REG - Ocean Wilsons Hldgs - Interim Management Statement
Ocean Wilsons Holdings Limited
Interim Management Statement for the six months ended 30 June 2018
Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the "Company") today provides its interim management statement for the six months ended 30 June 2018.
Key points
● Net cash inflow from operating activities increased US$22.5 million to US$55.6 million (2017: US$33.1 million).
● Operating profit fell 4% to US$46.8 million (2017: US$48.9 million). However, due to a decrease of US$20.4 million in other gains and losses (in respect of trading investments), exchange losses on foreign currency borrowings and on monetary items of US$18.8 million and a reduced income tax charge of US$8.3 million, profit for the period fell 70% to US$16.7 million (2017: US$55.4 million).
● The Brazilian Real was 17% lower against the US Dollar at 30 June 2018 compared with 31 December 2017. The average US Dollar/Brazilian Real exchange rate in the period at 3.43 was 8% higher than the comparative period in 2017 of 3.18.
● Operating margins remained stable at 20% (2017: 20%).
● The investment portfolio decreased US$2.2 million to US$272.5 million (31 December 2017: US$274.7 million) after dividends paid from the portfolio of US$4.75 million.
● Dividends paid to shareholders in the period of US$24.8 million (2017: US$22.3 million).
Chairman's Statement
Introduction
The Group continued to generate strong operating cashflow in the first half of 2018 despite a difficult operating environment. Results were impacted by weaker volumes reflecting the competitive environment in some markets and the knock-on effects of a nationwide truckers strike in Brazil in late May. The depreciation of the Brazilian Real "BRL" against the US Dollar "USD" affected both our revenue in USD terms and bottom line earnings in the period. Group revenue grew 3% in BRL terms, although in USD terms, revenue was 4% lower at US$235.0 million. Operating margins for the period remained stable at 20% (2017: 20%).
Group Results
Revenue
Group revenue grew 3% in BRL terms for the six months ended 30 June 2018, although in USD terms, revenue was 4% lower at US$235.0 million (2017: US$245.8 million), due to the higher average USD/BRL exchange rate used to convert revenue into our reporting currency and a decrease in towage revenue. Towage revenue at US$86.5 million was US$16.4 million lower than the comparative period (2017: US$102.9 million) as stronger competition impacted both pricing and harbour towage volumes. Harbour towage manoeuvres performed in the period were 7% lower at 27,885 (2017: 29,902) with the towage market also negatively influenced by the knock-on effects of a nationwide truckers strike in Brazil. Demand for towage special operations improved with ocean towage, shipyard support and a vessel floatation performed in the period. Ship agency revenue at US$5.0 million was 11% lower than the comparative period (2017: US$5.6 million). Port terminals and logistics revenue was 3% higher at US$128.9 million (2017: US$124.9 million) mainly due to higher revenue from our logistics business and Brasco, our offshore oil and gas support base. Encouragingly Brasco revenue increased US$2.9 million to US$10.7 million (2017: US$7.8 million) with the commencement of new offshore vessel support contracts. Container terminal revenue declined US$1.6 million to US$89.4 million (2017: U$91.0 million) as a more favourable sales mix was offset by lower container volumes and a higher average USD/BRL exchange rate used to convert revenue into our reporting currency. Container volumes handled at Tecon Rio Grande and Tecon Salvador for the period were 3% lower at 484,000 "TEUs" (twenty-foot equivalent units) (2017: 503,500 TEUs) principally due to the impact of the Brazilian truckers strike. Shipyard third-party revenue at US$14.9 million (2017: US$12.4 million) reflected an increase in third party vessel construction and dry-docking operations.
Operating Profit
Operating profit was US$2.1 million lower than the comparative period at US$46.8 million (2017: US$48.9 million) principally due to the fall in revenue as operating margins for the period at 20% were stable with the comparative period (2017: 20%). Raw materials and consumables used were US$2.3 million higher at US$21.1 million (2017: US$18.8 million) as a result of the increase in shipyard activity. Employee expenses were 10% lower at US$75.8 million (2017: US$83.8 million) due to the effect of the weaker USD/BRL exchange rate and the reversal of a US$1.2 million payroll tax provision. Other operating expenses were marginally lower at US$62.7 million (2017: US$63.4 million) because of the weaker exchange rate and a US$1.4 million tax credit. The comparative period benefitted from a non-recurring US$3.9 million provision reversal. The depreciation and amortisation expense at US$28.7 million was in-line with the comparative period (2017: US$28.9 million).
Share of results of joint ventures
The share of results of joint ventures is Wilson Sons' 50% share of net profit for the period from our offshore support vessel joint venture. The net loss attributable to Wilson Sons for the period was US$1.3 million compared to a US$1.8 million profit in 2017 because of lower operating profits and higher foreign exchange losses on monetary items. The operating profit for a 50% share in the joint venture in the period was US$5.0 million lower at US$4.2 million (2017: US$9.2 million) principally due to fewer operating days which were 19% lower at 2,533 days against 3,144 days in 2017. Foreign exchange losses on monetary items was US$4.1 million (2017: US$0.5 million).
Investment revenues
Investment revenues were US$3.1 million lower at US$6.7 million (2016: US$9.8 million) mainly due to lower other interest income of US$0.4 million (2017: US$2.3 million).
Investment gains and losses
Other losses of US$0.1 million (2017: US$20.3 million gain) arose from the Group's portfolio of trading investments and reflect the profit realised on the disposal of trading investments in the period of US$1.7 million (2017: US$5.9 million) together with a decrease in the fair value of trading investments at the period end of US$1.8 million (2017: US$14.4 million gain).
Finance costs
Finance costs for the period at US$15.8 million were US$7.7 million higher than the comparative period (2017: US$8.1 million), principally due to an increase in exchange movements on foreign currency borrowings. Higher exchange losses on foreign currency borrowings of US$9.2 million (2017: US$1.1 million) resulting from the devaluation of the BRL against the USD at the period end.
Exchange rates
The Group reports in USD and has revenue, costs, assets and liabilities in both BRL and USD. Therefore movements in the USD/BRL exchange rate can impact the Group both positively and negatively from year to year. In the six months to 30 June 2018 the BRL depreciated 17% against the USD from R$3.31 at 1 January 2018 to R$3.86 at the period end. In the comparative period in 2017 the BRL depreciated 2% against the USD from R$3.27 to R$3.31.
The principal effects from the movement of the BRL against the USD on the income statement are:
2018
2017
US$ million
US$ million
Exchange (loss)/gain on monetary items (i)
(8.5)
2.2
Exchange loss on foreign currency borrowings
(9.2)
(1.1)
Deferred tax on retranslation of fixed assets (ii)
(12.9)
0.2
Deferred tax on exchange variance on loans (iii)
12.0
(0.2)
Total
(18.6)
1.1
(i) This arises from the translation of BRL denominated monetary items in USD functional currency entities.
(ii) The Group's fixed assets are located in Brazil and therefore future tax deductions from depreciation used in the Group's tax calculations are denominated in BRL. When the BRL depreciates against the US Dollar the future tax deduction in BRL terms remain unchanged but is reduced in US Dollar terms and vice versa.
(iii) Deferred tax credit arising from the exchange losses on USD denominated borrowings in Brazil.
