Lamprell PLC (OTCPK:LMPRF) Q2 2014 Earnings Conference Call August 28, 2014 2:00 AM ET
James Moffat - CEO
Joanne Curin - CFO
Christyan Malek - Nomura
Fiona Maclean - Merrill Lynch
Nick Sakellariadis - Citigroup
Andrew Whittock - Liberum Capital
Neill Morton - Investec
Phillip Lindsay - HSBC
Hello. And welcome to the Lamprell Interim Results Presentation. Throughout this presentation all participants will be in listen-only mode and after we’ll serve you a question-and-answer session. Just to remind you this call is being recorded. Today, I am pleased to present James Moffat, Chief Executive Officer and Joanne Curin, Chief Financial Officer. Please begin.
Good morning, let me start by welcoming you to the Lamprell H1 results call. I understand that today is a busy day for results and hence I appreciate you accommodating us and attending this early morning session. Well obviously we’re just having a call today. I would purpose that we follow our usual presentation format I have outlined on Slide 2. Whereby I will give you a quick overview and then handover to Jo who’s here with me and who will run through the numbers in some detail. I will then provide an operational review followed by a summary and outlook for the rest of 2014. The presentation will last for about 30 minutes and then we will take questions.
So we start by moving to Slide 4. I’m very pleased with our performance in H1 2014. Our project execution has been good with all of our projects pretty much tracking as they should and we continue to drive down our overhead and improve efficiencies. Our project execution hit a bit of the sweet spot in the first half of the year where all of our facilities were reasonably busy with five of our major projects completing in the period from January to July and seven more in the steepest part of the execution curve, obviously giving us excellent revenue and income numbers.
We have also started converting our bid pipeline, winning well over $900 million worth of backlog in H1 and we continue to see the bid pipeline increasing in size. In H1, we strengthened our balance sheet with the completion of $120 million rights issue and an associated refinancing of our debt, which provides some significant cost reductions as well as opening up for addressable market of bidding opportunities. This has also enabled us to kick off Project Evolution in earnest. Evolution as I'm sure you recall is our program of automation and yard efficiencies which will lead to significant reductions in our costs going forward.
As we talked about in March, we’ve also strengthened our business development team in H1 with the addition of both the Chief Commercial Officer and the Vice President of Business Development. The good have seen some high levels of tendering in H1 and I expect this to continue well into 2015. Finally, I’m very pleased with the Group’s HSE performance in the period where we continue to significantly improve on our safety statistics. At the end of July, our TRIR rate has dropped to almost one-third of the incident rates when our first took over the group in March 2015.
Let me now hand you over to Jo to walk you through the numbers. Jo.
Thanks, Jim. Good morning everyone. I’m very pleased today to be reporting a strong financial performance with the profits for the six months to June 2014 of $77.7 million and including a $31.3 million gain on the disposal of Inspec the services business we sold for 66.2 million earlier this year. Profit on the ongoing operations was 46.1 million a marked improvement on the 11.8 million reported in the same period last year. Revenues were up 25% to 632 million driven mainly by the new build jackup business where we benefitted from a favorable period of construction on full rigs as well as the impact of accelerated schedules on two rigs. Gross margin was 13.6% against 9.1% in the same period last year, driven largely by strong operational performance. We delivered four projects in the period on-time and hit our budgeted margin.
Moving to Slide 7, you can see that key drivers to the significant increase in gross profit. Although, revenues from our core business were up by just over 100 million the profit impact of the higher new build jackup and the rig refurb revenues which you can see in this slide were dampened by a negative offshore mix resulting in an overall revenue variance of just over $5 million. The largest contributor to the increasing gross profit came from an improvement in margins in the new build jackup and liftboat business, contributing an increase of $16 million to the bottom-line. This was predominately driven by the release of technical contingencies as we delivered NDC 3, 4 and the Seajack liftboat on time and below budget.
You will recall that we started the year with supply chain issues on all these projects and at the year-end we took a prudent view of forecast costs to complete. Holding back project contingences to cover these risks, on top of this we have delivered efficiencies in the last six months as various business improvement initiatives gained attraction. 2013 margins in the same period were suppressed a bit due to the early stage of construction of full rigs in 2013 which was not the case in 2014 contributing a further variance of 7.1 million in 2014.
