Annual Report • Mar 22, 2016
Annual Report
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RNS Number : 8193S
Ocean Wilsons Holdings Ld
22 March 2016
Ocean Wilsons Holdings Limited
Preliminary results for the year ended 31 December 2015
Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the "Company") today announces its preliminary results for the year ended 31 December 2015.
Highlights
· Operating profit growth of 23% to US$109.8 million (2014: US$89.4 million)
· Operating margins increased 8% to 22% (2014: 14%)
· Net cash inflow from operating activities for the year of US$145.5 million (2014: US$105.6 million)
· The Brazilian Real depreciated 47% in the period against the US Dollar at year end and the average US Dollar / Brazilian Real exchange rate in the year at 3.34 was 42% higher than the comparative period in 2014, 2.35
· Earnings per share for the year of 43.7 cents (2014: 65.6 cents)
· Dividend declared unchanged at 63 cents per share (2014: 63 cents per share)
· Investment portfolio decreased US$7.3 million to US$244.4 million (2014: US$251.7 million)
José Francisco Gouvêa Vieira, Chairman of Ocean Wilson's, commented: "Despite the challenging economic and political environment, the Group has achieved another solid operating performance with strong improvements in both operating profit and cash flow. Operating profit for the year increased by US$20.4 million from US$89.4 million to US$109.8 million due to, higher operating margins which improved from 14% in the prior year to 22% in 2015, principally due to the weaker BRL and a lower depreciation charge. The improved operating profit converted into strong cash generation, with net cash inflows from operating activities for the period of US$145.5 million compared to US$105.6 million in 2014"
For further information:
Company Contact
Keith Middleton 001 441 295 1309
Media
David Haggie 020 7562 4444
Haggie Partners LLP
Cantor Fitzgerald Europe
Rick Thompson, David Foreman, Will Goode - Corporate Finance 020 7894 7000
David Banks - Corporate Broking
About Ocean Wilsons Holdings Limited
Ocean Wilsons Holdings Limited is a Bermuda based investment holding company, which through its subsidiaries, operates a maritime services company in Brazil and holds a portfolio of international investments. The Company is listed on both the Bermuda Stock Exchange and the London Stock Exchange. It has two principal subsidiaries: Wilson Sons Limited and Ocean Wilsons (Investments) Limited (together with the Company and their subsidiaries, the "Group").
Wilson Sons Limited ("Wilson Sons") is a Bermuda company listed on the São Paulo Stock Exchange (BOVESPA) and Luxembourg Stock Exchange. Ocean Wilsons holds a 58.25% interest in Wilson Sons, which is fully consolidated in the Group accounts with a 41.75% non-controlling interest. Wilson Sons is one of the largest providers of maritime services in Brazil. Wilson Sons' activities include harbour and ocean towage, container terminal operation, offshore oil and gas support services, small vessel construction, logistics and ship agency. Wilson Sons has over five thousand employees.
Ocean Wilsons (Investments) Limited is a wholly owned Bermuda investment company. The company holds a portfolio of international investments.
Objective
Ocean Wilsons Holdings Limited is run with a long-term outlook. This applies to both the investment portfolio and our investment in Wilson Sons. The long-term view taken by the Board enables Wilson Sons to grow and develop its businesses without pressure to produce short-term results at the expense of long-term value creation. The same long-term view allows our investment managers to make investment decisions that create long-term capital growth.
The success of this strategy is reflected in the long-term growth in the value of Ocean Wilsons and dividends paid to shareholders. In the 10 years to 31 December 2015, the share price has risen more than 118% from £3.52 to £7.65 and in the same period, the dividend paid to shareholders has increased 163% from 24 cents per share to 63 cents per share.
Chairman's Statement
Introduction
In a challenging economic environment, the Group produced another solid operating performance with strong improvements in both operating profit and cash flow. The 47% devaluation of the Brazilian Real "BRL" against the US Dollar "USD" was a major feature of 2015 causing our revenue and bottom line earnings to fall while positively impacting our operating result and margins. Our Brazilian businesses again demonstrated their fundamental strengths and quality with key operational indicators remaining robust at our container terminal, towage and offshore businesses.
