Half Year Results 2016

RNS Number : 4760I

Fisher (James) & Sons plc

31 August 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.

	H1 2016	H1 2015
Group revenue	£209.3m	£213.1m
Underlying operating profit *	£19.9m	£20.0m
Underlying profit before tax *	£17.5m	£17.8m
Underlying diluted earnings per share *	29.4p	29.5p
Interim dividend per share	8.55p	7.80p
Statutory profit before tax	£17.4m	£17.9m
Statutory diluted earnings per share	29.4p	30.0p

* 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:

James Fisher and Sons plc	Nick Henry Stuart Kilpatrick	Chief Executive Officer Group Finance Director	020 7614 9508
FTI Consulting	Susanne Yule Richard Mountain		020 3727 1340

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

	H1 2016	H1 2015
Revenue (£m)	92.4	87.2
Underlying operating profit (£m)	9.3	7.4
Underlying operating margin	10.1%	8.5%
Return on capital employed	13.6%	13.4%

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

	H1 2016	H1 2015
Revenue (£m)	27.0	36.1
Underlying operating profit (£m)	2.1	5.3
Underlying operating margin	7.8%	14.7%
Return on capital employed	3.3%	8.7%

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

	H1 2016	H1 2015
Revenue (£m)	62.9	63.7
Underlying operating profit (£m)	6.1	5.6
Underlying operating margin	9.7%	8.8%
Return on capital employed	15.6%	16.6%

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

	H1 2016	H1 2015
Revenue (£m)	27.0	26.1
Underlying operating profit (£m)	3.8	3.3
Underlying operating margin	14.1%	12.6%
Return on capital employed	28.3%	27.0%

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

Summary cash flow			Cash conversion, the ratio of operating cash flow to underlying operating profit was 102% (2015: 96%). Working capital cash out flow was £10.1m as the timing of project related cashflows and seasonal working capital of £8.9m more than offset the unwind of debtor positions at 31 December 2015. Capital expenditure was 31% lower at £8.6m (2015: £12.4m) and £7.7m (2015: £30.2m) was spent on business acquisitions which includes £5.8m paid for the third party interest in Fendercare Nigeria which was effectively acquired in November 2015. The net outflow in the period was £11.6m (2015: £41.3m) and as a result net borrowings were £1.9m higher than at 30 June 2015. The ratio of net borrowings (which includes an increased level of project related bonding) to Ebitda was 1.8 times (2015: 1.5 times). Net gearing, the ratio of net debt to equity, reduced to 46% (2015: 50%).
	H1 2016	H1 2015
	£m	£m
Underlying operating profit	19.9	20.0
Depreciation & amortisation	12.1	12.2
Ebitda *	32.0	32.2
Working capital	(10.1)	(12.0)
Pension / other	(1.7)	(1.0)
Operating cash flow	20.2	19.2
Interest & tax	(5.1)	(7.4)
Capital expenditure	(8.6)	(12.4)
Acquisitions	(7.7)	(30.2)
Dividends	(8.0)	(7.5)
Other	(2.4)	(3.0)
Net outflow	(11.6)	(41.3)
Net borrowings at start of period	(93.9)	(62.3)
Net borrowings at end of period	(105.5)	(103.6)
* Underlying earnings before interest, tax,   depreciation and amortisation

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

	30 June 2016	30 June 2015	Intangible assets have increased by £11.4m since June 2015 reflecting the acquisitions made in the last year and the impact of weaker Sterling.  Working capital was £11.9m higher mainly due to increased project working capital and the ratio of working capital to sales was 16% at 30 June 2016 (2015: 14%). Following the Brexit vote on 23 June 2016, Sterling weakened by 10% against the US Dollar, which is the main currency pairing that impacts the Group. There was little net impact on net assets as the Group seeks to match its US Dollar cash and working capital assets with US Dollar denominated borrowings.
	£m	£m
Intangible assets	163.8	152.4
Other assets	135.7	139.2
Working capital	75.3	63.4
Other liabilities	(38.7)	(42.2)
Capital employed	336.1	312.8
Borrowings	105.5	103.6
Equity	230.6	209.2
	336.1	312.8

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.