Turning now to Slide 8, the balance sheet. The balance sheet has been significantly strengthened since the year-end with total net assets now $635 million up from 442 million at December 2013 reflecting the additional equity from the rights issue of 111 million net of expenses as well as the retained earnings for the period including the profits from the sale of Inspec. Net cash for the period was 281 million up nearly 100 million from December. There was a working capital draw on cash during the period of 130 million as the business returned to a more normal profile. You may recall that at the year-end, we had advances from customers about $75 million. At June these had reversed and customers effectively owed us $65 million.
We expect the cash balance to trend downwards due impart to the capital investment program associated with Evolution. We also expect a further increase in working capital due to timing of construction milestones, as well as advance payments on key pieces of equipment ordered for current and future orders.
Turning now to Slide 9. Earlier this month we completed the documentations for the refinancing we announced alongside the rights issue in May. As a reminder, we have a new five-year facility of $350 million comprising $100 million of term debt and $150 million of working capital, predominantly focused on supporting our new built jackup business, plus $250 million committed bonding line. We received overwhelming support from our existing relationship banks during the syndication process for this facility and are pleased that our five existing relationship pacts have all increased their exposures in the new facility and we have just added a further leading regional bank to the syndicate. We repaid the existing debt on the 14th of August and are now benefitting from the lower interest rates on our term loan and have secured lower bonding costs for the recent rig awards.
So before I turn back to Jim, just a summary of the financials, we ended the first half with closing backlog at 1.2 billion an increase of 300 million over December, 550 million of this is scheduled to be delivered in 2015 and the bulk of the remainder in 2016, although the second Shelf rig will extend into the beginning of 2017, so a very strong performance overall with earnings ahead of our expectations. Operational performance was a major driver with favorable project scheduling. We continue to improve our operational performance with the implementation of Project Evolution and we have significantly improved our balance sheet as well as our liquidity having completed the rights issue and refinancing. In summary we are in a strong financial position to support operational excellence and continued growth which Jim will talk about further now.
Thanks Jo. Moving to Slide 12. The first half of the year we’ve seen a very encouraging performance from all parts of the group. In the period we delivered four major projects and followed up with a one more in July to make five major projects so far this year. These comprised two drilling rigs for NDC, Number 3 and 4 in the sequence of 6.
A liftboat for Seajacks, the Golden Eagle PUQ for Nexen in the North Sea and in July the MOS refurbishment which is the largest refurbishment the group has ever taken on. Our performance on all of these projects has been excellent and we have stretched our performance boundaries on many of them. Firstly as Jo said, all were delivered on time and below our budgeted costs. We completed over 10 million manhours on Nexen without an LTI a record for the group and have delivered other excellent HSE achievements on many of our other projects. We have now gone for almost two years without a lost time incident in Jebel Ali yard.
The Guinness Book of Records also awarded us a world record for completing the heaviest load-out ever taken by hydraulic trailers when we loaded out a Nexen PUQ. The completion of MOS deck which was also completed LTI 3 one of the largest rig conversion that we have ever completed. In the period we won two multi-rig contracts for Ensco and Shelf and as well an onshore project for the completion of 29 PAUs for ZADCO 750 project in Abu Dhabi. We currently have seven major jackup projects underway. These comprise the final two rigs of the six we were awarded NDC, one rig for each of Greatship’s and Jindal all of which are being built in our yard in Hamriyah and of course EDC2 in the Caspian. We also kicked off both the Ensco project on the 21st of July. All of these projects are progressing well and our financial performance on all of them looks good.
In addition, we have a number of rig refurbishment projects currently underway albeit all are significantly smaller than MOS. We are also close to completing two offshore projects, one for Leighton’s and one for Dubai Petroleum, again both are performing well. In addition our major project, we have seen some excellent performances from some of our smaller aspects of the Group’s business, most notably E&C and our land rig services group which have made good percentage margin contributions while obviously on a much smaller revenues than typically seen on our major projects.
