8 Apr 2016 15:48
Cape plc
8 April 2016
8 April 2016
Cape plc ('Cape' or the 'Company')
Annual Financial Report
Cape announces that its Annual Financial Report for the year ended 31 December 2015 (the "2015 Annual 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 2015 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.do and can also be viewed on the Company's website at www.capeplc.com.
AGM Location
The Company's AGM will be held at 11.00am (BST) on Wednesday, 11 May 2016 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 2015 Annual Report (page 81).
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 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 consolidated financial statements and the parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
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 European Union, 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 proper 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 and Transparency Rules
Each of the current directors, whose names and functions are listed on page 54 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 52 to 81 and the regional and Chief Financial Officer's reviews on pages 30 to 39 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 risks and uncertainties review on pages 18 to 25.
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 15 March 2016. 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
15 March 2016
Appendix 2: Principal Risks & Uncertainties
The following description of the principal risks and uncertainties that the Company faces is extracted from the 2015 Annual Report (pages 18 to 25).
Cape recognises that in a complex operational environment, it is essential that we actively manage our risks and opportunities to allow us to deliver the Group's strategic objectives. Our risk management procedures allow the Group to identify, assess and manage risk to an acceptable level whilst in pursuit of our strategic objectives.
How we manage risk
Following Cape's values in everything we do
Whilst Cape is focussed on seeking opportunities and delivering our objectives, we are passionate that we will do this by working in line 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 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
Operations are accountable and maintain an effective risk framework
Our employees work across many different geographies and provide a wide range of services, carrying a range of risk types. Our employees take accountability for effectively managing risks, using the Group's thorough system of policies and procedures to do so. Internal control procedures are maintained on a day-to-day basis, risk registers are in place and training needs are assessed, to ensure the appropriate knowledge and skills are everywhere that they are needed.
Our independent risk management and compliance functions determine appropriate frameworks for managing risk Independent functions determine the appropriate frameworks, set standards for managing risk, provide oversight for specific risk areas and ensure standards are implemented by process owners consistently across Cape. Independent functions such as health and safety, finance, legal, commercial and Operational Excellence operate as centres of quality and collaborate with process owners on controls to mitigate identified risks.
Internal audit provides independent challenge
Our internal audit department 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 are our final line of defence
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 management process twice a year and reviews internal audit assurance work throughout the year. We are looking to strengthen this by formalising executive management's role in risk management. We have commenced this in 2015 with further development planned for 2016.
For more information go to page 61
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. A bottom-up risk assessment is undertaken by all business units every six months which results in a prioritised register of risks. A top-down assessment of operational and strategic risk is undertaken by the Board and Executive Committee 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.
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 61 to 64
Risk appetite
The Group's risk appetite drives strong commercial risk controls, high standard of health, safety and environmental compliance 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.
2015 assessment of principal risks
The risk assessment exercise is undertaken by each region and Group function to conduct a formal review of risk that could impact the Group. The assessment includes the perceived level of risk and likelihood of occurrence, both before and after mitigating controls.
The impact of risks are 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 2015 to form a top-down assessment and oversight from a Group-wide view. The Board performed a top-down review in August 2015 and again in January 2016 and subsequently reviewed and challenged both bottom-up and top-down assessments to arrive at the agreed principal risks. Subsequent to the risk management process, the Board identified eleven principal risks which are set out in the table below:
[Please see table set out on page 19 of the 2015 Annual Report.]
