Tufton Oceanic. Regulatory News (SHIP)

11 September 2019

TUFTON OCEANIC ASSETS LIMITED

("Tufton Oceanic Assets" or the "Company")

Final Results

Tufton Oceanic Assets Limited announces its final results for the period ended 30 June 2019. A copy of this announcement will shortly be available on the Company's website in the Investor Relations section under Company Documents at www.tuftonoceanicassets.com/company-documents.

Printed copies of the Company's Annual Report and Audited Financial Statements together with Notice of 2019 Annual General Meeting will be posted to investors shortly. The annual general meeting will be held at the Company's registered office at 3rd Floor, 1 Le Truchot, St Peter Port, Guernsey on 25 October 2019 at 11.00 am BST.

For further information, please contact:

Highlights

·; The profit of the Company for the financial year was US$16.4m, or 11.94 US cents per Ordinary Share (10.00 US cents adjusted for C shares - refer to Note 8a).

·; The Company declared dividends of 1.75 US cents per Ordinary Share for each quarter.

·; The NAV per Ordinary Share decreased from 101.6 US cents at the beginning of the year to 100.5 US cents as at 30 June 2019 net of share issue costs, after dividends.

·; The Company raised combined gross proceeds during the year of US$128.4m by way of a C Share issue in October 2018 and Ordinary Share issue in March 2019.

·; C Share gross proceeds of US$78.4m in October 2018 were fully invested and the C Shares were converted to Ordinary Shares at a conversion ratio of 1.0794 in February 2019 supported by strong performance of the three product tankers Sierra, Octane and Pollock. The Company then raised gross proceeds of US$50.0m in March 2019 and has since invested 85% of the proceeds.

·; The Company completed or committed to eleven investments totalling US$161.4m during the year ended 30 June 2019 taking the portfolio to fifteen vessels.

·; Unlevered cash flow run rate of over US$26m p.a. (c. 1.6x the target dividend per share of US$0.07 per annum) after capital expenditure provision and management fees as of this report date.

·; Average charter length is c. 3.5 years.

·; With fourteen of the fifteen vessels employed on fixed rate medium to long term charters, the portfolio is largely insulated from geopolitical and macroeconomic shocks.

Chairman's Statement

Introduction

I am pleased to present the Company's annual report and audited financial statements for the year ended 30 June 2019.

During the period we have raised additional funds from firstly a private placing (C Share placing) on 11 October 2018 (US$78.4m) which was 90% invested by January 2019, and then from a further placing (of Ordinary Shares) on 11 March 2019 (US$50m) taking the fund NAV to US$225.8m as at 30 June 2019. The Investment Manager has successfully committed and invested 85% of the March proceeds. The Company currently has 15* vessels in its fleet including two handysize bulkers, six containerships, four tankers and three general cargo vessels with an average minimum charter period of 3.5 years. There is a further breakdown of the portfolio in the Investment Managers Report.

*14 vessels as at 30 June 2019 with one additional vessel being delivered in July 2019

Performance

As at the end of 30 June 2019, the Company's NAV at US$225.8m was above net issue proceeds of US$215.0m. The portfolio of vessels in the Company continue to perform well. The Company paid dividends of $8.8m over the financial year, 1.5x covered by portfolio vessels' operating cash flow of $12.9m.

During the period the Company's listed share price decreased from $1.06 per Share as at 30 June 2018 to US$0.99 per Share as at the close of business 30 June 2019.  The Company's Shares have traded at an average premium of 3.78% to NAV during the period.

During the period, the profit of the Company was US$16.4m or 11.94 US cents per Ordinary Share (10.00 US cents adjusted for C shares)

Dividends

During the period the Company declared and paid dividends to shareholders as follows:

A further dividend was declared on 29 July 2019 for US$0.0175 per ordinary share for the quarter ending 30 June 2019. The dividend was paid on 23 August 2019 to holders of ordinary shares on record date 9 August 2019 with an ex-dividend date of 8 August 2019.

Corporate Governance

The Company complies with the UK Code of Corporate Governance where applicable but we have also joined the AIC to ensure that the Directors are kept up to date with matters concerning listed investment companies like ours. The Board of Directors take their fiduciary and corporate governance responsibilities seriously and I would encourage Shareholders to contact us at SHIP@tuftonoceanicassets.com should there be any matters of concern that they feel need to be addressed.

Outlook

I continue to be encouraged by the Investment Manager's ability to build a diversified portfolio of vessels in a timely manner. I would also like to thank N+1 Singer and Hudnall Capital for their contribution in raising US$78.4m for the C Share issue and for raising US$50m on 11 March 2019. There continues to be a strong pipeline of investments particularly in the tanker, bulkers, general cargo and containership segments which makes it possible to invest recent proceeds on a timely basis.

The Directors, Investment Manager and our Advisors continue to look for new and varied opportunities and aim to increase the Company size further during 2019 and beyond.

Shareholders are welcome to attend the Annual General Meeting on 25 October 2019 at 11.00am. The AGM notice and Proxy are at the back of the Annual Report.

Rob King

Non-executive Chairman 

Corporate Summary

The Company is a closed-ended investment company, limited by shares, registered and incorporated in Guernsey under the Companies Law on 6 February 2017, with registered number 63061.

The Company is a Registered Closed-ended Collective Investment Scheme regulated by the GFSC pursuant to the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended and the Registered Closed-ended Investment Scheme Rules 2018.

The Company has 224,644,568 shares in issue, all of which are admitted to the Specialist Fund Segment of the Main Market of the London Stock Exchange under the ticker "SHIP". ISIN: GG00BDFC1649, SEDOL: BDFC164

The Company makes its investments through LS Assets Limited and other underlying SPVs, which are ultimately wholly-owned by the Company. LS Assets Limited is registered and was incorporated in Guernsey in accordance with the Companies Law on 18 January 2018 with registered number 64562. The underlying SPVs owned by LS Assets Limited were incorporated in the Isle of Man, in accordance with the Isle of Man Companies Act 2006 (the "IOM Companies Act").

