TIDMSHIP
RNS Number : 1717L
Tufton Oceanic Assets Ltd.
08 September 2021
8 September 2021
TUFTON OCEANIC ASSETS LIMITED
("Tufton Oceanic Assets" or the "Company")
Final Results and Notice of AGM
Tufton Oceanic Assets Limited announces its final results for
the period ended 30 June 2021. A copy of the Annual Report and
Audited Financial Statements has been submitted to the National
Storage Mechanism and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism. A copy of
the Annual Report and Audited Financial Statements will also
shortly be available on the Company's website in the Investor
Relations section under Company Documents at
www.tuftonoceanicassets.com/financial-statements.
Printed copies of the Company's Annual Report and Audited
Financial Statements together with Notice of the 2021 Annual
General Meeting will be posted to investors shortly. The annual
general meeting will be held at the Company's registered office at
3(rd) Floor, 1 Le Truchot, St Peter Port, Guernsey on 20 October
2021 at 11.00 am BST. In light of the on-going COVID-19 situation
and travel restrictions that may be in-place from time-to-time,
members are reminded that they may appoint a Guernsey-based
proxy.
For further information, please contact:
Tufton Investment Management Ltd (Investment Manager)
Andrew Hampson +44 (0) 20 7518
Paulo Almeida 6700
Singer Capital Markets (Joint Broker)
James Maxwell, Alex Bond (Corporate Finance) +44 (0) 20 7496
Alan Geeves, James Waterlow, Sam Greatrex (Sales) 3000
Hudnall Capital LLP (Joint Broker) +44 (0) 20 7520
Andrew Cade 9085
Highlights
- Tufton Oceanic Assets Limited (the "Company") had a profit for
the year of US$79.5m, or US$0.307 per Share.
- Encouraged by the resilient performance in 2020 and the
increased charter coverage, in January 2021 the Company raised its
target annual dividend to US$0.075 per Share from US$0.070 per
Share. The Company paid a dividend of US$0.0175 per Share for 3Q20
and a quarterly dividend of US$0.01875 per Share for the following
three quarters.
- With continued strong performance, the Company has further
raised its target annual dividend from US$0.075 to US$0.08 per
share, commencing 3Q21. After the increase, the Investment
Manager's forecasted dividend cover over the next 12-18 months will
average c.1.7x despite not being fully invested following the
divestment of the containership Kale.
- The NAV per Share increased from US$0.931 as at 30 June 2020
to US$1.158 as at 30 June 2021. The NAV total return for the
financial year was 33.3%.
- As at 24 August 2021, the Company's Shares traded at a premium
of c.13% to the ex-dividend 30 June 2021 NAV.
- During the financial year, the Company agreed to divest four
vessels and to acquire nine vessels. The overall return from the
agreed divestments greatly exceed the Company's targets. Of the
nine agreed acquisitions, seven vessels were delivered during the
financial year and two after the end of the year.
- After the financial year end, in July 2021 the Company agreed
to divest the containership Citra with a realised net IRR of 47%
and agreed to acquire the bulker Idaho at below depreciated
replacement cost ("DRC").
- As at 30 June 2021, all delivered vessels except Candy and
Golding were employed on fixed rate charters. Candy is on a
floating rate time charter, subject to a floor and a ceiling.
Golding is employed in a chemical tanker pool .
- As at 30 June 2021, the average expected charter length (EBITDA weighted) was c.2.3 years.
- The Company's fleet had no unplanned commercial idle time
(voids) during the financial year .
- The Investment Manager took active measures to expedite crew
relief on the Company's vessels. As a result, only c.16% of the
crew on board the Company's vessels were overdue for rotation at
the end of July 2021 compared to c.40% in July 2020. The
International Maritime Organisation ("IMO") estimates that globally
250,000 seafarers (c.25%) were overdue for rotation as at July 2021
.
- The average energy efficiency of the Company's fleet in 2020,
as measured by the Energy Efficiency Operational Indicator
("EEOI"), improved by c.2% compared to 2019. Based on 2020 EU
Monitoring, Reporting and Verification ("MRV") data, the Company's
fleet EEOI is c.6% better than its peer group.
- On 5 January 2021, the Company announced that the long-planned
ownership change at the Investment Manager, where senior management
took a larger stake and a family office bought out most other
shareholders, was completed.
Chairman's Statement
Introduction
On behalf of the Board, I present the Company's Annual Report
and Audited Financial Statements for the year ended 30 June
2021.
Since I last communicated with you in March 2021 there has been
a great deal of change in the global economic markets which have
largely had a positive impact on shipping, although this has varied
between individual sectors which is discussed in the Investment
Manager's Report.
The Investment Manager continues to manage the Company in order
to produce superior risk adjusted returns. During the financial
year, the Company agreed to acquire nine vessels of which seven
were delivered during the year and two were delivered after the
year end. The Company also agreed to divest four vessels. The
overall return from the divested vessels greatly exceeded the
Company's targets. The fleet as at the end of the financial year
consisted of four handysize bulkers, nine containerships and eight
tankers, with one handysize bulker and one chemical tanker pending
delivery to the Company. There is a further breakdown of the
portfolio in the Investment Manager's Report. After the financial
year, in July 2021, the Company also agreed to acquire a bulker and
divest a containership, which will complete in 2H21, bringing the
total number of vessels to twenty-one.
The NAV per Share increased from US$0.931 as at 30 June 2020 to
US$1.158 as at 30 June 2021. The NAV total return for the financial
year was 33.3%.
Covid-19
The global economy started recovering from the impacts of
Covid-19 from the end of 1H20. The market for containerships and
bulkers has recovered but an ongoing recovery in oil demand growth
and capacity in floating storage returning to the market remains an
overhang for tankers.
The Company benefited from diversification between the different
segments of shipping. The tanker market was strong in the first
half of 2020 while the containership market was weak. The roles
were reversed over the second half of 2020 and first half of
2021.
As noted previously, the Investment Manager has, where possible,
mitigated the impact of the global humanitarian crisis of crew
members stranded on board commercial vessels due to Covid-19
related travel restrictions. The Investment Manager took active
measures to expedite crew relief on the Company's vessels. As a
result, only c.16% of the crew on board the Company's fleet were
overdue for rotation at the end of July 2021 compared to c.40% in
July 2020. The IMO estimates that globally 250,000 seafarers
(c.25%) were overdue for rotation as at July 2021.
Performance
As at 30 June 2021, the Company's NAV was US$312.6m being
US$1.158 per Share (US$0.931 per Share as at 30 June 2020). The
Company declared a profit of US$79.5m or US$0.307 per Share for the
year with the NAV total return over the year of 33.3%.
Encouraged by the Company's performance in 2020 and increased
charter coverage, we approved that the Company raise its target
annual dividend to US$0.075 per Share from US$0.07 per Share in
January 2021. In 1H21, the Company fixed several vessels on
charters at higher rates compared to their previous charters,
agreed to divest vessels on low rate charters with returns
exceeding targets and also agreed to acquire several vessels with
charters at higher rates compared to the previous year. After the
financial year, following the continued strong performance and
increased portfolio cash flow, we approved that the Company further
raise its target annual dividend from US$0.075 to US$0.080 per
Share, commencing from 3Q21. After the increase, the Investment
Manager's forecasted dividend cover over the next 12-18 months will
average c.1.7x despite not being fully invested following the
divestment of the containership Kale.
During the year, the Company's share price increased from
US$0.915 per Share as at the close of business 30 June 2020 to
US$1.150 per Share as at the close of business 30 June 2021.
In terms of performance drivers, containership values in
particular rebounded strongly as the market benefited from pent-up
demand and inventory re-stocking after the 1H20 lockdowns, as well
as shifts in consumer activity towards goods. Along with strong
portfolio operating profit and cash flows, the Company benefited
from non-cash fair value gains as asset values recovered.
Tap Issues
On 25 March 2021, the Company announced the results of its tap
issue of 15,000,000 Shares at US$0.98 per tap issue share , which
raised gross proceeds of US$14.7m. 14,700,000 new Ordinary Shares
were admitted to trading on the Specialist Funds Segment of the
Main Market of the London Stock Exchange plc. The balance of
300,000 Ordinary Shares under the tap issue were issued out of
Treasury and represent all of the Company's shares that were held
in Treasury.
The total number of voting rights of the Company as at 30 June
2021 is 270,037,638.
After the end of the financial year, on 30 July 2021, the Board
announced a tap issue of 10,533,763 new Ordinary Shares at a price
of US$1.18 per tap issue share. The tap issue shares will be
eligible for the dividend to be paid in November 2021.
Discount Management
During the first half of the financial year, the Company's
Shares traded at a discount to NAV. The discount to NAV, although
initially narrow, widened to more than 10% at the end of August
2020. In August and September 2020, the Company (in accordance with
the authority granted to it by Shareholders) repurchased 300,000
shares at a cost of US$247,125. Refer to note 6 for more
details.
The repurchased shares were held in Treasury and re-issued as
part of the Company's tap issue in March 2021. As at the end of the
financial year, no Shares were held in Treasury.
Dividends
During the year the Company declared and paid dividends to
Shareholders as follows:
Period end Dividend Announcement Ex div Record Paid date
per share date date date
(US$)
Ordinary Shareholders
30.06.20 0.0175 30.07.20 06.08.20 07.08.20 21.08.20
30.09.20 0.0175 26.10.20 05.11.20 06.11.20 20.11.20
31.12.20 0.01875 21.01.21 28.01.21 29.01.21 12.02.21
31.03.21 0.01875 22.04.21 29.04.21 30.04.21 14.05.21
The dividend for the prior year (ending 30 June 2020) was paid
during the financial year on 21 August 2020. A dividend was
declared on 22 July 2021 for US$0.01875 per Share for the quarter
ending 30 June 2021. The dividend was paid on 13 August 2021 to
holders of Shares on record date 30 July 2021 with an ex-dividend
date of 29 July 2021.
Corporate Governance
The Company is a member of the Association of Investment
Companies (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 AIC members to meet their obligations in relation to the UK
Corporate Governance Code .
Where the Company's stakeholders, including Shareholders and
their appointed agents, have matters they wish to raise with the
Board in respect to the Company, I would encourage them to contact
us at SHIP@tuftonoceanicassets.com .
Annual General Meeting
The Annual General Meeting ("AGM") of the Company will be held
on 20 October 2021 at 11.00 am BST the details of which are set out
in the AGM notice and Proxy form. Due to continuing and evolving
Covid-19 restrictions, whilst members may be permitted to
physically attend the AGM in person, members are strongly
encouraged to appoint a Guernsey-based proxy in order to vote on
the resolutions on their behalf, in accordance with the
instructions set out in the Notice and the accompanying form of
proxy. The most up-to-date details of restrictions due to Covid-19
may be accessed via the States of Guernsey website,
(https://covid19.gov.gg/).
At the last AGM held on 23 October 2020, the resolutions were
all duly passed. There were significant votes (16.9% of the votes
cast at the meeting) against the resolution to approve the
authority to issue and allot Shares as if the pre-emption rights in
the Articles of Association of the Company are disapplied. The
Directors believe that it is in the best interest of the Company to
have the ability to issue additional Shares as required and at the
appropriate time.
Where Shareholders or their appointed agent have matters they
wish to raise with the Board at the AGM in respect to the Company,
I would encourage them to contact us at
SHIP@tuftonoceanicassets.com ahead of the AGM date.
Environmental, Social, Governance ("ESG")
Our Investment Manager continues to integrate ESG factors into
its investment decisions and asset ownership practices. As you will
see in the Investment Manager's report there is significant focus
given to the ESG aspects of the Company's operations. The
Investment Manager has adopted a proactive approach to emissions
reduction through a program to select Energy Saving Devices
("ESDs") for the Company's vessels in the medium term while
considering investments in zero-emission capable vessels for the
longer term.
Crew welfare continued to be a significant area of focus over
the financial year with travel restrictions imposed during
successive waves of the Covid-19 pandemic delaying crew rotations.
Our Investment Manager engaged with each vessel's technical manager
to address crew issues and facilitate rotations as necessary. As a
result, the proportion of delayed crew members on the Company's
vessels have been consistently lower than industry reported
averages. The Investment Manager continues to promote best
practices among its suppliers and has organised regular,
independent inspections of the Company's vessels.
ESG initiatives represent an opportunity for a proactive
Investment Manager with a well-capitalised fleet. Since December
2018, our Investment Manager is a signatory of the United Nations
Principles of Responsible Investment ("UN PRI") which has become an
industry standard and is a further step in embedding responsible
investment in the Company. The Board has reviewed and approved the
Investment Manager's Responsible Investment policy and
implementation report for the Company. Shareholders can view the
policy and the implementation report on its website,
(http://www.tuftonoceanicassets.com).
Outlook
At the end of the financial year, the Company had charter cover
of c.2.3 years. After the Company raised its target annual dividend
from US$0.075 to US$0.080 per share, commencing from 3Q21, the
Investment Manager's forecasted dividend cover over the next 12-18
months will average c.1.7x despite not being fully invested
following the divestment of the containership Kale . I am
encouraged by the Company's performance over the financial year and
believe the strategy of diversification, strong charter cover and
low leverage will enable the Company to grow profitably in the
coming years. The benefit of diversification between the three main
segments of shipping have particularly been proven over the
Covid-19 pandemic. The strong performance of tankers in 1H20 and
containerships in 1H21 have helped the Company deliver strong risk
adjusted performance. Investor confidence in the Company's strategy
and the shipping market was apparent from the high levels of
interest in the Company's Shares and oversubscription of the tap
issue concluded on 6 August 2021.
I would like to thank my fellow Directors for their commitment
and support during these difficult times, the Investment Manager
and their team for their diligence in dealing with complex and
challenging operational matters which were greatly increased due to
the impact of Covid-19. I would also like to take this opportunity
to thank our Shareholders for their support and continued belief in
our strategy. Although it seems old news I should also welcome
Christine who joined the board during the year!!
Rob King
Non-executive Chairman
Investment Manager's Report
Highlights of the Financial Year
The portfolio operating profit was strong at US$26.3m. There was
a fair value gain of US$132.7m in charter-free values in the strong
containership and bulker markets. The gain in charter-free values
was partially offset by a US$79.5m fall in charter value as
benchmark time charter rates rose, i.e. an increase in
"under-renting". The total negative charter value in the portfolio
of US$71.7m will trend to zero (i.e. increase NAV) in the medium
term ceteris paribus.
NAV total return for the year was 33.3%.
Encouraged by the resilient performance in 2020 and increased
charter coverage, in January 2021 the Company raised its target
annual dividend to US$0.075 per Share from US$0.070 per Share.
After the financial year, following the continued strong
performance and increased portfolio cash flow, the Company further
raised its target annual dividend from US$0.075 to US$0.080 per
Share, commencing from 3Q21.
The Investment Manager believes the Company's strong portfolio
operating profit and performance over the year, both on an absolute
basis and relative to other asset classes, demonstrates its
investment thesis and the effectiveness of its strategy. The
Investment Manager's strategy of diversification across the major
segments, conservative leverage and strong charter cover insulated
the portfolio from market volatility even at the height of the
Covid-19 pandemic as evidenced by the NAV development and growing
dividend.
The financial year included the following highlights:
-- As at 30 June 2021, the average expected charter length
(EBITDA weighted) was c.2.3 years, insulating the portfolio from
short-term volatility and offering strong cash flow visibility.
-- The Company's fleet had no unplanned commercial idle time (voids) during the financial year.
-- During the financial year, the Company agreed to divest four
vessels and to acquire nine vessels. The overall return from the
divested vessels greatly exceeded the Company's targets. Of the
nine agreed acquisitions, seven vessels were delivered during the
financial year and two after the end of the year.
-- In parallel with the acquisitions of the product tankers,
Cocoa and Daffodil, a subsidiary of the Company completed a
non-recourse debt financing of US$24.0m with an all-in cost below
5.0%. The loan is secured on four of the Company's product tankers:
Cocoa, Daffodil, Pollock and Dachshund.
-- The long-term charters on all of the Company's product
tankers largely insulate the Company from a weak tanker market.
-- As the containership and bulker markets strengthened,
Swordfish, Kale, Riposte and Lavender were chartered at much higher
rates compared to their previous charters.
-- The dividend cover for the financial year was c.1.0x. The
main reasons for cover being at c.1.0x during the year were capex
and off-hire for scheduled special surveys on three vessels, and
the Company not being fully invested throughout the year.
-- After the financial year, following the continued strong
performance and increased portfolio cash flow, the Company raised
its target annual dividend from US$0.075 to US$0.080 per Share,
commencing from 3Q21. After the increase, the Investment Manager's
forecasted dividend cover over the next 12-18 months will average
c.1.7x despite not being fully invested following the divestment of
the containership Kale.
-- In July 2021, after the financial year end, the Company
agreed to divest the containership Citra with a realised net IRR of
47% and agreed to acquire the bulker Idaho at below DRC.
