The directors present their Strategic Report for the year ended 31 December 2023.
The principal activity of the company is that of ship chartering and operating.
The company’s results for the year show a gross profit of $3.8m (2022: $7.9m) from its chartered voyages. All Dry Bulk cargo markets experienced reduced earnings through 2023 with a consequential decline in margins. In our Handy-size sector time charter rates fluctuated and exposure to the spot market was often difficult. Rates were unpredictable with owners always aiming to maintain higher levels and holding out until the last minute. The general downward drift was interrupted by spikes which were not always easy to avoid.
Trading conditions were not conducive to expansion but in terms of cargo volumes and number of voyages executed we managed to maintain our position. Market share remained roughly the same as in 2022.
The main market for southbound voyages continues to be Egypt where the country’s financial position remained fragile. The lack of availability of dollars restricted trade in all segments with sawn timber having less priority than some other imported goods which are considered to be more essential. Sawmills and traders have struggled to deal with the consequences and, in some cases, have been forced to adopt new approaches. Traders without cashflow have been unable to confirm business until advance payments are received which is often at very last minute. Traders with cash are in short supply. Some of the main sawmills (all of which have experienced a drop in selling prices against a rising cost base) have been forced to sit on stocks until sales materialise and have not moved goods in more usual regular flows. The result for the shipping companies is that the final cargo loaded on the vessel is seldom the one which was planned for. The lack of predictability has led to inefficiencies with, for example, more ports being used to fulfil the loading as ships search around for the available cargo. Ship-operators are doing themselves no favours by reducing freight prices to entice last minute parcels to load but the tactic is often unavoidable.
The customer base is changing since Sawmills have, in some cases, experimented in dealing with new clients who have the attraction of being cash buyers. Some of these may be transferring their experience of other markets to the timber trade which is not always easy to accommodate.
The northbound trade from Eastern Mediterranean has remained fairly constant over 2023 except for the shipment of windmill blades and towers. This segment dropped due to more competition from multi-purpose and smaller deadweight vessels which are no longer being employed in the container trades. It will be difficult for this segment to re-emerge under such conditions.
The arbitration between Imperial and one of its counterparties is making slow progress with no resolution anticipated in the near future.
During 2024 Imperial is generally benefiting from several longer-term charters which cover multiple voyages. These charters are useful when trying to avoid the aforementioned market spikes, but such events are by their nature unpredictable and have been of a shorter duration than expected. Our timings have been somewhat fortuitous in this respect, but we are cautious of taking too many longer positions when a negative sentiment is pervasive.
Cash flow management remains an engaging exercise. Freight payment arrears remain a challenge.
There has been some stability in sentiment in Egypt buoyed by announcements of major government projects, but general conditions are depressed, and inflation is high. Devaluation of the local currency has continued but downward movements are predictable. Many trades in Egypt have relied on the supply of dollars from the unofficial Black Market but dollar traders have closed doors after pressure from the authorities. Commodity traders are looking for new ways to do business and somehow, they manage to adapt their models, but this often demands more flexibility and sacrifice from those with whom they engage. Shipping is no exception.
We continue to rely on the willingness of one of our collaborative shipping partners and vessel suppliers to support our operations by exercising tolerance of delayed inward payments. Our predictions of better cash flows have not materialised as anticipated. Improvement is always around the corner, but the bend is a long one. We are actively putting in place measures which will offer some security against due debts, but these are not quick fix solutions. We are, however, confident that the consequences of cash flow pressure can be managed, mitigated and resolved in the medium term.
The directors have identified the need to manage the company’s material financial risks which are principally liquidity risk, foreign exchange risk and going concern risk as follows:
Liquidity risk
The company finances its business from a combination of cash flow arising from its operations and intercompany borrowing. Liquidity risk is the risk that the company will encounter difficulties in meeting its obligations. This risk is managed by ensuring that regular reviews of the cash flow are undertaken so that the company can meet its obligations in order to continue to finance its operations and investments
Foreign exchange risk
The company’s activities are principally conducted in US dollars as well as Euros. The directors closely monitor the company’s exposure. The directors have considered the use of derivative instruments when commercially appropriate to assist in managing such risks. No such instruments were held by the company at any time during the year or at the year end.
Going concern risk
A potential financial risk also exists in respect of funding requirements over the short to medium term. The directors review the company’s funding requirements on a regular basis and maintain on-going monitoring in respect of trading performance and future working capital requirements. This risk is discussed in more detail in Note 1.2 Going Concern.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The results for the year are set out on page 9.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
Qualified Opinion
We have audited the financial statements of Imperial Shipping Limited (the 'company') for the year ended 31 December 2023 which comprise the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for qualified opinion
Material uncertainty relating to going concern
We draw attention to note 1.2 to the financial statements concerning the Company’s ability to continue as a going concern. As explained in note 1.2 the Company’s forecasts depend upon factors which are inherently uncertain in the current economic environment. These conditions along with other matters as set forth in note1.2 indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company were unable to continue as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
Except for the possible effects of the matter described in the basis for qualified opinion section of our report, in our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial period for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
The extent to which the audit was considered capable of detecting irregularities including fraud.
