Annual Report • Jun 30, 2019
Annual Report
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Annual Report and Audited Financial Statements
For the year ended 30 June 2019
| Highlights | 2 |
|---|---|
| Chairman's Statement | 3 |
| Corporate Summary | 5 |
| Strategic Report | 6 |
| Investment Manager's Report | 11 |
| Principal and Emerging Risks and Uncertainties |
16 |
| Corporate Governance Statement | 18 |
| Statement of Directors' Responsibilities | 21 |
| Report of the Directors | 23 |
| Audit Committee Report | 32 |
| Independent Auditor's Report | 35 |
| Financial Statements | |
| Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements |
44 45 46 47 48 |
| Corporate Information | 73 |
| Definitions | 76 |
| Notice of AGM | 80 |
| Form of Proxy | 83 |
I am pleased to present the Company's annual report and audited financial statements for the year ended 30 June 2019.
During the period we have raised additional funds from firstly a private placing (C Share placing) on 11 October 2018 (US\$78.4m) which was 90% invested by January 2019, and then from a further placing (of Ordinary Shares) on 11 March 2019 (US\$50m) taking the fund NAV to US\$225.8m as at 30 June 2019. The Investment Manager has successfully committed and invested 85% of the March proceeds. The Company currently has 15* vessels in its fleet including two handysize bulkers, six containerships, four tankers and three general cargo vessels with an average minimum charter period of 3.5 years. There is a further breakdown of the portfolio in the Investment Managers Report set out on page 11.
*14 vessels as at 30 June 2019 with one additional vessel being delivered in July 2019
As at the end of 30 June 2019, the Company's NAV at US\$225.8m was above net issue proceeds of US\$215.0m. The portfolio of vessels in the Company continue to perform well. The Company paid dividends of \$8.8m over the financial year, 1.5x covered by portfolio vessels' operating cash flow of \$12.9m.
During the period the Company's listed share price decreased from \$1.06 per Share as at 30 June 2018 to US\$0.99 per Share as at the close of business 30 June 2019. The Company's Shares have traded at an average premium of 3.78% to NAV during the period.
During the period, the profit of the Company was US\$16.4m or 11.94 US cents per Ordinary Share (10.00 US cents adjusted for C Shares)
During the period the Company declared and paid dividends to shareholders as follows:
| Period end | Dividend per share (US\$) |
Ex div date | Record date | Paid date |
|---|---|---|---|---|
| Ordinary shareholders | ||||
| 30.06.18 | 0.0150 | 09.08.18 | 10.08.18 | 17.08.18 |
| 30.09.18 | 0.0175 | 01.11.18 | 02.11.18 | 15.11.18 |
| 31.12.18 | 0.0175 | 07.02.19 | 08.02.19 | 22.02.19 |
| 31.03.19 | 0.0175 | 02.05.19 | 03.05.19 | 17.05.19 |
| C-Class shareholders |
||||
| 31.12.18 | 0.0050 | 07.02.19 | 08.02.19 | 22.02.19 |
A further dividend was declared on 29 July 2019 for US\$0.0175 per ordinary share for the quarter ending 30 June 2019. The dividend was paid on 23 August 2019 to holders of ordinary shares on record date 9 August 2019 with an ex-dividend date of 8 August 2019.
The Company complies with the UK Code of Corporate Governance where applicable but we have also joined the AIC to ensure that the Directors are kept up to date with matters concerning listed investment companies like ours. The Board of Directors take their fiduciary and corporate governance responsibilities seriously and I would encourage Shareholders to contact us at [email protected] should there be any matters of concern that they feel need to be addressed.
I continue to be encouraged by the Investment Manager's ability to build a diversified portfolio of vessels in a timely manner. I would also like to thank N+1 Singer and Hudnall Capital for their contribution in raising US\$78.4m for the C Share issue and for raising US\$50m on 11 March 2019. There continues to be a strong pipeline of investments particularly in the tanker, bulkers, general cargo and containership segments which makes it possible to invest recent proceeds on a timely basis.
The Directors, Investment Manager and our Advisors continue to look for new and varied opportunities and aim to increase the Company size further during 2019 and beyond.
Shareholders are welcome to attend the Annual General Meeting on 25 October 2019 at 11.00am. The AGM notice and Proxy are on pages 80 to 84.
……………………… Rob King Non-executive Chairman
The Company is a closed-ended investment company, limited by shares, registered and incorporated in Guernsey under the Companies Law on 6 February 2017, with registered number 63061.
The Company is a Registered Closed-ended Collective Investment Scheme regulated by the GFSC pursuant to the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended and the Registered Closed-ended Investment Scheme Rules 2018.
The Company has 224,644,568 shares in issue, all of which are admitted to the Specialist Fund Segment of the Main Market of the London Stock Exchange under the ticker "SHIP". ISIN: GG00BDFC1649, SEDOL: BDFC164
The Company makes its investments through LS Assets Limited and other underlying SPVs, which are ultimately wholly-owned by the Company. LS Assets Limited is registered and was incorporated in Guernsey in accordance with the Companies Law on 18 January 2018 with registered number 64562. The underlying SPVs owned by LS Assets Limited were incorporated in the Isle of Man, in accordance with the Isle of Man Companies Act 2006 (the "IOM Companies Act").
The Company controls the investment policy of each of LS Assets Limited and it's wholly owned SPVs to ensure that each will act in a manner consistent with the investment policy of the Company. The Company will refer to the vessels acquired by the underlying SPVs 'name' rather than the actual name of the respective vessel for confidentiality purposes.
The Investment Manager is Tufton Oceanic Ltd, a company incorporated in England and Wales with registered number 1835984 and is regulated by the UK FCA and has been authorised to act as a Small Registered UK AIFM under the AIFMD. Tufton Oceanic Ltd has been a specialist fund manager in the maritime and energy markets since 2000 and has been focused on financial services to these industries since its inception in 1985.
The Company's investment objective is to provide investors with an attractive level of regular and growing income and capital returns through investing in secondhand commercial sea-going vessels. The Company has established a wholly owned subsidiary that acts as a Guernsey holding company for all its investments. LS Assets Limited is governed by the same directors as the Company.
All vessels acquired, vessel related contracts and costs will be held in Special Purpose Vehicles domiciled in the Isle of Man or other jurisdictions considered appropriate by the Company's Advisers. The Company conducts its business in a manner that results in it qualifying as an investment entity (as set out in IFRS 10: Consolidated Financial Statements) for accounting purposes and as a result will apply the investment entity exemption to consolidation. The Company therefore reports its financial results on a non-consolidated basis.
Subject to the solvency requirements of Companies Law, the Company intends to pay dividends on a quarterly basis and is targeting a dividend yield of 7% per annum. The Directors expect the dividend to grow, in absolute terms, modestly over the long term.
The Company aims to achieve an IRR of 12% (net of expenses and fees) on the Issue Price over the long term. The Earnings per Share for the year ended 30 June 2019 was 11.94 US cents (10.00 US cents adjusted for C Shares).
Up to date information regarding the Company, including the quarterly announcement of Net Asset Value, can be found on the Company's website, which is www.tuftonoceanicassets.com and is maintained by the Investment Manager.
The Company has a 30 June financial period-end. The updated NAV is published on a quarterly basis
The Company's Board of Directors comprises three independent non-executive Directors. The Board's role is to manage and monitor the Company in accordance with its objectives. The Board monitors the Company's adherence to its investment policy, its operational and financial performance and its underlying assets, as well as the performance of the Investment Manager and other key service providers. In addition, the Board has overall responsibility for the review and approval of the Company's NAV valuations and financial statements. It also maintains the Company's risk register, which it monitors and updates on a regular basis.
The Directors of the Company who served during the period and to date are:
A non-executive director for a number of open and closed-ended investment funds including Weiss Korea Opportunity Fund Limited, Chenavari Capital Solutions Limited (Chairman) and CIP Merchant Capital Limited. Before becoming an independent non-executive director in 2011 he was a director of Cannon Asset Management Limited and their associated companies. Prior to this he was a director of Northern Trust International Fund Administration Services (Guernsey) Limited (formerly Guernsey International Fund Managers Limited) where he had worked from 1990 to 2007. He has been in the offshore finance industry since 1986 specialising in administration and structuring of offshore open and closed ended investment funds. Rob King is British and resident in Guernsey.
A chartered accountant and chartered tax adviser. He was a partner in PricewaterhouseCoopers CI LLP in the Channel Islands from 1994 until his retirement in September 2013. During his career his main role was as an audit partner working with a wide variety of financial services businesses and structures. Mr Le Page also led that firm's audit and advisory businesses for approximately ten years and for five of those years was the Senior Partner (equivalent to Executive Chairman) for the Channel Islands firm. Since his retirement Mr Le Page has joined a number of boards as a non-executive director including three premium London listed funds, Highbridge Multi-strategy Fund Limited, Volta Finance Limited and Princess Private Equity Holding Limited and one International Stock Exchange listed company, Channel Islands Property Fund Limited, all of which he serves as Chairman of the audit committee. He is a past chairman of the Guernsey International Business Association and a past President of the Guernsey Society of Chartered and Certified Accountants. Stephen Le Page is British and resident in Guernsey.
An investment banker experienced in asset backed, structured and project financing with wide geographic exposure including Asia, Central/Eastern Europe, North and Latin America and Scandinavia. Mr Barnes was managing director at BNP Paribas and co-head of its EMEA Shipping and Offshore business between 2010 and 2015. He was also head of risk monitoring for Global Shipping at BNP Paribas. Prior to that, Mr Barnes had served as head of shipping (London) at Fortis Bank, head of specialised industries at Nomura International and as a corporate finance Director of Barclays Bank and as a Director of its Shipping Industry Unit. Paul Barnes is British and resident in the United Kingdom.
Tufton Oceanic Ltd has been appointed as the Investment Manager and has been a specialist fund manager in the maritime and energy markets since 2000 and has been focused on financial services to these industries since its inception in 1985.
The Investment Manager currently manages investments of c. US\$1.3 billion in c. 75 vessels. As of 30 June 2019, the Tufton Group, of which the Investment Manager is part, had 46 employees operating from offices in London, Isle of Man and Cyprus. The Investment Manager is fully dedicated to the shipping industry with an in-house research team and dedicated Asset Manager providing services to each vessel purchased. As described in the Prospectus, the Investment Manager has an established track record in managing segregated mandates for pension funds with similar investment objectives to those of the Company.
The Investment Manager's employees have significant experience of investing and financing in the shipping industry. Each member of their Investment Committee has between 20 and 40 years of experience in the maritime financial markets either from investment banking, commercial banking or from the vessel owning / operating perspective.
The Investment Manager's role encompasses the identification of appropriate acquisition opportunities, conducting necessary due diligence, making recommendations to the Board and completing the proposed investments on behalf of the Company. The Investment Manager (in conjunction with the Asset Manager) will also monitor the performance of the Company's Portfolio. The Investment Manager, which acts as the Company's AIFM under the Alternative Investment Fund Managers Directive ("AIFMD"), is authorised and regulated by the UK FCA.
The Investment Manager has established an Investment Committee.
Each investment proposal is reviewed by the Investment Committee which meets on a weekly basis. In reviewing each potential investment, the Investment Committee will consider a range of factors including a detailed analysis of the vessel's technical condition and other analyses from the Asset Manager, a full risk/reward analysis, downside stress testing, commercial/employment strategy, effects of adding moderate leverage in accordance with Company policy, market outlook, credit quality of charterer, market reputation of counterparties, deal modelling, exit strategy and any macro analysis that might be necessary to fully understand the investment. Once the Investment Committee has approved an investment opportunity, this is put to the Board of Directors for approval. All investments are conditional on approval by both the Investment Committee and the Board.
Oceanic Marine Management Limited was established in 2009 to act as the asset manager for vessels owned by funds and vehicles managed or advised by Tufton Group. The Asset Manager is based in Cyprus and employs professionals who have experience in all aspects of ship management including special surveys, dry docks, maintenance, repair and negotiating commercial agreements for vessel employment.
The Asset Manager enters into an asset management agreement with each SPV and provides the services detailed in the Prospectus.
Maitland Administration (Guernsey) Limited ("Maitland") has been appointed as administrator and secretary to the Company, pursuant to the Administration Agreement dated 27 February 2017 and to LS Assets Limited, pursuant to the Administration Agreement dated 20 April 2018. Maitland was incorporated with limited liability in Guernsey on 20 January 2010 and is licensed by the Guernsey Financial Services Commission under the Protection of Investors (POI) Law.
The Administrator forms part of the Maitland group established in Luxembourg in 1976. Maitland is a global advisory, administration and family office firm providing legal, fiduciary investment and fund administration services to private, corporate and institutional clients. The group employs over 1,100 staff in 17 offices across 12 jurisdictions and collectively administers in excess of £220bn in assets.
The Administrator provides day-to-day administration services to the Company and is also responsible for the Company's general administrative and secretarial functions such as the calculation of the Net Asset Value, compliance with the Code and maintenance of the Company's accounting and statutory records.
