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Fisher (James) & Sons plc  -  FSJ   

Preliminary results year ended 31 December 2017

Released 07:00 27-Feb-2018

RNS Number : 9865F
Fisher (James) & Sons plc
27 February 2018
 

 

 

 

 

 

 

27 February 2018

 

 

James Fisher and Sons plc

Preliminary results for the year ended 31 December 2017

 

 

James Fisher and Sons plc (FSJ.L) ("James Fisher"), the leading marine service provider, announces its results for the year ended 31 December 2017.

 

 

2017

2016

% change

Revenue

£505.4m

£466.0m

+9%

Underlying operating profit *

£55.8m

£50.8m

+10%

Underlying profit before tax *

£50.3m

£45.8m

+10%

Underlying diluted earnings per share *

81.4p

76.3p

+7%

Total dividend per share

28.70p

26.15p

+10%

Statutory profit before tax

£49.0m

£44.9m

+9%

Statutory diluted earnings per share

79.5p

78.7p

+1%

 

* excludes separately disclosed items

 

Highlights:

 

·       Revenue up 9%, exceeding £500m for the first time

·       Underlying operating profit up 10%

o        Increases in Marine Support, Specialist Technical and Tankships

o        Marine Support ahead 17%

·       Underlying profit before tax 10% higher at £50.3m

·       Dividends increased for 23rd consecutive year, up 10% to 28.7 pence per share

 

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

 

"James Fisher had another good year in 2017 producing an underlying profit before tax of £50.3m, an increase of 10% over the prior year. Three of our four divisions improved their results with Marine Support leading the way with a 17% improvement in profits.

 

The strength of the Group's business model with its broad spread of activities across the marine sector; its strong international presence and its ability to innovate and grow new businesses gives the Board a positive view of the year ahead and confidence of the Group's potential to provide further growth and value for our shareholders in the future."

 

For further information:

 

James Fisher and Sons plc

Nick Henry

Stuart Kilpatrick

Chief Executive Officer

Group Finance Director

020 7614 9508

FTI Consulting

Richard  Mountain

Susanne Yule

 

0203 727 1340

 

Notes:

1.     James Fisher and Sons plc uses alternative performance measures (APMs) as key financial indicators to assess the underlying performance of the business.  APMs are used by management as they are considered to better reflect business performance and provide useful additional information.  APMs include underlying operating profit, underlying profit before tax, underlying diluted earnings per share, underlying return on capital employed  and cash conversion.  An explanation of APMs is set out in note 2 in these preliminary results.

2.     Certain statements contained in this announcement constitute forward-looking statements.  Forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of James Fisher and Sons plc to be materially different from future results, performance or achievements expressed or implied by such statements.  Such risks, uncertainties and other factors include exchange rates, general economic conditions and the business environment. 

 

Chairman's Statement

 

Preliminary Results for the year ended 31 December 2017

 

This is the last year that I shall be writing this statement as Chairman and therefore I am particularly pleased to be able to report that James Fisher and Sons plc had another good year in 2017 producing an underlying profit before tax of £50.3m, an increase of 10% over the prior year.  This reflected the strength of the Group's business model with its broad spread of activities across the marine sector; its strong international presence and its ability to innovate and grow new businesses.

 

Three of our four divisions improved their results with Marine Support leading the way with a 17% improvement in profits generated by new markets in Brazil, the Middle East and offshore renewables. Specialist Technical delivered another strong performance making good progress with the delivery of its project pipeline and the Indian submarine rescue contract in particular. Tankships continued its run of profit increases generated by high vessel utilisation levels and careful attention to costs. Offshore Oil managed a result only marginally below the prior year: demand began to firm in some sectors towards year end while the division was also successful in opening new opportunities in the Middle East, Asia and in subsea decommissioning.

 

Group revenue for the year grew 9% to £505.4m (2016: £466.0m). An increase in the Group's underlying effective tax rate to 17.2% (2016: 15.4%), held back the increase in underlying diluted earnings per share to 7% at 81.4 pence per share. Statutory diluted earnings per share were 79.5 pence (2016: 78.7 pence).

 

With a number of major projects underway, careful attention has been paid to managing cash flow this year in the face of the expected increase in working capital. This build-up squeezed our cash conversion rate to 56% in 2017 and despite this, the year-end balance sheet gearing remained at a conservative 47% (2016: 41%) with the ratio of net debt (excluding bonds) to underlying earnings before interest, tax, depreciation and amortisation at 1.6 times (2016: 1.4 times).

 

The underlying strength of the Group's performance and the positive outlook for the year ahead has led the Board to propose an increase in the final dividend to 19.3 pence (2016: 17.6 pence) per share making a total for the year of

28.7 pence per share, an increase of 10% compared with 2016.

 

Strategic Overview

 

Over the last ten years, with the exception of 2015, James Fisher has increased its profit and dividends every year, normally by more than 10%: this despite external events such as the financial crisis of 2007-8, the fall in oil prices in 2014 and most recently, Brexit. Key to this performance, has been the Group's ability to innovate and to build new businesses. The rapid growth of our ship-to-ship transfer (STS) business from 2007; the development of a market leading position in submarine rescue and hyperbaric engineering since 2012 and more recently, the growth of a completely new activity in offshore renewables have enabled the Group to absorb these external shocks and continue to grow.

 

This growth in turn has built an ever wider international presence so that the Group is not dependent on any one geographical market. With a stable management team in place and a continued commitment to a de-centralised management structure which keeps decision-making close to our customers and markets, this track record of change and innovation is set to continue.

 

All four of our divisions are well placed for the future. Marine Support is benefiting from the opening of new markets for STS such as in Brazil; from the development of its subsea project businesses and its expanding presence in offshore renewables. Specialist Technical has market leading positions in both its hyperbaric and submarine rescue niches and in its reactor decommissioning business in the nuclear sector.  While this division will always be project driven and therefore 'lumpier' in terms of turnover and working capital, it has an attractive pipeline of medium term prospects. Tankships continues to perform well in a relatively stable market: this position will be underpinned by the introduction of more modern tonnage on some routes. Offshore Oil is now positioned for recovery: our businesses and management teams have done well both in terms of reducing their costs and in opening new markets for their services in the Middle East, Africa and Asia.

 

The strength of our balance sheet enables us to invest in development projects alongside a full capital investment programme. With the focus mainly on organic growth, we nevertheless remain alert for acquisition opportunities to help speed the development of our businesses. The purchase of Rotos 360 in March for an initial consideration of £1.5m and EDS HV Group in December for £9.0m have further extended our range of market leading services to the offshore renewables sector.

 

The Board

 

After fourteen years on the Board and nearly six as Chairman, I announced in January that I will stand down at the conclusion of this year's Annual General Meeting (AGM). It has been a privilege to have been part of James Fisher during an exciting period in the history of the company.  The Group's success is generated by the hard work and dedication of staff and management throughout the Group and it has been a great pleasure to meet and work with so many of them during my time with James Fisher.

 

The Board has chosen Malcolm Paul to become Chairman at the conclusion of the 2018 AGM. Malcolm has extensive experience in managing de-centralised and international companies similar to James Fisher and has been an independent director since 2011. He has a deep knowledge of the company having chaired the audit and remuneration committees as well as being the Senior Independent Director. He will bring the right balance of continuity and change to this role going forward.

 

Effective 1 February, I was also pleased to announce that Justin Atkinson had agreed to join the Board as an independent non-executive director. He will succeed Malcolm as chairman of the audit committee. Justin was until recently the CEO of the Keller Group plc, a FTSE 250 business in the international construction sector. He will bring experience of successfully managing a group on a similar growth path to James Fisher's.

 

With the development of James Fisher in recent years and the increasing spread of its international operations, the Board has been giving careful thought as to when it would be appropriate to strengthen the central executive team. In January 2017, Fergus Graham joined the Group having worked previously at De La Rue Group plc and other international companies in both operations and cross-border business development. He has played a senior role in our Marine Support division during the past year. The Board has now agreed to appoint Fergus as an executive director with effect from

1 March 2018. He will take responsibility for all of the Marine Support division which generated 47% of the Group's turnover in 2017. This will free up more time for Nick Henry as CEO to lead the Group's further development.

