CAPE PLC Released :06 Apr 2017
Cape plc
6 April 2017
6 April 2017
Cape plc ('Cape' or the 'Company')
Annual Financial Report
Cape announces that its Annual Financial Report for the year ended 31 December 2016 (the "2016Annual Report"), the Notice of Annual General Meeting ("Notice of AGM"), form of proxy ("Form of Proxy") and a letter requesting the sending of documents and information by electronic means ("Electronic Documents and Information Letter") have today been mailed to Ordinary Shareholders and the Scheme Shareholder (as defined in the Company's Articles of Association).
Pursuant to Listing Rule 9.6.1, the 2016 Annual Report, Notice of AGM, Form of Proxy and Electronic Documents and Information Letter have been submitted to the National Storage Mechanism and will shortly be available for inspection at:www.Hemscott.com/nsm.doand can also be viewed on the Company's website atwww.capeplc.com.
AGM Location
The Company's AGM will be held at 10.00am (BST) on Wednesday, 10 May 2017 at the offices of Cape at Drayton Hall, Church Road, West Drayton, Middlesex UB7 7PS, United Kingdom.
Additional Information
In accordance with Disclosure and Transparency Rule 6.3.5(2)(b), additional information is set out in the appendices to this announcement. This information is extracted in full unedited text from the Annual Report. References to page numbers are the respective page numbers in the Annual Report. This information is not a substitute for reading the full Annual Report.
Cape plc
Richard Allan
Company Secretary
Appendices:
Appendix 1: Directors' Responsibility Statement
The following directors' responsibility statement is extracted from the 2016 Annual Report (page 79).
Directors' responsibilities
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations. The directors are also responsible for the preparation
of the directors' remuneration report, which they have chosen to prepare, being under no obligation to do so under Jersey law ('the Law'). The directors are also responsible for the preparation of the Directors' governance report under the Listing Rules.
Jersey company law requires the directors to prepare financial statements for each financial period in accordance with generally accepted accounting principles prescribed for the purposes of the Law. Pursuant to that Law, the directors have prepared the Group consolidated financial statements and the parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU).
The financial statements are required by law to give a true and fair view of the state of affairs of the Company at the period's end and also the profit or loss of the Company for the period then ended. In preparing those financial statements, the directors should:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable;
- state that the financial statements comply with IFRSs as adopted by the EU, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the 'going concern' basis unless it is inappropriate to presume that the Company will continue in business, in which case there should be supporting assumptions or qualifications as necessary.
The directors are responsible for keeping adequate accounting records which are sufficient to show and explain the Company's transactions and as such to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the law. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement under the Disclosure Guidance and Transparency Rules
Each of the current directors, whose names and functions are listed on page 52 of the 2016 Annual Report confirms that, to the best of his/her knowledge:
- the consolidated financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as a whole; and
- the Directors' governance report (including the corporate governance report and the Audit Committee report) on pages 50 to 81 of the 2016 Annual Report and the regional and Chief Financial Officer's reviews on pages 18 to 30 of the 2016 Annual Report include a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face as set out in the principal risks and viability review on pages 34 to 39 of the 2016 Annual Report.
Directors' statement under the Corporate Governance Code
The Strategic report and this directors' governance report (including the remuneration report) were reviewed and approved by the Board on 14 March 2017. The Board confirms that, taken as a whole, these reports represent a fair, balanced and understandable report on the Group's performance, business model and strategy.
By order of the Board
Michael Speakman
Chief Financial Officer
14 March 2017
Appendix 2: Principal Risks & Uncertainties
The following description of the principal risks and uncertainties that the Company faces is extracted from the 2016 Annual Report (pages 32 to 39).
Cape recognises that in a dynamic operational and business environment, it is essential that we actively manage our risks and opportunities to allow us to meet the Group's strategic objectives and deliver value to our shareholders. Our risk management procedures allow the Group to identify, assess and manage risk to an acceptable level while pursuing our strategic objectives and protecting and enhancing our reputation.
