Annual Report • Apr 25, 2018
Annual Report
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Annual report 2017
| DIRECTORS' REPORT 3 | |
|---|---|
| SONGA BULK GROUP 12 | |
| CONSOLIDATED FINANCIAL STATEMENTS 12 | |
| Consolidated Statement of Comprehensive Income 12 | |
| Consolidated Statement of Financial Position 13 | |
| Consolidated Statement of Changes in Equity 14 | |
| Consolidated Statement of Cash Flows 15 | |
| NOTES – CONSOLIDATED FINANCIAL STATEMENTS 16 | |
| SONGA BULK ASA 33 | |
| FINANCIAL STATEMENTS 33 | |
| Income Statement 33 | |
| Balance sheet – Assets 34 | |
| Balance sheet – Equity and Liabilities 35 | |
| Cash Flow Statement 36 | |
| NOTES – FINANCIAL STATEMENTS 37 |
Songa Bulk ASA (the Company) was incorporated in August 2016. Songa Bulk ASA and its subsidiaries (The Group or Songa Bulk) was formed during fourth quarter the same year. Songa Bulk operates within the dry bulk shipping market. As at 31 December 2017 the Group owned 14 modern dry bulk vessels. The business is run from Oslo. The shares of the Company are traded on Oslo Axess, a platform on Oslo Stock Exchange.
Songa Bulk was founded primarily as an investment vehicle to take exposure to fluctuating asset values of dry bulk vessels. This was done based on the belief, that asset values were at a cyclically low level, and that opportunities were present to make gains from increasing asset values over a period following the Company's foundation. Songa Bulk owns modern and flexible tonnage, operated on short-term time charter contracts and in the spot market. The Company has an efficient and low-cost setup and a conservative leverage profile.
Following the one vessel delivered in the start-up year of 2016, 2017 was the year for building a fleet to the desired level. A total of 14 vessels were delivered to the Group in 2017, one of them was sold in October the same year, leading to a net fleet growth of 13 vessels during 2017. All vessels owned by the Group are modern vessels built on reputable shipyards.
The composition of the fleet as at 31 December 2017:
| Vessel Name | Ex Name | Type | DWT | Built | Yard |
|---|---|---|---|---|---|
| Songa Glory | Equinox Glory | Supramax | 58 680 | 2012 | Nantong Cosco |
| Songa Wave | Xing Fu Hai | Ultramax | 61 491 | 2017 | Dalian Cosco |
| Songa Delmar | Delmar | Kamsarmax | 81 501 | 2011 | Hyundai Samho HI |
| Songa Devi | Goddess Santosh Devi Kamsarmax | 81 918 | 2014 | Tsuneishi Japan | |
| Songa Flama | Flama | Kamsarmax | 80 448 | 2011 | STX South Korea |
| Songa Genesis | Maverick Genesis | Kamsarmax | 80 705 | 2010 | STX South Korea |
| Songa Grain | Nord Navigator | Kamsarmax | 82 672 | 2008 | Tsuneishi Japan |
| Songa Hadong | Hanjin Hadong | Kamsarmax | 82 158 | 2012 | Tsuneishi Japan |
| Songa Hirose | Harbor Hirose | Kamsarmax | 83 494 | 2011 | Sanoyas |
| Songa Maru | Ten Maru | Kamsarmax | 82 687 | 2008 | Tsuneishi Zhoushan |
| Songa Moon | Atlantic Moon | Kamsarmax | 82 188 | 2012 | Tsuneishi Japan |
| Songa Sky | Midland Sky | Kamsarmax | 81 466 | 2010 | Universal Shipbuilding |
| Songa Mountain | Mount Meru | Capesize | 179 147 | 2009 | Hyundai HI Korea |
| Songa Opus | Golden Opus | Capesize | 180 716 | 2010 | STX South Korea |
Vessel additions in 2017:
Vessel sale in 2017:
Songa Bulk was pleased with the great reception from shareholders during the equity raise of \$74.3 million in 2016 to finance the first vessel acquisitions. As 2017 was underway, the Group saw further potential for growth in what still was considered an attractive market. To finance the acquisitions of more vessels Songa Bulk raised \$105.2 million in gross cash proceeds in the beginning of 2017.
Following the communicated strategy to take on moderate leverage Songa Bulk issued a senior secured bond on 30 May 2017 with a total borrowing limit of \$150 million. The bond has floating interest of LIBOR + a margin of 4.50%. The Board is pleased with the positive response received from bond investors during the year. The bond was raised on what Board of Directors consider very competitive terms, and to high quality investors. Prior to completion of the bond issue Songa Bulk had received multiple offers from reputable banks for bank financing at attractive terms. However, the Board of Directors was, and still is, confident that the bond issue will provide Songa Bulk with an increased flexibility at a very
attractive cost. Two tap issues, following the initial bond issue, has brought total loan amount up to \$138 million. Consequently, the Board of Directors consider the Group's debt to asset ratio to be sensible. The following events have occurred:
Through 2017, the fleet has operated on short to medium term time charter parties, either on fixed hire rates or on hire rates related to dry bulk indexes. One vessel has operated in a pool. Total TC-out days were 2 909 which equates to a full year employment of 7.97 vessels.
The fleet has performed satisfactory with no major incidents. One ship passed her special survey in dry-dock and was offhire for 13 days. All charterers have lived up to their obligations and no legal disputes did occur.
The dry bulk market in 2017 was characterized by an overall healthy increase in demand combined with a moderate growth in tonnage supply. The result was that demand outpaced supply, setting the stage for considerable improvements in freight rates.
First quarter was expected to be weak, with seasonally lower demand and high influx of newbuilding deliveries. However, high iron ore activity together with an early start of the grain season created healthy demand and subsequent stronger rates than anticipated. This clearly boosted the market sentiment, and ensured a solid hike in secondhand values. Whereas first quarter surprised on the upside, second quarter came in below expectations as demand slowed down after the high shipping activity in first quarter. It was only by the middle of July the overall activity really started to show strength. Iron ore combined with strong demand for coal lifted the cape rates, and coal together with strong increase in grain shipments contributed positively to panamax and supramax.
Looking at 2017 as a whole, total seaborne trade ended up with growth of 3.7%. As result of slightly longer sailing distances the ton mile equivalent came in at around 4% increase:
Total newbuilding deliveries added up to 38.2 million dwt in 2017. Total deletions were 14.0 million dwt creating a net growth of 24.2 million dwt, an increase of 3.1%.
As is often the case, cape size rates experienced high volatility ranging between \$4 650 per day in mid February and \$30 475 per day in mid December. Panamax and Supramax experienced more stable rates, but both segments posted healthy improvements:
Second hand values experienced a substantial increase during first quarter of 2017. However, asset prices stayed more or less unchanged for the remainder of the year. We saw the following development in values of which almost all took place during the first four months of the year:
As the Group was formed during fourth quarter 2016, some of the numbers commented on in this section lack comparatives.
The Group reports a net profit of \$388 thousand for the year 2017.
Total operating revenue and other operating income was \$28.7 million for the year. A gain of \$2.0 million came from sale of one vessel, while \$26.7 million was time and voyage charter revenue from fleet operations. 14 vessels were delivered to the Group throughout the year, adding to the one vessel delivered in 2016. Total TC-out days1 in 2017 was 2 909 days, compared to total operating days1 of 2 975. This equals 98.5%. Due to vessels being delivered to the Group throughout the year, operating days equal only 54% of possible operating days for a fully delivered fleet of 15 vessels for a whole year. Furthermore, average time charter equivalent1 in 2017 was \$9 159 per day.
Total operating expenses were \$24.8 million in 2017. Net ship operating expenses1 were \$5 294 per vessel per day. General and administrative expenses equal \$2.5 million for the year. The Group has been able to upscale operations without adding significant general and administration expenses. Depreciation were \$5.5 million. Operating profit were \$3.9 million, leading to an EBITDA of \$9.4 million in 2017. Given the fact this has been the start-up year for the Group, with fleet operations in average right above 50 percent of the days and extra start-up expenses, it is satisfactory to see that operations have been profitable right from the beginning.
Net financial expenses were \$3.5 million. Mainly, this consist of interest expenses on the bonds issued in June 2017, with additional tap issues in August and September.
The Group's main focus through 2017 was to build a fleet of intended size, as well as optimizing the financial structure. Total assets increased from \$72.8 million per 31 December 2016 to \$316.9 million per 31 December 2017. Total noncurrent assets, which comprise of vessels delivered and paid deposit on vessel for future delivery, increased by \$254.9 million from year end 2016 to year end 2017. This was through a net fleet growth of 13 vessels during the financial year. The Board of Directors are pleased with the fleet composition; 14 top modern vessels built at reputable shipyards weighted sensibly across the segments. Also, the Group's ability to build a strong fleet in a short period of time in a competitive market, is seen as favourable.
Total equity was \$174.2 million as at 31 December 2017, up from \$71.2 million a year earlier. A total of \$105.2 million was paid in through private placements during the year, adding to the \$74.3 million from the private placement in 2016.
Interest bearing debt was \$136.8 million at year end 2017. Interest bearing debt consists in its entirety of a bond loan with an outstanding amount of \$138.0 million, reduced with debt issuance costs to be expensed over the bond maturity, which is June 2022. The bond was issued in June 2017 at a very competitive interest rate of LIBOR + 4.5%. Following the bond issue of \$75 million, two additional tap-issues were carried out in August and September, respectively \$45 million and \$18 million, to finance additional vessel acquisitions.
The Board of Directors is satisfied that the Group has been able to finance its vessels with a healthy mix of equity and debt at competitive terms. This financing strategy has resulted in a conservative leverage just above 40%.
1 Please see note 23
The balance of cash and cash equivalents was reduced from \$57.7 million at year end 2016, to \$41.0 million as at 31 December 2017. \$3.2 million was generated through operations, and \$238.5 million through equity and debt financing. \$258.3 million was the net spending on investing in the fleet.
The Company's objective is to ensure safe and secure operations. The business operates in compliance with national and international requirements and regulations. There have been few work-related accidents to personnel on Board in 2017 and only one resulting in sick leave. There have not been any pollution incidents related to the Company's vessels in 2017.
The working environment is considered good.
The Company focus continuously on being a workplace free from discrimination on the basis of gender, race or religion on matters such as pay, promotion and recruitment. Songa Bulk offer equal opportunities to men and women. At year end 2017, the Group had 3 employees onshore, two men and one woman.
The Company focus continuously on having good corporate governance to support achievement of the Company's core objectives on behalf of its shareholders and to create a strong sustainable company. The Board of Directors believe that good corporate governance involves openness and a trustful cooperation between shareholders, the Board, executive management, employees, customers, suppliers, public authorities and society in general.
The Company endorses the NUES code. The NUES Code is based on a "comply or explain" principle, which entails that listed companies must comply with the NUES Code or explain why an alternative approach has been chosen. The Company complies with the NUES Code, with the following deviations:
The Company has implemented internal control and risk management systems appropriate to the size and nature of the Group's activities. The CFO reports to the CEO on a regular basis and as directed.
The Company's corporate governance guidelines, as adopted by the Board of Directors, can be found on the company website: http://www.songabulk.no/corporate-governance
The Company has adopted a code of conduct for business, ethics and corporate social responsibility to facilitate that the Group shall enjoy an invaluable reputation for corporate trustworthiness around the world. The CSR approach is based on consistently conducting business with integrity and in compliance with the laws and regulations governing its activities.
