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Ocean Wilsons Hldgs (OCN)

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Wednesday 14 August, 2019

Ocean Wilsons Hldgs

Interim Management Statement

RNS Number : 9497I
Ocean Wilsons Holdings Ld
14 August 2019
 

Ocean Wilsons Holdings Limited

 

Interim Management Statement for the six months ended 30 June 2019

 

Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the "Company") today provides its interim management statement for the six months ended 30 June 2019.

 

Key points

·          As at 1 January 2019 the Group adopted the new accounting standard IFRS 16 - "Leases". The principal impact on the balance sheet as at 30 June 2019 is the recognition of right to use assets of US$185.0 million and finance lease liabilities of US$186.8 million. The principal impact of IFRS 16 on the income statement for the period is to increase operating profit by US$4.6 million and decrease profit for the period by US$2.1 million. The comparatives for the 2018 financial statements have not been restated in accordance with IFRS 16.

·          Although operating profit for the six months to 30 June 2019 fell 25% to US$35.1 million (2018: US$46.8 million), profit for the period was up US$17.3 million to US$34.0 million (2018: US$16.7 million) principally due to an increase in returns from the investment portfolio and positive foreign exchange movements. Excluding the impact of IFRS 16, profit for the current period would have been US$2.1 million higher at US$36.1 million.

·          The investment portfolio increased US$19.5 million to US$278.4 million (31 December 2018: US$258.9 million) after dividends paid from the portfolio of US$2.0 million.

·          Net cash inflow from operating activities for the period of US$47.6 million (2018: US$55.6 million).

·          The Brazilian Real "BRL" was 1% higher against the US Dollar "USD" at 30 June 2019 compared with 31 December 2018. The average US Dollar/Brazilian Real exchange rate in the period at 3.85 was 12% higher than the comparative period in 2018 of 3.43.

·          Dividends paid to shareholders in the period of US$24.8 million (2018: US$24.8 million).

Chairman's Statement

Introduction

The investment portfolio produced a solid performance during the first half of 2019 rising 8% in the period as markets rallied following the softening at the end of 2018. Our Brazilian business continued to generate strong operating cashflow in the first half of the year despite a backdrop of weak economic activity as the Brazilian economy shrank in the first quarter of 2019. Revenue and operating profit both fell as operating results were impacted by weaker volumes in our towage and offshore businesses reflecting the competitive environment in these markets. Container volumes handled at our two container terminals remained firm in the period and work continued on the expansion of the Tecon Salvador terminal.

Group Results

Revenue

Group revenue for the six months ended 30 June 2019 decreased by 15% to US$199.2 million (2018: US$235.0 million), due the higher average USD/BRL exchange rate and difficult trading environment at some of our businesses. Port terminals and logistics revenue grew 3% in BRL terms for the period, although in USD terms, revenue was 9% lower at US$117.8 million (2018: US$128.9 million), principally due to the higher average USD/BRL exchange rate used to convert revenue into our reporting currency. The higher average exchange rate impacted container terminal revenue in USD terms which declined 10% to US$80.6 million (2018: U$89.4 million). Container volumes handled at Tecon Rio Grande and Tecon Salvador for the period were marginally higher than the comparative period at 486,700 "TEUs" (twenty-foot equivalent units) (2018: 484,000 TEUs). Volumes at Tecon Salvador were 13% higher driven by higher international trade and cabotage volumes, while volumes at Tecon Rio Grande were 5% lower mainly due to less transshipment volume resulting from the cancellation of two feeder services from Argentina in the period. Brasco revenue increased US$0.8 million to US$11.5 million (2018: US$10.7 million) with the commencement of two contracts with Enauta and Total to support their offshore drilling campaigns. Towage revenue at US$74.1 million was US$12.4 million lower than the comparative period (2018: US$86.5 million) as market pressures continued to impact both pricing and harbour towage volumes. Harbour towage manoeuvres performed in the period were 7% lower at 25,839 (2018: 27,885) with the volumes also negatively influenced by lower iron ore exports. Additionally towage revenue was impacted by a US$3.5 million decline in income from special operations to US$3.6 million (2018: US$7.1 million) reflecting the more volatile nature of this activity which includes ocean towage, salvage, firefighting and shipyard support. Ship agency revenue at US$4.3 million was 13% lower than the comparative period (2018: US$5.0 million). Shipyard third-party revenue at US$3.0 million (2018: US$14.9 million) continued to suffer from the poor market for small vessel construction in Brazil with third party work restricted to dry-docking operations in the period.

 

IFRS 16 - Leases

As at 1 January 2019 the Group adopted the new accounting standard IFRS 16 which requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Following the amendments to the standard coming into effect, leases have been recorded as assets and liabilities (right of use assets and financial lease liabilities). The Group used the modified retrospective approach, meaning assets and liabilities recognised are equal at the point of application and that comparatives for the 2018 financial statements were not restated. Therefore for comparison purposes the principal impacts of IFRS 16 on the income statement for the six months ended 30 June 2019 are:

 

 

 

 

Positive/

 

 

(negative)

 

 

2019

 

 

US$ million

Other operating expenses

 

10.8

Depreciation and amortisation

 

(6.2)

Operating profit

 

4.6

Finance costs

 

(7.8)

Deferred tax

 

1.1

Profit for the period

 

(2.1)

The principal impacts on the Group's balance sheet at 30 June 2019 are the recognition of a right to use asset of US$185.0 million and finance lease liabilities of US$186.8 million.

Further details of right to use assets and lease liabilities are presented in Note 12 to the accounts.

Operating Profit

Operating profit was US$11.7 million lower than the comparative period at US$35.1 million (2018: US$46.8 million) principally due to lower revenue and operating margins for the period. Operating margins for the period declined to 17.6% (2018: 19.9%) principally due to weaker margins at our towage and port terminal businesses. Excluding the impacts of IFRS 16, operating profit in the current period would have fallen to US$30.5 million and margins to 15.4%. Raw materials and consumables used were US$8.2 million lower at US$12.9 million (2018: US$21.1 million) as a result of lower shipyard activity. Employee expenses were US$5.0 million lower at US$70.8 million (2018: US$75.8 million) due to the effect of the stronger average USD/BRL exchange rate and lower headcount. In BRL terms employee expenses increased mainly due to the rollback during 2018 of some temporary payroll exemptions. Other operating expenses were US$15.6 million lower at US$47.1 million (2018: US$62.7 million) as a result of the stronger average USD/BRL exchange rate and a US$10.8 million adjustment from the implementation of IFRS 16. Amortisation of right of use assets (US$6.4 million) relate to the right of use assets recognised under IFRS 16 at the 1 January 2019. The depreciation and amortisation expense at US$26.8 million was US$1.9 million lower than the comparative period (2018: US$28.7 million).

Share of results of joint ventures

The share of results of joint ventures is Wilson Sons' 50% share of net profit for the period from our offshore support vessel joint venture. The net loss attributable to Wilson Sons for the period was US$0.6 million (2018: US$1.3 million). A lower operating profit for a 50% share in the joint venture in the period at US$2.4 million (2018: US$4.2 million), was offset by a foreign exchange gain on monetary items of US$0.4 million (2018: US$4.1 million loss). Operating profit fell principally due to fewer operating days in the period which were 10% lower at 2,268 days against 2,533 days in 2018. The tax credit in the period of US$0.9 million was US$2.0 million lower than the prior period comparative (2018: US$2.9 million)

Other Investment income

Other investment income at US$2.2 million was US$0.2 million lower than the prior year (2018: US$2.4 million) with lower interest on bank deposits of US$1.7 million (2018: US$2.1 million) partially offset by higher other interest income of US$0.6 million (2018: US$0.4 million).

 

Returns on the investment portfolio at fair value through profit and loss

Returns on the investment portfolio of US$22.8 million (2018: US$4.1 million) comprise unrealised gains on financial assets at fair value through profit or loss of US$21.1 million (2018: US$0.1 million), income from underlying investment vehicles of US$1.3 million (2018: US$1.1 million) and realised profits on the disposal of financial assets at fair value through profit or loss of US$0.4 million (2018: US$3.0 million).

Finance costs

Finance costs for the period at US$12.8 million were US$3.0 million lower than the comparative period (2018: US$15.8 million). Within this there was a US$10.1 million positive movement in exchange gains on foreign currency borrowings with a US$0.9 million gain (2018: US$9.2 million loss) while interest on bank loans and overdrafts increased US$6.8 million to US$13.0 million (2018: US$6.2 million) principally due to the impact of IFRS 16 in the period of US$7.8 million.

Exchange rates

The Group reports in USD and has revenue, costs, assets and liabilities in both BRL and USD. Therefore movements in the USD/BRL exchange rate can impact the Group both positively and negatively from year to year. In the six months to 30 June 2019 the BRL appreciated 1% against the USD from R$3.87 at 1 January 2019 to R$3.83 at the period end. In the comparative period in 2018 the BRL depreciated 17% against the USD from R$3.31 to R$3.86.

The principal effects from the movement of the BRL against the USD on the income statement are:

 

 

2019

2018

 

US$ million

US$ million

Exchange gain / (loss) on monetary items (i)

0.3

(8.5)

Exchange gain / (loss) on foreign currency borrowings

0.9

(9.2)

Deferred tax on retranslation of fixed assets (ii)

3.2

(12.9)

Deferred tax on exchange variance on loans (iii)

(5.3)

12.0

Total

(0.9)

(18.6)

(i)        This arises from the translation of BRL denominated monetary items in USD functional currency entities.

(ii)       The Group's fixed assets are located in Brazil and therefore future tax deductions from depreciation used in the Group's tax calculations are denominated in BRL. When the BRL depreciates against the US Dollar the future tax deduction in BRL terms remain unchanged but are reduced in US Dollar terms and vice versa.

