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RNS

Preliminary Results

Released 07:00 15-May-2018

RNS Number : 0392O
Braemar Shipping Services PLC
15 May 2018
 

 

 

 

 

 

BRAEMAR SHIPPING SERVICES PLC

("Braemar", the "Company" or the "Group")

 

15 May 2018

 

 

Preliminary Results for the year ended 28 February 2018

Building for the Future

 

Braemar Shipping Services plc (LSE: BMS), a leading international provider of broking, financial, consultancy, technical and logistics services to the shipping, marine, energy, offshore and insurance industries, today announces results for the year ended 28 February 2018.

 

 

Financial Highlights

·    93% increase in underlying operating profit to £8.2m (2016/17: £4.2m) at the top of the previously announced range

·    Revenue broadly unchanged at £133.4m (2016/17: £135.9m)

·    Underlying basic EPS growth of 97% to 21.14p (2016/17: 10.72p)

·    Final dividend of 10.0p, giving an increased full year dividend of 15.0p (2016/17: 14.0p).  This represents increased dividend cover of 1.4

·    Net debt of £2.4m at 28 February 2018 (28 February 2017: Net cash of £7.1m) following the successful acquisitions of Braemar Naves Corporate Finance GmbH and Braemar Atlantic Brokers Holdings Limited.

 

 

Business Highlights

·    Technical division has returned to profitability during the second half of 2017/18 and, although new project activity has been low, we are now seeing more enquiries and tenders

·    The newly acquired Financial division, Braemar-NAVES, achieved a strong financial performance ahead of expectations and is proving to be a good strategic fit within the Group.  Positive synergies with other divisions are already evident

·    Shipbroking division has traded in line with market expectation despite the continuing weaker tanker sector.  The forward order book has strengthened by 13% to $44m (2016/17: $39m).  The division has attracted a number of high value recruits in key market segments whose positive impact should be felt in the medium term

·    Logistics, the smallest division, performed reasonably well despite reduced market activity.  Performance for the year was adversely affected by a post year end settlement of £0.75m for an historic claim relating to activity in the early 2000s

 

 

David Moorhouse CBE, Chairman of Braemar, commenting on the results and the outlook said:

 

"We expect world trade and global shipping demand to continue to grow, in line with economic growth projections, notwithstanding recent political developments over trade.

 

At this point in the cycle, tanker freight rates are relatively low and, with the growth in the fleet, we are unlikely to see a recovery before next year. The dry bulk market has been recovering and we expect this to continue through the year.  In the medium term it is quite likely that we will see an increase in demolition as new environmental legislation takes effect by 2020.

 

Our Financial division is expected to increase its contribution to the Group's underlying operating profits due to the full year effect of ownership and the success it is having in developing its advisory business.

 

We expect the Technical and Logistics divisions to continue their recent recovery trends.  We wait to see what impact, if any, Brexit may have on our Logistics business over the medium term.

 

Overall the Group is well structured and balanced following the investments made this year and we are better equipped to reap reward through the cycle."

 

 

SUMMARY FINANCIAL RESULTS

 

 

Underlying Results

Reported Results

 

2017/18

2016/17*

2017/18

2016/17*

Revenue

£133.4m

£135.9m

£133.4m

£135.9m

Operating Profit / (loss)

£8.2m

£4.2m

£(0.9)m

£0.5m

Basic Earnings / (loss) per Share

21.14p

10.72p

(9.70)p

(1.66)p

Full Year Dividend per Share

15.0p

14.0p

15.0p

14.0p

*2016/17 underlying and reported results have been restated to reflect the reclassification of Braemar Response following the decision to divest the business.

 

Underlying measures above are before non recurring specific items, including restructuring costs, gain on sale of shares in The Baltic Exchange and acquisition and disposal related expenditure:

 

Specific Items

 

2017/18

2016/17

Restructuring costs

-

£(2.9)m

Gain on sale of investment

-

£1.7m

Acquisition and disposal related expenditure

£(9.1)m

£(2.5)m

 

Acquisition related costs are detailed below and include costs directly associated with the purchase of Braemar NAVES Corporate Finance GmbH and Braemar Atlantic Brokers Holdings Limited as well as the run off of the equity based retention programme established during the acquisition of ACM Shipping plc.

 

 

For further information, contact:

Braemar Shipping Services

 

James Kidwell, Chief Executive

Tel +44 (0) 20 3142 4100

Louise Evans, Finance Director

Tel +44 (0) 20 3142 4100

 

 

Stockdale Securities

 

Robert Finlay / Antonio Bossi / Henry Willcocks

Tel +44 (0) 20 7601 6100

 

 

Buchanan

 

Charles Ryland / Stephanie Watson / Tilly Abraham

Tel +44 (0) 20 7466 5000

 

 

 

Alternative Profit Measures ("APMs")

Braemar uses APMs as key financial indicators to assess the underlying performance of the Group.  Management considers the APMs used by the Group to better reflect business performance and provide useful information to investors and other interested parties.   Our APMs include underlying operating profit and underlying earnings per share.  Explanations of these terms and their calculation are shown in the summary above and in detail in our Financial Review.

 

About Braemar Shipping Services plc

 

Braemar Shipping Services plc is a leading international provider of knowledge and skill-based services to the shipping, marine, energy, offshore and insurance industries. Founded in 1972, Braemar employs approximately 800 people in more than 70 locations worldwide across its Shipbroking, Technical, Logistics and Financial divisions.  

 

Braemar joined the Official List of the London Stock Exchange in November 1997 and trades under the symbol BMS.

 

For more information, including our investor presentations, visit www.braemar.com

 

 

PRELIMINARY ANNOUNCEMENT - YEAR ENDED 28 FEBRUARY 2018

CHAIRMAN'S STATEMENT

 

The Board is committed to a long-term strategy of increasing value for shareholders by developing its diversified portfolio of broking and advisory businesses within their market sectors.

 

Braemar's underlying performance for 2017/18 showed a marked improvement on the previous year due to the actions taken in the Technical division to re-scale the business for the market environment.  During last year we also achieved several strategic objectives by entering new markets through the acquisitions of Braemar-NAVES and Braemar Atlantic.   We believe that having a strong presence in the maritime financial advisory and dry freight and commodity derivatives markets is important for the long-term strategy and growth of the Group.

 

Results for the year

Revenue for the year was £133.4 million which compared with £135.9 million in 2016/17. Underlying operating profit from continuing operations was considerably higher at £8.2 million compared with £4.2 million in 2016/17 and underlying earnings per share were 21.14 pence compared with 10.72 pence last year. The IFRS accounting treatment applied in respect of the acquisitions of NAVES Corporate Finance GmbH and Atlantic Brokers Holdings Limited, means that the Group posted a loss before tax from continuing operations of £2.4 million (compared with a profit in the previous year of £0.2 million) and a basic loss per share of 9.70 pence (2016/17: 1.66 pence).

 

The Shipbroking division, the largest division of the Group, performed well in mixed conditions achieving solid underlying results.   We also invested in our teams through targeted recruitment, especially in the dry cargo sector which we intend to build to match the representation and strength of our tanker teams.  Our forward order book has increased by 13% to $44 million compared with $39 million at the start of the year. The Group completed the acquisition of Atlantic Brokers Holdings Limited towards the end of the year and now forms part of the Shipbroking division to increase the breadth of our service offering.

 

I am pleased to report our Technical division, following management action taken, achieved a turnaround in performance, with an underlying operating profit of £0.7 million compared with an underlying operating loss of £2.2 million in the prior year. The key drivers of the improved performance have been the restructure of our activities and resultant cost reductions, combined with increased staff utilisation.

 

Logistics, our smallest division, reported a lower level of underlying operating profit compared with the prior year, mainly because we were adversely impacted by a significant one-off charge in the year in settlement of an historic claim relating to activity in the early 2000s.  The underlying business performed steadily.

 

Our new Financial division has performed well in the period, contributing £1.8 million of underlying operating profit. This division was created following the acquisition of Braemar NAVES Corporate Finance GmbH in September 2017 which has given the Group access to the valuable maritime financial advisory market through an established, successful business. We intend to develop the business both geographically and by addition of other financial advisory skills.

 

Dividend

The Directors are recommending, for approval at the Annual General Meeting on 22 June 2018, a final dividend of 10.0 pence per share.

