Proposed Joint Venture 31 May 2017

Transcription

1 Proposed Joint Venture 31 May 2017

2 Important Notice This document comprises the written materials/slides for a presentation concerning the proposed entry by Lamprell plc (the "Company") into a joint venture ("JVCo") with respect to the establishment, development and operation of a maritime yard for the construction, maintenance and repair of offshore drilling rigs and vessels which is to form part of the complex known as "The King Salman International Complex for Maritime Industries & Services" (the "Transaction"). Where used in this document, "Presentation" shall mean and include the slides that follow, the oral presentation of the slides by the Company's officers on behalf of the Company, any question and answer session that follows that oral presentation, physical or electronic copies of this Presentation and any materials distributed at, or in connection with this Presentation. The contents of this Presentation are to be kept strictly confidential. This Presentation has been prepared by the Company and has been prepared solely for use in connection with the Transaction and the contents of this Presentation have not been verified by the Company or Investec Bank plc ("Investec"). This Presentation is neither a prospectus for the purposes of the Prospectus Rules of the Financial Conduct Authority of the United Kingdom (the "FCA") nor a circular for the purposes of the Listing Rules of the FCA, and has not been approved by the FCA. This Presentation does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in the Company or securities in any other entity, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision in relation thereto. This Presentation does not constitute a recommendation regarding shares of the Company. The information contained in this Presentation is for discussion purposes only and does not purport to contain all information that may be required to evaluate the Company and/or its financial position. No reliance may be placed for any purposes whatsoever on the information contained in this Presentation or on its completeness. No representation or warranty, express or implied, is given by or on behalf of the Company and its subsidiary undertakings (the "Group"), Investec or any of their respective affiliates or any their respective directors, officers, employees, agents or advisers ("Affiliates") or any other person as so to the accuracy, completeness or verification of the information or the opinions contained in this Presentation and no liability is accepted for any such information, opinions or otherwise. No statement in this Presentation is intended to be nor may be construed as a profit forecast. Persons receiving or accessing this Presentation must make all investment decisions in reliance of their own judgements and not in reliance in the Company, Investec or any of their respective Affiliates. Investec, which is authorised by the Prudential Regulation Authority (the "PRA") and regulated in the United Kingdom by the FCA and PRA, is acting solely for the Company and nobody else and will not regard any other person (whether or not a recipient of this Presentation) as a client and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Investec nor for providing advice in relation to any matter referred to in this Presentation. Some of the information contained in this Presentation (including details of the Transaction) may be inside information relating to the securities of the Company within the meaning of the Criminal Justice Act 1993 and Regulation (EU) No. 596/2014 of the European Parliament and the Council of 16 April 2014 on market abuse ("MAR"). Recipients of this Presentation shall not disclose any of the information contained herein and shall not use such information to deal, attempt to deal, or to encourage another person to deal, in the securities of the Company. Recipients of this Presentation shall ensure that any person to whom they disclose any of the information contained in this Presentation complies with this paragraph. This Presentation and its contents are confidential and may not be reproduced, redistributed or passed on directly or indirectly, to any other person or published, in whole or in part, for any purpose. This Presentation is directed at and is only being distributed (A) in member states of the European Economic Area to persons who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC as amended (including amendments by Directive 2010/73/EU to the extent implemented in the relevant member state)); (B) in the United Kingdom to persons who (i) have professional experience in matters relating to investments and who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) or are high net worth companies, unincorporated associations or partnerships or trustees of high value trusts as described in Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) and investment personnel of any of the foregoing (each within the meaning of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005) and (ii) are "qualified investors" as defined in section 86 of the Financial Services and Markets Act 2000, as amended; and (C) otherwise to persons to whom it may otherwise be lawful to communicate it to (each a "Relevant Person"). This Presentation is directed only at Relevant Persons and no other person should act or rely on this Presentation and persons distributing this Presentation must satisfy themselves that it is lawful to do so. This Presentation should not form the basis of any investment decision and the contents do not constitute advice relating to legal, taxation or investment matters. Nothing in this Presentation constitutes investment advice and any recommendations regarding the Transaction that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. The information contained in this Presentation has been prepared for discussion purposes only, does not purport to contain all of the information that may be required to evaluate an investment in the Company and/or its financial position and any recipient should conduct its own independent analysis of the data referred to herein. Shareholders are advised to seek expert advice before making any investment decision. This Presentation, to the extent that it relates to the Group, is based on historical information provided by the Group's management and advisers or taken from public sources, none of which has been independently verified. Certain statements contained in this Presentation in relation to both the Group and JVCo constitute "forward-looking statements". In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "prepares", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group or JVCo, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group's and/or JVCo's present and future business strategies and the environment in which the Group and/or JVCo will operate in the future. Such risks, uncertainties and other factors include, among others: general economic and business conditions, industry trends, competition, changes in government regulation, economic downturn and the Group's ability to implement expansion plans or JVCo's ability to implement its business plan. These forward-looking statements speak only as at the date of this Presentation. Except as required by the FCA, the Listing Rules of the FCA, MAR, applicable law or relevant regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Presentation to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. By attending the meeting to which this Presentation relates and/or by accepting or accessing this Presentation, you agree to be bound by the foregoing limitations and conditions and, in particular, you will be taken to have represented, warranted and undertaken to the Company, Investec and their respective Affiliates that: (i) you are a Relevant Person (as defined herein); and (ii) you have read and agree to comply with, and be bound by, the contents of this notice. 1

