Financials

1.1 General information

Hafnia Limited (the “Company”), is incorporated and domiciled in Bermuda. The address of its registered office is Washington Mall Phase 2, 4th Floor, Suite 400, 22 Church Street, HM 1189, Hamilton HM EX, Bermuda.

The principal activity of the Company and its subsidiaries (the “Group”) relates to the provision of global maritime services in the product tankers market.

 

1.2 Business impacts from Covid-19 pandemic

The World Health Organization declared a global pandemic in March 2020 as a result of Covid-19. The effects of this health crisis are continuing to unfold and the ultimate extent of the social, medical and economic impacts worldwide remains unknown as at the date of this report. The Group has considered the impact of Covid-19 in preparing its financial report for the year.

The product tanker market experienced a volatile market in 2020, with record highs and (near) record lows recorded due to disruptions from the Covid-19 pandemic. In 1H 2020, disruptions from the oil price war led to unprecedented demand for tanker floating storage, causing a market “super-spike” in earnings. However, the second half of the year saw earnings declined as the second-wave of Covid-19 infections across many countries resulted in lockdown measures, which further impacted oil demand.

The critical accounting estimates and key judgement areas of the Group have required additional consideration and analysis due to the impact of Covid-19. The impact of Covid-19 increases the level of judgement required across a number of key areas across the Group, in particular the impairment of non-financial assets. These assumptions and considerations are further outlined in Note 8 Property, plant and equipment.

Other Covid-19 assessments conducted by the Group were extended to liquidity risk management (refer to Note 26(c)), debt covenants test (refer to Note 26(d)), credit default on financial assets (refer to Note 26(b)) entered with counterparties. There were no negative or adverse impacts on the Group’s financial risk management. Neither did the Group find it necessary to record any impairment losses on the Group’s fleet of vessels, notwithstanding the risk of estimation uncertainties embedded in the assessment of the recoverable amounts of the Group’s vessels, as disclosed in Note 2.4(b).

 

2. Significant accounting policies

2.1 Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and have been prepared under the historical cost convention, except as disclosed in the accounting policies below.

 

2.2 Scheme of reorganisation and merger of entities (the “Merger”)

On 16 January 2019, a wholly-owned subsidiary of Hafnia Limited (formerly known as BW Tankers Limited), BW Tankers Corporation, merged with Hafnia Tankers Limited (“Hafnia Tankers”), another fellow subsidiary of BW Group Limited (“BW Group”). The merger was effected through a share swap arrangement, where newly issued shares of BW Tankers Limited were exchanged for all outstanding shares of Hafnia Tankers Limited. On 21 January 2019, BW Tankers Corporation was merged with BW Tankers Limited without consideration in a simplified parent and subsidiary merger. BW Tankers Limited, the surviving entity, then changed its name to Hafnia Limited.

As both BW Tankers Limited and Hafnia Tankers Limited were under common control of BW Group before and after the merger, the Company applied the common control exemption and accounted for the opening balance of the merged group using the book value accounting method. Under the book value accounting method, the combined assets, liabilities and reserves of the merged companies were recorded at their existing carrying amounts at the date of merger. Any adjustments that may be required in equity to reflect the difference between the consideration paid and the capital of the acquiree was recognised directly in accumulated losses.

The merger of BW Tankers Limited and Hafnia Tankers Limited was performed on a relative net asset value (“NAV”) basis, where the NAV of both merging entities were evaluated, added together and shareholdings allocated based on the proportionate contributions to the NAV of the merged entity. The NAV utilised in the exercise was performed based on the standalone financial statements of the merging entities. As a result, by utilising the book values of the merging entities from the standalone financial statements’ perspective, management believed that such an approach better reflected the economics of the merger, and provided more relevant information to the shareholders. As a matter of practical expediency, management had effected the merger utilising the adjusted book values of both merging entities as at the beginning of the reporting period, 1 January 2019 as the financial effect of 16 days was not material to the financial position of the Group.

A summary of the combined assets, liabilities and reserves of the merged entities are presented below.

BW Tankers Limited
at 1 January 2019
USD’000
Hafnia Tankers Limited
at 1 January 2019
USD’000
Merger Adjustments
USD’000
Total opening balances
at 1  January 2019
USD’000
Property, plant and equipment 1,171,838 850,170 2,022,008
Other current and non-current assets 144,339 139,691 284,030
Total assets 1,316,177 989,861 2,306,038
Borrowings 689,984 450,595 1,140,579
Lease liabilities 96,751 96,751
Other current and non-current liabilities 53,017 34,401 87,418
Total liabilities 743,001 581,747 1,324,748
Share capital1 1,962 339 1,131 3,432
Share premium1 221,220 354,470 57,402 633,092
Contributed surplus 537,112 537,112
Treasury shares (14,038) 14,038
Translation reserve (34) (34)
Hedging reserve 3,158 (1,874) (942) 342
Accumulated losses2 (190,276) (75,892) 73,514 (192,654)
Non-controlling interests3 145,143 (145,143)
Total equity 573,176 408,114 981,290

1 USD 58.5 million represents the difference between the consideration paid of USD 413.3 million in the form of new issued shares of the Company and acquisition of Hafnia Tankers old shares of USD 354.8 million

2 USD 73.5 million comprises of the following adjustments:
(a) Book value accounting adjustment of USD 72.6 million, i.e. a difference between the consideration paid of USD 413.3 million and the capital of Hafnia Tankers Limited of USD 340.7 million,
(b) Reallocation of USD 0.9 million from non-controlling interests to hedging reserve.

3 USD 145.1 million of non-controlling interests of a subsidiary under Hafnia Tankers Limited who became shareholders of Hafnia Limited on completion of the merger between BW Tankers and Hafnia Tankers.

Uniformity of accounting policies

On merger of BW Tankers Limited and Hafnia Tankers Limited, all significant accounting policies have been uniformly applied in the preparation of the opening consolidated financial statements. As a consequence, there is an adjustment amounting to USD 2.1 million for the capitalisation of lubricating oils onboard vessels in the balance of accumulated losses as at 1 January 2019.

2.3 Changes in accounting policies

Amendments to published standards effective in 2020

The Group has adopted the following relevant amendments to standards as of 1 January 2020:

  • Amendments to Reference to Conceptual Framework in IFRS Standards
  • Definition of Business (Amendments to IFRS 3)
  • Definition of Material (Amendments to IAS 1 and IAS 8)
  • Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) (early adopted from 1 January 2019)
  • Classification of Liabilities as Current or Non-current (Amendments to IAS 1) (early adopted from 1 January 2020)

The adoption of these new standards and amendments to the published standards does not have a material impact on the consolidated financial statements.

Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS39 and IFRS 7)

Back during the year ended 31 December 2019, the Group early applied the interest rate benchmark reform amendments retrospectively to hedging relationships that existed at 1 January 2019 or were designated thereafter and that are directly affected by interest rate benchmark reform. Those amendments also applied to the gain or loss recognised in other comprehensive income that existed at 1 January 2019. The related disclosures about risks and hedge accounting are disclosed in Note 26(a).

Classification of Liabilities as Current or Non-current (Amendments to IAS 1)

The Group has early adopted “Classification of liabilities as Current or Non-current (Amendments to IAS 1)” during the current year. With this adoption, the Group continues to classify its revolving credit facilities which mature from 2022 to 2026 whose outstanding balances as at 31 December 2020 amount to USD 152.0 million (2019:USD 120.0 million) as “non-current”.

Under existing IAS 1 requirements, the Group classifies a liability as current when they do not have an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period. As part of its amendments, International Accounting Standards Board (“IASB”) has removed the requirement for a right to be unconditional and instead, now requires that a right to defer settlement must have substance and exist at the end of the reporting period. IASB has now clarified that a right to defer exists only if the Group complies with conditions specified in the loan agreement at the end of the reporting period, even if the lender does not test compliance until a later date. The existing requirement to ignore management’s intentions or expectations for settling a liability when determining its classification is unchanged. The Group classifies a liability as non-current if it has a right to defer settlement for at least twelve months after the reporting period.

New standard and amendments to published standards, effective in 2021 and subsequent years

The following new standard and amendments, which are relevant to the Group’s operations but have not been early adopted, have been published and are mandatory for accounting periods beginning on or after 1 January 2021 (or otherwise stated) or later periods:

 

(a) Amendments:
  • Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (effective 1 January 2021 or later)
  • Property, plant and equipment – Proceeds before Intended Use (Amendments to IAS 16) (effective 1 January 2022 or later)
  • Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) (effective 1 January 2022 or later)
  • Reference to the Conceptual Framework (Amendments to IFRS 3) (effective 1 January 2022 or later)

 

(b) New standard:
  • IFRS 17 Insurance Contracts (effective 1 January 2023 or later)

The adoption of these new standard and amendments in future periods is not expected to give rise to a material impact on the consolidated financial statements.

 

2.4 Critical accounting estimates and assumptions

The preparation of consolidated financial statements in conformity with IFRS requires management to exercise its judgement in the process of applying the Group’s accounting policies. It also requires the use of certain critical accounting estimates and assumptions discussed below.

Certain amounts included in or affecting the consolidated financial statements and related disclosures are estimated, requiring the Group to make assumptions with respect to values or conditions which cannot be known with certainty at the time the consolidated financial statements are prepared. A critical accounting estimate or assumption is one which is both important to the portrayal of the Group’s financial condition and results and requires management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such estimates on an ongoing basis, using historical results and experience, consideration of relevant trends, consultation with experts and other methods considered reasonable in the particular circumstances.

The following is a summary of estimates and assumptions which have a material effect on the accounts.

 

(a) Useful life and residual value of assets

The Group reviews the useful lives and residual values of its vessels at least at each financial year-end and any adjustments are made on a prospective basis. Residual value is estimated as the lightweight tonnage of each vessel multiplied by the expected scrap value per ton. If estimates of the residual values are revised, the amounts of depreciation charges in the future periods will be changed.

There was no significant change to the estimated residual values of any vessel for the financial years ended 31 December 2020 and 31 December 2019.

The useful lives of the vessels are assessed periodically based on the condition of the vessels, market conditions and other regulatory requirements.  If the estimates of useful lives for the vessels are revised or there is a change in useful lives, the amounts of depreciation charges recorded in future periods will be changed.

 

(b) Impairment/Reversal of impairment of non-financial assets

Property, plant and equipment are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired or a reversal of previously recognised impairment charge may be required. The recoverable amount of an asset, and where applicable, a cash-generating unit (“CGU”), is determined based on the higher of fair value less costs to sell and value-in-use calculations prepared on the basis of management’s assumptions and estimates.

All impairment calculations demand a high degree of estimation, which include assessments of the expected cash flows arising from such assets under various modes of deployment, and the selection of discount rates. Changes to these estimates may significantly impact the impairment charges recognised, and future changes may lead to reversals of any previously recognised impairment charges. The Group views that the forecast of future freight rates, representing the main driver of recoverable amounts of the Group’s vessels to be inherently difficult to estimate. This is further complicated by the volatility in oil prices cause by geopolitics and macroeconomic forces, together with the cyclical nature of freight rates prevailing in the tankers market.

See Note 8 for further disclosures on estimation of the recoverable amounts of vessels, together with related sensitivity analysis on assumptions used.

 

(c) Revenue recognition

All freight voyage charter revenues and voyage expenses are recognised on a percentage of completion basis. Load-to-discharge basis is used in determining the percentage of completion for all spot voyages and voyages servicing contracts of affreightment.  Under the load-to-discharge method, freight voyage charter revenue is recognised evenly over the period from the point of loading of the current voyage to the point of discharge of the current voyage.

Management uses its judgement in estimating the total number of days of a voyage based on historical trends, the operating capability of the vessel (speed and fuel consumption), and the distance of the trade route. Actual results, however, may differ from estimates.

Demurrage revenue is recognised as revenue from voyage charters in profit or loss, based on past experience of demurrages recovered over total estimated claims issued to customers historically.

 

2.5 Revenue and income recognition

Revenue comprises the fair value of consideration received or receivable for the rendering of services in the ordinary course of the Group’s activities, net of rebates, discounts and off-hire charges, and after eliminating sales within the Group.

 

(a) Rendering of services

Revenue from rendering of services in the ordinary course of business is recognised when the Group satisfies a performance obligation (“PO”) by transferring control of a promised good or service to the customer. The amount of revenue recognised is the amount of the transaction price allocated to the satisfied PO.

Revenue from time charters, accounted for as operating leases, is recognised rateably over the rental periods of such charters, as services are performed.

Revenue from freight voyage charters is recognised rateably over the estimated length of the voyage within the respective reporting period, in the event the voyage commences in one reporting period and ends in the subsequent reporting period. The Group determines the percentage of completion of freight voyage charter using the load-to-discharge method.  Under the load-to-discharge method, freight voyage charter revenue is recognised rateably over the period from the point of loading of the current voyage to the point of discharge of the current voyage.

Losses arising from time or voyage charters are provided for in full as soon as they are anticipated.

The Group has vessels which participate in commercial pools in which other vessel owners with similar, high-quality, modern and well-maintained vessels also participate. These pools employ experienced commercial charterers and operators who have established relationships with customers and brokers, while technical management is arranged by each vessel owner. The managers of the pools negotiate charters with customers primarily in the spot market. The earnings allocated to vessels are aggregated and divided on the basis of a weighted scale, or pool point system, which reflects comparative voyage results on hypothetical benchmark routes. The pool point system considers various factors such as size, fuel consumption, class notation and other capabilities. Pool revenues are recognised when the vessel has participated in a pool during the period and the amount of pool revenue for the period can be estimated reliably.

 

(b) Management fees

Revenue from the provision of management support services is recognised over time based on the period of services provided.

 

(c) Interest income

Interest income is recognised on an accrual basis using the effective interest method.

 

2.6 Group accounting

(a) Subsidiaries

(1) Consolidation

Subsidiaries are entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

In preparing the consolidated financial statements, transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been aligned where necessary to ensure consistency with the policies adopted by the Group.

 

(2) Acquisitions

The acquisition method of accounting is used to account for business combinations by the Group.

The consideration transferred for the acquisition of a subsidiary or business comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date, and any gains or losses arising from such re-measurement are recognised in profit or loss.

Acquisition-related costs are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.

On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree at the date of acquisition either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

The excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of any previous equity interest in the acquiree over the (ii) fair value of the net identifiable assets acquired, is recorded as goodwill.

The excess of (i) fair value of the net identifiable assets acquired over the (ii) consideration transferred; the amount of any non-controlling interest in the acquiree; and the acquisition-date fair value of any previous equity interest in the acquiree; is recorded in profit or loss during the period when it occurs.

 

(3) Disposals

When a change in the Group’s ownership interest in a subsidiary results in a loss of control over the subsidiary, the assets and liabilities of the subsidiary including any goodwill are derecognised. Amounts previously recognised in other comprehensive income in respect of that entity are also reclassified to profit or loss or transferred directly to retained earnings if required by a specific standard.

Any retained interest in the entity is re-measured at fair value. The difference between the carrying amount of the retained interest at the date when control is lost and its fair value is recognised in profit or loss.

 

(b) Associated companies and joint ventures

Associated companies are entities over which the Group has significant influence, but not control or joint control. Significant influence is presumed to exist when the Group holds 20% or more of the voting rights of another entity.

Joint ventures are entities over which the Group has joint control as a result of contractual arrangements and rights to the net assets of the entities.

Investments in associated companies and joint ventures are accounted for in the consolidated financial statements using the equity method of accounting (net of accumulated impairment losses).

The acquisition method of accounting is used to account for new and incremental acquisitions in associated companies and joint ventures.

Investments in associated companies and joint ventures are initially recognised at cost. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Goodwill on associated companies and joint ventures represents the excess of the cost of acquisition of the associated companies and joint ventures over the Group’s share of the fair value of the identifiable net assets of the associated companies or joint ventures and is included in the carrying amount of the investments.

Any excess of the Group’s share of the net fair value of the investee’s identifiable assets and liabilities over the cost of the investment is recognised in profit or loss during the period when it occurs.

In applying the equity method of accounting, the Group’s share of its associated companies’ and joint ventures’ post-acquisition profits or losses is recognised in profit or loss and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. These post-acquisition movements and distributions received from associated companies and joint ventures are adjusted against the carrying amount of the investments. When the Group’s share of losses in an associated company or joint venture equals or exceeds its interest in the associated company or joint venture including any other unsecured non-current receivables, the Group does not recognise further losses, unless it has incurred obligations or has made payments on behalf of the associated company or joint venture.

Unrealised gains on transactions between the Group and its associated companies and joint ventures are eliminated to the extent of the Group’s interest in the associated companies and joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the financial statements of associated companies and joint ventures to ensure consistency of accounting policies with those of the Group.

Investments in associated companies and joint ventures are derecognised when the Group loses significant influence or joint control. Any retained interest in the equity is remeasured at its fair value. The difference between the carrying amount of the retained investment at the date when significant influence or joint control is lost and its fair value is recognised in profit or loss.

Gains and losses arising from partial disposals or dilutions in investments in associated companies and joint ventures in which significant influence or joint control is retained are recognised in profit or loss.

 

2.7 Property, plant and equipment

(a) Measurement
  1. Property, plant and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses.
  2. The cost of an item of property, plant and equipment initially recognised includes expenditure that is directly attributable to the acquisition of the item. Dismantlement, removal or restoration costs are included as part of the cost of property, plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring the asset.
  3. The acquisition cost capitalised to a vessel under construction is the sum of the instalments paid plus other directly attributable costs incurred during the construction period including borrowing costs. Vessels under construction are reclassified as vessels upon delivery from the yard.
  4. If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate components of property, plant and equipment.

 

(b) Depreciation

(1) Depreciation is calculated using a straight-line method to allocate the depreciable amounts of property, plant and equipment, after taking into account the residual values over their estimated useful lives. The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed, and adjusted as appropriate, at least annually. The effects of any revision are recognised in profit or loss when the changes arise. The estimated useful lives are as follows:

Vessels

  • Tankers – 25 years
  • Scrubbers – 5 years
  • Dry-docking – 2.5 to 5 years

A proportion of the price paid for new vessels is capitalised as dry docking. These costs are depreciated over the period to the next scheduled dry docking, which is generally 30 to 60 months. At the commencement of new dry docking, the remaining carrying amount of the previous dry docking will be written off to profit or loss.

(2) Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. The remaining carrying amount of the old component as a result of a replacement will be written off to profit or loss.

 

(c) Subsequent expenditure

Subsequent expenditure relating to property, plant and equipment, including scrubbers and dry docking that has already been recognised, is added to the carrying amount of the asset only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repair and maintenance expense is recognised in profit or loss when incurred.

 

(d) Disposal

On disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and its carrying amount is recognised in profit or loss.

 

2.8 Intangible assets

The amortisation period and amortisation method of intangible assets other than goodwill are reviewed at least at each balance sheet date. The effects of any revision are recognised in profit or loss when the changes arise.

IT infrastructure and customer contracts

IT infrastructure and customer contracts acquired through business combinations are initially recognised at fair value. These intangibles are subsequently carried at amortised cost less accumulated impairment losses using the straight-line method over their individual estimated useful lives of 5 years.

 

2.9 Financial assets

 

(a) Recognition and initial measurement

Trade receivables are initially recognised when they are originated. Other financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument.

Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss (FVTPL), which are recognised at fair value. Transaction costs for financial assets at FVTPL are recognised immediately as expenses.

 

(b) Classification

The Group classifies its financial assets at amortised cost and at FVTPL.  The classification depends on the business model in which a financial asset is managed and its contractual cash flows characteristics. Management determines the classification of its financial assets at initial recognition.  Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. The Group holds the following classes of financial assets:

 

(1) Financial assets at amortised cost

A financial asset is classified as measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

  • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
  • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

They are presented as current assets, except for those expected to be realised later than 12 months after the balance sheet date which are presented as non-current assets.  They are presented as “trade and other receivables“ (Note 13), “loans receivable from joint venture (Note 14)” and “cash and cash equivalents” (Note 16) in the consolidated balance sheet.

 

(2) FVTPL financial assets

All financial assets not classified as measured at amortised cost as described above are measured at FVTPL.

 

(c) Business model assessment

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.  The information considered includes:

  • The stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets;
  • The stated policies and objectives for the portfolio and the operation of those policies in practice;
  • How the performance of the portfolio is evaluated and reported to the Group’s management;
  • The risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;
  • How managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and
  • The frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group’s continuing recognition of the assets.

 

(d) Subsequent measurement

Financial assets at FVTPL are subsequently carried at fair value.  Financial assets at amortised cost are subsequently carried at amortised cost using the effective interest method.

Changes in the fair values of financial assets at FVTPL including the effects of currency translation are recognised in profit or loss.

 

(e) Derecognition of financial assets

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cashflows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

 

(f) Offsetting financial instruments

Financial assets and liabilities are offset, and the net amount reported in the consolidated balance sheet, when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

 

(g) Impairment

For financial assets measured at amortised cost and contract assets, the Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognises an allowance for expected credit loss (ECL) at an amount equal to the lifetime expected credit loss if there has been a significant increase in credit risk since initial recognition. If the credit risk has not increased significantly since initial recognition, the Group recognises an allowance for ECL at an amount equal to 12-month ECL.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of ECLs that results from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12-months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

For trade receivables and contract assets, the Group applied the simplified approach permitted by IFRS 9, which requires the loss allowance to be measured at an amount equal to lifetime ECLs.

The Group applies the general approach to provide for ECLs on all other financial instruments.  Under the general approach, the loss allowance is measured at an amount equal to 12-month ECLs at initial recognition.

At each reporting date, the Group assesses whether the credit risk of a financial instrument has increased significantly since initial recognition. When credit risk has increased significantly since initial recognition, loss allowance is measured at an amount equal to lifetime ECLs.

 

Measurement of ECLs

ECLs are probability-weighted estimates of credit losses.  Credit losses are measured at the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).  ECLs are discounted at the effective interest rate of the financial asset.

 

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired.  A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

  • Significant financial difficulty of the debtor;
  • A breach of contract such as a default or being more than 90 days past due;
  • The restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
  • It is probable that the debtor will enter bankruptcy or other financial reorganisation; or
  • The disappearance of an active market for a security because of financial difficulties.

 

Presentation of allowance for ECLs in the balance sheet

Loss allowances for financial assets measured at amortised cost and contract assets are deducted from the gross carrying amount of these assets.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience, informed credit assessment and other forward-looking information.

The Group assumes that the credit risk on a financial asset has increased significantly if the debtor is under significant financial difficulties, or when there is default or significant delay in payments. The Group considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held).

When the asset becomes uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognised against the same line item in profit or loss.

The allowance for impairment loss account is reduced through profit or loss in a subsequent period when the amount of ECL decreases and the related decrease can be objectively measured. The carrying amount of the asset previously impaired is increased to the extent that the new carrying amount does not exceed the amortised cost had no impairment been recognised in prior periods.

 

2.10 Financial liabilities

Financial liabilities are classified and measured at amortised cost. Directly attributable transaction costs are recognised in profit or loss as incurred.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.

 

2.11 Impairment of non-financial assets

Property, plant and equipment are tested for impairment whenever there is objective evidence or indication that these assets may be impaired.

For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less costs to sell and value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the CGU to which the asset belongs.

If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The impairment is then allocated to each single vessel on a pro-rata basis, based on the carrying amount of each vessel in the CGU with the limit of the higher of fair value less cost of disposal and value in use. The difference between the carrying amount and recoverable amount is recognised as an impairment loss in profit or loss.

An impairment loss for an asset (or CGU) other than goodwill is reversed if, and only if, there has been a change in the estimate of the asset’s (or CGU’s) recoverable amount since the last impairment loss was recognised. The carrying amount of the asset (or CGU) is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortisation and depreciation) had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of impairment loss for an asset (or CGU) other than goodwill is recognised in profit or loss.

 

2.12 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

Borrowings are presented as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after the balance sheet date, in which case they are presented as non-current liabilities.

The Group derecognises a borrowing when its contractual obligations are discharged, cancelled, or expired. The Group also derecognises a borrowing when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.

On derecognition of a borrowing, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.

 

2.13 Borrowing costs

Borrowing costs are recognised in profit or loss using the effective interest method except for those costs that are directly attributable to the construction of vessels. This includes those costs on borrowings acquired specifically for the construction of vessels, as well as those in relation to general borrowings used to finance the construction of vessels.

Borrowing costs are capitalised in the cost of the vessel under construction. Borrowing costs on general borrowings are capitalised by applying a capitalisation rate to the construction expenditure that are financed by general borrowings.

 

2.14 Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired from suppliers in the ordinary course of business. Trade and other payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method, and are derecognised when the Group’s obligation has been discharged or cancelled or expired.

 

2.15 Derivative financial instruments and hedging activities

A derivative financial instrument is initially recognised at its fair value on the date the contract is entered into and is subsequently carried at its fair value. The fair value of derivative financial instruments represents the amount estimated by banks or brokers that the Group will receive or pay to terminate the derivatives at the balance sheet date.

For derivative financial instruments that are not designated or do not qualify for hedge accounting, any fair value gains or losses are recognised in profit or loss as a finance item. In particular, gains and losses on currency derivatives are presented in profit or loss as ‘foreign currency exchange gain/(loss) – net’, whilst gains and losses on other derivatives are presented in profit or loss as ’derivative gain/(loss) – net’, unless the gains and losses are material.

The Group designates certain financial instruments in qualifying hedging relationships and documents at the inception of the transaction the relationship between the hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on a periodic basis, of whether the derivatives designated as hedging instruments are highly effective in offsetting changes in fair value or cash flows of the hedged items prospectively. For the purpose of evaluating whether the hedging relationship is expected to be highly effective (i.e. prospective effectiveness assessment), the Group assumes that the benchmark interest rate is not affected as a result of IBOR reform.

The Group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item and no hedge ineffectiveness is deemed to exist. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical derivative method to assess effectiveness.

Cash flow hedges – Interest rate derivatives

The Group has entered into interest rate swaps that are cash flow hedges for the Group’s exposure to interest rate risk on its borrowings. These contracts entitle the Group to receive interest at floating rates on notional principal amounts and oblige the Group to pay interest at fixed rates on the same notional principal amounts, thus allowing the Group to raise borrowings at floating rates and swap them into fixed rates.

The Group has also entered into several interest rate caps that entitle the Group to receive interest payments when the floating interest rate goes above the strike rate. During the year ended 31 December 2020, these interest rate caps were discontinued as hedging instruments and any fair value changes are recorded in profit or loss.

The fair value changes on the effective portion of these interest rate derivatives designated as cash flow hedges are recognised in other comprehensive income, accumulated in the hedging reserve and reclassified to profit or loss when the hedged interest expense on the borrowings is recognised in profit or loss. The fair value changes on the ineffective portion of these interest rate derivatives are recognised immediately in profit or loss.

For a cash flow hedge of a forecast transaction, the Group assumes that the benchmark interest rate will not be altered as a result of interbank offered rates (IBOR) reform for the purpose of asserting that the forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss. The Group will no longer apply the amendments to its highly probable assessment of the hedged item when the uncertainty arising from interest rate benchmark reform with respect to the timing and amount of the interest rate benchmark-based future cash flows of the hedged item is no longer present, or when the hedging relationship is discontinued. To determine whether the designated forecast transaction is no longer expected to occur, the Group assumes that the interest rate benchmark cash flows designated as a hedge will not be altered as a result of interest rate benchmark reform.

 

2.16 Freight forward agreements and bunker swaps

The Group has entered into freight forward agreements and bunker collars to manage its exposure to freight rate and bunker prices respectively. Further details of derivative financial instruments are disclosed in Note 21.

Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. Derivatives are not offset in the financial statements unless the Group has both legal right and intention to offset. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instruments is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

The Group does not apply hedge accounting and therefore all changes in fair values of forward freight agreements and bunker swaps used for economic hedges are recognised in profit or loss.

2.17 Fair value estimation of financial assets and liabilities

The fair values of financial instruments traded in active markets (such as exchange-traded and over-the-counter securities and derivatives) are based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets are the current bid prices and the quoted market prices for financial liabilities are the current asking prices.

The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques such as discounted cash flow analyses. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Where appropriate, quoted market prices or dealer quotes for similar instruments are used.

The fair value of interest rate derivatives is calculated as the present value of the estimated future cash flows, discounted at actively quoted interest rates. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date.

 The carrying amounts of current financial assets and liabilities, measured at amortised cost, approximate their fair values, due to the short term nature of the balances. The fair values of financial liabilities carried at amortised cost are estimated by discounting the future contractual cash flows at current market interest rates, determined as those that are available to the Group at balance sheet date for similar financial instruments.

2.18 Leases

(a) When a group company is the lessee

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.

For leases of vessels, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of its relative stand-alone prices. However, for leases of property and other equipment, the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset, less any lease incentives received.

The right-of-use asset is subsequently carried at cost less accumulated depreciation and accumulated impairment losses. Depreciation is calculated using a straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case, the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the applicable incremental borrowing rate. Generally, the Group uses the incremental borrowing rates as the discount rates. The Group determines the incremental borrowing rates by obtaining interest rates from various external financing sources.

Lease payments included in the measurement of the lease liability comprise the following:

  • Fixed payments, including in-substance fixed payments;
  • Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
  • Amounts expected to be payable under a residual value guarantee;
  • Exercise price under a purchase option that the Group is reasonably certain to exercise;
  • Lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option; and
  • Payment of penalties for early termination of a lease unless the Group is reasonably certain that it will not terminate early.

The lease liability is subsequently measured at amortised cost using the effective interest method. It is remeasured when:

  • There is a change in future lease payments arising from a change in an index or rate;
  • There is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee; or
  • There is a change in the Group’s assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recognised in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Group presents right-of-use assets as a part of total property, plant and equipment and lease liabilities in ‘borrowings’ in the consolidated balance sheet.

 

Short-term and low value leases

The Group has elected not to recognise right-of-use assets and lease liabilities for leases with lease terms that are less than 12 months and other low-value assets. Lease payments associated with these leases are recognised as an expense in profit or loss on a straight-line basis over the lease term.

 

(b) When a group company is the lessor

The Group determines at lease inception whether each lease is a finance lease or an operating lease.

 

Finance leases

Leases of assets in which the Group transfers (leases out) substantially all risks and rewards incidental to ownership of the leased asset to the lessees are classified as finance leases. The leased asset is derecognised and the present value of the lease receivable (net of initial direct costs for negotiating and arranging the lease) is recognised on the consolidated balance sheet as finance lease receivables. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income, included as part of revenue, is recognised over the lease term using the net investment method, which reflects a constant periodic rate of return.

The Group applies the derecognition and impairment requirements in IFRS 9 to the net investment in the lease. The Group further regularly reviews estimated unguaranteed residual values used in calculating the gross investment in the lease.

 

Operating leases

Leases of assets in which the Group retains substantially all risks and rewards incidental to ownership are classified as operating leases. Assets leased out under operating leases are included in property, plant and equipment. Rental income (net of any incentives given to lessee) is recognised on a straight-line basis over the lease term.

 

Intermediate leases

When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is short-term lease to which the Group applies the exemption described above, the sub-lease is then classified as an operating lease.

 

(c) Sale and leaseback

A sale and leaseback transaction is where the Group transfers an asset to another entity (the buyer-lessor) and leases that asset back from the buyer-lessor.

Where the buyer-lessor obtains control of the transferred asset, the Group measures the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the Group.

Where the buyer-lessor does not obtain control of the transferred asset, the Group continues to recognise the transferred asset and recognises a financial liability equal to the transfer proceeds.

 

2.19 Inventories

Inventories comprise mainly fuel and lubricating oils which are used for operation of vessels.

The cost of inventories includes purchase costs, as well as any other costs incurred in bringing inventory on board the vessel. Inventories are accounted for on a first-in, first-out basis. Consumption of inventories is recognised as an expense in profit or loss when the usage occurs.

 

2.20 Income taxes

The tax expense for the period comprises current and deferred taxes. Tax is recognised as income or expense in profit or loss, except to the extent that it relates to items recognised in other comprehensive income in which case the tax is also recognised in other comprehensive income.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operates and generates taxable income. Positions taken in tax returns are evaluated periodically, with respect to situations in which applicable tax regulations are subject to interpretation, and provisions are established where appropriate, on the basis of amounts expected to be paid to the tax authorities. In relation to accounting for tax uncertainties, where it is more likely than not that the final tax outcome would be favourable to the Group, no tax provision is recognised until payment to the tax authorities is required, and upon which a tax asset, measured at the expected recoverable amount, is recognised.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.  However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for.  Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is recognised on temporary differences arising on income earned from investments in subsidiaries, except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

 

2.21 Employee benefits

Employee benefits are recognised as an expense, unless the cost qualifies to be classified as an asset.

 

(a) Defined contribution plans

Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid.

 

(b) Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

 

(c) Share-based payment

During the financial years ended 31 December 2019 and 2020, the Group introduced Long Term Incentive Plan (LTIP) 2019 and LTIP 2020 respectively. Under this scheme, the grant-date fair value of equity-settled share-based payment arrangements granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

 

2.22 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in United States Dollars, which is the Company’s functional currency. All financial information presented in US dollars has been rounded to the nearest thousand, unless otherwise stated.

 

(b) Transactions and balances

Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign currency exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance sheet date, are recognised in profit or loss.

 

2.23 Cash and cash equivalents

For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents include cash on hand and deposits held at call with financial institutions, which are subject to an insignificant risk of change in value.

 

2.24 Share capital

Common shares are classified as equity.

Incremental costs directly attributable to the issuance of new equity instruments are taken to equity as a deduction, net of tax, from the proceeds.

 

2.25 Dividends

Interim dividends are recognised in the financial year in which they are declared payable and final dividends are recognised when the dividends are approved for payment by the directors and shareholders respectively.

 

2.26 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation whereby as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and a reliable estimate of the settlement amount can be made. When the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses.

For leased-in assets, the Group recognises a provision for the estimated costs of reinstatement arising from the use of these assets. This provision is estimated based on the best estimate of the expenditure required to settle the obligation, taking into consideration time value.

 

2.27 Financial guarantee contracts

Financial guarantee contracts are accounted for as insurance contracts and treated as contingent liabilities until such time as they become probable that the Group will be required to make a payment under the guarantee. A provision is recognised based on the Group’s estimate of the ultimate cost of settling all claims incurred but unpaid at the balance sheet date. The provision is assessed by reviewing individual claims and tested for adequacy by comparing the amount recognised and the amount that would be required to settle the guarantee contract.

 

2.28  Assets held for sale

Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell. The assets are not depreciated or amortised while they are classified as held for sale. Any impairment loss on initial classification and subsequent measurement is recognised as an expense in profit or loss. Any subsequent increase in fair value less costs to sell (not exceeding the accumulated impairment loss that has been previously recognised) is recognised in profit or loss.

 

2.29 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to management who are responsible for allocating resources and assessing performance of the operating segments.

 

2.30 Earnings per share

The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted-average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted-average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

3. Revenue

2020
USD’000
2019
USD’000
Revenue from time charter 79,819 40,498
Revenue from voyage charter 794,280 787,357
Total revenue 874,099 827,855

The Group’s revenue is generated from four main business segments: LR2 Product Tankers, LR1 Product Tankers, MR Product Tankers and Handy Product Tankers. The table below presents disaggregation of revenue by business segments.

 

2020 Revenue 58,644 276,827 427,557 111,071 874,099
2019 Revenue 25,452 299,831 389,777 112,795 827,855
LR2
USD ‘000
LR1
USD ‘000
MR
USD ‘000
Handy
USD ‘000
Total
USD ‘000

Time charter hire income is recognised on a straight-line basis over the term of the time charter period. Voyage charter revenue is recognised on a load-to-discharge basis, evenly over the period from the point of loading of the current voyage to the point of discharge of the current voyage.

Contract costs to obtain the contract, including voyage costs to arrive to the point of loading (‘ballast leg’ costs) are expensed in profit or loss as incurred.

Payments for trade receivables generally are due immediately or within 7 days from the invoice date. Information about trade receivables from contracts with customers and contract assets is presented in Note 13.