This dividend will be paid on 27 July 2018 to those on the register at close of business on 22 June 2018. Together with the 5.0 pence interim dividend, the Company's dividend for the year will be 15.0 pence (2017: 14.0 pence) representing an increase of 7%.  The Board's stated objective remains to pay a dividend approximately covered by 1.5x earnings from underlying operations and this year's dividend cover of 1.4x is a strong step towards this.

 

Board of Directors

I am delighted that, as announced on 22 June 2017, Lesley Watkins FCA joined the Board and has subsequently assumed the role of Chair of the Audit Committee and Senior Independent Director, succeeding Alastair Farley who stepped down from the Board in December 2017. I would like to thank Alastair for all his hard work and invaluable advice to the Group during his time with Braemar.

 

Colleagues

The calibre of our people is at the centre of what we do and it is their commitment and creativity that enables Braemar to build our brand and reputation to develop our business. The Board would like to thank our staff for their efforts on behalf of the Group during the year. We also extend a warm welcome to all our new colleagues who joined the Group during the year.

 

Outlook

We expect world trade and global shipping demand to continue to grow, in line with economic growth projections, notwithstanding recent political developments over trade.

 

At this point in the cycle, tanker freight rates are relatively low and, with the growth in the fleet, we are unlikely to see a recovery before next year. The dry bulk market has been recovering and we expect this to continue through the year.  In the medium term it is quite likely that we will see an increase in demolition as new environmental legislation takes effect by 2020.

 

Our Financial division is expected to increase its contribution to the Group's underlying operating profits due to the full year effect of ownership and the success it is having in developing its advisory business.

 

We expect the Technical and Logistics divisions to continue their recent recovery trends.  We wait to see what impact, if any, Brexit may have on our Logistics business over the medium term.

 

Overall the Group is well structured and balanced following the investments made this year and we are better equipped to reap reward through the cycle.

 

David Moorhouse CBE

Chairman

14 May 2018

 

 

CHIEF EXECUTIVE'S STATEMENT

 

Strategy

Our long-term strategy is to build the Group through acquisition and organic growth by developing the range of broking and advisory services we offer across our global network.

 

In line with this strategy, we completed two acquisitions in 2017/18 and continue to review opportunities where they fit with our long-term objectives. We also look to develop the business organically, specifically targeting recruitment of key individuals or teams to expand the Group in growth markets in which we are underrepresented.

 

We are mindful of the challenges our industry could face from digital disruption and potential disintermediation of existing business channels and have been working with a highly regarded group of technology sector experts to assess our industry and operating environments. We believe that there are market facing digital opportunities which can offer shareholder value, although the risk / reward ratios require careful scrutiny.

 

During the course of the year we took the decision to divest Braemar Response. It contributed strongly during its time in the Group, but we believe it would benefit from scale and the prioritisation of capital requirements within the Group mean that it would benefit from having an alternative owner. We are currently engaging with several interested parties and expect to conclude a transaction shortly.

 

Our ongoing investment in our global IT infrastructure continued during the year. Our focus is on improved business management tools to facilitate cross business working and improved client service.

 

We remain committed to the development of all our staff so that individuals' careers can grow over time and to enable the possibility of internal succession planning taking place.

 

Trading Performance

Braemar is a diversified group which offers a broad range of services including expert market knowledge, professional skills and advice to the shipping and energy markets.

 

Despite slightly lower headline revenue, the Group increased underlying operating profits by 93% compared to the prior year. The two acquisitions completed in the year have started strongly and the Group is looking forward to their continued integration with our existing operations.

 

Revenue in our Shipbroking division in 2017/18 was £61.8 million compared with £63.1 million in 2016/17 and underlying operating profit was £7.7 million compared with £7.9 million in 2016/17. Overall divisional revenues and underlying operating profits were slightly lower than 2016/17 though we increased our transaction volumes in virtually all sectors. The acquisition of Atlantic Brokers towards the end of the financial year has had little impact on the financial results, although it represents an important investment in our future market coverage as it enables Braemar to offer both physical shipping and derivative broking services to our clients.  We have also successfully targeted our recruitment activity to attract key individuals and teams in growth markets where we are currently underrepresented.

 

The Group completed a reorganisation of the Technical division during 2016/17 and the reduced cost base and improved staff utilisation resulted in the division's return to underlying operating profit during the year. The division continued to be impacted by low levels of oil and gas exploration and production development activity but market indicators, together with the rise in the oil price, show this is starting to improve.

 

Revenue in the Logistics division reduced slightly from £33.9 million to £33.2 million and underlying operating profit was £0.8 million compared with £1.3 million in 2016/17. Our port agency business performed well in 2017/18 but was adversely impacted by a £0.5 million one-off charge relating to an historic legal claim (the total settlement of £0.75m was partially provided in a prior year). The freight forwarding side of the business, whilst remaining profitable, faces an increasingly competitive market place, which makes our business more reliant on providing bespoke freight managed services. We have put a new management team in place in this division during the year and continue to develop our strategy to win new business.

 

Our new Financial division performed ahead of expectations and posted strong revenues and underlying operating profit during the period since the acquisition of Braemar-NAVES in September 2017. The post acquisition results represent 5 months trading and we expect the division to contribute a larger share of the Group's underlying operating profits in the coming year with the inclusion of a full year's trading. We are pleased with how this division is performing and, as well as offering high value services to its existing client base, it is a good fit with our other businesses.

 

Following the tough 2016/17 year, I am pleased that the Group was able to improve underlying profitability in 2017/18. The investments during the year give the Group a better balance and a wider range of complementary skills, better equipping us to ride the cycle and prosper in future.

 

James Kidwell

Chief Executive

14 May 2018

 

 

REVIEW OF OPERATIONS

 

SHIPBROKING

 

2017/18

2016/17

Revenue

£61.8 million

£63.1 million

Underlying operating profit

£7.7 million

£7.9 million

 

The Shipbroking division reported a solid performance in 2017/18 and the overall underlying results were comparable with the prior year. The markets were characterised by a weakening of tanker rates and the offshore rates remained low.  However, the dry cargo market was stronger than it had been for much of the year which contributed to firm activity in sale and purchase. Transaction volumes increased in virtually all sectors and our total forward order book at the year-end had grown to $44 million from $39 million at the start of the year, of which $24 million relates to 2018/19. During the year, we sought to build our presence in the dry cargo sector by hiring several dry cargo brokers to build our teams in London, Singapore and Australia and establish a presence in Brazil.

 

Deep sea tankers

Our deep-sea tanker department is the largest contributor to the Shipbroking division and our global teams performed well in a turbulent market.

As expected, the deep-sea tanker market weakened further towards the end of 2017/18. Fleet size in the crude tanker market grew at a faster rate than demand for seaborne crude trade. Deliveries of new tonnage rose, and whilst demolition values experienced some improvement, the growing disequilibrium between vessel supply and demand put downward pressure on rates and income. Fleet size growth in the product tankers slowed down but the historic oversupply coupled with high product stocks reduced vessel demand and drove a decline in earnings.

 

In 2018/19, both crude and product tanker fleet growth is projected to fall with an expected reduction in deliveries of new tonnage and an increase in  the level of ship demolition. Growth in demand for crude oil is expected from the key importing regions of China and India which are seeking crude oil supply from non-OPEC producers in the Atlantic basin. Improvements to inland and portside infrastructure in the US are expected to make their growing supply of these products available for export. US exports are expected to require larger vessels, particularly for long-haul shipments to Asia, with the result that projected tonne-mile demand growth will exceed projected supply growth. Although fleet utilisation may only be marginally better, we feel an improved trading environment could lead to an improvement in earnings, however our overall view is that 2018/19 will continue to be challenging for the tanker markets.

High stock levels of refined product have been a major factor in the weakness of the product tanker market since 2015. Inventories in OCED countries have been drawn down to the 2012 -2016 average during the year leaving the product tanker market likely to benefit from demand growth.  As consumers are likely to increase their reliance on imports, this may allow increased arbitrage trade opportunities. We expect oil demand growth in many CPP importing regions during 2018/19 including Europe, Latin America and Africa. This is expected to improve CPP trade as these regions are not currently increasing local refinery capacity. We expect clean tanker demand growth will be matched by fleet growth leaving  the supply and demand balance broadly unchanged.

 

Specialised tankers

Our specialised tanker department covers the transportation of LNG, LPG, petrochemical gases, chemicals and smaller parcels of products. There has been a continued expansion of the fleet of gas carriers, in the Very Large Gas Carrier ("VLGC") sector, which has continued to put pressure on freight rates in the spot market and restricted demand for time charters. However, our fixture volumes and earnings remained steady.

The LNG shipping market experienced demand growth towards the end of 2017. Japan remained the world's largest importer of LNG, while growth in Chinese demand was driven by its ongoing energy source switch from coal to LNG.  South Korea also showed a noticeable increase in demand. A number of new LNG export facilities came onstream in the USA, Malaysia and Australia. Most of the new supply came from the United States and Australia, with a moderate increase in feed gas from new gas fields in Nigeria and Algeria. In 2018, we expect further new facilities to come on line in Australia, USA and Russia. These are expected to fulfil the demand growth in China.

Weakness in LPG freight rates continued during 2017 as fleet growth outpaced seaborne LPG trade, particularly in the VLGC sector.  We expect a slowdown in fleet growth and increased LPG production during 2018, particularly in the USA. This, together with increasing demand in the key markets of India and China, is expected to improve rates during the forthcoming year.

 

Dry bulk

The dry bulk market performed well during the year due to increased demand and reduced fleet growth. We continued to develop our market presence through strategic recruitment and now have a strong global team in place which has significantly increased our transaction volume.

While the whole market is presently quite weak, we expect it to improve during 2018 across most dry bulk sectors. Chinese steel production will remain the key driver for dry bulk commodities trade be we see a rising global grain and agricultural trade which will drive sector performance in years to come.

 

Offshore

Our offshore desk continued to experience over-supplied markets as global oil and gas exploration and production activity remained low. We are starting to see early indications of market recovery in some regions but it will take some time for oil price increases to translate into increased exploration and production expenditure. We have maintained our experienced core team in readiness for a cyclical recovery.

 

Sale and purchase and newbuilding

In 2017/18 the team concluded similar volumes of second-hand and demolition vessel transactions compared with prior year with an increase in the average value of vessels sold.

Most of the vessel sales were dry bulk carriers with reduced activity on tanker sales. With positive sentiment returning to the dry cargo market and weakened freight rates in the tanker market this balance of activity was not unexpected.

In 2018 we expect to see an increase in demolition as new ballast water treatment regulations come into effect from 2019/20.

We were also pleased to be involved in the placing of several important tanker newbuilding orders during the year, which has enhanced the forward order book.  We also were successful in arranging long term employment for the vessels which will benefit future years.

 

TECHNICAL

 

2017/18

2016/17

Revenue

£34.6 million

£39.0 million

Underlying operating profit

£0.7 million

£(2.2) million

 

We are pleased to report a turnaround in financial performance, with an underlying operating profit of £0.7 million compared with an underlying operating loss of £2.2 million in the prior year.  The improved performance is despite continued market challenges and a fall in turnover of £4.4 million to £34.6 million. The key drivers to this improved performance were cost control measures that were implemented in the prior year, combined with increased utilisation of our staff. This has been achieved despite a tough environment in the Upstream Energy sector and the related impact this has on the insurance market, both of which are important strategic partners.  While the oil price continued to recover throughout 2017 we have not yet seen large scale increases in offshore exploration and production, albeit there are promising signs of increased activity for 2018.

 

Recent announcements from the Lloyds insurance market confirmed the difficult market conditions, and while the Insurance market sustained significant impact from natural catastrophes in 2017, they did not have a significant impact on the Energy, Offshore and Commercial Hull & Machinery sectors.  The Upstream Energy sector continued to experience extremely low premium levels in 2017, due to the combination of reduced offshore construction projects, rig activity and asset values. The Lloyd's Energy Sector reported a profit in 2017 on a calendar year basis, due to the reduction in volume and size of losses sustained, which is normally a key driver for our adjusting business.   In the Marine market, while Lloyd's ended making a loss, this was largely due to compounded premium pressure over previous years and the effect of Hurricanes Harvey, Irma and Maria particularly in the Yacht and Cargo sectors.  While we certainly saw an increase in activity associated with the hurricanes, this was tempered by reduced activity in some other areas and continued price pressure for all service providers.  As such, our positive performance was despite a challenging environment. We are optimistic that a cyclical recovery in the Upstream sector and an expected hardening of Marine insurance market towards the end of this year, bode well for the future.

 

Following a review of activities, the decision has been made to divest our incident response business, Braemar Response.  The Group's strategy is to focus on consultancy and professional services and we feel that the business would benefit from scale and that, for the right buyer, the business represents a significant investment opportunity as it comes with highly experienced and skilled personnel and management, a comprehensive client list and numerous operating assets. We are currently engaged in discussions with potential trade buyers. 

 

 

Offshore

Braemar Offshore, our marine warranty surveying (MWS) and Offshore consultancy business continued to be affected by project delays and low exploration and construction activity in the region.  Despite a difficult start to the year, we have recorded improving performance quarter on quarter, with a positive result in Q3 and Q4 despite the seasonal downturn in activity in South East Asia in the final quarter.

 

Vietnam, India, Malaysia and Indonesia continued to be our strongest performing areas and at the close of the year, we are seeing an increase in tender activity, and are encouraged by contract wins in several of our offices in South East Asia and the Gulf of Mexico.

 

Engineering

Braemar Engineering, our consulting engineering business, was impacted heavily at the end of the prior year by the reduced activity in the LNG Tanker newbuild market and the ongoing delays associated with LNG Import / Export projects in general.  However, we are pleased to report that the business returned to profitability in the second half of the financial year.

 

The team successfully concluded its work to obtain General Design Approval for the FSP Type B LNG containment system (FSP) in conjunction with our Joint Venture partners Honghua Offshore Ltd., EnTX Group, and Jamestown Metal Marine Services.  This has resulted in our appointment for additional development work for individual tank designs and moved the project to the next development phase in relation to an export terminal project located in the US Gulf of Mexico.  We are also currently working on several new build and modification proposals and are encouraged by an improved pipeline of business compared with the same time last year. 

 

Adjusting

Braemar Adjusting, our energy loss adjusting business, reported a profitable performance in the year.

 

The ongoing low level of Upstream activity has had an impact on our staff utilisation which averaged 57%, a slight reduction on the prior year. Our office in the Middle East continued to perform well with a high level of staff utilisation and investment in additional expertise. In the Far East our performance continued to improve throughout the year augmented by the addition of a number of senior personnel resulting in a significant increase in activity. Upstream activity in Europe and North America has been slower to respond to the improving oil price than Asia and the Middle East and so we have experienced lower activity in these locations. We have been successful in widening our adjusting services and received numerous high profile instructions in the Downstream, Mining and Power sectors.

 

Marine

Braemar Marine, which specialises in vessel hull and machinery damage and condition surveys and marine consultancy, had a much better year. This was driven by repositioning the business to access other markets as well as managing cost reductions. In particular we have seen increased work on P&I claims, technical due diligence and ports & harbours consultancy.  Utilisation has averaged 60% this year, a slight fall on 2016/17, although we have been able to raise revenue through the increase of higher value consultancy work.

 

LOGISTICS

 

2017/18

2016/17

Revenue

£33.2 million

£33.9 million

Underlying operating profit

£0.8 million

£1.3 million

 

Port & Hub agency

The Ship Agency business services UK ports, the port of Singapore, North America and the Netherlands and has joint arrangements with a number of worldwide agency partners via our UK based hub business. Following the successful business development seen in 2016/17 we have consolidated that position and delivered a solid performance across the global network. Our international hub business continues to deliver an excellent service to our customers, as measured by their own KPIs, and we continue to develop this business and win new clients.  Our UK operations remain a key part of our port agency business - during our third quarter there was a market driven dip in our activity though we maintained our market share across key sectors. By the fourth quarter revenues returned to normal levels and we remain the most active port agency operator in the UK. Our US business suffered in the first half of the year driven by low market activity, but we had a strong finish to the year as we won new customers.

 

We continue to develop and diversify our business with the dry cargo and offshore sectors offering opportunities for diversification and growth. We are investing in the future, through training and development and the ongoing upgrade and enhancement of our proprietary systems. We continue to consolidate and develop our coverage in Europe and North America through the Braemar office network and with selected strategic partners.

 

Liner Agency & Freight forwarding

The Liner Agency business has maintained its long standing relationships with key clients on the basis of consistently high service levels. Despite competitive pressures we maintained a steady performance in the year. In freight forwarding, the business continued to experience challenging market conditions in our imports and exports business and an increasingly competitive environment. An adverse mix of activity diluted margins, however, business with important long term customers remained steady.

 

We are responding to the challenges faced by developing the sales strategy with increased focus on developing business where our core competencies differentiate us from our competitors and where customers value the high levels of service we are able to offer.  This is supported by an operational business improvement program to streamline business processes for maximum efficiency.

 

Historic Item

There was a one-off charge during the year of £0.5 million (2016/17: £0.25 million) for the conclusion and settlement of an historic claim relating to activity in the early 2000s. The total value of this settlement was £0.75 million.

 

FINANCIAL

 

2017/18

2016/17

Revenue

£3.7 million

-

Underlying operating profit

£1.8 million

-

 

 

Restructuring and Interim management and pre/post-insolvency management

Restructuring and related services continued to be the most important segment within the Braemar-NAVES service portfolio. During 2017/18 we supported more than 20 separate restructuring mandates. This was driven by the ongoing structural weakness in shipping sectors such as tankers, MPP/heavy lift and smaller container vessels without long term employment. Our pre-and post-insolvency and management business benefitted from the time lagged impact of cyclical lows in the container market and in the dry bulk market observed in 2016. Increasing charter rates indicate decreasing insolvency filing activity with lenders and owners moving to sell-off or refinance assets. Where this may limit pre/post insolvency advisory and management services, it provides opportunities to strengthen our refinancing service portfolio.

 

Asset brokerage / control of sales processes for individual assets

Deal flow from restructuring related sale and purchase activity remained strong with more than 20 vessels being sold during the period. Lenders are using increasing asset prices in containers and dry bulkers to exit from loans and vessels. Braemar-NAVES and Braemar ACM are working closely together to deliver strong client service and outcomes in this environment.

 

Equity and debt financing

European banks are downsizing their portfolios and/or shrinking new business volumes so an increasing number of shipowners are facing the need to develop new funding sources. Braemar-NAVES are supporting clients to attract both debt and equity financing in an increasingly complex environment. We have worked with more than 50 finance providers for many years and are able to broaden shipowners' relationships with new banks, alternative lenders and private equity and hedge funds.

As financing processes become increasingly complex Braemar-NAVES is able to use its strong technical skills through the process on both monthly retainers and success fee basis.

 

Financial Asset Management and Loan servicing

We expect our activities around loan acquisition support services and loan servicing to increase in the short and medium term. We have received enquiries concerning disposal of loan portfolios and have structured an integrated service offering combining Braemar's group wide skills in commercial, technical and financial due diligence support through its valuation department, Technical division and Braemar-NAVES. We believe we are uniquely placed to offer such an integrated service.

 

Geographic diversification

The German market represents the historic core market of Braemar-NAVES activity. We have expanded to support the Greek and Cypriot markets and have established a presence in London in during 2017. We continue to review geographic expansion opportunities to strengthen our links to institutional investors as well as integrate our services within the wider Braemar Group.

 

 

FINANCIAL REVIEW

 

The results of management action, including two earnings accretive acquisitions and a major restructure, are evident in the increased underlying operating profit delivered during the year.

 

 

Summary Income Statement

 

2017

£'000

2016

£'000

Revenue

135,935

159,125

Cost of sales

(27,168)

(33,365)

Operating costs

(101,819)

(109,329)

Central costs

(2,721)

(2,673)

Underlying operating profit before specific items

4,227

13,758

 

 

 

 

 

 

 

 

Acquisition and disposal related expenditure

(2,485)

(2,668)

Acquisition-related restructuring

-

-

(777)

Restructuring costs

-

(2,892)

-

Gain on disposal of investment

-

1,664

-

Operating (loss)/profit

514

10,313

  

 

Divisional Highlights

 

2017

£'000

2016

£'000

shipbroking

 

 

 

Revenue

63,132

70,699

Underlying operating profit

7,882

9,653

Underlying operating profit margin

12.5%

13.7%

Employee numbers(i)

291

334

technical

 

 

 

Revenue

38,953

54,283

Underlying operating (loss) / profit

(2,188)

5,201

Underlying operating profit margin

(5.6)%

9.6%

Employee numbers(i)

303

444

LOGISTICS

 

 

 

Revenue

33,850

34,143

Underlying operating profit

1,254

1,577

Underlying operating profit margin

3.7%

4.6%

Employee numbers(i)

206

189

FINANCIAL

 

 

 

Revenue

-

-

Underlying operating profit

-

-

Underlying operating profit margin

-

-

Employee numbers(i)

-

-

 (i) Average annual equivalent number of employees.

 

Overview

Group results have improved during the year, with underlying operating profit increasing to £8.2 million from £4.2 million. The net impact of costs of acquisitions transactions and the accounting treatment for certain items of consideration are separately identified as Specific Items and have resulted in an operating loss of £0.9 million for the year (2016/17: £0.5 million profit).

 

Direct and operating costs

Cost of sales comprises freight and haulage costs incurred in the Logistics division and payments to sub-contractors, materials, and other costs directly associated with the revenue to which they relate in other divisions. Cost of sales are lower than the previous year, principally due to the lower levels of sub-contracted activity in the Technical division. Operating costs are also lower than the previous year, reflecting the lower average number of staff employed by the Group.

 

Specific items

We have separately identified certain items that we do not consider to be part of the ongoing trade of the Group. These significant items are material in both size and/or nature and we believe may distort understanding of the underlying performance of the business. These are summarised below:

 

Acquisition & Disposal Related Expenditure

We incurred £9.1 million (2016/17: £2.5 million) acquisition related expenditure during the year, with this increase driven by the acquisitions of NAVES Corporate Finance GmbH and Atlantic Brokers Holdings Limited.

 

The Group incurred £5.1 million of costs which are directly linked to the acquisition of Braemar-NAVES. They include £2.1 million of acquisition fees and £3.0 million of post-acquisition consideration payable to certain sellers under the terms of the acquisition agreement.  The Braemar-NAVES acquisition agreement included substantial payments to the working vendors which are conditional on their continuing employment.  These elements of the consideration will be accounted in the income statement over the relevant period.

 

Costs incurred on the Braemar Atlantic acquisition were £0.6 million comprising £0.4 million of acquisition fees and £0.2 million of post-acquisition charges.

 

When we acquired ACM Shipping Group plc in July 2014, we established a share plan to retain key staff. The cost of this share plan is categorised as acquisition-related expenditure and the charge in the year was £0.6 million (2016/17: £1.5 million). As expected, the annual charge relating to these awards reduces as these awards vest.

 

During the year we also incurred a charge of £2.4 million (2016/17: £0.5 million) in relation to the amortisation of intangible assets arising from these acquisitions and £0.4 million (2016/17: £0.4 million) associated with other acquisition-related activity.

 

We also incurred some initial advisory costs in relation to our plan to dispose of Braemar Response, our incident response business. A sale is expected to complete during the coming financial year.

 

Discontinued operations

Following the Board's decision to dispose of Braemar Response, we have classified the operations from this business unit as a discontinued operation. As a result, the results from these operations do not form part of the Group's underlying performance. Comparative periods have been restated to reflect consistent reporting between periods. The discontinued operations made a post tax loss of £0.5 million in the year (2016/17: £0.7 million).

 

Finance costs

The net underlying finance cost for the year of £0.4 million (2016/17: £0.3 million) reflects the cost of working capital associated with the facilities structures held with HSBC.  Specific Items include £0.2 million of interest payable on financing and convertible loan notes associated with the acquisition of Braemar-NAVES. 

 

Capital expenditure

In 2017/18 total capital expenditure was £1.0 million (2016/17: £1.0 million). The most significant item of capital expenditure relates to software as we continue the improvement of our operating systems. This level of capital expenditure is in line with the prior year.

 

Balance sheet

Net assets at 28 February 2018 were £93.7 million (2017: £100.2 million).

