Interim Results
Ocean Wilsons Holdings Ld
15 August 2007
Chairman's Interim Statement
for Ocean Wilsons Holdings Limited
Wilson Sons Limited Initial Public Offer (IPO)
As part of the Company strategy to realise long term shareholder value, on the
30 April 2007, Ocean Wilsons Holdings Limited, ('Ocean Wilsons or the Company')
successfully floated Wilson Sons Limited, ('Wilson Sons') the holding company of
its Brazilian business, on the Sao Paulo Stock Exchange and the Luxembourg Stock
Exchange. The flotation involved the sale of 18.7 million shares by Ocean
Wilsons, resulting in net proceeds to the Company of approximately US$ 205.6
million, and the issue of 11 million new shares by Wilson Sons, raising
approximately US$119.1 million for Wilson Sons.
Following the flotation, Ocean Wilsons retains a 58.25% holding in Wilson Sons.
The Company will continue to fully consolidate Wilson Sons in its accounts with
a 41.75% minority interest. As at the close of business on the 13 August 2007
the Wilson Sons share price was Real 25.00 resulting in a market value for the
Ocean Wilsons holding of 41,444,000 shares in Wilson Sons of approximately
US$530 million.
The investment portfolio has produced extremely satisfactory returns since the
appointment of Hanseatic Asset Management as its investment managers in November
2000, delivering a total return to date of 79.82% against 12.33% for the MSCI.
As set out in the April class one circular titled 'Proposed initial public
offering of Wilson Sons Limited and approval of new long term incentive plan',
your Board has reviewed the options for the use of the net proceeds from the
sale of the Company's shares in Wilson Sons. The net proceeds after all expenses
amounted to approximately US$205.6 million. The Board has decided as indicated
in the circular to invest approximately US$183.0 million of this money in its
investment subsidiary, Ocean Wilson Investments Limited ('Ocean Wilsons
Investments') to increase the scale and breadth of that company's investments
and expand the remit to include alternative investment classes, including
illiquid securities, with a particular emphasis on emerging markets. This is to
take advantage of both the Board's and the Investment Manager's knowledge of
these fields and to benefit from the superior returns which it is anticipated
will arise from this investment strategy. The Board will also seek to take
advantage of the Company's access to any attractive investment opportunities
that might present themselves as a consequence of its relationship with Wilson
Sons and its own knowledge of Latin America. This investment strategy will be
reviewed on a regular basis to ensure it is consistent with changing
circumstances in global markets.
The balance will be retained in a separate investment fund to fund the Ocean
Wilsons long term incentive plan liability as detailed below and pay the 2007
interim dividend and company operating expenses.
Accounts and results
The Company's consolidated revenue increased by 18% to US$182.7 million,
compared with US$150.4 million in the first six months of 2006 with increases in
most businesses. Operating profit increased US$210.2 million from US$23.7million
to US$233.9 million due to the profit on the disposal of the minority interest
in Wilson Sons of US$213.7 million. Adjusting for non-recurring items in 2006
and 2007 (Profit on the sale of minority interest, profit on disposal of joint
venture and release of surplus on acquisition of interest in subsidiary),
operating profit at US$19.2 million for the period was in line with the
comparative period in 2006 (US$19.2 million).
Employee expenses increased US$18.2 million to US$58.7 million compared with
2006. This was principally due to wage increases under collective labour
agreements, the impact of the weaker US Dollar and a US$7.0 million accrual in
the period (2006: zero) in respect of the Ocean Wilsons long-term incentive
plan.
Investment revenues increased from US$7.1 million to US$ 10.2 million in the
period, principally due to higher interest receipts from bank deposits.
Other gains of US$9.9 million (2006: US$4.0 million) arose from the Group's
portfolio of trading investments and relate primarily to increases in the fair
value of trading investments held at period end.
Finance costs for the period were US$0.4 million lower at US$2.8 million (2006:
US$3.2 million).
Profit before tax for the period was US$250.3 million (2006: US$31.5 million)
benefiting from the higher operating profit and investment portfolio gains.
Earnings per share based on ordinary activities after taxation and minority
interests were US$ 6.695 (2006: US$ 0.666).
Long-term incentive plan
The Company implemented a cash settled phantom option scheme that was approved
by shareholders at the Special General Meeting held on 19 April 2007. The
options provide for the option holder to receive on exercise the difference
between (i) the lower of the Wilson Sons IPO offer price (US$11.74) and the
market price per BDR (Brazilian depositary receipt) at the time of exercise and
(ii) US$5.66. The maximum liability under the plan is US$25.1 million based on
the Wilson Sons IPO offer price. The Ocean Wilsons phantom scheme is a
non-recurring event to the extent that future incentive programmes for Brazilian
management will be the responsibility of our subsidiary, Wilson Sons.
A liability equal to the portion of the services received is recognised at the
current fair value at each balance sheet date. An accrual of US$ 7.0 million has
been included in the accounts at 30 June 2007 for benefits accruing under the
plan, although cash payments under the scheme will not begin before April 2009.
Awards under the long-term incentive plan vest in four tranches from April 2009
to April 2012 and expire in April 2016.
Exchange rates
In the six months to 30 June 2007 the Real appreciated 10% against the US Dollar
from 2.14 at 1 January 2007 to 1.93 at the period end.
Dividend
The Board has declared an interim dividend of 4.0 cents per share (2006: 2.0
cents per share) to be paid on 28 September 2007 to shareholders on the register
at close of business on 7 September 2007.
Dividend Policy
Dividends will continue to be set in US Dollars and paid twice yearly.
Shareholders will continue to receive dividends in Sterling by reference to the
exchange rate applicable to the US Dollar on the dividend record date, except
for those shareholders that elect to receive dividends in US Dollars.
The Company's target dividend payout in respect of each financial year is to pay
the Company's full dividend received from Wilson Sons in the period plus a
percentage of the average capital employed in the investment portfolio including
cash under management to be determined annually by the Board. The US$ 8 million
received in dividends from Wilsons Sons in March 2007 prior to Wilson Sons
listing will not be included in the Ocean Wilsons 2007 dividend calculation as
this represents part of the profits earned in 2006.
Your Board of Directors may review and amend the dividend policy from time to
time in light of our future plans and other factors. The payment of dividends
cannot be guaranteed and maybe discontinued or varied at the discretion of the
Board.
Cash flow and debt
During the period there was a net cash inflow of US$325.5 million (2006: US$10.0
million outflow) principally due to the disposal of the minority interest in
Wilson Sons, (US$ 324.7 million inflow).
Net cash flow from operations was US$16.7 million in the first six months of
2007 compared with US$13.6 million in the same period last year, due to improved
working capital movements.
Capital expenditure at US$27.2 million was 67% higher than the comparative
period in 2006 (US$16.3 million). This was mainly invested in the construction
of the third berth at Tecon Rio Grande, the towage fleet renewal program and
offshore vessel construction. The Group's third Platform Supply Vessel (PSV),
Fragata was launched in April 2007, and is on long-term charter to Petrobras.
The Company's consolidated borrowings (including obligations under finance
leases) at 30 June 2007 were US$126.6 million, (31 December 2006: - US$ 111.8
million). New loans of US$20.7 million were raised to finance the construction
of new PSV's.
At 30 June 2007 the Company and its subsidiaries had US$388.1 million in cash
and cash equivalents (31 December 2006: US$62.6 million).
Balance sheet
Net equity (equity attributable to ordinary shareholders of the Company)
increased from US$ 221.8 million at the beginning of the year to US$ 456.5
million, mainly due to the profit in the period after minority interests less
the ordinary dividend in respect of 2006. Minority interests increased from
US$3.8 million at the beginning of the year to US$ 118.0 million, principally
due to the sale of a 41.75% minority interest in Wilson Sons.
At 30 June 2007, the Company's consolidated net assets (including minority
interests) amounted to US$ 574.5 million (31 December 2006: US$ 225.6 million).
This is the equivalent of US$ 16.24 per share (31 December 2006: US$ 6.38). Net
assets located in Brazil account for US$ 4.43 per share (31 December 2006: US$
4.07) and net assets outside Brazil US$ 11.81 per share (31 December 2006: US$
2.31).
At 30 June 2007 the investment portfolio including cash under management was
amounted to US$89 million, being US$ 2.52 per share,
Wilson Sons Limited operating review
We have extracted the following highlights from the Wilson Sons 2Q07 and 1H07
Earnings Report released on the 14 August 2007. The full report is available on
the Wilson Sons Limited website: www.wilsonsons.com:
Port terminals
Revenue
2Q07 versus 2Q06
Port Terminals' net revenue rose 38.1% to US$ 36.9 million in 2Q07, from US$
26.7 million in 2Q06. This growth comes from: (i) improvement in the mix of
cargo handled, (ii) an increase in storage operations in container terminals.
Additionally, revenues related to oil & gas industry grew due to (iii) increases
in clients and larger contract amounts.
In container terminals, continuing the trend observed in 1Q07, results benefited
from an improved cargo mix of containers handled. The share of deep sea
container in total container handling increased from 69.1% to 74.0%, and the
share of cabotage in total container handling rose from 10.7% to 12.2%, which
led to an improvement in revenue.
Furthermore, gains were achieved by the increase of 11.6% in the volume of
higher-valued deep sea full containers handled, driven by higher exports of
resin, beef and frozen chicken. This increase more than offset declines in
transhipment volumes, improving cargo mix and, as a result, operating margin.
Higher imports, resulting from devaluation of US dollar during the past 2 years
has not only increased imported container traffic but also yielded gains in
storage revenue, which increased from 12.7% of total revenue in 2Q06 to 13.3% in
2Q07, especially in the company's bonded warehouses
Moreover, recovery of frozen chicken exports (from the avian flu setbacks in
2006) and higher fruit exports (particularly apples) increased auxiliary
services coming from supplying energy to containers and monitoring reefer
(refrigerated) containers.
Net revenue from services provided to the port terminal dedicated to the
offshore oil and gas industry improved significantly increasing its contribution
to the business unit revenue from 3.7% in 2Q06 to 10.2% in 2Q07. This was due to
an increase in the quarterly average number of contracts, which surged from 1.7
in 2Q06 to 5.0 in 2Q07.
1H07 versus 1H06
Net revenue rose 26.2% between 1H07 (US$ 66.9 million) and 1H06 (US$ 53.0
million). Continued increases of deep sea container handling volumes, resulted
in a higher margin mix of cargo handled. In addition, port terminal services for
the oil and gas industry increased its share of business unit net revenue from
3.6% in 1H06 to 10.7% in 1H07. This reflects a higher semi-annual average number
of contracts, which jumped from 1.8 in 1H06 to 4.5 in 1H07.
Operating Income
2Q07 versus 2Q06
Port Terminals' operating income climbed 73.0%, from US$ 5.9 million in 2Q06 to
US$ 10.2 million in 2Q07. This resulted from higher average margin in the cargo
mix. Operating margin rose to 27.7% in 2Q07, from 22.1% in 2Q06
1H07 versus 1H06
Operating income rose 55.2%, from US$ 11.8 million in the 1H06 to US$ 18.3
million in the 1H07, mainly due to the improvement in the cargo. Operating
margin rose to 27.3% in the 1H07, from 22.2% in the 1H06.
Towage
Revenue
2Q07 versus 2Q06
Towage's net revenue grew 31.7% from US$ 26.8 million in 2Q06 to US$ 35.4
million in 2Q07, despite the decline in the number of towage manoeuvres. This
growth was due to: (i) an increase in the volume of special operations, such as
ocean towage operations, salvage support operations, towage manoeuvres for oil
exploration and production platforms, and operations for oil and gas operations,
(ii) the rebuilding of margins, and (iii) a greater mix of larger deadweight
manoeuvres.
1H07 versus 1H06
Towage Net revenue in 1H07 rose 22.9% vs.1H06, from US$ 52.6 million to US$ 64.6
million for the same reasons listed above for the quarter.