-- The Investment Manager took active measures to expedite crew
relief on the Company's vessels. As a result, only c.16% of the
crew on board the Company's vessels were overdue for rotation at
the end of July 2021 compared to c.40% in July 2020. The IMO
estimates that globally 250,000 seafarers (c.25%) were overdue for
rotation as at July 2021.
-- The average energy efficiency of the Company's fleet in 2020,
as measured by the EEOI, improved by c.2% compared to 2019. Based
on 2020 EU MRV data, the Company's fleet EEOI is c.6% better than
its peer group of more than 1,500 vessels.
The Assets
As at 30 June 2021, the Company owned twenty-one vessels. Neon
operates on a bareboat charter, under which the Company provides
only the vessel to the charterer, who is responsible for crewing,
maintaining, insuring and operating it. All other vessels operate
on time charter contracts or in pools, under which the Company
provides fully operational and insured vessels.
Containerships
-- Kale, Patience, Riposte and Vicuna are chartered to a major
investment grade container shipping group. During the year the
Company agreed to divest Kale for US$21.5m with a realised IRR of
31%. The divestment will complete shortly after the expiry of the
current charter in October 2021.
-- Parrot is chartered to another leading global container shipping group.
-- Citra was chartered to a leading private operator of
containerships specialising in fresh fruit transportation. Citra's
charter was extended for 12-13 months from December 2020. After the
end of the financial year, the Company agreed to divest Citra for
US$33m with a realised net IRR of 47%.
-- Swordfish is on a time charter to the subsidiary of a listed
company based in Asia for 15-17 months from May 2021 at a much
higher rate compared to its previous charter.
-- The Company acquired Echidna and Candy, which are chartered
to a major investment grade container shipping group. Both vessels
are fitted with exhaust gas scrubbers. Echidna has a fixed rate
charter and Candy has a floating rate time charter, subject to a
floor and a ceiling. Both charters will continue until November
2023 (earliest) - February 2025 (latest).
Tankers
-- The Company divested Bear, a crude oil tanker, for US$19.0m
just before the vessel's next major capex event. The return greatly
exceeded the Company's target. The crude oil tanker market was very
strong in 1H20 as a result of high demand for floating storage but
weakened in 2H20 following OPEC production cuts and the negative
impact from Covid-19 on oil demand.
-- Cocoa and Daffodil were acquired during the year for
US$23.0m. In parallel with the acquisitions, a subsidiary of the
Company completed a non-recourse debt financing of US$24.0m with an
all-in cost below 5.0%. The loan is secured on Pollock, Dachshund,
Cocoa and Daffodil.
-- Octane and Sierra commenced new charters in 2Q21 to an
investment grade oil major for at least 36 months.
-- The Company agreed to acquire two chemical tankers. Golding
was acquired in April 2021 for US$15.2m. Towards the end of the
financial year, the Company agreed to acquire Orson for US$9.8m.
The acquisition was completed in July 2021. Both Orson and Golding
are employed in a leading chemical tanker pool. As described in the
Company's Prospectus, a pool is a revenue sharing structure run by
a specialist third party or another shipowner, together with other
similar vessels.
-- The gas carrier Neon operates on a bareboat charter, under
which the Company provides only the vessel to the charterer, who is
responsible for crewing, maintaining, insuring and operating
it.
Bulkers
-- The Company acquired Lavender during the financial year for
US$10.6m and the vessel was delivered to the Company in January
2021. The vessel is on a time charter which was recently extended
for 14-17 months from February 2022 at a much higher rate compared
to its current charter.
-- Mayflower was delivered to the Company in June 2021. Upon its
delivery, the vessel commenced its 11-13 month time charter.
-- The Company agreed towards the end of the financial year to
divest Aglow and Antler, which were acquired for less than 70% of
DRC in 2018 and early 2020, at 100% of DRC with returns materially
exceeding targets. The Company agreed to acquire a more
fuel-efficient bulker, Laurel, for US$13.35m. Laurel is already
fuel-efficient versus its peer group and will be retrofitted with
Energy Saving Devices ("ESDs") in 3Q21. It is on a two-year charter
from September 2021.
The vessels in the fleet are well maintained and have performed
to expectations. Octane, Sierra and Aglow had their scheduled
special surveys during the financial year.
After the end of the financial year:
In July 2021, the Company agreed to acquire an ultramax bulker,
Idaho, which will be delivered to the Company in October 2021. Upon
its delivery, the vessel will have its planned special survey and
ESDs retrofit, after which it will be employed on a 15-19 month
time charter. The vessel is being acquired with the proceeds of the
sale of the containership Kale, as announced in early July
2021.
The Company agreed to divest the containership Citra for US$33m.
The realised net IRR will be 47%. Citra was acquired in December
2018 for US$13.1m.
The Investment Manager continues to identify an attractive
pipeline of opportunities across a range of the Company's target
sectors. While the Investment Manager aims to hold investments over
the longer term, it will continue to consider divestment
opportunities that generate additional value for Shareholders.
As at 30 June 2021:
SPV (+) Vessel Type Acquisition Earliest end Latest Expected
and Year of Date of charter end of end of charter
Build period charter period**
period
Swordfish 1700-TEU containership February August October October
built 2008 2018 2022 2022 2022
----------------------- ------------ ------------- ---------- ----------------
Kale* 1700-TEU containership February
built 2008 2018 Vessel divested (pending closing)
----------------------- ------------ -------------------------------------------
Patience 2500-TEU containership March July October October
built 2006 2018 2021 2022 2022
----------------------- ------------ ------------- ---------- ----------------
Riposte 2500-TEU containership March February July July
built 2009 2018 2023 2023 2023
----------------------- ------------ ------------- ---------- ----------------
Neon Mid-sized LPG July August August August
carrier 2018 2025 2025 2025
built 2009
----------------------- ------------ ------------- ---------- ----------------
Dragon Handysize bulker September October February February
built 2010 2018 2021 2022 2022
----------------------- ------------ ------------- ---------- ----------------
Citra 2500-TEU containership November December January January
built 2006 2018 2021 2022 2022
----------------------- ------------ ------------- ---------- ----------------
Sierra Medium-range December June August August
product tanker 2018 2024 2024 2024
built 2010
----------------------- ------------ ------------- ---------- ----------------
Octane Medium-range December May July July
product tanker 2018 2024 2024 2024
built 2010
----------------------- ------------ ------------- ---------- ----------------
Pollock Handysize December February February February
product tanker 2018 2023 2024 2023
built 2008
----------------------- ------------ ------------- ---------- ----------------
Parrot 8200-TEU containership July May May May
built 2006 2019 2025 2025 2025
----------------------- ------------ ------------- ---------- ----------------
Vicuna 2500-TEU containership October October October October
built 2006 2019 2022 2024 2024
----------------------- ------------ ------------- ---------- ----------------
Dachshund Handysize February March March March
product tanker 2020 2023 2024 2023
built 2008
----------------------- ------------ ------------- ---------- ----------------
Antler* Handysize bulker March
built 2012 2020 Vessel divested (closed in July
2021)
----------------------- ------------ -------------------------------------------
Cocoa Handysize October October October October
product tanker 2020 2023 2024 2023
built 2008
----------------------- ------------ ------------- ---------- ----------------
Daffodil Handysize October October October October
product tanker 2020 2023 2024 2023
built 2008
----------------------- ------------ ------------- ---------- ----------------
Lavender Handysize bulker October April July July
built 2010 2020 2023 2023 2023
----------------------- ------------ ------------- ---------- ----------------
Echidna 2500-TEU containership December November February February
built 2003 2020 2023 2025 2025
----------------------- ------------ ------------- ---------- ----------------
Candy 2500-TEU containership December November February February
built 2004 2020 2023 2025 2025
----------------------- ------------ ------------- ---------- ----------------
Golding 25,600 DWT stainless April
steel chemical 2021 NA - vessel is employed in a pool
tanker
built 2008
----------------------- ------------ -------------------------------------------
Mayflower Handysize bulker June April July July
built 2011 2021 2022 2022 2022
----------------------- ------------ ------------- ---------- ----------------
Laurel++ Handysize bulker July May September September
built 2011 2021 2023 2023 2023
----------------------- ------------ ------------- ---------- ----------------
Orson++ 20,000 DWT stainless July
steel chemical 2021 NA - vessel is employed in a pool
tanker
built 2007
----------------------- ------------ -------------------------------------------
(Notes:)
(+ SPV that owns the vessel)
** Based on assessment of the prevailing market conditions (as
at 30 June 2021) by the Investment Manager
(++) (Pending delivery as at the end of the financial year)
(* Details excluded for vessels agreed to be divested during,
but with closings after, the financial year)
Investment Performance
NAV per Share was US$1.158 at 30 June 2021. Portfolio operating
profit contributed US$0.101 per Share and there was a gain in fair
value of US$0.206 per Share. Containership and bulker values
rebounded strongly as the market benefited from pent-up demand and
inventory re-stocking after the 1H20 lockdowns, as well as shifts
in consumer activity towards goods. The effect of strong demand was
accentuated by ongoing regional port congestion caused by Covid-19
related restrictions. NAV total return over the financial year was
33.3%. The lower year-on-year portfolio operating profit (defined
as gross operating profit and interest income less loan interest
& fees less Company level fees & expenses) was impacted
mainly by the smaller contribution of the divested crude tanker
(Bear) in the current financial year after its very strong
performance in the previous financial year, and charters for
bulkers and containerships which were agreed when the market impact
of Covid-19 was most significant. During the financial year, the
Company secured charters for several of its vessels at
significantly higher rates than their previous charters.
Encouraged by the resilient performance in 2020 and increased
charter coverage, the Company in January 2021 raised its target
annual dividend to US$0.075 per Share from US$0.070 per Share. The
Company therefore paid a 3Q20 dividend of US$0.0175 and a quarterly
dividend of US$0.01875 per Share thereafter during the financial
year.
The dividend cover for the financial year was c.1.0x. The main
reasons for cover being at c.1.0x during the period were capex and
off-hire for scheduled special surveys on three vessels and the
Company not being fully invested throughout the year. After the
financial year, following the continued strong performance and
increased portfolio cash flow, the Company further raised its
target annual dividend from US$0.075 to US$0.080 per Share,
commencing from 3Q21. After the increase, the Investment Manager's
forecasted dividend cover over the next 12-18 months will average
c.1.7x despite not being fully invested following the divestment of
the containership Kale.
Portfolio performance by segment
Containership time charter rates rose to their highest levels
since 2009 and asset values followed resulting in a gain in capital
value of US$50.2m despite the adverse impact of a US$67.6m fall in
charter value. Product tankers had strong operating profit as the
long-term charters on all of the Company's product tankers largely
insulated the Company from a weak tanker market. The performance of
the crude tanker (Bear) in the financial year was negative as asset
values fell after its strong performance in the preceding financial
year. Ongoing weakness in the tanker market since the divestment
vindicates the timing of the divestment. The bulkers in the fleet
completed their short-term charters at relatively low rates and
commenced new charters during 2H20 at a higher average rate
compared to their previous charters.
As at 30 June 2021, vessels corresponding to more than 73%, by
value, of the portfolio have charter coverage greater than one
year. The vessels in the portfolio were chartered to twelve
different counterparties. Exposure to tankers totalled c.35%,
containerships represented c.42% and bulkers c.15% of NAV.
The Shipping Market
The shipping market had a broad recovery from the impact of
Covid-19 from the beginning of the financial year, with rates and
asset values in many segments surprising positively towards the end
of the year. The Clarksea Index, a broad indicator of weighted
average earnings from Clarksons Research across the main commercial
vessel types, ended the year at c.US$28,484 per day (+145% from the
end of June 2020), with large gains in the containership and bulker
segments.
Some notable highlights of the shipping market, based on
Clarksons Research, include:
-- Global seaborne trade is expected to grow by 4.6% (ton-miles)
to a new record high in 2021 after contracting by 1.7% in 2020.
Seaborne trade grew by c.3.3% CAGR in the two decades leading up to
2020.
-- Fleet growth decelerated to 3.0% in 2020 and is expected to
slow further to 2.4% in 2021 and 1.2% in 2022 as the global
orderbook is close to its lowest levels in more than three decades,
at only c.8.5% of the fleet compared to over 50% in 2008.
-- Over the year ending 30 June 2021, compared to the previous 12 months:
o Average 12-month time charter rates for handysize bulkers rose
c.26% YoY.
o Average 12-month time charter rates for 2500-TEU
containerships rose c.50% YoY.
o Average 12-month time charter rates for handysize product
tankers fell c.24% YoY.
Shipping markets benefited from a recovery in global GDP growth.
For the full year 2020, the IMF estimated that world GDP contracted
by c.3.2% compared to its previous forecast of a 4.9% contraction.
World GDP growth recovered from the end of 1H20, supported by
unprecedented fiscal and monetary stimulus measures. As of July
2021, the IMF forecasts global real GDP growth of 6% in 2021 and
4.9% in 2022.
The Company targets acquisition candidates from the three main
shipping segments of tankers, containerships and bulkers. This
market review utilises data from the Investment Manager's Tufton
Real Time Activity Capture System ("TRACS") which analyses
satellite data to track the international shipping fleet by the
major segments. TRACS data utilises the draught of each vessel as a
proxy for its loading or utilisation and thereby enables the
Investment Manager to have a close to real-time measure of shipping
demand. Unless otherwise specified, research data used in the
section is from Clarksons Research.
Tankers
According to the US EIA, global oil demand fell by c.8.5% in
2020 led by declines in OECD countries. Global oil demand is
forecast to recover to pre-pandemic levels only in 2022. TRACS data
shows that tanker demand peaked in early May 2020 and declined
until end of 2020 and has remained lacklustre until the end of the
financial year. OPEC production declined by c.4m barrels per day
over the same period, and tanker capacity contracted for floating
storage was slowly released back into the market. As of July 2021,
the tanker market remains weak. However, our expectation of a
tanker market recovery in 2022 is supported by the ongoing
improvement in global oil demand growth following the Covid-19
vaccine rollout, as well as the recent decision from OPEC and
allies to increase production from August 2021. Supply side
dynamics for tankers also look very supportive with the total
product tanker orderbook at only c.6% of fleet at the end of the
financial year. The Investment Manager also noted a recent increase
in tanker recycling globally. In 1H21, 43 product tankers of 1.9m
dwt were sold for recycling, equal to the total capacity scrapped
in 2019 and 2020 combined. The Investment Manager believes the
combination of demand recovery and slowing supply growth bodes
well for the tanker market in 2022. All the Company's product
tankers are on fixed rate, long term charters with an average
duration of c.2.3 years as at the end of the financial year.
Therefore, the Company's product tankers have been insulated from
the market weakness over the financial year and are well positioned
to benefit from a market recovery in 2022.
Bulkers
In contrast to tankers, the market for bulkers was weak in 1H20
but recovered in 2H20 as Covid-19 related restrictions were relaxed
and demand for seaborne iron ore imports into China grew with the
restart of the steel industry. The bulker market was also supported
by strong demand for seaborne grain and, towards the end of the
financial year the effect of strong demand was accentuated by
ongoing regional port congestion in Asia caused by Covid-19 related
restrictions. Towards the end of June 2021, the benchmark Baltic
Dry Index (the index of average prices paid for the transport of
dry bulk materials across more than 20 routes) rose to its highest
levels since 2010.
Containerships
As expected, the containership market remained strong in 1H21.
The effect of strong consumer demand and limited fleet growth was
accentuated by regional port congestion. The Clarksons Research
basket of average containership earnings rose to a record high at
the end of June 2021.
The improvement in the shipping market has encouraged new orders
from 4Q20. New ship orders over the year ending June 2021 were 58%
higher than the previous twelve months. Growth has been driven by
orders for large containerships and gas carriers. Despite the
increase in new orders, the orderbook at c.8.5% of fleet remains
close to 30-year lows. Uncertainty over future environmental
regulations continues to play an important role in the limited
ordering of newbuild vessels. According to Clarksons Research, an
increasing array of technologies are being added to newbuild
designs to meet new emissions reduction regulations from the IMO.
The combination of rising commodity prices, tightening
environmental regulations and lower shipyard capacity results in
rising newbuild prices which in turn supports higher prices for
second-hand vessels. The Clarksons Newbuilding Price Index rose
c.9% over the year ending June 2021.
Asset values and time charter rates have started reflecting the
Investment Manager's thesis of supply-side adjustment to varying
degrees across the main segments. The increase in asset values and
rates has been the highest in containerships. In a presentation
dated 21 July 2021, the British International Freight Association
noted that although current high rates may not be sustainable in
the long term, "high levels will be maintained until the end of
2021 and possibly until Chinese New Year 2022". The Association
supported the growing consensus that the "new normal" rates will be
at a higher level than they were before the pandemic. Whilst the
increase in bulker asset values and rates, supported by strong
demand for commodities, has not been as dramatic as in
containerships, the supply side looks supportive for bulkers with
orderbook at only c.6% of fleet.
