James Fisher and Sons H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 20, 2025

Key Takeaways

  • Positive Sentiment: Solid turnaround progress: Completed portfolio simplification, divested noncore assets, refinanced debt into less onerous facilities, and positioned for growth in the next phase.
  • Positive Sentiment: Strong FY24 financials: Adjusted revenue rose 8.6% and operating profit increased 31% to £22 million (5.4% margin), with net debt down to £61 million (1.4× EBITDA) and ROCE up to 8.2%.
  • Neutral Sentiment: Energy division momentum: Pre-disposal revenue grew nearly 18% led by Well Services, bubble curtain solutions and a 60% jump in IRM, offset by decommissioning losses and a one-off contract ending in Q1 2025.
  • Neutral Sentiment: Defense order book expansion: Revenue rose modestly to £18 million with the order book up 37% to $306 million, though margins remain pressured by upfront investment for scaling and new product development.
  • Negative Sentiment: Maritime transport headwinds: Tankships stayed flat with 89% utilization, but the fender services business saw a 10.6% revenue drop due to weaker LNG transfers and delayed product orders.
AI Generated. May Contain Errors.
Earnings Conference Call
James Fisher and Sons H2 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good morning, everyone. Thank you for joining our presentation today. I'm Heather Nisbett, Director of Treasury and Investor Relations at Deans Fisher. I'm pleased to welcome those in the room and on our webcast. Before we start, I'd like to run through some housekeeping and logistics with you.

Operator

Firstly, for those in the room, we're not expecting any fire drills today. So if there is an alarm, please follow the instructions and make your way to the nearest exits as indicated. Please turn all mobile phone devices off or on to silent. After the presentation, there will be an opportunity for Q and A, both in the room and via the webcast. If you are in the webcast, please add your questions to the Q and A function.

Operator

Finally, please note the disclaimer on Slide two. And with that, I'll hand over to our Chief Executive Officer, Jean Brunet.

Speaker 1

Thank you, Heather. Good morning, everyone, and thank you for joining our twenty twenty four full year results earnings call. I'm pleased to be joined by our Chief Financial Officer, Karen Hazen Smith, and together, we will provide an update on our full year results. I will start by going through the business highlights, and Karen will provide an overview of our 2024 financial results. I will then give a strategic update on the progress of our business turnaround and how we are positioning the company for growth.

Speaker 1

And at that point, we will conclude and turn to Q and A. We are now two years into our business turnaround, and we have made solid progress. The first phase around focus and simplify is nearly complete, guided by our One James Fisher operating model. Our organization now creates greater synergies and builds strength with a simplified portfolio, which is better aligned to our customer verticals. Our leadership team is accountable, cohesive and unified in driving execution.

Speaker 1

The divestitures we completed in 2024 add good value for shareholders where necessary to delever the group and strengthen our financial foundations. This allowed us to successfully refinance our debt with less onerous facilities last September. We are now on a stronger footing to move in 2025 to the next phase of our turnaround, positioning ourselves for growth in aligned markets and sub segments. We will continue to improve our safety, talent, innovation and productivity through a focus on execution and accountability. Now let's spend a minute on our business portfolio as it stands today and as it will drive the company going forward.

Speaker 1

Our purpose at James Fisher is to solve our customer challenges in the blue economy. Our activities serve three business verticals with growing convergence between energy and defense. The Energy division helps our customers meet a growing global energy demand more efficiently, safely and sustainably as they progress through their energy transition road map. For example, our oil and gas services make our customers' operations safer, less carbon intensive. While in offshore wind, we protect the sea life during construction, and we lower operating costs through smart monitoring and retest services of components such as high voltage cables and blades.

Speaker 1

The division in defense supports and saves lives underwater. Thanks to our global leadership in submarine rescue, rebreathers for combat divers and stealth mobility solution for special forces. We deploy and serve our customers wherever they need us in the world, promoting interoperability across partner nations. Maritime transport ensures on time delivery of critical energy products through coastal shipping in selected geographies, but also enables ship to ship transfer of oil and gas third party cargoes globally. We have the highest reputation for safety and quality in that business, and this explains why we have so many some customer relationship extended over decades.

Speaker 1

We will continue to simplify our portfolio going forward, constantly reviewing the fit of its components, while at the same time, we will focus and invest in opportunities where we can scale profitably. I will cover this in with more color later, but now I will hand over to Karen, who will walk us through the financials. Over to you, Karen.

Speaker 2

Thank you, John. Good morning, everyone, and I'm pleased that we've been able to end the twenty four year in a stronger position and with a positive set of results. Overall, we have continued to deliver on our key turnaround priorities. Proceeds from the sale of businesses and assets provided funds to pay down debt and strengthen our balance sheet. We refinanced our facilities on better terms in September and continued our focus on cash management, increasing profitability and improving margins.

Speaker 2

So I will start today with the headlines. Given the disposals, it's more appropriate if we consider the results adjusted for the impact of these and illustrate growth on a like for like basis. Revenue was up 8.6%, driven by a stronger than expected second half performance, mainly in the Energy division. Operating profit was up 31% to £22,000,000 excluding disposals with a margin of 5.4%. And although the margin was up 90 basis points, it has reduced on a restated basis given RMS Pump Tools was a higher margin business.

