21st Mar 2006 07:01
Cape PLC21 March 2006 Cape PLC ("Cape" or the "Company") Preliminary results for the year ended 31 December 2005 Highlights * Turnover up 9.6% to £261.8m (2004: £238.9m) * Group operating profit before operating exceptional items up 58.6% to £9.2m (2004: £5.8m) * Operating exceptional expenditure relating to proposed scheme of arrangement of £9.7m (2004: £1.1m) * Group operating loss £0.3m (2004: profit £5.1m) * Net cash £23.7m (2004: debt £2.4m) * Shareholders' funds £64.9m (2004: £30.9m) Further information: Cape PlcMartin May, Chairman +44 (0) 1924 876 276 Bell Pottinger Corporate and FinancialNick Lambert/ Victoria Geoghegan +44 (0) 20 7861 3232 I am pleased to report that Cape Industrial Services ("CIS") has had anotherexcellent year in which it has delivered strong organic growth in its coremarkets in the UK and the Middle East and has successfully maintained its marketshare elsewhere. CIS, which specializes in the provision of scaffolding, insulation, fireprotection and other essential services to the energy sector, performedsignificantly ahead of forecast. Turnover, including its share of jointventures, at £261.8 million, rose by 9.6% (2004: £238.9 million). The total operating loss, including the Group's share of joint ventures, of £0.3million (2004: profit £5.1 million) is after taking into account the operatingexceptional item of £9.7 million (2004: £1.1 million) relating to the costs ofthe proposed scheme of arrangement ("Scheme"). I am also delighted to be able to announce significant progress with theproposed Scheme as well as a number of new contracts, contract renewals,extensions and awards that have been achieved in 2005 and the early part of2006. CIS has now delivered growth in turnover and underlying profitabilityconsistently for the last four years. These results demonstrate CIS's positionas one of the leading international providers of essential support services tothe energy sector. Financial summary Turnover for the year, including the Group's share of joint ventures, was £261.8million (2004: £238.9 million), an increase of 9.6%. Of the £22.9 millionincrease, £14.1 million was generated in the UK and £8.8 million in the rest ofthe world. On this strong, organic growth in turnover, CIS has made an operating profit,including its share of joint ventures, of £14.9 million, up 30.7% from £11.4million and increased its return on net operating assets to 29.2% (2004:23.9%). Group operating profit before operating exceptional items was £9.2 million(2004: £5.8 million) an increase of 58.6%. However, the costs of the proposedScheme of £9.7 million, have resulted in a total operating loss for the year,including the Group's share of joint ventures, of £0.3 million (2004: profit£5.1 million). Further details of the Scheme are set out below. On theassumption that the Scheme Creditors vote in favour of the establishment of theScheme and that the Court sanctions the Scheme before 30 June 2006, theDirectors do not anticipate that there will be any further exceptional costsrelating to the Scheme. The net charge to the profit and loss account for industrial disease claims was£3.6 million (2004: £3.7 million). The Group continues to generate cash and, despite industrial disease costs andcosts associated with the Scheme, closed the year with a net cash inflow fromoperating activities of £7.3 million (2004: £10.7 million). Further investmentin growth in the business resulted in a net cash outflow before financing of£2.2 million (2004: inflow £3.6 million). This resulted, after financingincluding the proceeds of the share issue and repayment of borrowings, in a£22.4 million net inflow (2004: outflow of £1.5 million). The Group ended theyear with net funds of £23.7 million (2004: net debt £2.4 million). Although the exceptional charge resulted in basic earnings per share ('EPS') of1.2 pence (2004: 10.7 pence), before exceptional items, the adjusted basic EPSwas 10.8 pence (2004: 11.2 pence; 2004 restated: 8.9 pence). The issue of sharesto part fund the Scheme has affected the EPS in 2005. For comparison, theadjusted basic EPS for 2004, restated using 2005's weighted averagenumber of shares, would have been 8.9 pence. In last year's statement, I said that the Group would announce detailed proposals for the long-term financing of the Group's asbestos-related claims in the UK. On 16 June 2005, Cape announced a proposed scheme of arrangement to provide for the long term financing of a great