Computershare Investor Services (Guernsey) Limited was appointed as registrar to the Company pursuant to the Registrar Agreement dated 27 February 2017. In such capacity, the Registrar is responsible for the transfer and settlement of shares held in certificated and uncertificated form. The Register may be inspected at the office of the Registrar.
Computershare Investor Services PLC was appointed as receiving agent to the Company for the purposes of the Offer for Subscription pursuant to the Receiving Agent Agreement dated 27 February 2017.
Shareholders are obliged to comply, from Admission, with the shareholding notification and disclosure requirements set out in Chapter 5 of the Disclosure Guidance and Transparency Rules. The Administrator will monitor disclosure with reference to changes in shareholdings.
We are pleased to present our review for the financial year and our outlook for the next few years. Highlights include:
As of 30 June 2019, the Company's portfolio is:
Post year end, the Company took delivery of a further vessel:
Parrot (delivered to the Company on 1 July 2019) operates on a time charter to a major container line and will have an exhaust gas scrubber fitted in early 2020.
| SPV+ | Vessel Type and Year of Build |
Acquisition Date* |
Earliest end of charter period |
Expected end of charter period |
|---|---|---|---|---|
| Swordfish | 1700-TEU containership built 2008 |
February 2018 | April 2020 | April 2020 |
| Kale | 1700-TEU containership built 2008 |
February 2018 |
February 2020 | February 2020 |
| Patience | 2500-TEU containership built 2006 |
March 2018 | April 2021 | October 2022 |
| Riposte | 2500-TEU containership built 2009 |
March 2018 | February 2020 | February 2021 |
| Neon | Mid-sized LPG carrier built 2009 |
July 2018 | July 2025 | July 2025 |
| Aglow | Handysize Bulker built 2011 |
July 2018 | October 2019 | December 2019 |
| Dragon | Handysize Bulker built 2010 |
September 2018 |
August 2020 | August 2020 |
| Citra | 2500-TEU containership built 2006 |
November 2018 | November 2020 | November 2020 |
| Sierra | Medium-range product tanker built 2010 |
December 2018 | January 2021 | January 2021 |
| Octane | Medium-range product tanker built 2010 |
December 2018 | January 2021 | January 2021 |
| Pollock | Handysize product tanker built 2008 |
December 2018 | February 2020 | March 2021 |
| Hongi | General Cargo Vessel built 2002 |
February 2019 | April 2026 | April 2026 |
| Darwin | General Cargo Vessel built 2004 |
April 2019 | January 2026 | January 2026 |
| Java | General Cargo Vessel built 2003 |
April 2019 | October 2023 | October 2023 |
| Parrot | 8200-TEU containership built 2006 |
June 2019 | December 2024 |
February 2025 |
All vessels are performing well and in line with expectations. All vessels are in good condition and are maintained to a high standard.
Notes:
* date the Company agreed to acquire the vessel
*** these may differ from the Interim Report (31 December 2018) following the assessments of the Investment Manager of the prevailing market conditions
During the financial year, the NAV decreased slightly to 100.5 US cents per share, after the Company paid out US\$8.8m in Ordinary and C Share dividends. The year end NAV remains slightly above the IPO price of 100.0 US cents (net issue price 98 US cents). Operating cash flow contributed 7.90 US cents per share (adjusted for C Shares) and there was an unrealised gain in the charter-adjusted fleet value of 2.10 US cents (adjusted for C Shares) during the financial period.
There was an unrealised gain in the charter-adjusted fleet of 2.10 US cents (adjusted for C Shares) during the financial period. The unrealised gain was primarily in the three product tankers and the containership Parrot (delivered on 1 July 2019).
The ongoing vessel supply correction in the shipping market continues to support higher charter rates. However, a slowdown in global GDP growth and the trade war have resulted in lower demand growth than previously expected. As per Clarksons Research:
Meanwhile, other bilateral and multilateral trade agreements like the Transpacific Partnership and the North American Free Trade Agreement are also being renegotiated. The net impact of these is mitigated by trade flow substitution. Clarksons Research revised down their tonne-mile trade demand growth estimate for 2019 from 3.4% (in January 2019) to 2.3% but expect demand growth to rebound back to 4.1% in 2020, in part driven by expected positive trends in oil and gas trades although economic risks remain.
In addition to the developments above noted by Clarksons Research on the mainstream shipping markets and the shipbuilding market, we believe:
Increased regulation is a positive for well-capitalised asset owners (such as the Company) and operators, as marginal ships and operators may have little choice but to leave the market through scrapping, asset sales or mergers.
We believe the recovery in shipping markets will continue. As of mid-2019, the IMF forecasts global GDP growth of 3.2% in 2019 with potential pickup to 3.5% in 2020. While these forecasts have been revised down, they still reflect supportive levels for global trade growth in the historic context. Clarksons Research forecast moderate demand growth for shipping in 2019 (2% tonnes, 2.3% tonne-miles) and 2020 (3.2% tonnes, 4.1% tonne-miles). On the supply side, shipping benefits from slowing fleet expansion. The sector is capital constrained and we believe bank lending continues to be very limited other than to the largest shipping companies while public equity and public debt markets continue to be of limited scope. The financial stresses in shipping, traditional ship lenders and shipbuilders, which are still somewhat a result of the excesses of 2005-2008, continue to create a very attractive risk return profile. Secondhand prices in many segments continue to be significantly below Depreciated Replacement Cost ("DRC"). The supply side recovery is continuing and driven by:
We believe that DRC will increase in the medium term due to shipyard consolidation. Clarksons Research newbuild price index has been steady in 2019 and up 5% since the start of 2018.
As of 1 January 2020, the International Maritime Organization (IMO) mandates that ships are required to burn fuel with a sulphur content of no more than 0.5% unless fitted with an exhaust gas emissions cleaner (scrubber) capable of reducing sulphur emissions to 0.5% or less. Compliance will be possible by either switching the ship to low sulphur, compliant fuel (distillates or LNG) or by installing an exhaust gas scrubber. We expect the regulatory change could accelerate the supply side adjustment in shipping by three means. Firstly, with most of the global fleet using more expensive fuel, we expect the average fleet speed will be reduced. Further, there will be increased scrapping of less efficient ships and many of the remaining ships will be taken out of service to prepare for fuel transition. Finally, as the sector remains capital constrained, higher newbuild costs and changing regulations may discourage large investments in new vessels for the next few years.
The Company continues to pursue a strategy of growing a diversified fleet. The revenue earned by fourteen of the fifteen Company's vessels is not affected by short-term fluctuations in general shipping markets. Fourteen of the fifteen vessels in the portfolio are employed on medium to longterm charters and will not be affected by fluctuations in spot commodity prices, geopolitical events and other short-term supply-demand factors.
The Investment Manager seeks to conduct its affairs responsibly and take into consideration Environmental, Social and Governance issues with regard to investment decisions taken on behalf of the Company. The Investment Managers recognise that their first duty is to act in the best financial interests of the Company's shareholders and to achieve good financial returns against acceptable levels of risk, in accordance with the objectives of the Company.
The Investment Manager, the asset backed investment group of Tufton Oceanic Limited, recognizes the value of integrating principles of Responsible Investment into the investment management process and ownership practices in the belief that this can have an impact on the long-term financial performance. The Investment Manager became a signatory to the United Nations Principles of Responsible Investment in December 2018 and has a Responsible Investment policy which is available on the website of the Investment Manager, (http://www.tuftonoceanic.com).
Responsible Investment is the integration of Environmental, Social and Governance (ESG) considerations into investment management processes and asset ownership practices. The initial areas of focus on ESG implementation includes:
The Company has started monitoring fuel consumption through systematic analysis of daily reports using third-party software. This facilitates the measurement of increased fuel efficiency through operational changes and potential technical modifications.
In the second quarter of 2019, the Asset Manager joined the Maritime Anti-Corruption Network (MACN), a global business network that enables fair, corruption-free global trade for the benefit of society at large. The MACN will facilitate information sharing and collaboration between the Asset Manager and concerned Governments and Non-Governmental organizations to identify and root out corruption. Asset Manager maintains an updated manual of procedures and processes with current international and regional sanctions. Sanctioned regimes are excluded from Charter Party agreements. Further, the Asset Manager works with ship crews to ensure compliance and consults with Protection and Indemnity (P&I) clubs as required.
The Board has carried out a robust assessment to identify the principal and emerging risks that could affect the Company, including those that would threaten its business model, future performance, solvency or liquidity. Principal risks are those which the Directors consider to have the greatest chance of materially impacting the Company's objectives. The Board has adopted a "controls" based approach to its risk monitoring requiring each of the relevant service providers including the Investment Manager to establish the necessary controls to ensure that all identified risks are monitored and controlled in accordance with agreed procedures where possible.
The Company's activities are primarily dependent upon global seaborne trade flows and as seaborne trade activities between mainland Europe and the UK are not significant to the Company's fleet, Brexit is not expected to have a material impact on the Company or the Investment Manager.
The Directors receive periodic updates at their Board meetings on principal and emerging risks and have adopted their own control review to ensure, where possible, risks are monitored appropriately. Occurrences of principal and emerging risks may have a number of underlying causes, and it is with respect to those causes that the Directors have implemented controls or mitigation as follows. The Directors also carry out a regular check on the completeness of risks identified, including a review of the risk register. No currently relevant risks were identified as missing. Please note that risk or uncertainty cannot be eliminated.
| Underlying cause of risk or uncertainty |
Objective impacted (in what way) |
Control or mitigation implemented |
|---|---|---|
| Failure of, or unwillingness of, a vessel charter counterparty to meet the stipulated charter payments |
Liquidity Vessel values |
Charter counterparties are subjected to extensive credit worthiness checks prior to contracting with them. The Investment Manager monitors the credit worthiness of the charter counterparties on an ongoing basis. In the event of default by a charterer, the generic nature of the ships in the portfolio should enable alternatives to be found, although possibly at lower charter rates and for different periods. |
| Demand for shipping may decline, either because of a reduction in international trade (e.g. "trade wars") or because of general GDP growth slowing or declining or increased competition |
Capital growth Vessel values |
This risk cannot be controlled, but is mitigated by: Diversification of the fleet held reducing the reliance on any particular economic sector or geography; Ensuring the fleet held is of high quality, and thus more likely to continue to be utilised; Chartering out vessels for the longest period possible on sensible economic terms. Ultimately, lower charter rates would be accepted in order to ensure employment of the vessels. |
| Underlying cause of risk or uncertainty |
Objective impacted (in what way) |
Control or mitigation implemented |
|---|---|---|
| Vessel maintenance or capital expenditure may be more costly than expected |
Capital growth Dividends Liquidity Vessel values |
The Company has engaged experienced managers to monitor the need for maintenance or Capital expenditure and provision is made for expected levels of expenditure when a vessel is purchased. Actual spend will be compared to expected and adjustments made to the provisions held if necessary. |
| A vessel may be lost or significantly damaged |
Capital growth Vessel values |
-Insurance, including war risk, innocent owners insurance and loss of revenue insurance, is arranged with reputable insurers for each vessel -Charter party terms are in place to afford suitable protection to Owners including avoidance of sanctioned and conflict areas -Operational risks are further mitigated through measures like daylight sailing, naval escort, route planning clear of higher risk areas -The Asset Manager maintains a detailed manual that documents best practices operating procedures to be followed by crew and technical staff. |
| The Company may not have enforceable title to the vessels purchased |
Liquidity Vessel values |
The Company has engaged a very experienced Investment Manager who is responsible for establishing such title. This is then monitored by the Board using publicly available information. |
| Failure of, or unwillingness of, a non-charter counterparty to meet its obligations to the Company |
Capital Growth Loss of invested cash |
Operating bank accounts for the SPVs are held with an unrated bank, because those banks' systems are considered highly suited to such operations, but are limited in total amount to \$10m per bank. Surplus funds are invested only with banks of a single –A (or equivalent) or higher credit rating as determined by an internationally recognised rating agency. Operating accounts are swept monthly into an account with a rated bank. Ratings, monthly sweeps and overall limits are monitored by the Administrator, who reports exceptions to the Board. |
| Failure of systems or controls in the operations of the Investment Manager, Asset Manager or the Administrator and thereby of the Company |
Capital Growth Loss of assets, reputation or regulatory permissions and resulting Fines |
This risk cannot be directly controlled but the Board and its Audit Committee regularly review reports from its Service Providers on their internal controls. |
The Company is a member of the AIC and has therefore elected to comply with the provisions of the current AIC Code of Corporate Governance which sets out a framework of best practice in respect of governance of investment companies (the "AIC Code"). The AIC Code has been endorsed by the Financial Reporting Council and the Guernsey Financial Services Commission (the "GFSC") as an alternative means for members to meet their obligations in relation to the UK Corporate Governance Code ("the Code").
The AIC Code was updated in February 2019 for accounting periods commencing on or after 1 January 2019 ("AIC Code 2018"). The AIC Code 2018 comes into effect for the Company from 1 July 2019. The Directors are committed to high standards of corporate governance and for this reason have already implemented many of its provisions in addition to compliance with the AIC Code. In place of the previous 21 principles, the AIC Code 2018 adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies under the new Code.
