Tufton Oceanic Asset - Interim Results for period ended 31 December 2021
18/03/2022 13:00
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RNS Number : 3123F Tufton Oceanic Assets Ltd. 18 March 2022
18 March 2022
Tufton Oceanic Assets Limited
("Tufton Oceanic Assets" or the "Company")
Interim Results for the six month period ended 31 December 2021
Tufton Oceanic Assets announces its interim results for the six month period
ended 31 December 2021. A copy of the Interim Report and Unaudited Financial
Statements will shortly be available on the Company's website in the Investor
Relations section at www.tuftonoceanicassets.com.
For further information, please contact:
Tufton Investment Management Ltd (Investment Manager) +44 (0) 20 7518 6700
Andrew Hampson
Paulo Almeida
Singer Capital Markets +44 (0) 20 7496 3000
James Maxwell, Alex Bond (Corporate Finance)
Alan Geeves, James Waterlow, Sam Greatrex (Sales)
Hudnall Capital LLP +44 (0) 20 7520 9085
Andrew Cade
Highlights
· During the financial period, Tufton Oceanic Assets Limited (the
"Company") had a profit of US$72.2m, or US$0.253 per share.
· The NAV per share increased from US$1.158 as at 30 June 2021 to
US$1.376 as at 31 December 2021. The NAV total return for the financial period
was 22.3%.
· Having raised the target dividend in January 2021, the Company
raised its target dividend again from $0.075 to $0.08 per share commencing
from 3Q21. The Company paid a dividend of US$0.02 per share for 3Q21 and 4Q21.
· At the end of the financial period, the Investment Manager's
forecasted dividend cover through mid-2023 was c.1.7x despite the Company not
being fully invested. When the Company is fully invested, the dividend cover
is expected to be ≥ 1.8x.
· As at 28 February 2022, the Company's shares traded at
US$1.28/share, a discount of 5.6% to the ex-dividend 31 December 2021 NAV.
· During the financial period, the Company raised gross proceeds of
US$51.4m through two tap issues. The total number of outstanding shares and
voting rights of the Company as at 31 December 2021 is 308,628,541.
· The significant investment and divestment activity discussed
further below demonstrate the Investment Manager's commitment to capital
re-allocation and ESG.
· As at 31 December 2021, the average expected charter length
(EBITDA weighted) was c.1.9 years.
· The Company's fleet had no unplanned commercial idle time (voids)
during the financial period.
· As at 31 December 2021, all delivered vessels except Candy, Orson
and Golding were employed on fixed rate charters. Candy was on a floating rate
time charter, subject to a floor and a ceiling. Golding and Orson are employed
in a chemical tanker pool.
· During the financial period, the Company agreed to divest three
vessels and to acquire five vessels. The overall return from the agreed
divestments greatly exceeds the Company's targets. Of the five agreed
acquisitions, three vessels were delivered during the financial period, one
vessel was delivered in January 2022 and the other is expected to be delivered
by the end of March.
· After the financial period, the Company agreed to divest four
containerships at c.200% of depreciated replacement cost ("DRC") and agreed to
acquire the bulker Auspicious.
· Following the announced transactions, the emissions intensity of
the Company's fleet as measured by the Energy Efficiency Existing Ship Index
("EEXI") will improve by more than 30% compared to the beginning of the
financial period.
· Energy Saving Devices ("ESDs") retrofits commenced on Laurel and
Idaho at the end of 2021 and will be completed in 2022. The Investment Manager
expects further improvement in the portfolio emissions intensity as more of
the Company's vessels are retrofitted with ESDs.
· The Investment Manager took active measures to expedite crew
relief on the Company's vessels. As a result, only c.2% of crew members were
overdue for relief by more than 1 month at the end of 2021 compared to 7% for
the top ten ship managers.
· With recent events, the Investment Manager has increased focus on
the safety and well-being of the Russian and Ukrainian crew members on board
the Company's vessels.
Chairman's Statement
Introduction
On behalf of the Board, I present the Interim Financial Statements of the
Company for the period ended 31 December 2021.
It has been an active second half of 2021 and that activity has continued into
2022. During the financial period, the Company agreed to acquire five vessels
of which three were delivered during the period and two were delivered after
the period. The fleet as at the end of the financial period consisted of five
handysize bulkers, an ultramax bulker, seven containerships and nine tankers,
and one handysize bulker and one tanker pending delivery. There is a further
breakdown of the portfolio on pages 13 to 14. After the financial period, the
Company agreed to acquire a handysize bulker and to divest four
containerships. Of the four containership transactions, three closed in
February whilst the fourth closed in March.
The NAV per share increased from US$1.158 as at 30 June 2021 to US$1.376 as at
31 December 2021. The NAV total return for the financial period was 22.3%.
Covid
The global economy started recovering from the impacts of Covid from the end
of 1H20. Over the financial period, containership asset values and time
charter rates hit record highs while the Baltic Dry Index ("BDI"), the index
of average prices paid for the transport of dry bulk materials across more
than 20 routes, rose to its highest levels since 2009. In contrast, the
tanker market remained weak due to the slow, ongoing recovery in oil demand
growth. As noted previously, the Investment Manager has, where possible,
mitigated the impact of the global humanitarian crisis of crew members
extended stay on board commercial vessels due to Covid related travel
restrictions. The Investment Manager took active measures to expedite crew
relief on the Company's vessels. As a result, only c.2% of crew members
were overdue for relief by more than 1 month at the end of 2021 compared to 7%
for the top ten ship managers. The overdue crew member average for the global
fleet (across all operators) is likely to be much higher.
Russian Invasion of Ukraine
On 24 February 2022, Russia launched a military invasion of Ukraine. The
Investment Manager is monitoring the movements of all the Company's vessels.
The Investment Manager will prohibit the entry of any vessel into conflict
zones, a right established in all the Company's charters. The Board and the
Investment Manager are also monitoring the new sanctions being put in place.
The Company and its vessels will remain compliant with all international
sanctions imposed by the US, UK, EU and the UN. The Board and the Investment
Manager remain watchful in monitoring for any potential escalation of the
conflict and consequences for shipping and the Company.
Performance
As at 31 December 2021, the Company's NAV was US$424.8m being US$1.376 per
share (US$312.6m as at 30 June 2021). The NAV total return over the period was
22.3%. The Company declared a profit of US$72.2m or US$0.253 per share for the
period. The EBITDA-weighted average charter length is c.1.9 years.
During the financial period, following the continued strong performance and
increased portfolio cash flow, we approved that the Company further raise its
target annual dividend from US$0.075 to US$0.080 per share, commencing from
3Q21. At the end of the financial period, the Investment Manager's forecasted
dividend cover through mid-2023 was c.1.7x despite the Company not being fully
invested. When the Company is fully invested, the dividend cover is expected
to be at least 1.8x.
Along with strong portfolio operating profit and cash flows, the Company
benefited from non-cash fair value gains as asset values rose. Containership
values rose strongly as the market benefited from pent-up demand and inventory
re-stocking, as well as port congestion and supply chain constraints. Bulker
values also rose with strong demand for seaborne bulk commodities including
iron ore and grain.
During the financial period, the Company's share price increased from US$1.150
per share as at the close of business 30 June 2021 to US$1.370 per share as at
the close of business 31 December 2021.
Tap Issues
On 6 August 2021, the Company announced the results of its tap issue of
10,533,763 Shares at US$1.18 per tap issue share, which raised gross proceeds
of US$12.4m. On 12 November 2021, the Company announced the results of its tap
issue of 28,057,140 shares at US$1.39 per tap issue share, which raised gross
proceeds of US$39.0m. Over the financial period, 38,590,903 new ordinary
shares were admitted to trading on the Specialist Funds Segment of the Main
Market of the London Stock Exchange.
The total number of voting rights of the Company as at 31 December 2021 is
308,628,541.
Discount Management
The Company's Shares traded at a premium to NAV over most of the financial
period. The average premium to NAV was c.4%. Over the financial period, no
Shares were held in Treasury.
Dividends
During the period the Company declared and paid dividends to shareholders as
follows:
Period end Dividend per share (US$) Announce 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
A further dividend of US$0.02 per share was declared on 18 January 2022 for
the quarter ending 31 December 2021. The dividend was paid on 11 February 2022
to holders of shares on record date 28 January 2022 with an ex-dividend date
of 27 January 2022.
Corporate Governance
The Company is a member of the Association of Investment Companies (AIC) and
has therefore elected to comply with the provisions of the current AIC Code of
Corporate Governance which sets out a framework of best practice in respect of
governance of investment companies (the "AIC Code"). The AIC Code has been
endorsed by the Financial Reporting Council and the Guernsey Financial
Services Commission (the "GFSC") as an alternative means for AIC members to
meet their obligations in relation to the UK Corporate Governance Code.
Where the Company's stakeholders, including shareholders and their appointed
agents, have matters they wish to raise with the Board in respect to the
Company, I would encourage them to contact us at SHIP@tuftonoceanicassets.com
(mailto:SHIP@tuftonoceanicassets.com) .
Environmental, Social, Governance ("ESG")
Our Investment Manager continues to integrate ESG factors into its investment
recommendations and asset ownership practices. As you will see in the
Investment Manager's report on pages 21 to 25 there is significant focus given
to the ESG aspects of the Company's operations.
The nature of the Company's significant investment and divestment activity
since June 2021 demonstrates the Investment Manager's commitment to improving
ESG performance. Following the announced transactions, the emissions intensity
of the Company's fleet as measured by the Energy Efficiency Existing Ship
Index ("EEXI") will improve by more than 30% compared to the beginning of the
financial period. Further, the Investment Manager has adopted a proactive
approach to emissions reduction through a program to select ESDs for the
Company's vessels in the medium term while considering investments in
zero-emission capable vessels for the longer term. ESD retrofits commenced on
two of the Company's vessels at the end of 2021 and will be completed in 2022.
The Investment Manager expects to retrofit ESDs on more of the Company's
vessels in 2022. Please see the ESG section of the Investment Manager's Report
for details.
Crew welfare continued to be a significant area of focus over the financial
period with travel restrictions imposed during successive waves of the Covid
pandemic delaying crew rotations. Our Investment Manager engaged with each
vessel's technical manager to address crew issues and facilitate rotations as
necessary. As a result, the proportion of delayed crew members on the
Company's vessels have been consistently lower than industry reported
averages. The Investment Manager continues to promote best practices among its
suppliers and has organised regular, independent inspections of the Company's
vessels.
ESG initiatives represent an opportunity for a proactive Investment Manager
with a well-capitalised fleet. Since December 2018, our Investment Manager is
a signatory of the United Nations Principles of Responsible Investment ("UN
PRI") which has become an industry standard and is a further step in embedding
responsible investment in the Company. The Board has reviewed and approved the
Investment Manager's Responsible Investment policy and implementation report
for the Company. Shareholders can view the policy and the implementation
report on the Company's website, (http://www.tuftonoceanicassets.com).
Annual General Meeting
The Annual General Meeting ("AGM") of the Company was held on 20 October 2021.
I am pleased to report that all the ordinary resolutions were duly passed. One
extraordinary resolution to approve the authority to issue and allot Shares as
if the pre-emption rights in the Articles of Association of the Company are
disapplied was not passed. The Directors believe that it is in the best
interest of the Company to have the ability to issue additional Shares and
have engaged with the Shareholders and their voting agents who voted against
this resolution.
Outlook
· The Company raised its target annual dividend from US$0.075 to
US$0.080 per share, commencing from 3Q21.
· At the end of the financial period, the Investment Manager's
forecasted dividend cover through mid-2023 was c.1.7x despite the Company not
being fully invested. When the Company is fully invested, the dividend cover
is expected to be ≥ 1.8x.
