Braemar Shipping Regulatory News (BMS)

BRAEMAR SHIPPING SERVICES PLC

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

 20 May 2019

Preliminary Results for the year ended 28 February 2019

Strong Strategic and Financial Progress Achieved

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 preliminary results for the year ended 28 February 2019.

Financial Highlights

· Good progress achieved with revenue from continuing operations increased by 14% to £117.9m (2018: £103.0m)

· 25% increase in underlying operating profit to £9.1m (2018: £7.3m)

· Underlying basic EPS growth of 19% to 23.32p (2018: 19.57p)

· Final dividend of 10.0p giving an unchanged full year dividend of 15.0p, covered 1.6 times (2018 15.0p covered 1.3 times)

· Discontinued operations showing a loss of £22.7m mainly attributable to £21.3m book loss on disposal of Technical Division business units.

· Net debt of £7.8m up from £2.4m, including the cash in discontinued operations

Business Highlights

· Shipbroking traded ahead of expectations and in particular had a strong second half, notably in Dry Cargo and Tankers, forward order book maintained at $43m.

· Encouraging first full year trading of Financial Division with a broadening client base and growing pipeline of business. We believe that our expectations at the time of acquisition will be met.

· Post year end disposal of loss-making Technical Division business units in return for a significant equity investment in a larger and stronger business.

· Steady trading from Logistics with an increase in margins and underlying profit.

· Newly simplified Group structure focused on core activities to deliver higher margin services to the maritime industry.

· Significant Board changes to help drive long-term sustainable shareholder value.

SUMMARY FINANCIAL RESULTS

Ronald Series, Chairman of Braemar, commenting on the results and the outlook said:

"Braemar achieved good progress during 2018 but there is still much more to do and further opportunities to develop as we return the Group to growth.

It is an exciting time for Braemar, having reached a good solution for the majority of the Technical division. The Group is now well set to focus on our Shipbroking, Financial and Logistics businesses which have good prospects.

"I look forward to working with the Board and senior team and reporting on further progress during 2019."

Listing Rule 9.6 disclosure

Braemar also announces that Steve Kunzer, one of its non-executive Directors, is also an independent director of Dampskibsselskabet NORDEN A/S, a ship owning company listed on Nasdaq Copenhagen.

This announcement contains inside information as defined under the Market Abuse Regulation (EU) No. 596/2014

-Ends-

For further information, contact:

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 750 people in more than 60 locations (although this will fall by around 250 people and 30 locations following the disposal of the Technical business units) worldwide across its Shipbroking, Financial, Logistics and Technical 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 2019

CHAIRMAN'S STATEMENT

Braemar's underlying performance from continuing operations in 2018/19 achieved a noticeable improvement over the previous year. 2018/19 was the first full year of trading for Braemar-NAVES and Braemar Atlantic which were both acquired in the previous year. Through these acquisitions, we have established a new presence in the maritime financial advisory market and in dry freight and commodity derivatives markets both of which are complementary to shipbroking and widen Braemar's offering to its customers.

On 13 May 2019 we announced the disposal of the loss-making Offshore, Marine and Adjusting businesses of our Technical division to Aqualis ASA, a Norwegian listed group, operating in offshore and renewables consulting in exchange for a 26% stake of the enlarged Group's equity. In addition, we will receive performance based warrants which offer the potential to increase our stake to 33% in two years' time. This transaction, which is in line with our strategy to focus on the Group's core, profitable operations, is expected to complete in mid-June 2019, at which point Braemar will become the largest shareholder in Aqualis. The Board strongly believes that this is an excellent result for both Braemar and Aqualis and the best solution for the Technical division.

Aqualis operates primarily in the Offshore and Renewables sectors and has a particular strength in the Middle East. The combination of our businesses with Aqualis provides an excellent fit with little geographic or client overlap. The enlarged group will be a market leader with global coverage of marine, adjusting, offshore and renewables services. We are also delighted that the group will trade as AqualisBraemar which maintains our name in technical services and enables us to continue to cross sell and package these services. The Aqualis management team has a strong track record of managing and growing businesses in these sectors through the cycle.

The business units sold made an operating loss of £1.7 million in the year. The estimated valuation of the consideration received by way of shares and warrants is £6.4 million and the total loss recorded on the disposal after fees is £21.3 million.

The Group has decided to retain its Engineering business because its services to the LNG industry have a close connection to and joint business with the Shipbroking division.

RESULTS FOR THE YEAR

Revenue from continuing operations for the year was 14.4% higher at £117.9 million compared with £103.0 million in 2017/18. Underlying operating profit from continuing operations was considerably higher at £9.1 million compared with £7.3 million in 2017/18 and underlying earnings per share were 23.32 pence compared with 19.57 pence last year. All these figures are reported excluding the Technical Division business units that form part of the Aqualis transaction which is treated as a discontinued operation for this purpose.

