ACM Shipping Group

The cycle will turn soon

The share prices of the three quoted shipbroking groups have responded positively over the past year, recognising the cash generative nature of broking, which provides security to dividend payments. ACM has invested consistently in extending its capacity and skill-base throughout the difficult trading of the past few years, indicating an ability to lift profits rapidly with recovery in the shipping cycle.
Year end 03/12 03/13 03/14e 03/15e Revenue (m) 26.6 24.1 26.0 30.0 PBT* (m) 4.32 3.11 3.25 3.80 EPS* (p) 17.6 12.4 13.1 14.8 DPS (p) 10.15 10.15 10.15 10.15 P/E (x) 9.7 13.8 13.0 11.5 Yield (%) 6.0 6.0 6.0 6.0

Preliminary results
Transportation
28 June 2013

Price Market cap

Net cash (m) as at end March 2013 Shares in issue (including ESOP) Free float Code Primary exchange Secondary exchange

170.50p 33m
4.3 19.6m 56% ACMG AIM N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.

Share price performance

Lower profits, but strengthened business

Results for the year to March 2013 show underlying pre-tax profits down by 28% to 3.11m, slightly below our 3.3m estimate. All of the downturn related to the previous years defections in the Sale & Purchase division, despite the challenging trading conditions caused by over-supply of shipping capacity across the market. The number of fixtures rose by 6.9%, with management continuing to invest in building the team for the future. An unchanged dividend was covered 1.2 times.
% Abs Rel (local) 52-week high/low 1m 6.6 13.2 3m 4.9 7.0 177.50p 12m 34.8 16.9 126.50p

Ready for the upturn

Action has been taken to rebuild the Sale & Purchase team, while key personnel have been added where appropriate in a number of other parts of the business, especially in the overseas offices. Management has reported increased volumes in the early weeks of the current year, with encouraging new orders. We look for modest recovery in profits to 3.25m in the current year, but the forward orders indicate a much stronger outlook for the following year. The group is ready for the upturn in the cycle and we believe that the group now has the potential to lift pretax profits comfortably above 10m in the medium to longer term.

Business description
ACM is a fully integrated shipbroking business focused principally on the global oil tanker market. It arranges spot and time charters and offers a number of other services, including the sale and purchase of ships.

Balance sheet remains strong

Net cash balances rose by 1.2m to 4.3m (22p per share). We estimate that the group should be at least cash neutral during the current year, despite the continuing challenging trading climate.

Next events
AGM July 2013

Analysts
Nigel Harrison Roger Johnston +44 (0)20 3077 5700 +44 (0)20 3077 5722

Valuation: Potential not recognised

The prospective rating of ACM shares is slightly above that of Braemar Shipping and at a substantial discount to sector leader Clarkson. We believe that the current rating does not recognise the potential of new business secured to the benefit of the year to March 2015, let alone the scope to respond to any recovery in the shipping cycle.

industrials@edisongroup.com Edison profile page

ACM Shipping Group is a research client of Edison Investment Research Limited

Investment summary
Company description: Specialist shipbroking
ACM Shipping Group is an integrated shipbroking business principally focused on the global oil tanker market. The core business arranges spot charters involving single-voyage movements. There is an important time charter business for managing longer-term shipping movements typically for a period of up to five years, but also of longer duration. The group also operates a sale and purchase operation, bringing together parties for trading in new and second-hand vessels and the demolition of obsolete ships. There is also a small demurrage business, which manages difficulties encountered when journeys are extended beyond the original contract period. Recent investment involves the development of a dry cargo broking business. Principal group operations are in London with subsidiary offices in Singapore, China, India, Dubai and Australia.

Valuation: Recovery potential not recognised

ACM shares have recovered by 24% (11% ahead of the market) since our report published at this time last year, despite the continuing challenging trading conditions, and profits falling short of expectations at that time. This reflects improved sentiment (share prices of other shipbrokers have risen by close to 30%) and belated recognition of the safe high yield. The prospective rating for the current year is close to that of Braemar and at a substantial discount to market leader Clarkson. We point to the pure broking nature of ACM, for which we feel the medium-term recovery potential is not recognised in the share price.

Financials

Figures for the year to end March 2013 show underlying pre-tax profits slightly below our estimates, down from 4.3m to 3.1m; all of the reduction is related to the Sale & Purchase division, which underwent major restructuring following the defection of key personnel in the previous year. An exceptional write-off of 3.7m goodwill was indicated at the interim stage of the year. The dividend was maintained.

