Cape plc, the international provider of essential, non-mechanical support services principally to the energy and mineral resources sectors, provided the following update.
The trading performance of Cape’s Onshore business unit in Australia deteriorated sharply in the second quarter. Following a review of this business, it has become clear that the trading performance for the Far East/Pacific Rim Region for the remainder of the year will be well below management’s previous expectations.
Lower revenue, combined with increasing pricing pressure, has led to operating margins being significantly lower than previously expected. With delays in major project work in Australia now apparent, no improvement in activity levels is expected in the near term. A review of the region’s business structure is now underway and an initial overhead cost reduction plan has been implemented. Management now expects revenue from this region for the year to 31 December 2012 to be slightly less than that of 2011 and operating margin, before the impact of any restructuring, to reduce to approximately half of 2011 levels.
In the Far East/Pacific Rim, the Group is more exposed to the construction support services cycle than in other more mature regions in which Cape enjoys leading market positions, underpinned by a solid maintenance support services base with multi-year contracts. Whilst capital spending in the Far East/Pacific Rim region is expected to benefit Cape strongly over the medium term, the timing of work releases on the major projects remains uncertain.
The deterioration in performance in the Far East/Pacific Rim Region will have a significant effect on overall Group performance in the near term. The Group is therefore unlikely to meet previous expectations for the year to 31 December 2012 and, whilst steps are being taken to restructure the region’s business unit, the challenging conditions in the Far East/Pacific Rim Region are expected to persist into 2013.
The UK Region continues to trade strongly supported by long term maintenance contracts. Activity levels in the Middle East show good growth albeit at lower margins. In the CIS & North Africa Region activity levels remain robust and the one off charge previously announced in respect of the GL3 Z LNG project in Arzew in Algeria is expected to remain sufficient.
Cape will report results for the six months ended 30 June 2012 on 30 August 2012.
Source: Cape, August 07, 2012