Speaker 2

In the unadjusted position, revenue was down 11.8% overall and operating profit was flat. And net debt was GBP 61,000,000 on a covenant basis to give a net debt to EBITDA ratio of 1.4 at December 31, within our target range. Lastly, returning capital employed also increased to 8.2%, which is 160 basis point uplift, reflecting our continued focus on profitability and improvements in working capital. If we now turn to the next slide and look at the revenue bridge, where I have a few moments movements I would like to explain. Revenue declined year on year by GBP 6,000,000 to GBP due to the impact of the closure of the Subtech Europe business and activities related to the sale of the Swordfish vessel in 2023, which was operating in the inspection, repair and maintenance part of the business.

Speaker 2

Revenue was also impacted by the RMS disposal from July and the disposal of Martech Marine. Excluding these, revenue increased by 8.6% year on year. On the continuing businesses, there was an £18,000,000 increase. This is explained by Energy Services having good revenue growth with a strong performance in Well Services and also in our Bubble Cotton product offerings. Tankships had a solid year with Defense also having an uplift in revenue.

Speaker 2

However, this was offset by a decline in the ship to ship transfer product line due to a quieter year with a lack of LNG transfers and experiencing timing delays in the sale of fender products. Moving on to operating profit, where there are also a number of moving parts. Although revenue declined significantly due to Subtech Europe and Swordfish closures, there was actually minimal impact at an operating profit level as Subtech Europe had been loss making and the vessel activities were low margin. Excluding disposals, profit was up 31 from £16,800,000 to £22,000,000 There was also a net profit impact of 1,200,000.0 from the volume changes highlighted on the previous slide with the Energy division up, offset by Maritime Transport being down. I will also highlight a few points in the Energy division to explain some nonrecurring items.

Speaker 2

In the year, we continued to review our asset portfolio and sold assets in the Life of Field business, generating a gain of £3,500,000 This was more than offset by losses in the decommissioning business. We are focused on the turnarounds of this business, which is now moving closer to a sustainable breakeven position. Lastly, as highlighted at the recent trading update, twenty four benefited from additional profit on a mills and beet contract, which will not repeat in 2025, given the conclusion of the project in Q1 this year. So overall, the net impact of these three items is around GBP 3,000,000 nonrecurring. So the next slide provides a profile of the continuing businesses following the simplification of the group and illustrates growth on a like for like basis.

Speaker 2

We achieved a CAGR of 6% looking back over the last few years. And as we look forward, we do recognize that there are businesses that are not quite performing at their full potential or desired hurdle rates. We made progress in the year, and we'll continue to assess our turnaround these in 2025. Following the disposals, the profit margin is 5.4% for 2024. Therefore, we're focused on increasing this by reducing our overall cost base, and we have made savings in 2024 and we'll continue to do so throughout 2025 with a program now in place to accelerate our efforts.

Speaker 2

The efficiencies would be from self help, supply chain and productivity initiatives and driving businesses to perform at our hurdle rates, which Jean will discuss in more detail later. We will be balancing these actions with a desire to build capabilities to ensure we have a platform from which to grow. So if we now turn to look across the divisions. Energy was restructured organizationally in the year into Energy Services, Renewables and Inspection, Repair and Maintenance. And overall, the Energy division had a good year with revenue up almost 18% before disposals.

Speaker 2

Energy Services benefited from projects continuing beyond the normal seasonal time frames in the Well Services business, and there was strong activity in Bubble Curtain, which crosses both Energy Services and Renewables in our existing markets of The Middle East and Africa and newer markets of Taiwan and The U. S. Renewables now accounts for approximately 33% of bubble curtain revenue, up from 30% in 2023. We are well positioned though to adjust resources to take account of macro and political changes across both Energy Services and the Renewable product lines. IRM delivered a 60% increase in revenue, rising from £40,000,000 to just under £63,000,000 This growth is primarily driven by strong performance in Africa on a major port infrastructure project in Mozambique, which is nearing completion.

Speaker 2

And operating profit, excluding disposals, increased to 18,000,000 in the year, mainly from volume uplift and benefiting from the non recurring items outlined earlier. The Energy division is focused on achieving synergies and efficiencies to improve productivity further across its product lines. So moving on to the Defence division. Revenue increased year on year to 18,000,000 driven by a good performance in submarine rescue, defense diving and submarine platforms, together with a small increase in operating profit to just under £2,000,000 The lower operating profit also reflects the continued investment and capabilities to scale the business and develop new products. And the outcomes for the year do not fully reflect the progress or the potential in defense.

Speaker 2

I'm pleased to say that the order book has seen improvement in the '24 and finished the year with an order book of $3.00 £6,000,000 up 37 on the prior year. This includes orders for submarine rescue services, and the largest order we have received to date is for a number of tactical diving vessels. While some procurement proceeds are slower than we had hoped, we anticipate growth in defense across all product lines, and the division is also focused on strengthening its service offerings in Australia and in establishing a U. S. Presence.

Speaker 2

So if we turn to Maritime Transport. The division had a solid performance in tank ships with revenue up 5.8%. We had less vessels in the year but managed to retain revenue at £80,000,000 The spot market also held up well and utilization of the fleet was 89%. The cat down business also had a strong year with increased activity throughout the port. So if I strip out market from the figures for Fender Care shown on the slide, revenue was down 10.6% from £70,000,000 to £62,000,000 which was a disappointing performance.

