02 March 2016
Preliminary results for the year ended 31 December 2015
James Fisher and Sons plc (FSJ.L) ("James Fisher"), the leading marine service provider, announces its results for the year ended 31 December 2015.
|Underlying profit before tax*||£41.2m||£46.9m|
|Underlying diluted earnings per share*||£68.5p||74.0p|
|Dividend per share||23.8p||22.0p|
|Statutory profit before tax||£46.2m||£49.2m|
|Statutory diluted earnings per share||79.2p||79.2p|
*Underlying profit excludes separately disclosed items
- Specialist Technical, Marine Support and Tankships combined underlying operating profit up 25%
- Sharp decline in activity in Offshore Oil mitigated by swift cost reduction actions; gross margins held up well
- Cash conversion strong at 95%
- Full year dividend increased 8% to 23.8p per share
- Galloper wind farm contract announced last week worth in excess of £25m
Commenting on the results, chief executive officer Nick Henry said,
"With the award of the Galloper wind farm contract, we have started 2016 with good momentum.
Looking forward, our Marine Support division looks well placed to deliver growth and Tankships continues to trade well at the levels seen last year. Prospects in our Specialist Technical businesses are strong but, as always, are linked to the timing of specific contract awards. Whilst the outlook in our Offshore Oil division is difficult to predict, the business has been strengthened by the cost actions management implemented last year.
With a strong financial position and robust business model, the Board remains confident in the Group's ability to deliver further growth and value for its shareholders."
I am pleased to report that James Fisher and Sons plc finished 2015 strongly with an underlying profit before tax for the year of £41.2m (2014: £46.9m), making for a much improved second half. While this represents a 12% decline compared with 2014, the result demonstrates the resilience of the Group's business model in challenging times. The breadth of James Fisher's activities across the marine sector meant that three of our four divisions continued to trade well, partially mitigating the sharp down-turn in our Offshore Oil division. Group revenue for the year was marginally lower at £437.9m (2014: £444.8m). Underlying diluted earnings were 68.5 pence per share, a decrease of 7% compared with 2014.
Our Marine Support and Tankships divisions showed strong profit growth. Marine Support's performance reflected increased project revenues which were phased towards the second half as well as the initial contributions from businesses acquired earlier in the year. Tankships built further on its strong track record of recent years with costs reduced and utilisation improved. Specialist Technical delivered another strong result broadly in line with last year, making good progress with the delivery of its order book.
Our Offshore Oil businesses faced progressive oil and gas industry expenditure cut-backs as the year wore on with inspection and maintenance work being deferred, particularly in Norway. This has required management to take tough action to reduce costs and, sadly, staff numbers. The division is now on a firmer footing going forward assuming at least some stabilisation of demand.
The Group's cash conversion continued to be strong at 95% with year-end balance sheet gearing remaining at a conservative 43% despite acquisition expenditure of £27.2m in the year and an increase in project related working capital.
The resilience of the Group's performance has led the Board to propose an increase in the final dividend to 16.0 pence per share compared with 14.9 pence last year, making a total for the year of 23.8 pence per share, an increase of over 8% compared with 2014.
The continued strong performance of the majority of the Group's businesses together with the strength of its balance sheet has enabled James Fisher to maintain its strategic course. The Group remains focused on investing in niche businesses which operate in demanding environments where their strong marine service and specialist engineering skills are valued and rewarded. By a combination of organic investment and targeted bolt-on acquisitions, these companies have grown both in terms of service capability and international presence and have been integrated into a wider service offering for our customers. The success of this strategy is reflected not only in the profit growth of recent years but also in the increased size of contracts being won and the growing strength of the Group's international presence.
With the down-turn in Offshore Oil, the Board has given particular attention to our forward strategy this year. Overall, we believe that your company remains well positioned to generate long-term growth.
Our Marine Support businesses are global leaders in ship-to-ship transfers and they have strengthened their project management capabilities both offshore and subsea. In recent years their worldwide network has grown significantly with new bases in the Asia Pacific region and in Brazil. The acquisition of Subtech in Southern Africa and increased investment in our Nigerian business were further steps forward in 2015. The division's Subsea capabilities were boosted by the purchase of the mass-flow excavator assets of X-Subsea and our development initiative in the offshore renewables sector was strengthened by the acquisition of Mojo Maritime in May. The recently announced offshore support service contract for the construction phase of the Galloper wind farm marks a significant breakthrough in establishing James Fisher as an important service integrator to the offshore renewables sector.
Our Specialist Technical division is also well placed strategically. James Fisher Nuclear has been successful in becoming a recognised Tier 2 supplier to the nuclear decommissioning industry in the UK. Its growing reputation offers openings to overseas markets in the future. The company will also be able to provide services to the UK's nuclear new-build sector once this moves forward. JFD is a world leader in hyperbaric and submarine rescue service provision to both the commercial and defence sectors. The company has benefitted in recent years from strong orders for saturation diving systems from the commercial sector. We reinforced our position in this field with the acquisition of the National Hyperbaric Centre in Aberdeen in February. We expect orders in this division from the oil and gas sector to slow but prospects overall to remain strong due to increased demand for our defence related products and submarine rescue services. JFD has been successful in strengthening its position in Asia Pacific and we would expect this region to grow further. In both James Fisher Nuclear and JFD, the Group has businesses with strong market positions and good growth prospects. As project based businesses, their profits are inevitably 'lumpy' but this variability can more easily be absorbed by a Group with three other more broadly based divisions.
Our Tankships division has produced an excellent performance in recent years. It provides some hedge to our Offshore Oil activities in that its volumes benefit as the price of oil falls. We remain focused on investing in the management and fleet operational performance of this division to ensure that it remains a strong niche provider to the coastal shipping sector both now and in the future.
The Offshore Oil division has been a key contributor to the profit growth of recent years. We have lived through previous cyclical down-turns in the oil and gas sector before, but the speed and depth of this cycle has been greater than we expected. That said, I believe that the Group entered this cycle in a strong position. We consciously decided against chasing over-priced acquisitions in this division in the past ensuring that we entered this tougher market with a strong balance sheet. Our businesses are predominately focused on niche services to the inspection and maintenance sector and are well placed to benefit from a resumption in maintenance and development work which cannot be postponed indefinitely. Tough action was taken during the past year to cut our cost base significantly but we have been successful in retaining the experienced management teams which have helped to generate our past success. We are therefore confident that this division will bounce back and we remain committed to investing appropriately to strengthen further its niche market coverage.
Overall, the Board believes that each of our four divisions continues to have attractive prospects based on strong market positions. The strength of our balance sheet means that the Group is well placed both to meet the organic investment needs of all four divisions and to continue with incremental acquisitions designed to reinforce our market positioning and our international network. Longer term, with its growing presence in the nuclear and renewables industries as well as the oil and gas sectors, the Group is well able to adapt to changes in the global energy mix.
Following the new appointments of non-executive directors in recent years, there were no changes in the Board composition in 2015. During the year, an external Board appraisal was carried out which concluded that the Board functions well as a unit and has a good mix of business experience to ensure that issues are examined from a broad range of perspectives. The documentation reviewed by the Board was considered to reflect an appropriate and good level of governance and process.
James Fisher has continued to benefit from a strong and stable management team both at Board level and in our operating companies. This has enabled the Group to adapt successfully to the new opportunities opening up in Marine Support and Specialist Technical and to deal with the increased scale and complexity of our international operations. In Offshore Oil, management and staff have had to face the tough task of restructuring our businesses to meet the downturn in the Oil and Gas sector which has involved substantial redundancies. On behalf of the Board, I would like to thank all employees for their hard work and dedication to the continued success of the James Fisher Group.
The strong finish to 2015 and the recently announced award of the Galloper wind farm contract in Marine Support means that we start 2016 on a firmer footing. This contract will gain momentum later this year leading to a pronounced weighting of earnings to the second half. It is too early to be certain that our Offshore Oil businesses have bottomed out, but we may reasonably expect that the impact of continued adverse market conditions on this division's earnings is likely to be limited following the restructuring work undertaken last year. Our Marine Support division looks well placed to deliver growth and Tankships continues to trade well at the levels seen last year. Prospects in our Specialist Technical businesses are strong but are linked to the timing of specific contract signings. Subject to confirmation of these, we remain positive for the year ahead and confident of the Group's potential to provide good growth and value for our shareholders in the future.
Chief Executive's Review
Operating profit in the Offshore Oil division was sharply down reflecting the challenging market conditions, as maintenance expenditure was severely cut with work deferred as a result of the fall in global oil prices. Our other three divisions, Specialist Technical, Marine Support and Tankships performed strongly, increasing their combined underlying operating profit by 25%. The Group's underlying operating margin was 10.4% (2014: 11.6%) and underlying earnings per share was 68.5p (2014: 74.0p). The degree to which the oil and gas sector postponed maintenance and modification work was greater than had been anticipated or had been experienced in previous cycles. Whilst activity levels were severely reduced, gross margins were largely sustained reflecting the specialist nature of our niche services.
Business model and strategy
The Group's strategy over the past decade has been to grow its marine services through organic growth from its niche businesses supplemented by selective bolt-on acquisitions to broaden our service and product offering. The Group leverages its marine skills to the global market focusing on less mature markets. Our businesses are entrepreneurially led, with market leading positions through operational excellence, delivering operating margins in excess of 10%, generating cash and producing a return on capital employed in excess of 15%.
Our strategic goal is to deliver long-term growth in underlying earnings per share and progressive dividend growth. The compound annual growth rate over the last ten years in underlying earnings per share is 12% and the compound growth in dividends over the same period is 11%.
The Group provides an extensive range of services to a broad range of industries. Our customers are predominantly large multinational corporations and government bodies. No customer amounts to more than 7% of Group revenue.
During 2015 the Group completed 5 acquisitions:
- In February, the National Hyperbaric Centre in Aberdeen was acquired for £3.5m. This broadens the Group's offering in hyperbaric testing and consolidates JFD's market leading position in the design, manufacture, testing and operation of hyperbaric reception facilities.
- In March, Subtech was acquired for an initial consideration of £3.3m. Subtech is based in Durban, South Africa with operations in Namibia, Mozambique, Tanzania and South Africa. The business provides a range of marine services and is well positioned in Sub-Saharan Africa for potential growth as offshore projects are developed in the future.
- In May, Mojo Maritime was acquired for £3.2m. Mojo have considerable experience and reputation within the offshore renewables sector providing project management, engineering and consultancy services. Mojo will be integrated into James Fisher Marine Services, the process of which has already commenced.
- In May the assets of X Subsea were acquired for £14.8m. X Subsea had gone into administration and were one of the competitors of James Fisher Subsea Excavation. This acquisition means we become a leading global operator of such specialist subsea tools which are used in the oil and gas, and telecoms sectors and increasingly in the offshore renewables markets.
- A small nuclear sources distributor was acquired in January 2015 which has been integrated into James Fisher Nuclear.
From an operational perspective, the Group merged Testconsult, which was acquired in 2014 with Strainstall Monitoring to create James Fisher Testing Services to streamline the marketing of our load monitoring, bridge monitoring and testing services to the marine and construction sectors. James Fisher Subsea Services was created to pull together our diving and remotely operated vessel inspection businesses.
Read the preliminary presentation for a further overview.
UPDATE: Please note corrections to FY Results published on 2 March 2016.