The Shipbroking division performed well, particularly in the second half of the year with an increased contribution from dry cargo chartering, some important sale and purchase business and the full year's contribution from Braemar Atlantic. We also invested in the dry cargo and chemicals sector teams to improve the mix of our broking capability. The forward order book remains strong at over $40 million with a higher proportion due to be delivered in the next twelve months than last year.

Our Financial division, which was created following the acquisition of NAVES Corporate Finance GmbH in September 2017 reports its first full year of profits. This new division had an extremely active year and built an extensive and growing pipeline of mandated business and retainer income from both financial and shipping clients. Based on the pipeline of business combined with the ability to link up with other divisions, we believe that our expectations at the time of the acquisition will be met.

Logistics traded steadily and reported a small increase in underlying profit compared with the prior year.

There was a reported loss for the year from continuing operations of £4.7 million (2018: £2.9 million) after taking into account other specific items, mainly due to acquisition and disposal related expenditure.

DIVIDEND

The Directors are recommending, for approval at the Annual General Meeting on 3 July 2019, a final dividend of 10.0 pence per share.

This dividend will be paid on 26 July 2019 to those on the register at close of business on 21 June 2019. Together with the 5.0 pence interim dividend, the Company's dividend for the year will be 15.0 pence (2018: 15.0 pence). The last date for Dividend Reinvestment Plan (DRIP) elections will be Friday 5 July 2019. As part of the process of reshaping the Group and focusing on higher margin business development, we are keeping the dividend policy under review.

BOARD OF DIRECTORS

I am delighted to have taken over as Chairman on 15 April 2019, and I look forward to working with the Board and the executive team to drive long term sustainable value for the Group over the upcoming years, to the benefit of all of our stakeholders.

The Board would like to thank David Moorhouse for his contribution as Chairman over the past three years, and as a Non-executive director for 10 years prior to that. Louise Evans served as Finance Director until 22 June 2018 and Nick Stone joined as Group Finance Director on 1 April 2019. Steve Kunzer joined the Board as a Non-executive director on 26 February 2019, replacing Mark Tracey who stepped down from the Board in September 2018.

On behalf of the Board, I would like to thank Louise and Mark for their contribution during their time with Braemar, and to welcome Nick and Steve to the Braemar Board.

COLLEAGUES

On behalf of the Board I would like to thank all of Braemar's staff for their hard work and dedication over the last year. Their knowledge, skills and commitment will be key ingredients of the future success of the Group.

OUTLOOK

Shipbroking is set to have an interesting year of opportunities as the shipping industry prepares for the International Maritime Organisation's (IMO) low sulphur fuel regulations which become effective internationally on 1 January 2020. The implementation of these regulations will have multiple effects but overall is expected to have a positive effect on freight markets, especially for tankers. In addition, our investment in new talent, particularly in the dry cargo sector, is contributing well and adding to the breadth of our Shipbroking business.

Our Finance division is working on multiple mandates with potential for significant success fees. They have also established a track record of providing corporate finance advice to the purchasers of shipping loan portfolios. This is an excellent position from which to offer on-going strategic and restructuring advice.

Logistics and Engineering both have significant commercial prospects for growth over the coming year.

We are positive about the AqualisBraemar combination and very much look forward to the development of this business and the growth of our investment therein. The reshaping of the Group will enable Braemar to focus on growing our higher margin services, which will in turn improve our return on capital for Shareholders.

Ronald Series

Chairman

19 May 2019

CHIEF EXECUTIVE'S STATEMENT

strategy

Braemar's strategy is to grow profits and build value for the Group by developing the range of broking, advisory and logistics services we offer. During the course of the year we completed the disposal of Braemar Response and have also announced a plan to combine our Technical division's business into Aqualis ASA in exchange for a 26% equity stake, following which Braemar will become the largest shareholder in the enlarged Aqualis Group. The transaction also includes performance related warrants which will be measured over a two year vesting period and offer the potential to take our holding up to 33% overall.

The combination of our businesses will create a market leader in offshore, marine, adjusting and renewables services with global coverage. It also enables Braemar to focus on our core profitable activities while retaining the ability to jointly market technical services under the new trading name, AqualisBraemar. The Aqualis management team has a strong track record for growing offshore and marine consulting businesses and the combination of our businesses puts us at the forefront of the sector at a time when further consolidation is needed.

Following the acquisition of NAVES we have grown our presence in maritime financial advisory by expanding this division geographically.

We continue to employ key individuals and teams to expand the Group in growth markets in which we are under-represented. During the year we selectively added key talent in most market sectors which has already had a beneficial impact on Group performance.

Our people are key to value creation and we remain committed to the development of our staff so that individuals' careers can grow over time and enhance internal succession.