Speaker 2

The LNG market has not recovered in 2025, which is a profitable part of the business. And although there is good market growth potential in LNG, the conditions have just not been right to drive the LNG transfers. Brazil continued to perform well, but higher vessel costs impacted profitability in an otherwise strong market. And in addition, 24% was impacted by product orders for fenders slipping into 25 So overall, operating profit was down, reflecting the drop from the Martech disposals and the revenue shortfalls, as I've just outlined. So let me move on to some of the other areas of the income statement.

Speaker 2

Net finance charges were down from £21,300,000 to £17,600,000 reflecting the drop on interest costs as a result of the debt levels being reduced in the year. The tax expense on underlying profits from continuing operations for the year is £6,400,000 representing an underlying effective tax rate of 28%. And if we turn to the statutory reported figures. So the operating profit finished the year at £73,000,000 There is a gain of £55,000,000 arising from the disposal of assets and businesses in the year. And we continue to incur advisory costs related to managing the revolving credit facility of £3,500,000 up until the refinancing in September, but a significant reduction on the prior year and should be at minimal levels as we go forward.

Speaker 2

If we can turn to the cash flow slide, I'll pick out a few points to note. So working capital continues to be well managed, and we saw a net working capital inflow of £4,200,000 The improved cash there was also improved cash collection with DSO days dropping to forty two days from forty five days in the prior year. And net interest paid was £17,400,000 with an average interest rate of around 10% for the year, which is a £20,400,000 of bank interest offset by £2,800,000 of interest income. CapEx, including development expenditure, was £31,700,000 This included investment in further compressors and other equipment to meet continuing demand in energy services and deposits on the tank ships rebuild program together with investment in new product development and defense. Net disposal proceeds in the period of £106,000,000 related to the business and asset disposals already discussed.

Speaker 2

And this gave an overall net debt movement of around £88,000,000 taking net debt to 56,000,000 So continuing on the subject of debt. This shows the progress made over the last year in reducing our debt and financing costs. And the interest rate has dropped by 150 basis points to around 8.5% as planned with significant savings in legal and other banking fees. Net debt finished the year at £61,000,000 on a covenant basis, giving a net debt to EBITDA of 1,400,000.0 We will seek to maintain debt within our target range, although we are expecting an increase at H1 due to the seasonality of the businesses and contract phasing. The graph on the right shows interest cover, which is 9.6x at December 31 as the calculation was boosted by interest rate swap terminations, and this will drop to around 5x during the year.

Speaker 2

And in support of our growing defense business, we have agreed a £12,500,000 general export facility this month, £7,000,000 to fund working capital and 5,500,000 to allow issuance of bank guarantees. And we remain focused on working capital and managing our inventory levels and on data collection. So if I turn to the guidance for 2025, our core markets remain positive and guidance is unchanged. And as we're 2024, it is weighted towards H2. And I'll just finish on a few points of technical guidance.

Speaker 2

Adamis Pump Tools contributed £24,000,000 of revenue and £6,800,000 of EBITDA In 2024, Martech contributed £7,500,000 of revenue and £700,000 EBITDA. And 25 of revenue should also be adjusted for the Mozambique contract concluding in Q1 twenty five with a full year impact of around £35,000,000 Capital and development expenditure is expected at similar levels to $2,024,000,000 pounds at 30,000,000 to 35,000,000 We remain focused on affordability, payback and meeting our hurdle rates before capital expenditure is approved. And we also expect bank interest rates of around 8.5% before any base rate reductions. And on tax, we continue to guide to an effective tax rate of 29%. Therefore, to wrap up the financial update, I would say that we had a decent second half with an overall improved 24 performance.

Speaker 2

We delivered on our important turnaround actions, deleveraging and strengthening the balance sheet, improving our cash position, simplifying the business. And overall, we have stabilized the group in the year to position for growth, but there is more to do to improve our performance and increase our margins in the medium term. I'll, of course, answer any questions later, but I'll hand back to Jean to take us through the rest of the presentation.

Speaker 1

Thank you, Karen. During our interim results, we provided an update on progress as we reached the half waypoint of our business turnaround. Since then, we simplified the portfolio further for the sale completion of RMS Spawn Tools and Martech. One of the significant milestones achieved since our interim results was the successful refinancing of our revolving credit facility. The group new facilities contracted with four major banks significantly reduced administrative costs and provide increased flexibility to support the business.

Speaker 1

I'd like to thank our lenders for their trust and continued support as we enter the next chapter of our turnaround. To support simplification and delivery, we have now recruited our full executive team, implemented our One James Fisher business model and launched a self help program. We are also encouraged by our additional progress made with our company priorities, which underpin our business turnaround strategy, and I will cover this now. In 2024, our company priorities were exceptional safety. Although overall performance fell slightly short of our ambitions for the year, two of our three divisions achieved or surpassed their safety goals.

Speaker 1

We made positive progress through improved awareness, enhanced training and comprehensive procedures and protocols, which we are now embedding in the 2025 objective of all employees. Foundation for growth. As I explained earlier, we successfully refinanced our facilities, our bank facilities and made progress towards our midterm financial targets. Now I'll talk more about the pathway forward to achieve our underlying operating profit target shortly. Pipeline of talent.

Speaker 1

The pace of our five year people strategy was impacted by our new CHRO only joining in the 2024. Nevertheless, we launched an enhanced performance management process, new rewards projects and apply informed and consistent decisions on people and talent. We value diversity and support our apprentices and cadets programs. Employee engagement, during another significant year of change, our employee engagement survey scores improved. We remain committed to strengthening our engagement, which is a key element needed to inspire and deliver as One James Fisher as a team.