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:
the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
we identified the laws and regulations applicable to the company through discussions with directors and other management, and from our commercial knowledge and experience of the shipping industry;
we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company, including the Companies Act 2006 and taxation legislation;
we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and
identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
understanding the business model as part of the control and business environment;
making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; and
considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations.
To address the risk of fraud through management bias and override of controls, we:
performed analytical procedures to identify any unusual or unexpected relationships;
tested journal entries to identify unusual transactions;
assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and
investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
agreeing financial statement disclosures to underlying supporting documentation;
enquiring of management as to actual and potential litigation and claims; and
reviewing correspondence and enquiring with the company of actual and potential non-compliance with laws and regulations.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment by for example forgery, or intentional misrepresentation or through collusion. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
The income statement has been prepared on the basis that all operations are continuing operations.
Imperial Shipping Limited is a private company limited by shares incorporated in England and Wales. The registered office is 200 Court Road, Eltham, London, SE9 4EW.
The financial statements are prepared in US dollars, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest $.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 33 Related Party Disclosures paragraph 33.7.
The financial statements of the company are consolidated in the financial statements of Sequana Maritime Limited. These consolidated financial statements are available from its registered office, 200 Court Road, Eltham, London SE9 4EW.
At 31 December 2023, the Company had net current assets of $14.23m (2022: $10.14m) having recorded a profit after tax of $4.09m (2022: $3.47m).
The directors have reviewed the 2024 draft management accounts to November 2024 as well as preparing financial forecasts for 2025 on the basis of various trading and working capital assumptions. Based on its forecasting exercise the directors have concluded that the company will be profitable in 2024 and 2025. Forecasting for the company’s ongoing shipping operations is not an exact science with actual outturns being impacted by the general economic situation globally and especially the ongoing impact of the war in Ukraine and more recently the events in the Middle East which impacts upon time charter rates beyond the control of individual ship owning groups. In addition, although the directors remain confident that the trading balance and loans (Note 8) made to a principal trading partner remain fully recoverable, there can be no certainty as to the timing of this.
The forecast results do not include any further provision against outstanding trade debtors or loans advanced and nor do they forecast a significant reduction in the balance owed to the SOL group ($3.3m at the balance sheet date but currently increased to around $6.6m). The directors have concluded that the company remains reliant upon the continued support of the SOL group to enable it to continue trading as forecast. Relations with the SOL group remain excellent. There remains a charge on the balance owed to them (the debt being secured on a fellow subsidiary’s ship) and should the SOL group seek repayment of the outstanding balance then currently the vessel would likely need to be sold or new external finance sought. Currently the directors have no indication that the SOL group will seek repayment of the outstanding balance until the company and its fellow group companies are able to make repayment without causing any financial distress.
Based on the factors outlined above the directors have concluded that the company will be able to realise its assets and discharge its liabilities in the normal course of business for the foreseeable future. The directors have therefore continued to adopt the going concern basis in preparing these financial statements.
Although the directors are satisfied that adopting the going concern basis is appropriate, there can be no certainty that the outcome of the matters discussed above will be as forecast by the directors. Therefore, there exists a material uncertainty that may cast a significant doubt upon the company’s ability to continue as a going concern and to meet its liabilities as they fall due.
The financial statements do not include any adjustments to the value of the balance sheet assets, or provision for further liabilities which would result should the going concern concept not be valid.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors and loans from fellow group companies, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The total turnover of the company derives from its principal activity of shipping services outside the UK.
There are no employees in Imperial Shipping Limited. None of the directors received any remuneration or emoluments through the company.
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 31 December 2023 are as follows:
Registered office addresses (all UK unless otherwise indicated):
**These companies are wholly owned by Medro Shipping Company Limited.
Trade debtors are stated after provisions for impairment of $10.270m (2022: $11.331m).
Amounts owed by group undertakings are stated after provisions for impairment of $12.586m (2022: $12.728m). These are receivable balances that are unsecured, interest free and repayable on demand.
Included within Trade Debtors is approximately $1.33m (2022: $2.32m) due from a trading partner who also owes the company a loan balance of $7.04m (2022: $3.52m) (included in Other Debtors). The trade debtor balance is stated after provisions for impairment of $3.1m (2022: $3.1m). The company has continued to trade with this partner in 2024 but, although receiving monies for some 2023 and 2024 voyages, the overall net trading balance has only fallen by around $180k. At the date of approval of these financial statements, the loan balance outstanding remains at $7.04m with no repayments having been received. The amount of these balances outstanding is not in dispute and the directors remain confident that full settlement will be received. Currently however it is not possible to predict with any certainty the timing of the full recovery of the outstanding balances.
Included within amounts owed to group undertakings are trade payable balances that are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
There is a single class of Ordinary shares. There are no restrictions on the distribution of dividends and repayment of capital.
Profit and loss reserves represents accumulated comprehensive income for the year and prior periods less dividends paid.
The P&I claim against a 2021 voyage previously reported is still ongoing. The case will likely be going to arbitration in 2025 however no date has yet been set. The outcome is not certain, and currently although the directors remain confident of success it is not possible to predict with any accuracy what award could be made against the company should we be unsuccessful in the arbitration hearing. As a result, no provision for this has been made in the financial statements.
During the year the company entered into the following transactions with related parties: