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Fisher (James) & Sons plc   -  FSJ   

Preliminary Results

Released 07:00 26-Feb-2019

RNS Number : 0737R
Fisher (James) & Sons plc
26 February 2019
 

 

26 February 2019

 

James Fisher and Sons plc

Preliminary Results for the year ended 31 December 2018

 

James Fisher and Sons plc (FSJ.L) ("James Fisher" or "the Group"), the leading marine service provider, announces its results for the year ended 31 December 2018.

 

 

2018

2017

restated**

 % change

Revenue

£561.5m

£499.3m

+13%

Underlying operating profit *

£62.1m

£54.1m

+15%

Underlying operating margin *

11.0%

10.8%

+20bps

Underlying profit before tax *

£56.1m

£48.6m

+15%

Underlying diluted earnings per share *

89.5p

78.7p

+14%

Statutory profit before tax

£55.4m

£47.3m

+17%

Statutory diluted earnings per share

88.9p

76.9p

+16%

Total dividend per share

31.6p

28.7p

+10%

 

Highlights:

 

·      All four divisions increased revenue and underlying operating profit;

·      Strong organic growth in revenue of 12% and underlying operating profit of 19%;

·      Two submarine rescue systems delivered to the Indian navy;

·      First long-term maintenance contract in Renewables;

·      Strong cash conversion of 157% (2017: 57%), net debt:ebitda 1.3 times (2017: 1.7 times);

·      Total dividend up 10% to 31.6p per share.

 

*  excludes separately disclosed items (note 4)

** 2017 restated for IFRS 15 'Revenue from contracts with customers' (note 11)

 organic growth is at constant currency and adjusted for business acquisitions.

 

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

 

"James Fisher performed well in 2018 and, with a strong pipeline of opportunities at the start of 2019, the Board has a high degree of confidence for the year ahead. The Group operates across a number of sectors with a broad geographical spread which adds resilience in times of economic uncertainty and our strategy of adding complementary skills and disciplines to the Group through niche acquisitions has served us well.  The unwinding of the working capital commitment for the Indian submarine rescue vehicles went to plan and with our record of strong cash generation we closed the year with a robust balance sheet. I am confident that we will deliver further progress for our shareholders in the years ahead."

 

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 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 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

 

I have pleasure in presenting my first full year statement to shareholders since I was appointed Chairman at the 2018 Annual General Meeting (AGM), a year which saw James Fisher produce another strong set of financial results, with growth across all four divisions which was predominately organic.

 

The Board remains focused on delivering the Group's established strategy which aims to deliver long-term growth in shareholder value through a mixture of organic growth supplemented by niche acquisitions across a broad international landscape.

 

In December, the Board received notice from Nick Henry of his intention to retire from his position as Chief Executive Officer by the end of 2019. The notice period ensures sufficient time to complete a thorough search process, which has already commenced, and to facilitate a smooth transition of responsibilities. Nick will be leaving the Group in a strong position with a clearly defined strategy that has delivered double digit growth in underlying earnings and dividends, an experienced senior management team and significant growth opportunities in the future.

 

Recognising that every company is now expected to make a contribution to society and engage positively with all our stakeholders I have introduced an initiative to develop a Group sustainability strategy extending from responsible sourcing to supply chain resilience, lean manufacturing, customer engagement, reputational enhancement, corporate risk through to end of life and recycling. We acknowledge the scientific body of evidence that human activity is playing a large part in changes to our climate and we accept our responsibility to address this as part of our normal business activities.

 

Results 

 

Group revenue increased 13% in 2018 to £561.5m (2017: £499.3m) and underlying operating profit was 15% higher at £62.1m (2017: £54.1m). Underlying profit before tax rose by 15% to £56.1m (2017: £48.6m) and underlying diluted earnings per share increased by 14% to 89.5p (2017: 78.7p). Statutory profit before tax and statutory diluted earnings per share were 17% and 16% higher respectively.

 

The Group's operating cash flow reflected a significant working capital inflow following the delivery of two deep-submergence rescue vessels to the Indian navy completing the manufacturing phase of a 25 year contract to supply and maintain a world class submarine rescue capability enhancing safety for submariners.

 

Dividends 

 

The combination of strong results and operating cash flow, supported by a robust balance sheet has led the Board to propose an increase of 10% in the final dividend to 21.3p per share (2017: 19.3p). Subject to shareholder approval at the AGM, this dividend will be paid on 10 May 2019 to shareholders on the register on 5 April 2019. The total dividend per share for the year will be 31.6p per share (2017: 28.7p) which represents a 10% increase on 2017.

 

Business overview

 

Trading was strong across the Group with Marine Support leading the way through growth in services provided to the renewables industry in the UK. Our ship-to-ship transfer operations in Brazil had another good year with further growth. Our strategic goal has been to establish the Group in the emerging maintenance market for offshore windfarms and during 2018 we were awarded our first long-term contract for maintenance services to the London Array in the Thames Estuary.

 

In Specialist Technical, the delivery of the two rescue submarines to the Indian navy, on schedule, was a highlight supplemented by significant contract wins for swimmer delivery vehicles and the award of a £30m contract for the design, construction and delivery in 2021 of a deep search and rescue vehicle for the South Korean navy.

 

Our Offshore Oil division saw a limited improvement in activity levels but there is growing momentum in the industry and we are well set to take advantage of a further upturn in the oil and gas market when this occurs. Tankships continued to trade strongly and completed the purchase of two tankers for £10.6m in line with our policy to refresh the fleet over the coming years.

 

In January 2019, in line with our niche acquisition policy, James Fisher announced the purchase of Martek, a UK based business which provides a range of innovative safety and calibration systems and products to the marine sector and provides a proven channel to market for the Group's related products and services. In addition, we acquired a majority interest in Murjan, based in the Kingdom of Saudi Arabia, with the balance retained by the vendor. Murjan provides near-shore marine construction and maintenance services and we will work together to secure a leadership position in that market.

 

The Board

 

Charles Rice retired on 3 May 2018 and I was appointed Chairman. As a Director of James Fisher, including six years as Chairman, Charles always gave wise counsel and I would like to express my thanks for his valuable contribution to the development of the Group.

 

Justin Atkinson was appointed to the Board on 1 February 2018 and succeeded me as Chairman of the Audit Committee.  Justin was Chief Executive and a Director of Keller Group plc from 2004 to 2015, having formerly served as both Chief Operating Officer and Finance Director, and has significant operational and financial experience both in the UK and internationally.