The balance sheet remains strong, with March 2013 net cash of 4.3m, up from 3.1m. The improvement stemmed largely from changes to the timing of staff bonuses, but we expect the group to be at least cash neutral during the current year.

Sensitivities
The main sensitivities relate to movements in spot freight rates and the sterling/US dollar exchange rate. Volatile rates will lead to varying gross margins, although, with a relatively high proportion of employee costs linked to profits, the impact is lessened. With revenues generated in US dollars and the cost base largely in sterling, the group is a beneficiary when the dollar strengthens and viceversa. There is also a potential vulnerability to the loss of key personnel, who manage the groups relationships with the oil majors and leading ship owners. However, until last years defections in Sale & Purchase, the group had an enviable record in terms of staff retention. Exhibit 1: Estimate changes
To March 2013 2014e 2015e Old 13.2 14.3 N/A EPS New 12.4 13.1 14.8 % chg. (9) (8) N/A Old 3.30 3.70 N/A PBT New 3.11 3.25 3.80 % chg. (6) (12) N/A Old 3.46 3.86 N/A EBITDA New 3.19 3.60 4.15 % chg. (8) (7) N/A

Source: ACM Shipping RNS; Edison Investment Research estimates

ACM Shipping Group | 28 June 2013

Company description: Specialist shipbroking

ACM Shipping Group was established in 1982 and is now recognised as a major player in the oil tanker brokerage market. While three members of the initial four-person team have now retired (the other, Johnny Plumbe, is executive group chairman), succession has been largely seamless, with ACM now comprising a strong and effective team, bringing together a comprehensive range of skills and disciplines to create a fully integrated business. The group has grown consistently over more than 30 years, taking on and quickly assimilating a steady flow of individuals or small teams to bolster the original group. ACM secured an AIM listing in late 2006. The group extended from its initial expertise in arranging spot and time charters in 2001, when it acquired a 30% interest in a Sale & Purchase business managed by a team that had previously operated successfully for Braemar Shipping. The business, subsequently renamed ACM Shipping Services (ACMSS), became wholly owned in 2008, following the acquisition of the remaining 70%, with its team absorbed into the main group dealing desk in London. The departure, in 2011, of key members of that team led to a fundamental restructuring of the division. There have been several new appointments over the subsequent period, including a new team-leader. ACM entered the financial futures market in 2002, when setting up a 50/50 joint venture with GFI Group, a NASDAQ-listed derivatives inter-dealer broker. This business has grown progressively, combining the specialist expertise of the two groups. The first broking acquisition was completed in 2008. In a deal for 2.5m cash, Harris & Dixon broadened the broking base, extending the group expertise into smaller tankers. Again the business was integrated into the overall ACM team in London, with its brokers working alongside the specialists in larger ships. More recently, ACM diversified into the dry cargo business. It acquired Endeavour Shipbrokers, based in Melbourne and Sydney, in June 2010 for 5.8m in cash and shares; Endeavour already had an established position arranging deliveries of locally mined raw materials, largely into SouthEast Asia. Simultaneously, the group established a new team (motivated by a substantial minority stake) to develop a dry cargo business based in London and Shanghai. Today, ACMs wet business is fully integrated, combining a range of skills made available to the major oil companies, independent oil traders and tanker owners. It operates in a market that is led by three or four key players, although several other brokerships have a keen interest and a viable presence in the market. The other key players are Clarksons, Braemar Shipping and Simpson, Spence & Young, each of which has a more broadly spread overall business. The group opened its first overseas office in Singapore in 2005. It now has operations in the US (New York), India (Mumbai, New Delhi), China (Beijing, Shanghai), the Middle East (Dubai) and, as mentioned above, Australia. Many of the brokers based overseas have worked in and developed their skills in the groups main London office as part of their general training. They have then returned to their local office, where they are able to combine their local contact base and professional skills to develop a smaller mirror image of the UK business.