Speaker 1

Strong supply chain, a new cross divisional supply chain function was established in 2024 with a central procurement function that has already achieved £1,000,000 in cost savings. This is very early stage, and we look onwards to delivering much greater savings from our chain of suppliers. Reflecting over the past two years, we have achieved quite a lot through our commitments to focus, simplify and deliver. And I would like to thank once again all our colleagues who have been driving and executing on this agenda for their hard work. We have reset the financial baseline of the business, and Karen has already covered this.

Speaker 1

In two years, the UOP margin has increased 120 basis points and ROCE has increased by two ninety basis points. We have also downsized our credit facilities and built a healthier balance sheet. The key enabler to the turnaround has been disciplined and rational investment decisions. As Karen mentioned, we have invested about £30,000,000 in CapEx projects, delivering superior returns, well above our hurdle rates, while ensuring the continued modernization of our Tankships fleet. I am also encouraged by the steps we have taken to improve financial discipline and compliance across the business.

Speaker 1

This is essential to manage our risks and deliver more effectively. Overall, the hard work is paying off. And as we enter the next chapter of our turnaround, our priorities are clear, but our recovery is still early stage and our priorities for 2025 are designed to cement and solidify our recovery. If I turn to priorities for 2025, exceptional safety remains our number one priority, embedding a culture that protects our people from harm under any circumstances. This will continue to be measured through a reduction in total recordable case frequencies, which is standard for the industry.

Speaker 1

Customer excellence places our customers at the center of the business. Building on last year, we are implementing a commercial framework and a culture of the highest standards consistently across all our business units, a culture that enables us to bring novel solution that solve customers' biggest challenges. This will be measured against our progress on UOP and ROCE targets. People, we will continue to execute on our five year strategy to attract, retain and invest in our talents and expertise. As a service technology company, our colleagues are the key agents of our success, and we will gauge progress through our engagement score.

Speaker 1

New product development, we will drive innovation and a pipeline of unique solutions that make our customers more competitive. This will be measured by our ability to introduce differentiated products and to grow revenue vitality. Strong supply chain building on the early progress from last year, we will continue to drive supply chain integration, building stronger strategic partnership, driving greater efficiency and supporting our global reach. This will be measured through our cost savings and is a key contributor to gross margin and ROCE improvements. As you can see, these priorities continue some of the long term programs we started in 2024, complemented with new priorities, which position us for growth.

Speaker 1

I'd like now to walk through our bridge to achieving 10% underlying operating performance, a key measure of our turnaround. We are acting on four levers to step up our UOP margins to 10%, with each contributing about the same amount to our targets. First, continuing to improve business performance within the portfolio. Every business unit must achieve returns above our hurdle rates, and we have seen good progress of that made in energy. We also see additional opportunities to improve performance across the board.

Speaker 1

In addition, in 2024, we launched a self help program. The goal is to calibrate and reshape our support functions to design an organization that better supports the business units so that when they scale, support functions drive productivity, leading to higher profit fall through. Thirdly, defense revenue base has been subscale. And yes, we have seen green shoots of recovery driving up order pipeline at the 2024. A lot more needs to be achieved, and the leadership team is driving this hard.

Speaker 1

The division currently has the resources to drive this inflection in revenue. And on that basis, a step up in revenue will result in healthy fall through to operating margins for our defense business. Last year, we started a three year supply chain transformation journey to integrate the function and harness an expert leaner fitter practice that can strategically support our business globally. This will be measured by shorter on time delivery and will result in a lower cost base that will make us more competitive. Of course, we do not intend to stop our ascent once we get to 10% underlying operating profit.

Speaker 1

We have within the company the potential to reach higher grounds by increasing differentiation through technology, but also thanks to strong market tailwinds. I will now spend a few minutes on those markets, on the market verticals and the trends that affect us and how we position the company for growth. There are five megatrends affecting our market verticals, which are particularly relevant to Energy and Defense. First, as energy demand will continue to drive to rise robustly, global warming will become worse and decarbonization will continue to drive the demand for safe, efficient and sustainable sources of energy. This is coupled with our second trend, the need for energy security and reliability in energy supply.

Speaker 1

Thirdly, the geopolitical environment is rapidly changing, reverting to a world governed through spheres of influence. Government spend is about to step up significantly across all our home markets, while emerging global threats are driving record level of spending in defense, including marine warfare. Digitization, automation and AI will accelerate in transforming how business and society operates. It will provide an exciting options for us to bring greater efficiency, faster decision making and smarter products. Finally, we are seeing increased localization, policies moving to favor a buy and spend local approach, with The U.

Speaker 1

S. Leading the way through higher tariffs. Within a fast changing world, our end markets prospects are very exciting, but we must remain vigilant to keep our three divisions aligned to these trends while continuously adapting. We are positioning the company for growth, acting upon the three levers which will lead to strategic growth. First, align strategic markets.

Speaker 1

Our capabilities are tailored to growth areas of future spending across the global energy and the global defense area, while maritime transport must build higher barriers to entries so we can preserve a predictable and attractive cash flow generation. People and capabilities are we leverage our human capital through expertise, a spirit of service and some unique capabilities, which can be deployed to customers consistently around the world. We know how to operate safely in complex and hazardous environments, and we have done so for one hundred and seventy eight years. Innovation and technology, we partner with customers to provide new innovative products that bring a competitive edge across a broad range of ecosystems. Our evolving product pipelines is tailored to growing markets and megatrends, including security, autonomy and electrification.