 

Staff

 

The continued growth and success of the Group owes everything to the dedication of our staff who now work in many different countries across the globe. Some have to work in very challenging environments and all have to show a high level of professionalism worthy of the confidence our customers place in us. On behalf of the Board and from me especially in my final year, I would like to thank all our employees for their hard work and commitment shown to the James Fisher Group.

 

Outlook

 

Our Marine Support division has commenced the year with good prospects in its offshore renewables and marine project activities as well as firm demand in the ship-to-ship transfer business. Specialist Technical continues to work through its strong order book and has a good pipeline of active prospects. The timing of the award of these new projects will determine whether this division is able to deliver a further step up in profits in 2018. Tankships continues to operate well in a stable market. Sentiment amongst our Offshore Oil division's customers has turned more positive in recent weeks and, while it is still too early to assess any general trend, this has begun to be reflected in orders received for repair and maintenance work in particular.  We therefore have a positive view of the year ahead and are confident of the Group's potential to provide further growth and value for our shareholders in the future.

 

Chief Executive's Review

 

Group strategy

 

The Group's strategy is to grow its business organically by leveraging its existing marine skill base in areas of specialist expertise to a global market, supplemented by selective bolt-on acquisitions which broaden the Group's range of services, products or geographical coverage. Our strategic aim is to deliver long-term growth in earnings per share and to consistently increase shareholder value. Our businesses target an operating margin of at least 10%, a pre-tax return on capital employed of a least 15% and are expected to be cash generative via careful management of working capital and investments.

 

Whilst the Group prioritises organic growth, our strategy is to supplement it with value enhancing acquisitions which fit into our existing divisions. James Fisher seeks to acquire businesses that have a niche product or service offering, with growth potential, a track record of profitability, cash generation and strong management.

 

Business model

 

The Group's businesses provide a range of marine services focused on large corporations and government bodies through its four divisions: Marine Support, Specialist Technical, Offshore Oil and Tankships.

 

James Fisher's businesses are entrepreneurially led with a decentralised management structure which encourages managers to be responsible for making timely decisions in response to changes in the market and in the competitive environment. Many of the Group's businesses operate in specialist niches and hold market leading positions in their particular sector. Their growth is focused on the less mature markets around the world with 50% of the Group's revenue derived from customers in the Middle East, Africa and Asia Pacific regions.

 

Key Performance Indicators (KPIs) are used to measure the success of the business model. These include revenue growth, operating margin (the ratio of underlying operating profit to revenue), return on capital employed and cash conversion. This year, revenue growth was 9% and the underlying operating margin increased to 11.0% (2016: 10.9%). The Group's post-tax return on capital employed was 12.2% (2016: 13.0%) and the reduction was due to the working capital requirement in relation to the contract to build two submarine rescue vessels for the Indian Navy. The Group's cash conversion, which measures the proportion of underlying operating profit that is turned into operating cash, was 56% (2016: 103%) after the investment in working capital for the submarine rescue project, which is expected to reverse in 2018 when the vessels are scheduled for delivery.

 

Strategic progress

 

The Group's corporate objectives are to deliver long-term growth in underlying earnings per share and to deliver progressive dividend growth. In 2017, underlying earnings per share grew by 7% and the compound rate of growth over the last ten years in underlying earnings per share is 10%. Dividends have increased in each of the last 23 years and the compound rate of dividend growth over the last ten years is 10%.

 

Over the last few years, the Group has made a number of acquisitions of marine service businesses which have been integrated into James Fisher Marine Services (JFMS) to form a substantial offshore and subsea operator for the renewables industry. JFMS provides a wide range of services to the offshore wind and tidal sector to support both the construction and maintenance of this fast growing industry. During 2017 this range of services was further enhanced through the acquisition of Rotos 360, a leading provider of blade repair services, and EDS HV Limited, the leading provider of high voltage cable connections and cable repair services.

 

In March 2017, Rotos 360 was acquired for an initial £1.5m in cash, with a further potential £5.0m based on future profitability. The company repairs offshore windfarm rotor blades through the innovative use of suspended work platforms and ultra violet resin curing techniques which reduce operational downtime.

 

In December 2017, EDS HV Limited (EDS) was acquired for an initial £9.0m with a potential further £5.6m based on profit targets over the next two years.  EDS operates in the high voltage sector providing cabling connection services to the offshore wind farms and, in 2017, was a significant supplier to the Rampion wind farm, off the South Coast of the UK.

 

JFMS' first significant integrated marine services contract to support the construction of the Galloper wind farm, located 27km off the coast of Suffolk, UK, continued to progress well and the contract, worth in excess of £30m, is scheduled to complete in 2018. In November 2017 the Group announced the award of a package of services to support the construction of the East Anglia One wind farm which is worth £3.1m, confirming its position as the leading integrated marine service provider to the offshore renewables sector.

 

Our Marine Support business, Fendercare, is the world leader in ship-to-ship transfers from a network of over 50 bases around the world, with a 20 year track record of conducting safe and efficient operations. In 2017, it commenced operations in the Santos basin, offshore of Brazil for two oil majors. This is a new market with significant potential for further growth.

 

JFD, our Specialist Technical business and the world's leading producer and operator of untethered submarine rescue systems, made good progress on the final engineering, assembly and testing of two submarine rescue vessels which are scheduled to be delivered to the Indian Navy in 2018. When the vessels' sea trials are completed JFD will commence a 25 year contract to operate the service in India. Our strategy in this niche continues to be to grow long term service contracts having supplied a submarine rescue vessel of our design. JFD also operates submarine rescue services for NATO, the Singapore Navy and the Royal Australian Navy.

 

The business also progressed with two saturation diving systems for a Chinese salvage customer. JFD is a market leader in saturation diving and other diving equipment and the installation of its specialist diving systems leads to future demand for its products, for refurbishments or life extension to existing assets.

 

The Group's Tankships division continued its progress and increased earnings before interest, tax, depreciation by 6% to £15.8m (2016: £14.9m). Its earnings and strong cash flow are utilised in the organic and acquisitive growth of the other three divisions. Tankships further progressed its fleet renewal programme by agreeing terms to lease and sell the Milford Fisher and replace it with a more modern, second hand, 4kT vessel during the first quarter of 2018.

 

In Offshore Oil, after a slow start to the year the market improvement seen in the early summer months failed to continue into the autumn. This meant that the market remained flat for the year and the backlog of maintenance work remains to be addressed. The Group's competitive position in our various geographic markets remains strong and hence Offshore Oil is well positioned for the upturn in market activity as and when this occurs.

 

Divisional performance

 

Marine Support

 

2017

2016

Underlying operating profit (£m)

24.5

21.0

Underlying operating margin

10.4%

10.3%

Return on capital employed

15.5%

13.9%

 

Marine Support revenue was 16% higher in 2017 at £236.3m (2016: £203.6m). After adjusting for the beneficial impact of currency rates, the increase was 14%. Underlying operating profit increased by 17% to £24.5m due to strong performance at Fendercare, which initiated ship-to-ship (STS) transfer services in Brazil, good growth from Subtech in Africa and the Middle East and further progress in the renewables sector.

 

STS transfer services commenced in Brazil in January 2017 for two oil majors and built up to become a significant operation by the end of the year. This offset a slightly softer market in Asia Pacific and in West Africa but drove overall STS revenue growth of 16% in the year. Our fendering and marine products business also produced double digit revenue growth and increased its profitability.

 

Revenue at Subtech, which is headquartered in Durban, South Africa, increased by over 50% having established a presence in the Middle East and landed significant subsea projects in Ghana, Nigeria and Saudi Arabia to provide diving and cable laying services.

 

James Fisher Marine Services successfully continued to provide its wide range of integrated marine services to the Galloper wind farm construction project. Rotos 360 has completed over 70 wind turbine blade repairs on ten wind farms since it was acquired in March 2017. At the Lynn and Inner Dowsing offshore wind farm, it completed a full turnkey repair project to repair 27 turbines in a contract worth £3.4m.

 

Specialist Technical

 

2017

2016

Underlying operating profit (£m)

21.1

19.9

Underlying operating margin

13.6%

13.1%

Return on capital employed

19.7%

27.8%

 

Revenue was 3% ahead of 2016 and underlying operating profit 6% ahead at £21.1m (2016: £19.9m). The market for UK nuclear decommissioning, which represents around one third of the division continued to be challenging and resulted in marginally lower revenue but this was offset by our specialist diving and submarine rescue business, JFD, which increased sales by 6%.

 

JFD made good progress in the design, assembly and testing of two submarine rescue vessels, which are due for delivery to the Indian Navy during 2018. The first vessel was substantially complete at the end of 2017 and has subsequently achieved acceptance testing at our Inchinnan site near Glasgow, UK. Delivery is scheduled for March 2018 and the second vessel is due to be delivered in November 2018.

 

JFD Australia supplied a Transfer Under Pressure unit and a hyperbaric equipment suite in support of the contract to manage submarine rescue operations for the Royal Australian Navy. The annual exercise to practice and prove established rescue procedures which took place off the coast of West Australia, was successfully completed in November. On 19 February 2018, the Group acquired Cowan Manufacturing Pty, a business based in New South Wales, Australia, which designs and manufactures portable hyperbaric chambers primarily for the Australian navy and the wider international defence market.

 

JFD also took part in a major international submarine rescue exercise, Dynamic Monarch 2017, which demonstrates the capabilities of the NATO partner nations' (France, Norway and UK) submarine rescue system and provides training. Dynamic Monarch, which took place in Turkey, is one of the largest international submarine rescue exercises, which occurs every three years, and is designed to test international forces' inter-operability and ability to respond to submarines that have become disabled, anywhere in the world.

 

JF Nuclear (JFN), our nuclear decommissioning business, achieved the design detail completion milestone on the Winfrith core reactor decommisioning contract which commenced in 2016. On-site implementation is scheduled for 2018. In March, the first drone survey within Sellafield's high security chemical seperation area was completed, removing the need for scaffolding or special access vehicles saving both time and money. However the business faced a slower market for new projects in its main UK market.

 

Offshore Oil

 

2017

2016

Underlying operating profit (£m)

3.8

4.2

Underlying operating margin

6.7%

7.6%

Return on capital employed

3.2%

3.5%

 

As reported at the half year, Offshore Oil had a slow start to the year but business improved in the summer months. However, this improvement was not maintained into the autumn.  Revenue was 2% higher at £56.4m but after adjusting for the impact of exchange rates sales were 1% lower. In the second half of 2017, revenue at constant currency was 4% higher than the 2016 comparator. Underlying operating profit was £0.4m lower in 2017 at £3.8m (2016: £4.2m) but more than two times greater than the first half of the year.

 

Our Norwegian business, Scan Tech AS successfully completed the lifting package project for the Johan Sverdrup field which has contributed around £5.0m to revenue to date. RMSpumptools, our artificial lift company, had a steadily improving order book over the year and a strong finish to 2017.

 

Tankships

 

2017

2016

Underlying operating profit (£m)

8.8

8.2

Underlying operating margin

15.4%

14.8%

Return on capital employed

34.2%

31.9%

 

Tankships continued its recent track record of profitability and strong cash generation. On similar revenue, underlying operating profit was 7% ahead of 2016 at £8.8m (2016: £8.2m) and cash generation was once again very strong.

 

The business, which distributes clean petroleum products around the Northern European coastline, maintained high vessel utilisation and tight control of costs and continued its excellent track record of carrying out its operations to high standards of health and safety. In July and August, two of its vessels supported the sea trials of HMS Queen Elizabeth, the UK Navy's largest aircraft carrier, by providing refuelling services in Invergordon, Scotland. The business responded quickly and pragmatically by deploying two vessels from the South Coast of the UK to support its customer.

 

Financial review

 

2017 results

 

The Group delivered another year of growth with underlying profit before tax increasing by 10% to £50.3m (2016: £45.8m). Strong growth in Marine Support helped by uplifts at Specialist Technical and Tankships more than offset a £0.4m reduction to underlying operating profit in Offshore Oil.

 

 

 

Revenue

£m

 

Underlying operating profit*

£m

 

Underlying operating margin*

%

 

 

2017

2016

2017

2016

2017

2016

Marine Support

236.3

203.6

24.5

21.0

10.4

10.3

Specialist Technical

155.7

151.8

21.1

19.9

13.6

13.1

Offshore Oil

56.4

55.1

3.8

4.2

6.7

7.6

Tankships

57.0

55.5

8.8

8.2

15.4

14.8

Common Costs

 

-

(2.4)

(2.5)

 

-

 

505.4

466.0

55.8

50.8

11.0

10.9

 

Revenue increased by 9% due to strong growth in Marine Support and more modest uplifts in each of the other three divisions. Adjusting for currency fluctuations growth was 7%. Underlying operating profit was 10% higher and consequently underlying operating margins increased to 11.0% (2016: 10.9%). The Group's post-tax return on capital employed was 12.2% (2016: 13.0%). Cash conversion, the measure of how much operating profit is converted into cash, was lower at 56% (2016: 103%) as £24.4m of working capital was required for the submarine rescue project for the Indian Navy. Subject to on-time delivery and payment, this will reverse in 2018 and cash conversion excluding the working capital investment on this project would have been 99%, which demonstrates good conversion of profit into cash from the rest of the business.

 

As previously signalled, trading was strongly second half weighted in 2017 and 62% of underlying operating profit arose in the latter half of 2017. This was across all divisions but most marked in Offshore Oil and Marine Support. Offshore Oil had a slow start to the year but its second half underlying operating profit was two and a half times greater than the first and around 30% stronger than prior year comparator. Marine Support's underlying operating profit was nearly 70% stronger in the second half due to the timing of renewables projects, subsea projects in the Middle East and Africa and growing ship-to-ship transfers in Brazil.

 

The Group's main currency exposure is in respect of US Dollar cash inflows. To reduce the risk of earnings volatility, the Group mitigates the risk of exchange rate changes by entering into forward contracts to hedge approximately half of estimated US Dollar inflows. In 2017, the average GBP:USD rate was £1:$1.30 (2016: £1:$1.36). This 4% weakening of Sterling added £8.0m to revenue in the year and, net of the effect of forward contracts, £1.2m to underlying operating profit.

 

Marine Support increased underlying operating profit for the year by 17% due to the strong second half referred to above. Specialist Technical improved underlying operating margins to 13.6% (2016: 13.1%) with on track performance with the assembly of two submarine rescue vessels for the Indian Navy. Offshore Oil delivered a similar performance to last year despite a weaker first half and Tankships continued its recent track record of double digit underlying operating margins combined with strong cash generation.

 

Finance charges

 

Net finance charges were £0.5m higher at £5.5m (2016: £5.0m) as the Group incurred £0.5m in relation to the interest element on forward contracts. In addition, higher borrowings increased finance charges by £0.4m which was offset by a lower cost of borrowing by £0.1m and a reduction of £0.3m in notional interest on pension schemes. Interest cover, the ratio of underlying operating profit to the net finance charges, excluding pension related charges, was 12.8 times (2016: 14.1 times).

 

Taxation

 

 

2017

2016

The tax charge for the year of £8.7m (2016: £7.1m) on underlying profit before tax of £50.3m (2016: £45.8m) represents an underlying effective tax rate ("ETR") of 17.2% (2016: 15.4%) The ETR is impacted by recurring items such as the geographical mix of profits, tonnage tax relief on the profits of its tanker operations and expenses disallowed for tax. The Group operates in 21 countries so its ETR is a blend of national tax rates applied to locally generated profits. Non-recurring items include adjustments to tax calculations in previous years where the outturn has been or will be lower.