The business
Spot Charters (58% of 2012/13 revenues) The spot market has, for many years, been the mainstay of the group business. ACM brokers deals between ship-owners and those who wish to transport a specific cargo, for a single journey. The group has strong relationships with virtually all of the major players in both sides of the tanker market (clean, crude and dirty) and its breadth of knowledge of the size, cost and availability from a size of 10,000 dead weight tonnes (DWT) to the very large crude carriers (VLCC) makes ACM an ideal broker for any particular deal. The journey is usually priced on a per day basis, with the group earning a typical commission of 1.25% on the

ACM Shipping Group | 28 June 2013

overall cost. Day rates can vary quite sharply to reflect supply and demand. Rates fell away sharply during the recent global recession and are currently fluctuating at close to historically low levels. The fluctuation in rates will, naturally, affect group income. ACM is involved in a number of oil markets (clean oil, crude oil, petroleum) where the cycles do not always coincide. Time Charters (18% of 2012/13 revenues) A time charter differs from a spot charter, in that a ship is hired for a predetermined period of time. The ship remains the property and responsibility of the owner, but the charterer has control of the various destinations and the operation of the ship. The duration of time charters can vary from a few months through to several years; its advantage stems from the reliability of income and availability the ship-owner can secure a predetermined level of income to justify the order for a new ship, while the oil company can avoid the risks involved in uncertain spot rates. For ACM, time charters provide an order book and a degree of certainty of earnings. The market for time charters had, until the onset of the recession, been on a rising trend, partially because of the perceived increasing volatility in spot rates. However, a deal requires both parties to be interested and the recent weakness in rates has meant that fewer ship-owners were prepared to commit their ships for any duration of time when rates were low; conversely, the oil companies are reluctant to agree a high rate into the future if they believe that spot rates are falling. Demurrage (6% of 2012/13 revenues) Demurrage represents a small, but useful contribution to earnings. It arises when, for various reasons, a journey takes longer than planned at the time the charter was agreed. This tends typically to stem from either adverse weather conditions or, more frequently, port delays. The shipbroker negotiates an appropriate fee for the delay and secures a fee (usually 1.25%) for acting as an intermediary. Sale & Purchase (3% of 2012/13 revenues) The sale and purchase business is a broking operation, putting together buyers and sellers of ships, including both new ships and those sold for demolition. The S & P desk deals with both ship-owners and shipyards, occasionally helping the purchaser to arrange the appropriate finance. It should be emphasised that, while the business can be volatile (markets tend to dry up when prices are low), the group takes no equity interest in any of the ships for which it acts and, consequently, does not have any capital risk. The groups knowledge base across the sector and its close business relationships with many ship-owners mean that the team will frequently receive early signals that a particular ship might be available. Indeed, the group is constantly on the look-out for ships that may become available, for example, on the conclusion of an extended time charter. The business was severely curtailed in 2011, when a number of the key members of the team left the group. ACM has rebuilt the team, but was loss-making during the build-up phase in 2012/13. Dry Cargo (15% of 2012/13 revenues) The groups dry business is still in its early stages. However, management sees significant opportunities stemming from the shift of manufacturing capacity towards lower-cost territories, especially in the Far East, and the need to deliver raw materials to them. We estimate that the business, which is currently very much a spot charter operation and delivered a loss last year, will break into profits during the course of the next two years. It is expected that ACM will buy out the minority interest in the UK/China operation within the next two to three years. Derivatives (estimated 9% of underlying pre-tax profit) The 50/50 joint venture with GFI Group employs a number of financial instruments that have become available to the market aimed at reducing the level of risk for the various participants. A typical agreement enables ship-owners and charterers to fix rates for a specified voyage and a defined future period. ACM/GFI is regularly voted the best wet freight derivatives broker in the Energy Risk magazine.

Strategy Organic growth the priority

ACM has proved consistently successful by concentrating on broking and ensuring that significant due diligence is undertaken before new ventures. Each deal has involved businesses and people

ACM Shipping Group | 28 June 2013

already well known to group management, while diversification tends to be into adjacent segments of the market, where there is already a significant level of knowledge in the group. The first two acquisitions since flotation typified this approach. ACMSS was already 30% owned by the group, while the team at Harris & Dixon (H&D) was already well known to group management, with the deal representing a logical extension into the adjacent market for smaller ships. The ships already brokered by ACM were largely involved in inter-continental voyages, whereas H&D managed the transfer of oil between the major ports (ie Rotterdam) and regional depots closer to the ultimate user. Lessons have been learned following the defection of the ACMSS team, and the subsequent rebuilding of the team appears to have been on a much firmer footing. The move into dry cargoes was foreshadowed in the group flotation prospectus back in 2006. Management had examined a number of opportunities, but took its time in finding what was perceived to be the right way to enter the market. ACM acquired an experienced specialist broker (based in Australia), then added to the team in London and, where appropriate, in its other overseas businesses. With the benefit of hindsight, the move could have been better timed (hence last years goodwill write-down) and it will take a little while for the new business to deliver sound returns to the group bottom line. We are confident, however, that while the entry to the market was ahead of the bottom of the cycle and although there may continue to be modest losses until the cycle turns, the fundamental decision was correct. It has been hinted that the next move will take ACM into the offshore market. We understand that group management is assessing a number of opportunities and has a clear strategy for building its presence in the sector. If acceptable terms can be agreed, we would expect ACM to enter the market by acquisition, probably strengthening the team by adding additional personnel as appropriate over the subsequent months.