The average USD/BRL exchange rate in the period at 3.43 was 8% higher (2017: 3.18) than the comparative period in 2017. A higher average exchange rate negatively impacts BRL denominated revenues and benefits BRL denominated costs when converted into our reporting currency, the USD.
Foreign exchange losses on monetary items
Foreign exchange losses on monetary items of US$8.5 million (2017: US$2.2 million gain) arose from the Group's foreign currency monetary items and principally reflect the movement of the BRL against the USD during the period.
Profit before tax
Profit before tax for the period decreased US$47.1 million to US$27.7 million compared to US$74.9 million in 2017. The decrease is principally due to the US$20.4 million movement in other gains and losses from the investment portfolio, a US$10.7 million movement in foreign exchange losses on monetary items and a US$7.7 million increase in finance costs. In addition, operating profit was US$2.0 million lower, share of results from joint ventures was US$3.1 million lower and investment revenue was US$3.1 million lower.
Taxation
The tax charge for the period of US$11.1 million represents an effective tax rate in the period of 40% (2017: 26%) compared to the corporate tax rate prevailing in Brazil of 34%. The difference in the effective tax rates is due to the mix of income and expenses that are not included in determining taxable profit. The deterioration in the current period is primarily attributable to the movement in foreign exchange losses on monetary items and less income at our Bermudian companies that are not subject to income tax and the movement in foreign exchange losses on monetary items. Current taxation at US$12.9 million was US$3.8 million lower than the comparative period in 2017 (US$16.7 million).
Profit for the period
Profit attributable to equity holders of the parent is US$10.0 million (2017: US$41.4 million) after deducting profit attributable to non-controlling interests of US$6.6 million (2017: US$14.1 million). The non-controlling interests share of Group profit for the period at 40% is greater than the comparative period (2017: 25%), as the prior period benefitted from higher returns from the investment portfolio which are fully attributable to equity holders of the parent.
Earnings per share for the period was 28.4 cents (2017: 116.9 cents).
Investment portfolio performance
The trading investment portfolio and cash under management of Ocean Wilsons (Investments) Limited "OWIL" was US$272.5 million (31 December 2017: US$274.7 million) a fall of US$2.2 million in the period after paying dividends of US$4.75 million to Ocean Wilsons Holdings Limited and deducting management and other fees of US$1.5 million.
Cash flow and debt
Net cash inflow from operating activities for the period was US$22.5 million higher than the comparative period at US$55.6 million (2017: US$33.1 million), mainly due to a positive working capital movement in the period of US$5.9 million compared with a US$26.7 million negative working capital movement in 2017. Capital expenditure in the period at US$24.4 million was US$11.3 million higher than the comparative period (2017: US$13.1 million) principally due to increased vessel construction and programmed drydocking. Dividends of US$24.8 million were paid to shareholders in the period (2017: US$22.3 million) with a further US$16.1 million paid to non-controlling interests in our subsidiaries (2017: US$15.8 million). Capital repayments on existing loans were made in the period of US$31.1 million (2017: US$27.9 million).
At 30 June 2018, the Group had cash and cash equivalents of US$60.1 million (31 December 2017: US$83.8 million) and Group borrowings were US$323.1 million (31 December 2017: US$354.7 million). In addition to the Group's borrowings, the Company's 50% share of our offshore vessel joint venture's debt is US$231.3 million (2017: US$247.9 million).
Net asset value
At the close of business on 31 July 2018, the Wilson Sons share price was R$45.20, resulting in a market value for the Ocean Wilsons holding of 41,444,000 shares (58.19% of Wilson Sons) totalling approximately US$499.0 million which is the equivalent of US$14.11 (£10.76) per Ocean Wilsons Holdings Limited share.
Adding together the market value per share of Wilsons Sons, US$14.11 and the investment portfolio per share of US$7.71 results in a net asset value per Ocean Wilsons Holdings Limited share of approximately US$21.82 (£16.63). The Ocean Wilsons Holdings Limited share price of £12.90 at 31 July 2017 represented an implied discount of 22%.
Outlook
In July the Brazilian government reduced its forecast for GDP growth in the year to 1.6% due to the truckers strike in late May, the expectation of rising interest rates in the United States and increased uncertainty in Brazils domestic scenario. The uncertainty in the domestic scenario is further clouded by the upcoming Brazilian presidential elections in October. In the face of intensifying market competition our towage business continues to face both volume and pricing pressure although we remain confident in the underlying strength of our business to meet these challenges. The environmental license approval for the expansion of the Tecon Salvador container terminal was received in July and we expect to start construction in the fourth quarter of 2018. This is a significant step in the continuing development and growth of this important asset. Container volumes handled at Tecon Rio Grande and Tecon Salvador in July were 5% higher at 102,500 TEUs (2017: 98,000 TEUs).
Wilson Sons Limited
The Wilson Sons 2nd quarter 2018 Earnings Report released on 10 August 2018 is available on the Wilson Sons Limited website: www.wilsonsons.com.br
In it Cezar Baião, CEO of Operations in Brazil said:
"Wilson Sons 2Q18 EBITDA was down 18.1% against the comparative quarter to US$36.6M (2Q17: US$44.7M). Although Container Terminal operating volumes were negatively impacted by a nationwide truck drivers' strike, imports grew 7.4% and Rio Grande inland navigation flows increased by 131.8%, denoting the efficiency and safety of this route.
Towage results continued to be pressured by a very competitive environment affecting volumes and pricing. The division was awarded a US$48.3M financing priority by the Merchant Marine Fund ("FMM"), to be used for the repair and maintenance of 35 tugboats in 2019 and 2020, a first step prior to contracting with a financial agent.
Weakened offshore vessel demand has been partially mitigated through alternative vessel solutions. In July we expanded the range of services provided by our OSV joint venture as we commenced two contracts for shallow-water diving support services and one for oil spill recovery services. Brazil's recent success in pre-salt oilfield auctions reinforces a more favourable long-term outlook for the Brazilian oil and gas industry despite the short-term challenges.
Improvements in workplace safety were evidenced by the 91% reduction in the Lost Time Injury Frequency Rate ("LTIFR") between 2010 and June 2018, achieving a level of global best practice.
The Company remains focused on increasing cash flow, improving capacity utilisation across all businesses and maximising value for shareholders, with its continued commitment to safety."
Investment Managers Report
Hanseatic Asset Management LBG, the Manager of the Group's investment portfolio reports as follows:
Market backdrop
The economic picture has taken a rather nasty turn this year with key economic metrics missing expectations in many countries. Further, whilst monetary policy has continued to tighten, investors are starting to question if this is due to inflationary pressures as opposed to quelling growth. With unemployment falling and (especially in the US) the point of full employment nearing, there is a growing fear that interest rates are behind the curve and will need to be increased more rapidly to stop inflation becoming entrenched. If this is true then it brings with it the danger that policymakers will overshoot leading to excessive tightening, recession and a bear market.
Rising rates in the US and the end of quantitative easing have also buoyed the US dollar which, combined with the fear that we are nearing the end of the easy liquidity environment, has put pressure on many of the emerging and Asian markets as global investors shift their capital back home amid broader fears of contagion.
