REG - Tufton Oceanic Asset Tufton Oceanic -SHPP - Final Results and Notice of AGM
26/09/2023 07:00
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RNS Number : 5836N Tufton Oceanic Assets Ltd. 26 September 2023
26 September 2023
Tufton Oceanic Assets Limited
("Tufton Oceanic Assets" or the "Company")
Final Results and Notice of AGM
Tufton Oceanic Assets announces its final results for the period ended 30 June
2023. A copy of the Annual Report and Audited Financial Statements will be
submitted to the National Storage Mechanism
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) and will shortly be
available in the Company's website in the Investor Relations section under
Company Documents at www.tuftonoceanicassets.com
(http://www.tuftonoceanicassets.com/financial-statements)
/financial-statements
(http://www.tuftonoceanicassets.com/financial-statements) . The Company has
also published its 2022 Sustainability Report which is available on the
Company's website in the Investor Relations section under Company Documents.
The annual general meeting will be held at the Company's registered office at
1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey on 24(th) October 2023 at
1230 BST.
For further information, please contact:
Tufton Investment Management Ltd (Investment Manager) +44 (0) 20 7518 6700
Andrew Hampson
Paulo Almeida
Singer Capital Markets +44 (0) 20 7496 3000
James Maxwell, Alex Bond (Corporate Finance)
Alan Geeves, James Waterlow, Sam Greatrex (Sales)
Hudnall Capital LLP +44 (0) 20 7520 9085
Andrew Cade
Highlights
· 30 June 2023 NAV was US$412.8m (£324.7m). 30 June 2023 NAV per
share was US$1.365 compared to 30 June 2022 NAV per share of US$1.450.
· The Company had an overall loss for the financial year of US$2.5m
or US$0.008 per share. Despite strong Portfolio Operating Profit of US$56.3m
(US$40.6m in the financial year ended 30 June 2022), the Company was
negatively impacted by the fall in capital values of bulkers and of Riposte,
the containership which was divested during the financial year.
· NAV Total Return Per Share was -0.3% during the financial year
(2022: 32.5%; 91.8% since inception).
· At 30 June 2023, the Average Charter Length was 1.3 years (2022:
0.9 years).
· Encouraged by visible cash flows from increased charter cover,
diversification and continued supply-side recovery, the Company raised its
target annual dividend from $0.080 to $0.085 per share, which commenced from
4Q22.
· The Company divested Riposte with realised net IRR exceeding 12%.
The aggregate realised net IRR on the Company's containerships over the past
five years was c.27%.
· The Company agreed to acquire two fuel-efficient Medium Range
("MR") product tankers, Mindful and Courteous, below Depreciated Replacement
Cost ("DRC"), financed primarily by a new US$60m loan which is secured on
Mindful, Courteous, Marvelous and Exceptional.
· With the acquisitions, the Company is well-positioned to benefit
from the ongoing strength in the product tanker and chemical tanker markets.
The capital re-allocation is in line with its investment strategy and
commitment to ESG.
· The Investment Manager expects the bulker market, supported by good
supply-side fundamentals, to improve with demand growth.
· The Dividend Cover for the financial year was c.1.1x. The Company
is forecast to have a dividend cover of c.1.6x through the end of 4Q24.
· ESG highlights of the Company are discussed in our 2022
Sustainability Report available on the Company's website. The highlights
include a c.34% improvement in emissions intensity during 2022, primarily
because of capital re-allocation, and an update on the retrofit of Energy
Saving Devices ("ESDs") on the Company's vessels.
· The Company purchased 6,160,000 of its own shares at an average
price of US$1.13 per share, in line with its published discount management
policy.
· The Investment Manager's principals acquired an additional
1,381,136 shares during the financial year such that Investment
Manager-related shareholders owned 3.7% of the issued share capital as at 30
June 2023.
Chairman's Statement
Introduction
On behalf of The Board of Directors (the "Board"), I present the Company's
Annual Report and Audited Financial Statements for the year ended 30 June
2023.
Performance
As at 30 June 2023, the Company's NAV was US$412.8m being US$1.365 per share
(US$447.5m being US$1.450 per share as at 30 June 2022). The Company declared
a loss of US$2.5m (2022: profit of US$107.3m) or US$0.008 per share (2022:
US$0.362) for the year with the US$ NAV Total Return Per Share over the year
of -0.3% (2022: 32.5%).
Strong Portfolio Operating Profit was outweighed by a fall in the bulker and
containership capital value. The product tanker market strengthened and the
Company acquired two MR product tankers, employed on long-term charters. The
Company raised its target annual dividend from US$0.080 to US$0.085 per share,
which commenced from 4Q22. As at 30 June 2023, the Average Charter Length was
1.3 years.
Performance fee accrual of US$4.0m was unwound because the Total Return Per
Share was slightly lower than the High Watermark Per Share at the end of the
financial year. The Company is forecast to have a dividend cover of c.1.6x
over the next 18 months (through the end of 4Q24). Full details of the
investment portfolio are set out in the Investment Manager's Report.
Share Price and Discount Management
During the year, the Company's share price fell from US$1.23 per share as at
the close of business 30 June 2022 to US$0.99 per share as at the close of
business 30 June 2023. The total number of voting rights of the Company as at
30 June 2023 is 302,468,541.
On average, the Company's shares traded at a 20% discount to NAV over the
financial year. During the year, the Company (in accordance with the authority
granted to it by shareholders) repurchased 6,160,000 shares at a cost of
US$6,946,752. Refer to Note 7 for more details. At the end of the financial
year, there were 6,160,000 shares held in treasury.
The share price performance, although disappointing, has suffered from the
wider investment company sector de-rating, in particular for real asset
companies. This has been exacerbated by many of our Shareholders being under
pressure to rebalance their own portfolios. The Board will continue to support
the share price where available capital permits them to do so in line with the
published discount management policy as set out in the Company's Prospectus
dated 25 September 2018. The Board also believe that having a buyback
mechanism in place is in the best interest of all Shareholders as it allows
the Company to buy back its own shares at a significant discount to NAV.
Since 1 July 2023, the Company has bought back an additional 7,386,000 shares
with 13,546,000 Shares held in treasury and 295,082,541 shares outstanding as
at 8 September 2023. As at 20 September 2023, the Company's shares traded at a
27.8% discount to the ex-dividend 30 June 2023 NAV.
War in Ukraine
The Investment Manager has continued to monitor the impact of the war in
Ukraine on our fleet. I would like to reconfirm our previous position in that
none of the Company's vessels have been directly impacted by the war in
Ukraine and all remain fully insured against war perils.
The Investment Manager has formally requested all our charterers and vessel
managers to desist from trade with Russia wherever legally possible except for
humanitarian purposes. Additionally, the Investment Manager monitors
compliance through regular inspection of vessel logs and satellite data. The
Company and its vessels were compliant with all international sanctions
imposed by the US, UK, EU and UN. We have had no issues to date with any
vessels being damaged or blocked or otherwise affected by sanctions.
The Board and the Investment Manager remain watchful in monitoring the war and
its consequences for shipping in general and the Company.
Dividends
The Company raised its target annual dividend from US$0.080 to US$0.085 per
share, which commenced from 4Q22. As at 30 June 2023, the Average Charter
Length was 1.3 years. The Dividend Cover for the financial year was c.1.1x.
The Company is forecast to have a dividend cover of c.1.6x over the next 18
months (through the end of 4Q24).
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 ("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
(mailto:SHIP@tuftonoceanicassets.com) .
Board Composition
As in previous years, all Directors are offering themselves for re-election in
accordance with the AIC Code of Corporate Governance and the Articles of
Incorporation of the Company (the "Articles"). Three of the current four
members of the Board were appointed at the formation of the Company in 2017.
Whilst their respective tenure is much less than the AIC Guidance figure of
nine years, a succession plan has been considered by the Board.
As part of our succession plan and despite the fact that a continuation vote
must be put to the AGM in 2024, the Board have employed the services of a
recruitment firm to assist the Board in identifying suitable candidates. This
succession plan also aims to increase the diversity of the Board.
Continuation Vote
The vote for the continuation of the Company is due to be put before
Shareholders and it's the Board's current intention to hold this vote at the
AGM in October 2024.
Whilst the Board anticipates the continuation vote to be passed, with discount
to NAV at current levels the Directors are not taking anything for granted and
are working with the Investment Manager and its advisors to consider the most
appropriate strategy for the Company and will update Shareholders of its
recommendations accordingly.
Annual General Meeting
The Annual General Meeting ("AGM") of the Company will be held on 24 October
2023 at 12.30 pm BST the details of which are set out in the AGM notice and
Proxy form.
At the last AGM held on 27 October 2022, the ordinary resolutions were all
duly passed although there were some items which required further
investigation. In the Notice to Shareholders, the Board have set out our views
on the points requiring further investigation.
Where shareholders or their appointed agent have matters, they wish to raise
with the Board at the AGM, I would encourage them to contact us at
SHIP@tuftonoceanicassets.com (mailto:SHIP@tuftonoceanicassets.com) ahead of
the AGM date.
Environmental, Social, Governance ("ESG")
Our Investment Manager continues to integrate ESG factors into its investment
recommendations and asset ownership practices. The Investment Manager has
recently published its annual Sustainability Report which contains details of
ESG integration. The Board has reviewed and approved the Investment Manager's
Sustainability Report for the Company which can be viewed on the Company's
website (www.tuftonoceanicassets.com).
Outlook
At the end of the financial year, the portfolio had a total negative charter
value of US$49.5m. This is expected to trend to zero (i.e. increase NAV) in
the medium term. Ceteris paribus, the negative charter value is expected to
unwind by c.US$24.8m over the next 12 months ending 2Q24 through the passage
of time. The Investment Manager expects further upside to NAV as the bulker
market improves and values rise. Meanwhile, the portfolio continues to benefit
from the ongoing strength in the chemical tanker market with Golding and Orson
trading in a pool. Supply-side dynamics are supportive for product and
chemical tankers with very low fleet growth expected over the next two years.
The Investment Manager believes the product and chemical tanker markets, well
supported by good supply-side fundamentals, continue to offer potential for
operating profit and capital appreciation.
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 increased due to the war in Ukraine. I would also like to take this
opportunity to thank our Shareholders for their support and continued belief
in our strategy.
Investment Manager's Report
Highlights of the Financial Year
The Company re-allocated capital, in line with its investment strategy and
commitment to ESG. During the year, the Company acquired two fuel-efficient MR
product tankers and divested its last containership. With the capital
re-allocation, the Company is better positioned to benefit from good
supply-side fundamentals in the product tanker, chemical tanker and bulker
markets.
During the financial year ended 30 June 2023, the product and chemical tanker
markets strengthened while the bulker and containership markets weakened. We
expect the product and chemical tanker markets to remain strong in the medium
term. The bulker market weakened during the year as a result of easing port
congestion as well as disruption caused by the war in Ukraine, and weaker
economic trends, especially in China. We expect the bulker market will improve
with demand growth. Please see the Shipping Market section of this report for
details.
This section utilises alternative performance measures, applied on a
consolidated basis, to analyse performance. Please see the Alternative
Performance Measures ("APMs") for further information as to the definition and
inclusion of these APMs. Over the financial year NAV Total Return Per Share
was -0.3% (32.5% in the previous financial year), and 91.8% since inception.
Portfolio Operating Profit was strong at US$56.3m (US$40.6m in the previous
financial year) as the Company benefited from higher bulker time charter rates
in the first half of the financial year, the MR product tankers acquired
during the financial year on high time charter rates, and a strong chemical
tanker market during the financial year.
There was a fall in charter-free value of US$39.5m as the bulker and
containership markets weakened. The fall in bulker and containership
charter-free values outweighed the rise in product tanker and chemical tanker
charter-free values. The Company started divesting containerships from
mid-2021 in anticipation of a weaker market and divested its last
containership, Riposte, in February 2023. The realised net IRR on Riposte
exceeded 12% and the aggregate realised net IRR on the Company's
containerships over the past five years was c.27%.
We had expected the bulker market and charter-free values to improve from 2Q23
but the expected improvement has been delayed due to a combination of factors
including easing port congestion in South America and Australia, disruption
caused by the war in Ukraine, and weaker economic trends especially in China.
We expect the bulker market will improve with demand growth.
Both tankers and bulkers benefit from good supply-side fundamentals. The low
orderbook in both segments will result in slowing fleet growth. We expect
upside in secondhand values of bulkers and tankers due to limited shipyard
capacity and tighter environmental regulations which increase newbuild prices.
Please see the Shipping Market section of this report for details.
There was a fall in charter value of US$23.3m mainly due to the increasing
product tanker time charter rates during the year. Our bulkers were on
shorter-term charters and therefore did not have significant charter value
gains despite the weakening market. At the end of the financial year, the
portfolio had a total negative charter value of US$49.5m. This is expected to
trend to zero (i.e. increase NAV) in the medium term. Ceteris paribus, the
negative charter value is expected to unwind by c.US$24.8m over the next 12
months ending 2Q24 through the passage of time.
The Company paid dividends of US$25.4m during the financial year (US$23.0m in
the previous financial year). Encouraged by visible cash flows from increased
charter cover, diversification and continued supply-side recovery, the Company
raised its target annual dividend from US$0.080 to US$0.085 per share, which
commenced from 4Q22.
The Company purchased 6,160,000 of its own shares since 4Q22 in accordance
with the Company's discount management policy. During the financial year, the
Investment Manager's principals acquired an additional 1,381,136 shares so
that the Investment Manager-related shareholders owned 3.7% of the issued
share capital of the Company as at 30 June 2023. Highlights of the financial
year also include:
· The Company divested its last containership, Riposte and agreed to
acquire two fuel-efficient MR product tankers, Mindful and Courteous, below
DRC. The acquisitions were financed primarily by a US$60m loan with a SOFR cap
of 3.5% for the first three years which is secured on Mindful, Courteous,
Marvelous and Exceptional.
· The Dividend Cover for the financial year was c.1.1x. This was
lower than our long-run expectation because of high planned capex and off-hire
in the first half of the financial year. Capex and off-hire were higher than
previously expected due to the impact of Covid-related restrictions in China.
Planned capex and off-hire in the second half of the financial year were low
and as expected.
· At 30 June 2023, the Company forecast planned capex and off-hire at
much lower levels for the next 18 months compared to this financial year.
· As at the end of June 2023, the loan outstanding was US$70.5m.
Total charter-free value of the fleet was US$512.2m resulting in the
Consolidated Gearing Ratio of 13.8% compared to the investment restriction of
40% based on loans to charter-free value on a consolidated basis.
· The Company's fleet had only c.5 days (corresponding to 0.06% of
total Ship-Days) of unplanned commercial idle time (voids) during the
financial year.
· Please see the ESG highlights of the Company which are further
discussed in our 2022 Sustainability Report available on the Company's
website.
The Assets
At 30 June 2023, the Company owned twenty-two vessels (twenty-one vessels at
30 June 2022).
Tankers
Employment for vessels owned by the Company at the end of the financial year:
· Octane and Sierra are on time charters to an investment grade oil
major.
· Pollock, Dachshund, Cocoa and Daffodil are on time charters to a
major commodity trading and logistics company which exercised its optional
periods until mid-2024 on Dachshund and Pollock.
· Marvelous, Mindful and Courteous are on time charters to the same
major commodity trading and logistics company.
· Exceptional is on a time charter to a leading tanker shipping
company.
· At 30 June 2023, the Average Charter Length of the product
tankers was 2 years.
· 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, are employed in a
leading chemical tanker pool. As described in the Company's Prospectus, a pool
is a revenue sharing structure run by a specialist third party or another ship
owner.
Bulkers
Employment for vessels owned by the Company at the end of the financial year:
· Awesome and Auspicious are on time charters to a leading operator
of bulkers.
· Anvil is on a time charter to an owner and operator of bulkers.
· Laurel, Mayflower and Idaho are on time charters to leading
owners and operators of bulkers. Mayflower's time charter was extended by 6-8
months from June 2023.
· Rocky IV and Masterful are on time charters to a leading merchant
and processor of agricultural goods.
· Charming commenced a time charter for 10-12 months from July 2023
to the same leading merchant and processor of agricultural goods as Rocky IV
and Masterful.
· At 30 June 2023, the Average Charter Length on our bulkers was
0.2 years. We have mostly employed our bulkers on short-term charters in
anticipation of a market improvement.
The Company's fleet, across all segments, performed well. Marvelous, Mindful,
Courteous, Exceptional, Awesome, Auspicious, Masterful and Charming are in the
top quartile of fuel efficiency in their market segments. The market for
secondhand ships is liquid with more than US$44 billion worth of transactions
across 4000+ vessels in 2022. The charter-free and associated charter values
of the Company's standard vessels are calculated predominantly using the
online valuation platform provided by VesselsValue.
The VesselsValue valuation platform utilises transaction data as well as other
market data to estimate charter-free values. The Company's NAV is, in effect,
proven by recent market transactions.
The Company's portfolio as at 30 June 2023:
SPV(+) Vessel Type and Year of Build Acquisition Date Earliest end of charter period Latest end of charter period Expected end of charter period**
Anvil Handysize bulker September August November August
built 2013 2021 2023 2023 2023
Auspicious Handysize bulker February August March August
built 2015 2022 2023 2024 2023
Awesome Handysize bulker January August March August
built 2015 2022 2023 2024 2023
Charming Handysize bulker June July October July
built 2015 2022 2023 2023 2023
Cocoa Handysize product tanker October December December December
built 2008 2020 2023 2025 2025
Courteous MR product tanker December December December December
built 2016 2022 2025 2027 2025
Dachshund Handysize product tanker February May
built 2008 2020 2024
Daffodil Handysize product tanker October February February February
built 2008 2020 2024 2026 2026
Exceptional MR product tanker April May
built 2015 2022 2024
Golding 25,600 DWT stainless steel chemical tanker April NA - vessel is employed in a pool
built 2008 2021
Idaho Ultramax bulker July November February November
built 2011 2021 2023 2024 2023
Laurel Handysize bulker July October December October
built 2011 2021 2023 2023 2023
Marvelous MR product tanker July November November November
built 2014
2022 2025 2027 2025
Masterful Handysize bulker April June September August
built 2015 2022 2023 2023 2023
Mayflower Handysize bulker June December February December
built 2011 2021 2023 2024 2023
Mindful MR product tanker December December December December
built 2016
2022 2025 2027 2025
Neon Mid-sized LPG carrier July August August August
built 2009 2018 2025 2025 2025
Octane MR product tanker December August August August
built 2010
2018 2024 2025 2025
Orson 20,000 DWT stainless steel chemical tanker July NA - vessel is employed in a pool
built 2007 2021
Pollock Handysize product tanker December April
built 2008 2018 2024
Rocky IV Handysize bulker September July November August
built 2013 2021 2023 2023 2023
Sierra MR product tanker December September September September
built 2010
2018 2024 2025 2025
Notes:
+ SPV that owns the vessel.
** Based on our assessment of the prevailing market conditions at 30 June
2023.
At 30 June 2023, the Company's vessels had an average age of 11.4 years and
were chartered to ten different counterparties.
Investment Performance
During the financial year, Portfolio Operating Profit was US$56.3m (US$40.6m
in the previous financial year). Gross Operating Profit, an indicator of the
underlying profit from operating activity, increased YoY due to a combination
of higher bulker time charter rates, additional MR product tankers at high
time charter rates and the strong chemical tanker market. Loan interest and
fees were higher compared to the previous financial year due to the new US$60m
loan for the acquisitions of the two MR product tankers, Mindful and
Courteous. The new loan is secured on Mindful, Courteous, Marvelous and
Exceptional. The accrued performance fee was unwound in accordance with the
terms in the Company's Prospectus dated 25 September 2018.
Investment performance summary
Figures below are in US$m unless otherwise stated (unaudited) From 1 Jul 2022 to 30 Jun 2023 From 1 Jul 2021 to 30 Jun 2022
Ship-Days 7,945 7,702
Revenue 119.9 104.0
Operating Expense (55.6) (57.6)
Gross Operating Profit 64.3 46.4
Gross Operating Profit / Time-Weighted Capital Employed 14.7% 13.9%
Loan interest and fees (3.5) (1.6)
Gain / (loss) in capital values (62.8) 70.7
Portfolio (loss) / profit (2.0) 115.5
Interest income 0.1 0.0
Fund Level Fees and Expenses (4.6) (4.2)
Performance fee accrual 4.0 (4.0)
(Loss) / Profit for the period (2.5) 107.3
Portfolio Operating Profit 56.3 40.6
There was a loss in capital value of US$62.8m. We expect capital value gains
in the medium term as the charter-free value of product tankers and bulkers
rises and the negative charter value unwinds. Both tankers and bulkers benefit
from good supply-side fundamentals. The low orderbook in both segments will
result in slowing fleet growth. We expect upside in secondhand values of
bulkers and tankers due to limited shipyard capacity and tighter environmental
regulations which increase newbuild prices.
Portfolio loss during the financial year was US$2.0m as strong Gross Operating
Profit and gains in charter-free values of product and chemical tankers were
outweighed by the loss in charter-free value of bulkers and loss in charter
values of product tankers. The loss in charter value of product tankers was
mainly due to the improvement in the product tanker market during the year.
