Cape : 26 Aug 2015 Interim Results

RNS Number : 0794X

Cape plc

26 August 2015

Embargoed: 0700hrs, 26 August 2015

Cape plc

('Cape' or 'the Group')

Interim Results

Cape plc, 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 5 July 2015.

On track despite challenging market conditions

Financial summary

1 H1 2015 comprises 27 weeks of performance in comparison to the 26 weeks in H1 2014 as detailed in note 2.

2 Restated for the reclassification of Kazakhstan to discontinued operations as detailed in note 2.

Highlights

· Overall trading performance in line with expectation:

o UK, Europe & CIS region performed in line with expectation, with weakness resulting from the impact of the low oil price on the UK offshore market being offset by the benefits from recent acquisitions

o MENA region performed ahead of expectation, driven by strong operating margins across the region

o Asia Pacific region performed below expectation largely driven by lower than expected volumes and aggressive pricing in the Australian market

· Order intake during the first half increased by 26% to £399m (H1 2014: £317m)

· Order book £800m at period end (29 June 2014: £643m, 31 December 2014: £746m)

· Revenue increased by 13% to £362.6m (H1 2014: £320.3m)

· Adjusted operating profit increased by 8% to £24.9m (H1 2014: £23.0m) with adjusted operating margin decreasing by 30bps to 6.9%

· Period-end adjusted net debt of £131.3m (29 June 2014: £132.0m, 31 December 2014: £101.0m), driven by the seasonality of the UK
power market and the acquisition of Redhall Engineering Solutions Limited

· Adjusted diluted earnings per share from continuing operations was 13.0p (H1 2014: 12.8p)

· The Group has declared an interim dividend of 4.5p (H1 2014: 4.5p) per share

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

'I am pleased to report results for the first half of the year in line with expectation. Our balanced business and drive for operational excellence has enabled us to achieve a robust performance against a backdrop of mixed market conditions. We anticipate that we will deliver a full year performance in line with expectation and believe that our strategy leaves us well placed to capitalise on the opportunities we see ahead of us.'

Throughout this document, various management measures are used and referred to as adjusted. These are defined and reconciled within note 6 'Adjusted measures'.

Analyst meeting

The Group will be presenting to a meeting of analysts at 9.30am today at the office of Buchanan, 107 Cheapside, London, EC2V 6DN. The presentation will shortly be available on the Company's website at:www.capeplc.com/investors/financial-results-and-presentations.aspx

Enquiries

Forward looking statements

Any forward looking statements made in this document represent the Board's best judgement as to what may occur in the future. However, the Group's actual results for the current and future fiscal periods and corporate developments will depend on a number of economic, competitive and other factors, some of which will be outside the control of the Group. Such factors could cause the Group's actual results for future periods to differ materially from those expressed in any forward looking statements included in this announcement.

About Cape:

Cape (www.capeplc.com), which is premium listed on the main market of the London Stock Exchange, is an international leader in the provision of critical industrial services principally to the energy and natural resources sectors. Our multi-disciplinary service offering includes access systems, insulation, specialist coatings, passive fire protection, refractory linings, environmental services, oil and gas storage tanks and heat exchanger replacement and refurbishment.

Cape employs c. 17,500 people working across 21 countries and in 2014 reported revenue of £698.3 million.

INTERIM MANAGEMENT REVIEW

Summary

Cape is pleased to report that the Group has delivered an overall trading performance for the first half of 2015 in line with the Board's expectation. The focus for the remainder of the year is to continue to make the revenue and capital investment required to deliver our medium and long term growth strategy, whilst ensuring the business is correctly sized and positioned for the current economic climate that impacts our sector. The Board has declared an unchanged interim dividend of 4.5p per share.

Order intake for the first half of 2015 increased by 26% to £399 million (H1 2014: £317 million), primarily due to the award of a two-year maintenance contract renewal with BP in the UK, a five year contract award with ExxonMobil for multidisciplinary services at Fawley, UK and a continued strong performance in the MENA region. Pleasingly, the SOCAR-Cape joint venture also had a successful start to 2015 with the award of three significant contracts in Azerbaijan with an aggregate value of over $65 million for the joint venture. Order intake remained subdued across the Asia Pacific region with demand in the oil and gas sector impacted by the low oil price and low commodity prices putting continued pressure on the Australian mining sector.

The Group's order book was £800 million as at 5 July 2015 in comparison to £746 million at 31 December 2014 and £643 million at 29 June 2014. The reported order book excludes order book value associated with joint ventures.

