TIDMSHIP
RNS Number : 3123F
Tufton Oceanic Assets Ltd.
18 March 2022
18 March 2022
Tufton Oceanic Assets Limited
("Tufton Oceanic Assets" or the "Company")
Interim Results for the six month period ended 31 December
2021
Tufton Oceanic Assets announces its interim results for the six
month period ended 31 December 2021. A copy of the Interim Report
and Unaudited Financial Statements will shortly be available on the
Company's website in the Investor Relations section at
www.tuftonoceanicassets.com.
For further information, please contact:
Tufton Investment Management Ltd (Investment
Manager)
Andrew Hampson
Paulo Almeida +44 (0) 20 7518 6700
Singer Capital Markets
James Maxwell, Alex Bond (Corporate Finance)
Alan Geeves, James Waterlow, Sam Greatrex
(Sales) +44 (0) 20 7496 3000
Hudnall Capital LLP
Andrew Cade +44 (0) 20 7520 9085
Highlights
-- During the financial period, Tufton Oceanic Assets Limited
(the "Company") had a profit of US$72.2m, or US$0.253 per
share.
-- The NAV per share increased from US$1.158 as at 30 June 2021
to US$1.376 as at 31 December 2021. The NAV total return for the
financial period was 22.3%.
-- Having raised the target dividend in January 2021, the
Company raised its target dividend again from $0.075 to $0.08 per
share commencing from 3Q21. The Company paid a dividend of US$0.02
per share for 3Q21 and 4Q21.
-- At the end of the financial period, the Investment Manager's
forecasted dividend cover through mid-2023 was c.1.7x despite the
Company not being fully invested. When the Company is fully
invested, the dividend cover is expected to be >= 1.8x.
-- As at 28 February 2022, the Company's shares traded at
US$1.28/share, a discount of 5.6% to the ex-dividend 31 December
2021 NAV.
-- During the financial period, the Company raised gross
proceeds of US$51.4m through two tap issues. The total number of
outstanding shares and voting rights of the Company as at 31
December 2021 is 308,628,541.
-- The significant investment and divestment activity discussed
further below demonstrate the Investment Manager's commitment to
capital re-allocation and ESG.
-- As at 31 December 2021, the average expected charter length
(EBITDA weighted) was c.1.9 years.
-- The Company's fleet had no unplanned commercial idle time
(voids) during the financial period.
-- As at 31 December 2021, all delivered vessels except Candy,
Orson and Golding were employed on fixed rate charters. Candy was
on a floating rate time charter, subject to a floor and a ceiling.
Golding and Orson are employed in a chemical tanker pool.
-- During the financial period, the Company agreed to divest
three vessels and to acquire five vessels. The overall return from
the agreed divestments greatly exceeds the Company's targets. Of
the five agreed acquisitions, three vessels were delivered during
the financial period, one vessel was delivered in January 2022 and
the other is expected to be delivered by the end of March.
-- After the financial period, the Company agreed to divest four
containerships at c.200% of depreciated replacement cost ("DRC")
and agreed to acquire the bulker Auspicious.
-- Following the announced transactions, the emissions intensity
of the Company's fleet as measured by the Energy Efficiency
Existing Ship Index ("EEXI") will improve by more than 30% compared
to the beginning of the financial period.
-- Energy Saving Devices ("ESDs") retrofits commenced on Laurel
and Idaho at the end of 2021 and will be completed in 2022. The
Investment Manager expects further improvement in the portfolio
emissions intensity as more of the Company's vessels are
retrofitted with ESDs.
-- The Investment Manager took active measures to expedite crew
relief on the Company's vessels. As a result, only c.2% of crew
members were overdue for relief by more than 1 month at the end of
2021 compared to 7% for the top ten ship managers.
-- With recent events, the Investment Manager has increased
focus on the safety and well-being of the Russian and Ukrainian
crew members on board the Company's vessels.
Chairman's Statement
Introduction
On behalf of the Board, I present the Interim Financial
Statements of the Company for the period ended 31 December
2021.
It has been an active second half of 2021 and that activity has
continued into 2022. During the financial period, the Company
agreed to acquire five vessels of which three were delivered during
the period and two were delivered after the period. The fleet as at
the end of the financial period consisted of five handysize
bulkers, an ultramax bulker, seven containerships and nine tankers,
and one handysize bulker and one tanker pending delivery. There is
a further breakdown of the portfolio on pages 13 to 14. After the
financial period, the Company agreed to acquire a handysize bulker
and to divest four containerships. Of the four containership
transactions, three closed in February whilst the fourth closed in
March.
The NAV per share increased from US$1.158 as at 30 June 2021 to
US$1.376 as at 31 December 2021. The NAV total return for the
financial period was 22.3%.
Covid
The global economy started recovering from the impacts of Covid
from the end of 1H20. Over the financial period, containership
asset values and time charter rates hit record highs while the
Baltic Dry Index ("BDI"), the index of average prices paid for the
transport of dry bulk materials across more than 20 routes, rose to
its highest levels since 2009. In contrast, the tanker market
remained weak due to the slow, ongoing recovery in oil demand
growth. As noted previously, the Investment Manager has, where
possible, mitigated the impact of the global humanitarian crisis of
crew members extended stay on board commercial vessels due to Covid
related travel restrictions. The Investment Manager took active
measures to expedite crew relief on the Company's vessels. As a
result, only c.2% of crew members were overdue for relief by more
than 1 month at the end of 2021 compared to 7% for the top ten ship
managers. The overdue crew member average for the global fleet
(across all operators) is likely to be much higher.
Russian Invasion of Ukraine
On 24 February 2022, Russia launched a military invasion of
Ukraine. The Investment Manager is monitoring the movements of all
the Company's vessels. The Investment Manager will prohibit the
entry of any vessel into conflict zones, a right established in all
the Company's charters. The Board and the Investment Manager are
also monitoring the new sanctions being put in place. The Company
and its vessels will remain compliant with all international
sanctions imposed by the US, UK, EU and the UN. The Board and the
Investment Manager remain watchful in monitoring for any potential
escalation of the conflict and consequences for shipping and the
Company.
Performance
As at 31 December 2021, the Company's NAV was US$424.8m being
US$1.376 per share (US$312.6m as at 30 June 2021). The NAV total
return over the period was 22.3%. The Company declared a profit of
US$72.2m or US$0.253 per share for the period. The EBITDA-weighted
average charter length is c.1.9 years.
During the financial period, 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. At the end of the
financial period, the Investment Manager's forecasted dividend
cover through mid-2023 was c.1.7x despite the Company not being
fully invested. When the Company is fully invested, the dividend
cover is expected to be at least 1.8x.
Along with strong portfolio operating profit and cash flows, the
Company benefited from non-cash fair value gains as asset values
rose. Containership values rose strongly as the market benefited
from pent-up demand and inventory re-stocking, as well as port
congestion and supply chain constraints. Bulker values also rose
with strong demand for seaborne bulk commodities including iron ore
and grain.
During the financial period, the Company's share price increased
from US$1.150 per share as at the close of business 30 June 2021 to
US$1.370 per share as at the close of business 31 December
2021.
Tap Issues
On 6 August 2021, the Company announced the results of its tap
issue of 10,533,763 Shares at US$1.18 per tap issue share, which
raised gross proceeds of US$12.4m. On 12 November 2021, the Company
announced the results of its tap issue of 28,057,140 shares at
US$1.39 per tap issue share, which raised gross proceeds of
US$39.0m. Over the financial period, 38,590,903 new ordinary shares
were admitted to trading on the Specialist Funds Segment of the
Main Market of the London Stock Exchange.
The total number of voting rights of the Company as at 31
December 2021 is 308,628,541.
Discount Management
The Company's Shares traded at a premium to NAV over most of the
financial period. The average premium to NAV was c.4%. Over the
financial period, no Shares were held in Treasury.
