Last checked at 31 Aug 2022 13:18
31 August 2022
BRAEMAR SHIPPING SERVICES PLC
("Braemar", the "Company" or the "Group")
Annual Report and Notice of Readjourned General Meeting
Braemar Shipping Services Plc (LSE: BMS), a leading international Shipbroker and provider of expert advice in shipping investment, chartering, risk management and logistics services, today announces that it has published its Annual Report and Accounts for the year ended 28 February 2022 ("Annual Report").
As announced on 19 August 2022, the Company held its Annual General Meeting ("AGM") on Friday 19 August 2022 at the Company's offices. During that AGM, only the resolutions that were not dependent on the Company's financial results were voted on by shareholders. The remaining business (namely resolutions 1 to 3 (inclusive) and resolution 18 as set out in the Company's AGM Notice posted to shareholders on 27 July 2022) of the meeting was adjourned to a later date following the release of the full year results. Following the publication of the Annual Report today, the Company is pleased to confirm that it will hold the reconvened AGM to consider the remaining business at the Company's offices at One Strand, Trafalgar Square, London WC2N 5HR at 10:00 a.m. on Thursday 6 October 2022.
The Annual Report will be available on the Company's website (www.braemar.com) and will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism. An AGM Notice and Form of Proxy for the reconvened AGM will be submitted to the National Storage Mechanism. Copies of these documents will be posted to those of the Company's shareholders that have elected to continue to receive hard copies.
Appendix
This appendix sets out the disclosures that the Company is required to make to comply with Disclosure and Transparency Rule (DTR) 6.3.5R, namely: the principal risks and uncertainties facing the Company; the directors' responsibility statement made in respect of certain sections of the Annual Report; and a statement regarding related party transactions. This information has been extracted from the Annual Report in unedited text and is not a substitute for reading the full Annual Report.
Page references and note references below refer to page numbers and numbers of notes to the accounts in the Annual Report.
Legal Entity Identifier: 213800EV6IKTTHJ83C19
Principal risks and uncertainties
Risk Management
Effective risk management forms an integral part of how we operate. It is essential for delivering our strategic objectives as well as protecting our relationships and reputation.
The Group's Risk Management Framework
Risk awareness is a key element of Braemar's organisational culture at all levels and is key in managing risks to our business, helping to ensure the process of risk identification, assessment and response is embedded within daily operational and functional activities across the Group.
The board is responsible for managing the Group's risk, overseeing the internal control framework, and determining the nature and extent of the principal risks the Company is willing to take to achieve its long-term objectives. The Group's risk management and internal control frameworks are continually monitored and reviewed by the board and the Audit Committee, with support from a Management Risk Committee. The board is committed to maintaining a reputation for the highest standards of conduct in all aspects of its business, but in considering the other matters set out in Section 172 of the Companies Act 2006, the directors are mindful that the approach must be balanced with both Employee interests and the Group's need to foster business relationships. As such, Group policies and procedures have been designed to ensure that the level of risk to which the Group is exposed is consistent with the Group's risk appetite and aligned with the Group's long-term strategy, but also to avoid a disproportionate administrative burden on employees, clients, and counterparties.
Reporting to the Chair of the Audit Committee and administratively to the Chief Financial Officer, the Group Head of Internal Audit and Group Risk & Compliance Manager leads the Risk Management, Internal Controls and Compliance functions.
Risk Management Process
The Group's Risk Management approach or framework incorporates both bottom-up and top-down identification, evaluation, and management of risks. Within our framework:
· Senior management teams have initial responsibility for identifying, monitoring, and updating business risks, while
· Group IT, HR, Legal and Finance management teams assess their respective functions for operational and functional risks not identified by senior management.
The Group's Risk Management framework is managed via a new online system/solution which is accessible to the senior management team and operational and functional management teams globally. The new system's functionality has allowed for enhanced monitoring and reporting automation, which was a limitation of the system previously used. The new system allows for:
· Group-wide real-time updating,
· Distribution and completion of periodic internal control self-assessment surveys,
· Ongoing monitoring of risks and mitigation activities at Group, Operational, and Functional levels, and
· Risk Management reporting at Group, Regional, and company location levels.