(iii)      Deferred tax credit arising from the exchange losses on USD denominated borrowings in Brazil.

The average USD/BRL exchange rate in the period at 3.85 was 12% higher (2018: 3.43) than the comparative period in 2018. A higher average exchange rate negatively impacts BRL denominated revenues and benefits BRL denominated costs when converted into our reporting currency, the USD.

Foreign exchange gains/losses on monetary items

Foreign exchange gains on monetary items of US$0.3 million (2018: US$8.5 million loss) arose from the Group's foreign currency monetary items and principally reflect the movement of the BRL against the USD during the period.

Profit before tax

Profit before tax for the period increased US$19.4 million to US$47.1 million compared to US$27.7 million in 2018. The improvement in profit before tax is principally due to the US$18.7 million increase in returns on the investment portfolio at fair value through profit and loss, a US$8.9 million positive movement in foreign exchange gains or losses on monetary items and a US$3.0 million decrease in finance costs. This was partially offset by the US$11.7 million decrease in operating profit. Share of results from joint ventures improved by US$0.7 million and other investment income was US$0.2 million lower.

Taxation

The tax charge for the period of US$13.1 million represents an effective tax rate in the period of 28% (2018: 40%) compared to the corporate tax rate prevailing in Brazil of 34%. The difference in the effective tax rates is due to the mix of income and expenses that are not included in determining taxable profit. The improvement in the current period effective tax rate is primarily attributable to the higher returns from our Bermudian investment portfolio that is not subject to income tax and

a positive movement in foreign exchange gains or losses on monetary items. Current taxation at US$9.7 million was US$3.2 million lower than the comparative period (2018: US$12.9 million).

Profit for the period

Profit attributable to equity holders of the parent is US$28.1 million (2018: US$10.4 million) after deducting profit attributable to non-controlling interests of US$5.9 million (2018: US$6.6 million). Profit attributable to equity holders of the parent at 83% of the profit for the period is a higher percentage for the period (2018: 60%) as the current period benefitted from higher returns from the investment portfolio which are fully attributable to equity holders of the parent.

Earnings per share for the period was 79.5 cents (2018: 28.4 cents).

Investment portfolio performance

The investment portfolio and cash under management of Ocean Wilsons (Investments) Limited "OWIL" was US$278.4 million (31 December 2018: US$258.9 million) an increase of US$19.5 million in the period after paying dividends of US$2.0 million to Ocean Wilsons Holdings Limited and deducting management and other fees of US$1.5 million.

Cash flow and debt

Net cash inflow from operating activities for the period at US$47.6 million was US$8.0 million lower than the comparative period in 2018, (US$55.6 million) mainly due to the lower operating profit in the period. Capital expenditure in the period at US$44.6 million was US$20.2 million higher than the comparative period (2018: US$24.4 million) principally due to increased expenditure on the Tecon Salvador expansion. Dividends of US$24.8 million were paid to shareholders in the period (2018: US$24.8 million) with a further US$16.5 million paid to non-controlling interests in our subsidiaries (2018: US$16.1 million).

 

At 30 June 2019, the Group had cash and cash equivalents of US$58.4 million (31 December 2018: US$60.1 million). Group borrowings including obligations under finance leases at period end were US$516.8 million (31 December 2018: US$307.4 million). The increase in borrowings is principally due to the increase in finance lease liabilities resulting from the adoption of IFRS 16. At period end obligations under finance leases were US$186.8 million, (2018: US$0.1 million). New loans were raised in the period of US$66.2 million (2018: US$2.5 million) to finance capital expenditure while capital repayments on existing loans in the period of US$44.0 million (2018: US$31.1 million) were made.

 

The Group's reported borrowings do not include the Company's 50% share of our offshore vessel joint venture's debt being US$220.2 million (2018: US$242.0 million).

Net asset value

At the close of business on 31 July 2019, the Wilson Sons share price was R$35.00, resulting in a market value for the Ocean Wilsons holding of 41,444,000 shares (58.17% of Wilson Sons) totalling approximately US$380.5 million which is the equivalent of US$10.76 (£8.82) per Ocean Wilsons Holdings Limited share.

Adding together the market value per share of Wilsons Sons, US$10.76 and the investment portfolio value per share of US$7.87 results in a net asset value per Ocean Wilsons Holdings Limited share of approximately US$28.63 (£15.27). The Ocean Wilsons Holdings Limited share price of £10.75 at 31 July 2019 represented an implied discount of 30%.

Strategic review

On 24 July 2019 we announced that our principal operating subsidiary, Wilson Sons Limited has concluded the formal process to evaluate strategic alternatives involving its container terminal and logistics assets. The Board of Directors has decided not to engage in any transaction at this time.

 

Brexit

Shareholders will be aware that the United Kingdom "UK" is scheduled to leave the European Union "EU" on 31 October and that as matters currently stand there is no agreement governing the withdrawal or the future relationship between the UK and the EU. Such is the uncertainty still surrounding the outcome that the consequent risks and potential opportunities for the Company are extremely difficult to assess. Since your Company is domiciled in Bermuda and does not operate directly within the EU, while Ocean Wilsons (Investments) Limited "OWIL" invests substantially all of its assets into investment vehicles domiciled outside the EU, it may be that the impact of Brexit will be felt principally through the consequences for the London financial markets, in which some of  these investments vehicles participate and where the Company's shares are traded on the London Stock Exchange.

 

Corporate Governance

In accordance with the provisions of the 2018 UK Corporate Governance Code the Company has established a Nomination Committee. Its members comprise Mr C Maltby (Chairman), Mr A Berzins and Mr W Salomon. Mr Maltby and Mr Berzins are considered by the Board to be independent under the code. Following the retirement of Mr A Rozental as a director at the Annual General Meeting in June, the Company has retained Trust Associates Limited, an executive search firm to help identify two new independent non-executive directors. It is envisaged that one new director will be appointed by the Board prior to the next  Annual General Meeting. Following the retirement of Mr A Rozental Mr A Berzins has been appointed the senior independent director.

Outlook

The Brazilian economy remains sluggish with little prospect of improvement in 2019. The International Monetary Fund recently trimmed its forecast for GDP growth in the year to 0.8% while the Brazilian central bank cut its benchmark interest rate in July to a new low of 6% in the face of weaker economic and inflation data. On a positive note the government is making some progress on much needed reforms as the pensions reform bill passed it's first and second votes in Congress and will now move to the senate. Competition in the Brazilian towage market remains strong although we remain confident in the underlying strength of our business. The Brazilian offshore oil and gas industry is facing another difficult year. The Tecon Salvador container terminal continues to progress with civil works to extend the principal quay from 377 metres to 800 metres underway. The expansion is the largest terminal expansion currently underway in Brazil and is an important step in attracting new shipping lines to the north-eastern region of Brazil.

 

Wilson Sons Limited

The Wilson Sons 2nd quarter 2019 Earnings Report released on 13 August 2019 is available on the Wilson Sons Limited website: www.wilsonsons.com.br

In it Cezar Baião, CEO of Operations in Brazil said:

"Wilson Sons 2Q19 EBITDA of US$33.4 million was down 8.7% against 2Q18 (US$36.6 million) largely due to a decrease in towage results and reduced import warehousing for container terminals. Excluding the IFRS16 effects, 2Q19 EBITDA would have been US$28.1 million, 23.1% lower than the comparative.

Operating volumes at Salvador presented a solid 21.2% growth of full boxes, although the prior year comparative was impacted by a nationwide truck drivers' strike. The Salvador terminal civil works to extend the principal quay from 377 metres to 800 metres continue and will allow the simultaneous berthing of two super-post-Panamax ships, facilitating access to the port and the largest economy in the north east of Brazil. In May the Rio Grande terminal achieved a productivity record of 217 movements per hour. The terminal reported growth across all full container volumes except transshipment which suffered the loss of two services in 1Q19.

Towage results continued to be pressured by temporary effects reducing iron ore exports and a very competitive environment affecting volumes. In July a new vessel WS Aries was delivered by Wilson Sons shipyards. WS Aries, together with our vessel WS Sirius, are the two most powerful towage vessels in the country with 90 tonnes of bollard pull, both currently servicing the port of Açu.

Offshore support vessel ("OSV") results were negatively affected by weakened demand. The Brazilian offshore oil and gas market is expected to face another difficult year with demand for OSV hire remaining soft, although we continue to explore alternative revenue streams for our off-hire vessels, which are well positioned for the expected recovery in the industry over the next couple of years. In June PSV Talha-Mar signed a new two-year contract.

The Company remains focused on increasing cash flow and improving capacity utilisation across all businesses in order to maximise stakeholder value whilst maintaining our relentless commitment to safety."

Investment Manager's Report

Hanseatic Asset Management LBG, the Manager of the Group's investment portfolio reports as follows:

 

Market backdrop

They say that stock markets climb walls of fear and this certainly appears to have been the case in the first half of the current financial year. Having worried that the next recession and bear market were imminent in the latter part of 2018 a more rational view has prevailed in the current year.

 

Central to investors' caution was the interplay between economies, central banks and interest rates. Many investors believed that the seeds of the next downturn were being sown with low unemployment a catalyst for rising wage inflation and with it rising interest rates. Investors ultimately feared that it would be higher interest rates that would kill off growth.

 

Our stance was more nuanced. Whilst not viewing economies as rampant we equally did not see them as moribund. We acknowledge that unemployment is low but we do not see the normal capacity constraints that are associated with rising core inflation. Combined with ongoing technological developments and cheap imports, a return to the double-digit inflation rates of yesteryear appears unlikely at least in the near-term. 

 

Importantly the Federal Reserve came to the same conclusion. Having previously been on a rate rise tack for much of last year they did a dramatic about-turn as we entered 2019. Federal Reserve Governor Jay Powell, who tends to be more focused on data than economic models, came to the conclusion that there were insufficient inflationary forces to warrant ongoing rate rises at a time when the risks faced by the global economy were rising. Initially this was seen as putting interest rates on hold, increasingly however investors started to factor in rate cuts which the Federal Reserve cut by 25 basis points on the 31 July.

