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RNS
Cape plc   -  CIU   

Interim Results

Released 07:00 22-Aug-2017

RNS Number : 5899O
Cape plc
22 August 2017
 

    

22 August 2017

Cape plc

('Cape' or 'the Company', and together with its subsidiaries, the 'Group')

 

Interim Results

 

Cape plc (CIU.LN), an international leader in the provision of critical industrial services to the energy and natural resources sectors,
announces its unaudited half-year results for the period ended 2 July 2017.

 

Strong trading performance and financial results in challenging market conditions

 

Financial summary

H1 2017

H1 2016

Change

Financial highlights:

Continuing operations:

Revenue

£581.9m

£396.3m

+46.8%

Adjusted operating profit

£42.7m

£18.9m

+125.9%

Adjusted operating profit margin

7.3%

4.8%

+250bps

Adjusted profit before tax

£39.2m

£14.9m

+163.1%

Adjusted diluted earnings per share

24.7p

8.9p

+177.5%

Interim dividend per share

-

4.5p

-

Adjusted net debt

£76.4m

£113.7m

(32.8%)

Statutory results:

Revenue

£581.9m

£396.3m

+46.8%

Operating profit

£37.6m

£6.8m

+452.9%

Profit before tax

£32.9m

£1.4m

+2,250.0%

Diluted earnings per share

19.8p

0.2p

+9,800.0%

     

Throughout this document, various management measures are used and referred to as adjusted. These are defined and reconciled to statutory measures within note 6 'Adjusted measures' and within "Adjusted operating and free cash flow' on page 9.

 

Highlights

 

·      As anticipated, the Group delivered a strong trading performance in the first half of 2017:

-       UK margins increased, driven by an improved commercial performance and the benefit of the restructuring undertaken in 2016

-       Middle East operating margins were significantly lower, driven by increasing pricing pressure and mix of services with lower activity levels for higher margin access work

-       The Asia Pacific region achieved both excellent operational performance and a significant increase in project activity

·      Robust cash performance leading to lower adjusted net debt of £76.4m (31 Dec 2016: £80.4m, 3 July 2016: £113.7m):

-       Strong adjusted operating cash flow of £38.6m (H1 2016: £13.8m) reflecting good working capital management and a temporary benefit at the period end from the timing of certain customer receipts

-       Partially offset by the April payment of the £18.0m insurer product liability claims settlement announced in March 2017

·      Robust order intake, up 85% to £572m (H1 2016: £309m) leading to a closing order book at 2 July 2017 of £902m
(31 December 2016: £918m)

·      Continued strong safety performance

·      The Board's expectation for the Group's full year performance remains unchanged, with the balance of earnings weighted strongly towards the first half

·      Recommended all cash Offer of 265 pence per share from Altrad made on 1 August 2017; representing a premium of 46.2% on the closing share price prior to the announcement of the Offer

·      Given the timing and terms of the recommended cash Offer for Cape plc by Altrad, the Board has decided not to declare an interim dividend (H1 2016: 4.5p)

 



 

Commenting on the results, Joe Oatley, Chief Executive of Cape said:

 

"The Group has delivered a very strong operational and financial performance in the period. Revenue, operating profit, margins and cash conversion have all improved, reflecting operational excellence in the delivery of key projects in Australia and
South Korea, and effective management of the Group's working capital. The Group was also successful in securing strategic contract wins in the UK, with the renewal of the long-term maintenance contract with BP, and in Australia, with the award of an initial contract at the Ichthys onshore LNG project.

 

"The Board's expectation for the Group's full year performance remains unchanged with the anticipated reduction in construction related activities in Asia Pacific resulting in the Group's earnings  being strongly weighted towards the first half of 2017. The Board continues to anticipate that 2018 will be a more challenging year, driven by the expected reduction in volume from the current high level of construction activity in Asia Pacific and the effect of project delays and margin pressures in the Middle East."

 

Analyst meeting

 

The Group will be presenting to a meeting of analysts at 10.30 a.m. 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 33 of the
2016 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, insulation, engineering, specialist coatings and fireproofing, environmental services, heat exchanger replacement and refurbishment, storage tanks and refractory.

 

In 2016, Cape employed c.16,100 people working across 23 countries and reported revenue of £863.5 million.

 

 

 

 



 

INTERIM MANAGEMENT REVIEW

 

Summary

As expected, trading for the first six months of 2017 has been strong, reflecting both the increase in project volume and improved margin performance in the Asia Pacific region. Elsewhere, results have been mixed. The UK business, as anticipated, delivered an improved margin performance compared to the prior period; however, the operating margin in the Middle East business reduced markedly, driven by increased pricing pressure and the impact of the mix of work being weighted toward lower margin activities. Overall, the Group achieved strong growth in both revenue and adjusted operating profit compared to the first half of 2016, up 47% and 126% respectively. The Group also achieved an outstanding cash performance, driven by both a strong focus on working capital and the temporary benefit at the period end from the timing of certain customer receipts, resulting in a 180% improvement in adjusted operating cash flow to £38.6 million (H1 2016: £13.8 million).  As a result of the strong cash performance, adjusted net debt was significantly lower than at the end of the equivalent period in 2016 at £76.4 million (3 July 2016: £113.7 million; 31 December 2016: £80.4 million).

 

Order intake for the first half of 2017 increased by 85% to £572 million (H1 2016: £309 million), reflecting the timing of award of a small number of significant contracts. In Australia, the Group was successful in securing a strategically important initial multi-disciplinary contract from JKC Australia LNG at the Ichthys LNG project, while the Group has also received additional volumes of work at the Chevron-operated Wheatstone LNG project. In the UK, the Group secured two contracts with BP in the UK North Sea, extending this long-standing relationship for a further three years. While the release of work on existing contracts remains slow, bidding activity in the Middle East remains high and the Group has secured further scope expansion on the Jazan project in the Kingdom of Saudi Arabia (KSA) and a strategically important contract award in Kuwait for painting, insulation and passive fire protection at Kuwait National Petroleum Company's (KNPC) Fifth Gas Train project.

 

The Group's order book was £902 million at 2 July 2017 in comparison to £918 million at 31 December 2016 and £820 million at
3 July 2016. The reported order book excludes the order book value associated with joint ventures where the Group holds a minority interest. Cape's share of the SOCAR-Cape joint venture order book in Azerbaijan was £20 million at 2 July 2017
(31 December 2016: £34 million; 3 July 2016: £54 million). 

 

Group revenue from continuing operations increased by 47% to £581.9 million (H1 2016: £396.3 million) with 8% of this growth reflecting the benefit of positive foreign exchange movements. Organic growth of 39% was largely driven by the phasing of project related volumes in Asia Pacific, primarily in Australia, at Wheatstone and Woodside's Karratha Gas Plant Life Extension programme (KLE), and South Korea, at Shell's Prelude Floating LNG (FLNG) facility. These increases were partially offset by lower volumes in both the UK and the Middle East, reflecting the challenging market conditions in both regions.

           

Adjusted operating profit from continuing operations increased by 126% to £42.7 million (H1 2016: £18.9 million) with adjusted operating margin increasing to 7.3% (H1 2016: 4.8%). The increase in margin was largely driven by a combination of excellent operational performance on the key projects in Australia and South Korea and the operational leverage from higher volumes on those projects.  The UK business also delivered an improved operating margin as a result of an improved commercial performance and the benefit of the 2016 restructuring activity. Margins in the Middle East business declined, driven by increased pricing pressure and a change in mix of services delivered with relatively low volumes of higher margin access activity in KSA and Qatar.

 

The Group achieved a strong cash performance, reflecting both a continued focus on working capital management across the business and the temporary benefit at the period end from the timing of certain customer receipts. Adjusted operating cash inflow for the first half of 2017 was 180% higher than the first half of 2016 at £38.6 million (H1 2016: £13.8 million), driving a significant reduction in adjusted net debt to £76.4 million (3 July 2016: £113.7 million; 31 December 2016: £80.4 million) despite the £18.0 million payment made in April 2017 as part of the insurer product liability litigation (Insurer PL Litigation) settlement announced in March 2017.

 

Impressive safety milestones have been recorded across the Group and both the Total Recordable Incident Rate and Lost Time Incident Frequency remain broadly in line with the Group's full year performance in 2016.

 

On 7 July 2017, the boards of directors of Altrad Investment Authority SAS (Altrad) and Cape plc (Cape) announced that they had reached agreement on the terms of a recommended cash offer for Cape by Altrad. The Offer of 265 pence per Cape share is a premium of 46.2% to the closing share price on 6 July 2017. The Offer Document was posted to Shareholders on 1 August 2017. The First Closing Date of the Offer is 1.00 p.m. (London Time) on 22 August 2017.

 

Given the timing and terms of the recommended cash Offer for Cape plc by Altrad, the Board has decided not to declare an interim dividend. Should circumstances around the Offer change, the Board may revisit this decision in the future.

 

Progress on strategy

 

Cape's strategy has continued to prove resilient in challenging market conditions. The Group's drive to deliver operational excellence combined with geographical diversity has underpinned the strong first half financial and operational performance.

 

Operational Excellence remains the cornerstone of our strategy as it enables Cape to deliver better value to our clients whilst seeking to protect margins in today's challenging market conditions. We continue to invest in our people and processes to drive productivity and operational safety improvements, which in turn delivers increased value to our clients. Our growing reputation for excellence in delivery has been a key enabler for securing the growth we have achieved this year.

 

The value of customer intimacy has been demonstrated by the extension of our long-standing relationship with BP in the UK North Sea as the Group secured two three-year maintenance contracts with a combined estimated value in excess of £150 million, while in the Middle East we continue to secure additional work packages at major projects from existing customers, such as Nasser S Al Hajri and Consolidated Contractors Company.

 



 

Progress on strategy (continued)

 

We continue to pursue growth in our maintenance business to provide stability against the natural variability in demand from the construction market. Revenue from maintenance activities in the first half of 2017 was £273 million (H1 2016: £237 million) representing 47% of total revenue (H1 2016: 60%). The growth in maintenance revenue was largely from Australia, with a ramp-up in volumes at Woodside's Karratha Gas Plant and Newmont's Boddington gold mine, combined with the shutdown works at BP Kwinana. 

 

Given the challenging market conditions in the Middle East, with the resulting delays and deferrals of discretionary spend, progress on developing our specialist service offering in the region continues to be slower than we had hoped.

