Annual Report • Sep 24, 2020
Annual Report
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Tufton Oceanic Assets Limited announces its final results for the period ended 30 June 2020. A copy of the Annual Report and Audited Financial Statements has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. A copy of the Annual Report and Audited Financial Statements will also shortly be available on the Company's website in the Investor Relations section under Company Documents at www.tuftonoceanicassets.com/financial-statements.
Printed copies of the Company's Annual Report and Audited Financial Statements together with Notice of the 2020 Annual General Meeting will be posted to investors shortly. The annual general meeting will be held at the Company's registered office at 3rd Floor, 1 Le Truchot, St Peter Port, Guernsey on 23 October 2020 at 9.30 am BST. Due to continuing Covid-19 restrictions, specifically regarding the period of self-isolation required for any incoming travellers to Guernsey, members are reminded that they may appoint a Guernsey-based proxy.
| Tufton Investment Management Ltd (Investment Manager) Andrew Hampson Paulo Almeida |
+44 (0) 20 7518 6700 |
|---|---|
| N+1 Singer James Maxwell, Alex Bond (Corporate Finance) Alan Geeves, James Waterlow, Sam Greatrex (Sales) |
+44 (0) 20 7496 3000 |
+44 (0) 20 7520 9085
On behalf of the Board, I present the Company's Annual Report and Audited Financial Statements for the year ended 30 June 2020. During the financial year, we raised additional funds (net proceeds of US\$30.4m) from a Placing on 20 September 2019, bringing the total gross funds raised to US\$250.4m.
The proceeds of the Placing were largely invested during the financial year and we made the first divestment from the Company in February 2020 through the sale of three general cargo vessels for US\$19.3m. As a result of a change in market conditions from March onwards, following the first divestment, the Company slowed its deployment of capital and therefore its subsidiaries had investible cash of c.US\$19m at the end of the financial year.
The Company currently has sixteen vessels in its fleet consisting of three handysize bulkers, seven containerships and six tankers with EBITDA-weighted average charter length of 2.5 years. There is a further breakdown of the portfolio in the Investment Manager's Report set out on pages 7 and 8.
Despite strong portfolio operating profit and cash flows, the Company suffered non-cash, fair value losses as asset values fell largely due to the impact of Covid-19 on the shipping market. The Company benefited from sector diversification as the negative impact on the containership and bulker markets during the financial year was partly offset by the stronger performance of tankers. The Investment Manager's Report provides a more detailed breakdown of the impact that Covid-19 has had on the fleet and the overall performance of the Company.
As at the end of 30 June 2020, the Company's NAV was US\$237.7m being US\$0.931 per Share. The Company declared a loss of US\$1.2m or US\$0.0049 per Share for the financial year.
The dividend cover* for the financial year was c.1.4x, despite the market backdrop in the first half of 2020 and that the Company is not currently fully invested. The Company forecasts that dividend cover will continue to average 1.4x for the next 12-18 months based on current market conditions. The EBITDA-weighted average charter length c.2.5 years and the Company continues to target a total annual dividend of US\$0.07 per Share.
During the financial year, the Company's listed share price decreased from US\$0.99 per Share as at 30 June 2019 to US\$0.915 per Share as at the close of business 30 June 2020. The Company's Shares traded at an average discount of 0.96% to NAV during the financial year.
During the financial year, the Company moved from a healthy premium up until 29 February 2020 to a discount as markets plummeted around the world and the impact of Covid-19 took effect on the shipping sector. The discount levels reduced significantly, from 19.98% on 31 March to 1.70% as at 30 June 2020.
* EBITDA less capex (excluding the scrubber retrofit for Parrot) less debt service, divided by dividends for the period
Following the end of the financial year, the discount to NAV although initially narrow, widened to more than 10% in August and the Board utilised its powers to buy back Shares.
Although none were purchased during the accounting period, the Company bought 150,000 of its own Shares at an average price of US\$0.824 per Share after the end of the financial year. There are currently 150,000 Shares held in Treasury and 255,337,638 Shares in issue as at the date of approval of these accounts.
During the financial year, the Company declared and/or paid dividends to shareholders as follows:
| Period end | Dividend per Share (US\$) |
Ex div date |
Record date |
Paid date |
|---|---|---|---|---|
| 30.06.19 | 0.0175 | 08.08.19 | 09.08.19 | 23.08.19 |
| 30.09.19 | 0.0175 | 07.11.19 | 08.11.19 | 22.11.19 |
| 31.12.19 | 0.0175 | 06.02.20 | 07.02.20 | 21.02.20 |
| 31.03.20 | 0.0175 | 07.05.20 | 11.05.20 | 26.05.20 |
| 30.06.20 | 0.0175 | 06.08.20 | 07.08.20 | 21.08.20 |
The dividend for the prior quarter (ending 30 June 2019) was paid during the financial year on 23 August 2019. A dividend was declared on 29 July 2020 of US\$0.0175 per Share for the quarter ending 30 June 2020 and paid on 21 August 2020 to holders of Shares on record date 7 August 2020 with an exdividend date of 6 August 2020.
The Annual General Meeting ("AGM") of the Company will be held on 23 October 2020 at 9.30 am BST the details of which are set out in the AGM notice and Proxy on from pages 88 to 98. Under the current travel restrictions in place in Guernsey we would recommend that Shareholders appoint either the Chairman or an alternative proxy to represent their votes at the AGM as Shareholders will not be permitted at this time to attend the meeting in person.
At the last AGM held on 25 October 2019 there were four resolutions with a significant number of votes against, the details of which were set out in the Interim Financial Statements as at 31 December 2019.
There were votes against the approval of the accounts based on the fact that the Company did not offer Shareholders the opportunity to approve the dividend policy of the Company. We have included a resolution to approve the dividend policy at the forthcoming AGM and will do so in future years.
The votes against the re-appointment of the Auditors and the re-appointment of Mr Le Page were as a result of a deemed conflict between PwC and Mr Le Page as Chairman of the Audit Committee. Following consultation with the shareholder representatives, I would like to believe that the Shareholders consider Mr Le Page to be an independent director without any conflicts of interest with the Company's Auditors and in any event the Board have determined that by the date of the AGM on 23 October 2020, Mr Le Page will have exceeded a seven year period since being a partner of PwC CI LLP and thus will satisfy the voting agents' criteria.
There were also a number of votes against me owing to the number of listed appointments which I hold, which has now been addressed
Where Shareholders or their appointed agent have matters, they wish to raise with the Board in respect to the Company, I would encourage them to contact us at [email protected].
As part of our annual board evaluation held on 25 October 2019, the Board considered it appropriate to introduce a new board member with knowledge and experience of the shipping sector with an emphasis on Environmental, Social and Governance ("ESG") matters. I am pleased to confirm, during a difficult time to engage with potential candidates, that we have appointed, Christine Rødsæther, whose details are set out on page 33.
I would like to welcome Christine to the Board and following her appointment, the Board has reviewed the roles and responsibilities of the individual Directors. Christine will join the Audit Committee with effect from 1 October 2020 and I will step down from that Committee on the same date, ensuring the Audit Committee is independent of the Chairman.
It is not intended at this time the Company would form any other committees, with remuneration, nominations and management engagement being the responsibility of the whole board. The evaluation of the Chairman will be undertaken by the independent directors, led by the Audit Committee Chair, as part of the annual board evaluation process. Shareholders are also encouraged to contact the Audit Committee Chair if they feel unable to approach the Chairman directly, and consequently, the Company has no plans to appoint a Senior Independent Director at this time.
As discussed above and set out in greater detail in the Investment Manager's Report, this has been one of the most challenging periods for the shipping sector and global economies in general. The performance of the fleet has been strong with the tanker sector significantly outperforming bulkers and containerships. Although we see continued divergence between sectors, the diversity of our fleet has allowed the Company to provide some insulation against the under-performing sectors.
The Board are greatly encouraged by the Investment Manager's ability to manage the diversified portfolio of vessels and also continue to obtain new opportunities to increase the fleet size. It is likely that the remaining part of 2020 will not be any easier and the uncertain future in global markets, will lead to new challenges. We saw a reduction in charter period renewal and charter rates fall in the first half of 2020 primarily due to the impact of Covid-19.
Towards the end of the financial year, we noted a significant improvement in the shipping market as global lockdowns to contain Covid-19 were relaxed. Please see the Investment Manager's Report for more details on the shipping market. We are optimistic for the Company's prospects as the global shipping markets return to growth.
I would like to thank my fellow directors for their commitment and support during these difficult times, the Investment Manager and their team for their diligence in dealing with complex and challenging operational matters which have greatly increased due to the impact of Covid-19. I would also like to take this opportunity to thank our Shareholders for their support and continued belief in our strategy.
Rob King Non-executive Chairman
The portfolio operating profit from the fleet remained strong at US\$29.1m but this was outweighed by a US\$30.3m decline in fair value of fleet. Approximately 74% of the capital value decline was in the second half of the financial year, mainly as containership and bulker values declined due to the impact of Covid-19 on shipping demand. The Company's loss for the financial year was US\$1.2m or US\$0.0049 per Share based on the weighted average number of shares (note 9).
The Investment Manager believes the Company's strong portfolio operating profit and performance in the Covid-19 crisis, both on an absolute basis and relative to other asset classes, demonstrates that it can be an attractive high income and low correlation investment.
Much of the market volatility resulting from Covid-19 was mitigated by strong operating performance and we believe the Company stands to benefit from a recovery as asset values rebound with demand, albeit with a lag. The Investment Manager's proprietary system for analysis of shipping satellite data (Tufton Real Time Activity Capture System "TRACS") shows a strong recovery in demand, back to trendline, for bulker and containership markets after Covid-19 related lockdowns were lifted in the latter half of the second quarter of 2020.