Management
ACM has an entrepreneurial style of management, with a highly motivated workforce rewarded largely by results. The original founding team has been progressively augmented and replaced, by recruiting high-quality individuals from elsewhere in the sector and growing/training young people from a mixture of backgrounds and cultures. The group is split into a number of specialist teams with appropriate skills/disciplines in the various segments of the market; this will reflect both the differing types of vessels and the variety of business activities mentioned above. Staff members are remunerated by way of a basic salary plus a substantial bonus, related to the performance of both their own team and the group as a whole. Each team has a great deal of autonomy to encourage entrepreneurial flair, but there are also tight controls to ensure that the group is not placed at unnecessary risk. For example, the dealing desks are in an open plan office, to encourage both a professional and a competitive approach to the generation of business. The value of many business relationships does indicate a vulnerability to the loss of key individuals, especially those dealing with the oil majors. With the exception of the recent departures at ACMSS, ACM has an enviable record in terms of staff retention. The overseas operations tend to mirror the London dealing strategy, although with smaller teams appropriate to the size of each business. There are strong working relationships between the various offices, simply by virtue of the fact that they can all help each other. Moreover, many of the overseas personnel have worked in London as part of their training.

ACM Shipping Group | 28 June 2013

Another challenging year

The attached table, showing underlying pre-tax profits down by a further 28%, following a 29% fall in the previous year, actually conceals a growing business. Indeed, the number of fixtures managed by ACM continued to grow, up by 6.9%, to in excess of 3,000, some three times the level when the group was floated in 2006. The figures were largely in line with City expectations. The drop in profits can be related entirely to the previous years defection of key members of the Sale & Purchase team a loss of 0.2m compared with a profit of 1.0m in the previous year. Ongoing costs elsewhere were closely monitored, enabling management to continue building the underlying business, in spite of the continuing challenging trading climate. There was a 3.7m write-off related to the goodwill arising on the acquisition of ACM Endeavour. The weaker than expected performance of the dry cargo business led to management deciding to take a conservative view of the carrying value of the business. However, the group balance sheet remains very strong with net cash of 4.3m (up from 3.1m). The directors confidence in the future was reinforced by sustaining the dividend at 10.15p, covered 1.25 times by earnings. Exhibit 2: Five years to March 2013
Year to March (000s) Revenue Spot brokerage Time charter Demurrage Sale and purchase Dry cargo brokerage Operating profit Associates/joint ventures Interest Pre-tax profit 2009 15,750 8,339 1,103 4,951 0 30,143 7,236 1,490 (5) 8,721 2010 10,997 8,073 1,419 5,363 0 25,852 5,305 1,325 (27) 6,603 2011 13,530 6,560 1,285 5,140 2.742 29,257 4,788 1,174 138 6,100 2012 13,941 5,060 1,781 2,173 3,621 26,576 3,065 973 280 4,318 2013 13,949 4,230 1,502 737 3,633 24,051 2,194 605 308 3,107

Source: ACM Shipping Group. Note: Before exceptional items and amortisation of intangible assets.

The core Spot Brokerage operation continued to deliver progress. Revenues rose nominally, with a 5% increase in the number of fixtures balanced by reduced average income per fixture stemming largely from lower spot rates over the year. Management continued to invest in the development of the business, especially in the Far East operations. It is still difficult to predict trends in the immediate future. Freight rates have recovered, but there remains a considerable amount of slow-running as a way of keeping ship-owners costs down. Oil demand continues to grow, with the economic problems across the eurozone outweighed by continued growth in the economies of South-East Asia, albeit at slower rates than previously expected. We do expect to see another increase in the number of fixtures in the current year, which ought to lead to higher profits, but we remain cautious and are reluctant yet to project the recent improvement very far into the future. Returns from Time Charters continued to drift, with revenues down by a further 16% to 4.2m, little more than half the figure for the year to March 2009. This continues to reflect a combination of shorter hire periods and lower freight rates. As we have indicated in recent reports, ship-owners are reluctant to place their vessels out on long-term hire while rates are at such historically low levels, unless forced to do so by their financiers. Similarly, while the oil companies or oil traders continue to take a cautious view on rates into the future, because of new capacity due to come on stream, few of them see much point making a call that may prove wrong within a few weeks. Nevertheless, there have been more time charter bookings during the first quarter of 2013 than for several years, although any material impact on group revenues is not expected until the year to March 2015.

