12th Apr 2007 07:01
Lamprell Plc12 April 2007 12 April 2007 LAMPRELL PLC ("Lamprell" or the "Company") 2006 PRELIMINARY RESULTS Lamprell (symbol: LAM), the leading provider of specialist engineering servicesto the international oil & gas industry based in the UAE, is pleased to announceits maiden Preliminary Results for the year ended 31 December 2006. This followsthe Company's successful flotation on AIM in October 2006. 2006 HIGHLIGHTS • 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 sharebased payments of US$ 15.6 million, and US$ 7.5 million incurred for variouslegal and professional charges incurred in connection with the admission ofLamprell to AIM. CURRENT TRADING: Lamprell started the year with the highest level of confirmed orders in thecompany's history and since then has won several lucrative and high profilecontracts: 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. There is also an option for three more rigs o Contract for the rehabilitation of the Hurricane Katrina damaged Nabors 660 jackup rig (formerly the Ocean Warwick) which is now expected to exceed US$65 million in value when completed o Refurbishment of 4 Global Sante Fe jackups amounting to US$ 36.4 million o Fabrication of an FPSO vessel topside module for a new client, Aker FP o 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 allkey activities in what has been a very buoyant market for our services. This hasenabled 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 believethis provides Lamprell with an important foundation for future growth. We havealso broadened our client base during the year - a trend which has continuedinto 2007 - improving our earnings visibility. We have entered 2007 with the highest level of confirmed orders in the Company'shistory and we are well positioned to take advantage of very positive marketdynamics that we envisage will enable us to continue delivering growth through2007 and beyond." ANALYST MEETING There will be an analyst meeting at 9.30am on 12th April 2007 at Citigate DeweRogerson, 3 London Wall Buildings, London, EC2M 5SY. Enquiries: Lamprell plc (+44 20 7638 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 20 7638 9571)Media enquiries: Martin Jackson/George CazenoveAnalyst enquiries: Nina Soon NOTES TO EDITORs • Lamprell, based in the UAE, has played a prominent role in the development of the oil & gas industry in the Arabian Gulf for over 30 years. • Lamprell's two primary facilities are in Port Khalid, in the Emirate of Sharjah, and in the Jebel Ali Free Zone, in the Emirate of Dubai, both of which are in the UAE. • The principal markets in which Lamprell operates, and the principal services it provides, are: - Upgrade and refurbishment of offshore jackup rigs; - New build construction for the offshore oil and gas sector, including Floating Production, Storage and Offloading ("FPSO") systems and other offshore and onshore structures; and - Oilfield engineering services, including the upgrade and refurbishment of land rigs. • Lamprell has grown strongly over the last four years, driven by buoyant conditions in the oil and gas industry. • Lamprell joined AIM, a market operated by London Stock Exchange plc, on 16 October 2006. CHAIRMAN and CHIEF EXECUTIVE OFFICER'S STATEMENT It is with a considerable degree of pride that we see Lamprell's wellestablished and widely recognized record of quality, growth and profitabilitybeing maintained as we made the transition into a publicly listed company andour results for the year 2006 exceeded all of our expectations. Throughout 2006the Company has made significant progress operationally, through the acquisitionof new equipment and the strengthening of our management capabilities and workforce. Throughout the period we have continued to expand our client base andconstruction activities, as demonstrated by the award of the two new buildjackup liftboats for Seajacks. All of this has been achieved whilst satisfyingthe needs of our existing clients and maintaining our outstanding safety record. Market overview During the past year we have seen an unparalleled period of activity in the oiland gas industry worldwide but particularly in the Middle Eastern market. Inthis region drilling activity, both onshore and offshore, is at an all time highand 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 gasfield developments taking place in different parts of the world. Lamprell hasbeen particularly well placed to take full advantage of the increase in rigrefurbishment, FPSO projects and offshore construction activity. This trend of high levels of drilling and construction activity has continuedinto 2007with an even greater level of activity taking place in the regionaldrilling segment. This supports our belief that we will see further growth anddevelopment in one of our core business activities of rig refurbishment andupgrade throughout 2007 and 2008. We are also witnessing a significant increase in the planned number of FPSOfield developments through 2007 and beyond, with an estimated US$ 6 billionworth of worldwide development expenditure budgeted each year up to 2010. Thisagain provides us with a high level of confidence that our new build processmodule fabrication facility in Jebel Ali will see significant additional growth. We have entered 2007 with the highest level of confirmed orders in the Company'shistory, with projects extending into 2009. This provides us with a securefoundation to expand the Company further and to develop significant long-termvisibility. Future development There is currently a well recognized shortage of marine construction yard spaceworldwide and Lamprell is moving quickly to develop its new 330,000 m2 facilityat the Hamriyah Free Zone in the United Arab Emirates. The yard constructionremains on plan and will greatly increase Lamprell's quay side facilities andenable us to handle more jackup rig refurbishment projects as well as furthernew build marine projects. This development will enable us to extend further our client base, particulartargeting to those companies who are entering the Middle Eastern oil and gasmarket for the first time. We continue to retain a clear focus on our core business competencies inoffshore jackup and land rig refurbishment, new build FPSO modules and offshorestructures. Our primary focus will be in maintaining our strong regionalposition in these markets. There are also areas of related opportunity. Forexample, we have now entered into contracts, valued at US$ 224 million, withSeajacks for the construction of two new build jackup lift boats with additionaloptions for three other similar units to follow. Lamprell continues to overcome the difficulties of acquiring and maintainingcore labour skills in a buoyant and highly specialized market. We have nowestablished a training school in India to develop all of the key artisan skillsnecessary to support our needs for the coming years, and we are already seeingthe benefits of training our own committed workforce. We believe the oil and gas industry is currently in a period of unprecedentedlong term growth and development with a sustainable high oil price and withdemand for services far outstripping supply. Located in the Middle East withextensive modern facilities, a dedicated workforce of over three thousand and astrong and well respected reputation, we feel that Lamprell is well placed tocapitalize on the many opportunities that we see for the future. Acknowledgements I would like to take this opportunity to acknowledge the contribution of StevenLamprell, the original founding owner of Lamprell, in taking the Company fromthe small family business created over 30 years ago, to the successful publiclyquoted Company we have today. Mr. Lamprell still retains 34% of the shares in Lamprell, holds the title ofPresident and continues to provide the Company with ongoing local support andassistance in dealings with senior local dignitaries in the United ArabEmirates. This continued association is, and will continue to be, a valuableasset for the Company. Management structure Our strong management team has been further enhanced with the arrival