Preliminary Results

Ocean Wilsons Holdings Ld 27 April 2005 Ocean Wilsons Holdings Limited Preliminary Announcement For the year ended 31 December 2004 CHAIRMAN'S STATEMENT Introduction I am pleased to report another solid performance in 2004. Assisted in large part by the continuing growth of Brazil's export markets, the Group's core businesses continued to perform well, with strong demand in most areas. The new logistics and transport businesses expanded significantly during the year and the shipyard is now generating substantial revenues following several years of difficult market conditions. The Group continues to be strongly cash-generative. Results Turnover for the year increased 34.5% to US$194.4 million (2003: US$144.5 million), whilst operating profit for the year at US$27.7 million was in line with 2003 (US$27.8 million). In Brazilian Real terms, turnover increased by 27.8%. At the pre-tax level and before accounting for exchange gains, profit before tax was marginally ahead of last year at US$34.6 million (2003: US$34.0 million). However, exchange gains during the year were significantly lower at US$6.9 million (2003: US$17.8 million). As a result, profit before tax, including exchange gains was US$41.5 million compared with US$51.8 million in 2003. Earnings per share were 65.2 cents (2003: 83.9 cents). Brazil The Brazilian economy grew by 5.2% in 2004 achieving its highest growth rate for ten years and a large trade surplus. This was largely driven by booming export markets and strong world demand for commodities. Notwithstanding a series of interest rate rises, this level of economic activity continues to improve, sustained by expanding credit and consumer confidence. This robust economic climate has continued in 2005 which is reflected in the 12 month Government primary surplus (before interest payments) of 4.8% in February which is ahead of their 4.25% official target. Government spending continued to expand in pace with economic expansion and rising tax revenue. The large trade surplus has substantially reduced Brazil's dependence on foreign direct investment for funding. Exchange rates The Brazilian Real appreciated 9% against the US Dollar from R$2.89 at 1 January 2004 to R$2.66 at the year end. The average rate of exchange used to translate the Group's Brazilian results into US Dollars appreciated by 5% against the US Dollar from 3.07 to 2.92. The appreciation of the Brazilian Real against the US Dollar generated a net exchange gain of US$6.9 million (2003: US$17.8 million) on the Group's US Dollar and US dollar linked loans. Under UK GAAP, the Group is required to recognise this gain in the profit and loss account in the period in which it arises. The cash flow effect of these exchange movements will only be realised over the life of the loans, when repayments are made. Whilst the value of the loans remains unchanged in US Dollar terms, repayments need to be made out of Brazilian Reais. In evaluating the Group's performance, the Board spreads the exchange gains/losses on borrowings over the remaining life of the loans. Reflecting this policy, the portion of current exchange gains and past exchange losses attributable to the period under review would be a loss of US$2.8 million, as compared to the exchange gain of US$6.9 million required to be reported under UK GAAP. Dividends In light of the Group's strong performance, the Board is recommending a final dividend of 18 cents per share (2003: 16.0 cents per share) to be paid on 10 June 2005 to shareholders on the register at the close of business on 13 May 2005, making a total dividend for the year of 20.0 cents per share (2003: 17.7 cents per share). Dividends are determined in US Dollars. Shareholders receive dividends in sterling determined by reference to the exchange rate applicable to the US Dollar on the dividend record date, except for those shareholders that elect to receive dividends in US Dollars. Shareholders electing to receive a dividend in US Dollars should write to the Company's UK transfer agent, Capita IRG Registrars at the address shown in note 5 of this announcement before the next dividend record date, 13 May 2005. The Board's dividend policy is determined by the overall financial performance of the Group and its future prospects. Shareholders should however be aware that the future absolute value of dividend payments in Sterling terms will depend on the prevailing Sterling/US Dollar exchange rate at the relevant dividend record date. Corporate social responsibility The Board has adopted the fundamental principles of corporate social responsibility. We are committed to understanding the needs and interests of all stakeholders we are involved with and are concerned for the community and environment. We continually strive to improve our social and environmental performance, with the objective of ensuring that our activities contribute to the sustainable development of the communities in which we operate. Taxes In 2004 the Group paid in excess of US$55 million in Brazilian income, payroll and sales taxes. Local employment At the end of 2004, the Group directly employed more than 3,000 people in Brazil and, through its suppliers and sub-contractors, created