 

On 28 February 2019, David Moorhouse will retire from the Board. David has been a Non-Executive Director of James Fisher since August 2013 and his knowledge of the marine sector has been of great benefit to the Group. On behalf of the Board, I would like to thank David for his contribution over the last five and a half years and wish him well for the future.

 

On 1 March 2019, Dr. Inken Braunschmidt will be appointed as a Non-Executive Director. Inken has spent a large part of her career with the utilities company RWE and is currently the Chief Innovation and Digital Officer of Halma plc. On behalf of the Board, I welcome Inken to the Group.

 

Our employees 

 

Our employees remain our most important asset and their hard work continues to be a driving force behind our consistent and strong performance. James Fisher's success is due to the combined efforts of all of our employees across the Group and I would like to thank all of our staff for their support and contribution this year.

 

Outlook

 

James Fisher performed well in 2018 and, with a strong pipeline of opportunities at the start of 2019, the Board has a high degree of confidence for the year ahead. The Group operates across a number of sectors with a broad geographical spread which adds resilience in times of economic uncertainty and our strategy of adding complementary skills and disciplines to the Group through niche acquisitions has served us well.  The unwinding of the working capital commitment for the Indian submarine rescue vehicles went to plan and with our record of strong cash generation we closed the year with a robust balance sheet. I am confident that we will deliver further progress for our shareholders in the years ahead.

 

 

Chief Executive's Review

 

Principal Corporate Objectives

 

Our goal is to deliver sustainable long-term growth in underlying earnings per share and progressive dividend growth. In the last ten years, underlying earnings per share and dividends have grown by compound annual rates of 10% and 9% respectively. In 2018 underlying earnings per share grew by 14% (2017: 7%) and the total annual dividend per share grew 10% (2017: 10%).

 

Progress against the Group's strategy is measured by reference to financial and non-financial key performance indicators. Revenue was 13% higher in the year ended 31 December 2018 at £561.5m with increases across all four divisions. After adjusting revenue for the effect of changes in currency and businesses acquired, organic revenue growth was 12%, which was due to good growth in renewables, ship-to-ship services and some recovery in the oil & gas sector. Underlying operating margins increased 20 basis points to 11.0% (2017: 10.8%).

 

The Group's cash conversion, which measures the proportion of underlying operating profit that is turned into operating cash, was 157% (2017: 57%) reflecting the reversal of the working capital invested in the last two years to assemble and deliver two submarine rescue vessels to the Indian navy. The Group's post-tax return on capital employed, which is our key indicator of shareholder value increased to 12.2% (2017: 12.0%).

 

Carrying out our marine service operations to a high degree of safety and integrity is the Group's top priority and the first agenda item on every business board meeting. The safety performance of our operations at sea has continued to be at an industry leading level. The Group's lost time incident frequency (LTIF) which measures the number of lost time incidents per million working hours reduced to 0.4 (2017: 1.0).

 

Strategic progress

 

During the year, the Group has extended its presence in and the range of services provided to, the offshore wind industry. In June, we completed a contract worth in excess of £30m to provide an integrated package of marine support services to the Galloper windfarm, and work has commenced on marine support services for other offshore windfarms being constructed in the UK.

 

Our long term strategic aim has been to position the Group to provide an integrated package of maintenance and inspection services to the offshore wind industry.  In October, three contracts were signed with London Array, which with 175 turbines and 630 mega-watt output was until recently the largest in the world. The contracts are for topside maintenance, subsea services, including inspection of the substation and all wind turbine generators, and high voltage and cable maintenance and inspection services. This involves EDS, the specialist high voltage engineering services company which was acquired in December 2017 and has a market leading capability in high voltage offshore installation, cable monitoring and repairs.

 

In June we were awarded a 10 year integrated marine services contract to supply offshore terminal support services for the UK operations of an international energy company. Supporting the safe and efficient offloading operations at an offshore terminal on the east coast of England, the activities include assisting in the arrival, connection, and departure of around 110 third party tankers each year along with specialist diving services and buoy maintenance. 

 

The Group is the global leader in the design and operation of submarine rescue systems, Services are currently run for the UK/Nato, Singapore and Australian navies. In 2018, our business, JFD, delivered two of our third generation, free-swimming submarine rescue vessels to the Indian navy under a contract worth £193m and in 2020 we will commence a 25 year service agreement to manage the rescue service and maintain the vessels.

 

JFD is also an industry leader in the design and delivery of high quality diving equipment to the military and commercial diving markets. In 2018 our Cobra bailout rebreather for the commercial market was launched. This increases safety and is becoming the standard for the industry, and recently won the subsea industry award for Innovation in Safety. Our Stealth Clearance Diver Life Support Equipment (CDLSE) rebreather, currently deployed by 11 navies with over 600 sets in use, was upgraded to enable the control system to rapidly respond to changes in the life support system and to significantly increase dive duration time from six to eight hours. These rebreathers are used primarily for mine countermeasure explosive ordnance disposal and represent a new benchmark in underwater life support technology, increasing levels of diver safety, equipment reliability, maintainability, operational capability and mission versatility.

 

Our nuclear decommissioning business, JF Nuclear, has been investing in a brand new range of radiation protection instruments that are designed to be robust, reliable and easy to use and provide accurate and actionable data. These new products which monitor site contamination and give clearances where appropriate, are supported with comprehensive through-life support.

 

In November, and at times under challenging weather conditions, JFD partnered with the Royal Australian Navy to conduct the annual Black Carillon exercise which tests Australia's submarine rescue system in a series of scenarios designed to replicate a real-life submarine rescue emergency. Importantly, the exercises demonstrated the world-class capability of the fully-integrated system that JFD provides to the Australian Government which includes a submarine rescue vehicle, a transfer-under-pressure chamber and a hyperbaric equipment suite to ensure that submariners receive the best possible medical treatment once they are back on the water's surface.

We invested further in our submarine rescue services in Australia with the acquisition of Cowan, which designs and manufactures lifesaving recompression and hyperbaric chambers and is based near Newcastle in New South Wales.

The strategy for our Tankships division continues to be to provide capacity to match the demands from our customers for distribution contracts around the UK, Irish and North European coasts. This is a mature and cash generative business, and in 2018 some of this strong cash generation was used to refresh the age profile of the fleet. Two vessels were acquired for £10.6m. The Dee Fisher, named after the Aberdeenshire river and the Corrib Fisher, named after the River Corrib which flows into Galway Bay, are both classified as IMO 2 chemical tankers designed to carry clean petroleum products and certain chemicals. 

 

In Offshore Oil our artificial lift business, which provides mechanical and electrical services for oil production, had a strong year with revenue well ahead of 2017. The degree of market recovery in the other businesses was mixed. Our Norwegian business, Scantech AS, benefited from an improvement in the rig maintenance market but well testing remained flat.