majority of all future UK asbestos-related claims likely to be successfully made against the Company and those of its subsidiaries included in the Scheme. On 11 July 2005, the Company's shareholders approved the Scheme and on 15 July 2005 the Company completed the issue of 29,090,910 new ordinary shares to raise approximately £32 million before expenses to part fund the Scheme. The balance of the initial Scheme funding is being provided by a new £15 million bank facility with the remainder coming from Group's own resources. The full, formal Scheme documents together with voting forms and a letter fromthe Forum of Asbestos Victims Support Groups are now being prepared and will shortly be sent out convening creditors' meetings on 16 May 2006. More details on progress with the Scheme are given below. Largely as a result of the £32 million fundraising in July 2005, shareholders'funds increased from £30.9 million to £64.9 million. A dividend is not being proposed (2004: Nil). Business highlights 2005 has been another successful year in terms of winning new contracts,contract extensions, contract renewals and safety awards with CIS continuing togrow both the range of services and international spread of its operations toboth new and existing clients. Notable contract successes in 2005 included: * a new five year contract with CNR International (UK) Limited for maintenance work on four of its platforms in the North Sea. The contract has an estimated annual value of more than £3 million; * a new three year contract (with the option to renew annually thereafter up to a total of five years) with British Nuclear Fuels plc ("BNFL") under which CIS will provide site wide access services as sole supplier on BNFL's nuclear processing facility at Sellafield. The contract has an estimated annual value of £6 million; * the renewal of CIS's contract with British Energy to perform maintenance work on five of British Energy's nine power stations for an initial period of three years with the option to renew for a further two years. This contract has an estimated annual value of in excess of £6 million; * a new £8 million per annum contract with Huntsman for the delivery of multi-disciplinary services on their North Eastern petrochemicals sites. The contract is for an initial three year period with a further two year renewal option; * the renewal of CIS's contract with BP to provide the full range of platform and fabric maintenance services on a number of BP's offshore and onshore locations. The contract, which commenced in 1 January 2006, will be for an initial three year term with the option to renew for three further two year periods, potentially therefore for up to nine years. The contract has an estimated annual value of in excess of £20 million; * receiving approval from the Saudi Arabian national oil company, Aramco, for RB Hilton Limited, CIS's operating subsidiary in Saudi Arabia, to provide scaffolding works on its facilities throughout the Kingdom. RB Hilton's pre-qualified status led directly to the award of a new scaffolding contract on Aramco's Riyadh refinery - a part of the Aramco business for which RB Hilton had not previously worked; and * the renewal of a five year multi-discipline maintenance contract with Gasco (a joint venture between the Abu Dhabi National Oil Company, Shell, Total and Partex). The contract is to carry out insulation, painting and scaffolding services on Gasco's LNG plants at Asab, Bu Hasa and Ruwais in the United Arab Emirates. This contract maintains CIS's continuous association with Gasco which goes back to 1980 when CIS was involved in the construction of the Bu Hasa and Ruwais plants. We are also pleased to be able to announce with these results, the followingsignificant contract awards in early 2006: * a new £7.5 million contract to provide access and industrial cleaning services for the next five years at the Alcan smelting and power facility in Northumberland; * an £8 million contract renewal with EDF as sole provider of access and insulation services for the next five years at the West Burton and Cottam power stations; * the renewal of a three year multi-discipline contract with BP to provide access, insulation and coatings at the Sullom Voe Terminal in Shetland. The contract has an estimated annual value of c. £5 million; * two contracts in Saudi Arabia with a total value of c. US$10.4 million with the Saudi Arabia Fertilizer Company ("Safco") for the provision of thermal insulation and scaffolding services on Safco's upgrade and extension of their plant in Jubail; and * a US$17.5 million access services contract on the Inco Goro Nickel Project. This US$1.8 billion nickel-cobalt project, which will be one of the largest projects of its kind in the world, is located in New Caledonia, a French overseas territorial community in the Coral Sea, west of Australia. The contract, which is expected to last for c.18 months, will require CIS to manage and construct over 2000 tonnes of scaffolding with a site team peaking at 300 personnel. We are delighted to be working so closely with these and many other blue-chipcompanies. Key to the Group's success is its safety proposition: CIS continues to place the highest emphasis on health and safety. Another highlight of 2005 was the award of the British Safety Council Five Star Award. CIS has now held this award continuously since 2002. Subsequently, and in competition with other recipients of Five Star Awards in the sector CIS won the British Safety Council's prestigious Sword of Honour. The Sword of Honour is one of only 40 awarded worldwide by the British Safety Council and recognizes organisations that have implemented safety systems that are among the best in the world. This is the second time that CIS has won the British Safety Council's Sword of Honour, the last time being in 2003. This was followed by the presentation in February 2006 of the winner's trophy inBritish Energy's inaugural Supplier of the Year of Award. Nominations for theaward, which was presented by the Chairman of British Energy, Sir AdrianMontague, were judged against a range of measures including safety, quality ofperformance, capability and responsiveness. Strategy Over the past six months, the Board together with the key management group,which includes its regional operations directors, has carried out a review ofthe Group's strategy. The core principles which underpin the strategy remainunchanged. They are: * to become the recognised expert and leader in each of our chosen markets; * to reinforce, develop and build upon existing relationships with clients and to secure new blue chip 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. As a result of the review, it has been agreed, that the Group will; * accelerate investment, in and the development of, long term alliances and partnerships; * improve the Group's international perspective through the establishment of a regional HQ in the Middle East; and *establish an Operating Board with HR development, and strategic planning and marketing responsibilities. Scheme of Arrangement Since the fundraising in July 2005, Cape has been continuing discussions with interested parties including claimants, asbestos victims support groups and their representatives. The reason for these discussions has been: * to give sufficient time and information to interested parties to examine and understand, the proposal in detail and for them to make recommendations; and * to give comfort to interested parties, and in particular claimants' lawyers, that the proposals are in the interests of claimants and future claimants and that the commercial and legal arrangements underpinning the Scheme are justifiable and robust. As a result: * as announced on 17 January 2006, Cape has funded an independent legal review of the Scheme by solicitors and counsel (including a leading national asbestos claimant firm of solicitors, Thompsons); and * as also announced on 17 January 2006, Cape has funded an independent financial review of the Scheme by accountants KPMG. The legal and financial reviews have raised a number of issues on the proposed Scheme as a result of which Cape has agreed to make a number of amendments. None of the issues raised is considered by the Directors to be fundamental to the working of the Scheme or to the benefits which it is intended to deliver. On 17 January 2006, Cape also announced that discussions were continuing with its bank regarding an extension of its loan facilities pursuant to which some of the initial Scheme funding of £40 million is to be provided. These discussions have now been concluded and a further extension to the facilities agreed. It is a condition to Cape's draw down of the £15 million loan facility that the Scheme becomes effective by no later than 30 June 2006. On 28 February 2006 Cape made an application to the High Court to seek an order to convene meetings of the Scheme creditors - in other words to authorise meetings at which claimants will be able to vote on the Scheme. On 8 March 2006, Mr Justice David Richards made an order authorising Cape to convene the meetings. The full, formal scheme documents together with voting forms and a letter from the Forum of Asbestos Victims Support Group are now being prepared and will shortly be sent out convening creditors' meetings on 16 May 2006. The Scheme also requires Cape's shareholders to pass a resolution approving a number of the amendments to the Scheme. On 17 March 2006, a circular was sent to shareholders describing, among other things, the principal changes that have been made to the original Scheme proposals and containing a notice of extraordinary general meeting ("EGM") at which Cape's shareholders will be askedto approve the changes. The EGM is to be held at 2.30 p.m. on 12 April 2006 at 10 Snow Hill, London EC1A 2AL. A summary of the independent actuarial estimate of the range of potential UK asbestos-related liabilities assessed as part of the proposed Scheme is set out in note 8(i). Although the net charge to the profit and loss account for industrial disease claims was £3.6 million (2004: £3.7 million), should theScheme not be approved, given the outlook for the Group and assuming that future settlements broadly follow recent history, the Directors remain confident that future claims, to the extent not matched by insurance recoveries, can be met from operating cash flows. Our people I am sorry to report that following the serious accident in which he wasinvolved on 31 October 2005, the Group's Managing Director, Paul Ainley,has been making a slow recovery and the prognosis remains uncertain. Hisabsence is keenly felt and we all hope very much that he will make afull recovery over time. We wish Paul and his family the very best forthe future. Since November, Mike Reynolds has been combining his duties as FinanceDirector with that of Acting Managing Director. The Board acknowledges theconsiderable additional workload that this involves and, on their behalf, Iwould like to express our appreciation of his efforts over the past fewmonths. Against this background, the Board has begun the task of recruiting a ChiefExecutive Officer. Whilst the results of the search so far have beenencouraging, and a number of exceptional candidates have been identified, it isnot possible, at this stage, to say when an appointment will be made. The Board recognizes that the Group's success depends heavily on the quality ofits people. None of our contract wins or safety awards would have been achievedwithout their daily focus on the Group's strategic objectives. On behalf of theBoard, I would like to thank Group's management, staff and employees at alllevels worldwide for their hard work and commitment throughout 2005. Outlook Sales in the second half of 2005 continued to grow both in the UK and overseas.In January and February, sales have also been ahead of budget. The order book inthe UK is looking healthy and the number and quality of opportunities in theMiddle East is particularly encouraging. The Group remains well placed tobenefit from these and other new opportunities. With energy prices remaining at high levels and a market looking to ensurecontinuity of supply from a number of sources, the Directors view the Group'sprospects over the short and medium term with confidence. Martin K May Chairman21 March 2006 Unaudited Consolidated profit and loss accountfor the year ended 31 December 2005 Unaudited Audited 2005 2004 Total Total Notes £m £mTurnover 2 261.8 238.9Less share of turnover of joint ventures (0.3) (5.3) -------- ---------Group turnover 261.5 233.6 -------- ---------Group operating profit before operating exceptionalitems 2&3 9.2 5.8Operating exceptional items 3 (9.7) (1.1) -------- ---------Group operating (loss)/profit (0.5) 4.7Share of operating profit in joint ventures 0.2 0.4 -------- ---------Total operating (loss)/profit: group and share ofjoint ventures (0.3) 5.1 -------- ---------Profit on sale of fixed assets - continuing 4 0.3 -Profit on sale of fixed assets - discontinued 4 - 0.5 -------- ---------Profit on ordinary activities before interest - 5.6Net interest payable (0.7) (1.0)Other finance income 0.8 1.2 -------- ---------Profit on ordinary activities before taxation 0.1 5.8Tax credit on profit on ordinary activities 5 0.7 - -------- ---------Profit for the year 6 0.8 5.8 Earnings per ordinary share: 7- Basic 1.2p 10.7p- Diluted 1.2p 10.6p The above operating (loss)/profits are attributable to continuing operations. Unaudited Consolidated balance sheetat 31 December 2005 Unaudited Audited 2005 2004 Notes £m £mFixed assetsIntangible assets 0.6 0.1Tangible assets 29.4 23.4Interest in joint ventures:Share of gross assets 0.2 1.2Share of gross liabilities - (0.8) ------- ------- 0.2 0.4 ------- ------- 30.2 23.9 ------- ------- Current assetsStocks 9.9 9.7Debtors 77.2 63.3Cash at bank and in hand 27.2 7.8 ------- ------- 114.3 80.8 ------- ------- Creditors: amounts falling due within one yearShort-term borrowings (1.8) (4.7)Other creditors (63.2) (51.1) ------- ------- (65.0) (55.8) ------- -------Net current assets 49.3 25.0 ------- -------Total assets less current liabilities 79.5 48.9Creditors: amounts falling due after more than oneyear (1.7) (5.5)Provisions for liabilities and charges (18.2) (16.1) ------- -------Net assets excluding pension asset 59.6 27.3Pension asset 5.3 3.6 ------- -------Net assets including pension asset 64.9 30.9 ------- ------- Capital and reservesCalled up share capital 25.5 18.2Share premium account 6 25.0 1.7Revaluation reserve 6 2.2 2.3Profit and loss account 6 12.2 8.7 ------- -------Shareholders' funds (includes non-equity interests) 64.9 30.9 ------- -------Equity interests 60.3 26.3Non-equity interests 4.6 4.6 ------- -------Shareholders' funds 64.9 30.9 ------- ------- Unaudited Consolidated cash flow statementfor the year ended 31 December 2005 Unaudited Audited 2005 2005 2004 2004 Notes £m £m £m £m Net cash inflow from operating activities 7.3 10.7 ------ ------ ------- -------Dividends received from joint ventures 0.4 - ------ ------ ------- -------Returns on investments and servicing offinanceInterest received 0.3 0.1Interest paid (1.0) (1.1) ------ ------ ------- -------Net cash outflow from returns oninvestments and servicing of finance (0.7) (1.0) ------ ------ ------- -------Taxation (0.9) (0.8)Capital expenditure and financialinvestmentPurchases of tangible fixed assets (8.8) (7.3)Receipts from sale of tangible fixed assets 1.0 2.0 ------ ------ ------- -------Net cash outflow from capital expenditureand financial investment (7.8) (5.3) ------ ------ ------- -------Acquisitions and disposalsNet cash outflow from acquisitions anddisposals (0.5) - ------ ------ ------- -------Net cash (outflow)/inflow before financing (2.2) 3.6 ------ ------ ------- -------FinancingIssue of ordinary shares 32.0 0.1Expenses of share issue (1.4) -Capital element of finance lease rentalpayments (0.8) (0.4)Repayment of short-term borrowing (5.2) -Repayment of long-term borrowings - (4.8)Net cash inflow/(outflow) from financing 24.6 (5.1) ------ ------ ------- -------Increase/(decrease) in cash in the year 22.4 (1.5) ------ ------ ------- ------- Unaudited AuditedReconciliation of net cash flow to movementin net (debt)/funds 2005 2004 £m £mIncrease/(decrease) in cash in the year 22.4 (1.5)Inflow from debt and lease financing 6.0 5.2 ------ -------Change in debt resulting from cash flows 28.4 3.7New finance leases (2.8) (0.5)Exchange movement in year 0.5 (0.2) ------ -------Movement in net debt in year 26.1 3.0Net debt at 1 January (2.4) (5.4) ------ -------Net funds/(debt) at 31 December 23.7 (2.4) ------ ------- Unaudited Consolidated statement of total recognised gains and lossesfor the year ended 31 December 2005 Unaudited Audited 2005 2004 Notes £m £mProfit for the year 0.8 5.8Currency translation differences net of taxation onforeign currency net investments 6 1.4 (1.0)Actuarial gain/(loss) recognised in the pensionscheme 6 1.6 (5.6)Movement on deferred tax relating to pension asset 6 (0.5) 1.8 ------- -------Total recognised gains relating to the year 3.3 1.0 ------- ------- Unaudited Reconciliation of movements in shareholders' fundsfor the year ended 31 December 2005 Unaudited Audited 2005 2004 Note £m £mProfit for the year 0.8 5.8Currency translation differences net of taxation onforeign currency net investments 6 1.4 (1.0)Issue of new share capital (net of issue costs) 30.6 0.1UITF17 credit in respect of share options 0.1 0.1Actuarial gain/(loss) in pension scheme net ofdeferred tax 1.1 (3.8) ------- ------Net increase to shareholders' funds 34.0 1.2Shareholders' funds at 1 January 30.9 29.7 ------- ------Shareholders' funds at 31 December 64.9 30.9 ------- ------ NOTES TO THE UNAUDITED ACCOUNTSFOR THE YEAR ENDED 31 DECEMBER 2005 1. Accounting policies In preparing these preliminary results, management have considered therequirements of FRS 21 "Events after the balance sheet date" and FRS 22"Earnings per share", which are applicable for accounting periods beginning orafter 1 January 2005. There have been no other changes to the accountingpolicies as set out in the 2004 report and accounts. 2. Segmental Analysis (a) Business Analysis Unaudited Profit before tax Non- Pre- Operating operating Net exceptional exceptional exceptional operating Turnover items items items Total assets £m £m £m £m £m £m (Note 3) (Note 4)2005Continuingoperations- CapeIndustrialServices 261.5 14.7 - 0.3 15.0 51.0- Jointventures 0.3 0.2 - - 0.2 - ------- ------- -------- ------- ----- ------- Total CapeIndustrialServices 261.8 14.9 - 0.3 15.2 51.0- Head Office - (1.9) (9.7) - (11.6) 2.9- Compensationfor industrial disease - (3.6) - - (3.6) (13.5) ------- ------- -------- ------- ----- ------Totalcontinuing 261.8 9.4 (9.7) 0.3 - 40.4 ------- ------- -------- ------- ----- ------ Discontinuedoperations -Cape Calsil - - - - - 0.8 ------- ------- -------- ------- ----- ------ Totaloperations 261.8 9.4 (9.7) 0.3 - 41.2 ------- ------- -------- ------- ----- ------Netinterest/netcash (0.7) 23.7Otherfinance 0.8 -income ------- ------- -------- ------- ----- ------ 0.1 64.9 ------- ------- -------- ------- ----- ------ There are no significant inter-segment sales between business units. Audited Profit before tax Non- Pre- Operating operating Net exceptional exceptional exceptional operating Turnover items items items Total assets £m £m £m £m £m £m (Note 3) (Note 4)2004Continuing operations- CapeIndustrialServices 233.6 11.0 - - 11.0 47.4- Joint ventures 5.3 0.4 - - 0.4 0.2 -------- -------- -------- -------- -------- -------- - Total CapeIndustrialServices 238.9 11.4 - - 11.4 47.6- Head Office - (1.5) (1.1) - (2.6) 1.8- Compensationfor industrialdisease - (3.7) - - (3.7) (16.9) -------- -------- -------- -------- -------- -------- Total continuing 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 -------- -------- -------- -------- -------- -------- Total operations 238.9 6.2 (1.1) 0.5 5.6 33.3 -------- -------- -------- -------- -------- -------- Net interest/netborrowings (1.0) (2.4)Other financeincome 1.2 - -------- -------- -------- -------- -------- -------- 5.8 30.9 -------- -------- -------- -------- -------- -------- Net operating assets represents the net assets of each business unit afteradjusting for Group funding loans. 2. Segmental analysis continued (b) Geographical analysis by origin Unaudited Profit before tax Non- Pre- Operating operating Net exceptional exceptional exceptional operating Turnover items items items Total assets £m £m £m £m £m £m (Note 3) (Note 4)2005Continuingoperations- United Kingdom 165.9 2.2 (9.7) 0.3 (7.2) 25.2- ContinentalEurope 36.8 0.2 - - 0.2 2.8- Rest of theWorld 58.8 6.8 - - 6.8 12.4- Rest of theWorld jointventures 0.3 0.2 - - 0.2 - ------- ------- -------- -------- ------ ------- 261.8 9.4 (9.7) 0.3 - 40.4 ------- ------- -------- -------- ------ ------- Discontinuedoperations- United Kingdom - - - - - 0.9- ContinentalEurope - - - - - (0.1) ------- ------- -------- -------- ------ ------- - - - - - 0.8 ------- ------- -------- -------- ------ ------- Total operations 261.8 9.4 (9.7) 0.3 - 41.2 ------- ------- -------- -------- ------ -------Net interest/netfunds (0.7) 23.7Other financeincome 0.8 - ------- ------- -------- -------- ------ ------- 0.1 64.9 ------- ------- -------- -------- ------ ------- Audited Profit before tax Non- Pre- Operating operating Net exceptional exceptional exceptional operating Turnover items items items Total assets £m £m £m £m £m £m (Note 3) (Note 4) 2004Continuing operations- United Kingdom 151.8 2.4 (1.1) - 1.3 14.3- ContinentalEurope 36.4 0.5 - - 0.5 6.7- Rest of theWorld 45.4 2.9 - - 2.9 11.3- Rest of theWorld jointventures 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- ContinentalEurope - - - - - (0.1)- Rest of the World - - - - - -- Inter-segment sales - - - - - - -------- -------- -------- -------- ------ ------- - - - 0.5 0.5 0.8 -------- -------- -------- -------- ------ -------Total operations 238.9 6.2 (1.1) 0.5 5.6 33.3 -------- -------- -------- -------- ------ -------Net interest/netborrowings (1.0) (2.4)Other financeincome 1.2 - -------- -------- -------- -------- ------ ------- 5.8 30.9 -------- -------- -------- -------- ------ ------- Net operating assets represents the net assets of each geographical segmentafter adjusting for Group funding loans. 