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After a suffering a rough year at sea, it appears that smoother waters may lie ahead for oil rig manufacturer Lamprell (LSE:LAM) in 2013. The company’s share price had dropped more than 60% during 2012 after a series of profit warnings drove investor confidence to the ocean floor. The single worst day of the past year for Lamprell’s share price came on 16 May after a profit warning. The share price dropped from 297.60 to 127.00 making it’s chart look like a side view of the cliffs of Dover.
This morning, however, Lamprell announced that it had negotiated waivers against it banking covenants and is in the process of hashing out a new arrangement for its long-term financing. The company’s share price rose by more than 15% today on that news from 94.00 to to 109.50.
One of the major drags on Lamprell operations this year has been a project in the Caspian Sea. Labour productivity problems and restricted access to equipment “at a third party facility” caused Lamprell to project a revenue shortfall of $24.6 million USD on that project alone. Today the company announced that the platform is now in the water and that it expects the project to move forward without unforeseen delays. Without the waivers, it is likely that Lamprell would have been unable to fully fund the Caspian Sea project and others. The Windcarrier 2 project had also been delayed and could have come to a halt without financing relief. That project contributed an additional loss of $18.2 million during 2012. It is now expected to be completed in February 2013.
The company announced the awarding of a new project in the North Sea valued at $40 million. But they also created the potential us to infer a change in corporate strategy that might be another solid confidence booster for investors. Commenting on the North Sea project, Lamprell said, “it relates to one of our stated core discipline areas in which the Group has a strong track record.” That would suggest that, perhaps, some of these newer projects had been part of a strategy to expand organic growth by stretching the group’s capabilities beyond their norm.
IMHO, that is a legitimate form of growth, but it is one that places unusual amounts of stress on every part of the process from engineering to manufacturing, to deliver. It’s kind of like an Olympic sprinter being asked to do the pole vault. There is a generic relationship in that both are Olympic sports. However, the sprinter knows all of the techniques and mechanics of sprinting so will that they have actually become a part of him.
Transferring that set of skills to the pole vault is an entirely different matter. He shouldn’t have any problem sprinting towards the pit, but once the pole is planted, a whole new set of dynamics comes into play. While it is possible that a sprinter could be turned into a pole vaulter, initial attempts will be frustrating and fraught with mistakes. Meanwhile, his sprinting skills could suffer from so much focus on pole vaulting.
I believe that the clear inference that we can take from Lamprell’s announcement is that it is now inclined to stay focused on its core competencies. With a successful record like Lamprell’s, that is a very good strategy.
Lamprell’s Chairman, John Kennedy said as much when he commented that “It is reassuring that the Group has made significant headway towards completing the existing key projects where problems had previously been highlighted. However, it is all the more pleasing to be awarded a new project within an established business sector for the Group.”