The tanker market remained weak over the year. Time charter
rates remained close to multi-year lows as oil demand recovered
slowly from the negative impact of Covid-19 and capacity tied up in
floating storage from 1H20 re-entered the market. The Investment
Manager expects that the tanker market will recover in 2022 as oil
demand recovers to pre-pandemic levels. The recent decision from
OPEC and allies to increase production from August 2021 will
support the tanker market recovery.
The Investment Manager believes the shipping market is in the
early stages of a multi-year upcycle because of the relative lack
of investment in new capacity (supply) relative to strong demand
growth. Investment in new capacity is discouraged by uncertainty
over future environmental regulations. In addition, the combination
of commodity price inflation and reduced shipyard capacity is
increasing newbuild vessel prices and therefore supporting higher
prices for second-hand vessels.
Environment, Social and Governance
The Investment Manager emphasises the principles of Responsible
Investment in the management of clients' assets through awareness
and integration of ESG factors into its investment process in the
belief that these factors can have a positive impact on long term
financial performance. The Investment Manager recognises that its
first duty is to act in the best financial interests of the
Company's Shareholders and to achieve good financial returns
against acceptable levels of risk, in accordance with the
objectives of the Company. Since December 2018, the Investment
Manager is a signatory of the United Nations Principles of
Responsible Investment and has a Responsible Investment policy
which is available on its website,
(http://www.tuftonoceanicassets.com).
Current areas of focus on ESG implementation include:
1. Assessment of the fuel efficiency and environmental impact of potential vessel acquisitions
2. Regular review of our fleet to identify opportunities for
improving fuel efficiency and reducing environmental impact across
the asset life cycle
3. Responsible vessel recycling
4. Health and safety of the crew on our vessels
5. Enhanced security to lower risk of contraband
6. Compliance with all international sanctions imposed by the US, UK, EU and the UN
7. Promoting acceptance and implementation of ESG principles
(e.g. pollution prevention) with our business partners.
The Investment Manager devotes more than 4 Full Time Equivalent
(FTE) to ESG integration related analysis and implementation across
the firm in aggregate . Senior Management (i.e. the CEO and the
CIO) of the Investment Manager are committed to Responsible
Investment and oversee the implementation of the Company's
Responsible Investment policy. The policy statement itself is
reviewed at least annually and approved by the Company's Board of
Directors. The Board also reviews implementation progress against
the policy statement and issues an implementation review report
which is also publicly available on the Company's website.
Environmental
Shipping is a relatively efficient form of transport, producing
much lower emissions per ton-mile of cargo transported than most
other forms of transport. The industry facilitates c.90% of global
trade but is responsible for only c.3% of global greenhouse gas
emissions. Despite being relatively efficient, the industry is
making efforts to reduce greenhouse gas emissions further.
International shipping is regulated by the IMO, a specialised
agency of the United Nations. The IMO has declared an ambition to
reduce, compared to 2008, total annual emissions from shipping by
at least 50% by 2050 and to reduce greenhouse gas emissions per
unit of transport work, compared to 2008, by at least 40% by 2030
and ultimately align the industry with the Paris Agreement.
Recently, the European Commission announced a package of proposals
to make the EU's climate, energy, land use, transport and taxation
policies fit for reducing net greenhouse gas emissions by at least
55% by 2030. The package proposes to include emissions from
shipping in the EU Emissions Trading Scheme.
The Investment Manager is committed to reducing greenhouse gas
emissions and aligning the Company to the Paris Agreement. In the
medium term, the Investment Manager aims to reduce emissions from
its existing fleet through investment in Energy Saving Devices
("ESDs") and promoting best operational practices such as regular
hull and propeller cleaning and optimal use of auxiliary engines.
While there is uncertainty as to the longer-term path to
decarbonisation, the Investment Manager is exploring the usage of
low-carbon and zero carbon fuels. Recently, the Investment Manager
partnered with Stolt Tankers and GoodFuels on a testing program for
sustainable biofuels. Sustainable biofuels are expected to be a
part of the long-term fuel mix on the path to decarbonisation. The
Investment Manager is a member of the Getting to Zero Coalition.
The Coalition is committed to getting commercially viable zero
emission vessels in operation by 2030 which is required to align
the industry with the Paris Agreement.
The Investment Manager has engaged a consulting firm of marine
architects to conduct energy efficiency studies on the Company's
vessels and select the appropriate ESDs for retrofit. The selection
of ESDs, investment required, timing of retrofit and commercial
arrangements around fuel savings will vary by each vessel depending
upon results of the energy efficiency studies, prevailing market
conditions and commercial considerations. On average, the
Investment Manager expects to invest c.US$1m per vessel for ESDs
with an IRR of c.15% from fuel savings at current fuel prices, with
further potential upside in future from carbon pricing. ESDs will
be retrofitted on the Laurel when the vessel goes through its
scheduled second special survey in 3Q21 and on Idaho in 4Q21.
The previously described initiatives from the IMO and the EU to
reduce greenhouse gas emissions may include market based measures
such as carbon taxes or mandatory fuel levies to reduce emissions,
which could represent an opportunity for the Company. There is a
cubic relationship between emissions from fuel consumption and
speed, so small reductions in speed produce large reductions in
greenhouse gas emissions . Operationally, the industry has employed
speed adjustment or "slow steaming" to optimise voyage economics.
The market based measures are likely to incentivise speed reduction
to reduce emissions. Speed reduction will reduce available capacity
of the global fleet and exacerbate the effect of slowing fleet
growth to support shipping charter rates at higher levels. The
Investment Manager expects that relatively energy efficient vessels
will benefit from this trend.
Total emissions from the Company's fleet in 2020 was c.346,000
tons CO2. With a growing portfolio of vessels, this measure is less
relevant to the Company than the normalised measure of emissions:
the Energy Efficiency Operational Indicator ("EEOI"), defined as
the mass of CO2 emitted per unit of transport work in a given time
period. The EEOI provides useful information on a ship's
performance regarding fuel efficiency and emissions. All else
equal, a lower EEOI number is indicative of a more efficiently
operated asset. The Investment Manager has utilised the EU MRV
methodology for calculating the EEOI to report on total emissions
from and total cargo transported by the Company's fleet for the
calendar year. The Company's fleet average EEOI was c.2% better
compared to 2019 due to higher utilisation of the bulkers as well
as a full year's contribution from the larger vessels (Parrot and
Bear) in the fleet. Larger vessels tend to have better EEOIs.
Containership segment EEOI increased mainly as a result of higher
speeds, established by our charterers rather than by the Company or
Investment Manager, in a strong market over 2H20. Seven in-water
hull and propeller cleanings were performed over 2020 in addition
to scheduled dockings, also contributing to lower emissions.
Compared to a peer group of more than 1,500 vessels from the 2020
EU MRV database, the Company's EEOI is c.6% better than its peer
group. In general, the Investment Manager believes this is the
result of higher quality assets being operated well.
Energy Efficiency Operational Indicator (EEOI)
(gram CO(2) /ton-nautical mile)
SHIP SHIP
Average Average
for 2020 for 2019
Containerships 26.3 25.5
Bulkers 12.6 14.9
Tankers 17.8 15.0
Company 20.7 21.2
The Company's fleet average EEOI for 2020 was c.2% better than
2019
The Investment Manager has implemented a program to reduce
plastic consumption on the Company's vessels by replacing plastic
bottles with complimentary, refillable metal bottles for drinking
water. Where plastic bottles cannot be eliminated, they will be
substituted with environmentally friendlier tetrapacks. Based on
its investment horizon, current portfolio, and target segments, the
Investment Manager does not expect the Company to have recycling
candidates in its portfolio in the near future. When recycling
situations do arise, the Company will follow best practices of
industry leaders in adopting the Hong Kong International Convention
for the Safe and Environmentally Sound Recycling of Ships.
Social
The Investment Manager considers crew health and safety to be a
priority and works closely with the vessels' technical managers to
promote best practices.
Commercial, ocean-going vessels crewed by more than a million
seafarers transport goods around the globe. Ship crews have a
challenging task in being responsible for high value, complex
machinery on the high seas. The challenges faced by seafarers have
been recognised internationally and their working conditions are
governed by strict guidelines from the International Labour
Organisation and the IMO. Covid-19 had a significant impact on crew
health and safety in 2020. National regulations limiting travel and
disembarkation of crew in order to contain Covid-19 had the effect
of delaying crew changes (referred to in the industry as
rotations). Typically, 150,000 seafarers around the world
participate in crew rotations every month.
Responsibility for crewing lies primarily with each vessel's
technical manager. The Investment Manager engaged with each
vessel's technical manager to address crew issues and facilitate
rotations, in some cases with additional costs. The following
strategies are being employed to expedite crew relief:
-- undertaking deviation voyages to safe ports that allow crew changes;
-- approving delays to existing schedules to facilitate rotation; and
-- organising chartered flights for crew members.
As a result, crew members overdue for rotation onboard the
Company's vessels decreased from c.40% as at the end of July 2020
to only c.16% as at the end of July 2021. The latter figure
compares favourably to the c.25% of crew members reported by the
IMO to be overdue for rotation globally, as of July 2021. As at the
end of July 2021, no crew members onboard any of the Company's
vessels were overdue by more than three months. The additional
measures to expedite crew relief will result in some additional
costs as well as a one-time increase in operating expenses (c. 5%
higher opex similar to an inflationary increase over 1-2 years).
The Investment Manager became a signatory to the Neptune
Declaration in January 2021, supporting measures to ensure timely
relief of crew and putting measures in place to manage any pandemic
related travel restrictions.
The Investment Manager also worked with technical managers to
put in place the following measures during the pandemic to enhance
crew welfare and is pleased to note that no infections were
reported in the crew of any of the Company's vessels:
-- webinars and counselling are offered to all crew members and families;
-- all regulations including IMO protocols are followed,
including the provision of additional personal protective equipment
and disinfectants;
-- Covid-19 test protocols were enhanced to minimise chances of infected crew embarking;
-- pre-employment medical tests were enhanced to a standard
exceeding the minimum requirements. These tests allow seafarers to
be able to monitor and improve their fitness levels;
-- Covid-19 rapid test kits were supplied to all ships to improve testing;
-- additional steroidal medication and equipment such as pulse
oximeters were supplied to respond to any infection onboard;
-- all crew have access to enhanced wi-fi on board to assist in mental well-being onboard;
-- crew are provided access to free mental health hotlines; and
-- extensions to crew contracts are obtained in cases where delays are unavoidable.
The Investment Manager has proactively rolled out a vaccination
program for all the crew members on the Company's vessels. As at
the time of publication of this report, all the crew members on
three of the Company's vessels have been fully vaccinated. Over the
remainder of 2021, the Company plans to provide personal gym
equipment to promote fitness, where communal facilities may be
restricted due to Covid-19 related protocols, and personal fitness
trackers to promote crew welfare.
Governance
The Investment Manager aims to promote acceptance and
implementation of ESG principles with business partners through an
annual survey and feedback. The Investment Manager completed a
survey of all the Company's technical managers which included Key
Performance Indicators to assess their performance on numerous
metrics including ESG. The results from the survey will be analysed
and feedback given to the technical managers to ensure best
practices are shared. The Investment Manager has a strict reporting
policy for its technical managers and employs a third party to
conduct independent inspections of the Company's vessels on a
regular basis to check on the performance of the technical
managers. Independent inspection includes assessment of key aspects
of the vessel condition as well as regulatory compliance and crew
health and safety. Thirteen of the Company's vessels were inspected
over the financial year and all of them were confirmed to be in
good condition. The Investment Manager updates the Board of
Directors on the progress of the Company's investments every
quarter with additional updates where significant events have
occurred.
The Investment Manager continues to closely monitor adherence to
sanctions regimes from the US, UK, EU and the UN. The employment
contracts for the Company's vessels are typically structured to
exclude sanctioned regions. Additionally, the Investment Manager
monitors compliance through regular inspection of vessel logs and
satellite data.
The Investment Manager has a zero-tolerance policy towards
bribery and adheres to the UK Bribery Act with the following
policies in place:
-- payment controls requiring dual sign-off/authorisation of all payments;
-- gifts and entertainment policies that restrict staff from giving and receiving gifts;
-- recruitment policies and ongoing monitoring of the fitness
and propriety of staff including their honesty, integrity, and
financial soundness; and
-- a Code of Ethics and FCA Conduct rules which require staff to
conduct themselves appropriately.
Principal Risks and Uncertainties
The Board has carried out a robust assessment to identify the
principal and emerging risks that could affect the Company,
including those that would threaten its business model, future
performance, solvency or liquidity. Principal risks are those which
the Directors consider have the greatest chance of materially
impacting the Company's objectives. The Board has adopted a
"controls" based approach to its risk monitoring requiring each of
the relevant service providers, including the Investment Manager,
to establish the necessary controls to ensure that all identified
risks are monitored and controlled in accordance with agreed
procedures where possible.
The Board of Directors receive periodic updates on principal
risks at their meetings and have adopted their own control review
to ensure that, where possible, risks are monitored appropriately,
mitigation plans are in place, and that emerging risks have been
identified and assessed. The Directors also carry out a regular
check on the completeness of risks identified, including a review
of the risk register. The Board believes that the risk register is
comprehensive and addresses all risks that are currently relevant
to the Company. While the Investment Manager monitors and puts in
place controls to mitigate risks, please note that risk or
uncertainty cannot be completely eliminated.
The Board of the Company, together with the Investment Manager,
have carefully considered the potential impact of the Covid-19
pandemic, considered to be both an emerging risk and an emerging
cause of risk, on the activities of the Company and its
subsidiaries. Covid-19 has impacted, and continues to do so, the
ability of technical managers appointed by the Asset Manager to
supply or change crew for the Company's vessels. The Investment
Manager and Asset Manager have taken, and will continue to take,
appropriate steps to ensure the Company's fleet is properly
serviced. To date the fleet has not experienced any crewing
difficulties and none are expected.
The negative impact of Covid-19 on GDP resulted in lower demand
for shipping during 2020, although this recovered somewhat by the
end of the year. Lower demand in 1H20 did result in some charters
being renewed at lower rates and for shorter periods. A weaker
shipping market caused by the pandemic could have caused charter
counterparties to be unable to pay the Group when due as well as
having a negative impact on vessel and charter values. It is the
Board's opinion that all these potential consequences are already
managed and monitored as part of the Group's ongoing approach to
risk in respect of counterparties, values and service providers.
Although vessel and charter values have been impacted, to date the
Company has not suffered any other adverse consequences in its
counterparties or service providers. The Board will of course
continue to reassess the position as more information about the
impact of Covid-19 becomes available.
The Company's activities are primarily dependent upon global
seaborne trade flows and as seaborne trade activities between
mainland Europe and the UK are not significant to the Company's
fleet, Brexit was not expected to have a material impact on the
Company or the Investment Manager. Six months after the United
Kingdom having left the European Union, this view is unchanged.
The Board would like to highlight in the following table, the
principal risks (not limited to Covid-19 causes only) to the
business and efforts to mitigate the risks. The Board considers
that no additional mitigation steps are required at this time.
Underlying cause Objective impacted Control or mitigation implemented
of risk or (in what way)
uncertainty
Demand for shipping Capital growth This risk cannot be controlled,
may decline, either Vessel values but is mitigated by:
because of a * diversification to reduce reliance on any particular
reduction sector or geography;
in international
trade (e.g. "trade
wars") or because * focus on fleet vessel quality and specifications to
of general GDP growth improve utilisation;
slowing (e.g. impact
of Covid-19)
* longer term employment strategy to reduce market
exposure; and
* ultimately, lower charter rates would be accepted in
order to ensure employment of the vessels.
---------------------- ----------------------------------------------------------------------
Failure of, or Liquidity Charter counterparty creditworthiness
unwillingness Dividends is subjected to extensive checks
of, a vessel prior to and throughout a charter.
charterer In the event of default, the generic
to meet charter nature of the ships in the portfolio
payments should enable alternative employment
to be found, though possibly at
lower rates.
---------------------- ----------------------------------------------------------------------
Vessel maintenance Capital growth The Company has engaged experienced
or capital Dividends technical managers to monitor
expenditure Liquidity maintenance and capital expenditure.
may be more costly Vessel values Capex provisions are made prior
than expected due to investing in a vessel.
to delays or It is important to note that no
resource significant issues have been experienced
constraints arising to date.
from the impact of
Covid-19 or other
causes
---------------------- ----------------------------------------------------------------------
A vessel may be lost Capital growth Measures to mitigate operational
or significantly Vessel values risks include:
damaged * avoiding conflict areas;
* daylight sailing, naval escort, route planning to
avoid higher risk areas; and
* detailed best practice operating procedures to be
followed by crew and technical staff.