3 Key terms of the investment Yard Overview Will provide engineering, manufacturing and repair services for offshore rigs, commercial vessels and offshore service vessels Expected to be partially operational in 2019 and fully functional by 2022 Lamprell will hold 20% and be a technical partner for two of the four zones in the yard Financing Maximum investment of up to $140 million for Lamprell to be funded from cash and future cash flow over the construction period JVCo to be funded from up to $700 million of equity and $1 billion of debt over the construction period Partners Saudi Aramco (50.1%), Bahri (19.9%), Hyundai Heavy Industries (10%) JVCo to be run by a board of nine managers Lamprell to have two representatives Both Saudi Arabian Oil Company (SAOC) and Bahri to sign offtake agreements with JVCo Offtake SAOC 20 rigs over 10 years as well as exclusivity on rig/osv repair requirements Bahri 52 vessels over 10 years as well as exclusivity on some of vessel repair requirements Exclusivity Not construct, control, be interested in, own or operate any yard conducting similar business in the MENA region (but excluding the UAE), without the consent of the other JV Partners Include JVCo as a subcontractor on certain MRO or new-build construction projects by Lamprell 1 1. Subject to certain provisions and limited to MENA geographies Note: OSV Offshore support vessel, MRO - maintenance, repair and overhaul 2

4 JV Partners State-owned oil company of the Kingdom and a fully integrated, global petroleum and chemicals enterprise Manages proven conventional crude oil and condensate reserves of billion barrels with average daily crude production of 10.2 million barrels of oil per day and stewardship of natural gas reserves of trillion cubic feet The National Shipping Company of Saudi Arabia - one of the largest providers of maritime services globally Charter and operate vessels for the transportation of crude oil, chemicals, dry bulk and general cargo Admitted to the Saudi Stock Exchange 22% held Public Investment Fund of the Saudi Government, 20% by Saudi Aramco South Korea based diversified conglomerate operating through seven business divisions One of the world's leading heavy industries companies and the world's largest shipbuilding company c.15% share of the market 1 Delivered more than 1,971 ships to 298 shipowners in 52 countries since Admitted to the Korean Stock Exchange 1. Source: Hyundai Heavy Industries 3