 

During the period, the Group was awarded its first multi-disciplinary contract in Kuwait, further increasing Cape's presence in the country. In line with our strategy, the Group continues to identify and review a number of opportunities for further geographic expansion both within and outside our existing regions.

 

Financial overview

 

A summary income statement with explanatory discussion of each of the key items is provided below:

 

£m unless otherwise stated

H1 2017

H1 2016

H1 2017

H1 2016

Continuing operations:

Adjusted measures

Continuing operations:

Statutory reporting

Revenue

581.9

396.3

Revenue

581.9

396.3

Adjusted operating profit

42.7

18.9

Operating profit

37.6

6.8

Adjusted operating profit margin

7.3%

4.8%

Operating profit margin

6.5%

1.7%

Adjusted profit before tax

39.2

14.9

Profit before tax

32.9

1.4

Adjusted diluted earnings per share

24.7p

8.9p

Diluted earnings per share

19.7p

0.1p

 

Revenue from continuing operations increased by 47% to £581.9 million (H1 2016: £396.3 million) of which 8% relates to favourable foreign exchange rate movements and 39% from organic growth. The underlying increase of 39% was driven by the phasing and quantum of project related volumes in the Asia Pacific region. Lower volumes reflecting difficult market conditions in both the UK and the Middle East drove underlying revenues down 9% and 6% in each region respectively. 

 

Adjusted operating profit from continuing operations increased by 126% to £42.7 million (H1 2016: £18.9 million) of which 13% relates to favourable foreign exchange rate movements and 113% from organic growth. The increase in organic adjusted operating profit primarily reflects the excellent operational performance on the Group's key projects in Asia Pacific, an improved commercial performance and the benefits of the 2016 restructuring in the UK, partially offset by significantly lower margins in the Middle East reflecting increased pricing pressure and a change in mix of services delivered with relatively low volumes of higher margin access activity.

 

Adjusted diluted earnings per share from continuing operations was 24.7p (H1 2016: 8.9p) on adjusted earnings attributable to equity shareholders of £30.0 million (H1 2016: £10.8 million).

 

Diluted earnings per share from continuing operations were 19.7p (H1 2016: 0.1p). The prior period included a charge to the Industrial Disease Claims (IDC) provision of £9.7 million reflecting the adverse legal judgement in relation to the insurer employer liability claims (Insurer EL Claims) announced on 20 July 2016. The Insurer EL Claims settlement in April 2017 did not require any cash consideration to be paid by the Company, nor any change to the IDC provision.

 

Regional review

 

The Group reports its financial results from a geographic perspective under three reporting regions and a central support function that align external reporting with the internal management structure.

 

Revenue
(£m)

Adjusted operating
profit
(£m)

Adjusted operating
profit margin
(%)

H1 2017

H1 2016

H1 2017

H1 2016

H1 2017

H1 2016

Region

UK

175.9

194.0

10.8

8.4

6.1%

4.3%

Middle East

102.1

94.2

9.5

13.0

9.3%

13.8%

Asia Pacific

303.9

108.1

31.8

5.0

10.5%

4.6%

Central

-

-

(9.4)

(7.5)

n/a

n/a

581.9

396.3

42.7

18.9

7.3%

4.8%

 

Throughout this document, various management measures are used and referred to as adjusted.  These are defined and reconciled to statutory measures within note 6 'Adjusted measures' and within "Adjusted operating and free cash flow' on page 9.

 

 

 

 

 



 

Regional review (continued)

 

UK

 

Market conditions

Market conditions in the UK region continued to be challenging throughout the first half of the year. Although there has been a small recovery in oil prices to an average of US$53/bbl in the first half of 2017 (H1 2016: average US$41/bbl), demand from the upstream sector in the North Sea remains subdued. Construction and discretionary maintenance spend has remained low, in particular for the Group's higher margin specialist services. In addition to the reduced levels of demand, customers continue to seek ways in which to control or reduce their costs, resulting in ongoing pressure on prices across the upstream sector.

 

As expected, demand from the thermal coal power generation sector was lower in the period reflecting the closure of Longannet and Ferrybridge power stations in March 2016 and the reduction in scope and deferral of a number of shutdowns. Demand from the general industrial segments remained steady throughout the period whilst the business experienced a small reduction in demand from the downstream sector driven by the timing of shutdown activity.

 

Results 

Order intake increased by 48% to £239 million (H1 2016: £162 million), primarily reflecting the business' success in securing the strategically important three-year BP fabric maintenance contracts across the midstream and upstream sectors. Other important contract wins included: a three-year access, insulation and painting contract from Huntsman, expanding the range of maintenance services provided by the Group at this facility; a five-year maintenance contract to provide insulation and environmental services work at Uniper; and multi-disciplinary services project work offshore for Perenco.

 

Revenue decreased by 9% from the prior period to £175.9 million (H1 2016: £194.0 million). The lower volume was largely due to a reduction in demand from the thermal coal power generation market, lower activity levels on the Exxon Mobil refinery at Fawley, and the completion of the ethane storage tank for Samsung, which was successfully delivered to our customer in December 2016.

 

The region continues to be predominantly maintenance based with 93% (H1 2016: 82%) of revenues derived from maintenance activity.

 

Adjusted operating profit margin increased to 6.1% (H1 2016: 4.3%), as the effect of lower volume was more than offset by improved commercial performance across a number of contracts and the benefit of the restructuring activities implemented in 2016. As a result of the improved margin, adjusted operating profit increased by 29% to £10.8 million (H1 2016: £8.4 million) despite the lower volumes.

 

The business was proud to receive a number of safety awards during the first half of 2017, including the Safety Innovations Award at the Offshore Achievement Awards 2017 for its fully immersed behavioural safety programme using Virtual Reality technology.

 

Middle East

 

Market conditions

Market conditions in the Middle East remain challenging, exacerbated by increased political uncertainty in the region. The National Oil Companies across the region continue to show commitment to their investment programmes, in particular in the downstream sector; however, the Group is seeing an increased amount of delays and deferrals across the region for both project work and shutdowns. The business is also seeing signs of increased financial stress in parts of its customer base, in particular the local and regional contractors, resulting in slower payment cycles. Whilst the diplomatic isolation of Qatar has not impacted the Group's ability to maintain the safety and welfare of its people within the country, there has been a negative impact on operational costs due to the increased complexity of importing materials into Qatar. The diplomatic situation has also led to increased uncertainty relating to Qatari-linked business activities in the region. As expected, construction demand in Azerbaijan decreased compared to the high level seen in the second half of 2016 with maintenance demand remaining steady.

 

Results

Despite the challenging market conditions, order intake increased by 47% to £131 million (H1 2016: £89 million), reflecting a particularly strong order intake in KSA, where the Group won a number of scaffolding and insulation work packages at the prestigious Jazan project, a contract for the provision of scaffold services at the Ma'aden Phosphate Mining Project and a two-year maintenance contract with Sadara Chemical Company for the provision of insulation, painting and refractory services. The Group also secured its first
multi-disciplinary contract in Kuwait with the award from Heavy Engineering Industries & Shipbuilding Co. for painting, insulation and passive fire protection at KNPC's Fifth Gas Train project.

 

Revenue increased by 8.4% from the prior period to £102.1 million (H1 2016: £94.2 million), benefitting from a 14% favourable impact of foreign exchange rate movement. At constant currency, revenue decreased by 6%, largely driven by lower levels of project work in KSA, with particularly high levels of activity on the Petro Rabigh construction project in 2016, and reduced maintenance and shutdown activities in Qatar. Volumes in UAE fell slightly due to the timing of project completions and shutdown activities. Project activity increased in both Oman and Kuwait from the very low levels seen in the first half of 2016, although activity levels in both countries remained below expectations due to project delays and deferrals.

 

The Group has continued to sustain a strong maintenance business in the Middle East with approximately 57% of revenues coming from maintenance work (H1 2016: 50%).

 

Adjusted operating margin decreased to 9.3% (H1 2016: 13.8%), primarily driven by a combination of increased pricing pressure and a change in the mix of services with a relatively low proportion of higher margin access work across the region. As a result of this lower margin, adjusted operating profit decreased by 27% to £9.5 million (H1 2016: £13.0 million) despite benefitting from a 14% favourable gain from foreign exchange rate movements. At constant currency, adjusted operating profit decreased by 41%. The SOCAR-Cape joint venture in Azerbaijan continued to perform strongly both operationally and financially.

 



 

Regional review (continued)

 

In June, the Middle East business surpassed 30 million man-hours without a lost-time incident, a significant achievement by everyone in the business and a testament to the commitment and diligence every employee takes to safety. The Group's businesses in KSA, Qatar and Oman secured Gold Awards from the Royal Society for the Prevention of Accidents in June 2017.

 

Asia Pacific

 

Market conditions

In Australia, LNG related construction driven demand remained strong through the first half of 2017, with the major LNG construction projects in the country moving towards completion. No significant new LNG construction projects are planned in Australia in the near future. Demand from the maintenance sector in Australia remains stable, albeit at relatively low levels. As expected, construction activity in Asian yards on modules for the Australian LNG plants reduced significantly. Activity levels on the Prelude FLNG construction project were very high as the topsides construction neared completion during the period. New construction demand elsewhere across Asia was subdued, with maintenance demand remaining stable.

 

Results

Order intake increased by 248% to £202 million compared to the first half of 2016 (H1 2016: £58 million) with the most significant driver being the award of a strategically important multi-disciplinary contract at the Ichthys Project Onshore LNG Facilities in Darwin, Australia. Order intake was also strengthened by further increases in the scope of work for Chevron's Wheatstone LNG project in Australia and at Shell's Prelude FLNG project in South Korea.

 

Revenue increased by 181% to £303.9 million (H1 2016: £108.1m) with 164% growth at constant currency and a 17% impact from favourable foreign exchange rate movements. The strong growth was driven by high volumes of work at the Wheatstone LNG project and on Woodside's Karratha Gas Plant life extension project, both in Australia, and in South Korea on the Shell Prelude FLNG project, where the Group's activities are now largely complete. Shutdown and maintenance volumes in Australia have also increased compared to the first half of 2016 as the business focussed on growing its core maintenance base. The Singapore business delivered strong growth, largely due to increased project activities for Exxon Mobil.

 

Activity in the region was primarily construction related, accounting for approximately 83% of revenues in the period (H1 2016: 72%), with the majority of the construction activities being on the Wheatstone LNG project, where manning levels reached their peak toward the end of the first half of 2017, and the Shell Prelude FLNG project, which largely completed in the period.

