CIU.L Regulatory News (CIU)

Embargoed: 0700hrs, 6 March 2013

Cape plc

("Cape" or the "Group")

Preliminary Results for the twelve months ended 31 December 2012

Cape plc, the international provider of essential support services to the energy and mineral resources sectors,announces its unaudited results for the twelve months ended 31 December 2012.

Challenging year; however, the core business remains fundamentally strong and the Board is confident of the outlook for the current year

Financial summary

Highlights

• Adjusted revenue growth of 7% to £749.4m, with growth in all of our regions for continuing business

• Adjusted operating profit down by 60% to £31.5m (2011:£77.9m)

• Robust performances from the majority of the Group offset by poor performances on the Arzew Project and in the Onshore Australian business:

- Arzew provision increased by £5.8m to £19.8m, all recognised in 2012

- Onshore Australian business restructured

• UK business achieved record adjusted operating profit of £30.6m (2011: £26.7m)

• Strategic review completed

• Balance sheet and key financial policy review completed

• Exceptional and other items charge of £159.4m primarily relating to Onshore Australia and a further £39.2m post-tax charge in respect of discontinued operations

• Operating cash flow up 15% to £37.7m (2011: £32.7m) resulting in adjusted net debt of £65.2m (2011: £59.2m)

• Full year dividend 14.0p (2011: 14.0p)

• Board confident of the outlook for the current year

Commenting on the results, Joe Oatley, Chief Executive of Cape said:

"2012 has been a challenging year for Cape and one of significant change, including the recruitment of a new senior management team. In my first six months with the business I have seen much of which we can be proud and I have been impressed with the commitment and capability of our workforce. I have also identified some areas of significant underperformance and it is clear that we need to implement a new management model for Cape to succeed in the future. Many of our businesses have performed well, but the overall result for 2012 has been disappointing, largely driven by poor performances from our onshore business in Australia and the Arzew Project in Algeria. These poor performances have highlighted operational and control weaknesses and we have conducted a root and branch review of our balance sheets across the Group to ensure any issues are identified and that all of our assets are appropriately and more prudently valued. This exercise is now complete and I am pleased to be able to move into 2013 on a firm footing. Whilst we have made progress in improving our operational processes and controls there remains much to do. Our main focus for the year ahead will be driving operational excellence throughout the Group to ensure that we are optimising the performance of our existing business whilst providing the platform for future growth. This focus on operational excellence should deliver much improved margins in 2013 and with a range of growth opportunities for 2014 and beyond I look forward to the future with confidence. "

Analyst meeting

The Group will be presenting to a meeting of analysts at 9.30am today. The presentation will be available on the company's website later today at: www.capeplc.com/investors/financial-results-and-presentations.aspx

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 6 'Adjusted measures'.

Enquiries:

Forward looking statements

Any forward looking statements made in this document represent the Board's best judgement as to what may occur in the future. However, the Group's actual results for the current and future fiscal periods and corporate developments will depend on a number of economic, competitive and other factors, some of which will be outside the control of the Group. Such factors could cause the Group's actual results for future periods to differ materially from those expressed in any forward looking statements included in this announcement.

About Cape:

Cape plc (www.capeplc.com), which is listed on the main market of the London Stock Exchange, provides a range of industrial services including access systems, insulation, refractory linings, painting, coating, blasting, industrial cleaning, training and assessment to industrial plant operators and major international engineering and construction companies.

As a single source provider, Cape is able to provide a range of specialist multi-disciplinary services specifically tailored to meet the needs of the client providing the most intelligent and cost efficient solutions for our clients' in-plant maintenance and capital needs.

In the year ended 31 December 2012, Cape reported adjusted revenues of £749.4 million. With scale and leading market positions across its international footprint, Cape employs over 21,000 people around the world.

Chairman's statement

2012 was a challenging year highlighted by isolated but significant operational weaknesses on the Arzew Project in Algeria and in our Onshore Australia business. Our immediate priority has been to understand fully the underlying causes. We then needed to put in place an organisation with robust operational processes that was able to provide near-term stability and to provide the platform for future growth. The potential of our core business is underlined by the Group's major operations performing in line with, or above expectations.

Over the past few months, the new management team has worked closely with external consultants to ensure that the balance sheet of the Group is appropriately and more prudently valued. This review is now complete and the financial impact is reflected in the year end result. It is clearly disappointing that we needed to carry out such an exercise but the Board is confident that we have now procedures in place that are appropriate to the business.

Building a stronger Board

The Board has seen a number of changes during the year, starting with the departure of the long-term Chief Executive. I would like to thank Brendan Connolly for stepping in as Acting Chief Executive. Brendan quickly identified the problems in Algeria and took action, while commencing work on the wider Group to understand any other latent issues.

My main priority as Chairman was to recruit a high calibre Chief Executive to lead the significant transformation required to re-build Cape, and I am delighted that Joe Oatley agreed to take on the challenge. Joe, appointed Chief Executive in late June 2012, was previously CEO of Hamworthy plc and is well equipped with the track record and business experience to lead the Group through its next phase of development and success. Michael Speakman, who has a deserved reputation for bringing stabilisation and improvement of control structures across both private and public companies, was appointed Chief Financial Officer in early December 2012. Prior to joining Cape, Michael was most recently with Expro International Group plc, the oilfield service company, where he was CFO from 2004 through to the successful auction and subsequent private ownership in 2008. Since the change in ownership, Michael has been engaged in a combination of CFO and General Management responsibilities within Expro.

In August, Leslie Van de Walle joined the Board as a Non-Executive Director. Leslie has had a distinguished business career and is currently Chairman of SIG plc and Robert Walters plc. At the same time, and as planned, David McManus stepped down after eight years of dedicated service.

I am confident that these appointments strengthen the Board and will provide us with the leadership our excellent work force and shareholders deserve.

Strengthening our governance

The Board continually strives to achieve the highest possible standards of corporate governance and we believe that the observance of these standards is in the best interests of all our stakeholders. Our determination to achieve that aim will remain one of our key priorities throughout the coming year.

Cape's strength

Cape's commitment to deliver superior execution with an uncompromising approach to safety remains paramount. The Cape brand provides our clients with the reassurance that critical support services for their plant maintenance and construction needs will be provided efficiently and safely. This was again acknowledged by our clients with many prestigious awards including 'Global Contractor EHSS Award - First Place' by SABIC, 'Contractor of the Year' by Exxon Neftegas at Sakhalin Island for the third consecutive year and we were selected by Borouge as the 'Best HSE Performer of the Year - 2011' on the Borouge petrochemicals complex.

It is also important to re-affirm the fundamental, underlying strength of the Cape business and its ongoing competitive advantage in the marketplace. The bidding pipeline remains strong and the Board has full confidence in the new management team, with the support of the wider dedicated and capable workforce, to take robust action to see that the performance of the Group fulfils its significant potential.

Maintained dividend reflects confidence in future

In recognition of the Board's confidence in the Group's underlying and future prospects, the Directors are proposing a final dividend for 2012 of 9.5p (2011: 9.5p) per share. With the interim dividend of 4.5p (2011: 4.5p) this results in a full year dividend of 14.0p (2011: 14.0p). Subject to shareholders' approval at the Annual General Meeting on 15 May 2013 the final dividend will be payable on 7 June 2013 to shareholders on the register as at 10 May 2013.