 

Since the year-end, the Group acquired Martek Marine for an initial consideration of £9m. Martek, which is headquartered in the UK with an office in Singapore, provides a range of innovative safety and calibration systems and products to the marine sector and aligns with the similar businesses in the Group. After establishing our Subtech business in the country, the Group acquired a 60% interest in Murjan, a Saudi Arabian based company, which provides near-shore marine services, for an initial consideration of £4.1m.

 

The Group's senior leadership team held their annual meeting in September to discuss strategic plans for their businesses and for the Group over the medium-term. Our senior team was strengthened in Marine Support during the year from a combination of internal promotion and external recruitment. Succession planning is one of the key challenges identified by the Board and delegated to the Executive Directors to manage. The Group continues to have a good track record of retaining key management post acquisition and plans are in place for business leaders who may retire in the next two to three years.   

 

Divisional performance

 

Marine Support

 

2018

2017

Revenue (£m)

279.7

236.3

Underlying operating profit (£m)

29.0

25.3

Underlying operating margin

10.4%

10.7%

Return on capital employed

17.3%

16.5%

 

Marine Support revenue was 18% higher driven by strong organic growth from across all the sectors in which the division operates. In addition, EDS was acquired in December 2017 which provides high voltage services to the offshore wind industry in the installation, monitoring and repairs of cables.

 

Revenue from offshore renewables increased by over 30%. The first half of the year saw the completion of the two year Galloper Windfarm project 27 miles off the coast of Suffolk, UK. In the second half of the year work commenced on the East Anglia One windfarm construction, which will continue into 2020. Our renewables business has established itself as the leading integrated marine services provider to the offshore wind sector and the award of three, five year contracts for London Array were our first significant maintenance awards.

 

Ship-to-ship transfer operations around the world continued to perform well with further growth in the number of operations in Brazil and the commencement of operations in Chile. The order book for diving and pipeline maintenance contracts in the Middle East and Africa grew significantly but was offset by government contracts in South Africa being delayed or cancelled.

 

Mass flow excavation services completed 36 projects around the globe in 2018, of which around one third were in the offshore wind sector. Improved market conditions in the oil and gas sector, which has been slow since the downturn in 2015, were evidenced by five projects completed in the Gulf of Mexico in the second half of 2018.

 

Specialist Technical

 

2018

2017

Revenue (£m)

159.6

149.6

Underlying operating profit (£m)

20.9

18.8

Underlying operating margin

13.0%

12.6%

Return on capital employed

18.5%

18.5%

 

Revenue in Specialist Technical was 7% higher in 2018 and underlying operating profit 11% higher with underlying operating margins 40 basis points higher at 13%. The assembly and delivery of two submarine rescue vessels during the year to schedule supported another strong year for the division and we were pleased to announce a further submarine rescue vessel order in October worth £30m for the South Korean navy, due for delivery in 2021.

 

The division won its first significant order for six swimmer delivery vessels in March 2018 and commenced a mid-life upgrade of the submarine rescue equipment for the Singapore navy supporting our long-term contract to operate its submarine rescue service.

 

Our nuclear decommissioning business continued to develop its range of radiation protection instruments and showed a steadily improving order book as an increasing number of decommissioning projects were released for tender compared to 2017.

 

Offshore Oil

 

2018

2017

Revenue (£m)

61.5

56.4

Underlying operating profit (£m)

5.1

3.6

Underlying operating margin

8.3%

6.4%

Return on capital employed

4.3%

3.0%

 

Offshore Oil increased revenue 9% and underlying operating profit grew 42% mainly due to market share gains in RMSpumptools, our artificial lift completion technology business, where demand for its products, increased its revenue by nearly half. The rest of the division saw improved profitability in Norway, partly due to cost reductions in prior years and increased higher margin rental activity. Well testing services were similar to 2017 and the division invested £6.4m for new opportunities, mainly focussed on opportunities in the Middle East.

 

Tankships

 

2018

2017

Revenue (£m)

60.7

57.0

Underlying operating profit (£m)

9.9

8.8

Underlying operating margin

16.3%

15.4%

Return on capital employed

37.8%

34.2%

 

Tankships produced another strong year with revenue up 7% and underlying operating profit up 13%. Vessel utilisation continued to be strong throughout 2018 and the division had one additional vessel from July compared to the prior year. Improved vessel operating efficiencies and the additional capacity in the second half increased underlying operating profit to £9.9m (2017: £8.8m).

 

Two second hand vessels were acquired for a total of £10.6m as part of the fleet renewal strategy leaving three further vessels to be refreshed over the next few years. The division's earnings before interest, tax and depreciation in the year were £13.5m (2017: £12.1m) which more than funded its capital expenditure of £13.2m (2017: £2.4m).

 

 

Financial review

 

Performance in 2018

 

The Group delivered a year of strong organic growth in revenue and profit. Organic growth adjusts for the impact of businesses acquired in current or prior year and for constant currency which removes the impact of changes in exchange rates between the comparative periods.

 

 

Revenue

 

2018

2017

restated

 

change

 

organic

 

£m

£m

 

 

 

 

 

 

 

Marine Support

279.7

236.3

18.4%

17.5%

Specialist Technical

159.6

149.6

6.7%

6.6%

Offshore Oil

61.5

56.4

9.0%

11.0%

Tankships

60.7

57.0

6.5%

6.9%

Group

561.5

499.3

12.5%

12.3%

 

Each division also increased its underlying operating profit during the year which resulted in a 15% increase for the Group to £62.1m (2017: £54.1m). Constant currency organic growth was 19%. Underlying operating margins increased from 10.8% to 11.0%. Trading was again second half weighted with 60% (2017: 62%) of underlying operating profit arising in the latter half of the year.  Statutory operating profit was 16% above the 2017 result.

 

 

Underlying operating profit

 

2018

2017

restated

 

change

 

organic

 

£m

£m

 

 

 

 

 

 

 

Marine Support

29.0

25.3

14.6%

20.0%

Specialist Technical

20.9

18.8

11.2%

12.3%

Offshore Oil

5.1

3.6

41.7%

57.6%

Tankships

9.9

8.8

12.5%

14.2%

Corporate costs

(2.8)

(2.4)

 

 

Group

62.1

54.1

14.8%

18.8%

 

 

The Group's main currency exposure is in respect of US Dollar cash inflows. In 2018, the average GBP:USD rate was £1:$1.33 (2017: £1:$1.30) and net of forward contracts which are used to reduce earnings volatility, the effect of on average, a 2% strengthening in Sterling was to reduce operating profit by £1.2m.