All in all, investors have started to question whether we are in a late cycle environment bringing with it more volatility and choppiness in markets
Geo-politics
For fund managers operating within developed markets over the past 25 years or so, geo-politics were not particularly relevant. In practice the commentary coming from central bankers was often more relevant from a market perspective, determining interest rate and liquidity cycles which have been the main market drivers in recent times. Recently this appears to be changing, with political events threatening to have more influence on markets.
President Trump's actions around trade in particular have unnerved investors. The first year of Trump's presidency saw limited action to cut the country's trade deficit but changes in White House personnel and the influence of hard-line trade proponents has recently led to a more hostile approach. Europe is also suffering its own geo-political crisis with populist parties coming close to power in the Netherlands, Germany and France while Italy has formed a government split between two populist parties. Questions remain about the broader longevity of the euro and European Union. Elsewhere, other countries are facing their own challenges with the UK struggling to negotiate the Brexit process and in Japan, Shinzo Abe's position as prime minister is looking increasingly under threat following a series of scandals.
The emerging markets (EM) are more disparate as investors again start to question the sustainability of EM debt levels in the face of rising US interest rates and removal of the liquidity punchbowl. This however fails to recognise the progress made in the emerging region as a whole. The emerging region's financial strength is much improved with many countries running surpluses rather than deficits, their currencies are typically floating rather than linked to the US dollar as in the past and generally look cheap on a purchasing power parity basis.
Positioning portfolios
From an economic perspective we believe that the current weakness is just noise, with economic indicators often giving false signals in the short-term, and we would expect growth to pick-up again over the summer period.
However we acknowledge the potential for the geo-political machinations to start impacting confidence and influencing company investment decisions. Our sense at this stage is that Trump will avoid pushing the US economy and stock market over the edge and will ultimately pull-back from measures that catalyse this, but we continue to view this as a rather dangerous game of poker. From an allocation perspective we remain biased towards equities albeit primed to change this view if the more extreme outcomes come to fruition. We remain biased towards emerging markets in view of the longer-term positives but acknowledge the short-term dangers.
In many ways the current market backdrop plays to our longer-term investment horizon. Being less influenced by the shorter-term foibles of stock markets we can avoid being blown around by the current noise and instead focus on the longer-term fundamentals.
CUMULATIVE PORTFOLIO RETURNS
3 Years
5 Years
3 Years
5 Years
Performance (Time-weighted)
YTD
p.a.
p.a.
p.a.
p.a.
OWIL
1.5%
5.8%
6.3%
5.8%
6.3%
Performance Benchmark *
3.7%
4.8%
4.3%
4.8%
4.3%
MSCI ACWI + FM
-0.5%
8.2%
9.4%
8.2%
9.4%
MSCI Emerging Markets
-6.7%
5.6%
5.0%
5.6%
5.0%
*Notes:
The OWIL Performance Benchmark which came in to effect on 1 January 2015 is US CPI Urban Consumers NSA +3% p.a. This has been combined with the old benchmark (USD 12 Month LIBOR +2%) for periods prior to the adoption of the new benchmark.
Investment Portfolio at 30 June 2018
Market Value US$000
% of
NAVPrimary Focus
Findlay Park American Fund
22,278
8.2
US equities - long only
Adelphi European Select Equity Fund
13,033
4.8
Europe equities - long only
Egerton Long - Short Fund Limited
12,310
4.5
Europe/US equities - hedge
Goodhart Partners: Hanjo Fund
10,216
3.7
Japan equities - long only
BlackRock European Hedge Fund
10,144
3.7
Europe equities - hedge
NTAsian Discovery Fund
9,994
3.7
Asia ex-Japan equities - long only
Lansdowne Developed Markets Fund
8,447
3.1
Europe/US equities - hedge
Pangaea II, LP
7,869
2.9
Private Assets - GEM
GAM Star Fund PLC - Technology
7,454
2.7
Technology - long only
L Capital Asia 2, LP
7,360
2.7
Private Assets - Asia (Consumer)
Top 10 Holdings
109,105
40.0
Indus Japan Long Only Fund
7,027
2.6
Japan equities - long only
Schroder ISF Asian Total Return Fund
6,975
2.6
Asia ex-Japan equities - long only
Select Equity Offshore, Ltd
6,621
2.4
US equities - long only
Helios Investors II, LP
6,539
2.4
Private Assets - Africa
Hony Capital Fund V, LP
6,370
2.3
Private Assets - China
Vulcan Value Equity Fund
6,336
2.3
US equities - long only
Navegar I, LP
6,041
2.2
Private Assets - Philippines
Prince Street Opportunities Fund
6,012
2.2
Emerging Markets equities - long only
Greenspring Global Partners IV, LP
5,857
2.1
Private Assets - US Venture Capital
NG Capital Partners II, LP
5,794
2.1
Private Assets - Latin America
Top 20 Holdings
172,677
63.4
Global Event Partners Ltd
5,413
2.0
Global equities - long/short
Hudson Bay International Fund Ltd
5,306
1.9
Market Neutral - multi-strategy
Gramercy Distressed Opportunity Fund II, LP
4,240
1.6
Private Assets - distressed debt
China Harvest II, LP
4,063
1.5
Private Assets - China
KKR Special Situations Fund, LP
3,853
1.4
Private Assets - distressed debt
Silver Lake Partners IV, LP
3,767
1.4
Private Assets - Global Technology
AMED Fund, SICAR
3,286
1.2
Private Assets - Africa
Primary Capital IV, LLP
3,236
1.2
Private Assets - Europe
L Capital Asia, LP
3,212
1.2
Private Assets - Asia (Consumer)
Greenspring Global Partners VI, LP
3,162
1.2
Private Assets - US Venture Capital
Top 30 Holdings
212,215
77.9
37 Remaining Holdings
56,086
20.6
Cash
4,171
1.5
TOTAL
272,472
100.0
Hanseatic Asset Management LBG
August 2018
Going concern
The Group closely monitors and manages its liquidity risk. The Group has considerable financial resources including US$60.1 million in cash and cash equivalents and the majority of the Group's borrowings have a long maturity profile. The Group's business activities together with the factors likely to affect its future development and performance are set out in the Chairman's statement and Investment Manager's report. The financial position, cash flows and borrowings of the Group are also set out in the Chairman's statement. Details of the Group's borrowings are set out in note 15. Based on the Group's cash forecasts and sensitivities run, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.
Responsibility statement
The Directors confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance with IAS 34;
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R; and
(c) the interim management report includes a fair review of the information required by DTR 4.2.8R.
J F Gouvêa Vieira
Chairman
10 August 2018
Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2018
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
Notes
US$'000
US$'000
Revenue
3
235,017
245,753
Raw materials and consumables used
(21,098)
(18,817)
Employee benefits expense
5
(75,773)
(83,797)
Depreciation & amortisation expense
4
(28,724)
(28,949)
Other operating expenses
(62,735)
(63,354)
Profit/(loss) on disposal of property, plant and equipment
139
(1,962)
Operating profit
46,826
48,874
Share of results of joint ventures
(1,330)
1,808
Investment revenue
6
6,707
9,777
Other gains and losses
7
(149)
20,280
Finance costs
8
(15,773)
(8,090)
Foreign exchange (losses)/gains on monetary items
(8,546)
2,203
Profit before tax
27,735
74,852
Income tax expense
9
(11,060)
(19,403)
Profit for the period
16,675
55,449
Other comprehensive income: items that may be reclassified subsequently to profit and loss
Exchange differences arising on translation of foreign operations
(38,479)
(4,970)
Effective portion of changes in fair value of derivatives
421
141
Other comprehensive loss for the period
(38,058)
(4,829)
Total comprehensive (loss)/income for the period
(21,383)
50,620
Profit for the period attributable to:
Equity holders of parent
10,032
41,348
Non-controlling interests
6,643
14,101
Profit for the period
16,675
55,449
Total comprehensive income for the period attributable to:
Equity holders of parent
(12,012)
38,524
Non-controlling interests
(9,371)
12,096
Total comprehensive (loss)/income for the period
(21,383)
50,620
Earnings per share
Basic and diluted
11
28.4c
116.9c
Consolidated Balance Sheet
as at 30 June 2018
Unaudited
Audited
as at
as at
30 June
31 December
2018
2017
Notes
US$'000
US$'000
Non-current assets
Goodwill
27,595
30,319
Other intangible assets
26,151
30,592
Property, plant and equipment
12
593,658
634,881
Deferred tax assets
30,131
28,639
Trade and other receivables
14
55,036
58,104
Investment in joint ventures
16
29,551
26,644
Other non-current assets
8,900
9,535
771,022
818,714
Current assets
Inventories
13,926
13,773
Trading investments
13
283,831
305,070
Trade and other receivables
14
80,540
98,570
Cash and cash equivalents
60,147
83,827
438,444
501,240
Total assets
1,209,466
1,319,954
Current liabilities
Trade and other payables
(51,579)
(64,465)
Derivatives
(603)
(1,108)
Current tax liabilities
(992)
(3,201)
Obligations under finance leases
(92)
(846)
Bank overdrafts and loans
15
(53,122)
(54,288)
(106,388)
(123,908)
Net current assets
332,056
377,332
Non-current liabilities
Bank loans
15
(270,006)
(300,436)
Derivatives
(133)
(395)
Employee benefits
(978)
(1,083)
Deferred tax liabilities
(52,716)
(51,531)
Provisions
(16,638)
(18,232)
Obligations under finance leases
(101)
(309)
(340,572)
(371,986)
Total liabilities
(446,960)
(495,894)
Net assets
762,506
824,060
Capital and reserves
Share capital
11,390
11,390
Retained earnings
563,404
578,126
Capital reserves
31,760
31,760
Translation and hedging reserve
(55,159)
(33,115)
Equity attributable to equity holders of the parent
551,395
588,161
Non-controlling interests
211,111
235,899
Total equity
762,506
824,060
Consolidated Statement of Changes in Equity
as at 30 June 2018
Hedging and
Attributable to equity
Non-
For the six months ended 30 June 2017 (unaudited)
Share
Retained
Capital
Translation
holders of
controlling
Total
capital
earnings
reserves
reserve
the parent
interests
equity
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
US$'000
Balance at 1 January 2017
11,390
521,878
31,760
(29,685)
535,343
221,649
756,992
Currency translation adjustment
-
-
-
(2,906)
(2,906)
(2,064)
(4,970)
Effective portion of changes in fair value of derivatives
-
-
-
82
82
59
141
Profit for the period
-
41,348
-
-
41,348
14,101
55,449
Total income and expense for the period
-
41,348
-
(2,824)
38,524
12,096
50,620
Dividends
-
(22,279)
-
-
(22,279)
(15,845)
(38,124)
Share based expense
-
-
-
-
-
1,171
1,171
Balance at 30 June 2017
11,390
540,947
31,760
(32,509)
551,588
219,071
770,659
For the six months ended 30 June 2018 (unaudited)
Balance at 1 January 2018
11,390
578,126
31,760
(33,115)
588,161
235,899
824,060
Currency translation adjustment
-
-
-
(22,289)
(22,289)
(16,190)
(38,479)
Effective portion of changes in fair value of derivatives
-
-
-
245
245
176
421
Profit for the period
-
10,032
-
-
10,032
6,643
16,675
Total income and expense for the period
-
10,032
-
(22,044)
(12,012)
(9,371)
(21,383)
Dividends
-
(24,754)
-
-
(24,754)
(16,079)
(40,833)
Share based expense
-
-
-
-
-
662
662
Balance at 30 June 2018
11,390
563,404
31,760
(55,159)
551,395
211,111
762,506
Share capital
The Group has one class of ordinary share which carries no right to fixed income.
Capital reserves
The capital reserves arise principally from transfers from revenue to capital reserves made in the Brazilian subsidiaries arising in the following circumstances:
(a) profits of the Brazilian subsidiaries and Brazilian holding company which in prior periods were required by law to be transferred to capital reserves and other profits not available for distribution; and
(b) Wilson Sons Limited bye-laws require the company to credit an amount equal to 5% of the company's net profit to a retained earnings account to be called legal reserve until such amount equals 20% of the Wilson Sons Limited share capital.
Hedging and translation reserve
The hedging and translation reserve arises from exchange differences on the translation of operations with a functional currency other than US Dollars and effective movements on hedging instruments.
Amounts in the statement of changes in equity are stated net of tax where applicable.
Consolidated Cash Flow Statement
for the six months ended 30 June 2018
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
Notes
US$'000
US$'000
Net cash inflow from operating activities
17
55,609
33,091
Investing activities
Interest received
3,342
4,050
Dividends received from trading investments
4,283
4,772
Proceeds on disposal of trading investments
47,059
64,822
Proceeds on disposal of property, plant and equipment
429
473
Purchases of property, plant and equipment
(24,402)
(13,142)
Purchase of intangible asset
(882)
(1,626)
Purchases of trading investments
(25,969)
(39,314)
Capital increase of joint venture
(4,003)
-
Net cash (used in)/from investing activities
(143)
20,035
Financing activities
Dividends paid
10
(24,754)
(22,279)
Dividends paid to non-controlling interests in subsidiary
(16,079)
(15,845)
Repayments of borrowings
(31,115)
(27,883)
Repayments of obligations under finance leases
(597)
(448)
Derivative paid
(490)
(302)
New bank loans raised
2,512
-
Net cash used in financing activities
(70,523)
(66,757)
Net decrease in cash and cash equivalents
(15,057)
(13,631)
Cash and cash equivalents at beginning of period
83,827
77,314
Effect of foreign exchange rate changes
(8,623)
(702)
Cash and cash equivalents at end of period
60,147
62,981
Notes to the Accounts
for the six months ended 30 June 2018
1 General information
The interim financial information is not the Company's statutory accounts. The auditors of the Company have not made any report thereon under section 90(2) of the Bermuda Companies Act.
Ocean Wilsons Holdings Limited is a company incorporated in Bermuda under the Companies Act 1981 and the Ocean Wilsons Holdings Limited Act, 1991.
These financial statements are presented in US Dollars because that is the currency of the primary economic environment in which the Group operates.
2 Accounting policies
The condensed consolidated interim financial report of the Company for the six months ended 30 June 2018 comprises the Company and its subsidiaries (together referred to as the "Group") and the Group's interests in associates and jointly controlled entities.
The condensed set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) and in accordance with IAS 34 - Interim Financial Reporting. For these purposes, IFRS comprise the standards issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").
The condensed set of financial statements have been prepared on the basis of accounting policies consistent with those applied to the financial statements for the year ended 31 December 2017.
3 Revenue
An analysis of the Group's revenue is as follows:
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
Note
US$'000
US$'000
Sales of services
226,979
233,382
Revenue from construction contracts
8,038
12,371
235,017
245,753
Investment income
6
6,707
9,777
241,724
255,530
All revenue is derived from continuing operations.
4 Business and geographical segments
Business segments
Ocean Wilsons Holdings Limited has two reportable segments: Maritime services and investments. The maritime services segment provides towage, port terminals, ship agency, offshore, logistics and shipyard services in Brazil through Wilson Sons Limited. The investment segment holds a portfolio of international investments through Ocean Wilsons (Investments) Limited.
Segment information relating to these businesses is presented below.
For the six months ended 30 June 2018 (unaudited)
Maritime
services
Investment
Unallocated
Consolidated
six months to
six months to
six months to
six months to
30 June
30 June
30 June
30 June
2018
2018
2018
2018
US$'000
US$'000
US$'000
US$'000
Revenue
235,017
-
-
235,017
Result
Segment result
49,241
(1,463)
(952)
46,826
Share of joint venture results
(1,330)
-
-
(1,330)
Investment revenue
2,372
4,289
46
6,707
Other gains and losses
-
(149)
-
(149)
Finance costs
(15,773)
-
-
(15,773)
Exchange gains/(losses) on monetary items
(8,917)
1
370
(8,546)
Profit before tax
25,593
2,678
(536)
27,735
Tax
(11,060)
-
-
(11,060)
Profit after tax
14,533
2,678
(536)
16,675
Other information
Capital additions
(35,150)
-
-
(35,150)
Depreciation and amortisation
(28,723)
-
(1)
(28,724)
Balance Sheet
Assets
Segment assets
932,810
272,477
4,179
1,209,466
Liabilities
Segment liabilities
(446,482)
(249)
(229)
(446,960)
For the six months ended 30 June 2017 (unaudited)
Maritime
services
Investment
Unallocated
Consolidated
six months to
six months to
six months to
six months to
30 June
30 June
30 June
30 June
2017
2017
2017
2017
US$'000
US$'000
US$'000
US$'000
Revenue
Result
245,753
-
-
245,753
Segment result
51,302
(1,330)
(1,098)
48,874
Share of joint venture results
1,808
-
-
1,808
Investment revenue
4,992
4,772
13
9,777
Other gains and losses
-
20,280
-
20,280
Finance costs
(8,090)
-
-
(8,090)
Exchange gains/(losses) on monetary items
2,253
13
(63)
2,203
Profit before tax
52,265
23,735
(1,148)
74,852
Tax
(19,403)
-
-
(19,403)
Profit after tax
32,862
23,735
(1,148)
55,449
Other information
Capital additions
(33,524)
-
-
(33,524)
Depreciation and amortisation
(28,948)
-
(1)
(28,949)
Balance Sheet
Assets
Segment assets
1,005,915
259,109
3,723
1,268,747
Liabilities
Segment liabilities
(497,633)
(233)
(222)
(498,088)
Finance costs and associated liabilities have been allocated to reporting segments where interest costs arise from loans used to finance the construction of fixed assets in that segment.
Geographical Segments
The Group's operations are located in Bermuda and Brazil.
All of the Group's sales are derived in Brazil.
The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located.
Carrying amount of
segment assetsAdditions to property, plant and equipment and intangible assets
Unaudited
Unaudited
Unaudited
Unaudited
six months to
six months to
30 June
30 June
30 June
30 June
2018
2017
2018
2017
US$'000
US$'000
US$'000
US$'000
Brazil
904,703
983,289
35,150
33,524
Bermuda
304,763
285,458
-
-
1,209,466
1,268,747
35,150
33,524
5 Employee benefits expense
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
US$'000
US$'000
Aggregate remuneration comprised:
Wages and salaries
64,583
68,232
Share based payment expense
662
1,180
Social security costs
9,957
13,863
Other pension costs
571
522
75,773
83,797
6 Investment revenue
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
US$'000
US$'000
Interest on bank deposits
2,074
2,670
Dividends from equity investments
4,283
4,772
Other interest
350
2,335
6,707
9,777
7 Other gains and losses
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
US$'000
US$'000
(Decrease)/increase in fair value of trading investments held at period end
(1,846)
14,384
Profit on disposal of trading investments
1,697
5,896
(149)
20,280
Other gains and losses form part of the movement in trading investments.
8 Finance costs
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
US$'000
US$'000
Interest on bank overdrafts and loans
6,197
6,716
Exchange loss on foreign currency borrowings
9,179
1,110
Interest on obligations under finance leases
47
143
Other interest
350
121
15,773
8,090
9 Taxation
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
US$'000
US$'000
Current taxation
Brazilian taxation:
Corporation tax
9,269
11,858
Social contribution
3,650
4,891
Total current tax
12,919
16,749
Deferred tax
Charge for the period in respect of deferred tax liabilities
16,349
4,255
Credit for the period in respect of deferred tax assets
(18,208)
(1,601)
Total deferred tax
(1,859)
2,654
Total taxation
11,060
19,403
Brazilian corporation tax is calculated at 25% (2017: 25%) of the assessable profit for the year.
Brazilian social contribution tax is calculated at 9% (2017: 9%) of the assessable profit for the year.
At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the Company has received an undertaking from the Bermuda Government exempting it from all such taxes until 31 March 2035.
10 Dividends
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
US$'000
US$'000
Amounts recognised as distributions to equity holders in the period:
Final dividend paid for the year ended 31 December 2017 of 70.0c (2016: 63.0c) per share
24,754
22,279
11 Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
US$'000
US$'000
Earnings:
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent
10,032
41,348
Number of shares:
Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share
35,363,040
35,363,040
12 Property, plant and equipment
During the period, the Group spent approximately US$35.2 million mainly on vessel construction and terminal equipment (2017: US$33.5 million).
At 30 June 2018, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$13.1 million.
13 Investments
Unaudited
Audited
six months to
year to
30 June
31 December
2018
2017
US$'000
US$'000
Trading investments
At 1 January
305,070
276,181
Additions, at cost
25,969
77,275
Disposals, at market value
(47,059)
(81,161)
(Decrease)/increase in fair value of trading investments held at period end
(1,846)
25,886
Profit on disposal of trading investments
1,697
6,889
At period end
283,831
305,070
Ocean Wilsons (Investments) Limited Portfolio
271,787
273,434
Wilson Sons Limited
12,044
31,636
Trading investments held at fair value at period end
283,831
305,070
Wilson Sons Limited
The Wilson Sons Limited investments are held and managed separately from the Ocean Wilsons (Investments) Limited Portfolio and consist of US Dollar denominated depository notes.
Ocean Wilsons (Investments) Limited Portfolio
The Group has not designated any financial assets that are not classified as trading investments as financial assets at fair value through profit or loss.
Trading investments above represent investments in listed equity securities, funds and unquoted equities that present the Group with opportunity for return through dividend income and capital appreciation.
