Preliminary Results
Ocean Wilsons Holdings Ld
28 April 2006
Ocean Wilsons Holdings Limited
Preliminary Announcement
Chairman's Statement
Introduction
I am pleased to report that the Group's performance in 2005 was in line with our
expectations delivering another good performance. Revenue increased in all the
Group's core businesses although margins were adversely impacted by the
appreciation of the Brazilian Real (R$). The Group maintained its position as
the leading supplier of maritime services in Brazil.
Results
In 2005 Group revenue increased by 31% to US$285.2 million (2004: US$217.7
million) although operating profit decreased 6% at US$33.5 million (2004:
US$35.8 million). Increased investment revenues to US$14.2 million (2004:
US$10.4 million) were the main factor in profit before taxation improving by 3%
to US$49.5 million (2004: US$48.2 million). Earnings per share improved 4.2
cents to 93.6 cents (2004: 89.4 cents).
Brazil
The Brazilian economy grew by around 2.3% in 2005, lower than expected at the
beginning of the year.
Brazil's external accounts have improved considerably in 2005:
- Trade surplus reached US$44.8 billion;
- Accumulated net foreign exchange reserves at US$61 billion;
- Prepaid debt to IMF;
- Retired remaining Brady Bonds;
- Brazil risk premium had fallen to 311 basis points by year end and since
dropped further;
- Strength of Brazilian Real against US dollar
Unfortunately the strength of Brazil's external position has not been matched by
the internal accounts. Government expenditures increased especially with 'Bolsa
Familia', minimum wage and other social programs.
Domestic interest rates, after rising to 19.75% p.a., dropped by the year end
and continued this trend during the first quarter of 2006 falling to 16.50%
p.a.. However, further significant reductions will depend on important pending
structural reforms, in areas such as social security, labour and tax which are
regrettably unlikely to be approved by Congress in this electoral year.
Exchange rates
The Brazilian Real appreciated 12% against the US Dollar from R$2.66 at 1
January 2005 to R$2.34 at the year end. The appreciation of the Brazilian Real
against the US Dollar generated a net exchange gain of US$5.4 million (2004:
US$3.5 million) on the Group's Real$ denominated cash balances.
Dividends
In light of the Group's continuing strong performance, the Board is recommending
that the final dividend remain at 18 cents per share (2004: 18.0 cents per
share) to be paid on 16 June 2006 to shareholders on the register at the close
of business on 12 May 2006, making a total dividend for the year of 20.0 cents
per share (2004: 20.0 cents per share).
The Group's dividends are determined in US Dollars. Shareholders receive
dividends in Sterling determined 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. Shareholders electing to receive a
dividend in US Dollars should write to the Company's UK transfer agent, Capita
Registrars at the address set out at the end of this announcement, before the
next dividend record date, 12 May 2006.
The Board's dividend policy takes into consideration all aspects of the Group's
financial performance and prospects, but especially profitability and free cash
flow. Shareholders should also be aware that the future value of dividend
payments in Sterling terms will depend on the prevailing Sterling/US Dollar
exchange rate at the relevant dividend record date.
Corporate social responsibility
The Board has adopted the fundamental principles of corporate social
responsibility. We are committed to understanding the needs and interests of all
stakeholders we are involved with and are concerned for the community and
environment. We continually strive to improve our social and environmental
performance, with the objective of ensuring that our activities contribute to
the sustainable development of the communities in which we operate.
Taxes
In 2005 the Group paid in excess of US$60 million (2004: US$55 million) in
Brazilian income, payroll and sales taxes.
Local employment
At the end of 2005, the Group directly employed more than 3,000 people in Brazil
and created numerous employment opportunities through its suppliers and
sub-contractors.
We continue to have an active and constructive relationship with the local and
national trade unions in Brazil that represent our employees and negotiate wage
agreements on their behalf.
Best employment practice
As part of our commitment to best employment practice, all employees and their
dependents receive private medical cover at a cost of US$4.1 million (2004:
US$3.0 million) to the Group. In addition, the Group provided US$2.2 million
(2004: US$1.6 million) of food assistance and spent a further US$400,000 (2004:
US$309,000) on education and professional development for employees. The Group
will continue to invest in these areas.
Charitable donations
In line with our policy to support local charities the Group made charitable
donations of US$163,000 (2004: US$93,000) during the year. The primary focus of
the Group's charitable efforts continues to be projects helping homeless
children and adolescents. The Group continued its support of Casa Jimmy and
Pastoral do Menor in Rio and Casa da Crianca in Salvador. In addition to
financial support, the Group encourages employees to participate in social
initiatives of this nature.