Board members and employees of the Group must practice fair dealing, honesty and integrity in every aspect in dealing with other employees, business relations and customers, the public, the business community, shareholders, suppliers, competitors and government authorities. The Group's corporate values and commitment to act responsibly, ethically and trustworthy in all activities they do, whether it be towards colleagues, customers, suppliers, the society or the environment, shall be reflected, promoted and implemented in policies, decisions and actions.
| Christine | Vibeke Gwendoline | |||
|---|---|---|---|---|
| Name | Arne Blystad | Magnus Roth | Rødsæther | Fængsrud |
| Position: | Chairman | Board member | Board member | Board member |
| Born: | 1955 | 1956 | 1964 | 1978 |
| Nationality: | Norway | Sweden | Norway | Norway |
| Gender: | Male | Male | Female | Female |
| Member of board since: | September 2016 | December 2016 | May 2017 | May 2017 |
| Attendance board meetings | ||||
| in 2017 (since appointed to | 15/15 | 15/15 | 9/9 | 9/9 |
| the BOD): | ||||
| Independent of executive | ||||
| management and significant | No | Yes | Yes | Yes |
| business contacts: | ||||
| Independent of largest | ||||
| shareholders: | No | No | Yes | Yes |
| Member of audit committee | Yes | No | No | Yes |
Mr. Blystad is an independent investor and co-founder of the Company. The Blystad Group, which is 100% owned and controlled by Mr. Arne Blystad and his immediate family, has a long history in international shipping. His companies have historically been active in the sale and purchase market. In addition to shipping, the Group has investments in heavy-lift, a securities portfolio and real estate. Mr. Blystad resides in Oslo, Norway.
Mr. Roth studied engineering at Linköping University between 1975 and 1977. Between 1977 and 1981 he was educated in the Royal Swedish Navy and left as a Captain in 1981. He received a Diploma in Shipping from London School of Foreign trade in 1982. From 1982 to 1983 Mr. Roth was self-employed in Oberon Overseas AB in Stockholm, a company offering Supercargo service to shipping clients. In 1984 Mr. Roth joined the Volvo Groups food sector, Witte International AS where he started up their fish trading in Ålesund, Norway. In 1989, the management did an MBO and established Scandsea International AS/AB, which became one of the world's leading in fish trading. In 1997 Mr. Roth part-founded Ocean Trawlers, which became one of the leading vertically integrated seafood companies, which he departed from when selling his shares in April 2016. Mr. Roth resides in Switzerland.
Ms. Rødsæther is a partner with the law firm Simonsen Vogt Wiig AS with more than 25 years' experience assisting international financial institutions, funds, project brokers, shipowners, shipyards and equipment suppliers with transactional work, contract negotiation, financing and restructuring. She has held a number of board positions within the maritime sector. She is also a member of the advisory board to the Norwegian Ministry of Trade, Industry and Fisheries on maritime development and a member of the Marshall Islands' flag's Quality Council. She graduated from the University of Bergen in 1989, with a master of laws in transnational business practice from University of the Pacific, California. Ms. Rødsæther resides in Bærum, Norway.
Ms. Fængsrud is the founder, owner and CEO of House of Math AS, Norway's largest private tutoring company within the natural sciences and economics. The company was inspired by her education in Mathematics and Physics at the University of Oslo. House of Math is currently holding 100 employees. Ms. Fængsrud has written 11 books on mathematics, as well as 16 compendia. In addition, Ms. Fængsrud has an Executive Bachelor of Management from BI Norwegian Business School, specializing in International business, Leadership and board competence. Ms. Fængsrud has her board experience from academia. Ms. Fængsrud resides in Oslo, Norway.
The consolidated financial statements of Songa Bulk ASA have been prepared on basis of the going concern assumption and according to the International Financial Reporting Standards (IFRS) as adopted by the European Union. The Board of Directors confirms that the assumption is valid.
The Group is exposed to a variety of risks including market risk, credit risk, liquidity risk and interest rate risk. To reduce and manage these risks, management periodically assesses the Group's financial market risk in general, as well as evaluating hedging strategies for specific exposures as they arise. For 2017, the Group did not have any hedging contracts or other derivative instruments.
The most significant risk for the Group is the market risk related to the cyclical dry bulk market. Changes in national and international economic conditions, including for example interest rate levels, inflation, employment levels, may influence the valuation of real and financial assets. In turn, this may impact the demand for goods, services and assets globally and thereby the macro economy. The current macroeconomic situation is uncertain and there is a risk of negative developments. Such changes and developments – none of which will be within the control of the Company – may negatively impact the Company's investment activities, realization opportunities and overall investor returns.
The demand for, and the pricing of the underlying assets are outside of the Company's control and depend, among other things, on the global economy, global trade growth, as well as oil and gas prices. On the supply side there are uncertainties tied to ordering of new vessels and scope of future scrapping. The actual residual value of the vessels in the underlying investments, and/or their earnings after expiration of the fixed contract terms, may be lower than the Company estimates.
The Group is exposed to credit risk in the case that receivables from customers and other parties are not paid. The customers are in general large companies with excellent credit rating. The Group had no losses on receivables in 2017.
Illiquidity may arise if the Group is not able to pay its financial obligations at due date. The Group applies cash forecasting to ensure that the activities are adequately financed at all times. Cash flow from operations and from planned financing activities are considered sufficient to settle all financial obligations.
The Group's issued bond has floating interest (LIBOR) + a fixed margin which means a change in LIBOR will have a direct effect on the Groups cash flow.
We believe the market will develop positively also in 2018 with supply growth leveling off and demand holding, although growing at a slightly lower pace than seen in 2017. But overall the tonnage balance should tilt more in owner's favour increasing the fleet utilization and ultimately improve freight rates.
With a sailing fleet of 15 vessels with an average age of seven years, Songa Bulk is well positioned with its robust business model and low cash break even. For 2018 the cash breakeven is estimated to be around \$7 350 per day. This includes opex, G&A and interest expenses, but does not include dry dockings.
The chartering strategy was initially to employ the majority of the fleet at fixed time charter rates for short to medium periods with duration up to a year. Given the improved market environment Songa Bulk has gradually increased its spot exposure.
Out of the 15 vessels, 3 vessels are employed on index related rates, with two more entering the same scheme in March/April 2018. In addition, the 3 Capesizes are all employed trading spot in the CCL Pool.
The focus going forward will be on earnings rather than growth unless there are accretive opportunities.
The parent company, Songa Bulk ASA, reports a net profit of \$2 817 000 in 2017. The Board proposes that Songa Bulk ASA allocates the net profit for the year to retained earnings.
The Capesize bulk carrier Songa Claudine was delivered 25 January 2018. The difference between the purchase price and deposit paid, \$27.45 million, was settled on delivery of the vessel.
In an extraordinary general meeting held on 22 March 2018 it was resolved to distribute a dividend of NOK per share equivalent to \$0.10 per share, in total \$3 586 000. The dividend was paid on 4 April 2018.
| Period from date of incorporation (24 August 2016) to 31 |
|||
|---|---|---|---|
| in \$ thousands | Note | 2017 | December 2016 |
| Voyage charter revenue | 1 577 | - | |
| Time charter revenue | 24 822 | 117 | |
| Gain from sale of vessels and other revenue | 4 | 2 036 | - |
| Total operating revenue | 28 435 | 117 | |
| Other operating income | 246 | - | |
| Voyage expenses | 220 | 45 | |
| Ship operating expenses | 14 | 16 629 | 117 |
| General and administrative expenses | 15 | 2 488 | 779 |
| Depreciation | 4 | 5 450 | 37 |
| Total operating expenses | 24 787 | 978 | |
| Operating profit (-loss) | 3 894 | -862 | |
| Interest income | 562 | 24 | |
| Interest expenses | 12 | -3 967 | -3 |
| Other financial expenses | 16 | -94 | -325 |
| Net financial expenses | -3 500 | -304 | |
| Profit (-loss) before taxes | 394 | -1 166 | |
| Tax expense | 17 | 6 | 870 |
| Net profit (-loss) | 388 | -2 036 | |
| Total comprehensive income (-loss) | 388 | -2 036 | |
| Basic and diluted earnings (-loss) - \$ per share | 18 | 0.012 | -0.349 |
| in \$ thousands | Note | 31 December 2017 | 31 December 2016 |
|---|---|---|---|
| 266 770 | 11 108 | ||
| Vessels | $\overline{\mathbf{4}}$ | 3 0 5 5 | 3855 |
| Deposit vessels | $\overline{\mathbf{4}}$ | ||
| Total non-current assets | 269 825 | 14 963 | |
| Inventories | 2 2 3 3 | 26 | |
| Trade receivables | 1 3 1 2 | $\overline{3}$ | |
| Other receivables | 5 | 2 5 0 1 | 133 |
| Cash and cash equivalents | 6 | 41 017 | 57 688 |
| Total current assets | 47 063 | 57 850 | |
| TOTAL ASSETS | 316 888 | 72813 | |
| Share capital | $\overline{7}$ | 21 6 20 | 9085 |
| Share premium | $\overline{7}$ | 153 619 | 63756 |
| Other paid-in capital | 574 | 400 | |
| Retained loss | $-1648$ | $-2036$ | |
| Total equity | 174 165 | 71 205 | |
| Interest bearing debt | 12 | 136 776 | |
| Financial liabilities at fair value through profit or loss | 490 | 327 | |
| Total non-current liabilities | 137 266 | 327 | |
| Trade payables | 1745 | 682 | |
| Income taxes payable | 17 | 124 | 393 |
| Other current liabilities | 13 | 3588 | 206 |
| Total current liabilities | 5 4 5 7 | 1 2 8 1 | |
| Total liabilities | 142723 | 1 608 | |
| TOTAL EQUITY AND LIABILITIES | 316 888 | 72813 |
| in \$ thousands | Share capital |
Share premium |
Other paid-up capital |
Retained earnings |
Total equity |
|---|---|---|---|---|---|
| Incorporation 24 August 2016 | 3 | - | - | - | 3 |
| Share issuance | 9 082 | 65 188 | - | - | 74 270 |
| Share issuance costs | - | -1 432 | - | - | -1 432 |
| Warrants issued to employees | - | - | 400 | - | 400 |
| Net loss | - | - | - | -2 036 | -2 036 |
| Balance 31 December 2016 | 9 085 | 63 756 | 400 | -2 036 | 71 205 |
| Share issuance 31 January 2017 | 600 | 4 400 | - | - | 5 000 |
| Share issuance 17 February 2017 | 11 935 | 88 311 | - | - | 100 246 |
| Share issuance costs | - | -2 848 | - | - | -2 848 |
| Warrants issued to employees | - | - | 174 | - | 174 |
| Net profit | - | - | - | 388 | 388 |
| Balance 31 December 2017 | 21 620 | 153 619 | 574 | -1 648 | 174 165 |
| Period from date of incorporation (24 August 2016) to 31 |
|||
|---|---|---|---|
| in \$ thousands | Note | 2017 | December 2016 |
| Profit (-loss) before taxes | 394 | -1 166 | |
| Depreciation | 4 | 5 450 | 37 |
| Gain on sale of vessels | 4 | -1 968 | - |
| Change in inventories | -2 207 | -26 | |
| Net change in trade receivables/payables | -247 | 679 | |
| Employee benefit expenses in connection with issuance of warrants | 8 | 174 | 400 |
| Change in financial liabilities at fair value through profit or loss | 8 | 163 | 327 |
| Change in other short-term assets and liabilities | 1 454 | -404 | |
| Net cash flow from operating activities | 3 214 | -153 | |
| Sale of vessels | 13 615 | - | |
| Purchase of vessels | 4 | -268 449 | -10 000 |
| Paid deposit vessels | 4 | -3 055 | -3 855 |
| Dry-docking paid | 4 | -460 | - |
| Net cash flow used in investing activities | -258 349 | -13 855 | |
| Proceeds from share issuance | 105 246 | 73 129 | |
| Share issuance costs | -2 848 | -1 432 | |
| Proceeds from issuance of debt | 12 | 137 625 | - |
| Debt issuance costs | 12 | -1 559 | - |
| Net cash flow from financing activities | 238 464 | 71 697 | |
| Net change in cash and bank deposits | -16 671 | 57 688 | |
| Cash and bank deposits at beginning of period | 57 688 | 0 | |
| Cash and bank deposits at end of period | 41 017 | 57 688 |
Songa Bulk ASA (the Company) is a public limited liability company incorporated and domiciled in Norway. The Company was incorporated 24 August 2016. The address of the main office is Haakon VIIs gate 1, 0161 Oslo. The Norwegian Enterprise no. is 917 811 288.
Songa Bulk ASA and its subsidiaries (the Group) are engaged in the transportation of bulk cargo. The group was formed during the 4th Quarter of 2016. As of 31 December 2017 the Group owns a total of 14 dry bulk vessels; two cape size, ten kamsarmax, one supramax and one ultramax. A third cape size vessel has been purchased and was delivered in January 2018.
On 24 May 2017 the Company's shares were registered with Oslo Stock Exchange market place Oslo Axess under the ticker SBULK.
These consolidated financial statements are prepared in accordance with the accounting principles prescribed by International Financial Reporting Standards (IFRS) as adopted by the European Union. They comprise the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and related notes for the Group.
The consolidated financial statements have been prepared on a historical cost basis except for financial liabilities at fair value through profit or loss. The consolidated financial statements are prepared under the going concern assumption.
The accompanying notes for 2016 that relate to the income statement are for the period from incorporation (24 August 2016) to 31 December 2016.
The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that may affect assets, liabilities, revenues, expenses and information in notes to the financial statements. Estimates are management's best assessment based on latest available, reliable information. The effect of change in an accounting estimate is recognized in profit or loss in the period of the change.
The following areas involve significant judgements and estimates in the preparation of the consolidated financial statements:
The Group has issued warrants to its founding shareholders. Based on certain criteria the warrants give the holders a right, but no obligation, to subscribe for one additional share at a price fixed in NOK.
Market prices for warrants are not available and therefore they are valued by use of an option pricing model. Warrants are valued by use of Monte Carlo Simulation based on 1 million observations. The following factors are taken into account when valuing the warrants: The exercise price of the warrants, the life of the warrants, the current price of the underlying shares, the expected volatility of the share price, the dividends expected on the shares and the risk-free interest rate for the life of the warrants. Factors are estimated based on management's best knowledge at the date of the valuation.
The consolidated financial statements comprise the financial statements of Songa Bulk ASA and all subsidiaries over which the Group has control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary.
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated.
The consolidated financial statements are presented in USD, which is also the functional currency for all entities in the Group.
Transactions in foreign currencies are converted to the functional currency at the rate at time of the transaction. Monetary items denominated in foreign currencies are
converted into functional currency using the rate at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit of loss. Nonmonetary items, which are measured at historical cost in a foreign currency, are converted at the currency rates on the dates of the initial transactions.
The group presents assets and liabilities in statement of financial position based on current/non-current classification.
Current assets and current liabilities include items due less than one year from the balance sheet date, and items related to the operating cycle. Other assets are classified as non-current assets.
Vessels are stated at historical cost, less accumulated depreciation and impairment. For vessels purchased, these costs include expenditures that are directly attributable to the acquisition of the vessels. Depreciation is calculated on a straight-line basis over the useful life of the assets, taking residual values into consideration, and adjusted for impairment charges, if any.
Vessels and related equipment have expected useful lives of 2.5 - 25 years. Future depreciations are based on depreciation schedules including residual values. Expected useful lives of long-lived assets, and residual values, are reviewed at each balance sheet date and, where they differ significantly from previous estimates, depreciation calculations are changed accordingly. Residual value for the ships is based on steel price times lightweight tonnage and is reassessed annually.
Ordinary repairs and maintenance expenses are charged to the income statement during the financial period in which they are incurred.
Costs related to major inspections/classification (drydocking) are recognized in the carrying amount of the vessels if certain recognition criteria are satisfied. The recognition is made when the dry-docking has been performed and is depreciated based on estimated time to the next inspection, normally 2.5 – 5 years. Any remaining carrying amount of the cost of the previous inspection is de-recognized.
The vessels are reviewed for indication of impairment at each reporting date, and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized. The recoverable amount is the higher of an asset's net selling price and its value in use. The net selling price is the amount obtainable from the sale of an asset in an arms length transaction less the costs of disposal, while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.
In the event where the Company has paid deposits at the balance sheet date for future delivery of vessels, the deposits are presented as non-current assets at the actual deposit paid. The carrying amount includes any expenses that are directly attributable to entering into the agreements for future delivery of the vessel.
Inventories, which comprise principally of bunker fuel, lube oil and stores are stated at the lower of cost and net realizable value. Cost is determined on a first-in, first-out (FIFO) basis.
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The Group regularly reviews its accounts receivables and estimates the amount of uncollectible receivables each period and establishes an allowance for uncollectible amounts. The amount of the allowance is based on the age of unpaid amounts, information about the current financial strength of customers, and other relevant information
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other shortterm, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash. Cash and cash equivalents are recorded at their nominal values on the balance sheet.
Interest bearing debt is initially recognized at its fair value less transaction costs. After initial recognition, interest bearing debt is measured at amortized cost using the effective interest method.
Financial liabilities at fair value through profit or loss comprise of warrants issued to shareholders, other than shareholders that are also employed by the Group, under a warrant agreement. The warrant agreement is a contract that will or may be settled in the entity's own equity instruments and is a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments.
These amounts represent liabilities for goods and services provided to the group prior to the end of financial year, which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.
The group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the group's activities as described below. The group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Voyage charter revenues are recognized using the percentage of completion method on a "discharge to discharge" basis. As the one vessel involved in voyage charters is under a revenue sharing agreement (pool) where results are settled on a net basis, the recognized voyage charter revenues are net of voyage expenses
such as bunkers consumption, port costs and other voyage related expenses.
Freight revenues from time charters are accounted for as operating leases under IAS 17 and are recognized on a straight-line basis over the rental periods of such charters, as service is performed.
Net income, the settlement amount as a result of the revenue sharing agreement for one vessel is presented as other operating income.
Voyage expenses mainly consist of bunker fuel expenses in connection with purchase of the vessel and delivery to charterers. Ship operating expenses include crew costs, repairs and maintenance, insurance, lube oils, communication expenses and fees to technical managers. Operating expenses are recognized when incurred.
Share-based payment transactions through issuance of warrants to shareholders, that are also employed by the Group, are measured at fair value of the warrants at the issuance date as value of services received cannot be estimated reliably. Fair value is measured by Monte Carlo simulation. Share-based payments are recognized as an employee expense, at the time of issuance when there are no performance vesting conditions present, with a corresponding increase of equity.
The vessel owning companies are subject to taxation under the Norwegian tonnage tax regime. Under the tonnage tax regime, profit from operations are exempt from taxes. Taxable profit is calculated on the basis of financial income after deduction of a portion of financial expenses. The portion is calculated as financial assets in percent of total assets. Tonnage tax is payable based on the net tonnage of vessels. Tonnage tax is classified as an operating expense.
The parent company is subject for ordinary Norwegian taxation. Tax expense comprise tax payable and deferred tax expense. Tax payable is measured at the amount expected to be paid to authorities while deferred tax assets/liabilities are calculated based on temporary differences at the reporting date. Deferred tax assets are recognized to the extent that it is probable that they can be utilized in the future.
Basic earnings per share is calculated by dividing:
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
Share issuance costs related to a share issuance transaction are recognized directly in equity. If share issuance costs, for tax purposes, can be deducted from other taxable income in the same period as they are incurred, the costs are recognized net after tax.
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence.
New information regarding the Group's financial position as of the balance sheet date is taken into consideration in the financial statements. Events occurring after the financial position date, that do not affect the financial position as of the balance sheet date, but which will affect the financial position in the future, are disclosed if significant.
The following new or amendments to standards and interpretations have been issued and become effective during the current period. These include:
The above pronouncements did not have a material impact on the financial statements of the Group, beyond disclosures.
The following new or amendments to standards have been issued and become effective in years beginning on or after 1 January 2018, assuming European Union adoption.
The group operates within one single segment, which is the shipping dry bulk segment.
| in \$ thousands | Dry bulk vessels |
Dry-docking | Total vessels | Deposit vessels |
|---|---|---|---|---|
| Cost 1 January 2017 | 11 145 | - | 11 145 | 3 855 |
| Additions 2017 | 268 453 | 460 | 268 913 | 3 055 |
| Reclassification deposit to vessels | 3 855 | - | 3 855 | -3 855 |
| Disposals 2017 | -11 982 | - | -11 982 | - |
| Cost 31 December 2017 | 271 471 | 460 | 271 931 | 3 055 |
| Depreciation 1 January 2017 | 37 | - | 37 | - |
| Depreciation 2017 | 5 390 | 60 | 5 450 | - |
| Reversal depreciation sold vessels | -326 | - | -326 | - |
| Accumulated depreciation 31 December 2017 | 5 101 | 60 | 5 161 | - |
| Carrying amount 31 December 2017 | 266 370 | 400 | 266 770 | 3 055 |
| In \$ thousands | Dry bulk | Dry-docking | Total vessels | Deposit |
|---|---|---|---|---|
| vessels | vessels | |||
| Additions 2016 | 11 145 | - | 11 145 | 3 855 |
| Cost 31 December 2016 | 11 145 | - | 11 145 | 3 855 |
| Depreciation 2016 | 37 | - | 37 | - |
| Accumulated depreciation 31 December 2016 | 37 | - | 37 | - |
| Carrying amount 31 December 2016 | 11 108 | - | 11 108 | 3 855 |
The Group took delivery of 14 vessels during 2017, adding to the one vessel delivered in 2016. One vessel was sold in 2017, taking the total vessels owned by the Group at 31 December 2017 to 14. In addition, the Group has paid deposit for one more vessel at 31 December 2017. This vessel was delivered in January 2018.
Recognized gain on sale of vessel in 2017 was \$2.0 million.
The group has made an assessment of the residual values as per 31 December 2017, concluding that there are no significant changes to the ones used initially.
Costs in relation to special surveys (dry docking) are capitalized when incurred. During 2017 one vessel was in dry dock. The costs are depreciated over the period until the next special survey, which is 5 years.
One of the vessels purchased in 2017 was under a time charter contract that management considered to be unfavourable compared to market rates at that time. The negative net present value of the contract was estimated to \$175 thousand. The amount was amortized over the remaining contract period as reduction of depreciation. Accordingly, \$175 thousand was added to the cost of the vessel and will be depreciated over the vessels useful life.
As at 31 December 2017, management has assessed impairment indicators and concluded that there are no impairment indicators on any vessel.
| in \$ thousands | 31 December 2017 | 31 December 2016 |
|---|---|---|
| VAT receivables | 45 | 72 |
| Prepaid expenses | 716 | 55 |
| Incurred revenues | 791 | - |
| Other receivables | 949 | 6 |
| Total other receivables | 2 501 | 133 |
| in \$ thousands | 31 December 2017 | 31 December 2016 |
|---|---|---|
| Bank deposits denominated in USD | 40 560 | 56 351 |
| Bank deposits denominated in NOK | 457 | 1 337 |
| Total cash and cash equivalents | 41 017 | 57 688 |
Of the bank deposits, \$38 thousand is related to restricted bank accounts for tax withholding purpose.
| Number of shares | Share capital, \$ thousands |
Share premium, \$ thousands |
|
|---|---|---|---|
| Balance at 1 January 2017 | 14 860 000 | 9 085 | 63 756 |
| Private placement 31 January 2017 | 1 000 000 | 600 | 4 400 |
| Private placement 17 February 2017 | 20 000 000 | 11 935 | 88 311 |
| Share issuance costs | - | - | -2 848 |
| Balance at 31 December 2017 | 35 860 000 | 21 620 | 153 619 |
| Number of shares | Share capital, \$ thousands |
Share premium, \$ thousands |
|
|---|---|---|---|
| Incorporation 24 August 2016 | 100 | 3 | - |
| Share split 28 October 2016 (1:60) | 6 000 | 3 | - |
| Private placement 4 November 2016 | 14 854 000 | 9 082 | 65 188 |
| Share issuance costs | - | - | -1 432 |
| Balance at 31 December 2016 | 14 860 000 | 9 085 | 63 756 |
Authorized share capital is NOK 179 300 000. All issued shares are fully paid at 31 December 2017.
The Group has issued warrants to its founding shareholder. For further information see note 8.
| Shareholder | Share holding | Share holding in % |
|---|---|---|
| Canomaro Bulk AS | 4 671 400 | 13.03 % |
| Songa Trading Inc | 2 547 900 | 7.11 % |
| Songa Shipholding AS | 2 164 000 | 6.03 % |
| Evermore Global Value Fund | 2 143 278 | 5.98 % |
| J.P. Morgan Bank (Ireland) Plc | 1 437 300 | 4.01 % |
| North East Star Maritime Ltd | 1 267 100 | 3.53 % |
| Credit Suisse Securities (USA) Llc | 1 000 000 | 2.79 % |
| SEB Prime Solutions Sissener Canop | 1 000 000 | 2.79 % |
| Magnus Leonard Roth | 981 102 | 2.74 % |
| Polux Investment Ltd | 821 200 | 2.29 % |
| Ringnes Holding AS | 746 400 | 2.08 % |
| Eika Norge | 733 700 | 2.05 % |
| Regents of the University of Michi | 730 643 | 2.04 % |
| USB AG | 682 533 | 1.90 % |
| Bras Kapital AS | 600 000 | 1.67 % |
| Euroclear Bank S.A./N.V. | 532 342 | 1.48 % |
| Torstein Ingvald Tvenge | 525 000 | 1.46 % |
| Ola Rustad AS | 500 000 | 1.39 % |
| Sirius International Insurance Corp | 465 797 | 1.30 % |
| Morgan Stanley & Co. LLC | 445 200 | 1.24 % |
| Total 20 largest shareholders | 23 994 895 | 66.91 % |
| Other shareholders | 11 865 105 | 33.09 % |
| Total | 35 860 000 | 100.00 % |
Shares and warrants owned by board members, board consultants and executives:
| Shareholder | Title | Share holding | Share holding in % | No of warrants |
|---|---|---|---|---|
| Board members: | ||||
| Arne Blystad | Chairman | 4 711 900 | 13.14 % | 673 594 |
| Magnus Roth | Board member | 5 652 502 | 15.76 % | - |
| Christine Rødsæther | Board member | 3 124 | 0.01 % | - |
| Vibeke Gwendoline Fængsrud | Board member | 5 412 | 0.01 % | - |
| Board consultant: | ||||
| Ghikas Goumas | Board consultant | 1 267 100 | 3.53 % | - |
| Executives: | ||||
| Herman Alf Billung | CEO | 73 500 | 0.20 % | 673 594 |
| Per Kristian Aamlid | COO | 34 000 | 0.10 % | 149 688 |
| Thomas Rønningen | CFO | 3 500 | 0.01 % | - |
| Nina Rathsack | Operations Manager | 2 540 | 0.01 % | - |
On 31 January 2017 and 17 February 2017 three shareholders of Songa Bulk ASA were issued with warrants. The warrants came in addition to the warrants issued on 4 November 2016. The number of warrants issued are detailed in the tables below. Total warrants issued as per 31 December 2017 is 1 496 876. No more warrants will be issued under the existing warrant agreement. The total warrants issued equals 7.5% of shares issued up to an aggregate amount of \$100 million in proceeds. Each warrant gives the holders the right, but no obligation, to subscribe for one share at a price equal to the share subscription price in each respective share issuance. The warrants are valid for a period of 5 years from the relevant date of issuance.
Conditions for exercise are such that tranche 1 vests at subscription price + 25%, tranche 2 vests at subscription price + 50% and tranche 3 vests at subscription price + 75%. The price increase is measured from the average volume weighted trading price for a period of 10 trading days with minimum trading volume equal to the NOK equivalent of USD 1 million. The warrant subscription price is equal to the original subscription price of the share issuance for all three tranches.
| Tranche 1 | Tranche 2 | Tranche 3 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Value | Value | Value | Value | Value | Value | ||||
| per | per | per | per | per | per | ||||
| No of | warrant | warrant | No of | warrant | warrant | No of | warrant | warrant | |
| Share issue | warrants | (NOK) | (USD) | warrants | (NOK) | (USD | warrants | (NOK) | (USD) |
| 4 November 2016 | 201 094 | 5.87 | 0.72 | 201 094 | 5.84 | 0.71 | 201 094 | 4.54 | 0.56 |
| 31 January 2017 | 13 750 | 7.53 | 0.90 | 13 750 | 7.87 | 0.94 | 13 750 | 6.37 | 0.76 |
| 17 February 2017 | 59 583 | 6.85 | 0.82 | 59 583 | 6.99 | 0.84 | 59 583 | 5.52 | 0.66 |
Valuation date is the date of the respective share issuance. Subscription price is NOK 40.89 for warrants issued on 4 November 2016, NOK 41.63 for warrants issued on 31 January 2017 and NOK 42.00 for warrants issued on 17 February 2017. Warrants are accounted for as employee benefit expenses with a corresponding increase in equity. Total recognized amount in 2017 was \$174 thousand. Recognized amount in 2016 was \$400 thousand.
| Tranche 1 | Tranche 2 | Tranche 3 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Value | Value | Value | Value | Value | Value | ||||
| per | per | per | per | per | per | ||||
| No of | warrant | warrant | No of | warrant | warrant | No of | warrant | warrant | |
| Share issue | warrants | (NOK) | (USD) | warrants | (NOK) | (USD | warrants | (NOK) | (USD) |
| 4 November 2016 | 164 531 | 6.48 | 0.79 | 164 531 | 6.29 | 0.79 | 164 531 | 5.18 | 0.63 |
| 31 January 2017 | 11 250 | 6.24 | 0.76 | 11 250 | 6.26 | 0.76 | 11 250 | 4.88 | 0.59 |
| 17 February 2017 | 48 750 | 6.13 | 0.75 | 48 750 | 6.12 | 0.75 | 48 750 | 4.74 | 0.58 |
Granted warrants as at 31 December 2017 to shareholder that is not employed by the Group:
Valuation date is 31 December 2017. Subscription price is NOK 40.89 for warrants issued on 4 November 2016, NOK 41.63 for warrants issued on 31 January 2017 and NOK 42.00 for warrants issued on 17 February 2017. These warrants are recognized as financial liabilities, since the strike price is not in the functional currency of the entity, and valued at fair value through profit or loss. The fair value of all issued warrants to shareholder not employed by the group as of 31 December 2017 was \$490 thousand. As of 31 December 2016 the fair value was \$327 thousands. The recognized net expense in 2017 was \$163 thousand. In 2016 the net expense was \$327 thousands. The items are classified as other financial expenses.
Warrants are valued by use of Monte Carlo Simulation with 1 000 000 observations. The Monte Carlo model projects future share prices for the Company based on a risk-neutral framework (similar to the financial modelling used for other models such as Black-Scholes model or a binomial model). By using identical assumptions and sufficient number of simulations, a Monte Carlo simulation without special conditions would yield somewhat identical results to a Black-Scholes or binomial model. However, a Monte Carlo simulation allows for greater flexibility and customization of the assumptions and plan design parameters, which is necessary to value such a plan dependent on uncertainty with respect to vesting dates and quantity becoming exercisable. The following inputs to the Monte Carlo model is applied:
Volatility: 25%
The Group has issued warrants to employees as described in note 8. The warrants were issued under a warrant agreement between the founding shareholders and Songa Bulk ASA. The warrants issued to employees have been expensed as detailed in note 19 since there are no service or performance requirements determining the vesting of the warrants.
| Number of warrants |
Exercise price (NOK) |
Number of exercisable warrants |
Remaining contractual life |
|
|---|---|---|---|---|
| Outstanding 1 January 2017 Granted 31 January 2017 |
603 282 41 250 |
40.89 41.63 |
0 0 |
3.8 years 4.1 years |
| Granted 17 February 2017 | 178 749 | 42.00 | 0 | 4.2 years |
| Outstanding as at 31 December 2017 | 823 281 | 41.17 | 0 | 3.9 years |
| Number of warrants |
Exercise price (NOK) |
Number of exercisable warrants |
Remaining contractual life |
|
|---|---|---|---|---|
| Granted 4 November 2016 | 603 282 | 40.89 | 0 | 4.8 years |
| Outstanding as at 31 December 2016 | 602 282 | 40.89 | 0 | 4.8 years |
The Songa Bulk Group owns and operates dry bulk vessels for transportation of dry cargo worldwide. Through its operations the Group is exposed to financial risks such as market risk (including currency risk), credit risk, liquidity risk, interest rate risks and other risks that may influence the value of assets, liabilities and cash flows.
To reduce and manage these risks, management periodically assesses the Group's financial market risk in general, as well as evaluating hedging strategies for specific exposures as they arise. The primary strategy used for reducing the financial market risks is the use of derivatives, where appropriate.
Derivative instruments are only implemented for the purpose of hedging financial risks. The Group does not trade or use instruments with the objective of earning financial gains from interest rate or exchange rate fluctuations alone. The Group only employs conventional derivative instruments in contracts with highly rated and reputable financial institutions and commodities brokers.
For 2017, the Group did not have any hedging contracts or other derivative instruments.
Revenues, expenses, assets and liabilities of the Group are mainly denominated in USD. The Group is exposed to currency risk in connection with the following items:
General and administrative expenses as salaries, fees to lawyers and other fees such as share issuance costs are mainly denominated in NOK. Exchange rate fluctuations between USD and NOK will have an effect on the actual recognized expenses in the financial statements.
The fair value of warrants recognized at fair value through profit or loss is valued in NOK. The change in value to be recognized in profit or loss will be affected by any fluctuations in the USD/NOK exchange rate.
Taxable income is denominated in NOK. Monetary items denominated in other currencies, which is mainly USD, will be translated to NOK for tax purposes. Any change in the foreign exchange rates will affect the taxable income and income tax payable.
The Group is exposed to credit risk in the case that receivables from customers and other parties are not paid. The customers are in general large companies with excellent credit rating. For new customers, a credit evaluation is performed. In 2017 there were five customers that each represented more than 10% of total revenue. These customers represented in total 66% of total revenue.
Illiquidity may arise if a company is not able to pay its financial obligations at due date. The Group applies cash flow forecasting to ensure that the activities are adequately financed at all times. Cash flows from operations and from planned financing activities are considered sufficient to settle all financial obligations.
The Group's issued bond has floating interest (LIBOR) + a fixed margin which means a change in LIBOR will have a direct effect on the Group's cash flows. If LIBOR increases by 1%, the interest expense would increase by \$1.38 million per year.
Set out below is a comparison by category for carrying amounts and fair values of all of the Group's financial instruments that are carried in the financial statements. The estimated fair value amounts of the financial instruments have been determined using appropriate market information and valuation techniques.
| 31 December 2017 | 31 December 2016 | |||
|---|---|---|---|---|
| In \$ thousands | Carrying amount | Fair value | Carrying amount | Fair Value |
| Financial assets: | ||||
| Trade receivables | 1 312 | 1 312 | 3 | 3 |
| Other receivables* | 1 741 | 1 741 | 78 | 78 |
| Cash and cash equivalents | 41 017 | 41 017 | 57 688 | 57 688 |
| Financial liabilities: | ||||
| Interest bearing debt** | 138 000 | 138 000 | - | - |
| Financial liabilities at fair value through | ||||
| profit or loss | 490 | 490 | 327 | 327 |
| Trade payables | 1 745 | 1 745 | 682 | 682 |
| Income taxes payable | 124 | 124 | 393 | 393 |
| Other current liabilities* | 2 548 | 2 548 | 115 | 115 |
*The difference between the balance sheet item other receivables and other receivables in the table above is prepaid expenses which are not considered a financial instrument. The difference between the balance sheet item other current liabilities and other current liabilities in the table above is prepaid revenues which are not considered a financial instrument.
**The difference between the balance sheet item Interest bearing debt and the table above is the debt issuance costs as detailed in note 12.
The different levels for fair value estimation have been defined as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly
Level 3: Unobservable input for the asset or liability
Fair value equals carrying value for all financial instruments. Cash and cash equivalents are valued at level 1, Financial liabilities at fair value through profit or loss, which are warrants issued to shareholder, are valued at level 3.
| In \$ thousand | At fair value | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Cash and loans | through profit | Available for | Liabilities at | |||||||
| and receivables | or loss | sale | amortized cost | Total | ||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
| Financial assets: | ||||||||||
| Trade receivables | 1 312 | 3 | - | - | - | - | - | - | 1 312 | 3 |
| Other receivables | 1 741 | 78 | - | - | - | - | - | - | 1 741 | 78 |
| Cash and cash equivalents | 41 017 | 57 688 | - | - | - | - | - | - | 41 017 | 57 688 |
| Financial liabilities: | ||||||||||
| Interest bearing debt | - | - | - | - | - | - | 138 000 | - | 138 000 | - |
| Financial liabilities at fair | ||||||||||
| value through profit or loss | - | 490 | 327 | - | - | - | - | 490 | 327 | |
| Trade payables | - | - | - | - | - | - | 1 745 | 682 | 1 745 | 682 |
| Income taxes payable | - | - | - | - | - | - | 124 | 393 | 124 | 393 |
| Other current liabilities | - | - | - | - | - | - | 2 548 | 115 | 2 548 | 115 |
| In \$ thousands | < 1 year | 1-5 years | Total at 31 December 2017 |
|---|---|---|---|
| Interest bearing debt | - | 138 000 | 138 000 |
| Financial liabilities at fair value through profit or loss | - | 490 | 490 |
| Trade payables | 1 745 | - | 1 745 |
| Income taxes payable | 124 | - | 124 |
| Other current liabilities | 2 548 | - | 2 548 |
| Total financial liabilities | 4 417 | 138 490 | 142 907 |
| In \$ thousands | < 1 year | 1-5 years | Total at 31 |
|---|---|---|---|
| December 2016 | |||
| Non-current liabilities | - | 327 | 327 |
| Trade payables | 682 | - | 682 |
| Income taxes payable | 393 | - | 393 |
| Other current liabilities | 115 | - | 115 |
| Total financial liabilities | 1 190 | 327 | 1 517 |
On 30 May 2017, the Company issued a \$75 million senior secured bond with a total borrowing limit of \$150 million. The bond has floating interest rate, of LIBOR plus a margin of 4.50%. Settlement was 13 June 2017 and the bond shall be repaid in full on the maturity date which is 13 June 2022.
On 23 August 2017, the Company completed a tap issue of \$45 million. The total nominal amount outstanding in the bond following the tap issue was \$120 million of the borrowing limit of \$150 million. The bond has a floating interest rate of LIBOR plus a margin of 4.50%, and the final maturity is 13 June 2022.
On 29 September 2017, the Company completed a tap issue of \$18 million. The total nominal amount outstanding on the bond following the tap issue is \$138 million of the borrowing limit of \$150 million. The bond has a floating interest rate of LIBOR plus a margin of 4.50%, and the final maturity 13 June 2022.
| in \$ thousands | 31 December | 31 December |
|---|---|---|
| 2017 | 2016 | |
| Nominal value of issued bond | 138 000 | - |
| Debt issuance cost | -1 224 | - |
| Interest bearing debt secured by mortgage | 136 776 | - |
| Security under the bond terms: | ||
| Vessels – book value | 266 770 | - |
In addition, the outstanding bond amount, interest fees and expenses are secured by the following:
The following financial covenants exist under the bond terms:
In addition, the earliest distribution is in 2018. Distribution is permitted if the vessel LTV ratio is below 50% and is also limited to the issuer's consolidated adjusted net profit of the previous calendar year. Depreciation made on the vessels and sale of vessels is not included in adjusted net profit.
This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.
| in \$ thousands | ||||
|---|---|---|---|---|
| Other assets | Liabilities from financing activities | |||
| Cash and cash | Interest bearing debt | Interest bearing debt | Total | |
| equivalents | due within one year | due after one year | ||
| Net debt at 1 January 2017 | 57 688 | - | - | 57 688 |
| Net proceeds from issuance of debt | - | - | -136 066 | -136 066 |
| Changes in amortized cost | - | - | -710 | -710 |
| Net cash flow | -16 671 | - | - | |
| Net debt at 31 December 2017 | 41 017 | - | -136 776 | -95 759 |
| in \$ thousands | 31 December 2017 | 31 December 2016 |
|---|---|---|
| Prepaid revenues | 1 040 | 91 |
| Accrued expenses | 1 494 | 57 |
| Public dues payable | 70 | 46 |
| Other liabilities | 984 | 12 |
| Total other current liabilities | 3 588 | 206 |
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Crew costs | 8 403 | 71 |
| Stores and lubes | 2 118 | - |
| Repairs and maintenance | 1 352 | - |
| Insurances | 891 | - |
| Management fees | 1 174 | - |
| Start-up costs in connection with delivery of vessels | 760 | 24 |
| Tonnage taxes | 118 | - |
| Other ship operating expenses | 1 813 | 22 |
| Total ship operating expenses | 16 629 | 117 |
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Salaries and other employee benefit expenses | 847 | 124 |
| Warrants issued to employees | 174 | 400 |
| Fees to auditor, lawyers and other professional fees | 1 121 | 181 |
| Other general and administrative expenses | 346 | 74 |
| Total general and administrative expenses | 2 488 | 779 |
Auditors fee was \$36 thousand.
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Foreign exchange gain | 83 | 11 |
| Warrants granted to shareholder | -143 | -327 |
| Value change warrants | -21 | - |
| Other financial expenses | -13 | -9 |
| Other financial expenses | -94 | -325 |
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Basis for tax expense and tax payable: | ||
| Profit (-loss) before taxes | 394 | -1 166 |
| Effects of foreign exchange gains and losses on current items | -4 133 | 3 781 |
| Effects of Norwegian tonnage tax legislation | -1 422 | 140 |
| Other permanent differences between accounting and tax | 475 | 727 |
| Share issuance costs directly in equity – recognized gross before tax | -2 848 | - |
| Basis for tax expense* | -7 534 | 3 482 |
| *Basis for tax expense: | ||
| Basis for tax expense within the Norwegian tonnage tax legislation | 24 | - |
| Basis for tax expense within ordinary Norwegian tax legislation | -7 558 | 3 482 |
| Basis for tax expense | -7 534 | 3 482 |
| Tax expense: | ||
| Tax payable | 6 | 870 |
| Change deferred tax | -1738 | - |
| Change deferred tax not recognized | 1738 | - |
| Tax expense | 6 | 870 |
| Taxable income: | ||
| Basis for tax payable in tax expense | 24 | 3 482 |
| Basis for deferred tax in tax expense | -7 558 | - |
| Share issuance costs directly in equity – recognized net after tax | - | -1 912 |
| Change in temporary differences | -2 036 | - |
| Taxable income | -9 570 | 1 570 |
| Reconciliation of tax expense for the year: | ||
| Profit (-loss) before taxes | 394 | -1 166 |
| Tax expense calculated on the relevant tax rate (24%/25%) | 95 | -291 |
| Tax expense | 6 | 870 |
| Difference | -89 | 1 162 |
| Difference comprise of: | ||
| Tax effect of foreign exchange gains and losses on current items | -992 | 945 |
| Tax effect of Norwegian tonnage tax legislation | -341 | 35 |
| Tax effect of other permanent differences | 114 | 182 |
| Tax effect of share issuance costs directly in equity – recognized gross before tax | -684 | - |
| Tax effect of deferred tax asset not recognized | 1 738 | - |
| Effect of changes in tax rate | 76 | - |
| Total difference | -89 | 1 162 |
| Tax payable in statement of financial position: | ||
| Tax payable in tax expense | 6 | 870 |
| Tonnage tax payable | 118 | 1 |
| Tax effect of share issuance costs directly in equity – recognized net after tax | - | -478 |
| Tax payable in statement of financial position | 124 | 393 |
| Deferred tax per 31 December | 2017 | 2016 |
|---|---|---|
| Temporary differences: | ||
| Foreign exchange gain on long-term debt | 272 | - |
| Debt issuance costs | 1 764 | - |
| Total temporary differences | 2 036 | - |
| Tax loss carried forward | -9 594 | - |
| Net temporary differences | -7 558 | - |
| Deferred tax: | ||
| Nominal tax rate on deferred tax | 23% | 24% |
| Deferred tax (-asset) | -1 738 | - |
| Deferred tax asset not recognized | 1 738 | - |
| Deferred tax in statement of financial position | - | - |
| 2017 | 2016 | |
|---|---|---|
| Net profit (-loss) attributable to ordinary equity holders - \$ thousands | 388 | -2 036 |
| Basic and diluted weighted average number of ordinary shares outstanding | 33 202 466 | 5 833 338 |
| Basic and diluted earnings, \$ per share | 0.012 | -0.349 |
The Group has entered into a corporate service agreement with Arne Blystad AS for the rendering of administrative services, IT and office services and accounting and reporting services. In addition, the agreement covers hire of Chief Financial Officer. Arne Blystad AS is a company owned and controlled by the Chairman Arne Blystad and his immediate family. Total expenses under the agreement in 2017 was \$502 thousand. In 2016 the fee was \$ 21 thousand.
