FLEX LNG Group
Consolidated and Company
Annual Report and Financial
Statement 2014
2014
Consolidated and
Company Annual Report
and Financial Statement
FLEX LNG Group
1 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Contents
Consolidated and Company Annual Report
and Financial Statement 2014
General Information
Chairman’s Statement
Board of Directors’ Report
Responsibility Statement
Corporate Governance Report
Income Statement and Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Auditors Report for 2014
Pages
03
04
05
08
09
18
19
20
22
24
42
General Information
FLEX LNG Ltd
Directors
David McManus (Chairman)
Robin Bakken
Jens Martin Jensen
Company Secretary
Manx Secretarial Services Limited
Jubilee Buildings
Victoria Street
Douglas, IM1 2SH
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
Victoria Street
Douglas, IM99 1AJ
Isle of Man
Lloyds Bank
PO Box 328, Victory House
Douglas, IM99 3JY
Isle of Man
HSBC
165 Fleet Street
London, EC4A 2DY
United Kingdom
SparebankenVest
PB 7999,
5020 Bergen, Norway
4
Chairman’s Statement
In 2014 the Company has worked with Samsung Heavy Industries (Samsung) on the
plan approval, vendor selection and design changes on the two new 174,000m3 LNG
carriers. In 2015 the Company was please to announce that the two parties had agreed
to amend the vessel specification to convert the propulsion system from DFDE to the
fuel efficient 2-stroke slow speed MEGI main engines. The Company believes that the
revised vessel design is ideally suited to meet the growth in demand, as new production
comes on stream and as the older vessels in the LNG fleet are replaced. The MEGI
propulsion system is expected to provide significate reductions in unit freight costs
against both DFDE and Steam LNG carriers.
In late 2014 Geveran Trading Co Ltd (Geveran) shareholding exceeded one third of the
Company’s shares and Geveran issued a mandatory offer for the remaining shares in
the Company. Following the closing of the offer Geveran holds in excess of 81% of the
issued shares in the Company. The Company believes that the Geveran investment gives
the FLEX LNG Group the opportunity to grow into a leading investment vehicle for LNG
carriers. The Group currently has a flat organisation that is able to react quickly and
opportunistically to target prospects within the LNG value chain. In addition the Group
is able to leverage off the expertise and experience within the Frontline organisation to
assist the growth in the business.
In 2014 the Group raised $7.0m of working capital, the loan is expected to provide at
least 18 months of working capital. The current belief is that this will be give sufficient
time to review potential opportunities and to raise additional funds as required.
I believe the Company is well placed to build an attractive position in the LNG shipping
market with the newest generation of fuel efficient LNG carriers.
David McManus
Chairman
Consolidated and Company Annual Report and Financial Statement 2014
5
Board Of Directors’ Report
2014
Business update
Funding and Going Concern
In 2014 the Company and Samsung Heavy
Industries (Samsung) have been working on
plan approval, vendor selection and potential
design changes on the two new 174,000m3
LNG carriers. In April 2014 Samsung notified the
Company that it had agreed a sale for the six
offshore LNG loading arms from the historical
FLNG contracts. In July 2014 the Company
received the net proceeds of $0.5m, which
has been recognised as an impairment write-
back. The parties have in addition continued to
discuss the choice of propulsion engines for the
two LNG carriers. In February 2015 agreement
was reached with Samsung to convert the
propulsion system for the two LNG carriers from
DFDE to the fuel efficient 2-stroke slow speed
MEGI main engines.
In October 2014 Geveran Trading Co Ltd
(Geveran) increased its shareholding in the
Company to above one third of the outstanding
shares and announced that it would make a
mandatory offer for the remaining shares in
the Company. The offer period closed on 18
December 2014 and at 31 December 2014
Geveran holds 81.8% of the issued shares.
With the support of its major shareholders,
the Company is looking to build an attractive
position in the LNG shipping market with the
newest generation of fuel efficient LNG carriers.
In the short term the Company has been
focused on the construction of the new builds;
on 31 July 2014 it signed a supervision contract
for the construction phase and has been seeking
charter parties for the vessels. In 2014 the Group
has been in detailed discussions, with a number
of parties, to secure debt finance to cover the
costs during the construction phase of the
vessels. On 27 October 2014 the Group entered
into a loan agreement with Metrogas Holdings
Inc. (Metrogas), an affiliate of Geveran, for the
provision of $7.0m of working capital.
The Board believes that the going concern
assumption currently remains appropriate for the
Group. The Group has raised $7.0m of working
capital in the year. Given the current overhead
structure and budgeted costs the Company
believes that this will provide sufficient working
capital to operate for at least 18 months.
Risks
The FLEX LNG Group is currently focused on
becoming a leading owner of fuel efficient LNG
carrier vessels. 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 2014 accounts and as summarised below.
These include: the ability to secure employment
contracts on reasonable terms for the two vessels
being constructed by Samsung; managing
the design and construction period; obtaining
delivery finance and additional working capital
on reasonable terms; and the general LNG and
LNG shipping market conditions and trends.
funded
The Company has historically
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. In 2014 the Group has
in addition raised $7.0m of debt finance to part
cover the construction phase of the vessels.
Given the current overhead structure and
budgeted costs the Company believes that this
will provide sufficient working capital to operate
for at least 18 months and on these estimates
will need to raise additional funds prior to
delivery. In addition there can be no assurance
that construction supervision costs will be as
forecast.
Consolidated and Company Annual Report and Financial Statement 2014 6
Board Of Directors’ Report
2014 (continued)
Risks (continued)
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 an analysis of the risks
to the Company are provided in accounts notes
1.4, 17, 18, and 19 and Corporate Governance
section 10.
Income Statement and Balance Sheet
The Group cash balances at 31 December were
$6.7m (2013: $1.5m) with a net inflow of
$5.2m year to date (2013: $4.7m outflow). In
the twelve months in 2014 the operating cash
outflow was $1.3m (principally the operating
loss after excluding the non cash and working
capital movements), $0.5m of capitalised costs,
and $7.0m of funds raised. The retained loss for
the year was $2.6m (2013: $205.5m - profit),
which has been transferred to reserves. The
2014 year includes; a $0.5m impairment write-
back on the sale of the loading arms, a $0.3m
(2013: $0.4m) cost on the option schemes,
$0.3m of historical FX cost being reclassified to
the income statement following the liquidation
of the Norwegian Management company, and
additional costs following the mandatory bid.
