FLEX LNG Group
Consolidated and Company
Annual Report and Financial
Statement 2016
1 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
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, IM99 1AJ
Isle of Man
Lloyds
PO Box 328, Victory House
Douglas, IM99 3JY
Isle of Man
HSBC
1st Floor, 60 Queen Victoria Street,
London, EC4N 4TR
United Kingdom
RBS
280 Bishopsgate,
London, EC2M 4RB
United Kingdom
2 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Chairman’s Statement
I believe that 2017 will be a transformative year for the FLEX LNG Group. In March 2017
the Group completed the acquisition of two new LNGC newbuilds and raised
approximately $100m of additional capital. This is an important first step into building
FLEX into a leading player in the LNG market. The Group is well placed with four highly
efficient state of the art vessels with delivery dates expected to match improvements in
the chartering market.
I am also delighted to highlight the appointment of Mr. Jonathan Cook, as Chief
Executive Officer, a highly regarded LNG industry figure, who will lead the Company
forward over the coming years. The Company is also looking to grow both the business
development, technical and ship management capabilities of the Group over the coming
quarters. In February 2017, Mr. Thomas Thorkildsen joined to lead the business
development activities of the Company. Mr. Thorkildsen comes to the Group with
extensive Floating Storage and Regasification Unit (FSRU) and LNG commercial
experience and knowledge.
In December 2016 the Company signed a Heads of Agreement to create a full value
chain solution for customers looking to purchase LNG from the NextDecade Rio Grande
LNG export project in Brownsville, TX. The parties will look to develop FSRU and dockside
solutions for international customers of NextDecade’s. The Company has significant FSRU
competence internally, and through its sponsor organisation and is actively pursuing
opportunities to leverage its experience towards the implementation of FSRU projects.
The Company is positioned to target this market, which is expected to grow significantly
over the next three to five years.
The Company has a proactive approach to further accretive structural transactions, with
strong backing from its main shareholder to pursue transformational deals. The Company
will look to leverage all financing options for the lowest possible capital costs. Its main
shareholder has consistently demonstrated its strong access to the capital and financing
markets.
The Group is working on several attractive growth opportunities both within LNGC and
FSRU segments, which I look forward to providing further details on in the future.
David McManus
Chairman
3 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2016
Business update
In the year the Company has commenced steel cutting and continues to monitor the
construction of its LNG carriers. The Company has appointed Bernhard Schulte
Shipmanagement for the technical management of the vessels. In addition to the
appointment of Mr. Jonathan Cook, as Chief Executive Officer in March 2017, the
Company expects to grow both the business development, technical and ship
management capabilities of the Group over the coming quarters. In February 2017
Thomas Thorkildsen joined to lead the business development activities of the Group.
In February 2017 the Company entered into a transaction for the acquisition of two high-
end MEGI LNGC newbuilds at Daewoo Shipbuilding and Marine Engineering (“DSME”)
with scheduled delivery in Q1 2018 (the “Transaction”). The two newbuilds were bought
from affiliates of Geveran Trading Co. Ltd. (“Geveran”), the Company's largest
shareholder. The Transaction gave the Company a uniform fleet of four LNG MEGI
carriers with expected delivery in early 2018 with the most advanced propulsion and fuel
efficiency technology compared to the existing LNG fleet.
Parts of the consideration payable for the newbuilds were settled by the Company
through the issuance of 78 million new shares in the Company to Geveran. The
remaining part of the consideration was settled by a USD 270 million credit structured as
a revolving credit facility (the “$270m Facility”). The Company also assumed
responsibility for the remaining newbuilding instalments payable to DSME amounting to
approximately $20.4m, the remaining instalments on the Samsung deliveries are detailed
in note 15.1. The $270m Facility has an attractive fixed interest rate of 1.00% until
delivery and is an indication of the strong support the Company is enjoying from its
largest shareholder.
In connection with the Transaction, the Company raised the equivalent of approximately
$100m through the issuance of 72 million shares (the “Private Placement”). The Private
Placement received strong interest from large institutional investors and was significantly
over-subscribed.
The $270m Facility is structured to allow draw and repay at Company’s discretion, which
give the Company growth capital while minimising interest cost during construction. The
interest is be fixed until delivery and LIBOR + 300 bps with tenor of 3 years from
delivery. The intention is to repay the $270m Facility with bank debt when the vessels
are delivered, but it will still be available, after delivery of the newbuilds, at the
Company’s discretion to pursue growth opportunities and to manage the cash position.
The Company currently expects that this facility and anticipated bank debt will cover the
Group’s working capital needs for the following twelve months.
Following the receipt of the proceeds from the Private Placement, the Company repaid
$70m under the $270m Facility (which was fully drawn upon closing of the Transaction)
and repaid the $7m Metrogas loan.
The Transaction consolidated all of Geveran's LNG assets and activities in FLEX, which
now is well positioned to capitalise on the expected growth in demand for LNG shipping.
The growth in shipping demand will be driven by the substantial increase in global LNG
4 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2016 (continued)
Business update (continued)
production together with the future growth of global energy demand. The year 2016 saw
a net increase of LNG imports compared to 2016 of 17 million tonnes. The growth in
imports included four new LNG importing countries. Out of these four new importing
countries, three chose their import terminal solution in the form of a floating storage and
regasification unit (FSRU) (Jordan, Pakistan and Egypt). FLEX LNG expects the coming
growth of LNG production and the expected growth in demand for natural gas in
combination with the lack of ordering activity for LNG carriers to gradually tighten the
shipping market in the near term. The timing of FLEX LNG’s delivery position in 2018
should provide the Company with attractive alternatives for employment of the four
vessels.