* EBITDA less capex (excluding the scrubber retrofit for Parrot) less debt service, divided by dividends for the period
As at 30 June 2020, the Company owned sixteen vessels. Neon operates on a bareboat charter, under which the Company provides only the vessel to the charterer, who is responsible for crewing, maintaining, insuring and operating it. All other vessels operate on time charter contracts, under which the Company provides fully operational and insured vessels for use by the charterers.
| SPV+ | Vessel Type and Year of Build |
Acquisition Date |
Earliest end of charter period |
Latest end of charter period |
Expected end of charter period** |
|---|---|---|---|---|---|
| Swordfish | 1700-TEU containership built 2008 |
February 2018 |
September 2020 |
December 2020 |
December 2020 |
| Kale | 1700-TEU containership built 2008 |
February 2018 |
October 2020 |
September 2021 |
September 2021 |
| Patience | 2500-TEU containership built 2006 |
March 2018 |
April 2021 |
October 2022 |
October 2022 |
| Riposte | 2500-TEU containership built 2009 |
March 2018 |
March 2020 |
March 2021 |
October 2020 |
| Neon | Mid-sized LPG carrier built 2009 |
July 2018 |
August 2025 |
August 2025 |
August 2025 |
| Aglow | Handysize bulker built 2011 |
July 2018 |
May 2020 |
October 2020 |
October 2020 |
As at 30 June 2020
| Dragon^ | Handysize bulker built 2010 |
September 2018 |
August 2020 |
October 2020 |
August 2020 |
|---|---|---|---|---|---|
| Citra | 2500-TEU containership built 2006 |
November 2018 |
November 2020 |
January 2021 |
November 2020 |
| Sierra | Medium-range product tanker built 2010 |
December 2018 |
January 2021 |
January 2022 |
January 2022 |
| Octane | Medium-range product tanker built 2010 |
December 2018 |
January 2021 |
January 2022 |
January 2022 |
| Pollock | Handysize product tanker built 2008 |
December 2018 |
February 2023 |
February 2024 |
February 2023 |
| Parrot | 8200-TEU containership built 2006 |
July 2019 |
May 2025 |
May 2025 |
May 2025 |
| Bear | Crude oil tanker Built 2005 |
September 2019 |
October 2021 |
October 2021 |
October 2021 |
| Vicuna | 2500-TEU containership built 2006 |
October 2019 |
October 2022 |
October 2024 |
October 2022 |
| Dachshund | Handysize product tanker built 2008 |
February 2020 |
March 2023 |
March 2024 |
March 2023 |
| Antler | Handysize bulker built 2012 |
March 2020 |
September 2020 |
December 2020 |
December 2020 |
Notes:
** These may differ from the Interim Report (31 March 2020) following the re-assessment by the Investment Manager of the prevailing market conditions
^ Charter renewed on 4 August 2020 for 2-4 months, ending October 2020 (earliest)/ December 2020 (latest)
The Company divested three general cargo vessels for US\$19.3m. The realised yield and IRR exceeded the targets expressed in the Company's prospectus published on 25 September 2018. This was the Company's first divestment. As a result of the change in market conditions from March onwards the Company slowed its deployment of capital and therefore had investible cash of c.US\$19m (held by LS Assets Ltd) at the end of the financial year. While the Investment Manager aims to hold investments over the longer term, it will continue to consider sale opportunities that generate additional value for shareholders.
During the financial year, the Company acquired five vessels for US\$77.2m, bringing the total number of vessels to sixteen vessels after the divestment of the three general cargo vessels. The Company's fleet had only c.0.5% (26 ship-days) of commercial idle time across the fleet over the financial year and had no commercial idle time between 1 July and 22 September 2020. This is a good result over the period which included the impact of Covid-19 on shipping demand, resulting in c.10.6% of the global containership fleet being idle for much of second quarter of 2020.
Despite the disruptions to the Containership market from Covid-19 (please see the Shipping Market discussion on page 13 for the details), the seven containerships operate on time charter contracts, under which the Company provides fully operational and insured vessels for use by the charterers.
The market for bulkers weakened after a strong third quarter of 2019 and was further impacted by Covid-19. The Investment Manager has employed the Company's bulkers on short term charters to position the vessels for a market recovery.
The vessels in the fleet are well maintained and have performed to expectations. Some events over the financial year worth noting include:
All the vessels in the portfolio transitioned to low sulphur fuel at the end of 2019 to comply with the International Maritime Organization's (IMO) new sulphur cap. The Investment Manager continues to identify an attractive pipeline of opportunities across the shipping segments.
NAV per Share was US\$0.931 at 30 June 2020. Portfolio operating profit from the fleet contributed US\$0.117 per Share. There was an unrealised loss in the charter-adjusted fleet value of US\$0.122 per Share during the financial year. The unrealised loss arose mainly because of the fall in capital values of containerships and bulkers during the second half of the financial year due to the impact of Covid-19 on demand for these vessel types. Tankers proved to be an effective diversifier, contributing to performance through strong portfolio operating profit and higher asset values as the segment benefited from demand for floating storage. NAV total return over the financial year was -0.7%.
The fleet performance during the financial year was strong with gross profit/ time weighted capital employed increasing to 14.2%, compared to 12.3% in the previous financial year. The dividends for first and second quarter of 2020 were paid in May 2020 and August 2020 respectively, both of US\$0.0175 per Share. The Company's dividend cover* for the financial year was c.1.4x, despite the market backdrop and that the Company is not fully invested.
Portfolio operating profit was strong except for the bulkers. The three bulkers in the fleet are on shortterm charters at relatively low rates in a poor market and represent only c.9.5% of the portfolio NAV. The short-term charters position the vessels well for longer term charters at higher rates as demand recovers. Much of the negative impact on capital values came from fair value losses in containerships as demand in that segment saw the worst impact from Covid-19. TRACS data show a recovery in containership and bulker demand back to trendline at the end of the second quarter of 2020. Please see the Shipping Market section for more details on TRACS.
As at 30 June 2020, vessels corresponding to more than 60%, by value, of the portfolio (i.e. excluding investible cash) have charter coverage greater than one year. Fixed employment in the portfolio was across ten different charterers. Exposure to tankers totalled 47.9%, containerships represented 32.8% and bulkers 9.5% of the portfolio.
The shipping market was expected to encounter an impactful regulatory change ("IMO2020") in early 2020 as the global fuel sulphur cap was reduced to 0.5% by the IMO. The last six months proved to be eventful but for very different reasons. The impact of IMO2020 paled before the twin impacts of Covid-19 and OPEC policy changes. Covid-19 quickly developed into a global pandemic over the first quarter of 2020. Travel restrictions and shutdowns to limit the contagion had a negative impact on global GDP growth. In June, the IMF forecast 2020 World GDP to shrink by 4.9%. The IMF forecasts a return to 5.4% growth in 2021 as governments around the globe put in place unprecedented fiscal and monetary stimulus to support the economic recovery. Shipping demand growth is historically linked to the growth in GDP. Clarksons Research forecasts global trade (tons) to shrink by 4.4% in 2020 and return to 5% growth in 2021.
This section includes data from the Investment Manager's proprietary TRACS system which analyses satellite data to track the international shipping fleet. By monitoring the overall levels of cargo on water, TRACS enables the Investment Manager to have a close to real-time measure of shipping demand. Other statistics on demand and supply are from Clarksons Research.
Some notable highlights of the shipping market (based on Clarksons Research) include
The second half of 2019 was marked by a slowdown in global GDP growth and industrial production. As the benefits of the 2018 tax cuts in the US faded, business confidence weakened in the face of the uncertainties of US-China trade negotiations. Manufacturing firms became more cautious on long term capital expenditure. The growth slowdown was exacerbated in the first half of 2020, primarily due to the impact of Covid-19.
Despite the impact of Covid-19, the boom in the tanker market proved that disruption is not always negative for the global shipping industry. Towards the end of the third quarter of 2019, the tanker market received an unexpected boost when the US sanctioned Cosco Tankers, a large Chinese operator effectively removing a significant portion of available tanker capacity. Benchmark rates for large tankers hit decade highs as the effect of US sanctions was exacerbated by ships taken out of service for scrubber retrofits ahead of IMO2020.
The rally in tanker rates paused in early 2020 as US sanctions were removed in January. The combined impact of Covid-19 on oil demand and the change in OPEC policy in early March led to strong demand for floating storage as oil production and exports greatly exceeded demand.
TRACS data show the tremendous boost for tanker demand from floating storage, with around 30m tons (c.210m barrels) of oil and products being stored at sea by the end of April. On a like for like basis, there is usually no such demand.
Benchmark rates for large tankers hit new record highs exceeding levels achieved in the fourth quarter of 2019. Tanker demand peaked on 1 May as OPEC cut production by 9.7m barrels per day.
The tanker market had a strong first half of 2020 supported by demand for floating storage. Tonnage in floating storage is likely to be gradually released back into the market over the second half of 2020 but easing travel restrictions and tapering of OPEC production cuts from July will support incremental demand growth.
On the other hand, dry bulk shipping remained very volatile over the financial year. Businesses opportunistically built inventories in the third quarter of 2019 ahead of expected changes in tariff regimes, resulting in record demand for many dry bulk products. The benchmark Baltic Dry Index hit a six-year high in the third quarter of 2019 However, bulker demand weakened in the fourth quarter of 2019 with the combined effects of slowing GDP growth, lower steel demand growth and pullback from the inventory building of the third quarter of 2019 being exacerbated by environmental shutdowns in Asia. The weakness continued into the first quarter of 2020 with the impact of seasonality over Chinese New Year amplified by travel restrictions and business shutdowns around Covid-19. According to TRACS data, bulker demand recovered back to trendline towards the end of the second quarter of 2020 as Chinese iron ore imports increased to replenish low inventories and fulfil pent-up demand.
In the second half of 2019, consumer sentiment remained buoyant, particularly in the US as additional easing by the US Federal Reserve was followed by mortgage refinancing which added to disposable income. Containership rates, led by larger vessels, improved over the course of the third of quarter of 2019 and consolidated at relatively high levels in the fourth quarter of 2019. TRACS data show that Covid-19 had dual impacts on the containership segment. The initial impact was through lower Chinese exports due to extended shutdowns and travel restrictions around Chinese New Year. Even as the restrictions were eased in China, they were rolled out in Europe and then the United States resulting in a second negative impact on demand. Benchmark time charter rates on feeder containerships fell by 24% over the 12 months leading to June 2020. From the middle of May, TRACS data show a rebound in containership demand back to trendline. Time charter rates stabilised toward the end of the second quarter of 2020 and started improving after the end of the financial year.
The supply-side adjustment across shipping subsectors has continued and was possibly accelerated by the impact of Covid-19. The pace of new orders continued to fall. According to Clarksons Research, the 5.7m CGT of new orders in the first half of 2020 was a 25-year low. The orderbook shrunk to 7.8% of the fleet, the lowest level since 2004. Fleet growth is expected to slow from 2.4% in 2020 to 1.9% in 2021. The supply adjustment could be further aided by a reduction in average fleet speed. At the moment, the speed reduction is largely an industry response to the current commercial environment but mandatory speed reduction to lower emissions remains under consideration. Speed reduction as a means of optimizing voyage economics, reducing emissions and managing fleet capacity is unique to the shipping industry.
The Investment Manager endeavours to conduct its affairs responsibly and take into consideration ESG factors regarding investment decisions taken on behalf of the Company. The Investment Manager recognises that its first duty is to act in the best financial interests of the Company's shareholders and to achieve good financial returns against acceptable levels of risk, in accordance with the objectives of the Company. As part of its commitment to Responsible Investment, the Investment Manager integrates ESG factors into the investment management process and ownership practices in the belief that this can have a positive impact on the long-term financial performance of its investments. The Investment Manager became a signatory to the United Nations Principles of Responsible Investment in December 2018 and has a Responsible Investment policy which is available on its website, (http://www.tuftonoceanic.com).
Initial areas of focus on ESG implementation shall include
Promoting acceptance and implementation of ESG principles with our business partners.
Over the course of 2019, the Investment Manager noted increased incidences of contraband smuggling in the international shipping industry and therefore prioritized enhanced security on board vessels.
The Company and Investment Manager intend to contribute towards the IMO's ambition to reduce, compared to 2008, total annual emissions by at least 50% by 2050 and to reduce CO2 emissions per transport work, compared to 2008, by at least 40% by 2030.
In September 2019, the Investment Manager joined the Getting to Zero Coalition, a partnership between the Global Maritime Forum, the Friends of Ocean Action, and the World Economic Forum. The ambition of the Getting to Zero Coalition is closely aligned with the IMO's vision for greenhouse gas reduction. The Coalition is committed to getting commercially viable deep-sea zero emission vessels powered by zero emission fuels into operation by 2030 which is required to ultimately align greenhouse gas emissions from international shipping with the Paris Agreement.