4. Expenses by nature

2020
USD’000
2019
USD’000
Fuel oil consumed (Note 12) 156,864 194,527
Port costs 78,817 98,466
Broker’s commission expenses 8,413 12,786
Other voyage expenses 6,791 7,646
Voyage expenses 250,885 313,425
Employee benefits (Note 5) 126,716 113,752
Maintenance and repair expenses 53,114 55,360
Insurance expenses 9,332 6,257
Other vessel operating expenses 11,504 9,377
Vessel operating expenses 200,666 184,746
Support service fee 1,561 4,601
Employee benefits (Note 5) 24,609 14,927
Other operating expenses 12,837 12,351
Other expenses 39,007 31,879

 

5. Employee benefits

2020
USD’000
2019
USD’000
Wages and salaries (Note 4) 151,325 128,679

 

6. Income taxes

Based on the tax laws in the jurisdictions in which the Group and its subsidiaries operate, shipping profits are exempted from income tax. Non-shipping profits are taxed at the prevailing tax rate of each tax jurisdiction where the profit is earned.

Certain of the Group’s vessels are subject to the tonnage tax regime in Denmark, whose effect is not significant.

Income tax expense

2020
USD’000
2019
USD’000
Tax expense attributable to profit is made up of:
Current income tax 2,000 1,015
Changes in estimates related to prior years 654
2,654 1,015

There is no income, withholding, capital gain or capital transfer taxes payable in Bermuda. The income tax expense reconciliation of the Group is as follows:

Reconciliation of effective tax rate

2020
USD’000
2019
USD’000
Profit before income tax 151,430 72,749
Tax calculated at a tax rate of 0% (2019: 0%)
Effect of:
– Tax on non-shipping income 2,000 1,015
– Changes in estimates related to prior years 654
Income tax expense 2,654 1,015

The Group’s shipping profits are essentially exempted from income tax, as granted by various ship registrars across the world. Tax losses incurred in the generation of exempted shipping profits are therefore not deductible against future taxable income.

7. Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of common shares outstanding during the financial year.

2020
USD ‘000
2019
USD’000
Net profit attributable to equity holders of the Company 148,776 71,734

 

(a) Basic earnings per share 2020
USD ‘000
2019
USD ‘000
Issued common shares at 1 January 370,244,325 196,241,352
Effect of shares issued in relation to the Merger 146,916,627
Effect of shares issued during Pre-listing Private Placement 4,007,295
Effect of treasury shares held
(5,881,171) (116,547)
Weighted-average number of ordinary shares at 31 December 364,363,154 347,048,727
Basic earnings per share (USD per share) 0.41 0.21

 

(b) Diluted earnings per share 2020
USD ‘000
2019
USD ‘000
    Weighted-average number of ordinary shares (basic) 364,363,154 347,048,727
    Effect of share options on issue
    Weighted-average number of ordinary shares at 31 December 364,363,154 347,048,727
    Diluted earnings per share (USD per share) 0.41 0.21

Diluted earnings per share is determined by adjusting profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

As at the balance sheet dates, the diluted weighted-average earnings per share is equivalent to the basic earnings per share, as 6,863,154 share options (2019: 3,431,577) have been excluded from the calculations as their effect would have been anti-dilutive.

The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

8. Property, plant and equipment

Vessels
USD’000
Dry docking and scrubbers
USD’000
Vessels under construction
USD’000
Right-of-use assets
USD’000
Others
USD’000
Total
USD’000
Cost
At 1 January 2020 2,950,070 88,979 152,889 155 3,192,093
Additions 14,722 32,848 38,076 8 85,654
Exercise of purchase options 22,389 (38,208) (15,819)
Reclassification to assets held for sale (22,389) (22,389)
Disposal of vessel (14,438) (561) (14,999)
Disposal of other property, plant and  equipment (60) (60)
Write off on completion of dry docking cycle (11,259) (11,259)
At 31 December 2020 2,950,354 110,007 152,757 103 3,213,221
Accumulated depreciation and impairment charge
At 1 January 2020 826,891 29,673 23,523 55 880,142
Depreciation charge 95,679 22,015 37,677 59 155,430
Disposal of vessel (1,354) (323) (1,677)
Disposal of other property, plant and  equipment (36) (36)
Exercise of purchase options (15,819) (15,819)
Write off on completion of dry docking cycle (11,259) (11,259)
At 31 December 2020 921,216 40,106 45,381 78 1,006,781
Net book value
31 December 2020
2,029,138 69,901 107,376 25 2,206,440

 

Vessels
USD’000
Dry docking and scrubbers
USD’000
Vessels under construction
USD’000
Right-of-use assets
USD’000
Others
USD’000
Total
USD’000
Cost
At 1 January 2019 1,766,605 48,866 117,495 21,170 1,954,136
Acquisition of vessels on merger with Hafnia Tankers 830,083 20,089 40,798 890,970
Additions 69,224 23,537 185,901 90,921 155 369,738
Cost adjustments (88) (88)
Transfer on delivery of vessels 295,131 8,265 (303,396)
Disposal of vessel (10,973) (190) (11,163)
Write off on completion of dry docking cycle (11,500) (11,500)
At 31 December 2019 2,950,070 88,979 152,889 155 3,192,093
Accumulated depreciation and impairment charge
At 1 January 2019 738,728 22,401 761,129
Depreciation charge 88,644 18,923 23,523 55 131,145
Disposal of vessel (481) (151) (632)
Write off on completion of dry docking cycle (11,500) (11,500)
At 31 December 2019 826,891 29,673 23,523 55 880,142
Net book value
31 December 2019
2,123,179 59,306 129,366 100 2,311,951

(a) As described in Note 2.2, post-merger, the Group re-organised the commercial management of the combined fleet of vessels into 3 individual commercial pools: LR, MR and Handy.  Each individual commercial pool constitutes a separate cash-generating unit (“CGU”). For vessels deployed on a time-charter basis outside the commercial pools, each of these vessels constitutes a separate CGU. Any time-chartered in vessels which are recognised as ROU assets by the Group and subsequently deployed in the commercial pools have been included as part of the pool CGUs.

As at 31 December 2020, the Group assessed whether these CGUs had indicators of impairment by reference to internal and external factors according to its stated policy set out in Note 2.4(b).  With a decline observed in the market valuation of the fleet of vessels, together with oil demand remaining under pressure and combined with the on-going oil supply cuts during the COVID-19 pandemic, the tanker market continues to face challenges since the second half of 2020. Accordingly, the Group concluded that there are indicators that the Group’s vessels under the respective CGUs may be impaired.

Impairment of vessels was assessed by management based on the higher of fair value less costs of disposal and value in use. In determining the value in use, expected cash flows were discounted to their present value. This requires significant management judgement relating to forecast spot freight rates, forecast operating costs and the discount rate applied.

 

Pool CGUs

The value in use calculation for vessels deployed in commercial pools was based on the following key assumptions:

  1. Owned vessels’ cash flows were projected based on the average remaining useful lives of vessels ranging from 10 – 23 years given the current age profile of the tanker fleet;
  2. Chartered-in vessels’ (ROU assets) cash flows were projected based on the remaining charter period of each vessel;
  3. Spot freight rates estimated in the period from 2021 to 2025 were estimated by the in-house commercial team and benchmarked against rates provided by research houses and industry analysts. Beyond 2025, the spot freight rate was projected based on 10-year historical average rates, adjusted for expected inflation of 2.5%;
  4. A pre-tax discount rate of 6.9% was applied;
  5. Average earning days were estimated at 360 days per vessel;
  6. Vessel operating expenses were projected at an annual increase of 2.5% per annum;

Under the stated assumptions above, the recoverable amount of each Pool CGU continues to be in excess of the carrying amounts of vessels and ROU assets deployed in each Pool CGU.

 

Individual vessel CGUs

The value in use calculation for vessels deployed on a time-charter basis outside the commercial pools was based on the following key assumptions:

  1. Cash flows were projected based on the remaining useful life of each vessel;
  2. Contractual freight rates till the end of the charter period of each vessel;
  3. Spot freight rates as estimated by in-house commercial team and benchmarked against rates provided by research houses and industry analysts for the period from the end of the charter period to 2025. Beyond 2025, the freight rate was projected based on 10-year historical average rates, adjusted for expected inflation of 2.5%;
  4. A pre-tax discount rate of 6.9% was applied;
  5. Average earning days were estimated at 360 days per vessel;
  6. Vessel operating expenses were projected at an annual increase of 2.5% per annum;

Under the stated assumptions above, the recoverable amounts of the vessels deployed in the individual CGUs continues to be in excess of the individual carrying amounts of these CGUs.

The calculation of the value in use is sensitive to changes in the key assumptions which are related to future fluctuations in freight rates and the WACC applied as discounting factor in the calculations. All other things being equal, the sensitivities to the value in use have been assessed for both pool and individual vessel CGUs and are as follows:

 

Pool CGUs

  1. A decrease in the near-term forecasted freight rates for Y1 (2021) and Y2 (2022) in a range from 5% to 10% across all pool CGUs, assuming other variables remain constant,  will result in a decrease in value-in-use of the CGUs in the range of USD 40.8 million to USD 81.5 million respectively, without any need for impairment;
  2. A decrease in the long-range forecasted freight rates from 2025 onwards in a range from 5% to 10% across all pool CGUs, assuming other variables remain constant, will result in a decrease in value-in-use of the CGUs in the range from USD 133.6 million to USD 267.2 million respectively. With a 5% decrease, there are no impairment losses for the CGUs. Only the effect of a 10% decrease in long-range forecasted freight rates shall result in an impairment loss of USD 45.5 million;
  3. An increase in WACC of 1.0% would result in a decrease in the value in use of USD 131.6 million, without any need for impairment.

 

Individual vessel CGUs

  1. A decrease in the forecasted freight rates upon expiry of existing charter contracts in a range from 5% to 10% across all individual vessel CGUs, assuming other variables remain constant, will result in a decrease in value-in-use of the CGUs in the range of USD 27.8 million to USD 55.6 million, respectively, without any need for impairment.
  2. An increase in WACC of 1.0% would result in a decrease in the value in use of USD 35.2 million, without any need for impairment.

(b) The Group exercised the purchase options on two bare-boat chartered in LR1 vessels; Compass and Compassion, and immediately put them on sale and classified both vessels as assets held for sale.

(c) The Group has mortgaged vessels with a total carrying amount of USD 2,099.1 million (2019: USD 2,120.2 million) as security over the Group’s bank borrowings.

 

9. Intangible assets

Intangible assets are the fair values of IT infrastructure and customer contracts acquired in the course of acquisition of businesses from Hafnia Management A/S and subsidiaries and ongoing IT projects.

Customer contracts
USD’000
IT infrastructure
USD’000
Total
USD’000
Cost
At 1 January 2019
Additions 439 439
Business combination (note 10(a)) 2,468 612 3,080
At 31 December 2019 2,468 1,051 3,519
Additions 1,019 1,019
Adjustment to provisional fair value at initial recognition (note 10(a)) 1,260 1,260
At 31 December 2020 3,728 2,070 5,798
Accumulated amortisation charge
At 1 January 2019
Amortisation charge (288) (72) (360)
At 31 December 2019 (288) (72) (360)
Amortisation charge (871) (143) (1,014)
At 31 December 2020 (1,159) (215) (1,374)
Net book value
31 December 2019 2,180 979 3,159
31 December 2020 2,569 1,855 4,424

 

10. Business combination

(a) Acquisition of the business of Hafnia Management A/S and subsidiaries

In May 2019, the Group acquired the businesses of its associated companies which comprised commercial contracts, employees and assets except cash and certain liabilities, of Hafnia Management A/S, Hafnia Handy Pool Management ApS, Hafnia MR Pool Management ApS and Hafnia Bunkers ApS. The acquired net identifiable assets were transferred to an existing subsidiary within the Group.

 

Fair value measurement

The Group has deemed the excess of purchase consideration over the net assets acquired to be ascribed to the recorded intangible assets – IT infrastructure and customer contracts.

The following table summarises the consideration transferred and the recognised amounts of assets acquired and liabilities assumed at the date of acquisition:

2020  Finalised USD’000 2019 Provisional USD’000
Fair value of identifiable net assets acquired
Plant and equipment 92 95
Trade and other receivables 278 1,687
Trade and other payables (1,431) (1,313)
Loans (270)
Intangible assets (IT infrastructure & Customer contracts) 4,340 3,080
Total identifiable net assets acquired 3,279 3,279
Total purchase consideration 3,279 3,279

During the year, the Group finalised the purchase price allocation within the allowed 12-months window period after business acquisition. This finalisation has resulted in reallocation of purchase consideration between certain items of identifiable assets acquired and liabilities assumed, with no consequential change in goodwill or negative goodwill previously reported.

 

(b) Acquisition of K/S Straits Tankers and Straits Tankers Pte. Ltd

The purchase consideration for K/S Straits Tankers and Straits Tankers Pte. Ltd. was USD 0.4 million (USD 0.2 million net of acquired cash balances) bringing equity interest in K/S Straits Tankers from 44% to 100% and equity interest in Straits Tankers Pte. Ltd. from 22% to 100%. The effect on deemed disposal of these associates is not material to financial statements. The fair value of the identifiable net assets acquired is also not material.

 

11. Assets held for sale

On 3 December 2020, the Board of Directors of the Group approved and committed to a plan to exercise the purchase options on two leased-in vessels and subsequent sale of these vessels. The purchase of the vessels and identification of buyers were finalised in December 2020.

As at 31 December 2020, the vessels were reclassified from property, plant and equipment to assets held for sale pending delivery to the buyers and re-measured at lower of fair value less costs to sell which is represented by the indicative sale price of USD 11.0 million.

In January 2021, both vessels were delivered to the buyers.

 

Write-down relating to the vessels

A write-down of USD 11.4 million of the carrying amount of vessels to the lower of their carrying amount and their fair value less costs to sell has been included in “write-down on reclassification to assets held for sale” in the statement of profit or loss.

 

12. Inventories

2020 USD’000 2019 USD’000
Fuel oil 1,889
Lubricating oils 5,228 5,097
Total 5,228 6,986

The cost of inventories recognised as expenses and included in “voyage expenses” amounted to USD 156.9 million (2019: USD 194.5 million).

 

13. Trade and other receivables

Note 2020 USD’000 2019 USD’000
Trade receivables
– non-related parties 67,759 108,539
Less: Allowance made for trade receivables
– non-related parties 26(b) (1,594) (1,594)
Trade receivables – net 66,165 106,945
Prepayments 4,721 10,424
Pool working capital 60,660 70,200
Other receivables
– non-related parties 32,093 45,920
Total 163,639 233,489

The carrying amounts of trade and other receivables, principally denominated in United States Dollars, approximate their fair values due to the short period to maturity.

Included within trade and other receivables as at 31 December 2020 are contract assets of USD 19.6 million (2019: USD 40.4 million). These contract assets relate to the Group’s rights to consideration for proportional performance from voyage charters in progress at the balance sheet date. These contract assets are transferred to trade receivables when the rights to such consideration become unconditional, typically when the Group has satisfied its performance obligations upon completion of the voyage. As voyage charters in progress have an expected duration of less than one year, the Group applies the practical expedient available under IFRS 15 and does not disclose information about remaining performance obligations as at balance sheet date. No impairment loss is recognised on contract assets (2019: USD Nil).

 

14. Loans receivable from joint ventures

Prior to the Merger, Hafnia Tankers and CSSC (Hong Kong) Shipping Company Limited (“CSSC Shipping”) formed a joint venture, Vista Shipping Pte. Ltd. (formerly known as Vista Shipping Limited), to build and operate six LR1 product tanker vessels.

As part of financing for the newbuilds under the joint venture, each joint venture partner provides to the joint venture a shareholder’s loan to finance 50% of the first and second payment instalments for the six LR1 product tanker vessels.

In 2020, two additional orders for LR2 vessels were made through the joint venture. As part of financing for the LR2 newbuilds under the joint venture, each joint venture partner will provide to the joint venture a shareholder’s loan to finance 50% of the pre-delivery instalments.

The loans receivable from the joint venture are unsecured, bear interest at three-month USD LIBOR plus 3% margin per annum and have no fixed terms of repayment. As the Group does not expect the joint venture to settle the loans within the next 12 months, the loan receivables are classified as “non-current” receivables. The carrying amounts of the loans receivable approximate their fair values since the interest rates are re-priceable at three-month intervals.

2020 USD’000 2019 USD’000
Loans receivable from joint venture 45,430 29,584

 

15. Associated companies and joint venture

 

2020 USD’000 2019 USD’000
Interest in associates 1,798 1,486
Interest in joint venture 4,975 232
Total 6,773 1,718

 

(a) Interest in associates

The Group, through its wholly owned subsidiary Hafnia Tankers ApS, has a 40% interest in Hafnia Management A/S and its subsidiaries (“Hafnia Management”). Hafnia Management A/S is incorporated in Denmark.

The following table summarises the profit for the year and other financial information according to Hafnia Management’s own financial statements. The table also reconciles the summarised financial information to the carrying amount of the Group’s interest in Hafnia Management.

Hafnia Management 2020 USD’000 2019 USD’000
Percentage ownership interest 40% 40%
Current assets 4,509 14,422
Current liabilities (15) (10,707)
Net assets (100%) 4,494 3,715
Group’s share of net assets (40%) 1,798 1,486
Revenue 10,298
Other income 3,962
Expenses (286) (10,176)
(Loss)/profit and total comprehensive income (100%) (286) 4,084
(Loss)/profit and total comprehensive income (40%) (114) 1,634
Other adjustments 426 (1,054)
Group’s share of total comprehensive income (40%) 312 580

In addition to the associates disclosed above, the Group also had interests in individually immaterial associates that are accounted for using the equity method. This includes K/S Straits Tankers and Straits Tankers Pte. Ltd which were accounted for using the equity method up to May 2019.

 

2020 USD’000 2019 USD’000
Aggregate carrying amount of individually immaterial associates
Share of total comprehensive income 44

 

(b) Interest in joint venture

Vista Shipping Pte. Ltd. and its subsidiaries (formerly known as Vista Shipping Limited and its subsidiaries) (“Vista Shipping”) is a joint venture in which the Group has joint control and 50% ownership interest. Vista Shipping is domiciled in Singapore and structured as a separate vehicle in shipowning, and the Group has residual interest in its net assets. Accordingly, the Group has classified its interest in Vista Shipping as a joint venture. In accordance with the agreement under which Vista Shipping is established, the Group and the other investor in the joint venture have agreed to provide shareholders’ loans in proportion to their interests to finance the newbuild programme as described in Note 14.

On 7 August 2020, Vista Shipping Limited and its subsidiaries (incorporated in the Marshall Islands) were redomiciled to Singapore.

The following table summarises the financial information of Vista Shipping as included in its own consolidated financial statements. The table also reconciles the summarised financial information to the carrying amount of the Group’s interest in Vista Shipping.

2020 USD’000 2019 USD’000
Percentage ownership interest 50% 50%
Non-current assets 193,257 154,350
Current assets 23,150 11,928
Non-current liabilities (115,718) (97,896)
Current liabilities (90,739) (67,918)
Net assets (100%) 9,950 464
Group’s share of net assets (50%) 4,975 232
Revenue 31,986 18,339
Other income 74 497
Expenses (23,135) (17,574)
Profit and total comprehensive income (100%) 8,925 1,262
Profit and total comprehensive income (50%) 4,463 631
Prior year share of profits/(losses) not recognised* 255 (399)
Group’s share of total comprehensive income (50%) 4,718 232

*Those share of losses had occurred prior to 2019 but were not recognised as the share of losses had exceeded the interest in the joint venture then. In 2019, those losses were subsequently recognised in profit or loss.

 

16. Cash and cash equivalents including restricted cash

2020 USD’000 2019 USD’000
Cash at bank and on hand 100,567 91,612
Restricted cash 104
100,671 91,612
Less: Restricted cash 104
Cash and cash equivalents in the statements of cash flows 100,567 91,612

The restricted cash represents amounts placed in margin accounts for the trading of forward freight agreements. This restricted cash is not available to finance the Group’s day to day operations.

17. Share capital and contributed surplus

Number of shares Share capital
USD’000
Share premium
USD’000
Total
USD’000
At 1 January 2020 and 31 December 2020 370,244,325 3,703 704,834 708,537
At 1 January 2019 196,241,352 1,962 221,220 223,182
Shares issued for merger 146,916,627 1,470 411,872 413,342
New shares issued 27,086,346 271 71,742 72,013
At 31 December 2019 370,244,325 3,703 704,834 708,537
(a) Authorised share capital

The total authorised number of shares is 600,000,000 (2019: 600,000,000) common shares at par value of USD 0.01 per share.

In October 2019, the total authorised number of shares was increased by 200,000,000 shares with a par value of USD 0.01 per share.

 

(b) Issued and fully paid share capital

On 16 January 2019, the Company issued 146,916,627 shares in a share swap arrangement, where newly issued shares of the Company were exchanged for all outstanding shares of Hafnia Tankers during the Merger.

On 8 November 2019, the Company completed a pre-listing private placement (the “Pre-listing Private Placement”) and subsequent listing (the “Listing”) on Oslo Axess, which is a fully regulated marketplace operated by the Oslo Stock Exchange. 27,086,346 new shares were issued, raising net proceeds of USD 72.0 million.

On 25 February 2020, the Company announced its share buy-back program under which the Company may repurchase up to 7,193,407 common shares representing up to 1.9% of the total number of issued and outstanding shares in the Company for a total consideration of up to USD 20 million. The Company subsequently repurchased a total of 7,037,407 of its own common shares at an average price of NOK 17.08 per share, amounting to a total consideration of approximately USD 12.6 million.

Following an up-listing application to the Oslo Stock Exchange on 23 April 2020, the Company was subsequently listed on the Oslo Børs and commenced trading of its shares on 30 April 2020.

All issued common shares are fully paid. The newly issued shares rank pari passu with the existing shares.

 

(c) Share premium

The difference between the consideration for common shares issued and their par value is recognised as share premium.

USD 3.0 million of listing fees and expenses were capitalised against share premium upon the Listing during 2019.

 

(d) Contributed surplus

Contributed surplus relates to the amount transferred from share capital account when the par value of each common share was reduced from USD 5 to USD 0.01 per share in 2015. Contributed surplus is distributable, subject to the fulfilment of the conditions as stipulated under the Bermudian Law.

 

(e) Treasury shares

The reserve for the Company’s treasury shares comprises the cost of the Company’s shares held by the Group. At 31 December 2020, the Group held 7,179,946 of the Company’s shares (2019: 211,479).

18. Other reserves

(a) Composition:
2020 USD’000 2019 USD’000
Share-based payment reserve 1,859 823
Hedging reserve (15,973) (6,514)
Translation reserve (34) (34)
(14,148) (5,725)

 

(b) Movements of the reserves
2020 USD’000 2019 USD’000
Hedging reserve
At beginning of the financial year (6,514) 3,158
Adjustment of reserve on Merger (2,816)
Fair value losses on cash flow hedges (22,103) (7,266)
Reclassification to profit or loss 12,644 410
At end of the financial year (15,973) (6,514)

More information about hedging derivatives is disclosed in Note 21.

19. Share-based payment arrangements

(a) Description of share option programme (equity-settled)

The Group operates an equity-settled, share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (share options) in the group. On 16 January 2019, 1 March 2019, 1 June 2019, 1 August 2019 and 25 February 2020 the Group granted share options to key management and senior employees. All options are to be settled by physical delivery of shares. The terms and conditions of the share options granted are as follows.

Grant date Number of instruments in thousands Vesting conditions Expiry of options
Option grant to key management personnel on 16 January 2019 (“Tranche 1”) 1,834 3 years’ service condition from grant date of Tranche 1 16 January 2025
Option Grant to key management personnel on 1 March 2019 (“Tranche 2”) 207 3 years’ service condition from grant date of Tranche 1 16 January 2025
Option Grant to key management personnel on 1 June 2019 (“Tranche 3”) 1,183 3 years’ service condition from grant date of Tranche 1 16 January 2025
Option grant to key management personnel on 1 August 2019 (“Tranche 4”) 207 3 years’ service condition from grant date of Tranche 1 16 January 2025
Option Grant to key management personnel on 25 February 2020 (“LTIP 2020”) 3,432 3 years’ service condition from grant date 25 February 2026

The share options become void if the employee rescinds their position before the vesting date.

The fair value of services received in return for share options granted is based on the fair value of the share options granted, measured using the Black-Scholes model.

 

(b) Measurement of grant date fair values

The following inputs were used in the measurement of the fair values at respective grant dates of the share options.

Share option programme

Tranche 1 Tranche 2 Tranche 3 Tranche 4 LTIP 2020
Grant date 16 January 2019 1 March 2019 1 June 2019 1 August 2019 25 February 2020
Share price (NOK) 24.03 24.17 24.47 24.67 20.57
Exercise price (NOK) 27.81 27.81 27.81 27.81 23.81
Time to maturity (years) 4.5 4.4 4.1 4.0 4.5
Risk free rate 2.54% 2.54% 1.93% 1.78% 1.24%
Volatility 50.00% 50.00% 50.00% 50.00% 50.00%
Dividends
Annual tenure risk 7.50% 7.50% 7.50% 7.50% 7.50%
Share options granted 1,833,958 207,278 1,183,063 207,278 3,431,577
Fair value at grant date (USD) 1,610,382 182,009 976,425 169,317 1,974,539

Volatility has been estimated as a benchmark volatility by considering the historical average share price volatility of a comparable peer group of companies.

20. Borrowings

2020 USD’000 2019 USD’000
Current
Loan from a related corporation 8,500
Loan from non-related parties 390 106
Bank borrowings 142,548 167,659
Finance lease liabilities 7,376 7,244
Other lease liabilities 28,770 29,821
179,084 213,330
Non-current
Loan from non-related parties 4,391 5,066
Bank borrowings 967,979 1,043,389
Finance lease liabilities 74,767 82,128
Other lease liabilities 81,073 104,213
1,128,210 1,234,796
Total borrowings 1,307,294 1,448,126

 

As at 31 December 2020, bank borrowings consist of six credit facilities from external financial institutions, amounting to USD 676 million, USD 473 million, USD 266 million, USD 216 million, USD 128 million and USD 39 million respectively (2019: USD 676 million, USD 266 million, USD 216 million, USD 128 million, USD 30 million and USD 473 million respectively). These facilities are secured by the Group’s fleet of vessels. The table below summarises key information of the bank borrowings:

Facility amount Maturity date
USD 676 million facility
– Tranche A USD 576 million 2022
– Tranche A USD 100 million revolving credit facility 2022
USD 473 million facility 2026
USD 266 million facility 2028
USD 128 million facility 2023
USD 216 million facility 2027
USD 39 million facility
– USD 30 million term loan 2025
– USD 9 million revolving credit facility 2025

On 15 January 2020, the Group extended the USD 30 million facility by 15 months, with the revised maturity date being in April 2021. Two vessels have been mortgaged as security to this facility. On 17 November 2020, this facility was re-financed to a USD 39 million facility, with the revised maturity date extended to November 2025.

 

Interest rates

The weighted average effective interest rate per annum of total borrowings at the balance sheet date is as follows:

2020 2019
Bank borrowings 1.8% 3.6%

The exposure of borrowings to interest rate risk is disclosed in Note 26.

 

Maturity of borrowings

The non-current borrowings have the following maturity:

2020 USD’000 2019 USD’000
Later than one year and not later than five years 770,480 809,872
Later than five years 357,730 424,924
1,128,210 1,234,796

 

Carrying amounts and fair values

The carrying values of bank borrowings approximate their fair values as the bank borrowings are re-priceable at three month intervals.

21. Derivative financial instruments

USD’000
Assets – 2020 Liabilities – 2020 Assets – 2019 Liabilities – 2019
Cash flow hedges
– Interest rate swaps and caps 15,991 6,514
Non-hedging instruments
– Interest rate caps 26
– Forward freight agreements 205 2,620
– Forward foreign exchange contracts 40 117
Total 271 15,991 2,737 6,514
Analysed as:
Non-current 26 15,973 6,514
Current 245 18 2,737
Total 271 15,991 2,737 6,514

 

Cash flow hedges

Interest rate derivatives

The Group has entered into interest rate swap contracts that qualify for hedge accounting. The Group will pay interest at fixed rates varying from 0.46% to 2.26% (2019: 1.66% to 2.26%) per annum and receive interest at a floating rate based on three-month USD LIBOR.

The notional principal amount of these outstanding interest rate swaps as at 31 December 2020 amounted to USD 716.0 million (2019: USD 391.6 million) and the amounts mature in more than one year from the balance sheet date.

 

Non-hedging instruments

Interest rate derivatives

At 31 December 2020, the Group has entered into interest rate caps with a strike of 3.00% against the three-month USD LIBOR. The interest rate caps have a notional amount of USD 300.0 million with the last cap expiring in 2023.

Starting from 2020, hedge accounting for interest rate caps previously used as hedging instruments have been discontinued, with the cumulative fair value change previously recognised in “Hedging reserve” in other comprehensive income released to the current year profit or loss.

 

Forward foreign exchange contracts

The Group has entered into forward foreign exchange contracts to swap United States Dollars for Singapore Dollars with an external financial institution. The notional principal amounts of the outstanding forward foreign exchange contracts as at 31 December 2020 and 31 December 2019 comprise the following:

USD’000
Currency Notional amounts in local currency – 2020 USD equivalent – 2020 Notional amounts in local currency – 2019 USD equivalents – 2019
Singapore Dollars 13,258 9,988 6,400 4,649

As at 31 December 2020, these forward foreign exchange contracts will mature within four (2019: eight) months from the balance sheet date. No hedge accounting is adopted and the fair value changes of these forward exchange contracts are recorded in profit or loss.

 

Freight forward agreements

The Group has entered into a number of forward freight agreements in order to hedge its spot voyage exposure for its vessels trading in the pools. As at 31 December 2020, the Group has outstanding positions with a notional amount of USD 0.9 million, which will mature in the next one year. No hedge accounting is adopted and the fair value changes of these freight forward agreements are recorded in profit or loss.

22. Trade and other payables

2020 USD’000 2019 USD’000
Trade payables
– related corporations 144
– non-related parties 23,793 21,728
Provision for reinstatement costs of leased vessels 1,238
Accrued operating expenses 38,772 72,156
Other payables 
– related corporations 5,186 4,532
– non-related parties 2,767 6,914
Total 70,518 106,712
Analysed as:
Non-current 1,238
Current 70,518 105,474
Total 70,518 106,712

The carrying amounts of trade and other payables, principally denominated in United States Dollars, approximate their fair values due to the short period to maturity.

The other payables due to the holding corporation and related corporations are unsecured, interest-free and are repayable on demand.

Information about the Group’s exposure to currency and liquidity risks is included in Note 26.

23. Leases – as Lessee

Leases as lessee under IFRS 16

The Group leases vessels, office spaces, and other equipment from external parties under non-cancellable operating lease agreements. The leases have varying terms including options to extend and options to purchase.

Starting from 1 January 2019, the leased-in vessels are recognised as right-of-use assets and lease liabilities on the balance sheet under IFRS 16, except for leases of low value items relating to IT equipment and leases with lease terms of less than 12 months.

Information about leases for which the Group is a lessee is presented below.

 

(1) Right-of-use assets

Right-of-use assets related to leased-in vessels are presented as part of total property, plant and equipment (Note 8).

USD’000
Cost
At 1 January 2019 61,968
Additions 90,921
At 31 December 2019 152,889
Additions 38,076
Reclassification to property, plant and equipment – vessels upon exercising of purchase options1 (38,208)
At 31 December 2020 152,757
Accumulated depreciation
Depreciation charge 23,523
At 31 December 2019 23,523
Depreciation charge 37,677
Reclassification to property, plant and equipment – vessels upon exercising of purchase options1 (15,819)
At 31 December 2020 45,381
Net book value
At 31 December 2019 129,366
At 31 December 2020 107,376

1The Group exercised the purchase options on two bareboat chartered in LR1 vessels: Compass and Compassion. Upon exercise of the options, those vessels were put on sale, which has resulted in both vessels being classified as assets held for sale (Note 11) as at 31 December 2020.

 

(2) Amounts recognised in profit or loss
2020 USD’000 2019 USD’000
Interest expense on lease liabilities 9,250 4,579
Expenses relating to short-term leases for vessels, included in charter hire expenses 6,104 4,303
Expenses relating to short-term leases for offices, included in rental expenses 961 1,138

 

(3) Amounts recognised in statement of cash flows
2020 USD’000 2019 USD’000
Total cash outflow for leases 78,754 27,283

 

(4) Extension options

Some leases contain extension options exercisable by the Group up to one year before the end of the non-cancellable contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Group and not by the lessors. The Group assesses at lease commencement date whether it is reasonably certain to exercise the extension options. The Group reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control.

The Group has estimated that the potential future lease payments, should it exercise the extension options, would result in an increase in lease liability of USD 111.0 million (2019: USD 105.9 million).

 

(5) Operating lease commitments under IFRS 16

The Group leases vessels and office space from non-related parties under non-cancellable operating lease agreements. These leases have varying terms including options to extend and options to purchase.

Future minimum lease payments under non-cancellable operating leases committed at the reporting date have been recognised as lease liabilities under IFRS 16.

 

24 Commitments

(a) Operating lease commitments – where the Group is a lessor

The Group leases vessels to non-related parties under non-cancellable operating lease agreements. The Group classifies these leases as operating leases as the Group retains substantially all risks and rewards incidental to ownership of the leased assets.

In 2020, the Group recognised revenue from time charters of USD 79.8 million (2019: USD 40.4 million) as part of revenue (Note 3).

The undiscounted lease payments under operating leases to be received after 31 December are analysed as follows:

2020
USD ’000
2019
USD ’000
Less than one year 54,266 50,724
One to two years 27,421 36,425
Two to three years 23,536
Total 81,687 110,685

 

Capital commitments

The Group’s joint venture is committed to incurring capital expenditure of USD 100.8 million (2019: USD 111.0 million), of which the Group’s share is USD 50.4 million (2019: USD 55.5 million).

25. Financial guarantee contracts

The Company’s policy is to provide financial guarantees only to the wholly owned subsidiaries or joint ventures. At 31 December 2020, the Company has issued financial guarantees to certain banks in respect of credit facilities granted to subsidiaries (see Note 20). These bank borrowings amount to USD 1,110.5 million (2019: USD 1,211.0 million) at the balance sheet date.

The Company and CSSC Shipping have issued a joint financial guarantee to certain banks in respect of credit facilities granted to the joint venture. Bank borrowings provided to the joint venture amounts to USD 152.5 million (2019: USD 105.0 million) at the balance sheet date. Corporate guarantees given will become due and payable on demand if an event of default occurs.

In addition, the Company issued a limited financial guarantee to a bank in respect of the USD 50.0 million (2019: USD Nil) receivables purchase agreement facility granted to the commercial pools.

 

26. Financial risk management

Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including price risk, currency risk, interest rate risk and cash flow fair value and interest rate risk); credit risk; liquidity risk and capital risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Financial risk management is handled by the Group as part of its operations. The management team identifies, evaluates and manages financial risks in close co-operation with all operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and use of derivative and non-derivative financial instruments.

 

(a) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments.  The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks.  All such transactions are carried out within the guidelines set by the Group. Generally, the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.

A fundamental reform of major interest rate benchmarks is being undertaken globally to replace or reform IBOR with alternative nearly risk-free rates (referred to as ‘IBOR reform’). The Group has significant exposure to IBORs on its financial instruments that will be replaced or reformed as part of this market-wide initiative. There is significant uncertainty over the timing and the methods of transition across the jurisdictions that the Group operates in. The Group anticipates that IBOR reform will have significant operational, risk management and accounting impacts. The Group evaluated the extent to which its cash flow hedging relationships are subject to uncertainty driven by IBOR reform as at the reporting date. The Group’s hedged items and hedging instruments continue to be indexed to IBOR benchmark rates. IBOR benchmark rates are quoted each day and IBOR cash flows are exchanged with its counterparties as usual. However, the Group’s cash flow hedging relationships extend beyond the anticipated cessation dates for US Dollar LIBOR. The Group expects that US dollar LIBOR will be replaced by SOFR, but there is uncertainty over the timing and amount of the replacement rate cash flows. Such uncertainty may impact the hedging relationship, for example its effectiveness assessment and highly probable forecast transaction assessment.

The Group applies the amendments to IFRS 9, IAS 39 and IFRS 7 Interest rate benchmark reform issued in September 2019 to these hedging relationships directly affected by IBOR reform.

The Group is in the process of establishing policies for amending the interbank offered rates on its existing floating-rate loan portfolio indexed to IBORs that will be replaced as part of IBOR reform. The Group expects to participate in bilateral negotiations with the counterparties to begin amending the contractual terms of its existing floating-rate financial instruments in the second half of 2020. However, the exact timing will vary depending on the extent to which standardised language can be applied and the extent of bilateral negotiations between the Group and its counterparties. The Group expects that these contractual changes will be amended in a uniform way.

The Group holds derivatives for risk management purposes, some of which are designated in hedging relationships. These derivatives have floating legs that are indexed to various IBORs. The Group’s derivative instruments are governed by ISDA’s 2006 definitions. ISDA is currently reviewing its definitions in light of IBOR reform and the Group expects it to issue standardised amendments to all impacted derivative contracts at a future date. No derivative instruments have been modified as at the reporting date.

 

Price risk

The shipping market can be subject to significant fluctuations. The Group’s vessels are employed under a variety of chartering arrangements including time charters and voyage charters.

In 2020, approximately 9% (2019: 5%) of the Group’s shipping revenue was derived from vessels under fixed income charters (comprising time charters).

The Group is exposed to the risk of variations in fuel oil costs, which are affected by the global political and economic environment. Historically, bunker fuel expenses have been the most significant expense. Under a time charter, the charterer is responsible for bunker fuel costs, therefore, fixed income charters also reduce exposure to fuel price fluctuations.

In 2020, fuel oil costs comprised 35% (2019: 35%) of the Group’s operating expenses (excluding depreciation). If price of fuel oil has increased/decreased by USD 1 (2019: USD 1) per metric ton with all other variables including tax rate being held constant, the net results will be lower/higher by USD 404,079 (2019: USD 391,402) as a result of higher/lower fuel oil consumption expense.

In addition to securing cash flows through time charter contracts, the Group has entered into forward freight agreements to limit the risk involved in trading in the spot market. Details of the Group’s outstanding forward freight agreements are disclosed in Note 21.

 

Currency risk

The functional currency of most of the entities in the Group is United States Dollars (“USD”). The Group’s operating revenue, and the majority of its interest-bearing debts and contractual obligations for vessels under construction are denominated in USD. The Group’s vessels are also valued in USD when trading in the second-hand market.

The Group is exposed to foreign currency exchange risks for administrative expenses incurred by offices or agents globally, predominantly in Denmark and Singapore. Further, the Group is required to pay port charges in currencies other than USD. However, foreign currency exposure in port charges is minimal as any increase is usually compensated by a corresponding increase in freight, particularly in the tanker sector through industry-wide increases in Worldscale flat rates.

At the balance sheet date, the Group has cash and cash equivalents denominated in DKK.

Details of the Group’s outstanding forward exchange contracts are disclosed in Note 21.

At 31 December 2020 and 31 December 2019, the Group has assessed that it has insignificant exposure to foreign currency risks.

 

Interest rate risk

The Group adopts a policy of ensuring that between 40% and 75% of its interest rate risk exposure is at a fixed-rate or limited to a certain threshold.  This is achieved partly by entering into fixed-rate instruments and partly by borrowing at a floating rate and using interest rate swaps as hedges of the variability in cash flows attributable to interest rate risk, and also by entering into interest rate caps to receive payments when the agreed floating interest rate goes above the strike price. The Group applies a hedge ratio of 1:1.

The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the reference interest rates, tenors, repricing dates and maturities and the notional or par amounts.

The Group assesses whether the derivative designated in each hedging relationship is expected to be effective in offsetting changes in cash flows of the hedged item using the hypothetical derivative method.

In these hedge relationships, the main sources of ineffectiveness are:

(1) the effect of the counterparty and the Group’s own credit risk on the fair value of the swaps, which is not reflected in the change in the fair value of the hedged cash flows attributable to the change in interest rates; and

(2) differences in repricing dates between the swaps and the borrowings.

The Group has interest-bearing financial liabilities in the form of borrowings from external financial institutions at variable rates.

The Group manages its cashflow interest rate risks by swapping a portion of its floating rate interest payments to fixed rate payments using interest rate swaps and also by ensuring that the floating interest rate on a portion of its floating rate interest payments is limited to 3% (Note 21).

 

Cash flow sensitivity analysis for variable rate instruments

If the interest rates have increased/decreased by 50 basis points, with all other variables including tax rate being held constant, the net results will be lower/higher by approximately USD 2,580,000 (2019: USD 3,230,000) as a result of higher/lower interest expense on the portion of the borrowings that is not covered by the interest rate swap instruments. Total equity would have been higher/lower by USD 10,131,000 (2019: USD 6,428,000) mainly as a result of fair value gain/loss from the interest rate swaps assuming these swaps remain effective.

 

Cash flow and fair value interest rate risks

Cash flow interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.

The Group entered into interest rate agreements to limit exposure to interest rate fluctuations. The details of these exposures are disclosed in Note 21. As at 31 December 2020, the notional principal amount of these interest rate swaps and caps represents approximately 61% (2019: 57%) of the Group’s borrowings on floating interest rates.

As at the reporting date, the interest rate profile of interest-bearing financial instruments, as reported to the management, was as follows:

Nominal amount
2020 USD’000 2019 USD’000
Variable rate instruments
Financial assets 45,430 29,584
Financial liabilities 1,120,657 1,223,417
Effect of interest rate swaps  683,407 391,604
Effect of interest rate caps 300,000
Total 1,849,494 1,944,605

 

(b) Credit risk

The Group‘s credit risk is primarily attributable to trade and other receivables, cash and cash equivalents and loans receivable from joint venture. The maximum exposure is represented by the carrying value of each financial asset on the balance sheet.

 

Financial assets that are neither past due or impaired

The Group performs periodic credit evaluations of its charterers. The Group has implemented policies to ensure cash funds are deposited and derivatives are entered into with banks and internationally recognised financial institutions with a good credit rating and the vessels are fixed to charterers with an appropriate credit rating who can provide sufficient guarantees.

There is no class of financial assets that is past due and/or impaired except for trade and other receivables (Note 13).

 

Trade receivables and contract assets

The Group applies the simplified lifetime approach and uses a provision matrix to determine the ECLs of trade receivables and contract assets. It is based on the Group’s historical observed default rates and is adjusted by a current and forward-looking estimate based on current economic conditions.

Credit risk is concentrated on several charterers. The Group adopts the policy of dealing only with customers with appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution.

The allowance made arose mainly from the provision of charter services to a customer which had met with significant financial difficulties during the financial year ended 31 December 2018. Except for this credit-impaired receivable, the Group has determined that the ECL provision estimated based on an allowance matrix of 0.3% to 1% for trade receivables aged “Past due up to three months” and “Past due for more than six months”, respectively, as at 31 December 2020 and 31 December 2019 to be insignificant.

The age analysis of trade receivables and contract assets is as follows:

2020 USD’000 2019 USD’000
Current (not past due) 940
Past due 0 to 3 months 44,798 77,833
Past due 3 to 6 months 20,427 19,243
Past due for more that 6 months 1,594 11,463
Less: Allowance for impairment (1,594) (1,594)
66,165 106,945

 

There was no movement in the allowance for impairment in respect of trade receivables and contract assets during the year.

2020 USD’000 2019 USD’000
Allowance for impairment as at 1 January 2019, 31 December 2019 and 31 December 2020 1,594 1,594

Loans receivable from joint venture/other receivables due from non-related parties

The Group has used a general 12-month approach in assessing the credit risk associated with other receivables and loans issued to the joint venture. As the loans extended to the joint venture forms an extension of the Group’s investment in product tankers via co-ownership with another strategic investor, and the vessels owned by the joint venture generate positive cash flows, management considers the credit risk of loans issued to the joint venture as low. As a result of the assessment performed, no ECL provision has been recognised.

 

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities to meet operating and capital expenditure needs. To address the inherent unpredictability of short-term liquidity requirements, the Group maintains sufficient cash for its daily operations in short-term cash deposits with banks, has access to the unutilised portions of revolving credit facilities and entered into trade receivables factoring agreement (with limited recourse to the Company) with financial institutions.

The maturity profile of the Group’s financial liabilities based on contractual undiscounted cash flows is as follows:

Less than 1 year USD’000 Between 1 and 2 years USD’000 Between 2  and 5 years USD’000 Over 5 years
USD’000
At 31 December 2020
Trade and other payables 70,518
Derivative financial instruments 6,749 4,337 4,753 143
Interest payments 35,885 30,592 49,582 7,586
Borrowings 144,834 315,910 350,077 309,836
Lease liabilities 36,246 36,813 80,217 19,082
Total 294,232 387,652 484,629 336,647

 

Less than 1 year
USD’000
Between 1 and 2 years
USD’000
Between 2  and 5 years
USD’000
Over 5 years
USD’000
At 31 December 2019
Trade and other payables1 105,474
Derivative financial instruments 881 983 495 181
Interest payments 50,130 43,379 79,560 25,179
Borrowings 169,996 139,996 571,640 341,785
Lease liabilities 46,482 50,394 107,762 33,608
Total 372,963 234,752 759,457 400,753

1 Excludes provision for reinstatement costs of leased vessels

(d) Capital risk

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholders’ value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividends paid, return capital to shareholders, obtain new borrowings or sell assets to reduce borrowings.

The Group is in compliance with all externally imposed capital requirements.

 

(e) Accounting classifications and fair values

The following tables present assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy:

  1. quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
  2. inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
  3. inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

 

Carrying amount Fair value
Note Mandatorily at FVTPL – others
USD’000
Financial assets at amortied cost
USD’000
Total
USD’000
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
At 31 December 2020
Financial assets measured at fair value
Forward foreign exchange contracts 21 40 40 40 40
Forward freight agreements 21 205 205 205 205
Interest rate caps 21 26 26 26 26
Total 271 271
Financial assets not measured at fair value
Loans receivable from joint venture 14 45,430 45,430
Trade and other receivables1 13 158,918 158,918
Cash and cash equivalents 16 100,671 100,671  
Total 305,019 305,019

(1) Excluding prepayments

 

Carrying amount Fair value
Note Fair value – hedging instruments
USD’000
Other financial liabilities
USD’000
Total
USD’000
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
At 31 December 2020
Financial liabilities measured at fair value
Interest rate swaps used for hedging 21 (15,991) (15,991) (15,991) (15,991)
Financial liabilities not measured at fair value
Bank borrowings 20 (1,110,527) (1,110,527) (1,110,527) (1,110,527)
Loan from non-related parties 20 (4,781) (4,781) (4,781) –  (4,781)
Trade payables 22 (70,518) (70,518)
Total (1,185,826) (1,185,826)

 

Carrying amount Fair value
Note Mandatorily at FVTPL – others
USD’000
Financial assets at amortied cost
USD’000
Total
USD’000
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
At 31 December 2019
Financial assets measured at fair value
Forward freight agreements 21 2,620 2,620 2,620 2,620
Forward foreign exchange contracts 21 117 117 117 117
Total 2,737 2,737
Financial assets not measured at fair value
Loans receivable from joint venture 14 29,584 29,584  
Trade and other receivables1 13 223,065 223,065
Cash and cash equivalents 16 91,612 91,612
Total 344,261 344,261

(1) Excluding prepayments

 

Carrying amount Fair value
Note Fair value – hedging  instruments
USD’000
Other financial liabilities
USD’000
Total
USD’000
Level 1
USD’000
Level 2
USD’000
Level 3
USD’000
Total
USD’000
At 31 December 2019
Financial liabilities measured at fair value
Interest rate swaps and caps used for hedging 21 (6,514) (6,514) (6,514) (6,514)
Financial liabilities not measured at fair value
Bank borrowings 20 (1,211,048) (1,211,048) (1,211,048)  – (1,211,048)
Loan from a related corporation 20 (8,500) (8,500) (8,500)  – (8,500)
Loan from non-related parties 20 (5,172) (5,172) (5,172)   (5,172)
Trade payables1 22 (105,474) (105,474)  
Total (1,330,194) (1,330,194)    

(1) Excluding provision for reinstatement costs of leased vessels

The Group has no Level 1 and Level 3 financial assets or liabilities as at 31 December 2020 and 2019.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. These financial instruments are included in Level 2, as all significant inputs required to fair value an instrument are observable.

 

(f) Offsetting financial assets and financial liabilities

The Group’s financial assets and liabilities are not subjected to enforceable master netting arrangements or similar arrangements. Financial derivatives, financial assets and financial liabilities are presented separately on the consolidated balance sheet, without netting off of balances.

27. Holding corporations

The Company’s ultimate and immediate holding corporation is BW Group Limited, incorporated in Bermuda, which is wholly owned by Sohmen family interests.

 

28. Related party transactions

In addition to the related party information disclosed elsewhere in the consolidated financial statements, the following transactions took place between the Group and related parties during the financial year on commercial terms agreed by the parties:

 

2020 USD’000 2019 USD’000
Sale and purchase of services
Support service fees paid/payable to a related corporation 4,746 7,705
Interest paid/payable to a related corporation 1,894
Rental paid/payable to a related corporation 700 634
Share capital contribution
Subscription of shares by the immediate and ultimate holding corporation 50,000

Key management remuneration for the financial year ended 31 December 2020 amounted to USD 2,865,872 (2019: USD 2,187,826).

Related corporations refer to corporations controlled by Sohmen family interests.

29. Segment information

Operating segments are determined based on the reports submitted to management to make strategic decisions. The management considers the business to be organised into four main operating segments:

(a) Long Range II (‘LR2’)
(b) Long Range I (‘LR1’)
(c) Medium Range (‘MR’)
(d) Handy size (‘Handy’)

The operating segments are organised and managed according to the size of the product tanker vessels.

The LR2 segment consists of vessels between 85,000 DWT and 124,999 DWT in size and provides transportation of clean petroleum oil products.

The LR1 segment consists of vessels between 55,000 DWT and 84,999 DWT in size and provides transportation of clean and dirty petroleum products.

The MR segment consists of vessels between 40,000 DWT and 54,999 DWT in size and provides transportation of clean and dirty oil products, vegetable oil and easy chemicals.

The Handy segment consists of vessels between 25,000 DWT and 39,999 DWT in size and provides transportation of clean and dirty oil products, vegetable oil and easy chemicals.

Management assesses the performance of the operating segments based on operating profit before depreciation, impairment and gain on disposal of vessels (“Operating EBITDA”). This measurement basis excludes the effects of impairment charges and gain on disposal of vessels that are not expected to recur regularly in every financial period. Interest income and finance expenses, which result from the Group’s capital and liquidity position that is centrally managed for the benefit of various activities, are not allocated to segments.

 

LR2
USD’000
LR1
USD’000
MR
USD’000
Handy
USD’000
Total
USD’000
2020
Revenue 58,644 276,827 427,557 111,071 874,099
Voyage expenses (437) (72,187) (140,780) (37,481) (250,885)
TCE Income 58,207 204,640 286,777 73,590 623,214
Other operating income (114) 11,794 3,375 2,534 17,589
Vessel operating expenses (13,305) (64,895) (94,396) (28,070) (200,666)
Technical management expenses (1,342) (5,311) (7,936) (2,097) (16,686)
Charter hire expenses (7,997) (16,590) (2,393) (26,980)
Operating EBITDA 43,446 138,231 171,230 43,564 396,471
Depreciation charge (13,848) (48,278) (78,200) (15,045) (155,371)
241,100
Unallocated (89,670)
Profit before income tax 151,430
Segment assets 287,838 551,899 1,286,581 249,246 2,375,564
Segment assets include:
Additions/adjustments to:
– vessel 116 (9,479) 9,397 250 284
– dry docking 150 4,787 13,326 2,765 21,028
– right-of-use-assets (17,177) 17,045 (132)
Segment liabilities 1,715 18,441 25,806 5,921 51,883

 

LR2
USD’000
LR1
USD’000
MR
USD’000
Handy
USD’000
Total
USD’000
2019
Revenue 25,452 299,831 389,777 112,795 827,855
Voyage expenses (719) (123,424) (140,606) (48,676) (313,425)
TCE Income 24,733 176,407 249,171 64,119 514,430
Other operating income 6,128 2,412 1,822 10,362
Vessel operating expenses (6,643) (63,906) (88,023) (26,174) (184,746)
Technical management expenses (727) (5,132) (7,477) (2,097) (15,433)
Charter hire expenses (4,846) (12,021) (16,867)
Operating EBITDA 17,363 108,651 144,062 37,670 307,746
Depreciation charge (6,902) (42,901) (66,382) (14,905) (131,090)
10,461 65,750 77,680 22,765 176,656
Unallocated (103,907)
Profit before income tax 72,749
Segment assets 305,122 623,205 1,334,235 272,231 2,534,793
Segment assets include:
Additions/adjustments to:
– vessels/vessels under construction 177,635 2,056 54,308 1,888 235,887
– dry docking 16,496 (350) 751 3,127 20,024
– right-of-use-assets 39,576 51,345 90,921
Segment liabilities 5,084 35,830 33,539 7,847 82,300

 

Reportable segments’ assets

The amounts provided to management with respect to total assets are measured in a manner consistent with that of the consolidated financial statements. For the purposes of monitoring segment performance and allocating resources between segments, management monitors vessels, vessels under construction, dry docking, inventories, and trade and other receivables that can be directly attributable to each segment.

 

2020
USD’000
2019
USD’000
Segment assets 2,375,564 2,534,793
Unallocated items:
Cash and cash equivalents 100,671 91,612
Trade and other receivables 56,184 46,161
Derivative financial instruments 271 2,737
Inventories 992
Property, plant and equipment 25 100
Intangible assets 4,424 3,159
Associated companies and joint venture 6,773 1,718
Total assets 2,543,912 2,681,272

 

Reportable segments’ liabilities

The amounts provided to management with respect to total liabilities are measured in a manner consistent with that of the consolidated financial statements. These liabilities are allocated based on the operations of the segments. Certain trade and other payables are allocated to the reportable segments. All other liabilities are reported as unallocated items.

 

2020
USD’000
2019
USD’000
Segment liabilities 51,883 82,300
Unallocated items:
Borrowings 1,307,294 1,448,126
Current income tax liabilities 2,071 1,416
Trade and other payables 18,635 24,412
Derivative financial instruments 15,991 6,514
Total liabilities 1,395,874 1,562,768

 

Geographical segments’ revenue

The Group’s vessels operate on an international platform with individual vessels calling at various ports across the globe. The Group does not consider the domicile of its customers as a relevant decision making guideline and hence does not consider it meaningful to allocate vessels and revenue to specific geographical locations.

 

Major customers

Revenues from the top five major customers of the Group across all operating segments represents approximately USD 195.5 million (2019: USD 284.4 million) of the Group’s total revenues.

30. Dividends paid

 

2020
USD’000
2019
USD’000
Final dividend paid in respect of Q4 2019 of USD 0.0573 per share 21,204
Interim dividend paid in respect of Q1 2020 of USD 0.1062 per share 38,557
Interim dividend paid in respect of Q2 2020 of USD 0.1062 per share 38,557
Total 98,318

The directors declared a dividend of USD 21.2 million for the financial year ended 31 December 2019. Together with the interim dividends paid for Q1 2020 and Q2 2020 of USD 0.1062 per share in both quarters, the total dividend paid in FY 2020 amounted to USD 0.2708 per share or USD 98.3 million.

Under the Bermuda Companies Act, dividends cannot be paid if there are reasonable grounds for believing that (a) the Company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realisable value of the Company’s assets would thereby be less than its liabilities.

The Company has acted in accordance with the provisions of the Bermuda Companies Act when declaring dividends.

 

31. Events occurring after balance sheet date

On  5 January 2021, the Vista Joint Venture took delivery of the LR1 vessel, Hafnia Nanjing.

On 18 January 2021, the sale of Compass and Compassion (classified as assets held for sale) to external parties was completed.

On 25 January 2021, the Certificate of Cancellation of Hafnia Tankers LLC was filed with the Registrar of Corporations in the Republic of the Marshall Islands.

 

32. Authorisation of financial statements

These financial statements were authorised to be issued by a resolution of the Board of Directors of Hafnia Limited passed on 7 March 2021.

33. Listing of companies in the Group

Name of companies Principal activities Country of incorporation Equity holding
2020 %
Equity holding
2019 %
BW Aldrich Pte. Ltd. Shipowning Singapore 100 100
BW Clearwater Pte. Ltd. Shipowning Singapore 100 100
BW Causeway Pte. Ltd. Dormant Singapore 100 100
BW Fleet Management Pte. Ltd.   Ship-management Singapore 100 100
BW Stanley Pte. Ltd. Shipowning Singapore 100 100
Hafnia Pools Pte. Ltd. Chartering Singapore 100 100
Komplementaranpartsselskabet Straits Tankers a Investment Denmark 100 100
K/S Straits Tankers c Investment Denmark 100 100
Straits Tankers Pte. Ltd. c Dormant Singapore 100 100
BW Silvermine Pte. Ltd. Dormant Singapore 100 100
BW Magellan Limited f Dormant Bermuda 100
BW Pacific Management Pte. Ltd. Agency office Singapore 100 100
Hafnia Pte. Ltd. Chartering Singapore 100 100
Hafnia Tankers LLC a Investment Marshall Islands 100 100
Hafnia Tankers Marshall Islands LLC a Investment Marshall Islands 100 100
Hafnia Tankers Singapore Holding Pte Ltd a Investment Singapore 100 100
Hafnia Tankers Singapore Sub-Holding Pte Ltd a Shipowning Singapore 100 100
Hafnia Tankers ApS a Shipowning Denmark 100 100
Hafnia Tankers Shipholding Beta Pte. Ltd. a Dormant Singapore 100 100
Hafnia Tankers Shipholding Alpha Pte Ltd a Shipowning Singapore 100 100
Hafnia One Pte. Ltd. b Shipowning Singapore 100 100
Hafnia Tankers Malta Limited (under liquidation) a Dormant Malta 100
Hafnia Tankers Shipholding Malta Ltd. (under liquidation)  a Dormant Malta 100
Hafnia Tankers Singapore Pte Ltd a Investment Singapore 100 100
Hafnia Tankers Shipholding Singapore Pte. Ltd. a Shipowning Singapore 100 100
Hafnia Tankers Shipholding 2 Singapore Pte. Ltd. a Shipowning Singapore 100 100
Hafnia Tankers Chartering Singapore Pte. Ltd. a Chartering Singapore 100 100
Hafnia Tankers International Chartering Inc. a Chartering Marshall Islands 100 100
Hafnia Tankers Services Singapore Pte Ltd a Ship-management Singapore 100 100
Hafnia Management A/S d Ship-management Denmark 40 40
Hafnia Bunkers ApS d Ship-management Denmark 40 40
Hafnia Handy Pool Management ApS d Ship-management Denmark 40 40
Hafnia MR Pool Management ApS d Ship-management Denmark 40 40
Hafnia SARL e Corporate support Monaco 100
Vista Shipping Pte. Ltd. d Investment Singapore 50 50
Vista Shipholding I Pte. Ltd. d Shipowning Singapore 50 50
Vista Shipholding II Pte. Ltd. d Shipowning Singapore 50 50
Vista Shipholding III Pte. Ltd. d Shipowning Singapore 50 50
Vista Shipholding IV Pte. Ltd. d Shipowning Singapore 50 50
Vista Shipholding V Pte. Ltd. d Shipowning Singapore 50 50
Vista Shipholding VI Pte. Ltd. d Shipowning Singapore 50 50
Vista Shipholding VII Pte. Ltd. e Shipowning Singapore 50
Vista Shipholding VIII Pte. Ltd. e Shipowning Singapore 50

(a) This company became a subsidiary following the merger with Hafnia Tankers.
(b) This company was incorporated in 2019.
(c) This company was 100% acquired in May 2019 (Note 15).
(d) This company became an associated company/joint venture following the merger with Hafnia Tankers.
(e) This company was registered in 2020.
(f) This company was disposed in 2020.

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