· At the end of the financial period, the Company had charter cover
of c.1.9 years.
· The Investment Manager has demonstrated its commitment to capital
re-allocation and ESG by divesting a less fuel-efficient bulker and
containerships at c.200% of DRC in order to re-allocate the capital to
fuel-efficient bulkers and tankers which offer stronger yields and greater
potential for capital appreciation.
· Investor confidence in the Company's strategy and the shipping
market was apparent from the high levels of interest in the Company's shares
and oversubscription of the tap issue on 12 November 2021.
I would like to thank my fellow Directors for their commitment and support
during these challenging times, the Investment Manager and their team for
their diligence in dealing with complex and challenging operational matters
which were greatly increased due to the impact of Covid and more recently by
the Russian invasion of Ukraine. I would also like to take this opportunity to
thank our Shareholders for their support and continued belief in our strategy.
………………………
Rob King
Non-executive Chairman
Board Members
The Company's Board of Directors comprises four independent non-executive
Directors. The Board's role is to manage and monitor the Company in accordance
with its objectives. The Board monitors the Company's adherence to its
investment policy, its operational and financial performance and its
underlying assets, as well as the performance of the Investment Manager and
other key service providers. In addition, the Board has overall responsibility
for the review and approval of the Company's NAV valuations and financial
statements. It also maintains the Company's risk register, which it monitors
and updates on a regular basis.
The Directors of the Company who served during the period are:
Robert King, Chairman
Rob serves on a number of boards as an independent non-executive director
which includes two AIM listed funds, Weiss Korea Opportunities Fund Limited,
CIP Merchant Capital Limited and one International Stock Exchange listed fund
Golden Prospect Precious Metals Limited (which also has a trading listing on
the LSE). Before becoming an independent non-executive director in 2011 he was
a director of Cannon Asset Management Limited and their associated companies.
Prior to this he was a director of Northern Trust International Fund
Administration Services (Guernsey) Limited (formerly Guernsey International
Fund Managers Limited) where he had worked from 1990 to 2007. He has been in
the offshore finance industry since 1986 specialising in administration and
structuring of offshore open and closed ended investment funds. Rob is British
and resident in Guernsey.
Stephen Le Page
A chartered accountant and chartered tax adviser. He was a partner in
PricewaterhouseCoopers CI LLP in the Channel Islands from 1994 until his
retirement in September 2013. He led that firm's audit and advisory businesses
for approximately ten years and for five of those years was the Senior Partner
(equivalent to Executive Chairman) for the Channel Islands firm.
Stephen serves on a number of boards as a non-executive director, including
acting as Chairman of the audit committee for three premium London listed
funds, Highbridge Tactical Credit Fund Limited, Volta Finance Limited and
Princess Private Equity Holding Limited and one International Stock Exchange
listed company, Channel Islands Property Fund Limited. Stephen is British and
resident in Guernsey.
Stephen was also appointed as an Independent Non-Executive Director and
Chairman of the audit committee of Amedeo Air Four Plus Limited, a company
listed on the Specialist Funds Segment of the London Stock Exchange, on 26
July 2021. In accordance with Principle 6.2-9 of the AIC Code, the appointment
was discussed with the Chairman of the Company, prior to being undertaken. It
was agreed that the proposed appointment would not have a significant impact
on Stephen's ability to fulfil his duties in relation to the Company and the
appointment was therefore permitted.
Paul Barnes
An investment banker experienced in asset backed, structured and project
financing with wide geographic exposure including Asia, Central/Eastern
Europe, North and Latin America and Scandinavia. Paul was managing director at
BNP Paribas and co-head of its EMEA Shipping and Offshore business between
2010 and 2015. He was also head of risk monitoring for Global Shipping at BNP
Paribas. Prior to that, Paul had served as head of shipping (London) at Fortis
Bank, head of specialised industries at Nomura International and as a
corporate finance Director of Barclays Bank and as a Director of its Shipping
Industry Unit. Paul Barnes is British and resident in the United Kingdom.
Christine Rødsæther
Christine is a partner in law firm Simonsen Vogt Wiig, with more than 30
years' experience working in the international shipping sector and offshore
related transactions, design, vessel construction, offshore installations,
restructurings, international banking and finance. Previously, she was a
partner in Andersen Legal ANS and a lawyer at Wikborg, Rein & Co.
Christine has extensive board experience, and currently serves on the boards
of OSE listed Odfjell SE and Euronext Growth (Oslo) listed Gram Car Carriers
ASA. Christine is Norwegian and is resident in Norway.
Investment Manager's Report
Highlights of the Financial Period
The Company continued to re-allocate capital and grow, in line with its
investment strategy and commitment to ESG. NAV total return for the period was
22.3%. Portfolio operating profit was strong at US$17.4m. There was a gain of
US$80.1m in charter-free vessel values primarily due to the strong
containership and bulker markets. The gain in charter-free vessel values was
partially offset by a US$22.9m fall in charter value as benchmark time charter
rates rose, i.e. an increase in "under-renting".
Having raised the target dividend in 1Q21, the Company raised its target
dividend again from $0.075 to $0.08 per share commencing from 3Q21.
The Investment Manager believes the Company's strong portfolio operating
profit and performance over the period, both on an absolute basis and relative
to other asset classes, demonstrates its investment thesis and the
effectiveness of its strategy. The Investment Manager's strategy of
diversification across the major segments, conservative leverage and strong
charter cover insulated the portfolio from market volatility even at the
height of the Covid pandemic as evidenced by the portfolio performance and
growing dividend.
Over the financial period, the Clarksons Research Newbuilding Price Index rose
11%. As the Investment Manager has previously noted, shipping tends to perform
well during periods of inflation. Over the financial period, charter-free
values of bulkers and especially containerships increased significantly.
Please see the Shipping Market section for details.
The Company divested a less fuel-efficient bulker and realised strong returns
by divesting containerships at c.200% of DRC and re-allocated the capital to
fuel-efficient bulkers and tankers which offer stronger yields and greater
potential for capital appreciation respectively. These transactions, together
with the others announced since late 2020, demonstrate the Company's
commitment to capital re-allocation and ESG.
Highlights of the financial period include:
· In August 2021 the Company raised gross proceeds of US$12.4m
through a tap issue of 10,533,763 ordinary shares at a price of US$1.18 per
share. In November 2021 the Company raised gross proceeds of US$39.0m through
a tap issue of 28,057,140 ordinary shares at US$1.39 per share.
· Having raised the target dividend in January 2021, the Company
raised its target dividend again from $0.075 to $0.08 per share commencing
from 3Q21. The Company paid a dividend of US$0.02 per share for 3Q21 and 4Q21.
The dividend cover for the financial period was c.1.2x. The main reason for
the cover being lower than the Investment Manager's long run expectation is
that the Company was not fully invested throughout the period.
· At the end of the financial period, the Investment Manager's
forecasted dividend cover through mid-2023 was c.1.7x despite the Company not
being fully invested. When the Company is fully invested, the dividend cover
is expected to be ≥ 1.8x.
· As at 31 December 2021 the average expected charter length
(EBITDA weighted) was c.1.9 years, insulating the portfolio from short-term
volatility and offering strong cash flow visibility.
· The Company's fleet had no unplanned commercial idle time (voids)
during the financial period.
· As at 31 December 2021 the average expected charter length of
c.1.8 years on the Company's product tankers insulate the Company from a weak
tanker market. The Investment Manager expects the tanker market to improve in
2022.
· The Company agreed to divest three vessels (Swordfish, Citra and
Dragon) and to acquire five vessels (Idaho, Anvil, Rocky IV, Exceptional and
Awesome). The overall return from the agreed divestments greatly exceeds the
Company's targets. Of the five agreed acquisitions, three vessels were
delivered during the period, one vessel was delivered in January 2022 and the
other is expected to be delivered by the end of March.
· After the financial period the Company agreed to divest four
containerships (Patience, Candy, Echidna and Vicuna) with returns greatly
exceeding the Company's targets.
· After the financial period the Company agreed to divest four
containerships at c.200% of DRC and agreed to acquire the bulker Auspicious.
· The significant investment and divestment activity since June 2021
demonstrate the Investment Manager's commitment to capital re-allocation and
ESG.
· Following the announced transactions, the emissions intensity of
the Company's fleet as measured by the EEXI will improve by more than 30%
compared to the beginning of the financial period.
· The Investment Manager expects further improvement in the
emissions intensity as more of the Company's vessels are retrofitted with
ESDs. ESD retrofits commenced on Laurel and Idaho at the end of 2021 and will
be completed in 2022.
· The Investment Manager expects to have completed ESD retrofits on
at least 8 of the Company's vessels by the end of 2022.The Investment Manager
took active measures to expedite crew relief on the Company's vessels. As a
result, only c.2% of crew members were overdue for relief by more than 1
month at the end of 2021 compared to 7% for the top ten ship managers. The
Investment Manager continued its vaccination program for all crew members on
the Company's vessels. As of mid-February 2022, c.68% of crew members were
vaccinated against Covid.
· With recent events, the Investment Manager has increased focus on
the safety and well-being of the Russian and Ukrainian crew members on board
the Company's vessels.
The Assets
As at 31 December 2021, the Company owned twenty-two vessels.
Containerships
Employment for vessels owned by the Company at the end of the financial
period:
· Patience, Riposte, Vicuna, Echidna and Candy were on time
charters to a major investment grade container shipping group. All vessels
except Candy were on fixed rate charters. Candy had a floating rate time
charter, subject to a floor and a ceiling.
· Parrot, which is fitted with an exhaust gas scrubber, was on a
long-term time charter to another leading global container shipping group.
· Swordfish was on a time charter to the subsidiary of a listed
company based in Asia.
Divestments:
· Prior to the financial period, the Company agreed to divest Kale
for US$21.5m with a realised IRR of 31%. The divestment closed in October
2021.
· During the financial period, the Company agreed to divest: i)
Citra for US$33m with a realised IRR of 47% and ii) Swordfish for US$19m with
a realised IRR of 27%.
Tankers
Employment for vessels owned by the Company at the end of the financial
period:
· Octane and Sierra were on time charters to an investment grade
oil major.
· Pollock, Dachshund, Cocoa and Daffodil were on time charters to a
major commodity trading and logistics company.
· The gas carrier Neon operates on a bareboat charter, under which
the Company provides only the vessel to the charterer, who is responsible for
crewing, maintaining, insuring, and operating it.
· Two chemical tankers, Orson and Golding, were employed in a
leading chemical tanker pool. As described in the Company's Prospectus, a pool
is a revenue sharing structure run by a specialist third party or another
shipowner, together with other similar vessels.
Acquisitions:
· Orson, which the Company agreed to acquire in May 2021, was
delivered to the Company in July 2021.
· In December 2021, the Company agreed to acquire Exceptional at
c.85% of DRC for US$30.9m. It has a 12-24 month fixed rate time charter
producing a net yield over 8% despite a relatively weak tanker market
presently.
Bulkers
Employment for vessels owned by the Company at the end of the financial
period:
· Lavender's time charter was extended for 14-17 months from
February 2022 at a much higher rate compared to its previous charter.
· Mayflower's time charter was extended for 5-7 months from August
2022 at a much higher rate compared to its current charter.
· Laurel was delivered to the Company in July 2021. The vessel
commenced its 2-year time charter from September 2021 after the completion of
its special survey.
· Idaho, Rocky IV and Anvil are on time charters.
Acquisitions:
· Idaho, which the Company agreed to acquire in July 2021 at below
DRC for US$21.4m, was delivered to the Company in October 2021.
· Rocky IV and Anvil were acquired at below DRC for a total of
US$41.2m and were delivered to the Company in November and December 2021
respectively.
