Welcome to the Braemar investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, and they can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll, and I would now like to hand you over to CEO James Gundy. Good afternoon to you.
Good afternoon, and thank you. Once again, thank you so much for joining us today. We really appreciate it. Today, myself and Grant will talk you through the various slides and give you a full update on where we are in the first half of this year and about some of the shipping markets, etc., and basically talk to the strategic framework of the business we have in place last May, etc. Thank you once again.
Yes, Grant, please. I can't see what's on there. Okay.
Okay. Right. First of all, I'd like to say it's definitely been a first half of some challenging markets, but at the same time, I think we can prove and show to you today that the resilience of the business and the diversification of where Braemar is today, we've been able to come through that first half, and we're feeling very optimistic for the second half of the business going forward. On top of that, we're unchanged for our FY2026 numbers, a strong forward order book. We're still improving, as you can see later in the slides. We're now up to, we're strengthening from where we were at the end of September, end of August, and be the first increase in September. Against what we would call.
Geophysical upheavals in the first half, the tariffs, etc., but at the same time, the business has proved itself very guided and very strong in that respect. That is basically proving the fact that we have added many strings to our bow, and the fact that our securities business has performed exceptionally well, and a number of key highs have been made within the business. Obviously, you see that we have announced the fact that we have opened office in Africa in Cape Town. The U.K. OTF license is live now. With intention to get our EU OTF license application progressing very well. Of course, we apply for DIFC in Dubai for our financial markets. Apart from that, we are still very clear on where our objectives were in May last year about where we are looking for opportunities to actively complement our present business. Thank you.
Thanks, James. Afternoon, everyone. I'll talk about the group's financial performance. Revenue at GBP 63.9 million for the first half was 16% lower than the previous period, and that was really driven by weaker chartering performance, and particularly in tankers, where we saw weaker rates and longer voyage times. Given the geopolitical upheaval, we saw vessels taking longer voyage times, which also led to fewer fixtures because there were fewer vessels available. In US dollars, revenue was $73.8 million, which is 13% lower. We also suffered a bit from the weaker US dollar in the period. Underlying operating profit before acquisition-related items was GBP 5.6 million, 29% lower than the previous period, really driven by those lower revenues. Underlying operating profit margin at 9% was 1% lower than the same period last year. That was really just driven by the lower revenues.
We have strong operational leverage in the business, and as you grow the revenues, you expand your operating profit margin. As that revenue came down a bit, we saw a small decrease in the operating profit margin. The forward order book, as James mentioned, continues to be strong. At the end of August, it was $73.8 million. In September, we have seen that increase further to $81.2 million. That gives us confidence for the full-year outlook. We declared an interim dividend of GBP 0.025, and that reflects the capital allocation framework that we launched in May when we announced our 2025 full-year results. At the period end, we had net debt of GBP 5.6 million, and that really reflects the usual working capital cycle of the business. We also completed our share buyback in this period of just under GBP 2 million.
Of course, we saw a weaker performance in the first half, so we had slightly less cash coming in in the first half. Pleasingly, at the end of October, that was net cash positive. Just looking at the income statement in a little more detail now, as I've said, revenue for the period was 16% lower at GBP 63.9 million, 13% lower in dollar terms. Chartering was 25% lower. Investment advisory, which includes sale and purchase and corporate finance, was 6% lower. Risk advisory, which is our securities business, was 9% higher. Importantly, we call it risk advisory, but we do not take market risk. It's a broking-only, agency-broking business where we just collect commissions. Operating expenses were 14% lower, and that was really primarily driven by lower bonus costs on the back of a lower revenue performance.
Underlying operating profit before acquisition-related items, GBP 5.6 million, as I've said, 29% lower, with that margin reducing slightly to 9%. Underlying earnings per share, GBP 9.3, and in line with our updated capital allocation framework, as I mentioned, the interim dividend is GBP 0.025. If we look at the breakdown of revenue in a little more detail, whilst overall revenues are down. You can really see the importance of having a more diversified revenue base and building resilience, and we've presented a very similar slide in previous periods. Our total revenue was down 16%. Chartering revenues were actually 25% lower, where we had those lower rates and longer voyage times impacting revenues.
The Braemar Tanker Index, which is a measure of tanker rates, was actually down 29% versus the same period last year, whilst the Braemar Dry Index was down 17% than where it was a year earlier. Our offshore desk continued to perform strongly. Investment advisory, as I said, sale and purchase and corporate finance was GBP 1 million lower. The S&P team, the sale and purchase team, were very busy in the first half, but it was impacted to some extent by the ongoing uncertainty in the markets. They are very busy, and we expect to see a good performance from S&P in the second half. Corporate finance revenues, whilst not particularly large, we pleasingly saw a 49% improvement in those revenues as the team moved into different mandates. The lower revenues were partially offset by the risk advisory and securities revenues, which increased by GBP 1.1 million.
That was a strong performance from our wet forward freight desk, our coal desk, and our natural gas desk as the Organised Trading Facility, or OTF, went live in the U.K., and that allowed our clients to trade more products with us. Moving on to operating costs, they continue to be well controlled, and we're continuing to really focus on balancing between driving efficiencies and investing for the future. Staff costs were GBP 10.4 million lower, reflecting slightly lower headcount, but primarily lower bonus costs on the back of the reduced revenue. We had an increase of GBP 0.5 million on one-off payments to leavers as we focused on efficiencies across the business. Office costs in the period were GBP 0.6 million higher as we had some space that was let. That tenant's moved out, and we're now reletting that space at the moment.
At the end of the period, looking at liquidity, the group had a net debt position of GBP 5.6 million. That really, as I said, reflects the typical working capital cycle of the group. We pay bonuses after the year-end, and then we build up the cash as we go through the period. That GBP 5.6 million includes GBP 1.9 million of restricted cash, which will be used to settle the commission obligation that went back to the investigation from 2023. Looking at the movements, the opening net debt on the 1st of March, GBP 2.5 million. Operating cash flows of GBP 5.7 million. General working capital movements with a decrease of GBP 1.7 million. We paid finance and tax of GBP 1.3 million. We continue to buy shares for the employee share ownership plan of GBP 1.5 million, and of course, the share buyback of GBP 1.8 million.
have had lease repayments of GBP 1.4 million and various other cash flows of GBP 1.1 million to give us that net debt position of GBP 5.6 million. As I said, at the end of October, the business returned to a net cash-positive position. Just moving on to the key performance indicators. As I have said, revenue 16% weaker, really reflecting those lower chartering rates. Revenue per head improved slightly from the second half of last year to GBP 166,000 or $214,000, which reflects a slightly lower headcount in the period. Operating profit margin at 9%, slightly lower, just reflecting that operational gearing in the business. The forward order book remained strong, $73.8 million, and it has increased further in September. I covered off the debt and the dividend at GBP 2.5 million. Now, just talking a little bit about the forward order book in a bit more detail.
The forward order book is a measure of revenue to come in future periods, whether it be that we had vessels on time charter, which were for a certain period, and we're going to earn commissions whilst the vessel was on those time charters, or sale and purchase transactions where it could be a second-hand vessel that's yet to deliver, or a new build, which we get stage payments over many years. We have seen that since 2022, the forward order book has strengthened significantly, up 46% from where it was at that point. At the end of September, we had $26.7 million of revenue, which is going to come through in the remaining five months. You can see the amounts going into FY2027 and beyond are amongst the highest they have been. We have really focused on growing that forward order book and the revenues looking forward.
You can see on the right there how that breaks down. Broadly, the breakdown of the forward order book is 50/50 between chartering, time charters, etc., and sale and purchase, whether it be new builds or second-hand deliveries. I'll now hand back to James to give us a strategy update.
Thank you, Grant. Okay. For us, we put some things in place, as I mentioned earlier, back in May last year, and strategic framework. Basically, diversification, the most important thing was five years ago when I came into the CEO role, was to diversify the business and mainly concentrate on the ship broking business and the businesses that we diversified into to complement those businesses. That we have done. That is proving very clearly. For example, I can tell you the tanker rates were down some 25% in the last six months. Right, cargo rates are down some 17% in the last six months, but our revenue fell by 16%. That shows you that by having a diversified model we are seeing our other departments compensate for those downward trends.
Obviously, for us, it's about also obviously globalizing the business and moving into new jurisdictions, which we've done. We've ticked that box already in Cape Town. The next thing we need to do is to move on to consolidation, target complementary business. That we have been doing. We've ruled out many businesses that did not complement the business and did not work for certain aspects. The fact is we've maintained the discipline, and we've also proven the fact that the acquisitions we have made in the last two or three years have complemented the business very and highly improved on the margin for business. Operational excellence, that's something that Grant's been very much on top of. First, the focus on data and technology, a larger company with some 45 years of data going back, is obviously imperative for.
The markets and seeing where the trends are for our clients. We continue to invest in compliance. That is becoming an important factor for our business. Ship broking is not necessarily regulated, but it is moving more and more towards that pace, and compliance is a large part of our business, and our clients are expecting it. It is also potentially helping us with, as far as, acquiring smaller business because the cost of those smaller businesses having compliance, etc., is needed so much that that makes it easier for us. Obviously, we want to drive efficiency and reward performance. We also mentioned in May that we intend to move the business to GBP 200 million group revenue by FY2030. I have to mention the fact ship broking alone is making $65 million of revenue some 10 years ago.
We have already come a long way, but we are also setting ourselves some strong targets. The risk advisory business, we are saying we have mentioned the fact that we want to be at GBP 30 million by FY2030, and we are very confident on that as we are growing that business. Underlying operating profit margin by 15% by FY2030, and a net debt maintained below 1.5 if we are done. Now, also we set some targets about 10 new hires. We went on track for that and had some very key staff within the business. You can see from that progress report at the bottom, we have moved on very clearly on that strategy there. We mentioned about the fact we want to move into one new jurisdiction. We have done that bank in Cape Town, that business we knew very, very well.
I can tell you now that the reason why they want to join us was because they felt they were too small in what was becoming a more, becoming a business that is consolidating. That made it very easy for us. We have obviously done that already. The globalised tanker operation, this is more about efficiency and making sure the various different offices work together. We will look to see how we can improve the margin there with looking elsewhere on the claims side of the business. You can see we are moving across those arrows there. As I said, we have completed the one transaction. As far as that, we are definitely on track for our strategic framework. Now, the outlook and summary. Chartering markets, as I mentioned to you before, the fact that the tanker rates were.
Hugely down the first six months of the year, I mentioned some 25%. The dry cargo was down 17%. You can see from our Braemar index there. The good news I can tell you is in the last two months, the markets have massively returned. Although there was uncertainty in the tariffs as it was going on between the U.S. and China, that seems to have settled down. We've seen some recent issues with some major companies being sanctioned again. This is creating the rates to move up. I can obviously say and tell you now that some of the dark fleet and gray fleet is moving out of the market or moving into a storage situation. The rates are moving massively, and we're seeing more longer-haul business. The dry cargo market has picked up as well in the last couple of months.
We are seeing strength there. We are definitely gaining our dry cargo presence in Australia because we've seen a strong harvest in the year as well. Looking further ahead on demand, global GDP is on target. I think you can see that on the graph, whether we're on that China industrial growth. We've mentioned before in the past, we were expecting probably a bit more of China to come out after COVID, but that did not necessarily happen. We saw major housing crisis, etc., in China. That is starting to turn again, and we're seeing that in the markets which we are involved in. The oil demand index, well, that is obviously since Russia has been having more squeeze on the sanctions, as I said to you, that is increasing the OPEC outflow, which is creating more longer-haul, especially US exports as well.
That's all in the good for the ship broking.
Thanks, James. I'll just talk a little bit more about our risk advisory or securities business. You can see quite clearly here the success we've had growing this business. It implies 20% of revenues for the first six months of the year, up from 16% for the full year last year. You can see quite clearly on the chart here, this particular revenue stream up 254% since 2022. We've got plans to continue to grow that. As I said earlier, our U.K. Organised Trading Facility, which is a specific venue that you need to trade certain securities products on, went live in May. Our U.K. clients are using that, and we can trade more products. We're expanding that offering by establishing a European OTF. That progress, it's a very time-consuming process. Our U.K. OTF took over 18 months to obtain.
Our Spanish OTF, which is where we're putting it in Europe, is progressing well. We expect to have that in the first half of calendar year 2026. We are also establishing a presence within the Dubai International Financial Centre. We have a freight desk in Dubai, but we're going to expand our securities offering there as well, again, to service our clients and their requirements going forward.
Thank you, Grant. Okay. Summary and outlook. I think we, as you can hear from the presentation today, that we've explained where the first half was, and we can feel that the resilience of the business and diversification stories pulled us through what we can only say was a weak freight market, a chartering market. It shows the business is very robust, and we're building that business out to help that factor, to help accommodate those problems. Underlying operating profit margin down by slightly 9%. Returns in that cash position in October, as Grant talked about the U.K. OTF and the European OTF. We're in terms of dividend at GBP 0.025. On the outlook, more expectation in line with where we were for 2026, which that's technically remained unchanged. To start the second half, we've seen the markets return.
We're feeling a lot more bullish than we were a few months ago. The forward order book is helping as we further build the forward order book. Our futures departments are doing very well on the back of the volatility in the markets today. That leads us down to what our framework we put in place back in May, and we feel we're very much on track to deliver what we said we'd deliver. The pressure is upon us to deliver that. I think hopefully you can see that some of the businesses we bought already are proving very well. We've definitely ironed out a few things that did not work, but we are focusing on ones that can work and complement the business. The market fundamentals remain strong. We're feeling good about the next six months. Thank you.
Thanks.
That's great, James, Grant. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the top right corner of your screen. While the company takes a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via our invested dashboard. James, Grant, if I may now hand back to you and kindly ask you to read out the questions where appropriate to do so, and I'll pick up from you both at the end. Thank you.
Thank you very much. I'll read the questions here that come from on the iPad. Question is, what is the ideal long-term balance between chartering, investment advisory, and risk advisory to smooth the earnings cycles?
I would say, I'll take that first. I think that. I don't think there is an ideal balance. I think that by the virtue of the fact that we are diversified, that does give us the balance. If you look back on that slide to a couple of presentations ago, you would have seen that we had a very strong performance from tankers and a weaker performance in dry cargo. Overall chartering was flat when we grew in investment advisory and risk advisory. You've seen a weaker performance in chartering, but we've seen an improvement in risk advisory. I don't think there is an ideal balance per se that we want x percent of this and x percent of that. I think it's important to continue to grow all of those revenue streams with.
Hiring individuals or teams or completing M&A acquisitions, which are complementary to build the scale within the business. You just continue to drive the growth. I do not think we have, or I do not think it is right necessarily that we have a specific percent target for each sort of division.
No, I just slightly add to that. How I see it is that, because the business is more simplified in the last five years and we understand the sectors that we're in fully. Of course, the most important thing is to build the breadth out of the business, but making sure that the complementary of the business works. The fact is the desks work in harmony. If the spot market is rising, the futures market is busy. If the futures market is busy and the spot market is busy, the S&P transactions, the owners will be buying ships on the back of the present spot market. On the basis that our desks are talking to each other, there's a good reason why we're ahead of the curve compared to our competition. We for sure are seeing the rewards on that as the markets tick up.
Thank you. Next question. Do you consider the current sentiment valuation to be in a trough with a decent rebound ahead as markets normalize? I assume we're talking about the share price here. Look, you can look at any of the, let's say, the analysts that are covering the stock and the target price that most of them have is certainly above where we're trading at the moment. So they clearly believe that there's upside. There's obviously the challenges that the U.K. market and particularly small cap faces at the moment with the significant redemptions, which are weighing not just on Braemar, but on a number of many, many stocks in the small and mid-cap sector. I think that's certainly having an impact.
I would like to think as we start to see fund flows come back into not just the FTSE 100, but start to trickle down to the mid and small cap, that we'll see some improvement as more funds come in.
We're proving the fact that we've put a buyback out, which we successfully completed back in September. We personally believe that the shares are undervalued. At the same time, we will build a business out to grow that, and we have confidence that we can move that share price in the right direction.
A question here about whether we consider the company could be a takeover target. We've got a view on that. We're just focusing on delivering. What we are. Many U.K.-listed businesses are looking cheap at the moment, so I wouldn't really want to.
No, I just think that the ship broking space is in a business for 40 years. I have seen weak markets and I have seen bull markets. This market definitely feels different to where it was back in 2008 before the crash. It feels there is a lot more longevity for many, many reasons. I mentioned before the fact that we have seen some 25% cut in shipbuilding capacity. Leading back to the question, yeah, I mean, look, that is always a potential possibility if someone comes forward. The fact is we feel we are undervalued. Our job is to build ourself out. We feel there are a lot of things that we can get into that still complement the business and parts of the world we can reach into to create more business.
Question here at cost. How much of the 30% rise in central cost is one-off, and should we expect margin improvement in H2? There is an element of one-off cost. If you look at the R&S, you'll see how we split it down. It's up 30%. There's a couple of elements in there. First of all, there was a one-off restructuring cost as we focused on efficiencies, and that was staff-related. That was GBP 500,000 which was a one-off in the first half. I mentioned that we had some additional property costs in there in respect to the space that we're actually, it was let when we were in the process of reletting it. It's taken at the moment. I'm hoping that that won't be in there for the full second half and should be lower.
If you think about the margin improvement, this business is very operationally geared, and the revenue, we're expecting the revenue to improve in the second half. If you look at the first half versus the second half, you would naturally see an improvement in operating margin. What is the outlook for tanker and giant bulk charter rates? Would you expect them to fall back now that China-U.S. trade tensions are at ease? You've got a bit more, but certainly talked about the chart on that one. We haven't seen any change.
Yeah, look, I mean, I think that's not necessary. I think it's a situation, the impact on the various sanctions recently. Obviously, that. What I'm trying to say here is the fact that the sanctions on Russia have increased and made it more difficult. Whereas some of that oil, a lot of that oil was going into India to be blended and moved out again, that's not happening so much. We're seeing less of those dark fleet ships that were doing that business now falling into a different scenario, which means that, as I mentioned earlier, they're going into storage, which potentially leads to believe there could be a massive contango in the forward markets. It brings in then more modern ships of the unsanctioned ships that are doing longer haul voyages out of the U.S., etc.
We're just seeing more ton miles, and we're just seeing the market massively rebound in the last two or three months. At the moment, we do not see that going away. I think if you also want to look at some of the equities in tanker stocks across the globe, you'll see they have also massively rallied in the last two or three months. That is exactly for the reason why it is mentioned.
Question here. What is the reason for the second half bullishness? I think we've talked about that when we've seen where the rates are. I think it's also worth mentioning if you look at the business, it has an element of seasonality in it, where the second half, you do generally see an improvement in revenues in the second half, driven by colder winters, etc. Last year, you didn't see that. It was very much a one-off. If you look back historically, you'll see second-half performance will beat first-half performance. We expect to see a return to normality in the second year. That sort of added a bit more around what we've seen on rates, etc.
Yeah.
What is the trend in fixture volumes? Is the increase in charging rates enough to more than offset any decline in fixture volumes? We've definitely, as I said at the start, there are longer voyages, so there's fewer ships available to fix. Of course, there's been approximately the best estimate we've got is that there's sort of 1,400 vessels that are now in dark fleet. They're out of the fixture pool, if you like. Yeah, there has been a downward trend in fixtures, but we believe that what we're seeing on rates will offset that and mitigate that. Given the rapid rise in the LNG fleet, is that a vertical you should have a much larger exposure to? If so, how can you expand this?
That's an interesting one, okay, because we were discussing that this morning. The LNG fleet has massively risen, and we are involved in LNG new buildings and we have an LNG desk. The fact is the market is in its worst doldrums at the moment. We feel we slightly were able to avoid some big highs we might have made a couple of years ago, but the market's crashed because a lot of the big transactions, deals that were supposed to happen, like Mozambique coming on stream this year, has been delayed by another two or three years. We are seeing the rates very weak. We are seeing new building prices falling down LNG because we are realizing the rates are not there. For us, this gives us an opportunity to build the next two or three years for a market which we feel will return then.
At the moment, we feel certain opportunities come open to us, but at the same time, for those having a large LNG desk, we'll be feeling the cost of that at the moment.
What's caused the new build sale and purchase market to improve recently given the delay to the IMO net zero framework? Is it greater confidence in future rates and demand or availability of shipyard capacity?
I'd say touch base on that earlier as well. I mentioned the fact that the shipbuilding capacity was cut by some 20%-25% since 2000, the crash. There's obviously been talk the last two or three years about alternative fuels, whether that be LNG fuel ships or ammonia or methanol, etc. We're seeing less on the ordering of those ships, but we're seeing more increase in orders on conventional ships. At the moment, we are seeing ships now. We've been working some deals where we thought we could get delivery by second half 2028. It's now moving into 2029. The market's obviously strong. There's an aging fleet. IMO is sometimes slower to react on certain things.
We worry as a broker looking at certain aspects of the business, how many ships are in the dark fleet and gray fleet, as we would call it, flying probably under flags of non-shipping national. We worry about certain things that potentially these ships aren't being maintained correctly. Look, I think at the moment, there's just a demand to build ships, and the yards are definitely holding that. Also, on top of that, it's slightly different from where it was in 2008. It's so much more diversified as in what ships are being ordered because most markets are in good shape. That's putting pressure on the prices.
Thanks, James. Just a question here. The analysts over the last five years have been generally positive with the buy recommendation, but the shares have generally traded 34% below. Are the analysts well informed? Look, I think that.
That's frustrating.
That's frustrating for us. There's no doubt about that as well. I think if you follow the story, you'll see that. We recently, or recently about a year ago now, we changed corporate broker. We've changed our financial advisor. We are making steps to articulate our equity story perhaps clearer than it has been historically. We are trying to address that. It's obviously a frustration internally as well as it must be for our existing shareholders.
Yeah.
Perfect. That's great, James. Grant, thank you for addressing all those questions for investors today. Of course, the company can review all questions submitted today, and we'll publish those responses on the Investment Company platform. James, before I redirect investors to provide you with their feedback, which is particularly important to the company, could I please ask you for a few closing comments?
Yeah. First of all, I'd say thank you for taking time to listen to our presentation today for the first half of 2026 results. I'd like to emphasize again that we feel it's going to be a year of two halves for sure. I think the first half has been a bit more challenging, but I'd like to see from the results here, you can hear the fact that the business has been diverse to sort of take some of those punches on low chartering rates by building the model out. We're feeling confident for the second half because the rates are returning, and you can see our forward book is increasing, dropping into this year. We're excited. We feel we're in a good place.
There are always some challenges in a broking business, but the most important thing is we've got a good young team across the globe in 19 offices around the globe in 13 different countries. It feels at the moment that everyone is exceptionally busy, and that's the most important thing. On top of that, I think we're seeing the dollar starting to go a bit more in our favor, which is always a bit more helpful compared to the first half. Listen, most of all, thank you. Thank you so much for taking time to listen to us. By the way, myself and Grant are always there to answer any email questions if you have further questions to ask afterwards. Thank you so much.
Thank you.
Fantastic. James, Grant, thank you once again for updating investors today. I'm going to please ask investors not to close this session, as you'll now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Braemar, we'd like to thank you for attending today's presentation, and good afternoon to you all.
Thank you. Bye-bye.
Thank you.