1 Cape plc Annual Report 2011 Annual Report
2 Our business Cape provides a range of non-mechanical industrial services to both industrial plant operators and major international engineering and construction companies. As a single source provider, Cape is able to tailor services to provide the most intelligent and cost effi cient solutions for each customer s in-plant maintenance and capital needs. Cape is focused on an existing suite of complementary non-mechanical support services to the energy and mineral resources sectors where quality, safety and reliability are paramount. Our regions Cape manages and reports its business performance through four geographic territories. Our services We focus on providing a specialist range of non-mechanical services both onshore and offshore that deliver smooth-running, safe and effi cient operations. Our clients Cape s reliable and intelligent solutions are principally to plant operators in the oil and gas, utilities, mineral resources and marine sectors. UK region revenue 299.1m For more detail go to page 13 Gulf/Middle East region revenue 132.1m For more detail go to page 11 Far East/Pacific Rim region revenue 236.8m For more detail go to page 10 CIS, Mediterranean & North Africa region revenue 54.5m For more detail go to page 12 Contents Section 1 Pages Operations Financial highlights Operational highlights 02 Chairman s statement 04 Business model 06 What we do: Maintenance (Production Support) services 07 What we do: Construction Support services 08 Former Chief Executive s review 10 Regional review 14 Chief Financial Offi cer s review 17 Corporate responsibility 19 Principal risks and uncertainties Section 2 Pages Governance 21 The Board 22 Directors remuneration report 30 Corporate governance report 39 Directors report 41 Directors statements 42 Independent auditors report to the members of Cape plc Section 3 Pages Financial statements 43 Consolidated income statement 44 Consolidated statement of comprehensive income 45 Consolidated balance sheet 46 Consolidated statement of changes in equity 47 Consolidated statement of cash fl ows 48 Notes to the fi nancial statements 85 Independent auditors report to the members of Cape plc 86 Parent Company profi t and loss account (UK GAAP) 87 Parent Company balance sheet (UK GAAP) 88 Parent Company notes to the fi nancial statements (UK GAAP) 91 Principal subsidiary undertakings 92 Five-year fi nancial summary 93 Directors, offi cers and advisers
3 Cape plc Annual Report Directors, offi cers and advisers Tim Eggar 134 Non-Executive Chairman 2011 Financial highlights Brendan Connolly Acting Chief Executive Record revenues with Richard Bingham strongest growth Chief Financial Offi cer since 2007 David McManus 1234 Non-Executive Director and Senior Independent Director +11.1% Michael Merton 1234 Non-Executive Director Operating profit Jeremy Gorman increased to 75.3m Group Company Secretary (2010: 75.2m) Registered Office 47 Esplanade St Helier Jersey 75.3m JE1 0BD Channel Islands Full year dividend Cape plc is a company incorporated and registered in Jersey increased to 14.0p Registered number (2010: 12.0p) International Headquarters One Temasek Avenue #09-03 Millenia Tower Singapore p 1 Non-Executive 2 Audit Committee 3 Remuneration Committee 4 Nomination Committee 2011 Operational highlights Independent Auditors PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors The Atrium 1 Harefi eld Road Uxbridge Group revenue Middlesex UB8 1EX up 11.1% to 722.5m United Kingdom (2010: 650.1m) Solicitors to English Law Lawrence Graham LLP 4 More London Riverside London SE1 2AU United Kingdom Solicitors to Jersey Law Adjusted profit before Carey Olsen tax increased to 69.4m 47 Esplanade (2010: 69.1m) St Helier Jersey 48.3 JE1 0BD 33.7 Channel Islands Bankers Barclays Bank plc Lloyds TSB Bank plc 1 Churchill Place 10 Gresham Street Adjusted diluted earnings London E14 5HP London EC2V 7AE per share increased to 43.8 United Kingdom United Kingdom p (2010: 42.6p) 37.5 HSBC Bank plc 30.0 National Australia Bank Limited 70 Pall Mall 24.1 Level 12 London SW1Y 5EZ 50 St Georges Terrace United Kingdom Perth WA Australia Registrars Capita Registrars (Jersey Limited) 12 Castle Street St Helier Jersey JE2 3RT Channel Islands Operations Governance Financial statements Lost Time Injuries were down 12.3% with an LTI frequency rate of Joint Corporate Brokers Firm order book increased Numis Securities Limited by 9.7% to approx. 940m. The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT United Kingdom m JP Morgan Cazenove 125 London Wall, London EC2Y 5AJ United Kingdom Significant corporate activity throughout the year, including the move from AIM to the London Stock Exchange s main market (and inclusion in the FTSE Financial 250 index Public from Relations September 2011), a refinancing of the Group s bank facility and two bolt-on M: acquisitions. Communications This annual report is printed on FSC certifi ed material. This product is 34th Floor biodegradable, 100% recyclable and elemental chlorine free. Vegetable 1 Ropemaker Street based inks were used during production. London EC2Y 9HT Both the paper mill and printer involved in the production support the growth United Kingdom of responsible forest management and are both accredited to ISO which specifi es a process for continuous environmental improvement. Throughout this document, various non-statutory measures are used and referred Designed to as adjusted. and produced These by are Carnegie defined and Orr +44 reconciled (0) to their statutory equivalents in note 5 on page 60.
