James Fisher and Sons Regulatory News (FSJ)

29 August 2018

James Fisher and Sons plc

Half Year results for the six months ended 30 June 2018

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 2018.

* excludes separately disclosed items (note 3)

2017 restated for IFRS 15 'Revenue from contracts with customers' (note 14)

Highlights:

· Organic growth in revenue of 11%

· Underlying operating profit up 18% at £24.5m; 25% at constant currency

· Profit growth in all divisions - Marine Support up 21%; Specialist Technical up 19%

· First Indian Navy submarine rescue system delivered

· First long-term maintenance contract in Renewables

· Strong cash conversion of 120%

· Interim dividend up 10% to 10.3p per share

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

"We have had an encouraging first half, with particularly strong performances from our Marine Support and Specialist Technical divisions. We continue to invest in those companies with the best prospects for organic growth and to track a number of interesting acquisition prospects. Our cash conversion is strong and a significant working capital unwind is expected in the second half subject to successful delivery of the second submarine rescue vessel to the Indian Navy. The Board believes that the Group's outlook for the year is positive and that James Fisher continues to be well placed to provide further growth and value for 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 2018

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, our strategy is to supplement it with 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

The Group's corporate objectives are to deliver long-term growth in underlying earnings per share and to deliver progressive dividend growth. In the first half of 2018, underlying diluted earnings per share grew by 18% and the interim dividend was increased by 10%. Whilst the strong growth in the first half of 2018 was encouraging, it is partly due to a weaker first half comparative in 2017.

Underlying operating profit growth was achieved at all four divisions with Marine Support and Specialist Technical achieving the highest growth at 21% and 19% respectively. Offshore Oil was slightly ahead of prior period, despite an adverse currency impact and Tankships delivered 10% growth. The Group's underlying operating margin increased from 8.9% to 9.4% in the period.

James Fisher offers a broad range of services to a wide range of sectors and geographical markets in the marine industry. The first half saw encouraging growth across all divisions, broadly spread across all sectors and regions.

Marine Support delivered continued growth in our ship-to-ship operations in Brazil and South East Asia, and in the offshore wind renewable energy market in the UK. The acquisition of EDS in the fourth quarter of 2017 has strengthened and broadened our offering to this market and has been successfully integrated into the Group during the first half of 2018. Our strategic goal has been to establish the Group in the emerging maintenance market for offshore wind and in the first half we were awarded our first longer term contract for maintenance services to the London Array wind farm in the Thames Estuary.

Progress has been made in increasing our market share in the Middle East which remains a buoyant market and in expanding the range of services provided in Brazil. East African gas remains a significant opportunity for future years and the Group has continued to position itself to support potential projects in this area.

In March, the first of two submarine rescue systems was delivered on schedule to the Indian Navy and will complete sea trials in Mumbai after the monsoon season is over. The second system is on schedule for completion before the end of the year.

The Group remains well positioned for an upturn in the oil & gas market. The first half has seen a limited improvement in activity levels but there is growing momentum in the industry.

Tankships has continued to trade strongly and has completed the acquisition of two tankers for £10.6m in line with the policy to refresh the fleet over the coming years.

Marine Support

The main contribution to revenue growth came from the UK offshore wind market. In 2017 this project work was heavily weighted towards the second half of the year but 2018 has seen an improved spread of work and an earlier start to the summer peak of activity. The contract to provide support services to the Galloper windfarm development for Innogy was successfully completed by the middle of the year. The second quarter also saw the commencement of work for the East Anglia One windfarm for ScottishPower Renewables which included a contract for the clearance of unexploded ordnance.

A 5 year contract was also secured for the London Array wind farm in the Thames Estuary for the balance of plant maintenance.

Ship-to-ship operations continued to perform well with volumes in Brazil reflecting the momentum built up during 2017. Whilst the market in South East Asia showed growth this was partially offset by a weaker market in West Africa.

In April, a 10 year integrated marine services contract was secured for the management of three vessels, oil transfer operations, buoy maintenance and diving operations in support of a UK refinery. The contract value is c. £50m and the operations commenced in late June.

The division has also increased its order book in the Middle East, West Africa and Gulf of Mexico through awards for diving and subsea operations for international oil majors. The market in Saudi Arabia has delivered good growth and represents a significant opportunity for the future. Our mass flow excavation subsea services have benefited from an improving oil & gas market and we have seen the first projects completed in the Gulf of Mexico in recent times.

Specialist Technical

Within Specialist Technical, our defence and diving equipment business, JFD, continued to perform well. In March, the first of two submarine rescue systems was delivered on schedule to the Indian Navy only 2 years after the contract was signed. Sea trials in Mumbai are ongoing and will be completed after the monsoon season is over. The second system is on schedule for completion before the end of the year. The business has also increased its order book for swimmer delivery vehicles which now exceeds £20m for delivery over the next 3 years. Sales have also been achieved to plan for our commercial diving rebreather product, Cobra, which increases safety, and is on track to become the industry standard.

Profits from nuclear decommissioning have been held back due to customer delays in the programme for decommissioning the reactor at Winfrith, resulting in an extension to the £60m project by a year to 2021.

Offshore Oil

Performance in the first half was broadly in line with 2017 despite currency headwinds. This reflects improved activity in the maintenance market, particularly in Norway, which was offset by well testing activity being down on the prior year. Whilst the maintenance markets in Norway and the Middle East have shown marked improvements, there has been little increase in activity in the UK sector or in Brazil. Confidence levels in the industry have increased with a high level of project quotations for 2019/2020.

Tankships

Tankships has continued to perform strongly with vessel utilisations in the first quarter, which is traditionally the weakest quarter, showing an improvement on 2017.

The fleet renewal programme has been progressed with the purchase of the Dee Fisher (deadweight (dwt) 4,653 tonnes) for £5.2m in June. She was built in 2006 and replaces the Milford Fisher in the UK and Irish market. The Corrib Fisher (dwt 6,090 tonnes) was then purchased for £5.4m in July. She was built in 2008 and replaces the Solent Fisher which was withdrawn from the UK and Irish market at the end of 2017. The Corrib Fisher will service the west coast of Ireland including the contract for the oil spillage recovery service for the European Maritime Safety Agency (EMSA).

Results

The increases in revenue and underlying operating profit referred to above resulted in a 20% increase in underlying profit before taxation with interest broadly similar to prior period. The first half results partly reflect a weaker comparative performance in 2017. Underlying diluted earnings per share rose by 18% to 34.5 pence per share (2017: 29.3p), which was lower than the uplift in underlying profit before taxation due to the higher effective tax rate and a larger minority interest charge in the period. Diluted earnings per share after separately disclosed items were 34.5 pence per share (2017: 27.7p).

The Group adopted IFRS 15 'Revenue from contracts with customers' with effect from 1 January 2018 and has restated the 2017 results accordingly. The detail of the adjustments is set out in note 14 and the headline adjustments for the six months ended 30 June 2017 were as follows:

The adjustments to statutory operating profit, profit before tax and earnings per share are as above. The adjustments relate to the recognition of revenue on long-term contracts where revenue was previously recognised on the basis of percentage completion whereas under IFRS 15, revenue is recognised on completion of separately recognised performance obligations.

Taxation

The effective tax rate on underlying profit before tax in the period increased to 18.7% (2017: 17.1%). 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 percentage points in the period.

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 and charges or income relating to the acquisition of businesses. The net charge for separately disclosed items after tax in the six months ended 30 June 2018 was £nil (2017: £0.8m). Statutory profit before tax increased in the period by 26% to £21.5m (2017: £17.1m) and statutory diluted earnings per share for the period was 34.5 p per share (2017: 27.7p). Underlying diluted earnings per share, which excludes separately disclosed items, increased by 18% to 34.5p (2017: 29.3p).

Cash flow and borrowings

* Underlying earnings before interest, tax, depreciation and amortisation

Cash conversion, the proportion of underlying operating profit converted into operating cash flow was 120% (2017: 31%). Capital expenditure included £6.0m on the Tankships fleet modernisation programme and £0.8m on product development in relation to nuclear decommissioning. Business acquisitions included payment of £7.9m for EDS which joined the Group in December 2017 with the balance for Cowan, which was acquired in February 2018. After dividends paid in the period of £9.7m (2017: £8.8m), the net cash outflow was £12.2m (2017: £22.6m) and net borrowings increased to £144.7m (2017: £128.3m).

The ratio of net borrowings (inclusive of project related bonds and guarantees) to ebitda was 2.2 times (2017: 2.2 times) reflecting the working capital, bonds and guarantees in relation to the Indian Navy project. Excluding this project, the ratio would be 1.8 times. Net gearing, the ratio of net debt to equity was 51% (2017: 50%).

Balance sheet

Dividends

The Board has declared an interim dividend of 10.3 pence per share (2017: 9.4p), an increase of 10%. The dividend will be paid on 2 November 2018 to shareholders on the register at the close of business on 5 October 2018. The 2017 final dividend of £9.7m (19.3p per share) was paid on 11 May 2018.

Board

At the conclusion of the Annual General Meeting on 3 May 2018, Charles Rice retired as Chairman of the Group and was succeeded by Malcolm Paul. Justin Atkinson, who was appointed on 1 February 2018, succeeded Malcolm Paul as Chair of the Audit Committee and Aedamar Comiskey was appointed Chair of the Remuneration Committee. David Moorhouse is now the Senior Independent Non-Executive Director. Fergus Graham was appointed to the Board as an Executive Director on 1 March 2018.

Outlook

We expect that the second half will benefit from the contracts secured and momentum built during the first half in our Marine Support division. The division's results were heavily weighted to the second half in 2017 due to the timing of various projects. 2018 has returned to a more usual spread of business over the summer months such that any growth in the second half will be modest. The division continues to see significant opportunities for 2019 and beyond.

Our Specialist Technical division continues to trade well and has a solid order book for the remainder of the year. Prospects for further significant projects remain strong but the timing of such awards will remain uncertain.

Our Offshore Oil division remains well placed for an upturn in maintenance activity in the sector but it is expected that it will be 2019 before any significant benefit is seen.

Tankships has delivered a strong increase in the first half and with its stable market should continue to perform well as it introduces two more modern vessels into its fleet in the second half.

We continue to invest capital in those companies with the best prospects for organic growth and to track a number of interesting acquisition prospects. Our cash conversion is strong and a significant working capital unwind is expected in the second half subject to successful delivery of the second submarine rescue vessel to the Indian Navy. The Board believes that the Group's outlook for the year is positive and that James Fisher continues to be well placed to provide further growth and value for shareholders.

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 2017 Annual Report and Accounts on pages 19-21. The principal risks set out in the 2017 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 2017 Annual Report and Accounts have not changed and remain relevant for the second half of the financial year.

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:

N P Henry S C Kilpatrick

Chief Executive Officer Group Finance Director

28 August 2018

CONDENSED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

for the six months ended 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 June 2018

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six months ended 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2018

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 2018 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 2017 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 2017.

The comparative figures for the financial year ended 31 December 2017 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 2017 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 enquiries, 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 £67.7m of undrawn committed facilities at 30 June 2018 (2017: £34.0m) and no revolving credit facilities due for renewal within the next twelve months.

Significant accounting policies

The Group has adopted IFRS 15 'Revenue from contracts with customers' and restated its comparatives accordingly, which is set out in note 14. The Group has adopted IFRS 9 'Financial Instruments' which has had no impact on 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 2017.

In preparation for the adoption of IFRS 16, Leases, in the financial statements for the year ending 31 December 2019, management are in the process of assessing the potential impact.

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 2017.

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 amortisation or impairment of acquired intangible assets, acquisition expenses, adjustments to deferred consideration (together, acquisition related income and expense), the costs of a material restructuring, asset impairment or rationalisation of operations and the profit or loss relating to the sale of businesses. Amortisation of acquired intangible assets and acquisition expenses are recurring in nature where business combinations are part of a group's strategy. As acquisition expenses fluctuate with activity and to provide a better comparison to businesses that are not acquisitive, the Directors consider that both of these items should be separately disclosed to give a better understanding of operating performance. The Directors believe that the underlying operating profit is an important measure of the operational performance of the Group. 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 cash generated from operations adjusted for dividends from joint venture undertakings.

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 2017.

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.