Operating Income
2Q07 versus 2Q06
Operating income in this business unit climbed 68.0%, from US$ 5.7 million in
2Q06 to US$ 9.5 million in 2Q07. Operating margins improved from 21.2% in 2Q06
to 27.0% in 2Q07, due to increases in higher-margin special operations.
1H07 versus 1H06
In line with quarterly results, operating income grew 34.8% in 1H07, from US$
13.3 million to US$ 17.9 million. Operating margins were up from 25.2% in 1H06
to 27.7% in 1H07.
Logistics
Revenue
2Q07 versus 2Q06
Logistics' net revenue climbed 28.2%, from US$ 11.3 million in 2Q06 to US$ 14.5
million in 2Q07. This was mainly due to three factors: (i) several new large
clients were acquired supplementing growth with current clients; (ii) increase
in transport operations, mainly from new clients in Brazil's South region, where
a significant increase in the client portfolio was observed; (iii) due to a
weaker US dollar, greater import volumes in Santo Andre (Sao Paulo state)
enabled increased customs and general warehousing revenues, many new client
additions, and higher margins.
1H07 versus 1H06:
Logistics Net Revenue in 1H07 grew 32.3% to US$ 29.3 million, from US$ 22.1
million in the 1H06, consistent with the quarterly factors.
Operating Income
2Q07 versus 2Q06
Operating income in the business unit climbed 83.3%, from US$ 0.4 million in
2Q06 to US$ 0.8 million in 2Q07 due to the acquisition of higher-profit clients
and increase in current client operations. Operating margins jumped from 3.8% in
2Q06 to 5.4% in 2Q07.
1H07 versus 1H06
The growth of 47.1% in operating income in 1H07 to US$ 1.8 million, from US$1.2
million in 1H06, was mainly the result of concerted efforts towards a more
profitable client mix. Higher margin and increased revenue at the Santo Andre
customs stations were another highlight.
Ship Agency
Revenue
2Q07 versus 2Q06
Shipping Agency's net revenue of US$ 5.2 million in 2Q07 was down 16.3% vs. the
US$ 6.2 million in 2Q06. This decline was due to 20% less calls in the period,
mainly because a former client opened its own agency. This was partially offset
by an increase of 9.7% in the number of containers controlled and of 1.4% gain
in the number of Bills of Lading.
1H07 versus 1H06
The net revenue of US$ 9.8 million in this segment in 1H07 was 7.5% lower than
the US$ 10.6 million in 1H06, for the same reasons as in the quarter.
Operating Income
2Q07 versus 2Q06
Operating income in the business unit remained practically unchanged at US$ 1.7
million in 2Q07, up 2.9% against the 2Q06. However, operating margins improved
significantly, from 26.6% in 2Q06 to 32.7% in 2Q07. This result is mainly due to
cost savings program in major items, such as personnel expenses.
1H07 versus 1H06
Operating income grew 10.8% against the 1H06, from US$ 2.8 million to US$ 3.1
million, basically due to the same reasons as the quarter. Operating margin
improved by 5.3 percentage points between the two half-year periods.
Offshore
Revenue
2Q07 versus 2Q06
Off shore's Net revenue rose 45.2%, from US$ 1.9 million in 2Q06 to US$ 2.8
million in 2Q07, resulting from the launching the PSV Saveiros Fragata (the
third PSV in our fleet) to support Petrobras' oil platforms.
1H07 versus 1H06
Net revenue in the offshore business contracted by 3.0% in the 1H07 to US$ 4.6
million, from US$ 4.8 million in the 1H06, as a result of the extra support
services provided to offshore operations in 2006.
Operating Income
2Q07 versus 2Q06
Operating income from the business remained stable in relation to 2Q06. Higher
operating income was offset by the depreciation added from starting up PSV
Fragata.
1H07 versus 1H06
Operating income grew 44.9% to US$ 0.4 million in 1H07, from US$ 0.3 million in
1H06. Operating margins improved 8.2% in 1H07 from 5.5% in 2H06.
Non-segmented activities
Revenue
2Q07 versus 2Q06
Net revenue from non-segmented activities in 2Q07 was US$ 5.3 million, versus
only US$ 0.1 million in 2Q06. This large disparity was due to the timing of
revenues from Shipyard activities, which were concentrated in 1Q07.
1H07 versus 1H06:
Net revenue in this segment in the first half of the year remained practically
unchanged, rising by 3.3% to US$ 7.5 million, from US$ 7.2 million in the 1H06.
Operating Income
2Q07 versus 2Q06
Operating income from Non-Segmented Activities went from a loss of US$ 3.1
million in 2Q06 to a loss of US$ 10.2 million in 2Q07. In addition to the
increase in depreciation of US$ 3.0 million from the 2Q06,the sharper loss was
due to four factors: (i) 2Q06 profit was inflated by the gain from the sale of
the company's interest in WR Operadores Portuarios in April 2006, (ii) the lack
of any services to third parties at the shipyard (US$1.4 million) in 2Q07, (iii)
higher bonuses were paid to employees in the 2Q07 (US$ 0.8 million), (iv)
phantom stock options for the group's executives were accrued for the period
(US$0.7 million), (v) operating income from dredging operations declined from
2QT06 to 2Q07 (US$1.1 million) due to lower operation levels (reduction from 2
to 1 dredge), combined with their higher operating costs.
1H07 versus 1H06
Operating income from Non-Segmented Activities went from a loss of US$ 5.2
million in 1H06 to a loss of US$14.5 million in 1H07. In addition to the
increase in depreciation of US$ 0.2 million in the 1H07 versus the 1H06, as in
the quarter, this sharper loss was due to several factors:(i) operating income
from dredging dropped US$ 2.2 million due to lower operating dredging levels
(from 2 to 1 dredge) and higher operating costs, (ii) modernization and
construction services for third parties stressed in 1H06 in the 1H07 (US$ 1.4
million) did not repeat, (iii) higher bonuses were paid to employees in the 2Q07
(US$ 0.8 million), (iv) phantom stock options for the group's executives were
accrued for the period (US$0.7 million), and, finally, (v) 1H06 results were
inflated by gains from the change in the interest held in Brasco Logistica
Offshore in March 2006 (US$ 1.4 million), and from the sale of the interest in
WR Operadores Portuarios in April 2006 (US$ 3.1 million).
