27th Sep 2007 07:02
Lamprell plc27 September 2007 27 September 2007 LAMPRELL PLC ("Lamprell" or the "Company") 2007 INTERIM RESULTS Lamprell (symbol: LAM), a leading provider of specialist engineering services tothe international oil & gas industry based in the UAE, is pleased to announceits Interim Results for the six month period ended 30 June 2007. 2007 INTERIM HIGHLIGHTS • Revenue: US$246.1 million up 50.5% (H1 2006: US$ 163.5 million) • Operating profit: US$43.9 million up 50.5%* (H1 2006: US$ 29.2 million) • Net profit: US$45.2 million up 52.0%* (H1 2006: US$ 29.7 million) • EPS (fully diluted): 22.58 cents up 52.0%* (H1 2006: 14.86 cents) • Proposed debut interim dividend: 5 cents per ordinary share (2.47 pence per share) • Cash generated from operations of US$100.5 million (H1 2006: US$5.1 million) • Order book as at 31 August 2007 of US$507 million (Q1 2007: US$387 million) • Successful projects completed in the first six months of 2007 included major refurbishments of four jackup drilling rigs for Global Santa Fe International Drilling Inc; the completion of 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 six month period stated before reflecting exceptional chargesfor share based payments of US$9.0 million granted to certain directors andselected management personnel pre IPO and for the prior year six month periodstated before reflecting various legal and professional charges of US$2.4million incurred in connection with the admission of Lamprell plc to AIM. NEW CONTRACT AWARDS: The first six months of 2007 saw the announcement of several high profilecontracts. Work has commenced on all of these projects. o Lump sum turnkey construction contract for a LeTourneau Super 116E jackup drilling rig from Scorpion Offshore Limited ("Scorpion") amounting to US$168 million o 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 o Fabrication of a Floating, Production, Storage and Offloading ("FPSO") vessel topside module for Aker Kvaerner Process Systems AS with a significant project expansion currently under discussion with the client o Fabrication of topside process modules for FPSO vessels for Saipem SA and Single Buoy Moorings, Inc in the region of US$55.1 million Commenting on the results Peter Whitbread, Chairman and Chief Executive,Lamprell said: "The first six months of 2007 has seen Lamprell continue to deliver significantgrowth in both turnover and profit. Our business expanded across all keyactivities in what is clearly a buoyant market for our services and we aredelighted that we continue to meet and indeed exceed our forecasts. In this period Lamprell has been awarded and commenced construction of the firstof the Super 116E LeTourneau jack up drilling rigs for Scorpion, with options inplace for a further four similar units. In addition, Lamprell has commenced theconstruction of the first two lift boats for our client Seajacks. Both of theseprojects represent a key development as Lamprell continues to expand theCompany. Our order book remains high giving us confidence that Lamprell will continue tomatch and, indeed, exceed management expectations" Enquiries: Lamprell plc (+44 207 638 9571)Peter Whitbread, Chairman and Chief Executive OfficerDavid Moran, Chief Operating Officer JPMorgan Cazenove, London (+44 20 7588 2828)Nick GarrettMalcolm Moir Citigate Dewe Rogerson, London (+44 207 638 9571) Media enquiries: Martin Jackson/Analyst enquiries: Scott Fulton Chairman's Statement The first half year of 2007 has seen the Company continue to expand and develop,building on the highly successful year in 2006. Throughout the first half ofthis year Lamprell has continued to outperform our forecasts and it has securedsignificant additional opportunities for Lamprell both in terms of additionalmajor projects and also opportunities to further expand the scope and reach ofthe Company. In this first six months Lamprell has commenced the simultaneous construction ofthe first two lift boats for our client Seajacks, with options for a furtherthree units. Lamprell has also been awarded and commenced construction of thefirst of the Super 116E LeTourneau jackup drilling rigs for Scorpion, withoptions in place for a further four similar units. The Company has also seen the successful launch of two of three Flash GasCompression Barges for our client SBM for the Kashagan Field Development in theCaspian Sea, this being the largest single project completed to date byLamprell. These represent some of the highlights of the year to date. However, theseprojects represent only part of the wide range of contracts currently underwayin what promises to be the busiest and most successful year in the Company'shistory. Market Overview During the first half of this year Lamprell has continued to see an unparalleledlevel of activity in the oil and gas industry worldwide. In the Middle Eastregion, the Company continues to see long term demand for both onshore andoffshore drilling equipment, with demand far outstripping supply. Lamprell seesthis high level of demand continuing through to 2009 and beyond, with additionaldrilling rigs being mobilised into the Middle East and India regions. Lamprellremains well placed to be able to support the refurbishment of this influx ofadditional land based and offshore drilling equipment into the region both interms of operational capacity and financial resources. Lamprell