Based on data from the vessels, the Company's fleet emitted 278,101 tons of CO2 over the calendar year 2019. This includes emissions from Bear, Parrot and Vicuna which were acquired over the course of the year but excludes Neon and the general cargo vessels which were on bareboat charters as charterers are fully responsible for operating these vessels.
| Total CO2 emissions in 2019 |
Value |
|---|---|
| (tons CO2) | |
| Containerships | 196,310 |
| Bulkers | 27,268 |
| Tankers | 54,524 |
| Company | 278,101 |
All the vessels in the Company's fleet transitioned to very low sulphur fuel oil (VLSFO) at the end of 2019 in order to comply with IMO2020. Parrot was retrofitted with a scrubber in May 2020 which allows the vessel to continue utilizing high sulphur fuel oil (HSFO). The Company's fleet emissions in 2019 were generated from consumption of c.89,000 tons of fuel, of which 85% was HSFO. The Investment Manager aims to reduce emissions by increasing fuel efficiency. The benefits from fuel efficiency usually accrue to the charterer for vessels on time charter employment. The split incentive means the Investment Manager has to carefully structure investments that enhance fuel efficiency to ensure that the investments are accretive to the Company. The charterer remains responsible for vessel operating parameters such as speed, cargo and routing which strongly influence fuel consumption and emissions. While responsible for c.3% of global emissions, shipping remains a very carbon efficient mode of transport with a much lower carbon footprint per unit transport work compared to other modes of transport such as air freight and trucking.
The IMO has defined a normalised measure of emissions called the Energy Efficiency Operational Indicator (EEOI). The EEOI is defined as the mass of CO2 emitted per unit of transport work. The EEOI can also provide useful information on a ship's performance regarding fuel efficiency and emissions. All else equal, a lower EEOI number is indicative of a more efficiently operated asset. The European Union has established a regulatory requirement that all vessels visiting or transiting European ports (starting 2019) utilize relevant voyage data to calculate an annual average EEOI per vessel which is independently verified and reported to the EU. The resulting database from the EU Monitoring, Reporting and Verification (EU MRV) system is publicly available. The Investment Manager has utilized the EU MRV methodology and database to benchmark the emissions from the Company's fleet. The value weighted 2019 EEOI of the Company's fleet was 21.2 gm CO2 per ton-mile which is c. 7% lower than the peer group average of 22.7 gm CO2 per ton-mile.
| SHIP Average |
Peer Group Average for 2019 |
|
|---|---|---|
| for 2019 | ||
| Containerships | 25.5 | 28.2 |
| Bulkers | 14.9 | 16.8 |
| Tankers | 15.0 | 17.6 |
| Company | 21.2 | 22.7 |
The Company's fleet average EEOI for 2019 was c.7% better than that of its peer group
The Investment Manager continues to closely follow developments in this dynamic space and endeavours to make the Company's fleet more efficient. As part of its initiative to reduce emissions, the Investment Manager invested in an industry leading integrated Vessel Performance (VP) system to monitor operational efficiency and emissions.
The Investment Manager is also trialling (over 2020) a bespoke system to obtain and analyse high frequency data on fuel consumption and torque from onboard sensors. Using VP data, the Company has started proactively scheduling hull and propeller cleaning on vessels that show deteriorating fuel efficiency. Timely hull and propeller cleaning can increase fuel efficiency by c.3-5% and reduce emissions by the same amount.
The average age of the vessels in the portfolio at the end of June 2020 was c.11.5 years. The Investment Manager therefore does not expect any recycling candidates in the Company's fleet in the near future, as the normal life of vessels in the fleet is at least twenty years. The Company will however follow industry best practices with regards to recycling as and when the situation occurs.
International shipping is responsible for the carriage of around 90% of world trade. Around 50,000 commercial, ocean-going vessels crewed by more than a million seafarers transport goods around the globe. Ship crews have a challenging task in being responsible for high value, complex machinery on the high seas. The challenges faced by seafarers have been recognized internationally and their working conditions are governed by strict guidelines from the International Labor Organization (ILO) and the IMO. The Investment Manager considers crew health and safety to be a priority and works closely with the vessels' technical managers to promote best practices.
Covid-19 had a significant impact on crew health and safety in the second half of the financial year. The Investment Manager worked with technical managers to ensure that all regulations including IMO protocols for provision of personal protective equipment were followed and is pleased to note that no infections were reported in the crew of any of the Company's vessels. National regulations limiting travel and disembarkation of crew in order to contain Covid-19 had the effect of delaying crew changes (referred to in the industry as rotations). Typically, 150,000 seafarers around the world participate in crew rotations every month.
Responsibility for crewing lies primarily with each vessel's technical manager. As at mid-July, c.40% of the crew members on board the Company's vessels were overdue for rotation. Based on a survey of our technical managers (managing more than 1,000 ships across multiple owners) this was slightly better than the industry average of crew overdue for rotation which was in the range of 45 - 50%.
The Investment Manager has engaged with each vessel's technical manager to address crew issues and facilitate rotations, in some cases with additional costs. Webinars and counselling sessions are being offered to crew members and their families.
The following strategies are being employed to facilitate rotations:
The additional measures will result in some additional costs as well as a one-time increase in operating expenses (c. 5% higher opex similar to an inflationary increase over 1-2 years).
The Investment Manager expects that the delayed rotations will be resolved on the Company's vessels by the end of the third quarter of 2020. As at mid-September, only c.16% of the crew on board the Company's vessels were overdue for rotation.
The Investment Manager closely monitors and adapts to sanctions regimes from the US, UK, EU and the UN. During 2019 there were rapid changes in international sanctions regimes so we have instituted internal procedures to ensure that charter contracts exclude sanctioned regions. If existing guidelines are unclear, our internal procedure ensures that we seek legal advice. The Investment Manager regularly monitors vessel positioning using satellite data to verify compliance.
In 2019, the Investment Manager noted several high-profile contraband seizures in international shipping and instituted security measures to minimize the risk of such situations. The measures include:
The Board of Directors receives periodic updates on principal risks at their meetings and have adopted their own control review to ensure that, where possible, risks are monitored appropriately, mitigation plans are in place, and that emerging risks have been identified and assessed . The Directors also carry out a regular check on the completeness of risks identified, including a review of the risk register. The Board believes that the risk register is comprehensive and addresses all risks that are currently relevant to the Company. While the Investment Manager monitors and puts in place controls to mitigate risks, please note that risk or uncertainty cannot be completely eliminated.
The Board has carried out a robust assessment to identify the principal and emerging risks that could affect the Company, including those that would threaten its business model, future performance, solvency or liquidity. Principal risks are those which the Directors consider have the greatest chance of materially impacting the Company's objectives. The Board has adopted a "controls" based approach to its risk monitoring requiring each of the relevant service providers including the Investment Manager to establish the necessary controls to ensure that all identified risks are monitored and controlled in accordance with agreed procedures where possible.
The Board of the Company, together with the Investment Manager, have carefully considered the potential impact of the Covid-19 pandemic, considered to be both an emerging risk and an emerging cause of risk, on the activities of the Company and its subsidiaries. As an emerging risk, Covid-19 could impact the ability of technical managers appointed by the Asset Manager to supply crew for the Company's vessels. The Investment Manager and Asset Manager have taken appropriate steps to ensure the Company's fleet is properly serviced (as set out in the ESG section above. To date the fleet has not experienced any crewing difficulties and none are expected.
Aa an emerging cause of risk, the negative impact of Covid-19 on GDP growth could result in lower demand for shipping. The Group presently has no exposure to the spot market for vessels, but lower demand has resulted in some charters being renewed or replaced at lower rates and for shorter periods. A weaker shipping market may cause charter counterparties to be unable to pay the Group when due as well as have a negative impact on vessel and charter values. It is the Board's opinion that all these potential consequences are already managed and monitored as part of the Group's ongoing approach to risk in respect of counterparties, values and service providers. The Board will of course continue to reassess the position as more information about the impact of Covid-19 becomes available.
The Company's activities are primarily dependent upon global seaborne trade flows and as seaborne trade activities between mainland Europe and the UK are not significant to the Company's fleet, Brexit is not expected to have a material impact on the Company or the Investment Manager.
| Underlying cause of risk or uncertainty | Objective impacted (in what way) |
Control or mitigation implemented |
|---|---|---|
| Demand for shipping may decline, either because of a reduction in international trade (e.g. "trade wars") or because of general GDP growth slowing (e.g. impact of Covid 19) |
Capital growth Vessel values |
This risk cannot be controlled, but is mitigated by: • Diversification to reduce reliance on any particular sector or geography; • Focus on fleet vessel quality and specifications to improve utilisation; • Longer term employment strategy to reduce market exposure; and Ultimately, lower charter rates would be accepted in order to ensure employment of the vessels. |
| Failure of, or unwillingness of, a vessel charterer to meet charter payments |
Liquidity Vessel values |
Charter counterparty creditworthiness is subjected to extensive checks prior to and throughout a charter. In the event of default, the generic nature of the ships in the portfolio should enable alternative employment to be found, though possibly at lower rate. |
The Board would like to highlight in the following table, some principal and emerging risks (not limited to Covid-19 causes only) to the business and efforts to mitigate the risks. The Board considers that no additional mitigation steps are required at this time.
| Vessel maintenance or capital expenditure may be more costly than expected due to delays or resource constraints arising from the impact of Covid-19 or other causes |
Capital growth Dividends Liquidity Vessel values |
The Company has engaged experienced technical managers to monitor maintenance and capital expenditure. Capex provisions are made prior to investing in a vessel. |
|---|---|---|
| A vessel may be lost or significantly damaged |
Capital growth Vessel values |
Measures to mitigate operational risks include: • avoiding conflict areas • daylight sailing, naval escort, route planning to avoid higher risk areas; and • detailed best practice operating procedures to be followed by crew and technical staff. Comprehensive Insurance protection is in place at all times to cover inter alia significant damages to or loss of vessels. |
| The Company may not have enforceable title to the vessels purchased |
Liquidity Vessel values |
The Company has engaged a very experienced Investment Manager who is responsible for establishing such title. This is then monitored by the Board using publicly available information. |
| Underlying cause of risk or | Objective | Control or mitigation implemented |
|---|---|---|
| uncertainty | impacted (in what way) |
|
| Failure of, or unwillingness of other non-charterer counterparties to meet their obligations |
Capital Growth Loss of invested cash |
• The Investment Manager and Asset Manager rely on third party service providers for performance of services integral to the operation of the Company. • The Asset Manager is constantly monitoring the performance of all its key operational service providers and especially the technical managers. • SPV operating accounts are held with one or more unrated banks, because those banks' systems are better suited for shipping company operations. Exposure to such banks are limited to US\$10m per bank. • Surplus funds are invested with banks of a single A- (or equivalent) or higher credit rating as determined by an internationally recognised rating agency. • Credit ratings, monthly sweeps and overall limits are monitored by the Administrator, who reports exceptions to the Board. |
| Failure of systems or controls in | Capital Growth | This risk cannot be directly controlled but the |
| the operations of the Investment | Board and its Audit Committee regularly review |
| Manager, Asset Manager or the Administrator and thereby of the Company |
Loss of assets, reputation or regulatory permissions and resulting fines |
reports from its Service Providers on their internal controls. |
|---|---|---|
| The Company may be exposed to substantial risk of loss from environmental claims arising in respect of vessels owned by its SPVs, in particular if a vessel owned by the Company's SPVs were to be involved in an incident with the potential risk of environmental damage, contamination or pollution. |
Liquidity, Vessel values, Loss of assets, reputation or regulatory permissions and resulting fines |
• The Investment Manager arranges for environmental due diligence in respect of all vessels considered for acquisition by the Company to identify potential sources of pollution, contamination or environmental hazard for which that vessel may be responsible and to assess the status of environmental regulatory compliance. • The Asset Manager maintains a detailed manual that documents best practice operating procedures to be followed by crew and technical staff. The Asset Manager reviews environmental performance of key service providers on a quarterly basis. • Protection and Indemnity Club mutual insurance provides cover of up to US\$1 billion for oil pollution damage compensation. |
The Company is a closed-ended investment company, limited by shares, registered and incorporated in Guernsey under the Companies Law on 6 February 2017, with registered number 63061.
The Company is a Registered Closed-ended Collective Investment Scheme regulated by the GFSC pursuant to the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended and the Registered Closed-ended Investment Scheme Rules 2018.
As at 30 June 2020, the Company has 255,337,638 Shares in issue, all of which are admitted to the Specialist Fund Segment of the Main Market of the London Stock Exchange under the ticker "SHIP". ISIN: GG00BDFC1649, SEDOL: BDFC164. After the end of the financial year, the Company bought 150,000 of its own Shares which are held in treasury as at 18 September 2020.
The Company makes its investments through LS Assets Limited and other underlying SPVs, which are ultimately wholly owned by the Company. LS Assets Limited is registered and was incorporated in Guernsey in accordance with the Companies Law on 18 January 2018 with registered number 64562. The underlying SPVs owned by LS Assets Limited were incorporated in the Isle of Man, in accordance with the Isle of Man Companies Act 2006 (the "IOM Companies Act").
The Company controls the investment policy of each of LS Assets Limited and the wholly owned SPVs to ensure that each will act in a manner consistent with the investment policy of the Company. The Company refers to each vessel by the underlying SPV's 'name' rather than the actual name of the respective vessel for confidentiality purposes.
The Investment Manager is Tufton Investment Management Limited (formerly Tufton Oceanic Limited), a company incorporated in England and Wales with registered number 1835984, which is regulated by the UK FCA and has been authorised to act as a Small Registered UK AIFM under the AIFMD. Tufton Investment Management Limited has been a specialist fund manager in the maritime and energy markets since 2000 and has been focused on financial services to these industries since its inception in 1985.
The Company is a member of the AIC and has therefore elected to comply with the provisions of the current AIC Code of Corporate Governance which sets out a framework of best practice in respect of governance of investment companies (the "AIC Code"). The AIC Code has been endorsed by the Financial Reporting Council and the Guernsey Financial Services Commission (the "GFSC") as an alternative means for members to meet their obligations in relation to the UK Corporate Governance Code ("the Code") and the AIC Code is that the matters set out in section 172. The Companies Act 2006 (UK) are reported on by all companies, irrespective of domicile, provided this does not conflict with local company law.
The AIC Code was updated in February 2019 for accounting periods commencing on or after 1 January 2019 ("AIC Code 2018"). The AIC Code 2018 came into effect for the Company from 1 July 2019. The Directors are committed to high standards of corporate governance and for this reason have implemented all of provisions of the AIC Code. In place of the previous 21 principles, the AIC Code 2018 adapts the Principles and Provisions set out in the UK the Code to make them relevant for investment companies under the new AIC Code. The Board has considered the principles and provisions of the existing AIC Code, produced by the Association of Investment Companies ("AIC"). The Company has complied with the recommendations of the AIC Code (except as set out below) and associated disclosure requirements of the Listing Rules (to the extent applicable to the Company).
As disclosed in the Listing documents, the Company, being an externally advised investment company with an entirely non-executive board of directors does not consider the following provisions of the AIC Code applicable:
Considering that the Board comprises of only four independent Directors, they have agreed not to appoint a Senior Independent Director. The Audit Committee Chairman fulfils the role of the Senior Independent Director.
The Board has formulated policies and procedures to assist them to comply with the AIC Code:
All the Directors are currently considered by the Board to be independent of the Company and the Tufton Group and have been Directors for less than 4 years. The Board's current policy on tenure is that continuity and experience are considered to add significantly to the strength of the Board and, as such, no limit on the overall length of service of any of the Company's Directors, including the role of Chairman, has been imposed. New Directors receive an induction from the Investment Manager and the Administrator on joining the Board, and all Directors will receive other relevant training as necessary on their on-going responsibilities in relation to the Company.
The Company supports the AIC Code provision that Boards should consider the benefits of diversity, when making appointments and is committed to ensuring it receives information from the widest range of perspectives and backgrounds. The Company's aim as regards the composition of the Board is that it should have a balance of experience, skills and knowledge to enable each Director and the Board as a whole to discharge their duties effectively.
Whilst the Board of the Company agrees that it is entirely appropriate that it should seek diversity, it does not consider that this can be best achieved by establishing specific quotas and targets and appointments will continue to be made based wholly on merit. Accordingly, when changes to the Board are required, due regard is given to both the need for diversity and to a comparative analysis of candidates' qualifications and experience. A pre-established, clear, neutrally formulated and unambiguous set of criteria would be utilised to determine the most suitable candidate for the specific position sought.
Whilst directly applicable to UK domiciled companies, the intention of the AIC Code of Corporate Governance which is followed by the Company, is that the following matters set out in section 172 of the UK Companies Act, 2006 are reported on by all companies, irrespective of domicile, provided that this does not conflict with local company law.
The Company is an externally managed investment company, has no employees, and as such is operationally quite simple. The Board does not believe that the Company has any material stakeholders other than those set out in the following table.
| Investors | Service providers | Community and environment |
|---|---|---|
| Issues that matter to them | ||
| Performance of the shares Growth of the Company Liquidity of the shares |
Reputation of the Company Compliance with Law and Regulation Remuneration |
Compliance with Law and Regulation Impact of the Company and its activities on third parties |
| Engagement process | ||
| Annual General Meeting Frequent meetings with investors by brokers and the Investment Manager and subsequent reports to the Board |
The main two service providers - Tufton IML and MAGL - engage with the Board in face to face meetings quarterly, giving them direct input to Board discussions. |
The Company and its subsidiaries themselves have only a very small footprint in their local communities and only a very small direct impact on the environment. |
| Monthly factsheets Key Information Document |
The Board also considers the interests of the Corporate Broker at each of its meetings. All service providers are asked to complete a questionnaire annually which includes feedback on their interaction with the Company, and the Board undertakes an annual visit to Tufton in both London and the Isle of Man. |
However, the Board acknowledges that it is imperative that everyone contributes to local and global sustainability. |
| Investors | Service providers | Community and environment |
|---|---|---|
| Rationale and example outcomes |
||
| Clearly investors are the most important stakeholder for the Company. Most of our engagement with investors is about "business as usual" matters, but has also included discussions about the discount of the share price to the NAV. The major decisions arising from this have been for the Board to seek to ensure long term value and to seek greater liquidity for the Company's shares through increasing its profile. In addition, the Board has focussed on valuation of vessels, a key priority for shareholders. As a result, the Board placed greater emphasis on reviewing the output from the VesselsValue system used to value most of the Company's fleet and the discount rates used in valuing the remaining vessels. |
The Company relies on service providers entirely as it has no systems or employees of its own. No major decisions were made by the Board which effected service providers in the year. The Board always seeks to act fairly and transparently with all service providers, and this includes such aspects as prompt payment of invoices. |
The nature of the Company's investments is such that they do not provide a direct route to influence ESG matters in many areas, but the Board and the Investment Manager work together to ensure that such factors are carefully considered and reflected in investment decisions, as outlined elsewhere in the document. Board members do travel, partly to meetings in Guernsey, and partly elsewhere on Company business, including for the annual due diligence visits to London and the Isle of Man. The Board considers this essential in overseeing service providers and safeguarding stakeholder interests. Otherwise, the Board seeks to minimise travel using conference calls whenever good governance permits. |
Engagement processes are kept under regular review. Investors and other interested parties are encouraged to contact the Company via the Company Secretary or [email protected] on these or any other matters.
The Directors are responsible for preparing an annual report and financial statements for each financial period which give a true and fair view, in accordance with applicable law and regulations, of the state of affairs of the Company and of the profit or loss of the Company for that period.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have elected to prepare the Financial Statements in accordance with International Financial Reporting Standards ("IFRS").
In preparing the Financial Statements the Directors are required to:
The maintenance and integrity of the Company's website, which is maintained by the Investment Manager, is the responsibility of the Directors. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the Financial Statements comply with Companies Law. The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Each of the Directors confirms that, to the best of their knowledge:
The Corporate Governance Code, as adopted by the Company, also requires Directors to ensure that the Annual Report and Audited Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter the Board has requested that the Audit Committee advises on whether it considers that the Annual Report and Audited Financial Statements fulfil these requirements. The process by which the Audit Committee has reached these conclusions is set out in the Audit Committee Report on pages 42 to 44
Furthermore, the Board believes that the disclosures set out on pages 53 to 79 in the Annual Report provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
Having taken into account all matters considered by the Board and brought to the attention of the Board for the year ended 30 June 2020, as outlined in the Corporate Governance Statement and the Audit Committee Report, the Board has concluded that the Annual Report and Audited Financial Statements for the year ended 30 June 2020, taken as a whole, are fair, balanced and understandable and provide the information required to assess the Company's performance, business model and strategy.
| Notes | 2020 US\$ |
2019 US\$ |
|
|---|---|---|---|
| Income | |||
| Net changes in fair value of Financial Assets designated at fair value through profit or loss Dividend income |
4 8 |
(24,177,906) 25,626,377 _____ |
17,776,829 - _____ |
| Total net income | 1,448,471 | 17,776,829 | |
| Expenditure | |||
| Aborted deal costs Administration fees Audit fees Corporate Broker fees Directors' fees Foreign exchange gain / (loss) Insurance fee Investment management fee Legal fees Professional fees Sundry expenses Total expenses |
18 14 |
- (144,812) (128,450) (150,000) (118,038) 1,246 (28,971) (2,070,834) (10,165) (53,571) (23,062) __ (2,726,657) __ |
(21,293) (120,680) (91,358) (130,511) (109,264) (2,507) (62,803) (1,294,621) - (48,753) (48,870) __ (1,930,660) __ |
| Operating (loss) / profit | (1,278,186) | 15,846,169 | |
| Finance income | 60,106 _____ |
574,331 _____ |
|
| (Loss) / Profit and comprehensive (loss) / income for the year |
(1,218,080) _____ |
16,420,500 _____ |
|
| IFRS Earnings per ordinary share (cents) | 9 | (0.49) _____ |
11.94 _____ |
| Adjusted Earnings per ordinary share (cents) | 9a | (0.49) _____ |
10.00 _____ |
There were no potentially dilutive instruments in issue at 30 June 2020.
All activities are derived from continuing operations.
There is no other comprehensive income or expense apart from those disclosed above and consequently a Statement of Other Comprehensive Income has not been prepared.
