Braemar Plc (BMS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Braemar Plc Full Year Results Investor Presentation. [Operator Instructions] And I would now like to hand you over to the executive management team from Braemar Plc. James, good morning, sir.

Good morning, everybody. My name is James Gundy. I'm the CEO of Braemar and thank you for joining us today for our annual results. On my left-hand side is Grant Foley, our [ FD ]; and Tristram Simmonds, our COO. I'll just start with my introduction first and then pass it on to you, then we'll go into the full set of results. I've been in the business -- I've been the CEO for the last 3 years, been in the business for some 40 years. Started originally at Clarksons, which is one of our big competitors. There for 10 years. Joined a smaller business, ACM. We grew that business in 2006. We IPO-ed that business. I was COO then the CEO. Then in 2014, we merged into Braemar where I ran the shipbroking side, first of all, then became the CEO 3 years ago. And since then, we've sort of had a very clear strategy on how we will build that business model and streamline to basically a shipbroking basis and businesses that complement the shipbroking side. So Grant?

Good morning, everyone. I'm Grant Foley, I'm Group CFO. I joined the business last August. My background is predominantly in financial services and a lot of that is spent in various broking businesses. I was the Group CFO and COO for CMC Markets where I was instrumental in leading the IPO. And then I was at FTSE 250, CFO and COO, for a period of time after that. Tris?

Thanks, Grant. I'm Tris Simmonds, the COO. My background is the energy and commodity space, which is slightly different from James' shipbroking. Our careers have crossed a number of times over the years. James and I set up our first business together in 2002 when I always running one of the businesses in GFI Group. Subsequently in 2018, Braemar acquired my business, Atlantic Brokers, which very much became the cornerstone for the securities business that we now have within Braemar. Thank you.

Thanks, Tris. Okay. Now let's go to the business update. I think, first of all, I want to say we are very proud of this year's results. We fished in a very resilient performance compared with where we were last year and the year before that. I think it's important to understand where we were. And obviously, we've had some distractions, which you may ask some questions at the end, and we've answer -- do our best to answer that. But the most important thing is we kept in line with our budget and have come through. So as you can see, with GBP 152.8 million in revenue compared to GBP 152.9 million last year. GBP 18.1 million, slightly less than last year, but Grant will explain a little of that going forward. We're still positive in the cash situation. If you remember some 3 years ago, when I came in, that situation was huge. We're 8% up on the fixtures and transactions, which means that we're growing our market share. And the forward order book is hitting new highs of GBP 82.6 million compared to where we were in '23, GBP 56.2 million, so an increase of 47%. And where we've maintained our progressive dividend policy, as you can see, we've increased to 13p. Next slide. Now our business is broken down to 3 sections, so how we break 3 sections. There's a Chartering, which is a day-to-day fixing across the globe on what we call spot fixtures. Then we have Investment Advisory, which is basically our S&P newbuilding valuations, offshore recycling, et cetera. And then we have the Risk Advisory business, which is our security business, which is really the freight forward agreements, coal, nat gas, oil and Tris will explain more about that as we go into the presentation. Now, I think I touched a little bit on this about how we're building our resilience. When we came in 2014, the shipbroking business, as you can see, the revenue numbers there, and the profitability was in the GBP 2.4 million, GBP 2.5 million. We've grown that business. I definitely had a -- I definitely could say I had a vision, and I was keeping my eye on Tris' business at Atlantic to bring that and to grow that business. We're only basically building security businesses where we take zero risk, purely a broker, that complements our present shipbroking space. We simplified the business when I came in, in 2021 as CEO. And you can see from there, we've enhanced the business, done some M&A deals, so we can prove we can do that. It's complemented the business. And we now have what we believe is a perfect platform to build from here. Thank you. Now obviously, we have a pure investment case policy, growth strategy, which is very clear. I mean, not only would that be M&A, as I mentioned earlier, and we've done that and we continue we look to do that. We are definitely not an Executive Team that would go out there and just do deals, doing deals. We want to make sure they're complementing our present business. It's obviously always a key thing to hire individual talents and obviously, we have our training graduate schemes. But the fact is we feel that shipbroking is consolidating. Its self-attracting now for Braemar because we're now getting into a good place. And on top of that, people now understand what our business model is. Now the positive market drivers are the fact that shipping, as you can know, is always in the press and where it isn't at presently, the markets are exceptionally strong in some sectors. We're taking advantage of that. So having geopolitical reasons that we see today help shipbroking with rates and obviously, with Red Sea being semi-closed and the Panama being semi-closed, it helps to push those rates up, which we're able to take advantage. Our scale is increasing within the business. We're opening up offices as we speak in South Korea, which help best complement each other. And we're able to cover our clients on many sectors, not just a single sector. And as I said, again, our dividend policy is progressive, and we increased it by 8% now to 13p. Now I'll pass on to Tris to give you a bit more about the growth strategy and where we were.