 

 

£m

£m

 

 

 

Underlying profit before tax

50.3

45.8

UK rate of 19.25% (2016: 20.0%)

9.7

9.2

Adjusted for the effects of recurring items:

 

 

Effect of overseas tax rates

0.8

0.4

Tonnage tax relief on vessel activities

(1.0)

(1.0)

Other recurring items

0.1

0.2

Adjusted for the effects of non-recurring items:

 

 

Over provisions in prior years

(0.7)

(2.7)

Losses not recognised / other

(0.2)

1.7

UK deferred tax rate reduction

-

(0.7)

 

8.7

7.1

 

 

The Group's tax policy, which has been approved by the Board, is available on our website (www.james-fisher.co.uk). Whilst the Group has a duty to shareholders to seek to minimise its tax burden, its tax policy is to do so in a manner which is consistent with its commercial objectives, meets its legal obligations and its code of ethics. We aim to manage our tax affairs in a responsible and transparent manner and with regard for the intention of the legislation rather than just the wording itself. Our tax objectives are to comply with all applicable tax laws and regulations, including the timely submission of all tax returns and tax payments and to undertake all dealings with local tax authorities in a professional and timely manner. The Group operates in a complex global environment and continues to monitor the OECD's Base Erosion Profit Shifting initiatives as part of its tax risk management. We seek to comply with local transfer pricing legislation in each relevant jurisdiction and to involve external tax advisers, where appropriate, to identify any changes to pricing policies and related documentation.

 

The Group paid £8.0m (2016: £6.9m) of corporation tax in cash across all of its jurisdictions with around 39% paid to the UK tax authorities. A further £26.0m was paid in the UK for payroll taxes (2016: £28.2m).

 

Profit before taxation, earnings per share and dividends

 

Underlying profit before taxation was 10% higher at £50.3m (2016: £45.8m) and statutory profit before taxation was £49.0m (2016: £44.9m). Underlying diluted earnings per share increased by 7% to 81.4 pence per share (2016: 76.3 pence). Statutory diluted earnings per share was 79.5 pence per share (2016: 78.7 pence) due to a separately disclosed charge after tax of £0.9m compared to £0.6m in the previous year.

 

The Board is recommending a 10% increase to the total dividend for the year to 28.70 pence per share (2016: 26.15 pence). A final dividend of 19.30 pence per share (2016: 17.60 pence) will be paid on 11 May 2018 to shareholders on the register on 6 April 2018, subject to approval at the Annual General Meeting. Underlying dividend cover based on the ratio of underlying earnings per share divided by the dividend per share was 2.8 times (2016: 2.9 times).

 

Separately disclosed items

 

The Directors' consider that the alternative performance measures described in note 2 assist an understanding of the underlying trading performance of the businesses. These measures exclude separately disclosed items which comprise gains or losses on the sale of businesses, asset impairments and acquisition related charges or income.

 

The net separately disclosed charge increased to £0.9m in 2017 (2016: £0.6m).  Amortisation of intangible assets which arises when businesses are acquired increased to £2.0m due to the full year impact of the businesses acquired in 2016. Contingent consideration releases are based on latest estimates of obligations in relation to targets originally agreed within a sale and purchase agreement. A credit of £1.7m (2016: £3.3m) related to two prior period acquisitions.

 

Cash flow and borrowings

 

As previously reported, the contract to design, assemble and deliver two submarine rescue vessels to the Indian Navy, required significant working capital funding during the build phase from May 2016 through to delivery of the first vessel in March 2018. At 31 December 2017, £31.2m (2016: £6.8m) of working capital had cumulatively been drawn down to fund this project and subject to delivery and payment on time, is expected to reverse by the end of 2018.

 

Working capital over the last 4 half year period ends, excluding the submarine rescue project for India has consistently been around 17% of sales. Free cash flow, which is the net cash generated before the cash spend on business acquisitions and dividends was an outflow of £7.7m (2016: inflow of £25.0m) reflecting the working capital referred to above. Net capital expenditure in the year was £24.7m (2016: £14.8m) with £15.7m invested in Marine Support on dive systems and equipment to support project wins in the Middle East and Africa, and a replacement tugboat in the Asia Pacific region. 

 

Net borrowings increased in the year by £26.8m to £132.5m (2016: £105.7m) due to working capital funding on the submarine rescue project of £24.4m (2016: £6.8m), businesses acquired of £5.2m (2016: £24.6m) and dividends paid of £13.9m (2016: £12.3m). At 31 December 2017, the ratio of net borrowings to underlying earnings before interest, tax, depreciation and amortisation (Ebitda) was 1.6 times (2016: 1.4 times) and the Group had £71.8m (2016: £49.7m) of undrawn committed banking facilities. The ratio net borrowings including bonds and guarantees to Ebitda was 2.2 times (2016: 1.9 times). Net gearing, the ratio of net debt to equity, was 47% (2016: 41%).

 

Acquisitions

 

During the year the Group acquired Rotos 360 for an initial £1.5m with potentially £5.0m of future consideration based on a profit target for the year ending 31 December 2019. EDS HV Limited was acquired in December 2017 for an initial £9.0m with a potential £5.6m based on profit targets for the two years ending 30 September 2019. Both businesses add to the Group's Marine Support division's capability in the renewables sector. 

 

In February 2018 the Group acquired the entire share capital of Cowan Manufacturing Pty Limited for a consideration of AUD$2.6m (£1.5m) in cash.

 

Pensions

 

The Group operates a range of defined contribution schemes for current employees and contributed £3.7m (2016: £3.8m) into those schemes in the year. The Group has an obligation of £19.8m (2016: £26.8m) for its own closed defined benefit scheme and for two industry-wide defined benefit schemes. This decreased due to contributions of £4.6m and re-measurement gains of £3.2m due to changes in inflation and mortality assumptions and improved asset performance.

 

IFRS 15

 

IFRS 15 'Revenue from contracts with customers' which is effective from 1 January 2018, identifies performance obligations in contracts with customers and recognises revenue as these performance obligations are satisfied. The Group's results announcement for the six months ending 30 June 2018 will be the first to be prepared under IFRS 15. James Fisher has undertaken a detailed review of all material contracts with customers and different types of revenue streams to determine the impact of IFRS 15 on the opening balance sheet at 1 January 2017 and for the year ended 31 December 2017. The estimated impact on retained earnings at 1 January 2017 is a reduction of around £5m and on the results reported in 2017 is to reduce revenue by around £6m and profit before taxation by £0.7m-£1.5m.

 

Brexit

 

The Board has considered the potential effect of the UK's exit from the European Union (EU) throughout the year. It considers that Brexit is unlikely to have a material impact on the Group as its business interests and customer base in the EU is not significant. The Board will continue to track and consider the implications of Brexit and its potential impact as the terms of the UK's exit, both during and after transition, become clearer.

 

Risk management

 

The Board is ultimately responsible for the management of risk in the Group. Our internal control and risk management framework is regularly monitored and reviewed by the Board and the Audit Committee and comprises a series of policies, processes, procedures and organisational structures which are designed to ensure that the level of risk to which the Group is exposed is consistent with the Board's risk appetite and the Company's strategic objectives.

 

The Board determines the Group's policies on risk, appetite for risk and levels of risk tolerance and specifically approves: risk management policies and plans; significant insurance and/or legal claims and/or settlements; acquisitions, disposals and capital expenditures; and the Group budget, forecast and three year plan. The Board has put in place a documented organisational structure with strictly defined limits of authority from the Board to operating units that have been communicated throughout the businesses and are well understood by the Executive Directors, functional and business leaders who have delegated authority and specific responsibility for ensuring compliance with and implementing policies at corporate, divisional and business unit level. Group functions and operating units are each required to operate within this control environment and in accordance with the established policies and procedures covering areas including ethical, anti-bribery and corruption, conflicts, treasury, employment, slavery and human trafficking, whistleblowing, data protection, health and safety and environment.