As discussed earlier in this report and the Shipping Market section, we expect
upside in charter-free value of bulkers in the medium term and from the unwind
of the total negative charter value. At the end of the financial year, the
portfolio had a total negative charter value of US$49.5m. Ceteris paribus,
this is expected to trend to zero as previously mentioned.
Segment performance summary
Segment Performance During the Financial Year (unaudited) Product Chemical Gas Containership Bulkers Total
Tankers
Tankers
Tanker
US$m unless otherwise stated
Gross Operating Profit 24.5 6.1 4.2 1.1 28.4 64.3
Loan interest & fees (3.5) - - - - (3.5)
Gain / (loss) in charter-free values 33.4 3.3 (1.2) (23.4) (51.6) (39.5)
Gain / (loss) in charter values (36.2) - - 10.9 2.0 (23.3)
Portfolio (loss) / profit 18.2 9.4 3.0 (11.4) (21.2) (2.0)
Segment Exposure and Forecast Yields* (unaudited) Product Chemical Gas Containership Bulkers Total
Tankers
Tankers
Tanker
% of NAV 40.1% 9.2% 6.0% - 39.7% 95.0%
Forecast Net Yields* 8.9% 23.8% 16.3% NA 8.4% 11.0%
* Based on the market values at 30 June 2023
With the expected bulker market improvement, we will selectively redeploy our
bulkers, as they complete their current charters, on longer-term charters at
higher rates over the next financial year. Our two chemical tankers are
employed in a pool. The Forecast Net Yield on our chemical tankers is based on
our expectation of a continued strong chemical tanker market in the medium
term. Please see the Shipping Market section for details.
The Shipping Market
The Company focuses on three main shipping segments: tankers, bulkers and
containerships. The Clarksea Index, a broad vessel earnings indicator from
Clarksons Research, ended the financial period at US$21,539/day, c.47% lower
than at the end of June 2022 and c.27% lower than at the end of December 2022.
Despite the recent fall, the Clarksea Index remains well above its long-term
average of c.US$16,700/day. In April, the IMF forecast 2.8% world GDP growth
for 2023. In July, the IMF forecast was revised higher to 3% with moderating
inflation and an improved GDP growth forecast for Advanced Economies. Global
seaborne trade is expected to grow by 2.3% in 2023 and 3.9% in 2024, roughly
in line with the long term trend rate of c.3% CAGR (over the two decades
leading up to 2021).
We believe the market for tankers and bulkers is in the midst of a multi-year
upcycle. The combination of commodity price inflation and reduced shipyard
capacity has increased newbuild prices. This led to higher values for
secondhand vessels. The Clarksons Research Newbuilding Price Index has risen
c.36% since the end of 2020 while the Clarksons Research Secondhand Price
Index has risen c.63% over the same period. We expect further upside in
secondhand values of bulkers and tankers due to tighter environmental
regulations which will further increase newbuild prices. Clarksons Research
estimates that global shipbuilding capacity is 40% lower compared to a decade
ago.
This section utilises data from the Tufton Real-Time Activity Capture System
("TRACS") which analyses satellite data to track the international shipping
fleet by the major segments. TRACS uses the draught of each vessel as a proxy
for its utilisation and thereby enables us to have a close to real-time
measure of shipping demand. Other research data used in this section is from
Clarksons Research, unless specified otherwise.
Tankers
According to the US Energy Information Administration, world petroleum liquids
demand is expected to grow 1.8% in 2023 and 1.6% in 2024 after growing by more
than 2% in 2022. Tanker demand growth accelerated as the war in Ukraine
partially replaced some demand for short-haul product tanker cargoes with
demand for long-haul cargoes: increasing Russian exports to Asia and also
increasing European imports from non-Russian suppliers including the Middle
East, the US and Asia. The attractive fundamentals in the segment have
attracted investment in newbuilds. The product tanker orderbook rose from c.6%
of fleet at the end of June 2022 to c.9% of fleet as at the end of June 2023.
This is still relatively low in historic terms. Most of the newbuild product
tankers ordered are expected to be delivered only starting in 2025. According
to Banchero Costa research, the chemical tanker orderbook remains low at c.5%
of fleet. Supply-side dynamics are supportive for product and chemical tankers
with very low fleet growth expected over the next 2 years.
During the financial year, 1-year time charter rates for MR product tankers
rose to c.US$30,250/day in April, the highest since 2005. Time charter rates
fell slightly towards the end of the financial year due to seasonal weakness.
Refinery expansions in the Middle East and Asia as well as limited fleet
growth suggest the product tanker market will remain strong for the next two
years.
25-30% of MR product tankers are capable of engaging in the
chemicals/vegetable oil trade. The chemical tanker market benefits as MR
product tankers shift to the tightening product tanker market. The chemical
tanker market also benefits from good supply-side fundamentals with a low
orderbook and strong demand growth forecast. The Company's chemical tankers
benefit from this trend as they are employed in a revenue-sharing pool and
have spot market exposure. At the end of the financial period, the Company had
10 product tankers on fixed-rate charters with Average Charter Length of 2
years, and two chemical tankers that operate in a pool.
We believe the product and chemical tanker markets, well supported by good
supply-side fundamentals, continue to offer potential for operating profit and
capital appreciation.
Bulkers
Over the financial year, the bulker market weakened due to a combination of
previously underutilised capacity rejoining the market as port congestion was
rapidly resolved, weaker demand growth especially for minor bulk from
macroeconomic headwinds, disruption caused by the war in Ukraine, and weaker
economic trends in China. 1-year time charter rates for handysize bulkers fell
c.57% to US$10,700/day. The bulker market has good supply-side fundamentals.
The bulker orderbook was c.7% of fleet as at the end of June 2023 (c.8% of
fleet at the end of June 2022).
We expect the bulker market to improve in the medium term as utilisation
increases with demand growth. Grain and minor bulk trade demand growth are
forecast to improve in 2024 which should especially benefit Handysize bulkers.
As at the end of the financial year, the Company had 9 bulkers on fixed-rate
charters with Average Charter Length of 0.2 years. We have chosen to employ
some of our bulkers on index-linked charters in anticipation of market
improvement. As the market improves, we will selectively redeploy our bulkers
on new longer-term charters at higher rates over the next financial year.
The combination of tightening environmental regulations and lower shipyard
capacity suggest newbuild prices of bulkers and tankers will remain high
thereby also supporting secondhand prices for the next two years. Clarksons
Research estimates that global shipbuilding capacity is 40% lower compared to
a decade ago. Many newbuild designs incorporate more flexible machinery and
storage systems to handle multiple fuel types to reduce emissions. These
further increase newbuild prices.
The shipping industry has a history of being resilient during periods of
disruption. Despite the negative impact of the war in Ukraine, the product
tanker market strengthened to record highs during the financial year with
strong demand growth for long-haul cargoes and a supportive supply side with
slowing fleet growth. New environmental regulations from the IMO to measure
and improve vessel carbon emission intensity incentivise lower speeds
resulting in reduced shipping capacity, aiding the supply-side adjustment.
Fuel-efficient vessels such as the two MR product tankers the Company acquired
during the year are likely to be favoured.
Environmental, Social and Governance ("ESG")
We emphasise the principles of Responsible Investment in the management of
clients' assets through awareness and integration of ESG factors into our
investment process in the belief that these factors have a positive impact on
long-term financial performance. We recognise that our 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. We have been a signatory of the United Nations
Principles of Responsible Investment ("UN PRI") since December 2018 and have a
Responsible Investment policy statement which is available on the Company's
website (www.tuftonoceanicassets.com (http://www.tuftonoceanicassets.com) ).
The Company's Board does not have a separate ESG committee but collectively
reviews progress against the policy statement as part of the Company's annual
Sustainability Report which is also publicly available on the Company's
website.
Highlights of the financial year include:
· The Company's operating emissions intensity, as measured by the
EEOI, improved by c.34% YoY during 2022 primarily because of capital
re-allocation. We expect further improvement in emissions intensity with
further ESD retrofits.
· We have started receiving the efficiency hire rate premium for ESDs
on eight vessels after the retrofits were completed or substantially completed
on these vessels. ESD retrofits on another three vessels will be completed in
2024.
· We prioritise crew welfare and have especially taken action to
improve the welfare of the Ukrainian crew members on board the Company's
vessels.
· As a result of our proactive approach to ensure timely relief, the
Company's vessels had fewer crew members overdue for rotation compared to
peers. The issue of overdue crew members was substantially resolved in the
industry as at the end of 3Q22. We remain prepared to swiftly act should new
disruptions to crew rotations arise in the future.
· We aim to minimise coal carriage on the Company's vessels without
negative financial impact. During 2022, only one of the Company's bulkers
carried coal, accounting for <2% of the total cargo carried by the
Company's bulkers and <0.5% of total cargo carried on the Company's
vessels.
· In June 2023, Tufton committed to limiting revenues from
transportation of thermal coal to 5% of the Company's total consolidated
revenues. As part of the ongoing improvement in ESG related disclosures, we
will report thermal coal carriage related revenues in future periods.
Principal Risks and Uncertainties
The Board has carried out a robust assessment to identify the principal and
emerging risks that could affect the Company, including those that would
threaten its business model, future performance, solvency or liquidity.
Principal risks are those which the Directors consider have the greatest
chance of materially impacting the Company's objectives. The Board has adopted
a "controls" based approach to its risk monitoring which requires 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 receives periodic updates on principal risks at their
meetings and has adopted its own control review to ensure that risks are
monitored appropriately, mitigation plans are in place, and that emerging
risks are 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. Whilst the
Investment Manager monitors and puts in place controls to mitigate risks, risk
and uncertainty cannot be eliminated.
The Board identified the Russian war on Ukraine as a principal risk. The
specific areas of concern identified at the time have become part of the
overall risk control and monitoring processes of the Investment Manager.
In the current period, the Board have identified the macroeconomic changes of
high inflation and higher interest rates as potential risks to the Company's
operations. Gearing levels of the Company and its SPVs are low in comparison
to the restriction of 40% set out in the Company's Prospectus, and Tufton has
further mitigated the impact of higher interest rate using interest rates
caps. Accordingly, the Board is of the view that higher interest rates will
not have a significant impact on the operations and financial standing of the
Company. High inflation and supply chain issues are impacting the cost of
capital expenditure incurred by the Company and its SPVs, but again this is
not expected to have a significant impact. Both of these potential impacts are
kept under review by both the Board and the Investment Manager.
The following table shows the Board's view of the principal risks to the
business and efforts to mitigate those risks. The Board considers that no
additional mitigation steps are required at this time.
Underlying cause of risk or uncertainty Objective impacted Control or mitigation implemented
(in what way)
Demand for shipping may decline, either because of a reduction in Capital growth This risk cannot be controlled, but is mitigated by:
international trade (e.g., "trade wars") or because of general GDP growth
slowing. Vessel values - diversification to reduce reliance on any particular segment,
sector or geography;
- focus on fleet vessel quality and specifications to improve
utilisation;
- longer term employment strategy to reduce market exposure; and
- ultimately, lower charter rates would be accepted in order to
ensure the employment of the vessels.
Failure of, or unwillingness of, a vessel charterer to meet charter payments. Liquidity Charter counterparty credit worthiness is subjected to extensive checks prior
to and throughout a charter. In the unlikely event of default the Board
Dividends believes there will be no issues finding alternative employment for any of the
ships in the portfolio at prevailing market rates.
Vessel maintenance or capital expenditure may be more costly than expected due Capital growth The Company monitors maintenance and capital expenditure through experienced
to delays, resource constraints or inflation generally.
technical managers. Assessments of expected capital expenditure are made prior
Dividends to investing in a vessel.
Liquidity
Vessel values It is important to note that whilst the Company's fleet has experienced
increases beyond budgeted costs, such increases were not so significant as to
undermine the initial investment decision.
A vessel may be lost or significantly damaged. Capital growth Measures to mitigate operational risks are included in the employment charters
of the Company's vessels including:
Vessel values
- avoiding conflict areas;
- daylight sailing, naval escort or route planning to avoid higher
risk areas; and
- detailed best practice operating procedures to be followed.
Comprehensive insurance protection is in place at all times to cover inter
alia significant damages to or loss of vessels.
The Company may not have enforceable title to the vessels purchased Liquidity The Company has engaged a very experienced Investment Manager who is
responsible for establishing such title. This is then monitored by the
Vessel values Administrator on behalf of the Board using publicly available information.
Failure of systems or controls in the operations of the Investment Manager,
Asset Manager or the Administrator and thereby of the Company
Capital growth, This risk cannot be directly controlled but the Management Engagement
Committee regularly review the performance of the service providers and their
Loss of assets, reputation or regulatory permissions and resulting fines internal controls through making enquiries, and inspection visits.
Failure to comply with sanctions applicable to vessels or their cargo may Capital growth, The Investment Manager assesses the bona fides of prospective charterers
impact the Company's reputation and/or lead to expropriation of assets
before contracts are entered into and also monitors the operations of the
Loss of assets, reputation or regulatory permissions and resulting fines vessels owned by the Company's SPVs to ensure that all applicable sanctions
are complied with.
The Company may be exposed to substantial risk of loss from environmental Liquidity, The Investment Manager arranges for environmental due diligence in respect of
claims arising in respect of vessels owned by its SPVs, in particular if such
all vessels considered for acquisition by the Company's SPVs to identify
a vessel were to be involved in an incident with the potential risk of Vessel values, potential sources of pollution, contamination or environmental hazard for
environmental damage, contamination or pollution
which that vessel may be responsible and to assess the status of its
Loss of income, reputation or regulatory permissions and resulting fines environmental regulatory compliance.
The Asset Manager maintains a detailed manual that documents best practice
operating procedures to be followed by crew and technical staff. The Asset
Manager reviews the environmental performance of key service providers and all
vessels and reports its findings to the Investment Manager annually.
Protection and indemnity mutual insurance overseen by the Asset Manager
provides cover of up to US$1 billion per incident for oil pollution damage
compensation.
The Investment Manager is committed to Responsible Investment and has
identified ESG risk factors relevant to the industry in its Responsible
Investment Policy statement. The Board reviews both the Company's and the
Investment Manager's policy and its implementation at least annually. Please
see the Investment Manager's Sustainability Report on the Company's website
(www.tuftonoceanicassets.com (http://www.tuftonoceanicassets.com) ) for
details.
As part of their review of the Company's operational risks and controls, which
takes place on at least an annual basis, the Board of Directors consider ESG
specific risks and how these may be mitigated. This includes receiving regular
reports and updates from the Investment Manager on the measures put in place
by them to ensure the Company carries out its activities in an environmentally
sustainable and responsible manner.
Corporate Summary
The Company is a closed-ended investment company, limited by shares,
registered and incorporated in Guernsey under the Companies Law on 6 February
2017, with registration number 63061.
The Company is a Registered Closed-ended Collective Investment Scheme
regulated by the GFSC pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law 2020, as amended and the Registered Closed-ended Investment
Scheme Rules 2021.
As at 30 June 2023, the Company has 302,468,541 shares in issue, all of which
are admitted to the Specialist Funds Segment of the Main Market of the London
Stock Exchange under the ticker "SHIP", ISIN: GG00BDFC1649, and SEDOL:
BDFC164. During the financial year, the Company bought back 6,160,000 shares.
The Company makes its investments through LS Assets Limited and other
underlying SPVs, which are ultimately wholly owned by the Company. LS Assets
Limited is registered and was incorporated in Guernsey in accordance with the
Companies Law on 18 January 2018 with registered number 64562. The underlying
SPVs owned by LS Assets Limited are incorporated in the Isle of Man, in
accordance with the Isle of Man Companies Act 2006 (the "IOM Companies Act").
The Company controls the investment policy of each of LS Assets Limited and
the wholly owned SPVs to ensure that each will act in a manner consistent with
the investment policy of the Company. The Company refers to each vessel by the
underlying SPV name rather than the actual name of the respective vessel for
confidentiality purposes.
The Investment Manager is Tufton Investment Management Ltd, a company
incorporated in England and Wales with registered number 1835984, which is
regulated by the FCA and has been authorised to act as a Full Scope Registered
UK AIFM under AIFMD. Tufton Investment Management Ltd has been a specialist
investment manager in the maritime and energy markets since 2000 and has been
focused on financial services to these industries since its inception in 1985.
Corporate Governance Statement
The Board of Tufton Oceanic Assets Limited has considered the Principles and
Provisions of the AIC Code. The AIC Code addresses the Principles and
Provisions set out in the UK Corporate Governance Code (the "UK Code"), as
well as setting out additional Provisions on issues that are of specific
relevance to the Company.
The Board considers that reporting in accordance with the Principles and
Provisions of the AIC Code, which has been endorsed by the Financial Reporting
Council and the Guernsey Financial Services Commission, provides more relevant
information to shareholders. The Company has complied with the Principles and
Provisions of the AIC Code (except as set out below).
The AIC Code is available on the AIC website (www.theaic.co.uk). It includes
an explanation of how the AIC Code adapts the Principles and Provisions set
out in the UK Code to make them relevant for investment companies.
Areas of exception
Considering that the Board comprises solely of independent Directors, it has
decided not to appoint a senior independent director. The Chairman of the
Audit Committee fulfils the role of the senior independent director, which
includes the following:
- supporting the Chairman in his role;
- acting as an intermediary for other Directors where necessary;
- being available for shareholders and other non-executives to
discuss any questions or concerns; and
- assisting with the performance evaluation and succession planning
of the Chairman's role.
Due to the Board's size (four Directors), the Board has not deemed it
necessary to appoint a separate nomination committee and therefore the role
typically undertaken by such a committee is currently conducted by the Board
as a whole. The rules governing the appointment and replacement of Directors
are set out in the Company's Articles.
The Directors have overall responsibility for reviewing the size, structure
and skills of the Board and considering whether any changes are required, or
new appointments are necessary to meet the requirements of the Company's
business or to maintain a balanced Board.
Similarly, due to the Board's size, the Company does not have a separate
remuneration committee, as the Board as a whole fulfils the function of a
remuneration committee, which includes the review on at least an annual basis
of the remuneration of the Directors in accordance with the Company's
remuneration policy and market information.
The Listing Rules regarding diversity do not directly apply to the Company
since it is a member of the Specialist Fund Segment. There are current
challenges such as tenure, knowledge and experience of our relatively small
Board but further consideration will be given on a voluntary basis to these
guidelines during the course of implementing any future succession plans.
The Board has additionally formulated the following policies and procedures to
assist them to comply with the AIC Code:
Independence
All the non-executive Directors are currently considered by the Board to be
independent of the Company, Investment Manager and the Tufton Group and have
been Directors for less than seven years. The Board's current policy on
tenure, including that of the Chairman, is that continuity and experience are
considered to add significantly to the strength of the Board.
New Directors receive an induction from the Investment Manager and the
Administrator on joining the Board, and all Directors receive other relevant
training as necessary on their on-going responsibilities in relation to the
Company.
Environmental, Social and Governance
For further details of the Company's approach to ESG matters, please see the
Report of the Directors and the Investment Manager's Report, together with the
Company's Sustainability Report which is published on its website,
(www.tuftonoceanicassets.com).
Diversity and Inclusion Policy
The Company supports the AIC Code provision that the Board should consider the
benefits of diversity, when making appointments and is committed to ensuring
it receives information from the widest range of perspectives and backgrounds.
The Board is committed to creating a diverse and inclusive environment where
all individuals feel respected, and that their voices are heard. The Board
believes that diversity of gender, age, ethnicity and personal attributes,
amongst others, contribute to a balanced and more productive Board.
The Board is committed to being non-discriminatory and firmly believes in
equal opportunities for all, with board appointments being made on merit
against a set of objective criteria.
However, while the Board agrees diversity should be sought when making
appointments, it does not consider that this can be best achieved by
establishing specific quotas and targets and appointments are therefore based
wholly on merit. Accordingly, when changes to the Board are required, due
regard is given to both the need for and importance of diversity and to a
comparative analysis of candidates' qualifications and experience.
A pre-established, clear, neutrally formulated and unambiguous set of criteria
are utilised during the appointment process to determine the most suitable
candidate for the specific position sought. In each case, the Board ensures
that candidates are considered from a wide range of backgrounds.
UK Companies Act 2006 - Section 172 Statement
Whilst directly applicable only to UK domiciled companies, the intention of
the AIC Code which is followed by the Company is that the following matters
set out in section 172 of the UK Companies Act, 2006 are reported on by all
companies, irrespective of domicile, provided this does not conflict with
local company law.
Therefore, through adopting the AIC Code, the Board acknowledges its duty to
apply and demonstrate compliance with section 172 of the UK Companies Act 2006
and to act in a way that promotes the success of the Company for the benefit
of its shareholders as a whole, having regard to (amongst other things):
· the consequences of any decision in the long term;
· the need to foster business relationships with suppliers, customers
and others;
· the impact of the Company's operations on the community and the
environment;
· the desirability of the Company maintaining a reputation for high
standards of business conduct; and
· the need to act fairly as between members of the Company.