Comprehensive Insurance protection
is in place at all times to cover
inter alia significant damages
to or loss of vessels.
---------------------- ----------------------------------------------------------------------
The Company may not Liquidity The Company has engaged a very
have enforceable Vessel values experienced Investment Manager
title to the vessels who is responsible for establishing
purchased such title.
This is then monitored by the
Administrator on behalf of the
Board using publicly available
information.
---------------------- ----------------------------------------------------------------------
Failure of, or Capital Growth The Investment Manager and Asset
unwillingness Loss of invested Manager rely on third party service
of other cash providers for performance of services
non-charterer integral to the operation of the
counterparties to Company.
meet their
obligations The Asset Manager is constantly
monitoring the performance of
all its key operational service
providers and especially the technical
managers.
SPV operating accounts are held
with one or more unrated banks,
because those banks' systems are
better suited for shipping company
operations. Exposures to such
banks are limited to US$10m per
bank.
Surplus funds are invested with
banks of a single A- (or equivalent)
or higher credit rating as determined
by an internationally recognised
rating agency.
Credit ratings, monthly cash sweeps
from SPVs and overall limits are
monitored by the Administrator,
who reports exceptions to the
Board.
---------------------- ----------------------------------------------------------------------
Failure of systems Capital Growth This risk cannot be directly controlled
or controls in the Loss of assets, but the Board and its Audit Committee
operations of the reputation or regularly review reports from
Investment Manager, regulatory its Service Providers on their
Asset Manager or permissions internal controls.
the Administrator and resulting
and thereby of the fines
Company
---------------------- ----------------------------------------------------------------------
The Company may be Liquidity The Investment Manager arranges
exposed to Vessel value for environmental due diligence
substantial Loss of income, in respect of all vessels considered
risk of loss from reputation or for acquisition by the Company
environmental claims regulatory to identify potential sources
arising in respect permissions of pollution, contamination or
of vessels owned and resulting environmental hazard for which
by its SPVs, in fines that vessel may be responsible
particular and to assess the status of environmental
if a vessel owned regulatory compliance.
by the Company's
SPVs were to be The Asset Manager maintains a
involved detailed manual that documents
in an incident with best practice operating procedures
the potential risk to be followed by crew and technical
of environmental staff. The Asset Manager reviews
damage, environmental performance of key
contamination service providers on a quarterly
or pollution. basis.
Protection and Indemnity Club
mutual insurance provides cover
of up to US$1 billion for oil
pollution damage compensation.
The Investment Manager is committed
to Responsible Investment and
has identified ESG risk factors
relevant to the industry in its
Responsible Investment Policy.
The Board reviews the policy and
the implementation of the policy
at least annually. Please see
the ESG section of the Investment
Manager's Report for details.
The Company also follows its own
Responsible Investment, Sustainability
and ESG Policy which was implemented
by the Board in July 2021 and
is published on the Company's
website, (http://www.tuftonoceanicassets.com).
As part of their review of the
Company's operational risks and
controls, which takes place on
at least an annual basis, the
Board of Directors consider ESG
and climate change specific risks
and how these may be mitigated.
This includes receiving regular
reports and updates from the Investment
Manager on the measures put in
place by them to ensure the Company
carries out its activities in
an environmentally sustainable
and responsible manner.
---------------------- ----------------------------------------------------------------------
Corporate Summary
The Company is a closed-ended investment company, limited by
shares, registered and incorporated in Guernsey under the Companies
Law on 6 February 2017, with registered number 63061.
The Company is a Registered Closed-ended Collective Investment
Scheme regulated by the GFSC pursuant to the Protection of
Investors (Bailiwick of Guernsey) Law 1987, as amended and the
Registered Closed-ended Investment Scheme Rules 2018.
As at 30 June 2021, the Company has 270,037,638 Shares in issue,
all of which are admitted to the Specialist Funds Segment of the
Main Market of the London Stock Exchange under the ticker "SHIP",
ISIN: GG00BDFC1649, and SEDOL: BDFC164. During the first half of
the financial year , the Company bought 300,000 of its own Shares.
During the second half of the financial year, the Company issued 15
million shares, which included the 300,000 shares previously bought
back.
The Company makes its investments through LS Assets Limited and
other underlying SPVs, which are ultimately wholly owned by the
Company. LS Assets Limited is registered and was incorporated in
Guernsey in accordance with the Companies Law on 18 January 2018
with registered number 64562. The underlying SPVs owned by LS
Assets Limited were incorporated in the Isle of Man, in accordance
with the Isle of Man Companies Act 2006 (the "IOM Companies
Act").
The Company controls the investment policy of each of LS Assets
Limited and the wholly owned SPVs to ensure that each will act in a
manner consistent with the investment policy of the Company. The
Company refers to each vessel by the underlying SPV's 'name' rather
than the actual name of the respective vessel for confidentiality
purposes.
The Investment Manager is Tufton Investment Management Ltd, a
company incorporated in England and Wales with registered number
1835984, which is regulated by the UK FCA and has been authorised
to act as a Small Registered UK AIFM under the AIFMD. Tufton
Investment Management 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.
Corporate Governance Statement
The Company is a member of the Association of Investment
Companies ("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. The AIC Code came into effect for the Company
from 1 July 2019. The Directors are committed to high standards of
corporate governance and for this reason they have considered and
implemented all of the principles and provisions of the AIC Code.
The Company has complied with the recommendations of the AIC Code
(except as set out below) and with any associated disclosure
requirements of the Listing Rules (to the extent applicable to the
Company).
As disclosed in the Prospectus dated 17 September 2019, 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:
- the role of the chief-executive;
- executive directors' remuneration; and
- the need for an internal audit function.
Considering that the Board comprises of only four independent
Directors, they have agreed not to appoint a Senior Independent
Director. The Audit Committee Chairman fulfils the role of the
Senior Independent Director, which includes the following:
- the support of the Chairman in his role;
- acting as an intermediary for other directors where necessary;
- being available for Shareholders and other non-executives to
discuss any questions or concerns; and
- assisting with the performance evaluation and succession planning of the Chairman's role.
The Board has formulated the following policies and procedures
to assist them to comply with the AIC Code:
Independence
All the Directors are currently considered by the Board to be
independent of the Company and the Tufton Group and have been
Directors for less than five years. The Board's current policy on
tenure is that continuity and experience are considered to add
significantly to the strength of the Board and, as such, no limit
on the overall length of service of any of the Company's Directors,
including the role of Chairman, has been imposed. New Directors
receive an induction from the Investment Manager and the
Administrator on joining the Board, and all Directors will receive
other relevant training as necessary on their on-going
responsibilities in relation to the Company.
Environment, Social and Governance
For further details of the Company's approach to ESG matters,
please see the Director's and Investment Managers Reports, together
with the Company's Responsible Investment, Sustainability and ESG
Policy which is published on its website,
(http://www.tuftonoceanicassets.com).
Diversity and Inclusion Policy
The Company supports the AIC Code provision that Boards should
consider the benefits of diversity, when making appointments and is
committed to ensuring it receives information from the widest range
of perspectives and backgrounds. The Board is committed to creating
a diverse and inclusive environment where all individuals feel
respected, and their voices heard. The Board believes that
diversity of gender, age, ethnicity and personal attributes,
amongst others, contribute to a balanced and more productive Board.
The Board is committed to being non-discriminatory and firmly
believes in equal opportunities for all, with board appointments
being made on merit against a set of objective criteria.
However, while the Board of the Company agrees diversity should
be sought when making appointments, it does not consider that this
can be best achieved by establishing specific quotas and targets
and appointments are therefore based wholly on merit. Accordingly,
when changes to the Board are required, due regard is given to both
the need for and importance of diversity and to a comparative
analysis of candidates' qualifications and experience. A
pre-established, clear, neutrally formulated and unambiguous set of
criteria are utilised during the appointment process to determine
the most suitable candidate for the specific position sought. In
each case, the Board ensures that candidates are considered from a
wide range of backgrounds.
UK Companies Act 2006 - Section 172 Statement
Whilst directly applicable only to UK domiciled companies, the
intention of the AIC Code of Corporate Governance which is followed
by the Company, is that the following matters set out in section
172 of the UK Companies Act, 2006 are reported on by all companies,
irrespective of domicile, provided that this does not conflict with
local company law. Therefore, through adopting the AIC Code, the
Board acknowledges its duty to apply and demonstrate compliance
with section 172 of the UK Companies Act 2006 and to act in a way
that promotes the success of the Company for the benefit of its
Shareholders as a whole, having regard to (amongst other
things):
-- the consequences of any decision in the long-term;
-- the need to foster business relationships with suppliers, customers and others;
-- the impact on community and the environment;
-- maintaining reputation; and
-- acting fairly as between members of the Company.
The Board regularly reviews the Company's principal stakeholders
and how the Company engages with them. Stakeholder voices are
considered at Board level and reflected in board decision making
through reporting provided to the Board by the Broker and
Investment Manager, together with engagement with stakeholders
themselves either directly or through the above mentioned
parties.
The Company is an externally managed investment company, has no
employees, and as such is operationally quite simple. The Board
does not believe that the Company has any material stakeholders
other than those set out in the following table.
Investors Service providers Community and environment
Issues that matter to them
Performance of the shares Reputation of the Compliance with Law and
Growth of the Company Company Regulation
Liquidity of the shares Compliance with Law Impact of the Company
and Regulation and its activities on
Remuneration third parties
---------------------------- -----------------------------------
Engagement process
Annual General Meeting The main two service The Company and its
providers - T ufton subsidiaries themselves
Frequent meetings with IML and MAGL - engage have only a very small
investors by brokers with the Board in footprint in their local
and the Investment Manager face to face meetings communities and only
and subsequent reports quarterly, giving a very small direct
to the Board. them direct input impact on the environment.
to Board discussions.
Quarterly fact sheets
Where face to face However, the Board acknowledges
Key Information Document contact has not been that it is imperative
possible due to the that everyone contributes
Covid-19 pandemic, to local and global
engagement has continued sustainability and the
via video conferencing activities of the Company
services such as Microsoft in this regard are reflected
teams. within the Company's
Responsible Investment,
Sustainability and ESG
All service providers Policy and the Responsible
are asked to complete Investment Policy of
a questionnaire annually the Investment Manager.
which includes feedback
on their interaction
with the Company,
and the Board ordinarily
undertakes an annual
visit to Tufton in
both London and the
Isle of Man.
Unfortunately, due
to Covid-19 restrictions,
this was not possible
during the year, however
regular communications
between the Investment
Manager and the Board
were maintained via
Microsoft Teams.
------------------------------ ---------------------------------
Rationale and example outcomes
Clearly investors are The Company relies The nature of the Company's
the most important stakeholder on service providers investments is such
for the Company. Most entirely as it has that they do not provide
of our engagement with no systems or employees a direct route to influence
investors is about "business of its own. ESG matters in many
as usual" matters, but areas, but the Board
has also included discussions No major decisions and the Investment Manager
about the discount of were made by the Board work together to ensure
the share price to the which effected service that such factors are
NAV. Following discussions providers in the year. carefully considered
with investors, in order and reflected in investment
to address the level The Board always seeks decisions, and that
of discount, the Company to act fairly and vessel operators are
purchased 300,000 of transparently with influenced positively.
its own Shares at an all service providers,
average price of US$0.824 and this includes Board members do travel,
per Share during August such aspects as prompt partly to meetings in
and September 2020. payment of invoices. Guernsey, and partly
elsewhere on Company
The major decisions business, including
arising from this have for the annual due diligence
been for the Board to visits to London and
seek to ensure long the Isle of Man, travel
term value, opportunities restrictions permitting.
to realise value through The Board considers
sales of vessels. A this essential in overseeing
decision was also made service providers and
to issue shares under safeguarding stakeholder
the tap facility to interests. Otherwise,
marginally reduce the the Board seeks to minimise
Company's Total Expense travel using conference
Ratio and improve the calls whenever good
liquidity of the Company's governance permits.
shares.
During the last eighteen
In addition, the Board months travel restrictions
has focussed on valuation have made travel difficult
of vessels, a key priority and so more use has
for Shareholders. As necessarily been made
a result, the Board of video conference
placed greater emphasis facilities for both
on reviewing the output Board and due diligence
from the VesselsValue meetings.
system used to value
most of the Company's
fleet and the discount
rates used in valuing
the remaining vessels.
------------------------------ ---------------------------------
Engagement processes are kept under regular review. Investors
and other interested parties are encouraged to contact the Company
via the Company Secretary or SHIP@tuftonoceanicassets.com on these
or any other matters.
Statement of Directors' Responsibilities
The Directors are responsible for preparing an annual report and
financial statements for each financial year 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 year.
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") as issued by
the International Accounting Standards Board ("IASB").
In preparing the Financial Statements the Directors are required
to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
-- prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
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:
-- they have complied with the above requirements in preparing the financial statements;
-- there is no relevant audit information of which the Company's auditors are unaware;
-- all Directors have taken the necessary steps that they ought
to have taken to make themselves aware of any relevant audit
information and to establish that the auditors are aware of said
information;
-- the financial statements, prepared in accordance with IFRS
and applicable laws, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
-- the Chairman's Statement, Report of Directors and Corporate
Governance Statement include a fair and balanced review of the
development of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
The AIC 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.
Furthermore, the Board believes that the disclosures set out in
the Annual Report provide the information necessary for
Shareholders to assess the Company's performance, business model
and strategy.
Having taken into account all matters considered by the Board
and brought to the attention of the Board for the year ended 30
June 2021, as outlined in the Corporate Governance Statement and
the Audit Committee Report, the Board has concluded that the Annual
Report and Audited Financial Statements for the year ended 30 June
2021, taken as a whole, are fair, balanced and understandable and
provide the information required to assess the Company's
performance, business model and strategy.
Report of Directors
The Directors present their Annual Report and the Audited
Financial Statements of the Company for the year ended 30 June
2021.
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 Shares were listed on the Specialist Funds Segment of the
Main Market of the London Stock Exchange on 20 December 2017 under
the ticker SHIP.
Investment Objective and Policy
The Company's investment objective is to provide investors with
an attractive level of regular and growing income and capital
returns through investing in second-hand commercial sea-going
vessels. The Board monitors the Investment Manager's activities
through strategy meetings and discussions as appropriate. The
Company has established a wholly owned subsidiary that acts as a
Guernsey holding company for all its investments, LS Assets
Limited, which is governed by the same Directors as the
Company.
All vessels acquired, vessel related contracts and costs will be
held in SPVs 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. The
Directors expect the dividend to grow, in absolute terms, modestly
over the long term. In January 2021 the Company raised its target
annual dividend to US$0.075 per Share (previously US$0.07 per
Share), and will further raise it from US$0.075 to US$0.080 per
Share, commencing from 3Q21.
The Company aims to achieve a NAV total return of 12% or above
(net of expenses and fees) on the Issue Price over the long term.
The profit for the Company in the financial year was US$79.49m, or
US$0.3070 per Share.
Shareholder information
Up to date information regarding the Company, including the
quarterly announcement of NAV, 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 year-end.
Share issues
On 25 March 2021, the Company announced the results of its tap
issue of 15,000,000 Shares, which raised gross proceeds of
US$14.7m. 14,700,000 new Ordinary Shares were admitted to trading
on the Specialist Funds Segment of the Main Market of the London
Stock Exchange plc. The balance of 300,000 Ordinary Shares under
the tap issue were issued out of Treasury and represent all of the
Company's shares that were held in Treasury.
The Company realised a gain of c.US$47,000 from the issue of the
300,000 Ordinary Shares out of Treasury where they were held since
being purchased in 3Q20, in accordance with the Company's Share
Buyback and Discount Management Policy. The total number of Company
shares in issue was 270,037,638 at the year end. Each share carries
the right to 1 vote.
On 6 August 2021, after the year end, the Company announced that
it had raised gross proceeds of US$12.4m through the tap issue of a
further 10,533,763 Ordinary Shares at a price of US$1.18 per
share.
The Directors set the issue price for each of the tap issues,
after their costs, at a premium to the prevailing dividend adjusted
NAV per Share prior to each issue respectively.
Results and dividends
The Company's performance during the year is discussed in the
Chairman's Statement. The results for the year are set out in the
Statement of Comprehensive Income.
The Directors of the Company who served during the year and to
date are set in the Board Responsibilities and Corporate
Governance.