Conclusion

Last year was a difficult one for Cape but I believe we exited it in considerably stronger shape than, as is now evident, when it began. We have a highly motivated and competent new management team; we have made real progress in addressing the issues that impacted our financial performance in the year; and we have completed a global review of our business that stress-tested the essential soundness of our activities wherever we work. With this work done, and the inevitable financial impact taken in our 2012 figures, I am confident that we are well set to sharpen our focus on what we do best and ensure consistency in delivering that offering across our business.

Tim Eggar

Chairman

6 March 2013

Chief Executive's review

I joined Cape at the end of June 2012 and focused initially on gaining a rapid understanding of our businesses around the world. Whilst it became clear that some parts of the business were not performing as expected, I was pleased to find areas of real strength. Our operations in the UK, CIS and the Middle East have all performed strongly during the year, in line with, and in some cases surpassing, our expectations. However, a number of our operations have clearly underperformed, most notably our Onshore Australia business and the Arzew Project in Algeria. In addition, we have identified a number of control weaknesses that have compounded the operational problems in these areas. My team is now focused on correcting these weaknesses, improving the operational performance in the underperforming areas and building on the strengths within the Group to ensure the business delivers the robust performance that we expect. Whilst 2012 has clearly been a challenging period for the Group, I am pleased to say that, having reviewed all of our operations, I continue to believe the core of the business to be fundamentally strong.

2012 Operating Performance

Order intake during the year was subdued at £621m, largely due to the timing of major maintenance contract renewals in the UK and lower new construction project initiation across all regions following high levels in 2011.

Adjusted revenue from continuing operations was 7% higher than prior year at £749.4m (2011: £698.1m) driven primarily by the release of work packages on a number of large construction projects in the Gulf/Middle East and CIS markets, as well as expansion of our workscope for our essential maintenance support activities with key clients in the UK offshore market.

Adjusted profit before tax fell by 66% to £23.8m (2011: £69.4m) as strong performances in the UK, the Middle East and CIS were offset by poor operational performances on the Arzew Project in Algeria and in our Onshore Australian business.

The Group achieved a strong cash flow, with operating cash flow of £37.7m (2011: £32.7m) despite significant working capital build up in Middle East and CIS and large balances on Arzew and a large project in Asia. As a result, the Group maintained a robust financial position with year-end adjusted net debt ahead of expectations at £65.2m (2011: £59.2m).

Arzew

We started work on the Arzew GNL3-Z LNG plant in Algeria in 2011 and it was identified in May 2012 that progress on the project was well behind plan. A review of the project revealed significant cost overruns and a loss provision of £14m was taken to reflect the best estimate at that time of future losses on the contract. We changed both the leadership and delivery resource of the project and with closer management, productivity improved significantly in the second half of 2012.

Despite this, recent progress on the project has been disappointing. In conjunction with our customer, we have now agreed a new plan for completion of the project and we remain committed to delivering this to meet the overall project key milestones. In light of this new plan we have reviewed the cost to complete for the project and have increased the loss provision by £5.8m to £19.8m.

Australia restructuring

Following the completion of works on the Pluto LNG project during the first quarter of 2012, the performance of our Onshore Australian business deteriorated sharply. With delays in contract awards for the forthcoming LNG projects and cutbacks in the mining capital investment programme, operating performance was affected both by falling volumes and margin reduction in a very competitive market. An overhead cost reduction programme was instigated, which partly mitigated the effects of these pressures, but the business has still performed poorly for the year as a whole.

As soon as it was clear that the performance of our Onshore Australian business would fall below our expectations, we instigated a comprehensive review of the business in order to determine how best to improve operating performance and ensure that the business is properly positioned to secure forthcoming work. The key conclusions and actions resulting from this review are as follows:

·; The business will focus on the core Cape activities of providing multi-disciplined services to industrial clients both for maintenance and new capital projects

·; The following separate operations will be divested: the hire and sales scaffolding businesses with operations focused on the residential and commercial construction markets in Melbourne and Perth; and the stand-alone blasting and painting facility in Kwinana (Perth). The process of divesting these businesses, now treated as discontinued operations, is well underway and is expected to be completed in the first half of 2013

·; The Australian management team has been strengthened with experienced leadership transferred from the Middle East and this team now has a renewed focus on improving operational performance

·; The onshore and offshore operations have been merged to form a single Australian business to reduce overhead and maximise organisational efficiency

·; The appropriate carrying value of the assets acquired in Australia in 2007 has been reassessed in line with a more prudent view of the likely future performance of the business. This review has been completed and a non-cash Exceptional and other item charge of £128.1m (including £110.7m of goodwill impairment and £13.0m of non-current assets) has been taken in respect of continuing operations in Australia in the full year 2012 result. In addition, a further Exceptional charge of £44.5m has been taken in respect of discontinued operations in Australia.

Balance Sheet Review

As a result of the issues identified in Australia, we have, with the assistance of Ernst & Young, carried out a detailed review across the whole of the Group to ensure that the Group's balance sheet reflects an appropriate and more prudent view of the value of the Group's assets. This review, which covered all of the significant Group businesses around the world, is now complete and has resulted in both a reassessment of certain asset values and the implementation of more prudence in accounting estimates. The net effect of implementing the results of this review is a primarily non-cash Exceptional charge of £18.8m. Whilst this is obviously disappointing, I am pleased that we are able to draw a line under these events and that we have taken appropriate steps to address the issues we identified.

Group strategy

I have worked with my team to develop the strategy for the Group that will both instil operational rigour in the near-term and provide the basis for long-term growth in earnings and creation of shareholder value. The long-term drivers of demand for our services are robust and our market sectors will provide substantial opportunity for long-term growth. The Group strategy consists of two phases: near-term, where the focus is on ensuring the business is performing to its optimum whilst capturing opportunities available to us in our existing core markets and longer-term where we will drive for growth primarily through expansion into emerging and high growth markets around the world.

We aim to achieve market leading positions in our chosen markets as we believe this will drive superior performance. Our strategy is designed to achieve this leadership though a deep understanding of our clients' needs and by delivering industry leading operational performance to meet those needs. The strategy is outlined below:

Focus on operational excellence

Cape has a number of great businesses around the world; however our recent overall performance has been severely impacted by poor operating performance in a small number of parts of the Group. In order to achieve consistent performance over the long-term and prevent a recurrence of recent issues we need to ensure that the Group is working to the same high standards across all of its operations. We will achieve this through a focus on operational excellence, identifying and embedding best practice processes across the Group and by implementing more disciplined controls.

Through this focus on operational excellence we aim to lead our industry in operational efficiency and performance. We have established a dedicated team, headed by a senior executive, to drive the necessary operational improvement and have taken our first steps on our journey to operational excellence through the introduction of formal project and operational reviews and the formation of my Executive Committee that meets regularly to share best practice. Nevertheless, there remains much to do and our near-term focus will be on ensuring that we have robust processes throughout the business and controls to ensure those processes are being followed.

Once we have established a robust platform with consistent processes embedded throughout the Group we will continue to develop over the longer term through a commitment to continuous improvement and investment in developing new tools to improve operational efficiency. We will work with our suppliers to ensure that we are providing our clients the best possible solutions to meet their needs.

Cape is a people business and in parallel with the drive to implement improved operational processes we are developing a programme to ensure that we have sufficient talent at all levels within the business with the required capability, capacity and competences to ensure we can deliver both the needs of the businesses today and for the future.

Develop customer intimacy with our key clients

We will refocus Cape as a customer orientated organisation that is best placed to exploit our global footprint and market leadership. Our global blue chip customers increasingly wish to partner with suppliers that can offer a global service and innovative solutions. By cementing our existing relationships and by developing new long term relationships Cape will be best placed to capture a greater share of the growth that is expected in our markets. In the near-term this will be achieved through the introduction of global key account management with our key clients whom we will aim to support around the world. Our aim is to support these key clients by providing expert advice and support in our core disciplines that allows them to achieve improvements in their costs and efficiency. Our long-term ambition is to be the primary supplier of Cape's core services to each of our identified key clients.

Geographic expansion

In the near-term, our focus is on securing the immediate growth opportunities in our existing markets. The Group has a strong pipeline of significant new projects that are expected to move forward within the next 2-3 years across the CIS and the Far East/Pacific Rim and MENA regions which will provide opportunity for growth. Each of our businesses are working hard to ensure that we are positioning ourselves to secure work on these projects over the coming year.

Over the longer term the business will expand its footprint by entering and developing its business in the high growth and emerging markets around the world.

Broadening the portfolio of essential support services

In the near-term we will focus on ensuring that each region is capable of offering the full scope of multi-disciplinary services that exist within the Group today. Whilst we have a strong offering of access, insulation, painting and fireproofing across our regions, there is an opportunity to transfer the predominantly UK based specialist refractory and environmental services capabilities around the Group's global footprint. This will not only provide an avenue for growth but also further embed us as a key supplier of multidisciplinary services with our clients.

For the longer term we will examine the potential for expanding our maintenance capabilities, initially in the UK, by adding complementary specialist services.

Organisational developments

In order to address the short-term performance issues and implement the strategy outlined above, we have implemented a new organisational structure. As of 1 January 2013, the Group is organised into three key regions and I have also formed an Executive Committee comprising the key leadership of the Group that is charged with the continued development and implementation of the Group strategy as well as managing the day to day operations of the business. The new regional structure will enable us to better meet our clients' needs as well as encourage greater collaboration and the sharing of best practice to utilise the strength across the Group to improve performance and drive growth. We have also created a global business development team to drive toward our goal to be the primary supplier of our core services to each of our identified key clients. We are embedding better management processes and controls across the Group and whilst there remains much to be done, I am pleased with the commitment of the whole organisation in driving the change needed to achieve our goal of industry leading operational excellence.

In addition, I have made a number of critical appointments to my leadership team, including the appointment of Michael Speakman, who joined as Chief Financial Officer in December 2012. Michael brings a wealth of experience and expertise and has already begun to make the improvements needed to ensure that our internal operational and financial controls are robust and provide an appropriate level of risk management.

Safety

Safety remains at the heart of what we do at Cape and we continue to focus on delivering our services to our clients in as safe a manner as possible. Our performance remains significantly better than industry norms and we received a number of awards from our blue chip clients during the year that are a testament to the commitment of all of our employees to our safety culture. However, despite this continued focus, I was disappointed that our overall safety performance deteriorated slightly compared to 2011 and we are all resolved to redouble our efforts to ensure we achieve continuous improvement in our safety performance.

It is with sadness that we report that an incident occurred in January 2012 on a client's site in the UK, resulting in the fatality of a Cape employee. The incident remains the subject of official investigations and Cape continues to assist with the ongoing enquiries. Whatever the outcome of the investigation, it remains a tragic loss of a colleague.

Our people

Cape employs over 21,000 people around the world and these people often work in challenging and hostile environments. Each and every one of them serves as an ambassador for Cape and our achievements are only possible through the hard work and dedication of our employees. I would like to thank everyone who worked for Cape through the year for their efforts and I look forward to continuing to work with everyone to develop and grow the Group in the future. A key element of our strategy to be the industry leader in operational excellence is to ensure that we have the best people, with the best training, working to the best of their abilities and I am committed to ensuring that we create the right working environment and make the investment needed to achieve this.

Market conditions

Over the long-term, global demand for the Group's services is expected to grow, driven by increased demand for energy leading to investment in new projects for the oil & gas market and the need to maintain, and in many cases extend the life of, ageing infrastructure across the power generation, mining and oil & gas markets. In the nearer term, we expect to see lower activity levels in the new construction market through 2013, driven by the timing of project initiations, with new project activity expected to increase in 2014 and 2015 as a number of major oil & gas projects reach the stage of their development where Cape's services are required.

In the UK, we see continued steady demand for our services both onshore and offshore, driven by a focus from our clients on ensuring that they achieve the maximum output from their existing infrastructure through improved operational efficiency. Many of our clients are investing in life extension and refurbishment programmes for their key assets and Cape is often a key partner in delivering these programmes. In the longer term the UK will need to invest in new power generation capacity and this will provide additional opportunities for Cape's services. We expect to see lower activity levels throughout 2013 in the CIS as work on a number of key projects is completed with new project activity expected to grow in 2014 and beyond.

In the MENA region the maintenance market continues to show steady growth with the ongoing expansion of oil & gas infrastructure. Investment in the construction of new downstream infrastructure in the Middle East, in particular in Saudi Arabia, continues as the major oil producers aim to bring refining closer to the production of the crude oil and to support the changing geographical demand for petrochemical products. We anticipate increased demand from new project work in the Middle East over the short and medium-term across both established markets including Saudi Arabia, Abu Dhabi, Oman and Qatar, as well as new markets such as Iraq. We continue to see increased competition across the region as the market matures and new competitors enter. North Africa is currently suffering from increased instability and as a result we do not expect significant activity in this region until it returns to a more stable environment.

In Asia, we expect to see a number of large construction projects, both onshore and offshore driving new project activity in the medium and longer term to meet the growing demand for energy and the ongoing expansion of industry, however market activity levels are expected to be subdued throughout 2013 due to the timing of new project developments. The Australian market continues to be subdued in the short term with the timing of the contracting on the major new LNG trains being pushed out and capital expenditure by the mining sector remaining restricted. During the year we saw some clients elect to self-deliver their access equipment for major new projects which has the effect of reducing the size of the accessible market. Nevertheless, there remains a substantial opportunity in the Australian market to provide project management and delivery capability for those clients that have chosen the self-delivery model and the business remains confident that the accessible market for Cape's services is expected to grow strongly in the medium-term as major LNG projects move forward. The maintenance market remains steady in both the mining and downstream oil & gas sectors.

Outlook

2012 was a challenging year for Cape, a year in which most of our businesses performed strongly, but the overall performance of the Group was negatively impacted by a small number of significant issues. We have made good initial progress in stabilising the Group's financial and operational position and we are taking the necessary steps to further improve our operations and strengthen our controls. The focus on operational excellence should deliver much improved margins in 2013 compared to 2012, albeit on lower activity levels driven by reduced new construction project awards in 2012. Despite the subdued order intake in 2012, the Group maintains a robust order book which gives good near-term visibility and the Board is confident of the outlook for the current year.

It is anticipated that market conditions will improve during 2014 with a number of new construction projects expected to progress towards contract award for Cape's range of services. It is expected that this will drive growth in activity levels in the new construction market in the medium-term, with the maintenance market remaining steady.

Over the longer term, it is expected that demand for the Group's services will continue to grow driven by the increasing need for investment in both new and existing infrastructure in the power generation, oil & gas and mining industries. With market leading positions in its current markets and a number of opportunities to expand into new growth markets, the Group is well positioned to deliver long-term earnings growth and the Board looks to the future with confidence.

Joe Oatley

Chief Executive

6 March 2013

Regional review

For 2012 and 2011 the Group reported its financial results from a geographic perspective under four reporting regions.

Adjusted operating profit is shown pre-franchise fee. Definitions and reconciliation of non-statutory measures to their statutory equivalents can be found in Note 6 'Adjusted measures'.

UK

Order intake of £240m reflected the timing of major long-term maintenance contract renewals. Nevertheless the business secured important renewals with a number of key clients, including SABIC where the onshore business secured a three year fixed term extension to the existing multi-disciplinary site services contract for its Teesside sites, Esso Petroleum with a three year contract for painting services and Novartis with a three year multi-disciplinary contract at its Grimsby plant on Humberside. In addition, the business continued to develop its work with E.ON at Ratcliffe station with a twelve month renewal of the existing multi-disciplinary contract.

York Linings, the specialist refractory linings business acquired in 2011, performed in line with expectations and is now fully integrated with the UK operations. It is working with the Group's international operations in order to identify and secure work across the Group's global footprint, achieving an early success by securing the EMAL (Emirates Aluminium) smelter project in Abu Dhabi in conjunction with Cape's business in the region.

Adjusted revenue increased 7% to £320.6m (2011: £299.1m) driven largely by an expansion of our maintenance activities with our existing customer base in the North Sea and a strong take up of our specialist environmental services by our core offshore clients as we gained the benefits of the more cohesive organisational structure put in place in late 2011. Onshore adjusted revenues reduced slightly, driven by lower levels of planned outage (shutdown) activity in the power generation sector in the second half following higher levels of outage works in this sector in 2011.

Cape continues to retain a leading position in the power generation sector, being present on almost half of the larger power stations across the UK. The UK business continues to be largely maintenance based with over 90% of revenues in the region derived from maintenance support services both onshore and offshore.

Adjusted operating margin improved slightly to 9.5% (2011: 8.9%) which, when combined with the top line growth, delivered a robust 15% growth in adjusted operating profit to £30.6m (2011: £26.7m). Excluding the £4.1m charge in 2011 associated with a one-off rig refurbishment contract (representing a margin reduction of 1.4% in 2011) adjusted operating margins fell slightly. This margin performance reflects a strong performance of the environmental services business and continued robust performance of the onshore business offset by a lower margin associated with offshore activities, primarily due to significant investment in operational and safety management capabilities as the business builds a platform for future growth.

Gulf/Middle East

Order intake was solid at £142m despite the limited award of new construction projects following strong order flow in 2011. Significant contract awards and renewals during the year included a five-year surface preparation and coating services contract from The Bahrain Petroleum Company B.S.C ('BAPCO') worth approximately US$20m and multiple contracts on the Barzan Gas Project in Qatar with a combined contract value estimated at US$25m over two years. The business continues to develop its maintenance activity and secured a further two year extension to its multi-disciplinary term maintenance contract with Qatargas covering all seven LNG producing trains.

Adjusted revenue grew strongly by 19% to £157.0m (2011: £132.1m), driven by the commencement of work on several major downstream oil & gas projects in Abu Dhabi in 2011 as well as high levels of activity on the PDO facility in Mukhaizna, Oman, and expansion of maintenance work in Qatar. During the year, Cape maintained a leading position in the provision of construction support activities in the region, being active on over 60 (2011: 46) major construction projects. The Group continues to successfully position itself to win recurring maintenance and shutdown work across the region, extending its provision of maintenance support services to over 80 sites (2011: 75 sites) with existing relationships across the region with clients including BAPCO, SABIC, SIPCHEM, Saudi Aramco, Qatargas and Rasgas. As a result, revenue from maintenance support services including shut-down activity increased to 40% of total adjusted revenue for the region in 2012 (2011: 31%).

As was largely anticipated, adjusted operating profit margin reduced to 12.4% from the unusually high levels seen in recent years (2011: 23.5%), partly as a result of the market maturing and increasing competitive pressures, in particular for the new construction projects across the region. The margin was also impacted by adjustments for non-recurring balance sheet adjustments arising from the Group-wide review of £0.8m and the non-recurring bad debt charge of £1.5m referred to below, the adjusted operating margin before these items was 13.8%.

As previously reported, in October 2012, the Group recognised a £1.5m provision relating to a potential bad debt with a customer in the Kingdom of Saudi Arabia reported to be in financial difficulty; this potential bad debt is not deemed reflective of a structural change in the region.

As a result of the reduced margin, adjusted operating profit fell, despite the higher adjusted revenue, to £19.4m (2011: £31.0m).

CIS, Mediterranean & North Africa

As expected, order intake was well below revenue at £30m despite good ongoing activity in the CIS (Commonwealth of Independent States) due to the expected timing of completion of construction projects in the region, with new awards in Kazakhstan expected to drive activity in 2014 and beyond.

Adjusted revenue grew slightly to £56.6m (2011: £54.5m) driven primarily by higher activity levels in Kazakhstan. Cape's activities in the CIS are centred around construction support activities at the Kashagan project in Kazakhstan and both construction and maintenance support activities on Sakhalin island, with activity levels in both areas continuing in line with management's expectations. The region remains largely construction project based with over 90% of adjusted revenues derived from construction support activities both onshore and offshore.

The region delivered an adjusted operating loss of £11.8m (2011: adjusted operating profit of £9.6m) driven entirely by losses on the Arzew Project in Algeria. Excluding Algeria, the region delivered an adjusted operating profit of £8.0m (2011: £9.6m) reflecting a continued robust performance from the activities in the CIS, resulting in an adjusted operating profit margin of 17.2% (2011: 21.5%). The reduction in margin was largely driven by an investment of £1.3m in the joint venture with SOCAR in Azerbaijan in pursuit of a significant opportunity within the country. This joint venture continued to register a small post-tax loss of £0.3m (2011: loss of £0.6m) as target contracts were postponed.

In 2011, the business commenced insulation and fireproofing works on the construction of the GNL3-Z LNG plant in Arzew, Algeria. A project review carried out in May 2012 identified that the productivity and progress on the project were significantly below expectations and that there would therefore be a significant cost overrun. A loss provision of £14.0m was recognised at the time as the best estimate of the future losses on the contract. Several actions were taken to improve project performance including bringing in experienced Cape management from the Middle East and UK businesses and supplementing the workforce with experienced direct labour from Asia. At the beginning of the second half of 2012, Cape improved its performance and demonstrated its ability to deliver in line with the required levels of productivity. However, recent progress has been slower than anticipated. In conjunction with our client, we have agreed a new plan for completion of the project and remain committed to delivering this to meet the overall project key milestones. In light of this new plan we have reviewed the cost to complete for the project and have increased the loss provision by £5.8m to £19.8m to reflect the current view of outcome through to project completion which is anticipated to be summer 2013.

In September 2012, Cape announced the establishment of 'Cape Caspian LLP' in Kazakhstan focusing on construction support services in new sectors, such as mining and across a broader footprint within the country including entering the growing maintenance market. The joint venture is jointly owned by Cape and the Lancaster Group, a highly reputable private company operating in different sectors of the Kazakhstan economy including the energy, oil services and mining sectors. It is expected that, building on the strong local presence of Lancaster Group, the Cape Caspian joint venture will expand the range of opportunities for Cape in the Kazakhstan market.

Far East/Pacific Rim

Order intake of £209m was supported by a strong performance from offshore activities, offsetting a more challenging trading environment in the onshore market in Australia. During the year major offshore contract awards included multiple awards for our specialist services associated with the asset integrity maintenance and remediation campaign on the Bayu Undan development in the Timor Sea and an extension to our multi-disciplinary services contract on the Kipper Tuna Turram Project. The Shoreguard Marine business, acquired in 2011, secured two major new defence sector contracts in September 2012 with Australian Submarine Corporation and UGL, for the provision of specialist coatings and anti-corrosion services as well as access and waste disposal services, further increasing its presence in this market.

Adjusted revenue from continuing operations increased by 1% to £215.2m (2011: £212.4m) including £6.0m from the full year benefit of the Shoreguard acquisition in 2011 and part year benefit of the Hong Kong Fuji Technology ('HFT') acquisition in 2012. On an organic basis revenue in the Australian onshore market fell significantly driven by a slowdown for both new construction and maintenance work as the start-up of major LNG projects was delayed and major mining clients cut back on both capital and operational expenditure. The onshore business in South East Asia remained steady, largely dominated by a single project in Singapore. The offshore business grew strongly with significant activity on the Kipper Tuna Turram and North Rankin field development projects in Australia and the Kumul Marine Terminal upgrade in Papua New Guinea. The slowdown in the Australian onshore new construction market was offset by the strong growth in the offshore construction market, the result being that the proportion of regional revenue from continuing operationsderived from new construction support activities remained relatively flat. The business continues to provide maintenance services for a range of blue chip clients including Alcoa, BHP, BP, ConocoPhillips and Shell.

The Group completed the acquisition of HFT (now 'Cape HKF') in March 2012 for a total consideration of HKD 58m (£4.75m). This business which focuses on the maintenance market in Hong Kong provides a base for expanding the Group's presence in this region, performed well.

Adjusted operating profit declined significantly to £5.3m (2011: £18.9m) as a result of the sharp deterioration in the performance of the Australian onshore business and the reduction in contract margin on the large Singaporean contract which more than offset the strong growth in earnings from the offshore business.

The performance of the onshore business in Australia deteriorated sharply in the second quarter. Demand fell in both the oil & gas and mining sectors and as a result the business suffered both reduced volumes and falling margins as the market for the Group's services tightened. Although management took swift actions to reduce overhead this was not sufficient to maintain a positive result and a more fundamental review of the business has now been carried out. The business has been restructured to focus on the core Cape capabilities of providing essential support services on client sites with the divestment of the separate hire and sales scaffolding businesses focused on the residential and commercial construction market and the stand-alone blasting and painting workshop in Kwinana (Perth). These businesses are considered assets held for sale and are reported as discontinued operations. See Note 8 'Discontinued operations' for further details.

The reduction in profitability on the major project in Singapore was largely anticipated as we renegotiated our contract terms with our client during the first quarter of 2012 in order to derisk the project, resulting in a corresponding reduction in margin to reflect this lower risk. This project continued to be the largest project in the Group in terms of manpower and retained a significant investment in working capital at the year end. The project is expected to complete in the first half of 2013.

As part of the fundamental review of the Group's Australian operations, a detailed review of the business' balance sheet was undertaken which resulted in the reassessment of the valuation of certain balance sheet items. This has resulted in an Exceptional and other items charge of £128.1m relating primarily to the impairment of goodwill and assets in the continuing onshore Australian business and £44.5m in relation to discontinued businesses. See Note 7(b) 'Exceptional Items' and Note 8 'Discontinued operations' for further details.

The onshore and offshore operations in Australia have been merged and with new experienced leadership transferred from the Group's Middle East operations, the business is now focused on improving its operational performance whilst targeting selected maintenance and new construction projects. Bidding activity in the onshore sector is currently high as a number of the work packages for both maintenance and construction project work are being released for tender.

Changes to segmental reporting in 2013

For management and reporting purposes, the Group is organised into regions, which are representative of its principal activities. In order to reflect recent organisational and management changes, with effect from 1 January 2013, the Group will report the following three regional segments in a manner consistent with the revised internal reporting provided to the Chief Operating Decision Maker ('CODM').

·; UK, Europe & CIS region which encompasses the existing 'UK' business, and 'Europe and the CIS' where Europe (formerly called Mediterranean) and CIS were formerly part of the 'CIS, Mediterranean & North Africa' region.

·; Middle East and North Africa (MENA) regionwhich encompasses the former 'Gulf/Middle East' region and 'North Africa', which was formerly part of the 'CIS, Mediterranean & North Africa' region.

·; Far East/Pacific Rim region remains unchanged. This encompasses the onshore and offshore businesses in Asia and Australia.

The table below provides pro-forma segmental information for each of the new segments as though they had been in existence for the year ended 31 December 2012. This will be adopted with effect 1 January 2013.

Adjusted operating profit is shown pre-franchise fee. Definitions and reconciliation of non-statutory measures to their statutory equivalents can be found in Note 6 'Adjusted measures'.

Adjusted operating profit for the MENA region includes the loss on the Arzew Project in Algeria of £19.8m.

Chief Financial Officer's review

Summary Income Statement

A summary income statement with explanatory discussion of each of the key items is provided below.

Adjusted revenue

Adjusted revenue from continuing operations increased by 7% to £749.4m (2011: £698.1m) driven primarily by higher activity levels in the Gulf/Middle East and UK regions, strong activity levels in offshore activity in the Far East/Pacific Rim region and another year of solid activity in the CIS, partially offset by substantially lower activity levels in Onshore Australia. The increased revenue reflects organic growth of 6% as well as the benefit of the acquisition completed in the year, partially offset by a small impact from currency translation.

Adjusted revenue increased slightly in the second half of 2012, as expected, reflecting higher activity in Asia and the Gulf/Middle East (due to project timings), the seasonal UK outage programme and higher offshore activity in the UK and Far East/Pacific Rim regions partially offset by significantly lower activity in onshore Australia.

Adjusted revenue from continuing operations derived from maintenance contracts was £420m (56%) (2011: £387m (55%)) and adjusted revenue derived from construction support projects was £322m (43%) (2011: £309m (44%)). Revenue invoiced to the largest client represented 11% of total adjusted revenue (2011: 9%) relating to activities in the UK, CIS, Med & NA and Far East/Pacific Rim regions and the top 10 clients represented 40% of adjusted revenue (2011: 35%).

Adjusted operating profit

Adjusted operating profit from continuing operations reduced to £31.5m (2011: £77.9m) reflecting the continued strong performance from the UK and the CIS, the anticipated margin compression in the Gulf/Middle East Region as the market matures, and isolated operational weaknesses from the Arzew Project in Algeria and the Onshore Australia operations. In respect of the Arzew Project, as a direct consequence of further project delays and concluding the renegotiation of the contract with the client, an additional charge of £5.8m has been provided to complete the project (total charge of £19.8m). Excluding the Arzew project, adjusted operating profit from continuing operations would have been £51.3m (2011: £77.9m). As previously indicated, the Onshore Australia business had a poor performance for the year and despite the actions taken during the period to improve performance, the continuing business still posted a loss for the full year.

Other items

Other items increased to £10.5m (2011: £3.2m) comprising amortisation of intangible assets of £0.3m (2011: £0.8m), IDC costs of £1.2m (2011: £0.4m) and contract claims of £9.0m (2011: nil). The recognition of revenue relating to claims on customers for work completed outside a contract will now only be recognised when the claim is accepted by the customer, instead of the historical practice of local subjective judgement, resulting in a charge of £9.0m. In 2011, Other items included corporate expenses of £2.0m incurred in H1 2011 in relation to the move from AIM to the LSE's main market and the corporate restructuring. 

Share of post-tax losses from joint ventures

Included in the adjusted operating profit is the Group's share of post-tax losses from joint ventures is £0.2m (2011: loss of £0.6m) primarily reflecting the losses in the SOCAR Cape LLC joint venture in Azerbaijan.

Exceptional items

A charge for Exceptional items of £150.4m (2011: £nil) was made in the 2012 year, consisting primarily of £123.7m relating to the impairment of goodwill and assets in the continuing Onshore Australian business and £18.8m as a consequence of implementing a more prudent approach to accounting estimates.

The main elements of the former charge resulted primarily from the substantial deterioration in trading performance of the continuing Onshore Australian business and includes a goodwill impairment of £110.7m (2011: £nil), reducing the goodwill associated with the Australian business from £153.8m to £24.0m, and asset write downs of £13.0m (2011: £nil).

The implementation of more prudence in accounting estimates relates to the change of approach in two key policy areas. A more consistent, Group-wide framework to identify potential bad debts, recognising geographic working capital practices, resulted in a total charge of £3.0m of which £0.8m is recognised in business performance. The second change in approach relates to an assessment of the value of the scaffold assets in the context of the current demand for assets in the current market conditions. This has resulted in an asset write down of £16.6m globally due partially to technical obsolescence and the under-utilisation of assets. In line with standard accounting practice, the Group will review the residual value of scaffold assets on an annual basis and ensure that the future depreciation policy is appropriate. The Group's policy for Exceptional items is disclosed in Note 3 'Cape specific accounting measures'.

In line with the restructure of the Group's operations and planned divestment of certain separate businesses, the Group has reassessed its deferred tax asset position. As a result, the Groups' tax assets have been revised downwards to reflect their probable recovery resulting in a charge of £26.1m, including a credit of £0.2m relating to a change in tax rates.

Operating (loss)/profit

The operating loss for continuing operations was £129.4m (2011: operating profit of £74.7m) reflecting an adjusted operating profit of £31.5m (2011: £77.9m), Other items of £10.5m (2011: £3.2m) and Exceptional items of £150.4m (2011: £nil).

Finance costs

Net finance costs reduced to £10.7m (2011: £12.8m) reflecting the annual £4.0m (2011: £4.0m) non-cash charge relating to the unwinding of the discount on the long-term IDC liability following the booking of the provision in 2009 and interest income on the IDC scheme funds in the period of £1.0m (2011: £1.0m). 2011 also reflected a £1.3m charge relating to the unamortised banking facility fee.

Adjusted finance costs reduced to £7.9m (2011: £8.6m) with interest cover (calculated by dividing adjusted operating profit by the adjusted finance costs) reducing to 4.0 times (2011: 9.1 times) This compares to the minimum of 3.0 times required by the covenant in Cape's unsecured £220m syndicated credit facility which has a maturity date of June 2015.

Taxation

The tax charge on profit before tax excluding Exceptional and Other items, discontinued operations and joint ventures was £2.3m (2011: £13.7m) representing an average tax rate of 10% (2011: 20%). The lower tax rate in the year predominately reflects the unique geographical mix of profits in the year. The cash tax rate has returned to a normalised level of £11.9m in 2012 (2011: £6.4m).The deferred tax asset on the provision created for future asbestos liabilities has been fully utilised and in the coming year, we envisage a cash tax rate of approximately 20% of underlying profit before tax.

The tax charge on losses arising from Exceptional and Other items was £14.6m (2011: tax credit of £1.5m) comprising a credit of £11.5m relating to the Exceptional and Other items of £159.4m and a charge of £26.1m relating to the write-down of deferred tax assets arising from losses within the Group.

Discontinued operations

As part of the review of the Group's Australian operations, the Group announced in November 2012 its intention to divest its hire and sales scaffolding businesses with operations focused on the residential and commercial construction markets in Melbourne and Perth; and the stand-alone blasting and painting workshop facility in Kwinana (Perth). Due to the size and the separate nature of these businesses they are reported as discontinued operations and are considered assets held for sale.

Losses from discontinued operations were £42.0m (2011: £nil) after a taxation credit of £8.8m (2011: £nil) primarily relating to Onshore Australia. The decision to dispose of these stand-alone businesses resulted mainly in a goodwill impairment charge of £19.1m and asset write downs of £17.4m, both of which are non-cash in nature.

Earnings per share

For continuing operations adjusted diluted earnings per share were 16.3p (2011: 43.8p) and adjusted basic earnings per share were 16.4p (2011: 45.3p). For total operations the basic loss per share was 167.0p (2011: earnings per share 40.2p). The diluted weighted number of shares decreased to 121.3 million (2011: 122.3 million).

Dividend

Taking account of the 2012 financial results, current market conditions and the underlying prospects of the Group, the Directors are proposing a final dividend for 2012 of 9.5p (2011: 9.5p) per share in line with the 2011 final dividend. In addition to the interim dividend of 4.5p per share paid on 5 October 2012, the total dividend for the year will be 14.0p per share (2011: 14.0p).

Subject to shareholders' approval at the Annual General Meeting on 15 May 2013 the final dividend will be payable on 7 June 2013 to shareholders on the register as at 10 May 2013.

Acquisitions

The Group completed the acquisition of Hong Kong Fuji Technology ('HFT', now 'Cape HKF') in March 2012 for a total consideration of HKD 58m (£4.75m). This business which is reported in the Far East/Pacific Rim region is focussed on the maintenance market in Hong Kong and provides a base for expanding the Group's presence in this region.

All three acquisitions completed over the past two years; namely Cape HFK in 2012 and Shoreguard and York Linings in 2011, have performed in line or ahead of expectations, and were earnings accretive in their first year of ownership.

The Group continues to see bolt-on acquisitions as an important component in achieving our growth objectives and we expect to complete further acquisitions as and when businesses meet our criteria and valuation objectives.

Operating and free cash flow

* At average rates

** 2012 includes £4.3m relating to current year acquisitions and £1.0m deferred consideration on prior year acquisitions.

Although profitability was significantly reduced in 2012, a recovery in working capital in the second half of 2012 resulted in an operating cash inflow for the period of £37.7m (2011: £32.7m). A free cash inflow of £17.8m (2011: £19.6m inflow) offset by the payment of dividends and the HFT acquisition payments resulted in an increase in adjusted net debt of £6.0m to £65.2m.

Working capital

Investment in trade and other receivables and inventories decreased by £4.9m to £239.6m (2011: £244.5m) which along with an increase in trade and other payables of £20.2m to £143.0m (2011: £122.8m) resulted in an overall decrease in net working capital of £25.1m (at balance sheet rates) to £96.6m. Working capital has, as expected, unwound significantly in H2 2012 reducing by £50.5m. Much of this improvement has been driven by the UK and Far East/Pacific Rim regions with the seasonal unwind of working capital manifesting in the UK performance as anticipated. The improvement in the Far East/Pacific Rim region is mainly a result of decreased activity in H2.

Capital expenditure

Tight controls in capital expenditure continued and the Asset Replacement Ratio (calculated by dividing gross capex spend by the depreciation charge) reduced to 67% (2011: 115%).

Forward order book

The Group's order book for continuing operations was £725m at 31 December 2012 in comparison to £853m at 31 December 2011.

The Group's order book comprises:

·; Maintenance Support Services: The estimated value of our future services to support contractually committed base maintenance programmes for the contractual term period only. Typical contracts are three to five year agreements with extension options. It does not assume any value for optional extension periods not yet confirmed including future options but does include a value for planned shutdowns/outages where a contractual commitment has been received; and

·; Construction Support Services: The value of services to be provided on current contracts based on client work schedules together with confirmed new orders received. Contracts are typically unit rate or defined scope packages reflecting client's needs to retain flexibility on large and complex projects.

The order book definition has been reviewed and a more prudent and consistent approach reflecting contractually supported commitments has been adopted. This has resulted in a reduction in the reported value of the order book previously reported for 31 December 2011 due to this change in recognition criteria.

Financing and bank facilities

The Group's adjusted net debt increased year on year by £6.0m to £65.2m (2011: £59.2m) including finance lease obligations of £0.5m (2011: £3.9m). Balance sheet gearing, excluding ring-fenced IDC Scheme funds, increased to 36.6% (31 December 2011: 14.6%).

The ratio of adjusted net debt to adjusted EBITDA increased to 1.4 times (2011: 0.6 times). A reconciliation of adjusted net debt and adjusted EBITDA can be found in Note 6 'Adjusted measures'.

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.

Provision for pensions

The Defined Benefit Pension Scheme had a net surplus of £15.6m as at 31 December 2012 (2011: £16.2m) and continues to be restricted to nil in the accounts under IFRIC 14. The scheme is due for its triennial actuarial valuation during 2013.

Provision for estimated future asbestos related liabilities and IDC Scheme funds

The discounted provision decreased to £82.8m (2011: £83.2m) reflecting the unwinding of the discount of £4.0m in the year (2011: £4.0m) and the £3.8m (2011: £2.0m) of cash settlements made in the period. Whilst higher than the previous year, the level of cash settlements remains broadly in line with the trend of historic cash payments.

The ring-fenced IDC Scheme funds reduced by £2.7m (2011: £1.5m reduction) comprising cash settlements and costs paid to claimants of £3.8m (2011: £2.0m) with interest income of £1.0m (2011: £1.0m) shown as finance income other items in the Condensed Consolidated Income Statement.

On 25 April 2012, the Court of Appeal held that Cape had a duty of care to a former employee of a former subsidiary company. Since this date, a small number of similar and related claims have been made against Cape which could give rise to potential additional liabilities for industrial disease claims that may fall to be dealt with in accordance with the Scheme of Arrangement, as set out in Note 34 'The Scheme of Arrangement' of the Annual Report for the year ended 31 December 2011. At the date of the approval of this Report, any additional liability resulting from this decision cannot be reliably measured owing to the limited data available. In addition, discussions are on-going between Cape and its legal advisors on the validity of these claims and as such no additional provision has been recognised in the financial statements at this stage, however it is anticipated that this will be fully addressed as part of the scheduled triennial actuarial review during 2013.

Currencies

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 partly offset by the strengthening of the Australian dollar.

In 2012, some 23.4% (2011: 21.4%) of adjusted revenues were contracted in US dollars or US dollar pegged currencies and 18.7% (2011: 24.2%) in Australian dollars.

The following significant exchange rates applied during the year:

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.

Principal risks

Cape operates globally in the energy and natural resources sectors and in varied geographic markets. The Directors have reviewed the principal risks and uncertainties as set out on pages 19 and 20 of the 2011 Annual Report and remain satisfied that they remain relevant. In addition, project performance is considered as a potential risk to the Group's financial performance, as identified in the Group's 2012 half-year report. The Group continues to improve its process of project risk identification and mitigation from tender through to project completion.

Michael Speakman

Chief Financial Officer

6 March 2013

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2012

CONDENSED CONSOLIDATED BALANCE SHEET

AT 31 DECEMBER 2012

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

1 The Special Reserve was created in 2007 by court order upon cancellation of the share premium and retained earnings. The Special Reserve is undistributable and restrictions exist over its use.

2 Other reserves relates to hedging reserves held in respect of cashflow and net investment hedges, and the difference arising on consolidation of the new parent undertaking.

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

Notes to the Financial Statements

1. General information

The Condensed Consolidated Financial Statements included in this report for the year ended 31 December 2012 does not constitute accounts prepared for the purposes of Article 105 of the Companies (Jersey) Law 1991. A copy of the Group's Annual Report for the year ended 31 December 2012, which is prepared under IFRS as adopted by the EU and expanded to make reference to IFRIC interpretations, is expected to be delivered to the Jersey Financial Services Commission and is expected to include an unqualified auditors' report.

Copies of this preliminary report will be available from the offices of Cape plc, 47 Esplanade, St Helier, Jersey, JE1 0BD and on the Group's website at www.capeplc.com. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The unaudited Condensed Consolidated Financial Statements were approved for issue on 6 March 2013.

2. Basis of preparation

The unaudited Condensed Consolidated Financial Statements for the twelve months ended 31 December 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority.

The preliminary financial report has been prepared under the historical cost convention; as modified by the accounting for derivative financial instruments at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies.

2.1 Going concern basis

After making enquiries, the Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its Condensed Consolidated Financial Statements.

2.2 Accounting policies

The same accounting policies and methods of computation are followed in the preliminary Condensed Consolidated Financial Statements as the latest published audited accounts, which are available on the Group's website at www.capeplc.com.

(a) New and amended standards adopted by the Group

There are no IFRSs or IFRIC interpretations that are effective for the first time for the current financial year that have had a material impact on the Financial Statements of the Group for the year ended 31 December 2012.

(b) New standards and interpretations not yet adopted

New standards, amendments and interpretations issued, effective for the financial year beginning 1 January 2012 and not yet adopted by the Group include IAS 1, 19 and IFRS 9, 10, 12 and 13. None of these are expected to have a material effect on the Condensed Consolidated Financial Statements of the Group. There are no IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

2.3 Estimates

The preparation of the Condensed Consolidated Financial Statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these Condensed Consolidated Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were in line with those that applied to the Consolidated Financial Statements for the year ended 31 December 2011, except for revenue recognition on customer claims, bad debt provisions and assessments of the value of scaffold assets. See Note 7(a) 'Other items' and Note 7(b) 'Exceptional items' for further details. In addition, there is a contingent liability disclosed in Note 19 'Contingent liability' surrounding uncertainty arising from a ruling by the Court of Appeal which held that Cape had a duty of care to a former employee of a former subsidiary company.

3. Cape specific accounting measures

The Group reflects its underlying financial results in the 'business performance' column of the Condensed Consolidated Income Statement. To be able to provide readers with this clear and consistent presentation, Other items and Exceptional items are reported separately in a different column in the Condensed Consolidated Income Statement.

(a) Other Items

Other Items are those items which the Directors believe are relevant to the understanding of the results for the year and which are excluded from the adjusted measures. In 2012 these include Contract Claims. Following the appointment of the new Chief Executive and his strategic review of the business, certain contracts have been identified where revenue had previously been accrued without the agreement of the customer. Consistent with the Board's new approach, customer claims will now only be recognised when the claim is accepted by the customer. As these relate to prior periods and do not represent part of the current year's trading they have been included as part of Other items to provide a better understanding of the results for the year. A reconciliation and description of these items is provided in Note 6 'Adjusted measures' and Note 7(a) 'Other items'.

(b) Exceptional Items

Exceptional items are those items which are of a non-recurring nature and, in the judgement of the Directors, need to be disclosed separately by virtue of their nature, size or incidence. To ensure the 'business performance' column reflects the underlying results of the Group, these Exceptional items are also reported in a separate column in the Consolidated Condensed Income Statement. Items which may be considered exceptional in nature include significant write-downs of goodwill and other assets, significant changes in asset values as a result of changes in accounting estimates and Group restructuring costs. See Note 7(b) 'Exceptional items' for a more detailed explanation of the accounting treatment for Exceptional items.

4. Critical Accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(i) Estimated impairment of goodwill

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill is allocated to the appropriate cash generating units (CGU) for the purpose of impairment testing. Any impairment is recognised immediately through the Condensed Consolidated Income Statement and is not subsequently reversed. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. An impairment charge arose in the Australian CGU during the course of the year, resulting in the carrying amount of the CGU being written down to its recoverable amount. See Note 14 'Intangible assets' for further details.

(ii) Estimated impairment of plant and equipment

An impairment indicator, being that of reduced revenue and operating margin, arose during the year in Australia. Under IAS 36 an impairment review of scaffold assets was undertaken in Australia comparing the recoverable amount to the carrying amount. In respect of plant and equipment that led to an impairment of £13.0m. The recoverable amount represents the higher of fair value less costs to sell and the value in use, the latter being the present value in use of future cash flows. See Note 15 'Property, plant and equipment' for further details.

(iii) Industrial disease claims

A provision is made for compensation of individual claims where it is possible to estimate the liability with sufficient reliability. The Board has considered the key variables that could influence this liability in advance of the next full actuarial review which will be as at 31 December 2013. The Board believe the current provision which lies within the range of reasonable estimates of £60m to £100m remains appropriate.

(b) Critical judgements in applying the entity's accounting policies

The Group's accounting policies are set out in Note 2 'Basis of preparation' to the Condensed Consolidated Financial Statements and include descriptions of judgements management has made in applying the Group's accounting policies. Areas of judgement that have the most significant effect on the amounts recognised in the Condensed Consolidated Financial Statements, apart from the estimates dealt with above, include the following:

·; The use of adjusted profits and adjusted earnings per share measures, see Note 6 'Adjusted measures'

·; The presentation of selected items as Exceptional, see Note 7(b) 'Exceptional items'

In addition to those described above the management has made the following key judgements in applying the Group's accounting policies that have the most significant effect on the Condensed Consolidated Financial Statements.

(i) Industrial disease claims

As well as the critical accounting estimates referred to above, judgement is involved in order to assess the size of the provision and consider the potential impact that current claims and ongoing legal cases both with the group and relevant third parties cases could have on the potential impact of future claims.

On 25 April 2012, the Court of Appeal held that Cape had a duty of care to a former employee of a former subsidiary company. Since this date, a small number of similar and related claims have been made against Cape which could give rise to potential additional liabilities for industrial disease claims that may fall to be dealt with in accordance with the Scheme of Arrangement, as set out in Note 34 'The Scheme of Arrangement' of the Annual Report for the year ended 31 December 2011. At the date of the approval of the financial statements, any additional liability resulting from this decision cannot be reliably measured owing to the limited data available. In addition, discussions are on-going between Cape and its legal advisors on the validity of these claims and as such no additional provision has been recognised in the financial statements at this stage, however it is anticipated that this will be fully addressed as part of the scheduled triennial actuarial review during 2013.

(ii) Revenue recognition and assessment of construction contract performance

Revenue and profit on long-term construction contracts are usually recognised according to the stage of completion of the contract, which is calculated by reference to the estimated contract revenues and expected costs including provisions. The judgements made in this process are considered to be appropriate; however, a change in these estimates would have an impact on the amount of revenue, costs and profits recognised. Claims on customers are not included unless accepted by the customer.

5. Segment information

Management has determined the operating segments based on the reports reviewed by the Board (Chief Operating Decision Maker 'CODM') that are used to make strategic decisions. The Board considers the business from a geographic perspective. The main profit measure used by the CODM in its review is adjusted operating profit.

Adjusted operating profit/(loss) is a post franchise fee result. See Note 6 'Adjusted measures' for adjusted operating profit/(loss) pre franchise fee.

There are no significant sales between segments.

Adjusted operating profit/(loss) is a post franchise fee result. See Note 6 'Adjusted measures' for adjusted operating profit/(loss) pre franchise fees.

There are no significant sales between segments.

5. Segment information continued

Other segment items included in the Condensed Consolidated Income Statement for the year ended 31 December 2012 are as follows:

Other segment items included in the Condensed Consolidated Income Statement for the year ended 31 December 2011 are as follows:

The Group operates in the following geographic areas:

The segment assets at 31 December 2012 are as follows:

The segment assets at 31 December 2011 are as follows:

5. Segment information continued

Segment assets are reconciled to the Group assets as follows:

Segment assets consist primarily of property, plant and equipment, investments, intangible assets, inventories and trade and other receivables. Unallocated assets comprise deferred taxation and cash.

6. Adjusted measures

The Company seeks to present a measure of underlying performance which is not impacted by Exceptional items or Other items considered non-operational in nature. These measures are described as 'adjusted' and are used by management to measure and monitor performance. Other items and Exceptional items have been excluded from the adjusted measures: