Cape Q3 Overall Revenue Up (UK)

Cape plc, the international provider of essential, non-mechanical support services to the energy and mineral resources sectors, issued the following interim management statement for the period from 1^st July 2011 to date.

The Group’s overall revenue growth in Q3 has been over 15% year on year driven by higher levels of activity in the Far East/Pacific Rim and UK regions.  As expected, the overall operating margin has been impacted by slow release of work on secured contracts and changing work mix outside the UK as anticipated at the time of our interim results in August.  The Company has however decided to take specific one-off charges in relation to a current contract in the UK and depot closure costs in Australia.

Regional commentary on the third quarter ended 30 September 2011 and Q4 outlook

The Company’s UK business saw increased activity levels in Q3 in line with expectations with mid-teen year on year revenue growth driven by increased onshore maintenance and outage (shutdown) activities in the UK power sector.  The benefits of this incremental activity have, however, been largely offset by weaker operating margins in the UK Offshore division, principally as a result of the recognition of a £2.2m charge relating to a one-off specific fixed price turnkey contract.  Work on the contract is expected to complete before the year end.

In the Gulf/Middle East region, Q3 revenues were similar to last year and, as expected, margins have continued to reduce reflecting the changing mix towards maintenance and earlier stage project work.  Work releases on some secured contracts have been slower than anticipated as the Company’s clients experience delays on projects.

Activity levels in the Far East/Pacific Rim region continued in line with expectations with strong year on year revenue growth in Q3 of over 20% driven by onshore construction support services for two signature projects in the region; the Singapore Parallel Train (SPT) ethylene project at Jurong Island, Singapore and Woodside’s Pluto LNG project in Western Australia.  The regional operating margin has been impacted by project delays in the Offshore division which, with its fixed cost base, made a negative contribution to the regions Q3 results.  Mobilisation is now expected in Q4 on the Kippa Tuna field development project in Australia and four contracts won in Papua New Guinea although the benefit will largely fall into next year.

With the continued low returns in the Queensland commercial and residential access business, the decision was made to exit commercial construction scaffold hire and sales activities in Queensland and focus entirely onthe company’s growing industrial services operations. Cape will incur a charge amounting to £1.4m in relation to the closure of our depot facilities near Brisbane in the current year.

The CIS/Mediterranean and North Africa regions performance in Q3 continued to be impacted by delays to the GL3-Z LNG project in Algeria. Full mobilisation on the project is now underway.

Financial position

The Group’s financial position remains strong.  It is expected that the increased working capital requirements arising from both the UK offshore contract referred to above and the inevitable compression on major projects, as clients seek to make up for delayed releases, will result in the year-end net debt position being broadly in line with last year.

Full Year 2011 update

In an increasingly challenging macroeconomic environment, the performance of the Group’s businesses across the regions was much as anticipated at the time of the group’s interim results announced in August, other than in respect of the one-off charges incurred in Cape’s UK Offshore division and in Australia.

For the year as a whole, whilst revenues remain in line with the group’s expectations, the Board expects the outturn to reflect the impact on margins of the factors referred to in the regional commentary above.

2012 Outlook

Whilst the company continues to see a strong pipeline of opportunities with projects being sanctioned in its key growth regions, the Company would expect to see ongoing margin pressures in the Middle East and the risk of project scheduling delays during 2012. However, the Board remains confident of the medium-term prospects in the markets the Company is targeting.

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Source: Cape, November 10, 2011