 

Number one on this list of risks are the escalating US trade wars. President Trump has been waging a war on trade on multiple fronts including Mexico, Canada and Europe. Most pertinent however has been the battle between China and the US. What started as a Trump-centric policy has increasingly become the consensus view within the US with China viewed as abusing its position through a combination of stealing intellectual property, acquiring strategic assets and protecting its own industries. The risk is that China has driven global growth in recent years and the danger of the trade war derailing Chinese growth, at a time when it was already slowing, poses a considerable threat to global economies.

 

We believe that there is a reasonable probability of some form of trade deal being reached in the short-term with it helpful for Trump to achieve a 'win' ahead of next year's US elections. However, we would see such an outcome as a temporary reprieve with the struggle between the US and China over global dominance likely to be an ongoing feature of markets in future decades.

 

This backdrop clearly makes for a choppy environment but undoubtedly the overall trend for markets in 2019 has been upwards. Partly this has recouped the losses seen at the end of last year but some markets, such as the US, are again hitting all-time highs. 

 

Portfolio Commentary

The investment portfolio has risen 7.5% on a time-weighted basis during the first half of 2019, comfortably ahead of the benchmark return of 3.4%. This has been a strong period for markets following the pullback at the end of 2018, helped by the more dovish tone taken by central banks at the turn of the year. Over the last twelve months the portfolio has returned 3.9% while the benchmark has returned 4.7%.

 

During the six months, contributions to performance came from across the portfolio, particularly from exposures to developed markets and the technology sector. The biggest contributor to performance was Findlay Park American, up 17.6%, while Select Equity, up 24.7%, and Pershing Square Holdings, up 37.0%, also produced good returns through investing in the US. GAM Star Technology Fund, which is about 80% invested in the US, was up 22.4%. European positions also did well, with Adelphi European Select and BlackRock European Hedge Fund both ahead of the regional index with returns of 19.1% and 21.5%, respectively. Emerging markets have been a little weaker than developed markets this year, although the portfolio still made money through its investments there. In Asia, NTAsian Discovery Fund and Schroder Asian Total Return Fund produced returns of 6.4% and 13.7%, respectively, while elsewhere single country funds were stronger with the Russian-focused Prosperity Quest Fund up 19.0% and Dynamo Brasil up 20.5%.

 

Away from the equity exposures, many of the portfolio's diversifying positions also produced gains although as expected they were generally not quite as strong. Hudson Bay and MKP Opportunity, two macro trading funds, were up 4.5% and 6.7%, respectively, while the trend-following CTA fund, GAM Systematic Core Macro, has enjoyed a good period with a return of 13.4%, which is a pleasing improvement having suffered poor performance during much of last year. Fixed income exposure, through funds such as Apollo Total Return Fund (up 5.9%) and the US Treasuries position in Vanguard US Government Bond Index Fund (up 4.3%) also contributed to performance. CZ Absolute Alpha, a market neutral UK equity fund, was one area of weakness with a fall of 4.4%, as it suffered from its net short position as well as a preference for value stocks over growth.

 

CUMULATIVE PORTFOLIO RETURNS

 

 

 

3 Years

5 Years

Performance (Time-weighted)

YTD

p.a.

p.a.

OWIL (net)

7.5%

7.0%

3.6%

Performance Benchmark*

3.4%

5.1%

4.7%

MSCI ACWI + FM

16.2%

11.6%

6.1%

MSCI Emerging Markets

10.6%

12.0%

2.5%

*Notes:

The OWIL Performance Benchmark which came into effect on 1 January 2015 is US CPI Urban Consumers NSA +3% p.a. This has been combined with the old benchmark (USD 12 Month LIBOR +2%) for periods prior to the adoption of the new benchmark.

 

Investment Portfolio at 30 June 2019

 

 

Market Value

% of

 

 

$000

portfolio

Primary Focus

Findlay Park American Fund

25,516

9.2

US equities - Long Only

Adelphi European Select Equity Fund

13,948

5.0

Europe Equities - Long Only

Egerton Long - Short Fund Limited

13,021

4.7

Europe/US Equities - Hedge

BlackRock European Hedge Fund

11,557

4.2

Europe Equities - Hedge

Goodhart Partners: Hanjo Fund

10,174

3.7

Japan Equities - Long Only

NTAsian Discovery Fund

9,587

3.4

Asia ex-Japan Equities - Long Only

GAM Star Fund PLC - Technology

7,831

2.8

Technology - Long Only

Select Equity Offshore, Ltd

7,686

2.8

US Equities - Long Only

Pangaea II, LP

7,534

2.7

Private Assets - GEM

Schroder ISF Asian Total Return Fund

7,034

2.5

Asia ex-Japan Equities - Long Only

Top 10 Holdings

113,889

40.9

 

NG Capital Partners II, LP

6,891

2.5

Private Assets - Latin America

Helios Investors II, LP

6,774

2.4

Private Assets - Africa

Vulcan Value Equity Fund

6,679

2.4

US Equities - Long Only

Lansdowne Developed Markets Fund

6,310

2.3

Europe/US Equities - Hedge

Hony Capital Fund V, LP

6,273

2.3

Private Assets - China

Global Event Partners Ltd

5,809

2.1

Global Equities - Long/Short

Greenspring Global Partners IV, LP

5,694

2.0

Private Assets - US Venture Capital

Hudson Bay International Fund Ltd

5,572

2.0

Market Neutral - Multi-Strategy

Prince Street Opportunities Fund

5,451

2.0

Emerging Markets Equities - Long Only

L Capital Asia 2, LP

4,929

1.8

Private Assets - Asia (Consumer)

Top 20 Holdings

174,272

62.6

 

Silver Lake Partners IV, LP

4,393

1.6

Private Assets - Global Technology

Greenspring Global Partners VI, LP

4,311

1.5

Private Assets - US Venture Capital

Primary Capital IV, LLP

4,184

1.5

Private Assets - Europe

Gramercy Distressed Opportunity Fund II, LP

4,039

1.5

Private Assets - Distressed Debt

African Development Partners I, LLC

3,581

1.3

Private Assets - Africa

Indus Japan Long Only Fund

3,532

1.3

Japan Equities - Long Only

Prosperity Quest Fund

3,459

1.2

Emerging Markets Equities - Long Only

L Capital Asia, LP

3,361

1.2

Private Assets - Asia (Consumer)

AMED Fund, SICAR

3,349

1.2

Private Assets - Africa

MCP Private Capital Fund II, LP

3,188

1.1

Private Assets - European Credit

Top 30 Holdings

211,669

76.0

 

43 Remaining Holdings

63,150

22.7

 

Cash

3,536

1.3

 

TOTAL

278,355

100.0

 

 

Hanseatic Asset Management LBG

August 2019

Going concern

The Group closely monitors and manages its liquidity risk. The Group has considerable financial resources including US$58.4 million in cash and cash equivalents and the majority of the Group's borrowings have a long maturity profile. The Group's business activities together with the factors likely to affect its future development and performance are set out in the Chairman's statement and Investment Manager's report. The financial position, cash flows and borrowings of the Group are also set out in the Chairman's statement. Details of the Group's borrowings are set out in note 16 to the accounts. Based on the Group's cash forecasts and sensitivities run, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.

 

Responsibility statement

 

The Directors confirm that to the best of our knowledge:

(a)     the condensed set of financial statements has been prepared in accordance with IAS 34;

(b)     the interim management report includes a fair review of the information required by DTR 4.2.7R; and

(c)     the interim management report includes a fair review of the information required by DTR 4.2.8R.

 

J F Gouvêa Vieira

Chairman

13 August 2019

 

Condensed consolidated interim statements of profit or loss and other comprehensive income

for the six months ended 30 June 2019

 

 

Unaudited

Unaudited

 

 

six months to

six months to

 

 

30 June

30 June

 

 

2019

2018

 

Notes

US$'000

US$'000

Revenue

3

199,217

235,017

Raw materials and consumables used

 

(12,898)

(21,098)

Employee benefits expense

5

(70,839)

(75,773)

Amortisation of right of use assets

 

(6,361)

-

Depreciation & amortisation expense

4

(26,761)

(28,724)

Other operating expenses

 

(47,117)

(62,735)

(Loss)/profit on disposal of property, plant and equipment

 

(119)

139

Operating profit

 

35,122

46,826

Share of results of joint ventures

17

(607)

(1,330)

Returns on investment portfolio at fair value through profit and loss

6

22,827

4,134

Other investment income

7

2,237

2,424

Finance costs

8

(12,792)

(15,773)

Foreign exchange gains/(losses) on monetary items

 

347

(8,546)

Profit before tax

 

47,134

27,735

Income tax expense

9

(13,126)

(11,060)

Profit for the period

 

34,008

16,675

Other comprehensive income: items that may be reclassified subsequently to profit and loss

 

 

 

Exchange differences arising on translation of foreign operations

 

2,191

(38,479)

Effective portion of changes in fair value of derivatives

 

705

421

Other comprehensive income/(loss) for the period

 

2,896

(38,058)

Total comprehensive income/(loss) for the period

 

36,904

(21,383)

Profit for the period attributable to:

 

 

 

Equity holders of parent

 

28,114

10,032

Non-controlling interests

 

5,894

6,643

Profit for the period

 

34,008

16,675

Total comprehensive income for the period attributable to:

 

 

 

Equity holders of parent

 

29,805

(12,012)

Non-controlling interests

 

7,099

(9,371)

Total comprehensive (loss)/income for the period

 

36,904

(21,383)

Earnings per share

 

 

 

Basic and diluted

11

79.5c

28.4c

 