The Board regularly reviews the Company's principal stakeholders and how the
Company engages with them. Stakeholder voices are considered at Board level
and reflected in board decision making through reporting provided to the Board
by the Brokers and the Investment Manager, together with engagement with
stakeholders themselves either directly or through the above-mentioned
parties.
The Company is an externally managed investment company, has no employees, and
as such is operationally quite simple. The Board does not believe that the
Company has any material stakeholders other than those set out in the
following table.
Investors Service providers Community and environment
Issues that matter to them
Performance of the shares Reputation of the Company Compliance with laws and regulations.
Growth of the Company. Compliance with laws and regulations.
Remuneration Impact of the Company and its activities on third parties.
Liquidity of the shares.
Engagement process
Annual General Meeting The main two service providers - Tufton Investment Management Ltd (Investment The Company and its SPVs themselves have only a very small footprint in their
Manager) and Maitland Administration (Guernsey) Limited an Apex Group company local communities and only a very small direct impact on the environment.
("Administrator") - engage with the Board in face-to-face meetings quarterly,
giving them direct input to Board discussions.
Frequent meetings with investors by Brokers and the Investment Manager and
subsequent reports to the Board. However, the Board acknowledges that it is imperative that everyone
contributes to local and global sustainability.
Where face-to-face contact has not been possible engagement has continued via
video conferencing services such as Microsoft Teams.
Quarterly factsheets
The activities of the Company in this regard, and in particular concerning the
vessels owned, are reflected within the Company's Sustainability Report and
All service providers are asked to complete a questionnaire annually which the Responsible Investment Policy of the Investment Manager.
Key Information Document includes feedback on their interaction with the Company, and the Board
ordinarily undertakes an annual visit to the offices of the Investment Manager
and its associated companies in London, Cyprus and the Isle of Man.
Investors Service providers Community and environment
Rationale and example outcomes
Clearly investors are the most important stakeholder for the Company. Most of The Company relies on service providers (including the Investment Manager, The Board and the Investment Manager work together to ensure that ESG factors
our engagement with investors is about "business as usual" matters, but has Asset Manager and technical managers) entirely as it has no systems or are carefully considered and reflected in investment decisions, and that
also included discussions about the discount of the share price to the NAV. employees of its own. vessel operators are influenced positively.
The major decisions arising from this have been for the Board to seek to No major decisions were made by the Board which affected service providers in Board members do travel, partly to meetings in Guernsey, and partly elsewhere
ensure long-term value and opportunities to realise value through sales of the year. on Company business, including for the annual due diligence visits to London
vessels. A decision was also made to buy back shares in an attempt to reduce
and the Isle of Man. The Board considers this essential in overseeing service
or at least contain the share price discount and to improve the liquidity of providers and safeguarding stakeholder interests. Otherwise, the Board seeks
the Company's shares.
to minimise travel using video conference calls whenever good governance
The Board always seeks to act fairly and transparently with all service permits.
In addition, the Board has focused on the valuation of vessels, a key priority providers, and this includes such aspects as prompt payment of invoices.
for shareholders. As a result, the Board placed greater emphasis on reviewing
the output from the VesselsValue system used and charter rates to value most
of the Company's fleet and the charter and discount rates used in valuing the
remaining vessels.
Engagement processes are kept under regular review. Investors and other
interested parties are encouraged to contact the Company via the Company
Secretary or SHIP@tuftonoceanicassets.com
(mailto:SHIP@tuftonoceanicassets.com) on these or any other matters.
Statement of Directors' Responsibilities
The Directors are responsible for preparing an Annual Report and Audited
Financial Statements for each financial year which give a true and fair view,
in accordance with applicable law and regulations, of the state of affairs of
the Company and of the profit or loss of the Company for that year.
Companies Law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting Standards Board
("IASB").
In preparing financial statements the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
· prepare the financial statements on a going concern basis unless it
is inappropriate to presume that the Company will continue in business.
The Company's website is maintained by the Investment Manager. Legislation in
Guernsey governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time, the financial position of the
Company and enabling them to ensure that financial statements comply with
the Companies Law. The Directors are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Each of the Directors confirms that, to the best of their knowledge:
· they have complied with the above requirements in preparing the
financial statements;
· there is no relevant audit information of which the Company's
Auditor is unaware;
· all Directors have taken the necessary steps that they ought to
have taken to make themselves aware of any relevant audit information and to
establish that the Auditor is aware of said information;
· the financial statements, prepared in accordance with IFRS and
applicable laws, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
· the Annual Report includes a fair and balanced review of the
development and performance of the business and the financial position of the
Company, together with a description of the principal risks and uncertainties
that it faces.
The AIC Code, as adopted by the Company, also requires Directors to ensure
that Annual Reports and Audited Financial Statements are fair, balanced and
understandable. In order to reach a conclusion on this matter the Board has
requested that the Audit Committee advises on whether it considers that this
Annual Report and Audited Financial Statements fulfil these requirements. The
process by which the Audit Committee has reached these conclusions is set out
in the Audit Committee Report.
Furthermore, the Board believes that the Annual Report and Audited Financial
Statements provide the information necessary for shareholders to assess the
Company's performance, business model and strategy.
Having taken into account all matters considered by the Board and brought to
the attention of the Board for the year ended 30 June 2023, as outlined in the
Corporate Governance Statement and the Audit Committee Report, the Board has
concluded that the Annual Report and Audited Financial Statements for the year
ended 30 June 2023, taken as a whole, are fair, balanced and understandable
and provide the information required to assess the Company's performance,
business model and strategy.
Report of Directors
The Directors present their Annual Report and the Audited Financial Statements
of the Company for the year ended 30 June 2023.
The Company was registered in Guernsey on 6 February 2017 and is a registered
closed-ended investment scheme under the POI Law. The Company's shares were
listed on the Specialist Funds Segment of the Main Market of the London Stock
Exchange on 20 December 2017 under the ticker SHIP.
Investment Objective and Policy
The Company's investment objective is to provide investors with an attractive
level of regular and growing income and capital returns through investing in
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 by 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 the 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 October 2022 the
Company raised its target annual dividend to US$0.085 per share (previously
US$0.08 per share).
The Company aims to achieve an IRR of 12% or above (net of expenses and fees)
on the Issue Price over the long term. The loss for the Company in the
financial year was US$2.5m, or US$0.008 per share.
Shareholder information
Up to date information regarding the Company, including the quarterly
announcement of NAV, can be found on the Company's website, which is
www.tuftonoceanicassets.com (http://www.tuftonoceanicassets.com) and is
maintained by the Investment Manager.
The Company has a 30 June financial year end.
Share issues and buybacks
The Company has not issued any shares in the year ended 30 June 2023 nor in
the period to 20 September 2023. On various occasions during the year the
Company purchased a total of 6,160,000 shares at an average price of
US$1.13. Since 1 July 2023 to 20 September 2023 a further 7,386,000 shares
have been bought back at an average price of US$0.98. Accordingly the Company
had 295,082,541 shares in issue at the date of signing these financial
statements. All shares repurchased are held in treasury.
Results and dividends
The Company's performance during the year is discussed in the Chairman's
Statement. The results for the year are set out in the Statement of
Comprehensive Income.
The Directors of the Company who served during the year and to date are set
out below.
Directors' interests
The Directors held the following interests in the share capital of the Company
either directly or beneficially as at 30 June 2023, and as at the date of
signing these financial statements:
2023 2022
Director Shares Shares
R King 60,000 45,000
S Le Page 40,000 40,000
P Barnes 5,000 5,000
C Rødsaether 30,000 20,000
The Directors fees are as disclosed below:
30 June 30 June
2023 2022
Director £ £
R King 39,305 36,610
S Le Page 36,000 34,000
P Barnes 33,525 31,550
C Rødsaether 33,525 31,550
Directors' Attendance
Attendance of Directors at each meeting held during the year:
Director Quarterly Board meetings Audit Committee Ad hoc meetings
Held Attended Held Attended Held Attended
R King 4 4 2 2 10 10
S Le Page 4 4 2 2 10 10
P Barnes 4 4 2 2 10 8
C Rødsaether 4 4 2 1 10 8
Other Interests
Tufton Investment Management Holding Limited Group ("Tufton Group")
shareholders, employees, non-executive directors and former shareholders held
the following interests in the share capital of the Company either directly or
beneficially.
As at 30 June 2023
Name Ordinary Shares % of issued
Share Capital
Tufton Group Shareholders 6,968,839 2.30
Tufton Group Staff 580,450 0.19
Tufton Group Non-Executive Directors 403,279 0.13
Former Tufton Group Shareholders 3,258,263 1.08
As at 30 June 2022
Name Ordinary Shares % of issued
Share Capital
Tufton Group Shareholders 5,375,133 1.74
Tufton Group Staff 466,261 0.15
Tufton Group Non-Executive Directors 403,279 0.13
Former Tufton Group Shareholders 3,041,740 0.99
Share buyback and discount management
Subject to working capital requirements, and at the absolute discretion of the
Board, excess cash may be used to repurchase shares. The Directors may
implement share buybacks at any time before the 90-day guideline set out in
the Prospectus where they feel it is in the best interest of the Company and
all shareholders.
The Board will consider repurchasing the Company's ordinary shares in the
market if they believe it to be in shareholders' interests as a whole and as a
means of correcting any imbalance between supply of and demand for the shares.
The Company purchased 6,160,000 of its own shares at an average price of
US$1.13 per share during the financial year. Refer to Note 7 for more details.
There were 6,160,000 shares held in treasury and 302,468,541 shares
outstanding as at the end of the financial year. The Company bought back a
further 7,386,000 shares, between the end of the financial year and 20
September 2023, at an average price of US$0.98. The purchased shares are held
in treasury. The Company had 295,082,541 shares outstanding as at the date of
approval of these accounts.
Companies Law allows companies to hold shares acquired by way of market
purchase as treasury shares, rather than having to cancel them.
These treasury shares may be subsequently cancelled or sold for cash.
Therefore, it is agreed that any shares repurchased pursuant to the general
authority referred to above may be held by the Company in treasury, to the
extent permitted by Companies 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.
Board Responsibilities and Corporate Governance
Please note the Corporate Governance Statement forms part of this report.
Board Members
The Company's Board of Directors comprises four independent non-executive
Directors. The Board's role is to manage and monitor the Company in accordance
with its objectives. The Board monitors the Company's adherence to its
investment policy, its operational and financial performance and its
underlying assets, as well as the performance of the Investment Manager and
other key service providers. In addition, the Board has overall responsibility
for the review and approval of the Company's NAV calculations and financial
statements. It also maintains the Company's risk register, which it monitors
and updates on a regular basis.
The Directors of the Company who served during the year are listed below.
Robert King, Chairman
Rob serves on a number of boards as an independent non-executive director
which includes an 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, Chairman of Audit Committee
A chartered accountant and chartered tax adviser. He was a partner at
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 other London listed funds,
Highbridge Tactical Credit Fund Limited (which is winding down), Volta Finance
Limited and Amedeo Air Four Plus Limited and one International Stock Exchange
listed company, Channel Islands Property Fund Limited. Stephen is British and
resident in Guernsey.
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.
Paul chairs the recently formed Management Engagement Committee.
Christine Rødsaether
Christine is a partner in law firm Simonsen Vogt Wiig, with more than 30
years' experience working in the international shipping sector and offshore
related transactions, design, vessel construction, offshore installations,
restructurings, international banking and finance. Previously, she was a
partner in Andersen Legal ANS and a lawyer at Wikborg, Rein & Co.
Christine has extensive board experience, and currently serves on the boards
of OSE listed Odfjell SE and Oslo Bors listed Gram Car Carriers ASA. Christine
is Norwegian and is resident in Norway.
Conflicts of Interest
None of the Directors nor any persons connected with them had a material
interest in any of the Company's transactions, arrangements or agreements at
the date of this report and none of the Directors has or had any interest in
any transaction which is or was unusual in its nature or conditions or
significant to the business of the Company, and which was affected by the
Company during the year. At the date of this report, there are no outstanding
loans or guarantees between the Company and any Director.
Share Dealing Code
The Company has adopted a share dealing code, in conformity with the
requirements of the Listing Rules and the EU Market Abuse Regulation and takes
steps to ensure compliance by the Board and relevant senior staff with the
terms of the policy.
Appointment, re-election and remuneration of Directors
As stated within the Corporate Governance Statement, due to the Board's size,
the Board has not deemed it necessary to appoint a separate nomination
committee and therefore the role typically undertaken by such committee is
currently conducted by the Board as a whole. The rules governing the
appointment and replacement of Directors are set out in the Company's
Articles. The rules governing the appointment and replacement of Directors are
set out in the Company's Articles. The Articles also require that at each
annual general meeting, all the Directors will submit themselves for
re-election. The Directors have overall responsibility for reviewing the size,
structure and skills of the Board and considering whether any changes are
required, or new appointments are necessary to meet the requirements of the
Company's business or to maintain a balanced Board.
This is formally considered annually at the time of the Board, Chairman and
Directors' annual performance appraisals.
When considering new appointments in the future, the Board will ensure that a
diverse group of candidates is considered and that appointments are made
against objective criteria, in accordance with the Company's Diversity &
Inclusion Policy. As at 21 July 2023 the Board have employed the services of a
Guernsey recruitment firm to compile a list of candidates for the Boards
consideration. At the end of the selection process suitable candidate or
candidates will look to be appointed to the Board. The Board have been briefed
by their legal advisers about their on-going responsibilities as directors and
newly appointed directors will be invited to participate in a formal induction
process.
The Company does not have a separate remuneration committee as the Board as a
whole fulfils the function of a remuneration committee, which includes the
review on at least an annual basis of the remuneration of the Directors in
accordance with the Company's remuneration policy and market information. The
Company's policy is for Directors to be remunerated in the form of fees which
are paid quarterly in arrears. No element of the Directors' remuneration is
performance-related, and no Director is involved in setting his or her own
remuneration.
Fees payable to the Directors should reflect the time spent by the Board on
the Company's affairs and the responsibilities borne by the Board and should
be sufficient to enable high calibre candidates to be recruited to the Board,
ultimately contributing to a composition of the Board that is balanced and
effectively discharges stewardship of the Company's affairs.
Annual performance appraisal
The performance of the Board, committees and individual Directors have been
formally and rigorously evaluated by a self-assessment process coordinated by
the Administrator who circulates the findings to the Board. This evaluation is
performed annually and the Chairman is considering having externally
facilitated board evaluation. The last internal review took place in October
2022 with the next annual review taking place in October 2023. Evaluation of
the Chairman is led by the Chairman of the Audit Committee, who carries out
the functions of a senior independent director.
Audit Committee
The Board will delegate certain responsibilities and functions to the Audit
Committee. Stephen Le Page is the chairman of the Company's Audit Committee
which also includes Paul Barnes and Christine Rødsaether.
In discharging its responsibilities, the Audit Committee will review the
annual and half yearly financial statements, the risks to which the Company is
subject, the system of internal controls, and the terms of appointment and
remuneration of the Independent Auditor. It is also the forum through which
the Auditor reports to the Board. The Audit Committee is expected to meet at
least twice a year.
The objectivity of the Independent Auditor will be reviewed by the Audit
Committee, which will also review the terms under which the Independent
Auditor is appointed to perform non-audit services. The Audit Committee will
review the scope and results of the audit, its cost effectiveness and the
independence and objectivity of the Auditor, with particular regard to
non-audit services and fees.
The members of the Audit Committee consider that they collectively have the
requisite skills and experience to fulfil the responsibilities of the audit
committee. Given Mr Le Page's skills and financial experience, the Board has
satisfied itself that at least one member of the Audit Committee has recent
and relevant financial experience.
Other Committees
The Company has recently formed a Management Engagement Committee chaired by
Paul Barnes, which will hold its inaugural meeting in 2H23.
The functions of the Management Engagement Committee are to review annually
the compliance by the Investment Manager with the Company's investment policy
as established by the Board and with the Investment Management Agreement
("IMA") entered into and reviewed between the Company and the Investment
Manager ; and to review annually the performance and remuneration of any other
key service providers to the Company.
During the year, the Board has reviewed the contractual relationship with and
the performance of all the service providers to the Company, and in particular
the Investment Manager. As part of the review process, the Board concluded
that service providers are performing in accordance with the Company's
expectations and contractual arrangements, and that their continued
appointment is in the best interests of shareholders.
Operation of the Board
It is the responsibility of the Board to ensure that there is effective
stewardship of the Company's affairs. A formal schedule of matters reserved
for decision of the Board has been adopted. This includes the following items:
· changes to the structure, size and composition of the Board,
· the appointment of directors to specified offices of the Board,
including the Chairman and senior independent director,
· board succession planning, training, development and evaluation,
· overall leadership of the Company and setting values and standards,
and
· on-going review of the Company's Investment strategy, investment
objectives and investment policy.
The Board and Investment Manager work closely together, with the Investment
Manager attending and presenting at quarterly Board meetings. At each of these
meetings the Board assess, discuss and challenge the Investment Manager's
performance in terms of investment performance, risk and the management and
impact of operational issues within the portfolio. During the current period,
the Board has not identified any issues with the Investment Manager's
performance.
The Board meet at least quarterly to review the overall business of the
Company and to consider the matters specifically reserved for it. The quorum
at Directors' meetings is two Directors present in person or by telephone and
they are held in Guernsey.
Detailed information is provided by the Investment Manager, Asset Manager and
Administrator for these meetings and additionally at regular intervals to
enable the Directors to monitor compliance with the investment objective and
the investment performance of the Company both in an absolute and relative
sense. Overall Company strategy is discussed in detail at quarterly meetings
of the Board of Directors and at ad hoc board meetings when required.
Directors also have the opportunity to discuss these and any other matters
with the Investment Manager outside of the Board of Directors meetings as
appropriate.
The Directors are provided with standard papers in advance of each quarterly
meeting to allow the review of several key areas including the Company's
investment activity over the quarter relative to its investment policy; the
global shipping industry; the revenue and financial position; gearing,
performance; share price discount or premium (both absolute levels and
volatility); and relevant industry and macro-economic issues.
The Board also receive quarterly reports analysing and commenting on the
composition of the Company's share register and monitoring significant changes
to shareholdings.
Independent Auditor
The Audit Committee is responsible for overseeing the Company's relationship
with the Independent Auditor, including making recommendations to the Board on
the appointment of the Independent Auditor and their remuneration.
PricewaterhouseCoopers CI LLP ("PwC") was originally appointed as the
Company's Independent Auditor on 20 December 2017.
The Auditor, PwC, has indicated its willingness to remain in office. A
resolution for the reappointment of PwC was proposed and approved at the AGM
on 27 October 2022. Another resolution for their appointment will be proposed
at the AGM on 24 October 2023.
Service Providers
The Investment Manager / Alternative Investment Fund Manager ("AIFM")
Tufton Investment Management Ltd, a specialist investment manager in maritime
and energy markets since 2000, has been appointed as the Investment Manager.
Since its inception in 1985, the Investment Manager has been focused on
financial services to these industries.
As of 30 June 2023, the Investment Manager manages investments of c.US$0.8
billion. Whilst the Board has responsibility for all the strategic decision
making (including acquisitions, disposals, financing, capital expenditure,
charters and other material contracts) required by the Company, matters
concerning the operations of the vessels (within the approved budgets and
parameters set by the Board for the Company and the SPVs) are delegated to the
Investment Manager.
As of 30 June 2023, the Tufton Group of which the Investment Manager is part,
had 29 employees operating from offices in London, Isle of Man and Cyprus. The
Investment Manager is fully dedicated to the shipping industry with an
in-house research team and dedicated Asset Manager providing services to each
vessel purchased. As described in the Prospectus, the Investment Manager has
an established track record in managing segregated mandates for pension funds
with similar investment objectives to those of the Company.
The Investment Manager's employees have significant experience of investing
and financing in the shipping industry. Each member of their Investment
Committee has between 20 and 40 years of experience in the maritime financial
markets either from investment banking, commercial banking or from the vessel
owning/operating perspective.
The Investment Manager's role encompasses the identification of appropriate
transaction opportunities, conducting necessary due diligence, making
recommendations to the Board and completing the proposed transactions on
behalf of the Company. The Investment Manager (in conjunction with the Asset
Manager) will also monitor the performance of the Company's portfolio. The
Investment Manager, which acts as the Company's AIFM under the AIFMD, is
authorised and regulated by the FCA.
Investment Committee
The Investment Manager has established an Investment Committee.
Each investment proposal is reviewed by the Investment Committee which meets
on a weekly basis. In reviewing each potential investment, the Investment
Committee considers a range of factors including a detailed analysis of the
vessel's technical condition and other analyses from the Asset Manager, a full
risk/reward analysis, downside stress testing, commercial/employment
strategy, effects of adding moderate leverage in accordance with Company
policy, market outlook, credit quality of charterer, market reputation of
counterparties, deal modelling, exit strategy and any macro analysis that
might be necessary to fully understand the investment. The Investment Manager
is committed to Responsible Investment and integrates ESG factors into its
investment process. The Investment Manager reviews the environmental footprint
of new vessel acquisitions as well as KPIs of technical managers on safety and
fulfilling regulatory requirements. Should the Investment Committee be in
favour of an acquisition, an appropriate recommendation will be made to the
Board who would ultimately determine whether an acquisition should be made.
Asset Manager
Tufton Management Limited was established in 2009 to act as the Asset Manager
for vessels owned by funds and investment vehicles managed or advised by
Tufton Group.
The Asset Manager subcontracts technical services from associated company
Tufton Asset Management Limited, based in Cyprus, which employs professionals
who have experience in all aspects of ship management including special
surveys, maintenance, repair and negotiation of commercial agreements for
vessel employment and provides the services detailed in the Prospectus.
The Asset Manager enters into an asset management agreement with each SPV and
with effect from 1 July 2022 receives a fee of US$200 per vessel per day.
Administrator and Secretary
Maitland Administration (Guernsey) Limited ("Maitland"), an Apex Group
company, has been appointed as administrator and secretary to the Company,
pursuant to the Administration Agreement dated 27 February 2017 and to LS
Assets Limited, pursuant to the Administration Agreement dated 20 April 2018.
Maitland was incorporated with limited liability in Guernsey on 20 January
2010 and is licensed by the Guernsey Financial Services Commission under the
Protection of Investors (POI) Law. Maitland is also regulated under The
Regulation of Fiduciaries, Administration Businesses and Company Directors,
etc (Bailiwick of Guernsey) Law, 2020.
The Administrator forms part of the Apex Group Ltd ("Apex") established in
Bermuda in 2003. Apex is a global financial services provider which delivers
an extensive range of services to asset managers, capital markets, private
clients and family offices. The group employs over 12,000 staff in over 50
offices worldwide and collectively administers in excess of US$200 billion in
assets.
The Administrator provides day-to-day administration services to the Company
and is also responsible for the Company's general administrative and
secretarial functions such as the calculation of the NAV, compliance with the
Code and maintenance of the Company's accounting and statutory records.
Depositary
Apex Depositary (UK) Limited has been appointed as depositary to the Company,
pursuant to the Depositary Agreement dated 4 November 2022. The role of the
depositary will ensure that investment instructions from the Investment
Manager comply with the Law or Constitutional Documents of the Fund. Apex
Depositary (UK) Limited is an active company incorporated on 25 October 2013
with the registered office located in London. The Depositary also forms part
of the Apex Group Ltd noted above.
Registrar
Computershare Investor Services (Guernsey) Limited was appointed as registrar
to the Company pursuant to the Registrar Agreement dated 27 February 2017. In
such capacity, the Registrar is responsible for the transfer and settlement of
shares held in certificated and uncertificated form. The Register may be
inspected at the office of the Registrar.
Disclosure Obligations
Shareholders are obliged to comply, from Admission, with the shareholding
notification and disclosure requirements set out in Chapter 5 of the
Disclosure Guidance and Transparency Rules. The Administrator will monitor
disclosure with reference to changes in shareholdings.
Annual Report and Financial Statements
The Board of Directors is responsible for preparing the Annual Report and
Financial Statements. The Audit Committee advises the Board on the form and
content of the Annual Report and Financial Statements, any issues which may
arise and any specific areas which require judgement.
Anti-bribery and corruption
The Board acknowledges that the Company's international operations may give
rise to possible claims of bribery and corruption. In consideration of the UK
Bribery Act the Board reviews the perceived risks to the Company arising from
bribery and corruption to identify aspects of the business which may be
improved to mitigate such risks.
The Board has adopted a zero-tolerance policy towards both bribery and
corruption and has reiterated its commitment to carry out business fairly,
honestly and openly.
In respect of the UK Criminal Finances Act 2017 which introduced a Corporate
Criminal Offence of 'failing to take reasonable steps to prevent the
facilitation of tax evasion', the Board confirms that it is committed to zero
tolerance towards the criminal facilitation of tax evasion.
Modern slavery
The Company, through its Investment Manager seeks to ensure that all charter
counterparties have policies and procedures which prevent any possibility of
slavery or similar issues on the vessels comprising the fleet. The Investment
Manager has such policies and procedures in its own right which govern the
ship management contracts used to appoint technical managers.
General Data Protection Regulation ("GDPR")
The Board, through enquiry of its service providers, has ensured that the
requirements of GDPR and its equivalent legislation in the UK and Guernsey,
are met by them when they process any data on behalf of the Company.
Alternative Investment Fund Managers Directive ("AIFMD")
The Investment Manager, Tufton Investment Management Ltd, has been authorised
by the FCA as a Full Scope Registered UK AIFM under the AIFMD. The funds
managed by the AIFM, including the Company, are now defined as Alternative
Investment Funds and are subject to the relevant articles of the AIFMD.
The Company notes that while AIFMD no longer binds the UK in its
implementation, a domestic regime has been put in place regulating the
management and marketing of AIFs in the UK, which generally maintains the
AIFMD rules as implemented at the end of the transition period with respect to
the UK's departure from the European Union on 31 December 2020.
Internal control and financial reporting
The Board is responsible for establishing and maintaining the system of
internal controls required by the Company's operations. These internal
controls are undertaken by the service providers. Internal control systems are
designed to meet the specific needs of the Company and the risks to which it
is exposed, and, by their very nature, provide reasonable, but not absolute,
assurance against material misstatement or loss.
The key procedures which have been established to provide effective internal
controls include:
· Maitland Administration (Guernsey) Limited is responsible for the
provision of administration, accounting and company secretarial duties.
Maitland also provides compliance oversight in respect of the Company and its
activities. As the Company itself has no IT systems and relies on the IT
systems of its service providers, Maitland additionally has a role in cyber
security and the protection of the Company's data through the operation of
Information Security Protection Controls. Maitland staff are also regularly
trained in order to minimise the risk of an accidental data breach;
· Tufton Investment Management Ltd is the Investment Manager and
provides portfolio management and risk management services to the Company. It
is also the AIFM for the purposes of AIFMD;
· Tufton Management Limited, an affiliate of the Investment Manager,
provides Asset Management services to each underlying SPV;
· Tufton Corporate Services, an affiliate of the Investment Manager,
provides administration, accounting and company secretarial services for the
SPVs;
· Computershare Investor Services (Guernsey) Limited is responsible
for the provision of Registrar services;
· the Board clearly defines the duties and responsibilities of the
Company's agents and advisers in the terms of their contracts;
· the Board receives assurances from the Company's agents and
advisers that any amendments required as a result of regulatory change, are
actioned accurately and promptly; and
· the Board reviews financial information and compliance reports
produced by the Administrator on a regular basis.
The Board and Audit Committee have reviewed the Company's risk management and
internal control systems and believe that the controls are satisfactory given
the size and nature of the Company.
Responsible Investment, Sustainability and ESG Policy
The Company published its 2022 Sustainability Report, a copy of which is
available on the Company's website (www.tuftonoceanicassets.com).
The Sustainability Report sets out the combined approach of the Investment
Manager and the Company to the integration of sustainability risks and
responsible investment principles in its investment decision making and asset
ownership practices. The Investment Manager seeks to align the Company's
strategy with best practices and market standards in all ESG and Responsible
Investment matters.
The Investment Manager believes upholding high standards of ESG and
responsible investment principles and practices are an essential tool for
managing the risks presented by challenges such as climate change, social
inequality and human rights issues, delivering long-term value and positive
returns for the Company's shareholders as part of the Company's investment
objectives, and ensuring the continued sustainability of shipping as a whole.
The Report includes further details on the Company's approach to stakeholder
engagement, human rights and anti-bribery practices, together with how the
activities of the Company are aligned with recognised ESG standards such as
the UN's Sustainable Development Goals. In accordance with the Policy, the
Directors have requested that the Investment Manager consider the broader
social, ethical and environmental issues of the vessels within the Company's
portfolio, acknowledging that companies failing to manage these issues
adequately run a long-term risk to the sustainability of their businesses and
that this reflects stakeholders' views.
More specifically, the Board expect companies to demonstrate ethical conduct,
effective management of their stakeholder relationships, responsible
management and mitigation of social and environmental impacts, as well as due
regard for wider societal issues.
The Directors along with the Investment Manager recognise the value of
integrating principles of Responsible Investment into the investment
management process and ownership practices in the belief that this can have an
impact on long-term financial performance. The Sustainability Report has
further information on how the Investment Manager practically implements and
considers the Policy when making investment decisions.
Viability statement
The Board, in assessing the long-term viability of the Company, has paid
particular attention to the Principal Risks and Uncertainties faced by the
Company as disclosed in these financial statements. The Board has taken into
account the cashflow-weighted average length of its charters. The Company is
also required to hold a continuation vote at the AGM to be held 24 October
2024. Notwithstanding this, the Board have determined that a three-year
viability period is the most appropriate for viability testing. In addition,
the Board has considered the cash flow projection for the running costs of the
Company to ensure the Company retains sufficient cash to meet its operating
costs until the end of the viability period and is therefore able to sustain
its business model and structure, including the payment of dividends at the
announced level. The Board has also considered the cash flow projections for
the Company and its SPVs in two market stress scenarios.
The Board has considered the results of a viability test wherein the primary
sensitivity of an extended period of market stress results in time charter
rates staying below the historic median levels over the entire three-year
forecast period along with significant void periods modelled between charters.
The most extreme scenario modelled resulted in unrestricted cash balances
being exhausted in late 2024, but in the very remote event of such a cash
shortage arising this would be addressed through one or all of the following
significant actions: the sale of a vessel, the deferral of discretionary
capital expenditure, and/or the deferral or reduction of any dividend payment.
These scenarios allow for considerable idle time in the fleet, consistently
low charter rates and even charter default. The Directors have also assumed
that given the Company's recent level of performance, it is reasonable to
assume that the continuation vote will be passed. As a result, the Directors
have a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due during and that the
business model will remain applicable over that period.
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 also considered
the potential impact of macroeconomic factors, such as high inflation and
interest rates on the current and future operations of the Company and its
investments, as well as those other risks set out in more detail in the
Principal Risks and Uncertainties section. Cash reserves are held at the LS
Assets Limited ("LSA") and SPV levels and paid up to the Company as required
to enable expenses to be settled as they fall due.
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 and meet its ongoing
obligations for at least twelve months from the date of approval of the
financial statements. For this reason, they continue to adopt the going
concern basis in preparing the financial statements. Please also refer to the
section below.
Continuation Vote
In accordance with the prospectus published 25 September 2018, the Directors
will propose an ordinary resolution at the annual general meeting to be held
24 October 2024 that the Company continues its business (a "Continuation
Resolution"). If this Continuation Resolution is passed, then the Directors
shall every three years thereafter at the annual general meeting held,
following the publication of the audited accounts, propose a further
Continuation Resolution.
Shareholders' significant interests
The following shareholders had notified to the Company a substantial interest
of 5% or more of the issued share capital as at 30 June 2023.
% of issued share capital
East Riding Pension Fund 10.57
South Yorkshire Pensions Authority 9.62
Schroder Investment Management 8.07
West Yorkshire Pensions Fund 7.90
Raymond James Investment Services 5.55
FIL Investment International 5.19
The Directors place a great deal of importance on communication with
shareholders. They request regular updates from the Company's Brokers and
financial advisers on their communications with shareholders. They can also be
contacted via the email address provided in the Chairman's Statement.
The Annual Report and Audited Financial Statements are also distributed to
other parties who have an interest in the Company's performance. Additional
information on the Company can be obtained through the website
www.tuftonoceanicassets.com (http://www.tuftonoceanicassets.com) , which is
maintained by the Investment Manager.
The Notice of the Annual General Meeting is included within the Annual Report
and Audited Financial Statements and is sent out at least 20 working days in
advance of the meeting, in accordance with the AIC Code. All shareholders have
the opportunity to put questions to the Board or the Investment Manager
formally at the Company's Annual General Meeting.
The Company Secretary and Investment Manager are available to answer general
shareholder queries at any time throughout the year. The Company can be
contacted via the Company Secretary or SHIP@tuftonoceanicassets.com
(mailto:SHIP@tuftonoceanicassets.com) .
The Company confirms that there is no information that is required to be
disclosed under Listing Rule 9.8.4.
Approved by the Board of Directors on 25 September 2023 and signed on behalf
of the Board by:
Audit Committee Report
Chairman's introduction
I am pleased to present to you the Audit Committee report prepared in
accordance with the current AIC Code, which reflects the UK Corporate
Governance Code to the extent that it is applicable to investment companies.
The terms of reference for the committee are available on the Company's
website, www.tuftonoceanicassets.com (http://www.tuftonoceanicassets.com) .
During the year ended 30 June 2023 and to the date of this report, the main
areas of activity have been as follows:
· reviewing and assessing the Principal Risks and Uncertainties,
including the ongoing impact of the Russian invasion of Ukraine and the
emergence of inflation and higher interest rates on the activities and assets
of the Company;
· reviewing the accounting policies for the Company to ensure they
remain appropriate for the preparation of the Company's Annual Report and
Audited Financial Statements;
· reconsidering the areas of judgment or estimation arising from the
application of International Financial Reporting Standards to the Company's
activities and the documentation of the rationale for the decisions made and
estimation techniques selected, to ensure they remain appropriate;
· meeting with the Independent Auditor, PwC, to review and discuss
their independence, objectivity and proposed scope of work for their audit of
this Annual Report;
· meeting with the Company's principal service providers to review
the controls and procedures operated by them to ensure that the Company's
risks are properly managed and that its financial reporting is complete,
accurate and reliable; and
· reviewing in detail the content of this Annual Report, the work of
the service providers in producing it and the results of the external audit.
Membership and Role of the Committee
The Board will delegate certain responsibilities and functions to the Audit
Committee. Stephen Le Page is the chairman of the Company's Audit Committee
which also includes Paul Barnes and Christine Rødsaether. In discharging its
responsibilities, the Audit Committee will review the annual and half yearly
financial statements, the risks to which the Company is subject, the system of
internal controls, and the terms of appointment and remuneration of the
Independent Auditor. It is also the forum through which the Auditor reports to
the Board. The Audit Committee is expected to meet at least twice a year.
The Committee discharges its responsibilities through a series of scheduled
meetings, the agendas of which are linked to events in the financial calendar
of the Company. The Committee met two times during the year ended 30 June 2023
and three more since the year end. The Independent Auditors attended three of
these five meetings.
Internal control
The Board reviews the internal controls of the Company's service providers,
who are required to establish and maintain appropriate systems of internal
control, by reviewing regular reports from the service providers. The Board
also ensures segregation of duties between the service providers.
In addition, the Board seeks to make visits to certain service providers
periodically to assess their organisation and culture and to meet the
individuals responsible for key functions. The Audit Committee, and
particularly the Chairman of the Committee, also closely monitors the
financial reporting process and the tasks undertaken in the production of the
Annual Report.
This has involved discussions with the Administrator of the Company, the
administrator of the Isle of Man SPVs and the Investment Manager.
Review of accounting policies and areas for judgment or estimation
These financial statements reflect the application of the accounting policies
and estimation techniques originally set out in the Company's Prospectus for
its IPO in December 2017. The Audit Committee confirms that they are still
considered to be appropriate.
In particular, the following are the significant issues that the Audit
Committee considered relating to the financial statements:
· the application of IFRS 10 - Consolidated Financial Statements
("IFRS 10") to the Company,;
· the detailed approach to arriving at the estimate of fair value for
each vessel, SPV and the Guernsey holding company, LSA;
· the determination of the Company's viability and the applicability
of the going concern assumption.
These financial statements reflect the outcome of those discussions. In
addition, the Independent Auditor's proposed scope of work in connection with
these areas and the statements in general was agreed.
Fair value estimation
The majority of the NAV of the Company is derived from the fair value of the
vessels owned by the Company's indirect SPV subsidiaries, which are themselves
held by the Company's subsidiary, LSA. The Company has chosen to use the value
provided by VesselsValue as its best estimate of fair value for the majority
of its fleet. Exact details of the valuation techniques applied to the vessels
and of how the Company's NAV is derived is given in Note 12 to these financial
statements.
The Committee has paid particular regard to evaluating these techniques to
ensure they are in accordance with market methodology, based on accurate
information, reliable and appropriate. The sensitivity of these valuations to
various input assumptions is given in Note 12, to enable readers of these
financial statements to make their own assessment of the carrying values.
The Committee is satisfied that these techniques are reasonable and
appropriate for use in the preparation of these financial statements.
Performance fee
Per the terms of the IMA, the Company accrues performance fees based on the
size of the investment and the continued performance throughout the financial
year. The accrual at year end is US$nil (2022: US$ 3,980,432). The prior
year's accrual was written back in the current year. The Board reviews and
approves the calculation.
External audit
During the year ended 30 June 2023, and up to the date of this report, the
Committee held formal meetings with the Independent Auditor on two occasions,
and in addition the Chair of the Committee has spoken to them informally on
several occasions. These informal conversations have been held to ensure the
Chairman is kept up to date with the progress of the audit work, and that the
Independent Auditor's formal reporting meets the Committee's needs.
The formal meetings included detailed reviews of the proposed fees and scope
of the work to be performed by PwC in their audit for the year ended 30 June
2023. They also included detailed reviews of the results of this work, and the
audit findings and observations. I am pleased to report that there are no
matters arising from the Independent Auditor's work which should be brought to
the attention of shareholders.
The Committee has also reviewed PwC's report on PwC's own independence and
objectivity, including the level of non-audit services provided by them. There
were no non-audit services carried out during the year.
The Committee has therefore concluded that PwC is independent and objective,
carries out its work to a high standard, and provides concise but useful
reporting. The Committee also notes that Roland Mills has served 5 years as
the audit engagement leader and therefore reached his maximum term as such.
PwC CI LLP will introduce the audit committee to Roland's replacement
accordingly. Accordingly, the Committee has recommended a resolution for their
appointment will be proposed at the AGM on 24 October 2023.
Annual report
The Committee members have each reviewed this Annual Report and earlier drafts
of it in detail, comparing its content with their own knowledge of the
Company, reporting requirements and shareholder expectations. Formal meetings
of the Committee have also reviewed the report and its content and have
received reports and explanations from the Company's service providers about
the content and the financial results.
The Committee has concluded that the Annual Report, taken as a whole, is fair,
balanced and understandable, and that the Board can reasonably and with
justification make the Statement of Directors' Responsibilities.
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements give a true and fair view of the
financial position of Tufton Oceanic Assets Limited (the "company") as at 30
June 2023, and of its financial performance and its cash flows for the year
then ended in accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
What we have audited
The company's financial statements comprise:
● the statement of financial position as at 30 June 2023;
● the statement of comprehensive income for the year then ended;
● the statement of changes in equity for the year then ended;
● the statement of cash flows for the year then ended; and
● the notes to the financial statements, which include significant
accounting policies and other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
("ISAs"). Our responsibilities under those standards are further described in
the Auditor's responsibilities for the audit of the financial statements
section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the company in accordance with the ethical requirements
that are relevant to our audit of the financial statements of the company, as
required by the Crown Dependencies' Audit Rules and Guidance. We have
fulfilled our other ethical responsibilities in accordance with these
requirements.
Our audit approach
Overview
Audit scope
· The company is a closed-ended investment company, incorporated
and based in Guernsey, whose ordinary shares are admitted to trading on the
London Stock Exchange's Specialist Fund Segment.
· The financial statements consist of the standalone parent company
financial information and include the company's investment into its directly
held subsidiary (the "subsidiary"). The subsidiary in turn holds directly and
indirectly 31 Special Purpose Vehicles ("SPVs") through which the underlying
vessels are held.
· The financial statements are not consolidated but instead present
the fair value of the subsidiary which includes the fair value of the
underlying vessels held via the SPVs and the other residual net assets of the
subsidiary and SPVs.
· The principal activities of the company comprise investing in a
diversified portfolio of vessels through its subsidiary based in Guernsey and
the SPVs based in the Isle of Man.
· We conducted our audit of the financial statements based on
financial information provided by the company's service providers, Maitland
Administration (Guernsey) Limited (the "Administrator") and Tufton Investment
Management Ltd (the "Investment Manager") to whom the Board of Directors have
delegated certain administrative functions and other activities.
Key audit matters
· Valuation and existence of financial assets at fair value through
profit or loss.
Materiality
· Overall materiality: US$8.26 million (2022: US$8.90 million) based on
2% of net assets.
· Performance materiality: US$6.19 million (2022: US$6.68 million).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements. In particular, we
considered where the directors made subjective judgements; for example, in
respect of significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in all of our
audits, we also addressed the risk of management override of internal
controls, including among other matters, consideration of whether there was
evidence of bias that represented a risk of material misstatement due to
fraud.
Key audit matters
Key audit matters are those matters that, in the auditor's professional
judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
Key audit matter How our audit addressed the Key audit matter
Valuation and existence of financial assets at fair value through profit or · We obtained an understanding and evaluated the design and
loss implementation of internal controls surrounding the valuation process.
Please refer to Notes 2(j), 3 and 4 to the financial statements. As it relates to valuation of the underlying portfolio held by the SPVs:
Valuation For standard vessels:
The fair value of the company's investment totals US$405.99 million as at 30 · We assessed the third-party vessel valuation service's
June 2023 and comprises the company's holding in its direct subsidiary, which reputation, independence, competence and expertise through enquiry
in turn directly and indirectly owns 31 SPVs (together the "entities"). These confirmation with valuation experts in the PwC network.