Most of the future growth in world energy demand is expected to come from rapid
growing emerging economies, with a significant portion of this growth likely to stem from
China and India. From the three commercial commodities (coal, oil and natural gas)
natural gas is the only one that is expected to continue to grow its relative portion of
their share of the primary energy portfolio. The significant LNG production coming to the
market (especially from the US) is expected to maintain LNG as a competitively priced
energy commodity. This will be a positive driver for down stream product demand as well
as the demand for shipping. It will also be a significant driver for the interest in floating
terminals to remain high, together with their general flexibility and fast track
implementation. The floating terminals will continue to open up new markets for LNG,
which will also have a positive effect for shipping demand.
As such, the Company remains well positioned with its four MEGI LNG carriers set for
delivery in 2018. We believe the strengthening market sentiment and spot rates paid for
LNG carriers will continue, and also believe that the market will prefer the improved
efficiencies of these state of the art MEGI vessels. The Company is actively marketing the
newbuild LNGCs in both the term and spot markets to be in the best position in the
improving market.
In December 2016 FLEX LNG Shipping Limited, a subsidiary of the Company, entered
into two separate LNGC time charters for 180 days with an option to extend for a further
180 days. The vessels are modern TFDE +170,000m3 and will be delivered in late Q1
2017. In addition, in 2017, FLEX LNG Shipping Limited entered into two further charters
on similar terms. FLEX LNG Shipping Limited is actively marketing these LNGCs in the
spot and short term charter market and has already chartered out one vessel for twelve
months. In addition the chartering will allow the Group to establish a presence in the
market and build an operational track record and chartering relationships.
In December 2016 the Company and NextDecade Global Solutions signed a Heads of
Agreement to create a full value chain solution for customers looking to purchase LNG
from NextDecade Rio Grande LNG export project in Brownsville, TX. Initially, NextDecade
and FLEX LNG will develop FSRU and dockside solutions for international customers of
NextDecade’s, with the LNG supply also provided by NextDecade.
The Company has significant FSRU competence internally, and through its sponsor
organisation. FSRU opportunities are actively being pursued to leverage its experience
towards the implementation of FSRU projects. The CEO Jonathan Cook was co-founder of
5 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2016 (continued)
Business update (continued)
Excelerate and Senior VP Thomas Thorkildsen was former head of business development
at Höegh LNG. The Company will continue to have a proactive approach to further
accretive structural transactions. It is constantly evaluating opportunities in the charter,
newbuild and second-hand market and has strong backing from its main shareholder to
pursue transformational deals. The Company will look to leverage the full array of
financing options for the lowest possible capital costs. Its main shareholder has
consistently demonstrated its strong access to the capital and financing markets.
Funding and Going Concern
The Board believes that the going concern assumption currently remains appropriate for
the Group. Given the new $270m Facility, the current high level of paid in equity, the
support of its main shareholder and the debt finance expected to be raised when the
vessels are delivered from the yards, the Company is expected to have working capital
for the next twelve months.
The accompanying consolidated financial statements do not include any adjustments that
might result from the outcome of the uncertainties detailed below, which could impact
the carrying value of recognised assets.
Risks
The FLEX LNG Group is currently focused on becoming a leading owner of fuel efficient
LNG carrier vessels and FSRU’s. 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 2016 accounts and as
summarised below. Risks associated with the ability to secure employment contracts on
reasonable terms for the vessels under construction and the vessels chartered in by the
Company, risks associated with newbuilding projects such as managing the design and
construction process properly and counterparty risks, risks associated with obtaining
delivery finance on reasonable terms, risks associated with the general LNG and LNG
shipping market conditions and trends and risks of increased competition from the
Group’s competitors and oversupply of vessels.
Another key risk is the risk of lack of attractive funding. The Company has historically
funded its operation from a combination of equity and loans from affiliated companies of
the Company’s key shareholder, Geveran. Although the Company now has available
funds under the $270m Facility, no assurance can be given that the Group will obtain
such financing in the future and further funding (which is necessary to complete its
planned growth strategies and to cover the remaining delivery instalments) is subject to
market risks and other risks that may influence the availability, structure and terms of
such financing.
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.
6 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2016 (continued)
Income Statement and Balance Sheet
The Group cash balances at 31 December 2016 were $1.4m (2015: $3.7m) with a $2.3m
outflow year to date (2015: $3.0m net outflow). In the twelve months in 2016 the
operating cash outflow was $1.1m (principally the operating loss after adjusting for the
non cash, working capital movements and finance costs paid). In addition costs of $1.2m
were capitalised (2015: $0.2m). The retained loss for the year 2016 was $1.8m (2015:
$2.5m - 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
2016 were $1.3m (2015: $3.6m). In the twelve months in 2016 the operating cash
outflow was $1.6m (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 $1.6m (2015: $1.7m -
loss), which has been transferred to reserves. The Directors do not recommend the
payment of a dividend.
The Board
There have been no changes in the composition of the Board during the financial year.
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 2016, FLEX LNG and its subsidiaries had in total 1 employee, 1 man 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. The 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.