5 The Maritime Yard Focus ZONE A ZONE B ZONE C ZONE D MRO: Jackups & commercial vessels MRO & Newbuild: OSVs Newbuild: Commercial Vessels Newbuild: Jackups Ras Al KhaIr Technical Partner Partial Construction Complete Construction Completed Jul 21 Sept 21 Jan 20 May 19 Sept 22 Mar 22 Oct 20 Apr 20 Infrastructure: 7 Dry docks 10 Wharfs 5 finger piers 2 Skid ways/bulkhead 1 Ship lift Facilities: 4.3 km 2 of total surface 4.1 km of quayside 640,000 m 2 of workshops 62,000 m 2 of offices and services 106,000 m 2 of living quarters 4

6 KSA Market Drivers Broader economic development Part of Vision 2030, a major drive for localisation, employment, infrastructure and economic development in Saudi Arabia Local content drive supported by In-Kingdom Total Value Added (IKTVA) programme To support the aim of doubling the percentage of locally manufactured energy related goods to 70% by 2021 Plans to raise the export of Saudi made energy goods to 30% over the same period Top 15 Users of Jackups 44 jackup rigs currently operating in KSA Saudi Aramco ONGC PEMEX CNOOC Adma-Opco Total Chevron Shell Statoil BP Petrobras Total current fleet a potential target for MRO (Zone A) *Source: IHS Petrodata as of March $300bn Expected spending over next decade by Saudi Aramco 70% Saudi local content target by Rigs currently operating in KSA* 2 Rigs currently owned by Saudi Aramco 5

7 Rationale 1 Critical point of entry to the Saudi market with exposure to Saudi Aramco, the world s largest oil company 2 Increased access to revenue generating opportunities Saudi Aramco and Bahri to commit to 10 year offtake agreements Lamprell s UAE yards expect to be subcontracted significant component parts of the first two jackup drilling rigs to be constructed at the Maritime Yard 3 Enables Lamprell to diversify its global reach and to broaden its sector and product expertise Opportunity to access non-rig work through LTA 4 Strengthens Lamprell s position as a leading fabricator in the region 5 Step-up in production efficiencies and competitiveness Expected to benefit from subcontracting to JVCo through efficiencies in scale, purchasing power and productivity Providing a platform for Lamprell s future growth 6

8 Financial Impact Maritime Yard Funding Total Cost: Up to $5.2 billion Government Contribution: $3.5 billion To establish, prepare and construct the site and shared infrastructure JVCo Contribution: Up to $1.7 billion Responsible for the works relating to the specific requirements of the Zones Equity: Up to $700 million $140m $139.3m Debt: $1 billion To be provided by Saudi Industrial Development Fund $350.7m $70m 1. Note: SIDF has provided four commitment letters pursuant to which it has conditionally agreed in principle to enter into a facility agreement 7

9 Financial Impact JVCo Overview Maximum Cash Investment Maximum of $700 million of equity to be contributed over construction period to 2022 Largest contributions expected in years 2018 and 2019 Impact on Lamprell $140 million funded from current cash and future cash flows over the construction period Forecast 2017 investment of $20m, with 2018 and 2019 forecast to be c.$38 million and $32 million Debt Financing Commitment letters for $1 billion loan received from the SIDF Subject to final documentation - to be drawn down over the construction period Loan secured over fixed assets of JVCo Expected term of the loan of 20 years JVCo Forecasts 1 Approximately c.$101 million of cumulative losses to be recorded by JVCo up to 2020 JVCo's first profitable year expected to be 2020 Annual rent of $38.5m payable by JVCo 2 Lamprell to recognise share of JV losses Losses expected to be largest in 2019 Returns First dividend to be paid no earlier than financial year ending 31 December 2022 Dividends not to exceed the lower of (i) 25 per cent. of JVCo's paid in capital and (ii) the amount repaid on the SIDF facility in the fiscal year Investment in JVCo expected to yield an equity internal rate of return in excess of Lamprell s weighted average cost of capital Step change in dividend flow expected to commence following repayment of SIDF facility 1. This should not be interpreted to mean that the future earnings per share of Lamprell will match, exceed or be lower than the historical published figures 2. The lease will commence only once all four Zones have been handed over to the JVCo, not expected to occur until