The AIC Code 2018 has retained the UK Code requirement that the Board should understand the views of the Company's key stakeholders and describe in the Annual Report how their interests and the matters set out in section 172 (Duty to promote the success of the company) of the UK Companies Act 2006 have been considered in board discussions and decision-making. This applies irrespective of where the company is domiciled, provided it does not conflict with local company law.
The Board receives quarterly reports from the Corporate Broker which include commentary on the share register and shareholders. The Board take seriously the matters set out in section 172 including impacts on the Environment which is discussed in detail in our Report on pages 29 and 30. The Board seeks the views of shareholders via the Corporate Broker and is fully aware of shareholder sentiment and expectations.
Unlike in the UK Code, the revised AIC Code 2018 permits the Chairman to remain in post beyond nine years from the date of first appointment by the Board.
Refer to the following page where we describe in the paragraph headed 'Independence' our policy on tenure.
Unlike in the UK Code, the AIC Code 2018 permits the Chairman to be a member of the Audit Committee provided he or she was independent on appointment. The prohibition on the Chairman of the Board being Chairman of the Audit Committee is retained.
As described in the Audit Committee Report the Chairman of the Board is also a member of the Audit Committee. The Board consider this appropriate given the number of Directors of the Company and the benefits his experience and knowledge brings.
The Board should carry out a robust assessment of the Company's Principal and Emerging risks and confirm in the Annual Report that it has completed this assessment. A description of the risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated.
Refer to page 16 and 17 which describes in detail our assessment of the risks facing the Company.
As noted above the Board has considered the principles and provisions of the existing AIC Code, produced by the Association of Investment Companies ("AIC"). The Company has complied with the recommendations of the AIC Code (except as set out below) and associated disclosure requirements of the Listing Rules (to the extent applicable to the Company).
As disclosed in the Listing documents, the Company, being an externally advised investment company with an entirely non-executive board of directors does not consider the following provisions of the AIC Code applicable:
Considering that the Board comprises of only three Directors, no Senior Independent Director has been appointed.
The Board has formulated policies and procedures to assist them to comply with the AIC Code:
All three of the Directors are currently considered by the Board to be independent of the Company and the Tufton Group, and have been Directors for less than 3 years. The Board's current policy on tenure is that continuity and experience are considered to add significantly to the strength of the Board and, as such, no limit on the overall length of service of any of the Company's Directors, including the role of Chairman, has been imposed. New Directors will receive an induction from the Investment Manager and the Administrator on joining the Board, and all Directors will receive other relevant training as necessary on their on-going responsibilities in relation to the Company.
The Company supports the AIC Code provision that Boards should consider the benefits of diversity, including gender, when making appointments and is committed to ensuring it receives information from the widest range of perspectives and backgrounds. The Company's aim as regards the composition of the Board is that it should have a balance of experience, skills and knowledge to enable each Director and the Board as a whole to discharge their duties effectively. Whilst the Board of the Company agrees that it is entirely appropriate that it should seek diversity, it does not consider that this can be best achieved by establishing specific quotas and targets and appointments will continue to be made based wholly on merit. Accordingly when changes to the Board are required, due regard is given to both the need for diversity and to a comparative analysis of candidates' qualifications and experience. A pre-established, clear, neutrally formulated and unambiguous set of criteria would be utilised to determine the most suitable candidate for the specific position sought.
The Directors are responsible for preparing an annual report and financial statements for each financial period which give a true and fair view, in accordance with applicable law and regulations, of the state of affairs of the Company and of the profit or loss of the Company for that period.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have elected to prepare the Financial Statements in accordance with International Financial Reporting Standards ("IFRS").
In preparing the Financial Statements the Directors are required to:
The maintenance and integrity of the Company's website, which is maintained by the Investment Manager is the responsibility of the Directors. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the Financial Statements comply with Companies Law. The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Each of the Directors confirms that, to the best of their knowledge:
The Corporate Governance Code, as adopted by the Company, also requires Directors to ensure that the Annual Report and Audited Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter the Board has requested that the Audit Committee advises on whether it considers that the Annual Report and Audited Financial Statements fulfil these requirements. The process by which the Audit Committee has reached these conclusions is set out in the Audit Committee Report on pages 32 to 34. Furthermore, the Board believes that the disclosures set out on pages 44 to 72 of the Annual Report provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
Having taken into account all matters considered by the Board and brought to the attention of the Board for the year ended 30 June 2019, as outlined in the Corporate Governance Statement, Strategic Report and the Audit Committee Report, the Board has concluded that the Annual Report and Audited Financial Statements for the year ended 30 June 2019, taken as a whole, are fair, balanced and understandable and provide the information required to assess the Company's performance, business model and strategy.
The Directors present their Annual Report and the Audited Financial Statements of the Company for the year ended 30 June 2019.
The Company was registered in Guernsey on 6 February 2017 and is a registered closed-ended investment scheme under the POI Law. The Company's Ordinary Shares were listed on the Specialist Fund Segment of the Main Market of the London Stock Exchange on 20 December 2017 under the ticker "SHIP".
The Company will make investments through a Guernsey holding company into one or more underlying SPVs which will mainly be wholly owned by the Guernsey holding company and over which the Company will exercise control with regards to investment decisions. The Company may from time to time invest through vehicles which are not wholly owned by it. In such circumstances, the Company will seek to secure controlling rights over such vehicles through shareholder agreements or other legal arrangements.
The Directors and Investment Manager expect that most or all of the SPVs will be registered in the Isle of Man. Marine Services (IOM) Limited, an affiliate of the Investment Manager, licensed by the Financial Supervision Commission of the Isle of Man, will be the corporate secretary, provide directors to and act as administrators of the IOM SPVs and most other SPVs. It is anticipated that some of the bookkeeping and transaction processing will be carried out by the Asset Manager. Regardless of the aforementioned, the SPVs will be serviced by affiliates of the Investment Manager and be operationally serviced by entities under the indirect control of the Investment Manager at all times.
The Company will at all times invest and manage its assets in a manner which is consistent with the objective of spreading investment risk. This is achieved by adhering to the Investment Restrictions as set out in the Prospectus.
The Directors were authorised at the last AGM to allot up to 200 million ordinary Shares and 200 million C Shares, such authority to expire 24 September 2019.
There was a C Share issue of 78,400,000 shares on 16 October 2018. The conversion of 78,400,000 C Class Shares was completed on 31 January 2019. The resulting 84,624,960 ordinary shares were listed on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 12 February 2019.
On 11 March 2019, the Company announced the results of its Placing and Offer for Subscription of 49,019,608 Ordinary Shares, which raised gross proceeds of US\$50 million. These ordinary shares were issued on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 14 March 2019.
The Company's performance during the year is discussed in the Chairman's Statement on pages 3 - 4. The results for the year are set out in the Statement of Comprehensive Income on page 44.
The Directors of the Company who served during the year and to date are set out on pages 7 and 8.
The Directors held the following interests in the share capital of the Company either directly or beneficially as at 30 June 2019, and as at the date of signing these Financial Statements:
| 2019 | 2018 | |
|---|---|---|
| Shares | Shares | |
| R King | 45,000 | 35,000 |
| S Le Page | 15,000 | 15,000 |
| P Barnes | 5,000 | 5,000 |
| The Directors fees are as disclosed below: | ||
| 2019 | *2018 | |
| Director | £ | £ |
| R King | 30,000 | 22,500 |
| S Le Page | 28,000 | 21,000 |
P Barnes 25,000 18,750
*The Directors agreed to waive part of their fees for the period from inception to 30 June 2018.
Tufton Group key employees of the Investment Manager and other related parties held the following interests in the share capital of the Company either directly or beneficially.
| Ordinary Shares | % of issued Share Capital |
|
|---|---|---|
| Name | 2019 | 2019 |
| Tufton Group Entities | 3,148,000 | 1.464 |
| Tufton Group Employees | 2,058,179 | 0.957 |
| Tufton Group non-executive directors | 554,740 | 0.258 |
2018
| Ordinary Shares | % of issued Share Capital |
|
|---|---|---|
| Name | 2018 | 2018 |
| Tufton Group Entities | 3,148,000 | 3.460 |
| Tufton Group Employees |
1,362,000 | 1.496 |
| Tufton Group non-executive directors | 490,000 | 0.538 |
Subject to working capital requirements, and at the absolute discretion of the Directors, excess cash may be used to repurchase Shares should the Shares close at a discount to NAV of 10% or greater for a period of 90 consecutive days. The Administrator tracks the discount/premium of the share price to NAV and presents the information to the Board regularly.
The Company did not purchase any of its own shares during the period. Any Shares repurchased pursuant to the general authority referred to above may be held in treasury. The Companies Law allows companies to hold shares acquired by way of market purchase as treasury shares, rather than having to cancel them. These treasury shares may be subsequently cancelled or sold for cash.
Unless authorised by Shareholders, no Shares will be sold from treasury at a price less than the NAV per Share at the time of the sale unless they are first offered pro-rata to existing Shareholders. The Company will not hold treasury shares in excess of 10% of the ordinary share capital of the Company.
This authority shall expire on the conclusion of the next annual general meeting of the Company, save that the Directors shall be entitled to make offers or agreements before the expiry of such power which would or might require the purchase of Shares after such expiry pursuant to any such offer or agreement as if the power conferred by the resolution had not expired.
Please note the corporate governance statement on page 18 to 19 which forms part of this report.
Directors will be selected and appointed by the Board as a whole. There will be no separate nomination committee as the Board comprises only three Directors. The Company's Board has been assembled, with the aid of the Company's advisers, to ensure that it has the appropriate breadth of experience and skills as at the date of this document as seen above in their biographies. The Directors will thereafter be responsible for reviewing the size, structure and skills of the Board and considering whether any changes are required or new appointments are necessary to meet the requirements of the Company's business or to maintain a balanced Board. This will be formally considered annually at the time of the Board, Chairman and Directors' annual performance appraisal. The Board have been briefed by their legal advisers about their on-going responsibilities as directors.
The Articles require that at each annual general meeting, all of the Directors will submit themselves for re-election. The Company will not have a separate remuneration committee as the Board, which comprises only three Directors, as a whole will fulfil the function of a remuneration committee.
The performance of the Board, committees and individual Directors is evaluated annually through a self-assessment process coordinated by the Administrator who will circulate the findings to the Board. The first evaluation took place in October 2018. The Board may undertake a review by an independent third party from time to time.
The Board will delegate certain responsibilities and functions to the Audit Committee. Steve Le Page is the chairman of the Company's Audit Committee which comprises the full Board. In discharging its responsibilities the Audit Committee will review the annual and half yearly Financial Statements, the risks to which the Company is subject and the system of internal controls, and the terms of appointment and remuneration of the independent auditor. It is also the forum through which the auditor reports to the Board. The Audit Committee is expected to meet at least twice a year. The objectivity of the independent auditor will be reviewed by the Audit Committee, which will also review the terms under which the independent auditor is appointed to perform non audit services. The Audit Committee will review the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditor, with particular regard to non-audit services and fees.
The members of the Audit Committee consider that they collectively have the requisite skills and experience to fulfil the responsibilities of the audit committee. Given Mr Le Page's skills and financial experience, the Board has satisfied itself that at least one member of the Audit Committee has recent and relevant financial experience.
The Board, which comprises only three Directors, will fulfil the responsibilities typically undertaken by a nominations committee and a management engagement committee. In addition, the Board has the ability to put in place sub-committees of directors to review ad-hoc pieces of information and take decisions based upon their findings, e.g. decisions in relation to disclosure of information under MAR.
It is the responsibility of the Board to ensure that there is effective stewardship of the Company's affairs. Strategic issues and all operational matters of a material nature will be determined by the Board. A formal schedule of matters reserved for decision of the Board has been adopted. The Board meet at least quarterly to review the overall business of the Company and to consider the matters specifically reserved for it. The quorum at Directors' meetings is two directors present in person or by telephone and they are normally held in Guernsey. Detailed information is provided by the Investment Manager, Asset Manager and Administrator for these meetings and additionally at regular intervals to enable the Directors to monitor compliance with the investment objective and the investment performance of the Company both in an absolute and relative sense. The Directors are provided with standard papers in advance of each quarterly meeting to allow the review of several key areas including the Company's investment activity over the quarter relative to its investment policy; the global shipping industry; the revenue and balance sheet position; gearing; performance; share price discount or premium (both absolute levels and volatility); and relevant industry and macro-economic issues.
The Board will also receive quarterly reports from the Administrator and Corporate Broker analysing and commenting on the composition of the Company's share register and monitoring of significant changes to Shareholdings.
The Audit Committee is responsible for overseeing the Company's relationship with the Independent Auditor, including making recommendations to the Board on the appointment of the Independent Auditor and their remuneration. PricewaterhouseCoopers CI LLP ("PwC") was originally appointed as the Company's Independent Auditor on 20 December 2017.
The auditor, PwC, has indicated its willingness to remain in office. A resolution for the reappointment of PwC was proposed and approved at the AGM on 24 October 2018. Another resolution for their appointment will be proposed at the AGM in 2019.
The Board of Directors is responsible for preparing the Annual Report and Financial Statements. The Audit Committee advises the Board on the form and content of the Annual Report and Financial Statements, any issues which may arise and any specific areas which require judgement.
The Board acknowledges that the Company's international operations may give rise to possible claims of bribery and corruption. In consideration of the UK Bribery Act the Board reviews the perceived risks to the Company arising from bribery and corruption to identify aspects of the business which may be improved to mitigate such risks. The Board has adopted a zero tolerance policy towards both bribery and corruption, and has reiterated its commitment to carry out business fairly, honestly and openly.
In respect of the UK Criminal Finances Act 2017 which has introduced a new Corporate Criminal Offence of 'failing to take reasonable steps to prevent the facilitation of tax evasion', the Board confirms that it is committed to zero tolerance towards the criminal facilitation of tax evasion. The Board also keeps under review developments involving other social and environmental issues, such as Modern Slavery and General Data Protection ("GDPR"), and will report on those to the extent that they are considered relevant to the Company's operations.
The Investment Manager, Tufton Oceanic Ltd, has been authorised by the UK FCA, as a Small Registered UK AIFM under the AIFMD. The funds managed by the AIFM, including the Company, are now defined as Alternative Investment Funds and are subject to the relevant articles of the AIFMD.
The Board is responsible for establishing and maintaining the system of internal controls required by the Company's operations. These internal controls are undertaken by the service providers. Internal control systems are designed to meet the specific needs of the Company and the risks to which it is exposed, and, by their very nature, provide reasonable, but not absolute, assurance against material misstatement or loss.
The key procedures which have been established to provide effective internal controls include:
The Board and Audit Committee have reviewed the Company's risk management and internal control systems and believe that the controls are satisfactory, given the size and nature of the Company.
The Company seeks to conduct its affairs responsibly and environmental factors are, where appropriate, taken into consideration with regard to investment decisions taken on behalf of the Company.
The Directors recognise that their first duty is to act in the best financial interests of the Company's shareholders and to achieve good financial returns against acceptable levels of risk, in accordance with the objectives of the Company.
In asking the Company's Investment Manager to deliver against these objectives, the Directors have also requested that the Investment Manager take into account the broader social, ethical and environmental issues of the vessels within the Company's portfolio, acknowledging that companies failing to manage these issues adequately run a long-term risk to the sustainability of their businesses and that this reflects stakeholders views. More specifically, the Board expect companies to demonstrate ethical conduct, effective management of their stakeholders' relationships, responsible management and mitigation of social and environmental impacts, as well as due regard for wider societal issues.
The Directors along with the Investment Manager, recognise the value of integrating principles of Responsible Investment into the Investment management process and ownership practices in the belief that this can have an impact on the long-term financial performance. The Investment Manager became a signatory to the United Nations Principles of Responsible Investment in December 2018 and has drafted a Responsible Investment policy. This is available on the Company's website. Refer to page 15 for further information on how Environment, Social and Governance issues are considered when making investment decisions.
In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
The Board, in assessing the long-term viability of the Company, have paid particular attention to the Principal and Emerging Risks and Uncertainties faced by the Company as disclosed on pages 16 to 17 of these Financial Statements. In addition, the Board has considered the cash flow projection for the running costs of the Company to ensure the Company retains sufficient cash to meet its operating costs until the end of the viability period. The Board has taken into account the cash flow-weighted average length of its charters which are expected to be in excess of three years and have therefore determined the appropriate viability period for the Company to be three years. The Directors have also assumed that should a continuation vote be required in 2021 the Company would continue in operation after this date.
The Directors believe their assessment of the viability of the Company over the relevant period is sufficiently robust and encompassed the risks which could threaten the business model, future performance, solvency or liquidity of the Company considering a variety of severe but plausible scenarios. As a result, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due during this period.
The following shareholders had notified to the Company a substantial interest of 5% or more of the issued share capital as at 30 June 2019.
| % of issued share capital | |
|---|---|
| South Yorkshire Pensions Authority | 11.39% |
| East Riding of Yorkshire Council | 11.04% |
| Banque Pictet & Cie |
9.68% |
| City of Bradford Metropolitan District Council | 8.71% |
| Newton Investment Management Ltd | 6.51% |
| Schroder Investment Management | 6.47% |
The Directors place a great deal of importance on communication with shareholders. They request regular updates from the Company's placing agents and financial advisers on their communications with shareholders. They can also be contacted via the email address provided in the Chairman's Statement. The Annual Report and Audited Financial Statements are also distributed to other parties who have an interest in the Company's performance. Additional information on the Company can be obtained through the website www.tuftonoceanicassets.com, which is maintained by the Investment Manager.
The Notice of the Annual General Meeting is included within the Annual Report and Audited Financial Statements and is sent out at least 20 working days in advance of the meeting, in accordance with the AIC Code. All Shareholders have the opportunity to put questions to the Board or the Investment Manager formally at the Company's Annual General Meeting.
The Company Secretary and Investment Manager are available to answer general shareholder queries at any time throughout the year.
Approved by the Board of Directors on 10 September 2019 and signed on behalf of the Board by:
………………………… …………………………
Director Director
Rob King Steve Le Page
I am pleased to present to you the Audit Committee report prepared in accordance with the current AIC Code, which reflects the current edition of the UK Corporate Governance Code to the extent that it is applicable to investment companies.
The terms of reference for the committee are available on the Company's website, www.tuftonoceanicassets.com. During the year ended 30 June 2019 and to the date of this report, the main areas of activity have been as follows:
The whole Board are currently members of the Audit Committee (the "Committee") and this is considered appropriate given the size of the Company. Furthermore, the Chairman of the Board is a member of the Committee, both because of the size of the Company and because it is felt that the Committee benefits from his experience and knowledge. Details about the responsibilities of the Committee is available in the terms of reference on the website.
The Committee discharges its responsibilities through a series of scheduled meetings, the agendas of which are linked to events in the financial calendar of the Company. The Committee met twice during the year ended 30 June 2019 and once more since the period end. The Independent Auditors attended all these meetings.
The Company itself has no internal systems to control. Internal control lies within the services provided by Tufton Oceanic Ltd, Maitland and other service providers. These controls are monitored primarily by the Board reviewing and challenging reports from these service providers, and through segregation of duties between them. In addition, the Board has made visits to certain service providers periodically to assess their organization and culture and to meet the individuals responsible for key functions. The Committee, and particularly the Chairman of the Committee, also closely monitors the financial reporting process and the tasks undertaken in the production of the annual report. This has involved visiting Marine Services (IOM) Limited, the administrators of the Isle of Man SPVs, VesselsValue Ltd, the supplier of the information underlying the valuation of most of the vessels held by the Company, and Tufton Oceanic Ltd the Investment Manager.
These financial statements reflect the second application of the accounting policies and estimation techniques originally set out in the Company's Prospectus for its IPO in December 2017. These policies have been discussed with the Independent Auditor, and the Audit Committee confirms that they are still considered to be appropriate.
In particular, the following significant areas in relation to the preparation of these financial statements have been discussed:
These financial statements reflect the outcome of those discussions. In addition, the auditor's proposed scope of work in connection with these areas and the statements in general was agreed.
The majority of the net asset value ("NAV") of the Company is derived from the fair value of the vessels owned by the Company's indirect SPV subsidiaries, which are themselves held by the Company's subsidiary, LS Assets Limited. Exact details of the valuation techniques applied to the vessels and of how the Company's NAV is derived is given in Note 12 to these financial statements. The Committee has paid particular regard to evaluating these techniques to ensure they are reasonably accurate, reliable and appropriate. The sensitivity of these valuations to various input assumptions is given in Note 11. The Committee is satisfied that these techniques are reasonable and appropriate for use in the preparation of these financial statements and in the calculation of the published quarterly NAV per share in the Company.
During the year ended 30 June 2019, and up to the date of this report, the Committee has met formally with the Independent Auditor on three occasions, and in addition the Chair of the Committee has spoken to them informally on several occasions. These informal meetings have been held to ensure the Chairman is kept up to date with the progress of their work and that their formal reporting meets the Committee's needs.
The formal meetings included detailed reviews of the proposed fees and scope of the work to be performed by PwC, in their audit for the period to 30 June 2019. They also included detailed reviews of the results of this work, their findings and observations. I am pleased to report that there are no matters arising from their work which should be brought to the attention of shareholders.
The Committee has also reviewed PwC's report on their own independence and objectivity, including the level of non-audit services provided by them. The only non-audit services provided were as reporting accountants in relation to the September Prospectus for which a fee of £50,000 was paid in the prior year.
The Committee has also considered the potential for a conflict of interest between the Chairman of the Committee and PwC as a result of his being an ex-partner of that firm. In making this consideration the members of the Committee other than the Chairman noted that he retired from that firm six years ago, three clear years before they were selected as external auditors and that he had no financial relationship with them at that or any other relevant time. It was concluded by those members that no actual conflict of interest existed.
The Committee has therefore concluded that PwC is independent and objective, carries out its work to a high standard of quality and provides concise but useful reporting. The Committee also notes that they were appointed to office less than three years ago. Accordingly, the Committee has recommended to the Board that PwC be put forward to the AGM of the Company for reelection.
The Committee members have each reviewed this Annual Report and earlier drafts of it in detail, comparing its content with their own knowledge of the Company, reporting requirements and shareholder expectations. Formal meetings of the Committee have also reviewed the report and its content and have received reports and explanations from the Company's service providers about the content and the financial results. The Committee has concluded that the Annual Report, taken as a whole, is fair, balanced and understandable, and that the Board can reasonably and with justification make the Statement of Directors' Responsibilities on pages 21 to 22.
…………………………
Steve Le Page Chairman of the Audit Committee
In our opinion, the financial statements give a true and fair view of the financial position of Tufton Oceanic Assets Limited (the "Company") as at 30 June 2019, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.
The Company's financial statements comprise:
We conducted our audit in accordance with 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements of the Company, as required by the Crown Dependencies' Audit Rules and Guidance, and we have fulfilled our ethical responsibilities in accordance with these requirements.
Overview
Valuation and existence of investments
________________________________________________________
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which the Company operates.
The Company and its subsidiary are based in Guernsey and the SPVs are located in Isle of Man. The financial statements are not consolidated but instead present the fair value of the subsidiary's shipping assets held via the SPVs and the other residual net assets of the subsidiary and SPVs.
Scoping was performed at the Company level, irrespective of whether the underlying transactions took place within the Company, subsidiary or SPVs. The Company audit was led, directed and controlled by PricewaterhouseCoopers CI LLP and all audit work for material items within the financial statements was performed in Guernsey by PricewaterhouseCoopers CI LLP.
The transactions relating to the Company and its subsidiary are maintained by the Administrator and therefore we were not required to engage with component auditors from another PwC global network firm operating under our instruction. The transactions related to the SPVs are maintained by Marine Services (IOM) Limited, a related company of the Investment Manager and all audit procedures related to the SPVs were undertaken by us remotely and no component auditors from another PwC global network were required.
Representatives of PricewaterhouseCoopers CI LLP had previously visited Marine Services (IOM) Limited during the prior year audit. Testing was performed using thresholds which are determined with reference to the overall Company materiality and the risks of material misstatement identified to the Company as a whole, meaning that both the subsidiary and all the SPVs were included within our audit scope.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They 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 the financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Company materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
| Overall Company materiality | US\$5.6 million |
|---|---|
| How we determined it | 2.5% of net assets |
| Rationale for the materiality benchmark | We believe that net assets is the most appropriate benchmark as this is a key metric of interest to members of the Company. It is also a generally accepted measure used for investment funds. |
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above US\$282,300 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
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.
| Key audit matter | How our audit addressed the Key audit matter |
|
|---|---|---|
| Valuation and existence of investments | We planned and executed our audit to | |
| Valuation | critically assess how management applied | |
| The fair value of the Company's investments | their assumptions in determining the fair |
amount to US\$220.9 million at 30 June value, as well as obtaining audit evidence 2019 and comprise the Company's holding over the existence, of all entities and in its direct subsidiary, which in turn owns and vessels in the Company's investment 15 SPVs, each of which holds an interest ownership structure. Our audit procedures in a shipping asset (the "underlying portfolio included: Investment"), for all of which there are Identifiable liquid markets.
The fair value of the investment has been determined based on the fair value of (a) the underlying investment portfolio and (b) the other residual net assets within the subsidiary and SPVs as at 30 June 2019. The fair value of the underlying investment portfolio has been valued using standard industry methodology using one of two principal methods dependant on whether the vessel is classified as a standard or specialised vessel.
Standard vessels are valued on a 'charter free' basis using an independent third-party vessel valuation service, and those valuations are then adjusted for each vessel's charter lease contracts attached to the vessel (based on the premium/discount to the independent third party vessel valuation services standard market charter rates) and for the estimated capital expenditure cycle associated with the dry docking of the vessel. The latter adjustment necessitates judgement in respect of the expected condition of each vessel and the magnitude of capital expenditure required while in dry dock.
Specialised vessels are valued "with charter", by the Investment Manager, using the discounted cash flow valuation methodology.
The other residual net assets consist of accounts payable and cash balances which are measured consistently with the Company's accounting policies at amortised cost using the effective interest method.
The Board has set out in Note 3 their consideration of the areas of judgement and estimation relating to the valuation of the vessels. Note 4 includes a breakdown of the investments and Note 11 includes the key assumptions applied to the valuation. Significant levels of judgement and estimate are applied by both the Board and Investment Manager in determining the respective fair
Understanding and reviewing the design and implementation of the internal controls around the information used in the valuation models at 30 June 2019 at the Administrator and Investment Advisor.
values of the underlying vessels, the SPVs and the subsidiary.
The Company's direct and indirect ownership rights in its subsidiary and SPVs within the structure consist of unlisted equity securities, shareholder loans and capital contributions and therefore there is no central independent depository of custody. For each vessel there is similarly no central depository confirming ownership rights. The existence of the investment in the subsidiary as well as the underlying SPV's and vessels is determined via legal title to each of the equity shares of the subsidiaries and SPVs and ownership title to the underlying vessels.
The above matters, combined with the significance of the unlisted investment balance in the statement of financial position represented a significant risk from an audit perspective.
At the year-end, the Company (via its subsidiary and SPVs) had entered into a sale and purchase agreement to acquire a vessel that was only delivered in July 2019. This sale and purchase agreement entitled the Company
to direct the ownership of the vessel from the transaction date, which was before the yearend. As a result, the Company has, in evaluating the fair value of the SPVs and subsidiary, recognised and measured the sale and purchase contract at its fair value as at the year-end. In auditing the fair value of this contract, we performed the following procedures:
Agreeing the residual net assets at both direct subsidiary and SPV level to the underlying records and performed sample based substantive testing on the residual net assets as considered appropriate.
For all vessels, we utilised open source vessel tracking resources to corroborate that the vessels were operational, the routes they are chartered on and recent photographical evidence thereof.
We did not identify any material issues from our procedures with regards to the valuation and existence of the Company's investments in its subsidiary, the indirect investments in the SPVs or the valuation and existence of the underlying shipping assets themselves which required reporting to those charged with governance.
The directors are responsible for the other information. The other information comprises all the information included in the Annual Report and Audited Financial Statements but does not include the financial statements and our auditor's report thereon.
Other than as specified in our report, 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 identified above 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.
The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards, the requirements of Guernsey law and for such internal control as the directors determine 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, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have 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 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 ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
We communicate with those charged with governance 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 those charged with governance 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 those charged with governance, 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.
Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:
We have no exceptions to report arising from this responsibility.
The directors have volunteered to report on how they have applied the UK Corporate Governance Code (the "Code").
We have nothing to report in respect of the following matters which we have reviewed:
This report, including the opinion, has been prepared for and only for the members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Roland Mills For and on behalf of PricewaterhouseCoopers CI LLP Chartered Accountants Recognised Auditor Guernsey, Channel Islands 10 September 2019
| Notes | 2019 US\$ |
6 February 2017 to 30 June 2018 US\$ |
|
|---|---|---|---|
| Income | |||
| Net changes in fair value of Financial Assets designated at fair value through profit or loss |
4 | 17,776,829 _____ |
3,482,168 _____ |
| Total net income | 17,776,829 | 3,482,168 | |
| Expenditure | |||
| Aborted deal costs Administration fees Audit fees Corporate Broker fees Directors' fees Foreign exchange loss Insurance fee Investment management fee Professional fees Sundry expenses |
17 13 |
(21,293) (120,680) (91,358) (130,511) (109,264) (2,507) (62,803) (1,294,621) (48,753) (48,870) _____ |
- (41,949) (79,700) (41,510) (84,769) (3,099) (36,226 (206,140) (16,022) (4,867) _____ |
| Total expenses | (1,930,660) | (514,282) | |
| Operating profit Finance income |
_____ 15,846,169 574,331 |
_____ 2,967,886 315,557 |
|
| Profit and comprehensive income for the year | __ 16,420,500 __ |
__ 3,283,443 __ |
|
| IFRS Earnings per ordinary share (cents) | 8 | 11.94 | 3.61 |
| Adjusted Earnings per ordinary share (cents) | 8a | __ 10.00 __ |
__ 3.61 __ |
There were no potentially dilutive instruments in issue at 30 June 2019.
All activities are derived from continuing operations.
There is no other comprehensive income or expense apart from those disclosed above and consequently a Statement of Other Comprehensive Income has not been prepared.
The accompanying notes are an integral part of these financial statements.
| Notes | 2019 US\$ |
2018 US\$ |
|
|---|---|---|---|
| Non-current assets | |||
| Financial assets designated at fair value through profit or loss (Investments) |
4 | 220,998,073 _____ |
49,622,259 _____ |
| Total non-current assets | 220,998,073 | 49,622,259 | |
| Current assets | _____ | _____ | |
| Trade and other receivables Cash and cash equivalents |
6 | 32,248 5,500,139 _____ |
34,796 43,030,736 _____ |
| Total current assets | 5,532,387 _____ |
43,065,532 _____ |
|
| Total assets | __ 226,530,460 __ |
__ 92,687,791 __ |
|
| Current liabilities | |||
| Trade and other payables | 687,781 _____ |
224,348 _____ |
|
| Total current liabilities | 687,781 _____ |
224,348 _____ |
|
| Net assets | __ 225,842,679 __ |
__ 92,463,443 __ |
|
| Equity | |||
| Share capital Retained reserves |
7 7 |
215,012,016 10,830,663 _____ |
89,180,000 3,283,443 _____ |
| Total equity attributable to ordinary shareholders |
225,842,679 _____ |
92,463,443 _____ |
|
| Net assets per ordinary share (cents) | 10 | 100.53 _____ |
101.61 _____ |
The accompanying notes are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board of Directors on 10 September 2019 and signed on its behalf by:
Director Director
________________________________ _____________________________ Rob King Steve Le Page
| Ordinary | |||
|---|---|---|---|
| share | Retained | ||
| capital | earnings | Total | |
| US\$ | US\$ | US\$ | |
| Shareholders' equity at | |||
| incorporation | - | - | - |
| Share issue | 91,000,000 | - | 91,000,000 |
| Listing costs | (1,820,000) | - | (1,820,000) |
| Profit and comprehensive | |||
| income for the period | - | 3,283,443 | 3,283,443 |
| Shareholders' equity at | ___ | ___ | ___ |
| 30 June 2018 | 89,180,000 | 3,283,443 | 92,463,443 |
| Share issue | 50,000,016 | - | 50,000,016 |
| Listing costs | (1,000,000) | - | (1,000,000) |
| C-Class share issue conversion | 76,832,000 | - | 76,832,000 |
| Profit and comprehensive | |||
| income for the year | - | 16,420,500 | 16,420,500 |
| Dividends paid | - | (8,873,280) | (8,873,280) |
| Shareholders' equity at | ___ | ___ | ___ |
| 30 June 2019 | 215,012,016 | 10,830,663 | 225,842,679 |
| ___ | ___ | ___ |
For the year ended 30 June 2019
| Notes | 2019 US\$ |
2018 US\$ |
|---|---|---|
| 16,420,500 | 3,283,443 | |
| 4 4 |
(153,598,985) (17,776,829) _____ |
(46,140,091) (3,482,168) _____ |
| (154,955,314) | (46,338,816) | |
| 6 | 2,548 463,433 |
(34,796) 224,348 _____ |
| (154,489,333) | (46,149,264) _____ |
|
| 7 9 9 |
125,832,016 (8,481,280) (392,000) |
89,180,000 - - _____ |
| 116,958,736 | 89,180,000 _____ |
|
| (37,530,597) | 43,030,736 | |
| 43,030,736 | - _____ |
|
| 5,500,139 | 43,030,736 _____ |
|
| Cash and cash equivalents at the end of the year / period | __ _ __ _ __ __ |
The accompanying notes are an integral part of these financial statements.
The Company was incorporated with limited liability in Guernsey under the Companies (Guernsey) Law, 2008, as amended, on 6 February 2017 with registered number 63061, and is regulated by the GFSC as a registered closed-ended investment company. The registered office and principal place of business of the Company is 1 Le Truchot, St Peter Port, Guernsey, Channel Islands, GY1 1WD.
On 18 December 2017, the Company announced the results of its Placing and Offer for Subscription of Ordinary Shares, which raised gross proceeds of US\$91 million. The Company's ordinary shares were listed on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 20 December 2017.
On 11 October 2018, the Company announced that it had raised gross proceeds of US\$78,400,000 pursuant to the Placing and Offer for Subscription of C-Class Shares. The Company's C-Class Shares were listed on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 16 October 2018.
On 31 January 2019, the Company announced that the C-Class Share conversion had been completed. The resulting 84,624,960 ordinary shares were listed on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 12 February 2019.
On 11 March 2019, the Company announced the results of its Placing and Offer for Subscription of 49,019,608 Ordinary Shares, which raised gross proceeds of US\$50 million. These ordinary shares were listed on the Specialist Funds Segment of the Main Market of the London Stock Exchange effective 14 March 2019.
The financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards, which comprise standards and interpretations approved by the International Accounting Standards Board and International Financial Reporting Interpretations Committee, Listing rules and applicable Guernsey law.
The financial statements have been prepared on a historical cost basis modified by the revaluation of investments at fair value through profit or loss. The principal accounting policies adopted and which have been consistently applied (unless otherwise indicated) are set out below.
The directors consider that the Company meets the investment entity criteria set out in IFRS 10. As a result, the Company applies the mandatory exemption applicable to investment entities from producing consolidated financial statements and instead fair values its investments in its subsidiaries in accordance with IFRS 13. The criteria which define an investment entity are, as follows:
The directors consider that the Company's objective of pooling investors' funds for the purpose of generating an income stream and capital appreciation is consistent with the definition of an investment entity, as is the reporting of the Company's net asset value on a fair value basis.
At the reporting date of these Financial Statements, the following standards, interpretations and amendments, which have not been applied in these Financial Statements, were in issue but not yet effective:
IFRS 16 Leases (Effective 1 January 2019)
The Company expects that the adoption of IFRS 16 in the future period will not have an impact on the Company's Financial Statements.
IFRS 3 "Business Combinations" was issued in July 2001 and become effective for periods beginning on or after 1 January 2020. It is not anticipated that the new standard will have any material impact on the Company's financial position, performance or disclosures in its financial statements.
IFRS 9 Financial Instruments (Effective 1 January 2018)
IFRS 9 'Financial Instruments' amends IAS 39. IFRS 9 specifies how an entity should classify and measure financial assets, including some hybrid contracts.
The standard requires all financial assets to be classified on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of IAS 39. The standard applies a consistent approach to classifying financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own classification criteria.
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, at fair value through other comprehensive income and at fair value through profit or loss ("FVTPL"). IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale.
The requirements for financial liabilities are mostly carried forward unchanged from IAS39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk.
The standard also results in one impairment method, replacing the numerous impairment methods in IAS 39 that arise from the different classification.
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an expected credit loss ("ECL") model. Therefore, the carrying amount of other receivables remains the same under IFRS 9 as the expected credit losses on the financial assets have been assessed as immaterial.
The new impairment model applies to financial assets measured at amortised cost. Trade and other receivables and cash and cash equivalents classified as Loans and Receivables under IAS 39 have been reclassified to Amortised Cost under IFRS 9. The Board have elected to use the simplified approach to calculating the expected credit losses for trade receivables. The impairment calculation is based on the Company's historical default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. Given the historical level of defaults and the credit risk of the investment portfolio, there is a negligible impact because of the lifetime expected credit loss to be recognised versus the previous impairment model applied by the Company.
The adoption of IFRS 9 has not had a significant effect on the Company's accounting policies related to financial assets and liabilities.
IFRS 15 'Revenue from Contracts with Customers' specifies how and when to recognise revenue as well as requiring entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018. Material revenue streams have been reviewed and there has not been an impact on adoption of this standard.
There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Company.
The Chief Operating Decision Maker is the Board of Directors. The Directors are of the opinion that the Company is engaged in a single segment of business, being the investment of the Company's capital in secondhand commercial vessels. The financial information used to manage the Company presents the business as a single segment.
Dividend income is accounted for on an accruals basis from the date the dividend is declared.
Interest income is accounted for on an accruals basis.
Expenses are accounted for on an accruals basis. Any performance fee liability is calculated on an amortised cost basis at each valuation date, with the respective expense charged through the Statement of Comprehensive Income. The Company's investment management and administration fees, finance costs and all other expenses are charged through the Statement of Comprehensive Income.
Dividends are accounted for in the Statement of Changes in Equity in the year in which they are declared.
