Full Year Results 2010

15 March 2011

James Fisher and Sons plc

Full Year Results 2010

James Fisher and Sons plc ("James Fisher"), the leading marine service provider, announces its results for the full year to 31 December 2010.

* before costs of acquisitions and intangible amortisation

Highlights

·; double digit growth in earnings

·; good cash conversion and financial gearing reduced to 85% (2009 : 93%)

·; four bolt-on acquisitions for total consideration of £20.9m

·; robust growth from Specialist Technical increasing profit to £17.6m

·; Offshore Oil seeing increased levels of activity in the UK and Norway

·; 42% profit growth in Defence division

Commenting on the results, Executive Chairman, Tim Harris, said:

"2010 was an encouraging year in which the Group demonstrated good growth, a strong operating cash flow and reduced gearing despite challenging conditions.

Trading to date for 2011 is in line with management expectations. James Fisher has a proven marine service strategy and track record for achieving organic growth, strong cash generation and successfully finding and integrating "bolt-on" acquisitions. It continues to be well placed to provide further growth and value for our shareholders."

For further information

Full year results for the year ended

31 December 2010

Chairman's Statement

Highlights

2010 proved to be a good year for James Fisher with revenue up by 8% to £268.3m, underlying profit1 before tax increased by 9% and underlying diluted earnings per share was up by 13% over the previous year. Cash conversion1 at 116% was particularly strong and by the year end financial gearing was reduced to 85% despite the expenditure of £20.9 m on acquisitions. The final dividend per share has been increased by 10% to 9.7 pence making a total of 14.7 pence for the year.

Statutory profit before tonnage and income tax was £25.9m (2009: £24.7m) and statutory diluted earnings per share was 39.7 pence (2009: 37.0 pence).

Strategy

Since 2002 the Company has been transformed from a traditional coastal shipping company into the UK's leading marine service business. In the last six years revenue has increased by £200m representing a compound annual growth rate of 25%. The strategy which has achieved this has been to concentrate the Company's core expertise of marine engineering and operational skills into growing marine service businesses which are focused on the fast growing global marine markets. These businesses share certain characteristics - they are niche businesses with margins over 10%, pre tax returns on capital in excess of 15% and are strongly cash generative. Initially the emphasis was on acquiring small businesses which met these criteria, but in recent years a significant feature of Fisher's progress has been the strong organic growth that its marine service divisions have been able to achieve. This has come primarily from growth in the emerging markets in the world, particularly in Asia Pacific where the marine service market is vast, fast growing and far from mature. A growing and positive feature of the Company's development is that we are increasingly winning larger projects by drawing on the wider range of complementary skills held within Group companies. In a number of cases Group companies are working closely together in the emerging markets, sharing facilities, technology and marketing resources.

James Fisher's successful record confirms that its marine strategy works. Its strong cash generation suggests that it can continue to grow quickly, making its customary small to medium sized acquisitions from its own resources.

Specialist Technical

2010 underlying profit £17.6m (2009: £16.0m)

Revenue in this division has grown by a compound rate of 65% from £5.8m to £116.6m over the last six years, with the divisional result increasing by 64% compound over the same period to £17.6m in 2010. This is now the Company's largest and most profitable division.

The specialist mooring equipment and ship to ship oil transfer markets remained strong, despite the anticipated decline in the oil contango market in the second half. The markets for the design and application of strain gauges were more mixed, with no signs of recovery in the Middle East but more positive developments elsewhere, including in the marine renewable energy market where our expertise is increasingly recognised. Our nuclear related businesses performed less well than last year. Budgetary uncertainties from Sellafield and other major nuclear sites played a part in this disappointing performance.

During the year we acquired two Australian businesses in Fremantle, Western Australia - Australian Commercial Marine Pty Ltd and Maritime Engineers Pty Ltd for a total consideration of £4.9m. These businesses will serve as an additional "spring board" into the fast growing Australian Pacific market wherein we aim to repeat the success that we have enjoyed from our Singapore base. They are both performing to our expectations at the time of purchase.

A positive feature of the Company's growth is that our individual companies and divisions are increasingly working together, with complementary skills, in developing new markets. The "CALM" buoy project which took place over the year end is a good example where James Fisher Defence and Fendercare worked together on a £2m Ministry of Defence contract to recover a large submarine buoy and related moorings from the seabed off Toulon. Few other marine service companies worldwide possess the subsea diving vessel operating, specialist lifting and project management expertise such an exercise required.

In many ways the Specialist Technical division epitomises James Fishers' marine service skills and what their commercial application in the right markets can achieve. Its growth record from a divisional profit of £0.9m in 2004 to £17.6m in 2010 has been exceptional, particularly because 79% of this has been from organic growth rather than by acquisition. Our strategy will continue to support this success through further investment.

Offshore Oil

2010 underlying profit £10.9m (2009: £12.5m)

The decline in profitability of this division was predominantly in the first half and was well flagged at the half year. Our compressor services have proved their resilience in the period of post credit crunch cutbacks in the oil sector, because their primary focus is on production and maintenance rather than exploration. However, our winch and lifting gear activities are more dependent on the level of expenditure on capital projects which has been lower since 2008. In Aberdeen in 2010 we did not benefit from the significant winch revenue from the renewables sector which we have enjoyed over the previous two years. The Norwegian sector was generally slower and we have had the added disadvantage this year of relocating from three separate sites into our new Dusavika works which are now fully functional These works were refinanced for £17.0m in June 2010 on a 15 year lease agreement based on a yield of c 7.0%.

With the oil price now recovered to 2008 levels, activity is picking up in both the UK and Norwegian sectors of the North Sea and our activities in the new emerging oil markets continue to grow fast and represent a higher proportion of our revenue each year. To support this growth and recovery in our original markets during the year, we purchased GMC Produkt AS for £11.3m in April and RigCool for £4.4m in September. Stavanger based GMC Produkt AS has synergies with our existing Norwegian business and will provide greater scale and product range. Over 50% of RigCool's business, which essentially consists of providing water cooling systems to oil rigs, is in the Asia Pacific region. Its activities are complementary to our existing Scan Tech Air Supply operation with which it is being merged to provide both management and marketing synergies.

Offshore is a sector in which our marine service skills are very relevant and we have done well by building up a strong market presence in certain specialist sectors. We shall continue to provide investment to support growth both organically and by "bolt on" acquisitions.

Defence

2010 underlying profit £5.2m (2009: £3.7m)

The divisional profit of £5.2m was over 40% higher than the equivalent result last year. This encouraging result reflected the world leading position that James Fisher Defence has now reached in the niche business of submarine rescue and related services. It was achieved without the delivery of a major new system, such as to South Korea in 2008 and to Singapore in 2009, but by the success of a significant number of small to medium sized contracts which we won because we are now the acknowledged experts in the field. We also benefited from the operating contracts, such as in Singapore and Australia, that we have won in recent years and which are now performing well both operationally and commercially.

We continue to track a number of major national submarine rescue system contracts but the exact timing of their award will always be difficult to predict. The 2010 result suggests that these major contracts are an opportunity for further incremental profit to supplement the more regular and predictable income stream that we are now achieving.

The recent round of Government expenditure cuts has not so far involved the outsourcing of the remaining specialist ships that the public sector continue to manage. While this seems inevitable in the longer term because the economics are compelling, the timescale and manner in which it will happen remain uncertain. We continue to track the opportunities. In the meantime our joint venture company, Foreland, which has successfully managed the Ministry of Defence's six military roll on roll off ferries since December 2001, continues to perform well in both operational and commercial terms. In February 2011 Foreland paid us an exceptional dividend of £4.0m as against the more usual £1.2m in 2010. However, there remains some uncertainty as to the rate at which two of its vessels, whose charters come up for renewal in 2012, will be fixed.

In short, our submarine rescue and related services represent a real and proven opportunity for further growth on the back of an established world leading expertise. The opportunity for growth from the future outsourcing of public sector vessels is real but much more uncertain although James Fisher, with its marine service skills, is well placed to make the most of opportunities when they occur.

Marine Oil

2010 underlying profit £0.7m (2009: loss of £1.6m)

The return to profit by this division is a step in the right direction but a good deal more remains to be done. The recovery was due to two main features. Firstly, we were better able to match our capacity against demand because we sold one vessel, mt Supremity, in May for slightly more than book value and allowed the bareboat charter to lapse for mt Summity and mt Stability in September 2010, saving £1.8m in annual charter hire. The second factor was a recovery in the market for our smaller vessels which are now trading at pre 2008 levels. For the larger vessels of 6000+ tonnes, there continues to be an excess of supply over demand and consequently historically low freight rates. We have the potential to address this issue when the charters for the larger vessels fall due over the next two years in the light of the market conditions then prevailing.

This division has historically proved a useful source of cash, both from operating cash flow and from the sale of vessels. Our policy is to match the demand of our customers with our fleet capacity which should, in due course, enable us to release more cash and earn profits consistent with those recorded for many years before 2008. Inevitably, given the growth of the Company overall, this division will represent an increasingly smaller proportion of the Group's overall assets employed.

Board and staff

Mike Shields retired as Group Finance Director on 30 November 2010 after over 46 years with the Company. Rightly this feat was acknowledged by the Financial Times as exceptional service and I would like to thank him, both personally and on behalf of the Company, for his great contribution. Stuart Kilpatrick was appointed Group Finance Director on Mike's retirement, after an initial period of five months in which to get to know the Company. Malcolm Paul joined the Board on 1 February 2011 as a non executive director. Malcolm is a Fellow of the Institute of Chartered Accountants and was a founder and finance director of WSP Group plc between 1987 and 2009. I would like to welcome both Stuart and Malcolm to the Board, to which there have been no other changes.

There was a net charge of £9.7m to reserves in respect of pension deficits during the year. This related primarily to the triennial revaluation of the Merchant Navy Officers Pension Fund as noted at the half year, offset by a gain in the second half from a revaluation in pension deficits stemming from higher bond yields and an increase in investment performance.

James Fisher's growth has enabled it to increase its average number of employees by 6% from 1,432 people in 2009 to 1,520 in 2010. Our strong engineering focus means that we are recruiting young qualified graduates directly from university, around 10 in 2010 alone. Providing high value added employment and paying the tax revenues, which sustain Government expenditure, is James Fisher's main corporate responsibility achievement. During 2010 there was no general group pay rise, including directors, and I would like to thank all employees for their contribution in making 2010 a success in quite difficult conditions.

Outlook

2010 proved to be an encouraging year in that the Company was able to demonstrate good growth, a strong cash flow and reduced gearing despite challenging conditions. Recent problems appear to be receding but are not yet eliminated. In particular Marine Oil returned to profit, the North Sea offshore outlook has improved and the tide of increasing pension deficits may have turned.

Specialist Technical remains the Company's largest division and, in some ways, its main engine. The formula and outlook remain unchanged - our aim is further organic growth from businesses with a consistently good track record. There are two notes of caution - in the first half of 2010 we benefited from an exceptionally strong oil contango market which currently does not apply, although our basic ship to ship market remains strong - and there is currently no sign of an uptick for our Nuclear businesses.

For Offshore, an underlying increase in customer activity on both sides of the North Sea is a positive factor which should benefit the year as a whole, although it is uncertain how much of this will fall in the first half. The prospects for further growth in the emerging markets remain good, as this becomes increasingly the larger part of our offshore business.

In our Defence division our submarine rescue services are well placed to grow further based on the sound reputational platform established in recent years. There is also considerable scope for expanding into related submarine fields which are not directly related to submarine rescue. There is little prospect now for profit growth in 2011 from the outsourcing of public sector ship management. This is a longer term prospect, if at all.

The achievement of historic levels of profitability by the Marine Oil division is considered to be realistic but the timing of its achievement will be determined by when the larger tankships market returns to a better balance and market rates recover. This has not yet happened and as always in shipping, it is most difficult to predict accurately its precise timing.

The Company benefits from a strong dollar because of its export focus, so any significant weakening of the US dollar is an adverse factor. We currently have about half of our annual exposure covered at $1.60 to the pound.

Trading to date for 2011 is in line with management expectations. James Fisher has a proven marine service strategy and track record for achieving organic growth, strong cash generation and finding and integrating successfully "bolt on" acquisitions. It continues to be well placed to provide further growth and value for our shareholders.

Tim Harris

Chairman

Responsibility Statement of the Directors in respect of the Annual Financial Report

We confirm that to the best of our 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 of the Company and the undertakings included in the consolidation taken as a whole; and

- the Report of the Directors, Chairman's statement and Review of operations include 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 they face.

T C Harris

Chairman

S C Kilpatrick

Group Finance Director

On behalf of the Board of Directors

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2010

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2010

CONSOLIDATED BALANCE SHEET

As at 31 December 2010

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2010

CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY

For the year ended 31 December 2010

NOTES TO THE PRELIMINARY RESULTS

1. General information

Basis of preparation of group accounts

In accordance with EU law (IAS Regulation EC 1606/2002), the preliminary results have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the EU as at 31 December 2010 (adopted IFRS), International Financial Reporting Interpretations Committee (IFRIC) interpretations and those part of the Companies Act 2006 applicable to companies reporting under IFRS.

The accounting policies are consistent with those presented in the annual report for 2009 with the exception of the new policies given below.

In the current financial year the following new statements have been adopted for the first time;

IFRS 3 (2008) Business combinations

Improvements to IFRS 2009

Amendments to existing standards:

IAS 27 Consolidated and Separate Financial Statements

IFRS 2 Amendment for Group Cash Settled Share Based Payments

Interpretations:

IFRIC 15 Agreements for construction of Real Estate

IFRIC 16 Hedges of a net investment in a foreign operation

IFRIC 17 Distribution of non cash assets to owners

IFRIC 18 Transfers of assets from customers

The adoption of these standards and interpretations had no impact on the Group other than those set out below.

IFRS 3 (2008) Business combinations

The Group is now required to expense to the income statement all direct costs relating to business combinations. Previously these costs were capitalised and included in the calculation of goodwill. This change applies to all acquisitions made on or after 1 January 2010.There is no requirement to apply these changes retrospectively to earlier acquisitions and consequently no restatement is required in respect of earlier acquisitions. The costs charged to the income statement in 2010 in relation to business combinations are treated as separately disclosed items on the face of the consolidated income statement. Contingent consideration is recognised at fair value at the acquisition date. If the contingent consideration is classed as equity it is not remeasured and settlement is accounted for within equity. In all other cases changes in the fair value of contingent consideration are recognised in profit or loss. The impact on earnings per share is disclosed in note 5.

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 financial statements.

The Group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2010 or 2009. Statutory accounts for 2009 have been delivered to the registrar of companies, and those for 2010 will be delivered in due course. The auditors have reported on those accounts; their reports were (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 in respect of the accounts for 2010.

The annual report and accounts for the year ended 31 December 2010 will be posted to shareholders in early April 2011.

The results were approved by the Board of Directors on the 14 March 2011.

Acquisitions

On 1 March 2010 the Group purchased the business and property leases of Australian Commercial Marine Pty Limited (ACM) based in Perth, Australia for £3.4m in cash including costs. ACM provides marine equipment to commercial shipping, port and offshore industries.

On 29 April 2010, GMC Produkt AS (GMC) was acquired for £11.3m inclusive of costs. GMC is based in Stavanger, Norway and provides lifting equipment, cranes, winches, spooling and related services to the local offshore, rig and oilfield service markets.

On 23 September 2010 the Group acquired RigCool Limited, based in Aberdeen, UK and RigCool Australia Pty Limited, based in Perth, Australia for £4.4m including acquisition costs. The RigCool companies test out pumps, high tech nozzles and piping together with manpower support to protect drilling rigs during well testing operations.

On 3 December 2010 the Group acquired Maritime Engineers Pty Limited (Maritime) for £1.5m inclusive of costs. Maritime is a leading marine engineering, consultancy and inspection company providing its services to commercial and naval ships, offshore energy and to the financial services sector.

A summary of the effect of acquisitions is as follows:

Disposals

On 26 June 2010 Scan Tech Eiendom AS ("STE") was sold for £17.0m. STE was a property company which owns the premises occupied under a 15 year lease by the Group's Scan Tech AS business based in Stavanger, Norway.

Taxation

The effective tax rate on profit before tax, intangible amortisation and acquisition costs is 22.7% (2009: 25.5%). Including the impact of intangible amortisation, acquisition costs and grossing up for tax incurred by joint ventures and associates, the overall tax rate was 23.2% (2009: 25.7%).

This lower than standard rate is due to the element of Group profit derived from overseas and the Marine Oil Services business only incurring a nominal levy due to the UK Tonnage Tax regime. There is no provision for deferred tax on accelerated capital allowances for activities which fall within tonnage tax.

Dividends

The Board are recommending a final dividend for the year of 9.7p per share (2009: 8.8p per share), making a total for the year of 14.7p per share (2009: 13.6p per share). This represents an increase of 8% on 2009. The final dividend will be paid on 13 May 2011 to shareholders on the register on 15 April 2011. Dividend cover was 2.8 times (2009: 2.7 times).

Cash Flow and borrowings

The Group is focused on achieving a balance between investing for future growth either organically or from investment in new businesses and maximising its cash generation. Net borrowings increased by £0.8m in the year as £28.1m was generated from operating activities which was utilised on investing activities (£17.8m), interest paid (£4.5m) and dividends to shareholders (£6.9m). At 31 December 2010, the ratio of net borrowings (including guarantees) : earnings before interest, tax, depreciation and amortisation (EBITDA) was 2.5 times (2009: 2.6 times).