Dividends
During the period the Company declared and paid dividends to
shareholders as follows:
Period end Dividend Announce Ex div Record Paid date
per share date date date
(US$)
Ordinary shareholders
30.06.21 0.01875 22.07.21 29.07.21 30.07.21 13.08.21
30.09.21 0.02000 21.10.21 28.10.21 29.10.21 12.11.21
A further dividend of US$0.02 per share was declared on 18
January 2022 for the quarter ending 31 December 2021. The dividend
was paid on 11 February 2022 to holders of shares on record date 28
January 2022 with an ex-dividend date of 27 January 2022.
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 .
Environmental, Social, Governance ("ESG")
Our Investment Manager continues to integrate ESG factors into
its investment recommendations and asset ownership practices. As
you will see in the Investment Manager's report on pages 21 to 25
there is significant focus given to the ESG aspects of the
Company's operations.
The nature of the Company's significant investment and
divestment activity since June 2021 demonstrates the Investment
Manager's commitment to improving ESG performance. Following the
announced transactions, the emissions intensity of the Company's
fleet as measured by the Energy Efficiency Existing Ship Index
("EEXI") will improve by more than 30% compared to the beginning of
the financial period. Further, the Investment Manager has adopted a
proactive approach to emissions reduction through a program to
select ESDs for the Company's vessels in the medium term while
considering investments in zero-emission capable vessels for the
longer term. ESD retrofits commenced on two of the Company's
vessels at the end of 2021 and will be completed in 2022. The
Investment Manager expects to retrofit ESDs on more of the
Company's vessels in 2022. Please see the ESG section of the
Investment Manager's Report for details.
Crew welfare continued to be a significant area of focus over
the financial period with travel restrictions imposed during
successive waves of the Covid 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 the Company's website,
(http://www.tuftonoceanicassets.com).
Annual General Meeting
The Annual General Meeting ("AGM") of the Company was held on 20
October 2021. I am pleased to report that all the ordinary
resolutions were duly passed. One extraordinary 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 was not passed. The Directors believe that it is in
the best interest of the Company to have the ability to issue
additional Shares and have engaged with the Shareholders and their
voting agents who voted against this resolution.
Outlook
-- The Company raised its target annual dividend from US$0.075
to US$0.080 per share, commencing from 3Q21.
-- At the end of the financial period, the Investment Manager's
forecasted dividend cover through mid-2023 was c.1.7x despite the
Company not being fully invested. When the Company is fully
invested, the dividend cover is expected to be >= 1.8x.
-- At the end of the financial period, the Company had charter cover of c.1.9 years.
-- The Investment Manager has demonstrated its commitment to
capital re-allocation and ESG by divesting a less fuel-efficient
bulker and containerships at c.200% of DRC in order to re-allocate
the capital to fuel-efficient bulkers and tankers which offer
stronger yields and greater potential for capital appreciation.
-- 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 on 12
November 2021.
I would like to thank my fellow Directors for their commitment
and support during these challenging 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 and more recently by the Russian invasion of
Ukraine. I would also like to take this opportunity to thank our
Shareholders for their support and continued belief in our
strategy.
...........................
Rob King
Non-executive Chairman
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 period
are:
Robert King, Chairman
Rob serves on a number of boards as an independent non-executive
director which includes 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.
Stephen 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.
Stephen 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 Stephen'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.
Paul 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, Paul 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 Rødsæther
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 Euronext Growth (Oslo) listed Gram Car
Carriers ASA. Christine is Norwegian and is resident in Norway.
Investment Manager's Report
Highlights of the Financial Period
The Company continued to re-allocate capital and grow, in line
with its investment strategy and commitment to ESG. NAV total
return for the period was 22.3%. Portfolio operating profit was
strong at US$17.4m. There was a gain of US$80.1m in charter-free
vessel values primarily due to the strong containership and bulker
markets. The gain in charter-free vessel values was partially
offset by a US$22.9m fall in charter value as benchmark time
charter rates rose, i.e. an increase in "under-renting".
Having raised the target dividend in 1Q21, the Company raised
its target dividend again from $0.075 to $0.08 per share commencing
from 3Q21.
The Investment Manager believes the Company's strong portfolio
operating profit and performance over the period, 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 pandemic as evidenced by the portfolio performance and
growing dividend.
Over the financial period, the Clarksons Research Newbuilding
Price Index rose 11%. As the Investment Manager has previously
noted, shipping tends to perform well during periods of inflation.
Over the financial period, charter-free values of bulkers and
especially containerships increased significantly. Please see the
Shipping Market section for details.
The Company divested a less fuel-efficient bulker and realised
strong returns by divesting containerships at c.200% of DRC and
re-allocated the capital to fuel-efficient bulkers and tankers
which offer stronger yields and greater potential for capital
appreciation respectively. These transactions, together with the
others announced since late 2020, demonstrate the Company's
commitment to capital re-allocation and ESG.
Highlights of the financial period include:
-- In August 2021 the Company raised gross proceeds of US$12.4m
through a tap issue of 10,533,763 ordinary shares at a price of
US$1.18 per share. In November 2021 the Company raised gross
proceeds of US$39.0m through a tap issue of 28,057,140 ordinary
shares at US$1.39 per share.
-- Having raised the target dividend in January 2021, the
Company raised its target dividend again from $0.075 to $0.08 per
share commencing from 3Q21. The Company paid a dividend of US$0.02
per share for 3Q21 and 4Q21. The dividend cover for the financial
period was c.1.2x. The main reason for the cover being lower than
the Investment Manager's long run expectation is that the Company
was not fully invested throughout the period.
-- At the end of the financial period, the Investment Manager's
forecasted dividend cover through mid-2023 was c.1.7x despite the
Company not being fully invested. When the Company is fully
invested, the dividend cover is expected to be >= 1.8x.
-- As at 31 December 2021 the average expected charter length
(EBITDA weighted) was c.1.9 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 period.
-- As at 31 December 2021 the average expected charter length of
c.1.8 years on the Company's product tankers insulate the Company
from a weak tanker market. The Investment Manager expects the
tanker market to improve in 2022.
-- The Company agreed to divest three vessels (Swordfish, Citra
and Dragon) and to acquire five vessels (Idaho, Anvil, Rocky IV,
Exceptional and Awesome). The overall return from the agreed
divestments greatly exceeds the Company's targets. Of the five
agreed acquisitions, three vessels were delivered during the
period, one vessel was delivered in January 2022 and the other is
expected to be delivered by the end of March.
-- After the financial period the Company agreed to divest four
containerships (Patience, Candy, Echidna and Vicuna) with returns
greatly exceeding the Company's targets.
-- After the financial period the Company agreed to divest four
containerships at c.200% of DRC and agreed to acquire the bulker
Auspicious.
-- The significant investment and divestment activity since June
2021 demonstrate the Investment Manager's commitment to capital
re-allocation and ESG.
-- Following the announced transactions, the emissions intensity
of the Company's fleet as measured by the EEXI will improve by more
than 30% compared to the beginning of the financial period.
-- The Investment Manager expects further improvement in the
emissions intensity as more of the Company's vessels are
retrofitted with ESDs. ESD retrofits commenced on Laurel and Idaho
at the end of 2021 and will be completed in 2022.
-- The Investment Manager expects to have completed ESD
retrofits on at least 8 of the Company's vessels by the end of
2022.The Investment Manager took active measures to expedite crew
relief on the Company's vessels. As a result, only c.2% of crew
members were overdue for relief by more than 1 month at the end of
2021 compared to 7% for the top ten ship managers. The Investment
Manager continued its vaccination program for all crew members on
the Company's vessels. As of mid-February 2022, c.68% of crew
members were vaccinated against Covid.
-- With recent events, the Investment Manager has increased
focus on the safety and well-being of the Russian and Ukrainian
crew members on board the Company's vessels.
The Assets
As at 31 December 2021, the Company owned twenty-two
vessels.
Containerships
Employment for vessels owned by the Company at the end of the
financial period:
-- Patience, Riposte, Vicuna, Echidna and Candy were on time
charters to a major investment grade container shipping group. All
vessels except Candy were on fixed rate charters. Candy had a
floating rate time charter, subject to a floor and a ceiling.
