James Fisher and Sons Regulatory News (FSJ)

27 February 2020

James Fisher and Sons plc

Preliminary announcement of final results for the year ended 31 December 2019

James Fisher and Sons plc (FSJ.L) ('James Fisher'), the leading marine service provider, announces its final results for the year ended 31 December 2019.

* excludes separately disclosed items 2019: £10.7m (2018: £0.7m) (note 4)

Highlights:

§ Reported revenue up 10% and up 6% on an organic basis

§ Underlying operating profit up 7%, driven by strong Offshore Oil performance

§ Investment of £105m in capital and acquisitions

§ Total dividend increased by 10%

§ Eoghan O'Lionaird appointed as Chief Executive Officer on 1 October 2019

Commenting on the results, Chief Executive Officer, Eoghan O'Lionaird, said:

"Following a strong second half, the Group delivered a 7% increase in underlying operating profit in the full year. A strong recovery in our Offshore Oil division, further progress in Tankships and a broadly similar year-on-year result in Specialist Technical, more than offset a weaker performance in Marine Support. With the offshore renewable energy sector continuing to grow robustly and the oil and gas market for our niche services recovering, the leading position held by a number of our businesses across a broad spread of services in diverse geographical locations underpins the Board's confidence in the Group's ability to provide continued growth in shareholder value."

For further information:

Notes:

1. James Fisher uses alternative performance measures (APMs) as key financial indicators to assess the underlying performance of the business. APMs are used by management as they are considered to reflect better business performance and provide useful additional information. APMs include underlying operating profit, underlying profit before tax, underlying diluted earnings per share, underlying return on capital employed and cash conversion. All references to organic in this announcement refer to results adjusted for the impact of prior and current year acquisitions and for constant currency. An explanation of APMs is set out in note 2 in these results.

2. Certain statements contained in this announcement constitute forward-looking statements. Forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of James Fisher to be materially different from future results, performance or achievements expressed or implied by such statements. Such risks, uncertainties and other factors include exchange rates, general economic conditions and the business environment.

Preliminary announcement of final results for the year ended 31 December 2019

Chairman's Statement

Following a strong second half I am pleased to report that James Fisher and Sons plc delivered a 4% increase in underlying profit before tax to £58.5m (2018: £56.1m) on revenue that was 10% higher than last year. A strong recovery in our Offshore Oil division, further progress in Tankships and a broadly similar result in Specialist Technical, more than offset a weaker performance in Marine Support.

In a year of transition, the Board was pleased to announce the appointment of Eoghan O'Lionaird as Chief Executive Officer (CEO) on 1 October 2019, replacing Nick Henry, who had led the Group since July 2012. Since joining, Eoghan has demonstrated strong and effective leadership and has commenced a comprehensive review of the Group's operations. James Fisher has a well-established strategy which aims to deliver long term growth in shareholder value whilst aligning our corporate culture and values with all our stakeholders and the communities in which we operate.

Results 

Group revenue was 10% higher in the year at £617.1m (2018: £561.5m), which included a 3% benefit from businesses acquired and a 1% contribution from foreign exchange movements. After adjusting for currency fluctuations and the impact of businesses acquired in the current and prior year, underlying revenue growth at constant currency was 6%.

Underlying operating profit increased 7% to £66.3m (2018: £62.1m) and adjusted diluted earnings per share increased 4% to 92.8p (2018: 89.5p). Statutory operating profit, which is after separately disclosed items, was £55.6m (2018: £61.4m) following an impairment charge taken in 2019 in respect of the Group's Murjan business in Saudi Arabia which was acquired earlier in the year. Statutory diluted earnings per share were 72.7p (2018: 88.9p).

The Group's cash conversion, the percentage of underlying operating profit converted into underlying operating cash was strong at 99% (2018: 157%). Group borrowings increased by £89.4m due to three business acquisitions for £14.4m and capital investment of £90.2m.

Dividends 

The progress of the Group in 2019 and its track record of delivering strong operating cash flow have led the Board to propose a 10% increase in the final dividend to 23.4p per share (2018: 21.3p). Subject to shareholder approval at the Annual General Meeting (AGM), this dividend will be paid on 8 May 2020 to shareholders on the register on 3 April 2020. If approved by shareholders, the total dividend for the year will be 34.7p per share (2018: 31.6p), a 10% increase on 2018.

Business review

Our businesses continued to progress well in 2019 with the standout financial performance from Offshore Oil, which increased operating margins from 8.3% to 15.0%, reflecting some recovery in the market and the operational gearing that we are able to generate. Our oil well lift business, RMSpumptools, had a particularly strong year with a noticeable increase in its market share. Fisher Offshore invested in cutting tools for the decommissioning market and won its first significant scope of works in the Middle East.