 

The Group has continued to focus on working capital improvement and cash collection during the year. At 28 February 2018 the Group held gross trade receivables before impairment provisions of £37.9 million, down from £45.1 million.  The year-end position included £2.1 million gross receivables associated with acquired businesses. At the year end, trade and other receivables had fallen by £4.6 million to £52.6 million and the value of the provision against trade receivables fell from 12.9% to 12.2%.

 

Borrowings and cash

At the balance sheet date, the Group had facilities of £40 million, made up of a revolving credit facility of £25 million for current activities and an accordion facility of £15 million for potential future acquisitions provided by HSBC. The Group increased its revolving credit facility from £15 million to £25 million during the year to fund the cash element of the acquisition of Braemar-NAVES.

 

The Group also has access to global cash management opportunities, notably in our regional hubs of UK and Singapore. At the end of the year the Group had net debt of £2.4 million (2017: £7.1 million net cash).

 

 

 

Retirement benefits

The Group has a defined benefit pension scheme which was closed to new members during 2015/16. The scheme has a net liability of £3.4 million (2017: £4.3 million) which is recorded on the balance sheet at 28 February 2018. The agreed annual scheme-specific funding since the triennial valuation as at March 2014 was a cash contribution of £0.45 million.  The triennial funding valuation as at March 2017 has been carried out and concluded during the year.  This required an annual employer cash contribution of £0.45 million.  This has been agreed with the trustees and is being paid in equal monthly instalments.

 

Convertible loan notes and deferred consideration

In total, the Group has committed to the issue of up to €24.0 million convertible loan note instruments in respect of the acquisition of Braemar-NAVES. These convertible loan note instruments are unsecured, unlisted and non-transferable. The notes are Euro denominated and carry a 3% per annum coupon. Each tranche is redeemable on or after two years from the date of issue by the Group or by the individual holder. The conversion prices were fixed at 390.3p for management sellers and 450.3p for non-management sellers.

 

The fair value of convertible instruments and deferred consideration as at 28 February 2018 was £10.7 million.

 

Foreign exchange

The US dollar exchange rate has moved from US$1.24/£1 at the start of the year to US$1.40/£1 at the end of the year. A significant proportion of the Group's revenue is earned in US dollars. At 28 February 2018, the Group held forward currency contracts to sell US$12.8 million at an average rate of $1.366/£1 and options over a further US$12.3 million at an average rate of $1.367: £1.

 

Taxation

The Group's underlying effective tax rate in relation to continuing operations in 2017/18 was 18.4% (2017: 19.3%). Although the movement in the UK standard rate of corporation tax from 20% to 19% in 2017/18 has reduced the Group's effective tax rate, the acquisition of Braemar-NAVES and the associated higher rate of taxation payable in Germany has partly offset this. We have also continued to focus on our global operations to efficiently manage our tax exposure which has allowed us to maintain a lower rate despite relatively high levels of disallowable expenditure. We expect the Group's effective tax rate to follow the movement in UK standard rate of corporation tax as it decreases to 18% in 2020/21.

 

Alternative profit measures ("APMs")

Braemar uses APMs as key financial indicators to assess the underlying performance of the Group. Management considers the APM's used by the Group to better reflect business performance and provide useful information to investors and other interested parties. In particular we have separated the impact of individually material capital transactions, such as acquisitions and disposals, from ongoing trading activity to allow focus on ongoing operational performance.

 

Our APM's include underlying operating profit and underlying earnings per share.  Our prior year APMs have been restated to reflect the reclassification of discontinued operations noted above.

 

 

Reconciliation of underlying results to reported statutory results:

 

 

Year ended 28 Feb 2017

£'000

Revenue

 

135,935

Cost of sales

 

(27,168)

Gross profit

 

108,767

Other operating costs

 

(100,471)

(104,540)

Underlying operating profit

 

4,227

Net underlying finance costs

 

(303)

Underlying profit before tax

 

3,924

Underlying taxation

 

(761)

Underlying profit for the year

 

3,163

Underlying earnings per ordinary share

 

 

Basic

 

10.72p

Diluted

 

9.70p

 

 

 

 

 

 

 

 

Underlying operating profit

 

8,171

4,227

Specific items

 

(9,067)

(3,713)

Operating (loss)/profit

 

(896)

514

Net finance costs

 

(303)

(Loss)/profit before taxation

 

211

Taxation

 

(20)

(Loss)/profit for the year from continuing operations

191

Loss for the year from discontinued operations

 

(680)

Profit/(loss) for the year attributable to equity shareholders of the parent

(489)

 

 

 

 

Earnings per ordinary share

 

 

 

Basic

 

(1.66)p

Diluted

 

(1.66)p

 

 

 

 

 

Capital Management

The Group manages its capital structure and adjusts it in response to changes in economic conditions and its capital needs. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares and debt instruments. The Group has a policy of maintaining positive cash balances whenever possible which can be supported by short-term use of its revolving credit facility. This is drawn down as required to provide cover against the peaks and troughs in our working capital requirements.

 

ESOP Trust

During the year the Company requested that SG Kleinwort Hambros Trust Company (CI) Ltd, as Trustee of the Company's ESOP Trust, purchase shares in Braemar Shipping Services plc. During the year the Trustees purchased 395,000 ordinary shares in the Company.

 

As announced on 2 March 2018, the Company entered into a trading plan with the Trustee for the period 5 March 2018 to 14 May 2018. This plan enables the Trustee to operate with discretion and independence to purchase ordinary shares in the Company for the ESOP. During this period the Trustee has purchased 250,000 shares in the Company. At 14 May 2018 the ESOP holds 609,798 shares.

 

Dividend

The directors are recommending, for approval at the Annual General Meeting on 22 June 2018, a final dividend of 10 pence. Together with the interim dividend, the Company's dividend for the year will be 15 pence (2017: 14 pence) and represents dividend cover of 1.4x compared to underlying earnings per share.

 

The Board's intention remains to pay a dividend appropriately covered by earnings from underlying operations. Our target is to achieve dividend cover of 1.5 times in the medium to long term and pay interim and full year dividends in a ratio of 1:2.  This was not achieved in 2016/17, due to the weak underlying performance of the Technical division during the 2nd half of the financial year, however improved underlying performance during 2017/18 has enabled us to improve this ratio. 

 

It is important to note that we may vary this policy to ensure we have sufficient flexibility in our capital structure to make appropriate financing and investment decisions.

 

Brexit

We do not currently believe that our businesses will be materially impacted by Brexit as we are a global organisation with limited exposure to the European markets.  However we remain concerned over the uncertainty and risks associated with the potential economic volatility arising from Brexit and continue to closely monitor developments.

 

 

 

Louise Evans FCA

Finance Director

14 May 2018

 

 

 

CONSOLIDATED INCOME STATEMENT

For the year ended 28 February 2018

 

Continuing operations

 

28 Feb 2018

28 Feb 2017

Underlying

£'000

Specific items

£'000

Total

£'000

Underlying

£'000

Specific items

£'000

Total

£'000

Revenue

 

133,409

-

133,409

135,935

-

135,935

Cost of sales

 

(24,767)

-

(24,767)

(27,168)

-

(27,168)

Gross profit

 

108,642

-

108,642

108,767

-

108,767

 

 

 

 

 

 

 

 

Operating (expense)/income:

 

 

 

 

 

 

 

 Other operating costs

 

(100,471)

-

(100,471)

(104,540)

-

(104,540)

 Restructuring costs

 

-

-

-

-

(2,892)

(2,892)

 Gain on sale of investment

 

-

-

-

-

1,664

1,664

 Acquisition and disposal related expenditure

 

-

(9,067)

(9,067)

-

(2,485)

(2,485)

 

 

(100,471)

(9,067)

(109,538)

(104,540)

(3,713)

(108,253)

 

 

 

 

 

 

 

 

Operating (loss)/profit

 

8,171

(9,067)

(896)

4,227

(3,713)

514

 

 

 

 

 

 

 

 

Finance income

 

95

-

95

61

-

61

Finance costs

 

(531)

(182)

(713)

(364)

-

(364)

 

 

 

 

 

 

 

 

(Loss)/profit before taxation

 

7,735

(9,249)

(1,514)

3,924

(3,713)

211

Taxation

 

(1,422)

545

(877)

(761)

741

(20)

(Loss)/profit for the year from continuing operations

 

6,313

(8,704)

(2,391)

3,163

(2,972)

191

 

 

 

 

 

 

 

 

Loss for the year from discontinued operations

 

-

(503)

(503)

-

(680)

(680)

 

 

 

 

 

 

 

 

Profit/(loss) for the year attributable to equity shareholders of the parent

 

6,313

(9,207)

(2,894)

3,163

(3,652)

(489)

 

 

 

 

 

 

 

 

Earnings per ordinary share

 

 

 

 

 

 

 

Basic

 

21.14p

 

(9.70)p

10.72p

 

(1.66)p

Diluted

 

19.51p

 

(9.70)p

9.70p

 

(1.66)p

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 28 February 2018

 

 

 

28 Feb 2018

£'000

28 Feb 2017

£'000

Loss for the year

 

(2,894)

(489)

Other comprehensive income/(expense)

 

 

 

Items that will not be reclassified to profit or loss:

 

 

 

Actuarial gain/(loss) on employee benefit schemes - net of tax

 

339

(2,956)

Items that are or may be reclassified to profit or loss:

 

 

 

Foreign exchange differences on retranslation of foreign operations

 

(3,674)

2,172

Cash flow hedges - net of tax

 

808

305

 

 

 

 

Total comprehensive expense for the year attributable to equity shareholders of the parent

 

(5,421)

(968)

 

 

CONSOLIDATED BALANCE SHEET

As at 28 February 2018

 

 

As at

28 Feb 2018

£'000

As at

28 Feb 2017

£'000

Non-current assets

 

 

 

Goodwill

 

88,961

77,806

Other intangible assets

 

3,393

2,215

Property, plant and equipment

 

3,322

4,561

Investments

 

1,356

1,356

Deferred tax assets

 

3,120

3,584

Other long-term receivables

 

300

385

 

 

100,452

89,907

Current assets

 

 

 

Trade and other receivables

 

52,605

57,199

Derivative financial instruments

 

159

-

Assets held for sale

 

2,865

-

Cash and cash equivalents

 

5,424

7,674

 

 

61,053

64,873

Total assets

 

161,505

154,780

 

 

 

 

Current liabilities

 

 

 

Derivative financial instruments

 

-

852

Trade and other payables

 

41,462

45,855

Short-term borrowings

 

7,873

622

Current tax payable

 

1,858

996

Provisions

 

320

854

Convertible loan notes and deferred consideration

 

366

-

Liabilities directly associated with assets classified as held for sale

 

766

-

 

 

52,645

49,179

Non-current liabilities

 

 

 

Deferred tax liabilities

 

999

836

Provisions

 

424

288

Convertible loan notes and deferred consideration

 

10,341

-

Pension deficit

 

3,437

4,305

 

 

15,201

5,429

Total liabilities

 

67,846

54,608

Total assets less total liabilities

 

93,659

100,172

 

 

 

 

Equity

 

 

 

Share capital

 

3,144

3,018

Share premium

 

55,805

52,510

Shares to be issued

 

(2,701)

(2,962)

Other reserves

 

26,085

28,951

Retained earnings

 

11,326

18,655

Total equity

 

93,659

100,172

 

 

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 28 February 2018

 

 

28 Feb 2018

£'000

28 Feb 2017

£'000

Cash flows from operating activities

 

 

 

Cash generated from operations

 

3,704

6,630

Interest received

 

95

61

Interest paid

 

(619)

(364)

Tax paid

 

(119)

(1,656)

Net cash generated from/(used in) operating activities

 

3,061

4,671

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment and computer software

 

(995)

(990)

Acquisition of businesses, net of cash acquired

 

(5,933)

-

Proceeds from sale of investments

 

-

1,779

Other long-term assets

 

110

(30)

Net cash (used in)/from investing activities

 

(6,818)

759

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from borrowings

 

11,537

622

Repayment of borrowings

 

(4,285)

(2,300)

Proceeds from issue of ordinary shares, excluding acquisitions

 

-

203

Dividends paid

 

(2,974)

(7,858)

Gift to ESOP for purchase of shares

 

(1,073)

(650)

Net cash used in financing activities

 

3,205

(9,983)

 

 

 

 

Decrease in cash and cash equivalents

 

(552)

(4,553)

Cash and cash equivalents at beginning of the period

 

7,674

11,497

Reclassified as held for sale

 

(144)

-

Foreign exchange differences

 

(1,554)

730

Cash and cash equivalents at end of the period

 

5,424

7,674

 

 

CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY

For the year ended 28 February 2018

 

Share

capital

£'000

Share

premium

£'000

Shares to

be issued

 £'000

Other

reserves

£'000

Retained

 earnings

£'000

Total

equity

 £'000

At 29 February 2016

3,011

52,314

(3,439)

26,474

28,945

107,305

 Loss for the year

-

-

-

-

(489)

(489)

 Actuarial loss on employee benefits schemes - net of tax

-

-

-

-

(2,956)

(2,956)

 Foreign exchange differences

-

-

-

2,172

-

2,172

 Cash flow hedges-net of tax

-

-

-

305

-

305

 Total recognised income in the year

-

-

-

2,477

(3,445)

(968)

Dividends paid

-

-

-

-

(7,858)

(7,858)

Issue of shares

7

196

-

-

-

203

Gift to ESOP for purchase of own shares

-

-

(650)

-

-

(650)

ESOP shares allocated

-

-

1,127

-

(1,127)

-

Credit in respect of share option schemes

-

-

-

-

2,793

2,793

Deferred tax on items taken to equity

-

-

-

-

(653)

(653)

At 28 February 2017

3,018

52,510

(2,962)

28,951

18,655

100,172

 Loss for the year

-

-

-

-

(2,894)

(2,894)

 Actuarial gain on employee benefits schemes - net of tax

-

-

-

-

339

339

 Foreign exchange differences

-

-

-

(3,674)

-

(3,674)

 Cash flow hedges - net of tax

-

-

-

808

-

808

 Total recognised expense in the year

-

-

-

(2,866)

(2,555)

(5,421)

Dividends paid

-

-

-

-

(2,974)

(2,974)

Issue of shares

126

3,295

-

-

-

3,421

Gift to ESOP for purchase of own shares

-

-

(1,073)

-

-

(1,073)

ESOP shares allocated

-

-

1,334

-

(2,629)

(1,295)

Credit in respect of share option schemes

-

-

-

-

1,662

1,662

Deferred tax on items taken to equity

-

-

-

-

(833)

(833)

At 28 February 2018

3,144

55,805

(2,701)

26,085

11,326

93,659

 

 

Note 1 - General Information

The financial information set out above does not constitute the Group's statutory accounts for the years ended 28 February 2018 or 28 February 2017 but is derived from those accounts.  Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course.  The auditor has reported on those accounts; their reports were (i) unqualified; (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

Note 2 - Accounting Policies

Whilst the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards (IFRSs) and IFRIC interpretations adopted for use in the European Union, this announcement does not itself contain sufficient information to comply with IFRSs.  The Group expects to distribute full accounts that comply with IFRSs and IFRIC interpretations as adopted by the European Union and in accordance with the Companies Act 2006.

Note 3 - Segmental Results

 

Revenue

Results

 

2018

2017

2018

2017

 

£'000

£'000

£'000

£'000

Shipbroking

61,846

63,132

7,742

7,882

Technical

34,579

38,953

722

Logistics

33,237

33,850

777

Financial

3,747

-

1,785

Trading segments revenue/results

133,409

135,935

11,026

6,948

 Central costs

 

 

(2,855)

(2,721)

Underlying operating profit

 

 

8,171

4,227

Acquisition and disposal related expenditure

 

 

(9,067)

(2,485)

Restructuring costs

 

 

-

(2,892)

Gain on sale of investment

 

 

-

1,664

Operating (loss)/profit

 

 

(896)

514

Finance expense - net

 

 

(618)

(303)

(Loss)/profit before taxation

 

 

(1,514)

211

Taxation

 

 

(877)

(20)

(Loss)/profit for the year from continuing operations

 

 

(2,391)

191

Loss for the year from discontinued operations

 

 

(503)

(680)

Loss for the year

 

 

(2,894)

(489)

 

 

 

Note 4 - Specific Items

The following is a summary of Specific items incurred:

 

2018

£'000

2017

£'000

Acquisition-related items

 

 

Amortisation charge of intangible assets

(2,378)

(501)

Acquisition related expenditure

 

 

- Acquisition of ACM Shipping Group plc

(608)

(1,475)

- Acquisition of NAVES Corporate Finance GmbH

(5,071)

(60)

- Acquisition of Atlantic Brokers Holdings Limited

(594)

-

- Other acquisition related costs

(391)

(449)

 

(6,664)

(1,984)

Disposal related items

 

 

- Other disposal related expenditure

(25)

-

Acquisition and disposal related items

(9,067)

(2,485)

Restructuring costs

-

(2,892)

Gain on sale of investment

-

1,664

 

The Group has charged amortisation of £2.4 million in the year (2017: £0.5 million) in relation to Intangible assets recognised as part of a Business Combination under IFRS 3.

