CAPE PLC Cape plc
16 April 2015
16 April 2015
Cape plc ('Cape' or the 'Company')
Mailing of Annual Report, Notice of Annual General Meeting
and Electronic Documents and Information Letter
Cape announces that its Annual Report and Accounts for the year ended 31 December 2014 (the 'Annual Report'), the Notice of Annual General Meeting ('Notice of AGM'), Form of Proxy and a letter requesting the sending of documents and information by electronic means ('Electronic Documents and Information Letter') have been mailed to Ordinary Shareholders and the Scheme Shareholder (as defined in the Company's Articles of Association).
Pursuant to Listing Rule 9.6.1, the Annual Report, Notice of AGM, Form of Proxy and Electronic Documents and Information Letter have been submitted to the National Storage Mechanism and will shortly be available for inspection at:www.Hemscott.com/nsm.doand can also be viewed on the Company's website atwww.capeplc.com.
AGM Location
The Company's AGM will be held at 11.00am (BST) on Tuesday 12 May 2015 at the offices of Cape at Drayton Hall, Church Road, West Drayton, Middlesex UB7 7PS, United Kingdom.
Additional Information
In accordance with Disclosure and Transparency Rule 6.3.5(2) (b), additional information is set out in the appendices to this announcement. This information is extracted in full unedited text from the Annual Report. References to page numbers are the respective page numbers in the Annual Report. This information is not a substitute for reading the full Annual Report.
Cape plc
Richard Allan
Company Secretary
Appendices:
Appendix 1: Directors' Responsibility Statement
The following directors' responsibility statement is extracted from the 2014 Annual Report (page 80).
Directors' responsibilities
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations. The directors are also responsible for the preparation of the directors' remuneration report, which they have chosen to prepare, being under no obligation to do so under Jersey law.
The directors are also responsible for the preparation of the directors' governance report under the Listing Rules.
Jersey company law requires the directors to prepare financial statements for each financial period in accordance with generally accepted accounting principles prescribed for the purposes of the law. Pursuant to that law, the directors have prepared the
consolidated financial statements and the parent company financial statements (together the financial statements) in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The financial statements are required by law to give a true and fair view of the state of affairs of the Company at the period's end and also the profit or loss of the Company for the period then ended. In preparing those financial statements, the directors should:
- select suitable accounting policies and then apply them consistently
- make judgements and estimates that are reasonable
- state that the financial statements comply with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements
- prepare the financial statements on the 'going concern' basis unless it is inappropriate to presume that the Company will continue in business, in which case there should be supporting assumptions or qualifications as necessary.
The directors are responsible for keeping proper accounting records which are sufficient to show and explain the Company's transactions and as such to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure
that the financial statements comply with the law. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement under the Disclosure and Transparency Rules
Each of the current directors, whose names and functions are listed on page 54 confirms that, to the best of his knowledge:
- the consolidated financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profi of the Group and the undertakings included in the consolidation taken
as a whole
- the directors' governance report (including the corporate governance report and the Audit Committee report) on pages 52 to 80 and the Regional and Chief Financial Officer's reviews on pages 28 to 37 include a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face as set out in the risks and uncertainties review on pages 16 to 23.
Directors' statement under the corporate governance code
The strategic report and this directors' governance report (including the remuneration report) were reviewed and approved by the Board on 17 March 2015. The Board confirms that, taken as a whole, these reports represent a fair, balanced and understandable report on the Group.
By order of the Board
Michael Speakman
Chief Financial Officer
17 March 2015
Appendix 2: Principal Risks & Uncertainties
The following description of the principal risks and uncertainties that the Company faces is extracted from the 2014 Annual Report (pages 16 to 23).
Risk factors
Cape's performance and prospects may be affected by a number of risks and uncertainties that relate to the industries and the environments in which it undertakes its operations around the world. The Board is alive to the issue of risk, and has ensured that the Group has appropriate systems and procedures in place to identify, assess and mitigate major business risks.
Each regional operation and group function is required to undertake a formal review of the risks that could impact its area of business. Identified significant risks and agreed mitigation are formally reviewed on a regular basis and are recorded in a standardised active risks register.
Further validation occurred in 2014 through a risk assessment carried out independently by the Board. The Group continues to develop its risk management systems and processes to ensure that our responses remain appropriate to the range of risks that we face. A number of the risks that Cape faces are also faced by other service providers, finding rigorous methods of mitigating such risks can generate competitive advantages.
