2020 Annual Report and Accounts

Risk impact and likelihood

H - High

M - Medium

L - Low

Risk Description

Business implication

Mitigation

1. Ability to finance business

Risk category: Financial risks

Lack of available funding options threatens our ability to continue as a going concern and/or deliver our strategic objectives

Risk impact:

Successful implementation of business goals depends on a reasonable level of working capital and there has been a significant reduction in our net assets due to losses in recent years. Also, conventional debt funding is not readily available in the region due to tough market conditions, without additional equity funding. If we cannot raise capital through the planned debt and/or equity financing by the end of Q3 2021, this threatens the near-term liquidity and the long-term viability of the business.

· Capital raise of USD 120-150 million planned for Q3 2021

· We use effective cash management processes to maintain strength in our balance sheet

· Ability to stretch the supply chain, improving the Group's cash inflows and outflows

· Following the strategic reorganisation, we continue to explore how best to finance each of the new business units going forward

· Aligning the cost base with our revenue levels as we pulled levers to become cash generative

· Strong relationships with financial advisors to evaluate and access funding options

Strategy H

Business model M

Risk likelihood H

Risk owner:

Chief Financial Officer

Risk change from last year:

Unchanged

Link to strategy:

Funding for companies operating in the renewables space far exceeds that for oil & gas contractors.

2. Ability to win work

Risk category: Strategic risks

Failure to provide reliable, on- time, competitive solutions for new projects.

Risk impact:

Our potential inability to offer a competitive product or service could negatively affect our reputation amongst current and target clients. We are dependent on a relatively small number of contracts at any given time and our ability to retain current clients and compete successfully depends on our ability to provide on-time, low-cost, high-quality products and services. If we fail to do so, both technically and commercially, we will not win new awards. Success in contract awards is also currently threatened by COVID-19 and by our balance sheet, which could constrain the supply chain or restrict our operations.

· Reorganised our business to align with customer needs and energy transition

· Bid pipeline expanded into new geographies

· An experienced and customer-focused BD team targets our key clients and markets

· We use benchmarking data and estimating tools to provide market- competitive pricing

· Re-strengthen balance sheet through new capital raise and a controlled overhead cost base

· We leverage the benefits of a strong culture, core values and governance regime

· Lessons learned as well as digitalisation opportunities embedded into project processes to enhance overall efficiency

· Chances of meeting project objectives enabled by effective risk management assessment

Strategy H

Business model M

Risk likelihood H

Risk owner:

Vice President of Business Development

Risk change from last year: Unchanged

Link to strategy:

Opportunities in our key markets are targeted by multiple, competitive bidders.

3. Economic conditions

Risk category: Strategic Risks

Energy price volatility, market uncertainties and COVID-19 could lead to cancellation of bid pipeline prospects.

Risk impact:

Project awards may be significantly delayed and/or cancelled due to the prolonged downturn seen in the oil & gas market which continued throughout 2020 following the early oil price collapse. The threat to the broader market has been exacerbated by the ongoing impact of the COVID-19 global pandemic. Such instability leads to clients reassessing how and when to sanction capex on new projects, particularly in the markets which are heavily dependent on hydrocarbon extraction for revenues.

· Alignment of our organisation with market dynamics and customer needs

· Bid pipeline of USD 6 billion covers a diversified portfolio and has increased significantly in the rapidly-growing renewables sector

· Our experienced BD team, with strong capabilities and a broad network, are sourcing targeted oil & gas opportunities in the UAE and Saudi Arabia where capital expenditure is continuing

· Client engagement activities continued online to generate new prospects and improve customer relationships

· Active investigation of potential partnerships/alliances expands our offerings and diversification of territories

· Self-help measures implemented in 2020 to help maintain our competitiveness on future bids

Strategy H

Business model H

Risk likelihood H

Risk owner:

Vice President of Business Development

Risk change from last year: Unchanged

Link to strategy:

Demand for our products and services underpins the entire business.

4. Counterparty risk

Risk category: Financial risks

The entire supply chain is under pressure due to tough market conditions amplified by the pandemic impact.