numerous additional employment opportunities during the year. The Group values the relationship it has nurtured with Brazil's local and national trade unions. As representatives of our employees, the trade unions continue to negotiate wage agreements on their behalf. Best employment practice As part of our commitment to best employment practice, all employees and their dependents (8,047people) receive private medical cover at a cost of US$3.0 million to the Group. In addition, the Group provided US$1.6 million of food assistance and spent a further US$309,000 on education and professional development for employees. The Group will continue to invest in these areas. Charitable donations In line with our commitment to both local and national charities in Brazil, the Group made charitable donations of US$93,000 during the year. The primary focus of the Group's charitable efforts continues to be projects helping homeless children and adolescents. Pastoral do Menor and Casa Jimmy in Rio de Janeiro and Casa da Crianca in Salvador are all doing invaluable work in this area. In addition to financial support, the Group encourages employees to participate in social initiatives of this nature. The Group also participates in the Rio Food Bank campaign, promoted by SESC Rio, to combat hunger. We are proud to have won the 'Statement of Social Commitment and Citizen Solidarity' award for 2004. Strategy The Group's strategy is to build upon its position as the leading supplier of maritime services in Brazil. The Group's performance is heavily dependent on the development of Brazil's foreign trade. The Group is well positioned to take advantage of the rapid recent growth in Brazil's export markets. Exports are currently booming, largely due to strong demand for commodities and agricultural produce. The Group's recent record of uninterrupted growth has been achieved by the Board's focus and investment in its core activities. The tug fleet has been upgraded and increased, and investment continues to be made in new equipment and facilities. Strategic review In December 2004 the Board announced that it was in the early stages of reviewing strategic options in relation to the Group's Brazilian operations. No conclusion has yet been reached and a potential sale of any of the Brazilian businesses, or any part thereof, is only one of a number of options under consideration. A further announcement will be made once the strategic review has reached a definitive conclusion. Management and staff On behalf of your Board, I would like to thank our management and staff for their hard work and dedication throughout the year. We continue to invest in their future through training and incentive programmes. Mr. Richard Pearman who has been a Director of the Group since June 1998 is retiring. I would like to thank Mr. Pearman for his relevant contribution to the Group. Outlook Ahead of the outcome of our strategic review, the Board will continue to capitalise on the Group's position as the leading supplier of maritime services in Brazil. The Board intends to continue to invest organically in its own businesses which has served it well to date. In 2005 work will begin on expanding the Tecon RG container terminal in Rio Grande, Rio Grande do Sul, which is Brazil's second largest container terminal. Since the terminal has been operating at above optimum capacity, margins at the facility have been adversely affected. In order to restore operating margins and meet the expected increase in demand, US$28 million is to be invested in building a third berth and installing new equipment. With a positive outlook for container volumes, capacity will be increased from approximately 700,000 to 1,250,000 TEUs (twenty foot equivalent units). The Group's offshore support business continues to benefit from an upswing in activity and the impact of high oil prices. The Group will participate in anticipated tenders from Petrobras for offshore support units, as the Brazilian oil and gas major enjoys robust market conditions. The construction of our third PSV (Platform Supply Vessel) will start in 2005 at the Group's shipyard at Guaruja, as well as continuing the tug-boat fleet renewal programme. We will also focus on developing the Logistics and Transport businesses. Operating results for the first quarter of 2005 exceeded those for the same period last year. The Group is well placed to deliver another strong financial performance in the current year. J. F. Gouvea Vieira Chairman OPERATING REVIEW Introduction As the leading supplier of maritime services in Brazil, the Group is the largest provider of Towage services, as well as a significant Ship Agent, and operator of Ports and Logistics businesses. Towage, Shipyard and Offshore The Group's Towage, Shipyard and Offshore division increased turnover by 29% in 2004 to US$99.7 million (2003: US$77.0 million), reflecting strong growth in towage and shipyard revenues and a first full year contribution from the two PSV's under long term contract to Petrobras. Towage The towage business enjoyed another successful year. Whilst there was a marginal fall in the number of vessels serviced, the average deadweight tonnage of those vessels which were serviced increased. As a result of this increase and the rise in liner operator and tramp tariffs, turnover rose 14% in US Dollar terms and 8% in Brazilian Real terms. Volumes were supported by good soya bean exports and increased demand from China for steel and iron ore. Since some 75% of the Group's revenues from the towage operations are linked to the US Dollar, the Group's exposure, in terms of its US Dollar linked borrowings, was considerably reduced. These borrowings have been used in the construction and modernisation of our tug boat fleet. The Group's ocean towage operations had a strong year servicing the robust offshore oil industry. Salvage assistance was successfully provided in Paranagua and Sao Francisco do Sul. The Group's towage joint venture, Consorcio Baia de Sao Marcos, also performed well during the year, with volumes rising and the size of vessels serviced increasing. The joint venture benefited considerably from the construction of a third pier at the Ponta da Madeira terminal and a further sharp increase in shipments of iron ore to China. A seventh tug boat joined the consortium fleet in February 2004. Shipyard The tug-boat fleet renewal programme benefited from the delivery of Taurus in July 2004. The continuing resurgence in Brazil's offshore oil and gas market in Brazil generated significant business for the shipyard, with the conversion of two tug supply vessels into PSVs for Companhia Brasileira de Offshore (CBO) and the modernisation of a PSV for Delba Maritima, one of Brazil's main offshore support companies. All three vessels are forecast to be delivered in 2005. The shipyard also carried out maintenance work on the Dersa ferry fleet during 2004. We will be investing US$2 million on shipyard modernisation in 2005 to expand the dry-dock, and to increase overall building capacity so as to meet the growing demand for new buildings and vessel remodelling projects. Platform Supply Vessels The Group's two PSVs under long term charter to Petrobras performed well, achieving the Petrobras operational performance evaluation of excellent. As the offshore vessel market in Brazil continues to grow, the Group is now enjoying the benefits of that growth. The Group was successful in a Petrobras tender for a dry-bulk PSV in October 2004. Construction of the US$18 million vessel is due to start at our shipyard in Guaruja in 2005 with completion scheduled for the first half of 2006. The dry-bulk vessel will be on long term charter to Petrobras for petroleum exploration work for a six year period, with a possibility of an additional two year extension. Dragaport Losses were reduced at our associate dredging company, Dragaport, although soft market conditions continued to affect results. Dredging work was carried out at the ports of Rio Grande, Fortaleza and Sao Francisco do Sul, the Dredger Boa Vista I was laid up for part of the second semester. There are signs of a slight improvement in market conditions in 2005 with completion of the contract in Fortaleza and a new contract in Santos. In the short term, the Board does not expect a significant improvement in the prospects for this business. Ship Agency The ship agency division operates 18 offices throughout Brazil servicing tramp vessels (vessels which call infrequently at Brazilian ports) and liner vessels (vessels that operate a regular service to/from Brazil). The Ship Agency division exceeded internal forecasts in 2004. The Group attended a record 5,520 vessels, an increase of 12%. Revenues increased 30% to US$15.0 million. In order to maximise market opportunities, the Board continues to seek strategic partnerships with other groups. In 2004 an associate company was formed in partnership with the French group, CGM-CMA, to attend their vessels in Brazil. Moreover, one of the world's biggest ship agency companies, Gulf Agency Company, has appointed Wilson Sons their representative in Brazil. As evidence of the Group's commitment to excellence and client service, the division completed the installation of powerful new agency software throughout its branch network. Some US$ 2 million was invested in equipment, software development and training. In addition, the Group began the implementation of a Centralised Service Centre to unite the three basic areas of the ship agency business, namely, container control, disbursement of accounts and processing of documentation. Full implementation will be completed during the course of 2005. Ports and Logistics Tecon Rio Grande Demand remains strong at Tecon Rio Grande. The terminal moved 612,000 TEU's (Twenty foot equivalent units), an increase of 13% over 2003, although the number of ships attended remained unchanged at 975. Productivity benefited from the investments made in 2004, improving to 46 moves per hour (2003: 33 moves per hour). Volume increases came from export growth and an increase in transhipment cargo for Buenos Aries and Montevideo. Volumes are limited by capacity constraints at the terminal. The planned expansion of the terminal will add a new berth, allowing three vessels to operate simultaneously. In addition, two new Super Post Panamax Gantry cranes are joining the two existing ones. Tecon Rio Grande moves a diversified range of cargos - tobacco, frozen chickens, furniture, rice and shoes account for approximately 50% of the volume. Tecon Salvador Container volumes handled at Tecon Salvador in 2004 increased 14% to 177,236 TEU's with particularly strong growth in the first half of the year. Increases in volume partly resulted from the containerisation of cargo previously transported on a break-bulk basis. Container volumes in the second half were in line with 2003 due to a weak fruit harvest in 2004. Tecon Salvador is the principal terminal for agricultural exports from the Sao Francisco Valley and petrochemical products from the Camacari Industrial Complex. Petrochemical products represented 53% of the terminal's exports and 36% of imports in 2004. In addition, the terminal moved 263,000 tonnes of general cargo, mainly granite, timber and copper concentrate. During the year, further investment was made in a depot area, away from the port, to store empty containers and release storage space in the terminal. Logistics Logistics is dedicated to developing solutions for storage, distribution and transportation. This young business continues to expand, growing approximately 140% over 2003. The company has assumed the logistic operations of Votorantim Pulp and Paper, Embelleze (cosmetics), Merck and Monsanto. Logistics is a low margin business and the strong revenue growth has not yet been converted into significant profits. WR Operadores Portuarios Limitada Our joint venture, WR, is the leading container operator in the public port of Sao Francisco do Sul, Santa Catarina. Results and volumes were in line with 2003. Brasco Our associate company, Brasco, performs offshore logistics for the Oil and Gas industry. After a slow year, activity increased significantly in the last quarter of 2004. The company is planning to build another mooring quay at its Niteroi terminal to serve PSVs, adding to the mooring jetty already in operation. Estimated cost is US$3 million. Cezar Baiao Chief Executive Brazilian Operations FINANCIAL REVIEW Operating margins and profit Operating margin for the year was 14.2% (2003: 19.2%). This fall was due to a combination of factors. In addition to an increased provision of US$5.8 million in respect of the Group's long term incentive plan during the year (2003: US$2.7 million), operating margins continued to be adversely affected by macro economic pressures. The appreciation of the Brazilian Real against the US Dollar over the period reduces revenue in Brazilian Real terms. Moreover, continuing inflation in the Group's domestic market and increased personnel costs, combined to drive up Brazilian Real denominated operating costs. All of these factors were compounded by the impact of changes in the Group's sales mix, with an increase in the lower margin Logistics, Transport and Shipbuilding business. As a result of the fall in operating margins, operating profit remained in line with the prior year at US$27.7 million (2003: US$27.8 million), despite an increase in turnover. Share of operating profit from joint ventures and associates grew from US$3.9 million to US$6.0 million, due to improved results from our associate company, Dragaport and the Consorcio Baia Sao Marcos. Dividends received from joint ventures increased to US$5.7 million (2003: US$4.5 million). Profit on disposal of fixed assets This arose principally from the sale of the closed container freight station in Santos. Interest Net interest payable was US$2.1 million (2003: US$0.7 million receivable). This excludes the net exchange movements on foreign currency borrowings held by the Group's Brazilian subsidiaries, which are shown separately in the profit and loss account. The Group's Brazilian subsidiaries have significant US Dollar loans and Brazilian Real denominated loans that are monetarily corrected by the movement in the US Dollar/Brazilian Real exchange rate. This currency risk is unavoidable since there is limited long-term Brazil Real denominated financing for capital expenditure available. Current interest rates on Brazilian Real commercial borrowings in Brazil are in excess of 25% per annum. Due to the prohibitive cost of hedging the Brazilian Real, the Group does not hedge its long term net exposure, although the Group makes use of available instruments to manage the short term cash flow exchange risk on current repayments. Taxation The tax charge for the year of US$15.9 million (2003: US$19.1 million) equates to an underlying effective tax rate for the period of 38%. This is higher than the corporate tax rate prevailing in Brazil of 34%. The effective tax rate reflects the absence of Group relief, so that losses and profits in separate companies cannot be offset, and the impact of disallowable expenses. Cash flow The Group is highly cash generative. Cash generation remained strong with operating cash inflow increasing by US$7.7 million to US$44.2 million (2003: US$36.5million). Free cash flow (net cash inflow from operations less net capital expenditure, tax payments and net interest payable) was US$13.4 million (2003: US$11.9 million). Capital expenditure of US$18.7 million (2003: US$14.5 million) was invested mainly on our fleet renewal programme and container terminal equipment. Balance sheet At the year end the Group's net assets amounted to US$147.7million (2003: US$114.6million). This increase is attributable to the combination of strong underlying profits and the appreciation of the Brazilian Real since the greater part of the Group's net assets are denominated in Brazilian Real and financed in US Dollars. This translates into net assets per share of 417.8 cents per share (31 December 2003: 324.0 cents). Net assets located in Brazil amounted to 282.7 cents per share (31 December 2003: 193.2 cents) and net assets outside Brazil to 135.1 cents per share (31 December 2003: 130.8 cents). The investment portfolio (including cash under management) translates into a value of 175.7 cents per share (2003: 149.3 cents). Debt The Group continues to be conservatively financed with net debt at 31 December 2004 of US$31.1 million (2003 US$40.6 million), which represents gearing (net debt / equity shareholders' funds) of 23% (2003: 38%). Group debt has principally been used to finance the construction of vessels and the development of the container terminals at Rio Grande and Salvador. US$94.2 million of Group debt is held in US Dollar term loans or linked to the US Dollar with long maturity profiles for debt repayments. The Group continues to link revenues to the US Dollar as a natural hedge for US Dollar linked borrowings. During 2004 the Group made capital repayments on existing loans in accordance with repayment schedules of US$11.6 million (2003: US$10.8 million) and raised new loans of US$9.4 million (2003: US$0.5 million) to finance vessel construction. Risk management Treasury The Group has a centralised Treasury operation in Brazil, which manages the investment of surplus funds and borrowings. Clear guidelines have been established relating to cash management authority levels and investment limits. The guidelines prohibit taking speculative financial instrument positions and regular financial management reports are supplied to senior management. The main financial risks facing the Group relate to funding, interest rates, currency fluctuations and movements in the market price of securities. Funding risk The Group conducts business principally in Brazil and holds a portfolio of international investments outside Brazil. The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated by operating revenues. There is limited long term commercial funding available in Brazil except from the Banco Nacional de Desenvolvimento Economico e Social (BNDES). All long term funding is obtained by our Brazilian subsidiaries from the BNDES or International Finance Corporation (IFC, part of the World Bank) except for specific equipment supplier financing when available at favourable terms. The Board will not consider short-term borrowing in the Brazilian commercial market while prohibitive interest rates prevail. At the year end, the Group had US$99.8 million in borrowings repayable over periods of up to 16 years. The Group also held approximately US$60.7 million in Brazilian Real denominated cash deposits in Brazil and US$7.9 million in Sterling and US Dollar denominated deposits outside Brazil. The Group maintains large cash balances to fund investment opportunities in Brazil and to manage short term fluctuations in cash flow. Interest rate risk During 2004 the Group did not use interest rate swaps, options or forward rate agreements to manage interest rate exposure on its debt positions. However, the Group actively reviews risk profiles and considers undertaking interest rate swaps, if necessary, subject to Board approval. The Group has three main types of borrowings, Brazilian Real denominated, Brazilian Real denominated linked to the US Dollar and US Dollar borrowings. Currency risk The Group operates principally in Brazil with a substantial proportion of the Group's revenue, expenses and assets denominated in Brazilian Reais. Consequently currency translation movements can significantly affect the Group's income and balance sheet and the Group faces significant currency exposures when translating results into US Dollars. Due to the prohibitive cost of hedging the Brazilian Real, the Group does not normally hedge its net exposure to the Brazilian Real as the Board considers it uneconomic. The Group's US Dollar debt has defined repayments during the life of the loans. The Board hedges these repayments for periods of up to one year by investing surplus funds in US Dollar linked Brazilian Government bonds or by purchasing foreign exchange options. The Group has significant long-term borrowings in US Dollars and in Brazilian Real denominated loans linked to the US Dollar. These are used to finance Brazilian Real denominated capital projects. This exposes the Group to a potential currency mismatch of costs and revenues. The Group accepts this risk as there are few sources of long term financing denominated in Brazilian Real available. The Brazilian Real denominated loans linked to the US Dollar are monetarily corrected by the movement in the US Dollar/Brazilian Real exchange rate and bear interest of between 1.5 - 4.5 % per annum. The majority of the Group's US Dollar loans bear interest between Libor + 2.5% and Libor + 4.0 % and are repayable over periods of up to five years. In addition the Group has loans, which bear interest linked to the performance of Tecon RG, that vary between Libor +2.0% and Libor +6.0%. Cash and investments held outside Brazil are principally in US Dollar, Sterling and Euro denominated assets. Market price risk The Group invests in internationally listed securities or funds principally for the long-term. The Group's exposure to market price risk arises mainly from potential loss the Group may suffer through holding market positions due to price movements or currency fluctuations. Investment portfolio Hanseatic Asset Management LBG which manages the Group's investment portfolio report as follows: General 2004 turned out to be a better year for equity investors than many had feared. The widely forecast collapse in US government bond prices failed to materialise. The Chinese authorities managed to achieve a moderation in economic growth without precipitating a recession. Furthermore, markets withstood higher short term interest rates, the third year of dollar declines against freely traded currencies and record oil prices. Despite this challenging background for investment, the MSCI World Equity Index posted a gain of 14.7% for the calendar year. In part this was a function of the weaker dollar. Denominated in sterling for instance the same index rose by 6.8%. Even so, this represents a positive return and surpassed that available in high grade bonds, cash deposits and gold. Economically 2004 was dominated by the bi-polar blocs of the US and China and the flow of goods and capital between them. The US continued to import from China and US corporations continued to lower their cost base by locating more of their manufacturing facilities there. The stimulus of demand from the US and investment allowed China to continue its rapid process of urbanisation and industrialisation. This in turn created strong demand for natural resources such as energy and industrial metals. The price of West Texas crude oil rose by 33.6% during the year and copper by 41.8%. The deteriorating trade and current accounts deficits put the dollar under pressure from freely traded currencies such as the Euro as well as the commodity related currencies of Canada and Australia. However, the Asian currencies remained pegged to the dollar or, in the case of Japan, the authorities resisted the natural impulse of the Yen to rise as much as possible. The desire to prevent currency appreciation against the dollar became a key factor behind the relative equilibrium in the Treasury market as dollars were recycled there, in a bid to remain competitive. For a dollar based investor the best returns in 2004 came either from the emerging markets or the European bourses where returns were augmented by currency strength. The other key development in 2004 was the announcement by the Federal Reserve that it intended to pursue a more 'neutral' stance with regard to interest rates after three years of aggressive easing. Although this initially caused a sharp sell off in higher risk assets, risk premiums had again contracted markedly by year end. Performance The portfolio performed well during this market environment rising by 17.7% with assets of US$62.1 million at the year end. This increase compared favourably with the rise in the MSCI World of 14.7%. The portfolio made gains in all geographic areas with the largest coming from the United States. The portfolio also benefited from gains in the emerging markets. On a relative basis overweighting the emerging markets and the UK and underweighting the US added value. With the exception of the Far East, stock selection was generally positive particularly so in the US. The top performing investments were Endeavour Corporation (a newly listed US energy company), United Utilities plc, Lansdowne UK Equity (a hedge fund), Finsbury Growth & Income (an investment trust which refocused its portfolio to emphasise income), SM Investors (a US hedge fund specialising in the telecom and media sectors), and Morant Wright (a long fund investing in smaller Japanese companies). Portfolio Activity During the year there were purchases totalling US$15.2million and sales totalling US$8.7million. This represents a higher level of turnover than historically has been the case but in fact reflects two large fund switches where the fund managers moved to different funds. The most significant purchases included Cathedral Capital, a private insurance company which is benefiting from the favourable trend in the underwriting cycle and which was acquired on attractive terms when compared to quoted counterparts. Exposure to the natural resources sector was increased through investments in BP and three US listed companies; Endeavour and Touchstone in the energy sector, and Ivanhoe which has significant deposits of copper coal and uranium in Mongolia close to the border with China. Significant sales included the position in Scientific Games after a fourfold increase in price on the portfolio's initial investment. Profits were also realised in Wickham Capital and the proceeds reinvested into the Jupiter European Opportunities Trust, and Amlin where the proceeds were reinvested into Cathedral Capital. The position in Warner Chilcott (formerly Galen) was tendered following a bid on favourable terms. Outlook Since its trough in 2002 the MSCI World Index had appreciated by 66% by December 2004. A rise of this magnitude clearly alters the balance of risk and reward. In October 2002 investors were extremely wary. The consensus was bearish and risk premiums were high. Wariness of risk is much less pronounced now than it was then. The contraction in spreads on distressed and emerging debt, the outperformance of small cap and emerging equities all point to this. Markets are therefore vulnerable to anything that could prompt a rise in risk aversion. The stated policy of the US Federal Reserve to move interest rates to a ' neutral' position has the potential to prompt such a reassessment of risk and reward as it marks a significant departure from the massive stimulus that markets have benefited from over the last two years. Another potential source of dislocation is the escalating cost of energy. It will take time for the rapid increase in demand from developing economies to be met by higher production and the spike in oil and coal prices that occurred last year may be a recurring feature of the investment landscape for some time. From a more positive perspective there are several factors which could support equity prices. The unwinding over the last few years of the 'indexation' mania of the late 1990s has started to improve value in the larger capitalisation stocks generally which have lagged smaller stocks. Dividend yields which are tax advantaged still look attractive relative to short rates. Returns available on call and fixed interest do not look appealing. Higher levels of merger and acquisition or private buyout activity would also help to support markets by diminishing the pool of available equity. At the year end, the portfolio had 57.6% of its assets either in long funds or in listed equities. The balance being in a combination of hedge funds, unquoted investments and cash and therefore (theoretically at least) less sensitive to market direction. Since the year end there has been a further increase in the weighting in Japan which represents a favourable balance of risk and reward. Shares are cheap from an historical and international perspective, corporate profitability is rising and domestic investors remain underweight. The Far East and Emerging Markets are favoured for the longer term for their attractive combination of growth potential and valuation. Although, recent outperformance may make these markets more vulnerable in the near term to tightening liquidity conditions, balance sheets at both a corporate and national level are much stronger than was the case in 1997-1998 and should ensure that the long term investment case remains intact. Insurance Our underwriting subsidiary has now been trading in the Lloyd's Insurance Market for over four years and, as reported twelve months ago, our first year of trading, the 2001 Year of Account, resulted in a 'break-even' position notwithstanding the events of 9/11. We still have an 'open' position on this year of account due to ongoing minimal aviation claims arising from 9/11. In the last twelve months, however, there has been some improvement in the claims position, but the timing of finality will depend on the outcome of arbitrations to decide how losses are to be allocated between aviation and property underwriters. As forecast last year, the 2002 Year of Account has produced a worthwhile profit; the full benefits of which will be recognised in our 2005 accounts. The outlook for the following year, the 2003 Year of Account, is extremely encouraging. As far as last year, the 2004 Year of Account, is concerned, although much of the business remains on risk and, despite being affected by unprecedented numbers of hurricanes, typhoons and other natural disasters, at this very early stage we are cautiously optimistic that it will also be profitable. The current year, the 2005 Year of Account, has started promisingly but it is far too early to make any meaningful comment except to say that, once again, there is a further modest reduction in our level of underwriting owing to 'softening' in some underwriting terms and conditions. However, overall terms have held at better than expected levels, particularly in the property/ catastrophe markets, largely due to the weather related losses which affected the market last year. Keith Middleton Group Finance Director Ocean Wilsons Holdings Limited Preliminary Announcement At a board meeting held on 26 April 2005 the following announcement of the unaudited results of the Company and its subsidiary companies for the year ended 31 December 2004 were approved by the Directors. Consolidated Profit and Loss Account Unaudited Audited year to 31 year to 31 December December 2004 2003 US$'000 US$'000 Turnover Turnover and share of joint ventures' turnover 214,710 160,952 Less: share of joint ventures' turnover (20,291) (16,442) Existing operations Acquisitions Group turnover 194,419 144,510 Operating costs (155,583) (109,235) Depreciation (11,177) (7,505) Amortisation Operating profit Existing operations Acquisitions Group operating profit 27,659 27,770 Share of operating profits in joint ventures 6,193 4,973 Share of operating losses in associates (229) (1,052) Income from fixed asset investments 597 307 Realised surpluses on sale of investments 540 633 Income/(loss) from underwriting activities 324 (66) Profit on disposal of fixed assets 1,655 188 Profit on disposal of interest in associate - 595 Interest receivable and similar income 5,229 6,650 Interest payable (7,343) (5,948) Net exchange gain on foreign currency borrowings 6,871 17,795 Profit on ordinary activities before taxation 41,496 51,845 Taxation on profit on ordinary activities (15,913) (19,132) Profit on ordinary activities after taxation 25,583 32,713 Minority interests (2,540) (3,048) Profit for the year 23,043 29,665 Dividends paid and payable (7,072) (6,247) Retained profit for the year 15,971 23,418 Earnings per share Basic and diluted 65.16c 83.89c Dividends per share - gross 20.00c 17.67c Ocean Wilsons Holdings Limited Preliminary Announcement Consolidated Statement of Total Recognised Gains and Losses Unaudited Audited year to 31 year to 31 December 2004 December 2003 US$'000 US$'000 Profit for the year 23,043 29,665 Unrealised gains on the investment portfolio 6,149 6,975 Gain on foreign currency translation 7,640 12,204 Total gains and losses recognised since last annual report 36,832 48,844 Ocean Wilsons Holdings Limited Consolidated Balance Sheet as at 31 December 2004 Unaudited Audited as at 31 as at 31 December December 2004 2003 US$'000 US$'000 Fixed Assets Intangible assets 2,314 1,190 Tangible assets 127,716 111,882 130,030 113,072 Investments Fixed asset investments at market value 57,938 42,901 Investments in joint ventures Share of gross assets 5,654 6,162 Share of gross liabilities (3,341) (4,610) 2,313 1,552 Investments in associates 1,246 718 61,497 45,171 Current Assets Stocks 4,921 3,166 Debtors 57,113 45,152 Investment held for resale 3,172 2,919 Cash at bank 68,577 60,302 133,783 111,539 Creditors (amounts falling due within one year) (76,262) (56,323) Net current assets 57,521 55,216 Total assets less current liabilities 249,048 213,459 Creditors (amounts falling due after one year) (86,085) (88,391) Provisions for liabilities and charges (15,216) (10,480) Net assets 147,747 114,588 Capital and reserves Called up equity share capital 11,390 11,390 Profit and loss account 87,665 66,239 Capital reserves 25,327 22,665 Revaluation reserve 13,083 7,411 Equity shareholders' funds 137,465 107,705 Minority interests 10,282 6,883 Total capital employed 147,747 114,588 Ocean Wilsons Holdings Limited Preliminary Announcement Consolidated Cash flow Statement for the year ended 31 December 2004 Unaudited Audited Year to Year to 31 December 31 December 2004 2003 US$'000 US$'000 Net cash inflow from operating activities 44,223 36,487 Dividends from joint ventures 5,713 4,582 Returns on investments and servicing of finance (1,316) 201 Taxation (13,725) (11,191) Capital expenditure and financial investment (21,332) (19,171) Acquisitions and disposals (1,191) 1090 Equity dividends paid (6,365) (3,470) Cash inflow before management of liquid resources and 6,007 8,528 financing Management of liquid resources 89 (27) Financing (2,235) (10,326) Increase / (decrease) in cash in the year 3,861 (1,825) Ocean Wilsons Holdings Limited Preliminary Announcement Notes to the Preliminary Accounts 1. Basis of Accounting The preliminary accounts have been prepared under the historical cost convention (except for the valuation of listed investments, which are shown in the accounts at market value at the end of the year) and the accounting policies set out on pages 21 to 24 of the Annual Report and Accounts for the year ended 31st December 2003. 2. Basis of Preparation The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2004 or 2003. The financial information for the year ended 31 December 2003 is derived from the statutory accounts for that year. The auditors reported on those accounts and their report was unqualified. The statutory accounts for the year ended 31 December 2004 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement. 3. Reconciliation of Operating Profit to net cash inflow from operating activities Unaudited Audited year to 31 year to 31 December 2004 December 2003 US$ '000 US$ '000 Operating profit 27,659 27,770 Depreciation 11,177 7,505 Amortisation 61 53 Increase in stocks (1,755) (1,166) Increase in debtors (11,088) (8,745) Increase in creditors 18,100 10,423 Increase in provisions 69 647 Net cash inflow from operating activities 44,223 36,487 4. Dividends The proposed final dividend of 18.00c per share will be paid on 10 June 2005 to shareholders on the register at close of business on 13 May 2005 if approved by shareholders at the annual general meeting to be held on the 10 June 2005. 5. Other information Additional copies of this announcement can be obtained from the Company's registered office, Clarendon House, Church Street, Hamilton, Bermuda or from the Company's UK transfer agent, Capita Registrars Group Plc, The Registry 34 Beckenham Road, Beckenham, Kent BR3 4TU. This information is provided by RNS The company news service from the London Stock Exchange

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