International Financial Reporting Standards
The financial information contained in this report, including all comparatives,
has been prepared in accordance with International Financial Reporting Standards
('IFRS'). Further details are given in the IFRS interim restatement available on
the Company's website and released to the London and Bermuda stock exchanges.
The Group published financial information in accordance with IFRS for the year
ended 31 December 2004 on the 10 October 2005. The change to IFRS has had a
significant impact on the Group's accounts and I encourage all shareholders to
read the details contained in these news releases.
Management and staff
On behalf of your Board, I would like to thank our management and staff for
their hard work and loyalty during the year. The Group's performance in a
competitive market is a credit to our people who have delivered a first class
service. We will continue to invest in their future through training and
incentive programmes.
Strategy
In September 2005 the Board of Ocean Wilsons Holdings Limited announced that it
had concluded the review of its strategic options in relation to the Company's
Brazilian operations and had decided to continue to remain focused on its
current operations and to invest in their future development.
The acquisition of a further 33% equity interest in Tecon Rio Grande S.A.
announced in August 2005 for R$55.5 million (approximately US$23.2 million) is
consistent with the Board's strategy and strengthens the Company's position in
the growing container terminal market in Brazil. In the 2004 Group accounts,
Tecon Rio Grande was consolidated 100% with a 33% minority interest.
The Board believes that the strength of our Brazilian business continues to
present exciting opportunities for future growth and remains committed to
creating long term value for shareholders.
Outlook
The Group continues to grow and establish strong positions in a range of
markets. We will continue to invest in our core businesses and the Group remains
well positioned to benefit from any further upturn in Brazilian trade.
Civil works for the expansion of the Tecon Rio Grande container terminal will
begin in the second quarter of 2006. This is later than originally stated in
last year's annual report due to the acquisition of the minority interest in
Tecon RG in August 2005. Two new Portainers are currently being assembled at the
terminal and are forecast to begin operation in July 2006.
The outlook for the oil and gas offshore business remains positive and the Group
is actively pursuing further opportunities in this area through participation in
new tenders as they arise.
One of the challenges facing management is the need to maintain margins in face
of a strengthening Brazilian currency. Management remains committed to reducing
costs and improving tariffs where possible to ensure the continuing
profitability of the Group.
J. F. Gouvea Vieira
Chairman
OPERATING REVIEW
Introduction
As the leading supplier of maritime services in Brazil, the Group is the largest
provider of Towage services, as well as being a significant Ship Agent, and
operator of Ports and Logistics businesses.
Towage, Shipyard and Offshore Operations
Revenue in the Group's Towage, Shipyard and Offshore division rose to US$126.5
million in 2005 (2004: US$ 112.2 million), an increase of 13% which reflects
consistent growth in both towage and offshore revenues. However, operating
margins fell due to the appreciation of the Brazilian Real with segment
operating profit falling from US$26.2 million in 2004 to US$24.2 million in
2005.
Towage
The towage business performed very well in 2005, with an increase of 14% in the
number of vessels attended and a small decrease in the average dead-weight
tonnage of vessels serviced. This dynamic resulted principally from a rise in
the number of liner vessels calling at Brazilian ports combined with a reduction
in soya bean exports. However, an increase in service costs, due to the
appreciation of the Real against the US Dollar, resulted in lower margins
compared to 2004.
The Group's ocean towage operations and salvage assistance activities performed
strongly and achieved a record number of ocean tows along the Brazilian coast as
well as salvage work carried out in the ports of Paranagua and Sepetiba.
Continuing the Group's fleet renewal program, the Group's shipyard in Guaruja
delivered the 43 ton bollard pull tugs, Cetus and Haris, in May and July 2005
respectively. To improve operating efficiency and meet market demand, the
Group's policy is to replace the fleet's smaller, older tugs with larger state
of the art vessels. Following this strategy the majority of the Group's new tugs
are between 40 to 50 ton bollard pull. The older vessels in the fleet are single
screw, 15 to 20 ton bollard pull tugs. The average age of the fleet is 17 years.
The Group currently operates over 70 tugs in 19 ports throughout Brazil.
The Group's towage joint venture, Consorcio Baia de Sao Marcos, also delivered a
strong performance during the year, increasing revenue by 15% and operating
profit by 24% over 2004. The joint venture fleet rose from seven to eight tugs
during the course of the year.
Shipyard
In addition to the Group's ongoing fleet maintenance activities, the shipyard
was busy with the Group's fleet renewal program and the starting of a new PSV
(Platform Supply Vessel). Third party work centred on completion of the
conversion of the PSV's for Companhia Brasileira de Offshore (CBO) and Delba
Maritima, work which started in 2004. In addition to the delivery of the tugs,
Cetus and Haris, work commenced on two new 70 ton bollard pull tugs.