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
$6.5m (2013: $1.3m). In the twelve months in
2014 the operating cash outflow was $0.4m
(principally the operating loss less the non cash
income statement entries), investing activities
outflow $1.4m (loans to subsidiaries) and funds
raised of $7.0m. The retained loss for the year
was $1.5m (2013: $205.8m - profit), which
has been transferred to reserves. The loss for
the year includes an impairment write back of
$0.4m (2013: $208.1m), principally on the sale
of the loading arms, but reduced by a further
provision on inter group loans. The Directors do
not recommend the payment of a dividend.
The Board
There have been changes in the composition of
the Board during the financial year. At the 2014
AGM Mr. Ian Beveridge and Mr. Christopher
Pittinger 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 2014, FLEX LNG and its subsidiaries
had in total 6 employees and consultants, 5 men
and 1 woman. All personnel are employed by
FLEX LNG Management Limited. 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 3 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 16.
Consolidated and Company Annual Report and Financial Statement 2014 7
Board Of Directors’ Report
2014 (continued)
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
23 April 2015
David McManus
(Chairman)
Robin Bakken
Jens Martin Jensen
Consolidated and Company Annual Report and Financial Statement 2014 8
Responsibility statement
We confirm that, to the best of our knowledge,
the financial statements for the period 1 January
to 31 December 2014 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
23 April 2015
David McManus
(Chairman)
Robin Bakken
Jens Martin Jensen
Consolidated and Company Annual Report and Financial Statement 2014 9
Corporate Governance Report
1) Implementation and reporting on
corporate governance
As a company incorporated in the British
Virgin Islands (“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 is currently focused on becoming
a leading owner of fuel efficient LNG carrier
vessels. 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 Company is currently focused
on the construction of the two LNG carrier
vessels on order from Samsung, including
obtaining commercial charter parties. The
business principles are as follows;
• Protection of human
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
lives and
• FLEX LNG will strive to provide superior
shareholder returns
• FLEX LNG will aim to attract and retain highly
qualified individuals through compensation
that align employees and
packages
shareholders’ interest
Consolidated and Company Annual Report and Financial Statement 2014
10
Corporate Governance Report
(continued)
2) Business (continued)
• 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 2014 was USD
1,269,212.24, divided into 126,921,224 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.
Debt
The Company has borrowed $7.0m from
Metrogas for the provision of working capital.
The Company expects to raise additional finance
to cover the construction phase for the two LNG
carriers. Once on charter the debt-to-equity
leverage of the LNG carriers will be dependent
upon the contract structure and the debt market
at that point in time.
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.
Equity mandates
As a BVI company it has a 200 million 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 and Board approval.
Should the Company seek a mandate to increase
the company’s capital it will look to define the
purpose for the mandate. 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 the 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. Where the Company carries out
a transaction in its own shares the intention is
for this to occur through the stock exchange or
at prevailing stock exchange prices, to ensure
equal treatment of all shareholders.
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
and the Group’s Code of Conduct require
Board members and executive staff 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, or determines
that the transaction is on an arm’s length basis
and at market prices. Any transactions between
the Group and close associates will be detailed
as related party transactions in note 14 to the
financial statements. The costs incurred are, in
the Company’s opinion, made at market terms.
5) Freely negotiable shares
With
limited exception, all shares
in the
Consolidated and Company Annual Report and Financial Statement 2014
11
Corporate Governance Report
(continued)
5) Freely negotiable shares (continued)
Company are freely negotiable, and the Articles
of Association contain no form of restriction
on the negotiability of the shares, or on voting
rights.
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.
Furthermore, the shareholders of the Company
have on the Annual General Meeting in 2014
and 2013 resolved to issue up to 100% of the
remuneration for the directors for the two years
as new shares in the Company, that are to be
subject to a lock-up. The two share issuances
covering the board remuneration for the 2014
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 other
Shareholder 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, including the
recommendation of the nomination committee
and to vote separately each matter being
considered, including the candidates nominated
for election. The documentation will be sent to
shareholders either electronically or on paper.
Registration can be made in writing, telefax or
by e-mail. 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) as 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 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, or for the full nomination committee
to be present; 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
Consolidated and Company Annual Report and Financial Statement 2014
12
Corporate Governance Report
(continued)
6) General meetings (continued)
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, CFO, and auditor will participate
in the meeting at a minimum.
7) Nomination Committee
a
the
justify
recommendation
The Company
nominating
operates
committee, which is responsible for identifying,
recommending board candidates to the AGM
to
and shall
shareholders against the requirements in section
8) below, taking into account the interests
of shareholders in general. 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. This includes the
responsibility of proposing members to the Board
of Directors and members of the Nomination
committee. The Nomination committee shall
also propose the fee payable to the members of
the Board and the members of the Nomination
committee. Currently George Linardarkis, Espen
Westeren and Marcus Hansson comprise the
members of the Nomination Committee, are
independent of the executive management
and George Linardarkis, Marcus Hansson are
independent of the Board. All members are
elected by the shareholders for a period until
the 2016 AGM and their remuneration was
approved at the 2014 AGM. The Company and
the Committee can be contacted if shareholders
wish to discuss nominations, or to submit
proposals for candidates with the committee.
8) Corporate assembly and Board of
Directors: composition and independence
As a BVI registered company with 6 employees
and contractors at 31 December 2014, 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 shall contain
between 3 to 9 directors pursuant to the decision
of the General Meeting. The Company’s Board
of Directors currently comprises 3 directors,
of whom all are considered independent of
executive management, the composition aims
to ensure that the interests of all shareholders
are represented. Of the three members, no
directors are associated with a shareholder
with a holding exceeding 10%, other than Jens
Martin Jensen. 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
the necessary expertise,
background and
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
2015. 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 0% and 100% of their remuneration
in shares for 2014.
All Directors participated in the 2014 Board
meetings.
Consolidated and Company Annual Report and Financial Statement 2014 13
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 (61) - Independent
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. Previously served as Executive Vice
President and Head of International Operations
for Pioneer Natural Resources. Currently serving
as non-executive director for a number of listed
companies, namely; Hess Corporation, a large
NYSE listed oil and gas company with upstream
operations in North America, Europe, Africa and
Asia; Rockhopper Exploration plc, a UK AIM
listed exploration company with assets in the
Falkland Islands; Costain plc, one of the UK’s
leading engineering solutions providers; and
Caza Oil and Gas, a dual listed exploration and
production company with assets onshore USA.
Previously Chairman of 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 and
Arzew. 39 years of experience in Technical,
Commercial, Business Development, General
Management and Executive roles across all
aspects of the international oil and gas business,
including; BG Group, ARCO, Ultramar, Shell and
Fluor Corporation. Mr. McManus is a graduate
of Heriott Watt University, Edinburgh.
(40) -
Mr. Robin Bakken, Board member
Independent
Mr. Bakken joined the Board in October 2014,
he is a partner with the law firm BA-HR in
Oslo, Norway. He has extensive experience in
corporate transactions (equity capital markets
and M&A), and is currently heading BA-HR’s
corporate practise group. Mr. Bakken specializes
in securities law, company law and corporate
governance, and regularly acts for issuers,
investment banks and sponsors in public and
private transactions. Mr. Bakken joined BA-HR in
2000, a partner from 2007. He graduated at the
University of Oslo with a law degree in 2000.
Mr. Jens Martin Jensen, Board member (51)
Mr. Jensen joined the Board in October 2014,
he has served as the Acting Chief Executive
Officer of Frontline Management AS since April
2008 and was appointed as permanent Chief
Executive Officer in May 2009 and served until
November 2014, when he stepped down. Mr.
Jensen joined Frontline in September 2004 as
Commercial Director. From August 1996 to
September 2004, Mr. Jensen was a partner in
Island Shipbrokers in Singapore. From April 1985
to August 1996, Mr. Jensen worked in the A.P.
Moller Group with postings to Singapore, Tokyo,
Mexico and Denmark. Mr. Jensen completed the
A.P. Moller training program in 1987. Mr. Jensen
was appointed a director of Frontline Ltd. in
September 2014.
The Executive Management are
below:
listed
Jostein Ueland, Chief Financial Officer (35)
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.
Mr. Trym Tveitnes, PhD, Chief Technical Officer
(42)
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
Consolidated and Company Annual Report and Financial Statement 2014
14
Corporate Governance Report
(continued)
8) Corporate assembly and Board of
Directors: composition and independence
(continued)
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.
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 Management of FLEX
LNG Management Limited. The Company has
established a Compensation and Audit Committee.
Each committee contains the full Board and is
chaired as follows; Compensation – Robin Bakken;
and Audit – Jens Martin Jensen. The committees
perform the following roles: Compensation – to
review and recommend remuneration for senior
management; and Audit – to review the financial
reporting and controls for the Group. The audit
committee will hold separate meetings with the
auditor at least once a year, with the auditor
inputting on the agenda items.
The Board is scheduled to meet in person between
one and two times a year, and additionally
approximately six 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 2014 the
Board has convened more often, and has met
on two occasions. 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; to adopt guidelines
for the frequency and policy for external financial
reporting; and to agree on the dividend policy.
The Board is regularly briefed on the Company’s
financial situation, the vessel construction and
charter position, market conditions, the liquidity
situation and cash flow forecast.
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 CFO, Mr. J. Ueland, who is
appointed by and serves at the discretion of the
Board, and also reports to the Board. Further, the
CFO 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.
The CFO is supported by the other member
of the executive management team, 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
Consolidated and Company Annual Report and Financial Statement 2014
15
Corporate Governance Report
(continued)
10) Risk management and internal control
(continued)
the operations of FLEX LNG. Principal among
these risks currently are; the ability to secure
employment contracts on reasonable terms for
the two vessels being constructed by Samsung;
managing the design and construction period;
obtaining finance and working capital on
reasonable terms; retaining key staff, general LNG
and LNG shipping market conditions and trends,
and financial risk. In addition, the following risks
inherent in the business plan are monitored:
commodity prices, changes in the charter market;
exchange
the political,
regulatory and tax environment, counterparty
performance, potential growth of the business
and the proposed application of new technology
including the potential for vessel obsolesce.
The Board, working with the Audit Committee
and through the annual audit process, ensures
that FLEX LNG has reliable internal controls and
systems for risk management.
rates, competition,
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
remuneration of
directors, part of which has historically been in
the Company’s
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 the characteristics of the different
positions within the executive management.
The guidelines shall include a summary of the
characteristics of the employee option schemes
and bonus schemes applicable to the Group.
The process aims to link the performance
related element of the remuneration, (options
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
Consolidated and Company Annual Report and Financial Statement 2014 16
Corporate Governance Report
(continued)
12) Remuneration of the executive personnel
(continued)
Group. The guidelines for the remuneration of
the executive management were communicated
at the 2014 AGM. At the 2015 AGM the
Company will consider how to incorporate the
updated guidance on executive remuneration.
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) Information and communications
legal
FLEX LNG will ensure that the shareholders receive
accurate, clear, relevant and timely information
in accordance with
requirements.
Publication methods will be selected to ensure
simultaneous and equal access for all equity
shareholders; the information is provided in
English. The Company also provides information
to the market through quarterly and annual
reports. Events of importance are made available
to the stock market through notification to the
Oslo Stock Exchange in accordance with the
Stock Exchange regulations. 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
internal treatment of
requirements to the
important
trading
insider
instructions and for the Company’s contact
with shareholders other than through General
Meetings. Stock Exchange announcements and
press releases, including the financial calendar, are
also made available on the Company’s website.
information and
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.
Consolidated and Company Annual Report and Financial Statement 2014
17
Corporate Governance Report
(continued)
15) Auditors
is appointed by the General
The auditor
Meeting, which also determines the auditor’s
fee. 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 deals 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 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 Company’s Management regularly holds
meetings with the auditor, in which accounting
principles and internal control routines are
reviewed and discussed.
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.
Consolidated and Company Annual Report and Financial Statement 2014 Income Statement - FLEX LNG Group & Company
18
Year ended 31 December
(USD, 000)
Operating revenues
Administrative expenses
Reversal of impairment loss
Operating (loss) / profit
Finance income
Finance cost
(Loss) / profit before tax
Income tax expense
(Loss) / profit after tax
(Loss) / profit for the year
Attributable to:
Note
Note
3
2/8
4
4
7
Group
2014
0
3,040
(450)
(2,590)
3
35
Group
2013
0
4,528
(210,000)
205,472
21
18
Company
2014
0
1,904
(426)
(1,478)
3
16
Company
2013
0
2,269
(208,097)
205,828
21
18
(2,622)
205,475
(1,491)
205,831
13
(2,635)
(2,635)
15
205,460
205,460
0
(1,491)
(1,491)
0
205,831
205,831
Equity holders of the parent
(2,635)
205,460
(1,491)
205,831
Earnings per share (USD):
- Basic
- Diluted
Note
Note
5
Group
2014
Group
2013
Company
2014
Company
2013
(0.02)
1.63 (0.01)
1.63
5 (0.02)
1.63
(0.01)
1.63
Statement of Comprehensive Income - FLEX LNG Group & Company
Year ended 31 December
(USD, 000)
(Loss) / profit for the year
(2,635)
205,460
(1,491)
205,831
Note
Note
Group
2014
Group
2013
Company
2014
Company
2013
Other comprehensive income to
be reclassified to profit or loss:
Exchange differences on translation
Total other comprehensive
profit / (loss)
Total comprehensive (loss) / profit
for the period
Attributable to:
Equity holders of the parent
9
9
(51)
(51)
0
0
0
0
(2,626)
205,409
(1,491)
205,831
(2,626)
205,409
(1,491)
205,831
Consolidated and Company Annual Report and Financial Statement 2014 19
Statement of Financial Position – FLEX LNG Group & Company
As at 31 December
(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
Other financial liabilities
Total non-current liabilities
Current liabilities
Accounts payable
Accruals and other payables
Total current liabilities
Total liabilities
TOTAL EQUITY AND LIABILITIES
Note
Note
Group
2014
Group
2013
Company
2014
Company
2013
8
9
2
10
11
12
12
14.3
211,064
210,525
3
0
0
0
211,067
210,525
63
6,731
6,794
149
1,524
1,673
0
0
212,474
212,474
9
6,489
6,498
0
0
211,052
211,052
23
1,312
1,335
217,861
212,198
218,972
212,387
1,269
562,942
(354,191)
1,264
562,659
(352,142)
1,269
562,942
(354,384)
210,020
211,781
209,827
210,020
211,781
209,827
7,000
7,000
409
432
841
7,841
217,861
0
0
47
370
417
417
7,000
7,000
422
1,723
2,145
9,145
1,264
562,659
(353,157)
210,766
210,766
0
0
9
1,612
1,621
1,621
212,198
218,972
212,387
Board of Directors of FLEX LNG Ltd
23 April 2015
David McManus
(Chairman)
Robin Bakken
Jens Martin Jensen
Consolidated and Company Annual Report and Financial Statement 2014
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Consolidated and Company Annual Report and Financial Statement 2014
21
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Consolidated and Company Annual Report and Financial Statement 2014
Consolidated Statement of Cash Flows - FLEX LNG Group
22
Year ended 31 December
(USD, 000)
Group
Cash flow from operating activities
(Loss) / profit before tax
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
Reversal of impairment loss
Realised loss on liquidation of subsidiary
Lease provision
Loss on asset disposal
Working capital adjustments:
Decrease in prepayments
Decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Income taxes paid
Interest received
Interest paid
Note
2014
2013
(2,622)
205,475
4
4
9
8
3
(3)
35
334
215
1
0
313
0
0
34
53
397
(1,243)
(21)
2
0
(21)
18
352
335
32
(210,000)
0
(69)
38
157
166
(594)
(4,111)
(56)
32
(18)
Net cash flow from operating activities
(1,262)
(4,153)
Cash flows from investing activities
Purchase of plant and equipment
Proceeds from sale of plant and equipment
Payment on new building assets & capitalised expenditure
Net cash flow used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Proceeds from long-term borrowings
Net cash flow used in financing activities
Net currency translation effect
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
9
8
12
11
(4)
0
(539)
(543)
3
7,000
7,003
9
5,198
1,524
6,731
0
7
(525)
(518)
0
0
0
(51)
(4,671)
6,246
1,524
Consolidated and Company Annual Report and Financial Statement 2014
23
Statement of Cash Flows - FLEX LNG Ltd
Year ended 31 December
(USD, 000)
Company
Cash flow from operating activities
(Loss) / profit before tax
Adjustment to reconcile loss before tax to net cash flow
Non Cash:
Finance income
Finance expense
Impairment loss / (reversal)
Option and warrant costs
Share based payment expense
Working capital adjustments:
Decrease in prepayments
Decrease in trade and other receivables
Increase / (decrease) in trade and other payables
Interest received
Interest paid
Note
2014
2013
(1,491)
205,831
4
4
2/8
(3)
16
24
334
215
8
7
508
(382)
2
0
(21)
18
(208,097)
352
335
9
0
(289)
(1,862)
32
(18)
Net cash flow from operating activities
(380)
(1,848)
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
Proceeds from long-term borrowings
Net cash flow used in financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
2
12
11
(1,446)
(1,446)
(2,955)
(2,955)
3
7,000
7,003
5,177
1,312
6,489
0
0
0
(4,803)
6,115
1,312
Consolidated and Company Annual Report and Financial Statement 2014
24
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 four 100% owned subsidiaries, as at 31/12/14. The Group produces consolidated accounts incorporating
these companies and its activities, which are focused on transportation of liquefied natural gas and related activities. The
Company is currently constructing two LNG carries with a capacity of 174,000m3 with Samsung, for delivery in H1 2018. 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 2014 have been prepared in accordance with the International
Financial Reporting Standards (IFRS) as adopted by the EU. The financial statements were approved by the Board of Directors
on 23.04.15 for issue on 24.04.15. The financial statements have been prepared on an historical cost basis, except for the
valuation of options, which are accounted for at fair value. The financial statements have also been prepared on a going
concern basis, additional information is included in notes 17 and 18, and includes comparative information in respect of the
previous period.
The Group has implemented new and amended standards with effective date January 1, 2014, including IFRS 10 Consolidated
financial statements, IFRS 11 Joint arrangement and IFRS 12 Disclosures of interest in other entities. The adoption of the new
standards/amendments has had no impact on the financial position or performance of the Group or Company.
At the end of 2014, some new standards, changes in existing standards and interpretations have been issued, but have not
yet become effective. 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.
1.2 Functional currency and presentation currency
The Group’s presentation currency is USD. This is also the functional currency of all the remaining companies in the Group.
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.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee. 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.
Intragroup transactions and balances, including internal profits and unrealised gains and losses, have been eliminated in full.
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 IFRS. This means that management has used
estimates and assumptions that have affected the reported values for assets, liabilities, revenues, expenses, the accompanying
disclosures and information on contingent liabilities. Future events and revisions to accounting estimates 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.
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.
New build assets
Costs are capitalised as per note 1.8 and 1.11, as detailed in note 8. In determining the amounts that are capitalised,
including the carrying amounts for historically capitalised amounts, management will make assumptions regarding future
cash generation from these assets. This includes a review of broker vessel valuations, evaluations of future vessel charter
Consolidated and Company Annual Report and Financial Statement 2014
25
Note 1: General information and significant accounting policies (continued)
1.4 Use of estimates and judgements when preparing the annual financial statements (continued)
New build assets (continued)
rates and new build prices. Given the uncertainty surrounding the future values for these amounts, any subsequent changes
in these evaluations could impact the future carrying amounts for these capitalised costs. Costs are split between the
different vessels based on management’s view on benefits derived from the expenses incurred. An impairment loss exists
when the carrying value of the asset exceeds its recoverable amount.
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 charter, all non-current assets are located in the country of domicile. The FLEX
LNGC 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 and three entities in the Isle of Man.
1.8 Non-current assets
Non-current assets are carried at cost less accumulated depreciation and impairment adjustments, if any. 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.
The gross carrying amount of non-current assets is the purchase price, including duties/taxes, borrowing costs 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, borrowing costs incurred to finance construction, plus
other costs that are directly attributable to the assets. Capitalisation will 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 will 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.
IT Equipment: 2 years
Furniture and Fittings: 5 years
1.9 Impairment of assets
Other and non-current assets
At each reporting date the Group completes an assessment of whether there is an indication that an asset may be impaired.
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
Consolidated and Company Annual Report and Financial Statement 2014 26
Note 1: General information and significant accounting policies (continued)
1.9 Impairment of assets (continued)
Other and non-current assets (continued)
future cash flows. The calculation is performed, if appropriate, at the individual vessel level.
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.
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. Possible obligations resulting from past events whose existence depend on future events.
ii. Obligations that are not recognised because it is not probable that they will lead to an outflow of resources.
iii. 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;
i. A possible asset that arises from past events, and
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.
1.12 Options and share based payments – equity settled transactions
At award 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 and 2013 awards.
The option cost is recognised over the period in which the performance is expected to be 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, where shares
are issued instead of cash remuneration being paid. The value of the services is recognised at the fair value of the shares
issued.
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.
Consolidated and Company Annual Report and Financial Statement 2014 27
Note 1: General information and significant accounting policies (continued)
1.14 Investment in subsidiaries
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.
Consolidated and Company Annual Report and Financial Statement 2014 Note 2: Subsidiaries
The following subsidiaries are included in the consolidated financial statements:
28
Main operations
Ownership share
Voting share
Company
M-FLEX 1 Limited1
M-FLEX 2 Limited1
M-FLEX 3 Limited1
M-FLEX 4 Limited1
FLEX LNGC 1 Limited
FLEX LNGC 2 Limited
FLEX LNG
Management Limited
FLEX LNG
Management
(Norway) AS1
FLEX LNG
Management
(Singapore) PTE LTD1
FLEX Petroleum
Limited
Note1: Liquidated in 2014.
Country of
registration
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Shipping
Shipping
Shipping
Shipping
Shipping
Shipping
Management services
100%
100%
100%
100%
100%
100%
100%
Norway
Management services
100%
100%
100%
100%
100%
100%
100%
100%
100%
Singapore
Management services
100%
100%
British Virgin Islands
Holding company
100%
100%
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 LNGC 1 Limited
FLEX LNGC 2 Limited
FLEX Petroleum Limited
Impairment provision
2014
0
0
0
0
106,237
106,237
3,807
(3,807)
212,474
2013
166,143
58,456
57,692
57,760
105,526
105,526
3,783
(343,834)
211,052
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.
Given the non trading nature of FLEX Petroleum the Company continues to hold a provision against this loan balance, with an
additional $24k being provided in the year (2013: $9k). This adjustment has no impact at a consolidated level.
Consolidated and Company Annual Report and Financial Statement 2014 29
Note 3: Administrative expenses
As detailed in note 1.8 capitalised costs 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.
3.1 Included in administration expenses
(USD 000)
Depreciation
P&L on disposal of assets
Net foreign exchange differences
Realised loss on liquidation of subsidary
Calculated fair value of options in the period
Group
2014
1
0
16
313
334
Group
2013
Company
2014
Company
2013
32
38
(97)
0
352
0
0
(12)
0
334
0
0
(53)
0
352
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
2014
43
30
73
Group
2013
Company
2014
Company
2013
61
13
74
35
0
35
43
1
44
3.3 Remuneration
During 2014 FLEX LNG had three Directors, but no employees. All employees are engaged by the management company.
Staff costs (USD 000)
Wages and salaries
Social security costs
Pension costs
Termination costs
Group
2014
870
147
41
0
Group
2013
1,155
196
53
371
Total employee benefit expenses
1,058
1,775
Company
2014
Company
2013
0
21
0
0
21
0
55
0
0
55
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 members of staff, who are also offered additional health insurance. The number
of man-labour years in 2014 was 6 (2013 – 8). The Company has incurred social security costs in relation to the payment of
Directors fees in the Isle of Man and accrued costs on the option schemes.
Consolidated and Company Annual Report and Financial Statement 2014 Note 3: Administrative expenses (continued)
3.3 Remuneration (continued)
Directors fees FLEX LNG Ltd
(USD 000)
Current Directors
David McManus
Robin Bakken
Jens Martin Jensen
Ex. Directors
Aoki Hiromichi
Eiji Wakiwaka
Ian Beveridge
Christopher Pittinger
Total Directors’ fees
30
Company
2014
Company
2013
182
7
7
0
0
58
58
312
200
0
0
66
66
70
70
472
Between 0% and 100% of the remuneration listed above is paid via the issuance of shares by the Company. Mr. McManus in
addition earned a fee of $2,055 (2013: $2,500) for being a member of the nomination committee.
All earnings and shares for Mr. Beveridge are assigned to Bernhard Schulte Investment Holding.
Executive Management
(USD 000)
Jostein Ueland
Trym Tveitnes
2014
2013 (four staff)
Salary
Sundry benefits
Pension
Option costs
275
275
550
1,170
1
4
5
45
14
14
28
40
80
80
160
283
Group
Total
370
373
743
1,538
The Executive Management receive remuneration via the management company FLEX LNG Management Limited. The amounts
disclosed are the amounts recognised as an expense during the reporting period. Pension provision is provided under defined
contribution schemes at 5%. Mr. Ueland and Tveitnes have contracts of employment that give a three month notice period and
with additional amounts in the event of redundancy (one month of salary for each year of service on a pro rata basis). Options
have been granted as follows Mr. Ueland and Tveitnes 400,000 options each (issued 07/11/12), additional details in note 13.
Consolidated and Company Annual Report and Financial Statement 2014 31
Note 4: Finance costs and revenue
Finance cost
(USD 000)
Loan interest
Arbitration funding cost
Total financial cost
Finance revenue
(USD 000)
Interest income
Total financial revenue
Note 5: Earnings per share
Group
2014
Group
2013
Company
2014
Company
2013
35
0
35
0
18
18
16
0
16
0
18
18
Group
2014
Group
2013
Company
2014
Company
2013
3
3
21
21
3
3
21
21
Basic earnings per share amounts are calculated by dividing the net (loss) / profit 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) / profit 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 the
dilutive potential ordinary shares into ordinary shares.
The following reflects the (loss) / profit and share data used in the earnings per share calculation.
Earnings per share:
(Loss) / profit attributable to shareholders – Group $’000
(Loss) / profit attributable to shareholders – Company $’000
2014
(2,635)
(1,491)
2013
205,460
205,831
Weighted average number of ordinary shares
126,615,864
126,040,816
Effect of dilution:
Share options 1
Weighted average number of shares, adjusted for dilution
1 the impact of the options is antidilutive and excluded in the current year and in
2013 the options were out of the money against the average share price for the
period.
0
0
126,615,864
126,040,816
Note 6: Management fees
There are no employees in FLEX LNG Ltd. A contract for management services has been entered into with FLEX LNG Management
Limited. According to this agreement, FLEX LNG Management Limited will render services to the Group relating to general
administration and contract management. FLEX LNG Management Limited is entitled to compensation covering all its expenses
plus a mark-up. The total compensation for 2014 was $1,662k (2013: $2,948k). At the period end the Company owed FLEX
LNG Management Limited $1,480k (2013: $1,406k).
Consolidated and Company Annual Report and Financial Statement 2014
32
Note 7: Income tax
The Group consists of two legal entities incorporated in the BVI and three entities in the Isle of Man. Income or capital gains
are not subject to taxation in the BVI, or the Isle of Man. The profits attributable to the Management Company are taxable in
the United Kingdom (UK).
(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
2014
9
4
13
Group
2013
18
(3)
15
Company
2014
Company
2013
0
0
0
0
0
0
A reconciliation between the tax expense and the product of the accounting profit multiplied by the BVI domestic tax rate for
the year ended 31 December 2014 and 2013 is as follows:
(USD 000)
Accounting (loss) / profit before income tax
Income tax at 0% (2013:0%) – BVI
Effect of higher overseas tax rates
Effective income tax rate of 0.5% (2013: 0.0%)
(USD 000)
Accounting (loss) / profit before income tax
Income tax at 0% (2013:0%) – BVI
Effective income tax rate of 0% (2013: 0%)
Group
2014
(2,622)
0
13
13
Company
2014
(1,491)
0
0
Group
2013
205,475
0
15
15
Company
2013
205,831
0
0
Consolidated and Company Annual Report and Financial Statement 2014
33
Note 8: New Building Assets and Capitalised Costs
(USD 000) - Group
At 1 January – payments on account
Reversal of impairment loss
At 31 December
At 1 January – capitalised costs
Additions
At 31 December
At 1 January – Total
Additions
Reversal of impairment loss
At 31 December
2014
210,000
0
210,000
525
539
1,064
210,525
539
0
211,064
2013
0
210,000
210,000
0
525
525
0
525
210,000
210,525
In 2013, following the execution of a settlement agreement, the Group entered into two new ship building contracts with
Samsung for 174,000m3 LNG Carriers. As a result of the settlement agreement the parties agreed to redeploy $210.0m from
payments already made to Samsung by the FLEX LNG Group, which were used as the first instalment for the two LNG Carrier
vessels. Previously on the historical contracts with Samsung, under IAS 37, the payments made had been derecognised as a
contingent asset. Additionally in 2014 the Company received proceeds of $450k from Samsung following the sales of the
loading arms from the historical contracts, which had not previously been recognised as an asset, leading to a further reversal
of the impairment loss in the current year.
In 2014 the Group has also capitalised $532k (2013:$525k) of technical staff ($315k), travel ($70k), legal ($60k) and technical
consultancy costs ($87k). In addition $7k of finance costs was also capitalised in the year (2013: $nil). Capitalised interest is
calculated as a percentage of the capitalised cost against the total costs funded by the working capital loan in the period.
In determining the carrying amounts for historically capitalised amounts, management will make assumptions regarding future
cash generation from these assets. This includes a review of broker vessel valuations, evaluations of future vessel charter rates
and new build prices. Given the uncertainty surrounding the future values for these amounts, any subsequent changes in these
evaluations could impact the future carrying amounts for these capitalised costs. The group has reviewed the market prices for
new builds and obtained broker valuations for the vessels and believes that the recoverable amount is such that no impairment
provision is required on the vessels under construction.
Consolidated and Company Annual Report and Financial Statement 2014
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
(USD 000)
Debtors
Prepayments
Other receivables
Total other current assets
Note 11: Cash and cash equivalents
34
2013
797
0
(677)
120
2013
720
32
(632)
120
2013
0
2014
120
4
(12)
112
2014
120
1
(12)
109
2014
3
Group
2014
Group
2013
Company
2014
Company
2013
11
17
35
63
49
51
49
149
2
7
0
9
8
15
0
23
(USD 000)
Cash at the bank and in hand
Cash and cash equivalents in the balance sheet and
cash flow statement
Overdraft facility
Group
2014
6,731
Group
2013
1,524
6,731
1,524
0
0
Company
2014
Company
2013
6,489
6,489
0
1,312
1,312
0
Consolidated and Company Annual Report and Financial Statement 2014
35
Note 12: Share capital, shareholder information and dividend
Group & Company
Ordinary shares, nominal amount USD 0.01
Total number of shares
2014
126,921,224
126,921,224
2013
126,365,641
126,365,641
Group & Company
Ordinary shares - Issued and fully paid:
At 1 January 2014
Options exercised
Issued in lieu of remuneration
31 December 2014
Group & Company
Ordinary shares - Issued and fully paid:
At 1 January 2013
Issued in lieu of remuneration
31 December 2013
Shares
(’000)
Share Capital
Share Premium
(USD’000)
(USD’000)
126,366
1,264
562,659
295
260
3
2
0
283
126,921
1,269
562,942
Shares
(’000)
125,412
954
126,366
Share Capital
Share Premium
(USD’000)
(USD’000)
1,254
10
1,264
562,288
371
562,659
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 0% and 100% of their remuneration for the year.
The Directors’ shares for the remuneration, covering the period 01/07/2014 to 31/12/14, had not been issued at 31/12/14 and
are recorded in the option, warrant and share reserves, $94k (2013: $164k). During the year 295,000 staff options have been
exercised at a price of $0.01 per share. The 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 $264k (2013: $306k - credit) in relation to
the options costs and shares issued by the Company.
Consolidated and Company Annual Report and Financial Statement 2014
Note 12: Share capital, shareholder information and dividend (continued)
36
Main group shareholders at 31.12.14 are:
Shareholder:
GEVERAN TRADING CO
SKANDINAVISKA ENSKIL
BNP PARIBAS1
STATE STREET BANK1
UBS AG LONDON
JP MORGAN CHASE BANK1
SEB PRIVATE BANK1
JP MORGAN LUXEMBOURG1
D MCMANUS
MATHIAS HOLDING
CLEARSTREAM BANKING1
MP PENSJON
C PITTINGER
S PEARL
B FJELD
S MALM
CITIBANK1
SKEIE ALPHA INVEST
R SEDAL
PARETO SECURITIES AS
OTHER
Total
Note1 - Nominee account.
Number of shares:
Ownership interest:
103,837,979
81.8%
5,000,000
2,835,885
2,824,550
2,549,938
1,986,000
1,261,344
682,800
672,322
500,000
482,288
281,000
184,579
160,746
155,739
154,297
151,698
150,000
145,210
121,807
2,783,042
126,921,224
4.0%
2.2%
2.2%
2.0%
1.6%
1.0%
0.6%
0.5%
0.4%
0.4%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
2.2%
100.0%
Consolidated and Company Annual Report and Financial Statement 2014 37
Note 13: Share based payments
Share-Based Payment - Group & Company
The Company has entered into a number of option scheme allocations. A summary of the scheme arrangements are described
below.
Plan
Vesting Criteria
Founders Options – 2012
Staff Options – 2013
Remaining options vested following the change of control for the
Company in 2014, 1,200,000 options outstanding at the start of the
year.
Remaining options vested following the change of control for the
Company in 2014, 225,000 options outstanding at the start of the
year.
Expiry
30.07.17
06.06.17
The fair values of the options were calculated using the Black-Scholes-Merton option pricing model and a Monte Carlo
simulation model. The total expensed amount in 2014 arising from the share-based payment plan was a cost of $334k (2013:
$352k). The total expensed amount relating to the historical options schemes at 31.12.2014 was $1,960k (2013: $1,626k).
Exercised options are covered by the issuance of new shares in the Company.
Further details of the plans are as follows:
01.01.14 - 31.12.14
Options Weighted Average Exercise Price
Options outstanding at the beginning of year
Exercised
Lapsed
Options outstanding at the end of year
1,425,000
(295,000)
(300,000)
830,000
USD 0.01
USD 0.01
USD 0.01
USD 0.01
In relation to the outstanding options, 295,000 were exercised in the year, 300,000 lapsed and the remained 830,000 vested,
but remained unexercised at the period end.
Outstanding and vested options as of 31 December 2014 are given in the table below.
Outstanding
Vested
Exercise price
Outstanding
Options per
31.12.2014
Weighted average
remaining
contractual Life
Weighted
Average Exercise
Price
Vested Options
31.12.2014
Weighted
Average Exercise
Price
USD, 0.01
Total USD options
830,000
830,000
2.6
2.6
0.01
0.01
830,000
830,000
0.01
0.01
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 exercising. The objective of the option schemes is to align the effort of employees with the future success
of the Group.
During the period ended 31 December 2014 FLEX LNG agreed to issue the directors with shares covering between 0% and
100% of their remuneration. The value of the shares is based on the fair value of the services received of $215k (2013 - $334k).
At 31 December 2014 90,809 shares (2013: 149,761 shares) with a value of $94k had not yet been issued to the directors.
Consolidated and Company Annual Report and Financial Statement 2014 Note 13: Share based payments (continued)
The split of shares by director was as follows;
Director
Current Directors
D McManus
R Bakken
J M Jensen
Ex Directors
A Hiromichi1
E Wakiwaka1
I Beveridge1
C Pittinger
Total
Note1: These shares are issued to the company they employed by rather than to the individual.
Note 14: Related parties
14.1: Shares held by current members of the Board, as at 31/12/2014
Board Member
David McManus
Robin Bakken
Jens Martin Jensen
Total
38
2014
2013
111,054
244,348
0
4,421
0
0
53,847
32,309
201,631
0
0
127,933
63,967
131,572
66,150
633,970
2014
2013
672,322
553,581
0
0
0
0
672,322
533,581
These amounts exclude the shares that had not been issued as at 31/12/2014, per note 16.1.
14.2 LNGC technical specifications and construction agreement
On 31 July 2014 the Company entered into a supervision agreement with Schulte Marine Concept (Hong Kong) Limited
(Schulte) to cover the plan approval and supervision services on the two LNG Carriers on order from Samsung. In the twelve
months to December Schulte costs of $87k (2013: $58k) have been capitalised on the two new build contracts. The agreement
can be terminated by FLEX LNG giving notice and paying a pre-agreed termination fee. The supervision agreement with Schulte
is within the normal activities of the company, on market terms, and was negotiated on an arm’s length basis. Following the
completion of the mandatory offer Schulte ceased being a related party, previously it held a 5% shareholding in the Company
and Mr. Beveridge was a director of the Company prior to the 2014 AGM.
14.3 Working capital loan
On 27 October 2014 the Group entered into a loan agreement with Metrogas for the provision of $7.0m of working capital and
the loan was drawn in November 2014. The loan bears a fixed rate of interest and is secured against the shares in the two ship
owning companies. Metrogas is a company indirectly controlled by trusts established by John Fredriksen for the benefit of his
immediate family, as is Geveran Trading Company Limited, who holds 81.8% of the shares in the Company at the yearend. The
interest cost, prior to capitalisation, was $42k (2013: $nil). The loan agreement is within the normal activities of the company
and on market terms, and was negotiated on an arm’s length basis. The loan is being used to cover working capital costs. The
loan is due to be repaid by 31 December 2016.
Note 15: Commitments and contingencies
15.1 Guarantees / Commitments
The Company has provided guarantees in relation to the payments still due under the two shipbuilding contracts with Samsung.
Under the settlement agreement $210.0m was redeployed to be used as the first instalment for the two vessels. The remaining
instalment will be due on the delivery of the vessels, $192.4m, prior to any amounts for design change requests and sundry
buyers supplies, additional details note 16.2.
Consolidated and Company Annual Report and Financial Statement 2014 39
Note 15: Commitments and contingencies (continued)
15.2 Operating lease commitments, lessee
The UK based subsidiary has entered into a lease on commercial property. The lease has an average remaining life of 0.35 years
and is denominated in GBP. The future rental payable under the leases as at 31 December 2014 is as follows;
(USD 000)
Within one year
After one year but not more than five years
Total
Lease payments made during the year were $146k (2013: $172k).
Note 16: Subsequent events / after balance sheet date
Group
2014
Group
2013
48
0
48
146
51
197
16.1 Shares
On 9 January 2015 the Company issued 90,809 additional shares to cover between 60% and 100% of the current and previous
Director’s remuneration from 1 July 2014 to the 2014 year end.
16.2 Contract amendments with Samsung
In February 2015 agreement was reached with Samsung to convert the propulsion system for two LNG carriers from DFDE to
the fuel efficient 2-stroke slow speed MEGI main engines. The consequence of the change is an increase in the yard price, to
$211.9m per vessel, taking into account the change in specification, including the deployment of the new engine system and
exhaust gas treatment for compliance with new emissions regulations, 0.09% Boil-off Rate to maintain speed flexibility, and
ballast water treatment system. The price increase is to be paid by FLEX on delivery. The expected delivery dates for the vessels
have been postponed from Q1 2017 to Q1 and Q2 2018.
Note 17: Financing
On 27 October 2014 the Group entered into a loan agreement with Metrogas for the provision of $7.0m of working capital,
which was drawn in 2014. Given the current overhead structure and budgeted costs the Company believes that this will provide
sufficient working capital to operate for at least 18 months.
The Company, on current estimates, will need to raise additional working capital funds prior to delivery in 2018. 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.
Note 18: 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 current overhead structure and budgeted costs the
Company believes that the working capital loan will provide sufficient working capital to operate for at least 18 months. Given
the current capital raising plans the Group expects to raise sufficient working capital to operate until delivery of the vessels.
Considering the above, the Board believes that the going concern assumption currently remains appropriate for the Group.
The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of
the uncertainties detailed in the report.
Note 19: 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, in a cost effective manner.
Currency risk
The risk that 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 equity funding in USD, with the share price denominated in
NOK, but with the proceeds being fixed into USD. The 2014 loan finance was raised in USD.
Consolidated and Company Annual Report and Financial Statement 2014 40
Note 19: Financial risk management objectives and policies (continued)
Currency risk (continued)
Additionally, the Group incurs some overhead costs in GBP 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.
Interest rate risk
The Group currently has interest bearing assets and liabilities. Amounts are placed on deposit for periods to secure higher
returns, while balancing the need to access funds as required. The cost on the interest bearing liabilities has been raised at a
fixed rate of interest.
Liquidity risk
The Group monitors its risk to a shortage of funds using a 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 and
loan finance. Market conditions can have a significant impact on the ability to raise equity and loan finance, while new equity
financing may be dilutive to existing shareholders and loan finance which will contain covenant and other restrictions.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the raising of finance from
investors. The Group will need to raise additional working capital prior to the delivery for the two LNG carrier vessels that are
under construction.
Upon concluding a charter contract for the LNG vessel or a contract of employment for the vessel the Company would look to
raise project loan finance to cover the remaining delivery payments.
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. Samsung has provided refund
guarantees, via Hana Bank, for the $210m instalment payment. The bank providing the refund guarantee must hold at least a
credit rating of A-. Cash funds are currently held with HSBC, Lloyds, Barclays and SparebankenVest.
Price risk
The Group is also subject, indirectly, to price risk related to the spot/short term charter market for chartering LNG carriers, but
currently has not yet concluded a contract for the use of the vessels under construction. Charter rates may be uncertain and
volatile and depend upon, among other things, the natural gas prices, the supply and demand for vessels, vessel obsolesce and
the energy market, which the Group cannot predict. Currently, no financial instruments have been entered into to reduce this
risk.
Operational risk
Currently the Group is managing the construction phase for the vessels and has yet to secure charters for the vessels. Operational
risks therefore mainly relate to expenditure being higher than forecast, decisions on the design specifications, risks to the
environment and risks to the safety of staff. At a commercial level it also includes the ability to secure employment contracts
on reasonable terms for the two vessels under construction; and obtaining finance and working capital on reasonable terms.
Consolidated and Company Annual Report and Financial Statement 2014 41
Consolidated and Company Annual Report and Financial Statement 2014 42
Consolidated and Company Annual Report and Financial Statement 2014 43
Consolidated and Company Annual Report and Financial Statement 2014