                                                                                               

Finance charges

 

Net finance charges were £0.5m higher at £6.0m (2017: £5.5m) as higher borrowings from funding project working capital increased interest by £0.7m which was partly offset by a reduction of £0.2m in notional interest on legacy defined benefit pension schemes. Interest cover, the ratio of underlying operating profit to the net finance charges, excluding pension related charges, was 11.1 times (2017: 11.3 times).

 

Taxation

 

Underlying profit before taxation increased 15% to £56.1m (2017: £48.6m) and statutory profit before taxation was £55.4m (2017: £47.3m). The underlying tax charge for the year of £10.5m (2017: £8.3m) represents an underlying effective tax rate (ETR) of 18.7% (2017: 17.2%). The ETR is impacted by the geographical mix of profits, tonnage tax relief on the profits of its tanker operations and expenses disallowed for tax. The Group operates in 19 countries so its ETR is a blend of national tax rates applied to locally generated profits.

 

The Group's tax policy, which has been approved by the Board, is available on the Group's 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.

 

Earnings per share and separately disclosed items

 

Underlying diluted earnings per share increased by 14% to 89.5 pence per share (2017: 78.7 pence). Statutory diluted earnings per share was 88.9 pence per share (2017: 76.9 pence).

 

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 expense after tax was £0.3m (2017: £0.9m). 

 

Cash flow and borrowings

 

 

Summary cash flow

 

 

 

 

2018

2017

restated

 

£m

£m

Underlying operating profit

62.1

54.1

Depreciation & amortisation

28.4

25.4

Ebitda *

90.5

79.5

Working capital

9.4

(42.2)

Pension / other

(2.3)

(6.2)

Operating cash flow

97.6

31.1

Interest & tax

(13.3)

(12.9)

Capital expenditure

(35.7)

(24.7)

Acquisitions

(12.5)

(5.2)

Dividends

(15.2)

(13.9)

Other

(2.0)

(1.2)

Net outflow

18.9

(26.8)

Net borrowings at start of period

(132.5)

(105.7)

Net borrowings at end of period

(113.6)

(132.5)

* Underlying earnings before interest, tax,

  depreciation and amortisation

 

Capital expenditure of £35.7m (2017: £24.7m) includes £10.6m for two second hand vessels as part of the Tankships fleet renewal program and represents 88% of depreciation excluding this spend (2017: 115%). To support the integrated marine services contract won in June, two small vessels were acquired for £2.4m, and the Group spent £2.5m for a remotely operated vehicle for submarine rescue services in Singapore. Capital expenditure includes £6.1m of development expenditure which relates to a new range of radiation protection instruments and new product development in our Specialist Technical business, JFD.

 

After paying dividends of £15.2m in the year, net borrowings decreased by £18.9m in the year and by £31.1m since 30 June 2018 to £113.6m (2017: £132.5m). At 31 December 2018, the ratio of net borrowings to underlying earnings before interest, tax, depreciation and amortisation (Ebitda) was 1.3 times (2017: 1.7 times) and the Group had £92.4m (2017: £71.8m) of undrawn committed banking facilities. The ratio of net borrowings including bonds and guarantees, to Ebitda was 1.9 times (2017: 2.2 times). Net gearing, the ratio of net debt to equity, was 37% (2017: 47%).

 

Pensions

 

The Group operates a range of defined contribution schemes for current employees and contributed £4.3m (2017: £3.7m) into those schemes in the year. The Group has an obligation of £16.1m (2017: £19.8m) for its own closed defined benefit scheme and for two industry-wide defined benefit schemes. This decreased primarily due to contributions of £5.4m (2017: £4.6m), which was partly offset by an actuarial loss of £1.1m (2017: gain of £3.2m) following the triennial valuation of the Merchant Navy Ratings Pension Fund.

 

Changes to Accounting Standards

 

IFRS 15 'Revenue from contracts with customers' was effective from 1 January 2018 and resulted in a restatement of the results for the year ended 31 December 2017. Details are set out in note 11 and the reduction to the reported revenue and underlying profit before taxation was £6.1m and £1.7m respectively. The Group will implement IFRS16 'Leases' from 1 January 2019 which will bring operating leases onto the balance sheet. The Group expects to adopt the modified retrospective approach and not restate prior year financial statements. A full analysis of the impact of IFRS16 will be completed and reported in the 2019 half year report.

 

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. The framework comprises a series of policies, processes, procedures and organisational structures. These 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. During the year, limits of authority for each business were reviewed by the Executive within each management team, and were refreshed. 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 health and safety, ethics, anti-bribery and corruption, conflicts, treasury, employment, anti-slavery and human trafficking, whistleblowing, data protection 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 for its 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 the Chief Executive Officer, 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 principal and emerging risks prepared by trading companies in order to monitor and report on the types of risk within the Group and through provision of their functional services 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 and emerging risks

 

The most significant risks that the Board considers may affect our business (based on the risk evaluation process described above) are listed below. The Board considers that the Group's principal risks have not materially changed, since last year. Through the Executives analysis of risks with each business board (as described above), the Board has also considered whether any of the risks identified could represent an emerging risk, being a saturation or trend that could significantly impact the Group's strategy, financial strength, competitive position or reputation within the next five years. 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

 

 

Brexit

 

On 29 March 2017, the United Kingdom invoked Article 50 of the Treaty on European Union (EU) which began the member state's withdrawal, commonly known as Brexit, from the EU. The Board continues to monitor the progress of the UK's proposed exit from the EU which is scheduled to happen on 29 March 2019. In addition, and in view of the time scale, the Group has been assessing the implications and potential mitigating actions of a no-deal scenario.

 

Nature of risk

 

Assessment of risk

 

 

 

Operations based in EU countries

 

Very low. 0.4% of Group turnover from businesses based in the EU, outside of the UK 

Exports to customers based in the EU and the risk of tariffs on exports and the risk of delays in delivery due to logistical issues at ports or airports

 

Low risk. 6% of revenue is delivered to EU countries

Imports from suppliers and the potential cost of tariffs and logistical issues at ports and airports

 

Low - medium risk. Purchases from EU countries are not significant. Purchases of spares and consumables in the Tankships division of c. £1m per annum may be impacted. Dry docking in that division may be carried out at EU shipyards and costs could increase by tariffs or if switched to other locations

Administrative risks of compliance, certification, visas for EU nationals

 

Low risk. We anticipate a pragmatic solution even in the event of a no-deal Brexit, although time and costs may increase

Currency risk

 

Medium risk. The Group's main exposure is to the USD and following the Brexit vote, sterling sharply weakened against the USD. This has been beneficial to the Group's sales and profits and there is a risk of this reversing after 29 March 2019. The Group reduces earnings volatility by taking out forward contracts for 40%-60% of its exposure and this partly mitigates the risk

Availability of finance

 

Low risk. The ability of the banks to provide finance and for the banking market to continue to operate in the same manner after 29 March 2019 is expected to be unchanged

Contractual risk

 

Medium/high risk. James Fisher has a contract with the European Maritime Safety Agency (EMSA) to deliver emergency pollution response services should an accident occur in the UK, Irish or North-West European coast. EMSA, post-Brexit, may choose to use EU vessels or companies to provide this service

 

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 2018.