7 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2016 (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
29 March 2017
David McManus (Chairman)
Robin Bakken
Marius Hermansen
8 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Responsibility statement
We confirm that, to the best of our knowledge, the financial statements for the period 1
January to 31 December 2016 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
29 March 2017
David McManus (Chairman)
Robin Bakken
Marius Hermansen
9 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report
1 ) Implementation and reporting on corporate governance
As a company incorporated in the British Virgin 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 current 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 and FRSUs. 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 LNG carrier vessels on order, including obtaining commercial charter parties, and future FSRU projects.
The business principles are as follows;
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Protection of human lives and the environment and servicing our customers are the top priorities. By
working with clients to jointly explore business opportunities FLEX LNG intends to develop long lasting
relationships based on trust and a goal of creating economic value
FLEX LNG will strive to provide superior shareholder returns
FLEX LNG will aim to attract and retain highly qualified individuals through compensation packages
that align employees and shareholders’ interest
Creativity and innovation spearheads the commercial and technical work conducted by FLEX LNG. In
an effort to stay ahead of competition FLEX LNG will relentlessly drive for continuous improvements
that permeate the FLEX LNG culture
FLEX LNG emphasises integrity and honesty in the way it does business
3 ) Equity and dividends
Equity
The appropriate level of equity for the Group is evaluated by the Board on an ongoing basis, via reviews at the
Board meetings. Total share capital at 31 December 2016 was USD 1,279,456.57, divided into 127,945,657
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.
10 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
3 ) Equity and dividends (continued)
Debt
As at year end 2016, the Company had borrowed $7.0m from Metrogas for the provision of working capital. The
Metrogas Loan was repaid in full upon closing of the Transaction and the receipt by the Company of the
proceeds from the Private Placement. In connection with the Transaction, the company was granted the $270m
Facility, which was fully drawn upon completion of the Transaction (to part finance the acquisition costs of the
newbuilds at DSME). On the receipt of the proceeds from the Private Placement, the Company repaid $70m
under the $270m Facility, so approximately $70m is currently available under the $270m Facility. 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 in line with the recommendations of the Code of
Practice. Such mandates will ordinarily be given with effect only up until the next annual general meeting. The
same applies with respect to mandates to repurchase the Company’s own shares. 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. In situations where there is
limited liquidity in the shares, the Company will seek other procedures to ensure that the equal treatment of
shareholders is maintained.
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.
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 2016 and 2015 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 2016 and 2015
year shall become unlocked either on the first or second anniversary after their respective grants.
11 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
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, which is the recommendation of the Code of Practice.
Currently, given the Company position, 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 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 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 procedure to vote by proxy will
be described in the notice of the AGM. 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, executive
management, and auditor will participate in the meeting at a minimum.
7 ) Nomination Committee
The Company operates a nominating committee, which is responsible for identifying, recommending board
candidates to the AGM and shall justify the recommendation to shareholders against the requirements in
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. The recommendations of
the Nomination Committee will be justified. 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 2017 AGM and their remuneration was approved
at the 2016 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.
8 ) Corporate assembly and Board of Directors: composition and independence
As a BVI registered company with 1 employee as at 31 December 2016, 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 comprise 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.
12 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
8 ) Corporate assembly and Board of Directors: composition and independence
(continued)
The 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 2017. 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 2016.
All Directors participated in the 2016 Board meetings.
The current Board members are listed below:
Mr. David McManus, Chairman (63) - 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
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 (42) - 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 (38)
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 listed below:
Jonathan Cook, Chief Executive Officer (54), from 01/03/17
Mr. Cook’s career spans more than 30 years in the maritime and energy sectors with the last 16 years in the
LNG sector. After graduating from Texas A&M University at Galveston, where he later served on the Board of
Visitors, he held key positions with Coastal, El Paso, and Excelerate Energy, in addition to his 11-years career
at sea as a licensed deck officer where he achieved the rank of Master Mariner. As a founding partner at
Excelerate Energy in 2003, Mr. Cook was part of the leadership team that pioneered new frontiers in LNG
shipping and transportation, by developing and marketing floating storage and regasification technologies to
address the logistical challenges of importing and exporting LNG worldwide. During his time at Cardiff LNG, Mr.
Cook managed the commercial activities including spot trading and business development and played an
instrumental role in bringing Cardiff LNG to the forefront of the LNG shipping sector.
13 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
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.
The composition of the audit committee represents a deviation from the Code of Practice. It is however the
view of the Board that the current size of the Board does not necessitate the establishment of a separate a sub-
committee consisting of only a portion of the directors. The Board will however continue to monitor the
development and will consider to establish a separate sub-committee in the event this is deemed to be in the
interest of the shareholders.
The Board is scheduled to meet in person between one and two times a year, and additionally approximately
two 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 2016 the Board has convened two times, 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 executive management, who are appointed by and serves at the discretion of the Board, and
also reports to the Board. Further, the executive management, of the management company, are 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. The powers and responsibilities are defined in more detail by the Board
of Directors.
The executive management have 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 vessels under construction and for the vessels chartered in by the Group; risks associated with
construction projects in general (including risks associated with the design of the vessels, counterparty risks
and the financial strengths of the yards), risks associated with the capacity of the Group to obtain future
finance on reasonable terms; risks associated with the ability of the Company to retain key staff, the general
LNG and LNG shipping market conditions and trends, the charter market conditions for the LNGC vessels, and
financial risks. In addition, the following risks inherent in the business of the Group are monitored: Risk
associated with fluctuations in commodity prices, changes in the charter market, exchange rates, increased
competition, the political, regulatory and tax environment of the Group, counterparty performance, risks
associated with 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.
