Offshore Marine Boom? Oil rig engineering specialist Lamprell posts $110m loss on cost overruns

March 22, 2013 Leave a comment

March 21, 2013 4:31 pm

Lamprell posts $110m loss on cost overruns

By Michael Kavanagh

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Lamprell, the specialist engineering group, set out plans for a return to break-even on trading this year after delivering a $110m loss prompted by cost overruns and penalties on key projects.

The Dubai-based contractor, which specialises in oil and gas rig construction and repair and the building of vessels used to install wind turbines, was on Monday fined £2.4m by the Financial Services Authority for failing to update the market properly on its worsening financial position in early 2012.

James Moffat, hired last December as chief executive, characterised 2012 as “unquestionably the most challenging year in Lamprell’s history”. He blamed poor previous management and over-aggressive bidding for losses taken on four key projects he described as “our problem children”.

The bulk of losses, about $70m, resulted from penalties suffered from delays in the delivery of two wind turbine installation vessels to Norwegian client Fred Olsen. It also wrote off a further $26m on a troubled contract to deliver a rig to the Caspian Sea.

“On the Windcarriers, we bid aggressively but the feedback I have had suggested that it couldn’t have been delivered for the amount of money that we bid,” said Mr Moffat who took up his position this month.

Revenues for the year fell slightly from $1.15bn to $1.05bn as Lamprell moved from a pre-tax profit of $64m to a loss of $110m in the year to December 30. No dividend was declared as the company ended the period with an order backlog of $1.3bn.

Lamprell had a net cash of $104m at the end of 2012, compared with a net debt position of $102m at the end of 2011. But the company remains engaged with lenders over the renegotiation of covenants, which apply to bonds agreed with banks that are required to undertake major projects in the sector.

Frank Nelson, who was confirmed in his position as chief financial officer on Thursday after taking on the role on an interim basis in November, estimated that the typical level of bonding – or financial guarantees provided by banks over completion of work – required by Lamprell ranged between $500m and $750m.

Mr Moffat said he was confident that banks would conclude revisions to covenant agreements with Lamprell as it moved back towards a break-even position over the year.

“It’s a lumpy business, and as we hit lumps and bumps we need to be able to ride through them,” he added.

● FT Comment

Lamprell’s annual results were at least in line with predictions made by its new management following a review of operations in November. The task now facing the new regime is to steady the ship. Mr Moffat and his recently installed lieutenants will be keen not to give further hostages to fortune after the company delivered a total of five profit warnings last year. A return to net profit approaching $50m next year following break-even in this is predicted by company broker Bank of America Merrill Lynch, leaving shares trading on a prospective p/e of 12 times for 2014. Investors prepared to bet on weakness and back new management could yet catch a rising tide

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