How we manage risk
Following Cape's values in everything we do
Whilst Cape is focussed on seeking opportunities and delivering our objectives, we must do so by working in accordance with our values. We firmly believe that adopting responsible behaviour at every level and in every aspect of the business is key to our success and this is our first line of defence in risk management. Our values, visible adherence to our values and the reinforcement of them has created a strong culture of risk awareness within the business.
For more information go to page 41 of the 2016 Annual Report
Operations are accountable and maintain an effective risk mitigation framework
Our employees work across many different geographies and provide a wide range of services, which presents a range of risks. Our employees take accountability for identifying and effectively managing risks, using the Group's thorough system of policies and procedures. Internal control procedures are maintained on a day-to-day basis, risk registers are in place and training is assessed, to ensure the appropriate knowledge and skills are in place where and when they are needed.
Our independent risk management and compliance functions determine appropriate frameworks for managing risk
Independent functions, such as Health and Safety, Finance, Legal, Commercial and Operational Excellence, determine: the appropriate frameworks; set standards for managing risk; provide oversight for specific risk areas; collaborate with project and process owners on controls to mitigate identified risks; and ensure standards are implemented by process owners consistently across Cape.
Internal audit provides independent challenge
Our Internal Audit function reviews financial controls and risk management procedures throughout Cape, identifying risks, issues and opportunities for improvement and then reporting to the Executive Management and Audit Committee on these matters, including updates on progress made against open items.
The Board and Executive Management provide assessment and governance
The Board and Executive Management are actively engaged in assessing strategic risk and providing oversight. The Audit Committee formally reviews the results of the risk assessment process twice a year and reviews internal audit assurance work throughout the year.
For more information go to page 60 of the 2016 Annual Report
Our risk monitoring process
Analysing risks
- Risks are evaluated to establish potential financial and non-financial impacts, the likelihood of occurrence and the root cause. Risk is assessed formally at business unit level through risk workshops and the continual maintenance of risk registers. Every six months, a focussed bottom-up risk assessment is undertaken by all business units which results in a prioritised register of risks. A top-down assessment of operational and strategic risk is undertaken by the Board and Executive Management at least annually. The two processes are compared for profile and gaps and are factored into Cape's final risk analysis.
Risk mitigation
- We review the nature, adequacy and appropriateness of our current controls to mitigate these risks. If new, different or additional risks are identified, or if additional controls are required, these are developed and appropriate responsibilities to discharge are assigned. Acquisition and other investment-related risks are identified and assessed before key investment decisions are made. A comprehensive and rigorous bid authorisation model is used to evaluate the Group's risks when bidding for work and before contractual commitments are made.
Reporting and monitoring
- Risks are monitored throughout the year by the Executive Management and summarised to the Board. Emerging risks are identified, reported and reviewed on an ongoing basis, with particular focus on capturing emerging risk and monitoring all changing risk during monthly business reviews. Management is responsible for monitoring weakness in controls and progress of actions taken by business units to mitigate the key risks; this is supported through the Group's internal audit programme. The results of the risk management process are reported to the Audit Committee every six months.
For more information go to page 60 to 64 of the 2016 Annual Report
Risk appetite
The Group's risk appetite drives high standards of health, safety and environmental compliance, strong commercial risk controls and financial management that collectively allow growth whilst limiting the Group's risk exposure to an acceptable level. The level of risk is considered appropriate for Cape to accept in achieving our strategic objectives and is determined in accordance with the Board's strategic reviews and risk assessments during the year.
2016 assessment of principal risks
The risk assessment exercise is undertaken by each business unit and independent group function who conduct a formal review of the risks that could impact their activities. The assessment includes the perceived level of risk and likelihood of occurrence, both before and after mitigating controls. The impact of risks were quantified across a range of factors including: financial, health and safety, environmental, enforcement and reputational. The Executive Committee separately discussed the Group's principal risks in December to form a top-down assessment and oversight from a Group-wide view. The Board also reviewed and challenged the Group's assessment of risks, supported by the information obtained through the 'deep-dive' reviews of anti-bribery and anti-corruption and taxation, to arrive at the agreed principal risks.