The Company has been granted exemption from liability to income tax in Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 amended by the Director of Income Tax in Guernsey for the current year. Exemption is applied and granted annually and subject to the payment of a fee, currently £1,200.
The Company classifies its investments in LS Assets Limited ("LSA") as a financial assets at fair value through profit or loss ("FVTPL").
The Company measures and evaluates the net assets of LSA on a fair value basis. The net assets include the underlying SPVs which values all vessels on a fair value basis.
The Company reports fair value information to the Directors who use this to evaluate the performance of investments.
Financial assets and financial liabilities are recognised in the Company's Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the Statement of Comprehensive Income.
Financial assets are classified at FVTPL when the financial asset is either held for trading or it is designated at FVTPL. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in the Statement of Comprehensive Income.
The Company's investment in LSA has been designated as at FVTPL on the basis that it is managed and its performance is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the investments is provided internally on that basis. The Company measures and evaluates the performance of the entire investment into LSA on a fair value basis by using the net asset value of LSA including, in particular the underlying SPVs and the fair value of the SPVs' investments into their respective vessel assets as well as the residual net assets/liabilities of both the SPVs and LSA itself. The investment in LSA consists of both equity and debt instruments.
In estimating the fair value of each underlying SPV (as a constituent part of LSA's net asset value at fair value), the Board has approved the valuation methodology for valuing the shipping assets held by the SPVs. The carrying value of a shipping asset consists of its charter-free value plus or minus the value of any charter lease contracts attached to the vessel, plus or minus an adjustment for the capital expenditure associated with the dry docking of the vessel. Refer to Note 3 which explains in detail the judgements and estimates applied.
There are Time Charter contracts in place for standard vessels. Such Charters will vary in length but would typically be in the 2 – 8 years' range. As the shipping markets can be volatile over time, the value of such Charters will therefore either add to or detract from the open market Charter-Free value of the vessel. Under a time charter, the vessel owner provides a fully operational and insured vessel for use by the charterer. There is a fluid Charter market reported daily by freight brokers on the basis of time charter rates.
Once a contracted time charter is known this is compared to the market benchmark and the difference is discounted using an industry weighted average cost of capital to establish a negative or positive value of the charter.
The value of the Charter is added to the Charter-Free value to ascertain a value with Charter.
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method, less any expected credit losses.
The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay.
On derecognition of a financial asset in its entirety, gains and losses on the sale of investments, which is the difference between initial cost and sale value, will be taken to the profit or loss in the Statement of Comprehensive Income in the period in which they arise.
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
Debt and equity instruments are classified either as financial liabilities or as equity in accordance with the substance of the contractual arrangement.
The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or when they expire.
Cash and cash equivalents include cash on hand, demand deposits and other short-term highly liquid investments with original maturities of 3 months or less and bank overdrafts. As at 30 June 2019, the carrying amount of cash and cash equivalents approximate their fair value.
The financial statements of the Company are presented in US Dollars, which is also the currency in which the share capital was raised and investments were purchased, and is therefore considered by the Directors' to be the Company's functional currency.
At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in Statement of Comprehensive Income in the period in which they arise. Transactions denominated in foreign currencies are translated into US Dollars at the rate of exchange ruling at the date of the transaction.
In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for at least the next twelve months. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Refer to page 30, Viability statement for key areas considered.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.
Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.
The preparation of financial statements requires management to make estimates and judgements that affect the amounts reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenue and expenses during the year. The nature of the estimation means that actual outcomes could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Critical judgements in applying the Company's accounting policies – IFRS 10: Consolidated Financial Statements
The audit committee considered the application of IFRS 10, and whether the Company meets the definition of an investment entity.
The directors concluded that the Company met the investment criteria set out in IFRS 10 and therefore consider the Company to be an investment entity in terms of IFRS 10. As a result, as required by IFRS 10 the Company is not consolidating its subsidiary but is instead measuring it at fair value in accordance with IFRS 13.
The criteria which define an investment entity are, as follows:
The Company's objective of pooling investors' funds for the purpose of generating an income stream and capital appreciation is consistent with the definition of an investment entity.
Critical judgements and estimates in applying the Company's accounting policies – financial assets at fair value:
The Company values it's investment in LSA and the SPVs at their respective net asset values. The net asset values comprise shipping vessels which are measured at fair value and residual net assets/liabilities of each of the entities, and is considered by the Board and Investment Manager as an appropriate measure of fair value of these investments.
In estimating the fair value of each underlying SPV, the Board has approved the valuation methodology for valuing the shipping assets held by the SPVs. The carrying value of a standard vessel consists of its charter-free value plus or minus the value of any charter lease contracts attached to the vessel, plus or minus an adjustment for the capital expenditure associated with the dry docking of the vessel. This latter adjustment is an addition to value when the valuation date is nearer to the vessel's last dry docking than to its next expected visit to dry dock, and vice versa. In the opinion of the Directors, the carrying value determined as set out in more detail below represents a reasonable estimate of the fair value of that shipping asset.
The charter-free and associated charter values of typical vessels are calculated using an online valuation system provided by VesselsValue Ltd. For charter free values the system contains a number of algorithms that combine factors such as vessel type, technical features, age, cargo capacity, freight earnings, market sentiment and recent vessel sales.
For charter values, the system provides a DCF (Discounted Cashflow) module where vessel specific charter details are input and measured against system provided market benchmark to obtain a premium or discount value of the charter versus the typical vessel prevailing market.
The adjustment for the capital expenditure associated with the dry docking of the vessel is time apportioned on a straight line basis over the period between the vessel's last visit to dry dock and the date of its next expected visit, by reference to the actual cost of the last visit and the budgeted cost of the next.
The remaining four vessels are considered to be specialist vessels on long-term Bareboat Charters and are valued on a pure DCF basis by the Investment Manager using vessel specific information and both observable and unobservable data. The VesselsValue Ltd platform is not used for these assets. This DCF approach determines the present value of the future lease payments discounted at the project cost of capital is deemed to be a fair representation of the vessel/lease value. Project cost of capital discount rates are reviewed on a regular basis to ensure they remain relevant to prevailing project and market risk parameters. The prospectus sets out the basis on which non-typical and specialist vessels would be valued.
Critical judgements and estimates in applying the Company's accounting policies – financial assets at fair value for Parrot SPV
A Sale and Purchase agreement was executed in June 2019 for the SPV, Parrot Limited, to acquire a vessel. This enabled the Company to direct the ownership of the vessel from the transaction date and prior to the Company's year end.
The fair value of the investment has been calculated as the difference between the value of the vessel (on a DCF basis) and the costs to complete the transaction.
There were no other areas of estimations in the current year.
The Company owns the Investment Portfolio through its investment in LSA. The investment by LSA comprises the NAVs of the SPVs. The NAVs consist of the fair value of vessel assets and the SPVs residual net assets/liabilities. The Investment Portfolio is designated as Level 3 item on the fair value hierarchy because of the lack of observable market information in determining the fair value. The investment held at fair value is recorded under Non-Current Assets in the Statement of Financial Position as there is no current intention to dispose of any of the assets.
| 2019 | 2018 | |
|---|---|---|
| LSA | US\$ | US\$ |
| Brought forward cost of investment Total investment acquired in the year / period |
46,140,091 153,598,985 _____ |
- 46,140,091 _____ |
| Carried forward cost of investment | 199,739,076 | 46,140,091 |
| Brought forward unrealised gains on valuation Movement in unrealised gains on valuation |
3,482,168 17,776,829 _____ |
- 3,482,168 _____ |
| Carried forward unrealised gains on valuation | 21,258,997 _____ |
3,482,168 _____ |
| Total investment at fair value | 220,998,073 _____ |
49,622,259 _____ |
LSA (own net assets): Breakdown of Fair Value:
| 2019 | 2018 | |
|---|---|---|
| US\$ | US\$ | |
| Aglow Limited |
9,962,674 | - |
| Citra Limited | 12,930,529 | - |
| Darwin Limited |
7,283,389 | - |
| Dragon Limited |
11,200,383 | - |
| Hongi Limited |
7,214,554 | - |
| Java Limited |
6,655,732 | - |
| Kale Limited |
12,056,392 | 11,625,057 |
| Neon Limited |
31,375,694 | - |
| Octane Limited | 20,170,969 | - |
| Parrot Limited** |
5,736,394 | - |
| Patience Limited |
11,528,670 | 10,818,489 |
| Pollock Limited |
15,189,286 | - |
| Riposte Limited |
14,303,930 | 13,843,536 |
| Sierra Limited |
20,620,297 | - |
| Swordfish Limited |
11,916,570 | 10,811,803 |
| Cash held pending investment into vessels | 34,606,314 | 913,330 |
| Residual net (liabilities) / assets | (11,753,704) | 1,610,044 |
| _____ | _____ | |
| *Total investment at fair value | 220,998,073 | 49,622,259 |
| _____ | _____ |
The net change in the movement of the fair value of the investment is recorded in the Statement of Comprehensive Income.
*Vessels are valued at fair value in each of the SPVs shown in the table above and combined with the residual net (liabilities) / assets of each SPV to determine the fair value of the total investment attributable to LSA.
** At the year end this SPV held an Agreement with the Vendor for the purchase of a vessel signed 14 June 2019, purchase was completed on 5 July 2019. The vessel and charter arrangements are considered specialist, and subsequently the vessel will be valued on a DCF basis. At the year end the Company valued the incomplete contract at the difference between its DCF value and costs to complete.
The Company holds its investment through a subsidiary company which has not been consolidated as a result of the adoption of IFRS 10: Consolidated Financial Statements. Below is the legal entity name for the Holding Company who owns 100% of the shares in the SPVs. The remaining legal entities are owned indirectly through the investment in the Holding Company. The country of incorporation is also their principal place of business.
| Name | Country of incorporation |
Direct or indirect holding |
Principal activity |
Ownership at 30 June 2019 |
Ownership at 30 June 2018 |
|---|---|---|---|---|---|
| LS Assets Limited |
Guernsey | Direct | Holding company |
100% | 100% |
| Aglow Limited | Isle of Man | Indirect | SPV | 100% | 0% |
| Citra Limited | Isle of Man | Indirect | SPV | 100% | 0% |
| Darwin Limited | Isle of Man | Indirect | SPV | 100% | 0% |
| Dragon Limited | Isle of Man | Indirect | SPV | 100% | 0% |
| Hongi Limited | Isle of Man | Indirect | SPV | 100% | 0% |
| Java Limited | Isle of Man | Indirect | SPV | 100% | 0% |
| Kale Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Neon Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Octane Limited | Isle of Man | Indirect | SPV | 100% | 0% |
| Parrot Limited | Isle of Man | Indirect | SPV | 100% | 0% |
| Patience Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Pollock Limited | Isle of Man | Indirect | SPV | 100% | 0% |
| Riposte Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| Sierra Limited |
Isle of Man | Indirect | SPV | 100% | 0% |
| Swordfish Limited | Isle of Man | Indirect | SPV | 100% | 100% |
| 2019 | 2018 | |
|---|---|---|
| US\$ | US\$ | |
| Current assets |
||
| Accrued income | 8,216 | 868 |
| Prepayments | 17,298 | 30,561 |
| Due from subsidiaries | 6,734 | 3,367 |
| _____ | _____ | |
| Total trade and other receivables | 32,248 | 34,796 |
| _____ | _____ |
Amounts due from subsidiaries are interest free and payable on demand. Due to the value and short term nature of these receivables, the directors have assessed there to be no expected credit losses associated with these outstanding balances
| Share issuance | Number of shares |
Gross amount raised (US\$) |
Issue costs (US\$) |
Share capital (US\$) |
|---|---|---|---|---|
| Issued on 18 December 2017 |
91,000,000 | 91,000,000 | (1,820,000) | 89,180,000 |
| C-Class Share conversion on 12 February 2019 |
84,624,960 | 78,400,000 | (1,568,000) | 76,832,000 |
| Issued on 14 March 2019 | 49,019,608 | 50,000,016 | (1,000,000) | 49,000,016 |
| Total issue at 30 June 2019 |
224,644,568 | 219,400,016 | (4,388,000) | 215,012,016 |
| C-Class Shares issued on 16 October 2018 |
78,400,000 | 78,400,000 | (1,568,000) | 76,832,000 |
| C-Class Share conversion on 12 February 2019 |
(78,400,000) | (78,400,000) | 1,568,000 | (76,832,000) |
| Total C-Class Shares in issue at 30 June 2019 |
- | - | - | - |
The Company currently has 1 class of ordinary share of no par value in issue. All the holders of the ordinary shares which total 224,644,568 (2018: 91,000,000), are entitled to receive dividends as declared from time to time and are entitled to 1 vote per share at meetings of the Company.
During the year the Company issued C Shares and raised US\$78,400,000. These were converted to 84,624,944 ordinary shares. Due to lot sizes there were 16 additional ordinary shares sold into the market at the market price of ordinary shares bringing the total number of ordinary shares to 84,624,960.
Retained reserves comprise the retained earnings as detailed in the Statement of Changes in Equity.
| 2019 US\$ |
2018 US\$ |
|
|---|---|---|
| Profit and comprehensive income for the year / period | 16,420,500 | 3,283,443 |
| Weighted average number of ordinary shares | 137,499,622 | 91,000,000 |
| Earnings per ordinary share (cents) | 11.94 | 3.61 |
The weighted average number of ordinary shares (137.5m shares) is calculated in accordance with IFRS guidelines based on the date of conversion of C Shares to ordinary shares.
| 2019 US\$ |
2018 US\$ |
|
|---|---|---|
| Profit and comprehensive income for the year / period | 16,420,500 | 3,283,443 |
| Adjusted Weighted average number of ordinary shares | 164,134,143 | 91,000,000 |
| Adjusted Earnings per ordinary share (cents) | 10.00 | 3.61 |
The adjusted weighted average number of ordinary shares (164.1m shares) is calculated as if the C Shares were ordinary shares from the date that the C Shares were issued. This alternate performance measure also provides a comparison to the dividends paid, which have been paid in full on all ordinary shares in issue at each dividend declaration date.
The Company declared the following dividends in respect of the profit for the year ended 30 June 2019:
| Period end | Dividend | Ex div date | Net Dividend | Record | Paid date |
|---|---|---|---|---|---|
| per share | paid | date | |||
| Ordinary shareholders | |||||
| 30 June 2018 | US\$0.0150 | 9 August | US\$1,365,000 | 10 August | 17 August 2018 |
| 2018 | 2018 | ||||
| 30 September | US\$0.0175 | 1 November | US\$1,592,500 | 2 November | 15 November |
| 2018 | 2018 | 2018 | 2018 | ||
| 31 December | US\$0.0175 | 7 February | US\$1,592,500 | 8 February | 22 February |
| 2018 | 2019 | 2019 | 2019 | ||
| 31 March | US\$0.0175 | 2 May 2019 | US\$3,931,280 | 3 May 2019 | 17 May 2019 |
| 2019 | |||||
| C-Class shareholders | |||||
| 31 December | US\$0.0050 | 7 February | US\$392,000 | 8 February | 22 February |
| 2018 | 2019 | 2019 | 2019 |
Under the Companies (Guernsey) Law, 2008, the Company can distribute dividends from capital and revenue reserves, subject to a prescribed net asset and solvency test. The net asset and solvency test considers whether a company is able to pay its debts when they fall due, and whether the value of a company's assets is greater than its liabilities. The Board confirms that the Company passed the net asset and solvency test for each dividend paid.
| 2019 US\$ |
2018 US\$ |
|
|---|---|---|
| Shareholders' equity | 225,842,679 | 92,463,443 |
| Number of ordinary shares | 224,644,568 | 91,000,000 |
| Net assets per ordinary share (cents) | 100.53 | 101.61 |
The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders. In accordance with the Company's investment policy, the Company's principal use of cash has been to fund investments as well as ongoing operational expenses.The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. The capital structure of the Company consists entirely of equity (comprising issued capital, reserves and retained earnings).
As the Company's Ordinary Shares are traded on the LSE, the Ordinary Shares may trade at a discount or premium to their Net Asset Value per Share on occasion. However, the Directors and the Investment Manager monitor the discount on a regular basis and can use share buy backs to manage the discount.
The Company is not subject to any externally imposed capital requirements.
The Board, with the assistance of the Investment Manager, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risk. These risks include market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk.
The value of the investments held by the Company is indirectly affected by the factors impacting on the shipping industry generally, being, amongst other factors, currency exchange rates, interest rates, the availability of credit, economic or political uncertainty and changes in law governing shipping or trade. These factors may affect the price or liquidity of vessels held by the Company's subsidiaries and thus the value of the subsidiaries themselves.
The Company may have assets and liabilities denominated in currencies other than United States Dollars, the functional currency. It therefore may be exposed to currency risk as the value of assets/liabilities denominated in other currencies will fluctuate due to changes in exchange rates.
However, such exposure is currently and is expected to remain insignificant. Consequently no further information has been provided.
The majority of the Company's financial assets and liabilities are non-interest bearing. However, the Company is exposed to a small amount of risk due to fluctuations in the prevailing levels of market interest rates because any excess cash or cash equivalents are invested at short-term market interest rates. The Company's interest-bearing financial assets and liabilities expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The table below summarises the Company's exposure to interest rate risks. It includes the Company's assets and trading liabilities at fair values, categorised by the earlier of contractual re-pricing or maturity dates.
| 2019 | Weighted average interest rate (%) |
Interest bearing less than 1 month (US\$) |
Non-interest bearing (US\$) |
Total (US\$) |
|---|---|---|---|---|
| Assets | ||||
| Investments | - | - | 220,998,073 | 220,998,073 |
| Trade and other receivables | - | - | 32,248 | 32,248 |
| Cash and cash equivalents | 2.24 | 5,500,139 | - | 5,500,139 |
| Total assets | 5,500,139 | 221,030,321 | 226,530,460 | |
| Liabilities | ||||
| Trade and other payables | - | - | 687,781 | 687,781 |
| Total liabilities | - | 687,781 | 687,781 | |
| Total interest sensitivity gap | 5,500,139 |
Interest rate risk (continued)
| 2018 | Weighted average interest rate (%) |
Interest bearing less than 1 month (US\$) |
Non-interest bearing (US\$) |
Total (US\$) |
|---|---|---|---|---|
| Assets | ||||
| Investments | - | - | 49,622,259 | 49,622,259 |
| Trade and other receivables | - | - | 34,796 | 34,796 |
| Cash and cash equivalents | 1.35 | 43,030,736 | - | 43,030,736 |
| Total assets | 43,030,736 | 49,657,055 | 92,687,791 | |
| Liabilities | ||||
| Trade and other payables | - | - | 224,348 | 224,348 |
| Total liabilities | - | 224,348 | 224,348 | |
| Total interest sensitivity gap |
43,030,736 |
If the interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company's profit for the year ended 30 June 2019 would decrease/increase by US\$55,001 (2018: US\$215,153). This is attributable to the company's exposure to interest rates on its variable rate deposits.
The Investment Manager is permitted to utilise overdraft facilities towards the achievement of the Company's investment objectives. This was not utilised during the year.
Refer to Price Risk on the following pages for a description of the indirect impact interest rates have on the valuation of vessel assets.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company.
The Company does not have any significant credit risk exposure to any single counterparty in relation to trade and other receivables. On-going credit evaluation is performed on the financial condition of accounts receivable. As at 30 June 2019 there were no receivables considered impaired (2018: US\$nil).
The Company maintains its cash and cash equivalents with various banks to diversify credit risk. These are subject to the Company's credit monitoring policies including the monitoring of the credit ratings issued by recognised credit rating agencies.
| 30 June 2019 | Credit rating Standard & Poor's |
Cash (US\$) | Short term fixed deposits (US\$) |
Total as at 30 June 2019 (US\$) |
|---|---|---|---|---|
| Royal Bank of Scotland International (RBSI) |
A- Long Term A-2 Short Term |
6,454 | - | 6,454 |
| Barclays Bank Plc (Barclays) |
A Long Term A-1 Short Term |
53,913 | - | 53,913 |
| Ravenscroft 1 (HSBC London – call accounts) |
AA- Long Term A-1+ Short Term |
- | 5,439,772 | 5,439,772 |
| Total | 60,367 | 5,439,772 | 5,500,139 |
| 30 June 2018 | Credit rating Standard & Poor's |
Cash (US\$) | Short term fixed deposits (US\$) |
Total as at 30 June 2019 (US\$) |
|---|---|---|---|---|
| Royal Bank of Scotland International (RBSI) |
BBB+ Long Term A-2 Short Term |
25,086,314 | - | 25,086,314 |
| 1 Canaccord Genuity (BNP Paribas) |
A Long Term A-1 Short Term |
- | 4,486,106 | 4,486,106 |
| 1 Canaccord Genuity (Standard Chartered Jersey Ltd) |
A Long Term A-1 Short Term |
- | 4,486,106 | 4,486,106 |
| 1 Canaccord Genuity (Barclays Private Clients International) |
A Long Term A-1 Short Term |
- | 4,486,105 | 4,486,105 |
| 1 Canaccord Genuity (ABN AMRO) |
A Long Term A-1 Short Term |
- | 4,486,105 | 4,486,105 |
| Total | 25,086,314 | 17,944,422 | 43,030,736 |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Board of Directors has established an appropriate liquidity risk management framework for the management of the Company's short-, medium- and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate cash reserves by monitoring forecast and actual cash flows. The table below shows the maturity of the Company's non-derivative financial assets and liabilities. The amounts disclosed are contractual, undiscounted cash flows and may differ from the actual cash flows received or paid in the future as a result of early repayments.
11. Financial risk management (continued)
Liquidity risk (continued)
| 30 June 2019 | Up to 3 months (US\$) |
Between 3 and 12 months (US\$) |
Between 1 and 5 years (US\$) |
Total (US\$) |
|---|---|---|---|---|
| Assets | ||||
| Trade and other receivables |
14,950 | - | - | 14,950 |
| Cash and cash equivalents |
5,500,139 | - | - | 5,500,139 |
| Liabilities | ||||
| Trade and other payables |
687,781 | - | - | 687,781 |
| Total | 4,827,308 | - | - | 4,827,308 |
| 30 June 2018 | Up to 3 months (US\$) |
Between 3 and 12 months (US\$) |
Between 1 and 5 years (US\$) |
Total (US\$) |
|---|---|---|---|---|
| Assets | ||||
| Trade and other receivables |
868 | 3,367 | - | 4,235 |
| Cash and cash equivalents |
43,030,736 | - | - | 43,030,736 |
| Liabilities | ||||
| Trade and other payables |
224,348 | - | - | 224,348 |
| Total | 42,807,256 | 3,367 | - | 42,810,623 |
As described in Note 3, the Company's financial assets are measured at fair value which comprises the fair value of the underlying SPVs and the residual net assets of the Company. The Company values its investment in LSA and the SPVs at their respective net asset values. The net asset values comprise shipping vessels which are measured at fair value and residual net assets/liabilities of each of the entities.
(a) Standard Vessel valuations
The fair value of a standard vessel comprises both the Charter-free value and the Charter valuation. The charter-free and associated charter values of typical vessels are calculated using an on-line valuation system provided by VesselsValue Ltd. For charter free values the system contains a number of algorithms that combine factors such as vessel type, technical features, age, cargo capacity, freight earnings, market sentiment and recent vessel sales.
For charter values, the system provides a DCF module where vessel specific charter details are input and measured against system provided market benchmark to obtain a premium or discount value of the charter versus prevailing market.
(b) Specialised Vessels and arrangements
There will be cases where the Company may invest in vessels which are (i) of a specialised nature and fall out of scope of mainstream brokers and/or (ii) where contracted employment does not have an available reference benchmark in the freight brokerage community.
The Investment Manager will make its own assessment of Value with Charter using a discounted cashflow ("DCF Model") model. The DCF Model will calculate the net present value of the charter and vessel value using the following inputs:
There were no specialised vessels held in the prior year.
Refer to Note 3 for further information on the valuation methodologies applied.
If the ship values at 30 June were 10% higher or lower, then the effect on the portfolio value would be as follows:
| Ship values | +10% change |
Total portfolio value |
-10% change |
|---|---|---|---|
| US\$ 000 | US\$ 000 | US\$ 000 | |
| Fair value at 30 June 2019 (US\$) | +12,811 | 128,113 | (12,811) |
| Ship values | +10% | Total portfolio | -10% |
|---|---|---|---|
| change | value | change | |
| US\$ 000 | US\$ 000 | US\$ 000 | |
| Fair value at 30 June 2018 (US\$) | +5,428 | 54,282 | (5,428) |
If the discount rate factors were 0.5% higher or lower, then the effect on the values of specialised vessels would be as follows:
| +0.5% change |
Total portfolio value |
-0.5% change |
|
|---|---|---|---|
| US\$ 000 | US\$ 000 | US\$ 000 | |
| Specialised Vessel values | (1,442) | 55,210 | +1,402 |
There were no specialised vessels held in the prior year.
If market charter rates used on VesselsValue.com to determine Charter values were 10% higher or lower, then the effect on the portfolio value would be as follows
| Ship values | +10% | Total portfolio | -10% |
|---|---|---|---|
| change | value | change | |
| US\$ 000 | US\$ 000 | US\$ 000 | |
| Fair value at 30 June 2019 (US\$) | (3,467) | 127,560 | +3,467 |
Cash and cash equivalents are liquid assets whose carrying value represents fair value. The fair value of other current assets and liabilities would not be significantly different from the values presented at amortised cost.
The Investment Manager is entitled to receive an annual fee, calculated on a sliding scale, as follows below:
For the year ended 30 June 2019 the Company has incurred US\$1,294,621 (2018: US\$206,140) in management fees of which US\$468,089 (2018: US\$105,064) was outstanding at 30 June 2019.