Condensed consolidated interim statements of financial position

as at 30 June 2019

 

 

Unaudited

Audited

 

 

30 June

31 December

 

 

2019

2018

 

Notes

US$'000

US$'000

Non-current assets

 

 

 

Goodwill

 

27,697

27,515

Other intangible assets

 

24,124

25,468

Right of use assets

12

184,980

-

Property, plant and equipment

13

622,730

602,451

Deferred tax assets

 

27,523

28,223

Related party loans

 

29,979

29,804

Recoverable taxes

 

28,817

25,603

Investment in joint ventures

17

29,239

26,528

Other non-current assets

 

7,591

7,446

Other trade receivables

15

489

483

 

 

983,169

773,521

Current assets

 

 

 

Inventories

 

11,424

10,875

Financial assets at fair value through profit and loss

14

274,819

287,298

Trade and other receivables

15

68,496

73,671

Recoverable taxes

 

21,403

23,283

Cash and cash equivalents

 

58,403

43,801

 

 

434,545

438,928

Total assets

 

1,417,714

1,212,449

Current liabilities

 

 

 

Trade and other payables

 

(56,656)

(57,640)

Derivatives

 

-

(422)

Current tax liabilities

 

(676)

(719)

Obligations under finance leases

 

(20,893)

(46)

Bank overdrafts and loans

16

(44,234)

(60,209)

 

 

(122,459)

(119,036)

Net current assets

 

312,086

319,892

Non-current liabilities

 

 

 

Bank loans

16

(285,752)

(247,097)

Employee benefits

 

(1,260)

(1,190)

Deferred tax liabilities

 

(52,669)

(50,023)

Provisions

 

(16,088)

(17,335)

Obligations under finance leases

 

(165,895)

(59)

 

 

(521,664)

(315,704)

Total liabilities

 

(644,123)

(434,740)

Net assets

 

773,591

777,709

Capital and reserves

 

 

 

Share capital

 

11,390

11,390

Retained earnings

 

570,038

566,678

Capital reserves

 

31,760

31,760

Translation and hedging reserve

 

(53,912)

(55,603)

Equity attributable to equity holders of the parent

 

559,276

554,225

Non-controlling interests

 

214,315

211,111

Total equity

 

773,591

777,709

 

Condensed Consolidated interim statements of changes in equity

as at 30 June 2019

 

 

 

 

Hedging

Attributable

 

 

 

 

 

 

and

to equity

Non-

 

 

Share

Retained

Capital

Translation

holders of

controlling

Total

For the six months ended 30 June 2018 (unaudited)

capital

earnings

reserves

reserve

the parent

interests

equity

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Balance at 1 January 2018

11,390

578,126

31,760

(33,115)

588,161

235,899

824,060

Currency translation adjustment

-

-

-

(22,289)

(22,289)

(16,190)

(38,479)

Effective portion of changes in fair value of derivatives

-

-

-

245

245

176

421

Profit for the period

-

10,032

-

-

10,032

6,643

16,675

Total income and expense for the period

-

10,032

-

(22,044)

(12,012)

(9,371)

(21,383)

Dividends

-

(24,754)

-

-

(24,754)

(16,079)

(40,833)

Share based expense

-

-

-

-

-

662

662

Balance at 30 June 2018

11,390

563,404

31,760

(55,159)

551,395

211,111

762,506

 

 

 

 

 

 

 

 

For the six months ended 30 June 2019 (unaudited)

 

 

 

 

 

 

 

Balance at 1 January 2019

11,390

566,678

31,760

(55,603)

554,225

223,484

777,709

Currency translation adjustment

-

-

-

1,281

1,281

910

2,191

Effective portion of changes in fair value of derivatives

-

-

-

410

410

295

705

Profit for the period

-

28,114

-

-

28,114

5,894

34,008

Total income and expense for the period

-

28,114

-

1,691

29,805

7,099

36,904

Dividends

-

(24,754)

-

-

(24,754)

(16,468)

(41,222)

Share based expense

-

-

-

-

-

200

200

Balance at 30 June 2019

11,390

570,038

31,760

53,912

559,276

214,315

773,591

Share capital

The Group has one class of ordinary share which carries no right to fixed income.

Capital reserves

The capital reserves arise principally from transfers from revenue to capital reserves made in the Brazilian subsidiaries arising in the following circumstances:

(a)     profits of the Brazilian subsidiaries and Brazilian holding company which in prior periods were required by law to be transferred to capital reserves and other profits not available for distribution; and

(b)     Wilson Sons Limited bye-laws require the company to credit an amount equal to 5% of the company's net profit to a retained earnings account to be called legal reserve until such amount equals 20% of the Wilson Sons Limited share capital.

Hedging and translation reserve

The hedging and translation reserve arises from exchange differences on the translation of operations with a functional currency other than US Dollars and effective movements on hedging instruments.

Amounts in the statement of changes in equity are stated net of tax where applicable.

 

Condensed consolidated interim statements of cash flows

for the six months ended 30 June 2019

 

 

Unaudited

Unaudited

 

 

six months to

six months to

 

 

30 June

30 June

 

 

2019

2018

 

Notes

US$'000

US$'000

Net cash inflow from operating activities

18

47,573

55,609

Investing activities

 

 

 

Interest received

 

818

3,342

Income received from underlying investment vehicles

 

1,340

4,283

Proceeds on disposal of financial assets at fair value through profit and loss

 

51,853

47,059

Proceeds on disposal of property, plant and equipment

 

692

429

Purchases of property, plant and equipment

 

(44,641)

(24,402)

Purchase of intangible asset

 

(361)

(882)

Purchases of financial assets at fair value through profit and loss

 

(17,887)

(25,969)

Capital increase of joint venture

 

(3,500)

(4,003)

Net cash used in investing activities

 

(11,686)

(143)

Financing activities

 

 

 

Dividends paid

10

(24,754)

(24,754)

Dividends paid to non-controlling interests in subsidiary

 

(16,468)

(16,079)

Repayments of borrowings

 

(43,990)

(31,115)

Repayments of obligations under finance leases

 

(2,964)

(597)

Derivative paid

 

(339)

(490)

New bank loans raised

 

66,175

2,512

Net cash used in financing activities

 

(22,340)

(70,523)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

13,547

(15,057)

 

 

 

 

Cash and cash equivalents at beginning of period

 

43,801

83,827

Effect of foreign exchange rate changes

 

1,055

(8,623)

 

 

 

 

Cash and cash equivalents at end of period

 

58,403

60,147

 

 

Notes to condensed consolidated interim financial information

for the six months ended 30 June 2019

1 General information

The condensed consolidated interim financial information is not the Company's statutory accounts. The auditors of the Company have not made any report thereon under section 90(2) of the Bermuda Companies Act.

Ocean Wilsons Holdings Limited is a company incorporated in Bermuda under the Companies Act 1981 and the Ocean Wilsons Holdings Limited Act, 1991.

These financial statements are presented in US Dollars because that is the currency of the primary economic environment in which the Group operates.

2 Accounting policies

The condensed consolidated interim financial information of the Company for the six months ended 30 June 2019 comprises the Company and its subsidiaries (together referred to as the "Group") and the Group's interests in associates and jointly controlled entities.

The condensed set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) and in accordance with IAS 34 - Interim Financial Reporting. For these purposes, IFRS comprise the standards issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").

The condensed set of financial statements have been prepared on the basis of accounting policies consistent with those applied to the financial statements for the year ended 31 December 2018.

First-time adoption of new accounting standard

IFRS 16 -Leases

IFRS 16 was adopted as of 1 January 2019 and eliminates the accounting for operating lease agreements for the lessee, presenting only one lease model that consists of: (a) initially recognising all leased assets (Right-of-use assets) and liabilities (Other liabilities) at present value; and (b) recognising depreciation of the right-of-use assets and interest from the lease separately in the profit and loss. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less).

In 2018, the Group performed a detailed impact assessment of IFRS 16 identifying existing contracts, as well as the environment of internal controls and systems impacted by the adoption of the new standard. The assessment was divided into stages, such as:

i)       Identification of contracts;

ii)      Transition approach;

iii)     Effects of first-time adoption.

Identification of contracts

Management prepared a full lease contract inventory identifying the types of contracts that would be in the scope of the standard. The Group elected to use the exemptions allowed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value.

Transition approach

The Group applied IFRS 16 with effect from 1 January 2019, the date of initial application, using the modified retrospective approach. Accordingly, the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4.

The Company used the following practical expedients when applying IFRS 16:

·    Applied a single discount rate to portfolios of leases with similar characteristics. This results in discount rates from 8.75% to 12.90% being used as shown in note 12.

·      Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term at the date of initial application and leases of low-value assets. The payments associated with these leases will be recognised as an expense on a straight-line basis over the lease term.

Effects of first-time adoption

For more details about the IFRS 16 adoption, please see Note 12.

3 Revenue

An analysis of the Group's revenue is as follows:

 

 

Unaudited

Unaudited

 

 

six months to

six months to

 

 

30 June

30 June

 

 

2019

2018

 

Note

US$'000

US$'000

Sales of services

 

199,217

226,979

Revenue from construction contracts

 

-

8,038

 

 

199,217

235,017

Investment income

7

2,237

2,424

 

 

201,454

237,441

3.1    Disaggregated revenue information

The following is an analysis of the Group's revenue from continuing operations for the period (excluding investment income - note 7).

 

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Towage and agency services

 

 

Harbour manoeuvres

70,479

79,346

Special operations

3,623

7,104

Ship agency

4,319

4,959

Total

78,421

91,409

 

Port terminals

 

 

Container handling

44,738

46,691

Warehousing

16,224

22,960

Ancillary services

10,160

11,769

Oil & Gas support base

11,484

10,720

Other services

9,483

7,929

Total

92,089

100,069

 

Logistics

 

 

Logistics

25,675

28,786

Total

25,675

28,786

 

Shipyard

 

 

Shipyard construction contracts

-

8,038

Technical assistance/dry-docking

3,032

6,882

Total

3,032

14,920

 

Other services

 

 

Other services

-

(167)

Total

-

(167)

 

Total

199,217

235,017

 

 

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Timing of revenue recognition

 

 

At a point of time

196,185

220,097

Over time

3,032

14,920

 

199,217

235,017

 

 

3.2 Contract balance

Trade receivables are generally received between 30 and 45 days after the invoice date. The carrying amount of operational trade receivables at the end of reporting period was US$55.7 million (2018: US$57.7 million). These amounts including US$16.2 million (2018: US$15.3 million) of contract assets (unbilled accounts receivables). 

The contract liability balance as at the beginning of the period was recognised as revenue in the reporting period. There are no other contract assets and liabilities recognised for the years presented.

 

3.3  Performance obligations

Information about the Group´s performance obligations are summarised below:

 

 

When performance obligation

Performance obligation

is typically satisfied

 

 

Towage and agency services

 

Harbour Manoeuvres

At a point in time

Special Operations

At a point in time

Ship Agency

At a point in time

 

 

Port Terminals

 

Container Handling

At a point in time

Warehousing

At a point in time

Ancillary services

At a point in time

Oil & Gas Support Base

At a point in time

Other services

At a point in time

 

 

Logistics

 

Logistics

At a point in time

 

 

Shipyard

 

Ship construction contracts

Over time

Technical assistance / dry-docking

Over time

 

 

The majority of the Group´s performance obligations are satisfied at a point in time, upon delivery of the service, and payment is generally due within 30 to 45 days upon completion of services. 

The performance obligation of ship construction contracts is satisfied over time and the revenue related to services and construction contracts is recognised when the work in proportion to the stage of completion of transactions contracted has been performed.  

There are no significant judgements in the determination of when performance obligations are typically satisfied.

All revenue is derived from continuing operations.

 

4 Business and geographical segments

Business segments

Ocean Wilsons Holdings Limited has two reportable segments: maritime services and investments. The maritime services segment provides towage, port terminals, ship agency, offshore, logistics and shipyard services in Brazil through Wilson Sons Limited. The investment segment holds a portfolio of international investments through Ocean Wilsons (Investments) Limited.

Segment information relating to these businesses is presented below.

For the six months ended 30 June 2019 (unaudited)

 

Maritime

 

 

 

 

services

Investment

Unallocated

Consolidated

 

six months to

six months to

six months to

six months to

 

30 June

30 June

30 June

30 June

 

2019

2019

2019

2019

 

US$'000

US$'000

US$'000

US$'000

Revenue

199,217

-

-

199,217

Result

 

 

 

 

Segment result

37,630

(1,467)

(1,041)

35,122

Share of joint venture results

(607)

-

-

(607)

Returns on investment portfolio at fair value through profit and loss

-

22,827

-

22,827

Other investment income

2,231

6

-

2,237

Finance costs

(12,792)

-

-

(12,792)

Exchange gains/(losses) on monetary items

(230)

8

569

347

Profit before tax

26,232

21,374

(472)

47,134

Tax

(13,126)

-

-

(13,126)

Profit after tax

13,106

21,374

(472)

34,008

Other information

 

 

 

 

Capital additions

45,659

-

-

45,659

Amortisation of right to use

6,361

-

-

6,361

Depreciation and amortisation

26,671

-

-

26,671

Balance Sheet

 

 

 

 

Assets

 

 

 

 

Segment assets

1,136,849

278,355

2,510

1,417,714

Liabilities

 

 

 

 

Segment liabilities

(643,387)

(239)

(497)

(644,123)

For the six months ended 30 June 2018 (unaudited)

 

Maritime

 

 

 

 

services

Investment

Unallocated

Consolidated

 

six months to

six months to

six months to

six months to

 

30 June

30 June

30 June

30 June

 

2018

2018

2018

2018

 

US$'000

US$'000

US$'000

US$'000

Revenue

235,017

-

-

235,017

Result

 

 

 

 

Segment result

49,241

(1,463)

(952)

46,826

Share of joint venture results

(1,330)

-

-

(1,330)

Returns on investment portfolio at fair value through profit and loss

-

4,134

-

4,134

Other investment income

2,372

6

46

2,424

Finance costs

(15,773)

-

-

(15,773)

Exchange (losses)/gains on monetary items

(8,917)

1

370

(8,546)

Profit before tax

25,593

2,678

(536)

27,735

Tax

(11,060)

-

-

(11,060)

Profit after tax

14,533

2,678

(536)

16,675

Other information

 

 

 

 

Capital additions

(35,150)

-

-

(35,150)

Depreciation and amortisation

(28,723)

-

(1)

(28,724)

Balance Sheet

 

 

 

 

Assets

 

 

 

 

Segment assets

932,810

272,477

4,179

1,209,466

Liabilities

 

 

 

 

Segment liabilities

(446,482)

(249)

(229)

(446,960)

Finance costs and associated liabilities have been allocated to reporting segments where interest costs arise from loans used to finance the construction of fixed assets in that segment.

Geographical Segments

The Group's operations are located in Bermuda and Brazil.

All of the Group's sales are derived in Brazil.

The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located.

 

Carrying amount of
segment assets

Additions to property, plant and
equipment and intangible assets

 

 

Unaudited

Unaudited

 

Unaudited

Unaudited

six months to

six months to

 

30 June

30 June

30 June

30 June

 

2019

2018

2019

2018

 

US$'000

US$'000

US$'000

US$'000

Brazil

1,102,419

904,703

45,659

35,150

Bermuda

315,295

304,763

-

-

 

1,417,714

1,209,466

45,659

35,150

5 Employee benefits expense

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Aggregate remuneration comprised:

 

 

Wages and salaries

56,531

64,583

Share based payment expense

200

662

Social security costs

13,587

9,957

Other pension costs

521

571

 

70,839

75,773

6 Returns on investment portfolio at fair value through profit and loss

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Increase in fair value of trading investments held at period end

21,134

93

Income from underlying investment vehicles

1,340

1,079

Profit on disposal of trading investments

353

2,962

 

22,827

4,134

 

The prior period comparatives have been re-presented in order to match the current period's presentation.

7 Other investment income

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Interest on bank deposits

1,650

2,074

Other interest

587

350

 

2,237

2,424

 

The prior period comparatives have been re-presented in order to match the current period's presentation.

8 Finance costs

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Interest on bank overdrafts and loans

13,041

6,197

Exchange (gain)/loss on foreign currency borrowings

(891)

9,179

Interest on obligations under finance leases

62

47

Other interest

580

350

 

12,792

15,773

9 Taxation

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Current taxation

 

 

Brazilian taxation:

 

 

Corporation tax

7,234

9,269

Social contribution

2,421

3,650

Total current tax

9,655

12,919

Deferred tax

 

 

(Credit)/charge for the period in respect of deferred tax liabilities

(1,026)

16,349

Charge/(credit) for the period in respect of deferred tax assets

4,497

(18,208)

Total deferred tax

3,471

(1,859)

 

 

 

Total taxation

13,126

11,060

Brazilian corporation tax is calculated at 25% (2018: 25%) of the assessable profit for the year.

Brazilian social contribution tax is calculated at 9% (2018: 9%) of the assessable profit for the year.

At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the Company has received an undertaking from the Bermuda Government exempting it from all such taxes until 31 March 2035.

10 Dividends

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Amounts recognised as distributions to equity holders in the period:

 

 

Final dividend paid for the year ended 31 December 2018 of 70.0c (2017: 70.0c) per share

24,754

24,754

11 Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Earnings:

 

 

Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent

28,114

10,032

Number of shares:

 

 

Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share

35,363,040

35,363,040

 

12 Lease arrangements

12.1 Right-of-use assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Machinery

 

 

 

 

Operational

 

 

and

 

Finance

 

Right of use by class of asset

area

Vessels

Buildings

equipment

Vehicles

leases

Total

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Cost or valuation

 

 

 

 

 

 

 

Balance at 1 January 2019

162,292

4,106

6,137

2,637

1,150

-

176,322

Transfers

-

-

-

-

-

9,798

-

Contractual amendments

13,352

175

53

(126)

(142)

-

13,312

Exchange differences

(32)

(4)

(19)

(9)

(1)

108

43

Terminated contracts

-

-

-

-

-

(341)

(341)

At 30 June 2019

175,612

4,277

6,171

2,502

1,007

9,565

199,134

 

 

 

 

 

 

 

 

Accumulated amortisations

 

 

 

 

 

 

 

Balance at 1 January 2019

-

-

-

-

-

 

 

Transfers

-

-

-

-

-

7,969

7,969

Charge for the year

3,868

1,114

703

229

257

190

6,361

Exchange differences

14

6

-

1

(3)

88

106

Terminated contracts

-

-

-

-

-

(282)

(282)

Balance at 30 June 2019

3,882

1,120

703

230

254

7,965

14,154

Carrying amount

At 30 June 2019

171,730

3,157

5,468

2,272

753

1,800

184,980

At 1 January 2019

162,292

4,106

6,137

2,637

1,150

-

176,322

 

Operational Area

The main lease commitments included as operational area are described below:

 

Tecon Rio Grande

The Tecon Rio Grande lease was signed on 3 February 1997 for a period of 25 years renewable for a further 25 years. Tecon Rio Grande was granted the right to renew the lease as set out in the contract amendment signed on 7 March 2006  in view of compliance with the contractual requirements, additional investments made in expanding the terminal by constructing  a third berth and the annual volume of containers handled.

 

Among the commitments set forth in the Lease Agreement and its Addendum are the following:

 

·    Monthly payment for facilities and leased areas;

·    Contractual payment per container moved based on minimum forecast volumes. If container volumes moved through the terminal exceed forecast volumes in any given year, additional payments are required;

·    Payment per tonne in respect of general cargo handling and unloading.