Following these risk reviews, the Board noted that the Company is exposed to increasing IT‑related financial risks, reflecting in part the increase in external cyber security threats. Consequently, IT‑system and cyber risks have been added to the Group's principal risks and are explained in more detail in the following pages:
Please see table set out on page 33 of the 2016 Annual Report.
A Global political, security and economic conditions | G Preservation of Company assets and investment | ||||
B Key customer and market dependency | H Compliance and business conduct risk | ||||
C Health, safety and environmental (HSE) risks | I Industrial Disease Claims - provision adequacy risk | ||||
D Recruitment and retention of key executives and skilled employees | J Industrial Disease Claims - widening of the scope and liability | ||||
E Contract acceptance risk | K Tax and treasury risks | ||||
F Operational and project performance risk Principal risks and viability | L IT-System and cyber risks | ||||
Risk | Risk description | Link to strategy | Mitigation | Change in risk during 2016 | More information within the 2016 Annual Report |
A. Global political, security and economic conditions | There is a potential impact on the Group from political, security and economic conditions globally. We operate across the globe and therefore may be exposed to adverse situations with potential risk to our people, assets and business operations. Examples of such risks would be geo-political events, sanctions, terrorist events, disease outbreaks or environmental hazards. Deterioration in commodity prices affecting customer capital and operational expenditure is a key risk. Although we operate over a number of sectors, we are at risk of declining revenue streams, contract renegotiation and incurring costs which are not supported by revenue during economic downturns. | - Geographic expansion - Balanced business | - A diverse portfolio reduces exposure to each specific location, providing diverse revenue streams - Dedicated Group Head of Security responsible for regular security and risk assessment, monitoring alert and escalation procedures - Improved contingency plans and evacuation strategies developed - Travel by Cape employees is monitored and restricted in countries deemed unsafe or too high risk - Legal Counsel monitors any changes in sanctions legislation - Senior management presence in all regions - Reviews of the Group's forecast and market trends are completed quarterly along with the Group's strategic annual planning process to ensure any impacts from the economic environment are managed - Contract performance reviewed monthly by Finance and Commercial management, with those deemed high risk escalated to the Audit Committee. This allows any changes to expected performance or impact of economic downturns to be identified early, reviewed in the context of the Group's risk appetite and any necessary action taken. | Please see page 34 of the 2016 Annual Report | Corporate and social responsibility section (security) page 43 Our markets page 12 Cape at a glance page 2 |
B. Key client and market dependency | Loss of key customers or decline in a key market could adversely affect Cape's financial performance. The Group's top ten customers represented 54% of revenue (2015: 45%) and if we are unable to continue working for one or more of our key customers, the Group's future prospects may be impacted. There is the risk of revenues being too concentrated on a particular market. Working capital may be impacted if key customers look to extend payment terms or reject invoiced revenues. | - Customer intimacy - Balanced business - Operational excellence | - Group strategy focussed on creating a broad portfolio of customers and markets - Acquisitions bring new customer relationships and wider opportunities - Customer relationships are built at multiple levels from site supervisors to senior management - Revenues are generated from a wide variety of service offerings across numerous markets and different geographies providing greater stability and robustness of revenue streams - Work performed throughout asset life cycles providing opportunities at each stage - Multi-year contracts in place - Monthly contract performance reviews by Finance and Commercial management to identify and escalate high risk areas - Risk based credit control procedures are carried out before contracts are bid - Debt exposures are monitored during contract lives and firm operational decisions are taken when limits are approached or breached - Operational excellence initiatives seek to improve customer retention by increasing efficiencies and enhancing customer relations and satisfaction | Please see page 34 of the 2016 Annual Report | Our markets page 12 Cape at a glance page 2 |
C. Health, safety and environmental (HSE) risks | The Group may suffer commercial and reputational damage as a result of a safety or environmental incident involving our employees, members of the public or third-party partners. Failure to maintain high HSE standards could result in injury or loss of personnel, breach of regulations, financial loss and reputational damage. Financial penalties, which in the UK are significantly increasing, in respect of HSE incidents may be incurred. | - Geographic expansion - Operational excellence | - HSE reporting on both leading and lagging indicators monthly to the Executive Committee and to the Board - High number of site based HSE personnel in all regions - Investment in training to improve staff skills and ensure qualifications are up to date - HSE initiatives rolled out throughout the year to raise awareness - HSE policies and procedures in place and monitored throughout all regions | Please see page 34 of the 2016 Annual Report | Corporate and social responsibility section (health and safety) page 43 to 45 |
D. Recruitment and retention of key executives and skilled employees | The inability to recruit or retain both key executives and skilled employees could adversely impact the Group, both operationally and financially. Strategic objectives may not be advanced without the industry knowledge and experience possessed by key executives, senior management and skilled employees. The availability of suitably skilled employees can differ significantly between different geographies. Visa restrictions, which are increasing in certain key countries, can impact employee availability. | - Geographic expansion - Customer intimacy - Broaden portfolio - Operational excellence | Monitor employee turnover and conduct exit interviews - Training programmes implemented at all levels of Cape including programmes aimed at executives, senior leaders, future leaders, site managers and supervisors. Skilled employees' training is monitored and refreshed as required - Executive remuneration is reviewed against market data to ensure awards are competitive. Long-term incentive plans are in place to encourage the retention of the key management group - Availability of skilled employees has improved in some geographies as projects complete and other projects become impacted by regional economic conditions - Broad portfolio of services and geographic footprint provides employee development opportunities - Software to track status of new and previously employed skilled people is operating across all regions | Please see page 34 of the 2016 Annual Report | Directors' remuneration report page 65 to 77 Corporate and social responsibility section (people) page 42 |
E. Contract acceptance risk | There is a risk that Cape may fail to manage contract risk and commit to contractual terms and conditions that expose the Group to excessive financial risks and potential cost overruns. | - Geographic expansion - Operational excellence - Broaden portfolio | - Policies and procedures in place for contract approval include bid approval models, peer review and Board approval of key contracts - Experienced management teams in place for all service offerings with the relevant technical and industry knowledge - Dedicated Estimation and Commercial teams are in place in all regions - Commercial management report on high risk contracts to senior executives and the Audit Committee | Please see page 36 of the 2016 Annual Report | Audit Committee report page 61 to 64 |
F. Operational and project performance risk | Inefficient project execution and management could lead to additional costs being incurred, affecting overall project performance and the Group's financial performance. As our range of services and geographies broaden, the number of project types and styles expand, increasing this risk. | - Geographic expansion - Customer intimacy - Broaden portfolio - Operational excellence | - Operational excellence initiatives have been implemented and subsequently further developed each year as part of continuous improvement programmes; standardised global project delivery system framework; continuing to develop and formalise best practice; and knowledge sharing across the Group through centres of excellence - Cape Management Development Programme provides training to all levels of employees and includes project management and financial management skills - Implementation of site based IT systems that monitor projects and support project managers - Monthly project performance reviews are undertaken involving finance, commercial and operational personnel - Audit Committee regularly review commercial contract risks with the Chief Executive and Chief Financial Officer | Please see page 36 of the 2016 Annual Report | Audit Committee report page 61 to 64 |
G. Preservation of Company assets and investment | Return on invested capital may decrease if there is a failure to achieve satisfactory returns on assets, acquisitions, joint ventures or other investments. At 31 December, Cape held £84.0 million of property, plant and equipment around the globe and the inadequate managementand financial control of remote assets may expose the Group to losses. | - Geographic expansion - Broaden portfolio - Operational excellence | - Due diligence assessments undertaken prior to acquisitions, the formation of joint venture arrangements and other investments - Asset control policies and procedures in place globally - Group Head of Assets responsible for the co-ordination, utilisation, supply and relocation of assets worldwide - Standardised asset management systems being rolled out across all countries giving improved visibility of asset location and condition - Asset counts performed annually, including impairment assessments | Please see page 36 of the 2016 Annual Report | Audit Committee report page 61 to 64 |
H. Compliance and business conduct risk | Cape is exposed to the risk of non-compliance and breach of applicable laws and regulations including anti-bribery and anticorruption, health and safety regulations and sanctions. Laws and regulations are increasing and their reach is extending. Forthcoming UK legislation will include: data protection; modern day slavery; gender pay analysis; and export controls. A lack of detailed knowledge of relevant legislation across the countries we operate in could result in a breach of law or regulation. | - Geographic expansion - Broaden portfolio - Operational excellence | - Cape's values drive a culture where integrity, honesty and compliance are an integral part of day-to-day business at all levels - Global whistleblowing procedures in place - Documentation of key operational and administration policies and procedures are available to the majority of the Company's employees on the Cape Management System - Senior managers within each of the Group's business units certify detailed questionnaires covering their unit's business conduct and regulatory compliance every six months - Anti-bribery and anti-corruption policies and training is provided globally - Investment in training to improve the compliance knowledge of staff is being led by the Group's legal department - Compliance is monitored by the relevant Group functions including Tax and Treasury, Legal, Finance, and HSE | Please see page 36 of the 2016 Annual Report | Accountability/Audit Committee report Pages 60-64 For further information of Cape's corporate responsibility please refer to our website www.capeplc.com/ corporate-responsibility |
I. Industrial Disease Claims (IDC) - provision adequacy risk | Cape receives claims from individuals and insurance companies in relation to the historical alleged exposure to asbestos. There is a risk that Cape materially underestimates the IDC funding requirement due to inherent uncertainty associated with the future level of asbestos related IDC and of the costs arising from such claims. | - Operational excellence | - The court-approved 2006 Scheme of Arrangement protects the interests of future IDC claimants whilst at the same time protecting the Group from the impact of extreme adverse change in the claims environment - Triennial valuation of the IDC liability carried out by external actuaries using the Group's cumulative claims history and updated economic assumptions - Recent valuation produced favourable trends and reduces the risk profile of the liability - Annual review carried out by external actuaries and external auditors of Cape's accounting note on the valuation of IDC - Half yearly review of economic assumptions by the Board - Dedicated internal Legal function and external claims handlers and specialist legal advisors proactively manage cases and monitor changes in the legal environment | Please see page 36 of the 2016 Annual Report | Note 2 'Summary of significant accounting policies' Note 4 'Significant judgements and estimates' Note 29 'Provisions' Note 34 'Industrial disease claim provision and contingent liabilities' |
J. Industrial Disease Claims (IDC) - widening of the scope and liability | Legal precedent in this area is constantly evolving and the Group is subjected to new claim types over time. These may give rise to uncertainty in both the future level of asbestos-related IDC and of the legal and other costs arising from such claims. | - Operational excellence | - Recent agreement to settle insurer product liability claims substantially reduces the risk to the business in this area - Regular Board review of IDC litigation - Dedicated internal Legal function monitors changes in the legal environment - Specialist external legal and other advisors engaged | Please see page 38 of the 2016 Annual Report | Note 2 'Summary of significant accounting policies' Note 4 'Significant judgements and estimates' Note 29 'Provisions' Note 34 'Industrial disease claim provision and contingent liabilities' Note 39 'Post balance sheet events |
K. Tax and treasury risks | We operate across a number of economies and jurisdictions which therefore exposes the Group to a range of tax laws that vary significantly and are rapidly evolving toward global transparency and harmonisation. The Group is required to interpret laws and treaties and must manage its tax affairs within these laws or else risk incurring fines and/or charges from the tax authorities. Taxation regimes are increasingly co-ordinating and tightening with 'base erosion and profit shifting' rules and equivalent regulations. In some cases, tax legislation or rules are not clear and the Group may disagree with the tax authorities. If this is the case, then it may be necessary for court involvement to interpret the laws. The treasury related risks faced by Cape include client and bank credit risk and foreign exchange risk. The credit risks faced by Cape vary by geography, but are currently highest in oil based economies with developing financial systems, non-investment grade banks and where our clients may be local sub-contractors with delayed payment practices. | - Geographic expansion - Customer intimacy - Broaden portfolio | - Cape's values drive a culture where integrity, honesty and compliance are an integral part of day-to-day business at all levels - Tax policies and procedures are regularly updated, with the Group's tax strategy to be published online in 2017 - Embedded tax expertise in all major businesses along with central Group Tax team support - Ongoing reviews conducted by the Group Tax and Legal team to monitor compliance - External advisors are used to support local teams on specific tax matters including legal opinion when requiring interpretation of tax legislation and principals - Active engagement with relevant tax and government authorities - Debt exposures are monitored during contract lives and firm operational decisions are taken when limits are approached or breached - Bank creditworthiness and relationships are monitored by Group Treasury - Business units endeavour to balance revenues and costs in matched currencies wherever possible - Group Treasury will hedge higher currency risk exposures if required | Please see page 38 of the 2016 Annual Report | Note 2 'Summary of significant accounting policies' Note 12 'Income tax' Note 20 'Deferred income tax' Note 28 'Current income tax liabilities' Note 34 'Industrial disease claim provision and contingent liabilities' |
L. IT-system and cyber risks | The IT risks faced by Cape include increasing cyber risks, increasing data and network protection requirements, business continuity/disaster recovery considerations and ageing legacy systems which will be gradually transitioned to a new robust global ERP system. | - Geographic expansion - Operational excellence | - A variety of cyber-attack monitoring and response software has been implemented - Design and development of the global ERP system that will significantly standardise operations and processing across all of Cape - Consolidation of payrolls, where practicable - General data protection regulation readiness planning has commenced - Data categorisation and classification is underway - Global review of business continuity/disaster recovery plans - Development of plans to regularly test and gradually migrate payrolls to a cloud based solution - Email systems have been migrated to Office 365 | Please see page 38 of the 2016 Annual Report | |
Viability statement
In accordance with the UK Corporate Governance Code, the directors have assessed the prospect for the Group over a longer period than the twelve-month going concern provision.
The directors' assessment of the Group's prospects for the three-year period is based on the review and analysis described below. The directors consider this to be a reasonable process which therefore allows them to form a reasonable expectation of the Group's prospects in the circumstances of the inherent uncertainty of a three-year period. The time period was selected to represent the duration of the Group's contract base, with construction contracts having a typical duration of two to three years, while a change in provider for maintenance contracts takes around one to two years. Additionally, the revaluation of both the IDC and pension liabilities takes place on a three-year cycle.
The Group performs a strategic review each year, in which the Board reviews Cape's current position, strategy and risks and opportunities alongside current and expected market conditions and trends. Our viability assessment was based upon the Group's strategy and planning information and assessed the discrete impact of each individual selected principal risk, with the impact from a number of these risks also assessed on a combined basis. This analysis considers cash flows, covenant projections and liquidity and other key financial measures over the period. The selected key risks against which the strategy model has been stress tested are those that management considers could affect the future viability of the Group. These risks are highlighted on pages 34 to 39 and included the following: political and security instability in one region; acceptance of a new contract with unfavourable terms; poor operational performance on an existing contract; new scope of liability relating to IDC, with additional assessment undertaken on the timing of the resulting cash flows; loss of a key customer and an increase in interest rates and tax liabilities.
Based upon a robust assessment of the principal risks to the Group's prospects and consideration of the duration of the Group's contract base and the projected timing of IDC and pension outflows, the directors concluded that there is a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three‑year assessment period.
Appendix 3: Related party transactions
Details of directors' emoluments are shown in note 36 'Related party transactions' to the consolidated financial statements and in the Directors' Remuneration Report on pages 65 to 77 of the 2016 Annual Report.
There have been no material transactions with the Company and other related parties during the year.
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