3. Operating exceptional items Unaudited Audited 2005 2004The operating exceptional items comprise: £m £m Costs relating to the proposed scheme of arrangements 9.7 1.1 The cash outflow relating to the above exceptional item was £4.4 million (2004:£0.9million) The tax effect of the above operating exceptional item was a tax credit of £2.9million in the year (2004: credit of £0.3 million) 4. Non-operating exceptional items Unaudited Audited 2005 2004The non-operating exceptional items comprise: £m £mContinuing: Profit on sale of former contracting depot 0.3 - -------- --------Discontinued: -------- --------Profit on sale of former manufacturing sites - 0.5 -------- -------- Because of the availability of tax losses, there was no material tax effect ineither the current or comparative year of the above transactions. 5. Taxation The effective tax rate for the year, before adjustments for deferred tax inrespect of losses (see below), is 0.0% (2004: minus 1.0%) based on a tax chargeof £nil (2004: credit £0.04 million) A deferred tax asset of £0.7 million in respect of losses in the year (2004:£nil) has been recognised in accordance with the requirements of FRS 19. Thishas resulted in a net tax credit to the profit and loss account in the currentyear. 6. Reserves Share Profit premium Revaluation and loss Total account reserve account £m £m £m £mAt 1 January 2005 12.7 1.7 2.3 8.7Currency translation differences net oftax on foreign currency net investments 1.4 - - 1.4Profit for the year 0.8 - - 0.8Issue of share capital (net of issuecost of £1.4 million) 23.3 23.3 - -UITF17 credit in respect of shareoptions 0.1 - - 0.1Transfer on sale of properties - - (0.1) 0.1Actuarial gain on pension schemes 1.6 - - 1.6Movement on deferred tax relating topension assets (0.5) - - (0.5) ------- ------- -------- -------At 31 December 2005 39.4 25.0 2.2 12.2 ------- ------- -------- ------- 7. Earnings per ordinary share The basic earning per share calculation for the year ended 31 December 2005 isbased on the earnings (after tax and dividends accrued on the 3.5% cumulativepreference shares) of £0.8 million (2004: £5.8 million) divided by the weightedaverage number of ordinary 25p shares of 67,183,916 (2004: 54,369,148). The diluted earning per share calculation for the year ended 31 December 2005 isbased on the earnings (after tax and dividends accrued on the 3.5% cumulativepreference shares) of £0.8 million (2004: £5.8 million) divided by the weightedaverage number of ordinary 25p shares of 67,939,577 (2004: 54,801,759). Share options are considered potentially dilutive as the average share priceduring the year was above the average exercise prices. Unaudited Audited 2005 2004 Shares SharesBasic weighted average number of shares 67,183,916 54,369,148Adjustments:Weighted average number of outstanding share options 755,661 432,611 --------- ---------Diluted weighted average number of shares 67,939,577 54,801,759 --------- --------- An adjusted basic earnings per share has been disclosed which excludes theeffects of operating and non-operating exceptional items. It is calculated bydividing the adjusted earnings (after tax and dividends on the 3.5% cumulativepreference shares) of £7.3 million (2004: £6.1 million) by the weighted averagenumber of ordinary 25p shares of 67,183,916 (2004: 54,369,148). The adjustednumbers have been provided in order that the effects of exceptional items onreported earnings can be fully appreciated, and has been calculated as follows: Unaudited 2005 Audited 2004 Earnings EPS Earnings EPS £m pence £m penceBasic earnings per share 0.8 1.2 5.8 10.7Adjustments:Operating exceptional items 9.7 14.4 1.1 2.0Tax effect of operating exceptionalitems (2.9) (4.3) (0.3) (0.6)Profit on sale of fixed assets (0.3) (0.5) (0.5) (0.9) -------- ------- --------- ------Adjusted basic earnings per share 7.3 10.8 6.1 11.2 -------- ------- --------- ------ Unaudited 2005 Audited 2004 Earnings EPS Earnings EPS £m pence £m penceDiluted earnings per share 0.8 1.2 5.8 10.6Adjustments:Operating exceptional items 9.7 14.3 1.1 2.0Tax effect of operating exceptionalitems (2.9) (4.3) (0.3) (0.6)Profit on sale of fixed assets (0.3) (0.5) (0.5) (0.9) -------- ------- --------- -------Adjusted diluted earnings per share 7.3 10.7 6.1 11.1 -------- ------- --------- ------- 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 alia,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. For the purposes of the proposed Scheme, the