FLEX LNG Group
Consolidated and Company
Annual Report and Financial
Statement 2012
1 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
General Information, FLEX LNG Ltd
Directors
David McManus (Chairman)
Christopher Pittinger
Ian Beveridge
Eiji Wakiwaka
Aoki Hiromichi
Company Secretary
Manx Secretarial Services Limited
Analyst House
20-26 Peel Road
Douglas, IM99 1AP
Isle of Man
Registered Office
Craigmuir Chambers
P.O. Box 71
Road Town
Tortola
British Virgin Islands
Auditors
Ernst & Young AS
Thormøhlens gate 53 D, NO-5008 Bergen
P.O. Box 6163 Postterminalen
NO-5892 Bergen, Norway
Bankers
Barclays Wealth Intermediaries
1st Floor, Queen Victoria House
Douglas, IM1 2LF
Isle of Man
HSBC
165 Fleet Street
London, EC4A 2DY
United Kingdom
Lloyds TSB Offshore Limited
PO Box 328, Victory House
Douglas, IM99 3JY
Isle of Man
2 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Chairman’s Statement
The Path Ahead
During 2012 the Company was engaged in negotiations with Samsung Heavy Industries
Co Ltd to apply the funds, net of agreed deductions, to alternative purposes.
Unfortunately the parties were unable to agree on the level of costs that would be
applied against the paid-in instalments. Once it became clear that the gap between the
parties could not be closed on an agreed basis, the Company concluded that it was no
longer willing to have Samsung holding its invested funds indefinitely. In December 2012
the Company requested that Samsung refund the paid-in instalments, net of a Company
calculation of the sums to be offset, in an amount in excess of $300m (inclusive of
interest). Subsequently Samsung has disputed this, so the Company is now instigating
arbitration proceedings against Samsung.
The Company has, however, continued to keep a dialogue open with Samsung
throughout and there remains the potential to reach a commercial agreement between
the two parties before the conclusion of the arbitration. The Company remains optimistic
as to the redeployment opportunities should an agreement be reached with Samsung, for
the benefit of the Company’s shareholders.
David McManus
Chairman
3 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2012
Business update
The Company has been engaged in discussions with Samsung Heavy Industries
(“Samsung”) in relation to the funds previously paid by the Company to Samsung,
including how they might be applied for alternative purposes. The plan was to apply an
amount of paid-in instalments, net of deductions, to the construction of LNG carriers
and/or regasification vessels (the “Alternative Deployment”). However the parties have
not been able to agree on the terms of such Alternative Deployment, including the level
of paid-in instalments that are to be carried over to the Alternative Deployment.
Given that the parties have not reached agreement on the amount of capital to be
redeployed the Company, in December 2012, requested that the remaining capital be
refunded by Samsung. The refund amount requested was after credit was given for costs
properly and reasonably incurred by Samsung on the Company’s behalf. To date, no
refund has been made, with Samsung disputing the Company’s position. Following the
completion of certain contractual requirements for meetings between the parties'
representatives prior to the commencement of arbitration proceedings, the Company has
commenced the steps required to initiate arbitration proceedings to secure the
repayment of the paid-in funds. The Company has appointed leading international law
firm Pinsent Masons LLP to assist in this regard. It is not possible to predict, with
certainty, the outcome of the arbitration proceedings with Samsung, nor the time or
costs involved in completing such legal proceedings.
In the 2011 statutory accounts, the Group recognised an impairment write-down on the
new build assets, under IAS 36, of $112.3m. IAS 37 covers the recognition criteria and
measurement applied to contingent assets. It is the view of the Company that the
valuation basis for the new building assets now falls within the definition of a contingent
asset. Contingent assets are only recognised where realisation is virtually certain. Where
the realisation of the asset is probable, the asset should not be recognised in the
statement of financial position. In 2012, the new building assets have therefore been
written down by $285.0m. The final valuation will either depend on the arbitration
process or a possible agreement between the parties. Once the outcome of the legal
position with Samsung is virtually certain, the resultant asset value will be reinstated in
the financial statements. In addition, a calculation of the recoverable amount for the
Topside capitalised costs has been completed under IAS 36 and a further $16.4m
impairment write down has been incurred, refer to note 8 for more details.
Funding and Going Concern
Given the expected arbitration costs in 2013 the Company believes that, based upon
forecast levels of cash utilisation, it will have sufficient working capital to operate
throughout 2013 and into 2014.
There can of course be no assurance that arbitration costs will be as forecast or that any
agreement will be reached with Samsung. In all cases where the Company may require
additional funding, there can be no assurance that such funds may be raised on terms
that are reasonable, if at all.
Considering the above and the risks noted below, the Board believes that the going
concern assumption currently remains appropriate for the Group.
4 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2012 (Continued)
Risks
The Company was founded in 2006 and since its inception was focused on the
engineering and construction of LNG Producer units. The Company subsequently
endeavored to reach agreement with Samsung for the Alternative Deployment of the
invested capital (LNG carriers and/or regasification vessels), but as no agreement was
reached the Company initiated steps to commence arbitration proceedings to secure the
repayment of the paid-in funds. The Group is exposed to a variety of commercial,
operational and financial risks, including market risks, credit risks and liquidity risks.
The uncertainties and risks include those detailed in the 2012 accounts and as
summarised below. These include: the final calculation of the recoverable amount for the
paid-in instalments with Samsung; the arbitration process; agreeing the level of paid-in
instalments available for redeployment with Samsung, should a commercial agreement
be reached, including the economics of such Alternative Deployment (which include being
able to secure employment contracts on reasonable terms for any alternative vessel
constructed by Samsung); potential Samsung claims on the Company; and obtaining
finance and working capital on reasonable terms.
The Company has historically funded its operation from equity. Obtaining such financing
may be subject to market risks and other risks that may influence the availability,
structure and terms of such financing.
There can be no assurance that arbitration costs will be as forecast or that any
agreement will be reached with Samsung. In all cases where the Company may require
additional funding, there can be no assurance that such funds may be raised on terms
that are reasonable, if at all. Additional detail on working capital requirements and
analysis of risks to the Company are provided in accounts notes 1.4, 8, 14, 16, 18, 19,
and 20 and Corporate Governance section 10.
Income Statement and Balance Sheet
The Group cash balances at 31 December were $6.2m (2011: $14.8m). In the twelve
months in 2012 the operating cash outflow was $8.6m (principally the operating loss less
the non cash income statement entries). The retained loss for the year was $298.8m
(2011: $136.0m), which has been transferred to reserves. The loss for the year included
an impairment write down of $301.4m (2011: $112.3m), following the review of the
asset carrying values, given steps taken to initiate the commencement of the arbitration
process with Samsung, additional details note 8.
During the year the Company has continued to hold the investments in its subsidiaries
and managed the strategic direction of the Group. The cash balances at 31 December
were $6.1m (2011: $14.4m). In the twelve months in 2012 the operating cash outflow
was $12.5m (principally the operating loss less the non cash income statement entries)
and investing activities inflow $4.2m (loans to subsidiaries). The retained loss for the
year was $329.3m (2011: $119.7m), which has been transferred to reserves. The loss
for the year includes an impairment write down of $328.3m (2011: $109.4m) on the
inter group loans and investments following the impairment of the subsidiary assets
values, additional details note 2. The Directors do not recommend the payment of a
dividend.
5 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2012 (Continued)
The Board
There have been changes in the composition of the Board during the financial year. At
the 2012 AGM Scott Pearl and Philip Fjeld did not stand for re-election and we thank
them for their significant contribution to Board discussions.
Environmental Reporting
The Company has an objective that all activities that are performed are to be carried out
so as to minimise negative impacts to people and the environment. Given the pre-
commercial nature of the operations there is currently minimal corporate impact on the
environment.
Working Environment and Personnel
At the end of 2012, FLEX LNG and its subsidiaries had in total 13 employees and
consultants, 11 men and 2 women, and there have been further staff reductions in 2013.
All personnel are employed either by FLEX LNG Management Limited, FLEX LNG
Management (Norway) AS or FLEX LNG Management (Singapore) Pte Ltd. There have not
been any serious injuries or accidents in the current or prior year and total absence due
to sickness has been minimal during the accounting year. FLEX LNG’s Board of Directors
currently consists of 5 men. The Company’s policy prohibits unlawful discrimination
against employees, on account of ethnic or national origin, age, sex or religion. Respect
for the individual is the cornerstone of this policy and the Group also aims to treat its
employees with dignity and respect.
Post Balance Sheet Events
There have been no significant post balance sheet events, other than those listed in note
17.
Corporate Governance
The Group is committed to good corporate governance; additional details may be found
in the corporate governance report.
Board of Directors of FLEX LNG Ltd
24 April 2013
David McManus (Chairman)
Aoki Hiromichi
Ian Beveridge
Eiji Wakiwaka
Christopher Pittinger
6 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Responsibility statement
We confirm that, to the best of our knowledge, the financial statements for the period 1
January to 31 December 2012 have been prepared in accordance with current applicable
accounting standards, and give a true and fair view of the assets, liabilities, financial
position and profit or loss of the entity and the Group taken as a whole. We also confirm
that the Board of Directors’ Report includes a true and fair review of the development
and performance of the business and the position of the entity and the Group, together
with a description of the principal risks and uncertainties facing the entity and the Group.
Board of Directors of FLEX LNG Ltd
24 April 2013
David McManus (Chairman)
Aoki Hiromichi
Ian Beveridge
Eiji Wakiwaka
Christopher Pittinger
7 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report
1 ) Implementation and reporting on corporate governance
As a company incorporated in the British Virgin Island (“BVI”), the Company is subject to BVI laws and
regulations. Additionally, as a consequence of being listed on Oslo Axess, the Company must comply with
section 3-3b) of the Norwegian Accounting Act and certain aspects of Norwegian securities law and is also
obligated to adhere to the Norwegian Code of Practice for Corporate Governance (the “Code of Practice”) on a
“comply or explain” basis. Further, the Company has in place a Memorandum and Articles of Association, which
set forth certain governance provisions. The Norwegian Accounting Act is found on www.lovdata.no and the
Code of Practice is found on www.nues.no.
The Group is committed to ensuring that high standards of corporate governance are maintained and is
committed to high ethical standards in dealings with all stakeholders, including shareholders, debtors,
customers, vendors and employees. Strong corporate governance principles help to ensure that the Groups’
standards are applied to all its operations, and the Board has furthermore implemented a Code of Conduct and
Ethics and the Company will also look to comply with the material aspects of the Code of Practice for Reporting
IR Information. Additionally policies have been put in place to cover health and safety, quality and environment
commitment. The Company believes that these policies broadly set out the Company’s corporate social
responsibility. Further information in this respect is available on www.flexlng.com.
The Board of Directors has based its corporate governance practices on the principles set out in the Code of
Practice. However, since the Company is governed by BVI laws and regulations, and given the pre commercial
nature of the Group’s activities, certain practices are applied which deviate from some of the recommendations
of the Code of Practice.
In the following sections, the Company’s corporate governance policies and procedures will be explained, with
reference to the principles of corporate governance as set out in the sections identified in the Code of Practice.
This summary does not purport to be complete and is qualified in its entirety by the Company’s Memorandum
and Articles of Association, BVI and Norwegian law.
2 ) Business
FLEX LNG was established with the objective to be a leading owner and operator of Floating LNG production
units and associated activities, including LNG transportation. The objectives are within the framework of the
Company’s Memorandum and Articles of Associations, which may be reviewed at www.flexlng.com. The
objectives stipulated in the Memorandum and Articles of Associations are as follows: ‘commercial activity
relating to securing hydrocarbon feed stock for floating liquefaction projects, constructing, owning and
operating floating liquefaction vessels and/or LNG vessels and sales and marketing of hydrocarbons and
business in connection therewith, including investing in other companies.’
