Tufton Oceanic Assets : Final Results for the period ended 30 June 2023

Tufton Oceanic Assets Limited

Annual Report and Audited Financial Statements

For the year ended 30 June 2023

Tufton Oceanic Assets Limited

Contents

	Page
Highlights	1
Chairman's Statement	2
Investment Manager's Report	5
Principal Risks and Uncertainties	16
Corporate Summary	20
Corporate Governance Statement	21
Statement of Directors' Responsibilities	25
Report of Directors	27
Audit Committee Report	41
Independent Auditor's report	44
Statement of Comprehensive Income	52
Statement of Financial Position	53
Statement of Changes in Equity	54
Statement of Cash Flows	55
Notes to the financial statements	56
Alternative Performance Measures	83
Corporate Information	86
Definitions	89
Notice of AGM	93
Form of Proxy - Annual General Meeting 2023	103

Tufton Oceanic Assets Limited

Highlights

• 30 June 2023 NAV was US$412.8m (£324.7m1). 30 June 2023 NAV per share was US$1.365 compared to 30 June 2022 NAV per share of US$1.450.
• The Company had an overall loss for the financial year of US$2.5m or US$0.008 per share. Despite strong Portfolio Operating Profit of US$56.3m (US$40.6m in the financial year ended 30 June 2022), the Company was negatively impacted by the fall in capital values of bulkers and of Riposte, the containership which was divested during the financial year.
• NAV Total Return Per Share was -0.3% during the financial year (2022: 32.5%; 91.8% since inception).
• At 30 June 2023, the Average Charter Length was 1.3 years (2022: 0.9 years).
• Encouraged by visible cash flows from increased charter cover, diversification and continued supply-side recovery, the Company raised its target annual dividend from $0.080 to $0.085 per share, which commenced from 4Q22.
• The Company divested Riposte with realised net IRR exceeding 12%. The aggregate realised net IRR on the Company's containerships over the past five years was c.27%.
• The Company agreed to acquire two fuel-efficient Medium Range ("MR") product tankers, Mindful and Courteous, below Depreciated Replacement Cost ("DRC"), financed primarily by a new US$60m loan which is secured on Mindful, Courteous, Marvelous and Exceptional.
• With the acquisitions, the Company is well-positioned to benefit from the ongoing strength in the product tanker and chemical tanker markets. The capital re-allocation is in line with its investment strategy and commitment to ESG.
• The Investment Manager expects the bulker market, supported by good supply-side fundamentals, to improve with demand growth.
• The Dividend Cover for the financial year was c.1.1x. The Company is forecast to have dividend cover of c.1.6x through the end of 4Q24. Please see page 6 for further information.
• ESG highlights of the Company are discussed in our 2022 Sustainability Report available on the Company's website. The highlights include a c.34% improvement in emissions intensity during 2022, primarily because of capital re-allocation, and an update on the retrofit of Energy Saving Devices ("ESDs") on the Company's vessels. The Company purchased 6,160,000 of its own shares at an average price of US$1.13 per share, in line with its published discount management policy.
• The Investment Manager's principals acquired an additional 1,381,136 shares during the financial year such that Investment Manager-related shareholders owned 3.7% of the issued share capital as at 30 June 2023.

• 30 June 2023 closing mid-rate of USD/GBP 0.7866. Source: Morningstar

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Tufton Oceanic Assets Limited

Chairman's Statement

Introduction

On behalf of The Board of Directors (the "Board"), I present the Company's Annual Report and Audited Financial Statements for the year ended 30 June 2023.

Performance

As at 30 June 2023, the Company's NAV was US$412.8m being US$1.365 per share (US$447.5m being US$1.450 per share as at 30 June 2022). The Company declared a loss of US$2.5m (2022: profit of US$107.3m) or US$0.008 per share (2022: US$0.362) for the year with the US$ NAV Total Return Per Share over the year of -0.3% (2022: 32.5%).

Strong Portfolio Operating Profit was outweighed by a fall in the bulker and containership capital value. The product tanker market strengthened and the Company acquired two MR product tankers, employed on long-term charters. The Company raised its target annual dividend from US$0.080 to US$0.085 per share, which commenced from 4Q22. As at 30 June 2023, the Average Charter Length was 1.3 years.

Performance fee accrual of US$4.0m was unwound because the Total Return Per Share was slightly lower than the High Watermark Per Share at the end of the financial year. The Company is forecast to have a dividend cover of c.1.6x over the next 18 months (through the end of 4Q24). Full details of the investment portfolio are set out in the Investment Manager's Report.

Share Price and Discount Management

During the year, the Company's share price fell from US$1.23 per share as at the close of business 30 June 2022 to US$0.99 per share as at the close of business 30 June 2023. The total number of voting rights of the Company as at 30 June 2023 is 302,468,541.

On average, the Company's shares traded at a 20% discount to NAV over the financial year. During the year, the Company (in accordance with the authority granted to it by shareholders) repurchased 6,160,000 shares at a cost of US$6,946,752. Refer to Note 7 for more details. At the end of the financial year, there were 6,160,000 shares held in treasury.

The share price performance, although disappointing, has suffered from the wider investment company sector de-rating, in particular for real asset companies. This has been exacerbated by many of our Shareholders being under pressure to rebalance their own portfolios. The Board will continue to support the share price where available capital permits them to do so in line with the published discount management policy as set out in the Company's Prospectus dated 25 September 2018. The Board also believe that having a buyback mechanism in place is in the best interest of all Shareholders as it allows the Company to buy back its own shares at a significant discount to NAV.

Since 1 July 2023, the Company has bought back an additional 7,386,000 shares with 13,546,000 Shares held in treasury and 295,082,541 shares outstanding as at 8 September 2023. As at 20 September 2023, the Company's shares traded at a 27.8% discount to the ex-dividend 30 June 2023 NAV.

War in Ukraine

The Investment Manager has continued to monitor the impact of the war in Ukraine on our fleet. I would like to reconfirm our previous position in that none of the Company's vessels have been directly impacted by the war in Ukraine and all remain fully insured against war perils.

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Tufton Oceanic Assets Limited

Chairman's Statement (continued)

War in Ukraine (continued)

The Investment Manager has formally requested all our charterers and vessel managers to desist from trade with Russia wherever legally possible except for humanitarian purposes. Additionally, the Investment Manager monitors compliance through regular inspection of vessel logs and satellite data. The Company and its vessels were compliant with all international sanctions imposed by the US, UK, EU and UN. We have had no issues to date with any vessels being damaged or blocked or otherwise affected by sanctions.

The Board and the Investment Manager remain watchful in monitoring the war and its consequences for shipping in general and the Company.

Dividends

The Company raised its target annual dividend from US$0.080 to US$0.085 per share, which commenced from 4Q22. As at 30 June 2023, the Average Charter Length was 1.3 years. The Dividend Cover for the financial year was c.1.1x. The Company is forecast to have a dividend cover of c.1.6x over the next 18 months (through the end of 4Q24). Please see page 6 for further information.

Corporate Governance

The Company is a member of the Association of Investment Companies ("AIC") and has therefore elected to comply with the provisions of the current AIC Code of Corporate Governance which sets out a framework of best practice in respect of governance of investment companies ("AIC Code"). The AIC Code has been endorsed by the Financial Reporting Council and the Guernsey Financial Services Commission (the "GFSC") as an alternative means for AIC members to meet their obligations in relation to the UK Corporate Governance Code.

Where the Company's stakeholders, including shareholders and their appointed agents, have matters they wish to raise with the Board in respect to the Company, I would encourage them to contact us at [e-mail].

Board Composition

As in previous years, all Directors are offering themselves for re-election in accordance with the AIC Code of Corporate Governance and the Articles of Incorporation of the Company (the "Articles"). Three of the current four members of the Board were appointed at the formation of the Company in 2017. Whilst their respective tenure is much less than the AIC Guidance figure of nine years, a succession plan has been considered by the Board.

As part of our succession plan and despite the fact that a continuation vote must be put to the AGM in 2024, the Board have employed the services of a recruitment firm to assist the Board in identifying suitable candidates. This succession plan also aims to increase the diversity of the Board.

Continuation Vote

The vote for the continuation of the Company is due to be put before Shareholders and it's the Board's current intention to hold this vote at the AGM in October 2024.

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