The Group's risk management framework considers both the likelihood and the impact of identified risks materialising. Risks are offset, where possible, by the implementation of control activities, which are evaluated to determine their effectiveness in mitigating or reducing risk to acceptable levels.
All identified risks are aggregated and reviewed to assess their impact on the Group's strategic objectives and the resources required to manage them effectively. Key (or Principal) risks are aggregated together with associated issues or areas of uncertainty. The extent of controls and mitigation as well as the potential for a material effect on the market value of the Group are then assessed. Unmitigated risks can be significant, but our control processes and management actions reduce the risk level.
The risk management process evaluates the timescale over which new or emerging risks may occur. The risk management process also considers the potential impact and likelihood of risks, as well as the timescale in which risks may occur. The outcome of this process is then reviewed with further consideration and assessment provided by the Risk Committee, the Audit Committee, and the board.
Oversight and evaluation of the effectiveness of Braemar's risk management framework is led by the Chief Financial Officer, supported by a Management Risk Committee whose membership includes the Chief Operating Officer, General Counsel, Group Head of Internal Audit and Group Risk and Compliance Manager, and representatives of other functions and locations of the business. The Committee monitors risks regularly, taking into consideration the appetite, tolerance, and potential impact for specific risks on the Group.
Environment and Climate Change
During FY21/22 Environment and Climate Change-related risk was assessed as part of ongoing discussions of key and emerging risks for the Group and the shipping and energy sectors within which it operates. Consideration of the potential short to medium-term impact of Environment and Climate Change risk resulted in its inclusion as a Group Principal Risk this year. Review and analysis of Group Principal Risks, including Environment and Climate Change risk, is a standing agenda topic for the Risk Committee, and as such was, discussed in Risk Committee meetings throughout FY21/22. Below is a summary of matters considered.
Classification of environment and climate change risks
The Risk Committee recognised that there are several specific environmental and climate-related risks. Under TCFD recommendations climate-related risks can be classified into two main categories:
· Transitional risks: The risks associated with transitioning to a lower-carbon economy which include regulatory, market and technology-related risks and adaptations related to climate change.
· Physical risks: The risks associated with acute weather events or longer-term shifts in climate patterns.
Further work is in progress to develop a climate-related risk matrix which classifies all climate-related risks and opportunities into the two main categories and documents them in a way that is consistent with the Group's overall risk management framework.
Timeframe
The nature of climate-related risks is such that the potential impacts to the Group can be classified into short, medium, and long term. The Risk Committee have initially identified these timeframes as follows:
· Short-term: 0-2 years
· Medium-term: 3-10 years
· Long-term: Beyond 10 years
Impacts to the Group's strategy
The Risk Committee discussed several climate-related opportunities such a carbon offsetting, growing the Renewables desk and supporting clients with climate-friendly ship design and sustainable ship recycling via the Sale and Purchase desk. In the short-term carbon offsetting is a key part of the Group's strategy and further details of the implementation of the CHOOOSE platform can be found on page 39.
Impacts on financial performance
Management does not expect does not expect climate-related risks to have a material impact on the Group's short-term financial performance. The potential impact of climate change and other environmental issues has not formed a significant element in any key judgements or estimates disclosed in the Group's Financial Statements for the year ended 28 February 2022.
Significance relative to other principal risks
The Group has not ranked any of its principal risks and therefore the significance of environment and climate related-risks relative to the Group's other principal risks has not been assessed.
The Chief Financial Officer was responsible for providing the board and the Audit Committee with updates on these discussions. After our financial year-end, the Group established a Climate Change Management Committee which has specific responsibility for identifying and managing the Group's climate-related risks and opportunities. The Climate Change Committee is Chaired by the Group's Chief Operating Officer and includes the Managing Director of the Singapore office plus other team members from Shipbroking and Corporate. The Climate Change Committee will report to the board and the Audit Committee via the Chief Operating Officer. The Risk Committee retains responsibility for monitoring this as a principal risk, incorporating this risk into the Group's overall risk management framework, and ensuring that the impacts of the risks are appropriately monitored and mitigated.
