James Fisher and Sons Regulatory News (FSJ)

28 August 2019

James Fisher and Sons plc

Half year results for the six months ended 30 June 2019

James Fisher and Sons plc (FSJ.L) ('James Fisher'), the leading marine service provider, announces its unaudited results for the six months ended 30 June 2019.

* excludes separately disclosed items (2019: £nil (2018: charge of £0.2m) see note 6)

Highlights:

§ Revenue up 10% and by 4% at constant currency and excluding acquisitions

§ Cash conversion of 108% (2018: 120%)

§ Strong performance in Offshore Oil and Tankships

§ Investment of £52.2m in capital and new businesses

§ Interim dividend increased by 10%

Commenting on the results, Chief Executive Officer, Nick Henry, said:

"The Group has made good strategic progress in the first half with the acquisition in Brazil and the purchase of two dive support vessels. We remain well positioned across all four of our divisions with significant growth opportunities ahead. As previously advised, the phasing of projects has made the year more weighted to the second half, which will also begin to benefit from the investment committed to in the first half. The Group remains well placed to deliver an improved financial performance in the year and to continue to provide future value to its shareholders."

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 better reflect 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. An explanation of APMs is set out in note 3 in these half year 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. 

Review of the six months ended 30 June 2019

Group revenue was 10% ahead of the prior period at £286.9m (2018: £260.5m) due to strong growth in Offshore Oil and Tankships and from the two businesses acquired during the first half. At constant currency and excluding acquisitions, revenue grew by 4%. Underlying operating profit was £24.5m (2018: £24.5m) reflecting strong performance from Offshore Oil and Tankships. Marine Support's result reflected its slow start to the year, a weak market in South Africa and contract and doubtful debt provisions in the first half. Specialist Technical was broadly in line with prior period. Statutory operating profit increased to £24.5m (2018: £24.3m).

Underlying diluted earnings per share were 33.2 pence per share (2018: 34.5p), reflecting the lower underlying profit before taxation and a slightly higher effective tax rate. Diluted earnings per share after separately disclosed items were 33.6 pence per share (2018: 34.5p).

Board

With effect from 1 September 2019, Eoghan O'Lionaird will join the Board to become Chief Executive Officer, replacing Nick Henry, who retires on 1 October 2019. The Board would like to express its appreciation to Nick for his contribution to the Group and wish him well for the future.

On 1 March 2019, Dr Inken Braunschmidt was appointed to the Board as an Independent Non-Executive Director. Inken is the Chief Innovation and Digital Officer and a member of the Executive Board at Halma plc and previously spent 13 years at RWE AG, where she held various international roles focusing particularly on strategy, innovation and change management.

David Moorhouse retired from the Board on 28 February 2019 having served on the Board as a Non-Executive Director since August 2013. Aedamar Comiskey was appointed Senior Independent Director on 22 March 2019.

Dividends

The Board has declared an interim dividend of 11.3 pence per share (2018: 10.3p), an increase of 10%. The dividend will be paid on 1 November 2019 to shareholders on the register at the close of business on 4 October 2019. The 2018 final dividend of £10.7m (21.3p per share) was paid on 10 May 2019.

The Group's strategy is to grow its business organically by leveraging its existing marine skill base in areas of specialist expertise to a global market, supplemented by selective bolt-on acquisitions which broaden the Group's range of specific niche services, products or geographical coverage. Our strategic aim is to deliver long-term growth in earnings per share and to consistently increase shareholder value. Whilst the Group prioritises organic growth, this is supplemented by value enhancing acquisitions which fit into our existing divisions. James Fisher seeks to acquire businesses that have a niche product or service offering, with growth potential, a track record of profitability, cash generation and strong management.

Strategic progress

In January 2019, our Marine Support division completed the acquisition of Martek Marine, which is headquartered in the UK with an office in Singapore, and provides a range of innovative safety and calibration systems and products to the marine sector.

The Group has also purchased two saturation dive support vessels (DSV) for the West African market for £40.2m which come into service during the second half of 2019 and will be operated by Subtech. The second DSV purchase completed in July 2019 for a cash outflow of £17.4m.

The Group also acquired a 60% interest in Murjan, based in Saudi Arabia, for £4.1m. Murjan is a near shore subsea operations business whose services are complementary to our offshore services in the Arabian Gulf and which enables the Group to increase the local content of services provided in the region.

Our renewables business has continued work on the East Anglia One windfarm construction and James Fisher has been awarded phase 2 of the unexploded ordnance work and boulder clearance, as well as met mast (measurement tower) decommissioning. This is in addition to providing ongoing construction support services and marine co-ordination and communications services for the project. On the Moray East windfarm, it was awarded a contract for marine co-ordination and communication and its work on site preparations continues at Innogy's Triton Knoll Offshore Wind Farm with a new contract for unexploded ordnance work and boulder clearance. An initial contract in Taiwan for unexploded ordnance and survey work and structural monitoring and consultancy work for high voltage engineering was also awarded in the first half of 2019.

Our strategy to provide services to support the operational efficiency of established windfarms benefited from our first significant contract to provide maintenance support to London Array, announced last year. In 2019, we were awarded a 15 year operations and maintenance contract for offshore transmission (OFTO) assets at Greater Gabbard in Lowestoft, Suffolk.

Our ship-to-ship operations continued to develop with initial operations commenced in Chile during 2019 and good growth in South Africa. Operations in Brazil were lower in the first quarter but improved in the second quarter.

In August, the Group announced the acquisition of a 60% interest in the diving and marine service business, SM Continental SA. Based in Brazil, Continental increases the Group's presence in this important and growing market for subsea services. The combination of its reputation for safety and reliable service delivery and James Fisher's more extensive inspection, repair and maintenance capability provides strong opportunities in a key geographic growth market.

In Specialist Technical, sea trials for the second vessel, delivered to the Indian Navy in December 2018, were completed and we were awarded a contract to supply a submarine rescue vessel for South Korea. Our strategy to provide submarine rescue vessels and long-term support contracts to manage submarine rescue services continues to develop with long-term support contracts in Singapore, India, UK/NATO and Australia.

Our Offshore Oil strategy is to be a niche service provider of equipment and people for the inspection and maintenance market. The sector downturn in 2015 impacted not only exploration but our market for ongoing maintenance. Our reaction to the downturn was to reduce costs and, in particular, headcount by around 40%. Recent months have seen a gradual improvement in demand in the sector and market share gains in our artificial lift services business, RMSpumptools. Our fleet of equipment with a net book value of £42.9m, is well maintained and any upturn in market conditions requires little further investment, leaving the division well placed to take advantage of its operationally geared structure.

In July, the Tankships division was awarded a five year contract from the Ministry of Defence to support the Royal Navy's fueling requirements for which the Raleigh Fisher, a 35kT tanker was purchased for £9m.

Marine Support

Revenue increased by 13% to £144.3m (2018: £127.2m) in the first half, mainly due to businesses acquired which contributed 10% of the growth and the balance split evenly between currency effects and organic growth. Underlying operating profit of £6.6m (2018: £10.8m) reflected a slow first quarter, particularly in ship-to ship services in Brazil, weak demand in South Africa and contract and doubtful debt provisions. Ship-to-ship services improved in the second quarter and a number of marine service projects are weighted to the second half.

The Group has won a contract in Northern Mozambique worth £32m for the design and installation of an early beach landing and temporary beach landing. This is the first stage of a major liquefied natural gas development project which was expected to commence earlier in the year but started in July and will take two years to complete.

Diving and subsea services for the Oil & Gas sector in West Africa and the Middle East continued to grow in the first half of 2019. In addition to taking a 60% interest in Murjan to further develop business in the Middle East, the Group made an investment of £22.8m in the first half and a further £17.4m in July in two dive support vessels to enter the saturation diving market in West Africa. Both vessels are due to be put into service during the second half.

Specialist Technical

Specialist Technical produced a similar financial result to the first half of 2018, despite the build phase of the Indian submarine rescue vessel contract largely completing at the end of 2018. A £30m order from Daewoo Shipbuilding & Marine Engineering for the design, construction and delivery of a third generation deep search and rescue vehicle for the Korean navy, together with training and in-service support was announced and commenced in December 2018 and is due to be delivered in 2021.

Progress continued in the first half on two saturation diving systems for Shanghai Salvage due for delivery in the second half and JFD's Swedish business continued to progress its order for six swimmer delivery vehicles with the first one undergoing sea trials in July. In August 2019, the assets, intellectual property and design rights of Ortega Submersibles BV were acquired, expanding our offering of advanced swimmer delivery vehicles.

Profits from nuclear decommissioning are expected to be second half weighted and progress in developing a range of radiation monitors and inspection devices is on track with product availability due in the second half of 2019. In the first half, a rig hall near Dounreay was purchased for £0.9m to offer an off‑site facility in which to test and trial equipment, prior to site installation and to conduct operator training.

Offshore Oil

Revenue was 24% ahead of 2019 at £33.8m (2018: £27.2m) reflecting a steady improvement in market conditions in the inspection and maintenance market in recent months within the oil & gas sector. However, well testing remained flat and regionally Middle East continued to be positive whilst Norway showed some improvement. Underlying operating profit increased by £3.3m reflecting the operational gearing from the increased utilisation of hire equipment together with skilled operators.

The division further broadened its end markets by winning its first significant tooling and cutting work in the first half of 2019 and supplying its compressors for offshore renewable applications.

Tankships

Tankships performed strongly in the first half of 2019 with revenue 17% higher at £33.2m (2018: £28.5m) and underlying operating profit 37% higher at £5.9m (2018: £4.3m). Vessel utilisation remained high and the results benefited from temporarily having one additional 4kT vessel in the fleet as a more modern vessel was acquired in 2018 and an older vessel was sold in June 2019. In addition, strong spot trading revenue gave rise to the improved trading performance.

In July, a five year contract was awarded by the Ministry of Defence to support the Royal Navy's refuelling requirements for which the Raleigh Fisher, a 35kT tanker was purchased for £9m and put into service.

Outlook

The Group made good strategic progress in the first half with the acquisition in Brazil and the purchase of two dive support vessels. We remain well positioned across all four of our divisions with significant growth opportunities ahead.

Marine Support is more second half weighted due to delays and phasing of projects and lower ship-to-ship transfers at the beginning of the year. Activity has picked up in the summer months. In the renewables sector the order book continues to rise, and a significant contract in Northern Mozambique has commenced. Specialist Technical is performing well and has secured further contracts for submarine rescue equipment which has strengthened its order book leading into 2020. Offshore Oil continues to benefit from a partial recovery in the market and the division is well positioned to benefit from any upturn. Tankships continues to perform well and in the second half will begin to benefit from the new long-term contract for the Ministry of Defence.

As previously advised, the phasing of projects has made the year more weighted to the second half, which will also begin to benefit from the investment committed to in the first half. The Group remains well placed to deliver an improved financial performance in the year and to continue to provide future value to its shareholders.

Financial review

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 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 on the first half is to increase operating profit and underlying operating profit by £0.5m and net finance charges by £0.9m. The net impact on profit before taxation and underlying profit before taxation in the first half of 2019 therefore is a reduction of £0.4m. Lease liabilities at 30 June 2019 were £31.1m and associated right-of-use assets were £30.7m. The adoption of IFRS 16 has no impact on the Group's lending covenants as these are based upon frozen GAAP.

Taxation

The effective tax rate on underlying profit before tax in the period increased to 20.0% (2018: 18.7%). This rate is based on estimates for the full year and has increased due to a greater proportion of profits being earned in higher tax jurisdictions in the Middle East, Africa and South America. The Group's tanker operations continue to be taxed with respect to tonnage rather than profits and this reduces the effective rate by around 2.6 percentage points in the period.

The Group has adopted IFRIC 23 'Uncertainty over income tax treatments' and recognised additional current tax liabilities of £2.0m on 1 January 2019 reflecting potential tax issues across the Group's international jurisdictions.

Separately disclosed items

The Directors consider that alternative performance measures described in note 3 assist an understanding of the underlying trading performance of the businesses. These measures exclude separately disclosed items which consist of gains or losses on the sale of a business, asset impairments, costs of material litigation and charges or income relating to the acquisition of businesses. Net separately disclosed items before taxation in the six months ended 30 June 2019 were £nil (2018: charge of £0.2m). Statutory profit before tax was £20.9m (2018: £21.5m).

Cash flow and borrowings

* Underlying earnings before interest, tax, depreciation and amortisation

The ratio of net borrowings, excluding right-of-use lease liabilities, to Ebitda was 1.7 times (2018: 1.7 times) and inclusive of project related bonds and guarantees was 2.3 times (2018: 2.2 times). Net gearing, the ratio of net debt to equity was 52% (2018: 51%).

Balance sheet

Risks and uncertainties

The principal risks and uncertainties which may have the largest impact on performance in the second half of the year are the same as disclosed in the 2018 Annual Report and Accounts on pages 20-25. The principal risks set out in the 2018 Annual Report and Accounts were:

·; Strategic - energy markets, operations in emerging markets;

·; Operational - project delivery, recruitment and retention of key staff, health, safety and environment, contractual risk and cyber security; and

·; Financial - foreign currency and interest rates.

The Board considers that the principal risks and uncertainties set out in the 2018 Annual Report and Accounts have not changed and remain relevant for the second half of the financial year.

On 29 March 2017, the United Kingdom invoked Article 50 of the Treaty on European Union (EU) which began the member state's withdrawal, commonly known as Brexit, from the EU. The Board continues to monitor the progress of the UK's proposed exit from the EU. In addition, and in view of the time scale, the Group has been assessing the implications and potential mitigating actions of a no-deal scenario. The Board continues to consider that the UK's exit from the European Union is unlikely to have a material impact on the Group, as its business interests and customer base in the EU are not significant.

Directors' Responsibilities

We confirm that to the best of our knowledge:

(a) The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.

(b) The interim management report includes a fair review of the information required by:

a. DTR 4.2.7R of the 'Disclosure and Transparency Rules', being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b. DTR 4.2.8R of the 'Disclosure and Transparency Rules', being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during the period; and any changes in the related party transactions described in the last annual report that could do so.

Approved by the Board of Directors and signed on its behalf by:

27 August 2019

CONDENSED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 June 2019

CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

for the six months ended 30 June 2019

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 June 2019

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six months ended 30 June 2019

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2019

NOTES TO THE CONDENSED CONSOLIDATED HALF YEAR STATEMENTS

1 Basis of preparation

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 condensed consolidated half year financial statements of the Company for the six months ended 30 June 2019 comprise the Company and its subsidiaries (together referred to as the Group) and the Group's interests in jointly controlled entities.

Statement of compliance

The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS) IAS 34 'Interim Financial Reporting' as adopted by the European Union (EU). As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed consolidated set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2018 with the exceptions described below. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2018.

The comparative figures for the financial year ended 31 December 2018 are not the Group's statutory accounts for that financial year. Those accounts which were prepared under International Financial Reporting Standards (IFRS) as adopted by the EU (adopted IFRS), have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors 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 consolidated financial statements of the Group for the year ended 31 December 2018 are available upon request from the Company's registered office at Fisher House, PO Box 4, Barrow-in-Furness, Cumbria, LA14 1HR or at www.james-fisher.co.uk.

The half year financial information is presented in Sterling and all values are rounded to the nearest million pounds (£m) except where otherwise indicated.

Going concern

After making enquires, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the condensed consolidated financial statements.

The Group meets its day to day working capital requirements through operating cash flows with borrowings in place to fund acquisitions and capital expenditure. The Group had £83.7m of undrawn committed facilities at 30 June 2019 (2018: £67.7m) and no revolving credit facilities due for renewal within the next twelve months.

Significant accounting policies

The Group has adopted IFRS 16 'Leases', using the modified retrospective approach, and consequently has not restated its comparatives. Otherwise, the accounting policies applied by the Group in these condensed consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2018.

The Group has adopted IFRIC 23 'Uncertainty over income tax treatments' from 1 January 2019 with an adjustment to the opening retained earnings of £2.0m and with no impact on profit.

2 Accounting estimates and judgements

The preparation of half year financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2018.

3 Alternative performance measures

The Group uses a number of alternative (non-Generally Accepted Accounting Practice (non-GAAP)) financial 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 (note 6) and are usually items that are significant in size or non-recurring in nature. The following non-GAAP measures are referred to in the half year results.

3.1 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.

3.2 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 8.

3.3 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.

3.4 Cash conversion

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

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

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

3.6 Underlying dividend cover

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

4 Segmental information

Management has determined that the Group has four operating segments reviewed by the Board; Marine Support, Specialist Technical, Offshore Oil and Tankships. Their principal activities are set out in the Strategic Report within the consolidated financial statements of the Group for the year ended 31 December 2018.

The Board assesses 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, 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 segments.