Tankships continued to produce excellent results and was awarded a five-year contract for the delivery of refueling services to the Royal Navy fleet.

Within Specialist Technical, JFD announced two new contracts to provide deep submergence rescue vehicles for the Republic of Korea Navy and for China Shipbuilding & Offshore International. JFD's submarine service business successfully carried out two major submarine rescue exercises under its NATO contract and separately for the Royal Australian Navy, from which it also won a four-year contract to build and pressure test cylinders to simulate a submarine hull.

In September, JFD confirmed its market leading position by delivering the world's first saturation diving products rated to a depth of 500m. The products, which include environmental control systems, gas reclaim and life support, provide the most advanced saturation dive capability in the world. We also invested further in diver training with the purchase of saturation diving equipment in Fort William, Scotland which provides subsea operators with the skills, equipment, and capabilities they need to carry out their work whilst ensuring their safety at all times.

JFD won the Innovation for Safety award at the 2019 Subsea Expo for its Compact Bailout Rebreather Apparatus (Cobra). The system supplies an extended duration of fully independent breathing gas in an emergency scenario, and is designed to be smaller than most bailout systems.

In Marine Support, our ship-to-ship business recovered well from a slow first quarter and produced another impressive financial performance. We are now able to offer a comprehensive service to the offshore wind renewable energy market and we are pleased to have won further phases of work in the UK on East Anglia One, and its first work scopes on Triton Knoll, as well as establishing a service centre in Taiwan. EDS, which provides high voltage connections to this sector had an excellent year serving the London Array windfarm and won a 15 year operations and maintenance contract for the Greater Gabbard offshore wind farm off the coast of Suffolk.

During the year we invested in two saturation diving vessels to respond to the needs of the oil majors, however delivery and maintenance delays have meant that only one of these vessels came into service in the latter part of the year and the other is expected to be deployed in the first quarter of 2020. The division further expanded by acquiring the UK marine safety vessel products business, Martek Marine, in January 2019, and geographically in August with the acquisition of the commercial diving company, SM Continental SA in Brazil.

The Board

There have been a number of changes to the Board over the past year. In December 2018, Nick Henry served notice that he intended to retire as CEO by the end of 2019. On behalf of the Nominations Committee, I led a comprehensive executive search process supported by independent recruitment consultants, during which both internal and external candidates were considered. After a series of interviews with all the Directors, the Board unanimously agreed the appointment of Eoghan O'Lionaird as the Group's new CEO. Eoghan joined the Company at the beginning of September 2019 and was appointed CEO on 1 October 2019 at which point Nick stepped down as a Director of the Company. I would like to take this opportunity to thank Nick Henry for his contribution to the development of the Group following the retirement of Tim Harris in 2012. During Nick's tenure, turnover grew 70% and underlying profit before tax increased 40% which is reflected in a share price that has more than doubled. On behalf of the Board and our shareholders, I would like to thank Nick and wish him every success for the future.

On 28 February 2019, David Moorhouse retired as a Non-Executive Director having served the Company for five and a half years. His contribution to the Board and in particular his knowledge of the marine sector has been of great benefit to the Company. Following David's retirement, Aedamar Comiskey was appointed as Senior Independent Non-Executive Director.

On 1 March 2019, Dr Inken Braunschmidt joined the Board as an Independent Non-Executive Director. Inken is Chief Innovation and Digital Officer at Halma plc and a member of their Executive Board. I have asked her to take special responsibility for Employee Engagement and she is making a good contribution to our Board discussions.

By the time of the Company's AGM in April 2020, I will have served as a Director of the Company for a period of nine years, firstly as an independent Non-Executive Director and chair of the audit and remuneration committees, then as Senior Independent Director and since the 2018 AGM, as Chairman. Whilst good corporate governance would suggest that I step down having completed nine years' service, the Board has requested, and I have agreed, to make myself available for re-election at the 2020 AGM whilst the Senior Independent Non-Executive Director commences a search for a new Non-Executive Chairman. This strategy has been formulated on the basis that my knowledge of the Company and the experience I have gained during my term in office will be of benefit to the new CEO and it would be inappropriate to have a change of CEO and Chairman in a relatively short timescale. This proposal has the support of the Trustees of the Company's largest shareholder, the Sir John Fisher Foundation.

Our employees 

Our employees remain our most important asset and their hard work continues to be a driving force behind our consistent and strong performance. James Fisher's success is due to the combined efforts of all of the Group's employees and I would like to thank them all for their support and hard work.