The Company controls the investment policy of each of LS Assets Limited and it's wholly owned SPVs to ensure that each will act in a manner consistent with the investment policy of the Company. The Company will refer to the vessels acquired by the underlying SPVs 'name' rather than the actual name of the respective vessel for confidentiality purposes.

The Investment Manager is Tufton Oceanic Ltd, a company incorporated in England and Wales with registered number 1835984 and is regulated by the UK FCA and has been authorised to act as a Small Registered UK AIFM under the AIFMD. Tufton Oceanic Ltd has been a specialist fund manager in the maritime and energy markets since 2000 and has been focused on financial services to these industries since its inception in 1985.

Strategic Report

Investment Objective and Policy

The Company's investment objective is to provide investors with an attractive level of regular and growing income and capital returns through investing in secondhand commercial sea-going vessels. The Company has established a wholly owned subsidiary that acts as a Guernsey holding company for all its investments. LS Assets Limited is governed by the same directors as the Company.

All vessels acquired, vessel related contracts and costs will be held in Special Purpose Vehicles domiciled in the Isle of Man or other jurisdictions considered appropriate by the Company's Advisers. The Company conducts its business in a manner that results in it qualifying as an investment entity (as set out in IFRS 10: Consolidated Financial Statements) for accounting purposes and as a result will apply the investment entity exemption to consolidation. The Company therefore reports its financial results on a non-consolidated basis.

Subject to the solvency requirements of Companies Law, the Company intends to pay dividends on a quarterly basis and is targeting a dividend yield of 7% per annum. The Directors expect the dividend to grow, in absolute terms, modestly over the long term.

The Company aims to achieve an IRR of 12% (net of expenses and fees) on the Issue Price over the long term. The Earnings per Share for the year ended 30 June 2019 was 11.94 US cents (10.00 US cents adjusted for C shares).

Shareholder information

Up to date information regarding the Company, including the quarterly announcement of Net Asset Value, can be found on the Company's website, which is www.tuftonoceanicassets.com 

And is maintained by the investment Manager.

The Company has a 30 June financial period-end. The updated NAV is published on a quarterly basis 

Governance and Responsibilities

The Board of Directors

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 Multi-strategy 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.

Service Providers

The Investment Manager / Alternative Investment Fund Manager ("AIFM")

Tufton Oceanic Ltd has been appointed as the Investment Manager and has been a specialist fund manager in the maritime and energy markets since 2000 and has been focused on financial services to these industries since its inception in 1985.

The Investment Manager currently manages investments of c. US$1.3 billion in c. 75 vessels. As of 30 June 2019, the Tufton Group, of which the Investment Manager is part, had 46 employees operating from offices in London, Isle of Man and Cyprus.  The Investment Manager is fully dedicated to the shipping industry with an in-house research team and dedicated Asset Manager providing services to each vessel purchased. As described in the Prospectus, the Investment Manager has an established track record in managing segregated mandates for pension funds with similar investment objectives to those of the Company.

The Investment Manager's employees have significant experience of investing and financing in the shipping industry. Each member of their Investment Committee has between 20 and 40 years of experience in the maritime financial markets either from investment banking, commercial banking or from the vessel owning / operating perspective.

The Investment Manager's role encompasses the identification of appropriate acquisition opportunities, conducting necessary due diligence, making recommendations to the Board and completing the proposed investments on behalf of the Company. The Investment Manager (in conjunction with the Asset Manager) will also monitor the performance of the Company's Portfolio. The Investment Manager, which acts as the Company's AIFM under the Alternative Investment Fund Managers Directive ("AIFMD"), is authorised and regulated by the UK FCA.

Investment Committee

The Investment Manager has established an Investment Committee.

Each investment proposal is reviewed by the Investment Committee which meets on a weekly basis. In reviewing each potential investment, the Investment Committee will consider a range of factors including a detailed analysis of the vessel's technical condition and other analyses from the Asset Manager, a full risk/reward analysis, downside stress testing, commercial/employment strategy, effects of adding moderate leverage in accordance with Company policy, market outlook, credit quality of charterer, market reputation of counterparties, deal modelling, exit strategy and any macro analysis that might be necessary to fully understand the investment. Once the Investment Committee has approved an investment opportunity, this is put to the Board of Directors for approval. All investments are conditional on approval by both the Investment Committee and the Board.

Asset Manager

Oceanic Marine Management Limited was established in 2009 to act as the asset manager for vessels owned by funds and vehicles managed or advised by Tufton Group. The Asset Manager is based in Cyprus and employs professionals who have experience in all aspects of ship management including special surveys, dry docks, maintenance, repair and negotiating commercial agreements for vessel employment.

The Asset Manager enters into an asset management agreement with each SPV and provides the services detailed in the Prospectus.

Administrator and Secretary

Maitland Administration (Guernsey) Limited ("Maitland") has been appointed as administrator and secretary to the Company, pursuant to the Administration Agreement dated 27 February 2017 and to LS Assets Limited, pursuant to the Administration Agreement dated 20 April 2018. Maitland was incorporated with limited liability in Guernsey on 20 January 2010 and is licensed by the Guernsey Financial Services Commission under the Protection of Investors (POI) Law.

The Administrator forms part of the Maitland group established in Luxembourg in 1976. Maitland is a global advisory, administration and family office firm providing legal, fiduciary investment and fund administration services to private, corporate and institutional clients. The group employs over 1,100 staff in 17 offices across 12 jurisdictions and collectively administers in excess of £220bn in assets.

The Administrator provides day-to-day administration services to the Company and is also responsible for the Company's general administrative and secretarial functions such as the calculation of the Net Asset Value, compliance with the Code and maintenance of the Company's accounting and statutory records.