entered 2007 with a high expectation of continued long term growth inthe number of FPSO development projects throughout the world. In this first halfyear Lamprell has witnessed a better than expected increase in both the numberof clients and the number of projects upon which Lamprell is actively engagedand continues to believe that the Company's prospects for further contractawards are strong. This confidence suggests that Lamprell will maintain asubstantial order book for confirmed work for offshore jackup rigs, land baseddrilling rigs and FPSO related project works well into 2009. With the long term view of the world oil price remaining high combined withmajor development and rehabilitation projects being implemented by the nationaloil companies of the Middle East and India regions, Lamprell is confident thatit is well placed to significantly benefit both geographically and commerciallyfrom these long term development opportunities. Outlook Lamprell is confident of continued growth through the second half of 2007. Inparticular, the construction of the LeTourneau Super 116E jackup drilling rigand the two harsh environment special purpose self propelled jackup vessels,will represent key projects and a significant contribution to the results of theCompany. A number of FPSO projects including Aker Smart 1, Saipem Gimboa, SBMFrade, FPS Ocean and Kanfa Olowi, will also contribute considerably to increasedperformance at Lamprell's offshore construction facility at Jebel Ali. The key project currently being undertaken with respect to the rig refurbishmentbusiness is the Nabors 660 rig and this will continue to represent a strongrevenue stream for the Company for the balance of the year. In addition, anumber of other rig refurbishment projects have been identified and planned forcompletion in the second half of 2007. Operating Review Lamprell's success in the first half of 2007 has been founded on significantlyincreased turnover, compared to the same period in 2006, in all key businessactivities. The increased turnover is recognition of Lamprell's growing statureas a contractor of first choice in the international oil and gas constructionsector. Upgrade and refurbishment of offshore jackup rigs During the first six months of 2007 Lamprell have refurbished sixteen jackuprigs and one semi-submersible rig at Lamprell's Sharjah and Hamriyah facilities.The combined scope and value of these projects increased by 79% to US$140.9million compared to US$78.7 million for projects executed in the same period in2006. Notable projects included four rigs refurbished for Global Sante FeInternational Drilling Inc. and the ongoing refurbishment of the Nabors 660 rig.The Global Sante Fe projects were successfully completed between May and Julyand these rigs are now operational in Saudi Arabia. The Nabors 660 project, thelargest refurbishment project undertaken to date by Lamprell, is proceeding welland is scheduled for completion at the end of 2007. New build offshore jackup rigs As announced in July, Lamprell has secured a contract with Scorpion for theconstruction of a LeTourneau Super 116 E jackup drilling rig. This project willbe constructed at our Hamriyah facility with support being provided from theSharjah facility. This is an exciting project that represents a naturalprogression of our upgrade and refurbishment experience and it provides anexcellent foundation for contribution to results until its delivery in 2009. New build construction for the offshore oil and gas sector Our Jebel Ali facility has enjoyed a very productive six months during whichwork continuity has been maximised. This has resulted in the facility generatinga 25% increase in turnover to US$77.9 million compared to the US$62.2 millionachieved in the same period in 2006. This turnover has consisted of severalprojects which have been completed following commencement in 2006 as well as anumber of new projects that have been awarded this year. These projects includeprocess module construction, topside platforms, process barges and notably thecommencement of construction of two harsh environment special purpose selfpropelled four legged jackup vessels for Seajacks. The scheduled delivery datesfor these projects range from the fourth quarter of 2007 to 2009 and provide asignificant order book over the period. Oilfield engineering services The turnover at our Oilfield Engineering facility has increased by 21% toUS$22.6 million compared to US$18.7 million generated in the same period in2006. This turnover has been earned on a number of different projects, includingthose relating to land rig upgrade and refurbishment, the construction of landcamps and the inspection and overhaul of mechanical and rotary equipment. Operational developments The design of the new facility in the Hamriyah Free Zone is at an advanced stageand management expect to commence operations in this new facility at the end of2008, in line with earlier expectations. Management have just completed a review of group operations to determine theoptimal locations and resources necessary to support the planned growth in eachof our core activities. Lamprell has applied for an allocation of additional land in the Jebel Ali FreeZone on which to expand the operations of the Oilfield Engineering facility tocater to the expanding market for land rig refurbishment and new buildactivities. Lamprell are considering the development of a new 100,000 m2facility in the Jebel Ali Free Zone rather than the alternative plan to developthe Oilfield Engineering facility within the new Hamriyah facility. Lamprellbelieve that there are significant operational and commercial efficiencies thatcan result from continuing these operations within the Jebel Ali Free Zone. Itis planned that the extended facility will commence operations at the end of2008. In conclusion, by the end of 2008, Lamprell will be well placed to continue togrow, through all of its key facilities; the existing Jebel Ali facility for newbuild projects, the new Jebel Ali facility for oilfield engineering and the newHamriyah facility for new build and rig refurbishment. Financial Review Lamprell has experienced a successful first half year for the period ended 30June 2007 and the results of its activities are set out in summary below. Results for the six month period from operations 2006 2007 US$ million US$ million Change Revenue 246.1 163.5 50.5%Gross profit 56.2 36.6 53.5%Operating profit 43.9 29.2 50.5%Net profit 45.2 29.7 52.0% * For the current six month period stated before reflecting exceptional chargesfor share based payments of US$9.0 million granted to certain directors andselected management personnel pre IPO and for the prior year six month periodstated before reflecting various legal and professional charges of US$2.4million incurred in connection with the admission of Lamprell plc to AIM. Group revenue for the period to 30 June 2007 increased by 50.5% to US$246.1million (H1 2006: US$163.5 million) reflecting a significant growth over theprior year six month period. This growth was largely driven by a significantincrease in jackup rig upgrade and refurbishment activities, including a numberof major upgrade projects which were undertaken during the period. Revenuegrowth was also achieved in offshore construction activity in the Jebel Alifacility, with the completion of a number of key projects which were commencedin 2006 and also improved oilfield engineering services revenue from therefurbishment of land rigs and the construction of land camps. Gross profit margin increased from 22.4% for the period to 30 June 2006 to 22.8%for the period to 30 June 2007. This marginal improvement is due largely to themix in revenue for the period, specifically a greater proportion of highermargin rig refurbishment activity. In addition, the period reflected thecompletion of a major new offshore construction project which included theagreement of a number of changes in scope. These variations, as in this case,generally achieve higher margins as they are usually completed on a cost plusbasis. Operating profit for the period (before exceptional charges) increased by 50.5%to US$43.9 million (2006: US$29.2 million). The exceptional costs in the currentperiod reflect share based payments of US$9.0 million (H1 2006: US$nil) grantedto selected directors and employees pre IPO and for the prior year periodreflect various legal and professional charges of US$2.4 million (H1 2007:US$nil), incurred in connection with the admission of Lamprell plc to AIM. Theoperating margin (before exceptional charges) of 17.8% is in line with the prioryear six month period operating margin. The net profit (before exceptional charges) attributable to the shareholders ofLamprell plc increased by 52.0% to US$45.2 million (H1 2006: US$29.7 million),in line with the operating profit and also reflects the increase in interestincome in the current period to US$1.3 million (H1 2006: US$0.6 million). Taxation The Group is not currently subject to income tax in respect of its operationscarried out in the United Arab Emirates, and does not anticipate any liabilityto income tax arising in the foreseeable future. The Company, which isincorporated in the Isle of Man, is currently taxable at 0%. Earnings per share Fully diluted earnings per share for the six period to 30 June 2007 increased to22.58 cents per share (before exceptional charges) (H1 2006: 14.86 cents)reflecting primarily the improved profit of the Group for the period underreview. Operating cash flow and liquidity The Group's net cash flow from operating activities for the six month period wasUS$100.5 million (H1 2006: US$5.1 million). The net cash flow from operationswas higher than the prior year six month period as a result of increased profitfor the period and movements in working capital, largely as a result of anincrease in trade and other payables including advances received from customersamounting to US$67.4 million. Investing activities for the period absorbed US$9.6 million (H1 2006: US$7.4million) and mainly comprise continued investment in property, operating plantand equipment amounting to US$5.9 million (H1 2006: US$9.8 million) and theacquisition of a company for US$1.6 million in the period. The company holds alease in the Jebel Ali Free Zone covering 16,343 square meters of land with alease agreement reflecting preferential lease rates and has been used for theexpansion of Oilfield Engineering activities. Net cash used in financing activities was US$12.6 million (H1 2006: US$7.7million) and reflected the final dividend payment for the year ended 31 December2006 of US$7.6 million and the payment of an outstanding pre IPO dividendpayment to the previous holding company of US$5.0 