TIDMSHIP
RNS Number : 9209H
Tufton Oceanic Assets Ltd.
27 March 2020
Tufton Oceanic Assets Limited
("Tufton Oceanic Assets" or the "Company")
Interim Results for the six month period ended 31 December
2019
Tufton Oceanic Assets announces its interim results for the six
month period ended 31 December 2019. A copy of the Interim Report
and Unaudited Financial Statements has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at www.morningstar.co.uk/uk/NSM . The Interim Report and
Unaudited Financial Statements will also shortly be available on
the Company's website in the Investor Relations section under
Company Documents at
www.tuftonoceanicassets.com/financial-statements .
For further information, please contact:
Tufton Investment Management Limited Tel: +44 (0) 20 7518 6700
Andrew Hampson
Paulo Almeida
N+1 Singer Tel: +44 (0) 207 496 3030
James Maxwell, Alex Bond (Corporate Finance)
Alan Geeves, James Waterlow, Sam Greatrex (Sales)
Hudnall Capital LLP Tel: +44 (0) 20 7520 9085
Andrew Cade
Highlights
-- The profit of the Company for the financial period was
US$5.54m, or US$0.023 per Ordinary Share based on weighted average
number of shares over the period
-- The Company declared dividends of US$0.0175 per share for the
third and fourth calendar quarters
-- Gross proceeds of US$31m were raised in September 2019
pursuant to the Placing Programme described in the Company
prospectus published on 25 September 2018
-- Acquisitions of two containerships (Parrot and Vicuna) and
one crude tanker (Bear) for c. US$52.3m, which were delivered to
the Company bringing the total fleet from 14 to 17 vessels in the
6-month period as at the end of the period
-- The acquisitions of another product tanker (Dachshund) and
another handysize bulker (Antler) after the end of the period
involving a further US$20.25m of investment.
-- Expected average charter length was 3.1 years with a minimum
of 2.8 years as at 31 December 2019
-- As at 31 December 2019, 16 of the 17 vessels were employed on
fixed rate medium to long term charters, and so the portfolio is
largely insulated from geopolitical and macroeconomic shocks
-- Unlevered cash flow run rate of the fleet was c. US$32m p.a.
(c. 1.8x the target dividend per share of US$0.07 per annum) after
capital expenditure provision and management fees as of 31 December
2019.
Chairman's Statement
Introduction
I am pleased to present the Company's interim report and
unaudited financial statements for the period ended 31 December
2019.
Since I last wrote to Shareholders we have raised an additional
US$31.0m, bringing the total capital raised since inception to
US$250.4m. The Investment Manager successfully invested these
proceeds in 3 vessels bringing our fleet size to 17 vessels as of
31 December 2019 . The fleet as at the period end consisted of 2
Handysize Bulkers, 7 Containerships, 5 Tankers and 3 General Cargo
vessels. There is a further breakdown of the portfolio in the
Investment Managers Report.
Performance
The performance of the Company during the period held up well
against a backdrop of geopolitical challenges and more recently the
Covid-19 Coronavirus outbreak.
As of the 31 December 2019, the Company's NAV was c.US$253.4m
versus net issue proceeds of US$245.4m. The NAV per share as of 31
December 2019 was US$0.992.
The Company's Earnings per Share for the period ended 31
December 2019 was 2.3 cents and was 15.4 cents since inception. At
the end of the financial period, the Company had forecast dividend
cover of c1.8x with average charter length of 3.1 years and
continues to target a total annual dividend of $0.07 per share.
The Share Price increased from US$0.99 as of 30 June 2019 to
US$1.04 as of the close of business 31 December 2019. The Company's
Shares have traded at an average premium to NAV of 1.6% during the
period.
Dividends
During the period the Company declared and paid dividends to
shareholders as follows:
Period end Dividend Announce Ex div Record Paid date
per share date date date
(US$)
Ordinary shareholders
30.06.19 0.0175 29.07.19 08.08.19 09.08.19 23.08.19
30.09.19 0.0175 28.10.19 07.11.19 08.11.19 22.11.19
A further dividend was declared on 30 January 2020 for US$0.0175
per ordinary share for the quarter ending 31 December 2019. The
dividend was paid on 21 February 2020 to holders of ordinary shares
on record date 7 February 2020 with an ex-dividend date of 6
February 2020.
Corporate Governance
The Company complies with the UK Code of Corporate Governance
("UK Code") where applicable and also follows the AIC Corporate
Governance Code ("AIC Code") to ensure that the Directors apply the
most relevant level of corporate governance for the Company. Where
Shareholders or their appointed agent have matters they wish to
raise with the Board in respect to the Company, I would encourage
them to contact us at SHIP@tuftonoceanicassets.com .
Annual General Meeting Results
At the last Annual General Meeting ("AGM") held on 25 October
2019 all of the resolutions were duly passed as advised in our
announcement of the same date, although there were a significant
number of votes against some of resolutions, which require me to
comment accordingly.
Resolution 1 - Annual Report and Audited Financial Statements of
the Company for the year ended 30 June 2019. There were 46,831,744
votes against this resolution being 31.09% of the votes cast. On
engaging with the relevant Shareholders and also their appointed
voting agent, the recommendation to vote against this resolution
was based on the fact that the Company did not provide for
Shareholders to vote on the on-going dividend policy of the
Company. The Board of Directors have considered this feedback and
will include a resolution at future AGM's to allow Shareholders to
vote on the on-going dividend policy of the Company.
Resolution 2 Re-appointment of the Auditors and Resolution 5
Retirement and Re-Election of Steve le Page. There were 46,831,744
votes against each of these resolutions being 31.09% of the votes
cast. On engaging with the relevant Shareholders and also their
appointed voting agent, the recommendation to vote against these
resolutions was based on the voting agent's view that there was a
possible conflict of interest between the Company, represented by
Mr le Page as Chairman of the Audit Committee and PwC as the
appointed Auditors to the Company. Mr le Page was therefore not
deemed, by the voting agency making the recommendation to their
client to be independent. For clarity Mr le Page retired as a
partner of PwC in September 2013 before joining the Board in
February 2017, a gap of more than three years. The voting agency
believes there should be a seven year period between a partner
retiring and becoming independent of their former firm to ensure
that there is not conflict of interest. This period of seven years
is considerably longer than the three years recommended by the UK
Code and the AIC Code. The Board of Directors consider Mr le Page
to be an independent director without any conflicts of interest
with the Company's Auditors and in any event the Board have
determined that by the time of the next AGM of the Company in
October 2020 Mr le Page will have exceeded this seven year period
and thus will satisy the voting agents' criteria.
Resolution 4 - Retirement and Re-Election of Robert King
(Chairman). There were 24,893,063 votes against the resolution
being 17.86% of the votes cast. On engaging with the
representatives of the Shareholder group, they voted against the
re-appointment of the Chairman based on deemed "over-boarding"
which has now been addressed with the Shareholders concerned.
Outlook
During the second half of last year and since the turn of the
year there have been significant geopolitical events, initially the
ongoing US/China trade tariffs disputes followed by the short lived
crisis in the Middle East and Iran, which have had a negative
impact mainly on the bulker and containership sectors. However, the
issues surrounding Covid-19 and the spread of the virus outside of
China into a pandemic, together with the recent drop in oil prices,
also have significant implications for the maritime industry.
With the extension of the Chinese New Year holiday in order to
try and contain the virus in China, we saw a dramatic fall off in
both dry bulk raw material Chinese imports as well as lower
finished good (containership) exports. Since the failure of OPEC to
agree on production cuts and the consequential drop in oil prices,
we have seen significant increase in the movement of crude oil and
oil product as stockpiling takes place against a contango in the
oil price. When land based storage is full, we expect vessel supply
to be taken out of the market for floating storage but it is clear,
however, that oil / oil product consumption demand growth will
remain low until normality is restored.
It is also expected that the bulker and containership sectors
will remain subdued during the continuation of the current reaction
in the western world to the spreading Coronavirus threat.
Interestingly, we have seen a recent increase in the number of port
calls in China, returning to prior year norms for 6-7 weeks post
the Chinese New Year. It is too early to make definitive
projections concerning the medium term response of world trade to
Covid-19 but inevitably there will be some distress leading to
investment opportunities.
We are pleased to note however, the recent news release from the
Investment Manager that as of 29 February 2020, the estimated
unaudited NAV of SHIP was US$0.976 per share compared to US$0.992
per share as of 31 December 2019. As noted in the release, the
revenue earned by and the value of the majority of the Company's
vessels had not thus far been significantly negatively affected by
fluctuations in commodity prices, geopolitical events and other
short-term supply-demand factors. The relative resilience of the
portfolio reaffirmed the Investment Manager's strategy of portfolio
diversification and longer term charter coverage to strong credits,
and continues to insulate the Company against the extreme movements
of the shipping spot markets. In the longer term poor markets may
start to impact on charter renewals as they occur.
The resolution of the UK's exit from the EU has not had an
impact on the portfolio, and is not expected to have one going
forward.
The Company sold three general cargo vessels and acquired one
product tanker and one handysize bulker after the period end
bringing the fleet size from 17 vessels as of 31st December 2019 to
currently 16 vessels. The Company continues to pursue its strategy
of growing a diversified fleet and we are pleased that the
Investment Manager continues to identify attractive opportunities
across a range of the Company's target sectors.
Rob King
Non-executive Chairman
Board Members
The Company's Board of Directors comprises three 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 and to
date are:
Robert King, Chairman
A non-executive director for a number of open and closed-ended
investment funds including Weiss Korea Opportunity Fund Limited,
Chenavari Capital Solutions Limited (Chairman) and CIP Merchant
Capital Limited. 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 King 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. During his career
his main role was as an audit partner working with a wide variety
of financial services businesses and structures. Mr Le Page also
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.
Since his retirement Mr Le Page has joined a number of boards as a
non-executive director including 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, all
of which he serves as Chairman of the audit committee. He is a past
chairman of the Guernsey International Business Association and a
past President of the Guernsey Society of Chartered and Certified
Accountants. Stephen Le Page is British and resident in
Guernsey.
Paul Barnes
An investment banker experienced in asset backed, structured and
project financing with wide geographic exposure including Asia,
Central/Eastern Europe, North and Latin America and Scandinavia. Mr
Barnes was managing director at BNP Paribas and co-head of its EMEA
Shipping and Offshore business between 2010 and 2015. He was also
head of risk monitoring for Global Shipping at BNP Paribas. Prior
to that, Mr Barnes had served as head of shipping (London) at
Fortis Bank, head of specialised industries at Nomura International
and as a corporate finance Director of Barclays Bank and as a
Director of its Shipping Industry Unit. Paul Barnes is British and
resident in the United Kingdom.
Investment Manager's Report
Highlights
We are pleased to present our review for the 6-month period
ended 31 December 2019 and our outlook for the next few years.
Highlights include:
-- The profit of the Company for the financial period was
US$5.54m, or US$0.023 per Ordinary Share based on weighted average
number of shares over the period (Note 7)
-- The Company declared dividends of US$0.0175 per share for the
third and fourth calendar quarters
-- Acquisitions of two containerships (Parrot and Vicuna) and
one crude tanker (Bear) for c. US$52.3m, which were delivered to
the Company bringing the total fleet from 14 to 17 vessels in the
6-month period as at the end of the period
-- The acquisitions of another product tanker (Dachshund) and
another handysize bulker (Antler) after the end of the period
involving a further US$20.25m of investment.
-- Expected average charter length was 3.1 years with a minimum
of 2.8 years as at 31 December 2019
-- As at 31 December 2019, 16 of the 17 vessels were employed on
fixed rate medium to long term charters, and so the portfolio is
largely insulated from geopolitical and macroeconomic shocks
-- Unlevered cash flow run rate of the fleet was c. US$32m p.a.
(c. 1.8x the target dividend per share of US$0.07 per annum) after
capital expenditure provision and management fees as of 31 December
2019. Net proceeds of US$30.4m were raised in September 2019
pursuant to the Placing Programme described in the Company
prospectus published on 25 September 2018
The Assets
As of 31 December 2019, the Company owned 17 vessels:
-- The seven containerships operate on time charter contracts,
under which the Company provides fully operational and insured
vessels for use by the charterers. Swordfish, Kale, Patience,
Riposte and Vicuna are chartered to one of the major investment
grade container shipping groups. Parrot is chartered to another
leading, global container shipping group. Citra is chartered to a
leading private operator of containerships specialising in fresh
fruit transportation.
-- 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.
-- The two handysize bulkers operate under time charters. Dragon
and Aglow are on charter to two different private European
operators.
-- Three product tankers operate under time charters to a major
commodity trading and logistics company. Sierra and Octane are on
fixed rate charters. Pollock is on a floating rate time
charter.
-- The three general cargo carriers Hongi, Darwin and Java
operated under bareboat charters to a private general cargo
shipping operator.
-- The crude oil tanker Bear operates under a time charter with
a profit-sharing mechanism to a major commodity trading and
logistics company.
As at 31 December 2019
SPV(+) Vessel Type and Year Acquisition Earliest end Expected end
of Build Date of charter of charter
period period(**)
Swordfish 1700-TEU containership February April 2020 April 2020
built 2008 2018
----------------------- ------------ -------------- --------------
Kale* 1700-TEU containership February April 2020 April 2020
built 2008 2018
----------------------- ------------ -------------- --------------
Patience 2500-TEU containership March 2018 April 2021 October 2022
built 2006
----------------------- ------------ -------------- --------------
Riposte 2500-TEU containership March 2018 March 2020 March 2021
built 2009
----------------------- ------------ -------------- --------------
Neon Mid-sized LPG carrier July 2018 August 2025 August 2025
built 2009
----------------------- ------------ -------------- --------------
Aglow Handysize Bulker July 2018 May 2020 August 2020
built 2011
----------------------- ------------ -------------- --------------
Dragon Handysize Bulker September August 2020 August 2020
built 2010 2018
----------------------- ------------ -------------- --------------
Citra 2500-TEU containership November November 2020 November 2020
built 2006 2018
----------------------- ------------ -------------- --------------
Sierra Medium-range December January 2021 January 2022
product tanker 2018
built 2010
----------------------- ------------ -------------- --------------
Octane Medium-range December January 2021 January 2022
product tanker, built 2018
2010
----------------------- ------------ -------------- --------------
Pollock* Handysize December March 2020 March 2021
product tanker, built 2018
2008
----------------------- ------------ -------------- --------------
Hongi* General Cargo Carrier February April 2026 April 2026
Built 2002 2019
----------------------- ------------ -------------- --------------
Darwin* General Cargo Carrier April 2019 November 2023 November 2023
Built 2004
----------------------- ------------ -------------- --------------
Java* General Cargo Carrier April 2019 January 2026 January 2026
Built 2003
----------------------- ------------ -------------- --------------
Parrot 8200-TEU containership July 2019 May 2025 May 2025
built 2006
----------------------- ------------ -------------- --------------
Bear Crude Oil Tanker September October 2021 October 2021
Built 2005 2019
----------------------- ------------ -------------- --------------
Vicuna 2500-TEU containership October October 2022 October 2024
built 2006 2019
----------------------- ------------ -------------- --------------
Notes:
(+) Special Purpose Vehicle that owns the vessel
* Post 31 December 2019: Hongi, Darwin and Java were sold.
Pollock was fixed on a 3 year fixed rate time charter to a major
commodity trading house. The charter on Kale was extended by a
minimum of seven months in early March
** these may differ from the Annual Report (30 June 2019)
following the re-assessment by the Investment Manager of the
prevailing market conditions
After the financial period, the Company divested three general
cargo vessels for US$19.3m. The realised yield and IRR exceeded the
targets expressed in the Company's prospectus dated 25 September
2018. This was the Company's first divestment. The Company expects
to redeploy the proceeds opportunistically. While the Investment
Manager aims to hold investments over the longer term, it will
continue to consider sale opportunities that generate additional
value for shareholders. The Company committed to acquire Dachshund,
a 2008 built product tanker, in February 2020 for US$13.25m and
Antler, a 2012 built handysize bulker, in March 2020 for US$7.0m.
Dachshund was delivered to the Company in March 2020 and it is on a
fixed rate time charter for 3 to 4 years to a major commodity
trading and logistics company. Antler was also delivered to the
Company in March 2020 and it is on a fixed rate time charter for 6
to 8 months to a major commodity trading company.
The divestment of the three general cargo vessels and the
acquisition of Dachshund and Antler brings the Company's fleet from
17 vessels as of 31st December 2019 to 16 vessels. The Investment
Manager continues to identify an attractive pipeline of
opportunities across a range of the Company's target sectors.
Operating and Investment Highlights
During the 6-month financial period, three vessels were acquired
(totalling c.US$52.3m) and delivered to the Company, bringing the
total number of vessels in operation to 17 vessels. , The vessels
in the fleet are well maintained and performed to expectations.
Some operational details over the period worth mention are: Dragon
had its scheduled second special survey (with 30 days offhire),
minor machinery issues on Swordfish and Riposte were promptly
rectified, Patience had a collision incident in October resulting
in unplanned offhire of 12 days. The cost of repairs minus
deductible was covered by insurance. All the vessels in the
portfolio had an uneventful transition to low sulphur fuel at the
end of 2019 to comply with the International Maritime
Organization's (IMO) new sulphur cap. The containership Parrot was
routed to a shipyard in China for scheduled retrofit of a scrubber
which started in February 2020. Retrofit works are progressing well
towards target completion in late May 2020.
Investment Performance
NAV per share decreased by US$0.013 to US$0.992 per share.
Operating profit contributed US$0.056 per share. There was an
unrealised loss in the charter-adjusted fleet value of US$0.033 per
share during the period. The unrealised loss arose mainly because
of the fall in capital values of containerships and bulkers during
the period.
The second half of 2019 vindicated the Investment Manager's
approach to building a diversified portfolio. The operating profit
from the portfolio was US$14.7m which was partly offset by a fair
value adjustment of US$7.8m. Most of the negative movement in fair
values came from the containership segment. Containership asset
values weakened in a slowing GDP growth environment in the second
half of 2019 despite containership rates improving. We expect the
charter rate and yield for Parrot to increase after its scrubber
retrofit in 2Q20.
On the other hand, the portfolio recorded fair value gains on
both crude and product tankers as both segments benefited from
supply reductions in the crude tanker market from US sanctions. The
crude tanker market tightened and some product tankers switched to
crude service. Yield from the tanker segment remained strong, in
line with expectations.The dry bulk market briefly hit six year
highs in the third quarter but fell rapidly over the fourth quarter
with a small negative impact on fair values. Aglow finished a
charter in December and started on a new short term time charter at
a relatively low rate. Dragon had its second special survey in
September. The scheduled capex and offhire time resulted in a
negative yield for dry bulk over the period but the capex and
offhire time were in line with expectations. The gas tanker is on a
long term charter. The general cargo carriers were also on long
term charters. Performance was in line with expectations. Further
commentary on the shipping market may be found in the next
section.
As of 31 December 2019,vessels corresponding to more than 70% of
NAV were on charters of duration greater than one year. Fixed
employment in the portfolio was across nine different charterers
with the largest exposure to a charterer corresponding to 24% of
NAV.
Shipping Market
Some notable highlights of the shipping market over 2019
include(*)
-- Global seaborne trade grew by 2.2% (tonne miles) in 2019 decelerating from 2.7% in 2018
-- Fleet expansion accelerated to 4.1% as an improving market
reduced yard slippage and limited demolition activity
-- The global orderbook is equivalent to only 9% of the fleet,
compared to over 50% in 2008. The orderbook is at its lowest level
since 2004
-- Newbuild deliveries were up by 22% year on year in 2019,
while newbuild ordering volumes were down 27% year on year
representing the lowest since 2016
-- Secondhand transaction volumes were down 9% year on year in
2019, with the secondhand price index down 2% year on year
-- Bulker average 12-month time charter rates fell 10% year on year in 2019
-- Containership time charter rates index fell 6% year on year in 2019
-- Tanker average 12-month time charter rates rose 24% year on
year in 2019, with VLCC charter rates up 59%
The second half of 2019 was marked by a slowdown in GDP growth
and industrial production. As the benefits on the 2018 tax cuts in
the US faded, business confidence weakened in the face of the
uncertainties of US-China trade negotiations. Manufacturing firms
became more cautious on long range capital expenditure. The
International Monetary Fund revised down its forecasts for World
GDP growth in 2019 from 3.5% to 2.9%. Within this context, the
different segments in shipping markets exhibited a remarkable
variety of outcomes.
The oil tanker market showed steady improvement over the third
quarter and received an unexpected boost at the end of the period
when the US sanctioned Cosco Tankers, a large Chinese operator -
effectively taking out a significant portion of available tanker
capacity. Benchmark rates for large tankers hit decade highs as the
effect of US sanctions was exacerbated by ships taken out of
service for scrubber retrofit ahead of the transition to low
sulphur fuel on 1 January 2020. The third quarter of 2019 still saw
record demand for many dry bulk products as businesses
opportunistically built inventories ahead of expected changes in
tariff regimes over the fourth quarter. The benchmark Baltic Dry
Index hit a six-year high in the third quarter. However, the fourth
quarter was a perfect storm for dry bulk with the combined effects
of weakening GDP growth, lower steel demand growth and pullback
from the inventory building of the third quarter being exacerbated
by environmental shutdowns in Asia. Containership rates, led by
larger vessels, improved over the course of the third quarter and
consolidated at relatively high levels in the fourth quarter. Over
the period, consumer sentiment remained buoyant (particularly in
the US) as additional easing by the Federal Reserve was followed by
mortgage refinancing and added to disposable income.
The supply-side adjustment across shipping subsectors continued
as new orders lagged deliveries and the orderbook shrunk to 9% of
the fleet, the lowest level since 2004. The shipping market also
encountered one of the most impactful regulatory changes in recent
history at the end of 2019 as the global fuel sulphur cap was
reduced to 0.5%. To date, the transition has been without large
scale technical disruptions although some analysts believe that the
real transition will only take place at the end of March with the
"carriage ban", when ships without exhaust gas cleaning systems are
prohibited from carrying high sulphur fuel oil. After this date,
all ships without scrubbers will be forced to switch to use low
sulphur fuel at all times.
(*) Based on Clarksons Research
Outlook
We believe the supply-led recovery in shipping will continue,
offering strong returns over coming years. A major uncertainty in
the market is the duration and impact of the novel Coronavirus
(Covid-19) outbreak. The outbreak will have direct and indirect
effects on GDP and World trade. A survey of analysts estimates that
World GDP growth may be reduced to 1-1.5% for the full year (from
previous estimates of 3.3%) while Chinese GDP growth may be reduced
to 4-4.5% for the full year 2020. The Chinese government's prompt
and stringent actions to contain the outbreak,appear to have had
initial success. However, the outbreak has spread internationally
and on 11 March 2020, the World Health Organization declared the
Covid-19 a pandemic, urging global powers to take co-ordinated
action to contain the outbreak. The impact of the pandemic may be
limited to the first half of the year, if global measures to
contain it are effective and economic stimulus measures across key
economies are successful. In this scenario, it is reasonable to
expect a balanced shipping market for the year with around 1-1.5%
World GDP growth and 2% growth in World seaborne trade demand,
balanced by 2.0% fleet growth (3.3% in 2019). We expect fleet
growth will continue to slow due to the impact of supply-side
factors discussed in detail below. Fundamentals appear to be most
favourable for tankers followed by dry bulk and containerships.
In the medium term, we continue to believe that a confluence of
supply side factors will lead to slowing fleet growth and will
support the shipping markets. Even as newbuilding prices stabilised
in 2019 (after a 4% rally in 2018), new orders fell by 32% YoY. As
a result, the global shipping orderbook stands at 9% of fleet (the
lowest level since 2004). The diminishing orderbook is an indicator
of slowing fleet growth in years to come. We believe the pace of
new orders will continue to be below trend due to a combination of
lack of capital from traditional sources of funding (banks) and
uncertainty about environmental regulations on decarbonization. The
dearth of new orders is also resulting in rapid consolidation of
global shipyard capacity. Maersk Shipbrokers estimate a 30%
reduction in global shipyard capacity between 2011 and 2018. We
believe the ongoing yard consolidation will also result in better
pricing power for surviving yards, pushing up newbuild prices and
increasing the premium for secondhand ships. The International
Maritime Organization's (IMO) new global sulphur cap was effective
as of 1 January 2020. Satellite data confirmed our expectations,
showing that the average speed of the global fleet fell by 2% over
the second half of 2019 and continues to fall in early 2020. The
decrease in average fleet speed results in lower available capacity
and will further support the market.
The Company continues to pursue a strategy of growing a
diversified fleet. The revenue earned by most of the Company's
vessels is not affected by short-term fluctuations in general
shipping markets. The Company is relatively well positioned to
weather the volatility from the impact of Covid-19 as vessels in
the portfolio which have charters expiring over the next six months
only represent c14% of NAV (as of 29 February 2020). Most of the
vessels in the portfolio are employed on medium to long-term
charters with carefully chosen counterparties to minimise the
impact of fluctuations in commodity prices, geopolitical events and
other short-term supply-demand factors.
Investment Manager
Tufton Investment Management Limited (formerly Tufton Oceanic
Limited)
Principal and Emerging Risks and Uncertainties
The Board has carried out a robust assessment to identify the
principal and emerging risks that could affect the Company,
including those that would threaten its business model, future
performance, solvency or liquidity. Principal risks are those which
the Directors consider to 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 Company's activities are primarily dependent upon global
seaborne trade flows and as seaborne trade activities between
mainland Europe and the UK are not significant to the Company's
portfolio, Brexit is not expected to have a material impact on the
Company or the Investment Manager.
The Directors receive periodic updates at their Board meetings
on principal and emerging risks and have adopted their own control
review to ensure, where possible, risks are monitored
appropriately. Occurrences of principal and emerging risks may have
a number of underlying causes, and it is with respect to those
causes that the Directors have implemented controls or mitigation
as shown in the following table. The Directors also carry out a
regular check on the completeness of risks identified, including a
review of the risk register. No currently relevant risks were
identified as missing. Please note that risk or uncertainty cannot
be eliminated.
Underlying cause of Objective Control or mitigation implemented
risk or uncertainty impacted
(in what
way)
Failure of, or unwillingness Liquidity Charter counterparties are subjected
of, a vessel charter to extensive credit worthiness
counterparty to meet Vessel values checks prior to contracting
the stipulated charter with them. The Investment Manager
payments monitors the credit worthiness
of the charter counterparties
on an ongoing basis.
In the event of default by a
charterer, the generic nature
of the ships in the portfolio
should enable alternatives to
be found, although possibly
at lower charter rates and for
different periods.
--------------- -------------------------------------
Demand for shipping Capital growth This risk cannot be controlled,
may decline, either Vessel values but is mitigated by:
because of a reduction Diversification of the fleet
in international trade held reducing the reliance on
(e.g. "trade wars") any particular economic sector
or because of general or geography;
GDP growth slowing or Ensuring the fleet held is of
declining or increased high quality, and thus more
competition likely to continue to be utilised;
Chartering out vessels for the
longest period possible on sensible
economic terms.
Ultimately, lower charter rates
would be accepted in order to
ensure employment of the vessels.
--------------- -------------------------------------
Underlying cause of Objective Control or mitigation implemented
risk or uncertainty impacted (in
what way)
Vessel maintenance Capital growth The Company has engaged experienced
or capital expenditure Dividends managers to monitor the need
may be more costly Liquidity for maintenance or Capital
than expected Vessel values expenditure and provision is
made for expected levels of
expenditure when a vessel is
purchased.
Actual spend will be compared
to expected and adjustments
made to the provisions held
if necessary.
------------------ -------------------------------------
A vessel may be lost Capital growth -Insurance, including war risk,
or significantly damaged Vessel values innocent owners insurance and
loss of revenue insurance,
is arranged with reputable
insurers for each vessel
-Charter party terms are in
place to afford suitable protection
to Owners including avoidance
of sanctioned and conflict
areas
-Operational risks are further
mitigated through measures
like daylight sailing, naval
escort, route planning clear
of higher risk areas
-The Asset Manager maintains
a detailed manual that documents
best practices operating procedures
to be followed by crew and
technical staff.
------------------ -------------------------------------
The Company may not Liquidity The Company has engaged a very
have enforceable title Vessel values experienced Investment Manager
to the vessels purchased who is responsible for establishing
such title.
This is then monitored by the
Board using publicly available
information.
------------------ -------------------------------------
Failure of, or unwillingness Capital Growth Operating bank accounts for
of, a non-charter counterparty Loss of invested the SPVs are held with an unrated
to meet its obligations cash bank, because those banks'
to the Company systems are considered highly
suited to such operations,
but are limited in total amount
to $10m per bank.
Surplus funds are invested
only with banks of a single
-A (or equivalent) or higher
credit rating as determined
by an internationally recognised
rating agency.
Operating accounts are swept
monthly into an account with
a rated bank.
Ratings, monthly sweeps and
overall limits are monitored
by the Administrator, who reports
exceptions to the Board.
------------------ -------------------------------------
Failure of systems Capital Growth This risk cannot be directly
or controls in the Loss of assets, controlled but the Board and
operations of the Investment reputation its Audit Committee regularly
Manager, Asset Manager or regulatory review reports from its Service
or the Administrator permissions Providers on their internal
and thereby of the and resulting controls.
Company Fines
------------------ -------------------------------------
As noted in the Chairman's statement, the developing situation
with the Covid-19 virus is at too early a stage to be able to
determine its impact. In considering this risk, the Board's
thinking has been as follows.
The Group has no direct employees, although crews for vessels on
time charters are provided by the SPVs holding those vessels,
arranged by the Company's Asset Manager. In the future, therefore,
it may be difficult for those subsidiary companies to source such
crews, and/or for the asset manager to provide its services. To
date, no such difficulties have been experienced and the asset
manager is taking appropriate steps to ensure it can continue to
service the Group.
In addition, demand for vessels may be depressed for an unknown
amount of time, either by a general reduction in global GDP growth
or by specific reductions in production by the ultimate customers
of the Group's charter counterparties. This again will have no
direct or immediate impact on the Group, as it has no exposure to
the spot market for vessels, but it may cause such charter
counterparties to be unable to pay the Group when due and may also
cause charter rates to fall, decreasing the value of our vessels
and making charter renewals less remunerative. It is the Board's
opinion that all these potential consequences are already managed
and monitored as part of the Groups ongoing approach to risk in
respect of counterparties, values and service providers, as set out
in the table above, and so no additional steps have been taken at
this time.
The Board will of course continue to reassess the position as
more information about the impact of the virus becomes
available.
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 2019.
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 Ordinary Shares were listed on the Specialist Fund
Segment of the Main Market of the London Stock Exchange on 20
December 2017 under the ticker "SHIP".
Investment Objective
The Company will make investments through a Guernsey holding
company into one or more underlying SPVs which will mainly be
wholly owned by the Guernsey holding company and over which the
Company will exercise control with regards to investment decisions.
The Company may from time to time invest through vehicles which are
not wholly owned by it. In such circumstances, the Company will
seek to secure controlling rights over such vehicles through
shareholder agreements or other legal arrangements.
The Directors and Investment Manager expect that most or all of
the SPVs will be registered in the Isle of Man. Tufton Coporate
Services Limited (formerly Marine Services (IOM) Limited), an
affiliate of the Investment Manager, licensed by the Financial
Services Authority of the Isle of Man, is the corporate secretary,
provides directors to and acts as administrator of the IOM SPVs and
most other SPVs. Regardless of the aforementioned, the SPVs will be
serviced by affiliates of the Investment Manager and be
operationally serviced by entities under the indirect control of
the Investment Manager at all times.
The Company will at all times invest and manage its assets in a
manner which is consistent with the objective of spreading
investment risk. This is achieved by adhering to the Investment
Restrictions as set out in the Prospectus.
Share issues
On 20 September 2019 , the Company announced the results of its
Placing and Offer for Subscription of 30,693,070 Ordinary Shares,
which raised gross proceeds of US$31 million. These ordinary shares
were issued on the Specialist Funds Segment of the Main Market of
the London Stock Exchange effective 24 September 2019.
Results and dividends
The Company's performance during the period is discussed in the
Chairman's Statement. The results for the year are set out in the
Condensed Statement of Comprehensive Income.
Related Parties
Details of related party transactions that have taken place
during the period and any material changes, if any, are set out in
note 14 of the Condensed Interim Financial Statements.
Directors
The Directors of the Company who served during the year and to
date are set out in this Report.
Directors' interests
The Directors held the following interests in the share capital
of the Company either directly or beneficially as of 31 December
2019, and as of the date of signing these Financial Statements:
31 December 30 June 2019
2019
Shares Shares
R King 45,000 45,000
S Le Page 15,000 15,000
P Barnes 5,000 5,000
The Directors fees are as disclosed below:
31 December 30 June 2019
2019
Director GBP GBP
R King 30,000 30,000
S Le Page 28,000 28,000
P Barnes 25,000 25,000
Effective 1 January 2020 director fees were increased to
GBP32,000 for Rob King, GBP30,000 for Stephen Le Page and GBP28,000
for Paul Barnes .
Other Interests
Tufton Group, key employees of the Investment Manager and other
related parties held the following interests in the share capital
of the Company either directly or beneficially.
31 December 2019
% of issued
Share Capital
Ordinary Shares US$
Name 2019 2019
Tufton Group Entities 3,148,350 1.282
Tufton Group Employees 2,296,665 0.935
Tufton Group non-executive
directors 703,279 0.286
30 June 2019
% of issued
Share Capital
Ordinary Shares US$
Name 2019 2019
Tufton Group Entities 3,148,000 1.464
Tufton Group Employees 2,058,179 0.957
Tufton Group non-executive
directors 554,740 0.258
Going concern
Under the UK Corporate Governance Code and applicable
regulations, the Directors are required to satisfy themselves that
it is reasonable to assume that the Company is a going concern. In
assessing the going concern basis of accounting the Directors have
had regard to all the guidance issued by the Financial Reporting
Council, recent market volatility and the potential impact of the
Covid-19 virus on the Company's fleet (as set oun in more detail in
the section entitled Principal and Emerging Risks and
Uncertainties). After making enquiries, and bearing in mind the
nature of the Company's business and assets and the reassessment of
the principal and emerging risks, the Directors consider it
appropriate to adopt the going concern basis of accounting in
preparing the Interim Report and Condensed Interim Financial
Statements.
Responsibility Statement
For the period from 1 July 2019 to 31 December 2019
The Directors are responsible for preparing the Interim Report
and Condensed Interim Financial Statements, which has 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 management 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 27 March 2020 and signed
on behalf of the Board by:
Rob King Steve Le Page
Director Director
Condensed Statement of Comprehensive Income
For the 6 month period ended 31 December 2019
31 December 31 December
2019 2018
Notes US$ US$
Income (Unaudited) (Unaudited)
Net changes in Financial
Assets at fair value through
profit or loss 4 (4,569,550) 6,477,685
Dividend income 11,439,560 -
Total net income 6,870,010 6,477,685
Expenditure
Aborted deal costs - (18,316)
Administration fees (73,463) (51,878)
Audit fees (68,639) (39,115)
Corporate Broker fees (75,000) (58,537)
Directors' fees 16 (57,544) (53,529)
Foreign exchange loss (3,676) (4,073)
Insurance fee (12,214) (50,356)
Investment management fee 12 (1,040,898) (472,948)
Legal fees (10,166) -
Professional fees (20,187) (27,003)
Sundry expenses (11,868) (18,632)
Total expenses (1,373,655) (794,387)
------------ ------------
Operating profit 5,496,355 5,683,298
Finance income 44,817 267,413
Profit and comprehensive
income for the period / year 5,541,172 5,950,711
============ ============
IFRS Earnings per ordinary
share (cents) 7 2.30 3.51
============ ============
There were no potentially dilutive instruments in issue at 31
December 2019.
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 2019
31 December 30 June
2019 2019
Notes US$ US$
Non-current assets (Unaudited) (Audited)
Financial assets at fair
value
through profit or loss (Investments) 4 248,534,260 220,998,073
Total non-current assets 248,534,260 220,998,073
------------ ------------
Current assets
Trade and other receivables 34,455 32,248
Cash and cash equivalents 5,481,172 5,500,139
Total current assets 5,515,627 5,532,387
------------ ------------
Total assets 254,049,887 226,530,460
------------ ------------
Current liabilities
Trade and other payables 685,725 687,781
Total current liabilities 685,725 687,781
------------ ------------
Net assets 253,364,162 225,842,679
============ ============
Equity
Share capital 6 245,392,016 215,012,016
Retained reserves 6 7,972,146 10,830,663
Total equity attributable
to ordinary shareholders 253,364,162 225,842,679
============ ============
Net assets per ordinary share
(cents) 9 99.23 100.53
============ ============
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 27 March 2020 and signed on its behalf
by:
Rob King Steve Le Page
Director Director
Condensed Statement of Changes in Equity
For the 6 month period ended 31 December 2019
Ordinary Retained
share capital earnings Total
US$ US$ US$
For the six months ended
31 December 2018 (Unaudited)
Balance at 1 July 2019 215,012,016 10,830,663 225,842,679
Share issue 31,000,000 - 31,000,000
Listing costs (620,000) - (620,000)
Profit and comprehensive
income for the period - 5,541,172 5,541,172
Dividends paid - (8,399,689) (8,399,689)
Balance at 31 December
2019 245,392,016 7,972,146 253,364,162
=============== ============ ============
C-Class Ordinary Retained
share capital share capital earnings Total
US$ US$ US$ US$
For the six months ended
31 December 2018 (Unaudited)
Balance at 1 July 2018 - 89,180,000 3,283,443 92,463,443
Share issue 78,400,000 - - 78,400,000
Listing costs (1,568,000) - - (1,568,000)
Profit and comprehensive
income for the period - - 5,950,711 5,950,711
Dividends paid - (2,957,500) (2,957,500)
Balance at 31 December
2018 76,832,000 89,180,000 6,276,654 172,288,654
=============== =============== ============ ============
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 2019
31 December 31 December
2019 2018
Notes US$ US$
(Unaudited) (Unaudited)
Cash flows from operating
activities
Profit and comprehensive
income for the period 5,541,172 5,950,711
Adjustments for:
Purchase of investments 4 (32,105,737) (80,740,801)
Change in fair value on investments 4 4,569,550 (6,477,685)
Operating cash flows before
movements in working capital (21,995,015) (81.267,775)
Changes in working capital:
Movement in trade and other
receivables (2,207) (63,845)
Movement in trade and other
payables (2,056) 184,024
Net cash used in operating
activities (21,999,278) (81,147,596)
------------- -------------
Cash flows from financing
activities
Net proceeds from issue of
shares 6 30,380,000 76,832,000
Dividends paid to Ordinary
shareholders 8 (8,399,689) (2,957,500)
Net cash generated from financing
activities 21,980,311 73,874,500
------------- -------------
Net movement in cash and
cash equivalents during the
period (18,967) (7,273,096)
Cash and cash equivalents
at the beginning of the period 5,500,139 43,030,736
Cash and cash equivalents
at the end of the period 5,481,172 35,757,640
============= =============
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 2019
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.
On 18 December 2017, the Company announced the results of its
Placing and Offer for Subscription of Ordinary Shares, which raised
gross proceeds of US$91 million. The Company's ordinary shares were
listed on the Specialist Funds Segment of the Main Market of the
London Stock Exchange effective 20 December 2017.
On 11 October 2018, the Company announced that it had raised
gross proceeds of US$78,400,000 pursuant to the Placing and Offer
for Subscription of C-Class Shares. The Company's C-Class Shares
were listed on the Specialist Funds Segment of the Main Market of
the London Stock Exchange effective 16 October 2018.
On 31 January 2019 , the Company announced that the C-Class
Share conversion had been completed . The resulting 84,624,960
ordinary shares were listed on the Specialist Funds Segment of the
Main Market of the London Stock Exchange effective 12 February 2019
.
On 11 March 2019 , the Company announced the results of its
Placing and Offer for Subscription of 49,019,608 Ordinary Shares,
which raised gross proceeds of US$50 million. These ordinary shares
were listed on the Specialist Funds Segment of the Main Market of
the London Stock Exchange effective 14 March 2019.
On 20 September 2019 , the Company announced the results of its
Placing and Offer for Subscription of 30,693,070 Ordinary Shares,
which raised gross proceeds of US$31 million. These ordinary shares
were listed on the Specialist Funds Segment of the Main Market of
the London Stock Exchange effective 24 September 2019. Total number
of shares in issue as at 31 December 2019 was 255,337,638 (Note
6).
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 2019, which were
prepared in accordance with International Financial Reporting
Standards. The statutory Financial Statements for the year ended 30
June 2019 were approved by the Board of Directors on 10 September
2019. The opinion of the auditors on those Financial Statements
were 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.
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.
Refer to note 3 for further disclosure on accounting for
subsidiaries.
(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 IFRS 3 "Business Combinations" was issued in July
2001 and become effective for periods beginning on or after 1
January 2020. These amendments will clarify the definition of a
business.
Amendments to IAS 1 "Presentation of Financial Statements" that
become effective for periods beginning on or after 1 January 2020
and 1 January 2022 respectively. These amendments will clarify the
definition of material and the classification of liabilities as
current or non-current.
Amendments to IAS 8 " Accounting Policies, Changes in Accounting
Estimates and Errors" that become effective for periods beginning
on or after 1 January 2020. These amendments will clarify the
definition of material.
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 an accruals basis from the
date the dividend is declared.
Bank 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 year in which they are declared.
(h) Taxation
The Company has been granted exemption from liability to income
tax in Guernsey under the Income Tax (Exempt Bodies) (Guernsey)
Ordinance, 1989 amended by the Director of Income Tax in Guernsey
for the current period. Exemption is applied and granted annually
and subject to the payment of a fee, currently GBP1,200.
(i) Financial Assets and Financial Liabilities
The Company classifies its investments in LS Assets Limited
("LSA") as financial assets at fair value through profit or loss
("FVTPL").
The Company measures and evaluates the net assets of LSA on a
fair value basis. The net assets include the underlying SPVs which
values all vessels on a fair value basis.
The Company 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/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 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 dry
docking of the vessel. Refer to Note 3 which explains in detail the
judgements and estimates applied.
There are Time Charter contracts in place for 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 on the basis
of time charter rates.
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.
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 of 31
December 2019, 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 balance sheet 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 crrency are not retranslated. Exchange differences are
recognised in the Condensed Statement of Comprehensive Income in
the period 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 Company's investment objective, financial
risk management and associated risks (see note 10), recent market
volatility and the potential impact of the Covid-19 virus on the
Company's fleet (as set out in more detail in the section entitled
Principal and Emerging Risks and Uncertainties) . 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 the
next twelve months. For this reason, they continue to adopt the
going concern basis in preparing the condensed interim 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 2019.
Critical judgements in applying the Company's accounting
policies - IFRS 10: Consolidated Financial Statements
The audit committee considered the application of IFRS 10, and
whether the Company meets the definition of an investment
entity.
The directors concluded that the Company met the investment
criteria set out in IFRS 10 and 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, 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; and
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:
The Company values its investment in LSA at it's net asset
value. The net asset values of LSA's subsidiary SPVs comprise
shipping vessels which are measured at fair value and residual net
assets/liabilities of each of the entities, and is considered by
the Board and Investment Manager as an appropriate measure of fair
value of these investments.
In estimating the fair value of each underlying SPV, the Board
has approved the valuation methodology for valuing the shipping
assets held by the SPVs. The carrying value of a standard vessel
consists of its charter-free value plus or minus the value of any
charter lease contracts attached to the vessel, plus or minus an
adjustment for the capital expenditure associated with the dry
docking cycle of the vessel. This latter 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. In the opinion of the Directors, the carrying value
determined as set out in more detail below represents a reasonable
estimate of the fair value of that shipping asset.
The charter-free and associated charter values of typical
vessels are calculated using an on-line valuation system provided
by VesselsValue Ltd. For charterfree values the system contains a
number of algorithms that combine factors such as vessel type,
technical features, age, cargo capacity, freight earnings, market
sentiment and recent vessel sales.
For charter values, the system provides a DCF (Discounted
Cashflow) module where vessel specific charter details are input
and measured against system provided market benchmark rates to
obtain a premium or discount value of the charter versus the
typical prevailing market.
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.
The remaining vessels are considered to be specialist vessels on
long-term bareboat charters and are valued on a pure DCF basis by
the Investment Manager using vessel specific information and both
observable and unobservable data. The VesselsValue Ltd platform is
not used for these assets. This DCF approach determines the present
value of the future lease payments discounted at the project cost
of capital and is deemed to be a fair representation of the
vessel/lease value. 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.
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 SPVs
residual net assets/liabilities. The Investment Portfolio is
designated as Level 3 item on the fair value hierarchy because of
the lack of observable market information in determining the fair
value. The investment held at fair value is recorded under
Non-Current Assets in the Condensed Statement of Financial Position
as there is no current intention to dispose of any of the
assets.
31 December 30 June
2019 2019
US$ US$
LSA (Unaudited) (Audited)
Brought forward cost
of investment 199,739,076 46,140,091
Total investment acquired
in the year / period 32,105,737 153,598,985
Carried forward cost
of investment 231,844,813 199,739,076
Expenditure
Brought forward unrealised
gains on valuation 21,258,997 3,482,168
Movement in unrealised
gains on valuation (4,569,550) 17,776,829
Carried forward unrealised
gains on valuation 16,689,447 21,258,997
------------ ------------
Total investment at
fair value 248,534,260 220,998,073
============ ============
LSA (own net assets): Breakdown of Fair Value:
31 December 30 June
2019 2019
US$ US$
LSA (Unaudited) (Audited)
Aglow Limited 8,598,537 9,962,674
Bear Limited 23,611,429 -
Citra Limited 10,647,433 12,930,529
Darwin Limited 7,482,866 7,283,389
Dragon Limited 10,004,131 11,200,383
Hongi Limited 7,193,097 7,214,554
Java Limited 6,710,628 6,655,732
Kale Limited 9,062,790 12,056,392
Neon Limited 30,342,509 31,375,694
Octane Limited 20,235,094 20,170,969
Parrot Limited 32,520,352 5,736,394
Patience Limited 8,251,620 11,528,670
Pollock Limited 16,412,873 15,189,286
Riposte Limited 11,335,037 14,303,930
Sierra Limited 20,701,290 20,620,297
Swordfish Limited 8,800,324 11,916,570
Vicuna Limited 12,421,357 -
Cash held pending investment 12,397,994 34,606,314
Residual net liabilities (8,195,101) (11,753,704)
*Total investment at
fair value 248,534,260 220,998,073
============= =============
The net change in the movement of the fair value of the
investment is recorded in the Condensed 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.
5. Subsidiaries
The Company holds its investment through a subsidiary company
which has not been consolidated as a result of the adoption of IFRS
10: Consolidated Financial Statements. Below is the legal entity
name for the Holding Company who owns 100% of the shares in the
SPVs. The remaining legal entities are owned indirectly through the
investment in the Holding Company. The country of incorporation is
also their principal place of business.
Name Country of Direct Principal Ownership Ownership Ownership
incorporation or indirect activity at 31 Dec at 30 June at 31 Dec
holding 2019 2019 2018
Holding
LS Assets Limited Guernsey Direct company 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Aglow Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Bear Limited(2) Isle of Man Indirect SPV 100% 0% 0%
---------------- -------------- ----------- ----------- ------------ -----------
Citra Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Darwin Limited
(1) Isle of Man Indirect SPV 0% 100% 0%
---------------- -------------- ----------- ----------- ------------ -----------
Dragon Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Hongi Limited
(1) Isle of Man Indirect SPV 0% 100% 0%
---------------- -------------- ----------- ----------- ------------ -----------
Java Limited
(1) Isle of Man Indirect SPV 0% 100% 0%
---------------- -------------- ----------- ----------- ------------ -----------
Kale Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Neon Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Octane Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Parrot Limited Isle of Man Indirect SPV 100% 100% 0%
---------------- -------------- ----------- ----------- ------------ -----------
Patience Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Pollock Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Riposte Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Sierra Limited Isle of Man Indirect SPV 100% 100% 0%
---------------- -------------- ----------- ----------- ------------ -----------
Swordfish Limited Isle of Man Indirect SPV 100% 100% 100%
---------------- -------------- ----------- ----------- ------------ -----------
Vicuna Limited
(2) Isle of Man Indirect SPV 100% 0% 0%
---------------- -------------- ----------- ----------- ------------ -----------
Zulu Limited
(1) Isle of Man Indirect SPV 100% 0% 0%
---------------- -------------- ----------- ----------- ------------ -----------
1. On 25 October 2019, the entire shareholdings of Darwin
Limited, Hongi Limited and Java Limited were transferred to Zulu
Limited. Applications for dissolution have been made for Darwin
Limited, Hongi Limited, Java Limited and Zulu Limited.
2. Bear Limited and Vicuna Limited became a subsidiary of LS
Assets during the period ended 31 December 2019.
6. Share capital and reserves
Share issuance Number of Gross amount Issue costs Share capital
shares raised (US$) (US$) (US$)
Issued on 18 December
2017 91,000,000 91,000,000 (1,820,000) 89,180,000
------------ -------------- ------------ --------------
C-Class Share conversion
on 12 February 2019 84,624,960 78,400,000 (1,568,000) 76,832,000
------------ -------------- ------------ --------------
Issued on 14 March
2019 49,019,608 50,000,016 (1,000,000) 49,000,016
------------ -------------- ------------ --------------
Total issue at 30
June 2019 224,644,568 219,400,016 (4,388,000) 215,012,016
------------ -------------- ------------ --------------
Issued on 24 September
2019 30,693,070 31,000,000 (620,000) 30,380,000
------------ -------------- ------------ --------------
Total issue at 31
December 2019 255,337,638 250,400,016 (5,008,000) 245,392,016
------------ -------------- ------------ --------------
During the prior year the Company issued C Shares and raised
US$78,400,000. These were converted to 84,624,944 ordinary shares.
Due to lot sizes there were 16 additional ordinary shares sold into
the market at the market price of ordinary shares bringing the
total number of ordinary shares to 84,624,960.
The Company currently has 1 class of ordinary share of no par
value in issue. All the holders of the ordinary shares which total
255,337,638 (30 June 2019: 224,644,568), are entitled to receive
dividends as declared from time to time and are entitled to 1 vote
per share at meetings of the Company.
Retained reserves
Retained reserves comprise the retained earnings as detailed in
the Condensed Statement of Changes in Equity.
7. Earnings per share calculated in accordance with IFRS
31 December 31 December
2019 2018
US$ US$
(Unaudited) (Unaudited)
Profit and comprehensive
income for the year
/ period 5,541,172 5,950,711
Weighted average number
of ordinary shares 240,991,964 91,000,000
Earnings per ordinary
share (cents) 2.30 3.51
The weighted average number of ordinary shares (241.0m shares)
is calculated in accordance with IFRS guidelines.
8. Dividends
The Company declared the following dividends in respect of the
profit for the period ended 31 December 2019:
Period end Dividend Ex div date Net Dividend Record date Paid date
per share paid
Ordinary shareholders
Dividends declared the period ended 31 December 2018:
30 June 2018 US$0.0150 9 August US$1,365,000 10 August 17 August
2018 2018 2018
----------- ------------ ------------- ------------ ------------
30 September US$0.0175 1 November US$1,592,500 2 November 15 November
2018 2018 2018 2018
----------- ------------ ------------- ------------ ------------
Dividends declared the period ended 31 December 2019:
30 June 2019 US$0.0175 8 August US$3,931,280 9 August 23 August
2019 2019 2019
----------- ------------ ------------- ------------ ------------
30 September US$0.0175 7 November US$4,468,409 8 November 22 November
2019 2019 2019 2019
----------- ------------ ------------- ------------ ------------
Under the Companies (Guernsey) Law, 2008, the Company can
distribute dividends from capital and revenue reserves, subject to
a prescribed net asset and solvency test. The net asset and
solvency test considers whether a company is able to pay its debts
when they fall due, and whether the value of a company's assets is
greater than its liabilities. The Board confirms that the Company
passed the net asset and solvency test for each dividend paid.
9. Net assets per ordinary share
31 December 30 June
2019 2019
US$ US$
(Unaudited) (Audited)
Shareholders' equity 253,364,162 225,842,679
Number of ordinary shares 255,337,638 224,644,568
Net assets per ordinary
share (cents) 99.23 100.53
10. 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
2019.
There have been no significant changes in the management of risk
or in any risk management policies since the last balance sheet
date.
11. Financial assets and liabilities not measured at fair
value
Cash and cash equivalents 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.
12. Management fee
The Investment Manager is entitled to receive an annual fee,
calculated on a sliding scale, as follows below:
-- (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 2019 the Company has incurred
US$1,040,898 (2018: US$472,948) in management fees of which
US$532,380 (2018: US$192,851) was outstanding at 31 December
2019.
13. Performance fee
Tufton ODF Partners LP, the entity holding the carried interest,
shall be entitled to a performance fee in respect of a Calculation
Period provided that the Total Return per Share on Calculation Day
for the Calculation Period of reference is greater than the High
Watermark per Share and such performance fee shall be an amount
equal to the Performance Fee Pay-Out Amount.
If:
-- the High Watermark is greater than the Total Return on any Calculation Day; and
-- the prevailing Historic Performance Fee Amount (to the extent
not previously adjusted pursuant to the operation of this
paragraph) is greater than zero on such Calculation Day.
The prevailing Historic Performance Fee Amount shall be reduced
by the lower of: (i) 20 per cent of the difference between the High
Watermark and the Total Return on such Calculation Day multiplied
by the Relevant Number of Shares; and (ii) the prevailing Historic
Performance Fee Amount. No performance fees were accrued or paid
during the current or prior period.
14. Related parties
The Investment Manager, Tufton Investment Management Limited
(formerly Tufton Oceanic Ltd), is a related party due to having
common key management personnel with the subsidiaries of the
Company. All management fee transactions with the Investment
Manager are disclosed in note 13.
For the period ended 31 December 2019 the Company has incurred
US$1,040,898 (2018: US$472,948) in management fees of which
US$532,380 (2018: US$293,292) was outstanding at 31 December
2019.
The Directors of the Company and their shareholding is stated in
the Interim Report of of the Directors.
15. 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.
16. Remuneration of the Directors
The remuneration of the Directors was US$57,544 (2018:
US$53,529) for the period.
17. Events after the reporting period
On 20 January 2020, LS Assets acquired the entire shareholding
in Dachshund Limited.
On 27 January 2020, Dachshund Limited contracted to acquire a
handysize Product Tanker for US$13.25m. The acquisition was
completed on 5 March 2020.
On 31(st) January 2020, Darwin Limited, Hongi Limited, and Java
Limited completed the sales of the respective vessels owned by each
company for combined sale price of US$19.3m. On 17 February 2020,
applications for dissolution were made for each of Darwin Limited,
Hongi Limited, Java Limited and Zulu Limited.
The unaudited NAV as at 29 February 2020 was $0.976 per share.
The unaudited NAV as at 31 March 2020 will be announced on or about
6 April 2020.
On 18 March 2020, LS Assets acquired the entire shareholding in
Antler Limited.
On 20 March 2020, Antler Limited contracted to acquire a
handysize bulker for US$7.0m. The acquisition was completed on 26
March 2020.
A further dividend was declared on 30 January 2020 for US$0.0175
per ordinary share for the quarter ending 31 December 2019. The
dividend was paid on 21 February 2020 to holders of ordinary shares
on record date 7 February 2020 with an ex-dividend date of 6
February 2020.
Corporate information
Directors
Robert King, Chairman
Stephen Le Page
Paul Barnes
Registered office
3(rd) Floor
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Investment Manager and AIFM
Tufton Investment Management Limited (formerly Tufton Oceanic
Limited)
Albemarle House
1 Albemarle Street
London
W1S 4HA
Asset Manager
Tufton Management Limited (formerly Oceanic Marine Management
Limited)
142 Franklin Roosevelt
PO Box 51309
CY-3504 Limassol
Cyprus
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
N+1 Singer Advisory LLP
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
2AX
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
The Royal Bank of Scotland International Limited
PO Box 62
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4BQ
Barclays Bank Plc
Guernsey International Banking
PO Box 41
St Peter Port
Guernsey, GY1 3BE
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EALDXASLEEFA
(END) Dow Jones Newswires
March 27, 2020 11:15 ET (15:15 GMT)
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