Tufton Oceanic Asset Tufton Oceanic -SHPP - Final Results and Notice of AGM
26/09/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220926:nRSZ5346Aa&default-theme=true
RNS Number : 5346A Tufton Oceanic Assets Ltd. 26 September 2022
26 September 2022
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
2022. A copy of the Annual Report and Audited Financial Statements has been
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 on 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 annual general meeting will be held at the Company's registered office at
3(rd) Floor, 1 Le Truchot, St Peter Port, Guernsey on 27(th) October 2022 at
1230 BST.
For further information, please contact:
Tufton Investment Management Ltd (Investment Manager) +44 (0) 20 7518 6700
Andrew Hampson
Paulo Almeida
N+1 Singer +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
· Tufton Oceanic Assets Limited (the "Company") had a profit for the
year of US$107.3m, or US$0.362 per weighted average share.
· With continued strong performance, the Company raised its target
annual dividend from US$0.075 to US$0.08 per share, commencing 3Q21. The
Investment Manager's forecasted Dividend Cover through to the end of 2023 was
c.1.8x.
· The NAV per share increased from US$1.158 at 30 June 2021 to
US$1.450 (£1.194) at 30 June 2022. The US$ NAV Total Return for the financial
year was 32.5%.
· As at 22 August 2022, the Company's shares traded at a 13% discount
to the ex-dividend 30 June 2022 NAV.
· As at 30 June 2022, the EBITDA-Weighted Average Charter Length was
0.9 years. The Investment Manager expects the portfolio charter length to
increase as it shifts to chartering the Company's product tankers for longer
terms at higher rates. Including the transactions announced on 20 September
2022 and the new charter for Marvelous, the pro forma portfolio average
charter length is 1.4 years.
· The Company's fleet had no commercial idle time (voids) during the
financial year.
· As at 30 June 2022, all the Company's vessels except Orson, Golding
and Marvelous were employed on fixed-rate charters. Orson and Golding are
employed in a chemical tanker pool while Marvelous is employed in a product
tanker pool.
· During the financial year, the Company agreed to divest nine
vessels and to acquire nine vessels. The overall return from the agreed
divestments greatly exceeds the Company's targets. Of the nine agreed
acquisitions, eight vessels were delivered during the financial year and one
after the end of the year.
· The Investment Manager's commitments to capital re-allocation and
ESG are the key drivers for the significant investment and divestment
activity. With these transactions, the Investment Manager has re-allocated
capital to reduce risk and position the portfolio for greater upside
potential, which is apparent from the reduction in portfolio Price/Depreciated
Replacement Cost ("P/DRC") from 125% at the end of 3Q21 to less than 100% at
the end of the financial year.
· Following the announced transactions, the emissions intensity of
the Company's fleet as measured by the Energy Efficiency Existing Ship Index
("EEXI") improved by more than 40% compared to the end of 2021.
· The Investment Manager expects further improvement in the portfolio
emissions intensity as more of the Company's vessels are retrofitted with
Energy Saving Devices ("ESDs") and expects to complete ESD retrofits on at
least eight vessels by early 2023.
· The Investment Manager took active measures to expedite crew relief
on the Company's vessels. As a result, only 0.2% of the crew members were
overdue by more than 1 month against an average of 4.3% for the top ten
ship managers.
Chairman's Statement
Introduction
On behalf of the Board, I present the Company's Annual Report and Audited
Financial Statements for the year ended 30 June 2022.
It has been an active year during which the Company agreed to acquire nine
vessels of which eight were delivered during the year and one was delivered
after the year end. The Company also agreed to divest nine vessels. The fleet
as at the end of the financial year consisted of eight handysize bulkers, an
ultramax bulker, one containership and ten tankers, and one tanker pending
delivery. There is a further breakdown of the portfolio on pages 12 to 13.
The NAV per share increased from US$1.158 at 30 June 2021 to US$1.450 at 30
June 2022. The US$ NAV Total Return for the financial year was 32.5%.
Russian Invasion of Ukraine
On 24 February 2022, Russia invaded Ukraine. 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 is monitoring the movements of all
the Company's vessels and will prohibit the entry of any vessel into conflict
zones, a right established in all the Company's charters. The Board and the
Investment Manager are also monitoring the new sanctions being put in place.
The Company and its vessels will remain compliant with all international
sanctions imposed by the US, UK, EU and UN. The Board and the Investment
Manager remain watchful in monitoring the war and its consequences for
shipping and the Company.
Covid-19
The global economy started recovering from the impacts of Covid-19 ("Covid")
from the end of 1H20. Over the financial year, containership asset values and
time charter rates hit record highs while the Baltic Dry Index ("BDI"), the
index of average prices paid for the transport of dry bulk materials across
more than 20 routes, rose to its highest levels since 2009 in October 2021.
The Investment Manager had expected the product tanker market to improve in
2022 with global oil demand but the market has also benefited from short-haul
demand for cargoes being partially replaced by long-haul demand.
As noted previously, the Investment Manager has, where possible, mitigated the
impact of the global humanitarian crisis of crew members' extended stay on
board commercial vessels due to Covid-related travel restrictions. The
Investment Manager took active measures to expedite crew relief on the
Company's vessels. As a result, only c.0.2% of crew members were overdue
for relief by more than 1 month at the end of 2021 compared to 4.3% for the
top ten ship managers.
Performance
As at 30 June 2022, the Company's NAV was US$447.5m being US$1.450 per share
(US$312.6m and US$1.158 per share as at 30 June 2021). The Company declared a
profit of US$107.3m or US$0.362 per share for the year with the US$ NAV Total
Return over the year of 32.5%. Based on the announced transactions as at 30
June 2022, the Investment Manager's forecasted Dividend Cover to the end of
2023 was c.1.8x.
Along with strong Portfolio Operating Profit and cash flows, the Company
benefited from non-cash fair value gains as asset values rose. Containership
and bulker values rose strongly as the market benefited from strong demand and
inventory re-stocking in 2H21. Despite a slowdown in global GDP growth in
1H22, the containership market remained resilient due to port congestion and
supply-side constraints while the bulker market benefited from short-haul
demand for cargoes being partially replaced by long-haul demand. Please see
the Shipping Market section within the Investment Manager's Report for further
details.
During the year, the Company's share price increased from US$1.08 per share as
at the close of business 30 June 2021 to US$1.230 per share as at the close of
business 30 June 2022.
Tap Issues
On 6 August 2021, the Company announced the results of its tap issue of
10,533,763 shares at US$1.18 per tap issue share, which raised gross proceeds
of US$12.4m. On 12 November 2021, the Company announced the results of its tap
issue of 28,057,140 shares at US$1.39 per tap issue share, which raised gross
proceeds of US$39.0m. Over the financial year, 38,590,903 new ordinary shares
were admitted to trading on the Specialist Funds Segment of the Main Market of
the London Stock Exchange.
The total number of voting rights of the Company as at 30 June 2022 is
308,628,541.
Discount Management
On average, the Company's shares traded at a 0.5% premium to NAV over the
financial year. As at 22 August 2022, the Company's shares traded at a 13%
discount to the ex-dividend 30 June 2022 NAV. Over the financial year, no
shares were held in Treasury.
Dividends
During the year the Company declared and paid dividends to Shareholders as
follows:
Period end Dividend per share (US$) Announcement date Ex div date Record date Paid date
Ordinary Shareholders
30.06.21 0.01875 22.07.21 29.07.21 30.07.21 13.08.21
30.09.21 0.02000 21.10.21 28.10.21 29.10.21 12.11.21
31.12.21 0.02000 18.01.22 27.01.22 28.01.22 11.02.22
31.03.22 0.02000 27.04.22 05.05.22 06.05.22 20.05.22
30.06.22 0.02000 19.07.22 28.07.22 29.07.22 12.08.22
A dividend was declared on 19 July 2022 of US$0.02 per share for the quarter
ending 30 June 2022. The dividend was paid on 12 August 2022 to holders of
shares on record date 29 July 2022 with an ex-dividend date of 28 July 2022.
Corporate Governance
The Company is a member of the Association of Investment Companies ("AIC") and
has therefore elected to comply with the provisions of the current AIC Code of
Corporate Governance which sets out a framework of best practice in respect of
governance of investment companies ("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) .
Annual General Meeting
The Annual General Meeting ("AGM") of the Company will be held on 27 October
2022 at 12.30 pm BST the details of which are set out in the AGM notice and
Proxy form on pages 113 to 122.
At the last AGM held on 20 October 2021, the ordinary resolutions were all
duly passed. One extraordinary resolution to approve the authority to issue
and allot shares if the pre-emption rights in the Articles of Association of
the Company are disapplied was not passed. The Directors believe that it is in
the best interest of the Company to have the ability to issue additional
shares and have engaged with the Shareholders and their voting agents who
voted against this extraordinary resolution.
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. As you will see in the ESG
section of the Investment Manager's Report on pages 20 to 29 there is
significant focus given to the ESG aspects of the Company's operations.
The nature of the Company's significant investment and divestment activity
demonstrates the Investment Manager's commitment to improving ESG performance.
Following the announced transactions, the emissions intensity of the Company's
fleet as measured by the Energy Efficiency Existing Ship Index ("EEXI")
improved by more than 40% compared to the end of 2021.
Further, the Investment Manager has adopted a proactive approach to emissions
reduction through a program to select ESDs for the Company's vessels in the
medium term while considering investments in zero-emission capable vessels for
the longer term. The Investment Manager expects to retrofit ESDs on eight of
the Company's vessels by early 2023.
The Investment Manager has also completed trials of sustainable biofuels on
one of the Company's vessels. Please see the ESG section of the Investment
Manager's Report for details (page 20).
Crew welfare continued to be a significant area of focus over the financial
year with travel restrictions imposed during successive waves of the Covid
pandemic delaying crew rotations. Our Investment Manager engaged with each
vessel's technical manager to address crew issues and facilitate rotations as
necessary. As a result, the proportion of delayed crew members on the
Company's vessels have been consistently lower than industry reported
averages. The Investment Manager continues to promote best practices among its
suppliers and has organised regular, independent inspections of the Company's
vessels.
ESG initiatives represent an opportunity for a proactive Investment Manager
with a well-capitalised fleet. Since December 2018, our Investment Manager is
a signatory of the United Nations Principles of Responsible Investment ("UN
PRI") which has become an industry standard and is a further step in embedding
responsible investment in the Company. The Board has reviewed and approved the
Investment Manager's Responsible Investment Policy and implementation report
for the Company. Shareholders can view the policy and the implementation
report on the Company's website (www.tuftonoceanicassets.com). Being a
closed-end investment company listed on the Specialist Funds segment of the
London Stock Exchange, the Company is not required to report against the Task
Force on Climate-related Financial Disclosures ("TCFD") framework.
Nevertheless, the Investment Manager supports the framework and used it to
guide climate-related risk reporting.
Outlook
· The Company raised its target annual dividend from US$0.075 to
US$0.080 per share, commencing from 3Q21.
· Based on the announced transactions as at 30 June 2022, the
Investment Manager's forecasted Dividend Cover to the end of 2023 is c.1.8x.
· At the end of the financial year, the Company had an average
charter length of c.0.9 years.
· The Investment Manager has demonstrated its commitment to capital
re-allocation and ESG by divesting all but one of the Company's containerships
and less fuel-efficient bulkers in order to re-allocate the capital to
fuel-efficient bulkers and tankers which offer stronger yields and greater
potential for capital appreciation.
· Investor confidence in the Company's strategy and the shipping
market was apparent from the high levels of interest in the Company's shares
and oversubscription of the tap issue on 12 November 2021.
· The Investment Manager has held a positive outlook on the product
tanker segment and increased exposure to this segment over the financial year
which appears to be timely based on market conditions at the time of
publication.
I would like to thank my fellow Directors for their commitment and support
during these challenging times, the Investment Manager and their team for
their diligence in dealing with complex and challenging operational matters
which were greatly increased due to the impact of Covid and more recently by
the Russian invasion of Ukraine. I would also like to take this opportunity to
thank our Shareholders for their support and continued belief in our strategy.
Investment Manager's Report
Highlights of the Financial Year
The Company continued to re-allocate capital and grow, in line with its
investment strategy and commitment to ESG. US$ NAV Total Return for the period
was 32.5%.
This section utilises alternative measures, applied on an unconsolidated
basis, to analyse performance. Please see the Glossary and the Investment
Performance section for details of the metrics. Portfolio Operating Profit( )
was strong at US$40.6m. There was a gain of US$170.0m in charter-free vessel
values primarily due to the strong containership and bulker markets. The gain
in charter-free vessel values was partially offset by a US$99.3m fall in
charter value. Most of the fall in charter value was because containership
time charter rates continued rising into 1Q22. However, the total negative
charter value in the portfolio fell during the financial year primarily due to
the containership divestments.
The 30 June 2022 NAV was US$447.5m (£368.5m), or US$1.450 (£1.194) per
share.
Having first raised the target dividend in 1Q21, the Company raised its target
dividend again from US$0.075 to US$0.08 per share commencing from 3Q21. The
Investment Manager believes the Company's strong Portfolio Operating Profit
and performance over the year, both on an absolute basis and relative to other
asset classes, demonstrate its investment thesis and the effectiveness of its
strategy. The Investment Manager's strategy of diversification across the
major segments, conservative leverage and strong charter cover insulated the
portfolio from market volatility, as evidenced by the portfolio performance
and growing dividend in a variety of market conditions since the Company's
listing in December 2017.
Over the financial year, the Clarksons Research Newbuilding Price Index rose
c.16% while the Clarksons Price Index for 10-year-old secondhand vessels rose
c.38%.
As the Investment Manager has previously noted, shipping tends to perform well
during periods of inflation. Over the financial year, charter-free values of
bulkers and especially containerships increased significantly. As
containership valuations rose above 200% of DRC, the Company realised strong
returns by divesting containerships and less fuel-efficient bulkers and
re-allocating the capital to fuel-efficient bulkers and tankers, which offer
stronger yields and greater potential for capital appreciation respectively.
These transactions lowered the portfolio Price/Depreciated Replacement Cost
("P/DRC") from 125% at the end of 3Q21 to less than 100% at the end of the
financial year. P/DRC is the Investment Manager's preferred valuation metric,
which mean-reverts to 100% in the medium term when supply and demand converge.
The Investment Manager expects further upside in secondhand values of tankers
and bulkers as DRC increases with higher newbuilding prices due to tighter
environmental regulations, shipyard consolidation and cost inflation. The
Investment Manager believes the lower P/DRC multiple at the end of the
financial year signifies risk reduction and greater potential upside for the
Company.
Highlights of the financial year include:
· In August 2021 the Company raised gross proceeds of US$12.4m
through a tap issue of 10,533,763 ordinary shares at a price of US$1.18 per
share. In November 2021 the Company raised gross proceeds of US$39.0m through
a tap issue of 28,057,140 ordinary shares at US$1.39 per share.
· Having raised the target dividend in January 2021, the Company
raised its target dividend again from US$0.075 to US$0.08 per share commencing
from 3Q21. The Dividend Cover for the financial year was c.1.3x (c.1.0x in the
previous financial year). The main reason for the cover being lower than the
Investment Manager's long-run expectation is that the Company was not fully
invested throughout the period.
· Based on the announced transactions as of 30 June 2022, the
Investment Manager's forecasted Dividend Cover to the end of 2023 was c.1.8x.
· The Company agreed to divest its penultimate containership,
Parrot, in May 2022 for US$31m. The loan outstanding amount was repaid at
closing in June 2022.
· As at 30 June 2022, the expected EBITDA-Weighted Average Charter
Length was 0.9 years. The Investment Manager expects the portfolio charter
length to increase as it shifts to chartering the Company's product tankers
for longer terms at higher rates. Including the transactions announced on 20
September 2022 and the new charter for Marvelous, the pro forma portfolio
average charter length is 1.4 years.
· The Company agreed to divest nine vessels (Swordfish, Citra,
Dragon, Patience, Candy, Echidna, Vicuna, Lavender and Parrot) and to acquire
nine vessels (Idaho, Anvil, Rocky IV, Exceptional, Awesome, Auspicious,
Masterful, Charming and Marvelous). The overall return from the agreed
divestments greatly exceeds the Company's targets. Of the nine agreed
acquisitions, eight vessels were delivered during the year and one vessel was
delivered in July 2022.
· The significant investment and divestment activity demonstrates
the Investment Manager's commitment to capital re-allocation and ESG. With
these transactions, the Investment Manager has re-allocated capital to reduce
risk and position the portfolio for greater upside potential which is apparent
from the reduction in portfolio P/DRC from 125% at the end of 3Q21 to less
than 100% at the end of the financial year.