Speaker 1

Now let's spend a few minutes on each one of those levers. First, on the markets. Within our current business portfolio, we have identified seven sub segments across Energy and Defense, which have the potential to accelerate our growth and our size because they are heavily aligned to those macro trends I talked about. We have a proven track record for some of these sub segments, which demonstrates that when we focus, we can deliver fast and scale operations. This include, for example, bubble curtain, but also submarine rescue and tactical diving vehicles, where we invented these products and services and continue to innovate ahead of the competition.

Speaker 1

Across all these seven segments on the slide, we differentiate and see opportunities for sustainable growth against the underlying markets. We have set four key criterias that will allow us to select and scale this business. If you see on the slide across bubble curtain, wealth services and defense and all the defense segments, our experience and attractive market share puts us in an excellent position to embrace the secular inflection points we see in these markets. In the case of offshore wind, power generation, the cable, the blades and O and M services, the market is extremely fragmented and nascent, but this present also a unique opportunity. I believe that the new technologies which we are developing at pace for this market to solve the massive challenges of the offshore wind industry will be a strong driver of our growth.

Speaker 1

I will provide more color shortly on two examples of those seven segments. And of course, in maritime transport, we are already investing in the modernization of our fleet to meet long term demand for significantly more efficient and sustainable tankers. If I turn to people and capabilities, when it comes to the second lever, we are a service technology company at heart. We employ nearly 1,900 people globally across 23 countries in most major operating regions. We differentiate ourselves by being a trusted adviser with deep expertise working in complex and hazardous environment for our customers.

Speaker 1

This is demonstrated through credibility, superior service and our ability to innovate. Energy is an excellent example of this, where we pivoted our oil and gas expertise in air compression for the emerging towards the emerging offshore wind market, and I will illustrate this in minute. In defense, we continue to lead the industry through customer intimacy and understanding. Our ability to translate these observations into bespoke products or services is what make our name in defense. In maritime transport, where reliability is paramount, customers trust our ability to deliver because of our safe, professional and diligent care from our seafarers on every voyage every single day for one hundred and seventy eight years.

Speaker 1

Our employee engagement score is a key measure of employee satisfaction. If I turn to innovation and technology, innovation and technology are key elements of our success to our success. Following the appointment of our new Chief Technology Officer in early twenty twenty four, we developed and embedded a new product development engine to be deployed across the entire company. This is key to building a continuous pipeline of new products that address the evolving needs, always keeping in mind reliability, efficiency and sustainability. By leveraging partnerships with customers, academia and our supply chain, we can deliver an agile innovative pipeline.

Speaker 1

Our technology effort is guided by our business strategy and can be directed organically and complemented at times through partnering with smaller entrepreneurial companies to co develop early stage technologies. In 2025, we are making this partnership approach to third party technology methodical through the launch of a corporate venture capital practice. This will be measured through Vitality, our revenue generated by the technology invested. Now let me now illustrate how we combine expertise, technology and partnership using example the example of bubble curtains. With offshore wind set to build another additional 120 gigawatts by 02/1930, excluding China, the industry was looking for a solution that would reduce environmental noise pollution to protect the sea life during tile driving operations.

Speaker 1

Six years ago, through a strategic partnership, James Fisher led the way in advanced compressed air solution designed for big bubble curtains. This technology is proven to be the most effective method for reducing underwater noise by up to 95% with our compressors designed to reduce carbon emission by up to 40% compared to standard compressors. This has been a steep learning curve from understanding the market opportunities and positioning ourselves in the customer value chain through to improving operational delivery and efficiency in the field. Over five years ago, we are from over five years ago, we are now winning repeat business and are a global market leader. And I'll walk you through the time line in a little detail.

Speaker 1

The time line shows our agile business model, pivoting into growing nascent markets, scaling our operations with quick decision making and engineering expertise. This all started with an idea in 2018, and we scaled operations up to 2024. We have listened to the customer pain points and have provided a solution that reduces customer costs to deploy through reducing vessel requirements, resulting in approximately 30% cost saving whilst being more efficient. We are proud of this product offering as it is truly sustainable and plays an important role to protect our marine environment around the world. Looking forward, it is easy to move this product globally as it is vessel agnostic, which is a differentiation versus competition.

Speaker 1

Market tailwinds, combined with a growing adoption of sea life protection policies across nations, give us confidence in its further potential for growth across Northeast Asia, Northern Europe and North America, where we are already the market leader. If I move now to defense, let's talk about another example, submarine rescue. Firstly, it is worth noting some of our statistics. We are responsible for four out of five of the world's flyaway rescue systems. We have delivered five out of six of the world's free swimming rescue vehicles.

Speaker 1

And we have forty years of expertise in the industry delivering for navies with year on year contract renewals. Our customers depend on rescue readiness. These systems and their teams must be ready to deploy at short notice any day of the year. We delivered 98% availability, supported by our locally based globally deployable teams. This availability is well above most naval vessels and systems.

Speaker 1

Submarine rescue is one of the areas we have selected to grow the business as trends show significant inflection growth in the size of the submarine fleets and the need for more interoperability between partner nations. We also see an increasing convergence between submarine rescue and deep diving as navies develop new ways to protect critical underwater infrastructures. We have differentiated ourselves from others as we have looked for ways to continuously improve our services through technology, for example, enhancing our digital communication tools and upgrading our digital monitoring of casualty's health to ensure that the injured submariners receive proper care as soon as possible. To invest in these growth opportunities, we must apply rigor with our use of funds. And I will now talk about how we achieve this through our capital allocation framework.

