Product liability litigation settlement and industrial disease claim update
13 March 2017
("Cape" or the "Company", and together with its subsidiaries, the "Group")
Product liability (“PL”) litigation settlement and industrial disease claim (“IDC”) 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 industrial disease claim update.
In 2006 a Court Approved Scheme of Arrangement (“Scheme”) was established to administer the settlement of valid claims against Cape relating to its historical asbestos activities, whilst at the same time protecting the Company from the potential threat of insolvency. The Scheme has operated very effectively; Cape has met its obligations to fund the Scheme and valid claims have been paid out without reduction. To date, over £30m has been paid to those who have become ill or to their dependents.
Settlement of insurer product liability claims
As first disclosed in the Group's 2015 Preliminary Results and as most recently updated in the November 2016 trading update, the Group is engaged in litigation in relation to a number of product liability claims (“Insurer PL Claims”). This litigation (“Insurer PL Litigation”) was funded by Aviva plc, RSA Group and Zurich Insurance Group (“Insurer Litigants”) and relates to historic employer liabilities of the Insurer Litigants.
As also previously disclosed, the Board has been evaluating options to minimise the potential impact of the Insurer PL Litigation on the Group and its stakeholders. Following engagement with the Insurer Litigants, the Group reached agreement on 12 March 2017 to settle the Insurer PL Litigation (“Settlement Agreement”) that enables this litigation to be resolved outside of the court process.
The settlement of the Insurer PL Litigation does not imply any acceptance of liability on Cape’s behalf. Following the end of the trial on 23 February 2017, the Board received an updated opinion from Leading Counsel which reinforced the Board’s view that the merits of the Group’s defence are persuasive and that there are substantial evidential burdens upon the Insurer Litigants. Nonetheless, and as previously disclosed, the Board is mindful that there remains a risk that the Insurer PL Litigation could have a material adverse impact on the Scheme, and in turn upon the Group and its stakeholders. The Board has therefore concluded that it is in the best interests of Cape and its shareholders to settle at the agreed level outlined below, thus removing a significant risk to the business, removing the distraction of a likely protracted appeals process and enabling management to focus on the development of the core business.
The Settlement Agreement provides that an upfront payment of £18m, inclusive of substantial legal costs, will be paid to the Insurer Litigants immediately, with a deferred payment of up to £34.5m payable to the Insurer Litigants over the period from 2018 to 2023. The maximum amount payable under the Settlement Agreement has been included in the overall IDC provision at 31 December 2016 and will be paid out of the Group's existing cash resources.
Insurer employer liability claims
The Settlement Agreement is separate from the litigation relating to the employer liability claims (“Insurer EL Claims”) brought by Aviva plc. The Company has previously disclosed 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.
Triennial valuation and provision
Under the rules of the Scheme, the Group is required to carry out an actuarial revaluation of its existing IDC liability every three years. The latest valuation was completed on 31 January 2017 in respect of the liability as at 31 December 2016 and includes the latest claims experience and actuarial assumptions.
The total IDC provision as at 31 December 2016 increased to £172.5m as a result of a number of factors including the reduction in the discount rate used in the actuarial valuation, the provision recognised in the 2016 interim results for the Insurer EL Claims, an additional provision relating to the Insurer PL Claims and a consideration of potential further claims of a similar nature.
As at 31 December 2016, the Scheme had assets of approximately £42m. The Cape directors anticipate that, assuming no material deterioration in trading performance and no material change in legal precedent or judgment, the Group will be able to sufficiently fund its subsidiary Cape Claims Services Limited to enable it to satisfy all claims that fall to be settled under the Scheme, with valid claimants being compensated without deduction.
Details of the 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 will announce its results for the full year ending 31 December 2016 on 15 March 2017.
The Settlement Agreement constitutes a Class 2 transaction for the purposes of the UK Financial Authority’s Listing Rules and, as such, does not require Cape shareholders’ approval.
This announcement contains inside information
Cape plc +44 (0) 1895 459 979
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
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, 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, environmental services, oil and gas storage tanks and heat exchanger replacement and refurbishment. Cape employs over 16,000 people working across 19 countries and in 2015 reported adjusted revenue of £711.4 million.