of ScottDoak, the former Head of Finance at Reuters for Middle East and Africa, whotakes over from David Moran as Chief Financial Officer. David will now focus onhis role as Chief Operating Officer. Chris Hand has been promoted to VicePresident Commercial. Both of these positions provide us with added managerialstrength to support the progressive long term growth and development of ourCompany. We would like to welcome Scott and Chris to the management team andwould also like to thank David Moran for standing in as Chief Financial Officerin the interim period. Dividend For the year ended 31 December 2006, the Board of Directors of the Grouprecommends a final dividend of 3.80 cents per ordinary share with a Sterlingequivalent of 1.93 pence per ordinary share which, if approved, will be paid on18 June 2007 to eligible shareholders on the register at 11 May 2007. Thisproposed final dividend is approximately half of the level that the Directorswould have expected to recommend had the Group been listed for the whole of thehalf year to 31 December 2006, having taken account of the intention to pay twothirds of the annual dividend as a final dividend. Conclusion This has been an exceptional year for Lamprell and these excellent results havebeen achieved during a period of significant corporate development. In the year ahead, we believe that Lamprell will see significant growth in eachof its core activities of jackup rig refurbishment, land rig refurbishment,marine and new build FPSO process module construction and related constructionactivities. On behalf of the Board of Directors and from myself personally, I would like tothank everyone in the Lamprell team for the tremendous efforts that have beenmade throughout the past year. I am confident that we will continue to deliverthe highest standard of service to our customers, win new business and rewardour shareholders for their support. Together with the Lamprell management team Ilook forward to another successful year ahead. Peter WhitbreadChairman and Chief Executive Officer OPERATING REVIEW Lamprell enjoyed a very successful year in 2006, with each operating facilityenjoying substantial revenue growth. This growth reflects a buoyant market andthe successful implementation of our business plan for the year. We furtherbelieve that through maintaining our core business values and continuing acollaborative approach to projects with customers focused on quality, safety andtimely delivery, we will carry forward the success of the past year into thecoming years. Upgrade and refurbishment of offshore jackup rigs During 2006 we successfully refurbished 26 offshore jackup rigs and onesemi-submersible drilling rig. This compares to 25 jackup rigs refurbished in2005. The scope and value of projects executed in 2006 increased by more than30% compared to those executed in 2005. Projects were carried out for 11 different international clients, demonstratingthe depth of our market and a diverse client base. The specific work scopes carried out on jackup upgrade and refurbishmentprojects varied greatly from project to project, dependant on the rig's age,condition and the requirements of the rig owner. Typical upgrade andrefurbishment 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, weoffered smaller scale services to our customers. These projects ranged in scopefrom the supply of materials and equipment, to the execution of repair andupgrade works on rigs carried out whilst the rigs remain operational offshore.Whilst not as significant in terms of turnover, these minor projects representan important part of the service we offered our clients, who continue to rely onus 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 Alifacility. These projects were carried out for existing clients including SBM,Saipem and Clough Projects International Limited ("Clough") as well as newclients 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 valueachieved during 2005. This growth reflects the ongoing improvements in theoperating capacity of the facility as well as a successful marketing campaignthat has broadened our client base and seen awards of larger and moreprestigious project. FPSO process modules construction Throughout 2006 there were a number of process modules under construction at ourJebel Ali facility. These were constructed for several clients, namely Saipem,Aker FP and Grenland Framnaes. This represented a significant increase inactivity when compared to 2005 and was indicative of the increasing demand forFPSO developments worldwide. Demand for FPSOs continues to be strong and thegrowth in activity we experienced in 2006 has continued with further awards fromSBM and Saipem in early 2007. We expect this trend to continue into 2008 andbeyond and we will therefore continue to allocate a significant proportion ofour 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 processmodules, the Company has now successfully completed construction of a number oftopside process platforms. Three platforms were successfully completed in early2006 for Clough, following which British Gas awarded a project to deliver threetopside platforms for the Tapti development for offshore India. This projectrepresented a fast track development which has been successfully delivered tothe client on schedule, in the first quarter of 2007. This is an area ofactivity that the Company intends to develop further, targeting the specificregional markets of the Arabian Gulf and India, where a number of attractiveprojects are under development. Process barges Throughout 2006 work has continued on three Flash Gas Compression barges for SBMfor the Kashagan project, with substantial completion having been achieved atthe end of 2006. On completion this project will have been the largestundertaken by the Company to date with a value in excess of US$ 62 million. TheKashagan development is a large scale project, with more than twenty bargesunder construction in various parts of the world. There are a number of phasesto the development and with the experience gained in the successful execution ofthe barges in phase one, we expect to bid for participation in later phases ofthe development. Oilfield Engineering services Turnover in our Oilfield Engineering facility in 2006 has increased byapproximately one third on 2005 figures. This increase reflects an increasedawareness of our capabilities amongst regional contractors. 2006 alsorepresented the first full year of operation for the facility, which was fullyopened 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 2007and we are looking at further enhancing our service offering to take advantageof this continued demand through an expansion of our equipment servicingcapability. New land camps In addition to the complete rig refurbishment projects we also fabricated 14complete land camps, of which 12 were delivered in 2006. Each land camp wasconstructed to very high standards and is suitable for utilization in a harshdesert environment. Operating facilities As part of our development strategy, we continued a program of capitalinvestment aimed at increasing the operating capacity and efficiency of ourfacilities. This included investment in buildings, equipment and generalinfrastructure. Major investments have included the purchase of the "Hamriyah Pride", a bottomreaction semi-submersible barge. This will enhance our rig refurbishmentoffering by enabling us effectively to "dry dock" jackup rigs, as well asproviding us with the capacity to transport new build structures to clients.Major equipment procured in 2006 included eight cranes, multiple forklifttrucks, generators, and automated welding equipment, all of which will enable usto improve our operating efficiency and make us less reliant on hired equipment. Our investment in infrastructure in 2006 also included the extension of ourtemporary Hamriyah facilities from 20,000m2 to 42,000m2. This included extendingthe construction and fabrication areas, as well as the completion of a newclient office block in the Jebel Ali facility. This capital investment program, particularly in operating equipment, willcontinue over the next three years. In addition a detailed design is currentlybeing finalised for our new 330,000m2 facility in the Hamriyah Free Zone in theUnited Arab Emirates, which is expected to cost approximately US$ 50 million.This development will commence in 2007. The company believes that the facilitywill be operational at the end of 2008. FINANCIAL REVIEW Trading performance 2006 (US$m) 2005 (US$m) ChangeRevenue 329.6 209.2 57.5%Gross profit 73.2 43.0 70.2%EBITDA * 61.2 33.0 85.2%EBITDA margin * 18.6% 15.8%Operating profit * 56.1 29.4 90.6%Operating margin * 17.0% 14.1%Net profit * 56.9 29.8 91.0%Net margin * 17.3% 14.2%Earnings per share * 28.47c 14.90c 91.1% * For the current year stated before reflecting exceptional charges for sharebased payments of US$ 15.6 million and US$ 7.5 million incurred mainly towardsvarious legal and professional charges in connection with the admission ofLamprell to AIM. 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 largelydriven by a significant increase in new build activity in the Jebel Alifacility, both in the number of projects and their value compared to 2005.Significant increases in revenue were also achieved from jackup rig upgrade andrefurbishment activities, managed from the Sharjah facility, and improvedoilfield services revenue from the refurbishment of land rigs. The Group revenuein 2006 includes US$ 4.8 million (2005: US$ 4.2 million) from InternationalInspection Services Limited ("Inspec"), acquired on 11 September 2006 for aconsideration of US$ 4 million. As Inspec was a business under common control,the 'uniting of interests' method was adopted for accounting for the businesscombination and the results of Inspec for the full year 2006 are included in theGroup's financial statements. The information for the prior year has beenrestated 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 increasein the revenue during the year. As a percentage of revenue, cost of sales hasdecreased from 79.4% in 2005 to 77.8% in 2006 and reflects the improved salespricing of projects, especially in the new build activities at the Jebel Alifacility, together with increased operational efficiencies. Gross profit margin increased from 20.6% to 22.2% in 2006. This improvement isattributable to improved average margins across all areas of activity, butparticularly in new build activities in the Jebel Ali facility on a number ofmajor projects undertaken during the year, including the Tapti process topsidesfor British Gas in India, the Kashagan flash gas compression barges built forSBM and the Vitoria FPSO process modules built for Saipem. Rig refurbishmentactivities carried out in the Sharjah and temporary Hamriyah facilitiescontinued to provide very positive margins along with a significant amount ofincreased work scopes through variation orders which further supported margingrowth. 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 andreflects the strong growth in revenue and increased gross margin. Theexceptional charges in the current year are for share based payments of US$ 15.6million to selected directors and employees and US$ 7.5 million incurred mainlytowards various legal and professional charges in connection with the admissionof Lamprell to AIM. The operating profit after these exceptional charges was US$33.0 million. The operating profit margin (before exceptional charges) increased from 14.1% in2005 to 17.0% in 2006 as a result of the benefit of operational gearing from thesignificant growth in revenue and gross margin but with a lower rate of growthin overheads. The net profit (before exceptional charges) attributable to the shareholders ofLamprell increased by 91.0% to US$ 56.9 million (2005: US$ 29.8 million), inline with operating profit. The net profit after these exceptional charges wasUS$ 33.8 million. EBITDA (before exceptional charges) increased to US$ 61.2 million (2005: US$33.0 million) reflecting an increase of 85.2% over the prior year. The increasein EBITDA is approximately in line with operating profit as there is no taxationon earnings and interest income is not significant. EBITDA margin (beforeexceptional charges) for the year has increased to 18.6% (2005: 15.8%). Interest income Interest income of US$ 0.9 million (2005: US$ 0.4 million) related mainly tobank interest earned on surplus funds deposited on a short term basis with theCompany's bankers. The increase reflects a higher level of funds on depositduring the year and an increase in the average deposit rates. Taxation The Company, which is incorporated in the Isle of Man, is not subject to incometax in the Isle of Man for the year ended 31 December 2006 as it has beenregistered as a tax exempt company. With effect from 6 April 2007 the tax exemptcompany will cease to exist in Isle of Man legislation and the Company will thenbe taxable at 0% in the Isle of Man. The Group is not currently subject toincome 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 foreseeablefuture. Earnings per share Adjusted fully diluted earnings per share for 2006 increased to 28.47 cents pershare (before exceptional charges) (2005: 14.90 cents) reflecting primarily thesignificantly improved profit of the Group for the year, an increase of 91.1% on2005. Actual fully diluted earnings per share for 2006 (after exceptionalcharges) 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$ 16.6million (2005: US$ 38.0 million). The net cash flow from operations was lowerthan the prior year mainly due to short term timing differences in collectionsfrom debtors and an increase in amounts due from customers on contracts, largelydue to variations and change orders agreed on certain large contracts that wereinvoiced and paid after the year end. The amounts due by customers on contractsand not invoiced as at the year end was US$ 36.9 million (2005: US$ 25.8million). 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 alsoreduced cash flow from operating activities. The rig kit has been purchased asthe Group intends shortly to enter the new build jackup drilling rigconstruction market. Investing activities for the year absorbed US$ 23.0 million (2005: US$ 7.1million) as a result of a significant increase in investment in property, plantand equipment amounting to US$ 24.0 million (2005: US$ 7.0 million). Thisincluded the purchase of a semi-submersible barge for US$ 7.4 million, which wasused on acquisition to transport a damaged jackup rig from the Gulf of Mexicofor a major refurbishment at the Group's temporary facility in Hamriyah. Inaddition US$ 2.7 million was realised during the year by the disposal of a smalljackup rig that had been held for resale. Net cash used in financing activities was US$ 7.8 million (2005: US$ 11.1million). This represents dividend payments made of US$ 26.3 million (2005: US$3.8 million) offset by a reduction in net amounts due from related parties ofUS$ 18.5 million. Capital expenditure Capital expenditure on property, plant and equipment during the year amounted toUS$ 24.0 million (2005: US$ 7.0 million). The predominant area of expenditurewas the investment in operating equipment amounting to US$ 18.9 million tosupport the growth in activities experienced during the year and to replace asignificant amount of hired equipment that was in use at the time, and alsoincluded the acquisition of a semi-submersible barge, as noted above. Furtherexpenditure on buildings and related infrastructure at Group facilities amountedto US$ 2.8 million. Shareholders' equity Shareholders' equity increased from US$ 75.7 million at 31 December 2005 to US$89.9 million at 31 December 2006. The movement mainly reflects the retainedprofits for the year of US$ 33.8 million net of dividends declared of US$ 31.3million. The movement also reflects a credit for the accounting of share basedpayments of US$ 15.6 million (2005: Nil) made to certain directors and employeesof the Group and charged to General and Administrative expenses. Shareholders' equity includes a Merger reserve of US$ 22.4 million as a resultof Lamprell Energy Limited ("LEL") acquiring 100% of the legal and beneficialownership of Inspec from Lamprell Holdings Limited ("LHL") for a considerationof US$ 4 million on 11 September 2006. This acquisition was accounted for usingthe 'uniting of interests' method and the difference between the purchaseconsideration (US$ 4 million) and share capital of Inspec (US$ 0.15 million) wastaken to the Merger reserve. In addition, on 25 September 2006, Lamprell enteredinto a share for share exchange agreement with LEL and LHL under which itacquired 100% of the 49,003 shares of LEL from LHL in consideration for theissue and transfer to LHL of 200,000,000 shares of the Company. Thisacquisition was also accounted for using the uniting of interests method and thedifference between the nominal value of shares issued by the Company (USD 18.7million) and the nominal value of LEL shares acquired (US$ 0.082 million) wastaken to the Merger reserve. General Information The preliminary statement of results for the year ended 31 December 2006 doesnot constitute statutory accounts. Statutory accounts have not been delivered tothe Registrar of Companies in the Isle of Man. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 Consolidated income statement Year ended 31 December Note 2006 2005 USD'000 USD'000 Revenue 329,587 209,245 Cost of sales 5 (256,341) (166,212) --------- ---------Gross profit 73,246 43,033 Other operating income 767 368 ExpensesSelling and distribution 6 (988) (675)General and administrative - share based 7 (15,584) -paymentsGeneral and administrative - 8 (24,478) (13,300)Others --------- --------- Operating profit 32,963 29,426 Interest income 852 375Profit for the year 33,815 29,801 ========= ========= Earnings per share 11Basic 16.91c 14.90c ========= =========Diluted 16.91c 14.90c ========= ========= Consolidated balance sheet Year ended 31 December Note 2006 2005 USD'000 USD'000ASSETSNon-current assets Property, plant and equipment 13 40,595 21,673 -------------- --------------Current assets Inventories 14 4,531 3,432Trade and other receivables 15 113,508 60,252Due from related parties 16 - 18,403Cash and bank balances 17 19,777 32,344 -------------- -------------- 137,816 114,431Asset classified as held for sale - 1,932 -------------- -------------- 137,816 116,363 -------------- --------------Total assets 178,411 138,036 ============== ==============EQUITY AND LIABILITIESCapital and reservesShare capital 18 18,654 18,654Legal reserve 19 22 18Merger reserve 20 (22,422) (18,422)Retained earnings 93,616 75,472 -------------- -------------- 89,870 75,722 -------------- --------------Non-current liabilitiesProvision for employees' end of service benefits 21 8,039 5,868 -------------- --------------Current liabilitiesTrade and other payables 22 72,404 56,446Due to a related party 16 8,098 -------------- -------------- 80,502 56,446 -------------- --------------Total liabilities 88,541 62,314 -------------- --------------Total equity and liabilities 178,411 138,036 ============== ============== Consolidated 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 2005 18,20 18,654 14 (18,422) 49,489 49,735Profit for the year - - - 29,801 29,801Transfer to Legal reserve 19 - 4 - (4) -Dividends 10 - - - (3,814) (3,814) ------------ ---------- ---------- ---------- -----------At 31 December 2005 18,654 18 (18,422) 75,472 75,722Profit for the year - - - 33,815 33,815Share based payments - value of servicesprovided 7 - - - 15,584 15,584Transfer to Legal reserve 19 - 4 - (4) -Dividends 10 - - - (31,251) (31,251)Acquisition of Inspec 20 - - (4,000) - (4,000) ------------ ---------- ---------- ---------- -----------At 31 December 2006 18,654 22 (22,422) 93,616 89,870 ============ ========== ========== ========== =========== Consolidated cash flow statement As at 31 December Note 2006 2005 USD'000 USD'000Operating activities Profit for the year 33,815 29,801Adjustments for: Share based payments - value of services provided 7 15,584 - Depreciation 13 5,082 3,605Loss/(profit) on disposal of property, plant andequipment 6 (360)Profit on disposal of asset held for sale (773) -Provision for slow moving and obsolete inventories 14 396 169Charge for provision for impairment of trade receivables 15 65 6Provision for employees' end of service benefits 21 3,221 1,742 Interest income (852) (375) ------------ ----------- Operating cash flows before payment of employees' end ofservices benefits and changes in working capital 56,544 34,588 Payment of employees' end of service benefits 21 (1,050) (141) Changes in working capital:Inventories before movement in provision 14 (1,495) (1,083)Trade and other receivables before movement in provisionfor impairment of trade receivable 15 (53,321) (19,385)Trade and other payables 22 15,958 23,975 ------------ -----------Net cash generated from operating activities 16,636 37,954 ------------ ----------- Investing activitiesPayments for property, plant and equipment 13 (24,037) (6,990) Acquisition of Inspec 20 (1,000) -Proceeds from sale of property, plant and equipment 27 543Proceeds from disposal of asset held for sale 2,705 -Interest income 852 375Margin deposits 17 (1,523) (979) ------------ -----------Net cash used in investing activities (22,976) (7,051) ------------ ----------- Financing activities Due from / (to) related parties net of unpaid dividendand purchase consideration payable for acquisition of Inspec 16,20 18,501 (7,255) Dividends paid 10,16 (26,251) (3,814) ------------ -----------Net cash used in financing activities (7,750) (11,069) ------------ ----------- Net (decrease)/increase in cash and cash equivalents (14,090) 19,834 Cash and cash equivalents, beginning of the year 30,500 10,666 ------------ ----------- Cash and cash equivalents, end of the year 17 16,410 30,500 ============ =========== NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 11710C. 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 is accounted for using the unitingof interests method (Note 18). The Company was admitted to the AlternativeInvestment Market ("AIM") of the London Stock Exchange with effect from 16October 2006. The address of the registered office of the Company is 15-19Athol Street, Douglas, Isle of Man and the Company is managed from the UnitedArab 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 legal beneficial Country of ownership 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 Man("Inspec")** (acquired in 2006)Cleopatra Barges Limited ("CBL") 100 100 British Virgin Islands * The balance of 51% in each case is registered in the name of a UAENational who has assigned all the economic benefits attached to his shareholdingto the Group entity in lieu of the loan advanced by the Group entity to the UAENational towards contribution of his share of the capital. Further, LEL has thepower to exercise control over the financial and operating policies of theentities incorporated in the UAE through management agreements and accordingly,these entities are consolidated as wholly owned subsidiaries in theseconsolidated financial statements. ** During the year, LEL acquired 100% of the legal and beneficial ownership ofInspec from LHL. As the transaction involves the acquisition of an entity undercommon control, it is accounted for using the uniting of interests method (Note20). 