· The Company agreed to acquire Awesome at below DRC for US$23.6m
with closing in January 2022. The vessel is in the top quartile of fuel
efficiency in its market segment.
Divestments:
· The Company divested Antler, which was acquired for less than 70%
of DRC, at 100% of DRC in July 2021 with realised returns materially exceeding
targets.
· The Company divested Dragon, which was acquired for 74% of DRC,
at 119% of DRC for US$16.2m.
While certain vessels had Covid related disruptions or had capex impacted by
supply chain issues and inflationary pressures, the fleet is well maintained
and performed well.
After the end of the financial period:
In January 2022, the Company agreed to acquire the handysize bulker Auspicious
for US$23.75m. The vessel was acquired below DRC. It has a time charter of
18-24 months producing a net yield of over 15%. It is in the top quartile of
fuel efficiency in its market segment.
The Company agreed to divest four containerships (Patience, Candy, Echidna and
Vicuna) with realised returns materially exceeding targets. The Company is
re-allocating the capital to bulkers and tankers which offer stronger yields
and greater potential for capital appreciation respectively. These
transactions, together with the others announced since late 2020, demonstrate
the Company's commitment to capital re-allocation and ESG.
The Investment Manager continues to identify an attractive pipeline of
opportunities across a range of the Company's target sectors. While the
Investment Manager aims to hold investments over the longer term, it will
continue to consider divestment opportunities that generate additional value
for Shareholders.
As at 31 December 2021:
SPV(+) Vessel Type Acquisition Date Earliest end of charter period Latest end of charter period Expected end of charter period**
and Year of Build
Swordfish(*) 1700-TEU containership February 2018 Vessel divested
built 2008
Patience(*) 2500-TEU containership March Vessel divested (pending closing)
built 2006 2018
Riposte 2500-TEU containership March February July July
built 2009 2018 2023 2023 2023
Neon Mid-sized LPG carrier July August August August
built 2009 2018 2025 2025 2025
Sierra Medium-range December June August June
product tanker 2018 2024 2025 2024
built 2010
Octane Medium-range December May July May
product tanker 2018 2024 2025 2024
built 2010
Pollock Handysize December February February February
product tanker 2018 2023 2024 2023
built 2008
Parrot 8200-TEU containership July May May May
built 2006 2019 2025 2025 2025
Vicuna(*) 2500-TEU containership October Vessel divested
built 2006 2019
Dachshund Handysize February March March March
product tanker 2020 2023 2024 2023
built 2008
Cocoa Handysize October October October October
product tanker 2020 2023 2024 2023
built 2008
Daffodil Handysize October October October October
product tanker 2020 2023 2024 2023
built 2008
Lavender Handysize bulker October April July July
built 2010 2020 2023 2023 2023
Echidna(*) 2500-TEU containership December 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 March
built 2011 2021 2023 2023 2023
Laurel Handysize bulker July May September 2023 September
built 2011 2021 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 July
built 2011 2021 2023 2023 2023
Anvil Handysize bulker September 2021 October February February
built 2013 2022 2023 2023
Rocky IV Handysize bulker September 2021 October February February
built 2013 2022 2023 2023
Exceptional(++) Medium-range Exp. March January April April
2022
product tanker
2023 2024 2024
built 2015
Awesome(++) Handysize bulker January July February February
built 2015
2022
2023 2024 2024
Notes:
+ SPV that owns the vessel
** Based on assessment of the prevailing market conditions (as at 31 December
2021) by the Investment Manager
++ Acquisition agreed and pending delivery
* Details excluded for vessels agreed to be divested
NAV per share was US$1.376 at 31 December 2021. Portfolio operating profit
contributed US$0.061 per share and there was a strong gain in fair value of
US$0.201 per share. Containership and bulker values rose strongly as the
market benefited from pent-up demand and inventory re-stocking. The effect of
strong demand was accentuated by regional port congestion caused by Covid
related restrictions. NAV total return for the financial period was 22.3%.
As the containership and bulker markets strengthened, several vessels,
including acquisitions, benefited from higher time charter rates versus the
previous period. As a result, the portfolio had a higher portfolio operating
profit compared to the previous period.
Key figures: Figures below are in US$ m unless otherwise stated From 1 Jul 2021 to From 1 Jul 2020 to
31 Dec 2021 31 Dec 2020
Total ship-days(1) 3,947 3,091
Revenue(2) 48.5 33.8
Operating expense(3) (28.1) (19.7)
Gross operating profit(4) 20.4 14.1
Gross operating profit / time-weighted capital employed(5) 13.6% 11.3%
Loan interest and fees (0.8) (0.6)
Gain/(loss) in capital values(6) 57.2 9.8
Portfolio profit 76.8 23.3
Interest income 0.0 0.0
Company level fees and expenses(7) (2.2) (1.4)
Performance fee accrual (2.4) -
Profit for the period 72.2 21.9
Portfolio operating profit(8) 17.4 12.1
Notes
(1 )Ship-days: Total number of days owned in the Company's fleet for all the
ships over the financial period
(2 )Revenue refers to charter income net of broker commissions and charter
related costs
(3 )Operating expense refers to expenses incurred during vessel and subsidiary
company operations
(4 )Gross operating profit measures operating income before gain/(loss) of
capital values, loan interest, fees, and all other fund level
expenses
(5 )Gross operating profit divided by the time weighted capital invested in
vessels (incl. working capital and reserves)
(6 )Non-cash fair value gains and losses from marking assets to market in
accordance with the valuation policy of the Company
(7 )Fund level fees include investment management fee and other professional
fees and expenses
(8 )Portfolio operating profit is gross operating profit and interest income
less loan interest and fees, Company level fees and expenses
Portfolio performance by segment
The capital value of our containerships increased by US$40.3m despite a fall
of US$29.0m in charter values. The capital value of our bulkers increased
because the charter-free values rose by US$14.6m in a strong market while the
charter values also increased by US$3.9m as benchmark time charter rates fell
slightly in 4Q21. The Company's product tankers were on long-term charters and
were insulated from the weak tanker market.
Segment Performance During the Financial Period Product Gas Tanker Containerships Bulkers Total
& Chemical Tankers
US$ m unless otherwise stated
Gross operating profit 5.4 2.1 10.5 2.4 20.4
Loan interest and fees (0.5) - (0.3) - (0.8)
Gain/(loss) in charter-free values (1.8) (2.0) 69.3 14.6 80.1
Gain/(loss) in charter values 2.2 - (29.0) 3.9 (22.9)
Portfolio profit 5.2 0.1 50.5 20.9 76.8
As containership values rose to c.200% of DRC, the Company realised strong
returns by divesting containerships and re-allocating the capital to bulkers
and tankers which offer stronger yields and greater potential for capital
appreciation respectively.
Segment Exposure and Forecast Yields(*) Product Gas tanker Containerships Bulkers Total
&
Chemical
Tankers
% of NAV 29.4% 5.9% 19.3% 38.8% 93.4%
Forecast Net Yields 10.7% 16.1% 13.1% 18.0% 14.1%
(*)Based on the proforma fleet for all transactions announced through 31
January 2022. Includes vessels that the Company had agreed to acquire with
closings in 1H22. Vessels that are being divested are included in the yield
calculation through their expected closing dates.
As at 31 December 2021, vessels corresponding to more than 90%, by value, of
the portfolio have charter coverage greater than one year. The vessels in the
portfolio were chartered to eleven different counterparties. As previously
discussed, the Investment Manager re-allocated capital from the containership
segment. Based on the proforma fleet for all transactions announced through 31
January 2022, containership exposure fell from c.42% at the end of June 2021
to c.19% of NAV while bulker exposure rose from c.15% to c.39% of NAV over the
same period. Tanker exposure was c.35% of NAV.
Portfolio breakdowns as at 31 December 2021
The Shipping Market
The shipping market continued to strengthen over the financial period. The
Clarksea Index, a broad indicator of weighted average earnings from Clarksons
Research across the main commercial vessel types, ended 2021 at c.US$34,500
per day (+22% from the end of June 2021), with large increases in the
containership and bulker segments. The shipping market benefited from a
recovery in global GDP growth. The IMF estimated that world GDP grew by 5.9%
in 2021 after a 3.1% contraction in 2020. World GDP growth recovered from the
end of 1H20, supported by unprecedented fiscal and monetary stimulus measures.
As of January 2022, the IMF forecasts 4.4% world GDP growth in 2022.
The Investment Manager believes the shipping market is in a multi-year upcycle
because of the relative lack of investment in new capacity (supply). The
combination of commodity price inflation and reduced shipyard capacity is
increasing newbuilding prices. This, in turn, led to higher prices for
secondhand vessels.
Some notable highlights of the shipping market, based on Clarksons Research,
include:
· Global seaborne trade recovered to pre-pandemic levels and is
expected to grow by 3.4% in 2022. In comparison, seaborne trade grew by c.3.3%
CAGR in the two decades leading up to 2021
· Fleet growth decelerated to 2.9% in 2021 from 3.0% in 2020
· Over the six months ending 31 December 2021, compared to the
previous six months ending 30 June 2021:
o Average 12-month time charter rates for handysize bulkers rose c.63%
o Average 12-month time charter rates for 2500-TEU containerships rose
c.160%
o Average 12-month time charter rates for handysize product tankers fell
c.3%
Over the financial period, the Clarksons Research Newbuilding Price Index rose
11% while the Clarksons Price Index for 10-year old secondhand vessels rose
18%.
The Company focuses on the three main shipping segments (tankers,
containerships and bulkers). This section utilises data from the Investment
Manager's Tufton Real Time Activity Capture System ("TRACS") which analyses
satellite data to track the international shipping fleet by the major
segments. TRACS data utilise the draught of each vessel as a proxy for its
utilisation and thereby enables the Investment Manager to have a close to
real-time measure of shipping demand. Other research data used in the section
are from Clarksons Research, unless specified otherwise.
Tankers
According to the EIA, global oil demand fell by 8.4% in 2020 led by declines
in OECD countries. Global oil demand improved in 2021 and is forecast to
recover in 2022 to pre-pandemic levels. The Investment Manager expects the
tanker market to improve as OPEC and North American shale oil operators
increase production to meet global oil demand growth. Supply side dynamics for
tankers are supportive especially for product and chemical tankers with the
orderbook at only c.6% of the fleet. Tanker recycling in 2021 rose to the
second highest annual level in 18 years, with 147 vessels (14.3m dwt)
recycled. Recycling activity is expected to remain high in 2022, aiding the
supply side adjustment. The Investment Manager believes the tanker market is
poised to benefit from this combination of demand recovery and slowing supply
growth. As at the end of the financial period, all the Company's product
tankers are on fixed rate, long-term charters with an average duration of 1.8
years. Therefore, the Company's product tankers were insulated from a weak
2021 but are well positioned to benefit from the expected market improvements
in the medium term.
Source: TRACS
Bulkers
The bulker market strengthened significantly over the financial period. TRACS
data show bulker demand was c.6% higher YoY in 2021 supported by strong demand
for commodities. The effect of strong demand was accentuated by regional port
congestion in Asia caused by Covid related restrictions. In October 2021, the
benchmark BDI rose to its highest level since 2009. The Investment Manager
believes the bulker market remains attractive, with strong supply side
fundamentals. As at the end of the financial period, the bulker orderbook was
only c.7% of the fleet which will result in slowing fleet growth. The
Investment Manager increased bulker exposure in the portfolio to c.39% at the
end of the financial period. Please see segment exposures on page 16. The
bulkers in the portfolio have an average charter cover of 1.5 years with
charters producing c.18% annual net yield.
Source: TRACS
Containerships
The containership market continued to strengthen over the financial period.
