FLEX LNG Group
Consolidated and Company
Annual Report and Financial
Statement 2014
2015
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 2015
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 2013
Pages
03
04
05
07
08
17
18
19
21
23
36
General Information
FLEX LNG Ltd
Directors
David McManus (Chairman)
Robin Bakken
Marius Hermansen
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, IM1 2LF
Isle of Man
Lloyds Bank
PO Box 328, Victory House
Douglas, IM99 3JY
Isle of Man
HSBC
1st Floor, 60 Queen Victoria Street,
London, EC4N 4TR
United Kingdom
SparebankenVest
PB 7999,
5020 Bergen,
Norway
4
Chairman’s Statement
In 2015 the Company has worked with Samsung Heavy Industries (Samsung) on the
plan approval, vendor selection and design changes on the two new 174,000 m3 LNG
carriers. The propulsion system has been converted 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. The construction timetable with Samsung remains on
track with steel cutting commencing in 2016 and delivery in January and April 2018.
In April 2016 the Group secured an amendment to the existing working capital facility
and now expects that this will provide working capital up until delivery, at which point
additional funds will be required to fund the delivery instalments.
In July 2015 the Company announced a proposed transaction with EXMAR NV (EXMAR)
and Geveran Trading Co. Ltd. (GEVERAN) on the main terms for an acquisition of their
respective Liquefied Natural Gas assets and Liquefied Natural Gas Infrastructure in
exchange for new shares in the Company being issued. The parties were not able to agree
on the definitive transaction documents and the Company announced in September
that the transaction would not proceed. The Company will continue to examine other
strategic alternatives, to add value to the Company and its shareholders, including
considerations of opportunities across the LNG value chain. The current condition of
the LNG market could give interesting consolidation and growth opportunities for the
Company. The Company believes that the Geveran backing will assist the Group, as it
looks to grow into a leading investment vehicle for LNG vessels.
I believe the Company remains well placed to build an attractive position in the LNG
shipping market with the newest generation of fuel efficient LNG carriers. The Group
has a flat organisation which can 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 Group grow the business.
David McManus
Chairman
Consolidated and Company Annual Report and Financial Statement 2015
5
Board Of Directors’ Report
2015
Business update
The Company on 1 July 2015 announced
a proposed transaction with EXMAR and
GEVERAN on the main terms for an acquisition
of EXMAR’s and GEVERAN’s respective Liquefied
Natural Gas assets and Liquefied Natural Gas
Infrastructure in exchange for new shares in
the Company being issued to EXMAR and
GEVERAN. The parties were not able to agree
on the definitive transaction documents and the
Company announced on 23 September that the
transaction would not proceed.
The Company continues with the construction
of its two LNG carriers and will examine
other strategic alternatives to add value to
the Company and its shareholders, including
considerations of opportunities across the LNG
value chain. The current condition of the LNG
market could give interesting consolidation and
growth opportunities for the Company, with
a number of commercial opportunities being
pursued. The Company is working to complete
the plan approval for the two vessels and
remains on target to start steel cutting in 2016.
Funding and Going Concern
On
the present overhead structure and
budgeted costs, the Company believes that
the working capital raised in 2014 will provide
sufficient working capital to operate towards
the end of 2016. Given this the Company has
been in discussion with Metrogas to amend the
existing working capital facility and in April 2016
agreed an amendment to provide the estimated
working capital funds until delivery, additional
details note 16.2.
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, interest rate,
capital risk and liquidity risks.
The uncertainties and risks include those detailed
in the 2015 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 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 in
addition raised $7.0m of debt finance to part
cover the construction phase of the vessels.
Given the existing loan agreement, overhead
structure and budgeted costs, the Company
believes that this will provide sufficient working
capital to operate towards the end of 2016, but
will need to obtain additional working capital.
Given this the Company has been discussing
with Metrogas to amend the existing working
capital facility, which will provide these funds up
to delivery. In April 2016 the Group agreed an
extension and increase to the existing working
capital facility and the Company now expects
that this will provide funds to operate until
delivery of the vessels. In addition there can be
no assurance that construction supervision costs
will be as forecast.
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.
Consolidated and Company Annual Report and Financial Statement 2015 6
Board Of Directors’ Report
2015 (continued)
Income Statement and Balance Sheet
Environmental Reporting
The Group cash balances at 31 December were
$3.7m (2014: $6.7m) with a $3.0m outflow year
to date (2014: $5.2m net inflow). In the twelve
months in 2015 the operating cash outflow
was $2.8m (principally the operating loss after
adjusting for the non cash, working capital
movements and finance costs paid). The 2015
movement includes the payment of mandatory
bid costs ($0.4m), which completed in late 2014,
additional 2015 restructure costs and $0.2m in
relation to the Exmar transaction. The retained
loss for the year was $2.5m (2014: $2.6m - loss),
which has been transferred to reserves.
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 $3.6m
(2014: $6.5m). In the twelve months in 2015 the
operating cash outflow was $2.1m (principally
the operating loss less the non cash income
statement entries, working capital movements
and interest paid) and investing activities outflow
$0.8m (loans to subsidiaries). The retained loss for
the year was $1.7m (2014: $1.5m - loss), which
has been transferred to reserves. The Directors do
not recommend the payment of a dividend.
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 2015, FLEX LNG and its
subsidiaries had in total 3 employees, 3 men and
no 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.
The Board
Corporate Governance
There have been changes in the composition of
the Board during the financial year. In December
2015 Jens Jensen stood down and we thank him for
his significant contribution to Board discussions.
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
28 April 2016
David McManus
(Chairman)
Robin Bakken Marius Hermansen
Consolidated and Company Annual Report and Financial Statement 2015 7
Responsibility statement
We confirm that, to the best of our knowledge,
the financial statements for the period 1 January
to 31 December 2015 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
28 April 2016
David McManus
(Chairman)
Robin Bakken Marius Hermansen
Consolidated and Company Annual Report and Financial Statement 2015 8
Corporate Governance Report
1) Implementation and reporting on
corporate governance
As a company
in the British
incorporated
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
• Creativity and innovation spearheads the
commercial and technical work conducted
by FLEX LNG. In an effort to stay ahead of
Consolidated and Company Annual Report and Financial Statement 2015
9
Corporate Governance Report
(continued)
2) Business (continued)
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 2015 was USD
1,278,696.73, divided into 127,869,673 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 an unlimited maximum
for the authorised number of shares per its
Memorandum and Articles of Association.
To issue new shares or amend 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 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 Company
are freely negotiable, and the Articles of
Association contain no form of restriction on the
negotiability of the shares, or on voting rights.
Consolidated and Company Annual Report and Financial Statement 2015
10
Corporate Governance Report
(continued)
5) Freely negotiable shares (continued)
However, as a BVI company, and to protect
existing Norwegian shareholders from adverse
tax consequences in Norwegian Controlled
Foreign Corporations Regulations, the Group
in accordance with the Articles of
may,
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 2015
and 2014 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 2015 and 2014
year shall become unlocked either on the first or
second anniversary after their respective grants.
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 on each matter
the candidates
being considered,
nominated for election. The documentation will
be sent to shareholders either electronically or
on paper. Registration can be made in writing 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
including
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 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
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.
Consolidated and Company Annual Report and Financial Statement 2015
11
Corporate Governance Report
(continued)
7) Nomination Committee
a
the
justify
recommendation
nominating
operates
The Company
committee, which is responsible for identifying,
recommending board candidates to the AGM
and shall
to
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
The Nomination
Nomination
committee shall also propose the fee payable to
the members of the Board and the members of
the Nomination committee. Currently George
Linardarkis and Marcus Hansson comprise the
members of the Nomination Committee, are
independent of the executive management
and the Board. All members are elected by the
shareholders for a period until the 2016 AGM
and their remuneration was approved at the
2015 AGM. The Company and the Committee
can be contacted, if shareholders wish to discuss
nominations with the committee, or to submit
proposals for candidates for election.
committee.
8) Corporate assembly and Board of
Directors: composition and independence
As a BVI registered company with 3 employees
at 31 December 2015, 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 Marius Hermansen.
The composition of the Board of Directors,
including the controls to avoid conflicts of
interest, is in accordance with BVI company law,
the Memorandum and Articles of Association
and good corporate governance practice.
The Company endeavours to ensure that
it is constituted by directors with a varied
background and
the necessary expertise,
diversity and capacity to ensure that it can
function effectively. The directors are elected
by the General Meeting, for service periods of
two years or such shorter period as stated in the
relevant resolution. Directors may be re-elected
and there is no limit on the number of terms
that any one director may serve. Re-election
of the current directors is due at the AGM in
2016. 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 80% of their remuneration in
shares for 2015.
All Directors participated in the 2015 Board
meetings.
The current Board members are listed
below:
-
(62)
Mr. David McManus, Chairman
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 and has previously served as Executive Vice
President and Head of International Operations
Consolidated and Company Annual Report and Financial Statement 2015 12
Corporate Governance Report
(continued)
8) Corporate assembly and Board of
Directors: composition and independence
(continued)
-
(62)
Mr. David McManus, Chairman
Independent (continued)
for Pioneer Natural Resources. He is 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. Mr. McManus was 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. He has 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.
Mr. Robin Bakken, Board member (41) -
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 BAHR’s
corporate practise group. He 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, being a partner from 2007. He
graduated at the University of Oslo with a law
degree in 2000.
Mr. Marius Hermansen, Board member (37)
Mr. Hermansen joined the Board in December
2015, he works for Frontline Management and
is involved in S&P activities for Frontline and all
related companies. Previously he worked for
over 10 years at Fearnleys. He was educated at
the Norwegian School of Economics (NHH) in
Bergen and started as a trainee with AP Moller-
Maersk.
The Executive Management are
below:
listed
Jostein Ueland, Chief Financial Officer (36)
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
(43)
Mr. Tveitnes is the co-founder of FLEX LNG,
which was established in August 2006 and
is the CTO of FLEX LNG Management. Mr.
Tveitnes joined FLEX LNG from a consultancy
in Bergen, Norway, specialising in onshore gas
transportation and distribution. Prior to this he
worked for the shipping company Höegh LNG
in Oslo, focusing on concept development
and technical specifications in connection
with the Neptune SRV project as well as
within Arctic LNG transportation. Mr. Tveitnes
also has experience as Senior Engineer at
Det Norske Veritas working on technological
qualifications of containment systems for
large LNG carriers and floating LNG import
terminals. Mr. Tveitnes holds a MSc. in Naval
Architecture and a PhD in Hydrodynamics
from the University of Glasgow.
Consolidated and Company Annual Report and Financial Statement 2015
13
Corporate Governance Report
(continued)
9) The work of the Board of Directors
The Board is ultimately responsible for the
management of the Company and for supervising
its day to day management. 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 – Marius Hermansen.
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.
four
times by
The Board is scheduled to meet in person between
one and two times a year, and additionally
telephone
approximately
conferences, but the schedule is flexible to react
to operational or strategic changes in the market
and Group circumstances. In the 12 months in
2015 the Board has convened three time, and has
met on one occasion. The main responsibilities
of the Board cover the following main areas;
strategic planning and decision making for the
executive management to implement; ensure
Board instructions are complied with; remain well
informed on the Company’s and Group financial
position; production of an annual work plan;
ensure the adequacy of executive management
and their roles are clearly defined; annually to
review the most important areas of risk exposure,
including risks and controls related to financial
reporting; ensuring an appropriate system of
direction, risk management and internal control is
established and maintained; to adopt guidelines
for the frequency and policy for external financial
reporting; and to agree on the dividend policy.
The Board are 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 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
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;
the political,
exchange
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
rates, competition,
Consolidated and Company Annual Report and Financial Statement 2015 14
Corporate Governance Report
(continued)
10) Risk management and internal control
(continued)
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.
The Board is presented an annual budget
at the end of the preceding financial year.
Thereafter, the Board is presented with regular
updates and quarterly reporting. 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
internal control and risk management
on
systems as they relate to its financial reporting.
11) Remuneration of the Board of Directors
the Company’s
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
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, details per note 3. 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 Group. In
2015 staff exercised the remaining issued
share options and at the end of 2015 no share
options remain outstanding. The guidelines for
the remuneration of the executive management
the 2015 AGM.
were communicated at
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
FLEX LNG will ensure that the shareholders receive
accurate, clear, relevant and timely information in
accordance with legal requirements. Publication
Consolidated and Company Annual Report and Financial Statement 2015
15
Corporate Governance Report
(continued)
13) Information
and
communications
(continued)
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
insider trading
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.
15) Auditors
The auditor
is appointed by the General
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 and is responsible
for the audit of the consolidated financial
statements. 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
Consolidated and Company Annual Report and Financial Statement 2015
16
Corporate Governance Report
(continued)
15) Auditors (continued)
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
the pre-commercial nature of
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
is
member of the executive management
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 discussions with the auditor, in which
accounting principles and
internal control
routines are reviewed and discussed, including
the presentation of the quarterly reports.
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 2015 Income Statement - FLEX LNG Group & Company
17
Year ended 31 December
(USD ‘000)
Operating revenues
Administrative expenses
Reversal of impairment loss
Operating (loss)
Finance income
Finance cost
(Loss) before tax
Income tax expense
(Loss) after tax
(Loss) for the year
Attributable to:
Note
Note
3
8
4
4
7
Group
2015
0
2,231
0
(2,231)
20
267
Group
2014
0
3,040
(450)
(2,590)
3
35
Company
2015
Company
2014
0
1,572
0
(1,572)
20
189
0
1,904
(426)
(1,478)
3
16
(2,478)
(2,622)
(1,741)
(1,491)
7
(2,485)
(2,485)
13
(2,635)
(2,635)
0
(1,741)
(1,741)
0
(1,491)
(1,491)
Equity holders of the parent
(2,485)
(2,635)
(1,741)
(1,491)
Earnings per share
(USD):
- Basic
- Diluted
Note
Group
2015
Group
2014
Company
2015
Company
2014
5 (0.02)
(0.02)
(0.01)
(0.01)
5 (0.02)
(0.02)
(0.01)
(0.01)
Statement of Comprehensive Income - FLEX LNG Group & Company
Year ended 31 December
(USD ‘000)
(Loss) for the year
Other comprehensive income
to be reclassified to profit
or loss:
Exchange differences on translation
Total other comprehensive
profit
Total comprehensive (loss)
for the period
Attributable to:
Equity holders of the parent
Note
Note
Group
2015
(2,485)
Group
2014
Company
2015
Company
2014
(2,635)
(1,741)
(1,491)
0
0
9
9
0
0
0
0
(2,485)
(2,626)
(1,741)
(1,491)
(2,485)
(2,626)
(1,741)
(1,491)
Consolidated and Company Annual Report and Financial Statement 2015
18
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
Share capital
Share premium
Other equity
Equity attributable to equity
holders of the parent
Total equity
Non-current liabilities
Other financial liabilities
14.3
Total non-current liabilities
Current liabilities
Accounts payable
Accruals and other payables
Total current liabilities
Total liabilities
TOTAL EQUITY AND LIABILITIES
Note
Note
Group
2015
Group
2014
Company
2015
Company
2014
8
9
2
10
11
12
12
211,270
211,064
3
0
3
0
211,273
211,067
252
3,722
3,974
63
6,731
6,794
0
0
213,233
213,233
244
3,646
3,890
0
0
212,474
212,474
9
6,489
6,498
215,247
217,861
217,123
218,972
1,279
563,080
(356,725)
207,634
207,634
7,000
7,000
15
598
613
1,269
562,942
(354,191)
210,020
210,020
7,000
7,000
409
432
841
7,613
215,247
7,841
217,861
1,279
563,080
(356,174)
208,185
208,185
7,000
7,000
9
1,929
1,938
8,938
1,269
562,942
(354,384)
209,827
209,827
7,000
7,000
422
1,723
2,145
9,145
217,123
218,972
Board of Directors of FLEX LNG Ltd
28 April 2016
David McManus
(Chairman)
Robin Bakken Marius Hermansen
Consolidated and Company Annual Report and Financial Statement 2015
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Consolidated and Company Annual Report and Financial Statement 2015
Consolidated Statement of Cash Flows - FLEX LNG Group
21
Year ended 31 December
(USD ‘000)
Group
Cash flow from operating activities
(Loss) 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
Realised loss on liquidation of subsidiary
Profit on asset disposal
Working capital adjustments:
Decrease in prepayments
(Increase) / decrease in trade and other receivables
(Decrease) / increase in trade and other payables
Income taxes paid
Interest received
Interest paid
Net cash flow from operating activities
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 from financing activities
Net currency translation effect
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note
2015
2014
(2,478)
(2,622)
4
4
9
3
9
8
12
11
(20)
267
0
91
3
0
(1)
15
(205)
(228)
(2,556)
(7)
21
(267)
(2,809)
(3)
1
(206)
(208)
8
0
8
0
(3,009)
6,731
3,722
(3)
35
334
215
1
313
0
34
53
397
(1,243)
(21)
2
0
(1,262)
(4)
0
(539)
(543)
3
7,000
7,003
9
5,198
1,524
6,731
Consolidated and Company Annual Report and Financial Statement 2015
22
Statement of Cash Flows - FLEX LNG Ltd
Year ended 31 December
(USD ‘000)
Company
Cash flow from operating activities
(Loss) before tax
Adjustment to reconcile loss before tax to net cash flow
Non Cash:
Finance income
Finance expense
Impairment loss
Option and warrant costs
Share based payment expense
Working capital adjustments:
Decrease in prepayments
(Increase) / decrease in trade and other receivables
(Decrease) / increase in trade and other payables
Interest received
Interest paid
Net cash flow from operating activities
Cash flows from investing activities
Loans and investments in subsidiaries
Net cash flow used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Proceeds from long-term borrowings
Net cash flow from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note
2015
2014
(1,741)
(1,491)
4
4
2
2
12
11
(20)
189
1
0
91
7
(243)
(207)
(1,923)
21
(189)
(2,091)
(3)
16
24
334
215
8
7
508
(382)
2
0
(380)
(760)
(760)
(1,446)
(1,446)
8
0
8
(2,843)
6,489
3,646
3
7,000
7,003
5,177
1,312
6,489
Consolidated and Company Annual Report and Financial Statement 2015
23
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 31/12/15. 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 2015 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
28.04.16 for issue on 29.04.16. 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, 2015. 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 2015, 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. The standards
most likely to have an impact are IFRS 15 – Revenue and IFRS 16 – Leasing. Currently the Group and Company estimate that
the implementation will have no impact, or are currently unable to fully 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 companies in the Group. Should
subsidiaries have a different functional currency they will be 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, 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 rates and new build
prices. Three separate broker valuations have been reviewed and the value in use calculation has been based on market
Consolidated and Company Annual Report and Financial Statement 2015
24
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)
based assumptions. 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.
Depreciation on plant and equipment is calculated using the straight-line method to depreciate assets over their useful life. The
following periods have been used:
IT Equipment: 2 years
1.9 Impairment of assets
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
Consolidated and Company Annual Report and Financial Statement 2015
25
Note 1: General information and significant accounting policies (continued)
1.9 Impairment of assets (continued)
Non-current assets (continued)
the higher of value in use or the net sales price. The value in use is calculated using the present value of estimated future cash
flows. The calculation is performed, 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.
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 share options is calculated using an appropriate option pricing model.
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 2015 26
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.
Note 2: Subsidiaries
The following subsidiaries are included in the consolidated financial statements:
Main operations
Ownership share
Voting share
Company
FLEX LNGC 1 Limited
FLEX LNGC 2 Limited
FLEX LNG
Management Limited
FLEX Petroleum
Limited
Country of
registration
Isle of Man
Isle of Man
Isle of Man
Shipping
Shipping
Management services
British Virgin Islands
Holding company
FLEX LNG Ltd – Loans and investments in subsidiaries
Company (USD ‘000)
FLEX LNGC 1 Limited
FLEX LNGC 2 Limited
FLEX Petroleum Limited
Impairment provision
100%
100%
100%
100%
100%
100%
100%
100%
2015
106,617
106,616
3,808
(3,808)
213,233
2014
106,237
106,237
3,807
(3,807)
212,474
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 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 $1k being provided in the year (2014: $24k). This adjustment has no impact at a consolidated level.
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 subsidiary
Calculated FV of the options in the period
Group
2015
Group
2014
Company
2015
Company
2014
3
(1)
4
0
0
1
0
16
313
334
0
0
(10)
0
0
0
0
(12)
0
334
Consolidated and Company Annual Report and Financial Statement 2015 27
Note 3: Administrative expenses (continued)
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
2015
34
29
63
Group
2014
Company
2015
Company
2014
43
30
73
29
16
45
35
0
35
3.3 Remuneration
During 2015 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
2015
815
100
36
126
Total employee benefit expenses
1,077
1,058
Group
2014
Company
2015
Company
2014
870
147
41
0
0
(44)
0
0
(44)
0
21
0
0
21
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 2015 was 5 (2014 – 6). The Company has incurred social security costs ($15k) in relation to the payment
of Directors fees in the Isle of Man, less a release of an accrual ($59k) for the social security costs for the options exercised in
the period, costs incurred in the management company.
Directors fees FLEX LNG Ltd
(USD ‘000)
Current Directors
David McManus
Robin Bakken
Marius Hermansen
Ex. Directors
Jens Martin Jensen
Ian Beveridge
Christopher Pittinger
Total Directors’ fees
Company
2015
Company
2014
100
40
3
37
0
0
180
182
7
0
7
58
58
312
Between 0% and 80% of the remuneration listed above is paid via the issuance of shares by the Company. Mr. McManus in
addition earned a fee of $nil (2014: $2,055) for being a member of the nomination committee.
Executive Management
(USD ‘000)
Jostein Ueland
Trym Tveitnes
2015
2014
Salary
Sundry benefits
Pension
Option costs
280
281
561
550
2
5
7
5
14
14
28
28
0
0
0
160
Group
Total
296
300
596
743
Consolidated and Company Annual Report and Financial Statement 2015 28
Note 3: Administrative expenses (continued)
3.3 Remuneration (continued)
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).
Historically options were granted to Mr. Ueland and Tveitnes, additional details in note 13, all remaining options were exercised
in 2016.
Note 4: Finance costs and revenue
Finance cost
(USD ‘000)
Loan interest
Total financial cost
Finance revenue
(USD ‘000)
Interest income
Total financial revenue
Note 5: Earnings per share
Group
2015
267
267
Group
2014
Company
2015
Company
2014
35
35
189
189
16
16
Group
2015
Group
2014
Company
2015
Company
2014
20
20
3
3
20
20
3
3
Basic earnings per share amounts are calculated by dividing the net loss for the year by the weighted average number of
ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net loss by the weighted average number of shares outstanding
during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive
potential ordinary shares into ordinary shares.
The following reflects the loss and share data used in the earnings per share calculation.
Earnings per share:
(Loss) attributable to shareholders – Group $’000
(Loss) attributable to shareholders – Company $’000
Weighted average number of ordinary shares
Effect of dilution:
Share options 1
Weighted average number of shares, adjusted for dilution
1 the impact of the options were antidilutive and excluded in 2014.
Note 6: Management fees
2015
(2,485)
(1,741)
2014
(2,635)
(1,491)
127,817,061
126,615,864
0
0
127,817,061
126,615,864
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 2015 was $1,545k (2014: $1,662k). At the period end the Company owed FLEX
LNG Management Limited $1,761k (2014: $1,480k).
Consolidated and Company Annual Report and Financial Statement 2015
29
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
2015
10
(3)
7
Group
2014
9
4
13
Company
2015
Company
2014
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 2015 and 2014 is as follows:
(USD ‘000)
Accounting (loss) before income tax
Income tax at 0% (2014:0%) – BVI
Effect of higher overseas tax rates
Effective income tax rate of 0.3% (2014: 0.5%)
(USD ‘000)
Accounting (loss) before income tax
Income tax at 0% (2014:0%) – BVI
Effective income tax rate of 0% (2014: 0%)
Note 8: New Building Assets and Capitalised Costs
(USD ‘000) - Group
At 1 January – payments on account
At 31 December
At 1 January – capitalised costs
Additions
At 31 December
At 1 January – Total
Additions
At 31 December
Group
2015
(2,478)
0
7
7
Company
2015
(1,741)
0
0
2015
210,000
210,000
1,064
206
1,270
211,064
206
211,270
Group
2014
(2,622)
0
13
13
Company
2014
(1,491)
0
0
2014
210,000
210,000
525
539
1,064
210,525
539
211,064
Consolidated and Company Annual Report and Financial Statement 2015
30
Note 8: New Building Assets and Capitalised Costs (continued)
In 2015 the Group has capitalised $190k (2014:$532k) of technical staff ($66k), travel ($13k), legal ($15k) and technical
consultancy costs ($96k). In addition $16k of finance costs was also capitalised in the year (2014: $7k). 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 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 part reversal of the impairment loss in that year.
In determining the carrying amounts for historically capitalised costs, 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 in 2016 reviewed the market
prices for new builds, obtained broker valuations for the vessels, preformed a value in use calculation, based on market based
assumptions, and believes that the recoverable amount is such that no impairment provision is required on the vessels under
construction.
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
2015
2014
112
3
(108)
7
120
4
(12)
112
2015
2014
109
3
(108)
4
2015
3
120
1
(12)
109
2014
3
Group
2015
250
2
0
252
Group
2014
Company
2015
Company
2014
11
17
35
63
244
0
0
244
2
7
0
9
Consolidated and Company Annual Report and Financial Statement 2015
31
Note 11: Cash and cash equivalents
(USD ‘000)
Cash at the bank and in hand
Cash and cash equivalents in the balance sheet and
cash flow statement
Group
2015
3,722
Group
2014
6,731
3,722
6,731
Company
2015
Company
2014
3,646
3,646
6,489
6,489
Note 12: Share capital, shareholder information and dividend
Group & Company
Ordinary shares, nominal amount USD 0.01
Total number of shares
2015
127,869,673
127,869,673
2014
126,921,224
126,921,224
Group & Company
Ordinary shares - Issued and fully paid:
At 1 January 2015
Options exercised
Issued in lieu of remuneration
31 December 2015
Group & Company
Ordinary shares - Issued and fully paid:
At 1 January 2014
Options exercised
Issued in lieu of remuneration
31 December 2014
Shares
(’000)
Share Capital
(USD ’000)
Share Premium
(USD ’000)
126,921
1,269
562,942
830
119
8
2
0
138
127,870
1,279
563,080
Shares
(’000)
Share Capital
(USD ’000)
Share Premium
(USD ’000)
126,366
1,264
562,659
295
260
3
2
0
283
126,921
1,269
562,942
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 80% of their remuneration for the year. The
Directors’ shares for the remuneration, covering the period 01/07/2015 to 31/12/15, had not been issued at 31/12/15 and
are recorded in the option, warrant and share reserves, $46k (2014: $94k). During the year 830,000 staff options have been
exercised at a price of $0.01 per share (2014: 295,000 options). 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 debit of $49k (2014: $264k - credit) in relation to
the options costs and shares issued by the Company.
Consolidated and Company Annual Report and Financial Statement 2015
32
Note 12: Share capital, shareholder information and dividend (continued)
Main group shareholders at 31.12.15 are:
Shareholder:
GEVERAN TRADING CO
SKANDINAVISKA ENSKIL
JP MORGAN CHASE BANK1
CREDIT SUISSE SECURITIES
STATE STREET BANK1
EUROCLEAR BANK S.A.1
GOLDMAN SACHS1
SKANDINAVISKA ENSKIL1
D MCMANUS
CLEARSTREAM BANKING1
MATHIAS HOLDING
TOLUMA INVEST AS
UBS AG
C PITTINGER
T TVEITNES
S PEARL
B FJELD
S MALM
S BIRKELAND
TROMSØ SKOTØIMAGASIN
OTHER
Total
Note1 - Nominee account.
Number of shares:
Ownership interest:
104,181,837
81.5%
5,000,000
3,533,316
3,266,982
2,824,550
1,548,156
1,292,500
823,234
743,587
650,916
500,000
486,358
198,504
197,654
190,300
160,746
155,739
154,297
105,000
90,000
1,765,997
127,869,673
3.9%
2.8%
2.6%
2.2%
1.2%
1.0%
0.6%
0.6%
0.5%
0.4%
0.4%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
1.3%
100.0%
Note 13: Share based payments
Share-Based Payment - Group & Company
The Company has historically entered into a number of option scheme allocations.
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 2015 arising from the share-based payment plan was a cost of $nil (2014:
$334k). The total expensed amount relating to the historical options schemes at 31.12.2015 was $1,960k (2014: $1,960k).
Exercised options are covered by the issuance of new shares in the Company.
Further details of the outstanding and vested option plans are as follows:
Options outstanding at the beginning of year
Exercised
Options outstanding at the end of year
01.01.15 - 31.12.15
Options
830,000
(830,000)
0
Weighted Average Exercise Price
USD 0.01
USD 0.01
In relation to the outstanding and vested options, 830,000 were exercised in the year, leaving none unexercised at the period
end. The objective of the option schemes was to align the effort of employees with the future success of the Group.
Consolidated and Company Annual Report and Financial Statement 2015 33
Note 13: Share based payments (continued)
Share-Based Payment - Group & Company (continued)
During the period ended 31 December 2015 FLEX LNG agreed to issue the directors with shares covering between 0% and
80% of their remuneration. The value of the shares are based on the fair value of the services received of $91k (2014 - $215k).
At 31 December 2015 37,209 shares (2014: 90,809 shares) with a value of $46k had not yet been issued to the directors.
The split of shares by director was as follows;
Director
Current directors
David McManus
Robin Bakken
Marius Hermansen
Ex. directors
Jens Martin Jensen
Ian Beveridge1
Christopher 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 31/12/2015
Board Member
David McManus
Robin Bakken
Marius Hermansen
Total
2015
2014
46,289
0
1,776
16,784
0
0
111,054
0
0
4,421
53,847
32,309
64,849
201,631
2015
743,587
0
0
2014
672,322
0
0
743,587
672,322
These amounts exclude the shares that had not been issued as at 31/12/2015, per note 16.1.
14.2 LNGC technical specifications and construction agreement
In June 2015 the Group entered into a building supervision agreement with Frontline Management (Bermuda) Ltd (a subsidiary
of Frontline Ltd., a listed entity whose majority shareholder is Hemen Holding Limited, a company affiliated to Geveran) to
cover the two vessels on order from Samsung. At 31 December no amounts had been charged under these contracts, with
$38k of cost accrued at the yearend. The agreement is within the normal activities of the company and on market terms, and
was negotiated on an arm’s length basis.
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 affiliated to Geveran, who holds 81.5% of the shares in the Company at the
yearend. The interest cost, prior to capitalisation, was $283k (2014: $42k). 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 was due for repayment, on demand, at any date following 31 December 2016, the terms of this loan
were amended in 2016, see note 16.2.
Consolidated and Company Annual Report and Financial Statement 2015 34
Note 14: Related parties (continued)
14.4 Overhead costs
The FLEX Management company uses office space and accounting support from companies affiliated to Geveran, at the year
end costs of $79k had been incurred in the year.
In relation to the Exmar transaction the Company assumes, based on recent discussions, that $240k will be recoverable from
Geveran.
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
instalments will be due on the delivery of the vessels, $213.8m, prior to any amounts for further design change requests and
sundry buyers supplies.
15.2 Operating lease commitments, lessee
The UK based subsidiary previously entered into a lease on commercial property, in the current year it has shared office space
with companies affiliated to Geveran. The previous lease was denominated in GBP and expired in 2015. The future rental
payable under the leases as at 31 December 2015 are as follows;
(USD ‘000)
Within one year
After one year but not more than five years
Total
Lease payments made during the year were $45k (2014: $146k).
Note 16: Subsequent events / after balance sheet date
Group
2015
Group
2014
0
0
0
48
0
48
16.1 Shares
In January 2016 the Company issued 37,209 additional shares to cover between zero and eighty percent of the Director’s
remuneration from 1 July 2015 to the 2015 year end.
16.2 Amendment to the working capital loan
In April 2016 an amendment was signed to the 2014 working capital facility, with Metrogas. This has extended the repayment
date into 2018 and will allow additional funds to be drawn, to cover the expected working capital costs until delivery.
Note 17: Financing
On the present overhead structure and budgeted costs, the Company believes that the amendment agreed to the working
capital facility in 2016 will provide sufficient working capital to operate until delivery. The Company will need to raise additional
funds prior to delivery, to fund the final delivery instalments, which are due on delivery.
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.
Note 18: Going Concern
The financial statements have been prepared on the going concern assumption, which contemplates the realisation of assets
and liabilities as part of the normal course of business. Given the amended loan agreement with Metrogas the Company
currently believes that this will provide 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.
Consolidated and Company Annual Report and Financial Statement 2015 35
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 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.
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 cash modelling forecast. This model considers the maturity of payment
profiles and projected cash flows required to fund the operations. Historically funds have been raised via equity issuance 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, arbitrage
opportunities, 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.
Regulatory and compliance risk
These are risks associated with ethical behaviour covering the handling of sensitive information and compliance with laws and
regulations. These risks are managed via Group policies and guidance.
Consolidated and Company Annual Report and Financial Statement 2015 36
Consolidated and Company Annual Report and Financial Statement 2015 37
Consolidated and Company Annual Report and Financial Statement 2015