Directors' interests
The Directors held the following interests in the share capital
of the Company either directly or beneficially as at 30 June 2021,
and as at the date of signing these Financial Statements:
2021 2020
Shares Shares
------------------- ------- -------
R King 45,000 45,000
------- -------
S Le Page 40,000 15,000
------- -------
P Barnes 5,000 5,000
------- -------
C Rødsaether 20,000 -
------- -------
The Directors fees are as disclosed below:
30 June 30 June
2021 2020
Director GBP GBP
-------- --------
R King 33,610 31,000
-------------------- -------- --------
S Le Page 31,500 29,000
-------------------- -------- --------
P Barnes 29,300 26,500
-------------------- -------- --------
C Rødsaether 24,064 -
-------------------- -------- --------
Directors' Attendance
Attendance of Directors at each meeting held during the
year:
Director Quarterly Board Audit Committee Ad hoc meetings
meetings
Held Attended Held Attended Held Attended
------ ---------- ------ ---------- ------ ----------
R King 4 4 3 2 19 19
------ ---------- ------ ---------- ------ ----------
S Le Page 4 4 3 3 19 19
------ ---------- ------ ---------- ------ ----------
P Barnes 4 4 3 3 19 17
------ ---------- ------ ---------- ------ ----------
C Rødsaether
* 3 3 2 2 14 14
------ ---------- ------ ---------- ------ ----------
*Ms. Rødsaether was appointed to the Board of Directors on 8
September 2020 and was therefore eligible to attend three quarterly
meetings, 14 ad hoc meetings and 2 audit committee meetings during
the remainder of the year (100% attendance).
Other Interests
Tufton Group shareholders, employees, non - executive directors
and former shareholders held the following interests in the share
capital of the Company either directly or beneficially.
The revised classification of Tufton related Shareholders
compared to 2020 reflects the change of control of the Investment
Manager as advised to investors on 5 January 2021 and the 2020
comparative whilst unchanged in total has been restated in line
with these new classifications.
As at 30 June 2021
% of issued
Name Ordinary Shares Share Capital
Tufton Shareholders 4,474,786 1.66
Tufton Staff 374,668 0.14
Tufton Non-Executive Directors 403,279 0.15
Former Tufton Shareholders 2,758,168 1.02
As at 30 June 2020
% of issued
Name Ordinary Shares Share Capital
Tufton Shareholders 2,880,147 1.13
Tufton Staff 314,781 0.12
Tufton Non-Executive Directors 403,279 0.16
Former Tufton Shareholders 2,350,087 0.92
The Company has a Share Buyback and Discount Management Policy
in place, which has been formally approved and adopted by the Board
of Directors.
The Board of Directors (the "Board") will consider repurchasing
the Company's Ordinary Shares (the "Shares") in the market if they
believe it to be in Shareholders' interests as a whole and as a
means of correcting any imbalance between supply of and demand for
the Shares.
Share buyback and discount management
Subject to working capital requirements, and at the absolute
discretion of the Board, excess cash may be used to repurchase the
Shares should the Shares close at a, or more than a, 10% average
discount to NAV for a period of 90 consecutive days. The Directors
may implement Share buyback at any time before the 90 day guideline
where they feel it is in the best interest of the Company and all
Shareholders.
The Administrator, Maitland Administration (Guernsey) Limited
("Maitland"), is responsible for tracking the discount/premium of
the share price to NAV and presents the information to the Board on
an as needed basis.
The Companies (Guernsey) Law, 2008 (the "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. Therefore, it is
agreed that any Shares repurchased pursuant to the general
authority referred to above may be held by the Company in treasury,
to the extent permitted by Law.
The Company wishes to operate a buyback programme that is
effective and also adds value for Shareholders. As such, 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.
Share Buyback Programme Terms and Conditions
-- the maximum number of Shares authorised to be purchased shall
be 14.99 per cent. of the Shares in issue immediately following
completion of the Issue;
-- the minimum price which may be paid for a Share is US$0.01;
-- the maximum price which may be paid for a Share shall be the higher of:
o an amount equal to 105 per cent. of the average of the middle
market quotations of a Share (as taken from the Daily Official List
of the London Stock Exchange) for the five business days prior to
the date the purchase is made; and
o the higher of:
(a) the price of the last independent trade; and
(b) the highest current independent bid for Shares on the London
Stock Exchange at the time the purchase is carried out.
-- the minimum number of Shares authorised to be purchased in a
single day shall be 50,000, unless otherwise agreed by the
Board;
-- this authority shall expire on the conclusion of the next
annual general meeting of the Company or if earlier, eighteen
months from the date of passing of the resolution, 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;
-- pursuant to Article 4.6 of the Company's Articles of
Incorporation, the Company may hold any of the Shares purchased
pursuant to the authority conferred by paragraph 2.6.4 as treasury
shares (provided that the number of shares held as treasury shares
shall not at any time exceed ten per cent of the total number of
shares of that class in issue at that time or such other amount) as
provided in the Law;
-- the Company may sell the Shares back to the market from
treasury at the discretion of the Directors. This may only be done
in the event that the Shares are trading at a premium to the
prevailing NAV per share;
-- the Company may not sell shares back from treasury during a
closed dealing period, as defined in the Company's Share Dealing
Policy;
-- for the avoidance of doubt, sales from treasury may only be
authorised by the Directors if the amount to be received by the
Company for the Shares is at least the prevailing NAV per share,
exclusive of commissions and dealing costs. Shares may not be sold
for more than a 10% discount to market value; and
-- the minimum number of Shares authorised to be sold from
treasury in a single day shall be 100,000, unless otherwise agreed
by the Board.
Buybacks are conducted by Singer Capital Markets on the
Company's behalf, on the instruction of the Board of Directors or a
duly authorised committee thereof. Prior to giving such
instruction, the Board or a duly authorised Committee of the Board
shall meet and give due consideration to the Solvency of the
Company to the extent provided by Law, and a duly authorised
representative of the Board or such Committee shall sign a solvency
certificate in respect of each buyback instructed. For the
avoidance of doubt, no buyback may be performed during a period
whereby the Company does not meet the statutory solvency test.
Singer Capital Markets also conduct sales of the Shares from
treasury on behalf of the Company, on the instruction of the Board
of Directors or a duly authorised committee thereof. Following the
completion of a sale, an RNS announcement will be released by the
Company to the market, which shall include the restated amount of
voting rights.
The buyback programme may be suspended around key market
announcements and during times where market price calculations are
being made, or at any other time where the Board considers this to
be appropriate.
The purchase of Shares by the Company is at the absolute
discretion of the Directors and is subject to the working capital
requirements of the Company and the amount of cash available to the
Company to fund such purchases. Accordingly, no expectation or
reliance should be placed on the Directors exercising such
discretion on any one or more occasions.
Board Responsibilities and Corporate Governance
Please note the Corporate Governance Statement forms part of
this report.
Board Members
The Company's Board of Directors comprises four 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 year are
listed below.
Robert King, Chairman
A non-executive director for a number of open and closed-ended
investment funds including two AIM listed funds, Weiss Korea
Opportunities Fund Limited, CIP Merchant Capital Limited and one
International Stock Exchange listed fund Golden Prospect Precious
Metals Limited (which also has a trading listing on the LSE).
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 is British
and resident in Guernsey.
Stephen Le Page
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. He 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.
Mr Le Page serves on a number of boards as a non-executive
director, including acting as Chairman of the Audit Committee for
three premium London listed funds, Highbridge Tactical Credit Fund
Limited, Volta Finance Limited and Princess Private Equity Holding
Limited and one International Stock Exchange listed company,
Channel Islands Property Fund Limited. Stephen is British and
resident in Guernsey.
Mr Le Page was also appointed as an Independent Non-Executive
Director and Chairman of the Audit Committee of Amedeo Air Four
Plus Limited, a company listed on the Specialist Funds Segment of
the London Stock Exchange, on 26 July 2021. In accordance with
Principle 6.2-9 of the AIC Code, the appointment was discussed with
the Chairman of the Company, prior to being undertaken. It was
agreed that the proposed appointment would not have a significant
impact on Mr Le Page's ability to fulfil his duties in relation to
the Company and the appointment was therefore permitted.
Paul Barnes
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.
Christine Rødsaether
Christine is a partner in law firm Simonsen Vogt Wiig, with more
than 30 years' experience working in the international shipping
sector and offshore related transactions, design, vessel
construction, offshore installations, restructurings, international
banking and finance. Previously, she was a partner in Andersen
Legal ANS and a lawyer at Wikborg, Rein & Co. Christine has
extensive board experience, and currently serves on the boards of
OSE listed Odfjell SE and Norwegian Finans Holding ASA as well as
Bank Norwegian AS. Christine is Norwegian and is resident in
Norway.
Conflicts of Interest
None of the Directors nor any persons connected with them had a
material interest in any of the Company's transactions,
arrangements or agreements at the date of this report and none of
the Directors has or had any interest in any transaction which is
or was unusual in its nature or conditions or significant to the
business of the Company, and which was effected by the Company
during the year. At the date of this Report, there are no
outstanding loans or guarantees between the Company and any
Director.
Share Dealing Code
The Company has adopted a share dealing code, in conformity with
the requirements of the Listing Rules and the EU Market Abuse
Regulation and takes steps to ensure compliance by the Board and
relevant senior staff with the terms of the policy.
Appointment, re-election and remuneration of Directors
Due to the Board's size, the Board has not deemed it necessary
to appoint a separate nomination committee and therefore the role
typically undertaken by such committee is currently conducted by
the Board as a whole. The rules governing the appointment and
replacement of Directors are set out in the Company's Articles. The
Directors have overall responsibility 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 is formally considered annually at the time of the Board,
Chairman and Directors' annual performance appraisal, but the Board
decided during the year under review that it would be desirable to
strengthen its knowledge of ship chartering and ESG matters.
Accordingly, a search for an additional director began, and
given the specialist nature of the skills required, the Board
elected not to use a general search agency, relying on its advisers
to identify an initial list of suitable candidates. Three
candidates were interviewed and Christine Rødsaether was appointed
on 8 September 2020.
When considering new appointments in the future, as was the case
with the recent appointment, the Board will ensure that a diverse
group of candidates is considered and that appointments are made
against objective criteria, in accordance with the Company's
Diversity & Inclusion Policy. The Board have been briefed by
their legal advisers about their on-going responsibilities as
directors and newly appointed directors will be invited to
participate in a formal induction process.
The Articles require that at each annual general meeting, all
the Directors will submit themselves for re-election. The Company
does not have a separate remuneration committee as the Board as a
whole fulfils the function of a remuneration committee, which
includes the review on at least an annual basis of the remuneration
of the directors in accordance with the Company's remuneration
policy and market information.
The Company's policy is for Directors to be remunerated in the
form of fees which are quarterly in arrears. No element of the
Director's remuneration is performance related, and no Director is
involved in setting his or her own remuneration.
Fees payable to the Directors should reflect the time spent by
the Board on the Company's affairs and the responsibilities borne
by the Board and should be sufficient to enable high calibre
candidates to be recruited to the Board, ultimately contributing to
the composition of the Board that is balanced and effectively
discharges stewardship of the Company's affairs.
Annual performance appraisal
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 last evaluation took place in October 2020 with the
next annual review taking place in October 2021. Evaluation of the
Chairman is led by the Audit Committee Chair, who carries out the
functions of a Senior Independent Director.
Audit Committee
The Board will delegate certain responsibilities and functions
to the Audit Committee. Stephen Le Page is the chairman of the
Company's Audit Committee which comprised the full Board until the
Chairman, Rob King, stepped down from the Committee on 22 March
2021, and was replaced by Christine Rødsaether, thereby ensuring
the Audit Committee is independent of the Chairman. In discharging
its responsibilities, the Audit Committee will review the annual
and half yearly Financial Statements, the risks to which the
Company is subject, 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.
Other Committees
The Board considered its size to be such that it would be
unnecessarily burdensome to establish a separate Management
Engagement Committee. However, since the appointment of Ms.
Rødsaether this is now under review.
Consequently, the Board has reviewed the contractual
relationship with and the performance of all the service providers
to the Company, and in particular the Investment Manager. As part
of the review process, the Board concluded that service providers
are performing in accordance with the Company's expectations and
contractual arrangements, and that their continued appointment is
in the best interests of Shareholders.
Operation of the Board
It is the responsibility of the Board to ensure that there is
effective stewardship of the Company's affairs. A formal schedule
of matters reserved for decision of the Board has been adopted.
This includes the following items:
-- changes to the structure, size and composition of the Board,
-- the appointment of directors to specified offices of the
Board, including the Chairman and senior independent director,
-- board succession planning, training, development and evaluation,
-- overall leadership of the Company and setting the values and standards, and
-- on-going review of the Company's Investment strategy,
investment objectives and investment policy.
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 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 financial position; gearing, performance; share
price discount or premium (both absolute levels and volatility);
and relevant industry and macro-economic issues.
The Board also receive quarterly reports analysing and
commenting on the composition of the Company's share register and
monitoring significant changes to Shareholdings.
Independent Auditor
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 23 October 2020. Another resolution for
their appointment will be proposed at the AGM on 20 October
2021.
Service Providers
The Investment Manager / Alternative Investment Fund Manager
("AIFM")
Tufton Investment Management Ltd, a specialist fund manager in
the maritime and energy markets since 2000, has been appointed as
the Investment Manager. Since its inception in 1985, the Investment
Manager has been focused on financial services to these
industries.
As of 30 June 2021, the Investment Manager manages investments
of c. US$1.2 billion.
As of 30 June 2021, the Tufton Group of which the Investment
Manager is part, had 28 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.
Investment Committee
The Investment Manager has established an Investment
Committee.
Each investment proposal is reviewed by the Investment Committee
which meets on a weekly basis. These weekly meetings continued via
teleconference during the Covid-19 pandemic. 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. The Investment Manager is
committed to Responsible Investment and integrates ESG factors into
its investment process. The Investment Manager reviews the
environmental footprint of new vessel acquisitions as well as key
performance indicators of technical managers on safety and
fulfilling regulatory requirements. Should the Investment Committee
be in favour of an acquisition, an appropriate recommendation will
be made to the Board who would ultimately determine whether an
acquisition should be made.
Asset Manager
Tufton Management Limited (formerly 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 subcontracts technical services from
associated company Tufton Asset Management Limited, based in
Cyprus, which employs professionals who have experience in all
aspects of ship management including special surveys, dry dockings,
maintenance, repair and negotiation of 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.
Administrator and Secretary
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 780 staff in 11
offices across 8 jurisdictions and collectively administers in
excess of US$160bn 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 NAV, compliance with the Code and maintenance of the Company's
accounting and statutory records.
Registrar
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.
Receiving Agent
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.
Disclosure Obligations
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.
Annual Report and Financial Statements
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.
Anti-bribery and corruption
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.
Modern slavery
The Company, through its Investment Manager seeks to ensure that
all charter counterparties have policies and procedures which
prevent any possibility of slavery or similar behaviours on the
vessels comprising the fleet. The Investment Manager has such
policies and procedures in its own right which govern the ship
management contracts used to appoint technical managers.
General Data Protection Regulation ("GDPR")
The Board, through enquiry of its service providers, has ensured
that the requirements of GDPR and its equivalent legislation in the
UK and Guernsey, are met by them when they process any data on
behalf of the Company.
Alternative Investment Fund Managers Directive ('AIFMD')
The Investment Manager, Tufton Investment Management 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 Company notes that while
AIFMD no longer binds the UK in its implementation, a domestic
regime has been put in place regulating the management and
marketing of AIFs in the UK, which generally maintains the AIFMD
rules as implemented at the end of the transition period with
respect to the UK's departure from the European Union on 31
December 2020.
Internal control and financial reporting
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:
-- Maitland Administration (Guernsey) Limited ("Maitland") is responsible for the provision of administration, accounting and company secretarial duties. Maitland also provides compliance oversight in respect of the Company and its activities. As the Company itself has no IT systems and relies on the IT systems of its service providers, Maitland additionally has a role in cyber security and the protection of the Company's data through the operation of Information Security Protection Controls. Maitland staff are also regularly trained in order to minimise the risk of an accidental data breach;
-- Tufton Investment Management Ltd is the Investment Manager
and provides portfolio management and risk management services to
the Company. They are also the AIFM for the purposes of the
AIFMD;
-- Tufton Management Limited, an affiliate of the Investment
Manager, provides Asset Management services to each underlying
SPV;
-- Tufton Corporate Services, an affiliate of the Investment
Manager, provides administration, accounting and company
secretarial services for the SPVs;
-- Computershare Investor Services (Guernsey) Limited is
responsible for the provision of Registrar services;
-- the Board clearly defines the duties and responsibilities of
the Company's agents and advisers in the terms of their
contracts;
-- the Board receives assurances from the Company's agents and
advisers that any amendments required as a result of regulatory
change, are actioned accurately and promptly; and
-- the Board reviews financial information and compliance
reports produced by the Administrator on a regular basis.
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.
Responsible Investment, Sustainability and ESG Policy
The Company published its Responsible Investment, Sustainability
and ESG Policy (the "Policy"), in July 2021, a copy of which is
available on the Company's website (tuftonoceanicassets.com).
