23rd Mar 2005 07:00
Cape PLC23 March 2005 CAPE PLC Preliminary results for the year ended 31 December 2004 Financial Highlights • Cape Industrial Services operating profit(1) up 14.0% to £11.4m (2003: £10.0m) • Year end net debt reduced to £2.4m (2003: £5.4m) • Group profit before tax up 5.5% to £5.8m (2003: £5.5m) • Group turnover(1) up 4.6% to £238.9m (2003: £228.3m) • Total operating profit(1) up 45.7% to £5.1m (2003: £3.5m) (1) From continuing operations, including its share of joint venture. Business Highlights • Significant contract wins in the UK and Overseas • Order book remains strong Industrial Disease • Cape intends to bring forward detailed proposals for the long term financing of the Group's asbestos related claims Chairman's statement I am pleased to report that the Group has had another good year in which itdelivered on its promise of solid organic growth across the majority of themarkets in which it operates with increased contributions from each of itsprincipal geographic regions. Our core business, Cape Industrial Services("CIS"), has performed ahead of budget and continues to win significantcontracts both in the UK and internationally. Group turnover from continuingoperations, including its share of joint ventures, at £238.9 million, rose by4.6% (2003: £228.3 million). Total operating profit from continuing operations,including its share of joint ventures increased by 45.7% from £3.5 million to£5.1 million. These results confirm CIS's position as a leading international provider ofindustrial support services to the energy sector. CIS remains well positionedfor growth, especially in the Middle and Far East. Strategy The Group's strategic objectives remain unchanged. They are: • to become the recognized expert and leader in each of our chosen markets; • to reinforce, develop and build upon existing relationships with clients; • to increase leverage from our safety proposition and continue to set challenging safety standards across all areas of the business; • to extend the service offering to all clients and broaden the range of services offered; and • to build value for shareholders through improving our return on managed assets. We remain focussed on continuing to deliver on these objectives by leveragingour client relationships, people and technical expertise. We have, both in theUK and overseas, a blue-chip client base in the likes of Aramco, BP, Chiyoda,Entrepose, Huntsman, Mitsui Babcock and Shell. We value all these relationshipshighly and would like to thank all our clients for their continuing support andbusiness. Financial summary CIS made an operating profit from continuing operations, including its share ofjoint ventures, of £11.4 million - up 14.0% from £10.0 million. Group turnover for the year from continuing operations, including the Group'sshare of joint ventures, was £238.9 million (2003: £228.3 million), an increaseof 4.6%. Moreover, each of the Group's principal geographic areas demonstratedincreased turnover and none of the turnover in 2004 was attributable todiscontinued operations (2003: £3.6 million). Group profit on ordinary activities before taxation was £5.8 million (2003: £5.5million). Total operating profit for the year from continuing operations,including the Group's share of continuing joint ventures, was £5.1 million(2003: £3.5 million). Total operating profit from continuing operationsincluding the Group's share of continuing joint ventures, before compensationfor industrial disease costs of £3.7 million (2003: £3.8 million) and industrialdisease funding review costs of £1.1 million (2003: £0.3 million) was £9.9million (2003: £7.6 million) an increase of 30.3%. After industrial disease and funding review costs, the Group continues togenerate cash and closed the year with net debt further reduced at £2.4 million(2003 £5.4 million). Whilst basic earnings per share ("EPS") decreased from 10.9 pence to 10.7 pence,after adjusting for exceptional items, adjusted basic EPS increased from 6.9pence to 11.8 pence, a rise of 71.0%. Shareholders' funds increased from £29.7 million to £30.9 million. A dividend isnot being proposed. Business highlights The award in November 2004 of a major contract on Sakhalin Island, just off theeast coast of Russia, by CTSD Limited (a joint venture between the Chiyoda andToyo Engineering Corporations), confirms our world class technical expertiseacross the range of services we provide. CIS will support the onshore fieldworks and offshore supply of materials and equipment for the Sakhalin 2 LNGProject. CIS is also contracted to provide insulation, common user scaffolding,fire protection and refractory services. The facility is one of the early phasesof a series of developments onshore and offshore that the owner, SakhalinEnergy, plans to complete on Sakhalin Island. During 2004, CIS also won a number of other significant new contracts, contractextensions and contract renewals from, among others, BP, Entrepose, Huntsman,Shell and Total underlining the strong relationships our managers at all levelshave developed with our established clients. In February 2005, we announced that CIS had been awarded a significant newcontract by British Nuclear Fuels plc ("BNFL") under which CIS will provide sitewide access services as sole supplier on BNFL's nuclear processing facility atSellafield. The contract, which is for an initial three year term with theoption to renew annually thereafter up to five years, shows that CIS continuesto be the quality option, defining the market-place in terms of standards andservices provided. CIS continues to place the heaviest emphasis on health and safety. In over 16million man hours the Group achieved an accident frequency rate of just 0.16,which we believe to be amongst the best in our business sector. Amongst manyawards received throughout the year, CIS's operation in Bahrain, RB Hilton,recently received a special safety award for the Alba/ Bechtel Line 5 expansionproject, one of the largest refractory contracts ever undertaken by the Group.The installation was completed in nine months, on schedule, with in excess of300,000 man hours without one lost time incident. Third party certification ofmanagement systems continues throughout the business with, for example, ISO 9001(Quality) and OHSAS 18001 (Health & Safety) obtained in the Philippines and ISO14001 (Environmental) in Bahrain and Abu Dhabi. Industrial Disease I can confirm that the Directors intend shortly to announce detailed proposalsfor the long term financing of a significant element of the Group's asbestosrelated claims in the UK and Cape is currently examining the financing optionsavailable. The proposals, on which both shareholders and claimants will have theopportunity to vote, will, when implemented, put the future funding of theseclaims on a more secure footing and will be of benefit to both claimants and theGroup. The Group announced some time ago that it was constructing a purpose-builtarchive to house, amongst other things, all original records and claims made byformer employees. This facility is now complete and the archive assembled. It continues to be the case that, on the basis of the information presentlyavailable, it is not possible for the Directors to quantify with sufficientreliability the amount required to settle future claims and, accordingly, claimsare accounted for on the basis of claims lodged and settlements reached. Giventhe outlook for the Group and assuming that future settlements broadly followrecent history, the Directors anticipate that future claims, to the extent notmatched by insurance recoveries can be met from operating cash flows. Our People In November 2004, we were pleased to welcome David McManus to the Board as anon-executive director. David is Vice President of International Operations andan officer of Pioneer Natural Resources, an independent American oil and gascompany, and was previously Executive Vice President with BG Group. David bringsto us his considerable experience in the energy sector, in particular in two ofour strategic growth areas, the Middle and Far East, and he has already made asignificant contribution. At the same time, after eight years with Cape, SeanO'Connor retired as a non-executive director. We thank him for his most valuablecontribution through a period of major reconstruction. On behalf of the Board I would also like to thank the management, staff and allemployees of the Group around the world for their hard work and commitment in2004. Outlook The CIS order book remains robust in the UK and sales in the Middle and Far Eastcontinue to increase. With a good final quarter of 2004 and sales in January andFebruary in line with budget, the Board is confident that in 2005 the Group willcontinue to demonstrate the good performance it has been delivering since 2002.We are particularly optimistic about prospects in the Middle East and onSakhalin Island. Martin K MayChairman 23 March 2005 Further information: Cape PLCMartin May, Chairman +44 (0) 1924 876 276Paul Ainley, Managing Director +44 (0) 1924 876 281 Bell Pottinger Corporate & FinancialNick Lambert +44 (0) 20 7861 3232 / +44 (0) 7811 358 764 UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2004 Unaudited Audited 2004 2003 Continuing Discontinued Total Continuing Discontinued Total Note £m £m £m £m £m £mTurnover 2 238.9 - 238.9 228.3 3.6 231.9Less shareofturnover of joint ventures (5.3) - (5.3) (3.5) - (3.5) ------- -------- ------- ------- ------- -------Group turnover 233.6 - 233.6 224.8 3.6 228.4 ------- -------- ------- ------- ------- -------Groupoperatingprofit/(loss) beforeexceptionalitems 2&3 5.8 - 5.8 3.6 (0.1) 3.5Operatingexceptionalitems 3 (1.1) - (1.1) (0.4) 0.9 0.5 ------- -------- ------- ------- ------- -------Groupoperatingprofit 4.7 - 4.7 3.2 0.8 4.0 ------- -------- ------- ------- ------- -------Share ofoperatingprofit injoint ventures 0.4 - 0.4 0.3 - 0.3 ------- -------- ------- ------- ------- -------Totaloperatingprofit:group andshare ofjointventures 5.1 - 5.1 3.5 0.8 4.3 Profit onsaleof fixed assets 4 - 0.5 0.5 - 2.4 2.4Loss on saleandsubsequentclosurecosts of Calsil Division 4 - - - - (0.7) (0.7) ------- -------- ------- ------- ------- -------Profit onordinaryactivitiesbefore interest 5.1 0.5 5.6 3.5 2.5 6.0 ------- -------- ------- ------- Net interestpayable (1.0) (1.4)Otherfinance income 1.2 0.9 ------- -------- ------- ------- ------- -------Profit onordinaryactivitiesbefore taxation 5.8 5.5 ------- -------- ------- ------- ------- -------Tax creditonprofit on ordinaryactivities 5 - 0.4 ------- -------- ------- ------- ------- -------Profit forthe year 5.8 5.9 ------- -------- ------- ------- ------- ------- Earnings perordinaryshare: 7basic 10.7p 10.9p ------- -------- ------- ------- ------- -------diluted 10.6p 10.9p ------- -------- ------- ------- ------- -------adjusted basic 11.8p 6.9p ------- -------- ------- ------- ------- -------adjusteddiluted 11.7p 6.9p ------- -------- ------- ------- ------- ------- UNAUDITED CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2004 Unaudited Audited 2004 2003 Note £m £mFixed assetsIntangible assets 0.1 0.1Tangible assets 23.4 22.4Investments - -Interest in joint ventures:Share of gross assets 1.2 0.1Share of gross liabilities (0.8) (0.1) ------- ------- 0.4 - ------- ------- 23.9 22.5 ------- -------Current assetsStocks 9.7 10.0Debtors 63.3 61.9Cash at bank and in hand 7.8 7.1 ------- ------- 80.8 79.0 ------- -------Creditors: amounts falling due within oneyearShort term borrowings (4.7) (2.3)Other creditors (51.1) (49.9) ------- ------- (55.8) (52.2) ------- -------Net current assets 25.0 26.8 ------- -------Total assets less current liabilities 48.9 49.3Creditors: amounts falling due after morethan one (5.5) (10.2)yearProvisions for liabilities and charges (16.1) (16.8) ------- -------Net assets excluding pension asset 27.3 22.3Pension asset 3.6 7.4 ------- -------Net assets including pension asset 30.9 29.7 ======= =======Capital and reservesCalled up share capital 18.2 18.2Share premium account 6 1.7 1.6Revaluation reserve 6 2.3 2.4Profit and loss account 6 8.7 7.5 ------- -------Shareholders' funds (includes non-equityinterests) 30.9 29.7 ======= =======Equity interests 26.3 25.1Non-equity interests 4.6 4.6 ------- -------Shareholders' funds 30.9 29.7 ======= ======= UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 Unaudited Unaudited Audited Audited 2004 2004 2003 2003 £m £m £m £mNet cash inflow from operating activities 10.7 11.4Returns on investments andservicing of financeInterest received 0.1 0.1Interest paid (1.1) (1.5) --------- -------Net cash outflow from returns on investments and servicing offinance (1.0) (1.4)Taxation (0.8) (0.6)Capital expenditure and financialinvestmentPurchase of tangible fixed assets (7.3) (6.5) --------- -------Receipts from sale of tangiblefixed Assets 2.0 12.6 --------- -------Net cash (outflow)/inflow fromcapital expenditure and financial investment (5.3) 6.1Acquisitions and disposals Costs associated with the sale and disposal of Cape Calsil - (0.8) --------- -------Net cash outflow from acquisitionsand disposals - (0.8) --------- --------- ------- -------Net cash inflow before financing 3.6 14.7FinancingIssue of ordinary shares 0.1 -Capital element of finance lease rental payments (0.4) (0.3)Repayment of short-term borrowings - (34.0)Repayment of long-term borrowings (4.8) -New long term borrowings - 10.0 --------- -------Net cash outflow from financing (5.1) (24.3) --------- -------Decrease in cash in the year (1.5) (9.6) ========= ========= ======= ======= Reconciliation of net cash flow tomovement in net debt Unaudited Audited 2004 2003 £m £m ------- -------Decrease in cash in the year (1.5) (9.6)Inflow from debt and lease financing 5.2 24.3 ------- -------Change in debt resulting from cash flows 3.7 14.7New finance leases (0.5) (0.3)Exchange movement in year (0.2) (0.5) ------- -------Movement in net debt in year 3.0 13.9Net debt at 1 January (5.4) (19.3) ------- -------Net debt at 31 December (2.4) (5.4) ======= ======= UNAUDITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 DECEMBER 2004 Unaudited Audited 2004 2003 Note £m £m Profit on ordinary activities after taxation 5.8 5.9Currency translation differences net of taxation onforeign currency net investments 6 (1.0) (0.7) Actuarial (loss)/gain recognised in the pensionscheme 6 (5.6) 0.6Movement on deferred tax relating to pension asset 6 1.8 (0.2) --------- -------Total recognised gains relating to the year 1.0 5.6 ========= ======= UNAUDITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31 DECEMBER 2004 Unaudited Audited 2004 2003 Note £m £m Profit on ordinary activities after taxation 5.8 5.9Currency translation differences net of taxation onforeign currency net investments 6 (1.0) (0.7) Exercise of share options 0.1 -UITF17 credit in respect of share options 0.1 -Other recognised gains and losses relating to theyear (3.8) 0.4 --------- ------- Net increase to shareholders' funds 1.2 5.6Shareholders' funds at 1 January 29.7 24.1 --------- -------Shareholders' funds at 31 December 30.9 29.7 ========= ======= NOTES TO THE UNAUDITED ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2004 1. Accounting policies There have been no changes to the accounting policies set out in the 2003 reportand accounts. 2. Segmental analysis Unaudited 2004 Profit before tax Non- Pre- Operating operating Net exceptional exceptional exceptional operating Turnover items items items Total assets £m £m £m £m £m £m (a) Business analysis (Note 3) (Note 4)2004Continuing operations - Cape Industrial Services 233.6 11.0 - - 11.0 47.4 - Joint ventures 5.3 0.4 - - 0.4 0.2 ------- ------- ------- ------- --------- --------- - Total Cape Industrial Services 238.9 11.4 - - 11.4 47.6 - Head Office - (1.5) (1.1) - (2.6) 1.8 - Compensation for industrial disease - (3.7) - - (3.7) (16.9) ------- ------- ------- ------- --------- --------- Totalcontinuing 238.9 6.2 (1.1) - 5.1 32.5 ------- ------- ------- ------- --------- --------- Discontinued operations - Cape Calsil - - - 0.5 0.5 0.8 ------- ------- ------- ------- --------- --------- Totaldiscontinued - - - 0.5 0.5 0.8 ------- ------- ------- ------- --------- ---------Totaloperations 238.9 6.2 (1.1) 0.5 5.6 33.3 ------- ------- ------- -------Netinterest/netborrowings (1.0) (2.4) Other financeincome 1.2 - --------- --------- 5.8 30.9 --------- --------- There are no significant inter-segment sales between business units Audited 2003 Profit before tax Non- Pre- Operating operating Net exceptional exceptional exceptional operating Turnover items items items Total assets £m £m £m £m £m £m (a) Business analysis (Note 3) (Note 4)2003Continuing operations - Cape Industrial Services 224.8 9.7 - - 9.7 45.8 - Joint ventures 3.5 0.3 - - 0.3 (0.1) ------- ------- ------- ------- ------- ------- - Total Cape Industrial Services 228.3 10.0 - - 10.0 45.7 - Head Office - (2.3) (0.4) - (2.7) 6.3 - Compensation for industrial disease - (3.8) - - (3.8) (18.8) ------- ------- ------- --------- ------- Totalcontinuing 228.3 3.9 (0.4) - 3.5 33.2 ------- ------- ------- ------- --------- ------- Discontinued operations - Cape Calsil 3.6 (0.1) 0.9 1.7 2.5 1.9 ------- ------- ------- ------- --------- ------- Totaldiscontinued 3.6 (0.1) 0.9 1.7 2.5 1.9 ------- ------- ------- ------- --------- ------- Totaloperations 231.9 3.8 0.5 1.7 6.0 35.1 ------- ------- ------- ------- Netinterest/netborrowings (1.4) (5.4) Other financeincome 0.9 - --------- ------- 5.5 29.7 ------- --------- Net operating assets represents the net assets of each business unit afteradjusting for Group funding loans. Unaudited 2004 Profit before tax Non- Pre- Operating operating Net exceptional exceptional exceptional operating Turnover items items items Total assets £m £m £m £m £m £m(b) Geographical analysis by origin (Note 3) (Note 4)2004Continuingoperations - United Kingdom 151.8 2.4 (1.1) - 1.3 14.3 - Continental Europe 36.4 0.5 - - 0.5 6.7 - Rest of the world 45.4 2.9 - - 2.9 11.3 - Rest of the world joint ventures 5.3 0.4 - - 0.4 0.2 ------- ------- ------- ------- --------- ------- 238.9 6.2 (1.1) - 5.1 32.5 ------- ------- ------- ------- --------- -------Discontinuedoperations - United Kingdom - - - 0.5 0.5 0.9 - Continental Europe - - - - - (0.1) - Rest of the world - - - - - - - Inter-segment sales - - - - - - ------- ------- ------- ------- --------- ------- - - - 0.5 0.5 0.8 ------- ------- ------- ------- --------- ------- Totaloperations 238.9 6.2 (1.1) 0.5 5.6 33.3 ------- ------- ------- -------Netinterest/netborrowings (1.0) (2.4)Other financeincome 1.2 - --------- ------- 5.8 30.9 ------- ------- ------- ------- --------- ------- Audited 2003 Profit before tax Non- Pre- Operating operating Net Exceptional exceptional exceptional operating Turnover Items items items Total assets £m £m £m £m £m £m(b) Geographical (Note 3) (Note 4)analysis by origin2003Continuingoperations - United Kingdom 150.3 1.0 (0.4) - 0.6 19.2 - Continental Europe 34.5 0.2 - - 0.2 6.7 - Rest of the world 40.0 2.4 - - 2.4 7.4 - Rest of the world joint ventures 3.5 0.3 - - 0.3 (0.1) ------- ------- ------- ------- --------- ------- 228.3 3.9 (0.4) - 3.5 33.2 ------- ------- ------- ------- --------- -------Discontinuedoperations - United Kingdom 3.6 (0.1) 0.9 1.7 2.5 2.2 - Continental Europe - (0.1) - - (0.1) (0.2) - Rest of the world - 0.1 - - 0.1 (0.1) - Inter-segment sales - - - - - - ------- ------- ------- ------- --------- ------- 3.6 (0.1) 0.9 1.7 2.5 1.9 ------- ------- ------- ------- --------- ------- Totaloperations 231.9 3.8 0.5 1.7 6.0 35.1 ------- ------- ------- -------Netinterest/netborrowings (1.4) (5.4)Other financeincome 0.9 - --------- ------- 5.5 29.7 ------- ------- ------- ------- --------- ------- Net operating assets represents the net assets of each geographical segmentafter adjusting for Group funding loans. 3. Operating exceptional items Operating exceptional items Unaudited Audited 2004 2003The operating exceptional items comprise: £m £mContinuing:Costs relating to the relocation of the Head Officefunction - (0.4)Costs relating to industrial disease funding review (1.1) - --------- ------- (1.1) (0.4)Discontinued: --------- -------Release of the impairment provision made in 2001 withregard to Cape Calsil fixed assets no longer required - 0.9 --------- ------- - 0.9 --------- -------Total operating exceptional items (1.1) 0.5 --------- ------- In the year ended 31 December 2003, £0.3 million was incurred in respect ofcosts relating to the industrial disease funding review. These were includedwithin administrative expenses and not classified as exceptional. 4. Non-operating exceptional items Non-operating exceptional items Unaudited Audited 2004 2003The non-operating exceptional items comprise: £m £mDiscontinued:Profit on sale of Uxbridge and Caerphilly sites andplant - 2.4Loss incurred on the sale of Cape Calsil business toPromat Glasgow Ltd and subsequent closure costs - (0.7)Profit on sale of Botley and Washington properties 0.5 - --------- -------Total non-operating exceptional items 0.5 1.7 --------- ------- Because of the availability of tax losses, there was no material tax effect ineither the current or comparative year of the above transactions. 5. Tax credit on profit on ordinary activitiesThe effective tax rate for the year is -1.0% (2003: -7.2%) based on a tax creditof £0.04m (2003: £0.4m). The negative effective tax rate arises because of adjustments to prior yeardeferred tax (£0.9m) and prior year overseas tax (£1.0m). 6. Reserves Share Profit premium Revaluation and loss Total account reserve account £m £m £m £m At 1 January 2004 11.5 1.6 2.4 7.5Currency translation differences netof tax on foreign currency netinvestments (1.0) - - (1.0)Profit for the year 5.8 - - 5.8Exercise of share options 0.1 0.1 - -UITF17 credit in respect of shareoptions 0.1 - - 0.1Transfer on sale of properties - - (0.1) 0.1Actuarial loss on pension scheme (5.6) - - (5.6)Movement on deferred tax relating topension assets 1.8 - - 1.8 ------ ------- -------- ------At 31 December 2004 12.7 1.7 2.3 8.7 ------ ------- -------- ------ 7. Earnings per share The basic earnings per share calculation for the year ended 31 December 2004 isbased on the earnings (after tax and dividends on the 3.5% cumulative preferenceshares) of £5.8 million (2003: £5.9 million) divided by the weighted averagenumber of ordinary 25p shares of 54,369,148 (2003: 54,326,021). The diluted earnings per share calculation for the year ended 31 December 2004is based on the earnings (after tax and dividends on the 3.5% cumulativepreference shares) of £5.8 million (2003: £5.9 million) divided by the weightedaverage number of ordinary 25p shares of 54,801,759 (2003: 54,326,021). Last year the share options were not considered potentially dilutive. This yearthe share options are considered potentially dilutive as the average share priceduring the year was above the average exercise prices. Unaudited 2004 Audited 2003 Shares Shares Basic weighted average number of shares 54,369,148 54,326,021Adjustments:Weighted average number of outstanding shareoptions 432,611 - ------------- -------------Diluted weighted average number of shares 54,801,759 54,326,021 ------------- ------------- An adjusted basic earnings per share has been disclosed which excludes theeffects of operating and non-operating exceptional items. The adjusted numbershave been provided in order that the effects of exceptional items on reportedearnings can be fully appreciated, and has been calculated as follows: Unaudited 2004 Audited 2003 Earnings EPS Earnings EPS £m pence £m pence Basic earnings per share 5.8 10.7 5.9 10.9Adjustments:Operating exceptional items 1.1 2.0 (0.5) (1.0)Profit on sale of fixed assets (0.5) (0.9) (2.4) (4.3) -------- -------- -------- --------Loss on sale and subsequent closurecosts of CalsilDivision - - 0.7 1.3 -------- -------- -------- --------Adjusted basic earnings per share 6.4 11.8 3.7 6.9 -------- -------- -------- -------- Unaudited 2004 Audited 2003 Earnings EPS Earnings EPS £m pence £m pence Diluted earnings per share 5.8 10.6 5.9 10.9Adjustments:Operating exceptional items 1.1 2.0 (0.5) (1.0)Profit on sale of fixed assets (0.5) (0.9) (2.4) (4.3) -------- -------- -------- --------Loss on sale and subsequent closurecosts of CalsilDivision - - 0.7 1.3 -------- -------- -------- --------Adjusted diluted earnings per share 6.4 11.7 3.7 6.9 -------- -------- -------- -------- 8. Contingent Liabilities(i) There is a history of industrial disease claims being lodged against theGroup for a number of years. Where the Group has determined that it isappropriate to do so, settlement has been made. Based on this experience, it islikely that similar claims will continue to be received for the foreseeablefuture. However, there is significant uncertainty over the number, nature,timing and validity of such future claims. This is as a result of, inter alios,uncertainties concerning the population that may have been exposed to asbestosand that may develop asbestos related diseases, the nature and timing of thediseases that may develop, the impact of other factors which might havecontributed to the claimant's condition, changes in the legal environment and tothe typical cost of settlement. These factors affect considerations of liabilityand the quantum of settlement. Experience to date is that some of these claimswill be at least partially covered by insurance policies, but the amount ofcover will not be known until the details of the claims are available. As aresult of these uncertainties, the amount of the Group's obligation cannotgenerally be measured with sufficient reliability. Accordingly, the Groupprovides in the profit and loss account each year for the estimated liability inrespect of industrial disease claims lodged and outstanding at the year-end. If it were possible to assess reliably the present value of amounts that mightbe paid in future settlements such that this was to be provided in