TRACS data show containership demand was c.10% higher YoY in 2021. The effect
of strong consumer demand and limited fleet growth was accentuated by regional
port congestion - especially around the US West Coast and Asia. Over the
financial period, the Clarksons Research containership time charter rate index
rose to a record high. Benchmark secondhand 10-year old vessel values rose to
c.200% of DRC. The containership orderbook was c.23% at the end of the
financial period as new orders increased. Fleet growth is expected to
accelerate to 7.5% in 2023. The Investment Manager expects the containership
market to slowly weaken from current record highs as port congestion eases and
the new orders are delivered.
Source: TRACS
The combination of rising commodity prices, tightening environmental
regulations and lower shipyard capacity results in rising newbuilding prices.
This, in turn, increases prices for secondhand vessels. In addition, many
newbuilding designs incorporate more flexible machinery and storage systems to
handle multiple fuel types to reduce emissions. These further increase
newbuilding prices. Over the six months ending 31 December 2021, the Clarksons
Research Newbuilding Price Index rose 11% whilst the Clarksons Research Price
Index for 10-year old secondhand vessels rose 18%. This trend is expected to
continue in 2022.
Asset values and time charter rates have started reflecting the Investment
Manager's thesis of supply side adjustment to varying degrees across the main
segments. The increase in asset values and rates has been the highest in
containerships. The Investment Manager expects the containership market to
normalise slowly from current record highs. The Company is re-allocating
capital from the containership segment to the bulker and tanker segments which
offer stronger yields and greater potential for capital appreciation
respectively.
On 24 February 2022, Russia launched a military invasion of Ukraine. In
response, sanctions have been imposed on key Russian institutions, businesses
and individuals by major world powers including the US, UK and the EU. Russia
is a major exporter of oil, gas, and coal while both Russia and Ukraine are
major exporters of grain. Though Russian exports have not been the target of
the sanctions as at the end of February, many charterers may start avoiding
calls at Russian ports.
The shipping industry has a history of being resilient during periods of
disruption and inflation as recently observed around the Covid pandemic. The
tanker and bulker markets could improve as long-haul cargoes increase. Rising
oil prices incentivise lower speeds resulting in a reduction of available
shipping capacity, aiding the supply side adjustment. Fuel-efficient vessels
such as the Company's recent acquisitions are likely to be favoured. The
Investment Manager is carefully evaluating potential implications of this
rapidly changing situation.
Environmental, Social and Governance
The Investment Manager emphasises the principles of Responsible Investment in
the management of clients' assets through awareness and integration of ESG
factors into its investment process in the belief that these factors can have
a positive impact on long term financial performance. The Investment Manager
recognises that its first duty is to act in the best financial interests of
the Company's Shareholders and to achieve good financial returns against
acceptable levels of risk, in accordance with the objectives of the Company.
Since December 2018, the Investment Manager is a signatory of the United
Nations Principles of Responsible Investment and has a Responsible Investment
policy which is available on its website,
(http://www.tuftonoceanicassets.com).
Current areas of focus on ESG implementation include:
1. Assessment of the fuel efficiency and environmental impact of potential
vessel acquisitions
2. Regular review of the Company's vessels to identify opportunities for
improving fuel efficiency and reducing environmental impact across the asset
life cycle
3. Responsible vessel recycling
4. Health and safety of the crew on our vessels
5. Enhanced security to lower risk of contraband
6. Compliance with all international sanctions imposed by the US, UK, EU
and the UN
7. Promoting acceptance and implementation of ESG principles (e.g.
pollution prevention) with our business partners.
The Investment Manager devotes more than 4 Full Time Equivalent (FTE) to ESG
integration related analysis and implementation across the firm in aggregate.
Senior Management (i.e. the CEO and the CIO) of the Investment Manager are
committed to Responsible Investment and oversee the implementation of the
Company's Responsible Investment policy. The policy statement is reviewed at
least annually and approved by the Company's Board of Directors. The Board
also reviews implementation progress against the policy statement and issues
an implementation review report which is also publicly available on the
Company's website.
Environmental
The Investment Manager is committed to reducing greenhouse gas emissions and
aligning the Company to the Paris Agreement. In September 2021, the Investment
Manager announced new commitments to align its funds to the Paris Agreement by
fully transitioning to zero carbon energy sources by 2050 and investing in
zero carbon capable vessels before 2030. In the medium term, the Investment
Manager aims to reduce emissions from its existing fleet through investment in
ESDs and promoting best operational practices such as regular hull and
propeller cleaning and optimal use of auxiliary engines.
The Investment Manager has engaged a consulting firm of marine architects to
conduct energy efficiency studies on the Company's vessels and select the
appropriate ESDs for retrofit. The selection of ESDs, investment required,
retrofit timing and commercial arrangements around fuel savings will vary from
vessel to vessel depending upon the results of energy efficiency studies,
prevailing market conditions and commercial considerations. ESD retrofits
commenced on the Laurel and Idaho during the financial period coincident with
their second special surveys. Premium hull coatings were applied on the hulls
during their respective special surveys. The Investment Manager has
experienced some supply chain delays in the procurement and retrofit of the
ESDs. Other ESDs will be installed on the vessels whilst in service over 2Q22
and 3Q22.
A premium hull coating was applied to Idaho during the vessel's 2(nd) special
survey
The Investment Manager has negotiated with the charterer of each vessel to
increase the time charter rate of the vessel based on the fuel savings from
the ESD retrofits which will result in a payback period of c.2 years for the
Idaho and c.5 years for Laurel. The Idaho payback period is lower as it is
already a very fuel-efficient vessel and required much lower ESD capital
investment.
Total emissions from the Company's fleet in 2021 was c.400,000 tons of CO2.
With a growing portfolio of vessels, this measure is less relevant to the
Company than the normalised measure of emissions intensity: the Energy
Efficiency Operational Indicator ("EEOI"), defined as the mass of CO2 emitted
per unit of transport work in each time period. The EEOI provides useful
information on a ship's fuel efficiency and emissions. All else equal, a lower
EEOI is indicative of a more efficiently operated asset. The Investment
Manager has utilised the EU MRV methodology for calculating the EEOI to report
on total emissions and total cargo transported by the Company's fleet for the
calendar year.
The emissions intensity of the Company's vessels as measured by the EEOI for
2021 was c.2% higher YoY and flat from 2019 primarily because of higher
containership operating speeds established by the charterers in a strong
market rather than by the Company or the Investment Manager. Of the three
major segments, containerships tend to have the highest emissions intensity
due to higher operating speeds. Over the financial period, the Company agreed
to divest two containerships (Swordfish and Citra) and a bulker (Dragon) and
agreed to acquire five fuel-efficient vessels (four bulkers: Idaho, Anvil,
Rocky IV and Awesome; and a tanker: Exceptional). After the end of the
financial period, the Company agreed to divest four containerships. The
emissions intensity of the Company will be reduced significantly after the
divestments. Based on the agreed divestments only, the Investment Manager
estimates that the pro forma portfolio emissions intensity is c.11% better
compared to 2020 and expects further reduction in portfolio emissions
intensity as more vessels are retrofitted with ESDs. In 2022, the Investment
Manager expects to retrofit ESDs on at least the four handysize product
tankers and the two chemical tankers.
Average Energy Efficiency Operational Indicator (EEOI)
(gram CO2/ ton-nautical mile)
Pro forma 2021 2020
2021
Containerships 28.2 28.6 26.3
Bulkers 12.2 12.2 12.6
Tankers 16.5 16.5 17.8
Company 18.4 21.1 20.7
EEOI was c.2% higher in 2021 but the Investment Manager estimates that the
EEOI (after the announced divestments) is 18.4 gram CO2/ ton-nautical mile,
c.11% better compared to 2020.
The efficiency improvement from the capital re-allocation is not fully
apparent from the 11% improvement in EEOI as the Company does not hold
verified 2021 data for the recently acquired fuel-efficient vessels. The
improvement is better demonstrated through the change in EEXI, which measures
emissions intensity based on a ship's design characteristics. Following the
announced transactions, the Company's EEXI will improve by more than 30%
compared to the beginning of the financial period. The Investment Manager
therefore expects the Company's EEOI to improve materially in 2022 compared to
2021.
Coal is a fuel with high greenhouse gas impact. At the COP-26 conference,
world leaders agreed upon targets to lower global coal demand growth which may
impact seaborne coal trade by 2025. The Investment Manager has proactively
implemented a policy that favours long-term charters to minimise coal carriage
without negative financial impact. The Investment Manager will monitor and
report coal carriage on the Company's vessels going forward. The Company's
vessels did not carry any coal over 4Q21.
Based on its investment horizon, current portfolio, and target segments, the
Investment Manager does not expect the Company to have recycling candidates in
its portfolio in the near future. When recycling situations do arise, the
Company will follow industry best practices in adopting the Hong Kong
International Convention for the Safe and Environmentally Sound Recycling of
Ships.
Social
The Investment Manager considers crew health and safety to be a priority and
works closely with the vessels' technical managers to promote best practices.
The Investment Manager became a signatory to the Neptune Declaration in
January 2021, supporting measures to ensure timely relief of crew and putting
measures in place to manage any pandemic related travel restrictions.
Commercial ocean-going vessels crewed by more than a million seafarers
transport goods around the globe. Ship crews have the challenging task of
being responsible for high value, complex machinery on the high seas. The
challenges faced by seafarers have been recognised internationally and their
working conditions are governed by strict guidelines from the International
Labour Organisation and the IMO. The Covid pandemic had a significant global
impact on crew health and safety in 2020 and 2021. National regulations
limiting travel and disembarkation of crew in order to contain the pandemic
had the effect of delaying crew changes (referred to in the industry as
"rotations". The IMO estimates that nearly one million seafarers are working
on c. 60,000 large cargo vessels globally.
Responsibility for crewing lies primarily with each vessel's technical
manager. The Investment Manager engaged with each vessel's technical manager
to address crew issues and facilitate rotations, in some cases with additional
costs. The following strategies are being employed to expedite crew relief:
· undertaking deviation voyages to safe ports that allow crew
changes;
· approving delays to existing schedules to facilitate rotation;
and
· organising chartered flights for crew members.
The Investment Manager also engaged with each vessel's technical manager to
enhance Covid protocols:
· pre-employment medical tests which were enhanced to a standard
exceeding the minimum requirements. These tests allow seafarers to monitor and
improve their fitness levels;
· all regulations including IMO protocols are followed, including
the provision of additional personal protective equipment and disinfectants.
Covid rapid test kits were supplied to all ships to improve testing;
· additional steroidal medication and equipment such as pulse
oximeters were supplied to respond to any infection onboard; and
· crew were given contract extensions in cases where delays were
unavoidable.
The Investment Manager continued its vaccination program for all the crew
members on the Company's vessels. As of mid-February 2022, c.68% of the crew
members were vaccinated.
As a result of the Investment Manager's proactive approach, crew members
overdue for rotation onboard the Company's vessels decreased from c.16% at the
end of July 2021 to only c.5% at the end of December 2021. Only c.2% of the
crew members were overdue by more than 1 month at the end of 2021 against an
average of 7% for the top ten ship managers. At the end of December 2021, no
crew members onboard any of the Company's vessels were overdue by more than
three months. The additional measures to expedite crew relief will result in
some additional costs as well as a one-time increase in operating expenses.
The Investment Manager also worked with technical managers to put in place the
following measures during the pandemic to enhance crew welfare:
· webinars and counselling are offered to all crew members and
families;
· crew members were given access to enhanced wi-fi to assist in
mental wellbeing; and
· crew members were given access to free mental health hotlines.