Our HSE performance also continues to strengthen with a steady continued improvement in our HSE performance reducing our TRIR rate from a 12 month rolling 0.67 at December 2013 to a very respectable 0.36 in July.
Moving to Slide 13 our market fundamentals still continue to be strong. The worlds demand for energy continues to rise. As I have previously advised while the Blue Ribbon deepwater projects continue to be reviewed and in some cases delayed in the legal on trail operation we still see high demand for most of our products. We are however aware to how the market will incorporate the large number of Chinese rigs that are due to be completed in the next 18 months. A couple as I’m sure you have seen have already being cancelled but they have established some question marks over the fate of the others as these rigs reach conclusion.
We believe that our project evaluation efficiencies have strengthened balance sheet and the greater addressable market that this enables us to reach will allow us to mitigate this to a certain extent but there will be some uncertainties until these additional rigs are absorbed into the market. We have ever believed that in the longer term the aging fleet problem still offers a number of opportunities for Lamprell. The onshore and offshore markets continue to throw up multiple opportunities with a strong bid pipeline which Slide 14 demonstrates.
This slide represents our short to medium bid pipeline which as you can see shows a big increase in the prospective onshore and offshore opportunities. As we have previously discussed our long-term goal continues to be to broaden our offerings into several key business lines including obviously the ones listed here namely new build jackup rigs, liftboats, onshore and offshore both fixed facilities and FPSOs some wind off opportunities plus of course getting into new things such as LNG modules. These are all well within the core capabilities that we have at Lamprell and I believe provide a number of both medium-term opportunities but our core competencies of safety, exceptionally high quality, low cost, on-time delivery and a user-friendly offer us a differentiated solution.
Moving to Slide 15. We also continue to focus on heavily on driving our cost down internally, increasing our efficiencies and slimming down and realigning our organization. We’ve made good progress on many of these fronts. The main focus going forward here is Project Evolution which as I said earlier is the automation and process improvement initiative that the rights issue has enabled there are a total of 24 sub projects here and most are still in their infancy. As we have previously advised we do not expect to see the full benefits of this until 2016, but we are already making some very encouraging savings with the ones that we have been able to precede without any capital expenditure such our welding improvement.
Moving to Slide 16. In summary, I believe we’ve had an excellent performance in the first half of the year this has unquestionably been driven by the sweet spot that we found ourselves in, in H1 with all of our projects either completing or being in the steepest part of our fabrication S curve but our project revenues and the associated income are at that highest. Unquestionably these aspects will reduce in H2 as some of our new projects start up but our underlying project execution is very positive and hence we believe that our 2014 profits will exceed our previous forecast and we maintain our revenue guidance for 2015. We already have a good backlog coverage for 2015. Our recent wins show that we have a quality offering which was the high bid pipeline we’re seeing should allow us to continue to build our backlog in the next six to 12 months. We also continue to drive down our costs and improve our efficiencies and are already seeing some positive results.
All-in-all I continue to be very pleased with our performance and associated results and believe we’re progressing well with our strategy and we’re on a strong path for predictable financial performance and future growth. That ends the formal presentation we are now open for questions.
Thank you. (Operator Instructions) Our first question is from the line of Christyan Malek, Nomura. Please go ahead with your question. Your line is open.
Christyan Malek - Nomura
Good morning guys. Just two questions if I may. First on, you have reported very strong margin clearly the reason for the improved outlook or one of the reasons of the improved outlook, and can you just walk us through the moving parts of that improve margin so to how much can you if possible quantify to what extent that is cost reduction, as well as other initiatives that you have? And second question is in your medium-term outlook against the backdrop of delays and pricing pressure increasing competition that you alluded to in your own release, what is the state for improved margin in ’15 and ’16 should we assume margins to flat line or can you just help us just understand the profile please?
Okay. Christyan I’ll answer the first question in relation to the margin that we are reporting the 13.6. I’ve tried to sort of phase out this on that slide on Page 17 because there are quite a lot of moving parts to that margin. I mean to some extent, clearly we’ve had 130 million of additional revenues so there is in itself on the same overhead basis driven as I said around 5 million of improvement to the bottom-line. The biggest driver though is really the improvement in the jackup margin which has come from two sources really. One as I said in the call, this release of technical contingencies that we held back at year-end because of the supply chain issues that we are experiencing on these projects.