Risk Mitigation
The Group takes various measures to mitigate risk. Key steps in our risk management process throughout the year included:
· Ongoing periodic review and updating of policies and procedures, including AML and KYC, to enhance/strengthen the Group's Governance Framework, with ongoing monitoring of Employee compliance by the Group Head of Internal Audit & Group Risk and Compliance Manager.
· A system of internal checks and authorisations, complemented by independent assurance activities.
· Usage of common finance, HR and operations systems across the Group supported by our IT team.
· Succession planning and strategic recruitment supported by the Group HR team.
· Establishment of board-approved Group budgets with ongoing performance monitoring against budgets/reforecasts and investigation of significant variances.
· Regular reporting of Treasury management activity to the board by the Chief Financial Officer. (Note the Group does not enter speculative treasury transactions.)
· Ongoing monitoring of contractual risk by the Group legal team.
· Operation of the Group's whistleblowing procedure.
· Maintenance of appropriate insurance cover.
Principal Risks
The directors have carried out an assessment of the principal and emerging risks facing the Company. The most significant risks to which the board considers the Group is exposed, based on the evaluation process described in the Group's Risk Management Framework are set out alphabetically below.
Change Management
Shipbroking is a business that is evolving in nature and Braemar needs to ensure it evolves with it. The lack of an appropriate change management framework and leadership structure could lead to the ineffective introduction and embedding of change required to achieve the Group's strategic objectives | The business may not operate efficiently and effectively, leading to projected revenue or returns not being realised and strategic objectives not being achieved.
Internal and external relationships could be damaged or lost. Business development opportunities could be damaged.
| Ongoing review and enhancement of Braemar's corporate governance framework, management structure, and succession planning and job mapping processes to help ensure: · Continuous improvement; and · Alignment with leading industry practice.
Training programme to help ensure all employees are kept updated with the governance framework and related policies.
Ongoing monitoring to ensure employee completion of Group governance training, compliance with all relevant Group policies, and completion of Group policy attestation requirements.
The effectiveness of Internal Audit and Compliance processes is enhanced by Senior Leadership and Audit Committee oversight, and career path transparency is improved by our management infrastructure changes. |
UNCHANGED
(The residual or net risk after consideration of current mitigating actions is unchanged from the prior year.) |
Compliance with laws and regulations
Braemar generates revenues from a global business that exposes the Group to risks associated with legal and regulatory requirements, including sanctions.
| Legal and regulatory breaches could result in fines, sanctions being imposed on our business, and the loss of Braemar's ability to continue operating.
Note: Recent increased scrutiny from regulatory bodies and rising geopolitical and macroeconomic issues, including the current Russia/Ukraine conflict, has increased the potential impact of risks associated with breaches of legal and regulatory requirements.
| Group-wide training program to help ensure employee awareness of, and compliance with, all relevant legal and regulatory obligations: · Braemar Corporate Governance Framework; · Braemar Risk Management methodology; · Compliance with our policies, including our AML/KYC policies' (enhanced) customer due diligence requirements; · Compliance with relevant laws & regulations.
Enhanced KYC procedures and ongoing monitoring of compliance with governance policies and legal / regulatory requirements across the Group to help ensure requirements are not breached.
Ongoing monitoring to ensure insurance cover is maintained at adequate levels. |
INCREASED
|
Currency fluctuations The Group is exposed to foreign exchange risk because of a large proportion of its revenue being generated in US dollars while the cost base is in multiple currencies.
| A change in exchange rates could result in a financial gain or loss. | On a continuous basis, the board monitors macroeconomic issues to assess possible foreign exchange movements.
Forward currency (US $) contracts are entered into to mitigate the risk of adverse currency movements.
| UNCHANGED
|
Cybercrime/data security Cybercrime could result in loss of business assets or disruption to the Group's IT systems and its business. Lack of appropriate data security could result in loss of data. | Loss of service and associated loss of revenue. Reputational damage. Potential for loss of cash due to fraud or phishing. | Globally, cyber-attacks increased significantly during and post the COVID pandemic. To address the increased risk, and to enhance security measures already in place, Management partnered with external advisors to develop and implement a Cyber Assurance programme, which will be rolled out during 2022/23. Ongoing implementation of Security Operations Centre using DarkTrace technology. Improved security with the movement of on-premises data storage facilities in Singapore and Australia to the cloud. Ongoing implementation of a range of security measures including Microsoft's Advanced Threat Protection suite and a new SD-WAN to provide improved security and connectivity to our corporate systems. |
UNCHANGED
|
Disruptive technology Shipbroking is still largely a business that is transacted via personal relationships dependent on quality service. Hence the risk of technological change, disintermediation and increased customer demands for enhanced technological offerings could render aspects of our current services obsolete, potentially resulting in loss of customers. | Relationships could be devalued and replaced by disruptive technology platforms, resulting in increased competition, consequent price reductions, and loss of revenue.
| Investment in technology through our venture with Zuma Labs has resulted in effectively differentiating Braemar, as our brokers have begun utilising Zuma's versatile Venetian platform in advance of other firms. Ongoing modernisation of our infrastructure to allow for focus on innovation and strategic direction. | UNCHANGED
|
Environment and Climate Change
Seaborne transportation is estimated to create 2.5% of the worlds carbon emissions and there will be increased pressure to reduce that in future years. Failure to monitor and address the risks associated with that reduction process could result in loss of revenue for Braemar and its customers and counterparties | The Groups P&L and liquidity could be negatively impacted if customers are lost as a result of our not keeping pace with our peers and industry best-practice.
Non-compliance with regulations or disclosure requirements could result in fines or penalties.
Failure to appropriately monitor and mitigate these risks could lead to Braemar suffering serious reputational damage.
Note: Management does not expect climate-related risks to have a material impact on the Group's short-term financial performance. | Investment in the offshore renewables market and technology to allow the Group and its clients to offset carbon emissions.
Ongoing development an EPSG strategy which allows the Group to monitor and report on environmental and climate-related risks.
Establishment of a Climate Change Committee to help ensure climate-related risks are identified, monitored, and appropriately managed.
|
INCREASED
|
Financial capacity
Braemar has set itself a growth strategy that will require investment in the coming years and limited financial capacity could hamper our ability to deliver on the objectives
| Without sufficient financial resources the Group may not be able to meet current and near-term obligations and may not be able to take advantage of potential growth opportunities.
| Several strategic achievements have strengthened the Group's balance sheet, effectively decreasing financial capacity risk: · Disposal of Cory Brothers for all-cash consideration generated £6.5m of cash in March 2022. £4.7m of earnout cash consideration is expected to be received between May 2023 and May 2025. · Restructuring of deferred consideration amounts owed in respect of the acquisition of Braemar-Naves resulted in a repayment deferral of £2.5m which was due for repayment before the end of December 2022. The repayment is now to be paid no earlier than September 2025. · Disposal of non-core investment in AqualisBraemar generated £7.2m of cash proceeds during FY21/22. Ongoing mitigations include: · Prioritisation of identified growth opportunities to ensure resources are appropriately allocated to opportunities with the best potential return on investment. · Regular review of debt levels, our dividend policy, and a three-year extension of banking facilities. · Consultations with external advisors to review current banking relationships as compared to other potential banks and/or banking facilities.
|
DECREASED
|
Geopolitical and macroeconomic
Braemar's businesses is reliant on global trade flows and as such may be negatively impacted by geopolitical and/or macroeconomic issues, such as changes in crude oil price, restrictions in global trade due to pandemics such as COVID, sanctions, and changes in supply and demand. | A downturn in the world economy could affect transaction volumes, resulting in reduced revenue.
Changes in shipping rates and/or changes in the demand or pricing of commodities could affect supply activity. Note: The current conflict between Russia and Ukraine and related global sanctions has increased the potential impact of risks associated with both geopolitical and/or macroeconomic issues and compliance with relevant laws and regulations. | Diversification on a sector and geographic basis reduces dependency on individual business areas. Ongoing monitoring to ensure the Group is appropriately resourced across its activities and geographies. Ongoing management of costs based on current and reasonably foreseeable market conditions.
Enhanced KYC procedures and ongoing monitoring of compliance with governance policies, sanctions, and other legal / regulatory requirements across the Group to help ensure laws and regulations are not breached.
|
INCREASED
|
Major business disruption The risk of disruption to our business due to a disaster or unplanned events occurring.
| The business may be unable to operate as effectively as usual, resulting in financial loss. | Significant investment upgrading our network and telecoms estate to provide a more robust, scalable, and resilient platform for global delivery of applications and services. Network and telecoms upgrades include: · Decommissioning of on-premises data storage in Singapore and Australia to facilitate movement to the cloud, · Re-architecting of our network with an SD-WAN to improve security and connectivity to our corporate systems, and · Increased utilisation of the Microsoft 365 suite to allow for more efficient and effective work and communication across the Group. Enhanced systems monitoring to help ensure improved and uninterrupted service delivery. Identification of key staff and potential points of failure, and the consideration of adaptable/flexible ways of working, help to ensure preparedness in the event of major business disruption. |
UNCHANGED
|
People and Culture Braemar is a people-based business and people are vital to its success. Inadequate policies and reward structures could incentivise negative behaviours, create internal conflict, lead to reputational damage, and contribute to failure in attracting and /or retaining skilled personnel. Failure to adapt to, or align with, post COVID market expectations, including the offering flexible or hybrid working arrangements, could result in the inability to attract and retain skilled personnel. Lack of appropriate consideration of environmental and wider social issues could also contribute to the inability to attract and retain skilled personnel.
| Employee relations claims / litigation / tribunals attributed to negative behaviours or actions, increases the potential for reputational damage because of negative publicity in the public domain. Loss of key staff could result in reduced revenue when staff take "their" contacts and business with them. Strategic growth objectives may not be achieved if Braemar fails to attract and retain skilled personnel. Note: The potential impact of risks associated with failing to attract and retain personnel has increased post the relaxation of COVID social restrictions due to current market expectations for flexible or hybrid working arrangements for both current and prospective employees. Whilst the Group has not formally implemented flexible or hybrid working, the increase of People risk is partially mitigated by ongoing consideration of roles suitable for flexible working arrangements, as included under mitigating controls/actions. Recognition of environmental and social issues is becoming increasingly important to certain people, particularly graduates and younger skilled professionals who are at the start of their careers. Failure to attract or retain these people could negatively affect the Group's recruitment, retention, and succession planning. | Ongoing review of policies including Conflict of Interest, Code of Conduct, and the Employee Handbook, to ensure behavioural expectations and employment practices for managers and employees are clearly defined. Organisation structure changes included the creation of associate director roles to identify key employees and more clearly show progression opportunities. Ongoing development of a culture of engagement and professional development, including implementation of performance management objectives, clearly defined pathways for career progression, and succession planning at senior management levels. Annual review of compensation with external benchmarking helps to ensure remuneration packages continue to be appropriate and competitive. Ongoing consideration of roles potentially suitable for hybrid and flexible working arrangements.
Ongoing development an EPSG strategy which allows the Group to monitor and report on environmental and social risks. Communication of the EPSG strategy to existing and potential employees, demonstrating Braemar's commitment to efforts addressing environmental and social issues.
|
INCREASED
|
Directors' responsibilities pursuant to DTR4:
The directors confirm that to the best of their knowledge:
• the Group Financial Statements have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and
• the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and Company, together with a description of the principal risks and uncertainties that they face.
The directors confirm that they consider this Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for the Company's shareholders to assess the Group's position, performance, business model and strategy.
Related party transactions
During the period the Group entered into the following transactions with joint ventures and investments:
2022 | 2021 | |||||
Group | Rechargesto/(from)£'000 | Dividends£'000 | Balancedue(to)/ from£'000 | Rechargesto/(from)£'000 | Dividends£'000 | Balancedue(to)/ from£'000 |
London Tanker Broker Panel | 324 | - | - | 310 | - | - |
AqualisBraemar LOC ASA | 221 | - | 282 | 610 | 641 | 240 |
Risorto GmbH | (453) | - | (31) | (865) | - | (33) |
Worldscale | 84 | - | - | 60 | - | - |
London Tanker Broker Panel
Recharges to London Tanker Broker Panel consist of a monthly fee payable to the Group for the provision of data.
AqualisBraemar LOC ASA
Recharges to AqualisBraemar LOC ASA consisted primarily of rent, IT services and HR services in accordance with a transitional services agreement. Included in the net recharge to AqualisBraemar LOC ASA is a fee payable to the Group's former Chairman, Ronald Series of £3,750 (2021: £15,000).
In the prior year, the Group received £641,000 of dividends from AqualisBraemar LOC ASA which were credited to cost of investment. See Note 19.
A loss of £262,000 was recognised in the prior year in respect of the Group subletting a portion of its Singapore office space to AqualisBraemar LOC ASA, and an impairment to a right-of-use asset in respect of a London office which will be vacated by AqualisBraemar LOC ASA. See Note 8.
The balance due from AqualisBraemar LOC ASA is unsecured, interest-free and immediately repayable.
Risorto GmbH
Risorto GmbH is owned and controlled by the management of Braemar Naves Corporate Finance GmbH. The amount charged by Risorto GmbH in the year to the Group for management fees was €0.5m (2021: €0.7m). The balance owing to Risorto GmbH as at 28 February 2022 was less than €0.1m (2021: less than €0.1m).
Worldscale Association Limited
Management consider that Worldscale Association Limited is a related party because Nico Borkmann, a senior employee in the Braemar Group is one of its directors. Recharges to Worldscale consist of a monthly fee payable to the Group for the provision of data.
Key management compensation is disclosed in Note 4.
Transactions with wholly owned subsidiaries
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
A list of the Group's subsidiary undertakings is on pages 198 - 200. Unless otherwise indicated, all shareholdings owned directly or indirectly by the Company represent 100% of the issued share capital of the subsidiary and the share capital comprises ordinary shares. All entities primarily operate in their country of incorporation.
Key management compensation
The remuneration of key management is set out below. Further information about the remuneration of individual directors is provided in the Directors' Remuneration Report on pages 84 - 108. Key management represents the board of the Company.
2022£'000 | 2021£'000 | |
Salaries, short-term employee benefits and fees | 3,484 | 3,410 |
Other pension costs | 41 | 68 |
Share-based payments | 521 | 71 |
Total | 4,046 | 3,549 |
Retirement benefits are accruing to three (2021: three) members of key management in respect of a defined contribution pension scheme.
For further information, contact:
Braemar Shipping Services Plc | |
James Gundy, Group Chief Executive Officer | Tel +44 (0) 20 3142 4100 |
Nick Stone, Group Chief Financial Officer Emma Camilleri, Company Secretary | |
Investec Bank Plc | |
Gary Clarence / Harry Hargreaves / Alice King | Tel +44 (0) 20 7597 5970 |
Cenkos Securities plc Ben Jeynes / Max Gould (Corporate Finance) Alex Pollen / Leif Powis (Sales) |
Tel +44 (0) 20 7397 8900 |
Buchanan | |
Charles Ryland / Victoria Hayns / Stephanie Whitmore / Matilda Abraham | Tel +44 (0) 20 7466 5000 |
Notes to Editors:
About Braemar
Braemar provides expert advice in shipping investment, chartering, and risk management to enable its clients to secure sustainable returns and mitigate risk in the volatile world of shipping.
Braemar's experienced brokers work in tandem with specialist professionals to form teams tailored to its customers' needs, and provides an integrated service supported by a collaborative culture.
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 presentation, please visit www.braemar.com and follow Braemar on LinkedIn.