Risk impact:

Clients may impose onerous payment terms or even stop payments because of their own cashflow issues. This may result in Lamprell suffering losses or reduced revenues, as it would need

to fund the working capital from its own balance sheet which requires new financing, or be at risk of disputes with suppliers who are exposed to liquidity issues too. The entire supply chain is under immense pressure and there is an increased risk of companies taking on contracts at poor margins

or not delivering to the required standards. This risk is heightened in a market where all parties are working to conserve cash, as the Company is doing, and to protect themselves against the global economic deterioration caused by COVID-19.

· Take on and execute projects with experienced, reputable and financially sound counterparties, based on reasonable and balanced contract terms

· Enhanced due diligence undertaken on counterparties to assess project and financial risks

· Request clients and suppliers to provide financial security measures or guarantees for new projects

· Enforce contract terms through proactive contract management

· Effectively manage supply chain payments, combined with regular project reviews to highlight counterparty risks and threats of delay to payment of invoices

· Proactively work through project schedule issues in collaboration with clients and suppliers

Strategy M

Business model L

Risk likelihood H

Risk owner:

Chief Financial Officer

Risk change from last year:

Increased

Link to strategy:

Contractors depend on timely payment for working capital.

5. Project execution

Risk category: Operational risks

Failure to deliver projects on time and on budget, in accordance with the contract requirements, as a result of poor performance or external factors such as COVID-19.

Risk impact:

Failure to execute, project manage and deliver a project per contractual

terms and conditions may expose us to additional costs, damage to reputation, losses or reduced revenues. This is particularly relevant as we diversify into new markets and product offerings where additional execution risks can arise or further investment is required. The spread of the COVID-19 virus could affect our ability to execute our projects, directly with our workforce

or through the supply chain. Poor execution may also negatively impact our reputation with clients and the wider stakeholder base

· BD team works to better understand clients' needs resulting in projects which are well-aligned with our capabilities

· All new prospects undergo detailed review and robust risk assessment during the bidding phase

· Continuous improvement cycle to capture all lessons learned from previous projects are fed into new bids and/or execution of new projects

· Regular toolbox talks to yard labour, drawing attention to key aspects of their day-to-day working lives and how to improve performance

· Implement an extensive series of high-quality self-help measures to contain/respond to the COVID-19 threat

· Training and development of employees is a cornerstone of sustainability objectives, to ensure high standards are maintained and the likelihood of risks is reduced

Strategy H

Business model M

Risk likelihood M

Risk owner:

Chief Operations Officer

Risk change from last year:

Unchanged

Link to strategy:

Our clients expect safe delivery of high-quality, on-time products and services.

6. Cyber threats

Risk category: Operational risks

IT systems could be disrupted by successful cyber-attacks or outdated infrastructure.

Risk impact:

Our business and operations both rely heavily on our IT network and systems including, in particular, the enterprise resource planning software and engineering design software provided by third parties. These could fail to operate effectively or be subject to disruption/cyberattacks; there are also inherent disruption risks as the IT infrastructure becomes outdated and/ or we migrate some IT systems to

the cloud. Without effective, updated and efficient IT network and systems, we would not be able to execute our projects and would suffer reputational and financial damage accordingly.

· We actively conduct risk identification, mitigation and management throughout a project lifecycle, from initial bid, through project handover and until completion

· Our project risk analyses are reviewed from a qualitative perspective and are also based on a quantitative Monte Carlo assessment

· During project execution, weekly and monthly project review meetings with management for effective oversight

· Use of mitigation or risk management strategies, including use of insurance, guarantees and/or flowdowns of liabilities to the supply chain

· Implementation of the lessons learned on previous projects aims to avoid repeats of any identified inefficiencies

Strategy M

Business model M

Risk likelihood M

Risk owner:

Chief Financial Officer

Risk change from last year:

Increased

Link to strategy:

Digitalisation is a strategic objective to improve efficiency and generate new revenues.

7. Contractual commitments

Risk category: Legal/compliance risks

Onerous contract terms delay or prevent the execution of a project.

Risk impact:

The continuing market downturn has led to clients adopting an increasingly firm line on contractual terms, meaning that we may be obliged to take on additional risks under the contract which historically have been negotiated away. If we then fail to properly mitigate this contractual liability in other ways, it could lead to us incurring additional costs or losses, which could affect our overall financial performance.