The Group has entered into technical management agreements with Songa Shipmanagement Ltd. for the rendering of technical services for the vessels Songa Maru, Songa Genesis, Songa Delmar, Songa Hadong, Songa Mountain, Songa Opus, Songa Devi and Songa Sky. Songa Shipmanagement Ltd. is a company owned and controlled by the Chairman Arne Blystad and his immediate family. Total expenses under the agreements in 2017 was \$731 thousand.
No directors' fees were paid in 2016 or 2017.
Compensation and benefits of the key management:
| Other | Value of | ||||
|---|---|---|---|---|---|
| In \$ thousands | Salary | Pension | remuneration | warrants issued | Total 2017 |
| Herman Billung – CEO | 362 | 20 | 3 | 142 | 527 |
| Per Kristian Aamlid – COO | 164 | 16 | 3 | 32 | 215 |
| Total | 526 | 36 | 6 | 174 | 742 |
Total cost for hire of CFO in 2017 was \$167 thousand.
| In \$ thousands | Salary | Pension | Other remuneration |
Value of warrants issued |
Total 2016 |
|---|---|---|---|---|---|
| Herman Billung – CEO Per Kristian Aamlid – COO |
67 34 |
5 3 |
- - |
327 73 |
399 110 |
| Total | 101 | 8 | - | 400 | 509 |
The Group has paid deposit in 2017 for one cape size bulk carrier for delivery in January 2018. Under a memorandum of agreement the Group is committed to pay the settlement amount for the vessels on delivery. Total commitment is \$27.45 million.
The Capesize bulk carrier Songa Claudine was delivered 25 January 2018. The difference between the purchase price and deposit paid, \$27.45 million, was settled on delivery of the vessel.
In an extraordinary general meeting held on 22 March 2018 it was resolved to distribute a dividend of NOK per share equivalent to \$0.10 per share, in total \$3 586 000. The dividend was paid on 4 April 2018.
| Financial performance | 2017 | 2016 |
|---|---|---|
| Time charter equivalent revenue1 , \$ in thousands |
26 645 | 117 |
| Time charter out days (TC Out days2 ) |
2 909 | 17 |
| Time charter equivalent (TCE3 ), \$ per day |
9 159 | 6 882 |
| Net ship operating expenses4 , \$ in thousands |
15 749 | 117 |
| Operating days5 | 2 975 | 20 |
| Net ship operating expenses per day (OPEX6 ), \$ per day |
5 294 | 5 850 |
1 Time charter equivalent revenue is voyage charter revenue, time charter revenue and other operating income ( expenses).
2 Time Charter Out days (TC Out days) are calculated on a vessel by vessel basis and represent operating days less handover days, dry-dock and unscheduled repairs.
3 Time Charter Equivalent (TCE) is calculated by dividing time charter equivalent revenue by TC Out days during a reporting period.
4 Net Ship Operating Expenses are the ship operating expenses less startup costs and tonnage tax. Startup costs are expenses related to delivery of new vessels, which cannot be activated.
5 Operating days are the number of days calculated from the day the Company takes delivery of the vessel, until end of the reporting period.
6Net Ship Operating Expenses per day (OPEX) is calculated by dividing net ship operating expenses by operating days during a reporting period.
| Period from date of incorporation (24 August 2016) to 31 |
|||
|---|---|---|---|
| in \$ thousands | Note | 2017 | December 2016 |
| Operating revenue | 3 | 2 490 | 3 |
| Total operating income | 2 490 | 3 | |
| Employee benefit expenses | 4 | 1 022 | 524 |
| Other operating expenses | 5 | 1 338 | 232 |
| Total operating expenses | 2 360 | 756 | |
| Operating profit (-loss) | 130 | -753 | |
| Income from investments in subsidiaries | 3 435 | - | |
| Interest income from group companies | 10 | 996 | 41 |
| Other financial income | 6 | 2 287 | 35 |
| Interest expenses to group companies | 10 | -26 | - |
| Other interest expenses | -3 652 | - | |
| Other financial expenses | 7 | -353 | -335 |
| Net financial income (-expenses) | 2 687 | -259 | |
| Profit (-loss) before taxes | 2 817 | -1 012 | |
| Tax expense | 8 | - | 881 |
| Net profit (-loss) | 2 817 | -1 893 |
| in \$ thousands | Note | 31 December 2017 | 31 December 2016 |
|---|---|---|---|
| Investments in subsidiaries | 9,13 | 205 376 | 38 |
| Other receivables | 11 | 3 055 | - |
| Total financial non-current assets | 208 431 | 38 | |
| Total non-current assets | 208 431 | 38 | |
| Accounts receivable | 2 490 | 3 | |
| Receivables from group companies | 10 | 77 505 | 15 435 |
| Other receivables | 11 | 59 | 73 |
| Total receivables | 80 054 | 15 511 | |
| Cash and cash equivalents | 12 | 28 160 | 56 927 |
| Total current assets | 108 214 | 72 438 | |
| TOTAL ASSETS | 316 645 | 72 475 | |
| in \$ thousands | Note | 31 December 2017 | 31 December 2016 |
|---|---|---|---|
| 21 6 20 | 9085 | ||
| Share capital | 15 | ||
| Share premium | 15 | 153 619 | 63754 |
| Other paid-in equity | 574 | 400 | |
| Total paid-in equity | 175 813 | 73 239 | |
| Other equity | 924 | $-1893$ | |
| Total retained earnings | 924 | $-1893$ | |
| Total equity | 176 738 | 71 347 | |
| Interest bearing debt | 13 | 136 231 | |
| Other non-current liabilities | 17 | 490 | 327 |
| Total non-current liabilities | 136 721 | 327 | |
| Liabilities to group companies | 10 | 2 4 0 5 | 41 |
| Accounts payable | 123 | 290 | |
| Taxes payable | 8 | $\overline{\phantom{0}}$ | 393 |
| Public duties payable | 70 | 46 | |
| Other current liabilities | 587 | 32 | |
| Total current liabilities | 3 186 | 802 | |
| Total liabilities | 139 907 | 1 1 2 9 | |
| TOTAL COUITY AND LIADILITIES | 316 645 | 72 475 |
| Period from date of incorporation (24 August 2016) to 31 |
||
|---|---|---|
| in \$ thousands | 2017 | December 2016 |
| Profit (-loss) before taxes | 2 817 | -1 012 |
| Taxes paid | -393 | - |
| Dividends recognized as income with no cash effect | -3 435 | - |
| Net change in trade receivables/payables | -2 654 | 287 |
| Employee benefit expenses in connection with issuance of warrants | 174 | 400 |
| Financial expenses related to warrants to shareholder | 163 | 327 |
| Change in other short-term assets and liabilities | 696 | -441 |
| Net cash flow from operating activities | -2 632 | -439 |
| Investments in subsidiaries and other shares | -275 772 | -39 |
| Paid deposit on vessel | -3 055 | - |
| Investments by lending to subsidiaries | - | -14 290 |
| Received dividends from subsidiaries | 11 890 | - |
| Net cash flow used in investing activities | -266 937 | -14 329 |
| Proceeds from share issuance | 105 248 | 73 129 |
| Share issuance costs | -2 848 | -1 434 |
| Proceeds from debt issuance | 137 625 | - |
| Debt issuance costs | -1 559 | - |
| Proceeds from short-term borrowing | 2 336 | |
| Net cash flow from financing activities | 240 802 | 71 695 |
| Net change in cash and bank deposits | -28 767 | 56 927 |
| Cash and bank deposits at beginning of period | 56 927 | 0 |
| Cash and bank deposits at end of period | 28 160 | 56 927 |
Songa Bulk ASA is the parent company in the Songa Bulk Group. The Songa Bulk Group is the owner and operator of dry cargo vessels. Songa Bulk ASA is incorporated in Norway and has its head office in Oslo. The consolidated financial statements can be obtained from Songa Bulk ASA, Haakon VII's gate 1, 0161 Oslo, Norway.
The accounts are prepared in accordance with the 1998 Norwegian Accounting Act and Generally Accepted Accounting Principles in Norway (NGAAP).
The financial statements are prepared on a historical cost basis under the going concern assumption.
The accompanying notes for 2016 that relate to the income statement are for the period from incorporation (24 August 2016) to 31 December 2016.
Assets intended for long-term ownership or use are classified as non-current assets. Other assets are classified as current assets. Receivables payable within one year are classified as current assets. Analogous criteria are applied when classifying liabilities.
Non-current assets are valued at cost, but are written down to their fair value if a reduction in value is expected to not be of a temporary nature.
Current assets are valued at the lower of cost or net realisable value. Current liabilities are recorded in the balance sheet at the nominal amount at the time the debt is established.
The financial statements are presented in USD which is also the functional and accounting currency of the company.
Foreign currency transactions are translated at the exchange rate on the date of the transaction. Monetary items in a foreign currency are translated at the exchange rate on the balance sheet date.
Investments in subsidiaries are accounted for using the cost method. Investments are written down to their fair value if a reduction in value is expected to not be of a temporary nature.
Receivables are booked at nominal amount less any expected loss.
Cash and cash equivalents consist of bank deposits. They are accounted at their nominal value.
Bond loans are initially recognized at its fair value less transaction costs. After initial recognition, transaction costs are amortized on a straight line basis up to maturity.
Non-current liabilities comprise of warrants issued to shareholders, other than shareholders that are also employed by the group, under a warrant agreement. Warrants are booked at the higher of cost and fair value.
Revenue is recognized when it is earned, which is when the service is performed. The revenue is recognized at the value of the consideration at the time of the transaction.
Costs are normally reported in the same period as the corresponding revenue. If costs are not corresponding directly to any revenue, allocation is determined on the basis of assessment criteria.
Share-based payment transactions through issuance of warrants to shareholders, that are also employed by the Company, are measured at fair value of the warrants the issuance date as value of services received cannot be estimated reliably. Share-based payments are recognized as an employee expense, with a corresponding increase of equity.
The tax expense consists of tax payable and any changes in deferred tax. Tax is charged to the income statement except where it relates to items that are recognized directly in equity.
Deferred tax is calculated on any temporary differences between tax values and accounting values using the relevant tax rate. Deferred tax assets and deferred tax liabilities are presented net. Deferred tax assets are recorded in the balance sheet whenever it is probable that it can be utilized.
Share issuance costs related to a share issuance transaction are recognized directly in equity. If share issuance costs, for tax purposes, can be deducted from other taxable income in the same period as they are incurred, the costs are recognized net after tax.
The cash flow statement is prepared using the indirect method.
Transactions with related parties are carried out at market terms. Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence.
New information regarding the Company's financial position as of the balance sheet date is taken into consideration in the financial statements. Events occurring after the financial position date, that do not affect the financial position as of the balance sheet date, but which will affect the financial position in the future, are disclosed if significant.
Revenue consists of Management fee revenues through the rendering of commercial management services to subsidiaries.
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Salary and salary related expenses | 687 | 101 |
| Value of issued warrants to employees | 174 | 400 |
| Social security tax | 104 | 15 |
| Pension cost | 42 | 8 |
| Other remuneration | 15 | - |
| Total employee benefit expenses | 1 022 | 524 |
At year end 2017 the company had a total of 3 employees.
No directors' fees were paid in 2016 or 2017.
Compensation and benefits of the key management:
| In \$ thousands | Salary | Pension | Other remuneration |
Value of warrants issued |
Total 2017 |
|---|---|---|---|---|---|
| Herman Billung - CEO Per Kristian Aamlid - COO |
362 164 |
20 16 |
3 3 |
142 32 |
527 215 |
| Total | 526 | 36 | 6 | 174 | 742 |
Total cost for hire of CFO in 2017 was \$167 thousand.
| In \$ thousands | Salary | Pension | Other remuneration |
Value of warrants issued |
Total 2016 |
|---|---|---|---|---|---|
| Herman Billung - CEO Per Kristian Aamlid - COO |
67 34 |
5 3 |
- - |
327 73 |
399 110 |
| Total | 101 | 8 | - | 400 | 509 |
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Fees to auditors, lawyers and other professional fees | 522 | 161 |
| Fees for corporate services | 502 | 21 |
| Other operating expenses | 314 | 50 |
| Total other operating expenses | 1 338 | 232 |
| In \$ thousands | 2017 | 2016 |
|---|---|---|
| Fee for statutory audit | 16 | 1 |
| Fee for attestation services | 4 | 5 |
| Fee for other services | 51 | 4 |
| Total fees to auditors | 71 | 10 |
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Interest income | 492 | 24 |
| Foreign exchange gain | 1 795 | 11 |
| Total other financial income | 2 287 | 35 |
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Value change of financial liability in connection with warrants issued to shareholder | 163 | 327 |
| Amortized share issuance costs | 189 | - |
| Other financial expenses | 1 | 8 |
| Total other financial income | 353 | 335 |
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Basis for tax expense and tax payable: | ||
| Profit (-loss) before taxes | 2 817 | -1 012 |
| Effects of foreign exchange gains and losses on current items | -4 972 | 3 808 |
| Dividends under the tax exemption method | -2 891 | - |
| Other permanent differences between accounting and tax | 343 | 727 |
| Share issuance costs directly in equity – recognized gross before tax | -2 848 | - |
| Basis for tax expense | -7 551 | 3 523 |
| Tax expense: | ||
| Tax payable | - | 881 |
| Change deferred tax | -1 737 | - |
| Change deferred tax not recognized | 1 737 | - |
| Tax expense | - | 881 |
| Taxable income: | ||
|---|---|---|
| Basis for tax payable in tax expense | - | 3 523 |
| Basis for deferred tax in tax expense | -7 551 | - |
| Share issuance costs directly in equity – recognized net after tax | - | -1 912 |
| Group contribution | - | -41 |
| Change in temporary differences | -2 036 | |
| Taxable income | -9 587 | 1 570 |
| Reconciliation of tax expense for the year: | ||
| Profit (-loss) before taxes | 2 817 | -1 012 |
| Tax expense calculated on the relevant tax rate (24%/25%) | 676 | -253 |
| Tax expense | 0 | 881 |
| Difference | -676 | 1 134 |
| Difference comprise of: | ||
| Tax effect of foreign exchange gains and losses on current items | - 1 193 | 952 |
| Tax effect of dividends under the tax exemption method | -694 | - |
| Tax effect of other permanent differences | 82 | 182 |
| Tax effect of share issuance costs directly in equity – recognized gross before tax | -684 | - |
| Tax effect of deferred tax asset not recognized | 1 738 | - |
| Effect of changes in tax rate | 75 | - |
| Total difference | -676 | 1 134 |
| Tax payable in statement of financial position: | ||
| Tax payable in tax expense | - | 881 |
| Tax effect of share issuance costs directly in equity – recognized net after tax | - | -478 |
| Tax effect of group contribution | - | -10 |
| Tax payable in statement of financial position | - | 393 |
| Deferred tax per 31 December | 2017 | 2016 |
| Temporary differences: | ||
| Foreign exchange gain on long-term debt | 272 | - |
| Debt issuance costs | 1 764 | - |
| Total temporary differences | 2 036 | - |
| Tax loss carried forward | -9 587 | - |
| Net temporary differences | -7 551 | - |
| Deferred tax: | ||
| Nominal tax rate on deferred tax | 23% | 24% |
| Deferred tax (-asset) | -1 737 | - |
| Deferred tax asset not recognized | 1 737 | - |
| Deferred tax in statement of financial position | - | - |
| Subsidiary | Business office | Shareholding / voting rights |
|---|---|---|
| Songa Maru AS | Oslo | 100% |
| Songa Marlin AS | Oslo | 100% |
| Songa Glory AS | Oslo | 100% |
| Songa Genesis AS | Oslo | 100% |
| Songa Delmar AS | Oslo | 100% |
| Songa Flama AS | Oslo | 100% |
| Songa Haddock AS | Oslo | 100% |
| Songa Res 5 AS | Oslo | 100% |
| Songa Mountain AS | Oslo | 100% |
| Songa Grain AS | Oslo | 100% |
| Songa Opus AS | Oslo | 100% |
| Songa Devi AS | Oslo | 100% |
| Songa Moon AS | Oslo | 100% |
| Songa Hirose AS | Oslo | 100% |
| Songa Sky AS | Oslo | 100% |
| Songa Claudine AS | Oslo | 100% |
| In \$ thousands | 2017 | 2016 | 2017 | 2016 |
|---|---|---|---|---|
| Receivables | Liabilities | |||
| Songa Hirose AS | 392 | - | - | - |
| Songa Marlin AS | 211 | - | 2 385 | - |
| Songa Claudine | 32 | - | - | - |
| Songa Glory AS | - | - | 20 | - |
| Group Contribution | 544 | - | - | 41 |
| Dividends | 76 326 | - | - | - |
| Songa Maru AS | - | 15 434 | - | - |
| Total | 77 505 | 15 434 | 2 405 | 41 |
Receivables and liabilities can be denominated in both USD and NOK. Balances are subject to calculation of quarterly interests of 3 Months LIBOR / NIBOR + a margin set on arms lengths basis. The receivables are subject to assessment of repayment or other settlements at any time.
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| VAT receivable | 45 | 69 |
| Prepaid expenses | 14 | 4 |
| Total other current receivables | 59 | 73 |
Other non-current receivables comprise of payment of deposit of \$ 3 055 thousand under a memorandum of agreement for the purchase of the cape size bulk carrier Songa Claudine.
| in \$ thousands | 2017 | 2016 |
|---|---|---|
| Bank deposits denominated in USD | 27 732 | 55 598 |
| Bank deposits denominated in NOK | 428 | 1 329 |
| Total cash and cash equivalents | 28 160 | 56 927 |
Restricted cash related to employee taxes at 31 December 2017 was USD \$38 thousand. At 31 December 2016 restricted cash was \$32 thousand.
On 30 May 2017, the Company issued a \$75 million senior secured bond with a total borrowing limit of \$150 million. The bond has floating interest rate, of LIBOR plus a margin of 4.50%. Settlement was 13 June 2017 and the bond shall be repaid in full on the maturity date which is 13 June 2022.
On 23 August 2017, the Company completed a tap issue of \$45 million. The total nominal amount outstanding in the bond following the tap issue was \$120 million of the borrowing limit of \$150 million. The bond has a floating interest rate of LIBOR plus a margin of 4.50%, and the final maturity is 13 June 2022.
On 29 September 2017, the Company completed a tap issue of \$18 million. The total nominal amount outstanding in the bond following the tap issue is \$138 million of the borrowing limit of \$150 million. The bond has a floating interest rate of LIBOR plus a margin of 4.50%, and the final maturity 13 June 2022.
| in \$ thousands | 31 December 2017 | 31 December 2016 |
|---|---|---|
| Nominal value of issued bond | 138 000 | - |
| Debt issuance cost | -1 769 | - |
| Interest bearing debt | 136 231 | - |
The following financial covenants exist under the bond terms:
In addition, the earliest distribution is in 2018. Distribution is permitted if the vessel LTV ratio is below 50% and is also limited to the issuer's consolidated adjusted net profit of the previous calendar year. Depreciation made on the vessels and sale of vessels is not included in adjusted net profit.
Book value of pledged assets under the bond agreement:
| 31 December 2017 | |
|---|---|
| Shares in subsidiaries | 205 376 |
| Group loans | 77 505 |
| Total | 282 881 |
Non-current liabilities are liabilities related to warrants issued to shareholders. See note 17 for further details.
| in \$ thousands | Share capital |
Share premium |
Other paid-in capital |
Retained earnings |
Total equity |
|---|---|---|---|---|---|
| Balance at 1 January 2017 | 9 085 | 63 754 | 400 | -1 893 | 71 347 |
| Share issuance 31 January 2017 | 600 | 4 400 | - | - | 5 000 |
| Share issuance 17 February 2017 | 11 935 | 88 313 | 100 248 | ||
| Share issuance costs | - | -2 848 | - | - | -2 848 |
| Warrants issued to employees | - | - | 174 | - | 174 |
| Net profit | - | - | - | 2 817 | 2 817 |
| Balance at 31 December 2017 | 21 620 | 153 619 | 574 | 924 | 176 738 |
| Number of shares | Share capital (USD) | Share premium (USD) | |
|---|---|---|---|
| Balance at 1 January 2017 | 14 860 000 | 9 085 | 63 754 |
| Private placement 31 January 2017 | 1 000 000 | 600 | 4 400 |
| Private placement 17 February 2017 | 20 000 000 | 11 935 | 88 313 |
| Share issuance costs | - | - | -2 848 |
| Balance at 31 December 2017 | 35 860 000 | 21 620 | 153 619 |
Authorized share capital is NOK 179 300 000. All issued shares are fully paid at 31 December 2017.
The Group has issued warrants to its founding shareholder. For further information see note 17.
| Shareholder | Share holding | Share holding in % |
|---|---|---|
| Canomaro Bulk AS | 4 671 400 | 13.03 % |
| Songa Trading Inc | 2 547 900 | 7.11 % |
| Songa Shipholding AS | 2 164 000 | 6.03 % |
| Evermore Global Value Fund | 2 143 278 | 5.98 % |
| J.P. Morgan Bank (Ireland) Plc | 1 437 300 | 4.01 % |
| North East Star Maritime Ltd | 1 267 100 | 3.53 % |
| Credit Suisse Securities (USA) Llc | 1 000 000 | 2.79 % |
| SEB Prime Solutions Sissener Canop | 1 000 000 | 2.79 % |
| Magnus Leonard Roth | 981 102 | 2.74 % |
| Polux Investment Ltd | 821 200 | 2.29 % |
| Ringnes Holding AS | 746 400 | 2.08 % |
| Eika Norge | 733 700 | 2.05 % |
| Regents of the University of Michi | 730 643 | 2.04 % |
| USB AG | 682 533 | 1.90 % |
| Bras Kapital AS | 600 000 | 1.67 % |
| Euroclear Bank S.A./N.V. | 532 342 | 1.48 % |
| Torstein Ingvald Tvenge | 525 000 | 1.46 % |
| Ola Rustad AS | 500 000 | 1.39 % |
| Sirius International Insurance Corp | 465 797 | 1.30 % |
| Morgan Stanley & Co. LLC | 445 200 | 1.24 % |
| Total 20 largest shareholders | 23 994 895 | 66.91 % |
| Other shareholders | 11 865 105 | 33.09 % |
| Total | 35 860 000 | 100.00 % |
Shares and warrants owned by board members and executives:
| Shareholder | Title | Share holding | Share holding in % | No of warrants |
|---|---|---|---|---|
| Board members: | ||||
| Arne Blystad | Chairman | 4 711 900 | 13.14 % | 673 594 |
| Magnus Roth | Board member | 5 652 502 | 15.76 % | - |
| Christine Rødsæther | Board member | 3 124 | 0.01 % | - |
| Vibeke Gwendoline Fængsrud | Board member | 5 412 | 0.01 % | - |
| Board consultant: | ||||
| Ghikas Goumas | Board consultant | 1 267 100 | 3.53 % | - |
| Executives: | ||||
| Herman Alf Billung | CEO | 73 500 | 0.20 % | 673 594 |
| Per Kristian Aamlid | COO | 34 000 | 0.10 % | 149 688 |
| Thomas Rønningen | CFO | 3 500 | 0.01 % | - |
| Nina Rathsack | Operations Manager | 2 540 | 0.01 % | - |
On 31 January 2017 and 17 February 2017 three shareholders of Songa Bulk ASA were issued with warrants. The warrants came in addition to the warrants issued on 4 November 2016. The number of warrants issued are detailed in the tables below. Total warrants issued as per 31 December 2017 was 1 496 876. No more warrants will be issued under the existing warrant agreement. The total warrants issued equals 7.5% of shares issued up to an aggregate amount of \$100 million in proceeds. Each warrant gives the holders the right, but no obligation, to subscribe for one share at a price equal to the share subscription price in each respective share issuance. The warrants are valid for a period of 5 years from the relevant date of issuance.
Conditions for exercise are such that tranche 1 vests at subscription price + 25%, tranche 2 vests at subscription price + 50% and tranche 3 vests at subscription price + 75%. The price increase is measured from the average volume weighted trading price for a period of 10 trading days with minimum trading volume equal to the NOK equivalent of USD 1 million. The warrant subscription price is equal to the original subscription price of the share issuance for all three tranches.
| Tranche 1 | Tranche 2 | Tranche 3 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Value | Value | Value | Value | Value | Value | ||||
| per | per | per | per | per | per | ||||
| No of | warrant | warrant | No of | warrant | warrant | No of | warrant | warrant | |
| Share issue | warrants | (NOK) | (USD) | warrants | (NOK) | (USD | warrants | (NOK) | (USD) |
| 4 November 2016 | 201 094 | 5.87 | 0.72 | 201 094 | 5.84 | 0.71 | 201 094 | 4.54 | 0.56 |
| 31 January 2017 | 13 750 | 7.53 | 0.90 | 13 750 | 7.87 | 0.94 | 13 750 | 6.37 | 0.76 |
| 17 February 2017 | 59 583 | 6.85 | 0.82 | 59 583 | 6.99 | 0.84 | 59 583 | 5.52 | 0.66 |
Granted warrants as at 31 December 2017 to shareholders that are also employed by the Company:
Valuation date is the date of the respective share issuance. Subscription price is NOK 40.89 for warrants issued on 4 November 2016, NOK 41.63 for warrants issued on 31 January 2017 and NOK 42.00 for warrants issued on 17 February 2017. Warrants are accounted for as employee benefit expenses with a corresponding increase in equity. Total recognized amount in 2017 was \$174 thousand. Recognized amount in 2016 was \$400 thousand.
Granted warrants as at 31 December 2017 to shareholder that is not employed by the Company:
| Tranche 1 | Tranche 2 | Tranche 3 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Value | Value | Value | Value | Value | Value | ||||
| per | per | per | per | per | per | ||||
| No of | warrant | warrant | No of | warrant | warrant | No of | warrant | warrant | |
| Share issue | warrants | (NOK) | (USD) | warrants | (NOK) | (USD | warrants | (NOK) | (USD) |
| 4 November 2016 | 164 531 | 6.48 | 0.79 | 164 531 | 6.29 | 0.79 | 164 531 | 5.18 | 0.63 |
| 31 January 2017 | 11 250 | 6.24 | 0.76 | 11 250 | 6.26 | 0.76 | 11 250 | 4.88 | 0.59 |
| 17 February 2017 | 48 750 | 6.13 | 0.75 | 48 750 | 6.12 | 0.75 | 48 750 | 4.74 | 0.58 |
Valuation date is 31 December 2017. Subscription price is NOK 40.89 for warrants issued on 4 November 2016, NOK 41.63 for warrants issued on 31 January 2017 and NOK 42.00 for warrants issued on 17 February 2017. These warrants are recognized as financial liabilities, since the strike price is not in the functional currency of the entity, and valued at fair value through profit or loss. The fair value of all issued warrants to shareholder not employed by the group as of 31 December 2017 was \$490 thousand. As of 31 December 2016 the fair value was \$327 thousands. The recognized net expense in 2017 was \$163 thousand. In 2016 the net expense was \$327 thousands. The items are classified as other financial expenses.
Warrants are valued by use of Monte Carlo Simulation with 1 000 000 observations. The Monte Carlo model projects future share prices for the Company based on a risk-neutral framework (similar to the financial modelling used for other models such as Black-Scholes model or a binomial model). By using identical assumptions and sufficient number of simulations, a Monte Carlo simulation without special conditions would yield somewhat identical results to a Black-Scholes or binomial model. However, a Monte Carlo simulation allows for greater flexibility and customization of the assumptions and plan design parameters, which is necessary to value such a plan dependent on uncertainty with respect to vesting dates and quantity becoming exercisable. The following inputs to the Monte Carlo model is applied:
Volatility: 25%
Songa Bulk AS owns subsidiaries, which operates dry bulk vessels for transportation of dry cargo worldwide. Through operations in subsidiaries, the Company is exposed to financial risks such as market risk (including currency risk), credit risk, liquidity risk, interest rate risk and other risks that may influence the value of assets, liabilities and cash flows.
To reduce and manage these risks, management periodically assesses the Company's financial market risk in general, as well as evaluating hedging strategies for specific exposures as they arise. The primary strategy used for reducing the financial market risks is the use of derivatives, where appropriate.
Derivative instruments are only implemented for the purpose of hedging financial risks. The Company does not trade or use instruments with the objective of earning financial gains from interest rate or exchange rate fluctuations alone. The Company only employs conventional derivative instruments in contracts with highly rated and reputable financial institutions and commodities brokers.
For 2017, the Company did not have any hedging contracts or other derivative instruments.
Revenues, expenses, assets and liabilities of the Company are mainly denominated in USD. The Company is exposed to currency risk in connection with the following items:
General and administrative expenses as salaries, fees to lawyers and other fees such as share issuance costs are mainly denominated in NOK. Exchange rate fluctuations between USD and NOK will have an effect on the actual recognized expenses in the financial statements.
The fair value of warrants recognized at fair value through profit or loss is valued in NOK. The change in value to be recognized in profit or loss will be affected by any fluctuations in the USD/NOK exchange rate.
Taxable income is denominated in NOK. Monetary items denominated in other currencies, which is mainly USD, will be translated to NOK for tax purposes. Any change in the foreign exchange rates will affect the taxable income and income tax payable.
The Company is exposed to credit risk in the case that receivables from customers and other parties are not paid. The customers are in general large companies with excellent credit rating. For new customers, a credit evaluation is performed.
Iliquidity risk may arise if a company is not able to pay its financial obligations at due date. The Company applies cash flow forecasting to ensure that the activities are adequately financed at all times. Cash flows from operations and from planned financing activities are considered sufficient to settle all financial obligations.
The Company's issued bond has floating interest which means a change in LIBOR will have a direct effect on the Company's cash flows. If LIBOR increases by 1%, the interest expense would increase by \$1.38 million per year.
All related party transactions are carried out at marked terms.
The Company has entered into a corporate service agreement with Arne Blystad AS for the rendering of administrative services, IT and office services and accounting and reporting services. In addition, the agreement covers hire of Chief Financial Officer. Arne Blystad AS is a company owned and controlled by the Chairman Arne Blystad and his immediate family. Total expenses under the agreement in 2017 was \$502 thousand. In 2016 the fee was \$21 thousand.
In January 2018, the Company nominated its subsidiary Songa Claudine AS to take delivery of the vessel Songa Claudine. The deposit paid under the Memorandum of Agreement was transferred to Songa Claudine AS accordingly on back-to-back terms, meaning no gains or losses were recognized.
In an extraordinary general meeting held on 22 March 2018 it was resolved to distribute a dividend of NOK per share equivalent to \$0.10 per share, in total \$3 586 000. The dividend was paid on 4 April 2018.
We have audited the financial statements of Songa Bulk ASA. The financial statements comprise:
In our opinion:
We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by laws and regulations, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We refer to note 2 (Accounting policies) and note 4 (Vessels and deposit dry bulk vessels).
The group has 14 vessels with a combined carrying amount USD 266.8 million. Following managements' assessment no impairment indicators were identified for vessels. Based on this, no impairment test was performed and no impairment charge was recognized.
We focused on this area due to the relative size of the amounts and the judgement used in arriving at the conclusion together with the potential impact of any fall in value of the vessels.
We evaluated and challenged managements' assessment and conclusion of no impairment indicators at December 31, 2017 and the process by which this was performed. We assessed managements accounting policy against IFRSs and obtained explanations from management as to how the specific requirements of the standards, in particular IAS 36 – Impairment of assets, were met.
Impairment indicators assessed included among other the following; market capitalization being greater than net asset value, positive development in the dry bulk market for freight and vessel valuations compared to purchase price. Further, we did not observe significant changes in market interest rates or other market rates of return.
Management compiled broker valuation certificates for the vessels. We satisfied ourselves that the external brokers had both the objectivity and the competence to provide the estimate. No matters of consequence arose from the procedures above.
Based on the procedures performed, we came to the same conclusion as management. No impairment indicators were identified.
Management is responsible for the other information. The other information comprises the Board of Directors' report, the statements on Corporate Governance and Corporate Social Responsibility, but does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Board of Directors and the Managing Director for the Financial Statements
The Board of Directors and the Managing Director (management) are responsible for the preparation in accordance with law and regulations, including fair presentation of the financial statements of the parent company in accordance with the Norwegian Accounting Act and accounting standards and
practices generally accepted in Norway, and for the preparation and fair presentation of the financial statements of the group in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company's and the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern. The financial statements of the parent company use the going concern basis of accounting insofar as it is not likely that the enterprise will cease operations. The financial statements of the group use the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors' report and in the statements on Corporate Governance and Corporate Social Responsibility concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit is consistent with the financial statements and complies with the law and regulations.
Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the Company and the Group's accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway.
Oslo, 24 April 2018
Bjørn Lund State Authorised Public Accountant
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