 

Tecon Salvador

Tecon Salvador S.A. has the right to lease and operate the container terminal and heavy cargo terminal in the Port of Salvador for 25 years renewed in 2016 for a further 25 years.

 

The total lease term of 50 years, until March 2050, is provided in the second addendum to the rental agreement. This addendum requires the Group to make a minimum specified investment in expanding the leased terminal area.

 

As a result of the lease agreement with CODEBA, the Tecon Salvador has the following commitments:

 

·    Payment of monthly instalments;

·    Lease payments for the existing area and the additional area added under the terms of the second contractual addendum;

·    Contractual payment per container moved based on minimum forecast volumes and a fee per ton of non-containerised cargo moved based on minimum forecast volumes.

 

Brasco

Brasco lease commitments mainly refer to a 30-year lease right to operate an area in Guanabara Bay, Rio de Janeiro, Brazil with convenient access to attend Campos and Santos oil producing basins.

 

Logistics

Logistics lease commitments mainly refer to the bonded terminals and distribution centres located in Santo André and Suape with terms between eighteen and twenty-four years.

 

Vessels

Chartering of vessels for maritime transport between port terminals. Payments made relating to the quantity of vessel trips were not included in the measurement of lease liabilities.

 

Buildings

The Group has lease commitments for its headquarters, branches and commercial offices in several Brazilian cities.

 

Machinery and equipment

Rental contracts mainly for forklifts and other operating equipment. 

 

Vehicles

Rental of vehicles for operational, commercial and administrative activities.

 

Finance Leases

Lease contracts previously classified under IAS 17.

12.2 Lease liabilities

 

 

 

Unaudited

 

 

30 June

 

 

2019

 

Discount rate

US$'000

Lease liabilities by class of asset

 

 

Operational area

8.75%

174,738

Vessels

9.25%

3,214

Buildings

8.75%

5,597

Machines and equipment

8.88% - 12.90%

2,374

Vehicles

11.86%

785

Finance leases

10.80%

80

Total

 

186,788

 

Total current

 

20,893

Total non-current

 

165,895

 

 

 

Unaudited

 

 

30 June

 

 

2019

 

 

US$'000

Maturity analysis - contractual undiscounted cash flows

 

 

Within one year

 

22,105

In the second year

 

21,010

In the third to fifth years inclusive

 

38,383

After five years

 

381,434

Total borrowings

 

462,932

Adjustment to present value

 

(276,144)

Total lease liabilities

 

186,788

12.3 Amounts recognised in profit and loss

 

 

Unaudited

 

 

six months to

 

 

30 June

 

 

2019

 

 

US$'000

Amortisation of right of use assets

 

(6,171)

Interest on lease liabilities

 

(7,806)

Variable lease payments not included in the measurement of lease liabilities (1) (2)

 

(1,628)

Expenses relating to short-term leases

 

(8,091)

Expenses relating to low-value assets

 

(458)

(1) The amounts refers to payments, which exceeded the minimum forecast volumes of Tecon Rio Grande and Tecon Salvador.

(2) The payments related to the quantity of vessel trips were not included in the measurement of lease liabilities.

 

The Group is not able to estimate the future cash outflows to variable lease payments due to operational, economic and foreign exchange aspects.

12.4 Amounts recognised in the statement of cash flows

 

 

Unaudited

 

 

six months to

 

 

30 June

 

 

2019

 

 

US$'000

Amortisation of lease liability

 

(2,964)

Interest paid -lease liability

 

(7,813)

Total

 

(10,777)

 

13 Property, plant and equipment

 

 

Land and

 

Vehicles, plant

Assets under

 

 

buildings

Floating Craft

and equipment

construction

Total

 

US$'000

US$'000

US$'000

US$'000

US$'000

Cost or valuation

 

 

 

 

 

At 1 January 2018

301,306

462,105

259,518

2,760

1,025,689

Additions

16,827

12,620

8,856

21,370

59,673

Transfers

1,163

13,997

(1,163)

(13,997)

-

Exchange differences

(35,009)

-

(33,782)

-

(68,791)

Disposals

(1,781)

-

(2,865)

-

(4,646)

At 1 January 2019

282,506

488,722

230,564

10,133

1,011,925

Additions

18,226

11,314

13,496

2,262

45,298

Transfers

132

76

(208)

-

-

Transfers to right to use

-

-

(9,798)

-

(9,798)

Transfers from intangible assets

-

-

246

-

246

Exchange differences

2,455

-

2,091

-

4,546

Disposals

(29)

-

(5,219)

-

(5,248)

At 30 June 2019

303,290

500,112

231,172

12,395

1,046,969

Accumulated depreciation and impairment

 

 

 

 

 

At 1 January 2018

91,919

167,158

131,731

-

390,808

Charge for the year

8,589

25,499

18,669

-

52,757

Elimination on construction contracts

-

163

-

-

163

Exchange differences

(11,968)

-

(17,461)

-

(29,429)

Disposals

(1,405)

-

(3,420)

-

(4,825)

At 1 January 2019

87,135

192,820

129,519

-

409,474

Charge for the year

4,137

12,623

8,298

-

25,058

Elimination on construction contracts

-

118

-

-

118

Transfers to right of use

-

-

(7,969)

-

(7,969)

Exchange differences

824

-

1,171

-

1,995

Disposals

(16)

-

(4,421)

-

(4,437)

At 30 June 2019

92,080

205,561

125,598

-

424,239

Carrying Amount

 

 

 

 

 

At 30 June 2019 (unaudited)

 211,210

 294,551

 104,574

 12,395

 622,730

At 31 December 2018 (audited)

195,371

295,902

101,045

10,133

602,451

Land and buildings with a net book value of US$0.2 million (2018: US$0.2 million) and plant and machinery with a value of US$0.2 million (2018: US$0.2 million) have been given in guarantee of various legal processes.

The Group has pledged assets having a carrying amount of approximately US$276.4 million (2018: US$293.8 million) to secure loans granted to the Group.

The amount of borrowing costs capitalised in 2019 is US$0.7 million (2018: US$0.1 million) at an average interest rate of 3.05% (2018: 3.38%).

At 30 June 2019, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$3.0 million.

14 Financial assets at fair value through profit or loss 

 

Unaudited

Audited

 

six months to

year to

 

30 June

31 December

 

2019

2018

 

US$'000

US$'000

Financial assets at fair value through profit or loss

 

 

At 1 January

287,298

305,070

Additions, at cost

17,887

56,225

Disposals, at market value

(51,853)

(63,992)

Increase/(decrease) in fair value of trading investments held at period end

21,134

(18,654)

Profit on disposal of trading investments

353

8,579

At period end

274,819

287,298

Ocean Wilsons (Investments) Limited Portfolio

274,819

258,188

Wilson Sons Limited

-

29,110

Financial assets at fair value through profit or loss held at period end

274,819

287,298

Wilson Sons Limited

The Wilson Sons Limited investments are held and managed separately from the Ocean Wilsons (Investments) Limited Portfolio and consist of US Dollar denominated depository notes.

Ocean Wilsons (Investments) Limited Portfolio

The Group has not designated any financial assets that are not classified as trading investments as financial assets at fair value through profit or loss.

Trading investments above represent investments in listed equity securities, funds and unquoted equities that present the Group with opportunity for return through dividend income and capital appreciation.

Included in trading investments are open ended funds whose shares may not be listed on a recognised stock exchange but are redeemable for cash at the current net asset value at the option of the Company. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available. Where quoted market prices are not available, fair values are determined by third parties using various valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

15 Trade and other receivables

 

Unaudited

Audited

 

30 June

31 December

 

2019

2018

 

US$'000

US$'000

Trade and other receivables

 

 

Other trade receivables

489

483

Total other non-current trade receivables

489

483

 

 

 

Amount receivable for the sale of services

57,256

59,224

Allowance for doubtful debts

(1,559)

(1,490)

Total current trade receivables

55,697

57,734

 

 

 

Prepayments

7,456

10,917

Insurance claim receivable

1,862

3,314

Other receivables

3,481

1,706

Total other non-current trade receivables

12,799

15,937

 

 

 

Total other current trade receivables

68,496

73,671

 

 

Unaudited

Audited

 

30 June

31 December

 

2019

2018

Ageing of trade receivables

US$'000

US$'000

Current

47,725

45,243

From 0 - 30 days

5,539

9,325

From 31 - 90 days

1,739

2,405

From 91 - 180 days

777

1,276

more than 180 days

1,476

973

Total

57,256

59,224

Generally, interest of one percent per month plus a two percent penalty is charged on overdue balances.  Allowances for bad debts are recognised as a reduction of receivables and are recognised whenever a loss is identified. As of 1 January 2018, due to the application of IFRS 9, the Group has recognised an allowance for bad debts taking into account an expected credit loss model that involves historical evaluation of effective losses over billing cycles. The period of review will be 3.5 years, being reassessed every 180 days. The measurement of the default rate shall consider the recoverability of receivables and will apply according to the payment profile of debtors. The Group will calibrate, when appropriate, the matrix to adjust the historical credit loss experience with forward-looking information.  Until 2017, the Group recognised an allowance for bad debts considering all receivables over 180 days because historical experience had shown that receivables that were past due beyond 180 days were generally not recoverable.

The directors consider that the carrying amount of trade and other receivables approximates their fair value.

16 Bank loans and overdrafts

 

 

Unaudited

Audited

 

 

30 June

31 December

 

 

2019

2018

 

Annual Interest rate

US$'000

US$'000

Secured borrowings

 

 

 

BNDES - FMM linked to US$ (1)

2.07% - 5.00%

155,692

152,002

BNDES Real

6.26% - 8.54%

19,254

14,267

BNDES - FMM Real (1)

9.72%

1,191

1,250

BNDES - FINAME Real

4.50% - 6.00%

86

150

Total BNDES

 

176,223

167,669

Banco do Brasil - FMM linked to US$

2.00% - 3.00%

82,327

85,142

Bradesco - NCE - Real

7.70%

26,392

-

Santander - US$

3.87%

22,691

25,523

Itaú - NCE - Real

7.88%

22,353

-

IFC - US$

7.00%

-

21,547

China Construction Bank - US$

6.14%

-

6,364

Eximbank - US$

6.22%

-

1,061

Total others

 

153,763

139,637

Total borrowings

 

329,986

307,306

(1)       As an agent of Fundo da Marinha Mercante's (FMM), BNDES finances the construction of tugboats and shipyard facilities.

 

Unaudited

Audited

 

30 June

31 December

 

2019

2018

 

US$'000

US$'000

The borrowings are repayable as follows:

 

 

On demand or within one year

44,234

60,209

In the second year

47,930

30,504

In the third to fifth years inclusive

97,814

79,460

After five years

140,008

137,133

Total borrowings

329,986

307,306

Amounts due for settlement within 12 months

44,234

60,209

Amounts due for settlement after 12 months

285,752

247,097

Analysis of borrowings by currency:

 

 

BRL

 

 

 

 

linked to

 

 

 

BRL

US Dollars

US Dollars

Total

 

US$'000

US$'000

US$'000

US$'000

30 June 2019 (unaudited)

 

 

 

 

Bank loans

69,277

238,019

22,691

329,987

Total

69,277

238,019

22,691

329,987

31 December 2018 (audited)

 

 

 

 

Bank loans

15,667

237,144

54,495

307,306

Total

15,667

237,144

54,495

307,306

Guarantees

Loans with BNDES rely on a corporate guarantee from Wilson Sons de Administração e Comércio Ltda, ("WSAC"). For some contracts, the corporate guarantee is additional to: (i) a pledge of the respective financed tugboat, (ii) a lien of logistics and port operations equipment financed.

The loan agreement for Tecon Salvador from International Finance Corporation ("IFC") was guaranteed by the subsidiary's shares, along with receivables, plant and equipment until its prepayment in full on 30 January 2019.

The loan agreement for Tecon Rio Grande from the Export-Import Bank of China for equipment acquisition was guaranteed by a standby letter of credit issued by Itaú BBA S.A, which in turn had a pledge on the equipment financed, until its payment in full on 21 January 2019.

The loan agreement between Tecon Rio Grande and Santander for equipment acquisition relies on a corporate guarantee from WSAC.

Undrawn credit facilities

At 30 June 2019, the Group had available US$98.3 million of undrawn borrowing facilities. For each disbursement, there is a set of conditions precedent that must be satisfied.

Covenants

WSAC as corporate guarantor has to comply with annual loan covenants for both Wilson Sons Estaleiros and Brasco Logística Offshore in respect of loan agreements signed with BNDES.

 

Wilport Operadores Portuários Ltda as corporate guarantor for loan agreements signed between the BNDES and Tecon Salvador S.A, has to comply with annual loan covenants including ratios of debt service coverage, net debt ratio over EBITDA and equity over total assets. For the same agreements Tecon Salvador has to comply with the debt service coverage ratio covenant. The ratios will be calculated excluding the impact of IFRS 16.

Tecon Rio Grande S.A. has to comply with loan covenants from Santander, including a minimum liquidity ratio and capital structure.

At 30 June 2019, the Company was in compliance with all clauses in the above mentioned loan contracts.

Fair value

Management estimates the fair value of the Group's borrowings as follows:

 

Unaudited

Audited

 

30 June

31 December

 

2019

2018

 

US$'000

US$'000

Bank loans

 

 

BNDES

176,223

167,669

Banco do Brasil

82,327

85,142

Bradesco

26,392

-

Santander

22,691

25,523

Itaú

22,353

-

China Construction Bank

-

6,364

IFC

-

21,547

Eximbank

-

1,061

Total

329,986

307,306

17 Joint ventures

The Group holds the following significant interests in joint operations and joint ventures at the end of the reporting period:

 

 

Proportion of ownership interest

 

Place of

 

 

 

incorporation

30 June

30 June

 

and operation

2019

2018

Towage

 

 

 

Consórcio de Rebocadores Barra de Coqueiros (3)

Brazil

50%

50%

Consórcio de Rebocadores Baia de São Marcos (3)

Brazil

50%

50%

Logistics

 

 

 

Porto Campinas, Logística e Intermodal Ltda (3)

Brazil

50%

50%

Offshore

 

 

 

Wilson, Sons Ultratug Participações S.A. (1)

Brazil

50%

50%

Atlantic Offshore S.A. (2)

Panama

50%

50%

(1)       Wilson, Sons Ultratug Participações S.A. controls Wilson, Sons Offshore S.A. and Magallanes Navegação Brasileira S.A. These latter two companies are indirect joint ventures of the Company.

(2)       Atlantic Offshore S.A. controls South Patagonia S.A. This company is an indirect joint venture of Wilson Sons Limited.

(3)       Joint Operations.

The Group's interests in joint ventures are equity accounted.

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Revenue

59,862

58,601

Raw materials and consumable used

(3,667)

(4,090)

Employee benefits expense

(20,484)

(19,134)

Right of use

(5,136)

-

Depreciation and amortisation expenses

(19,883)

(19,272)

Other operating expenses

(6,074)

(7,724)

Loss on disposal of property, plant and equipment

-

(19)

Profits from operating activities

4,818

8,362

Finance income

450

167

Finance costs

(9,003)

(8,781)

Foreign exchange gains/(losses) on monetary items

890

(8,192)

(Loss)/profit before tax

(3,045)

(8,444)

Income tax credit/(expense)

1,832

5,784

(Loss)/profit for the period

(1,213)

(2,660)

Participation (before non-controlling interests)

50%

50%

Equity result

(607)

(1,330)

 

 

Unaudited

Audited

 

30 June

31 December

 

2019

2018

 

US$'000

US$'000

Right of use assets

1,202

-

Property, plant and equipment

613,713

628,135

Long-term investment

2,194

2,171

Other current assets

10,196

8,821

Trade and other receivables

30,829

24,223

Derivatives

-

507

Cash and cash equivalents

11,808

18,145

Total assets

669,402

682,002

 

 

 

Bank loans

440,463

484,009

Lease liability

1,331

-

Other non-current liabilities

51,118

31,468

Trade and other payables

84,426

77,746

Equity

92,244

88,779

Total liabilities

669,402

682,002

We have not given separated disclosure of all material Joint Ventures because they belong to the same economic group. Wilson Sons Limited holds a non-controlling interest in Wilson Sons Ultratug Particpações S.A and Atlantic Offshore S.A.

Wilson, Sons Ultratug Participações S.A is a controlling shareholder of Wilson, Sons Offshore S.A. and Magallanes Navegação Brasileira S.A, while Atlantic Offshore S.A. is a controlling shareholder of South Patagonia S.A.

Guarantees

Wilson, Sons Offshore S.A. loan agreements with BNDES are guaranteed by a lien on the financed supply vessel and, in the majority of the contracts, a corporate guarantee from both WSAC and Rebocadores Ultratug Ltda, each guaranteeing 50% of the subsidiary's debt balance with BNDES.

Wilson, Sons Ultratug Particpações S.A subsidiary loan agreement with Banco do Brasil is guaranteed by a lien on the financed supply vessels. The security package also includes a standby letter of credit issued by Banco de Crédito e Inversiones - Chile for part of the debt balance, assignment of Petrobras' long-term contracts and a corporate guarantee issued by Inversiones Magallanes Ltda - Chile. A cash reserve account, accounted for under long-term investments and funded with US$2.2 million, is required to be maintained until full repayment of the loan agreement.

The loan agreement that Atlantic Offshore S.A. has with Deutsche Verkehrs-Bank "DVB" and Norddeutsche Landesbank Girozentrale Trade "Nord/LB" for the financing of the offshore support vessel "Pardela" is guaranteed by a pledge of the vessel, the shares of Atlantic Offshore S.A. and a corporate guarantee for half of the loan from WSAC e Comércio. Remolcadores Ultratug Ltda, our joint venture partner, guarantees the other half of the loan.

Covenants

As at 31 December 2018, the Wilson, Sons Ultratug Participações S.A. subsidiary was not in compliance with one of its covenant ratios. If the joint venture's subsidiary does not meet the covenant ratio it can remedy the situation through a capital increase by the amount necessary to achieve the ratio within one year. The subsidiary´s capital has already been increased, albeit not sufficiently to attend the ratio requirement. The subsidiary has requested and is awaiting a waiver from Banco do Brasil.

 

Atlantic Offshore S.A. has to comply with specific financial covenants on its two loan agreements with Deutsche Verkehrs-Bank "DVB" and Norddeutsche Landesbank Girozentrale Trade "Nord/LB". At 31 December 2018 the subsidiary was not in compliance with the debt service coverage ratio of 115% on a forward four quarter rolling basis but had received forbearance letters until December 2019. The subsidiary was in compliance with all other loan agreement clauses.

 

18 Notes to the cash flow statement

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2019

2018

 

US$'000

US$'000

Reconciliation from profit before tax to net cash from operating activities

 

 

Profit before tax

47,134

27,735

Share of joint venture results

607

1,330

Other investment income

(2,237)

(2,424)

Returns on investment portfolio at fair value through profit and loss

(22,827)

4,134

Finance costs

12,792

15,773

Exchange (gains)/losses on monetary items

(347)

8,546

Operating profit

35,122

46,826

Adjustments for:

 

 

Amortisation of right of use assets

6,361

-

Depreciation of property, plant and equipment

25,058

27,023

Amortisation of intangible assets

1,703

1,701

Share based payment expense

200

662

Loss/(profit) on disposal of property, plant and equipment

119

(139)

Decrease in provisions

(983)

(4,974)

Operating cash flows before movements in working capital

67,580

71,099

Increase in inventories

(549)

(153)

Decrease in receivables

4,947

18,422

Decrease in payables

(955)

(13,015)

Decrease in other non-current assets

80

635

Cash generated by operations

71,103

76,988

Income taxes paid

(9,737)

(14,965)

Interest paid

(13,793)

(6,414)

Net cash from operating activities

47,573

55,609

19 Commitments

At 30 June 2019 the Group had entered into commitment agreements with respect to trading investments. These commitments relate to capital subscription agreements entered into by Ocean Wilsons (Investments) Limited. The expiry dates of the outstanding commitments in question may be analysed as follows:

 

Unaudited

Audited

 

Outstanding at

Outstanding at

 

30 June

31 December

 

2019

2018

 

US$'000

US$'000

Within one year

1,198

4,416

In the second to fifth year inclusive

5,364

5,305

After five years

36,752

25,903

Total

43,314

35,624

There may be situations when commitments may be extended by the manager of the underlying structure beyond the initial expiry date dependent upon the terms and conditions of each individual structure.

19 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Transactions between the group and its associates, joint ventures and other investments are disclosed below.

 

 

Dividends received/
Revenue from services

Amounts paid/
Cost of services

 

 

 

 

Unaudited

Unaudited

Unaudited

Unaudited

 

 

six months to

six months to

six months to

six months to

 

 

30 June

30 June

30 June

30 June

 

 

2019

2018

2019

2018

 

 

US$'000

US$'000

US$'000

US$'000

Joint ventures

 

 

 

 

1.

Allink Transportes Internacionais Limitada

-

8

(168)

(178)

2.

Consórcio de Rebocadores Barra de Coqueiros

-

-

-

-

3.

Consórcio de Rebocadores Baía de São Marcos

358

13

(198)

-

4.

Wilson Sons Ultratug Participações S.A.

-

2,784

-

-

5.

Atlantic Offshore S.A.

-

-

-

-

Others

 

 

 

 

6.

Hanseatic Asset Management LBG

-

-

(1,357)

(1,375)

7.

Gouvêa Vieira Advogados

-

-

(24)

(22)

8.

CMMR Intermediacao Comercial Limitada

-

-

(41)

(47)

9.

Jofran Services

-

-

(87)

(87)

 

 

 

Amounts owed
by related parties

Amounts owed
to related parties

 

 

 

 

Unaudited

Unaudited

Unaudited

Unaudited

 

 

30 June

30 June

30 June

30 June

 

 

2019

2018

2019

2018

 

 

US$'000

US$'000

US$'000

US$'000

Joint ventures

 

 

 

 

1.

Allink Transportes Internacionais Limitada

-

-

-

(2)

2.

Consórcio de Rebocadores Barra de Coqueiros

-

65

-

-

3.

Consórcio de Rebocadores Baía de São Marcos

2,024

1,992

-

-

4.

Wilson Sons Ultratug Participações S.A.

10,172

10,533

-

-

5.

Atlantic Offshore S.A.

20,167

20,167

-

-

Others

 

 

 

 

6.

Hanseatic Asset Management LBG

-

-

(239)

(249)

7.

Gouvêa Vieira Advogados

-

-

-

-

8.

CMMR Intermediacao Comercial Limitada

-

-

-

-

9.

Jofran Services

-

-

-

-

1.         Mr A C Baião is a Director of Wilson Sons Limited and a shareholder and Director of Allink Transportes Internacionais Limitada. Allink Transportes Internacionais Limitada is 50% owned by the Group and rents office space from the Group.

6.         Mr W H Salomon is Chairman of Hanseatic Asset Management LBG. Fees were paid to Hanseatic Asset Management LBG for acting as investment managers of the Group's investment portfolio and administration services.

7.         Mr J F Gouvêa Vieira is a partner in the law firm Gouvêa Vieira Advogados. Fees were paid to Gouvêa Vieira Advogados for legal services.

8.         Mr C M Marote is a Director of Wilson Sons Limited and a shareholder and Director of CMMR Intermediacao Comercial Limitada. Fees were paid to CMMR Intermediacao Comercial Limitada for consultancy services.

9.         Mr J F Gouvêa Vieira is a Director of Jofran Services. Directors' fees and consultancy fees were paid to Jofran Services.

20 Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 16, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings shown in the consolidated statement of changes in equity.

The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated from operating revenues.

Externally imposed capital requirement

The Group is not subject to externally imposed capital requirements.

Financial risk management objectives

The Group's corporate treasury function provides services to the business, co-ordinates access to domestic and international financial markets and manages the financial risks relating to the operations of the Group through internal reports. The primary objective is to keep a minimum exposure to those risks by using financial instruments and by assessing and controlling the credit and liquidity risks according to the rules and procedures established by management. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.

The Group may use derivative financial instruments to hedge these risk exposures, with Board approval. The Group does not enter into trading financial instruments, including derivative financial instruments for speculative purposes.

Credit risk

The Group's principal financial assets are cash, trade and other receivables, related party loans and trading investments. The Group's credit risk is primarily attributable to its bank balances, trade receivables, related party loans and investments. The amounts presented as receivables in the balance sheet are net of allowances for doubtful receivables.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The credit risk on investments held for trading is limited because the counterparties with whom the Group transacts are regulated institutions or banks with high credit ratings. The Company's appointed Investment Manager, Hanseatic Asset Management LBG, evaluates the credit risk on trading investments prior to and during the investment period.

In addition, the Company invests in Limited Partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The Board reviews all investments at its regular meetings from reports prepared by the Group's Investment Manager.

The Group has no significant concentration of credit risk. Ongoing credit evaluation is performed on the financial condition of accounts receivable.

Market risk

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and market prices.

Foreign currency risk management

The Group undertakes certain transactions denominated or linked to foreign currencies and therefore exposures to exchange rate fluctuations arise. The Group operates principally in Brazil with a substantial proportion of the Group's revenue, expenses, assets and liabilities denominated in the Brazilian Real. Due to the cost of hedging the Brazilian Real, the Group does not normally hedge its net exposure to the Brazilian Real as the Board does not consider it economically viable to do so.

Cash flows from investments in fixed assets are denominated in Real and US Dollars. These investments are subject to currency fluctuations between the time that the price of goods or services are settled and the actual payment date. The resources and their application are monitored with the purpose of matching the currency cash flows and due dates. The Group has contracted US Dollar-denominated and Real-denominated debt, and the cash and cash equivalents balances are also US Dollar-denominated and Real-denominated.

In general terms, for operating cash flows, the Group seeks to neutralise the currency risk by matching assets (receivables) and liabilities (payments). Furthermore the Group seeks to generate an operating cash surplus in the same currency in which the debt service of each business is denominated.

Interest rate risk management

The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The Group holds most of its debts linked to fixed rates. Most of the Group's fixed rates loans are with the FMM (Fundo da Marinha Mercante).

Loans exposed to floating rates are as follows:

·          TJLP (Brazilian Long-Term Interest Rate) for Brazilian Real denominated funding through a FINAME credit line for the Port and Logistics operations, and

·          DI (Brazilian Interbank Interest Rate) for Brazilian Real denominated funding for Logistics operations.

The Group's Brazilian Real-denominated investments yield interest rates corresponding to the DI daily fluctuation for privately issued securities and/or "Selic-Over" government-issued bonds. The US Dollar-denominated investments are in time deposits, with short-term maturities.

The Group has floating rate financial assets consisting of bank balances principally denominated in US Dollars and Real that bear interest at rates based on the banks' floating interest rate.

Market price sensitivity

By the nature of its activities, the Group's investments are exposed to market price fluctuations. However the portfolio as a whole does not correlate exactly to any Stock Exchange Index as it is invested in a diversified range of markets. The Investment Manager and the Board monitor the portfolio valuation on a regular basis and consideration is given to hedging the portfolio against large market movements.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults.

The Group's sales policy is subordinated to the credit sales rules set by management, which seeks to mitigate any loss from customers' delinquency.

Trade receivables consist of a large number of customers. Ongoing credit evaluation is performed on the financial condition of accounts receivable. Trade and other receivables disclosed in the balance sheet are shown net of the allowance for doubtful debts. The allowance is booked whenever a loss is identified, which based on past experience is an indication of impaired cash flows

Ocean Wilsons (Investments) Limited primarily transacts with regulated institutions on normal market terms which are trade date plus one to three days. The levels of amounts outstanding from brokers are regularly reviewed by the Investment Manager. The duration of credit risk associated with the investment transaction is the period between the date the transaction takes place, (the trade date) and the date the stock and cash are transferred (the settlement date). The level of risk during the period is the difference between the value of the original transaction and its replacement with a new transaction.

Liquidity risk management

Liquidity risk is the risk that the Group will encounter difficulty in fulfilling obligations associated with its financial liabilities that are settled with cash payments or another financial asset. The Group's approach in managing liquidity is to ensure that the Group always has sufficient liquidity to fulfil the obligations that expire, under normal and stress conditions, without causing unacceptable losses or risk damage to the reputation of the Group.

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The Group ensures it has sufficient cash reserves to meet the expected operational expenses, including financial obligations. This practice excludes the potential impact of extreme circumstances that cannot be reasonably foreseen.

Fair value of financial instruments

The fair value of financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading on 30 June 2019. The quoted market price used for financial assets held by the Company utilise the last traded market prices.

 

Company Contact

Keith Middleton                                                            1 441 295 1309

 

Media

David Haggie                                                                020 7562 4444

Haggie Partners LLP

 

Cantor Fitzgerald Europe                                              020 7894 7000

Rick Thompson, David Foreman, Will Goode - Corporate Finance

 

 


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