million. Dividend For the six months ended 30 June 2007, the Board of Directors of the Grouprecommends an interim dividend of 5.00 cents per ordinary share with a Sterlingequivalent of 2.47 pence per ordinary share which will be paid on 8 November2007 to eligible shareholders on the register at 12 October 2007. Peter WhitbreadChairman and Chief Executive OfficerLamprell plc 27 September 2007 Report on review of interim financial information Lamprell Plc15-19 Athol StreetDouglasIsle of Man Introduction We have reviewed the accompanying condensed consolidated balance sheet ofLamprell Plc as of 30 June 2007 and the related condensed consolidated incomestatement, statement of changes in equity and cash flow statement for thesix-month period then ended. Management is responsible for the preparation andpresentation of this condensed consolidated interim financial information inaccordance with International Accounting Standard ("IAS") 34, 'Interim FinancialReporting' as adopted for use in the European Union. Our responsibility is toexpress a conclusion on this interim financial information based on our review. Scope of review We conducted our review in accordance with International Standard on ReviewEngagements 2410, 'Review of Interim Financial Information Performed by theIndependent Auditor of the Entity'. A review of interim financial informationconsists of making inquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordance withInternational Standards on Auditing and consequently does not enable us toobtain assurance that we would become aware of all significant matters thatmight be identified in an audit. Accordingly, we do not express an auditopinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the accompanying condensed consolidated interim financial information isnot prepared, in all material respects, in accordance with IAS 34 as adopted foruse in the European Union. PricewaterhouseCoopersChartered Accountants26 September 2007 Lamprell PlcCondensed consolidated interim income statement Six months ended 30 June Note 2007 2006 USD'000 USD'000 Revenue 246,080 163,467Cost of sales (189,927) (126,885) -------------- --------------Gross profit 56,153 36,582 Other operating income - 772Fair value gain on derivative financial 488 -instruments ExpensesSelling and distribution (688) (593)General and administrative - share based payments (9,000) -General and administrative - others (12,036) (9,986) -------------- --------------Operating profit 34,917 26,775 Interest income 1,288 560 -------------- --------------Profit for the period 36,205 27,335 ======= =======Earnings per share 4Basic 18.10c 13.67c ======= =======Diluted 18.10c 13.67c ======= ======= Lamprell PlcCondensed consolidated interim balance sheet At 30 June At 31 December Note 2007 2006 USD'000 USD'000ASSETSNon-current assetsProperty, plant and equipment 6 43,017 40,595Intangible asset 7 1,534 - --------------- --------------- 44,551 40,595 --------------- ---------------Current assetsInventories 5,667 4,531Trade and other receivables 136,022 113,508Derivative financial instruments 488 -Cash and bank balances 8 98,413 19,777 --------------- --------------- 240,590 137,816 --------------- ---------------Total assets 285,141 178,411 ======= =======EQUITY AND LIABILITIES Capital and reservesShare capital 9 18,654 18,654Legal reserve 10 23 22Merger reserve 11 (22,422) (22,422)Retained earnings 131,220 93,616 --------------- --------------- 127,475 89,870 --------------- ---------------Non-current liabilityProvision for employees' end of service benefits 12 9,105 8,039 --------------- --------------- Current liabilities Trade and other payables 148,463 72,404Due to a related party 13 98 8,098 --------------- --------------- 148,561 80,502 --------------- ---------------Total liabilities 157,666 88,541 --------------- ---------------Total equity and liabilities 285,141 178,411 ======= ======= Lamprell Plc Condensed consolidated interim statement of changes in equity Share Legal Merger Retained Note capital reserve reserve earnings Total USD'000 USD'000 USD'000 USD'000 USD'000 At 1 January 2006 18,654 18 (18,422) 75,472 75,722Profit for the period - - - 27,335 27,335Transfer to Legal - 1 - (1) -reserveDividends 14 - - - (25,762) (25,762) ------------- -------- ------------- --------------- ---------------At 30 June 2006 18,654 19 (18,422) 77,044 77,295Profit for the period - - - 6,480 6,480Share based payments - - - - 15,584 15,584value of servicesprovidedTransfer to Legal - 3 - (3) -reserveDividends 14 - - - (5,489) (5,489)Acquisition of Inspec 11 - - (4,000) - (4,000) ------------- -------- ------------- --------------- ---------------At 31 December 2006 18,654 22 (22,422) 93,616 89,870Profit for the period - - - 36,205 36,205Share based payments - - - - 9,000 9,000value of servicesprovidedTransfer to Legal 10 - 1 - (1) -reserveDividends 14 - - - (7,600) (7,600) ------------- -------- ------------- --------------- ---------------At 30 June 2007 18,654 23 (22,422) 131,220 127,475 ====== ==== ====== ======= ======= Lamprell PlcCondensed consolidated interim cash flow statement Note Six months ended 30 June 2007 2006 USD'000 USD'000Operating activitiesProfit for the period 36,205 27,335Adjustments for:Share based payments - value of services provided 9,000 -Fair value gain on derivative financial instruments (488) -Depreciation 6 