Lamprell’s shares took a hammering on the London Stock Exchange this morning as markets reacted to news that the company anticipates a loss in the first half of the year.
Shares in the Isle of Man-based rig maker tanked, shedding 60% of their value – around GBP 500 million in market capitalisation – as the company released a statement admitting that despite equal revenue to 2011, the board now anticipates an overall profit margin for 2012 of just 3.5%, a level “considerably below the Board’s original expectation for the year.”
Poor costs control and supply chain woes are at the heart of the shock news, as equipment delivery delays in a tight market are set to pummel the firm’s bottom line this year. Equipment delays caused “a delay in revenue generation and led to the significant underutilisation of resources including personnel,” said Lamprell.
“During the year to date the group’s financial performance has been adversely affected mainly by progressive delays in key specialised vendor equipment deliveries for new build jack-up projects together with the progressive slippage in the timing of expected new project awards and delayed client deliverables,” the company said in a statement today.
“The delayed equipment deliveries are representative of the current tightening in the worldwide supply chain for specialised jack-up rig components which is expected to ease during 2013 when new capacity comes onstream.
“It is anticipated that the delay in revenue generation together with the additional costs will result in the Group incurring a small loss in the first half of the year with a recovery expected in the second half of the year.”
The company says that costs for its Windcarrier Brave Tern and Seajacks Zaratan have been larger than expected. The firm says it will strive to slash costs in order to improve margins.
CEO Nigel McCue had previously been bullish on the potential for increased profit margins in Lamprell’s key markets, as a resurgent offshore oil and gas exploration sector in the GCC would prompt a squeeze on supply. “As capacity becomes constrained, we’re able to improve margins,” he told Bloomberg in March.
The company stresses that it is tackling its cost issues, and with a burgeoning order book, the demand for its services remains strong. “We see continued strength in our operating markets, our bid activity remains at a historically high level and the board remains optimistic that the long term prospects of the group remain promising,” says the statement.
Just a year ago, Lamprell raised over $225 million from the market in equity and $150 million in debt to finance the acquisition of MIS, a rival oil engineer in Sharjah, UAE. At the time the board expected the acquisition to deliver return on investment for the first year at least equal to the cost of capital and exceed it thereafter.
Less than two weeks ago Lamprell’s integration and development director Scott Doak sold 200,000 shares at 363.693p while vice president Kevin Isles sold 250,000 shares at 361.70p. The UK Financial Services Authority told Oil & Gas Middle East that it is aware of the director sales preceding the share slump, and while maintained its ‘neither confirm nor deny’ policy regarding Lamprell specifically said “this is the sort of thing we would investigate.”
Lamprell was not immediately available for comment, and any comment will be posted here.