TRADING PERFORMANCE

The Group's underlying operating profit from continuing operations increased by £1.8 million from £7.3 million in 2017/18 to £9.1 million in 2018/19. After taking specific items into account the statutory operating loss increased from £1.7 million to £2.7 million.

Revenue in our Shipbroking division in 2018/19 increased noticeably to £75.5 million compared with £61.8 million in 2017/18 and underlying operating profit was £9.3 million compared with £7.7 million in 2017/18. The acquisition of Atlantic Brokers in the prior year combined with targeted recruitment to attract key individuals and teams in growth markets has contributed to the strong performance. Atlantic Brokers enables Braemar to expand its range of derivative broking services to clients, and we expect to leverage this capability to increase business in the coming year. Tanker and dry cargo chartering both performed well in the second half of the year.

The Financial division reported revenue of £7.0 million and underlying operating profit of £2.1 million in its first full year of operations within Braemar. The business has had an extremely active year and built an extensive pipeline of mandated business, in addition to securing retainer income from both financial and shipping clients. We are confident that this division will contribute a larger share of the Group's underlying operating profit in future years and that expectations at the time of acquisition will be met.

Revenue in the Logistics division reduced marginally from £33.2 million to £32.1 million but underlying operating profit increased to £0.84 million compared with £0.78 million in 2017/18. Our port agency business performed steadily in 2018/19 with revenue and underlying operating profit broadly in line with expectations. The freight forwarding business operates in a changing competitive market, but these forces have been somewhat mitigated by our long-established relationships and a reputation for reliable bespoke customer service.

Having carried out a significant restructuring of the Technical division's cost base in 2016/17 and achieved a modest operating profit in 2017/18, we expected the profit trajectory to continue to improve. However, day rates have remained extremely low and exploration expenditure has not recovered to anything like the levels prior to 2014. The division struggled during the year and we decided to seek a structural solution.

Following the agreement we have now reached to combine the majority of our technical services assets with Aqualis, and the acquisitions made in the prior year I am pleased that the Group was able to improve its underlying profitability from continuing operations. The reshaping of the Group focuses our business on high margin marine and financial services.

James Kidwell

Chief Executive

19 May 2019

REVIEW OF OPERATIONS

SHIPBROKING

The Shipbroking division performed well and achieved a full year performance ahead of expectations. Underlying operating profits were £1.6 million (21%) higher than the prior year.

The tanker broking markets began the year with low earnings but saw a recovery in the second half of the year. There was also a healthy improvement in the dry cargo sector with some vessel earnings achieving their highest level for seven years, although the market has subsequently fallen back for reasons described below. Sale and Purchase had a strong year with an increase in the number of vessel sales at higher average values compared with last year. Newbuilding was challenging but we added to our forward book. Offshore started to see some market improvements at the end of the year.

Our total forward order book at 1 March 2019 was $43.1 million compared with $44.0 million at the start of the year. Approximately $27.6 million of this is deliverable in 2019/20 compared with $24.0 million last year. This represents revenue from shipbroking contracts where there are outstanding performance obligations that are yet to be satisified.

We continued with our broking recruitment plan; adding further talent to our broking teams across most sectors and we intend to continue recruiting selectively, which has already achieved a beneficial impact.

Deep-Sea Tankers

As expected, the weak deep-sea tanker market in 2017 continued into the first half of the financial year. This was driven by an overhang of excess tonnage, and cuts in crude oil production from OPEC and other producers in order to reduce high global oil stocks. The market rebounded strongly in the second half of the year as OPEC increased its production and exports from the United States rose sharply. This was helped by low fleet growth due to reduced numbers of vessel deliveries and higher demolition.

Tanker demand is expected to remain strong with the main driver being growth in US production and exports. Tanker tonne per mile demand is likely to increase with most cargoes likely to go long haul to Asia. Strong refinery demand with the incentive to raise production of low sulphur fuel is likely to put pressure on OPEC to increase production in the second half of the year, especially if US sanctions further restrict crude exports from Venezuela and Iran, as seems likely.

Fleet growth accelerated in early 2019, but the pace of newbuilding deliveries is expected to ease in the second half of the year. In addition, we expect to see the number of non-trading vessels increase due to the additional time spent in drydock to fit exhaust scrubbers. Fitting scrubbers enables larger tankers to benefit from the relative cost differential between heavy fuel oil and low sulphur product. There is also likely to be higher demand for floating storage as fuel oil makes way for low sulphur fuels in the world's bunkering ports.

Dry Cargo

During the year dry bulk earnings on average rose significantly, however they weakened in the last quarter, with the Baltic Dry Index ("BDI") falling 41% from 1,122 points at the end of February 2018 to 658 at the end of February 2019.

In the first half of 2018/19, the increase in earnings was led by the Capesize sector which experienced growth in shipments of higher-grade iron ore to China, from Brazil in particular, providing strong vessel employment due to long-haul voyages. Commodity demand was also strong across the other sectors, especially in the minor bulks, due to China's economy shifting more towards one driven by consumer demand. Newbuilding deliveries were lower than in previous years and this, together with the low number of vessels being demolished, kept tonnage tight.

The reduction in iron ore and coal demand in the second half of the year exerted downward pressure on earnings. Iron ore shipments were impacted by cyclonic weather in Australia and the tragic failure of the tailing dam in Brumadinho, which immediately decreased Brazil's output and Capesize earnings. Commodity demand remained relatively strong across the other sectors, especially in the minor bulks. The negative impact from the US-China trade war started in April 2018, but did not impact volumes until the last quarter, with the US selling its grain and soya beans, to non-Chinese countries and Chinese buyers finding alternative sources, mainly from South America.

Growth in the dry bulk market in 2019/20 will depend on several key factors. Firstly, how quickly Brazil can return iron ore production and exports to pre Brumadinho levels to service China's drive to improve the efficiency of its steel industry and secondly, whether there is an amicable trade agreement between the US and China. With newbuild deliveries at modest levels in 2019/20, vessel earnings will be more dependent on demand fluctuations in the year ahead.

Specialised Tankers

Our specialised tanker department covers the transportation of LNG, LPG, petrochemical gases, chemicals and smaller parcels of refined products.

The LNG tanker market in 2018/19, saw significant growth in spot earnings as new production came on stream. With further new production planned for 2019/20, growth in traded volumes will continue. Demand for shipping should exceed available tonnage over the next few years with spot earnings expected to remain at a healthy level. Over time the number of speculative orders for newbuilds beyond 2020 is likely to re-balance the market.

The LPG market in 2018/19 saw some recovery in freight rates as tonnage tightened through fewer deliveries of new vessels and an increased number of scrapped vessels. Volumes were adversely impacted by the US-China trade war but did recover as Chinese demand was satisfied from the Middle East and the US volumes were sold to other Asian markets. The outlook for the LPG market in 2019/20 is one of further modest growth.

The Chemical market in 2018/19 experienced a slowdown with a tonnage surplus on many routes. Arbitrage windows gave short-lived regional opportunities, but not enough to sustain increased freight rates. Going into 2019/20, we are witnessing increased activity, indicating a more positive outlook and some charterers are already considering longer term contracts.

Second hand sale and purchase and newbuilding

In 2018/19, the team concluded a higher volume of second hand and demolition vessel transactions at a higher average commission compared with 2017/18. Most vessel sales were dry bulk carriers reflecting the upward trend in that market.

During the year we secured multiple VLCC and Suezmax newbuilding orders which adds to our forward order book. This was achieved despite a relatively low number of newbuilding orders being placed last year.

Our second half benefitted from the delivery of a fleet of 13 dry bulk vessels. Despite weak tanker freight rates, which led to a reduced number of quality tanker vessels being sold, our team managed to increase tanker sales compared with last year. Demolition sales for the period were similar to last year.

Looking ahead, we are expecting to see an increase in activity as the IMO's environmental regulations take effect by 1 January 2020.

Offshore

The supply boat market continued to be impacted by vessel overcapacity and low global oil and gas exploration activity. The oil price strengthened during the first half of 2018/19 but then weakened going into the last quarter. This uncertainty continues to constrain any increase in spend in exploration and production. If the oil price remains stable and above $70/barrel, then we expect more projects to commence, which should drive demand.

Securities

Atlantic Brokers Holdings Limited, which was acquired at the end of the last financial year, was successfully integrated as a regulated coal desk, Braemar Atlantic Securities. The subsequent addition of a dry Forward Freight Agreement ("FFA") broking team also complemented our broking services and the desk now has a team of 12 brokers across coal and dry FFAs. The dry FFA derivatives market grew as the physical market improved. However, the coal derivative market has been relatively subdued so far this year. Braemar continues to be the leading physical broker for certain markets.

FINANCIAL

Since its acquisition by Braemar, Braemar-NAVES has expanded its global footprint by establishing a presence in London and Singapore together with an ability to work with the important Chinese financing market, working with Braemar's sale and purchase team in the Far East. Through its close cooperation with both the Shipbroking and the Technical divisions it has been able to offer integrated advisory services for private equity and hedge funds. We have established a market position as a debt advisor and debt broker for international ship owners. This aspect of our business is growing because traditional shipping banks have restricted their lending activity and in some cases withdrawn from the market altogether. Exceptional circumstances in the prior past year contributed to an unusually high margin, which is now more normalised.