Registrar

Computershare Investor Services (Guernsey) Limited was appointed as registrar to the Company pursuant to the Registrar Agreement dated 27 February 2017. In such capacity, the Registrar is responsible for the transfer and settlement of shares held in certificated and uncertificated form. The Register may be inspected at the office of the Registrar.

Receiving Agent

Computershare Investor Services PLC was appointed as receiving agent to the Company for the purposes of the Offer for Subscription pursuant to the Receiving Agent Agreement dated 27 February 2017.

Disclosure Obligations

Shareholders are obliged to comply, from Admission, with the shareholding notification and disclosure requirements set out in Chapter 5 of the Disclosure Guidance and Transparency Rules. The Administrator will monitor disclosure with reference to changes in shareholdings.

Investment Manager's Report

Highlights

We are pleased to present our review for the financial year and our outlook for the next few years. Highlights include:

·; Three product tankers, two containerships, two handysize bulkers, a gas carrier and three general cargo vessels were acquired and US$161.4m was invested (including Parrot which was delivered to the portfolio shortly after financial year end)

·; The Portfolio has an unlevered cash flow run rate of over US$26m p.a. (c. 1.6x the target dividend per share of US$0.07 per annum) after capital expenditure provision and management fees as of this report date with C Share proceeds fully invested and 85% of the proceeds from the March 2019 Ordinary Share placement invested and all the Company's vessels in operation

·; Cash flow-weighted average length of charter is c 3.5 years as at 30 June 2019

The Assets

As of 30 June 2019, the Company's portfolio is:

·; Two 1700-TEU containerships (Swordfish and Kale) and three 2500-TEU containerships (Patience, Riposte and Citra). They operate on time charter contracts, under which the Company provides fully operational and insured vessels for use by the charterers. The first four containerships are chartered to one of the major investment grade container shipping groups. 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 Aglow and Dragon operate under time charters.

·; Three product tankers Sierra, Octane and Pollock 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 vessels Hongi, Darwin and Java operate under bareboat charters

Post year end, the Company took delivery of a further vessel:

·; Parrot (delivered to the Company on 1 July 2019) operates on a time charter to a major container line and will have an exhaust gas scrubber fitted in early 2020.

All vessels are performing well and in line with expectations. All vessels are in good condition and are maintained to a high standard.

Notes:

+ Special Purpose Vehicle that owns the vessel

* date the Company agreed to acquire the vessel

*** these may differ from the Interim Report (31 December 2018) following the assessments of the Investment Manager of the prevailing market conditions

Investment Performance

During the financial year, the NAV decreased slightly to 100.5 US cents per share, after the Company paid out US$8.8m in Ordinary and C Share dividends. The year end NAV remains slightly above the IPO price of 100.0 US cents (net issue price 98 US cents). Operating cash flow contributed 7.90 US cents per share (adjusted for C shares) and there was an unrealised gain in the charter-adjusted fleet of 2.10 US cents (adjusted for C shares) during the financial period.

There was an unrealised gain in the charter-adjusted fleet of 2.10 US cents (adjusted for C shares) during the financial period. The unrealised gain was primarily in the three product tankers and the containership Parrot (delivered on 1 July 2019).

The Shipping Market

The ongoing vessel supply correction in the shipping market continues to support higher charter rates. However, a slowdown in global GDP growth and the trade war have resulted in lower demand growth than previously expected. As per Clarksons Research:

·; Global seaborne trade is projected to grow by 2.3% (tonne-miles) in 2019, down from 3.1% in 2018

·; Fleet expansion is continuing to slow; the global fleet is expected to grow by 2.8% for the full year 2019 compared to 5.3% p.a. (2008-2018)

·; The global order book (forward supply growth) is now equivalent to only 9.8% of the fleet, compared to over 50% in 2008

·; Newbuild deliveries were up by 9% y-o-y in 1H19, with newbuild ordering volumes down 54% y-o-y

·; Secondhand transaction volumes in the first half of the year were in line with the average since 2009, with their Secondhand Price Index down 4% y-o-y compared to the end of 1H18

·; The weighted average of ship earnings (as defined by Clarksons Research) across shipping segments was up 8% y-o-y in 1H19. There has been considerable anxiety about the impact on trade demand of the tariffs between the United States and China. Per Clarksons, the total tariffed trade is limited to 1.7% of global seaborne trade.

Meanwhile, other bilateral and multilateral trade agreements like the Transpacific Partnership and the North American Free Trade Agreement are also being renegotiated. The net impact of these is mitigated by trade flow substitution. Clarksons Research revised down their tonne-mile trade demand growth estimate for 2019 from 3.4% (in January 2019) to 2.3% but expect demand growth to rebound back to 4.1% in 2020, in part driven by expected positive trends in oil and gas trades although economic risks remain.

In addition to the developments above noted by Clarksons Research on the mainstream shipping markets and the shipbuilding market, we believe:

·; Bank lending for ship acquisition continues to be very limited other than to the largest shipping companies

·; Public equity and public debt markets continue to be of limited scope for smaller companies as a source of funds for acquisitions

·; Sale and leasebacks, often in industrial segments of shipping such as chemical tankers or general cargo ships, will continue to be excellent opportunities. These are often less fragmented market segments where operators have long-term contracts to move cargo, giving us visibility over a significant portion of their cash flow

·; Increased regulation is a positive for well-capitalised asset owners (such as the Company) and operators, as marginal ships and operators may have little choice but to leave the market through scrapping, asset sales or mergers.

Outlook

We believe the recovery in shipping markets will continue. As of mid-2019, the IMF forecasts global GDP growth of 3.2% in 2019 with potential pickup to 3.5% in 2020. While these forecasts have been revised down, they still reflect supportive levels for global trade growth in the historic context. Clarksons Research forecast moderate demand growth for shipping in 2019 (2% tonnes, 2.3% tonne-miles) and 2020 (3.2% tonnes, 4.1% tonne-miles). On the supply side, shipping benefits from slowing fleet expansion. The sector is capital constrained and we believe bank lending continues to be very limited other than to the largest shipping companies while public equity and public debt markets continue to be of limited scope. The financial stresses in shipping, traditional ship lenders and shipbuilders, which are still somewhat a result of the excesses of 2005-2008, continue to create a very attractive risk return profile. Secondhand prices in many segments continue to be significantly below Depreciated Replacement Cost ("DRC"). The supply side recovery is continuing and driven by:

·; Continued lack of capital availability for shipping

·; Vessel orderbook (forward supply growth) near a 20-year low

·; Low levels of new orders, leading to shipyard capacity reductions

We believe that DRC will increase in the medium term due to shipyard consolidation. Clarksons Research newbuild price index has been steady in 2019 and up 5% since the start of 2018.

As of 1 January 2020, the International Maritime Organization (IMO) mandates that ships are required to burn fuel with a sulphur content of no more than 0.5% unless fitted with an exhaust gas emissions cleaner (scrubber) capable of reducing sulphur emissions to 0.5% or less. Compliance will be possible by either switching the ship to low sulphur, compliant fuel (distillates or LNG) or by installing an exhaust gas scrubber. We expect the regulatory change could accelerate the supply side adjustment in shipping by three means. Firstly, with most of the global fleet using more expensive fuel, we expect the average fleet speed will be reduced. Further, there will be increased scrapping of less efficient ships and many of the remaining ships will be taken out of service to prepare for fuel transition. Finally, as the sector remains capital constrained, higher newbuild costs and changing regulations may discourage large investments in new vessels for the next few years.

The Company continues to pursue a strategy of growing a diversified fleet. The revenue earned by fourteen of the fifteen Company's vessels is not affected by short-term fluctuations in general shipping markets. Fourteen of the fifteen vessels in the portfolio are employed on medium to long-term charters and will not be affected by fluctuations in spot commodity prices, geopolitical events and other short-term supply-demand factors.

Environment, Social and Governance

The Investment Manager seeks to conduct its affairs responsibly and take into consideration Environmental, Social and Governance issues with regard to investment decisions taken on behalf of the Company. The Investment Managers recognise that their 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.

The Investment Manager, the asset backed investment group of Tufton Oceanic Limited, recognizes the value of integrating principles of Responsible Investment into the investment management process and ownership practices in the belief that this can have an impact on the long-term financial performance. The Investment Manager became a signatory to the United Nations Principles of Responsible Investment in December 2018 and has a Responsible Investment policy which is available on the website of the Investment Manager, (http://www.tuftonoceanic.com).

Responsible Investment is the integration of Environmental, Social and Governance (ESG) considerations into investment management processes and asset ownership practices. The initial areas of focus on ESG implementation includes:

1. Minimising environmental impact and enhancing returns through fuel efficiency

2. Health and safety of the crew on our vessels

3. Compliance with international regulations to avoid sanctioned regimes

4. Promote acceptance and implementation of ESG principles with our business partners

5. Over the medium term, develop an ethical, environmental policy for vessel recycling

The Company has started monitoring fuel consumption through systematic analysis of daily reports using third-party software. This facilitates the measurement of increased fuel efficiency through operational changes and potential technical modifications.

In the second quarter of 2019, the Asset Manager joined the Maritime Anti-Corruption Network (MACN), a global business network that enables fair, corruption-free global trade for the benefit of society at large. The MACN will facilitate information sharing and collaboration between the Asset Manager and concerned Governments and Non-Governmental organizations to identify and root out corruption. Asset Manager maintains an updated manual of procedures and processes with current international and regional sanctions. Sanctioned regimes are excluded from Charter Party agreements. Further, the Asset Manager works with ship crews to ensure compliance and consults with Protection and Indemnity (P&I) clubs as required.

 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 fleet, 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 follows. 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.

Corporate Governance Statement

The Company is a member of the 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 members to meet their obligations in relation to the UK Corporate Governance Code ("the Code").

The AIC Code was updated in February 2019 for accounting periods commencing on or after 1 January 2019 ("AIC Code 2018"). The AIC Code 2018 comes into effect for the Company from 1 July 2019. The Directors are committed to high standards of corporate governance and for this reason have already implemented many of its provisions in addition to compliance with the AIC Code. In place of the previous 21 principles, the AIC Code 2018 adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies under the new Code.

Changes to the AIC Code implemented by the Board

·; The AIC Code 2018 has retained the UK Code requirement that the Board should understand the views of the Company's key stakeholders and describe in the Annual Report how their interests and the matters set out in section 172 (Duty to promote the success of the company) of the UK Companies Act 2006 have been considered in board discussions and decision-making. This applies irrespective of where the company is domiciled, provided it does not conflict with local company law. 

Board response

The Board receives quarterly reports from the Corporate Broker which include commentary on the share register and shareholders. The Board take seriously the matters set out in section 172 including impacts on the Environment which is discussed in detail in our Report. The Board seeks the views of shareholders via the Corporate Broker and is fully aware of shareholder sentiment and expectations.

·; Unlike in the UK Code, the revised AIC Code 2018 permits the Chairman to remain in post beyond nine years from the date of first appointment by the Board.

Board response

Refer to the following page where we describe in the paragraph headed 'Independence' our policy on tenure.

·; Unlike in the UK Code, the AIC Code 2018 permits the Chairman to be a member of the Audit Committee provided he or she was independent on appointment. The prohibition on the Chairman of the Board being Chairman of the Audit Committee is retained.

Board response

As described in the Audit Committee Report the Chairman of the Board is also a member of the Audit Committee. The Board consider this appropriate given the number of Directors of the Company and the benefits his experience and knowledge brings.

·; The Board should carry out a robust assessment of the Company's Principal and Emerging risks and confirm in the Annual Report that it has completed this assessment. A description of the risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated.

Board response

Refer to the Principal and Emergiing Risks and Uncertainties section which describes in detail our assessment of the risks facing the Company.

As noted above the Board has considered the principles and provisions of the existing AIC Code, produced by the Association of Investment Companies ("AIC"). The Company has complied with the recommendations of the AIC Code (except as set out below) and associated disclosure requirements of the Listing Rules (to the extent applicable to the Company).

As disclosed in the Listing documents, the Company, being an externally advised investment company with an entirely non-executive board of directors does not consider the following provisions of the AIC Code applicable:

·; the role of the chief-executive,

·; executive directors' remuneration, and

·; the need for an internal audit function

Considering that the Board comprises of only three Directors, no Senior Independent Director has been appointed.

The Board has formulated policies and procedures to assist them to comply with the AIC Code:

Independence

All three of the Directors are currently considered by the Board to be independent of the Company and the Tufton Group, and have been Directors for less than 3 years. The Board's current policy on tenure is that continuity and experience are considered to add significantly to the strength of the Board and, as such, no limit on the overall length of service of any of the Company's Directors, including the role of Chairman, has been imposed. New Directors will receive an induction from the Investment Manager and the Administrator on joining the Board, and all Directors will receive other relevant training as necessary on their on-going responsibilities in relation to the Company.

Diversity Policy

The Company supports the AIC Code provision that Boards should consider the benefits of diversity, including gender, when making appointments and is committed to ensuring it receives information from the widest range of perspectives and backgrounds. The Company's aim as regards the composition of the Board is that it should have a balance of experience, skills and knowledge to enable each Director and the Board as a whole to discharge their duties effectively. Whilst the Board of the Company agrees that it is entirely appropriate that it should seek diversity, it does not consider that this can be best achieved by establishing specific quotas and targets and appointments will continue to be made based wholly on merit. Accordingly when changes to the Board are required, due regard is given to both the need for diversity and to a comparative analysis of candidates' qualifications and experience. A pre-established, clear, neutrally formulated and unambiguous set of criteria would be utilised to determine the most suitable candidate for the specific position sought.

Statement of Directors' Responsibilities

The Directors are responsible for preparing an annual report and financial statements for each financial period which give a true and fair view, in accordance with applicable law and regulations, of the state of affairs of the Company and of the profit or loss of the Company for that period.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have elected to prepare the Financial Statements in accordance with International Financial Reporting Standards ("IFRS").

In preparing the Financial Statements the Directors are required to:

·; select suitable accounting policies and then apply them consistently;

·; make judgements and estimates that are reasonable and prudent;

·; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

·; prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The maintenance and integrity of the Company's website, which is maintained by the Investment Manager is the responsibility of the Directors. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the Financial Statements comply with Companies Law. The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Each of the Directors confirms that, to the best of their knowledge:

·; They have complied with the above requirements in preparing the financial statements;

·; There is no relevant audit information of which the Company's auditors are unaware;

·; All Directors have taken the necessary steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of said information;

·; The Financial Statements, prepared in accordance with IFRS and applicable laws, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

·; The Chairman's Statement, Report of Directors and Corporate Governance Statement include a fair and balanced review of the development of the business and the financial position of the Company, together with a description of the principal and emerging risks and uncertainties that it faces.

The Corporate Governance Code, as adopted by the Company, also requires Directors to ensure that the Annual Report and Audited Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter the Board has requested that the Audit Committee advises on whether it considers that the Annual Report and Audited Financial Statements fulfil these requirements. The process by which the Audit Committee has reached these conclusions is set out in the Audit Committee Report. Furthermore, the Board believes that the disclosures set out in the Notes to the Annual Report provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

Having taken into account all matters considered by the Board and brought to the attention of the Board for the year ended 30 June 2019, as outlined in the Corporate Governance Statement, Strategic Report and the Audit Committee Report, the Board has concluded that the Annual Report and Audited Financial Statements for the year ended 30 June 2019, taken as a whole, are fair, balanced and understandable and provide the information required to assess the Company's performance, business model and strategy.

Statement of Comprehensive Income

For the year ended 30 June 2019

6 February 2017

to 30 June

2019 2018

Notes US$ US$

Income

Net changes in fair value of Financial Assets

designated at fair value through profit or loss 4 17,776,829 3,482,168

___________ ___________

Total net income 17,776,829 3,482,168

Expenditure

Aborted deal costs (21,293) -

Administration fees (120,680) (41,949)

Audit fees (91,358) (79,700)

Corporate Broker fees (130,511) (41,510)

Directors' fees 17 (109,264) (84,769)

Foreign exchange loss (2,507) (3,099)

Insurance fee (62,803) (36,226

Investment management fee 13 (1,294,621) (206,140)

Professional fees (48,753) (16,022)

Sundry expenses (48,870) (4,867)

___________ ___________

Total expenses (1,930,660) (514,282)

___________ ___________

Operating profit 15,846,169 2,967,886

Finance income 574,331 315,557

___________ ___________

Profit and comprehensive income for the year 16,420,500 3,283,443

___________ ___________

IFRS Earnings per ordinary share (cents) 8 11.94 3.61

___________ ___________

Adjusted Earnings per ordinary share (cents) 8a 10.00 3.61

___________ ___________

There were no potentially dilutive instruments in issue at 30 June 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 financial statements.

Statement of Financial Position

At 30 June 2019

2019 2018

Notes US$ US$

Non-current assets

Financial assets designated at fair value

through profit or loss (Investments) 4 220,998,073 49,622,259

___________ ___________

Total non-current assets 220,998,073 49,622,259

___________ ___________

Current assets

Trade and other receivables 6 32,248 34,796

Cash and cash equivalents 5,500,139 43,030,736

___________ ___________

Total current assets 5,532,387 43,065,532

___________ ___________

___________ ___________

Total assets 226,530,460 92,687,791

___________ ___________

Current liabilities

Trade and other payables 687,781 224,348

___________ ___________

Total current liabilities 687,781 224,348

___________ ___________

___________ ___________

Net assets 225,842,679 92,463,443

___________ ___________

Equity

Share capital 7 215,012,016 89,180,000

Retained reserves 7 10,830,663 3,283,443

___________ ___________

Total equity attributable to ordinary shareholders 225,842,679 92,463,443

___________ ___________

Net assets per ordinary share (cents) 10 100.53 101.61

___________ ___________

The accompanying notes are an integral part of these financial statements.

The financial statements were approved and authorised for issue by the Board of Directors on 10 September 2019 and signed on its behalf by:

Rob King Steve Le Page

Director Director

Statement of Changes in Equity

For the year ended 30 June 2019

Statement of Cash Flows

For the year ended 30 June 2019

2019 2018

Notes US$ US$

Cash flows from operating activities

Profit and comprehensive income for the year / period 16,420,500 3,283,443

Adjustments for:

Purchase of investments 4 (153,598,985) (46,140,091)

Change in fair value on investments 4 (17,776,829) (3,482,168)

___________ ___________

Operating cash flows before movements in

working capital (154,955,314) (46,338,816)

Changes in working capital:

Movement in trade and other receivables 6 2,548 (34,796)

Movement in trade and other payables 463,433 224,348

___________ ___________

Net cash used in operating activities (154,489,333) (46,149,264)

___________ ___________

Cash flows from financing activities

Net proceeds from issue of shares 7 125,832,016 89,180,000

Dividends paid to Ordinary shareholders 9 (8,481,280) -

Dividends paid to C shareholders 9 (392,000) -

___________ ___________

Net cash generated from financing activities 116,958,736 89,180,000

___________ ___________

Net movement in cash and cash equivalents

during the year / period (37,530,597) 43,030,736

Cash and cash equivalents at the beginning

of the year / period 43,030,736 -

___________ ___________

Cash and cash equivalents at the end of the year / period 5,500,139 43,030,736

___________ ___________

The accompanying notes are an integral part of these financial statements.

Notes to the financial statements

For the year ended 30 June 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.

2. Significant accounting policies

(a) Basis of Preparation

Compliance with IFRS

The financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards, which comprise standards and interpretations approved by the International Accounting Standards Board and International Financial Reporting Interpretations Committee, Listing rules and applicable Guernsey law.

Historical cost convention

The financial statements have been prepared on a historical cost basis modified by the revaluation of investments at fair value through profit or loss. The principal accounting policies adopted and which have been consistently applied (unless otherwise indicated) are set out below.

Basis of non-consolidation

The directors consider that the Company meets the investment entity criteria set out in IFRS 10. As a result, the Company applies the mandatory exemption applicable to investment entities from producing consolidated financial statements and instead fair values its investments in its subsidiaries in accordance with IFRS 13. The criteria which define an investment entity are, as follows:

·; An entity that obtains funds from one or more investors for the purpose of providing those investors with investment services; and

·; An entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both (including having an exit strategy for investments); and

·; An entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.

The directors consider that the Company's objective of pooling investors' funds for the purpose of generating an income stream and capital appreciation is consistent with the definition of an investment entity, as is the reporting of the Company's net asset value on a fair value basis.

(b) New and amended standards

At the reporting date of these Financial Statements, the following standards, interpretations and amendments, which have not been applied in these Financial Statements, were in issue but not yet effective:

IFRS 16 Leases (Effective 1 January 2019)

The Company expects that the adoption of IFRS 16 in the future period will not have an impact on the Company's Financial Statements.

IFRS 3 "Business Combinations" was issued in July 2001 and become effective for periods beginning on or after 1 January 2020. It is not anticipated that the new standard will have any material impact on the Company's financial position, performance or disclosures in its financial statements.

(c) Standards, amendments and interpretations effective during the year

Impact of initial application of IFRS 9 Financial Instruments

IFRS 9 Financial Instruments (Effective 1 January 2018)

IFRS 9 'Financial Instruments' amends IAS 39. IFRS 9 specifies how an entity should classify and measure financial assets, including some hybrid contracts.

The standard requires all financial assets to be classified on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of IAS 39. The standard applies a consistent approach to classifying financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own classification criteria.

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, at fair value through other comprehensive income and at fair value through profit or loss ("FVTPL"). IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale.

The requirements for financial liabilities are mostly carried forward unchanged from IAS39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk.

The standard also results in one impairment method, replacing the numerous impairment methods in IAS 39 that arise from the different classification.

IFRS 9 replaces the 'incurred loss' model in IAS 39 with an expected credit loss ("ECL") model. Therefore, the carrying amount of other receivables remains the same under IFRS 9 as the expected credit losses on the financial assets have been assessed as immaterial.

The new impairment model applies to financial assets measured at amortised cost. Trade and other receivables and cash and cash equivalents classified as Loans and Receivables under IAS 39 have been reclassified to Amortised Cost under IFRS 9. The Board have elected to use the simplified approach to calculating the expected credit losses for trade receivables. The impairment calculation is based on the Company's historical default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. Given the historical level of defaults and the credit risk of the investment portfolio, there is a negligible impact because of the lifetime expected credit loss to be recognised versus the previous impairment model applied by the Company.

The adoption of IFRS 9 has not had a significant effect on the Company's accounting policies related to financial assets and liabilities.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 'Revenue from Contracts with Customers' specifies how and when to recognise revenue as well as requiring entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018. Material revenue streams have been reviewed and there has not been an impact on adoption of this standard.

 (c) Standards, amendments and interpretations effective during the year (continued)

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.

(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 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 year. 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 a 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 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 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 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 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 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 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 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 30 June 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 currency are not retranslated. Exchange differences are recognised in 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 guidance issued by the Financial Reporting Council. 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 financial statements. Refer to the Viability statement for key areas considered.

(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 year. The nature of the estimation means that actual outcomes could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Critical judgements in applying the Company's accounting policies - IFRS 10: Consolidated Financial Statements

The audit committee considered the application of IFRS 10, and whether the Company meets the definition of an investment entity.

The 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.

·; An entity that obtains funds from one or more investors for the purpose of providing those investors with investment services; and

·; An entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both (including having an exit strategy for investments); and

·; An entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.

The 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 it's investment in LSA and the SPVs at their respective net asset values. The net asset values comprise shipping vessels which are measured at fair value and 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 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 charter free 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 to obtain a premium or discount value of the charter versus the typical vessel 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 four 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 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.

Critical judgements and estimates in applying the Company's accounting policies - financial assets at fair value for Parrot SPV

A Sale and Purchase agreement was executed in June 2019 for the SPV, Parrot Limited, to acquire a vessel. This enabled the Company to direct the ownership of the vessel from the transaction date and prior to the Company's year end.

The fair value of the investment has been calculated as the difference between the value of the vessel (on a DCF basis) and the costs to complete the transaction.

There were no other areas of estimations in the current year.

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 Statement of Financial Position as there is no current intention to dispose of any of the assets.

2019 2018

US$ US$

LSA

Brought forward cost of investment 46,140,091 -

Total investment acquired in the year / period 153,598,985 46,140,091

___________ ___________

Carried forward cost of investment 199,739,076 46,140,091

Brought forward unrealised gains on valuation 3,482,168 -

Movement in unrealised gains on valuation 17,776,829 3,482,168

___________ ___________

Carried forward unrealised gains on valuation 21,258,997 3,482,168

___________ ___________

Total investment at fair value 220,998,073 49,622,259

___________ ___________

LSA (own net assets): Breakdown of Fair Value:

2019 2018

US$ US$

Aglow Limited 9,962,674 -

Citra Limited 12,930,529 -

Darwin Limited 7,283,389 -

Dragon Limited 11,200,383 -

Hongi Limited 7,214,554 -

Java Limited 6,655,732 -

Kale Limited 12,056,392 11,625,057

Neon Limited 31,375,694 -

Octane Limited 20,170,969 -

Parrot Limited** 5,736,394 -

Patience Limited 11,528,670 10,818,489

Pollock Limited 15,189,286 -

Riposte Limited 14,303,930 13,843,536

Sierra Limited 20,620,297 -

Swordfish Limited 11,916,570 10,811,803

Cash held pending investment into vessels 34,606,314 913,330

Residual net (liabilities) / assets (11,753,704) 1,610,044

___________ ___________

\* Total investment at fair value 220,998,073 49,622,259

___________ ___________

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) / assets of each SPV to determine the fair value of the total investment attributable to LSA.

** At the year end this SPV held an Agreement with the Vendor for the purchase of a vessel signed 14 June 2019, purchase was completed on 5 July 2019. The vessel and charter arrangements are considered specialist, and subsequently the vessel will be valued on a DCF basis. At the year end the Company valued the incomplete contract at the difference between its DCF value and costs to complete.

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.

6. Trade and other receivables

2019 2018

US$ US$

Current assets

Accrued income 8,216 868

Prepayments 17,298 30,561

Due from subsidiaries 6,734 3,367

___________ ___________

Total trade and other receivables 32,248 34,796

___________ ___________

Amounts due from subsidiaries are interest free and payable on demand. Due to the value and short term nature of these receivables, the directors have assessed there to be no expected credit losses associated with these outstanding balances

7. Share capital and reserves

The Company currently has 1 class of ordinary share of no par value in issue. All the holders of the ordinary shares which total 224,644,568 (2018: 91,000,000), are entitled to receive dividends as declared from time to time and are entitled to 1 vote per share at meetings of the Company.

During the 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.

Retained reserves

Retained reserves comprise the retained earnings as detailed in the Statement of Changes in Equity.

8. Earnings per share calculated in accordance with IFRS

2019 2018

US$ US$

Profit and comprehensive income for the year / period 16,420,500 3,283,443

Weighted average number of ordinary shares 137,499,622 91,000,000

Earnings per ordinary share (cents) 11.94 3.61

The weighted average number of ordinary shares (137.5m shares) is calculated in accordance with IFRS guidelines based on the date of conversion of C Shares to ordinary shares.

8a. Adjusted Earnings per share

2019 2018

US$ US$

Profit and comprehensive income for the year / period 16,420,500 3,283,443

Adjusted Weighted average number of ordinary shares 164,134,143 91,000,000

Adjusted Earnings per ordinary share (cents) 10.00 3.61

The adjusted weighted average number of ordinary shares (164.1m shares) is calculated as if the C Shares were ordinary shares from the date that the C Shares were issued. This alternate performance measure also provides a comparison to the dividends paid, which have been paid in full on all ordinary shares in issue at each dividend declaration date.

9. Dividends

The Company declared the following dividends in respect of the profit for the year ended 30 June 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.

10. Net assets per ordinary share

2019 2018

US$ US$

Shareholders' equity 225,842,679 92,463,443

Number of ordinary shares 224,644,568 91,000,000

Net assets per ordinary share (cents) 100.53 101.61

11. Financial risk management

Capital management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders. In accordance with the Company's investment policy, the Company's principal use of cash has been to fund investments as well as ongoing operational expenses.The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. The capital structure of the Company consists entirely of equity (comprising issued capital, reserves and retained earnings).

As the Company's Ordinary Shares are traded on the LSE, the Ordinary Shares may trade at a discount or premium to their Net Asset Value per Share on occasion. However, the Directors and the Investment Manager monitor the discount on a regular basis and can use share buy backs to manage the discount.

The Company is not subject to any externally imposed capital requirements.

Financial risk management objectives

The Board, with the assistance of the Investment Manager, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risk. These risks include market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk.

Market risk

The value of the investments held by the Company is indirectly affected by the factors impacting on the shipping industry generally, being, amongst other factors, currency exchange rates, interest rates, the availability of credit, economic or political uncertainty and changes in law governing shipping or trade. These factors may affect the price or liquidity of vessels held by the Company's subsidiaries and thus the value of the subsidiaries themselves.

Currency risk

The Company may have assets and liabilities denominated in currencies other than United States Dollars, the functional currency. It therefore may be exposed to currency risk as the value of assets/liabilities denominated in other currencies will fluctuate due to changes in exchange rates.

However, such exposure is currently and is expected to remain insignificant. Consequently no further information has been provided.

Interest rate risk

The majority of the Company's financial assets and liabilities are non-interest bearing. However, the Company is exposed to a small amount of risk due to fluctuations in the prevailing levels of market interest rates because any excess cash or cash equivalents are invested at short-term market interest rates. The Company's interest-bearing financial assets and liabilities expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The table below summarises the Company's exposure to interest rate risks. It includes the Company's assets and trading liabilities at fair values, categorised by the earlier of contractual re-pricing or maturity dates.

If the interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company's profit for the year ended 30 June 2019 would decrease/increase by US$55,001 (2018: US$215,153). This is attributable to the company's exposure to interest rates on its variable rate deposits.

The Investment Manager is permitted to utilise overdraft facilities towards the achievement of the Company's investment objectives. This was not utilised during the year.

Refer to Price Risk below for a description of the indirect impact interest rates have on the valuation of vessel assets.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company.

The Company does not have any significant credit risk exposure to any single counterparty in relation to trade and other receivables. On-going credit evaluation is performed on the financial condition of accounts receivable. As at 30 June 2019 there were no receivables considered impaired (2018: US$nil).

The Company maintains its cash and cash equivalents with various banks to diversify credit risk. These are subject to the Company's credit monitoring policies including the monitoring of the credit ratings issued by recognised credit rating agencies.

1. Ravenscroft is an execution only broker that acts solely on instruction of the Board of Directors. The Board of Directors only invest cash in banking institutions with an -A rating or higher. 

1. Canaccord is an execution only broker that acts solely on instruction of the Board of Directors. The Board of Directors only invest cash in banking institutions with an -A rating or higher.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Board of Directors has established an appropriate liquidity risk management framework for the management of the Company's short-, medium- and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate cash reserves by monitoring forecast and actual cash flows. The table below shows the maturity of the Company's non-derivative financial assets and liabilities. The amounts disclosed are contractual, undiscounted cash flows and may differ from the actual cash flows received or paid in the future as a result of early repayments.

Price risk in the shipping industry

As described in Note 3, the Company's financial assets are measured at fair value which comprises the fair value of the underlying SPVs and the residual net assets of the Company. The Company values its investment in LSA and the SPVs at their respective net asset values. The net asset values comprise shipping vessels which are measured at fair value and residual net assets/liabilities of each of the entities.

(a) Standard Vessel valuations

The fair value of a standard vessel comprises both the Charter-free value and the Charter valuation. The charter-free and associated charter values of typical vessels are calculated using an on-line valuation system provided by VesselsValue Ltd. For charter free 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 module where vessel specific charter details are input and measured against system provided market benchmark to obtain a premium or discount value of the charter versus prevailing market.

(b) Specialised Vessels and arrangements

There will be cases where the Company may invest in vessels which are (i) of a specialised nature and fall out of scope of mainstream brokers and/or (ii) where contracted employment does not have an available reference benchmark in the freight brokerage community.

The Investment Manager will make its own assessment of Value with Charter using a discounted cashflow ("DCF Model") model. The DCF Model will calculate the net present value of the charter and vessel value using the following inputs:

·; IRR/Discount rate

·; Charter Rate

·; Exit/scrappage value

There were no specialised vessels held in the prior year.

Refer to Note 3 for further information on the valuation methodologies applied.

Price Risk Sensitivity analysis

Charter-free valuation for standard vessels

If the ship values at 30 June were 10% higher or lower, then the effect on the portfolio value would be as follows:

Specialised Vessels

If the discount rate factors were 0.5% higher or lower, then the effect on the values of specialised vessels would be as follows:

There were no specialised vessels held in the prior year.

Charter rates

If market charter rates used on VesselsValue.com to determine Charter values were 10% higher or lower, then the effect on the portfolio value would be as follows

12. 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.

13. 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 year ended 30 June 2019 the Company has incurred US$1,294,621 (2018: US$206,140) in management fees of which US$468,089 (2018: US$105,064) was outstanding at 30 June 2019.

14. Performance fee

Tufton ODF Partners LP, the entity created to receive 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.

15. Related parties

The Investment Manager, 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 year ended 30 June 2019 the Company has incurred US$1,294,621 (2018: US$206,140) in management fees of which US$468,089 (2018: US$105,064) was outstanding at 30 June 2019.

The Directors of the Company and their shareholding is stated in the Report of the Directors.

16. 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.

17. Remuneration of the Directors

The remuneration of the Directors was US$109,264 (2018: US$84,769) for the year which consisted solely of short-term employment benefits (refer to the Report of the Directors).

18. Events after the reporting period

A further dividend was declared on 29 July 2019 for US$0.0175 per ordinary share for the quarter ending 30 June 2019. The dividend was paid on 23 August 2019 to holders of ordinary shares on record date 9 August 2019 with an ex-dividend date of 8 August 2019.

Parrot Ltd, an SPV entered into an Agreement with the Vendor signed 14 June 2019 for the purchase of a vessel which completed on 5 July 2019.

Definitions