Lamprell stumbles badly on fourth profit warning of 2012…heads roll

It’s an unbelievable four profit warnings in a row now for UAE based oil and gas engineering company Lamprellwith this morning’s latest missive. The shares are down yet another 33% at 74p after touching a low of 64p first thing and compared with a 52 week high of 366p after further project delays and additional costs on its wind farm vessel construction projects and so making 2012 losses significantly larger than expected.

Chairman John Kennedy who was brought in during the summer now has his work cut out to turnaround the business and he said today that “changes to the leadership and senior management team are required to ensure Lamprell begins to rebuild its reputation with both investors and customers”.

Below is the full RNS – 

Lamprell (ticker: LAM), a leading provider of diversified engineering and contracting services to the onshore and offshore oil & gas and renewable energy industries, makes the following announcement: 

In the Company’s Trading Update of 26 July 2012 it was announced that the delivery of the Windcarrier 1 and 2 projects had been delayed. On 1 October 2012 Windcarrier 1, the Brave Tern, was delivered to Fred. Olsen. As a consequence of late delivery and other contract-related matters Lamprell has incurred further additional costs on both the Windcarrier 1 and Windcarrier 2 construction projects, which will adversely impact the forecast loss for the year ending 31 December 2012. 

Furthermore, a delay in client deliverables on a separate construction project has resulted in a deferral of revenue and profit from 2012 to 2013. There has been no deterioration in the project’s expected financial performance, but the deferral will impact the 2012 financial results. 

Having identified and been made aware of these and other issues, the Board intends to instruct the Company to appoint external advisors to provide an independent assessment of the full extent of their financial impact. As a result of internal work in estimating their likely combined extent, the Company now anticipates that the loss for the year will be significantly greater than previously expected. The order book currently stands at approximately US$1.5 billion. 

In light of these recent developments the Chairman, with the fullest support of the non-executive directors, considers that changes to the leadership and senior management team are required to ensure Lamprell begins to rebuild its reputation with both investors and customers. Further announcements will be made regarding such changes in the near term. 

The Company will provide a further update to the market when it has greater clarity on the detailed financial impact of these issues. 

The Company remains in discussions with its lending banks regarding its covenants and remains confident that it will have sufficient cash flow to fund its ongoing activities and debt repayments. 

John Kennedy, Chairman, Lamprell, commented:  

“Lamprell’s position in the refurbishment market remains pre-eminent. After three months with the Company I believe the fundamentals of the business continue to be sound and the order book and new contract pipeline remain strong. However, I am extremely disappointed in the need to make this latest trading update and feel that a refreshed management team will bring a more focused sense of delivery to all our stakeholders.”

In August, Lamprell had guided for a full year loss of between $12 million and $17 million. After today’s news the figure is likely to be significantly worse. External consultants have been brought in to assess the extent of the issues with its projects and as the RNS states, the company is in talks with its banks since it is currently in breach of its banking covenants.

The former stock market star is certainly a fallen angel. A turnaround in the making or a dud? We covered Lamprell in the September edition of our magazine, link here on page 16 (http://issuu.com/spreadbetmagazine/docs/spreadbet-magazine-v8_generic). The piece concluded with the following para – 

“At 86p/share, Lamprell offers a medium risk/high reward option that could recover throughout 2012 and prosper into 2013 if margins are restored and a global slowdown does not intensify further hurting their prospects. Results on the 28th August (just after this magazine is issued) should be read closely for clues to (a) dividend issues and (b) debt covenant waivers. Any positivity here and we would be inclined to buy the stock south of 100p whilst any further negativity that took the stock down towards the early 60’s and we would similarly be a buyer in the expectation of potential corporate activity.”

At the current price (74p) we open a Trading Buy position.