The Policy sets out the combined approach of the Investment
Manager and the Company to the integration of sustainability risks
and responsible investment principles in its investment decision
making and asset ownership practices. The policy seeks to align the
Company's strategy with best practices and market standards in all
ESG and Responsible Investment matters.
The Company believes upholding high standards of ESG and
responsible investment principles and practices are an essential
tool for managing the risks presented by challenges such as climate
change, social inequality and human rights issues, delivering long
term value and positive returns for the Company's Shareholders as
part of the Company's investment objectives, and ensuring the
continued sustainability of shipping as a whole.
The Policy includes further details on the Company's approach to
diversity and inclusion, stakeholder engagement, modern slavery,
human rights and anti-bribery practices, together with how the
activities of the Company are aligned with recognised ESG standards
such as the UN's Sustainable Development Goals.
In accordance with the Policy, the Directors have 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 stakeholder 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's Report has further
information on how the Investment Manager practically implements
and considers the Policy when making investment decisions.
Going concern
In assessing the going concern basis of accounting the Directors
have, together with discussions and analysis provided by Tufton,
had regard to the guidance issued by the Financial Reporting
Council. They have considered recent market volatility and the
potential impact of the Covid-19 virus on the current and future
operations of the Company and its investments (as set out in more
detail in the Principal Risks and Uncertainties section).
Based on these activities 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. Please
also refer to the Viability statement.
Viability statement
The Board, in assessing the long-term viability of the Company,
have paid particular attention to the Principal Risks and
Uncertainties faced by the Company as disclosed in 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 and is therefore able to sustain
its business model and structure, including the payment of
dividends at the proposed level.
The Board has also considered the cash flow projections for the
Company over a range of market stress scenarios. Particularly with
respect to Covid-19, the Board has considered the results of a
viability test wherein the primary sensitivity of an extended
period of market stress results in time charter rates staying below
the historic median levels over the entire three-year forecast
period along with significant void periods modelled between
charters. The Board is pleased to note that in the viability test
scenario, the Company will still retain sufficient cash to meet its
operating costs and sustain its business model and structure.
The Board has taken into account the cash flow-weighted average
length of its charters which are expected in normal circumstances
to be in excess of three years and have therefore determined the
appropriate viability period for the Company to be three years.
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. These
scenarios allow for considerable idle time in the fleet,
consistently low charter rates and even charter default. 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 the viability period.
Continuation Vote
In accordance with the prospectus published 25 September 2018,
the Directors are not required to put a continuation resolution to
an extraordinary general meeting in 2021 as the Company's NAV was
in excess of US$250m as at the end of fourth quarter of 2020
(US$251.0m). The Directors will propose an ordinary resolution at
the annual general meeting to be held in 2024 that the Company
continues its business (a "Continuation Resolution"). If this
Continuation Resolution is passed, then the Directors shall every
three years thereafter at the annual general meeting held following
the publication of the audited accounts propose a further
Continuation Resolution.
Shareholders' significant interests
The following Shareholders had notified to the Company a
substantial interest of 5% or more of the issued share capital as
at 30 June 2021.
% of issued share
capital
South Yorkshire Pensions Authority 10.53%
East Riding Pension Fund 10.29%
Schroder Investment Management 8.91%
West Yorkshire Pension Fund 8.72%
Newton Investment Management Ltd 5.97%
Pictet Asset Management 5.59%
Relations with Shareholders
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.
The Company can be contacted via the Company Secretary or
SHIP@tuftonoceanicassets.com .
Approved by the Board of Directors on 8 September 2021 and
signed on behalf of the Board by:
Rob King Stephen Le Page
Director Director
Audit Committee Report
Chairman's introduction
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 2021 and to the date of this report, the main areas
of activity have been as follows:
-- reviewing and assessing the Principal Risks and
Uncertainties, including the continued impact of the Covid-19
pandemic on the activities and assets of the Company;
-- reviewing the accounting policies for the Company to ensure
they remain appropriate for the preparation of the Company's Annual
Report and Audited Financial Statements;
-- reconsidering the areas of judgment or estimation arising
from the application of International Financial Reporting Standards
to the Company's activities and the documentation of the rationale
for the decisions made and estimation techniques selected, to
ensure they remain appropriate;
-- meeting with the Independent Auditor, PwC, to review and
discuss their independence, objectivity and proposed scope of work
for their audit of this annual report;
-- meeting with the Company's principal service providers to
review the controls and procedures operated by them to ensure that
the Company's risks are properly managed and that its financial
reporting is complete, accurate and reliable; and
-- reviewing in detail the content of this Annual Report, the
work of the service providers in producing it and the results of
the external audit.
Membership and Role of the Committee
The membership of the Audit Committee (the "Committee") is set
in the Board Responsibilities and Corporate Governance and details
about the responsibilities of the Committee are 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 three
times during the year ended 30 June 2021 and once more since the
year end. The Independent Auditors attended all these meetings.
Internal control
The Company itself has no internal systems to control. Internal
control lies within the services provided by Tufton Investment
Management 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 seeks to make visits to certain service
providers periodically to assess their organisation and culture and
to meet the individuals responsible for key functions. As a result
of travel restrictions resulting from the global Covid-19 pandemic,
these visits have been replaced by video conferences with key
personnel. 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 discussions with Tufton Corporate Services
Limited, the administrator of the Isle of Man SPVs, VesselsValue,
the supplier of the information underlying the valuation of most of
the vessels held by the Company, and the Investment Manager.
Review of accounting policies and areas for judgment or
estimation
These financial statements reflect the 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:
-- the application of IFRS 10 - Consolidated Financial Statements ("IFRS 10") to the Company;
-- the detailed approach to arriving at the estimate of fair
value for each vessel, SPV and the Guernsey Holding Company, LS
Assets Limited;
-- the determination of the Company's Viability and the
applicability of the Going Concern assumption.
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.
Fair value estimation
The majority of the 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. The Company has chosen to use the
value provided by VesselsValue.com as its best estimate of fair
value for the majority of its fleet. Exact details of the valuation
techniques applied to the vessels and of how the Company's NAV is
derived is given in Note 11 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, to enable readers of these financial statements
to make their own assessment of the carrying values. 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 of the
Company.
External Audit
During the year ended 30 June 2021, and up to the date of this
report, the Committee has met formally with the Independent Auditor
on four 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 year ended 30 June 2021. 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. There were no non-audit services carried
out during the 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 more than seven 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 five years ago.
Accordingly, the Committee has recommended to the Board that PwC be
put forward to the AGM of the Company for re-election.
Annual Report
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.
Stephen Le Page
Chairman of the Audit Committee
Statement of Comprehensive Income
For the year ended 30 June 2021
Notes 2021 2020
US$ US$
Income
Net changes in fair value of
Financial Assets
designated at fair value through
profit or loss 4 60,723,698 (24,177,906)
Dividend income 7 21,752,000 25,626,377
Total net income 82,475,698 1,448,471
Expenditure
Administration fees (148,158) (144,812)
Audit fees (122,022) (128,450)
Corporate Broker fees (150,000) (150,000)
Directors' fees 17 (162,332) (118,038)
Foreign exchange (loss) / gain (1,429) 1,246
Insurance fee (17,721) (28,971)
Investment management fee 13 (2,269,097) (2,070,834)
Legal fees (21,576) (10,165)
Listing fees (17,476) -
Professional fees (75,560) (53,571)
Sundry expenses (3,913) (23,062)
Total expenses (2,989,284) (2,726,657)
------------- ---------------
Operating profit / (loss) 79,486,414 (1,278,186)
Finance income 1,452 60,106
------------- ---------------
Profit / (Loss) and comprehensive
income / (loss) for the year 79,487,866 (1,218,080)
============= ===============
IFRS Earnings per ordinary share
(cents) 8 30.70 (0.49)
============= ===============
There were no potentially dilutive instruments in issue at 30
June 2021 or 30 June 2020.
All activities are derived from continuing operations.
There is no other comprehensive income or expense apart from
those disclosed above and consequently a Statement of Other
Comprehensive Income has not been prepared.
The accompanying notes are an integral part of these financial
statements.
Statement of Financial Position
At 30 June 2021
Notes 2021 2020
US$ US$
Non-current assets
Financial assets designated
at fair value
through profit or loss (Investments) 4 307,728,012 232,441,142
Total non-current assets 307,728,012 232,441,142
-------------------- --------------
Current assets
Trade and other receivables 5 5,760,379 5,839,928
Cash and cash equivalents 29,989 20,441
Total non-current assets 307,728,012 232,441,142
-------------------- --------------
Total assets 313,518,380 238,301,511
Current liabilities
Trade and other payables 872,425 633,418
Total current liabilities 872,425 633,418
-------------------- --------------
Net assets 312,645,955 237,668,093
==================== ==============
Equity
Share capital 6 259,657,871 245,392,016
Retained reserves 6 52,988,084 (7,723,923)
-------------------- --------------
Total equity attributable to
ordinary Shareholders 312,645,955 237,668,093
==================== ==============
Net assets per ordinary share
(cents) 10 115.78 93.08
==================== ==============
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
8 September 2021 and signed on its behalf by:
Rob King Stephen Le Page
Director Director
Statement of Changes in Equity
For the year ended 30 June 2021
Ordinary
Share capital Retained
earnings Total
US$ US$ US$
Shareholders' equity at 30
June 2019 215,012,016 10,830,663 225,842,679
Share issue 31,000,000 - 31,000,000
Listing costs (620,000) - (620,000)
Loss and comprehensive loss
for the year - (1,218,080) (1,218,080)
Dividends paid - (17,336,506) (17,336,506)
Shareholders' equity at 30
June 2020 245,392,016 (7,723,923) 237,668,093
Share buyback (247,125) - (247,125)
Share issue 14,700,000 - 14,700,000
Listing costs (187,020) - (187,020)
Profit and comprehensive income
for the year - 79,487,866 79,487,866
Dividends paid - (18,775,859) (18,775,859)
Shareholders' equity at 30
June 2021 259,657,871 52,988,084 312,645,955
The accompanying notes are an integral part of these financial
statements.
Statement of Cash Flows
For the year ended 30 June 2021
2021 2020
Notes US$ US$
Cash flows from operating
activities
Profit / (Loss) and comprehensive
income / (loss) for the year 79,487,866 (1,218,080)
Adjustments for:
Purchase of investments 4 (14,563,172) (35,620,975)
Change in fair value on investments 4 (60,723,698) 24,177,906
Operating cash flows before
movements in working capital 4,200,996 (12,661,149)
Changes in working capital:
Movement in trade and other
receivables 5 79,549 (5,807,680)
Movement in trade and other
payables 239,007 (54,363)
Net cash generated from /
(used in) operating activities 4,519,552 (18,523,192)
------------- -------------
Cash flows from financing
activities
Net amount paid for share
buyback 6 (247,125) -
Net proceeds from issue of
shares 6 14,512,980 30,380,000
Dividends paid to Ordinary
Shareholders 9 (18,775,859) (17,336,506)
Net cash (used in) / generated
from financing activities (4,510,004) 13,043,494
------------- -------------
Net movement in cash and
cash equivalents during the
year 9,548 (5,479,698)
Cash and cash equivalents
at the beginning of the year 20,441 5,500,139
Cash and cash equivalents
at the end of the year 29,989 20,441
============= =============
The accompanying notes are an integral part of these financial
statements.
Notes to the Financial Statements
For the year ended 30 June 2021
1. General information
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.
The Company had 224,644,568 ordinary shares in issue on 1 July
2019 all of which were listed on the Specialist Funds Segment of
the Main Market of the London Stock Exchange. On 20 September 2019
, the Company announced the results of its Placing and Offer for
Subscription of 30,693,070 ordinary shares, which raised gross
proceeds of US$31m. These ordinary shares were issued on the
Specialist Funds Segment of the Main Market of the London Stock
Exchange effective 24 September 2019.
During the current year, the Company bought a total of 300,000
of its own ordinary shares at an average price of US$0.824 per
Share. For further details refer to note 6.
On 25 March 2021, the Company announced the results of its tap
issue of 15,000,000 Shares, which raised gross proceeds of
US$14.7m. 14,700,000 new ordinary shares were admitted to trading
on the Specialist Funds Segment of the Main Market of the London
Stock Exchange plc. The balance of 300,000 ordinary shares were
issued out of Treasury and represent all of the Company's shares
that were held in Treasury. The total number of Company's shares in
issue was 270,037,638 at the year end. Each share carries the right
to 1 vote.
On 6 August 2021, after the year end, the Company announced that
it had raised gross proceeds of US$12.4m through the tap issue of a
further 10,533,763 ordinary shares at a price of US$1.18 per
share.
2. Significant accounting policies
(a) Basis of Preparation
Compliance with IFRS
The financial statements have been prepared on a going concern
basis in accordance with International Financial Reporting
Standards ("IFRS"), which comprise standards and interpretations
approved by the International Accounting Standards Board ("IASB")
and International Financial Reporting Interpretations Committee
("IFRIC"), Listing rules and applicable Guernsey law.
Historical cost convention
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.
Basis of non-consolidation
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:
-- an entity that obtains funds from one or more investors for
the purpose of providing those investors with investment services;
and
-- an entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both (including having an exit
strategy for investments); and
-- an entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
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.
(b) New and amended standards
At the reporting date of these Financial Statements, the
following standards, interpretations and amendments, which have not
been applied in these Financial Statements, were in issue but not
yet effective:
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current and Disclosure of Accounting Policies (Effective 1
January 2023).
Amendments to IAS 8: Definition of Accounting Estimates
(Effective 1 January 2023).
Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a
Contract (Effective 1 January 2022).
Amendments to IFRS 9: Annual Improvements to IFRS Standards 2018
- 2020 (Effective 1 January 2022).
It is not anticipated that the revisions to the above mentioned
standards will have any material impact on the Company's financial
position, performance or disclosures in its financial
statements.
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.
(c) Standards, amendments and interpretations effective during the year
The New and revised Standards and Interpretations adopted in the
current year did not have any significant impact on the amounts
reported in these financial statements.
(d) Segmental reporting
The Chief Operating Decision Maker is the Board of Directors.
The Directors are of the opinion that the Company is engaged in a
single segment of business, being the investment of the Company's
capital in second-hand commercial vessels. The financial
information used to manage the Company presents the business as a
single segment.
(e) Income
Dividend Income
Dividend income is accounted for on the date the dividend is
declared.
Interest Income
Interest income is accounted for on an accruals basis.
(f) Expenses
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.
(g) Dividends to Shareholders
Dividends are accounted for in the Statement of Changes in
Equity in the year in which they are declared.
(h) Taxation
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 GBP1,200.
(i) Financial Assets and Financial Liabilities Investments
The Company classifies its investment in LS Assets Limited
("LSA") as a financial asset at fair value through profit or loss
("FVTPL").
The Company measures and evaluates the net assets of LSA on a
fair value basis. The net assets include those of the underlying
SPVs which themselves own and value all vessels on a fair value
basis.
The Investment Manager reports fair value information to the
Directors who use this to evaluate the performance of
investments.
Recognition of financial assets and liabilities
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 at fair value through profit or loss
Financial assets are classified at FVTPL when the financial
asset is either held for trading or it is designated at FVTPL.
Financial assets at FVTPL are stated at fair value, with any gains
or losses arising on re-measurement recognised in the Statement of
Comprehensive Income.
The Company's investment in LSA has been designated as at FVTPL
on the basis that it is managed and its performance is evaluated on
a fair value basis, in accordance with the Company's documented
investment strategy, and information about the investment is
provided internally on that basis. The Company measures and
evaluates the performance of the entire investment into LSA on a
fair value basis by using the net asset value of LSA including, in
particular, the underlying SPVs and the fair value of the SPVs'
investments into their respective vessel assets as well as the
residual net assets and liabilities of both the SPVs and LSA
itself. The investment in LSA consists of both equity and debt
instruments.
In estimating the fair value of each underlying SPV (as a
constituent part of LSA's net asset value at fair value), the Board
has approved the valuation methodology for valuing the shipping
assets held by the SPVs. The carrying value of a standard shipping
asset consists of its charter-free value plus or minus the value of
any charter lease contracts attached to the vessel, plus or minus
an adjustment for the capital expenditure associated with the
vessel.
There are Time Charter contracts in place for standard vessels.
Such Charters will vary in length but would typically be in the 2 -
8 years' range. As the shipping markets can be volatile over time,
the value of such Charters will therefore either add to or detract
from the open market charter-free value of the vessel.
(i) Financial Assets and Financial Liabilities Investments
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.
The charter-free and associated charter values of most standard
vessels are calculated predominantly using an online valuation
platform provided by VesselsValue or, in limited circumstances, the
written valuation of a mainstream broker where elected by the
Manager. For charter-free values, the VesselsValue system contains
a number of algorithms that combine factors such as vessel type,
technical features, age, cargo capacity, freight earnings, market
sentiment and recent vessel sales.
