Trading and industrial disease claim litigation update
("Cape" or "the Group" or "the Company")
Trading and industrial disease claim litigation update
Cape plc (CIU.LN), an international leader in the provision of critical industrial services to the energy and natural resources sectors, today issues the following trading update for the period 4 July 2016 to 30 October 2016.
Key trading highlights
- Trading in the period was in line with the Board’s expectations
- The Board anticipates that the full year result for 2016 will be slightly ahead of expectations, largely driven by an improved performance in the Asia Pacific business and translational impacts of current foreign exchange rates
- Despite continued challenging market conditions, the Group’s prospects for 2017 are encouraging
Trading and market conditions
Cape has delivered a trading result for the period in line with the Company’s board of directors’ (“the Board”) expectations, which incorporated the favourable impacts from the further weakening of Sterling since June. A strong performance in Asia Pacific offset lower demand and margin pressure in the UK, and lower demand in the Middle East.
Within the UK, market conditions have continued to prove challenging with clients deferring discretionary spend and pursuing cost reduction programmes. Consequently, margin pressures have persisted throughout the period together with low levels of demand for the Group’s specialist services. The majority of the restructuring programme for the UK business has now been completed and good progress has been made on the ExxonMobil contract at Fawley, where it is anticipated that the commercial performance issues will be largely resolved by the end of 2016.
In the Middle East, the sustained low oil price has continued to drive a strong focus by our clients on cost reduction. This is reflected in a slower pace of new project awards and delay in some maintenance activities. The subsequent lower than expected demand across much of the region was partially mitigated by strong performances in Azerbaijan and Qatar.
Activity levels have been strong across the Asia Pacific region, driving a significant improvement in the business’ performance. A continued ramp-up of activity in South Korea on the Prelude FLNG project and in Australia on the Wheatstone LNG and Karratha Gas Plant Life Extension projects more than offset low levels of activity elsewhere in the region.
The Board anticipates that the business will perform slightly ahead of current expectations for the year ending
31 December 2016, largely reflecting a continuing strong performance in Asia Pacific, an improved performance in the Middle East and the translation effect of current favourable foreign exchange rates.
While the outlook for the markets in which the Group operates remains uncertain, prospects for Cape in 2017 are encouraging. The delivery of the Group’s strategy continues to provide resilience and the opportunity for growth despite the current challenging market conditions.
Update on insurer EL industrial disease claims
The Company has previously confirmed that, following a determinant judgment on 19 July 2016, Cape Intermediate Holdings Limited (“CIH”) was seeking leave to appeal a number of aspects of such judgment and that the Company had increased the provision held against industrial disease claims by £9.7 million. CIH has now been granted leave to appeal on the majority of potential appeal issues it had raised. At the same time, Aviva plc was granted leave to cross-appeal. The appeal hearing will be held on 25/26 July 2017.
Update on insurer PL industrial disease claims
As disclosed in the Group’s 2015 Preliminary Results, a six-week trial in respect of a number of product liability claims (“Insurer PL Claims”) received by the Group from insurers has been listed to commence on
16 January 2017. As part of the preparations for the trial, Leading Counsel has now reviewed detailed evidence and expert witness statements and recently provided updated advice to the Board. The Board remains of the view that the Insurer PL Claims place very substantial evidential burdens upon the claimants, the merits of our defence are persuasive and no provision is currently required. The Company will therefore continue to vigorously defend these claims. However, due to the emerging complexity of this litigation, the Board believes that there is an increased risk that the litigation could have an adverse impact on the Cape Scheme, and in turn upon the Cape group of companies. As disclosed in the Group’s Interim Results, Cape's potential liability in respect of the Insurer PL Claims outlined above and from any potential further claims and associated costs cannot be accurately estimated at this time. It is possible that a number of issues may be subject to appeal which would lead to an extended period of uncertainty for the Cape Scheme and the Group.
If the Insurer PL Claims litigation were to succeed, it could result in the suspension of payments by the Cape Scheme to individual claimants (and insurer claimants) or the discounting of such payments. Any decision to suspend or discount payments to individual claimants (and insurer claimants) will be made by the independent board of directors of Cape Claims Services Ltd. As previously disclosed, whilst the initial impact of any adverse judgment in the Insurer PL Litigation will fall upon the Cape Scheme, it may also have material and continuing impacts on the Group and its stakeholders including but not limited to impacting the implementation of the Group’s strategic plans, potentially including the Company’s capacity to pay a dividend.
The Board will continue to monitor the progress of the litigation, evaluate options to minimise the potential impact on the Group and its stakeholders, and provide updated disclosures as appropriate.
Details of the Cape Scheme have been filed with the Registrar of Companies and can also be found on the Cape plc website (/corporate-responsibility/asbestos-scheme-of-arrangement.aspx).
Cape expects to announce its results for the full year ending 31 December 2016 on 15 March 2017.
This announcement contains inside information.
Cape plc +44 (0) 1895 459 500
Joe Oatley, Chief Executive
Michael Speakman, Chief Financial Officer
Ian Wood, Head of Investor Relations
Buchanan +44 (0) 207 466 5000
Bobby Morse, Ben Romney, Chris Judd
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. For details of the Group’s principal risks and uncertainties, please see pages 18 to 25 of the Group’s 2015 Annual Report and Accounts.
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, mechanical services, environmental services, oil and gas storage tanks and heat exchanger replacement and refurbishment. Cape employs c.16,400 people working across 19 countries and in 2015 reported adjusted revenue of £711.4 million