The accompanying notes are an integral part of these financial statements.
| Notes | 2020 US\$ |
2019 US\$ |
|
|---|---|---|---|
| Non-current assets | |||
| Financial assets designated at fair value through profit or loss (Investments) |
4 | 232,441,142 _____ |
220,998,073 _____ |
| Total non-current assets | 232,441,142 | 220,998,073 | |
| Current assets | _____ | _____ | |
| Trade and other receivables Cash and cash equivalents |
6 | 5,839,928 20,441 _____ |
32,248 5,500,139 _____ |
| Total current assets | 5,860,369 _____ |
5,532,387 _____ |
|
| Total assets | __ 238,301,511 __ |
__ 226,530,460 __ |
|
| Current liabilities | |||
| Trade and other payables | 633,418 _____ |
687,781 _____ |
|
| Total current liabilities | 633,418 _____ |
687,781 _____ |
|
| Net assets | __ 237,668,093 __ |
__ 225,842,679 __ |
|
| Equity | |||
| Share capital Retained reserves |
7 7 |
245,392,016 (7,723,923) _____ |
215,012,016 10,830,663 _____ |
| Total equity attributable to ordinary shareholders | 237,668,093 _____ |
225,842,679 _____ |
|
| Net assets per ordinary share (cents) | 11 | 93.08 _____ |
100.53 _____ |
The accompanying notes are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board of Directors on 23 September 2020 and signed on its behalf by:
Director Director
Rob King Steve Le Page
| Ordinary | |||
|---|---|---|---|
| share | Retained | ||
| capital | earnings | Total | |
| US\$ | US\$ | US\$ | |
| Shareholders' equity at | |||
| 30 June 2018 | 89,180,000 | 3,283,443 | 92,463,443 |
| Share issue | 50,000,016 | - | 50,000,016 |
| Share issue costs | (1,000,000) | - | (1,000,000) |
| C-Class share issue conversion | 76,832,000 | - | 76,832,000 |
| Profit and comprehensive | |||
| income for the year | - | 16,420,500 | 16,420,500 |
| Dividends paid | - | (8,873,280) | (8,873,280) |
| Shareholders' equity at | ___ | ___ | ___ |
| 30 June 2019 | 215,012,016 | 10,830,663 | 225,842,679 |
| Share issue | 31,000,000 | - | 31,000,000 |
| Share issue costs | (620,000) | - | (620,000) |
| Loss and comprehensive | |||
| loss for the year | - | (1,218,080) | (1,218,080) |
| Dividends paid | - | (17,336,506) | (17,336,506) |
| Shareholders' equity at | ___ | ___ | ___ |
| 30 June 2020 | 245,392,016 | (7,723,923) | 237,668,093 |
| ___ | ___ | ___ |
| Notes | 2020 US\$ |
2019 US\$ |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| (Loss) / Profit and comprehensive (loss) / income for the year |
(1,218,080) | 16,420,500 | |
| Adjustments for: Purchase of investments Change in fair value on investments |
4 4 |
(35,620,975) 24,177,906 _____ |
(153,598,985) (17,776,829) _____ |
| Operating cash flows before movements in working capital |
(12,661,149) | (154,955,314) | |
| Changes in working capital: Movement in trade and other receivables Movement in trade and other payables |
6 | (5,807,680) (54,363) _____ |
2,548 463,433 _____ |
| Net cash used in operating activities | (18,523,192) _____ |
(154,489,333) _____ |
|
| Cash flows from financing activities | |||
| Net proceeds from issue of shares Dividends paid to Ordinary shareholders Dividends paid to C shareholders |
7 10 10 |
30,380,000 (17,336,506) - _____ |
125,832,016 (8,481,280) (392,000) _____ |
| Net cash generated from financing activities | 13,043,494 _____ |
116,958,736 _____ |
|
| Net movement in cash and cash equivalents during the year |
(5,479,698) | (37,530,597) | |
| Cash and cash equivalents at the beginning of the year 43,030,736 |
_____ | 5,500,139 _____ |
|
| Cash and cash equivalents at the end of the year | 20,441 _____ |
5,500,139 _____ |
The accompanying notes are an integral part of these financial statements.
The Company was incorporated with limited liability in Guernsey under the Companies (Guernsey) Law, 2008, as amended, on 6 February 2017 with registered number 63061, and is regulated by the GFSC as a registered closed-ended investment company. The registered office and principal place of business of the Company is 1 Le Truchot, St Peter Port, Guernsey, Channel Islands, GY1 1WD.
On 11 October 2018, the Company announced that it had raised gross proceeds of US\$78,400,000 pursuant to the Placing and Offer for Subscription of C-Class Shares. The Company's C-Class Shares were listed on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 16 October 2018.
On 31 January 2019, the Company announced that the C-Class Share conversion had been completed. The resulting 84,624,960 ordinary shares were listed on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 12 February 2019.
On 11 March 2019, the Company announced the results of its Placing and Offer for Subscription of 49,019,608 Ordinary Shares, which raised gross proceeds of US\$50 million. These ordinary shares were listed on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 14 March 2019.
On 20 September 2019, the Company announced the results of its Placing and Offer for Subscription of 30,693,070 Ordinary Shares, which raised gross proceeds of US\$31 million. These ordinary shares were issued on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 24 September 2019.
The financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards, which comprise standards and interpretations approved by the International Accounting Standards Board and International Financial Reporting Interpretations Committee, Listing rules and applicable Guernsey law.
The financial statements have been prepared on a historical cost basis modified by the revaluation of investments at fair value through profit or loss. The principal accounting policies adopted and which have been consistently applied (unless otherwise indicated) are set out below.
The directors consider that the Company meets the investment entity criteria set out in IFRS 10. As a result, the Company applies the mandatory exemption applicable to investment entities from producing consolidated financial statements and instead fair values its investments in its subsidiaries in accordance with IFRS 13. The criteria which define an investment entity are, as follows:
The directors consider that the Company's objective of pooling investors' funds for the purpose of generating an income stream and capital appreciation is consistent with the definition of an investment entity, as is the reporting of the Company's net asset value on a fair value basis.
At the reporting date of these Financial Statements, the following standards, interpretations and amendments, which have not been applied in these Financial Statements, were in issue but not yet effective:
Amendments to IFRS 3 Definition of a business (Effective 1 January 2020)
Amendments to IAS 1 and IAS 8 Definition of material (Effective 1 January 2020)
Conceptual Framework Amendments to References to the Conceptual Framework in IFRS Standards (Effective 1 January 2020)
The Company expects that the application of the abovementioned amendments in the future will not have an impact on the Company's Financial Statements.
The New and revised Standards and Interpretations adopted in the current year did not have any significant impact on the amounts reported in these financial statements.
The Chief Operating Decision Maker is the Board of Directors. The Directors are of the opinion that the Company is engaged in a single segment of business, being the investment of the Company's capital in second-hand commercial vessels. The financial information used to manage the Company presents the business as a single segment.
Dividend income is accounted for on the date the dividend is declared.
Interest income is accounted for on an accruals basis.
Expenses are accounted for on an accruals basis. Any performance fee liability is calculated on an amortised cost basis at each valuation date, with the respective expense charged through the Statement of Comprehensive Income. The Company's investment management and administration fees, finance costs and all other expenses are charged through the Statement of Comprehensive Income.
Dividends are accounted for in the Statement of Changes in Equity in the year in which they are declared.
The Company has been granted exemption from liability to income tax in Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 amended by the Director of Income Tax in Guernsey for the current year. Exemption is applied and granted annually and subject to the payment of a fee, currently £1,200.
The Company classifies its investment in LS Assets Limited ("LSA") as a financial asset at fair value through profit or loss ("FVTPL").
The Company measures and evaluates the net assets of LSA on a fair value basis. The net assets include those of the underlying SPVs which themselves own and value all vessels on a fair value basis.
The Investment Manager reports fair value information to the Directors who use this to evaluate the performance of investments.
Financial assets and financial liabilities are recognised in the Company's Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the Statement of Comprehensive Income.
Financial assets are classified at FVTPL when the financial asset is either held for trading or it is designated at FVTPL. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in the Statement of Comprehensive Income.
The Company's investment in LSA has been designated as at FVTPL on the basis that it is managed and its performance is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the investment is provided internally on that basis. The Company measures and evaluates the performance of the entire investment into LSA on a fair value basis by using the net asset value of LSA including, in particular, the underlying SPVs and the fair value of the SPVs' investments into their respective vessel assets as well as the residual net assets and liabilities of both the SPVs and LSA itself. The investment in LSA consists of both equity and debt instruments.
In estimating the fair value of each underlying SPV (as a constituent part of LSA's net asset value at fair value), the Board has approved the valuation methodology for valuing the shipping assets held by the SPVs. The carrying value of a standard shipping asset consists of its charter-free value plus or minus the value of any charter lease contracts attached to the vessel, plus or minus an adjustment for the capital expenditure associated with the vessel.
There are Time Charter contracts in place for standard vessels. Such Charters will vary in length but would typically be in the 2 - 8 years' range. As the shipping markets can be volatile over time, the value of such Charters will therefore either add to or detract from the open market Charter-Free value of the vessel. Under a time charter, the vessel owner provides a fully operational and insured vessel for use by the charterer. There is a fluid Charter market reported daily by freight brokers based on time charter rates.
The charter-free and associated charter values of standard vessels are calculated using an on-line valuation platform provided by VesselsValue Ltd. For charter free values the system contains a number of algorithms that combine factors such as vessel type, technical features, age, cargo capacity, freight earnings, market sentiment and recent vessel sales.
For charter values, the platform provides a DCF (Discounted Cashflow) module where vessel specific charter details are input and measured against a platform provided market benchmark to obtain a premium or discount value of the charter versus the typical prevailing market for that type of vessel.
The adjustment for the capital expenditure associated with the dry docking of the vessel is time apportioned on a straight line basis over the period between the vessel's last visit to dry dock and the date of its next expected visit, by reference to the actual cost of the last visit and the budgeted cost of the next. This adjustment is an addition to value when the valuation date is nearer to the vessel's last dry docking than to its next expected visit to dry dock, and vice versa.
Specialist vessels are valued on a pure DCF basis by the Investment Manager using vessel specific information and both observable and unobservable data. The VesselsValue Ltd platform is not used for these assets. Instead a DCF approach is adopted and this determines the present value of the cashflows discounted at the project cost of capital or the specific WACC assigned to the vessel type by Vessels Value Ltd, and is deemed to be a fair representation of the vessel and charter value.
Refer to Note 3 which explains in detail the judgements and estimates applied.
Once a contracted time charter is known this is compared to the market benchmark and the difference is discounted using an industry weighted average cost of capital to establish a negative or positive value of the charter.
The value of the Charter is added to the Charter-Free value to ascertain a value with Charter.
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method, less any expected credit losses.
The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay.
On derecognition of a financial asset in its entirety, gains and losses on the sale, which is the difference between initial cost and sale value, will be taken to the profit or loss in the Statement of Comprehensive Income in the period in which they arise.
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
Debt and equity instruments are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangement.
The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or when they expire.
Cash and cash equivalents include cash on hand, demand deposits and other short-term highly liquid investments with original maturities of 3 months or less and bank overdrafts. As at 30 June 2020, the carrying amount of cash and cash equivalents approximate their fair value.