· Following the announced transactions, the emissions intensity of
the Company's fleet as measured by the Energy Efficiency Existing Ship Index
("EEXI") improved by more than 40% compared to the end of 2021.
· Retrofits of Energy Saving Devices ("ESDs") commenced on Laurel
and Idaho at the end of 2021 and on Orson in 2Q22 and will be completed in
2022. The Investment Manager expects further improvement in the portfolio
emissions intensity as more of the Company's vessels are retrofitted with
ESDs. The Investment Manager expects to have completed ESD retrofits on at
least 8 of the Company's vessels by early 2023.
· The Investment Manager took active measures to expedite crew
relief on the Company's vessels. As a result, crew members overdue for
rotation onboard the Company's vessels decreased from c.16% at the end of July
2021 to c.5% at the end of June 2022. Only 0.2% of the crew members were
overdue by more than 1 month against an average of 4.3% for the top ten
ship managers.
· The Investment Manager has taken action to improve the welfare of
Ukrainian crew members onboard the Company's vessels.
The Assets
As at 30 June 2022, the Company owned twenty-one vessels.
Containerships
Employment for the vessel owned by the Company at the end of the financial
year:
Riposte was on a time charter to a major investment-grade container shipping
group.
Divestments:
The Company agreed to divest:
· Kale for US$21.5m prior to the financial year, in June 2021. The
divestment closed in October 2021 and the realised IRR was 31%.
· Citra for US$33m in July 2021 with a realised IRR of 47%.
· Swordfish for US$19m in December 2021 with a realised IRR of 27%.
· Parrot for US$31m in May 2022 with a realised IRR of 13%. The loan
outstanding amount was repaid at closing.
· Patience for US$19.35m in January 2022 with a realised IRR of c.23%.
· Vicuna for US$18m in February 2022 with a realised IRR of 46%.
· Candy and Echidna for a total of US$21m in February 2022 with a
realised IRR of c.74%.
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.
· Exceptional is on a time charter to a leading tanker shipping
company, while Marvelous, which was delivered to the Company in July 2022, is
employed in a leading product tanker pool.
· The average expected charter length of the Company's product tankers
was 1.2 years (2.2 years if the charter extension options are exercised on
Pollock, Dachshund, Cocoa and Daffodil).
· 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.
Acquisitions:
The Company agreed to acquire:
· Exceptional at c.85% of DRC for US$30.9m in December 2021. The vessel
was delivered to the Company in April 2022.
· Marvelous at c.90% DRC for US$31.5m in June 2022. The vessel was
delivered to the Company after the end of the financial year, in July 2022.
Both vessels are in the top quartile of fuel efficiency in their market
segment.
On 20 September 2022, the Company announced that it had agreed to acquire two
product tankers, Courteous and Mindful, for US$73.0m. Both vessels have
fixed-rate time charters for three to five years to a major commodity trading
and logistics company. The acquisitions will be financed primarily by a new
US$60m loan which will be secured on Courteous, Mindful, Marvelous and
Exceptional. In parallel with the Courteous and Mindful being chartered as
described above, Marvelous will also enter a fixed- rate time charter for
three to five years to the major commodity trading and logistics company from
November.
Bulkers
Employment for vessels owned by the Company at the end of the financial year:
· Lavender's time charter was extended for 14-17 months from February
2022 at a much higher rate than its previous charter.
· Mayflower's time charter was extended for 5-7 months from August 2022
at a much higher rate than its current charter.
· Laurel was delivered to the Company in July 2021. The vessel
commenced its 2-year time charter from September 2021 after the completion of
its special survey.
· Idaho and Mayflower are on time charters to a leading owner and
operator of bulkers.
· Rocky IV, Anvil and Masterful are on time charters to a leading
merchant and processor of agricultural goods.
· Charming is on a time charter for 4-6 months to a leading dry bulk
shipping company.
Acquisitions:
The Company agreed to acquire:
· Idaho at below DRC for US$21.4m. The acquisition closed in October
2021.
· Rocky IV and Anvil at below DRC for a total of US$41.2m. The
acquisitions closed in November and December 2021 respectively.
· Awesome at below DRC for US$23.6m. The acquisition closed in January
2022.
· Auspicious at below DRC for US$23.75m. The acquisition closed in
February 2022.
· Masterful slightly above DRC for US$25.5m. The acquisition closed in
April 2022.
· Charming slightly above DRC for US$26.3m. The acquisition closed in
June 2022.
Awesome, Auspicious, Masterful and Charming are in the top quartile of fuel
efficiency in their market segment. The acquisitions of Masterful and Charming
above DRC are significantly de-risked by strong cash flows from their
fixed-rate charters.
Divestments:
The Company agreed to divest:
· Antler at 100% of DRC prior to the financial year, in May 2021. The
realised returns materially exceeded targets. Antler was acquired for less
than 70% of DRC.
· Dragon at 119% of DRC for US$16.2m in October 2021. Dragon was
acquired for 74% of DRC.
· Lavender at 115% of DRC in May 2022 with realised returns materially
exceeding targets. Lavender was acquired for less than 70% of DRC.
The Company's fleet across all segments is well maintained and performed well
though certain vessels had minor Covid-related disruptions or suffered supply
chain issues and inflationary pressures. Marvelous was delivered to the
Company in July 2022. The Investment Manager continues to identify an
attractive pipeline of opportunities across a range of the Company's target
segments.
As at 30 June 2022:
SPV(+) Vessel Type and Year of Build Acquisition Date Earliest end of charter period Latest end of charter period Expected end of charter period**
Swordfish(*) 1700-TEU February Vessel divested
containership
built 2008 2018
Patience(*) 2500-TEU containership March Vessel divested
built 2006 2018
Riposte 2500-TEU containership March February July July
built 2009 2018 2023 2023 2023
Neon Mid-sized LPG carrier built 2009 July August August August
2018 2025 2025 2025
Sierra Medium-range December June August July
product tanker 2018 2024 2025 2024
built 2010
Octane Medium-range December May July June
product tanker 2018 2024 2025 2024
built 2010
Cocoa Handysize October October October October
product tanker 2020 2023 2024 2023
built 2008
Pollock Handysize December February February February
product tanker 2018 2023 2024 2023
built 2008
Parrot(*) 8200-TEU containership July
built 2006 2019 Vessel divested
Vicuna(*) 2500-TEU containership October Vessel divested
built 2006 2019
Daffodil Handysize October October October October
product tanker 2020 2023 2024 2023
built 2008
Dachshund Handysize February March
product tanker 2020 2023
built 2008
Lavender(*) Handysize bulker October Vessel divested (pending closing)
built 2010 2020
Echidna(*) 2500-TEU containership December Vessel divested
built 2003 2020
Candy(*) 2500-TEU containership December Vessel divested
built 2004 2020
Golding 25,600 DWT stainless steel chemical tanker April
built 2008 2021 NA - vessel is employed in a pool
Mayflower Handysize bulker June January March January
built 2011 2021 2023 2023 2023
Laurel Handysize bulker July May September September
built 2011 2021 2023 2023 2023
Orson 20,000 DWT stainless steel chemical tanker July NA - vessel is employed in a pool
built 2007 2021
Idaho Ultramax bulker July February July February
built 2011 2021 2023 2023 2023
Anvil Handysize bulker September October February October
built 2013 2021 2022 2023 2022
Rocky IV Handysize bulker September October February October
built 2013 2021 2022 2023 2022
Exceptional Medium-range product tanker built 2015 April April April April
2022 2023 2024 2024
Awesome Handysize bulker January September March September
built 2015 2022 2023 2024 2023
Auspicious Handysize bulker February September March September
built 2015
2022 2023 2024 2023
Masterful Handysize bulker April January April January
built 2015 2022 2023 2023 2023
Charming Handysize bulker June October December October
built 2015 2022 2022 2022 2022
Marvelous(++) Medium-range July NA - vessel is employed in a pool
product tanker 2022
built 2014
Notes:
+ SPV that owns the vessel
** Based on assessment of the prevailing market conditions (as at 30 June
2022) by the Investment Manager
++ Acquisition agreed and pending delivery
* Details excluded for vessels agreed to be divested
Investment Performance
NAV per share was US$1.450 at 30 June 2022. Portfolio Operating Profit
contributed US$0.137 per share and there was a strong Gain in Fair Value per
Share of US$0.238 (US$0.206 in the previous financial year). US$ NAV Total
Return for the financial year was 32.5% (33.3% in the previous financial
year).
Containership and bulker values rose strongly as the markets benefited from
strong demand and inventory re-stocking in 2H21. Despite a slowdown in global
GDP growth in 1H22, the containership market remained resilient due to port
congestion and supply-side constraints, while the bulker market benefited from
short-haul demand for cargoes being partially replaced by long-haul demand.
The Company benefited from its growing fleet of bulkers with higher time
charter rates resulting in a higher Portfolio Operating Profit compared to the
previous year.
Figures below are in US$ millions unless otherwise stated From 1 Jul 2021 From 1 Jul 2020
to 30 Jun 2022 to 30 Jun 2021
Total ship-days 7,702 6,695
Revenue 104.0 73.4
Operating expense (57.6) (42.6)
Gross operating profit 46.4 30.8
Gross operating profit / time-weighted capital employed 13.9% 11.9%
Loan interest and fees (1.6) (1.5)
Gain/(loss) in capital values 70.7 53.2
Portfolio profit 115.5 82.5
Interest income 0.0 0.0
Company level fees and expenses (4.2) (3.0)
Performance fee accrual (4.0) -
Profit for the period 107.3 79.5
Portfolio Operating Profit 40.6 26.3
Portfolio profit across all key segments was driven by rising capital value
and operating profit.
The capital value of our containerships increased by US$39.7m despite a fall
of US$84.1m in charter values. As containership values rose above 200% of DRC,
the Company realised strong returns by divesting containerships and
re-allocating the capital to bulkers and tankers which offer stronger yields
and greater potential for capital appreciation respectively. Portfolio
containership exposure fell from c.35% at the end of June 2021 to c.5% at the
end of the financial year. The Investment Manager continues to consider an
exit or opportunities to lock in long-term yields on the remaining
containership, Riposte.
Bulker values rose by US$27.6m in a strong market. The Company divested less
fuel-efficient bulkers and acquired seven more fuel-efficient bulkers with
fixed-rate charters producing strong yields. Portfolio bulker exposure rose
from c.16% at the end of June 2021 to c.47% at the end of the financial year
with a yield of 17.1%.
Segment Performance During the Financial Year
Product Gas Tanker Containerships Bulkers Total
& Chemical Tankers
US$m unless otherwise stated
Gross operating profit 12.9 4.2 14.2 15.1 46.4
Loan interest & fees (1.0) - (0.6) - (1.6)
Gain/(loss) in charter-free values 22.4 (1.0) 123.8 24.8 170.0
Gain/(loss) in charter values (18.0) - (84.1) 2.8 (99.3)
Portfolio profit 16.3 3.2 53.3 42.7 115.5
Product and chemical tanker capital value increased by US$4.4m as the market
strengthened significantly towards the end of the financial year. The Company
agreed to acquire two fuel-efficient product tankers, one with a fixed-rate
charter and the other (delivered after the end of the financial year) employed
in a pool with current yield >30%. Portfolio product and chemical tanker
exposure rose from c.29% at the end of June 2021 to c.36% at the end the
financial year, with a yield of 10.6%.
Segment Exposure and
Forecast Yields* Product Gas Tanker Containership Bulkers Total
& Chemical Tankers
% of NAV 36.3% 5.8% 5.4% 47.0% 94.5%
Forecast Net Yields 10.6% 15.5% 11.5% 17.1% 13.5%(^)
(*)Based on the pro forma fleet for all transactions announced through 30 June
2022
As at 30 June 2022, the vessels in the portfolio were chartered to twelve
different counterparties. The average age of the Company's vessels was c.11
years.
The Shipping Market
The Company focuses on three main shipping segments, tankers, bulkers and
containerships, which strengthened over the financial year. The Clarksea
Index, a broad indicator of weighted average earnings from Clarksons Research
across the main commercial vessel types, ended the financial year at
US$41,350/d, 48% higher than the end of June 2021. The IMF estimated that
world GDP grew by 6.1% in 2021 after a 3.1% contraction in 2020. As of January
2022, the International Monetary Fund ("IMF") forecast 4.4% world GDP growth
in 2022, but this was revised down to 3.2% as of July 2022 due to a
combination of tightening financial conditions globally, slowing growth in
China, Covid outbreaks and lockdowns, and the negative impact from the war in
Ukraine.
The Investment Manager believes the shipping market is in a multi-year upcycle
because of the relative lack of investment in new capacity (supply). The
combination of commodity price inflation and reduced shipyard capacity is
increasing newbuilding prices. This led to higher values for secondhand
vessels.
Major world powers including the US, UK and EU have imposed sanctions on key
Russian institutions, businesses and individuals in response to the war in
Ukraine. Russia is a major exporter of oil, gas, and coal while both Russia
and Ukraine are major exporters of grain.
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. The impact of the war in Ukraine on shipping demand
growth will be ameliorated by short-haul demand, especially for tanker and
bulker cargoes, being partially replaced by long-haul demand.
Some notable highlights of the shipping market, based on Clarksons Research,
include:
· Global seaborne trade is expected to exceed pre-pandemic levels in
2022 and grow by c.2% in 2023. In comparison, seaborne trade grew by c.3.3%
CAGR in the two decades leading up to 2021
· Over the financial year, the Clarksons Research Newbuilding Price
Index rose c.16% while the Clarksons Price Index for 10-year-old secondhand
vessels rose c.38%
· Over the financial year, compared to the previous 12 months:
o Average 12-month time charter rates for handysize bulkers rose c.97%
o Average 12-month time charter rates for 2500-TEU containerships rose
c.286%
o Average 12-month time charter rates for handysize product tankers rose
c.1%
This section utilises data from the Investment Manager's Tufton Real-Time
Activity Capture System ("TRACS") which analyses satellite data to track the
international shipping fleet by the major segments. TRACS utilises the draught
of each vessel as a proxy for its utilisation and thereby enables the
Investment Manager to have a close to real-time measure of shipping demand.
Other research data used in 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 by 2.2 mbpd in 2022 and 2.0 mbpd in 2023. We had
expected improvement in tanker demand in 2022 along with the recovery in
global oil demand but the war in Ukraine has partially replaced some demand
for short-haul product tanker cargoes with demand for long-haul: increasing
Russian exports to Asia, notably India, and higher European imports from
non-Russian suppliers including the Middle East, the US and Asia. This has
resulted in improving demand for product tankers from the end of 1Q22.
12-month time charter rates for medium-range product tankers rose to
c.US$20,500/d at the end of the financial year, c.53% higher than at the end
of June 2021. The Company will benefit from the current strong market as its
latest acquisition, Marvelous, is employed in a pool with current yields
>30%. Beyond the current market strength, supply-side dynamics for tankers
are supportive especially for product and chemical tankers with the orderbook
at only c.5% of fleet.
The Investment Manager believes the product and chemical tanker market will
continue to benefit from this combination of demand improvement and slowing
supply growth.
The chemical tanker market has benefited from the strength in product tankers.
According to Drewry Research, the capacity of vessels trading chemicals
reduced by 4.5% over 1H22 as some vessels moved to the improving product
tanker market. Tight vessel supply along with short-haul cargoes being
partially replaced by long-haul cargoes due to the war in Ukraine and
lockdowns in China resulted in an improving chemical tanker market. Both the
Company's chemical tankers, employed in a pool, benefit from this improvement.
As at the end of the financial year, the Company has seven product tankers on
fixed-rate charters with an average duration of 1.2 years. The Investment
Manager expects the product market, well supported by strong supply-side
fundamentals, will offer opportunities for longer-term charters at higher
rates as well as potential for further capital appreciation.
Bulkers
The effect of strong demand over the financial year was compounded by port
congestion in Asia caused by Covid-related restrictions. In October 2021, the
benchmark BDI rose to its highest level since 2009. The market remained
resilient in the face of several challenges in early 2022 including seasonal
weakness around the Chinese New Year period, the war in Ukraine and Covid
restrictions in China. Bulker tonne-mile demand growth was aided by short-haul
cargoes being partially replaced by long-haul cargoes due to the war in
Ukraine.
