Nimrod Sea Assets Limited
Audited Annual Financial Report From 1 April 2015 to 31 March 2016
NIMROD SEA ASSETS LIMITED (the “Company”) CONTENTS
Page 1
Summary Information
2
Company Overview
4
Chairman’s Statement
5
Executive Directors’ Investment Report
10
Directors Information
12
Service Providers
14
Management Report
16
Directors’ Report
25
Statement of Principal Risks and uncertainties
29
Audit Committee Report
37
Independent Auditor’s Report to the members of the Company
45
Statement of Comprehensive Income
46
Statement of Financial Position
47
Statement of Cash Flows
48
Statement of Changes in Equity
49
Notes to the Financial Statements
69
Notice of General Meeting
74
Key Advisers and Contact Information
Defined terms used in this Annual Financial Report shall have the same meaning as ascribed to them in the Company's Prospectus dated 12 March 2014.
NIMROD SEA ASSETS LIMITED (the “Company”) SUMMARY INFORMATION
Listing
Specialist Fund Segment (formerly Specialist Fund Market) of the London Stock Exchange’s Main Market
Ticker
NSA
Market Capitalisation
USD 57.2 million (as at 31 March 2016)
Currency
USD
Launch Date/Price
24 March 2014 / USD 1.00 per Share
Incorporation
Guernsey
Consultancy Service Provider
Stamford Maritime Limited
Corporate and Shareholder Adviser
Nimrod Capital LLP
Administrator
JTC (Guernsey) Limited
Auditor
Deloitte LLP
Market Makers
Winterflood Securities Limited Jefferies International Limited
SEDOL, ISIN
BK0SC85, GG00BK0SC854
Year End
31 March
Stock and Shares ISA
Eligible
Website
www.nimrodseaassets.com
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NIMROD SEA ASSETS LIMITED (the “Company”) COMPANY OVERVIEW
Nimrod Sea Assets Limited Nimrod Sea Assets Limited (LSE: NSA) (“NSA” or the “Company”) is a non-cellular Guernsey company limited by shares and incorporated on 8 October 2012. The ordinary shares of the Company were admitted to trading on the Specialist Fund Segment (“SFS”) (formerly the Specialist Fund Market) of the London Stock Exchange’s Main Market (“LSE”) on 24 March 2014. The Company’s total issued share capital currently consists of 130,000,000 ordinary shares of no par value (the “Shares”) which were admitted to trading at an issue price of USD 1.00 per share. Investment Objectives and Policy The Company's investment objective is to obtain income return and capital appreciation for its Shareholders by participating in vehicles which acquire, charter and sell Marine Assets associated with the offshore oil and gas industry. To pursue its investment objective, the Company obtains exposure to Marine Assets by acquiring interests in special purpose holding companies (“Marine Asset Companies”). The majority of the Marine Assets to which the Company will have exposure at any time are those that are needed for the inspection, repair, maintenance and operation of installed infrastructure and production equipment for use in the offshore oil and gas industry. The Company aims to provide Shareholders with a total return, which will comprise distributions of income to be made throughout the life of the Company and, potentially, capital growth. The Board has conducted extensive reviews of the existing portfolio, investment policy and the investment process and future opportunities. Market conditions have remained uncertain and the Board considers that, unless market conditions improve significantly, it is unlikely to make any further new investments. Distribution Policy Following the significant deterioration of the oil market during 2015 and 2016, the Company has previously made announcements regarding the payment of distributions (RNS number: 7405Q, 5576R, 9410A, 4760K and 4223T) as well as the strategy to be adopted regarding uninvested capital (RNS number: 9410A). The Board had previously announced that it anticipated declaring a quarterly dividend of 2 cents per Ordinary Share from the end of June 2015 until March 2016. This was funded by income received net of expenditure, and added to from the Company's capital resources. The dividends of 30 June 2015, 30 September 2015, 31 December 2015 and 31 March 2016 have been distributed to Shareholders. As a result of the poor market conditions and on the basis the Company is unlikely to make any further new investments; the Board anticipated returning unrequired uninvested capital after March 2016. On 13 April 2016 the Company announced its intention to return
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NIMROD SEA ASSETS LIMITED (the “Company”) COMPANY OVERVIEW (Continued)
uninvested capital at 20 cents per share which was paid to shareholders on 29 April 2016 (RNS number: 1297V). In returning this capital, the Directors considered, amongst other things: (a) the administrative cost of making any capital distribution; (b) the proximity to the Realisation Resolution (as defined below), the return profile of the Portfolio as at the relevant time and, having consulted with Stamford Maritime Limited, the availability of further investment opportunities; and (c) Shareholder support for continued investment or a liquidity event, as the case may be. Investments to date As at 31 March 2016, the Company holds investments in the following Marine Asset Companies; Bukit Timah Offshore DIS, Norseman Offshore IS, Volstad Maritime II DIS, Altus Subsea IS, Aberdeen DIS and Jane Offshore Limited. The Company’s investment in DSV Alliance AS was written off entirely in February 2016 and the company is in the process of being liquidated. Realisation Resolution Although the Company does not have a fixed life, the Company’s Articles of Incorporation (the “Articles”) require that, at the first annual general meeting held following 24 March 2019, being the fifth anniversary of admission to trading on the SFS, the directors propose an ordinary resolution that the Company proceeds to an orderly wind-up (the “Realisation Resolution”). If the Realisation Resolution is passed, the Directors will, as soon as reasonably practicable, bring forward specific proposals for the orderly winding up of the Company. The intention of the Directors is that the proposals will seek to return capital to investors within two years, and in any event no later than three years, of the Realisation Resolution being passed (subject to shareholder approval by ordinary resolution of an alternative period for return at the time of the Realisation Resolution being passed). In the event that the Realisation Resolution is not passed, the Directors will consider alternatives for the Company and shall propose such alternatives at a general meeting of the Company, which may include re-investment of capital with new Marine Asset Companies, or, if preferable, seeking to petition existing Marine Asset Companies to renew the Charter Party Agreements on their underlying Marine Assets or seek a subsequent Charter Counterparty.
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NIMROD SEA ASSETS LIMITED (the “Company”) CHAIRMAN’S STATEMENT I would like to present the Annual Financial Report of the Company for the financial year from 1 April 2015 to 31 March 2016 (the "Year"). On behalf of the Board of Directors, can I take this opportunity to thank all Shareholders for their support during this challenging time. As Shareholders will be aware, the environment in which the Company operates has continued to be difficult. The severe reduction in spending by the major oil companies and the exploration and development companies has been so severe that it has had a significant impact on all sectors of the offshore oil and gas sector and those that serve it. This has led to cash flow problems for many companies including the ship owners and charterers with which the Company deals. The Company has focused on the inspection, repair and maintenance (“IRM”) area which has historically been less volatile than other sectors of the offshore market, and while still true, this down cycle has also been unkind to the IRM businesses. As you will be aware, the Company only invested 54% of the Company’s investable funds available and the vast majority of these funds were invested in the first full year of the Company’s listing from March 2014 to April 2015. As a result of the problems facing the sector, the Company reacted early on and made various announcements in the early part of the year. These included the decision to effectively halt any further deals and new transactions; to pay four quarterly dividends of 2 cents per share from June 2015 to March 2016, most of which came out of capital, and to return unrequired, uninvested cash of some 20 cents per share. Taking these dividend payments and the return of capital, the latter of which Shareholders received in a B share redemption in April 2016, investors have received back nearly 30% of their original investment. As at 31 March 2016 the net asset value per share was 46.07 cents. Since the Year end 20 cents per share has been distributed as described above. I hope that these actions taken by the Company will have mitigated some of the disappointment suffered by Shareholders. The Company now has six investments in Marine Asset Companies comprising in total eight vessels. Full details of all of these investments held by the Company can be found in the Executive Directors’ Investment Report on pages 5 to 9. Since the end of December 2015, despite some intermittent signs of recovery in the oil price, the market environment continues to be challenging. We very much hope that, with the stabilisation of the oil price and the enormous reduction of capacity in marine assets that serve the offshore oil and gas industry, caused by the significant cut in spending, the sector in the coming year will show some signs of stability. A full account of these sectoral challenges is also contained in the Executive Directors’ Investment Report on pages 5 to 9. In the meanwhile, as we have stated before, the Company is focused on maximising the return to Shareholders from its existing assets and on ensuring it has the necessary expertise to do this. This now constitutes the main focus of our activities over the coming year. Jeffrey Vidamour 1 July 2016
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NIMROD SEA ASSETS LIMITED (the “Company”) EXECUTIVE DIRECTORS’ INVESTMENT REPORT Market The past 12 months have been perhaps the most economically challenging for the offshore industry since its inception. A huge drop in demand versus both the growth trend and E&P Operators’ forecasts, in an extremely compressed period, combined with a large number of new builds entering the market on the supply side, has created an industry where a large number of vessels are working at day rates below operating expenditure costs. This is unprecedented for offshore operators. All previous major downturns were either very short (2008-2009) or occurred when the oil services industry was far less developed e.g.1987-1989 and the recoveries rapidly brought a much smaller global fleet into market equilibrium relatively quickly. It should also be noted that this downturn has occurred while demand for oil has remained relatively stable and in line with market growth predictions: this is a supply driven downturn where shale has become the marginal product of choice. Offshore energy is very competitive on a per barrel basis but whereas shale is low CAPEX/ high OPEX offshore energy is the reverse. The Executive Directors do not believe a rapid rebound is likely in this instance and are planning for extremely poor market conditions for vessel owners in 2016 and 2017 with a slight to gradual improvement from 2018. The offshore energy industry is long term in nature with projects, even smaller Inspection, Repair and Maintenance (“IRM”) jobs, being planned typically more than 12 months in advance, with larger capital focused investments taking many years before offshore execution and subsequent production ramp up. Thus the lay-offs of engineering staff from Exploration & Production companies means that even a rapid rise in the oil price will not quickly be followed by a similar movement in vessel utilisation and day rates. It will take time for the offshore supply chain to reconfigure itself to new demand conditions. In the future, the sanctioning of new projects will in all likelihood take longer and satisfy higher IRR hurdles thus reducing the total demand for oil services for some time. The changes that are happening in the industry are epochal and will have a permanent influence on the future structure and profitability of offshore operators and E&P companies. We anticipate that there will be consolidation amongst vessel operators, previously an extremely fragmented industry; and some markets (such as Brazil) will cease to be viable for all but the largest vessel operators with extensive local operations. Brazil specifically continues to be a major area of concern for vessel operators. Petrobras has previously been the single largest consumer of vessel days in the world; large numbers of non Brazilian-flagged vessels were contracted into the region to cope with the enormity of their ambitions in the pre-salt developments. Now foreign flagged vessels are being redelivered mid-charter by Petrobras in favour of uncontracted local tonnage. These vessels are normally high-quality assets that will ultimately end up regions in such as the North Sea, or will become the highest
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NIMROD SEA ASSETS LIMITED (the “Company”) EXECUTIVE DIRECTORS’ INVESTMENT REPORT (Continued) quality assets in other geographic regions thus creating oversupply in already depressed sectors. Looking further ahead, the supply side will not stay at these levels as older vessels are scrapped, weaker vessel owners leave the industry, and demand rebalances from the current lows. But these changes will take time and be painful for an industry with considerable amounts of leverage and a high fixed-cost base. The core strategy of NSA was, therefore, to recognise that this change is long term in nature and return as much of the uninvested capital as is possible. Any opportunities that do exist in the current market are well outside the risk parameters outlined when the company was formed. However in broad terms the industry is over capitalised: there are simply too many assets chasing a greatly reduced pool of work. The focus of the Executive Directors is obviously to maximise the value of the existing projects. Exiting investments, even if desired, is in reality impossible at the moment. There are simply no investors looking to buy-in, even at reduced prices, when a period of industry contraction has clearly started. The Executive Directors believe newer vessels (i.e. the majority of vessels remaining in the NSA portfolio) are currently trading below their intrinsic value relative to industrial demand and their likely future relative value. This is due not only to short-term fluctuations in utilisation but also by the lack of debt finance available for potential purchasers that has a consequent effect on value for assets that are commonly purchased with senior loan in excess of 60% of vessel value. The only sellers at the moment are forced sellers and they are realising little if any value from transactions. We do not expect this situation to change for at least 12 months. There will always be an offshore energy industry, it is simply too big a part of global energy mix to vanish, but it will be very different as it emerges from this downturn; major industrial companies with supportive banks are likely to drive this change. Until this happens NSA must concentrate on maximising the value of the portfolio by working with charterers in a realistic way which helps everyone trade through this period. Vessel values are driven by day rates and utilisation and where we can we will work to drive this to protect shareholder value. Commenting on oil price and geopolitical issues is avoided here, as what is far more relevant to NSA is how vessel owners respond to current circumstances and restructure their industry over the next few years. However oil is a cyclical market and history would suggest that there will be a turning point from what appears at the moment to be abnormally low levels of activity. Project Investment Summary
Marine Asset Company
Percentage of ownership
Purchase cost (USD)
Percentage of investable funds as at Purchase
Value as at 31 March 2016 (USD)
Percentage of investable funds as at 31 March 2016
Bukit Timah Offshore DIS
26.0%
8,585,125
7.1%
5,796,425
4.8%
Norseman Offshore IS
43.0%
11,046,500
9.1%
-
0.0%
Volstad Maritime DIS II
20.5%
7,261,000
6.0%
3,670,899
3.0%
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NIMROD SEA ASSETS LIMITED (the “Company”) EXECUTIVE DIRECTORS’ INVESTMENT REPORT (Continued) Altus Subsea IS
51.0%
9,639,000
8.0%
6,321,625
5.2%
DSV Alliance DIS
99.5%
10,061,689
8.3%
-
0.0%
Aberdeen Offshore DIS
75.0%
12,750,000
10.6%
-
0.0%
Jane Offshore Ltd
50.0%
8,022,500
6.6%
2,721,273
2.3%
The valuations stated above are as per the latest information available to the Board as at 1 July 2016, being the latest practicable date prior to publication of these Financial Statements.