The financial statements of the Company are presented in US Dollars, which is also the currency in which the share capital was raised and investments were purchased and is therefore considered by the Directors' to be the Company's functional currency.
ii) Transactions and balances
At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in Statement of Comprehensive Income in the period in which they arise. Transactions denominated in foreign currencies are translated into US Dollars at the rate of exchange ruling at the date of the transaction.
In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council and considered recent market volatility and the potential impact of the Covid-19 virus on the Company's investments (as set out in more detail in the Principal and Emerging Risks and Uncertainties section on pages 20 and 22). After making enquiries and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.
Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.
The preparation of financial statements requires management to make estimates and judgements that affect the amounts reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenue and expenses during the year. The nature of the estimation means that actual outcomes could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Critical judgements in applying the Company's accounting policies - IFRS 10: Consolidated Financial Statements
The audit committee considered the application of IFRS 10, and whether the Company meets the definition of an investment entity.
In the judgement of the directors, the Company meets the investment criteria set out in IFRS 10 and they therefore consider the Company to be an investment entity in terms of IFRS 10. As a result, as required by IFRS 10 the Company is not consolidating its subsidiary but is instead measuring it at fair value in accordance with IFRS 13.
The criteria which define an investment entity are documented in Note 2a.
The Company's objective of pooling investors' funds for the purpose of generating an income stream and capital appreciation is consistent with the definition of an investment entity.
Critical judgements and estimates in applying the Company's accounting policies - financial assets at fair value:
Further to the information mentioned in note 2 (i) there are specific capital adjustments considered as part of the valuation process for standard vessels, mainly the adjustment for ballast water treatment systems installed on vessels is considered an enhancement to the charter-free value, initially recognised at cost and straight line depreciated from the commissioning date to 31 December 2021.
For specialist vessels, there are two remaining vessels at 30 June 2020 (four vessels at 30 June 2019) treated as specialist vessels.
The first is on a long-term Bareboat Charter (four vessels at 30 June 2019). The second has had scrubbers installed under an enhanced long-term contract with a charterer.
Specialist vessels are valued on a pure DCF basis by the Investment Manager using vessel specific information and both observable and unobservable data. Project cost of capital discount rates are reviewed on a regular basis to ensure they remain relevant to prevailing project and market risk parameters. The prospectus sets out the basis on which non-typical and specialist vessels would be valued.
There is one vessel which is operating in a pool, from which its earnings are crystallised on an annual basis. In months prior to the completion of the annual period, the vessel's reported earnings are based on actual earnings for the period to date, and an estimate of the pool's future earnings to the end of the calculation period.
There were no other areas of estimation in the current year for the Company.
The Company owns the Investment Portfolio through its investment in LSA. The investment by LSA comprises the NAVs of the SPVs. The NAVs consist of the fair value of vessel assets and the SPVs residual net assets and liabilities. The whole Investment Portfolio is designated by the Board as a Level 3 item on the fair value hierarchy because of the lack of observable market information in determining the fair value as a result, all the information below relates the Company's level 3 assets only, with respect to the requirements set out in IFRS 7. The investment held at fair value is recorded under Non-Current Assets in the Statement of Financial Position as there is no current intention to dispose of any of the assets.
The changes in Financial Assets designated at fair value through profit or loss (Investments) which the Company has used Level 3 inputs to determine fair value, after considering dividends declared (see note 8) are as follows:
| 2020 US\$ |
2019 US\$ |
|
|---|---|---|
| LSA | ||
| Brought forward cost of investment | 199,739,076 | 46,140,091 |
| Total investment acquired in the year | 35,620,975 _____ |
153,598,985 _____ |
| Carried forward cost of investment | 235,360,051 | 199,739,076 |
| Brought forward unrealised gains on valuation | 21,258,997 | 3,482,168 |
| Movement in unrealised (losses) / gains on valuation | (24,177,906) _____ |
17,776,829 _____ |
| Carried forward unrealised (losses) / gains on valuation | (2,918,909) _____ |
21,258,997 _____ |
| Total investment at fair value | 232,441,142 _____ |
220,998,073 _____ |
Note 12 - Price risk in the shipping industry, presents the valuation techniques used by the underlying SPV's in determining the value of the vessels held (based on assumptions that are not supported by prices or other inputs from observable current market transactions).
The unobservable inputs which significantly impact the fair have been determined to be the charter-free valuation and charter rates for standard vessels and the Discount rate applied for specialised vessels.
| 2020 US\$ |
2019 US\$ |
|
|---|---|---|
| Aglow Limited | 6,544,853 | 9,962,674 |
| Antler Limited | 7,086,424 | - |
| Bear Limited |
25,159,399 | - |
| Citra Limited | 6,879,658 | 12,930,529 |
| Dachshund Limited | 14,836,028 | - |
| Darwin Limited ** | 1 | 7,283,389 |
| Dragon Limited | 7,836,366 | 11,200,383 |
| Hongi Limited ** | 1 | 7,214,554 |
| Java Limited ** | 1 | 6,655,732 |
| Kale Limited | 5,289,398 | 12,056,392 |
| Neon Limited | 30,393,897 | 31,375,694 |
| Octane Limited | 18,462,207 | 20,170,969 |
| Parrot Limited | 31,865,549 | 5,736,394 |
| Patience Limited | 5,687,983 | 11,528,670 |
| Pollock Limited | 15,010,226 | 15,189,286 |
| Riposte Limited | 7,603,717 | 14,303,930 |
| Sierra Limited | 18,765,453 | 20,620,297 |
| Swordfish Limited | 4,927,358 | 11,916,570 |
| Vicuna Limited | 10,610,002 | - |
| Cash held pending investment into vessels | 29,618,568 | 34,606,314 |
| Residual net liabilities | (14,135,947) _____ |
(11,753,704) _____ |
| *Total investment at fair value | 232,441,142 | 220,998,073 |
| _____ | _____ |
The net change in the movement of the fair value of the investment is recorded in the Statement of Comprehensive Income.
*Vessels are valued at fair value in each of the SPVs shown in the table above and combined with the residual net (liabilities) or assets of each SPV to determine the fair value of the total investment attributable to LSA.
**The three companies above are currently in voluntary liquidation. The ships were sold during the current year, and therefore, these companies no longer hold any assets.
The Company holds its investment through a subsidiary company which has not been consolidated as a result of the adoption of IFRS 10: Consolidated Financial Statements. Below is the legal entity name for the Holding Company which owns 100% of the shares in the SPVs.
The remaining legal entities are owned indirectly through the investment in the Holding Company. The country of incorporation is also their principal place of business.
| Name Country of incorporation |
Direct or indirect holding |
Principal activity |
Ownership at 30 June 2020 |
Ownership at 30 June 2019 |
|---|---|---|---|---|
| ------------------------------------- | ------------------------------------- | ----------------------- | ------------------------------ | ------------------------------ |
| LS Assets Limited | Guernsey | Direct | Holding company |
100% | 100% |
|---|---|---|---|---|---|
| Aglow Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Antler Limited | Isle of Man | Indirect | SPV | 100% | N/A |
| Bear Limited | Isle of Man | Indirect | SPV | 100% | N/A |
| Citra Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Dachshund Limited | Isle of Man | Indirect | SPV | 100% | N/A |
| Darwin Limited * | Isle of Man | Indirect | SPV | 100% | 100% |
| Dragon Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Hongi Limited * | Isle of Man | Indirect | SPV | 100% | 100% |
| Java Limited * | Isle of Man | Indirect | SPV | 100% | 100% |
| Kale Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Neon Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Octane Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Parrot Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Patience Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Pollock Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Riposte Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Sierra Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Swordfish Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Vicuna Limited | Isle of Man | Indirect | SPV | 100% | N/A |
*The three companies above are currently in voluntary liquidation. The ships were sold during the current year, and therefore, these companies no longer hold any assets.
| 2020 US\$ |
2019 US\$ |
|
|---|---|---|
| Current assets | ||
| Accrued income | - | 8,216 |
| Prepayments | 25,627 | 17,298 |
| Due from subsidiaries (dividend receivable) | 5,814,301 _____ |
6,734 _____ |
| Total trade and other receivables | 5,839,928 _____ |
32,248 _____ |
Amounts due from subsidiaries were interest free and payable on demand. The amount due from subsidiaries in the prior year of US\$6,734 were settled in the current year. Due to the value and short term nature of these receivables, the directors have assessed there to be no expected credit losses associated with these outstanding balances.
| Share issuance | Number of shares |
Gross amount raised (US\$) |
Issue costs (US\$) |
Share capital (US\$) |
|---|---|---|---|---|
| Total issue at 30 June 2019 |
224,644,568 | 219,400,016 | (4,388,000) | 215,012,016 |
| Issued on 24 September 2019 |
30,693,070 | 31,000,000 | (620,000) | 30,380,000 |
| Total issue at 30 June 2020 |
255,337,638 | 250,400,016 | (5,008,000) | 245,392,016 |
The Company currently has 255,337,638 Share in issue of no-par value in issue. The Company bought 150,000 of its own shares at an average price of US\$0.824 per Share after the end of the financial year. There are currently 150,000 Shares held in Treasury. Therefore, 255,187,638 Shares will be entitled to receive dividends as declared from time to time and 1 vote per Share at meetings of the Company.
Retained reserves comprise the retained earnings as detailed in the Statement of Changes in Equity.
| 2020 US\$ |
2019 US\$ |
|
|---|---|---|
| Dividend income | 25,626,377 _____ |
- _____ |
During the current year, LS Assets Limited declared dividends of US\$25,626,377 (2019: US\$nil) to the Company. At 30 June 2020, an amount of US\$5,814,301 was still outstanding (refer to note 6).
| 2020 US\$ |
2019 US\$ |
|
|---|---|---|
| (Loss) / Profit and comprehensive (loss) / income for the year (1,218,080) | 16,420,500 | |
| Weighted average number of ordinary shares | 248,125,605 | 137,499,622 |
| Earnings per ordinary share (cents) | (0.49) | 11.94 |
The weighted average number of ordinary shares (248.1m shares (2019: 137.5m shares)) is calculated in accordance with IFRS guidelines.
| 2020 | 2019 | |
|---|---|---|
| US\$ | US\$ |
| (Loss) / Profit and comprehensive (loss) / income for the year (1,218,080) | 16,420,500 | |
|---|---|---|
| Adjusted Weighted average number of ordinary shares | 248,125,605 | 164,134,143 |
| Adjusted Earnings per ordinary share (cents) | (0.49) | 10.00 |
The adjusted weighted average number of ordinary shares (164.1m shares) in the prior year is calculated as if the C Shares were ordinary shares from the date that the C Shares were issued. This alternate performance measure also provides a comparison to the dividends paid, which have been paid in full on all ordinary shares in issue at each dividend declaration date. There were no adjustments to the shares in the current year.
The Company declared the following dividends in respect of the profit for the year ended 30 June 2020:
| Quarter end | Dividend per share |
Ex div date | Net Dividend paid |
Record date |
Paid date |
|---|---|---|---|---|---|
| 30 September 2019 |
US\$0.0175 | 7 November 2019 |
US\$4,468,408 | 8 November 2019 |
22 November 2019 |
| 31 December 2019 |
US\$0.0175 | 6 February 2020 |
US\$4,468,409 | 7 February 2020 |
21 February 2020 |
| 31 March 2020 |
US\$0.0175 | 7 May 2020 | US\$4,468,409 | 11 May 2020 |
26 May 2020 |
| 30 June 2020 | US\$0.0175 | 8 August 2020 |
US\$4,468,409 | 7 August 2020 |
21 August 2020 |
Under the Companies (Guernsey) Law, 2008, the Company can distribute dividends from capital and revenue reserves, subject to a prescribed net asset and solvency tests. The net asset and solvency tests consider whether a company is able to pay its debts when they fall due, and whether the value of a company's assets is greater than its liabilities.