For charter values, the platform provides a DCF (Discounted
Cashflow) module where vessel specific charter details are input
and measured against a platform provided market benchmark to obtain
a premium or discount value of the charter versus the typical
prevailing market for that type of vessel. The adjustment for the
capital expenditure associated with the dry docking of the vessel
is time apportioned on a straight line basis over the period
between the vessel's last visit to dry dock and the date of its
next expected visit, by reference to the actual cost of the last
visit and the budgeted cost of the next. This adjustment is an
addition to value when the valuation date is nearer to the vessel's
last dry docking than to its next expected visit to dry dock, and
vice versa.
The net adjusted valuation is subject to a minimum fair value
being the present value of all current contracted charter cashflows
and the current vessel scrap value at the completion of the
charter. The present value of the cashflows is discounted at the
specific WACC assigned to the vessel type by VesselsValue adjusted
for any counterparty credit risk where appropriate.
Specialist vessels are valued on a pure DCF basis by the
Investment Manager using vessel specific information and both
observable and unobservable data. The VesselsValue platform is not
used for these assets. Instead a DCF approach is adopted and this
determines the present value of the cashflows discounted at the
project cost of capital or the specific WACC assigned to the vessel
type by VesselsValue, and is deemed to be a fair representation of
the vessel and charter value.
Refer to Note 3 which explains in detail the judgements and
estimates applied.
Once a contracted time charter is known this is compared to the
market benchmark and the difference is discounted using an industry
weighted average cost of capital to establish a negative or
positive value of the charter.
The value of the charter is added to the charter-free value to
ascertain a value with charter.
SPVs account for non-ship assets in line with the accounting
policies of the Company.
(i) Financial Assets and Financial Liabilities Investments
Loans and receivables
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.
Derecognition of financial assets
The Company derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another entity.
If the Company neither transfers nor retains substantially all
the risks and rewards of ownership and continues to control the
transferred asset, the Company recognises its retained interest in
the asset and an associated liability for amounts it may have to
pay.
On derecognition of a financial asset in its entirety, gains and
losses on the sale, which is the difference between initial cost
and sale value, will be taken to the profit or loss in the
Statement of Comprehensive Income in the year in which they
arise.
Offsetting financial instruments
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.
Financial liabilities and equity
Debt and equity instruments are classified either as financial
liabilities or as equity in accordance with the substance of the
contractual arrangement.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only
when, the Company's obligations are discharged, cancelled or when
they expire.
(j) Cash and Cash Equivalents
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
2021, the carrying amount of cash and cash equivalents approximate
their fair value.
(k) Foreign currency translation
i) Functional and presentation currency
The financial statements of the Company are presented in US
Dollars, which is also the currency in which the share capital was
raised, and investments were purchased and is therefore considered
by the Directors' to be the Company's functional currency.
ii) Transactions and balances
At each financial position 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 the Statement of
Comprehensive Income in the year 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.
(l) Going concern
In assessing the going concern basis of accounting the Directors
have had regard to the guidance issued by the Financial Reporting
Council and have considered recent market volatility and the
potential impact of the Covid-19 virus on the Company's investments
(as set out in more detail in the Principal Risks and Uncertainties
section). 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.
(m) Equity instruments
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.
3. Critical Accounting Judgements and Estimates
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 year in which the estimates are revised and
in any future years affected.
Critical judgements in applying the Company's accounting
policies - IFRS 10: Consolidated Financial Statements
The audit committee considered the application of IFRS 10, and
whether the Company meets the definition of an investment
entity.
In the judgement of the directors, the Company meets the
investment criteria set out in IFRS 10 and they therefore consider
the Company to be an investment entity in terms of IFRS 10. As a
result, as required by IFRS 10 the Company is not consolidating its
subsidiary but is instead measuring it at fair value in accordance
with IFRS 13.
The criteria which define an investment entity are documented in
Note 2a.
The Company's objective of pooling investors' funds for the
purpose of generating an income stream and capital appreciation is
consistent with the definition of an investment entity.
Critical judgements and estimates in applying the Company's
accounting policies - financial assets at fair value
Further to the information mentioned in Note 2 (i) there are
specific capital adjustments considered as part of the valuation
process for standard vessels, mainly the adjustment for ballast
water treatment systems installed on vessels is considered an
enhancement to the charter-free value, initially recognised at cost
and straight line depreciated from the commissioning date to 31
December 2021.
At 30 June 2021, two vessels were treated as specialist vessels
(two vessels at 30 June 2020).
The first is on a long-term Bareboat Charter. The second has had
scrubbers installed under an enhanced long-term contract with a
charterer.
These specialist vessels are valued on a pure DCF basis by the
Investment Manager using vessel specific information and both
observable and unobservable data. Project cost of capital discount
rates are reviewed on a regular basis to ensure they remain
relevant to prevailing project and market risk parameters. The
prospectus sets out the basis on which non-typical and specialist
vessels would be valued.
During the current and prior years, one vessel was on a charter
with a fixed rate floor and a profit-sharing mechanism from which
its earnings were crystallised on an annual basis. In months prior
to the completion of the annual calculation period, the vessel's
earnings were accounted for based on actual earnings for the year
to date and an estimate of the vessel's future earnings to the end
of the calculation period. The vessel was sold in December
2020.
At the year end, the charter-free valuation of Golding was
provided by written broker valuation rather than VesselsValue as
elected by the Investment Manager given limited transactions in
this vessel type.
There were no other material areas of estimation in the current
year for the Company.
4. Financial Assets designated at fair value through profit or loss (Investments)
The Company owns the Investment Portfolio through its investment
in LSA. The investment by LSA comprises the NAVs of the SPVs. The
NAVs consist of the fair value of vessel assets and the SPVs
residual net assets and liabilities. The whole Investment Portfolio
is designated by the Board as a Level 3 item on the fair value
hierarchy because of the lack of observable market information in
determining the fair value as a result, all the information below
relates to the Company's Level 3 assets only, with respect to the
requirements set out in IFRS 7. The investment held at fair value
is recorded under Non-Current Assets in the Statement of Financial
Position as there is no current intention to dispose of any of the
assets.
The changes in Financial Assets designated at fair value through
profit or loss (Investments) which the Company has used Level 3
inputs to determine fair value, after considering dividends
declared (see Note 7) are as follows:
2021 2020
US$ US$
LSA
Brought forward cost of investment 235,360,051 199,739,076
Total investment acquired
in the year 14,563,172 35,620,975
Carried forward cost of investment 249,923,223 235,360,051
Brought forward unrealised (losses)
/ gains on valuation (2,918,909) 21,258,997
Movement in unrealised gains / (losses)
on valuation 60,723,698 (24,177,906)
------------ -------------
Carried forward unrealised gains
/ (losses) on valuation 57,804,789 (2,918,909)
------------ -------------
Total investment at fair value 307,728,012 232,441,142
============ =============
Note 11 - Price risk in the shipping industry, presents the
valuation techniques used by the underlying SPV's in determining
the value of the vessels held (based on assumptions that are not
supported by prices or other inputs from observable current market
transactions).
The unobservable inputs which significantly impact the fair
value have been determined to be the charter-free valuation and
charter rates for standard vessels and the Discount rate applied
for specialised vessels.
The Company holds its investments through a subsidiary company
which has not been consolidated in line with the adoption of IFRS
10: Consolidated Financial Statements. Below is the legal entity
name for the Holding Company which owns 100% of the shares in the
SPVs. The remaining legal entities are owned indirectly through the
investment in the Holding Company.
The SPV's and holding company Handy Holdco Limited are
incorporated in the Isle of Man. The holding company LS Assets
Limited is incorporated in Guernsey. The country of incorporation
is also their principal place of business.
LSA (own net assets): Breakdown of Fair Value:
Name 2021 2020 Direct Principal Ownership Ownership
US$ US$ or indirect activity at 30 June at 30 June
holding 2021 2020
LS Assets Holding
Limited - - Direct company 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Aglow Limited 9,295,994 6,544,853 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Antler Limited 10,017,889 7,086,424 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Bear Limited 439,204 25,159,399 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Candy Limited 9,579,537 - Indirect SPV 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Citra Limited 18,033,604 6,879,658 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Cocoa Limited*** - - Indirect SPV 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Dachshund
Limited *** - 14,836,028 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Daffodil
Limited*** - - Indirect SPV 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Darwin Limited** - 1 Indirect SPV N/A 100%
------------ ------------- ------------- ---------- ------------ ------------
Dragon Limited 8,876,752 7,836,366 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Echidna Limited 10,212,057 - Indirect SPV 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Golding Limited 16,578,058 - Indirect SPV 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Handy HoldCo Holding
Limited 29,581,968 - Indirect Company 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Hongi
Limited
** - 1 Indirect SPV N/A 100%
------------ ------------- ------------- ---------- ------------ ------------
Java Limited
** - 1 Indirect SPV N/A 100%
------------ ------------- ------------- ---------- ------------ ------------
Kale Limited 20,680,491 5,289,398 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Laurel Limited(+) 1,599,950 - Indirect SPV 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Lavender
Limited 13,206,424 - Indirect SPV 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Mayflower
Limited 12,762,171 - Indirect SPV 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Neon Limited 29,481,951 30,393,897 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Octane Limited 17,208,816 18,462,207 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Orson Limited(++) 1,356,536 - Indirect SPV 100% N/A
------------ ------------- ------------- ---------- ------------ ------------
Parrot Limited 28,155,312 31,865,549 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Patience
Limited 10,046,760 5,687,983 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Pollock Limited*** - 15,010,226 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Riposte Limited 16,749,536 7,603,717 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Sierra Limited 17,290,472 18,765,453 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Swordfish
Limited 14,340,404 4,927,358 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Vicuna Limited 8,780,368 10,610,002 Indirect SPV 100% 100%
------------ ------------- ------------- ---------- ------------ ------------
Cash held
pending investment 3,776,976 29,618,568
------------ -------------
Residual
net liabilities (323,218) (14,135,947)
------------ -------------
*Total investment
at fair value 307,728,012 232,441,142
------------ -------------
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 of
each SPV to determine the fair value of the total investment
attributable to LSA.
**The three companies above have been liquidated. The ships were
sold during the 2020 financial year.
*** During the current year, the ownership of Dachshund Limited
and Pollock Limited was transferred to Handy HoldCo Limited, which
also owns Cocoa Limited and Daffodil Limited.
(+) At the year end this SPV held an Agreement with a vendor for
the purchase of a vessel signed 24 May 2021. At the year end the
SPV valued the incomplete contract at the difference between its
fair value and costs to complete. The vessel was delivered 27 July
2021.
(++) At the year end this SPV held an Agreement with a vendor
for the purchase of a vessel signed 24 May 2021. At the year end
the SPV valued the incomplete contract at the difference between
its fair value and costs to complete. The vessel was delivered 29
July 2021.
5. Trade and other receivables
2021 2020
US$ US$
Current assets
Prepayments 21,491 25,627
Due from subsidiary (dividend receivable) 5,738,888 5,814,301
___________ ___________
Total trade and other receivables 5,760,379 5,839,928
___________ ___________
Amounts due from subsidiaries are interest free and payable on
demand. The amount due from subsidiaries in the prior year of
US$5,814,301 was settled in the current year. Due to the value and
short-term nature of these receivables, the directors have assessed
there to be no expected credit losses associated with these
outstanding balances.
6. Share capital and reserves
Share Capital
Share issuance Number of Gross amount Issue costs Share capital
shares (US$) (US$) (US$)
Total issue at
30 June 2020 255,337,638 250,400,016 (5,008,000) 245,392,016
------------ ------------- ------------ --------------
Share buyback
5 August 2020 (50,000) (41,710) - (41,710)
------------ ------------- ------------ --------------
Share buyback
12 August 2020 (50,000) (41,083) - (41,083)
------------ ------------- ------------ --------------
Share buyback
13 August 2020 (50,000) (41,083) - (41,083)
------------ ------------- ------------ --------------
Share buyback
24 September 2020 (100,000) (82,166) - (82,166)
------------ ------------- ------------ --------------
Share buyback
25 September 2020 (50,000) (41,083) - (41,083)
------------ ------------- ------------ --------------
Share issue
29 March 2021 15,000,000 14,700,000 (187,020) 14,512,980
------------ ------------- ------------ --------------
Total issue at
30 June 2021 270,037,638 264,852,891 (5,195,020) 259,657,871
------------ ------------- ------------ --------------
Retained reserves
Retained reserves comprise the retained earnings as detailed in
the Statement of Changes in Equity.
7. Dividend income
2021 2020
US$ US$
Dividend income 21,752,000 25,626,377
___________ ___________
During the current year, LS Assets Limited declared dividends of
US$21,752,000
(2020: US$25,626,377) to the Company. At 30 June 2021, dividends
of US$5,738,888
(2020: US$5,814,301) were outstanding (refer to Note 5).
8. Earnings per share calculated in accordance with IFRS
2021 2020
US$ US$
Profit / (loss) and comprehensive
income / (loss) for the year 79,487,866 (1,218,080)
Weighted average number of ordinary
shares 258,911,885 248,125,605
Earnings per ordinary share (cents) 30.70 (0.49)
The weighted average number of ordinary shares of 258.9m shares
(2020: 248.1m shares) is calculated in accordance with IFRS
guidelines.
9. Dividends
The Company declared the following dividends in respect of the
profit for the year ended 30 June 2021:
Quarter end Dividend Ex div date Net Dividend Record date Paid date
per share paid
30 September 5 November 6 November 20 November
2020 US$0.0175 2020 US$4,463,159 2020 2020
----------- ------------ ------------- ------------ ------------
31 December 28 January 29 January 21 February
2020 US$0.01875 2021 US$4,781,956 2021 2021
----------- ------------ ------------- ------------ ------------
31 March 29 April 30 April
2021 US$0.01875 2021 US$5,063,206 2021 14 May 2021
----------- ------------ ------------- ------------ ------------
30 June 29 July 30 July 13 August
2021 US$0.01875 2021 US$5,063,206 2021 2021
----------- ------------ ------------- ------------ ------------
Under the Companies (Guernsey) Law, 2008, the Company can
distribute dividends from capital and revenue reserves, subject to
a prescribed net asset and solvency test. The net asset and
solvency test considers whether a company is able to pay its debts
when they fall due, and whether the value of a company's assets is
greater than its liabilities. The Board confirms that the Company
passed the net asset and solvency test for each dividend paid.
10. Net assets per ordinary share
2021 2020
US$ US$
Shareholders' equity 312,645,955 237,668,093
Number of ordinary shares 270,037,638 255,337,638
Net assets per ordinary
share (cents) 115.78 93.08
11. Financial risk management
Capital management
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return to
Shareholders. In accordance with the Company's investment policy,
the Company's principal use of cash has been to fund investments as
well as ongoing operational expenses. The Board, with the
assistance of the Investment Manager, monitors and reviews the
broad structure of the Company's capital on an ongoing basis. The
capital structure of the Company consists entirely of equity
(comprising issued capital, reserves and retained earnings).
As the Company's Ordinary Shares are traded on the LSE, the
Ordinary Shares may trade at a discount or premium to their NAV per
Share on occasion. However, the Directors and the Investment
Manager monitor the discount on a regular basis and can use share
buyback to manage the discount.
The Company is not subject to any externally imposed capital
requirements.
Financial risk management objectives
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.
Market 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 .
Currency risk
The Company may have assets and liabilities denominated in
currencies other than United States Dollar, the functional
currency. It therefore may be exposed to currency risk as the value
of assets or liabilities denominated in other currencies will
fluctuate due to changes in exchange rates.
However, such exposure is currently, and is expected to remain,
insignificant. Consequently, no further information has been
provided.
Interest rate risk
The majority of the Company's financial assets and liabilities
are non-interest bearing. However, the Company is exposed to a
small amount of risk due to fluctuations in the prevailing levels
of market interest rates because any excess cash or cash
equivalents are invested at short-term market interest rates. The
Company's interest-bearing financial assets and liabilities expose
it to risks associated with the effects of fluctuations in the
prevailing levels of market interest rates on its financial
position and cash flows.
The table below summarises the Company's exposure to interest
rate risks. It includes the Company's assets and trading
liabilities at fair values, categorised by the earlier of
contractual re-pricing or maturity dates. It does not consolidate
the US$12.45m outstanding loan (with a blended, fixed rate of
5.05%) owed by Parrot Ltd, nor the US$22.00m outstanding loan (with
a variable rate capped at 4.65%) owed by Handy HoldCo Limited, in
accordance with IFRS 10 and IFRS 13. Interest payments on these
loans are only subject to limited change from fluctuations in
interest rates due to their fixed and capped nature.
2021 Interest bearing Non-interest Total (US$)
less than bearing (US$)
1 month (US$)
Assets
----------------- --------------- ------------
Investments - 307,728,012 307,728,012
----------------- --------------- ------------
Trade and other receivables - 5,760,379 5,760,379
----------------- --------------- ------------
Cash and cash equivalents 29,989 - 29,989
----------------- --------------- ------------
Total assets 29,989 313,488,391 313,518,380
----------------- --------------- ------------
Liabilities
----------------- --------------- ------------
Trade and other payables - 872,425 872,425
----------------- --------------- ------------
Total liabilities - 872,425 872,425
----------------- --------------- ------------
Total interest sensitivity
gap 29,989
----------------- --------------- ------------
The weighted average interest rate is 0.06% for cash and cash
equivalents in the current financial year.
2020 Interest bearing Non-interest Total (US$)
less than bearing (US$)
1 month (US$)
Assets
----------------- --------------- ------------
Investments - 232,441,142 232,441,142
----------------- --------------- ------------
Trade and other receivables - 5,839,928 5,839,928
----------------- --------------- ------------
Cash and cash equivalents 20,441 - 20,441
----------------- --------------- ------------
Total assets 20,441 238,281,070 238,301,511
----------------- --------------- ------------
Liabilities
----------------- --------------- ------------
Trade and other payables - 633,418 633,418
----------------- --------------- ------------
Total liabilities - 633,418 633,418
----------------- --------------- ------------
Total interest sensitivity
gap 20,441
----------------- --------------- ------------
The weighted average interest rate is 1.12% for cash and cash
equivalents in the prior year.
If the interest rates had been 100 basis points higher or lower
and all other variables were held constant, the Company's profit
for the year ended 30 June 2021 would increase or decrease by
US$300 (2020: US$204). This is attributable to the company's
exposure to interest rates on its variable rate deposits.
The Investment Manager is permitted to utilise overdraft
facilities towards the achievement of the Company's investment
objectives. This was not utilised during the year.
Refer to Price Risk on the following pages for a description of
the indirect impact interest rates have on the valuation of vessel
assets.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in a financial loss to the
Company.
The Company does not have any significant external credit risk
exposure to any single counterparty in relation to trade and other
receivables. On-going credit evaluation is performed on the
financial condition of accounts receivable. As at 30 June 2021
there were no receivables considered impaired (2020: US$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 2021 Credit rating Cash (US$) Short term Total as
Standard & Poor's fixed deposits at 30 June
(US$) 2021 (US$)
Barclays Bank Plc A Long Term
(Barclays) A-1 Short Term 22,495 - 22,495
-------------------- ----------- ---------------- ------------
Ravenscroft (1) A+ Long Term
(HSBC London -
call accounts) A-1 Short Term - 7,494 7,494
-------------------- ----------- ---------------- ------------
Total 22,495 7,494 29,989
----------- ---------------- ------------
(1) Ravenscroft is an execution only broker that acts solely on
instruction of the Board of Directors. The Board of Directors only
invest cash in banking institutions with an A- rating or
higher.
30 June 2020 Credit rating Cash (US$) Short term Total as
Standard & Poor's fixed deposits at 30 June
(US$) 2020 (US$)
Barclays Bank Plc A Long Term
(Barclays) A-1 Short Term 19,062 - 19,062
-------------------- ----------- ---------------- ------------
Ravenscroft (1) A+ Long Term
(HSBC London -
call accounts) A-1 Short Term - 1,379 1,379
-------------------- ----------- ---------------- ------------
Total 19,062 1,379 20,441
----------- ---------------- ------------
(1) Ravenscroft is an execution only broker that acts solely on
instruction of the Board of Directors. The Board of Directors only
invest cash in banking institutions with an A- rating or
higher.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Board of
Directors has established an appropriate liquidity risk management
framework for the management of the Company's short-, medium- and
long-term funding and liquidity management requirements. The
Company manages liquidity risk by maintaining adequate cash
reserves by monitoring forecast and actual cash flows.
The table below shows the maturity of the Company's
non-derivative financial assets and liabilities. The amounts
disclosed are contractual, undiscounted cash flows and may differ
from the actual cash flows received or paid in the future as a
result of early repayments.
30 June 2021 Up to 3 Between 3 Between 1 Total (US$)
months and 12 months and 5 years
(US$) (US$) (US$)
Assets
---------- --------------- ------------- ------------
Trade and other
receivables 5,738,888 - - 5,738,888
---------- --------------- ------------- ------------
Cash and cash equivalents 29,989 - - 29,989
---------- --------------- ------------- ------------
Liabilities
---------- --------------- ------------- ------------
Trade and other
payables 872,425 - - 872,425
---------- --------------- ------------- ------------
Total 4,896,452 - - 4,896,452
---------- --------------- ------------- ------------
30 June 2020 Up to 3 Between 3 Between 1 Total (US$)
months and 12 months and 5 years
(US$) (US$) (US$)
Assets
---------- --------------- ------------- ------------
Trade and other
receivables 5,814,301 - - 5,814,301
---------- --------------- ------------- ------------
Cash and cash equivalents 20,441 - - 20,441
---------- --------------- ------------- ------------
Liabilities
---------- --------------- ------------- ------------
Trade and other
payables 633,418 - - 633,418
---------- --------------- ------------- ------------
Total 5,201,324 - - 5,201,324
---------- --------------- ------------- ------------
Price risk in the shipping industry
As described in Note 3, the Company's financial assets are
measured at fair value which comprises the fair value of the
underlying SPVs and the residual net assets of each company. The
Company values its investment in LSA and the SPVs at their
respective net asset values. The net asset values comprise shipping
vessels which are measured at fair value and other residual net
assets and liabilities of each of the entities.
All the assets and underlying vessels are considered to be Level
3 assets, that price risk pertains to the Level 3 investment
portfolio in its entirety, and that no other market price risk
exists. Price risk sensitivity analysis was conducted on vessel and
charter fair values only as these comprise the vast majority of
assets.
(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 or, in limited
circumstances, written mainstream broker valuations. For
charter-free values, the VesselsValue 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.
The charter valuation process may be bounded by a minimum value
which comprises the DCF value of the current charter plus scrap
value of the vessel at the end of the charter. At the year end this
minimum value was applied to two vessels.
(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 model ("DCF Model"). The
DCF Model will calculate the net present value of the charter and
vessel value using the following inputs:
-- IRR/Discount rate
-- Charter Rate
-- Exit/scrappage value
There were two specialised vessels held at the year-end (two at
30 June 2020).
Refer to Note 3 for further information on the valuation
methodologies applied. The Directors and Tufton believe that the
following inputs reflect those inputs where market price risk could
be significant and where there is the potential for estimate and
judgement to be used.
Covid-19
Alongside strong net income and cash flows, the Company also
benefited from fair value increases as portfolio asset values
rebounded upon market reopening after the Covid-19 related declines
in the prior year. The market for containerships and bulkers has
recovered but an ongoing recovery in oil demand growth and capacity
in floating storage returning to the market remains an overhang for
tankers.
The Company benefited from diversification between different
segments of shipping. The tanker market was strong in the first
half of 2020 while the containership market was weak. The roles
were reversed over the final year.
The Investment Manager believes the Company's strong operating
profit and performance in the Covid-19 crisis both on an absolute
basis and relative to other classes demonstrates it can be an
attractive high income and low correlation investment.
Price Risk Sensitivity analysis
Charter-free valuation for standard vessels
The directors have concluded that use of a 10% movement in
benchmark charter rates remains a suitable sensitivity calculation,
noting that the benchmark charter rates used are for charter
periods of 1 year or more, which show lower volatility than spot
rates and already reflect market expectations of the impact of the
Covid-19 pandemic.
If the ship values at 30 June were 10% higher or lower, then the
effect on the standard vessel portfolio value would be as
follows:
Ship values +10% change Standard vessel -10% change
US$ 000 portfolio value US$ 000
US$ 000
Fair value at 30 June 2021
(US$) +31,989 215,939 (31,989)
------------ ----------------- ------------
Fair value at 30 June 2020
(US$) +14,544 154,699 (14,544)
------------ ----------------- ------------
Charter rates
If market charter rates used (on VesselsValue.com) to determine
Charter values were 10% higher or lower, then the effect on the
standard vessel portfolio value would be as follows:
Ship values +10% change Standard vessel -10% change
* portfolio
US$ 000 value US$ 000
US$ 000
Fair value at 30 June
2021 (US$) (16,473) 215,939 +16,438
------------ ---------------- ------------
Fair value at 30 June
2020 (US$) (4,095) 154,699 +4,283
------------ ---------------- ------------
(*) Please see standard vessels and specialised vessels (Price
risk in the shipping industry)
Specialised Vessels
If the discount rate factors were 0.5% higher or lower, then the
effect on the specialised vessel portfolio value would be as
follows:
+0.5% change Specialised -0.5% change
* Vessel(*)
US$ 000 portfolio value US$ 000
US$ 000
Specialised Vessel company
fair value at 30 June 2021
(US$) (785) 57,637 +802
------------- ----------------- -------------
Specialised Vessel company
fair value at 30 June 2020
(US$) (1,224) 62,259 +1,263
------------- ----------------- -------------
(*) Please see standard vessels and specialised vessels (Price
risk in the shipping industry)
There were two specialised vessels held at the year-end (two at
30 June 2020).
12. Financial assets and liabilities not measured at fair
value
Cash and cash equivalents and trade and other receivables are
liquid assets whose carrying value represents fair value. The fair
value of other current assets and liabilities would not be
significantly different from the values presented at amortised
cost.
13 . Management fee
The Investment Manager is entitled to receive an annual fee,
calculated on a sliding scale, as follows:
(a) 0.85 per cent per annum of the quarter end Adjusted Net
Asset Value up to US$250m;
(b) 0.75 per cent per annum of the quarter end Adjusted Net
Asset Value in excess of US$250m but not exceeding US$500m; and
(c) 0.65 per cent per annum of the quarter end Adjusted Net
Asset Value in excess of US$500m.
For the year ended 30 June 2021 the Company has incurred
US$2,269,097 (2020: US$2,070,834) in management fees of which
US$648,233 was outstanding at 30 June 2021 (2020: US$504,842).
14. Performance fee
Tufton ODF Partners LP, the entity holding the carried interest,
shall be entitled to a performance fee in respect of a Calculation
Period provided that the Total Return per Share on Calculation Day
for the Calculation Period of reference is greater than the High
Watermark per Share and such performance fee shall be an amount
equal to the Performance Fee Pay-Out Amount if:
-- the High Watermark is greater than the Total Return on any Calculation Day; and
-- the prevailing Historic Performance Fee Amount (to the extent
not previously adjusted pursuant to the operation of this
paragraph) is greater than zero on such Calculation Day.
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 year.
15. Related parties
The Investment Manager, Tufton Investment Management 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.
Transactions with the subsidiary and subsidiary SPVs are not
disclosed.
The Directors of the Company and their shareholding is stated in
the Report of the Directors.
16. Controlling party
In the opinion of the Directors, based on shareholdings advised
to them, the Company has no immediate or ultimate controlling
party.
17. Remuneration of the Directors
The remuneration of the Directors was US$162,332 (2020:
US$118,038) for the year which consisted solely of short-term
employment benefits (refer to the Report of the Directors). At 30
June 2021, Directors' fees of US$21,161 (2020: US$nil) were
outstanding.
18. Events after the reporting year
On 6 July 2021, the Company announced that it agreed to divest
Kale for US$21.5m. Kale was acquired in February 2018 for
US$10.25m.
On 22 July the Company declared a dividend of US$0.01875 per
ordinary share for the quarter ending 30 June 2021. The dividend
was paid on 13 August 2021 to holders of ordinary shares on record
date 30 July 2021 with an ex-dividend date of 29 July 2021.
On 27 July 2021, the Company completed the acquisition of Laurel
for US$13.35m.
On 28 July 2021, the Company announced that it agreed to divest
Citra for US$33m and acquire an Ultramax bulker, Idaho, for
US$21.7m. Idaho's fixed rate time charter for fifteen to nineteen
months results in an annual net yield of approximately 21%. The
sale of Citra was completed on 23 August 2021.
On 29 July 2021, the Company completed the acquisition of Orson
for US$9.8m.
On 6 August 2021, the Company announced that it had raised gross
proceeds of US$12.4m through the tap issue of 10,533,763 ordinary
shares at a price of US$1.18 per share.
Corporate Information
Directors
Robert King, Chairman
Stephen Le Page
Paul Barnes
Christine Rødsaether (appointed 8 September 2020)
Registered office
3(rd) Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Investment Manager and AIFM
Tufton Investment Management Ltd ("Tufton IML")
70 Pall Mall
1st Floor London
SW1Y 5ES
Asset Manager
Tufton Management Limited
3rd Floor, St George's Court
Upper Church Street
Douglas
Isle of Man IM1 1EE
Secretary and Administrator
Maitland Administration (Guernsey) Limited ("MAGL")
3(rd) Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Joint Placing Agents and Financial Advisers
Hudnall Capital LLP
Adam House
7-10 Adam Street
London
WC2N 6AA
Singer Capital Markets
1 Bartholomew Lane
London
EC2N 2AX
Guernsey Legal Advisers
Carey Olsen (Guernsey) LLP
PO Box 98, Carey House
Les Banques
St Peter Port
Guernsey
GY1 4BZ
UK Legal Advisers
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Registrar
Computershare Investor Services (Guernsey) Limited
1(st) Floor, Tudor House
Le Bordage
St Peter Port
Guernsey
GY1 1DB
Receiving Agent
Computershare Investor Services PLC
The Pavillions
Bridgewater Road
Bristol
BS99 6AH
Independent Auditor to the Company
PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4ND
Principal Bankers
Barclays Bank Plc
Guernsey International Banking
PO Box 41
St Peter Port
Guernsey, GY1 3BE
Definitions
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 the articles of incorporation of the Company,
or Articles as amended from time-to-time
Asset Manager Tufton Management Limited (formerly Oceanic
Marine Management Limited)
Auditor PricewaterhouseCoopers CI LLP
Board the Directors from time to time
Calculation Day The last business day of each Calculation
Period
Calculation Period (a) the period starting on Admission and
ending on the earlier of (i) 30 June 2024;
(ii) the commencement of the winding up
of the Company; and (iii) the termination
of the Manager's appointment; and
(b) if the previous Calculation Year ended
on 30 June of the previous Year, each successive
period starting on 1 July and ending on
the earlier of (i) 30 June three years
later; (ii) the commencement of the winding
up of the Company; and (iii) the termination
of the Manager's appointment
Cash-on-cash run-rate yield as the total forecast EBITDA minus any
capex accruals, divided by the time-weighted
capital employed for vessels-in-operation
Companies Law the Companies (Guernsey) Law, 2008 as amended
Company Tufton Oceanic Assets Limited (Guernsey
registered number 63061) which, when the
context so permits, shall include any intermediate
holding company of the Company and the
SPVs
Compensated Gross Tonnage an indicator of the amount of work that
or CGT is necessary to build a given ship and
is calculated by multiplying the tonnage
of a ship by a coefficient, which is determined
according to type and size of a particular
ship
Directors or Board the Board of Directors of the Company
Disclosure Guidance and Transparency the disclosure guidance and transparency
Rules or DTRs rules made by the Financial Conduct Authority
under Section 73A of FSMA
Environmental, Social, and an evaluation of the company's collective
Corporate Governance (ESG) conscientiousness for social and environmental
factors
EBITDA Earnings before interest, taxes, depreciation
and amortisation
EBITDA-weighted average length is the total forecast EBITDA from charters
of charter in place, divided by the expected annualised
EBITDA of those charters
FCA the UK Financial Conduct Authority
Financial Reporting Council the UK Financial Reporting Council
or FRC
FSMA the Financial Services and Markets Act 2000
and any statutory modification or re-enactment
thereof for the time being in force
GFSC or Commission the Guernsey Financial Services Commission
High Watermark per Share the higher of: (i) US$1.00 increased by
the Hurdle; and (ii) if a Performance Fee
has previously been paid, the Total Return
per Share on the Calculation Day for the
last Calculation Period (if any) by reference
to which a Performance Fee was paid
High Performance Fee Amount in respect of any Calculation Period, an
amount equal to the Performance Fee Pay-Out
Amount for the previous Calculation Period
where a Performance Fee was payable
IASB International Accounting Standards Board
IFRIC International Financial Reporting Interpretations
Committee
IFRS International Financial Reporting Standards
Investment Manager Tufton Investment Management Ltd
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 London Stock Exchange plc
LSE
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 Regulation (EU) No 596/2014 of the European
MAR 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
NAV total return the change in NAV plus distributions paid
by the Company during the period, divided
by the initial NAV
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 Funds Segment the Specialist Funds 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 Investment Management Holding Ltd
and its subsidiaries.
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
WACC the weighted average cost of capital
VLCC Very Large Crude Carrier
GBP or Sterling the lawful currency of the United Kingdom
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FR UWSVRAWUKRAR
(END) Dow Jones Newswires
September 08, 2021 12:00 ET (16:00 GMT)
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