TIDMCIU
RNS Number : 4841Z
Cape plc
15 March 2017
15 March 2017
Cape plc
("Cape" or "the Company", and together with its subsidiaries,
the "Group")
Preliminary Results
Cape plc (CIU.LN), an international leader in the provision of
critical industrial services to the energy and natural resources
sectors,
announces its preliminary results for the twelve months to 31
December 2016.
Robust 2016 financial results, strong trading performance and
record order book; confidence in 2017 outlook
Financial summary
2016 2015 Change
Financial highlights:
Continuing operations:
Revenue GBP863.5m GBP711.4m +21.4%
Adjusted operating profit GBP55.4m GBP52.5m +5.5%
Adjusted operating profit
margin 6.4% 7.4% (100bps)
Adjusted profit before
tax GBP47.4m GBP44.7m +6.0%
Adjusted diluted earnings
per share 29.9p 29.9p -
Full year dividend per
share 7.0p 14.0p (50.0%)
Adjusted net debt GBP80.4m GBP109.9m (26.8%)
Statutory results:
Revenue GBP863.5m GBP711.4m +21.4%
Operating profit/(loss) (GBP32.8m) GBP39.9m (182.2%)
Profit/(loss) before tax (GBP43.6m) GBP29.1m (249.8%)
Diluted earnings/(loss)
per share (34.0p) 12.7p (367.7%)
Throughout this document, various management measures are used
and referred to as adjusted. These are defined and reconciled
within note 8 'Adjusted measures'.
Highlights
-- Strong trading performance driven by increased activity in
Asia Pacific and favourable foreign exchange:
- UK margins were adversely impacted by oil price driven
weakness in the North Sea, reduced demand from the
coal-fired power generation market and a small number of
commercial issues. Corrective measures have been implemented and
the business is expected to deliver a much improved performance in
2017
- The Middle East business delivered a solid performance. A
number of key contract wins and increased activity in the Kingdom
of Saudi Arabia, combined with a strong performance from the
SOCAR-Cape joint venture in Azerbaijan mitigated the effect of
increased cost pressures, slow-downs and deferrals from customers
in other parts of the region
- The Asia Pacific business benefitted from excellent
operational performance on increased project activity in Australia,
South Korea and Singapore, more than offsetting continuing low
levels of demand in the Australian mining sector, and intense
competition across the whole Asia Pacific region
-- Strong adjusted operating cash flow of GBP71.5m (2015:
GBP43.9m); significantly lower adjusted net debt of GBP80.4m
(31 December 2015: GBP109.9m)
-- Record closing order book, up 6.5% at GBP917.6m (2015: GBP861.3m)
-- Record safety performance
-- Settlement of insurer product liability litigation agreed on
12 March 2017 for a consideration of GBP18.0 million payable
immediately and a deferred payment of up to GBP34.5 million payable
in the period 2018 to 2023
-- Final dividend per share of 2.5 pence resulting in full year
dividend of 7.0 pence; progressive dividend policy from 2018
-- The business is expected to deliver another strong trading performance in 2017
Commenting on the results, Joe Oatley, Chief Executive of Cape
said:
"I am delighted to report we have delivered strong top line
growth and solid earnings per share despite the challenging market
backdrop, demonstrating the resilience of our strategy. The
settlement of the insurer product liability litigation on 12 March
2017 has removed a significant risk to the business and its
stakeholders. In light of that litigation, our focus during 2016
has been on the delivery of our organic growth strategy and I am
pleased to report that this is yielding results. Whilst market
pressures are expected to persist for the near-term, with a strong
order book and a good start to 2017, the Board is confident that
the business will deliver another strong trading performance in
2017. We continue to invest in our strategy and I remain convinced
that it will deliver increased shareholder value over the medium to
long-term."
Changes to segmental reporting
The Group has re-organised its geographical reporting segments
during the period as outlined below. The change in reporting
segments is effective from 1 January 2016 and has been performed to
align external reporting with the revised internal management
structure. All prior year figures have been restated
accordingly.
Old segments New segments
UK, Europe & CIS(1) UK
MENA Middle East(2)
Asia Pacific Asia Pacific(3)
(1) CIS refers to Kazakhstan, Azerbaijan and Sakhalin
(2) Includes Kazakhstan and Azerbaijan
(3) Includes Sakhalin
Analyst meeting
The Group will be presenting to a meeting of analysts at 9.30am
today at the office of Buchanan, 107 Cheapside, London, EC2V 6DN.
The presentation will shortly be available on the Company's website
at:
www.capeplc.com/investors/financial-results-and-presentations.aspx
Enquiries
Cape plc +44 (0) 1895 459 979
Joe Oatley, Chief Executive
Michael Speakman, Chief Financial Officer
Ian Wood, Head of Investor Relations
Buchanan +44 (0) 207 466 5000
Bobby Morse, Ben Romney, Chris Judd
This announcement contains inside information.
Forward-looking statements
Certain statements in this document are forward looking. By
their nature, forward looking statements involve a number of risks,
uncertainties or assumptions that may or may not occur and could
cause actual results or events to differ materially from those
expressed or implied by the forward-looking statements. Such risks,
uncertainties or assumptions could adversely affect the outcome and
financial effects of the expectations, beliefs, hopes, plans,
intentions, strategies and events described herein. Therefore,
forward-looking statements contained in this document regarding
past trends or activities should not be taken as representation
that such trends or activities will continue in the future. You
should not place undue reliance on forward-looking statements,
which are based on the knowledge and information available only at
the date of this document's preparation. For a description of
certain factors that may affect Cape's business, financial
performance or results of operations, please refer to the Principal
risks on page 20 of the 2015 Annual Report and Accounts.
About Cape:
Cape (www.capeplc.com), which is premium listed on the main
market of the London Stock Exchange, is an international leader in
the provision of critical industrial services principally to the
energy and natural resources sectors. Our multi-disciplinary
service offering includes access systems, insulation, mechanical,
specialist coatings and fireproofing, refractory linings services,
environmental services, storage tanks and heat exchanger
replacement and refurbishment.
Cape employs c. 16,000 people working across 23 countries and in
2016 reported revenue of GBP863.5 million.
Chairman's statement
Overview
The Group delivered a strong performance in 2016, despite the
challenging market. Financial results were robust, with strong
revenue growth and solid adjusted diluted earnings per share. The
Group also performed well operationally, delivering our critical
services for our customers and being rewarded with substantial
contract awards across the Group. Given the importance we place on
creating a safe working environment, I am particularly pleased that
we also recorded our best ever safety performance.
We faced a number of other challenges during the year. At Board
level, we spent a considerable amount of time working with
management and our advisors on the ongoing industrial disease claim
litigation, reaching a settlement agreement in relation to the
insurer product liability claims on 12 March 2017. This settlement
and other related industrial disease claim issues are discussed
more fully in both the Chief Executive's and Chief Financial
Officer's reports. There were also changes in our senior structure
and Board membership as we re-domiciled the Company's centre of
management and refreshed the Board and its Committees. Throughout
the year, we maintained our focus on the continuous improvement of
the Group's governance and controls.
A resilient strategy delivering strong financial results and
significant contract awards
The strength of Cape's strategy has been demonstrated with a
strong financial performance and a number of key contract awards in
difficult market conditions during the year. Our customers focussed
on cost control and cash management, which put pressure on margins
and caused delays and deferrals of maintenance and construction
activities. However, our broad geographical reach, balanced
business and commitment to operational excellence ensured the Group
delivered adjusted diluted earnings per share of 29.9 pence, in
line with our performance in 2015. The award of additional scope of
works at Wheatstone in Australia in 2016 is recognition by our
customer of the quality and value that Cape delivers.
Health and safety
Our vision is to create a work environment where everyone can
work safely with zero harm to themselves and their colleagues. We
achieved our best ever recorded safety performance with significant
improvements in both our Total Recordable Incident Rate and the
number of Lost Time Incidents during the year. We will continue to
drive a strong safety culture within the business; we owe it to our
many employees and customers.
The Board and corporate governance
During the year, the Board re-domiciled the Company's centre of
management from Singapore to the UK, a move we expect to provide a
number of benefits to the Group.
As previously announced, following re-domiciliation, Samantha
Tough, who is based in Western Australia, stepped down from the
Board. I would like to thank Samantha for her contribution to the
Group. The Nomination Committee led the search for Samantha's
replacement and I am delighted to welcome Mary Reilly to the Board.
Mary brings a wealth of experience from a variety of sectors,
having worked for over 30 years' in an international environment as
a Chartered Accountant with Deloitte LLP. We have also changed our
committee memberships with Mary becoming a member of the Audit
Committee, replacing Samantha, and Brian Larcombe replacing Michael
Merton on the Remuneration Committee.
The Board has also continued to focus on strengthening Cape's
performance and controls. There has been a particular focus on
anti-bribery and anti-corruption training and compliance across
the Group. The Audit Committee initiated a sequenced 'deep-dive'
review of important risks, policies and controls.
Cape people
I would like to thank all our employees for their dedication,
skill and hard work during 2016. The Company continues to be led by
a highly motivated and extremely effective management team,
supported by highly-skilled, dedicated and determined employees.
This is reflected in the improved safety performance and the
delivery of strong financial results, despite the significant
market challenges in all our geographies. Such results evidence our
values and continue to demonstrate our management and employees'
drive and commitment to deliver for our stakeholders.
Dividend
The Board has decided that it is appropriate to rebase the
dividend given the cash impact of the recent settlement of the
insurer product liability litigation. The Board is therefore
recommending a final dividend per share of 2.5 pence, which, if
approved by shareholders, would bring the full year dividend per
share to 7.0 pence. The Board is planning to maintain the dividend
at this level for 2017 and then implement a progressive dividend
policy from 2018 onward. Subject to shareholders' approval at the
Annual General Meeting to be held on 10 May 2017, the final
dividend will be payable on 23 June 2017 to shareholders on the
register as at 19 May 2017.
Prospects
The Company's strong financial performance in difficult market
conditions, strategic achievements and the settlement of the
insurer product liability litigation provide confidence in the
Group's future prospects. I believe the Company is being led by a
talented management team and pursuing the right strategy to deliver
long-term growth in what we expect to remain challenging and
competitive markets.
Tim Eggar
Chairman
Chief Executive's review
Overview
The resilience of our strategy and business model is
demonstrated by another strong set of results in 2016. I am
delighted to be able to report that while market conditions have
clearly had an impact on our margins we have been able to deliver
strong top line growth, with revenue up 21.4% compared to the prior
year at GBP863.5 million, and solid earnings per share of 29.9
pence, which is in line with the prior year. We also achieved a
robust order intake leading to a record closing order book as at 31
December 2016 of GBP917.6 million, up 6.5% on the prior year (31
December 2015: GBP861.3 million).
I am also delighted to report that we have had the safest year
ever recorded in Cape's history with both our Total Recordable
Incident Rate (TRIR) and our Lost Time Incident Frequency (LTIF)
improving significantly. This is a testament to every employee's
commitment to our safety culture and our desire to make Cape a safe
place to work for all as we strive to achieve our vision of zero
harm.
In light of the industrial disease product liability litigation,
we focussed throughout 2016 on the delivery of our organic growth
strategy and have made good progress on the key elements of that
strategy during the year. Operational excellence and customer
intimacy are fundamental to our sustained success, enabling us to
develop stronger bonds with our existing customers and build
relationships with new ones. We have continued to invest in our
people through structured training and development programmes
covering both managerial and technical competencies. Following
their initial conception in 2015, we saw real momentum during 2016
in establishing and embedding our Technical Authorities in the
Group. Our Technical Authorities now have a clearer structure in
which to operate and we are already better utilising their
expertise to support sales opportunities around the Cape footprint.
Our focus on continuous improvement saw us continue to roll out our
standardised site systems and further investment in their
development to ensure that we have the best tools available to
measure and manage our work and drive better productivity. These
systems are recognised by many of our customers as
industry-leading.
Within the UK, our broad portfolio of services, in particular
the addition of mechanical services in 2015, helped underpin the
award of a multi-million pound, five-year contract at the
ConocoPhillips' Seal Sands complex on Teesside. We are also seeing
the first notable successes in our efforts to target white space
opportunities at existing customer sites. At each of EDF Energy's
nuclear power stations in the UK a programme of customer roadshows
has led to increased demand for the full range of the Group's
services. We have restructured our UK and Cape Specialist Services
(CSS) to better position our CSS offering for global expansion and
during the year successfully secured contracts for storage tank
inspection and repair with GASCO and ADOC in the Middle East. There
remains a significant pipeline of specialist service opportunities
across the Group's international footprint.
We continue to pursue our strategy of targeted geographic
expansion in order to increase the Group's growth potential. We
have delivered on a number of small initial contracts in Iraq and
identified a number of other new target markets during the year
through a careful evaluation process. These markets provide
opportunities for both our traditional and specialist services. Our
previous entry into Kuwait saw the team winning multiple contract
awards at the Kuwait National Petroleum Company's (KNPC) Clean
Fuels Project. However, a highly competitive environment in
Malaysia, including greater than expected local competition, has
resulted in low penetration of project work opportunities to
date.
Excellent operational performance on a number of key projects in
Asia Pacific offset commercial and market challenges elsewhere in
our business, particularly in the UK, demonstrating the value of a
broad geographical portfolio. Our joint venture in Azerbaijan has
again performed well, delivering both construction and maintenance
work to the highest standard. The Group's track record of delivery,
focus on operational excellence and strong customer relationships
was also fundamental to the award in late 2016 of significant
additional scope of works at Chevron's Wheatstone LNG project in
Australia until the completion of construction.
Our strong performance in 2016 has been partially overshadowed
by two legal cases relating to our legacy of industrial disease
claims from the period when the Group was involved in the
manufacture of asbestos products. We have previously disclosed
details of these new types of claims brought by insurance companies
which include insurer employer liability claims ("Insurer EL
Claims") and insurer product liability claims ("Insurer PL Claims")
and that these Insurer PL Claims represented a potentially large
and unquantifiable liability to the Company.
On 12 March 2017, the Company reached a settlement of the
litigation relating to the Insurer PL Claims. The settlement of
this litigation does not imply any acceptance of liability on
Cape's behalf. Following the end of the trial on 23 February 2017,
the Board received an updated opinion from Leading Counsel
regarding the Insurer PL Claims litigation which reinforced the
Board's view that the merits of the Group's defence are persuasive
and that there are substantial evidential burdens on the litigants.
Nonetheless, we were mindful that there remained a risk that this
litigation could have a material adverse impact on the Scheme and
in turn upon the Group and its stakeholders. The Board therefore
concluded that it was in the best interests of Cape and its
shareholders to settle at the agreed level, thus removing a
significant risk to the business, removing the distraction of a
likely protracted appeals process and enabling management to focus
on the development of the core business.
In July 2016, a determinant judgment was issued in respect of
the Insurer EL Claims trial, in which some issues were found in
favour of Cape and some against. We have been granted leave to
appeal and the appeal hearing will be held in July 2017.
Further details of the industrial disease claims are contained
in notes 16 and 20, with further details of the Scheme contained
in
note 21.
Safety
It is especially pleasing to be able to report that during 2016
we achieved our best ever recorded performance in both our TRIR and
our LTIF safety metrics. The Group's TRIR reduced to 0.756 (2015:
1.271) while LTIF fell to 0.144 incidents per 1,000,000 hours
worked
(2015: 0.184). My thanks go to all our people for their efforts
in adopting our strong safety culture and making Cape a safer place
to work. While this is a good performance, we must not be
complacent and we will continue to drive a strong safety culture
across the business, focussing on forward-looking measures of
safety performance and the timely close out of safety observations
and incidents. The safety of our people and of those people around
us is central to everything we do at Cape. Our vision is to create
a work environment where everyone: our employees, partners and
third parties, can work safely with zero harm to themselves and
their colleagues. We often work in challenging locations and
environments, carrying out potentially hazardous activities, so we
are continuously seeking ways to improve our safety performance,
both in terms of process and culture to achieve this vision.
Market conditions 2016
In the early part of 2016 the price of crude oil continued to
fall, reaching a low of $28 per barrel. It subsequently recovered
to average around $45 per barrel for the year, still almost $10 per
barrel lower than the average in 2015. This situation continued to
drive our customers in the oil and gas sector to focus on cost and
cash management with widespread deferral of discretionary spending.
As a result, the upstream oil and gas sector continued to
experience low levels of demand, a slower pace of new project
awards, delay in some maintenance activities and significant
pressure on pricing. Demand from the downstream and industrial
markets remained solid throughout the year with customers in the
refining and petrochemical sectors committing investment in both
new construction projects and maintenance of existing facilities,
although pressure on margins was also evident in these sectors.
Market conditions in the UK continued to be challenging, largely
reflecting the ongoing impact of the low oil price. The offshore
market in the North Sea experienced a particularly difficult period
with customers deferring discretionary spending and aggressively
pursuing cost reduction programmes. Consequently, margin pressures
continued throughout the year and we experienced low levels of
demand for the Group's specialist services in the offshore sector.
As anticipated, demand from the coal-fired power station market
reduced with the closure of Longannet and Ferrybridge power
stations in 2016, although it was encouraging that the UK
Government effectively sanctioned the start of new nuclear power
station construction that could provide significant opportunities
for the business in the future. Demand from the downstream and
general industrial segments remained robust.
In the Middle East, the sustained low oil price continued to
drive a strong focus by our customers on costs and cash management;
a trend we expect to continue. In broad terms, the Group saw a
slower pace of new project awards and delays to a number of
shutdown programmes, although specific market conditions have
varied across the region. Demand in the Kingdom of Saudi Arabia
(KSA) continued to be robust, driven by a stable maintenance
requirement and increasing activity on construction projects,
predominantly in the downstream and petrochemical sectors. In the
United Arab Emirates (UAE), maintenance demand remained robust but
there was little new construction activity and a number of shutdown
projects were postponed, leading to pressure on both volumes and
pricing. In Qatar, activity in new oil and gas projects also
remained low and the maintenance market experienced increased cost
pressure. Whilst activity levels in Oman in the first half of the
year were very low, project demand increased in the second half of
2016 as activity on the Sohar Expansion and Khazzan Projects
increased. The business continued to see a ramp-up in construction
activities in Kuwait, with a number of significant downstream
projects moving forward. Demand in Azerbaijan also remained strong,
driven by further development of Shah Deniz 2 and the Sangachal
Terminal Expansion project along with fabric maintenance work.
Demand for the Group's services from the LNG project sector in
the Asia Pacific region remained high. The Group experienced strong
demand in the first half of the year for construction work on LNG
modules being fabricated in Asian yards, with a substantial
increase in activity in the second half of 2016 on both the
floating LNG project in South Korea and LNG plant construction in
Australia.
Elsewhere, market conditions within the Asia Pacific market
remained mixed. Demand for maintenance activity in Asia was steady
although competition remained strong resulting in significant
pricing pressure. The offshore market across the region was
negatively affected by the low oil price driving a significant fall
in demand for both new project and refurbishment work. Bidding
activity was high for the RAPID project in Malaysia, although
competition, in particular from local suppliers, was more severe
than expected.
The Australian maintenance market continued to experience both
extreme pricing pressure and low demand from the resources sector,
reflecting ongoing low commodity prices.
2016 operating performance
Despite challenging market conditions, Cape's overall operating
and financial performance was strong.
The Group achieved a resilient order intake of GBP846.7 million,
up 0.6% on the prior year (2015: GBP841.3 million). Notable
contract awards were the increased scope of work at Wheatstone,
multi-disciplinary contracts with ConocoPhillips, SABIC and EDF
Energy in the UK along with the strategically important Jazan and
KNPC construction projects in the Middle East. The significant
scope expansion at Wheatstone, with Cape becoming the single
contractor on site for our services, was particularly pleasing as
it was a direct result of our strong operating performance and a
demonstration of the tangible value of our strategy to focus on
operational excellence and customer intimacy. As a result, the
Group concluded 2016 with its highest ever closing order book of
GBP917.6 million, up 6.5% on the prior year (2015: GBP861.3
million), with almost 60% of that order book due for delivery
within 2017.
Revenue was 21.4% higher than the prior year at GBP863.5 million
(2015: GBP711.4 million), primarily reflecting increased volumes in
Asia Pacific at the Wheatstone and Karratha Gas Plant Life
Extension (KLE) projects in Australia, the Shell Prelude FLNG
project in South Korea and the Shell Bukom project in Singapore.
The Group benefited from movements in exchange rates in the year as
Sterling weakened against many of the Group's non-UK trading
currencies with underlying revenues at constant currency increasing
by 16.1%. Growth in Asia Pacific was partly offset by lower demand
in the North Sea and the reduction in demand from the coal-fired
power generation sector in the UK. Underlying revenues at constant
currency in the Middle East were slightly lower than the prior
year, with lower construction project revenues in Qatar almost
entirely offset by increased activity across all other countries in
the region.
Adjusted operating profit increased by 5.5% to GBP55.4 million
(2015: GBP52.5 million). The Group benefitted from favourable
foreign exchange movements with underlying adjusted operating
profit at constant currency down by 2.1% compared to the prior
year, primarily driven by lower demand and a small number of
commercial performance issues in the UK offset by increased
activity levels in Asia Pacific and a strong performance in
Azerbaijan.
Operating margins fell by 100bps to 6.4% (2015: 7.4%) with a
significant deterioration in UK operating margins, partially offset
by a strong increase in performance in our Asia Pacific business.
Whilst the UK performance was disappointing, driven by continued
weakness in the offshore market and a small number of commercial
issues, I am confident that the UK management team has taken
appropriate corrective actions and that the business has entered
2017 on a sound footing such that it is able to deliver a much
improved performance this year. As expected, the very strong margin
performance in the Middle East in the first half of 2015 was not
repeated in 2016, and the strong performance from our SOCAR-Cape
joint venture in Azerbaijan offset margin pressures elsewhere in
the region.
Adjusted net debt decreased significantly to GBP80.4 million
(2015: GBP109.9 million) driven by strong cash conversion from an
improved working capital performance and the benefit of foreign
exchange movements on the translation of foreign cash balances,
partially offset by increased industrial disease claims cash
contributions during the year.
Progress on strategy
Our strategy is delivering results. The importance of our
geographical diversity is demonstrated by the improved results from
Asia Pacific and Azerbaijan offsetting a weaker than anticipated
performance in the UK. We are convinced that our strategic intent
of being the leading provider of critical industrial services in
our chosen geographic markets remains compelling and will enable us
to continue to deliver shareholder value over the long term. We aim
to achieve this long-term success through five strategic key
pillars, which deliver both stability of earnings and long-term
growth: Operational excellence; Customer intimacy; Balanced
business; Broadening our range of services; and Geographic
expansion. Our progress in these areas during the year gives us
confidence in the Group's prospects for 2017 and beyond.
Operational excellence
Operational excellence remains the cornerstone of our strategy
as it enables Cape to deliver better value to our customers whilst
protecting margins in today's challenging market conditions. The
goals of our operational excellence programme remain unchanged: to
attract, retain and develop the best people; to simplify and
standardise our business systems and processes; to ensure that
knowledge and best practice are shared around the Group; and to
drive continuous improvement.
2016 has seen significant investment in our Technical
Authorities (TAs), recruiting the right people and embedding clear
lines of reporting and accountability. TAs are our leading source
of technical assurance and compliance on a given product or service
and help deliver shareholder value by supporting the Group's
growth. Better utilisation of their expertise to support sales
opportunities around the globe has played a large part in multiple
commercial successes during the last year. They are also
responsible for our Centres of Excellence, which are just one part
of our ever improving communication toolkit for sharing best
practice across the Group's global footprint.
During the year we also continued to roll out our standardised
site systems and further invested in their development to ensure
that we have the best tools available to measure and manage our
work, and drive better productivity. These systems are recognised
by many of our customers as industry leading.
Our middle and senior management development programmes are now
well established within the business and are enabling us to develop
more of our management talent in-house. In addition to these
management development programmes, we continue to direct
considerable resources to training and assessment of our skilled
employees to ensure they are able to work safely and to our global
standard.
Customer intimacy
We have built long-term relationships with several of our key
customers including Bechtel, EDF Energy, BP and SABIC over a number
of years. Through these relationships we have developed a deep
understanding of their businesses and we use this to develop
solutions, both commercial and technical, that deliver real value
to those customers. This process of developing close relationships
with our key customers is an important element of our long-term
success. During 2016, the value of this approach, supported by
excellence in operational delivery, was demonstrated by the awards
of the additional scope of works at Wheatstone, cryogenic
insulation activities at Prelude and successes in our efforts to
target white space opportunities, particularly at EDF Energy's
fleet of nuclear power stations in the UK. We have also been
working with a number of customers on developing Asset Integrity
inspection and compliance programmes to help extend the useful life
of ageing assets, with a particular focus on corrosion under
insulation.
Balanced business
Cape already has a balance of businesses across a range of
geographies, which gives the Group an inherent stability against
fluctuations in demand from any one particular region. This will
continue to develop as we expand into new countries and regions
around the world. In addition, we continue to actively pursue
growth in our maintenance business to provide stability against the
natural variability in demand from the construction project market.
I am pleased to be able to report that the Group's revenue from
maintenance activity has increased 9.9% in absolute terms to GBP521
million compared to GBP474 million in the prior year. New
construction projects play an important role in the Group's
portfolio, enabling faster organic growth while often being the
vehicle to enter new territories. With the increase in construction
related activities in Asia Pacific, the proportion of Cape's
business derived from maintenance activities in 2016 was lower than
the prior year at 60% (2015: 67%).
Growth through broadening our range of services
The addition of mechanical services through the 2015 acquisition
of Redhall Engineering Solutions Limited, subsequently renamed Cape
Engineering Services Limited (CESL), has proved successful. It
underpinned the award of the multi-million pound, five-year
contract at the ConocoPhillips Seal Sands complex on Teesside, in
the UK, an important milestone for the UK business in the
development of our broader service offering in this market.
We have continued to invest in our specialist service businesses
during 2016 in order to provide the optimum framework in which to
expand our specialist services capability across Cape's global
footprint. While progress on expanding our tank construction and
maintenance business into the Middle East has been slower than we
had hoped, we now have a dedicated CSS team fully operational in
the region with work underway on a small number of storage tank
inspection and repair contracts in the UAE and Kuwait and we
continue to see a strong pipeline of opportunities in the region.
While low oil prices resulted in depressed levels of offshore
demand for CSS in the UK, we have successfully delivered an
expanded range of services onshore including tank inspection,
replacement and refurbishment works by Cape Motherwell Bridge,
refractory replacement works by Cape York Linings and innovative
environmental services for one of our key customers, EDF Energy.
This is a great example of our strategy of filling the white spaces
in action and something we will continue to pursue in 2017.
Growth through geographic expansion
We aim to be the leading provider of our services in each of our
chosen geographies. In practice we seek to grow market share in our
newer, less mature regions and to defend our leading positions in
our more mature regions. We have been successful in growing our
share of the market in Australia with contract wins such as the
increased scope of work at Wheatstone. We continue to grow both
maintenance and project activities in KSA and Kuwait and we have
delivered on initial contracts in Iraq, having established a
base
in-country during the year. We continue to seek areas for
further expansion to drive future growth.
Organisation and people
We employ over 16,000 employees across our global operations.
Their professionalism, competency and commitment are critical to
the delivery of our business. We continue to invest in developing
our people and ensuring that everyone can achieve their potential
at Cape. We have well established management and leadership
development programmes, both for our current and future leaders. We
provide specialist skills training, including the attainment of
internationally recognised qualifications, to our site based
employees around the world to ensure they can work safely and
deliver our services to the required standard. In 2016, we
completed the roll out of a global applicant tracking system to
support our recruitment processes, allowing quicker and more
accurate recruitment with improved data and visibility for
managers. It also provides us with an opportunity to proactively
contact appropriately skilled people who have previously worked for
Cape. This reduces both the cost and time taken to recruit,
together with greater assurance of the calibre of the individuals
whom we are hiring. In 2016, we received around 3,500 applications
per month globally via this system.
Outlook
With a robust order book and a good start to the year, the Board
is confident that the business will deliver another strong trading
performance in 2017. The UK business has implemented improvement
measures to deal with the small number of commercial issues that
affected its performance in 2016. It has also been restructured to
better enable the business to pursue growth opportunities in the UK
market whilst providing technical support for specialist service
opportunities elsewhere in the Group. This is expected to drive a
substantial margin improvement in the UK business in 2017 which
should more than offset the effect of any margin pressures
experienced elsewhere in the Group.
Conditions in the Group's end markets are expected to remain
mixed in the near term with relatively weak demand from the
upstream oil and gas sector being balanced by more solid demand
from the downstream oil and gas and power generation sectors.
Demand for maintenance services is expected to be stable over the
medium to long term, with construction activity levels expected to
be more volatile given investment in new projects is more affected
by resource pricing. The UK nuclear new build market could provide
substantial opportunity for the business in the long term, although
the timing of investment remains uncertain despite the welcome
approval for Hinkley Point by the UK Government.
Although the recent industrial disease claims litigation has
required significant attention from the Board and senior
management, we have remained focussed on the underlying business
during this period and in particular, organic growth opportunities.
The recent settlement of the insurer product liability litigation
removes a material risk to the business and the distraction of a
likely protracted appeals process, enabling management to focus on
the development of the core business.
With the long-term drivers of demand for our services remaining
robust, I remain confident that our strategy will deliver increased
shareholder value over the medium to long term.
Joe Oatley
Chief Executive
Business review
UK
The UK business employs over 4,000 people and is one of the
largest multi-disciplinary employers in the UK industrial services
market, working with a broad range of customers across a variety of
markets. 2016 has been a challenging year as customers continued to
focus on cost control, putting pressure on margins. This margin
pressure, combined with lower demand, poor commercial performance
on a small number of contracts, in particular at Exxon Mobil
Fawley, and the costs associated with restructuring resulted in
significantly lower adjusted operating profit than the prior year.
The UK management team has implemented a number of improvement
actions and, although market conditions are expected to remain
challenging through 2017, these improvements combined with a solid
order book are expected to deliver a much improved performance in
2017.
Restated(1)
GBPm 2016 2015 Change
=================== ===== =========== ========
Order intake 312.4 430.7 (27.5%)
Order book 379.8 438.3 (13.3%)
Revenue 370.8 388.4 (4.5%)
Adjusted operating
profit 14.2 31.5 (54.9%)
Adjusted operating
profit margin 3.8% 8.1% (430bps)
------------------- ----- ----------- --------
1 Prior year figures have been restated following the Group's
change in reporting segments effective from 1 January 2016
Order intake of GBP312.4 million was 27.5% lower than the prior
year (2015: GBP430.7 million), largely due to timing of contract
awards, but also reflecting the market environment for both
construction and maintenance work, particularly in the upstream oil
and gas market. Important contract awards in the year were a
five-year contract for fabrication, mechanical, engineering and
instrumentation services at the ConocoPhillips Seal Sands facility;
a three-year renewal for multi-disciplinary maintenance with SABIC
UK; a five-year
multi-disciplinary maintenance contract at EDF Energy's West
Burton and Cottam power stations; and a one-year extension and
expansion of multi-disciplinary services for Perenco in the
southern sector of the North Sea. The year-end order book was 13.3%
lower than the prior year at GBP379.8 million (2015: GBP438.3
million).
Revenue was 4.5% lower than the prior year at GBP370.8 million
(2015: GBP388.4 million), reflecting the reduction in demand from
the
North Sea and plant closures in the UK coal-fired power
generation market. This decrease was partially offset by increased
volume from Cape Motherwell Bridge, primarily in the storage tanks
business, and a full year's contribution from CESL. Excluding CESL,
organic revenues fell by 7.8%.
The business continues to be largely maintenance driven with
90.5% of revenues (2015: 81.8%) derived from maintenance and
shutdown activities. The Group is starting to see its first notable
successes in its efforts to target white space opportunities,
expanding the range of services delivered at existing customer
sites, with more than GBP40 million of order intake in 2016
including an increased pull through of maintenance services across
EDF Energy's nuclear fleet and Perenco's offshore assets.
Elsewhere, the UK Government's approval of Hinkley Point C during
the year signalled the beginning of a long awaited renaissance in
the nuclear power construction market in the UK, which could
provide the Group with substantial opportunities for
project-related work in the future.
Adjusted operating profit declined 54.9% to GBP14.2 million
compared to the prior year as operating margins decreased to
3.8%
(2015: 8.1%), driven by a combination of adverse market
conditions and a number of specific commercial items. Low oil
prices resulted in lower demand and pricing pressure in the
offshore sector while the closure of two coal-fired power stations
also impacted volumes of both day-to-day maintenance and shutdown
work. The specific commercial items related to poor commercial
performance on the contract at Fawley, where we now have new
commercial agreements in place, and provisions taken against
potential contract
close-out costs incurred on a small number of projects. These
commercial impacts are not expected to re-occur in 2017.
During the year, the business implemented a significant
restructuring programme to ensure that it was both operating with a
lean overhead base and set up to capture white space growth
opportunities by expanding the range of services delivered to the
existing customer base in the UK. In concert with this "structured
for growth" programme, the Group's specialist services business,
CSS, was also restructured to ensure it was better positioned to
support global expansion.
Although market conditions are expected to remain mixed in the
near-term, the business continues to succeed in winning new
customers, retaining existing customers and securing new white
space opportunities which, combined with the expected improvement
in operating margins following the restructuring actions taken in
2016 and the non-recurrence of the business specific items, is
expected to result in a significant improvement in performance in
2017.
Middle East
Cape is one of the largest providers of industrial services in
the Gulf Cooperation Council states, having operated in the region
for over 30 years. In the Middle East, the Group employs over 8,000
people, primarily delivering Cape's portfolio of services to the
downstream oil and gas sector. While bidding activity remained
high, driven by continued investment from the National Oil
Companies, the continuing low oil price in 2016 saw a number of
customers renew their focus on cost control, with some areas
experiencing project slow-downs and work deferrals. While market
conditions are expected to remain mixed in 2017, the robust order
book provides confidence in the Group's prospects and strong
visibility for the year.
Restated(1)
GBPm 2016 2015 Change
=================== ===== =========== =======
Order intake(2) 197.4 211.6 (6.7%)
Order book(2) 220.7 180.0 +22.6%
Revenue(2) 191.6 174.6 +9.7%
Adjusted operating
profit 29.7 27.5 +8.0%
Adjusted operating
profit margin 15.5% 15.8% (30bps)
------------------- ----- ----------- -------
1 Prior year figures have been restated following the Group's
change in reporting segments effective from 1 January 2016
2 Excludes values in respect of the SOCAR-Cape joint venture in
Azerbaijan
Order intake of GBP197.4 million decreased by 6.7% compared to
the prior year (2015: GBP211.6 million). The largest proportion of
the order intake continues to come from the downstream oil and gas
sector across the region. The most significant contract awards
were
multi-disciplinary construction contracts from a number of
suppliers at the Jazan project in KSA, including the Consolidated
Contractors Company, Nasser S. Al Hajri Corporation and Daewoo; and
multiple contract awards at the Kuwait National Petroleum Company's
(KNPC) Clean Fuels Project. Other contracts of note include the
Group's first multi-country, multi-discipline award in the region
with General Electric (GE) Power Services covering a total of 64
power facilities across the Middle East; a four-year renewal for
refractory maintenance services with Qatalum; insulation services
at the BP Khazzan site in Oman; a two-year extension for the
provision of refractory services across SABIC's facilities in KSA;
and a two-year renewal of the painting services contract with
BAPCO.
During the year, bidding activity remained high in the region
with investment being maintained by the majority of National Oil
Companies, although the business has experienced some areas of
slow-down and deferral for both project work and shutdowns.
Customers continue to focus on cost reduction which has put
downward pressure on margins, but also provides opportunities for
the Group to grow market share by demonstrating value creation for
its customers through excellence in operational delivery. In the
early part of 2017, the Group's reputation for delivery and close
working relationships with our customers has secured a number of
contract awards, predominantly in KSA at the Jazan Project.
Revenues in 2016 increased 9.7% from the prior year to GBP191.6
million (2015: GBP174.6 million). An 11.9% benefit from the
movement in foreign exchange rates, reflecting a weaker Sterling
versus the US dollar, more than offset a slight underlying decrease
in organic revenues of 2.2%. The reduction in organic revenue
reflects the anticipated lower capital project driven demand in
Qatar, where revenues declined by 30.9%, largely offset by
continued growth in activities elsewhere in the region. The KSA
business performance remained strong, growing organically by 3.6%
driven primarily by construction project work, particularly at the
Jazan Refinery Project, Ma'aden's Phosphate Mining Project and
maintenance activities elsewhere in the Kingdom. Volumes grew
substantially in Kuwait following Cape's entry in 2015, reflecting
the ramp up in activity at KNPC's Clean Fuels Project while in
Oman, volumes increased significantly in the second half of the
year at the Sohar Expansion and Khazzan projects.
The region has maintained a balanced business in line with the
Group's strategy, with the proportion of revenue derived from
maintenance activities broadly in line with the prior year at 51.1%
(2015: 50.0%). Expansion activities are being pursued in both
existing territories, such as the UAE and Oman, and into adjacent
territories such as Iraq, where the Group was awarded initial small
contracts from Kuwait Energy and GE during 2016. The development of
the CSS offering in the region has been slower than planned, in
part due to the challenging market conditions. Nonetheless, the
business has successfully secured contracts for tank inspection and
repair with GASCO and ADOC in 2016. There remains a visible
pipeline of substantial opportunities in specialist services for
the Group to target.
The SOCAR-Cape joint venture in Azerbaijan continued to perform
well both operationally and financially. Increased revenue was
driven by higher volumes associated with the 2015 awards for
significant construction work at Shah Deniz 2 and the Sangachal
Terminal Expansion Project, along with the two-year contract
extension with BP for the provision of fabric maintenance services.
In line with our accounting policy, orders and revenues are
excluded from the Group result.
Operating margins were slightly lower at 15.5% (2015: 15.8%) as
the benefit of a strong performance in Azerbaijan offset margin
reductions elsewhere in the region. Adjusted operating profit was
higher at GBP29.7 million, an 8.0% increase compared to the prior
year (2015: GBP27.5 million). The business benefited from the
impact of foreign exchange movement between Sterling and the US
dollar. At constant currency, organic adjusted operating profit was
4.0% lower than the prior year, reflecting the favourable close out
of a number of contracts in 2015 combined with delays in project
initiation in Oman in the first half of 2016, partially offset by
an improved performance in Azerbaijan, Qatar and KSA. Operating
margins improved in the second half of 2016 (H1 2016 13.8%; H2 2016
17.1%), largely as a result of the ramp up in new project activity
in KSA and Oman.
Despite the slow oil price recovery and the award of a number of
new contracts in the early part of 2017, the business continues to
see a strong focus on costs and cash management from the Group's
customers. The strength of Cape's business in the region along with
its focus on the downstream segment of the oil and gas market, lean
operating model and track record of delivery provides resilience
against the challenging market conditions.
Asia Pacific
In Asia Pacific, Cape employs around 3,500 people and supports
many market sectors, including onshore and offshore oil and gas,
power generation and pharmaceuticals in Asia with support provided
across Australia for downstream oil and gas, minerals and mining
customers. The Group's substantial growth in the region has
primarily been driven by the strong operational performance
provided to our customers developing LNG projects in the region.
This growth has more than offset the industry-wide decline in the
Australian mining sector and commodity price driven demand declines
for our services elsewhere in Asia, particularly offshore. During
2017, the Group will remain focussed on delivering on its existing
contracts while pursuing further opportunities in both maintenance
and construction activities across the region.
Restated(1)
GBPm 2016 2015 Change
=================== === ===== =========== =======
Order intake 336.9 199.0 +69.3%
Order book 317.1 243.0 +30.5%
Revenue 301.1 148.4 +102.9%
Adjusted operating
profit 27.0 7.8 +246.2%
Adjusted operating
profit margin 9.0% 5.3% +370bps
------------------------ ----- ----------- -------
1 Prior year figures have been restated following the Group's
change in reporting segments effective from 1 January 2016
Order intake grew substantially in 2016, increasing to GBP336.9
million, up 69.3% on the prior year (2015: GBP199.0 million). The
primary driver of this increase was the contract award in December
for additional scope of works at Chevron's Wheatstone LNG Project
in Australia. This very significant award of substantial additional
work packages was a direct result of our strong operating and
safety performance on the contract to date. Other key new awards
included the Shell Bukom contract in Singapore, where the business
is utilising its expertise in asset integrity, and corrosion under
insulation in particular, in providing access, insulation and
painting services for Shell's ethylene cracker complex; and
additional cryogenic pipework insulation on Shell's Prelude FLNG
vessel with Samsung Heavy Industries (SHI) in South Korea.
Revenue increased by 102.9% compared to the prior year, rising
to GBP301.1 million (2015: GBP148.4 million). Organic growth at
constant currency of 91.8% was primarily driven by the continued
ramp-up of activity across a number of key projects: Wheatstone and
KLE in Australia; Shell Prelude in South Korea; and Shell Bukom and
Exxon Mobil Aurora in Singapore. Within Australia, activity levels
remained low outside the Wheatstone and KLE contracts as demand
from the mining sector in particular remained depressed. In Asia,
the increased volume of project work in Singapore and South Korea
more than offset the reduction in the second half of 2016 from the
completion of LNG module related work in Thailand and lower
offshore demand. The intensity of local competition restricted the
Group's ability to penetrate the Malaysian market and the RAPID
project in particular.
The proportion of revenue derived from construction activities
increased to 71.0% (2015: 46.5%), reflecting a significant increase
in construction work, in particular on the Wheatstone and Prelude
projects, and a reduction in shutdown work.
Operational performance has been strong across the region, in
particular at Chevron's Wheatstone project, Woodside's KLE
refurbishment project and Shell's ground-breaking Prelude FLNG
project. The strong operating performance has been mirrored by a
strong safety performance. At Wheatstone, for example, the business
has delivered over 2 million man hours without a lost time
incident. The performance on these three projects cements Cape's
reputation as a pre-eminent supplier of critical industrial
services to the LNG market. The restructuring programme carried out
in Australia in 2015 has given the business the flexibility to
provide the significant support needed to ramp up resources for the
fast-growing Wheatstone and KLE projects whilst remaining
competitive in the maintenance market.
Adjusted operating profit increased significantly to GBP27.0
million (2015: GBP7.8 million) with 232.1% of this increase being
attributable to organic growth and 14.1% reflecting favourable
foreign exchange movements. As expected, the business achieved a
significant improvement in operating margin in the second half of
the year compared to the first half (H1 2016: 4.6%; H2 2016:
11.4%), primarily reflecting improved utilisation with increased
volumes on Wheatstone, KLE and Prelude.
Market conditions are expected to remain mixed across the
region. Nonetheless, the business enters 2017 with a robust order
book and a strong pipeline of opportunities across the region,
including additional LNG project work in Australia, oil and gas
project activities in a number of Asian countries and ongoing
maintenance work.
Chief Financial Officer's review
A summary income statement from continuing operations with
explanatory discussion of the key items is provided below:
2016 2015
GBPm GBPm
------------------------ ------ -----
Revenue 863.5 711.4
Adjusted operating
profit 55.4 52.5
Adjusted operating
profit % 6.4% 7.4%
Other items (88.2) (3.4)
Exceptional
items - (9.2)
Operating profit/(loss) (32.8) 39.9
------------------------ ------ -----
Revenue
Revenue from continuing operations increased by 21.4% to
GBP863.5 million (2015: GBP711.4 million). Favourable foreign
exchange rates, reflecting the weakening of Sterling, contributed
5.3% of the Group's revenue growth while the 2015 acquisition of
CESL contributed 1.6%. Organic growth at constant currency drove
the remaining 14.5% of the increase and primarily reflects the
substantial growth in the Asia Pacific region with the continued
ramp-up in activity across a number of key projects: Chevron's
Wheatstone LNG and Woodside's Karratha Gas Plant Life Extension
(KLE) in Australia; Shell Prelude in South Korea; and Shell Bukom
and Exxon Mobil Aurora in Singapore. In the UK, increased volume
from Cape Motherwell Bridge, primarily in the storage tanks
business partly offset the oil price driven reduction in demand
from the North Sea and plant closures in the coal-fired power
generation market. Organic revenues in the Middle East were
slightly down due to lower capital project driven demand in Qatar,
where revenues declined by 30.9%, being largely offset by continued
growth in activities elsewhere across the region.
We continue to have a good balance between maintenance and
construction revenue. During the year, we delivered on our
strategic objective of annual growth in maintenance revenues in
absolute terms, with revenue derived from maintenance increasing
9.9% to GBP520.8 million (2015: GBP474.1 million). Maintenance
revenue increased in the UK to GBP335.7 million (2015: GBP317.6
million), which included a full year contribution from CESL, while
the KLE project in Australia and favourable foreign exchange rates
increased maintenance related revenues in Asia Pacific to GBP87.3
million (2015: GBP69.0 million). Favourable foreign exchange rate
movements also helped improve maintenance revenues in the Middle
East to GBP97.8 million (2015: GBP87.5 million). Globally, revenue
from construction projects increased to GBP342.7 million (2015:
GBP237.3 million) mainly as a result of increased activity on the
Wheatstone project in Australia and the Prelude project in South
Korea.
Cape's largest customer represented almost 18.6% of Group
revenue and related to the Group's activities in Australia (2015:
12.0%, largely related to activities in the UK, with smaller
amounts in the Middle East and Asia Pacific). The Group's top ten
customers represented 54.2% of revenue (2015: 44.9%).
Revenue split by geography(1)
GBPm UK Middle Asia Total
East Pacific
-------- ----- ------ -------- -----
2016
H1 194.0 94.2 108.1 396.3
H2 176.8 97.4 193.0 467.2
-------- ----- ------ -------- -----
FY 2016 370.8 191.6 301.1 863.5
-------- ----- ------ -------- -----
2015
H1 191.8 95.4 72.3 359.5
H2 196.6 79.2 76.1 351.9
-------- ----- ------ -------- -----
FY 2015 388.4 174.6 148.4 711.4
-------- ----- ------ -------- -----
1 Prior year figures have been restated following the Group's
change in reporting segments effective from 1 January 2016
Adjusted operating profit
Adjusted operating profit from continuing operations increased
to GBP55.4 million (2015: GBP52.5 million), with favourable foreign
exchange rates from a weaker Sterling contributing 7.6% growth and
the acquisition of CESL contributing 0.1% while underlying organic
performance was 2.2% lower. The Group's organic results are driven
by a number of factors, highlighting the benefit of the Group's
broad geographical spread. The UK experienced ongoing oil price
driven pricing pressure and reduced demand in the North Sea, the
closure of UK coal-fired power stations, poor commercial
performance on the contract at Fawley, provisions taken against
potential contract close out costs incurred on a small number of
projects and additional costs associated with restructuring
activities, resulting in lower adjusted operating profit. The
Middle East delivered a solid performance with increased activity
in Azerbaijan and KSA combined with improved margins in Qatar,
partially offset by lower results elsewhere in the region. In Asia
Pacific, the increase in adjusted operating profit primarily
reflected higher activity levels on the Wheatstone, KLE, Prelude
and Bukom projects which more than offset lower demand as a result
of the low oil price, and Thailand, following LNG module completion
in the first half of 2016.
Adjusted
Adjusted operating
operating profit
Revenue profit margin
GBPm GBPm(1) %(1)
--------- ---------------- ----------------- ---------------
Year
ended 2016 2015(2) 2016 2015(2) 2016 2015(2)
--------- ----- --------- ------ --------- ---- ---------
Region
UK 370.8 388.4 14.2 31.5 3.8 8.1
Middle
East 191.6 174.6 29.7 27.5 15.5 15.8
Asia
Pacific 301.1 148.4 27.0 7.8 9.0 5.3
Central - - (15.5) (14.3) n/a n/a
--------- ----- --------- ------ --------- ---- ---------
863.5 711.4 55.4 52.5 6.4 7.4
--------- ----- --------- ------ --------- ---- ---------
1 Adjusted operating profits and margins are shown prior to the
reallocation of the Group's franchise fee. See note 8 on page 25
for more information
2 2015 has been restated following the Group's change in
reporting segments effective from 1 January 2016
Other items
Other items increased to GBP88.2 million (2015: GBP3.4 million),
predominantly driven by a charge of GBP79.2 million in relation to
the industrial disease claims provision, which includes the Insurer
PL Claims and claims of a similar nature, an impact of GBP9.7
million relating to the Insurer EL Claims' determinant judgment in
July 2016 and the outcome of the 2016 triennial revaluation of the
Scheme (see notes 6, 16 and 20 for more information). As previously
announced, a settlement was agreed in respect of the Insurer PL
Claims on 12 March 2017 (see note 23) which includes an immediate
payment of GBP18.0 million and deferred payments of up to GBP34.5
million payable over the period 2018 to 2023. The present value of
the settlement, as at the settlement date, net of tax, using the
Group's weighted average cost of capital (WACC) is GBP35.3
million.
Other items also include GBP5.5 million in respect of the 2016
legal costs associated with litigation and recurring costs of
Scheme administration as well as GBP3.5 million of post-acquisition
charges recognised in the period.
Share of post-tax results from joint ventures
In 2016, the Group recognised a post-tax profit of GBP7.3
million (2015: GBP2.8 million), being its share of the post-tax
results from joint ventures. Dividends totalling GBP3.9 million
were received in the period.
Exceptional items
Exceptional items total GBPnil (2015: GBP9.2 million). 2015
included a non-cash GBP8.8 million goodwill impairment in Asia
which was a reflection of the level and distribution of business
activity across this geographically diverse regional business, and
GBP0.4 million transaction costs relating to the acquisition of
CESL in May 2015.
Operating loss
Operating loss was GBP32.8 million (2015: operating profit of
GBP39.9 million) and reflects an adjusted operating profit of
GBP55.4 million
(2015: GBP52.5 million), other items of GBP88.2 million (2015:
GBP3.4 million) and exceptional items of GBPnil (2015: GBP9.2
million).
Finance costs
Adjusted finance costs increased slightly to GBP8.1 million
(2015: GBP7.9 million) with interest cover (calculated by dividing
adjusted operating profit by the adjusted finance costs) increasing
to 6.8 times (2015: 6.6 times).
Total net finance costs amounted to GBP10.8 million (2015:
GBP10.8 million) including the annual GBP3.2 million (2015: GBP3.3
million) non-cash charge relating to the unwinding of the discount
on the long-term industrial disease claims provision and interest
income on the industrial disease claims Scheme funds in the period
of GBP0.4 million (2015: GBP0.3 million).
Taxation
The tax charge on adjusted profit before tax (which excludes
exceptional and other items), excluding the share of post-tax
result from joint ventures, was GBP9.6 million (2015: GBP8.0
million) representing an effective tax rate of 23.9% (2015: 19.1%).
This is higher than 2015 primarily as a result of an increase in
profits in high tax jurisdictions, such as Australia, unrecognised
losses arising in Asia and the absence of the regional one-off tax
incentive which ended in 2015, partially offset by the recognition
of additional prior period tax losses in Australia. On an adjusted
basis, the Group's overall effective tax rate, including the share
of post-tax result from joint ventures, was 20.3% (2015: 17.9%).
The cash tax paid during the period was GBP7.2 million (2015:
GBP9.3 million) which is in line with expectations.
The total tax credit on loss before tax was GBP3.6 million
(2015: charge of GBP8.1 million).
As part of the UK Government's continued efforts to improve the
tax transparency and compliance of large businesses, the UK Finance
Act 2016 introduced a mandatory requirement for qualifying
companies to publish their tax strategy. Cape will publish its tax
strategy online during 2017.
Discontinued operations
Due to limited opportunities of growth within Hong Kong, the
Board took the decision in 2015 to exit this geographical market
and is pursuing an exit through the sale of its current legal
entity. As a result of this decision, the assets and liabilities
within Hong Kong have been reclassified as directly associated
within a disposal group held for sale in the 2016 and 2015
results.
A GBP0.3 million profit has been recognised within profit from
discontinued operations in the income statement (2015: GBP5.2
million loss). The prior year loss primarily relates to Hong Kong,
including GBP3.4 million for impairment of goodwill.
The Group holds an investment property at a discontinued site
for which it is exploring potential redevelopment. The site is
located on an area of freehold land adjacent to the western section
of the M25 motorway in the UK. Both the current carrying value and
fair value of this investment property is GBP2.0 million (carrying
value 2015: GBP2.0 million; fair value 2015: GBP3.4 million).
Earnings per share
For continuing operations, the adjusted diluted earnings per
share (EPS) was 29.9 pence (2015: 29.9 pence) and adjusted basic
EPS was 30.2 pence (2015: 30.0 pence). 2016 EPS was in line with
the prior year, reflecting higher operating performance offset by a
higher effective tax rate and minority interest. The diluted
weighted average number of shares increased to 122.1 million (2015:
121.6 million).
Dividend
Given the cash impact of the recent settlement of the insurer
product liability litigation, the Board has decided that it is
appropriate to rebase the dividend and is recommending a final
dividend for 2016 of 2.5 pence (2015: 9.5 pence) per share. The
Board is planning to maintain the dividend at this level for 2017
and then implement a progressive dividend policy from 2018 onward.
In addition to the interim dividend of 4.5 pence per share (2015:
4.5 pence) paid on 7 October 2016, the total dividend for the year
will be 7.0 pence per share (2015: 14.0 pence). Subject to
shareholders' approval at the Annual General Meeting on 10 May
2017, the final dividend will be payable on 23 June 2017 to
shareholders on the register as at 19 May 2017.
Acquisitions
No acquisitions were completed during the year. In May 2015,
Cape acquired the UK based Redhall Engineering Solutions Limited,
subsequently rebranded as CESL, for an enterprise valuation of
GBP6.2 million including debt of GBP5.3 million and a working
capital contribution of GBP0.7 million. During the year, CESL has
traded slightly ahead of expectations.
Working capital
Trade and other receivables and inventories increased by GBP46.8
million to GBP258.3 million (2015: GBP211.5 million) while trade
and other payables also increased by GBP51.5 million to GBP172.3
million (2015: GBP120.8 million). Both of these balances included
the foreign exchange impacts of a weaker closing Sterling exchange
rate at 31 December 2016 compared to the prior period. Overall the
Group saw a decrease in net working capital of GBP4.7 million (at
balance sheet rates) to GBP86.0 million (2015: GBP90.7 million).
The Group's drive to reduce net working capital resulted in a
GBP15.1 million improvement in the balance sheet position at the
year end when compared to the half-year results.
Capital expenditure
The Group continues to manage its capital expenditure carefully
whilst investing in upgrading and replacing equipment where
appropriate. The Asset Replacement Ratio (calculated by dividing
gross capex spend by the depreciation charge) decreased to 84%
(2015: 126%), reflecting improved asset utilisation as a result of
our Global Asset Management function limiting additional scaffold
asset purchases.
With operational excellence a cornerstone of the Group's
strategy, there was further investment in the development of its
standardised site systems in order to ensure that the Group has the
best tools available to measure and manage our work and drive
better productivity. The Group also moved forward with its
investment in a Global Enterprise Resource Planning system that in
time will replace multiple legacy systems and simplify and
standardise many of the Group's processes.
Free cash flow
The Group's free cash flow of GBP57.2 million (2015: GBP27.7
million) is more than sufficient to fund, in cash terms, the full
value of the 2017 payment in relation to the Insurer PL Litigation
of GBP18.0 million (2015: GBPnil) and the proposed dividend of
GBP8.5 million
(2015: GBP17.0 million).
Financing and banking facilities
The Group's adjusted net debt decreased year-on-year by GBP29.5
million to GBP80.4 million (2015: GBP109.9 million) including
finance lease obligations of GBP3.0 million (2015: GBP3.0 million).
Balance sheet gearing (calculated by dividing adjusted net debt by
total equity), excluding ring-fenced industrial disease claims
Scheme funds, decreased to 48.4% (2015: 85.0%).
In June, the Company agreed to amend and extend its existing
revolving credit facility, increasing the facility by a further
GBP5 million to GBP300 million and retaining the GBP50 million
accordion feature. The facility has a contractual maturity of 23
June 2020, extending the existing debt facility by two years, with
an option to extend the facility by a further year by mutual
consent.
Operating and free cash flow
Restated(1)
2016 2015
GBPm GBPm
--------------------------------------------------- ------- -----------
Adjusted operating profit(2) 55.4 52.5
Depreciation 18.0 15.9
--------------------------------------------------- ------- -----------
Adjusted EBITDA 73.4 68.4
Non-cash items (3.4) (11.9)
Dividends from joint ventures 3.9 -
Decrease in working capital(3) 9.6 4.6
Net capital expenditure (12.0) (17.2)
--------------------------------------------------- ------- -----------
Adjusted operating cash flow 71.5 43.9
Adjusted operating cash flow to adjusted
operating profit 129.1% 83.6%
Net interest paid (7.1) (6.9)
Cash tax paid (7.2) (9.3)
--------------------------------------------------- ------- -----------
Free cash flow 57.2 27.7
Dividends paid to shareholders and non-controlling
interests (18.8) (17.0)
Acquisitions (including settlement of
debt and working capital) - (6.2)
Decrease/(increase) in receivables from
joint ventures 3.4 (1.0)
Net transfer to restricted funds (13.0) (5.8)
Discontinued operations 0.3 0.3
Other movements in adjusted net debt 0.4 (6.9)
--------------------------------------------------- ------- -----------
Movement in adjusted net debt 29.5 (8.9)
Opening adjusted net debt (109.9) (101.0)
--------------------------------------------------- ------- -----------
Closing adjusted net debt (80.4) (109.9)
--------------------------------------------------- ------- -----------
1 The comparatives have been restated to reclassify the gain on
disposal of property, plant and equipment from net capital
expenditure to non-cash items. There has been no change to the
total adjusted operating cash flow
2 A reconciliation of the Group's adjusted operating profit to
the Group's statutory operating profit/(loss) can be found in note
7, 'Adjusted measures'
3 Converted at monthly rates of exchange
The ratio of adjusted net debt to adjusted EBITDA decreased to
1.1 times (2015: 1.6 times). A reconciliation of adjusted net debt
and adjusted EBITDA can be found in note 8, 'Adjusted
measures'.
In 2014 the Group entered into an interest rate cap for a period
of three years, commencing in 2015 and terminating in February
2018. The derivative is for GBP70 million and gives protection to
the Group against its Sterling borrowing costs when LIBOR exceeds
the strike price of 2.5%.
Provision for pension
The defined benefit pension schemes had a net surplus of GBP10.0
million (2015: GBP11.3 million) as at 31 December 2016 which
continues to be restricted to nil in the accounts under IFRIC 14.
The latest full valuation of the defined benefit scheme was
assessed by independent qualified actuaries using the projected
unit method. Under the Schedule of Contributions agreed as part of
this valuation process, expected annual contributions to defined
benefit schemes are GBP0.6 million for a period of eight years and
five months. The previously agreed monthly contribution rate of
GBP14,600 ceased in June 2015.
Provision for estimated future asbestos related liabilities and
industrial disease claims Scheme funds
The triennial actuarial valuation of the provision for
historical UK asbestos related liabilities was completed in January
2017 in respect of the period up to 31 December 2016, the results
of which have been included in the financial results for the year.
The valuation was performed by independent actuaries, Willis Towers
Watson, based on the claims data maintained by Cape and
incorporates the Board's latest judgements on technical and
economic assumptions as well as the impact of changes in case law.
The overall pattern of claims experienced in the three years since
the time of the last full valuation has shown a reduction in the
overall value of claims being received when compared to previous
expectations.
The discounted provision increased to GBP172.5 million (2015:
GBP95.5 million). This reflects a charge of GBP79.2 million for the
impact of the triennial actuarial valuation adjustment (see notes
6, 16 and 20 for more information), the provision recognised in the
2016 interim results for the Insurer EL Claims, an additional
provision relating to the Insurer PL Claims following settlement in
March 2017 (see note 23) with a consideration of potential further
claims of a similar nature and unwinding of the discount of GBP3.2
million in the year less GBP5.4 million of claim settlements. The
level of Scheme cash settlements remained in line with actuarial
assumptions.
The gross provision for industrial disease claims of GBP209.3
million is discounted at rates between 0.72% and 1.92% (2015:
2.67%) being the appropriate risk free rates as at the balance
sheet date, over the term of the liabilities, being approximately
40 years. The economic value of the provision, as at the balance
sheet date, using the Group's WACC is a present value of GBP103.4
million.
The ring-fenced industrial disease claims Scheme funds increased
to GBP41.8 million (2015: GBP32.1 million) benefiting from a cash
injection from the Group's funds of GBP13.0 million (2015: GBP6.2
million) and interest received of GBP0.4 million (2015: GBP0.3
million), offset by cash settlements on Scheme claims in the year
of GBP3.7 million (2015: GBP3.7 million).
Currencies
The Group is exposed to both translational and, to a lesser
extent, transactional foreign currency gains or losses through
fluctuations in foreign exchange rates through its global
operations. The Group's primary currency exposures are Sterling in
the UK, Australian dollars in Australia and US dollars, primarily
in the Middle East.
Translational gains or losses: With the Group reporting in
Sterling but conducting business in other currencies, the
substantial weakening of Sterling during 2016 has resulted in
significant currency translation effects on the primary statements
and associated balance sheet metrics, such as working capital. The
substantial weakening in Sterling has favourably impacted both
revenue and operating profit during 2016 by 5.3% and 7.6%
respectively. In 2016, around 27% (2015: 25%) of revenues were
contracted in
US dollars or US dollar pegged currencies and around 26% (2015:
16%) in Australian dollars. However, the significantly lower
closing Sterling exchange rate as at 31 December 2016 compared to
the prior period has adversely impacted our working capital
balance.
Transactional gains or losses: With a large proportion of the
Group's operating costs matched with corresponding revenues in the
same currency, the impacts of transactional foreign exchange gains
or losses are limited and are recognised in the period in which
they arise.
The following significant exchange rates applied:
2016 2015
---- ---------------- ----------------
Closing Average Closing Average
---- ------- ------- ------- -------
AUD 1.71 1.81 2.03 2.09
USD 1.24 1.35 1.48 1.51
---- ------- ------- ------- -------
Treasury policies
Cape has a centralised treasury function whose objectives are to
monitor and manage the treasury risks across the Group and to
ensure that sufficient liquidity is available to meet the
requirements of the business. Group treasury is not a profit centre
and operates within a framework of policies and procedures. All
hedging is carried out centrally and speculative trading is
specifically prohibited by Group treasury policies.
Return on invested capital
Return on invested capital is defined at Group level as adjusted
operating profit divided by the accounting value of equity plus
adjusted net debt. Return on invested capital in 2016 was 28.5%,
higher than the prior year (2015: 21.9%) driven by a lower equity
value, reflecting the loss for the year and an improved net debt
position.
Principal risks
Cape operates globally in the energy and natural resources
sectors and in varied geographic markets. Cape's performance and
prospects may be affected by risks and uncertainties in relation to
the industry and the environments in which it undertakes its
operations around the world. Those risks range from external
geo-political, security and economic conditions such as
geo-political events, sanctions, terrorist events, disease
outbreaks or environmental hazards; key customer and market
dependency risks; operational risks including HSE, contracting,
project execution; cyber security; credit and other generic
financial risks.
There are two specific sources of risk associated with the
Group's historical industrial disease claims legacy liabilities.
The first relates to the inherent uncertainty in predicting the
future level of asbestos-related industrial disease claims and of
the costs arising from such claims relating to the liabilities for
which the Board believes the Group to be liable. Whilst the recent
triennial actuarial revaluation was in line with expectations,
there can be no guarantee that the assumptions used to estimate the
provision will result in an accurate prediction of the actual costs
that may be incurred in the future. As such, the provision may be
subject to potentially material revisions from time to time if new
information becomes available as a result of future events.
The second source of industrial disease claims risk relates to
any change in legal precedent or judgment that leads to a material
expansion of the scope of liability for which the Group is held to
be liable in the future. As first disclosed in the Group's 2015
Preliminary Results and as updated in the November 2016 trading
update, the Group has been engaged in litigation in relation to a
number of product liability claims (Insurer PL Litigation) received
from insurance companies (Insurer Litigants). Following engagement
with the Insurer Litigants, an agreement to settle the Insurer PL
Litigation was reached on 12 March 2017, substantially reducing the
risk in this area. A determinant judgment was issued in July 2016
for the Insurer EL Claims trial, in which some issues were found in
favour of Cape and some against. We have been granted leave to
appeal and the appeal hearing will be held in July 2017. At the
same time, Aviva plc was granted leave to cross-appeal. The risks
relating to industrial disease claims and the associated impact on
the Group and its stakeholders are described in note 20 'Industrial
disease claim provision and contingent liabilities'.
We operate across a number of economies and jurisdictions which
therefore exposes the Group to a range of tax laws that vary
significantly and are rapidly evolving toward global transparency
and harmonisation. Uncertainty may occur when the Group is required
to interpret laws and treaties.
The Group is alert to the challenges of managing risk and has
systems and procedures in place across the Group to identify,
assess and mitigate major business risks. As part of the long-term
strategic operational excellence programme, the Group continues to
improve its detailed process of project risk identification and
mitigation from contract tender through to project completion.
The directors have reviewed the principal risks and
uncertainties and are satisfied that they are relevant. A full
review of the Group's principal risks and uncertainties is given in
the Strategic report within the Group's Annual Report and
Accounts.
Michael Speakman
Chief Financial Officer
Condensed consolidated income statement
for the year ended 31 December 2016
2016 2015
---------------------- ---- ---------------------------------------------------- ----------------------------------
Exceptional Exceptional
Business and other Business and other
performance items Total performance items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Revenue from
continuing
operations 7 863.5 - 863.5 711.4 - 711.4
Operating profit
before other items 48.1 - 48.1 49.7 - 49.7
Other items 9 - (88.2) (88.2) - (3.4) (3.4)
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Operating
profit/(loss)
before exceptional
items 48.1 (88.2) (40.1) 49.7 (3.4) 46.3
Share of post-tax
result of joint
ventures 7.3 - 7.3 2.8 - 2.8
Exceptional items 9 - - - - (9.2) (9.2)
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Operating
profit/(loss) 55.4 (88.2) (32.8) 52.5 (12.6) 39.9
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Finance income 10 0.1 0.4 0.5 0.1 0.3 0.4
Finance costs 10 (8.1) (3.2) (11.3) (7.9) (3.3) (11.2)
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Net finance costs (8.0) (2.8) (10.8) (7.8) (3.0) (10.8)
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Profit/(loss) before
tax 47.4 (91.0) (43.6) 44.7 (15.6) 29.1
Income tax
credit/(expense) 11 (9.6) 13.2 3.6 (8.0) (0.1) (8.1)
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Profit/(loss) from
continuing operations 37.8 (77.8) (40.0) 36.7 (15.7) 21.0
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Profit/(loss) from
discontinued
operations 9,12 0.3 - 0.3 (0.3) (4.9) (5.2)
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Profit/(loss) for
the year 38.1 (77.8) (39.7) 36.4 (20.6) 15.8
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Attributable to:
Owners of Cape plc (41.1) 15.5
Non-controlling
interests 1.4 0.3
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
(39.7) 15.8
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Earnings per share attributable
to the owners of Cape plc
Pence Pence Pence Pence
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Basic
Continuing operations 30.2 (34.2) 30.0 17.1
Discontinued
operations 0.2 0.2 (0.3) (4.3)
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Total operations 13 30.4 (34.0) 29.7 12.8
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Diluted
Continuing operations 29.9 (34.2) 29.9 17.0
Discontinued
operations 0.2 0.2 (0.3) (4.3)
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Total operations 13 30.1 (34.0) 29.6 12.7
---------------------- ---- ------------------- ----------- ------------------ ------------ ----------- -------
Condensed consolidated statement of comprehensive income
for the year ended 31 December 2016
2016 2015
GBPm GBPm
---------------------------------------------- ------ -----
Profit/(loss) for the year (39.7) 15.8
Other comprehensive income
Other comprehensive income to be reclassified
to profit or loss in subsequent periods
Currency translation differences 42.0 3.2
----------------------------------------------- ------ -----
Net other comprehensive income to be
reclassified to profit or loss in
subsequent periods 42.0 3.2
----------------------------------------------- ------ -----
Other comprehensive income/(expense)
not to be reclassified to profit or
loss in subsequent periods:
Re-measurement of defined benefit pension
plan (1.1) (0.8)
Tax effect - -
---------------------------------------------- ------ -----
(1.1) (0.8)
Movement in restriction of retirement
benefit asset in accordance with IFRIC
14 0.7 0.9
Restriction of interest income in accordance
with IFRIC 14 0.4 0.4
Tax effect 0.1 (0.1)
----------------------------------------------- ------ -----
Net other comprehensive income not to
be reclassified to profit or loss in
subsequent periods 0.1 0.4
----------------------------------------------- ------ -----
Other comprehensive income for the year 42.1 3.6
----------------------------------------------- ------ -----
Total comprehensive income for the year 2.4 19.4
----------------------------------------------- ------ -----
Attributable to:
Owners of Cape plc 0.5 19.0
Non-controlling interests 1.9 0.4
----------------------------------------------- ------ -----
2.4 19.4
---------------------------------------------- ------ -----
Condensed consolidated statement of financial position
at 31 December 2016
2016 2015
Note GBPm GBPm
----------------------------------------- ---- ------ ------
Assets
Non-current assets
Intangible assets 14 150.3 138.6
Investment property 2.0 2.0
Property, plant and equipment 15 84.0 80.2
Investments accounted for using the
equity method 7.2 2.8
Deferred tax assets 39.1 20.7
Restricted deposits 3.5 9.0
----------------------------------------- ---- ------ ------
Total non-current assets 286.1 253.3
----------------------------------------- ---- ------ ------
Current assets
Inventories 13.7 12.7
Trade and other receivables 244.6 198.8
Cash and cash equivalents 121.5 81.4
Restricted deposits 38.5 23.3
Non-current asset held for sale 0.3 -
Assets directly associated with disposal
group held for sale 12 1.2 1.0
----------------------------------------- ---- ------ ------
Total current assets 419.8 317.2
----------------------------------------- ---- ------ ------
Total assets 705.9 570.5
----------------------------------------- ---- ------ ------
Equity
Share capital 17 30.3 30.3
Share premium account 1.0 1.0
Treasury shares 17 (0.1) -
Special reserve 17 1.0 1.0
Other reserves 17 9.6 9.6
Translation reserve 140.9 99.4
Retained earnings/(losses) (72.0) (14.9)
----------------------------------------- ---- ------ ------
Equity attributable to equity holders
of the parent 110.7 126.4
----------------------------------------- ---- ------ ------
Non-controlling interests 3.0 2.9
----------------------------------------- ---- ------ ------
Total equity 113.7 129.3
----------------------------------------- ---- ------ ------
Liabilities
Non-current liabilities
Borrowings 198.7 190.2
Retirement benefit obligations 17.2 13.3
Deferred tax liabilities 4.7 5.4
Provision for industrial disease claims 16 137.9 90.2
Other provisions 16 3.0 2.7
----------------------------------------- ---- ------ ------
Total non-current liabilities 361.5 301.8
----------------------------------------- ---- ------ ------
Current liabilities
Borrowings 1.0 0.1
Trade and other payables 172.3 120.8
Current income tax liabilities 13.7 6.0
Provision for industrial disease claims 16 34.6 5.3
Other provisions 16 6.7 5.5
Liabilities directly associated with
disposal group held for sale 12 2.4 1.7
----------------------------------------- ---- ------ ------
Total current liabilities 230.7 139.4
----------------------------------------- ---- ------ ------
Total liabilities 592.2 441.2
----------------------------------------- ---- ------ ------
Total equity and liabilities 705.9 570.5
----------------------------------------- ---- ------ ------
Condensed consolidated statement of changes in equity
for the year ended 31 December 2016
Total
Share Special attributable Non-
Share premium Treasury reserve Other Translation Retained to controlling Total
capital account shares GBPm reserves reserve earnings/(losses) parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------- ------- -------- -------- -------- ----------- ----------------- ------------ ----------- ------
At 1 January
2016 30.3 1.0 - 1.0 9.6 99.4 (14.9) 126.4 2.9 129.3
------------------ ------- ------- -------- -------- -------- ----------- ----------------- ------------ ----------- ------
Profit/(loss)
for the year - - - - - - (41.1) (41.1) 1.4 (39.7)
Other
comprehensive
income/(expense):
Currency
translation
differences - - - - - 41.5 - 41.5 0.5 42.0
Re-measurement
of defined
benefit
pension plan - - - - - - (1.1) (1.1) - (1.1)
Movement in
restriction
of retirement
benefit asset
in accordance
with
IFRIC 14 - - - - - - 0.7 0.7 - 0.7
Restriction of
interest income
in accordance
with IFRIC 14 - - - - - - 0.4 0.4 - 0.4
Tax effect on
retirement
benefit
asset - - - - - - 0.1 0.1 - 0.1
------------------ ------- ------- -------- -------- -------- ----------- ----------------- ------------ ----------- ------
Total
comprehensive
income/(expense)
for the year - - - - - 41.5 (41.0) 0.5 1.9 2.4
------------------ ------- ------- -------- -------- -------- ----------- ----------------- ------------ ----------- ------
Transactions
with owners
Dividends - - - - - - (17.0) (17.0) (1.8) (18.8)
Share options
- value of
employee
services - - - - - - 1.6 1.6 - 1.6
- share buyback - - (0.8) - - - - (0.8) - (0.8)
- exercise of
share options - - 0.7 - - - (0.7) - - -
------------------ ------- ------- -------- -------- -------- ----------- ----------------- ------------ ----------- ------
- - (0.1) - - - (16.1) (16.2) (1.8) (18.0)
------------------ ------- ------- -------- -------- -------- ----------- ----------------- ------------ ----------- ------
At 31 December
2016 30.3 1.0 (0.1) 1.0 9.6 140.9 (72.0) 110.7 3.0 113.7
------------------ ------- ------- -------- -------- -------- ----------- ----------------- ------------ ----------- ------
for the year ended 31 December 2015
Total
Share Treasury attributable Non-
Share premium shares Special Other Translation Retained to controlling Total
capital account GBPm reserve reserves reserve earnings/(losses) parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------- ------- --------- ------- -------- ----------- ----------------- ------------ ----------- ------
At 1 January
2015 30.3 1.0 - 1.0 9.5 96.3 (13.4) 124.7 2.8 127.5
------------------ ------- ------- --------- ------- -------- ----------- ----------------- ------------ ----------- ------
Profit for the
year - - - - - - 15.5 15.5 0.3 15.8
Other
comprehensive
income/(expense):
Currency
translation
differences - - - - - 3.1 - 3.1 0.1 3.2
Re-measurement
of defined
benefit
pension plan - - - - - - (0.8) (0.8) - (0.8)
Movement in
restriction
of retirement
benefit asset
in accordance
with
IFRIC 14 - - - - - - 0.9 0.9 - 0.9
Restriction of
interest income
in accordance
with IFRIC 14 - - - - - - 0.4 0.4 - 0.4
Tax effect on
retirement
benefit
asset - - - - - - (0.1) (0.1) - (0.1)
------------------ ------- ------- --------- ------- -------- ----------- ----------------- ------------ ----------- ------
Total
comprehensive
income for the
year - - - - - 3.1 15.9 19.0 0.4 19.4
------------------ ------- ------- --------- ------- -------- ----------- ----------------- ------------ ----------- ------
Transactions
with owners
Dividends - - - - - - (17.0) (17.0) - (17.0)
Transfer to
disposal
group liabilities - - - - - - - - (0.3) (0.3)
Share options:
- value of
employee
services - - - - - - (0.4) (0.4) - (0.4)
- deferred tax
on options - - - - 0.1 - - 0.1 - 0.1
------------------ ------- ------- --------- ------- -------- ----------- ----------------- ------------ ----------- ------
- - - - 0.1 - (17.4) (17.3) (0.3) (17.6)
------------------ ------- ------- --------- ------- -------- ----------- ----------------- ------------ ----------- ------
At 31 December
2015 30.3 1.0 - 1.0 9.6 99.4 (14.9) 126.4 2.9 129.3
------------------ ------- ------- --------- ------- -------- ----------- ----------------- ------------ ----------- ------
Condensed consolidated statement of cash flows
for the year ended 31 December 2016
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
2016 2016 2016 2015 2015 2015
Note GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----- ----------------- --------------------- ------------ ----------- ------------- --------
Cash flows from
operating activities
Profit/(loss) before
tax (43.6) 0.3 (43.3) 29.1 (0.3) 28.8
Finance costs - net 10 10.8 - 10.8 10.8 - 10.8
Share of post-tax
result of
joint ventures (7.3) - (7.3) (2.8) - (2.8)
Other items 80.4 - 80.4 (2.1) (4.9) (7.0)
Impairment of
goodwill and
assets held for
sale - - - - 5.2 5.2
Claims settled on
behalf of
IDC Scheme (1.7) - (1.7) (2.2) - (2.2)
Exceptional items -
impairment
of goodwill - - - 8.8 - 8.8
Share option
charge/(credit) 1.6 - 1.6 (0.4) - (0.4)
Depreciation and
amortisation 14,15 21.2 - 21.2 19.3 - 19.3
Difference between
pension
charge and cash
contributions 1.2 - 1.2 0.8 - 0.8
(Gain) on sale of
property,
plant and equipment 15 (0.4) - (0.4) (0.4) - (0.4)
Cash reclassified to
disposal
group held for sale 12 - - - - (0.1) (0.1)
Decrease in
inventories 1.0 - 1.0 2.7 - 2.7
(Increase)/decrease
in trade
and other
receivables (8.1) 0.9 (7.2) (7.9) 1.1 (6.8)
Increase/(decrease)
in trade
and other payables 17.1 (0.7) 16.4 9.0 (0.8) 8.2
Increase/(decrease)
in provisions 1.3 (0.2) 1.1 (13.1) 0.1 (13.0)
-------------------- ----- ----------------- --------------------- ------------ ----------- ------------- --------
Net cash generated
from continuing
and discontinued
operations 73.5 0.3 73.8 51.6 0.3 51.9
Interest received 0.1 - 0.1 0.1 - 0.1
Interest paid (7.2) - (7.2) (7.0) - (7.0)
Tax paid (7.2) - (7.2) (9.3) - (9.3)
-------------------- ----- ----------------- --------------------- ------------ ----------- ------------- --------
Net cash flow from
operating
activities 59.2 0.3 59.5 35.4 0.3 35.7
-------------------- ----- ----------------- --------------------- ------------ ----------- ------------- --------
Investing activities
Proceeds from sale
of property,
plant and equipment 15 3.1 2.9
Purchase of 15 (15.1)
property, plant
and equipment (20.1)
Net transfer to
restricted
funds (13.0) (5.8)
Acquisition of
subsidiaries
net of cash
acquired - (0.2)
Decrease/(increase)
in receivables
from joint ventures 3.4 (1.0)
Dividends received
from joint
ventures 3.9 -
Net cash used in
investing
activities -
continuing
operations (17.7) (24.2)
-------------------- ----- ------------------------------------------------------ ----------- -------------
Financing
activities
Settlement of debt
arising
on acquisition - (5.3)
Drawing on 19
borrowings 7.3 13.2
Dividends paid to
shareholders (17.0) (17.0)
Dividends paid to
non-controlling
interests (1.8) -
Share buyback (0.8) -
-------------------- ----- ----------------------------------------------------- ----------- -------------
Net cash flows used
in financing
activities -
continuing
operations (12.3) (9.1)
Net increase in
cash and cash
equivalents 19 29.5 2.4
Net foreign exchange
difference
on cash and cash
equivalents 19 10.6 1.0
Cash and cash
equivalents at
1 January 81.4 78.0
-------------------- ----- ----------------------------------------------------- ----------- -------------
Cash and cash
equivalents at
31 December 121.5 81.4
-------------------- ----- ----------------------------------------------------- ----------- -------------
Notes to the condensed consolidated financial statements
1 General information
The Group has prepared its condensed consolidated financial
statements for the year ending 31 December 2016 in accordance with
the Companies (Jersey) Law 1991 and International Financial
Reporting Standards (IFRS) as adopted by the European Union. These
statements do not constitute accounts prepared for the purpose of
Article 105 of the Companies (Jersey) Law 1991.
The comparative financial information is based on the statutory
accounts to 31 December 2015 which have been delivered to the
Jersey Financial Services Commission. The report of the auditors on
those accounts was unqualified.
The preliminary announcement for the year ending 31 December
2016 was approved by the Board of Directors on 14 March 2017.
Copies of this preliminary report will be available from the
offices of Cape plc, 47 Esplanade, St Helier, Jersey, JE1 0BD and
on the Group's website at www.capeplc.com. Legislation in Jersey
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
2 Basis of preparation
The condensed consolidated financial statements for the year
ending 31 December 2016 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority.
2.1 Discontinued operations
The Group classifies an asset or disposal group as a
discontinued operation when it has been either disposed of or
classified as held for sale; or it represents a single major line
of business or geographical area of operation or is part of a
coordinated plan for disposal.
In the period an asset or disposal group has been disposed of,
or is classified as held for sale, the results of the operation are
reported as discontinued operations in the current and prior
period.
2.2 Accounting policies
The accounting policies and methods of computation adopted in
the preparation of the condensed consolidated financial statements
are consistent with those followed in the preparation of the
Group's annual audited consolidated financial statements, which
will be available on the Group's website at www.capeplc.com.
2.3 Going concern basis
After making enquiries, the directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. The Group
therefore continues to adopt the going concern basis in preparing
its condensed consolidated financial statements.
3. New and amended standards and interpretations adopted by the
Group
Several new standards and amendments apply for the first time in
2016, however they do not have a significant impact on the annual
financial statements of the Group. These new standards and
amendments that are applicable to the Group are listed below:
- Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations
- Amendments to IAS 27: Equity Method in Separate Financial Statements
- Amendments to IAS 16 and IAS 38: Clarification of Acceptable
Methods of Depreciation and Amortisation
- Annual Improvements to IFRSs 2012-2014 Cycle
b) New and amended standards and interpretations not yet
adopted
The following standards and interpretations in issue which will
have an effect for the Group, have not yet been adopted by the
Group:
Effective
dates
--------------------------------------------------- ----------
Amendments to IAS 12: Recognition of Deferred 1 January
Tax Assets for Unrealised Losses 2017
Amendments to IFRS 2: Clarification and Measurement 1 January
of Share-based Payment Transactions 2017
1 January
IFRS 9 Financial Instruments 2018
1 January
IFRS 15 Revenue from Contracts with Customers 2018
1 January
IFRS 16 Leases 2019
The Group is currently assessing the impact of these standards
and plans to adopt the new standards on the required effective
date.
4. Prior period adjustments
The Group has re-organised its geographical reporting segments
during the period as outlined in note 7 'Segment information'. The
change in reporting segments has been performed to align external
reporting with the revised internal management structure. All prior
year figures have been restated accordingly in note 7.
5. Group specific accounting measures
To be able to provide readers with clear, meaningful and
consistent presentation of financial performance, the Group
reflects its underlying financial results in the 'business
performance' column within the consolidated income statement.
Business performance excludes 'Other items' and 'Exceptional
items', which are considered non-operational in their nature and
which are reported separately in a different column within the
consolidated income statement.
a) Other items
Other items are those items which the directors believe are
relevant to the understanding of the results for the year and which
are excluded from the adjusted measures. Other items include
administration expenses, financial incomes and financial costs
associated with industrial disease claims and certain
post-acquisition charges, including amortisation of acquired
intangibles arising from business combinations.
b) Exceptional items
Exceptional items are those items which are of a non-recurring
nature or, in the judgement of the directors, need to be disclosed
separately by virtue of their nature, size or incidence. Items
which may be considered exceptional in nature include significant
write-downs of goodwill and other assets, significant changes in
asset values as a result of changes in accounting estimates,
business acquisition costs and restructuring costs.
6. Significant judgements and estimates
Certain of the Group's accounting policies require critical
accounting estimates that involve subjective judgements and the use
of assumptions, some of which may relate to matters that are
inherently uncertain and susceptible to change.
a) Judgements
Areas of judgement that have the most significant effect on the
amounts recognised in the consolidated financial statements
are:
(i) Revenue recognition and assessment of long-term contract
performance
The Group generally accounts for long-term construction
contracts using the percentage of completion method as performance
of the contract progresses. This method requires judgement to
determine accurate estimates of the extent of progress towards
contract completion and may involve estimates of the total contract
costs, remaining costs to completion, total revenues, contract
risks and other judgements.
(ii) Carrying value of property, plant and equipment
Assessing whether property, plant and equipment may be impaired
requires a review for indicators of impairment and, where such
indicators exist, an estimate of the asset's recoverable amount by
reference to value in use. Management are required to exercise
significant judgement in reviewing for and identifying asset
indicators of impairment and subsequently calculating value in
use.
(iii) Trade and other receivables
The Group provides for likely non-recovery of receivables to the
extent that the carrying value is more than the present value of
expected future cash flows. Assessing the value of the provision
requires significant management judgement and review of individual
receivables based upon individual customer creditworthiness,
current economic trends and analysis of historical bad debts.
(iv) Deferred tax assets
The Group recognises deferred tax assets on all applicable
temporary differences where it is probable that future taxable
profits will be available for utilisation. This requires management
to make judgements and assumptions regarding the amount of deferred
tax that can be recognised based on the magnitude and likelihood of
future taxable profits.
(v) Defined benefit pension scheme
The cost and the obligation of the Group's defined benefit
pension scheme is based on a number of selection assumptions. These
include the discount rate, inflation rate, salary growth, longevity
and expected return on the assets of the plan. Differences arising
from actual experience or future changes in assumptions will be
reflected in future periods.
b) Estimates
The key assumptions affected by future uncertainty that have a
significant risk of causing material adjustment to the carrying
value of assets and liabilities within the next financial year
are:
(i) Onerous contracts
Provision is made for future losses on long-term contracts where
it is considered that the contract costs are likely to exceed
revenues in future years. Estimating future losses involves
assumptions of contract performance targets and likely levels of
future cost escalation over time. A provision for onerous contracts
of GBP3.0 million is recorded at 31 December 2016 (2015: GBP3.1
million), as shown in note 16.
(ii) Impairment of goodwill
Goodwill is tested at least annually for impairment. This
requires estimation of the value in use of the cash-generating
units to which the goodwill is allocated. Calculation of value in
use requires estimation of expected future cash flows from each of
the cash-generating units and also to determine a suitable discount
rate to calculate the present value of those cash flows. The
carrying amount of goodwill at 31 December 2016 was GBP132.9
million (2015: GBP118.0 million), as shown in note 14.
(iii) Provision for industrial disease claims
To the extent that such costs can be reliably estimated as at 31
December 2016, a provision has been made for the costs which the
Group is expected to incur in respect of lodged and future
industrial disease claims for which the Board believes the Group to
be liable arising from alleged exposure to previously manufactured
asbestos products, notwithstanding the matters disclosed under note
20 'Industrial disease claim provision and contingent liabilities'.
The most recent full actuarial valuation was completed in January
2017 in respect of the period up to 31 December 2016 and the next
full valuation is scheduled to be completed in respect of the
period up to 31 December 2019. The amount of the provision is based
on historic patterns of claim numbers and monetary settlements as
well as published tables of projected disease incidence. Key
assumptions made in assessing the appropriate level of provision
include the period over which future claims can be expected, the
nature of claims received, the rate at which claims will be filed,
the rate of successful resolution as well as future trends in both
compensation payments and legal costs. Management monitors claims
received on an ongoing basis as well as any other factors which
would require a change to the assumptions or trigger a full
actuarial review in the current year. When determining the
appropriate level of provision, the Board has considered various
potential, threatened and actual claim types and has relied on
appropriate legal and other professional advice.
The total industrial disease claim provision at 31 December 2016
increased to GBP172.5 million (2015: GBP95.5 million) as a result
of a number of factors, including the reduction in the discount
rate used in the triennial actuarial valuation, a provision
recognised for insurer employers liability claims following a
determinant judgment in this litigation in July 2016, an additional
provision for the insurer product liability claims following the
agreed settlement reached after the year end (see note 23) and a
consideration of potential further claims of a similar nature.
(iv) Income tax
Group entities can be subject to routine tax audits and also a
process whereby tax computations are discussed and agreed with the
appropriate authorities. Whilst the ultimate outcome of such tax
audits and discussions cannot be determined with certainty,
management estimates the level of required tax provisions on the
basis of professional advice and the nature of current discussions
with the tax authority concerned.
7. Segment information
Management has determined the operating segments based on the
reports reviewed by the Board (Chief Operating Decision Maker
'CODM') that are used to make strategic decisions. The CODM
considers the business from a geographic perspective and the Group
reports three regional segments and a central support function. The
main profit measure used by the CODM in its review is adjusted
operating profit.
The Group has re-organised its geographical reporting segments
during the year. The change in reporting segments has been
performed to align external reporting with the revised internal
management structure. Sakhalin is now reported within 'Asia
Pacific' and both Azerbaijan and Kazakhstan are now reported within
'Middle East', with these having all previously been reported
within 'UK, Europe & CIS'. Additionally, the 'UK, Europe &
CIS' segment has been renamed 'UK' and 'MENA' has been renamed
'Middle East'. All prior year figures have been restated
accordingly.
7. Segment information (continued)
Each regional segment derives its revenues from the provision of
critical industrial services focussed on the energy and natural
resources sectors. No operating segments have been aggregated.
The segment information for the year ended 31 December 2016 is
as follows:
Middle Asia
UK East Pacific Central Group
2016 GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----- ------ -------- ------- ------
Continuing operations
Revenue 370.8 191.6 301.1 - 863.5
Adjusted operating profit /(loss)
before joint ventures 14.2 19.7 21.3 (7.1) 48.1
Share of post-tax profit from
joint ventures - 7.3 - - 7.3
---------------------------------- ----- ------ -------- ------- ------
Adjusted operating profit/(loss)
after franchise fees 14.2 27.0 21.3 (7.1) 55.4
Other and exceptional items (88.2)
Net finance costs (10.8)
---------------------------------- ----- ------ -------- ------- ------
(Loss) before tax (43.6)
---------------------------------- ----- ------ -------- ------- ------
Middle Asia
UK East Pacific Central Group
2015 Restated GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----- ------ -------- ------- ------
Continuing operations
Revenue 388.4 174.6 148.4 - 711.4
Adjusted operating profit /(loss)
before joint ventures 31.5 21.3 3.5 (6.6) 49.7
Share of post-tax profit from
joint ventures - 2.8 - - 2.8
---------------------------------- ----- ------ -------- ------- ------
Adjusted operating profit/(loss)
after franchise fees 31.5 24.1 3.5 (6.6) 52.5
Other and exceptional items (12.6)
Net finance costs (10.8)
---------------------------------- ----- ------ -------- ------- ------
Profit before tax 29.1
---------------------------------- ----- ------ -------- ------- ------
Segmental adjusted operating profit/(loss) in the table above is
shown after charging franchise fees. Adjusted operating profit
before franchise
fees is set out in note 8. There were no significant sales
between segments in either year.
Other segment items included in the consolidated income
statement are as follows:
Middle Asia
Note UK East Pacific Central Group
2016 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------ ----- ------ -------- ------- -----
Depreciation (excluding discontinued
operations) 15 5.1 8.1 4.8 - 18.0
Amortisation 14 3.2 - - - 3.2
------------------------------------- ------ ----- ------ -------- ------- -----
Middle Asia
UK East Pacific Central Group
2015 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------ ----- ------ -------- ------- -----
Depreciation (excluding discontinued
operations) 15 5.2 6.5 4.2 - 15.9
Amortisation 14 3.4 - - - 3.4
------------------------------------- ------ ----- ------ -------- ------- -----
The geographical origin of revenue based on location of the
entity is analysed as follows:
Restated
2016 2015
Note GBPm GBPm
----------------------------------- ---- ----- ----------
Continuing operations
United Kingdom 368.5 385.7
Australia 226.1 113.6
Kingdom of Saudi Arabia 81.4 70.0
Qatar 43.6 54.6
Abu Dhabi 40.8 34.6
South Korea 37.9 0.2
Singapore 19.0 0.8
Rest of the world 46.2 51.9
----------------------------------- ---- ----- ----------
Revenue from continuing operations 863.5 711.4
----------------------------------- ---- ----- ----------
Discontinued operations 12 6.5 5.3
----------------------------------- ---- ----- ----------
Total revenue 870.0 716.7
----------------------------------- ---- ----- ----------
7. Segment information (continued)
The Strategic report section in the Annual Report and Accounts
provides an analysis of revenues between maintenance support
services (being services to plant operators to assist with their
maintenance and production support activities) and construction
support services (being services to engineering and contracting
companies to support major construction projects). This split in
customer base and revenue does not represent an operating segment
as multi-discipline services are provided to all customers and as
such the segmental analysis is only presented by geographic
segments. The prior year comparatives in the table on the previous
page have been restated to show the revenue of South Korea
separately from the rest of the world.
Revenue from continuing operations derived from maintenance
support services was GBP521 million (60%) (2015: GBP474 million
(67%)) and revenue derived from construction support services was
GBP342 million (40%) (2015: GBP237 million (33%)).
Revenue from the largest client represented 19% of total revenue
relating to project activity in Australia and the top ten clients
represented 54% of revenue (2015: 45%). Revenue from the second
largest client represented 10% of total revenue and related to
activity across all geographic segments.
Segment assets consist primarily of property, plant and
equipment, investments, intangible assets, inventories and trade
and other receivables. Segment liabilities consist of operating
liabilities.
The segment assets and liabilities at 31 December 2016 and
capital expenditure for the year are as follows:
Middle Asia
Note UK East Pacific Central Unallocated Group
2016 GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Assets - continuing 165.2 202.9 127.5 6.2 202.6 704.4
Assets held for sale 15 0.3 - - - - 0.3
Assets directly associated
with disposal group
held for sale 12 - - 1.2 - - 1.2
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Total assets 165.5 202.9 128.7 6.2 202.6 705.9
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Non-current assets included
in total assets
Goodwill and intangibles
- continuing 58.6 57.8 33.9 - - 150.3
Other - continuing 26.8 45.2 18.9 2.3 42.6 135.8
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Total non-current assets 85.4 103.0 52.8 2.3 42.6 286.1
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Liabilities - continuing 59.1 63.8 69.6 183.0 214.2 589.7
Liabilities - discontinued
operations - 0.1 - - - 0.1
Liabilities directly
associated with disposal
group held for sale 12 - 0.3 2.1 - - 2.4
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Total liabilities 59.1 64.2 71.7 183.0 214.2 592.2
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Capital expenditure
- property, plant and
equipment 15 2.4 8.7 3.8 0.2 - 15.1
---------------------------- ------ ----- ------ -------- ------- ----------- -----
The segment assets and liabilities at 31 December 2015 and
capital expenditure for the year are as follows:
Middle Asia
Note UK East Pacific Central Unallocated Group
2015 Restated GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Assets - continuing 185.7 163.8 76.9 8.7 134.4 569.5
Assets directly associated
with disposal group
held for sale 12 - 0.2 0.8 - - 1.0
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Total assets 185.7 164.0 77.7 8.7 134.4 570.5
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Non-current assets included
in total assets
Goodwill and intangibles
- continuing 61.6 48.3 28.6 0.1 - 138.6
Other - continuing 32.8 31.8 18.6 1.8 29.7 114.7
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Total non-current assets 94.4 80.1 47.2 1.9 29.7 253.3
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Liabilities - continuing 58.5 55.7 24.1 102.4 198.7 439.4
Liabilities - discontinued
operations - 0.1 - - - 0.1
Liabilities directly
associated with disposal
group held for sale 12 - 0.5 1.2 - - 1.7
Total liabilities 58.5 56.3 25.3 102.4 198.7 441.2
---------------------------- ------ ----- ------ -------- ------- ----------- -----
Capital expenditure
- property, plant and
equipment 15 8.5 9.1 2.5 - - 20.1
---------------------------- ------ ----- ------ -------- ------- ----------- -----
The geographical origin of non-current assets held by the Group
has not been disclosed as the necessary information is not
available and the cost to develop it would be excessive. The prior
year comparatives for Central and UK assets have been restated to
correct the allocation of assets between these two segments. There
is no effect on total assets.
Liabilities of discontinued operations of GBP0.1million (2015:
GBP0.1 million) relate to liabilities held in India. Assets and
liabilities held for sale in both 2016 and 2015 relate to the
discontinuation of operations in Hong Kong and Kazakhstan.
7. Segment information (continued)
Unallocated assets and liabilities comprise:
2016 2015
--------------------------------- ------------------- -------------------
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
--------------------------------- ------ ----------- ------ -----------
Deferred tax 39.1 (4.7) 20.7 (5.4)
Current tax - (13.7) - (6.0)
Cash and cash equivalents 121.5 - 81.4 -
Restricted deposits current 38.5 - 23.3 -
Restricted deposits: non-current 3.5 - 9.0 -
Bank loans - (195.8) - (187.3)
Total unallocated 202.6 (214.2) 134.4 (198.7)
---------------------------------- ------ ----------- ------ -----------
8. Adjusted measures
The Group seeks to present a measure of underlying performance
which is not impacted by exceptional or other items, both
considered
non-operational in nature. These measures are described as
'adjusted' and are used by management to measure and monitor
performance.
Other items and exceptional items have been excluded from the
adjusted measures:
2016 2015
Note GBPm GBPm
----------------------------------------------- ------------------ ------ ------
Profit/(loss) before tax (43.6) 29.1
Other items 9a 88.2 3.4
Exceptional items 9b - 9.2
Interest income on restricted funds 10 (0.4) (0.3)
Unwind of discount on provision for industrial
disease claims 10 3.2 3.3
----------------------------------------------- ------------------ ------ ------
Adjusted profit before tax 47.4 44.7
----------------------------------------------- ------------------ ------ ------
Operating profit/(loss) (32.8) 39.9
Other items 9a 88.2 3.4
Exceptional items 9b - 9.2
----------------------------------------------- ------------------ ------ ------
Adjusted operating profit 55.4 52.5
----------------------------------------------- ------------------ ------ ------
Adjusted operating profit margin 6.4% 7.4%
----------------------------------------------- ------------------ ------ ------
Adjusted operating profit 55.4 52.5
Depreciation - continuing operations 15 18.0 15.9
----------------------------------------------- ------------------ ------ ------
Adjusted EBITDA 73.4 68.4
----------------------------------------------- ------------------ ------ ------
Net debt 36.2 76.6
Unamortised borrowing arrangement costs 3.4 2.0
Restricted funds 42.0 32.3
Less: cash transferred to assets of disposal
group held for sale 12 (1.2) (1.0)
----------------------------------------------- ------------------ ------ ------
Adjusted net debt 80.4 109.9
----------------------------------------------- ------------------ ------ ------
Finance costs (11.3) (11.2)
Unwind of discount on provision for industrial
disease claims 10 3.2 3.3
----------------------------------------------- ------------------ ------ ------
Adjusted finance costs (8.1) (7.9)
----------------------------------------------- ------------------ ------ ------
Certain central operations and management are based in Singapore
with responsibility for management and development of non-UK
intellectual property. Franchise agreements facilitate the charging
of franchise fees from Singapore to the Group's non-UK trading
businesses with such costs being reported through segment operating
profit.
The segmental adjusted operating profit before franchise fee
charges is as follows:
Middle Asia
UK East Pacific Central Group
2016 GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- ------ -------- ------- -----
Revenue 370.8 191.6 301.1 - 863.5
--------------------------------- ----- ------ -------- ------- -----
Adjusted operating profit/(loss)
before joint ventures 14.2 22.4 27.0 (15.5) 48.1
Share of post-tax result of
joint ventures - 7.3 - - 7.3
--------------------------------- ----- ------ -------- ------- -----
Adjusted operating profit/(loss) 14.2 29.7 27.0 (15.5) 55.4
--------------------------------- ----- ------ -------- ------- -----
8. Adjusted measures (continued)
Middle Asia
UK East Pacific Central Group
2015 Restated GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- ------ -------- ------- -----
Revenue 388.4 174.6 148.4 - 711.4
--------------------------------- ----- ------ -------- ------- -----
Adjusted operating profit/(loss)
before joint ventures 31.5 24.7 7.8 (14.3) 49.7
Share of post-tax result of
joint ventures - 2.8 - - 2.8
--------------------------------- ----- ------ -------- ------- -----
Adjusted operating profit/(loss) 31.5 27.5 7.8 (14.3) 52.5
--------------------------------- ----- ------ -------- ------- -----
9. Other items and exceptional items
a) Other items
2016 2015
Note GBPm GBPm
-------------------------------------------- ---- ---------------- -----
Continuing operations
In operating profit:
Amortisation of intangibles arising on
business acquisitions 14 3.2 3.4
Post-acquisition management compensation 0.3 0.2
Charge/(credit) to provision for industrial
disease claims 16 79.2 (0.6)
Litigation costs and other expenses for
industrial disease claims 5.5 0.4
-------------------------------------------- ---- ---------------- -----
Other items from continuing operations
included within operating profit 88.2 3.4
-------------------------------------------- ---- ---------------- -----
b) Exceptional items
2016 2015
GBPm GBPm
--------------------------------------------- ----- -----
(i) Continuing operations
Acquisition-related costs - 0.4
Impairment of goodwill - 8.8
---------------------------------------------- ----- -----
Exceptional items from continuing operations
included within operating profit - 9.2
---------------------------------------------- ----- -----
2016 2015
Note GBPm GBPm
--------------------------------------- ---- ------------------ -----
(ii) Discontinued operations
In loss from discontinued operations:
Impairment of goodwill 12 - 3.4
Impairment of assets held for sale 12 - 1.8
Other 12 - 0.4
(Release) of provision for exit costs 12 - (0.7)
--------------------------------------- ---- ------------------ -----
Exceptional items included within loss
from discontinued operations - 4.9
--------------------------------------- ---- ------------------ -----
10. Finance income and costs
2016 2015
Note GBPm GBPm
------------------------------------------------ ------------------ ------ ------
Interest income:
Short-term bank deposits 0.1 0.1
Interest on restricted funds 19 0.4 0.3
------------------------------------------------ ------------------ ------ ------
Finance income 0.5 0.4
------------------------------------------------ ------------------ ------ ------
Interest expense:
Bank borrowings (7.9) (7.7)
Finance leases (0.2) (0.2)
Unwind of discount on provision for industrial
disease claims 16 (3.2) (3.3)
------------------------------------------------ ------------------ ------ ------
Finance costs (11.3) (11.2)
------------------------------------------------ ------------------ ------ ------
Net finance costs (10.8) (10.8)
------------------------------------------------ ------------------ ------ ------
11. Income tax
2016 2015
GBPm GBPm
--------------------------------------- ----------------- ------
Current tax:
UK 2.2 2.1
Overseas 9.4 6.8
Adjustments in respect of prior years 1.2 (1.1)
Deferred tax:
UK (13.4) 1.0
Overseas (2.4) (0.2)
Adjustments in respect of prior years (0.6) (0.5)
--------------------------------------- ----------------- ------
Income tax (credit)/expense (3.6) 8.1
--------------------------------------- ----------------- ------
The difference between the actual tax charge and the charge that
would have arisen using Jersey's standard corporate income tax rate
of 0%
(2015: 0%) is explained in the table below:
Restated
2016 2015
GBPm GBPm
--------------------------------------------------- ------ ---------
Profit/(loss) before tax - continuing operations (43.6) 29.1
Profit/(loss) before tax - discontinued operations 0.3 (0.3)
--------------------------------------------------- ------ ---------
Total taxable profit/(loss) (43.3) 28.8
--------------------------------------------------- ------ ---------
Tax calculated at the standard rate of corporate
income tax in Jersey of 0% (2015: 0%) - -
Adjustments in respect of prior year 0.6 (1.6)
Share option charge 0.1 -
Effect of different overseas tax rates (9.1) 6.1
Goodwill write-off - 1.8
Unrelieved overseas tax 2.2 2.2
Deferred tax asset not recognised in respect
of losses 5.4 (0.3)
Tax in respect of joint ventures - (0.6)
Expenses non-deductible 2.6 1.1
Income not taxable (2.1) (0.8)
Increase in tax provisions 2.4 -
Recognition of unrecognised losses (6.6) -
Change in tax rates 0.6 0.2
Other 0.6 -
Discontinued operations adjustment (0.3) -
--------------------------------------------------- ------ ---------
Tax (credit)/charge (3.6) 8.1
--------------------------------------------------- ------ ---------
Included within the tax credit of GBP3.6 million (2015: charge
of GBP8.1 million) is a tax credit of GBP13.2 million (2015: charge
of GBP0.1 million) relating to exceptional and other items. The
local tax rate is applied to the underlying costs or income,
however certain exceptional costs due to their very nature will not
have an associated tax charge or credit. The overall effective rate
applied to these costs will vary year upon year depending on the
location and the nature of the cost. The Group has uncertain tax
positions that are disclosed in note 20. No movements on these
positions are included in the tax charge for the year.
Factors affecting current and future tax charges
As a Group involved in worldwide operations, Cape is subject to
several factors that may affect future tax charges, principally the
levels and mix of profitability in different jurisdictions, tax
rates imposed and tax regime reforms. Legislation has been enacted
in the UK to reduce the standard rate of corporation tax to 19%
from 1 April 2017 and 17% from 1 April 2020. Any UK deferred tax
balances have therefore been measured at an appropriate rate
depending on when the deferred tax balance is expected to
unwind.
12. Discontinued operations and assets held for sale
Analysis of the result of discontinued operations and the result
recognised on the re-measurement of assets and liabilities of the
disposal group is as follows:
2016 2015
GBPm GBPm
------------------------------------------------------- ----- -----
Revenue 6.5 5.3
Expenses (6.2) (5.6)
------------------------------------------------------- ----- -----
Profit/(loss) before tax of discontinued operations 0.3 (0.3)
Deferred income tax (charge) - (0.2)
Exclude: share of loss attributable to non-controlling
interest - 0.2
------------------------------------------------------- ----- -----
Profit/(loss) after tax of discontinued operations
before exceptional items 0.3 (0.3)
Exceptional items:
Impairment of goodwill - (3.4)
Impairment of assets held for sale - (1.8)
Other - (0.4)
Release/(charge) of provision for exit costs - 0.7
------------------------------------------------------- ----- -----
Profit/(loss) after tax of discontinued operations
after exceptional items 0.3 (5.2)
------------------------------------------------------- ----- -----
Discontinued operations in 2016 and 2015 primarily relate to the
planned termination of operations in Hong Kong.
The major classes of assets and liabilities directly associated
with the disposal group classified as held for sale relate to
discontinued operations in Hong Kong and Kazakhstan and are split
as follows:
Assets directly associated with disposal 2016 2015
group held for sale Note GBPm GBPm
---------------------------------------------- ---- ----- -----
Trade and other receivables 1.7 1.8
Cash 1.2 1.0
Goodwill 14 3.4 3.4
---------------------------------------------- ---- ----- -----
Assets directly associated with disposal
group held for sale before impairment 6.3 6.2
Impairment of assets associated with disposal
group held for sale (5.1) (5.2)
---------------------------------------------- ---- ----- -----
Assets directly associated with disposal
group held for sale after impairment 1.2 1.0
---------------------------------------------- ---- ----- -----
Liabilities directly associated with disposal 2016 2015
group held for sale GBPm GBPm
---------------------------------------------- ----- -----
Trade and other payables (2.0) (1.2)
---------------------------------------------- ----- -----
Liabilities directly associated with disposal
group held for sale before impairment (2.0) (1.2)
Provision for exit costs (0.4) (0.5)
---------------------------------------------- ----- -----
Liabilities directly associated with disposal
group held for sale after impairment (2.4) (1.7)
---------------------------------------------- ----- -----
Net (liabilities) of disposal group held for
sale (1.2) (0.7)
---------------------------------------------- ----- -----
The fair value of the net liabilities held for sale have been
calculated based on the estimated realisable value on the open
market less costs to sell.
This is in accordance with IFRS 5 'Non-current Assets Held for
Sale and Discontinued Operations'. The related fair values
discussed above are classified as Level 3 in the fair value
measurement hierarchy
13. Earnings per ordinary share
Basic earnings per share (EPS) for the year equals the loss
after tax attributable to the Company's ordinary shareholders of
GBP41.1 million
(2015: profit after tax of GBP15.5 million) divided by the
weighted average number of issued ordinary shares of 121,020,614
(2015: 121,072,777).
When the Group makes a profit from continuing operations,
diluted EPS equals the profit attributable to the Company's
ordinary shareholders divided by the diluted weighted average
number of issued and potential issuance of ordinary shares. When
the Group makes a loss from continuing operations, diluted EPS
equals the loss attributable to the Company's ordinary shareholders
divided by the basic (undiluted) weighted average number of issued
ordinary shares. This ensures that EPS on losses is shown in full
and not diluted by unexercised share options or awards.
Share options and awards are considered dilutive when the
average share price during the year is higher than the average
exercise price of the option or award and attainment of attaching
performance criteria can be determined with appropriate certainty.
Out of the 1,420,734 options granted in the current period,
1,136,038 options are not considered dilutive.
2016 2015
Shares Shares
--------------------------------------------- ----------- -----------
Basic weighted average number of shares 121,020,614 121,072,777
Adjustments:
Weighted average number of outstanding share
options 1,104,473 563,679
--------------------------------------------- ----------- -----------
Diluted weighted average number of shares 122,125,087 121,636,456
--------------------------------------------- ----------- -----------
The basic weighted average number of shares excludes shares that
the Company holds in an employee benefit trust. The weighted
average number of shares held in the trust during the year was
83,323 (2015: 31,160).
13. Earnings per ordinary share (continued)
2016 2015
------------------------------------------- ------------------------------------ ----------------
Earnings EPS Earnings EPS
GBPm pence GBPm pence
------------------------------------------- ----------------- ----------------- -------- ------
Basic earnings/(loss) per share
Continuing operations (41.4) (34.2) 20.7 17.1
Discontinued operations 0.3 0.2 (5.2) (4.3)
------------------------------------------- ----------------- ----------------- -------- ------
Basic earnings/(loss) per share (41.1) (34.0) 15.5 12.8
------------------------------------------- ----------------- ----------------- -------- ------
Diluted earnings/(loss) per share
Continuing operations (41.4) (34.2) 20.7 17.0
Discontinued operations 0.3 0.2 (5.2) (4.3)
------------------------------------------- ----------------- ----------------- -------- ------
Diluted earnings/(loss) per share (41.1) (34.0) 15.5 12.7
------------------------------------------- ----------------- ----------------- -------- ------
Adjusted basic earnings per share
- continuing operations
Earnings/(loss) from continuing operations (41.4) (34.2) 20.7 17.1
Amortisation of intangibles 3.2 2.6 3.4 2.8
Post-acquisition management compensation 0.3 0.3 0.2 0.2
Exceptional items - - 9.2 7.5
Industrial disease related costs
and interest income 87.6 72.4 2.8 2.3
Tax effect of adjusting items (13.2) (10.9) 0.1 0.1
------------------------------------------- ----------------- ----------------- -------- ------
Adjusted basic earnings per share 36.5 30.2 36.4 30.0
------------------------------------------- ----------------- ----------------- -------- ------
Adjusted diluted earnings per share
- continuing operations
Earnings/(loss) from continuing operations (41.4) (34.2) 20.7 17.0
Dilutive effect of loss from continuing
operations - 0.3 - -
Amortisation of intangibles 3.2 2.6 3.4 2.8
Post-acquisition management compensation 0.3 0.3 0.2 0.2
Exceptional items - - 9.2 7.5
Industrial disease related costs
and interest income 87.6 71.7 2.8 2.3
Tax effect of adjusting items (13.2) (10.8) 0.1 0.1
------------------------------------------- ----------------- ----------------- -------- ------
Adjusted diluted earnings per share 36.5 29.9 36.4 29.9
------------------------------------------- ----------------- ----------------- -------- ------
The adjusted earnings per share calculations have been
calculated after excluding the impact of amortisation of
intangibles, non-recurring costs, exceptional items, industrial
disease claims related costs and interest income on restricted
funds and the tax impact of these items.
14. Intangible assets
Other
customer-
Supply related
Goodwill Trademarks agreements intangibles Other Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---- ------------------- ---------- ----------- ------------ ----- --------------
Cost
At 1 January 2015 257.0 6.8 2.6 13.8 5.8 286.0
Acquired through business
combination 2.3 - - 3.1 - 5.4
Disposals - - - - (0.1) (0.1)
Exchange adjustments (7.1) - - - - (7.1)
Transfer to assets
held for sale 12 (3.4) - - - - (3.4)
---------------------------- ---- ------------------- ---------- ----------- ------------ ----- --------------
At 31 December 2015 248.8 6.8 2.6 16.9 5.7 280.8
Exchange adjustments 39.3 - - - 0.3 39.6
At 31 December 2016 288.1 6.8 2.6 16.9 6.0 320.4
---------------------------- ---- ------------------- ---------- ----------- ------------ ----- --------------
Amortisation and impairment
At 1 January 2015 129.8 0.3 0.7 1.5 5.6 137.9
Amortisation charge - 0.3 0.9 2.1 0.1 3.4
Impairment 8.8 - - - - 8.8
Disposals - - - - (0.1) (0.1)
Exchange adjustments (7.8) - - - - (7.8)
---------------------------- ---- ------------------- ---------- ----------- ------------ ----- --------------
At 31 December 2015 130.8 0.6 1.6 3.6 5.6 142.2
Amortisation charge - 0.3 0.9 1.9 0.1 3.2
Exchange adjustments 24.4 - - - 0.3 24.7
---------------------------- ---- ------------------- ---------- ----------- ------------ ----- --------------
At 31 December 2016 155.2 0.9 2.5 5.5 6.0 170.1
---------------------------- ---- ------------------- ---------- ----------- ------------ ----- --------------
Net book amount:
At 1 January 2015 127.2 6.5 1.9 12.3 0.2 148.1
At 31 December 2015 118.0 6.2 1.0 13.3 0.1 138.6
---------------------------- ---- ------------------- ---------- ----------- ------------ ----- --------------
At 31 December 2016 132.9 5.9 0.1 11.4 - 150.3
---------------------------- ---- ------------------- ---------- ----------- ------------ ----- --------------
Impairment tests for goodwill
As required by IAS 36 'Impairment of assets', the Group tests
goodwill for impairment on an annual basis. The recoverable amounts
of each
cash-generating unit (CGU) is based on a value in use
calculation. GBP8.8 million of goodwill was impaired in 2015 in
relation to the Asia CGU, reflecting a downward revision in the
shorter-term cash flow projections in light of current market
conditions.
Each CGU's value in use was calculated by taking the Group's
five-year cash flow forecasts and then applying a long-term growth
rate to the periods beyond the fifth year, discounted back using a
pre-tax discount rate. These present values were then compared to
the combined carrying value of the CGUs' assets (goodwill,
intangible assets and property, plant and equipment). The key
assumptions used in preparing the discounted cash flows were as
follows:
EBITDA and cash flow projections
EBITDA and capital expenditure in the five-year forecast
commenced with the most recently approved annual budget, years two
to five were prepared on a country by country basis by considering
past performance, long-term market share and estimates of market
growth by sector. All cash flows associated with future capital
expenditure that would enhance the performance of the CGUs were
then removed from the discounted cash flows. Cash flow projections
were calculated in real rather than nominal terms.
Discount rate
The discount rate reflects the estimated post-tax rate of return
that would be expected from a rational investor over the period of
the forecast, which is then adjusted to a pre-tax discount rate by
reference to the Group's five-year cash tax forecast. The post-tax
discount rate was calculated using the Capital Asset Pricing Model
approach, with the risk-free rate based on UK Government gilts, the
beta derived via weekly observations over a five-year period and
the risk premium based on a consistent long-term average return on
shares. Adjustments were then made to the discount rate of each CGU
to reflect different risks associated with those CGUs (both
specific risk premiums and in respect of local risk free rates).
The pre-tax discount rates applied are set out in the table
below.
Long-term growth rates
Long-term growth rates were also applied to each CGU separately.
Considerations to derive the growth rates included long-term GDP
growth and projected growth rates in the supply and demand for
energy. The long-term growth rates applied are also set out
below.
Given the current uncertainty surrounding market conditions,
management have taken a prudent view on the real long-term growth
rates applied to the cash flow projections for the purpose of
impairment testing, as indicated below. Management are of the
opinion that over the short to medium term, actual growth rates
will be in excess of those used in the projections.
14. Intangible assets (continued)
The assumptions used in the value-in-use calculations were as
follows:
Long-term
Goodwill Discount growth Headroom
GBPm rate rate GBPm
-------------------------- -------- -------- --------- --------
UK 18.9 10.2% - 73.0
Middle East 57.6 12.6% - 105.8
Australia 22.9 11.1% - 34.1
Asia 11.1 15.1% - 5.3
Motherwell Bridge 20.1 10.2% - 13.0
Cape Engineering Services 2.3 10.2% - 11.1
-------------------------- -------- -------- --------- --------
132.9 242.3
-------------------------- -------- -------- --------- --------
When assessing the carrying values of goodwill in the individual
CGUs, management have considered the impact of cash flows arising
from industrial disease claims. Under the Court approved Scheme of
Arrangement (the Scheme), see note 21, the liability is shared by
the Scheme companies and cash flows generated from the entire Group
are used to settle those liabilities. Whilst it is not practicable
to allocate industrial disease claims cash flows to specific CGUs,
management have reviewed the discounted cash flows associated with
this liability and are satisfied that at the Group level
significant overall headroom remains.
Sensitivities
The table below discloses what changes in the key assumptions
would cause the carrying value of the CGUs to exceed their
recoverable amounts:
Long-term
Discount growth
rate rate
to to
reach reach
impairment impairment
-------------------------- ----------- -----------
UK 28.3% (100.0%)
Middle East 27.9% (68.9%)
Australia 27.4% (98.5%)
Asia 22.2% (19.9%)
Motherwell Bridge 13.7% (5.7%)
Cape Engineering Services 49.6% Note*
-------------------------- ----------- -----------
* Note: while the level of headroom is significant, it is not
practicable to calculate.
Sensitivities were also applied to the five-year cash flow
compound annual growth rates. There was sufficient headroom in each
of the CGUs with flat or negative growth rates still providing
headroom.
15. Property, plant and equipment
During the year ended 31 December 2016, the Group acquired
assets with a cost of GBP15.1 million (2015: GBP20.1 million) and
received proceeds from asset sales of GBP3.1 million (2015: GBP2.9
million) as shown in the consolidated statement of cash flows
representing the actual cash outflow.
Assets
Land Fixtures Plant under
and and and course
buildings fittings machinery of construction Total
GBPm GBPm GBPm GBPm GBPm
------------------------------- --------------- --------- ---------- ---------------- ------
Cost
At 1 January 2015 20.9 10.1 160.8 0.3 192.1
Exchange adjustments - - 2.8 - 2.8
Additions 0.6 0.6 18.1 0.8 20.1
Reclassification (0.2) - - 0.2 -
Acquired through business
combination 0.5 - 0.1 - 0.6
Disposals (0.7) (1.4) (9.7) - (11.8)
At 31 December 2015 21.1 9.3 172.1 1.3 203.8
Exchange adjustments 2.1 0.9 24.9 0.2 28.1
Additions 0.8 0.5 13.1 0.7 15.1
Reclassification 1.0 (4.3) 4.3 (1.0) -
Disposals (0.1) (0.2) (9.7) (0.5) (10.5)
Transfer to non-current assets
held for sale (0.3) - - - (0.3)
-------------------------------- --------------- --------- ---------- ---------------- ------
At 31 December 2016 24.6 6.2 204.7 0.7 236.2
-------------------------------- --------------- --------- ---------- ---------------- ------
Accumulated depreciation and
impairment
At 1 January 2015 5.2 8.7 100.9 - 114.8
Exchange adjustments 0.1 0.2 2.0 - 2.3
Charge for the year 1.1 0.8 14.0 - 15.9
Disposals (0.3) (1.3) (7.8) - (9.4)
At 31 December 2015 6.1 8.4 109.1 - 123.6
Exchange adjustments 0.8 0.6 17.0 - 18.4
Reclassification - (4.1) 4.1 - -
Charge for the year 1.2 0.7 16.1 - 18.0
Disposals (0.1) (0.2) (7.5) - (7.8)
-------------------------------- --------------- --------- ---------- ---------------- ------
At 31 December 2016 8.0 5.4 138.8 - 152.2
-------------------------------- --------------- --------- ---------- ---------------- ------
Net book amount
At 1 January 2015 15.7 1.4 59.9 0.3 77.3
At 31 December 2015 15.0 0.9 63.0 1.3 80.2
-------------------------------- --------------- --------- ---------- ---------------- ------
At 31 December 2016 16.6 0.8 65.9 0.7 84.0
-------------------------------- --------------- --------- ---------- ---------------- ------
The depreciation charge of GBP18.0 million (2015: GBP15.9
million) has been charged to cost of sales in the consolidated
income statement. Exchange adjustments relate to the translation of
assets held by foreign operations into the presentation
currency.
During 2016, GBP0.3 million of land and buildings was
reclassified to non-current assets held for sale. This is presented
separately within current assets on the face of the consolidated
statement of financial position. Negotiations for the sale are
currently ongoing and is expected to be completed in the near
future.
The Group leases property, plant and equipment under finance
lease agreements. At 31 December 2016, the net carrying amount of
property, plant and equipment includes the following amounts held
under finance lease: plant and machinery GBP0.4 million (2015:
GBP0.6 million) and land and buildings GBP1.7 million (2015: GBP1.8
million). Additions during the year include GBPnil (2015: GBPnil)
of property, plant and machinery under finance leases.
In the consolidated statement of cash flows, proceeds from sale
of property, plant and equipment comprise:
2016 2015
GBPm GBPm
-------------------------------------------------- ----- -----------------
Net book amount 2.7 2.5
Gain on disposal of property, plant and equipment
- continuing operations 0.4 0.4
Proceeds from disposal of property, plant and
equipment - continuing operations 3.1 2.9
-------------------------------------------------- ----- -----------------
16. Provisions
Industrial
Onerous disease Total
contracts Legal Other Total claims Group
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- ----- ----- ----- ------------------ ------
At 1 January 2016 3.1 1.4 3.7 8.2 95.5 103.7
Utilised (0.1) - (0.8) (0.9) (5.4) (6.3)
Charged to the income statement 1.1 - 2.4 3.5 79.2 82.7
Released to the income
statement (1.4) - - (1.4) - (1.4)
Discount unwind 0.1 - - 0.1 3.2 3.3
Foreign exchange 0.2 - - 0.2 - 0.2
------------------------------- ---------- ----- ----- ----- ------------------ ------
At 31 December 2016 3.0 1.4 5.3 9.7 172.5 182.2
------------------------------- ---------- ----- ----- ----- ------------------ ------
2016
Current provisions 1.8 1.4 3.5 6.7 34.6 41.3
Non-current provisions 1.2 - 1.8 3.0 137.9 140.9
------------------------------- ---------- ----- ----- ----- ------------------ ------
3.0 1.4 5.3 9.7 172.5 182.2
------------------------------- ---------- ----- ----- ----- ------------------ ------
2015
Current provisions 2.3 1.4 1.8 5.5 5.3 10.8
Non-current provisions 0.8 - 1.9 2.7 90.2 92.9
------------------------------- ---------- ----- ----- ----- ------------------ ------
3.1 1.4 3.7 8.2 95.5 103.7
------------------------------- ---------- ----- ----- ----- ------------------ ------
Onerous contracts
A provision is made for onerous contracts where it is considered
that the contract costs are likely to exceed revenues in future
years. Inherent uncertainties in measuring the provision relate to
estimates of the future costs expected to be incurred and of
revenues expected to be received.
The majority of this is expected to be settled in 2017, with the
remaining balance expected to be settled in over one year.
Legal
The Group is involved in a number of legal and other disputes,
including notification of possible claims. The directors, having
considered the facts and circumstances of each item, including
legal advice where appropriate, have established a provision to
cover the costs of future settlements. Uncertainties relate to
whether the Group is successful in defending any action. These are
expected to be settled in 2017.
Other
Other provisions comprise of various provisions including
disposal costs on businesses being divested, restructuring
provisions, property related provisions, post-acquisition
management compensation and national insurance on share based
payments. Inherent uncertainties in measuring the provision relate
to estimates of disposal costs associated with any businesses being
divested, estimates of expected restructuring costs and expected
property costs and estimates of contingent consideration on
acquisitions. These costs are expected to be settled in 2017 and
2018.
Industrial disease claims
To the extent that such costs can be reliably estimated as at 31
December 2016, a provision has been made for the costs which the
Group is expected to incur in respect of lodged and future
industrial disease claims for which the Board believes the Group to
be liable, arising from alleged exposure to previously manufactured
asbestos products, notwithstanding the matters disclosed under note
20 'Industrial disease claim provision and contingent liabilities'.
The most recent full actuarial valuation was completed in January
2017 in respect of the period up to 31 December 2016 and the next
full valuation is scheduled to be completed in respect of the
period up to 31 December 2019. The amount of the provision is based
on historic patterns of claim numbers and monetary settlements as
well as published tables of projected disease incidence. Key
assumptions made in assessing the appropriate level of provision
include the period over which future claims can be expected, the
nature of claims received, the rate at which claims will be filed,
the rate of successful resolution as well as future trends in both
compensation payments and legal costs. Management monitors claims
received on an ongoing basis as well as any other factors which
would require a change to the assumptions or trigger a full
actuarial review in the current year. When determining the
appropriate level of provision, the Board has considered various
potential, threatened and actual claim types and has relied on
appropriate legal and other professional advice.
The provision for industrial disease claims is discounted at
rates between 0.72% and 1.92% (2015: 2.67%) being the appropriate
risk free rates as at the balance sheet date, over the term of the
liabilities, being approximately 40 years.
The amount charged to the income statement of GBP79.2 million is
a result of a number of factors, including the reduction in the
discount rate used in the triennial actuarial valuation, a
provision recognised for insurer employers liability claims
following a determinant judgment in this litigation in July 2016,
an additional provision for the insurer product liability claims
following the agreed settlement reached after the year end (see
note 23) and a consideration of potential further claims of a
similar nature.
The directors anticipate that, assuming no material
deterioration in trading performance and no material change in
legal precedence or judgment, the Group will be able to
sufficiently fund its subsidiary Cape Claims Services Limited to
satisfy all claims that will be settled under the Scheme of
Arrangement and will be sufficiently funded to satisfy all other UK
claims settled outside of the Scheme of Arrangement.
17. Share capital and reserves
2015
2016 Number
Number 2016 of 2015
Ordinary shares of 25p each of shares GBPm shares GBPm
---------------------------------- ---------------- ------------------ ------------------ ------------------
Authorised 200,000,000 50.0 200,000,000 50.0
---------------------------------- ---------------- ------------------ ------------------ ------------------
plc Scheme Share of GBP1 each
---------------------------------- ---------------- ------------------ ------------------ ------------------
Authorised, issued and fully paid
at 1 January and 31 December 1 - 1 -
---------------------------------- ---------------- ------------------ ------------------ ------------------
Issued and fully paid:
At 1 January 121,103,937 30.3 121,103,937 30.3
Issue of shares - - - -
Exercise of share options - - - -
---------------------------------- ---------------- ------------------ ------------------ ------------------
At 31 December 121,103,937 30.3 121,103,937 30.3
---------------------------------- ---------------- ------------------ ------------------ ------------------
Treasury shares:
At 1 January 31,160 - 31,160 -
Share buyback 330,000 (0.8) - -
Exercise of share options (279,646) 0.7 - -
---------------------------------- ---------------- ------------------ ------------------ ------------------
At 31 December 81,514 (0.1) 31,160 -
---------------------------------- ---------------- ------------------ ------------------ ------------------
Treasury shares
The Group has an employee benefit trust holding shares to
satisfy the exercise of share options. All these shares have been
classified in the condensed consolidated statement of financial
position as treasury shares within equity. At 31 December 2016,
81,514 (2015: 31,160) shares were held by the Cape plc Employee
Benefit Trust. During April 2016, the Trust purchased 330,000
ordinary shares in the capital of the Company for the purpose of
enabling the Trustee to satisfy existing awards and future awards
granted by the Company. As at 31 December 2016, 279,646 options had
been exercised, with the remaining 50,354 shares being held in the
Trust in addition to the amount brought forward of 31,160.
Special reserve
The special reserve was created in 2008 by court order upon
cancellation of the share premium and retained earnings. The
special reserve is not distributable and restrictions exist over
its use.
Translation reserve
The translation reserve comprises all foreign currency
differences arising from the translation of financial statements of
foreign operations.
Other reserves
Other reserves relates to hedging reserves held in respect of
net investment hedges.
plc Scheme Share
The plc Scheme Share is held by the Law Debenture Trust
Corporation plc on behalf of the Scheme creditors.
The rights attaching to the share are designed to ensure that
Scheme assets are only used to settle Scheme claims and ancillary
costs and do not confer any right to receive a distribution or
return of surplus capital save that the holder will have the right
to require the Company to redeem the share at par value on or at
any time after the termination of the Scheme. The share carries two
votes for every vote which the holders of the other classes of
shares in issue are entitled to exercise on any resolution proposed
during the life of the Scheme to engage in certain activities
specified in the Company's Articles of Association.
The Company will not be permitted to engage in certain
activities specified in the Company's Articles of Association
without the prior consent of the holder of the share.
Share based payments
The Performance Share Plan (PSP) is the conditional award of
ordinary shares granted at no cost to the participant employees or
executive directors of the Group. Awards are made upon the terms
set out in the plan and such other additional terms as the Board
shall determine. Depending on the scheme, vesting of these awards
is subject to Cape plc's Adjusted Diluted Earnings Per Share (DEPS)
meeting the specified performance criteria over a three-year
vesting period.
For the 2013 award, specific EPS targets for the final year of
the vesting period were set to 29 pence for the minimum of 30% of
the shares awarded to vest and 36 pence for all of the shares
awarded to vest. The contractual life of the award is three years
and is subject to continued employment. In 2016, 39% of the awards
vested.
The final year performance criteria for the 2014 awards are
based on the 2013 adjusted diluted EPS growth of the Retail Price
Index (RPI) plus 3% for the minimum of 30% of the shares awarded to
vest, and EPS growth of RPI plus 10% for all the shares awarded to
vest, calculated on an annual compounded basis. The contractual
life of the award is three years and is subject to continued
employment.
The final year performance criteria for the 2015 awards are
based on the 2014 adjusted diluted EPS growth of the Retail Price
Index (RPI) plus 3% for the minimum of 30% of the shares awarded to
vest, and EPS growth of RPI plus 10% for all the shares awarded to
vest, calculated on an annual compounded basis. The contractual
life of the award is three years and is subject to continued
employment. The shares issued under the 2015 PSP have an exercise
price of GBPnil and under the fair value model used by the Company
are deemed to have a fair value equivalent to the share price on
the day of grant less the fair value of the dividends foregone
during the vesting period. Therefore, the shares granted at 19
March 2015 had a fair value of 201.5 pence.
For the 2016 award, specific EPS targets for the final year of
the vesting period were set to 26 pence for the minimum of 30% of
the shares awarded to vest, 29 pence for 50% of the shares awarded
to vest and 33 pence for all the shares awarded to vest. The
contractual life of the award is three years and is subject to
continued employment. The shares issued under the 2016 PSP have an
exercise price of GBPnil and under the fair value model used by the
Company are deemed to have a fair value equivalent to the share
price on the day of grant less the fair value of the dividends
foregone during the vesting period. Therefore, the shares granted
at 29 April 2016 and 1 September 2016 had a fair value of 191.4
pence and 174.9 pence respectively. The 2016 award also includes
the implementation of a dividend equivalence, which is based upon
the vesting percentage and the value of the dividends expected to
be paid during the vesting period. This will be paid via cash
settlements on the number of options expected to vest at the end of
the vesting period. A liability of GBP0.1m has been recognised
during 2016 and is included within other provisions.
17. Share capital and reserves (continued)
The Employee Incentive Plan (EIP) allows the Group to grant
options to directors and senior employees. The last tranche of this
scheme was awarded in 2008. The EIP carries a non-market based
performance criteria. The contractual life of the options is ten
years. The options become exercisable on the third anniversary of
the date of grant, subject to a growth in earnings per share over
that period exceeding an average 3% compounded annually above the
growth in the consumer price index over the same period. Exercise
of an option is subject to continued employment.
Options are valued using the Black-Scholes option pricing model.
The fair value per option granted and the assumptions used in the
calculation for the current year are as follows:
Employee
Incentive
Plan
------------------------------------------------ ----------
Weighted average fair value at measurement date 80.9p
Share price at grant date 269.0p
Exercise price 269.0p
Vesting period 3 years
3.95
Expected option life years
Risk free interest rate 2.18%
Expected share price volatility 28%
------------------------------------------------ ----------
The expected share price volatility is based on historic
volatility. The expected option life is the average expected period
to exercise. The risk free rate of return is the yield on a
five-year zero coupon UK Government bond. The assumed dividend
yield is zero.
The number and weighted average exercise price of the share
options under the PSP and the share awards under the EIP are as
follows:
Number Number
of of
share share
options options
Performance Share Plan 2016 2015
--------------------------- --------- ---------
Outstanding at 1 January 3,057,630 2,352,771
Exercised (279,646) -
Granted 1,420,734 1,237,636
Forfeited (200,972) (246,279)
Lapsed (552,862) (286,498)
--------------------------- --------- ---------
Outstanding at 31 December 3,444,884 3,057,630
--------------------------- --------- ---------
On 29 April 2016 and 1 September 2016, 1,380,303 and 40,431
share options respectively were awarded to executive directors and
employees under the Performance Share Plan which vest after three
years subject to performance criteria being met (2015: 1,237,636).
If the criteria are met, the awards vest at no cost to the
employees and executive directors. The weighted average price of
share options exercised during the period was 230.5 pence.
Out of the 3,444,884 outstanding PSP awards (2015: 3,057,630),
76,220 shares were exercisable (2015: nil). All PSP share options
are at no cost to the participant. 279,646 options were exercised
in the year (2015: none).
Weighted Weighted
average average
exercise Number exercise Number
price of share price of share
2016 options 2015 options
Employee Incentive Plan pence 2016 pence 2015
--------------------------- --------- --------- --------- ---------
Outstanding at 1 January 269.0 10,000 269.0 10,000
Outstanding at 31 December 269.0 10,000 269.0 10,000
--------------------------- --------- --------- --------- ---------
All of the options outstanding at 31 December 2016 were
exercisable (2015: all were exercisable).
Share options and awards outstanding at the end of the year have
the following expiry date and exercise prices:
Performance Share Plan expiry date 2016 2015
----------------------------------- --------- ---------
31 March 2018 76,220 913,798
31 March 2019 914,723 943,980
19 March 2020 1,094,541 1,199,852
29 April 2021 1,318,969 -
01 September 2021 40,431 -
3,444,884 3,057,630
----------------------------------- --------- ---------
Exercise
price
per
share
Employee Incentive Plan expiry dates pence 2016 2015
------------------------------------- -------- ------- ------
22 March 2017 269.0 10,000 10,000
------------------------------------- -------- ------- ------
10,000 10,000
------------------------------------- -------- ------- ------
The total charge for the year, including national insurance,
relating to employee share based payment plans was GBP1.9 million
(2015: credit of GBP0.4 million), of which GBP1.8 million (2015:
GBP0.4 million) related to equity settled share based payment
transactions and GBP0.1 million related to cash settled share based
payment transactions (2015: GBPnil). At 31 December 2016, there is
an amount of GBP0.5 million (2015: GBP0.3 million) included within
'other' provisions as per note 16, which relates to national
insurance payable on share based payment charges.
18. Dividends per share
An interim dividend was paid on 7 October 2016 amounting to 4.5
pence per share (2015: 4.5 pence per share). Interim dividends are
recognised when paid. A final dividend in respect of the year ended
31 December 2016 of 2.5 pence per share (2015: 9.5 pence per
share), amounting to GBP3.0 million, is to be proposed at the
Annual General Meeting convened for 10 May 2017, making a total
dividend of 7.0 pence per share for the year
(2015: 14.0 pence per share). These condensed consolidated
financial statements do not reflect this final dividend
payable.
19. Reconciliation of net cash flow to movement in net debt
(excluding restricted deposits)
2016 2015
GBPm GBPm
---------------------------------------------------- ------- -------
Net increase in cash and cash equivalents including
net foreign exchange differences 40.1 3.4
Drawing on borrowings (7.3) (13.2)
Finance leases and borrowings on acquisition - (0.8)
Foreign exchange movements on foreign currency
denominated loans (3.5) 1.8
Movement in cash transferred to disposal group
held for sale 0.2 (0.1)
---------------------------------------------------- ------- -------
Movements in adjusted net debt during the year 29.5 (8.9)
Adjusted net debt excluding restricted deposits
- opening (109.9) (101.0)
---------------------------------------------------- ------- -------
Adjusted net debt excluding restricted deposits
- closing (80.4) (109.9)
---------------------------------------------------- ------- -------
Adjusted net debt excluding restricted deposits is calculated by
deducting current and non-current borrowings from cash and cash
equivalents (see note 8).
Analysis of cash flows relating to restricted deposits
2016 2015
Note GBPm GBPm
---------------------------- ------ ----- -----
At 1 January 32.3 29.9
Payment of Scheme creditors (3.7) (3.7)
Interest received 10 0.4 0.3
Receipt of funds 13.0 6.2
Transfer of funds - (0.4)
---------------------------- ------ ----- -----
At 31 December 42.0 32.3
---------------------------- ------ ----- -----
20. Industrial disease claim provision and contingent
liabilities
The Board considers that the provision of GBP172.5 million for
industrial disease claims as at 31 December 2016 captures all
expected material industrial disease scheme liabilities for which
the Board believes the Group to be liable at the balance sheet
date.
The Group continues to receive claims, from both individuals and
insurance companies, in connection with historical alleged exposure
to asbestos. Where claims are determined to have merit, the costs
are provided for and claims are settled in the ordinary course,
otherwise claims are defended.
As legal precedent in the area of industrial disease claims
continues to evolve, new developments and new types of claims give
rise to inherent uncertainty in both the future level of
asbestos-related disease claims and of the legal and other costs
arising from such claims. If any such claim were to be successful,
it might lead to future claims against the Group which may result
in a significant additional liability over and above that
recognised under the existing provision and which could have
material and continuing impacts on the Group and its stakeholders,
including but not limited to impacting the implementation of the
Group's strategic plans, potentially including the Company's
capacity to pay a dividend and a material reduction in the
percentage of each claim paid out to individual claimants (in
respect of damages and claimant legal costs) under the Cape
Scheme.
The Group has previously disclosed that Cape Intermediate
Holdings Limited (CIH) has been engaged in litigation funded by
Aviva plc, RSA Group and Zurich Insurance Group (Insurer PL
Litigants) in respect of historic and current payments made by them
in their capacity as providers of employer liability insurance in
relation to claims by employees and former employees of third-party
companies arising from asbestos-related diseases (Insurer PL
Litigation). The six-week trial in respect of the Insurer PL
Litigation concluded on 23 February 2017, following which the Board
received an updated opinion from Leading Counsel which reinforced
the Board's view that the merits of the Group's defence are
persuasive and that there are substantial evidential burdens upon
the Insurer Litigants. Nonetheless, and as previously disclosed,
the Board was mindful that there remains a risk that the Insurer PL
Claims litigation could have a material adverse impact on the
Scheme, and in turn upon the Group and its stakeholders. The Board
therefore concluded that it was in the best interests of Cape and
its shareholders to settle at the agreed level outlined below, thus
removing a significant risk to the business, removing the
distraction of a likely protracted appeals process and enabling
management to focus on the development of the core business. On 12
March 2017 the Group reached agreement to settle the Insurer PL
Claims litigation for a consideration of GBP18.0 million payable
immediately and a deferred payment of up to GBP34.5 million payable
in the period 2018 to 2023, enabling this litigation to be resolved
outside of the court process. These payments and an additional
allowance to reflect the potential of further claims of a similar
nature, discounted using an appropriate discount rate, have been
charged to profit or loss during the year and included in the
industrial disease claims provision held as at 31 December 2016 as
per note 16. The settlement of the Insurer PL Claims litigation
does not imply any acceptance of liability on Cape's behalf.
As also previously disclosed, Aviva plc has sought to establish
contribution and indemnity claims (Insurer EL Claims) against the
Group in respect of employee liability settlements that it has made
in response to policies that Aviva underwrote for a liquidated Cape
subsidiary during the period 1956 to 1966 and for which Aviva has
already benefited from the associated insurance premiums. A
sequence of preliminary court hearings were held during the year in
respect of the Insurer EL Claims culminating in a determinant
judgment on 19 July 2016, with some issues found in favour of the
Cape and some against. Cape has been granted leave to appeal on the
majority of potential appeal issues it had raised. At the same
time, Aviva plc was granted leave to cross-appeal. The appeal
hearing will be held in July 2017.
During 2014, a fatality of a Cape employee was suffered at a
client's offshore installation. The investigation by the enforcing
authorities is ongoing.
At the date of the statement of financial position no amounts
have been provided in respect of this matter. It is not practicable
to provide an estimate of the financial effect and there is
uncertainty relating to the amount or timing of any outflow.
The Group is responding to an enquiry by HMRC with regard to the
UK tax consequences of a transfer of intellectual property to
Singapore in 2011. HMRC has challenged the accounting treatment
adopted in the audited financial statements, and the gain arising
thereon. Cape's analysis is that the accounting treatment applied
is correct and in line with the relevant accounting standards. In
2015, a tax tribunal determined that the accounting treatment
adopted in a case which has similarities with the accounting for
the transfer of the Cape intellectual property was in line with the
accounting standards being applied, and that a company cannot be
forced to apply a different interpretation where the treatment
adopted is valid. The Board expects to successfully defend against
the HMRC challenge based on tax and accounting advice received. The
possible UK corporation tax liability that may arise in connection
with the enquiry is up to GBP14.0 million as at 31 December
2016.
20. Industrial disease claim provision and contingent
liabilities (continued)
The Group is required to issue trade finance instruments to
certain customers. These include tender bonds, performance bonds,
retention bonds, advance payment bonds and standby letters of
credit. At 31 December 2016, the Group's bank facilities relating
to the issue of bonds, guarantees and letters of credit amounted to
GBP66.3 million (2015: GBP59.3 million).
21. The Scheme of Arrangement
On 14 June 2006, the Cape Scheme became effective and binding
upon the following 13 companies:
Cape Intermediate Holdings Limited (formerly Cape Intermediate
Holdings plc)
Cape Building Products Limited
Cape Calsil Systems Limited
Cape Contracts International Limited
Cape Durasteel Limited
Cape East Limited
Cape Industrial Services Limited
Cape Industries Limited
Cape Insulation Limited
Cape Specialist Coatings Limited
Predart Limited
Somewatch Limited
Somewin Limited
The Cape Scheme is a court-sanctioned scheme established to
provide recompense for individual claimants in respect of
asbestos-related industrial diseases contracted as a result of
Cape's historic use of asbestos in manufacturing processes and who
are unable to recover under insurance policies. The Cape Scheme
also provides a structural protection for the Group's trading
stakeholders.
The detailed terms of the Scheme are set out in the Scheme
itself, a copy of which has been filed with the Registrar of
Companies, which is also on the Cape plc website
www.capeplc.com/investors/shareholder-information/shareholder-documents,
the Articles of Association of Cape Intermediate Holdings Limited
(CIH), Cape Claims Services Limited (CCS) and Cape plc and a number
of other ancillary agreements. The effect of the Scheme as a whole
can be summarised as follows:
(a) While Scheme creditors retain their rights against Scheme
companies, and may bring proceedings against Scheme companies for
declaratory relief to determine whether they have a claim and, if
so, of what amount, their rights, subject as provided in
sub--paragraphs (k) and (m) below are only enforceable against CCS
under the terms of the Scheme guarantee.
(b) CCS was funded in the first instance with a sum of GBP40.0
million which represented what was considered to be a sufficient
sum to discharge CCS's liabilities to Scheme creditors payable over
at least eight years from 1 January 2006. The use of these funds is
restricted to the payment of established Scheme claims and Scheme
creditor costs.
(c) The sum of GBP40.0 million was not calculated by reference
to an estimate of the likely amount of Scheme claims. It simply
represented the aggregate of the amount that Cape was able to raise
from its shareholders and the level of debt which Cape could
reasonably maintain for the purposes of the Scheme. Of fundamental
importance to the Scheme are the provisions as to topping up of
that sum described below.
(d) Every three years an assessment of the projected Scheme
claims against Scheme companies payable by CCS over the following
nine years is undertaken, by reference to which there will be
established the Funding Requirement.
(e) In the event that an assessment reveals a shortfall between
the Scheme assets and the Funding Requirement, Cape will top up
CCS's funding over the following three years provided that
sufficient cash is available, Cape's obligation being limited to
70% of the Group's consolidated adjusted operational cash flow
(including, for example, adjustments to take account of
acquisitions, an element of capital expenditure and repayment of
borrowing facilities). During 2016, a top up of GBP13.0 million was
made to the Scheme (2015: GBP6.2 million).
(f) Should Cape not be able to meet its top up obligation in any
one year, it will be required to make good the shortfall in the
next year, again subject to sufficient cash being available.
(g) Alongside the Funding Requirement there is the Scheme
Funding Requirement which will be assessed every year by reference
to projected Scheme claims against Scheme companies payable by CCS
over the next six years.
(h) If at any time the ratio of the Scheme assets to the Scheme
Funding Requirement (the Scheme Funding Percentage) falls below
60%, CCS will have the ability to reduce the percentage (the
Payment Percentage) of each established claim which it pays to
Scheme creditors until such time as the Scheme Funding Percentage
is restored to 60%.
(i) Cape plc is permitted to pay dividends provided that at the
time of payment (i) the Scheme Funding Percentage in relation to
the last preceding financial year was certified to be not less than
110%, (ii) the directors of Cape plc certify that they anticipate
that the Scheme Funding Percentage for the current and following
financial year will be not less than 110% and (iii) the Payment
Percentage has not at any time within the previous 40 business days
been below 100%. Any distribution which Cape plc proposes to make
to its shareholders may not, without the consent of the Scheme
Shareholder, exceed the greater of (i) 50% of the consolidated
adjusted operating profit of the Group for the last preceding
financial year and (ii) the aggregate of any permitted dividends
made in the preceding financial year. This restriction therefore
places a cap on the amount of dividends that Cape plc may pay in
any one year.
(j) There have been established special voting shares (the
Scheme Shares) in CCS, CIH and Cape plc which are held by an
independent third party (the Scheme Shareholder) on trust for
Scheme creditors. The Scheme Shares have special rights which are
designed to enable the Scheme Shareholder to protect the interests
of Scheme creditors.
(k) In the case of certain Scheme creditors (Recourse Scheme
Creditors), who are those Scheme creditors whose claims are in
whole or in part the subject of a contract of insurance (Recourse
Scheme Claims), their rights to enforce their Recourse Scheme
Claims against a relevant Scheme Company will revive in certain
circumstances. These circumstances are where the relevant Scheme
Company is insolvent or where there has been a specified reduction
in the Payment Percentage and if the Scheme creditor was able to
bring about the insolvency of the relevant Scheme Company he would
be able to recover greater compensation from the Financial Services
Compensation Scheme (FSCS) or, in certain circumstances, from a
solvent insurer than is available from CCS at that time under the
Scheme. There will be a specified reduction if either (i) the
Payment Percentage has been reduced below 100% but above 50% and
the Scheme creditor has not been paid in full after 12 months or
(ii) the Payment Percentage is reduced to 50% or below.
l) Each Scheme Company will agree to hold on trust for any
Scheme creditor concerned the proceeds of any policy of insurance
(or any compensation received from the FSCS) referable to that
Scheme claim.
21. The Scheme of Arrangement (continued)
(m) The restriction described in sub-paragraph (a) above will
not apply to proceedings to enforce the right to confer under
sub--paragraph (l) above.
(n) There are provisions contained in two reimbursement
agreements which preserve certain rights of proof by CCS and Cape
plc respectively in any insolvency of Cape plc or any of the other
Scheme companies.
(o) In support of the above, on 6 May 2011, CIH, Cape plc and
CCS entered into a new Guarantee and Funding Agreement whereby Cape
plc agreed to make certain additional funding available to CIH in
connection with CIH's commitments under the Funding Agreement, as
well as to guarantee all present and future payment obligations of
Cape plc and CCS under the Funding Agreement. In addition, a Scheme
Share in Cape plc (referred to in paragraph (j) above) was issued
to the Scheme Shareholder which has similar rights to the Scheme
Shares in CIH and CCS and which will afford the Scheme Shareholder
substantially the same rights to those provided by the Scheme
Shares in CIH and CCS.
22. Related party transactions
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Other related
party transactions are disclosed below.
As at the year-end there was a net balance of GBP4.0 million
(2015: GBP7.4 million) owed by joint ventures. These amounts are
unsecured, have no fixed date of repayment and are repayable on
demand. Amounts owed by joint ventures are assessed for
recoverability and, where necessary, provided for in line with
normal commercial transactions. Sales by the Group to joint
ventures during the year amount to GBP13.1 million (2015: GBP20.6
million).
23. Post balance sheet events
As disclosed in note 20, the six-week trial in respect of the
Insurer PL Claims litigation concluded on 23 February 2017.
Subsequent to this date, the Group reached agreement to settle this
litigation for a consideration of GBP18.0 million payable
immediately and a deferred payment of up to GBP34.5 million payable
in the period 2018 to 2023, enabling this litigation to be resolved
outside of the court process. These amounts and an additional
charge to reflect the potential of further claims of a similar
nature, discounted using an appropriate discount rate, have been
charged to profit and loss during the year and are included in the
industrial disease claims provision held as at 31 December 2016 as
per note 16.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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