Group revenue from continuing operations increased by 13% to £362.6 million (H1 2014: £320.3 million). Positive foreign exchange movements accounted for 2% of this increase and acquisitions accounted for 4%, with the underlying 7% increase being largely driven by the ramp-up of volume on the Wheatstone project in Western Australia.

Adjusted operating profit from continuing operations increased to £24.9 million (H1 2014: £23.0 million) with adjusted operating margin decreasing slightly to 6.9% (H1 2014: 7.2%).

The UK, Europe & CIS region performed in line with expectation, with revenue slightly higher than prior year, offset by reduced margins, largely due to increased pricing pressure in the oil and gas market.

The MENA region performed very well, with an adjusted operating margin of 16.8% (H1 2014: 13.0%) driven by strong trading performances from all the major countries within the region. We continued to make solid progress on the onerous contract in Qatar and as at the end of June the project was 81% complete. Productivity since then has been affected by adverse weather conditions; nonetheless we continue to expect that the project will be completed during the second half of 2015.

Although the Asia Pacific region delivered an improved performance compared to prior year, this fell short of the Board's expectation, largely due to a deterioration in market conditions in the Australian mining sector and a slower than expected ramp-up of volume on the Wheatstone project.

The Group achieved an adjusted operating cash inflow for the first half of 2015 of £1.2 million (H1 2014: £2.7 million outflow), with a working capital increase of £21.2 million which is expected to reverse in the second half of the year. Adjusted net debt of £131.3 million (H1 2014: £132.0 million, 31 December 2014: £101.0 million) has been impacted by the cash outflow of dividends paid, the acquisition of Redhall Engineering Solutions Limited ('RESL') and the investment in the SOCAR-Cape joint venture.

Progress on strategy

Our focus on Operational Excellence continues in 2015 and remains central to delivering both quality services to our customers and consistent returns to our shareholders. This drive for operational effectiveness and efficiency is even more critical given the current challenging economic conditions in a number of our markets. In light of these challenging markets, the Group has already taken action to reduce overhead costs in both its UK and Australian businesses in order to ensure they are appropriately structured for the current level of demand.

An important element of the Group's strategy is to have a balanced business both across a number of geographies and between maintenance and construction project work. This diversity provides a resilience to a downturn in any one sector or geography and has allowed the Group to perform well despite the effects of the weakness in oil and other commodity prices.

A key element of the Group's strategy is to expand the range of services we offer to our clients and we made further progress on this with the acquisition of RESL in May 2015. RESL predominantly operates in the process and downstream, oil and gas industries and provides a range of maintenance services including specialist pipe repair, tank repair and shutdown services. Following the acquisition of Motherwell Bridge in 2014, we are now seeking to deliver these services across our international footprint. Our initial focus has been to deliver Motherwell Bridge's services into the Middle Eastern market and we are now starting to gain traction with an increasing volume of enquiries and bids from this region, albeit progress has been slower than we had hoped.

We are continuing to make good progress on expanding our geographical footprint and are in the process of establishing operations in new countries in both Asia and the Middle East.

Financial overview

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

Revenue from continuing operations increased by 13% to £362.6 million (H1 2014: £320.3 million) of which 2% relates to foreign exchange movements and 4% from acquisitions of Motherwell Bridge and RESL. The underlying increase of 7% was largely driven by increased volume in Australia from the ramp-up of activity levels on the Wheatstone project, with both the UK, Europe & CIS, and MENA regions delivering steady volumes compared to the prior year.

Adjusted operating profit from continuing operations increased to £24.9 million (H1 2014: £23.0 million) driven by:

· a 7% benefit from a full half year of Motherwell Bridge and the 2015 acquisition of RESL

· a 3% favourable impact of foreign exchange

· a strong performance in MENA with operating margin increasing to 16.8% (H1 2014: 13.0%)

· the benefit from the increased volume resulting from the ramp-up of activity on the Wheatstone project

· increased costs associated with the early completion of a number of UK North Sea projects and lower margins on ongoing North Sea maintenance work

· reduced margins in Australia as a result of increased pricing pressure

· central cost increase largely due to foreign exchange losses and investment in compliance and controls

Adjusted diluted earnings per share from continuing operations was 13.0 pence (H1 2014: 12.8 pence) on adjusted earnings attributable to equity shareholders of £15.8 million (H1 2014: £15.6 million).

Regional review

The Group reports its financial results from a geographic perspective under three reporting regions.

Throughout this document, various management measures are used and referred to as adjusted. These are defined and reconciled within note 6 'Adjusted measures'.

