Half Year Results 2016

31 August 2016

James Fisher and Sons plc

Half Year Results 2016

James Fisher and Sons plc (FSJ.L) ("James Fisher" or "the Group"), the leading marine service provider, announces its results for the six months ended 30 June 2016.

* underlying profit excludes separately disclosed items.

Highlights:

· Specialist Technical, Marine Support and Tankships performed well, increasing underlying operating profit by 18%;

· Offshore Oil in line with second half of 2015;

· Recent contract wins, Galloper Windfarm, Indian submarine rescue and Winfrith decommissioning progressing well;

· Acquisitions of Lexmar and Hughes since period end;

· Continued strong cash conversion of 102% (2015: 96%);

· Interim dividend increased by 10% to 8.55p per share.

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

"Strong performances in Specialist Technical, Marine Support and Tankships, which together increased underlying operating profit by 18%, offset reduced activity levels in Offshore Oil leaving the first half similar to last year. With new contracts in renewables, defence and nuclear decommissioning contributing fully in the second half and continued firm demand for ship to ship services, we expect to see a resumption of growth in the second half leading to a good improvement in the result for the full year."

For further information:

Chairman's Statement

Half Year Results for the six months ended 30 June 2016

Results

I am pleased to report that in the first half of 2016, James Fisher traded in line with management expectations as outlined in my AGM statement on 28 April with revenue and profit similar to the comparable period last year. This solid start to 2016 gives us confidence that the Group will produce good growth for the year as a whole.

Revenue was slightly lower than last year at £209.3m (2015: £213.1m) reflecting reduced activity levels in Offshore Oil, the cessation of the Angola contract in the second quarter and revenues from our new contract wins only starting to come through. Underlying profit before tax was £17.5m compared with £17.8m last time and underlying diluted earnings per share was 29.4p (2015: 29.5p).

Three of our divisions, Marine Support (+26%), Specialist Technical (+9%) and Tankships (+15%) showed strong profit growth with our new contracts in renewables, defence and nuclear beginning to contribute from the second quarter and Marine Support benefitting from strong demand in the ship to ship (STS) transfer market.

Offshore Oil, by contrast, continued to face tough trading conditions with a result similar to that seen in the second half of 2015 but sharply lower compared to last year's first half which had not seen the full impact of the industry downturn. Demand in our Offshore Oil markets appears to have stabilised but at the low levels experienced since the middle of last year.

Strategic Developments

James Fisher continues to pursue a consistent strategy of investing in niche businesses operating in demanding environments where strong marine service and specialist engineering skills are valued and rewarded. Whilst organic growth has driven the majority of James Fisher's development in recent years, the Group continues to be alert for incremental acquisition opportunities which will strengthen our range of products, services or geographical coverage.

During the last month, we have announced two bolt-on acquisitions. Lexmar, based in Singapore, has joined our JFD business within Specialist Technical, helping to build our regional presence and hyperbaric engineering capability in the growing Asia Pacific market. Hughes Engineering Services Limited has built a strong presence in the UK offshore renewables market in recent years. Hughes will further strengthen our ability to integrate multiple services into single source contracts for this developing sector.

James Fisher is well placed to face the uncertainties created by the 23 June 2016 Brexit referendum result. The Group trades relatively little with the European Union being focused, outside the UK, on the growth markets of Asia Pacific, South America, Middle East and Africa. A substantial part of the Group's revenues are dollar based bringing at least a short term benefit from any fall in the value of Sterling.

Outlook 

With the STS market firm and the recently announced Galloper project commencing, our Marine Support division is performing well. In Specialist Technical, our defence and nuclear businesses are gaining momentum as the Indian submarine rescue and Winfrith decommissioning contracts are mobilised. Tankships continue their excellent track record. In Offshore Oil, it is too early to look for recovery but our businesses in the division do appear to have stabilised, albeit at a low level. Looking forward, we therefore expect to see a resumption of growth for the Group in the second half leading to a good improvement in the result for the full year.

Dividend

The Board believes that James Fisher remains well placed to provide further growth and value for its shareholders. The Board has agreed a 10% increase in the interim dividend to 8.55p per share (2015: 7.80p) payable on 4 November 2016 to shareholders on the register on 7 October 2016.

C J Rice

30 August 2016

Operating and Financial Review

Half Year Results for the six months ended 30 June 2016

Business Model

The Group's business model is based on high quality niche businesses offering a range of marine services predominantly to large multinational customers and governments globally. Our businesses are linked together by a set of common marine service skills. We operate a decentralised management structure which encourages timely decision making but with the benefit of the support and resources of a larger group.

Results

Revenue was 2% lower at £209.3m (2015: £213.1m) for the six months ended 30 June 2016. Offshore Oil was similar to the second half of 2015 but lower than its first half comparator. The cessation of a significant contract in the first quarter of 2016, masked strong underlying sales growth in Marine Support. The benefit to revenue of more favourable exchange rates compared to prior year was £4.6m (2015: £3.8m).

Underlying operating profit was £19.9m (2015: £20.0m) as a lower result in Offshore Oil was offset by strong financial performance in the other three divisions. With net finance charges £0.2m higher, underlying profit before tax was £17.5m (2015: £17.8m). The currency benefit to underlying operating profit was £1.2m (2015: £0.9m).

Cash conversion remained strong at 102% (2015: 96%) and net borrowings were slightly higher than prior year at £105.5m (2015: £103.6m). Balance sheet gearing reduced to 46% (2015: 50%).

Marine Support

Revenue in Marine Support was 6% higher as strong growth in ship to ship transfers and currency benefits more than offset reduced revenue in the second quarter following the cessation of our contract in Angola for mooring and diving services in March 2016. Discussions with our customer in Angola are ongoing and costs incurred in connection with the cessation of the contract are expected to be recovered.

Underlying operating profit was 26% ahead of the first half of 2015 following an 18% increase in ship to ship transfers in the period with strong performance in Asia Pacific and Africa. Contributions from businesses acquired in 2015 and weaker Sterling compared to the US Dollar benefitted the first half result and offset a decline in project related income which is more weighted to the second half of this year.

In February 2016, the Group was awarded a marine services and support contract worth in excess of £25m in relation to the construction of the Galloper windfarm. The Group is providing a wide range of marine services including unexploded ordinance identification and disposal, vessel refuelling, crew transfer and diving together with our Offshore Wind Management System. This provides real-time data covering a wide range of offshore wind farm activities from vessel motion monitoring and crew tracking to turbine structural monitoring and tracking of strategic spares. The modular system enables efficient management and improved personnel safety during vessel transfers, reduces costs and captures historic data for analysis and to support future operational predictions.

In August 2016, the Group acquired Hughes Sub Surface Engineering Limited ("Hughes") for an initial consideration of £9.0m. Hughes was founded in Liverpool in 2005 to provide commercial diving and civil engineering services to underwater projects. The business operates in the marine renewables, power generation, oil and gas, and inshore civil engineering sectors and further strengthens our renewables service offering.

Offshore Oil

Whilst a disappointing result compared to the first half of 2015, revenue and underlying operating profit were in line with the second half of last year. The division continued to experience a lack of activity with ongoing deferment of maintenance work. Scan Tech AS, our Norwegian business, has experienced the toughest market conditions with revenue 55% lower than in the first half of 2015. The rest of the division was only 11% lower by comparison.

Gross margins, which held up in 2015, were similar to prior comparator confirming the niche position of the businesses. Overheads were £2.0m lower than the comparative period following cost reductions made in 2015. Our businesses remain well placed to benefit from any recovery in maintenance and repair expenditure although indications of any significant recovery in the sector have yet to emerge.

Specialist Technical

Specialist Technical increased underlying operating profit by 9% on a similar level of revenue. Project revenue was lower as the significant contract to build two rescue submarines for the Indian Navy only commenced in the second quarter whereas the prior comparative included two large saturation diving contracts. Commercial diving equipment sales were strong and nuclear decommissioning revenue increased by 11%. The contract to decommission the core reactor at Winfrith, which is worth £60m over a four year period, commenced in May 2016.

On 1 August 2016, the Group acquired Lexmar Engineering Pte Limited and Lexmar Sat Systems Pte Limited (together "Lexmar"). This specialist provider of diving equipment will enhance JFD's saturation diving offering to the Asia Pacific region. Lexmar is currently completing three 18 man twin bell saturation diving systems. They are currently in the process of undertaking installation and commissioning in China and will complete and commission the third system in Singapore in the first half of 2017.

Tankships

Our Tankships division continued to trade well and increased underlying operating profit by £0.5m in the period. Vessel utilisation was maintained at prior year levels and the division benefitted from improved spot cargo rates. A charter for two of its vessels has been extended for a further eighteen months to November 2017.

Finance

Interest and taxation

Net interest was £0.2m higher at £2.4m (2015: £2.2m) partly due to increased borrowings and due to a £0.1m increase in notional charges on legacy defined benefit pension schemes.

The effective tax rate on underlying profit before tax in the period was similar to prior period at 15.4% (2015: 15.3%). This rate is based on estimated profits for the full year and reflects the impact of lower UK rates, the benefit from profits within its tanker operations not being subject to corporation tax and from conservative provisioning in previous years.