-- Parrot, which is fitted with an exhaust gas scrubber, was on
a long-term time charter to another leading global container
shipping group.
-- Swordfish was on a time charter to the subsidiary of a listed company based in Asia.
Divestments:
-- Prior to the financial period, the Company agreed to divest
Kale for US$21.5m with a realised IRR of 31%. The divestment closed
in October 2021.
-- During the financial period, the Company agreed to divest: i)
Citra for US$33m with a realised IRR of 47% and ii) Swordfish for
US$19m with a realised IRR of 27%.
Tankers
Employment for vessels owned by the Company at the end of the
financial period:
-- Octane and Sierra were on time charters to an investment grade oil major.
-- Pollock, Dachshund, Cocoa and Daffodil were on time charters
to a major commodity trading and logistics company.
-- 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.
-- Two chemical tankers, Orson and Golding, were 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.
Acquisitions:
-- Orson, which the Company agreed to acquire in May 2021, was
delivered to the Company in July 2021.
-- In December 2021, the Company agreed to acquire Exceptional
at c.85% of DRC for US$30.9m. It has a 12-24 month fixed rate time
charter producing a net yield over 8% despite a relatively weak
tanker market presently.
Bulkers
Employment for vessels owned by the Company at the end of the
financial period:
-- Lavender's time charter was extended for 14-17 months from
February 2022 at a much higher rate compared to its previous
charter.
-- Mayflower's time charter was extended for 5-7 months from
August 2022 at a much higher rate compared to its current
charter.
-- Laurel was delivered to the Company in July 2021. The vessel
commenced its 2-year time charter from September 2021 after the
completion of its special survey.
-- Idaho, Rocky IV and Anvil are on time charters.
Acquisitions:
-- Idaho, which the Company agreed to acquire in July 2021 at
below DRC for US$21.4m, was delivered to the Company in October
2021.
-- Rocky IV and Anvil were acquired at below DRC for a total of
US$41.2m and were delivered to the Company in November and December
2021 respectively.
-- The Company agreed to acquire Awesome at below DRC for
US$23.6m with closing in January 2022. The vessel is in the top
quartile of fuel efficiency in its market segment.
Divestments:
-- The Company divested Antler, which was acquired for less than
70% of DRC, at 100% of DRC in July 2021 with realised returns
materially exceeding targets.
-- The Company divested Dragon, which was acquired for 74% of
DRC, at 119% of DRC for US$16.2m.
While certain vessels had Covid related disruptions or had capex
impacted by supply chain issues and inflationary pressures, the
fleet is well maintained and performed well.
After the end of the financial period:
In January 2022, the Company agreed to acquire the handysize
bulker Auspicious for US$23.75m. The vessel was acquired below DRC.
It has a time charter of 18-24 months producing a net yield of over
15%. It is in the top quartile of fuel efficiency in its market
segment.
The Company agreed to divest four containerships (Patience,
Candy, Echidna and Vicuna) with realised returns materially
exceeding targets. The Company is re-allocating the capital to
bulkers and tankers which offer stronger yields and greater
potential for capital appreciation respectively. These
transactions, together with the others announced since late 2020,
demonstrate the Company's commitment to capital re-allocation and
ESG.
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 31 December 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
built 2008 2018 Vessel divested
----------------------- ------------ ------------------------------------------------
Patience(*) 2500-TEU containership March
built 2006 2018 Vessel divested (pending closing)
----------------------- ------------ ------------------------------------------------
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
----------------------- ------------ ---------------- ---------- ------------------
Sierra Medium-range December June August June
product tanker 2018 2024 2025 2024
built 2010
----------------------- ------------ ---------------- ---------- ------------------
Octane Medium-range December May July May
product tanker 2018 2024 2025 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
built 2006 2019 Vessel divested
----------------------- ------------ ------------------------------------------------
Dachshund Handysize February March March March
product tanker 2020 2023 2024 2023
built 2008
----------------------- ------------ ---------------- ---------- ------------------
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
built 2003 2020 Vessel divested
----------------------- ------------ ------------------------------------------------
Candy(*) 2500-TEU containership December
built 2004 2020 Vessel divested
Golding 25,600 DWT stainless April
steel chemical 2021 NA - vessel is employed in a pool
tanker
built 2008
Mayflower Handysize bulker June January March March
built 2011 2021 2023 2023 2023
----------------------- ------------ ---------------- ---------- ------------------
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
tanker pool
built 2007
----------------------- ------------ ------------------------------------------------
Idaho Ultramax bulker July February July July
built 2011 2021 2023 2023 2023
----------------------- ------------ -------------- ---------------- --------------
Anvil Handysize bulker September October February February
built 2013 2021 2022 2023 2023
----------------------- ------------ -------------- ---------------- --------------
Rocky IV Handysize bulker September October February February
built 2013 2021 2022 2023 2023
----------------------- ------------ -------------- ---------------- --------------
Exceptional(++) Medium-range Exp. March January April April
product tanker 2022 2023 2024 2024
built 2015
----------------------- ------------ -------------- ---------------- --------------
Awesome(++) Handysize bulker January July February February
built 2015 2022 2023 2024 2024
----------------------- ------------ -------------- ---------------- --------------
Notes:
+ SPV that owns the vessel
** Based on assessment of the prevailing market conditions (as
at 31 December 2021) by the Investment Manager
++ Acquisition agreed and pending delivery
* Details excluded for vessels agreed to be divested
NAV per share was US$1.376 at 31 December 2021. Portfolio
operating profit contributed US$0.061 per share and there was a
strong gain in fair value of US$0.201 per share. Containership and
bulker values rose strongly as the market benefited from pent-up
demand and inventory re-stocking. The effect of strong demand was
accentuated by regional port congestion caused by Covid related
restrictions. NAV total return for the financial period was
22.3%.
As the containership and bulker markets strengthened, several
vessels, including acquisitions, benefited from higher time charter
rates versus the previous period. As a result, the portfolio had a
higher portfolio operating profit compared to the previous
period.
From 1 Jul 2021 to From 1 Jul 2020 to
Key figures: Figures below are in US$ m unless otherwise stated 31 Dec 2021 31 Dec 2020
Total ship-days(1) 3,947 3,091
Revenue(2) 48.5 33.8
Operating expense(3) (28.1) (19.7)
------------------- -------------------
Gross operating profit(4) 20.4 14.1
Gross operating profit / time-weighted capital employed(5) 13.6% 11.3%
Loan interest and fees (0.8) (0.6)
Gain/(loss) in capital values(6) 57.2 9.8
------------------- -------------------
Portfolio profit 76.8 23.3
Interest income 0.0 0.0
Company level fees and expenses(7) (2.2) (1.4)
Performance fee accrual (2.4) -
------------------- -------------------
Profit for the period 72.2 21.9
------------------- -------------------
Portfolio operating profit(8) 17.4 12.1
------------------- -------------------
Notes
(1) Ship-days: Total number of days owned in the Company's fleet
for all the ships over the financial period
(2) Revenue refers to charter income net of broker commissions
and charter related costs
(3) Operating expense refers to expenses incurred during vessel
and subsidiary company operations
(4) Gross operating profit measures operating income before
gain/(loss) of capital values, loan interest, fees, and all other
fund level
expenses
(5) Gross operating profit divided by the time weighted capital
invested in vessels (incl. working capital and reserves)
(6) Non-cash fair value gains and losses from marking assets to
market in accordance with the valuation policy of the Company
(7) Fund level fees include investment management fee and other
professional fees and expenses
(8) Portfolio operating profit is gross operating profit and
interest income less loan interest and fees, Company level fees and
expenses
Portfolio performance by segment
The capital value of our containerships increased by US$40.3m
despite a fall of US$29.0m in charter values. The capital value of
our bulkers increased because the charter-free values rose by
US$14.6m in a strong market while the charter values also increased
by US$3.9m as benchmark time charter rates fell slightly in 4Q21.
The Company's product tankers were on long-term charters and were
insulated from the weak tanker market.