Over the financial period, the Investment Manager became signatory to Maritime
UK's:
· Mental Health in Maritime pledge to promote quality of mental
health and wellbeing in the industry; and
· Women in Maritime pledge to build an employment culture that
actively supports and celebrates gender diversity at all levels in the
industry.
The Investment Manager is specifically monitoring the safety and well-being of
the Russian and Ukrainian crew members on board the Company's vessels. The
conflict could place increased mental stress on crew members and may
exacerbate challenges to crew rotation due to the closure of airports in both
countries. The Investment Manager has engaged with all our technical managers
to address these issues.
The Investment Manager has engaged Mental Health Support Solutions GmbH
("MHSS") to provide a free counselling service for crew members to help them
handle concerns of stress, anxiety, and personal issues while onboard. The
24-hour confidential helpline service is operated by MHSS's professional
psychologists, who are multilingual and can be contacted through phone,
messaging apps and email.
Governance
The Investment Manager aims to promote acceptance and implementation of ESG
principles with business partners through an annual survey and feedback. The
Investment Manager conducts an annual survey of all the Company's technical
managers which includes Key Performance Indicators to assess their performance
on numerous metrics including ESG. The results from the survey will be
analysed and feedback given to the technical managers to ensure best practices
are shared. The Investment Manager has a strict reporting policy for its
technical managers and employs a third party to conduct independent
inspections of the Company's vessels on a regular basis to check on the
performance of the technical managers. These independent inspections include
assessment of key aspects of vessel condition as well as regulatory compliance
and crew health and safety. The Investment Manager updates the Board of
Directors on the progress of the Company's investments every quarter with
additional updates where significant events have occurred. The Investment
Manager continues to closely monitor adherence to sanctions regimes from the
US, UK, EU and the UN. The employment contracts for the Company's vessels are
typically structured to exclude sanctioned regions. Additionally, the
Investment Manager monitors compliance through regular inspection of vessel
logs and satellite data. On 24 February 2022, Russia launched a military
invasion of Ukraine. The Investment Manager is monitoring the movements of all
the Company's vessels. The Investment Manager will prohibit the entry of any
vessel into conflict zones, a right established in all the Company's charters.
The Board and the Investment Manager are also monitoring the new sanctions
being put in place. The Company and its vessels will remain compliant with all
international sanctions imposed by the US, UK, EU and the UN. The Board and
the Investment Manager remain watchful in monitoring for any potential
escalation of the conflict and consequences for shipping and the Company.
The Investment Manager has a zero-tolerance policy towards bribery and adheres
to the UK Bribery Act with the following policies in place:
· payment controls requiring dual sign-off/authorisation of all
payments;
· gifts and entertainment policies that restrict staff from giving
and receiving gifts;
· recruitment policies and ongoing monitoring of the fitness and
propriety of staff including their honesty, integrity, and financial
soundness; and
· FCA Conduct rules and a Code of Ethics which require staff to
conduct themselves appropriately.
Principal Risks and Uncertainties
The Board has carried out a robust assessment to identify any principal or
emerging risks that could affect the Company, including those that would
threaten its business model, future performance, solvency or liquidity.
Principal risks are those which the Directors consider have the greatest
chance of materially impacting the Company's objectives. The Board has adopted
a "controls" based approach to its risk monitoring requiring each of the
relevant service providers, including the Investment Manager, to establish the
necessary controls to ensure that all identified risks are monitored and
controlled in accordance with agreed procedures where possible.
The Board of Directors receive periodic updates on principal risks at their
meetings and have adopted their own control review to ensure that, where
possible, risks are monitored appropriately, mitigation plans are in place,
and that emerging risks have been identified and assessed. The Directors also
carry out a regular check on the completeness of risks identified, including a
review of the risk register. The Board believes that the risk register is
comprehensive and addresses all risks that are currently relevant to the
Company. While the Investment Manager monitors and puts in place controls to
mitigate risks, please note that risk or uncertainty cannot be eliminated.
The Board of the Company, together with the Investment Manager, have carefully
considered the potential impact of the Covid pandemic, considered to be both
an emerging risk and an emerging cause of risk, on the activities of the
Company and its subsidiaries. Covid has impacted, and continues to do so, the
ability of technical managers appointed by the Asset Manager to supply or
change crew for the Company's vessels. The Investment Manager and Asset
Manager have taken, and will continue to take, appropriate steps to ensure the
Company's fleet is properly serviced. To date the fleet has not experienced
any crewing difficulties and none are expected.
The negative impact of Covid on GDP resulted in lower demand for shipping in
2020, although this recovered somewhat by the end of the year. Global GDP
growth and shipping demand growth recovered strongly in 2021. While some
charters were renewed in 1H20 at lower rates and for shorter periods, many of
the Company's bulkers were chartered at much higher rates in 1H21 as the
market recovered. A weaker shipping market caused by the pandemic could have
caused charter counterparties to be unable to pay the Company when due as well
as having a negative impact on vessel and charter values. It is the Board's
opinion that all these potential consequences are already managed and
monitored as part of the Company's ongoing approach to risk in respect of
counterparties, values, and service providers. The Board will of course
continue to reassess the position as more information about the impact of
Covid becomes available.
As expected, Brexit has had no material impact on the Company or the
Investment Manager. On 24 February 2022, Russia launched a military invasion
of Ukraine. The Investment Manager is monitoring the movements of all the
Company's vessels. The Investment Manager will prohibit the entry of any
vessel into conflict zones, a right established in all the Company's charters.
The Board and the Investment Manager are also monitoring the new sanctions
being put in place. The Company and its vessels will remain compliant with all
international sanctions imposed by the US, UK, EU and the UN. The Board and
the Investment Manager remain watchful in monitoring for any potential
escalation of the conflict and consequences for shipping and the Company.
Except as set out in the narrative above, the Board is of the opinion that the
principal risks facing the Company and their mitigation remain as set out in
the 2021 annual report published on 8 September 2021 and available on the
Company's website (http://www.tuftonoceanicassets.com).
Interim Report of the Directors
The Directors present their Interim Report and the Condensed Interim Financial
Statements of the Company for the six-month period ended 31 December 2021.
The Company was registered in Guernsey on 6 February 2017 and is a registered
closed-ended investment scheme under the POI Law. The Company's Shares were
listed on the Specialist Funds Segment of the Main Market of the London Stock
Exchange on 20 December 2017 under the ticker SHIP.
Investment Objective
The Company's investment objective is to provide investors with an attractive
level of regular and growing income and capital returns through investing in
secondhand commercial sea-going vessels. The Board monitors the Investment
Manager's activities through strategy meetings and discussions as appropriate.
The Company has established a wholly owned subsidiary that acts as a Guernsey
holding company for all its investments, LS Assets Limited, which is governed
by the same Directors as the Company.
All vessels acquired, vessel related contracts and costs will be held in SPVs
domiciled in the Isle of Man or other jurisdictions considered appropriate by
the Company's advisers. The Company conducts its business in a manner that
results in it qualifying as an investment entity (as set out in IFRS 10:
Consolidated Financial Statements) for accounting purposes and as a result
applies the investment entity exemption to consolidation. The Company
therefore reports its financial results on a non-consolidated basis.
Subject to the solvency requirements of Companies Law, the Company intends to
pay dividends on a quarterly basis. The Directors expect the dividend to grow,
in absolute terms, modestly over the long term. In January 2021 the Company
raised its target annual dividend to US$0.075 per share (previously US$0.07
per share) and has further raised it from US$0.075 to US$0.080 per share,
commencing from 3Q21.
The Company aims to achieve a NAV total return of 12% or above (net of
expenses and fees) on the Issue Price over the long term. The profit for the
Company in the financial period was US$72.2m, or US$0.253 per share.
Results and dividends
The Company's performance during the period is discussed in the Chairman's
Statement on pages 3 - 6. The results for the year are set out in the
Condensed Statement of Comprehensive Income on page 32.
Related Parties
Details of related party transactions that have taken place during the period
and of any material changes, are set out in Note 13 of the Condensed Interim
Financial Statements.
Directors
The Directors of the Company who served during the year and to date are set
out on pages 7 - 8.
Directors' interests
The Directors held the following interests in the share capital of the Company
either directly or beneficially as of 31 December 2021, and as of the date of
signing these Financial Statements:
31 December 2021 30 June 2021
Shares Shares
R King 45,000 45,000
S Le Page 40,000 40,000
P Barnes 5,000 5,000
C Rødsæther 20,000 20,000
The Directors fees are disclosed below:
Payable from Paid from Paid from
1 January 2022 1 July 2021 1 July 2020
to to to
30 June 2022 31 December 2021 30 June 2021
Director £ £ £
R King 19,000 17,610 33,610
S Le Page 17,500 16,500 31,500
P Barnes 16,250 15,300 29,300
C Rødsæther 16,250 15,300 24,064
Other Interests
Tufton Group, key employees of the Investment Manager and other related
parties held the following interests in the share capital of the Company
either directly or beneficially. The revised classification of Tufton related
Shareholders reflects the change of control of the Investment Manager as
advised to investors on 5 January 2021.
31 December 2021
Name Ordinary Shares % of issued
Share Capital
Tufton Shareholders 5,546,288 1.80
Tufton Staff 466,261 0.15
Tufton Non-Executive Directors 403,279 0.13
Former Tufton Shareholders 2,760,636 0.89
30 June 2021
Name Ordinary Shares % of issued
Share Capital
Tufton Shareholders 4,474,786 1.66
Tufton Staff 374,668 0.14
Tufton Non-Executive Directors 403,279 0.15
Former Tufton Shareholders 2,758,168 1.02
Share buybacks and discount management
Subject to working capital requirements, and at the absolute discretion of the
Board, excess cash may be used to repurchase Shares should the Shares close at
≥10% average discount to NAV for a period of 90 consecutive days. The
Directors may implement Share buyback at any time before the 90-day guideline
where they feel it is in the best interest of the Company and all
Shareholders.
The Administrator, Maitland Administration (Guernsey) Limited ("Maitland"), is
responsible for tracking the discount/premium of the share price to NAV and
presents the information to the Board on an as needed basis.
The Companies (Guernsey) Law, 2008 (the "Law") allows companies to hold shares
acquired by way of market purchase as treasury shares, rather than having to
cancel them. These treasury shares may be subsequently cancelled or sold for
cash. Shares repurchased pursuant to the authority referred to above may
therefore be held by the Company in treasury, to the extent permitted by Law.
The Company wishes to operate a buyback programme that is effective and also
adds value for Shareholders. As such, unless authorised by Shareholders, no
Shares will be sold from treasury at a price less than the NAV per share at
the time of the sale unless they are first offered pro-rata to existing
Shareholders. Treasury shares may not be sold during a closed period.
The Company will not hold Treasury shares in excess of 10% of the ordinary
share capital of the Company.
Share Buyback Programme Terms and Conditions
As determined at the most recent Annual General Meeting of the Company -
· the maximum number of Shares authorised to be purchased is 14.99
per cent. of the Shares in issue;
· the minimum price which may be paid for a Share is US$0.01;
· the maximum price which may be paid for a Share shall be the
higher of:
o an amount equal to 105 per cent. of the average of the middle market
quotations of a Share (as taken from the Daily Official List of the London
Stock Exchange) for the five business days prior to the date the purchase is
made; and
o the higher of:
(a) the price of the last independent trade; and
(b) the highest current independent bid for Shares on the London Stock
Exchange at the time the purchase is carried out.
· this authority shall expire on the conclusion of the next annual
general meeting of the Company or if earlier, eighteen months from the date of
passing of the resolution, save that the Directors shall be entitled to make
offers or agreements before the expiry of such power which would or might
require the purchase of Shares after such expiry pursuant to any such offer or
agreement as if the power conferred by the resolution had not expired;
In addition, the Board has determined that -
the minimum number of Shares authorised to be purchased in a single day shall
be 50,000, unless otherwise agreed by the Board;
· for the avoidance of doubt, sales from treasury will only be
authorised by the Directors if the amount to be received by the Company for
the Shares is at least the prevailing NAV per share, exclusive of commissions
and dealing costs. Shares may not be sold for more than a 10% discount to
market value; and
· the minimum number of Shares authorised to be sold from treasury
in a single day shall be 100,000, unless otherwise agreed by the Board.
Buybacks are conducted by Singer Capital Markets on the Company's behalf, on
the instruction of the Board of Directors or a duly authorised committee
thereof. Prior to giving such instruction, the Board or a duly authorised
committee of the Board shall meet and give due consideration to the Solvency
of the Company to the extent provided by Law, and a duly authorised
representative of the Board or such committee shall sign a solvency
certificate in respect of each buyback instructed. For the avoidance of doubt,
no buyback may be performed during a period whereby the Company does not meet
the statutory solvency test.
Singer Capital Markets also conduct sales of the Shares from treasury on
behalf of the Company, on the instruction of the Board of Directors or a duly
authorised committee thereof. Following the completion of a sale, an RNS
announcement will be released by the Company to the market, which shall
include the restated amount of voting rights.
The buyback programme may be suspended around key market announcements and
during times where market price calculations are being made, or at any other
time where the Board considers this to be appropriate.
The purchase of Shares by the Company is at the absolute discretion of the
Directors and is subject to the working capital requirements of the Company
and the amount of cash available to the Company to fund such purchases.
Accordingly, no expectation or reliance should be placed on the Directors
exercising such discretion on any one or more occasions.
Going concern
In assessing the going concern basis of accounting the Directors have,
together with discussions and analysis provided by Tufton, had regard to the
guidance issued by the Financial Reporting Council. They have considered
recent market volatility and the potential impact of the Covid virus on the
current and future operations of the Company and its investments (as set out
in more detail in the Principal Risks and Uncertainties section).
Based on these activities and bearing in mind the nature of the Company's
business and assets, the Directors consider that the Company has adequate
resources to continue in operational existence for at least twelve months from
the date of approval of the financial statements. For this reason, they
continue to adopt the going concern basis in preparing the financial
statements.
Responsibility Statement
For the period from 1 July 2021 to 31 December 2021
The Directors are responsible for preparing the Interim Report and Condensed
Interim Financial Statements, which have not been audited or reviewed by an
independent auditor, and confirm that to the best of their knowledge:
· the Condensed Interim Financial Statements have been prepared in
accordance with International Accounting Standard (IAS) 34, Interim Financial
Reporting;
· the Interim Report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the Condensed Interim Financial
Statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
Approved by the Board of Directors on 18 March 2022 and signed on behalf of
the Board by:
…………………………
…………………………
Rob
King
Stephen Le Page
Director
Director
Condensed Statement of Comprehensive Income
For the 6 month period ended 31 December 2021
Notes 31 December 2021 31 December 2020
US$ US$
Income (Unaudited) (Unaudited)
Net changes in Financial Assets at fair value through profit or 4 76,730,838 23,359,763
loss
Foreign exchange gain 1,008 -
Total net income 76,731,846 23,359,763
Expenditure
Administration fees (83,577) (72,649)
Audit fees (79,757) (59,980)
Corporate Broker fees (75,000) (75,000)
Directors' fees 15 (88,055) (71,335)
Directors' expenses (238) -
Foreign exchange loss - (1,845)
Insurance fee (3,025) (14,300)
Investment management fee 11 (1,645,783) (1,059,248)
Legal fees (26,287) (21,576)
Performance fee (2,419,323) -
Professional fees (109,239) (32,717)
Sundry expenses (21,486) (10,673)
Total expenses (4,551,770) (1,419,323)
Operating profit 72,180,076 21,940,440
Finance income 4,348 -
Profit and comprehensive income for the period 72,184,424 21,940,440
IFRS Earnings per ordinary share (cents) 6 25.34 8.60
There were no potentially dilutive instruments in issue at 31 December 2021.
All activities are derived from continuing operations.
There is no other comprehensive income or expense apart from those disclosed
above and consequently a Statement of Other Comprehensive Income has not been
prepared.
The accompanying notes are an integral part of these condensed interim
financial statements.
Condensed Statement of Financial Position
At 31 December 2021
Notes 31 December 2021 30 June
US$ 2021
US$
Non-current assets (Unaudited) (Audited)
Financial assets designated at fair value 4 434,018,851 307,728,012
through profit or loss (Investments)
Total non-current assets 434,018,851 307,728,012
Current assets
Trade and other receivables 20,232 5,760,379
Cash and cash equivalents 254,201 29,989
Total current assets 274,433 5,790,368
Total assets 434,293,284 313,518,380
Current liabilities
Trade and other payables 9,535,914 872,425
Total current liabilities 9,535,914 872,425
Net assets 424,757,370 312,645,955
Equity
Share capital 5 310,259,496 259,657,871
Retained reserves 5 114,497,874 52,988,084
Total equity attributable to ordinary shareholders 424,757,370 312,645,955
Net assets per ordinary share (cents) 8 137.63 115.78
The accompanying notes are an integral part of these condensed interim
financial statements.
The financial statements were approved and authorised for issue by the Board
of Directors on
18 March 2022 and signed on its behalf by:
________________________________
_____________________________
Rob
King
Stephen Le Page
Director
Director
Condensed Statement of Changes in Equity
For the 6 month period ended 31 December 2021
Ordinary share capital US$ Retained earnings Total
US$ US$
For the six months ended
31 December 2021 (Unaudited)
259,657,871 52,988,084 312,645,955
Balance at 1 July 2021
Profit and comprehensive income for the period - 72,184,424 72,184,424
Share issue 51,429,265 - 51,429,265
Share issue costs (827,640) - (827,640)
Dividends paid - (10,674,634) (10,674,634)
Balance at 31 December 2021 310,259,496 114,497,874 424,757,370
Ordinary share capital US$ Retained earnings Total
US$ US$
For the six months ended
31 December 2020 (Unaudited)
245,392,016 (7,723,923) 237,668,093
Balance at 1 July 2020
Profit and comprehensive income for the period - 21,940,440 21,940,440
Share buybacks (247,125) - (247,125)
Dividends paid - (8,930,698) (8,930,698)
Balance at 31 December 2020 245,144,891 5,285,819 250,430,710
The accompanying notes are an integral part of these condensed interim
financial statements.
Condensed Statement of Cash Flows
For the 6 month period ended 31 December 2021
Notes 31 December 2021 31 December 2020
US$ US$
(Unaudited) (Unaudited)
Cash flows from operating activities
Profit and comprehensive income for the period 72,184,424 21,940,440
Adjustments for:
Purchase of investments 4 (49,560,001) -
Change in fair value on investments 4 (76,730,838) (23,359,763)
Operating cash flows before movements in working capital (54,106,415) (1,419,323)
Changes in working capital:
Movement in trade and other receivables 5,740,147 5,810,569
Movement in trade and other payables 8,663,489 4,773,040
Net cash (used in) / generated from operating activities (39,702,779) 9,164,286
Cash flows from financing activities
Net proceeds from issue of shares 5 50,601,625 -
Net cost from share buybacks 5 - (247,125)
Dividends paid to Ordinary shareholders 7 (10,674,634) (8,930,698)
Net cash generated from / (utilised in) financing activities 39,926,991 (9,177,823)
Net movement in cash and cash equivalents during the period 224,212 (13,537)
Cash and cash equivalents at the beginning of the period 29,989 20,441
Cash and cash equivalents at the end of the period 254,201 6,904
The accompanying notes are an integral part of these condensed interim
financial statements.
Notes to the Condensed Interim Financial Statements
For the 6 month period ended 31 December 2021
1. General information
The Company was incorporated with limited liability in Guernsey under the
Companies (Guernsey) Law, 2008, as amended, on 6 February 2017 with registered
number 63061, and is regulated by the GFSC as a registered closed-ended
investment company. The registered office and principal place of business of
the Company is 1 Le Truchot, St Peter Port, Guernsey, Channel Islands, GY1
1WD.
The Company had 270,037,638 ordinary shares in issue on 1 July 2021 all of
which were listed on the Specialist Funds Segment of the Main Market of the
London Stock Exchange.
During the current period, the Company announced that it had raised gross
proceeds of US$51.4m through two tap issues of a further 10,533,763 and
28,057,140 ordinary shares at a price of US$1.18 and US$1.39 per share
respectively. Further details are noted in Note 5.
2. Significant accounting policies
(a) Basis of Preparation
The Condensed Interim Financial Statements have been prepared
on a going concern basis in accordance with IAS 34 Interim Financial
Reporting, and applicable Guernsey law. These Condensed Interim Financial
Statements do not comprise statutory Financial Statements within the meaning
of the Companies (Guernsey) Law, 2008, and should be read in conjunction with
the Financial Statements of the Company as of and for the year ended 30 June
2021, which were prepared in accordance with International Financial Reporting
Standards. The statutory Financial Statements for the year ended 30 June 2021
were approved by the Board of Directors on 8 September 2021. The opinion of
the auditors on those Financial Statements was not qualified. The accounting
policies adopted in these Condensed Interim Financial Statements are
consistent with those of the previous financial year and the corresponding
interim reporting period, except for the adoption of new and amended standards
as set out below.
Compliance with IFRS
The financial statements have been prepared on a going concern basis in
accordance with International Financial Reporting Standards ("IFRS"), which
comprise standards and interpretations approved by the International
Accounting Standards Board ("IASB") and International Financial Reporting
Interpretations Committee ("IFRIC"), Listing rules and applicable Guernsey
law.
Historical cost convention
The financial statements have been prepared on a historical cost basis
modified by the revaluation of investments at fair value through profit or
loss. The principal accounting policies adopted, and which have been
consistently applied, (unless otherwise indicated) are set out below.
Basis of non-consolidation
The directors consider that the Company meets the investment entity criteria
set out in IFRS 10. As a result, the Company applies the mandatory exemption
applicable to investment entities from producing consolidated financial
statements and instead fair values its investments in its subsidiaries in
accordance with IFRS 13. The criteria which define an investment entity are,
as follows:
· an entity that obtains funds from one or more investors for the
purpose of providing those investors with investment services; and
· an entity that commits to its investors that its business purpose
is to invest funds solely for returns from capital appreciation, investment
income or both (including having an exit strategy for investments); and
· an entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Directors consider that the Company's objective of pooling investors'
funds for the purpose of generating an income stream and capital appreciation
is consistent with the definition of an investment entity, as is the reporting
of the Company's net asset value on a fair value basis.
(b) New and amended standards
At the reporting date of these Condensed Interim Financial Statements, the
following standards, interpretations and amendments, which have not been
applied, were in issue but not yet effective:
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
and Disclosure of Accounting Policies (Effective 1 January 2023).
Amendments to IAS 8: Definition of Accounting Estimates (Effective 1 January
2023).
Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a Contract
(Effective 1 January 2022).
Amendments to IFRS 9: Annual Improvements to IFRS Standards 2018 - 2020
(Effective 1 January 2022).
It is not anticipated that the revisions to the abovementioned standards will
have any material impact on the Company's financial position, performance or
disclosures in its financial statements.
There are no other standards, interpretations or amendments to existing
standards that are not yet effective that would be expected to have a
significant impact on the Company.
(c) Standards, amendments and interpretations effective during the period
The new and revised Standards and Interpretations adopted in the current
period did not have any significant impact on the amounts reported in these
condensed interim financial statements.
(d) Segmental reporting
The Chief Operating Decision Maker is the Board of Directors. The Directors
are of the opinion that the Company is engaged in a single segment of
business, being the investment of the Company's capital in secondhand
commercial vessels. The financial information used to manage the Company
presents the business as a single segment.
(e) Income
Dividend Income
Dividend income is accounted for on the date the dividend is declared.
Interest Income
Interest income is accounted for on an accruals basis.
(f) Expenses
Expenses are accounted for on an accruals basis. Any performance fee liability
is calculated on an amortised cost basis at each valuation date, with the
respective expense charged through the Statement of Comprehensive Income. The
Company's investment management and administration fees, finance costs and all
other expenses are charged through the Condensed Statement of Comprehensive
Income.
(g) Dividends to Shareholders
Dividends are accounted for in the Statement of Changes in Equity in the
period in which they are declared.
(h) Taxation
The Company has been granted exemption from liability to income tax in
Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989
amended by the Director of Income Tax in Guernsey for the current period.
Exemption is applied and granted annually and subject to the payment of a fee,
currently £1,200.
(i) Financial Assets and Financial Liabilities
The Company classifies its investments in LS Assets Limited ("LSA") as
financial assets at fair value through profit or loss ("FVTPL").
The Company measures and evaluates the net assets of LSA on a fair value
basis. The net assets include those of the underlying SPVs which themselves
own and value all vessels on a fair value basis.
The Investment Manager reports fair value information to the Directors who use
this to evaluate the performance of investments.
Recognition of financial assets and liabilities
Financial assets and financial liabilities are recognised in the Company's
Condensed Statement of Financial Position when the Company becomes a party to
the contractual provisions of the instrument. Financial assets and financial
liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial liabilities
at fair value through profit or loss) are added to or deducted from the fair
value of the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value through
profit or loss are recognised immediately in the Condensed Statement of
Comprehensive Income.
Financial assets at fair value through profit or loss
Financial assets are classified at FVTPL when the financial asset is either
held for trading or it is designated at FVTPL. Financial assets at FVTPL are
stated at fair value, with any gains or losses arising on re-measurement
recognised in the Condensed Statement of Comprehensive Income.
The Company's investment in LSA has been designated as at FVTPL on the basis
that it is managed and its performance is evaluated on a fair value basis, in
accordance with the Company's documented investment strategy, and information
about the investments is provided internally on that basis. The Company
measures and evaluates the performance of the entire investment into LSA on a
fair value basis by using the net asset value of LSA including, in particular,
the underlying SPVs and the fair value of the SPVs' investments into their
respective vessel assets as well as the residual net assets and liabilities of
both the SPVs and LSA itself. The investment in LSA consists of both equity
and debt instruments.
In estimating the fair value of each underlying SPV (as a constituent part of
LSA's net asset value at fair value), the Board has approved the valuation
methodology for valuing the shipping assets held by the SPVs. The carrying
value of a standard shipping asset consists of its charter-free value plus or
minus the value of any charter lease contracts attached to the vessel, plus or
minus an adjustment for the capital expenditure associated with the vessel.
There are time charter contracts in place for standard vessels. Such charters
will vary in length but would typically be in the 2 - 8 years' range. As the
shipping markets can be volatile over time, the value of such charters will
therefore either add to or detract from the open market charter-free value of
the vessel. Under a time charter, the vessel owner provides a fully
operational and insured vessel for use by the charterer. There is a fluid
charter market reported daily by freight brokers.
The charter-free and associated charter values of most standard vessels are
calculated predominantly using an online valuation platform provided by
VesselsValue or, in limited circumstances, the written valuation of a
mainstream broker where elected by the Manager. For charter-free values, the
VesselsValue system contains a number of algorithms that combine factors such
as vessel type, technical features, age, cargo capacity, freight earnings,
market sentiment and recent vessel sales.
For charter values, the platform provides a DCF (Discounted Cashflow) module
where vessel specific charter details are input and measured against a
platform provided market benchmark to obtain a premium or discount value of
the charter versus the typical prevailing market for that type of vessel. The
adjustment for the capital expenditure associated with the dry docking of the
vessel is time apportioned on a straight line basis over the period between
the vessel's last visit to dry dock and the date of its next expected visit,
by reference to the actual cost of the last visit and the budgeted cost of the
next. This adjustment is an addition to value when the valuation date is
nearer to the vessel's last dry docking than to its next expected visit to dry
dock, and vice versa.
The net adjusted valuation is subject to a minimum fair value being the
present value of all current contracted charter cashflows and the current
vessel scrap value at the completion of the charter. The present value of the
cashflows is discounted at the specific WACC assigned to the vessel type by
VesselsValue adjusted for any counterparty credit risk where appropriate.
Specialist vessels are valued on a pure DCF basis by the Investment Manager
using vessel specific information and both observable and unobservable data.
The VesselsValue platform is not used for these assets. Instead a DCF approach
is adopted and this determines the present value of the cashflows discounted
at the project cost of capital or the specific WACC assigned to the vessel
type by VesselsValue, and is deemed to be a fair representation of the vessel
and charter value.
Refer to Note 3 which explains in detail the judgements and estimates
applied.
Once a contracted time charter is known this is compared to the market
benchmark and the difference is discounted using an industry weighted average
cost of capital to establish a negative or positive value of the charter.
The value of the charter is added to the charter-free value to ascertain a
value with charter.
SPVs account for non-ship assets in line with the accounting policies of the
Company.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or
determinable payments that are not quoted in an active market are classified
as 'loans and receivables'. Loans and receivables are measured at amortised
cost using the effective interest method, less any expected credit losses.
Derecognition of financial assets
The Company derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire, or when it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to
another entity.
If the Company neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred asset, the
Company recognises its retained interest in the asset and an associated
liability for amounts it may have to pay.
On derecognition of a financial asset in its entirety, gains and losses on the
sale of investments, which is the difference between initial cost and sale
value, will be taken to the profit or loss in the Condensed Statement of
Comprehensive Income in the period in which they arise.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the
Condensed Statement of Financial Position when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on
a net basis or realise the asset and settle the liability simultaneously.
Financial liabilities and equity
Debt and equity instruments are classified either as financial liabilities or
as equity in accordance with the substance of the contractual arrangement.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the
Company's obligations are discharged, cancelled or when they expire.
(j) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and other
short-term highly liquid investments with original maturities of 3 months or
less and bank overdrafts. As at 31 December 2021, the carrying amount of cash
and cash equivalents approximate their fair value.
(k) Foreign currency translation
i) Functional and presentation currency
The financial statements of the Company are presented in US Dollars, which is
also the currency in which the share capital was raised, and investments were
purchased and is therefore considered by the Directors' to be the Company's
functional currency.
ii) Transactions and balances
At each financial position date, monetary assets and liabilities that are
denominated in foreign currencies are translated at the rates prevailing at
that date. Non-monetary items carried at fair value that are denominated in
foreign currencies are translated at the rates prevailing at the date when the
fair value was determined. Non-monetary items that are measured in terms of
historical cost in a foreign currency are not retranslated. Exchange
differences are recognised in the Statement of Comprehensive Income in the
year in which they arise. Transactions denominated in foreign currencies are
translated into US Dollars at the rate of exchange ruling at the date of the
transaction.
(l) Going concern
In assessing the going concern basis of accounting the Directors have had
regard to the guidance issued by the Financial Reporting Council and have
considered recent market volatility and the potential impact of the Covid
pandemic on the Company's investments (as set out in more detail in the
Principal Risks and Uncertainties section on page 26). After making enquiries
and bearing in mind the nature of the Company's business and assets, the
Directors consider that the Company has adequate resources to continue in
operational existence for at least twelve months from the date of approval of
the financial statements. For this reason, they continue to adopt the going
concern basis in preparing the financial statements.
(m) Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities. Equity instruments
issued by the Company are recognised at the proceeds received, net of direct
issue costs.
Repurchase of the Company's own equity instruments is recognised and deducted
directly in equity. No gain or loss is recognised in profit or loss on the
purchase, sale, issue or cancellation of the Company's own equity instruments.
3. Critical Accounting Judgements and Estimates
The preparation of financial statements requires management to make estimates
and judgements that affect the amounts reported for assets and liabilities as
at the statement of financial position date and the amounts reported for
revenue and expenses during the period. Information about significant
judgements, estimates and assumptions which have the greatest effect on the
recognition and measurement of assets, liabilities, income and expenses were
the same as those that applied to the Annual Report and Financial Statements
for the year ended 30 June 2021.
Critical judgements in applying the Company's accounting policies - IFRS 10:
Consolidated Financial Statements
The audit committee considered the application of IFRS 10, and whether the
Company meets the definition of an investment entity.
In the judgement of the directors, the Company meets the investment criteria
set out in IFRS 10 and they therefore consider the Company to be an investment
entity in terms of IFRS 10. As a result, as required by IFRS 10 the Company is
not consolidating its subsidiary but is instead measuring it at fair value in
accordance with IFRS 13.
The criteria which define an investment entity are documented in Note 2 (a).
The Company's objective of pooling investors' funds for the purpose of
generating an income stream and capital appreciation is consistent with the
definition of an investment entity.
Critical judgements and estimates in applying the Company's accounting
policies - financial assets at fair value
Further to the information mentioned in Note 2 (i) there are specific capital
adjustments considered as part of the valuation process for standard vessels,
mainly the adjustment for ballast water treatment systems installed on vessels
is considered an enhancement to the charter-free value, initially recognised
at cost and straight line depreciated from the commissioning date to 31
December 2021.
At 31 December 2021, two vessels were treated as specialist vessels (two
vessels at 31 December 2020).
These specialist vessels are valued on a pure DCF basis by the Investment
Manager using vessel specific information and both observable and unobservable
data. Project cost of capital discount rates are reviewed on a regular basis
to ensure they remain relevant to prevailing project and market risk
parameters. The prospectus sets out the basis on which non-typical and
specialist vessels would be valued.
At 31 December 2021, the charter-free valuation of Golding was provided by
written broker valuation rather than VesselsValue as elected by the Investment
Manager given limited transactions in this vessel type.
There were no other material areas of estimation in the current year for the
Company.
4. Financial Assets designated at fair value through
profit or loss (Investment)
The Company owns the investment portfolio through its investment in LSA. The
investment by LSA comprises the NAVs of the SPVs. The NAVs consist of the
fair value of vessel assets and the SPV's residual net assets and
liabilities. The whole investment portfolio is designated by the Board as a
Level 3 item on the fair value hierarchy because of the lack of observable
market information in determining the fair value. As a result, all the
information below relates to the Company's Level 3 assets only, with respect
to the requirements set out in IFRS 7. The investment held at fair value is
recorded under Non-Current Assets in the Statement of Financial Position as
there is no current intention to dispose of any of the assets.
The changes in Financial Assets designated at fair value through profit or
loss (Investments) which the Company has used Level 3 inputs to determine fair
value, after considering dividends declared (see Note 7) are as follows:
30 June
31 December 2021 2021
US$ US$
LSA (Unaudited) (Audited)
Brought forward cost of investment 249,923,223 235,360,051
Total investment acquired in the period / year 49,560,001 14,563,172
Carried forward cost of investment 299,483,224 249,923,223
Brought forward unrealised gains / (losses) on valuation 57,804,789 (2,918,909)
Movement in unrealised gains on valuation 76,730,838 60,723,698
Carried forward unrealised gains on valuation 134,535,627 57,804,789
Total investment at fair value 434,018,851 307,728,012
The unobservable inputs which significantly impact the fair value have been
determined to be the charter-free valuation and charter rates for standard
vessels and the discount rate applied for specialised vessels. The Company
holds its investments through a subsidiary company which has not been
consolidated in line with the adoption of IFRS 10: Consolidated Financial
Statements. Below is the legal entity name for the Holding Company which owns
100% of the shares in the SPVs. The remaining legal entities are owned
indirectly through the investment in the Holding Company.
The SPV's and holding company Handy Holdco Limited are incorporated in the
Isle of Man. The holding company LS Assets Limited is incorporated in
Guernsey. The country of incorporation is also their principal place of
business.
LSA (own net assets) - Breakdown of Fair Value:
Name 31 December 2021 30 June Direct or indirect holding Principal activity Ownership at 31 December Ownership at 30 June
US$
2021
US$ 2021 2021
LS Assets Limited - - Direct Holding company 100% 100%
Aglow Limited 361,559 9,295,994 Indirect SPV 100% 100%
Antler Limited 255,843 10,017,889 Indirect SPV 100% 100%
Anvil Limited 21,054,084 - Indirect SPV 100% -
Awesome Limited(+) (636,253) - Indirect SPV 100% -
Bear Limited 487,883 439,204 Indirect SPV 100% 100%
Candy Limited 13,443,979 9,579,537 Indirect SPV 100% 100%
Citra Limited 548,605 18,033,604 Indirect SPV 100% 100%
Cocoa Limited - - Indirect SPV 100% 100%
Dachshund Limited - - Indirect SPV 100% 100%
Daffodil Limited - - Indirect SPV 100% 100%
Dragon Limited 204,029 8,876,752 Indirect SPV 100% 100%
Echidna Limited 10,689,272 10,212,057 Indirect SPV 100% 100%
Exceptional Limited(++) (1,462,966) - Indirect SPV 100% -
Golding Limited 17,084,766 16,578,058 Indirect SPV 100% 100%
Handy HoldCo Limited 32,240,777 29,581,968 Indirect Holding Company 100% 100%
Idaho Limited 22,675,068 - Indirect SPV 100% -
Kale Limited 411,189 20,680,491 Indirect SPV 100% 100%
Laurel Limited 16,535,124 1,599,950 Indirect SPV 100% 100%
Lavender Limited 17,965,278 13,206,424 Indirect SPV 100% 100%
Mayflower Limited 17,790,794 12,762,171 Indirect SPV 100% 100%
Neon Limited 29,619,191 29,481,951 Indirect SPV 100% 100%
Octane Limited 18,500,594 17,208,816 Indirect SPV 100% 100%
Orson Limited 10,659,596 1,356,536 Indirect SPV 100% 100%
Parrot Limited 28,190,249 28,155,312 Indirect SPV 100% 100%
Patience Limited 18,121,606 10,046,760 Indirect SPV 100% 100%
Pollock Limited - - Indirect SPV 100% 100%
Riposte Limited 25,624,198 16,749,536 Indirect SPV 100% 100%
Rocky IV Limited 21,753,326 - Indirect SPV 100% -
Sierra Limited 18,864,865 17,290,472 Indirect SPV 100% 100%
Swordfish Limited 20,754,511 14,340,404 Indirect SPV 100% 100%
Vicuna Limited 16,674,501 8,780,368 Indirect SPV 100% 100%
Cash held pending investment 57,459,246
3,776,976
Residual net liabilities (1,852,063) (323,218)
*Total investment at fair value 434,018,851 307,728,012
The net change in the movement of the fair value of the investment is recorded
in the Statement of Comprehensive Income.
(* )Vessels are valued at fair value in each of the SPVs shown in the table
above and combined with the residual net liabilities of each SPV to determine
the fair value of the total investment attributable to LSA.
(+ )At 31 December 2021, this SPV held an Agreement with a vendor for the
purchase of a vessel signed 23 December 2021. The SPV valued the incomplete
contract at the difference between its fair value and costs to complete. The
vessel was delivered 19 January 2022.
(++ )At 31 December 2021, this SPV held an Agreement with a vendor for the
purchase of a vessel signed 23 December 2021. The SPV valued the incomplete
contract at the difference between its fair value and costs to complete. The
vessel is expected to be delivered by the end of March 2022.
5. Share capital and reserves
Number of shares Gross amount (US$) Issue costs (US$) Share capital (US$)
Total in issue at 270,037,638 264,852,891 (5,195,020) 259,657,871
30 June 2021
Tap issue 10,533,763 12,429,840 (160,917) 12,268,923
11 August 2021
Tap issue 28,057,140 38,999,425 (666,723) 38,332,702
17 November 2021
Total in issue at 308,628,541 316,282,156 (6,022,660) 310,259,496
31 December 2021
Retained reserves
Retained reserves comprise the retained earnings as detailed in the Condensed
Statement of Changes in Equity.
6. Earnings per share calculated in accordance with IFRS
31 December 2021 31 December 2020
US$ US$
(Unaudited) (Unaudited)
Profit and comprehensive income for the period 72,184,424 21,940,440
Weighted average number of ordinary shares 284,876,271 255,141,442
Earnings per ordinary share (cents) 25.34 8.60
The weighted average number of ordinary shares (284.9m shares) is calculated
in accordance with IFRS guidelines.
7. Dividends
The Company declared the following dividends to Ordinary
Shareholders in respect of the profit for the periods indicated:
Period end Dividend per share Ex div date Net Dividend paid Record date Paid date
Dividends declared for the period ended 31 December 2021:
30 June US$0.01875 29 July US$5,063,206 30 July 13 August
2021
2021
2021
2021
30 September 2021 US$0.02 28 October 2021 US$5,611,428 29 October 2021 12 November 2021
Dividends declared for the period ended 31 December 2020:
30 June 2020 US$0.0175 6 August 2020 US$4,467,409 7 August 2020 21 August 2020
30 September 2020 US$0.0175 5 November 2020 US$4,463,159 6 November 2020 20 November 2020
Under the Companies (Guernsey) Law, 2008, the Company can distribute dividends
from capital and revenue reserves, subject to a prescribed net asset and
solvency test. The net asset and solvency test considers whether a company is
able to pay its debts when they fall due, and whether the value of a company's
assets is greater than its liabilities. The Board confirms that the Company
passed the net asset and solvency test for each dividend paid.
8. Net assets per ordinary share
31 December 2021 30 June
US$ 2021
US$
(Unaudited) (Audited)
Shareholders' equity 424,757,370 312,645,955
Number of ordinary shares 308,628,541 270,037,638
Net assets per ordinary share (cents) 137.63 115.78
9. Financial risk management
The Company's activities expose it to a variety of financial risks; market
risk (including price risk, currency risk and interest rate risk), credit risk
and liquidity risk.
The condensed interim financial statements do not include all financial risk
management information and disclosures required in the annual financial
statements; they should be read in conjunction with the Company's Audited
Financial Statements as at 30 June 2021.
There have been no significant changes in the management of risk or in any
risk management policies since the last Statement of Financial Position date.
10. Financial assets and liabilities not measured at fair value
Cash and cash equivalents and trade and other receivables are liquid assets
whose carrying value represents fair value. The fair value of other current
assets and liabilities would not be significantly different from the values
presented at amortised cost.
11. Management fee
The Investment Manager is entitled to receive an annual fee, calculated on a
sliding scale, as follows:
(a) 0.85 per cent per annum of the quarter end Adjusted Net Asset Value up to
US$250 million;
(b) 0.75 per cent per annum of the quarter end Adjusted Net Asset Value in
excess of US$250 million but not exceeding US$500 million; and
(c) 0.65 per cent per annum of the quarter end Adjusted Net Asset Value in
excess of US$500 million.
For the period ended 31 December 2021 the Company incurred US$1,645,783
(2020: US$1,059,248) in management fees of which US$871,872 (2020:
US$537,835) was outstanding at 31 December 2021.
12. Performance fee
Tufton ODF Partners LP, the entity entitled to performance fees, shall be
entitled to a performance fee in respect of a Calculation Period provided that
the Total Return per share on the Calculation Day for the Calculation Period
of reference is greater than the High Watermark per share and such performance
fee shall be an amount equal to the Performance Fee Pay-Out Amount if:
· the High Watermark is greater than the Total Return on any
Calculation Day; and
· the prevailing Historic Performance Fee Amount (to the extent not
previously adjusted pursuant to the operation of this paragraph) is greater
than zero on such Calculation Day.
The prevailing Historic Performance Fee Amount shall be reduced by the lower
of: (i) 20 per cent of the difference between the High Watermark and the Total
Return on such Calculation Day multiplied by the Relevant Number of Shares;
and (ii) the prevailing Historic Performance Fee Amount. For the period ended
31 December 2021 the Company accrued US$2,419,323 (2020: US$nil) in
performance fees all of which was outstanding at 31 December 2021.
13. Related parties
The Investment Manager, Tufton Investment Management Limited, is a related
party due to having common key management personnel with the subsidiaries of
the Company. All management fee transactions with the Investment Manager are
disclosed in Note 11.
Tufton ODF Partners LP is a related party due to having common key management
personnel with the subsidiaries of the Company. All performance fee
transactions are disclosed in Note 12.
For the period ended 31 December 2021 the Company accrued US$2,419,323
(2020: US$nil) in performance fees all of which was outstanding at 31
December 2021.
The Directors of the Company and their shareholdings are
stated in the Interim Report of the Directors, page 28.
14. Controlling party
In the opinion of the Directors, on the basis of shareholdings advised to
them, the Company has no immediate or ultimate controlling party.
15. Remuneration of the Directors
The remuneration of the Directors was US$88,055 (2020: US$71,335) for the
period which consisted solely of short-term employment benefits (refer to the
Interim Report of the Directors, page 28).
16. Events after the reporting period
On 17 January 2022, the Company announced that it has agreed to divest the
containership Patience for US$19.35m and acquire the handysize bulker
Auspicious for US$23.75m.
On 18 January 2022, the Company announced a dividend of US$0.02 per ordinary
share for the quarter ending 31 December 2021. The dividend was paid on 11
February 2022 to the holders of ordinary shares recorded on the register as at
close of business on 28 January 2022 with an ex-dividend date of 27 January
2022.
On 7 February 2022, the Company agreed to divest the Containerships Candy and
Echidna for a total of US$21.0m.
On 14 February 2022, the Company agreed to divest the Containership Vicuna for
US$18.0m.
There has not been any other matter or circumstance occurring subsequent to
the end of the financial period that has significantly affected, or may
significantly affect, the operations of the company, the results of
operations, or the state of affairs of the company in future financial
years.
Corporate Information
Directors
Robert King, Chairman
Stephen Le Page
Paul Barnes
Christine Rødsæther
Registered office
3(rd) Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Investment Manager and AIFM
Tufton Investment Management Ltd
70 Pall Mall
1(st) Floor
London
SW1Y 5ES
Asset Manager
Tufton Management Limited
3(rd) Floor, St George's Court
Upper Church Street
Douglas
Isle of Man IM1 1EE
Secretary and Administrator
Maitland Administration (Guernsey) Limited
3(rd) Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Joint Placing Agents and Financial Advisers
Hudnall Capital LLP
Adam House
7-10 Adam Street
London
WC2N 6AA
Singer Capital Markets
1 Bartholomew Lane
London
EC2N 2AX
Guernsey Legal Advisers
Carey Olsen (Guernsey) LLP
PO Box 98, Carey House
Les Banques
St Peter Port
Guernsey
GY1 4BZ
UK Legal Advisers
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Registrar
Computershare Investor Services (Guernsey) Limited
1(st) Floor, Tudor House
Le Bordage
St Peter Port
Guernsey
GY1 1DB
Receiving Agent
Computershare Investor Services PLC
The Pavillions
Bridgewater Road
Bristol
BS99 6AH
Independent Auditor to the Company
PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4ND
Principal Bankers
Barclays Bank Plc
Guernsey International Banking
PO Box 41
St Peter Port
Guernsey
GY1 3BE
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