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Lamprell (LSE:LAM) will be glad to get March 2013 behind it. The company has taken it on the chin with a major fine from the FSA and a year end report that makes the Titanic’s voyage look like a raging success. Nonetheless, the appointment of a new CFO,the arrival of its new CEO, and a reasonable outlook for 2013 seem to have buoyed investor confidence as the share price rose 5.31% and 7.5 pence to 148.75 at noon today.
The company called 2012 “a year of exceptional challenges” in its year-end financial and operational report. Indeed it was – and the results show. After successive years of solid pre-tax profits, including $65.2 million in 2010 and $63.3 million in 2011, the company reported a jaw-crushing loss of $105 million for the year ending 31 December 2012. This was due in part to a decline in revenues from $1,147 million in 2011 to $1,045 million last year. This produced a 42.4¢ loss per share versus 26.5¢ earnings per share a year ago. Chairman John Kennedy explained that “the Company experienced a number of significant, unexpected operational issues, which resulted in substantial financial losses and a refreshment of the management team. We were forced to re-evaluate the projects that we wanted to pursue and we have made many significant changes to the business structure with a view to focus on our core capabilities.“
The “refreshment of the management team” and the “focus on our core capabilities” may be the prime factors that are retaining investor confidence. The FSA fine, the ill-advised management strategy to expand into peripheral activities, and the lack of management controls that led to the fine appear to have been dealt with both appropriately and adequately.
The £2.4 million fine was levied after the FSA discovered “significant failings” in Lamprell’s systems and controls. Although it may appear to some at first glance that the fine was imposed solely because the company failed to share its deteriorating financial condition, the FSA investigation uncovered what amounted to financial and operational incompetence at senior levels. Lamprell could not report what it did not itself understand.
Although the fine was much higher than any that the FSA has imposed in similar situations, it was discounted by 30% because of Lamprell’s “decision to accept the position reached with the FSA, so as to avoid incurring significant additional expenses.” The fact that the FSA said that Lamprell “accepted from the outset that certain deficiencies had existed in its relevant systems and control and has made significant efforts to remedy the problems,” should not go unnoticed.
The appointment of Frank Nelson as CFO and the arrival of James Moffat as CEO, originally announced in December 2012, are signals that the company is very serious about setting the ship aright. Moffat began to build his vision for Lamprell, saying that “I see a business with an attractive regional footprint and significant potential, whose financial health was seriously undermined in 2012 by several, very serious issues. Despite this, the Company managed to retain the trust of its clients and its leading market position and that is a testament to the fundamentals of this business and its historic ability to execute projects.” In his comments he cited “Lamprell’s strong, historic track record of delivery and continued commitment to quality” as being the “solid foundation for the business to grow in the coming years.”