| Operating volumes | 2015 | 2014 | % Change |
| Container Terminals | |||
| (container movements in TEU '000) | 1,035.2 | 975.1 | 6.2 |
| Towage | |||
| (number of harbour manoeuvres performed) | 58,620 | 58,543 | 0.1 |
| Offshore Vessels (operating days own vessels) | 6,585 | 6,683 | (1.5) |
Tecon Rio Grande and Tecon Salvador moved over one million twenty-foot equivalent units "TEUs" in the year for the first time, driven by an increase in Brazilian exports and empty container movements. We continue to look to develop and improve our container terminal business, and are continuing negotiations with the relevant authorities to expand the Tecon Salvador terminal further. Our towage business had a successful year aided by the high proportion of revenue linked to the USD, which provides a natural hedge against the depreciating BRL. Towage special operations performed well aided by ongoing support for the Aҫu terminal in Rio de Janeiro state and firefighting support in the port of Santos. We continue to invest in our tugboat fleet with the most powerful tugboat operating in Brazil, WS Titan (80 tons bollard pull) built at the Wilson Sons shipyards in Guarujá, São Paulo state, delivered in 2015. We remain the towage market leader in Brazil operating a fleet of seventy-six tugboats, which is significantly larger than our nearest competitor. In addition to WS Titan, our shipyards successfully delivered to third parties the first Remotely Operated Vehicle Support Vessel (ROVSV) built in Brazil and an Oil Spill Recovery Vessel (OSRV). Construction work also progressed on two new platform supply vessels (PSVs) to be delivered in 2016 to our offshore joint venture, Wilson Sons Ultratug Offshore. Wilson Sons Ultratug Offshore performed well in difficult market conditions. The joint venture operates a fleet of nineteen PSVs of which eighteen are under long-term contract to Petrobras. During the year, three vessel charters were concluded; the associated PSVs experienced some off hire before successfully contracting with Petrobras for a further two years. The PSV Mandrião, built in an international shipyard and delivered in 2014, has now been registered on the Brazilian special register and is available in the Brazilian spot market.
As at 31 December 2015, the investment portfolio including cash under management was valued at US$244.4 million, representing US$6.91 per share (2014: US$251.7 million and US$7.12 per share).
Group Results
Operating profit for the year increased by US$20.4 million from US$89.4 million to US$109.8 million due to, higher operating margins which improved from 14% in the prior year to 22% in 2015, principally due to the weaker BRL and a lower depreciation charge. The improved operating profit was reflected in strong cash generation, with net cash inflows from operating activities for the period of US$145.5 million compared to US$105.6 million in 2014. The higher operating profit was offset mainly by an increase in exchange losses on foreign currency borrowings and negative returns from the investment portfolio so that Group profit before tax for the year was US$9.5 million lower than prior year at US$69.0 million, (2014: US$78.5 million). Profit per share based on ordinary activities after taxation and non-controlling interests was 43.7 cents (2014: 65.6 cents). In addition to the impact on operating margins and bottom line earnings, the depreciation of the BRL against the USD negatively affected revenue in the year. Although Group revenue grew 13% in BRL terms, in USD terms revenue was 20% lower at US$508.9 million (2014: US$633.5 million).
Investment portfolio performance
The investment portfolio as at 31 December 2015 was US$244.4 million (2014: US$251.7 million) a fall of US$7.3 million in the year after paying dividends of US$7.0 million to Ocean Wilsons Holdings Limited and deducting management and other fees, of US$2.7 million. The reduced portfolio returns in the period were partly a result of the poor performance of global equity markets, which fell 2.4% in the year and in particular emerging markets, towards which the portfolio has an over-weight bias, decreasing by 14.9%. The investment portfolio remains weighted towards global equities, which at year end accounted for 58% of the portfolio valuation (US$140.9 million), with private assets accounting for 32% (US$78.1 million) and the balance invested in market neutral funds, cash and bonds. Private assets at US$78.1 million were US$3.4 million higher than the prior year (2014: US$74.7 million) as a result of new capital drawdowns of US$10.7 million, less distributions received of US$6.4 million and a decrease in net value of US$1.1 million. The net value decreased primarily due to losses from our private asset exposure to the energy and commodity sectors. Total distributions from our portfolio of private assets to date are US$36.8 million. At 31 December 2015, the top ten investments accounted for 43% of the investment portfolio valuation and total liquid investments plus cash accounted for 68%. The investment portfolio retains its overweight exposure to emerging markets with emerging markets accounting for 32% (2014: 34%) of the portfolio net asset value at year end.
Investment managers
Ocean Wilson Investments Limited ("OWIL"), a wholly owned subsidiary registered in Bermuda, holds the Group's investment portfolio. OWIL has appointed Hanseatic Asset Management LBG, a Guernsey registered and regulated investment group, as its investment manager.