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 on internal control and risk management
systems as they relate to its financial reporting.
14 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
11 ) Remuneration of the Board of Directors
The remuneration of the members of the Board of Directors is determined annually by the General Meeting, on
the basis of the Board’s responsibility, expertise, time commitment and the complexity of the Group’s
operations, and is disclosed in note 3 to the financial statements. Through the Company’s remuneration of
directors, part of which has historically been in stock, the Company has encouraged directors to own shares in
the Company. The remuneration is not linked to the Company’s performance. No non-executive directors have
been granted share options and no directors are part of the incentive programs available for the executive
management and/or other employees, details in section 12 below.
As a general rule, no directors (or companies with which they are associated) shall take on specific assignments
for the Company in addition to their appointment as director. If such assignments are made, it shall be
disclosed to the full Board and the remuneration shall be approved by the Board. Further, all remuneration paid
to each of the directors shall be described in the Annual Report, 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 2016 no share options remain
outstanding. The guidelines for the remuneration of the executive management were communicated at the
2016 AGM.
Further information on the remuneration of the executive management is contained in note 3, and options
granted in note 13 to the financial statements.
13 ) Information and communications
FLEX LNG will ensure that the shareholders receive accurate, clear, relevant and timely information in
accordance with legal requirements and good corporate governance practices. 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 financial 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 requirements to the internal treatment of
important information and insider trading instructions and for the Company’s contact with shareholders other
than through General Meetings. Stock Exchange announcements and press releases, including the financial
calendar, are also made available on the Company’s website.
15 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
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 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 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 discussions with the auditor, in which accounting principles and internal control routines are
reviewed and discussed, including the presentation of interim 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.
16 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Income Statement - FLEX LNG Group & Company
Year ended 31 December
(USD, 000)
Note
Group
2016
Group
2015
Company
2016
Company
2015
Operating revenues
0
0
0
0
Administrative expenses
Operating (loss)
Finance income
Finance cost
(Loss) before tax
Income tax expense
(Loss) after tax
(Loss) for the year
Attributable to:
3
4
4
7
1,485
(1,485)
2,231
(2,231)
1,269
1,572
(1,269)
(1,572)
9
314
20
267
9
314
20
189
(1,790)
(2,478)
(1,574)
(1,741)
(1)
(1,789)
(1,789)
7
(2,485)
(2,485)
0
(1,574)
(1,574)
0
(1,741)
(1,741)
Equity holders of the parent
(1,789)
(2,485)
(1,574)
(1,741)
Earnings per share
(USD):
- Basic
- Diluted
Group
2016
Group
2015
Company
2016
Company
2015
5
5
(0.01)
(0.02)
(0.01)
(0.01)
(0.01)
(0.02)
(0.01)
(0.01)
17 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Comprehensive Income - FLEX LNG Group &
Company
Year ended 31 December
(USD, 000)
Group
2016
Group
2015
Company
2016
Company
2015
(Loss) for the year
(1,789)
(2,485)
(1,574)
(1,741)
Total other comprehensive
profit
Total comprehensive (loss)
for the period
Attributable to:
Equity holders of the parent
0
0
0
0
(1,789)
(2,485)
(1,574)
(1,741)
(1,789)
(2,485)
(1,574)
(1,741)
18 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Financial Position – FLEX LNG Group & Company
Note
Group
2016
Group
2015
Company
2016
Company
2015
8
9
2
212,472
2
211,270
3
0
0
0
0
214,037
Total non-current assets
212,474
211,273
214,037
As at 31 December
(USD, 000)
ASSETS
Non-current assets
New building assets
Plant and equipment
Loans and investments
Current assets
Other current assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Other equity
Total equity
Non-current liabilities
10
11
12
12
Total non-current
liabilities
Current liabilities
Accounts payable
Accruals and other payables
Total current liabilities
Total liabilities
TOTAL EQUITY AND
LIABILITIES
0
0
213,233
213,233
244
3,646
3,890
220
1,439
1,659
252
3,722
3,974
176
1,283
1,459
214,133
215,247
215,496
217,123
1,279
563,174
(358,511)
1,279
563,080
(356,725)
1,279
563,174
(357,745)
1,279
563,080
(356,174)
205,942
207,634
206,708
208,185
7,000
7,000
46
1,145
1,191
8,191
15
598
613
7,613
7,000
7,000
0
1,788
1,788
8,788
7,000
7,000
9
1,929
1,938
8,938
214,133
215,247
215,496
217,123
Other financial liabilities
14.3
7,000
7,000
Board of Directors of FLEX LNG Ltd 29 March 2017
David McManus (Chairman)
Robin Bakken
Marius Hermansen
19 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Consolidated Statement of Changes in Equity – FLEX LNG Group
(figures in USD,000)
For the year ended 31
December 2016
Option, warrant
and shares
Share premium
reserve
Retained
earnings
Share capital
At 01.01.16
Loss for the period
Other comprehensive income
Total comprehensive income
Shares issued
Share-based payment (shares)
1,279
563,080
0
94
(367,333)
(1,789)
0
(1,789)
10,608
(94)
97
Total to the
equity owners
of the parent
207,634
(1,789)
0
(1,789)
0
97
At 31.12.16
1,279
563,174
(369,122)
10,611
205,942
For the year ended 31
December 2015
Share capital
Share premium
reserve
Retained
earnings
Option, warrant
and shares
At 01.01.15
Loss for the period
Other comprehensive income
Total comprehensive income
Shares issued
Share-based payment (shares)
1,269
562,942
10
138
(364,848)
(2,485)
(2,485)
At 31.12.15
1,279
563,080
(367,333)
10,657
(140)
91
10,608
Total to the
equity owners
of the parent
210,020
(2,485)
0
(2,485)
8
91
207,634
20 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Changes in Equity – FLEX LNG Ltd.
(figures in USD,000)
For the year ended 31
December 2016
Share capital
Share premium
reserve
Retained
earnings
Option, warrant
and shares
At 01.01.16
Loss for the period
Total comprehensive income
Shares issued
Share-based payment (shares)
1,279
563,080
0
94
(366,782)
(1,574)
(1,574)
10,608
(94)
97
Total to the
equity owners
of the parent
208,185
(1,574)
(1,574)
0
97
At 31.12.16
1,279
563,174
(368,356)
10,611
206,708
For the year ended 31
December 2015
Share capital
Share premium
reserve
Retained
earnings
Option, warrant
and shares
At 01.01.15
Loss for the period
Total comprehensive income
Shares issued
Share-based payment (shares)
1,269
562,942
(365,041)
10,657
10
138
(1,741)
(1,741)
Total to the
equity owners
of the parent
209,827
(1,741)
(1,741)
8
91
208,185
(140)
91
10,608
At 31.12.15
1,279
563,080
(366,782)
21 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Consolidated Statement of Cash Flows - FLEX LNG Group
Year ended 31 December
(USD, 000)
Group
Cash flow from operating activities
(Loss) before tax
Note
2016
2015
(1,790)
(2,478)
Adjustment to reconcile loss before tax to net cash flow
Non Cash:
Finance income
Finance expense
Share based payment expense
Depreciation
(Loss) / profit on asset disposal
Working capital adjustments:
Decrease in prepayments
Decrease / (increase) in trade and other receivables
Increase / (decrease) 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
Net cash flow from financing activities
4
4
9
3
9
8
12
(9)
314
97
2
1
1
204
579
(601)
(1)
9
(486)
(1,079)
(2)
0
(1,202)
(1,204)
0
0
(20)
267
91
3
(1)
15
(205)
(228)
(2,556)
(7)
21
(267)
(2,809)
(3)
1
(206)
(208)
8
8
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
11
(2,283)
3,722
1,439
(3,009)
6,731
3,722
22 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Cash Flows - FLEX LNG Ltd.
Year ended 31 December
(USD, 000)
Company
Note
2016
2015
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
Share based payment expense
Working capital adjustments:
Decrease in prepayments
Decrease / (increase) in trade and other receivables
(Decrease) 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
Net cash flow from financing activities
(1,574)
(1,741)
(9)
314
1
97
0
241
(151)
(1,081)
9
(486)
(1,558)
(20)
189
1
91
7
(243)
(207)
(1,923)
21
(189)
(2,091)
(805)
(805)
(760)
(760)
0
0
8
8
4
4
2
2
12
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
11
(2,363)
3,646
1,283
(2,843)
6,489
3,646
23 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies
1.1 Basis for preparation
FLEX LNG Ltd. is a limited liability company, incorporated in the British Virgin Islands,
and listed on the Oslo Axess Exchange. The Group includes five 100% owned
subsidiaries, as at 31/12/16. The Group produces consolidated accounts incorporating
these companies and its activities, which are focused on transportation of liquefied
natural gas, FSRU’s and related activities. The Company is currently (as at 31 December
2016) 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 2016 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 29.03.17
for issue on 29.03.17. 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,
2016. 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 2016, 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. At present
the Group and Company estimate that the implementation will have no impact on the
Group.
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. 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.
24 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.3 Basis of consolidation (continued)
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 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. Changes in these assumptions could impact the reported fair
value, as detailed below.
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. The broker valuations have been reviewed and the value in
use calculation has been based on market 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.
25 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
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 and the assets acquired in 2017 are incorporated in the
Marshall Islands.
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 four
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 reflect the pattern in which the asset’s future economic benefits are
expected to be consumed.
The gross carrying amount of non-current assets is the purchase price, including
duties/taxes, borrowing costs and any costs directly attributable to the location and
condition necessary for use in the intended manner. Such expenses include instalment
payments, 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 acquisition costs 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. Subsequent costs,
such as repair and maintenance costs, are normally recognised in the income statement
as incurred. Where increased economic benefits as a result of repair / maintenance work
can be proven, such costs will be recognised in the balance sheet as an addition to non-
current assets.
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
26 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.9 Impairment of assets
Non-current assets
At each reporting date the Group completes an assessment of whether there is an
indication that an asset may be impaired. An impairment loss occurs when the carrying
amount exceeds the recoverable amount, which is the higher of value in use or fair value
less cost of disposal. The value in use is calculated using the present value of estimated
future cash flows. The calculation is performed 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.
1.11 Provisions, contingent liabilities and assets
A provision is a liability of uncertain timing and amount. Provisions are recognised when,
and only when, the Company has an existing liability (legal or assumed) as a result of
past events, it is probable (more likely than not) that an outflow of resources is required
to settle the liability and the obligation can be measured reliably. Provisions are reviewed
at each balance sheet date. The amount recognised is the best estimate of the
expenditure required to settle the obligation. When the time factor is insignificant, the
provisions will be equal to the cost required to settle 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:
i.
ii.
iii.
Possible obligations resulting from past events whose existence depend on future
events.
Present obligations that are not recognised because it is not probable that they
will lead to an outflow of resources.
Present obligations that cannot be measured with sufficient reliability.
Contingent liabilities not recognised, but are disclosed, with the exception of contingent
liabilities where the possibility of any outflow in settlement is remote.
Contingent asset are defined as;
A possible asset that arises from past events, and
i.
ii. Whose existence will be confirmed only by the occurrence or non-occurrence of
one or more uncertain future events not wholly within the control of the entity
A contingent asset is not recognised in the annual financial statements unless realisation
is virtually certain, but is disclosed if an inflow of economic benefit is probable.
27 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.11 Provisions, contingent liabilities and assets (continued)
New information that provides evidence of conditions that existed at the balance sheet
date are taken into account in the amounts recognised in the annual financial
statements. Events after the balance sheet date that are indicative of conditions that
arose after the balance sheet date, but which will affect the Group’s position in the future
are disclosed, if material.
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 new 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.
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.
28 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 2: Subsidiaries
The following subsidiaries are included in the consolidated financial statements:
Company
Country of
registration
Main
operations
Ownership
share
FLEX LNGC 1 Limited
FLEX LNGC 2 Limited
FLEX LNG Shipping
Limited
FLEX LNG Management
Limited
FLEX Petroleum Limited
Isle of Man
Isle of Man
Isle of Man
Isle of Man
British Virgin
Islands
Shipping
Shipping
Shipping
Management
services
Holding
company
100%
100%
100%
100%
100%
Voting
share
100%
100%
100%
100%
100%
FLEX LNG Ltd – Loans and investments in subsidiaries
Company (USD 000)
FLEX LNGC 1 Limited
FLEX LNGC 2 Limited
FLEX Petroleum Limited
Impairment provision
2015
106,617
106,616
3,808
(3,808)
213,233
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.
2016
107,134
106,903
3,809
(3,809)
214,037
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
(2015: $1k). 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
Group
2016
2
1
14
Group
2015
3
(1)
4
Company
2016
0
0
11
Company
2015
0
0
(10)
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
2016
35
10
45
Group Company Company
2015
2016
29
30
2015
0
30
16
45
34
29
63
29 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 3: Administrative expenses (continued)
3.3 Remuneration
During 2016 FLEX LNG had three Directors, but no employees. All employees are
engaged by the management company.
Staff costs USD,000
Group
2016
Group Company Company
2015
2016
2015
0
Wages and salaries
Social security costs
(44)
0
Pension costs
0
Termination costs
Total employee benefit expenses
(44)
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 2016 was 3 (2015 – 5). The Company has incurred social security
costs ($12k) in relation to the payment of Directors fees in the Isle of Man.
815
100
36
126
1,077
743
105
24
0
872
0
12
0
0
12
Directors fees FLEX LNG Ltd, USD,000
Current Directors
David McManus
Robin Bakken
Marius Hermansen
Ex. Directors
Jens Martin Jensen
Total Directors’ fees
Company
2016
Company
2015
100
40
40
0
180
100
40
3
37
180
Mr. McManus received 65% of his remuneration as shares, Mr. Hermansen 80% and Mr.
Bakken nil.
Executive
Management USD,000
Jostein Ueland
Trym Tveitnes
Salary
221
184
Sundry
benefits
3
2
Pension
10
6
Option
costs
0
0
Group
Total
234
192
426
2016
2015
596
Mr. Ueland and Tveitnes left the Group on 30 September 2016. In the period from
01/09/16 to 28/02/17 Mr. Cook was employed by an affiliated company, in the period to
31 December 2016 the FLEX LNG Group was recharged USD 139k in relation to Mr. Cook.
On 01/03/17 Mr. Cook became the CEO for the FLEX LNG Management company.
405
561
16
28
0
0
5
7
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.
30 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 4: Finance costs and revenue
Finance cost
Loan interest
Total financial cost
Finance revenue
Interest income
Total financial revenue
Group
2016
314
314
Group
2016
9
9
Group Company
2016
314
314
2015
267
267
Group Company
2016
9
9
2015
20
20
Company
2015
189
189
Company
2015
20
20
Note 5: Earnings per share
Basic earnings per share amounts are calculated by dividing the net loss for the year by
the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net loss by the
weighted average number of shares outstanding during the year plus the weighted
average number of ordinary shares that would be issued on conversion of all 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:
2016
2015
(Loss) attributable to shareholders – Group $’000
(Loss) attributable to shareholders – Company
$’000
Weighted average number of ordinary shares
Effect of dilution:
Share options
Weighted average number of shares, adjusted for
dilution
(1,789)
(1,574)
(2,485)
(1,741)
127,922,003 127,817,061
0
127,922,003 126,817,061
0
Note 6: Management fees, Company
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 2016 was $1,095k
(2015: $1,545k). At the period end the Company owed FLEX LNG Management Limited
$1,608k (2015: $1,761k).
31 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 7: Income tax
The Group consists of two legal entities incorporated in the BVI and four 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
2016
8
(9)
(1)
Group
2015
10
(3)
7
Company Company
2015
0
2016
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 2016 and 2015
is as follows:
(USD,000)
Accounting (loss) before income tax
Income tax at 0% (2015:0%) – BVI
Effect of higher overseas tax rates
Effective income tax rate of (0.0)% (2015: 0.3%)
(USD,000)
Accounting (loss) before income tax
Income tax at 0% (2015:0%) – BVI
Effective income tax rate of 0% (2015: 0%)
Group
2016
(1,790)
0
(1)
(1)
Group
2015
(2,478)
0
7
7
Company
2016
(1,574)
0
0
Company
2015
(1,741)
0
0
32 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 8: New Building Assets and Capitalised Costs
(USD,000) – Group
At 1 January – instalment payments
At 31 December
At 1 January – capitalised costs
Additions
At 31 December
At 1 January – Total
Additions
At 31 December
2016
210,000
2015
210,000
210,000
210,000
1,270
1,202
2,472
1,064
206
1,270
211,270
211,064
1,202
206
212,472
211,270
In 2016 the Group has capitalised $1,144k (2015:$190k) of technical staff ($21k) and
travel ($3k), and technical consultancy costs ($1,120k). In addition $58k of finance costs
was also capitalised in the year (2015: $16k). Capitalised interest is calculated as a
percentage of the capitalised cost against the total costs funded by the working capital
loan in the period. The remaining instalments due are detailed in note 15.1.
In determining the carrying amounts for historically capitalised costs, management has
made 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 most significant impact on the estimations are related to
expected future rates. Material decreases in future rates will impact the valuation and
lead to impairment. Hence the carrying amounts are highly dependent on expected
future rates.
The group has in 2017 reviewed the market prices for new build LNGC vessels, obtained
a broker valuation for the vessels under construction, 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.
In addition, as covered in note 16.1, the Company in 2017 acquired two additional
newbuild LNGC vessels. The transaction was on market terms and the vessel valuations
further supported the carrying values for the existing two newbuilds. The valuation was
also supported via a fairness opinion, that was obtained on the two LNGCs being
acquired.
33 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 9: Plant and Equipment
(USD,000) - Group
Cost
1 January
Additions
Disposals
31 December
(USD,000) - Group
Depreciation
1 January
Depreciation charge for the year
Disposals
31 December
Net book value
At 31 December
Note 10: Other current assets
2016
7
2
(4)
5
2016
4
2
(3)
3
2016
2
2015
112
3
(108)
7
2015
109
3
(108)
4
2015
3
(USD 000)
Debtors
Prepayments
Total other current assets
Group
Group Company
Company
2016
2015
2016
2015
46
174
220
250
2
252
3
173
176
244
0
244
Note 11: Cash and cash equivalents
(USD 000)
Cash at the bank and in hand
Cash and cash equivalents in the
balance sheet and cash flow
statement
Group
Group Company
Company
2016
1,439
2015
3,722
2016
1,283
2015
3,646
1,439
3,722
1,283
3,646
34 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 12: Share capital, shareholder information and
dividend
Group & Company
2016
2015
Ordinary shares, nominal amount USD 0.01
127, 945,657
127,869,673
Total number of shares
127, 945,657
127,869,673
Group & Company
Ordinary shares - Issued and fully paid:
At 1 January 2016
Issued in lieu of remuneration
31 December 2016
Shares
(’000)
127,870
76
127,946
Shares
Share
Capital
(USD’000)
1,279
0
1,279
Share
Capital
Group & Company
Ordinary shares - Issued and fully paid:
At 1 January 2015
Options exercised
Issued in lieu of remuneration
31 December 2015
(’000)
(USD’000)
126,921
830
119
127,870
1,269
8
2
1,279
Share
Premium
(USD’000)
563,080
94
563,174
Share
Premium
(USD’000)
562,942
0
138
563,080
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 01/07/16 to 31/12/16, had not been
issued at 31/12/16 and are recorded in the option, warrant and share reserves, $49k
(2015: $46k). During the year no staff options have been exercised (2015: 830,000
options). The computation of earnings per share and diluted earnings per share is shown
in note 5.
Option, warrant and share reserves: FLEX LNG has in the year recognised under
other equity a credit of $3k (2015: $49k - debit) in relation to the options costs and
shares issued by the Company.
35 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 12: Share capital, shareholder information and
dividend (continued)
Main Group shareholders at 31.12.16 are:
Shareholder:
GEVERAN TRADING CO
POLYGON (PE) HOLDING
STATE STREET BANK 1
GOLDMAN SACHS 1
SKANDINAVISKA ENSKIL
ABN AMRO BANK 1
D MCMANUS
TOLUMA INVEST AS
C PITTINGER
EUROCLEAR BANK N.V.1
T TVEITNES
S PEARL
B FJELD
MATHIAS HOLDING
S MALM
S BIRKELAND
S TROMSØ
AVANZA BANK AB 1
J CLARKE
K GUTTORMSEN
OTHER
Total
Note1 - Nominee account.
Number of
shares:
104,181,837
13,526,588
2,824,550
1,291,771
1,015,573
823,234
796,116
486,358
197,654
191,572
185,300
160,746
155,739
154,572
154,297
105,000
90,000
78,164
72,500
70,455
1,383,631
127,945,657
Ownership
interest:
81.4%
10.6%
2.2%
1.0%
0.8%
0.6%
0.6%
0.4%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
1.1%
100.0%
36 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments
Share-Based Payment - Group & Company
The Company has historically entered into a number of option scheme allocations. At 31
December 2016 no options remained outstanding.
During the period ended 31 December 2016 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 $97k (2015 - $91k). At 31 December
2016 37,599 shares (2015: 37,209 shares) with a value of $49k had not yet been issued
to the directors.
The split of shares, covering the 2016 remuneration, by director was as follows;
Director
Current directors
David McManus
Robin Bakken
Marius Hermansen
51,178
0
25,196
2016
2015
46,289
0
16,784
Ex. directors
Jens Martin Jensen
Total
Note 14: Related parties
0
76,374
1,776
64,849
14.1 Shares held by current members of the Board, as at 31/12/16
2015
Board Member
743,587
David McManus
0
Robin Bakken
0
Marius Hermansen
Total
743,587
These amounts exclude the shares that had not been issued as at 31/12/16, per note
16.2.
2016
796,116
0
14,568
810,684
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 $463k had been paid under these
contracts, with $694k of cost accrued at the period end. The agreement is within the
normal activities of the company and on market terms, and was negotiated on an arm’s
length basis.
37 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 14: Related parties (continued)
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. The interest cost, prior
to capitalisation, was $285k (2015: $283k). 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. In addition in 2016 a fee of
$260k was paid to Metrogas as a commitment and amendment fee for the changes in
2016 to the 2014 loan agreement. The Metrogas loan was repaid in full upon receipt of
the proceeds from the Private Placement.
14.4 Overhead costs
The FLEX Management company uses office space, and receives commercial and
accounting support from companies affiliated to Geveran, at the year end costs of $261k
(2015: $79k) had been incurred in the year. In addition the legal firm BAHR provided
legal advice in 2016 totalling $3k, Mr. Bakken is partner of this firm.
At the period end costs totalling $755k were outstanding to related parties.
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 delivery of the vessels ($213.8m), prior to any amounts for
any further design change requests, buyer’s spares and fit out. Delivery is scheduled for
January and April 2018.
15.2 LNGC Time Charters
In 2016 the Group entered into two separate LNGC time charters for 180 days with the
option to extend for a further 180 days. The vessels will be delivered in 2017 and the
charter commitments for the first 180 days total $11.1m.
38 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 16: Subsequent events / after balance sheet date
16.1 Private Placement and Transaction
On 16 February 2017 the Company announced that it was contemplating entering into a
transaction for the acquisition of shipbuilding contracts for two high-end MEGI LNGC
newbuilds at DSME with scheduled delivery in Q1 2018, currently held by affiliates of
Geveran, the Company's largest shareholder (the “Transaction”). The Transaction was
completed 9 March 2017. Parts of the consideration payable for the newbuilds were
settled by the Company through the issuance of 78 million new shares in the Company to
Geveran. The remaining part of the consideration was settled by a $270m credit
structured as a revolving credit facility (RCF). The RCF has a fixed interest rate of 1.00%
until delivery and LIBOR + 300 bps with tenor of 3 years from delivery, additional details
in note 16.3. In addition, the Company completed a contemplated $100m offering of new
shares against cash payment (the “Private Placement”) The Private Placement raised
gross proceeds of NOK 833m (approximately $100m) at a subscription price of NOK
11.50 per share. In addition, a subsequent offering of up to 7.2 million new shares in the
Company for gross proceeds of up to NOK 83 million (approximately $10m) will be made
to shareholders that were not allocated shares in the Private Placement, or were
residents in a jurisdiction not able to participate in the Private Placement.
16.2 Shares
In January 2017 the Company issued 37,599 additional shares to cover between zero
and eighty percent of the Director’s remuneration from 1 July 2016 to the 2016 year end.
16.3 Working Capital
Following the receipt of the proceeds in the Private Placements proceeds, in March 2017,
the Metrogas loan was repaid and in addition $70m under the $270m Facility was repaid,
the $70m can be drawn if required.
Note 17: Financing
On the present overhead structure and budgeted costs, the Company believes that the
new $270m Facility will provide sufficient working capital to operate until the delivery of
the vessels. At delivery the Company will need to raise additional funds, to cover the final
delivery instalments, and believes the flexibility provided by the $270m Facility will allow
this to occur.
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.
39 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
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 business
course.
The Board believes that the going concern assumption currently remains appropriate for
the Group. Given the remaining $70m of the $270m Facility, the current high level of
paid in equity, the support of its main shareholder and the bank debt finance that needs
to be raised when the vessels are delivered from the yards, the Company is expected to
have working capital for the next twelve months. The Company requires additional
funding and there can be no assurance that such funds may be raised on terms that are
reasonable, if at all. 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 funding proceeds being fixed into USD. The 2014 loan finance was
additionally 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.
40 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 19: Financial risk management objectives and
policies (continued)
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.
Upon delivery of the respective vessels from the yards, the Company will look to have
raised loan finance to cover the remaining delivery payments that are due.
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 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,
RBS and Barclays.
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. There will be an impact on the four LNGC vessels
that have been chartered in for delivery in 2017. 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 with certainty. 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 vessels under
construction; and obtaining finance and working capital on reasonable terms. In 2017 it
will include the four LNGC vessels that have been chartered in.
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.
41 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI