CAPE PLC 18 March 2015
Cape plc
("Cape" or the "Group")
Preliminary results for the twelve months to 31 December 2014
Cape plc, the international provider of critical support services to the energy and mineral resources sectors, announces its results for the twelve months ended 31 December 2014.
Financial summary
Audited | 2014 | 2013 (restated) |
Financial highlights | ||
Continuing operations: | ||
Revenue | £698.3m | £674.9m |
Adjusted operating profit | £52.1m | £40.6m |
Adjusted operating profit margin | 7.5% | 6.0% |
Adjusted profit before tax | £45.3m | £35.1m |
Adjusted diluted earnings per share | 29.9p | 23.3p |
Dividend for the year (per share) | 14.0p | 14.0p |
Adjusted net debt | £101.0m | £60.2m |
Statutory results | ||
Revenue | £698.3m | £674.9m |
Operating profit | £39.5m | £10.4m |
Profit before tax | £29.8m | £0.4m |
Profit /(loss) per share | 8.6p | (5.6p) |
Throughout this statement, various non-statutory measures are used and referred as 'Adjusted', these are defined and reconciled to their statutory equivalents in note 8, 'Adjusted measures'. Certain amounts do not correspond to the 2013 financial statements and reflect the adjustments detailed in note 4, 'Prior period adjustments'.
Highlights
· Order intake increased by 22% to £765m (2013: £625m); order book at 31 December 2014 was 15% higher at £746m (2013: £648m)
· Revenue increased by 3.5% to £698.3m (2013: £674.9m)
· Maintenance revenues increased by 16% to £486m (2013: £419m), increasing the resilience of the business
· Adjusted operating profit up 28% to £52.1m (2013: £40.6m)
· Improved adjusted operating profit margin, increasing from 6.0% to 7.5%
· Adjusted diluted earnings per share up 28% to 29.9p (2013: 23.3p)
· Operating cash conversion of 65% (2013: 151%) resulting in adjusted net debt of £101.0m (2013: £60.2m)
· Commercial and financing structure of SOCAR-Cape joint venture in Azerbaijan agreed and prospects improving with the recent contract awards on the Shah Deniz 2 development projects
· Good progress on strategy with continued operational improvement; the business is now pursuing the growth element of its strategy
· £36.6m acquisition ofMotherwell Bridge in Q1 2014, now part of newly formed Cape Specialist Services offering
· Full year dividend maintained at 14.0p (2013: 14.0p) reflecting theBoard's confidence in the future prospects of the Group
Commenting on the results, Joe Oatley, Chief Executive of Cape said:
"The excellent result for 2014 is a reflection of the progress we have made in strengthening the operating performance across the business, with improved margins driving robust profit growth, and we believe that our strategy of having a balanced business provides resilience against a downturn in any one sector or geography.
With continued progress on improving operational performance mitigating the volatility in some of our key markets, the Board currently anticipates that the 2015 result will be broadly in line with 2014, although we recognise there is increased uncertainty in the outcome for the second half of the year. We remain focused on the implementation of our strategy which I am confident will deliver long term growth and continue to create shareholder value."
Analyst meeting
The Group will be presenting to a meeting of analysts at 9.30 am today. The presentation will be available on the company's website later today at:www.capeplc.com/investors/financial-results-and-presentations.aspx
Enquiries:
For more information contact:
Joe Oatley, Chief Executive, Cape plc
joe.oatley@capeplc.com
+44 (0)18 9545 9979
Michael Speakman, Chief Financial Officer, Cape plc
michael.speakman@capeplc.com
+44 (0)18 9545 9979
Rachel Amey, Director of Investor Relations, Cape plc
rachel.amey@capeplc.com
+44 (0)18 9545 9965
Bobby Morse, Ben Romney & Jason Day, Buchanan
+44 (0)20 7466 5000
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.
Chairman's statement
A year of progress
I am delighted with the progress that the business has demonstrated over the last two years. The management team have delivered a substantial recovery and the business now has the stability and capability to pursue new avenues for growth. An important element of that strategy is to expand the range of specialist services and I was pleased that the business was able to complete the acquisition of Motherwell Bridge in March. The integration of the acquisition has gone to plan and we will be able to deliver significant growth for Motherwell Bridge by combining its technical expertise with Cape's substantial geographic footprint. We have continued to develop the strategy through the year and Cape now has a broad range of opportunities for medium and long term growth. We remain confident that we will deliver a sustained increase in shareholder value over the medium term despite the potential impact of current low oil prices.
The Group has refinanced its banking facilities during the first quarter of 2014. The new facility of £295 million was arranged with eight banks; broadening our lender base, and giving us the potential for both organic and acquisitive growth in the future.
We have strengthened the Cape Board further with the appointment ofSamantha Tough as a non-executive director. I am delighted to welcome Samantha to Cape and believe that she will bring an added dimension to the Board in terms of her extensive experience gained in the energy, infrastructure and natural resource sectors in Australia and the wider Asia Pacific region.
Particular attention has been placed this year on strengthening the breadth and depth of the senior and middle management teams and significant progress has been made in this regard. We are also constantly seeking to improve training and global career development opportunities so that we develop future management talent.
Financial results and dividend
I am pleased to report that Cape has delivered a robust performance in 2014 with revenues slightly ahead of 2013 at £698.3 million (2013: £674.9 million) and adjusted operating profit significantly higher at £52.1 million (2013: £40.6 million), a 28% increase on 2013. The business delivered an improved operating margin, increasing from 6.0% to 7.5%, predominantly driven by an improved performance in Asia Pacific and the benefit of the Motherwell Bridge acquisition.
Following these results, we are recommending a final dividend for 2014 of 9.5 pence (H2 2013: 9.5 pence) which reflects our confidence in the Group's ability to continue to deliver on our strategy and drive future growth. With the interim dividend of 4.5 pence (H1 2013: 4.5 pence) this results in a full-year dividend of 14.0 pence (2013: 14.0 pence). This is subject to shareholders' approval at the Annual General Meeting on 12 May 2015 and the final dividend will be payable on 23 June 2015 to shareholders on the register as at 22 May 2015.
People and safety
Our employees are pivotal to the success of Cape. Keeping all of our people safe, those that work for us as well as those we work with, is at the heart of everything we do. In 2014 we re-launched our Golden Rules; these are ten key safety rules which we believe can help us achieve our ultimate goal of zero accidents every day. We have refreshed our health and safety campaign to ensure our policies and procedures are available to everyone whatever their first language. Our Cape People Strategy also works to ensure that all employees are engaged effectively. We continue to focus on delivering our promises to our clients by providing them with a committed and effectively trained workforce. This was demonstrated by the launch of the Cape People Academy in our Asia Pacific region, this has enhanced the current training capability by providing a standardised curriculum which our employees can follow while also providing long term development opportunities. In addition we have refocused our efforts within the Australia business unit and have established a training facility to fulfil the competency requirements for the Wheatstone project in Western Australia. We are committed to provide our employees with opportunities to enable them to succeed throughout our global network.
Board structure and corporate governance
I am delighted to welcome Samantha Tough to the Board. Samantha was appointed as a non-executive director with effect from 1 January 2015. Brendan Connolly has decided not to stand for re-election at the AGM in order to pursue new business interests. On behalf of the Board I would like to thank Brendan for his contribution both as Chairman of the Remuneration Committee and interim Chief Executive during 2012.
The Board remains committed to maintaining our high standards of corporate governance and see this as an integral part of value creation for our stakeholders. During the year the Board and its Audit Committee has overseen the renewal of the Group's Business Integrity & Ethics Code. We recognise that the right culture and behaviours in our business are fundamental to the long term success of the Group. We have also conducted an externally-facilitated review of the Board and of its committees. This is indicative of our standards, even though external facilitation is not strictly required of the Group under the UK Corporate Governance Code.
The findings of the review have been considered in turn by the committees and the full Board and the areas for improvement and focus will be addressed in 2015.
Conclusion
We have made good progress on the development of the Group during 2014. We end the year a much stronger business with a solid platform and a range of opportunities for growth. This has only been possible due to the commitment and hard work of all of our employees and I would like to thank them all for their continued support and endeavours throughout the year. We expect demand for Cape's services to increase and we are well positioned to continue to grow in line with our strategy.
Tim Eggar
Chairman
Chief Executive's review
Overview
Our focus during 2014 has been to start the implementation of the growth phase of our strategy, whilst continuing our drive for operational excellence across the Group. Our strategic objective is to pursue growth across a number of different avenues to diversify our business and reduce our risk. During the year we have made good progress on developing our core business in those areas where we see market growth such as the Kingdom of Saudi Arabia (KSA), Australia and Azerbaijan, and have expanded our service offering with the establishment of Cape Specialist Services (CSS) which brings together Motherwell Bridge, Cape Environmental Services and York Linings.
Whilst we have moved into the growth phase of our strategy, we have maintained our focus on driving operational excellence throughout the Group. The objective for 2014 was to embed the new project management tools and processes into the high priority areas. We have made good progress and will continue the roll-out of these new systems during 2015.
We have again delivered an improved profit performance compared to the prior year with a continued robust performance from the UK and MENA businesses. Despite challenging market conditions through much of the year we saw the benefits of the 2013 Australian restructuring with a substantial improvement compared to the prior year in a near four-fold improvement in adjusted operating profit for the Asia Pacific region as a whole.
Market conditions 2014
Market conditions remained mixed during the year across both the Group's geographic regions and market sectors. Downstream oil and gas investment activity in particular by National Oil Companies (NOCs) in the Middle East and Asia increased during the year with major refinery and petrochemical projects moving ahead in both regions. The demand for maintenance services remained steady across the Group. The fall in oil price towards the end of 2014 resulted in uncertainty in the outlook for the oil and gas market, in particular capital expenditure associated with the development of higher cost fields in the upstream sector.
The level of demand during the year across the UK, Europe & CIS region was mixed with the UK and Sakhalin markets remaining solid, continued very low levels of activity in Kazakhstan and an increase in project activity in Azerbaijan, largely driven by the development of the Shah Deniz field and associated onshore infrastructure.
Overall demand for our services remained high in the MENA region. There continued to be high levels of activity in the construction market in the KSA with several major construction projects in progress such as the new export refinery and IGCC power plant at Jizan, the Petro Rabigh II Petrochemical development, and the Sadara Petrochemical complex. We are working on all of the above developments and continue to bid for further contracts as these projects progress.
Demand for maintenance services grew steadily within the KSA. The Qatar market continued to be maintenance focused and demand for our services from this sector remained steady through the year. It was announced that two future construction projects in Qatar, the Al Sejeel Petrochemical Complex and the Al-Karaana Petrochemical project had been cancelled during the year, reflecting continued low levels of activity in the construction sector in the country. In the United Arab Emirates (UAE) activity on major construction projects reduced significantly during 2014 with projects such as Gasco NGL 4 and Gasco IGD 5 Habshan now complete. The maintenance market in the UAE remained robust although, with reduced demand from new construction projects, it has become increasingly competitive. Awards were made during 2014 to EPC companies for the Clean Fuel refinery project in Kuwait and BP's Khazzan development and the Sohar Refinery projects in Oman. These should lead to an increase in future opportunities for the Group in both countries.
Market conditions in the Asia Pacific region remained mixed. Several of the construction yards across Asia have been active in module build in support of the major Australia LNG projects; however, new construction project activity for the Asian market itself has been low throughout 2014. Nonetheless, a number of significant Asian construction opportunities are now visible with EPC contracts having been awarded for a number of forthcoming projects in the region including a second LNG receiving terminal in Singapore, the RAPID petrochemical complex in Malaysia and a refinery project in Vietnam.
In Australia, the LNG market remains the key driver of construction activity with three major projects now underway: Wheatstone, Ichthys and Gorgon. The maintenance market continued to be subdued in both the downstream oil and gas and mining sectors.
2014 operating performance
Order intake grew strongly by 22% to £765 million (2013: £625 million) with the most significant contribution being the £150 million EDF maintenance renewal in the UK, announced in December 2014. The remainder of the order intake was driven by a large number of smaller contracts across maintenance, rescue work and smaller projects.
Revenue was £698.3 million, 3.5% ahead of the prior year's revenue of £674.9 million. The acquisition of Motherwell Bridge accounts for a 4.1% growth in revenue with foreign currency movements resulting in 3.4% decline in revenue. The business achieved underlying organic growth of 2.8%. Pleasingly the underlying growth in our core business has compensated for the completion of several large construction projects in 2013, including the Arzew GNL3-Z plant in Algeria, the SPT project in Singapore, the Kipper Tuna project in Australia and a number of construction projects in the UAE. The growth has been predominantly driven by strong growth in the KSA and the Wheatstone project in Australia.
Adjusted operating profit was 28% higher than the previous year at £52.1 million (2013: £40.6 million) with 9.9% of the growth attributable to the Motherwell Bridge acquisition and a decline of 2.9% as a result of foreign currency movements. The underlying organic growth of 21.3% was driven by a significantly improved performance in Australia, with the full year benefit of the profit performance plan that was implemented in 2013. The year on year improvement in operating profit was also partially driven by the provision taken in 2013 on the onerous contract in Qatar.
This onerous contract in Qatar 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 the client's expectations. The commercial and financing structure of our SOCAR-Cape joint venture in Azerbaijan has now been agreed with our partner, SOCAR, and prospects are encouraging with the recent contract awards on the Shah Deniz 2 development projects and increasing work levels on the ongoing maintenance projects. Due to the continued low levels of activity and deteriorating prospects in Kazakhstan, the Board has taken the decision to exit this market and we are working with our joint venture partners to ensure this is done in a controlled manner.
Adjusted net debt increased to £101.0 million (2013: £60.2 million) driven primarily by the acquisition of Motherwell Bridge for £36.6 million in March 2014 and a working capital outflow of £18.2 million (2013: £21.2 million inflow) which is a result of the higher revenue in the second half of the year.
Progress on strategy
We laid out our strategy in 2012 to first bring stability to the Group, before embarking on the growth phase of our plan. Through the focus on operational excellence and installing disciplined controls we have been able to establish a solid platform from which we could begin to implement our growth strategy during 2014. We are targeting growth in three key areas: first, we will develop our existing core business in existing geographies where there is market growth or an opportunity to grow market share. Second, we will expand our range of services into adjacent, more specialist areas with a higher technical and engineering content; and third, we will enter a small number of selected new territories where there are new project opportunities for our services. We have made good progress in all three of these elements of our growth strategy.
In our traditional business we have achieved strong growth in the KSA, capturing a position on a number of key new projects including insulation and painting works for the Petro Rabigh Phase II Project and insulation works on the Sadara Chemical II project. We are also growing our share of the maintenance market with key clients such as SABIC for whom we now provide a complete multi-disciplinary service on 18 sites across the country. We have grown the turnover of our KSA business by over 80% in the last two years. We have also established a leadership position in Azerbaijan through our joint venture with SOCAR, the strength of which was demonstrated by the business securing significant new construction contracts relating to the Shah Deniz 2 development projects in February 2015. We also achieved growth in a number of existing territories within Asia including Thailand, Myanmar and Indonesia.
We completed the acquisition of Motherwell Bridge, a leading provider of storage tanks, gasholders and heat exchangers to the energy and steel markets, in March 2014. This represents an important step in the expansion of our service offering into adjacent, more technically differentiated services. In July we brought together Motherwell Bridge with Cape's existing Environmental Services and York Linings businesses to form Cape Specialist Services. CSS will utilise the Group's extensive existing international footprint to reach a much more substantial market than these businesses have been able to target on a stand-alone basis.
We have now identified a number of new countries within our existing regions where Cape is not yet present, but a future increase in demand for our core services is visible. We are targeting entry into a select number of such countries and are currently actively bidding work in Malaysia and Kuwait.
One of the key pillars of our strategy is to achieve a balanced business across both a range of geographies and the maintenance and construction sectors. Recognising the intrinsic volatility in the construction sector we seek to grow our maintenance activities year-on-year. I am pleased to report that we achieved a 16% growth in maintenance revenue in 2014 compared to the prior year, with all three regions achieving year-on-year growth in maintenance revenues. Maintenance revenues represented 70% of total Group revenue in 2014 (2013: 62%)
Whilst we have now entered the growth phase of our strategy, operational excellence remains the bedrock upon which the success of the Group is built and we continue to focus on developing and enhancing the operational performance of the business.
The goals of our Operational Excellence programme remain unchanged: to attract, retain and develop the best people; to simplify and standardise our business systems and processes; and to ensure that knowledge and best practice are shared around the Group. We continue to invest in the development of all levels of management across the Group and currently have almost half of the members of the key management group on structured development programmes. We have started the process of embedding our new management processes across the wider Group with an initial focus on key projects; this roll-out will continue throughout 2015.
In addition to the process improvements that we have made we have successfully embedded a new culture across the Group. This cultural change is crucial to ensure we achieve our goal of long-term, sustained performance for the business. Our new culture is reflected in our core values which describe the behaviours that we expect throughout the business both in our internal and our external dealings with other stakeholders.
Organisation and people
Being able to attract, retain and develop the best people is key to our success as a business. We continue to focus on all three of these areas and were pleased to be able to welcome eight new graduates to Cape in 2014. This is the fourth year we have been running this programme and have now successfully placed candidates across all of our key geographies. We continue to develop all levels of management through our Cape ManagementDevelopment Programmeand 2014 saw the first full year of delivery of our comprehensive suite of standardised leadership development programmes across all levels within the business.
Safety
Safety is at the heart of everything we do at Cape. It is disappointing to report that we recorded a slight deterioration in safety performance in 2014 compared to the record performance that we achieved in 2013. Whilst our 2014 outcome is still considerably better than industry norms, we have redoubled our efforts to ensure we are continuing to drive towards our goal of zero injuries and accidents. It was with great sadness that, in September 2014, we reported that an incident occurred on-board the Unity platform in the UK North Sea that resulted in the tragic death of an employee. The incident has been subject to a major investigation both by the enforcing authorities and joint Cape/client investigation teams and, whilst this investigation remains on-going, at this time the root cause of the accident has been identified as a one-off, momentary lapse by an individual resulting in his tragic loss of life. Regardless of the outcome of the investigation, this remains a tragic loss of a colleague and our thoughts remain with his family and friends.
The basic requirements which all our employees must follow are described in our Golden Rules that were first launched in 2008; these have been refreshed in 2014 to ensure their importance continues to be understood throughout the business. We have reviewed and updated all of our safety processes and procedures and are implementing a new comprehensive training programme for all of our front-line supervisors.
Outlook
The excellent result for 2014 is a reflection of the progress we have made in strengthening the operating performance across the business, with improved margins driving robust profit growth, and we believe that our strategy of having a balanced business provides resilience against a downturn in any one sector or geography. Approximately 20% of Group revenue is related to oil and gas construction activity, comprising both major upgrade and greenfield projects, with the majority of the Group's activity in the midstream/downstream sector, predominantly in the Middle East. The decline in the price of oil has resulted in a significant reduction in demand from the upstream construction sector, in particular in the UK North Sea and we have taken swift action to reduce our cost base in the UK to mitigate the effect of this reduction in demand. At present the impact on the midstream/downstream construction sector has been limited with overall construction activity in the Middle East remaining robust. Demand for maintenance activities, which represent approximately 70% of Group revenue, is anticipated to continue broadly in line with that seen in 2014 across the Group's key market sectors of oil and gas, power, chemical and steel, and mining. With continued progress on improving operational performance mitigating the volatility in some of our key markets, the Board currently anticipates that the 2015 result will be broadly in line with 2014, although we recognise there is increased uncertainty in the outcome for the second half of the year. We remain focused on the implementation of our strategy which I am confident will deliver long term growth and continue to create shareholder value.
Despite the current high level of uncertainty in the oil and gas market beyond 2015, we continue to see an increase in demand over the medium term in construction projects from the downstream oil and gas sector in both the Middle East and Asia, with EPC contracts having been awarded for projects such as RAPID in Malaysia, the Clean Fuel refinery project in Kuwait and BP's Khazzan gas development and the Sohar Refinery Expansion project in Oman. The emergence of the nuclear new build programme in the UK represents a significant medium term opportunity for Cape and we are well positioned to secure work on the project through the recently announced joint venture with Prezioso.
Although the short term prospects across our markets are mixed, the long term demand for the Group's services is expected to continue to grow. We remain focused on our strategy and with a steadily growing maintenance base and improved operational processes the business is now more resilient to short term changes in demand from the construction market. The Board is confident that the Group will be able to deliver long term growth and continue to create shareholder value.
Joe Oatley
Chief Executive
Business review
UK, Europe & CIS
£m | 2014 | Restated 2013 | Change |
Order intake1 | 444 | 228 | +95% |
Order book1 | 401 | 320 | +25% |
Revenue1 | 388.5 | 338.9 | +14.6% |
Adjusted operating profit | 38.5 | 31.5 | +22.2% |
Adjusted operating profit margin | 9.9% | 9.3% | +60bps |
1 Excludes value in respect of joint ventures
Order intake was 95% higher than prior period end at £444 million (2013: £228 million) with the most significant contributor being the £150 million five year maintenance contract extension with EDF. Other important contract awards were the Magnus Life Extension project for BP and a number of smaller renewals across both the onshore and offshore elements of the UK business. The business was also successful in securing the first significant revenue synergy from the Motherwell Bridge acquisition with the award of a contract to supply both tank construction and associated access, painting and insulation services for a key client.
The region also had a strong start to 2015 with the award of significant project work in Azerbaijan through the SOCAR-Cape joint venture. Orders relating to this joint venture are excluded from the regional figures.
Revenue was 14.6% higher than prior period at £388.5 million (2013: £338.9 million). The majority of this increase was driven by the acquisition of Motherwell Bridge: at constant currency, organic growth was 6.7% driven by growth in Sakhalin and in the other CSS businesses.
The business continues to be largely maintenance driven with 82% of revenues (2013: 82%) derived from maintenance and shutdown activities. Maintenance revenue increased compared to the prior period driven by the additional maintenance business within Motherwell Bridge.
The UK continued to be successful in the energy and power sectors completing a total of twelve power station outages over a seven month period. The work covered both coal fired and nuclear power stations and required over 1,000 additional personnel to complete the work within the required time frame. Pleasingly, all outages were completed on time and with no lost time incidents.
Motherwell Bridge has performed well and has now been integrated into the newly formed Cape Specialist Services. The first steps have been taken to form a team in the Middle East to ensure we are well positioned to take advantage of opportunities for growth in that region. The Motherwell Bridge business contributed £27.8 million of revenue in the year, spread over a wide range of blue chip companies. The business continues to provide services in three key markets - tank storage, which accounts for over 70% of the business, gasholders, and heat exchanger repair and refurbishment.
Commercial and financial arrangements have now been agreed with our joint venture partner in Azerbaijan and the business has now been stabilised, delivering a small profit during the year. Maintenance volumes continue to be strong and the joint venture has also now been successful in securing significant project work on the Shah Deniz 2 project and associated onshore infrastructure.
Demand has continued to be low in Kazakhstan and with poor visibility of the timing of new projects, the Board has decided to withdraw from this market. The management team are working with the business' joint venture partner to ensure a controlled exit from the country. Sakhalin continues to be a predominantly maintenance based business and has successfully grown both revenue and operating profit in the year.
The adjusted operating profit margin increased to 9.9% (2013: 9.3%) driven by an increase in volume in higher margin business in Sakhalin and the contribution of the higher margin Motherwell Bridge business.
As a result of the increased margins, adjusted operating profit increased by 22% to £38.5 million (2013: £31.5 million). The acquisition of Motherwell Bridge represents 12.8% of this increase: at constant currency the organic growth in adjusted operating profit was 9.8%.
The fall in global oil prices has put significant pressure on capital investment projects across the region leading to some uncertainty regarding the budgets of a number of our clients. The business continues to closely monitor the impact of the fall in oil price and has taken steps to reduce overhead in the UK business to ensure it remains streamlined and correctly sized to deal with the continuing pressures in the market. As such, the business implemented a plan in January 2015 to reduce the head count in the UK by 45 which will lead to overhead savings of around 10% in that business. Although the business has taken the appropriate steps to mitigate the potential impact of the current low oil price on the UK operations, the business remains robust and the need for essential maintenance services on ageing assets continues to drive the requirement for the services that Cape provides.
Middle East & North Africa (MENA)
£m | 2014 | Restated 2013 | Change |
Order intake | 204 | 161 | +27% |
Order book | 135 | 98 | +38% |
Revenue | 175.6 | 202.8 | -13.4% |
Adjusted operating profit | 21.1 | 19.8 | +6.6% |
Adjusted operating profit margin | 12.0% | 9.8% | +220bps |
Order intake grew by 27% compared to prior year to £204 million (2013: £161 million), despite the adverse effect of foreign exchange movement: at constant currency order intake rose by 33% compared to prior period. The largest proportion of the order intake came from the downstream oil and gas sector in KSA and Qatar, with significant wins on the Petro Rabigh II and Sadara projects in KSA as well as the Qatar Gas and Shell GTL 5 maintenance contracts in Qatar. We have been successful in broadening our maintenance base in KSA with a number of significant awards including framework agreements with SABIC to supply painting, refractory, insulation and access services across 18 sites across the Kingdom. Construction activity in the UAE was lower during 2014 and this is reflected in the order intake with most projects now complete or approaching completion.
As anticipated, revenues reduced by 13.4% compared to prior period to £175.6 million (2013: £202.8 million), partly driven by adverse exchange rate movement: at constant currency revenue decreased by 9.3% compared to prior year, driven by a significant decrease in volume in the UAE with the completion of a number of significant construction contracts in 2013, partly offset by growth in KSA and Qatar. Following the strong growth in 2013, the KSA business continued to expand in both maintenance and construction project work with key projects in the year including insulation services for the construction of the Sadara propylene oxide unit in Jubail, painting and insulation for the Hyundai Ma'aden Alumina project, and providing access and refractory services on the onshore process plant for the Wasit Gas project. This growth is set to continue into 2015 as more projects come online.
The region has remained focused on the overall Group strategy to achieve a balanced business across the maintenance and construction sectors. This has resulted in a significant increase in maintenance volumes, driven by a steady performance in Qatar and a substantial expansion of our maintenance activities in KSA where maintenance revenues have more than doubled in the last twelve months. Construction activities have reduced in the region with project completions in the UAE and as such the proportion of revenue derived from maintenance activities grew to 47% (2013: 33%).
Adjusted operating profit grew by 6.6% to £21.1 million compared to prior year (2013: £19.8 million) despite the effect of foreign exchange movement; at constant currency adjusted operating profit grew by 13.9%. The business delivered a strong increase in operating margin, rising to 12.0%, an increase of 220bps compared to the prior year (2013: 9.8%), with the increase largely driven by the onerous contract provision taken in 2013 and a strong margin performance across a number of shutdown and rescue projects completed during 2014. Although the project team continue to make solid operational progress on the onerous contract in Qatar, the provision has been increased during the year to reflect client releases and current and expected levels of productivity. The region continues to target an underlying operating margin of 12 to 13%.
Asia Pacific
£m | 2014 | Restated 2013 | Change |
Order intake | 117 | 236 | -50% |
Order book | 210 | 230 | -9% |
Revenue | 134.2 | 133.2 | +0.8% |
Adjusted operating profit | 6.6 | 1.5 | +340% |
Adjusted operating profit margin | 4.9% | 1.1% | +380bps |
As anticipated, order intake reduced by 50% to £117 million (2013: £236 million) reflecting the £190 million award of the Wheatstone project in Australia in 2013. Bidding activity across the region has been relatively subdued throughout the year. In Asia the most significant order secured is the previously announced maintenance contract in Hong Kong and in Australia the order intake primarily comprises a number of smaller maintenance contracts as well as additional work awarded on the APLNG construction project for Laing O'Rourke in Queensland where the business is supplying painting and acoustic insulation.
Revenue increased slightly compared to prior year to £134.2 million (2013: £133.2 million) despite significant adverse foreign exchange movement; at constant currency revenue increased by 11.7%. The increase was largely driven by the start-up of the Wheatstone LNG project in Australia which more than offset the reduction in volume resulting from the completion in 2013 of SPT project in Singapore and the Kipper Tuna project in Australia. Progress on the Wheatstone project has been good, with a steady ramp up of labour on site during the second half of the year and the business continues to meet all of the client's delivery, quality and safety requirements. It is anticipated that resourcing on the project will continue to increase through the first half of 2015. Activity levels also increased on the contract to provide access services to one of the yards in Thailand building modules for the Ichthys LNG project and in Myanmar where the business is providing a range of multi-disciplined services working both onshore and offshore with Daewoo Engineering on the Daewoo Shwe Natural Gas project.
The business has continued to grow its maintenance business, with maintenance comprising 63% of revenue in the period (2013: 54%).
We have strengthened the management team across the region with new leadership for both the Australian and Asian operations and the new team has made significant improvements in both operating and safety performance across the region. The Australian business achieved a full year with zero lost time injuries.
Adjusted operating profit grew by 340% to £6.6 million (2013: £1.5 million) as the business benefitted from the implementation of the Performance Improvement Plan in the Australian business in 2013, and a good performance from the Thailand and the Philippines businesses as they delivered strong operational performance on a number of key contracts. Adjusted operating margin increased significantly to 4.9% (2013: 1.1%).
Although market conditions remain mixed across the region, the business is confident that we will be able to expand in 2015 through growth on the Wheatstone LNG project and targeted business development effort across the region. With these increased volumes and continued focus on operational excellence, margins are anticipated to continue to improve through 2015.
Chief Financial Officer's review
A summary income statement from continuing operations with explanatory discussion of the key items provided below:
2014 Total £m | Restated 2013 Total £m | |
Revenue | 698.3 | 674.9 |
Adjusted operating profit | 52.1 | 40.6 |
Adjusted operating profit % | 7.5% | 6.0% |
Other items | (11.7) | (15.3) |
Exceptional items | (0.9) | (14.9) |
Operating profit | 39.5 | 10.4 |
Revenue
Revenue from continuing operations increased by 3.5% to £698.3 million (2013: £674.9 million) with a 3.4% adverse movement resulting from foreign exchange movements, a favourable 4.1% resulting from the benefit of the acquisition of Motherwell Bridge in the first quarter of 2014 and an underlying organic increase of 2.8%. Strong performances from across the Group, in particular in the Kingdom of Saudi Arabia (KSA) and in West Australia on the Wheatstone project largely compensated for the revenue decrease arising from the completion ofseveral large construction projects in 2013 which had contributed almost £50 million of revenue. The key projects completed in 2013 includedthe Arzew GNL3-Z plant in Algeria, the SPT project in Singapore, the Kipper Tuna project in Australia and a number of significant construction projects in the United Arab Emirates (UAE). The newly formed Cape Specialist Services business has performed in line with expectations with the Motherwell Bridge acquisition contributing revenues of £27.8 million (2013: nil) in the year.
As anticipated, revenue in the second half of the year grew significantly and is 17% higher than the first half of 2014. The Group has benefited from a full six month contribution from the Motherwell Bridge acquisition in the second half as well as an increase in activity levels in Asia Pacific, due in part to volumes increasing on the Wheatstone project with approximately 250 employees now mobilised to site.
In line with our strategy to increase maintenance revenue in absolute terms, revenue from maintenance contracts has increased 16% to £486 million (2013: £419 million) and represents 70% of total revenue. The MENA region in particular have focussed on achieving a more balanced business and have successfully increased their maintenance revenues to £83.2 million (47% of total revenues), compared to £66.6 million (33% of total revenues) in 2013. As a consequence of the previously highlighted contract completions, revenue from construction projects has declined to £212 million (2013: £256 million) or 30% of total revenues.
Cape's largest client, across numerous individual contracts, in total represented 15% of Group revenue (2013: 11%) and related to activities in both the UK, Europe & CIS region and the Asia Pacific region. The Group's top ten clients represented 42% of revenue (2013: 40%).
Adjusted operating profit
Adjusted operating profit from continuing operations has increased by 28.3% to £52.1 million (2013: £40.6 million), consisting of an adverse foreign exchange impact of 2.9%, a 9.9% benefit of the Motherwell Bridge acquisition and an organic performance improvement of 21.3 %. The Group's organic results are driven by a number of factors including the improvement in performance from Australia (combination of the 2013 Performance Improvement Plan and the contribution of the Wheatstone contract), the non-recurrence of onerous contracts in the Group and the flow through of margin resulting from the revenue growth in areas such as the KSA.
Revenue split by half and full year and geography
|
Adjusted operating |
Adjusted operating | ||||
Year ended | 2014 | Restated 2013 | 2014 | Restated 2013 | 2014 | Restated 2013 |
Region | ||||||
UK, Europe & CIS | 388.5 | 338.9 | 38.5 | 31.5 | 9.9 | 9.3 |
MENA | 175.6 | 202.8 | 21.1 | 19.8 | 12.0 | 9.8 |
Asia Pacific | 134.2 | 133.2 | 6.6 | 1.5 | 4.9 | 1.1 |
Central costs | - | - | (14.1) | (12.2) | n/a | n/a |
698.3 | 674.9 | 52.1 | 40.6 | 7.5 | 6.0 | |
£m | UK, Europe & CIS | MENA | Asia Pacific | Total |
2013 (Restated) | ||||
H1 | 166.4 | 109.5 | 76.8 | 352.7 |
H2 | 172.5 | 93.3 | 56.4 | 322.2 |
FY 2013 | 338.9 | 202.8 | 133.2 | 674.9 |
2014 | ||||
H1 | 180.4 | 89.1 | 51.9 | 321.4 |
H2 | 208.1 | 86.5 | 82.3 | 376.9 |
FY 2014 | 388.5 | 175.6 | 134.2 | 698.3 |
Other items
Other items decreased to £11.7 million (2013: £15.3 million) and comprise of £8.4 million of IDC costs (2013: £15.3 million) and £3.3 million (2013: nil) of post-acquisition charges relating to Motherwell Bridge and including amortisation of intangible assets.
Share of post-tax result of joint venture
In 2014 the SOCAR-Cape joint venture made a small profit, however under the equity method of accounting these profits need to be derecognised and used to amortise previously recorded accumulated losses. As a result there was no profit recorded for joint ventures in 2014 (2013: £0.3 million).
Exceptional items
Exceptional items total £0.9 million (2013: £14.9 million) and comprise of transaction costs relating to the acquisition of Motherwell Bridge. Exceptional items in 2013 consisted of costs relating to the Performance Improvement Plan initiated in Australia in 2013.
Operating profit
Operating profit for continuing operations was £39.5 million (2013: £10.4 million) and reflects an adjusted operating profit of £52.1 million (2013: £40.6 million), other items of £11.7 million (2013: £15.3 million) and exceptional items of £0.9 million (2013: £14.9 million).
Finance costs
Net finance costs amounted to £9.7 million (2013: £10.0 million) including the annual £3.4 million (2013: £4.0 million) non-cash charge relating to the unwinding of the discount on the long term IDC liability and interest income in the IDC Scheme funds in the period of £0.5 million (2013: £0.7 million). In 2013 there was also a £1.2 million cost from the write off of unamortised borrowing arrangement costs.
Adjusted finance costs increased to £7.6 million (2013: £6.3 million) with interest cover (calculated by dividing adjusted operating profit by the adjusted finance costs) increasing to 6.9 times (2013: 6.4 times).
Taxation
The tax charge on adjusted profit before tax excluding exceptional and other items was £9.1 million (2013: £7.2 million) representing an average tax rate of 20.1% (2013: 20.5%). The cash tax paid during the period was £8.4 million (2013: £7.7 million) which is in line with expectations. The tax charge on profit before tax was £7.3 million (2013: £2.7 million).
Discontinued operations
Due to the continued low levels of activity and deteriorating prospects in Kazakhstan, the Board has taken the decision to exit this geographical market and we are working with our joint venture partner to ensure this is done in a controlled manner. As a result of this decision Kazakhstan has been classified as discontinued in the 2014 results.
A £12.1 million loss has been recognised within loss from discontinued operations in the income statement in 2014 (2013: £5.0 million loss) which primarily relates to Kazakhstan in 2014 and to India and Australia in 2013.
In relation to Kazakhstan a non-cash impairment charge of £9.7 million has been recognised in the income statement with £6.1 million relating to goodwill and £3.6 million relating to investments and assets held for sale; a cash provision charge of £1.2 million has also been recognised. Net assets of the disposal group held for sale in the statement of financial position total £0.3 million (2013: £3.7 million).
Earnings per share
For continuing operations the adjusted diluted earnings per share (EPS) was 29.9 pence (2013: 23.3 pence) and adjusted basic earnings per share was also 29.9 pence (2013: 23.5 pence). The diluted weighted average number of shares decreased to 121.1 million (2013: 121.9 million).
Dividend
After considering the 2014 financial results, current market conditions and the underlying prospects of the Group, the Board is proposing a final dividend for 2014 of 9.5 pence (2013: 9.5 pence) per share in line with the 2013 final dividend. In addition to the interim dividend of 4.5 pence per share (2013: 4.5 pence) paid on 10 October 2014, the total dividend for the year will be 14.0 pence per share (2013: 14.0 pence) subject to shareholders' approval at the Annual General Meeting on 12 May 2015, the final dividend will be payable on 23 June 2015 to shareholders on the register as at 22 May 2015.
Acquisitions
In line with the Group strategy to increase the range of critical services we offer, Cape announced its acquisition of UK based Motherwell Bridge, a leading provider of storage tanks, gasholders and heat exchangers to the energy and steel markets, on 10 March 2014. The purchase consideration of £36.6 million consisted of cash of £33.1 million and debt of £3.5 million. In the final quarter of 2014 £1.0 million of escrow funds were released back to Cape reducing the cash outflow to £33.1 million from the previously reported £34.1 million. The provisional fair value of net assets acquired was £12.7 million and goodwill of £20.1 million has been recognised on acquisition, as detailed in note 21. The goodwill of £20.1 million arising from the acquisition is attributable to the acquired business model and the expected synergies arising from combining the operations into the Group.
Operating and free cash flow
2014 Total (£m) | Restated 2013 Total (£m) | |
Adjusted operating profit | 52.1 | 40.6 |
Depreciation - continuing operations | 18.1 | 17.2 |
Adjusted EBITDA | 70.2 | 57.8 |
Non-cash items | (3.9) | (2.5) |
(Increase)/decrease in working capital* | (18.2) | 21.2 |
Net capital expenditure | (14.1) | (15.3) |
Operating cash flow | 34.0 | 61.2 |
Operating cash flow to operating profit | 65.3% | 150.7% |
Net interest | (6.4) | (6.1) |
Tax | (8.4) | (7.7) |
Free cash flow | 19.2 | 47.4 |
Dividends paid | (16.9) | (17.7) |
Acquisition | (36.9) | - |
Investment in SOCAR-Cape joint venture | (3.6) | (4.3) |
Transfer to restricted cash | - | (6.0) |
Discontinued operations | 5.9 | (13.1) |
Other movements in adjusted net debt | (8.5) | (1.3) |
Movement in adjusted net debt | (40.8) | 5.0 |
Opening adjusted net debt | (60.2) | (65.2) |
Closing adjusted net debt | (101.0) | (60.2) |
* At average rates of exchange
Working capital
Trade and other receivables and inventories increased by £32.5 million to £215.3 million (2013: £182.8 million) which along with an increase in trade and other payables of £15.2 million to £124.3 million (2013: £109.1 million) resulted in an overall increase in net working capital of £17.3 million (at balance sheet rates) to £91.0 million (2013: £73.7 million). The increase since 2013 is volume related with working capital increases in areas such as Australia and the KSA where we have had significant increases in revenues. Working capital, as expected, reduced by £18.3 million in the second half of 2014.
Capital expenditure
The Group continues to manage its capital expenditure carefully whilst investing in upgrading and replacing equipment where appropriate. The Asset Replacement Ratio (calculated by dividing gross capex spend by the depreciation charge) decreased to 84% (2013: 100%). Capital expenditure is slightly lower than anticipated due to the expected purchase of system scaffold being realigned with client needs.
Free cash flow
The Group's free cash flow of £19.2 million (2013: £47.4 million) is more than sufficient to fund, in cash terms, the full value of the proposed dividend of £16.9 million (2013: £16.9 million).
Financing and banking facilities
The Group's adjusted net debt increased year on year by £40.8 million to £101.0 million (2012: £60.2 million) including finance lease obligations of £2.2 million (2013: £0.2 million). Balance sheet gearing, excluding ring-fenced IDC Scheme funds, increased to 79.2% (2013: 45.2%).
The ratio of adjusted net debt to adjusted EBITDA increased to 1.4 times (2013: 1.0 times). A reconciliation of adjusted net debt and adjusted EBITDA can be found in note 8, 'Adjusted measures'.
During the year the Group entered into an interest rate cap for a period of three years terminating in February 2018. The derivative is for £70 million and gives protection to the Group against its GBP borrowings when LIBOR exceeds the strike price of 2.5%.
Provision for pension
The defined benefit pension schemes had a net surplus of £11.8 million (2013: £15.8 million) as at 31 December 2014 which continues to be restricted to nil in the accounts under IFRIC 14. The triennial valuation is now complete with the agreed monthly contribution rate maintained at £14,600.
Provision for estimated future asbestos related liabilities and IDC Scheme funds
The discounted provision increased to £98.2 million (2013: £94.3 million) reflecting an increase to the provision of £8.2 million (2013: £14.3 million), an unwinding of the discount of £3.4 million in the year (2013: £4.0 million) and £7.7million (2013: £3.8 million) of settlements, including a number of material one off, non-Scheme, legacy claims which accounted for £3.7 million. The increase in provision is entirely a consequence of changes in economic assumptions in 2014, primarily the decrease in the discount rate from 3.75% to 2.5%. This is further detailed in note 17. The level of Scheme cash settlements remains in line with actuarial assumptions. The ring-fenced IDC Scheme funds decreased to £29.3 million (2013: £31.3 million) benefitting from interest received of £1.7 million (2013: £1.0 million) and offset by the cash settlements on scheme claims in the year of £3.7 million (2013: £3.1 million).
Currencies
The vast majority of operating costs are matched with corresponding revenues of the same currency and as such there is very little transactional currency risk in the Group. Currency translation adversely impacted both revenue and operating profit in 2014 by 3.4% and 2.9% respectively.
In 2014, 28.5% (2013: 35.1%) of revenues were contracted in US Dollars or US pegged currencies and 13.8% (2013: 11.6%) in Australian Dollars.
The following significant exchange rates applied during this year:
2014 | 2013 | |||
Closing | Average | Closing | Average | |
AUD | 1.91 | 1.83 | 1.85 | 1.63 |
USD | 1.56 | 1.65 | 1.66 | 1.57 |
Treasury policies
Cape has a centralised Treasury function whose objectives are to monitor and manage the financial risks of the Group and to ensure that sufficient liquidity is available to meet the requirements of the business. Group Treasury is not a profit centre and operates within a framework of policies and procedures. All hedging is carried out centrally and speculative trading is specifically prohibited by Group Treasury policy.
Return on invested capital
Return on invested capital is defined at Group level as adjusted operating profit divided by the accounted value of equity plus adjusted net debt. Return on invested capital in 2014 was 22.8%, slightly ahead of the prior year (2013: 21.2%).
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 geopolitical, economic and market risks to operational risks including HSE, contracting, project execution and generic financial risks. In 2014 the price of oil dropped significantly, the Group has assessed this risk and will continue to monitor the situation closely and respond with mitigating actions as appropriate.
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. The directors have reviewed the principal risks and uncertainties and are satisfied that they are relevant. The Group continues to improve its process of project risk identification and mitigation from tender through to project completion. A full review of the Group's principal risks and uncertainties will be available in the 2014 Annual Report.
Michael Speakman
Chief Financial Officer
Condensed consolidated income statement
for the year ended 31 December 2014
2014 | Restated* 2013 | ||||||
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 | 7 | 698.3 | - | 698.3 | 674.9 | - | 674.9 |
Operating profit before other items | 52.1 | - | 52.1 | 40.3 | - | 40.3 | |
Other items | 9 | - | (11.7) | (11.7) | - | (15.3) | (15.3) |
Operating profit/(loss) before exceptional items | 52.1 | (11.7) | 40.4 | 40.3 | (15.3) | 25.0 | |
Share of post-tax result of joint ventures | - | - | - | 0.3 | - | 0.3 | |
Exceptional items | 9 | - | (0.9) | (0.9) | - | (14.9) | (14.9) |
Operating profit/(loss) | 52.1 | (12.6) | 39.5 | 40.6 | (30.2) | 10.4 | |
Finance income | 10 | 0.8 | 0.5 | 1.3 | 0.8 | 0.7 | 1.5 |
Finance costs | 10 | (7.6) | (3.4) | (11.0) | (6.3) | (5.2) | (11.5) |
Net finance costs | (6.8) | (2.9) | (9.7) | (5.5) | (4.5) | (10.0) | |
Profit/(loss) before tax | 45.3 | (15.5) | 29.8 | 35.1 | (34.7) | 0.4 | |
Income tax (expense)/credit | 11 | (9.1) | 1.8 | (7.3) | (7.2) | 4.5 | (2.7) |
Profit/(loss) from continuing operations | 36.2 | (13.7) | 22.5 | 27.9 | (30.2) | (2.3) | |
Loss from discontinued operations | 9,12 | (1.2) | (10.9) | (12.1) | (4.4) | (0.6) | (5.0) |
Profit/(loss) for the year | 35.0 | (24.6) | 10.4 | 23.5 | (30.8) | (7.3) | |
Attributable to: | |||||||
Owners of Cape plc | 10.4 | (6.8) | |||||
Non-controlling interests | - | (0.5) | |||||
10.4 | (7.3) | ||||||
Earnings per share attributable to the owners of Cape plc | |||||||
Pence | Pence | Pence | Pence | ||||
Basic | |||||||
Continuing operations | 29.9 | 18.6 | 23.5 | (1.5) | |||
Discontinued operations | (1.0) | (10.0) | (3.6) | (4.1) | |||
Total operations | 13 | 28.9 | 8.6 | 19.9 | (5.6) | ||
Diluted | |||||||
Continuing operations | 29.9 | 18.6 | 23.3 | (1.5) | |||
Discontinued operations | (1.0) | (10.0) | (3.6) | (4.1) | |||
Total operations | 13 | 28.9 | 8.6 | 19.7 | (5.6) |
*Certain amounts shown here do not correspond to the 2013 consolidated financial statements and reflect the adjustments made to reclassify the results of discontinued operations
Condensed consolidated statement of comprehensive income
for the year ended 31 December 2014
2014 | Restated 2013 | ||
£m | £m | ||
Profit/(loss) for the year | 10.4 | (7.3) | |
Other comprehensive (expense): | |||
Other comprehensive (expense) to be reclassified to profit or loss in subsequent periods: | |||
Currency translation differences | (0.1) | (11.1) | |
(0.1) | (11.1) | ||
Cash flow hedges - fair value gains | - | 0.1 | |
Tax effect | - | (0.6) | |
- | (0.5) | ||
Net other comprehensive (expense) to be reclassified to profit or loss in subsequent periods | (0.1) | (11.6) | |
Other comprehensive (expense) not to be reclassified to profit or loss in subsequent periods: | |||
Re-measurement of defined benefit pension plan | (4.9) | (0.5) | |
Tax effect | - | - | |
(4.9) | (0.5) | ||
Movement in restriction of retirement benefit asset in accordance with IFRIC 14 | 4.0 | (0.5) | |
Tax effect | 1.0 | - | |
Net other comprehensive (expense) not to be reclassified to profit or loss in subsequent periods | 0.1 | (1.0) | |
Other comprehensive (expense) for the year | - | (12.6) | |
Total comprehensive income/(expense) for the year | 10.4 | (19.9) | |
Attributable to: | |||
Owners of Cape plc | 10.2 | (19.5) | |
Non-controlling interests | 0.2 | (0.4) | |
10.4 | (19.9) |
Condensed consolidated statement of financial position
at 31 December 2014
2014 | Restated* 2013 | Restated* As at 1 January 2013 | ||
Note | £m | £m | £m | |
Assets | ||||
Non-current assets | ||||
Intangible assets | 15 | 148.1 | 113.9 | 117.2 |
Investment property | 2.0 | 2.0 | 2.0 | |
Property, plant and equipment | 16 | 77.3 | 81.3 | 91.3 |
Investments accounted for using the equity method Derivative financial assets | - 0.2 | 0.7 - | 0.2 - | |
Deferred tax assets Restricted deposits | 24.3 9.0 | 24.2 9.0 | 21.5 16.5 | |
Total non-current assets | 260.9 | 231.1 | 248.7 | |
Current assets | ||||
Inventories | 15.0 | 12.7 | 20.2 | |
Trade and other receivables | 200.3 | 170.1 | 218.7 | |
Cash and cash equivalents | 78.0 | 73.6 | 72.8 | |
Restricted deposits | 20.9 | 22.3 | 10.9 | |
Assets of disposal group classified as held for sale | 2.6 | 3.7 | 11.4 | |
Total current assets | 316.8 | 282.4 | 334.0 | |
Total assets | 577.7 | 513.5 | 582.7 | |
Equity | ||||
Share capital | 18 | 30.3 | 30.3 | 30.3 |
Share premium account | 1.0 | 1.0 | 0.9 | |
Special reserve | 1.0 | 1.0 | 1.0 | |
Other reserves | 9.5 | 9.3 | 10.0 | |
Translation reserve | 96.3 | 96.6 | 107.8 | |
Retained (losses)/earnings | (13.4) | (7.6) | 16.5 | |
Equity attributable to equity holders of the parent | 124.7 | 130.6 | 166.5 | |
Non-controlling interests | 2.8 | 2.6 | 3.8 | |
Total equity | 127.5 | 133.2 | 170.3 | |
Liabilities | ||||
Non-current liabilities | ||||
Borrowings | 177.1 | 133.5 | 135.7 | |
Retirement benefit obligations | 12.4 | 9.5 | 8.2 | |
Deferred tax liabilities | 7.5 | 4.7 | 6.5 | |
Provision for industrial disease claims | 17 | 93.5 | 88.3 | 75.9 |
Other provisions | 17 | 2.9 | 0.7 | 4.5 |
Total non-current liabilities | 293.4 | 236.7 | 230.8 | |
Current liabilities | ||||
Borrowings | - | 0.3 | 0.3 | |
Derivative financial instruments | 0.2 | 0.6 | 1.1 | |
Trade and other payables | 124.3 | 109.1 | 151.1 | |
Current income tax liabilities | 7.6 | 7.1 | 8.3 | |
Provision for industrial disease claims | 17 | 4.7 | 6.0 | 4.0 |
Other provisions | 17 | 17.7 | 20.5 | 16.8 |
Liabilities directly associated with disposal group held for sale | 2.3 | - | - | |
Total current liabilities | 156.8 | 143.6 | 181.6 | |
Total liabilities | 450.2 | 380.3 | 412.4 | |
Total equity and liabilities | 577.7 | 513.5 | 582.7 |
*Certain amounts shown here do not correspond to the 2013 consolidated financial statements and reflect the adjustments detailed in note 4.
Condensed consolidated statement of changes in equity
for the year ended 31 December 2014
Share capital £m | Share premium account £m | Special reserve £m | Other reserves £m | Translation reserve £m | Retained earnings £m | Total attributable to parent £m | Non-controlling interests £m | Total equity £m | |
At 1 January 2014 | 30.3 | 1.0 | 1.0 | 9.3 | 96.6 | (7.6) | 130.6 | 2.6 | 133.2 |
Profit for the year | - | - | - | - | - | 10.4 | 10.4 | - | 10.4 |
Other comprehensive (expense)/income: | |||||||||
Currency translation differences | - | - | - | - | (0.3) | - | (0.3) | 0.2 | (0.1) |
Re-measurement of defined benefit pension plan | - | - | - | - | - | (4.9) | (4.9) | - | (4.9) |
Movement in restriction of retirement benefit asset in accordance with IFRIC 14 | - | - | - | - | - | 4.0 | 4.0 | - | 4.0 |
Tax effect on retirement benefit asset | - | - | - | - | - | 1.0 | 1.0 | - | 1.0 |
Total comprehensive income/(expense) for the year | - | - | - | - | (0.3) | 10.5 | 10.2 | 0.2 | 10.4 |
Transactions with owners | |||||||||
Dividends | - | - | - | - | - | (16.9) | (16.9) | - | (16.9) |
Share options - value of employee services | - | - | - | - | - | 0.6 | 0.6 | - | 0.6 |
- deferred tax on options | - | - | - | 0.2 | - | - | 0.2 | - | 0.2 |
- | - | - | 0.2 | - | (16.3) | (16.1) | - | (16.1) | |
At 31 December 2014 | 30.3 | 1.0 | 1.0 | 9.5 | 96.3 | (13.4) | 124.7 | 2.8 | 127.5 |
for the year ended 31 December 2013
Restated | Share capital £m | Share premium account £m | Special reserve £m | Other reserves £m | Translation reserve £m | Retained earnings £m | Total attributable to parent £m | Non-controlling interests £m | Total equity £m |
At 1 January 2013 | 30.3 | 0.9 | 1.0 | 10.0 | 107.8 | 16.5 | 166.5 | 3.8 | 170.3 |
(Loss) for the year | - | - | - | - | - | (6.8) | (6.8) | (0.5) | (7.3) |
Other comprehensive (expense)/income: | |||||||||
Currency translation differences | - | - | - | (11.2) | - | (11.2) | 0.1 | (11.1) | |
Cash flow hedges - fair value gains | - | - | - | 0.1 | - | - | 0.1 | - | 0.1 |
Deferred tax on hedges/options | - | - | - | (0.6) | - | - | (0.6) | - | (0.6) |
Re-measurement of defined benefit pension plan | - | - | - | - | - | (0.5) | (0.5) | - | (0.5) |
Movement in restriction of retirement benefit asset in accordance with IFRIC 14 | - | - | - | - | - | (0.5) | (0.5) | - | (0.5) |
Total comprehensive (expense)/income for the year | - | - | - | (0.5) | (11.2) | (7.8) | (19.5) | (0.4) | (19.9) |
Transactions with owners | |||||||||
Dividends | - | - | - | - | (16.9) | (16.9) | (0.8) | (17.7) | |
Share options | |||||||||
-value of employee services | - | - | - | - | - | 0.6 | 0.6 | - | 0.6 |
- proceeds of shares issued | - | 0.1 | - | - | - | - | 0.1 | - | 0.1 |
- deferred tax on options | - | - | - | (0.2) | - | - | (0.2) | - | (0.2) |
- | 0.1 | - | (0.2) | - | (16.3) | (16.4) | (0.8) | (17.2) | |
At 31 December 2013 | 30.3 | 1.0 | 1.0 | 9.3 | 96.6 | (7.6) | 130.6 | 2.6 | 133.2 |
Condensed consolidated cash flow statement
for the year ended 31 December 2014
2014 | Restated* 2013 | ||
Note | £m | £m | |
Operating activities | |||
Cash generated from operating activities - continuing operations | 19 | 40.4 | 62.6 |
Interest received | 0.8 | 0.3 | |
Interest paid | (7.2) | (6.3) | |
Tax paid | (8.4) | (7.7) | |
Net cash flows from operating activities - continuing operations | 25.6 | 48.9 | |
Net cash flows from operating activities - discontinued operations | 1.3 | (12.9) | |
Net cash flows from operating activities | 26.9 | 36.0 | |
Investing activities | |||
Continuing operations | |||
Proceeds from sales of property, plant and equipment | 1.3 | 2.2 | |
Purchase of property, plant and equipment Purchase of intangibles | (15.3) (0.1) | (17.4) - | |
Transfer to restricted funds | - | (6.0) | |
Acquisition of subsidiaries net of cash acquired | (30.2) | - | |
Cash paid into escrow for deferred consideration | (2.1) | - | |
Net cash used in investing activities - continuing operations | (46.4) | (21.2) | |
Discontinued operations | |||
Proceeds from sales of assets held for sale Purchase of property, plant and equipment | 3.6 - | 6.9 (0.3) | |
Net cash realised from investing activities - discontinued operations | 3.6 | 6.6 | |
Financing activities | |||
Continuing operations | |||
Net proceeds from the issue of ordinary share capital Repayment of old facility | - (130.6) | 0.1 - | |
Movement on revolving facility | - | (2.0) | |
Drawing on borrowings | 167.9 | 2.3 | |
Finance lease principal payments | (0.1) | (0.3) | |
Dividends paid to shareholders | (16.9) | (16.9) | |
Dividends paid to non-controlling interests | - | (0.8) | |
Net cash flows used in financing activities - continuing operations | 20.3 | (17.6) | |
Net cash flows used in financing activities - discontinued operations | - | - | |
Net foreign exchange difference | - | (3.0) | |
Net increase in cash and cash equivalents | 4.4 | 0.8 | |
Cash and cash equivalents at 1 January | 73.6 | 72.8 | |
Cash and cash equivalents at 31 December | 78.0 | 73.6 |
*Certain amounts shown here do not correspond to the 2013 consolidated financial statements and reflect adjustments made to reclassify the results of discontinued operations.
Notes to the condensed consolidated financial statements
1. General information
The Group has prepared its condensed consolidated financial statements for the year to 31 December 2014 in accordance with the Companies (Jersey) Law 1991 and International Financial Reporting Standards ('IFRS') as adopted by the European Union. These statements do not constitute accounts prepared for the purposes of Article 105 of the Companies (Jersey) Law 1991.
The comparative financial information is based on the statutory accounts to 31 December 2013 which have been delivered to the Jersey Financial Services Commission. The report of the auditors on those accounts was unqualified.
The preliminary announcement for the year ending 31 December 2014 was approved by the Board of directors on 17 March 2015.
Copies of this preliminary report will be available from the offices of Cape plc, 47 Esplanade, St Helier, Jersey, JE1 0BD and on the Group's website at www.capeplc.com. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
2. Basis of preparation
The condensed consolidated financial statements for the twelve months ended 31 December 2014 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority.
2.1 Discontinued operations
The Group classifies an asset or disposal group as a discontinued operation when it has been either disposed of or classified as held for sale; or it represents a single major line of business or geographical area of operation or is part of a coordinated plan for disposal.
In the period an asset or disposal group has been disposed of, or is classified as held for sale, the results of the operation are reported as discontinued operations in the current and prior periods.
2.2 Accounting policies
The accounting policies and methods of computation adopted in the preparation of the condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual audited Consolidated Financial Statements, which will be available on the Group's website atwww.capeplc.com.
2.3 Going concern basis
After making 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 condensed consolidated financial statements.
3. New and amended standards and interpretations adopted by the Group
Several new standards and amendments apply for the first time in 2014, however they do not have a significant impact on the annual financial statements of the Group. These new standards and amendments are listed below:
- Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
- Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32
- Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39
- Recoverable Amount Disclosures for Non-Financial Assets - Amendments to IAS 36
- IFRIC 21 'Levies'
The Group has not yet early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
b) New standards and interpretations not yet adopted
The following standards and interpretations in issue are not yet effective for the Group and have not been adopted by the Group:
Effective dates
IFRS 15 Revenue from Contracts with Customers 1 January 2017
IFRS 9 Financial Instruments (2014) 1 January 2018
Annual Improvements to IFRSs 2012-2014 Cycle 1 July 2016
Amendments to IAS 27: Equity Method in Separate Financial Statements 1 January 2016
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods 1 January 2016
of Depreciation and Amortisation
Amendments to IFRS 11: Accounting for Acquisitions of Interests in 1 January 2016
Joint Operations
Amendments to IAS 19: Defined Benefit Plans: Employee Contributions 1 July 2014
Annual Improvements to IFRSs 2010-2012 Cycle 1 July 2014
Annual Improvements to IFRSs 2011-2013 Cycle 1 July 2014
The Group is currently assessing the impact of these standards and plans to adopt the new standards on the required effective date.
4. Prior period adjustments
Cash and cash equivalents within the consolidated statement of financial position reported in the Group financial statements at 31 December 2013 and 1 January 2013 have been restated to reflect the correct classification of current asset restricted funds of £22.3m (2012: £10.9m) and deposits held for more than twelve months of £9.0m (2012: £16.5m) as restricted fund non-current deposits.
As a result of the discontinuation of operations in Kazakhstan during 2014, the prior period figures in the consolidated income statement have been restated, together with any associated notes.
5. Group specific accounting measures
To be able to provide readers with clear, meaningful and consistent presentation of financial performance, the Group reflects its underlying financial results in the 'business performance' column within the consolidated income statement. Business performance excludes 'Other Items' and 'Exceptional Items', which are considered non-operational in their nature and which are reported separately in a different column within the consolidated income statement.
a) Other items
Other items are those items which the directors believe are relevant to the understanding of the results for the year and which are excluded from the adjusted measures. Other items include administration expenses, financial incomes and financial costs associated with industrial disease claims and certain post-acquisition charges, including amortisation of acquired intangibles arising from business combinations.
b) Exceptional items
Exceptional items are those items which are of a non-recurring nature 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, business acquisition costs and restructuring costs.
6. Significant judgements and estimates
Certain of the Group's accounting policies require critical accounting estimates that involve subjective judgements and the use of assumptions, some of which may relate to matters that are inherently uncertain and susceptible to change.
a) Judgements
Areas of judgement that have the most significant effect on the amounts recognised in the consolidated financial statements are:
(i) Revenue recognition and assessment of long term contract performance
The Group generally accounts for long term construction contracts using the percentage of completion method as performance of the contract progresses. This method requires judgement to determine accurate estimates of the extent of progress towards contract completion and may involve estimates of the total contract costs, remaining costs to completion, total revenues, contract risks and other judgements.
(ii) Carrying value of property, plant and equipment
Assessing whether property, plant and equipment may be impaired requires a review for indicators of impairment and, where such indicators exist, an estimate of the asset's recoverable amount by reference to value in use. Management are required to exercise significant judgement in reviewing for and identifying asset indicators of impairment and subsequently calculating value in use.
(iii) Trade and other receivables
The Group provides for likely non-recovery of receivables to the extent that the carrying value is 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) Deferred tax assets
The Group recognises deferred tax assets on all applicable temporary differences where it is probable that future taxable profits will be available for utilisation. This requires management to make judgements and assumptions regarding the amount of deferred tax that can be recognised based on the magnitude and likelihood of future taxable profits.
(v) Defined benefit pension plans
The cost and the obligation of the Group's defined benefit pension plan is based on a number of selection assumptions. These include the discount rate, inflation rate, salary growth, longevity and expected return on the assets of the plan. Differences arising from actual experience or future changes in assumptions will be reflected in future periods.
b) Estimates
The key assumptions affected by future uncertainty that have a significant risk of causing material adjustment to the carrying value of assets and liabilities within the next financial year are:
(i) Onerous contracts
Provision is made for future losses on long-term contracts where it is considered that the contract costs are likely to exceed revenues in future years. Estimating future losses involves assumptions of contract performance targets and likely levels of future cost escalation over time. A provision for onerous contracts of £9.7m is recorded at 31 December 2014 (2013: £8.9m).
(ii) Impairment of goodwill
Goodwill is tested at least annually for impairment. This requires estimation of the value in use of the cash-generating units to which the goodwill is allocated. Calculation of value in use requires estimation of expected future cash flows from each of the cash generating units and also to determine a suitable discount rate to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2014 was £127.2m (2013: £113.7m). There has been a goodwill impairment charge of £6.1m during 2014 relating to discontinued operations (note 12).
(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 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 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. At 31 December 2013, the range of reasonable estimate was determined as being between £89m and £123m.
During 2014, changes in macroeconomic conditions necessitated a revision to the discount rate and inflation rate assumptions, giving rise to an increase in the amount of the provision by £8.2m with an equivalent charge to profit or loss. The value of the provision at 31 December 2014 is £98.2m (2013: £94.3m). See note 17 for other movements during the year.
(iv) Income tax
Group entities can be subject to routine tax audits and also a process whereby tax computations are discussedand agreed with the appropriate authorities. Whilst the ultimate outcome of such tax audits and discussions cannot be determined with certainty, management estimates the level of required tax provisions on the basis of professional advice and the nature of current discussions with the tax authority concerned.
7. Segment information
Management has determined the operating segments based on the reports reviewed by the Board (Chief Operating Decision Maker 'CODM') that are used to make strategic decisions. The CODM considers the business from a geographic perspective and the Group reports three regional segments and a central support function. The main profit measure used by the CODM in its review is adjusted operating profit.
Each regional segment derives its revenues from the provision of critical industrial services focused on the energy and natural resource sectors.
The segment information for the year ended 31 December 2014 is as follows:
2014 | UK, Europe & CIS £m | MENA £m | Asia Pacific £m | Central £m | Group £m |
Continuing operations | |||||
Revenue | 388.5 | 175.6 | 134.2 | - | 698.3 |
Adjusted operating profit/(loss) before joint ventures | 38.5 | 16.6 | 1.4 | (4.4) | 52.1 |
Share of post-tax profit from joint ventures | - | - | - | - | - |
Adjusted operating profit/(loss) | 38.5 | 16.6 | 1.4 | (4.4) | 52.1 |
Other and exceptional items | (12.6) | ||||
Net finance costs | (9.7) | ||||
Profit before tax | 29.8 | ||||
2013 restated | UK, Europe & CIS £m | MENA £m | Asia Pacific £m | Central £m | Group £m |
Continuing operations | |||||
Revenue | 338.9 | 202.8 | 133.2 | - | 674.9 |
Adjusted operating profit/(loss) before joint ventures | 32.3 | 15.1 | (3.8) | (3.3) | 40.3 |
Share of post-tax profit from joint ventures | - | - | 0.3 | - | 0.3 |
Adjusted operating profit/(loss) | 32.3 | 15.1 | (3.5) | (3.3) | 40.6 |
Other and exceptional items | (30.2) | ||||
Net finance costs | (10.0) | ||||
Profit before tax | 0.4 |
Segmental adjusted operating profit/(loss) in the table above is shown after charging franchise fees. Adjusted operating profit before franchise fees is set out in note 8.
There were no significant sales between segments in either year.
Other segment items included in the consolidated income statement are as follows:
2014 | UK, Europe & CIS £m | MENA £m | Asia Pacific £m | Central £m | Group £m |
Depreciation (excluding discontinued operations) | 5.0 | 6.3 | 6.7 | 0.1 | 18.1 |
Amortisation | 2.6 | - | - | - | 2.6 |
2013 Restated | UK, Europe & CIS £m | MENA £m | Asia Pacific £m | Central £m | Group £m |
Depreciation (excluding discontinued operations) | 5.9 | 6.7 | 4.6 | - | 17.2 |
Amortisation | 0.1 | - | - | - | 0.1 |
The geographical origin of revenue based on location of the entity is analysed as follows:
2014 £m | Restated 2013 £m | |
Continuing operations: | ||
United Kingdom | 378.4 | 325.1 |
Australia | 96.7 | 79.7 |
Abu Dhabi | 39.5 | 59.4 |
Qatar | 56.6 | 58.4 |
Saudi Arabia Singapore | 63.2 2.9 | 54.8 17.3 |
Rest of the world | 61.0 | 80.2 |
Revenue from continuing operations | 698.3 | 674.9 |
Discontinued operations | 2.5 | 30.8 |
Total revenue | 700.8 | 705.7 |
The strategic report section in the Annual Report provides an analysis of revenues between maintenance support services (being services to plant operators to assist with their maintenance and production support activities) and construction support services (being services to engineering and contracting companies to support major construction projects). This split in customer base and revenue does not represent an operating segment as multi-discipline services are provided to all customers and as such the segmental analysis is only presented by geographic segments.
Revenue from continuing operations derived from maintenance support services was £486m (70%) (2013: £419m (62%)) and revenue derived from construction support services was £212m (30%) (2013: £256m (38%)).
Revenue from the largest client represented 15% of total revenue (2013: 11%) relating to activity across all geographic segments and the top ten clients represented 42% of revenue (2013: 40%).
The segment assets and liabilities at 31 December 2014 and capital expenditure for the year are as follows:
2014 | UK, Europe & CIS £m | MENA £m | Asia Pacific £m | Central £m | Unallocated £m | Group £m |
Assets - continuing | 120.8 | 115.6 | 82.3 | 124.0 | 132.4 | 575.1 |
Assets directly associated with disposal group held for sale (note 12) | 2.6 | - | - | - | - | 2.6 |
Total assets | 123.4 | 115.6 | 82.3 | 124.0 | 132.4 | 577.7 |
Non-current assets included in total assets | ||||||
Goodwill and intangibles - continuing | 59.5 | 47.1 | 41.4 | 0.1 | - | 148.1 |
Other - continuing | 29.8 | 25.3 | 24.4 | - | 33.3 | 112.8 |
Total - continuing | 89.3 | 72.4 | 65.8 | 0.1 | 33.3 | 260.9 |
Non-current assets - discontinued operations | - | - | - | - | - | - |
Total non-current assets | 89.3 | 72.4 | 65.8 | 0.1 | 33.3 | 260.9 |
Liabilities - continuing | 59.2 | 55.1 | 27.4 | 115.7 | 190.2 | 447.6 |
Liabilities - discontinued operations | - | 0.3 | - | - | - | 0.3 |
Liabilities directly associated with disposal group held for sale (note 12) | 2.3 | - | - | - | - | 2.3 |
Total liabilities | 61.5 | 55.4 | 27.4 | 115.7 | 190.2 | 450.2 |
Capital expenditure - property, plant and equipment | 8.3 | 2.9 | 3.9 | 0.2 | - | 15.3 |
Included within Asia Pacific's total non-current assets of £65.8m (2013: £71.9m) is £2.1m (2013: £3.0m) that is located in Singapore.
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.
Liabilities of discontinued operations of £0.3m relate to liabilities held in India. In 2013, this was previously included against assets for sale. Assets and liabilities held for sale in 2014 relate to the discontinuation of operations during the year.
The segment assets and liabilities at 31 December 2013 and capital expenditure for the year are as follows:
2013 | UK, Europe & CIS £m | MENA £m | Asia Pacific £m | Central £m | Unallocated* £m | Group £m |
Assets - continuing | 119.9 | 161.0 | 99.3 | 0.5 | 129.1 | 509.8 |
Assets directly associated with disposal group held for sale (note 12) | - | - | 3.7 | - | - | 3.7 |
Total assets | 119.9 | 161.0 | 103.0 | 0.5 | 129.1 | 513.5 |
Non-current assets included in total assets | ||||||
Goodwill and intangibles - continuing | 24.9 | 47.1 | 41.9 | - | - | 113.9 |
Other - continuing | 26.2 | 27.7 | 30.0 | 0.1 | 33.2 | 117.2 |
Total - continuing | 51.1 | 74.8 | 71.9 | 0.1 | 33.2 | 231.1 |
Non-current assets - discontinued | - | - | - | - | - | - |
Total non-current assets | 51.1 | 74.8 | 71.9 | 0.1 | 33.2 | 231.1 |
Liabilities - continuing | 46.1 | 64.1 | 26.2 | 97.7 | 146.2 | 380.3 |
Liabilities - discontinued | - | - | - | - | - | - |
Total liabilities | 46.1 | 64.1 | 26.2 | 97.7 | 146.2 | 380.3 |
Capital expenditure - property, plant and equipment | 7.2 | 8.5 | 1.8 | 0.2 | - | 17.7 |
*The unallocated column has been restated to reflect the correct classification of current asset restricted funds of £22.3m and non-current asset restricted funds of £9.0 million.
Segment assets consist primarily of property, plant and equipment, investments, intangible assets, inventories and trade and other receivables. Segment liabilities consist of operating liabilities.
Unallocated assets and liabilities comprise:
2014 | 2013 Restated | |||||
Assets £m | Liabilities £m | Assets £m | Liabilities £m | |||
Deferred tax | 24.3 | 7.5 | 24.2 | 4.7 | ||
Current tax | - | 7.6 | - | 7.1 | ||
Cash | 78.0 | - | 73.6 | - | ||
Restricted funds - current Restricted funds - non-current | 20.9 9.0 | - - | 22.3 9.0 | - - | ||
Current borrowings | - | - | - | 0.3 | ||
Non-current borrowings | - | 174.9 | - | 133.5 | ||
Derivatives | 0.2 | 0.2 | - | 0.6 | ||
Total unallocated | 132.4 | 190.2 | 129.1 | 146.2 | ||
8. Adjusted measures
The Group seeks to present a measure of underlying performance which is not impacted by exceptional or other items, both considered non-operational in nature. These measures are described as 'adjusted' and are used by management to measure and monitor performance. Other items and exceptional items have been excluded from the adjusted measures:
Note | 2014 £m | Restated 2013 £m | |
Profit before tax | 29.8 | 0.4 | |
Other items | 9 | 11.7 | 15.3 |
Exceptional items | 9 | 0.9 | 14.9 |
Interest income on restricted funds | (0.5) | (0.7) | |
Unwind of discount on provision for industrial disease claims | 3.4 | 4.0 | |
Write off of unamortised borrowing arrangement costs | - | 1.2 | |
Adjusted profit before tax | 45.3 | 35.1 | |
Operating profit | 39.5 | 10.4 | |
Other items | 9 | 11.7 | 15.3 |
Exceptional items | 9 | 0.9 | 14.9 |
Adjusted operating profit | 52.1 | 40.6 | |
Adjusted operating profit margin | 7.5% | 6.0% | |
Adjusted operating profit | 52.1 | 40.6 | |
Depreciation and amortisation - continuing operations | 18.1 | 17.2 | |
Adjusted EBITDA | 70.2 | 57.8 | |
Net debt | 69.2 | 28.9 | |
Unamortised borrowing arrangement costs | 2.9 | - | |
Restricted funds Less: cash transferred to assets of disposal group held for sale | 29.9 (1.0) | 31.3 - | |
Adjusted net debt | 101.0 | 60.2 | |
Finance costs | (11.0) | (11.5) | |
Unwind of discount on provision for industrial disease claims | 3.4 | 4.0 | |
Write off of unamortised borrowing arrangement costs | - | 1.2 | |
Adjusted finance costs | (7.6) | (6.3) |
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.
The segmental adjusted operating profit before franchise fee charges is as follows:
2014 | UK, Europe & CIS £m | MENA £m | Asia Pacific £m | Central Costs £m | Group £m |
Revenue | 388.5 | 175.6 | 134.2 | - | 698.3 |
Adjusted operating profit/(loss) before joint ventures | 38.5 | 21.1 | 6.6 | (14.1) | 52.1 |
Share of post-tax result of joint ventures | - | - | - | - | - |
Adjusted operating profit/(loss) | 38.5 | 21.1 | 6.6 | (14.1) | 52.1 |
2013 Restated | UK, Europe & CIS £m | MENA £m | Asia Pacific £m | Central Costs £m | Group £m |
Revenue | 338.9 | 202.8 | 133.2 | - | 674.9 |
Adjusted operating profit/(loss) before joint ventures | 31.5 | 19.8 | 1.2 | (12.2) | 40.3 |
Share of post-tax result of joint ventures | - | - | 0.3 | - | 0.3 |
Adjusted operating profit/(loss) | 31.5 | 19.8 | 1.5 | (12.2) | 40.6 |
9. Other items and exceptional items
a) Other items
2014 £m | 2013 £m | ||
(i) Continuing operations | |||
In operating profit: | |||
Amortisation of intangibles arising on business acquisitions Post-acquisition management compensation | 2.6 0.7 | - - | |
Actuarial charge to provision for industrial disease claims | 8.2 | 14.3 | |
Other industrial disease claims expenses | 0.2 | 1.0 | |
Other items included within operating profit | 11.7 | 15.3 |
b) Exceptional items
2014 £m | 2013 £m | ||
(i) Continuing operations | |||
Impairment of property, plant and equipment Acquisition related costs | - 0.9 | 4.2 - | |
Other changes in accounting estimates: | |||
Assessment of other non-current assets | - | 1.8 | |
Other | - | 8.9 | |
Exceptional items from continuing operations included within operating profit | 0.9 | 14.9 |
The impairment of property, plant and equipment in 2013 was in respect of assets held in Australia. The charge arising on the assessment of other non-current assets in 2013 related to provisions made against the carrying value of certain other assets held outside of the Australian business. In 2013 'Other' primarily comprises of restructuring costs including onerous leases and the write off of irrecoverable current assets.
2014 £m | 2013 £m | ||
(ii) Discontinued operations | |||
In loss from discontinued operations: | |||
Impairment of goodwill Impairment of investment in joint venture | 6.1 0.8 | - - | |
Impairment of assets held for sale | 2.8 | 0.6 | |
Provision for exit costs | 1.2 | - | |
Exceptional items included within loss from discontinued operations | 10.9 | 0.6 |
10. Finance income and costs
2014 £m | 2013 £m | ||
Interest income | |||
Short-term bank deposits | 0.1 | - | |
Interest on pension assets | 0.7 | 0.8 | |
Interest on restricted funds | 0.5 | 0.7 | |
Finance income | 1.3 | 1.5 | |
Interest expense | |||
Bank borrowings | (7.4) | (6.3) | |
Finance leases | (0.2) | - | |
Unwind of discount on provision for industrial disease claims | (3.4) | (4.0) | |
Write off of unamortised borrowing arrangement costs | - | (1.2) | |
Finance costs | (11.0) | (11.5) | |
Net finance costs | (9.7) | (10.0) |
11. Income tax
2014 £m | 2013 £m | |
Current tax | ||
UK Overseas | 1.5 6.2 | - 6.7 |
Adjustments in respect of prior years | (0.4) | 2.2 |
Deferred tax UK | 0.5 | - |
Overseas | (0.8) | (5.4) |
Adjustments in respect of prior years | 0.3 | (0.8) |
Income tax expense | 7.3 | 2.7 |
The difference between the actual tax charge and the charge that would have arisen using Jersey's standard corporate income tax rate of 0% (2013: 0%) is explained in the table below:
2014 £m | Restated 2013 £m | |
Profit before tax | 29.8 | 0.4 |
Tax calculated at the standard rate of corporate income tax in Jersey of 0% (2013: 0%) | - | - |
Adjustments in respect of prior year Share option charge | (0.1) 0.1 | 1.4 - |
Effect of different overseas tax rates Unrelieved overseas tax | 5.4 0.2 | (2.0) - |
Deferred tax asset not recognised in respect of losses Tax in respect of joint ventures Expenses non-deductible | 0.3 0.1 2.2 | 0.4 - 3.3 |
Income not taxable | (0.8) | (1.4) |
Change in tax rates | (0.1) | 1.0 |
Tax charge | 7.3 | 2.7 |
Included within the tax charge of £7.3m is a tax credit of £1.8m (2013: credit of £4.5m) relating to exceptional and other items. The local tax rate is applied to the underlying costs or income however certain exceptional costs due to their very nature will not have an associated tax charge or credit. The overall effective rate applied to these costs will vary year upon year depending on the location and the nature of the cost.
Factors affecting current and future tax charges
The Group has worldwide operations and 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.
12. Discontinued operations and assets held for sale
Analysis of the result of discontinued operations and the result recognised on the re-measurement of assets of the disposal group is as follows:
2014 £m | Restated 2013 £m | ||
Revenue | 2.5 | 30.8 | |
Expenses | (3.9) | (36.2) | |
Loss before tax of discontinued operations | (1.4) | (5.4) | |
Deferred income tax credit Share of post-tax result of discontinued joint venture | 0.2 - | 0.8 0.2 | |
Loss after tax of discontinued operations before exceptional and other items | (1.2) | (4.4) | |
Exceptional items: | |||
Impairment of goodwill Impairment of investment in joint venture Impairment of assets held for sale Provision for exit costs | (6.1) (0.8) (2.8) (1.2) | - - (0.6) - | |
Loss after tax of discontinued operations after exceptional and other items | (12.1) | (5.0) |
Discontinued operations in 2014 primarily relate to the planned termination of operations in Kazakhstan. Discontinued operations in 2013 relate to the termination of operations in India and Japan and the disposal of certain businesses following the restructuring of the Australian operations.
The major classes of assets and liabilities directly associated with the disposal group classified as held for sale are split as follows:
2014 | 2013 | ||
Assets directly associated with disposal group held for sale | £m | £m | |
Property, plant and equipment Investment held in joint venture Trade and other receivables | 1.8 0.8 2.6 | 3.7 - - | |
Cash Goodwill | 1.0 6.1 | - - | |
Assets directly associated with disposal group held for sale before impairment | 12.3 | 3.7 | |
Impairment of assets associated with disposal group held for sale | (9.7) | - | |
Assets directly associated with disposal group held for sale after impairment | 2.6 | 3.7 |
2014 | 2013 | ||
Liabilities directly associated with disposal group held for sale | £m | £m | |
Trade and other payables | (1.1) | - | |
Liabilities directly associated with disposal group held for sale before impairment | (1.1) | - | |
Provision for exit costs | (1.2) | - | |
Liabilities directly associated with disposal group held for sale after impairment | (2.3) | - | |
Net assets of disposal group held for sale | 0.3 | 3.7 |
The net assets of the disposal group classified as held for sale of £0.3m at 31 December 2014 is stated after the Group recognised an impairment charge of £9.7m on those assets and the recognition of a provision for exit costs of £1.2m.
13. Earnings per ordinary share
Basic earnings per share ('EPS') for the year equals the profit after tax attributable to the Company's ordinary shareholders of £10.4m (2013: loss of £6.8m) divided by the weighted average number of issued ordinary shares of 121,040,516 (2013: 120,825,623).
When the Group makes a profit, diluted EPS equals the profit attributable to the Company's ordinary shareholders divided by the diluted weighted average number of issued ordinary shares. When the Group makes a loss, diluted EPS equals the loss attributable to the Company's ordinary shareholders divided by the basic (undiluted) weighted average number of issued ordinary shares. This ensures that EPS on losses is shown in full and not diluted by unexercised share options or awards.
Share options and awards are considered dilutive when the average share price during the year is higher than the average exercise price of the option or award.
2014 Shares | 2013 Shares | |
Basic weighted average number of shares | 121,040,516 | 120,825,623 |
Adjustments: | ||
Weighted average number of outstanding share options | 61,245 | 1,109,048 |
Diluted weighted average number of shares | 121,101,761 | 121,934,671 |
The basic weighted average number of shares excludes shares that the Company holds in an employee benefit trust. The weighted average number of shares held in the trust during the year was 63,421 (2013: 266,653).
2014 | 2013 Restated | |||
Earnings £m | EPS pence | Earnings £m | EPS pence | |
Basic earnings/(loss) per share | ||||
Continuing operations | 22.5 | 18.6 | (1.8) | (1.5) |
Discontinued operations | (12.1) | (10.0) | (5.0) | (4.1) |
Basic earnings/(loss) per share | 10.4 | 8.6 | (6.8) | (5.6) |
Diluted earnings/(loss) per share | ||||
Continuing operations | 22.5 | 18.6 | (1.8) | (1.5) |
Discontinued operations | (12.1) | (10.0) | (5.0) | (4.1) |
Diluted earnings/(loss) per share | 10.4 | 8.6 | (6.8) | (5.6) |
Adjusted basic earnings per share - continuing operations | ||||
Earnings/(loss) from continuing operations | 22.5 | 18.6 | (1.8) | (1.5) |
Amortisation of intangibles | 2.6 | 2.1 | - | - |
Post-acquisition management compensation | 0.7 | 0.6 | - | - |
Exceptional items | 0.9 | 0.7 | 14.9 | 12.3 |
Industrial disease related costs and interest income | 11.3 | 9.3 | 18.6 | 15.4 |
Write off of unamortised borrowing arrangement costs | - | - | 1.2 | 1.0 |
Tax effect of adjusting items | (1.8) | (1.4) | (4.5) | (3.7) |
Adjusted basic earnings per share | 36.2 | 29.9 | 28.4 | 23.5 |
Adjusted diluted earnings per share - continuing operations | ||||
Earnings from continuing operations | 22.5 | 18.6 | (1.8) | (1.5) |
Amortisation of intangibles | 2.6 | 2.1 | - | - |
Post-acquisition management compensation | 0.7 | 0.6 | - | - |
Exceptional items | 0.9 | 0.7 | 14.9 | 12.2 |
Industrial disease related costs and interest income | 11.3 | 9.3 | 18.6 | 15.3 |
Write off of unamortised borrowing arrangement costs | - | - | 1.2 | 1.0 |
Tax effect of adjusting items | (1.8) | (1.4) | (4.5) | (3.7) |
Adjusted diluted earnings per share | 36.2 | 29.9 | 28.4 | 23.3 |
The adjusted earnings per share calculations have been calculated after excluding the impact of amortisation of intangibles, non-recurring costs, exceptional items, industrial disease claims related costs and interest income and the tax impact of these items. Options are dilutive at the level of adjusted profit from continuing operations and so, in accordance with IAS 33 'Earnings per Share', have been treated as dilutive for the purpose of adjusted diluted earnings per share.
14. Dividends per share
An interim dividend was paid on 10 October 2014 amounting to 4.5 pence per share (2013: 4.5 pence per share). Interim dividends are recognised when paid. A final dividend in respect of the year ended 31 December 2014 of 9.5 pence per share, amounting to £11.5m, is to be proposed at the Annual General Meeting convened for 12 May 2015, making a total dividend of 14.0 pence per share for the year (2013: 14.0 pence per share).
These consolidated financial statements do not reflect this final dividend payable.
15. Intangible assets
Goodwill £m | Other £m | Total £m | ||
Cost | ||||
At 1 January 2013 - restated (see below) | 246.9 | 10.5 | 257.4 | |
Additions | - | 0.1 | 0.1 | |
Disposals | - | (3.9) | (3.9) | |
Exchange adjustments | (3.4) | (1.0) | (4.4) | |
At 31 December 2013 | 243.5 | 5.7 | 249.2 | |
Acquired through business combination (note 21) Additions | 20.1 - | 23.2 0.1 | 43.3 0.1 | |
Disposals | - | - | - | |
Exchange adjustments Transfer to assets held for sale (note 12) | (0.5) (6.1) | - - | (0.5) (6.1) | |
At 31 December 2014 | 257.0 | 29.0 | 286.0 | |
Amortisation and impairment | ||||
At 1 January 2013 - restated (see below) | 129.8 | 10.4 | 140.2 | |
Amortisation charge | - | 0.1 | 0.1 | |
Disposals | - | (3.9) | (3.9) | |
Exchange adjustments | - | (1.1) | (1.1) | |
At 31 December 2013 | 129.8 | 5.5 | 135.3 | |
Amortisation charge Disposals Exchange adjustments | - - - | 2.6 - - | 2.6 - - | |
At 31 December 2014 | 129.8 | 8.1 | 137.9 | |
Net book amount: | ||||
At 1 January 2013 | 117.1 | 0.1 | 117.2 | |
At 31 December 2013 | 113.7 | 0.2 | 113.9 | |
At 31 December 2014 | 127.2 | 20.9 | 148.1 | |
Goodwill cost and amortisation previously reported at 1 January and 31 December 2013 showed cumulative goodwill impairments of £129.8m as a reduction against cost. The information above has been restated to reflect the correct presentation within amortisation and impairment.
Impairment tests for goodwill
As required by IAS 36 'Impairment of assets', the Group tests goodwill for impairment on an annual basis. The recoverable amounts of each cash-generating unit ('CGU') is based on a value in use calculation.
Each CGUs value in use was calculated by taking the Group's five year cash flow forecasts and then applying a long-term growth rate to the periods beyond the fifth year, discounted back using a pre-tax discount rate. These present values were then compared to the combined carrying value of the CGUs assets (goodwill, intangible assets and property, plant and equipment). The key assumptions used in preparing the discounted cash flows were as follows:
EBITDA and cash flow projections
EBITDA and capital expenditure in the five year forecast commenced with the most recently approved annual budget, years two to five were prepared on a country by country basis by considering past performance, long term market share and estimates of market growth by sector. All cash flows associated with future capital expenditure that would enhance the performance of the CGUs were then removed from the discounted cash flows.
Discount rate
The discount rate reflects the estimated post-tax rate of return that would be expected from a rational investor over the period of the forecast, which is then adjusted to a pre-tax discount rate by reference to the Group's five year cash tax forecast. The post-tax discount rate was calculated using the Capital Asset Pricing Model approach, with the risk free rate based on UK Government gilts, the beta derived via weekly observations over a five year period and the risk premium based on a consistent long-term average return on shares. Adjustments were then made to the discount rate of each CGU to reflect different risks associated with those CGUs (both specific risk premiums and in respect of local risk free rates). The pre-tax discount rates applied are set out in the table below.
Long term growth rates
Long term growth rates were also applied to each CGU separately. Considerations to derive the growth rates included long term GDP growth and projected growth rates in the supply and demand for energy. The long term growth rates applied are also set out below.
The assumptions used in the value in use calculations were as follows:
Goodwill £m | Discount rate | Long term growth rate | Headroom £m | |
UK | 18.7 | 11.9% | 2.4% | 227.6 |
MENA | 47.1 | 12.0% | 2.7% | 226.5 |
Australia | 20.1 | 13.6% | 2.7% | 26.0 |
Asia Motherwell Bridge | 21.2 20.1 | 16.0% 12.0% | 2.7% 2.0% | 39.6 58.3 |
127.2 | 578.0 |
Sensitivities
The table below discloses what changes in the key assumptions would cause the carrying value of the CGUs to exceed their recoverable amounts:
Discount rate to reach impairment | Long term growth rate to reach impairment | |
UK | 51.4% | Note* |
MENA | 28.1% | (52.8%) |
Australia | 20.8% | (13.4%) |
Asia Motherwell Bridge | 32.9% 27.0% | (63.3%) (44.8%) |
Sensitivities were also applied to the five year EBITDA compound annual growth rates, again there was sufficient headroom in each of the CGUs with flat or negative growth rates still providing headroom.
*Note: while the level of headroom is significant, it is not practicable to calculate.
16. Property, plant and equipment
During the year ended 31 December 2014, the Group acquired assets with a cost of £15.3m (2013: 17.7m) and received proceeds from asset sales of £1.3m (2013: £2.2m) as shown in the consolidated cash flow statement representing the actual cash outflow.
Land and buildings | Fixtures and fittings | Plant and machinery | Assets under course of construction | Total | |
£m | £m | £m | £m | £m | |
Cost | |||||
At 1 January 2013 | 20.1 | 9.3 | 191.5 | - | 220.9 |
Exchange adjustments | (0.7) | (0.4) | (11.9) | - | (13.0) |
Additions | 2.5 | 0.8 | 14.4 | - | 17.7 |
Disposals | (2.1) | (0.3) | (26.6) | - | (29.0) |
At 31 December 2013 | 19.8 | 9.4 | 167.4 | - | 196.6 |
Exchange adjustments | 0.2 | - | 3.0 | - | 3.2 |
Additions | - | 0.9 | 14.1 | 0.3 | 15.3 |
Acquired through business combination (note 21) | 1.7 | - | 0.6 | - | 2.3 |
Disposals Transfer to assets held for sale (note 12) | (0.8) - | (0.2) - | (18.4) (5.9) | - - | (19.4) (5.9) |
At 31 December 2014 | 20.9 | 10.1 | 160.8 | 0.3 | 192.1 |
Accumulated depreciation and impairment | |||||
At 1 January 2013 | 5.0 | 7.9 | 116.7 | - | 129.6 |
Exchange adjustments | (0.4) | (0.3) | (6.9) | - | (7.6) |
Charge for the year | 1.0 | 0.8 | 15.9 | - | 17.7 |
Disposals | (1.2) | (0.3) | (22.9) | - | (24.4) |
At 31 December 2013 | 4.4 | 8.1 | 102.8 | - | 115.3 |
Exchange adjustments | 0.1 | (0.1) | 2.4 | - | 2.4 |
Charge for the year Impairment loss | 0.9 - | 0.8 - | 16.6 0.1 | - - | 18.3 0.1 |
Disposals Transfer to assets held for sale (note 12) | (0.2) - | (0.1) - | (16.9) (4.1) | - - | (17.2) (4.1) |
At 31 December 2014 | 5.2 | 8.7 | 100.9 | - | 114.8 |
Net book amount | |||||
At 1 January 2013 | 15.1 | 1.4 | 74.8 | - | 91.3 |
At 31 December 2013 | 15.4 | 1.3 | 64.6 | - | 81.3 |
At 31 December 2014 | 15.7 | 1.4 | 59.9 | 0.3 | 77.3 |
Included within the depreciation charge for the year of £18.3m (2013: £17.7m) is an amount of £0.2m (2013: £0.5 million) relating to discontinued operations. The remaining £18.1m (2013: £17.2m) relating to continuing operations has been charged to cost of sales in the consolidated income statement.
Exchange adjustments relate to the translation of assets held by foreign operations into the presentation currency.
The Group leases property, plant and equipment under finance lease agreements. At 31 December 2014, the net carrying amount of property, plant and equipment includes the following amounts held under finance lease: plant and machinery £0.7m (2013: £1.4m) and land and buildings £1.5m (2013: £nil). Additions during the year include £nil of plant and machinery under finance leases.
17. Provisions
Onerous contracts £m | Legal £m | Other £m | Total £m | Industrial disease claims £m | Total Group £m | ||
At 1 January 2014 | 8.9 | 7.0 | 5.3 | 21.2 | 94.3 | 115.5 | |
Acquired through business combination (note 21) | 4.1 | - | 0.8 | 4.9 | - | 4.9 | |
Utilised | (7.1) | (0.4) | (2.9) | (10.4) | (7.7) | (18.1) | |
Charged to the income statement | 3.8 | - | 1.1 | 4.9 | 8.2 | 13.1 | |
Discount unwind | - | - | - | - | 3.4 | 3.4 | |
At 31 December 2014 | 9.7 | 6.6 | 4.3 | 20.6 | 98.2 | 118.8 | |
2014 | |||||||
Current provisions | 8.8 | 6.6 | 2.3 | 17.7 | 4.7 | 22.4 | |
Non-current provisions | 0.9 | - | 2.0 | 2.9 | 93.5 | 96.4 | |
9.7 | 6.6 | 4.3 | 20.6 | 98.2 | 118.8 | ||
2013 | |||||||
Current provisions | 8.9 | 7.0 | 4.6 | 20.5 | 6.0 | 26.5 | |
Non-current provisions | - | - | 0.7 | 0.7 | 88.3 | 89.0 | |
8.9 | 7.0 | 5.3 | 21.2 | 94.3 | 115.5 |
Onerous contracts
Provision is made for onerous contracts where it is considered that the contract costs are likely to exceed revenues in future years. Inherent uncertainties in measuring the provision relate to estimates of the future costs expected to be incurred and of revenues expected to be received. The majority of this is expected to be settled in 2015, with the remaining balance expected to be settled in 2016.
Legal
The Group is involved in a number of legal and other disputes, including notification of possible claims. The directors, having considered the facts and circumstances of each item, including legal advice where appropriate have established provisions to cover the costs of future settlement. Uncertainties relate to whether the Group is successful in defending any action. These are expected to be settled in 2015.
Other
Other provisions comprise various provisions including disposal costs on businesses being divested, restructuring provisions, property related provisions and contingent consideration on acquisitions. Inherent uncertainties in measuring the provision relate to estimates of disposal costs associated with any businesses being divested, estimates of expected restructuring costs and expected property costs and estimates of contingent consideration on acquisitions. The majority of this is expected to be settled in 2015, with the remaining balance expected to be settled in 2016.
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 arising from alleged exposure to previously manufactured asbestos products. The most recent full actuarial valuation was performed in 2013 and the next full valuation will be completed in 2016. 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.
The provision for industrial disease claims is discounted at 2.5% (2013: 3.75%) being the appropriate risk free rate as at the balance sheet date, over the term of the liabilities, being approximately 40 years.
There is uncertainty associated with the future level of asbestos related industrial disease claims and of the costs arising from such claims. 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. 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 directors anticipate that, assuming no material deterioration in trading performance, the Group will (i) be able to sufficiently fund its subsidiary Cape Claims Services Limited to satisfy all claims that will be settled under the Scheme of Arrangement and (ii) be sufficiently funded to satisfy all other UK claims settled outside of the Scheme of Arrangement.
18. Share capital and reserves
Ordinary shares of 25p each | 2014 Number of shares | 2014 £m | 2013 Number of shares | 2013 £m |
Authorised | 200,000,000 | 50.0 | 200,000,000 | 50.0 |
Issued and fully paid: | ||||
At 1 January | 121,103,937 | 30.3 | 121,068,690 | 30.3 |
Issue of shares | - | - | 7,437 | - |
Exercise of share options | - | - | 27,810 | - |
At 31 December | 121,103,937 | 30.3 | 121,103,937 | 30.3 |
plc Scheme share | ||||
Authorised, issued and fully paid at 1 January and 31 December | 1 | - | 1 | - |
As at 31 December 2014, 31,160 (2013: 225,630) shares were held in an employee benefit trust.
Special reserve
The special reserve was created in 2008 by court order upon cancellation of the share premium and retained earnings. The special reserve is not distributable and restrictions exist over its use.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of financial statements of foreign operations.
Other reserves
Other reserves relates to hedging reserves held in respect of net investment hedges.
plc Scheme Share
The plc Scheme Share is held by the Law Debenture Trust Corporation plc on behalf of the Scheme creditors.
The rights attaching to the share are designed to ensure that Scheme assets are only used to settle Scheme claims and ancillary costs and do not confer any right to receive a distribution or return of surplus capital save that the holder will have the right to require the Company to redeem the share at par value on or at any time after the termination of the Scheme.
The share carries two votes for every vote which the holders of the other classes of shares in issue are entitled to exercise on any resolution proposed during the life of the Scheme to engage in certain activities specified in the Company's Articles of Association.
The Company will not be permitted to engage in certain activities specified in the Company's Articles of Association without the prior consent of the holder of the share.
Share based payments
The Performance Share Plan ('PSP') is the conditional award of ordinary shares granted at no cost to the participant employees or executive directors of the Group. Awards are made upon the terms set out in the plan and such other additional terms as the Board shall determine. Depending on the scheme, vesting of these awards is subject to Cape plc adjusted diluted or basic Earnings Per Share ('EPS') meeting the specified performance criteria over a three-year vesting period.
The final year performance criteria for awards until 2011 were, adjusted diluted EPS growth of the Retail Price Index ('RPI') plus 3% for the minimum of 30% of the shares awarded to vest, and EPS growth of RPI plus 10% for all of the shares awarded to vest, calculated on an annually compounded basis.
The final year performance criteria for the 2012 awards were, adjusted diluted EPS growth of RPI plus 3% for employees and RPI plus 5% for executive directors for the minimum of 30% of the shares awarded to vest, and EPS growth of RPI plus 10% for employees and RPI plus 12% for executive directors for all of the shares awarded to vest, calculated on an annually compounded basis.
For the 2013 award specific EPS targets for the final year of the vesting period were set to 29 pence for the minimum of 30% of the shares awarded to vest and 36 pence for all of the shares awarded to vest. The contractual life of the award is three years and is subject to continued employment.
The final year performance criteria for the 2014 award are based on the 2013 adjusted diluted EPS growth of the Retail Price Index (RPI) plus 3% for the minimum of 30% of the shares awarded to vest; and EPS growth of RPI plus 10% for all the shares awarded to vest, calculated on an annual compounded basis.
The shares issued under the PSP have an exercise price of £nil and under the fair value model used by the Company are deemed to have a fair value equivalent to the share price on the day of grant. Therefore, the shares granted at 31 March 2014 have a fair value of 312.5 pence (2013: 313.5 pence).
The Employee Incentive Plan ('EIP') allows the Group to grant options to directors and senior employees. The last tranche of this scheme was awarded in 2008. The EIP carries a non-market based performance criteria. The contractual life of the options is ten years. The options become exercisable on the third anniversary of the date of grant, subject to a growth in earnings per share over that period exceeding an average 3% compounded annually above the growth in the consumer price index over the same period. Exercise of an option is subject to continued employment.
Options are valued using the Black-Scholes option pricing model. The fair value per option granted and the assumptions used in the calculation for the current year are as follows:
Employee Incentive Plan | |
Weighted average fair value at measurement date | 80.9p |
Share price at grant date | 269.0p |
Exercise price | 269.0p |
Vesting period | 3 years |
Expected option life | 3.95 years |
Risk free interest rate | 2.18% |
Expected share price volatility | 28% |
The expected share price volatility is based on historic volatility. The expected option life is the average expected period to exercise. The risk free rate of return is the yield on a five-year zero coupon UK Government bond. The assumed dividend yield is zero.
The number and weighted average exercise price of the share options under the PSP plan, the Sharesave plan and the share awards under the EIP plan are as follows:
Performance Share Plan | Number of share options 2014 | Restated Number of share options 2013 |
Outstanding at 1 January | 1,823,127 | 1,520,576 |
Exercised | (194,470) | (132,079) |
Granted | 1,091,088 | 1,161,941 |
Forfeited Lapsed | (117,735) (249,239) | (305,160) (422,151) |
Outstanding at 31 December | 2,352,771 | 1,823,127 |
Out of the 2,352,771 outstanding PSP awards (2013: 1,823,127), nil shares were exercisable (2013: 194,470). No awards vested in 2014 (2013: Nil). All PSP share options are at no cost to the participant.
During 2014, the following amount of share options were exercised: 98,788 shares options on 25 March 2014, 82,500 share options on 23 April 2014 and 13,182 share options on 11 September 2014. The weighted average share price at these exercise dates were 283.0p, 310.1p and 290.8p respectively.
Sharesave plan | Weighted average exercise price 2014 pence | Number of share options 2014 | Weighted average exercise price 2013 pence | Number of share options 2013 |
Outstanding at 1 January | - | - | 230.0 | 156,145 |
Exercised | - | - | 230.0 | (27,810) |
Forfeited | - | - | 230.0 | (128,335) |
Outstanding at 31 December | - | - | - | - |
There were no options outstanding under the Sharesave plan at the date of the statement of financial position (2013: none). There were no options exercised in 2014 (2013: 27,810 shares at £2.30 each).
Employee Incentive Plan | Weighted average exercise price 2014 pence | Number of share options 2014 | Weighted average exercise price 2013 pence | Number of share options 2013 |
Outstanding at 1 January | 269.0 | 85,000 | 257.8 | 125,000 |
Exercised | - | - | - | - |
Forfeited | 269.0 | (75,000) | 234.1 | (40,000) |
Outstanding at 31 December | 269.0 | 10,000 | 269.0 | 85,000 |
All of the options outstanding at 31 December 2014 were exercisable (2013: all were exercisable). No options were exercised in the year (2013: none).
Share options and awards outstanding at the end of the year have the following expiry date and exercise prices:
Performance Share Plan expiry date | 2014 | Restated 2013 |
30 April 2014 | - | 181,288 |
29 July 2014 | - | 13,182 |
17 March 2015 | - | - |
13 April 2015 | - | 264,236 |
28 September 2016 | - | 12,903 |
20 April 2017 | 192,016 | 217,187 |
29 June 2017 | 96,522 | 96,522 |
31 March 2018 31 March 2019 | 985,874 1,078,359 | 1,037,809 - |
2,352,771 | 1,823,127 |
On 31 March 2014, 1,091,088 share options were awarded to executive directors and employees under the Performance Share Plan which vest after three years subject to performance criteria being met (2013: 1,161,941). If the criteria are met, the awards vest at no cost to the employees and executive directors.
Employee Incentive Plan expiry dates | Exercise price per share pence | 2014 | Restated 2013 |
22 March 2017 | 269.0 | 10,000 | 85,000 |
10,000 | 85,000 |
The total charge for the year relating to employee share based payment plans was £0.6m (2013: charge of £0.6m), all of which related to equity settled share based payment transactions.
At 31 December 2014, there is an amount of £0.4m (2013: £0.2m) included within 'other' provisions of £4.3m (2013: £5.3m) as per note 17. This relates to national insurance payable on share based payment charges.
19. Cash generated from operations
a) Reconciliation of Group profit before tax to cash generated from continuing and discontinued operations
2014 £m | Restated 2013 £m | |
Cash flows from operating activities | ||
Continuing operations | ||
Profit before tax | 29.8 | 0.4 |
Finance costs - net | 9.7 | 10.0 |
Share of post-tax result of joint ventures | - | (0.3) |
Other items | (0.8) | 9.3 |
Payments made on behalf of IDC Scheme | (3.4) | - |
Exceptional items | - | 10.6 |
Share option charge | 0.6 | 0.6 |
Depreciation and amortisation | 20.7 | 17.2 |
Difference between pension charge and cash contributions | 1.3 | 0.9 |
Loss/(gain) on sale of property, plant and equipment | 0.1 | (0.2) |
(Increase)/decrease in inventories | (2.0) | 6.1 |
(Increase)/decrease in trade and other receivables | (23.2) | 48.3 |
Increase/(decrease) in trade and other payables | 3.4 | (37.6) |
Increase/(decrease) in provisions | 4.2 | (2.7) |
Cash generated from continuing operations | 40.4 | 62.6 |
Discontinued operations | ||
Loss before tax | (1.2) | (5.4) |
Exceptional items | - | - |
Depreciation Loss on sale of property, plant and equipment Decrease in inventories Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Cash reclassified to assets held for sale Tax paid (Decrease) in provision | 0.2 0.8 1.1 3.6 (0.2) (1.0) (0.3) (1.7) | 0.6 0.7 1.2 (12.0) 3.7 - (1.7) - |
Cash used in discontinued operations | 1.3 | (12.9) |
In the consolidated cash flow statement, proceeds from sale of property, plant and equipment comprise:
2014 £m | Restated 2013 £m | |
Net book amount | 2.2 | 2.7 |
(Loss)/gain on disposal of property, plant and equipment - continuing operations | (0.1) | 0.2 |
Loss on disposal of property, plant and equipment - discontinued operations | (0.8) | (0.7) |
Proceeds from disposal of property, plant and equipment - continuing operations | 1.3 | 2.2 |
b) Analysis of cash flows relating to restricted deposits
2014 £m | 2013 £m | |
At 1 January | 31.3 | 27.4 |
Payment of Scheme creditors | (3.7) | (3.1) |
Interest received | 1.7 | 1.0 |
Receipt of funds | 0.6 | 6.0 |
At 31 December | 29.9 | 31.3 |
Restricted deposits include funds held to settle a tax liability and Scheme cash which is used to fund industrial disease claims.
20. Reconciliation of net cash flow to movement in net debt (excluding restricted deposits)
2014 £m | 2013 £m | |
Net increase in cash and cash equivalents | 4.4 | 0.8 |
Movement in obligations under finance leases | - | 0.3 |
Repayment on revolving facility | 130.6 | - |
Movement on revolving facility | - | 2.0 |
Drawing on borrowings | (167.9) | (2.3) |
Finance leases and borrowings on acquisition | (5.6) | - |
Foreign exchange movements Net movement in unamortised borrowing arrangement costs Cash transferred to disposal group held for sale | (0.4) (2.9) 1.0 | 4.2 - - |
Movements in adjusted net debt during the year | (40.8) | 5.0 |
Adjusted net debt excluding restricted deposits - opening | (60.2) | (65.2) |
Adjusted net debt excluding restricted deposits - closing | (101.0) | (60.2) |
Adjusted net debt excluding restricted deposits is calculated by deducting current and non-current borrowings from cash and cash equivalents.
21. Business acquisitions
On 10 March 2014 the Group acquired 100% of the voting shares of Motherwell Bridge Limited, a UK incorporated and headquartered leading provider of construction and maintenance services to the energy and steel markets for storage tanks, gasholders and heat exchangers. The Group acquired the Motherwell Bridge business to broaden both its product portfolio and customer bases. The acquisition has been accounted for using the acquisition method.
The fair value of the identifiable assets and liabilities of Motherwell Bridge as at the date of acquisition were:
Fair value recognised on acquisition £m | ||
Assets | ||
Property, plant and equipment | 2.3 | |
Cash and cash equivalents | 2.6 | |
Trade and other receivables | 9.7 | |
Inventories | 0.7 | |
Deferred tax asset | 0.8 | |
Intangible assets | 23.2 | |
39.3 | ||
Liabilities | ||
Trade and other payables | (11.0) | |
Current income tax | (0.4) | |
Borrowings | (5.7) | |
Deferred tax liabilities | (4.6) | |
Provision for liabilities | (4.9) | |
(26.6) | ||
Total identifiable net assets at fair value | 12.7 | |
Goodwill arising on acquisition | 20.1 | |
Purchase consideration transferred | 32.8 | |
Analysis of cash flows on acquisition: | ||
Cash paid | 32.8 | |
Net cash acquired with the subsidiary (included in cash flows from investing activities) | (2.6) | |
Net cash outflows | 30.2 | |
Cash paid into escrow for deferred consideration | 2.1 | |
Deferred consideration contingent upon future contract and profit performance was determined to have nil fair value as the contract and performance criteria were not expected to be met.
The acquired intangible assets comprise trademarks of £6.8m, supply agreements of £2.6m and other customer related intangibles of £13.8m.
At the date of acquisition the gross contractual value of receivables was £9.7m, with an equivalent fair value of £9.7m.
The consolidated financial statements include the results of Motherwell Bridge from the date of acquisition, contributing £27.8m of revenue and £4.0m to adjusted profit before tax from continuing operations of the Group. Had the acquisition taken place on 1 January 2014, revenue from continuing operations would have been £705.0m and adjusted profit before tax from continuing operations for the period would have been £46.0m.
The goodwill recognised on the acquisition is primarily attributable to the expected synergies and other benefits arising from combining the Motherwell Bridge operations into the Group. The goodwill is not deductible for income tax purposes.
Acquisition related costs of £0.9m have been charged to exceptional items through continuing operations. Amortisation of intangible assets acquired as part of the transaction of £2.6m has been charged to other items through continuing operations.
22. Contingent liabilities
The provision for industrial disease claims has been determined as at 31 December 2014 based on advice from independent actuaries. The provision reflects costs which the Group is expected to incur in respect of lodged and future industrial disease claims. The most recent full actuarial valuation was performed in 2013 and the next full valuation will be completed during 2016. As reported in note 17 'Provisions', the value of the provision is £98.2m (2013: £94.3m) and the actuarial range of reasonable estimates assessed at the time of the last actuarial valuation was between £89m and £123m. As legal precedent in this area continues to develop the Group is subjected to new claim types which give rise to uncertainty in both the future level of asbestos related industrial disease claims and of the legal and other costs arising from such claims. The Board consider that the provision for industrial disease claims as at 31 December 2014 captures all expected material industrial disease scheme liabilities at the balance sheet date; however, the provision may be subject to potentially material revisions if new information becomes available as a result of future events and developments in claims and legal precedents.
Further to an incident that occurred on a client's site during 2012 that tragically resulted in the fatality of a Cape employee, the Health and Safety Executive notified Cape Industrial Services Limited, the employing company, in early 2014 of their decision that legal proceedings should commence. During 2014, a Cape employee suffered a fatality at a client's offshore installation. The investigation by the enforcing authorities is ongoing. At the date of the statement of financial position no amounts have been provided in respect of these matters. It is not practicable to provide an estimate of the financial effect and there is uncertainty relating to the amount or timing of any outflow.
The Group is required to issue trade finance instruments to certain customers. These include tender bonds, performance bonds, retention bonds, advance payment bonds and standby letters of credit. At 31 December 2014 the Group's bank facilities relating to the issue of bonds, guarantees and letters of credit amounted to £60.7m (2013: £45.1m).
23. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Other related party transactions are disclosed below.
As at the year-end there was a balance of £6.4m (2013: £3.4m) owed by joint ventures. These amounts are unsecured, have no fixed date of repayment and are repayable on demand. Amounts owed by joint ventures are assessed for recoverability and, where necessary, provided for in line with normal commercial transactions. Revenue of joint ventures in 2014 was £17.8m (2013: £17.8m).
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