Interim / Quarterly Report • Aug 15, 2014
Interim / Quarterly Report
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RNS Number : 2099P
Ocean Wilsons Holdings Ld
15 August 2014
Ocean Wilsons Holdings Limited
Interim Management Statement for the six months ended 30 June 2014
Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the "Company") today provides its interim management statement for the six months ended 30 June 2014.
Highlights
· Revenue down 2% to US$299.9 million (2013: US$306.4 million).
· Profit before tax up 67% to US$57.6 million (2013: US$34.5 million). However, operating profit was down 32% to US$34.3 million (2013: US$50.4 million).
· Earnings in the period of 82.2 cents per share (2013: 20.8 cents).
· Dividends paid to shareholders in the period of US$21.2 million (2013: US$13.4 million). No interim dividend is proposed in 2014.
· Container volumes handled at Tecon Rio Grande and Tecon Salvador up 15% to 489,300 TEUs (twenty foot equivalent units) (2013: 425,000).
Chairman's Statement
Introduction
The first half of 2014 produced another solid performance by the Group. Both our container terminal and towage businesses exhibited strong volume growth although Group revenue remained flat as the growth in volumes was offset by a higher average USD/BRL exchange rate and weaker results at our shipyard and logistics businesses. Profit before tax grew 67% to US$57.6 million (2013: US$34.5 million) benefiting from the appreciation of the Brazilian Real against the US Dollar and improved results from the investment portfolio. The investment portfolio returned 3.7% in the period. Civil works at our new onshore support base, Brasco Caju, are progressing well and we look forward to the benefits this project will bring to the Group.
Group Results
Revenue
Towage and ship agency revenue grew 8% in the period driven by higher harbour towage volumes and an increase in the average deadweight of vessels attended. Overall maritime services revenue for the six months ended 30 June 2014 was 2% lower at US$299.9 million (2013: US$306.4 million) as the higher towage revenue was offset by lower shipyard and logistics revenue. Shipyard revenue was adversely impacted by delays in vessel deliveries resulting from the warehouse fire at our shipyard last year and the suspension of work on a third party platform supply vessel "PSV", as the client is still awaiting bank financing. The suspension of the PSV in construction released shipyard capacity allowing us to accelerate our own vessel construction programme. Logistics revenue for the period declined 20% due to the conclusion of two low margin dedicated operations and the impact of the higher average USD/BRL exchange rate when converting Brazilian Real denominated revenue into our reporting currency, US Dollars. The conclusion of these contracts is consistent with our strategy to improve contract pricing or discontinue low margin dedicated operations. Container terminal revenue was comparable with 2013 with higher container volumes handled offset by the higher average USD/BRL exchange rate and a less favourable sales mix. Container volumes at 489,300 TEUs (twenty foot equivalent units) were 15% higher than prior year (2013: 425,000 TEUs).
Operating Profit
Operating profit for the period at US$34.3 million was US$16.1 million lower than the comparative period in 2013 (US$50.4 million) principally due to a profit on the disposal of property plant, and equipment of US$9.8 million in the prior year (2013: US$0.2 million loss in the current year) and a higher depreciation and amortisation expense in the period.
The profit on the disposal of property, plant and equipment in 2013 of US$9.8 million arose principally from the sale of surplus commercial real estate in downtown Rio de Janeiro and Sao Paulo. Depreciation and amortisation in the period increased US$3.9 million to US$31.7 million from US$27.8 million in 2013 reflecting investments undertaken by the Group.
Other operating expenses and employee expenses benefitted from the higher average USD/BRL exchange rate when converted into our reporting currency, US Dollars.
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 joint venture. Net profit attributable to Wilson Sons increased US$1.7 million to US$1.6 million (2013: US$45,000 loss) as a result of their expanded fleet.
Investment revenues
Investment revenues at US$7.1 million were U$1.4 million lower than prior period (2013: US$8.5 million) due to lower interest on bank deposits and dividends from equity investments.
Investment gains and losses
Other gains of US$7.3 million (2013: US$0.4 million) arise from the Group's portfolio of trading investments and reflect the profit realized on disposal of trading investments in the period plus the movement in the fair value of trading investments at period end.
Finance costs
Finance costs decreased US$9.7 million from US$11.7 million to US$2.0 million for the period mainly as a result of exchange gains on foreign currency borrowings of US$4.5 million (2013: US$5.6 million loss).
Exchange rates
The Group reports in US Dollars "USD" and has revenue, costs, assets and liabilities in both Brazilian Real "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 2014 the BRL appreciated 6% against the USD from R$2.34 at 1 January 2014 to R$2.20 at the period end. In the comparative period in 2013 the BRL depreciated 9% against the USD from R$2.04 to R$2.22.
The average USD/BRL exchange rate in the period was 13% higher at 2.30 (2013: 2.03). A higher average exchange rate adversely impacts BRL denominated revenues and benefits BRL denominated costs when converted into our reporting currency the USD.
The principal effects from the appreciation of the BRL against the USD on the income statement are a net foreign exchange gain on monetary items of US$9.3 million (2013: US$12.9 million loss), a US$4.5 million net exchange gain on USD loans in BRL functional currency businesses (2013: US$5.6 million loss) and a net exchange rate generated deferred tax credit of US$5.9 million (2013: US$7.0 million charge). A currency translation adjustment gain of US$5.7 million (2012: US$3.4 million loss) on the translation of operations with a functional currency other than USD is included in other comprehensive income and charged to equity.
Foreign exchange gains on monetary items
Foreign exchange gains on monetary items of US$9.3 million(2013: US$12.9 million loss) arose from the Group's foreign currency monetary items and principally reflect the appreciation of the Brazilian Real against the US Dollar during the period. In the comparative period in 2013, the Brazilian Real depreciated against the US Dollar generating an exchange loss.
Profit before tax
Profit before tax at US$57.6 million was US$23.1 million higher than the comparative period (2013: US$34.5 million). This was principally due to a US$21.9 million increase in exchange gains on monetary items, a US$9.4 million decrease in finance costs and increased gains from the investment portfolio, US$7.0 million. The improvement in the first two items was driven by the appreciation of the Brazilian Real against the US Dollar. These gains were partially offset by a US$16.1 million fall in operating profit.
Income tax expense for the period at US$11.4 million was US$9.9 million lower than the comparative period in 2013 (US$21.3 million) due to a lower current tax charge and a deferred tax credit in the period. The deferred tax credit in the period of US$3.1 million (2013: US$3.0 million charge) is principally due to the effect of exchange movements on the retranslation of non-current assets. The deferred tax credit arising on the retranslation of non-current asset values is caused by the appreciation of the BRL against the USD at period end and reflects the difference between the historical USD denominated property, plant and equipment balances recorded in the Group's accounts and the BRL denominated property, plant and equipment balances used in the Group's Brazilian tax calculations.
The effective tax rate in the period of 20% (2013: 62%) is lower than the corporate tax rate prevailing in Brazil of 34% principally due to the deferred tax credit in the period and income arising in our Bermudian companies that are not subject to income or capital gains tax.
Profit for the period
Profit attributable to equity holders of the parent is US$29.1 million (2013: US$7.4 million) after deducting profit attributable to non-controlling interests of US$17.2 million (2013: US$5.9 million).
Earnings per share for the period was 82.2 cents (2013: 20.8 cents).
Investment portfolio performance
The trading investment portfolio and cash under management at 30 June 2014 amounted to US$250.6 million, an increase of US$1.6 million since the yearend (US$249.0 million). During the period, a capital redemption of US$6.5 million was made to the parent company, Ocean Wilson Holding Limited, principally to fund the 2013 final dividend payment to shareholders.
Cash flow and debt
Net cash flow from operating activities for the period was US$26.7 million in the first six months of 2014 compared with US$37.9 million in the same period last year, reflecting the lower operating profit and adverse working capital movements. The decrease in trade payables is due to the final payment relating to the Brasco Caju (Briclog) acquisition and the termination of the Wilson Sons Limited cash settled long-term incentive plan.
Capital expenditure in the period amounted to US$57.6 million (2013: US$36.3 million), the major elements being expenditure on expanding the Brasco Caju offshore support base and towage vessel construction. New bank loans of US$18.9 million (2013: US$18.0 million) were raised in the period to finance the capital expenditure. An additional US$13.9 million overdraft facility was drawn down as we await approval for long-term financing of the Brasco Caju project. Capital repayments on existing loans of US$20.3 million (2013: US$18.2 million) were made in the period.
Dividends of US$21.2 million were paid to shareholders in the period (2013: US$13.4 million) and a further US$11.3 million paid to non-controlling interests in our Wilson Sons Limited subsidiary (2013: US$7.5 million).
At 30 June 2014 the Group had US$91.9 million in cash and cash equivalents (31 December 2013: US$106.5 million). At 30 June 2014 the Group's borrowings (including obligations under finance leases) were US$393.0 million (31 December 2013: US$378.8 million). The Group's borrowings do not include US$249.6 million (2013: US$238.4 million) of debt from the Company's 50% share of borrowing in the Offshore Vessels joint venture.
Net asset value
At the close of business on 12 August 2014, the Wilson Sons share price was R$33.98, resulting in a market value for the Ocean Wilsons holding of 41,444,000 shares (58.25% of Wilson Sons) of approximately US$618.5 million which is the equivalent of US$17.49 (£10.41) per Ocean Wilsons Holdings Limited share.
The investment portfolio valuation at 30 June 2014 of US$250.6 million is equivalent to US$7.09 (£4.22) per Ocean Wilsons Holdings Limited share.
Dividend
The Board is not declaring an interim dividend. As stated in the 2012 annual report from 2013 onwards the Directors have decided to cease paying an interim dividend.
Outlook
The order book at our shipyard remains healthy with two OSRVs (oil spill response vessel), two PSVs for our offshore joint venture and nine tugboats for our towage business. The Fugro ROVSV (Remotely operated vehicle support vessel) is forecast to be delivered in the second half of 2014. Civil works at Brasco Caju will continue through 2014 and are forecast for completion in 2015.
Wilson Sons Limited
The Wilson Sons 2nd quarter 2014 Earnings Report released on 15 August 2014 is available on the Wilson Sons Limited website: www.wilsonsons.com:
In it Cezar Baião, CEO of Operations in Brazil said:
"We delivered a quarter with strong volume growth for Container Terminals, Towage and Offshore Vessels. This performance, however, was not enough to translate into EBITDA growth with a difficult operating quarter for the Shipyards and Logistics segments.
Nonetheless, we can draw confidence from the long term prospects of our business strategy that has enabled robust growth of Net Profit and the signature of a further two Platform Supply Vessel (PSV) contracts with Petrobras in the quarter. These vessels will be built in the Wilson Sons Guarujá Shipyard and chartered and operated by our Wilson Sons Ultratug Offshore Joint Venture.
I once again thank our stakeholders, whether they be clients, shareholders, suppliers, employees or any of a number of indirect beneficiaries of the important services we provide to Brazil's trade flow and the oil and gas industry. Your commitment, support and trust is essential to the sustainable growth of our business."
Investment Managers Report
Hanseatic Asset Management LBG, the manager of the Group's investment portfolio reports as follows:
Market Background
The second quarter saw equity markets make gains, with strong performances coming from across the spectrum. This followed a first quarter in which markets had taken a breather, and although there were reasons to be concerned about geopolitical events, volatility remained surprisingly low as markets moved upwards. Central banks continued with accommodative monetary policies, and a range of economic data releases pointed towards an improved outlook. Through the second quarter the MSCI All Country World Index was up 5.1%, with Emerging and Frontier Markets outperforming Developed Markets. Energy was a notably strong sector, up by 11.7%, helped by rising oil prices (+4.8% and +3.7% for Brent and WTI Cushing respectively).
Global bond indices built upon gains made in the first three months of the year, although unlike in that period, during the second quarter the gains were generally less strong than those made by equity markets. The continued commitment to easy monetary policies by central banks saw government bond yields move in, with the US 10-year bond yield declining from 2.72% to 2.53%. The European Central Bank (ECB) decision at the start of June to introduce a further range of accommodative measures saw the German 10-year rate fall to a 13 month low, down 32 bps to 1.25%. The Barclays Global Treasury Index was up 2.5% during the quarter, while Investment Grade and High Yield bonds were up 2.7% and 3.0% respectively. Emerging Market Debt had a strong quarter, especially those bonds denominated in US Dollars, with the JP Morgan EMBI Index rising 5.4%, while the local currency index was up 4.0%.
In the US, data releases were generally positive, and investors were mostly prepared to look past the disappointing Q1 GDP number (-2.9% on an annualised basis), ascribing it to the country's exceptionally severe winter. As a result of the weak Q1 number, the Federal Reserve cut its 2014 US GDP forecast from a range of 2.8%-3.0% to 2.1%-2.3%, but this still implies strong progress for the remainder of the year. The US housing market showed signs of growth, with existing and new home sales rising in May by 4.9% and 18.6% month-on-month respectively, and the Conference Board's consumer confidence index reached 85.2 in May, the highest level for over six years. The improving economic picture was supportive of markets, and the S&P 500 Index was up 5.2% over the quarter.
European equity markets registered positive gains during the quarter, as investors anticipated further steps from the ECB to combat the spectre of deflation and stimulate growth. In June, a range of measures were announced that included the cutting of the benchmark interest rate from 0.25% to 0.15%, the introduction of a negative deposit rate, and a scheme to boost lending to small businesses. Further measures may yet be needed to counter the ultra-low level of inflation, which was recorded at just 0.5% in May and June. Broad European equity markets, as measured by the MSCI Europe ex UK Index, returned +2.1% in the quarter, with the UK market being stronger at +6.1%. There were signs of progress in peripheral countries, with the spreads of bond yields over German Bunds narrowing further, and the successful return to the bond markets made by Greece after a four-year absence. However, data releases showed that economic growth in the first quarter was particularly muted in France (0.0%) and Italy (-0.1%).
The Japanese equity market had a strong quarter, with the MSCI Japan Index up 6.7%. Economic data continued to be mixed following the increase in sales tax from 5% to 8% in April. While inflation and labour data were strong in June, forward-looking indicators were less strong, and industrial production came in weaker than expected.
Following a difficult start to the year, Emerging Markets performed strongly in the second quarter, continuing the rally that began at the end of March. The MSCI Emerging Markets Index was up 6.6%, and Frontier Markets again led with a rise of 11.9%. Within Emerging Markets, Emerging Asia was the strongest region where India led gains. The election of Narendra Modi gave investors cause for optimism concerning the prospects for growth and reform, and the Indian market was up 12.7% as a result. Russia and Brazil had similarly strong quarters, with the apparent improvement in the Ukraine situation assisting the former, although developments post-quarter indicate that the situation is far from resolved. China lagged its peers, although still managed to register a gain of 5.5%. The ISIS incursion in Iraq negatively affected markets in the Middle East, particularly Qatar and UAE, although the concomitant rise in the oil price had a generally positive impact on the energy sector.
The broad Dow Jones UBS Commodity Index had a muted quarter with a rise of just 0.1%. There were gains across metals, with gold and copper rising 3.4% and 5.8% respectively. At the same time, many agricultural commodities fell, with corn falling -14.6% and soybeans -4.3%.
Portfolio Construction
The net asset value at the end of June 2014 was US$250.6 million. The portfolio is comprised of four 'sub-portfolios' as detailed below:
| Sub-Portfolio | $m | % NAV |
| Global Equities | 148.2 | 59.2 |
| Private Assets | 66.9 | 26.7 |
| Market Neutral Funds | 15.9 | 6.3 |
| Bonds / Other | 19.6 | 7.8 |
| Total | $250.6m | 100.0% |
1) 'Global Equities' is comprised of holdings that are sensitive to stock market movements and may take the form of 'long-only' or 'long / short' funds, as well as direct quoted equities. There is a strong bias towards fundamental, research-driven stock-pickers with a proven ability to produce attractive compounded returns.
2) 'Private Assets' contains fixed life investments typically with lives of approximately ten years and often structured through commitments to limited partnership vehicles that make investments in private equity, real assets (such as property and natural resources) and private debt.
These investments are driven by a 'bottom-up' analysis of the manager's value creation attributes, regardless of the prevailing economic climate. Managers dependent on financial engineering as a primary driver of returns are avoided. Moreover, it is essential that the manager provides more than capital to its portfolio companies - e.g. strong operational capabilities. Investments should be made into companies where there is a clearly defined exit route, which is not solely reliant on IPO markets.
By investing in Private Assets it is often possible to access differentiated opportunities and fast growing businesses that are not normally available through public markets. For example, many Emerging Market countries have relatively immature capital markets, which can make it difficult to access the most attractive sectors in the public markets at reasonable valuations. Furthermore, Private Assets often exhibit low correlation to public security markets and the phased drawdown of capital helps to reduce market timing risk.
· 27 commitments (totalling US$115.8 million) have been made as at 30 June 2014.
· US$82.2 million has been drawn down.
· Outstanding commitments of $43.1 million (the majority of which will be drawn down over the next five years) are covered by cash and investments in market neutral funds. In addition, based on conservative estimates, distributions from the current private assets portfolio should enable this sub-portfolio to become self-funding.
· To date, cumulative distributions received total US$24.6 million.