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of theseconsolidated financial statements are set out below. These policies have beenconsistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared inaccordance with International Financial Reporting Standards ("IFRS"). Thefinancial 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 useof certain critical accounting estimates. It also requires management toexercise its judgment in the process of applying the Group's accountingpolicies. The areas involving a higher degree of judgment or complexity, orareas where assumptions and estimates are significant to the consolidatedfinancial statements are disclosed in Note 4. a) Amendments to published standards effective in 2006 International Accounting Standard ("IAS") 19 (Amendment), Employee Benefits, ismandatory for the Group's accounting periods beginning on or after 1 January2006. It introduces the option of an alternative recognition approach foractuarial gains and losses. As the Group does not intend to change theaccounting policy adopted for recognition of actuarial gains and losses,adoption of this amendment does not have a material impact on the Group'sconsolidated financial statements. b) Interpretations to published standards early adopted International Financial Reporting Interpretations Committee interpretation ("IFRIC") 11, 'IFRS 2 - Group and treasury share transactions' (effective from 1March 2007). This interpretation deals with the accounting for share basedpayments given by the parent company to employees of a subsidiary or any otherentity in the same group. c) Standards, amendments and interpretations effective in 2006 but not relevant to the Group's operations The following standards, amendments and interpretations are mandatory foraccounting periods beginning on or after 1 January 2006 but are not relevant tothe Group's operations: IAS 21 (Amendment), Net Investment in a Foreign Operation; IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast IntragroupTransactions; IAS 39 (Amendment), The Fair Value Option; IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts; IFRS 1 (Amendment), First-time Adoption of International Financial ReportingStandards and IFRS 6 (Amendment), Exploration for and Evaluation of MineralResources; IFRS 6, Exploration for and Evaluation of Mineral Resources; IFRIC 4, Determining whether an Arrangement contains a Lease; IFRIC 5, Rights to Interests arising from Decommissioning, Restoration andEnvironmental Rehabilitation Funds; and IFRIC 6, Liabilities arising from Participating in a Specific Market - WasteElectrical and Electronic Equipment. d) Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards havebeen published that are mandatory for the Group's accounting periods beginningon or after 1 May 2006 or later periods but which the Group has not earlyadopted: Standards IFRS 7, Financial Instruments: Disclosures, and the complementary Amendment toIAS 1, Presentation of Financial Statements - Capital Disclosures. IFRS 7introduces new disclosures relating to financial instruments. The Group willapply IFRS 7 from 1 January 2007. IFRS 8, Operating Segments (applicable for annual periods beginning on or after1 January 2009). IFRS 8 sets out requirements for disclosure of informationabout an entity's operating segments and also about the entity's products andservices, the geographical areas in which it operates, and its major customers.Management is currently assessing the impact of IFRS 8 on the Group'soperations. Interpretations IFRIC 7, Applying the Restatement Approach under IAS 29 Financial Reporting inHyperinflationary Economies. IFRIC 7 is not relevant to the Group's operations. IFRIC 8, Scope of IFRS 2. Effective for annual periods beginning on or after 1May 2006. The Group will apply IFRIC 8 from 1 January 2007, but it is notexpected to have any impact on the Group's accounts. IFRIC 9, Reassessment of Embedded Derivatives. IFRIC 9 is not relevant to theGroup's operations. IFRIC 10, Interim Financial Reporting and Impairment. Effective for annualperiods beginning on or after 1 November 2006. The Group will apply IFRIC 10from 1 January 2007, but it is not expected to have any impact on the Group'saccounts. IFRIC 12, Service concession arrangements. IFRIC 12 is not relevant to theGroup's operations. 2.2 Revenue recognition Contract revenue is recognised under the percentage of completion method. Whenthe outcome of the contract can be reliably estimated, revenue is recognised byreference to the proportion that accumulated costs up to the year end bear tothe estimated total costs of the contract. When the contract is at an earlystage and its outcome cannot be reliably estimated, revenue is recognised to theextent of costs incurred up to the year end which are considered recoverable. Revenue related to variation orders is recognised when it is probable that thecustomer will approve the variation and the amount of revenue arising from thevariation, and the amount of revenue can be reliably measured. A claim is recognised as contract revenue when settled or when negotiations havereached an advanced stage such that it is probable that the customer will acceptthe claim and the amount that it is probable will be accepted by the customercan be measured reliably. Losses on contracts are assessed on an individual contract basis and provisionis made for the full amount of the anticipated losses, including any lossesrelating to future work on a contract, in the period in which the loss is firstforeseen. The aggregate of the costs incurred and the profit/loss recognised on eachcontract is compared against progress billings at the year end. Where the sumof the costs incurred and recognised profit or recognised loss exceeds theprogress billings, the balance is shown under trade and other receivables asamounts recoverable on contracts. Where the progress billings exceed the sum ofcosts incurred and recognised profit or recognised loss, the balance is shownunder trade and other payables as amounts due to customers on contracts. In determining contract costs incurred up to the year end, any costs relating tofuture activity on a contract are excluded and are presented as inventories,prepayments or other assets depending on their nature. 2.3 Consolidation Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group, except for acquisitions involving entities undercommon control, which are accounted for using the uniting of interests method.The cost of an acquisition under the purchase method is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination under the purchase method aremeasured initially at their fair values at the acquisition date, irrespective ofthe extent of any minority interest. The excess of the cost of acquisition overthe fair value of the Group's share of the identifiable net assets acquired isrecorded as goodwill. If the cost of acquisition is less than the Group's shareof the fair value of the net assets of the subsidiary acquired, the differenceis recognised directly in the income statement. Business combinations involving entities under common control do not fall withinthe scope of IFRS 3. Consequently, the Directors have a responsibility todetermine a suitable accounting policy. The Directors have decided to followthe uniting of interests method for accounting business combinations involvingentities under common control. Under the uniting of interests method there is no requirement to fair value theassets and liabilities of the acquired entities and hence no goodwill is createdas balances remain at book value. Consolidated financial statements include theprofit or loss and cash flows for the entire year (pre and post merger) as ifthe subsidiary had always been part of the Group. The aim is to show thecombination as if it had always been combined. Inter-company transactions, balances and unrealised gains on transactionsbetween Group companies are eliminated. Unrealised losses are also eliminatedbut considered an impairment indicator of the asset transferred. Accountingpolicies of subsidiaries have been changed or adjustments have been made to thefinancial statements of subsidiaries, where necessary, to ensure consistencywith the policies adopted by the Group. 2.4 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ('the functional currency'). The Group's activities are carriedout from the UAE and its currency the UAE Dirham, which is pegged to the USDollar, is the functional currency of all the entities in the Group. Theconsolidated financial statements are presented in US Dollars. (b) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. (c) Group companies The results and financial position of all the Group entities (none of which hasthe currency of a hyperinflationary economy) that have a functional currencydifferent from the presentation currency are translated into the presentationcurrency 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; and • all resulting exchange differences are recognised as a separate component of equity. 2.5 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 withany incidental expenses of acquisition. Depreciation is calculated on a straightline basis over the expected useful economic lives of the assets as follows: Years Buildings 10 - 20 Operating equipment 5 - 10 Fixtures and office equipment 3 - 5 Motor vehicles 5 The assets' residual values, if significant, and useful lives are reviewed andadjusted if appropriate, at each balance sheet date. Subsequent costs areincluded in the asset's carrying amount or recognised as a separate asset, asappropriate, only when it is probable that future economic benefits associatedwith the item will flow to the Group and the cost of the item can be measuredreliably. All other repairs and maintenance are charged to the income statementduring the financial period in which they are incurred. Capital work-in-progress is stated at cost. When commissioned, capitalwork-in-progress is transferred to property, plant and equipment and depreciatedin accordance with Group policies. Where the carrying amount of an asset is greater than its estimated recoverableamount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined byreference to their carrying amounts and are taken into account in determiningoperating profit. 2.6 Inventories Inventories comprise consumables which are stated at the lower of cost andestimated net realisable value. Cost is determined on the weighted averagebasis and comprises direct material costs. Net realisable value is the estimateof the replacement cost of consumables. 2.7 Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of receivables. Significantfinancial difficulties of the debtor, probability that the debtor will enterbankruptcy or financial reorganisation, and default or delinquency in paymentsare considered indicators that the trade receivable is impaired. The amount ofthe provision is the difference between the asset's carrying amount and thepresent value of estimated future cash flows, discounted at the effectiveinterest rate. 2.8 Trade payables Trade payables are recognised initially at fair value and subsequently measuredat amortised cost using the effective interest method. 2.9 Provisions Provisions are recognised when the Group has a present legal or constructiveobligation as a result of past events, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate of the amount of the obligation can be made. 2.10 Employee benefits (a) Provision for staff benefits A provision is made for the estimated liability for employees' entitlements toannual leave and leave passage as a result of services rendered by the employeesup to the balance sheet date. Provision is also made, using actuarialtechniques, for the end of service benefits due to employees in accordance withthe UAE Labour Law for their periods of service up to the balance sheet date.The provision relating to annual leave and leave passage is disclosed as acurrent liability and included in trade and other payables, while that relatingto end of service benefits is disclosed as a non-current liability. (b) Share based payments The Group and LHL operate a number of equity-settled, share-based compensationplans. The fair value of the employee services received in exchange for thegrant of the shares/options is recognised as an expense. The total amount to beexpensed over the vesting period is determined by reference to the fair value ofthe shares/options granted, excluding the impact of any non-market vestingconditions (for example, profitability and sales growth targets). Non-marketvesting conditions are included in assumptions about the number of shares/options that are expected to vest. At each balance sheet date, the entityrevises 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 theincome statement, with a corresponding adjustment to Retained earnings. 2.11 Leases Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are charged tothe income statement on a straight-line basis over the period of the lease. 2.12 Cash and cash equivalents Cash and cash equivalents comprise cash in hand, current accounts with banksless margin deposits, and other short-term highly liquid investments withoriginal maturity of less than three months. 2.13 Non-current assets held for sale Non-current assets are classified as assets held for sale and stated at thelower of carrying amount and fair value less costs to sell if their carryingamount is recovered principally through a sale transaction rather than through acontinuing use. 2.14 Dividend distribution Dividend distribution is recognised as a liability in the Group's consolidatedand parent company financial statements in the period in which the dividends areapproved by the shareholders. 2.15 Segment reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns that are different from those of segments operatingin other economic environments. Given the nature of the business and operations the Group has assessed that ithas one business and one geographical segment. 2.16 Taxation The Company, which is incorporated in the Isle of Man, is not subject to incometax in the Isle of Man for the period ended 31 December 2006 as it has beenregistered as a tax exempt company. With effect from 6 April 2007 the tax exemptcompany will cease to exist in Isle of Man legislation and the Company will thenbe taxable at 0% in the Isle of Man. The Group is not currently subject toincome tax in respect of its operations carried out in the UAE. 3 Financial risk management 3.1 Financial risk factors The Group's activities expose it to a variety of financial risks: foreignexchange risk, credit risk, liquidity risk, cash flow and interest rate risk. (a) Market risk - foreign exchange risk The Group does not have any significant foreign currency exposure, as themajority of the revenue and purchases are denominated in US Dollars or the UAEDirham which is pegged to the US Dollar. (b) Credit risk The Group's exposure to credit risk is detailed in Notes 15 and 17. The Grouphas a policy for dealing with customers with an appropriate credit history. TheGroup has policies that limit the amount of credit exposure to any financialinstitution. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and theavailability of funding through an adequate amount of committed creditfacilities. Due to the dynamic nature of the underlying business and throughprogress billings, the Group maintains adequate bank balances to fund itsoperations. (d) Cash flow and fair value interest rate risk The Group holds its surplus funds in short term bank deposits. The Group has noother interest bearing assets or borrowings and therefore the Group's income andoperating cash flows are substantially independent of changes in market interestrates. 4 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. 4.1 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 accounting policyset out in Note 2.2. 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 3.5 million if the total costs to completion aredecreased by 10% and the revenue and profit decreasing by USD 4.1 million if thetotal costs to completion are increased by 10%. 2006 2005 USD'000 USD'000 5 Cost of sales Materials and related costs 84,647 53,089Sub-contract 70,713 40,321Staff costs (Note 9) 45,378 32,079Sub-contract labour 27,175 21,718Equipment hire 8,867 7,237Repairs and maintenance 3,222 2,073Depreciation 3,089 2,011Yard rent 2,153 1,507Others 11,097 6,177 --------- --------- 256,341 166,212 ========= ========= 6 Selling and distribution expenses Advertisement and marketing 441 257Entertainment 123 135Travel 275 167Other expenses 149 116 -------- -------- 988 675 ======== ======== 7 General and administrative expenses - share based payments USD'000 Fair value of shares vested in October 2006 11,882Proportionate amount of share based charge for the year:- relating to shares gifted / granted 3,414- relating to deferred share award 288 -------- 15,584 ======== On 10 October 2006, LHL agreed with selected directors and management personnelof the Group to gift a total of 9,311,996 shares of Lamprell Plc. The fairvalue, computed based on the Company's share price on 11 October 2006 (195pence), amounted to USD 33.9 million. As part of the arrangements, 3,266,414shares with a fair value of USD 11.9 million vest immediately and the balance isheld under lock-in arrangements and vests over a period of two years. A chargeof USD 15.3 million has been recognised in the consolidated income statementwith a corresponding credit to the consolidated Retained earnings. Thisincludes an amount of charge recognised in the income statement of the Companywith a corresponding credit to Retained earnings of USD 2.7 million. On 16 October 2006, the Company also granted a director a deferred share awardthat gives him an entitlement to receive a certain number of shares equivalentto USD 3 million at no cost. The award, subject to satisfaction of a performancetarget, will normally vest in three equal tranches on the announcement of theCompany's final results for each of the financial years ending 31 December 2007,2008 and 2009. The performance target relates to the growth in the Company'searnings per share. The number of shares awarded under this scheme, computedbased on the Company's share price on 11 October 2006 (195 pence), is 828,689.Accordingly, the Group has recognised a charge of USD 0.3 million in theconsolidated income statement with the corresponding credit to Retainedearnings. An analysis of the number of shares gifted/granted, vested during the year andexpected to vest in future periods is provided below: Number of shares Shares gifted / granted in October 2006 9,311,996Shares under deferred share award 828,689Shares vested during the year (3,266,414) ----------Shares expected to vest in future periods 6,874,271 ========== The period over which the number of shares are expected to vest is as follows: Year Number of shares 2007 2,212,7212008 4,109,0912009 276,2302010 276,229 ---------- 6,874,271 ========== 8 General and administrative expenses - others 2006 2005 USD'000 USD'000 Staff costs (Note 9) 10,626 9,090Utilities and communication 1,370 1,113Other expenses 12,482 3,097 -------- -------- 24,478 13,300 ======== ======== Other expenses include USD 7.5 million incurred mainly towards various legal andprofessional charges in connection with the admission of Lamprell Plc to AIM. 9 Staff costs 2006 2005 USD'000 USD'000 Wages and salaries 36,239 28,870Employees' end of service benefits (Note 21) 3,221 1,742Share based payments - value of services provided (Note 7) 15,584 -Other benefits 16,544 10,557 ------- ------- 71,588 41,169 ======= ======= Staff costs are included in:Cost of sales (Note 5) 45,378 32,079General and administrative expenses - share based payments (Note 15,584 -7)General and administrative expenses - others (Note 8) 10,626 9,090 ------- ------- 71,588 41,169 ======= ======= Number of employees at 31 December 3,331 2,499 ======= ======= Directors' remuneration comprises: 2006 2005 USD'000 USD'000 Salaries and other short term employee benefits 1,741 1,825Director's fees 124 -Share based payments - value of services provided 12,402 -Post-employment benefits 369 12 -------- -------- 14,636 1,837 ======== ======== 10 Dividends During the year (on 30 June 2006 and 20 September 2006), the Board of Directorsof LEL approved a total dividend amounting to USD 30.8 million (2005: USD 3.8million) of which USD 5 million is unpaid at 31 December 2006 (Note 16). Inaddition, on 30 June 2006, the Board of Directors of Inspec approved a dividendof USD 0.4 million (2005: USD Nil). These dividends were payable to the formershareholders of LEL and Inspec. 11 Earnings per share 2006 2005 USD'000 USD'000 The calculations of earnings per share are based on thefollowing profit and numbers of shares: Profit for the year 33,815 29,801 ----------- -----------Weighted average number of shares of the Company Basic 200,000,000 200,000,000 Diluted 200,000,000 200,000,000 ----------- ----------- Earnings per share:Basic 16.91c 14.90c =========== ===========Diluted 16.91c 14.90c =========== =========== The Group did not exist in its current structure at 31 December 2005. Hence,the same weighted average number of shares has been used in both the yearspresented. 12 Operating profit 2006 2005 USD'000 USD'000Operating profit is stated after charging: Depreciation 5,082 3,605 ======= ======= Auditors' remuneration - audit services 252 115 ======= ======= Auditors' remuneration - non-audit services 2,270 - ======= ======= Operating lease rentals - land and buildings 4,773 3,412 ======= ======= Provision for impairment of trade receivables 73 31 ======= ======= Release of provision for impairment of trade receivables 9 25 ======= ======= 13 Property, plant and equipment Fixtures, Capital Operating and office Motor work-in- Buildings equipment equipment vehicles progress Total USD'000 USD'000 USD'000 USD'000 USD'000 USD'000CostAt 1 January 2005 10,996 14,886 3,229 1,082 122 30,315Additions 2,224 3,239 1,034 270 223 6,990Disposals - (1,160) - (105) - (1,265) ----------- ----------- ----------- ----------- ----------- -----------At 31 December 13,220 16,965 4,263 1,247 345 36,0402005Additions 2,825 18,914 1,325 739 234 24,037Disposals - (8) (2) (54) - (64) ----------- ----------- ----------- ----------- ----------- -----------At 31 December 16,045 35,871 5,586 1,932 579 60,0132006 =========== =========== =========== =========== =========== ===========DepreciationAt 1 January 2005 2,526 6,363 2,331 624 - 11,844Charge for the 749 2,011 650 195 - 3,605yearDisposals - (1,001) - (81) - (1,082) ----------- ----------- ----------- ----------- ----------- ----------At 31 December 3,275 7,373 2,981 738 - 14,3672005Charge for the 966 3,089 739 288 - 5,082yearDisposals - (8) (1) (22) - (31) ----------- ----------- ----------- ----------- ----------- ----------At 31 December 4,241 10,454 3,719 1,004 - 19,4182006 =========== =========== =========== =========== =========== ==========Net book amount31 December 2006 11,804 25,417 1,867 928 579 40,595 =========== =========== =========== =========== =========== ==========31 December 2005 9,945 9,592 1,282 509 345 21,673 =========== =========== =========== =========== =========== ========== Buildings have been constructed on lands leased, on a renewable basis, from therelevant Government authorities in the UAE. The remaining life of the leasesrange between three to ten years. The Group has renewed the land lease, upon itsexpiry, in the past and its present intention is to continue to use the land andrenew the leases for the foreseeable future. Depreciation charge of USD 3,089,000 (2005: USD 2,011,000) has been charged tocost of sales and USD 1,993,000 (2005: USD 1,594,000) to general andadministrative expenses. 14 Inventories 2006 2005 USD'000 USD'000 Consumables 5,535 4,040Less: Provision for slow moving and obsolete inventories (1,004) (608) --------- --------- 4,531 3,432 ========= ========= The cost of consumable inventories recognised as an expense and included incontract costs amounted to USD 10.4 million (2005: USD 7.7 million). 15 Trade and other receivables 2006 2005 USD'000 USD'000 Trade receivables 52,335 27,943Other receivables and prepayments 5,653 3,405Advance to suppliers 18,760 3,105 ---------- ---------- 76,748 34,453 Less: provision for impairment of trade receivable (97) (32) ---------- ---------- 76,651 34,421 Amounts due from customers on contracts 36,857 25,831 ---------- ---------- 13,508 60,252 ========== ========== Amounts due from customers on contracts comprise:Costs incurred to date 133,697 83,571 Attributable profits less losses recognised 34,119 21,363 ----------- ----------Less: Progress billings 167,816 104,934 (130,959) (79,103) ---------- ---------- 36,857 25,831 ========== ========== The Group had a significant concentration of credit risk at the balance sheetdate with nine (2005: nine) of its largest customer balances accounting for 79%(2005: 90%) of trade receivables at 31 December 2006. Management believes thatthis concentration of credit risk is mitigated as the Group has long-standingrelationships with these customers, and the majority of the outstanding balancesat the balance sheet date have been subsequently received. 16 Related party balances and transactions Related parties comprise the Company's shareholders, associated companies, otherentities in which the shareholders of the Group have the ability to control orexercise significant influence over their financial and operating decisions andkey management personnel. During the year, the Group entered into the followingsignificant transactions with related parties at prices and on terms agreedbetween the related parties: 2006 2005 USD'000 USD'000 Payments to suppliers made on behalf of Lamprell Energy Oil and GasLimited - 418 ====== ====== Key management compensation 19,814 4,898 ====== ======Sponsorship fees paid to legal shareholders of Lamprell Dubai LLCand Lamprell Sharjah WLL 80 74 ====== ====== Payments for use of a vessel 37 127 ====== ====== Interest charged on loans to key management personnel 7 24 ====== ====== Key management compensation comprises: Salaries and other short term employee benefits 3,980 4,492Share based payments - value of service provided 15,160 -Post-employment benefits 674 406 --------- --------- 19,814 4,898 ========= ========= Loans to directors and key management personnel Beginning of the year 239 117Loans advanced during the year 210 163Loan repayments received (449) (41)Interest charged 7 24Interest received (7) (24) --------- ---------End of the Year - 239 ========= ========= Loan to a director The loan advanced to a director has the following terms and conditions: Name of director Amount of loan Term Interest rate (USD'000)2005Peter Whitbread 1 Payable on demand 2.53% 2006 Peter Whitbread - - - Due from/due to related parties 2006 2005 USD'000 USD'000Due from related parties Lamprell Holdings Limited (payments to or on behalf of theprevious ultimate parent company) - 18,164Loans to directors and key management personnel - 239 -------- --------- - 18,403 ======== ========= Due to a related party Lamprell Holdings Limited (USD 5 million and USD 3 millionpayable principally in respect of dividend declared andacquisition of Inspec respectively, by LEL) 8,098 - ======= ====== LEL has provided a financial guarantee on behalf of Lamprell Energy Oil and GasLimited ("LEOGL"), a company under control of LHL, in respect of certain royaltypayment obligations of LEOGL. LHL has indemnified LEL for any payment it mayhave to make under its obligation to LEOGL and LHL has, in turn, beenindemnified to the extent of 50% of the liability, if any, by a director of LEL. In light of the above, and based on information available at 31 December 2006and 2005, the possibility of an outflow of resources embodying economic benefitsin relation to this guarantee is remote. 17 Cash and bank balances 2006 2005 USD'000 USD'000 Cash at bank and on land 8,705 4,633Short term and margin deposits 11,072 27,711 --------- --------- Cash and bank balances 19,777 32,344Less: margin deposits (3,367) (1,844) --------- --------- Cash and cash equivalents 16,410 30,500 ========= ========= At 31 December 2006, the cash at bank and short term deposits were held withthree (2005: three) local branches of international banks operating in the UAE.The effective interest rate on short term deposits was 4.68% (2005: 3.30%) perannum. These deposits have an average maturity of seven days to one month. Themargin deposits with the bank are held under lien against guarantees issued(Note 24). 18 Share capital Issued and fully paid ordinary shares Equity share capital Number USD'000 At 1 January 2005 - -At 25 September 2006 - issued in connection with the 200,000,000+ 18,654acquisition of LEL and treated as if always in issue (Note 20) At 1 January 2005 - restated for the effect of the uniting of 200,000,000 18,654interests method of accounting * ------------- ----------At 31 December 2005 and 2006 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 ofaccounting for the acquisition of entities under common control as set out inNote 2.3, the shares issued on 25 September 2006, in connection with theacquisition of LEL, have been treated as if they have always been in issue henceare shown on the Group balance sheet at 31 December 2005. The differencebetween the nominal value of the shares issued by the Company (USD 18,654,000)and the nominal value of the LEL shares acquired (USD 82,000) has been taken tothe Merger reserve (Note 20). 19 Legal reserve The Legal reserve of USD 22,088 (2005: USD 18,296) relates to subsidiariesincorporated as limited liability companies in the UAE. In accordance with therespective subsidiary's Articles of Association and the UAE Federal Law No. (8)of 1984, as amended, 10% of the profit for the year of such companies istransferred to a Legal reserve. Such transfers are required to be made until thereserve is equal to, at least, 50% of the Share capital of such companies. 20 Merger reserve 2006 2005 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 -Share capital of Inspec (150) (150) --------- ---------Merger reserve on acquisition of Inspec 3,850 (150) --------- ---------Total 22,422 18,422 ========= ========= 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 the year, a payment of USD 1million was made against the purchase consideration and the balance of USD 3million is unpaid at 31 December 2006 (Note 16). 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 18). 21 Provision for employees' end of service benefits 2006 2005 USD'000 USD'000 At 1 January 5,868 4,267 Charge for the year (Note 9) 3,221 1,742 Payments during the year (1,050) (141) --------- --------- At 31 December 8,039 5,868 ========= ======== In accordance with the provisions of IAS 19, management has carried out anexercise to assess the present value of its obligations at 31 December 2006 and2005, using the projected unit credit method, in respect of employees' end ofservice 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% (2005: 3% to 5%). Theexpected liability at the date of leaving the service has been discounted to itsnet present value using a discount rate of 6.11% (2005: 5.28%). 22 Trade and other payables 2006 2005 USD'000 USD'000 Trade payables 26,388 17,398 Other payables and accruals 34,125 23,795 Amounts due to customers on contracts 11,891 15,253 --------- --------- 72,404 56,446 ========= ========= Amounts due to customers on contracts comprise: Progress billingsLess: Cost incurred to date 93,859 46,392Less: Attributable profits less losses recognised (63,175) (25,253) (18,793) (5,886) --------- --------- 11,891 15,253 ========= ========= 23 Commitments (a) Operating lease commitments The future minimum lease payments payable under operating leases are as follows: 2006 2005 USD'000 USD'000 Not later than one year 1,620 1,650 Later than one year but not later than five years 8,395 5,251 Later than five years 57,044 5,911 --------- --------- 67,059 12,812 ========= ========= (b) Other commitments Letters of credit for purchase of materials and operatingequipment 21,913 1,565 ========= ========= Capital commitments for purchase of operating equipment 1,664 268 ========= ========= Capital commitments for construction of a facility 8,173 - ========= ========= 24 Bank guarantees Performance/bid bonds 24,138 19,027Advance payment, labour visa and payment guarantees 3,364 5,870 -------- -------- 27,502 24,897 ======== ======== 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. 25 Fair value At 31 December 2006 and at 31 December 2005, the fair values of the financialassets and liabilities approximate their net book amounts as reflected in theseconsolidated financial statements. 26 Events after balance sheet date The Board of Directors of the Company have proposed a dividend of USD 7.6million (3.80 cents per share) at a meeting held on 2 April 2007. In accordancewith the accounting policy under IFRS set out at Note 2.14 this dividend has notbeen accrued at 31 December 2006. However, this is not in accordance with theIsle of Man Companies Acts 1931 to 2004 which require such a proposed dividendto be accrued at the balance sheet date. The Directors understand that therelevant section of the law is likely to be repealed in the coming year so asnot to be in conflict with IFRS. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
LAM.L