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:

Highlights

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:

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 [email protected].

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

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:

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:

Divestments:

Tankers

Employment for vessels owned by the Company at the end of the financial period:

Acquisitions:

Bulkers

Employment for vessels owned by the Company at the end of the financial period:

Acquisitions:

Divestments:

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:

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.

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.

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.

^*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:

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:

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.

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:

The Investment Manager also engaged with each vessel's technical manager to enhance Covid protocols:

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:

Over the financial period, the Investment Manager became signatory to Maritime UK's:

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:

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:

The Directors fees are disclosed below:

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

30 June 2021

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 -

(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.

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;

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:

(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

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

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

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

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:

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:

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:

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

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

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:

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

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 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