Operating costs
Raw Material Costs
2Q07 versus 2Q06
Raw Material Costs declined 16.9% to US$ 11.4 million in the 2Q07, versus US$
13.5 million in the 2Q06, mainly driven by (i) the reduction in fuel costs due
to the lower volume of manoeuvres, despite increased contribution from special
services, and (ii) the lower costs with container maintenance, due to the
reduction in services provided in the Port Terminal depot segment.
1H07 versus 1H06
Raw Materials Costs fell by 4.6% in the 1H07 to US$ 22.5 million, from US$ 23.5
million in the 1H06, as a result of the same events described above.
Employee benefits expenses
2Q07 versus 2Q06
Personnel Expenses increased by 37.8%, from US$ 21.8 million in 2Q06 to US$30.0
million in 2Q07, due to five factors: (i) the number of employees has been
growing, especially in the Offshore (PSV Fragata), Logistics (new operations)
and Port Terminal business units, (ii) wages increased due to collective
bargaining agreements, (iii) phantom stock options for the group's executives
were accrued for the period (US$0.7 million), (iv) the employee profit-sharing
plan grew in the second quarter due to increased headcount and the company's
favourable performance in the previous year, (v) the strengthening of the
Brazilian Real had a negative impact on these expenses since they are
denominated in R$.
1H07 versus 1H06
Personnel Expenses rose 27.5% in 1H07 to US$ 51.6 million, from US$ 40.5 million
in the 1H06, basically due to the same factors described above for the quarterly
comparison.
Other Operating Expenses
2Q07 versus 2Q06
The Other Operating Income item increased by 56.9%, from US$ 42.5 million in the
2Q06 to US$ 42.1 million in the 2Q07. The main variations were: (i) the higher
freight costs, for the growth in logistics transportation operations, (ii)
higher costs for leasing goods Port Terminal and Logistics equipment), (iii) the
growth in stevedoring expenses.
1H07 versus 1H06
Other Operating Expenses rose 24.9% to US$ 73.9 million in the 1H07, from US$
59.2 million in the 1H06. In addition to the factors previously reported in the
quarterly comparison, another factor was the higher costs with hiring third
parties for overland transport due to the increase in logistics operations.
Operating Income
2Q07 versus 2Q06:
Consolidated Operating Income in 2Q07 increased by 12.8% to US$ 12.0 million,
from US$ 10.6 million in 2Q06. This increase of US$ 1.4 million was driven by
Port Terminals (from revenue gains and a higher-margin mix of cargo handled),
and Towage from an increased level of higher-margin special operations.
Operating Margin was 12.0% in 2Q07, compared to 14.6% in 2Q06. However,
excluding the positive non-recurring gain from the sale of the company's
interest in WRC in 2Q06, operating margins would have improved from 10.4% in
2Q06 to 12.0% in 2Q07.
1H07 versus 1H06
Consolidated Operating Income in the 1H07 climbed 11.9% to US$ 27.0 million,
from US$ 24.1 million in the 1H06. The higher contributions from the Port
Terminals segment of US$ 6.4 million and from the Towage segment of US$ 4.5
million leveraged the result in the comparison of half year periods.
Non-recurring effects in the 1H06 led to lower growth in the 1Q07 compared to
that period. Operating income in the 1H06 was positively impacted by the gain
from the change in the interest held in Brasco Logistica Offshore and the gain
from the sale of the interest in WR Operadores Portuarios.
Operating margin in the 1H07 was 14.8%, versus 16.1% in the 1H06. Excluding the
positive impact from (i) the gain from the sale of the interest in WRC in the
2Q06, and (ii) the gain from the change in the interest held in BRASCO in the
1Q06, operating margin in the 1H06 declines from 16.1% to 13.1%. Accordingly,
excluding this non-recurring effect, operating margin improved from 13.1% in the
1H06 to 14.8% in the 1H07.
Investment Portfolio
Hanseatic Asset Management LBG that manages the Groups investment portfolio
reports as follows:
Equity markets made good progress in the first half of 2007. Throughout the
period the worsening situation in the US sub-prime market gave concern that
there would be some further contagion into other credit markets. This led to a
small correction in February, however equity markets rallied in March to
complete a positive first quarter. Europe and the Far East were the main
contributors with China and China related activity a continuing theme. Over the
second quarter markets posted positive returns reflecting continuing economic
resilience, record levels of private equity and LBO activity and strength in
corporate earnings. After a strong start to the second quarter, equity markets
lost some ground in June as the concerns about the credit markets returned
alongside fears of higher interest rates. Emerging markets continued to lead
markets in the second quarter with Brazil and China the standout performers.
Mining stocks continued their strong performance.
In other markets European equities have performed well with Germany once again
leading the way. The UK market remained a good performer, aided by a
continuation of Merger and Private Equity activity. Returns in Europe and the UK
were augmented for Dollar investors by relative strength of Euro and Sterling.
Having lagged in the first quarter, the S&P 500 and the Dow Jones indices
reached new record highs in June whilst Japanese equities were a relatively poor
performer for much of the first half.
Overall the fund showed a gain of 12.37% for the half year; the MSCI returned
9.17%.
The fund's performance was enhanced by its substantial positions in the UK,
Emerging Markets, particularly the Far East, and by the strength of its thematic
global funds, notably in mining. This was partially offset by weakness in Japan
where the market remained under pressure. The best performance came from a
number of individual equity holdings (appendix A), namely Ark Therapeutics, UTS
Energy and Ivanhoe Mines, and there was a strong contribution from all funds in
the Far East and Emerging Markets (Appendix B). Lansdowne UK Equity Fund, ML
World Mining Trust and Findlay Park American Smaller Companies Fund were once
again strong contributors to the fund's performance. A schedule of the top
twenty holding by value can be found in Appendix C.
Transactions during the period included four new holdings. RAB Special
Situations is a diversified fund on a substantial discount to asset value with
significant exposure to mining and Chinese demand. The manager seeks to back
strong and entrepreneurial management teams in companies with substantial asset
backing. Tau Capital is a Kazakhstan fund investing in both public and private
equities. The investment opportunity stems from Kazakhstan's fast growing
(industrialised and largely private) economy which is underpinned by natural
resources (oil, gas, coal, minerals). Prusik Asia Fund is a long-only equity
fund focusing on Asia & Australia ex-Japan. The manager is a bottom up investor
seeking absolute returns through a concentrated portfolio. The manager will hold
cash when there are insufficient opportunities to invest in good companies at
good prices. This has recently been the case and their cash position has risen
to well over 50%. Summit Germany is a commercial property fund seeking to invest
in well located office and logistics assets. The manager is building a
substantial commercial property portfolio across Germany secured on long leases
with strong covenants. Germany is Europe's largest property market and looks
cheap based on rental, capital and total return criteria.
There were no disposals from the fund in the first half of 2007.
As we look forward the prospects for equities are encouraging; although many
issues remain to test the market's resolve. The recovery of global equity
markets from their 2002/03 lows has been accompanied by many concerns. These
have centred around high interest rates, the inverted yield curve, the impact of
higher energy costs and the dangers of leverage, both for consumers and buyout
firms. The most recent issue is the collapse in US sub prime market due to lax
lending practices. These overly accommodative liquidity conditions inflated
various parts of the stock market and various asset classes. As this liquidity
is removed the impact has already been seen in the real estate industry as
yields have started to rise. This will also reduce the amount of aggressive
private equity activity which has extended valuations in some areas of the
market. This adjustment, when combined with a mid-cycle slowdown in the US, has
led to a correction in markets. However, in contrast to the euphoric days of
2000 the markets have not lost touch with economic reality. Neither mainstream
debt nor equity valuations are overly extended; this suggests that in a period
of abundant liquidity the markets believe that there is sufficient growth to
support the debts upon which the recovery has been built. Corporate balance
sheets are reassuringly robust and earnings statements supportive.
Equities remain the best vehicle for participating in growth and global markets
remain in a growth phase. Any fear of widespread distress in financial markets
is likely to lead to swift action by the authorities and a loosening of monetary
conditions; this will provide support for the equity markets by allowing lower
rates than should be the case in what is now generally acknowledged to be a
strong overall growth environment. The markets will remain concerned over the
resilience of the US consumer who appears to have survived this initial squeeze
on liquidity relatively unscathed. In any event the baton of growth appears to
have passed from the US to the Emerging economies whose rapid development
continues to fuel the commodity boom. This theme still has further to run as the
tightness of supply is acerbated by strongly rising demand.
Whilst at the time of writing it is difficult to see how profound a correction
the current squeeze will cause, we continue to believe that equities,
underpinned by strong fundamentals, represent decent value. Our preference for
Emerging Markets remains as the strong macro environment and positive
demographics drive performance. There appears as yet to be little reason to
reverse the cautious position the fund has taken in the US market; however there
are many valuable companies in this market and their strong earnings performance
has brought them nearer to good value. Japan is still in a recovery phase and
the markets need to be convinced that the authorities will not kill off that
recovery as they have in the past; we remain optimistic. Bonds may offer some
value as some areas of the market become distressed however, the investment
grade markets may have further to fall as the effect of tighter liquidity takes
effect.
J F Gouvea Vieira
14 August 2007
Appendix A
The top ten performing investments were:
Holding %
Growth
Ark Therapeutics 64
UTS Energy Corp 48
Ivanhoe Mines 45
Merrill Lynch World Mining Trust PLC 35
ACP 27
Lansdowne UK 23
CFGIF Far East 22
Royal Dutch Shell 22
SR Phoenicia Class B 22
Investec Global Energy 21
Appendix B
The top ten contributors were:
Holding %
Contribution
Lansdowne UK Equity Fund 2.00
Merrill Lynch World Mining Trust PLC 1.55
SR Global Fund - Emerging Markets 0.95
Findlay Park American Smaller Companies 0.89
CFGIF Far East Fund 0.87
ACP Capital Limited 0.59
Jupiter European Opportunities Trust PLC 0.53
Aberdeen Global - Asia Pacific 0.52
SR Global Fund - Asia 0.45
Royal Dutch Shell PLC 0.43
TOTAL 8.78
Appendix C
Investment Portfolio Information at 30 June 2007 - top 20 holdings:
Value in USD % NAV
Lansdowne UK Equity Fund 8,465,360 9.50
Lansdowne European Equity Fund 5,228,217 5.87
Merrill Lynch World Mining Trust PLC 5,155,922 5.79
Findlay Park American Smaller Companies 4,748,323 5.33
JO Hambro Japan Fund 4,732,266 5.31
SR Global Fund - Emerging Markets 4,623,300 5.19
Ashmore Emerging Markets Liquid Investment 4,413,120 4.95
Portfolio
BlueBay European Credit Opportunity Fund 3,900,706 4.38
Orbis Sicav - Japan Equity 3,891,678 4.37
CFGIF Far East Fund 3,786,296 4.25
Aberdeen Global - Asia Pacific 3,324,293 3.73
Finsbury Growth & Income Trust PLC 3,148,514 3.53
SR Global Fund - Asia 2,728,685 3.06
Jupiter European Opportunities Trust PLC 2,631,309 2.95
ACP Capital Limited 2,160,142 2.42
Summit Germany Limited 2,087,558 2.34
Royal Dutch Shell PLC 1,946,994 2.18
SM Investors Offshore 1,889,546 2.12
Prusik Asia Fund 1,767,752 1.98
BP PLC 1,540,350 1.73
TOTAL TOP 20 holdings 72,170,340 80.99
Ocean Wilsons Holdings Limited
Consolidated income statement
for the six months ended 30 June 2007
Unaudited Unaudited Audited
six months six months Year to
to to
30 June 30 June 31
December
2007 2006 2006
Notes US$'000 US$'000 US$'000
Revenue 182,671 150,423 334,109
Raw materials and consumables used (22,459) (23,548) (53,886)
Employee benefits expense 3 (58,667) (40,450) (83,225)
Depreciation & amortisation expense (8,288) (7,538) (15,100)
Other operating expenses (74,544) (59,763) (125,247)
Profit on disposal of property plant 534 113 435
and equipment
Profit on sale of minority interest 8 213,667 - -