3,550 2,167Loss on disposal of property, plant and equipment - 2 Profit on disposal of asset held for sale - (773) Provision for slow moving and obsolete inventories (192) 74 Charge for provision for impairment of trade receivables, 5 20 5net Provision for employees' end of service benefits 12 1,275 1,060Interest income (1,288) (560) --------------- -------------Operating cash flows before payment of employees' end of 48,082 29,310service benefits and changes in working capital Payment of employees' end of service benefits 12 (209) (299) Changes in working capital:Inventories before movement in provision (944) (571)Trade and other receivables before movement in provision (22,513) (30,231)for impairment of trade receivables and write offTrade and other payables 76,038 6,856 --------------- ------------ -Net cash generated from operating activities 100,454 5,065 --------------- -------------Investing activities Payments for property, plant and equipment 6 (5,933) (9,801)Acquisition of a subsidiary net of cash acquired 7 (1,586) -Payment for acquisition of Inspec 11 (3,000) -Proceeds from sale of property, plant and equipment 13 16Proceeds from sale of asset held for sale - 2,705Interest income 1,288 560Margin deposits 8 (427) (885) --------------- -------------Net cash used in investing activities (9,645) (7,405) --------------- -------------Financing activities Due to related parties - 17,596Dividends paid 14 (12,600) (25,318) --------------- -------------Net cash used in financing activities (12,600) (7,722) --------------- -------------Net increase /(decrease) in cash and cash equivalents 78,209 (10,062) Cash and cash equivalents, beginning of the period 8 16,410 30,477 --------------- -------------Cash and cash equivalents, end of the period 8 94,619 20,415 ======= ====== Selected notes to the condensed consolidated interim financial information for the six months ended 30 June 2007 1 Legal status and activities Lamprell Plc ("the Company") was incorporated and registered on 4 July 2006 inthe Isle of Man as a public company limited by shares under the Isle of ManCompanies Acts with the registered number 117101C. The Company acquired 100% ofthe legal and beneficial ownership in Lamprell Energy Limited ("LEL") fromLamprell Holdings Limited ("LHL"), under a share for share exchange agreementdated 25 September 2006 and this transaction was accounted for using the unitingof interests method. The Company listed on the Alternative Investment Market ("AIM") of the London Stock Exchange with effect from 11 October 2006. Theaddress of the registered office of the Company is 15-19 Athol Street, Douglas,Isle of Man and the Company is managed from the United Arab Emirates ("UAE"). The principal activities of the Company and its subsidiaries (together referredto as "the Group") are: the upgrade and refurbishment of offshore jack up rigs,fabrication, assembly and new build construction for the offshore oil and gassector, including Floating, Production, Storage and Offloading ("FPSO") andother offshore and onshore structures, oilfield engineering services, includingthe upgrade and refurbishment of land rigs. The Company has either directly or indirectly the following subsidiaries: Name of the subsidiary Percentage of Percentage of Country of legal ownership beneficial ownership Incorporation % % Lamprell Energy Limited 100 100 Isle of ManLamprell Dubai LLC ("LD") 49* 100 UAELamprell Sharjah WLL ("LS") 49* 100 UAEMaritime Offshore Limited ("MOL") 100 100 Isle of ManMaritime Offshore Construction Limited ("MOCL") 100 100 Isle of ManInternational Inspection Services Limited (" 100 100 Isle of ManInspec")(acquired in 2006)Cleopatra Barges Limited ("CBL") 100 100 British Virgin IslandsJebel Ali Investments Limited ("JIL") ** 100 100 British Virgin(acquired in June 2007) IslandsAhbab FZCO ("Ahbab") ** (acquired in June 2007) 90+ 100 UAE * The balance of 51% in each case is registered in the name of a UAE National who has assigned all the economic benefits attached to his shareholding to the Group entity in lieu of the loan advanced by the Group entity to the UAE National towards contribution of his share of the capital. Further, LEL has the power to exercise control over the financial and operating policies of the entities incorporated in the UAE through management agreements and accordingly, these entities are consolidated as wholly owned subsidiaries in these consolidated financial information. ** During the year, LEL acquired 100% of the legal and beneficial ownership of JIL (which has 100% of the beneficial ownership of Ahbab) from LHL for a total purchase consideration of USD1,594,000 (Notes 7 and 13). + The balance 10% is held by an employee of LEL as a trustee. 2 Summary of significant accounting policies 2.1 Basis of preparation This condensed interim financial information for the six months ended 30 June2007 has been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim financial reporting". The interim condensed financialinformation should be read in conjunction with the annual financial statementsfor the year ended 31 December 2006. 2.2 Accounting policies The accounting policies adopted are consistent with those described in theannual financial statements for the year ended 31 December 2006. New accountingpolicies adopted are mentioned below in Notes 2.3 and 2.4. The preparation ofcondensed interim financial information requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgement inthe process of applying the Group's accounting policies. The areas involving ahigher degree of judgement or complexity, or areas where assumptions andestimates are significant, are disclosed in Note 3. The following new standards, amendments to standards and interpretations aremandatory for annual periods beginning on or after 1 May 2006: Standards - International Financial Reporting Standards ("IFRS") 7, Financial Instruments: Disclosures, and the complementary Amendment to IAS 1, Presentation of Financial information - Capital Disclosures (applicable from 1 January 2007). IFRS 7 introduces new disclosures relating to financial instruments. The Group will apply IFRS 7 in the annual financial statements for the year ended 31 December 2007. - IFRS 8, Operating Segments (applicable for annual periods beginning on or after 1 January 2009). IFRS 8 sets out requirements for disclosure of information about an entity's operating segments and also about the entity's products and services, the geographical areas in which it operates, and its major customers. Management is currently assessing the impact of IFRS 8 on the Group's operations. Interpretations - International Financial Reporting Interpretations Committee interpretation ("IFRIC") 8, Scope of IFRS 2. Effective for annual periods beginning on or after 1 May 2006. This interpretation is not expected to have any impact on the Group's accounts. - IFRIC 9, Reassessment of Embedded Derivatives. Effective for annual periods beginning on or after 1 June 2006. IFRIC 9 is not expected to have any material impact to the Group's operations. - IFRIC 10, Interim Financial Reporting and Impairment. Effective for annual periods beginning on or after 1 November 2006. IFRIC 10 is presently not applicable to the Group's operations. - IFRIC 12, Service Concession Arrangements. IFRIC 12 is not relevant to the Group's operations. - IFRIC 13, Customer Loyalty Programmes. Effective for annual periods beginning on or after 1 July 2008. IFRIC 13 is not applicable to the Group's operations - IFRIC 14, IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction. Effective for periods beginning on or after 1 January 2008. . Management is currently assessing the impact of IFRIC 14 on the Group's operations. 2.3 Derivative financial instruments The Group uses derivative financial instruments in the form of foreign currencycontracts to hedge its risks associated with foreign currency fluctuations.Derivatives embedded in other financial instruments or other host contracts(e.g. sales contracts) are treated as separate derivatives when their risks andcharacteristics are not closely related to those of host contracts. Suchderivative financial instruments are stated at fair value with movements in fairvalue recorded in the income statement. The fair value of the resulting (embedded) forward exchange contracts iscalculated by reference to current forward exchange rates for contracts withsimilar maturity profiles. 2.4 Intangible assets Leasehold rights Intangible assets are carried at cost (being the fair value on the date ofacquisition where intangibles are acquired in a business combination) lessaccumulated amortisation and impairment, if any. Amortisation is calculatedusing the straight-line method to allocate the cost of the leasehold right overits estimated useful life. 3 Critical accounting estimates and judgments Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. 3.1 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year are as follows: Revenue recognition The Group uses the percentage-of-completion method in accounting for itscontract revenue. Use of the percentage-of-completion method requires the Groupto estimate the stage of completion of the contract to date as a proportion ofthe total contract work to be performed in accordance with the Group'saccounting policy. As a result, the Group is required to estimate the totalcost to completion of all outstanding projects at each period end. Theapplication of a 10% sensitivity to management estimates of the total costs tocompletion of all outstanding projects at the year end results in the revenueand profit increasing by USD 6.4 million if the total costs to completion aredecreased by 10% and the revenue and profit decreasing by USD 3.7 million if thetotal costs to completion are increased by 10%. 4 Earnings per share The calculations of earnings per share are based on the following profit andnumbers of shares: Six months ended 30 June 2007 2006 USD'000 USD'000 Profit for the period 36,205 27,335 ----------------------- -----------------------Weighted average number of shares Basic 200,000,000 200,000,000 Diluted 200,025,585 200,000,000 ----------------------- -----------------------Earnings per share:Basic 18.10c 13.67c =========== ===========Diluted 18.10c 13.67c =========== =========== The Group did not exist in its current structure at 30 June 2006. In line withthe Group's policy of the uniting of interests method of accounting for theacquisition of entities under common control, the 200,000,000 shares issued on25 September 2006 have been treated as if they have always been in issue andhence included in the earning per share computation for the six months ended 30June 2006. 