That’s probably if you look at that 15.7 million, it’s probably around two-thirds of that that is being driven out of that reason. The remainder is really the cost initiatives that we see coming through both costs and productivity. It’s a combination of both. So around 5 million I would say is sort of being driven out of cost initiatives. The jackup phasing the 7.1 there is really the more of the sweet spot as Jim said. In last year in ’13 we had four rigs that we are in the very early stages. So we had very low profit take on those rigs whereas all our rigs now are in a very accelerated phase of both revenue and effectively profit taken.
Of course as we’ve delivered these rigs successfully, it has allowed us to release these technical contingencies which typically we were to hold back on a project around 2% of costs to cover. The challenging circumstances that we might encounter to get these rigs out on time that as you can see we are doing this more and more constantly and hopefully can minimize those more going forward.
We’ve also got quite a strong mix in the first half towards offshore and attractive offshore margins, the Nexen platform was delivered at a very good margin to this business and that to a certain extent is swaying margin a little bit in the first half as well and that’s coming off in the second half we expect that come off in the second half because although we’ve still got some offshore volumes in the second half, they are not only less so there is a negative mix going on, but as I said they are least attractive modules from a margin perspective.
If I now respond to your outlook question, I mean clearly there is a lot of competition out there in the market. We are certainly not sold sourced but we do think we’ve got a very attractive niche offering. If I kind of walk through our main businesses, obviously in the rig refurbishment business particularly at the bottom-end, the smaller refurbishment projects that there is a lot of competition. In the more major projects I think we’ve got a reputation second to none and I think a lot of our clients see that. I mean the MOS project was a major project. I mean we spent 3.75 million manhours on that project in nine months which requires us to have -- at peak we had 1,800 on the project which I think is just a logistic effort to make all the changes that we did. And I think that stands us in good stead in the industry.
In the new build league, I think there is a lot of uncertainty in that market, a lot of these Chinese rigs as we’ve talked about previously that have been built by speculators, don’t have a home. We do see a softening in that market going forward. We are in a fairly fortunate position having recently won four projects or four rigs rather. And so I think we’re in a relatively stable position there. As you could see from our bid pipeline, the offshore business is very strong. Again that is probably our best margin business. So that is very encouraging looking forward to see that significant uptick in the bidding effort. And particularly in the North Sea where we can make use of our high safety, high quality inputs and then obviously we’ve got significantly lower cost than any competitor in the North Sea area.
The onshore market is a little bit more mixed. There is a lot of work going on rather than in our region. It’s very competitive, but again that are parts of that are very attractive for us. And any onshore project that again then relates to the west and by that I mean both the North Sea and further field. I think again we have a compelling offering in those markets. So there are lot of -- I’m sure I don’t have to name them all, I’m sure you know many of them, there are a lot of big projects that are out there and starting to move forward and we expect awards of those major projects certainly in the next year and we certainly want to be participating in those projects.
Christyan Malek - Nomura
And just as a -- so two follow ups, if I may. On the margins I mean it’s very clear how sort of the very sweet part that drive the upward move or the upward revision but having reached a peak of, I think it was 17% on EBIT, you’re currently trading around 6, what’s the escape for that to move upwards towards a sort of more medium range of 8% to 9% in the long-term, I would just like to quantify -- if you could quantify that would be great?
As I said there’s a lots of moving parts in our margin, I mean it is driven by principle the mix so we have quite different margins in our offshore business to our jackup business and even within those two businesses you can get different margins. As Jim just pointed out certain of our sectors are not getting any easier from a competitors point of view so to predict margins going forward is very hard, I mean we, because a; we don’t know that we have a view of what we’re aiming for from a mix perspective. We’re clearly trying to drive this business towards a more offshore mix but we don’t turn down businesses that comes along mix, we sure will provided it to delivering the right margins. So…
Christyan Malek - Nomura
What is the range perhaps sort of a range of margin is also similar to the profile would be quite useful.
Yes. I don’t think I’m going to be drawn on that Christyan, I think the only thing I can say is as we continue to drive these productivity gains we’ve indicated before that we would expect to be able to deliver sort of somewhere around 3 percentage points to the bottom-line just from the sort of initiatives the round productivity and efficiency. On top of that we are working very hard right now on an organizational alignment program because we still have quite a big overhead base. And so, on top of those things what happens in the competitive world is to where our margins go and what our mix looks like, and I’m not going to be drawn on for it.
Our next question is from the line of Fiona Maclean at Merrill Lynch. Please go ahead with your question, your line is open.
Fiona Maclean - Merrill Lynch
Thank you. Yes, it’s Fiona at Merrill Lynch. I’m afraid I’m going follow-on from Christyan’s question. I am just a little bit confused as to, you’re giving these messages that in line and ahead of expectations and things like that, but can you be very clear on what’s the expectation are for yourselves around revenues and profitability? And I am not looking for a margin, I am just looking for that absolute profit number for this year and next year, because I don’t think it is very clear from the comments this morning? Thank you.
Well, okay. I mean, obviously the consensus numbers that are in the market right now for '14 and '15 our revenues around a 1 billion for each year. And I think the consensus numbers for EBIT are 55 million right now for '14 and for '15 I think around 65 million-67 million, something like that. So when we’re talking about a hit of expectation clearly delivering a result of 46 million at year-end, at half year was market consensus of 55 we would clearly expect to be coming in ahead of market expectations for full '14 we will be at that -- we’re maintaining our guidance on revenues so right now we have 100% of our revenues for '14 secured, apart from a bit of walk in business I can’t see that in fact it’s changing particularly so we’re not uncomfortable with the consensus numbers. So revenues that are in the market and equally right now where we are with, some phasing in the year, we’re not uncomfortable with the ’15 numbers for consensus. Although as Jim has talked about we’ve got a very strong pipeline, the timing as you well know these projects take time to deliver and then come to fruition and if you look at the makeup about our pipeline, have cleverly weighted towards sort of ’16 and onwards, albeit that there are projects coming into ’15 on the pipeline.
Fiona Maclean - Merrill Lynch
Okay. So in 2014, should we be thinking of profit in the second half of the year should be equal to what you did in the first half or up or down?
I can’t, Fiona I can’t tell you what our profits is going to be for ’14, what I have said is that we’ve got a very strong margin coming through some of that is one-off, not one-off, but we’ve well, articulated the reasons for that strong margin, it’s two things, we’ve got a strong offshore mix in the first half which we wouldn’t expect to see as strongly in the second half, our margin will soften because of that. From a delivery perspective we have a similar number of rigs coming through in the second half, as the first half and if we execute well on those rigs we would expect the jackup margins to stay similar so a slight softening of margin in the second half due to a lower offshore mix and equally I will draw your attention to that fact that clearly we’ve got a very strong H1 waiting so we’re delivering revenues to diode 600 something million 640 million and we’re still comfortable with the $1 billion consensus numbers that are in the market so therefore you’ve got effectively 60-40 waiting to the first half.
If I could try to sort of help you from just from an operational aspect if you sort of drew an S curve of a typical project. In H1 we effectively had five projects in the final of spot of that S curve so these projects are seeing completion and are seeing the benefit of any contingencies that we didn’t have to use fallout. We have seven major projects on the steepest part of the S curve and effectively we have next to no project starting. And the reason we’ve really got no project starting as we previously talked about is because in late 2012 early ’13 we didn’t really win any work so on that sort of six to nine months stagger we didn’t really see any projects.
So we’ve taken the benefit in H1 of projects completing and contingencies falling out and major projects on the steepest part of the curve. What we are going to see in H2 is those projects in the steepest part of the curve now move into the completion thud so if there are contingencies that we don’t have to use then hopefully these will fallout. But we really -- the Ensco’s and Shelf’s of this world are literally only just starting and the project that in H1 should have been in the lower part of the curve are not moving into that steep part because they are just were booked a year ago. So that is really what we’re seeing a lot of this is just driven by timing and as I say the sweet spot that we are in at a vast amount of our work is in high revenue or completion in H, that make sense?
Fiona Maclean - Merrill Lynch
Yes. Thank you very much for that I’ll handover.
Our next question is from the line of Nick Sakellariadis of Citigroup. Please go ahead with your question. Your line is now open.
Nick Sakellariadis - Citigroup
Good morning gentlemen. Two questions from me if I can. First of all could you just please discuss the second Caspian rig and just in terms of the second half what are the key milestones there, what’s the level of contingencies the schedule and the risk you still see associated with it? And my second question is in terms of the Ensco options for two more rigs, could you please remind us when those expire and if you have discussions anymore color on that front? Thanks very much.
Okay. As I deal with EDC2 first in the Caspian the project is progressing very well, we’ve made some significant improvements over EDC1. We’ve incorporated a lot of the lessons learned the contract date for handover is the 7th of November. We’re right on the early start curve for that project as we move forward. We believe we’re fully provisioned for the project based on our experiences with EDC1 which as you know run into some difficulties towards the end. So I don’t think there is any down side that we do not have in our forecast.
The project is going sort of touchwood going very, very well. We’ve started handing over major sections of the project. We’ve handed over areas in the living quarters. There are however two or three sensitive areas we’ve had some problems with the BOP. We’ve had some problems with some of the cranes. We’re in a seasonal period of relatively high winds. So we think we can overcome all of those, we think we can still deliver but one of the advantages that we have in the multi-rig program in Hamriyah if something breaks down. We can literally go to the next project down the track and almost cannibalize it to get the parts working in Astrakhan we don’t have that sort of security. So we’re pretty confident and we think there could be a healthy upside if we can deliver on that project it will be more of a one-off event obviously as everybody knows we have processed both EDC1 and EDC2 at zero margin through our books for the last two years. So as I say the project is fully provisioned I believe there is some good upside. We have issues we are working them all and I think we’re in much better shape than we were at the same time on EDC1.
In the case of Ensco we’ve been speaking to them regularly they’re very pleased with the project so far. They have asked us if they can expand the options until quarter one next year which we’ve got frankly and absolutely no problem with I mean that does it actually helps us in terms of a much more even load in of the work. We think at this time they will still go ahead with these options but obviously it’s a decision the Ensco have to make, but I think they actually announced that earlier this week. But yes there is good dialog going on with them and I think that they are very pleased with our progress so far on what I’d call Ensco 140 and Ensco 140 which are two projects we want to end later this year.
Thank you. Our next question is from the line of Andrew Whittock at Liberum. Please go ahead. Your line is open.
Andrew Whittock - Liberum Capital
I think I’ll just stick to three questions. I wonder if you could give us a breakdown of your revenues by sort of segment, jackup construction, refurbishments, et cetera, et cetera?
It’s probably not off the top of my head but I think from memory I think new built jackup is around 400 million, refurb is around 80 million, but that’s really off the top of my head. And so I don’t have those numbers in front of me. Can I come back to you on them?
Andrew Whittock - Liberum Capital
Yes, we will pick it up later. Just thinking about bidding pipeline and the on and offshore construction opportunities, I just wonder if you give us a bit more detail. You have mentioned the North Sea a few times. Is that the main area of opportunity now? Just could you give us a little bit more detail on geographies and I guess floaters of these other source of work?
In the numbers that we have quoted, if I start with the last question first, there are not FPSOs in those numbers at this point in time. All of the projects that we have been looking at are fixed and by fixed I would include all variance of fixed platforms. So jackups, decks, TLP, that sort of structure is all within there. And there is a leaning towards the North Sea both from oil and gas and from some of these big AC convertor projects, the wind farm projects have these big AC hubs, but it’s not all in the North Sea. There are projects I mean literally all over the world.
I keep sort of reminding everybody of the sort of Emirates map of the world and which we are in the fortunate position to be in and when you look at the map of the world, Dubai is almost exactly in the center in the Emirates map. And so we the North Sea is a very attractive business for us and there are some -- there is business in the Far East, there is business in the Atlantic, it is literally a worldwide business as we move forward. We are in the fortunate position, the Middle East itself is a very, very active region right now and we saw the benefit from that.