 

Acquisition related expenditure included £0.6 million (£2017: £1.5 million) incurred in relation to the restricted share plan implemented to retain key staff following the merger between Braemar Shipping Services plc and ACM Shipping plc.

 

The Group incurred expenditure of £5.1 million (2017: £0.1 million) directly linked to the acquisition of NAVES Corporate Finance GmbH. This includes £2.1 million of acquisition fees and £3.0 million of post-acquisition remuneration payable to certain vendors under the terms of the acquisition agreement.

 

The Group incurred expenditure of £0.6 million which is directly linked to the acquisition of Atlantic Brokers Holdings Limited. This includes £0.4 million of acquisition fees and £0.2 million of post-acquisition remuneration payable to certain vendors under the terms of the acquisition agreement.

 

During the prior year the Group charged £2.9 million restructuring costs which predominantly related to the substantial reorganisation of the Technical division. The total includes the costs of office consolidations, headcount reductions and other items associated with project completion.

 

The gain on sale of investment in the prior year of £1.7 million relates to the Group's disposal of its investment in the Baltic Exchange to the Singapore Exchange.

 

 

 

Note 5 - Discontinued Operations

During the year, the Board resolved to dispose of Braemar Response's operations, a significant business unit within the Technical division. These operations are expected to be sold within 12 months.
As a consequence the results of this business unit are presented as a discontinued operation and prior year comparatives have been adjusted accordingly.

 

The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:

 

2018

£'000

2017

£'000

Property, plant and equipment

37

72

Deferred tax assets

25

41

Trade and other receivables

2,550

1,645

Current tax receivable (group relief surrendered)

109

358

Cash and cash equivalents

144

145

Trade and other payables

(766)

(677)

Net assets of discontinued operations

2,099

1,584

 

 

 

The results of the discontinued operation, which have been included in the income statement, were as follows:

 

2018

£'000

2017

£'000

Revenue

3,896

3,907

Costs

(4,491)

(4,639)

Specific items

-

(116)

Loss before taxation

(595)

(848)

Taxation

92

168

Loss for the year

(503)

(680)

 

During the year, the discontinued operations had net operating cash outflows of <£0.1 million.

 

 

 

 

Note 6 - Business Combinations

 

Acquisition of NAVES Corporate Finance GmbH

On 26 September 2017, the Group acquired the entire share capital of NAVES Corporate Finance GmbH ("NAVES"). NAVES is an established and successful business, headquartered in Hamburg, Germany, which advises national and international clients on corporate finance related to the maritime industry including restructuring advisory, corporate finance advisory, M&A, asset brokerage, interim/pre-insolvency management, and financial asset management including loan servicing.

 

The transaction is aligned with the Group's strategy of diversifying business operations through acquisitive development. The acquisition of NAVES provided the Group with multiple benefits, with the main drivers being entry to the valuable maritime financial advisory market; continued growth opportunities; complementary services and skills that broaden and enhance the Group's offering to clients; opportunities for collaboration between divisions; geographic expansion; and an additional source of revenue with added earnings strength.

 

The acquisition agreement provides for a minimum consideration of €24 million (subject to a working capital adjustment) and a maximum consideration of €35 million. Management Sellers represent Mark Kuchenbecker and Axel Siepmann, the managing partners of NAVES, and Non-management Sellers represent other investors.

 

The initial consideration payable at completion was:

-      €14.8 million (subject to a working capital adjustment), 50% of which was paid in cash, and 50% satisfied by the issue of Convertible Loan Notes; and

-      €1.5 million, to be satisfied by the issue of 458,166 Ordinary Shares to Non-management Sellers only (representing a price of 300.2 pence per Ordinary Share (being the Reference Price)).

 

Three annual instalments of €1.4 million will be payable to the Sellers, 50% in cash and 50% satisfied by the issue of Convertible Loan Notes. Interest at a rate of 3% per annum will accrue on each of these tranches from the date of issue until the date of conversion or payment of the relevant tranche.

 

Five annual instalments of €0.7 million will be payable to Management Sellers only to be satisfied by the issue of Convertible Loan Notes.

An additional aggregate amount of up to €11.0 million (being the balance of the maximum Consideration) may be payable over the three years following completion in accordance with the terms and conditions in the acquisition agreement which provide as follows:

-      payable to the Management Sellers only and satisfied wholly by the issue of Convertible Loan Notes;

-      payable annually in tranches of €3.7 million (in each case within 30 days of the determination of NAVES' EBIT for the relevant period); and

-      requires NAVES to deliver EBIT in excess of €2.0 million in each period to trigger payment with the maximum consideration payable in each year if EBIT of €4.4 million is delivered (subject, in each case, to certain agreed adjustments).

 

Leaver provisions provide that if either of Mark Kuchenbecker or Axel Siepmann resigns or is dismissed for cause, then each Management Seller shall have their entitlements to receive further payments of the deferred consideration and earn-out consideration reduced by an amount equal to the relevant individual's percentage ownership interest in each relevant Management Seller.

 

NAVES generated revenue and underlying operating profit for the year ended 31 December 2016 of €7.5 million and €3.0 million respectively. If the acquisition had happened on 1 March 2017, revenue for the Group would have increased by €3.6 million and profit for the year would have increased by €1.5 million.

 

Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 

 

 

As at

 

 

26 Sep 2017

Assets

 

€000

Non-current assets

 

 

Property, plant and equipment

 

27

Intangible assets

 

3,891

 

 

3,918

Current assets

 

 

Trade and other receivables

 

2,139

Cash and cash equivalents

 

2,751

 

 

4,890

 

 

 

Total assets

 

8,808

 

 

 

Liabilities

 

 

Current liabilities

 

 

Trade and other payables

 

2,127

Current tax payable

 

909

 

 

3,036

Non-current liabilities

 

 

Deferred tax liabilities

 

739

 

 

 

Total liabilities

 

3,775

 

 

 

Total assets less total liabilities

 

5,033

 

 

 

Goodwill

 

12,536

Consideration

 

17,569

 

IFRS 3 states that amounts paid to former owners which are conditional on ongoing service are for the benefit of the acquirer and not for the benefit of former owners. Consideration linked to the ongoing service of former owners will be treated as remuneration for post-combination services and classified as acquisition related expenditure under Specific items in the consolidated income statement

 

Intangible assets represent separately identifiable intangibles, being brand and acquired customer mandates, with the additional effect of a deferred tax liability of €0.7 million thereon. The brand has been valued using a relief from royalty method and the customer mandates have been valued using an income based approach. These intangible assets are being amortised over their useful economic life of up to three years. These intangible assets and the deferred tax liability thereon, represent the only fair value adjustments made to the acquired balance sheet. All other assets and liabilities represent acquired book values and are considered equal to fair value.

 

Receivables acquired amounted to £2.1m. The book value equated to the fair value as all amounts are expected to be received.

 

The main factors leading to the recognition of goodwill (none of which is deductible for tax purposes) is a strong workforce and synergy opportunities from the combined operations.

 

Costs of £2.1 million associated with the acquisition were incurred during the year ending 28 February 2018 and have been classified as acquisition related expenditure under Specific items in the consolidated income statement.