Separately disclosed items and earnings per share

In order better to present the underlying performance of the Group, items are consistently disclosed separately which include costs incurred in making a business acquisition, the amortisation of intangible assets arising from a business acquisition and adjustments to provisions for contingent consideration. The net charge in the six months ended 30 June 2016 was £0.1m (2015: credit of £0.1m).

Underlying diluted earnings per share was similar to last year at 29.4 pence per share (2015: 29.5p). Diluted earnings per share after separately disclosed items are taken into account were also 29.4 pence per share (2015: 30.0p).

Cash flow and borrowings

Pensions

The majority of the Group's pension arrangements are defined contribution arrangements where the company's liability is limited to the contributions it agrees on behalf of each employee. As a consequence of its history in the shipping industry, the Group is required to contribute to industry-wide Merchant Navy Pension Funds and has its own legacy defined benefit scheme. Total defined benefit pension deficits at 30 June 2016 were £26.4m (2015: £20.5m) which was marginally lower than as at 31 December 2015 when the Group recognised the Merchant Navy Ratings scheme liability. The pension scheme valuations were updated to 30 June 2016 following the Brexit vote reflecting any changes to long term interest rates. As a result the deficit increased by £0.7m.

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 2015 Annual Report and Accounts on pages 10-11. In addition, the Directors have considered the impact of the UK's vote to leave the European Union and as referred to in the Chairman's Statement, do not consider this will materially impact the Group's viability.

The principal risks set out in the 2015 Annual Report and Accounts were:

· Strategic - energy markets, operations in emerging markets;

· Operational - project delivery, recruitment and retention of key staff, reputational risk and cyber security;

· Financial - foreign currency and interest rates.

The Directors consider that the principal risks and uncertainties set out in the 2015 Annual Report and Accounts have not changed and remain relevant for the second half of the financial year.

Directors' Responsibilities

We confirm to the best of our knowledge:

The interim financial report has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union.

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.

30 August 2016

CONDENSED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 June 2016

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2016

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 June 2016

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six months ended 30 June 2016

CONDENSED CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY

for the six months ended 30 June 2016

NOTES TO THE CONDENSED CONSOLIDATED HALF YEAR STATEMENTS

1 Basis of preparation

James Fisher and Sons plc ("the Company") is a limited liability company incorporated and domiciled in the United Kingdom, whose shares are listed on the London Stock Exchange. The condensed consolidated half year financial statements of the Company for the six months ended 30 June 2016 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") ("adopted IFRS"). 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 2015 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 2015.

The comparative figures for the financial year ended 31 December 2015 are not the Group's statutory accounts for that financial year. Those accounts which were prepared under adopted IFRS, have been reported on by the Group's auditor and delivered to the Registrar of Companies. The report of the auditor 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 consolidated financial statements of the Group for the year ended 31 December 2015 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.com.

The half year report is presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except where otherwise indicated and was approved for issue by the Board of Directors on 30 August 2016.

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. Movements on the Group's overall net debt position are shown in note 7. The Group had £19.1m of undrawn committed facilities at 30 June 2016. On 27 July 2016 one of the Group's revolving credit facilities was increased from £20m to £30m.

At 30 June 2016, the Group had one revolving credit facility that is due for renewal in the next twelve months. The Group had £10.7m outstanding balances drawn down on this facility at 30 June 2016. Renewal negotiations will be commenced with the bank in due course and the Group has not sought any written commitment that the facilities will be renewed. However, the Group has held discussions with its bankers about its future borrowing needs and no matters have been drawn to its attention to suggest the renewals will not be forthcoming on acceptable terms.

Significant accounting policies

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 2015.

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 and for the year ended 31 December 2015.

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 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 or property. 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 minority 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 9.

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 rate by the underlying operating profit, divided by average capital employed.

4 Segmental information

Management has determined the operating segments based on the reports reviewed by the Board that are utilised to make strategic decisions. The Board considers the business primarily from the products and services perspective and has four reportable segments;

Marine Support - includes the hire and sale of large scale pneumatic fenders and ship to ship transfer services, and the design and supply of systems for monitoring strains and stress in structures.

Offshore Oil - manufacture and rental of equipment for the offshore oil and gas industry and the design and manufacture of specialist downhole tools and equipment for extracting oil.

Specialist Technical - provision of subsea services including submarine rescue and saturation diving including maintenance, asset management and consultancy services and non-destructive testing, decommissioning and remote operations and monitoring service predominantly to the nuclear industry.

Tankships - engaged in the sea transportation of clean petroleum products in North West Europe.

The Board assesses the performance of the segments based on operating profit before central common costs and acquisition related income and expenses but after the Group's share of the post tax results of associates and joint ventures. 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.