Industrial services provider Cape Plc is to take a charge for losses on an LNG project in Algeria, one of its two largest contracts, that will hit profit for the year. The FTSE 250 company, said it will take a one-off charge of 14 million pounds equivalent to a fifth of its adjusted pretax profit last year after a review of the GL3-Z LNG project in Arzew, Algeria unearthed additional costs that are projected to produce a significant loss.
The company, which left its full-year revenue outlook unchanged, reported an adjusted pretax profit of 69.4 million pounds for 2011. The news sent the company's shares crashing 39 percent on Friday, their biggest single day percentage drop in over four years, on the London Stock Exchange. The stock recovered some losses to trade at 201.1 pence at 1215 GMT.
"The fact that such serious problems have now been identified on one of the group's two largest contracts raises numerous concerns," W.H. Ireland analyst John Cummins said in a note to clients. "Whilst this clearly raises questions about the wider project base across the group, we believe this to be an isolated incident, and no other projects being undertaken would be expected to have a similar level of impact," Cummins said.
The company did not return phone calls seeking a comment. Cape which provides insulation, painting, coatings, and industrial cleaning services to plant operators in the energy and mining sectors said in March that the timing of the work releases on the project had been slower than anticipated with revenue in 2011 less than a third of what had been expected.
An operational audit earlier this month by acting Chief Executive Brendan Connolly following a review in April identified the additional costs. "The Board has instigated a plan to mitigate the potential losses on the Arzew Project including the injection of a new project team, the introduction of additional skilled workforce and the rigorous application of Cape processes," the company said in a statement.