Investment Performance Alliance AS In February NSA wrote off its entire 99.5% stake in DSV Alliance AS, the owner of the Red 7 Alliance. Red 7 Group had defaulted in May 2015 and NSA was forced to pick-up a large number of costs covered under maritime liens that had not been paid. Twice independent brokers were engaged to support attempts to sell Alliance but the market deteriorated significantly between June and December 2015 and it became clear that no realistic path to any sort of value realisation could be achieved. At the time of writing the vessel is in the possession of the lending bank, remains unsold and is currently quayside in Great Yarmouth. The company has no further liability in respect of this investment, and DSV Alliance AS is in the process of being liquidated. No sub-sector of oil services has suffered more than the North Sea subsea diving market. In an extremely specialised market there are currently four DSVs (“Dive Support Vessels”) in lay-up in Leith and the North Sea operations of Harkand Group, previously controlling two near new DSVs and one near completed new-build, have recently gone into administration. This reflects a massive downturn in even basic IRM, of which DSVs are the core workhorses, to below levels that were thought not possible. There is no rebound in sight and long-term this augurs poorly for the future of the North Sea as a viable production basin. Aberdeen Offshore AS The FS Cygnus is currently on charter to Enquest UK Ltd (“Enquest”), and while performing operationally in a near perfect manner, is still unable to earn a day-rate close to her true economic cost. There are at least 75 similar vessels in lay-up in the North Sea market alone so any hope of a significant increase in day rates would seem overly optimistic at this stage. Aberdeen Offshore AS has reached agreement with senior debt providers to delay principal payments on the mortgage while the vessel remains working for Enquest (where there is a firm charter until 9 January 2017). Unless day rates improve significantly by then the SPV will require a cash injection to continue trading and it is highly likely therefore that we will be faced with writing off this investment completely if rates remain static. Norseman AS On 29 February 2016 Viking Supply AS, (charterer of the Odin Viking) announced a standstill with creditors and stated it would enter restructuring negotiations. At the
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NIMROD SEA ASSETS LIMITED (the “Company”) EXECUTIVE DIRECTORS’ INVESTMENT REPORT (Continued) current time Norseman AS is owed three months hire and we do not expect to receive any until the conclusion of a restructuring agreement. There is no certainty that a restructuring agreement will actually be concluded as current proposals all require a significant equity injection into the parent company. The investment in the Odin Viking was purchased with the deliberate intent to expose NSA to the harsh environment asset class which in June 2014, with day rates for these assets at near record levels, seemed appropriate. However a combination of Russian sanctions and the complete abandonment of this work in the Kara Sea and Arctic regions has left assets that supported this work trading at historic lows. A positive outcome of the restructuring discussions may see NSA retaining some value in the project however, it is currently impossible to give any more guidance as to the likelihood of success in these discussions. There is an uncalled capital commitment in the project of USD 1,978,000 which is likely to be called by the bank regardless of circumstances. The Odin Viking currently remains in lay-up in Uddevalla in Sweden where she has been inspected by the owners and found to be in excellent condition. Altus Subsea AS This project has encountered significant payment issues over the previous twelve months; largely because Marine Engineering and Diving Services FZE (“MEDS”; the charterer) has had insufficient work for the Altus Invictus. In addition NSA has had significant disputes with the minority shareholder over how to handle the late payment of charter hire. In December this came to a head and we replaced the entire Board with NSA nominees (as we are entitled to with a 51% share) and have finally been able to take a far more active role in the project. In April 2016 MEDS won work in Qatar and we have negotiated an assignment of earnings that will go a significant way to clearing the hired amount owed. In order to do this however, we had to prepare to seize the vessel, including mobilizing a backup crew, and engage lawyers in a lengthy process. The majority of these costs are not recoverable under the charter. The Board of Altus Subsea AS is working closely with MEDS to restructure the charter onto a more realistic payment profile that reflects current market circumstances. Such a charter is likely to see us taking more time risk but have a potentially higher IRR. However it is crucial that the charterer can provide us with comfort that they can cover the operating expenditure on the vessel when she is not working, for this restructuring to work. If the Board cannot get this comfort the vessel will be re-delivered to the owners and placed in lay-up for 12 months while a sale process is initiated. This risk has already been built into the discount rate used to value the investment at the year end. Bukit Timah DIS Swiber Holdings Ltd continues to perform all of its obligations as charterer of the three AHTS vessels and a considerable amount of cash is building up in the ownership company: USD 9.4m at 31 March 2016 where our equity stake is 26%. However the debt providing banks, as is their legal right, are blocking dividend
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NIMROD SEA ASSETS LIMITED (the “Company”) EXECUTIVE DIRECTORS’ INVESTMENT REPORT (Continued) distributions from the structure. The Executive Directors do not expect this to change for at least the next 12 months and potentially longer. Swiber is a well run company, with excellent links throughout Asia Pacific, and thus is in an excellent position to capitalise on any upturn. However Swiber is significantly leveraged, both financially and operationally, and needs more work for the bank to have increased confidence over Swiber and to allow for dividends to resume from the project. Jane Offshore Ltd EDT Offshore Ltd continues to perform its obligations under the charter however the EDT Jane has had poor utilisation which reflects current market conditions. In 2016 EDT reached agreement with investors in a previous sale-and-leaseback transaction to restructure the deal. The Executive Directors have therefore taken an extremely prudent view of the valuation of this asset. The EDT Jane remains an excellent asset, and is extremely well maintained, but full confidence in this project will only be restored when the vessel secures regular work. Volstad Maritime DIS II This investment continues to perform as planned. The Oceanic Endeavour remains on charter to CGG Eidesvik and has worked consistently throughout the year. Longer term there are concerns regarding the overall health of the seismic market but the cost structure of the charter offers some protection to the owners as the vessel has become a core part of the CGG fleet being one of the state-of-the-art vessels, globally, of its type. Conclusion The financial year ending 31 March 2016 was extremely disappointing for the shareholders of NSA. Unfortunately the Executive Directors can provide no comfort that the upcoming year will be significantly different. The focus of the upcoming year is to play as active a role as possible in the six projects in which we are invested and to try and maximise value for shareholders. The Executive Directors are cognisant of the losses that shareholders in NSA have suffered in the year under review and thank them for their support and understanding.
Cyril Green Executive Director
Jeremy Punnett Executive Director
1 July 2016
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NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS INFORMATION
Jeffrey (Jeff) Vidamour (Age 66) Chairman of the Board and the Investment Committee Jeff is the Chairman and a non-executive director of MEIF II Channel Islands Transport Limited which owns the Condor Group. He retired as an executive director of the Condor Group on 31 December 2007 after 40 years' service in the marine industry. Whilst at the Condor Group he was responsible for vessel chartering requirements and as Project Director oversaw the acquisition, building and commissioning of three purpose built Ro-Ro/Ro-Pax (roll-on/roll-off freight and passenger) vessels for the Condor Group's own Channel Islands service. He is Guernsey resident and is chairman of James 750 Limited, a subsidiary of the States of Guernsey, which owns and operates two 3000 tonne coastal oil tankers. Jeff is a nonexecutive director of Guernsey Stevedores Limited. Peter Atkinson (Age 61) Non-executive Director and Chairman of the Audit Committee Peter is a non-executive director and an Advocate of the Royal Court of Guernsey and an English Solicitor. Admitted to the Bar in 1980, he was senior partner of Collas Day Advocates (now Collas Crill) for 14 years. He is presently a Consultant with AFR Advocates. He specialises in corporate and fiduciary work and has been and continues to act as a nonexecutive director of private companies and companies within the financial services sector. Past and current directorships include companies listed on the London Stock Exchange and Channel Islands Securities Exchange. He is a former chairman of the Guernsey Bar and resides in Guernsey. Norbert Bannon (Age 66) Non-executive Director and Chairman of the Remuneration Committee Norbert Bannon is chairman of a large UK DB pension fund, a major Irish DC pension scheme and is a Director of and advisor to a number of other financial companies. He is Chairman of Doric Nimrod Air Two Limited and Chairman of the Audit Committee of Doric Nimrod Air Three Limited. He has extensive experience in international finance having been CEO of banks in Singapore and New York. He was CEO of Ireland’s largest venture capital company and was Finance Director and Chief Risk Officer at the leading investment bank in Ireland. He has worked as a consultant on risk issues internationally. He earned a degree in economics from Queen’s University, studied at Stanford Graduate School of Business and is a Chartered Accountant.
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NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS INFORMATION (Continued)
Jeremy Punnett (Age 42) Executive Director Jeremy is an executive director of the Company and is also a director of Stamford Maritime Limited. He was formerly president of Offshore Installation Services, a specialist well abandonment and subsea construction company and was responsible for the chartering and operation of vessels in Brazil, China and the UK and for the delivery of complex subsea projects in these regions. Prior to this Jeremy was a director of Bibby Offshore Holdings Ltd from 2009 to 2011, where he was responsible for strategic planning and corporate development. At Bibby Offshore Holdings Ltd, Jeremy led the acquisition and financing of the dive support vessel "Bibby Sapphire", as well as the charter of dive support vessels "Toisa Polaris" and "Bibby Aquamarine". He is currently a director of Stamford Maritime Limited. Previously Jeremy was a strategy consultant at KPMG Transaction Services and PA Consulting Group Ltd. Jeremy has a MBA (Distinction) from Manchester Business School and both a Master of Commerce and a Bachelor of Commerce from the University of Auckland. Cyril (Cy) Green (Age 66) Executive Director Cy is an executive director of the Company and is also a director of Stamford Maritime Limited. He has extensive experience in corporate, offshore and maritime transactions and in vessel building and conversion. He is currently a director of Stamford Maritime Limited. Cy was a main board director of Bibby Line Group Ltd, a £1.3 billion diversified conglomerate with roots in the marine sectors. He was also the CEO of Bibby Line Limited, the marine division of the group comprised of four businesses, and was a founding director of Bibby Offshore Holdings Ltd where he was executive chairman for 2005. During his time at Bibby, Cy implemented and applied robust investment management criteria and processes across all of the Bibby entities' marine activities led M&A activity, and also sat as the development portfolio chairman of the platform companies acquired by Bibby Line Group Limited. In addition he has executive experience from his earlier career with Mobil Oil (now Exxon Mobil), Burmah Castrol (now BP) and PA Consulting Group Ltd. Cy is a chartered engineer and member of the Institute of Directors, winning its award for "Regional Director of the Year, 2007" for the turnaround and tripling of shareholder value of the Bibby Line Group's marine division. He has a BSc (Hons) in Fuel Engineering from the University of Leeds.
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NIMROD SEA ASSETS LIMITED (the “Company”) SERVICE PROVIDERS
Management and the Delegation of Functions The Directors, whose details are set out in pages 10 to 11 are responsible for reviewing the business affairs of the Company in accordance with the Articles and the Prospectus and have overall responsibility for the Company’s activities including all business decisions, review of performance and authorisation of distributions. Jeremy Punnett and Cy Green act in an Executive capacity, while each of the other Directors are Non-Executive. The Company has delegated various functions including; investment support services to Stamford Maritime Limited (the “Consultancy Service Provider” or “Stamford”); secretarial and administrative functions to JTC (Guernsey) Limited (the “Secretary and Administrator” or “JTC”) and corporate and shareholder advisory services to Nimrod Capital LLP (the “Corporate and Shareholder Adviser” or “Nimrod”). Consultancy Service Provider and the Executive Directors Stamford is a company incorporated in England and is controlled by the respective interests of the Executive Directors. Stamford provides the Company with the services of the Executive Directors, together with certain investment support services to the Directors and the Company, including providing access to contacts across the Marine Asset industry, initial identification and review of investment opportunities in Marine Assets and/or Marine Asset Companies for possible reference to the Investment Committee of the Board, preparation and delivery of research and reports on investments, and monitoring and analysis of the Company's investments. Corporate and Shareholder Adviser Nimrod is a company incorporated in England which is authorised by the Financial Conduct Authority and has been appointed as the Corporate and Shareholder Adviser by the Company. Nimrod was founded in 2008 as an entirely independent organisation which specialises in generating and sourcing interesting investment funds, themes and solutions managed by experts in their fields for the professional investor marketplace. It has launched nine listed investment companies since its formation and it also provides investment, marketing, distribution and advisory services to investment companies and their boards and managers. Secretary and Administrator JTC is a Guernsey incorporated company licensed by the Guernsey Financial Services Commission (the “GFSC”). It provides administration and secretarial services to the Company pursuant to an Administration and Secretarial Agreement. In such capacity, JTC is responsible for the general secretarial functions required by the law and ensures that the Company complies with its continuing obligations as well as advising on the corporate governance requirements and recommendations as applicable to a company admitted to trading on the SFM.
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NIMROD SEA ASSETS LIMITED (the “Company”) SERVICE PROVIDERS (Continued)
The Secretary and Administrator is also responsible for the Company’s general administrative functions including the calculation of the net asset value of Shares and the maintenance of accounting and statutory records and any reporting required under the Foreign Account Tax Compliance Act of the United States of America or United Kingdom.
Review The Board keeps under review the performance of the Consultancy Service Provider, Corporate and Shareholder Adviser and the Secretary and Administrator and the powers delegated to each of them. In the opinion of the Board the continuing appointments of the service providers is in the interests of Shareholders as a whole.
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NIMROD SEA ASSETS LIMITED (the “Company”) MANAGEMENT REPORT from 1 April 2015 to 31 March 2016 (the “Year”) A description of important events which have occurred during the year, their impact on the performance of the Company as shown in the financial statements and a description of the principal risks and uncertainties facing the Company is given in the Chairman’s Statement, Executive Directors’ Investment Report, the Statement of Principal Risks and Uncertainties and the notes to the financial statements contained on pages 49 to 68 and are incorporated here by reference. Viability Statement In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have considered the prospects of the Company over a three year period to March 2019. The outlook period is based on the requirement for the Directors to propose an ordinary resolution that the Company realise its assets through an orderly wind-up at the first annual general meeting of the Company held following 24 March 2019, being the fifth anniversary of admission to trading on the SFS. The Directors, in assessing the viability of the Company, have paid particular attention to the principal risks faced by the Company as disclosed in the Chairman’s statement, Executive Directors’ Investment Report, Audit Committee Report and the notes to these financial statements, reviewing on a bi-annual basis the risks faced and ensuring that any mitigation measures in place are functioning correctly. In addition, the Directors have considered a detailed cash flow projection for the period which included the commitments and contingent liabilities of the Company as set out in Note 14. The Directors believe that their assessment of the viability of the Company over the period chosen was sufficiently robust and encompassed the risks which would threaten the business model, future performance, solvency or liquidity of the Company considering a variety of severe but plausible scenarios. As a result of their review, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment. Going Concern The Company’s principal activities are set out within the Company Overview on pages 2 to 3. The financial position of the Company is set out on pages 45 to 48. In addition, Note 12 to the financial statements includes the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives and its exposures to interest rate risk, liquidity risk and capital management. After making all necessary enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable
14
NIMROD SEA ASSETS LIMITED (the “Company”) MANAGEMENT REPORT from 1 April 2015 to 31 March 2016 (the “Year”) future and has significant liquid funds to do so. Accordingly, the Directors have adopted the going concern basis in preparing the financial statements. Responsibility Statement The Directors jointly and severally confirm that to the best of their knowledge: (a) The financial statements, prepared in accordance with International Financial Reporting Standards, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profits of the Company and performance of the Company; (b) This Management Report includes or incorporates by reference a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; (c) The Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company and the Company’s performance, business model and strategy; and (d) The Annual Report includes information required by the LSE and for ensuring the Company complies with the relevant provisions of the Disclosure and Transparency Rules of the UK Listing Authority.
Jeffrey Vidamour Chairman
Peter Atkinson Chairman of Audit Committee
1 July 2016
15
NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS’ REPORT
The Directors present the Annual Financial Report of the Company for the Year. Principal Activities and Business Review The principal activity of the Company is to participate in vehicles which acquire charter and sell Marine Assets associated with the offshore oil and gas industry. The Directors decided that unless market conditions improved significantly, they were unlikely to sanction any further new investments. The Directors remain focused on maximising the return to shareholders from the Company’s existing assets and on ensuring that the Company has the correct resources to do this. On 29 February 2016, Viking Supply AS (charterer of Odin Viking) announced a standstill with certain creditors, excluding Norseman, and stated it would enter restructuring negotiations. There is no certainty that a restructuring agreement will actually be concluded as current proposals all require a significant equity injection into the parent company. The Company has an uncalled capital commitment in the project of USD 1.978 million (USD 344 000 has already been injected by the Company by way of a capital commitment during the Year) which is likely to be called by the bank regardless of circumstances. A description of the activities of the Company in the year under review is given in the Executive Directors’ Investment Report on pages 5 to 9. Status The Company is a Guernsey domiciled company with registered number 55718. The Company’s Shares are admitted to trading on the SFS. The Company operates in accordance with The Companies (Guernsey) Law, 2008, as amended (the “Law”). Results and Dividends The results of the Company are set out on pages 45 to 68. The Company declared the following dividends during the year.
Quarter End
Announcement Date
Dividend Payment Date
Dividend per Share (cents)
Total Dividend
31 March 2015
16 April 2015
8 May 2015
0.5
USD 650,000
30 June 2015
29 June 2015
24 July 2015
2.0
USD2,600,000
30 September 2015
01 October 2015
23 October 2015
2.0
USD2,600,000
31 December 2015
30 December 2015
22 January 2016
2.0
USD2,600,000
31 March 2016
29 March 2016
22 April 2016
2.0
USD2,600,000
Return of Capital In accordance with Company’s Prospectus, any cash which had not been invested or committed at the end of the investment period is required to be returned to shareholders. On 13 April 2016 the Directors resolved to return 20 cents per share (USD 26 million) by way of a bonus issue of 130 million B shares to shareholders on the Company’s share register on record date of 22 April 2016. Following their issue, the B shares were immediately redeemed at a redemption price of 20 cents per B share for settlement on 29 April 2016.