Directors commissioned independentactuaries to review and provide an estimate of certain of the Group's unpaid anduninsured UK asbestos-related claims as at 31 December 2004. Estimates of unpaidasbestos-related claims are inherently uncertain. Although the review did nottake account of all potential claims against the Group, it covers, in theopinion of the Directors, the overwhelming majority of all UK asbestos-relatedclaims likely to be made against the Group. The actuaries' best estimate of theaggregate projected discounted value, net of insurance recoveries, of the unpaidUK asbestos-related claims they reviewed is £119.4 million. This estimate iscontained within a range of low and high estimates of £70.2 million and £240.3million respectively, although there can be no certainty that the total cost ofsuch claims will fall within the range of such estimates. The discount rateapplied is five per cent. Claims not covered by the review include, inter alia,overseas claims and certain potential claims for reimbursement from insurers andothers. Given the wide range of the estimates and the significant degree of uncertaintysurrounding them, the Directors take the view that the amount of the Group'soverall obligation cannot be measured with sufficient reliability. Accordingly,the Group provides in the profit and loss account each period for the estimatedliability in respect of industrial disease claims lodged and outstanding at theperiod-end. If it were possible to assess reliably the present value of amountsthat might be paid in future settlements such that this was to be provided inthe Balance Sheet, there would be a materially adverse effect on the Group'sfinancial position. There is great uncertainty over the net present value of thefuture claim settlements. These could occur over a period of more than fortyyears. However, in aggregate they are likely to exceed the amount of the netassets included in the current Group Balance Sheet. Based on the recent historyof settlements, the Directors anticipate that future settlements can be madefrom the future cash flows generated by the trading operations of the Group.Should the future pattern as regards timing and quantum of claims prove to bematerially and adversely different from the historic trend, there could be amaterial adverse effect on the Group's financial position. (ii) The Company was the defendant in proceedings brought by some 7,500 SouthAfrican residents who claimed that they suffered injury as the 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 a significant uncertainty asto whether such future claims will be made and as to the number, nature, timingand validity 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 judgements obtained in NorthAmerica against Companies within the Group which are not present in NorthAmerica, would not be enforceable in the UK. Consequently the Directors believethat the above-mentioned matters are unlikely to have a material effect on theGroup's financial position. (iv) The Company's subsidiary, Cape Industrial Services Limited, together withother companies involved in offshore contracting work, is a defendant inproceedings before the Employment Tribunal under the Working Time Regulations1998 brought by a small number of employees claiming that their paid annualleave should be taken from scheduled working time. If successful, the claimants(and other affected employees who are not party to the proceedings) could beentitled to compensation. Under the terms of certain of its contracts, CapeIndustrial Services Limited would be entitled to additional payment from itsclients. There is significant uncertainty as to whether the claimants willsucceed and, if they do, as to the number of affected employees, the amount ofany compensation that would be awarded and the extent to which it could berecovered under relevant contracts. (v) 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. (vi) 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 2005 are unaudited.The financial information set out in the announcement does not constitute thecompany's statutory accounts for the years ended 31 December 2005 or 31 December2004 as defined by Section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2004 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 2005 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 2005 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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