Profit on disposal of joint venture - 3,107 2,965
Release of surplus on acquisition of - 1,396 1,433
interest in subsidiary
Share of loss of associate - (50) (51)
Operating profit 232,914 23,690 61,433
Investment income 4 10,221 7,095 11,196
Other gains and losses 5 9,946 3,984 11,433
Finance costs 6 (2,814) (3,220) (6,414)
Profit before tax 250,267 31,549 77,648
Income tax expense 7 (10,167) (7,674) (20,765)
Profit for the period 240,100 23,875 56,883
Attributable to:
Equity holders of parent 236,760 23,566 56,077
Minority interests 3,340 309 806
240,100 23,875 56,883
Earnings per share
Basic and diluted 669.5c 66.6c 158.6c
Ocean Wilsons Holdings Limited
Consolidated Balance Sheet
as at 30 June 2007
Unaudited Unaudited Audited
as at 30 as at 30 as at 31
June June December
2007 2006 2006
US$'000 US$'000 US$'000
Non current assets
Goodwill 13,132 13,132 13,132
Other intangible assets 2,080 2,140 2,053
Property, plant and 197,200 160,926 175,785
equipment
Deferred tax assets 10,392 7,921 8,289
Interest in associate - 344 -
Available for sale 5,934 5,281 5,346
investment
Other non-current assets 9,714 7,256 7,809
238,452 197,000 212,414
Current assets
Inventories 9,126 7,145 7,061
Trading investments 88,543 72,313 73,192
Trade and other 68,731 49,264 54,413
receivables
Cash and cash 388,067 40,909 62,599
equivalents
554,467 169,631 197,265
Total assets 792,919 366,631 409,679
Current liabilities
Trade and other payables (75,420) (55,964) (54,223)
Current tax liabilities (1,502) (402) (1,944)
Obligations under (680) (2,465) (581)
finance leases
Bank overdrafts and (16,069) (13,823) (14,945)
loans
Derivative financial (529) - (782)
instruments
(94,200) (72,654) (72,475)
Net current assets 460,267 96,977 124,790
Non-current liabilities
Bank loans (108,788) (85,362) (95,216)
Deferred tax liabilities (8,571) (9,674) (9,336)
Provisions (5,808) (5,908) (5,913)
Obligations under (1,093) (389) (1,098)
finance leases
(124,260) (101,333) (111,563)
Total liabilities (218,460) (173,987) (184,038)
Net assets 574,459 192,644 225,641
Capital and reserves
Share capital 11,390 11,390 11,390
Retained earnings 402,992 142,311 173,305
Capital reserves 25,973 26,044 25,973
Investment reserve 2,969 1,958 2,381
Translation reserve 13,161 7,819 8,762
Equity attributable to equity 456,485 189,522 221,811
holders of the parent
Minority interests 117,974 3,122 3,830
Total equity 574,459 192,644 225,641
Ocean Wilsons Holdings Limited
Cash flow statement
for the six months ended 30 June 2007
Unaudited Unaudited Audited
six months six months year to
to to
30 June 30 June 31
December
2007 2006 2006
Note US$'000 US$'000 US$'000
Net cash inflow from operating 9 16,678 13,562 37,239
activities
Investing activities
Interest received 5,333 2,572 5,922
Dividends received from associate - - 327
Dividends received from trading 234 417 915
investments
Proceeds on disposal of trading - 2,146 17,280
investments
Cash inflow from underwriting 610 - -
activities
Proceeds on disposal of property, plant 108 113 2,144
and equipment
Purchases of property, plant and (27,160) (16,307) (42,231)
equipment
Proceeds on investment in an associate - - 49
Net cash inflow arising from - 685 1,723
acquisition of subsidiary
Purchases of trading investments (5,405) (5,912) (14,476)
Net cash inflow arising on disposal of 8 324,688 - -
minority interest
Net cash inflow arising on disposal of - 1,355 3,464
joint venture
Net cash used in investing activities 298,408 (14,931) (24,883)
Financing activities
Dividends paid (7,073) (6,365) (7,072)
Repayments of borrowings (7,024) (6,498) (16,099)
Repayments of obligations under finance (440) (1,605) (3,421)
leases
New bank loans raised 20,692 1,928 20,955
Increase/(decrease) in bank overdrafts 310 (169) 640
Net cash used in financing activities 6,465 (12,709) (4,997)
Net increase/(decrease) in cash and 321,551 -14,078 7,359
cash equivalents
Cash and cash equivalents at beginning 62,599 50,881 50,881
of year
Effect of foreign exchange rate changes 3,917 4,106 4,359
Cash and cash equivalents at end of 388,067 40,909 62,599
year
Ocean Wilsons Holdings Limited
Statement of changes in Equity
as at 30 June 2007
For the six months ended 30 June 2006 Attributable
Investment to equity
Share Retained Capital revaluation Translation holders of Minority
capital earnings reserves reserve reserve the parent interests Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at
1 January 2006 11,390 126,331 23,942 1,856 6,538 170,057 1,313 171,370
Gains on
available for sale - - - 102 - 102 - 102
investment
Currency
translation - - - - 1,281 1,281 - 1,281
adjustment
Profit for
the period - 23,566 - - - 23,566 309 23,875
Total income
and expense for - 23,566 - 102 1,281 24,949 309 25,258
the period
Dividends - (6,365) - - - (6,365) - (6,365)
Acquisition of
minority - - - - - 1,500 1,500
interest
Fiscal incentives
received 881 881 881
Transfer to capital
reserves - (1,221) 1,221 - - - - -
Balance at
30 June 2006 11,390 142,311 26,044 1,958 7,819 189,522 3,122 192,644
For the year ended 31 December 2006 Attributable
Investment to equity
Share Retained Capital revaluation Translation holders of Minority
capital earnings reserves reserve reserve the parent interests Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at
1 January 2006 11,390 126,331 23,942 1,856 6,538 170,057 1,313 171,370
Gains on
available for sale - - - 525 - 525 - 525
investment
Currency
translation - - - - 2,224 2,224 187 2,411
adjustment
Profit for
the period - 56,077 - - - 56,077 806 56,883
Total income
and expense for - 56,077 - 525 2,224 58,826 993 59,819
the period
Dividends - (7,072) - - - (7,072) - (7,072)
Acquisition of
minority - - - - - 1,524 1,524
interest
Transfer to
capital reserves - (2,031) 2,031 - - - - -
Balance at
31 December 2006 11,390 173,305 25,973 2,381 8,762 221,811 3,830 225,641
For the six months ended 30 June 2007 Attributable
Investment to equity
Share Retained Capital revaluation Translation holders of Minority
capital earnings reserves reserve reserve the parent interests Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at
1 January 2007 11,390 173,305 25,973 2,381 8,762 221,811 3,830 225,641
Gains on
available for sale - - - 588 - 588 - 588
investment
Currency translation - - - - 4,399 4,399 -217 4,182
adjustment
Profit for the period - 236,760 - - - 236,760 3,340 240,100
Total income
and expense for - 236,760 588 4,399 241,747 3,123 244,870
the period
Dividends - (7,073) - - - (7,073) - (7,073)
Sale of minority
interest - - - - - - 111,021 111,021
Balance at
30 June 2007 11,390 402,992 25,973 2,969 13,161 456,485 117,974 574,459
Ocean Wilsons Holdings Limited
Notes to the financial information
1 In respect of the six monthly results, which are based on unaudited
reports for management purposes
(i) The interim financial information is not the Company's statutory accounts.