Dragaport
Our associate dredging company Dragaport had a poor year. Dredging work was
carried out at the ports of Santos and Fortaleza and at the Ponta da Madeira
Terminal (CVRD). However, contracts for dredging services in 2006 have already
been negotiated and market conditions are showing some modest signs of
improvement.
Platform Supply Vessels
Under time charter to Petrobras, the Group's two offshore vessels continued to
perform well during 2005, with no off hire periods and excellent operational
records. Operating profit and cash flow remain in line with expectations. The
Group's strategy is to increase market share in this area of activity. A third
vessel, that is also to be time chartered to Petrobras, is being built and the
Group will examine the viability of participating in further tenders as they are
announced.
Ship Agency
The division again exceeded expectations for the year, attending 5,902 ship
calls, up 7 % over 2004. Revenues increased 44% to US$20.7 million. The
partnership agency with CMA-CGM continued to expand its business within Brazil
and the hub agency contract with Gulf Agency Company provided extra ship calls.
The division's Centralised Service Centre was successfully implemented. As a
result, productivity improved with higher volumes being handled by the same
number of staff. Service quality improvements were also achieved as a result of
a review of internal processes, resulting in an improvement in customer
satisfaction.
In 2006, the division intends to achieve Quality Assurance certification by
Lloyds Register.
Ports and Logistics
Tecon Rio Grande
The terminal moved 670,000 TEU's (Twenty foot Equivalent Units), an increase of
9% over 2004. The number of container vessels attended increased 16% to 1,131.
Productivity at 44 moves per hour is in line with the prior year (2004: 46 moves
per hour), only marginally affected by the terminal's current capacity
constraints. To increase capacity and attend the increased demand for
transhipment cargo, two Super Post Panamax Gantry Cranes and four Rubber Tired
Gantries, will commence operation in the third quarter of 2006. Work on the
planned expansion of the terminal involving construction of a new berth will
begin in the second quarter of 2006. The terminal at Tecon Rio Grande moves a
diversified range of cargoes, with the main emphasis on tobacco, frozen chicken,
resin, shoes and furniture. Tecon Rio Grande services more than 20 shipping
lines.
Tecon Salvador
Container volumes handled at Tecon Salvador reached 221,000 TEU's, an increase
of 25% over 2004. The number of container vessels attended increased by 32%,
reaching 607. This rate of growth resulted from increased volumes in the port
and a rise in market share achieved by the terminal. Tecon Salvador now accounts
for 100% of the containers moved through the port. The volumes achieved in 2005
were originally forecast for some ten years hence.
The high volume of containers handled by Tecon Salvador in 2005 requires careful
logistical planning. New equipment went into service at the beginning of 2006 so
as to improve operational capacity and to mitigate limitations on yard capacity.
Improvements to the depot area for empty containers will be completed in 2006,
which will also help to release storage space in the terminal. Tecon Salvador
principally handles exports of chemical and petrochemical products, metals and
fruits.
Logistics
The Logistics division provides storage, distribution and transportation
solutions. A relatively new area for the Group, Logistics achieved another year
of substantial growth, with turnover increasing 100% over 2004. The division now
undertakes the logistics operations of a number of large Brazilian companies and
multinationals within Brazil including, Votorantim Pulp and Paper, Frangosul
(frozen chicken), Embelleze (cosmetics), Merck, Monsanto and Petroflex. The
growth achieved in 2005 resulted largely from increases in the operations of
Monsanto and Petroflex, as well as road transportation and bonded warehousing in
Eadi Santo Andre, located near Sao Paulo. As part of our strategy to develop
this business, management focus is moving from revenue growth to improving
margins and profits.
WRC Operadores Portuarios Limitada (WRC)
Our joint venture, WRC, operating in the port of Sao Francisco do Sul, Santa
Catarina had another good year. Volumes handled by the joint venture in 2005 at
261,000 TEU's were in line with 2004 at 280,000 TEU's. On the 7th April 2006 the
Group sold its interest in WRC for US$4.3 million. The Group is currently
analysing other terminal operation and logistic opportunities in the state of
Santa Catarina.
Brasco
Brasco operates onshore bases, and provides logistical support for the offshore
oil and gas industry. Following a slow 2004, activity increased significantly in
2005 with Shell operating from the base. Prospects for 2006 remain limited as
clients' drilling schedules maybe delayed by a shortage of oil rigs for
operations. However the longer-term outlook is positive as fields move from
exploration to the development phase.
In March 2006 the Group acquired the remaining 60% share of Brasco from our
partner, ASCO for US$1.2 million. In the same month the Group subsequently sold
a 25% minority interest to Brasco management for US$0.5 million.
Cezar Baiao
Chief Executive Brazilian Operations
FINANCIAL REVIEW
Revenue
Group revenue, as reported for the year, was US$285.2 million, up 31% on 2004
(US$217.7 million) with growth achieved in all business segments.
Operating margins and profit
Group operating margin for the year declined to 11.8% (2004: 16.4%). The fall in
operating margins was principally due to the appreciation of the Brazilian Real
against the US Dollar over the period, which reduces revenue and increases costs
in Brazilian Real terms. Additionally Brazilian Real denominated operating costs
continued to be driven higher by domestic inflation and increased personnel
costs.
As a result of the fall in operating margins, Group operating profit decreased
compared with the prior year at US$33.5 million (2004: US$35.8 million), despite
the increase in turnover.
Investment revenues
Investment revenue for the Group for the year was up US$3.8 million to US$14.2
million, (2004: US$10.4 million) principally due to increased investment
revenues from insurance underwriting activities, US$2.2 million (2004: US$0.3
million) and exchange gains on cash and cash equivalents, US$5.4 million (2004:
US$3.5 million).
Other gains and losses
Other gains of US$7.8 million (2004: US$8.5 million) arise from the Group's
portfolio of trading investments. Unrealised gains in trading investments of
US$10.7 million (2004: US$6.1 million) and profits on the disposal of trading
investments of US$1.3 million (2004: US$0.5 million) were partially offset by
exchange losses on trading investments of US$4.2 million (2004: US$1.8 million
gain) resulting from the appreciation of the US Dollar against major currencies.
Finance costs
Finance costs for the Group for the year were US$6.0 million compared with
US$6.5 million for 2004, due to increased exchange gains on foreign currency
borrowings, US$ 1.2 million (2004: US$0.7 million). Exchange gains derive
principally from US Dollar borrowings in Brazilian Real functional currency
businesses. Interest on bank loans and overdrafts remained in line with prior
year at US$5.5 million (2004: US$5.6 million).
Profit before tax
Group profit before tax for the year was US$49.5 million, US$1.3 million ahead
of 2004.
Taxation
The tax charge for the year was US$14.9 million, US$ 1.0 million higher than
last year reflecting the increased profit before tax. The underlying effective
tax rate for the Group rose to 30% (2004: 29%). This is lower than the corporate
tax rate prevailing in Brazil of 34%. The effective tax rate reflects the
benefit of income arising in subsidiaries operating in jurisdictions with lower
tax rates.
Earnings per share
Basic earnings per share for the year were 93.6 cents, compared with 89.4 cents
in 2004.
Cash flow
Net cash inflow from operating activities for 2005 was US$ 24.9 million, US$4.5
million below prior year. The difference is principally lower operating profit
and working capital movements. Investing activities for 2005 resulted in an
outflow of US$46.8 million, which was US$ 29.6 million higher than the
corresponding outflow last year. This was due to the acquisition of the minority
interest in Tecon Rio Grande US$ 23.2 million, and higher spending on property
plant and equipment of US$ 36.2 million, up from US$20.2 million last year.
Capital expenditure was invested mainly in vessel construction and container
terminal equipment.
At 31 December 2005, the Group had US$ 50.9 million in cash and cash
equivalents, (2004: US$70.9 million).
Balance sheet
At 31 December 2005, the Group's net assets amounted to US$171.4 million (2004:
US$147.4 million). This increase is attributable to the combination of strong
underlying profits and the appreciation of the Brazilian Real. This translates
into net assets per share of 485 cents per share (31 December 2004: 417 cents).
Net assets located in Brazil amounted to 303 cents per share (31 December 2004:
261 cents) and net assets outside Brazil to 182 cents per share (31 December
2004: 156 cents).
Debt
The Group has net debt (defined as bank loans, overdrafts and obligations under
finance leases less cash and cash equivalents) of US$ 58.5 million (2004: US$
34.9 million). During the year additional loans of US$ 18.3 million were drawn
down principally to finance vessel construction and equipment for Tecon Rio
Grande. In 2005 the Group made capital repayments on existing loans in
accordance with repayment schedules of US$11.4 million (2004: US$11.0 million).
US$103.1 million of Group debt is held in US Dollar term loans or linked to the
US Dollar with long maturity profiles for debt repayments. The Group is
currently able to borrow at competitive rates and therefore considers this to be
the most effective means of raising finance. The weighted average cost of debt
is 5.5%.
Risk management
Treasury
The Group has a centralised Treasury operation in Brazil, which manages the
investment of surplus funds and borrowings. Clear guidelines have been
established relating to cash management authority levels and investment limits.
The guidelines prohibit taking speculative financial instrument positions and
regular financial management reports are supplied to senior management.
The main financial risks facing the Group relate to funding, interest rates,
currency fluctuations and movements in the market price of securities.