SPVs hold the interests in the vessels (the "underlying portfolio"), other
SPVs and/or other residual net assets. · We performed back testing procedures through comparison of
disposal proceeds received for vessels sold to the latest valuations recorded
The fair value of the investment is reflected by the net asset value of the in the SPVs records to assess the reasonableness of the valuations determined.
subsidiary and has been determined based on the fair value of (a) the
underlying portfolio of vessels and (b) the other residual net assets within · Inspected and agreed the independent valuations obtained by the
the entities. Investment Manager in respect of 'charter free' values from the third-party
vessel valuation service to those independently obtained from the third-party
The fair value of the underlying portfolio has been determined using vessel valuation service.
methodologies considered to be most appropriate by the Investment Manager and
the Board, which considers whether the vessels are standard or specialised. In · Assessed and challenged the charter lease contract adjustments by
limited circumstances, management also use an independent broker to determine comparing the actual charter rates, per the records of the SPVs pertaining to
the fair value of standard vessels. each vessel, to market charter rates to assess the reasonableness of the
adjustments made by the Investment Manager.
The Board has set out in Note 3 their consideration of the areas of estimation
relating to the valuation of the vessels. Note 4 includes a breakdown of the · Where material, we assessed and agreed any capital expenditure
investments and Note 12 includes the key assumptions applied to the adjustments to appropriate supporting documentation.
valuations. Significant levels of judgement and estimates are applied by both
the Board and Investment Manager in determining the respective fair values of · Agreed key inputs used by the third-party vessel valuation
the underlying portfolio. service to independent sources or underlying agreements (which included such
details as the vessel build year, type, size etc).
For the residual net assets within the entities there is also a risk that the
valuations may be materially misstated arising from the misstatement of other · We assessed and evaluated the discount rate used by the
assets and liabilities. third-party valuation service in calculating the charter lease contracts
adjustments through enquiry and/or engagement within the PwC network.
Existence
· We benchmarked the current year fair values to recent comparable
The company's direct and indirect ownership rights in its subsidiary and the market transactions per vessel. Where vessels were outside of the range
SPVs within the structure consist of unlisted equity securities, shareholder indicated by the relevant recent transactions applied by the engagement team,
loans and capital contributions and therefore there is no central independent we challenged and sought further evidence and explanation to support the
depository or custodian. For each vessel there is similarly no central Investment Manager's determination of fair value.
depository or custodian. The existence of the investment in the subsidiary as
well as the SPVs and vessels is determined via legal title to each of the For specialised vessels:
equity shares of the subsidiaries and SPVs and ownership title to the
underlying portfolio. · Assessed and agreed the forecast charter income and other
discounted cash flow inputs on a sample basis to signed agreements.
· Recalculated and assessed exit values at the end of the fixed
As a result of the above and given the significance of this balance in the charter period based on the terms applicable to each vessel, dependent on
statement of financial position, the valuation and existence of financial management's intention or agreement with the counterparties (such as scrap
assets at fair value through profit or loss are considered key audit matters. value or depreciated replacement cost etc.).
· Assessed the counterparty credit conditions as at 30 June 2023
and challenged the reasonableness of the discount rate applied by benchmarking
to market discount rates used by the third-party vessel valuation service.
· Recalculated each vessel's discounted cash flow model to confirm
their mathematical accuracy.
For vessels valued by an independent broker:
· We obtained the independent broker valuations and assessed and
confirmed the reliability, independence, and reputation of the independent
broker.
· We contacted the independent broker directly to confirm and
understand the valuation and discussed the valuation methodology applied to
the valuation of the respective vessels.
Use of auditor experts:
· We engaged valuation experts within the PwC network to assess and
evaluate the reasonableness and reliability of the third-party vessel
valuation service, including the discount rates applied, and broker provided
prices for a sample of vessels.
As it relates to the residual assets of the subsidiary and SPVs:
· Recalculated the mathematical accuracy of the net asset values of the
SPVs. This included reconciling the net asset values of the SPVs into the
subsidiary's financial records and subsequently into the company's financial
records.
· Performed sample based substantive testing on the residual net
assets.
· Agreed cash and loan balances back to independently received
confirmations from third party financial institutions.
As it relates to existence of the investment in the subsidiary, SPVs and
underlying portfolio:
· Agreed the shareholdings of the directly held subsidiary as well as
the SPVs to share registers and agreements.
· Agreed the delivery dates and transaction amounts for the purchase
and divestment of all vessels made during the current financial year to
supporting agreements and contracts.
· Confirmed independently with the respective recognised Shipping
Authorities the title of all of the vessels as at 30 June 2023 where possible.
For one vessel, we performed alternative audit procedures that provided us
with evidence over existence, as the flag country's register is unavailable
for public enquiry.
· For all vessels, we utilised open-source vessel tracking resources to
corroborate that the vessels were operational, the routes they are chartered
on and recent photographical evidence thereof.
We have not identified any matters to report to those charged with governance.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to
be able to give an opinion on the financial statements as a whole, taking into
account the structure of the company, the accounting processes and controls,
and the industry in which the company operates, and we considered the risk of
climate change and the potential impact thereof on our audit approach.
Materiality
The scope of our audit was influenced by our application of materiality. We
set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Overall materiality US$8.26 million (2022: US$8.90 million)
How we determined it 2% of net assets
Rationale for the materiality benchmark We believe that 'net assets' is the most appropriate benchmark as this is a
key metric of interest to the members of the company. It is also a generally
accepted measure used for investment funds.
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% (2022: 75%) of
overall materiality, amounting to US$6.19 million (2022: US$6.68million) for
the company financial statements.
In determining the performance materiality, we considered a number of factors
- the history of misstatements, risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above US$0.41 million (2022: US$0.45 million), as
well as misstatements below that amount that, in our view, warranted reporting
for qualitative reasons.
Reporting on other information
The other information comprises all the information included in the Annual
Report and Audited Financial Statements (the "Annual Report") but does not
include the financial statements and our auditor's report thereon. The
directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report based on these responsibilities.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities, the
directors are responsible for the preparation of the financial statements that
give a true and fair view in accordance with International Financial Reporting
Standards, the requirements of Guernsey law and for such internal control as
the directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for
assessing the company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or
to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques. However,
it typically involves selecting a limited number of items for testing, rather
than testing complete populations. We will often seek to target particular
items for testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion about the
population from which the sample is selected.
As part of an audit in accordance with ISAs, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
● Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
● Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company's internal control.
● Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
directors.
● Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the company's ability to continue as a going concern
over a period of at least twelve months from the date of approval of the
financial statements. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor's report to the related
disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor's report. However, future
events or conditions may cause the company to cease to continue as a going
concern.
● Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that
achieves fair presentation.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, actions taken to
eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Use of this report
This independent auditor's report, including the opinions, has been prepared
for and only for the members as a body in accordance with Section 262 of the
Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
Report on other legal and regulatory requirements
Company Law exception reporting
Under the Companies (Guernsey) Law, 2008 we are required to report to you if,
in our opinion:
● we have not received all the information and explanations we
require for our audit;
● proper accounting records have not been kept; or
● the financial statements are not in agreement with the
accounting records.
We have no exceptions to report arising from this responsibility.
Other voluntary reporting
Corporate governance statement
The company has reported voluntary compliance against the 2019 AIC Code of
Corporate Governance (the "Code") which has been endorsed by the UK Financial
Reporting Council as being consistent with the UK Corporate Governance Code.
( )Going concern
The directors have requested that we review the statement on page 39 in
relation to going concern as if the company were a UK premium listed Guernsey
company. We have nothing to report having performed our review.
The directors' assessment of the prospects of the company and of the principal
and emerging risks that would threaten the solvency or liquidity of the
company
The directors have requested that we perform a review of the directors'
statements on pages 16 to 19 and 38 to 39 that they have carried out a robust
assessment of the principal and emerging risks facing the company and in
relation to the longer-term viability of the company, as if the company were a
UK premium listed Guernsey company.
Our review was substantially less in scope than an audit and only consisted of
making inquiries and considering the directors' process supporting their
statements; checking that the statements are in alignment with the relevant
provisions of the Code; and considering whether the statements are consistent
with the knowledge and understanding of the company and its environment
obtained in the course of the audit. We have nothing to report having
performed this review.
Other Code provisions
The directors have prepared a corporate governance statement and requested
that we review it as though the company were a UK premium listed Guernsey
company. We have nothing to report in respect of the requirement for the
auditors of UK premium listed companies to report when the directors'
statement relating to the company's compliance with the Code does not properly
disclose a departure from a relevant provision of the Code specified, under
the Listing Rules, for review by the auditors.
Statement of Comprehensive Income
For the year ended 30 June 2023
2023 2022
Notes US$ US$
Income
Net changes in fair value of financial assets 4 (33,950,645) 89,604,707
at fair value through profit or loss
Dividend income 8 32,000,000 25,934,742
Total net (loss) / income (1,950,645) 115,539,449
Expenditure
Administration fees (168,376) (167,441)
Audit fees (261,666) (137,286)
Corporate Broker fees (150,000) (150,000)
Directors' fees 17 (174,913) (177,338)
Foreign exchange (loss) / gain (13,322) 7,171
Insurance fee (24,200) (15,455)
Investment management fees 13 (3,504,464) (3,410,456)
Legal fees - (26,287)
Listing fees (24,297) (23,452)
Performance fees 14 3,980,432 (3,980,432)
Professional fees (145,694) (147,719)
Sundry expenses (39,860) (12,700)
Total expenses (526,360) (8,241,395)
Operating (loss) / profit (2,477,005) 107,298,054
Finance income 3,646 4,364
Total comprehensive (loss) / income for the year (2,473,359) 107,302,418
(Loss) / Earnings per ordinary share (cents) 9 (0.81) 36.17
Diluted (Loss) / Earnings per ordinary share (cents) 9 (0.81) 36.17
There were no potentially dilutive instruments in issue at 30 June 2023 or 30
June 2022.
All activities are derived from continuing operations.
There is no other comprehensive income or loss and consequently a Statement of
Other Comprehensive Income has not been prepared.
The accompanying notes are an integral part of these financial statements.
Statement of Financial Position
At 30 June 2023
2023 2022
Notes US$ US$
Non-current assets
Financial assets at fair value 4 405,988,715 446,892,720
through profit or loss
Total non-current assets 405,988,715 446,892,720
Current assets
Trade and other receivables 5 7,881,170 5,740,385
Cash and cash equivalents 47,731 8,823
Total current assets 7,928,901 5,749,208
Total assets 413,917,616 452,641,928
Current liabilities
Trade and other payables 6 1,144,523 5,098,219
Total current liabilities 1,144,523 5,098,219
Net assets 412,773,093 447,543,709
Equity
Ordinary share capital 7 303,326,231 310,272,983
Retained reserves 109,446,862 137,270,726
Total equity attributable to ordinary Shareholders 412,773,093 447,543,709
Net assets per ordinary share (cents) 11 136.47 145.01
The accompanying notes are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board
of Directors on
25 September 2023 and signed on its behalf by:
Statement of Changes in Equity
For the year ended 30 June 2023
Ordinary
share capital Retained
earnings Total
Notes US$ US$ US$
Shareholders' equity at 30 June 2021 259,657,871 52,988,084 312,645,955
Share issue 7 51,429,265 - 51,429,265
Direct issue costs 7 (814,153) - (814,153)
Total comprehensive income for the year
- 107,302,418 107,302,418
Dividends paid - (23,019,776) (23,019,776)
Shareholders' equity at 30 June 2022 310,272,983 137,270,726 447,543,709
Share buybacks 7 (6,946,752) - (6,946,752)
Total comprehensive income for the year
- (2,473,359) (2,473,359)
Dividends paid - (25,350,505) (25,350,505)
Shareholders' equity at 30 June 2023 303,326,231 109,446,862 412,773,093
The accompanying notes are an integral part of these financial statements.
Statement of Cash Flows
For the year ended 30 June 2023
Notes 2023 2022
US$ US$
Cash flows from operating activities
Total comprehensive (loss) / income for the year (2,473,359) 107,302,418
Adjustments for:
Changes in fair value on investments held at fair value through profit or loss 4 33,950,645 (89,604,707)
Operating cash flows before movements 31,477,286 17,697,711
Sale / (Purchase) of investments 4 6,953,360 (49,560,001)
Movement in trade and other receivables 5 (2,140,785) 19,994
Movement in trade and other payables 6 (3,953,696) 4,225,794
Net cash generated from / (used in) operating activities 32,336,165 (27,616,502)
Cash flows from financing activities
Amounts paid for share buybacks 7 (6,946,752) -
Proceeds from issue of shares 7 - 51,429,265
Direct issue cost for issue of shares 7 - (814,153)
Dividends paid (25,350,505) (23,019,776)
Net cash (used in) / generated from financing activities (32,297,257) 27,595,336
Net movement in cash and cash equivalents during the year 38,908 (21,166)
Cash and cash equivalents at the beginning of the year 8,823 29,989
Cash and cash equivalents at the end of the year 47,731 8,823
The accompanying notes are an integral part of these financial statements.
Notes to the financial statements
For the year ended 30 June 2023
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 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, GY1 2HL.
The Company's investment objective is to provide investors with an attractive
level of regular and growing income and capital returns through investing in
secondhand commercial sea-going vessels.
The Company had 308,628,541 ordinary shares in issue on 1 July 2022, all of
which were listed on the Specialist Funds Segment of the Main Market of the
London Stock Exchange.
During the current year, the Company bought back 6,160,000 ordinary shares at
an average price of US$1.13 for a consideration of US$6,946,752.
The total number of Company's shares in issue was 302,468,541 at the end of
the financial year.
2. Significant accounting policies
(a) Basis of preparation
Compliance with IFRS
The financial statements have been prepared on a going concern basis in
accordance with International Financial Reporting Standards ("IFRS"), which
comprise standards and interpretations approved by the International
Accounting Standards Board ("IASB") and International Financial Reporting
Interpretations Committee ("IFRIC"), Listing rules and applicable Guernsey
law.
Historical cost convention
The financial statements have been prepared on a historical cost basis
modified by the revaluation of financial assets 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: Consolidated Financial Statements. 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 management services;
· 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 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 standards and interpretations not yet adopted
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for 30 June 2023
reporting periods and have not been early adopted by the Company.
· Amendments to IAS 8: Accounting Policies, Changes in Accounting
Estimates and Errors (effective 1 January 2023); and
· Amendments to IAS 1: Presentation of Financial Statements
(effective 1 January 2023).
These standards, amendments or interpretations are not expected to have a
material impact on the Company in the current or future reporting periods and
on foreseeable future transactions.
(c) Standards, amendments and interpretations effective during the year
There are no standards, amendments to standards or interpretations that are
effective for annual periods beginning on 1 July 2022 that have a material
effect on the financial statements of the Company.
(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.
Finance income
Interest income is accounted for on an accruals basis.
(f) Expenses
Expenses are accounted for on an accruals basis. The Company's investment
management and administration fees and all other expenses are charged through
the Statement of Comprehensive Income.
(g) Performance fees
Any performance fee liability is calculated on an amortised cost basis at each
valuation date, with the respective expense or reversal charged through the
Statement of Comprehensive Income. Refer to note 14.
(h) Dividends to Shareholders
Dividends are accounted for in the Statement of Changes in Equity in the year
in which they are declared.
(i) 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. Exemption is applied and
granted annually and subject to the payment of a fee, currently £1,200.
(j) Financial assets and financial liabilities
The Company holds its investments through a subsidiary company which has not
been consolidated in line with IFRS 10: Consolidated Financial Statements.
The Company classifies its investment in LS Assets Limited ("LSA") as a
financial asset at fair value through profit or loss ("FVTPL").
The Company measures and evaluates the net assets of LSA on a fair value
basis. The net assets include those of the underlying SPVs which 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
At both the Company and the SPV level, financial assets and financial
liabilities are recognised in the Statement of Financial Position when the
Company becomes a party to the contractual provisions of the instrument. This
is deemed to occur when the memorandum of agreement is signed for vessel
acquisitions only.
Financial assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial
assets and financial liabilities at fair value through profit or loss) are
added to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised immediately in
the Statement of Comprehensive Income.
Subsequent to initial recognition, investments at FVTPL are measured at fair
value with gains and losses arising from changes in the fair value being
recognised in the Statement of Comprehensive Income.
Financial assets at fair value through profit or loss
Financial assets are classified at FVTPL when the financial asset is held for
trading. Financial assets at FVTPL are stated at fair value, with any gains or
losses arising on re-measurement recognised in the Statement of Comprehensive
Income.
The Company's investment in LSA has been measured 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.
The Company has not taken the option to irrevocably designate any investment
in equity at fair value through other comprehensive income. 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 in 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 vessels held by the SPVs. The valuation
methodology takes account of the indirect factors affecting the shipping
industry including currency exchange rates, interest rates, the availability
of credit, and climate change considerations.
The carrying value of a standard vessel consists of its charter-free value
plus or minus the value of any charter lease contracts attached to the vessel,
plus or minus an adjustment for the capital expenditure associated with the
vessel.
There are time charter contracts in place for standard vessels. Such charters
will vary in length but would typically be in the 1 - 8 year 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 shipbrokers.
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 was elected by the Investment 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 or shipbroker-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 expected date
of its next 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 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 IRR, 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.
SPVs and LSA account for residual net assets and liabilities in line with the
accounting policies of the Company.
Derecognition of financial assets
The Company and the SPVs derecognise 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. For vessel purchase and sale transactions undertaken by the SPVs
and derecognition therefore normally occurs at the point of delivery of the
vessel to the purchaser at the SPV level.
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 any associated
liability.
On derecognition of a financial asset in its entirety, gains and losses on the
sale, which is the difference between initial cost and sale value, will be
taken to the profit or loss in the Statement of Comprehensive Income in the
year in which they arise.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the
Statement of Financial Position when there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on a net
basis or realise the asset and settle the liability simultaneously.
Financial liabilities and equity
Debt and equity instruments are classified either as financial liabilities or
as equity in accordance with the substance of the contractual arrangement.
Trade and other payables are financial liabilities with fixed or determinable
payments that are not quoted in an active market. Trade and other payables are
recognised initially at fair value and subsequently measured at amortised cost
using the effective interest rate method. However, given the nature of trade
and other payables and the short time length involved between their
origination and settlement, their amortised cost is considered to be the same
as their fair value.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the
Company's obligations are discharged, cancelled or expire.
Trade and other receivables
Trade and other receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in an active market.
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest rate
method, less provision for impairment. However, given the nature of
receivables and the short time length involved between their origination and
settlement, their amortised cost is considered to be the same as their fair
value.
At each reporting date, the Company shall measure the loss
allowance on other receivables at an amount equal to the lifetime expected
credit losses if the credit risk has increased significantly since initial
recognition. If, at the reporting date the credit risk has not increased
significantly since initial recognition, the Company shall measure the loss
allowance at an amount equal to 12-month expected credit losses.
(k) 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. In the current and prior years, the carrying amount
of cash and cash equivalents approximate their fair value.
(l) 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 at the date of the transaction.
(m) 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 impact of the ongoing Russian
invasion of Ukraine on the Company's investments (as set out in more detail in
the Principal Risks and Uncertainties section). Cash reserves are held at the
LSA and SPV levels and paid up to the Company as required to enable expenses
to be settled as they fall due.
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.
(n) Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all its liabilities. Equity instruments
issued by the Company are recognised at the proceeds received, net of direct
issue costs.
Repurchase of the Company's own equity instruments is recognised and deducted
directly in equity. No gain or loss is recognised in profit or loss on the
purchase, sale, issue or cancellation of the Company's own equity instruments.
3. Critical accounting judgements and estimates
The preparation of financial statements requires management to make estimates
and judgements that affect the amounts reported for assets and liabilities as
at the Statement of Financial Position date and the amounts reported for
revenue and expenses during the year. The nature of the estimation means that
actual outcomes could differ from those estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the year in which the
estimates are revised and in any future years affected.
Critical judgements in applying the Company's accounting policies - IFRS 10
The audit committee considered the application of IFRS 10, and whether the
Company meets the definition of an investment entity.
The Company owns the investment portfolio through its investment in LSA. The
investment by LSA comprises the NAVs of the SPVs. The Company holds 100%
voting shares in LSA and has all the characteristics of an investment company.
Cash reserves are held at the LSA and SPV levels and paid up to the Company as
required to enable expenses to be settled as they fall due.
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 accordance with 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 - Fair value measurements.
The criteria which define an investment entity are disclosed in Note 2(a).
Critical Accounting Estimates
The principal critical accounting estimate in the Company's financial
statements is the value of its investment in LSA, which is in turn dependent
on the values of LSA's investments in the SPVs. Principal critical accounting
estimates in determining the values of the SPVs comprise the fair values of
their vessels, in turn comprised of the charter-free and attached charter
values, both of which are critical accounting estimates.