 

As expected, the business achieved a substantial increase in adjusted operating profit, up 536% compared to prior period at £31.8m
(H1 2016: £5.0m), with organic growth at constant currency of 519% and a 17% impact from favourable foreign exchange rate movements. The organic growth in operating profit was driven by an increase in both volumes and margin, with adjusted operating margin increasing to 10.5% (H1 2016: 4.6%) reflecting both excellent operational performance on the major projects and the operational leverage of the increased volume.

 

As at the end of July, the teams in Australia had surpassed 8 million man-hours without a lost-time incident across all projects. 

 

Outlook

 

The Board's expectation for the Group's full year performance remains unchanged from the trading statement issued on 5 June 2017, with the balance of earnings weighted strongly towards the first half. The Board continues to anticipate that 2018 will be a more challenging year, driven by the expected reduction in volume from the current high level of construction activity in Asia Pacific and the effect of project delays and margin pressures in the Middle East.

Recommended cash offer for Cape plc from Altrad

 

On 7 July 2017, the boards of directors of Altrad Investment Authority SAS (Altrad) and Cape plc (Cape) announced that they had reached agreement on the terms of a recommended cash offer for Cape by Altrad, through its wholly-owned subsidiary, Altrad UK Limited (Altrad Bidco), pursuant to which Altrad Bidco would acquire the entire issued and to be issued ordinary share capital of Cape (which does not include the IDC Scheme Share) (the 'Offer'). The Offer is being implemented by means of a takeover offer under the UK Takeover Code and within the meaning given to that term in Part 18 of the Jersey Companies Law

 

Under the leadership of its current management team, Cape has made significant strategic, operational and financial progress. This progress has been characterised by a record safety performance in 2016, year-on-year revenue growth achieved for a third consecutive year, good progress on its portfolio diversification strategy (including developing specialist services and securing additional services at existing customer sites), excellence in delivery across key maintenance and project sites, and entry into selected new geographies.

 

Since mid-2014, there has been a significant deterioration in the oil price, which has resulted in a reduction in investment and activity levels by companies operating in the oil and gas sector. The Directors believe that this reduction has had a consequential negative impact on companies for which the oil and gas sector is a significant end-market, including Cape, and that the overall outlook for the sector remains subdued. Cape has successfully taken a number of mitigating actions to manage this risk, including ensuring the diversity of its customers, geographies, end-markets and services, and reducing its overhead cost base whilst also investing for growth.

 

As previously disclosed in the recent announcement of contract awards and trading update on 5 June 2017, Cape has continued to trade strongly and, with the additional benefit of the Ichthys award, the Board expects that Cape's full year performance for 2017 will be materially ahead of its previous expectations. The Board anticipates that 2018 will be a more challenging year, driven by the expected reduction in volume from the current high level of construction activity in Asia Pacific and the effect of project delays and margin pressures in the Middle East.

 

The Directors have considered the terms of the Offer in relation to the value of Cape as a standalone company and believe the Offer recognises Cape's prospects and growth potential. The Directors have carefully considered the terms of the Offer in the context of the dynamics of the markets in which Cape operates. In considering the terms of the Offer, the Cape Directors have taken into account a number of factors including:

 

·      that the Offer will represent an opportunity for Cape Shareholders to realise their investment in Cape for cash at a fair and reasonable value;

·      that the Offer Price represents a premium of approximately 46.2 per cent. to the Closing Price of 181 pence per Cape Share on 6 July 2017 (being the last Business Day prior to the date of this Announcement) and a premium of approximately
31.4 per cent. to the volume-weighted average Closing Price of 202 pence per Cape Share for the 12 months ended on the same date;

·      that the certainty of the Offer should be weighed against the inherent uncertainty of the delivery of future value that exists in the Cape Group's business; and

·      uncertainty arising from the risk of future IDC-related claims.

 

Following careful consideration of the above factors, the Cape Directors unanimously recommend that Cape Shareholders accept the Offer. The Offer provides the certainty of a cash exit for all Cape Shareholders at a level which the Cape Directors believe to be fair and reasonable, given that there remain risks and uncertainties inherent in progressing the Cape Group's business and delivering its strategy.

 

On 1 August 2017, the formal Offer Document was posted to Shareholders. The First Closing Date for the Offer is 1.00 p.m.
(London Time) on 22 August 2017. Documentation associated with the Offer from Altrad can be found on the Group's website at
www.capeplc.com.

 

 



 

Financial review

 

Revenue

 

Revenue from continuing operations increased by 47% to £581.9 million (H1 2016: £396.3 million). There was an 8% favourable impact from foreign exchange rate movements on revenue. Organic growth at constant currency was 39%, largely driven by the phasing and quantum of project related volumes in the Asia Pacific region, with Wheatstone and KLE in Australia and Shell Prelude in South Korea all delivering significant volumes in the period.

 

Revenue from maintenance activities in the first half of 2017 increased to £273 million, representing 47% of total revenue
(H1 2016: £237 million; 60% of total revenue).
The growth in maintenance revenue comes largely from Australia, with a ramp-up in volumes at KLE and Newmont's Boddington gold mine, combined with the shutdown works at BP Kwinana. Maintenance revenue as a proportion of Group revenue has declined as a result of the timing and scale of significant construction related revenues in Australia and South Korea. Revenue invoiced to the largest client represented 33% of total revenue (H1 2016: 15%), relating to the phasing of activities in the Asia Pacific region, and the top 10 clients represented 63% of revenue (H1 2016: 52%).

 

Share of post-tax profit from joint ventures

 

The post-tax profit of £2.7 million (H1 2016: £2.8 million) is attributable to the Group's joint venture in Azerbaijan.

 

Adjusted operating profit

 

Adjusted operating profit from continuing operations increased by 126% to £42.7 million (H1 2016: £18.9 million), primarily reflecting the increased project related volumes in the Asia Pacific region. Adjusted operating profit in the UK improved largely as a result of an improved commercial performance and the recognition in the first half of 2016 of restructuring related costs, partially offset by lower volumes. The Middle East saw operating profits decline, largely reflecting increased pricing pressure and a change in mix of services delivered with relatively low volumes of higher margin access activity in KSA and Qatar. Favourable translational foreign exchange movements accounted for a 13% growth in the adjusted operating profit from continuing operations.  

 

Other items

 

Other items decreased to £3.3 million (H1 2016: £12.1 million) mainly due to the absence of the 2016 charge to the Industrial Disease Claims ("IDC") provision of £9.7 million following the adverse legal judgment with regard to the Insurer EL Litigation. The £3.3 million charge in the period is made up of £2.1 million of IDC legal and other costs (H1 2016: £0.6 million) and amortisation of intangibles arising on business acquisitions of £1.2 million (H1 2016: £1.8 million).

 

Exceptional items

 

During the period ended 2 July 2017, legal and professional fees of £1.8 million have been incurred in relation to the Offer made by Altrad UK Limited to acquire the entire issued and to be issued ordinary share capital of Cape.

 

Operating profit

 

Operating profit from continuing operations was £37.6 million (H1 2016: £6.8 million) comprising an adjusted operating profit of
£42.7 million
(H1 2016: £18.9 million) less exceptional and other items of £5.1 million (H1 2016: £12.1 million).

 

Finance costs

 

Total net finance costs decreased to £4.7 million (H1 2016: £5.4 million). The charge includes a net £3.4 million (H1 2016: £4.0 million) of interest payable on bank borrowings, a £1.4 million (H1 2016: £1.6 million) non-cash charge relating to the unwinding of the discount on the long-term IDC provision and finance lease interest of £0.1 million (H1 2016: £0.1 million), partially offset by interest income on the IDC scheme funds in the period of £0.2 million (H1 2016: £0.2 million) and interest income on the defined benefit pension assets of £nil (H1 2016: £0.1 million).

 

Adjusted finance costs decreased slightly to £3.6 million (H1 2016: £4.1 million), primarily reflecting lower interest charges on borrowings. Interest cover (calculated by dividing adjusted operating profit by the adjusted finance costs) increased to 11.9 times
(H1 2016: 4.6 times).

 

Profit before tax

 

Total profit before tax from continuing operations was £32.9 million (H1 2016: £1.4 million) reflecting an operating profit of £37.6 million (H1 2016: £6.8 million) less net finance costs of £4.7 million (H1 2016: £5.4 million).

 



 

Financial review (continued)

 

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 £8.1 million (H1 2016: £3.0 million) representing an effective tax rate of 22% (H1 2016: 25%). This is lower than the first half of 2016 primarily as a result of further recognition of prior period tax losses in Australia, partially offset by an increase in profits in high tax jurisdictions and losses arising in the UK on which a deferred tax asset has not been recognised. On an adjusted basis, the Group's overall effective tax rate, including the share of post-tax result from joint ventures, was 21% (H1 2016: 20%).

 

The total tax charge on profit before tax was £7.8 million (H1 2016: £0.2 million). The cash tax paid during the period was £7.9 million (H1 2016: £2.4 million).

 

Earnings per share

 

For continuing operations adjusted diluted earnings per share were 24.7p (H1 2016: 8.9p) and adjusted basic earnings per share were 24.9p (H1 2016: 8.9p). For total operations, the basic earnings per share were 20.0p (H1 2016: 0.2p). The diluted weighted number of shares increased to 121.5 million (H1 2016: 121.4 million).

 

Dividend

 

Given the timing and terms of the recommended cash Offer for Cape plc by Altrad, the Board has decided not to declare an interim dividend (H1 2016: 4.5p). Should circumstances around the Offer change, the Board may revisit this decision in the future.