The Group operates principally through its subsidiaries. The vision of FLEX LNG had been to become a leader in
owning and operating floating LNG production units and associated activities. More recently, the Company has
focused on Alternative Deployment and subsequently to obtain a net refund of the paid-in instalments made to
Samsung. The business principles are as follows;
•
•
•
•
•
Protection of human lives and the environment and servicing our customers are the top priorities. By
working with clients to jointly explore business opportunities FLEX LNG intends to develop long lasting
relationships based on trust and a goal of creating economic value
FLEX LNG will strive to provide superior shareholder returns
FLEX LNG will aim to attract and retain highly qualified individuals through compensation packages
that align employees and shareholders’ interest
Creativity and innovation spearheads the commercial and technical work conducted by FLEX LNG. In
an effort to stay ahead of competition FLEX LNG will relentlessly drive for continuous improvements
that permeate the FLEX LNG culture
FLEX LNG emphasises integrity and honesty in the way it does business
3 ) Equity and dividends
Equity
The appropriate level of equity for the Group is evaluated by the Board on an ongoing basis, via reviews at the
Board meetings. Total share capital at 31 December 2012 was USD 1,254,126.22, divided into 125,412,622
shares of USD 0.01 each. The directors believe this is currently satisfactory given the Group’s business and
objectives, but will be increased if the Company raises additional funds.
Dividend policy
As the Group has yet to produce stable cash flow, or to secure a commercial contract, dividends will not be
considered in the near term.
8 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
3 ) Equity and dividends (continued)
Equity mandates
As a BVI company it has a 200m maximum for the authorised number of shares per its Memorandum and
Articles of Association. To issue new shares or increase the authorised number of shares, it requires an ordinary
shareholder resolution. The authorised and issued share capital for the Group is detailed in the annual and
quarterly reports which may be viewed at www.flexlng.com.
In connection with issuance of shares in the Company, the shareholders have (except to the extent they are
waived) pre-emptive rights to the new share on a pro-rata basis. Currently, the Board has not resolved and
does not intend for the Company to acquire its own shares.
4 ) Equal treatment of shareholders and transactions with close associates
The Company has only one share class, with identical voting rights. All shareholders are treated equally and the
Articles of Association do not contain any restrictions on voting rights. Where there is a need to waive the pre-
emption rights of existing shareholders this will be justified at the time of approval or where based on an
existing mandate justified in the stock exchange announcement in relation to the increase.
All transactions between the Group and its close associates as defined by the Group’s Code of Conduct are at
arm’s length and market prices. The Memorandum and Articles of Associations require Board members to
disclose interests in transactions entered into with the Group. Where appropriate the Group ensures third party
independent evaluation, where defined by the Code of Conduct. Any transactions between the Group and close
associates will be detailed as related party transactions in note 15 to the financial statements.
5 ) Freely negotiable shares
With limited exception, all shares in the Company are freely negotiable, and the Articles of Association contain
no form of restriction on the negotiability of the shares.
However, as a BVI company, and to protect existing Norwegian shareholders from adverse tax consequences in
Norwegian Controlled Foreign Corporations Regulations, the Group may, in accordance with the Articles of
Association, deny the transfer of shares which would lead to Norwegian ownership being deemed a Controlled
Foreign Company. This type of restriction is normal for British Virgin Islands and other low-tax jurisdiction
companies listed on the Oslo Axess.
The founders of FLEX LNG have personally and through their wholly owned company Hansa LNG Ltd. entered
into a lock-up agreement with the Company in respect of shares in the Company or financial interest therein,
and have agreed not to directly or indirectly pledge, sell, or otherwise dispose of shares (or financial interest
therein) held directly or indirectly by the founders personally or through Hansa LNG Ltd. until the later of (i) the
delivery of the second vessel from Samsung and (ii) 30 June 2011 (the “Lock-up Period”). The Shares held by
the founders personally or through Hansa LNG Ltd. or the financial interest therein cannot be pledged, sold or
otherwise disposed of during the Lock-up Period without the written consent of the shareholders representing
two-thirds of the total number of issued shares of FLEX LNG.
Furthermore, the shareholders of the Company have on the Annual General Meeting in 2012 and 2011 resolved
that at least half of all of the remuneration for the directors for the two years shall be paid by the issue of new
shares in the Company, that are to be subject to a lock-up. The shares issued as board remuneration for the
2012 year shall become unlocked either on the first or second anniversary after their grant.
6 ) General meetings
The Annual General Meeting (“AGM”) is the forum for the Company’s shareholders to participate in major
decisions, and is held each year. The Company’s Articles of Associations require 14 days notice for Annual and
Extraordinary General Meetings, rather than 21 days. Currently, given that the Company is pre-commercial,
this shorter period is considered to be sufficient for shareholders to consider the matters being voted on. The
notice for Annual and Extraordinary General Meetings shall include relevant material to enable the shareholders
to make an informed decision. All shareholders are entitled to speak and vote at the General Meetings. The
Board of Directors shall take steps to ensure that as many shareholders as possible can exercise their rights by
participating in General Meetings, for instance by setting deadlines for shareholders to give notice of their
intention to attend the meeting (if any) close to the date of the meeting as possible and by giving shareholders
who are not able to attend the option to vote by proxy. The Board of the Company shall make arrangements for
shareholders voting by proxy to give voting instructions on each matter to be considered at the meeting. The
Board of Directors and the Chair of the meeting will ensure appropriate arrangements for the General Meeting
to vote separately on each candidate nominated for election to the Company’s corporate bodies.
9 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
6 ) General meetings (continued)
The AGM shall be organised in such a way as to facilitate dialogue between shareholders and the officers of the
Company. Thus, the Board of Directors will ensure that a member of the Board and the auditor will be available
to answer questions. The Board of Directors has not made arrangements for an independent Chairman for each
AGM; it believes that the Board Chairman can act independently and in the interests of shareholders. The notice
of the General Meeting as well as supporting documents will be made available on the website www.flexlng.com
as well as www.newsweb.no where the decisions from the general meetings will also be made available.
FLEX LNG strives to maintain an open and fair dialogue with its shareholders through the publishing of
information, presentations and responding to questions from shareholders. The Company has not, however,
taken specific measures for obtaining shareholders’ proposals for matters to be proposed to the shareholders’
meeting. In the view of the Company, the current shareholder structure, the shareholder representation, the
policy to communicate with shareholders is sufficient to ensure that shareholders may communicate their points
of view to the executive management and the Board. In addition, given the Company’s current development
and given the good communications with shareholders, it does not believe that it is necessary for all Directors,
Nomination Committee and auditor to be physically present at the General Meetings, or for there to be an
independent Chairman, and that 14 days notice is sufficient for the AGM. The Chairman and CEO will
participate, at a minimum.
7 ) Nomination Committee
The Company operates a nominating committee, which is responsible for identifying, recommending board
candidates to the AGM and shall justify the recommendation to shareholders against the requirements in 8)
below. The committee’s obligations and responsibilities are established in the Company’s Articles of Association
and via procedures for the nomination committee, as approved by the AGM. Currently George Linardarkis,
David McManus and Marcus Hansson comprise the members of the Nomination Committee, and all members
are independent of the Board and the executive management, apart from David McManus. All members are
elected by the shareholders for a period until the 2014 AGM and their remuneration was approved at the AGM.
8 ) Corporate assembly and Board of Directors: composition and independence
As a BVI registered company with 13 employees and contractors at 31 December 2012, the Company does not
have a corporate assembly. Given the size of the Company this is not believed to be necessary.
The Company’s Board of Directors currently comprises five directors, of whom all are considered independent of
executive management. Of the five members, one director is also associated with a shareholder with a holding
exceeding 10%; Mr. A. Hiromichi. The composition of the Board of Directors, including the controls to avoid
conflicts of interest, is in accordance with BVI company law, the Memorandum and Articles of Association and
good corporate governance practice.
The Company endeavours to ensure that it is constituted by directors with a varied background and the
necessary expertise, diversity and capacity to ensure that it can function effectively. The directors are elected
by the General Meeting, for service periods of two years or such shorter period as stated in the relevant
resolution. Directors may be re-elected and there is no limit on the number of terms that any one director may
serve. Re-election of the current directors is due at the AGM in 2013. They may be removed by a majority vote
at any time. Currently the Board has elected the Chairman, rather than the shareholders, given the Company’s
current development status the Company believe that this is satisfactory and that the Chairman can ensure that
the board is effective in its tasks of setting and implementing the Company’s direction and strategy.
The Directors are encouraged to hold shares in the Company, which the Board believes promotes a common
financial interest between the members of the Board and the shareholders of the Company. In accordance with
the General Meeting’s resolution, the Directors received between 50% and 100% of their remuneration in
shares for 2012.
All Directors participated in the physical Board meetings in 2012, apart from one Director who was unable to
join the meeting.
10 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
8 ) Corporate assembly and Board of Directors: composition and independence
(continued)
The current Board members are listed below:
Mr. David McManus, Chairman (59)
Mr. McManus has served on the Board since August 2011, and was elected as chairperson in September 2011.
An exceptionally experienced international business leader in the Energy Sector, with strong technical and
commercial skills currently serving as Executive Vice Present and Head of International Operations for Pioneer
Natural Resources, with offices in London, Tunis and Cape Town, focusing on exploration and commercialisation
of reserves. Concurrently serving as Non Executive Director for two UK listed companies; Cape plc an energy
service company, which has been involved as a contractor in more than 50% of the world's LNG facilities,
including Sakhalin, RasGas, Qatargas, Damietta, Idku, North West Shelf, Pluto, Arzew and floating
regasification in Italy; and Rockhopper Exploration plc an exploration company with assets in the Falkland
Islands. 36 years experience in Technical, Commercial, Business Development, General management and
Executive roles across all aspects of the oil and gas business, spanning the world, including; BG Group, ARCO,
Ultramar, Shell and Fluor corporation. Mr. McManus is a graduate of Heriott Watt University, Edinburgh.
Mr. Ian Beveridge, Board member (49)
Mr. Beveridge has served on the Board since October 2007. Mr. Beveridge is the CEO of the Schulte Group and
has been associated with the Schulte group for 16 years, until 2006 as Managing Director. Before that Mr.
Beveridge worked 3.5 years with Coopers & Lybrand in Johannesburg, leaving as Senior Supervisor. Mr.
Beveridge obtained a Bachelor of Commerce (Honours) in 1987 and qualified as a chartered accountant in
South Africa. Mr. Beveridge is also member of the Gard Board of Directors and the German Committee of Det
Norske Veritas.
Mr. Aoki Hiromichi, Board member (54)
Mr. Hiromichi has served on the Board since July 2008. Mr. Hiromichi
is a Managing Executive Officer of
Kawasaki Kisen Kaisha, Ltd. ("K"Line) and is responsible for the Energy Transport Sector including natural gas,
FPSO, offshore support vessels, MODU and other floating units. During his 27-years career with "K"Line, he has
been a Project Manager for LNG transport projects such as Qatargas, RasGas, Snøhvit, Tangguh and many
others. He was also a board member of EnerSea Transport LLC until June 2008 having pursued the project
development of CNG. Before joining LNG Group of "K"Line, he served "K"Line as Resident Representative in Rio
de Janeiro and CarCarrier Group besides studying under a corporate scholarship in the Business School of
Syracuse University, NY, and the Law School of Tulane University, LA. He holds a Bachelor of Business
Administration in 1981 from Shinshu University.