The unobservable inputs which significantly impact the fair value of the
vessels have been determined to be the charter-free valuation and market
charter rates for standard vessels (used to calculate charter values) and the
discount rate applied for specialised vessels.
The process of calculation of the charter-free and charter values of the
vessels is described in Note 2(j), Significant Accounting Policies.
At 30 June 2023 the charter-free valuations of two vessels (30 June 2022: one
vessel) were provided through independent broker valuations rather than
VesselsValue, as elected by the Investment Manager given limited transactions
in this vessel type and the specialist knowledge of the broker selected. The
broker uses proprietary data that considers vessel specifications as well as
applicable market information.
Further to the information mentioned in Note 2 (j) there are specific capital
adjustments considered as part of the valuation process for standard vessels,
mainly the adjustments for BWTSs and scrubbers installed. BWTSs installed by
the Company's SPVs are considered to be an enhancement to the charter-free
value. They are initially recognised at cost and straight-line depreciated
from the commissioning date to 8 September 2024, being the date by which the
IMO mandates all vessels should have installed BWTS. Scrubbers are considered
an enhancement to the charter-free value using an estimated valuation from a
shipbroker, and straight-line depreciated over 5 years.
At 30 June 2023, one vessel was treated as a specialist vessel (30 June 2022:
one vessel).
The specialist vessel was valued on a DCF basis by the Investment Manager
using vessel specific information including the appropriate discount rate,
which is reviewed on a regular basis to ensure it remains relevant to the
project and market risk parameters.
There were no other material areas of estimation for the Company.
4. Financial assets at fair value through profit or loss
The Company owns the investment portfolio through its investment in LSA, which
comprises the NAV of the SPVs and residual assets and liabilities in LSA. The
NAVs consist of the fair value of vessel assets and the SPVs' residual net
assets and liabilities. The whole investment portfolio is designated by the
Board as a Level 3 item on the fair value hierarchy because of the lack of
observable market information in determining the fair value. As a result, all
the information below relates to the Company's Level 3 assets only, with
respect to the requirements set out in IFRS 7 - Financial Instruments. 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
the Company's investment in LSA.
The changes in the financial assets measured at fair value through profit or
loss (for which the Company has used Level 3 inputs to determine fair value,
after considering dividends declared (see Note 7 and 8) are as follows:
2023 2022
US$ US$
LSA
Brought forward cost of investment 299,483,224 249,923,223
Total investment (disposed of) / acquired (6,953,360) 49,560,001
in the year
Carried forward cost of investment 292,529,864 299,483,224
Brought forward unrealised gains on fair value 147,409,496 57,804,789
Movement in unrealised (losses) / gains on fair value (33,950,645) 89,604,707
Carried forward unrealised gains on fair value 113,458,851 147,409,496
Total investment at fair value 405,988,715 446,892,720
The SPVs and holding companies Handy Holdco Limited and Product Holdco Limited
(which are also SPVs) are incorporated in the Isle of Man. The subsidiary
company LS Assets Limited is incorporated in Guernsey. The country of
incorporation is also their principal place of business.
Breakdown of Fair Value:
Name 2023 2022 Direct or indirect holding Principal activity Ownership at 30 June Ownership at 30 June
US$
US$
2023 2022
LS Assets Limited(8) - - Direct Holding company 100% 100%
Aglow Limited(1) - 107,202 Indirect SPV - 100%
Antler Limited(1) - 74,463 Indirect SPV - 100%
Anvil Limited 18,240,972 23,591,722 Indirect SPV 100% 100%
Auspicious Limited 20,137,727 25,929,027 Indirect SPV 100% 100%
Awesome Limited 19,704,498 25,638,607 Indirect SPV 100% 100%
Bear Limited(1) - 77,702 Indirect SPV - 100%
Candy Limited(2) 16,785 37,192 Indirect SPV 100% 100%
Citra Limited(2) 205,362 220,238 Indirect SPV 100% 100%
Charming Limited 18,953,365 25,109,394 Indirect SPV 100% 100%
Cocoa Limited(3) - - Indirect SPV 100% 100%
Courteous Limited(4) - - Indirect SPV 100% -
Dachshund(3) Limited - - Indirect SPV 100% 100%
Daffodil Limited(3) - - Indirect SPV 100% 100%
Dragon Limited(1) - 133,991 Indirect SPV - 100%
Echidna Limited(1) - 34,275 Indirect SPV - 100%
Exceptional Limited(4) - 29,553,364 Indirect SPV 100% 100%
Golding Limited 21,081,370 17,868,732 Indirect SPV 100% 100%
Handy HoldCo Limited 50,090,478 32,455,919 Indirect SPV (Holding Company) 100% 100%
Idaho Limited 22,322,508 25,150,084 Indirect SPV 100% 100%
Kale Limited(1) - 109,304 Indirect SPV - 100%
Laurel Limited 16,410,147 19,486,868 Indirect SPV 100% 100%
Lavender Limited(7) 60,848 18,736,992 Indirect SPV 100% 100%
Marvelous Limited(4) - 1,882,219 Indirect SPV 100% 100%
Masterful Limited 18,893,952 25,761,402 Indirect SPV 100% 100%
Mayflower Limited 15,590,330 20,030,420 Indirect SPV 100% 100%
Mindful Limited(4) - - Indirect SPV 100% -
Neon Limited 26,616,326 32,633,044 Indirect SPV 100% 100%
Octane Limited 20,155,744 19,243,615 Indirect SPV 100% 100%
Orson Limited 17,938,851 11,704,544 Indirect SPV 100% 100%
Parrot Limited(7) 674 660,649 Indirect SPV 100% 100%
Patience Limited(6) 662,085 475,673 Indirect SPV 100% 100%
Pollock Limited(3) - - Indirect SPV 100% 100%
Product HoldCo Limited 58,135,471 - Indirect SPV (Holding Company) 100% -
Riposte Limited 411,002 24,996,021 Indirect SPV 100% 100%
Rocky IV Limited 18,540,092 23,280,175 Indirect SPV 100% 100%
Sierra Limited 20,393,002 19,474,698 Indirect SPV 100% 100%
Swordfish Limited(1) - 137,229 Indirect SPV - 100%
Vicuna Limited(2) 2,598 97,243 Indirect SPV 100% 100%
Cash held pending investment(5) 10,709,986 29,805,237
Residual net assets / (liabilities)(5) 10,714,542 (7,604,525)
Total* 405,988,715 446,892,720
*Vessels are valued at fair value in each of the SPVs shown in the table above
and combined with the residual net assets / (liabilities) of each SPV to
determine the fair value of the total investment attributable to LSA.
(1) Dissolved in the current year.
(2) Company in the process of dissolution at year end.
(3) These SPVs report zero fair value in the table above because they are
owned by the intermediate holding company Handy Holdco Limited and are
included in Handy Holdco Limited's fair value.
(4) These SPVs report zero fair value in the table above because they are
owned by the intermediate holding company Product Holdco Limited and are
included in Product Holdco Limited's fair value.
(5) The cash held pending investment and residual net assets / (liabilities)
are held in LSA.
(6) At 30 June 2022, the SPV Patience had sold and derecognised its vessel,
but continued to operate the vessel under a bareboat charter from the new
owners until the end of its time charter in November 2022.
(7) Company commenced dissolution process post year end.
(8) Fair value of LSA equals to the sum of the assets of residual net assets
and cash as detailed below.
The movement in the fair value of the investment is recorded in the Statement
of Comprehensive Income.
5. Trade and other receivables
2023 2022
US$ US$
Accrued income - 4
Prepayments 38,577 18,379
Other receivables 1,108 -
Due from LSA (dividend receivable) 7,841,485 5,722,002
Total trade and other receivables 7,881,170 5,740,385
Amounts due from LSA are interest free and payable on demand. The amount of
US$5,722,002 due from LSA for the year ended 30 June 2022 was settled in the
current year. Due to the value and short-term nature of these receivables, the
Directors have assessed there to be no expected credit losses associated with
these outstanding balances.
6. Trade and other payables
2023 2022
US$ US$
Performance fees - 3,980,432
Investment management fees 835,779 908,449
Audit fees 219,762 109,603
Administration fees 41,478 42,446
Corporate Brokers fees 37,500 37,500
Directors' fees 10,004 19,789
Total trade and other payables 1,144,523 5,098,219
7. Ordinary share capital
Share Capital
Share issuance Number of shares Gross amount (US$) Direct Issue costs (US$) Share capital (US$)
Total issue at 270,037,638 264,852,891 (5,195,020) 259,657,871
30 June 2021
Tap issue 10,533,763 12,429,840 (160,917) 12,268,923
11 August 2021
Tap issue 28,057,140 38,999,425 (653,236) 38,346,189
12 November 2021
As at 30 June 2022 308,628,541 316,282,156 (6,009,173) 310,272,983
Share buybacks (6,160,000) (6,946,752) - (6,946,752)
As at 30 June 2023 302,468,541 309,335,404 (6,009,173) 303,326,231
The ordinary shares issued are of no par value and are authorised, issued and
fully paid. Ordinary shares carry the right to receive all income of the
Company attributable to ordinary shares, and to participate in any
distribution or other return of capital attributable to ordinary shares.
Ordinary shareholders have the right to receive notice of and attend any
general meeting of the Company and to vote at such meeting with one vote for
each ordinary share held.
The rights conferred upon the holders of the shares are not varied by the
creation or issue of further shares or classes of shares or by the purchase or
redemption by the Company of its own shares, or the holding of such shares in
treasury.
8. Dividend income
2023 2022
US$ US$
Dividend income 32,000,000 25,934,742
During the current year, LS Assets Limited declared
dividends of US$32,000,000
(2022: US$25,934,742) to the Company. At 30 June 2023, dividends of
US$7,841,485
(2022: US$5,722,002) were outstanding (refer to Note 5).
9. (Loss) / Earnings per share
2023 2022
US$ US$
Total comprehensive (loss) / income for the year (2,473,359) 107,302,418
Weighted average number of ordinary shares 307,057,116 296,654,794
(Loss) / Earnings per ordinary share (cents) (0.81) 36.17
Diluted (Loss) / Earnings per ordinary share (cents) (0.81) 36.17
There were no potentially dilutive instruments in issue at 30 June 2023 or 30
June 2022.
10. Dividends
The Company declared the following dividends in respect of the
profit for the year ended 30 June 2023:
Quarter end Dividend per share Ex div date Net Dividend paid Record date Paid date
30 September 2022 US$0.02 27 October 2022 US$6,172,571 28 October 2022 11 November 2022
31 December US$0.02125 26 January US$6,537,831 27 January 2023 10 February 2023
2023
2022
31 March 2023 US$0.02125 27 April 2023 28 April 11 May
US$6,467,832 2023 2023
30 June US$0.02125 27 July US$6,330,992 28 July 11 August 2023
2023 2023 2023
Under the Companies (Guernsey) Law, 2008, the Company can distribute dividends
from capital and revenue reserves, subject to a prescribed net asset and
solvency test.
The net asset and solvency test consider whether a company is able to pay its
debts when they fall due, and whether the value of a company's assets is
greater than its liabilities. The Board confirms that the Company passed the
net asset and solvency test for each dividend paid.
11. Net assets per ordinary share
2023 2022
US$ US$
Shareholders' equity 412,773,093 447,543,709
Number of ordinary shares 302,468,541 308,628,541
Net assets per ordinary share (cents) 136.47 145.01
12. Financial risk management
Capital management
The Company manages its capital to ensure that it will be able to continue as
a going concern while maximising the return to shareholders. In accordance
with the Company's investment policy, the Company's principal use of cash has
been to fund investments as well as ongoing operational expenses. The Board,
with the assistance of the Investment Manager, monitors and reviews the broad
structure of the Company's capital on an ongoing basis. The capital structure
of the Company consists entirely of equity (comprising issued capital and
retained earnings).
As the Company's ordinary shares are traded on the LSE, the ordinary shares
may trade at a discount or premium to their NAV per share. However, the
Directors and the Investment Manager monitor the discount on a regular basis
and can use share buybacks to manage the discount.
The Company is not subject to any externally imposed capital requirements.
Financial risk management objectives
The Board, with the assistance of the Investment Manager, monitors and manages
the financial risks relating to the operations of the Company through internal
risk reports which analyse exposures by degree and magnitude of risk. These
risks include market risk (including price risk, currency risk and interest
rate risk), credit risk and liquidity risk.
Market risk
The value of the investments held by the Company is indirectly affected by
the factors impacting the shipping industry generally, being, inter alia,
interest rates, the availability of credit, and currency exchange rates. Other
risks such as climate change considerations, economic or political
uncertainty, changes in laws and regulations governing shipping or trade are
considered by the Investment Manager and the Board. Please see Principal Risks
and Uncertainties. These factors may affect the price or liquidity of vessels
held by the Company's SPVs and thus the value of the SPVs themselves.
Interest rate risk
The majority of the Company's financial assets and liabilities are
non-interest bearing. However, the Company is exposed to a small amount of
risk due to fluctuations in the prevailing levels of market interest rates
because any excess cash or cash equivalents are invested at short-term market
interest rates.
The Company's interest-bearing financial assets and liabilities expose it to
risks associated with the effects of fluctuations in the prevailing levels of
market interest rates on its financial position and cash flows.
The table below summarises the Company's exposure to interest rate risks. It
includes the Company's assets and trading liabilities at fair value and the
outstanding loans with variable interest rates. It does not consolidate the
US$14.00m (2022: US$18.00m) outstanding loan (with a variable interest rate
capped at 4.65%) owed by Handy HoldCo Limited or the US$56.5m (with a variable
interest rate capped at 7.66% for 3 years from inception) owed by Product
Holdco Limited.
Interest payments on these loans are subject to limited change from
fluctuations in interest rates due to their capped nature.
2023 Interest bearing less than 1 month (US$) Non-interest bearing (US$) Total (US$)
Assets
Investments - 405,988,715 405,988,715
Trade and other receivables - 7,881,170 7,881,170
Cash and cash equivalents 47,731 - 47,731
Total assets 47,731 413,869,885 413,917,616
Liabilities
Trade and other payables - 1,144,523 1,144,523
Total liabilities - 1,144,523 1,144,523
Total interest sensitivity gap 47,731 47,731
The weighted average interest rate is 3.63% for cash and cash equivalents in
the current financial year.
Interest rate risk (continued)
2022 Interest bearing less than 1 month (US$) Non-interest bearing (US$) Total (US$)
Assets
Investments - 446,892,720 446,892,720
Trade and other receivables - 5,740,385 5,740,385
Cash and cash equivalents 8,823 - 8,823
Total assets 8,823 452,633,105 452,641,928
Liabilities
Trade and other payables - 5,098,219 5,098,219
Total liabilities - 5,098,219 5,098,219
Total interest sensitivity gap 8,823 8,823
The weighted average interest rate is 0.25% for cash and cash equivalents in
the prior year.
If the interest rates had been 100 basis points higher or lower and all other
variables were held constant, the Company's profit for the year ended 30 June
2023 would increase or decrease by US$477 (2022: US$88) as a result of the
Company's exposure to interest rates on its variable rate deposits only.
The Company and LSA with its SPVs are permitted to utilise overdraft
facilities towards the achievement of the Company's investment objectives.
There was no overdraft utilised during the current and prior years.
Refer to Price Risk on the following pages for a description of the indirect
impact interest rates have on the valuation of vessel assets.
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in a financial loss to the Company.
The Company's subsidiary SPVs hold credit risk exposures to
charterers. Potential new charters are evaluated to assess counterparty credit
risk, both at an SPV and portfolio level, prior to any contractual engagement.
The SPVs historical actual counterparty credit losses over the life of the
Company to date have been zero. At 30 June 2023 there were no receivables held
by the SPVs considered impaired (2022: US$nil).
Cash reserves are held at the LSA and SPV levels and are paid up
to the Company as required to enable expenses to be settled as they fall due.
The Company maintains its cash and cash equivalents with various
banks to diversify credit risk. These are subject to the Company's credit
monitoring policies including the monitoring of the credit ratings issued by
recognised credit rating agencies.
30 June 2023 Credit rating Standard & Poor's Cash Short term fixed deposits (US$) Total as at 30 June 2023
(US$) (US$)
Barclays Bank Plc (Barclays) A+ Long Term 38,624 - 38,624
A-1 Short Term
Ravenscroft (1) A+ Long Term - 9,107 9,107
(HSBC London - call accounts) A-1 Short Term
Total 38,624 9,107 47,731
1 Ravenscroft is an execution only broker that acts solely on
instruction of the Board of Directors. The Board of Directors only invest cash
in banking institutions with an A- rating or higher.
30 June 2022 Credit rating Standard & Poor's Cash Short term fixed deposits (US$) Total as at 30 June 2022
(US$) (US$)
Barclays Bank Plc (Barclays) A Long Term 4,152 - 4,152
A-1 Short Term
Ravenscroft (1) A+ Long Term - 4,671 4,671
(HSBC London - call accounts) A-1 Short Term
Total 4,152 4,671 8,823
1 Ravenscroft is an execution only broker that acts solely on
instruction of the Board of Directors. The Board of Directors only invest cash
in banking institutions with an A- rating or higher.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Board of Directors has established
an appropriate liquidity risk management framework for the management of the
Company's short-term, medium-term and long-term funding and liquidity
management requirements.
The Company manages liquidity risk by maintaining adequate cash reserves by
monitoring forecast and actual cash flows. Cash reserves are held at the LSA
and SPV levels and paid up to the Company as required to enable expenses to be
settled as they fall due.
The table below shows the maturity of the Company's non-derivative financial
assets and liabilities. The amounts disclosed are contractual, undiscounted
cash flows and may differ from the actual cash flows received or paid in the
future as a result of early repayments.
30 June 2023 Up to 3 months (US$) Between 3 and 12 months (US$) Between 1 and 5 years Total
(US$) (US$)
Assets
Financial assets at fair value through profit or loss - - 405,988,715 405,988,715
Trade and other receivables 7,842,593 - - 7,842,593
Cash and cash equivalents 47,731 - - 47,731
Liabilities
Trade and other payables 1,144,523 - - 1,144,523
Total 6,745,801 - 405,988,715 412,734,516
30 June 2022 Up to 3 months (US$) Between 3 and 12 months (US$) Between 1 and 5 years Total
(US$) (US$)
Assets
Financial assets at fair value through profit or loss - - 446,892,720 446,892,720
Trade and other receivables 5,722,006 - - 5,722,006
Cash and cash equivalents 8,823 - - 8,823
Liabilities
Trade and other payables 5,098,219 - - 5,098,219
Total 632,610 - 446,892,720 447,525,330
Price risk in the shipping industry
The valuation techniques used by the underlying SPVs in determining the value
of the vessels held (based on assumptions that are not supported by prices or
other inputs from observable current market transactions) present a price risk
to the Company. The Company's financial assets are measured at fair value
which comprises the fair value of the underlying SPVs. The Company values its
investment in LSA and the SPVs at their respective net asset values. The net
asset values comprise shipping vessels which are measured at fair value and
other residual net assets and liabilities of each of the entities.
All the assets and underlying vessels are Level 3 assets. All the market price
risk pertains to the Level 3 investment portfolio in its entirety.
Price risk sensitivity analysis was conducted on vessel and charter fair
values only as these are the unobservable inputs to the valuation of the
Company's investment.
(a) Standard Vessel valuations
The fair value of a standard vessel comprises both the charter-free value and
the charter valuation. The charter-free and associated charter values of
typical vessels are calculated using an online valuation system provided by
VesselsValue or, in limited circumstances, written mainstream broker
valuations. For charter-free values, the VesselsValue system contains a number
of algorithms that combine factors such as vessel type, technical features,
age, cargo capacity, freight earnings, market sentiment and recent vessel
sales.
Similarly, the charter-free values determined by written mainstream broker
valuations consider vessel specifications and other applicable market
information.
For charter values, the system provides a DCF module where vessel specific
charter details are input and measured against a system or shipbroker-provided
market benchmark to obtain a premium or discount value of the charter versus
prevailing market.
The lower bound of the charter valuation process comprises the DCF value of
the current charter plus scrap value of the vessel at the end of the charter.
At the current and prior year ends this minimum value was not applied to any
vessels.
(b) Specialised Vessels and arrangements
There will be cases where the Company may invest in vessels and make
arrangements which are (i) of a specialised nature and fall out of scope of
mainstream brokers and/or (ii) where contracted employment does not have an
available reference benchmark in the freight brokerage community.
The Investment Manager will make its own assessment of a vessel's value with
charter using a discounted cashflow model ("DCF Model"). The DCF Model will
calculate the net present value of the charter and vessel value using the
following inputs:
· Discount rate;
· Charter Rate; and
· Exit/scrappage value
There was one specialised vessel arrangement held at the year end (one vessel
at 30 June 2022) being a gas tanker with a long-term bareboat charter
attached.
Refer to Note 3 for further information on the valuation methodologies
applied. The Directors and Tufton believe that the above reflects those inputs
where price risk could be significant, and where estimate and judgement can
potentially be used.
Covid
The global economy has largely recovered from the negative impacts of Covid.
The introduction of Covid-related restrictions in China over the summer of
2022 impacted the bulker market and increased planned capex and off-hire for
some of the Company's vessels. With the easing of Covid-related restrictions
in China from January, port congestion caused by the restrictions has been
resolved. The delays to crew rotation caused by national restrictions put in
place to contain the spread of Covid were also largely resolved by 4Q22.
The Investment Manager believes the Company's strong operating profit and
performance in the Covid crisis, both on an absolute basis and relative to
other asset classes, demonstrate it can be an attractive high income and low
correlation investment.
Price risk sensitivity analysis
Charter-free valuation for standard vessels
If the charter-free vessel values at 30 June were 10% higher or lower, then
the effect on the standard vessel portfolio value would be as follows:
Vessel values +10% change in charter-free values Standard vessel portfolio value -10% change in charter-free values
US$ 000 US$ 000
US$ 000
Fair value at 30 June 2023 +47,659 437,843 (47,659)
Fair value at 30 June 2022 +47,265 432,089 (47,265)
The ballast water treatment system and scrubber adjustments are not considered
significant or material and therefore no sensitivity analysis has been
prepared.
Charter valuation for standard vessels
Charter rates
The Directors have concluded that use of a 10% movement in benchmark charter
rates remains a suitable sensitivity calculation, noting that most of the
charter value is derived from charters having remaining periods of 1 year or
more, the market benchmarks for which show lower volatility than spot rates
and already reflect market expectations for the period of the charter. If
market charter rates used to determine charter values were 10% higher or
lower, then the effect on the standard vessel portfolio value would be as
follows:
Vessel values +10% change Standard vessel portfolio value -10% change
US$ 000 US$ 000 US$ 000
Fair value at 30 June 2023 (14,988) 437,852 +14,959
Fair value at 30 June 2022 (11,368) 432,089 +12,184
Price risk sensitivity analysis
Specialised vessels
If the discount rates were 0.5% higher or lower, then the effect on the
specialised vessel portfolio value would be as follows:
+0.5% change Specialised Vessel portfolio value -0.5% change
US$ 000 US$ 000 US$ 000
Specialised vessel fair value at 30 June 2023 (188) 24,904 +191
Specialised vessel fair value at 30 June 2022 (270) 26,069 +275
There was one specialised vessel held at the year end (one at 30 June 2022).
Currency risk
The Company may have assets and liabilities denominated in currencies other
than the United States Dollar, the functional currency. It therefore may be
exposed to currency risk as the value of assets or liabilities denominated in
other currencies will fluctuate due to changes in exchange rates.
However, such exposure is currently, and is expected to remain, insignificant.
Consequently, no further information has been provided.
13. Investment management fee
The Investment Manager is entitled to receive an annual fee, calculated on a
sliding scale, as follows:
(a) 0.85 per cent per annum of the quarter end Adjusted Net Asset Value up to
US$250m;
(b) 0.75 per cent per annum of the quarter end Adjusted Net Asset Value in
excess of US$250m but not exceeding US$500m; and
(c) 0.65 per cent per annum of the quarter end Adjusted Net Asset Value in
excess of US$500m.
For the year ended 30 June 2023 the Company has incurred US$3,504,464
(2022: US$3,410,456) in investment management fees of which US$835,779 was
outstanding at 30 June 2023 (2022: US$908,449).
14. Performance fees
Tufton ODF Partners LP 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 Per Share on any
Calculation Day; and
· the prevailing Historic Performance Fee Amount is greater than zero
on such Calculation Day,
Any fee accruing as at the end of the Calculation Period is paid 50%
subsequent to the end of that period, with the remaining 50% being retained by
the Company and deferred until the next time that a performance fee payment is
due, being adjusted for any subsequent underperformance during that time.
The prevailing Historic Performance Fee Amount shall be reduced by the lower
of: (i) 20 per cent of the difference between the High Watermark Per Share and
the Total Return Per Share on such Calculation Day multiplied by the Relevant
Number of shares; and (ii) the prevailing Historic Performance Fee Amount.
The prior year's accrued performance fees of US$3,980,432 was reversed,
resulting in an accrued performance fee of US$nil (2022: US$3,980,432) at year
end.
15. Related parties
The Investment Manager, Tufton Investment Management Ltd, is a
related party due to having common key management personnel with the SPVs of
the Company. All management fee transactions with the Investment Manager are
disclosed in Note 13.
Tufton ODF Partners LP is a related party due to being the beneficiary of any
performance fee paid by the Company. Refer to note 14.
Transactions with LSA and SPVs are not disclosed.
The Directors held the following interests in the share capital of the Company
either directly or beneficially as at 30 June 2023, and as at the date of
signing these financial statements:
2023 2022
Director Shares Shares
R King 60,000 45,000
S Le Page 40,000 40,000
P Barnes 5,000 5,000
C Rødsaether 30,000 20,000
Other Interests
Tufton Investment Management Holding Limited Group ("Tufton
Group") shareholders, employees, non-executive directors and former
shareholders held the following interests in the share capital of the Company
either directly or beneficially.
As at 30 June 2023
Name Ordinary Shares % of issued
Share Capital
Tufton Group Shareholders 6,968,839 2.30
Tufton Group Staff 580,450 0.19
Tufton Group Non-Executive Directors 403,279 0.13
Former Tufton Group Shareholders 3,258,263 1.08
As at 30 June 2022
Name Ordinary Shares % of issued
Share Capital
Tufton Group Shareholders 5,375,133 1.74
Tufton Group Staff 466,261 0.15
Tufton Group Non-Executive Directors 403,279 0.13
Former Tufton Group Shareholders 3,041,740 0.99
16. Controlling party
In the opinion of the Directors, based on shareholdings advised to them, the
Company has no immediate or ultimate controlling party.
17. Directors' fees
The remuneration of the Directors was US$174,913 (2022: US$177,338) for the
year which consisted solely of short-term benefits. At 30 June 2023,
Directors' fees of US$10,004 (2022: US$19,789) were outstanding.
The Directors fees are as disclosed below:
30 June 30 June
2023 2022
Director £ £
R King 39,305 36,610
S Le Page 36,000 34,000
P Barnes 33,525 31,550
C Rødsaether 33,525 31,550
18. Events after the reporting year
The Company purchased a total of 7,386,000 ordinary shares at a price of
US$0.98 per share post period end to 20 September 2023.
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 those
operations, or the state of affairs of the Company the next financial period
up to the date of approval of these financial statements.
Alternative Performance Measures ("APMs")
This Annual Report and Audited Financial Statements contain APMs, which are
financial measures not defined in IFRS. These include certain financial and
operational highlights and key financials. The definition of each of these
APMs is shown below.
The Company assesses its performance using a variety of measures that are not
specifically defined under IFRS and are therefore termed APMs. The APMs that
the Company uses may not be directly comparable with those used by other
companies. These APMs are used to present a clearer picture of how the Company
has performed over the year and are all financial measures of historical
performance. The APMs are prepared on a consolidated basis.
Alternative Performance Measure Definition / Method of calculation Reason for use
Average Charter Length Total forecast EBITDA from charters in place, divided by the expected To provide information about the extent to which the future revenue of the
annualised EBITDA of those charters SPVs is contractually fixed
CAGR Compound Annual Growth Rate. A business and investing specific term for the To provide a measure of annual compound growth rate over time
geometric progression ratio that provides a constant rate of return over the
time period
Consolidated Gearing Ratio Loans to charter-free value on a consolidated basis To provide an indication of leverage, which is not reported in the financial
statements which are not prepared on a consolidated basis
Dividend Cover Portfolio Operating Profit less capex less debt amortisation, divided by To provide information about the extent to which past dividends are covered by
dividends for the period past earnings
EBITDA Earnings before interest, taxes, depreciation and amortisation To provide a measure of profitability from operating activity, independent of
financing strategy
Forecast Net Yield Forecast EBITDA over the current charters minus any capex accruals for the To provide information about profitability from future operating activity
vessels in the portfolio divided by the time-weighted vessel values over the relative to current vessel values
same period
Gain / (loss) in Capital Values Fair value gains and losses (being the change in charter-free value + change Fair value of the Company's underlying investments is a key component of the
in charter value) from marking assets to market in accordance with the Company's overall investment performance
valuation policy of the Company
Gross Operating Profit Operating profit before gain / (loss) in capital values, loan interest, fees, To provide an indication of the underlying profit from operating activity,
and all other Company level expenses which is not reported in the financial statements, before interest, fees and
Company level expenses
IRR Internal rate of return - the internal rate of return is the interest rate at A widely used APM which allows the shareholders to compare performance of
which the net present value of all the cash flows from a project or investment different funds
equal zero, and is a common performance indicator used in investment funds
NAV Total Return Per Share The change in NAV per share plus dividends per share paid by the Company A measure showing how the NAV per share has performed over a period of time,
during the period, divided by the initial NAV per share at inception taking into account both capital return and dividends paid to Shareholders
Portfolio Operating Profit Gross Operating Profit and interest income less loan interest and fees, To provide an indication of the underlying net profit from operating activity,
Company Level Fees and Expenses which is not reported in the financial statements
Portfolio Price / Depreciated Replacement Cost ("P/DRC") Price divided by the Depreciated Replacement Cost. Price may refer to a The Investment Manager's preferred valuation metric for investment analysis.
transaction (investment or divestment) value or fair value at a certain date P/DRC tends to revert to 100% in the long-term
Revenue Charter income, net of broker commissions and charter related costs, earned by To provide an indication of the underlying income from operating activity
SPVs which is not reported in the financial statements
Ship-Days The sum of the number of days each vessel was owned by the Company over the To provide information about the vessel operating activity measured in days
financial period
Time-Weighted Capital Employed Time-weighted capital invested in vessels A metric used to compare Gross Operating Profit across different periods
Total Return Per Share The Net Asset Value per ordinary share on any Calculation Day adjusted to: A measure showing how the investment in the Company's shares has performed
over a period of time, taking into account both capital return and dividends
(i) include the gross amount of any dividends and/or distributions paid to an paid to Shareholders
ordinary share since Admission;
(ii) not take account of any accrual made in respect of the performance fee
itself for that Calculation Period;
Total Return Per Share (iii) not take account of any accrual made in respect of any prevailing
Historic Performance Fee Amount (as adjusted pursuant to the operation of this
paragraph below);
(iv) not take account of any increase in Net Asset Value per share
attributable to the issue of ordinary shares at a premium to Net Asset Value
per share or any buyback of any ordinary shares at a discount to Net Asset
Value per ordinary share during such Calculation Period;
(v) not take account of any increase in Net Asset Value per share attributable
to any consolidation or sub-division of ordinary shares;
(vi) take into account any other reconstruction, amalgamation or adjustment
relating to the share capital of the Company (or any share, stock or security
derived therefrom or convertible there into); and
(vii) take into account the prevailing Net Asset Value of any C Shares in
issue
Corporate Information
Directors
Robert King, Chairman
Stephen Le Page
Paul Barnes
Christine Rødsaether
Registered office
3rd Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Prior to effective date of 31 March 2023
1 Royal Plaza
Royal Avenue
St Peter Port
GY1 2HL
Guernsey
Effective from 31 March 2023
Investment Manager and AIFM
Tufton Investment Management Ltd
70 Pall Mall
1st Floor London
SW1Y 5ES
Asset Manager
Tufton Management Limited
3rd Floor, St George's Court
Upper Church Street
Douglas
Isle of Man IM1 1EE
Secretary and Administrator
Maitland Administration (Guernsey) Limited, an Apex Group company ("Maitland")
3rd Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Prior to effective date of 31 March 2023
1 Royal Plaza
Royal Avenue
St Peter Port
GY1 2HL
Guernsey
Effective from 31 March 2023
Brokers
Hudnall Capital LLP
Adam House
7-10 Adam Street
London
WC2N 6AA
Singer Capital Markets
1 Bartholomew Lane
London
EC2N 2AX
Depositary
Apex Depositary (UK) Limited
Bastion House
140 London Wall
London
EC2Y 5DN
Appointment date: 4 November 2022
Guernsey Legal Advisers
Carey Olsen (Guernsey) LLP
PO Box 98, Carey House
Les Banques
St Peter Port
Guernsey
GY1 4BZ
UK Legal Advisers
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Registrar
Computershare Investor Services (Guernsey) Limited
1(st) Floor, Tudor House
Le Bordage
St Peter Port
Guernsey
GY1 1DB
Receiving Agent
Computershare Investor Services PLC
The Pavillions
Bridgewater Road
Bristol
BS99 6AH
Independent Auditor to the Company
PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4ND
Principal Bankers
Barclays Bank Plc
Guernsey International Banking
PO Box 41
St Peter Port
Guernsey, GY1 3BE
Definitions
The following definitions apply throughout this document unless the context
requires otherwise:
Adjusted Net Asset Value The Net Asset Value less uninvested monies (cash and cash value equivalents)
held by the Company from time to time excluding monies arising on or from the
realisation of or a distribution from an investment.
Administrator Maitland Administration (Guernsey) Limited an Apex Group company.
AIC the Association of Investment Companies.
AIFM Directive or AIFMD the EU Directive on Alternative Investment Fund Managers (No. 2011/61/EU).
AIF an alternative investment fund.
AIFM an alternative investment fund manager.
AIFM Rules the AIFM Directive and all applicable rules and regulations implementing the
AIFM Directive in the UK.
Articles of Incorporation or Articles the articles of incorporation of the Company, as amended from time-to-time.
Asset Manager Tufton Management Limited
Auditor PricewaterhouseCoopers CI LLP
Board the Directors from time to time.
Brokers a mercantile agent employed in buying and selling shares -
The Company's brokers are Hudnall Capital LLP
and Singer Capital Markets.
BWTS Ballast Water Treatment System.
Calculation Day The last business day of each Calculation Period.
Calculation Period (a) the period starting on Admission and ending on the earlier of (i) 30 June
2024; (ii) the commencement of the winding up of the Company; and (iii) the
termination of the Manager's appointment; and
(b) if the previous Calculation Year ended on 30 June of the previous Year,
each successive period starting on 1 July and ending on the earlier of (i) 30
June three years later; (ii) the commencement of the winding up of the
Company; and (iii) the termination of the Manager's appointment.
Calculation Year 1 July to 30 June
Companies Law the Companies (Guernsey) Law, 2008 as amended.
Company Tufton Oceanic Assets Limited (Guernsey registered number 63061) which, when
the context so permits, shall include any intermediate holding company of the
Company and the SPVs.
Depreciated Replacement Cost or DRC The Investment Manager's preferred valuation metric. DRC for a secondhand
vessel is the current cost of replacing the vessel with an equivalent
newbuild, depreciated to the same age.
Directors or Board the Board of Directors of the Company.
Disclosure Guidance and Transparency Rules or DTRs the disclosure guidance and transparency rules made by the Financial Conduct
Authority under Section 73A of FSMA.
Discount Control Policy The policy described in the Discount Control section of the Company's
Prospectus.
Environmental, Social, and Corporate Governance (ESG) an evaluation of the company's collective conscientiousness for social and
environmental factors.
FCA the UK Financial Conduct Authority
Financial Reporting Council or FRC the UK Financial Reporting Council
FSMA the Financial Services and Markets Act 2000 and any statutory modification or
re-enactment thereof for the time being in force.
Fund Level Fees and Expenses Investment management fee and other professional fees and expenses at fund
level.
GFSC or Commission the Guernsey Financial Services Commission
High Watermark Per Share the higher of: (i) US$1.00 increased by the Hurdle; and (ii) if a Performance
Fee has previously been paid, the Total Return Per Share on the Calculation
Day for the last Calculation Period (if any) by reference to which a
Performance Fee was paid.
High Performance Fee Amount in respect of any Calculation Period, an amount equal to the Performance Fee
Pay-Out Amount for the previous Calculation Period where a Performance Fee was
payable.
Historic Performance Fee Amount in respect of any Calculation Period, an amount equal to be Performance Fee
Pay-Out Amount for the previous Calculation Period where a performance fee was
payable.
IASB International Accounting Standards Board
IFRIC International Financial Reporting Interpretations Committee
IFRS International Financial Reporting Standards
Investment Manager Tufton Investment Management Limited
Issue Price An issue price refers to the initial cost of a security when it first becomes
available for purchase by the public.
Listing Rules the listing rules made by the UKLA pursuant to Part VI of FSMA
London Stock Exchange or LSE London Stock Exchange plc
LPG Carrier a vessel used to transport liquefied petroleum gas.
LS Assets Limited or LSA the Guernsey holding company owning the SPVs through which the Company
investment into vessels.
LSE Admission Standards the rules issued by the London Stock Exchange in relation to the admission to
trading of, and continuing requirements for, securities admitted to the SFS.
Main Market the main market for listed securities operated by the London Stock Exchange.
Market Abuse Regulation or MAR Regulation (EU) No 596/2014 of the European Parliament and of the Council of
16 April 2014 on market abuse.
Memorandum the memorandum of association of the Company.
Net Asset Value or NAV the value, as at any date, of the assets of the Company after deduction of all
liabilities of the Company and in relation to a class of shares in the
Company, the value, as at any date of the assets attributable to that class of
shares after the deduction of all liabilities attributable to that class of
shares determined in accordance with the accounting policies adopted by the
Company from time-to-time.
Performance Fee Amount 20 per cent. of the excess in Total Return Per Share and the High Watermark
Per Share multiplied by the time weighted average number of shares in issue
during the Calculation Period.
Performance Fee Pay-Out Amount in respect of the relevant Calculation Period, an amount equal to "A", where:
A = (0.5 x B) + C;
B = the Performance Fee Amount; and
C = an amount equal to the High Performance Fee Amount.
POI Law the Protection of Investors (Bailiwick of Guernsey) Law, 2020, as amended.
Portfolio the Company's portfolio of investments from time to time.
Paris Agreement The Paris Agreement is a legally binding international treaty on climate
change.
Prospectus The Placing and Offer for Subscription document for the Company dated 8th
December 2017.
Register the register of members of the Company.
Relevant Number of Shares for any Calculation Period the time weighted average number of ordinary shares
in issue during such Calculation Period.
Responsible Investment A strategy and practice to incorporate environmental, social and governance
(ESG) factors in investment decisions and active ownership.
SFS or Specialist Funds Segment the Specialist Funds Segment of the Main Market (previously known as the
Specialist Fund Market or SFM).
Segment classifications of vessels within the shipping industry including, inter alia,
Tankers, General Cargo, Containerships and Bulkers.
SOFR Secured Overnight Financing Rate.
SPV or Special Purpose Vehicle corporate entities, formed and wholly owned (directly or indirectly) by the
Company, specifically to hold one or more vessels, and including (where the
context permits) any intermediate holding company of the Company.
£ or Sterling the lawful currency of the United Kingdom.
Tufton the Investment Manager
Tufton Group Tufton Investment Management Holding Ltd and its subsidiaries.
UK Corporate Governance Code the UK Corporate Governance Code as published by the Financial Reporting
Council from time-to-time.
UK Listing Authority the FCA acting in its capacity as the competent authority for the purposes of
Part VI of FSMA.
United Kingdom or UK the United Kingdom of Great Britain and Northern Ireland.
VesselsValue VesselsValue Limited, a third party provider of vessel valuations to the
Company and Investment Manager.
WACC the weighted average cost of capital.
VLCC Very large crude carrier.
Notice of AGM
Tufton Oceanic Assets Limited
Registered Office Address: 1 Royal Plaza, Royal Avenue, St Peter Port,
Guernsey, GY1 2HL.
Registration Number: 63061
This document is important and requires your immediate attention. If you are
in doubt as to any aspect of the proposals referred to in this document or the
action you should take, you should seek your own advice from a stockbroker,
solicitor or other independent professional adviser. If you have recently sold
or transferred all your shares in Tufton Oceanic Assets Limited, please
forward this document, together with the accompanying documents, as soon as
possible either to the purchaser or transferee or to the person who arranged
the sale or transfer so they can pass these documents to the person who now
holds the shares.
Dear Shareholder,
I am pleased to send you the notice of the seventh Annual General Meeting
("AGM") of the members of Tufton Oceanic Assets Limited (the "Company"), to be
held at 1 Royal Avenue, St Peter Port, Guernsey GY1 2HL on Tuesday, 24 October
2023 at 12.30 p.m. BST. Explanatory notes on all resolutions accompany the
notice of the AGM (the "Notice").
Re-Election of Directors
As in previous years, all Directors are offering themselves for re-election in
accordance with the AIC Code of Corporate Governance and the Articles of
Incorporation of the Company (the "Articles"). Three of the current four
members of the Board were appointed at the formation of the Company in 2017.
Whilst their respective tenure is much less than the AIC Guidance figure of
nine years, a succession plan has been considered by the Board. As part of
this plan and despite the fact that a continuation vote must be put to the AGM
in 2024, it has been decided to start a search for a new director using an
external agency. This succession plan also aims to increase the diversity of
the Board. Please note for your information that biographical details of all
the Directors offering themselves for re-election are set out in the
explanatory notes to the resolutions that follow this Notice.
Resolution 9 (Market Acquisitions of Shares)
The Company will only exercise the authority to buy back shares (granted by
resolution 9) when, in the prevailing circumstances, it believes to do so is
in the best interests of the Company and its shareholders.
Typically the authority to buy back shares would be exercised as a means of
addressing any discount at which the Company's shares trade to their
underlying net asset value (the "Discount"). The existence and extent of any
Discount is a product of many factors including the total market
capitalisation of the Company and the liquidity in terms of the trading in its
shares. It is also noted that in the current macro-economic environment many
closed ended investment companies trade on wide discounts to their underlying
net asset values.
The Board does not believe:
· the total expense ratio of the Company; or
· the performance of the Company's investment manager and the level
and structure of the fees payable to the Company's investment manager are
significant contributing factors to the Discount
The Board will continue to monitor the Discount and the appropriateness of
utilising the authority to buy back shares as a means of addressing the
Discount. However it should be appreciated that there can be no guarantee that
such utilisation will reduce the Discount either on a temporary or permanent
basis.
Since the Company's general authority to make market purchases was last
approved at the 2022 AGM, the Company has made 6,160,000 market purchases of
shares, amounting to 2.04% of the shares in issue as at 30 June 2023. All the
shares were acquired at a significant discount (averaging 17.9%) to the
prevailing Net Asset Value (NAV) per share issued by the Company quarterly.
The Board, in making the decision to acquire shares, took into account the
views against making share buy backs expressed by some advisors to the
Company's shareholder base, but felt that the very wide discount to which the
shares had fallen resulted from factors external to the Company. This market
wide discount represented a very good capital management opportunity to
enhance the NAV per share attributable to long term shareholders and create a
better return for them than investing the funds in a new vessel. For the
avoidance of doubt, the Board has not benefitted directly or indirectly from
these market purchases except to the extent to which all remaining
shareholders have benefitted. The Board is seeking authority to continue
making market purchases of shares, to the extent permitted in the Articles of
the Company, when it believes such activity to be in the best interests of
shareholders as a whole.
Voting
The Board of Directors of the Company believe that the proposed resolutions
set out in this Notice are in the best interests of the Company and its
members as a whole.
If you would like to vote on the resolutions, please appoint a proxy by no
later than 12.30 pm BST on Friday, 20 October 2023. A form of proxy
accompanies the Notice.
All resolutions will be put to a poll in reflection of best practice and to
ensure that all members have their votes taken into account, proportional to
their shareholdings in the Company.
The results of the AGM will be announced to the market as soon as practicable
after the conclusion of the AGM. Should you wish to discuss anything ahead of
the AGM, please see the contact details below:
Tufton Investment Management Ltd, the Investment Manager
andrew.hampson@tufton.com (mailto:andrew.hampson@tuftonoceanic.com)
Paulo.almeida@tufton.com (mailto:Paulo.almeida@tuftonoceanic.com)
Hudnall Capital, the Joint Broker
ac@hudnallcapital.com (mailto:ac@hudnallcapital.com)
Singer Capital Markets, the Joint Broker
James.Maxwell@singercm.com (mailto:James.Maxwell@singercm.com)
Alex.Bond@singercm.com (mailto:Alex.Bond@singercm.com)
Maitland Administration (Guernsey) Limited, the Company Secretary &
Chairman
admin.guernsey@maitlandgroup.com (mailto:admin.guernsey@maitlandgroup.com)
NOTICE OF ANNUAL GENERAL MEETING 2023
Notice is hereby given that the seventh Annual General Meeting of the members
of Tufton Oceanic Assets Limited (the "Company") will be held at 1 Royal
Avenue, Royal Plaza, St Peter Port, Guernsey GY1 2HL on Tuesday, 24 October
2023 at 12.30 pm BST to transact the business set out in the resolutions
below.
ORDINARY RESOLUTIONS
1. To receive the Company's Annual Report and Audited Financial
Statements for the year ended 30 June 2023.
2. To re-appoint PricewaterhouseCoopers CI LLP as Auditor to the
Company until the conclusion of the next general meeting at which accounts are
laid before the Company.
3. To authorise the Directors of the Company (the "Directors") to
determine the remuneration of the Auditor.
4. To approve the remuneration of the Directors for the year ended
30 June 2023, as set out in the Directors' Report.
5. To re-elect Mr Robert King as a Director who retires by
rotation in accordance with Article 21.3 of the Articles of Incorporation of
the Company (the "Articles").
6. To re-elect Mr Stephen Le Page as a Director who retires by
rotation in accordance with Article 21.3 of the Articles of Incorporation of
the Company.
7. To re-elect Mr Paul Barnes as a Director who retires by
rotation in accordance with Article 21.3 of the Articles of Incorporation of
the Company.
8. To re-elect Ms Christine Rødsæther as a Director who retires
by rotation in accordance with Article 21.3 of the Articles of Incorporation
of the Company.
9. To authorise the Company to make market acquisitions (as
defined in the Companies (Guernsey) Law, 2008, as amended) of its own ordinary
shares of no par value ("ordinary shares"), either for cancellation or to hold
as treasury shares for future resale or transfer, provided that:
a. the maximum number of ordinary shares authorised to be
purchased shall be up to 14.99 per cent. of the ordinary shares in issue
(excluding treasury shares in issue) as at 23 September 2023 (being the last
business day prior to the publication of the Notice);
b. the minimum price (exclusive of expenses) which may be paid for
an ordinary share is US$0.01;
c. the maximum price (exclusive of expenses) which may be paid for
an ordinary share is an amount equal to the higher of:
i. an amount equal to 5 per cent. above the average of the mid-market
values of an ordinary share taken from the London Stock Exchange Daily
Official List for the five business days before the purchase is made; or
ii. the higher of the price of the last independent trade or the
highest current independent bid for ordinary shares on the London Stock
Exchange at the time the purchase is carried out;
d. subject to paragraph (e), such authority shall expire at the
annual general meeting of the Company to be held in 2024 (unless previously
varied, revoked or renewed by the Company in general meeting) or, if earlier,
the date falling 15 months from the passing of this resolution; and
e. notwithstanding paragraph (d), the Company may make a contract
to purchase its ordinary shares pursuant to the authority hereby conferred
prior to the expiry of such authority which will or may be executed wholly or
partly after the expiry of such authority and may make a purchase of its own
ordinary shares in pursuance of any such contract notwithstanding the expiry
of the authority given by this resolution.
10. To re-approve the dividend policy of the Company as set out in the
Prospectus dated 25 September 2018.
EXTRAORDINARY RESOLUTION
11. To authorise the Directors to allot and issue shares, to grant
rights to subscribe for or to convert any security into shares and to make
offers or agreements to allot and issue equity securities (as defined in
Article 5.1(a) of the Articles) for cash and/or to sell ordinary shares held
by the Company as treasury shares as if the pre-emption rights contained in
Article 5.2 of the Articles did not apply to any such allotment, grant or
sale, provided that such authority shall be limited to the allotment of shares
and/or grant of rights to subscribe for or to convert any security into shares
and/or sale of treasury shares up to an aggregate number of ordinary shares as
equal to 30,862,854 ordinary shares (representing 10 per cent. of the ordinary
shares in issue as at 23 September 2023) (excluding any ordinary shares held
in treasury and after giving effect to the exercise of warrants, options or
other convertible securities outstanding as at such date).
The authority granted by this resolution shall, unless renewed, varied or
revoked by the Company, expire on the earlier of the conclusion of the next
annual general meeting of the Company and 15 months after the passing of this
resolution, save that the Company may, before such expiry, make offers or
enter into agreements during the relevant period which would or might require.
Ordinary shares to be allotted and issued or rights to subscribe for or to
convert any security into ordinary shares to be granted or ordinary shares
held in treasury to be sold after this authority has expired and the Directors
may allot and issue equity securities and/or sell ordinary shares out of
treasury in pursuance of any such offer or agreement as if this power had not
expired.
By order of the Board
On behalf of Maitland Administration (Guernsey) Limited
Company Secretary
1 Royal Avenue
Royal Plaza
St Peter Port
Guernsey
GY1 1WD
EXPLANATORY NOTES - GENERAL
The following notes explain your general rights as a member and your right to
vote at the 2023 AGM or to appoint someone else to vote on your behalf.
A member of the Company who is entitled to attend the AGM is entitled to
appoint one or more proxies to attend, speak and vote in their place. A proxy
does not need to be a member of the Company but must attend the AGM to
represent you. Details of how to appoint the Chairman of the AGM or another
person as your proxy using the proxy form are set out in the notes to the
proxy form. If you wish your proxy to speak on your behalf at the AGM you will
need to appoint your own choice of proxy (not the Chairman) and give your
instructions directly to them. A member may appoint more than one proxy to
attend the AGM, provided that each proxy is appointed to exercise rights
attached to different shares. Under the current circumstances, the Board
strongly advises shareholders to appoint the Chairman of the meeting as their
proxy for all votes. Please note that appointing a proxy who cannot attend the
AGM will effectively void your vote.
A corporation which is a member can appoint one or more corporate
representatives who may exercise, on its behalf, all its powers as a member
provided that no more than one corporate representative exercises powers over
the same share. Corporate members are strongly encouraged to complete and
return a form of proxy appointing the Chairman of the meeting to ensure their
votes are included in the poll.
A form of proxy is enclosed which should be completed in accordance with the
instructions. To be valid, this form of proxy and any power of attorney or
other authority under which it is executed (or a duly certified copy of such
power of attorney) must be lodged with the Company's Registrar, Computershare
Investor Services (Guernsey) Limited, c/o The Pavilions, Bridgwater Road,
Bristol, BS99 6ZY, or by e-mail to
#UKCSBRS.ExternalProxyQueries@computershare.co.uk
(mailto:#UKCSBRS.ExternalProxyQueries@computershare.co.uk) . Alternatively,
completed forms can be sent to the registered office of the Company c/o
Maitland Administration (Guernsey) Limited, 3rd Floor, 1 Royal Avenue, Royal
Plaza, St Peter Port, Guernsey, GY1 2HL. All proxies must be received by no
later than 12.30pm BST on Friday, 20 October 2023, being 48 hours before the
time appointed for the AGM. Submission of a proxy appointment will not
preclude a member from attending and voting at the AGM should they wish to do
so.
CREST offers a proxy voting service which the Company's Registrar,
Computershare are an agent of.
Shareholders are advised that, upon receipt of their proxy form from the
Company, if they wish to appoint a proxy or to give or amend an instruction to
a previously appointed proxy via the CREST system, the CREST message must be
received by the Company's agent (ID 3RA50) two days prior to the date of the
Company's AGM at the latest. For this purpose, the time of receipt will be
taken to be the time (as determined by the timestamp applied to the message by
the CREST Applications Host) from which the issuer's agent is able to retrieve
the message. After this time any change of instructions to a proxy appointed
through CREST should be communicated to the proxy by other means.
CREST Personal Members or other CREST sponsored members, and those CREST
Members who have appointed voting service provider(s) should contact their
CREST sponsor or voting service provider(s) for assistance with appointing
proxies via CREST.
For further information on CREST procedures, limitations and system timings,
please refer to the CREST Manual. We may treat as invalid a proxy appointment
sent by CREST in the circumstances set out in Regulation 41 of the
Uncertificated Securities (Guernsey) Regulations 2009.
If you are an institutional investor, you may be able to appoint a proxy
electronically via the Proxymity platform, a process which has been agreed by
the Company and approved by the Registrar. For further information regarding
Proxymity, please go to www.proxymity.io. Your proxy must be lodged by 11.00
on 15 October 2023 in order to be considered valid. Before you can appoint a
proxy via this process you will need to have agreed to Proxymity's associated
terms and conditions. It is important that you read these carefully as you
will be bound by them and they will govern the electronic appointment of your
proxy.
Please note that the AGM will not be made available by way of publicly
available real-time broadcast.
As at 23 September 2023 (being the last business day prior to the publication
of the Notice), the Company's issued share capital consists of 308,628,541
ordinary shares, carrying one vote each. Therefore, the total number of voting
rights in the Company as at 20 September 2023 is 308,628,541.
EXPLANATORY NOTES - ORDINARY RESOLUTIONS 1 to 10
ORDINARY RESOLUTION 1 - The Company must present the financial statements for
the year ended 30 June 2023 and the reports of the Directors and the Auditor
to the AGM for approval.
ORDINARY RESOLUTION 2 - The Auditor of the Company must be re-appointed at
each general meeting where accounts are laid, to hold office until the
conclusion of the next such general meeting. It is proposed that
PricewaterhouseCoopers CI LLP Limited be re-appointed as the Company's
Auditor, to hold office from the AGM's conclusion until the conclusion of the
next general meeting at which accounts are laid before the Company.
ORDINARY RESOLUTION 3 - This resolution gives authority to the Board of
Directors to determine the remuneration of the Auditor.
ORDINARY RESOLUTION 4 - Guernsey-registered companies are not obliged to
prepare and publish a Directors' Remuneration Report. However, the Company has
included details of its Directors' remuneration within the Financial Report
and Audited Financial Statements and an ordinary resolution will be put to
shareholders seeking approval of the Directors' remuneration, which will be
advisory only.
ORDINARY RESOLUTIONS 5-8 - The full Board of Directors are retiring. They are
offering themselves for re-election in accordance with Article 23.1 of the
Articles and the Association of Investment Companies ("AIC") Code of Corporate
Governance, of which the Company is a member. A brief biography for each of
the Directors is set out on pages 30 and 31 of the Annual Report and Audited
Financial Statements.
ORDINARY RESOLUTION 9 - This resolution grants the Company authority to make
market purchases of up to 14.99 per cent. of the ordinary shares in issue as
at 23 September 2023 (being the last business day prior to the publication of
the Notice). The ordinary shares bought back will either be cancelled or
placed into treasury at the determination of the Directors.
The maximum price which may be paid for each ordinary share must not be more
than the higher of (i) 5 per cent. above the average of the mid-market values
of an ordinary share taken from the London Stock Exchange Daily Official List
for the five business days before the purchase is made; or (ii) the higher of
the price of the last independent trade or the highest current independent bid
for the ordinary shares on the London Stock Exchange at the time the purchase
is carried out. The minimum price which may be paid for each ordinary share is
US$0.01.
This authority shall expire at the next annual general meeting of the Company
(or, if earlier, the date falling 15 months from the passing of this
resolution), when a resolution to renew the authority will be proposed. The
Company currently intends that any ordinary shares repurchased would be held
in treasury, subject to applicable law and regulation.
ORDINARY RESOLUTION 10 - Shareholders are being asked to approve the Company's
policy with respect to the payment of dividends. This approval will be
advisory only. The dividend policy, as set out in the Prospectus dated 25
September 2018, is summarised below:
Dividend Policy
The Company intends to pay dividends on a quarterly basis with dividends
declared in January, April, July and October. The Company will target a
quarterly dividend of 2.125 cents per ordinary share for the financial year
2024.
An Ordinary Resolution is a resolution passed by a simple majority of Members.
EXTRAORDINARY RESOLUTION 11 - General Disapplication of Pre-emption Rights -
This resolution will, if passed, give the Directors power to allot shares or
grant rights to subscribe for or to convert any security into shares or sell
treasury shares for cash without first offering them to existing shareholders
in proportion to their existing holdings up to an aggregate number of ordinary
shares as equal to 29,508,254 ordinary shares, which represents approximately
10 per cent of the Company's issued ordinary shares (excluding treasury
shares) as at 23 September 2023.
Resolution 11 will allow the Company to carry out one or more tap issues, in
aggregate, up to 10 per cent of the number of ordinary shares in issue as at
the last business day prior to publication of the Notice and thus to pursue
specific investment opportunities in a timely manner in the future and without
the requirement to publish a prospectus and incur the associated costs.
Any new ordinary shares issued under the combined authority will be at a
minimum issue price equal to the prevailing NAV per ordinary share at the time
of allotment together with a premium intended at least to cover the costs and
expenses of the relevant placing or issue of new ordinary shares (including,
without limitation, any placing commissions). The issue price in respect of
each relevant placing or issue of new ordinary shares will be determined on
the basis described above to cover the costs and expenses of each placing or
issue and thereby avoid any dilution of the NAV of the then existing ordinary
shares held by shareholders.
In accordance with the Articles, an Extraordinary Resolution is a resolution
of the shareholders present in person in a general meeting passed by a
majority of not less than seventy-five percent of the votes recorded on a show
of hands or by way of a poll.
Form of Proxy - Annual General Meeting 2023
To be held at 1 Royal Avenue, Royal Plaza, St Peter Port, Guernsey GY1 2HL
On Thursday, 24 October 2023 at 12.30 pm BST and at any adjournment thereof
I/We……………………………………..,..………………………………………………….………
(BLOCK LETTERS PLEASE)
of………………………………………………………………………………………………………
…………………………………………………………………………………………………………
being (a) member(s) of the above-named Company, hereby appoint the Chairman of
the meeting/ or*
………………………………………………………………………………………………………………
as my/our proxy to vote for me/us and on my/our behalf at the Annual General
Meeting of the Company to be held at 1 Royal Avenue Royal Plaza, St Peter
Port, Guernsey, GY1 2HL on Tuesday, 24 October 2023 at 12.30 pm BST and at any
adjournment thereof.
* To allow effective constitution of the meeting, if it is apparent to the
Chairman that no shareholders will be present other than by proxy, then the
Chairman may appoint a substitute to act as proxy in his stead for any
shareholder, provided that such substitute proxy shall vote on the same basis
as the Chairman. A proxy need not be a member of the Company.
I/We direct my/our proxy to vote as follows:
ORDINARY RESOLUTIONS FOR AGAINST VOTE WITHHELD**
1. To receive the Company's Annual Report and Audited Financial Statements
for the year ended 30 June 2023.
2. To re-appoint PricewaterhouseCoopers CI LLP as auditor to the Company
until the conclusion of the next general meeting at which accounts are laid
before the Company.
3. To authorise the Directors to determine the remuneration of the Auditor.
4. To approve the remuneration of the Directors for the year ended 30 June
2023, as set out in the Directors' Report.
5. To re-elect Mr Robert King as a Director who retires by rotation in
accordance with Article 21.3 of the Articles.
6. To re-elect Mr Stephen Le Page as a Director who retires by rotation in
accordance with Article 21.3 of the Articles.
7. To re-elect Mr Paul Barnes as a Director who retires by rotation in
accordance with Article 21.3 of the Articles.
8. To re-elect Ms Christine Rødsæther as a Director who retires by
rotation in accordance with Article 21.3 of the Articles.
9. Authority to make acquisitions of the Company's own shares.
10. To approve the Company's dividend policy.
EXTRAORDINARY RESOLUTION FOR AGAINST VOTE WITHHELD**
11. Authority to allot and issue shares and to sell shares held in
treasury as if the pre-emption rights in the Articles do not apply.
Signed this day
of
2023
Signature
[ ] Please tick here to indicate that this proxy instruction is in
addition to a previous instruction. Otherwise it will overwrite
any previous instruction given.
NOTES TO THE FORM OF PROXY:
i. Please indicate with an "X" in the appropriate box how you wish the
proxy to vote.
ii. If no "X" is marked in any of the for/against/vote withheld boxes
in respect of a resolution, the proxy will exercise their discretion as to how
they vote or whether they withhold their vote. The proxy will also exercise
their discretion as to how they vote or whether they withhold their vote on
any business or resolution considered at the AGM other than the resolutions
referred to in this form of proxy.
iii. In accordance with sections 222 and 223 of The Companies (Guernsey)
Law 2008, you may appoint more than one person as your proxy to exercise all
or any rights to attend and to speak and vote.
iv. **A vote withheld is not a vote in law and will not be counted in
the calculation of the votes "For" and "Against" a resolution.
v. To be valid this form of proxy and any power of attorney or of the
authority under which it is executed (or a duly certified copy of such power
of attorney) must be lodged with the Company's Registrar: Computershare
Investor Services (Guernsey) Limited, c/o The Pavilions, Bridgwater Road,
Bristol, BS99 6ZY or the registered office of the Company c/o Maitland
Administration (Guernsey) Limited, 1 Royal Avenue, Royal Plaza, St Peter Port,
Guernsey, GY1 2HL by no later than 12.30 pm on Friday, 20 October 2023, being
48 hours before the time appointed for the AGM. Completing and returning this
form of proxy will not prevent you from attending the meeting and voting in
person if you so wish.
vi. In order to revoke a proxy instruction, a member will need to send a
signed hard copy notice clearly stating their intention to revoke a proxy
appointment, together with the power of attorney or other authority (if any)
under which it is signed, or a notarially certified copy of such power of
attorney or authority, to the Company's Registrar to the contact details noted
above.
vii. A form of proxy executed by a corporation must be either under its
common seal or signed by an officer or attorney duly authorised by that
corporation.
viii. In the case of joint holdings, the signature of the first named member
on the Register of Members will be accepted to the exclusion of the votes of
the other joint holders.
ix. Pursuant to Regulation 41 of the Uncertificated Securities
(Guernsey) Regulations 2009, entitlement to attend and vote at the meeting and
the number of votes which may be cast thereat will be determined by reference
to the Register of Members of the Company at close of business on the day
which is two business days before the day of the meeting. Changes to entries
on the Register of Members after that time shall be disregarded in determining
the rights of any person to attend and vote at the meeting.
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