 

Adjusted operating and free cash flow

 

   £m

 

 

H1 2017

Unaudited

  

H1 2016           Unaudited

Full year

2016

Audited

Adjusted operating profit1

42.7

18.9

55.4

Depreciation

8.6

8.7

18.0

Adjusted EBITDA

51.3

27.6

73.4

Non-cash items

(2.2)

(1.8)

(3.4)

Dividends from joint venture

0.8

2.3

3.9

(Increase)/decrease in working capital2

(8.9)

(7.2)

9.6

Net capital expenditure

(2.4)

(7.1)

(12.0)

Adjusted operating cash flow

38.6

13.8

71.5





Adjusted operating cash flow to adjusted operating profit

90.4%

73.0%

129.1%





Net interest paid

(3.1)

(3.6)

(7.1)

Cash tax paid

(7.9)

(2.4)

(7.2)

Free cash flow

27.6

7.8

57.2

Dividends paid to shareholders and non-controlling interests

(4.0)

(13.3)

(18.8)

Decrease in loans to joint ventures

6.3

0.4

3.4

Net transfer to restricted funds

-

-

(13.0)

Payments made on behalf of the industrial disease claim scheme

(21.4)

(1.6)

(6.6)

Discontinued operations

-

0.6

0.3

Other movements in adjusted net debt

(4.5)

2.3

7.0

Movement in adjusted net debt

4.0

(3.8)

29.5

Opening adjusted net debt

(80.4)

(109.9)

(109.9)

Closing adjusted net debt

(76.4)

(113.7)

(80.4)





1 A reconciliation of the Group's adjusted operating profit to the Group's statutory operating profit/(loss) can be found in note 6, 'Adjusted measures'

2 Converted at monthly rates of exchange.

 

Working capital

 

Trade and other receivables and inventories at 2 July 2017 were £275.0 million (31 December 2016: £258.3 million). The £16.7 million increase reflected the Group's strong focus on working capital management and a temporary benefit at the period end from the timing of customer receipts and was partially offset by an increase in trade and other payables of £15.2 million to £187.5 million
(31 December 2016: £172.3 million). Overall, the Group's net working capital increased by £1.5 million (at balance sheet rates) to
£87.5 million (31 December 2016: £86.0m). 

 

Significantly higher operating profit drives the improvement in adjusted operating cash flow to adjusted operating profit to 90.4%
(H1 2016: 73.0%).   

 



 

Financial review (continued)

 

Capital expenditure

 

Gross capital expenditure of £3.0 million was £5.0 million lower than the prior period (H1 2016: £8.0 million) reflecting the phasing of project work in the Middle East. The Asset Replacement Ratio (calculated by dividing gross capital expenditure spend by the depreciation charge) decreased to 35% (H1 2016: 92%).

 

Financing

 

The Group's adjusted net debt decreased by £37.3 million at 2 July 2017 to £76.4 million compared to the same period in the prior year (3 July 2016: £113.7 million). Adjusted net debt includes finance lease obligations of £2.8 million (3 July 2016: £3.0 million). The reduction in adjusted net debt reflects an improved operating performance combined with lower joint venture receivables, dividend payments and capital expenditure, offset by the payment of £18.0 million in relation to the Insurer PL Litigation settlement announced in March 2017 and IDC litigation costs. Included within H1 2016 were £1.6 million of banking fees relating to the banking facility entered into in February 2014 and £2.1 million of fees relating to the amendment of the banking facility in June 2016.

 

Balance sheet gearing (calculated by dividing adjusted net debt by total equity), excluding ring-fenced IDC Scheme funds, decreased to 60.8% (31 December 2016: 70.7% (restated); 3 July 2016: 80.2%).

 

The Group's existing revolving credit facility is £300 million with a £50 million accordion feature. The facility has a contractual maturity of 23 June 2020.

 

Provision for pensions

 

The defined benefit pension scheme had a net surplus of £14.1 million as at 2 July 2017 (H1 2016: £4.8 million) and continues to be restricted to £nil in the accounts under IFRIC 14.

 

Provision for estimated future asbestos related liabilities and IDC Scheme funds

 

The discounted IDC provision decreased to £153.2 million (31 December 2016: £172.5 million) reflecting the initial payment from the Group's existing cash resources of £18.0 million in relation to the Insurer PL Litigation settlement announced in March 2017,
£2.7 million utilised in the period (H1 2016: £2.6 million) offset by the unwinding of the discount of £1.4 million in the half year
(
H1 2016: £1.6 million). The level of Scheme cash settlements remained in line with actuarial assumptions. The settlement in relation to the Insurer EL Claims announced in April 2017 did not require any cash consideration to be paid by the Company, nor any change to the IDC provision held at 31 December 2016.

 

The ring-fenced IDC Scheme funds decreased to £39.9 million (31 December 2016: £41.8 million) comprising cash settlements and costs paid to scheme claimants of £2.1 million (H1 2016: £1.4 million) offset by income interest of £0.2 million (H1 2016: £0.2 million) in the period, shown as finance income other items in the Condensed Consolidated Income Statement. No contribution was made to Scheme funds during the period (H1 2016: £0.5 million).

 

Other provisions

 

Other provisions have fallen from £9.7 million at 31 December 2016 to £8.2 million as at 2 July 2017 as a result of utilisations of
£1.5 million.

 

Related parties

 

As at 2 July 2017, there was a net balance of £0.9 million owed by joint ventures (H1 2016: £6.9 million; 31 December 2016: £4.0 million) (see note 19 for further information).

 



 

Financial review (continued)

 

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 weakening of Sterling during the first half of 2017 has resulted in significant currency translation effects on the primary statements and associated balance sheet metrics, such as working capital. The weakening in Sterling has favourably impacted both revenue and operating profit during the first half of 2017 by 8% and 13% respectively. In 2017, around 25% (H1 2016: 26%) of revenues were contracted in US dollars or US dollar pegged currencies and around 41% (H1 2016: 21%) in Australian dollars. However, the significantly lower closing Sterling exchange rate as at 2 July 2017 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 against Sterling applied during the half year:

 


H1 2017

H1 2016


Closing

Average

Closing

Average

AUD

1.70

1.68

1.80

2.04

USD

1.30

1.27

1.34

1.47

 

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 2016 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.

 

Cape operates 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 risk and related controls at the half year. The Directors consider that the nature of the principal risks and uncertainties which may have a material effect on the Group's performance in the second half of the year is unchanged from those detailed on pages 33 to 39 of the Group's 2016 Annual Report and Accounts.

 

Going concern

 

After making the appropriate enquiries, the Directors have 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 interim condensed consolidated financial statements.

 

 

 

 

 

Joe Oatley                                                            Michael Speakman

Chief Executive                                                   Chief Financial Officer

21 August 2017                                                   21 August 2017



 

Statement of Directors' Responsibilities

 

The Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the Disclosure and Transparency Rules ("DTR") of the United Kingdom's Financial Conduct Authority ("FCA").

 

The DTR require that the accounting policies and presentation applied to the half yearly figures must be consistent with those applied in the latest published annual accounts, except where the accounting policies and presentation are to be changed in the subsequent annual accounts, in which case the new accounting policies and presentation should be followed, and the changes and the reasons for the changes should be disclosed in the Interim report, unless the United Kingdom's FCA agrees otherwise.

 

The Directors confirm that to the best of their knowledge the condensed set of financial statements, which have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' as adopted by the European Union give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group, as required by DTR 4.2.2 and in particular include a fair review of:

 

•      the important events that have occurred during the first six months of the financial year and their impact on the interim condensed consolidated set of financial statements as required by DTR 4.2.7R;

•      the principal risks and uncertainties for the remaining half of the year as required by DTR 4.2.7R; and

•      related party transactions that have taken place in the first half of the current financial year and changes in the related party transactions described in the previous annual report that have materially affected the financial position or performance of the Group during the first half of the current financial year as required by DTR 4.2.8R.

 

The Directors of Cape plc are listed in the Group's 2016 Annual Report and Accounts.

 

For and on behalf of the Board of Directors.

 

 

 

 

 

Joe Oatley                                                            Michael Speakman

Chief Executive                                                   Chief Financial Officer

21 August 2017                                                   21 August 2017

 

 

 

 

 

 

 

 

 

Independent review report to Cape plc

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 2 July 2017 which comprises the Interim Condensed Consolidated Income Statement, Interim Condensed Consolidated Statement of Comprehensive Income, Interim Condensed Consolidated Statement of Financial Position, Interim Condensed Consolidated Statement of Changes in Equity, Interim Condensed Consolidated Cash Flow Statement and the related explanatory notes 1 to 20. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

 

The half yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review.

 

Scope of Review

 

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland), "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 2 July 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Ernst & Young LLP

Reading, UK

21 August 2017



 

Interim Condensed Consolidated Income Statement
for the period ended 02 July 2017

 

 



27 weeks ended

02 July 2017 (unaudited)

 

27 weeks ended

03 July 2016 (unaudited)

 


Note

 

Business

performance
£m

 

Exceptional

and other

items

£m

 

Total
£m

 

Business

performance
£m

 

Exceptional

and other

items

£m

 

Total
£m

 

Revenue from continuing operations


581.9

-

581.9

396.3

-

396.3









Operating profit before other items


40.0

-

40.0

16.1

-

16.1









Other items

7

-

(3.3)

(3.3)

-

(12.1)

(12.1)

Operating profit/(loss) before exceptional items


40.0

(3.3)

36.7

16.1

(12.1)

4.0









Share of post-tax result of joint ventures


2.7

-

2.7

2.8

-

2.8









Exceptional items

7

-

(1.8)

 (1.8)

-

-

-

Operating profit/(loss)


42.7

(5.1)

               37.6

18.9

(12.1)

6.8









Finance income

9

0.1

0.2

0.3

0.1

0.2

0.3

Finance costs

9

(3.6)

(1.4)

(5.0)

(4.1)

(1.6)

 (5.7)

Net finance costs


(3.5)

(1.2)

(4.7)

(4.0)

(1.4)

 (5.4)

Profit/(loss) before tax


39.2

(6.3)

              32.9

14.9

(13.5)

 1.4









Income tax (expense)/credit

10

(8.1)

0.3

(7.8)

(3.0)

2.8

(0.2)

Profit/(loss) from continuing operations


31.1

(6.0)

             25.1

11.9

(10.7)

1.2









Profit from discontinued operations

8

0.1

-

0.1

0.1

 -

0.1

Profit/(loss) for the period


31.2

(6.0)

             25.2

 12.0

(10.7)

1.3









Attributable to:








Owners of Cape plc




               24.1



0.2

Non-controlling interests




   1.1



1.1





              25.2



1.3







Earnings per share attributable to the owners of Cape plc








Pence

 


Pence

 

Pence

 


Pence

 

Basic








Continuing operations


24.9


19.9

8.9


0.1

Discontinued operations


0.1


0.1

0.1


0.1

Total operations

12

25.0


20.0

 9.0


0.2









Diluted








Continuing operations


24.7


19.7

 8.9


0.1

Discontinued operations


0.1


0.1

0.1


0.1

Total operations

12

24.8


19.8

 9.0


0.2

 

 



 

Interim Condensed Consolidated Statement of Comprehensive Income
for the period ended 02 July 2017

 



27 weeks ended

02 July 2017 (unaudited)

£m

 

27 weeks ended

03 July 2016 (unaudited)

£m

 

Profit for the period

 


25.2

 