5 Operating profit Operating profit is stated after charging: Six months ended 30 June 2007 2006 USD'000 USD'000 Depreciation 3,550 2,167 ====== ======Operating lease rentals - land and buildings 4,127 2,105 ====== ======Provision for impairment of trade receivables 80 14 ====== ======Release of provision for impairment of trade receivables 60 9 ====== ====== 6 Property, plant and equipment USD'000 Six months ended 30 June 2006 Opening net book amount at 1 January 2006 21,673Additions 9,801Net book value of disposals (18)Depreciation (2,167) ------------Closing net book amount at 30 June 2006 29,289 ====== Six months ended 30 June 2007 Opening net book amount at 1 January 2007 40,595Acquisition of JIL (Note 7) 52Additions 5,933Net book value of disposals (13)Depreciation (3,550) ------------Closing net book amount at 30 June 2007 43,017 ====== 7 Business combinations On 25 June 2007, the Group acquired 100% of the share capital of JIL for apurchase consideration of USD 1,594,000 from LHL. JIL is a holding company andbeneficially owns 100% of Ahbab which in turn has a favourable lease of land inJebel Ali Free Zone up to November 2014. This lease is renewable for a furtherperiod of 10 years. USD'000 Purchase consideration 1,594 Fair value of net identifiable assets acquired (see below) 1,594 ----------Goodwill / Negative goodwill - ===== The details of net assets acquired are as follows: Acquiree's carrying Fair value value USD'000 USD'000 Value of identifiable assets and liabilities acquired:Property, plant and equipment 52 52Intangible asset * - 1,534Deposits and prepaid expenses 21 21Cash and bank balance (margin deposit) 8 8Trade and other payables (21) (21) ---------- ----------Net identifiable assets acquired 60 1,594 ===== ===== * Intangible asset represents a favourable leasehold right acquired, the valueof which has been determined by calculating the present value of the expectedfuture economic benefits to arise from the favourable lease term (17 years). If the acquisition had occurred on 1 January 2007, consolidated revenue andconsolidated profit for the half year ended 30 June 2007 would have been USD246,079,726 and USD 36,169,216 respectively. USD'000Outflow of cash to acquire business, net of cash acquired: - cash consideration 1,594- cash and bank balance in subsidiary acquired (8) ----------Cash outflow on acquisition 1,586 ===== 8 Cash and bank balances At 30 June At 31 December 2007 2006 USD'000 USD'000 Cash at bank and on hand 16,478 8,705Short term and margin deposits 81,935 11,072 ------------- -------------Cash and bank balances 98,413 19,777Less: Margin deposits (3,794) (3,367) ------------- ------------Cash and cash equivalents 94,619 16,410 ====== ====== At 30 June 2007, the cash at bank and short term deposits were held with five(31 December 2006: three) international banks and local branches ofinternational banks operating in the UAE. The effective average interest rate onshort term deposits was 4.76% (31 December 2006: 4.68%) per annum. Thesedeposits have an average maturity of seven days to one month. The margindeposits with the bank are held under lien against guarantees issued (Note 16). 9 Share capital Issued and fully paid ordinary shares Equity share capital Number USD'000 At 1 January 2006 - -At 25 September 2006 - issued in connection with the 200,000,000+ 18,654acquisition of LEL and treated as if always in issueAt 1 January 2006 - restated for the effect of the uniting of 200,000,000 18,654interests method of accounting * ---------------------- ------------At 31 December 2006 and 30 June 2007 200,000,000 18,654 =========== ====== + Includes 2 shares issued on incorporation of the Company. In line with the Group's policy of the uniting of interests method of accountingfor the acquisition of entities under common control, the shares issued on 25September 2006, in connection with the acquisition of LEL, have been treated asif they have always been in issue. The difference between the nominal value ofthe shares Issued by the Company (USD 18,654,000) and the nominal value of the LEL sharesacquired (USD 82,000) has been taken to the Merger reserve (Note 11). 10 Legal reserve The Legal reserve of USD 23,088 (31 December 2006: USD 22,088) relates tosubsidiaries incorporated as limited liability companies in the UAE. Inaccordance with the respective subsidiary's Articles of Association and the UAEFederal Law No. (8) of 1984, as amended, 10% of the profit for the year of suchcompanies is transferred to a Legal reserve. Such transfers are required to bemade until the reserve is equal to, at least, 50% of the Share capital of suchcompanies. 11 Merger reserve At 30 June At 31 December 2007 2006 USD'000 USD'000 Nominal value of shares of the Company 18,654 18,654Share capital of LEL (82) (82) ------------ ------------Merger reserve on acquisition of LEL 18,572 18,572 ------------ ------------Purchase consideration relating to acquisition of Inspec 4,000 4,000Share capital of Inspec (150) (150) ------------ ------------Merger reserve on acquisition of Inspec 3,850 3,850 ------------ ------------Total 22,422 22,422 ====== ====== On 11 September 2006, LEL acquired 100% of the legal and beneficial ownership ofInspec from LHL for a consideration of USD 4 million. This acquisition isaccounted for using the uniting of interests method and the difference betweenthe purchase consideration (USD 4 million) and Share capital of Inspec (USD150,000) is taken to the Merger reserve. During 2006, a payment of USD 1 millionwas made against the purchase consideration and the balance of USD 3 million waspaid in 2007. On 25 September 2006, the Company entered into a share for share exchangeagreement with LEL and LHL under which it acquired 100% of the 49,003 shares ofLEL from LHL in consideration for the issue/transfer to LHL of 200,000,000shares of the Company. This acquisition has been accounted for using theuniting of interests method and the difference between the nominal value ofshares issued by the Company (USD 18,654,000) and the nominal value of LELshares acquired (USD 82,000) is taken to the Merger reserve (Note 9). 