Thanks, James. So just expanding a little bit on what James was saying earlier, we have a clear growth strategy, which we invest in, and there are various means of us growing the business. The first one being through organic expansion. The second one being through acquisitions that we might make. And then the third one being through growing our market share in the products that we're already trading in. I think it's important to talk about some of the investments that we've made over the last couple of years and how they're performing. The most notable ones being the acquisitions of the business in North America, which Southport; the addition of the tanker team in Madrid and then the expansion in securities into natural gas, which in total, that's delivered over 30 new brokers, all with new revenue streams. These were not dealing with customers and geographies that we're already trading with and new products in the natural gas. For last financial year, that brought in, in excess of $30 million worth of additional revenue. And certainly, for all of those teams that have joined Braemar, I think being part of the larger network and group at Braemar versus where they were before, they've seen their revenues increase substantially. We're always looking for new areas to expand into, but we do so in a measured manner. As James said, we're not going to do deals just for the sake of doing deals and adding brokers. It's really important that when we make these investments that we can see something that's going to be directly accretive to our bottom line and also enhance our offering for our customers. Next slide, please? So some of you may be familiar with this slide, but generally, we use it to show the opportunities that still exist within our business. If you have a clear circle here, we see that as a big opportunity that we would look to examine further and obviously look to fill that space at some time or another. And actual execution of these opportunities, we had a very small footprint in the Americas prior to the acquisition of Southport. It was a very tactical acquisition for us in that we had to increase that foothold in the Americas. And working with the management team at Southport now, very much looking to expand our reach into the other products that we trade within Braemar in the Americas, which is obviously a completely new set of customers. Likewise, I talked a little bit earlier about the acquisition that we made in Madrid. It was very much a space that we couldn't get into. It's quite hard to trade with the Spanish refiners. We bought an existing team that have over 30 years of experience there. Again, a very tanker-focused team, but their customers are trading a number of different products, which, for example, LNG. We have an experienced LNG team here at Braemar, which certainly that order flow is starting to happen and interest being shown in that products now. And likewise, we hope to see that happen with some of the other products we trade within Braemar. We talk a lot about securities. Obviously, we've made some investments in that over a number of years. The first one, we talked earlier, James and I, with GFI in 2001, was the catalyst and then to where we are now with the acquisition of a natural gas desk. We see the regulated space becoming tighter moving forward and very much the standards that are expected of us within our regulatory business, bring product to the same kind of level as the large entity of the brokers. To that extent, we want to future-proof ourselves. And due to the current misalignment that still has existed post-Brexit on the different regulatory environments for the UK and Europe, we very much want to extend our licenses, which will enable us to trade more products in the future with the clients that we already have who to some extent are already trading those products with other brokers. So it's a natural step for us to expand our reach from the products that we're trading now based on the customer base that we already have. Likewise, same situation in Singapore, expanding our remits within -- with the Singapore authorities. Just another little note there is on -- we opened an office in Korea recently in the last couple of weeks. That's very much driven by demand from our brokers on newbuild and S&P and corporate finance. To have that geographic presence is something which, again, is going to be another footplate for us to grow into other areas in APAC. So key sort of stats here on our people. I think it's really important to point out that we're not just investing in brokers. We see a lot of consolidation in the shipbroking space. I don't think shipbrokers can operate in the same way that they did 10 years ago. There's a lot more customer-driven policy and procedures for us to deliver. And we have a lot more alignment towards the regulated business from the unregulated business. To that extent, we're increasing our headcount of the support services to the brokers so that we can give them a fully compliant framework to work in as we expand the business. I think also something that's quite important is that people are our business, and we want to ensure that our team are going to be long-serving colleagues. Our current employees own over 20% of the issued share capital in the business with most maintaining and building their equity stake the longer they are here at Braemar. I think it's also very important to James, Grant and I that we've set a clear path of succession. We've been doing that over the last couple of years. I think there's a little number of 6 that we've had 6 new department heads appointed in the last 24 months, which obviously is showing the business that we want these people to step up, and we have a clear line of succession. Thank you.

Thank you, Tris. I'll just talk now about our financial performance. So firstly, starting with the income statement. Revenue of GBP 152.8 million was in line with the prior year. And we saw strong performances from the recent acquisitions and the securities business, which offset weaker dry cargo revenues, which were driven by lower rates during the year as well as lower activity in our Investment Advisory segment. Operating expenses were up slightly on the prior year with lower staff costs being offset by a foreign exchange swing, which I'll talk about in a moment. Underlying operating profit before acquisition cost related expenditure was GBP 18.1 million, which is in line with market expectations. The acquisition-related costs were in relation to the acquisition of the Madrid tanker desk. Reported underlying profit was GBP 16.5 million, 18% lower than the prior year due to the increased operating costs and acquisition-related expenditure. Statutory profit before tax at GBP 7.5 million was GBP 2 million lower than the previous year due to the lower operating profit being slightly offset by lower specific charges. Underlying earnings per share was 36.22p (sic) [ 36.62p ], 21% lower than the previous year. And total dividends for the year of 13p, an increase of 8% and in line with our progressive dividend policy. If we look at the revenue mix, the group has delivered a balanced and diversified set of revenues by segment and region. If we start on the left, we can see that tankers performed strongly, driven by the acquisitions that were made at the end of 2022, offsetting weaker dry cargo revenues. Securities continues to grow and is now an increasing percentage of overall group revenues, representing 15% for this financial year. On the right, if we look at the split by region, the contribution from the U.S.A. has grown significantly due to the acquisition of Southport Maritime, whilst APAC has fallen due to lower dry cargo revenues, whilst the UK has remained steady at 53%. So despite mixed market conditions, we can see the increasing resilience that's coming through across the business, and we've sustained revenues. So if we look at this waterfall here, we can see if we start with Chartering, overall revenues grew by GBP 5 million to GBP 104 million with tankers, specialized and offshore all growing and offsetting lower dry cargo revenues, which, as I said, was driven by rates. In Investment Advisory, fewer sale and purchase transactions and corporate finance activity reduced revenues in that segment by GBP 11 million to GBP 26 million. But as we all know, revenues in this particular segment can be more lumpy as there are fewer transactions coming through in some years compared to others. But having said that, sale and purchase starts this current financial year with a very strong forward order book at $41.5 million, which is $24 million higher than it was a year earlier. This decrease in Investment Advisory was partially offset by a growing securities business, which increased by 36% to GBP 23 million. If we look at the Chartering revenues in a bit more detail, last year's FY '23 revenues were GBP 99 million. In this financial year, we grew the total number of fixtures or transactions by 80%. So we grew our market share, and that was really driven by the acquisitions that were made, and that increased our revenues in this segment by GBP 11 million. However, whilst we're growing our market share, we cannot control the market rates, and those rates reduced revenues by GBP 6 million. And within this, it was really dry cargo. Dry cargo rate dropped to around 35% from where they were a year earlier, which had a GBP 12 million decrease in revenues from a rates perspective, which was then offset by some more positive movements in offshore and specialized tankers. Just looking at operating costs over 1% higher than the previous year, GBP 134 million. Overall staff costs were GBP 2.8 million lower with lower bonuses, partially offset by increased headcount costs as we continue to invest in the business. That increased headcount drove a higher travel and entertainment cost, whilst IT and property costs increased due to the ongoing investment and increased size of the group. In addition, there was a positive foreign exchange swing of GBP 1.5 million in the FY '23 numbers. And this year, we had a GBP 1.1 million loss. So that drove a GBP 2.6 million swing into the closing operating expenses. If we move on to liquidity, the group maintained a positive net cash balance at the year end. At GBP 1 million, this is lower than the GBP 6.9 million a year earlier due to a number of movements, including the investigation costs and other items, which were GBP 3 million, payment of some tax on accounts for GBP 1.5 million and we paid some bonuses before the year end, which was a further GBP 2 million. In addition to the revolving credit facility that we have GBP 30 million, we also have a GBP 10 million accordion, and we continue to have significant headroom against our covenant requirements. So finally, on KPIs. As I said, revenue is unchanged from the prior year, although the mix is very different, which really does show the increasing resilience within the business. Revenue per head, and this is the total heads in the business, not just revenue earners, remains very strong at GBP 373,000, 6% lower than the previous year, reflecting that investment in headcount. Underlying profit margin remained strong at 12%, although slightly down on the prior year. However, if you adjust for that foreign exchange swing that I talked about, it's 12% for both years. The forward order book has grown significantly at $82.6 million, 47% higher than a year earlier, and that's really driven by growth in sale and purchase and newbuild orders, which we've got coming through in future years. As I mentioned, net cash remains positive, and we would expect to see our net cash position improve going forward. Finally, total dividends at 13p or an increase of 8% and in line with our progressive dividend policy. Thank you.

Thanks, Grant. Okay. Market outlook, we try to make it simplified on the graph, but it should show you how we're able to take some advantages here and give you a bit of an understanding of where the shipping market is going forward. As you can see, the global fleet there that -- on the first side, the left-hand side is basically increasing. Obviously, with a larger fleet allows us to do more deals than we were doing 10, 15 years ago. And as -- because we're in all those various sectors across -- and we have many offices across the globe, we're able to increase those numbers as well. Bear in mind when we were at ACM, ACM was very much a tanker broker office, and we were basically singled out in one market. And the attraction coming into Braemar was they're in many markets in the shipbroking field, and we've built on that. So we've taken advantage of that. As you can see on the fleet over age 15, normally, we say fleet ships sort of end their sea sail life by 15 to 20 years. You can see the fleet aging. And the fleet aging and coming out of the market, that potentially moves some things and be short on ships in the market, and thus, the rates will increase, thus helping us as far as the revenue is concerned. And you can see from the newbuilding order book, you can see where it was in 2008 before the financial crisis, it came right down. It's leveled out again and they're starting to increase to help restore the fleet from these over-aged vessels. But there seems to be a fight in the yards over what sector because, at the moment, we have most sectors in strong situation. We have a strong newbuilding team. We're just taking advantage of that as once again, that could be our offices in Beijing, Shanghai, now in Seoul and in Singapore. But we're always on top of the Asian markets, which is where predominantly the newbuilding market is. Thank you, Grant. Now we tried to give you an indication here with the Braemar Index, which is basically, we've taken all the sectors, including containers, tankers, the dry cargo. And you can see, as it was last year, you can see the numbers was higher, and obviously, our revenue was higher than in the basis of the fact that we're covering those sectors. But even though the rates were higher than across the globe, we've maintained that number because we've diversified our business. So we were able to make our business more immune. On the right-hand side, you've got to take -- you can see from tankers and dry cargo. But what's interesting, both on our dry cargo futures desk and tanker futures desk, we're showing positive optimism on the forward markets, which gives us a feeling of the fact that we're in a very good strong cycle. Thank you. And the summary here is that this is a very robust performance. We are obviously pleased and -- well, very pleased. The fact that we came out with some results we did. We kept in line with our numbers, especially after 4 months of investigation, which is very distracting for the management team, thus unnerving for the brokers on the floor. Our fixture number volume increased by 8%. We can't control the freight rates. And as Grant explained earlier, dry cargo came off hugely, but we still maintained our fixture basis up by 8%. As far as the acquisitions performed, Grant -- sorry, Tris mentioned earlier how those new businesses of Madrid and the States and the nat gas have embedded well. And there -- and I can safely say they've enhanced their own figures from where they were when they were on their own. So by coming into the bigger group, the information they can give to their clients has helped to create more revenue. Obviously, the cash position, as Grant mentioned as well, that's obviously maintained positive. And the dividend, obviously, again, mentioning again, progressive dividend policy in the business, were up 8%. So the outlook for the business is still very -- we believe, my gut feeling tells me the next 5 years is looking very positive and there's reasons for that. Geopolitical reasons in the world we are, sadly, for that, but it's also being positive for the business because we see rerouting of ships coming from whether around the Red Sea being closed or Panama having its issues and for various reasons; 26 so far. This year, we're in line with expectations. We feel positive about that. And there's many -- just wanted to outline the fact that the business feels strong for many reasons, the shipping business. And it's with the evolving fuel usage, whether that be from LNG to ammonia to methanol. We're obviously guiding our clients hugely on that as well, which is obviously making Braemar a key factor for our advice. And as we've said earlier as well, the business is a great platform now for growth. We just started our vision of how we can build this business, and that's what we're trying to get across today overall. So thank you.

James, Grant, Tris, if I may just jump back in there. Thank you very much indeed for your presentation this morning. [Operator Instructions] I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your invested dashboard. [Operator Instructions]

Sure. Thank you. Yes. So I'll read the questions. So one of the questions, the global seaborne trade growing and the total fleet size remaining stable, how do you plan to capitalize on these trends to drive growth? And are there any specific regions that you're targeting for expansion? I think probably really covered Tris by that slide there, wasn't it, with our...

Yeah. I mean, hopefully, you can see that we were proactive in identifying the geographies and the areas that we can do better in and where the real opportunities are. And I'd say, without being specific, I mean, global trade is shifting around a little bit now. James has talked about some of the trade routes changing. And with that, obviously, that could provide opportunities for us, not just in the short term and so far as where the rates are, but also, let's say, where our clients choose to be based and perhaps where the business is -- the shipping routes are actually moving to, et cetera. So we are proactive in choosing those geographies, et cetera.

Yeah. So exactly and I think going back some 20-odd years ago, there used to be like co-broking involved. So you speak to a co-broker in Singapore and then talk to clients in Asia. Obviously, that market has evolved now. So the commission rate is across the globe. And for that, it's the reason why we have to be in so many different sectors. And obviously, we have all information come into one office or one space, but the fact that we're able to guide our clients. And please bear in mind the fact that the business is definitely evolving towards, not necessarily regulated, but the fact is we're very close to that compliance. As Tris mentioned, there are compliance and KYCs all in place. But just to emphasize the fact that we are a broker that can basically look after the client all the way through a transaction, whether that is raising finance to build the ship, whether that is in -- book to ship on for a long-term, 5-, 10-year deal, and we're also able to offset the risk of our futures department. So we're basically a one-stop shop.

If you're fixture up 8%, why was your revenue flat? I think we've addressed that really. It was really driven by that weakness that we saw in dry cargo and really does drive the diversification and resilience that we're building within the business. The acquisitions of Southport Maritime and the Madrid tanker business has performed well. How competitive was that process? And how do we plan to balance growth through acquisitions versus organic?

Yeah. I mean I can start on that one, and we don't do deals just for sake of doing deals. We have a formula that we work to, and we like to see -- being a Plc, we like to see the same kind of transparency in any businesses that we may look to bring into group. I think that we've looked at other businesses in the last 12 months and perhaps the nature of shipbroking, the ownership structures can be a little bit opaque and decided that we might not proceed with those kind of transactions. But insofar as we talked about all of these businesses that we bring into group, we want them to be immediately accretive to the bottom line. And we do look for a fairly quick payback on the investment that we may have made, which, again, something which we talk about the cash position and everything that we've done in the last 24 months has been self-financed. We haven't raised capital from anybody else.

Thanks, Tris. What considerations, if any, are the Board taking into account for the possibility of switching to hybrid wind or hydrogen based to drive powering newbuild ships for the fleet?

I think as far as hydrogen-driven vessels, that's still at early stages. I mean we have obviously -- we are very much involved in seeing the transition -- early transitions with LNG, with ammonia or with methanol. We've seen some wind to power ships, even adding some sales to try to get that. But they're all still early stages. But the bigger -- the most used so far, the most popular one is the LNG dual fuel. But it's -- I'd say, it's still dual fuel. There's no singular fuels really being built. So still fuel oil is still a common fuel for vessels going forward. But obviously, we have seen a lot of transition, the more modern ships. Obviously, more eco and the less consuming vessel, which is obviously helping as far as that transition.

Can you give some color on S&P, had a good FY '23? Which subsets are particularly strong? Yeah, if you look at -- to the point, overall S&P revenue was down from '22 to '23, but we went into this current financial year with a particularly strong newbuild order book. So the S&P team have performed very strongly in that newbuild, which is really driven our forward order book as we go into this current financial year.

Yes. I mean, just to highlight to understand the fact that the client is focusing more on newbuildings as opposed to secondhand deals then there's obviously going to be a reason why what they have done is perform exceptionally well because it's important to get a forward order book as well to get a secondhand deal.

Can we provide more details on performance metrics we used to evaluate the success of our acquisitions in the U.S.A. and Spain? I'll start on that. Yeah, we really look at how the revenue has performed from a fixture perspective before they were part of the Braemar Group and post the Braemar Group, how well integrated they are across the desks and how the information sharing is working across the business. So we can ensure that having made these acquisitions, as James and Tris already said, they are more than they were as a standalone business, really ensuring that the synergies across the group are realized. And we look at that through a number of measures and, in particular, sort of fixture numbers improving and that communication across the group. Anything to just add on that?

Yeah. I mean the only thing I would add is that sort of pre-bringing them into the group, it's obviously important that we look at them as a standalone business and the profit they can deliver as they are. When they're brought into group, obviously, we hope to optimize that, but we don't build in, let's say, unrealistic expectations of what those synergies might be based on the acquisition price. We look at it as a standalone business with a bigger view to what those synergies might do, but that doesn't necessarily influence the acquisition price at that time.

Please give us the date of the dividend payment that was in the latest announcement. It is in the annual report accounts, which is on the website. But I can say, the record date is the 2nd of August, and the payment date is the 9th of September. While our revenue is expected to be flattish this year as the outputs are positive, what we're expecting rates to do -- and the 5-year outlook is positive, so what growth in average is possible over that period? I think that we've -- as we've seen this year, we've built that resilience and sustained our revenues. So if we see weaker rates, we can offset that. So we've taken a more measured view in our outlook. And given where rates are, we expect dry cargo broadly to stabilize, and we expect tankers to remain positive going forward. Got a lot of growth opportunities, why we decided to increase the dividend by 8% rather than investing in future growth? I think the balance here is really, we have a progressive dividend policy. We feel very confident about the future. And hence, we felt it was right to maintain a progressive dividend policy, increase the dividend slightly, but we still feel confident about the future growth prospects for the business as well and how we can fund those.

Perfect. James, Grant, if I may just jump back in there and thank you very much indeed for addressing all of those questions that came in from investors this morning. [Operator Instructions] But James, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Yeah. First of all I want to say thank you for taking time to listen to the Braemar results. I think I want to say emphasize to Grant as well to say thank you for getting the accounts out early, his finance team compared to where we were the last couple of years. That's really important for us to get back on track. So that's the key factor for us was in the business. I know that for you guys as well, wanting to invest in the business or investors in the business to make sure that is in line. We are obviously proud of the fact that we're coming in line with our budget, and we've done that and we're building. And we are building a business that basically makes it slightly more immune to the market swings. And you can see that from where we were -- dry cargo was to where the business still came in on the numbers. I want to thank all of the executives here and your time as well. So thank you so much.

James, that's great. Thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Braemar Plc, we would like to thank you for attending today's presentation. That now concludes today's session so good morning to you all.

Thank you.

Thank you.

Thank you.