Funding risk
The Group conducts business principally in Brazil and holds a portfolio of
international investments outside Brazil. 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 by operating revenues.
There is limited long term commercial funding available in Brazil except from
the Banco Nacional de Desenvolvimento Economico e Social (BNDES). All long term
funding is obtained by our Brazilian subsidiaries from the BNDES or the
International Finance Corporation (IFC, part of the World Bank) except for
specific equipment supplier financing when available at favourable terms.
At the year end, the Group had US$104.9 million in borrowings repayable over
periods of up to 16 years.
The Group also held approximately US$43.0 million in Brazilian Real denominated
cash deposits in Brazil and the equivalent of US$7.9 million in Sterling and US
Dollar denominated deposits outside Brazil. The Group maintains large cash
balances to fund investment opportunities in Brazil and to manage short term
fluctuations in cash flow.
Interest rate risk
During 2005 the Group did not use interest rate swaps, options or forward rate
agreements to manage interest rate exposure on its debt positions. However, the
Group actively reviews risk profiles and considers undertaking interest rate
swaps, if necessary, subject to Board approval.
The Group has three main types of borrowings, Brazilian Real denominated,
Brazilian Real denominated linked to the US Dollar and US Dollar borrowings.
Currency risk
The Group operates principally in Brazil with a substantial proportion of the
Group's revenue, expenses and assets denominated in Brazilian Real. Due to the
prohibitive cost of hedging the Brazilian Real, the Group does not normally
hedge its net exposure to the Brazilian Real as the Board considers it
uneconomic. The Group's US Dollar debt has defined repayments during the life of
the loans. The Group hedges these repayments for periods of up to one year by
investing surplus funds in US Dollar linked Brazilian Government bonds or by
purchasing foreign exchange options.
The Group has significant long-term borrowings in US Dollars and in Brazilian
Real denominated loans linked to the US Dollar. These are used to finance
Brazilian Real denominated capital projects. This exposes the Group to a
potential currency mismatch of costs and revenues. The Group accepts this risk,
as there are few sources of long term financing denominated in Brazilian Real
available.
Cash and investments held outside Brazil are principally in US Dollar, Sterling
and Euro denominated assets.
Market price risk
The Group invests in internationally listed securities or funds principally for
the long-term. The Group's exposure to market price risk arises mainly from
potential loss the Group may suffer through holding market positions due to
price movements or currency fluctuations.
Investment portfolio
Hanseatic Asset Management LBG that manages the Group's investment portfolio
reports as follows:
General
After a flat first half, 2005 turned out to be another good year for investors,
the third positive year in a row. Returns on equities comfortably exceeded those
on cash and bonds. The increase in share values occurred despite a background
that included New Orleans and the US Gulf States being battered by hurricanes,
eight increases in the Fed Funds rate, a further increase of 40% in the cost of
oil and alarming pronouncements from the new leadership in Iran.
The MSCI World Index appreciated by 9.5% in US Dollar terms with the largest
gains coming from Japan and the emerging markets. The increases in the index
occurred despite a stronger dollar, which rose by approximately 15% against the
Yen and Euro and 12% against Sterling. Even with a stronger dollar, non-US
markets outperformed.
It was another good year for commodities. In addition to spiking energy prices,
copper increased by nearly 40% and gold breached the US$500 per ounce level.
The key economic themes were the revival in the Japanese and European economies.
The impact of continuing high level of demand from China for commodities and
capital goods and the ongoing imbalances in the US economy, both of which have
been features of the investment landscape for some time, continued to dominate
much macro economic analysis.
Apart from a setback at the time of the Gulf of Mexico hurricanes, the markets
remained well bid and volatility fell to very low levels.
Performance
The portfolio benefited from this favourable market environment rising by 12.3%,
which exceeded the return on the MSCl World Index of 9.5%. In the five years
that Hanseatic Asset Management has managed this portfolio there have been two
years of sharp market declines followed by three years of rising markets. Over
this period the portfolio has returned 35.2%, significantly ahead of the MSCI
Index increase of 14.3% in the same period.
The overweight position in Emerging Markets and good performance in Japan were
the two major sources of added value relative to the index. The best performing
investments were the Merrill Lynch World Mining Trust (+47.8%), JO Hambro Japan
(+37.6%) and SR Emerging (+31.2%).
The largest drag on performance came from the European portfolio where returns
were undermined by weakness in the Euro combined with sub par returns from Hedge
Funds.
Portfolio Activity
The major themes behind portfolio activity included increasing the Japanese
weighting and exposure to energy and mining. The major reduction in exposure
occurred in Lloyds Underwriters where long term profits were realised. The
portfolio however still has a significant exposure to the insurance market via
its unquoted holding in Cathedral Capital.
New investments in the portfolio were as follows:
ACP Capital is a London listed company which manages alternative investments and
funds in niche product sectors, such as asset backed mezzanine financing and
real estate.
Ark Therapeutics, is also London listed and develops medicinal gene-based and
biological therapies and diagnostic products.
Herald Ventures is a limited partnership investing primarily in early stage
unquoted companies operating in the information technology, media and
communications sectors in the UK.
Investec Energy is a fund that invests internationally in companies involved in
the exploration, production and distribution of oil, gas and other energy
sources.
Lansdowne Macro is an absolute return fund investing in global market and sector
strategies.
North American Banks Fund is an AIM listed company that invests in banking start
ups in the US operating in niche regional markets.
SR Phoenicia (Carthaginian) is a hedge fund that invests in global equities
outside North America.
Market Outlook
Much of the current backdrop to markets remains positive. Growth in the global
economy is more broadly based following economic revival in Europe and Japan as
well as ongoing momentum in China. The risks therefore posed by a mid-cycle
correction in the US that may follow a cooling off period in house prices and
some consumer retrenchment, are unlikely to be as significant as would have been
the case earlier in the decade. Despite higher interest rates in the US, the
global monetary environment remains stimulative. As long as inflation remains
low, the sort of monetary squeeze that would derail stock and bond markets looks
highly unlikely. Despite the severe price shocks in energy, overall inflation
has remained subdued. So far the impact of new technologies such as the internet
together with the massive transfer of production from the developed world to
lower cost bases in the developing world has held inflation in check. The
combination of reasonable growth, ample liquidity and low inflation remains
supportive for risk assets. Furthermore valuations for most equity markets,
including the US after a protracted period of underperformance, remain
attractive in the context of short and long term interest rates. Share prices
have tracked corporate earnings. Corporate profitability remains robust, as do
their balance sheets. Prospective price earnings multiples for most markets are
almost the same as they were three years ago.
Against this positive background there are several concerns for investors.
Firstly, the current rally in equity markets has been running for three years
and certainly in a historical context can be said to be rather 'long in the
tooth.' With the MSCI World Equity Index having almost doubled since March 2003
investors have meaningful gains to protect, should fear once again replace
greed.
Secondly, the notion that a slowdown in the US would be modest, in terms of
scale and be offset in any case by higher economic activity globally, may be too
sanguine. There is the risk that the lagged effect of higher interest rates and
higher energy costs and utility bills may bite harder than expected. The US
consumer has been the principal source of end demand for the world's economy for
an extended period and spending habits particularly in Asia would have to adjust
meaningfully to offset a period of prolonged hibernation.
Potential disruption to the supply of energy and further price hikes also pose a
significant threat to the outlook. It was turmoil in Iran following the
overthrow of the Shah in the late 1970s that led to a massive leap in oil prices
which brought about recession and severe bear markets. The current rhetoric
coming from Iran about Israel and its nuclear ambitions is clearly a major
geopolitical concern. Any disruption in the supply of oil from Iran could tip
the global oil market into chaos.
In addition to these tangible concerns there is a general unease among some more
bearish commentators that there is a 'day of reckoning' to come and that the
natural order of things has been tampered with due to the Federal Reserve's
massive monetary stimulus and refusal to countenance a recession. As Schumpeter
observed 'any revival which is merely due to artificial stimulus leaves part of
the work of depressions undone and adds, to an undigested remnant of
maladjustments, new maladjustments of its own.'
The portfolio remains significantly exposed to the emerging markets and Japan.
The attractive trade off in emerging markets between valuation and growth
prospects has been highlighted in these reports before and remains in place.
Although the asset class has recently broken out of its former trading range, it
has done so in response to underlying earnings growth. Valuations have barely
moved and remain very attractive in an historical context. Prospects for a
recovery in domestic Chinese shares, lower interest rates in Brazil, strong
commodity markets generally and undervalued currencies in Asia are all
potentially bullish drivers for these asset classes in 2006.
Japan remains attractive despite the gains last year as companies there are
highly leveraged to nominal sales growth. Earnings prospects are encouraging for
2006 and domestic investors remain underweight with their home market implying a
further source of demand.
On balance the outlook appears positive but the difference may be more marginal
implying lower levels of gains than last year, although we do expect market
volatility to increase.
Insurance
Our underwriting subsidiary, Ascension Underwriting has now completed five years
of active underwriting in the Lloyd's Insurance Market. In October 2005
Ascension Underwriting disposed of all its investments in Lloyds underwriting
syndicates through the annual Lloyds auctions and will not be underwriting
insurance in 2006, although part of the previous underwriting business remains
on risk. The sale of our underwriting investments is consistent with the Board's
strategy to generate additional income using the non-Brazilian assets as
collateral for insurance underwriting when the Board feels that market
conditions are favourable. The Group may return to underwriting if market
conditions improve.
