Cape profits take £14m hit on disastrous project in Algeria
Saturday 26 May 2012
Shares in the industrial services group Cape crashed 37 per cent yesterday after it said that a massive energy project it is working on in Algeria will make a loss.
Cape, chaired by the former Tory energy minister Tim Eggar, will take a £14m hit on the project, which is about one fifth of analysts' forecasts for pre-tax profits this year. The shares tumbled 118.5p to 205p.
Cape was awarded a €37m (£30m) contract to supply insulation material for a new liquified natural gas terminal in Arzew, Algeria, in 2010. It warned in March that because of delays in construction work its revenues from the project had been a third of what it had expected. A further review of the project this month, by the acting chief executive, Brendan Connolly, found things to be even worse. The earlier delays meant that Cape had to take on far more workers than it had planned, with its workforce on the site peaking at 900.
Cape said: "This further review has identified additional costs arising within the Arzew project, which as a result is currently projected to produce a significant loss. The board has instigated a plan to mitigate the potential losses including the injection of a new project team, the introduction of additional skilled workforce and the rigorous application of Cape processes."
Analysts said that the local management team and a lack of supervision of the local workforce had meant that productivity on the project had been well below normal.
Andy Hanson, an analyst at Northland Capital Partners, said: "With the company having identified a loss-making contract last year, today's announcement raises further questions about operational control issues on specific contracts. Until we get greater clarity on this we move our recommendation to sell."
Cape: In numbers
Countries operated in: 30
Sales in 2011: £722m
Profits in 2011: £69.4m
Share price high in last year: 591.5p
Share price low in last year: 203.95p
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