12-month time charter rates for handysize bulkers rose to c.US$25,000/d at the
end of the financial year, c.20% higher than the end of June 2021. The bulker
market remains attractive, with strong supply-side fundamentals. As at the end
of the financial year, the bulker orderbook was only c.7% of fleet which will
result in slowing fleet growth. The Investment Manager increased bulker
exposure in the portfolio to c.47% at the end of the financial year. The
Company has 9 bulkers on fixed-rate charters with average charter cover of 0.6
years, producing c.17% annual net yield.
During the financial year, the Company divested less fuel-efficient bulkers
and re-allocated capital into more fuel-efficient bulkers.
Containerships
The containership market strengthened over the financial year. Consumer demand
was strong in 2021 but weakened in 2022 due to the impact of inflationary
pressure on consumers, Covid-related lockdowns in China and the war in
Ukraine. Container volumes were down 2.4% YoY (YTD as of April 2022).
Nevertheless, the containership market remained resilient with limited fleet
growth and the effects of port congestion. 12-month time charter rates for
small (2500-TEU) containerships rose to c.US$75,000/d at the end of the
financial year, c.113% higher than the end of June 2021.
The containership orderbook was c.27% of fleet at the end of the financial
year as new orders increased. The Investment Manager expects the containership
market to slowly weaken from record highs as port congestion eases and the new
orders are delivered. Fleet growth is expected to accelerate to c.8% in 2023.
The Company's containership exposure at the end of the financial year was only
c.5% of NAV as the Investment Manager has re-allocated capital by divesting
containerships and continues to consider an exit or opportunities to lock in
long-term yields on the Company's remaining containership, Riposte.
Asset values and time charter rates reflect the Investment Manager's thesis of
supply-side adjustment to varying degrees across the main segments. The
increase in asset values and rates has been the highest in containerships. In
bulkers and tankers, the combination of tightening environmental regulations
and lower shipyard capacity results in rising newbuilding prices. This, in
turn, increases values for secondhand vessels. In addition, many newbuilding
designs incorporate more flexible machinery and storage systems to handle
multiple fuel types to reduce emissions. These further increase newbuilding
prices. Over the financial year, the Clarksons Research Newbuilding Price
Index rose 16% whilst the Clarksons Research Price Index for 10-year-old
secondhand vessels rose 38%.
The shipping industry has a history of being resilient during periods of
disruption and inflation as recently observed around the Covid pandemic.
Despite the negative impact of the war in Ukraine, the tanker and bulker
markets have been supported as demand for long-haul cargoes replaced demand
for short-haul cargoes and the supply side remains supportive with slowing
fleet growth. High oil prices incentivise lower speeds resulting in a
reduction of available shipping capacity, aiding the supply-side adjustment.
Fuel-efficient vessels such as the Company's recent acquisitions are likely to
be favoured.
Environmental, Social and Governance ("ESG")
The Investment Manager emphasises the principles of Responsible Investment in
the management of clients' assets through awareness and integration of ESG
factors into its investment process in the belief that these factors have a
positive impact on long-term financial performance. The Investment Manager
recognises that its first duty is to act in the best financial interests of
the Company's Shareholders and to achieve good financial returns against
acceptable levels of risk, in accordance with the objectives of the Company.
Since December 2018, the Investment Manager is a signatory of the United
Nations Principles of Responsible Investment and has a Responsible Investment
Policy which is available on the Company's website
(www.tuftonoceanicassets.com).
Current areas of ESG focus include:
1. Assessment of the fuel efficiency and environmental impact of potential
acquisitions
2. Improving fuel efficiency of the Company's vessels and reducing
environmental impact across the asset life cycle
3. Responsible vessel recycling
4. Health and safety of the crew on our vessels
5. Enhanced security to lower risk of contraband
6. Compliance with all international sanctions imposed by the US, UK, EU
and UN
7. Promoting acceptance and implementation of ESG principles with our
business partners.
Being a closed-end investment company listed on the Specialist Fund Segment of
the London Stock Exchange, the Company is not required to report against the
Task Force on Climate-related Financial Disclosures ("TCFD") framework.
Nevertheless, the Investment Manager believes the TCFD recommendations provide
a useful framework to increase transparency on climate-related risks and
opportunities within financial markets and has used them to guide
climate-related risk reporting.
ESG Governance: Senior Management (i.e. the CEO and the CIO) of the Investment
Manager are committed to Responsible Investment and oversee the implementation
of its Responsible Investment Policy. The policy statement is reviewed at
least annually and approved by the Company's Board of Directors.
The Company's Board does not have a separate ESG committee but collectively
reviews implementation progress against the policy statement and issues an
implementation review report which is also publicly available on the Company's
website. The Board recognises that climate change and related risks will have
an impact on the business, and climate considerations are embedded within the
Company's broader ESG governance framework where climate-related risks and
opportunities are considered across the organisation. The Board maintains
ultimate responsibility for the policy and its implementation and is committed
to upholding high standards of corporate governance. As a member of the
Association of Investment Companies ("AIC") (https://www.theaic.co.uk/), the
Company reports against the AIC Code of Corporate Governance on a comply or
explain basis.
For investment and divestment decisions, the Board takes into consideration,
inter alia, the historic environmental performance and energy efficiency
metrics of candidate vessels. The Investment Manager devotes more than 4 full
time employee equivalents to ESG integration related analysis and
implementation in aggregate.
Please see pages 27 and 29 for disclosure on the Investment Manager's analysis
of climate-related risks and the strategy adopted towards addressing the
risks.
Environmental
The Investment Manager is committed to reducing greenhouse gas emissions and
aligning the Company to the temperature goals of the Paris Agreement. In
September 2021, the Investment Manager announced new commitments to align its
funds to the temperature goals of the Paris Agreement by fully transitioning
to zero carbon energy sources by 2050 and investing in zero carbon capable
vessels before 2030. In the medium term, the Investment Manager is reducing
emissions from its existing fleet through investment in Energy Saving Devices
("ESDs") and promoting best operational practices such as regular hull and
propeller cleaning and optimal use of auxiliary engines. The Investment
Manager is also investing in digital technologies for performance monitoring
and emissions reduction. Sustainable biofuels are expected to be part of
the long-term fuel mix on the path to decarbonisation. The Investment Manager
also aims to increase the use of sustainable biofuels following successful
trials.
The Investment Manager has engaged a consulting firm of naval architects to
conduct energy efficiency studies on the Company's vessels and select the
appropriate ESDs for retrofit. The selection of ESDs, investment required,
retrofit timing and commercial arrangements for fuel savings will vary from
vessel to vessel depending upon the results of energy efficiency studies,
prevailing market conditions and commercial considerations. ESD retrofits
commenced on Laurel and Idaho during the financial year coincident with their
second special surveys. High-performance hull coatings were applied during
each vessel's special survey. The Investment Manager has experienced some
supply chain delays in the procurement and retrofit of the ESDs. Other ESDs
will be installed on the vessels whilst in service over 2022.
The Investment Manager has negotiated with the charterer of each vessel to
increase the time charter rate of the vessel based on the fuel savings from
the ESD retrofits which will result in a payback period of c.2 years for the
Idaho and c.5 years for Laurel. The Idaho payback period is lower as it is
already a very fuel-efficient vessel and required much lower ESD capital
investment. We expect further upside on ESD retrofits as we better capture
savings from rising fuel prices and carbon prices.
Orson was retrofitted with a Propeller Boss Cap Fin ("PBCF") and
high-performance hull coating in 2Q22. Other ESDs will be retrofitted on the
vessel in 3Q22. The vessel operates in a pool and will benefit directly from
the fuel savings based on the prevalent prices.
Tufton expects to complete ESD retrofits on at least eight of the Company's
vessels by early 2023.Total emissions from the Company's fleet in 2021 was
401,348 tonnes of CO2. With a growing portfolio of vessels, this measure is
less relevant to the Company than normalised measures of emissions intensity.
Total emissions from the portfolio is calculated from the fuel consumption
from vessels owned as at the end of 2021. This includes emissions from fuel
consumed for propulsion and onboard power generation.
The majority of the Company's vessels are on time charter under which the
Company does not have full operating control of the vessels but is responsible
for the regular surveys and maintenance of the vessels. Data from one vessel
on long-term bareboat charter (Neon) is excluded as the Company does not have
operating control of the vessel and is not responsible for the regular surveys
or maintenance of the vessel.
Environmental Metrics 2021
Total emissions (tonne CO2) 401,348
Portfolio Energy Efficiency Operational Indicator ("EEOI") 21.1
(g CO2/tonne cargo-nautical mile)
Portfolio Annual Efficiency Ratio ("AER") 9.9
(g CO2/DWT-nautical mile)
Oil spills None
During the financial year, the Company agreed to divest nine vessels and to
acquire nine vessels. The Investment Manager's commitments to capital
re-allocation and ESG are the key drivers for the significant investment and
divestment activity.
Following these transactions, the emissions intensity of the Company's fleet
as measured by the Energy Efficiency Existing Ship Index ("EEXI") improved by
more than 40% compared to the end of 2021. The EEXI measures emissions
intensity using a ship's design characteristics.
A measure of operational emissions intensity defined as the mass of CO2
emitted per unit of transport work in each time period, the EEOI measures a
ship's fuel efficiency and emissions. All else equal, a lower EEOI is
indicative of a more efficiently operated asset. The Investment Manager has
utilised the EU MRV methodology for calculating the EEOI using data on total
emissions and total cargo transported by the Company's fleet for the 2021
calendar year. The emissions intensity of the Company's vessels as measured by
the EEOI for 2021 was c.2% higher YoY primarily because of higher
containership operating speeds established by the charterers in a strong
market rather than by the Company or the Investment Manager.
Of the three major segments, containerships tend to have the highest emissions
intensity due to higher operating speeds. Over the financial year, the Company
agreed to divest seven containerships (Swordfish, Citra, Patience, Candy,
Echidna, Vicuna and Parrot) and two bulkers (Dragon and Lavender) and agreed
to acquire nine fuel-efficient vessels (seven bulkers: Idaho, Anvil, Rocky IV,
Awesome, Auspicious, Masterful and Charming; and two tankers: Exceptional and
Marvelous).
The emissions intensity of the Company is reduced significantly after the
announced transactions. Based on the agreed divestments only, the Investment
Manager estimates that the pro forma EEOI is c.10% better compared to 2020.
The Investment Manager also compared the Company's EEOI to a broader peer
group of more than 1180 vessels using the 2021 EU MRV data and estimates the
Company's pro forma portfolio emissions intensity is c.8% better than its peer
group.
The efficiency improvement from the capital re-allocation is not fully
apparent from the 10% improvement in EEOI as the Company does not hold
verified 2021 data for the recently acquired fuel-efficient vessels. Based on
the EEXI improvement described previously, the Investment Manager expects the
Company's EEOI to also improve materially in 2022 compared to 2021.
The Investment Manager also expects further reduction in emissions intensity
from ESD retrofits and expects to retrofit ESDs on eight of the Company's
vessels by early 2023.
Average Energy Efficiency Operational Indicator (EEOI)
(g CO2/ tonne cargo-nautical mile) 2021 2020
Containership 42.6 28.6 26.3
Bulkers 12.2 12.2 12.6
Tankers 16.5 16.5 17.8
Company 18.6 21.1 20.7
EEOI was c.2% higher in 2021 but the Investment Manager estimates that the
EEOI (after the announced divestments) is 18.6-g CO2/ tonne-nautical mile,
c.10% better compared to 2020.
Golding successfully completed a voyage powered by a sustainable biofuel
blend. The trial was organised in partnership with Stolt Tankers and BP. The
fuel was a blend of fossil fuel with 30% sustainable biofuel. The biofuel
component was derived from feedstocks such as used cooking oil and delivers a
well-to-exhaust CO2 reduction of c.30% compared to fossil fuel equivalents
without requiring modifications to the vessel's engine.
Following the successful trial, the Investment Manager is in discussions with
Stolt Tankers and BP on extending the use of sustainable biofuel. A vessel
in another fund controlled by the Investment Manager successfully completed a
voyage powered by 100% sustainable biofuel.
Coal is a fuel with high greenhouse gas impact. At COP26, world leaders agreed
upon targets to lower global coal demand growth which may impact the seaborne
coal trade by 2025. The Investment Manager has proactively implemented a
policy that favours long-term charters that minimise coal carriage without
negative financial impact. The Investment Manager will monitor and report on
coal carriage on the Company's vessels. The Company's vessels have not carried
any coal since the end of 3Q21.
Twelve of the Company's vessels had BWTS installed as at the end of the
financial year. By the end of the calendar year 2022, we expect to install
BWTS on all the Company's vessels except for the gas carrier Neon, on a
bareboat charter, where the charterer is responsible for BWTS installation and
compliance.
Based on the current portfolio and target segments, the Investment Manager
does not expect the Company to have recycling candidates in its portfolio in
the near future.
When recycling situations do arise, the Company will follow industry best
practices in adopting the Hong Kong International Convention for the Safe and
Environmentally Sound Recycling of Ships.
Social
The Investment Manager considers crew health and safety to be a priority and
works closely with the vessels' technical managers to promote best practices.
The Investment Manager became a signatory to the Neptune Declaration in
January 2021, supporting measures to ensure timely relief of crew and putting
measures in place to manage any pandemic-related travel restrictions.
As a result of the Investment Manager's proactive approach to ensure timely
relief, crew members overdue for rotation onboard the Company's vessels
decreased from c.16% at the end of July 2021 to c.5% at the end of June 2022.
At the end of the financial year, only 0.2% of the crew members were overdue
by more than 1 month against an average of 4.3% for the top ten ship managers
who are signatories of the Neptune Declaration.
At the end of the financial year, no crew members onboard any of the Company's
vessels were overdue for rotation by more than two months. The Investment
Manager continued its vaccination program for all the crew members on the
Company's vessels. At the end of the financial year, c.97% of the crew members
were vaccinated.
The Investment Manager works with the vessels' technical managers to establish
a strong safety culture, exceeding regulatory standards. The technical
managers have implemented a collection of comprehensive safety procedures,
policies, and protocols onboard vessels that conform to the guidelines of the
Investment Manager. Safety performance is monitored by collecting and tracking
a comprehensive list of industry Key Performance Indicators ("KPIs") every
quarter and ensuring that any significant incidents are reported upon with
follow-up actions taken.
Over the financial year, the Company registered one lost time shipboard injury
over c.3 million man-hours, resulting in an LTIF of 0.33.
Other ESG metrics 2021
Lost Time Injury Frequency ("LTIF")
Industry metric to measure safety performance over a one-year rolling period,
normalised per million man-hours. A lower number corresponds to better safety
performance
The Company 0.33
Maersk Group(+) 0.93
Over the financial year, the Investment Manager became a signatory to Maritime
UK's:
· Mental Health in Maritime pledge to promote quality of mental health
and wellbeing in the industry; and
· Women in Maritime pledge to build an employment culture that actively
supports and celebrates gender diversity at all levels in the industry.
The Investment Manager has engaged Mental Health Support Solutions GmbH
("MHSS") to provide a free counselling service for crew members to help them
handle concerns of stress, anxiety, and personal issues while onboard. The
24-hour confidential helpline service is operated by MHSS's professional
psychologists, who are multilingual and can be contacted by phone, messaging
apps and email.
The Investment Manager is specifically monitoring the safety and well-being of
the Ukrainian crew members on board the Company's vessels. The war could
increase stress on crew members and may exacerbate challenges to crew rotation
due to the closure of airports. Where requested, we will assist in the
repatriation or extension of crew contracts. The Investment Manager has
engaged with all our technical managers to address these issues. As at the end
of the financial year, the Company's vessels have 31 Ukrainian and 29 Russian
nationals onboard and there is a mixture of both nationalities on seven
vessels (nine vessels at the end of 1Q22). Whilst no problems have arisen to
date, we are trying to separate Russian and Ukrainian nationals wherever
possible through rotations.
The Investment Manager aims to promote acceptance and implementation of ESG
principles with business partners through an annual survey and feedback. The
Investment Manager conducts an annual survey of all the Company's technical
managers which includes KPIs to assess their performance on numerous metrics
including ESG. The results of the survey are communicated to the technical
managers to ensure best practices are shared.
The Investment Manager has a strict reporting policy for its technical
managers and employs a third party to conduct independent inspections of the
Company's vessels on a regular basis to check on the performance of the
technical managers.
These independent inspections include assessment of key aspects of vessel
condition as well as regulatory compliance and crew health and safety. The
Investment Manager updates the Board of Directors on the progress of the
Company's investments every quarter with additional updates where significant
events have occurred.
The Investment Manager continues to closely monitor adherence to sanctions
regimes from the US, UK, EU and UN. The employment contracts for the Company's
vessels are structured to exclude sanctioned regions. Additionally, the
Investment Manager monitors compliance through regular inspection of vessel
logs and satellite data. On 24 February 2022, Russia invaded Ukraine. The
Investment Manager is monitoring the movements of all the Company's vessels.
The Investment Manager will prohibit the entry of any vessel into conflict
zones, a right established in all the Company's charters.
The Board and the Investment Manager are also monitoring the new sanctions
being put in place. The Company and its vessels will remain compliant with all
international sanctions imposed by the US, UK, EU and UN. The Board and the
Investment Manager remain watchful in monitoring the war and consequences for
shipping and the Company.
The Investment Manager has a zero-tolerance policy towards bribery and adheres
to the UK Bribery Act with the following policies in place:
· payment controls requiring dual sign-off/authorisation of all
payments;
· gifts and entertainment policies that restrict staff from giving and
receiving gifts;
· recruitment policies and ongoing monitoring of the fitness and
propriety of staff including their honesty, integrity, and financial
soundness; and
· FCA Conduct rules and a Code of Ethics which require staff to conduct
themselves appropriately.
The Investment Manager is also a member of the Maritime Anti-Corruption
Network (MACN).
Analysis of climate-related risks
In this section, the Investment Manager has set out the financially material
climate-related risks and opportunities associated with the Company over the
short (<3 years), medium (4-10 years) and long (>10 years) term.
Risks Horizon Analysis
Physical Risks Medium term and Physical risks may include extreme weather events, such as drought or
flooding, and the longer-term impact of increasing average global mean
long term temperatures.
While operations of the vessels in the portfolio may be temporarily disrupted,
the Investment Manager does not expect that the globally mobile vessels in the
portfolio will be permanently affected by climate-change related impacts on
any facilities or even specific geographic region(s). The global shipping
industry has proved to be resilient and adaptable to changes over the long
term.
Transition Risks
Technology Risk from technological improvements or innovations that support the
transition to a lower-carbon, energy-efficient economic system
Short term Newer vessel designs tend to be more fuel-efficient making the oldest and
least fuel-efficient vessels less competitive. The Investment Manager is
committed to adoption of technologies for emissions reduction including ESDs.
The Investment Manager and the Board carefully consider the environmental
impact associated with all investment decisions.
Technology Risk from technological improvements or innovations that support the
transition to a lower-carbon, energy-efficient economic system
Medium term and The Investment Manager regularly monitors the viability of investment in new
fuel technologies and retrofits. The Investment Manager considers this
long term transition risk to be low in the medium term due to the lack of established
refuelling infrastructure as well as technology and safety risks in new fuel
technologies. As of June 2022, only c.5% of the global fleet is capable of
utilising alternative fuels including LNG. The Investment Manager has
successfully trialled and aims to increase the usage of sustainable biofuels.
Policy and Legal Risk of policy actions that attempt to constrain actions that contribute to
the adverse effects of climate change or policy actions that seek to promote
adaptation to climate change.
Short term The Investment Manager aims to be at the forefront of decarbonisation and is
investing in ESDs to achieve emissions reduction beyond regulatory targets.
The Board has reviewed the Investment Manager's plans to ensure that the
Company's vessels will be compliant with announced regulations. Please see
section on Principal Risks and Uncertainties.
Risks Horizon Analysis
Medium term and There remains significant uncertainty in the medium term on the trajectory of
regulatory targets and measures required to meet the targets. Regulatory
long term uncertainty is greatest for newbuild investments with an operating life of ≥
20 years, while the Company's assets will have obligations to operate
efficiently.
The average age of the Company's assets is c.11 years. The asset life of the
portfolio means that there will structurally be lower risk to the portfolio
residual value towards the end of the medium-term horizon. The Investment
Manager regularly monitors the viability of investment in new fuel
technologies and retrofits.
Market Risks through shifts in supply and demand for certain commodities, products,
and services as climate-related risks and opportunities are increasingly taken
into account.
Medium term and long term Risk may come from lower demand for seaborne coal which is not replaced by
demand for decarbonisation-related commodities such as biomass, lithium, and
nickel ore. The Investment Manager is already proactively minimising coal
carriage through long-term charters without commercial impact.
Where possible, the Investment Manager chooses charter counterparties that are
structurally less likely to carry coal. New commercial arrangements may be
required to adapt to changing demand patterns in the medium term.
Reputation Risk tied to changing customer or community perceptions of an organization's
contribution to or detraction from the transition to a lower-carbon economy.
Short term and medium term The Investment Manager aims to be at the forefront of decarbonisation and is
investing in ESDs to achieve emissions reduction beyond regulatory targets.
The Board has reviewed the Investment Manager's plans to ensure that the
Company's vessels will be compliant with announced regulations. Please see
section on Principal Risks and Uncertainties.
Principal Risks and Uncertainties
The Board has carried out a robust assessment to identify the principal and
emerging risks that could affect the Company, including those that would
threaten its business model, future performance, solvency or liquidity.
Principal risks are those which the Directors consider have the greatest
chance of materially impacting the Company's objectives. The Board has adopted
a "controls" based approach to its risk monitoring requiring each of the
relevant service providers, including the Investment Manager, to establish the
necessary controls to ensure that all identified risks are monitored and
controlled in accordance with agreed procedures where possible.
The Board of Directors receives periodic updates on principal risks at their
meetings and have adopted their own control review to ensure that, where
possible, risks are monitored appropriately, mitigation plans are in place,
and that emerging risks have been identified and assessed. The Directors also
carry out a regular check on the completeness of risks identified, including a
review of the risk register. The Board believes that the risk register is
comprehensive and addresses all risks that are currently relevant to the
Company. While the Investment Manager monitors and puts in place controls to
mitigate risks, risk or uncertainty cannot be eliminated.
The Board identified the Russian invasion of Ukraine as an emerging risk. In
consultation with the Investment Manager, specific areas of concern were
identified and dealt with as follows:
· Compliance with sanctions and other restrictions on trade - all the
Group's charter agreements require charter counterparties to comply with
sanctions etc., and such compliance is monitored by the Investment Manager.
· Crewing of vessels - working with the technical managers of each
vessel, the Investment Manager closely monitors the impact of the war on
crewing. To date, there have been no war related incidents on any vessel.
· Impact on vessel demand and utilisation - none of the Group's vessels
has been adversely impacted by the war, and as explained in the Investment
Manager's Report on page 16
The Board would like to highlight in the following table, the principal risks
(not limited to Covid causes only) to the business and efforts to mitigate the
risks. The Board considers that no additional mitigation steps are required at
this time.
Underlying cause 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 (e.g. impact of the war in Ukraine, inflation or Covid) Vessel values - diversification to reduce reliance on any particular 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 creditworthiness is subjected to extensive checks prior
to and throughout a charter. In the event of default, the generic nature of
Dividends the ships in the portfolio should enable alternative employment to be found,
though possibly at lower rates.
Vessel maintenance or capital expenditure may be more costly than expected due Capital growth The Company has engaged experienced technical managers to monitor maintenance
to delays, resource constraints or inflation generally
and capital expenditure. Capex provisions are made prior to investing in a
Dividends vessel.
Liquidity 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
Vessel values undermine the initial investment decision.
A vessel may be lost or significantly damaged Capital growth Measures to mitigate operational risks include:
Vessel values - avoiding conflict areas;
- daylight sailing, naval escort, route planning to avoid higher
risk areas; and
- detailed best practice operating procedures to be followed by crew
and technical staff.
Comprehensive insurance protection is in place at all times to cover inter
alia significant damages to or loss of vessels.
The Company may not have enforceable title to the vessels purchased Liquidity The Company has engaged a very experienced Investment Manager who is
responsible for establishing such title.
Vessel values
This is then monitored by the Administrator on behalf of the Board using
publicly available information.
Failure of, or unwillingness of, other non-charterer counterparties to meet Capital Growth The Investment Manager and Asset Manager rely on third party service providers
their obligations
for performance of services integral to the operation of the Company.
Loss of invested cash
The Asset Manager is constantly monitoring the performance of all the
Company's key operational service providers and especially the technical
managers.
SPV operating accounts are held with one or more unrated banks, because those
banks' systems are better suited for shipping company operations. Exposures to
such banks are limited to US$10m per bank.
Surplus funds are invested with banks of an A- (or equivalent) or higher
credit rating as determined by an internationally recognised rating agency.
Credit ratings, monthly cash sweeps from SPVs and overall limits are monitored
by the Administrator, who reports exceptions to the Board.
Failure of systems or controls in the operations of the Investment Manager, Capital Growth This risk cannot be directly controlled but the Board and its Audit Committee
Asset Manager or the Administrator and thereby of the Company
regularly review reports from its Service Providers on their internal
Loss of assets, reputation or regulatory permissions and resulting fines controls.
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 a
all vessels considered for acquisition by the Company to identify potential
vessel owned by the Company's SPVs were to be involved in an incident with the Vessel value sources of pollution, contamination or environmental hazard for which that
potential risk of environmental damage, contamination or pollution.
vessel may be responsible and to assess the status of environmental regulatory
Loss of income, reputation or regulatory permissions and resulting fines 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 environmental performance of key service providers and all
vessels, and reports findings to the Board on a quarterly basis.
Protection and indemnity mutual insurance 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. The Board reviews the policy and the implementation of the
policy at least annually. Please see the ESG section of the Investment
Manager's Report for details.
The Company also follows its own Responsible Investment, Sustainability and
ESG Policy which was implemented by the Board in July 2021 and is published on
the Company's website, (www.tuftonoceanicassets.com).
As part of their review of the Company's operational risks and controls, which
takes place on at least an annual basis, the Board of Directors consider ESG
and climate change specific risks and how these may be mitigated. This
includes receiving regular reports and updates from the Investment Manager on
the measures put in place by them to ensure the Company carries out its
activities in an environmentally sustainable and responsible manner.
Corporate Summary
The Company is a closed-ended investment company, limited by shares,
registered and incorporated in Guernsey under the Companies Law on 6 February
2017, with registered number 63061.
The Company is a Registered Closed-ended Collective Investment Scheme
regulated by the GFSC pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law 2020, as amended and the Registered Closed-ended Investment
Scheme Rules 2021.
As at 30 June 2022, the Company has 308,628,541 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 issued 38,590,903 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 were incorporated in the Isle of
Man, in accordance with the Isle of Man Companies Act 2006 (the "IOM Companies
Act").
The Company controls the investment policy of each of LS Assets Limited and
the wholly owned SPVs to ensure that each will act in a manner consistent with
the investment policy of the Company. The Company refers to each vessel by the
underlying SPV name rather than the actual name of the respective vessel for
confidentiality purposes.
The Investment Manager is Tufton Investment Management Ltd, a company
incorporated in England and Wales with registered number 1835984, which is
regulated by the UK FCA and has been authorised to act as a Small Registered
UK AIFM under the AIFMD. Tufton Investment Management Ltd has been a
specialist 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 of Corporate Governance ("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 against 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 of only four independent Directors, they
have agreed 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:
- the support of the Chairman in his role;
- acting as an intermediary for other Directors where necessary;
- being available for Shareholders and other non-executives to
discuss any questions or concerns; and
- assisting with the performance evaluation and succession planning
of the Chairman's role.
Due to the Board's size, the Board has not deemed it necessary to appoint a
separate nomination committee and therefore the role typically undertaken by
such committee is currently conducted by the Board as a whole. The rules
governing the appointment and replacement of Directors are set out in the
Company's Articles.
The Directors have overall responsibility for reviewing the size, structure
and skills of the Board and considering whether any changes are required, or
new appointments are necessary to meet the requirements of the Company's
business or to maintain a balanced Board.
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 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 six 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 will receive other relevant training as
necessary on their on-going responsibilities in relation to the Company.
Environment, Social and Governance
For further details of the Company's approach to ESG matters, please see the
Report of the Directors and the Investment Manager's Report, together with the
Company's Responsible Investment, Sustainability and ESG Policy 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 that this does not conflict with
local company law.
Therefore, through adopting the AIC Code, the Board acknowledges its duty to
apply and demonstrate compliance with section 172 of the UK Companies Act 2006
and to act in a way that promotes the success of the Company for the benefit
of its Shareholders as a whole, having regard to (amongst other things):
· the consequences of any decision in the long term;
· the need to foster business relationships with suppliers, customers
and others;
· the impact 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 Law and Regulation
Growth of the Company Compliance with Law and Regulation Impact of the Company and its activities on third parties
Liquidity of the shares Remuneration
Engagement process
Annual General Meeting The main two service providers - Tufton Investment Management Ltd ("Tufton The Company and its subsidiaries themselves have only a very small footprint
IML") in their local communities and only a very small direct impact on the
environment.
and Maitland Administration (Guernsey) Limited ("MAGL") - engage with the
Frequent meetings with investors by brokers and the Investment Manager and Board in face-to-face meetings quarterly, giving them direct input to Board
subsequent reports to the Board. discussions.
However, the Board acknowledges that it is imperative that everyone
contributes to local and global sustainability and the activities of the
Company in this regard are reflected within the Company's Responsible
Quarterly factsheets Where face to face contact has not been possible due to the Covid pandemic, Investment, Sustainability and ESG Policy and the Responsible Investment
engagement has continued via video conferencing services such as Microsoft Policy of the Investment Manager.
Teams.
Key Information Document
All service providers are asked to complete a questionnaire annually which
includes feedback on their interaction with the Company, and the Board
ordinarily undertakes an annual visit to Tufton in both London and the Isle of
Man.
Unfortunately, due to Covid restrictions, this was not possible during the
year, however regular communications between the Investment Manager and the
Board were maintained via Microsoft Teams.
Rationale and example outcomes
Clearly investors are the most important stakeholder for the Company. Most The Company relies on service providers (including the Investment Manager, The Board and the Investment Manager work together to ensure that ESG factors
of 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 premium or discount of the share price to employees of its own. vessel operators are influenced positively. See pages 16 to 20 for details
the NAV.
of the Company's approach in this area.
No major decisions were made by the Board which effected service providers in
The major decisions arising from this have been for the Board to seek to the year. Board members do travel, partly to meetings in Guernsey, and partly elsewhere
ensure long-term value and, opportunities to realise value through sales of
on Company business, including for the annual due diligence visits to London
vessels. A decision was also made to issue shares under the tap facility to and the Isle of Man, travel restrictions permitting. The Board considers this
marginally reduce the Company's Total Expense Ratio and improve the liquidity
essential in overseeing service providers and safeguarding stakeholder
of the Company's shares. The Board always seeks to act fairly and transparently with all service interests. Otherwise, the Board seeks to minimise travel using conference
providers, and this includes such aspects as prompt payment of invoices. calls whenever good governance permits.
In addition, the Board has focused on the valuation of vessels, a key priority
for Shareholders. As a result, the Board placed greater emphasis on
reviewing the output from the VesselsValue system used 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 Annual
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 which enable 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 on pages 59 to 61.
Furthermore, the Board believes that the disclosures set out on pages 72 to
102 in the Annual Report provide the information necessary for Shareholders to
assess the Company's performance, business model and strategy.
Having taken into account all matters considered by the Board and brought to
the attention of the Board for the year ended 30 June 2022, 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 2022, 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 2022.
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 in SPVs
domiciled in the Isle of Man or other jurisdictions considered appropriate by
the Company's advisers. The Company conducts its business in a manner that
results in it qualifying as an investment entity (as set out in IFRS 10:
Consolidated Financial Statements) for accounting purposes and as a result
will apply the investment entity exemption to consolidation. The Company
therefore reports its financial results on a non-consolidated basis.
Subject to the solvency requirements of 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 July 2021 the Company
raised its target annual dividend to US$0.08 per share (previously US$0.075
per share).
The Company aims to achieve a NAV Total Return of 12% or above (net of
expenses and fees) on the Issue Price over the long term. The profit for the
Company in the financial year was US$107.3m, or US$0.362 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
On 6 August 2021, the Company announced the results of its tap issue of
10,533,763 shares at US$1.18 per tap issue share, which raised gross proceeds
of US$12.4m. On 17 November 2021, the Company announced the results of its tap
issue of 28,057,140 shares at US$1.39 per tap issue share, which raised gross
proceeds of US$39.0m.
The Directors set the issue price for each of the tap issues, after their
costs, at a premium to the prevailing dividend adjusted NAV per share prior to
each issue respectively.
Results and dividends
The Company's performance during the year is discussed in the Chairman's
Statement pages 2 and 3. The results for the year are set out in the Statement
of Comprehensive Income on page 72.
The Directors of the Company who served during the year and to date are set
out on pages 46 to 48.
Directors' interests
The Directors held the following interests in the share capital of the Company
either directly or beneficially as at 30 June 2022, and as at the date of
signing these Financial Statements:
2022 2021
Shares Shares
R King 45,000 45,000
S Le Page 40,000 40,000
P Barnes 5,000 5,000
C Rødsaether 20,000 20,000
The Directors fees are as disclosed below:
30 June 30 June
2022 2021
Director £ £
R King 36,610 33,610
S Le Page 34,000 31,500
P Barnes 31,550 29,300
C Rødsaether 31,550 24,064
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 0 0 20 18
S Le Page 4 4 1 1 20 20
P Barnes 4 4 1 1 20 19
C Rødsaether 4 4 1 1 20 17
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 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
As at 30 June 2021
Name Ordinary Shares % of issued
Share Capital
Tufton Group Shareholders 4,474,786 1.66
Tufton Group Staff 374,668 0.14
Tufton Group Non-Executive Directors 403,279 0.15
Former Tufton Group Shareholders 2,758,168 1.02
The Company has a Share Buyback and Discount Management Policy in place, which
has been formally approved and adopted by the Board of Directors.
The Board of Directors (the "Board") will consider repurchasing the Company's
Ordinary shares in the market if they believe it to be in Shareholders'
interests as a whole and as a means of correcting any imbalance between supply
of and demand for the shares.
Share buyback and discount management
Subject to working capital requirements, and at the absolute discretion of the
Board, excess cash may be used to repurchase shares should the Company's
shares close at a, or more than a, 10% average discount to NAV for a period of
90 consecutive days. The Directors may implement share buyback at any time
before the 90-day guideline where they feel it is in the best interests of the
Company and all Shareholders.
The Administrator, Maitland Administration (Guernsey) Limited ("Maitland"), is
responsible for tracking the discount/premium of the share price to NAV and
presents the information to the Board on an as-needed basis.
The Companies (Guernsey) Law, 2008 (the "Law") allows companies to hold shares
acquired by way of market purchase as treasury shares, rather than having to
cancel them.
These treasury shares may be subsequently cancelled or sold for cash.
Therefore, it is agreed that any shares repurchased pursuant to the general
authority referred to above may be held by the Company in treasury, to the
extent permitted by Law.
The Company wishes to operate a buyback programme that is effective and also
adds value for Shareholders. As such, unless authorised by Shareholders, no
shares will be sold from treasury at a price less than the NAV per share at
the time of the sale unless they are first offered pro rata to existing
Shareholders.
Share Buyback Programme Terms and Conditions
· the maximum number of shares authorised to be purchased shall be
14.99 per cent. of the shares in issue;
· the minimum price which may be paid for a share is US$0.01;
· the maximum price which may be paid for a share shall be the higher
of:
o an amount equal to 105 per cent. of the average of the middle market
quotations of a share (as taken from the Daily Official List of the London
Stock Exchange) for the five business days prior to the date the purchase is
made; and
o the higher of:
a) the price of the last independent trade; and
b) the highest current independent bid for shares on the London Stock
Exchange at the time the purchase is carried out.
· the minimum number of shares authorised to be purchased in a single
day shall be 50,000, unless otherwise agreed by the Board;
· this authority shall expire on the conclusion of the next annual
general meeting of the Company or if earlier, eighteen months from the date of
passing of the resolution, save that the Directors shall be entitled to make
offers or agreements before the expiry of such power which would or might
require the purchase of shares after such expiry pursuant to any such offer or
agreement as if the power conferred by the resolution had not expired;
· pursuant to Article 4.6 of the Company's Articles of Incorporation,
the Company may hold any of the shares purchased pursuant to the authority
conferred by paragraph 2.6.4 as treasury shares;
· the Company may sell the shares back to the market from treasury at
the discretion of the Directors. This may only be done in the event that the
shares are trading at a premium to the prevailing NAV per share;
· the Company may not sell shares back from treasury during a closed
dealing period, as defined in the Company's Share Dealing Policy;
· for the avoidance of doubt, sales from treasury may only be
authorised by the Directors if the amount to be received by the Company for
the shares is at least the prevailing NAV per share, exclusive of commissions
and dealing costs. Shares may not be sold for more than a 10% discount to
market value; and
· the minimum number of shares authorised to be sold from treasury in a
single day shall be 100,000, unless otherwise agreed by the Board.
Buybacks are conducted by Singer Capital Markets on the Company's behalf, on
the instruction of the Board of Directors or a duly authorised committee
thereof. Prior to giving such instruction, the Board or a duly authorised
committee of the Board shall meet and give due consideration to the Solvency
of the Company to the extent provided by Law, and a duly authorised
representative of the Board or such Committee shall sign a solvency
certificate in respect of each buyback instructed. For the avoidance of doubt,
no buyback may be performed during a period whereby the Company does not meet
the statutory solvency test.
Singer Capital Markets also conduct sales of the shares from treasury on
behalf of the Company, on the instruction of the Board of Directors or a duly
authorised committee thereof. Following the completion of a sale, an RNS
announcement will be released by the Company to the market, which shall
include the restated amount of voting rights.
The buyback programme may be suspended around key market announcements and
during times where market price calculations are being made, or at any other
time where the Board considers this to be appropriate.
The purchase of shares by the Company is at the absolute discretion of the
Directors and is subject to the working capital requirements of the Company
and the amount of cash available to the Company to fund such purchases.
Accordingly, no expectation or reliance should be placed on the Directors
exercising such discretion on any one or more occasions.
Board Responsibilities and Corporate Governance
Please note the Corporate Governance Statement on pages 35 to 39 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 one AIM listed fund, Weiss Korea Opportunities Fund Limited
(Rob will retire with effect from 30 September 2022), and 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 in
PricewaterhouseCoopers CI LLP in the Channel Islands from 1994 until his
retirement in September 2013. He led that firm's audit and advisory businesses
for approximately ten years and for five of those years was the Senior Partner
(equivalent to Executive Chairman) for the Channel Islands firm.
Stephen serves on a number of boards as a non-executive director, including
acting as chairman of the audit committee for four London listed funds,
Highbridge Tactical Credit Fund Limited (which is winding down), Volta Finance
Limited, Amedeo Air Four Plus Limited and Princess Private Equity Holding
Limited and one International Stock Exchange listed company, Channel Islands
Property Fund Limited. Stephen is British and resident in Guernsey.
Paul Barnes
An investment banker experienced in asset backed, structured and project
financing with wide geographic exposure including Asia, Central/Eastern
Europe, North and Latin America and Scandinavia. Paul was managing director at
BNP Paribas and co-head of its EMEA Shipping and Offshore business between
2010 and 2015. He was also head of risk monitoring for Global Shipping at BNP
Paribas.
Prior to that, Paul had served as head of shipping (London) at Fortis Bank,
head of specialised industries at Nomura International and as a corporate
finance director of Barclays Bank and as a director of its Shipping Industry
Unit. Paul Barnes is British and resident in the United Kingdom.
Christine 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 Euronext Growth (Oslo) 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 effected by the
Company during the year. At the date of this Report, there are no outstanding
loans or guarantees between the Company and any Director.
Share Dealing Code
The Company has adopted a share dealing code, in conformity with the
requirements of the Listing Rules and the EU Market Abuse Regulation and takes
steps to ensure compliance by the Board and relevant senior staff with the
terms of the policy.
Appointment, re-election and remuneration of Directors
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 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. An external search consultancy is used to help identify
candidates for Board appointments. This consultancy is unconnected with the
Company or any of the Directors. The Board have been briefed by their legal
advisers about their on-going responsibilities as directors and newly
appointed directors will be invited to participate in a formal induction
process.
The Articles require that at each annual general meeting, all the Directors
will submit themselves for re-election. The Company does not have a separate
remuneration committee as the Board as a whole fulfils the function of a
remuneration committee, which includes the review on at least an annual basis
of the remuneration of the Directors in accordance with the Company's
remuneration policy and market information.
The Company's policy is for Directors to be remunerated in the form of fees
which are 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 the composition of the Board that is balanced and
effectively discharges stewardship of the Company's affairs.
Annual performance appraisal
The performance of the Board, committees and individual Directors have been
formal 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 considers having an annual, regular,
externally facilitated board evaluation. The last evaluation took place in
October 2021 with the next annual review taking place in October 2022.
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 Q3-Q4 2022.
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 the 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 have 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 20 October 2021. Another resolution for their appointment will be proposed
at the AGM on 27 October 2022.
Service Providers
The Investment Manager / Alternative Investment Fund Manager ("AIFM")
Tufton Investment Management Ltd, a specialist investment manager in the
maritime and energy markets since 2000, has been appointed as the Investment
Manager. Since its inception in 1985, the Investment Manager has been focused
on financial services to these industries.
As of 30 June 2022, the Investment Manager manages investments of c.US$1.1
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
day-to-day operation 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 2022, the Tufton Group of which the Investment Manager is part,
had 30 employees operating from offices in London, Isle of Man and Cyprus.
The Investment Manager is fully dedicated to the shipping industry with an
in-house research team and dedicated Asset Manager providing services to each
vessel purchased. As described in the Prospectus, the Investment Manager has
an established track record in managing segregated mandates for pension funds
with similar investment objectives to those of the Company.
The Investment Manager's employees have significant experience of investing
and financing in the shipping industry. Each member of their Investment
Committee has between 20 and 40 years of experience in the maritime financial
markets either from investment banking, commercial banking or from the vessel
owning/operating perspective.
The Investment Manager's role encompasses the identification of appropriate
acquisition opportunities, conducting necessary due diligence, making
recommendations to the Board and completing the proposed investments on behalf
of the Company. The Investment Manager (in conjunction with the Asset Manager)
will also monitor the performance of the Company's portfolio. The Investment
Manager, which acts as the Company's AIFM under the Alternative Investment
Fund Managers Directive ("AIFMD"), is authorised and regulated by the UK FCA.
Investment Committee
The Investment Manager has established an Investment Committee.
Each investment proposal is reviewed by the Investment Committee which meets
on a weekly basis. These weekly meetings continued via teleconference during
the Covid pandemic. In reviewing each potential investment, the Investment
Committee will consider a range of factors including a detailed analysis of
the vessel's technical condition and other analyses from the Asset Manager, a
full risk/reward analysis, downside stress testing, commercial/employment
strategy, effects of adding moderate leverage in accordance with Company
policy, market outlook, credit quality of charterer, market reputation of
counterparties, deal modelling, exit strategy and any macro analysis that
might be necessary to fully understand the investment. The Investment Manager
is committed to Responsible Investment and integrates ESG factors into its
investment process. The Investment Manager reviews the environmental footprint
of new vessel acquisitions as well as 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 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") has been appointed as
administrator and secretary to the Company, pursuant to the Administration
Agreement dated 27 February 2017 and to LS Assets Limited, pursuant to the
Administration Agreement dated 20 April 2018. Maitland was incorporated with
limited liability in Guernsey on 20 January 2010 and is licensed by the
Guernsey Financial Services Commission under the Protection of Investors (POI)
Law.
The Administrator forms part of the Maitland group established in Luxembourg
in 1976. Maitland is a global advisory, administration and family office
firm providing legal, fiduciary investment and fund administration services to
private, corporate and institutional clients. The group employs over 780 staff
in 11 offices across 8 jurisdictions and collectively administers in excess of
US$160bn in assets.
The Administrator provides day-to-day administration services to the Company
and is also responsible for the Company's general administrative and
secretarial functions such as the calculation of the NAV, compliance with the
Code and maintenance of the Company's accounting and statutory records.
Registrar
Computershare Investor Services (Guernsey) Limited was appointed as registrar
to the Company pursuant to the Registrar Agreement dated 27 February 2017. In
such capacity, the Registrar is responsible for the transfer and settlement of
shares held in certificated and uncertificated form. The Register may be
inspected at the office of the Registrar.
Receiving Agent
Computershare Investor Services PLC was appointed as receiving agent to the
Company for the purposes of the Offer for Subscription pursuant to the
Receiving Agent Agreement dated 27 February 2017.
Disclosure Obligations
Shareholders are obliged to comply, from Admission, with the shareholding
notification and disclosure requirements set out in Chapter 5 of the
Disclosure Guidance and Transparency Rules. The Administrator will monitor
disclosure with reference to changes in shareholdings.
Annual Report and Financial Statements
The Board of Directors is responsible for preparing the Annual Report and
Financial Statements. The Audit Committee advises the Board on the form and
content of the Annual Report and Financial Statements, any issues which may
arise and any specific areas which require judgement.
Anti-bribery and corruption
The Board acknowledges that the Company's international operations may give
rise to possible claims of bribery and corruption. In consideration of the UK
Bribery Act the Board reviews the perceived risks to the Company arising from
bribery and corruption to identify aspects of the business which may be
improved to mitigate such risks.
The Board has adopted a zero-tolerance policy towards both bribery and
corruption and has reiterated its commitment to carry out business fairly,
honestly and openly.
In respect of the UK Criminal Finances Act 2017 which 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 UK FCA as a Small Registered UK AIFM under the AIFMD. The funds managed
by the AIFM, including the Company, are now defined as Alternative Investment
Funds and are subject to the relevant articles of the AIFMD.
The Company notes that while AIFMD no longer binds the UK in its
implementation, a domestic regime has been put in place regulating the
management and marketing of AIFs in the UK, which generally maintains the
AIFMD rules as implemented at the end of the transition period with respect to
the UK's departure from the European Union on 31 December 2020.
Internal control and financial reporting
The Board is responsible for establishing and maintaining the system of
internal controls required by the Company's operations. These internal
controls are undertaken by the service providers. Internal control systems are
designed to meet the specific needs of the Company and the risks to which it
is exposed, and, by their very nature, provide reasonable, but not absolute,
assurance against material misstatement or loss.
The key procedures which have been established to provide effective internal
controls include:
· Maitland Administration (Guernsey) Limited ("Maitland") is
responsible for the provision of administration, accounting and company
secretarial duties. Maitland also provides compliance oversight in respect of
the Company and its activities. As the Company itself has no IT systems and
relies on the IT systems of its service providers, Maitland additionally has a
role in cyber security and the protection of the Company's data through the
operation of Information Security Protection Controls. Maitland staff are also
regularly trained in order to minimise the risk of an accidental data breach;
· Tufton Investment Management Ltd is the Investment Manager and
provides portfolio management and risk management services to the Company.
They are also the AIFM for the purposes of the AIFMD;
· Tufton Management Limited, an affiliate of the Investment Manager,
provides Asset Management services to each underlying SPV;
· Tufton Corporate Services, an affiliate of the Investment Manager,
provides administration, accounting and company secretarial services for the
SPVs;
· Computershare Investor Services (Guernsey) Limited is responsible for
the provision of Registrar services;
· the Board clearly defines the duties and responsibilities of the
Company's agents and advisers in the terms of their contracts;
· the Board receives assurances from the Company's agents and advisers
that any amendments required as a result of regulatory change, are actioned
accurately and promptly; and
· the Board reviews financial information and compliance reports
produced by the Administrator on a regular basis.
The Board and Audit Committee have reviewed the Company's risk management and
internal control systems and believe that the controls are satisfactory, given
the size and nature of the Company.
Responsible Investment, Sustainability and ESG Policy
The Company published its Responsible Investment, Sustainability and ESG
Policy (the "Policy"), in July 2021, a copy of which is available on the
Company's website (www.tuftonoceanicassets.com).
The Policy sets out the combined approach of the Investment Manager and the
Company to the integration of sustainability risks and responsible investment
principles in its investment decision making and asset ownership practices.
The Policy seeks to align the Company's strategy with best practices and
market standards in all ESG and Responsible Investment matters.
The Company believes upholding high standards of ESG and responsible
investment principles and practices are an essential tool for managing the
risks presented by challenges such as climate change, social inequality and
human rights issues, delivering long-term value and positive returns for the
Company's Shareholders as part of the Company's investment objectives, and
ensuring the continued sustainability of shipping as a whole.
The Policy includes further details on the Company's approach to diversity and
inclusion, stakeholder engagement, modern slavery, human rights and
anti-bribery practices, together with how the activities of the Company are
aligned with recognised ESG standards such as the UN's Sustainable Development
Goals.
In accordance with the Policy, the Directors have requested that the
Investment Manager take into account the broader social, ethical and
environmental issues of the vessels within the Company's portfolio,
acknowledging that companies failing to manage these issues adequately run a
long-term risk to the sustainability of their businesses and that this
reflects stakeholders' views.
More specifically, the Board expect companies to demonstrate ethical conduct,
effective management of their stakeholder relationships, responsible
management and mitigation of social and environmental impacts, as well as due
regard for wider societal issues.
