boats with additional options for three other similar units to follow.
Lamprell continues to overcome the difficulties of acquiring and maintaining core labour skills in a buoyant and highly specialized market. We have now established a training school in India to develop all of the key artisan skills necessary to support our needs for the coming years, and we are already seeing the benefits of training our own committed workforce.
We believe the oil and gas industry is currently in a period of unprecedented long term growth and development with a sustainable high oil price and with demand for services far outstripping supply. Located in the Middle East with extensive modern facilities, a dedicated workforce of over three thousand and a strong and well respected reputation, we feel that Lamprell is well placed to capitalize on the many opportunities that we see for the future.
I would like to take this opportunity to acknowledge the contribution of Steven Lamprell, the original founding owner of Lamprell, in taking the Company from the small family business created over 30 years ago, to the successful publicly quoted Company we have today.
Mr. Lamprell still retains 34% of the shares in Lamprell, holds the title of President and continues to provide the Company with ongoing local support and assistance in dealings with senior local dignitaries in the United Arab Emirates. This continued association is, and will continue to be, a valuable asset for the Company.
Our strong management team has been further enhanced with the arrival of Scott Doak, the former Head of Finance at Reuters for Middle East and Africa, who takes over from David Moran as Chief Financial Officer. David will now focus on his role as Chief Operating Officer. Chris Hand has been promoted to Vice President Commercial. Both of these positions provide us with added managerial strength to support the progressive long term growth and development of our Company. We would like to welcome Scott and Chris to the management team and would also like to thank David Moran for standing in as Chief Financial Officer in the interim period.
For the year ended 31 December 2006, the Board of Directors of the Group recommends a final dividend of 3.80 cents per ordinary share with a Sterling equivalent of 1.93 pence per ordinary share that, if approved, will be paid on 18 June 2007 to eligible shareholders on the register at 11 May 2007. This proposed final dividend is approximately half of the level that the Directors would have expected to recommend had the Group been listed for the whole of the half year to 31 December 2006, having taken account of the intention to pay two thirds of the annual dividend as a final dividend.
This has been an exceptional year for Lamprell and these excellent results have been achieved during a period of significant corporate development.
In the year ahead, we believe that Lamprell will see significant growth in each of its core activities of jackup rig refurbishment, land rig refurbishment, marine and new build FPSO process module construction and related construction activities.
On behalf of the Board of Directors and from myself personally, I would like to thank everyone in the Lamprell team for the tremendous efforts that have been made throughout the past year. I am confident that we will continue to deliver the highest standard of service to our customers, win new business and reward our shareholders for their support. Together with the Lamprell management team I look forward to another successful year ahead.
Lamprell enjoyed a very successful year in 2006, with each operating facility enjoying substantial revenue growth. This growth reflects a buoyant market and the successful implementation of our business plan for the year. We further believe that through maintaining our core business values and continuing a collaborative approach to projects with customers focused on quality, safety and timely delivery, we will carry forward the success of the past year into the coming years.
Upgrade and refurbishment of offshore jackup rigs
During 2006 we successfully refurbished 26 offshore jackup rigs and one semi-submersible drilling rig. This compares to 25 jackup rigs refurbished in 2005. The scope and value of projects executed in 2006 increased by more than 30% compared to those executed in 2005.
Projects were carried out for 11 different international clients, demonstrating the depth of our market and a diverse client base.
The specific work scopes carried out on jackup upgrade and refurbishment projects varied greatly from project to project, dependant on the rig's age, condition and the requirements of the rig owner. Typical upgrade and refurbishment projects included some of the following work scopes:
- leg extension and/or strengthening;
- conversion of slot rigs to cantilever mode;
- living quarters extension, upgrade and refurbishment;
- engine replacement and re-power works;
- mud process system upgrade and/or refurbishment;
- helideck replacement, upgrade and/or refurbishment;
- condition driven refurbishment, including structural steel and piping replacement.
In addition to rig refurbishment projects carried out at our facilities, we offered smaller scale services to our customers. These projects ranged in scope from the supply of materials and equipment, to the execution of repair and upgrade works on rigs carried out whilst the rigs remain operational offshore. Whilst not as significant in terms of turnover, these minor projects represent an important part of the service we offered our clients, who continue to rely on us to keep their jackup fleets operational.
New build construction for the offshore oil and gas sector
During 2006 work was carried out on several major projects at the Jebel Ali facility. These projects were carried out for existing clients including SBM, Saipem and Clough Projects International Limited ("Clough") as well as new clients such as Aker FP and British Gas Exploration and Production India Limited ("British Gas").
The turnover produced at the Jebel Ali facility was more than double the value achieved during 2005. This growth reflects the ongoing improvements in the operating capacity of the facility as well as a successful marketing campaign that has broadened our client base and seen awards of larger and more prestigious project.
FPSO process modules construction
Throughout 2006 there were a number of process modules under construction at our Jebel Ali facility. These were constructed for several clients, namely Saipem, Aker FP and Grenland Framnaes. This represented a significant increase in activity when compared to 2005 and was indicative of the increasing demand for FPSO developments worldwide. Demand for FPSOs continues to be strong and the growth in activity we experienced in 2006 has continued with further awards from SBM and Saipem in early 2007. We expect this trend to continue into 2008 and beyond and we will therefore continue to allocate a significant proportion of our available capacity for this in the Jebel Ali facility.
Offshore fixed structures: Topside process platforms
As an extension of the skills developed for the construction of FPSO process modules, the Company has now successfully completed construction of a number of topside process platforms. Three platforms were successfully completed in early 2006 for Clough, following which British Gas awarded a project to deliver three topside platforms for the Tapti development for offshore India. This project represented a fast track development that has been successfully delivered to the client on schedule, in the first quarter of 2007. This is an area of activity that the Company intends to develop further, targeting the specific regional markets of the Arabian Gulf and India, where a number of attractive projects are under development.
Throughout 2006 work has continued on three Flash Gas Compression barges for SBM for the Kashagan project, with substantial completion having been achieved at the end of 2006. On completion this project will have been the largest undertaken by the Company to date with a value in excess of US$ 62 million. The Kashagan development is a large scale project, with more than twenty barges under construction in various parts of the world. There are a number of phases to the development and with the experience gained in the successful execution of the barges in phase one, we expect to bid for participation in later phases of the development.
Oilfield Engineering services
Turnover in our Oilfield Engineering facility in 2006 has increased by approximately one third on 2005 figures. This increase reflects an increased awareness of our capabilities amongst regional contractors. 2006 also represented the first full year of operation for the facility, which was fully opened in early 2005.
Upgrade and refurbishment of land rigs
We successfully carried out 10 land rig refurbishment projects during 2006. Strong demand for land drilling rigs regionally has continued through 2006, driving the growth in revenue for the facility. This demand remains high in 2007 and we are looking at further enhancing our service offering to take advantage of this continued demand through an expansion of our equipment servicing capability.
New land camps
In addition to the complete rig refurbishment projects we also fabricated 14 complete land camps, of which 12 were delivered in 2006. Each land camp was constructed to very high standards and is suitable for utilization in a harsh desert environment.
As part of our development strategy, we continued a program of capital investment aimed at increasing the operating capacity and efficiency of our facilities. This included investment in buildings, equipment and general infrastructure.
Major investments have included the purchase of the "Hamriyah Pride", a bottom reaction semi-submersible barge. This will enhance our rig refurbishment offering by enabling us effectively to "dry dock" jackup rigs, as well as providing us with the capacity to transport new build structures to clients. Major equipment procured in 2006 included eight cranes, multiple forklift trucks, generators, and automated welding equipment, all of which will enable us to improve our operating efficiency and make us less reliant on hired equipment.
Our investment in infrastructure in 2006 also included the extension of our temporary Hamriyah facilities from 20,000m2 to 42,000m2. This included extending the construction and fabrication areas, as well as the completion of a new client office block in the Jebel Ali facility.
This capital investment program, particularly in operating equipment, will continue over the next three years. In addition a detailed design is currently being finalised for our new 330,000m2 facility in the Hamriyah Free Zone in the United Arab Emirates, which is expected to cost approximately US$ 50 million. This development will commence in 2007. The company believes that the facility will be operational at the end of 2008.
Group revenue increased by 57.5% to US$ 329.6 million (2005: US$ 209.2 million) reflecting a significant growth over the prior year. This growth was largely driven by a significant increase in new build activity in the Jebel Ali facility, both in the number of projects and their value compared to 2005. Significant increases in revenue were also achieved from jackup rig upgrade and refurbishment activities, managed from the Sharjah facility, and improved oilfield services revenue from the refurbishment of land rigs. The Group revenue in 2006 includes US$ 4.8 million (2005: US$ 4.2 million) from International Inspection Services Limited ("Inspec"), acquired on 11 September 2006 for a consideration of US$ 4 million. As Inspec was a business under common control, the 'uniting of interests' method was adopted for accounting for the business combination and the results of Inspec for the full year 2006 are included in the Group's financial statements. The information for the prior year has been restated to include the Inspec results.
The cost of sales for the year was US$ 256.3 million (2005: US$ 166.2 million). The increase in the cost of sales has been driven predominantly by the increase in the revenue during the year. As a percentage of revenue, cost of sales has decreased from 79.4% in 2005 to 77.8% in 2006 and reflects the improved sales pricing of projects, especially in the new build activities at the Jebel Ali facility, together with increased operational efficiencies.
Gross profit margin increased from 20.6% to 22.2% in 2006. This improvement is attributable to improved average margins across all areas of activity, but particularly in new build activities in the Jebel Ali facility on a number of major projects undertaken during the year, including the Tapti process topsides for British Gas in India, the Kashagan flash gas compression barges built for SBM and the Vitoria FPSO process modules built for Saipem. Rig refurbishment activities carried out in the Sharjah and temporary Hamriyah facilities continued to provide very positive margins along with a significant amount of increased work scopes through variation orders which further supported margin growth.
Operating profit (before exceptional charges) in 2006 was US$ 56.1 million (2005: US$ 29.4 million), an increase of 90.6% over the previous year and reflects the strong growth in revenue and increased gross margin. The exceptional charges in the current year are for share based payments of US$ 15.6 million to selected directors and employees and US$ 7.5 million incurred mainly towards various legal and professional charges in connection with the admission of Lamprell to AIM. The operating profit after these exceptional charges was US$ 33.0 million.
The operating profit margin (before exceptional charges) increased from 14.1% in 2005 to 17.0% in 2006 as a result of the benefit of operational gearing from the significant growth in revenue and gross margin but with a lower rate of growth in overheads.
The net profit (before exceptional charges) attributable to the shareholders of Lamprell increased by 91.0% to US$ 56.9 million (2005: US$ 29.8 million), in line with operating profit. The net profit after these exceptional charges was US$ 33.8 million.
EBITDA (before exceptional charges) increased to US$ 61.2 million (2005: US$ 33.0 million) reflecting an increase of 85.2% over the prior year. The increase in EBITDA is approximately in line with operating profit as there is no taxation on earnings and interest income is not significant. EBITDA margin (before exceptional charges) for the year has increased to 18.6% (2005: 15.8%).
Interest income of US$ 0.9 million (2005: US$ 0.4 million) related mainly to bank interest earned on surplus funds deposited on a short term basis with the Company's bankers. The increase reflects a higher level of funds on deposit during the year and an increase in the average deposit rates.
The Company, which is incorporated in the Isle of Man, is not subject to income tax in the Isle of Man for the year ended 31 December 2006 as it has been registered as a tax exempt company. With effect from 6 April 2007 the tax exempt company will cease to exist in Isle of Man legislation and the Company will then be taxable at 0% in the Isle of Man. The Group is not currently subject to income tax in respect of its operations carried out in the United Arab Emirates, and does not anticipate any liability to income tax arising in the foreseeable future.
Earnings per share
Adjusted fully diluted earnings per share for 2006 increased to 28.47 cents per share (before exceptional charges) (2005: 14.90 cents) reflecting primarily the significantly improved profit of the Group for the year, an increase of 91.1% on 2005. Actual fully diluted earnings per share for 2006 (after exceptional charges) were 16.91 cents per share.
Operating cash flow and liquidity
The Group's net cash flow from operating activities for the year was US$ 16.6 million (2005: US$ 38.0 million). The net cash flow from operations was lower than the prior year mainly due to short term timing differences in collections from debtors and an increase in amounts due from customers on contracts, largely due to variations and change orders agreed on certain large contracts that were invoiced and paid after the year end. The amounts due by customers on contracts and not invoiced as at the year end was US$ 36.9 million (2005: US$ 25.8 million). Advance payments amounting to US$ 14.4 million made to LeTourneau Inc. during the year for the purchase of a Super 116E jackup drilling rig kit also reduced cash flow from operating activities. The rig kit has been purchased as the Group intends shortly to enter the new build jackup drilling rig construction market.
Investing activities for the year absorbed US$ 23.0 million (2005: US$ 7.1 million) as a result of a significant increase in investment in property, plant and equipment amounting to US$ 24.0 million (2005: US$ 7.0 million). This included the purchase of a semi-submersible barge for US$ 7.4 million, which was used on acquisition to transport a damaged jackup rig from the Gulf of Mexico for a major refurbishment at the Group's temporary facility in Hamriyah. In addition US$ 2.7 million was realised during the year by the disposal of a small jackup rig that had been held for resale.
Net cash used in financing activities was US$ 7.8 million (2005: US$ 11.1 million). This represents dividend payments made of US$ 26.3 million (2005: US$ 3.8 million) offset by a reduction in net amounts due from related parties of US$ 18.5 million.
Capital expenditure on property, plant and equipment during the year amounted to US$ 24.0 million (2005: US$ 7.0 million). The predominant area of expenditure was the investment in operating equipment amounting to US$ 18.9 million to support the growth in activities experienced during the year and to replace a significant amount of hired equipment that was in use at the time, and also included the acquisition of a semi-submersible barge, as noted above. Further expenditure on buildings and related infrastructure at Group facilities amounted to US$ 2.8 million.
Shareholders' equity increased from US$ 75.7 million at 31 December 2005 to US$ 89.9 million at 31 December 2006. The movement mainly reflects the retained profits for the year of US$ 33.8 million net of dividends declared of US$ 31.3 million. The movement also reflects a credit for the accounting of share based payments of US$ 15.6 million (2005: Nil) made to certain directors and employees of the Group and charged to General and Administrative expenses.
Shareholders' equity includes a Merger reserve of US$ 22.4 million as a result of Lamprell Energy Limited ("LEL") acquiring 100% of the legal and beneficial ownership of Inspec from Lamprell Holdings Limited ("LHL") for a consideration of US$ 4 million on 11 September 2006. This acquisition was accounted for using the 'uniting of interests' method and the difference between the purchase consideration (US$ 4 million) and share capital of Inspec (US$ 0.15 million) was taken to the Merger reserve. In addition, on 25 September 2006, Lamprell 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 and transfer to LHL of 200,000,000 shares of the Company. This acquisition was also accounted for using the uniting of interests method and the difference between the nominal value of shares issued by the Company (USD 18.7 million) and the nominal value of LEL shares acquired (US$ 0.082 million) was taken to the Merger reserve.
The preliminary statement of results for the year ended 31 December 2006 does not constitute statutory accounts. Statutory accounts have not been delivered to the Registrar of Companies in the Isle of Man.
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