· Experienced IT security specialist responsible for the Group IT infrastructure

· Migration of many of our IT systems to external service provider with access to latest cyber detection and protection technologies

· Regular IT security training for employees throughout the year

· Awareness campaigns about information security/cyber threats

· Regular upgrades to our IT security software and internal controls, reinforcing layers of protection and segregation of duties

· Our data is micro-segmented and stored on the cloud, which helps to contain any attacks

· Enterprise resource planning software is run by a leading service provider, Oracle

· Penetration testing and phishing exercises run by internal and external teams to ensure that employees are alive to cyber risks

Strategy H

Business model M

Risk likelihood H

Risk owner:

General Counsel

Risk change from last year:

Unchanged

Link to strategy:

Implementation of our strategy depends on our ability to manage contract risks and meet client expectations around project deliveries.

8. Third-party alliances

Risk category: Legal/compliance risks

Ineffectual or poor relationship management with business partners.

Risk impact:

To conduct business in certain jurisdictions, we rely on key relationships with local partners, agents and the members of joint ventures and consortia. If we are unable to work collaboratively or poorly manage these relationships, or our partners are unable to provide effective support to our business, this could leave us exposed to additional contractual and/or execution liability, or make our operations in certain jurisdictions uncompetitive.

· We chose business partners based on a due diligence exercise to understand their capabilities, culture and goals, to ensure alignment on strategic objectives

· Management regularly reports to the Board on all proposed and current joint venture/consortium initiatives, assessing progress against our strategic objectives

· We work to build and maintain strong partner relations at management level

· Agreements are drafted and negotiated based on an agreed set of principles, describing the strategic goals, and may include exit provisions where appropriate

· We may obtain advice from external expert advisors, either during contract negotiation or as alliances are being built

Strategy M

Business model M

Risk likelihood M

Risk owner:

Executive Committee

Risk change from last year:

Unchanged

Link to strategy:

To move up the value chain, we need to rely on our partners to provide complementary offerings.

9. Failure to invest

Risk category: Strategic risk

Returns from the business require initial capital investment.

Risk impact:

In order to fund its reorganised business structure and to stay competitive on new and existing projects, the Group has to spend additional capital funds improving its yard processes/layout, upgrading IT infrastructure/operating systems, funding joint ventures and investing in its digital initiatives, failing which the Group may not be sufficiently competitive to win new projects or to achieve the necessary margins to improve overall profitability to the required level.

· Reorganised our business to align with customer needs and energy transition

· We are already deploying certain digital initiatives in our yards as proof-of-concept, justifying further investment

· The Board approves capital investment for any item valued in excess for USD 2 million, based on a detailed justification

· Experienced BD team conducts in-depth analysis and review of the market conditions/dynamics and projections

· All investments are linked directly to the Company's strategy and visible/actual projects

· A phased approach to investing wherever possible, to minimise immediate exposure

· The digital business unit is progressing in collaboration with major partners like Injazat/G42 to de-risk the opportunity

Strategy H

Business model L

Risk likelihood M

Risk owner:

Executive Committee

Risk change from last year:

Unchanged

Link to strategy:

The strategic objectives are dependent on making a return from capital employed.

10. Mergers and acquisitions

Risk category: Strategic risks

An opportunistic transaction could significantly alter the intended strategic direction of the Group.

Risk impact:

With the prolonged downturn, the delayed award of projects and low levels of backlog, we could see an opportunistic approach for purchase at a suppressed price. This could override current strategic objectives or result in a loss of traction in the marketplace.

· The Company's share price has rebounded on the back of improved financial performance and a clear set of strategic objectives

· Our objectives are measured and progress is reported to the Board and shareholders

· Increased bid pipeline of USD 6 billion, with robust growth in the renewables sector and continuing bidding activity in the LTA programme and the UAE

· Lamprell's largest shareholders could act as a veto to hostile approaches based on unreasonably low valuations

· Professional advisory and broking team actively advising the Board and senior management

Strategy H

Business model L

Risk likelihood L

Risk owner:

Board of Directors

Risk change from last year:

Decreased

Link to strategy:

Change in ownership structure can result in a change in strategy.