4 02 Cape plc Annual Report 2011 Chairman s statement Tim Eggar Chairman These results demonstrate the strength and quality of Cape s business and its growth prospects. The Group is targeting markets with strong fundamental growth drivers and has made significant investments in both hard assets and people in 2011 to ensure we are able to resource these opportunities. Governance Cape is committed to achieving high standards of business integrity, ethics and professionalism across its worldwide operations. The Board The Board is responsible to shareholders for the overall management and performance of the Group. Audit Committee The Audit Committee is responsible for internal control and risk management, financial reporting, internal audit and external audit including auditor independence. Go to page 36 for more information. Remuneration Committee The Remuneration Committee determines the remuneration and conditions of employment of the Executive Directors and senior managers. Go to page 22 for more information. Nomination Committee The Nomination Committee is responsible for monitoring and formally reviewing the performance, composition, balance and expertise of the Board as a whole and appraising the contribution of individual Directors, including a review of their time commitment and attendance records. Go to page 37 for more information. Rigging safety training at Cape s training facility, The Philippines I am pleased to report that Cape delivered a robust performance in Despite the setback of a loss-making one-off rig refurbishment contract previously announced in our IMS of 9 November 2011, these results demonstrate the strength and quality of Cape s business and its growth prospects. Our strong revenue growth in the second half of the year provides evidence of the continuing progress we are making as we realise our vision of becoming the leading specialist provider of our range of essential nonmechanical services. Cape continues to enjoy a well balanced revenue stream with 54% (2010: 56%) of our revenues derived from essential plant maintenance (production support) activities and c.40% derived from construction support services. The fundamental dynamics driving the marketplace for our services are the essential operating expenditure (opex) on maintenance of ageing infrastructure assets, particularly in the UK, as well as committed spend on major energy and resources construction projects in our strategically selected markets internationally. Results Group revenue increased 11.1% to million (2010: million) with adjusted profit before tax increasing to 69.4 million (2010: 69.1 million). The adjusted diluted earnings per share were 43.8p (2010: 42.6p) and basic earnings per share were 40.2p (2010: 42.6p). These results include the full impact of the specific one-off charges and in particular a 4.1 million charge for the loss-making rig refurbishment contract in the UK which was completed in the first week of January We saw strong double digit revenue growth in the second half in three of our four regions. During 2011 we also saw the medium-term LNG opportunity in Australia become more clearly defined with a further five projects achieving FID (Final Investment Decision) in addition to the three already under construction. We have also seen the commencement of several new downstream projects in the Gulf/Middle East and the commencement of our works on the Sonatrach GL3-Z LNG project in Algeria. These developments give us confidence that demand for our construction support services will continue to gain momentum in our chosen markets. Further commentary on these results and the regional performances is contained in the Regional Business Review. Overall our performance in the year demonstrates our proven ability to meet the exacting needs of our blue-chip customers both in terms of operational execution and
5 Cape plc Annual Report Karachaganak site in Aksai, Kazakhstan safety. This is being achieved through a combination of advantages including the outstanding quality of our people and the innovative solutions that Cape provides to meet customer requirements. We continue to pursue our well defined strategy of developing the business through organic growth and targeted acquisitions in both existing and new geographies, while continuously improving the efficiency of our operations. We completed two bolt-on acquisitions in 2011 and are actively progressing a number of further opportunities which meet our specific criteria. Dividend The Board is pleased to recommend a Final Dividend of 9.5p (2010: 8.0p). This brings the total dividend for the year to 14.0p, a 16.7% increase. The Board remains committed to a progressive dividend policy, and will review the return of capital to shareholders during 2012 in conjunction with progress against our growth plans. Corporate governance I am pleased to confirm that as at 31 December 2011 Cape was in full compliance with the UK Corporate Governance Code. There is a clear division of responsibilities at the head of the Company, and our Committees operate effectively through independent Non-Executives with a good balance of skills, experience and knowledge of the Company. The Audit Committee is actively engaged in a review of the Group s risk management processes and controls. The work of the Board Committees is described more fully in the Corporate Governance report on page 30. People On 29 March 2012, Cape announced that Martin May was standing down as Chief Executive and as a Director of the Company with immediate effect to pursue a new challenge. I would like to thank Martin for his leadership over the last 10 successful years at Cape, a period during which Martin turned the Company around and steered it to becoming a leader in the industrial access, insulation and coating sectors. He has been at the forefront of Cape s growth and value delivery and played a key role in expanding its international activities, work which contributed to Cape returning to the Main Market of the London Stock Exchange in 2011 and its joining the FTSE 250 index. I would like to wish him every success for the future. On 16 November 2011, I was pleased to invite Brendan Connolly to join the Board as a Non-Executive Director. Brendan is currently Regional President for the Middle East, FSU, Eastern Europe and Russia for Intertek, which provides inspection, certification and testing services to clients in oil & gas, power and other industries. Brendan was previously Chief Executive Officer of Moody International which was acquired by Intertek and prior to this, he spent more than 25 years with Schlumberger. Immediately following the announcement that Martin May was standing down, Brendan was appointed acting Chief Executive. The Board is delighted that Brendan has agreed to take on this role. Brendan has made a big contribution since joining our Board and has extensive CEO and senior management experience in the Energy sector. Cape has a world-class business and is supported by excellent management and hugely talented staff. The Nomination Committee has commenced a search for a replacement and a permanent appointment will be made in due course. As previously announced, David McManus, who has served as a Non-Executive Director for 8 years, latterly as Chairman of the Remuneration Committee, will step down from the Cape Board when a suitable replacement has been found. His independent advice and significant contribution to our success have been greatly appreciated and he will leave the Board with our thanks and best wishes. We will make a further announcement in due course. I would like to take this opportunity to acknowledge the skills and dedication of employees throughout the Group, many of whom I have now had the opportunity to meet, who have once again delivered a creditable performance. Their skills, and the strength of the management team, are the real assets of Cape. Outlook and prospects The Group is targeting markets with strong fundamental growth drivers and has made significant investments in both hard assets, people and know-how in Trading momentum has continued into the new year with excellent visibility and the Board is confident that Cape is wellpositioned for continued growth. Tim Eggar Chairman 13 April 2012 Throughout this document, various non-statutory measures are used and referred to as adjusted. These are defined and reconciled to their statutory equivalents in note 5 on page Operations Governance Financial statements
6 04 Cape plc Annual Report 2011 Business model Cape has a low risk business model where the majority of Cape s work is carried out under cost-plus reimbursable contracts where we commit only to working to a pre-agreed schedule of rates and where the customer would usually take on the risk of cost over-runs. We offer a compelling combination of services with exposure to both operating expenditure and capital expenditure trends in the energy and resources sectors. We have leading positions in onshore and offshore maintenance markets. Our services Access Scaffolding enables site operators and other contractors to obtain access to all parts of an industrial plant. This can be for routine maintenance, shutdowns, major projects or new construction. Cape both supplies and erects scaffolding using computer-aided design where appropriate. Increasingly Cape is able to deploy alternative access services such as rope access, system scaffold, tension netting and powered access. Insulation The provision and application of thermal and acoustic insulation for industrial applications. Thermal insulation is provided for temperature maintenance, personnel protection and for the conservation of heat and efficient cryogenic insulation and temperatures down to -160ºC. Cape can provide heat loss calculations and evaluate savings from thermal insulation. Cape also uses infrared equipment to enable it to undertake surveys of thermal insulation efficiency. Specialist Coatings The provision of a complete range of coatings for a variety of structures, including petrochemical plants, refineries and offshore installations. Cape provides surface protection and the application of coatings to prevent corrosion of bare surfaces or those to be insulated and clad. Fire Protection The application of fire protection to a variety of structures in environments ranging from the extreme weather conditions in the North Sea to onshore petrochemical and other installations exposed to fire risk. Refractory Linings The lining of boilers, furnaces, kilns and high temperature petrochemical reactors with materials to withstand temperatures in excess of 1000ºC. Cape offers design, supply and installation services to clients worldwide. Associated Services In response to client needs Cape seeks to maximise the range of industrial services offered. These include industrial cleaning, fabrication of both insulation and sheet metal and, for offshore installations, the provision of an integrated deck facilities management support service including lifting and crane operations. Our client sectors Oil & Gas ExxonMobil facility, Fawley UK Utilities EDF nuclear power station, Heysham UK Mineral resources Alcoa Kwinana refinery, Australia Marine Queen Elizabeth Class Aircraft Carriers, Portsmouth Naval Base UK