3) 'Market Neutral Funds' contains generally lower volatility investments in a small number of funds that engage in a variety of trading strategies across asset classes. Each market neutral fund has a different investment mandate and it is expected that their collective performance will not be dependent on the direction of global security markets. What they have in common is a focus on generating positive absolute returns while providing downside protection in volatile markets.
In addition, Market Neutral Funds act as a secondary backstop to cash in covering long-term capital commitments (thus helping to avoid excessive cash drag - especially in the current environment of near-zero interest rates) and other opportunistic investments. In short, the Investment Manager believes that they provide a better risk/reward allocation than other investments that are perceived to be 'lower risk' such as government bonds.
4) 'Bonds / Other' - Bonds, both sovereign and credit, are comprised of two constituents: (i) Investment Grade Bonds and (ii) High Yield Bonds. Returns may be generated from rising capital value and coupons as well as currency exposure.
Investment Grade Bonds (0% of NAV) would contain investments in sovereign (government) bonds as well as corporate bonds with high credit ratings (typically at least 'BBB' as defined by Standard & Poor's).
High Yield Bonds US$9.7 million, (3.8% of NAV) include investments in Emerging Market (sovereign and corporate debt) and other Developed Market high yield corporate debt.
'Other' is comprised of cash valued at US$9.9 million (4.0% of NAV).
Cumulative performance returns
| Performance (Time-weighted) |
Q2 2014 | YTD | 1 Year | 3 Year p.a. | 5 Year p.a. | 10 Year p.a. | Since Inception p.a. (i) |
| Portfolio Performance | 2.5% | 3.7% | 11.0% | 2.9% | 5.8% | 7.4% | 7.7% |
| Performance Benchmark (ii) | 0.6% | 1.3% | 2.7% | 2.9% | 3.0% | 4.5% | 3.9% |
| MSCI World (Developed) Index | 4.9% | 6.2% | 24.0% | 11.8% | 15.0% | 7.2% | 4.2% |
| MSCI All Country World Index (iii) | 5.1% | 6.2% | 23.0% | 10.3% | 14.3% | 7.4% | n/a |
| MSCI Emerging Markets Index | 6.6% | 6.1% | 14.3% | (0.4%) | 9.2% | 11.9% | 10.7% |
Performance Commentary
| Sub-Portfolio | Valuation | Weighting | Performance | Contribution | Performance | Contribution |
| 30 June 2014 | $m | % | Q2 % | Q2 $m | YTD % | YTD $m |
| Global Equities | 148.2 | 59.2 | 3.6 | 5.4 | 2.8 | 4.3 |
| Private Assets | 66.9 | 26.7 | (0.2) | (0.1) | 6.4 | 3.7 |
| Market Neutral Funds | 15.9 | 6.3 | 5.2 | 0.8 | 6.8 | 1.0 |
| Bonds / Other | 19.6 | 7.8 | (0.0) | (0.0) | 1.5 | 0.3 |
| Total | $250.6m | 100.0% | 2.5% | $6.0m | 3.7% | $9.4m |
The steady market gains made in the second quarter led to the MSCI AC World Index being up 6.2% for the first half of the year. The portfolio return is +3.7%, ahead of the Performance Benchmark of +1.3%. Positive performance came from most parts of the portfolio, while the portfolio's small exposure to the UK was the exception, with a return of -4.4%. This was largely a result of the long-short managers with UK exposure being negatively affected by a strong market rotation away from growth and into value stocks.
Emerging Markets had a strong second quarter and continued the rally that began at the end of March. Emerging Asia was the strongest region in the second quarter, and is now up 7.2% for the year. During this period, India has led the gains following Narendra Modi's election that has given investors cause for optimism. The portfolio has benefited from a relatively high weight in Emerging Asia, although within this region, exposure to India has been below the index. NTAsian Discovery Fund (+14.5%) is the portfolio's largest single exposure to the region, and has been the strongest contributor to performance this year. Elsewhere in Emerging Markets, Brazil and Russia had strong quarters, and the return of Prosperity Quest Fund was particularly notable (+19.2%). Given the difficulties that have affected the Russian market this year, the manager has done very well and year-to-date performance is +4.8% against the MSCI Russia Index -6.0%.
The US market had a strong second quarter and is up 7.2% for the first half of the year. The portfolio has a significant exposure to the market (average weight 28.5%) and achieved a return of +4.4%. The portfolio's largest single holding is Findlay Park American Fund (+6.4%) which was one of the biggest contributors for the period. This fund was combined with two new US funds - Select Equity and Vulcan Value during the second quarter. Performance has so far been good, although the short holding period means neither was among the largest contributors for the period. A considerable proportion of the portfolio's US exposure is accessed through long-short funds, which suffered from the rotation from growth to value, and were therefore among the largest detractors from performance. Such funds include Odey Absolute Return Fund (-5.5%), Lansdowne Developed Markets Fund (-4.0%) and Egerton Long-Short Fund (-1.6%).
The portfolio has benefited this year from exposure to Macro funds. The average weight of 6.2% is shared between BlueBay Macro Fund and BlueCrest AllBlue Leveraged Feeder, both of which have produced strong year-to-date returns of +8.2% and +5.6% respectively.
While lagged valuations of the Private Equity portfolio detract from the portfolio's short-term performance, as in most cases they have not caught up with rises in the public markets, there were some mark-ups during the period that contributed strongly to performance. Greenspring Global Partners IV, LP has made two significant distributions totalling $800k this year and is now held at 1.8x. An illustration of the effect of lagged valuations is provided by African Minerals Exploration & Development Fund which was a significant contributor during the first half of the year. It is now held at 1.6x. Although this is little changed from the December 2013 valuation, it is up from the 1.4x September 2013 valuation that was in the books at the time of the 2013 year-end report being produced.
The top five contributors to the overall portfolio performance were:
| Top Five Contributors (in USD) | Contribution | Performance | Gain | |
| % | %/X | $m | ||
| NTAsian Discovery Fund | 0.6 | 14.5% | 1.4 | |
| Greenspring Global Partners IV, LP | 0.4 | 1.8X | 1.1 | |
| Findlay Park American Fund (ii) | 0.4 | 6.4% | 1.0 | |
| African Minerals Exploration & Development Fund | 0.3 | 1.6X | 0.7 | |
| Helios Investors II, LP | 0.2 | 1.2X | 0.6 | |
| Total | 1.9 | 4.8 |
*Note:
(i) Performance for Private Assets Investments is measured as a multiple (since inception of the investment, not the period) based on the following equation: Cash Multiple = (Profit / Loss + Drawn Capital) / Drawn Capital where Profit / Loss = (Investment Value + Distributions) - (Initial Costs + Taxes).
(ii) Partially sold during the period.
Private Assets (26.7% of net asset value - assuming current portfolio valuation, this would rise to 43.9% on a fully drawn basis) - overall, the underlying limited partnerships are showing increasing visibility on their potential for value creation and the Investment Manager remains confident that the significant capital deployed into post-crisis vintages represent an attractive store of future value. During the first half of 2014, distributions received and drawdowns paid out were US$4.4 million and US$11.1 million respectively.
PORTFOLIO ACTIVITY - for the six month ended 30 June 2014
During the first half of 2014, there were total purchases of US$25.4 million and total sales of US$44.7 million.
| New Positions | $m | |
| Adelphi European Select Equity Fund | 10.0 | |
| Select Equity Offshore, Ltd | 4.5 | |
| Vulcan Value Equity Fund | 4.5 | |
| Additions to Existing Investments | ||
| Odey Absolute Return Fund | 3.5 | |
| BlackRock European Hedge Fund | 2.9 | |
| Total | 25.4 |
Purchases
Adelphi European Select Equity Fund - long-only Pan-European equities, with a fundamental bottom-up approach.
Select Equity Offshore, Ltd - long-only North American equities focusing on quality stocks, with a value consideration, across small and mid-capitalisations.
Vulcan Value Equity Fund - long-only North American equities, focusing on value plays with a quality bias, concentrating on large cap companies.
Odey Absolute Return Fund - long/short Developed Market equities. Although the Fund is closed to new investment, as an early investor, the Investment Manager was given priority when a limited amount of capacity became available.
BlackRock European Hedge Fund- long/short European equities (including UK), across all market capitalisations. Although the Fund is closed to new investment, as an early investor, the Investment Manager was given priority when a limited amount of capacity became available.
Sales - There were sales totalling US$44.7 million during the first half of 2014.
Private Assets - Commitments
There were two new commitments made in the first half of 2014, totalling US$8.0 million.
| New Commitments | $m |
| Primary Capital IV, LLP | 5.0 |
| Greenspring Global Partners VI, LP | 3.0 |
| Total | 8.0 |
Primary Capital IV, LLP - UK lower/middle market buyouts. The portfolio manager focuses on deals with a greater degree of transactional complexity than many PE investors.