ACM Shipping Group | 28 June 2013

We have already mentioned the problems in Sale & Purchase. As indicated by management, revenues fell away sharply last year, with the new team becoming established at a time when few ships were changing hands because of the low freight rates. Management has pointed to more positive indications in the market place, with a number of key deals concluded in the last few weeks. It is too early to predict an improvement beyond break-even in the current year, but the outlook for the following year is already looking more promising. The small Gas/LPG team achieved its first profit in 2013. ACM began its investment in this area in 2008 and has steadily built its presence in this segment of the market. We expect to see steady progress in the immediate future. Progress in new Dry Cargo business has again proved disappointing, with margins still undermined by low freight rates. The dry market does tend to be more volatile than that for oil tankers, with greater extremes in freight rates at various stages of the cycle. Revenues fell nominally last year despite a further increase in the number of fixtures, but with the help of cost-cutting measure introduced during the first half of the year, underlying losses were reduced from 0.78m to 0.58m. Group management is confident that it has made the correct decisions to diversify into the dry cargo market, with the business now established in London, Australia and the Far East, but we do not expect the business to deliver profits for at least another year. The group does not issue separate figures for its Overseas Operations, largely because they work closely with the main UK desks and it is often difficult to assess the source of a number of new fixtures. The message from management remains positive, especially bearing in mind that the key growth areas in the global economy remain in the Asia-Pacific region. Offices in China, India, Singapore and Dubai are managed by local people, with local contacts and supported by group management style and training. Returns from the Derivatives business declined again, with the stability of the market at the lower freight rates tending to lead to lower levels of activity. Nevertheless, the business continues to retain its position as the leading tanker freight derivatives broker, sustaining a share of the market that is approaching 50%.

When does the cycle turn?

Exhibit 3 demonstrates the unprecedented impact of the shipping cycle on recent profits. The underlying consistent growth in the overall business can be seen by the number of tanker fixtures managed by ACM, which has risen progressively, in each of the last 10 years, from around 800 in the year to March 2004 to some 3,200 last year while there have been two small acquisitions, the vast majority of this progress has been achieved organically. By contrast, the average income per tanker fixture paints a much more disappointing picture. For many years, the supply/demand situation in the wet market has been effectively managed, with new builds running slightly ahead of tanker obsolescence to match the likely global demand for oil This had led to a relatively stable market, with day rates tending to vary (at current prices) between $15k and $20k with the peaks and troughs in the cycle. The shift of manufacturing capacity to lower-cost territories, especially China, led to a need for rising tanker capacity to meet the growing demands of the Far East, with orders being placed with the worlds shipyards to meet this demand. The impact of the banking crisis was a sudden downgrading of growth prospects, but with long order books, the shipyards continued to introduce new tanker capacity for several years and the slowdown in production is only just happening.

ACM Shipping Group | 28 June 2013

The impact on charter rates was not immediate, but as new capacity came on stream, rates collapsed in the year to March 2010 from over 18k per fixture to around 11k per fixture; average rates are slightly lower in 2013 than they were last year. Exhibit 3: Number of fixtures (LHS); average value per fixture (RHS)
3,500 3,000 2,500 2,000 1,500 1,000 500 0 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 2004 2005 2010 2011 2012 2013 2006 2007 2008 2009 Tanker Time Charter Small Tanker Dry Cargo Average Tanker Value
Average value per tanker fixture

20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

Number

Source: ACM Shipping Group

The simple arithmetic does not add up at these rates. A new VLCC delivered today (but ordered in 2008) costs around $130m, but is valued at around $60m on the basis of its current earning capacity. The retirement of older less-efficient ships has been brought forward to a certain extent average life is now around 15 years, compared with 20 years a decade ago. The capacity imbalance is also taken up by the slower running of ships, which reduced operating costs, but overcapacity remains a drain on charter rates. In addition, the newer ships are far more efficient and environmentally friendly, making them a much more attractive proposition to the image-conscious oil majors. Oil demand is already above earlier peak levels and moving ahead steadily, although falling well short of pre-recession expectations. It may take another two years for demand to catch up with supply. There have been encouraging signs in recent months, but few new ships will be ordered until day rates rise to a level that makes a deal viable. The situation in the dry cargo and container ship markets is very similar. Spot rates have always tended to be more volatile than in the wet market, with a chart showing far more extreme movements. We sense that the timetable for recovery may be more protracted, because of less consistent demand, but the eventual recovery potential is equally significant.

Sensitivities
Currencies
With the majority of costs incurred in sterling and income in US dollars, exchange rates can have a considerable impact on profits in any specific year. ACM uses foreign exchange instruments in an attempt to manage the risk in relation to the sterling/dollar situation. At March 2013, the group had forward currency contracts to sell $8.0m at an average exchange rates of $1.58/. The average effective exchange rate for the year to March 2012 was $1.58/, similar to the $1.60/ in the previous year. We do not propose to speculate on likely movements in the current year and our profit estimates are based on there being little change from current levels. In the year to March 2013, the overall effect of the change in exchange rates was to increase revenue by 0.2m and pre-tax profits by 0.1m.

ACM Shipping Group | 28 June 2013

Key personnel
The business has few tangible assets. Its strengths lie in the strong relationships that the group and certain key individuals have with the major oil companies, oil dealers and ship owners. The defection of specific individuals or teams to another broker could have an adverse impact on profits, especially in the short term. Management is fully aware of this risk and invests considerable time on staff motivation and retention. Until the 2011 difficulties in Sale & Purchase, ACM had an impressive record in terms of retaining its key staff, the majority of whom are motivated by substantial share holdings and a generous bonus scheme. Obviously, the risks increase as the group becomes larger, but management has learned from those defections and the potential difficulty should not be overstated.

The shipping cycle

The shipping cycle is seen by investors to be a major factor for shipbroking shares. However, experience has shown that the impact on ACM had, until recently, been far less marked than is generally assumed, partially because dry cargo rates tend to be far more volatile than wet rates. The past two to three years have seen unprecedented extremes with rates for both sectors moving more sharply than for many years, reflecting the uncertainty about the depth and extent of the global trading downturn and a short-term over-capacity of shipping tonnage. Global oil demand has continued to grow, with IEA forecasts indicating that consumption is already running at higher rates than those appertaining prior to the onset of recession. Indeed, demand for both coal and iron ore has also continued to rise. Considerably more aged shipping capacity has been retired earlier than was originally planned, suggesting that, with several new build projects put on hold, the supply and demand balance may favour a firming up of rates either later in the current trading year or in the year to March 2015.

Valuation
There are three quoted companies in the shipbroking sub-sector. Each has seen share price weakness in the face of the uncertain trading conditions in the shipping market in recent years, although there has been a measure of recovery in recent months, as the City has begun to look towards recovery. Moreover, the cash generation potential has drawn attention to the attractive dividend yields. The average performances over the past year show a rise of 28%, with ACM lagging behind the others, with a rise of 24%, albeit some 11% ahead of the market. As the only pure broking business, ACM should be a prime beneficiary of any improvement in the cycle; its discount rating is difficult to justify.

Relative valuations
Exhibit 4: Peer group comparison
Price (p) ACM Shipping Group Braemar Shipping Services Clarkson 170.5 420 1,655 Market cap (m) 33 91 313 Revenue (m) 24 144 176 P/E 2012 (x) 12.8 11.4 15.6 P/E 2013 (x) 13.2 11.5 19.2 P/E 2014 (x) 11.9 10.9 15.1

Source: Thomson Reuters; Edison Investment Research estimates. Note: Prices at 27 June 2013.

On the basis of 2012 trading and 2013 City estimates, ACM shares are now rated much in line with Braemar and at a substantial discount to the market leader, Clarkson. We acknowledge that ACM is the smallest of the three companies but its core business in the less volatile wet market should imply more consistent trading. The ACM share price is still paying a price for the 2011 staff defections, despite the fact that action has already been taken to rebuild the business.

ACM Shipping Group | 28 June 2013

Moreover, ACM is entirely a broking/agency business, whereas both of the others have diversified into adjacent business areas such as port and shipping services. Broking operations are highly cash generative, with employee costs varying to reduce the likely impact of fluctuating freight rates. The rating probably stems from the relative size of ACM and its AIM listing, but we believe that the quality of broking earnings and the strong recovery potential justify a higher rating.

Financials
ACM has invested in cash generative business since its inception in 1982. It has been profitable and has also generated cash in virtually every year since. Profits will fluctuate to reflect shifts in shipping freight rates, but a high bonus element to staff remuneration limits the impact on profits. ACM has a highly motivated team, operating within strict financial and operating disciplines.

Cash generative business

After seeing a reduction in cash balances in the year to March 2012, ACM was once again cash generative last year. With the benefit of a permanent change in the policy relating to the timing of staff bonus payments leading to a reduction in working capital, 4.08m was generated from operations, supplemented by a 0.55m contribution from the joint venture. Of this, tax and dividends absorbed 1.07m and 1.95m respectively. With 0.36m invested in the ESOP and capex and interest receivable largely balancing each other, there was a net increase in cash balances of 1.23m to 4.33m over the year to March 2013. We expect the group to be largely cash neutral in the current year.

The recovery begins

As mentioned above, there seems little likelihood of any material changes in the underlying trading climate in the current year. The statement refers to specific new business signed up for the Sale & Purchase division, which is also expected to feed through to Time Charter revenues, but we suspect that the benefit is more likely to have an impact on returns in the year to March 2015. Nevertheless, we do believe that the supply/demand imbalance may start to narrow during the second half of the year, suggesting that the improving sentiment referred to in the chairmans statement can be sustained. The year has started well with volumes rising. At this stage we look for a relatively modest 5% rise in current year underlying pre-tax profits to 3.25m, although as the year progresses, we may be able to take a more optimistic line. The outlook for the following year is already brighter and a further recovery to 4.0m should be the minimum expectation. Medium- to long-term company objectives indicate substantially higher profits. If daily charter rates can recover to the pre-recession levels of $15-20k shown in Exhibit 3, the consistent investment by management in recent years suggests to us that underlying pre-tax profits in excess of 10m are comfortably achievable.

ACM Shipping Group | 28 June 2013

10

Exhibit 5: Financial summary

Year end 31 March PROFIT & LOSS Revenue Cost of Sales Gross Profit EBITDA Operating Profit (before GW and pre bonus) Goodwill Amortisation Exceptionals Other Operating Profit Net Interest Profit Before Tax (norm) Profit Before Tax (FRS 3) Tax Profit After Tax (norm) Profit After Tax (FRS3) Average Number of Shares Outstanding (m) EPS - normalised fully diluted (p) EPS - normalised (p) EPS - FRS 3 (p) Dividend per share (p) Gross Margin (%) EBITDA Margin (%) Operating Margin (before GW and except.) (%) BALANCE SHEET Fixed Assets Intangible Assets Tangible Assets Investment in associates Unquoted investments Current Assets Stocks Debtors Cash Other Current Liabilities Creditors Other creditors Short term borrowings Minority interests Long Term Liabilities Long term borrowings Other long term liabilities Net Assets CASH FLOW Operating Cash Flow Net Interest Tax Capex Acquisitions/disposals Financing Dividends Other Net Cash Flow Opening net debt/(cash) HP finance leases initiated Other Closing net debt/(cash) '000s 2010 IFRS 25,852 (7,756) 18,096 6,857 6,630 (436) 0 0 6,194 (27) 6,603 6,167 (1,870) 4,611 4,297 17.5 26.1 26.3 24.5 9.5 70.0% 26.5% 25.6% 12,382 10,183 393 1,208 598 10,114 0 5,848 4,266 0 (7,060) (6,046) (1,014) 0 0 (2,089) 0 (2,089) 13,347 2,567 26 (2,247) (70) (44) (1,025) (1,531) 1,655 (669) (4,935) 0 0 (4,266) 2011 IFRS 29,257 (8,777) 20,480 6,195 5,962 (800) 0 0 5,162 138 6,100 5,300 (1,558) 4,308 3,742 18.5 24.7 24.8 21.7 10.0 70.0% 21.2% 20.4% 17,678 15,805 450 1,050 373 10,246 0 5,291 4,955 0 (7,071) (6,321) (750) 0 0 (968) 0 (968) 19,885 5,942 19 (1,922) (219) (2,342) (194) (1,851) 1,256 689 (4,266) 0 0 (4,955) 2012 IFRS 26,576 (7,973) 18,603 4,401 4,038 (347) (7,772) 0 (4,081) 280 4,318 (3,801) (1,078) 3,037 (4,879) 19.1 17.6 17.7 (23.8) 10.2 70.0% 16.6% 15.2% 11,014 7,717 1,246 1,050 1,001 9,079 0 5,987 3,092 0 (5,824) (5,020) (804) 0 0 (2,304) 0 (2,304) 11,965 1,570 44 (1,176) (1,159) 0 (105) (1,936) 899 (1,863) (4,955) 0 0 (3,092) 2013 IFRS 24,051 (7,215) 16,836 3,186 2,799 (280) (3,697) 0 (1,178) 308 3,107 (870) (769) 2,241 (1,639) 19.1 12.4 12.5 (7.8) 10.2 70.0% 13.2% 11.6% 6,837 3,884 915 1,119 919 10,058 0 5,733 4,325 0 (6,482) (6,074) (408) 0 0 (2,158) 0 (2,158) 8,255 4,082 32 (1,069) (56) 0 (362) (1,945) 551 1,233 (3,092) 0 0 (4,325) 2014e IFRS 26,000 (7,800) 18,200 3,600 3,250 (250) 0 0 3,000 0 3,250 3,000 (800) 2,450 2,200 19.1 13.1 13.2 11.9 10.2 70.0% 13.8% 12.5% 6,452 3,634 715 1,184 919 10,834 0 6,198 4,636 0 (6,982) (6,566) (416) 0 0 (1,858) 0 (1,858) 8,446 2,628 0 (792) (150) 0 0 (1,959) 585 311 (4,325) 0 0 (4,636) 2015e IFRS 30,000 (9,000) 21,000 4,150 3,800 (250) 0 0 3,550 0 3,800 3,550 (950) 2,850 2,600 19.1 14.8 14.9 13.6 10.2 70.0% 13.8% 12.7% 6,072 3,384 515 1,254 919 12,553 0 7,151 5,402 0 (8,030) (7,576) (453) 0 0 (1,558) 0 (1,558) 9,037 3,157 0 (913) (150) 0 0 (1,959) 630 765 (4,636) 0 0 (5,402)