16
NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS’ REPORT (Continued)
Directors The Directors in office are shown on pages 10 to 11 and all Directors remain in office as at the date of signature of these financial statements. All Directors of the Company were appointed on 7 March 2014 and, in accordance with the Company’s Articles, one-third of the Directors shall retire from office and shall be available for re-election at the forthcoming General Meeting. Further details of the Director’s responsibilities are given on pages 23 to 24. Stamford is the Company’s Consultancy Service Provider. Jeremy Punnett and Cyril Green are directors of Stamford. Jeremy Punnett is a director of the following Marine Asset Companies as a direct result of the investment by the Company; Bukit Timah Offshore DIS, Norseman Offshore IS, Altus Subsea IS, Aberdeen Offshore DIS, Nimrod Sea AS and Jane Offshore Ltd. Cy Green is a director of the following marine Asset Companies as a direct result of the investment by the Company; Altus Subsea IS and Nimrod Sea AS. The following interests in shares of the Company are held by Directors and their connected persons: Director Jeremy Punnett Cyril Green
Number of Shares 50,000 50,000
Other than the above share holdings, Jeremy Punnett and Cy Green’s interest in Stamford, and Jeremy Punnett and Cy Green’s directorships of the Marine Asset Companies as detailed previously, none of the Directors nor any persons connected with them had a material interest in any of the Company’s transactions, arrangements or agreements during the Year and none of the Directors has or had any interest in any transaction which is or was unusual in its nature or conditions or significant to the business of the Company, and which was effected by the Company during the year. At the date of this report, there are no outstanding loans or guarantees between the Company and any Director. There were no material related party transactions which took place in the Year, other than those disclosed in this report and in Note 15 to the financial statements. Substantial Shareholdings The Company has been notified of the following substantial interests, in accordance with Chapter 5 of the Disclosure and Transparency Rules, in the Company’s share capital. There have been no material changes in the below list of substantial holdings since 1 July 2016, being the latest practicable date prior to publication of this report. Registered Holder
% of Total Voting Rights
Number of Shares
Nortrust Nominees Limited
40.43%
52,570,000
The Bank of New York (Nominees Limited)
9.91%
12,887,422
17
NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS’ REPORT (Continued)
HSBC Global Custody Nominee (UK) Limited
5.97%
7,758,393
Harewood Nominees Limited
5.77%
7,500,000
Net Asset Value (“NAV”) The NAV of the Company’s Shares as at 31 March 2016 was 49.99 (31 March 2015: 86.20) cents per Share. Anti-Bribery and Corruption The Company adheres to the requirements of the Prevention of Corruption (Bailiwick of Guernsey) Law, 2003. In consideration of the UK Bribery Act 2010 which came into force on 1 July 2011, the Board abhors bribery and corruption of any form and expects all the Company's business activities to be undertaken, whether directly by the Directors themselves or on the Company's behalf by third parties to be transparent, ethical and beyond reproach. On discovery of any activity or transaction that breaches the requirements of the Prevention of Corruption (Bailiwick of Guernsey) Law, 2003 or the UK Bribery Act 2010, such discovery will be reported to the relevant authorities in accordance with prescribed procedures. The Company is committed to regularly reviewing its policy and procedures to uphold good business practice. Corporate Governance The Company is not required by Law to comply with the Commission's Finance Sector Code of Corporate Governance (the “GFSC Code”), as it is not regulated by the GFSC. As a Guernsey company listed on the SFS, the Company is also not obliged to adopt the UK Corporate Governance Code (the “Code”). The Company has, however, voluntarily committed to comply with the Code or explain any departures. Companies which report against the Code are deemed to meet the GFSC Code. Statement of Compliance with the Code Throughout the year, the Company has been in compliance with the provisions set out in the Code, except for the following matters:• • •
•
There is no Chief Executive since the Company has a limited number of Executive Directors and the Company considers that both Executive Directors currently fulfil this function between them. There is no Senior Independent Director since the Company considers that each Director who is not an Executive Director can effectively fulfil this function. There is no internal audit function in the Company and the requirement for this function is reconsidered on an annual basis. The Board considers that as all of the Company's administration functions have been delegated to independent third parties there would not be sufficient benefit for the Company to have its own internal audit facility. To appoint the Directors for a term of six years, given that at the first general meeting held following the fifth anniversary of admission a realisation resolution be put to shareholders. In addition one third of the Board will stand for re-election at each general meeting. The Board considers that it would not be practicable to terminate
18
NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS’ REPORT (Continued)
the appointment of the Directors in advance of the realisation resolution and the requirement for one third of the Board to stand for election at each general meeting provides the opportunity to address any Shareholder concerns regarding independence. Evaluation The Board carried out a performance evaluation of itself, its Committees and each of the Directors as required by provision B.6.1 of the Code and is committed to this process being carried out every year. For the Year, this process was led by the Remuneration Committee. The evaluation process consisted of the Directors completing a questionnaire to assess the Board as a whole and the Chairman completing a questionnaire to assess each Director individually. The full Board discussed the results of the evaluation of the Board and its Committees and concluded that there were no significant points to raise and that each Director continues to demonstrate their effectiveness and commitment to the Company.
Board Responsibilities The Board comprises of five Directors who meet regularly to consider the affairs of the Company in a prescribed and structured manner. Biographies of the Directors appear on pages 10 to 11 demonstrating the range of skills and experience they bring to the Board. Cyril Green and Jeremy Punnett act in an Executive capacity and all other Directors are independent and Non-Executive with Jeffrey Vidamour acting as Chairman. The Board regularly reviews the balance of skills, knowledge and effectiveness of its Directors, to identify any additional experience or skills needed, and to ensure that the current Directors have sufficient available time to undertake the tasks required and remain independent. When considering the composition of the Board, the Directors will be mindful of diversity and meritocracy. To date no Director of the Company has resigned. Directors are able and encouraged to provide statements to the Board of their concerns and ensure that any items of concern are recorded in the Board minutes. Board meetings are held on a quarterly basis to consider the business and affairs of the Company. Between these regular meetings the Board keeps in contact by email and telephone as well as meeting to consider specific matters of a transactional nature. Additionally it holds strategy meetings with its relevant advisors as appropriate. The Directors are kept fully informed by the Executive Directors and JTC of all matters that are relevant to the business of the Company and which should be brought to the attention of the Directors and/or the Shareholders. All Directors have direct access to JTC who is responsible for ensuring that Board procedures are followed and that there are effective information flows both within the Board and between the Committees and the Board. The Non-Executive Directors also have access to the advice and services of the Executive Directors and the Corporate and Shareholder Adviser as required. The Directors may also, in the furtherance of their duties, take independent professional advice at the Company’s expense.
19
NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS’ REPORT (Continued)
During the Year the number of full Board meetings and Committee meetings attended by each Director is as follows:
Director
Full Board Meetings
Jeffrey Vidamour
10 of 10
Investment Committee Meetings 14 of 14
Audit Committee Meetings 4 of 4
Remuneration Committee Meetings 3 of 3
Peter Atkinson
8 of 10
14 of 14
4 of 4
3 of 3
Norbert Bannon
9 of 10
13 of 14
4 of 4
3 of 3
Jeremy Punnett
7 of 10
N/A
N/A
N/A
Cyril Green
8 of 10
N/A
N/A
N/A
Remuneration The Non-Executive Directors receive an annual fee of GBP 25,000. The Chairman receives an additional fee of GBP 5,000 and the Audit Committee Chairman receives an additional fee of GBP 4,000. Each of the Executive Directors receives an annual fee of USD 75,000 in respect of their services in that capacity and are subject to a Service Agreement dated 12 March 2014. In addition all Directors are entitled to reimbursement of all out-of-pocket expenses reasonably incurred in the performance of their duties. The total remuneration paid by the Company for the Year was USD 275,549. This comprises the aggregate fees paid to the Directors. No Director receives variable remuneration. Other than the Directors there are no other individuals considered to have a material impact on the risk profile of the Company. In addition to the Director's fees, Stamford received a management fee for the year ended 31 March 2016 of USD 1,118,044 (31 March 2015: USD 1,111,564). No amount was paid for the year ended 31 March 2016 in respect of the Performance Fee arrangement to which Stamford is party (details of which are set out on page 97 of the Prospectus dated 12 March 2014). Board Committees Audit Committee The Non-Executive Directors are all members of the Audit Committee, with Peter Atkinson acting as Chairman. The Audit Committee has regard to the Guidance on Audit Committees published by the Financial Reporting Council in September 2012. The Audit Committee examines the effectiveness of the internal control systems of the Company and its Service Providers as appropriate, the annual and half-yearly reports and financial statements, the Auditor’s remuneration and engagement, as well as the Auditor’s independence and any non-audit services provided by them. The Audit Committee considers the nature, scope and results of the auditor’s work and conducts an annual review prior to providing a recommendation to the Board on the reappointment or removal of the auditor. When evaluating the Auditor, the Audit Committee
20
NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS’ REPORT (Continued)
has regard to a variety of criteria including industry experience, independence, reasonableness of audit plan, ability to deliver constructive criticism, effectiveness of communication with Board and the Company’s service providers, quality control procedures, management of audit process and added value beyond assurance in audit opinion. Auditor independence is maintained by limiting non-audit services to specific audit-related work that falls within defined categories, for example, the provision of advice on the application of IFRS or formal reports for any Stock Exchange purpose. During the Year, the Company requested that Deloitte LLP provide assistance to the Company in its assessment of various options relating to two investments, Red7 Alliance and FS Cygnus, the Company paid Deloitte LLP a fee of £30,676 for this service. All engagements with the Auditor are subject to pre-approval from the Audit Committee and fully disclosed within the Annual Financial Report for the relevant year. The lead Audit Partner is rotated every five years and the Audit Committee ensures the Auditor has appropriate internal mechanisms in place to ensure its independence. The Audit Committee has recommended to the Board that the reappointment of Deloitte LLP as the Company’s Auditor be proposed to Shareholders at the 2016 General Meeting. If the Company remains in operation, the Audit Committee will consider arranging for the external audit contract to be tendered in 2024 (being 10 years from the initial appointment) with the aim of ensuring a high quality and effective audit. The Audit Committee meets at least twice annually to consider the Company’s half-yearly and annual financial reports, and reports to the Board with its deliberations and recommendations and also has an annual planning meeting with the Auditor. The Audit Committee operates within clearly defined terms of reference based on the Institute of Chartered Secretaries and Administrators recommended terms and provides a forum through which the Company’s Auditor reports to the Board. The Audit Committee can request information from the Company’s service providers with the majority of information being directly sourced from the Secretary and Administrator and the external Auditor. The terms of reference of the Audit Committee are available upon request. Each year the Board examines the Audit Committee’s performance and effectiveness, and ensures that its tasks and processes remain appropriate. Key areas covered included the clarity of the Audit Committee’s role and responsibilities, the balance of skills among its members and the effectiveness of reporting its work to the Board. The Board is satisfied that all members of the Audit Committee have relevant financial experience and knowledge and ensure that such knowledge remains up to date. Overall the Board considered the Audit Committee has the right composition in terms of expertise and has effectively undertaken its activities and reported them to the Board during the year. Investment Committee The Non-Executive Directors are members of the Investment Committee, with Jeff Vidamour acting as Chairman. Following the sourcing of a suitable transaction and the preliminary negotiation of terms by the Executive Directors, investment propositions are presented to the Investment Committee for consideration in the form of a written deal report (the “Investment Memorandum”). The function of the Investment Committee is to consider, and, if thought appropriate approve investments proposed to the Investment Committee by the Executive Directors, ensure the Company complies with all relevant legal and regulatory requirements and remains in line with the investment objective as stated in the Company’s Prospectus. The committee also reviews each investment on a regular basis post disbursement.
21
NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS’ REPORT (Continued)
The Investment Memorandum contains information on, amongst other things, the proposed structure of the investment, the results of due diligence conducted into Charter Counterparties (including their creditworthiness) and the target Marine Asset, an assessment of the key risks of the investment as well as the anticipated return profile of the investment. The Company only proceeds with the investment if the investment proposition articulated in the Investment Memorandum (or any revised Investment Memorandum following initial input from the Investment Committee) is approved by the Investment Committee. In order to assist in making its determination, the Investment Committee has appointed Norton Rose Fulbright (“NRF”) to provide an opinion on the structuring of the proposed investment (usually the structuring of the Marine Asset Company) and the underlying contractual structure (that is, the contractual structure relating to the terms of acquisition, and subsequent chartering, of the Marine Asset). NRF provide a view as to whether the proposed terms and structure of the investment are on market standard terms (and, if not, how they deviate) and to advise on what additional due diligence, if any, should be conducted (into, for example, the Marine Assets and relevant Charter Counterparties). Third parties are not usually used to assess the quality of the Marine Assets as investments nor will they provide a recommendation as to whether the Company should proceed with the investment. Remuneration Committee The Non-Executive Directors are members of the Remuneration Committee, with Norbert Bannon acting as Chairman. The Remuneration Committee meets formally at least once a year. The principal duties of the Remuneration Committee are to review the appointment and remuneration of the Executive Directors, to review the fees payable to the Non-Executive Directors and to review the fees of the Company’s service providers. The remuneration of the Board is reviewed on an annual basis and where necessary compared with the level of remuneration for directorships of comparable companies. All Directors receive an annual fee and there are no share options or other performance related benefits available to them. Internal Control and Financial Reporting The Board is responsible for the Company’s system of internal control and for reviewing its effectiveness. The Board confirms that there is an on-going process for identifying, evaluating and monitoring the significant risks faced by the Company, these risks have been presented in the Statement of Principal Risks and Uncertainties presented on page 25 The internal control systems are designed to meet the Company’s particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss. The Board conducts a full review of the Company’s risk management systems on an annual basis, including consideration of a risk matrix which covers various areas of risk including corporate strategy, accuracy of published information, compliance with laws and regulations, relationships with service providers and business activities. Investment support services are provided by Stamford. Administration and secretarial duties for the Company are performed by JTC.
22
NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS’ REPORT (Continued)
The Directors of the Company clearly define the duties and responsibilities of their agents and advisers. The appointment of agents and advisers is conducted by the Board after consideration of the quality of the parties involved and the Board monitors their on-going performance and contractual arrangements. The Board also specifies which matters are reserved for a decision by the Board and which matters may be delegated to its agents and advisers. Dialogue with Shareholders All holders of Shares in the Company have the right to receive notice of, and attend, the general meetings of the Company, during which members of the Board will be available to discuss issues affecting the Company. The primary responsibility for Shareholder relations lies with the Company’s Corporate and Shareholder Adviser. In addition the Directors are always available to enter into dialogue with Shareholders and the Chairman is always willing to meet Shareholders as the Company believes such communication to be important. The Company’s Directors can be contacted at the Company’s registered office or via the Secretary.
Statement of Directors’ Responsibilities The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and regulations. The Law requires the Directors to prepare financial statements for each financial year. Under the Law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”) and applicable law. The financial statements are required by Law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for the Year. In preparing these financial statements, the Directors are required to: • • •
•
properly select and apply accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures when compliance with the specific requirements of IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for maintaining proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Law. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in Guernsey governing
23
NIMROD SEA ASSETS LIMITED (the “Company”) DIRECTORS’ REPORT (Continued)
the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Disclosure of information to the auditor The Directors who held office at the date of approval of this Directors’ Report confirm in accordance with the provisions of Section 249 of the Law that, so far as they are each aware, there is no relevant audit information of which the Company’s Auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information.
Auditor Deloitte LLP has expressed its willingness to continue in office as Auditor and the Audit Committee has recommended their reappointment. A resolution proposing their reappointment will be submitted at the forthcoming general meeting to be held pursuant to section 199 of the Guernsey Company Law.
Jeffrey Vidamour Chairman
Peter Atkinson Chairman of Audit Committee
Signed on behalf of the Board on
1 July 2016
24
NIMROD SEA ASSETS LIMITED (the “Company”) STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES Summary An investment in the Shares is only suitable for investors, such as institutional investors, private client fund managers and private client brokers, who understand and can bear the potential risk of a substantial or entire capital loss of their investment and who can accept that there may be a limited liquidity in the Shares and the underlying investments of the Company. Furthermore an investment in the Shares should constitute part of a diversified investment programme and should be considered as a medium to long term investment. The Board has undertaken a robust assessment of the principal risks facing the Company and have undertaken a detailed review of the effectiveness of the risk management and internal control systems. The Board is comfortable that the risks are being appropriately monitored. The documentation to support these processes is still to be finalised. The risks set out below are those which are considered to be the material risks relating to an investment in the Shares but are not the only risks relating to the Shares or the Company. Additional risks and uncertainties of which the Company is presently unaware, or that the Company currently deems to be immaterial, may also adversely affect its business, financial condition, results of operations or the value of the Shares. Risk Marine Assets
Explanation/Mitigation The Company’s business strategy is dependent on the Executive Directors ability to identify the appropriate Marine Assets and counterparties for investment. Investment cycles in the offshore oil and gas industry drive the demand for the underlying Marine Assets, and a change in confidence in this market may adversely affect the ability of the Company to source suitable investment opportunities. The existing assets, of which there are six, are kept under constant review by the Executive Directors and Stamford who report regularly to the Board either by telephone or by email as to any developments.
Offshore Oil and Gas Production
Offshore oil and gas is more expensive to produce than traditional onshore production. A sustained decline in the real price of oil for an extended period of time could lead exploration and production companies to alter, and in particular to reduce, their investment in offshore production facilities which would negatively impact the market demand for the Marine Assets to which the Company seeks exposure. The Board does not presently foresee any change in this situation.
Valuation of Marine Assets
The Company invests in Marine Asset Companies which invest in Marine Assets that are specialised and which can be difficult to value. These assets have a limited market and pricing can at times appear unclear. The market price and value of the Marine Assets may fluctuate due to a number of factors beyond the
25
NIMROD SEA ASSETS LIMITED (the “Company”) STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES (Continued) Company’s control. The residual value of a Marine Asset may also be adversely affected by factors such as poor maintenance by Charter Counterparties or as a result of a poor performance relative to its intended function. The realisable value of an interest in a Marine Asset Company, or underlying Marine Asset may be miscalculated. A lack of reliable information, errors in assumptions or forecasts and/or ability to successfully implement the investment strategy in a particular case could, among other factors, result in the Marine Asset Company or Marine Asset having a lower realisable value than had been anticipated. As a result the value ascribed by the Company to its holding in a Marine Asset Company may be higher or lower than alternative assessments. The Board has approved the methodology adopted by Stamford in assessing the valuation of each of the assets. This exercise has been further verified by requesting an independent valuation be carried out. That independent valuation confirmed that the approach taken by Stamford was appropriate in relation to each of the assets Counterparty Risk
Insurance of Marine Assets
The Company holds interests in Marine Asset Companies that enter into medium to long term contractual relationships with counterparties that charter the Marine Asset held by each Marine Asset Company. These counterparties vary considerably in terms of financial strength and their overall business model. There is no guarantee that all of the counterparties will honour their contractual obligations. Default by these counterparties may substantially adversely affect the Company’s business, financial condition, results of operations and the NAV and/or market price of the Shares. The Executive Directors ensure that a substantial due diligence process is carried out on each counterparty. Any issues found are raised to the Board. Further the Executive Directors review the financial position of any charterer. The Marine Assets are comprehensively insured however, certain factors may mean that, in the event of the destruction of a Marine Asset, the value ascribed to it by the Insurer may be lower than the value as determined by the Company. Stamford and JTC ensure that the marine assets are appropriately insured.
26
NIMROD SEA ASSETS LIMITED (the “Company”) STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES (Continued)
Borrowings and financing
The Company may from time to time use cash borrowings. Borrowing by the Company will be restricted to 20% of the NAV of the Company at the time of the Company entering into the borrowing facility. If income and capital appreciation on investments made with borrowed funds are less than the costs of the leverage the NAV of the Company will decrease.
Reliance on Service Providers
The Company has no borrowings at the present time. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to meet its investment objectives. The Board and Audit Committee perform regular reviews of the performance and control environments of the Company’s Service Providers.
Key Personnel
The Company has no external investment manager or adviser. The Company is therefore reliant in part upon the services of the Executive Directors and Stamford. The impact of the departure of an Executive Director from the Company on the future ability of the Company to achieve its investment objective cannot be determined and may depend on the ability of the Company to recruit individuals of a similar experience and calibre. There can be no guarantee that the Company would be able to do so. Stamford is not authorised by the FCA and is therefore prohibited from advising on the management of others’ investments in the UK; in the absence of the Executive Directors, Stamford would not be in a position to take on a discretionary management or investment advisory role in relation to the Company. The Board comprises directors with a broad range of experience relevant to the Company’s needs. The Board will meet as required to consider the appointment of new directors. The Board also has an annual self appraisal regime to identify any underperforming directors. The Board will seek to replace any Executive Director who is no longer able to perform his role.
Taxation
Any change in the Company’s tax status, or in taxation
27
NIMROD SEA ASSETS LIMITED (the “Company”) STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES (Continued) legislation or practice in either Guernsey or the United Kingdom or any jurisdiction in which Marine Asset Companies are resident, may affect the value of the investments held by the Company or the Company’s ability to pursue its investment policy successfully or achieve its investment objective, or may alter the aftertax returns to Shareholders. In order to maintain its non-UK tax resident status, the Company is required to be controlled outside the United Kingdom. The Company is based in Guernsey and a majority of the Directors are resident out of the United Kingdom. The Secretary ensures that all Board meetings are properly convened and held in Guernsey and that all Board decisions are taken outside of the United Kingdom. The Board takes tax advice as and when necessary to ensure that the Company is not managed from the United Kingdom or any other jurisdiction. Compliance with Laws and Regulations
Legal and regulatory changes could occur that may adversely affect the Company. Changes in the regulation of investment companies may adversely affect the value of the Company’s investments and the ability of the Company to successfully pursue its investment strategy. Any failure to comply or respond in a timely manner could lead to criminal or civil proceedings. Although responsibility ultimately lies with the Board, the Secretary also monitors and assists the Board with compliance with regulatory requirements.
28
NIMROD SEA ASSETS LIMITED (the “Company”) AUDIT COMMITTEE REPORT
Membership Peter Atkinson – Chairman of the Audit Committee Jeff Vidamour – Chairman of the Board Norbert Bannon – Director Key Objective The function of the Audit Committee (the “Committee”) is to ensure that the Company maintains high standards of integrity in its financial reporting and internal controls as appropriate. In order to achieve this, the Committee shall provide effective governance over (i) the appropriateness of the Company’s financial reporting including the adequacy of related disclosures, (ii) monitoring of internal control and risk management systems operated by the Company (iii) the adequacy and security of compliance, whistleblowing and fraud procedures, and (iv) the performance of the Company’s external auditor. Responsibilities The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities. The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. The Committee shall produce a report on its activities to be included in the Company’s Annual Report and Financial Statements. Committee Meetings The Committee meets at least twice annually. It reports to the Board as part of a separate agenda item, on the activities of the Committee and on matters of particular relevance to the Board in the conduct of the Committee’s work. During the Year the Committee formally reported to the Board on two occasions. Main Activities of the Committee during the Year The Committee assisted the Board in carrying out its responsibilities in relation to financial reporting requirements, compliance and the assessment of internal controls. It also managed the Company’s relationship with the external auditor. Fair, Balanced and Understandable Following the publication of the revised version of the UK Corporate Governance Code, which applies to financial years commencing
on or after 1 October 2012, the Board
29
NIMROD SEA ASSETS LIMITED (the “Company”) AUDIT COMMITTEE REPORT (Continued)
requested that the Committee advise them on whether it believes the Annual Financial Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. The Committee has reviewed the Company’s 2016 Annual Report and has advised the Board that, in its opinion, the 2016 Annual Financial Report, taken as a whole, is fair, balanced and understandable and provides the information necessary to assess the Company’s performance, operating model and strategy. Financial Reporting and Significant Issues The Committee’s primary role in relation to financial reporting is to review, with the external auditor, the appropriateness of the half-year and annual financial statements, the significant financial reporting issues and accounting policies and disclosures in the financial statements. The Committee has considered the key audit risks identified as being significant to the 2016 Annual Financial Report and the most appropriate treatment and disclosure of any new significant issues identified during the audit and half-year as well as any recommendations or observations made by the external auditor. To aid its review the Committee has considered reports prepared by the Executive Directors, Nimrod and the external Auditor on the outcome of their annual audit. The significant issues considered by the Committee in relation to the 2016 accounts and how these were addressed are detailed below:
Significant issues related to the Financial How these significant issues have been Statements addressed Valuation of Marine Asset SPV investments On a six monthly basis (in addition to adhoc The Company acquires interests in Marine board meetings where necessary) the Asset Companies which invest in Marine Committee, alongside Stamford and the Assets that are specialised. Administrator, undertakes a valuation review and monitors the value of the partnerships Under IFRS 13, all of the Company’s that the Marine Assets are held in. investments have been classified as Level 3 under the fair value hierarchy as their The Committee receives reports from the valuations are derived from techniques that Executive Directors on general market include inputs that are not based on conditions, reviews the continuing long term observable market data. charter arrangements, and considers broker’s valuations, and any recent sales of The valuation of the investments as at 31 comparable Marine Assets (if any are March 2016 has been derived using the available). Discounted Cash Flow (DCF) method for assets with a long term charter and Adjusted The Committee reviews the following inputs Asset Valuation for assets with a short term when considering whether the valuation is or no charter. This is further explained in appropriate: anticipated cash-flow, residual Note 7 on pages 55 to 60. value, discount rates, anticipated dividend flow, any current or anticipated issues The inputs used in the valuation may regarding the investment and any applicable fluctuate due to a number of factors beyond broker valuations or relevant market practice.
30
NIMROD SEA ASSETS LIMITED (the “Company”) AUDIT COMMITTEE REPORT (Continued)
the Company’s control.
The committee then assesses and challenges these inputs using the sources Where the Company’s investment has been noted above to determine the valued at nil and where the Company has a appropriateness and accuracy of the legal obligation to provide further funding to valuation. the investment, it may be appropriate to provide for this obligation. In establishing the most suitable valuation method and after review of the above considerations, the Committee determines which fair value methodology (either the discounted cash-flow method or at cost) is most suitable valuation method for that investment. The Committee is of the opinion that the methodology used to ascertain each valuation estimate is appropriate and provides a reasonable assessment of the value of the investments as at the date of this Financial Report. The Committee is however cognisant that the valuation is a best estimate based on the information available to it and there is a material level of uncertainty around valuations due to the difficult market conditions as detailed above. As a consequence, the Board has also obtained an independent valuation of the Company’s investments as at 31 March 2016. The Committee regularly keeps under review those of the Company’s investments that are valued at nil and where the Company has a legal obligation to provide further funding to the investment. The Committee seeks the advice of the Executive Directors on the status of these investments and updates are provided regularly to the Board at each Board meeting as appropriate. The Committee makes provisions for any known additional funding requirements for example, any uncalled capital commitments, where appropriate. The specific issues in relation to the Marine Asset Companies are discussed in the Executive Directors’ Investment Report on pages 7 to 13. Valuations - Counterparty and Credit risk
31
NIMROD SEA ASSETS LIMITED (the “Company”) AUDIT COMMITTEE REPORT (Continued)
The Company holds interests in Marine Asset Companies that enter into medium to long term contractual relationships with counterparties who charter the Marine Asset held by each Marine Asset Company. These counterparties vary in terms of financial strength and their overall business model.
The Committee receives quarterly reports and regular market updates from the Executive Directors and reports from the Companies or the Commercial Manager of the Companies. Prior to entering into an investment, the Investment Committee has carefully considered market conditions and cautiously reviewed the financial strength of the investment counterparties. Norton Rose Fulbright provided a report on the legal arrangements of the proposed investment. The Committee continue to monitor the financial stability of each of its investments and this is considered when establishing the appropriate valuation method.
Should the counterparties default on the charter payments, it is unlikely the Company will be able to meet its targeted dividends. Any such default would also have a direct impact on the valuation and/or method of valuation of the investment as disclosed above.
If the income receivable from a counterparty ceases, or the Committee concludes that the income will not be paid in the longer term, the Committee will refer to broker reports, valuations and comparable sales (if any) to ascertain the value of the underlying Marine Asset. If the value of the Marine Asset as a consequence of the above changes significantly, this would have a direct impact on the Financial Statements of the Company. If this occurs the Committee will revisit the valuation methodology applied to the investment as demonstrated by the fact that this has been done in the case of [three] of the Company’s investments. Leverage and Interest on borrowing at Marine Asset Company level Marine Asset Companies frequently utilise a substantial amount of leverage to finance the purchase of the Marine Assets. In such circumstances, the Marine Asset Companies will be required to comply with loan covenants and undertakings, including loan to value covenants. A failure to comply with such covenants or undertakings may result in the relevant lenders withholding dividend payments and/ or recalling the relevant loans.
The Investment Committee has reviewed all the finance arrangements of each investment when considering whether to invest and instructed Norton Rose Fulbright to provide a report on the underlying financial structure on any potential Marine Asset. The Company sought to avoid investing in any Marine Asset with excessive or potentially onerous financing arrangements. The Committee monitors the performance of each investment to ensure it is not in default
32
NIMROD SEA ASSETS LIMITED (the “Company”) AUDIT COMMITTEE REPORT (Continued)
In the event of a breach, the Marine Asset Companies may be required to sell the relevant Marine Asset to repay the outstanding loan. Under the loan arrangements, there may also be circumstances (including the relevant Marine Asset Company's failure to repay the relevant loan in full) under which the relevant lenders may enforce security and sell the relevant Marine Asset on the market, and use the proceeds for discharge of the Marine Asset Company's outstanding repayments under the loan arrangement. In either case, if a Marine Asset is sold, in relation to that Marine Asset the Company will receive only the proceeds left after deduction of the outstanding loan repayments under the loan arrangement.
of its loan covenants. In the event that an investment does default on its loan covenants, the Executive Directors work closely with the board of the Marine Asset Companies and engage with the lender. The Committee has reviewed each investment in which there is any bank lending and is satisfied that either the loan is in good standing or any breach is being appropriately addressed. The Company has no liability for any interest or other payments in the event of a breach by the owner of a Marine Asset. The Company has no borrowings at the present time.
Any such breach would also have a direct impact on the valuation and/or method of valuation as disclosed above. There is also a risk, in the event of default that the Company will become liable for payments under the terms of the Loan. Regulation and Tax Risk Legal and regulatory changes could occur that may adversely affect the Company. Changes in the regulation of investment companies may adversely affect the value of the Company's investments and the ability of the Company successfully to pursue its investment strategy.
The Committee receives periodic updates from the London Stock Exchange, external auditors, legal advisers and professional publications advising of regulatory changes.
The Company engages tax advisers to advise on the tax consequences of investments and monitors the ongoing Any change in the Company’s tax status, or taxation changes in the market. in taxation legislation or practice in either Guernsey or the United Kingdom or any The Committee is satisfied that as at the jurisdiction in which Marine Asset date of this Financial Report there are no Companies are resident, may affect the legal, regulatory or taxation changes value of the investments held by the proposed which would materially affect the Company or the Company’s ability to pursue Company. its investment policy successfully or achieve its investment objective, or may alter the after tax returns to Shareholders.