7 Cape plc Annual Report Our markets International High growth international markets Our strategy is to invest only where we can generate superior returns for our shareholders. Internationally, we look to invest in markets that offer strong growth prospects with significant exposure to capital expenditure. We have seen rapid growth in our chosen international markets, with positions of scale in two of the three large E&C markets downstream in the Gulf/Middle East and Gas/LNG in the Far East/Pacific Rim. Since 2008 we have seen growth of 30% in oil & gas revenues, about half of Cape s total revenues, and 67% growth in revenue from the minerals and mining sector. Cape provided services on 65 major construction projects in UK Ageing energy infrastructure The stable, mature UK market supports our exposure to both operating expenditure and capital expenditure throughout the life-cycle of clients assets. The maintenance market represents around half (2011: 54%) of Cape s total revenue. Growth is driven by increasingly ageing infrastructure and growing client and regulatory focus on plant safety. Cape has unrivalled breadth and scale in this market. Our compelling bundled service offering reinforces existing high barriers to entry. We expect, over time, construction contracts in high-growth markets to become maintenance contracts, prolonging the returns on our investment in new markets. A stronghold position in the power station sector presence on 23 of the UK s largest 52 stations Operations Governance Financial statements Market drivers Bundled multi-disciplinary services Uncompromising safety proposition Reputation and track record A typical construction project Construction projects are typically multi-year where Cape will support after ground is broken but most critically during the construction completion/pre-commissioning phase. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Conceptual idea Feasibility & basis of design FEED Final investment decision EPC contract bid period EPC contract award EPC execution Pre-commissioning/commissioning Start-up SIP contracts FEED Front-End Engineering & Design. EPC Engineering, Procurement and Construction. SIP Scaffolding, Insulation, Painting. Critical phase Cape joins the project at the pre-commissioning phase
8 06 Cape plc Annual Report 2011 What we do Maintenance (Production Support) services Cape provides essential support to clients plant maintenance and shutdown programmes. With its unrivalled breadth and scale, Cape s competing bundled service offering delivers to our clients tangible benefits of reduced supplier interface and administration costs, underpinned by rigorous safety procedures. Business environment A majority of Cape s business derives from maintenance and shutdown (production support) activities, at 54% of revenues in 2011 (2010: 56%). Trends and insights We delivered essential maintenance and shutdown support services on 287 industrial assets onshore and offshore in 2011 including 39 power stations, 31 oil & gas processing plants, 12 LNG and GTL plants, 39 petrochemical plants and 66 offshore sites. In the nuclear environment we continue to provide maintenance services at all 8 of the EDF (former British Energy) stations in the UK as well as comprehensive services at both Sellafield and the Winfrith and Harwell research sites. How we deliver Maintaining large-scale production assets requires a service provider that can offer its clients innovative multi-disciplined integrated solutions and enhanced reliability. By applying principles of continuous improvement and innovation, we play a major role in helping our clients businesses and operations maintain and enhance their efficiency. Cape works extensively with clients in the planning stage of their shutdown and outage programmes to maximise efficiency during the process. The resulting peace of mind for clients is one of Cape s key propositions, and this is enhanced further by worldclass safety performance and an international reputation for completing projects on time and within budget. Case studies Sellafield Ltd nuclear power station in Cumbria, UK 2. BAPCO refinery in Awali, Bahrain 3. SABIC facilities in Teesside, UK
9 Cape plc Annual Report Construction Support services Cape provides Construction Support services to major Engineering and Construction (E&C) companies. With an international reputation for the highest safety standards, Cape has the ability to deliver major projects in challenging and remote environments. Business environment Cape s reputation for delivery of major projects in challenging and often remote environments to the highest international safety standards continues to set us apart from the competition. Trends and insights We supported 65 major construction projects in Projects successfully completed during the year include the Saudi Kayan project, the world s largest ethylene plant, where our peak manpower exceeded 1,000, and the Pearl GTL plant in Qatar where our peak manpower reached 500. In Singapore, our workforce on the Exxon Singapore Parallel Trains (SPT) Olefins project reached c.1,600. When the insulation schedule came under pressure at the Pluto LNG project in Western Australia, the EPC contractor was able to turn to Cape to provide additional resource at short notice. How we deliver Cape s involvement often begins as early as the feasibility study, where we provide expert advice and technical support to some of the world s largest and most respected E&C contractors. Drawing on considerable international experience in the delivery of major projects, together with extensive technical resources, we work in partnership with our clients to develop a safe and reliable construction methodology, a detailed programme of work, and an accurate assessment of costs. Clients can expect high-quality standards and projects completed on time and within budget Operations Governance Financial statements Case studies Saudi Kayan project in Jubail Industrial City, Saudi Arabia* 2. Project Aurora ammonium nitrate plant in Queensland, Australia 3. GNL3-Z LNG project in Arzew, Algeria * Reproduced by permission of SABIC.
10 08 Cape plc Annual Report 2011 Former Chief Executive s review Martin K May Former Chief Executive On 29 March 2012, Cape announced that Martin May was to stand down as Chief Executive and as a Director of the Company with immediate effect. The strength of the Cape brand We made good progress in executing each of our strategic objectives in The development of the Cape brand has also been at the forefront of the restructuring carried out in the year and the strength of Cape s franchise was again illustrated by the increase in breadth and depth of our business. We delivered essential maintenance and shutdown support services on 287 industrial assets onshore and offshore in 2011 including 39 power stations, 31 oil & gas processing plants, 12 LNG and GTL plants, 39 petrochemical plants and 66 offshore sites. In the nuclear environment we continue to provide maintenance services at all 8 of the EDF (former British Energy) stations in the UK as well as comprehensive services at both Sellafield and the Winfrith and Harwell research sites. Cape also delivered construction support services on 65 construction projects in 2011 and is recognised by major international E&C contractors for consistently delivering the highest safety standards in challenging and remote environments. Financial performance Cape delivered its expected return to meaningful revenue growth in the second half of the year. Revenue growth in H2 was 21.5%, driving full year revenues to a record million (2010: million). We have been anticipating that a sustained period of growth in demand for Cape s services would commence in the second half of 2011 driven by the release of work packages on a number of large construction projects in the Far East/Pacific Rim and Gulf/Middle East markets as well as the increasing demand for our essential maintenance support activities in the UK. The adjusted profit before tax of 69.4 million (2010: 69.1 million) was impacted by the two one-off charges highlighted in our IMS on 9 November We recognised a higher than anticipated final charge of 4.1 million in respect of the rig refurbishment contract in the UK which we completed in the first week of January Cape does not seek to undertake this type of high risk contract and I am confident that the circumstances surrounding the acceptance of this contract have been fully investigated and appropriate actions taken to ensure that contracts of this nature are not accepted in future. The charge of 1.4 million in respect of the costs relating to our decision to cease hire and sales activity at our depot in Queensland remains unchanged. Our focus is on delivering profitable growth with a low risk profile and, notwithstanding the above, Cape continues to outperform its principal competitors in margin delivery. Our year-end net debt increased to 59.2 million (2010: 52.9 million) driven by increased working capital requirements, reflecting record activity levels in Q4 and the phasing of investments and receipts on four significant projects. Our net working capital to revenue ratio increased to 16.8% against our normal sub 13% level. We expect this to normalise over the first half of We invested 20.0 million (2010: 11.6 million) in capital expenditure during the year with the asset replacement ratio (calculated by dividing gross capex spend by the depreciation charge) increasing to 119% (2010: 71%) and 4.3 million (2010: nil) on acquisitions. Delivering on our strategy We have a well defined growth strategy built on five key elements. Our focus on executing this strategy throughout the year has generated positive progress on all these objectives. 1. Building strong positions in high growth international markets such as Far East/Pacific Rim and Gulf/Middle East Cape delivered further strong revenue growth of 17% at constant exchange rates (CER) in the Far East/Pacific Rim Region in 2011 and our annual revenues in the region have now increased by over 100 million since 2009 levels. In the Gulf/Middle East we have won packages on several major downstream projects and enter 2012 with record order books. Our strategy is to invest only where we can generate superior returns for our shareholders. We look to invest in markets that offer strong growth prospects and will continue to avoid mainland Europe. 2. Capitalising on the increasing industry trend towards sourcing cost effective bundled multi-disciplinary services from a single source provider Cape s core disciplines remain insulation, access and coatings. Cape is one of a handful of specialist international service providers able to carry out the full suite of services including passive fire protection and refractory. In 2011 we completed the acquisition of York Linings, a specialist refractory lining business in the UK, and Shoreguard Marine, an offshore coatings and blasting business in Australia, building on our client offering in these regions. 3. Building on Cape s world class reputation and track record for consistent project execution and delivery on time and on budget We supported 65 major construction projects in 2011 and successfully completed some landmark projects including the Saudi Kayan project, the world s largest ethylene plant, where our peak manpower exceeded 1,000 and the Pearl GTL plant in Qatar where our peak manpower reached 500. In Singapore, our workforce on the Exxon Singapore Parallel Trains (SPT) Olefins project reached c.1,600. When the insulation schedule came under pressure at the Pluto LNG project in Western Australia, the EPC contractor was able to turn to Cape to provide additional resource at short notice. Cape s reputation for delivery of major projects in challenging and often remote environments to the highest international safety standards continues to set us apart from the competition. 4. Capturing increasing levels of maintenance and capital spending to maintain and extend the life of ageing energy infrastructure in the UK Our UK revenues increased by 9.4% year-on-year driven primarily by onshore work in the power generation sector where we enjoy a dominant position with a presence on 23 of the UK s largest 52 stations.