Included in trading investments are open ended funds whose shares may not be listed on a recognised stock exchange but are redeemable for cash at the current net asset value at the option of the Company. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available. Where quoted market prices are not available, fair values are determined by third parties using various valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
14 Trade and other receivables
Unaudited
Audited
30 June
31 December
2018
2017
US$'000
US$'000
Trade and other receivables
Recoverable taxes and levies
24,894
28,067
Related parties loans
29,639
29,472
Other trade receivables
503
565
Total other non-current trade receivables
55,036
58,104
Amount receivable for the sale of services
52,065
58,945
Allowance for doubtful debts
(1,333)
(958)
Total current trade receivables
50,732
57,987
Other recoverable taxes and levies
14,413
18,260
Income taxation recoverable
5,260
6,752
Prepayments
3,682
7,323
Other
6,453
8,248
Total other current trade receivables
29,808
40,583
Total
135,576
156,674
Non-current trade receivables relate to: recoverable taxes with maturity dates in excess of one year, which comprise mainly PIS, COFINS, ISS and INSS and related party loans with maturities over one year. There are no indicators of impairment related to these receivables.
As a matter of routine, the Group reviews taxes and levies impacting its business to ensure that payments of such amounts are correctly made and that no amounts are paid unnecessarily. The Group has a plan to use its tax credits and if unable to recover by offsetting against current or future tax liabilities, requesting reimbursement of these values from the Receita Federal do Brasil (Brazilian Inland Revenue Service).
Included in the Group's trade receivable balances are debtors with a carrying amount of US$9.2 million (2017: US$9.6 million) which are past due.
Unaudited
Audited
30 June
31 December
2018
2017
Ageing of past due trade receivables
US$'000
US$'000
From 0 - 30 days
5,909
6,475
From 31 - 90 days
1,305
2,442
From 91 - 180 days
1,038
716
more than 180 days
917
731
Total
9,169
10,364
Generally, interest of one percent per month plus a two percent penalty is charged on overdue balances. Allowances for bad debts are recognised as a reduction of receivables and are recognised whenever a loss is identified. As of 01 January 2018, due to the application of IFRS 9, the Group has recognised an allowance for bad debts taking into account an expected credit loss model that involves the historical evaluation of the effective loss over billing cycles. The period under review will be 3.5 years, being renewed every 180 days. The measurement of default rate will consider the recoverability of receivables and will apply according to the payment profiles of debtors. Until 2017, the Group recognised an allowance for bad debts taking into account all receivables over 180 days because historical experience had shown that receivables that were past due beyond 180 days were generally not recoverable.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
15 Bank loans and overdrafts
Unaudited
Audited
30 June
31 December
2018
2017
Annual Interest rate
US$'000
US$'000
Secured borrowings
BNDES - FMM linked to US$ (1)
2.07% to 6.00%
152,228
156,831
BNDES Real
6.75% - 8.94%
16,171
20,982
BNDES - FMM Real (1)
10.46%
1,327
1,635
BNDES - FINAME Real
4.50% - 6.00%
217
1,834
Total BNDES
169,943
181,282
Banco do Brasil - FMM linked to US$
2.00% - 3.00%
87,940
90,750
IFC - US$
7.00%
28,421
35,640
Santander - US$
4.25%
28,350
31,173
China Construction Bank - US$
5.88%
6,358
12,708
Eximbank - US$
5.63%
2,116
3,171
Total others
153,185
173,442
Total borrowings
323,128
354,724
(1) As an agent of Fundo da Marinha Mercante's (FMM), BNDES finances the construction of tugboats and shipyard facilities.
Unaudited
Audited
30 June
31 December
2018
2017
US$'000
US$'000
The borrowings are repayable as follows:
On demand or within one year
53,122
54,288
In the second year
40,314
52,123
In the third to fifth years inclusive
86,546
93,745
After five years
143,146
154,568
Total borrowings
323,128
354,724
Amounts due for settlement within 12 months
53,122
54,288
Amounts due for settlement after 12 months
270.006
300,436
Analysis of borrowings by currency:
$Real
linked to
$Real
US Dollars
US Dollars
Total
US$'000
US$'000
US$'000
US$'000
30 June 2018 (unaudited)
Bank loans
17,715
240,168
65,245
323,128
Total
17,715
240,168
65,245
323,128
31 December 2017 (audited)
Bank loans
24,451
247,581
82,692
354,724
Total
24,451
247,581
82,692
354,724
Guarantees
Loans with BNDES rely on a corporate guarantee from Wilson Sons de Administração e Comércio Ltda. For some contracts, the corporate guarantee is additional to: (i) a pledge of the respective financed tugboat, (ii) a lien of logistics and port operations equipment financed.
Loans with Banco do Brasil rely on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda. and a pledge of the respective financed tugboat.
The loans that Tecon Salvador holds with IFC are guaranteed by shares of the company, the projects' cash flows, equipment and buildings.
The loan agreement that Tecon Rio Grande has with the Export-Import Bank of China for equipment is guaranteed by a standby letter of credit issued by Banco Itaú BBA S.A which in turn has the pledge on the financed equipment.
The loan agreement between Tecon Rio Grande and Santander for equipment acquisition relies on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda.
Undrawn credit facilities
At 30 June 2018, the Group had available US$55.3 million of undrawn borrowing facilities. For each disbursement, there is a set of conditions precedent that must be satisfied.
Covenants
Wilson, Sons de Administração e Comércio Ltda. ("WSAC") as corporate guarantor has to comply with annual loan covenants for both Wilson Sons Estaleiros and Brasco Logística Offshore in respect of loan agreements signed with BNDES.
Tecon Salvador S.A. has to comply with loan covenants including the maintenance of specific liquidity and capital structure ratios in respect of its loan agreement with the International Finance Corporation (IFC).
Tecon Rio Grande S.A. has to comply with loan covenants from Santander, including a minimum liquidity ratio and capital structure.
At 30 June 2018, the Company was in compliance with all clauses in the above mentioned loan contracts.
Fair value
Management estimates the fair value of the Group's borrowings as follows:
Unaudited
Audited
30 June
31 December
2018
2017
US$'000
US$'000
Bank loans
BNDES
169,943
181,282
Banco do Brasil
87,940
90,750
IFC
28,421
35,640
Santander
28,350
31,173
CCB
6,358
12,708
Eximbank
2,116
3,171
Total
323,128
354,724
16 Joint ventures
The Group holds the following significant interests in joint operations and joint ventures at the end of the reporting period:
Proportion of ownership interest
Place of
incorporation
30 June
30 June
and operation
2018
2017
Towage
Consórcio de Rebocadores Barra de Coqueiros (3)
Brazil
50%
50%
Consórcio de Rebocadores Baia de São Marcos (3)
Brazil
50%
50%
Logistics
Porto Campinas, Logística e Intermodal Ltda (3)
Brazil
50%
50%
Offshore
Wilson, Sons Ultratug Participações S.A. (1)
Brazil
50%
50%
Atlantic Offshore S.A. (2)
Panama
50%
50%
(1) Wilson, Sons Ultratug Participações S.A. controls Wilson Sons Offshore S.A. and Magallanes Navegação Brasileira S.A. These latter two companies are indirect joint ventures of the Company.
(2) Atlantic Offshore S.A. controls South Patagonia S.A. This company is an indirect joint venture of Wilson Sons Limited.
(3) Joint Operations.
The Group's interests in joint ventures are equity accounted.
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
US$'000
US$'000
Revenue
58,601
75,074
Raw materials and consumable used
(4,090)
(4,404)
Employee benefits expense
(19,134)
(23,754)
Depreciation and amortisation expenses
(19,272)
(20,007)
Other operating expenses
(7,724)
(8,493)
Loss on disposal of property, plant and equipment
(19)
(11)
Profits from operating activities
8,362
18,405
Finance income
167
987
Finance costs
(8,781)
(9,909)
Foreign exchange gains/(losses) on monetary items
(8,192)
(973)
(Loss)/profit before tax
(8,444)
8,510
Income tax credit/(expense)
5,784
(4,894)
(Loss)/profit for the period
(2,660)
3,616
Participation (before non-controlling interests)
50%
50%
Equity result
(1,330)
1,808
Unaudited
Audited
30 June
31 December
2018
2017
US$'000
US$'000
Property, plant and equipment
637,528
647,659
Long-term investment
2,163
2,142
Other current assets
6,605
4,740
Trade and other receivables
31,283
26,302
Derivatives
756
381
Cash and cash equivalents
15,716
30,575
Total assets
694,051
711,799
Bank loans
480,474
500,987
Other non-current liabilities
35,344
35,604
Trade and other payables
81,916
82,654
Equity
96,317
92,554
Total liabilities
694,051
711,799
We have not given separated disclosure of all material Joint Ventures because they belong to the same economic group. Wilson Sons Limited holds a non-controlling interest in Wilson Sons Ultratug Particpações S.A and Atlantic Offshore S.A.
Wilson, Sons Ultratug Participações S.A is a controlling shareholder of Wilson, Sons Offshore S.A. and Magallanes Navegação Brasileira S.A, while Atlantic Offshore S.A. is a controlling shareholder of South Patagonia S.A.
Guarantees
Wilson, Sons Offshore S.A. loan agreements with BNDES are guaranteed by a lien on the financed supply vessel and, in the majority of the contracts, a corporate guarantee from both Wilson Sons de Adminisração e Comércio Ltda and Rebocadores Ultratug Ltda, each guaranteeing 50% of the subsidiary's debt balance with BNDES.
Magallanes Navegação Brasileira S.A.'s loan agreement with Banco do Brasil is guaranteed by a lien on the financed supply vessels. The security package also includes a standby letter of credit issued by Banco de Crédito e Inversiones - Chile for part of the debt balance, assignment of Petrobras' long-term contracts and a corporate guarantee issued by Inversiones Magallanes Ltda - Chile. A cash reserve account, accounted for under long-term investments and funded with US$2.1 million, is required to be maintained until full repayment of the loan agreement.
The loan agreement that Atlantic Offshore S.A. has with Deutsche Verkehrs-Bank "DVB" and Norddeutsche Landesbank Girozentrale Trade "Nord/LB" for the financing of the offshore support vessel "Pardela" is guaranteed by a pledge of the vessel, the shares of Atlantic Offshore S.A. and a corporate guarantee for half of the loan from Wilson Sons de Administração Ltda e Comércio. Remolcadores Ultratug Ltda, our joint venture partner, guarantees the other half of the loan.
Covenants
The joint venture Magallanes Navegação Brasileira S.A. has to comply with specific financial covenants. At 30 June 2018, the company was in compliance with all clauses in the loan contracts.
Atlantic Offshore S.A. has to comply with specific financial covenants on its two loan agreements with Deutsche Verkehrs-Bank "DVB" and Norddeutsche Landesbank Girozentrale Trade "Nord/LB". As at 30 June 2018 the subsidiary was not in compliance with the debt service coverage ratio for both loans and is negotiating a waiver.
17 Notes to the cash flow statement
Unaudited
Unaudited
six months to
six months to
30 June
30 June
2018
2017
US$'000
US$'000
Reconciliation from profit before tax to net cash from operating activities
Profit before tax
27,735
74,852
Share of joint venture results
1,330
(1,808)
Investment revenues
(6,707)
(9,777)
Other losses/(gains)
149
(20,280)
Finance costs
15,773
8,090
Exchange losses/(gains) on monetary items
8,546
(2,203)
Operating profit
46,826
48,874
Adjustments for:
Depreciation of property, plant and equipment
27,023
26,910
Amortisation of intangible assets
1,701
2,039
Share based payment expense
662
1,180
(Profit)/loss on disposal of property, plant and equipment
(139)
1,962
(Decrease)/increase in provisions
(4,974)
295
Operating cash flows before movements in working capital
71,099
81,260
Increase in inventories
(153)
(520)
Decrease/(increase) in receivables
18,422
(11,036)
Decrease in payables
(13,015)
(15,036)
Decrease/(increase) in other non-current assets
635
(89)
Cash generated by operations
76,988
54,579
Income taxes paid
(14,965)
(14,518)
Interest paid
(6,414)
(6,970)
Net cash from operating activities
55,609
33,091
18 Commitments
At 30 June 2018 the Group had entered into commitment agreements with respect to trading investments. These commitments relate to capital subscription agreements entered into by Ocean Wilsons (Investments) Limited. The expiry dates of the outstanding commitments in question maybe analysed as follows:
Unaudited
Audited
Outstanding at
Outstanding at
30 June
31 December
2018
2017
US$'000
US$'000
Within one year
4,142
4,250
In the second to fifth year inclusive
6,609
8,792
After five years
20,195
22,579
30,946
35,621
.
There may be situations when commitments may be extended by the manager of the underlying structure beyond the initial expiry date dependent upon the terms and conditions of each individual structure.
19 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Transactions between the group and its associates, joint ventures and other investments are disclosed below.
Dividends received/
Amounts paid/
Revenue of services
Cost of services
Unaudited
Unaudited
Unaudited
Unaudited
six months to
six months to
six months to
six months to
30 June
30 June
30 June
30 June
2018
2017
2018
2017
US$'000
US$'000
US$'000
US$'000
Joint ventures
1. Allink Transportes Internacionais Limitada
8
1
(178)
(10)
2. Consórcio de Rebocadores Barra de Coqueiros
-
-
-
-
3. Consórcio de Rebocadores Baía de São Marcos
13
290
-
-
4. Wilson Sons Ultratug Participações S.A.
2,784
1,031
-
-
5. Atlantic Offshore S.A.
-
-
-
-
Others
6. Hanseatic Asset Management LBG
-
-
(1,375)
(1,241)
7. Gouvêa Vieira Advogados
-
-
(22)
(37)
8. CMMR Intermediacao Comercial Limitada
-
-
(47)
(100)
9. Jofran Services
-
-
(87)
(87)
Amounts owed
Amounts owed
by related parties
to related parties
Unaudited
Audited
Unaudited
Audited
30 June
31 December
30 June
31 December
2018
2017
2018
2017
US$'000
US$'000
US$'000
US$'000
Joint ventures
1. Allink Transportes Internacionais Limitada
-
-
(2)
-
2. Consórcio de Rebocadores Barra de Coqueiros
65
77
-
-
3. Consórcio de Rebocadores Baía de São Marcos
1,992
2,483
-
-
4. Wilson Sons Ultratug Participações S.A.
10,533
11,848
-
-
5. Atlantic Offshore S.A.
20,167
17,767
-
-
Others
6. Hanseatic Asset Management LBG
-
-
(249)
(347)
7. Gouvêa Vieira Advogados
-
-
-
-
8. CMMR Intermediacao Comercial Limitada
-
-
-
-
9. Jofran Services
-
-
-
-
1. Mr A C Baião is a Director of Wilson Sons Limited and a shareholder and Director of Allink Transportes Internacionais Limitada. Allink Transportes Internacionais Limitada is 50% owned by the Group and rents office space from the Group.
6. Mr W H Salomon is Chairman of Hanseatic Asset Management LBG. Fees were paid to Hanseatic Asset Management LBG for acting as investment managers of the Group's investment portfolio and administration services.
7. Mr J F Gouvêa Vieira is a partner in the law firm Gouvêa Vieira Advogados. Fees were paid to Gouvêa Vieira Advogados for legal services.
8. Mr C M Marote is a Director of Wilson Sons Limited and a shareholder and Director of CMMR Intermediacao Comercial Limitada. Fees were paid to CMMR Intermediacao Comercial Limitada for consultancy services.
9. Mr J F Gouvêa Vieira is a Director of Jofran Services. Directors' fees and consultancy fees were paid to Jofran Services.
20 Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 15, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings shown in the consolidated statement of changes in equity.
The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated from operating revenues.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Financial risk management objectives
The Group's corporate treasury function provides services to the business, co-ordinates access to domestic and international financial markets and manages the financial risks relating to the operations of the Group through internal reports. The primary objective is to keep a minimum exposure to those risks by using financial instruments and by assessing and controlling the credit and liquidity risks according to the rules and procedures established by management. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.
The Group may use derivative financial instruments to hedge these risk exposures, with Board approval. The Group does not enter into trading financial instruments, including derivative financial instruments for speculative purposes.
Credit risk
The Group's principal financial assets are cash, trade and other receivables, related party loans and trading investments. The Group's credit risk is primarily attributable to its bank balances, trade receivables, related party loans and investments. The amounts presented as receivables in the balance sheet are net of allowances for doubtful receivables.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The credit risk on investments held for trading is limited because the counterparties with whom the Group transacts are regulated institutions or banks with high credit ratings. The Company's appointed Investment Manager, Hanseatic Asset Management LBG, evaluates the credit risk on trading investments prior to and during the investment period.
In addition, the Company invests in Limited Partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The Board reviews all investments at its regular meetings from reports prepared by the Company's Investment Manager.
The Group has no significant concentration of credit risk. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
Market risk
The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and market prices.
Foreign currency risk management
The Group undertakes certain transactions denominated or linked to foreign currencies and therefore exposures to exchange rate fluctuations arise. The Group operates principally in Brazil with a substantial proportion of the Group's revenue, expenses, assets and liabilities denominated in the Brazilian Real. Due to the cost of hedging the Brazilian Real, the Group does not normally hedge its net exposure to the Brazilian Real as the Board does not consider it economically viable to do so.
Cash flows from investments in fixed assets are denominated in Real and US Dollars. These investments are subject to currency fluctuations between the time that the price of goods or services are settled and the actual payment date. The resources and their application are monitored with the purpose of matching the currency cash flows and due dates. The Group has contracted US Dollar-denominated and Real-denominated debt, and the cash and cash equivalents balances are also US Dollar-denominated and Real-denominated.
In general terms, for operating cash flows, the Group seeks to neutralise the currency risk by matching assets (receivables) and liabilities (payments). Furthermore the Group seeks to generate an operating cash surplus in the same currency in which the debt service of each business is denominated.
Interest rate risk management
The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The Group holds most of its debts linked to fixed rates. Most of the Group's fixed rates loans are with the FMM (Fundo da Marinha Mercante).
Loans exposed to floating rates are as follows:
• TJLP (Brazilian Long-Term Interest Rate) for Brazilian Real denominated funding through a FINAME credit line for the Port and Logistics operations.
• DI (Brazilian Interbank Interest Rate) for Brazilian Real denominated funding for Logistics operations, and
• 6-month LIBOR (London Interbank Offered Rate) for US Dollar denominated funding for Port Operations (Eximbank).
The Group's Brazilian Real-denominated investments yield interest rates corresponding to the DI daily fluctuation for privately issued securities and/or "Selic-Over" government-issued bonds. The US Dollar-denominated investments are in time deposits, with short-term maturities.
The Group's strategy for managing interest rate risk is to maintain a balanced portfolio of fixed and floating interest rates in order to balance both cost and volatility. The Group may use cash flow hedges to limit its exposure that may result from the variation of floating interest rates.
The Group has floating rate financial assets consisting of bank balances principally denominated in US Dollars and Real that bear interest at rates based on the banks floating interest rate.
Market price sensitivity
By the nature of its activities, the Group's investments are exposed to market price fluctuations. However the portfolio as a whole does not correlate exactly to any Stock Exchange Index as it is invested in a diversified range of markets. The Investment Manager and the Board monitor the portfolio valuation on a regular basis and consideration is given to hedging the portfolio against large market movements.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults.
The Group's sales policy is subordinated to the credit sales rules set by management, which seeks to mitigate any loss from customers' delinquency.
Trade receivables consist of a large number of customers. Ongoing credit evaluation is performed on the financial condition of accounts receivable. Trade and other receivables disclosed in the balance sheet are shown net of the allowance for doubtful debts.
Ocean Wilsons (Investments) Limited primarily transacts with regulated institutions on normal market terms which are trade date plus one to three days. The levels of amounts outstanding from brokers are regularly reviewed by the Investment Manager. The duration of credit risk associated with the investment transaction is the period between the date the transaction takes place, (the trade date) and the date the stock and cash are transferred, (and the settlement date). The level of risk during the period is the difference between the value of the original transaction and its replacement with a new transaction.
In addition, Ocean Wilsons (Investments) Limited invests in Limited Partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The Board reviews all investments at its regular meetings from reports prepared by the company's Investment Manager.
Liquidity risk management
Liquidity risk is the risk that the Group will encounter difficulty in fulfilling obligations associated with its financial liabilities that are settled with cash payments or another financial asset. The Group's approach in managing liquidity is to ensure that the Group always has sufficient liquidity to fulfil the obligations that expire, under normal and stress conditions, without causing unacceptable losses or risk damage to the reputation of the Group.
Ultimate responsibility for liquidity risk management rests with the Board of directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group uses costing based on activities to price the products and services which assist in monitoring cash flow requirements and optimizing the return on cash investments.
The Group ensures it has sufficient cash reserves to meet the expected operational expenses, including financial obligations. This practice excludes the potential impact of extreme circumstances that cannot be reasonably foreseen.
Fair value of financial instruments
The fair value of financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading on 30 June 2018. The quoted market price used for financial assets held by the Company utilise the last traded market prices.
Company Contact
Keith Middleton 1 441 295 1309
Media
David Haggie 020 7562 4444
Haggie Partners LLP
Cantor Fitzgerald Europe 020 7894 7000
David Foreman, Will Goode - Corporate Finance
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