Hamriyah Free Zone Facility

Lamprell mothballs one yard with plan to focus activities within one location

Offshore construction specialist Lamprell is implementing a program aimed at achieving a significant reduction in the group amid a global health crisis. As a result, Lamprell has mothballed one facility with plans to close another one upon completion of current projects.

Hamriyah Free Zone Facility; Source: Lamprell

In an update on Tuesday, Lamprell said that having reviewed its current operational footprint against medium-term fabrication requirements, the company has made the decision to consolidate its operations within one yard for the time being.

As such, the Jebel Ali facility has been mothballed from January 2020. The Sharjah facility currently hosts some of the work on the Moray East project and will be closed upon its completion later this year.

The Hamriyah yard is Lamprell’s largest facility and continues to operate, offering various expansion opportunities should the group require additional space. These actions allow the group to gradually grow fabrication volumes whilst significantly improving efficiency and reducing its cost base.

The measures are associated with significant headcount and allowance reductions, most of which have already been implemented.

Further, the measures translate into an approximately $23 million reduction in overheads for 2020, of which over 90% relates to cash overheads.

Subject to audit, the restructuring will result in a non-cash impairment charge of Intangible and Immovable assets in Sharjah of approximately $13.2 million in the 2019 financial statements. In 2020 there will be an estimated one-off charge of $7.5 million which relates to the demolition costs in Sharjah and staff termination costs.

“We are also planning for low levels of critical-only capital expenditure at our facilities, with a total value below $10 million in 2020”, Lamprell said.

According to the company, these steps will help preserve its cash and maximise liquidity in a period of low revenue and slow pace of major contract awards.

Most of the company’s corporate and administration functions are working remotely wherever possible, with engineering and fabrication activities in Hamriyah and Sharjah moderately affected by lockdown and social distancing measures in the UAE so far.

As such, all works, including the two IMI rigs and the Moray East project, continue with the first jackets delivered to the client on time and on budget. However, Lamprell believes it is too early to make a comprehensive and final assessment of the impact of the virus on business, and it is inevitable that there will be some impact on productivity and increased costs.

Reduced salaries & layoffs

Further to the earlier overhead cost savings, and in order to conserve cash and protect the business during this period of unprecedented market conditions, Lamprell has taken additional actions.

These include reduced fees, salaries and allowances for the board, senior management, and all professional staff by 25% for the next six months.

Where operationally feasible, Lamprell has also placed staff on reduced working hours for those that are under-utilised and used other measures such as unpaid leave.

Redundancies have also been implemented where there is no medium-term horizon for staff to be used.

Lamprell expects these measures to save approximately $10 million in 2020.

Signs of activity delays

The group is now debt-free as its facility was fully repaid in March 2020. As of 31 March 2020, the group’s cash balances stood at $77 million, of which $35 million is restricted. Challenges in the traditional term debt segment persist as a result of market-wide impact of the COVID-19 crisis and Lamprell is assessing alternative project funding options.

Lamprell has started negotiations with other IMI shareholders regarding the deferral of the next instalment of its strategic capital expenditure in the Saudi maritime yard currently scheduled for this year.

Bidding activity continues in both of end markets of oil & gas and renewables but the company is seeing signs of deceleration and delays in some awards.

Given the macro environment uncertainty, Lamprell is withdrawing its previously announced FY2020 revenue guidance. Its 2019 year-end backlog stands at $470.1 million with approximately $275 million scheduled to run off in 2020.

Christopher McDonald, CEO of Lamprell said: “We are operating in a period of unprecedented global uncertainty, focusing on the safety and sustainability of our operations and the health and wellbeing of our employees. Amidst industry-wide insecurity and distress, we continue to deliver our projects safely and reliably and we remain focused on strict financial discipline to sustain a healthy balance sheet and progress our strategy”.