Segment Performance During the Product Gas Tanker Containerships Bulkers Total
Financial Period & Chemical Tankers
US$ m unless otherwise stated
Gross operating profit 5.4 2.1 10.5 2.4 20.4
Loan interest and fees (0.5) - (0.3) - (0.8)
Gain/(loss) in charter-free values (1.8) (2.0) 69.3 14.6 80.1
Gain/(loss) in charter values 2.2 - (29.0) 3.9 (22.9)
Portfolio profit 5.2 0.1 50.5 20.9 76.8
----------------------------------------- -------------------- ----------- --------------- -------- -------
As containership values rose to c.200% of DRC, the Company
realised strong returns by divesting containerships and
re-allocating the capital to bulkers and tankers which offer
stronger yields and greater potential for capital appreciation
respectively.
Segment Exposure and Forecast Yields(*) Product Gas tanker Containerships Bulkers Total
&
Chemical
Tankers
% of NAV 29.4% 5.9% 19.3% 38.8% 93.4%
Forecast Net Yields 10.7% 16.1% 13.1% 18.0% 14.1%
(*) Based on the proforma fleet for all transactions announced
through 31 January 2022. Includes vessels that the Company had
agreed to acquire with closings in 1H22. Vessels that are being
divested are included in the yield calculation through their
expected closing dates.
As at 31 December 2021, vessels corresponding to more than 90%,
by value, of the portfolio have charter coverage greater than one
year. The vessels in the portfolio were chartered to eleven
different counterparties. As previously discussed, the Investment
Manager re-allocated capital from the containership segment. Based
on the proforma fleet for all transactions announced through 31
January 2022, containership exposure fell from c.42% at the end of
June 2021 to c.19% of NAV while bulker exposure rose from c.15% to
c.39% of NAV over the same period. Tanker exposure was c.35% of
NAV.
Portfolio breakdowns as at 31 December 2021
The Shipping Market
The shipping market continued to strengthen over the financial
period. The Clarksea Index, a broad indicator of weighted average
earnings from Clarksons Research across the main commercial vessel
types, ended 2021 at c.US$34,500 per day (+22% from the end of June
2021), with large increases in the containership and bulker
segments. The shipping market benefited from a recovery in global
GDP growth. The IMF estimated that world GDP grew by 5.9% in 2021
after a 3.1% contraction in 2020. World GDP growth recovered from
the end of 1H20, supported by unprecedented fiscal and monetary
stimulus measures. As of January 2022, the IMF forecasts 4.4% world
GDP growth in 2022.
The Investment Manager believes the shipping market is in a
multi-year upcycle because of the relative lack of investment in
new capacity (supply). The combination of commodity price inflation
and reduced shipyard capacity is increasing newbuilding prices.
This, in turn, led to higher prices for secondhand vessels.
Some notable highlights of the shipping market, based on
Clarksons Research, include:
-- Global seaborne trade recovered to pre-pandemic levels and is
expected to grow by 3.4% in 2022. In comparison, seaborne trade
grew by c.3.3% CAGR in the two decades leading up to 2021
-- Fleet growth decelerated to 2.9% in 2021 from 3.0% in 2020
-- Over the six months ending 31 December 2021, compared to the
previous six months ending 30 June 2021:
o Average 12-month time charter rates for handysize bulkers rose
c.63%
o Average 12-month time charter rates for 2500-TEU
containerships rose c.160%
o Average 12-month time charter rates for handysize product
tankers fell c.3%
Over the financial period, the Clarksons Research Newbuilding
Price Index rose 11% while the Clarksons Price Index for 10-year
old secondhand vessels rose 18%.
The Company focuses on the three main shipping segments
(tankers, containerships and bulkers). This section 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
utilise the draught of each vessel as a proxy for its utilisation
and thereby enables the Investment Manager to have a close to
real-time measure of shipping demand. Other research data used in
the section are from Clarksons Research, unless specified
otherwise.
Tankers
According to the EIA, global oil demand fell by 8.4% in 2020 led
by declines in OECD countries. Global oil demand improved in 2021
and is forecast to recover in 2022 to pre-pandemic levels. The
Investment Manager expects the tanker market to improve as OPEC and
North American shale oil operators increase production to meet
global oil demand growth. Supply side dynamics for tankers are
supportive especially for product and chemical tankers with the
orderbook at only c.6% of the fleet. Tanker recycling in 2021 rose
to the second highest annual level in 18 years, with 147 vessels
(14.3m dwt) recycled. Recycling activity is expected to remain high
in 2022, aiding the supply side adjustment. The Investment Manager
believes the tanker market is poised to benefit from this
combination of demand recovery and slowing supply growth. As at the
end of the financial period, all the Company's product tankers are
on fixed rate, long-term charters with an average duration of 1.8
years. Therefore, the Company's product tankers were insulated from
a weak 2021 but are well positioned to benefit from the expected
market improvements in the medium term.
Source : TRACS
Bulkers
The bulker market strengthened significantly over the financial
period. TRACS data show bulker demand was c.6% higher YoY in 2021
supported by strong demand for commodities. The effect of strong
demand was accentuated by regional port congestion in Asia caused
by Covid related restrictions. In October 2021, the benchmark BDI
rose to its highest level since 2009. The Investment Manager
believes the bulker market remains attractive, with strong supply
side fundamentals. As at the end of the financial period, the
bulker orderbook was only c.7% of the fleet which will result in
slowing fleet growth. The Investment Manager increased bulker
exposure in the portfolio to c.39% at the end of the financial
period. Please see segment exposures on page 16. The bulkers in the
portfolio have an average charter cover of 1.5 years with charters
producing c.18% annual net yield.
Source : TRACS
Containerships
The containership market continued to strengthen over the
financial period. TRACS data show containership demand was c.10%
higher YoY in 2021. The effect of strong consumer demand and
limited fleet growth was accentuated by regional port congestion -
especially around the US West Coast and Asia. Over the financial
period, the Clarksons Research containership time charter rate
index rose to a record high. Benchmark secondhand 10-year old
vessel values rose to c.200% of DRC. The containership orderbook
was c.23% at the end of the financial period as new orders
increased. Fleet growth is expected to accelerate to 7.5% in 2023.
The Investment Manager expects the containership market to slowly
weaken from current record highs as port congestion eases and the
new orders are delivered.
Source : TRACS
The combination of rising commodity prices, tightening
environmental regulations and lower shipyard capacity results in
rising newbuilding prices. This, in turn, increases prices for
secondhand vessels. In addition, many newbuilding designs
incorporate more flexible machinery and storage systems to handle
multiple fuel types to reduce emissions. These further increase
newbuilding prices. Over the six months ending 31 December 2021,
the Clarksons Research Newbuilding Price Index rose 11% whilst the
Clarksons Research Price Index for 10-year old secondhand vessels
rose 18%. This trend is expected to continue in 2022.
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. The Investment
Manager expects the containership market to normalise slowly from
current record highs. The Company is re-allocating capital from the
containership segment to the bulker and tanker segments which offer
stronger yields and greater potential for capital appreciation
respectively.
On 24 February 2022, Russia launched a military invasion of
Ukraine. In response, sanctions have been imposed on key Russian
institutions, businesses and individuals by major world powers
including the US, UK and the EU. Russia is a major exporter of oil,
gas, and coal while both Russia and Ukraine are major exporters of
grain. Though Russian exports have not been the target of the
sanctions as at the end of February, many charterers may start
avoiding calls at Russian ports.
The shipping industry has a history of being resilient during
periods of disruption and inflation as recently observed around the
Covid pandemic. The tanker and bulker markets could improve as
long-haul cargoes increase. Rising oil prices incentivise lower
speeds resulting in a reduction of available shipping capacity,
aiding the supply side adjustment. Fuel-efficient vessels such as
the Company's recent acquisitions are likely to be favoured. The
Investment Manager is carefully evaluating potential implications
of this rapidly changing situation.