Investment revenue from underwriting activities in 2005 was US$2.2 million
against US$0.3 million in 2004.
Prior to 2005 the traditional accounting for Lloyds insurance market was three
years in arrears. In 2005 the Lloyds insurance market moved to annual accounting
and the Group's 2005 income statement reflects this change in accounting
approach. Consequently the Group's 2005 income statement includes underwriting
profits for 2002, 2003, 2004 and a forecast loss for 2005. Results for 2003,
2004 and 2005 reflect best estimates and consequently may be subject to change
in the future.
As forecast last year, the 2003 Year of Account has generated strong profits.
The 2004 Year of Account will be modestly profitable, notwithstanding the
plethora of natural disasters that occurred in that particular year. The last
year of underwriting, the 2005 Year of Account, started promisingly but in the
latter part of the year was hit by three widely documented storms (in particular
Hurricane Katrina which devastated New Orleans) making landfall on the US Gulf
Coast.
Keith Middleton
Group Finance Director
Ocean Wilsons Holdings Limited
Consolidated income statement
At a board meeting held on 28 April 2006 the following announcement of the
unaudited results of the Company and its subsidiary companies for the year
ended 31 December 2005 were approved by the Directors.
Unaudited Audited
year to 31 year to 31
December 2005 December 2004
US$'000 US$'000
Notes
Revenue 285,227 217,713
Raw materials and consumables used (50,398) (27,027)
Employee benefits expense (71,719) (56,501)
------- --------
Depreciation and amortisation (13,959) (11,523)
expense
Other operating expenses (116,207) (89,056)
Profit on disposal of property, 565 1,635
plant and equipment
Share of profit of associate 39 515
------- --------
Operating profit 33,548 35,756
Investment revenues 14,212 10,394
Other gains and losses 7,764 8,537
Finance costs (6,002) (6,499)
------- --------
Profit before tax 49,522 48,188
Income tax expense 3 (14,865) (13,926)
------- --------
Profit for the year 34,657 34,262
------- --------
Attributable to:
Equity holders of parent 33,086 31,599
Minority interests 1,571 2,663
------- --------
34,657 34,262
------- --------
Earnings per share
Basic and diluted 93.6c 89.4c
Ocean Wilsons Holdings Limited
Consolidated balance sheet
as at 31 December 2005
Unaudited Audited
31 December 31 December
2005 2004
US$'000 US$'000
Non current assets
Goodwill 13,132 -
Other intangible assets 2,288 2,314
Property, plant and equipment 147,651 123,829
Deferred tax assets 7,462 9,454
Interest in associate 365 568
Available for sale investments 4,821 4,272
Other non-current assets 5,657 3,465
----------- ----------
181,376 143,902
----------- ----------
Current assets
Inventories 6,669 5,031
Trading investments 64,563 57,938
Trade and other receivables 45,295 37,977
Cash and cash equivalents 50,881 70,915
----------- ----------
167,408 171,861
----------- ----------
Total assets 348,784 315,763
----------- ----------
Current liabilities
Trade and other payables (54,266) (48,375)
Current tax liabilities (971) (860)
Obligations under finance leases (3,893) (3,034)
Bank overdrafts and loans (16,431) (13,502)
----------- ----------
(75,561) (65,771)
----------- ----------
Net current assets 91,847 106,090
----------- ----------
Non-current liabilities
Bank loans (88,515) (86,171)
Deferred tax liabilities (8,455) (10,621)
Provisions (4,317) (2,641)
Obligations under finance leases (566) (3,132)
----------- ----------
(101,853) (102,565)
----------- ----------
Total liabilities (177,414) (168,336)
----------- ----------
Net assets 171,370 147,427
----------- ----------
Capital and reserves
Share capital 11,390 11,390
Retained earnings 126,331 101,137
Capital reserves 23,942 23,122
Investment revaluation reserve 1,856 1,353
Translation reserve 6,538 1,406
----------- ----------
Equity attributable to equity holders 170,057 138,408
of the parent
Minority interests 1,313 9,019
----------- ----------
Total equity 171,370 147,427
----------- ----------
OCEAN WILSONS HOLDINGS LIMITED
Consolidated statement of changes in equity
As at 31 December 2005
Attributable
Investment to equity
Share Retained Capital revaluation Translation holders of Minority
Capital earnings reserves reserve reserve the parent interests
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at
1 January 11,390 76,360 22,665 1,353 - 111,768 6,306 118,074
2004
Transfer to
capital
reserves - (457) 457 - - - - -
Currency
translation
adjustment - - - - 1,406 1,406 50 1,456
Total
recognised
income for
the - 31,599 - - - 31,599 2,663 34,262
period
Dividends - (6,365) - - - (6,365) - (6,365)
------ ------- ------- ------- ------- ------- ------- ------
Balance at
1 January 11,390 101,137 23,122 1,353 1,406 138,408 9,019 147,427