Going Concern
33
NIMROD SEA ASSETS LIMITED (the “Company”) AUDIT COMMITTEE REPORT (Continued)
After making all necessary enquiries, the Committee has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and has significant liquid funds to do so. Accordingly, the Committee recommended to the Board of Directors that the adoption of the going concern in preparing the financial statements is appropriate. Internal Control The Committee has considered the Risk Assessment and Review of Internal Controls prepared by the Company’s Secretary and Administrator and approved by the Board and has ensured that the controls exercised by the Secretary and Administrator in controlling the Company’s affairs are adequate and are properly implemented. Internal Audit Other than the Executive Directors, the Directors have all been appointed on a nonexecutive basis. The Company has no employees and operates no systems of its own, relying instead on the employees and systems of its external service providers. The Board has therefore taken the decision that it would be of insufficient benefit for the Company to engage an internal auditor. External Audit The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The Committee receives from Deloitte LLP a detailed audit plan, identifying their assessment of the key risks. For the Year the primary risks identified were in respect of valuation of investments and ownership and recognition of investments. Using its collective skills, the Committee assess the effectiveness of the audit process in addressing the matters raised through the reporting received from the external auditor at the financial year-end. In particular the Committee formally appraises the external auditor against the following criteria: • • • • • • •
Independence Ethics and Conflicts Knowledge and Experience Challenge Promptness Cost Overall quality of service
In addition the Committee also seeks feedback from the Administrator on the effectiveness of the audit process. For the Year, the Committee was satisfied that there had been appropriate focus on the primary areas of audit risk and assessed the quality of the audit process to be effective.
34
NIMROD SEA ASSETS LIMITED (the “Company”) AUDIT COMMITTEE REPORT (Continued)
The Committee holds meetings with the external auditor to provide additional opportunity for open dialogue and feedback from the auditor. If felt necessary, the Committee meet with the external auditor without the Secretary and Administrator being present. Matters typically discussed include the Auditor’s assessment of business risks and management activity thereon, the transparency and openness of interactions with the Administrator, confirmation that there has been no restriction in scope placed on them by the Administrator on the independence of their audit and how they have exercised professional scepticism. Auditor Appointment and Independence The Committee considers the reappointment of the external auditor, including the rotation of the audit partner, each year and also assesses their independence on an ongoing basis. The external auditor is required to rotate the audit partner responsible for the audit every five years. The current lead audit partner has been in place since March 2014. Deloitte has been the Company’s external Auditor since March 2014. The Committee has provided the Board with its recommendation to Shareholders on the reappointment of Deloitte as Auditor for the year ending 31 March 2017. Accordingly a resolution proposing the reappointment of Deloitte as the Auditor will be put to the Shareholders at the 2016 General Meeting. There are no contractual obligations restricting the Company’s choice of external auditor. The Committee continues to consider the audit tendering provisions outlined in the revised UK Corporate Governance Code. Non-Audit Services To further safeguard the objectivity and independence of the external auditor from becoming compromised, the Company has adopted a policy governing the engagement of the external auditor to provide non-audit services. This policy specifies that the external auditor should only be engaged for non-audit services where there is considered to be a low threat to auditor independence. During the Year, the Company requested that Deloitte LLP provide assistance to the Company in its assessment of various options relating to two investments, Red7 Alliance and FS Cygnus, the Company paid Deloitte LLP a fee of £30,676 for this service. The external auditor is prohibited from providing any other services without the Committee’s prior approval. In reaching such a determination the Committee will take into consideration whether it is in the best interests of the Company that such services should be supplied by the Company’s external auditor (rather than another service provider) and, if so whether any safeguards regarding auditor objectivity and independence in the conduct of the audit should be put in place, whether these would be effective and how such safeguards should be disclosed.
35
NIMROD SEA ASSETS LIMITED (the “Company”) AUDIT COMMITTEE REPORT (Continued)
Committee Evaluation The Committee’s activities formed part of the review of Board effectiveness performed in 2016. An internal evaluation of the Committee’s effectiveness was carried out in April 2016. Peter Atkinson Chairman of the Audit Committee
1 July 2016
36
NIMROD SEA ASSETS LIMITED (the “Company”) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NIMROD SEA ASSETS LIMITED
Opinion on In our opinion the financial statements: financial • give a true and fair view of the state of the company’s statements of affairs as at 31 March 2016and of its loss for the year Nimrod Sea Assets ended 31 March 2016; Limited • have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008. The financial statements comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Cash Flows, the Statement of Changes in Equity and the related notes 1 to 16. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union. Emphasis of In forming our opinion on the financial statements, which is not matter – valuation modified, we have considered the fair valuation of investments. of investments As described in the note 7 to the financial statements, there continues to be significant disruption in the Company’s principal markets. The Company invests in special purpose vehicles (‘SPVs’) that acquire charter and sell marine asset vessels associated with the offshore oil and gas industry. In particular the Company seeks exposure to marine asset vessels that are chartered on leases to marine asset operators. The continued depression in oil prices has resulted in failure and stress amongst the marine asset operators to whom the underlying vessels are leased. This disruption has also led to significant illiquidity and uncertain pricing for the underlying vessels and, therefore, the Company’s investments. Three of the Company’s investments, with a value of USD6.3m, are valued based on an asset sale basis provided by independent valuation experts. The independent valuation experts the Company has used to estimate the achievable selling prices have both noted the lack of comparable transactions and the uncertainty this brings to their valuation. Due to leverage within two of the SPVs these are currently valued at nil as the level of debt and associated costs are estimated to be above the realisable value of the SPVs assets. In addition one of the investments held by the Company has been written off during the period. The other three investments with a value of USD.12.2m are valued using a discounted cash flow technique with the dividend flows, residual values and discount rates being the main assumptions used in the valuation model. Due to both specific conditions within the investments and the illiquidity in the market in general there is increased judgement and uncertainty over all of these assumptions.
37
NIMROD SEA ASSETS LIMITED (the “Company”) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NIMROD SEA ASSETS LIMITED
These conditions indicate the existence of a material uncertainty which may give rise to significant doubt over the valuation of the investments. We describe below how the scope of our audit has responded to this risk. Our opinion is not modified in respect of this matter. Going concern and the directors’ assessment of the principal risks that would threaten the solvency or liquidity of the Company
We have reviewed the directors’ statement contained within the Management Report on page 15 that the Company is a going concern and the director’s statement on the longer term viability of the company on page 14. We have nothing material to add or draw attention to in relation to: • the directors' confirmation on page 14 that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity; • the disclosures on pages 25 to 28 that describe those risks and explain how they are being managed or mitigated; • the directors’ statement in note 2 to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; • the directors’ explanation on page 14 as to how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We agreed with the directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company’s ability to continue as a going concern.
Our assessment of The assessed risks of material misstatement described below are risks of material those that had the greatest effect on our audit strategy, the allocation misstatement of resources in the audit and directing the efforts of the engagement team:
38
NIMROD SEA ASSETS LIMITED (the “Company”) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NIMROD SEA ASSETS LIMITED
Risk
How the scope of our audit responded to the risk
Valuation of marine asset SPV investments As explained in Note 7 the Company’s investments of USD 18.5m in marine asset SPVs are accounted for at fair value with gains or losses recognised in profit or loss. In the absence of an active market for these investments, their valuation requires the use of judgment and estimation by management and the directors. As noted in the Emphasis of Matter paragraph above due to specific conditions within the investments and the illiquidity in the oil and gas market in general there is increased judgement and uncertainty over the assumptions used in arriving at the fair value. The directors have concluded that the discounted cash flow (‘DCF’) method is the most appropriate valuation technique for valuing three of the investments. These investments have a value of USD 12.2m at the year end. The DCF methodology entails determining the relevant cash flows of the particular investment and discounting those cash flows by an appropriate risk-adjusted discount rate. In addition the directors have considered the credit risk within the discount rate applied in the valuation should the charterer default on payments. Further, any defaults by the SPV on loan covenants at the SPV level would have a direct impact on the valuation and have also been factored into the discount rate applied. The directors have determined that an asset sale based valuation for the three remaining investments with a value of USD 6.3m is the more appropriate technique as the Company expects to realise value by way of asset sale. The asset sale basis of valuation is based on estimated sales prices of the marine asset vessels provided by an independent valuer, less outstanding debt and then adjusting for the associated costs of maintenance and sale.
We considered whether the valuation methodology selected by the directors was the most appropriate and maximised the use of observable inputs. We audited the DCF valuations prepared by management, which included: • Verifying the cash flows included in the valuations to assess whether they were consistent with projections provided by the independent broker and available financial information on the investment; • Evaluating the consistency of the brokers’ cash flow projections against our understanding of the contractual arrangements of the project (including charter arrangements, finance structures and management contracts) with reference to the latest financial statements of the investee entity; • Challenging estimates of residual value of Marine Assets with reference to available market information and the sensitivity of valuations to changes in this uncertain input, including a challenge on depreciation rates assumed and review of latest valuation results; • Comparing previous forecast cash flows to actual cash flows to assess reasonableness; • Reviewing and recalculating the initial project Internal Rate of Return (“IRR”) used as the discount rate to assess consistency with the valuation; • Considering whether changes in the project risk profile might warrant adjustment to the discount rate, including review of other IRRs available in the market and considering the project specific risks including the credit risk of the charter holder. Where financial information for each charterer was available, we reviewed this to assess their financial stability; • Reviewing the loan covenant positions on all of the SPV investments and
39
NIMROD SEA ASSETS LIMITED (the “Company”) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NIMROD SEA ASSETS LIMITED
Risk
How the scope of our audit responded to the risk ensuring any breaches have been factored into the discount rate; • Reviewing and challenging management’s assumptions including involving our internal valuation specialists with respect to assessing the discount rate for reasonableness, benchmarking against more recent acquisitions and general market movements since acquisition; and We compared the year end valuations to other measures including original cost and net asset value of the investee, assessing differences for reasonableness. We also considered the valuations against the Company’s share of the net asset value (“NAV”) of the investee entity based on the latest financial statements, adjusted to reflect any recent marine asset valuations obtained from the broker. For the three investments where valuations are based on an asset sale basis we reviewed and challenged the estimated selling price, which was based on independent valuations, and associated costs of maintenance and sale. In particular we: • •
•
•
40
Inspected supporting documentation for inputs into the calculation to test these amounts for accuracy and completeness; Performed enquiries of management to understand the rationale for each input and assessed the consistency of the information with our understanding of the operations. Valuations were challenged with loans and associated costs being agreed to underlying agreements and selling costs agreed to contractual evidence; Held discussions with the independent valuers to understand the methods and assumptions applied in arriving the valuation estimate; and Performed an independent assessment of the valuation brokers to assess their
NIMROD SEA ASSETS LIMITED (the “Company”) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NIMROD SEA ASSETS LIMITED
Risk
How the scope of our audit responded to the risk objectivity and level of expertise. For the 31 March 2016 valuations the Company also employed an independent agent to determine a range of values for the Company’s investment portfolio. We assessed the competency of the agent and the appropriateness of their valuation techniques, data sources and assumptions used. We also discussed with the agent their range of estimates to determine whether the Company’s valuation of its investment portfolio fell within these ranges. We also considered the completeness and accuracy of the disclosures made in the financial statements under the requirements of IFRS 13 Fair Value Measurement, as set out in Note 7. As a result of our audit work we identified the existence of a material uncertainty in respect of the current oil and gas market conditions which may give rise to significant doubt over the valuation of the investments.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed on page 29 to 36. Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters. Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. We determined materiality for the company to be USD 1.3m (2015: USD 2.3 million), which is below 2% of equity, a key performance
41
NIMROD SEA ASSETS LIMITED (the “Company”) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NIMROD SEA ASSETS LIMITED
measure and focus for shareholders. Equity was selected as investors are seeking capital appreciation in addition to dividend streams and the net asset value per share is an important indicator of performance to investors. We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of USD27,000 (2015: USD 46,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. An overview of the Our audit was scoped by obtaining an understanding of the company scope of our audit and its environment, including internal control, and assessing the risks of material misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team As explained in Note 2(a), the directors have concluded that the company is an investment entity as defined by IFRS 10 Consolidated Financial Statements. As such, the company has not prepared consolidated financial statements and investments in controlled subsidiaries are accounted for at fair value through profit or loss.
Matters on which we are required to report by exception Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • proper accounting records have not been kept; or • the financial statements are not in agreement with the accounting records. We have nothing to report in respect of these matters.
Our duty to read Under International Standards on Auditing (UK and Ireland), we are other information in required to report to you if, in our opinion, information in the annual report is: the Annual Report • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company acquired in the course of performing our audit; or • otherwise misleading. In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual
42
NIMROD SEA ASSETS LIMITED (the “Company”) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NIMROD SEA ASSETS LIMITED
report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements. Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors’ Responsibilities within the Directors’ Report, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews. This report is made solely to the company’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and/or those further matters we have expressly agreed to report to them on in our engagement letter and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Scope of the audit An audit involves obtaining evidence about the amounts and of the financial disclosures in the financial statements sufficient to give reasonable
43
NIMROD SEA ASSETS LIMITED (the “Company”) INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NIMROD SEA ASSETS LIMITED
statements
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
John Clacy FCA for and on behalf of Deloitte LLP Chartered Accountants and Recognised Auditor St Peter Port, Guernsey 1 July 2016
44
NIMROD SEA ASSETS LIMITED (the "Company") STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2016
Notes
Operating Income Net movement in unrealised losses on financial assets at fair value through profit or loss Realised loss on financial assets at fair value through profit or loss Distributions received from investments Bank interest received
Operating expenses
Year Ended 1 Mar 2014 to 31 Mar 2016 31 Mar 2015 USD USD
7
(28,150,267)
7
(10,061,689)
4
Net loss for the year/period before finance costs and foreign exchange loss Unrealised foreign exchange loss Net loss for the year/period attributable to shareholders
-
1,576,234 110,084 (36,525,638)
2,490,974 143,510 (8,009,152)
(4,576,381)
(2,776,206)
(41,102,019)
(10,785,358)
(27,150)
(50,596)
(41,129,169)
(10,835,954)
Other comprehensive income
-
Total comprehensive loss for the year /period
Loss per share for the year/period - basic and diluted
(10,643,636)
6
-
(41,129,169)
(10,835,954)
Cents
Cents
(31.64)
(8.34)
In arriving at the results for the financial year, all amounts above relate to continuing operations. There are no recognised gains or losses for the year other than those disclosed above.
The notes on pages 49 to 68 form an integral part of these financial statements
45
NIMROD SEA ASSETS LIMITED (the "Company") STATEMENT OF FINANCIAL POSITION as at 31 March 2016
Non-current assets Financial assets designated at fair value through proft and loss Current assets Receivables Cash and cash equivalents
Notes
31 Mar 2016 USD
31 Mar 2015 USD
7
18,510,222
45,591,678
8
69,954 46,248,403 46,318,357
41,106 66,730,471 66,771,577
64,828,579
112,363,255
4,934,215 4,934,215
304,034 304,034
4,934,215
304,034
59,894,364
112,059,221
122,895,175 (63,000,811)
122,895,175 (10,835,954)
59,894,364
112,059,221
Cents 46.07
Cents 86.20
Total assets Current liabilities Payables - due within one year
9
Total liabilities Total net assets Equity Share capital Share premium Revenue reserve
10 11
Net asset value per share
The Financial Statements were approved by the Board of Directors and authorised for issue on 1 July 2016 and are signed on its behalf by:
Director
Director
The notes on pages 49 to 68 form an integral part of these financial statements
46
NIMROD SEA ASSETS LIMITED (the "Company") STATEMENT OF CASH FLOWS for the year ended 31 March 2016
Notes Operating activities Net loss for the year/period attributable to shareholders Net movement in unrealised losses on financial assets at fair value through profit or loss Realised loss on financial assets at fair value through profit or loss Interest received Increase in payables Increase in receivables Foreign exchange movement
7
Net cash flow from operating activities Investing activities Purchase of investments Payment of uncalled share capital Interest received
7 7
Net cash flow used in investing activities Financing activities Proceeds on issue of shares Share issue costs Dividends paid
11 11
Net cash flow from financing activities Cash and cash equivalents at beginning of year / period (Decrease) / Increase in cash and cash equivalents Foreign exchange movement Cash and cash equivalents at end of year / period
Year Ended 1 Mar 2014 to 31 Mar 2016 31 Mar 2015 USD USD
(41,129,169)
(10,835,954)
26,172,267
10,643,636
10,061,689 (110,084) 2,030,181 (28,848) 27,150
(143,510) 304,034 (41,104) 50,596
(2,976,814)
(22,302)
(8,808,500) (344,000) 110,084
(56,235,314) 143,510
(9,042,416)
(56,091,804)
(8,435,688)
126,875,000 (3,979,827) -
(8,435,688)
122,895,173
66,730,471
(20,454,918) (27,150)
66,781,067 (50,596)
46,248,403 66,730,471
66,730,471
The notes on pages 49 to 68 form an integral part of these financial statements
47
-
NIMROD SEA ASSETS LIMITED (the "Company") STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2016 Ordinary Shares Share Revenue Capital Reserve USD USD Balance as at 1 April 2015
USD
122,895,175
(10,835,954)
112,059,221
-
(41,129,169) (8,435,688) (2,600,000)
(41,129,169) (8,435,688) (2,600,000)
122,895,175
(63,000,811)
59,894,364
Total comprehensive loss for the year Dividends paid Dividend declared Balance as at 31 March 2016
Total
for the year ended 31 March 2015 Share Capital USD
Notes
Balance as at 1 March 2014
Ordinary Shares Revenue Reserve USD
2
-
Total USD 2
Total comprehensive income for the period Share issue proceeds Share issue costs
126,875,000 (3,979,827)
(10,835,954) -
(10,835,954) 126,875,000 (3,979,827)
Balance as at 31 March 2015
122,895,175
(10,835,954)
112,059,221
The notes on pages 49 to 68 form an integral part of these financial statements
48
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2016 1
GENERAL INFORMATION The financial statements incorporate the results of Nimrod Sea Assets Limited (the "Company"). The Company was incorporated in Guernsey on 8 October 2012 with registered number 55718. Its share capital consists of one class of Ordinary Shares ("Ordinary Shares") of no par value. The Company's Ordinary Shares have been admitted to trading on the Specialist Fund Segment ("SFS") of the London Stock Exchange's Main Market ("LSE") on 24 March 2014. The Company's investment objective was to obtain income returns and a capital appreciation for its Shareholders by participating in vehicles which acquire, charter and sell Marine Assets associated with the offshore oil and gas industry.
2
ACCOUNTING POLICIES The significant accounting policies adopted by the Company are as follows:
(a) Basis of preparation The financial statements have been prepared in conformity with IFRS as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and International Financial Reporting Interpretations Committee ("IFRIC") and applicable Guernsey law. 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 Company is an investment entity and as such does not consolidate the entities it controls. Instead interests in subsidiaries are classified as fair value through profit and loss and measured at fair value. Assessment as investment entity. Entities that meet the definition of an investment entity within IFRS 10 are required to measure their subsidiaries, other than those that provide investment services to the Company, at fair value through profit or loss rather than consolidate them. 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; • An entity that obtains funds from one or more investors for the purpose of providing those investors with investment services: • An entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and • An entity that measures and evaluates the performance of substantially all of its investments on a fair value basis. The Company meets the criteria as follows: The Company provides investment management services and has a number of investors who pool their funds to gain access to these services and investment opportunities that they might not have had access to individually. The Company, being listed on the London Stock Exchange, obtains funding from a diverse group of external shareholders. The Company’s objective is consistent with that of an investment entity. The Company has the intention to realise the constituents of each of its investment classes. The Company measures and evaluates the performance of substantially all of its investments on a fair value basis. The fair value method is used to represent the Company’s performance in its communication to the market, including investor presentations. In addition, the Company reports fair value information internally to Directors, who use fair value as a significant measurement attribute to evaluate the performance of its investments and to make investment decisions for mature investments. 49
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 2
ACCOUNTING POLICIES (continued)
(a) Basis of preparation (continued) Changes in accounting policies and disclosure In the current period no new and revised Standards and Interpretations have been adopted. The following Standards or Interpretations that are expected to affect the Company have been issued but not yet adopted by the Company as shown below. Other Standards or Interpretations issued by the IASB and IFRIC are not expected to affect the Company. IFRS 7 Financial Instruments: Disclosures - Deferral of mandatory effective date of IFRS 9 and amendments relating to additional hedge accounting disclosure (and consequential amendments). Applied only when IFRS 9 is adopted, which is effective for annual periods beginning on or after 1 January 2018. IFRS 7 Financial Instruments: Amendments resulting from September 2014 Annual improvements to IFRSs, effective for annual periods beginning on or after 1 January 2016. IFRS 9 Financial Instruments - classification and measurement of financial assets effective for annual period beginning on or after 1 January 2018. The standard contains revised guidance including new general hedge accounting requirements that align hedge accounting more closely with an entity's risk management approach and a new expected credit loss model for calculating impairment on financial assets. Other requirements of IFRS 9 relating to accounting for liabilities and derecognition of financial instruments are effective for annual periods beginning on or after 1 January 2018. IFRS 10 Consolidated Financial Statements - amendments regarding the application of the consolidation exception effective for annual periods beginning on or after 1 January 2016. IFRS 15 Revenue from Contracts with Customers - effective for annual periods beginning on or after 1 January 2018. IAS 34 Interim Financial Reporting - amendments resulting from September 2014 Annual Improvements to IFRs effective for annual periods beginning on or after 1 January 2016. The Directors have considered the above and are of the opinion that these Standards and Interpretations are not expected to have an impact on the Company’s financial statements except for the presentation of additional disclosures and changes to the presentation of items of the financial statements. These items will be applied in the first financial period for which they are required. (b) Taxation The Company has been assessed for tax at the Guernsey standard rate of 0%. Dividends receivable from investments held in Marine Asset vehicles are recognised at an amount that includes any withholding taxes payable to the relevant tax authorities. (c) Share capital Ordinary Shares (the "Shares") are classified as equity. Incremental costs directly attributable to the issue of Shares are recognised as a deduction from equity. (d) Expenses All expenses are accounted for on an accruals basis.
50
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 2
ACCOUNTING POLICIES (continued)
(e) Interest income Interest income is accounted for on an accruals basis. (f) Cash and cash equivalents Cash at bank and short term deposits which are held to maturity are carried at cost. Cash and cash equivalents are defined as call deposits, short term deposits with a term of no more than three months from the start of the deposit and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. The Company invests its cash and cash equivalents with Royal Bank of Scotland International Limited and Diversified Enhanced Yield Account ("DEYA"). (g) Distributions Distributions from investments are accounted for on an accruals basis. (h) Going concern The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and has significant liquid funds to do so. Accordingly, the Directors have adopted the going concern basis in preparing the financial statements. Refer to the Viability statement on page 14. (i) Segmental reporting The Directors are of the opinion that the Company is engaged in a single segment of business, being participating in vehicles that acquire, charter and sell Marine Assets associated with the offshore oil and gas industry. (j) Foreign currencies The financial statements of the Company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the financial statements, the results and financial position of the Company are expressed in US Dollars, which is the functional currency of the Company, and the presentation currency for the financial statements. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated 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 profit or loss in the period in which they arise. Transactions denominated in foreign currencies are translated into USD at the rate of exchange ruling at the date of the transaction. (k) Financial instruments Financial assets and financial liabilities are recognised in the Company’s balance sheet 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 profit or loss.
51
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for theyear ended 31 March 2016 2
ACCOUNTING POLICIES (continued)
(k) Financial instruments (continued) Financial assets All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ ("FVTPL") and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets at fair value through profit and loss ("FVTPL") Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. Fair value is determined in the manner described in Note 7. The Company’s investments in Marine Asset vehicles have been designated as at FVTPL on the basis that they are managed and their 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. 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 impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. 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, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised and accumulated in equity is recognised in profit or loss. Financial liabilities and equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
52
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for theyear ended 31 March 2016 2
ACCOUNTING POLICIES (continued)
(k) Financial instruments (continued) 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. Financial liabilities Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. Derecognition of financial liabilities The Company derecognises financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. 3
SIGNIFICANT JUDGEMENTS AND ESTIMATES In the application of the Company's accounting policies, which are described in Note 2, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgements and estimates that the Directors have made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognised in financial statements. Fair value measurement The Company's financial assets are measured at fair value for financial reporting purposes. In estimating the fair value of an asset the Board have approved a discounted cash flow methodology for assets with long term charter and the adjusted asset valuation methodology for assets with short term or no charter using inputs from the Marine Asset Companies underlying the investments and market wide data e.g. depreciation rates. Independent valuations were obtained and these were used to benchmark the valuations prepared by Stamford and any significant differences are investigated . The Board resolved to use the valuation values provided by Stamford Maritime Limited. The valuation techniques and inputs to the fair value models are reviewed bi-annually by the directors to ensure the assumptions are still appropriate. Detailed information about the valuation techniques and inputs used in determining the fair value of the financial assets is disclosed in Note 7.
53
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 4
OPERATING EXPENSES Year Ended 1 Mar 2014 to 31 Mar 2016 31 Mar 2015 USD USD 311,446 310,469 1,118,044 1,111,564 85,518 90,132 24,000 520,000 2,819 3,691 32,000 34,844 14,246 10,719 107,641 73,289 275,549 304,009 43,006 39,350 2,226,848 279,023 256,036 56,241 22,103
Nimrod management fee Stamford management fee Administration fees Investment acquisition costs Bank interest and charges Accountancy fees Registrars fee Audit fee Directors' remuneration Directors' and officers' insurance ** DSV Alliance expenses * Legal and professional expenses Other operating expenses
4,576,381
2,776,206
* Included in legal and professional expenses are non audit services provided by Deloitte LLP in the sum of USD 30,676. ** With respect to the DSV Alliance investment, the Company received notice on 18 June 2015 that Red7Marine Offshore Limited (the charterer of the vessel) had been put into administration. The vessel was returned to the Partnership (represented for this purpose by its General Partner, DSV Alliance AS) and the charter was formally terminated on 24 June 2015 to protect the Company’s legal position. The Company, as owner of the vessel, was committed to providing financial support for the vessel's maintenance while it seeked to realise its investment. Despite marketing efforts no credible offer was received to purchase the vessel. The Company removed its financial support on 19 February 2016 and DSV Alliance AS was placed into liquidation 5
DIRECTORS' REMUNERATION Under their terms of appointment, two Executive Directors are paid a fee of USD 75,000 per annum by the Company. The three remaining Directors are paid a fee of GBP 25,000 with the exception of the Chairman, who receives GBP 30,000 per annum. The Chairman of the Audit Committee also receives an additional GBP 4,000 per annum.
6
LOSS PER SHARE Loss per share is calculated by dividing the net loss for the year attributable to Shareholders of USD 41,129,169 (March 2015: USD 10,835,954) by the weighted average number of Shares in issue during the period since the placing in March 2014 of 130,000,000 (2015: 130,000,000).
54
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 7 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS The Company holds interests in Marine Asset Companies that will enter into medium to long term contractual relationships with counterparties that will charter the Marine Asset held by the Marine Asset Company. The investments in Marine Asset Companies are stated at fair value. Any changes to their fair value are recognised through the profit or loss.
Percentage of ownership
* Bukit Timah Offshore DIS Norseman Offshore IS Volstad Marine DIS II Altus Subsea IS ** DSV Alliance DIS Aberdeen Offshore DIS Jane Offshore Ltd
% 26.0 43.0 20.5 51.0 99.5 75.0 50.0
Percentage of Percentage of Fair value Investable Investable as at 31 Mar Funds 31 Funds 31 2016 March 2016 March 2015 USD % % 4.8 7.1 5,796,425 0 6.5 3 5.6 3,670,899 5.2 8.4 6,321,625 0 5.4 0 4.8 2.3 N/A 2,721,273 18,510,222
Fair value as at 31 Mar 2015 USD 8,584,624 7,851,598 6,728,184 10,103,223 6,515,717 5,808,332 45,591,678
All Marine Asset Companies are incorporated in Norway and operations are worldwide. All Marine Asset Companies’ principal activities are associated with offshore oil and gas industry and deep sea exploration. * Bukit Timah Offshore DIS is held through an intermediate holding company Nimrod Sea AS which is 100% owned by the Company and incorporated in Norway. ** DSV Alliance was written down to nil and the company is in the process of being liquidated. The valuations stated above are as per the latest information available to the Board as at 30 June 2016, being the latest practicable date prior to publication of these Financial Statements. In arriving at the above fair values, the Board have considered the following: Bukit Timah Offshore DIS Distributions payable by Bukit Timah Offshore DIS have been suspended. Whilst the charterer of the vessel has been paying their fees to the Marine Asset Company in full and on schedule, the bank which has a mortgage over the vessel has invoked a reasonableness clause based on market conditions, requiring the Marine Asset Company as mortgagor to suspend distributions for at least 12 months. The result is a build up of cash within the company. This is surplus cash in the SPV waiting to be released to shareholders. This has been estimated in the valuation to recommence in June 2018 and delay is factored into the end of the charter. Jane Offshore Limited Distributions payable by Jane Offshore Ltd have been suspended. Whilst the charterer of the vessel remain in full compliance, the bank which has a mortgage over the vessel has invoked a reasonableness clause based on the market conditions, requiring the Marine Asset Company as mortgagor to suspend distributions for the time being. The Company is of the opinion that distributions will resume. This has been reflected in the valuation to recommence in July 2018 and the delay is factored evenly over the remaining term of charter. Volstad Maritime DIS II Distributions payable by Volstad Maritime DIS II have been received as forecast. The weak seismic market in which the vessel operates has resulted in a decline in the charter free valuation of the vessel. This has been reflected in the valuation by reducing the residual value for the vessel.
55
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 7 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS (continued) Altus Subsea IS The charterer, Marine Engineering Diving Services (MEDS) have encountered significant payment issues due to insufficient work being available for the Altus Invictus. In April 2016 work has been secured for the vessel and a commercial agreement has been reached whereby the outstanding hire to Altus Subsea will be repaid as earned. The income from this agreement has been factored into the valuation. It is uncertain if future work for the vessel can be secured and if the charterer has the ability to cover operating expenditure when the vessel is not working. The valuation model therefore assumes that on termination of the current contract the vessel will be re-delivered to the owners and placed in lay-up for 12 months while a sale process is initiated.
Norseman Offshore IS On 29 February 2016 Viking Supply AS, charterer of the Odin Viking) announced a standstill with certain creditors excluding Norseman, and stated it would enter restructuring negotiations. There is no certainty that a restructuring agreement will actually be concluded as current proposals all require a significant equity injection into the parent company. There is an uncalled capital commitment in the project of USD 1.978m (USD 344,000 has already been injected into the investment by way of a capital call) which is likely to be called by the bank regardless of circumstances and has been provided for in the 31 March 2016 financial position. In addition low market values for the vessel and a high outstanding mortgage result in debts exceeding assets on an adjusted valuation basis. The investment has therefore been valued at nil. DSV Alliance AS DSV Alliance has been written off entirely and DSV Alliance AS is in the process of being liquidated. Aberdeen Offshore DIS With respect to the Aberdeen Offshore DIS investment, following restructuring of Fletcher Shipping Limited, the Marine Asset is now on a new pay as you earn charter to Fletcher Supply Ships Ltd. The vessel is on time charter to Enquest Britain Ltd, but the day rate is below what is required to earn a profit and there is no expectation that a distribution by the Marine Asset will be paid in the forseeable future. Cash reserves are likely to be exhausted by October 2016 and an equity injection will thus be required. The Marine Asset has therefore been valued nil to reflect uncertainty over renewal of charter and weak PSV market in the event of sale. Further information is given in the Executive Directors' Investment Report on page 5 to 9.
