Interim Results

Braemar Seascope Group PLC 22 November 2004 For immediate release 22 November 2004 Interim Results - 6 months ended 31 August 2004 Braemar Seascope Group plc (the 'Group'), a leading provider of shipping services, today announced half-year results for the six months ended 31 August 2004. HIGHLIGHTS •Turnover £18.1m (2003: £13.7m) •Pre-tax profit before goodwill amortisation up 43% to £3.4m (2003: £2.4m) •Pre-tax profit £2.9m (2003: £1.9m) •Adjusted EPS before goodwill up 42% to 12.43p (2003: 8.73p) •Basic EPS 9.47p (2003: 5.68p) •Interim dividend 6.00p per share (2003: 5.00p) •New overseas offices all operating profitably Commenting on the results and outlook, Sir Graham Hearne, Chairman, said: 'Through its broad spread of activities, the Company is reaping the benefit of the favourable conditions across shipping.' 'The level of business already concluded for delivery during the second half means that it will be significantly better than the first half and that the full year out turn will be substantially higher than last year.' For further information, contact: Braemar Seascope Group plc Alan Marsh Tel 020 7535 2650 James Kidwell Tel 020 7535 2881 Aquila Financial Patrick d'Ancona Tel 020 7849 3326 Peter Reilly Tel 020 7849 3319 Charles Stanley & Company Limited Philip Davies Tel 020 7953 2000 Notes to editors: Through its subsidiaries Braemar Seascope Group plc's services provided comprise: Braemar Seascope Specialised shipbroking and consultancy services to Limited international ship owners and charterers in the sale & purchase, tanker, offshore, container and dry bulk markets. www.braemarseascope.com Cory Brothers Liner and port ship agency services within the UK. Shipping Agency Limited www.cory.co.uk Wavespec Marine engineering and naval architecture consultants to the Limited shipping and offshore markets. www.wavespec.com INTERIM ANNOUNCEMENT - YEAR ENDED 31 AUGUST 2004 CHAIRMAN'S STATEMENT Turnover in the first half was £18.1m (2003: £13.7m) and adjusted pre-tax profits before goodwill amortisation were £3.4m, up 43% from £2.4m in the first half of 2003. Reported pre-tax profits were £2.9m (2003: £1.9m). Adjusted earnings per share before goodwill amortisation increased by 42% to 12.43 pence per share compared with 8.73 pence in 2003 and basic earnings per share increased by 67% to 9.47 pence per share (2003: 5.68 pence per share). These results reflect the very strong shipping markets experienced this year, which have continued to strengthen in recent weeks. We expect that the full year out turn will be substantially higher than the previous year. It is the Directors' intention to pay an interim dividend of 6.00 pence per share an increase of 20% over last year (Interim 2003: 5.0 pence). Global economic growth is positive and the demand for oil and raw materials, particularly for steel, remains at extremely high levels. There have been no changes to the underlying fundamentals which have driven the tanker market for the last half-year. With the winter months ahead, and tonnage availability thinly stretched, spot tanker market rates have risen to historic highs for all sizes of ships. Although there is likely to be some fluctuation in rates, we see no reason to expect a significant downturn during the balance of 2004 and into the first quarter of 2005. We have seen considerable fluctuations in Dry rates over the last few months and at present there is a fine balance between the supply of and demand for vessels of all sizes, although currently the market trend is improving strongly. Operators are once more seeking long-term period cover and we believe the market will remain firm for the remainder of the financial year. Through its broad spread of activities, the Company is reaping the benefit of the favourable conditions across shipping. The investments made in overseas offices in the Far East and Asia are all adding to profits and we intend to continue to expand and develop our operations in these areas. The level of business already concluded for delivery during the second half means that it will be significantly better than the first half and that the full year out turn will be substantially higher than last year. CHIEF EXECUTIVE'S REVIEW OF