2005
(Audited)
Transfer to
capital
reserves - (820) 820 - - - - -
Gains on
available
for sale - - - 503 - 503 - 503
investment
Currency
translation
adjustment - - - - 5,132 5,132 - 5,132
Total
recognised
income for
the - 33,086 - - - 33,086 1,571 34,657
period
Dividends - (7,072) - - - (7,072) - (7,072)
Acquisition
of minority - - - - - - (9,277) (9,277)
interest ------ ------- ------- ------- ------- ------- ------- ------
Balance at
31 December 11,390 126,331 23,942 1,856 6,538 170,057 1,313 171,370
2005 ------ ------- ------- ------- ------- ------- ------- ------
(Unaudited)
Ocean Wilsons Holdings Limited
Consolidated cash flow statement
for the year ended 31 December 2005
Unaudited Audited
Year to Year to
31 December 31 December
2005 2004
US$'000 US$'000
Net cash inflow from operating activities 24,871 29,344
Investing activities
Interest received 5,997 5,952
Dividends received from associate 323 -
Dividends received from trading investments 642 597
Proceeds on disposal of trading investments 12,843 9,171
Income from underwriting activities 1,530 324
Proceeds on disposal of property, plant and
equipment 3,077 3,873
Purchase of property, plant and equipment (36,245) (20,190)
Acquisition of investment in an associate - (17)
Acquisition of minority interest in subsidiary (23,222) -
Purchase of trading investments (11,704) (15,669)
Acquisition of subsidiary - (1,174)
--------- --------
Net cash used in investing activities (46,759) (17,133)
--------- --------
Financing activities
Dividends paid (7,072) (6,365)
Repayment of borrowings (11,389) (11,024)
Repayment of obligations under finance leases (2,932) (1,097)
New bank loans 18,295 9,413
(Decrease)/increase in bank overdrafts (409) 289
--------- --------
Net cash used in from financing activities (3,507) (8,784)
--------- --------
Net (decrease)/increase in cash and cash
equivalents (25,395) 3,427
Cash and cash equivalents at beginning of year 70,915 61,734
Effect of foreign exchange rate changes 5,361 5,754
--------- --------
Cash and cash equivalents at end of year 50,881 70,915
--------- --------
Ocean Wilsons Holdings Limited
Preliminary Announcement
Notes to the Preliminary Accounts
1. Basis of Accounting
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs) for the first time. The financial
statements have also been prepared in accordance with IFRSs adopted for use in
the European Union and also IFRSs adopted for use by the International
Accounting Standards Board ('IASB').
The financial statements have been prepared on the historical cost basis, except
for the revaluation of certain properties and financial instruments. The
accounting policies applied are consistent with those set out in the Group's
IFRS restatement published on 10 October 2005.
2. Basis of Preparation
The financial information set out in this announcement does not constitute the
Group's statutory financial statements for the years ended 31 December 2005 or
2004. The information for the comparative period has been restated from that
which was reported in the Group's statutory financial statements for that
period. The Group's statutory financial statements for the year ended 31
December 2005 will be finalised on the basis of the financial information
presented by the directors in the preliminary announcement. The audit report on
the full financial statements has yet to be signed.
Whilst the financial information included in this preliminary announcement has
been prepared in accordance with International Financial Reporting Standards
(IFRSs), this announcement does not itself contain sufficient information to
comply with IFRSs. The Company expects to publish full financial statements that
comply with IFRSs in May 2006.
3. Taxation
Unaudited Audited
year to 31 year to 31
December 2005 December
2004
US$ '000 US$ '000
UK tax 380 -
Overseas tax 14,485 13,926
---------- -----------
14,865 13,926
---------- -----------
4. Dividends
The proposed final dividend of 18.0 cents per share will be paid on the 16 June
2006, to shareholders on the register at close of business on 12 May 2006 if
approved by shareholders at the annual general meeting to be held on 16 June
2006.
5. Other information
Additional copies of this announcement can be obtained from the Company's
registered office, Clarendon House, Church Street, Hamilton, Bermuda or from the
Company's UK transfer agent, Capita Registrars Group Plc, The Registry 34
Beckenham Road, Beckenham, Kent BR3 4TU.
Address for dividend currency election
Ocean Wilsons Dividend election
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent, BR3 4TU
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 1 day ago IntegraFin Holding
- 1 day ago Spirent Communications
- 1 day ago CRH (CDI)
- 1 day ago Bezant Resources
- 1 day ago EJF Investments Ltd NPV