Mr. Christopher Pittinger, Board member (53)
Mr. Pittinger has served on the Board since August 2011. He is a private businessman and an independent
strategic advisor to various entities in Abu Dhabi, U.A.E. Previously he was a partner in the law firm of
Shearman & Sterling, LLP, where he worked for 20 years. At Shearman & Sterling he specialised in oil and gas
joint ventures, project development and financings, asset acquisitions and dispositions, upstream production
sharing and concession arrangements, oil and gas taxation and regulation, transport arrangements and
downstream projects in the petrochemicals and refining sectors. He is a graduate of Boston College and holds a
Juris Doctor Degree from the University of Virginia, School of Law.
Mr. Eiji Wakiwaka, Board member (63)
Mr. Wakiwaka has served on the Board since August 2011. He has extensive LNG marketing and project
execution experience in Asia. He is currently a Program Director for the Clinton Climate Initiative. Previously he
was the President for BP Japan where he had overall responsibility for sales of BP and Castrol lubricants, Oil and
Gas trading and strategic account management. He was also responsible for the BP Gas business in North Asia,
covering the FID for the Tangguh project, LNG marketing and partner relationship management and other
projects worldwide (Abu Dhabi LNG, Northwest Shelf, Bontang BTC pipeline and TKN BP). Mr. Wakiwaka holds a
MBA from Harvard University and Bachelor of Commerce from Waseda University.
11 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
8 ) Corporate assembly and Board of Directors: composition and independence
(continued)
The Executive Management are listed below:
Mr. Philip Eystein Fjeld, Chief Executive Officer (38)
Mr. Fjeld is the co-founder of FLEX LNG, which was established in August 2006 and is the CEO of FLEX LNG
Management. Prior to joining FLEX LNG he held the position of Commercial Manager at Höegh LNG in Oslo,
where he had responsibility for the commercial budget for two LNG carriers on long-term charters to gas
majors. Mr. Fjeld’s business development work at Höegh LNG encompassed pre-qualification and offers in
connection with standard LNG shipping tenders, structuring and negotiating LNG time charter parties and ship
management contracts, ship-sale negotiations and marketing of FSRU conversions and regasification vessel
projects. Mr. Fjeld has a nautical degree and has served at sea as a deck officer in the Royal Norwegian Coast
Guard and in the Merchant Navy. Mr. Fjeld earned his Master's Degree in Strategy and Management from the
Norwegian School of Economics and Business Administration.
Mr. Trym Tveitnes, PhD, Chief Technical Officer (40)
Mr. Tveitnes is the co-founder of FLEX LNG, which was established in August 2006 and is the CTO of FLEX LNG
Management. Mr. Tveitnes joined FLEX LNG from a consultancy in Bergen, Norway, specialising in onshore gas
transportation and distribution. Prior to this he worked for the shipping company Höegh LNG in Oslo, focusing
on concept development and technical specifications in connection with the Neptune SRV project as well as
within Arctic LNG transportation. Mr. Tveitnes also has experience as Senior Engineer at Det Norske Veritas
working on technological qualifications of containment systems for large LNG carriers and floating LNG import
terminals. Mr. Tveitnes holds a MSc. in Naval Architecture and a PhD in Hydrodynamics from the University of
Glasgow.
Jostein Ueland, Chief Financial Officer (33)
Mr. Ueland is the co-founder of FLEX LNG, which was established in August 2006 and is the CFO of FLEX LNG
Management. Mr. Ueland has worked within the Investment Management Division of Goldman Sachs
International in London and as an Equity Research Analyst in Enskilda Securities ASA in Oslo. He has first class
experience in valuing companies and was responsible for the IPO research in relation to the listing of APL ASA,
Sevan Marine ASA and Odfjell Invest LTD. Mr. Ueland earned his Master's Degree in Finance from the
Norwegian School of Economics and Business Administration.
9 ) The work of the Board of Directors
The Board approves an annual budget plan for the business. In addition, policies have been approved that
cover the responsibilities of the Board and those of the CEO and of FLEX LNG Management Limited. Through the
establishment of the Compensation, Audit, and Commercial Committees, the Board has delegated some of its
work to these committees, yet it has retained the responsibility for overall decision making. The composition of
the committees is as follows; Compensation – David McManus and Eiji Wakiwaka; Audit – Ian Beveridge and
David McManus; and Commercial - David McManus, Christopher Pittinger and Eiji Wakiwaka. The committees
perform the following roles: Compensation – to review and recommend remuneration for senior management;
Audit – to review the financial reporting and controls for the Group; and Commercial – to review commercial
agreements at an early stage and to then advise Management and the Board. The Board is scheduled to meet
in person between one and two times a year, and additionally approximately eight times by telephone
conferences, but the schedule is flexible to react to operational or strategic changes in the market and Group
circumstances. In the 12 months in 2012 the Board has convened more often, but has only met on one
occasion.
The main responsibilities of the Board cover the following main areas; strategic planning and decision making
for the executive management to implement; ensure Board instructions are complied with; remain well
informed on the Company’s and Group financial position; production of an annual work plan; ensure the
adequacy of executive management and their roles are clearly defined; annually to review the most important
areas of risk exposure, including risks and controls related to financial reporting; ensuring an appropriate
system of direction, risk management and internal control is established and maintained; adopt guidelines for
the frequency and policy for external financial reporting; and to agree on the dividend policy.
The Chairman of the Board of Directors carries a particular responsibility for ensuring that the Board of
Directors performs its duties in a satisfactory manner and that the Board is well organised. The Board has the
overall responsibility for the management of the Group and has delegated the daily management and
operations to the CEO, Mr. P. Fjeld, who is appointed by and serves at the discretion of the Board, and also
reports to the Board. Further, the CEO of the management company is responsible for ensuring that the
Company’s accounts are in accordance with all applicable legislation, and that the assets of the Company are
properly managed. His powers and responsibilities are defined in more detail by the Board of Directors.
12 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
9 ) The work of the Board of Directors (continued)
The CEO is supported by the other members of the executive management team that consists of Mr. J. Ueland
(Chief Financial Officer) and Mr. T. Tveitnes (Chief Technical Officer). The executive management team has the
collective duty to implement the Company’s strategic, technical, financial and other objectives, as well as to
protect and secure the Group’s organisation and reputation.
In the event that the Chairman of the Board cannot attend a meeting or is conflicted in leading the work of the
board, an alternate chairman will lead the meeting.
10 ) Risk management and internal control
The Board, in conjunction with the executive management, evaluates the risks inherent in the operations of
FLEX LNG. Principal among these risks currently are; the evaluation of the recoverable amount from the paid-in
instalments with Samsung; the outcome of the envisaged arbitration process; agreeing the level of paid
instalments available for redeployment with Samsung, should a commercial agreement be reached, including
the economics of such Alternative Deployment (including being able to secure employment contracts on
reasonable terms for any alternative vessel constructed by Samsung); potential Samsung claims on the
Company; obtaining finance and working capital on reasonable terms; retaining key staff, and general business,
and financial risk. In addition, the following risks inherent in the business plan are monitored: commodity
prices, exchange rates, competition, the political and regulatory environment, counterparty performance,
potential growth of the business and the proposed application of new technology. The Board, working with the
Audit Committee and through the annual audit process, ensures that FLEX LNG has reliable internal control and
systems for risk management.
The Board is presented an annual budget at the end of the preceding financial year. Thereafter, the Board is
presented with regular updates and a quarterly report identifying material variations from the approved budget.
Explanations are obtained for material variances. The Audit Committee has the responsibility to evaluate risk
exposure and internal control on an annual basis. The Board is also presented financial statements on a
quarterly basis, which are reviewed with the executive management. FLEX LNG’s annual accounts provide
information on internal control and risk management systems as they relate to its financial reporting.
11 ) Remuneration of the Board of Directors
The remuneration of the members of the Board of Directors is determined annually by the General Meeting, on
the basis of the Board’s responsibility, expertise, time commitment and the complexity of the Group’s
operations, and is disclosed in note 3 to the financial statements. Through the Company’s remuneration of
directors, part of which has historically been in stock, the Company has encouraged directors to own shares in
the Company. The remuneration is not linked to the Company’s performance. No non-executive directors have
been granted share options and no directors are part of the incentive programs available for the executive
management and/or other employees, details in section 12 below.
As a general rule, no directors (or companies with which they are associated) shall take on specific assignments
for the Company in addition to their appointment as director. If such assignments are made, it shall be
disclosed to the full Board and the remuneration shall be approved by the Board. Further, all remuneration paid
to each of the directors shall be described in the Annual Report. Such description shall include details of all
elements of the remuneration and benefits of each member of the Board, any remuneration paid in addition to
normal director’s fees included.
12 ) Remuneration of the executive personnel
The executive management’s remuneration shall be determined by a convened meeting of the Board of
Directors. The Board is advised by the Remuneration Committee as to the appropriate level of salary and
benefits to pay. The committee shall when preparing the guidelines take into account the location of the
management, the level of remuneration normal within the business of the Group, the phase of the Group’s
business and special characteristics of the different positions within the executive management. The guidelines
shall include a summary of the characteristics of employee option schemes and bonus schemes applicable to
the Group. The process aims to link the performance related element of the remuneration, (options, warrants
and bonus) to value creation for shareholders. The current option program has been approved by shareholders
with the allocation to staff determined by the Remuneration Committee prior to approval by the Board. The
scheme was designed to align employees with shareholder value creation and to retain persons within the
Group. The guidelines for the remuneration of the executive management were communicated at the 2011
AGM.
Further information on the remuneration of the executive management is contained in note 3, and options
granted in note 13 to the financial statements.
13 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
13 ) Information and communications
FLEX LNG will ensure that the shareholders receive accurate, clear, relevant and timely information in
accordance with legal requirements. Publication methods will be selected to ensure simultaneous and equal
access for all equity shareholders; the information is mainly provided in English. Before the start of the year the
Company publishes a summary of the key reporting and meeting dates for the following year.
The Board of Directors has adopted guidelines for the Company’s reporting of financial and other information
based on openness, equal treatment of all shareholders and participants in the securities market, and
restrictions imposed by law. The guidelines also include information requirements to the internal treatment of
important information and insider trading instructions and for the Company’s contact with shareholders other
than through General Meetings.
14 ) Take-overs
The Board of Directors has established guiding principles for how it will act in the event of a take-over bid.
During the course of a take-over process, the Board has an independent responsibility to help ensure that
shareholders are treated equally, and that the Company’s business activities are not disrupted unnecessarily.
The board of the target company has a particular responsibility to ensure that shareholders are given sufficient
information and time to form a view of the offer. The Board of Directors and the executive management will not
seek to hinder or obstruct take-over bids for the Company’s shares or activities. In the event of any possible
take-over or restructuring situation the Board of Directors will take particular care to protect shareholder value
and the common interests of the shareholders. If an offer is made for the Company’s shares, the Board of
Directors shall issue a statement evaluating the offer and making a recommendation as to whether
shareholders should or should not accept the offer. The Board will consider the appropriateness of arranging for
a valuation by an independent expert. If the Board finds itself unable to give a recommendation to shareholders
on whether or not to accept the offer, it will explain the background for not making such a recommendation.
The Board of Directors will not exercise mandates or pass any resolutions to obstruct the take-over bid unless
approved by the General Meeting following announcement of the bid. Any transaction that is a disposal of the
Company’s activities should be decided by the General Meeting. Any agreement with a bidder that acts to limit
the Company’s ability to arrange other bids for the Company’s shares shall only be entered into where it is self-
evident that such an agreement is in the common interest of the Company and its shareholders. Additionally
any financial compensation should be limited to the costs the bidder has incurred in making the bid. Where
agreements are entered into between the Company and the bidder that are material to the market's evaluation
of the bid they will be publicly disclosed no later than at the same time as the announcement that the bid will
be made is published. According to the Norwegian Securities Trading Act, a mandatory offer for the remaining
shares will be triggered if a shareholder becomes the owner of more than 1/3 of the shares in the Company.