The Board confirms that the Company passed both the net asset and solvency test for each dividend paid.
| 2020 US\$ |
2019 US\$ |
|
|---|---|---|
| Shareholders' equity | 237,668,093 | 225,842,679 |
| Number of ordinary shares | 255,337,638 | 224,644,568 |
| Net assets per ordinary share (cents) | 93.08 | 100.53 |
The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders. In accordance with the Company's investment policy, the Company's principal use of cash has been to fund investments as well as ongoing operational expenses. The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. The capital structure of the Company consists entirely of equity (comprising issued capital, reserves and retained earnings).
As the Company's Ordinary Shares are traded on the LSE, the Ordinary Shares may trade at a discount or premium to their NAV per Share on occasion. However, the Directors and the Investment Manager monitor the discount on a regular basis and can use share buy backs to manage the discount.
The Company is not subject to any externally imposed capital requirements.
The Board, with the assistance of the Investment Manager, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risk. These risks include market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk.
The value of the investments held by the Company is indirectly affected by the factors impacting on the shipping industry generally, being, amongst other factors, currency exchange rates, interest rates, the availability of credit, economic or political uncertainty and changes in law governing shipping or trade. These factors may affect the price or liquidity of vessels held by the Company's subsidiaries and thus the value of the subsidiaries themselves.
The Company may have assets and liabilities denominated in currencies other than United States Dollars, the functional currency. It therefore may be exposed to currency risk as the value of assets or liabilities denominated in other currencies will fluctuate due to changes in exchange rates.
However, such exposure is currently, and is expected to remain, insignificant. Consequently, no further information has been provided.
The majority of the Company's financial assets and liabilities are non-interest bearing. However, the Company is exposed to a small amount of risk due to fluctuations in the prevailing levels of market interest rates because any excess cash or cash equivalents are invested at short-term market interest rates. The Company's interest-bearing financial assets and liabilities expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The table below summarises the Company's exposure to interest rate risks. It includes the Company's assets and trading liabilities at fair values, categorised by the earlier of contractual re-pricing or maturity dates. It does not consolidate the US\$12.45m outstanding loan (with a blended, fixed rate of 5.05%) owed by Parrot Ltd. Interest payments on the loan are not affected by fluctuations in interest rates.
| 2020 | Interest bearing less than 1 month (US\$) |
Non-interest bearing (US\$) |
Total (US\$) |
|---|---|---|---|
| Assets | |||
| Investments | - | 232,441,142 | 232,441,142 |
| Trade and other receivables | - | 5,839,928 | 5,839,928 |
| Cash and cash equivalents | 20,441 | - | 20,441 |
| Total assets | 20,441 | 238,281,070 | 238,301,511 |
| Liabilities | |||
| Trade and other payables | - | 633,418 | 633,418 |
| Total liabilities | - | 633,418 | 633,418 |
| Total interest sensitivity gap | 20,441 |
The weighted average interest rate is 1.21% for cash and cash equivalents in the current financial year.
| 2019 | Interest bearing less than 1 month (US\$) |
Non-interest bearing (US\$) |
Total (US\$) |
|---|---|---|---|
| Assets | |||
| Investments | - | 220,998,073 | 220,998,073 |
| Trade and other receivables | - | 32,248 | 32,248 |
| Cash and cash equivalents | 5,500,139 | - | 5,500,139 |
| Total assets | 5,500,139 | 221,030,321 | 226,530,460 |
| Liabilities | |||
| Trade and other payables | - | 687,781 | 687,781 |
| Total liabilities | - | 687,781 | 687,781 |
| Total interest sensitivity gap | 5,500,139 |
The weighted average interest rate is 2.24% for cash and cash equivalents in the prior year.
If the interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's profit for the year ended 30 June 2020 would increase or decrease by US\$204 (2019: US\$55,001). This is attributable to the company's exposure to interest rates on its variable rate deposits.
The Investment Manager is permitted to utilise overdraft facilities towards the achievement of the Company's investment objectives. This was not utilised during the year.
Refer to Price Risk on the following pages for a description of the indirect impact interest rates have on the valuation of vessel assets.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company.
The Company does not have any significant credit risk exposure to any single counterparty in relation to trade and other receivables. On-going credit evaluation is performed on the financial condition of accounts receivable. As at 30 June 2020 there were no receivables considered impaired (2019: US\$nil).
The Company maintains its cash and cash equivalents with various banks to diversify credit risk. These are subject to the Company's credit monitoring policies including the monitoring of the credit ratings issued by recognised credit rating agencies.
| 30 June 2020 | Credit rating Standard & Poor's |
Cash (US\$) | Short term fixed deposits (US\$) |
Total as at 30 June 2020 (US\$) |
|---|---|---|---|---|
| Barclays Bank Plc (Barclays) |
A Long Term A-1 Short Term |
19,062 | - | 19,062 |
| Ravenscroft 1 (HSBC London - call accounts) |
A+ Long Term A-1 Short Term |
- | 1,379 | 1,379 |
| Total | 19,062 | 1,379 | 20,441 |
| 30 June 2019 | Credit rating Standard & Poor's |
Cash (US\$) | Short term fixed deposits (US\$) |
Total as at 30 June 2019 (US\$) |
|---|---|---|---|---|
| Royal Bank of Scotland International (RBSI) |
A- Long Term A-2 Short Term |
6,454 | - | 6,454 |
| Barclays Bank Plc (Barclays) |
A Long Term A-1 Short Term |
53,913 | - | 53,913 |
| Ravenscroft 1 (HSBC London - call accounts) |
AA- Long Term A-1+ Short Term |
- | 5,439,772 | 5,439,772 |
| Total | 60,367 | 5,439,772 | 5,500,139 |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Board of Directors has established an appropriate liquidity risk management framework for the management of the Company's short-, medium- and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate cash reserves by monitoring forecast and actual cash flows.
The table below shows the maturity of the Company's non-derivative financial assets and liabilities. The amounts disclosed are contractual, undiscounted cash flows and may differ from the actual cash flows received or paid in the future as a result of early repayments.
| 30 June 2020 | Up to 3 months (US\$) |
Between 3 and 12 months (US\$) |
Between 1 and 5 years (US\$) |
Total (US\$) |
|---|---|---|---|---|
| Assets | ||||
| Trade and other receivables |
- | - | - | - |
| Cash and cash equivalents |
20,441 | - | - | 20,441 |
| Liabilities | ||||
| Trade and other payables | 633,418 | - | - | 633,418 |
| Total | (612,977) | - | - | (612,977) |
| 30 June 2019 | Up to 3 months (US\$) |
Between 3 and 12 months (US\$) |
Between 1 and 5 years (US\$) |
Total (US\$) |
|---|---|---|---|---|
| Assets | ||||
| Trade and other receivables |
14,950 | - | - | 14,950 |
| Cash and cash equivalents |
5,500,139 | - | - | 5,500,139 |
| Liabilities | ||||
| Trade and other payables | 687,781 | - | - | 687,781 |
| Total | 4,827,308 | - | - | 4,827,308 |
As described in Note 3, the Company's financial assets are measured at fair value which comprises the fair value of the underlying SPVs and the residual net assets of each company. The Company values its investment in LSA and the SPVs at their respective net asset values. The net asset values comprise shipping vessels which are measured at fair value and other residual net assets and liabilities of each of the entities.
All the assets and underlying vessels are considered to be level 3 assets, that price risk pertains to the level 3 investment portfolio in its entirety, and that no other market price risk exists.
(a) Standard Vessel valuations
The fair value of a standard vessel comprises both the Charter-free value and the Charter valuation. The charter-free and associated charter values of typical vessels are calculated using an on-line valuation system provided by VesselsValue Ltd. For charter free values the system contains a number of algorithms that combine factors such as vessel type, technical features, age, cargo capacity, freight earnings, market sentiment and recent vessel sales.
For charter values, the system provides a DCF module where vessel specific charter details are input and measured against system provided market benchmark to obtain a premium or discount value of the charter versus prevailing market.
There will be cases where the Company may invest in vessels which are (i) of a specialised nature and fall out of scope of mainstream brokers and/or (ii) where contracted employment does not have an available reference benchmark in the freight brokerage community.
The Investment Manager will make its own assessment of Value with Charter using a discounted cashflow ("DCF Model") model. The DCF Model will calculate the net present value of the charter and vessel value using the following inputs:
There were two specialised vessels held at the year end (four at 30 June 2019).
Refer to Note 3 for further information on the valuation methodologies applied. The Directors and Tufton believe that the following inputs reflect those inputs where market price risk could be significant and where there is the potential for estimate and judgement to be used.
Despite strong net income and cash flows, the Company suffered non-cash, fair value losses as asset values fell largely due to the impact of Covid-19 on the shipping market
The Company benefited from diversification as the negative impact of Covid-19 on the containership and bulker markets, which were negatively impacted by the demand shock from Covid-19 lockdowns, was partly offset by the performance in tankers. The Investment Manager believes the Company's strong operating profit and performance in the Covid-19 crisis both on an absolute basis and relative to other classes demonstrates it can be an attractive high income and low correlation investment.
If the ship values at 30 June were 10% higher or lower, then the effect on the standard vessel portfolio value would be as follows:
| Ship values | +10% change US\$ 000 |
Standard vessel portfolio value US\$ 000 |
-10% change US\$ 000 |
|---|---|---|---|
| Fair value at 30 June 2020 (US\$) | +14,544 | \$154,699 | (14,544) |
| Fair value at 30 June 2019 (US\$) | +12,811 | \$139,879 | (12,811) |
If market charter rates used on VesselsValue.com to determine Charter values were 10% higher or lower, then the effect on the standard vessel portfolio value would be as follows
| Ship values | +10% change US\$ 000 |
Standard vessel portfolio value US\$ 000 |
-10% change US\$ 000 |
|---|---|---|---|
| Fair value at 30 June 2020 (US\$) | (4,095) | \$154,699 | +4,283 |
| Fair value at 30 June 2019 (US\$) | (3,467) | \$139,879 | +3,467 |
* Please see page 75 for details on standard vessels and specialised vessels
If the discount rate factors were 0.5% higher or lower, then the effect on the specialised vessel portfolio value would be as follows:
| +0.5% change US\$ 000 |
Specialised Vessel* portfolio value US\$ 000 |
-0.5% change US\$ 000 |
|
|---|---|---|---|
| Specialised Vessel company fair value at 30 June 2020 (US\$) |
(1,224) | 62,259 | +1,263 |
| Specialised Vessel company fair value at 30 June 2019 (US\$) |
(1,442) | 58,266 | +1,402 |
There were two specialised vessel held at the year end (four at the prior year end).
The directors consider that the effects of the Covid-19 crisis are included in the benchmark rates used, therefore requiring no separate analysis, and have concluded that use of a 10% movement in benchmark charter rates remains a suitable sensitivity calculation, noting that the benchmark charter rates used are for charter periods of 1 year or more, which show lower volatility than spot rates.
Cash and cash equivalents and trade and other receivables are liquid assets whose carrying value represents fair value. The fair value of other current assets and liabilities would not be significantly different from the values presented at amortised cost.
* Please see page 75 for details on standard vessels and specialised vessels
The Investment Manager is entitled to receive an annual fee, calculated on a sliding scale, as follows below:
For the year ended 30 June 2020 the Company has incurred US\$2,070,834 (2019: US\$1,294,621) in management fees of which US\$504,842 (2019: US\$468,089) was outstanding at 30 June 2020.
Tufton ODF Partners LP, the entity holding the carried interest, shall be entitled to a performance fee in respect of a Calculation Period provided that the Total Return per Share on Calculation Day for the Calculation Period of reference is greater than the High Watermark per Share and such performance fee shall be an amount equal to the Performance Fee Pay-Out Amount.
If:
The prevailing Historic Performance Fee Amount shall be reduced by the lower of: (i) 20 per cent of the difference between the High Watermark and the Total Return on such Calculation Day multiplied by the Relevant Number of Shares; and (ii) the prevailing Historic Performance Fee Amount. No performance fees were accrued or paid during the current or prior period.
The Investment Manager, Tufton Investment Management Limited (formerly Tufton Oceanic Limited), is a related party due to having common key management personnel with the subsidiaries of the Company. All management fee transactions with the Investment Manager are disclosed in note 14.
The Directors of the Company and their shareholding is stated in the Report of the Directors on page 30.
In the opinion of the Directors, based on shareholdings advised to them, the Company has no immediate or ultimate controlling party.
The remuneration of the Directors was US\$118,038 (2019: US\$109,264) for the year which consisted solely of short-term employment benefits (refer to the Report of the Directors on page 30).
A further dividend was declared on 29 July 2020 for US\$0.0175 per ordinary share for the quarter ending 30 June 2020. The dividend was paid on 21 August 2020 to holders of ordinary shares on record date 7 August 2020 with an ex-dividend date of 6 August 2020.
The Company bought 150,000 of its own shares at an average price of US\$0.824 per Share after the end of the financial year. There are currently 255,337,638 Shares in issue with 150,000 held in Treasury as at the date of approval of these accounts.
Robert King, Chairman Stephen Le Page Paul Barnes Christine Rødsæther (appointed 9 September 2020)
3 rd Floor 1 Le Truchot St Peter Port Guernsey GY1 1WD
Tufton Investment Management Limited (formerly Tufton Oceanic Limited) Albemarle House 1 Albemarle Street London W1S 4HA
Tufton Management Limited (formerly Oceanic Marine Management Limited) 3rd Floor, St George's Court Upper Church Street Douglas Isle of Man IM1 1EE
Maitland Administration (Guernsey) Limited 3 rd Floor, 1 Le Truchot St Peter Port Guernsey GY1 1WD
Joint Placing Agents and Financial Advisers Hudnall Capital LLP
Adam House 7-10 Adam Street London WC2N 6AA
N+1 Singer Advisory LLP 1 Bartholomew Lane London EC2N 2AX
Carey Olsen (Guernsey) LLP PO Box 98, Carey House Les Banques St Peter Port Guernsey GY1 4BZ
Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU 2AX
Computershare Investor Services (Guernsey) Limited 1st Floor, Tudor House Le Bordage St Peter Port Guernsey GY1 1DB
Computershare Investor Services PLC The Pavillions Bridgewater Road Bristol BS99 6AH
PricewaterhouseCoopers CI LLP Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey GY1 4ND
Barclays Bank Plc Guernsey International Banking PO Box 41 St Peter Port Guernsey, GY1 3BE
The following definitions apply throughout this document unless the context requires otherwise:
| AIC | the Association of Investment Companies |
|
|---|---|---|
| AIFM Directive or AIFMD |
the EU Directive on Alternative Investment Fund Managers (No. 2011/61/EU) |
|
| AIF | an alternative investment fund | |
| AIFM | an alternative investment fund manager | |
| AIFM Rules | the AIFM Directive and all applicable rules and regulations implementing the AIFM Directive in the UK |
|
| Articles of Incorporation or Articles |
the articles of incorporation of the Company, as amended from time-to time |
|
| Asset Manager | Tufton Management Limited (formerly Oceanic Marine Management Limited) |
|
| Auditor | PricewaterhouseCoopers CI LLP | |
| Board | the Directors from time to time | |
| Calculation Day | The last business day of each Calculation Period |
|
| Calculation Period | (a) the period starting on Admission and ending on the earlier of (i) 30 June 2024; (ii) the commencement of the winding up of the Company; and (iii) the termination of the Manager's appointment; and (b) if the previous Calculation Year ended on 30 June of the previous Year, each successive period starting on 1 July and ending on the earlier of (i) 30 June three years later; (ii) the commencement of the winding up of the Company; and (iii) the termination of the Manager's appointment |
|
| Cash-on-cash run-rate yield | as the total forecast EBITDA minus any capex accruals, divided by the time weighted capital employed for vessels in-operation |
| Companies Law | the Companies (Guernsey) Law, 2008 as amended |
|---|---|
| Company | Tufton Oceanic Assets Limited (Guernsey registered number 63061) which, when the context so permits, shall include any intermediate holding company of the Company and the SPVs |
| Compensated Gross Tonnage or CGT | An indicator of the amount of work that is necessary to build a given ship and is calculated by multiplying the tonnage of a ship by a coefficient, which is determined according to type and size of a particular ship. |
| Directors or Board | the Board of Directors of the Company |
| Disclosure Guidance and Transparency Rules or DTRs |
the disclosure guidance and transparency rules made by the Financial Conduct Authority under Section 73A of FSMA |
| EBITDA | Earnings before interest, taxes, depreciation and amortisation |
| EBITDA-weighted average length of charter | is the total forecast EBITDA from charters in place, divided by the expected annualised EBITDA of those charters |
| FCA | the UK Financial Conduct Authority | |
|---|---|---|
| Financial Reporting Council or FRC |
the UK Financial Reporting Council | |
| FSMA | the Financial Services and Markets Act 2000 and any statutory modification or re enactment thereof for the time being in force |
|
| GFSC or Commission |
the Guernsey Financial Services Commission | |
| High Watermark per Share | the higher of: (i) US\$1.00 increased by the Hurdle: and (ii) if a Performance Fee has previously been paid, the Total Return per Share on the Calculation Day for the last Calculation Period (if any) by reference to which a Performance Fee was paid. |
|
| High Performance Fee Amount |
in respect of any Calculation Period, an amount equal to the Performance Fee Pay-Out Amount for the previous |
| Calculation Period where a Performance Fee was payable. |
|
|---|---|
| IASB | International Accounting Standards Board |
| IFRIC | International Financial Reporting Interpretations Committee |
| IFRS | International Financial Reporting Standards |
| Investment Manager | Tufton Investment Management Limited (formerly Tufton Oceanic Limited) |
| IRR | Internal rate of return. The Internal rate of return is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero, and is a common performance indicator used in investment funds |
| Listing Rules | the listing rules made by the UKLA pursuant to Part VI of FSMA |
| London Stock Exchange or LSE |
London Stock Exchange plc |
| LPG Carrier | a vessel used to transport liquefied petroleum gas |
| LS Assets Limited | The Guernsey holding company owning the SPVs through which the Company investment into vessels |
| LSE Admission Standards | the rules issued by the London Stock Exchange in relation to the admission to trading of, and continuing requirements for, securities admitted to the SFS |
| Main Market | the main market for listed securities operated by the London Stock Exchange |
| Market Abuse Regulation or MAR |
Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse |
| Memorandum | the memorandum of association of the Company |
| Net Asset Value or NAV | the value, as at any date, of the assets of the Company after deduction of all liabilities of the Company and in relation to a class of shares in the Company, the value, as at any date of the assets attributable to that class of shares after the deduction of all liabilities attributable to that class of shares determined in accordance with the accounting policies adopted by the Company from time-to-time |
| Net Asset Value or NAV per Share |
at any date, the Net Asset Value attributable to the Shares of the relevant class divided by the number of Shares of such class in issue (other than Shares of the relevant class held in treasury) at the date of calculation |
| Performance Fee Amount | 20 per cent. of the excess in Total Return per Share and the High Watermark per Share multiplied by the time weighted average number of Shares in issue during the Calculation Period |
|---|---|
| Performance Fee Pay-Out Amount |
in respect of the relevant Calculation Period, an amount equal to "A", where: A = (0.5 x B) + C; B = the Performance Fee Amount; and C = an amount equal to the High Performance Fee Amount. |
| POI Law | the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended |
| Portfolio | the Company's portfolio of investments from time to time |
| Prospectus | The Placing and Offer for Subscription document for the Company dated 8th December 2017 |
| Register | the register of members of the Company |
| Relevant Number of Shares | for any Calculation Period the time weighted average number of Ordinary Shares in issue during such Calculation Period. |
| SFS or Specialist Fund Segment |
the Specialist Fund Segment of the Main Market (previously known as the Specialist Fund Market or SFM) |
| Segment | classifications of vessels within the shipping industry including, inter alia, Tankers, General Cargo, Containerships and Bulkers |
| Shares | ordinary shares of no par value in the capital of the Company of such classes (denominated in such currencies) as the Directors may determine |
| SPV or Special Purpose Vehicle |
corporate entities, formed and wholly owned (directly or indirectly) by the Company, specifically to hold one or more vessels, and including (where the context permits) any intermediate holding company of the Company |
| Total Return per Share | the Net Asset Value per Ordinary Share on any Calculation Day adjusted to (i) include the gross amount of any dividends and/or distributions paid to an Ordinary Share since Admission; (ii) not take account of any accrual made in respect of the performance fee itself for that Calculation Period; (iii) not take account of any accrual made in respect of any prevailing Historic Performance Fee Amount (as adjusted pursuant to the operation of this paragraph below); (iv) not take account of any increase in Net Asset Value per Share attributable to the issue of Ordinary Shares at a premium to Net Asset Value per Share or any buyback of any Ordinary Shares at a discount to Net Asset Value per Ordinary Share during such Calculation Period; (v) not take account of any increase in Net Asset Value per Share attributable to any consolidation or sub-division of Ordinary Shares; |
| (vi) take into account any other reconstruction, amalgamation or adjustment relating to the share capital of the Company (or any share, stock or security derived therefrom or convertible there into); and (vii) take into account the prevailing Net Asset Value of any C Shares in issue |
|
|---|---|
| Tufton Group | Oceanic Finance Group Limited (formerly Tufton Oceanic Finance Group Limited) and its subsidiaries, including the Investment Manager |
| UK Corporate Governance Code |
the UK Corporate Governance Code as published by the Financial Reporting Council from time-to-time |
| UK Listing Authority | the FCA acting in its capacity as the competent authority for the purposes of Part VI of FSMA |
| United Kingdom or UK | the United Kingdom of Great Britain and Northern Ireland |
| Unlevered cash flow run rate | EBITDA net of accruals over the remaining term of the charters for the vessels in the portfolio, expressed annually |
| VesselsValue | VesselsValue Limited a third party provider of vessel valuations to the Company and Investment Manager |
| VLCC | Very Large Crude Carrier |
| WACC | the weighted average cost of capital |
| £ or Sterling | the lawful currency of the United Kingdom |
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
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