Summary and Outlook

Following a strong second half, the Group delivered a 7% increase in underlying operating profit in the full year. A strong recovery in our Offshore Oil division, further progress in Tankships and a broadly similar year-on-year result in Specialist Technical, more than offset a weaker performance in Marine Support.

With the offshore renewable energy sector continuing to grow robustly and the oil and gas market for our niche services recovering, the leading position held by a number of our businesses across a broad spread of services in diverse geographical locations underpins the Board's confidence in the Group's ability to provide continued growth in shareholder value.

Chief Executive's Review

Introduction

I am pleased to present my first Chief Executive's review since joining the Board on 1 October 2019.

Whilst James Fisher has a strong track record of delivering increased profits and dividends over a long period, as a new CEO, it is an opportune time for me to revisit and re-test the strategy and to create a plan for further growth in shareholder value for the future. This process is underway and our plan is to update shareholders in June this year.

On joining, I inherited a strong leadership team and Executive Committee, which comprised the CEO, Group Finance Director, Group Business Development, Group Financial Controller, Group General Counsel, Marine Support Director and Group Head of Human Resources. The Executive Committee was further strengthened in January when Robin Stopford was appointed Group Head of Corporate Development. The Executive Committee meets monthly to review business performance, and to identify and reinforce key elements of the Group's culture and best practices that can be transferable across the Group. In addition to business performance management, the Executive Committee has objectives to strengthen our health and safety culture, people development and the sustainability of the Group's operations.

The Group is comprised of a range of highly successful businesses, with a number of businesses holding leadership positions in growing, niche markets. Offshore Oil had a particularly good year, delivering a stronger than expected profit improvement. Further progress was made in Tankships, a creditable result was achieved in Specialist Technical and our ship-to-ship services had another strong year. Whilst the result for Marine Support was disappointing, especially in the first half, the issues experienced can readily be resolved.

The Group's goal is to deliver sustainable long-term growth in underlying earnings per share and progressive dividend growth. Over the last ten years, underlying diluted earnings per share and dividends have both grown by a compound annual rate of 10%. In 2019 underlying diluted earnings per share grew by 4% (2018: 14%), and the total annual dividend per share grew by 10% (2018: 10%).

Revenue increased by 10% in the year to £617.1m with increases across all divisions except Specialist Technical, which had a strong prior period comparator due to the delivery of two submarine rescue vessels for the Indian Navy. After adjusting revenue for the effect of constant currency and businesses acquired, organic revenue growth was 6%, led by a 24% organic increase in Offshore Oil, 7% growth in Marine Support and 11% in Tankships.

The Group's underlying operating profit increased by 7% due to strong profit growth in Offshore Oil and further progress in Tankships. Underlying cash conversion, which measures the proportion of underlying operating profit that is turned into operating cash, was 99% (2018: 157%). The Group's post-tax return on capital employed was lower at 11.1% (2018: 12.2%) reflecting the Group's capital investment in dive support vessels, which were delayed going into service.

Acquisitions

In January 2019 the Group acquired Martek Marine for cash consideration of £10.2m. Martek, which is UK headquartered with an office in Singapore, provides a range of innovative safety and calibration systems and products to the marine sector and aligns with the similar businesses in the Group.

In August 2019, the Group completed the acquisition of a 60% shareholding in SM Continental for an initial cash consideration of £4.9m. An air diving service provider to the offshore oil sector based in Macaé, Brazil, Continental provides inspection, repair and maintenance services to offshore oil terminals, primarily FPSOs, and is well placed to benefit from the continued steady growth being seen in the offshore oil market in Brazil.

Our Specialist Technical business, JFD, acquired the assets, intellectual property and design rights of Ortega Submersibles for £0.6m in August 2019. Ortega, based in the Netherlands, designs and produces small and fully electric swimmer delivery vehicles (SDV) adding to JFD's advanced range of SDVs, which are specifically designed to facilitate the safe insertion and extraction of special forces and their equipment from different types of vessels, providing navies with the capability to deliver their operators safely to their intended point of insertion at a high level of readiness.

The acquisition in January 2019 of a 60% shareholding in Murjan, a Saudi Arabian based company, has not gone as planned and local management have failed to achieve any significant influence over this entity. With reluctance, it was decided to exit the business, having exhausted all reasonable commercial solutions with the 40% shareholder. As a result, the Group has taken an impairment charge of £9.0m as separately disclosed.

Cyber Security

On 5 November 2019 the Company reported that it had suffered unauthorised access to its computer systems. The Company took immediate steps to respond to and manage the incident, appointing external specialists, including forensic cyber security experts to investigate the circumstances and scope of the incident. As a precautionary measure all affected systems were taken offline to contain the incident. Our internal Group Business Systems team worked tirelessly to safely recover systems, applications and data from the Group's established disaster recovery back-up as quickly as possible to minimise any impact on our businesses. Our investigations identified no indications of any unauthorised extraction of personal or commercially sensitive data as a result of the incident. Whilst the incident did not significantly impact the Group in trading terms, it did impact our ability to raise invoices and collect cash in the last quarter.

Health and Safety

James Fisher has earned a reputation for reliably, efficiently and safely delivering products and services which enable our customers to realise their objectives, often in hazardous environments where risks must be carefully assessed and managed. We take very seriously our responsibility to ensure the safety of everyone delivering our services - be they employees, contractors, customers or partners - and safety is the first agenda item on every operating company and Board meeting, and is rigorously monitored and managed in each of our operating companies. With this as the backdrop, therefore, I am very disappointed to report that a contractor carrying out operations on the Group's behalf suffered a fatal accident in the Netherlands in May 2019. A thorough investigation into the accident was undertaken and whilst none of our internal procedures and safety processes were lacking, the lessons learned from this tragic incident have been shared across the Group and have become a catalyst for us to redouble our efforts to further improve on our deeply engrained safety culture.

The Group's lost time incident frequency (LTIF) which measures the number of incidents per million working hours was 0.05 (2018: 0.04).

Divisional performance

Marine Support

Revenue increased by 13% in the year to £306.1m (2018: £269.8m) and, after adjusting for businesses acquired and changes in foreign exchange rates, organic revenue growth was 7% with growth in ship-to-ship services and dive related services. Underlying operating profit was £3.1m lower despite a strong financial performance in ship-to-ship services. Challenges on contract delivery and debtor recoverability issues caused the reduction.

The £30m contract in northern Mozambique for the design and installation of an early beach landing and temporary beach landing commenced in July and progressed well in the second half. This first stage of a major liquefied natural gas development project will take two years to complete and holds the promise of further opportunities both for Subtech and other businesses in the Group.

Diving and subsea services for the oil & gas sector in West Africa and the Middle East continued to grow and the Group invested £56.2m to acquire two dive support vessels, Subtech Paladin and Subtech Swordfish, specifically for the saturation diving market in West Africa. Though the vessels went into service later than expected, the Paladin was operational during the final quarter and the Swordfish will be available for work in the first quarter of 2020.

Specialist Technical

Revenue in Specialist Technical was 4% lower than 2018, which represented a robust performance as the prior period included the last twelve months of the build program for two submarine rescue vessels delivered to the Indian Navy. Underlying operating profit was 12% lower due to weak financial performance in nuclear decommissioning which offset a creditable result in JFD.

Two saturation diving systems for Shanghai Salvage are broadly on track but delivery of the landmark 500m system has been pushed back into 2020 by the customer. Our order for six swimmer delivery vehicles progressed well with two passing customer acceptance in November 2019; a further two are scheduled for delivery in Q2 and the last two scheduled for Q3 2020. Two orders for the design, construction and delivery of submarine rescue vehicles commenced in the year for delivery to the Asia Pacific region in 2021 and 2022 respectively.

Nuclear decommissioning had a disappointing year with challenges on project delivery and delays in orders for its radiation monitor and inspection devices.

Offshore Oil

Revenue in Offshore Oil was 27% ahead at £90.4m (2018: £71.4m) reflecting a steady improvement in market conditions in the inspection and maintenance market within the oil and gas sector. Well testing remained flat but the Norwegian market showed some improvement. Our artificial lift business, RMSpumptools continued to increase market share and continued to support its customers in well life extension. Boosted by a strong order book and increased capacity, its financial performance was c.50% ahead of 2018.

Underlying operating profit increased by £7.7m reflecting the operational gearing from the increased utilisation of hire equipment together with skilled operators. An underlying operating margin of 15% compares to the division's peak year in 2014 of 22%.

The division further broadened its end markets with James Fisher Offshore winning its first significant tooling and cutting decommissioning work in the Middle East, and Scantech Offshore supplying its compressors for offshore renewable applications.

Tankships

Tankships produced another strong year with an additional vessel in the first half and the addition of a new five-year contract from the Royal Navy benefitting the second half. The business was also delighted to support the sea trials during the fourth quarter, of the Royal Navy's new aircraft carrier, the HMS Prince of Wales, providing refueling from the port of Invergordon. Revenue in 2019 was 12% higher at £67.9m (2018: £60.7m) and underlying operating profit 21% higher at £12.0m (2018: £9.9m).