Speaker 1

Our financial discipline the financial discipline we implemented over the past two years enabled us to have a much better handle on managing our free cash flows. We also have designed an organization that puts capital allocation at the center of business decisions. This is guided by simplicity and focus, avoiding distractions with more time to spend on the most promising of our opportunities. In the capital allocation pecking order, organic investment is first. We invest 30,000,000 to €35,000,000 a year in CapEx on CapEx in opportunities with complex economics, with strong business rationale that support better delivery to customers, minimizing the risk we cannot control and therefore, enhancing our growth potential.

Speaker 1

We will not discard opportunistic small bolt on investment, but with higher hurdle rates on business rationale and financial metrics. Our second priority is to use the funds to maintain a conservative capital structure. You saw our progress in 2024 to rebalance our debt over equity, and our leverage is now within an acceptable range. We will closely monitor to stay within that range and continue to optimize by controlling our cost of debt. Priority number three, dividends.

Speaker 1

Although the company is healthier than we were three years ago, we are unable to reinstate a dividend in 2024, but we are committed to doing so as soon as we are confident that we have regained a predictable and repeatable annual return in excess of our investment needs. In conclusion, I'm encouraged by our 2024 performance, ending the year in a stronger financial position and winning our business better position for growth. We are delivering on our business turnaround strategy. And while much remains to be done, we are moving forward. We have reduced our leverage significantly, which allowed us to refinance the debt under improved terms.

Speaker 1

This provides a stable capital structure from which to grow the business and execute on our strategy. We are progressing towards our strategic financial target of 10% UOP and 15% ROCE through a combination of improved business unit performance in the portfolio, self help and the rebound of the defense business and continued supply chain integration. Once we have reached our financial hurdle rates, there is no reason to stop there, supported by the market tailwinds of energy and security, but also driven by innovation. Market conditions remain supportive, but we are also mindful of the near term geopolitical and macroeconomic uncertainties. Our February year to date training was in line with management expectation, and we remain confident about making further progress this year.

Speaker 1

We have a passion to succeed, and we are committed to achieving these strategic ambitions. Our purpose and mission remains unchanged, to harness the blue economy through the provision of safe, innovative solutions that solve our customers' complex challenges. Now we have concluded our presentation, and I'll turn now back to Heather for Q and A.

Operator

So we'll now take questions from the room first. Please raise your hand with the microphone and start by introducing yourself and the company that you're from. Karen, over to

Speaker 2

you to moderate the Q and A. Robin, you're going first.

Speaker 3

Rob Spiekman at Shaw Capital. Firstly, congratulations on the achievements you've made. There's clearly been a lot going on in the business. I wanted to ask firstly about the margins in defense. It's clearly still a weak area.

Speaker 3

I'm guessing it's not all about scaling up. There are other things you need to do as well. And I just wondered if could us a bit more color on that and perhaps talk a little bit about adjacent markets that you might be looking to go into in defense. Underwater is obviously an interesting area. Secondly, just you mentioned hurdle rates throughout the presentation.

Speaker 3

Just give us a bit more color on the sort of hurdle rates for different forms of investment, organic to acquisitive with the balance sheet now in good shape.

Speaker 1

All right. So Karen, do want to take the margin part?

Speaker 2

Yes. I'll take the margin part first. Yes, so you're right. You'll have seen that the margin in Defence is pretty low at the moment, and there's a few reasons for that. We the businesses historically had much higher profits.

Speaker 2

And the over the last few years, we've been starting to invest more for growth going forward. And the areas that we're looking at are, as Jean outlined earlier, such as new product capabilities. So we're looking to launch new products over the next few years. We are also looking, as you say, wider within the organization around how we do things. So there are opportunities for how the businesses are structured, how it works with the other divisions, how it manufactures its projects to introduce efficiencies into the manufacturing process.

Speaker 2

So there's actually quite a lot of different areas where I think we can improve margins in defense. In addition, as it embarks on some of the contracts that they've entered into, there's a lot of supply chain opportunities as well. And the point that Jean mentioned earlier on the slide is that, as I said, historically, higher revenue and profits. And if that we anticipate that there's probably about £20,000,000 or so of revenue that it could earn with its existing cost base. And that's why we would see an uptick in the margin when that revenue starts to come through from the new contracts, but also the ability to go beyond that with the additional efficiencies and synergies that we would make.

Speaker 2

Do want to pick up the

Speaker 1

market point?

Operator

So I guess the punch line here is a lot of moving parts.

Speaker 1

JEAN So we are saving costs. We want to improve margin on the things that are to make them more efficient. But this is offset by what we have to position for growth. That's we mentioned investment in new technology. I will complement this with the fact that we are broadening our customer engagement beyond our traditional large customers in emerging markets such as Northeast Asia, North America, which we didn't touch.

Speaker 1

So all in all, the cost looks like the same, but the nature of the cost is different and is much more productive to future growth. I would add self criticism here that I think over the past decades, JFD has been complacent in not replenishing their normal order backlog, and we have been suffering from that. So those two things in combination leads us to say that coming out of this lower subscale revenue is a bigger order backlog, right? So in terms of adjacent market, we have to be on the same time, you're right. On one hand, you're right because there is a lot of new technology coming at play to play, but there is also a lot of new demands from our customers about interchangeability, standardization, interoperability between the various navies.