N P Henry	S C Kilpatrick
Chief Executive Officer	Group Finance Director

30 August 2016

CONDENSED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 June 2016

	Note		Six months ended 30 June 2016		Six months ended 30 June 2015		Year ended 31 December 2015
			£000		£000		£000
Group revenue		4	209,317		213,061		437,930
Cost of sales			(144,999)		(148,713)		(307,208)
Gross profit			64,318		64,348		130,722
Administrative expenses			(45,083)		(44,320)		(85,219)
Share of post tax results of joint ventures			647		(66)		87
Acquisition related (expense)/income		5	(83)		93		5,926
Operating profit		4	19,799		20,055		51,516
Analysis of operating profit:
Underlying operating profit			19,882		19,962		45,590
Separately disclosed items			(83)		93		5,926
Loss on sale of business			-		-		(959)
Net finance expense			(2,421)		(2,194)		(4,343)
Profit before taxation			17,378		17,861		46,214
Analysis of profit before tax:
Underlying profit before taxation			17,461		17,768		41,247
Separately disclosed items			(83)		93		4,967
Income tax		8	(2,567)		(2,609)		(5,507)
Profit for the period			14,811		15,252		40,707
Attributable to:
Owners of the Company			14,835		15,098		39,885
Non controlling interests			(24)		154		822
			14,811		15,252		40,707
Earnings per share
			pence		pence		pence
Basic		9	29.6		30.2		79.7
Diluted		9	29.4		30.0		79.2

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2016

		2016		2015		2015
	Six months ended		Six months ended		Year ended
		30 June		30 June	31 December
		£000		£000		£000
Profit for the period		14,811		15,252		40,707
Items that will not be reclassified to income statement
Remeasurement loss on defined benefit plan liabilities		-		-		(8,596)
Actuarial (loss)/gain in defined benefit pension schemes		(697)		-		813
Income tax on items that will not be reclassified		(553)		(415)		1,635
		(1,250)		(415)		(6,148)
Items that may be reclassified subsequently to income statement
Exchange differences on foreign currency net investment		7,158		(4,356)		(4,587)
Effective portion of changes in fair value of cash flow hedges		(2,783)		2,039		836
Effective portion of changes in fair value of cash flow hedges in joint ventures		(213)		243		354
Net change in fair value of cash flow hedges transferred to income statement		(6)		168		77
Income tax on items that may be reclassified		488		-		(220)
Other comprehensive income for the period, net of income tax		4,644		(1,906)		(3,540)
		3,394		(2,321)		(9,688)
Total comprehensive income for the period		18,205		12,931		31,019
Attributable to:
Owners of the Company		18,062		12,783		30,067
Non controlling interests		143		148		952
		18,205		12,931		31,019

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 June 2016

		2016		2015		2015
		30 June		30 June	31 December
	Note	£000		£000		£000
Assets
Non current assets
Goodwill		147,832		135,949		140,414
Other intangible assets		15,979		16,455		16,041
Property, plant and equipment		128,191		128,525		127,594
Investment in joint ventures		6,031		9,141		6,250
Available for sale financial assets		1,478		1,478		1,478
Deferred tax assets		3,588		2,203		3,189
		303,099		293,751		294,966
Current assets
Inventories		49,786		47,381		47,436
Trade and other receivables		150,029		127,759		141,734
Derivative financial instruments		-		1,558		2
Cash and short term deposits	7	29,720		28,071		22,962
		229,535		204,769		212,134
Total assets		532,634		498,520		507,100
Equity and liabilities
Capital and reserves
Called up share capital		12,543		12,541		12,541
Share premium		25,573		25,525		25,525
Treasury shares		(610)		(442)		(1,613)
Other reserves		(6,877)		(9,584)		(11,354)
Retained earnings		197,422		179,551		192,908
Shareholders' equity		228,051		207,591		218,007
Non controlling interests		2,531		1,584		2,388
Total equity		230,582		209,175		220,395
Non current liabilities
Other payables		9,141		14,981		8,728
Retirement benefit obligations	6	26,416		20,511		26,956
Cumulative preference shares		100		100		100
Loans and borrowings		124,345		113,600		116,645
Deferred tax liabilities		153		545		153
		160,155		149,737		152,582
Current liabilities
Trade and other payables		120,112		112,418		125,381
Current tax		6,515		7,846		7,190
Derivative financial instruments		4,470		1,333		1,446
Loans and borrowings		10,800		18,011		106
		141,897		139,608		134,123
Total liabilities		302,052		289,345		286,705
Total equity and liabilities		532,634		498,520		507,100

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six months ended 30 June 2016

		2016		2015		2015
	Note	Six months ended	Six months ended			Year ended
		30 June		30 June	31 December
		£000		£000		£000
Profit before taxation		17,378		17,861		46,214
Adjustments to reconcile profit before tax to net cash flows
Depreciation and amortisation		12,647		12,745		24,442
Acquisition costs charge		60		721		1,355
Profit on sale of property, plant and equipment		(61)		(160)		(418)
Loss on sale of business		-		-		959
Adjustment to provision for contingent consideration		(522)		(1,330)		(8,491)
Net finance expense		2,421		2,194		4,343
Share of profits of joint ventures		(647)		66		(87)
Share based compensation		577		426		214
Increase in trade and other receivables		(4,177)		(674)		(19,911)
Decrease/(increase) in inventories		41		(6,164)		(6,073)
(Decrease)/increase in trade and other payables		(5,962)		(5,179)		3,095
Defined benefit pension cash contributions less service cost		(1,691)		(1,756)		(3,494)
Cash generated from operations		20,064		18,750		42,148
Cash outflow from acquisition costs		-		(748)		(1,325)
Income tax payments		(3,376)		(5,702)		(8,828)
Net cash from operating activities		16,688		12,300		31,995
Investing activities
Dividends from joint venture undertakings		172		65		1,089
Proceeds from the sale of property, plant and equipment		724		1,499		2,208
Finance income		87		91		236
Acquisition of subsidiaries, net of cash acquired		(7,689)		(27,653)		(25,933)
Acquisition of property, plant and equipment		(7,964)		(12,707)		(19,597)
Development expenditure		(1,376)		(1,042)		(2,704)
Net cash used in investing activities		(16,046)		(39,747)		(44,701)
Financing activities
Proceeds from the issue of share capital		49		303		303
Finance costs		(1,815)		(1,734)		(3,603)
Purchase of own shares by Employee Share Ownership Trust		(635)		(1,376)		(2,590)
Capital element of finance lease repayments		(81)		(56)		(102)
Proceeds from other non-current borrowings		16,460		48,209		35,807
Dividends paid		(8,026)		(7,463)		(11,364)
Net cash from financing activities		5,952		37,883		18,451
Net increase in cash and cash equivalents		6,594		10,436		5,745
Cash and cash equivalents at beginning of period		22,962		17,719		17,719
Exchange movement		164		(84)		(502)
Cash and cash equivalents at end of period	7	29,720		28,071		22,962

CONDENSED CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY

for the six months ended 30 June 2016

	Capital				Attributable to equity holders of parent
	Share capital	Share premium		Retained earnings			Other reserves		Treasury shares	Total shareholders equity		Non controlling interests		Total equity
	£000		£000		£000		£000		£000		£000		£000		£000
At 1 January 2016	12,541		25,525		192,908		(11,354)		(1,613)		218,007		2,388		220,395
Total comprehensive income for the period	-		-		13,585		4,477		-		18,062		143		18,205
Contributions by and distributions to owners
Ordinary dividends paid	-		-		(8,026)		-		-		(8,026)		-		(8,026)
Share-based compensation expense	-		-		577		-		-		577		-		577
Tax effect of share based compensation	-		-		16		-		-		16		-		16
Purchase of shares	-		-		-		-		(1,153)		(1,153)		-		(1,153)
Sale of shares	-		-		-		-		518		518		-		518
Arising on the issue of shares	2		48		-		-		-		50		-		50
	2		48		(7,433)		-		(635)		(8,018)		-		(8,018)
Transfer on disposal of shares	-		-		(1,638)		-		1,638		-		-		-
At 30 June 2016	12,543		25,573		197,422		(6,877)		(610)		228,051		2,531		230,582
At 1 January 2015	12,525		25,238		174,663		(7,684)		(1,988)		202,754		1,436		204,190
Total comprehensive income  for the period	-		-		14,683		(1,900)		-		12,783		148		12,931
Contributions by and distributions to owners
Ordinary dividends paid	-		-		(7,463)		-		-		(7,463)		-		(7,463)
Share-based compensation expense	-		-		426		-		-		426		-		426
Tax effect of share based compensation	-		-		164		-		-		164		-		164
Purchase of shares	-		-		-		-		(1,535)		(1,535)		-		(1,535)
Sale of shares	-		-		-		-		159		159		-		159
Arising on the issue of shares	16		287		-		-		-		303		-		303
	16		287		(6,873)		-		(1,376)		(7,946)		-		(7,946)
Transfer on disposal of shares	-		-		(2,922)		-		2,922		-		-		-
At 30 June 2015	12,541		25,525		179,551		(9,584)		(442)		207,591		1,584		209,175

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.

		2016 Six months ended 30 June		2015 Six months ended 30 June		2015 Year ended 31 December
		£000		£000		£000
Operating profit		19,799		20,055		51,516
Separately disclosed items before taxation		83		(93)		(5,926)
Underlying operating profit		19,882		19,962		45,590
Net finance expense		(2,421)		(2,194)		(4,343)
Underlying profit before taxation		17,461		17,768		41,247

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.

Six months ended 30 June 2016
		Marine		Offshore		Specialist		Tankships		Corporate		Total
		Support		Oil		Technical
		£000		£000		£000		£000		£000		£000
Revenue
Segmental revenue		92,600		27,082		63,441		26,991		-		210,114
Inter segment sales		(161)		(102)		(525)		(9)		-		(797)
Group revenue		92,439		26,980		62,916		26,982		-		209,317
Underlying operating profit		9,313		2,089		6,149		3,759		(1,428)		19,882
Acquisition expenses		-		-		-		-		(60)		(60)
Adjustment to provision for contingent consideration		-		-		522		-		-		522
Amortisation of acquired intangibles		(192)		-		(353)		-		-		(545)
Operating profit		9,121		2,089		6,318		3,759		(1,488)		19,799
Net finance expense												(2,421)
Profit before tax												17,378
Income tax												(2,567)
Profit for the period												14,811
Assets & liabilities
Segment assets	204,243			134,062	109,756			33,073		45,469		526,603
Investment in joint ventures		3,380		-		2,651		-		-		6,031
Total assets	207,623			134,062	112,407			33,073		45,469		532,634
Segment liabilities		(68,877)		(8,169)		(36,308)		(6,549)		(182,149)		(302,052)
		138,746		125,893		76,099		26,524		(136,680)		230,582
Other segment information
Capital expenditure		2,687		2,969		918		1,143		95		7,812
Depreciation and amortisation		3,490		5,463		1,780		1,652		262		12,647

Six months ended 30 June 2015
		Marine		Offshore		Specialist		Tankships		Corporate		Total
		Support		Oil		Technical
		£000		£000		£000		£000		£000		£000
Revenue
Segmental revenue		88,327		36,869		64,243		26,088		-		215,527
Inter segment sales		(1,154)		(731)		(554)		(27)		-		(2,466)
Group revenue		87,173		36,138		63,689		26,061		-		213,061
Underlying operating profit		7,400		5,347		5,595		3,256		(1,636)		19,962
Acquisition expenses		(270)		-		(451)		-		-		(721)
Adjustment to provision for contingent consideration		-		-		-		-		1,330		1,330
Amortisation of acquired intangibles		(158)		(41)		(317)		-		-		(516)
Operating profit		6,972		5,306		4,827		3,256		(306)		20,055
Net finance expense												(2,194)
Profit before tax												17,861
Income tax												(2,609)
Profit for the period												15,252
Assets & liabilities
Segment assets		176,585		136,177	100,714			33,732		42,171		489,379
Investment in joint ventures		6,685		-		2,456		-		-		9,141
Total assets	183,270			136,177	103,170			33,732		42,171		498,520
Segment liabilities		(49,115)		(13,082)		(32,638)		(9,672)		(184,838)		(289,345)
		134,155		123,095		70,532		24,060		(142,667)		209,175
Other segment information
Capital expenditure		5,838		4,922		528		1,053		366		12,707
Depreciation and amortisation		3,447		5,661		1,761		1,656		220		12,745

Year ended 31 December 2015
		Marine		Offshore		Specialist		Tankships		Corporate		Total
		Support		Oil		Technical
		£000		£000		£000		£000		£000		£000
Revenue
Segmental revenue	194,389			63,742	130,293			52,627		-		441,051
Inter segment sales		(1,411)		(786)		(850)		(74)		-		(3,121)
Group revenue	192,978			62,956	129,443			52,553		-		437,930
Underlying operating profit		19,352		7,399		13,907		7,164		(2,232)		45,590
Acquisition expenses		(904)		-		(451)		-		-		(1,355)
Adjustment to provision for contingent consideration		4,998		-		3,494		-		-		8,492
Amortisation of acquired intangibles		(397)		(45)		(769)		-		-		(1,211)
Operating profit		23,049		7,354		16,181		7,164		(2,232)		51,516
Loss on sale of business		(393)		(566)								(959)
Net finance expense												(4,343)
Profit before tax												46,214
Income tax												(5,507)
Profit for the year												40,707
Assets & liabilities
Segment assets	202,612			126,405	100,480			32,898		38,455		500,850
Investment in joint ventures		4,023		-		2,227		-		-		6,250
Total assets	206,635			126,405	102,707			32,898		38,455		507,100
Segment liabilities		(66,346)		(8,300)		(41,881)		(6,441)		(163,737)		(286,705)
		140,289		118,105		60,826		26,457		(125,282)		220,395
Other segment information
Capital expenditure		7,221		7,898		2,324		1,629		525		19,597
Depreciation and amortisation		6,708		10,812		3,174		3,294		454		24,442

5          Separately disclosed items

	2016		2015		2015
Six months ended		Six months ended			Year ended
	30 June		30 June		31 December
	£000		£000		£000
Included in operating profit:
Acquisition costs	(60)		(721)		(1,355)
Amortisation of acquired intangibles	(545)		(516)		(1,210)
Adjustment to provision for contingent consideration	522		1,330		8,491
Acquisition related (expense) and income	(83)		93		5,926
Loss on disposal of business	-		-		(959)
Separately disclosed items before taxation	(83)		93		4,967
Tax on separately disclosed items	117		111		396
	34		204		5,363

            In order for a better understanding of underlying performance acquisition costs have been disclosed separately, together with the amortisation of intangible assets which arise on the acquisition of businesses.  The adjustment to the provision for contingent consideration of £0.5m relates to the acquisition of Divex Limited (now JFD Limited) on 6 March 2013.  Contingent consideration was based on the future contract wins and a share of related profits.

6          Retirement benefit obligations

Movements during the period in the Group's defined benefit pension schemes are set out below:

	2016		2015		2015
Six months ended		Six months ended			Year ended
	30 June		30 June		31 December
	£000		£000		£000
As at 1 January	(26,956)		(21,806)		(21,806)
Expense recognised in the income statement	(507)		(449)		(882)
Contributions paid to scheme	1,744		1,744		3,515
Remeasurement gains and losses	(697)		-		(7,783)
At period end	(26,416)		(20,511)		(26,956)
The Group's net liabilities in respect of its pension schemes at 30 June 2016 were as follows:
	2016		2015		2015
Six months ended		Six months ended			Year ended
	30 June		30 June		31 December
	£000		£000		£000
Shore Staff	(8,498)		(9,970)		(8,630)
Merchant Navy Officers Pension Fund	(9,163)		(10,541)		(9,730)
Merchant Navy Ratings Pension Fund	(8,755)		-		(8,596)
	(26,416)		(20,511)		(26,956)

The principal assumptions in respect of these liabilities are disclosed in the December 2015 Annual Report.  These assumptions have been updated to 30 June 2016.

7          Reconciliation of net debt

		1 January		Cash		Other		Exchange		30 June
		2016		flow	non cash			movement		2016
		£000		£000		£000		£000		£000
Cash and cash equivalents		22,962		6,594		-		164		29,720
Debt due after 1 year		(116,650)		(5,724)		(125)		(1,873)		(124,372)
Debt due within 1 year		-		(10,736)		-		-		(10,736)
Finance leases		(201)		81		-		(17)		(137)
Net debt		(93,889)		(9,785)		(125)		(1,726)		(105,525)
		1 January		Cash		Other		Exchange		30 June
		2015		flow	non cash			movement		2015
		£000		£000		£000		£000		£000
Cash and cash equivalents		17,719		10,436		-		(84)		28,071
Debt due after 1 year		(79,965)		(30,388)		(932)		(2,326)		(113,611)
Debt due within 1 year		-		(17,821)		-		-		(17,821)
Finance leases		(88)		56		(247)		-		(279)
Net debt		(62,334)		(37,717)		(1,179)		(2,410)		(103,640)
		1 January		Cash		Other		Exchange	31 December
		2015		flow	non cash			movement		2015
		£000		£000		£000		£000		£000
Cash and cash equivalents		17,719		5,745		-		(502)		22,962
Debt due after 1 year		(79,965)		(35,807)		1,276		(2,154)		(116,650)
Finance leases		(88)		102		(247)		32		(201)
Net debt		(62,334)		(29,960)		1,029		(2,624)		(93,889)

8          Taxation

            The effective rate on profit before income tax from continuing operations is 14.8% (30 June 2015: 15.8%, 31 December 2015: 11.9%).  This is based on the estimated effective tax rate for the year to 31 December 2016. Of the total tax charge, £1.5m relates to overseas businesses (30 June 2015: £1.0m). The effective income tax rate on underlying profit before income tax, based on an estimated rate for the year ending 31 December 2016, in the period is 15.4% (30 June 2015: 15.3%, 31 December 2015: 14.3%).

9          Earnings per share

            Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, after excluding ordinary shares held by the James Fisher and Sons plc Employee Share Ownership Trust as treasury shares.

            Diluted earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

            The calculation of basic and diluted earnings per share is based on the following profits and numbers of shares:

            Weighted average number of shares

		30 June 2016		30 June 2015	31 December 2015
		Number of		Number of		Number of
		shares		shares		shares
For basic earnings per ordinary share*		50,066,388		50,022,223		50,040,647
Exercise of share options and LTIPs		332,104		385,989		344,743
For diluted earnings per ordinary share		50,398,492		50,408,212		50,385,390

*     Excludes 46,619 (June 2015: 34,037; December 2015: 148,275) shares owned by the James Fisher and Sons plc Employee Share Ownership Trust.

            To provide a better understanding of the underlying performance of the Group, an adjusted earnings per share on continuing activities is provided.  Adjusted earnings are before the costs of any business combinations and amortisation of acquired intangibles.   

					2016		2015		2015
					Six months ended	Six months ended		Year ended
					30 June		30 June	31 December
					£000		£000		£000
Profit attributable to owners of the Company					14,835		15,098		39,885
Separately disclosed items					83		(93)		(4,967)
Attributable tax					(117)		(111)		(396)
Adjusted profit attributable to owners of the Company					14,801		14,894		34,522
Basic earnings per share on profit from operations					29.6		30.2		79.7
Diluted earnings per share on profit from operations					29.4		30.0		79.2
Adjusted basic earnings per share on profit from operations					29.6		29.8		69.0
Adjusted diluted earnings per share on profit from operations					29.4		29.5		68.5

10         Interim dividend

            The proposed interim dividend of 8.55p (2015: 7.80p) per 25p ordinary share is payable on 4 November 2016 to those shareholders on the register of the Company at the close of business on 7 October 2016. The dividend recognised in the Statement of Movements in Equity is the final dividend for 2015 of 16.00p paid on 6 May 2016. The proposed interim dividend has not been recognised in this report.

11        Commitments and contingencies

            Commitments and contingencies are as set out in the 2015 Annual Report other than for the following changes.  At 30 June 2016 the Group had capital commitments of £1.6m (2015: £1.0m) and the Group had issued performance and payment guarantees to third parties for a total value of £16.9m (30 June 2015: £5.9m, 31 December 2015: £5.9m).

12        Related parties

There have been no significant changes in the nature of related party transactions in the period ended 30 June 2016 from that disclosed in the 2015 Annual Report.

13        Post balance sheet events

            On 1 August 2016, the Group acquired the entire share capital of Lexmar Engineering Pte Limited and Lexmar Sat Systems Pte Limited (together "Lexmar"), for an initial cash consideration of SGD17.5m (£9.8m), with further contingent consideration of up to a maximum of SGD9.3m (£5.2m) subject to the successful completion of certain projects.  The consideration is based on net cash held by Lexmar at acquisition of SGD8.8m (£4.9m).  Founded in Singapore in 1996, Lexmar is a specialist provider of service and support of diving equipment and saturated diving systems.  The business is completing three 18 man twin bell diving systems and is complementary to JFD, within our Specialist Technical division.

            On 11 August 2016, the Group acquired the entire share capital of Hughes Marine Engineering Limited, the holding company of Hughes Sub Surface Engineering Limited ("Hughes"), for an initial cash consideration of £9.0m, with further contingent consideration of up to a maximum of £1.0m subject to certain profit targets being met by 28 February 2017.  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.

Independent review report to James Fisher and Sons plc

 

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated cash flow statement, the condensed consolidated statement of movements in equity and the related explanatory notes.  We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").  Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. 

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

Scope of review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion. 

Conclusion 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA. 

David Bills

for and on behalf of KPMG LLP 

Chartered Accountants 

1 St Peter's Square

Manchester

M2 3AE

30 August 2016

 

END

 

 

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