Tufton ODF Partners LP, the entity created to receive the carried interest, shall be entitled to a performance fee in respect of a Calculation Period provided that the Total Return per Share on Calculation Day for the Calculation Period of reference is greater than the High Watermark per Share and such performance fee shall be an amount equal to the Performance Fee Pay-Out Amount.
If:
The prevailing Historic Performance Fee Amount shall be reduced by the lower of: (i) 20 per cent of the difference between the High Watermark and the Total Return on such Calculation Day multiplied by the Relevant Number of Shares; and (ii) the prevailing Historic Performance Fee Amount. No performance fees were accrued or paid during the current or prior period.
The Investment Manager, Tufton Oceanic Ltd, is a related party due to having common key management personnel with the subsidiaries of the Company. All management fee transactions with the Investment Manager are disclosed in note 13.
For the year ended 30 June 2019 the Company has incurred US\$1,294,621 (2018: US\$206,140) in management fees of which US\$468,089 (2018: US\$105,064) was outstanding at 30 June 2019.
The Directors of the Company and their shareholding is stated in the Report of the Directors on page 23.
In the opinion of the Directors, on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling party.
The remuneration of the Directors was US\$109,264 (2018: US\$84,769) for the year which consisted solely of short-term employment benefits (refer to the Report of the Directors on page 23).
A further dividend was declared on 29 July 2019 for US\$0.0175 per ordinary share for the quarter ending 30 June 2019. The dividend was paid on 23 August 2019 to holders of ordinary shares on record date 9 August 2019 with an ex-dividend date of 8 August 2019.
Parrot Ltd, an SPV entered into an Agreement with the Vendor signed 14 June 2019 for the purchase of a vessel which completed on 5 July 2019.
Robert King, Chairman (appointed 6 February 2017) Stephen Le Page (appointed 6 February 2017) Paul Barnes (appointed 6 February 2017)
3 rd Floor 1 Le Truchot St Peter Port Guernsey GY1 1WD
Tufton Oceanic Ltd Albemarle House 1 Albemarle Street London W1S 4HA
Oceanic Marine Management Limited 142 Franklin Roosevelt PO Box 51309 CY-3504 Limassol Cyprus
Maitland Administration (Guernsey) Limited 3 rd Floor, 1 Le Truchot St Peter Port Guernsey GY1 1WD
Hudnall Capital LLP Adam House 7-10 Adam Street London WC2N 6AA
N+1 Singer Advisory LLP 1 Bartholomew Lane London EC2N 2AX
Carey Olsen (Guernsey) LLP PO Box 98, Carey House Les Banques St Peter Port Guernsey GY1 4BZ
Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU 2AX
Computershare Investor Services (Guernsey) Limited 1 st Floor, Tudor House Le Bordage St Peter Port Guernsey GY1 1DB
Computershare Investor Services PLC The Pavillions Bridgewater Road Bristol BS99 6AH
PricewaterhouseCoopers CI LLP Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey GY1 4ND
The Royal Bank of Scotland International Limited PO Box 62 Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey GY1 4BQ
Barclays Bank Plc Guernsey International Banking PO Box 41 St Peter Port Guernsey, GY1 3BE
The following definitions apply throughout this document unless the context requires otherwise:
| AIC | the Association of Investment Companies | |
|---|---|---|
| AIFM Directive or AIFMD |
the EU Directive on Alternative Investment Fund Managers (No. 2011/61/EU) |
|
| AIF | an alternative investment fund | |
| AIFM | an alternative investment fund manager | |
| AIFM Rules | the AIFM Directive and all applicable rules and regulations implementing the AIFM Directive in the UK |
|
| Articles of Incorporation or Articles |
the articles of incorporation of the Company, as amended from time-to-time |
|
| Asset Manager | Oceanic Marine Management Limited | |
| Auditor | PricewaterhouseCoopers CI LLP | |
| Board | the Directors from time to time | |
| Calculation Day | The last business day of each Calculation Period | |
| Calculation Period | (a) the period starting on Admission and ending on the earlier of (i) 30 June 2024; (ii) the commencement of the winding up of the Company; and (iii) the termination of the Manager's appointment; and (b) if the previous Calculation Year ended on 30 June of the previous Year, each successive period starting on 1 July and ending on the earlier of (i) 30 June three years later; (ii) the commencement of the winding up of the Company; and (iii) the termination of the Manager's appointment |
|
| Companies Law | the Companies (Guernsey) Law, 2008 as amended | |
| Company | Tufton Oceanic Assets Limited (Guernsey registered number 63061) which, when the context so permits, shall include any intermediate holding company of the Company and the SPVs |
|
| Directors or Board | the Board of Directors of the Company | |
| Disclosure Guidance and Transparency Rules or DTRs |
the disclosure guidance and transparency rules made by the Financial Conduct Authority under Section 73A of FSMA |
|
| FCA | the UK Financial Conduct Authority | |
| Financial Reporting Council or FRC | the UK Financial Reporting Council | |
| FSMA | the Financial Services and Markets Act 2000 and any statutory modification or re-enactment thereof for the time being in force |
| GFSC or Commission | the Guernsey Financial Services Commission |
|---|---|
| High Watermark per Share | the higher of: (i) US\$1.00 increased by the Hurdle: and (ii) if a Performance Fee has previously been paid, the Total Return per Share on the Calculation Day for the last Calculation Period (if any) by reference to which a Performance Fee was paid. |
| High Performance Fee Amount | in respect of any Calculation Period, an amount equal to the Performance Fee Pay-Out Amount for the previous Calculation Period where a Performance Fee was payable. |
| IASB | International Accounting Standards Board |
| IFRIC | International Financial Reporting Interpretations Committee |
| IFRS | International Financial Reporting Standards |
| Investment Manager | Tufton Oceanic Limited |
| IRR | Internal rate of return. The Internal rate of return is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero, and is a common performance indicator used in investment funds |
| Listing Rules | the listing rules made by the UKLA pursuant to Part VI of FSMA |
| London Stock Exchange or LSE | London Stock Exchange plc |
| LPG Carrier | a vessel used to transport liquefied petroleum gas |
| LS Assets Limited | The Guernsey holding company owning the SPVs through which the Company investment into vessels |
| LSE Admission Standards | the rules issued by the London Stock Exchange in relation to the admission to trading of, and continuing requirements for, securities admitted to the SFS |
| Main Market | the main market for listed securities operated by the London Stock Exchange |
| Market Abuse Regulation or MAR | Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse |
| Memorandum | the memorandum of association of the Company |
| Net Asset Value or NAV | the value, as at any date, of the assets of the Company after deduction of all liabilities of the Company and in relation to a class of shares in the Company, the value, as at any date of the assets attributable to that class of shares after the deduction of all liabilities attributable to that class of shares determined in accordance with the accounting policies adopted by the Company from time-to-time |
| Net Asset Value or NAV per Share | at any date, the Net Asset Value attributable to the Shares of the relevant class divided by the number of Shares of such class in issue (other than Shares of the relevant class held in treasury) at the date of calculation |
|---|---|
| Performance Fee Amount | 20 per cent. of the excess in Total Return per Share and the High Watermark per Share multiplied by the time weighted average number of Shares in issue during the Calculation Period |
| Performance Fee Pay-Out Amount | in respect of the relevant Calculation Period, an amount equal to "A", where: A = (0.5 x B) + C; B = the Performance Fee Amount; and C = an amount equal to the High Performance Fee Amount. |
| POI Law | the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended |
| Portfolio | the Company's portfolio of investments from time to time |
| Prospectus | The Placing and Offer for Subscription document for the Company dated 8th December 2017 |
| Register | the register of members of the Company |
| Relevant Number of Shares | for any Calculation Period the time weighted average number of Ordinary Shares in issue during such Calculation Period. |
| SFS or Specialist Fund Segment | the Specialist Fund Segment of the Main Market (previously known as the Specialist Fund Market or SFM) |
| Segment | classifications of vessels within the shipping industry including, inter alia, Tankers, General Cargo, Containerships and Bulkers |
| Shares | ordinary shares of no par value in the capital of the Company of such classes (denominated in such currencies) as the Directors may determine |
| SPV or Special Purpose Vehicle | corporate entities, formed and wholly owned (directly or indirectly) by the Company, specifically to hold one or more vessels, and including (where the context permits) any intermediate holding company of the Company |
| Total Return per Share | the Net Asset Value per Ordinary Share on any Calculation Day adjusted to (i) include the gross amount of any dividends and/or distributions paid to an Ordinary Share since Admission; (ii) not take account of any accrual made in respect of the performance fee itself for that Calculation Period; (iii) not take account of any accrual made in respect of any prevailing Historic Performance Fee Amount (as adjusted pursuant to the operation of this paragraph below); (iv) not take account of any increase in Net Asset Value per Share attributable to the issue of Ordinary Shares at a premium to Net Asset Value per Share or any buyback of any Ordinary Shares at a discount to Net Asset Value per Ordinary Share during such Calculation Period; (v) not take account of any increase in Net Asset Value per Share attributable to any consolidation or sub-division of Ordinary Shares; (vi) take into account any other reconstruction, amalgamation or adjustment relating to the share capital of the Company (or any share, stock or security derived therefrom or convertible there into); and (vii) take into account the prevailing Net Asset Value of any C Shares in issue |
|---|---|
| Tufton Group | Tufton Oceanic Finance Group Limited and its subsidiaries, including the Investment Manager |
| UK Corporate Governance Code | the UK Corporate Governance Code as published by the Financial Reporting Council from time-to time |
| UK Listing Authority | the FCA acting in its capacity as the competent authority for the purposes of Part VI of FSMA |
| United Kingdom or UK | the United Kingdom of Great Britain and Northern Ireland |
| Unlevered cash flow run rate | EBITDA net of accruals over the remaining term of the charters for the vessels in the portfolio, expressed annually |
| VesselsValue | VesselsValue Limited a third party provider of vessel valuations to the Company and Investment Manager |
| VLCC | Very Large Crude Carrier |
| WACC | the weighted average cost of capital |
| £ or Sterling | the lawful currency of the United Kingdom |
Notice is hereby given that the Annual General Meeting of Members of Tufton Oceanic Assets Limited (the "Company") will be held at 1 Le Truchot, 3rd Floor, St. Peter Port, Guernsey on 25 October 2019 at 11.00 am BST to transact the business set out in the resolutions below.
and such authority shall expire on the earlier of the conclusion of the next annual general meeting of the Company and the date 15 months after the date on which this resolution is passed, save that the Directors shall be entitled to make offers or agreements before the expiry of such power which would or might require the purchase of Ordinary Shares after such expiry pursuant to any such offer or agreement as if the power conferred by the resolution had not expired.
By order of the Board Maitland Administration (Guernsey) Limited 1 Le Truchot St Peter Port Guernsey GY1 1WD
10 September 2019
Tufton Oceanic Assets Limited
Registered Office Address: 1 Le Truchot, St. Peter Port, Guernsey, GY1 1WD Registration Number: 63061
____________________________________________________________________________
____________________________________________________________________________
I/We (block capitals please)
of address)__________________________________________________________________
being (a) member(s) of the Company appoint the Chairman of the meeting (or any person he/she may, in his absolute discretion, appoint in his stead) or (see note 1)
_____________________________________________________________________________
As my/our proxy and, on a poll, to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at 1 Le Truchot, 3rd Floor, St. Peter Port, Guernsey on 25 October 2019 at 11.00 am BST and any adjournment thereof.
Please indicate with an 'X' in the spaces provided how you wish your votes to be cast on the resolutions specified.
| ORDINARY RESOLUTIONS | For | Against | Abstain |
|---|---|---|---|
| 1. To receive the Company's Annual Report and Audited Financial Statements for the year ended 30 June 2019. |
|||
| 2. To re-appoint PricewaterhouseCoopers (CI) LLP Limited as auditor to the Company until the conclusion of the next general meeting at which accounts are laid before the Company. |
|||
| 3. To authorise the Directors of the Company to determine the remuneration of the auditor. |
|||
| 4. To re-elect Mr Robert King as a Director of the Company who retires by rotation in accordance with Article 21.3 of the Articles of Association of the Company. |
|||
| 5. To re-elect Mr Stephen Le Page as a Director of the Company who retires by rotation in accordance with Article 21.3 of the Articles of Association of the Company. |
|||
| 6. To re-elect Mr Paul Barnes as a Director of the Company who retires by rotation in accordance with Article 21.3 of the Articles of Association of the Company. |
|||
| 7. Authority to make market acquisitions of the Company's own shares. |
Subject to any voting instructions so given, the proxy will vote, or may abstain from voting, on any resolution as he/she may think fit.
| Signature_____ | |
|---|---|
Dated this _________________________day of _________________________________2019
Please also indicate if the appointment of a proxy is one of multiple appointments being made. All such forms should be signed and returned together in the same envelope. Appointing a proxy shall not preclude a member from attending and voting in person at the meeting.
No member shall be entitled to be present or take part in any proceedings or vote either personally or by proxy at any meeting unless all calls due from him have been paid.
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