11 Cape plc Annual Report Maintaining our uncompromising safety proposition with a strive to provide injury free project execution Cape delivered 55 million man hours in 2011 and our safety performance has again been outstanding with an LTI (Loss Time Injury) Frequency Rate of per 100,000 man hours an improvement of 12.3% on last year s performance. This significant improvement from an already excellent performance last year is a testament to Cape s uncompromising approach to safety and our willingness to take the lead on safety standards. This was again recognised by our clients during the year with numerous awards. We can never be complacent about safety, and we remain committed to continuously improving safety standards. Developing the quality of our asset We implemented our new corporate structure in 2011 with the establishment of our International Headquarters (IHQ) in Singapore. This improves the alignment of our business with our market opportunities. Cape s developed intellectual property and the strength of the Cape brand will normally result in our automatic inclusion on bidder lists. We will often work at an early stage with our clients on insulation specifications for major projects. The consequences of thermal/cryogenic insulation failure are serious and Cape s expertise and quality assurance, developed over the past 30 years, places us at the forefront in the field. With our experience and design capability Cape provides complex scaffolding and access solutions for irregular and challenging structures. For example, in an LNG export terminal, vessels such as a cryogenic heat exchanger, being of welded stainless steel construction and 60 metres high, require complex scaffold design solutions. Cape has the facility to provide design scaffolds and calculations online from its design offices in the UK, Middle East and Australia. Scaffold material and design will generally be based on BS/European standards. Cape Environmental s newly developed Syphonvac IV system for online vessel de-sanding was adopted by both Shell UK at the Gannet and Shearwater platforms and Nexen at their Buzzard platform in the second half of the year. Acquisitions and entry into new territories We completed two bolt-on acquisitions in the year. In April, we announced the acquisition of Shoreguard Marine Pty a specialist marine corrosion protection business in Australia and in August we completed the acquisition of York Linings International Limited, a refractory linings design and installation contractor. Both acquisitions have now been fully integrated into the Group and are performing well. A key component of our growth strategy is the continued acquisition of businesses that increase our market share, add to our intellectual property, broaden our service offering in local markets or will assist us with entering target markets. We have a growing list of opportunities and expect to complete further acquisitions as and when businesses meet our criteria and valuation objectives. We successfully established operational bases in three new territories in Our newly established operations in Papua New Guinea and India both received early contract awards and we expect our operations in Turkmenistan to commence in Following our initial work towards the end of last year we will establish a permanent base in Iraq this year. The size of the onshore opportunity in Iraq for our services is now increasingly being recognised as we start to provide budgetary pricing to our E&C clients active in that country. Our people development programmes are producing positive results We recognise that labour resourcing for major projects will increasingly be a key issue for our business. In April we appointed a Group Head of International Resourcing to head up our drive to attract the best talent available to support our growth strategy. This is already proving successful and as an example we have now mobilised in excess of 500 men for the Kumul, Lihir and Bayu-Undan projects in Papua New Guinea and Timor alone demonstrating our capability to provide skilled labour on a scale our international clients require in the most challenging of locations. Following the hugely successful first phase of our Future Leaders Programme, we commenced a second phase with a further 70 of our key managers participating in our flagship leadership development initiative. Also in September, a further 8 new graduate trainees embarked on a two-year training programme. I am pleased that, with initiatives such as these, Cape was again recognised for its sustained commitment to the development of our people at the Shell sponsored UK Oil and Gas Industry awards held in Aberdeen in November. Forward Order Book In overall terms the Group s Forward Order Book has increased by 9.7% to 940 million (2010: c. 850 million) with some 68% of consensus revenues for 2012 already secured (2010: 63%). The multi-year term nature of our maintenance contracts combined with the long lead-time of large construction projects, where the main demand for our core services takes place towards the end of the construction phase and often during the pre-commissioning phase, means we enjoy good visibility of future sources of revenue across our business. Prospects for the year ahead Our focus in the year ahead will be to build on the value of the Cape international brand and to realise the significant growth opportunities ahead of us in our target markets. Momentum is building in a number of key regions and projects indicating that Cape is entering a sustained period of demand growth for its services. We expect strong organic revenue growth in 2012 supported by the recent growth in the order book, although our operating margin is expected to reduce. In terms of capital expenditure we expect the asset replacement ratio to continue at broadly 100% which will enable the Group to generate strong cash flow in I am confident that we are well placed to continue executing our strategy and delivering growth in shareholder returns in the year ahead. Martin K May Chief Executive 6 March 2012 Throughout this document, various non-statutory measures are used and referred to as adjusted. These are defined and reconciled to their statutory equivalents in note 5 on page Operations Governance Financial statements
12 10 Cape plc Annual Report 2011 Regional review Far East/Pacific Rim region Territory Number of countries: revenue 236.8m Share of Group adjusted EBITA 22.1% Revenue ( m) maintenance Revenue ( m) construction support Revenue ( m) other EBITA margin (%) Onshore construction activities continued to be the main driver for growth, with significant scaffolding and insulation works on Woodside s Pluto LNG project and the Exxon Singapore Parallel Train (SPT) Olefins project. On the Pluto LNG project, Cape continued to provide access services throughout the year and in the final quarter also provided 185 insulators to assist the client with the important completion and pre-commissioning phase of the project. The SPT project continues to be our largest project by manpower in both the region and globally with around 1,600 men on the project at the year end. In addition, Cape provided services on several other major construction projects across the region including: Project Aurora ammonium nitrate plant in Queensland, Australia; Wonthaggi desalinisation plant in Victoria, Australia; and the Goro Nickel refinery in New Caledonia. Cape continued to provide maintenance and shutdown support services at 19 onshore plants across the region. The client portfolio includes Alcoa, BHP, BP, Exxon, Macquarie Generation, Minara and Nyrstar. Offshore, Cape has continued to grow its business, winning contract awards at Kipper Tuna Turrum (off Victoria), the Angel and North Rankin platforms in the North West Shelf and the Kumul Marine Terminal, Papua New Guinea. These awards were in addition to existing maintenance activities at Shell Malampaya and with ConocoPhillips at Bayu-Undan. In April 2011, Cape announced the acquisition of Shoreguard Marine a provider of specialist coatings and anti-corrosion services predominantly to the Royal Australian Navy. This business is based near Perth WA, but gives us the resources to provide the full range of offshore services across the region. The Far East/Pacific Rim region contributed 33% (2010: 29%) of Group revenue and 22% of the Group s adjusted EBITA (2010: 17%). Adjusted EBITA increased by 28% (23% at CER) to 18.9 million (2010: 14.8 million) from increased revenues of million (2010: million). The Far East/Pacific Rim region continues to be our fastest growing region with annual revenues having grown by over 100 million since the million reported in As expected with several major construction projects in progress, revenues from construction support services grew by 37% at CER (39% at actual exchange rates (AER)) to million (2010: million), whilst maintenance and shutdown support revenues were broadly neutral at 68.4 million (2010: 62.2 million). Revenues from the commercial and residential access business in Australia reduced by 4% at CER (6% increase at AER) to 23.0 million (2010: 21.7 million) reflecting the closure of the Queensland hire and sale operations in the second half. As anticipated, our Access Solutions business, which is entirely focused on commercial and residential construction markets in Australia, has continued to be impacted by the difficult regional market conditions. In November 2011, we announced that we had exited from the commercial construction market in Queensland and would recognise a charge of 1.4 million in respect of the closure costs at our hire and sales depot near Brisbane preview Since January 2011, we saw FIDs on five major LNG export projects in Australia (QCLNG, GLNG, APLNG T1, Wheatstone and Ichthys). The increasing demand for construction support services across the region, including module fabrication in South East Asian shipyards and both onshore and offshore work in Australia, is expected to continue to drive growth in the medium term. As previously mentioned the release of certain secured contracts remains slow but even in the absence of such work the region is expected to deliver c.10% revenue growth in Throughout this document, various non-statutory measures are used and referred to as adjusted. These are defined and reconciled to their statutory equivalents in note 5 on page 60.