10 Financial & Operational Impact JVCo Overview Scope of work from JV Partners Subcontracting of works to JVCo IKTVA Training Total SAOC and Bahri work expected to account for c.45% of JVCo revenue from SAOC and Bahri to sign offtake agreements SAOC 20 rigs over 10 years (at market rates) Bahri minimum of 52 vessels over 10 years (at market rates) Certain vessel repair and rig/osv repair also exclusive to JVCo Lamprell to include JVCo as a subcontractor on any offshore drilling rigs, OSV or commercial vessels for: MRO work in excess of $3m located in or transiting through the Arabian Gulf, Arabian Sea, Gulf of Aden or Red Sea 1 any new-build destined for use by an entity in the MENA region 1 Saudi Aramco s strategic initiative to encourage suppliers to produce in-kingdom Lamprell to second some of its employees to JVCo and participate in the training of JVCo employees 1. Excluding UAE-only or UAE-destined rigs Impact on Lamprell Expect to be awarded interim subcontracted work from JVCo in 2018 Significant component parts of the first two jackup drilling rigs Terms yet to be agreed but working capital profile for the 2 rigs expected to follow typical cycle Existing relationship with NDC unaffected Expect work subcontracted to JVCo will ultimately be able to be done more cost efficiently at the Maritime Yard due to: efficiencies in scale, purchasing power and productivity This will take time to achieve as the yard is constructed Potential for pricing upside to be allocated depending on the proportion of work originated in KSA Could accelerate JVCo operational capabilities Costs to Lamprell not expected to be material 9

11 LTA opportunity LTA framework Saudi Aramco's Long-Term Agreement ("LTA") and General Bid Slate programmes generated US$4bn of work in 2016 Significant pipeline of non-rig work driven by production and maintenance - required under the current master plan for Saudi Aramco's offshore fields Currently only five companies qualified to bid for LTA work Contract usually for a fixed duration with the option to extend Opportunity for Lamprell Pre-qualify with Saudi Aramco to enable bidding competitively from its existing yards Opportunity to win new business in the short- and medium-term for UAE yards Grow broader engineering, procurement and construction capabilities in the offshore platform sector CURRENT LTA CONTRACTORS Opportunity for Lamprell to be part of a select group of service companies with eligibility to bid for Aramco business 10

12 Timetable Announcement of the Transaction a.m. (UAE time) on 31 May 2017 Posting of the circular 31 May 2017 General Meeting a.m. (UAE time) on 26 June 2017 Expected effective date for fulfilment of all conditions precedent under the Shareholders' Agreement 30 November 2017 Long-stop date for fulfilment of all conditions precedent under the Shareholders' Agreement 30 May

13 Summary Access to the world s largest oil and gas market Significant step-up in scale of the business Stronger competitive position through efficiencies, diversification, reach Increased access to revenue-generating opportunities Transformational for current business and future prospects 12

14 Appendix

15 Lower for longer environment Sector downturn continuing to impact spending Capex: Reduced capex budgets resulting in reduction of project sanctioning Lamprell Backlog ($m) at YE 2016 Near term activity: Negative outlook for jackup market in the near-- term Current utilization rate of 57% globally and 67% in the Middle East 1 Pricing: Significant pricing pressure driven by cost reduction throughout whole value chain with a focus on project economics: Recovery: Market forecasts provide a negative outlook for 2017 with a recovery not commencing until late $393m Lamprell Current Trading Record levels of activity in the yard now tapering off Lamprell Bid pipeline ($bn) at YE jackups delivered over the course of 2016 and 2017 Slow-down in walk-in business expected 2017 expected to be a slow year ahead of recovery 0.3 $2.5bn 0.9 Diversification efforts underway targeting EPC work and renewables 1.1 Source: 1 IHS Petrodata as of March 2017 New Build Jackup Rigs Offshore Platforms Modules O&G Contracting Services 14

16 Significant Shareholders Rank Manager %ISC 1 Lamprell Holdings Schroders M&G MFS Investment Management Fidelity International Limited 5.7 As at March