 

The Group's trading companies are supported by Group functions for finance, treasury, taxation, internal audit, insurance, legal and company secretarial, human resource and payroll and information systems functions: the functional heads report to a nominated Executive Director. The Board retains an oversight role, receives regular reports on key issues and has a schedule of matters specifically reserved to it for decision designed to ensure that it maintains full and effective control over appropriate strategic, investment, financial, organisational and compliance issues. This schedule is subject to review by the Board on an annual basis.

 

The Board also operates a Group Risk Committee (GRC), which meets quarterly and is chaired by Nick Henry with representation from functional heads including finance, human resources, legal and company secretarial, information services, insurance and internal audit. The main responsibilities of the GRC are to identify and monitor operational risks and ensure that those risks are being actively managed throughout the Group; to support the Group's Internal Control and Risk Management strategy and policy and to review reports on Key Risks and Risk Maps prepared by trading companies in order to monitor and report on the types of risk within the Group and report on how effectively risk management is performed/monitored within each business unit/trading company. The minutes of the GRC are reported to the Board.

 

Principal risks and uncertainties

 

The most significant risks that the Board considers may affect our business (based on the risk evaluation process described above) are listed below. On the basis that the Board considers that the Group's principal risks have not materially changed, the categories of risks listed below are similar to last year. The Group's decentralised business model and geographical spread helps to mitigate the impact of each principal risk.

 

·      Project delivery

·      Contractual risk

·      Recruitment and retention of key staff

·      Health, safety and environment

·      Financial risk

·      Energy markets

·      Operating in emerging markets

·      Cyber security

 

Contractual risk refers to the exposure to late payment, or cost overruns as a result of winning larger contracts and operating in more geographies. The Group utilises professional expertise to minimise risk in contract negotiation and levels of authority are designed to ensure that contracts are reviewed and approved at appropriate levels prior to commitment. A full description of the principal risk and uncertainties and their management and mitigation will be set out in the 2017 Annual Report and Accounts.

 

Directors' responsibility statement

 

The following is an extract of the full statement prepared in connection with the Company's Annual Report and Accounts for the year ended 31 December 2017.

 

The Directors of the Company confirm that to the best of their 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 or loss of the Company and the undertakings included in the consolidation taken as a whole; and

•      the Strategic report and the Directors' report includes 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 that they face.

 

The Directors of James Fisher and Sons plc and their respective responsibilities are set out in the 2016 Annual Report and Accounts.  The responsibility statement was approved by the Board on 27 February 2018 and signed on its behalf by:

 

 

 

 

 

 

N P Henry

S C Kilpatrick

Chief Executive Officer

Group Finance Director

 

 

 

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2017

 

 

 

 

Year ended

 

Year ended

 

 

 

31 December 2017

 

31 December 2016

 

 

 

Before separately

Separately

 

 

Before separately

Separately

 

 

 

 

disclosed

disclosed

 

 

disclosed

disclosed

 

 

 

 

items

items

Total

 

items

items

Total

 

Notes

£m

£m

£m

 

£m

£m

£m

Group revenue

3

505.4

-

505.4

 

466.0

-

466.0

Cost of sales

 

(350.9)

-

(350.9)

 

(324.3)

-

(324.3)

Gross profit

 

154.5

-

154.5

 

141.7

-

141.7

Administrative expenses

 

(100.4)

-

(100.4)

 

(92.3)

(2.3)

(94.6)

Share of post-tax results of joint ventures

 

1.7

-

1.7

 

1.4

-

1.4

Acquisition related (expense) and income

4

-

(1.3)

(1.3)

 

-

1.4

1.4

Operating profit

3

55.8

(1.3)

54.5

 

50.8

(0.9)

49.9

Net finance expense

 

(5.5)

-

(5.5)

 

(5.0)

-

(5.0)

Profit before taxation

 

50.3

(1.3)

49.0

 

45.8

(0.9)

44.9

Income tax

5

(8.7)

0.4

(8.3)

 

(7.1)

0.3

(6.8)

Profit for the year

 

41.6

(0.9)

40.7

 

38.7

(0.6)

38.1

Attributable to:

 

 

 

 

 

 

 

 

Owners of the Company

 

41.1

(0.9)

40.2

 

38.5

1.2

39.7

Non-controlling interests

 

0.5

-

0.5

 

0.2

(1.8)

(1.6)

 

 

 

41.6

(0.9)

40.7

 

38.7

(0.6)

38.1

Earnings per share

6

 

 

pence

 

 

 

pence

Basic

 

 

 

80.1

 

 

 

79.4

Diluted

 

 

 

79.5

 

 

 

78.7

 

 

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

for the year ended 31 December 2017

 

 

 

Year ended

 

Year ended

 

31 December

2017

31 December 2016

 

 

£m

 

£m

 

 

 

 

 

Profit for the year

 

40.7

 

38.1

 

 

 

 

 

Items that will not be classified to the income statement

 

 

 

 

Actuarial gain/(loss) in defined benefit pension schemes

 

3.2

 

(3.1)

Tax on items that will not be reclassified

 

(0.2)

 

(0.1)

 

 

3.0

 

(3.2)

Items that may be reclassified to the income statement

 

 

 

 

Exchange differences on foreign currency net investments

 

(7.5)

 

16.8

Effective portion of changes in fair value of cash flow hedges

 

7.8

 

(3.3)

Effective portion of changes in fair value of cash flow hedges in joint ventures

 

(0.2)

 

(0.1)

Net changes in fair value of cash flow hedges transferred to income statement

 

(0.9)

 

0.6

Deferred tax on items that may be reclassified

 

(1.0)

 

0.4

 

 

(1.8)

 

14.4

Total comprehensive income for the year

 

41.9

 

49.3

 

 

 

 

 

Owners of the Company

 

41.4

 

50.7

Non-controlling interests

 

0.5

 

(1.4)

 

 

41.9

 

49.3

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 at 31 December 2017

 

 

 

Group

 

 

31 December 2017

31 December 2016

Notes

 

£m

 

£m

Non-current assets

 

 

 

 

 

Goodwill

 

 

174.6

 

Other intangible assets

 

 

24.6

 

Property, plant and equipment

 

 

132.5

 

Investment in joint ventures

 

 

7.1

 

Available for sale financial assets

 

 

2.3

 

Deferred tax assets

 

 

3.2

 

 

 

 

344.3

 

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

 

52.1

 

Trade and other receivables

 

 

201.9

 

Cash and cash equivalents

9

 

20.3

 

 

 

 

274.3

 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

 

(132.7)

 

Provisions for liabilities and charges

 

 

(4.8)

 

Current tax

 

 

(8.5)

 

Loans and borrowings

9

 

(0.4)

 

 

 

 

(146.4)

 

 

 

 

 

 

Net current assets

 

 

127.9

 

Total assets less current liabilities

 

 

472.2

 

Non-current liabilities

 

 

 

 

Provisions for liabilities and charges

 

 

(11.5)

 

Retirement benefit obligations

8

 

(19.8)

 

Cumulative preference shares

 

 

(0.1)

 

Loans and borrowings

9

 

(152.3)

 

Deferred tax liabilities

 

 

(2.3)

 

 

 

 

(186.0)

 

Net assets

 

 

286.2

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Called up share capital

 

 

12.6

 

Share premium

 

 

25.7

 

Treasury shares

 

 

(0.4)

 

Other reserves

 

 

1.0

 

Retained earnings

 

 

246.1

 

Equity attributable to owners of the Company

285.0

 

Non-controlling interests

 

 

1.2

 

Total equity

 

 

286.2

 

 

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2017

 

 

 

Group

 

 

31 December 2017

31 December 2016

Notes

 

£m

 

£m

Profit before tax

 

 

49.0

 

44.9

Adjustments to reconcile profit before tax to net cash flows

 

 

 

 

 

     Depreciation and amortisation

 

 

27.4

 

25.8

     Acquisition costs charged

 

 

1.0

 

0.7

     Profit on disposal of fixed assets

 

 

(0.9)

 

(0.6)

     Reclassification adjustments from hedging reserve to profit and loss

 

 

(1.5)

 

-

     Provision for contract cessation

 

 

-

 

2.3

     Adjustment to provision for contingent consideration

 