13 Cape plc Annual Report Gulf/Middle East region Territory Number of countries: revenue 132.1m Share of Group adjusted EBITA 36.2% Revenue ( m) maintenance Revenue ( m) construction support Revenue ( m) other EBITA margin (%) We were delighted to bring two landmark regional projects to a successful conclusion in In Qatar we completed our three-year involvement on the pioneering Shell Pearl GTL plant having expended nearly 3 million man hours over the project life with peak manpower of 500 men. In Saudi Arabia we brought Saudi Kayan, the world s largest ethylene plant, to a successful conclusion in 2011 expending over 3.7 million man hours on the project and with peak manpower of around 1,000. The most active market for E&C bidding activities in the region is the UAE where packages were secured on the ADCO SAS development project, Borouge III, Habshan 5, Ruwais 4th NGL train, IGD project and the Fertil 2 Ammonia/ Urea expansion project. These are all underway and will peak during In Saudi Arabia, significant packages came out for bid on the Jubail Export Refinery Project. We also returned to Iraq in 2011, carrying out asbestos surveys in BP s Rumaila oilfield. Cape last worked in Iraq in 1991, having carried out numerous projects since our first involvement in the country in With the market for onshore E&C work developing in Iraq, we have provided indicative pricing on several projects which could commence in late 2012 or most likely in Maintenance and shutdown support We continue to position ourselves to win recurring maintenance and shutdown work across the region. Cape maintained its maintenance portfolio to 75 sites (2010: 72 sites) with existing relationships across the region with clients including BAPCO, SABIC, SIPCHEM, Saudi Aramco, Qatargas and Rasgas Operations Governance Financial statements The Gulf/Middle East Region generated an adjusted EBITA of 31.0 million (2010: 35.4 million) and contributed 36% of Group adjusted EBITA (2010: 41%). For Cape s services, 2011 was the second successive year of market contraction following the pre-gfc highs seen in 2009, with several major projects coming to completion in The regional market for construction support services is now poised to recommence growth in 2012, with a raft of new downstream onshore project starts. Full year revenues declined by 4.1% (CER: -1.0%) to million (2010: million) with the strong pick up in the second half almost recovering the -17.5% year-on-year revenue reduction seen in the first half. We saw strong performances in Abu Dhabi and Saudi Arabia in the final quarter. Although revenue growth returned in H2, as expected, margins trended down with a second half operating margin reducing to 22.6% (H2 2010: 27.1%). Cape was awarded new term maintenance contracts in Bahrain for the BAPCO refinery, to undertake painting and blasting services, and in Qatar with the renewal of a five-year multi-discipline maintenance contract with Rasgas and QVC. The substantial shutdown work in 2011 occurred on Das Island (ADGAS) and at the Takreer Ruwais refinery in the UAE and at the Rasgas LNG and Dolphin gas processing facilities in Qatar. We also successfully completed the largest ever shutdown in BAPCO Bahrain during the first half of preview We expect the region to return to double digit growth in 2012 driven by project awards in the downstream sector. The region s order book is now 35% higher than at the beginning of 2011 and some 77% of planned 2012 revenues have now been secured (2011: 65%). We continue to expect margins in the region to trend downwards in 2012 due to the competitive environment and the changing E&C contractor landscape. Construction support Some 69% (2010: 65%) of revenues related to construction support activities, with Cape active on 46 (2010: 29) major construction projects in the region including significant works on the Karan Gas and National Chevron Philips (NCP) petrochemical projects in Saudi Arabia. We have also continued on the large project for Oxy/GPS on the PDO facility in the South of Oman at Mukhaizna.