 

Acquisition of Atlantic Brokers Holdings Limited

On 2 February 2018, the Group acquired the entire share capital of Atlantic Brokers Holdings Ltd, the holding company for Atlantic Brokers Ltd (together, "Atlantic").  Atlantic is an established introducing broker of Physical and Financial Coal Products in both the Atlantic and Pacific Basins.

 

The transaction is aligned with the Group's strategy of diversifying business operations through acquisitive development. The acquisition of Atlantic provided the Group with multiple benefits including; additional growth opportunities from expansion into new product areas of the brokered commodity futures market, including iron ore, coking coal and other bulk products; and the ability of the Group to offer additional services to existing clients.

 

The acquisition agreement provides for a total consideration of £4.8 million (subject to a customary working capital adjustment). The total consideration payable is split:

-      £2.7 million in cash (subject to adjustment based on target net asset value and regulatory capital requirements); and

-      £2.1 million to be satisfied by the issue of 804,426 ordinary shares of 10 pence each in the capital of Braemar, representing a price of £2.61055 per share. The price per share represents the volume weighted average closing middle market share price for an Ordinary Share for the 30 consecutive trading days prior to completion.

 

The sellers who are engaged in the business, Tristram Simmonds, Michael Griffin and Kelvin Taaffe (together, the "Working Sellers"), entered into new service contracts on completion of the Acquisition.  The transaction terms include lock in mechanisms to incentivise the Working Sellers to remain with Atlantic for at least 3 years following completion. Working sellers who become 'bad leavers' within 3 years will be required to return 1/3 of the value of their Core Consideration to the Group for each post-completion anniversary not reached.

 

Atlantic generated revenue and profit before tax for the year ended 30 June 2017 of £4.7 million and £0.6 million respectively. If the acquisition had happened on 1 March 2017, revenue for the Group would have increased by £4.3 million and profit before tax for the year would have increased by £0.5 million.

 

 

Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 

 

 

As at

 

 

2 Feb 2018

Assets

 

£000

Non-current assets

 

 

Property, plant and equipment

 

1

Intangible assets

 

-

 

 

1

Current assets

 

 

Trade and other receivables

 

271

Cash and cash equivalents

 

1,717

 

 

1,988

 

 

 

Total assets

 

1,989

 

 

 

Liabilities

 

 

Current liabilities

 

 

Trade and other payables

 

134

Current tax payable

 

83

 

 

217

Non-current liabilities

 

 

Deferred tax liabilities

 

1

 

 

 

Total liabilities

 

218

 

 

 

Total assets less total liabilities

 

1,771

 

 

 

Goodwill

 

(12)

Consideration

 

1,759

 

IFRS3 requires that payments to acquire a business are distinguished from other payments and that a contingent consideration arrangement in which payments are automatically forfeited if employment terminates is remuneration for post-combination services. On this basis, all consideration paid to the Working Sellers will be treated as post-acquisition expenses and expensed to the Income Statement over the period of the restrictions. This has resulted in negative Goodwill of less than £0.1 million, which has been credited to the Shipbroking CGU.

 

There were no separately identifiable Intangible assets or fair value adjustments recognised on the acquisition. The book value of acquired assets and liabilities have been considered the fair value.

 

Receivables acquired amounted to £0.2 million. The book value equated to the fair value as all amounts are expected to be received.

 

Costs of £0.4 million associated with the acquisition were incurred during the year ending 28 February 2018 and have been classified as acquisition-related expenditure in the consolidated income statement.

 

  

Convertible instruments and deferred consideration

Current liabilities

2018

£'000

2017

£'000

Issued convertible loan notes and deferred cash

7,659

-

Accrued retention convertible loan notes and deferred cash

2,977

-

Financial derivatives

71

-

 

10,707

-

 

Of the total convertible loan notes and deferred consideration, £366,000 is in relation to payments that will be paid within one year of the Balance Sheet date.

 

In total, the Group has committed to the issue of up to €24.0 million convertible loan note instruments in respect of the acquisition of NAVES Corporate Finance GmbH.

These convertible loan note instruments are unsecured, unlisted and non-transferable. The notes are Euro denominated and carry a 3% per annum coupon. Each tranche is redeemable on or after two years from the date of issue by the Group or by the individual holder. The conversion prices were fixed at 390.3p for management sellers and 450.3p for non-management sellers.

 

The convertible loan note instruments carry certain accelerated conversion rights in the event of default on financial commitments associated with the instruments or business distress within the Group. The loan notes shall automatically convert or be redeemed in the event that any person or persons acting in concert hold more than 50% of the issued share capital of the Group or an impairment charge in excess of €50 million is reflected in the audited financial statements of the Group.

 

All Deferred Consideration and Earn-out Consideration payable to Management Sellers is subject to Axel Siepmann and Mark Kuchenbecker remaining with the business during the relevant periods (subject to good leaver/bad leaver provisions).

 

The convertible loan notes and financial derivatives are valued using level 3 hierarchy techniques under IFRS 13.

 

 

Note 7 - Dividend

The Directors are proposing a final dividend in respect of the financial year ended 28 February 2018 of 10 pence per share, taking the total dividend for the year to 15 pence (2017: 14 pence).  This will absorb an estimated £3.0 million of shareholders' funds.

 

 

 

Note 8 - Earnings per Share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding 435,338 ordinary shares held by the Employee Share Ownership Plan (2017: 657,123 shares) which are treated as cancelled.

 

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive ordinary shares. The Group has one class of dilutive ordinary shares being those options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. The Group has other potential dilutive ordinary shares, including convertible loan notes, however these are not currently dilutive.

 

Total operations

2018

£'000

2017

£'000

Loss for the year attributable to shareholders

(2,894)

(489)

 

 

 pence

 pence

Basic earnings per share

(9.70)

(1.66)

Effect of dilutive share options

-

-

Diluted earnings per share

(9.70)

(1.66)

 

As any potential ordinary shares would have the effect of decreasing a loss per share for the year they have not been treated as dilutive.

 

Underlying operations

2018

£'000

2017

£'000

Underlying profit for the year attributable to shareholders

6,313

3,163

 

 

 

 

 pence

 pence

Basic earnings per share

21.14

10.72

Effect of dilutive share options

(1.63)

(1.02)

Diluted earnings per share

19.51

9.70

 

 

 

 

shares

shares

Weighted average number of ordinary shares

29,854,554

29,514,736

Effect of dilutive share options

2,499,970

3,096,058

Diluted weighted average number of ordinary shares

32,354,524

32,610,794

 

As any potential ordinary shares would have the effect of decreasing a loss per share for the year they have not been treated as dilutive

 

 

 

Note 9 - Reconciliation of operating profit to net cash flow from operating activities

 

 

2018

£'000

2017

£'000

Loss/(profit) before tax for the year from continuing operations

(1,514)

211

Loss before tax for the year from discontinued operations

(595)

(848)

Adjustments for:

 

 

- Depreciation of property, plant and equipment (continuing)

1,165

1,083

- Depreciation of property, plant and equipment (discontinuing)

39

-

- Amortisation of computer software

583

549

 

 

 

Specific items:

 

 

- Restructuring costs

-

3,008

- Gain on disposal of investment

-

(1,664)

- Amortisation of other intangible assets

2,378

501

- Other specific items

6,689

1,984

 

 

 

- Finance income

(95)

(61)

- Finance expense

713

364

- Share-based payments (excluding restricted share plan)

1,131

1,315

- Net foreign exchange gains and financial instruments

(809)

(307)

 

 

 

Changes in working capital:

 

 

- Trade and other receivables

4,950

254

- Trade and other payables

(3,717)

3,062

 

 

 

Contribution to defined benefit pension scheme

(450)

(450)

Provisions

(399)

(219)

Cash generated from operations before acquisition and disposal related activities

10,069

8,782

Expenditure on restructuring

-

(2,152)

Movement in net assets held for sale

(515)

-

Acquisition fees paid

(2,870)

-

Amounts due to acquisition related retention payments

(2,980)

-

Cash generated from operations after acquisition and disposal related activities

3,704

6,630

 

 

 

Note 10 - Dividend timetable

Ex dividend date for 2017/18 final dividend:

21 June 2018

2017/18 Final dividend record date:

22 June 2018

2017/18 Last date for DRIP elections

6 July 2018

2017/18 Final dividend payment date:

27 July 2018

 

 

 


This information is provided by RNS
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