 

(1.7)

 

(3.4)

     Net finance expense

 

 

5.5

 

5.1

     Share of post-tax results of joint ventures

 

 

(1.7)

 

(1.4)

     Share based payments

 

 

0.9

 

1.1

Increase in inventories

 

 

(1.1)

 

-

Increase in trade and other receivables

 

 

(44.4)

 

(5.7)

Increase/(decrease) in trade and other payables

 

 

1.6

 

(13.3)

Defined benefit pension cash contributions less service cost

 

 

(4.4)

 

(4.2)

Cash generated from operations

 

 

29.7

 

51.3

Cash outflow from acquisition costs

 

 

(0.8)

 

(0.6)

Income tax (payments)

 

 

(8.0)

 

(6.9)

Cash flow from operating activities

 

 

20.9

 

43.8

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Dividends from joint venture undertakings

 

 

1.4

 

0.7

Proceeds from the disposal of property, plant and equipment

 

 

2.6

 

1.7

Proceeds from the disposal of investments

 

 

-

 

0.1

Finance income

 

 

0.4

 

0.2

Acquisition of subsidiaries, net of cash acquired

 

 

(2.6)

 

(19.1)

Investment in joint ventures and available for sale assets

 

 

(0.6)

 

-

Acquisition of property, plant and equipment

 

 

(23.1)

 

(13.9)

Development expenditure

 

 

(4.2)

 

(2.7)

Cash flows used in investing activities

 

 

(26.1)

 

(33.0)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Proceeds from the issue of share capital

 

 

0.1

 

0.1

Finance costs

 

 

(5.3)

 

(4.1)

Purchase of own shares by Employee Share Ownership Trust

 

 

(0.9)

 

(0.6)

Capital element of finance lease repayments

 

 

(0.1)

 

(0.2)

Proceeds from borrowings

 

 

95.4

 

95.9

Repayment of borrowings

 

 

(70.4)

 

(93.5)

Dividends paid

 

 

(13.5)

 

(12.3)

Dividends paid to non-controlling interests

 

 

(0.4)

 

-

Cash flows from financing activities

 

 

4.9

 

(14.7)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

9

 

(0.3)

 

(3.9)

Cash and cash equivalents at 1 January

 

 

21.8

 

23.0

Net foreign exchange differences

 

 

(1.2)

 

2.7

 

 

 

 

 

 

Cash and cash equivalents at 31 December

 

 

20.3

 

21.8

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2017

 

 

Capital

 

Attributable to equity holders of parent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Non-

 

 

 

Share

 

Share

 

Retained

 

Other

Treasury

shareholders

controlling

 

Total

 

capital

premium

earnings

 

reserves

 

shares

 

equity

 

interests

equity

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

At 1 January 2016

12.5

 

25.5

 

192.9

 

(11.3)

 

(1.6)

 

218.0

 

2.4

 

220.4

Total comprehensive income

-

 

-

 

36.6

 

14.1

 

-

 

50.7

 

(1.4)

 

49.3

Contributions by and distributions to owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary dividends paid

-

 

-

 

(12.3)

 

-

 

-

 

(12.3)

 

-

 

(12.3)

Share based payments

-

 

-

 

1.1

 

-

 

-

 

1.1

 

-

 

1.1

Tax effect of share based payments

-

 

-

 

0.3

 

-

 

-

 

0.3

 

-

 

0.3

Purchase of shares by ESOT

-

 

-

 

-

 

-

 

(1.1)

 

(1.1)

 

-

 

(1.1)

Sale of shares by ESOT

-

 

-

 

-

 

-

 

0.5

 

0.5

 

-

 

0.5

Arising on the issue of shares

0.0

 

0.1

 

-

 

 

-

 

0.1

 

-

 

0.1

 

0.0

 

0.1

 

(10.9)

 

-

 

(0.6)

 

(11.4)

 

-

 

(11.4)

Transfer

-

 

-

 

(1.6)

 

-

 

1.6

 

-

 

-

 

-

Balance at 31 December 2016

12.5

 

25.6

 

217.0

 

2.8

 

(0.6)

 

257.3

 

1.0

 

258.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

-

 

-

 

43.2

 

(1.8)

 

-

 

41.4

 

0.5

 

41.9

Contributions by and distributions to owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary dividends paid

-

 

-

 

(13.5)

 

-

 

-

 

(13.5)

 

(0.4)

 

(13.9)

Share based payments

-

 

-

 

0.9

 

-

 

-

 

0.9

 

-

 

0.9

Acquisition

-

 

-

 

(0.3)

 

-

 

-

 

(0.3)

 

0.1

 

(0.2)

Purchase of shares by ESOT

-

 

-

 

-

 

-

 

(1.5)

 

(1.5)

 

-

 

(1.5)

Sale of shares by ESOT

-

 

-

 

-

 

-

 

0.5

 

0.5

 

-

 

0.5

Arising on the issue of shares

0.1

 

0.1

 

-

 

 

-

 

0.2

 

-

 

0.2

 

0.1

 

0.1

 

(12.9)

 

-

 

(1.0)

 

(13.7)

 

(0.3)

 

(14.0)

Transfer

-

 

-

 

(1.2)

 

-

 

1.2

 

-

 

-

 

-

At 31 December 2017

12.6

 

25.7

 

246.1

 

1.0

 

(0.4)

 

285.0

 

1.2

 

286.2

 

Other reserve movements

 

 

Translation

 

Hedging

 

Total

 

 

reserve

 

reserve

 

 

Other reserves

 

£m

 

£m

 

£m

At 1 January 2016

 

(10.1)

 

(1.3)

 

(11.4)

Other comprehensive income for the period

 

16.6

 

(2.4)

 

14.2

At 31 December 2016

 

6.5

 

(3.7)

 

2.8

Other comprehensive income for the period

 

(7.5)

 

5.7

 

(1.8)

At 31 December 2017

 

(1.0)

 

2.0

 

1.0

 

NOTES TO THE PRELIMINARY RESULTS

 

1.       General information

 

          James Fisher and Sons plc (the Company) is a public limited company registered and domiciled in England and Wales and listed on the London Stock Exchange. The consolidated financial statements comprise the financial statements of the Company, its subsidiary undertakings and its interest in associates and jointly controlled entities (together referred to as the Group), for the year ended 31 December 2017. The Company's shares are listed on the London Stock Exchange. The Company and consolidated financial statements were approved for publication by the Directors on 26 February 2018.

 

          The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), adopted by the European Union (adopted IFRS). The financial statements are prepared on a going concern basis and on an historical cost basis, modified to include revaluation to fair value of certain financial instruments. As permitted by section 408 of the Companies Act 2006, a separate income statement and related notes for the holding company have not been presented in these financial statements.  The profit after taxation in the Company was £54.2m (2016: £39.8m). The Group and Company financial statements are presented in Sterling and all values are rounded to the nearest million pounds (£m) except when otherwise indicated.

 

          The consolidated financial statements and those of the Company have been prepared in accordance with IFRS adopted by the EU as at 31 December 2017 and are applied in accordance with the provisions of the Companies Act 2006.

 

          Financial information

 

          The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 2016. Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 will be delivered in due course. The auditor has reported on those accounts; their reports were (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 Annual Report and Accounts for the year ended 31 December 2017 will be posted to shareholders in March 2018. The preliminary announcement was approved by the Board of Directors on 26 February 2018.

 

2.       Alternative performance measures

 

          The Group uses a number of alternative (non-Generally Accepted Accounting Practice (non-GAAP)) performance 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 this Annual Report and Accounts.

 

          2.1  Underlying operating profit and underlying profit before taxation

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

 

          2.2  Underlying earnings per share

          Underlying earnings per share (EPS) is calculated as the total of underlying profit before tax, less income tax, but excluding the tax impact on separately disclosed items included in the calculation of underlying profit less profit attributable to non-controlling interests, divided by the weighted average number of ordinary shares in issue during the year.  The Directors believe that underlying EPS provides an important measure of the underlying earnings capability of the Group.

 

         

2.       Alternative performance measures (continued)

 

2.3  Capital employed and return on capital employed (ROCE)

          Capital employed is defined as net assets less cash and short-term deposits and after adding back borrowings. Average capital employed is adjusted for the timing of businesses acquired and after adding back cumulative amortisation of customer relationships.  Segmental ROCE is defined as the underlying operating profit, divided by average capital employed.  The key performance indicator, Group post-tax ROCE, is defined as underlying operating profit, less notional tax, calculated by multiplying the effective tax rate by the underlying operating profit, divided by average capital employed.

 

2.4  Cash conversion

          Cash conversion is defined as the ratio of operating cash flow to underlying operating profit.  Operating cash flow comprises cash generated from operations plus dividends from joint venture undertakings.

 

          2.5  Underlying EBITDA

          Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) is defined as the underlying operating profit before interest, tax, depreciation and amortisation.

 

          2.6  Underlying Dividend Cover

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

         

 

2017

 

2016

 

£m

 

£m

Operating profit

54.5

 

49.9

Separately disclosed items before taxation

1.3

 

0.9

Underlying operating profit

55.8

 

50.8

Net finance expense

(5.5)

 

(5.0)

Underlying profit before tax

50.3

 

45.8

 

 

 

 

Return on capital employed for the Group is calculated as follows:

 

 

 

 

2017

 

2016

 

£m

 

£m

Capital employed:

 

 

 

Net assets

286.2

 

258.3

Less cash and short-term deposits

(20.3)

 

(21.8)

Plus borrowings

152.8

 

127.5

Capital employed

418.7

 

364.0

 

 

 

 

Underlying operating profit

55.8

 

50.8

Notional tax at the effective tax rate

(9.6)

 

(7.8)

 

46.2

 

43.0

Average capital employed

378.5

 

331.3

Return on average capital employed

12.2%

 

13.0%

 

 

 

 

Cash conversion

 

 

 

Cash generated from operations

29.7

 

51.3

Dividends from joint venture undertakings

1.4

 

0.7

Operating cash flow

31.1

 

52.0

Underlying operating profit

55.8

 

50.8

Cash conversion

56%

 

103%

 

 

 

 

Underlying EBITDA

 

 

 

Underlying operating profit

55.8

 

50.8

Depreciation and amortisation

25.4

 

24.6

Underlying EBITDA

81.2

 

75.4

 

 

 

 

Underlying dividend cover:

pence

 

pence

Underlying earnings per share

81.4

 

76.3

Dividend per share

28.70

 

26.15

Underlying dividend cover (times)

2.8

 

2.9

 

3.       Segmental information

 

          For management reporting purposes, the Group has four operating segments reviewed by the Board: Marine Support, Specialist Technical, Offshore Oil and Tankships. These operating segments form the basis of the primary segmental disclosures below.

 

          The Board assess the performance of the segments based on underlying operating profit. The Board believes that such information is the most relevant in evaluating the results of certain segments relative to other entities which operate within these industries.  Inter-segmental sales are made using prices determined on an arms length basis.

 

          Sector assets exclude cash and short-term deposits and corporate assets that cannot reasonably be allocated to operating segments.  Sector liabilities exclude borrowings, retirement benefit obligations and corporate liabilities that cannot reasonably be allocated to operating liabilities. 

 

Year ended 31 December 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

Specialist

 

Offshore

 

Tankships

 

Corporate

 

Total

 

 

Support

 

Technical

 

Oil

 

 

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

Segmental revenue

237.5

 

156.3

 

56.6

 

57.0

 

-

 

507.4

 

Inter-segmental sales

(1.2)

 

(0.6)

 

(0.2)

 

-

 

-

 

(2.0)

 

Revenue

236.3

 

155.7

 

56.4

 

57.0

 

-

 

505.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying operating profit

24.5

 

21.1

 

3.8

 

8.8

 

(2.4)

 

55.8

 

Contract cessation costs

-

 

-

 

-

 

-

 

-

 

-

 

Acquisition costs

(0.7)

 

(0.3)

 

-

 

-

 

-

 

(1.0)

 

Amortisation of acquired intangibles

(1.4)

 

(0.3)

 

(0.3)

 

-

 

-

 

(2.0)

 

Adjustment to provision for contingent consideration

0.9

 

0.8

 

-

 

-

 

 

 

1.7

 

Operating profit

23.3

 

21.3

 

3.5

 

8.8

 

(2.4)

 

54.5

 

Net finance expense

 

 

 

 

 

 

 

 

 

 

(5.5)

 

Profit before tax

 

 

 

 

 

 

 

 

 

 

49.0

 

Income tax

 

 

 

 

 

 

 

 

 

 

(8.3)

 

Profit for the year

 

 

 

 

 

 

 

 

 

 

40.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets and liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Segmental assets

233.8

 

183.6

 

128.0

 

32.2

 

33.9

 

611.5

 

Investment in joint ventures

4.1

 

3.0

 

-

 

-

 

-

 

7.1

 

Total assets

237.9

 

186.6

 

128.0

 

32.2

 

33.9

 

618.6

 

Segmental liabilities

(69.0)

 

(56.2)

 

(13.4)

 

(8.1)

 

(185.7)

 

(332.4)

 

 

168.9

 

130.4

 

114.6

 

24.1

 

(151.8)

 

286.2

 

Other segmental information

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

15.7

 

2.8

 

2.0

 

2.4

 

0.3

 

23.2

 

Depreciation and amortisation

9.9

 

4.0

 

9.6

 

3.3

 

0.6

 

27.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

Specialist

 

Offshore

 

Tankships

 

Corporate

 

Total

 

Support

 

Technical

 

Oil

 

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

Segmental revenue

203.9

 

152.7

 

55.5

 

55.5

 

-

 

467.6

Inter-segmental sales

(0.3)

 

(0.9)

 

(0.4)

 

-

 

-

 

(1.6)

Revenue

203.6

 

151.8

 

55.1

 

55.5

 

-

 

466.0

 

 

 

 

 

 

 

 

 

 

 

 

Underlying operating profit

21.0

 

19.9

 

4.2

 

8.2

 

(2.5)

 

50.8

Contract cessation costs

(2.3)

 

-

 

-

 

-

 

-

 

(2.3)

Acquisition costs

(0.2)

 

(0.3)

 

(0.2)

 

-

 

-

 

(0.7)

Adjustment to provision for contingent consideration

2.8

 

0.5

 

-

 

-

 

-

 

3.3

Amortisation of acquired intangibles

(0.4)

 

(0.8)

 

-

 

-

 

-

 

(1.2)

Operating profit

20.9

 

19.3

 

4.0

 

8.2

 

(2.5)

 

49.9

Net finance expense

 

 

 

 

 

 

 

 

 

 

(5.0)

Profit before tax

 

 

 

 

 

 

 

 

 

 

44.9

Income tax

 

 

 

 

 

 

 

 

 

 

(6.8)

Profit for the year

 

 

 

 

 

 

 

 

 

 

38.1

                                   

 

3.       Segmental information (continued)

         

Assets and liabilities

 

 

 

 

 

 

 

 

 

 

 

Segmental assets

208.6

 

141.8

 

133.6

 

33.4

 

31.7

 

549.1

Investment in joint ventures

3.7

 

2.7

 

-

 

-

 

-

 

6.4

Total assets

212.3

 

144.5

 

133.6

 

33.4

 

31.7

 

555.5

Segmental liabilities

(48.4)

 

(60.3)

 

(8.4)

 

(7.2)

 

(172.9)

 

(297.2)

 

163.9

 

84.2

 

125.2

 

26.2

 

(141.2)

 

258.3

Other segmental information

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

4.6

 

2.1

 

5.6

 

1.4

 

0.2

 

13.9

Depreciation and amortisation

7.4

 

4.0

 

11.0

 

3.2

 

0.2

 

25.8

 

4.       Separately disclosed items

 

          In order for a better understanding of the underlying performance of the Group certain items are disclosed separately as set out in note 2. Separately disclosed items are as follows:

           

 

2017

 

2016

 

£m

 

£m

Administrative expenses:

 

 

 

  Contract cessation costs in Angola

-

 

(2.3)

Acquisition related income and (expense):

 

 

 

  Costs incurred in acquiring businesses

(1.0)

 

(0.7)

  Amortisation of acquired intangibles

(2.0)

 

(1.2)

  Adjustment to provision for contingent consideration

1.7

 

3.3

 

(1.3)

 

1.4

Separately disclosed items before taxation

(1.3)

 

(0.9)

Tax on separately disclosed items

0.4

 

0.3

 

(0.9)

 

(0.6)

 

         The adjustment to the provision for contingent consideration is based on the most recent business forecasts and relates to businesses acquired in 2013 and 2015.

 

5.      Taxation

                               

The tax charge is based on profit for the year and comprises:

2017

 

2016

 

 

£m

 

£m

Current tax:

 

 

 

UK corporation tax

(3.1)

 

(4.7)

Overseas tax

(6.8)

 

(4.7)

Adjustment in respect of prior years:

 

 

 

UK corporation tax

(0.2)

 

0.3

Overseas tax

0.8

 

0.3

Total current tax

(9.3)

 

(8.8)

Deferred tax:

 

 

 

Origination and reversal of temporary differences:

 

 

 

UK corporation tax

0.5

 

0.8

Overseas tax

0.5

 

1.2

Total taxation on profit for the year

(8.3)

 

(6.8)

         

 

The total tax charge in the income statement includes a further £0.2m (2016: £0.2m) which is stated within the share of post-tax results of joint ventures.

 

Reconciliation of effective tax rate

The Group falls under the UK tonnage tax regime on its ship owning and operating activities and a charge is based on the net tonnage of vessels operated.  Profits for these activities are not subject to corporation tax.  The tax on the Group's profit before tax differs from the theoretical amount that would arise using the rate applicable under UK corporation tax rules as follows:

 

 

 

 

 

2017

 

2016

 

 

 

 

 

£m

 

£m

Profit before tax

 

 

49.0

 

44.9

Tax arising from interests in joint ventures

0.2

 

0.2

 

 

 

 

 

49.2

 

45.1

Tax on profit at UK statutory tax rate of 19.25% (2016: 20%)

9.5

 

9.0

Tonnage tax relief on vessel activities

 

 

 

(1.0)

 

(1.0)

Expenses not deductible for tax purposes

 

 

 

0.2

 

0.4

Over provision in previous years

 

 

 

 

 

 

 

Current tax

 

 

 

(0.6)

 

(0.7)

 

Deferred tax

 

 

 

-

 

(0.2)

Higher tax rates on overseas income

 

 

 

0.8

 

0.4

Research and development relief

 

 

 

(0.3)

 

(0.2)

Non-taxable income

 

 

 

(0.3)

 

(1.0)

Impact of change of rate

 

 

 

0.1

 

(0.8)

Losses not recognised

 

 

 

0.8

 

0.5

Other

 

 

 

(0.7)

 

0.6

 

 

 

 

 

8.5

 

7.0

 

6.      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 year, after excluding 27,620 (2016: 45,368) ordinary shares held by the James Fisher and Sons plc Employee Share Ownership Trust (ESOT), as treasury shares.  Diluted earnings per share are calculated by dividing the net profit attributable to ordinary 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.

 

At 31 December 2017, 105,840 options (2016: 112,108) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would be anti-dilutive.  The average market value of the Company's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

 

Weighted average number of shares

 

 

2017

 

2016

 

 

Number of

 

Number of

 

 

shares

 

shares

Basic weighted average number of shares

50,163,144

 

50,096,089

Potential exercise of share based payment schemes

391,640

 

387,067

Diluted weighted average number of shares

50,554,784

 

50,483,156

 

Underlying earnings per share

To provide a better understanding of the underlying performance of the Group, underlying earnings per share on continuing activities is reported as an alternative performance measure (note 2). Underlying profit is as follows:

 

 

2017

 

2016

 

£m

 

£m

Profit attributable to owners of the Company

40.2

 

39.7

Adjustments:

 

 

 

Separately disclosed items

1.3

 

0.9

Non-controlling interest in separately disclosed items

-

 

(1.8)

Tax on separately disclosed items

(0.4)

 

(0.3)

Underlying profit attributable to owners of the Company

41.1

 

38.5

 

Earnings per share

 

pence

 

pence

Basic earnings per share

80.1

 

79.4

Diluted earnings per share

79.5

 

78.7

Underlying basic earnings per share

82.0

 

76.9

Underlying diluted earnings per share

81.4

 

76.3

 

 7.     Dividends paid and proposed

 

 

 

2017

 

2016

 

2017

 

2016

 

 

pence per share

 

pence per share

 

£m

 

£m

Declared and paid during the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity dividends on ordinary shares:

 

 

 

 

 

 

 

Final dividend for 2016:

17.60

 

16.00

 

8.8

 

8.0

Interim dividend for 2017:

9.40

 

8.55

 

4.7

 

4.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13.5

 

12.3

 

            A final dividend in respect of the year ended 31 December 2017 of 19.30p per share (2016: 17.60p) is proposed.

 

8.      Retirement benefit obligations

 

The Group and Company defined benefit pension scheme obligations relate to the James Fisher and Sons plc Pension Fund for Shore Staff (Shore staff), the Merchant Navy Officers Pension Fund (MNOPF) and the Merchant Navy Ratings Pension Fund (MNRPF).  The financial statements incorporate the latest full actuarial valuations of the schemes which have been updated to 31 December 2017 by qualified actuaries using assumptions set out in the table below.  The Group's obligations in respect of its pension schemes at 31 December 2017 were as follows:

 

 

2017

 

2016

 

£000

 

£000

Shore staff

5.8

 

10.1

MNOPF

6.8

 

8.5

MNRPF

7.2

 

8.2

 

19.8

 

26.8

 

9.      Reconciliation of net debt

        

Net debt comprises interest bearing loans and borrowings less cash and cash equivalents.

 

 

 

 

1 January

 

Cash

 

Other

 

Exchange

31 December

 

 

 

2017

 

flow

non cash

 

movement

 

2017

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

Cash in hand and at bank

 

 

21.8

 

(0.3)

 

-

 

(1.2)

 

20.3

Debt due after 1 year

 

 

(124.4)

 

(27.8)

 

(0.8)

 

0.8

 

(152.2)

Debt due within 1 year

 

 

(3.0)

 

2.8

 

-

 

-

 

(0.2)

 

 

 

(127.4)

 

(25.0)

 

(0.8)

 

0.8

 

(152.4)

Finance leases

 

 

(0.1)

 

0.1

 

(0.4)

 

(0.0)

 

(0.4)

Net debt

 

 

(105.7)

 

(25.2)

 

(1.2)

 

(0.4)

 

(132.5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 January

 

Cash

 

Other

 

Exchange

31 December

 

 

 

2016

 

flow

non cash

 

movement

 

2016

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

Cash in hand and at bank

 

 

22.9

 

(3.9)

 

-

 

2.8

 

21.8

Debt due after 1 year

 

 

(116.6)

 

(4.1)

 

(0.0)

 

(3.7)

 

(124.4)

Debt due within 1 year

 

 

-

 

1.7

 

(4.8)

 

0.1

 

(3.0)

 

 

 

(116.6)

 

(2.4)

 

(4.8)

 

(3.6)

 

(127.4)

Finance leases

 

 

(0.2)

 

0.2

 

(0.1)

 

(0.0)

 

(0.1)

Net debt

 

 

(93.9)

 

(6.1)

 

(4.9)

 

(0.8)

 

(105.7)

 

10.     Related party transactions

 

         There have been no significant changes to related party transactions from that disclosed in the 2016 Annual Report other than sales of £4.2m to Britannia's Gold Limited, in which the Group has an option to obtain a 5.6% interest and Nick Henry is a non-executive director.

        


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Preliminary results year ended 31 December 2017 - RNS