Andrew Whittock - Liberum Capital
And can I just finish up with working capital Jo?
Andrew Whittock - Liberum Capital
Quite a big move in the first half, I guess I was expecting it to move the other way as you received payments on completion of the construction projects, so I just wondering if you could say a little bit about the sort of natural cycle on the projects and whether something has changed?
I think we have pointed at the thing that we felt we were in quite a sweet spot from a working capital perspective. And as I said, we actually had -- we had all sorts of moving parts if you are going to look at work in progress you’ve got to look at advances from customers and there is all sorts things going into that. And so that caught but if you knit those out, we felt we were sort of -- we had funds from customers effectively of 75 million and right now as I have said in my presentation that swung quite the other way and people are owing us 65 million. Now yes you are correct and that we have had deliveries albeit that Seajacks and NDC 4 where certainly Seajacks was until June was delivered in June.
We still have what? One NDC 5, 6, we’ve got four rigs plus a number of construction, smaller offshore modules, plus we have the new rigs of Ensco and Shelf where we are buying kit where we need to make advance payments on big pieces of kits of those projects. So it’s very hard to predict working capital because every rig has a slightly different profile from a milestone perspective, so I don’t think there is any underlying concern that you need to be worried about with this working capital it really is just a point in time and where we are in that point of time on various projects. But as I said don’t forget we’ve got -- effectively we’ve got six rigs, two of which are in very early stages where we are buying pieces of kit. And so that’s where we are. I don’t think there is anything you need to be concerned about but I think we weren’t and what we call a normalized working capital cycle at the end of December and I think we did highlight that to the market.
Our next question is from the line of Neill Morton at Investec. Please go ahead with your question. Your line is now open.
Neill Morton - Investec
I’ve two questions. Just firstly when you talk about sort of moving more into the offshore market Jim, you’ve talked in the past about sort of top-sides fabrication and you won these contracts for Upper Zakum with Petrofac, I think many of us hopefully on this dynamics of the jackup rig market, could you maybe just talk a little bit about the competitive situation with regards to a topsides and where Lamprell fits into that? And then just the second question was just a clarification on the bonding facility of 250 million is that whole figure now secured? Thank you.
Okay. Dealing with topsides, there are several key aspects that you’ve obviously got the half to be able to compete in the North Sea, I’ll deal with. But the same thing sort of applies more generically. I mean, clearly the clients in the North Sea want something that is safe, I thought several time, made several mentions about our safety efforts which I truly believe now are at world class levels going, 10 million manhours in Nexen without a lost time incident is an outstanding achievement. And I think that’s very much noticed.
The quality is again just absolutely outstanding, I mean again to sort of quote the Nexen project not only was the project finished and commissioned, we were done -- all of the A punch list items were complete, all of the B punch list items were complete. The project sales from the yard and have incredible shape really for a North Sea project. So we’re able to take both of those things pretty firmly. We work with the clients. We’re not one of these companies that are the sort of jackal and hide you entice that client across the line and then you put in the heavy weight team that sticks picks the client for change orders all the time. We want clients to come back. And I think again, we’ve got a very strong reputation in the North Sea with the clients that we’ve build for so far. But we like what we’re doing.
And so when you start to go down these bridges the final thing that you come to is costs and clearly our costs are significantly cheaper than the equivalent labor costs in the North Sea. So I think, as long as, the penalty is we have the transportation obviously to get it there and if it’s a steadily small thing we’re talking at those in terms of something, but transportation cost probably offsets the advantages in labor. However, for bigger pieces and that’s certainly what we’re looking at in our bidding pipeline, that differentiation is pretty healthy.
Sorry, I need to wake up. And the bonding, the 250 million, it is committed Neil, so basically each of these syndicate banks that are now involved in this facility have not only committed to fund the portion making up to 350, they have committed also the unfunded portion of bonding, the 250 million. And I won’t haze in to add that that is not under this facility we’re allowed to take up to a $1 billion in bonding. So this is really just a committed bonding line that supposed to sit alongside the working capital portion of that facility, which will as I said sit alongside supports the working capital portion of that facility. Outside that we’re free to take bonding on a bilateral basis from any bank to support any projects that are not requiring a draw down on the $250 million working capital facility or 150 million, sorry.
Neill Morton - Investec
Okay. That’s great. Just one final clarification Jo, you mentioned in terms of the backlog the 1.2 billion you gave a split for execution in very issues, I just missed, I think hit 550 million for next year, I missed the amount for the rest of this year?
So 100% is secured for this year. And well, less well plus walk in so off that backlog I suppose it was just delivered 600 I need to do the numbers, but there if you back out the walk in I suppose some of that backlog is associated with ’14 I suppose off the top of my head would be about 300 or 400. No because the revenues is 400 so there is pre-list in that it be 300 I would have thought and then the 550 for the next year and then the remainder for ’16 although a tiny but it folds onto ’17.
(Operator Instructions) Okay. So the next question Phillip Lindsay at HSBC. Please go ahead, your line is open.
Phillip Lindsay - HSBC
Just a question really on payment terms are you seeing any change from the competition in terms of what they’re offering to the market? And perhaps you can just discuss, post the capturing injection what you can now offer to the market. I think also when we spoke last you’re very much of the view that this gives you a seat at the table, are you seeing significantly more opportunities out for that as a result of the balance sheet strengthening?
Several questions there I honestly don’t think there is sort of one side to all, the first part of your question is, do we see different competition? I personally don’t see it but until it is there I was speaking to one of the brokers not that ago with regard to jackup rigs and his comment was that the Chinese are actually sort of backing away from some of the sensational numbers that they have, they did have 199 and 1090 and his comment was that they were backing away from those terms. However he then went on to say that the Singaporean yards were now willing to offer that.
In terms of us, and maybe to conclude that point, so as I said that’s a little bit of here say I do not know that to be factually correct but that is what I’ve been told. In terms of us as we talked about previously a lot of it is about getting to the table. If the bid document comes out and say us, in order to submit a bid you must be able to provide 2080 payment terms, previously we had to decline and we I think talked at lengths about the last year there being 79 rig orders and us only winning two and largely because of that. I mean not all 79 were available to us, but we estimate probably 20 to 25 were and we just couldn’t bid of them because we could not satisfy the terms. This year there have been 33 rig orders placed to-date and we won four.
So I think we are getting to the table in neither Ensco nor Shelf that we do have slightly different payment in terms to our normal on them both but we did not have to use the facility to be able to do so. Now having said that we have talked to clients that have told us specifically, but that would be one of their demands. So yes it is unquestionably helping us, we won Ensco and Shelf that I believe otherwise we wouldn’t have done and yes there are other companies in the bid pipeline that do want to take advantage of those terms sort of told us that they want to take advantages of those terms.
I think Phillip I’d like to also add that, we’re very cognoscente in terms of the risk profile of our customers and we are able to offer financing but not to everyone and we don’t want to offer financing to everyone and equally I think internally we believe the customers need to bring a reasonable piece of equity to the table on these rigs. So we’re not prepared to offer 199 by any matter of means. So I think each customer as we would look at individually and understand what their long-term goals are building of building these rigs and what their balance sheet looks like and what security we take around that it. So I think it’s very important that the market understands that we don’t believe we’re increasing our risk profile by offering these terms and that’s why really the banks have been prepared to commit those facility to us because we have criteria around, who we are prepared to lend to and on what terms effectively. And I think that’s very important term from our perspective anyway.
Phillip Lindsay - HSBC
Okay, helpful. Thanks very much.
Okay. That was the final question for today. Can I please pass it back to you to close?
Yes. I’d just like to say again thanks for everybody turning up and realize it’s a busy day today. I appreciate everybody getting up nice and early to participate. I hope that was enlightening and as I said I’d just like to close by saying that I’m certainly very pleased with our results and I think we’re well on the path to recovery and the future looks pretty bright for the Group. Thank you.
This now concludes the webinar. Thank you very much for attending. You may now disconnect.
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