Speaker 1

So it would be very easy to get distracted into adjacent market. So the marching orders is, first, let's prove that what we do today can be on its best to drive the growth while partnering for the moment, partnering with people who are already in those adjacent markets so we don't create more competition in those adjacent markets when we have not yet proven that we can grow in our core markets. But we are very, very attuned to the interplay across adjacent markets. We are just not going to invest in those adjacent markets for now. Yes.

Speaker 2

Okay. And the hurdle rate one? Yes. So just before talking about the hurdle rates, I think it's important to maybe just mention the processes that we'll put in around the investment committee in deciding what we invest in, what contracts we enter into, CapEx decisions, etcetera. And we're very disciplined in that

Speaker 2

And that covers areas such as ensuring that we don't enter into contracts with significant risk and ensuring that there is a reward risk balance when we are making decisions. The hurdle rates, so we have the 15% ROCE that we want to adhere to. And obviously, we ensure that when we're looking at contracts that they are meeting our margin and our ROCE targets, but also ensuring that they are manageable from a cash perspective as well. We've done a So and some of our some of the contracts that we entered into have margins well in excess of that 10%.

Speaker 2

And that's what our focus is, is to continue to ensure that we manage those within the hurdle rates we've got, but also manage the risks quite carefully.

Speaker 4

Morning. Gurud Sonnevold from Investec. Just a couple of questions, if that's okay. Firstly, on the bubble curtains. I'm not sure if you've disclosed this in the past, but how much of your million revenues comes from North America?

Speaker 4

And the second question related to that is, are you concerned about the potentially difficult outlook for offshore wind in The U. S. Over the medium term?

Speaker 1

Right. So we don't go that granular in our reporting. The thing though is The U. S. Market was for us a real example where because we are so ahead of competition entering into these markets, our reputation preceded us.

Speaker 1

And that was complemented by our ability to actually bring a level of quality of service and contribution to the customer productivity that is became very well known in that market. So we ended up winning a very large share of opportunities. We it's too early to say really about the impact of the new administration. Well, I think so far, our plans for 2025 are solid, are committed. What happens beyond 2025 is anybody's guess.

Speaker 1

In the end, I've always said that the energy transition is going to be messy. Three years ago, when I arrived, everybody thought oil and gas was dead. I never believed that. Today, there is a little bit of different perception. At the end of the day, my strong belief, I mean, you can observe it through science, climate is changing.

Speaker 1

So this will come back with a vengeance at some point. And we are in both areas, right? But specifically for offshore wind, we have other markets that are emerging, Northeast Asia in particular. We have The U. K, which is now going to require noise abatement solution by policy.

Speaker 1

So those equipments can be used in different places of the world. So I'm not too concerned about that. One more, if that's okay.

Speaker 4

Which is on the defense order book, which increased quite significantly. Any chance of giving us a little bit more color on maybe the composition of that order book in terms of is it mainly service contracts? Is it equipment deliveries? And also maybe a few words on timings as to when you might expect to deliver that order book in the coming years?

Speaker 1

So on again, we don't really want to go too granular on the components of because our customers ask us to keep this very quiet. Overall, it's fairly balanced between our various product lines, I. E, submarine rescue, diving, they all performed pretty well, TDVs. What we are trying what we're really working at balancing is OEM 30%, service 60%. That's where I would like to go, right?

Speaker 1

So that balance is sometimes put off when we have a lot of new orders. Obviously, the OEM parts comes first. But that should be what the model, right? So I'll turn to you on the did you want what was the second part of your question?

Speaker 4

Maybe the timings in terms of how long it will take. The order book has been weighted.

Speaker 2

Yes. They are mixed actually, and it just falls on from the point that mentioned. So obviously, some of those contracts that have come in have the OEM part of it and the product delivery, which you would expect based on the sort of proportions that Sean has mentioned that, that would be over a one, two horizon as they come in as the products are delivered to customers. And then obviously, the service element has a longer tail. And obviously, as more contracts come in, you'll see that mix through the years as we go forward.

Speaker 5

Thanks very much. Alex Brooks at Canaccord. A couple of questions. Firstly, probably Karen. Can you walk me through a bit how the tank ships renewal program will work, particularly kind of on the funding side and how it was obviously you put down some capital for that in the past twelve months?

Speaker 5

And my second question is you've got this group of focus areas. What proportion of revenue are they today? And what would a kind of blue skies thing look like? What's the ambition there over whatever time frame you think is appropriate?

Speaker 1

Yes. So if I may, I'll start answering the second part of the question, and then we'll come back to the first one. I think the way I look at it is not so much the proportion of what it is today versus the baseline. I look at this going forward. And the reason we presented these seven sub segments, they will constitute a large part of our uptick of our growth going forward, right?

Speaker 1

It's not an exact science because some of the segments are more risky than others by nature, but I would expect those service segment to drive probably 90% of the growth. It's not a science. It's just a model of the mid- to long term growth. Now we but the baseline, the baseline, like for example, the tank ship business will grow, but not at similar rates. It's a more stable business.

Speaker 2

Yes, Alex. And on the tank ships, you will have seen the renewal program that's coming through with the Port orders already in place that will come in 2026, 2027. And so our funding method for those is really a sale and leaseback arrangement. Those tend to work with a small deposit that we pay. And then we pay for the lease payment over varying terms.