1 H1 2015 comprises 27 weeks of performance in comparison to the 26 weeks in H1 2014 as detailed in note 2.

2 Restated for the reclassification of Kazakhstan to discontinued operations as detailed in note 2.

UK, Europe & CIS

Market conditions

Market conditions across the UK, Europe & CIS region remain mixed. The fall in the price of oil in the final quarter of 2014 has resulted in a significant impact on the North Sea market with reduced project and refurbishment volumes and increased pricing pressure in the maintenance market. Although the lower oil price has also affected the volume of tank refurbishment, with several projects being deferred, the downstream and petrochemical market has remained robust in the UK and is anticipated to remain so in the foreseeable future. As previously reported, the UK coal power sector has weakened with the announcement of earlier than expected closures of older coal fired generation assets and a resultant downscaling of outage works on those assets.

The market in Azerbaijan remains robust with a number of large projects currently underway and the region remains committed to further oil and gas investment, as evidenced by Total's development of the Absheron field scheduled to start in 2017 and BP's commitment to three major field developments within the Caspian region.

Results

Order intake grew strongly to £235 million, 53% ahead of prior year (H1 2014: £154 million) largely driven by the two year BP maintenance renewal announced in May 2015 and the five year contract with ExxonMobil at the Fawley refinery announced in April 2015. Other important contract wins included a contract to construct a new 60m diameter gasholder for Tata in Scunthorpe and the renewal of a five year maintenance contract with Sakhalin Energy Investment Company.

Revenue increased 9% to £194.9 million (H1 2014: £179.3 million) with a 7% benefit from the full period impact of the Motherwell Bridge acquisition completed in March 2014 and the acquisition of RESL completed in May 2015. The underlying increase of 2% was largely driven by the phasing of project and shutdown work in the UK onshore business.

The region continues to be predominantly maintenance based with 88% (H1 2014: 86%) of revenues derived from maintenance markets.

Adjusted operating profit margin decreased to 8.1% (H1 2014: 8.8%) largely driven by costs associated with the early demobilisation from a number of UK North Sea projects and pricing pressure in the UK oil and gas sector. As previously reported, the UK has taken steps to reduce overhead costs to ensure the business is correctly sized for the current market, the cost impact of which has affected the first half of the year but is expected to deliver a benefit in the second half of the year.

Azerbaijan had a strong start to 2015 with the award of significant project work through the SOCAR-Cape joint venture which is expected to be worth in excess of $65 million; in line with our accounting policy this is excluded from the Group order intake and order book. The SOCAR-Cape joint venture is progressing well with a significant increase in revenue in the first half of the year and a small profit reported in the period.

The region received a number of awards during the first half of 2015 most notably being recognised by ExxonMobil with a Golden Tiger award for Health and Safety performance and the Supplier of the Year award from EDF in the UK.

Middle East & North Africa (MENA)

Market conditions

Overall demand for the Group's services within the MENA region remains robust. The Kingdom of Saudi Arabia ('KSA') continues to be the main driver for new construction demand, although the UAE, Kuwait and Oman have all confirmed commitment to significant capital investment over the medium term, predominantly focused on the downstream oil and gas sector. Overall the maintenance market across the region remains solid.

Results

Order intake grew strongly to £124 million, 27% ahead of prior year (H1 2014: £98 million) driven by a number of maintenance renewals in Qatar including a five year award from QNFS for RasGas and a large number of smaller construction contract awards in KSA. Bidding activities remain high with a number of opportunities for both maintenance and construction contracts across the region.

Revenue increased 7% to £95.4 million (H1 2014: £89.1 million). The business benefited from a 9% favourable impact of foreign exchange with the underlying decrease of 2% being driven by a reduction of volume in construction work in UAE partially offset by the increase in maintenance and shutdown activity in Qatar. KSA revenue remained in line with prior year.

The drive to grow our maintenance business in the region continues to deliver results with maintenance revenues growing strongly to £48 million in the period (H1 2014: £36 million). As a result, maintenance and shutdown volumes represented 50% of regional revenue in the first half (H1 2014: 40%).

Adjusted operating profit grew very strongly to £16.0 million, a 38% increase on prior year (H1 2014: £11.6 million) with an 8% favourable impact of foreign exchange and an underlying increase of 30% driven by a significant improvement in operating margin to 16.8% (H1 2014: 13.0%) which is expected to return to a more normalised range of 12-13% in the second half of the year. The three main countries within the region, KSA, UAE and Qatar, all delivered improved operating margins compared to prior year with a particularly strong trading performance in KSA resulting from the completion of a number of contracts within the period. We continued to make solid progress on the onerous contract in Qatar and as at the end of June the project was 81% complete. Productivity since then has been affected by adverse weather conditions; nonetheless we continue to expect that the project will be completed during the second half of 2015.

The Group has continued to be recognised in the region with a number of awards including from Chevron Phillips in Qatar for outstanding safety performance and Daelim's Award Shield for achievement of 10 million man-hours without a lost time injury in the Sadara MFC project.

Asia Pacific

Market conditions

Market conditions within the Asia Pacific region are weaker than previously expected. Although demand from the LNG construction market in Australia is increasing, this is at a slower pace than had previously been anticipated and this increase is being offset by a reduction in demand from the iron ore sector, accompanied by severe pricing pressure. Construction activity in Asian yards of modules for the Australian LNG industry is steady and this is expected to continue through 2015.

Results

Order intake was subdued at only £40 million, 38% below prior year (H1 2014: £65 million) as few new contracts were available and the business was unable to secure the maintenance contract with BHP for its iron ore sites in North West Australia due to severe price competition from local competitors during the retendering process.

Revenue increased by 39% to £72.3 million (H1 2014 £51.9 million), with 40% organic growth primarily due to the ramp-up of the Wheatstone project marginally offset by a 1% reduction as a result of unfavourable foreign exchange movement. Activity on the Wheatstone project has increased at a slower rate than previously anticipated due to the timing of work releases; however, activity on the project is expected to ramp-up further in the second half of 2015 before reaching peak manning levels midway through 2016. Within Asia, the business benefitted from increased volumes on LNG module work in Thailand for the Inpex project and on the Bayu Undan AIMS campaign.

Region operating profit increased by 43% compared to prior year with an adjusted operating profit of £2.0 million (H1 2014: £1.4 million). Of the movement, 10% was a result of favourable foreign exchange impact with a resultant 33% of organic growth largely driven by the volume increase with a small improvement in operating margin to 2.8% (H1 2014: 2.7%). The region has implemented overhead cost reductions to mitigate the effects of the downturn in economic conditions in Australia. The majority of the cost associated with this restructuring was expensed in the first half of 2015 and the benefit is expected to be seen in the second half of this year.

Outlook

Given the current order book cover for the remainder of 2015, the Board anticipates that the full year performance will be in line with expectation. A continued ramp-up of activity on the Wheatstone project and a full six month contribution of the RESL acquisition will offset continued weakness in the North Sea market and a return to a more normalised margin in the MENA region.

The current market volatility continues to give uncertainty to the outcome of 2016; however, the Board expects that demand is likely to be similar to the current year with mixed market conditions in the UK, and weakness in Asia Pacific offset by robust demand in Azerbaijan and the MENA region. The Board continues to believe that the strategy the Group is following will deliver growth in the medium and long term.

Financial review

Revenue

Revenue from continuing operations increased by 13% to £362.6 million (H1 2014: £320.3 million). The elements contributing to this increase include a combined 4% benefit from the acquisition of RESL in May 2015 and reporting the full half year of Motherwell Bridge results, a 2% favourable foreign exchange movement and the underlying organic increase of 7%, primarily driven by the ramp-up of the Wheatstone project.

In line with our strategy to increase maintenance revenue in absolute terms, revenue from maintenance contracts increased to £259 million or 71% of total revenue (H1 2014: £229 million or 71% of total revenue). Revenue invoiced to the largest client represented 12% of total revenue (H1 2014: 16%) relating to activities in all regions and the top 10 clients represented 44% of revenue (H1 2014: 46%).

Adjusted operating profit

Adjusted operating profit from continuing operations increased by 8% to £24.9 million (H1 2014: £23.0 million). The benefit of Group wide revenue growth and strong margin performance in the MENA region was more than offset by UK customer pricing pressures and an increase in central costs largely due to foreign exchange revaluation losses and investment in compliance and control. Favourable translational foreign exchange movements accounted for a 3% growth in the adjusted operating profit from continuing operations and there was a 7% combined benefit from the acquisition of RESL in 2015 and reporting a full half year of Motherwell Bridge.

Other items

Other items increased to £1.9 million (H1 2014: £1.3 million) comprising £0.2 million of Industrial Disease Claims ('IDC') costs (H1 2014: £0.1 million) and £1.7 million (H1 2014: £1.2 million) of post-acquisition charges, including amortisation of acquired intangible assets relating to Motherwell Bridge and RESL.

Share of post-tax profit from joint ventures

The post-tax profit of £0.1 million (H1 2014: £nil) is attributable to the joint ventures in the UK, Europe & CIS region.

Exceptional items

Exceptional items total £0.4 million (H1 2014: £0.8 million) and comprise transaction costs relating to acquisitions.

Operating profit

Operating profit from continuing operations was £22.6 million (H1 2014: £20.9 million) comprising an adjusted operating profit of £24.9 million (H1 2014: £23.0 million) less other items of £1.9 million (H1 2014: £1.3 million) and exceptional items of £0.4 million (H1 2014: £0.8 million).

Finance costs

Net finance costs increased to £5.2 million (H1 2014: £4.2 million) including a £1.7 million (H1 2014: £1.7 million) non-cash charge relating to the unwinding of the discount on the long-term IDC provision, interest income on the IDC scheme funds in the period of £0.2 million (H1 2014: £0.3 million) and interest income on the defined benefit pension assets of £0.2 million (H1 2014: £0.4 million).

Adjusted finance costs increased to £3.9 million (H1 2014: £3.2 million) with interest cover (calculated by dividing adjusted operating profit by the adjusted finance costs) marginally decreasing to 6.4 times (H1 2014: 7.2 times).

Profit before tax

Profit before tax from continuing operations was £17.4 million (H1 2014: £16.7 million) reflecting an operating profit of £22.6 million (H1 2014: £20.9 million) less net finance costs of £5.2 million (H1 2014: £4.2 million).

Taxation

The tax charge on business performance profit before tax was £4.5 million (H1 2014: £3.9 million) equating to an effective tax rate of 21%.

Discontinued operations

The result from discontinued operations in the first half of 2015 is £nil. The prior period result relates to the termination of operations in Kazakhstan and India.

Earnings per share

For continuing operations adjusted diluted earnings per share were 13.0p (H1 2014: 12.8p) and adjusted basic earnings per share were 13.0p (H1 2014: 13.0p). For total operations the basic earnings per share were 10.3p (H1 2014: 10.4p). The diluted weighted number of shares decreased to 121.1 million (H1 2014: 122.6 million).

Dividend

Taking account of these financial results, current market conditions and the underlying prospects of the Group, an interim dividend of 4.5p per share, in line with the 2014 interim dividend (H1 2014: 4.5p), was approved by the Board on 25 August 2015. The dividend will be payable on 9 October 2015 to shareholders on the register as at 11 September 2015.

Adjusted operating and free cash flow1

* At average rates

1 The Interim Condensed Consolidated Cash Flow Statement is available within the primary statements of this document, and is supported by note 17 of these interim results.

2 H1 2015 comprises 27 weeks of performance in comparison to the 26 weeks in H1 2014 as detailed in note 2.

3 Restated for the reclassification of Kazakhstan to discontinued operations as detailed in note 2 and the presentation of the investment in SOCAR-Cape joint venture.

Working capital

Investment in trade and other receivables and inventories increased by £32.3 million to £247.6 million (31 December 2014: £215.3 million) although slightly offset by an increase in trade and other payables of £4.3 million to £128.6 million (31 December 2014: £124.3m) resulting in an overall increase in net working capital of £28.0 million (at balance sheet rates) to £119.0 million. Key drivers to the working capital increase are:

· seasonality of the UK power industry, which is expected to reverse in the second half of the year

· acquired working capital from RESL

· investment in the joint venture with SOCAR

· increased working capital investment in the MENA region

Capital expenditure

Gross capital expenditure was £7.4 million (H1 2014: £7.1 million) reflecting the continuation of the UK system scaffold investment programme as well as expenditure in the MENA and Asia Pacific regions to meet project scaffold demand. The Asset Replacement Ratio (calculated by dividing gross capital expenditure spend by the depreciation charge) decreased to 94% (H1 2014: 103%).

Acquisition

As previously announced, on 13 May 2015 the Group acquired RESL for an enterprise valuation of £6.2 million including debt of £5.3 million and a working capital contribution of £0.7 million. The business predominantly operates in the process and downstream, oil and gas industries and provides a range of maintenance services including specialist pipe repair, tank repair and shutdown services. The provisional fair value of net liabilities acquired was £2.1 million and goodwill of £2.3 million has been recognised on acquisition, as detailed in note 14. The goodwill of £2.3 million arising from the acquisition is attributable to the value of the assembled workforce, expected synergies and other benefits arising from combining the RESL operations into the Group.

Financing

The Group's adjusted net debt decreased by £0.7 million at 5 July 2015 to £131.3 million compared to the same period in the prior year (29 June 2014: £132.0 million) including finance lease obligations of £2.9 million (29 June 2014: £2.2 million). This includes the total cash outflow of £6.2 million on the acquisition of RESL as well as a £2.4 million prepayment of banking fees relating to the banking facility entered into in February 2014 (29 June 2014: £3.2 million). Balance sheet gearing, excluding ring-fenced IDC Scheme funds, increased to 103% (31 December 2014: 79%; 29 June 2014: 101%).

Provision for pensions

The defined benefit pension scheme had a net surplus of £12.2 million as at 5 July 2015 (H1 2014: £16.9 million) and continues to be restricted to £nil in the accounts under IFRIC 14. The agreed monthly contribution rate has been maintained at £14,600.

Provision for estimated future asbestos related liabilities and IDC Scheme funds

The discounted provision decreased to £96.4 million (31 December 2014: £98.2 million) reflecting the unwinding of the discount of £1.7 million in the half year (H1 2014: £1.7 million) and £3.5 million (H1 2014: £3.5 million) utilised in the period.

The ring-fenced IDC Scheme funds reduced by £2.4 million (H1 2014: £1.9 million reduction) comprising cash settlements and costs paid to scheme claimants of £2.6 million (H1 2014: £2.0 million) with cash interest received of £0.2 million (H1 2014: £0.1 million) of which £0.2 million (H1 2014: £0.1 million) relates to income interest in the period, shown as finance income other items in the Condensed Consolidated Income Statement.

Other provisions

Other provisions have fallen from £20.6 million at 31 December 2014 to £16.8 million as at 5 July 2015 as a result of acquisitions of £0.6 million offset by utilisations of £2.8 million, net releases to income statement of £1.5 million and foreign exchange of £0.1 million.

Related parties

As at 5 July 2015, there was a balance of £11.5 million (H1 2014: £5.4 million; 31 December 2014: £6.4 million) owed by joint ventures.

Currencies

Nearly all operating costs are matched with corresponding revenues of the same currency and as such there is little transactional currency risk in the Group. Currency translation had a 2% favourable impact on revenue for the half year, due to weakening of the UK pound against the US dollar having a greater effect than the strengthening of the UK pound against the Australian dollar.

The following significant exchange rates applied during the half year:

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 industries and the environments in which it undertakes its operations around the world. Those risks range from external geopolitical, economic and market risks to operational risks including HSE, contracting, project execution and generic financial risks. The price of oil has remained low in 2015; the Group has assessed this risk and will continue to monitor the situation closely and respond with mitigating actions as appropriate.

There is uncertainty associated with the future level of asbestos related industrial disease claims and of the costs arising from such claims. The risks relating to industrial disease claims are described in more detail in notes 4(iii) Estimates and 19 to the interim condensed consolidated financial statements.

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, which included a review of the risk profile of the operations acquired through the RESL acquisition. 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 16 to 23 of the 2014 Annual Report.

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 Officer Chief Financial Officer

25 August 2015 25 August 2015

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 half 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 Annual Report and Accounts. During the current year Samantha Tough and Steve Good were appointed as directors, on 1 January and 6 July respectively, Brendan Connolly did not stand for re-election at the AGM and left the Board on 12 May and Leslie Van de Walle has resigned as a director with effect from 26 August 2015.

For and on behalf of the Board of Directors.

Joe Oatley Michael Speakman

Chief Executive Officer Chief Financial Officer

25 August 2015 25 August 2015

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 period ended 5 July 2015 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 related 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 (UK and Ireland) 2410 '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 (UK and Ireland) 2410, '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 period ended 5 July 2015 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

25 August 2015

Reading

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE PERIOD ENDED 5 JULY 2015

1Restated for the reclassification of Kazakhstan to discontinued operations as detailed in note 2.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 5 JULY 2015

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE PERIOD ENDED 5 JULY 2015

1Restated for the reclassification of liabilities directly associated with disposal group held for sale as detailed in note 2.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 5 JULY 2015

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 29 JUNE 2014

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE PERIOD ENDED 5 JULY 2015

1Restated for the reclassification of Kazakhstan to discontinued operations and the presentation of cash flows relating to acquisition

related costs and loans to joint ventures as detailed in note 2.

2Restated for the presentation of cash flows relating to loans to joint ventures as detailed in note 2.

Notes to the Financial Statements

1. Corporate information

The interim condensed consolidated financial statements of Cape plc and its subsidiaries, collectively 'the Group' for the period ended 5 July 2015 were authorised for issue in accordance with a resolution of the Directors on 25 August 2015.

Cape plc, 'the Company' or 'the Parent', is a limited company incorporated in Jersey and domiciled in Singapore 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 5 July 2015 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 for the period ended 5 July 2015 includes one extra week of performance in comparison to the prior period ended 29 June 2014. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2014 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 2014, except for the adoption of new standards and interpretations effective as of 1 January 2015.

Adoption of new standards and interpretations

Several new standards and amendments apply for the first time in 2015, however they do not have a significant impact on the annual financial statements of the Group or the interim condensed consolidated financial statements of the Group. These new standards and amendments are listed below:

- Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

- Annual Improvements to IFRSs 2010-2012 Cycle

- Annual Improvements to IFRSs 2011-2013 Cycle

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Restatement of prior year comparatives

As a result of the discontinuation of operations in Kazakhstan during 2014, the prior period figures for the period ended 29 June 2014 in the interim condensed consolidated income statement and the interim condensed consolidated cash flow statement have been restated, together with any associated notes. The comparative amounts in the interim condensed statement of financial position as at 29 June 2014 have been restated to reflect £0.6m liabilities previously netted within assets directly associated with disposal group held for sale.

The comparative amounts in the interim condensed consolidated cash flow statement for the periods ended 29 June 2014 and 31 December 2014 have been restated to include loans to joint ventures of £5.4 million (31 December 2014: £3.6 million) within investing activities. The comparative amounts for the period ended 29 June 2014 has also been restated to exclude acquisition related costs of £0.8 million from the prior period cash flows.

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 2014.

Foreign exchange

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

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 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 and restructuring costs.

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 is less than the present value of expected future cash flows. Assessing the value of the provision requires significant management judgement and review of individual receivables based upon individual customer creditworthiness, current economic trends and analysis of historical bad debts.

(iv) 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.

4. Critical accounting estimates and judgements (continued)

(iii) Provision for industrial disease claims

To the extent that such costs can be reliably estimated, 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. The most recent full actuarial valuation was performed in 2013 and the next full valuation is scheduled to be completed to 31 December 2016. 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 and any other factors which would require a change to the assumptions or trigger a full actuarial review in the current year.

(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

The following tables represent revenue and profit information for the Group's operating segments for the period ended 5 July 2015 and 29 June 2014 respectively:

27 weeks ended 5 July 2015

26 weeks ended 29 June 2014

Restated

Segmental adjusted operating profit/(loss) in the table above is shown after charging franchise fees. Adjusted operating profit/(loss) before franchise fees is set out in note 6.

5. Segment information (continued)

Other segment items included in the interim condensed consolidated income statement for the period ended 5 July 2015 were:

Other segment items included in the interim condensed consolidated income statement for the period ended 29 June 2014 were:

The following table presents assets and liabilities from the Group's operating segments as at 5 July 2015 and 31 December 2014, respectively:

6. Adjusted measures

The Group seeks to present a measure of underlying performance which is not impacted by other items or exceptional 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:

Certain central operations and management are based in the Group's International Headquarters ('IHQ') in Singapore with responsibility for management and development of non-UK intellectual property. Franchise agreements facilitate the charging of franchise fees from IHQ to the Group's non-UK trading businesses with such costs being reported through segment operating profit.

6. Adjusted measures (continued)

The segment adjusted operating profit before franchise fees both before and after inclusion of the share of profit/(loss) from joint ventures is as follows:

7. Other items and exceptional items

a) Other items

b) Exceptional items

8. Discontinued operations

Analysis of the result of discontinued operations is as follows:

Following the termination of operations in Kazakhstan in 2014, discontinued operations for the comparative period have been restated. The previously reported 2014 discontinued revenue of £0.4 million, expenses of £1.0 million and income tax credit of £0.1 million related to India.

9. Finance income and costs

10. Income tax

The Group's effective tax rate on its business performance of 21% (H1 2014: 19%) 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 £0.9m to £4.1m (H1 2014: £3.2m) 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 2015 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 20% from 1 April 2015.

Further, the UK government has announced legislation setting the standard rate of corporation tax at 19% for the years starting 1 April 2017, 2018 and 2019 and at 18% for the year starting 1 April 2020. These rates were not substantively enacted at the balance sheet date and, as such, have not been incorporated into the deferred tax calculations. These further reductions in the tax rate will affect both the future current and deferred tax charge of the Group.

11. Earnings per ordinary share

The basic earnings per share calculation for the half-year ended 5 July 2015 is based on the profit attributable to equity shareholders of £12.4 million (H1 2014: £12.6 million) divided by the weighted average number of 25p ordinary shares of 121,072,777 (H1 2014: 121,007,720).

The diluted earnings per share calculation for the half-year ended 5 July 2015 is based on the profit attributable to equity shareholders of £12.4 million (H1 2014: £12.6 million) divided by the diluted weighted average number of 25p ordinary shares of 121,072,777 (H1 2014: diluted weighted average of 122,597,387). Share options and awards are considered dilutive when the average share price during the period is higher than the average exercise price of the option or award and attainment of attaching performance criteria can be determined with appropriate certainty. The options and awards in the current period are not considered dilutive.

11. Earnings per ordinary share (continued)

The adjusted earnings per share calculations have been calculated after excluding the impact of other items and exceptional items (note 7), finance income and costs associated with industrial disease claims (note 9) and the tax impact of these items. Options are dilutive at the level of adjusted profit from continuing operations level. If options are dilutive, then in accordance with IAS 33, these are treated as dilutive for the purpose of adjusted diluted earnings per share. The options and awards in the current period are not dilutive.

12. Dividend

A final dividend in respect of the year ended 31 December 2014 of 9.5 pence per share, amounting to £11.5 million, was paid in the period ended 5 July 2015.

An interim dividend of 4.5 pence (H1 2014: 4.5 pence) per share, in line with the 2014 interim dividend, was approved by the Board on 25 August 2015. The dividend will be payable on 9 October 2015 to shareholders on the register as at 11 September 2015.

13. Property, plant and equipment

During the period ended 5 July 2015, the Group acquired assets with a cost of £7.4 million (H1 2014: £7.1 million) and received proceeds from asset sales of £0.3 million (H1 2014: £0.6 million) arising from assets with a carrying amount of £0.2 million (H1 2014: £0.6 million). Net capital expenditure of £7.1 million (H1 2014: £6.5 million) shown in the cash flow statement represents the actual cash outflow and therefore excludes purchases funded through finance leases.

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

14. Acquisitions

On 13 May 2015, the Group acquired 100% of the voting shares of Redhall Engineering Solutions Limited ('RESL'), a UK incorporated entity that provides a range of maintenance services including specialist pipe repair, tank repair and shutdown services to the process and downstream oil and gas industries.

The Group acquired the business to supplement both its product portfolio and customer base. The acquisition has been accounted for using the acquisition method.

The provisional fair value of the identifiable assets and liabilities of the acquired entity as at the date of acquisition were:

1This fair value balance sheet is provisional given the limited time since acquisition.

The provisional acquired intangible assets comprise customer related intangibles of £3.1 million. At the date of acquisition, both the gross contractual value and the fair value of receivables was £6.9 million.

The interim consolidated financial statements include the results of RESL from the date of acquisition, contributing £7.7 million of revenue and £0.6 million to the Group's net profit before tax. Had the acquisition taken place on 1 January 2015, revenue from continuing operations would have been £372.6 million and profit before tax from continuing operations for the period would have been £17.7 million.

The goodwill recognised on the acquisition is attributable to the value of the assembled workforce, expected synergies and other benefits arising from combining the RESL operations into the Group. The goodwill is not deductible for income tax purposes.

14. Acquisitions (continued)

Acquisition related costs of £0.4 million have been charged to exceptional items through continuing operations. Amortisation of intangible assets acquired as part of the transaction of £0.1 million has been charged to other items through continuing operations.

15. Financial instruments

Details of financial instruments, other than cash and short term deposits, held by the Group as at 5 July 2015 are set out below.

Details of financial instruments, other than cash and short term deposits, held by the Group as at 31 December 2014 are set out below.

The fair values of short term deposits, 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 the interest rate swaps (cash flow hedges) are calculated using quoted prices in active markets for identical assets and liabilities.

The following table provides the fair value measurement hierarchy of the Group's assets and liabilities.

Recurring fair value measurements:

15. Financial instruments (continued)

The fair value of the investment property is based upon a valuation as at 31 December 2014 performed by an accredited independent valuer, who is a specialist in valuing investment properties. Fair values of the Group's interest-bearing borrowings and loans are determined by using a DCF method with a discount rate that reflects the issuer's borrowing rate as at the end of the reporting period.

There have been no transfers between Level 1 and Level 2 during the period.

Reconciliation of recurring fair value measurements included within significant unobservable inputs (Level 3):

16. Share capital

As at 5 July 2015, 31,160 (29 June 2014: 44,342) shares were held in an employee benefit trust.

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.

17. Cash generated from operations