Restructuring and Interim management and pre/post-insolvency management

Restructuring and related services continued to contribute significantly to the performance of Braemar-NAVES. During 2018/19 we supported restructurings in Germany, Greece, Cyprus and India. Our pre-and post-insolvency and management business was strong in 2018/2019. However, we expect this element of our business to form a lower proportion of our overall business in the future, as several shipping sectors are now generating enough cash flow to allow owners and lenders to seek a compromise that avoids insolvency filing procedures. An early sign of this is our increasing activity in supporting owners to refinance or replace bank debt.

Asset brokerage / control of sales processes for individual assets / M&A

Braemar-NAVES and Braemar ACM worked together closely and successfully led the disposal process for a variety of container vessels, tankers and dry bulk vessels. In the course of the financial year 2018/19 we experienced an increasing demand for our services to support the disposal of entire shipping companies or portfolios. We expect this to contribute more significantly to our performance in the coming year.

Equity and debt financing

Last year the Division successfully refinanced more than 20 vessels. Our mandate flow for financing support is often driven by the change of ownership of bank loan portfolios and the reduction of exposure of traditional shipping lenders. NAVES has developed a strong market presence with regard to raising debt from alternative capital providers and this is expected to continue in 2019/20, because large loan exposures will be transferred to new owners in 2019/20 and we supported due diligence activities on such portfolios during 2018/19. We have established a large network of private equity funds, investment funds, credit funds, alternative capital providers and leasing companies together with strong working relationships with most of the traditional shipping lenders.

Loan transaction support and Financial Asset Management

Our business has shifted in this area and we have become a leading buy side adviser for the acquisition of shipping loan portfolios, often drawing in some of Braemar's other services. This has more than made up for a decline in financial asset management services where traditional lenders have a lower demand for asset warehousing. This position is based on our unique service offering combining commercial, technical and financial due diligence in combination with the research and valuation desks, which has led to repeat assignments from several investors. Strategically, this business is of importance as it gives us a close understanding of our client priorities allowing us to support owners in the refinancing of their loans.

Geographic diversification

With the establishment of offices in London in 2017 and Singapore in 2018 we are diversifying and building our global presence and plan to develop our presence in other cities in the future. We continue to review geographic expansion opportunities to strengthen our links with institutional investors as well as leveraging our services within the wider Braemar Group.

LOGISTICS

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 management business.

The majority of our port agency business arises from our activity in UK ports where we are a clear market leader together with our global hub activity coordinated out of the UK. Underlying revenue in both the UK and the hub were higher than prior year and ahead of expectations. We continue to face competitive challenges from both established and new operators in the UK, but our long-established relationships and reputation for excellent customer service has meant that their impact in the year was not significant.

Overseas, our Dutch operation was in line with prior year, and in the US our underlying revenue grew 30% on the back of increased business in our established Houston office and the addition of a new office in New Jersey.

Liner Agency & Freight forwarding

The Liner Agency business has maintained its long-standing relationships with key clients on the basis of high service levels which has seen revenue grow by 10% versus the prior year. In freight forwarding, our business with key customers remained solid and our export business grew significantly. However, this was offset by contraction in our imports business and road haulage. We also had a quiet year in project cargo which may be a BREXIT related effect, although the new financial year has begun more positively in this sector.

Many of our customers have been seeking our advice to prepare for all eventualities of BREXIT. We have seen some stockpiling taking place and our custom clearance skills could be much in demand if the UK does exit the customs union.

ENGINEERING

Trading was broadly in line with the prior year with a relatively low level of marine supervision work for LNG newbuildings. We expect an upturn in the current year, with an improved pipeline compared with Spring 2018. A contract for the provision of newbuilding supervision services for an LNG tanker was signed in December 2018 which will generate engineering income into 2020 and future time charter brokerage for the Shipbroking division.

DISCONTINUED OPERATIONS - TECHNICAL

The Technical division continued to operate in a difficult trading environment, and despite cost savings made in 2016/17, the ongoing low levels of activity in the upstream energy and marine sectors resulted in a reduction of profitability compared with last year.

The Group looked at the options to improve financial performance and recently announced a transaction with Aqualis ASA whereby Braemar's Adjusting, Marine and Offshore businesses will be sold to Aqualis in exchange for 26% equity stake which will make Braemar the largest shareholder in the enlarged group. This is the best value creating solution for these businesses which collectively have recorded losses in recent years.

The AqualisBraemar combination will immediately create a global market leader in marine, offshore and renewables services. The increased scale will unlock revenue and cost synergies through better staff utilisation and overhead efficiencies.

The Group is retaining Braemar Engineering where the team is working closely with the Shipbroking division on several ongoing LNG projects and further combined work is expected. The figures quoted above relate just to the ongoing operations in this part of the division.

We also concluded the divestment of Braemar Response to Grupo Ambipar on 10 October 2018.

A commentary on the trading of the discontinued businesses during 2018/9 follows:

Offshore

The business continued to be affected by the low level of activity in oil and gas exploration and production. We experienced price reductions on some contracts and contract delays in a number of locations where energy projects did not progress as quickly as we anticipated. The underperformance was partially mitigated by overhead savings. Among our clients, the overall level of activity appears to be growing compared to this time last year, and we secured a number of framework agreements with regional engineering companies. We also signed agreements in early 2019 with underwriters for the provision of marine warranty surveys for two large project cargo contracts in China and Australia. Our Vietnam and Indian offices continue to perform well.

Marine

Braemar Marine maintained its high market share for Hull and Machinery inspections emanating from the Lloyds Insurance market. Professional staff utilisation averaged 56% in the year, a slight decrease compared to 2017/18. We have sought to broaden the business by developing pre-risk inspection services for superyachts and technical due diligence for financial services businesses.

Adjusting

Performance was affected by a low level of upstream claims during 2018/19, the impact of staff turnover and the impact of the US trade sanctions which resulted in one significant project being placed on hold indefinitely. The Singapore office secured a number of contracts for the provision of expert witness services.

FINANCIAL REVIEW

The Group has taken significant steps to improve underlying operating profit in the last two years including two acquisitions and since year-end the sale of a loss-making division. This is evident in the increased underlying operating profit from continuing operations delivered during the year.

Summary Income Statement

Divisional Highlights

 (i) Average annual equivalent number of employees.

Overview

Group results have improved during the year, with underlying operating profit increasing to £9.1 million from £7.3 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 £2.7 million for the year (2017/18: £1.7 million loss).

In the trading update issued on 25 January 2019, an indication was given of underlying operating profit for the year in a range of £6.8 million to £7.2 million. On a like for like basis the outturn for the year was £7.0 million. This can be reconciled to the reported numbers as follows:

Direct and operating costs

Cost of sales comprise of 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 to in other divisions. Operating costs have increased primarily to the increased levels of bonus in Shipbroking and a full year of NAVES costs.

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 have accounted for £10.6 million (2017/18: £6.7 million) acquisition related charges during the year, with this increase driven by the acquisitions of NAVES Corporate Finance GmbH and Atlantic Brokers Holdings Limited. Of these acquisition related specific items, only £1.4 million was paid during the period in cash.

The Group incurred £8.0 million of costs which are directly linked to the acquisition of NAVES. They include £7.2 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 £2.5 million of post-acquisition consideration payable to certain sellers under the terms of the acquisition agreement.

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 £0.1 million (2017/18: £0.6 million). As expected, the annual charge relating to these awards reduces as these awards vest.

During the year we also incurred a charge of £1.1 million (2017/18: £2.45 million) in relation to the amortisation of intangible assets arising from these acquisitions.

Discontinued operations

Following the Board's decision to dispose of the majority of the Group's Technical Division, we have classified the operations from these business units 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. In this classification we also report the losses made on the disposal of Braemar Response in October 2018.

The discontinued operations made a total post-tax loss of £22.7 million in the year, of which £1.4 million relates to Braemar Response. The £21.3 million reported on the disposal of the Technical Division business units is an aggregation of the trading losses and an estimate of the loss that will be made upon completion and can be explained in more detail as follows:

The assets held for sale include certain assets and cash that will be redistributed to Braemar under a reorganisation that will be carried out as part of the disposal and before completion. The impairment of the remaining net assets of the business units is required to align their carrying value to the estimated value of consideration to be received in the sale transaction, net of the anticipated level of fees and other costs incurred.

Other Specific Items

We have incurred £0.8 million of one-off costs related to Board changes. In addition, we have revalued our investment in seats on the London Tankers Brokers Panel in line with recent third party transactions.

Adoption of IFRS 9 and IFRS 15

During this accounting period the Group has adopted IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from contracts with customers' for the first time as is described in more detail in Note 2 below. The impact of this adoption on the reported results is included within underlying operating profit and can be summarised as follows:

Finance costs

The net finance cost for the year of £1.2 million (2017/18: £0.6 million) reflects the cost of working capital associated with the facilities structures held with HSBC and the interest payable on financing and convertible loan notes associated with the acquisition of NAVES. £0.2 million has been attributed to underlying operations (2017/8: £0.4 million), £0.8 million to NAVES acquisition (2017/8 £0.2 million) and £0.3 million to the discontinued operations (2017/18: £0 million).

Capital expenditure

In 2018/19 total capital expenditure was £1.7 million (2017/18: £1.0 million). The most significant item of capital expenditure relates to software as we continue the improvement of our operating and finance systems.

Balance sheet

Net assets at 28 February 2019 were £58.4 million (2018: £93.7 million).

The Group has continued to focus on working capital improvement and cash collection during the year. At 28 February 2019 the Group held gross trade receivables before impairment provisions of £31.5 million, down from £37.9 million at 28 February 2018. At the year end, total trade and other receivables had fallen by £14.7 million to £37.9 million from the £52.6 million reported last year which included total of £11.2 million held for resale relating to the Technical Division business units being disposed of. The proportion of trade receivables provided against fell from 12.2% to 8.0%.

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. As part of the Aqualis transactions the HSBC facilities have been renegotiated to a revolving credit facility of £35 million and a facility of £5 million. At the same time the covenants governing the facility have been amended to allow additional headroom.

The Group also has access to a global cash pooling facility in UK, Germany and Singapore which allows efficient management of liquidity between our main regional hubs. At the end of the year the Group had net debt of £7.8 million (2018: £2.4 million).

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 £2.0 million (2017: £3.4 million) which is recorded on the balance sheet at 28 February 2019. The agreed annual scheme-specific funding since the triennial valuation as at March 2014 was a cash contribution of £0.5 million. The triennial funding valuation as at March 2017 was carried out and concluded during 2018 and the result was an unchanged annual employer cash contribution of £0.5 million which was 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 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 2019 was £16.9 million (2018: £10.7 million). The status of maximum future payments assuming all are redeemed for cash and future income statement charges can be summarized as follows:

The final value of the February 2022 and 2023 earnout notes will be determined based on earnings to August 2019 and 2020 respectively.

Foreign exchange

The US dollar exchange rate has moved from US$1.40/£1 at the start of the year to US$1.33/£1 at the end of the year. A significant proportion of the Group's revenue is earned in US dollars. At 28 February 2019, the Group held forward currency contracts to sell US$15.5 million at an average rate of $1.365/£1 and options over a further US$9.5 million at an average rate of $1.368/£1.

Taxation

The Group's underlying effective tax rate in relation to continuing operations in 2018/19 was 17.2% (2018: 18.6%), which is lower than current UK tax rate. Higher tax rates in Germany and Australia have been more than offset by some prior year tax credits in the UK. We have also continued to focus on our global operations to manage our tax exposure which has allowed us to maintain a lower rate despite relatively high levels of disallowable expenditure. The effective tax rate on statutory profit is a credit of 48% (2018: credit of 20%) and is distorted by the non-deductibility for tax purposes of the specific acquisition related items.

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 APMs 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:

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.

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 for the purchase of 250,000 shares. A further trading plan was announced on 31 August 2018 to purchase a further 150,000 shares. These plans enabled the Trustee to operate with discretion and independence to purchase ordinary shares in the Company for the ESOP. An additional 316,000 shares were purchased in January 2019 making a total of 716,000 shares in the Company for the period. At 17 May 2019 the ESOP holds 696,201 shares.

Dividend

The directors are recommending, for approval at the Annual General Meeting on 3 July 2019, a final dividend of 10 pence. Together with the interim dividend, the Company's dividend for the year will be 15 pence (2018: 15 pence) and is covered of 1.6x by underlying earnings per share of 23.32p (2018: 1.3x by 19.57p).

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.

.

Nicholas Stone

Group Finance Director

19 May 2019

Consolidated income statement

for the year ended 28 February 2019

Consolidated statement of comprehensive income

 for the year ended 28 February 2019

The accompanying notes form an integral part of these Financial statements.

Balance sheets

as at 28 February 2019

Cash flow statements

for the year ended 28 February 2019

Statements of changes in total equity

for the year ended 28 February 2019

Note 1 - General Information

The financial information set out above does not constitute the Group's statutory accounts for the years ended 28 February 2019 or 28 February 2018 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.

IFRS 9 "Financial Instruments" and IFRS 15 "Revenue from Contracts with Customers" became effective for accounting periods commencing on or after 1 January 2018. The Group adopted these standards with effect from 1 March 2018.

IFRS 9 addresses the classification, measurement and recognition of financial assets and liabilities. IFRS 9 retains and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of the classification depends on the business model and the contractual cash flow characteristics of the financial asset. A revised expected credit loss model replaces the incurred loss impairment model used in IAS 39. In accordance with the transition provisions in IFRS 9, comparative figures have not been restated. An opening retained earnings adjustment of £1.1m was recognised, there were no other impacts on the Group's financial statements.

IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The Group has applied IFRS 15

from its effective date and in accordance with the transitional provisions in IFRS 15, and opening retained earnings adjustment of £1.1 million was recognised. Comparative figures have not been restated.

Note 3 - Segmental Results

Note 4 - Specific Items

The following is a summary of Specific items incurred. Each item has a material impact on the reported results for the year and is not expected to be incurred on an ongoing basis and as such will not form part of the underlying profit in future years.

The Group has charged amortisation of £1.1 million in the year (2018: £2.4 million) in relation to Intangible assets recognised as part of a Business Combination under IFRS 3.

Acquisition related expenditure included £0.1 million (£2018: £0.6 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 £8.0 million (2018: £5.1 million) directly linked to the acquisition of NAVES Corporate Finance GmbH. This includes £0.8 million of interest and £7.2 million of post-acquisition remuneration payable to certain vendors under the terms of the acquisition agreement. This agreement has a three year earn out period over which the costs of the acquisition will be charged to the income statement depending on the earnings of the Finance Division during that period.

The Group incurred expenditure of £2.5 million (2018: £0.6m) directly linked to the acquisition of Atlantic Brokers Holdings Limited in respect of incentive payments to working sellers. The cash payment was made in the year to 28 February 2018 but is subject to clawback provisions if the working sellers were to leave employment of the Group and as such the costs are charged to the income statement over that claw back period.

The previous Finance Director left the Board in June 2018 and £0.8 million of costs were incurred relating to her departure, the provision of an interim replacement and the recruitment of a permanent replacement. The net impact on the reported results was £0.6m after tax adjustments. This is a not a cost that will be incurred a regular basis and is therefore treated as a specific item.

The gain on revaluation of investments of £0.5 million relates to the Group's revaluation of its investment in the London Tanker Broker Panel. Transactions involving this investment are infrequent but did occur in the last year and therefore the increase in value was readily identifiable. This is not expected to happen on a regular basis and therefore this has been treated as a one off event.

5 Discontinued operations

During the year, the Board resolved to enter into a strategic relationship with Aqualis Offshore ASA ('Aqualis'). The transaction will involve the divestment of the Offshore, Marine and Adjusting product lines in return for a significant minority shareholding in Aqualis. Once completed Braemar will own 26% of the Aqualis equity as well as warrants that if successfully vested will take the overall equity ownership up to 33%. As a consequence of this transaction, the results of this business unit are presented as a discontinued operation and prior year comparatives have been adjusted accordingly.

Aqualis is a Norwegian quoted entity listed on the Oslo Bors and the Group have estimated the value of the equity consideration using their share price. The warrants are based on two sets of profitability targets over the two years to 31 March 2021 such that one half of the warrants will be measured against the enlarged Aqualis Group EBITDA and one half against the gross profit of the former Braemar Marine and Adjusting Divisions. We have estimated the number of warrants that will vest using a forecast put together by the joint management team of the combined business. The resultant valuation is £5.4m for the equity and £1.0m for the warrants, from which we have deducted estimated transaction fees of £1.7m leaving net expected proceeds of £4.7m.

The old Braemar Technical Division legal entities are undergoing a reorganisation prior to completion of the transaction as there are assets and liabilities of other divisions intertwined with the assets and liabilities being sold in certain locations. The assets and liabilities classified as held for sale as set out below therefore includes certain assets, liabilities and cash that will be transferred out of those legal entities prior to completion. In order to estimate the loss made on the disposal transaction we have therefore estimated the value of assets and cash that will be ultimately retained by Braemar. The result is that the combination of net proceeds to be received and net assets and cash to be retained gives a total value of £7.8m for the net assets held for sale and an impairment charge has been made to bring balance sheet net asset value in to one with this as can be seen below.

At 28 February 2018 certain assets and liabilities belonging to the Braemar Response division were similarly classified as held for sale and were subsequently divested by the group in October 2018. The comparative figures set out below relate to those Braemar Response assets and liabilities. The loss reported on that disposal are also included in the Income Statement as part of the discontinued operations.

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

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

The loss for the year in respect of discontinued operations included £21.3 million (2018: profit of £0.5 million) in respect of the Offshore, Marine and Adjusting product lines and £1.4 million (2018: loss of £0.5 million) in respect of Braemar Response.

The basic and diluted earnings per share in respect of discontinued operations is (73.52) pence (2018: (0.11) pence)

The weighted average number of shares used in basic earnings per share is 30,876,631 (2018: 29,854,554). The weighted average number of shares used in the diluted earnings per share is 33,700,210 (2018: 32,354,524) after adjusting for the effect of 2,823,579 (2018: 2,499,970) dilutive share options. 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.

During the year, the discontinued operations had net operating cash outflows of

Note 6 - Dividend

The Directors are proposing a final dividend in respect of the financial year ended 28 February 2019 of 10 pence per share which will absorb an estimated £3.0 million of shareholders' funds. It will be paid on 26 July 2019 to shareholders who are on the register of members on 21 June 2019.

Note 7 - 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 768,991 ordinary shares held by the Employee Share Ownership Plan (2018: 435,338 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.

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.

The weighted average number of shares used in basic earnings per share is 30,876,631 (2018: 29,854,554).

The weighted average number of shares used in the diluted earnings per share is 33,700,210 (2018: 32,354,524) after adjusting for the effect of 2,823,579 (2018: 2,499,970) dilutive share options. 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 8 - Reconciliation of operating profit to net cash flow from operating activities

Note 9 - Dividend timetable