A Global political, security and economic conditions
| G Investment and asset integrity
| ||||
B Key client and market dependency
| H Compliance and business conduct risk
| ||||
C Health, safety and environmental risks | I Industrial Disease Claims - provision adequacy risks on existing scope of liability provision
| ||||
D Recruitment and retention of key executives and skilled employees
| J Industrial Disease Claims (IDC) - widening of the scope and liability
| ||||
E Contract acceptance risk
| K Taxation | ||||
F Operational and project performance risk
Principal risks and viability
| |||||
Risk | Risk description | Link to strategy | Mitigation | Change in risk during 2015 | More information |
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, property 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 not supported by revenue during economic downturns.
| -- Geographic expansion -- Balanced business -- Operational excellence | -- A diverse portfolio reduces exposure to each specific location. -- Monitor travel by Cape employees and restrict travel to countries deemed unsafe or too high risk. -- Dedicated Group Head of Security in place. -- Regular security and risk assessments and monitoring. -- Contingency plans and exit strategy in place. -- Monitor any changes in sanctions by legal counsel. -- Senior management presence in all regions. -- Insurance policies taken as appropriate. -- Wide range of geographies and sectors provide diverse revenue streams. -- Reviews of Group's forecast and market trends are completed quarterly along with the Group's strategic annual planning process to ensure 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 and any necessary action taken. -- Operational Excellence initiatives seek to increase efficiencies and improve customer relations and satisfaction.
| [Please see page 21 of the 2015 Annual Report] | Corporate and social responsibility section (security) page 43 Our markets page 8 |
B. Key client and market dependency
| Loss of key clients or decline in a key market could adversely affect Cape's revenues. The Group's top ten clients represented 45% of revenue (2014: 42%) and if we are unable to continue working for one or more of our key clients then 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 claims.
| -- Customer intimacy -- Balanced business | -- Client relationships are built at multiple levels from site supervisors to senior management. -- Multi-year contracts in place. -- Group strategy focussed on creating a broad portfolio of clients and markets. -- Acquisitions brought new client relationships and wider opportunities. -- Revenue generated across numerous markets, across different geographies providing greater stability and robustness of revenue streams. -- Work performed throughout asset life cycles providing opportunities at each stage. -- Monthly contract performance reviews by finance and commercial management to identify and escalate high risk areas.
| [Please see page 21 of the 2015 Annual Report] | Our markets page 8 |
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 may be incurred for HSE incidents which in the UK are significantly increasing.
| -- Operational excellence | -- High number of 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 21 of the 2015 Annual Report] | Corporate and social responsibility section (health and safety) page 43 to 47 |
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. Key executives, senior management and skilled employees possess the industry knowledge and experience without which the strategic objectives may not be advanced.
| -- Geographic expansion -- 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 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 some projects become impacted by the economic conditions. -- Software to track status of applicants introduced across all regions.
| [Please see page 21 of the 2015 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.
| -- Operational excellence -- Broaden portfolio | -- Policies and procedures in place for contract approval include bid approval models, peer review and Board approval of key contracts. -- Dedicated commercial teams are in place in all regions. -- Experienced management teams in place for all service offerings with the relevant technical and industry knowledge. -- Large majority of contracts being cost reimbursable and preference of management for this basis. -- Commercial management report on high risk contracts to senior executives and the Audit Committee.
| [Please see page 23 of the 2015 Annual Report] | Audit Committee report page 62 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.
| -- Operational excellence -- Customer intimacy -- Broaden portfolio | -- Operational Excellence initiatives have been implemented and subsequently further developed each year as part of continuous improvement programmes; implementing a global project management toolkit and standardised project delivery system framework; continuing to develop and formalise best practice; and knowledge sharing across the Group. -- Cape Management Development Programme provides training to all levels of employees and includes project management and financial management skills. -- Centres of excellence share knowledge across the Group. -- Monthly project performance reviews are undertaken involving finance, commercial and operational personnel. -- Audit Committee regularly review commercial contract risks with the Group Commercial Director and Chief Executive.
| [Please see page 23 of the 2015 Annual Report] | Audit Committee report page 62 to 64 |
G. Investment and asset integrity
| Return on invested capital may decrease if there is a failure to achieve satisfactory returns on assets, acquisitions, joint ventures or other investments. Cape holds £80.2 million of property, plant and equipment assets around the globe and the inadequate management and financial control of these assets may expose the Group to loss of operational control, assets, financial data or data integrity. Implementation of new ERP systems could pose a transitional risk to the financial management of these assets and the business.
| -- Operational excellence -- Geographic expansion | -- Due diligence and assessments made prior to acquisitions. -- Detailed assessments of joint venture arrangements and other investments, including legal and financial due diligence where appropriate. -- Asset counts performed annually including impairment assessments. -- Group Head of Assets responsible for the co-ordination and supply of assets worldwide. -- Asset control policies and procedures in place globally. -- Standardised asset management systems being rolled out. New ERP systems being evaluated for staged implementation.
| [Please see page 23 of the 2015 Annual Report] | Note 34, 'Business acquisitions' Audit Committee report page 62 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, sanctions, health and safety regulations and tax. A lack of knowledge of relevant legislation across the countries we operate in could result in a breach of law or regulation.
| -- Geographic expansion -- Operational excellence | -- Anti-bribery and anti-corruption policies and training is provided globally. -- HSE specialists are based in each region we operate in to ensure knowledge of local HSE regulations is in place and monitored frequently. -- Whistle-blowing procedures are in place globally. -- Compliance is monitored by the relevant Group functions including tax and treasury, legal, financial, and HSE. -- Cape's values drive a culture where integrity, honesty and compliance are an integral part of day-to-day business at all levels.
| [Please see page 23 of the 2015 Annual Report] | 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 risks on existing scope of liability provision
| 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 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 scheme valuation carried out by external actuaries using the Group's cumulative claims history and updated economic assumptions. -- Annual review carried out by external actuaries and external auditors of Cape's accounting note on valuation of IDC. -- Half yearly review of economic assumptions reviewed by the Board. -- Regular Board review of IDC litigation. -- Dedicated internal legal function and external claims handlers to proactively manage cases and monitor changes in the legal environment. -- Specialist external legal advisors and claims handlers engaged.
| [Please see page 25 of the 2015 Annual Report] | Note 2 'Summary of significant accounting policies' Note 4 'Significant judgements and estimates' Note 28 'Provisions' Note 35 '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. One such example of this are the speculative product liability claims being brought by certain insurers which are described more fully in note 35 'Industrial disease claim provision and contingent liabilities'
| -- Operational excellence | -- 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 25 of the 2015 Annual Report] | Note 2 'Summary of significant accounting policies' Note 4 'Significant judgements and estimates' Note 28 'Provisions' Note 35 'Industrial disease claim provision and contingent liabilities' |
K. Taxation
| 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. In some cases, it is not clear where lines should be drawn and the Group may disagree with the tax authorities. If this is the case, then it may be necessary to get the courts involved to interpret the laws. | -- Broaden portfolio -- Geographic expansion | -- Communication and strong tone from top concerning compliance with local tax laws. -- Formal policies and procedures regularly updated. -- 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 used to support local teams on specific tax matters. -- Legal opinion sought requiring interpretation of tax legislation and principals when needed. -- Active engagement with relevant tax and government authorities.
| [Please see page 25 of the 2015 Annual Report] | Note 2 'Summary of significant accounting policies' Note 12 'Income tax' Note 20 'Deferred income tax' Note 27 'Current income tax liabilities' |
Viability statement
In accordance with the revised 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 with a change in provider for maintenance contracts taking 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 selected principal risks, individually and on a combined basis. This analysis considers cash flows, covenant projections and liquidity and other key financial measures over the period. The strategy model has been stress tested against selected key risks that could affect the future viability of the Group. These risks are highlighted on pages 20 to 25 and include the following key downside risks: 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 and new claims emergence relating to IDC; loss of a key client and increase in interest rates and tax liabilities.
Based upon the robust assessment of the principal risks to the Group's prospects, the directors have 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 period of their assessment.
Appendix 3: Related party transactions
Details of directors' emoluments are shown in note 37 'Related party transactions' to the consolidated financial statements and in the Directors' Remuneration Report on pages 65 to 77.
There have been no material transactions with the Company and other related parties during the year.