Greenspring Global Partners VI, LP - US Venture Capital Fund of Funds (75%) and late stage direct Venture Capital deals (25%).
| INVESTMENT PORTFOLIO | Market Value | % of | |
| 30 June 2014 | $000 | NAV | Primary Focus |
| Findlay Park American Fund | 17,300 | 6.9 | US equities - long-only |
| Egerton European Dollar Fund | 12,800 | 5.1 | Europe / US equities - hedged |
| NTAsian Discovery Fund | 11,100 | 4.4 | Asia ex-Japan equities - long-only |
| Adelphi European Select Equity Fund | 10,400 | 4.2 | Europe - equities |
| Oaktree CM Value Opportunities Fund | 9,660 | 3.9 | US high yield corporate debt - hedged |
| Odey Absolute Return Fund | 9,580 | 3.8 | Europe / US equities - hedged |
| Lansdowne Developed Markets Fund | 9,520 | 3.8 | Europe / US equities - hedged |
| BlackRock European Hedge Fund | 8,860 | 3.5 | Europe equities - hedged |
| BlueCrest AllBlue Leveraged Feeder | 8,170 | 3.3 | Market Neutral - multi-strategy |
| JO Hambro Japan Fund | 7,890 | 3.2 | Japan equities - long-only |
| Top 10 Holdings | |||
| Instinct Dark Horse Fund | 7,790 | 3.1 | Japan equities - hedged |
| BlueBay Macro Fund | 7,700 | 3.1 | Market Neutral - EM-biased macro |
| Prosperity Quest Fund | 7,170 | 2.9 | Russian equities - long-only |
| Hirzel Capital Fund | 6,640 | 2.6 | US equities - hedged |
| Schroder ISF Asian Total Return Fund | 6,050 | 2.4 | Asia ex-Japan equities - long-only |
| African Development Partners I, LLC | 5,960 | 2.4 | Private Assets - Africa |
| China Harvest Fund II, LP | 5,810 | 2.3 | Private Assets - China |
| CCI Technology Partners II | 5,770 | 2.3 | Technology equities - hedged |
| Greenspring Global Partners IV, LP | 5,580 | 2.2 | Private Assets - US Venture Capital |
| Prince Street Opportunities Fund | 5,540 | 2.2 | Emerging Markets equities - long-only |
| Top 20 Holdings | 169,290 | 67.6 | |
| Vulcan Value Equity Fund | 4,750 | 1.9 | US equities - long-only |
| Select Equity Offshore, Ltd | 4,740 | 1.9 | US equities - long-only |
| Helios Investors II, LP | 4,510 | 1.8 | Private Assets - Africa |
| Gramercy Distressed Opportunity Fund II, LP | 4,410 | 1.8 | Private Assets - distressed debt |
| L Capital Asia, LP | 4,290 | 1.7 | Private Assets - Asia (Consumer) |
| African Minerals Exploration & Develop Fund | 4,270 | 1.7 | Private Assets - Mining |
| Prusik Asian Smaller Companies Fund | 4,180 | 1.7 | Asia ex-Japan equities - long-only |
| Oaktree Principal Fund V, LP | 3,880 | 1.5 | Private Assets - US distressed debt |
| KKR Special Situations Fund, LP | 3,560 | 1.4 | Private Assets - distressed debt |
| R/C Global Energy & Power Fund IV, LP | 3,330 | 1.3 | Private Assets - Energy |
| Top 30 Holdings | 211,210 | 84.3 | |
| 21 remaining holdings | 29,428 | 11.7 | |
| Cash | 9,962 | 4.0 | |
| Total | 250,600 | 100.0 |
Market Outlook
Global equity markets continued to push higher during the second quarter, driven by improving fundamentals, which in turn led to rising equity valuations across most Developed Markets. Economic data releases in May highlighted the fastest pace of global growth since 2011, with M&A activity returning to its pre-financial crisis range.
At the risk of sounding rather consensual, we view developed markets as being in mid-cycle territory, with the macroeconomic backdrop steadily improving, albeit lagging that which is normally seen at this stage of a recovery. The US continues to lead the way and the second quarter exhibited strong data across manufacturing, retail sales and consumer confidence, somewhat magnified by the rebound from abnormal weather conditions that depressed first quarter results. Unemployment and inflation are now closer to the Fed's mandated levels than at any point since the crisis. In this context, the US appears well positioned for strong growth in the second half of the year, and the focus of investors will likely be on the timetable for future interest rate hikes.
In contrast, prospects in Europe are mixed, with the disparity in fortunes between the stronger Northern regions and weaker Southern nations becoming more pronounced during the quarter, further highlighting the fragility of the European recovery and its vulnerability to exogenous shocks. The Euro's strength has been surprisingly resilient, and has been a major headwind for European businesses, resulting in earnings downgrades. However, the ECB's unwavering support of the economy and its most recent package of measures to reignite growth by revitalising the lending market, demonstrates a "whatever it takes" attitude that will likely support an ongoing, albeit slow, recovery.
From a valuation perspective, Developed Market price/earnings ratios have risen as investors have anticipated the recovery. Nevertheless, despite some of the headlines, they are not at the upper end of their historical ranges and appear reasonable, particularly if we make the assumption that economic growth will translate into improving profitability.
Away from the US and Europe, the Japanese stock market has its own idiosyncrasies. As a nation, Japan continues to face a number of deep-seated, structural challenges, with excessive levels of debt and poor demographics. Offsetting this, the new Prime Minister, Shinzo Abe, is re-energising the economy through a programme of liquidity injections (quantitative easing) and measures to increase the demand for equities. Japan's equity market has lagged other developed market regions this year, despite a superior profitability profile and the evidence of Abe's commitment to structural reform across labour, inflation and corporate governance, leading us to continue to view prospects positively.
The investment case for Emerging Markets is much more challenging. They have come under significant pressures in recent years as growth, especially in China, has waned and structural issues have arisen from the misallocation of capital following a decade of over-investment. Increasingly, though, valuations are starting to look attractive, albeit experience reminds us that this type of setback rarely ends calmly but rather in collapse and revulsion. Our stance is to be tentative and selective, reflecting our concerns while also acknowledging that the various countries are very different in their make-up.
As is often the case as a cycle matures, risks are also rising. Geopolitical risks are ever-present, most obviously in Eastern Europe and the Middle East, deflation is a real threat in Europe and perhaps most pertinent is the shift from an extraordinarily loose liquidity environment to one that is tighter. We believe that liquidity has been one of the major factors behind the rise in markets and we wonder how prices will fare as the US ends its bond buying programme and interest rates start to rise both in the US and the UK. Market volatility may well rise from its current low, complacent levels but, looking through this, whilst we do see the change in rates as another road sign in the maturing of the market cycle, we would view such an event as an indication of the strength of the economy which ultimately is positive for stock markets.
With the economy seemingly in mid-cycle and with equity valuations fair, we continue to believe that equities offer the most compelling investment case, and the portfolio is positioned accordingly. There remain some opportunities in corporate credit and high yield, although with spreads narrowing these have also become more expensive.
To conclude, the global economic recovery is broadening, and we expect that fundamentals such as earnings growth, will remain the key force driving stock market performance going into the second half of the year.
Hanseatic Asset Management LBG
August 2014
Going concern
The Group closely monitors and manages its liquidity risk. The Group has considerable financial resources including US$91.9 million in cash and cash equivalents and the Group's borrowings have a long maturity profile. The Group's business activities together with the factors likely to affect its future development and performance are set out in Chairman's statement and investment manager's report. The financial position, cash flows and borrowings of the Group are also set out in the Chairman's statement. Details of the Group's borrowings are set out in note 15. Based on the Group's cash forecasts and sensitivities run, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.
Responsibility statement
The Directors confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance with IAS 34;
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R; and
(c) the interim management report includes a fair review of the information required by DTR 4.2.8R.
J F Gouvêa Vieira
Chairman
15 August 2014
Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2014
| Unaudited | Unaudited | ||
| six months | six months | ||
| to 30 June | to 30 June | ||
| 2014 | 2013 | ||
| Notes | US$'000 | US$'000 | |
| Revenue | 3 | 299,907 | 306,414 |
| Raw materials and consumables used | (39,824) | (35,877) | |
| Employee benefits expense | 5 | (101,773) | (105,321) |
| Depreciation & amortisation expense | 4 | (31,676) | (27,814) |
| Other operating expenses | (92,128) | (96,859) | |
| Profit on disposal of property, plant and equipment | (242) | 9,812 | |
| Operating profit | 34,264 | 50,355 | |
| Share of results of joint ventures | 1,612 | (45) | |
| Investment revenue | 6 | 7,121 | 8,514 |
| Other gains and losses | 7 | 7,335 | 361 |
| Finance costs | 8 | (1,950) | (11,719) |
| Foreign exchange losses on monetary items | 9,263 | (12,949) | |
| Profit before tax | 57,645 | 34,517 | |
| Income tax expense | 9 | (11,410) | (21,266) |
| Profit for the period | 46,235 | 13,251 | |
| Other comprehensive income: items that may be reclassified subsequently to profit and loss | |||
| Exchange differences arising on translation of foreign operations | 5,681 | (3,420) | |
| Effective portion of changes in fair value of derivatives | (484) | - | |
| Other comprehensive income/(loss) for the period | 5,197 | (3,420) | |
| Total comprehensive income for the period | 51,432 | 9,831 | |
| Profit for the period attributable to: | |||
| Equity holders of parent | 29,085 | 7,368 | |
| Non-controlling interests | 17,150 | 5,883 | |
| 46,235 | 13,251 | ||
| Total comprehensive income for the period attributable to: | |||
| Equity holders of parent | 31,696 | 5,583 | |
| Non-controlling interests | 19,736 | 4,248 | |
| 51,432 | 9,831 | ||
| Earnings per share | |||
| Basic and diluted | 11 | 82.2c | 20.8c |
Consolidated Balance Sheet
as at 30 June 2014
| Unaudited | Audited | ||
| as at | as at | ||
| 30 June | 31 December | ||
| 2014 | 2013 | ||
| Notes | US$'000 | US$'000 | |
| Non-current assets | |||
| Goodwill | 39,022 | 37,622 | |
| Other intangible assets | 45,812 | 46,650 | |
| Property, plant and equipment | 12 | 655,857 | 616,924 |
| Deferred tax assets | 29,894 | 30,099 | |
| Trade and other receivables | 14 | 54,015 | 23,998 |
| Investment in joint ventures | 16 | 6,212 | 2,577 |
| Other non-current assets | 11,885 | 10,209 | |
| 842,697 | 768,079 | ||
| Current assets | |||
| Inventories | 36,369 | 29,090 | |
| Trading investments | 13 | 258,638 | 277,969 |
| Trade and other receivables | 14 | 99,009 | 150,819 |
| Cash and cash equivalents | 91,871 | 106,512 | |
| 485,887 | 564,390 | ||
| Total assets | 1,328,584 | 1,332,469 | |
| Current liabilities | |||
| Trade and other payables | (98,175) | (135,920) | |
| Derivatives | (197) | (110) | |
| Current tax liabilities | (697) | (210) | |
| Obligations under finance leases | (1,630) | (1,547) | |
| Bank overdrafts and loans | 15 | (52,591) | (37,997) |
| (153,290) | (175,784) | ||
| Net current assets | 332,597 | 388,606 | |
| Non-current liabilities | |||
| Bank loans | 15 | (334,523) | (334,394) |
| Derivatives | (1,649) | (1,130) | |
| Employee benefits | (2,572) | (2,251) | |
| Deferred tax liabilities | (29,925) | (33,761) | |
| Provisions | (11,862) | (10,262) | |
| Obligations under finance leases | (4,283) | (4,812) | |
| (384,814) | (386,610) | ||
| Total liabilities | (538,104) | (562,394) | |
| Net assets | 790,480 | 770,075 | |
| Capital and reserves | |||
| Share capital | 11,390 | 11,390 | |
| Retained earnings | 513,789 | 505,922 | |
| Capital reserves | 31,760 | 31,760 | |
| Translation and hedging reserve | 5,962 | 3,128 | |
| Equity attributable to equity holders of the parent | 562,901 | 552,200 | |
| Non-controlling interests | 227,579 | 217,875 | |
| Total equity | 790,480 | 770,075 |
Consolidated Statement of Changes in Equity
as at 30 June 2014
| Hedging | Attributable | ||||||
| and | to equity | Non- | |||||
| Share | Retained | Capital | Translation | holders of | controlling | Total | |
| For the six months ended 30 June 2013 | capital | earnings | reserves | reserve | the parent | interests | Equity |
| (unaudited) | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
| Balance at 1 January 2013 | 11,390 | 482,798 | 31,760 | 5,966 | 531,914 | 211,654 | 743,568 |
| Currency translation adjustment | - | - | - | (1,785) | (1,785) | (1,635) | (3,420) |
| Profit for the period | - | 7,368 | - | - | 7,368 | 5,883 | 13,251 |
| Total income and expense for the period | - | 7,368 | - | (1,785) | 5,583 | 4,248 | 9,831 |
| Dividends | - | (13,438) | - | - | (13,438) | (7,543) | (20,981) |
| Derivatives | - | - | - | (130) | (130) | (93) | (223) |
| Balance at 30 June 2013 | 11,390 | 476,728 | 31,760 | 4,051 | 523,929 | 208,266 | 732,195 |
| For the six months ended 30 June 2014 (unaudited) | |||||||
| Balance at 1 January 2014 | 11,390 | 505,922 | 31,760 | 3,128 | 552,200 | 217,875 | 770,075 |
| Currency translation adjustment | - | - | - | 3,095 | 3,095 | 2,586 | 5,681 |
| Effective portion of changes in fair value of derivatives | - | - | - | (261) | (261) | (223) | (484) |
| Profit for the period | - | 29,085 | - | - | 29,085 | 17,150 | 46,235 |
| Total income and expense for the period | - | 29,085 | - | 2,834 | 31,919 | 19,513 | 51,432 |
| Dividends | - | (21,218) | - | - | (21,218) | (11,286) | (32,504) |
| Share based expense | - | - | - | - | - | 1,477 | 1,477 |
| Balance at 30 June 2014 | 11,390 | 513,789 | 31,760 | 5,962 | 562,901 | 227,579 | 790,480 |
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 2014
| Unaudited | Unaudited | ||
| six months | six months | ||
| to 30 June | to 30 June | ||
| 2014 | 2013 | ||
| Notes | US$'000 | US$'000 | |
| Net cash inflow from operating activities | 17 | 26,695 | 37,908 |
| Investing activities | |||
| Interest received | 4,045 | 4,891 | |
| Dividends received from trading investments | 2,129 | 2,604 | |
| Proceeds on disposal of trading investments | 80,874 | 40,390 | |
| Proceeds on disposal of property, plant and equipment | 133 | 14,662 | |
| Purchases of property, plant and equipment | (57,591) | (36,292) | |
| Purchase of intangible asset | (496) | (914) | |
| Purchases of trading investments | (54,208) | (19,400) | |
| Net cash (used in) / from investing activities | (25,114) | 5,941 | |
| Financing activities | |||
| Dividends paid | 10 | (21,218) | (13,438) |
| Dividends paid to non-controlling interests in subsidiary | (11,286) | (7,543) | |
| Repayments of borrowings | (20,332) | (18,194) | |
| Repayments of obligations under finance leases | (1,015) | (812) | |
| Derivative paid | (71) | - | |
| New bank loans raised | 18,915 | 18,065 | |
| Increase in bank overdrafts | 13,900 | - | |
| Net used in financing activities | (21,107) | (21,922) | |
| Net (decrease)/increase in cash and cash equivalents | (19,526) | 21,927 | |
| Cash and cash equivalents at beginning of period | 106,512 | 136,680 | |
| Effect of foreign exchange rate changes | 4,885 | (5,864) | |
| Cash and cash equivalents at end of period | 91,871 | 152,743 |
Notes to the Accounts
for the six months ended 30 June 2014
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 2014 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 (IFRS's) 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 2013.
3 Revenue
An analysis of the Group's revenue is as follows:
| Unaudited | Unaudited | ||
| six months | six months | ||
| to 30 June | to 30 June | ||
| 2014 | 2013 | ||
| Note | US$'000 | US$'000 | |
| Sales of services | 263,274 | 263,972 | |
| Revenue from construction contracts | 36,633 | 42,442 | |
| 299,907 | 306,414 | ||
| Investment income | 6 | 7,121 | 8,514 |
| 307,028 | 314,928 |
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 2014 (unaudited)
| Maritime | ||||
| services | Investment | Unallocated | Consolidated | |
| six months | six months | six months | six months | |
| to 30 June | to 30 June | to 30 June | to 30 June | |
| 2014 | 2014 | 2014 | 2014 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Revenue | 299,907 | - | - | 299,907 |
| Result | ||||
| Segment result | 36,612 | (1,345) | (1,003) | 34,264 |
| Share of joint venture results | 1,612 | - | - | 1,612 |
| Investment revenue | 4,990 | 2,130 | 1 | 7,121 |
| Other gains and losses | - | 7,335 | - | 7,335 |
| Finance costs | (1,950) | - | - | (1,950) |
| Exchange losses on monetary items | 9,156 | (32) | 139 | 9,263 |
| Profit before tax | 50,420 | 8,088 | (863) | 57,645 |
| Tax | (11,410) | - | - | (11,410) |
| Profit after tax | 39,010 | 8,088 | (863) | 46,235 |
| Other information | ||||
| Capital additions | (58,714) | - | - | (58,714) |
| Depreciation and amortization | (31,675) | - | (1) | (31,676) |
| Balance Sheet | ||||
| Assets | ||||
| Segment assets | 1,073,321 | 251,575 | 3,688 | 1,328,584 |
| Liabilities | ||||
| Segment liabilities | (537,448) | (245) | (411) | (538,104) |
For the six months ended 30 June 2013 (unaudited)
| Maritime | ||||
| services | Investment | Unallocated | Consolidated | |
| six months | six months | six months | six months | |
| to 30 June | to 30 June | to 30 June | to 30 June | |
| 2013 | 2013 | 2013 | 2013 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Revenue | 306,414 | - | - | 306,414 |
| Result | ||||
| Segment result | 52,826 | (1,398) | (1,073) | 50,355 |
| Share of joint venture results | (45) | - | - | (45) |
| Investment revenue | 5,868 | 2,644 | 2 | 8,514 |
| Other gains and losses | - | 361 | - | 361 |
| Finance costs | (11,719) | - | - | (11,719) |
| Exchange losses on monetary items | (13,151) | (166) | 368 | (12,949) |
| Profit before tax | 33,779 | 1,441 | (703) | 34,517 |
| Tax | (21,266) | - | - | (21,266) |
| Profit after tax | 12,513 | 1,441 | (703) | 13,251 |
| Other information | ||||
| Capital additions | (37,206) | - | - | (37,206) |
| Depreciation and amortization | (27,813) | - | (1) | (27,814) |
| Balance Sheet | ||||
| Assets | ||||
| Segment assets | 1,056,045 | 235,312 | 4,153 | 1,295,510 |
| Liabilities | ||||
| Segment liabilities | (562,978) | (306) | (31) | (563,315) |
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, Brazil, and Guernsey.
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 | equipment and intangible assets | |||
| segment assets | Unaudited | Unaudited | ||
| Unaudited | Unaudited | six months to | six months to | |
| 30 June | 31 December | 30 June | 30 June | |
| 2014 | 2013 | 2014 | 2013 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Brazil | 1,043,541 | 1,035,900 | 58,714 | 37,206 |
| Bermuda | 284,981 | 258,612 | - | - |
| Other | 62 | 998 | - | - |
| 1,328,584 | 1,295,510 | 58,714 | 37,206 |
5 Employee benefits expense
| Unaudited | Unaudited | |
| six months | six months | |
| to 30 June | to 30 June | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Aggregate remuneration comprised: | ||
| Wages and salaries | 90,834 | 93,257 |
| Share based payment expense | (2,302) | (5,002) |
| Social security costs | 12,587 | 16,314 |
| Other pension costs | 654 | 752 |
| 101,773 | 105,321 |
6 Investment revenue
| Unaudited | Unaudited | |
| six months to | six months to | |
| 30 June | 30 June | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Interest on bank deposits | 3,543 | 4,201 |
| Dividends from equity investments | 2,129 | 2,604 |
| Other interest | 1,449 | 1,709 |
| 7,121 | 8,514 |
7 Other gains and losses
| Unaudited | Unaudited | |
| six months to | six months to | |
| 30 June | 30 June | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Increase/(decrease) in fair value of trading investments held at year end | 5,160 | 266 |
| Profit on disposal of trading investments | 2,175 | 95 |
| 7,335 | 361 |
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 | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Interest on bank overdrafts and loans | 5,939 | 5,789 |
| Exchange (gain) / loss on foreign currency borrowings | (4,495) | 5,638 |
| Interest on obligations under finance leases | 506 | 292 |
| 1,950 | 11,719 |
9 Taxation
| Unaudited | Unaudited | |
| six months to | six months to | |
| 30 June | 30 June | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Current taxation | ||
| Brazilian taxation: | ||
| Corporation tax | 10,079 | 13,212 |
| Social contribution | 4,459 | 5,082 |
| Total current tax | 14,538 | 18,294 |
| Deferred tax | ||
| Charge for the period in respect of deferred tax liabilities | 7,883 | 13,772 |
| (Credit) for the period in respect of deferred tax assets | (11,011) | (10,800) |
| Total deferred tax | (3,128) | 2,972 |
| Total taxation | 11,410 | 21,266 |
Brazilian corporation tax is calculated at 25% (2013: 25%) of the assessable profit for the year.
Brazilian social contribution tax is calculated at 9% (2013: 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 | six months | |
| to 30 June | to 30 June | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Amounts recognised as distributions to equity holders in the period: | ||
| Final dividend paid for the year ended 31 December 2013 of 60.0c (2012: 38.0c) per share | 21,218 | 13,438 |
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 | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Earnings: | ||
| Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent | 29,085 | 7,368 |
| Number of shares: | ||
| Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share | 35,363,040 | 35,363,040 |
12 Property, plant and equipment
During the period the Group spent approximately US$57.6 million mainly on vessel construction and terminal equipment.
At 30 June 2014, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$3.6 million.
13 Investments
| Unaudited | Audited | |
| six months | year to | |
| to 30 June | 31 December | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Trading investments | ||
| At 1 January | 277,969 | 241,582 |
| Additions, at cost | 54,208 | 77,879 |
| Disposals, at market value | (80,874) | (55,176) |
| Increase in fair value of trading investments held at period end | 5,160 | 14,594 |
| Profit/(loss) on disposal of trading investments | 2,175 | (910) |
| At period end | 258,638 | 277,969 |
| Ocean Wilsons Investment Limited Portfolio | 240,638 | 244,969 |
| Wilson Sons Limited | 18,000 | 33,000 |
| Trading investments held at fair value at period end | 258,638 | 277,969 |
Wilson Sons Limited
During 2014, Wilson Sons Limited invested in Real denominated and US Dollar denominated fixed rate certificates. The Wilson Sons Limited investments are held and managed separately from the Ocean Wilsons Investment Portfolio.
Ocean Wilsons Investment Portfolio
The Group has not designated any financial assets that are not classified as trading investments as financial assets at fair value through profit or loss.
Trading investments above represent investments in listed equity securities, funds and unquoted equities that present the Group with opportunity for return through dividend income and capital appreciation.
Included in trading investments are open ended funds whose shares may not be listed on a recognised stock exchange but are redeemable for cash at the current net asset value at the option of the company. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available. Where quoted market prices are not available, fair values are determined using various valuation techniques that include inputs for the asset or liability that are not based in observable market data (unobservable inputs).
14 Trade and other receivables
| Unaudited | Audited | |
| period ended | year ended | |
| 30 June | 31 December | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Trade and other receivables | ||
| Amount receivable for the sale of services | 59,486 | 65,542 |
| Allowance for doubtful debts | (2,500) | (1,718) |
| 56,986 | 63,824 | |
| Income taxation recoverable | 13,655 | 15,082 |
| Prepayments and other | 9,321 | 7,089 |
| Other recoverable taxes and levies | 33,916 | 32,760 |
| Other | 39,146 | 56,062 |
| 153,024 | 174,817 | |
| Total current | 99,009 | 150,819 |
| Total non-current | 54,015 | 23,998 |
| 153,024 | 174,817 |
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, and receivables from Intermarítima relating to the sale of the non-controlling interest in Tecon Salvador. There are no indicators of impairment related to these receivables.
Included in the Group's trade receivable balances are debtors with a carrying amount of US$14.2 million (2013: US$12.8 million) which are past due but not impaired at the reporting date for which the Group has not provided as there has not been a change in credit quality and the Group believes the amounts are still recoverable.
The Group does not hold any collateral over these balances.
| Unaudited | Audited | |
| period ended | year ended | |
| 30 June | 31 December | |
| 2014 | 2013 | |
| Ageing of past due but not impaired trade receivables | US$'000 | US$'000 |
| From 0 - 30 days | 9,175 | 9,046 |
| From 31 - 90 days | 2,346 | 3,015 |
| From 91 - 180 days | 2,712 | 771 |
| more than 180 days | - | - |
| Total | 14,233 | 12,832 |
Included in the Group's allowance for doubtful debts are individually impaired trade receivables with a balance of US$2.5 million that are aged greater than 180 days. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected settlement proceeds. The Group does not hold any collateral over these balances.
| Unaudited | Audited | |
| period ended | year ended | |
| 30 June | 31 December | |
| 2014 | 2013 | |
| Ageing of impaired trade receivables | US$'000 | US$'000 |
| From 0 - 30 days | - | - |
| From 31 - 90 days | - | - |
| From 91 - 180 days | - | - |
| more than 180 days | 2,500 | 1,718 |
| Total | 2,500 | 1,718 |
In determining recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. The directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
15 Bank loans and overdrafts
| Unaudited | Audited | ||
| period ended | year ended | ||
| 30 June | 31 December | ||
| 2014 | 2013 | ||
| Annual Interest rate | US$'000 | US$'000 | |
| Unsecured borrowings | |||
| Bank overdrafts - Real | 11.88% | 13,900 | - |
| Secured borrowings | |||
| BNDES - FMM linked to US$¹ | 2.07% - 6.00% | 208,070 | 214,826 |
| BNDES Real² | 6.76% - 6.89% | 10,925 | 9,849 |
| BNDES - linked to US$² | 5.07% - 5.36% | 10,509 | 11,591 |
| BNDES - FINAME Real³ | 3.50% -12.00% | 6,723 | 10,366 |
| BNDES - FMM Real¹ | 5.90% - 9.71% | 3,378 | 3,247 |
| Total BNDES | 239,605 | 249,879 | |
| IFC - US$4 | 3.08% | 71,436 | 75,296 |
| Banco do Brasil - FMM linked to US$5 | 2.00% - 3.00% | 42,218 | 24,387 |
| Eximbank - US$6 | 2.10% | 10,511 | 11,563 |
| Finimp - US$7 | 1.96% - 4.29% | 7,904 | 9,528 |
| IFC - $Real4 | 14.09% | 1,540 | 1,738 |
| Total others | 133,609 | 122,512 | |
| Total secured borrowings | 373,214 | 372,391 | |
| Total borrowings | 387,114 | 372,391 | |
1. As an agent of Fundo da Marinha Mercante's (FMM), BNDES finances the construction of tugboats and shipyard facilities.
2. Through FINEM credit line, BNDES is also financing improvements in Tecon Rio Grande, modernization of support bases of Brasco in Niterói and Guaxindiba, Logistics equipment, implementation of Wilport's yard and enlargement of the container storehouse in Salvador Depot.
3. FINAME credit line, through a variety of financial agents, finances Logistics and Port Operation equipment.
4. International Finance Corporation (IFC) finances projects in container terminal - Tecon Salvador. The amortization and interest payment are semi-annual.
5. Banco do Brasil ("BB") as a Fundo da Marinha Mercante's (FMM) agent, finances the construction of tugboats, with monthly amortization and interest payment.
6. The Export-Import Bank of China (Eximbank) finances Tecon Rio Grande's equipment acquisition, with semi-annual amortization and interest payment.
7. Banco Itaú BBA S.A finances Tecon Rio Grande's equipment acquisition through an Import Finance Facility ("FINIMP"), with semi-annual amortization and interest payment.
| Period ended | Year ended | ||
| 30 June | 31 December | ||
| 2014 | 2013 | ||
| US$'000 | US$'000 | ||
| The borrowings are repayable as follows: | |||
| On demand or within one year | 52,591 | 37,997 | |
| In the second year | 37,354 | 37,370 | |
| In the third to fifth years inclusive | 112,937 | 110,115 | |
| After five years | 184,232 | 186,909 | |
| Total borrowings | 387,114 | 372,391 | |
| Amounts due for settlement within 12 months | (52,591) | (37,997) | |
| Amounts due for settlement after 12 months | 334,523 | 334,394 |
Analysis of borrowings by currency:
| $Real | ||||
| linked to | ||||
| $Real | US Dollars | US Dollars | Total | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| 30 June 2014 (unaudited) | ||||
| Bank overdrafts | 13,900 | - | - | 13,900 |
| Bank loans | 22,566 | 260,797 | 89,851 | 373,214 |
| Total | 36,466 | 260,797 | 89,851 | 387,114 |
| 31 December 2013 (audited) | ||||
| Bank overdrafts | - | - | - | - |
| Bank loans | 25,200 | 250,804 | 96,387 | 372,391 |
| Total | 25,200 | 250,804 | 96,387 | 372,391 |
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 BB 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 with "The Export-Import Bank of China" is guaranteed by a "Standby Letter of Credit" issued for Tecon Rio Grande by Banco Itaú BBA S.A., with the financing bank as beneficiary, as counter-guarantee, Tecon Rio Grande pledged the equipment funded by "The Export-Import Bank of China" to Banco Itaú BBA S.A.
Loan with Itaú BBA S.A. is guaranteed by the corporate guarantee from Wilson Sons de Administração e Comércio Ltda and the pledge of the respective financed equipment. One contract is additionally guaranteed by a promissory note.
Undrawn credit facilities
At 30 June 2014, the Group had available US$128.2 million of undrawn borrowing facilities. For each disbursement, there is a set of precedent conditions that must be satisfied.
Financing for a shipyard in Rio Grande of approximately US$106.2 million is not included in undrawn borrowing facilities.
Fair value
Management estimates the fair value of the Group's borrowings as follows:
| Unaudited 30 June 2014 |
Audited 31 December 2013 |
||
| US$'000 | US$'000 | ||
| Bank overdrafts | 13,900 | - | |
| Bank loans | |||
| BNDES | 239,605 | 249,879 | |
| BB | 42,218 | 24,387 | |
| IFC | 72,976 | 77,034 | |
| Eximbank | 10,511 | 11,563 | |
| Finimp | 7,904 | 9,528 | |
| Total bank loans | 373,214 | 372,391 | |
| Total | 387,114 | 372,391 |
16 Joint ventures
The Group holds the following significant interests in joint operations and joint ventures at the end of the reporting period:
| Proportion | ||||
|---|---|---|---|---|
| of ownership interest | ||||
| --- | --- | --- | --- | --- |
| Place of | ||||
| --- | --- | --- | --- | --- |
| incorporation and operation |
30 June 2014 |
31 December 2013 | ||
| --- | --- | --- | --- | --- |
| Towage | ||||
| Consórcio de Rebocadores Barra de Coqueiros (***) | Brazil | 29.13% | 29.13% | |
| Consórcio de Rebocadores Baia de São Marcos (***) | Brazil | 29.13% | 29.13% | |
| Logistics | ||||
| Porto Campinas, Logística e Intermodal Ltda (***) | Brazil | 29.13% | 29.13% | |
| Offshore | ||||
| Wilson, Sons Ultratug Participações S.A. (*) | Brazil | 29.13% | 29.13% | |
| Atlantic Offshore S.A. (**) | Panamá | 29.13% | 29.13% | |
(*) Wilson, Sons Ultratug Participações S.A. controls Wilson, Sons Offshore S.A. and Magallanes Navegação Brasileira S.A. These latter two companies are indirect joint ventures of the Company.
(**) Atlantic Offshore S.A. controls South Patagonia S.A. This company is indirect joint venture of Wilson Sons Limited.
(***) Joint Operations.
The Group´s interests in joint ventures are equity accounted.
| Unaudited Six months to 30 June 2014 US$'000 |
Unaudited Six months to 30 June 2013 US$'000 |
||
|---|---|---|---|
| --- | --- | --- | --- |
| Revenue | 71,248 | 49,556 | |
| Raw materials and consumable used | (2,639) | (3,691) | |
| Employee benefits expense | (24,051) | (20,803) | |
| Depreciation and amortisation expenses | (16,983) | (12,043) | |
| Other operating expenses | (9,249) | (6,066) | |
| Results from operating activities | 18,326 | 6,953 | |
| Finance income | (183) | 992 | |
| Finance costs | (9,241) | (7,601) | |
| Foreign exchange gains on monetary items | 3,660 | 3,799 | |
| Profit before tax | 12,562 | 4,143 | |
| Income tax expense | (9,338) | (4,233) | |
| Profit /(loss) for the period | 3,224 | (90) | |
| Participation (before non-controlling interests) | 50% | 50% | |
| Equity result | 1,612 | (45) |
| Period ended | Year ended | ||||||
| 30 June | 31 December | ||||||
| 2014 | 2013 | ||||||
| US$'000 | US$'000 | ||||||
| Other non-current Assets | 1,242 | 465 | |||||
| Property, plant and equipment | 595,859 | 603,137 | |||||
| Long-term investment | 2,136 | 2,131 | |||||
| Other current assets | 1,234 | 864 | |||||
| Trade and other receivables | 36,102 | 33,607 | |||||
| Cash and cash equivalents | 13,659 | 23,401 | |||||
| Total assets | 650,232 | 663,605 | |||||
| Bank overdrafts and loans | 499,291 | 501,713 | |||||
| Other non-current liabilities | 17,153 | 8,878 | |||||
| Trade and other payables | 80,332 | 102,782 | |||||
| Equity | 53,456 | 50,232 | |||||
| Total liabilities | 650,232 | 663,605 | |||||
Guarantees
Loans with BNDES are guaranteed by a pledge over the financed supply vessels and corporate guarantee from Wilson Sons Adminisração e Comércio and/or Remolcadores Ultratug Ltda.
Loans with Banco do Brasil are guaranteed by a pledge over the financed supply vessels, "Standby Letter of Credit", fiduciary assignment of Petrobras long-term contracts and corporate guarantee from Remolcadores Ultratug Ltda. The Magallanes Navegação Brasileira S.A. subsidiary, in accordance to this Financing Agreement with Banco do Brasil, constituted a restricted cash account, accounted for under Long term investments, in the amount of US$2.1 million. This reserve will be retained until financing settlement, with minimum remuneration as savings account orby other financial instrument with similar risk, at the financial institution's discretion, and operated exclusively by the financial institution.
Covenants
The joint venture Magallanes Navegação Brasileira S.A. has to comply with specific financial covenants.
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$14.6 million (2013: US$1.9 million), whose probability of loss was estimated by the legal counsel as possible.
| Period ended | Year ended | |
| 30 June | 31 December | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Civil cases | 9 | 9 |
| Tax cases | 10,384 | 639 |
| Labour claims | 4,234 | 1,231 |
| Total | 14,627 | 1,879 |
17 Notes to the cash flow statement
| Unaudited | Unaudited | |
| six months to | six months to | |
| 30 June | 30 June | |
| 2014 | 2013 | |
| US$'000 | US$'000 | |
| Reconciliation from profit before tax to net cash from operating activities | ||
| Profit before tax | 57,645 | 34,517 |
| Share of joint venture results | (1,612) | 45 |
| Investment revenues | (7,121) | (8,514) |
| Other gains and losses | (7,335) | (361) |
| Finance costs | 1,950 | 11,719 |
| Exchange losses on monetary items | (9,263) | 12,949 |
| Operating profit | 34,264 | 50,355 |
| Adjustments for: | ||
| Depreciation of property, plant and equipment | 28,175 | 25,118 |
| Amortisation of intangible assets | 3,501 | 2,696 |
| Share based payment expense | (2,302) | (5,002) |
| Gain on disposal of property, plant and equipment | 242 | (9,812) |
| Increase/(decrease) in provisions | 2,382 | (581) |
| Operating cash flows before movements in working capital | 66,262 | 62,774 |
| Increase in inventories | (7,279) | (3,149) |
| Decrease in receivables | 25,132 | 12,974 |
| Decrease in payables | (40,984) | (11,151) |
| Increase in other non-current assets | (1,676) | (665) |
| Cash generated by operations | 41,455 | 60,783 |
| Income taxes paid | (8,325) | (16,431) |
| Interest paid | (6,435) | (6,444) |
| Net cash from operating activities | 26,695 | 37,908 |
18 Commitments
At 30 June 2014 the Group had entered into twenty-one commitment agreements with respect to twenty-one separate trading investments. 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 | 2014 | 2013 | |
| $'000 | US$'000 | US$'000 | |
| Expiry date | |||
| 03 August 2014 | 3,000 | 300 | 810 |
| 22 November 2014 | 5,000 | 875 | 1,175 |
| 08 December 2014 | 5,000 | 1,205 | 1,356 |
| 31 December 2014 | 3,000 | 68 | 68 |
| 23 February 2015 | 5,000 | 862 | 949 |
| 31 December 2016 | 3,000 | 271 | 271 |
| 17 February 2017 | 3,000 | 1,591 | 1,652 |
| 21 May 2013 | €3.350 | 108 | 267 |
| 28 March 2017 | 5,000 | 4,135 | 4,884 |
| 30 April 2017 | 7,500 | 4,745 | 5,226 |
| 5 December 2017 | 5,000 | 354 | 394 |
| 30 March 2018 | 5,000 | 903 | 914 |
| 4 June 2018 | 5,000 | 1,700 | 1,700 |
| 21 December 2018 | 5,000 | 516 | 623 |
| 31 December 2018 | 4,650 | 556 | 739 |
| 31 January 2019 | 3,000 | 2,760 | - |
| 21 June 2019 | 5,000 | 1,250 | 3,000 |
| 1 January 2020 | 4,500 | 1,234 | 4,500 |
| 18 December 2021 | 5,000 | 3,306 | 3,544 |
| 1 February 2023 | 5,000 | 850 | 1,000 |
| 1 April 2023 | 5,000 | 3,776 | 3,824 |
| 5 June 2023 | 3,200 | 2,710 | 3,048 |
| 22 August 2023 | 5,000 | 3,869 | 4,607 |
| TBC | £ 3,000 | 5.131 | - |
| Total | 43,075 | 44,511 |
19 Related party transactions
Transactions between this company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Transactions between the group and its associates, joint ventures and others investments are disclosed below.
| Dividends received/ | Amounts paid/ | |||
| Revenue of services | Cost of services | |||
| Unaudited | Unaudited | Unaudited | Unaudited | |
| 30 June | 30 June | 30 June | 30 June | |
| 2014 | 2013 | 2014 | 2013 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Joint ventures | ||||
| 1. Allink Transportes Internacionais Limitada | 14 | 18 | - | - |
| 2. Consórcio de Rebocadores Barra de Coqueiros | 168 | 175 | - | - |
| 3. Consórcio de Rebocadores Baía de São Marcos | 91 | 5 | (26) | (1,098) |
| 4. Wilson Sons Ultratug | 601 | 43,049 | (289) | - |
| Others | ||||
| 5. Hanseatic Asset Management | - | - | (1.235) | (1,338) |
| 6. Gouvêa Vieira Advogados | - | - | (46) | (167) |
| 7. CMMR Intermediacao Comercial Limitada | - | - | (119) | (189) |
| 8. Jofran Services | - | - | (87) | (87) |
| Amounts owed | Amounts owed | |||
| by related parties | to related parties | |||
| Unaudited | Audited | Unaudited | Audited | |
| 30 June | 31 December | 30 June | 31 December | |
| 2014 | 2013 | 2014 | 2013 | |
| (Restated) | (Restated) | |||
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Joint ventures | ||||
| 1. Allink Transportes Internacionais Limitada | 2 | - | - | - |
| 2. Consórcio de Rebocadores Barra de Coqueiros | 206 | 134 | - | - |
| 3. Consórcio de Rebocadores Baía de São Marcos | 2,207 | 2,165 | - | - |
| 4. Wilson Sons Ultratug | 12,329 | 20.350 | - | - |
| Others | ||||
| 5. Hanseatic Asset Management | - | - | (245) | (211) |
| 6. Gouvêa Vieira Advogados | - | - | - | - |
| 7. CMMR Intermediacao Comercial Limitada | - | - | - | - |
| 8. 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.
1-4. The transactions with the joint ventures are disclosed because of proportionate amounts not eliminated on consolidation. The proportion of ownership interest in each joint venture is described in note 16.
5. Mr. W H Salomon is Chairman of Hanseatic Asset Management. Fees were paid to Hanseatic Asset Management for acting as investment managers of the Group's investment portfolio and administration services.
6. 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.
7. 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.
8. Mr. J F Gouvêa Vieira is a Director of Jofran Services. Directors' fees and consultancy fees were paid to Jofran Services.
20 Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 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.
The Group has no significant concentration of credit risk except for one large customer, which makes up 12% of revenue. 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 Real. Due to the cost of hedging the Real, the Group does not normally hedge its net exposure to the Real as the Board does not consider it economically viable.
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 borrows from the BNDES (Banco Nacional de Desenvolvimento Econômico e Social) and Banco do Brasil to finance vessel construction. These loans are fixed interest rates loans linked to the US Dollar. Due to the favourable rates offered by these institutions, in the Group's opinion, there is minimal market interest rate risk.
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 derivative instruments to reduce cash flow interest rate attributable to interest rate volatility.
As at 30 June 2014 the Company had no outstanding interest rate swap contracts.
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 and that present the Group with opportunity 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 except for one large customer, which makes up 12% of revenue (2012 12%). Ongoing credit evaluation is performed on the financial condition accounts receivable.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
The Group has access to financing facilities, the total unused amount which is US$500.5 million at the balance sheet date. The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.
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.
Enquiries
Company Contact
Keith Middleton 1 441 295 1309
Media
David Haggie 020 7562 4444
Haggie Partners LLP
Cantor Fitzgerald Europe 020 7894 7000
Rick Thompson, David Foreman - Corporate Finance
David Banks - Corporate Broking
This information is provided by RNS
The company news service from the London Stock Exchange
END
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