The Directors along with the Investment Manager, recognise the value of
integrating principles of Responsible Investment into the investment
management process and ownership practices in the belief that this can have an
impact on long-term financial performance. The Investment Manager's Report has
further information on how the Investment Manager practically implements and
considers the Policy when making investment decisions.
Going concern
In assessing the going concern basis of accounting the Directors have,
together with discussions and analysis provided by Tufton, had regard to the
guidance issued by the Financial Reporting Council. They have considered
recent market volatility, the Russian invasion of Ukraine, and the continued
impact of the Covid virus on the current and future operations of the Company
and its investments (as set out in more detail in the Principal Risks and
Uncertainties section). Cash reserves are held at the LS Assets Limited
("LSA") and SPV levels and rolled 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 for at least twelve months from
the date of approval of the Financial Statements. For this reason, they
continue to adopt the going concern basis in preparing the Financial
Statements. Please also refer to the Viability statement.
Viability statement
The Board, in assessing the long-term viability of the Company, has paid
particular attention to the Principal Risks and Uncertainties faced by the
Company as disclosed on pages 30 to 33 of these financial statements. The
Board has taken into account the cashflow-weighted average length of its
charters which is expected in normal circumstances to be in excess of three
years. The Company is also required to hold a continuation vote at the AGM to
be held in 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 subsidiaries 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 cash balances being exhausted,
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, or if
unavoidable, the deferral of any dividend payment.
The Directors believe their assessment of the viability of the Company over
the relevant period is sufficiently robust and encompassed the risks which
could threaten the business model, future performance, solvency or liquidity
of the Company considering a variety of severe but plausible scenarios. These
scenarios allow for considerable idle time in the fleet, consistently low
charter rates and even charter default. 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 the viability period.
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
in 2024 that the Company continues its business (a "Continuation Resolution").
If this Continuation Resolution is passed, then the Directors shall every
three years thereafter at the annual general meeting held following the
publication of the audited accounts propose a further Continuation Resolution.
Shareholders' significant interests
The following Shareholders had notified to the Company a substantial interest
of 5% or more of the issued share capital as at 30 June 2022.
% of issued share capital
East Riding Pension Fund 10.20
South Yorkshire Pensions Authority 9.35
Schroder Investment Management 7.97
West Yorkshire Pension Fund 7.63
Raymond James Investment Services 5.71
FIL Investment International 5.28
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 23 September 2022 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 2022 and to the date of this report, the main
areas of activity have been as follows:
· reviewing and assessing the Principal Risks and Uncertainties (as set
out on pages 30 to 33), including the continued impact of the Covid pandemic
and the emerging impact of the Russian invasion of Ukraine on the activities
and assets of the Company;
· reviewing the accounting policies for the Company to ensure they
remain appropriate for the preparation of the Company's Annual Report and
Audited Financial Statements;
· reconsidering the areas of judgment or estimation arising from the
application of International Financial Reporting Standards to the Company's
activities and the documentation of the rationale for the decisions made and
estimation techniques selected, to ensure they remain appropriate;
· meeting with the Independent Auditor, PwC, to review and discuss
their independence, objectivity and proposed scope of work for their audit of
this Annual Report;
· meeting with the Company's principal service providers to review the
controls and procedures operated by them to ensure that the Company's risks
are properly managed and that its financial reporting is complete, accurate
and reliable; and
· reviewing in detail the content of this Annual Report, the work of
the service providers in producing it and the results of the external audit.
Membership and Role of the Committee
The membership of the Audit Committee (the "Committee") is set out on page 49
and details about the responsibilities of the Committee are available in the
terms of reference on the website.
The Committee discharges its responsibilities through a series of scheduled
meetings, the agendas of which are linked to events in the financial calendar
of the Company. The Committee met three times during the year ended 30 June
2022 and twice 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. As a result of travel restrictions
resulting from the global Covid pandemic, these visits have been replaced by
video conferences with key personnel. The Committee, and particularly the
Chairman of the Committee, also closely monitors the financial reporting
process and the tasks undertaken in the production of the Annual Report.
This has involved discussions with the Administrator of the Company, the
administrator of the Isle of Man SPVs, the Investment Manager and
VesselsValue, (the supplier of the information underlying the valuation of
most of the vessels held by the Company).
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 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, on page 78;
· 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, on pages 56 and 57.
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 reasonably accurate, 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 management agreement, 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$3,980,432 (2021:
US$ nil). The Board reviews and approves the calculation.
External Audit
During the year ended 30 June 2022, and up to the date of this report, the
Committee held formal meetings with the Independent Auditor on thee 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
2022. 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 PwC were appointed to office less
than five years ago. Accordingly, the Committee has recommended to the Board
that PwC be put forward to the AGM of the Company for re-election.
Annual Report
The Committee members have each reviewed this Annual Report and earlier drafts
of it in detail, comparing its content with their own knowledge of the
Company, reporting requirements and shareholder expectations. Formal
meetings of the Committee have also reviewed the report and its content and
have received reports and explanations from the Company's service providers
about the content and the financial results.
The Committee has concluded that the Annual Report, taken as a whole, is fair,
balanced and understandable, and that the Board can reasonably and with
justification make the Statement of Directors' Responsibilities on pages 40 to
41.
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 2022, 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 2022;
● 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, which is held at fair value. The subsidiary in turn
holds directly and indirectly 35 Special Purpose Vehicles ("SPVs") through
which the underlying vessels are held.
● 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$8.90 million (2021: US$6.25 million)
based on 2% of net assets.
● Performance materiality: 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 our professional judgement, were
of most significance in our 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
loss
Please refer to Notes 2(j), 3 and 4 to the financial statements.
We planned and executed our audit to critically assess how management applied
Valuation their assumptions in determining the fair value of all entities and vessels in
the company's investment ownership structure and to verify the existence of
The fair value of the company's investment amounts to US$446.89 million as at the company's ownership of all entities and vessels held by the SPVs. Our
30 June 2022 and comprises the company's holding in its direct subsidiary, audit procedures included:
which in turn directly and indirectly owns 35 SPVs (together the
"entities"). These SPVs hold the interests in the vessels (the "underlying As it relates to valuation of the vessels held by the SPVs:
portfolio"), other SPVs and/or other residual net assets.
· We obtained an understanding and evaluated the design and
The fair value of the investment is reflected by the net asset value of the implementation of the internal controls around the valuations as at 30 June
subsidiary and has been determined based on the fair value of (a) the 2022 at the Administrator and Investment Manager.
underlying portfolio and (b) the other residual net assets within the
subsidiary and SPVs as at 30 June 2022. The fair value of the underlying
portfolio has been valued primarily using standard industry methodology
depending on whether the vessel is classified as a standard or specialised
vessel, or in limited circumstances, by an independent broker.
Standard vessels are generally valued on a 'charter free' basis using an
independent third-party vessel valuation service. Any valuations are then For standard vessels:
adjusted for each vessel's charter lease contracts attached to the vessel
(based on premium/discount to the independent third party vessel valuation · Assessed the third-party vessel valuation service's independence,
services standard market charter rates) and for the estimated capital qualifications, and expertise through enquiry with valuation experts within
expenditure cycle associated with the dry docking of the vessel. The latter our PwC network of firms.
adjustment necessitates estimation in respect of the expected condition of
each vessel and the magnitude of capital expenditure required while in dry · Inspected and agreed the independent valuations obtained by the
dock. These cash flows are then discounted using discounted cash flow Investment Manager in respect of 'charter free' values from the third-party
valuation methodology and take into consideration the credit risk of the vessel valuation service to those independently obtained from the third-party
charter counterparty, where appropriate. vessel valuation service.
Specialised vessels are valued "with charter", by the Investment Manager, · Assessed and challenged the charter lease contract adjustments by
using the discounted cash flow valuation methodology. comparing the actual charter rates, per the records of the SPVs pertaining to
each vessel, to market charter rates to assess the reasonableness of the
The other residual net assets consist of accounts payable/receivable and cash adjustments made by the Investment Manager.
balances which are measured consistently with the company's accounting
policies at amortised cost using the effective interest method. · Where material, we assessed and challenged any capital
expenditure adjustments.
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 · Agreed key inputs used by the third-party vessel valuation
investments and Note 12 includes the key assumptions applied to the service to independent sources or underlying agreements (which included such
valuations. Significant levels of judgement and estimates are applied by both details as the vessel build year, type, size etc).
the Board and Investment Manager in determining the respective fair values of
the underlying portfolio, the SPVs and the subsidiary. · We assessed and evaluated the discount rate used by the
third-party valuation service in calculating the charter lease contracts
Existence adjustments.
The company's direct and indirect ownership rights in its subsidiary and the · We benchmarked the current year fair values to recent comparable
SPVs within the structure consist of unlisted equity securities, shareholder market transactions per vessel and the prior year valuation. Where vessels
loans and capital contributions and therefore there is no central independent were outside of an indicated range applied by the engagement team, we
depository or custodian. For each vessel there is similarly no central challenged and sought further evidence to support the Investment Manager's
depository confirming ownership rights. The existence of the investment in the determination of fair value.
subsidiary as well as the SPVs and vessels is determined via legal title to
each of the equity shares of the subsidiaries and SPVs and ownership title to · We discussed and obtained further detail (such as recent market
the underlying portfolio. transaction data) for a sample of vessels directly from the third-party vessel
valuation service. This provided us with additional comfort over the valuation
As a result of the above and the significance of the investments balance in methodology and approach applied by the third-party vessel valuation service.
the statement of financial position, the valuation and existence of financial
assets at fair value through profit or loss are considered key audit matters
from an audit perspective.
For specialised vessels
· Agreed the purchase price (including deferred purchase prices
where applicable) of each vessel to the signed deal documentation and
discounted cash flow model.
· Agreed the forecast charter income cash flows to signed charter
agreements.
· Recalculated and assessed exit values at the end of the fixed
charter period based on the terms applicable to each vessel, dependent on
management's intention or agreement with the counterparties (such as scrap
value or depreciated replacement cost etc.).
· Assessed the reasonableness of the discount rate applied, as well
as the market discount rates used by third-party vessel valuation service and
counterparty credit conditions as at 30 June 2022.
· Recalculated each vessel's discounted cash flow model to confirm
their mathematical accuracy.
· Assessed the approach applied to the cash flows utilised within
the discounted cash flow models for appropriateness in line with the vessels
and agreements in place for specialised vessels.
For vessels valued by an independent broker:
· We obtained the independent broker valuation and assessed the
reliability, independence, and reputation of the independent broker.
· We agreed the valuation contained within the broker quote back to
the valuation used by the company.
For vessels pending acquisition or divestment:
As at 30 June 2022, the company (via its subsidiary and SPVs) had entered into
two separate sale and purchase agreements to acquire one vessel and divest
another vessel that both completed in July 2022. We have performed the
following procedures over these vessels:
· Verified that the recognition and derecognition criteria set out in
International Financial Reporting Standards were applicable by inspection of
the contractual terms set out in the sale and purchase agreements.
· For the vessel that was acquired in July 2022, the company has, in
evaluating the fair value of the SPVs and subsidiary, recognised and measured
the sale and purchase contract at its fair value at the year end. In
validating the fair value of this contract we agreed the Investment Manager's
fair value from the third-party vessel valuation service to those
independently obtained from the third-party vessel valuation service. We also
agreed the post year end settlement of the contract and delivery of the vessel
to signed delivery notes dated after year end.
· For the vessel that was divested in July 2022, the fair value
recognised by the SPVs has been determined to be the transaction price, which
we have agreed to the sales and purchase agreement. We have also agreed the
sales proceeds to post year end cash receipts.
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.
· Performed sample based substantive testing on the residual net assets
· Agreed cash 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 vessels that have been delivered:
· 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 underlying vessels as at 30 June 2022
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.
The company and its subsidiary are based in Guernsey and the SPVs are located
in the Isle of Man. The financial statements are not consolidated but instead
present the fair value of the subsidiary and its vessels held via the SPVs and
the other residual net assets of the subsidiary and SPVs.
Scoping was performed at the company level, irrespective of whether the
underlying transactions took place within the company, subsidiary or SPVs. All
audit work was performed in Guernsey by PricewaterhouseCoopers CI LLP.
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 company materiality US$8.90 million (2021: US$6.25 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% (2021: 75% of
overall materiality, amounting to US$6.68 million (2021: US$4.69 million) 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$0.45 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 which includes reporting
based on the Task Force on Climate-related Financial Disclosures ("TCFD")
recommendations.
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 56 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 30 to 33 and 56 to 57 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.
Roland Mills
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
23 September 2022
Statement of Comprehensive Income
For the year ended 30 June 2022
2022 2021
Notes US$ US$
Income
Net changes in fair value of financial assets 4 89,604,707 60,723,698
at fair value through profit or loss
Dividend income 8 25,934,742 21,752,000
Total net income 115,539,449 82,475,698
Expenditure
Administration fees (167,441) (148,158)
Audit fees (137,286) (122,022)
Corporate Broker fees (150,000) (150,000)
Directors' fees 18 (177,338) (162,332)
Foreign exchange gain / (loss) 7,171 (1,429)
Insurance fee (15,455) (17,721)
Investment management fee 14 (3,410,456) (2,269,097)
Legal fees (26,287) (21,576)
Listing fees (23,452) (17,476)
Performance fees 15 (3,980,432) -
Professional fees (147,719) (75,560)
Sundry expenses (12,700) (3,913)
Total expenses (8,241,395) (2,989,284)
Operating profit 107,298,054 79,486,414
Finance income 4,364 1,452
Profit and comprehensive 107,302,418 79,487,866
income for the year
IFRS Earnings per ordinary share (cents) 9 36.17 30.70
Diluted Earnings per ordinary share (cents) 9 36.17 30.70
There were no potentially dilutive instruments in issue at 30 June 2022 or 30
June 2021.
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 2022
2022 2021
Notes US$ US$
Non-current assets
Financial assets at fair value 4 446,892,720 307,728,012
through profit or loss
Total non-current assets 446,892,720 307,728,012
Current assets
Trade and other receivables 5 5,740,385 5,760,379
Cash and cash equivalents 8,823 29,989
Total current assets 5,749,208 5,790,368
Total assets 452,641,928 313,518,380
Current liabilities
Trade and other payables 6 5,098,219 872,425
Total current liabilities 5,098,219 872,425
Net assets 447,543,709 312,645,955
Equity
Ordinary Share capital 7 310,272,983 259,657,871
Retained reserves 7 137,270,726 52,988,084
Total equity attributable to ordinary Shareholders 447,543,709 312,645,955
Net assets per ordinary share (cents) 11 145.01 115.78
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
23 September 2022 and signed on its behalf by:
Statement of Changes in Equity
For the year ended 30 June 2022
Ordinary
Share capital Retained
earnings Total
Notes US$ US$ US$
245,392,016 (7,723,923) 237,668,093
Shareholders' equity at 30 June 2020
Share buyback 7 (247,125) - (247,125)
Share issue 7 14,700,000 - 14,700,000
Listing costs (187,020) - (187,020)
Profit and comprehensive income for the year
- 79,487,866 79,487,866
Dividends paid - (18,775,859) (18,775,859)
Shareholders' equity at 30 June 2021 259,657,871 52,988,084 312,645,955
Share issue 7 51,429,265 - 51,429,265
Listing costs 7 (814,153) - (814,153)
Profit and 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
The accompanying notes are an integral part of these financial statements.
Statement of Cash Flows
For the year ended 30 June 2022
Notes 2022 2021
US$ US$
Cash flows from operating activities
Profit and comprehensive income for the year 107,302,418 79,487,866
Adjustments for:
Purchases of investments 4 (49,560,001) (14,563,172)
Changes in fair value on investments 4 (89,604,707) (60,723,698)
Operating cash flows before movements in working capital (31,862,290) 4,200,996
Changes in working capital:
Movement in trade and other receivables 5 19,994 79,549
Movement in trade and other payables 6 4,225,794 239,007
Net cash (used in) / generated from operating activities (27,616,502) 4,519,552
Cash flows from financing activities
Net amount paid for share buyback 7 - (247,125)
Proceeds from issue of shares 7 51,429,265 14,700,000
Listing cost for issue of shares 7 (814,153) (187,020)
Dividends paid to Ordinary Shareholders 10 (23,019,776) (18,775,859)
Net cash generated from / (used in) financing activities 27,595,336 (4,510,004)
Net movement in cash and cash equivalents during the year (21,166) 9,548
Cash and cash equivalents at the beginning of the year 29,989 20,441
Cash and cash equivalents at the end of the year 8,823 29,989
The accompanying notes are an integral part of these financial statements.
Notes to the financial statements
For the year ended 30 June 2022
1. General information
The Company was incorporated with limited liability in Guernsey under the
Companies (Guernsey) Law, 2008, as amended, on 6 February 2017 with registered
number 63061, and is regulated by the GFSC as a registered closed-ended
investment company. The registered office and principal place of business of
the Company is 1 Le Truchot, St Peter Port, Guernsey, Channel Islands, GY1,
1WD.
The Company'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 270,037,638 ordinary shares in issue on 1 July 2021, all of
which were listed on the Specialist Funds Segment of the Main Market of the
London Stock Exchange.
On 6 August 2021 the Company announced that it had raised gross proceeds of
US$12.4m through a tap issue of 10,533,763 ordinary shares at a price of
US$1.18 per tap issue share. On 12 November 2021, the Company announced the
results of its tap issue of 28,057,140 shares at US$1.39 per tap issue share,
which raised gross proceeds of US$39.0m.
The total number of Company's shares in issue was 308,628,541 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. 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 of its investments on a fair value basis.
The Directors consider that the Company's objective of pooling investors'
funds for the purpose of generating an income stream and capital appreciation
is consistent with the definition of an investment entity, as is the reporting
of the Company's net asset value on a fair value basis.
(b) New 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 2022
reporting periods and have not been early adopted by the Company. 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 2021 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.
Financial 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, finance costs and all other expenses are
charged through the Statement of Comprehensive Income.
(g) Performance fee
Any performance fee liability is calculated on an amortised cost basis at each
valuation date, with the respective expense charged through the Statement of
Comprehensive Income. Refer to note 15.
(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 the adoption of 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 themselves
own and value all vessels on a fair value basis.
The Investment Manager reports fair value information to the Directors who use
this to evaluate the performance of investments.
Recognition of financial assets and liabilities
At both the Company and the SPV level, financial assets and financial
liabilities (including trade and other payables) 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.
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 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 designate irrevocably any investment
in equity as 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 into their
respective vessel assets as well as the residual net assets and liabilities of
both the SPVs and LSA itself. The investment in LSA consists of both equity
and debt instruments.
In estimating the fair value of each underlying SPV (as a constituent part of
LSA's net asset value at fair value), the Board has approved the valuation
methodology for valuing the vessels held by the SPVs. The valuation
methodology took into account 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 vessels consists of its charter-free value
plus or minus the value of any charter lease contracts attached to the vessel,
plus or minus an adjustment for the capital expenditure associated with the
vessel.
There are time charter contracts in place for standard vessels. Such charters
will vary in length but would typically be in the 2 - 8 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 freight brokers.
The charter-free and associated charter values of most standard
vessels are calculated predominantly using an online valuation platform
provided by VesselsValue or, in limited circumstances, the written valuation
of a mainstream broker where elected by the 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 date of its
next expected visit, by reference to the actual cost of the last visit and the
budgeted cost of the next. This adjustment is an addition to value when the
valuation date is nearer to the vessel's last dry docking than to its next
expected visit to dry dock, and vice versa.
The net adjusted valuation is subject to a minimum fair value
being the present value of all current contracted charter cashflows and the
current vessel scrap value at the completion of the charter. The present value
of the cashflows is discounted at the specific WACC assigned to the vessel
type by VesselsValue adjusted for any counterparty credit risk where
appropriate.
Specialist vessels are valued on a DCF basis by the Investment
Manager using vessel specific information and both observable and unobservable
data. The VesselsValue platform is not used for these assets. Instead a DCF
approach is adopted and this determines the present value of the cashflows
discounted at the project cost of capital or the specific WACC assigned to the
vessel type by VesselsValue, and is deemed to be a fair representation of the
vessel and charter value.
Refer to Note 3 which explains in detail the judgements and estimates applied.
SPVs 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. Derecognition therefore normally occurs at the point of delivery of
the vessel at the SPV level.
For vessel purchase and sale transactions undertaken by the SPVs, this applies
at the point of delivery of the vessel.
At 30 June 2022, the SPV Patience had sold and derecognised its vessel, but
continues to operate the vessel under a bareboat charter from the new owners
until the end of its time charter.
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 also include under financial liabilities and are
subsequently measured at amortised cost.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the
Company's obligations are discharged, cancelled or when they expire.
Trade and other receivables
Trade and other receivables that have fixed or determinable
payments that are not quoted in an active market are classified as 'loans and
receivables'. Loans and receivables are initially and subsequently measured at
amortised cost using the effective interest method, less any expected credit
losses.
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 includes 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 ruling 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, the Russian invasion of Ukraine, and the
continued impact of the Covid virus on the Company's investments (as set out
in more detail in the Principal Risks and Uncertainties section on pages 30 to
33). Cash reserves are held at the LSA and SPV levels and rolled up to the
Company as required to enable expenses to be settled as they fall due.
In conducting the Company's Viability Study, the Board considered some very
severe market scenarios under which the cash balances of the Company or its
subsidiaries would be exhausted if no mitigating actions would be taken. In
such a scenario the Board would ensure continuity in operations through one or
all of the following significant actions: the sale of a vessel, the deferral
of discretionary capital expenditure, or if unavoidable, the deferral of any
dividend payment.
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 of its liabilities. Equity instruments
issued by the Company are recognised at the proceeds received, net of direct
issue costs.
Repurchase of the Company's own equity instruments is recognised and deducted
directly in equity. No gain or loss is recognised in profit or loss on the
purchase, sale, issue or cancellation of the Company's own equity instruments.
3. Critical Accounting Judgements and Estimates
The preparation of financial statements requires management to make estimates
and judgements that affect the amounts reported for assets and liabilities as
at the Statement of Financial Position date and the amounts reported for
revenue and expenses during the year. The nature of the estimation means that
actual outcomes could differ from those estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the year in which the
estimates are revised and in any future years affected.
Critical judgements in applying the Company's accounting policies
- IFRS 10: Consolidated Financial Statements
The audit committee considered the application of IFRS 10, and whether the
Company meets the definition of an investment entity.
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 is held at the LSA level and transferred to the Company when needed to
cover expenditure.
In the judgement of the Directors, the Company meets the investment criteria
set out in IFRS 10 and they therefore consider the Company to be an investment
entity in terms of IFRS 10. As a result, as required by IFRS 10 the Company is
not consolidating its subsidiary but is instead measuring it at fair value in
accordance with IFRS 13.
The criteria which define an investment entity are documented in Note 2a.
The Company's objective of pooling investors' funds for the purpose of
generating an income stream and capital appreciation is consistent with the
definition of an investment entity.
At the current and prior year ends, the charter-free valuation of one vessel
was provided by broker valuation rather than VesselsValue, as elected by the
Investment Manager given limited transactions in this vessel type.
Critical Accounting Estimates
The unobservable inputs which significantly impact the fair value have been
determined to be the charter-free valuation and market charter rates for
standard vessels and the discount rate applied for specialised vessels.
Further to the information mentioned in Note 2 (i) there are specific capital
adjustments considered as part of the valuation process for standard vessels,
mainly the 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 31 December 2021, subsequently amended to 8
September 2024. 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 2022, one vessel was treated as a specialist vessel (two vessels at
30 June 2021).
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.
The Prospectus sets out the basis on which non-typical and specialist vessels
would be valued.
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. 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 its investment in LSA
but at the underlying SPV level some of the vessels have been agreed to be
sold as at 30 June 2022.
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)) are as follows:
2022 2021
US$ US$
LSA
Brought forward cost of investment 249,923,223 235,360,051
Total investment acquired in the year 49,560,001 14,563,172
Carried forward cost of investment 299,483,224 249,923,223
Brought forward unrealised gains / (losses) on valuation 57,804,789 (2,918,909)
Movement in unrealised gains on valuation 89,604,707 60,723,698
Carried forward unrealised gains on valuation 147,409,496 57,804,789
Total investment at fair value 446,892,720 307,728,012
The SPVs and holding company Handy Holdco Limited, which is also an SPV, 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 2022 2021 Direct or indirect holding Principal activity Ownership at 30 June Ownership at 30 June
US$
US$
2022 2021
LS Assets Limited - - Direct Holding company 100% 100%
Aglow Limited(1) 107,202 9,295,994 Indirect SPV 100% 100%
Antler Limited(1) 74,463 10,017,889 Indirect SPV 100% 100%
Anvil Limited 23,591,722 - Indirect SPV 100% -
Auspicious Limited 25,929,027 - Indirect SPV 100% -
Awesome Limited 25,638,607 - Indirect SPV 100% -
Bear Limited(2) 77,702 439,204 Indirect SPV 100% 100%
Candy Limited(1) 37,192 9,579,537 Indirect SPV 100% 100%
Citra Limited(1) 220,238 18,033,604 Indirect SPV 100% 100%
Charming Limited 25,109,394 - Indirect SPV 100% -
Cocoa Limited(3) - - Indirect SPV 100% 100%
Dachshund(3) Limited - - Indirect SPV 100% 100%
Daffodil Limited(3) - - Indirect SPV 100% 100%
Dragon Limited(1) 133,991 8,876,752 Indirect SPV 100% 100%
Echidna Limited(1) 34,275 10,212,057 Indirect SPV 100% 100%
Exceptional Limited 29,553,364 - Indirect SPV 100% -
Golding Limited 17,868,732 16,578,058 Indirect SPV 100% 100%
Handy HoldCo Limited 32,455,919 29,581,968 Indirect SPV (Holding Company) 100% 100%
Idaho Limited 25,150,084 - Indirect SPV 100% -
Kale Limited(1) 109,304 20,680,491 Indirect SPV 100% 100%
Laurel Limited 19,486,868 1,599,950 Indirect SPV 100% 100%
Lavender Limited(5) 18,736,992 13,206,424 Indirect SPV 100% 100%
Marvelous Limited(6) 1,882,219 - Indirect SPV 100% -
Masterful Limited 25,761,402 - Indirect SPV 100% -
Mayflower Limited 20,030,420 12,762,171 Indirect SPV 100% 100%
Neon Limited 32,633,044 29,481,951 Indirect SPV 100% 100%
Octane Limited 19,243,615 17,208,816 Indirect SPV 100% 100%
Orson Limited 11,704,544 1,356,536 Indirect SPV 100% 100%
Parrot Limited(1) 660,649 28,155,312 Indirect SPV 100% 100%
Patience Limited(4) 475,673 10,046,760 Indirect SPV 100% 100%
Pollock Limited(1) - - Indirect SPV 100% 100%
Riposte Limited 24,996,021 16,749,536 Indirect SPV 100% 100%
Rocky IV Limited 23,280,175 - Indirect SPV 100% 100%
Sierra Limited 19,474,698 17,290,472 Indirect SPV 100% 100%
Swordfish Limited 137,229 14,340,404 Indirect SPV 100% 100%
Vicuna Limited 97,243 8,780,368 Indirect SPV 100% 100%
Cash held pending investment(7) 29,805,237
3,776,976
Residual net liabilities(7) (7,604,525) (323,218)
Total* 446,892,720 307,728,012
*Vessels are valued at fair value in each of the SPVs shown in the table above
and combined with the residual net liabilities of each SPV to determine the
fair value of the total investment attributable to LSA.
(1) Vessel sold.
(2) Company in the process of dissolution
(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's fair value.
(4)Vessel sold and leased back by SPV until the end of its time charter(.)
(5)Vessel sold and delivered to buyer on 21 July 2022.
(6)At the year end this SPV had an agreement that was signed on 31 May 2022
with a vendor for the purchase of a vessel. At the year end the SPV valued the
incomplete contract at the difference between its fair value and costs to
complete. The vessel was delivered 11 July 2022.
(7) The cash held pending investment and residual net liabilities are held in
LSA.
The movement in the fair value of the investment is recorded in the Statement
of Comprehensive Income.
5. Trade and other receivables
2022 2021
US$ US$
Accrued income 4 -
Prepayments 18,379 21,491
Due from LSA (dividend receivable) 5,722,002 5,738,888
Total trade and other receivables 5,740,385 5,760,379
Amounts due from LSA are interest free and payable on demand. The amount due
from subsidiaries in the prior year of US$5,738,888 was settled in the current
year. Due to the value and short-term nature of these receivables, the
Directors have assessed there to be no expected credit losses associated with
these outstanding balances.
6. Trade and other payables
2022 2021
US$ US$
Performance fees 3,980,432 -
Investment Management fees 908,449 648,233
Audit fees 109,602 124,479
Administrative fees 42,446 38,977
Brokers fees 37,500 37,500
Directors fees 19,789 21,161
Listing fees - 2,075
Total trade and other payable 5,098,218 872,425
7. Share capital and reserves
Share Capital
Share issuance Number of shares Gross amount (US$) Issue costs (US$) Share capital (US$)
Total issue at 270,037,638 264,852,891 (5,195,020) 259,657,871
30 June 2021
Tap issue 10,533,763 12,429,840 (160,917) 12,268,923
11 August 2021
Tap issue 28,057,140 38,999,425 (653,236) 38,346,189
12 November 2021
Total issue at 308,628,541 316,282,156 (6,009,173) 310,272,983
30 June 2022
The ordinary shares issued are of no par value and are authorised, issued and
fully paid. Ordinary shares carry the right to receive all income of the
Company attributable to ordinary shares, and to participate in any
distribution or other return of capital attributable to ordinary shares.
Ordinary shareholders have the right to receive notice of and attend any
general meeting of the Company and to vote at such meeting with one vote for
each ordinary share held.
The rights conferred upon the holders of the shares are not varied by the
creation or issue of further shares or classes of shares or by the purchase or
redemption by the Company of its own shares, or the holding of such shares in
treasury.
Retained reserves comprise the retained earnings as detailed in the Statement
of Changes in Equity.
8. Dividend income
2022 2021
US$ US$
Dividend income 25,934,742 21,752,000
During the current year, LS Assets Limited declared
dividends of US$25,934,742
(2021: US$21,752,000) to the Company. At 30 June 2022, dividends of
US$5,722,002
(2021: US$5,738,888) were outstanding (refer to Note 5).
9. Earnings per share
2022 2021
US$ US$
Profit and comprehensive income for the year 107,302,418 79,487,866
Weighted average number of ordinary shares 296,654,794 258,911,885
Earnings per ordinary share (cents) 36.17 30.70
Diluted Earnings per ordinary share (cents) 36.17 30.70
The weighted average number of ordinary shares of 296.7m shares (2021: 258.9m
shares).
10. Dividends
The Company declared the following dividends in respect of the
profit for the year ended 30 June 2022:
Quarter end Dividend per share Ex div date Net Dividend paid Record date Paid date
30 September 2021 US$0.02 28 October 2021 29 October 2021 12 November 2021
US$5,611,428
31 December 2021 US$0.02 27 January 2022 US$6,172,571 28 January 2022 11 February 2022
31 March 2022 US$0.02 5 May US$6,172,571 6 May 20 May 2022
2022 2022
30 June US$0.02 28 July US$6,172,571 29 July 12 August 2022
2022
2022
2022
Under the Companies (Guernsey) Law, 2008, the Company can distribute dividends
from capital and revenue reserves, subject to a prescribed net asset and
solvency test.
The net asset and solvency test considers whether a company is able to pay its
debts when they fall due, and whether the value of a company's assets is
greater than its liabilities. The Board confirms that the Company passed the
net asset and solvency test for each dividend paid.
11. Net assets per ordinary share
2022 2021
US$ US$
Shareholders' equity 447,543,709 312,645,955
Number of ordinary shares 308,628,541 270,037,638
Net assets per ordinary share (cents) 145.01 115.78
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,
reserves and retained earnings).
As the Company's Ordinary Shares are traded on the LSE, the Ordinary Shares
may trade at a discount or premium to their NAV per share on occasion.
However, the Directors and the Investment Manager monitor the discount on a
regular basis and can use share buyback to manage the discount.
The Company is not subject to any externally imposed capital requirements.
Financial risk management objectives
The Board, with the assistance of the Investment Manager, monitors and manages
the financial risks relating to the operations of the Company through internal
risk reports which analyse exposures by degree and magnitude of risk. These
risks include market risk (including price risk, currency risk and interest
rate risk), credit risk and liquidity risk.
Market risk
The value of the investments held by the Company is indirectly affected by
the factors impacting the shipping industry generally, being, amongst other
factors, currency exchange rates, interest rates, the availability of credit,
climate change considerations, economic or political uncertainty and changes
in laws and regulations governing shipping or trade. These factors may
affect the price or liquidity of vessels held by the Company's subsidiaries
and thus the value of the SPVs themselves.
