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Edited Transcript of LAM.L earnings conference call or presentation 13-May-20 8:00am GMT

Full Year 2019 Lamprell Plc Earnings Call

DUBAI May 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Lamprell PLC earnings conference call or presentation Wednesday, May 13, 2020 at 8:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Antony Wright

Lamprell plc - CFO & Executive Director

* Christopher McDonald

Lamprell plc - CEO & Executive Director




Operator [1]


Hello, and welcome to the Lamprell results call. I'll shortly be handing you over to Christopher McDonald and Tony Wright who will take you through today's presentation, and this will be followed by a Q&A session. We will be taking questions today only via the Q&A box on the webcast.

So for now, I'll hand you over to Christopher McDonald to begin this presentation. Please begin.


Christopher McDonald, Lamprell plc - CEO & Executive Director [2]


Good morning, and welcome to Lamprell's 2019 Full Year Results Presentation. My name is Christopher McDonald, and I'm the CEO. Joining me on this call is our CFO, Tony Wright.

Before we begin, I'd like to draw your attention to Slide 2 and remind the audience of the disclaimer relating to forward-looking statements.

The agenda for this morning's call is shown on Slide 3. I will first discuss the group's core priorities that are helping us guide us through this period of extreme uncertainty, including the specific actions we have taken since January. I'll then review our 2019 performance, including an update on our operations and bid pipeline before handing it over to Tony to walk you through the numbers. I will then address progress made with respect to our strategic initiatives and close out by addressing our outlook, at which time, we will then open it up for Q&A.

The yellow structure, pictured on Slide 4, is of a transition piece, which is a critical reinforced foundation component for an offshore wind farm. This TP, as is referred to in the industry, was lifted recently into place despite the many operational challenges posed by COVID-19. To this end, I'm very proud how our 4,000-plus employees have pulled together to adapt to the new reality and for exhibiting remarkable resilience.

Turning to Slide 5 and to how we are addressing this period of extreme uncertainty. Specifically, our decision-making is being guided by 3 core priorities. These are: one, protecting our net cash position and maintaining liquidity; two, continuing to deliver our strategic growth objectives; and three, maintaining the health and well-being of our employees while we work through the challenges of COVID-19 to continue to deliver for our clients.

With respect to liquidity, we took decisive action earlier this year to reduce our cost base by $22 million via various self-help measures to significantly reduce our break-even cash levels relative to 2019. Furthermore, we settled all outstanding commercial issues on EA1 last month, which will improve liquidity by $40 million in due course. Meanwhile, we have entered into discussions with our IMI partners to defer our $26 million of equity contribution until 2021 and have cut planned CapEx to a bare minimum. We are in a net cash position with 0 debt and had over $200 million in unencumbered assets. We continue to pursue various funding options, including green sources of funding, given our increasing presence in the renewable space.

With respect to strategic initiatives, we are well placed in our home markets of the U.A.E. and Saudi Arabia who possess the world's lowest cost hydrocarbon reserves, have established ourselves in the offshore wind market and have made good progress in realizing our digital aspiration.

With respect to overcoming the immediate challenges of COVID-19 pandemic, we have implemented protocols to protect the health and well-being of our employees, which remains our top priority. I will discuss this in detail in a few minutes. Meanwhile, in addition to the restructuring measures discussed earlier, we further cut costs in April by approximately $10 million.

Moving to Slide 6. We have had a busy start to the year and have taken specific actions to see us through this crisis and to position us for recovery. In January, we secured the contract for the first 2 new build jack-up rigs after lengthy, technical and commercial discussion with our clients, the IMI and ARO Drilling. These are the first 2 rigs ordered in many years to anyone worldwide, and I am pleased to report that we have received an $87.9 million initial payment at the end of January. Both rigs are due to be delivered in the first half of 2022, and we'll convert approximately $70 million in cash over the construction period by utilizing 2 jacking kits that were held in inventory. And as from 11 March, the group is completely debt-free with all of our assets unencumbered.