Speaker 2

And as you know, we have certainty a good level of certainty on the contract revenues associated those flows with our customers.

Speaker 5

Rob Plant from H2 Radnor. Is there more upside on working capital?

Speaker 1

You mean downside?

Speaker 2

Yes. I mean, you would have as we outlined in the presentation, we've been working quite hard on working capital. And that's across all areas of working capital, whether it is on the inventory levels, the debtor collection levels. It's something that we always push quite hard at. But as I highlighted earlier, the DSO days is forty two days now, which I think is reasonable.

Speaker 2

We have a range of payment terms as you would expect on that, but we'll continue to focus on cash collection. And as I say on some of the larger contracts, we like to ensure that we try and get those contracts as close to cash neutral or cash positive as we can. So we're not managing large outflows of cash.

Speaker 1

Yes. I will complement this with when we talk about Supply Chain, we our first order of business is to cut cost or to be more efficient on cost to eliminate waste, increase our gross margin, but there is FRANCOIS also a direct impact on inventory and WIP, right? So

Operator

we that's another part of the metrics.

Speaker 2

Yes. Whether there's other areas such as consignment stocks, there are other avenues we can look at. Gerald?

Speaker 6

Gerald Coo from Panmure Liberum. A couple for me, if I can. Firstly, you talked about future reinstatement of dividends. I was just wondering whether you could go into a little bit more detail as to what you see as the sort of key catalyst, the key hurdles that you have to clear before that might come back onto the agenda. Is it a case of leverage?

Speaker 6

Is it a case of free cash flow generation? What is it that we should be thinking about in terms of being sort of the hurdle that needs to be cleared or the catalyst? And secondly, on defense, I think you talked about, was it GBP 20,000,000 of revenue on the existing cost base. Can you just clarify that with OEM sort of wins, that when you talk about the cost base, there's still going to be cost of sales as in if you're manufacturing something

Speaker 1

that's We still mean fixed costs.

Speaker 2

Fixed costs.

Speaker 1

So then the fall through is just attributed to the variable costs, which leads you to much higher fall through than our average because it's just incremental. JEAN But you want to take the dividend

Speaker 2

Sure. Yes. So we haven't got specific metrics to go through today. But what I would say is that before reinstating the dividend, we'd want to ensure that we were in a sustainable position. So we've obviously just come out of the hard part of the turnaround.

Speaker 2

2024 was all about stabilizing the business. We're going into 2025, positioning ourselves for growth. And I would like to see us having a more sustainable profit level before we look at dividends. And as we outlined in the capital allocation, our focus is on organic investment to drive that higher revenue and profitability, and then we would consider the dividend after that.

Speaker 7

Alex Yes. Patterson from Peel Hunt. A couple from me, please. If I think about your defense business, you were talking about the £20,000,000 of revenue with the current fixed cost. If you saw a flurry of orders coming in for some of the more capital intensive businesses that you've got, would how easy would you how easily would you be able to deliver those?

Speaker 7

Do you need to sort of scale up further? And what are the constraints around that? And how, straightforward would that be? Then just looking at the, some of the other areas of the business. If I think about, the subsea cables, there's sort of more interest in using those as listening devices and protecting them.

Speaker 7

Across your energy and defense businesses. Are there opportunities there to do that? Is that something that you can do? And how would you monetize that?

Speaker 1

Yes. So those two are very relevant and interesting questions, which we think a lot about every day. On the scale part scaling part, we want to make James Fisher a company which has a lot which is able to scale, right? And that means we've got to be able to deliver repeatedly, consistently at volume. So we've initiated at the 2024 a lot of pilots with JFD around new technology development and supply chain, right?

Speaker 1

Because the question you just mentioned are typically the constraints to growth when you are disorganized. So we have done essentially, GFD has a one year heads up versus the other division on that front because specifically for that purpose. So it's still work in progress, but lot of our growth opportunities are calling on those two constraints. I think the team has been making really superb progress to make an operating model, which is much more mature, what you would see in a larger company, right? So I wouldn't say are done with our efforts, but I think we are in good shape to tackle the orders coming at us.

Speaker 1

In terms of your second question, which was

Speaker 2

The cables.

Speaker 1

The cables, yes. So this is, for me, one of the many examples of the convergence between energy and defense. First, those energy or transmission infrastructure or in many of the vulnerable oceans of the world, whether it's the Baltic, the North Sea, Taiwan, North America, North East Coast. And the technology that we have been testing with our customers about prognostic on cable, I. E, predicting when and where cable will break, allow us to actually see a lot of other things.

Speaker 1

And these are like all the traffic subsea, the traffic at surface. And this is something which is particularly important to both markets. Some countries like Germany now require, when they award a tender for offshore wind, a security plan, a protection plan from the developers. So this, for me, is one very good example of the convergence between the two and how we have crossovers in our R and D between Energy and Defense, which is an example of the synergies I was pointing out. So I believe the other part of this, the reason we it's a great of interest to us is the way these markets are scaling is amazing, right?

Speaker 1

So actually, that's why we have JFR, so the power generation part of offshore wind as one of those high growth potential, it's just very new. The market is not used to that, right? But we've shown with bubble curtain that we can succeed, so why not there, right? We have all the talent to succeed.

Speaker 2

Any more questions, Naveen, before we move to the line? No? No questions on the line? Okay.

Speaker 1

Well, thank you very much for your time and for joining our call today for those on the line, and have all a very good day. Thank

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