(ii) The auditors of the Company have not made any report thereon under section 90(2) of the Bermuda Companies Act.
(iii) The interim financial information has been prepared in accordance with International Financial Reporting
Standards ('IFRSs') with the exception of 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 interim financial information has been prepared on the basis of accounting policies consistent with those
applied in the financial statements for the year ended 31 December 2006.
2 Business and geographical segments
Business segments
For management purposes, the Group is currently organised into seven operating activities; towage, port terminals,
ship agency, offshore logistics, investment and non-segmented activities. These divisions are the basis on which
the Group reports its primary segment information.
Segment information relating to these businesses is presented below.
For the six months ended 30 June 2007
Non
Port Ship Segmented
Towage terminals agency Offshore Logistics Investment activities Elimination Consolidated
six six six six six six six six six
months months months months months months months months months
to to to to to to to to to
2007 2007 2007 2007 2007 2007 2007 2007 2007
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue 64,638 66,909 9,769 4,615 29,286 - 7,454 - 182,671
Inter-segment - - - - - - 18,526 (18,526) -
sales
64,638 66,909 9,769 4,615 29,286 - 25,980 (18,526) 182,671
Result
Segment 17,886 18,295 3,135 381 1,774 (236) 191,679 - 232,914
result
Share of results - - - - - - - - -
of associates
Operating 17,886 18,295 3,135 381 1,774 (236) 191,679 - 232,914
profit
Investment - - - - - 1,109 9,112 - 10,221
income
Other gains - - - - - 9,946 - - 9,946
and losses
Finance costs (1,023) (1,085) - (423) (203) - (80) - (2,814)
Profit before 16,863 17,210 3,135 -42 1,571 10,819 200,711 - 250,267
tax
Tax (10,167)
Profit after 240,100
tax
Other info
rmation
Capital (7,934) (8,678) (442) (9,232) (406) - (467) - (27,159)
additions
Depreciation and (3,109) (2,823) (324) (1,315) (281) - (436) - (8,288)
amortisation
Balance Sheet
Assets
Segment 96,992 147,970 6,927 49,635 10,838 90,912 389,645 - 792,919
assets
Liabilities
Segment (56,065) (48,282) (336) (57,379) (4,300) (919) (51,178) - (218,459)
liabilities
For the six months ended 30 June 2006
Non
Port Ship Segmented
Towage terminals agency Offshore Logistics Investment activities Elimination Consolidated
six six six six six six six six six
months months months months months months months months months
to to to to to to to to to
2007 2007 2007 2007 2007 2007 2007 2007 2007
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue 52,579 53,012 10,564 4,757 22,134 - 7,377 - 150,423
Inter segment - - - - - - 17,644 (17,644) -
sales
52,579 53,012 10,564 4,757 22,134 - 25,021 (17,644) 150,423
Result
Segment 13,271 11,788 2,830 263 1,206 (488) (5,130) - 23,740
result
Share of results - - (50) - - - - - (50)
of associates
Operating 13,271 11,788 2,780 263 1,206 (488) (5,130) - 23,690
profit
Investment - - - - - 527 6,568 - 7,095
income
Other gains - - - - - 3,984 - - 3,984
and losses
Finance costs (1,176) (516) (4) (456) (153) - (915) - (3,220)
Profit before 12,095 11,272 2,776 (193) 1,053 4,023 523 - 31,549
tax
Tax (7,674)
Profit after 23,875
tax
Other info
rmation
Capital (2,139) (7,865) (244) (8,132) (92) - (204) - (18,676)
additions
Depreciation and (3,366) (2,661) (282) (792) (239) - (198) - (7,538)
amortisation
Balance Sheet
Assets
Segment 96,848 118,276 6,802 41,377 8,180 74,853 20,295 - 366,631
assets
Liabilities
Segment (55,809) (45,375) (3,688) (39,286) (3,718) (2,757) (23,354) - (173,987)
liabilities
For the year ended 31 December 2006
Non
Port Ship Segmented
Towage terminals agency Offshore Logistics Investment activities Elimination Consolidated
six six six six six six six six six
months months months months months months months months months
to to to to to to to to to
2007 2007 2007 2007 2007 2007 2007 2007 2007
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue 118,817 127,436 17,778 8,356 49,250 - 12,472 - 334,109
Inter segment - - - - - - 18,489 (18,489) -
sales
118,817 127,436 17,778 8,356 49,250 - 30,961 (18,489) 334,109
Result
Segment result 31,363 39,391 8,743 1,102 4,186 (2,131) (21,171) - 61,483
Share of results - - (51) - - - - - (51)
of associates
Operating 31,363 39,391 8,692 1,102 4,186 (2,131) (21,171) - 61,432
profit
Investment - - - - - 882 10,314 - 11,196
income
Other gains and - - - - - 11,433 - - 11,433
losses
Finance costs (2,346) (1,970) - (919) (200) - (979) - (6,414)
Profit before 29,017 37,421 8,692 183 3,986 10,184 (11,836) - 77,647
tax
Tax (20,765)
Profit after 56,882
tax
Other info
rmation
Capital (7,848) (14,221) (519) (15,680) (1,143) - (3,462) - (42,873)
additions
Depreciation and (3,366) (2,661) (282) (792) (239) - (198) - (7,538)
amortisation
Balance Sheet
Assets
Segment assets 103,133 132,893 8,216 43,063 11,173 82,392 28,809 - 409,679
Liabilities
Segment (64,095) (46,268) (7,667) (42,039) (3,548) (2,374) (18,047) - (184,038)
liabilities
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.
Investment revenues arising on bank balances held in Brazilian operating
segments, including foreign exchange on cash, has not been allocated to the
business segment as cash management is performed centrally by the corporate
function.
Profit on disposal of the Groups interest in WR Operadores Portuarias Ltda and
the release of surplus on acquisition of Brasco during 2006 has been recognised
in port operations.
3 Employee benefits expense Unaudited Unaudited Audited
six months to six months to Year to
30 June 30 June 31 December
2007 2006 2006
US$'000 US$'000 US$'000
Aggregate remuneration comprised
Wages and salaries 41,095 31,411 64,473
Share based payment expense 7,790 - 212
Social security costs 9,146 8,594 17,704
Other pension costs 636 445 836
58,667 40,450 83,225
4 Investment income Unaudited Unaudited Audited
six months to six months to Year to
30 June 30 June 31 December
2007 2006 2006
US$'000 US$'000 US$'000
Interest on bank deposits 5,333 2,572 5,922
Exchange gains on cash 3,917 4,106 4,359
Dividends from trading investments 234 417 915
Investment revenues from underwriting 737 - -
activities
10,221 7,095 11,196
5 Other gains and losses Unaudited Unaudited Audited
six months to six months to Year to
30 June 30 June 31 December
2007 2006 2006
US$'000 US$'000 US$'000
Increase in fair value of trading 9,946 3,656 8,335
investments held at year end
Profit on disposal of trading investments - 328 3,098
9,946 3,984 11,433
6 Finance costs Unaudited Unaudited Audited
six months to six months to Year to
30 June 30 June 31 December
2007 2006 2006
US$'000 US$'000 US$'000
Interest on bank loans, overdrafts and other 3,103 3,149 5,492
Exchange gains on foreign currency borrowings (595) (723) (792)
Interest on obligations under finance 123 510 489
leases
Total borrowing costs 2,631 2,936 5,189
Derivative 183 284 1,225
costs
2,814 3,220 6,414
Derivative costs represent the settlement of derivative contracts and the movement in the fair
value of derivatives during the year.
7 Taxation Unaudited Unaudited Audited
six months to six months to Year to
30 June 30 June 31 December
2007 2006 2006
US$'000 US$'000 US$'000
UK corporation tax 373 - -
Overseas tax 9,794 7,674 20,765
10,167 7,674 20,765
8 Disposal of minority interest
On April 30 2007 the Group sold a 37.11% minority interest in Wilson Sons Limited. On 31 May 2007 the Group sold a
further 4.64% minority interest. The total cash consideration received for the 41.75% minority interest in Wilson
Sons Limited was US$ 324.7 million
Gross proceeds 348,678
Less costs of disposal (23,990)
Net proceeds 324,688
Net proceeds received by Ocean Wilsons Holdings Limited 205,615
Net proceeds received by Wilsons Sons Limited 119,073
Total 324,688
Net proceeds received by Wilson Sons Limited arise from new shares issued which is deemed a
disposal.
Net assets sold at 41.75% Book value
US$'000
Goodwill 5,413
Property, plant and equipment 77,129
Available for sale investments 2,194
Other non-current assets 4,919
Inventories 3,437
Trade and other receivables 25,974
Cash and cash equivalents 68,557
Trade and other payables (26,265)
Bank overdrafts and loans (47,508)
Other liabilities (2,829)
Net assets disposed of (proportional 41.75%) 111,021
Total consideration satisfied by cash 324,688
Gain on disposal 213,667
9 Notes to the cash flow statement
six six
months months Year
to to to
30 June 30 June 31 December
2006 2006 2005
Reconciliation from profit before tax to net cash from US$'000 US$'000 US$'000
operating activities
Profit before tax 250,267 31,549 77,648
Less: investment revenues (10,221) (7,095) (11,196)
Less: other gains and losses (9,946) (3,984) (11,433)
Add: finance costs 2,814 3,220 6,414
Operating profit 232,914 23,690 61,433
Adjustments for:
Depreciation of property, plant and equipment 8,158 7,406 14,822
Amortisation of intangible assets 130 132 278
Gain on disposal of property, plant and equipment (534) (113) (435)
Profit on disposal of minority interest (213,667) - -
Profit on disposal of joint venture and associate - (3,107) (2,965)
Release of surplus on acquisition of interest in - (1,396) (1,433)
subsidiary
Share of loss of associate - 50 51
(Decrease )/Increase in provisions (100) 1,591 1,596
Operating cash flows before movements in working capital 26,901 28,253 73,347
Increase in inventories (2,065) (476) (392)
Increase in receivables (11,174) (4,428) (9,589)
Increase /(decrease) in payables 21,197 1,698 (43)
Increase in other non-current assets (1,905) (1,599) (2,152)
Cash generated by operations 32,563 23,448 61,171
Income taxes paid (13,605) (6,666) (17,508)
Interest paid (2,671) (3,220) (6,424)
Net cash from operating activities 16,678 13,562 37,239
10 The interim dividend of 4.00 cents per share will be paid on the 28 September 2007, to shareholders on the
register at close of business on 7 September 2007
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