the BalanceSheet, there would be a materially adverse effect on the Group's financialposition. There is great uncertainty over the net present value of the futureclaim settlements. These could occur over a period of more than twenty years.However, in aggregate they are likely to exceed the amount of the net assetsincluded in the current Group Balance Sheet. Based on the recent history of settlements, the Directors anticipate that futuresettlements can be made from the future cash flows generated by the tradingoperations of the Group. Should the future pattern as regards timing and quantumof claims prove to be materially and adversely different from the historictrend, there could be a material adverse effect on the Group's financialposition. (ii) The Company was the defendant in proceedings brought by some 7,500 SouthAfrican residents who claimed that they suffered injury as a result of miningactivities in South Africa undertaken by former subsidiaries of Cape PLC. TheCompany entered into an agreement on 13 March 2003 with the claimants in thegroup action and new claimants who had come forward in 2002. It is possible that claims could arise in the future from claimants who were notincluded in the group action, or who claim they have developed an asbestosrelated disease since the date of the settlement and as a result of the Group'sformer mining activities in South Africa. There is significant uncertainty as towhether such future claims will be made and as to the number, nature, timing andvalidity of such claims. However, no such claims have been received to date. (iii) Certain companies in the Group continue to be named, along with severalasbestos fibre and asbestos product suppliers, as defendants in a number oflegal actions in North America. The plaintiffs in such actions are claimingsubstantial damages as a result of the use of these products. The Company hasreceived legal advice in the UK that default judgments obtained in North Americaagainst Companies within the Group which are not present in North America, wouldnot be enforceable in the UK. Consequently, the Directors believe that theabove-mentioned matters are unlikely to have a material effect on the Group'sfinancial position. (iv) There are a number of leasehold properties in respect of which the Group isliable for dilapidations, and rent in the event of default by its sub-tenants.Given the nature of these arrangements it is difficult to assess the potentialliability with certainty and as a consequence contingent liabilities may exist.The Directors believe that any such contingent amounts would not have a materialeffect on the Group's financial position. (v) The Group has contingent liabilities in respect of guarantees and bondsentered into in the normal course of business, in respect of which no loss isexpected. 9. The preliminary results for the year ended 31 December 2004 are unaudited.The financial information set out in the announcement does not constitute thecompany's statutory accounts for the years ended 31 December 2004 or 31 December2003 as defined by Section 240 of the Companies Act 1985.The financial information for the year ended 31 December 2003 is derived fromthe statutory accounts for that year which have been delivered to the Registrarof Companies. The auditors reported on those accounts; their report whilstunqualified, contained an explanatory paragraph making reference to thefundamental uncertainty concerning the amount required to settle future claimsfor industrial disease compensation as described in note 8 above. The auditors'report did not contain a statement under either Section 237 (2) or (3) of theCompanies Act 1985. The statutory accounts for the year ended 31 December 2004 will be finalised onthe basis of the financial information presented by the directors in thispreliminary announcement and will be delivered to the Registrar of Companiesfollowing the company's Annual General Meeting. The auditors' report on thestatutory accounts for the year ended 31 December 2004 is expected to contain anexplanatory paragraph making reference to the fundamental uncertainty concerningthe amount required to settle future claims for industrial disease compensationas described in note 8 above. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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