56
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 7
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS (continued) IFRS 13 requires disclosure of fair value of measurements of financial assets and liabilities, using a three-level hierarchy as detailed below: • Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities, • Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), • Level 3: Inputs for the assets or liability that are not based on observable market data (that is unobservable inputs). Under IFRS 13, all of the investments have been classified as Level 3 under the fair value hierarchy as their valuations are derived from techniques that include inputs that are not based on observable market data. There have been no transfers between levels during the period. The level 3 reconciliation is provided below: Level 3 reconciliation 31 Mar 2016 USD
31 Mar 2015 USD
45,591,678 8,808,500 344,000 1,978,000 (10,061,689) (28,150,267)
56,235,314 (10,643,636)
Balance at end of year
18,510,222
45,591,678
Closing Marine Assets cost
57,304,125
56,235,314
(38,793,903)
(10,643,636)
Balance at beginning of year Additions - purchase of investments Additions - payment of uncalled share capital Additions - Uncalled Capital now due Disposal - DSV Alliance Movement in unrealised depreciation on investments
Unrealised depreciation on valuation carried forward
57
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 7
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS (continued) Valuation process for Level 3 valuations The valuation of the investments as at 31 March 2016 has been derived using the Discounted Cash Flow (DCF) method for assets with a long term charter and Adjusted Valuation for assets with a short term or no charter. Marine Assets 1 Under the DCF method the fair value of investments is estimated using assumptions regarding the forecast distributions from the underlying partnerships and the residual value of the return of capital at the end of the project. The present value of the projected cash flows from the distributions and residual value at the end of the project is derived using a discount rate that is considered to be appropriate. The discount rate is based on market conditions, investment performance and other relevant information. The discount rate is reviewed biannually. During the period the Board has increased the discount rates used to reflect greater market concern. Page 59 sets out the range of rates and sensitivity analysis.
Marine Assets 2 Under the Adjusted Asset Valuation method the fair value of investments is based on the latest available independent valuation of the vessel held by the Marine Asset Company, carried out by an independent valuer on a "willing seller and willing buyer" basis. The independent valuation has then been adjusted for the available cash in the Marine Asset Company, repayment of the mortgage and associated interest, subject to any agreements relating to the allocation of the proceeds on sale of the vessel between the Company and the mortgage provider, ongoing operating expenses to reflect the estimated sale date or long term charter and prevailling market conditions. The valuations are the responsibility of the Board of Directors of the Company. The valuation method and its inputs were considered and approved by the Board. On a bi-annual basis the valuation results and underlying assumptions will be reviewed to ensure that they remain appropriate.
58
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 7 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS (continued) Information about fair value measurement using significant unobservable inputs (Level 3)
Asset class
Marine Assets 1
Fair Value at 31 March 2015 USD
Fair Value at 31 March 2016 USD
33,267,629
12,188,597
Valuation technique
DCF
Significant unobservable input
Range* (weighted average)
19.9% - 27.6% (23.13%) Discount Rate Residual value USD2,820,487 - USD6,350,297 of vessels net of (USD4,562,761) loans in SPV
Marine Assets 2 Aberdeen Offshore DIS Norseman Offshore IS Altus Subsea IS
5,808,322
-
7,851,598
-
10,103,223
6,321,625
Adjusted Charter free valuation Valuation
N/A N/A
Adjusted Charter free valuation Valuation
N/A
Adjusted Charter free valuation Valuation Estimated operating costs
N/A N/A
Sensitivity analysis to significant changes in unobervable inputs The significant unobservable inputs used in the fair value measurements categorised within Level 3 of the fair value hierarchy together with a quantative sensitivity analysis as at 31 March 2016 are shown below:
Asset class
Marine Assets 1
Marine Assets 2 Altus Subsea IS
Significant unobservable Sensitivity used* input
Favourable Unfavourable change in fair change in fair value value USD USD
Discount Rate Residual value of vessels
5% 20%
496,230 66,563
(383,138) (66,563)
Charter free valuation Estimated Costs
20% 20%
1,249,500 171,325
(1,249,500) (171,325)
59
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 7
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS (continued) Sensitivity analysis to significant changes in unobervable inputs (continued)
*
The sensitivity analysis refers to a percentage amount added or deducted from the input and the effect this has on the fair value. An increase in discount rate will result in a decrease in fair value and vice versa. An increase in residual value will result in an increase in fair value and vice versa. When performing sensitivity analysis on discount rates, the rates have been increased or decreased by five whole percentage points. In the event of uncertainity around charter restructuring and the potential impact on the timing of dividend payments a discount of up to 50% may be applied to the valuation. In carrying out the sensitivity analysis it was assumed that all other variables remained constant. The sensitivity rates used represent the Board's assessment of what changes may feasibly occur to the residual value of the vessels and also the possible changes in the market and risk profile of the investments. There has been significant disruption in the Company’s principal markets where the continued depressed oil price has resulted in failure and stress amongst the charter holders to whom the underlying vessels are leased. This disruption has also led to significant illiquidity and uncertain pricing both for the underlying vessels and Company’s investments. These reasons give rise to material uncertainty in valuation.
8
RECEIVABLES 31 Mar 2016 USD 43,573 26,381
Prepayments Sundry debtors
69,954
9
31 Mar 2015 USD 41,104 2 41,106
PAYABLES (amounts falling due within one year) 31 Mar 2016 USD 8,116 79,423 79,313 94,906 75,000 1,648 17,809 1,978,000 2,600,000 4,934,215
Accrued administration fees Accrued audit fee Accrued shareholder advisor fee Accrued management fee Accrued legal & professional fees Accrued printing expenses Other accrued expenses * Capital Commitment ** Dividend Payable
31 Mar 2015 USD 21,197 55,186 77,378 92,592 57,681 304,034
* Payable raised for Norseman uncalled capital that will become due. This has been accrued for as the Company does not believe it will recover this additional investment. Refer to note 7 and the Executive Directors Investment report for more information. ** Dividend of USD 2 600 000 was declared on 29 March 2016. The above carrying value of payables is equivalent to the fair value.
60
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 10 SHARE CAPITAL The Share Capital of the Company is represented by an unlimited number of shares of no par value being issued or reclassified by the Company as Ordinary Shares.
Issued share capital
31 Mar 2016 Ordinary Shares
31 Mar 2015 Ordinary Shares
130,000,000 130,000,000
130,000,000 130,000,000
Members holding Ordinary Shares are entitled to receive, and participate in, any dividends out of income attributable to the Ordinary Shares; other distributions of the Company available for such purposes and resolved to be distributed in respect of any accounting period; or other income or right to participate therein. On a winding up, Ordinary Shareholders are entitled to the surplus assets attributable to the Ordinary Share class remaining after payment of all the creditors of the Company. Members have the right to receive notice of and to attend, speak and vote at general meetings of the Company. The Shareholders shall have the right to receive notice of and to attend, speak and vote at general meetings of the Company and each holder of Shares being present in person or by attorney at a meeting shall upon a show of hands have one vote and upon a poll each such holder present in person or by proxy or by attorney shall have one vote in respect of each Share held by him/her. On 12 March 2014, the 3.75 million shares held by Dharmic LP were consolidated and divided into 3.125 million shares. On 27 March 2014, the Company then issued 126.875 million shares of no par value and the Company's shares were admitted to trading at an issue price of USD 1.00. 11 SHARE PREMIUM
Issued share premium Share Issue Costs
31 Mar 2016 USD
31 Mar 2015 USD
122,895,175 122,895,175
126,875,002 (3,979,827) 122,895,175
12 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Company's objective is to obtain income returns and a capital return for its Shareholders by participating in vehicles which acquire, charter and sell Marine Assets associated with the offshore oil and gas industry. Risk is inherent in the Company's activities, but is managed through a regular process of identification, measurement and monitoring by the Board of Directors. The financial risks which the Company are exposed to include: market risk, interest rate risk, credit risk (including counterparty risk), liquidity risk and capital management risk. The Board regularly review and agrees policies for managing each of these risks and these are summarised below and overleaf: (a) Market Risk Market risk is the risk that the future cash flows or fair value of the investments will fluctuate due to general economic and market conditions, such as currencies, interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws, trade barriers, currency exchange controls and national and international political circumstances. All of these may affect the price level, volatility and liquidity of securities prices and result in losses in the value of the Company's assets.
61
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 12 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (a) Market Risk (continued) The Company invests in Marine Asset Companies holding highly specialised Marine Assets for use within the offshore oil and gas industry and which have few alternative uses. The Company's performance will therefore depend largely on the overall condition of the offshore oil and gas industry. The effects of the changing market place are considered in deriving an appropriate discount rate for determining the fair value of the assets. The sensitivity on the fair value of the Company's investment portfolio as a result of a 5% increase/ decrease in discount rates are shown in Note 7. The residual value of a vessel at the end of a charter term may also be impacted if there is not a market for a willing sale due to market conditions prevailing at the time. The residual value of the vessels is monitored through independent valuations and broker reports. The sensitivity on the fair value of the Company's investment portfolio as a result of a 20% increase/ decrease in residual value is shown in Note 7. (b) Credit risk Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company. The Company is exposed to credit risk in respect of its cash and cash equivalents, arising from possible default of the relevant counterparty, with a maximum exposure equal to the carrying value of those assets. The credit risk on liquid funds is limited as the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The Company monitors the placement of cash balances on an ongoing basis. The Company invests its cash and cash equivalents with Royal Bank of Scotland International Limited and Diversified Enhanced Yield Account ("DEYA") facility which at 31 March 2016 deposited cash in Royal Bank of Scotland International, ABN Amro, Lloyds, BNP and Santander. DEYA facility is maintained by JTC Cash Management service where the Company's "on call" cash is amalgamated with other participating parties in order to diversify and thus reduce the level of depositor risk and enhance yield. The credit risk is mitigated through the spread of the Company's cash across various counterparties each with a Standard and Poor's ratings ranging between BBB+ to A+ at 30 June 2016. The Company is exposed to credit risk in respect of its financial assets designated at fair value, arising from possible default of the counterparties that will charter the marine asset from the Marine Asset vehicles in which the Company holds an interest. There is no guarantee that all of the counterparties will honour their contractual obligations and default may adversely effect the dividends received if they do not meet their financial obligations and the residual value if the vessel is poorly maintained by the counterparty.
62
NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 12 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (b) Credit risk (continued) The Marine Assets companies into which the Company invests frequently utilise a substantial amount of leverage to finance the purchase of the marine assets. These Marine Assets companies will therefore likely be required to comply with loan covenants and undertakings. There is therefore a credit risk to the Company that the Marine Asset Company underlying the investments may fail to comply with any covenants and the relevant lenders will recall the loans. In such circumstances the Marine Asset vehicle may be required to sell the asset to repay the outstanding loan. If the asset is sold, in relation to that Marine Asset the Company will receive only the proceeds left after the deduction of the outstanding loan repayments. The Investment Committee reviews the counterparties involved in the Marine Asset when considering whether to invest and reviews all financial arrangements of any potential Marine Asset. The Committee receives quarterly reports and regular market updates from the Executive Directors and reports from the Partnerships or the Commercial Manager of the Partnership. Prior to entering into an investment, the Investment Committee carefully considers the current market conditions and cautiously reviews the financial strength of the investment counterparties. Norton Rose Fulbright provides a report on the legal arrangements and underlying financial strength of the counterparties. The Committee continue to monitor the financial stability of each of its investments and this is considered when establishing the appropriate valuation method. If the income receivable from a counterparty ceases, or the Committee concludes that the income will not be paid in the longer term, the Committee will refer to broker reports and valuations and comparable sales (if any) to ascertain the value of the underlying Marine Asset. The overall credit exposure on a DCF basis is $12,188,597 (2015 : $33,267,629) and this assumes in one case the charterer’s contract is extended for a further 5 years. If any of the charterers had a credit event which meant they were no longer able to adhere to the charter contract with the SPV the value recovered may be on an asset sale basis which is not practical to quantify at the year end. The asset sale basis would be expected to be significantly lower as evidenced by the asset sale valuations of the FS Cygnus, Altus Invictus and Odin Viking (see Note 7 for further details). Sellers’ credits have been entered into for some of the investments as a way of mitigating the risk of default by the charterer. The sellers’ credit acts as a performance related obligation, which subject to the charter performing all of its obligations becomes repayable at the end of the charter. In the event of default by the charterer of its obligations the sellers credit would not be paid. The table below shows the charter parties for each investment and indicates the Company's sellers credit in place where applicable.
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NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 12 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (b) Credit risk (continued)
Location
Sellers Credit (exc. interest)
Marine Asset Company
Counterparty/Charterer
Bukit Timah Offshore DIS
Southsea Marine Pte Ltd Global (previously Newcruze Offshore Marine Pte Ltd), guaranteed by Swiber Holdings Limited
USD1.56m
Norseman Offshore IS
Viking Supply Ships A/S
Global
USD2.32m
Volstad Maritime DIS II
CGG Eidesvik Ship Management AS
Global
*
Altus Subsea IS
Marine Engineering Diving Services
Global
*
Aberdeen Offshore DIS
Fletcher Supply Ships Limited
Global
*
Jane Offshore Ltd
EDT Offshore Ltd, guaranteed by Ulricus Management Ltd
Global
USD11.99m
* No sellers credit. In Jane Offshore Ltd the sellers credit is for USD23.98m (NSA share - USD11.99m) but will be reduced by USD7.7m at the end of the 10 year charter period, reducing NSA's share at this point to USD8.14m All charterer arrangements allow the charterer to conduct worldwide operations as noted in the table above. The Board does not consider that credit risk is concentrated in one geographic location. The Investment Comittee considers the counterparty risk prior to making an investment decision. The Board does not quantify the counterparty risk for all the investments on an ongoing basis due to the limited information available on a number of the charterers. The Executive Directors obtain regular updates from the appointed commercial manager on whether the charterer and debt is in compliance and reports to the board should issues arise. The Company seeks to avoid investing in any Marine Asset with excessive or potentially onerous financing arrangements. The Committee monitors the performance of each investment to ensure it is not in default of its loan covenants. In the event that an investment does default on its loan covenants, the Executive Directors work closely with the board of the Marine Asset Companies and engage with the lender. The Committee has reviewed each investment in which there is any bank lending and is satisfied that either the loan is in good standing or any breach is being addressed. Further information is given in Note 7 on page 55 to 60.
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NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 12 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (c) Interest rate risk (continued) Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows, it is also the risk that fluctuations in market interest rates will result in a reduction in deposit interest earned on bank deposits held by the Company. Other than cash and cash equivalents, none of the assets or liabilities of the Company attract or incur interest. The following table details the Company's exposure to interest rate risks: As at 31 March 2016: 0-3 months USD Financial assets Assets held at fair value through profit and loss Receivables Cash and cash equivalents Total financial assets Financial liabilities Accrued expenses Dividend Payable Total financial liabilities Total interest assets
3-6 months USD
Non-interest Bearing USD
Total USD
46,248,403
-
18,510,222 69,954 -
18,510,222 69,954 46,248,403
46,248,403
-
18,580,176
64,828,579
-
-
4,934,215 2,600,000
4,934,215 2,600,000
-
-
7,534,215
7,534,215
46,248,403
-
bearing
As at 31 March 2015: 0-3 months USD
3-6 months USD
Non-interest Bearing USD
Total
Assets held at fair value through profit and loss Receivables Cash and cash equivalents
1,926,461
64,804,010
45,591,678 41,106 -
45,591,678 41,106 66,730,471
Total financial assets
1,926,461
64,804,010
45,632,784
112,363,255
Financial liabilities Accrued expenses
-
-
304,034
304,034
Total financial liabilities
-
-
304,034
304,034
1,926,461
64,804,010
USD
Financial assets
Total interest bearing assets
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NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 12 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (c) Interest rate risk (continued) If interest rates had been 25 basis points higher throughout the period and all other variables were held constant, the Company's net assets attributable to shareholders as at 31 March 2016 would have been USD 115,621 (31 March 2015: USD 166,826) greater due to an increase in the amount of interest receivable on the bank balances. If interest rates had been 25 basis points lower throughout the period and all other variables were held constant, the Company's net assets attributable to shareholders as at 31 March 2016 would have been USD 115,621 (31 March 2015: USD 166,826) lower due to a decrease in the amount of interest receivable on the bank balances. (d) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The Company’s main financial commitment is its ongoing operating expenses. The Board of Directors regularly monitor the cash flow of the Company to ensure it has sufficient liquid resources available to fulfil its operational plans and to meet its financial obligations as they fall due. The table below details the residual contractual maturities of financial liabilities: As at 31 March 2016: Less than 1 month USD Accrued 176,766 expenses Dividend Payable
1 to 3 months USD
3 months to 1 year USD
Greater than 1 year USD
Total USD
4,757,449
-
-
4,934,215
2,600,000
-
-
-
2,600,000
2,776,766
4,757,449
-
-
7,534,215
As at 31 March 2015:
Accrued expenses
Less than 1 month USD
1 to 3 months USD
3 months to 1 year USD
Greater than 1 year USD
Total USD
304,034
-
-
-
304,034
304,034
-
-
-
304,034
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NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2016 12 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (e) Capital management The Company manages its capital to ensure that the Company will be able to continue as a going concern while maximising the return to Shareholders. The capital structure of the Company consists of cash and cash equivalents and equity attributable to equity holders, comprising issued capital and retained earnings. The Company's Board of Directors reviews the capital structure on a bi-annual basis. Equity includes all capital and reserves of the Company that are managed as capital. 13 ULTIMATE CONTROLLING PARTY In the opinion of the Directors, the Company has no ultimate controlling party. 14 COMMITMENTS AND CONTINGENT LIABILITIES There are uncalled capital commitments in place in respect of certain Marine Asset Companies. It is unknown if the commitment will be called upon, as this is dependent on several conditions and circumstances. The uncalled capital commitments are summarised as follows:
Volstad Marine DIS II Jane Offshore Ltd * Norseman Offshore IS *
NOK USD USD
31 Mar 2016
31 Mar 2015
6,150,000 5,000,000 1,978,000
5,250,000 2,322,000
Accrued for see Note 9. The amount has been accrued for as the Company does not believe it will recover this additional investment.
15 RELATED PARTY TRANSACTIONS Nimrod Capital LLP ("Nimrod") is the Company's Placing Agent and Corporate and Shareholder Adviser. In consideration for Nimrod acting as placing agent in the initial Ordinary Share Placing, the Company agreed to pay to Nimrod, at Admission, a placing commission equal to 2.5 per cent of the initial gross proceeds of the initial Ordinary Share Placing. The amount has been deducted from Share premium. The Company shall pay to Nimrod for its services as Corporate and Shareholder Adviser a fee of USD301,964 per annum (adjusted annually for inflation from 2015 onwards, at 2.5 per cent per annum) payable quarterly in arrears. During the year, the Company incurred USD 311,446 (31 March 2015: USD 3,484,884) of expenses with Nimrod, of which USD 79,313 (31 March 2015: USD 77,378) was outstanding to this related party at 31 March 2016. USD nil (31 March 2015: USD 3,174,415) of expenses related to share issue costs as shown in Note 11.
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NIMROD SEA ASSETS LIMITED (the "Company") NOTES TO THE FINANCIAL STATEMENTS (continued) for the period ended 30 September 2015 15 RELATED PARTY TRANSACTIONS (continued) Stamford Maritime Limited ("Stamford") is the Company's Consultancy service provider. The Company shall pay to Stamford for its services of the Executive Directors, together with certain investment support services to the Directors and the Company, a fee of USD1,083,999 per annum (adjusted annually for inflation from 2015 onwards, at 2.5 per cent per annum) payable monthly in arrears. Stamford shall also be entitled to receive a Performance Fee from the Company payable in certain circumstances. The details of the fee can be found in the Company’s prospectus available from the Company’s website but is approximately 20% above an annualised 8% hurdle. No performance fee has been accrued for the year. During the year, the Company incurred USD1,118,044 (31 March 2015: USD 1,111,564) of expenses with Stamford, of which USD 94,906 (31 March 2015: USD 92,592) was outstanding to this related party at 31 March 2016. Note that Directors' fees have been disclosed in Note 5 and Directors' interests noted in the Directors' Report. 16 EVENTS AFTER STATEMENT OF FINANCIAL POSITION DATE Following a meeting of the Board held on 12 April 2016, the Board resolved to return to Shareholders 20 cents per Redeemable Ordinary Share (US$26 million in aggregate) by way of a bonus issue of 130 million B Shares to Shareholders on the Company's register on the record date of 22 April 2016. Each such Shareholder was issued one B Share for every Redeemable Ordinary Share held by them. The Company's Redeemable Ordinary Shares were marked ex-payment on 21 April 2016. On 22 April 2016 the Company announced that Viking Supply Ships A/S, charterer of the ODIN VIKING, in which the Company has a 43% interest through Norseman Offshore AS (“Norseman”), is now two months overdue with respect to its charterhire payments for the vessel. Norseman has been advised that Viking Supply Ships A/S has appointed Swedbank as its financial adviser and that Swedbank is preparing a restructuring proposal. Initial proposals have not been agreed by all necessary parties and we are unable to say with any certainty when or if a deal will be agreed. The vessel remains in lay-up in Sweden.
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to any aspect of the proposals referred to in this document or as to the action you should take, you are advised to consult your stockbroker, solicitor, accountant, or other professional adviser. If you have sold or otherwise transferred all your shares in Nimrod Sea Assets Limited, please pass this document together with the accompanying documents to the purchaser or transferee, or to the person who arranged the sale or transfer for transmission to the person who now holds shares in Nimrod Sea Assets Limited.
NIMROD SEA ASSETS LIMITED (Incorporated and registered in Guernsey with company number 55718) NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING (the “AGM”) of the voting Members of Nimrod Sea Assets Limited (the “Company”) will be held at Ground Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey, GY1 2HT on Tuesday, 27 September 2016 at 11 a.m. to consider and, if thought fit, pass the below resolutions.
Ordinary Resolutions: 1. To receive the Company’s Annual Financial Report for the year ended 31 March 2016. 2. To re-appoint Deloitte LLP as Auditor to the Company, to hold office from the conclusion of this meeting until the conclusion of the next annual general meeting to be held in 2017 under section 199 of The Companies (Guernsey) Law, 2008, as amended, and to authorise the directors to determine their remuneration. 3. To re-elect as a director Mr Norbert Bannon, who retires in accordance with the provisions of the Company’s Articles of Incorporation.
BY ORDER OF THE BOARD JTC (Guernsey) Limited Secretary
Registered Office: Ground Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT
30 June 2016
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Notes: 1.
A shareholder will only be entitled to attend and vote at this AGM if they are registered as holders of Shares as at the close of business on 23 September 2016 or, if the AGM is adjourned, as at 48 hours before the time of any adjourned General Meeting. This record time is being set for voting because the procedures for updating the registers of members for each class of shares held in uncertificated form require a record time to be set for the purpose of determining entitlements to attend and vote at shareholder meetings.
2.
A member entitled to attend and vote at the AGM is entitled to appoint one or more proxies to speak and vote instead of them. A proxy need not be a member of the Company. Completion and return of the form of proxy will not preclude members from attending or voting at the AGM if they so wish.
3.
More than one proxy may be appointed provided each proxy is appointed to exercise the rights attached to different shares.
4.
In accordance with the provisions of E.2.1 of the UK Code of Corporate Governance it should be noted that a vote withheld is not a vote in law and will not be counted in the calculation of the proportion of the votes for and against each resolution.
5.
A Form of Proxy is enclosed for use at the AGM. The Form of Proxy should be completed in accordance with the instructions set out therein and sent, together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power or authority, so as to reach the Company’s agent, for this purpose being, Anson Registrars Limited, PO Box 426, Anson House, Havilland Street, St Peter Port, Guernsey, GY1 3WX, not less than 48 hours before the time for holding the AGM.
6.
If the AGM falls to be adjourned because it is not quorate, it will be adjourned to the same time and place seven days later or to such other day and/or time and/or place as the directors of the Company may determine, whereupon those shareholders then present in person, by their representative or by proxy, shall form the quorum. In the event of any such adjournment the Company will announce the adjournment via a regulatory information service but no notification will be sent directly to shareholders.
7.
Where there are joint registered holders of any shares such persons shall not have the right of voting individually in respect of such shares but shall elect one of their number to represent them and to vote whether in person or by proxy in their name. In default of such election the person whose name stands first on the register of shareholders shall alone be entitled to vote.
8.
On a poll votes may be given either personally or by proxy and a shareholder entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.
9.
Any corporation which is a shareholder may by resolution of its board of directors or other governing body authorise such person as it thinks fit to act as its representative at the AGM. Any person so authorised shall be entitled to exercise on behalf of the corporation which he represents the same powers (other than to appoint a proxy) as that corporation could exercise if it were an individual shareholder.
10. As at 30 June 2016 (the latest practicable date prior to the printing of this notice) the Company’s issued share capital consisted of 130,000,000 redeemable ordinary shares of no par value, all carrying one vote each per share. 11. Copies of the following documents are available for inspection at the registered office of the Company during usual business hours on any weekday (weekends and public holidays excluded) and will be available for inspection at the place of the AGM for 15 minutes before and during the AGM itself: (a)
a copy of the Company’s Annual Financial Report for the year ended 31 March 2016;
(b)
copies of the directors’ appointment letters; and
(c)
the Articles of Incorporation.
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EXPLANATORY NOTES TO THE NOTICE OF AGM At the AGM there are three ordinary resolutions which shareholders will be asked to consider and, if thought fit, approve. An explanation of each of these Resolutions is given below. All resolutions are proposed as ordinary resolutions. An ordinary resolution requires more than 50 per cent. of votes cast at the AGM relating to that resolution to be cast in favour of it for the resolution to be passed. ORDINARY RESOLUTIONS Resolution 1: Annual Financial Report For each financial year the directors are required to present the directors’ report, the audited accounts and the auditors’ reports to shareholders at a general meeting. Shareholders are asked to receive the Annual Financial Report of the Company for the financial year ended 31 March 2016. The Companies (Guernsey) Law 2008, as amended, requires that the accounts and reports are laid before the AGM. Resolution 2: Appointment and Remuneration of the Auditors The appointment of Deloitte LLP as Auditor of the Company concludes at the end of this AGM. Deloitte LLP have indicated that they are willing to continue to be the Company’s Auditor for the next financial year. You are asked to approve their re-appointment, to hold office from the conclusion of this AGM until the conclusion of the next annual general meeting to be held in 2017 under section 199 of The Companies (Guernsey) Law, 2008, as amended, and to authorise the Directors of the Company to determine their remuneration. Resolutions 3: Re-election of Directors The Company’s Articles of Incorporation require that one-third of the Directors or, if their number is not an integral multiple of three, the number nearest to one-third but not exceeding one-third shall retire from office and be available for re-election at the same general meeting. Having considered the performance and contribution made by the Director standing for re-election, the Board believes that he continues to perform effectively and with commitment to his roles and, as such, the Board recommends his re-election. Brief biographical details of the Director seeking re-election can be found in the Company’s Annual Financial Report.
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NIMROD SEA ASSETS LIMITED (Incorporated and registered in Guernsey with company number 55718) FORM OF PROXY Please read the Notice of Annual General Meeting and the notes below before completing this form.
For use by holders of voting shares at the Annual General Meeting of Nimrod Sea Assets Limited (the “Company”) convened for 11.00 a.m. on 27 September 2016, and at any adjournment thereof.
I/WE............................................................................................(Block Letters)
OF ..........................................................................................................(Block Letters)
being
[a]
member[s]
of
the
Company,
hereby
appoint
the
Chairman
of
the
Meeting
*or…………………………………………………………………………………as my/our proxy to vote for me/us on my/our behalf, as directed below on the Resolutions to be proposed at the Annual General Meeting of the Company to be held on 27 September 2016 at 11.00 a.m., and at any adjournment thereof.
*Note: If it is desired to appoint as proxy any person other than the Chairman of the Meeting, his/her name and address should be inserted in the relevant place and reference to the Chairman of the meeting deleted and the alternation initialled.
I/WE direct the proxy to vote on the Resolutions as follows: Ordinary Resolutions:
FOR
AGAINST
WITHHELD
1. To receive the Company’s Annual Financial Report for the year ended 31 March 2016. 2. To re-appoint Deloitte LLP as Auditor to the Company, to hold office from the conclusion of this meeting until the conclusion of the next annual general meeting to be held in 2017 under section 199 of The Companies (Guernsey) Law, 2008, as amended, and to authorise the directors to determine their remuneration. 3. To re-elect as a director Mr Norbert Bannon, who retires in accordance with the provisions of the Company’s Articles of Incorporation.
Please indicate with an X in the appropriate space how you wish your vote to be cast. On receipt of the form duly executed and in the absence of a specific direction, your proxy will vote or abstain as he or she thinks fit on the resolutions.
Signed: .…………………………………….. Dated:....................................................... 72
Notes: 1.
If it is desired to appoint as proxy any person other than the Chairman of the Annual General Meeting, his/her name and address should be inserted in the relevant place and reference to the Chairman of the meeting deleted and the alteration initialled.
2.
If the shareholder is a corporation, this form must be executed under its common seal or under the hand of its duly authorised officer or attorney.
3.
Where there are joint registered holders of any shares such persons shall not have the right of voting individually in respect of such shares but shall elect one of their number to represent them and to vote whether in person or by proxy in their name. In default of such election the person whose name stands first on the register of shareholders shall alone be entitled to vote.
4.
Any alterations to this form of proxy should be initialled by the person who signs it.
5.
The Form of Proxy should be completed in accordance with the instructions set out therein and sent, together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power or authority, so as to reach the Company’s agent, for this purpose being, Anson Registrars Limited, P.O. Box 426, Anson House, Havilland Street, St. Peter Port, Guernsey GY1 3WX not later than 48 hours before the time for holding the Annual General Meeting.
6.
Completing and returning a form of proxy will not prevent a member from attending in person at the meeting and voting should he or she so wish.
7.
Should you wish to vote in respect of a specific number of shares please indicate with that number in place of an X in the appropriate space.
8.
A shareholder entitled to exercise more than one vote need not cast all his or her votes in the same way.
9.
In accordance with the provisions of E.2.1 of the UK Code of Corporate Governance it should be noted that a vote withheld is not a vote in law and will not be counted in the calculation of the proportion of the votes for and against each resolution.
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NIMROD SEA ASSETS LIMITED (the “Company”) KEY ADVISERS AND CONTACT INFORMATION
Exchange Ticker Listing Date Financial Year end Base Currency ISIN SEDOL Country of Incorporation
Specialist Fund Segment of the London Exchange’s Main Market NSA 24 March 2014 31 March USD GG00BK0SC854 BK0SC85 Guernsey – Registration number 55718
Registered Office Nimrod Sea Assets Limited Ground Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT
Administrator and Company Secretary JTC (Guernsey) Limited P.O. Box 156 Ground Floor, Dorey Court Admiral Park St Peter Port Guernsey GY1 4EU
Placing Agent and Corporate and Shareholder Adviser Nimrod Capital LLP St Helen’s Place London EC3A 6AB
Registrar Anson Registrars Limited PO Box 426, Anson House Havilland Street St Peter Port Guernsey GY1 2QE
Consultancy Service Provider Stamford Maritime Limited Southgate Chambers 37/39 Southgate Street Winchester Hampshire SO23 9EH
UK Transfer Agent Anson Registrars (UK) Limited 3500 Parkway Whiteley Fareham Hampshire PO15 7AL
Advocates to the Company (as to Guernsey law) Carey Olsen P.O. Box 98 Carey House Les Banques St Peter Port, Guernsey GY1 4BZ
Solicitors to the Company (as to English law) Herbert Smith Freehills LLP Exchange House Primrose Street London EC2A 2EG
Auditor Deloitte LLP PO Box 137, Regency Court Glategny Espalande, St Peter Port Guernsey, GY1 3HW
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Stock