Environmental, 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 the Company's vessels 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 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
The Investment Manager is committed to reducing greenhouse gas
emissions and aligning the Company to the Paris Agreement. In
September 2021, the Investment Manager announced new commitments to
align its funds to the Paris Agreement by fully transitioning to
zero carbon energy sources by 2050 and investing in zero carbon
capable vessels before 2030. In the medium term, the Investment
Manager aims to reduce emissions from its existing fleet through
investment in ESDs and promoting best operational practices such as
regular hull and propeller cleaning and optimal use of auxiliary
engines.
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, retrofit timing and commercial
arrangements around fuel savings will vary from vessel to vessel
depending upon the results of energy efficiency studies, prevailing
market conditions and commercial considerations. ESD retrofits
commenced on the Laurel and Idaho during the financial period
coincident with their second special surveys. Premium hull coatings
were applied on the hulls during their respective special surveys.
The Investment Manager has experienced some supply chain delays in
the procurement and retrofit of the ESDs. Other ESDs will be
installed on the vessels whilst in service over 2Q22 and 3Q22.
A premium hull coating was applied to Idaho during the vessel's
2(nd) special survey
The Investment Manager has negotiated with the charterer of each
vessel to increase the time charter rate of the vessel based on the
fuel savings from the ESD retrofits which will result in a payback
period of c.2 years for the Idaho and c.5 years for Laurel. The
Idaho payback period is lower as it is already a very
fuel-efficient vessel and required much lower ESD capital
investment.
Total emissions from the Company's fleet in 2021 was c.400,000
tons of CO2. With a growing portfolio of vessels, this measure is
less relevant to the Company than the normalised measure of
emissions intensity: the Energy Efficiency Operational Indicator
("EEOI"), defined as the mass of CO2 emitted per unit of transport
work in each time period. The EEOI provides useful information on a
ship's fuel efficiency and emissions. All else equal, a lower EEOI
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 and total cargo transported by
the Company's fleet for the calendar year.
The emissions intensity of the Company's vessels as measured by
the EEOI for 2021 was c.2% higher YoY and flat from 2019 primarily
because of higher containership operating speeds established by the
charterers in a strong market rather than by the Company or the
Investment Manager. Of the three major segments, containerships
tend to have the highest emissions intensity due to higher
operating speeds. Over the financial period, the Company agreed to
divest two containerships (Swordfish and Citra) and a bulker
(Dragon) and agreed to acquire five fuel-efficient vessels (four
bulkers: Idaho, Anvil, Rocky IV and Awesome; and a tanker:
Exceptional). After the end of the financial period, the Company
agreed to divest four containerships. The emissions intensity of
the Company will be reduced significantly after the divestments.
Based on the agreed divestments only, the Investment Manager
estimates that the pro forma portfolio emissions intensity is c.11%
better compared to 2020 and expects further reduction in portfolio
emissions intensity as more vessels are retrofitted with ESDs. In
2022, the Investment Manager expects to retrofit ESDs on at least
the four handysize product tankers and the two chemical
tankers.
Average Energy Efficiency Operational Indicator (EEOI)
(gram CO2/ ton-nautical mile)
Pro forma
2021 2021 2020
------------------------------- ------------------ -------- ---------
Containerships 28.2 28.6 26.3
Bulkers 12.2 12.2 12.6
Tankers 16.5 16.5 17.8
Company 18.4 21.1 20.7
EEOI was c.2% higher in 2021 but the Investment Manager estimates
that the EEOI (after the announced divestments) is 18.4 gram
CO2/ ton-nautical mile, c.11% better compared to 2020.
The efficiency improvement from the capital re-allocation is not
fully apparent from the 11% improvement in EEOI as the Company does
not hold verified 2021 data for the recently acquired
fuel-efficient vessels. The improvement is better demonstrated
through the change in EEXI, which measures emissions intensity
based on a ship's design characteristics. Following the announced
transactions, the Company's EEXI will improve by more than 30%
compared to the beginning of the financial period. The Investment
Manager therefore expects the Company's EEOI to improve materially
in 2022 compared to 2021.
Coal is a fuel with high greenhouse gas impact. At the COP-26
conference, world leaders agreed upon targets to lower global coal
demand growth which may impact seaborne coal trade by 2025. The
Investment Manager has proactively implemented a policy that
favours long-term charters to minimise coal carriage without
negative financial impact. The Investment Manager will monitor and
report coal carriage on the Company's vessels going forward. The
Company's vessels did not carry any coal over 4Q21.
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 industry
best practices 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. 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.
Commercial ocean-going vessels crewed by more than a million
seafarers transport goods around the globe. Ship crews have the
challenging task of 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. The Covid pandemic had a significant
global impact on crew health and safety in 2020 and 2021. National
regulations limiting travel and disembarkation of crew in order to
contain the pandemic had the effect of delaying crew changes
(referred to in the industry as "rotations". The IMO estimates that
nearly one million seafarers are working on c. 60,000 large cargo
vessels globally.
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.
The Investment Manager also engaged with each vessel's technical
manager to enhance Covid protocols:
-- pre-employment medical tests which were enhanced to a
standard exceeding the minimum requirements. These tests allow
seafarers to monitor and improve their fitness levels;
-- all regulations including IMO protocols are followed,
including the provision of additional personal protective equipment
and disinfectants. Covid 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;
and
-- crew were given contract extensions in cases where delays were unavoidable.
The Investment Manager continued its vaccination program for all
the crew members on the Company's vessels. As of mid-February 2022,
c.68% of the crew members were vaccinated.
As a result of the Investment Manager's proactive approach, crew
members overdue for rotation onboard the Company's vessels
decreased from c.16% at the end of July 2021 to only c.5% at the
end of December 2021. Only c.2% of the crew members were overdue by
more than 1 month at the end of 2021 against an average of 7% for
the top ten ship managers. At the end of December 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.
The Investment Manager also worked with technical managers to
put in place the following measures during the pandemic to enhance
crew welfare:
-- webinars and counselling are offered to all crew members and families;
-- crew members were given access to enhanced wi-fi to assist in mental wellbeing; and
-- crew members were given access to free mental health hotlines.
Over the financial period, the Investment Manager became
signatory to Maritime UK's:
-- Mental Health in Maritime pledge to promote quality of mental
health and wellbeing in the industry; and
-- Women in Maritime pledge to build an employment culture that
actively supports and celebrates gender diversity at all levels in
the industry.
The Investment Manager is specifically monitoring the safety and
well-being of the Russian and Ukrainian crew members on board the
Company's vessels. The conflict could place increased mental stress
on crew members and may exacerbate challenges to crew rotation due
to the closure of airports in both countries. The Investment
Manager has engaged with all our technical managers to address
these issues.
The Investment Manager has engaged Mental Health Support
Solutions GmbH ("MHSS") to provide a free counselling service for
crew members to help them handle concerns of stress, anxiety, and
personal issues while onboard. The 24-hour confidential helpline
service is operated by MHSS's professional psychologists, who are
multilingual and can be contacted through phone, messaging apps and
email.
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 conducts an
annual survey of all the Company's technical managers which
includes 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. These independent inspections include assessment of key
aspects of vessel condition as well as regulatory compliance and
crew health and safety. 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. On 24 February 2022, Russia
launched a military invasion of Ukraine. The Investment Manager is
monitoring the movements of all the Company's vessels. The
Investment Manager will prohibit the entry of any vessel into
conflict zones, a right established in all the Company's charters.
The Board and the Investment Manager are also monitoring the new
sanctions being put in place. The Company and its vessels will
remain compliant with all international sanctions imposed by the
US, UK, EU and the UN. The Board and the Investment Manager remain
watchful in monitoring for any potential escalation of the conflict
and consequences for shipping and the Company.
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
-- FCA Conduct rules and a Code of Ethics which require staff to
conduct themselves appropriately.
Principal Risks and Uncertainties
The Board has carried out a robust assessment to identify any
principal or 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 eliminated.
The Board of the Company, together with the Investment Manager,
have carefully considered the potential impact of the Covid
pandemic, considered to be both an emerging risk and an emerging
cause of risk, on the activities of the Company and its
subsidiaries. Covid 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 on GDP resulted in lower demand for
shipping in 2020, although this recovered somewhat by the end of
the year. Global GDP growth and shipping demand growth recovered
strongly in 2021. While some charters were renewed in 1H20 at lower
rates and for shorter periods, many of the Company's bulkers were
chartered at much higher rates in 1H21 as the market recovered. A
weaker shipping market caused by the pandemic could have caused
charter counterparties to be unable to pay the Company 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 Company's ongoing
approach to risk in respect of counterparties, values, and service
providers. The Board will of course continue to reassess the
position as more information about the impact of Covid becomes
available.
As expected, Brexit has had no material impact on the Company or
the Investment Manager. On 24 February 2022, Russia launched a
military invasion of Ukraine. The Investment Manager is monitoring
the movements of all the Company's vessels. The Investment Manager
will prohibit the entry of any vessel into conflict zones, a right
established in all the Company's charters. The Board and the
Investment Manager are also monitoring the new sanctions being put
in place. The Company and its vessels will remain compliant with
all international sanctions imposed by the US, UK, EU and the UN.
The Board and the Investment Manager remain watchful in monitoring
for any potential escalation of the conflict and consequences for
shipping and the Company. Except as set out in the narrative above,
the Board is of the opinion that the principal risks facing the
Company and their mitigation remain as set out in the 2021 annual
report published on 8 September 2021 and available on the Company's
website (http://www.tuftonoceanicassets.com).
Interim Report of the Directors
The Directors present their Interim Report and the Condensed
Interim Financial Statements of the Company for the six-month
period ended 31 December 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
The Company's investment objective is to provide investors with
an attractive level of regular and growing income and capital
returns through investing in secondhand commercial sea-going
vessels. The 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 applies 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 has further raised 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 period was US$72.2m, or
US$0.253 per share.
Results and dividends
The Company's performance during the period is discussed in the
Chairman's Statement on pages 3 - 6. The results for the year are
set out in the Condensed Statement of Comprehensive Income on page
32.
Related Parties
Details of related party transactions that have taken place
during the period and of any material changes, are set out in Note
13 of the Condensed Interim Financial Statements.
Directors
The Directors of the Company who served during the year and to
date are set out on pages 7 - 8.
Directors' interests
The Directors held the following interests in the share capital
of the Company either directly or beneficially as of 31 December
2021, and as of the date of signing these Financial Statements:
31 December 30 June 2021
2021
Shares Shares
R King 45,000 45,000
S Le Page 40,000 40,000
P Barnes 5,000 5,000
C Rødsæther 20,000 20,000
The Directors fees are disclosed below:
Payable from Paid from Paid from
1 January 2022 1 July 2021 1 July 2020
to to to
30 June 2022 31 December 2021 30 June 2021
Director GBP GBP GBP
R King 19,000 17,610 33,610
S Le Page 17,500 16,500 31,500
P Barnes 16,250 15,300 29,300
C Rødsæther 16,250 15,300 24,064
Other Interests
Tufton Group, key employees of the Investment Manager and other
related parties held the following interests in the share capital
of the Company either directly or beneficially. The revised
classification of Tufton related Shareholders reflects the change
of control of the Investment Manager as advised to investors on 5
January 2021.
31 December 2021
% of issued
Name Ordinary Shares Share Capital
Tufton Shareholders 5,546,288 1.80
Tufton Staff 466,261 0.15
Tufton Non-Executive Directors 403,279 0.13
Former Tufton Shareholders 2,760,636 0.89
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
Share buybacks and discount management
Subject to working capital requirements, and at the absolute
discretion of the Board, excess cash may be used to repurchase
Shares should the Shares close at >=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. Shares repurchased
pursuant to the authority referred to above may therefore 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. Treasury
shares may not be sold during a closed period.
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
As determined at the most recent Annual General Meeting of the
Company -
-- the maximum number of Shares authorised to be purchased is
14.99 per cent. of the Shares in 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.
-- 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;
In addition, the Board has determined that -
the minimum number of Shares authorised to be purchased in a
single day shall be 50,000, unless otherwise agreed by the
Board;
-- for the avoidance of doubt, sales from treasury will 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.
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 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.
Responsibility Statement
For the period from 1 July 2021 to 31 December 2021
The Directors are responsible for preparing the Interim Report
and Condensed Interim Financial Statements, which have not been
audited or reviewed by an independent auditor, and confirm that to
the best of their knowledge:
-- the Condensed Interim Financial Statements have been prepared
in accordance with International Accounting Standard (IAS) 34,
Interim Financial Reporting;
-- the Interim Report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
Condensed Interim Financial Statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Approved by the Board of Directors on 18 March 2022 and signed
on behalf of the Board by:
.............................. ..............................
Rob King Stephen Le Page
Director Director
Condensed Statement of Comprehensive Income
For the 6 month period ended 31 December 2021
31 December 31 December
2021 2020
Notes US$ US$
Income (Unaudited) (Unaudited)
Net changes in Financial
Assets at fair value through
profit or loss 4 76,730,838 23,359,763
Foreign exchange gain 1,008 -
Total net income 76,731,846 23,359,763
Expenditure
Administration fees (83,577) (72,649)
Audit fees (79,757) (59,980)
Corporate Broker fees (75,000) (75,000)
Directors' fees 15 (88,055) (71,335)
Directors' expenses (238) -
Foreign exchange loss - (1,845)
Insurance fee (3,025) (14,300)
Investment management fee 11 (1,645,783) (1,059,248)
Legal fees (26,287) (21,576)
Performance fee (2,419,323) -
Professional fees (109,239) (32,717)
Sundry expenses (21,486) (10,673)
Total expenses (4,551,770) (1,419,323)
------------ ------------
Operating profit 72,180,076 21,940,440
Finance income 4,348 -
Profit and comprehensive
income for the period 72,184,424 21,940,440
============ ============
IFRS Earnings per ordinary
share (cents) 6 25.34 8.60
============ ============
There were no potentially dilutive instruments in issue at 31
December 2021.
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 condensed
interim financial statements.
Condensed Statement of Financial Position
At 31 December 2021
31 December 30 June
2021 2021
Notes US$ US$
Non-current assets (Unaudited) (Audited)
Financial assets designated
at fair value
through profit or loss (Investments) 4 434,018,851 307,728,012
Total non-current assets 434,018,851 307,728,012
------------ ---------------------
Current assets
Trade and other receivables 20,232 5,760,379
Cash and cash equivalents 254,201 29,989
Total current assets 274,433 5,790,368
------------ ---------------------
Total assets 434,293,284 313,518,380
------------ ---------------------
Current liabilities
Trade and other payables 9,535,914 872,425
Total current liabilities 9,535,914 872,425
------------ ---------------------
Net assets 424,757,370 312,645,955
============ =====================
Equity
Share capital 5 310,259,496 259,657,871
Retained reserves 5 114,497,874 52,988,084
Total equity attributable
to ordinary shareholders 424,757,370 312,645,955
============ =====================
Net assets per ordinary share
(cents) 8 137.63 115.78
============ =====================
The accompanying notes are an integral part of these condensed
interim financial statements.
The financial statements were approved and authorised for issue
by the Board of Directors on
18 March 2022 and signed on its behalf by:
________________________________
_____________________________
Rob King Stephen Le Page
Director Director
Condensed Statement of Changes in Equity
For the 6 month period ended 31 December 2021
Ordinary Retained
share capital earnings Total
US$ US$ US$
For the six months ended
31 December 2021 (Unaudited)
Balance at 1 July 2021 259,657,871 52,988,084 312,645,955
Profit and comprehensive
income for the period - 72,184,424 72,184,424
Share issue 51,429,265 - 51,429,265
Share issue costs (827,640) - (827,640)
Dividends paid - (10,674,634) (10,674,634)
Balance at 31 December
2021 310,259,496 114,497,874 424,757,370
=============== ============= =============
Ordinary Retained
share capital earnings Total
US$ US$ US$
For the six months ended
31 December 2020 (Unaudited)
Balance at 1 July 2020 245,392,016 (7,723,923) 237,668,093
Profit and comprehensive
income for the period - 21,940,440 21,940,440
Share buybacks (247,125) - (247,125)
Dividends paid - (8,930,698) (8,930,698)
Balance at 31 December
2020 245,144,891 5,285,819 250,430,710
=============== ============ ============
The accompanying notes are an integral part of these condensed
interim financial statements.
Condensed Statement of Cash Flows
For the 6 month period ended 31 December 2021
31 December 31 December
2021 2020
Notes US$ US$
(Unaudited) (Unaudited)
Cash flows from operating
activities
Profit and comprehensive
income for the period 72,184,424 21,940,440
Adjustments for:
Purchase of investments 4 (49,560,001) -
Change in fair value on investments 4 (76,730,838) (23,359,763)
Operating cash flows before
movements in working capital (54,106,415) (1,419,323)
Changes in working capital:
Movement in trade and other
receivables 5,740,147 5,810,569
Movement in trade and other
payables 8,663,489 4,773,040
Net cash (used in) / generated
from operating activities (39,702,779) 9,164,286
------------- -------------
Cash flows from financing
activities
Net proceeds from issue of
shares 5 50,601,625 -
Net cost from share buybacks 5 - (247,125)
Dividends paid to Ordinary
shareholders 7 (10,674,634) (8,930,698)
Net cash generated from /
(utilised in) financing activities 39,926,991 (9,177,823)
------------- -------------
Net movement in cash and
cash equivalents during the
period 224,212 (13,537)
Cash and cash equivalents
at the beginning of the period 29,989 20,441
Cash and cash equivalents
at the end of the period 254,201 6,904
============= =============
The accompanying notes are an integral part of these condensed
interim financial statements.
Notes to the Condensed Interim Financial Statements
For the 6 month period ended 31 December 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 270,037,638 ordinary shares in issue on 1 July
2021 all of which were listed on the Specialist Funds Segment of
the Main Market of the London Stock Exchange.
During the current period, the Company announced that it had
raised gross proceeds of US$51.4m through two tap issues of a
further 10,533,763 and 28,057,140 ordinary shares at a price of
US$1.18 and US$1.39 per share respectively. Further details are
noted in Note 5.
2. Significant accounting policies
(a) Basis of Preparation
The Condensed Interim Financial Statements have been prepared on
a going concern basis in accordance with IAS 34 Interim Financial
Reporting, and applicable Guernsey law. These Condensed Interim
Financial Statements do not comprise statutory Financial Statements
within the meaning of the Companies (Guernsey) Law, 2008, and
should be read in conjunction with the Financial Statements of the
Company as of and for the year ended 30 June 2021, which were
prepared in accordance with International Financial Reporting
Standards. The statutory Financial Statements for the year ended 30
June 2021 were approved by the Board of Directors on 8 September
2021. The opinion of the auditors on those Financial Statements was
not qualified. The accounting policies adopted in these Condensed
Interim Financial Statements are consistent with those of the
previous financial year and the corresponding interim reporting
period, except for the adoption of new and amended standards as set
out below.
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 Condensed Interim Financial
Statements, the following standards, interpretations and
amendments, which have not been applied, 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 abovementioned
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 period
The new and revised Standards and Interpretations adopted in the
current period did not have any significant impact on the amounts
reported in these condensed interim 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 secondhand 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 Condensed Statement of
Comprehensive Income.
(g) Dividends to Shareholders
Dividends are accounted for in the Statement of Changes in
Equity in the period 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 period. Exemption is applied and granted annually
and subject to the payment of a fee, currently GBP1,200.
(i) Financial Assets and Financial Liabilities
The Company classifies its investments in LS Assets Limited
("LSA") as financial assets at fair value through profit or loss
("FVTPL").
The Company measures and evaluates the net assets of LSA on a
fair value basis. The net assets include 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 Condensed 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 Condensed
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 Condensed
Statement of Comprehensive Income.
The Company's investment in LSA has been designated as at FVTPL
on the basis that it is managed and its performance is evaluated on
a fair value basis, in accordance with the Company's documented
investment strategy, and information about the investments is
provided internally on that basis. The Company measures and
evaluates the performance of the entire investment into LSA on a
fair value basis by using the net asset value of LSA including, in
particular, the underlying SPVs and the fair value of the SPVs'
investments into their respective vessel assets as well as the
residual net assets and liabilities of both the SPVs and LSA
itself. The investment in LSA consists of both equity and debt
instruments.
In estimating the fair value of each underlying SPV (as a
constituent part of LSA's net asset value at fair value), the Board
has approved the valuation methodology for valuing the shipping
assets held by the SPVs. The carrying value of a standard shipping
asset consists of its charter-free value plus or minus the value of
any charter lease contracts attached to the vessel, plus or minus
an adjustment for the capital expenditure associated with the
vessel.
There are time charter contracts in place for standard vessels.
Such charters will vary in length but would typically be in the 2 -
8 years' range. As the shipping markets can be volatile over time,
the value of such charters will therefore either add to or detract
from the open market charter-free value of the vessel. Under a time
charter, the vessel owner provides a fully operational and insured
vessel for use by the charterer. There is a fluid charter market
reported daily by freight brokers.
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.
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 of investments, which is the difference between
initial cost and sale value, will be taken to the profit or loss in
the Condensed Statement of Comprehensive Income in the period in
which they arise.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the Condensed 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 31
December 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 pandemic on the Company's investments
(as set out in more detail in the Principal Risks and Uncertainties
section on page 26). 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
period. Information about significant judgements, estimates and
assumptions which have the greatest effect on the recognition and
measurement of assets, liabilities, income and expenses were the
same as those that applied to the Annual Report and Financial
Statements for the year ended 30 June 2021.
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 2 (a).
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 31 December 2021, two vessels were treated as specialist
vessels (two vessels at 31 December 2020).
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.
At 31 December 2021, 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 (Investment)
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 SPV's
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:
31 December 30 June
2021 2021
US$ US$
LSA (Unaudited) (Audited)
Brought forward cost
of investment 249,923,223 235,360,051
Total investment acquired
in the period / year 49,560,001 14,563,172
Carried forward cost of
investment 299,483,224 249,923,223
Brought forward unrealised
gains / (losses) on
valuation 57,804,789 (2,918,909)
Movement in unrealised
gains on valuation 76,730,838 60,723,698
Carried forward unrealised
gains on valuation 134,535,627 57,804,789
Total investment at
fair value 434,018,851 307,728,012
============== ============
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 31 December 30 June Direct Principal Ownership Ownership
2021 2021 or indirect activity at 31 December at 30 June
US$ US$ holding 2021 2021
Holding
LS Assets Limited - - Direct company 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Aglow Limited 361,559 9,295,994 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Antler Limited 255,843 10,017,889 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Anvil Limited 21,054,084 - Indirect SPV 100% -
------------- ------------ ------------- ---------- ---------------- ------------
Awesome Limited(+) (636,253) - Indirect SPV 100% -
------------- ------------ ------------- ---------- ---------------- ------------
Bear Limited 487,883 439,204 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Candy Limited 13,443,979 9,579,537 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Citra Limited 548,605 18,033,604 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Cocoa Limited - - Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Dachshund Limited - - Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Daffodil Limited - - Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Dragon Limited 204,029 8,876,752 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Echidna Limited 10,689,272 10,212,057 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Exceptional
Limited(++) (1,462,966) - Indirect SPV 100% -
------------- ------------ ------------- ---------- ---------------- ------------
Golding Limited 17,084,766 16,578,058 Indirect SPV 100% 100%
Handy HoldCo Holding
Limited 32,240,777 29,581,968 Indirect Company 100% 100%
Idaho Limited 22,675,068 - Indirect SPV 100% -
------------- ------------ ------------- ---------- ---------------- ------------
Kale Limited 411,189 20,680,491 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Laurel Limited 16,535,124 1,599,950 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Lavender Limited 17,965,278 13,206,424 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Mayflower Limited 17,790,794 12,762,171 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Neon Limited 29,619,191 29,481,951 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Octane Limited 18,500,594 17,208,816 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Orson Limited 10,659,596 1,356,536 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Parrot Limited 28,190,249 28,155,312 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Patience Limited 18,121,606 10,046,760 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Pollock Limited - - Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Riposte Limited 25,624,198 16,749,536 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Rocky IV Limited 21,753,326 - Indirect SPV 100% -
------------- ------------ ------------- ---------- ---------------- ------------
Sierra Limited 18,864,865 17,290,472 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Swordfish Limited 20,754,511 14,340,404 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Vicuna Limited 16,674,501 8,780,368 Indirect SPV 100% 100%
------------- ------------ ------------- ---------- ---------------- ------------
Cash held pending
investment 57,459,246 3,776,976
------------- ------------
Residual net
liabilities (1,852,063) (323,218)
------------- ------------
*Total investment
at fair value 434,018,851 307,728,012
------------- ------------
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.
(+) At 31 December 2021, this SPV held an Agreement with a
vendor for the purchase of a vessel signed 23 December 2021. The
SPV valued the incomplete contract at the difference between its
fair value and costs to complete. The vessel was delivered 19
January 2022.
(++) At 31 December 2021, this SPV held an Agreement with a
vendor for the purchase of a vessel signed 23 December 2021. The
SPV valued the incomplete contract at the difference between its
fair value and costs to complete. The vessel is expected to be
delivered by the end of March 2022.
5. Share capital and reserves
Number of Gross amount Issue costs Share capital
shares (US$) (US$) (US$)
Total in issue at
30 June 2021 270,037,638 264,852,891 (5,195,020) 259,657,871
------------ ------------- ------------ --------------
Tap issue
11 August 2021 10,533,763 12,429,840 (160,917) 12,268,923
------------ ------------- ------------ --------------
Tap issue
17 November 2021 28,057,140 38,999,425 (666,723) 38,332,702
------------ ------------- ------------ --------------
Total in issue at
31 December 2021 308,628,541 316,282,156 (6,022,660) 310,259,496
------------ ------------- ------------ --------------
Retained reserves
Retained reserves comprise the retained earnings as detailed in
the Condensed Statement of Changes in Equity.
6. Earnings per share calculated in accordance with IFRS
31 December 31 December
2021 2020
US$ US$
(Unaudited) (Unaudited)
Profit and comprehensive
income for the period 72,184,424 21,940,440
Weighted average number
of ordinary shares 284,876,271 255,141,442
Earnings per ordinary
share (cents) 25.34 8.60
The weighted average number of ordinary shares (284.9m shares)
is calculated in accordance with IFRS guidelines.
7. Dividends
The Company declared the following dividends to Ordinary
Shareholders in respect of the profit for the periods
indicated:
Period end Dividend Ex div date Net Dividend Record date Paid date
per share paid
Dividends declared for the period ended 31 December 2021:
30 June US$0.01875 29 July 30 July 13 August
2021 2021 US$5,063,206 2021 2021
----------- ------------ ------------- ------------ ------------
30 September US$0.02 28 October US$5,611,428 29 October 12 November
2021 2021 2021 2021
----------- ------------ ------------- ------------ ------------
Dividends declared for the period ended 31 December 2020:
30 June 2020 US$0.0175 6 August US$4,467,409 7 August 21 August
2020 2020 2020
----------- ------------ ------------- ------------ ------------
30 September US$0.0175 5 November US$4,463,159 6 November 20 November
2020 2020 2020 2020
----------- ------------ ------------- ------------ ------------
Under the Companies (Guernsey) Law, 2008, the Company can
distribute dividends from capital and revenue reserves, subject to
a prescribed net asset and solvency test. The net asset and
solvency test considers whether a company is able to pay its debts
when they fall due, and whether the value of a company's assets is
greater than its liabilities. The Board confirms that the Company
passed the net asset and solvency test for each dividend paid.
8. Net assets per ordinary share
31 December 30 June
2021 2021
US$ US$
(Unaudited) (Audited)
Shareholders' equity 424,757,370 312,645,955
Number of ordinary shares 308,628,541 270,037,638
Net assets per ordinary
share (cents) 137.63 115.78
9. Financial risk management
The Company's activities expose it to a variety of financial
risks; market risk (including price risk, currency risk and
interest rate risk), credit risk and liquidity risk.
The condensed interim financial statements do not include all
financial risk management information and disclosures required in
the annual financial statements; they should be read in conjunction
with the Company's Audited Financial Statements as at 30 June
2021.
There have been no significant changes in the management of risk
or in any risk management policies since the last Statement of
Financial Position date.
10. 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.
11. 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$250 million;
(b) 0.75 per cent per annum of the quarter end Adjusted Net
Asset Value in excess of US$250 million but not exceeding US$500
million; and
(c) 0.65 per cent per annum of the quarter end Adjusted Net
Asset Value in excess of US$500 million.
For the period ended 31 December 2021 the Company incurred
US$1,645,783 (2020: US$1,059,248) in management fees of which
US$871,872 (2020: US$537,835) was outstanding at 31 December
2021.
12. Performance fee
Tufton ODF Partners LP, the entity entitled to performance fees,
shall be entitled to a performance fee in respect of a Calculation
Period provided that the Total Return per share on the 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. For the period ended 31 December 2021 the
Company accrued US$2,419,323 (2020: US$nil) in performance fees all
of which was outstanding at 31 December 2021.
13. Related parties
The Investment Manager, Tufton Investment Management Limited, is
a related party due to having common key management personnel with
the subsidiaries of the Company. All management fee transactions
with the Investment Manager are disclosed in Note 11.
Tufton ODF Partners LP is a related party due to having common
key management personnel with the subsidiaries of the Company. All
performance fee transactions are disclosed in Note 12.
For the period ended 31 December 2021 the Company accrued
US$2,419,323 (2020: US$nil) in performance fees all of which was
outstanding at 31 December 2021.
The Directors of the Company and their shareholdings are stated
in the Interim Report of the Directors, page 28.
14. Controlling party
In the opinion of the Directors, on the basis of shareholdings
advised to them, the Company has no immediate or ultimate
controlling party.
15. Remuneration of the Directors
The remuneration of the Directors was US$88,055 (2020:
US$71,335) for the period which consisted solely of short-term
employment benefits (refer to the Interim Report of the Directors,
page 28).
16. Events after the reporting period
On 17 January 2022, the Company announced that it has agreed to
divest the containership Patience for US$19.35m and acquire the
handysize bulker Auspicious for US$23.75m.
On 18 January 2022, the Company announced a dividend of US$0.02
per ordinary share for the quarter ending 31 December 2021. The
dividend was paid on 11 February 2022 to the holders of ordinary
shares recorded on the register as at close of business on 28
January 2022 with an ex-dividend date of 27 January 2022.
On 7 February 2022, the Company agreed to divest the
Containerships Candy and Echidna for a total of US$21.0m.
On 14 February 2022, the Company agreed to divest the
Containership Vicuna for US$18.0m.
There has not been any other matter or circumstance occurring
subsequent to the end of the financial period that has
significantly affected, or may significantly affect, the operations
of the company, the results of operations, or the state of affairs
of the company in future financial years.
Corporate Information
Directors
Robert King, Chairman
Stephen Le Page
Paul Barnes
Christine Rødsæther
Registered office
3(rd) Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Investment Manager and AIFM
Tufton Investment Management Ltd
70 Pall Mall
1(st) Floor
London
SW1Y 5ES
Asset Manager
Tufton Management Limited
3(rd) Floor, St George's Court
Upper Church Street
Douglas
Isle of Man IM1 1EE
Secretary and Administrator
Maitland Administration (Guernsey) Limited
3(rd) Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Joint Placing Agents and Financial Advisers
Hudnall Capital LLP
Adam House
7-10 Adam Street
London
WC2N 6AA
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
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END
IR EAADPFLAAEFA
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