Interim Management Statement

RNS Number : 4466N
Ocean Wilsons Holdings Ld
09 August 2017
 

Ocean Wilsons Holdings Limited

 

Interim Management Statement for the six months ended 30 June 2017

 

Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the "Company") today provides its interim management statement for the six months ended 30 June 2017.

 

Key points

·       Profit for the period up 39% to US$55.4 million (2016: US$39.9 million).

·       Investment portfolio increased US$20.1 million to US$259.0 million (31 December 2016: US$238.9 million) after dividends paid from the portfolio of US$3.5 million.

·       Revenue in US Dollar terms 14% higher at US$245.8 million (2016: US$214.7 million) benefitting from the lower average US Dollar/Brazilian Real exchange rate and a strong operating performance. 

·       Earnings per share for the period of 116.9 US cents per share (2016: 56.0 US cents).

·       Dividends paid to shareholders in the period of US$22.3 million (2016: US$22.3 million).

 

Chairman's Statement

Introduction

The first half of 2017 produced another solid result from both our Brazilian and investment portfolio businesses. Group revenue rose 14%, supported by a strong operating performance at our towage and container terminals businesses and a lower average US Dollar/Brazilian Real "USD/BRL" exchange rate. Despite the challenging economic environment in Brazil, operating margins for the period remained a healthy 20% (2016: 21%). Earnings per share rose 109% to 116.9 US cents per share (2016: 56.0 US cents), driven by the strong operating performance and improved returns from our investment portfolio which returned an encouraging 10.3% in the period.  

Group Results

Revenue

Revenue for the six months ended 30 June 2017 increased 14% to US$245.8 million (2016: US$214.7 million), driven by higher port terminals and logistics revenue. Port terminals and logistics revenue grew 28% to US$124.9 million (2016: US$97.6 million), mainly due to the lower average USD/BRL exchange rate used to convert revenue into our reporting currency and higher container terminal revenue. The average USD/BRL exchange rate in the period was 14% lower than the comparative period in 2016, (3.18 v 3.70). Container volumes handled at Tecon Rio Grande and Tecon Salvador for the period, at 503,400 "TEUs" (twenty-foot equivalent units) were in line with prior period, (2016: 503,500 TEUs) although revenue increased benefitting from a more favourable sales mix with increases in import and cabotage volumes and lower empty container movements. Brasco revenue declined to US$7.8 million (2016: US$11.0 million), reflecting the weak demand from the Brazilian offshore oil and gas industry. Towage and ship agency revenue at US$108.5 million was US$2.5 million higher than the prior period (2016: US$106.0 million), with stronger harbour towage volumes offsetting weak demand for towage special operations in the period. Harbour towage manoeuvres performed in the period were 6% higher at 29,902 (2016: 28,214). Shipyard third party revenue remains depressed at US$12.4 million (2016: US$11.0 million) impacted by the weak market for vessel construction in Brazil.

Operating Profit

Operating profit for the period at US$48.9 million was US$4.3 million higher than the comparative period in 2016 (US$44.6 million) principally due to the increase in revenue. Operating margins for the period at 20% were marginally down on the prior year (21%) although excluding the loss on disposal of property, plant and equipment operating margins were unchanged at 21%. Raw materials and consumables used were US$2.5 million higher than the prior period at US$18.8 million (2016: US$16.3 million) due to a slight increase in shipyard activity and higher fuel costs associated with the increase in harbour manoeuvres. Employee expenses were 23% higher than the prior period at US$83.8 million (2016: US$68.3 million), due to the effect of the stronger USD/BRL exchange rate and redundancy costs associated with corporate restructuring. From 1 July 2017 the temporary payroll tax exemption granted to some business sectors in Brazil is being ended by the Brazilian government. We estimate the potential impact of this change in legislation will increase employee costs in the second half of 2017 by US$5.8 million although the company is seeking to overturn the government's decision and its effects. Other operating expenses were 4% higher at US$63.4 million (2016: US$61.2 million), with exchange rate impacts partly offset by reduced tug rental costs, (following the acquisition of six tugboats in 2016 that were previously leased), lower service costs and a non-recurring US$3.9 million provision reversal. The depreciation and amortisation expense in the period increased US$4.5 million to US$28.9 million from US$24.4 million in 2016 because of the stronger BRL and larger towage fleet. Loss on disposal of property, plant and equipment includes a US$2.3 million write down on leasehold improvements no longer used by the Group.

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. Operating profit for a 50% share in the joint venture in the period was US$2.4 million higher at US$9.2 million (2016: US$6.8 million) supported by two new long-term platform supply vessel (PSV) contracts starting in late 2016, (Larus and Pinguim) and efficient cost management. Net profit attributable to Wilson Sons decreased US$1.1 million to US$1.8 million (2016: US$2.9 million) as 2016 benefitted from a foreign exchange gain on monetary items of US$5.1 million compared with a US$0.5 million loss in the current year. Total operating days in the period at 3,144 were 5% higher than the comparative period in 2016 of 2,990 although we currently have four vessels off hire.

Investment revenues

Investment revenues were US$3.8 million higher at US$9.8 million (2016: US$6.0 million) mainly due to increased dividends from equity investments of US$4.8 million, (2016 US$2.0 million).

Investment gains and losses

Other gains of US$20.3 million (2016: US$7.3 million loss) arose from the Group's portfolio of trading investments and reflect the profit realised on the disposal of trading investments in the period of US$5.9 million (2016: US$1.0 million) plus the increase in the fair value of trading investments at the period end of US$14.4 million (2015: US$8.3 million loss).

Finance costs

Finance costs for the period were US$15.9 million higher at US$8.1 million compared with a US$7.8 million positive charge for the comparative period in 2016, principally due to exchange movements on foreign currency borrowings.  In the current period there was a US$1.1 million exchange loss compared with a US$13.9 million gain in the prior year comparative.

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 2017 the BRL depreciated 3% against the USD from R$3.27 at 1 January 2017 to R$3.31 at the period end. In the comparative period in 2016 the BRL appreciated 18% against the USD from R$3.91 to R$3.21.

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

 

2017

2016

 

US$ million

US$ million

Exchange gain on monetary items (i)

2.2

3.1

Exchange (loss)/gain on foreign currency borrowings

(1.1)

13.9

Deferred tax on retranslation of fixed assets (ii)

0.2

22.2

Deferred tax on exchange variance on loans (iii)

(0.2)

(14.4)

Total

1.1

24.8

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

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

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

The average USD/BRL exchange rate in the period at 3.18 was 14% lower (2016: 3.70) than the comparative period in 2016. A lower average exchange rate positively impacts BRL denominated revenues and adversely impacts BRL denominated costs when converted into our reporting currency, the USD.

Foreign exchange gains on monetary items

Foreign exchange gains on monetary items of US$2.2 million (2016: US$3.1 million) arose from the Group's foreign currency monetary items and largely reflect the movement of the BRL against the USD during the period.

Profit before tax

Profit before tax was US$17.8 million higher at US$74.9 million compared to the first half of 2016 (US$57.1 million). The improvement is principally due to the US$27.6 million movement in other gains and losses from the investment portfolio, a US$4.3 million increase in operating profit and a US$3.8 million increase in investment revenue. These gains were partially offset by a US$15.9 million increase in finance costs, as the prior period benefitted from a US$13.9 million exchange gain on foreign currency borrowings compared with a US$1.1 million loss in the current period. Share of results from joint ventures and foreign exchange gains on monetary items were US$1.1 million and US$0.9 million lower respectively.

Taxation

The tax charge for the period of US$19.4 million represents an effective tax rate in the period of 26% (2016: 30%) compared to the corporate tax rate prevailing in Brazil of 34%. The difference in the effective tax rate periods is due to the mix of income and expenses that are not included in determining taxable profit. The improvement in the current period is primarily attributable to the increase in income at our Bermudian companies that are not subject to income tax. Current taxation at US$16.7 million was US$0.7 million lower than the comparative period in 2016 (US$17.4 million).

Profit for the period

Profit attributable to equity holders of the parent is US$41.4 million (2016: US$19.8 million) after deducting profit attributable to non-controlling interests of US$14.1 million (2016: US$20.1 million). Non-controlling interests at 25% are a lower percentage of the Group profit for the period (2016: 50%), as the improved returns from the investment portfolio in the period are fully attributable to equity holders of the parent.

Earnings per share for the period was 116.9 cents (2016: 56.0 cents).

Investment portfolio performance

The trading investment portfolio and cash under management of Ocean Wilsons (Investments) Limited "OWIL" grew US$20.1 million to US$259.0 million at period end. (31 December 2016: US$238.9 million).

Cash flow and debt

Net cash inflow from operating activities for the period at US$33.1 million was US$15.2 million lower than the comparative period in 2016, (US$48.3 million) mainly due to a negative working capital movement in the period of US$26.7 million. (2016: US$6.2 million). Capital expenditure in the period at US$13.1 million was US$48.1 million lower than the comparative period in 2016 (US$61.2 million), due to less vessel construction and US$17.1 million of container terminal equipment delivered in the period where the financier directly paid the supplier. Capital additions per note 12 were US$33.5 million (2016: US$ 74.0 million). Dividends of US$22.3 million were paid to shareholders in the period (2016: US$22.3 million) with a further US$15.8 million paid to non-controlling interests in our subsidiaries (2016: US$14.9 million). The Group made capital repayments on existing loans in the period of US$27.9 million (2016: US$20.3 million).

At 30 June 2017 the Group had US$63.0 million in cash and cash equivalents (31 December 2016: US$77.3 million). The Group's borrowings at period end were US$364.6 million (31 December 2016: US$375.5 million). In addition to the Group's borrowings, the Company's 50% share of our offshore vessel joint venture's debt is US$247.9 million.

Net asset value

At the close of business on 31 July 2017, the Wilson Sons share price was R$35.21, resulting in a market value for the Ocean Wilsons holding of 41,444,000 shares (58.25% of Wilson Sons) totalling approximately US$466.2 million which is the equivalent of US$13.18 (£9.98) per Ocean Wilsons Holdings Limited share.

Adding together the market value per share of Wilsons Sons, US$13.18 and the investment portfolio per share of US$7.32 results in a net asset value per Ocean Wilsons Holdings Limited share of approximately US$20.51 (£15.52). The Ocean Wilsons Holdings Limited share price of £10.50 at 31 July 2017 represented an implied discount of 32%. Based on the current share price the 2016 dividend of 63 US cents represents an attractive dividend yield of approximately 4.5%.

Outlook

Brazil continues to face a challenging economic environment and continued political uncertainty. Our core container terminal and towage businesses continue to perform well although prospects for an improvement in demand for offshore support services and small vessel construction remain weak. At period end the shipyard orderbook consists of five vessels, including two tugboats for Wilson Sons and three tugs for third party delivery, in addition to dry-docking operations. Our belief in the fundamental strengths and value of our Brazilian business remain unchanged.

Wilson Sons Limited

The Wilson Sons 2nd quarter 2017 Earnings Report released on 9 August 2017 is available on the Wilson Sons Limited website: www.wilsonsons.com.br

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

"Wilson Sons 2Q17 EBITDA of US$44.7M was up 21.1% with solid results in the Towage and Terminals businesses. The highlight in Container Terminals was the 17.6% growth in import volumes at Tecon Rio Grande. New terminal equipment became operational in April, further improving operational productivity at both Rio Grande and Salvador in the quarter.

The Towage division produced robust results with increased harbour manoeuvres more than offsetting a reduction in special operations. Our Offshore Support Vessels business benefitted from the two new long-term contracts commencing in late 2016. Although some potential contract opportunities are arising for off-hire vessels, daily rates remain under pressure.

Once more we are very grateful for the efforts of all our staff for their contribution to this solid result despite a continuing weak Brazilian macroeconomic scenario and stress throughout the oil and gas services market."

Investment Managers Report

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

Market Commentary

Stock markets have produced strong returns during the first half of the year, following their more muted performances last year.  The MSCI ACWI +FM Index of global equities has risen 11.5% over the last six months.  The information technology sector has been particularly strong, rising by more than 20% over this time, followed by the health care sector that is up almost 16%.  Energy has been the weakest sector, registering a decline of 8.6%.

There has been a notable weakening of the US dollar against most other currencies this year, which has had the effect of boosting the performance of overseas assets when measured in dollars.  Emerging markets have outperformed developed markets with a return of 18.4% versus 10.7%, with particularly strong performance coming from Asian markets.  Equity markets in Europe rose by 17.5%, while UK and Japan were both up 10% and North America was up 9%.

We believe the stock market cycle is undoubtedly maturing, with valuations rising and the current cycle looking rather long in the tooth. We note however that accurately predicting the tops of cycles is extremely challenging, and few have done it consistently well.  While at this point we do not see those factors normally associated with market tops, particularly by looking outside of the US, it is still possible to find some attractive areas for investment.

 

Portfolio activity

The portfolio has produced strongly positive returns year-to-date, with a rise of 10.3%.  During the same period the Performance Benchmark has risen by 2.9%.  The strongest contribution to performance came from the portfolio's largest position, with Findlay Park American Fund rising by 11.6%.  The strong performance of European and emerging markets meant that some of the portfolio's strongest contributors were holdings with exposure to these areas.  There was also some pleasing improvement in performance by holdings that had gone through a weak patch in 2016, with the long-only Adelphi European Select Equity Fund returning 15.9% and the long-short Egerton Long-Short Fund and BlackRock European Hedge Fund rising by 13.1% and 12.2%, respectively.  Within emerging markets, NTAsian Discovery Fund and Schroder Asian Total Return Fund were among the biggest contributors to performance with returns of 13.4% and 23.0%, respectively.

There has been weaker performance this year from the CTA fund, Schroder GAIA BlueTrend, which was down 6.7% in what has been a difficult environment for trend-following strategies.  The other CTA holding, Cantab Core Macro Fund, was able to deliver a small positive return of 2.7%, assisted by its exposure to value strategies.  Argentière Fund, which seeks to trade on volatility, has struggled with a return of -4.2% over the period, as realised volatility has persisted at very low levels.  Within the private assets portfolio, L Capital Asia 2 and Hony Capital Fund V contributed positively to performance over the six month period, and are now held at 1.23x and 1.47x cost, respectively.  On the other hand, China Harvest Fund II and Capital International Private Equity Fund V detracted from performance in the first half of the year, although they are both still held at positive multiples of 1.28x and 1.07x cost, respectively.

 

CUMULATIVE PORTFOLIO RETURNS

 

 

3 Years

5 Years

10 Years

Performance (Time-weighted)

YTD

p.a.

p.a.

p.a.

OWIL

10.3%

4.1%

6.3%

2.8%

Performance Benchmark *

2.9%

4.3%

3.8%

4.0%

MSCI ACWI + FM

11.5%

4.8%

10.5%

3.7%

MSCI Emerging Markets

18.4%

1.1%

4.0%

1.9%

*Notes:

The OWIL Performance Benchmark which came in to effect on the 1st 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 2017

 

Market Value

% of

 

 

$000

NAV

Primary Focus

Findlay Park American Fund

19,549

7.5

US equities - long-only

Egerton Long - Short Fund

13,172

5.1

Europe/US equities - hedge

Adelphi European Select Equity Fund

12,378

4.8

Europe equities - long-only

NTAsian Discovery Fund

11,092

4.3

Asia ex-Japan equities - long-only

BlackRock European Hedge Fund

9,017

3.5

Europe equities - hedge

Lansdowne Developed Markets Fund

8,498

3.3

Europe/US equities - hedge

Goodhart Partners: Hanjo Fund

8,367

3.2

Japan equities - long-only

Hony Capital Fund V, LP

7,391

2.9

Private Assets - China

Helios Investors II, LP

6,958

2.7

Private Assets - Africa

Schroder ISF Asian Total Return Fund

6,360

2.5

Asia ex-Japan equities - long-only

Top 10 Holdings

102,782

39.7

 

L Capital Asia, LP

6,070

2.3

Private Assets - Asia (Consumer)

Select Equity Offshore, Ltd

5,925

2.3

US equities - long-only

Indus Japan Long Only Fund

5,881

2.3

Japan equities - long-only

Pangaea II, LP

5,837

2.3

Private Assets - GEM

Gramercy Distressed Opportunity Fund II, LP

5,793

2.2

Private Assets - distressed debt

Greenspring Global Partners IV, LP

5,752

2.2

Private Assets - US Venture Capital

Vulcan Value Equity Fund

5,727

2.2

US equities - long-only

GAM Star Technology

5,716

2.2

Technology - long-only

Prince Street Opportunities Fund

5,695

2.2

Emerging Markets equities - long-only

Global Event Partners Ltd

5,325

2.1

Global equities - long-short

Top 20 Holdings

160,503

62.0

 

Hudson Bay International Fund

5,181

2.0

Market Neutral - multi-strategy

KKR Special Situations Fund, LP

4,850

1.9

Private Assets - distressed debt

Navegar I, LP

4,283

1.7

Private Assets - Philippines

NG Capital Partners II, LP

4,219

1.6

Private Assets - Latin America

China Harvest Fund II, LP

4,211

1.6

Private Assets - China

AMED Fund, SICAR

4,118

1.6

Private Assets - Africa

L Capital Asia 2, LP

3,414

1.3

Private Assets - Asia (Consumer)

NYLIM Jacob Ballas India III, LLC

3,311

1.3

Private Assets - India

Dynamo Brasil VIII

3,290

1.3

Brazil - long only

African Development Partners I, LLC

2,991

1.2

Private Assets - Africa

Top 30 Holdings

200,371

77.4

 

35 remaining holdings

50,459

19.5

 

Cash

8,132

3.1

 

TOTAL

258,962

100.0

 

Hanseatic Asset Management LBG

August 2017

 

Going concern

The Group closely monitors and manages its liquidity risk. The Group has considerable financial resources including US$63.0 million in cash and cash equivalents and the Group's borrowings have a long maturity profile. The Group's business activities together with the factors likely to affect its future development and performance are set out in the Chairman's statement and investment manager's report. The financial position, cash flows and borrowings of the Group are also set out in the Chairman's statement. Details of the Group's borrowings are set out in note 15. Based on the Group's cash forecasts and sensitivities run, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.

Responsibility statement

The Directors confirm that to the best of our knowledge:

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

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

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

 

J F Gouvêa Vieira

Chairman

8 August 2017

 

Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2017

 

 

Unaudited

Unaudited

 

 

six months to

six months to

 

 

30 June

30 June

 

 

2017

2016

 

Notes

US$'000

US$'000

Revenue

3

245,753

214,670

Raw materials and consumables used

 

(18,817)

(16,313)

Employee benefits expense

5

(83,797)

(68,255)

Depreciation & amortisation expense

4

(28,949)

(24,405)

Other operating expenses

 

(63,354)

(61,198)

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

 

(1,962)

67

Operating profit

 

48,874

44,566

Share of results of joint ventures

 

1,808

2,881

Investment revenue

6

9,777

5,965

Other gains/(losses)

7

20,280

(7,329)

Finance costs

8

(8,090)

7,852

Foreign exchange gains on monetary items

 

2,203

3,143

Profit before tax

 

74,852

57,078

Income tax expense

9

(19,403)

(17,219)

Profit for the period

 

55,449

39,859

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

 

 

 

Exchange differences arising on translation of foreign operations

 

(4,970)

36,892

Effective portion of changes in fair value of derivatives

 

141

427

Other comprehensive (loss)/income for the period

 

(4,829)

37,319

Total comprehensive income for the period

 

50,620

77,178

Profit for the period attributable to:

 

 

 

Equity holders of parent

 

41,348

19,808

Non-controlling interests

 

14,101

20,051

Profit for the period

 

55,449

39,859

Total comprehensive income for the period attributable to:

 

 

 

Equity holders of parent

 

38,524

41,457

Non-controlling interests

 

12,096

35,721

Total comprehensive income for the period

 

50,620

77,178

Earnings per share

 

 

 

Basic and diluted

11

116.9c

56.0c

 

Consolidated Balance Sheet

as at 30 June 2017

 

 

Unaudited

Audited

 

 

as at

as at

 

 

30 June

31 December

 

 

2017

2016

 

Notes

US$'000

US$'000

Non-current assets

 

 

 

Goodwill

 

30,318

30,607

Other intangible assets

 

29,646

30,444

Property, plant and equipment

12

646,093

646,926

Deferred tax assets

 

29,175

29,055

Trade and other receivables

14

52,777

55,070

Investment in joint ventures

16

24,091

22,230

Other non-current assets

 

13,497

13,408

 

 

825,597

827,740

Current assets

 

 

 

Inventories

 

15,947

15,427

Trading investments

13

270,953

276,181

Trade and other receivables

14

93,269

81,265

Cash and cash equivalents

 

62,981

77,314

 

 

443,150

450,187

Total assets

 

1,268,747

1,277,927

Current liabilities

 

 

 

Trade and other payables

 

(55,986)

(68,257)

Derivatives

 

(834)

(712)

Current tax liabilities

 

(2,238)

(3,299)

Obligations under finance leases

 

(1,218)

(1,211)

Bank overdrafts and loans

15

(56,541)

(49,780)

 

 

(116,817)

(123,259)

Net current assets

 

326,333

326,928

Non-current liabilities

 

 

 

Bank loans

15

(308,048)

(325,750)

Derivatives

 

(828)

(1,182)

Employee benefits

 

(674)

(648)

Deferred tax liabilities

 

(51,560)

(48,974)

Provisions

 

(19,657)

(20,037)

Obligations under finance leases

 

(504)

(1,085)

 

 

(381,271)

(397,676)

Total liabilities

 

(498,088)

(520,935)

Net assets

 

(770,659)

756,992

Capital and reserves

 

 

 

Share capital

 

11,390

11,390

Retained earnings

 

540,947

521,878

Capital reserves

 

31,760

31,760

Translation and hedging reserve

 

(32,509)

(29,685)

Equity attributable to equity holders of the parent

 

551,588

535,343

Non-controlling interests

 

219,071

221,649

Total equity

 

770,659

756,992

 

Consolidated Statement of Changes in Equity

as at 30 June 2017

 

 

 

 

Hedging

Attributable

 

 

 

 

 

 

and

to equity

Non-

 

 

Share

Retained

Capital

Translation

holders of

controlling

Total

For the six months ended 30 June 2016 (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 2016

11,390

501,426

31,760

(49,542)

495,034

185,448

680,482

Currency translation adjustment

-

-

-

21,378

21,378

15,514

36,892

Effective portion of changes in fair value of derivatives

-

-

-

271

271

156

427

Profit for the period

-

19,808

-

-

19,808

20,051

39,859

Total income and expense for the period

-

19,808

-

21,649

41,457

35,721

77,178

Dividends

-

(22,279)

-

-

(22,279)

(14,850)

(37,129)

Derivatives

-

-

-

(43)

(43)

(30)

(73)

Acquisition of non-controlling interest

-

(2,988)

-

-

(2,988)

(2,411)

(5,399)

Share based expense

-

-

-

-

-

1,649

1,649

Balance at 30 June 2016

11,390

495,967

31,760

(27,936)

511,181

205,527

716,708

 

 

 

 

 

 

 

 

For the six months ended 30 June 2017 (unaudited)

 

 

 

 

 

 

 

Balance at 1 January 2017

11,390

521,878

31,760

(29,685)

535,343

221,649

756,992

Currency translation adjustment

-

-

-

(2,906)

(2,906)

(2,064)

(4,970)

Effective portion of changes in fair value of derivatives

-

-

-

82

82

59

141

Profit for the period

-

41,348

-

-

41,348

14,101

55,449

Total income and expense for the period

-

41,348

-

(2,824)

38,524

12,096

50,620

Dividends

-

(22,279)

-

-

(22,279)

(15,845)

(38,124)

Derivatives

-

-

-

-

-

-

-

Acquisition of non-controlling interest

-

-

-

-

-

-

-

Share based expense

-

-

-

-

-

1,171

1,171

Balance at 30 June 2017

11,390

540,947

31,760

(32,509)

551,588

219,071

770,659

Share capital

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

Capital reserves

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

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

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

Hedging and translation reserve

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

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

Consolidated Cash Flow Statement

for the six months ended 30 June 2017

 

 

Unaudited

Unaudited

 

 

six months to

six months to

 

 

30 June

30 June

 

 

2017

2016

 

Notes

US$'000

US$'000

Net cash inflow from operating activities

17

33,091

48,255

Investing activities

 

 

 

Interest received

 

4,050

3,109

Dividends received from trading investments

 

4,772

1,973

Proceeds on disposal of trading investments

 

64,822

29,620

Proceeds on disposal of property, plant and equipment

 

473

1,482

Purchases of property, plant and equipment

 

(13,142)

(61,216)

Purchase of intangible asset

 

(1,626)

(3,576)

Purchases of trading investments

 

(39,314)

(14,314)

Acquisition of non-controlling interest

 

-

(1,855)

Net cash used in investing activities

 

20,035

(44,777)

Financing activities

 

 

 

Dividends paid

10

(22,279)

(22,279)

Dividends paid to non-controlling interests in subsidiary

 

(15,845)

(14,850)

Repayments of borrowings

 

(27,883)

(20,319)

Repayments of obligations under finance leases

 

(448)

(641)

Derivative paid

 

(302)

(421)

New bank loans raised

 

-

23,385

Net cash used in financing activities

 

(66,757)

(35,125)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(13,631)

(31,647)

 

 

 

 

Cash and cash equivalents at beginning of period

 

77,314

97,561

 

 

 

 

Effect of foreign exchange rate changes

 

(702)

12,709

 

 

 

 

Cash and cash equivalents at end of period

 

62,981

78,623

 

Notes to the Accounts

for the six months ended 30 June 2017

1 General information

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

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

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

2 Accounting policies

The condensed consolidated interim financial report of the Company for the six months ended 30 June 2017 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 2016.

3 Revenue

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

 

 

Unaudited

Unaudited

 

 

six months to

six months to

 

 

30 June

30 June

 

 

2017

2016

 

Note

US$'000

US$'000

Sales of services

 

233,382

203,683

Revenue from construction contracts

 

12,371

10,987

 

 

245,753

214,670

Investment income

6

9,790

5,965

 

 

255,543

220,635

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 2017 (unaudited)

 

Maritime

 

 

 

 

services

Investment

Unallocated

Consolidated

 

six months to

six months to

six months to

six months to

 

30 June

30 June

30 June

30 June

 

2017

2017

2017

2017

 

US$'000

US$'000

US$'000

US$'000

Revenue

 

 

Result

245,753

-

-

245,753

Segment result

51,302

(1,330)

(1,098)

48,874

Share of joint venture results

1,808

-

-

1,808

Investment revenue

4,992

4,772

13

9,777

Other gains and losses

-

20,280

-

20,280

Finance costs

(8,090)

-

-

(8,090

Exchange gains/(losses) on monetary items

2,253

13

(63)

2,203

Profit before tax

23,735

74,852

Tax

(19,403)

-

-

(19,403)

Profit after tax

32,862

23,735

(1,148)

55,449

Other information

 

 

 

 

Capital additions

(33,524)

-

-

(33,524)

Depreciation and amortization

(28,948)

-

(1)

(28,949)

Balance Sheet

 

 

 

 

Assets

 

 

 

 

Segment assets

1,005,915

259,109

3,723

1,268,747

Liabilities

 

 

 

 

Segment liabilities

(497,633)

(233)

(222)

(498,088)

For the six months ended 30 June 2016 (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

 

2016

2016

2016

2016

 

US$'000

US$'000

US$'000

US$'000

Revenue

214,670

-

-

214,670

Result

 

 

 

 

Segment result

46,867

(1,267)

(1,034)

44,566

Share of joint venture results

2,881

-

-

2,881

Investment revenue

3,977

1,984

4

5,965

Other gains and losses

-

(7,329)

-

(7,329)

Finance costs

7,852

-

-

7,852

Exchange gains/(losses) on monetary items

3,513

30

(400)

3,143

Profit before tax

65,090

(6,582)

(1,430)

57,078

Tax

(17,219)

-

-

(17,219)

Profit after tax

47,871

(6,582)

(1,430)

39,859

Other information

 

 

 

 

Capital additions

(73,970)

-

-

(73,970)

Depreciation and amortisation

(24,404)

-

(1)

(24,405)

Balance Sheet

 

 

 

 

Assets

 

 

 

 

Segment assets

1,031,761

234,328

3,242

1,269,331

Liabilities

 

 

 

 

Segment liabilities

(551,954)

(456)

(213)

(552,623)

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.

 

 

Additions to property, plant and

 

Carrying amount of
segment assets

equipment and intangible assets

Unaudited

Unaudited

 

Unaudited

Unaudited

six months to

six months to

 

30 June

30 June

30 June

30 June

 

2017

2016

2017

2016

 

US$'000

US$'000

US$'000

US$'000

Brazil

983,289

992,917

33,524

64,791

Bermuda

285,458

276,414

-

-

 

1,268,747

1,269,331

33,524

64,791

5 Employee benefits expense

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2017

2016

 

US$'000

US$'000

Aggregate remuneration comprised:

 

 

Wages and salaries

68,232

55,787

Share based payment expense

1,180

1,649

Social security costs

13,863

10,353

Other pension costs

522

466

 

83,797

68,255

6 Investment revenue

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2017

2016

 

US$'000

US$'000

Interest on bank deposits

2,670

2,918

Dividends from equity investments

4,772

1,973

Other interest

2,335

1,074

 

9,777

5,965

7 Other gains and losses

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2017

2016

 

US$'000

US$'000

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

14,384

(8,274)

Profit on disposal of trading investments

5,896

945

 

20,280

(7,329)

Other gains and losses form part of the movement in trading investments.

8 Finance costs

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2017

2016

 

US$'000

US$'000

Interest on bank overdrafts and loans

6,716

5,676

Exchange (gain)/loss on foreign currency borrowings

1,110

(13,920)

Interest on obligations under finance leases

143

219

Other interest

121

173

 

8,090

(7,852)

9 Taxation

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2017

2016

 

US$'000

US$'000

Current taxation

 

 

Brazilian taxation:

 

 

Corporation tax

11,858

12,379

Social contribution

4,891

4,988

Total current tax

16,749

17,367

Deferred tax

 

 

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

4.255

(17,367)

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

(1,601)

17,219

Total deferred tax

2,654

(148)

Total taxation

19,403

17,219

Brazilian corporation tax is calculated at 25% (2016: 25%) of the assessable profit for the year.

Brazilian social contribution tax is calculated at 9% (2016: 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

 

2017

2016

 

US$'000

US$'000

Amounts recognised as distributions to equity holders in the period:

 

 

Final dividend paid for the year ended 31 December 2016 of 63.0c (2015: 63.0c)
per share

 

22,279

22,279

11 Earnings per share

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

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2017

2016

 

US$'000

US$'000

Earnings:

 

 

 

41,348

19,808

Number of shares:

 

 

 

35,363,040

35,363,040

12 Property, plant and equipment

During the period, the Group spent approximately US$33.5 million mainly on vessel construction and terminal equipment.

At 30 June 2017, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$13.1 million.

13 Investments

 

Unaudited

Audited

 

six months to

year to

 

30 June

31 December

 

2017

2016

 

US$'000

US$'000

Trading investments

 

 

At 1 January

276,181

276,878

Additions, at cost

39,314

67,101

Disposals, at market value

(64,822)

(63,664)

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

14,384

(6,030)

Profit on disposal of trading investments

5,896

1,896

At period end

270,953

276,181

Ocean Wilsons (Investments) Limited Portfolio

253,553

238,781

Wilson Sons Limited

17,400

37,400

Trading investments held at fair value at period end

270,953

276,181

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 using various valuation techniques that include inputs for the asset or liability that are not based in observable market data (unobservable inputs).

14 Trade and other receivables

 

Unaudited

Audited

 

period ended

year ended

 

30 June

31 December

 

2017

2016

 

US$'000

US$'000

Trade and other receivables

 

 

Amount receivable for the sale of services

62,277

55,434

Allowance for doubtful debts

(731)

(1,187)

 

61,546

54,247

Income taxation recoverable

6,267

7,466

Other recoverable taxes and levies

37,691

36,571

Loans to related parties

29,250

28,995

Prepayments

1,889

4,031

Other

9,403

5,025

 

146,046

136,335

Total current

93,269

81,265

Total non-current

52,777

55,070

 

146,046

136,335

Non-current trade receivables relate to: recoverable taxes with maturity dates in excess of one year, which comprise mainly PIS, COFINS, ISS and INSS, customers with maturities over one year. There are no indicators of impairment related to these receivables.

 

As a matter of routine, the Group reviews taxes and levies impacting its business to ensure that payments of such amounts are correctly made and that no amounts are paid unnecessarily. The Group is developing a plan to use its tax credits, respecting the legal term for using tax credits from prior years, and if unable to recover by compensation, requesting reimbursement of these values from the Receita Federal do Brasil (Brazilian Inland Revenue Service).

Included in the Group's trade receivable balances are debtors with a carrying amount of US$9.6 million (2016: US$9.2 million) which are past due but not impaired at the reporting date for which the Group has not provided as there has not been a change in credit quality and the Group believes the amounts are still recoverable.

The Group does not hold any collateral over these balances.

 

Unaudited

Audited

 

period ended

year ended

 

30 June

31 December

 

2017

2016

Ageing of past due but not impaired trade receivables

US$'000

US$'000

From 0 - 30 days

6,475

6,177

From 31 - 90 days

2,442

2,178

From 91 - 180 days

716

844

more than 180 days

-

-

Total

9,633

9,199

Included in the Group's allowance for doubtful debts are individually impaired trade receivables with a balance of US$1.2 million that are aged greater than 180 days. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected settlement proceeds. The Group does not hold any collateral over these balances.

 

Unaudited

Audited

 

period ended

year ended

 

30 June

31 December

 

2017

2016

Ageing of impaired trade receivables

US$'000

US$'000

From 0 - 30 days

-

-

From 31 - 90 days

-

-

From 91 - 180 days

-

-

more than 180 days

731

1,187

Total

731

1,187

In determining recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. The directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.

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

15 Bank loans and overdrafts

 

 

Unaudited

Audited

 

 

period ended

year ended

 

 

30 June

31 December

 

 

2017

2016

 

Annual Interest rate

US$'000

US$'000

Secured borrowings

 

 

 

BNDES - FMM linked to US$ (1)

2.07% to 6.00%

160,978

168,385

BNDES Real

7.50% - 9.69%

23,048

25,466

BNDES - linked to US$

5.07% - 5.36%

3,982

5,069

BNDES - FINAME Real

4.50% - 13.72%

2,010

1,133

BNDES - FMM Real (1)

8.90% - 10.21%

1,722

1,838

Total BNDES

 

191,740

201,891

 

 

 

 

Banco do Brasil - FMM linked to US$

2.00% - 3.00%

83,803

85,576

IFC - US$

5.25%

42,117

48,571

Santander

3.20%

30,011

14,005

China Construction Bank - US$

4.36%

12,697

19,047

Eximbank - US$

2.56%

4,221

5,270

Finimp - US$

4.65%

-

1,170

Total others

 

172,849

173,639

Total borrowings

 

364,589

375,530

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

 

Unaudited

Audited

 

Period ended

Year ended

 

30 June

31 December

 

2017

2016

 

US$'000

US$'000

The borrowings are repayable as follows:

 

 

On demand or within one year

56,541

49,780

In the second year

51,921

49,029

In the third to fifth years inclusive

98,127

105,953

After five years

158,000

170,768

Total borrowings

364,589

375,530

Amounts due for settlement within 12 months

56,541

49,780

Amounts due for settlement after 12 months

308,048

325,750

Analysis of borrowings by currency:

 

 

$Real

 

 

 

 

linked to

 

 

 

$Real

US Dollars

US Dollars

Total

 

US$'000

US$'000

US$'000

US$'000

30 June 2017 (unaudited)

 

 

 

 

Bank loans

26,780

248,763

89,046

364,589

Total

26,780

248,763

89,046

364,589

 

 

 

 

 

31 December 2016 (audited)

 

 

 

 

Bank loans

28,437

259,030

88,063

375,530

Total

28,437

259,030

88,063

375,530

Guarantees

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

Loans with Banco do Brasil rely on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda. and pledge of the respective financed tugboat.

The loans that Tecon Salvador holds with IFC are guaranteed by shares of the company, projects' cash flows, equipment and buildings.

The loan agreement that Tecon Rio Grande has with the Export-Import Bank of China for equipment is guaranteed by a standby letter of credit issued by Banco Itaú BBA S.A which in turn has the pledge on the financial equipment.

 

The loan agreement between Tecon Rio Grande and Santander for equipment acquisition relies on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda.

Undrawn credit facilities

At 30 June 2017, the Group had available US$67.5 million of undrawn borrowing facilities. For each disbursement, there is a set of precedent conditions that must be satisfied.

 

Covenants

The Wilson, Sons de Administração e Comércio Ltda. ("WSAC") holding company, as corporate guarantor, has to comply with financial covenants in both Wilson Sons Estaleiros Ltda and Brasco Logística Offshore Ltda loan agreements signed with BNDES. The subsidiary Tecon Salvador has to observe affirmative and negative covenants stated in its loan agreement with the International Finance Corporation - IFC including the maintenance of specific liquidity ratios and a capital structure requirements.

Tecon Rio Grande has to comply with financial covenants in its respective loan agreements with the BNDES and Santander including a minimum liquidity ratio and capital structure. At 31 December 2016, according to the BNDES view, Tecon Rio Grande was not in compliance with the loan agreement minimum Net Equity / Total Assets ratio of 0.6. If a waiver or prepayment of the debt were not employed the subsidiary could be required to provide additional guarantees of at least 130% of the debt´s outstanding value by the 4 September 2017 or be subject to a penalty of an additional 1% interest on the outstanding loan until such time as the loan is in compliance. The value of the loan at 30 June  2017 was US$4.0 million.

At 31 December 2016, with the exception of the above covenant breach, the Company was in compliance with all other loan contracts.

Fair value

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

 

Unaudited

Audited

 

30 June

31 December

 

2017

2016

 

US$'000

US$'000

Bank loans

 

 

BNDES

191,740

201,891

Banco do Brasil

83,803

85,576

IFC

42,117

48,571

Santander

30,011

14,005

CCB

12,697

19,047

Eximbank

4,221

5,270

Finimp

-

1,170

Total

364,589

375,530

16 Joint ventures

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

 

Place of

Proportion of ownership interest

 

incorporation

30 June

30 June

 

and operation

2017

2016

Towage

 

 

 

Consórcio de Rebocadores Barra de Coqueiros (3)

Brazil

29.13%

29.13%

Consórcio de Rebocadores Baia de São Marcos (3)

Brazil

29.13%

29.13%

 

 

 

 

Logistics

 

 

 

Porto Campinas, Logística e Intermodal Ltda (3)

Brazil

29.13%

29.13%

 

 

 

 

Offshore

 

 

 

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

Brazil

29.13%

29.13%

Atlantic Offshore S.A. (2)

Panama

29.13%

29.13%

(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

 

2017

2016

 

US$'000

US$'000

Revenue

75,074

63,162

Raw materials and consumable used

(4,404)

(3,454)

Employee benefits expense

(23,754)

(18,812)

Depreciation and amortisation expenses

(20,007)

(17,371)

Other operating expenses

(8,493)

(7,798)

Loss on disposal of property, plant and equipment

(11)

(2,136)

Profits from operating activities

18,405

13,591

Finance income

987

887

Finance costs

(9.909)

(10,872)

Foreign exchange gains/(losses) on monetary items

(973)

10,225

Profit before tax

8,510

13,831

Income tax expense

(4,894)

(8,069)

Profit for the period

3,616

5,762

 

 

 

Participation (before non-controlling interests)

50%

50%

Equity result

1,808

2,881

 

 

Unaudited

Audited

 

Period ended

Year ended

 

30 June

31 December

 

2017

2016

 

US$'000

US$'000

Property, plant and equipment

657,992

674,476

Long-term investment

2,103

2,066

Other current assets

3,796

3,752

Trade and other receivables

38,534

42,494

Derivatives

201

261

Cash and cash equivalents

19,683

10,859

Total assets

722,309

733,908

 

 

 

Bank overdrafts and loans

517,562

533,731

Other non-current liabilities

34,563

30,295

Trade and other payables

80.764

82,114

Equity

89,420

87,728

Total liabilities

722,309

733,908

Guarantees

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

Magallanes Navegação Brasileira S.A.'s loan agreement with Banco do Brasil is guaranteed by a lien on the financed supply vessels. The security package also includes a standby letter of credit issued by Banco de Crédito e Inversiones - Chile for part of the debt balance, assignment of Petrobras' long-term contracts and a corporate guarantee issued by Inversiones Magallanes Ltda - Chile. A cash reserve account, accounted for under long-term investments and funded with US$2.1 million, should 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 on the vessel, the shares of Atlantic Offshore and a corporate guarantee for half of the credit from Wilson Sons de Administração Ltda e Comércio. Remolcadores Ultratug Ltda, which is the partner in the business, guarantee the other half of the loan.

Covenants

The joint venture Magallanes Navegação Brasileira S.A. has to comply with specific financial covenants. At 30 June 2017, the company was in compliance with all clauses in the loans contracts.

Atlantic Offshore S.A. has to comply with specific financial covenants on its two loan agreements with Deutsche Verkehrs-Bank "DVB" and Norddeutsche Landesbank Girozentrale Trade "Nord/LB". At 30 June 2017, the company was in compliance with all clauses in the loans contracts.

Provisions for tax, labour and civil risks

In the normal course of business in Brazil, the Group remains exposed to numerous local legal claims. It is the Group's policy to vigorously contest such claims, many of which appear to have little substance in merit, and to manage such claims through its legal counsel.

In addition to the cases for which the Group has made provision, there are other tax, civil and labour disputes amounting to US$14.7 million (2016: US$13.9 million), whose probability of loss was estimated by the legal counsel as possible.

 

Unaudited

Audited

 

Period ended

Year ended

 

30 June

31 December

 

2017

2016

 

US$'000

US$'000

Civil cases

1

-

Tax cases

10,334

10,066

Labour claims

4,395

3,784

Total

14,730

13,850

17 Notes to the cash flow statement

 

Unaudited

Unaudited

 

six months to

six months to

 

30 June

30 June

 

2017

2016

 

US$'000

US$'000

Reconciliation from profit before tax to net cash from operating activities

 

 

Profit before tax

74,852

57,078

Share of joint venture results

(1,808)

(2,881)

Investment revenues

(9,777)

(5,965)

Other gains/(losses)

(20,280)

7,329

Finance costs

8,090

(7,852)

Exchange (losses)/gains on monetary items

(2,203)

(3,143)

Operating profit

48,874

44,566

Adjustments for:

 

 

Depreciation of property, plant and equipment

26,910

21,767

Amortisation of intangible assets

2,039

2,638

Share based payment expense

1,180

1,649

Gain/(loss) on disposal of property, plant and equipment

1,962

(67)

Increase/(decrease) in provisions

295

3,679

Operating cash flows before movements in working capital

81,260

74,232

Increase in inventories

(520)

(3,217)

Increase in receivables

(11,036)

(14,194)

(Decrease)/increase in payables

(15,036)

13,726

Increase in other non-current assets

(89)

(2,474)

Cash generated by operations

54,579

68,073

Income taxes paid

(14,518)

(13,640)

Interest paid

(6,970)

(6,178)

Net cash from operating activities

33,091

48,255

18 Commitments

At 30 June 2017, the Group has thirty outstanding commitment agreements. These commitments relate to capital subscription agreements entered into by Ocean Wilsons (Investments) Limited.

The details of these commitments are as follows:

 

 

Unaudited

Audited

 

 

Outstanding at

Outstanding at

 

 

30 June

31 December

 

Commitment

2017

2016

 

$'000

US$'000

US$'000

Expiry date

 

 

 

31 December 2016

3,000

-

68

05 December 2017

5,000

845

859

30 March 2018

5,000

834

834

4 June 2018

5,000

1,468

1,468

18 July 2018

5,000

682

677

21 December 2018

5,000

277

313

31 December 2018

4,650

68

123

22 November 2019

5,000

550

550

08 December 2019

5,000

100

-

31 December 2019

3,000

30

60

31 January 2020

4,500

170

246

20 February 2020

4,994

128

117

18 December 2021

5,000

143

347

17 February 2022

3,000

541

781

30 April 2022

7,500

2,332

2,793

11 July 2022

4,963

1,239

2,070

01 February 2023

5,000

300

300

28 March 2023

5,000

1,726

1,785

01 April 2023

5,000

1,349

2,081

05 June 2023

3,200

1,147

1,399

21 August 2024

5,005

2,089

2,431

22 August 2024

5,000

136

336

12 March 2025

2,954

1,729

1,826

23 June 2025

1,800

1,246

1,436

14 July 2025

2,500

1,817

2,044

11 April 2029

3,000

810

960

19 October 2030

500

285

360

To be confirmed

750

750

-

To be confirmed

4,000

4,000

4,000

To be confirmed

4,004

4,004

3,672

To be confirmed

3,000

3,000

-

Total

137,129

33,907

33,936

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 others investments are disclosed below.

 

Dividends received/ Revenue of services

Amounts paid/
Cost of services

 

Unaudited

Unaudited

Unaudited

Unaudited

 

30 June

30 June

30 June

30 June

 

2017

2016

2017

2016

 

US$'000

US$'000

US$'000

US$'000

Joint ventures

 

 

 

 

1.

Allink Transportes Internacionais Limitada

1

-

(10)

(24)

2.

Consórcio de Rebocadores Barra de Coqueiros

-

-

-

-

3.

Consórcio de Rebocadores Baía de São Marcos

290

333

-

(5)

4.

Wilson Sons Ultratug

1,031

9,021

-

-

5.

Atlantic Offshore

-

-

-

-

Others

 

 

 

 

6.

Hanseatic Asset Management LBG

-

-

(1,241)

(1,214)

7.

Gouvêa Vieira Advogados

-

-

(37)

(20)

8.

CMMR Intermediacao Comercial Limitada

-

-

(100)

(85)

9.

Jofran Services

-

-

(87)

(87)

 

 

Amounts owed by
related parties

Amounts owed to
related parties

 

Unaudited

Unaudited

Unaudited

Audited

 

30 June

30 June

30 June

31 December

 

2017

2016

2017

2016

 

US$'000

US$'000

US$'000

US$'000

Joint ventures

 

 

 

 

1.

Allink Transportes Internacionais Limitada

-

2

-

-

2.

Consórcio de Rebocadores Barra de Coqueiros

78

148

-

-

3.

Consórcio de Rebocadores Baía de São Marcos

2,547

2,370

-

-

4.

Wilson Sons Ultratug

13,546

3,227

-

-

5.

Atlantic Offshore

15,667

8,857

-

-

Others

 

 

 

6.

Hanseatic Asset Management LBG

-

-

(233)

(202)

7.

Gouvêa Vieira Advogados

-

-

-

-

8.

CMMR Intermediacao Comercial Limitada

-

-

-

-

9.

Jofran Services

-

-

-

-

1.         Mr A C Baião is 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 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.

21 Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 15, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings and 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 by 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. 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 and trading investments. The Group's credit risk is primarily attributable to its bank balances, trade receivables and investments. The amounts presented as receivables in the balance sheet are net of allowances for doubtful receivables as outlined above.

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

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

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

Market risk

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

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.

 

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 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).

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).

Other loans exposed to floating rates are as follows:

TJLP (Brazilian Long-Term Interest Rate) for Brazilian Real denominated funding through FINAME credit line to Port and Logistics operations.

DI (Brazilian Interbank Interest Rate) for Brazilian Real denominated funding in Logistics operations, and 6-month LIBOR (London Interbank Offered Rate) for US Dollar denominated funding for Port Operations. (Eximbank)

The 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 part in time deposits, with short-term maturities.

The Group's strategy for managing interest rate risk is to maintain a balanced portfolio of fixed and floating interest rates in order to balance both cost and volatility. The Group may use cash flow hedges to limit its exposure that may result from the variation of floating interest rates.

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

Market price sensitivity

The Group is exposed to equity price risks arising from equity trading investments.

The trading investments represent investments in listed equity securities, funds and unquoted equities that provide the Group with opportunities for return through dividend income and trading gains. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available.

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.

 

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 took place, the trade date and the date the stock and cash are transferred, and the settlement date. The level of risk during the period is the difference between the value of the original transaction and its replacement with a new transaction.

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

Liquidity risk management

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

Ultimate responsibility for liquidity risk management rests with the Board. 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.

 

Normally 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 non-derivative financial assets traded on active liquid markets are determined with reference to quoted market prices.

The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair value.

 

Company Contact

Keith Middleton                                                              1 441 295 1309

 

Media

David Haggie                                                                 020 7562 4444

Haggie Partners LLP

 

Cantor Fitzgerald Europe                                               020 7894 7000

David Foreman, Will Goode, Rick Thompson - Corporate Finance


This information is provided by RNS
The company news service from the London Stock Exchange
 
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