ACTIVITIES Chartering -Tankers During the first half of the financial year the deep-sea tanker section benefited from firm trading conditions. Rising global demand for crude oil has sustained the demand for deep-sea tanker transportation and this has been reflected in the strong freight rates. Oil demand has been driven by growing economies, particularly in China and India, low inventories in high consumer areas and various supply disruptions due to political instability and in some key oil producing countries. Product demand has mirrored crude, albeit with lower volatility, however freights in the deep-sea sector have strengthened significantly over the year and look likely to maintain these levels over the Winter period. Freight levels in the short sea product markets were relatively low at the start of the year. However rates have since strengthened with the majority of chemicals contract business attracting annual increases in excess of 10 percent, and the income generated for coastal fleets has shown enough sustained strength to encourage investment in newbuildings. The long-haul parcel trades in other areas of the market have been slow to respond. However volumes have increased driven by Asian demand and rates are now following. This is also having a knock-on effect in the transatlantic market which is showing some underlying strength. The prospects for both coasters and parcel tankers are firming especially with continuous pressure on modernizing the fleet. LPG markets remained unchanged throughout the first part of the year but increasing demand for product has since led to increased freight levels. Chartering - Dry Cargo Our performance in this area has improved significantly over last year and the representative office we set up in Beijing in March 2004 has started very successfully. The Dry cargo market reached its peak on the 4 February 2004, when the Baltic Dry Index ('BDI') reached 5,681. Chinese steel consumption increased beyond all expectations fuelling the importation of as much raw material as the ports would allow, with worldwide steel production rising to meet this demand. Port congestion exacerbated the scarcity of vessels resulting in the freight market reaching highs never previously experienced. The Chinese government eventually put measures in place to try to dampen down demand, including setting credit limits on smaller steel producers. The attempted restrictions had more effect on sentiment than substance but did cause the market to dip considerably so that by 22 June 2004 the BDI reached a recent low point of 2,622. Since then there has been a strong recovery and at present steel mills everywhere are operating at full production - for example Japan is set to overtake its previous record level of steel production (estimates for the year March 2004 - April 2005 are expected to reach 120 million tonnes, the highest level for 30 years). Lack of coking coal could constrain production although exploration for alternative coal sources continues and existing mines are being expanded as much as possible. Other potential constraints such as throughput in ports worldwide and limitations on internal infrastructure are being addressed by investment in these areas. The BDI currently stands at 5,335. Sale & Purchase Sale and purchase activity has been very strong during the first half, benefiting from good transaction volumes and higher ship values reflecting the increase in most vessels' earnings capabilities. The first half results have also benefited from an increased number of newbuilding deliveries. A significant number of high value second hand sale and purchase transactions will benefit the second half of this financial year, as will the continued strength of the newbuildings forward order book (including contracts placed for LNG vessels) which now stands at a record level. The sustained recent strength of the industry has seen growth in the number of new investors and owners entering the market, particularly in the Far East. Offshore During the first half the market was quiet with weak rates reflecting the low level of North Sea exploration activity. More recently the market has improved and the outlook for the remainder of the year is positive. Spot rates have increased to a two-year high, largely caused by bad weather, and term rates are increasing due to a substantial pick-up in exploration. Containers (50% owned) The Container market has regained confidence and has continued to improve strongly over the last calendar quarter after a slow down during the summer. Our own Braemar Container Index, which measures a cross section of time charter rates, was 13% higher over the last calendar quarter and up 53% since the beginning of the year. There remains an extreme shortage of container vessels to meet the massive growth in demand particularly for Far East - Europe and Trans Pacific trades. European and US West Coast ports are struggling to keep up with the volumes and delay times at ports (and at the Panama canal) can be significant. The order book continues to grow with deliveries expected between 2004-07 accounting for 60% of the fleet capacity at the start of 2004. Both second hand price and newbuilding prices have been registering new records on a weekly basis. Apart from our chartering activities we have been involved in considerable second hand and newbuilding business in the container market. Wavespec Wavespec's results are marginally lower than last year because of delays in two major projects, both of which are expected to commence in the second half. The company has recently secured a significant extension to a major contract with an existing client, underpinning work with this client until 2007. In addition, the company is well placed to achieve new building contracts with existing clients. The company now counts four Oil Majors among its client base having just obtained a 'call off contract' with a new client. Cory Brothers Cory Brothers' first half results were affected by lower volumes in the markets they serve. In addition, Cory has borne costs during the first half in advance of new income sources, mainly in forwarding and logistics, which are only just coming on stream. The restructuring of some offices will also benefit the second half of the year, as will the normal 'seasonality' which tends to weight the results towards the second half. Developments In September 2004 we set up Braemar Spectron, a new FFA ('Freight Forwards Agreements') desk addressing the Dry Cargo market. The venture has been formed as a 50:50 joint arrangement with Spectron Energy Services, whose skills in derivatives broking in the energy markets will be important in establishing a presence in this rapidly expanding market. However the benefits of this new initiative will not be evident until the next financial year. This followed our decision not to continue to support Global Freight Forwards Limited, an oil freight forwards broker, and we sold our 25% interest in the company for a nominal sum. It is our intention to re-enter the oil FFA market once contractual restrictions on us in respect of our prior interest have been removed. In October 2004 we sold our 16% interest in Lone Star R. S. Platou & Braemar, Inc for US$0.7m, yielding a modest profit on disposal. Financial We believe that the best way to assess the profit performance of the Group is to adjust the reported pre-tax profits to exclude the goodwill amortisation charge and a reconciliation of this adjusted pre-tax profit to the reported pre-tax profit is set out below: £'000 6 months to 6 months to Year to 31 Aug 2004 31 Aug 2003 28 Feb 2004 Adjusted pre-tax profit 3,446 2,407 5,187 Goodwill amortisation (548) (521) (1,065) ---------- ---------- ----------- Reported pre-tax profit 2,898 1,886 4,122 ---------- ---------- ----------- Operating profits before goodwill and share of JVs were £3.3m (2003: £2.7m) and the operating margin on this basis was 18.7 per cent in 2004 compared with 19.5 per cent in 2003, reflecting an improvement in the shipbroking margins offset by the inclusion of the new, but less volatile, ship agency business. The majority of the Company's income is US$ denominated and the average rate of exchange for conversion of US$ income in the six months to August 2004 was $1.70 /£ (Interim 2003: $1.53/£, Full Year 2004: $1.64/£). The 17 cent weakening of the US$ over the respective six month periods is responsible for a turnover reduction of approximately £0.7m on a comparable basis. The estimated full year tax rate on profits before non-deductible goodwill amortisation has been applied at the half year. This rate was 33% (Interim 2003: 38%, Full year 2004: 33%). After goodwill amortisation the estimated tax rate is 39% of pre-tax profits (Interim 2003: 49%, Full year 2004: 42%). Net cash was £1.1m at 31 August 2004 compared with net cash of £2.0m as at 28 February 2004. This excludes £8.3m of restricted cash, which the company was holding as escrow agent for certain clients pending completion of transactions in which the company acted as broker. The net reduction reflected the payment of the final dividend and annual bonus relating to the prior year consistent with the pattern which sees most of the company's annual cash generation in the second half of the financial year. The proposed interim dividend of 6.00 pence per ordinary share will be paid on 23 December 2004 to shareholders on the register at the close of business on 3 December 2004. BRAEMAR SEASCOPE GROUP plc CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 31 AUGUST 2004 6 months to 6 months to Year to 31 Aug 2004 31 Aug 2003 28 Feb 2004 Unaudited Unaudited Audited £'000 £'000 £'000 Turnover including share of joint ventures 18,083 13,693 30,794 Less: share of joint ventures (557) (101) (452) Group turnover (Note 3) --------- -------- -------- 17,526 13,592 30,342 --------------------------- -------- --------- ------- Net operating expenses before goodwill amortisation (14,258) (10,938) (24,812) Goodwill amortisation (548) (521) (1,065) --------------------------- -------- --------- ------- Total operating expenses (14,806) (11,459) (25,877) Group operating profit 2,720 2,133 4,465 Share of joint ventures' and associates operating profit/(loss) 223 (40) 13 ------- -------- -------- Operating profit including joint ventures (Note 3) 2,943 2,093 4,478 Net interest payable and similar charges (45) (207) (356) --------- --------- --------- Profit on ordinary activities before taxation 2,898 1,886 4,122 Taxation on profit on ordinary activities (Note 4) (1,141) (913) (1,723) --------- ----------- -------- Profit on ordinary activities after taxation 1,757 973 2,399 Dividends (Note 5) (1,113) (856) (2,347) --------- ---------- -------- Retained profit for the period 644 117 52 Accumulated loss brought forward (6,836) (6,888) (6,888) --------- ----------- -------- Retained loss carried forward (6,192) (6,771) (6,836) ===== ====== ===== Earnings per ordinary share - pence (Note 6) - Basic 9.47p 5.68p 13.96p - Adjusted EPS excluding goodwill 12.43p 8.73p 20.16p amortisation - Diluted 9.39p 5.62p 13.63p BRAEMAR SEASCOPE GROUP plc CONSOLIDATED BALANCE SHEET AS AT 31 AUGUST 2004 As at As at As at 31 Aug 2004 31 Aug 2003 28 Feb 2004 Unaudited Unaudited Audited (Restated) (Restated) £'000 £'000 £'000 Fixed assets Intangible fixed assets: goodwill 17,997 19,227 18,534 Tangible assets 4,911 5,007 4,963 Investments: Investment in joint ventures: Share of gross assets 406 73 209 Share of gross liabilities (207) (70) (180) ---------- ------------ ---------- 199 3 29 Investment in associated undertaking 372 - 373 Other investments 1,046 1,121 1,028 ---------- ------------ --------- 1,617 1,124 1,430 ---------- ------------ --------- 24,525 25,358 24,927 Current assets Debtors 10,248 9,370 9,775 Restricted cash (note 7) 8,329 - - Cash at bank and in hand 4,894 3,049 4,071 ----------- ----------- -------- 23,471 12,419 13,846 Creditors: amounts falling due within one year (note 7) (26,066) (19,497) (17,279) ---------- ---------- -------- Net current liabilities (2,595) (7,078) (3,433) ----------- ----------- -------- Total assets less current liabilities 21,930 18,280 21,494 Provisions for liabilities and (121) (428) (330) charges ----------- ----------- --------- Net assets 21,809 17,852 21,164 ====== ====== ===== Capital and reserves Called up share capital 1,862 1,719 1,862 Capital redemption reserve 396 396 396 Share premium 7,506 4,271 7,505 Shares to be issued (65) (65) (65) Other reserves 18,302 18,302 18,302 Profit and loss account (6,192) (6,771) (6,836) ----------- ----------- --------- Total equity shareholders' funds 21,809 17,852 21,164 ====== ======= ===== BRAEMAR SEASCOPE GROUP plc CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 AUGUST 2004 6 months to 6 months to Year to 31 Aug 2004 31 Aug 2003 28 Feb 2004 Unaudited Unaudited Audited £'000 £'000 £'000 Net cash inflow from operating activities 1,618 576 5,872 Returns on investments and servicing of finance Net interest paid excluding finance leases (17) (205) (443) Interest element of finance lease payments - (1) (3) ------ -------- --------- Net cash outflow from returns on investments and servicing of finance (17) (206) (446) Taxation UK Corporation tax paid (884) (750) (1,511) Capital expenditure and financial investment Payments to acquire tangible fixed assets (102) (65) (230) Purchase of investments (26) (128) (110) -------- -------- -------- Net cash outflow from investing activities (128) (193) (340) Acquisitions and disposals Purchase of subsidiary - (1,500) (1,658) Cash acquired with subsidiary - 1,597 1,597 Deferred consideration - (226) (225) -------- ------- ------- Net cash outflow from acquisitions - (129) (286) Equity dividends paid (1,484) (1,198) (2,062) --------- -------- -------- Cash (outflow)/inflow before financing (895) (1,900) 1,227 Financing Restricted cash received as escrow agent 8,329 - - Increase in escrow client monies (8,329) - - Share issues 1 New loan - 1,700 - Loan Repayment - - (2,500) Payment of principal under finance leases - (6) (24) --------- -------- --------- Financing 1 1,694 (2,524) ---------- -------- --------- (Decrease)/increase in cash (894) (206) (1,297) ====== ===== ===== BRAEMAR SEASCOPE GROUP plc NOTES TO THE ACCOUNTS FOR THE SIX MONTHS ENDED 31 AUGUST 2004 1 Accounting policies The accounting policies applied in the preparation of these financial statements are consistent with those used and set out in the 2004 Annual Report and Accounts, with the exception of the adoption of UITF Abstract 38 'Accounting for ESOP Trusts'. The abstract is effective for accounting periods ending on or after 22 June 2004 and it will therefore be applied in the accounts for the year ended 28 February 2005. The Abstract requires own shares held through an ESOP trust to be deducted in arriving at shareholders' funds and recommends the creation of a separate negative reserve. The Abstract requires this change to be retrospective and therefore comparatives have been restated. The effect has been to reduce net assets as at 31 August 2003 and 28 February 2004 by £65,000. 2 Financial Information The interim financial statements are unaudited but have been reviewed by the auditors and their report is set out on page 12. The comparative figures for the year ended 28 February 2004 have been extracted from the Group's financial statements, as adjusted by the application of UITF 38 - see note 1, which have been delivered to the Registrar of Companies. The auditors' report on those statements was unqualified and did not include a statement under section 237(2) or (3) of the Companies Act 1985. 3 Segmental results Turnover 6 months to 6 months to Year to 31 Aug 2004 31 Aug 2003 28 Feb 2004 £'000 £'000 £'000 Shipbroking 13,364 10,682 22,523 Technical shipping support 2,062 2,489 5,127 Ship agency 2,100 421 2,692 Share of joint ventures ________ ________ _______ 17,526 13,592 30,342 557 101 452 ________ ________ _______ 18,083 13,693 30,794 ======= ======= ======= Operating profit £'000 £'000 £'000 Shipbroking 3,421 2,506 5,210 Technical shipping support 73 99 294 Ship agency (226) 49 26 _______ ________ _______ 3,268 2,654 5,530 Share of joint ventures and associates 223 (40) 13 _______ ________ _______ 3,491 2,614 5,543 Goodwill amortisation (548) (521) (1,065) _______ ________ _______ 2,943 2,093 4,478 ====== ======= ======= Ship agency comprises the results of Cory Brothers which was acquired on 30 July 2003. 4 Taxation The taxation charge is based on the estimated effective tax rate applicable for the full year. 5 Dividends The interim dividend of 6.00p per Ordinary share (2003: 5.00p) will be paid on 23 December 2004 to shareholders on the register at the close of business on 3 December 2004. 6 Earnings per share Reconciliation of basic earnings per share to adjusted earnings per share: 2004 2003 2004 Earnings 6 months 6 months Year to to 31 Aug to 31 Aug 28 Feb £'000 £'000 £'000 Profit after taxation 1,757 973 2,339 Goodwill amortisation 548 521 1,065 --------- ----------- --------- Adjusted profit after tax 2,305 1,494 3,464 --------- ----------- --------- Weighted average number of shares 18,545,851 17,120,436 17,181,600 Basic EPS (pence) 9.47 5.68 13.96 Adjusted EPS (pence) 12.43 8.73 20.16 --------- --------- ---------- Diluted EPS £'000 £'000 £'000 Profit after taxation 1,757 973 2,399 Interest on convertible £3m loan notes - 63 124 --------- ---------- ---------- Diluted earnings 1,757 1,036 2,523 -------- -------- ----------- Weighted average number of shares 18,545,851 17,120,436 17,181,600 Conversion of £3m loan notes - 1,250,000 1,236,301 Share options 166,818 49,988 97,653 ------------ ------------- --------------- Diluted average number of shares 18,712,669 18,420,424 18,515,554 ------------ ------------- --------------- Diluted EPS (pence) 9.39 5.62 13.63 7 Creditors falling due within one year 2004 2003 2004 31 Aug 31 Aug 28 Feb £'000 £'000 £'000 Bank overdrafts 3,830 - 2,113 Bank loan - 4,200 - Loan stock - 3,000 - Trade creditors 8,378 7,810 8,530 UK corporation tax 1,161 960 954 Dividends payable 1,113 856 1,484 Accruals and deferred income 2,778 1,979 3,570 Other creditors 477 675 628 Client monies held as escrow agent 8,329 - - Obligations under finance lease - 17 - ------- -------- ------- 26,066 19,497 17,279 ===== ===== ====== At 31 August 2004 the Group was holding cash balances totaling £8.3 million as escrow agent for certain clients, pending completion of transactions in which the Group acted as the broker. The amounts are held in designated accounts and any interest earned is due to the client. 8 Reconciliation of operating profit to net cash inflow from operating activities 2004 2003 2004 31 Aug 31 Aug 28 Feb £'000 £'000 £'000 Operating profit 2,720 2,133 4,465 Depreciation charge 153 101 282 Goodwill amortisation 548 521 1,065 (Increase) in debtors (470) (3,581) (3,836) (Decrease)/increase in creditors (1,124) 1,800 4,287 Write down of investments - - 77 Loss on write down of fixed assets - - 28 (Decrease) in provisions (209) (398) (496) ------- -------- ------- Net cash inflow from operations 1,618 576 5,872 ===== ===== ====== 9 Reconciliation of net cash flow to movement in net debt 2004 2003 2004 31 Aug 31 Aug 28 Feb £'000 £'000 £'000 (Decrease) in cash (894) (206) (1,297) Decrease in finance leases - 6 24 Decrease in bank loan - - 2,500 -------- ------- ------ Change in net debt resulting from cash flows (894) (200) 1,227 Net funds at beginning of period 1,958 (2,456) (2,456) New bank loan - (1,700) - Repayment of loan notes - 188 187 Conversion of loan stock to ordinary shares - - 3,000 -------- ------- ------ Net cash/(debt) at end of period 1,064 (4,168) 1,958 ===== ===== ===== 10 Reconciliation of movement in shareholders' funds 2004 2003 2004 31 Aug 31 Aug 28 Feb £'000 £'000 £'000 Opening shareholders' funds as reported 21,164 17,800 17,800 Prior year adjustment - shares to be issued (see note 1) - (65) (65) ------- -------- ------- Shareholders' funds as restated 21,164 17,735 17,735 Profit on ordinary activities after tax 1,757 973 2,399 Dividends (1,113) (856) (2,347) Issue of ordinary share capital 1 - 3,377 ------- -------- ------- Net increase in shareholders' funds 645 117 3,429 -------- -------- ------- Closing shareholders' funds as restated 21,809 17,852 21,164 11 Profit and loss account The negative cumulative profit and loss account balance is the result of a goodwill write-off, in the amount of £5,599,794, which took place in the financial year to 31 December 1998 upon the Company's adoption of FRS10. Independent review report to Braemar Seascope Group plc Introduction We have been instructed by the company to review the financial information which comprises a consolidated profit and loss account, consolidated balance sheet, consolidated cash flow statement and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 August 2004. PricewaterhouseCoopers LLP Chartered Accountants West London 22 November 2004 Notes: (a) The maintenance and integrity of the Braemar Seascope Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange

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