15 ) Auditors
The auditor submits the main features of the plan for the audit of the Company to the Audit Committee on an
annual basis. The auditor does not participate in meetings of the Board of Directors that deal with the annual
accounts. Via the Audit Committee the auditor reviews any material changes in the Company’s accounting
principles, comments on any material accounting estimates and reports all material matters on which there has
been disagreement between the auditor and the executive management of the Company. The Company
believes the auditor does not need to be physically present at the Company’s AGM given the pre-commercial
nature of the Group. Annually the auditor presents to the Audit Committee a review of the Company’s internal
control procedures, including identified weaknesses and proposals for improvement. The Audit Committee,
rather than the full Board, holds a meeting with the auditor at least once a year at which no member of the
executive management is present. At present, the Company believes this is sufficient given its size and enables
the auditor to communicate with members of the Board.
The Board of Directors have established guidelines in respect of the use of the auditor by the Company’s
executive management for services other than the audit. The Board of Directors shall report the remuneration
paid to the auditor at the AGM, including details of the fee paid for audit work and any fees paid for other
specific assignments.
14 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Income Statement - FLEX LNG Group & Company
Year ended 31 December
(USD, 000)
Note
Group
2012
Group
Company
Company
2011
2012
2011
Operating revenues
Other income
Gross revenues
0
0
0
0
0
0
0
0
0
0
0
0
Administrative expenses
Other operating costs
3
8/2
(3,053)
301,372
13,433
1,099
2,596
112,291
328,264
109,398
Operating loss
(298,319)
(125,724)
(329,363)
(111,994)
Finance income
Finance cost
Loss before tax
Income tax expense
Loss after tax
Loss for the year
Attributable to:
4
4
7
88
77
(510)
(10,224)
77
0
76
(7,817)
(298,741)
(135,871)
(329,286)
(119,735)
57
88
0
0
(298,798)
(135,959)
(329,286)
(119,735)
(298,798)
(135,959)
(329,286)
(119,735)
Equity holders of the parent
(298,798)
(135,959)
(329,286)
(119,735)
Earnings per share
(USD):
- Basic
- Diluted
Group
2012
Group
Company
Company
2011
2012
2011
5
5
(2.39)
(1.13)
(2.63)
(1.00)
(2.39)
(1.13)
(2.63)
(1.00)
15 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Comprehensive Income - FLEX LNG Group &
Company
Year ended 31 December
(USD, 000)
Note
Group
2012
Group
2011
Company
2012
Company
2011
Loss for the year
(298,798)
(135,959)
(329,286)
(119,735)
Exchange differences on
translation
Other comprehensive profit /
(loss)
Total comprehensive loss
for the period
Attributable to equity holders
of the parent
43
43
(14)
(14)
0
0
0
0
(298,755)
(135,973)
(329,286)
(119,735)
(298,755)
(135,973)
(329,286)
(119,735)
16 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Financial Position – FLEX LNG Group & Company
Group
As at 31 December
Company
Company
Group
Note
2012
2011
2012
2011
(USD, 000)
ASSETS
Non-current assets
New building assets
Plant and equipment
Loans and investments
Total non-current assets
Current assets
Other current assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Issued capital
Share premium
Other equity
Equity attributable to
equity holders of the
parent
Total equity
Non-current liabilities
8
9
2
10
11
12
12
Other financial liabilities
14
Total non-current
liabilities
Current liabilities
Accounts payable
Accruals and other payables
14
Total current liabilities
Total liabilities
TOTAL EQUITY AND
LIABILITIES
0
77
0
77
483
6,246
6,729
6,806
342,412
178
0
342,590
1,049
14,754
15,803
358,393
0
0
0
0
32
6,115
6,147
6,147
0
0
342,462
342,462
320
14,431
14,751
357,213
1,254
1,248
1,254
1,248
562,288
561,946
562,288
561,946
(557,857)
(246,788)
(559,294)
(217,694)
5,685
316,406
4,248
345,500
5,685
316,406
4,248
345,500
0
0
86
1,035
1,121
1,121
29,238
29,238
198
12,551
12,749
41,987
0
0
0
1,899
1,899
1,899
0
0
64
11,649
11,713
11,713
6,806
358,393
6,147
357,213
Board of Directors of FLEX LNG Ltd 24 April 2013
David McManus (Chairman)
Aoki Hiromichi
Ian Beveridge
Eiji Wakiwaka
Christopher Pittinger
17 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Consolidated Statement of Changes in Equity – FLEX LNG Group
(figures in USD,000)
For the year ended 31
December 2012
Share premium
reserve
Share capital
P&L reserve
Exchange
translation
reserve
(314)
43
43
At 01.01.12
Loss for the period
Other comprehensive income
Total comprehensive income
Shares issued
Share-based payment (options /
warrants)
Share-based payment (shares)
1,248
561,946
6
342
(268,875)
(298,798)
(298,798)
At 31.12.12
1,254
562,288
(567,673)
(271)
For the year ended 31
December 2011
Share capital
Share premium
reserve
P&L reserve
At 01.01.11
Loss for the period
Other comprehensive income
Total comprehensive income
Expenses related to share issue
Shares issued
Share-based payment (options /
warrants)
Share-based payment (shares)
1,130
552,490
118
(43)
9,499
(132,916)
(135,959)
(135,959)
Exchange
translation
reserve
(300)
(14)
(14)
At 31.12.11
1,248
561,946
(268,875)
(314)
18 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Option, warrant
and shares
Total to owners
of the parent
22,401
(348)
316,406
(298,798)
43
(298,755)
0
(12,381)
(12,381)
415
10,087
415
5,685
Option, warrant
and shares
Total to owners
of the parent
10,091
7,545
4,265
500
22,401
430,495
(135,959)
(14)
(135,973)
(43)
17,162
4,265
500
316,406
Statement of Changes in Equity – FLEX LNG Ltd
(figures in USD,000)
For the year ended 31
December 2012
Share capital
Share premium
reserve
P&L reserve
At 01.01.12
Loss for the period
Total comprehensive income
Shares issued
Share-based payment (options
/ warrants)
Share-based payment (shares)
1,248
561,946
6
342
(240,095)
(329,286)
(329,286)
Exchange
translation
reserve
0
At 31.12.12
1,254
562,288
(569,381)
0
Option, warrant
and shares
Total to owners
of the parent
22,401
(348)
345,500
(329,286)
(329,286)
0
(12,381)
(12,381)
415
10,087
415
4,248
For the year ended 31
December 2011
Share capital
Share premium
reserve
P&L reserve
Exchange
translation
reserve
Option, warrant
and shares
Total to owners
of the parent
At 01.01.11
Loss for the period
Total comprehensive income
Expenses related to share issue
Shares issued
Share-based payment (options
/ warrants)
Share-based payment (shares)
1,130
552,490
118
(43)
9,499
(120,360)
(119,735)
(119,735)
At 31.12.11
1,248
561,946
(240,095)
0
19 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
0
10,091
443,351
(119,735)
(119,735)
(43)
17,162
4,265
500
345,500
7,545
4,265
500
22,401
Consolidated Statement of Cash Flows - FLEX LNG Group
Year ended 31 December
(USD, 000)
Group
Cash flow from operating activities
Loss before tax
Note
2012
2011
(298,741)
(135,871)
Adjustment to reconcile loss before tax to net cash flow
Non Cash:
Finance income
Finance expense
Option and warrant costs
Share based payment expense
Depreciation
Impairment charge
FX revaluation
Lease provision
P&L on asset disposal
Working capital adjustments:
Decrease in prepayments
Decrease / (increase) in trade and other receivables
(Decrease) / increase in trade and other payables
Income taxes paid
Interest received
Net cash flow from operating activities
Cash flows from investing activities
Purchase of plant and equipment
Proceeds from sale of fixed assets
Payment on new building assets &
capitalised expenditure
4
4
9
8
3
(88)
510
(12,381)
415
116
(77)
10,224
4,444
323
146
301,372
112,291
450
(69)
8
49
513
(689)
(8,535)
(85)
92
(8,528)
(139)
(70)
(1)
124
(329)
9,602
667
(140)
69
596
(57)
1
(4,961)
9
(23)
0
0
Net cash flow used in investing activities
(23)
(5,017)
Cash flows from financing activities
Proceeds from issue of share capital
Costs of share issue
Net cash flow from financing activities
Net currency translation effect
Net (decrease) / increase in cash and cash
equivalents
Cash and cash equivalents at beginning of period
0
0
0
43
(8,551)
14,754
9,343
(43)
9,300
(14)
4,879
9,889
Cash and cash equivalents at end of period
11
6,246
14,754
20 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Cash Flows - FLEX LNG Ltd
Year ended 31 December
(USD, 000)
Company
Note
2012
2011
Cash flow from operating activities
Loss before tax
Adjustment to reconcile loss before tax to net cash flow
(329,286)
(119,735)
Non Cash:
Finance income
Finance expense
Impairment charge
Option and warrant costs
Share based payment expense
Working capital adjustments:
Decrease in prepayments
Decrease / (increase) in trade and other receivables
Increase in trade and other payables
Interest received
Net cash flow from operating activities
Cash flows from investing activities
Loans and investments in subsidiaries
Net cash flow used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Costs of share issue
Net cash flow from financing activities
Net (decrease) / increase in cash and cash
equivalents
Cash and cash equivalents at beginning of period
4
4
2
2
(77)
0
(76)
7,817
328,264
109,398
(12,381)
415
14
270
186
(12,595)
81
4,444
323
56
(209)
10,904
12,922
67
(12,514)
12,989
4,198
4,198
(16,923)
(16,923)
0
0
0
(8,316)
14,431
9,343
(43)
9,300
5,366
9,065
Cash and cash equivalents at end of period
11
6,115
14,431
21 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies
1.1 Basis for preparation
FLEX LNG Ltd is a limited liability company, incorporated in the British Virgin Islands, and
listed on the Oslo Axess exchange. The Group includes eight 100% owned active
subsidiaries. The Group produces consolidated accounts incorporating these companies
and its activities which are focused on developing production, transportation and/or
storage of liquefied natural gas and related activities. The Company accounts for FLEX
LNG Ltd relate to the parent company only and in the following notes it is specified when
the detail relates to the consolidated group or the parent company only. Company
accounts are produced to comply with the Oslo listing requirements. Reported values are
rounded to the nearest thousand (USD 000) except when otherwise indicated.
The financial statements for the period ended 31 December 2012 have been prepared in
accordance with the International Financial Reporting Standards (IFRS) as adopted by
the EU and valid as of 31.12.12. The financial statements were approved by the Board of
Directors on 24.04.13 for issue on 26.04.13. The financial statements have been
prepared on an historical cost basis, except for the valuation of warrants and options,
which are accounted for at fair value and where certain assets which have been valued
on the basis of recoverable amount. The financial statements have also been prepared on
a going concern basis; additional information is included in notes 18 and 19.
The following standard was implemented in 2012;
IFRS 7 - New disclosures for de-recognition of financial instruments. The adoption of this
amendment has had no material impact on the financial position or performance of the
Group.
At the end of 2012, some new standards, changes in existing standards and
interpretations have been issued, but have not yet become effective:
IFRS 1 - Amendment: Severe hyperinflation and removal of fixed dates for first time
adopters; IFRS 7 - Amendment: New disclosure requirements - Offsetting of Financial
Assets and Financial Liabilities; IFRS 10 – Consolidated Financial Statements; IFRS 11 -
Joint Arrangements; IFRS 12 - Disclosure of Interests in Other Entities; IFRS 13 - Fair
Value Measurement; IAS 1 – Amendment Presentation of Items of Other Comprehensive
Income; IAS 12 - Amendment: Deferred tax- Recovery of underlying assets; IAS 19 –
Amendment Employee Benefits;; IAS 27 Revised Separate Financial Statements; IAS 28
Revised Investments in Associates and Joint Ventures; IAS 32 - Amendment: Offsetting
Financial Assets and Financial Liabilities; IFRIC 20 Stripping Costs in the Production
Phase of a Surface Mine; IFRS 1 - Amendment: Government Loans; IFRS 9 - Financial
Instruments; IFRS 10, IFRS 11, IFRS 12 - Amendments - Transition Guidance; IFRS 10,
IFRS 12, IAS 27 - Amendments: Investment Entities; and Improvements to IFRSs (2009-
2011) - Amendment to IFRS 1 - Repeated application and borrowing costs, IAS 1 -
Clarification of the requirements for comparative information, IAS 16 - Classification of
servicing equipment, IAS 32 - Tax effect of distributions to holders of equity instruments
and IAS 34 - Interim financial reporting and segment information for total assets and
liabilities.
The Group and Company intends to adopt those standards when they become effective.
Currently the Group and Company estimate that the implementation will have no impact,
or are unable to determine the impact.
22 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.2 Functional currency and Presentation currency
The Group’s presentation currency is USD. This is also the functional currency of all
companies in the Group, apart from FLEX LNG Management (Norway) AS which is NOK
based. Subsidiaries with a different functional currency are translated using the period
end rate for balance sheet items and an average rate for the income statement.
Translation differences are charged against other comprehensive income. When a foreign
subsidiary is partially or completely disposed of or sold, translation differences connected
to the subsidiary are recognised in the income statement.
1.3 Basis of consolidation
The Group’s consolidated financial statements comprise FLEX LNG and companies in
which it has a controlling interest. A controlling interest would normally be attained if
FLEX LNG owned, either directly or indirectly, more than 50% of the shares in the
company and is capable of exercising control over the company, including call options
over shares. Non-controlling interests are included in the Group’s equity. Details on
subsidiaries are provided in note 2. The financial statements of the subsidiaries are
prepared for the same reporting period as the parent Company, FLEX LNG Ltd, using
consistent accounting principles.
The acquisition of an asset, group of assets or entity that does not constitute a business
is not a business combination. In such cases the acquirer will identify and recognise the
individual
identifiable assets acquired and liabilities it assumes. The cost of the
acquisition should be allocated to the individual identifiable assets and liabilities on the
basis of their relative fair value at the date of purchase.
Intragroup transactions and balances, including internal profits and unrealised gains and
losses, have been eliminated in full. Unrealised gains from transactions with associated
companies are eliminated in the FLEX LNG’s share of the associated companies.
Correspondingly, unrealised losses are eliminated, but only if there are no indications of
any impairment in the value of the asset that is sold internally. The consolidated financial
statements have been prepared under the assumption of uniform accounting principles
for equal transactions and other events under equal circumstances.
1.4 Use of estimates and judgements when preparing the annual financial
statements
The annual financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS). This means that management has used estimates
and assumptions that have affected assets, liabilities, revenues, expenses, cash flows
and information on potential liabilities. Future events may lead to these estimates being
changed. Changes to accounting estimates are included in the financial statements for
the period in which the change occurs. If the changes also apply to future periods, the
impact is spread over the current and future periods. The estimates and underlying
assumptions are based on past experience and other factors perceived to be relevant and
probable when the judgements were made. The judgements affect the carrying amounts
of assets and liabilities when no other sources have been applied in the valuation.
23 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.4 Use of estimates and judgements when preparing the annual financial
statements (continued)
Estimates are reviewed on an ongoing basis and revisions to accounting estimates are
recognised in the period in which the estimates are revised. The inputs to the fair value
calculations are based on observable market data when available, but where this is not
achievable; a degree of judgement is required in establishing fair values. The judgements
include consideration of inputs such as liquidity risk, credit risk and volatility. Changes in
these assumptions could impact the reported fair value.
Significant accounting judgements – new build assets
Costs are capitalised as per note 1.8 and 1.11. In determining amounts that are
capitalised, management makes assumptions regarding future cash generation from
these assets. Costs are split between the different vessels based on management’s view
on benefits derived from the expenses incurred. The carrying value (payments less
previous impairments) has been calculated on both a value in use basis and as
contingent assets. An impairment exists when the carrying value of the asset exceeds its
recoverable amount (the higher of fair value less cost to sell and value in use), or where
there is a contingent asset and there is not a virtually certain expectation as to the
recoverable amount, no asset is recognised. The assumptions behind the calculation are
detailed in note 8.
1.5 Currency transactions
Foreign currency transactions are translated into the functional currency using the
average exchange rates prevailing at the dates of the transactions. Monetary items are
retranslated at the period end exchange rate, non-monetary items that are measured at
historical cost are translated at the rate in effect on the original transaction date, and
non-monetary items that are measured at fair value are translated at the exchange rate
in effect at the time when the fair value was determined.
Foreign exchange gains and losses resulting from the settlement of such cash
transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the income statement.
1.6 Segments
The Group is operating only one segment with respect to products and services. Segment
reporting is thus currently not relevant. Until a Group company concludes a final
investment decision, all non-current assets are located in the country of domicile. The M-
FLEX entities are incorporated in the Isle of Man.
1.7 Income tax
Current income tax assets and liabilities for the current and prior periods are measured
at the amount expected to be recovered from or paid to the taxation authorities. The tax
rates and tax laws used to compute the amounts are those enacted or substantively
enacted by the balance sheet date.
The Group consists of two legal entities incorporated in the British Virgin Islands, five
entities in the Isle of Man, one in Norway, one in Singapore.
24 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.8 Non-current assets
Non-current assets are carried at cost less accumulated depreciation and impairment
adjustments. When assets are sold or disposed of, the gross carrying amount and
accumulated depreciation are derecognised, and any gain or loss on the sale or disposal
is recognised in the income statement.
The depreciation period and method will be reviewed annually to ensure that the method
and period used are in accordance with the financial realities of the fixed asset. This
applies correspondingly to the scrap value.
The gross carrying amount of non-current assets is the purchase price, including
duties/taxes and direct acquisition costs related to making the non-current asset ready
for use. Subsequent costs, such as repair and maintenance costs, are normally
recognised in the income statement as incurred. Where increased future economic
benefits as a result of repair/maintenance work can be proven, such costs will be
recognised in the balance sheet as additions to non-current assets.
In accordance with IAS 16, the carrying value also includes capitalised expenses directly
attributable to the asset in order to bring it to the location and condition for use in the
intended manner. Such expenses include compensation for employees, travel costs,
consultant fees, legal costs, engineering and design costs, plus other costs that are
directly attributable to the assets. Capitalisation would cease once the asset is in the
location and condition necessary for it to be able to operate in the manner consistent
with its intended design.
On delivery the total expenditure of the vessel would be decomposed to groups of
components that have different expected useful lives. The different groups of
components would be depreciated over their expected useful lives.
Intangible assets are measured on initial recognition at cost. Following recognition they
are carried at cost less any accumulated amortisation and any accumulated impairment
losses. The amortisation period is reviewed on an annual basis, with any amortisation or
impairment charge is recognised in the income statement.
Depreciation on plant and equipment is calculated using the straight-line method to
depreciate assets over their useful life. The following periods have been used:
IT Equipment: 2 years
Furniture and Fittings: 5 years
Shares in the subsidiaries and loans provided to subsidiaries are evaluated at the lower
of cost and fair value. When the value of estimated future cash flows is lower than the
carrying value in the subsidiaries, the Company recognises impairment charges on
investments in subsidiaries and intercompany loan receivables. If and when estimated
recoverable amounts increase, impairments charges are reversed. There is currently no
repayment schedule on the intercompany loans and no interest charged on outstanding
balances.
25 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.9 Impairment of assets
Financial instruments
Financial instruments are reviewed at each balance sheet date in order to discover any
decrease in value.
Financial assets which are valued at amortised cost are written down when it is probable
that the Company will not recover all the amounts relating to contractual issues for loans,
receivables or hold-to-maturity investments. The amount of the impairment loss is
recognised in the income statement as a finance cost. Any reversal of previous
impairment losses is recognised when a reduction in the need to write down the asset
can be related to an event after the impairment loss has been recognised. Such a
reversal is presented as income. However, an increase in the carrying amount is only
recognised to the extent that it does not exceed what the amortised cost would have
been if the impairment loss had not been recognised.
Other and non-current assets
An assessment of impairment losses on other assets is made when there is an indication
of a fall in value. If an asset’s carrying amount is higher than the asset’s recoverable
amount, an impairment loss will be recognised in the income statement. The recoverable
amount is determined separately for all assets but, if this is impossible, it is determined
together with the entity to which the assets belong. An impairment loss occurs when the
carrying amount exceeds the recoverable amount, which is the higher of value in use or
the net sales price. The value in use is calculated using the present value of estimated
future cash flows. The calculation is performed at the individual vessel level. During the
year an impairment review was completed on the new building assets and capitalised
costs, to determine their recoverable amount, additional details note 8.
Trade receivables
Trade receivables would be carried at amortised cost. The interest element is disregarded
if it is insignificant. Should there be objective evidence of a fall in value, the difference
between the carrying amount and the present value of future cash flows is recognised as
a loss, discounted by the receivable amount’s effective interest rate.
1.10 Cash and cash equivalents
Cash includes cash in hand and at bank. Cash equivalents are short-term liquid
investments that can be converted into cash within three months and to a known
amount, and which contain insignificant risk elements.
The cash and cash equivalent amount in the cash flow statement include overdraft
facilities. The cash flow statement has been prepared in accordance with the indirect
method.
26 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.11 Provisions, contingent liabilities and assets
Provisions are accounted for in accordance with IAS 37, Provisions, Contingent Liabilities
and Contingent Assets. Provisions are recognised when, and only when, the Company
has an existing liability (legal or assumed) as a result of events that have taken place, it
can be demonstrated as probable (more likely than not) that a financial settlement will
be made as a result of the liability, and the amount can be measured reliably. Provisions
are reviewed at each balance sheet date and the level reflects the best estimate of the
obligation. When the time factor is insignificant, the size of the provisions will be equal to
the size of the expense required for redemption from the obligation. When the time
factor is significant the provisions will be equal to the net present value of future
payments to cover the obligation. Increases in provisions due to the time factor will be
presented as interest expenses.
Contingent liabilities are defined as;
i.
ii.
iii.
Possible obligations resulting from past events whose existence depend on future
events.
Obligations that are not recognised because it is not probable that they will lead
to an outflow of resources.
Obligations that cannot be measured with sufficient reliability.
Significant contingent liabilities are stated, with the exception of contingent liabilities
where the probability of the liability occurring is remote.
Contingent asset are defined as;
A possible asset that arises from past events, and
i.
ii. Whose existence will be confirmed only by the occurrence or non-occurrence of
one or more uncertain future events not wholly within the control of the entity
A contingent asset is not recognised in the annual financial statements unless realisation
is virtually certain, but is disclosed if there is a certain level of probability that a benefit
will accrue to the Group.
New information on the Group’s positions at the balance sheet date is taken into account
in the annual financial statements. Events after the balance sheet date that do not affect
the Company’s position at the balance sheet date, but which will affect the Group’s
position in the future are stated if significant.
27 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.12 Warrants and share based payments – equity settled transactions
The fair value of the warrants is estimated at the grant date and recognised as an
expense over the vesting period. The Quanto-Barrier Option pricing model has been used
to calculate the fair value of the warrants.
Fair value of warrants granted for consulting services fees is measured at the fair value
of the services received.
The fair value of the share options has been calculated using the Black-Scholes-Merton
option pricing model and a Monte Carlo simulation model for the 2012 award.
The cost of the options and warrants is recognised over the period in which the
performance is fulfilled, ending at the date on which the relevant employees become
entitled to the award. This includes an assessment of the implicit future service
requirement of the award. The expense at each reporting date is based on the Group’s
best estimate of the number of equity instruments that will vest. The income statement
reflects the movement in the cumulative expense recognised as at the beginning and the
end of the period.
Directors of the Company received part of their remuneration in the form of share-based
payment transactions. The value of the services is recognised at the fair value of the
shares received.
1.13 Borrowing costs
Where borrowing costs are directly attributable to the acquisition, construction or
production of a qualifying asset they are capitalised as part of the qualifying asset.
Note 2: Subsidiaries
The following subsidiaries are included in the consolidated financial statements:
Company
Country of
registration
Main
operations
Ownership
share
M-FLEX 1 Limited
M-FLEX 2 Limited
M-FLEX 3 Limited
M-FLEX 4 Limited
FLEX LNG Management
Limited
FLEX LNG Management
(Norway) AS
FLEX LNG Management
(Singapore) PTE LTD
FLEX Petroleum Limited
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Norway
Singapore
British Virgin
Islands
Shipping
Shipping
Shipping
Shipping
Management
services
Management
services
Management
services
Holding
company
100%
100%
100%
100%
100%
100%
100%
100%
28 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Voting
share
100%
100%
100%
100%
100%
100%
100%
100%
Note 2: Subsidiaries (continued)
FLEX LNG Ltd – Loans and investments in subsidiaries
Company (USD 000)
M-FLEX 1 Limited
M-FLEX 2 Limited
M-FLEX 3 Limited
M-FLEX 4 Limited
FLEX Petroleum Limited
Impairment provision
2011
262,498
100,407
99,644
99,838
3,742
(223,667)
342,462
Loans to 100% subsidiaries are unsecured, interest free and repayable on 30 days
notice. It is currently not the intention of FLEX LNG to call in these loans. The loans have
been used to cover stage and other payments to Samsung, capitalised costs, running
costs and an allocated share of the management recharge.
2012
249,518
99,991
99,227
99,421
3,774
(551,931)
0
Following the impairment write down on the vessel assets, note 8, and the investments
in Minza, note 2, the Company has reviewed the carrying value of the loans to the four
M-FLEX entities and FLEX Petroleum Limited. The valuation has been based on the
reported recoverable amount $nil ($342.4m), and the investments $nil ($nil). The loan
amounts in excess of this have been recognised as an impairment loss in the Company
income statement $328.3m ($109.4m). This adjustment has no impact at a consolidated
level.
Note 3: Administrative expenses
As detailed in note 1.8 capitalised costs, in 2011,
include expenses covering
compensation for employees, travel costs, consultant fees, legal costs, engineering and
design costs, plus other costs that are directly attributable to the assets. The amounts in
tables 3.1 to 3.3 are prior to this capitalisation, however, no costs were capitalised in
2012.
3.1 Included in administration
expenses USD,000
Depreciation
P&L on disposal of assets
Net foreign exchange differences
Calculated fair value of warrants
Calculated fair value of options
Group
2012
116
8
504
(8,546)
(3,835)
Group
2011
146
(1)
(172)
1,847
2,597
Company
2012
0
0
5
(8,546)
(3,835)
Company
2011
0
0
(65)
1,847
2,597
3.2 Auditors
Expensed fee to the auditors is divided into the following services (exclusive of VAT):
USD,000
Audit
Tax and other assistance
Total Auditor’s fees
Group
2012
105
58
163
Group Company Company
2011
2012
68
70
2011
22
92
0
68
102
47
149
29 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 3: Administrative expenses (continued)
3.3 Remuneration
During 2012 FLEX LNG had between five and seven Directors, but no employees. All
employees are engaged by the three management companies.
Staff costs USD,000
Group
2012
Group Company Company
2011
2012
2011
0
Wages and salaries
Social security costs
11
0
Pension costs
Total employee benefit expenses
11
Share based payments are covered in note 13. Employees are offered a fixed base
salary. The management company contributes to a defined contribution pension scheme
for staff. UK and Singapore based staff are offered additional health insurance. The
number of man-labour years in 2012 was 24 (2011 – 35). The Company has incurred
social security costs in relation to the payment of Directors fees in the Isle of Man.
2,262
213
92
2,567
4,030
429
163
4,622
0
25
0
25
Directors fees FLEX LNG, USD,000
Current Directors
David McManus
Ian Beveridge
Aoki Hiromichi
Christopher Pittinger
Eiji Wakiwaka
Company
2012
Company
2011
200
70
70
70
70
70
57
57
25
25
Ex. Directors
Philip E. Fjeld
57
57
Scott Pearl
39
James A. MacHardy
32
James D.A. Van Hoften
32
Anders Westin
19
Katherine Eisbrenner
36
Keith Meyer
Total Directors’ fees
506
Between 50% and 100% of the remuneration listed above is paid via the issue of shares
by the Company.
63
63
0
0
0
0
0
606
Where directors have taken on directorships of subsidiary companies, they have received
an annual fee of $2k per company on a pro rata basis. The 2012 cost for the services
provided by Mr. Fjeld, Mr. Beveridge, Mr. Pittinger and Mr. Hiromichi was $40k in the
year (2011: $40k). All earnings and shares for Mr. Beveridge are assigned to Bernhard
Schulte Investment Holding, Mr. Wakiwaka to Masters K.K, and for Mr. Hiromichi to
Kawasaki Kisen Kaisha Ltd.
30 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 3: Administrative expenses (continued)
3.3 Remuneration (continued)
Executive
Management USD,000
Philip Fjeld
Jostein Ueland
Salary and
bonus
265
265
Sundry
benefits
15
6
Pension
13
13
Option
costs
(37)
(37)
Group
Total
256
247
0
0
13
65
271
265
241
319
(17)
(37)
86
21
39
50
Trym Tveitnes
Gary Baron 1
1,066
2012
2011
1,025
Note 1: Left the Group on 28/02/13.
The Executive Management receive remuneration via the management companies FLEX
LNG Management Limited, FLEX LNG Management Norway AS and FLEX LNG
Management (Singapore) Pte Ltd. In 2012 Mr. Fjeld, and Ueland do not have contracts of
employment and their termination rights are determined by statute. Mr. Baron and
Tveitnes have contracts of employment that give a three month notice period. Options
and warrants have been granted as follows Mr. Fjeld, Ueland and Tveitnes 46,800 options
(issued 22/07/08) and 400,000 options (issued 07/11/12) each held personally, and
warrant and options via Hansa LNG Limited as detailed in note 13 and 15. Mr. Baron
holds 180,000 options, issued over the last four years. The net credit on the option costs
reflects that the majority are not expected to vest by 31/12/2016 giving a reversal of
part of the historical cost.
(128)
422
1,063
1,518
Note 4: Finance costs and revenue
Finance cost
Option cost for shares issued
New building assets
Write-off of financial assets
Total financial cost
Finance revenue
Interest income
Total financial revenue
Group
2012
0
510
0
510
Group
2012
88
88
Group Company
2012
0
0
0
0
2011
7,817
0
2,407
10,224
Group Company
2012
77
77
2011
77
77
Company
2011
7,817
0
0
7,817
Company
2011
76
76
Note 5: Earnings per share
Basic earnings per share amounts are calculated by dividing the net loss for the year by
the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net loss by the
weighted average number of shares outstanding during the year plus the weighted
average number of ordinary shares that would be issued on conversion of all dilutive
potential shares.
31 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 5: Earnings per share (continued)
The following reflects the loss and share data used in the earnings per share calculation.
Earnings per share:
2012
2011
Loss attributable to shareholders – Group $’000
Loss attributable to shareholders – Company $’000
Weighted average number of ordinary shares
Effect of dilution:
Share options 1
Warrants 2
Weighted average number of shares, adjusted for
dilution
1 the options are out of the money
2 the warrants are out of the money
Note 6: Management fees
(298,798)
(329,286)
(135,959)
(119,735)
125,173,030 120,240,027
0
0
125,173,030 120,240,027
0
0
There are no employees in FLEX LNG Ltd. A contract for management services has been
entered into with FLEX LNG Management Limited (“FLML”) and its subsidiaries. According
to this agreement, FLML will render services to the Group relating to general
administration and contract management. FLML is entitled to compensation covering all
its expenses plus a mark-up. The total compensation for 2012 was $6,646k (2011:
$10,970k).
Note 7: Income tax
The Group consists of two legal entities incorporated in the British Virgin Islands (BVI),
and five entities in the Isle of Man, one entity in Norway, and one entity in Singapore.
Income or capital gains are not subject to taxation in the BVI, or the Isle of Man. The
profits in the Norwegian and Singapore entities and the profit attributable to the UK are
taxable.
(USD,000)
Current income tax charge
Adjustments in respect of current income tax of previous
years
Income tax expense reported in the income statement
(USD,000)
Current income tax charge
Adjustments in respect of current income tax of previous
years
Income tax expense reported in the income statement
Group
2012
56
1
57
Group
2011
84
4
88
Company Company
2011
0
2012
0
0
0
0
0
32 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 7: Income tax (continued)
A reconciliation between the tax expense and the product of the accounting profit
multiplied by the British Virgin Islands (BVI) domestic tax rate for the year ended 31
December 2012 and 2011 is as follows:
(USD,000)
Accounting loss before income tax
Income tax at 0% (2011:0%)
Effect of higher UK, Singapore and Norway tax rates
Effective income tax rate of 0.0% (2011: 0.1%)
(USD,000)
Accounting loss before income tax
Income tax at 0% (2011:0%)
Effective income tax rate of 0% (2011: 0%)
Group
2012
(298,741)
0
57
57
Company
2012
(329,286)
0
0
Group
2011
(135,871)
0
88
88
Company
2011
(119,735)
0
0
Note 8: New Building Assets and Capitalised Costs
(USD,000) – Group
At 1 January – Impaired payments on account
Offset - Samsung loan
Offset - Samsung liabilities
Impairment (IAS 37 / 36)
At 31 December
At 1 January – Impaired topside design
Additions
Impairment (IAS 36)
At 31 December
At 1 January – Impaired capitalised internal cost
Additions
Impairment (IAS 36)
At 31 December
At 1 January – Total
Offset
Additions
Impairment
2012
326,000
(10,000)
(31,040)
2011
375,997
0
0
(284,960)
(49,997)
0
326,000
11,715
0
37,363
18,818
(11,715)
(44,466)
0
11,715
4,697
0
17,872
4,653
(4,697)
(17,828)
0
4,697
342,412
431,232
(41,040)
0
0
23,471
(301,372)
(112,291)
At 31 December
No finance costs were capitalised in the current year (2011: $661k).
0
342,412
33 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 8: New Building Assets and Capitalised Costs
(continued)
Historically the carrying values for the capitalised development costs and instalment
payments have been valued under IAS 36, impairment of assets. Additional information
is given in the 2011 statutory accounts. The view of the Company is that the position
between the Company and Samsung will only be resolved following the commencement
of an arbitration process between the two parties. In December 2012 the Company wrote
to Samsung, noting that the contracts were abandoned and requesting the return of
funds, after the deduction of sums properly and reasonably incurred. Samsung has not
accepted this position. Given Samsung’s position, the Company has now initiated steps to
commence arbitration proceedings against Samsung.
IAS 37 covers the recognition and measurement criteria applied to provisions, contingent
liabilities and contingent assets. A contingent asset is defined as a possible asset that
arises from past events, and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control of
the entity. It is the view of the Company that the valuation basis for the new building
assets falls within this definition. Given this, the Company has netted the liabilities due to
Samsung against the previous carrying value for the new building assets and has then
written off the remaining carrying value to impairment costs in the income statement,
$285.0m. The final value of the return of paid-in instalment payments made to Samsung
will either depend on the outcome of the arbitration process or a possible future
agreement between the two parties. It is not possible with any certainty to predict the
outcome of arbitration proceedings with Samsung, nor the time or costs involved in
completing such legal proceedings. Once the outcome of the arbitration proceedings or
the commercial position with Samsung is virtually certain, the Company will reinstate the
resultant asset value to the statement of financial position.
The remaining capitalised costs relating to the near and off shore LNGP designs have
been impaired by $16.4m based on a calculation of its recoverable amount under IAS 36.
In the current year the Company has recognised total
impairment write downs of
$301.4m (2011: $112.3m). The resultant recoverable value for the asset carrying value
after the impairment write down is $nil (2011: $342.4m).
34 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 9: Plant and Equipment
(USD,000) - Group
Cost
1 January
Additions
Disposals
31 December
(USD,000) - Group
Depreciation
1 January
Depreciation charge for the year
Disposals
31 December
Net book value
At 31 December
Note 10: Other current assets
2012
801
23
(27)
797
2012
623
116
(19)
720
2012
77
2011
766
57
(22)
801
2011
499
146
(22)
623
2011
178
(USD 000)
Debtors
Prepayments
Other receivables
Total other current assets
Group
Group Company
Company
2012
2011
2012
89
208
186
483
490
257
302
1,049
8
24
0
32
2011
282
38
0
320
Note 11: Cash and cash equivalents
(USD 000)
Cash at the bank and in hand
Cash and cash equivalents in the
balance sheet and cash flow
statement
Group
Group Company
Company
2012
6,246
2011
14,754
2012
6,115
2011
14,431
6,246
14,754
6,115
14,431
Overdraft facility
0
0
0
0
35 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 12: Share capital, shareholder information and
dividend
Group & Company
2012
2011
Ordinary shares, nominal amount USD 0.01
125,412,622
124,778,313
Total number of shares
125,412,622
124,778,313
Group & Company
Ordinary shares - Issued and fully paid:
At 1 January 2012
Issued in lieu of remuneration
31 December 2012
Shares
Share
Capital
(’000)
(USD’000)
124,778
634
125,412
Shares
1,248
6
1,254
Share
Capital
Group & Company
Ordinary shares - Issued and fully paid:
(’000)
(USD’000)
Share
Premium
(USD’000)
561,946
342
562,288
Share
Premium
(USD’000)
At 1 January 2011
Expenses related share issue
New shares issued
Issued in lieu of remuneration
31 December 2011
113,043
0
11,315
420
124,778
1,130
552,490
0
113
5
(43)
9,230
269
1,248
561,946
Nominal value per share is USD 0.01. All issued shares have equal voting rights and are
equally entitled to dividends. During the year shares were allotted to directors of FLEX
LNG to cover between 50% and 100% of their remuneration for the year. The Directors’
shares for the remuneration, covering the period 01/07/2012 to 31/12/12, had not been
issued at 31/12/12 and are recorded in the option, warrant and share reserves, $210k
(2011: $144k). Computation of earnings per share and diluted earnings per share is
shown in note 5.
Other reserves: FLEX LNG has in the year recognised under other equity a credit of
$(12,315)k (2011: $4,494k - cost) in relation to the warrants, options and shares issued
by the Company.
36 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 12: Share capital, shareholder information and
dividend (continued)
Main Group shareholders at 31.12.12 are:
Shareholder:
KAWASAKI KISEN KAISHA LTD
JP MORGAN CLEARING CORP. 1
STATE STREET BANK AND TRUST CO. 1
INTEROIL FINANCE INC.
DEUTSCHE BANK AG LONDON 1
SIX SIS AG 1
B SCHULTE INVESTMENT HOLDING
JP MORGAN SECURITIES LIMITED
INVESCO PERP BNY MELLON SA/NV
GOLDMAN SACHS & CO 1
LBIE IN BNY MELLON SA/NV 1
KISTEFOS INVESTMENT SD
BNY MELLON (LUX) 1
KISTEFOS SKOG AS
SKANDINAVISKA ENSKIL 1
DEUTSCHE BANK AG LONDON 1
VENTOR AS
JP MORGAN BANK LUXEMBOURG 1
BOASSON
DEUTSCHE BANK AG 1
OTHER
Total
Note1 - Nominee account.
Number of
shares:
17,085,836
16,226,543
13,486,167
8,938,913
7,978,079
6,672,734
6,094,756
4,989,500
4,874,383
3,487,450
2,931,086
2,075,324
2,032,296
1,630,000
1,285,398
1,250,000
1,200,000
1,138,000
1,122,846
1,000,000
Ownership
interest:
13.6%
12.9%
10.7%
7.1%
6.4%
5.3%
4.9%
4.0%
4.0%
2.8%
2.3%
1.6%
1.6%
1.3%
1.0%
1.0%
1.0%
0.9%
0.9%
0.8%
19,913,311
125,412,622
15.9%
100.0%
37 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments
Share-Based Payment - Group & Company
During the period ended 31 December 2012, FLEX LNG had share-based payment
arrangements, which are described below.
Plan
Type of arrangement
Warrant Plan
Equity Based
Date of Grants
19.03.2007 and
07.09.2007
Option Plan
Equity Based
22/07/2008, 27/10/2008,
11/12/2008, 01/01/2009,
01/01/2010, 22/03/2010,
21/06/2010, 01/07/2010,
01/08/2010, 15/07/2011,
07/11/2012
Warrants and options
granted (less forfeited)
as of 31.12.2012
Remaining contractual
life
6,631,455
3,813,900 (168,350 vested)
Average 4 years
Average 4.1 years
2008/9 Allocations Staff:
25% vest on 15/03/2012, 25%
vest on 15/03/2013, 25% vest on
at shore completion of the first
vessel from Samsung, and 25%
vest on at shore completion of
the second vessel from Samsung.
2008 Allocation Founders:
50% vest at the first LNG vessel’s
first commercial cargo of LNG,
and 50% vest at the second LNG
vessel’s first commercial cargo of
LNG.
2010 Allocations Staff:
One third vest on the FID for the
first vessel, one third vest at
30/06/2012, and one third vest
at the first LNG vessel’s first
commercial cargo of LNG.
2011 Allocations Staff:
50% vest on 20/12/2012 and
50% vest no earlier than 24
months from the FID for the first
vessel.
2012 Allocations Founders:
Criteria linked to the Company
share price exceeding a set price
for 30 consecutive days. 25% 8
NOK, 25% 10 NOK, 25% 12 NOK
and 25% 14 NOK.
31/12/2016 and 30/07/2017
Vesting conditions
25% vest on at shore
completion of the first
vessel from Samsung,
25% vest on at shore
completion of the second
vessel from Samsung and
50% vest 31.12.2014,
subject to the first two
criteria being met.
Expiry date
31/12/2016
38 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments (continued)
The fair values of the options are calculated using the Black-Scholes-Merton option
pricing model and a Monte Carlo simulation model. During the year, the Board of
Directors approved the issuance of 1,200,000 options to the Founders of the Company
(Philip Fjeld, Jostein Ueland and Trym Tveitnes), at 400,000 per person. The issuance
has performance criteria linked to the share price of the Company with the share price
needing to exceed set criteria for 30 consecutive days prior to the expiry date. The share
prices criteria are, 25% of the options at 8 NOK, 25% at 10 NOK, 25% at 12 NOK and
25% at 14 NOK.
The exercise rights as to certain options and warrants are based on vesting criteria linked
to LNGP commercial targets. Given the Company’s view that the contracts with Samsung
are abandoned, the expectation is that the commercial targets related to FLNG contracts
will not be achieved by 31/12/2016. This has led the Company to review the position on
the options and warrants schemes, as they are now not expected to vest and be
exercised by 31/12/2016, as follows; where the options have vested the historical charge
remains in the income statement; where options and warrants have not vested, and
where vesting is conditional on a performance condition, the historical charge is reversed
back to the income statement; and where options have not vested, and where vesting is
only conditional on employees rendering services to the Company until a certain date,
amortisation of the grant date fair value continues, as is, until the vesting date.
The total expensed amount in 2012 relating from the share-based payment plan was a
credit of $12,381k (2011: $4,265k - charge). The split of the 2012 credit between the
warrants and options was $8,546k and $3,835k. The total expensed amount relating to
remaining options and warrants at 31/12/2012 was $1,274k (2011: $13,655k).
Further details of the plan are as follows:
01.01.12 - 31.12.12
01.01.11 - 31.12.11
Options &
Warrants
Weighted
Average
Exercise
Price
Options &
Warrants
Weighted
Average
Exercise
Price
10,580,955
NOK 19.68
10,716,455
NOK 21.57
1,200,000
(168,350)
0
(1,335,600)
0
NOK 0.06
NOK 18.85
0
NOK 17.26
0
200,000
0
0
(335,500)
0
NOK 9.25
0
0
NOK 27.93
0
10,277,005
NOK 17.70
10,580,955
NOK 19.68
168,350
NOK 18.85
0
0
1,200,000
NOK 2.17
200,000
NOK 3.17
Warrants / options
outstanding at the
beginning of year
Options granted
Vested
Terminated
Forfeited
Expired
Options & warrants
outstanding at the end of
year
Vested Option / warrants
Weighted average fair
value of options granted
during the year
None of the vested options have been exercised.
39 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments (continued)
Outstanding and vested Warrants as of 31 December 2012 are given in the table below.
Outstanding
Weighted
average
remaining
contractual
Life
4.5
4.0
4.0
4.0
4.1
Outstanding
Options &
Warrants
per
31.12.2012
1,259,500
6,631,455
386,050
2,000,000
10,277,005
Exercise price (NOK)
0.00 – 7.00
7.00 – 15.00
15.00 – 30.00
30.00 – 40.00
Total
Vested
Options &
Warrants
31.12.2012
29,750
0
138,600
0
168,350
Weighted
Average
Exercise
Price NOK
0.36
14.98
21.08
37.00
17.70
Weighted
Average
Exercise
Price
6.5
0
21.50
0
18.85
Vested
Warrant holders are as follows;
Holder
Hansa LNG Limited
Hansa LNG Limited
Total
The expectation as to vesting is as follows;
Not expected to meet vesting criteria
Date
27th March 2007
7th September 2007
Warrants
2,000,000
4,631,455
6,631,455
6,631,455
In 2008 FLEX LNG shareholders authorised the issue of up to 2,600,000 options to the
employees of the management companies. At 31/12/2012 613,900 of the 2,600,000
options remained in issue. At the 2011 AGM meeting the shareholders approved the
issuance of up to 2,500,000 options in the Company with the terms to be determined by
the Compensation Committee. On 7 November 2012 the Board of directors approved the
issuance of 1,200,000 options to the Founders of the Company. After this grant
1,150,000 remained to be issued.
Date
2008 grant
2008 grant
2009 grant
2010 grant
2011 grant
2012 grant
Outstanding options were granted as follows;
Holder
Employees of the management companies
Hansa LNG Limited
Employees of the management companies
Employees of the management companies
Employees of the management companies
Forfeited, employees
Total - 2011
Grant, Founders
Vested employees
Forfeited, employees
Outstanding - 2012
The expectation as to vesting is as follows;
Not expected to meet vesting criteria
Vesting criteria date related
Potential to meet vesting criteria
None of the 168,350 vested options have been exercised.
40 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Options
1,880,000
2,000,000
60,000
909,000
200,000
(1,099,500)
3,949,500
1,200,000
(168,350)
(1,335,600)
3,645,550
2,336,700
108,850
1,200,000
3,645,550
Note 13: Share based payments (continued)
The inputs to the model for options granted to employees in 2012, from the 2011
scheme, are listed below:
1,200,000: 2012 allocation
No. of options
Simulated expected life, minimum and maximum
Share price, spot (NOK)
Weighted average exercise price (NOK)
Volatility of underlying share
Expected dividends
Asset drift
Fair Value of options
Option
1,200,000
1.7 to 4.7 years
3.10
0.06
80%
-
1.54%
NOK 2.17
The expected volatility has been based on historical volatilities for FLEX LNG shares and
from similar listed shares.
The employee options, subject to certain customary exceptions, require staff to be
employed by the company from the date of grant to the time of vesting. The objective of
the options is to align the effort of employees with the future success of the Group.
The options and warrants held by Hansa LNG Limited do not have an employment
requirement.
During the period ended 31 December 2012 FLEX LNG agreed to issue the directors with
shares covering between 50% and 100% of their remuneration. The value of the shares
is based on the fair value of the services received of $415k (2011 - $320k). At 31
December 2012 468,810 shares (2011: 280,761 shares) with a value of $210k had not
yet been issued to the directors.
The split of shares by director was as follows;
Director
Current directors
D McManus
I Beveridge1
A Hiromichi1
E Wakiwaka1
C Pittinger
2012
2011
268,976
126,258
126,072
72,416
72,416
99,466
64,934
64,803
26,779
26,779
Ex directors
40,669
P Fjeld
40,669
S Pearl
8,158
K Eisbrenner
15,378
K Meyer
16,457
J MacHardy
13,890
J van Hoften
13,890
A Westin
Total
431,872
Note1: These shares are issued to the company they represent rather than the individual.
In addition at 31/12/12 468,810 of these shares have not been issued.
91,868
64,352
0
0
0
0
0
822,358
41 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 14: Other financial liabilities
The Company’s view is that the contracts with Samsung have been abandoned. Under
historical arrangements Samsung has covered certain costs for the Group, including the
FEED related costs for the Gulf LNG Project. At 31 December 2012, it is estimated that
up to $31,040k (2011: $30,079k) of such cost had been incurred by Samsung. The
position between the parties in this regard will depend upon the outcome of the
arbitration process or a possible future agreement between the parties. Given this, the
Company does not believe these amounts are due to be paid to Samsung where the final
concluded position will be on a net basis, with agreed costs and liabilities being offset
against paid-in funds. The $31,040k has therefore been offset against the new building
assets, prior to the IAS 37 valuation adjustment.
In 2011 current liabilities included a $10.0m short term loan repayable in Q1 2012. In
April 2012 the Company notified Samsung to set off the amount against the shipbuilding
instalments paid by the Company. The Company has also offset the $10.0m loan against
the new building assets and capitalised costs.
Details on the two offsets are contained in note 8.
In addition non-current liabilities included a $nil (2011: $69k) provision for the property
lease liabilities is included, based on a fair value allocation on the lease acquired by FLEX
LNG Management Limited.
Note 15: Related parties
15.1 Options and warrants
Hansa LNG Limited, a company controlled by the founders, has been issued with options
and warrants as detailed in note 13. The 2012 P&L credit was: warrants $8,546k (2011-
$1,847k, cost) and options $857k, (2011 - $262k, cost).
15.2 Shares held by current members of the Board, as at 31/12/2012
2011
Board Member
0
David McManus
250,000
Ian Beveridge
0
Aoki Hiromichi
0
Eiji Wakiwaka
0
Christopher Pittinger
Total
250,000
Note: These amounts exclude the shares that had not been issued as at 31/12/2012, per
note 17.
2012
223,406
250,000
0
60,147
60,147
593,700
Note 16: Commitments and contingencies
16.1 Guarantees
On 8 August 2008 FLEX LNG Management Limited entered into a ten year lease
agreement on a property lease in London, which is denominated in GBP. The Company
has guaranteed to cover the provisions of the lease should FLEX LNG Management
Limited fail to comply with the obligations under the lease. The future rental payments
under the lease are $1.4m (2011: $1.6m).
42 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 16: Commitments and contingencies (continued)
16.1 Guarantees (continued)
The Company considers the four shipbuilding contracts and the EPCIC that were entered
into with Samsung in 2008, to have been abandoned, and no amounts are due under the
guarantees in these previous agreements. The Company believes that the final concluded
position will be on a net basis, where agreed or determined costs and liabilities are offset
against paid in funds.
16.2 Operating lease commitments, lessee
The UK subsidiary has entered into a lease on commercial property. The lease has an
average remaining life of 5.6 years and is denominated in GBP. The lease is non-
cancellable, with an upward only review due five years before expiry. The previous leases
for property in Oslo and Singapore have been terminated in 2012. The future rental
payable under the leases as at 31 December 2012 is as follows;
(USD 000)
Within one year
After one year but not more than five years
More than five years
Total
Lease payments made during the year were $476k (2011: $493k).
Group
2012
250
999
151
1,400
Group
2011
432
956
383
1,771
16.3 Capital commitments - Samsung
The Company believes that no payments are due to Samsung. Given the arbitration
process that is being initiated by the Company, the Company believes that the final
concluded position will be on a net basis, where agreed or determined costs and liabilities
are offset against paid-in funds.
Note 17: Subsequent events / after balance sheet date
Shares
In February 2013 the Company issued 468,810 additional shares to cover between 50%
and 100% of the Director’s remuneration from 1 July 2012 to the 2012 year end.
Note 18: Financing
Given the expected arbitration costs in 2013 the Company believes, based upon forecast
levels of cash utilisation, that the Company will have sufficient working capital to operate
throughout 2013 and into 2014. The Company is however considering alternative options
and the timing for raising additional working capital.
In all cases where the Company requires additional funding, there can be no assurance
that such funds may be raised on terms that are reasonable, if at all.
43 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 19: Going Concern
The financial statements have been prepared based on the going concern assumption,
which contemplates the realisation of assets and liabilities as part of the normal course of
business.
Given the expected arbitration costs in 2013 the Company believes, based upon forecast
levels of cash utilisation, that the Company will have sufficient working capital to operate
throughout 2013 and into 2014.
There can of course be no assurance that arbitration costs will be as forecast or that any
agreement will be reached with Samsung. In all cases where the Company may require
additional funding, there can be no assurance that such funds may be raised on terms
that are reasonable, if at all.
Considering the above, the Board believes that the going concern assumption currently
remains appropriate for the Group, and expects, based upon current levels of cash
utilisation, to have sufficient working capital to last through 2013.
The accompanying consolidated financial statements do not include any adjustments that
might result from the outcome of the uncertainties detailed in the report.
Note 20: Financial risk management objectives and
policies
The Group’s activities expose it to a variety of financial risks: market risk (including
currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk
management programme considers the unpredictability of financial markets and seeks to
minimise potential adverse effects on the Group’s financial performance.
Currency risk
The value of monetary assets and liabilities denominated in foreign currencies will
fluctuate due to changes in foreign exchange rates. The Company has historically raised
its funding in USD, with the share price denominated in NOK, but with the proceeds
being fixed into USD.
In early 2013 a number of USD/WON and USD/EUR hedges were closed, which according
to Samsung, it had originally entered into in relation to the SBC 1-4 and EPCIC contracts.
The Company and Samsung are discussing the extent of the Company’s liability, if any,
for these foreign currency hedges. Apportionment of such liability has not yet been
agreed between the parties and if no such agreement is reached, the split of the parties’
respective liability will be determined via the arbitration process.
Additionally, the Group incurs some overhead costs in GBP, SGD and NOK. Historically
these exposures have not been hedged. The Company’s shares are traded in NOK. The
NOK trading price is impacted by the underlying activities of the Group, which are
primarily denominated in USD. Currency fluctuations of an investor’s currency of
reference relative to the NOK may also adversely affect the value of an investor’s
investments.
44 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 20: Financial risk management objectives and
policies (continued)
Interest rate risk
The Group currently has interest bearing assets. Amounts are placed on deposit for
periods to secure higher returns, while balancing the need to access funds as required.
Liquidity risk
The Group monitors its risk to a shortage of funds using a cash modelling forecast. This
model considers the maturity of payment profiles and projected cash flows required to
fund the operations. Historically funds have been raised via equity issuance. Market
conditions can have a significant impact on the ability to raise equity finance, while new
equity financing may be dilutive to existing shareholders.
The Group’s objective is to maintain a balance between continuity of funding and
flexibility through the raising of finance from investors. The Group does not currently
have any bank overdrafts and bank loans. Liquidity management services are provided to
the Group under the management agreement.
There can be no assurance that agreement will be reached with Samsung in 2013. The
Company will therefore need to consider alternative options open to it as well as the
timing for raising additional working capital.
Credit risk
The Group takes on exposure to credit risk, which is the risk that a counterparty will be
unable to pay amounts in full when due. Currently the main exposure to credit risk
comes from the paid-in instalments made to Samsung. Cash funds are currently placed
with HSBC, Lloyds TSB and Barclays.
Operational risk
Currently the Group has not reached FID for any contracts. Operational risks therefore
mainly relate to expenditure being higher than forecast, risks to the environment and
risks to the safety of staff. At a commercial level it also includes the settlement of the
envisaged arbitration with Samsung including; the final calculation of the recoverable
amount from the paid-in instalments; the arbitration process; agreeing the level of paid
instalments available for redeployment with Samsung, should a commercial agreement
be reached, including the economics of such Alternative Deployment (including being
able to secure employment contracts on reasonable terms for any alternative vessel
constructed by Samsung); potential Samsung claims on the Company; and obtaining
finance and working capital on reasonable terms.
45 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
IIIIII~~~~~~~~
cl ERNST&YOUNG
To the Annual Shareholders' Meeting of
FLEX LNG Ltd
State Authorised Public Accountants
Ernst &Young AS
Thormøhlens gate 53 D, NO-5008 Bergen
Postboks 6163 Bedriftssenter, NO-5892 Bergen
Business Register: NO 976 389 387 MVA
Tel.: +47 55 21 30 00
Fax: +47 55 21 30 01
www.ey.no
Member of the Norwegian Institute of Public
Accountants
AUDITOR'S REPORT
Report on the financial statements
We have audited the accompanying financial statements of FLEX LNG Ltd, comprising the financial
statements for the Parent Company and the Group. The financial statements of the Parent Company
and the Group comprise the statement of financial position as at 31 December 2012, the statements of
income, comprehensive income, cash flows and changes in equity for the year then ended as well as a
summary of significant accounting policies and other explanatory information.
The Board of Directors' responsibility for fhe financial statements
The Board of Directors are responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards as adopted by the EU, and
for such internal control as the Board of Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion on the financial statements for the Parent Company and the Group.
A member firm of Ernst &Young Global Limited
J ERNST &YOUNG
2
Opinion
In our opinion, the financial statements of FLEX LNG Ltd have been prepared in accordance with laws
and regulations and present fairly, in all material respects, the financial position of the Parent Company
and the Group as at 31 December 2012 and their financial performance and cash flows for the year
then ended in accordance with International Financial Reporting Standards as adopted by the EU.
Bergen, April 25th 2013
ERNST &YOUNG AS
~, l
Jør%nd Haga Indrehus
State Authorised Public Accountant (Norway)