Cape looks to better second half after North Sea hit

Industrial services group Cape has seen first-half profits drop as falling demand in the offshore North Sea market weighed down its UK business.

Rigs anchor in the Cromarty Firth as the oil downturn bites. Picture: Jeff J Mitchell/Getty Images
Rigs anchor in the Cromarty Firth as the oil downturn bites. Picture: Jeff J Mitchell/Getty Images

Group pre-tax profit fell 30 per cent year on year to £14.9m in the period ending 3 July, with operating profit margin squeezed to 4.8 per cent from 7 per cent.

This came as operating profit in its UK business nearly halved to £8.4m, as operating profit margin in this part of the business fell to 4.3 per cent from 8.2 per cent.

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“The UK business performed below expectation as operating margins were adversely affected by weakness in the offshore North Sea and thermal coal power generation markets, and poor commercial performance on the ExxonMobil contract at Fawley,” Cape said.

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Analyst Thomas Martin at Numis said UK business margin was “substantially” below his team’s forecast of 7.2 per cent.

However, he added that group revenues came in 14 per cent above their estimates, jumping by 10 per cent to £396.3m, benefiting from its acquisition of Redhall Engineering Solutions completed in May last year.

Chief executive Joe Oatley said: “Although we have seen a deterioration in a number of our markets, overall the group has delivered solid top-line growth, highlighting the resilience of our business.

“Despite the challenges in many of our markets, our expectation of the financial result for the full year is unchanged.”

The firm described the interim results as “mixed” and said the second half is expected to see “increasing project activity in Asia Pacific and the Middle East, and a small improvement in margin in the UK business as the benefits of the ongoing restructuring start to take effect.

“The overall outlook for 2017 for the markets in which the group operates is uncertain but our expectation is that the level of demand will be similar to 2016 with continued weakness in the upstream market, in particular in the UK and Asia, being offset by solid project demand for the group’s Middle East and Australian businesses.

Martin said his team cut its 2016 earnings forecast to 22.4p per share from 24.1p, but for 2017 increased it to 24.6p from 22.4p “with forecast revenue growth outpacing margin reductions”. Cape said it approved an interim dividend of 4.5p per share, unchanged from the year-ago payment.

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Cape has 16,400 staff around the world, and premises in Scotland in locations including Aberdeen, Linlithgow, Paisley and Motherwell.