Interactive Investor

Lamprell unveils rights issue

16th May 2014 11:48

David Prosser from interactive investor

Engineering services business Lamprell announced a $120 million (£71.46 million) cash call on Friday designed to shore up its balance sheet and finance investment at the company, which is a leading supplier to the oil and gas industry.

Lamprell, which has encountered a series of problems over the past couple of years, said a good start to 2014 had left it feeling confident that it will be able to raise the money through a five-for-16 rights issue.

The company plans to use around $60 million of the cash to invest in facilities such as a new panel line and improved welding processes. Almost $11 million will be used to pay down debt and the remaining money will be used to enhance the company's working capital flexibility.

John Kennedy, Lamprell's chairman, said the business was now making rapid progress following the turbulence of 2012 and 2013. "It has been a good start to 2014 as we have continued to build on the successful performance and results from 2013," he said.

"We are particularly pleased to have started converting our substantial bid pipeline into contract wins. We are also in advanced discussions with other prospective clients which we expect to convert into booked work in the imminent future."

Lamprell has been battling to recover from the $111 million loss it recorded for 2012, when its move into the wind turbine sector was dogged by operational problems that lead to a series of profits warning. As the company fought to bounce back last year, it was hampered by falling orders from the oil and gas sector, where flat commodity prices have forced businesses to focus on margins.

Just two months ago, Lamprell said it expected its revenues to fall this year and next - the current forecast for 2014 is $1 billion, down from $1.1 billion in 2013 - with the attention it has focused on its turnaround strategy having prevented it from a more aggressive approach.

On Friday, however, Mr Kennedy claimed the company was in a much healthier position. "With our operational performance and financial results now fully stabilised, we are focused on establishing a strong, financial platform for long-term growth through a combination of the rights issue and the refinancing of the group's debt facility," he added.

"This, coupled with our proposed productivity improvements and cost efficiencies, will give us the necessary platform to deliver our strategy and generate sustainable long-term value."

Recovery secured?

There is no doubt that Lamprell has come a long way since the dark days of 18 months ago when it issued no fewer than five consecutive profits warnings. The rights issue announced on Friday represents another positive step in that return to robust health.

Nevertheless, significant headwinds remain - the increasing focus on cost in the oil and gas industry does not bode well for Lamprell's order book, while stiff competition from Asian rivals is also continuing to bite.

Nor is the market fully convinced by the company's new-found sense of optimism: shares in Lamprell slipped almost 4% to 140.5p in Friday morning trading.

That price is unlikely to make much progress until Lamprell unveils full details of the contract wins the company was promising on Friday.