 

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 2017 Annual Report and Accounts.  The responsibility statement was approved by the Board on 25 February 2019 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 2018

 

 

 

Year ended

 

Year ended

 

 

31 December 2018

 

31 December 2017
restated

 

Before separately

Separately

 

Before separately

Separately

 

 

disclosed

disclosed

 

disclosed

disclosed

 

 

 

items

items

Total

 

items

items

Total

Note

£m

£m

£m

 

£m

£m

£m

Group revenue

3

561.5

-

561.5

 

499.3

-

499.3

Cost of sales

 

(394.9)

-

(394.9)

 

(346.6)

-

(346.6)

Gross profit

 

166.6

-

166.6

 

152.7

-

152.7

Administrative expenses

 

(106.4)

-

(106.4)

 

(100.3)

-

(100.3)

Share of post-tax results of joint ventures

 

1.9

-

1.9

 

1.7

-

1.7

Acquisition related income and (expense)

4

-

(0.7)

(0.7)

 

-

(1.3)

(1.3)

Operating profit

3

62.1

(0.7)

61.4

 

54.1

(1.3)

52.8

Net finance expense

 

(6.0)

-

(6.0)

 

(5.5)

-

(5.5)

Profit before taxation

 

56.1

(0.7)

55.4

 

48.6

(1.3)

47.3

Income tax

5

(10.5)

0.4

(10.1)

 

(8.3)

0.4

(7.9)

Profit for the year

 

45.6

(0.3)

45.3

 

40.3

(0.9)

39.4

Attributable to:

 

 

 

 

 

 

 

 

Owners of the Company

 

45.2

(0.3)

44.9

 

39.8

(0.9)

38.9

Non-controlling interests

 

0.4

-

0.4

 

0.5

-

0.5

 

 

45.6

(0.3)

45.3

 

40.3

(0.9)

39.4

 

 

 

 

 

 

 

 

 

Earnings per share

6

 

 

pence

 

 

 

pence

Basic

 

 

 

89.5

 

 

 

77.5

Diluted

 

 

 

88.9

 

 

 

76.9

 

 

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

for the year ended 31 December 2018

 

 

 

Year ended

Year ended

 

 

31 December 2018

31 December 2017
restated

 

£m

£m

Profit for the year

 

45.3

39.4

 

Items that will not be classified to the income statement

 

 

 

Actuarial (loss)/gain in defined benefit pension schemes

 

(1.1)

3.2

Fair value adjustment to financial asset

 

(0.9)

-

Tax on items that will not be reclassified

 

0.2

(0.2)

 

 

(1.8)

3.0

Items that may be reclassified to the income statement

 

 

 

Exchange differences on foreign currency net investments

 

1.3

(7.5)

Effective portion of changes in fair value of cash flow hedges

 

(4.0)

7.8

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

 

0.2

(0.2)

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

 

0.1

(0.9)

Deferred tax on items that may be reclassified

 

0.5

(1.0)

 

 

(1.9)

(1.8)

Total comprehensive income for the year

 

41.6

40.6

 

 

 

 

Owners of the Company

 

41.2

40.1

Non-controlling interests

 

0.4

0.5

 

 

41.6

40.6

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 at 31 December 2018

 

 

 

 

Group

 

 

 

31 December 2018

 

31 December 2017
restated

 

Note

 

£m

 

£m

Non-current assets

 

 

 

 

 

Goodwill

 

 

171.4

 

174.6

Other intangible assets

 

 

26.1

 

24.6

Property, plant and equipment

 

 

145.4

 

132.5

Investment in joint ventures

 

 

8.2

 

7.1

Other investments

 

 

1.4

 

2.3

Deferred tax assets

 

 

3.7

 

4.3

 

 

 

356.2

 

345.4

 

 

 

 

 

 

Current assets

 

 

 

 

 

Inventories

 

 

44.9

 

47.2

Trade and other receivables

 

 

186.2

 

199.3

Cash and cash equivalents

9

 

18.6

 

20.3

 

 

 

249.7

 

266.8

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

(132.3)

 

(133.5)

Provisions for liabilities and charges

 

 

(2.6)

 

(4.8)

Current tax

 

 

(8.7)

 

(8.5)

Loans and borrowings

9

 

(10.0)

 

(0.4)

 

 

 

(153.6)

 

(147.2)

 

 

 

 

 

 

Net current assets

 

 

96.1

 

119.6

Total assets less current liabilities

 

 

452.3

 

465.0

Non-current liabilities

 

 

 

 

 

Provision for liabilities and charges

 

 

(6.0)

 

(11.5)

Retirement benefit obligations

8

 

(16.1)

 

(19.8)

Cumulative preference shares

 

 

(0.1)

 

(0.1)

Loans and borrowings

9

 

(122.0)

 

(152.3)

Deferred tax liabilities

 

 

(1.7)

 

(2.3)

 

 

 

(145.9)

 

(186.0)

Net assets

 

 

306.4

 

279.0

 

 

 

 

 

 

Equity

 

 

 

 

 

Called up share capital

 

 

12.6

 

12.6

Share premium

 

 

25.9

 

25.7

Treasury shares

 

 

(0.4)

 

(0.4)

Other reserves

 

 

(0.9)

 

1.0

Retained earnings

 

 

267.8

 

238.9

Equity attributable to owners of the Company

 

 

305.0

 

277.8

Non-controlling interests

 

 

1.4

 

1.2

Total equity

 

 

306.4

 

279.0

 

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2018

 

 

 

Group

 

 

31 December 2018

31 December 2017
restated

 

Notes

£m

£m

Profit before tax

 

55.4

47.3

Adjustments to reconcile profit before tax to net cash flows

 

 

 

     Depreciation and amortisation

 

31.0

28.7

     Acquisition costs charged

 

0.7

1.0

     Loss/(profit) on disposal of fixed assets

 

0.3

(0.9)

     Transferred from hedging reserve to income statement

 

0.1

(1.5)

     Adjustment to provision for contingent consideration

 

(2.6)

(1.7)

     Net finance expense/(income)

 

6.0

5.5

     Share of post-tax results of joint ventures

 

(0.2)

(1.7)

     Share based payments

 

1.4

0.9

Decrease/(increase) in inventories

 

2.6

(2.3)

Decrease/(increase) in trade and other receivables

 

12.5

(43.1)

(Decrease)/increase in trade and other payables

 

(5.7)

1.9

Defined benefit pension cash contributions less service cost

 

(5.3)

(4.4)

Cash generated from operations

 

96.2

29.7

Cash outflow from acquisition costs

 

(0.2)

(0.8)

Income tax payments

 

(8.6)

(8.0)

Cash flow from operating activities

 

87.4

20.9

 

 

 

 

Investing activities

 

 

 

Dividends from joint venture undertakings

 

1.4

1.4

Proceeds from the disposal of property, plant and equipment

 

2.8

2.6

Finance income

 

0.2

0.4

Acquisition of subsidiaries, net of cash acquired

 

(10.2)

(2.6)

Investment in joint ventures and other investments

 

(2.1)

(0.6)

Acquisition of property, plant and equipment

 

(32.4)

(23.1)

Development expenditure

 

(6.1)

(4.2)

Cash flows used in investing activities

 

(46.4)

(26.1)

 

 

 

 

Financing activities

 

 

 

Proceeds from the issue of share capital

 

0.2

0.1

Finance costs

 

(4.9)

(5.3)

Purchase of own shares by Employee Share Ownership Trust

 

(0.9)

(0.9)

Capital element of finance lease repayments

 

(0.2)

(0.1)

Proceeds from borrowings

 

121.1

95.4

Repayment of borrowings

 

(142.5)

(70.4)

Dividends paid

 

(14.9)

(13.5)

Dividends paid to minority interest

 

(0.3)

(0.4)

Cash flows (used in)/from financing activities

 

(42.4)

4.9

 

 

 

 

Net decrease in cash and cash equivalents

 

(1.4)

(0.3)

Cash and cash equivalents at 1 January

9

20.3

21.8

Net foreign exchange differences

 

(0.3)

(1.2)

Cash and cash equivalents at 31 December

 

18.6

20.3

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2018

 

 

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 2017 as reported

12.5

 

25.6

 

217.0

 

2.8

 

(0.6)

 

257.3

 

1.0

 

258.3

Implementation of IFRS 15

-

 

-

 

(5.9)

 

-

 

-

 

(5.9)

 

-

 

(5.9)

At 1 January 2017 restated

12.5

 

25.6

 

211.1

 

2.8

 

(0.6)

 

251.4

 

1.0

 

252.4

Total comprehensive income restated

-

 

-

 

41.9

 

(1.8)

 

-

 

40.1

 

0.5

 

40.6

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

Transfer

-

 

-

 

(1.2)

 

-

 

1.2

 

-

 

-

 

-

Balance at 31 December 2017

12.6

 

25.7

 

238.9

 

 

(0.4)

 

277.8

 

1.2

 

279.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

-

 

-

 

43.1

 

(1.9)

 

-

 

41.2

 

0.4

 

41.6

Contributions by and distributions to owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary dividends paid

-

 

-

 

(14.9)

 

-

 

-

 

(14.9)

 

(0.3)

 

(15.2)

Acquisition

-

 

-

 

-

 

-

 

-

 

-

 

0.1

 

0.1

Share based payments

-

 

-

 

1.4

 

-

 

-

 

1.4

 

-

 

1.4

Tax effect of share based payments

-

 

-

 

0.2

 

-

 

-

 

0.2

 

-

 

0.2

Purchase of shares by ESOT

-

 

-

 

-

 

-

 

(0.7)

 

(0.7)

 

-

 

(0.7)

Sale of shares by ESOT

-

 

-

 

(0.7)

 

-

 

0.5

 

(0.2)

 

-

 

(0.2)

Arising on the issue of shares

-

 

0.2

 

-

 

-

 

-

 

0.2

 

-

 

0.2

Transfer

-

 

-

 

(0.2)

 

-

 

0.2

 

-

 

-

 

-

At 31 December 2018

12.6

 

25.9

 

267.8

 

(0.9)

 

(0.4)

 

305.0

 

1.4

 

306.4

 

Other reserve movements

 

Translation

 

Hedging

 

Total

 

reserve

 

reserve

 

 

Other reserves

£m

 

£m

 

£m

At 1 January 2017

6.5

 

(3.7)

 

2.8

Other comprehensive income

(7.5)

 

5.7

 

(1.8)

At 31 December 2017

(1.0)

 

2.0

 

1.0

Other comprehensive income

1.3

 

(3.2)

 

(1.9)

At 31 December 2018

0.3

 

(1.2)

 

(0.9)

 

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 2018. 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 25 February 2019.

 

          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 £39.6m (2017: £54.2m). 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 2018 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 2018 or 2017. The financial information for 2018 is derived from the statutory accounts for 2018 which have been delivered to the registrar of companies. The auditor has reported on the 2018 accounts; their report was (i) unqualified4, (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 statutory accounts for 2018 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.

 

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-underlying in nature. The following non-GAAP measures are referred to in this Preliminary announcement.

 

          2.1 Underlying operating profit and underlying profit before taxation

          Underlying operating profit is defined as operating profit before separately disclosed items (Note 4) which include acquisition related income and expense, asset impairments or other non-underlying items.

 

          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. Underlying earnings per share is set out in note 6.

 

          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 earnings before interest, tax, depreciation and amortisation (Ebitda)

          Underlying 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.

 

2.       Alternative performance measures (continued)

 

 

2018

 

2017

Underlying operating profit and underlying profit before taxation

£m

 

£m

Operating profit

61.4

 

52.8

Separately disclosed items before taxation

0.7

 

1.3

Underlying operating profit

62.1

 

54.1

Net finance expense

(6.0)

 

(5.5)

Underlying profit before taxation

56.1

 

48.6

 

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

 

 

2018

 

2017

 

£m

 

£m

Capital employed

 

 

 

Net assets

306.4

 

279.0

Less cash and short-term deposits

(18.6)

 

(20.3)

Plus borrowings

132.2

 

152.8

Capital employed

420.0

 

411.5

 

 

 

 

Underlying operating profit

62.1

 

54.1

Notional tax at the effective tax rate

(11.6)

 

(9.3)

 

50.5

 

44.8

Average capital employed

413.2

 

374.9

Return on average capital employed

12.2%

 

12.0%

 

 

 

 

Cash conversion

 

 

 

Cash generated from operations

96.2

 

29.7

Dividends from joint venture undertakings

1.4

 

1.4

Operating cash flow

97.6

 

31.1

Underlying operating profit

62.1

 

54.1

Cash conversion

157%

 

57%

 

 

 

 

Underlying Ebitda

 

 

 

Underlying operating profit

62.1

 

54.1

Underlying depreciation and amortisation

28.4

 

26.7

Underlying Ebitda

90.5

 

80.8

 

 

 

 

Underlying dividend cover

pence

 

pence

Underlying earnings per share

89.5

 

78.7

Dividends per share

31.5

 

28.7

Underlying dividend cover (times)

2.8

 

2.7

 

3.       Segmental information

 

          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. Point in time revenue includes services provided over periods of up to seven days.

         

           

 

 

3.       Segmental information (continued)

 

         

Year ended 31 December 2017

 

 

 

 

 

 

 

Marine

Specialist

Offshore

 

 

 

 

Support

Technical

Oil

Tankships

Corporate

Total

 

£m

£m

£m

£m

£m

£m

Segmental revenue

 

 

 

 

 

 

- point in time

237.5

40.5

56.6

-

-

334.6

- over time

-

115.8

-

57.0

-

172.8

Implementation of IFRS 15 - over time

-

(6.1)

-

-

-

(6.1)

Segmental revenue restated

237.5

150.2

56.6

57.0

-

501.3

Inter-segmental sales

(1.2)

(0.6)

(0.2)

-

-

(2.0)

Revenue

236.3

149.6

56.4

57.0

-

499.3

 

 

 

 

 

 

 

Underlying operating profit

24.5

21.1

3.8

8.8

(2.4)

55.8

Implementation of IFRS 15

0.8

(2.3)

(0.2)

-

-

(1.7)

Underlying operating profit restated

25.3

18.8

3.6

8.8

(2.4)

54.1

Acquisition costs

(0.7)

(0.3)

-

-

-

(1.0)

Adjustment to provision for contingent consideration

(1.4)

(0.3)

(0.3)

-

-

(2.0)

Amortisation of acquired intangibles

0.9

0.8

-

-

-

1.7

Operating profit

24.1

19.0

3.3

8.8

(2.4)

52.8

Net finance expense

 

 

 

 

 

(5.5)

Profit before tax

 

 

 

 

 

47.3

Income tax

 

 

 

 

 

(7.9)

Profit for the year

 

 

 

 

 

39.4

 

 

 

 

 

 

 

Assets and liabilities

 

 

 

 

 

 

Segmental assets restated

234.4

179.1

131.4

32.2

28.0

605.1

Investment in joint ventures

4.1

3.0

-

-

-

7.1

Total assets

238.5

182.1

131.4

32.2

28.0

612.2

Segmental liabilities restated

(77.8)

(57.6)

(13.9)

(8.1)

(175.8)

(333.2)

 

160.7

124.5

117.5

24.1

(147.8)

279.0

Other segmental information

 

 

 

 

 

 

Capital expenditure

15.7

2.8

2.0

2.4

0.3

23.2

Depreciation and amortisation

10.2

5.0

9.6

3.3

0.6

28.7

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:

           

 

2018

 

2017

 

£m

 

£m

Acquisition related income and (expense):

 

 

 

  Costs incurred in acquiring businesses

(0.7)

 

(1.0)

  Amortisation of acquired intangibles

(2.6)

 

(2.0)

  Adjustment to provision for contingent consideration

2.6

 

1.7

Separately disclosed items before taxation

(0.7)

 

(1.3)

Tax on separately disclosed items

0.4

 

0.4

 

(0.3)

 

(0.9)

 

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

 

5.      Taxation

                               

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

2018

 

2017

 

£m

 

£m

Current tax:

 

 

 

UK corporation tax

(2.2)

 

(3.1)

Overseas tax

(9.3)

 

(6.8)

Adjustment in respect of prior years:

 

 

 

UK corporation tax

1.0

 

(0.2)

Overseas tax

0.1

 

0.8

Total current tax

(10.4)

 

(9.3)

Deferred tax:

 

 

 

Origination and reversal of temporary differences:

 

 

 

UK corporation tax

(0.3)

 

0.7

Overseas tax

0.6

 

0.7

Total taxation on profit for the year

(10.1)

 

(7.9)

 

The total tax charge in the income statement includes a further £0.1m (2017: £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:

 

 

2018

 

2017

 

£m

 

£m

Profit before tax

55.4

 

47.3

Tax arising from interests in joint ventures

0.1

 

0.2

 

55.5

 

47.5

Tax on profit at UK statutory tax rate of 19% (2017: 19.25%)

10.5

 

9.1

Tonnage tax relief on vessel activities

(1.5)

 

(1.0)

Expenses not deductible for tax purposes

0.3

 

0.2

Over provision in previous years

 

 

 

Current tax

(1.1)

 

(0.6)

Deferred tax

0.5

 

-

Higher tax rates on overseas income

2.2

 

0.8

Research and development relief

(0.4)

 

(0.3)

Non-taxable income

(0.9)

 

(0.3)

Impact of change of rate

(0.2)

 

0.1

Losses not recognised

0.8

 

0.8

Other

-

 

(0.7)

 

10.2

 

8.1

 

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 28,630 (2017: 27,620) 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 2018, nil options (2017: 105,840) 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

 

2018

 

2017

 

Number of

 

Number of

 

shares

 

shares

Basic weighted average number of shares

50,210,684

 

50,163,144

Potential exercise of share based payment schemes

299,374

 

391,640

Diluted weighted average number of shares

50,510,058

 

50,554,784

 

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:

 

 

2018

 

2017

 

£m

 

£m

Profit attributable to owners of the Company

44.9

 

38.9

Adjustments:

 

 

 

Separately disclosed items

0.7

 

1.3

Tax on separately disclosed items

(0.4)

 

(0.4)

Underlying profit attributable to owners of the Company

45.2

 

39.8

 

Earnings per share

 

pence

 

pence

Basic earnings per share

89.5

 

77.5

Diluted earnings per share

88.9

 

76.9

Underlying basic earnings per share

90.0

 

79.3

Underlying diluted earnings per share

89.5

 

78.7

 

 7.     Dividends paid and proposed

 

 

2018

2017

2018

 

2017

 

pence per share

pence per share

£m

 

£m

Declared and paid during the year

 

 

 

 

 

 

 

 

 

 

 

Equity dividends on ordinary shares:

 

 

 

 

 

Final dividend for 2017:

19.3

17.6

9.7

 

8.8

Interim dividend for 2018:

10.3

9.4

5.2

 

4.7

 

 

 

14.9

 

13.5

 

         A final dividend in respect of the year ended 31 December 2018 of 21.3p per share (2017: 19.3p) 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 2018 by qualified actuaries using assumptions set out in the table below.  The Group's obligations in respect of its pension schemes at 31 December 2018 were as follows:

 

 

2018

 

2017

 

£m

 

£m

Shore staff

4.6

 

5.8

MNOPF

5.1

 

6.8

MNRPF

6.4

 

7.2

 

16.1

 

19.8

 

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

 

2018

flow

non cash

movement

2018

 

£m

£m

£m

£m

£m

Cash in hand and at bank

20.3

(1.4)

-

(0.3)

18.6

Debt due after 1 year

(152.2)

31.2

(0.4)

(0.6)

(122.0)

Debt due within 1 year

(0.2)

(9.8)

-

-

(10.0)

 

(152.4)

21.4

(0.4)

(0.6)

(132.0)

Finance leases

(0.4)

0.2

(0.1)

0.1

(0.2)

Net debt

(132.5)

20.2

(0.5)

(0.8)

(113.6)

 

 

 

 

 

 

 

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)

-

(0.4)

Net debt

(105.7)

(25.2)

(1.2)

(0.4)

(132.5)

 

10.     Related party transactions

 

         There have been no significant changes to related party transactions from that disclosed in the 2017 Annual Report.

 

11.     Changes in significant accounting policies - IFRS 15 'Revenue from contracts with customers'

 

         The Group adopted IFRS 15 on 1 January 2018 using the fully retrospective method, utilising the practical expedients available.

 

         The impact due to these changes is set out below. Line items that are not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided.

        

 

 

Year ended 31 December 2017

 

Reported 

Adjustments 

Restated 

 

£m 

£m 

£m 

Revenue

505.4

(6.1)

499.3

Cost of sales

(350.9)

4.3

(346.6)

Gross profit

154.5

(1.8)

152.7

Administrative expenses

(100.4)

0.1

(100.3)

Share of post-tax results of joint ventures

1.7

-

1.7

Acquisition related income and (expense)

(1.3)

-

(1.3)

Operating profit

54.5

(1.7)

52.8

Net finance expense

(5.5)

-

(5.5)

Profit before taxation

49.0

(1.7)

47.3

Income tax

(8.3)

0.4

(7.9)

Profit for the period

40.7

(1.3)

39.4

 

         The main impact of IFRS 15 is within Specialist Technical on long-term contracts. Under IAS 11, revenue under long-term contracts was recognised using the percentage of completion method. The Group has determined that, within Specialist Technical, the performance obligations identified in a number of contracts will satisfy the criteria in IFRS 15 for recognition over time. As result under IFRS 15, it is no longer deemed appropriate to recognise significant work in progress as an asset on the Group's balance sheet and consequently the Group will recognise revenue based on costs incurred reflecting the continuous transfer of the benefit of the Group's performance to the customer.

        

 

Year ended 31 December 2017

 

Reported 

Adjustments 

Restated 

 

£m 

£m 

£m 

Non-current assets

 

 

 

Deferred tax assets

3.2

1.1

4.3

Current assets

 

 

 

Inventories

52.1

(4.9)

47.2

Trade and other receivables

201.9

(2.6)

199.3

Total assets

618.6

(6.4)

612.2

Current liabilities

 

 

 

Trade and other payables

(132.7)

(0.8)

(133.5)

Net assets

286.2

(7.2)

279.0

 

         The impact on the Group's retained earnings at 31 December 2016 is a reduction of £5.9m relating to the elimination of bid costs (£0.4m), rendering of services (£1.0m), recognition of revenue over time (£5.2m) offset by deferred taxation (£0.7m).

 

         Following the adoption of IFRS 15, the Group's accounting policy in respect of revenue is as follows:

 

         Revenue represents income derived from contracts for the provision of goods and services by the Company and its subsidiary undertakings to customers in exchange for consideration in the ordinary course of the Group's activities.

 

         (i) Performance obligations

         Upon approval by the parties to a contract, the contract is assessed to identify each promise to transfer either a distinct good or service or a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Goods and services are distinct and accounted for as separate performance obligations in the contract if the customer can benefit from them either on their own or together with other resources that are readily available to the customer and they are separately identifiable in the contract.

 

         (ii) Transaction price

         At the start of the contract, the total transaction price is estimated as the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised goods and services to the customer, excluding sales taxes. Variable consideration, such as price escalation, is included based on the expected value or most likely amount only to the extent that it is highly probable that there will not be a reversal in the amount of cumulative revenue recognised. The transaction price does not include estimates of consideration resulting from contract modifications, such as change orders, until they have been approved by the parties to the contract. The total transaction price is allocated to the performance obligations identified in the contract in proportion to their relative stand-alone selling prices where appropriate. Given the bespoke nature of many of the Group's products and services, which are designed and/or manufactured under contract to the customer's individual specifications, there are typically no observable stand-alone selling prices. In such cases, stand-alone selling prices are typically estimated based on expected costs plus contract margin consistent with the Group's pricing principles.

 

         (iii) Revenue and profit recognition

         For each performance obligation within a contract, the Group determines whether it is satisfied over time or at a point in time. Performance obligations are satisfied over time if one of the following criteria is satisfied:
- the customer simultaneously receives and consumes the benefits provided by the Group's performance as it performs;
- the Group's performance creates or enhances an asset that the customer controls as the asset is created or enhanced;
- the Group's performance does not create an asset with an alternative use to the Group and it has an enforceable right to payment for performance completed to date.

 

         (iv) Bid costs

         All pre-contract bidding costs which are incurred irrespective of whether the contract is awarded relating to the design, manufacture or operation of assets or the provision of services are expensed when incurred.

 

12.     Post balance sheet events

 

         On 4 January 2019, the Group acquired the entire share capital of Martek Holdings Limited (Martek), for an initial net cash consideration of £9.0m, with potential further consideration of up to £1.0m subject to a profit target for the year ending 28 February 2020.

 

         On 7 January 2019, the Group acquired 60% of the share capital of Murjan Al-Sharq (MSMC), for an initial cash consideration of £4.1m, with potential further consideration of up to £4.5m subject to a profit target for the year ending 31 December 2019. Martek and MSMC will be included in the Group's Marine Support division.

 


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