The following factors and the other information contained in this Annual Report should be carefully considered.
The following section contains a description of the risks that may affect some or all of our activities and which may affect the value of an investment in our securities. If any of the events described below occurs, the business, financial condition or results of operations of the Group could be adversely affected in a material way. Additional risks and uncertainties of which the Group is unaware or that it currently deems immaterial may in the future have a material adverse effect on the Group's business, results of operations and financial condition.
Effective risk management
The effective identification, reporting and management of risk is critical to the success of Cape. As a result, the following systematic approach is applied across the Group:
Identifying key risks
To consistently apply the same methodology of identifying risk at project, operation, business unit and Group level.
Analysing risks and controls
Risks are evaluated to ascertain financial and non-financial impacts, the likelihood of occurrence and the root cause. This results in a prioritised register of risks, against which we then review the nature, adequacy and appropriateness of our current controls to mitigate these risks.
Determining management actions
If new, different or additional risks are identified or if additional controls are required, these are developed and appropriate responsibilities to discharge are assigned. Acquisition and other investment related risks are identified and assessed before key investment decisions are made.
Reporting and monitoring
Emerging risks are identified, reported and reviewed on an on-going basis, with particular focus on capturing emerging risk and monitoring all changing risk during monthly business reviews.
Management is responsible for monitoring the effectiveness of controls and progress of actions taken to mitigate the key risks; this is supported through the Group's internal audit programme. The results of the risk management process are reported to the Audit Committee at least every six months.
Further details of the Group's internal control and risk management processes can be found in the Directors' governance report on pages 52 to 80.
Operational excellence
There are three key operational excellence goals.
Firstly, through improved recruitment, training and management development to provide the Group with a pool of operational management, across all levels, with the practical and leadership skills necessary to consistently manage Cape's operations.
Secondly, to develop the best available tools and procedures to manage and monitor the business, initially focused on operational activities and large projects, then extending to the whole organisation.
Thirdly, to increase collaboration and knowledge sharing across the Group to ensure that the benefit of the expert knowledge within the Group is maximised and is being consistently applied to provide best practice operating standards across all services and geographies.
Good progress was made in 2014 which saw the implementation of many of the systems and processes developed in 2013.
This work will continue through 2015 and beyond.
Risk Category
External Risks: Global political, security, and economic conditions
Operating activities may be affected by factors outside the Group's control. These include other economic events, such as changes in oil, gas and commodity demand and prices, geopolitical events, government actions or inactions, climatic conditions, unusual or unexpected geological occurrences, environmental hazards, terrorist events, disease outbreaks or epidemics, industrial conditions, technical failures, labour disputes, delays in construction, availability of materials or parts and shipping, import or customs delays.
Changes in the political or security environment or sanctions regimes in existing and new territories may result in Cape, or its clients, losing commercial or legal protections, facing economic or security threats or being less able to control their operations.
A number of the Group's clients operate in the oil and gas sector and as such may be negatively affected by recent falls in oil prices. The effect on the demand for the Group's services is uncertain but likely to be negative.
Incidence and severity of geopolitical and economic tension has increased in some locations and reduced in others. The net impact is an increase.
Regional management teams have been strengthened with managers that are more attuned to such risks.
Market Risks: Key Market Dependency and Key Client Dependency
Losing certain key clients could have an adverse effect on Cape's revenues, particularly where these clients have several contracts with Cape.
Cape's clients operate in a number of sectors including:
- downstream oil and gas
- upstream oil and gas
- power generation
- mining
- marine.
These markets have a range of differing characteristics and dynamics.
Although the long term demand for Cape's services is driven by the long term requirement for energy, commodity and petrochemical products it is possible that a cyclical downturn could lead to short term declines in demand for Cape's services.
Evolution in 2014
Client dependency has increased slightly during 2014.
All levels of management have been refocused on the importance of client responsiveness and of developing multiple level relationships.
As discussed above, a number of the Group's clients operate in the oil and gas sector and as such may be negatively affected by recent falls in oil prices.
Mitigation
Potential margin pressures or reduction in revenue due to cuts in upstream investment driven by the oil and gas price falls are mitigated by the diversity of market sector exposure set out in the market risk section below and by steps being taken to reduce the overhead cost base to ensure it remains correctly sized to deal with pressures in the market.
These external factors are normally likely to affect a specific location, client relationship or a single contract. Cape's business is diverse by geography, number of client sites, range of services and exposure to industries or sectors. This portfolio diversification reduces the impact of Cape's overall exposure to individual risks and uncertainties.
Cape's policy is to avoid a concentration of activity in markets/regions which it assesses as high risk.
Risk is mitigated by a strong senior management presence in each region and particularly where risks are identified, regions operate in close communication with central management.
Local legal counsel is regularly engaged to ensure compliance with local legislation and to advise managers on actual or potential changes in legal or regulatory framework.
We monitor carefully any changes in sanctions and political regimes that might impact on our business. Cape has an in-house Head of Security, who is responsible for security coordination in higher-risk territories and we have expanded our use of specialist consultancies to advise us and when necessary, provide protection.
Opportunities
Opportunities could exist if perceptions of risk differ from the reality.
Existing and potential risks often differ between regions of a country and the specific locations where Cape staff work are kept under regular review.
Mitigation
Cape's top ten clients accounted for 42% of Group revenues in 2014 (2013: 40%), with the largest customer accounting for 15% of Group revenues (2013: 11%). Cape has a broad customer base, with circa 95 clients (2013: 105) each contributing more than
£1 million of annual revenue. Cape seeks to maintain a widespread, stable and balanced customer profile.
Cape has developed long-standing relationships with clients, based on service quality, reliability and safety. These relationships are at multiple levels from site supervisors to senior management. Strong 'client responsive' relationships support revenue retention and growth through on-going contract award and renewal. In most existing markets Cape has a relatively small market share.
Most contracts cover a multi-year engagement and are for work of a long term nature. Cape, therefore, has limited exposure to fluctuations in the spot price of any one energy product, or its short term demand.
Cape is firmly positioned in the downstream energy infrastructure, power generation and later cycle production markets. These markets are less sensitive to changes in oil and gas pricing than upstream, exploration segments. The majority of the Group's exposure to the upstream market is in the provision of maintenance services which are typically less affected by variations in oil price than capital expenditure projects.
In some industries, there is a counter-cyclical effect with extra maintenance (outages) required when demand falls or spot prices decline.
Cape's wide range of essential services ensures it can serve clients' needs through the lifecycle of the production asset, whether related to installation, maintenance, extension of life or decommissioning.
Opportunities
Strong customer relationships based on consistent high service levels produce opportunities to cross-sell additional services and to sell into new locations.
Innovative maintenance solutions allow assets to remain live, saving production costs for clients.
Health, Safety and Environmental (HSE) risks
Achievement of HSE excellence and inherent site dangers
Description and potential impact
Many clients have assets or sites with associated health and safety risks (offshore platforms, refineries, and power stations). Failure to maintain the highest Health, Safety and Environmental (HSE) standards on-site could result in injury to our employees or others involved in site operations. Failure to deliver HSE excellence could result in a material loss of clients and/or damage to Cape's reputation and the environment.
Evolution in 2014
The Group's HSEQ instructions are continually reviewed by the global teams ensuring easy, secure access is made available at all site operations.
Mitigation
Cape values its excellent reputation for safety and HSE related matters around the world. Cape's investment in systems and resources, with around 412 (2013: 455) people in full-time HSE roles across the Group, continues to deliver a superior performance in accident prevention, working days lost and environmental incidents.
Occupational health and safety performance continues to be ahead of the industry norms with a TRIR of 1.028 per 1,000,000 hours worked (2013: 0.92) for the Group as a whole.
Through both its training centres and on-site training courses, Cape invests a considerable amount in improving staff skills. This helps retain key staff through regular progression, helps reduce skills shortages and improves safety performance.
Opportunities
Demonstration of an excellent HSE performance is increasingly becoming a pre-qualification requirement for most large oil, gas, mineral and power generation tenders.
Skill shortages and HR risks
Recruitment, development and retention of key managers, supervisors or skilled employees
Description and potential impact
The loss of key managers, supervisors or skilled employees, may adversely affect Cape's business. Cape's ability to successfully operate and grow the business is largely dependent on its ability to attract and retain high-quality personnel. An inability to attract and retain well-qualified and skilled personnel could materially adversely affect Cape's business, operating results or financial condition.
The lack of capacity, capability or competence of Cape managers would have a significant adverse impact on the business.
Evolution in 2014
Operational excellence and other initiatives to attract, retain and develop key staff commenced in 2013 and will continue into 2015 including:
- development of the Cape culture of 'doing things the right way'
- standardisation of corporate recruitment and other HR processes, including mandatory business conduct and anti-bribery training
- enhanced remuneration review processes and long term incentive plan
- improved staff performance review and management development processes
- improved business review regime
- introduction of matrix management and cross business training
- appointment of Asia based COO to supervise the more remote locations.
Mitigation
Cape's regionalised organisational structure provides considerable management autonomy and opportunity for supervisors and managers to develop within the business. This has both advantages and risks, so to gain the advantages, while mitigating the risks, the Group is taking the following steps:
Operational management is focused on working to the same high standards across all operations by standardising procedures and focusing on operational excellence, identifying and embedding best practice processes across the Group and by implementing more disciplined controls. The project delivery system (PDS) launched in 2014, for all new large projects worldwide, is a practical example of this approach.
The Future and Senior Leaders Programmes were introduced to provide and hone the skills managers need to effectively perform their roles and progress to the highest level in the organisation. The Cape Management
Training Scheme has been introduced to provide a regular pipeline of talent for key project and management roles across the Group. Annual performance appraisals are conducted to assess executives' performance and to discuss career goals. All these processes have continued to be reviewed and improved in 2014.
Formal project and operational reviews take place monthly. The Executive Committee meets regularly to review the results and share best practice, with the near-term focus continuing to ensure that robust processes are in place throughout the business together with controls to ensure those processes are being followed.
Senior Executive remuneration is reviewed against market data provided by specialist remuneration consultants to ensure awards are competitive. Long term incentive plans are in place to encourage the retention of the key management group.
Opportunities
Retaining talented staff and engendering long term loyalty has many advantages to both Cape and staff, including:
- reduced recruitment fees and basic training cost
- efficiency improvements
- retention of knowledge and skill
- growth of discipline and industry specialists
- establishment of a core of in-house trainers
- internal career development paths and opportunities
- improved operational cover, robustness and succession.
Contract acceptance risks
Contracting terms and conditions risk and contract bidding and estimating risk
Description and potential impact
Cape could sign up to contract terms and conditions exposing the Group to excessive financial risks and potential cost overruns. Due to errors in the accurate determination of scope and poor estimates or changes in on-site circumstances, Cape may not be able to recover all costs incurred resulting in an adverse financial performance.
Evolution in 2014
The Group General Counsel together with the Commercial Director, appointed in 2014, are responsible for ensuring group-wide legal risk assessment standards compliance in new contract negotiations and subsequent contract variations.
Mitigation
Cape seeks to avoid higher risk lump sum or fixed rate contracts, with the large majority of contracts being cost reimbursable or at scheduled rates. To ensure contractual risk/ reward is assessed consistently, contract acceptance and authorisation procedures and controls have been significantly strengthened with the introduction of contract risk registers, and the in-house Bid Approval Model (BAM) approval and tracking software.
The Group seeks to avoid the acceptance of liabilities that are unquantifiable or for which Cape could not reasonably be regarded as responsible, including customer or other party delays, liquidated damages, direct and indirect consequential losses. The adequacy of insurance covers is reassessed annually. Senior Executive remuneration is reviewed against market data provided by specialist remuneration consultants to ensure awards are competitive. Long term incentive plans are in place to encourage the retention of the key management group.
Opportunities
Improved contract acceptance risk management will have a long term beneficial effect on gross margin.
Operational risk
Operational and project performance risks
Description and potential impact
Actual project performance may differ materially from 'as bid' or forecast performance.
The Group's financial performance could be significantly affected by the performance of a relatively small number of large contracts.
Evolution in 2014
The onerous contract identified in 2013 continues to be challenging and as such the provision taken on the contract has been increased, however the project team continue to make good progress and we anticipate completing the project in line with client expectations.
The newly appointed Commercial Director, together with the Asia based Chief Operating Officer regularly review and supervise all major projects.
Mitigation
The Group has a strong track record of successful project execution which reflects a practical and client-focused approach to both construction and maintenance project management. In response to certain
construction project performance issues during 2012 and 2013 the 'Operational Excellence' initiative commenced. Some operational excellence benefits were evident in 2013 and 2014, but they will largely impact 2015 and future years, and include:
- a professional approach to contract bidding and contract management, including
in-house training of project managers to gain APM professional qualifications
- recognition of project management as a key competence within Cape, and management of this resource Capewide
- development of a project management toolkit for new projects, including standardised project planning and delivery system framework (PDS) and a standardised site IT system with KPIs
- initiating regular, standardised, detailed reviews of projects and cost to complete calculations in all businesses with risk based escalation and overriding regional and central reviews.
Opportunities
Improved project management will improve the consistency of project execution, which will improve customer perception and so have a long term beneficial effect on gross margin.
Investment and asset integrity risks
Unacceptable return on assets or investments; inadequate control over assets or investments; and inadequate visibility or reporting over operations or assets
Description and potential impact
Failure to achieve satisfactory returns on assets, acquisitions, joint ventures, partnership arrangements and other investments.
Inadequate management and financial controls leading to loss of operational control, loss of assets, loss of financial data or loss of the integrity of data.
Disparate and old IT systems across much of Cape are a risk to management and financial control and prevent management at all levels from optimising business performance.
Evolution in 2014
The Group General Counsel has improved the in-house legal advice available for strategic investment structuring, during investment negotiations. He is also focusing on improving Governance over existing joint ventures and investments.
Detailed mobile asset control processes and asset counts have been tightened, with further tightening planned for 2015.
An experienced asset manager was appointed in 2014 to co-ordinate asset demand and supply worldwide as well as setting enhanced standards for asset procurement and condition.
An Infrastructure Manager was appointed in 2014 and the communications backbone has been improved, allowing MS Office 365 and Lync communication software to be deployed to managers worldwide to improve visibility and communication
Mitigation
Cape carries out detailed assessments and reviews of existing and potential acquisition, joint venture, partnership arrangements and other investments including external legal and financial diligence, where appropriate.
To assess and to help mitigate these risks Cape has a high quality and experienced commercial, operations, finance, acquisitions, internal audit, tax and treasury team that operate at Group level and across the regions.
UK and ME IT servers are located at professionally hosted data centres that operate to robust internationally recognised service and security standards.
Work has commenced on the scoping out of a uniform ERP system that will link with existing site systems for eventual worldwide implementation.
Opportunities
An increasingly professional approach to investment decision-making, management and control adds value by improving the return on capital employed.
Better forecasting and co-ordination of assets will improve asset utilisation and gross margin, as well as cash flow through reduced capex.
A uniform ERP system will significantly improve management's visibility of operations and financial results.
Compliance and business conduct risks
Breach of applicable laws and regulations; business integrity and ethical conduct risk; failure to obtain/renew key licences and permits; and failure to manage key relationships
Description and potential impact
Breach of applicable laws and regulations including tax, anti-bribery and anti-corruption, competition and business conduct laws and failure to file necessary statutory and regulatory returns. Failure to renew key operating licences and permits, including asbestos removal and waste transfer licences. Failure to manage key corporate relationships including those with key customers, joint venture partners, investors, the Scheme shareholder and Scheme trustee directors, banking syndicate and pensions trustees.
Evolution in 2014
The Group General Counsel continues to focus on compliance, legal risk management and business integrity and ethics. The executive management team is increasingly focused on building strong relationships with all key stakeholders.
Mitigation
To assess and manage these corporate risks Cape has high-quality and experienced finance, investor relations, corporate, internal audit, tax, treasury, legal and compliance teams that operate at Group level and across the regions. Strengthening of key customer account management along with customer needs and satisfaction reviews continues.
Opportunities
Good legal compliance and improved corporate relationships will increase certainty and stability allowing management focus to shift towards strategic business development and growth.
General financial risks
IDC and financial risks
Description and potential impact
To assess and manage these corporate risks Cape has high-quality and experienced finance, investor relations, corporate, internal audit, tax, treasury, legal and compliance teams that operate at Group level and across the regions. Strengthening of key customer account management along with customer needs and satisfaction reviews continues.
Mitigation
To assess and to help mitigate these risks Cape has a high-quality and experienced finance, acquisitions, internal audit, tax and treasury team that operate at Group level and across the regions.
Appendix 3: Related party transactions
Details of directors' emoluments are shown in note 37 'Related party transactions' to the consolidated financial statements and in the Directors' Remuneration Report on pages 64 to 76.
There have been no material transactions with the Company and other related parties during the year.
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