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.
Interest rate risk
The majority of the Company's financial assets and liabilities are
non-interest bearing. However, the Company is exposed to a small amount of
risk due to fluctuations in the prevailing levels of market interest rates
because any excess cash or cash equivalents are invested at short-term market
interest rates.
The Company's interest-bearing financial assets and liabilities expose it to
risks associated with the effects of fluctuations in the prevailing levels of
market interest rates on its financial position and cash flows.
The table below summarises the Company's exposure to interest rate risks. It
includes the Company's assets and trading liabilities at fair values. It does
not consolidate the US$18.00m (2021: US$22.00m) outstanding loan (with a
variable rate capped at 4.65%) owed by Handy HoldCo Limited.
The loan owed by Parrot Limited (US$12.45m at 30 June 2021) with a blended,
fixed rate of 5.05% was repaid upon sale of the vessel in June 2022.
Interest payments on these loans are only subject to limited change from
fluctuations in interest rates due to their fixed and capped nature.
2022 Interest bearing less than 1 month (US$) 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 current financial year.
2021 Interest bearing less than 1 month (US$) Non-interest bearing (US$) Total (US$)
Assets
Investments - 307,728,012 307,728,012
Trade and other receivables - 5,760,379 5,760,379
Cash and cash equivalents 29,989 - 29,989
Total assets 29,989 313,488,391 313,518,380
Liabilities
Trade and other payables - 872,425 872,425
Total liabilities - 872,425 872,425
Total interest sensitivity gap 29,989 29,989
The weighted average interest rate is 0.06% 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
2022 would increase or decrease by US$88 (2021: US$300). This is attributable
to the Company's exposure to interest rates on its variable rate deposits.
The Company and its subsidiaries are permitted to utilise overdraft facilities
towards the achievement of the Company's investment objectives. There was no
overdraft utilised during the current and prior years.
Refer to Price Risk on the following pages for a description of the indirect
impact interest rates have on the valuation of vessel assets.
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in a financial loss to the Company.
The Company does not have any significant external credit risk exposure to any
single counterparty in relation to trade and other receivables. On-going
credit evaluation is performed on the financial condition of trade and other
receivables. As at 30 June 2022 there were no receivables considered impaired
(2021: US$nil).
The Company maintains its cash and cash equivalents with various
banks to diversify credit risk. These are subject to the Company's credit
monitoring policies including the monitoring of the credit ratings issued by
recognised credit rating agencies.
30 June 2022 Credit rating Standard & Poor's Cash (US$) Short term fixed deposits (US$) Total as at 30 June 2022 (US$)
Barclays Bank Plc (Barclays) A Long Term 4,152 - 4,152
A-1 Short Term
Ravenscroft A+ Long Term - 4,671 4,671
(HSBC London - call accounts) A-1 Short Term
Total 4,152 4,671 8,823
30 June 2021 Credit rating Standard & Poor's Cash (US$) Short term fixed deposits (US$) Total as at 30 June 2021 (US$)
Barclays Bank Plc (Barclays) A Long Term 22,495 - 22,495
A-1 Short Term
Ravenscroft (b) A+ Long Term - 7,494 7,494
(HSBC London - call accounts) A-1 Short Term
Total 22,495 7,494 29,989
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 rolled 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 2022 Up to 3 months (US$) Between 3 and 12 months (US$) Between 1 and 5 years (US$) Total (US$)
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
30 June 2022 Up to 3 months (US$) Between 3 and 12 months (US$) Between 1 and 5 years (US$) Total (US$)
Liabilities
Trade and other payables 5,098,219 - - 5,098,219
Total 632,610 - 446,892,720 447,525,330
30 June 2021 Up to 3 months (US$) Between 3 and 12 months (US$) Between 1 and 5 years (US$) Total (US$)
Assets
Financial assets at fair value through profit or loss - - 307,728,012 307,728,012
Trade and other receivables 5,738,888 - - 5,738,888
Cash and cash equivalents 29,989 - - 29,989
Liabilities
Trade and other payables 872,425 - - 872,425
Total 4,896,452 - - 312,624,464
Price risk in the shipping industry
Price risk in the shipping industry presents 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). The Company's financial assets are measured at
fair value which comprises the fair value of the underlying SPVs and the
residual net assets of each SPV. The Company values its investment in LSA and
the SPVs at their respective net asset values. The net asset values comprise
shipping vessels which are measured at fair value and other residual net
assets and liabilities of each of the entities.
All the assets and underlying vessels are considered to be Level 3 assets,
that price risk pertains to the Level 3 investment portfolio in its entirety,
and that no other market price risk exists.
Price risk sensitivity analysis was conducted on vessel and charter fair
values only as these comprise the vast majority of assets.
(a) Standard Vessel valuations
The fair value of a standard vessel comprises both the charter-free value and
the charter valuation. The charter-free and associated charter values of
typical vessels are calculated using an on-line valuation system provided by
VesselsValue or, in limited circumstances, written mainstream broker
valuations. For charter-free values, the VesselsValue system contains a number
of algorithms that combine factors such as vessel type, technical features,
age, cargo capacity, freight earnings, market sentiment and recent vessel
sales.
For charter values, the system provides a DCF module where vessel specific
charter details are input and measured against system or shipbroker provided
market benchmark to obtain a premium or discount value of the charter versus
prevailing market.
The charter valuation process may be bounded by a minimum value which
comprises the DCF value of the current charter plus scrap value of the vessel
at the end of the charter. At the year end this minimum value was not applied
to any vessels compared to two vessels at the prior year end.
(b) Specialised Vessels and arrangements
There will be cases where the Company may invest in vessels which are (i) of a
specialised nature and fall out of scope of mainstream brokers and/or (ii)
where contracted employment does not have an available reference benchmark in
the freight brokerage community.
The Investment Manager will make its own assessment of 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:
· IRR/Discount rate
· Charter Rate
· Exit/scrappage value
There was one specialised vessel held at the year end (two at 30
June 2021).
Refer to Note 3 for further information on the valuation methodologies
applied. The Directors and Tufton believe that the above reflects those inputs
where market price risk could be significant. and where there is the potential
for estimate and judgement to be used.
Covid
The global economy started recovering from the impacts of Covid from the end
of 1H20. Over the financial year, containership asset values and time charter
rates hit record highs while the Baltic Dry Index ("BDI") of average prices
paid for the transport of dry bulk materials across more than 20 routes, rose
to its highest levels since 2009 in October 2021. The Company also benefited
from fair value increases as portfolio asset values rebounded after the market
recovered from Covid-related declines in the prior year.
The product tanker market remained weak in the first half of the financial
year but started to improve in 2022 with increased overall global oil demand,
while also benefiting from short-haul demand for cargoes being partially
replaced by long-haul demand.
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 classes, demonstrate it can be an attractive high income and low
correlation investment.
Price Risk Sensitivity analysis
Charter-free valuation for standard vessels
The Directors have concluded that use of a 10% movement in benchmark charter
rates remains a suitable sensitivity calculation, noting that the benchmark
charter rates used are for charter periods of 1 year or more, which show lower
volatility than spot rates and already reflect market expectations of the
impact of the Covid pandemic.
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 Standard vessel portfolio value -10% change
US$ 000 US$ 000 US$ 000
Fair value at 30 June 2022 +47,265 432,089 (47,265)
Fair value at 30 June 2021 +31,989 215,939 (31,989)
The ballast water treatment system and scrubber adjustments are immaterial and
therefore no sensitivity analysis has been prepared.
Charter rates
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 2022 (11,368) 432,089 +12,184
Fair value at 30 June 2021 (16,473) 215,939 +16,438
The ballast water treatment system and scrubber adjustments are immaterial and
therefore no sensitivity analysis has been prepared.
( )
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 company fair value at 30 June 2022 (270) 26,069 +275
Specialised Vessel company fair value at 30 June 2021 (785) 57,637 +802
The ballast water treatment system and scrubber adjustments are immaterial and
therefore no sensitivity analysis has been prepared.
There was one specialised vessel held at the year end (two at 30 June 2021).
13. Financial assets and liabilities not measured at fair value
Cash and cash equivalents, trade and other receivables and trade and other
payables are liquid assets whose carrying value represents fair value. The
fair value of other current assets and liabilities would not be significantly
different from the values presented at amortised cost.
14. 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 2022 the Company has incurred US$3,410,456
(2021: US$2,269,097) in management fees of which US$908,449 was outstanding
at 30 June 2022 (2021: US$648,233).
15. Performance fee
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 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. Performance
fees of US$3,980,432 (2021: US$nil) were accrued during the current year.
16. Related parties
The Investment Manager, Tufton Investment Management Ltd, is a
related party due to having common key management personnel with the
subsidiaries of the Company. All management fee transactions with the
Investment Manager are disclosed in Note 14.
Tufton ODF Partners LP is a related party due to being the beneficiary of any
performance fee paid by the Company.
Transactions with LSA and subsidiary 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 2022, and as at the date of
signing these Financial Statements:
2022 2021
Shares Shares
R King 45,000 45,000
S Le Page 40,000 40,000
P Barnes 5,000 5,000
C Rødsaether 20,000 20,000
17. Controlling party
In the opinion of the Directors, based on shareholdings advised to them, the
Company has no immediate or ultimate controlling party.
18. Directors' fees
The remuneration of the Directors was US$177,338 (2021: US$162,332) for the
year which consisted solely of short-term benefits. At 30 June 2022,
Directors' fees of US$19,789 (2021: US$21,161) were outstanding.
The Directors fees are as disclosed below:
30 June 30 June
2022 2021
Director £ £
R King 36,610 33,610
S Le Page 34,000 31,500
P Barnes 31,550 29,300
C Rødsaether 31,550 24,064
19. Events after the reporting year
A dividend was declared on 19 July 2022 of US$0.02 per share for the quarter
ending 30 June 2022. The dividend was paid on 12 August 2022 to holders of
shares on record date 29 July 2022 with an ex-dividend date of 28 July 2022.
On 11 July 2022, the Company completed the acquisition of
Marvelous for US$31.5m.
On 20 July 2022, the Company completed the disposal of Lavender
for US$17.5m.
On 20 September 2022, the Company announced that it had agreed to acquire two
product tankers, Courteous and Mindful, for US$73.0m. Both vessels have
fixed-rate time charters for three to five years to a major commodity trading
and logistics company. The acquisitions will be financed primarily by a new
US$60m loan which will be secured on Courteous, Mindful, Marvelous and
Exceptional. In parallel with the Courteous and Mindful being chartered as
described above, Marvelous will also enter a fixed-rate time charter for three
to five years to the major commodity trading and logistics company from
November.
Corporate Information
Directors
Robert King, Chairman
Stephen Le Page
Paul Barnes
Christine Rødsaether
Registered office
3(rd) Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Investment Manager and AIFM
Tufton Investment Management Ltd ("Tufton IML")
70 Pall Mall
1st Floor London
SW1Y 5ES
Asset Manager
Tufton Management Limited
3rd Floor, St George's Court
Upper Church Street
Douglas
Isle of Man IM1 1EE
Secretary and Administrator
Maitland Administration (Guernsey) Limited ("MAGL")
3(rd) Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Joint Placing Agents and Financial Advisers
Hudnall Capital LLP
Adam House
7-10 Adam Street
London
WC2N 6AA
Singer Capital Markets
1 Bartholomew Lane
London
EC2N 2AX
Guernsey Legal Advisers
Carey Olsen (Guernsey) LLP
PO Box 98, Carey House
Les Banques
St Peter Port
Guernsey
GY1 4BZ
UK Legal Advisers
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Registrar
Computershare Investor Services (Guernsey) Limited
1(st) Floor, Tudor House
Le Bordage
St Peter Port
Guernsey
GY1 1DB
Receiving Agent
Computershare Investor Services PLC
The Pavillions
Bridgewater Road
Bristol
BS99 6AH
Independent Auditor to the Company
PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4ND
Principal Bankers
Barclays Bank Plc
Guernsey International Banking
PO Box 41
St Peter Port
Guernsey, GY1 3BE
Definitions
The following definitions apply throughout this document unless the context
requires otherwise:
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
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 (formerly Oceanic Marine Management Limited)
Auditor PricewaterhouseCoopers CI LLP
Board the Directors from time to time
Broker a mercantile agent employed in buying and selling shares - The Company's
brokers are Hudnall Capital LLP and Singer Capital Markets
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
Compensated Gross Tonnage or CGT an indicator of the amount of work that is necessary to build a given ship and
is calculated by multiplying the tonnage
(https://en.wikipedia.org/wiki/Tonnage) of a ship by a coefficient, which is
determined according to type and size of a particular ship
Directors or Board the Board of Directors of the Company
Disclosure Guidance and Transparency Rules or DTRs the disclosure guidance and transparency rules made by the Financial Conduct
Authority under Section 73A of FSMA
Dividend Cover Portfolio Operating Profit less capex less debt amortisation, divided by
dividends for the period
Energy Efficiency Existing Ship Index or EEXI The emissions intensity of a vessel calculated using its design
characteristics
Environmental, Social, and Corporate Governance (ESG) an evaluation of the company's collective conscientiousness for social and
environmental factors
EBITDA Earnings before interest, taxes, depreciation and amortisation
EBITDA-Weighted Average Charter Length total forecast EBITDA from charters in place, divided by the expected
annualised EBITDA of those charters
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
Forecast Net Yield Forecast EBITDA minus any capex accruals for the vessels in the portfolio
divided by the time-weighted vessel values
Gain in Fair Value per Share Change in the vessel values (being the change in charter-free value + change
in charter value) in the period divided by the weighted-average number of
ordinary shares during that period
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 Ltd
IRR Internal rate of return - the Internal rate of return is the interest rate at
which the net present value of all the cash flows (both positive and negative)
from a project or investment equal zero, and is a common performance
indicator used in investment funds
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
NAV Total Return the change in NAV plus distributions paid by the Company during the period,
divided by the initial NAV
Overdue Crew Relief or Crew members staying on board vessels beyond contractual periods
Overdue Crew Rotation
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
Portfolio Operating Profit Portfolio operating profit is gross operating profit and interest income less
loan interest and fees, Company level fees and expenses
P/DRC Price divided by the Depreciated Replacement Cost. Price may refer to a
transaction (investment or divestment) value or fair value at a certain date.
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
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
Total Return per Share the Net Asset Value per Ordinary Share on any Calculation Day adjusted to:
(i) include the gross amount of any dividends and/or distributions paid to an
Ordinary Share since Admission;
(ii) not take account of any accrual made in respect of the performance fee
itself for that Calculation Period;
(iii) not take account of any accrual made in respect of any prevailing
Historic Performance Fee Amount (as adjusted pursuant to the operation of this
paragraph below);
(iv) not take account of any increase in Net Asset Value per Share
attributable to the issue of Ordinary Shares at a premium to Net Asset Value
per Share or any buyback of any Ordinary Shares at a discount to Net Asset
Value per Ordinary Share during such Calculation Period;
(v) not take account of any increase in Net Asset Value per Share attributable
to any consolidation or sub-division of Ordinary Shares;
(vi) take into account any other reconstruction, amalgamation or adjustment
relating to the share capital of the Company (or any share, stock or security
derived therefrom or convertible there into); and
(vii) take into account the prevailing Net Asset Value of any C Shares in
issue
Tufton Group Tufton Investment Management Holding Ltd and its subsidiaries.
UK Corporate Governance Code the UK Corporate Governance Code as published by the Financial Reporting
Council from time-to-time
UK Listing Authority the FCA acting in its capacity as the competent authority for the purposes of
Part VI of FSMA
United Kingdom or UK the United Kingdom of Great Britain and Northern Ireland
Unlevered cash flow run rate EBITDA net of accruals over the remaining term of the charters for the vessels
in the portfolio, expressed annually
VesselsValue VesselsValue Limited, a third party provider of vessel valuations to the
Company and Investment Manager
WACC the weighted average cost of capital
VLCC Very Large Crude Carrier
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR USURRUKUKUUR
Recent news on Tufton Assets
See all newsBrief: Tufton Assets Reports NAV Total Return Of 5.0% For 3Q26
Brief: Tufton Assets Says Staithes Floating Rate Charter Converted To Fixed Rate $19,000/Day For Q4
Tufton Assets Ltd. Tufton Assets - SHPP - Charter Update
Brief: Tufton Assets Says Outlook Remains Favourable in Shipping Markets In Which They Operate
Tufton Assets Ltd. Tufton Assets - SHPP - Final Results and Notice of AGM