Source: Edison Investment Research and company data. Note: Operating profit includes jvs/associates.

ACM Shipping Group | 28 June 2013

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Contact details Grand Buildings 1-3 Strand London WC2N 5HR 020 7484 6311 www.acmshippinggroup.com CAGR metrics EPS 2011-15e EPS 2013-15e EBITDA 2011-15e EBITDA 2013-15e Sales 2011-15e Sales 2013-15e Management team Executive chairman: Johnny Plumbe Johnny Plumbe has been a shipbroker for some 35 years and was one of the original team that set up ACM in 1982. He has been chief executive since the flotation in 2006, becoming chairman in 2012. Johnny manages the crude and fuel oil desk, employing his strong relationships with major oil companies and ship-owners. Financial director: Ian Hartley Ian Hartley joined ACM as finance director in March 2007. He is a qualified chartered accountant, who spent some 20 years at Mayborn Group, where he was finance director for eight years prior to its takeover. Principal shareholders GFI Holdings W S Middleton J C Gundy M A C Rudd Axa Investment Managers B Peck J L Plumbe Companies named in this report Braemar Shipping Services (BMS), Clarkson (CKN) N/A 9.3% N/A 14.1% 0.6% 11.7% Profitability metrics ROCE 14e Avg ROCE 2011-15e ROE 14e Gross margin 14e Operating margin 14e Gr mgn / Op mgn 14e 19.8% 18.8% 26.9% 74.6% 12.5% 6.0x

Revenue by geography

90%

10%

UK

RoW

Balance sheet metrics Gearing 14e Interest cover 14e CA/CL 14e Stock days 14e Debtor days 14e Creditor days 14e Chief executive: James Gundy N/A N/A 1.6 N/A 87 92

Sensitivities evaluation Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices

James Gundy joined ACM in 1991, having previously been at Clarksons for 10 years. He headed the very successful VLCC desk until moving to the projects desk in January 2011. James held the position of chief operating officer from 2006 until being appointed CEO in November 2012. Chief operating officer: Mike Rudd Mike Rudd joined ACM as a partner and head of products in 1998, having worked in the industry since 1981. He was made a director of ACM Shipping Limited and, in January 2012, he moved across to join and strengthen the ACM projects desk. (%) 7.3 6.3 6.3 6.3 5.6 5.1 4.9

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Berlin +49 (0)30 2088 9525 Friedrichstrasse 95 ACM Shipping Group 10117 Berlin Germany High Holborn | 28280 June 2013 London, WC1V 7EE United Kingdom London +44 (0)20 3077 5700 New York +1 646 653 7026 245 Park Avenue, 39th Floor 10167, New York US Sydney +61 (0)2 9258 1162 Level 33, Australia Square 264 George St, Sydney NSW 2000, Australia Wellington +64 (0)4 8948 555 Level 15, 171 Featherston St Wellington 6011 New Zealand

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