Meanwhile, we delivered the first batches of jackets to our client on the Moray East project on time. And we were also pleased to finally close out the EA1 Project, which will ultimately provide an additional $40 million of liquidity through a combination of the final payment from the client, which was received earlier this month, and the gradual release of restricted cash associated with the project's various guarantees.

With regards to our goal of lowering our breakeven level, we implemented a self-help program in the first quarter, which resulted in a reduction of overhead of a total of $22 million. This consisted of consolidation of our operations into one yard, the exiting of another and a significant reduction in headcount. In response to COVID-19, we implemented a further savings of $10 million in April to protect our cash position, which is achieved by enacting a 6-month 25% reduction in salaries and fees for all employees, including the Board of Directors. So as we move forward, we have made significant steps in the first part of 2020, which put us in a better position to weather the storm of low oil prices from COVID-19.

Turning to Slide 7 and the self-help steps we took earlier this year. The operational restructuring actions we implemented resulted in a $22 million reduction in overhead as compared to 2019. We achieved this by optimizing our operational footprint by consolidating into our biggest and most versatile yard in Hamriyah. In the meantime, we have mothballed our Jebel Ali facility until which time work volume justifies reactivation, and we'll exit our Sharjah yard upon completion of the Moray East project later this year. You can see the locations of each of these yards in the Google Earth image on the right. Furthermore, we have extended the number of hours in our workweek, cut employee allowances and reduced headcount whilst retaining capacity and capability in line with our strategic objectives. These decisions are never easy as they often affect those who made Lamprell what it is, but in order to ensure a long-term future for the company and deliver value for all of our stakeholders, we acted swiftly.

Moving to Slide 8 and to how we are addressing COVID-19, its impact to our operations and specifically, the actions we have taken to safeguard our employees as well as the business.

Firstly, I am pleased to report that our yards in the U.A.E. continue to be operational. 70% of our professional staff are working remotely with screening protocols in place since February for all persons entering our facilities. We have contact-tracing procedures in place so that we can isolate any exposed individuals immediately and also have secured separate accommodation for those requiring isolation. We have a trained professional medical team on staff at our facilities providing round-the-clock support and are working very closely with the U.A.E. health authorities. We have had some of our employees test positive, all required medical care is being provided, and we wish them a speedy recovery. We are taking extraordinary steps in accordance with the World Health Organization recommendation and in strict adherence to U.A.E. government guidelines.

Despite these challenges, we are making good progress with all our projects, although we are seeing incremental additional costs and lower productivity associated with the preventative measures that we have implemented at our facilities. To this end, we are working closely with both our clients and our supply chain to mitigate any impact from the ongoing crisis.

And lastly, given the extreme uncertainty, we took the decision last month to reduce fees, salaries and allowances for all employees by 25% for 6 months. These measures, along with reduced working weeks for some employees, will yield approximately $10 million cash savings for 2020 and will contribute to the goal of conserving cash and improve liquidity during this period.

Moving on, I want to point out the picture on Slide 9, which provides a bird's eye view of the number of jackets for the Moray East offshore wind farm in various stages of completion at one of our yards in the U.A.E. Renewables and, in particular, offshore wind is a key element of our strategy, which I will discuss a bit later on in the presentation.

Now to a summary of the group's 2019 performance on Slide 10. As expected, 2019 was another tough year and, indeed, for the wider service sector. For the year, the group had a net loss of $183.5 million on revenues of $260.4 million. The majority of the loss was due to one-off items, including a $28.8 million write-down on the EA1 Project as a result of the final commercial settlement and a noncash impairment of $79.3 million relating to restructuring and write-down of assets given current market conditions. Our year-end backlog for 2019 was $470 million, which compares to $540 million at December 31, 2018. Meanwhile, the group ended the year with a net cash position of $42.5 million. And as reported last month, our net cash as at 31 March 2020 was $77 million, of which $35 million is restricted.

Meanwhile, our bid pipeline of $6.2 billion remained steady year-on-year, both in terms of quantity and quality of opportunities. On health and safety, I'm very pleased that our total recordable injury rate, TRIR, for 2019 was 0.19, which was the group's second successive year of record safety performance on the back of 13.3 million work hours performed in our yards. So in summary, and as expected, 2019 was a challenging year financially, accentuated by several one-off items which are now behind us.

Moving to Slide 12 and to operations. Our yard activities with respect to the Moray East project ramped up throughout 2019 and peaked early in 2020 with the first 2 batches of jackets delivered to the client on time. Our scope of work includes 48 jackets, and the last delivery is scheduled for Q3 this year. As you may recall, we made incremental investments in our yards to improve efficiencies and are pleased to see these efforts translate to the bottom line. This project further solidifies our position in a market that is estimated to grow fifteenfold by 2040. Also, during 2019, we delivered 13 rig refurbishment projects, and 2020 started off strongly with several new refurbishment projects.

Moving to Slide 13 and to the IMI. We were pleased to have announced in January the formal contract award of the first 2 new build jack-ups for the IMI. The total contract value was approximately $350 million, and the work will be conducted mainly in Lamprell's facilities in the U.A.E. with final commissioning to be done at the IMI yard in Saudi Arabia. Upon award, Lamprell received nearly $88 million of initial payment in January. Furthermore, the project will utilize existing jacking kits held in inventory, which will convert approximately $70 million in cash over the 2-plus years of execution.

With respect to the Maritime Yard, our equity contribution to date is $59 million with dredging, reclamation and marine structures nearly complete with yard facility construction underway.

Saudi Arabia continues to be a key component of our growth strategy and our relationship with our IMI partners remains strong. To this end and in line with the principle of maintaining liquidity, we have initiated constructive discussions with our IMI partners to defer our next equity contribution of $26 million until 2021.

Moving to Slide 14 into Saudi Aramco's long-term agreement, otherwise known as the LTA. The LTA is a unique opportunity to be part of a limited competition for approximately $3 billion per year that Aramco spends to maintain their offshore production. Given the focus on maintaining production, we believe that CapEx spending for this program will be less affected as compared to other greenfield projects in the current environment. To this end, we continue to bid various scopes of work during this period, which is depicted in the graphic on the right-hand side of the slide and includes jackets, topsides, decks and other offshore structures. Since joining the LTA in November 2018, we have learned many lessons in our first full year of bidding and are confident that our continued efforts will ultimately lead to conversions of our fair share of this work into backlog. To this end, we are evaluating how best to increase Saudi content, which we believe will be a key differentiator going forward.

Turning to the bid pipeline on Page 15. As of December 31, 2019, our pipeline of opportunities remained steady at $6.2 billion as compared to $6.4 billion at the end of 2018. The $6.2 billion in opportunities can be split into our end markets with $1.4 billion for renewables and $4.8 billion for oil and gas. There is a growing number of offshore wind projects in our pipeline with awards scheduled progressively over the next 18 months. In oil and gas, we continue to bid scopes of work on the LTA as well as several opportunities in Abu Dhabi. We remain very disciplined as to how we identify, pursue and differentiate ourselves with respect to new business and remain confident as to the quality of our pipeline. However, given current market conditions, we do expect delays to award decisions for many of these opportunities.

With that, I will turn it over to Tony to walk you through the financials.


Antony Wright, Lamprell plc - CFO & Executive Director [3]


Thanks, Chris, and hello to everyone joining us on the webcast today. My name is Tony Wright, and I'm the CFO for the Lamprell Group. I trust you are all keeping safe and healthy.

Moving to Slide 17. Now our net loss for 2019 is $183.5 million, including noncash impairments, an increase in losses of $102.8 million on 2018. Our EBITDA for 2019 is negative $64.6 million compared to a negative EBITDA of $35.1 million in 2018. When impairments are excluded, our net loss for 2019 is $104.2 million. The noncash impairment charges we have booked in 2019 is $79 million and are clearly a significant driver for the losses in the year. As previously disclosed in April, $13 million of the impairment arises from the decision to restructure our yards into one yard and relates to our Sharjah assets. The remaining impairment charge of $66 million has arisen through the regular biannual road test that we undertake to assess the value of our assets.

This year, we appointed an independent valuer to review the carrying values of our assets, and the impairment arises from this exercise. The assets that have been impaired are predominantly those relating to our buildings and operating equipment, which were impaired by $52 million. We have also fully impaired to 0 all of our intangible assets, resulting in a charge of $27 million. I would remind you that the impairment has no impact on our future liquidity.

Other drivers are our low revenue levels and the impact of the settlement on the ScottishPower EA1 Project, a topic I will elaborate on later in the presentation. It is good news that we can put this project behind us. The settlement has removed the risk of liquidated damages being levied on us and the severe impact that would have had on the balance sheet and our liquidity.

In 2019, we have reported an increase in overheads associated with upskilling the team, in particular within our bidding and proposals department where, as previously advised, the focus of the investment was to support our first year of bidding the LTA project pipeline. In the face of COVID-19 and the challenging market conditions, we have taken steps to reduce our cost base significantly in 2020, which I will touch on further in a later slide.

The Moray East project is progressing well and has contributed project margin in 2019 as it made sufficient progress in the second half of the year to enable us to book profit under the contract accounting rules. Our revenue for 2019 was $260.4 million, an increase of 11% on 2018. The table on the right shows how our revenue mix for 2019 continues to be dominated by the EPCI segment with the majority being from the renewable sector. Our services businesses, in particular our O&M business, continued to perform well, providing a steady flow of revenue and profit.

I'm pleased to confirm that we reported a net cash position of $42.5 million at the end of 2019, and that we have repaid our debt in the first quarter of 2020. Liquidity remains our key focus and securing the down payment on the IMI rigs as well as the recent EA1 settlement gives us headroom to continue to manage our business and secure new projects. So against a very difficult backdrop in 2019, Lamprell has been able to retain its liquidity and has made positive steps so far in 2020.

Turning to Slide 18. This is a familiar chart that has been adapted to show in more detail the factors that have contributed to the increased negative EBITDA in 2019. As I mentioned earlier, the Moray East project made enough progress in the second half of the year to make a positive margin contribution under our contract accounting policies. Offsetting this, the EA1 Project had an adverse impact on our profitability, but all costs have been provisioned in 2019. The year-on-year movement of $29 million was driven by accepting reduced values on our contractual claims and variations, additional costs incurred in completing the jackets in our subcontractor's yard and some post-completion activities, including an increase in our warranty provision, which will not impact short-term liquidity.

I would reiterate that the removal of the liquidated damages of nearly $34 million greatly derisked the balance sheet plus the release of $19 million of cash in the near term, which actually we received last Friday, together with the opportunity to release restricted cash of over $20 million, is a great benefit to the group's liquidity. Our other businesses have performed steadily in 2019, but lower revenue levels within the rig refurbishment business has impacted margins during the year.

As I mentioned on the previous slide, overheads in 2019 have increased as we made an investment in upskilling our teams, which leads us on to Slide 19. This slide is important to understanding our overhead structure as we move forward. Of particular importance is the breakdown between cash and noncash overheads and what that means for monthly cash burn for the business. Our overheads in 2019 were $104 million. We have already acted decisively in Q1 2020 to reduce these to an underlying level of $82 million, a reduction of 21%. There will be a one-off restructuring charge of $8 million in 2020, which relates to staff costs and the transfer of movable assets to Hamriyah.

The pie chart in the top right of the slide shows the split of our 2019 overheads between cash and noncash, with $71 million being the cash element. The actions we have already taken, namely mothballing Jebel Ali, headcount reductions, reductions in allowances and extending the working week to enhance productivity, have resulted in our cash overheads being reduced by 28% to $51 million in 2020. The further measures we have taken to deal with the impact of the COVID-19 health crisis will result in an additional 8% reduction in our cash overheads for 2020 to $47 million, an effective cash burn of just under $4 million per month. The remaining $6 million of savings arising from the COVID-19 savings plan will reduce project management and labor costs and, therefore, enhance project margins.

The table in the bottom right of the slide highlights the areas where the cuts have been made, and as expected, corporate deferments are bearing the brunt of the reductions.

Whilst difficult, these cuts are critical to our liquidity pathway, which leads to Slide 20 and our cash position. In 2019, our net cash has reduced by $37.5 million to $42.5 million. Negative EBITDA during the year is the most significant driver to this reduction. On a more positive note, a significant focus on managing cash flow within our projects has resulted in a $41 million improvement in our working capital position. We collected cash from ScottishPower on the EA1 Project during the year and kept the Moray East project broadly cash-neutral. We also made strong collections of our older receivables, which has also enhanced our liquidity. Focusing on our working capital allowed us to continue to make CapEx investments of just under $21 million in the year. I will provide more detail on this in the next slide. Within other cash outflows are settlements of U.A.E. end-of-service gratuities and funding of our net finance costs.

So moving to Slide 21. We have made modest, but important, investments in our Hamriyah yard in 2019, such as new gantry cranes, new concrete production pads and pipe profiling machines as well as completing the pipe shop. This CapEx totals $21 million in 2019 and has been critical to the success of the Moray East project. In 2020, we have no plans for any major CapEx spend as we look to preserve our cash position. In 2019, we made no equity contributions to the IMI. In regard to our future strategic investment in the IMI venture in Saudi Arabia, as Chris has mentioned earlier, Saudi Arabia is a cornerstone of our strategy, we remain committed to supporting the Kingdom. Our share of the early losses from the IMI for 2019 is $8.4 million, a decrease of $1 million on 2018.

So on to Slide 22 and in summary. 2019 has been a challenging year financially for Lamprell, but we have made progress in the early stages of 2020 as set out by Chris at the beginning of the presentation. However, it's worthwhile reminding ourselves of each further step we have taken in Q1 2020 as they significantly help our cash position, that is, securing the IMI rigs and the $88 million down payment to monetize the rig kits, settlement with ScottishPower on EA1 and the cost reduction scheme that has already been implemented. Securing the IMI rigs also removed a substantial risk of impairment of the Super 116E rig kits we held in inventory totaling $70 million.

Even post significant impairments of our intangible and tangible assets, we still retained net assets in excess of $200 million, which supports the delivery of our current backlog. We have invested wisely in our Hamriyah yard and have the operational capability to support new projects when they arrive across all pillars of our strategy. This now allows us to place restrictions on our future CapEx without constraining our capabilities. We are currently debt-free. And our asset base is unencumbered for us to use as security on potential debt solutions when the markets improve. We are also looking at other finance solutions to support our current projects. Our banks, and in particular HSBC and Abu Dhabi Commercial Bank, are supporting us as we look at ways to use our leveraged position to add to our liquidity.

Given the current circumstances, I'm not going to give any guidance on specific cash numbers for 2020, apart from we have a path to maintain adequate liquidity within the group for at least the going concern period as confirmed by our auditors and their audit opinion. I'm confident of this because we have made progress in Q1 2020 and have the following levers that we can control to reduce cash outflows. As we reported last month, we have $77 million of gross cash at the end of March and 0 debt. The EA1 settlement has already freed up $19 million of cash with the opportunity to release restricted cash of at least $11 million this year. We are in discussions to defer any equity contribution to the IMI until the second half of 2021. Future CapEx is going to be minimal until the end of 2021.

At the end of March, our ongoing projects have drawn working capital in Q1 2020, and this will improve as projects are concluded. And finally, we have taken decisive moves to reduce our cash overhead to levels that are sustainable within our liquidity headroom.

So in conclusion, we have made good progress so far this year and continue to constantly look at ways to preserve and enhance our liquidity.

With that, I'll now hand you back to Chris for an update on our strategy.


Christopher McDonald, Lamprell plc - CEO & Executive Director [4]


Thanks, Tony. And now turning to Page 24 and to our strategic initiatives. As a reminder, the key pillars of our strategy are as follows: one, strengthening our position in core markets; two, implementing our EPCI strategy; three, expanding into new markets and geographies, leveraging our core strengths; and four, improving our business through innovation and digital technology.

With respect to our position in our traditional markets of new build jack-up rigs, we have partnered with Aramco to build the new IMI yard in Saudi Arabia, which will build 20 rigs for the ARO Drilling joint venture. And as mentioned earlier, we formalized the award of the first 2 rigs in January, and the project is well underway.

With respect to implementing our EPCI strategy, we continue to bid scopes of work on Saudi Aramco's LTA program, which opens up over $3 billion in EPC opportunities each year. We have also progressed several offshore wind opportunities in the renewables space.

With respect to expanding into new markets and geographies, we solidified our position in the fast-growing renewables market with the award of our second foundations project.

And in Q4 of last year, we formalized our relationship with Injazat, which is an information technology, data and managed services company wholly-owned by Mubadala Investment Company, that focus on a number of technology-enabled digital ventures to create new revenue streams and provide added value to our customers.

Moving to renewables on Slide 25 and specifically, the fast-growing offshore wind segment. Offshore wind is expected to double in the next 4 years and increase by 15x by 2040. It is estimated that over 3,000 foundations will be required in the next 5 years. As a point of reference, Lamprell can produce about 50 to 60 foundations per year. Our focus to date has been jackets, which is depicted in the graphic on the right-hand side of the slide. As turbines increase in size, we're also assessing the transition piece market for monopiles, which is highlighted as well. Our competitive cost base, production line setup, yard improvements and recent experience gives us an advantage over our global peers.

Moving to oil and gas and to Slide 26. Unlike renewables, the oil and gas industry is under extreme stress with the collapse in prices earlier this year. However, we are well positioned in the Middle East, which is home to the lowest cost reserves anywhere in the world and, therefore, expect offshore CapEx spending in both the U.A.E. and Saudi Arabia to continue. Specifically, ADNOC are in the middle of a previously announced rig acquisition program. We also have a place on Aramco's coveted offshore LTA program, which is a 6-year framework agreement plus potential options to extend for a further 6 years. Hydrocarbons will be a significant part of the energy mix for the decades to come, presenting an opportunity for highly-skilled and disciplined contractors with significant local presence such as ourselves.

Turning to Slide 27. Our digital strategy has become a larger part of our planning, and we are excited about the major opportunities to us. The energy industry is highly capital-intensive, therefore, those that can provide differentiated solutions to reduce the cost of those assets as well as make them more productive over their lifetime will be well positioned going forward. To this end, we are progressing innovative digital solutions, which would provide both improvements in project execution as well as potential new revenue streams for the group.

In 2019, we partnered with Injazat, the region's leading digital developer backed by Mubadala Investment Company to progress a portfolio of digital ventures, including asset integrity and various initiatives to enhance fabrication efficiencies in our core markets, with limited investment at this stage. We have further partnered with Akselos who'll provide the computational platform for digital twins, which we believe will be of great value to our clients.

Turning to Slide 28 and to outlook. Given the current environment, we are, and continued to be, focused on 3 overarching principles. These are: one, the health and well-being of our employees; two, protecting our net cash position and maintaining liquidity; and three, progressing our strategic initiatives.

With respect to our employees, we have implemented protocols to protect their health and well-being, which remains our top priority.

With respect to the balance sheet, we are in a net cash position with 0 debt and have over $200 million in unencumbered assets and continue to pursue various funding options. Furthermore, we took the site of action earlier this year to reduce our cost base significantly relative to 2019. Meanwhile, we have entered into discussions with our IMI partners to defer our equity contribution until 2021 and was pleased to reach a final settlement on the EA1 Project several weeks ago.

With respect to strategic initiatives, we are well placed in our home market of the U.A.E. and Saudi Arabia who possess the world's lowest cost reserves, have established ourselves in the offshore wind market and have made good progress in realizing our digital expiration. Last month, we withdrew guidance for 2020 given the extent of market uncertainty, and confirmed we have $275 million in backlog scheduled to run off in 2020, assuming no material disruption to our operations.

With that, I'd like to thank you and open it up for Q&A. If you are listening remotely, please log your questions via the webcast, and we'll try to answer them as best we can.


Questions and Answers


Operator [1]


(Operator Instructions)


Christopher McDonald, Lamprell plc - CEO & Executive Director [2]


There are a few questions coming in. The first one relates to the delay in results as requested by the FCA, why did it take 7 weeks to get to this point?

I'll take that question. And as everyone may be aware, the FCA directed not just ourselves but all public companies that were reporting in this end of March, early April period to delay their earnings to fully allow auditors the time and space to complete their audits, specifically when the companies they're auditing and they themselves were working remotely, but also to assess the viability and going concern of those entities, including ourselves. I can speak with confidence that we were stress-tested many, many different ways in terms of our model and was pleased that Deloitte and our Board of Directors signed off on that yesterday and announced this morning.

I can also add that the process was very, very thorough, particularly as relating to energy services companies, given the double whammy of COVID-19 and the collapse of oil prices. So some of the models that -- and cases that we had to model were quite extreme. And in order for us to sign off, we had to demonstrate that we had the levers to continue as a going concern. And we did do that. But we were ready back in March, but the world changed at that time, and we needed those additional time, both on the auditor side as well as us, to put those models together in order to get the auditors to sign off, which they have.

I guess the second question that I see that's come through is just a general commentary about capacity utilization in the industry. And do you feel there is a need for industry consolidation?

So I'll take that second question. The second part of that question is, yes, it's clear that there's too much supply with 2Q demand. And I do think that from -- some segments of our industry will require it more than others. But in general, I do see the need for industry consolidation. We have to take out cost. There's too much debt out there. There's too much SG&A given the current investment climate that we're in. So I think that's a natural result of those sorts of macro level environment.

I guess this one, next one, is for Tony. It's besides overhead reduction, will Lamprell continue to fund operations? And maybe provide a little bit more commentary on the debt refi and where we stand on that.


Antony Wright, Lamprell plc - CFO & Executive Director [3]


Okay. Thanks, Chris. Well, actually, as I said earlier, we do have a pathway for liquidity as we go through the next sort of 15 months, and that includes the measures that we've taken to date. But also it considers the various options that we're looking at in terms of potentially accessing new debt. There's no doubt that the debt markets as they stand are challenging at the moment. But the fundamental principle is if you win projects, there's definitely appetite to support project financing. And so that will be our main focus as we secure new projects. But even if projects are slightly delayed, we do have a pathway of liquidity to manage through and from our current projects that we have in hand already.


Christopher McDonald, Lamprell plc - CEO & Executive Director [4]


Thank you, Tony. The next one, there's a question about, have you considered moving the stock exchange listing to AIM to reduce costs?

I think I would answer this. Every decision that we are making going forward during this period is based on the 3 principles. One is about the health and safety of our employees as we continue to deliver for our clients. The other one is about liquidity and maintaining net cash. And then the other -- third one is continuing to progress our strategic growth initiatives. So at this point, we don't see any change to our current listing. We have a pathway through our base case to get us through this crisis, and we have additional levers that we think would probably be implemented first before we have to consider changing our listing.

I think the next one maybe for Tony is, could you provide a little bit more color on the realization on the sale of the jack-up kits in inventory through the IMI contract. How should we expect to affect cash generation on this project?


Antony Wright, Lamprell plc - CFO & Executive Director [5]


Yes, I can take the first bit there, Chris. So at the moment, the rig kits are in inventory. But as work progresses throughout the next -- the period of construction, then these kits will move into work-in-progress and then naturally through the profit and loss account as progress is recognized. So that's the way that we would -- that's the way the kits get recognized just in the normal course of the project along the S curve. But obviously, in terms of the cash generation on the project, we've got the down payment of $88 million, which, of course, is excellent for our liquidity pathway. And then as we -- as the project progresses, there are regular milestone payments as various milestones are achieved. So obviously, getting the down payment is an excellent start to the project in terms of cash margin. There's peaks and troughs, as you'd expect, in all of these type of projects, but because of the milestones that come through as we progress, the project itself will always remain in a robust cash position.


Christopher McDonald, Lamprell plc - CEO & Executive Director [6]


Thank you, Tony. There are a couple of questions that are coming in regarding the decision to consolidate operations and to provide a little bit more color on that.

Yes. So this is a decision that we took at the end of last year, early this year before COVID-19. And we did this in regards to how can we become more competitive, reduce our cost base and be more sustainable. In an ideal world, you would want to have one big yard as opposed to 3 yards, which we did because of various legacy issues over time of our 45-year history, and it became clear that logistics -- you might have multiple positions, whether it's receptionist, yard managers, all these sorts of things and triple kits. And it was obvious that given the market that we can only support one consolidated operation at this time. So Hamriyah has the largest quayside access. We've got deep port access there. It is our biggest yard. And it also offers the ability to expand when the market allows us to do that all in one location.

With respect to Jebel Ali, we're one of the anchor tenants in Jebel Ali. We have mothballed it. But what that means is that if there's sufficient workload, we could probably get that back up and running within a couple of months. So the running cost of that, once we've mothballed it, is in absolute minimum. And so going forward, that's always an option for us if we need the additional space as well.

Let me see. There's one in here about foundations mentioned, the 50, 60 foundations a year, does this include jackets and transition pieces? The answer is yes. And then the second part of that question is, what is the capacity for transition pieces?

And what I can say there is jackets pick up a lot of space. When we think about capacity, it's not just about labor. And in this case, it's more about space. Transition pieces, we can do a lot more transition pieces in the same space. So I mean I would venture to guess that it would be somewhere -- we're probably in the 70 to 80 range in terms of our ability to do transition pieces a year based on layouts and those things and maybe even more. So that's something that's quite interesting to us because it's very, very high-value fabrication, and we can get more of it through our yards. So that's something that's going to continue to interest us.

Let's see, is Lamprell no longer interested in HVAC and HVDC platforms?

No. We are very much interested in HVAC and HVDC offshore platforms. And our pipeline of opportunities is renewables. It's not just foundation projects, we also are bidding fabrication only, HVAC and HVDC platforms. So that is something that is part of our whole renewables strategy and very much in our sights.

In terms of near-term pipeline, what sort of percentage of bid pipeline do you see reaching award in 2020? What's the near-term focus? Do you see any projects reaching award this summer?

Every project in our opportunity that sits in our bid pipeline is something that we believe will eventually go. I think one of the reasons we redrew -- withdrew guidance this year is it's very difficult given these conditions about what will proceed in a timely fashion. So having said that, we continue to see -- we're active-bidding a few scopes of work on the LTA. There are a couple of opportunities in Abu Dhabi, which we think will continue throughout the year. And there is particular -- we've got 4 or 5 foundation projects in our pipeline for renewables. We do think one of those could be awarded by the summertime. The rest are probably earlier in 2021, but there is probably one opportunity that could get awarded this year. Hopefully, within the next couple of months.

Let me see. I think that's it for now. Thank you for all of your attention. And that's the end of the webcast. Thank you.