1.3

 

Other comprehensive income/(expense)




Other comprehensive income to be reclassified to profit or loss in subsequent periods:




Currency translation differences


(9.7)

24.9

Net other comprehensive income/(expense) to be reclassified to profit or loss in subsequent periods


(9.7)

24.9

Other comprehensive income/(expense) not to be reclassified to profit or loss in subsequent periods:




Re-measurement of defined benefit pension plan


4.0

(6.1)

Tax effect


-

-



4.0

(6.1)

Movement in restriction of retirement benefit asset in accordance with IFRIC 14


(4.2)

5.7

Restriction of interest income in accordance with IFRIC 14


0.2

0.2

Tax effect


-

0.1

Net other comprehensive income/(expense) not to be reclassified to profit or loss in subsequent periods


-

(0.1)

Other comprehensive income/(expense) for the period


(9.7)

24.8

Total comprehensive income for the period


15.5

26.1





Attributable to:




Owners of Cape plc


14.6

24.7

Non-controlling interests


0.9

1.4



15.5

26.1

 



 

Interim Condensed Consolidated Statement of Financial Position
for the period ended 02 July 2017


Note

 

02 July

2017 (unaudited)

£m

 

31 December 2016

(audited)

£m

 

03 July

2016 (unaudited)

 £m

Assets





Non-current assets





Intangible assets


146.5

150.3

146.1

Investment property


2.0

2.0

2.0

Property, plant and equipment


76.0

84.0

84.3

Investments accounted for using the equity method


5.5

7.2

3.8

Deferred tax assets


38.6

39.1

22.3

Restricted deposits


3.5

3.5

9.0

Total non-current assets


286.1

 

267.5

Current assets





Inventories


13.0

13.7

14.0

Trade and other receivables


262.0

244.6

238.7

Cash and cash equivalents


122.2

121.5

78.8

Restricted deposits


36.6

38.5

22.5

Non-current asset held for sale


0.3

0.3

-

Assets directly associated with disposal group held for sale


1.0

1.2

1.6

Total current assets


435.1

419.8

 

355.6

Total assets


705.9

 

623.1

Equity





Share capital

15

30.3

30.3

30.3

Share premium account


1.0

1.0

1.0

Treasury shares

15

(0.9)

(0.1)

(0.1)

Special reserve

15

1.0

1.0

1.0

Other reserves

15

9.6

9.6

9.6

Translation reserve

15

131.4

140.9

124.0

Retained (losses)


(49.7)

(72.0)

(26.6)

Equity attributable to equity holders of the parent


122.7

110.7

 

139.2

Non-controlling interests


2.9

3.0

 

2.5

Total equity


113.7

 

141.7

 

Liabilities





Non-current liabilities





Borrowings


196.6

198.7

190.3

Retirement benefit obligations


16.5

17.2

15.6

Deferred tax liabilities


4.3

4.7

4.7

Provision for industrial disease claims

17

141.9

137.9

93.0

Other provisions


2.9

3.0

2.8

Total non-current liabilities


361.5

 

306.4

Current liabilities





Borrowings


0.1

1.0

0.1

Trade and other payables


187.5

172.3

151.6

Current income tax liabilities


13.1

13.7

5.0

Provision for industrial disease claims

17

11.3

34.6

11.2

Other provisions


5.3

6.7

4.8

Liabilities directly associated with disposal group held for sale


2.1

2.4

2.3

Total current liabilities


219.4

230.7

 

175.0

Total liabilities


581.6

592.2

 

481.4

Total equity and liabilities


707.2

705.9

 

623.1

 



 

Interim Condensed Consolidated Statement of Changes in Equity
for the period ended 02 July 2017

 

 


 

Share

capital

£m

 

Share premium

account

£m

 

Treasury shares

£m

 

Special

reserve

£m

 

Other

reserves

£m

 

Translation

reserve

£m

Retained

earnings/

(losses)

£m

Total

attributable

to parent

£m

Non- controlling

interests

£m

 

Total

equity

£m

 

At 01 January 2017 (audited)

30.3

1.0

(0.1)

1.0

9.6

140.9

(72.0)

110.7

3.0

113.7

Profit for the period

-

-

-

-

-

-

24.1

24.1

1.1

25.2

Other comprehensive

income/(expense):











Currency translation differences

-

-

-

-

-

(9.5)

-

(9.5)

(0.2)

(9.7)

Re-measurement of defined benefit pension plan

-

-

-

-

-

-

4.0

4.0

-

4.0

Movement in restriction of retirement benefit asset in accordance with
IFRIC 14

-

-

-

-

-

-

(4.2)

(4.2)

-

(4.2)

Restriction of interest income in accordance with IFRIC 14

-

-

-

-

-

-

0.2

0.2

-

0.2

Tax effect on retirement benefit asset

-

-

-

-

-

-

-

-

-

-

Total comprehensive income/(expense) for the period

-

-

-

-

-

(9.5)

24.1

14.6

0.9

15.5

Transactions with owners











Dividends

-

-

-

-

-

-

(3.0)

(3.0)

(1.0)

(4.0)

Share options:

-

-

-

-

-

-

1.7

1.7

-

1.7

- value of employee services

- share buyback

-

-

(1.3)

-

-

-

-

(1.3)

-

(1.3)

- exercise of share options

-

-

0.5

-

-

-

(0.5)

-

-

-


-

-

(0.8)

-

-

-

(1.8)

(2.6)

(1.0)

(3.6)

 

At 02 July 2017 (unaudited)

30.3

1.0

(0.9)

1.0

9.6

131.4

(49.7)

122.7

2.9

125.6

 

 

for the period ended 03 July 2016

 


Share

capital

£m

 

Share premium account

£m

 

Treasury shares

£m

 

Special reserve

£m

 

Other reserves

£m

 

Translation reserve

£m

 

Retained

earnings/

(losses)

£m

 

Total attributable to parent

£m

 

Non controlling interests

£m

 

Total

equity

£m

 

 

At 01 January 2016 (audited)

30.3

1.0

-

1.0

9.6

99.4

(14.9)

126.4

2.9

129.3

Profit for the period

-

-

-

-

-

-

0.2

0.2

1.1

1.3

Other comprehensive

income/(expense):











Currency translation differences

-

-

-

-

-

24.6

-

24.6

0.3

24.9

Re-measurement of defined benefit pension plan

-

-

-

-

-

-

(6.1)

(6.1)

-

(6.1)

Movement in restriction of retirement benefit asset in accordance with

IFRIC 14

-

-

-

-

-

-

5.7

5.7

-

5.7

Restriction of interest income in accordance with IFRIC 14

-

-

-

-

-

-

0.2

0.2

-

0.2

Tax effect on retirement benefit asset

-

-

-

-

-

-

0.1

0.1

 -

0.1

Total comprehensive income for the period

-

-

-

-

-

24.6

0.1

24.7

1.4

26.1

Transactions with owners











Dividends

-

-

-

-

-

-

(11.5)

 

(11.5)

 

 (1.8)

 

(13.3)

 

Share options:











- value of employee services

-

-

-

-

-

-

0.3

0.3

-

0.3

- exercise of share options

-

-

(0.1)

-

-

-

(0.6)

(0.7)

-

 (0.7)


-

-

(0.1)

-

 -

-

(11.8)

(11.9)

 (1.8)

(13.7)

 

At 03 July 2016 (unaudited)

30.3

1.0

(0.1)

1.0

9.6

124.0

(26.6)

139.2

2.5

141.7

 



 

Interim Condensed Consolidated Statement of Cash Flows
for the period ended 02 July 2017

 


Note

 

02 July 2017 Continuing operations (unaudited)

£m

 

02 July

2017 Discontinued operations (unaudited)

£m

 

02 July 2017 Total

(unaudited)

£m

 

03 July

2016

Continuing operations (unaudited)

£m

 

03 July

2016 Discontinued operations (unaudited)

£m

 

03 July 2016  Total

(unaudited)

£m

 

Cash flows from operating activities








Profit before tax


32.9

0.1

33.0

1.4

0.1

1.5

Finance costs - net


4.7

-

4.7

5.4

-

5.4

Share of post-tax result of joint ventures


(2.7)

-

(2.7)

(2.8)

-

(2.8)

Other items


0.1

-

0.1

-

-

-

Other non-cash movements


0.2

 -

0.2

10.1

-

10.1

Payments made on behalf of IDC scheme


(19.3)

 -

(19.3)

(1.6)

-

(1.6)

Share option charge


1.7

 -

1.7

0.3

-

0.3

Depreciation and amortisation


9.8

-

9.8

10.4

-

10.4

Difference between pension charge and cash contributions


0.3

-

0.3

0.7

-

0.7

Decrease/(increase) in inventories


0.3

-

0.3

(0.1)

-

(0.1)

(Increase) in trade and other receivables


(32.5)

-

(32.5)

(13.2)

-

(13.2)

Increase in trade and other payables


22.8

-

22.8

6.0

-

6.0

(Decrease) in provisions


(1.4)

-

  (1.4)

(0.6)

(0.1)

(0.7)

(Loss)/gain on sale of property, plant and equipment


-

 -

-

0.1

-

0.1

Net cash generated from continuing and discontinued operations


16.9

0.1

17.0

16.1

-

16.1

Interest received


0.1

-

0.1

0.1

-

0.1

Interest paid


(3.2)

-

(3.2)

(3.7)

-

(3.7)

Tax paid


(7.9)

-

(7.9)

(2.4)

-

(2.4)

Net cash flow from operating activities


5.9

0.1

6.0

10.1

-

10.1









Investing activities








Proceeds from sale of property, plant and equipment

13



0.6



0.9

Purchase of property, plant and equipment

13



(3.0)



(8.0)

Decrease in loans to joint ventures




6.3



0.4

Dividends received from joint ventures




0.8



2.3

Net cash from/(used in) investing activities - continuing operations




          4.7



(4.4)









Financing activities








Movement in revolving facility




(3.7)



(1.1)

Share buyback




(1.3)



(0.8)

Dividends paid to shareholders




(3.0)



 (11.5)

Dividends paid to non-controlling interests




(1.0)



(1.8)

Net cash flows used in financing activities - continuing operations




 (9.0)



(15.2)

Net increase/(decrease) in cash and cash equivalents




1.7



(9.5)

Net foreign exchange difference on cash and cash equivalents




(1.0)



6.9

Cash and cash equivalents at 01 January




 121.5



81.4

Cash and cash equivalents at end of period




      122.2



78.8

 



 

Notes to the Interim Condensed Consolidated Financial Statements

 

1. Corporate information

The interim condensed consolidated financial statements of Cape plc and its subsidiaries, collectively 'the Group' for the 27 weeks ended 2 July 2017 were authorised for issue in accordance with a resolution of the Directors on 21 August 2017.

 

Cape plc, 'the Company' or 'the Parent', is a limited company incorporated in Jersey and resident in the United Kingdom and Jersey whose shares are publicly traded on the London Stock Exchange. The registered office is located at 47 Esplanade, St Helier, Jersey JE1 0BD. The Group is principally engaged in the provision of critical industrial services focused on the energy and natural resource sectors.

 

2. Basis of preparation

The interim condensed consolidated financial statements for the period ended 2 July 2017 have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Conduct Authority. The interim condensed consolidated financial statements do not include all the information and disclosures required in the Group's annual audited consolidated financial statements, and should be read in conjunction with the Group's annual audited consolidated financial statements for the year ended 31 December 2016 which are prepared in accordance with IFRS, as adopted by the European Union.

 

The accounting policies and methods of computation adopted in preparation of the Group's interim condensed consolidated financial statements are the same as those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2016, except for the adoption of new standards and interpretations effective as of 1 January 2017.

 

Refer to the financial review within the Interim Management Review section for further commentary on key movements in the interim income statement and interim statement of financial position during the period.

 

Adoption of new standards and interpretations 

Several amendments to existing standards apply for the first time in 2017, however these are not yet adopted by the European Union. Adoption of these amendments to existing standards does not have a significant impact on the annual financial statements of the Group or the interim condensed consolidated financial statements of the Group. These amendments to existing standards are listed below:

 

-       Amendments to IAS 7 'Statement of Cash Flows: Disclosure Initiative'

-       Amendments to IAS 12 'Income Taxes: Recognition of Deferred Tax Assets for Unrecognised Losses'

-       Annual Improvements Cycle 2012-2014

-       Amendments to IFRS 12 'Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in IFRS 12'

 

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The Directors do not anticipate that the adoption of any of the new standards and interpretations issued by the IASB and IFRIC which are effective after the date of these interim financial statements will have a material impact on the Group's financial statements in the period of initial application.

 

IFRS 15 'Revenue from Contracts with Customers'

 

IFRS 15 'Revenue from Contracts with Customers' introduces a new five-step approach to recognising revenue from contracts with customers and will be adopted by the Group with effect from 1 January 2018. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled to, in exchange for transferring goods or services to a customer.

 

The new revenue standard will supersede all current revenue recognition requirements under IAS 11 'Construction Contracts' and IAS 18 'Revenue'. IFRS 15 gives a choice of either a full retrospective application or a modified retrospective application. The Group will confirm which application it will adopt in the 2017 Group Annual Report and Accounts.

 

The Group has performed a preliminary assessment of the impact of the adoption of IFRS 15 and is currently evaluating the potential impact on the Group's revenue recognition policies. For the purpose of assessing IFRS 15, the Group's contracts have been reviewed according to their nature, i.e. whether these are 'construction' or 'other', and the different disciplines of work provided.

 

The Group will continue to work during 2017 to design, implement and refine procedures and controls to apply the new requirements of IFRS 15, identify the transitional impact and to finalise its new revenue recognition accounting policy. In preparing to adopt IFRS 15, the initial assessment of the potential impact of the new standard has identified the following focus areas:

 

(i) Identifying performance obligations

 

IFRS 15 requires the identification of separate performance obligations within a contract. For those contracts where the Group provides a single discipline, there is not expected to be any impact under the new standard. Where the Group provides multi-disciplinary services within a maintenance type contract, the identification of performance obligations is not expected to have an impact on how the Group currently recognises revenue and profit or loss, as maintenance contracts are accounted for on an earned value basis.

 

For those multi-disciplinary construction type contracts accounted for under the percentage of completion method, the Group currently accounts for these multi-disciplinary construction contracts as a single performance obligation. Under IFRS 15, revenue must be recognised separately for each performance obligation identified. As a result, this will require the allocation of contract costs and consideration to each performance obligation, based on the fair value of each obligation being fulfilled, in order to apply the percentage of completion method, and may impact the amount and timing of revenue recognised over the life of the contract.

 

(ii) Variable consideration

 

IFRS 15 requires any variable consideration to be estimated at contract inception to assess whether this should form part of the transaction price. To prevent over-recognition of revenue, revenue shall only be recognised to the extent that it is highly probable that a significant reversal will not occur.

Currently, the Group only recognises revenue from variable consideration when all uncertainty has been resolved, which tends to be at the end of the period over which variable consideration is determined, whereas the new standard requires an assessment of whether it is appropriate to recognise over time.

 

The majority of the Group's variable consideration relates to performance during the 12-month calendar period. There may be an impact on the phasing and recognition of variable consideration over the 12 months, but this is only expected to affect the interim numbers reported but not the revenue and profit or loss reported at the year end.

 

The Group will continue to assess contracts on an individual basis to determine elements of variable consideration and how to recognise any associated revenue.

2. Basis of preparation (continued)

 

(iii) Presentation and disclosure requirements

 

IFRS 15 requires more extensive presentational and disclosure requirements than under current accounting standards, which will increase the volume of disclosures in the Group's Annual Report and Accounts. As the effective period for IFRS 15 is for periods beginning 1 January 2018, these revised disclosures will be in the 2018 Group Annual Report and Accounts.

 

IFRS 9 'Financial Instruments'

 

IFRS 9 'Financial Instruments' becomes effective from 1 January 2018. The standard covers recognition, classification, measurement and impairment of financial assets and financial liabilities, together with a new hedge accounting model. This standard is not expected to have a material impact on the Group.

 

IFRS 16 'Leases'

 

IFRS 16 'Leases' becomes effective from 1 January 2019. The new standard eliminates the classification of leases as either operating leases or finance leases and instead introduces a single lessee accounting model. This new standard is expected to result in an increase in both assets and liabilities on the statement of financial position whilst the nature of expense in the income statement will also change, as operating lease costs will be replaced with depreciation charges and lease interest expense. The Group is currently assessing the impact of the new standard.

 

Estimates

The preparation of the interim condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these interim condensed consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were in line with those that applied to the Group's annual audited consolidated financial statements for the year ended 31 December 2016.

 

Foreign exchange

The Group is exposed to foreign currency risk in two key currencies. The movements in exchange rates for these two currencies against Sterling are detailed below:

 

 


27 weeks ended

02 July 2017

27 weeks ended

03 July 2016

Year ended

31 December 2016

   Closing               Average

Closing

Average

Closing

Average

AUD

      1.70                  1.68

1.80

2.04

1.71

1.81

USD

      1.30                  1.27

1.34

1.47

1.24

1.35

 

3. Cape 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 interim condensed 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 interim condensed consolidated income statement.

 

Other items

Other items are those items which the Directors believe are relevant to the understanding of the result for the period 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.

 

Exceptional items

Exceptional items are those items which are of a non-recurring nature and, 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, restructuring costs and other legal and professional fees which meet the aforementioned definition.

 

4. Critical accounting estimates and judgements

 

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. 

 

Judgements

Areas of judgement that have the most significant effect on the amounts recognised in the interim condensed 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 exceeds 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.

 



 

4. Critical accounting estimates and judgements (continued)

 

 (iv) Tax

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.

 

The Group has a number of uncertain tax positions that are yet to be resolved.  Provisions have been made where it is probable an economic outflow will be required to settle an obligation and where the amount can be reliably estimated. The Board believes no further provision or disclosure is required in respect of these uncertain positions.

 

(v) Defined benefit pension plans

The cost and the obligation of the Group's defined benefit pension plans are 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 plans. Differences arising from actual experience or future changes in assumptions will be reflected in future periods.

 

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. 

 

(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. Management have reviewed the assumptions made as part of the goodwill impairment review carried out for the year ended 31 December 2016 and have not identified an impairment of goodwill in any of the cash generating units.

 

(iii) Provision for industrial disease claims

To the extent that such costs can be reliably estimated as at 2 July 2017, 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 on alleged exposure to previously manufactured asbestos products, notwithstanding the matters disclosed under note 17 'Industrial disease claims provision and contingent liabilities'. The most recent full actuarial valuation was performed 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.

 

(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.

 



 

5. Segment information

 

Management has determined the operating segments based on the reports reviewed by the Board (Chief Operating Decision Maker or '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.

 

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 periods ended 2 July 2017 and 3 July 2016 are as follows:

 

 

27 weeks ended 02 July 2017 (unaudited)

 

UK

£m

 

Middle East

£m

 

Asia Pacific

£m

 

Central

£m

 

Group

£m

 

Continuing operations






Revenue

175.9

102.1

303.9

-

581.9

Adjusted operating profit/(loss) before joint ventures

10.8

5.5

26.1

(2.4)

40.0

Share of post-tax profit from joint ventures

-

2.7

-

-

2.7

Adjusted operating profit/(loss) after franchise fees

10.8

8.2

26.1

(2.4)

42.7

Other and exceptional items





(5.1)

Net finance costs





(4.7)

Profit before tax





32.9

 

27 weeks ended 03 July 2016 (unaudited)

 

UK

£m

 

Middle East

£m

 

Asia Pacific

£m

 

Central

£m

 

Group

£m

 

Continuing operations






Revenue

194.0

94.2

108.1

-

396.3

Adjusted operating profit/(loss) before joint ventures

8.4

8.3

1.9

(2.5)

16.1

Share of post-tax profit from joint ventures

-

2.8

 -

-

2.8

Adjusted operating profit/(loss) after franchise fees

8.4

11.1

1.9

(2.5)

18.9

Other and exceptional items





(12.1)

Net finance costs





(5.4)

Profit before tax





1.4

 



 

5. Segment information (continued)

 

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 6. There were no significant sales between segments in either period.

 

Other segment items included in the interim condensed consolidated income statement are as follows:

 

27 weeks ended 02 July 2017 (unaudited)

 


UK

£m

 

Middle East

£m

 

Asia Pacific

£m

 

Central

£m

 

Group

£m

 

Depreciation (excluding discontinued operations)


2.2

4.3

2.1

-

8.6

Amortisation


1.2

-

-

-

1.2








27 weeks ended 03 July 2016 (unaudited)

 


UK

£m

 

Middle East

£m

 

Asia Pacific

£m

 

Central

£m

 

Group

£m

 

Depreciation (excluding discontinued operations) 


2.6

4.1

2.0

-

8.7

Amortisation           


1.7

-

-

-

1.7

 

The segment assets and liabilities at 2 July 2017 are as follows:

 

27 weeks ended 02 July 2017 (unaudited)

 


UK

£m

 

Middle East

£m

 

Asia Pacific

£m

 

Central

£m

 

Unallocated

£m

 

Group

£m

 

Assets - continuing


159.0

206.9

138.5

0.6

200.9

705.9

Assets held for sale


0.3

-

-

-

-

0.3

Assets directly associated with disposal group held for sale


-

-

1.0

-

-

1.0

Total assets


159.3

206.9

139.5

0.6

200.9

707.2

Non-current assets included in total assets








Goodwill and intangibles - continuing


57.4

54.8

34.3

-

-

146.5

Other - continuing


24.9

38.4

17.2

3.0

42.1

125.6

Total non-current assets


82.3

93.2

51.5

3.0

42.1

272.1

Liabilities - continuing


(58.9)

(60.9)

(84.9)

(163.5)

(211.2)

(579.4)

Liabilities - discontinued operations


-

(0.1)

-

-

-

(0.1)

Liabilities directly associated with disposal group held for sale


-

(0.3)

(1.8)

-

-

(2.1)

Total liabilities


(58.9)

(61.3)

(86.7)

(163.5)

(211.2)

(581.6)

 

The segment assets and liabilities at 31 December 2016 are as follows:

 

31 December 2016 (audited)

 


UK

£m

 

Middle East

£m

 

Asia Pacific

£m

 

Central

£m

 

Unallocated

£m

 

Group

£m

 

Assets - continuing


165.2

202.9

127.5

6.2

202.6

704.4

Assets held for sale


0.3

-

-

-

-

0.3

Assets directly associated with disposal group held for sale


-

 

-

 

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


-

(0.3)

(2.1)

-

-

(2.4)

Total liabilities

 


(59.1)

 

(64.2)

 

(71.7)

 

(183.0)

 

(214.2)

 

(592.2)

 

 

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 for interim reporting purposes.

 

Assets and liabilities directly associated with the disposal group held for sale in both 2017 and 2016 relate to the planned termination of operations in
Hong Kong and Kazakhstan. Refer to note 13 for details of the asset held for sale.

 

 

 

 

 

 



 

5. Segment information (continued)

 

Unallocated assets and liabilities comprise:

 



02 July 2017

(unaudited)

 

31 December 2016

     (audited)

Assets

£m

 

Liabilities

£m

Assets

£m

Liabilities

£m

Deferred tax


38.6

(4.3)

39.1

(4.7)

Current tax


-

(13.1)

-

(13.7)

Cash and cash equivalents


122.2

-

121.5

-

Restricted deposits: current


36.6

-

38.5

-

Restricted deposits: non-current


3.5

-

3.5

-

Bank loans


-

(193.8)

-

(195.8)

Total unallocated


200.9

(211.2)

202.6

(214.2)

 

 

6. 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.

 



27 weeks ended 02 July 2017

£m

 

27 weeks ended 03 July 2016

£m

 

Profit before tax


32.9

1.4

Other items


3.3

12.1

Exceptional items


1.8

 -

Interest income on restricted funds


(0.2)

(0.2)

Unwind of discount on provision for industrial disease claims


1.4

1.6

Adjusted profit before tax


39.2

14.9





Operating profit


37.6

6.8

Other items


3.3

12.1

Exceptional items


1.8

 -

Adjusted operating profit


42.7

18.9

Adjusted operating profit margin


7.3%

4.8%





Adjusted operating profit


42.7

18.9

Depreciation - continuing operations


8.6

8.7

Adjusted EBITDA


51.3

27.6





Finance costs


(5.0)

(5.7)

Unwind of discount on provision for industrial disease claims


1.4

1.6

Adjusted finance costs


(3.6)

(4.1)







02 July

2017

£m

31 December 2016

£m

 

Net debt


34.4

36.2

Unamortised borrowing arrangement costs


2.9

3.4

Restricted funds


40.1

42.0

Less: cash transferred to assets of disposal group held for sale


(1.0)

(1.2)

Adjusted net debt


76.4

80.4

 

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.

 

 

 

 

 

 



 

6. Adjusted measures (continued)

 

The segmental adjusted operating profit before franchise fee charges is as follows:

 

27 weeks ended 02 July 2017 (unaudited)

 

UK

£m

 

Middle East

£m

 

Asia Pacific

£m

 

Central

£m

 

Group

£m

 

Adjusted operating profit/(loss) before joint ventures

10.8

6.8

31.8

(9.4)

40.0

Share of post-tax result of joint ventures

-

2.7

-

-

2.7

Adjusted operating profit/(loss)

10.8

9.5

31.8

(9.4)

42.7

 

27 weeks ended 03 July 2016 (unaudited)

 

UK

£m

 

Middle East

£m

 

Asia Pacific

£m

 

Central

£m

 

Group

£m

 

Adjusted operating profit/(loss) before joint ventures

8.4

10.2

5.0

(7.5)

16.1

Share of post-tax result of joint ventures

-

2.8

 -

-

2.8

Adjusted operating profit/(loss)

8.4

13.0

5.0

(7.5)

18.9

 

7. Other and exceptional items

 

 

i) Other items


27 weeks ended 02 July 2017

£m

 

27 weeks ended 03 July 2016

£m

 

Continuing operations




In operating profit:




 Amortisation of intangibles arising on business acquisitions


1.2

1.6

 Post-acquisition management compensation


-

0.2

 Charge to provision for industrial disease claims


-

               9.7

 Litigation costs and other expenses for industrial disease claims


2.1

 0.6

Other items from continuing operations included within operating profit


3.3

12.1

 

ii) Exceptional items


27 weeks ended 02 July 2017

£m

27 weeks ended 03 July 2016

£m

Continuing operations




In operating profit:




 Legal and professional fees


1.8

-

Exceptional items from continuing operations included within operating profit


1.8

-

 

During the period ended 2 July 2017, legal and professional fees of £1.8 million have been incurred in relation to the Offer made by Altrad UK Limited to acquire the entire issued and to be issued ordinary share capital of Cape. Further details are provided in note 20.

 

8. Discontinued operations

 

Discontinued operations in 2017 and 2016 primarily relate to the planned termination of operations in Hong Kong. Analysis of the results of discontinued operations is as follows:



27 weeks ended 02 July 2017
£m

27 weeks ended 03 July 2016
£m





Revenue


4.2

2.9

Expenses


(4.1)

(2.8)

Profit before and after tax of discontinued operations before exceptional and other items


0.1

0.1

 



 

9. Finance income and costs



27 weeks ended 02 July 2017
£m

27 weeks ended 03 July 2016
£m

Interest income:




 Short-term bank deposits


0.1

-

  Interest on pension assets


-

0.1

 Interest on restricted funds


0.2

0.2

Finance income


0.3

0.3

Interest expense:




 Bank borrowings


(3.5)

(4.0)

 Finance leases


(0.1)

(0.1)

 Unwind of discount on provision for industrial disease claims


(1.4)

(1.6)

Finance costs


(5.0)

(5.7)

Net finance costs


(4.7)

(5.4)

 

10. Income tax

 

The Group's effective tax rate on its business performance of 21% (H1 2016: 20%) is calculated using the tax rate that would be applicable to the expected total annual earnings. The income tax expense for the period increased by £7.6 million to £7.8 million (H1 2016: decrease of £3.9 million) due to an increase in profits and a change in the geographic mix of profits.

 

Factors affecting current and future tax charges

 

Profits arising in the Company for the 2017 year of assessment will be subject to Jersey tax at the standard corporate income tax rate of 0%. 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 to 17% from 1 April 2020.

 

11. Dividends per share

 

A final dividend in respect of the year ended 31 December 2016 of 2.5 pence per share, amounting to £3.0 million, was paid in the period ended 2 July 2017. Given the current circumstances, timing and terms of the recommended cash offer for Cape plc by Altrad, the Board has decided not to declare an interim dividend at this point in time (H1 2016: 4.5 pence per share). Should circumstances around the Offer change, the Board may revisit this decision in the future. 

 

12. Earnings per ordinary share

 

Basic earnings per share (EPS) for the half year ended 2 July 2017 is based on the profit after tax attributable to the Company's ordinary shareholders of £24.1 million (H1 2016: profit after tax of £0.2 million) divided by the weighted average number of issued ordinary shares of 120,754,840
(H1 2016: 121,019,813).

 

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 outstanding 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.

 

Diluted earnings per share for the half year ended 2 July 2017 is based on the profit after tax attributable to the Company's ordinary shareholders of £24.1 million (H1 2016: profit after tax of £0.2 million) divided by the diluted weighted average number of issued ordinary shares of 121,545,128
(H1 2016: 121,429,319).

 

Share options and awards are considered outstanding for diluted EPS purposes when the performance criteria are deemed to have been met, based on the information available, at the end of the reporting period and when the average share price during the period is higher than the exercise price of the option or award.

 

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 period ended 2 July 2017 was 349,097 (H1 2016: 84,124).


27 weeks ended 02 July

2017
Shares

 

27 weeks ended 03 July 2016
Shares

 

Basic weighted average number of shares

120,754,840

121,019,813

Adjustments:



Weighted average number of outstanding share options

790,288

409,506

Diluted weighted average number of shares

121,545,128

121,429,319

 

 

 

 

 

 

 

 

 

 

 

 

12. Earnings per ordinary share (continued)

 


27 weeks ended

     02 July 2017

 

 27 weeks ended

      03 July 2016

 


Earnings

£m

 

EPS

pence

 

Earnings

£m

 

EPS

pence

 

Basic earnings per share





Continuing operations

24.0

19.9

0.1

0.1

Discontinued operations

0.1

0.1

0.1

0.1

Basic earnings per share

24.1

20.0

0.2

0.2






Diluted earnings per share





Continuing operations

24.0

19.7

0.1

0.1

Discontinued operations

0.1

0.1

              0.1

    0.1

Diluted earnings per share

24.1

19.8

0.2

0.2






Adjusted basic earnings per share - continuing operations





Earnings from continuing operations

24.0

19.9

0.1

0.1

Amortisation of intangibles

1.2

1.0

1.6

1.3

Post-acquisition management compensation

-

-

0.2

0.2

Exceptional items

1.8

1.5

-

-

Industrial disease related costs and interest income

3.3

2.7

11.7

9.6

Tax effect of adjusting items

(0.3)

(0.2)

(2.8)

(2.3)

Adjusted basic earnings per share

30.0

24.9

10.8

8.9






Adjusted diluted earnings per share - continuing operations





Earnings from continuing operations

24.0

19.7

0.1

 0.1

Amortisation of intangibles

1.2

1.0

1.6

1.3

Post-acquisition management compensation

-

-

0.2

0.2

Exceptional items

1.8

1.5

-

-

Industrial disease related costs and interest income

3.3

2.7

11.7

 9.6

Tax effect of adjusting items

(0.3)

(0.2)

(2.8)

(2.3)

Adjusted diluted earnings per share

30.0

24.7

10.8

 8.9

 

The adjusted earnings per share calculations have been calculated after excluding the impact of other and exceptional items (note 7), and interest income on restricted funds (note 9) and the tax impact of these items.

 

13. Property, plant and equipment

 

During the period ended 2 July 2017, the Group acquired items of property, plant and equipment with a cost of £3.0 million (H1 2016: £8.0 million) and received proceeds from asset sales of £0.6 million (H1 2016: £0.9 million) arising from assets with a carrying amount of £0.6 million (H1 2016: £1.0 million). Net capital expenditure of £2.4 million (H1 2016: £7.1 million) shown in the cash flow statement represents the actual cash outflow and therefore excludes purchases funded through finance leases.

 

During 2016, £0.3 million of land and buildings were reclassified to non-current assets held for sale and presented separately within current assets on the face of the condensed consolidated statement of financial position. The sale was completed subsequent to the period end.

 

Capital expenditure contracted for at the balance sheet date but not yet incurred:

 



 

27 weeks ended

02 July 2017

£m

 

27 weeks

ended

03 July 2016

£m

 

 

Year ended 31 December 2016

£m

 

Property, plant and equipment


              0.6

0.4

3.0

 

 

 

 

14. Financial instruments

 

a) Except for cash and restricted deposits, details of financial instruments are set out below.

 

02 July 2017 (unaudited)

 

Loans and

receivables

£m

 

Fair value

through income

statement

£m

 

Other
financial

liabilities at amortised

cost

£m

 

Total

£m

 

Assets per the condensed consolidated statement of financial position





Trade and other receivables (excluding prepayments)

254.3

-

-

254.3


254.3

 -

-

254.3

Liabilities per the condensed consolidated statement of financial position





Borrowings (excluding finance lease liabilities)

-

-

(193.9)

(193.9)

Finance lease liabilities

-

-

(2.8)

(2.8)

Trade and other payables (excluding statutory liabilities and payments on account)

-

-

(147.1)

(147.1)


-

 -

(343.8)

(343.8)

 

31 December 2016 (audited)

 

Loans and receivables

£m

 

Fair value
through
income

statement

£m

 

Other

financial
liabilities at amortised

cost

£m

 

 

Total

£m

 

Assets per the consolidated statement of financial position





Trade and other receivables (excluding prepayments)

234.0

-

-

234.0


234.0

-

-

234.0

Liabilities per the consolidated statement of financial position





Borrowings (excluding finance lease liabilities)

-

-

(196.7)

(196.7)

Finance lease liabilities

-

-

(3.0)

(3.0)

Trade and other payables (excluding statutory liabilities and payments on account)

-

-

 (129.1)

 (129.1)


-

-

(328.8)

(328.8)

 

b) Fair values

The fair values of short-term deposits, trade and other payables, loans and other borrowings with a maturity of less than one year are assumed to approximate to their book values.

 

In the case of the bank loans and other borrowings due in more than one year, the fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments. The fair value of bank loans as at 2 July 2017 is £191.7 million (31 December 2016: £193.6 million). Accordingly, the related fair values disclosed are classified as Level 2 in the fair value measurement hierarchy.

 

The fair value of trade and other receivables equal the carrying amounts.

 

There have been no transfers between Level 1 and Level 2, and no transfers into or out of Level 3 fair value measurements during the 27-week period ended 2 July 2017. The Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation at the end of the reporting period.

 

 

 



 

15. Share capital and reserves

 

Ordinary shares of 25p each

02 July 2017

Number

of shares

 

02 July 2017

£m

03 July 2016

Number of

shares

 

03 July 2016

£m

Authorised

200,000,000

50.0

200,000,000

50.0






plc Scheme Share of £1 each





Authorised, issued and fully paid at beginning and end of period

1

-

1

-






Issued and fully paid:



Share capital

Number

Share capital £m

At 01 January 2017



121,103,937

30.3

Issue of shares



 -

-

Exercise of share options



 -

-

At 02 July 2017



121,103,937

30.3






Treasury shares:



Treasury

shares

                Number

           Treasury  

              shares               

                    £m

At 01 January 2017



 81,514

(0.1)

Share buyback



 627,477

(1.3)

Exercise of share options



 (261,170)

0.5

At 02 July 2017



447,821

(0.9)

 

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. During April 2017, the Trust purchased 627,477 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 2 July 2017, 261,170 options had been exercised, of which 30,878 options relate to the 2013 PSP scheme and 230,292 options relate to the 2014 PSP scheme, with 447,821 shares being held by the Cape plc Employee Benefit Trust. The weighted average price of share options exercised during the period was 236.3 pence.

 

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.

 

16. Reconciliation of net cash flow to movement in net debt (excluding restricted deposits)

 


27 weeks ended 02 July 2017
£m

 

31 December 2016

£m

(audited)

 

27 weeks ended 03 July 2016
£m

 

Net increase/(decrease) in cash and cash equivalents including net foreign exchange differences

0.7

40.1

 (2.6)

Movement in revolving facility

 

3.7

 

(7.3)

 

  1.1

 

Foreign exchange movements on foreign currency denominated loans

(0.2)

(3.5)

 (2.9)

Movement in cash transferred to disposal group held for sale

(0.2)

  

0.2

 

0.6

 

Movements in adjusted net debt during the period

4.0

29.5

(3.8)

Adjusted net debt excluding restricted deposits - opening

(80.4)

(109.9)

(109.9)

Adjusted net debt excluding restricted deposits - closing

(76.4)

(80.4)

(113.7)

 

Adjusted net debt excluding restricted deposits is calculated by deducting current and non-current borrowings from cash and cash equivalents
(see note 6).

 

 

 

 



 

17. Industrial disease claims provision and contingent liabilities

 

The Board considers that the provision of £153.2 million for industrial disease claims as at 2 July 2017 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 claims were to be successful, it might lead to future claims against the Group which may result in significant additional liability over and above that recognised under the current provision.

 

As previously disclosed, the Group had been engaged in litigation funded by Aviva plc, RSA Group and Zurich in respect of historic and current payments made by them in their capacity as providers of employers' liability insurance in relation to claims by employees and former employees of third-party companies arising from asbestos-related diseases (Insurer PL Litigation).

 

As disclosed in the Group's 2016 annual audited consolidated financial statements, Cape reached agreement to settle the Insurer PL Litigation on
12 March 2017 for a consideration of £18.0 million which was paid in April 2017 and a deferred payment of up to £34.5 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, were charged to profit or loss in 2016. The settlement of the Insurer PL Litigation does not imply any acceptance of liability on Cape's behalf.

 

Also as previously disclosed, Aviva plc had 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 in the period 1956 to 1966. As announced on 10 April 2017, the Insurer EL Claims were settled, with the current claims being withdrawn with no admission of liability and each party bearing their own legal costs. Notwithstanding the Board's continued belief in the strength of its position in relation to the trial conducted in January and February 2017 and thus its recovery of all legal expenses incurred, the Board concluded that it was in the best interests of Cape and its shareholders to settle this litigation. The settlement did not require any cash consideration to be payable by the Company and did not require any change to the existing IDC provision held.

 

The Group previously disclosed it was responding to an enquiry by HMRC with regard to the UK tax consequences of a transfer of intellectual property to Singapore in 2011. During April 2017, HMRC decided not to take the matter any further and closed the enquiry. 

 

During 2014, a fatality of a Cape employee was suffered at a client's offshore installation. The investigation by the enforcing authorities is ongoing. No amounts have been provided in respect of this matter as at the period ended 2 July 2017. 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 has contingent liabilities in respect of guarantees and bonds entered into in the normal course of business, in respect of which no loss is expected. 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. As at 2 July 2017, the Group's bank facilities relating to the issue of bonds, guarantees and letters of credit amounted to £72.2 million (31 December 2016: £66.3 million).

 

18. 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 subparagraphs (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 £40.0 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.



 

18. The Scheme of Arrangement (continued)

 

(c)   The sum of £40.0 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 the period ended 2 July 2017, no top up was made to the Scheme (H1 2016: £0.5 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.

 

(m) The restriction described in sub-paragraph (a) above will not apply to proceedings to enforce the right to confer under subparagraph (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.

 

19. 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.

 

As at 2 July 2017, there was a net balance of £0.9 million owed by joint ventures (H1 2016: £6.9 million; 31 December 2016: £4.0 million). 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 period ended 2 July 2017 was £4.3 million (H1 2016: £6.8 million; 31 December 2016: £13.1 million).

 

20. Post balance sheet events

 

On 7 July 2017, the boards of directors of Altrad Investment Authority SAS and Cape plc announced that they had reached agreement on the terms of a recommended cash offer (the 'Offer') for Cape pursuant to which Altrad UK Limited, a wholly owned subsidiary of Altrad Investment Authority SAS, will acquire the entire issued and to be issued ordinary share capital of Cape plc, other than the IDC Scheme Share and that it was intended that the Offer will be implemented by means of a takeover offer under the Takeover Code and within the meaning given to that term in Part 18 of the Jersey Companies Law.

 

The Offer is conditional upon, amongst other things, valid acceptances being received in respect of Cape plc ordinary shares which, constitute not less than 90 per cent in nominal value of the Cape plc shares to which the Offer relates. The Offer is also subject to the certain other contractual conditions and further terms, including the requisite merger control clearance. Full acceptance of the Offer will result in the payment by Altrad of an amount up to approximately £332.3 million in cash to Cape plc shareholders and participants in the Cape plc Share Scheme, subject to the extent to which share options are exercised, at which point Cape plc will be de-listed from the main market of the London Stock Exchange.

 

On 1 August 2017, the formal Offer Document was posted to Shareholders. The First Closing Date for the Offer is 1.00 p.m. (London Time) on
22 August 2017. Documentation associated with the Offer from Altrad can be found on the Group's website at
www.capeplc.com.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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