In addition to investing £9m in the Raleigh Fisher, a 35kT tanker, for its new Royal Navy contract, the business continued its fleet renewal process, transferring a vessel out of the fleet in June and expects further modernisation of the fleet in 2020.

Financial review

2019 results

The year featured a strong recovery in financial performance from our Offshore Oil division where revenue rose by 27%, underlying operating margins increased from 8% to 15% and the return on capital employed improved by 530 basis points to 9.9%. Tankships increased underlying operating profit by £2.1m due to strong utilisation, an additional vessel in the first half and the commencement of a refueling contract for the Royal Navy in July. Specialist Technical delivered a creditable result against a strong prior year comparator and despite weakness in nuclear decommissioning. Underlying operating profit at Marine Support was lower in 2019 despite a good performance in ship-to-ship services, as it suffered from contract delivery and debtor collection issues.

Overall, Group underlying operating profit increased by 7% to £66.3m (2018: £62.1m) as revenue increased by 10%. Underlying operating margins reduced by 30 basis points to 10.7% (2018: 11.0%) mainly due to the issues impacting the result in Marine Support, which were only partially offset by improvements in Offshore Oil and Tankships. Statutory operating profit was £55.6m (2018: £61.4m) reflecting separately disclosed charges of £10.7m (2018: £0.7m).

The Group's main currency exposure is in respect of US Dollar cash inflows. In 2019, the average GBP:USD rate was £1:$1.28 (2018: £1:$1.33) and net of forward contracts which are used to reduce earnings volatility, the benefit to underlying operating profit in 2019 was £0.6m. At constant currency and adjusting for the impact of businesses acquired in 2018 and 2019, revenue increased by 6% and underlying operating profit by 3%.

Change of accounting standards

The Group adopted IFRS 16 'Leases' with effect from 1 January 2019 and using the modified retrospective method is not required to restate prior year financial information. IFRS 16 effectively brings operating lease obligations onto the Group balance sheet by establishing a 'right-of-use' asset representing the discounted value of the operating lease obligations. The right-of-use asset is amortised with an 'interest' charge recognised within finance charges. In the income statement therefore, an operating expense of the lease rental is replaced by amortisation charged against operating profit and an interest cost within finance charges. The Group primarily has operating leases in respect of vessels within the Tankships division and in respect of rented property.

The impact of IFRS 16 is to increase operating profit and underlying operating profit by £1.0m and net finance charges by £1.7m. The net impact on profit before taxation and underlying profit before taxation is therefore a reduction of £0.7m. Lease liabilities, in respect of operating leases, were £27.4m at 31 December 2019 and associated right-of-use assets were £27.1m. The adoption of IFRS 16 has no impact on the Group's lending covenants as these are based upon frozen GAAP.

Finance charges and profit before tax

Net finance charges were £1.8m higher at £7.8m (2018: £6.0m) due to IFRS 16 finance charges of £1.7m in respect of operating leases. Interest cover, the ratio of underlying operating profit to net finance charges was 8.5 times (2018: 10.4 times). Our bank covenants are based on frozen GAAP and interest cover calculated under our banking arrangements was 12.3 times (2018: 12.4 times), which compares to a covenant of 3.0 times.

Underlying profit before taxation increased by 4% to £58.5m (2018: £56.1m) and statutory profit before taxation was £47.8m (2018: £55.4m) after charging separately disclosed items of £10.7m (2018: £0.7m). Separately disclosed items comprised acquisition related charges of £0.2m (2018: £0.7m), an impairment charge of £9.0m (2018: £nil) in respect of the Murjan business and costs of a material litigation of £1.5m (2018: £nil). The Directors consider that the alternative performance measures described in note 2 assist an understanding of the underlying trading performance of the businesses. These measures exclude separately disclosed items which comprise gains or losses on the sale of businesses, the costs of a material restructuring, litigation or asset impairment and acquisition related charges or income.

Taxation

The tax charge before separately disclosed items for the year of £11.6m (2018: £10.5m) represents an underlying effective tax rate (ETR) of 19.8% (2018: 18.7%) The ETR is impacted by the geographical mix of profits, tonnage tax relief on the profits of tanker operations and expenses disallowed for tax. The Group operates in 29 countries so its ETR is a blend of national tax rates applied to locally generated profits. The total tax charge for the year was £11.1m (2018: £10.1m) and represents 23.2% of profit before tax (2018: 18.2%) and has increased due to the impairment charge which does not benefit from tax relief.

The Group's tax policy, which has been approved by the Board, is available on our website (www.james-fisher.co.uk). Whilst the Group has a duty to shareholders to seek to minimise its tax burden, its tax policy is to do so in a manner which is consistent with its commercial objectives, meets its legal obligations and its code of ethics. We aim to manage our tax affairs in a responsible and transparent manner and with regard for the intention of the legislation rather than just the wording itself. Our tax objectives are to comply with all applicable tax laws and regulations, including the timely submission of all tax returns and tax payments and to undertake all dealings with local tax authorities in a professional and timely manner. The Group operates in a complex global environment and continues to monitor the OECD's Base Erosion Profit Shifting initiatives as part of its tax risk management. We seek to comply with local transfer pricing legislation in each relevant jurisdiction and to involve external tax advisers, where appropriate, to identify any changes to pricing policies and related documentation.

The Group paid £9.6m (2018: £8.6m) of corporation tax in cash across all of its jurisdictions and a further £31.3m was paid in the UK for payroll taxes (2018: £28.2m).

Earnings per share and separately disclosed items

Underlying diluted earnings per share increased by 4% to 92.8 pence per share (2018: 89.5 pence). Statutory diluted earnings per share were lower at 72.7 pence per share (2018: 88.9 pence) reflecting the separately disclosed impairment charge.

Cash flow and borrowings

*underlying earnings before interest, tax, depreciation and amortisation

After paying dividends of £16.4m (2018: £14.9m) to shareholders in the year and a further £2.0m to non-controlling interests, net borrowings increased by £89.4m to £203.0m (2018: £113.6m). At 31 December 2019 the ratio of net borrowings to underlying earnings before interest, tax, depreciation and amortisation (Ebitda) was 2.1 times (2018: 1.3 times) and the Group had £41.7m (2018: £92.5m) of undrawn committed banking facilities. The ratio of net borrowings, including bonds and guarantees, to Ebitda was 2.7 times (2018: 1.9 times) which compares to our banking covenant of 3.5 times. Net gearing, the ratio of net borrowings to equity, was 65% (2018: 37%).

Pensions

The Group operates a range of defined contribution schemes for current employees and contributed £5.0m (2018: £4.3m) into those schemes in the year. The Group's net obligation for its own closed defined benefit scheme and for two industry-wide defined benefit schemes reduced by £10.3m in the year to £5.8m (2018: £16.1m). This decreased due to contributions of £8.6m (2018: £5.4m), which included a one-off contribution of £3.8m to one of the industry-wide schemes following agreement on a reduction in the Group's obligation, and actuarial improvements of £2.3m.

Balance sheet

Shareholders funds increased by £8.2m in the year to £313.2m (2018: £305.0m). Adding back net borrowings, capital employed increased by £124.4m to £544.4m (2018: £420.0m) reflecting the investment in capital during the year and new businesses acquired. The Group's post tax return on capital employed slipped from 12.2% to 11.3% as the larger elements of the capital investment only started to earn revenue during the last quarter of 2019.

Risk management

The Board is responsible for the management of risk in the Group. Our internal control and risk management framework is regularly monitored and reviewed by the Board and the Audit Committee, and comprises a series of policies, processes, procedures and organisational structures which are designed to ensure that the level of risk to which the Group is exposed is consistent with the Group's risk appetite and strategic objectives, as defined by the Board.

The Board specifically approves: risk management policies and plans; significant insurance claims, legal claims or settlements; acquisitions, disposals and capital expenditures; and the Group budget, forecast and three-year plan. The Board has put in place a documented organisational structure with strictly defined limits of authority. These have been communicated throughout the businesses and are well understood by the Executive Directors, and by functional and business leaders who have delegated authority and specific responsibility for ensuring compliance with and implementing policies at corporate, divisional and business unit level. Group functions and operating units are each required to operate within this control environment and in accordance with the established policies and procedures. This includes ethics, anti-bribery and corruption, conflicts, treasury, employment, slavery and human trafficking, whistleblowing, data protection, health and safety and environment.

The Group's trading companies are supported by Group functions. Each functional head reports to an Executive Director. The Board retains an oversight role and receives regular reports on key issues: on financial, tax and treasury matters from the Group Finance Director, on people and HR matters from the Group Head of Human Resources Director, and on legal and regulatory matters from the Group General Counsel and Company Secretary. The Board has a schedule of matters specifically reserved to it for decision, designed to ensure that it maintains full and effective control over appropriate strategic, investment, financial, organisational and compliance issues. This schedule is subject to review by the Board on an annual basis.

The Group's Internal Audit function is supported by a co-sourcing arrangement with a major international firm, and undertakes regular reviews of the individual businesses' operations and their systems of internal controls. It makes recommendations to improve controls and follows up to ensure that management implements the recommendations made. The annual Internal Audit plan is determined on a risk assessment basis and is reviewed and approved by the Audit Committee. Internal Audit's findings are reported to the individual management team, the Executive management team, the functional heads, and the chairman of the Audit Committee. The head of Internal Audit attends all Audit Committee meetings and twice annually presents a summary of the Internal Audit findings, recommendations, and implementation progress. Internal Audit also implements the annual risk evaluation process and the internal control and risk management review questionnaire process with the individual businesses, before their presentation to the Board.

The Board also operates a Group Risk Committee (GRC), which meets quarterly and is attended by the Executive Directors and the heads of the functional teams. The minutes of the GRC are reported to the Board, and any key issues raised are discussed at meetings of the Board. The main responsibilities of the GRC are: to identify and monitor operational risks and ensure that those risks are being actively managed throughout the Group; to support the Group's Internal Control and Risk Management strategy and policy; and to review reports on key risks and risk maps prepared by trading companies in order to monitor and report on the types of risk within the Group and report on how effectively risk management is performed/monitored within each business unit/trading company. Each of the functional teams provides a report at each GRC meeting which identifies any matters in their functional area which relates to the Group's principal risks and uncertainties, or to the individual businesses' own risk registers. During the year, the GRC has undertaken specific reviews of the Group's approach in the following principal risk areas: development of project management best practice and training; on-going development of Group-wide process and training for contract risk management; and a review of the Group's cyber security risks to the Group's own systems and the Group's key IT suppliers.

Principal risks and uncertainties

The most significant risks that the Board considers may affect our business (based on the risk evaluation process described above) are listed below. On the basis that the Board considers that the Group's principal risks have not materially changed, the categories of risks listed below are similar to last year with the exception of energy markets which remains a risk but the Board now consider no longer to be a significant risk to the Group. The Group's decentralised business model and geographical spread helps to mitigate the impact of each principal risk.

·; Project delivery

·; Contractual risk

·; Recruitment and retention of key staff

·; Health, safety and environment

·; Financial risk

·; Operating in emerging markets

·; Cyber security

A full description of the principal risk and uncertainties and their management and mitigation will be set out in the 2019 Annual Report and Accounts.

Brexit

On 29 March 2017, the United Kingdom invoked Article 50 of the Treaty on European Union which began the process of the member state's withdrawal from the European Union (EU), commonly known as Brexit. Subsequently, the UK formally left the EU on 31 January 2020, thus entering a period of transition to run through 31 December 2020, during which time the future trading relationship between the UK and the EU is to be negotiated. The Board continues to believe that it would be in the interest of both the UK and the EU that the negotiations over the period of transition should culminate in some form of agreement for free trade. Whilst not underestimating the potential impact on trade and logistics between the UK and the EU, it is relevant that 13% of Group turnover is sold to EU countries and the majority of our activities are outside of the EU.

Directors' responsibility statement

The following is an extract of the full statement prepared in connection with the Company's Annual Report and Accounts for the year ended 31 December 2019.

The Directors of the Company confirm that to the best of their knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

• the Strategic report and the Directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

The Directors of James Fisher and Sons plc and their respective responsibilities are set out in the 2019 Annual Report and Accounts. The responsibility statement was approved by the Board on 26 February 2020 and signed on its behalf by:

E P O'Lionaird S C Kilpatrick

Chief Executive Officer Group Finance Director

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2019

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

for the year ended 31 December 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 at 31 December 2019

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2019

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2019

NOTES TO THE PRELIMINARY RESULTS

1. General information

James Fisher and Sons plc (the Company) is a public limited company registered and domiciled in England and Wales and listed on the London Stock Exchange. The consolidated financial statements comprise the financial statements of the Company, its subsidiary undertakings and its interest in associates and jointly controlled entities (together the Group), for the year ended 31 December 2019. The Company's shares are listed on the London Stock Exchange. The Company and consolidated financial statements were approved for publication by the Directors on 26 February 2019.

The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), adopted by the European Union (adopted IFRS). The financial statements are prepared on a going concern basis and on an historical cost basis, modified to include revaluation to fair value of certain financial instruments. As permitted by section 408 of the Companies Act 2006, a separate income statement and related notes for the holding company have not been presented in these financial statements. The profit after taxation in the Company was £54.8m (2018: £39.6m). The Group and Company financial statements are presented in Sterling and all values are rounded to the nearest million pounds (£m) except when otherwise indicated.

The consolidated financial statements and those of the Company have been prepared in accordance with IFRS adopted by the EU as at 31 December 2019 and are applied in accordance with the provisions of the Companies Act 2006.

Financial information

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2019 or 2018. The financial information for 2019 is derived from the statutory accounts for 2019 which have been delivered to the registrar of companies. The auditor has reported on the 2019 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2019 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.

2. Alternative performance measures

The Group uses a number of alternative (non-Generally Accepted Accounting Practice (non-GAAP)) performance measures which are not defined within IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and, as such, these measures are important and should be considered alongside the IFRS measures. The adjustments are separately disclosed and are usually items that are significant in size or non-underlying in nature. The following non-GAAP measures are referred to in this Annual Report and Accounts.

2.1 Underlying operating profit and underlying profit before taxation

Underlying operating profit is defined as operating profit before acquisition related income and expense (amortisation or impairment of acquired intangible assets, acquisition expenses, adjustments to contingent consideration), the costs of a material restructuring, litigation, or asset impairment and the profit or loss relating to the sale of businesses. As acquisition related income and expense fluctuates with activity and to provide a better comparison to businesses that are not acquisitive, the Directors consider that these items should be separately disclosed to give a better understanding of operating performance. Underlying profit before taxation is defined as underlying operating profit less net finance expense.

2.2 Underlying earnings per share

Underlying earnings per share (EPS) is calculated as the total of underlying profit before tax, less income tax, but excluding the tax impact on separately disclosed items included in the calculation of underlying profit less profit attributable to non-controlling interests, divided by the weighted average number of ordinary shares in issue during the year. The Directors believe that underlying EPS provides an important measure of the underlying earnings capability of the Group. Underlying earnings per share is set out in note 6.

2.3 Capital employed and Return on Capital Employed (ROCE)

Capital employed is defined as net assets less cash and short-term deposits and after adding back borrowings. Average capital employed is adjusted for the timing of businesses acquired and after adding back cumulative amortisation of customer relationships. Segmental ROCE is defined as the underlying operating profit, divided by average capital employed. The key performance indicator, Group post-tax ROCE, is defined as underlying operating profit, less notional tax, calculated by multiplying the effective tax rate by the underlying operating profit, divided by average capital employed.

2.4 Cash conversion

Cash conversion is defined as the ratio of operating cash flow to underlying operating profit. Operating cash flow comprises:

2.5 Underlying earnings before interest, tax, depreciation and amortisation (Ebitda)

Underlying Ebitda is defined as the underlying operating profit before interest, tax, depreciation and amortisation.

2.6 Underlying dividend cover

Underlying dividend cover is the ratio of underlying diluted earnings per share to the total dividend per share.

2.7 Organic

Organic growth represents the performance for the current year in sterling compared to the prior year, adjusted for current and prior year acquisitions and for a constant currency. The constant currency adjustment takes the non-sterling results for the prior year and re-translates them at the average exchange rate for the current year.

3. Segmental information

The Group has four operating segments reviewed by the Board: Marine Support, Specialist Technical, Offshore Oil and Tankships. These operating segments form the basis of the primary segmental disclosures below.

The Board assess the performance of the segments based on underlying operating profit. The Board believes that such information is the most relevant in evaluating the results of certain segments relative to other entities which operate within these industries. Inter-segmental sales are made using prices determined on an arms length basis.

Sector assets exclude cash and short-term deposits and corporate assets that cannot reasonably be allocated to operating segments. Sector liabilities exclude borrowings, retirement benefit obligations and corporate liabilities that cannot reasonably be allocated to operating liabilities.

The Group initially applied IFRS 16 at 1 January 2019, the impact of which is shown in note 11.

4. Separately disclosed items

In order for a better understanding of the underlying performance of the Group certain items are disclosed separately (note 2). Separately disclosed items are as follows:

Adjustments to the provision for contingent consideration are based on the most recent forecasts and estimates such that the balance sheet liability represents the Director's best estimate of amounts likely to be paid based on current information. The cost of material litigation relate to a contract claim made against one of our Marine Support businesses which was contested and subsequently lost on appeal. The impairment charge relates to the acquisition of a 60% share of Murjan Al-Sharq for Marine Contracting LLC (Murjan) on 8 January 2019. The Group failed to achieve management control of this business and has provided an impairment charge for amounts owed to it by Murjan and its net investment.

5. Taxation