14 12 Cape plc Annual Report 2011 Regional review continued CIS, Mediterranean & North Africa region Territory Number of countries: revenue 54.5m Share of Group adjusted EBITA 10.5% Revenue ( m) maintenance Revenue ( m) construction support Revenue ( m) other EBITA margin (%) In the CIS, our activities last year were largely centred in Kazakhstan and Sakhalin. In Kazakhstan, our main activities were concentrated on the Island D offshore hook-up and at Karabatan (the offshore and onshore parts of the Kashagan project). Our contracts at the Karachaganak 4th Train Development and the Facilities Construction in Atyrau River Port were successfully completed in the second half. With demand for our services in Kazakhstan reducing as major activities on the current development phase of Kashagan and Karachaganak complete, the focus will switch to opportunities in Azerbaijan. Our JV with SOCAR (State Oil Company of Azerbaijan) allowed us to enter the Azerbaijan market last year and, whilst initial set-up and establishment costs have resulted in a loss of 0.6 million (2010: nil), an early success was achieved with the award of the access contract for the West Chirag Platform topsides. We expect further material bidding opportunities to arise in In Sakhalin we successfully completed our works on the Odoptu project with Fluor in Q4. Work continues on the Chayevo Expansion project and the only maintenance support services contract in the region at the Sakhalin II LNG Plant for Sakhalin Energy. Broadening our service offering in the region was also a key objective last year and through our acquisition of York Linings we were able to tender our first refractory contract at the Kuibyshev refinery in Russia. We also established an industrial cleaning division within the region preview We expect stronger revenue growth in 2012, driven by increased activity in Algeria. Whilst activity levels across the CIS countries should remain stable our short-term emphasis will move more to Azerbaijan as current work scopes complete in Kazakhstan later this year. Revenues in our smallest region increased by 6.9% (CER: 9.6%) to 54.5 million (2010: 51.0 million) representing 7.5% of Group revenue. Adjusted EBITA generation was strong with growth of 23.1% (CER: 26.9%) to 9.6 million (2010: 7.8 million). Some 93% (2010: 91%) of the region s revenues were derived from construction support activities, with growth driven by the commencement of works at the GL3-Z LNG project in Arzew, Algeria and, to a lesser extent, increased activity in Kazakhstan. As commented at the interim stage, the timing of the work releases on the Arzew LNG project has been considerably slower than expected, with revenues in the year less than one-third of planned levels. With the mechanical completion date being held, it has been necessary to increase our manpower on the project considerably. At the year end, Cape had over 900 men on this project. In the final quarter of 2011, we moved our operational, commercial and financial management staff to Oran in Algeria and we continue to tender and win additional work in Algeria, whilst investing in local recruitment and training. Cape workers in Arzew, Algeria
15 Cape plc Annual Report UK region Territory Number of countries: revenue 299.1m Revenue ( m) maintenance Revenue ( m) construction support Revenue ( m) other EBITA margin (%) Share of Group adjusted EBITA Margins were in line with last year, preserving good quality returns from the higher mix of shutdown and project activities and continued focus on manpower efficiency, whilst maintaining the highest safety standards. In August 2011, we successfully completed the acquisition of York Linings, which provides refractory installation and maintenance services and complements Cape s existing service offering in the UK. A strong performance in the five months post acquisition contributed EBITA of 1.7 million from revenues of 8.7 million. Revenues are largely derived from one-off project works and significant projects undertaken in 2011 included the furnace and stoves overhaul at the Redcar steel works for SSI and the FCCU (fluidized catalytic cracking unit) outage at the Lindsey Oil Refinery. Offshore revenues reduced by 5% to 93.1 million (2010: 97.6 million) with the operational highlights being the successful commencement of work on: four new BP assets (part of the BP UKCS Federal contract award); the Netherlands Continental Shelf with Total E&P contract; and a number of unmanned platforms for BHP in Liverpool Bay. On 8 September 2011 we were pleased to announce the award of a three-year contract from TOTAL E&P UK for fabric maintenance services at the Alwyn North, Dunbar, Elgin-Franklin and St Fergus assets Operations Governance Financial statements 31.2% We saw margins in the UK Continental Shelf (UKCS) market come under pressure in 2011, with competitors discounting to gain market share. With the corporate activity in the UKCS now behind us, and increasing investment in the UKCS, we see opportunities for growth. The UK region contributed 31.2% of Group adjusted EBITA (2010: 32.6%). Adjusted EBITA decreased by 1.3 million to 26.7 million (2010: 28.0 million) from revenues of million (2010: million). Cape s services in the UK continue to be dominated by plant maintenance or production support activities. The positive impact of the region s strong revenue performance, with growth of 9.4%, was entirely offset by the reduction in the operating margin to 8.9% (2010: 10.2%) resulting from the 4.1 million charge in relation to a one-off rig refurbishment contract which completed in the first week of January Excluding this contract, the region s EBITA margin remained largely unchanged at 10.3%. Onshore revenues increased by 14% to million (2010: million), driven by higher levels of activity in the power generation sector in the second half. Cape has a stronghold in the power generation sector, being present on 23 out of 52 larger power stations (with > 500MW capacity). In 2011 we saw higher levels of outage (shutdown) works from our core clients in this sector, following a slowdown in In addition, we continued with capital upgrade/project work with: SABIC UK at its Teesside plant links and veins remediation works; ConocoPhillips at the Humber oil refinery carrying out access for vessel refurbishment; BAE Systems on the QEC aircraft carrier construction project; and SSI on rejuvenation work at the Redcar steel plant. Environmental services (Cape DBI) revenues remained flat at 26.2 million (2010: 26.1 million), with continued strong demand for our innovative offshore online cleaning solutions from clients including BP, Nexen, Shell and Apache. Significant work was also undertaken at onshore facilities including BP Sullom Voe, Dow Corning at Barry and TATA steel at Port Talbot, although activity levels remained broadly neutral across the petrochemical, refining and heavy industrial sectors. Contract awards and renewals during 2011 included the three-year call-off contract from Shell for offshore platform separator cleaning announced in February and term contracts with Dow Chemicals at Grangemouth, Scotland and Dow Corning at Barry, South Wales preview We expect to see a continued modest increase in activity levels in 2012 over those seen last year. Over 70% of planned 2012 revenues have now been secured (2011: 66%). The power generation sector is expected to generate a modest increase in shutdown and project works in 2012 and, whilst we expect nuclear decommissioning opportunities to become more visible in the second half, they are unlikely to contribute meaningfully until Offshore, a full-year contribution from the Total UK maintenance contract, together with up-manning on our core activities for BP and new development works on the BP Andrew platform, are expected to drive increased activity levels in We will also benefit from a full-year contribution from the York Linings acquisition.
16 14 Cape plc Annual Report 2011 Chief Financial Officer s review Richard Bingham Chief Financial Officer The table below shows adjusted EBITA margin by region before the impact of the restructuring. Gulf/ Far East/ CIS/Med Group after Middle Pacific & North central UK East Rim Africa costs 2011 m m m m m First half 9.4% 24.4% 8.7% 16.3% 11.5% Second half 8.5% 22.6% 7.4% 19.1% 10.3% Total for the year 8.9% 23.5% 8.0% 17.6% 10.9% 2010 First half 9.9% 24.7% 7.7% 15.1% 12.1% Second half 10.6% 27.1% 8.0% 15.5% 12.0% Total for the year 10.2% 25.7% 7.9% 15.3% 12.0% Revenue Revenue increased by 11.1% to a record million in 2011 from million in The increased revenue predominantly reflects organic growth ( 50.6 million), but also includes the benefit of the two acquisitions completed in the year ( 10.5 million) and a positive impact from currency translation ( 11.3 million). Three of Cape s four geographic regions contributed to underlying revenue growth, with only the Gulf/Middle East region reducing by a marginal 1.0% at CER. As previously indicated, a return to revenue growth was anticipated in the second half and, as shown by the table below, the second half revenue performance has been strong, with overall growth of 21.5% to million (2010: million). Gulf/ Far East/ CIS/Med Middle Pacific & North UK East Rim Africa Total 2011 m m m m m First half Second half Total for the year First half Second half Total for the year In 2011, the Group was contracted to work on 287 industrial assets onshore and offshore. Revenue invoiced to the largest customer represented 9% of total revenue (2010: 9%) and the top 10 customers represented 35% of revenue in 2011 (2010: 35%). Adjusted operating profit margins The adjusted operating profit margin reduced to 10.9% (2010: 12.0%). On 15 September 2011 the Group undertook an internal reorganisation as part of its strategy to support growth in our International operations in particular in the Far East/Pacific Rim region. In order to better facilitate this growth, we centralised certain operations and management to form a new International Headquarters (IHQ) with responsibilities which include the management and development of the Group s non-uk intellectual property. As part of these arrangements, IHQ has entered into franchise agreements to support the Group s non-uk trading companies. Consequently, a franchise fee has been charged for the period since 15 September 2011 and reported in the operating profit for each operating segment. The Group s operating margin in the second half reduced to 10.3% driven by the expected softening of margins in the Gulf/Middle East Region, the impact of the one-off problem rig refurbishment contract in the UK region and depot closure costs in Australia (both reported in the Group s IMS of 9 November 2011) and increased central costs. Non-operating other items Results for the year include non-operating other items of 7.5 million (2010: 6.0 million). The total amount has been excluded from the adjusted profits and earnings to show the underlying performance of the business. The non-operating other items in 2011 principally comprise the corporate expenses of 2.0 million (2010: nil) incurred in H1 in relation to the move from AIM to the LSE s main market and the corporate restructuring, together with net finance charges of 4.3 million comprising: the annual 4.0 million (2010: 4.0 million) non-cash charge relating to the unwinding of the discount on the long-term IDC liability following the booking of the provision in 2009; a 1.3 million (2010: nil) charge representing the unamortised facility fees arising from the early cancellation of the Group s 2007 syndicated banking facility; and interest income on the IDC Scheme funds in the period of 1.0 million (2010: 1.0 million). Finance charge The net finance charge (excluding non-operating other items) reduced by 5.6% to 8.5 million (2010: 9.0 million) with interest cover (calculated by dividing adjusted operating profit by the adjusted finance costs) increasing to 9.1 times (2010: 8.6 times). This compares to the minimum of 3.0 times required by the covenant in Cape s unsecured 220 million syndicated credit facility announced in January and with a maturity date of June Taxation The tax charge on profits excluding non-operating other items and joint ventures, of 13.7 million (2010: 14.6 million), represents an average tax rate of 19.5% (2010: 21.1%). The tax rate decrease of 1.6% in the year predominantly reflects a reduction in the UK Corporation Tax rate, Group restructuring and changes in mix of geographic source of profit generation.
17 Cape plc Annual Report Tax paid in the period reduced by 5.1 million to 6.4 million (2010: 11.5 million). Cash tax payments were significantly lower than the Group s P&L charge due to the utilisation of losses in the UK and Far East/Pacific Rim regions. In the Gulf/Middle East region, payments also reduced reflecting the lower tax rates in Qatar, as well as the changes in mix of geographic source of pre-tax profits. The Group seeks to mitigate the burden of taxation in a responsible manner to enhance its competitive position on a global basis, while managing its relationships with tax authorities on the basis of full disclosure. Earnings per share Adjusted diluted earnings per share were 43.8p (2010: 42.6p) and basic earnings per share were 40.2p (2010: 42.6p). The diluted weighted number of shares increased in 2011 to million compared with million in Dividend Taking account of the 2011 financial results, current market conditions and the underlying prospects of the Group, the Directors are proposing a Final Dividend for 2011 of 9.5p (2010: 8.0p) per share. This is an 18.8% increase on the Final Dividend last year. Together with the Interim Dividend of 4.5p per share paid on 7 October 2011, the total dividend for the year will be 14.0p per share, an increase of 16.7% on the dividend paid for the prior year (2010: 12.0p). Subject to shareholders approval at the Annual General Meeting on 16 May 2012 the Final Dividend will be payable on 8 June 2012 to shareholders on the register as at 11 May Key Performance Indicators The Group monitors the performance of the business using a range of Key Performance Indicators (KPIs) on a monthly and annual basis. These include adjusted Group operating profit margin, return on managed assets, operating cash conversion and LTI frequency rate. Definitions and analysis of the KPIs are shown on page 92. Acquisitions Two bolt-on acquisitions were made in 2011: Shoreguard Pty Limited in Australia and York Linings in the UK for a total combined cash consideration of 4.3 million. Additional deferred consideration of 2.8 million may become payable, subject to the businesses achieving set performance targets. The businesses contributed revenue and operating profit before intangible amortisation and acquisition related costs of 10.5 million and 2.0 million. Operating and free cash flow Operating cash flow reduced to 32.7 million, primarily due to a working capital outflow in 2011 of 43.6 million, compared to a 1.8 million inflow in The working capital movement is partly attributable to the return to revenue growth in the second half of 2011 and also the investment requirements on four major projects. As a consequence, the Group s free cash flow of 19.6 million was down 48.4 million from After payment of dividends, acquisition cash outflow of 4.3 million and payment of non-operating other items of 5.1 million, the Group s net cash outflow was 6.3 million. The summary cash flow for the year was as follows: m m EBITDA (Increase)/decrease in working capital* (43.6) 1.8 Net capital expenditure (20.0) (11.6) Operating cash flow Operating cash flow to operating profit** 42% 111% Net interest (6.7) (7.4) Tax (6.4) (11.5) Free cash flow Dividends (18.0) (6.0) Acquisitions (4.3) Refinancing and listing costs (5.1) Other movements in net debt 1.5 (1.3) Movement in net debt (6.3) 60.7 Opening net debt (52.9) (113.6) Closing net debt (59.2) (52.9) * At average rates ** Before non-operating other items As expected the Asset Replacement Ratio (calculated by dividing gross capex spend by the depreciation charge) increased to 119% (2010: 71%) reflecting higher levels of investment in growth capex this year. Financing and bank facilities The Group s adjusted net debt increased year-on-year by 6.3 million to 59.2 million (2010: 52.9 million), including finance lease obligations of 3.9 million (2010: 10.3 million). Balance sheet gearing increased to 14.6% (2010: 14.3%). The ratio of net debt to annualised adjusted EBITDA has remained at 0.6 times (2010: 0.6 times). As referred to above, our 220 million syndicated banking facility is in place until June 2015 and we remain able to service our medium term requirements without further need for financing. Increase in working capital Investment in trade and other receivables and inventories increased by 65.6 million to million (2010: million) partially offset by an increase in trade and other payables of 22.5 million to million (2010: million) giving an increase in net working capital of 43.1 million (at balance sheet rates) to million. With the revenue growth in H2, and based upon Cape s typical level of investment in receivables and inventories of 100 days, the excess level of working capital investment equates to 32.2 million as shown by the table below m m m H2 revenue annualised Expected investment in receivables and inventories of 100 days Actual investment Excess investment (4.0) 2011 Operations Governance Financial statements
18 16 Cape plc Annual Report 2011 Chief Financial Officer s review continued This excess investment at the year end has principally arisen from Cape s activities on four major projects across the Group where delayed receipts from customers, or initial purchases of materials and set-up costs, have resulted in extended working capital levels. Provision for estimated future asbestos related liabilities and IDC Scheme funds The discounted post-tax provision held increased to 62.4 million (2010: 59.6 million), reflecting the unwinding of the discount of 4.0 million in the year (2010: 4.0 million) and the 2.0 million (2010: 2.2 million) of cash settlements made in the period. The ring-fenced IDC Scheme funds reduced by 1.5 million (2010: 2.2 million reduction), comprising cash settlements and costs paid to claimants of 2.0 million (2010: 2.2 million) with interest income received of 0.5 million (2010: nil). Interest accrued of 0.5 million (2010: 1.0 million) is shown as finance income other items in the income statement. Currencies in 2011 Nearly all 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 had a 1% adverse impact on the results for the year, principally due to weakening of the US dollar which was offset by the strengthening of the Australian dollar. In 2011, some 21.4% of revenues were negotiated in US dollar or US dollar-pegged currencies and 24.2% in Australian dollar. The following significant exchange rates applied during the year: Average rate Closing rate US dollar Australian dollar 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. Pensions The Defined Benefit Pension Scheme had a net surplus of 16.2 million as at 31 December 2011 (2010: 13.2 million) and continues to be restricted to nil in the accounts under IFRIC 14. Shareholders equity The Group s net shareholders equity at the end of the year was million (2010: million), which has increased as a result of retained earnings and beneficial foreign exchange movements partially offset by the dividend distribution. Impacted by the loss-making contract in the UK and the increased working capital investment and capital expenditure, our key performance metric of Return on Managed Assets (ROMA) reduced to 27.8% ahead of our minimum target level of 25%. Return on Capital Employed (ROCE) also reduced to 17.7% (2010: 19.5%). The underlying ROMA and ROCE excluding the loss making contract were 29.2% and 18.6% respectively. Richard Bingham Chief Financial Officer 13 April 2012 Throughout this document, various non-statutory measures are used and referred to as adjusted. These are defined and reconciled to their statutory equivalents in note 5 on page 60.
19 Cape plc Annual Report Corporate responsibility At Cape, safety is central to our working culture. Health and safety 2011 was another year where health and safety performance continued to deliver improvement across our operations Group health, safety and the environment The level of Lost Time Injury (LTI) performance, the primary international benchmark for measuring safety performance, again demonstrates Cape s commitment to improving performance. The Group achieved a reduction of 12.3% in LTIs compared to the previous year s already record figures, with an LTI frequency rate of per 100,000 hours worked. This represents the fourth consecutive annual fall in accident frequency. This performance again exceeded Cape s internal target and we believe this is world-class within our industry sector. We continue to steer the business towards the ultimate goal of zero injuries/accidents and no harm to the environment. While we believe that we are well on the way to this goal, we continue to examine areas for potential improvements. It is therefore with great sadness that Cape acknowledges the fatality of Mr Tian Danga, a Thai scaffolder who was tragically killed while at work. It is of no comfort that the outcome of the investigation identified no fault attributed to Cape systems or operations. Quality Management System In 2011 we continued to build on our extensive work to develop, extend and improve our health and safety Quality Management System. This system is a key part of Cape s commitment to improve health, safety and environmental performance and ensure the commitment of our workforce to looking after themselves and their fellow workers. These enhancements to our quality system have helped further improve the understanding of Cape s expectations and performance aspirations by our multinational, multicultural, multilingual workforce. Continued expansion of our health, safety, environment and quality external accreditation In 2011, Cape continued to increase the coverage of our health, safety, environment and quality certification across our whole international footprint, increasing the total number of certificates of conformity for ISO 9001 (quality systems), (environmental) and OSHAS (health and safety) to 38. Lost Time Injury rate Lost Time Injury rate Asbestos management and operating licences During the year, Cape continued to offer asbestos removal services to the highest recognised international standards. In all operational areas where asbestos management can only be undertaken under licence from legislative enforcement bodies, Cape continued to be awarded the appropriate approvals. As part of these approval processes Cape s performance was monitored and evaluated by independent experts. In 2011 we continued investing in the most modern equipment and techniques to exceed legislative compliance and deliver exceptional, safe and efficient operations to clients. Health, safety, environmental and welfare KPIs As part of Cape s internal management controls we continued to monitor our overall health, safety, environmental and welfare performance with a range of KPIs. The results of these measures are made available to all levels of management and are reported to every Board meeting. During 2011, Cape met all criteria set regarding appropriate levels of control. All indicators demonstrated performance which exceeded targets, and the Board was not asked to take any corrective actions. Route map towards zero injuries/accidents and no harm to the environment Although Cape believes that its performance is already world-class, we are still not satisfied. We are still only part of the way towards achieving our goal of zero injury/accidents and no harm to the environment. Ensuring that our people are fully trained and competent to undertake their duties is fundamental to supporting our excellent health and safety performance. Therefore, our work in 2011 to achieve this goal included increased levels of behavioural safety training, strengthening supervisor training and improving competence programmes/systems. We have also increased our practical, on-the-ground, trade skills training of our workforce. Health and safety awards Cape s focus on continually improving our health, safety and environmental performance continued to be internationally recognised with a large number of awards, prizes and certifications in Operations Governance Financial statements
20 18 Cape plc Annual Report 2011 Corporate responsibility continued Our people Developing the capability of our organisation through our people, Cape workers on-site in Australia People by region UK 20% 2. Gulf/Middle East 45% 3. CIS, Mediterranean & North Africa 11% 4. Far East/Pacific Rim 24% also saw the successful UK launch of the Engineering Construction Industry Training Board senior management programme. This trains our workforce in supervision and management to industry-leading standards. More than 100 employees have already taken elements of the programme, with twice as many scheduled to attend in We are similarly committed to younger people starting their careers. Our UK business continues to be a major sponsor of apprenticeships, employing more thermal insulation apprentices than any other company in our sector. We also successfully launched training for key supervisors and managers in the UK National Examination Board in Occupational Safety and Health (NEBOSH) National General Certificate. This follows Cape s successful accreditation to deliver this globally recognised health and safety qualification. In Arzew, Algeria, we established a skills training centre in 2010 to support the Sonatrach GL3-Z LNG project with local staffing needs. This centre has now completed a series of training programmes. Cape has now trained 500 local personnel in insulation trades, 50 in scaffolding and 30 in fire-proofing. A further 200 insulators are being trained and tested on site. To help ensure high health and safety standards we are training some 30 local employees to be assistant HSE officers on site. Finally, a further 10 local people are training in HR or accounting-related disciplines to support local management and control functions. We have now established four construction skills training centres in the Gulf, with plans to create a further two in Cape employs around 19,000 people in 30 countries. Our wide range of services and the increasing multi-disciplinary nature of our contracts requires people with a wide range of technical skills and increased management skills. Developing our people is therefore essential to our growth aspirations and we continue to invest in people development across the business. People and skills development Cape s Future Leaders Programme, which provides in-depth management development for future leaders, successfully completed its first phase. The second phase, which will develop a futher 70 key managers from all regions, has now commenced. In September 2011, the first-ever cohort of 8 Graduate Management Trainees also commenced a two-year programme of experience-based training and development covering all aspects of Cape s business. Successful completion of the programme will lead to a key position on completion. In November 2011, Cape was recognised with a People Development award for our excellence and sustained commitment to the development of our people at the Shellsponsored UK Oil and Gas Industry awards ceremony in Aberdeen, UK. Establishment of IHQ in Singapore During the year, as previously announced, Cape established an International Headquarters (IHQ) in Singapore. This office is now operational. Senior managers based at the IHQ include a Head of Group Security, Head of Corporate Development, Group Head of International Resourcing and a Regional Health and Safety Director. Cape plans to make further senior hires in Group and regional roles. Resourcing Cape s newly appointed Group Head of International Resourcing is tasked with leading the labour resourcing of major projects and attracting the best available people into key positions across the business. During the year, the resourcing team worked with local recruitment teams to mobilise over 520 scaffolders, riggers, blasters/painters, insulators and a wide range of additional skilled trades for Cape s Kumul, Lihir and Bayu Undan projects in Papua New Guinea and Timor. The team also efficiently managed the temporary transfer of a large number of UK workers to Australia at short notice, following a client request for additional specialist resource to make up lost time on a substantial project near Perth. This example demonstrates Cape s global reach and flexibility in meeting short-notice client requests for skilled labour on an international scale.