Net gearing, the ratio of net debt to equity was 85% (2009: 93%). The majority of James Fisher's borrowing is with a small group of relationship banks that provide bilateral facilities on an unsecured basis over a 3-5 year term. The Group's interest cost increased by £0.8m in the year as the more recently agreed loan facilities bear higher margins than those loans that they have replaced.

At 31 December 2010, the Group had £33.1m (2009: £23.6m) of undrawn facilities which £26.1m (2009: £23.6m) were committed.

Principal Risks and Uncertainties

This section sets out a number of the risks which could affect the business operations and results of the Group.

Reputational risks for operational incidents

The results of the Group are reliant to a degree on the maintenance by the various businesses of high reputations with their customers. The Group places a particular emphasis on the safety and security of operations but notwithstanding this, it is possible that an adverse operational incident may occur, which could in turn damage the Group's reputation.

World Economic Outlook

Demand for the Group's products and services is inevitably a factor of wider economic conditions. During an economic slowdown it is possible that demand for certain products and services provided by the Group may reduce. This risk is mitigated to a degree by the diverse nature of the Group's businesses and its expanding geographical spread. Furthermore the current economic environment may increase the risk that parties with whom the Group trades become unable to meet their commitments to the Group. The Group seeks to manage this risk by performing credit checks and taking third party comfort, including guarantees, where appropriate.

Product Liability

The Group is involved in the design, manufacture and sale or hire of various items such as engineering tools, software and electronics. It is possible that the Group may become liable for losses which are incurred by customers and others in the event that any such product does not meet the agreed specifications or other quality requirements. The Group seeks to limit the impact of this risk through its quality assurance processes by negotiating appropriate limits on its liability to customers and also through its insurance policies.

Integration Benefits

The Group continues to experience growth and development through acquisitions. Integrating the operations and personnel of acquired businesses is a complex process and there is a risk that the anticipated benefits of the acquisition may not be realised in their entirety, or may be realised over a longer time span than originally envisaged. Where appropriate, the Group manages this risk through the formation of an integration committee comprised of senior managers from across the Group with significant experience of the underlying businesses, drawing on external advice and support as appropriate.

Recruitment and retention of talent

The success of the Group is dependent to a significant degree upon the skills and motivation of its workforce, including its senior management team. There is a risk that if the Group loses, or fails to attract personnel of the requisite calibre, that this could have an adverse impact on the performance of the business. The risk is mitigated through the application of appropriate remuneration incentives and the implementation of skills development initiatives, designed to assist in making the Group an attractive environment in which to work.

Legislation and regulation

The businesses conducted by the Group are subject to numerous laws and regulations, both in the United Kingdom and overseas, which regulate matters including safety procedures, employment requirements, taxation, environmental procedures and other operating issues. Failure to comply with such laws and regulations may harm the business or the Group's reputation. The Group draws upon the expertise of various professionals, both within and outside the business, in order to seek to ensure compliance with such provisions.

Competitive pressures

In common with other markets our businesses compete with others on price and service, and these markets are subject to cycles determined by the balance between supply and demand. There exists a risk that over-tonnaging may occur in the shipping markets in which the Marine Oil division operates and given the ease with which, for example, shipping assets may be moved from one geographical market to another, no regional or local market can be totally isolated from the influence of over-tonnaging in other markets should it occur. The global supply of tonnage makes it difficult to predict over-tonnaging in any particular local market with any accuracy. There are however, high barriers of entry to the contract of affreightment business with the oil majors, with vigorous vetting procedures.

Pensions

The Group contributes to a number of defined benefit pension schemes. There is a risk that changes in the market conditions for bond yields and equities and changes in the actuarial assumptions (eg on life expectancy), may result in an increase in the deficits in any of such schemes from time to time. There is further risk that the Group could be obliged to fund additional liabilities of the industry wide schemes, the Merchant Navy Officers Pension Fund and the Merchant Navy Ratings Pension Fund, in addition to the liabilities in respect of its own employees, in relation to any other employee(s) unconnected to the Group whose employer has become insolvent.

Financial

The Group is exposed to interest rate risk and foreign exchange risk which it seeks to manage, where appropriate, via hedging arrangements. Furthermore the loan facilities entered into by the Group include a number of financial covenants. Breach of these covenants would constitute events of default under such facilities which might result in these borrowings becoming immediately repayable. Recent events in the financial markets have demonstrated the risks associated with credit and liquidity. The Group continues to be proactive in managing these risks, both fostering existing and developing new relationships with lenders.

2. Segmental Information

Operating segments

The following tables present revenue and profit and certain asset and liability information regarding the Group's operating segments for the years ended 31 December 2010 and 2009.