12 Provision for employees' end of service benefits At 30 June At 30 June 2007 2006 USD'000 USD'000 At beginning of the period 8,039 5,868Charge for the period 1,275 1,060Payments during the period (209) (299) ------------ ------------At end of the period 9,105 6,629 ====== ====== In accordance with the provisions of IAS 19, management has carried out anexercise to assess the present value of its obligations at 30 June 2007 and 31December 2006, using the projected unit credit method, in respect of employees'end of service benefits payable under the UAE Labour Law. Under this method, anassessment has been made of an employee's expected service life with the Groupand the expected basic salary at the date of leaving the service. Management hasassumed average increment/promotion costs of 3% to 4% (2006: 3% to 4%). Theexpected liability at the date of leaving the service has been discounted to itsnet present value using a discount rate of 6.11% (2006: 6.11%). 13 Related party balances and transactions Related parties comprise the Group's associated companies and key managementpersonnel. During the year, the Group entered into the following significanttransactions with related parties at prices and on terms agreed between therelated parties: Six months ended 30 June 2007 2006 USD'000 USD'000 Payments to suppliers made on behalf of Lamprell Energy Oil and - 233Gas Limited ====== =====Key management compensation 11,619 2,279 ====== =====Sponsorship fees paid to legal shareholders of Lamprell Dubai LLC, 90 64 Lamprell Sharjah WLL and Inspec ===== =====Payments for use of a vessel - 40 ===== =====Interest charged on loans to key management personnel - 12 ===== =====Purchase consideration for acquisition of JIL (Note 7) 1,594 - ===== ===== Key management compensation comprises: Six months ended 30 June 2007 2006 USD'000 USD'000 Salaries and other short term employee benefits 2,868 2,178Share based payments - value of service provided 8,662 -Post-employment benefits 89 101 ------------ ------------ 11,619 2,279 ====== ====== Loans to directors and key management personnel: Beginning of the period - 239Loans advanced during the period - 210Loan repayments received - (56)Interest charged - 12Interest received - (12) ------------ ------------End of the period - 393 ====== ====== At 30 June At 31 December 2007 2006 USD'000 USD'000 Due to a related partyLamprell Holdings Limited 98 8,098 ====== ====== 14 Dividends During the period the Group has paid and accounted for a dividend amounting toUSD 7.6 million (3.80 cents per share) to its shareholders relating to the yearended 31 December 2006. During 2006 (on 30 June 2006 and 20 September 2006), the Board of Directors ofLEL approved a total dividend amounting to USD 30.8 million of which USD 5million was unpaid at 31 December 2006. This dividend of USD 5 million was paidin 2007. In addition, on 30 June 2006, the Board of Directors of Inspecapproved a dividend of USD 0.4 million. These dividends were paid to the formershareholders of LEL and Inspec. At 30 June At 31 December 2007 2006 USD'000 USD'000 15 Commitments (a) Operating lease commitmentsThe future minimum lease payments payable under operating leasesare as follows: Not later than one year 2,130 1,620Later than one year but not later than five years 8,266 8,395Later than five years 53,373 57,044 ------------ ------------ 63,769 67,059 ====== ====== (b) Other commitments Letters of credit for purchase of materials and operating 21,714 21,913equipment ====== ======Capital commitments for purchase of operating equipment 2,495 1,664 ====== ======Capital commitments for construction of a facility 13,654 8,173 ====== ====== 16 Bank guarantees Performance/bid bonds 60,152 24,138Advance payment, labour visa and payment guarantees 3,967 3,364 ------------ ------------ 64,119 27,502 ====== ====== The various bank guarantees, as above, were issued by the Group's bankers in theordinary course of business. In the opinion of the Management the above bankguarantees are unlikely to result in any liability to the Group. 17 Fair value At 30 June 2007 and 31 December 2006, the fair values of the financial assetsand liabilities approximate their net book amounts as reflected in the financialinformation. 18 Events after balance sheet date The Board of Directors of the Company have proposed a dividend of USD 10 million(5 cents per share) at a meeting held on 25 September 2007. In accordance withthe accounting policy under IFRS set out at Note 2.15 of the annual financialstatements for the year ended 31 December 2006 this dividend has not beenaccrued at 30 June 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
LAM.L