Investment management fee
The investment managers receive an investment management fee based on the valuation of the funds under management and an annual performance fee of 10% of the annual performance which exceeds the benchmark, provided that the high water mark has been exceeded. From 1 January 2015, the portfolio performance is measured against a benchmark calculated by reference to US CPI plus 3% per annum over rolling three-year periods. The investment managers receive an annual performance fee of 10% of the net investment return that exceeds the benchmark. Payment of performance fees are subject to a high water mark and are capped at a maximum of 2% of portfolio NAV. The Board considers a three-year measurement period appropriate due to the investment mandate's long-term horizon and an absolute return inflation-linked benchmark appropriately reflects the company's investment objectives while having a linkage to economic factors.
The investment management fee is at an annual rate of 1% of the valuation of funds under management. In 2015 the investment management fee was US$2.5 million and no performance fee was payable to the investment manager.
Net asset value
At the close of business on 31 December 2015, the Wilson Sons' share price was R$33.00, resulting in a market value for the Ocean Wilsons holding of 41,444,000 shares (58.25% of Wilson Sons) totalling approximately US$350.3 million which is the equivalent of US$9.91 (£6.72) per Ocean Wilsons Holdings Limited share.
Adding together the market value per share of Wilsons Sons, US$9.91 and the investment portfolio at 31 December 2015 per share of US$6.91 results in a net asset value per Ocean Wilsons Holdings Limited share of approximately US$16.82 (£11.41). The Ocean Wilsons Holdings Limited share price of £7.65 at 31 December 2015 represented an implied discount of 33%.
The implied discount of 33% at year end has widened since the prior year end, when it was 27%. Historically the implied discount has fluctuated significantly; we believe that the increased discount at year end reflects the political and economic uncertainty surrounding Brazil at the moment. We do not seek to manage the discount, as we believe long-term shareholder value will best benefit from the continued strong performance of our underlying businesses.
Dividend
The Board is recommending an unchanged dividend of 63 cents per share (2014: 63 cents per share) to be paid on 3 June 2016, to shareholders of the Company as of the close of business on 6 May 2016. The dividend of 63 cents per share represents the full dividend to be received from Wilson Sons of 58.6 cents per Ocean Wilsons share relating to 2015 plus 4.4 cents per Ocean Wilsons share in dividends from Ocean Wilsons (Investments) Limited. Wilson Sons is increasing the dividend to shareholders for the year by 23%, which reflects their strong operating performance and a desire to increase dividend payments to shareholders following completion of the current investment cycle in 2013. In light of the increased dividend to be received from Wilson Sons Limited, the fall in equity markets in 2015 and our emphasis on preserving the investment portfolio capital, we are reducing the current year dividend paid by Ocean Wilsons (Investments) Limited to Ocean Wilsons Holdings Limited. In the last five years, the Company dividend per share has increased by 91%, from 33 cents per share to 63 cents per share with a total of US$92.3 million distributed to shareholders in this period.
The Ocean Wilsons Holdings Limited dividend policy is to pay the Company's full dividend received from Wilson Sons in the period and a percentage of the average capital employed in the investment portfolio determined annually by the Board. Dividends are set in US Dollars and paid annually. Ocean Wilsons will continue to pay dividends received from Wilson Sons in the period but will use part to fund the parent company which to date was previously funded solely by dividends from the investment portfolio. To date the parent company costs have been funded by dividends from the investment portfolio. Going forward part of the Wilson Son dividend received will be used to fund the parent company costs in addition to funding provided by the investment portfolio.
Shareholders receive dividends in Sterling by reference to the exchange rate applicable to the USD on the dividend record date, except for those shareholders who elect to receive dividends in USD. The Board of Directors may review and amend the dividend policy from time to time in light of our future plans and other factors. The payment of dividends cannot be guaranteed and may be discontinued or varied at the discretion of the Board.
Charitable donations
Our subsidiary Wilson Sons continues to support a number of local charities and causes in Brazil. Group donations for charitable purposes in the year amounted to US$134,000 (2014 US$156,000). Amongst the Group's principal ongoing contributions during the year were:
Escola de Gente - raising awareness and promoting social inclusion for all parts of the community.
http://www.escoladegente.org.br/
Salvador Esporte e Cidania - Promotes social development through educational, cultural and sporting activities.
http://www.depeitoaberto.com.br/
Sonhar Acordado - non-profit volunteer organisation whose main activity is to teach children good citizenship principles and values through constructive play.
http://www.sonharacordado.org.br/
Criando Laços - The Wilson Sons corporate programme "Criando Laços" (Creating ties) provides financial support and promotes voluntary employee involvement in social initiatives.
http://www.wilsonsons.com.br/
Health, safety and education
The Group continues to invest in the training and development of our staff. The WS+ safety programme implemented in conjunction with DuPont in 2011 to promote improved safety throughout the Group continues to operate effectively. The programme trains Company personnel and promotes a safety oriented environment and culture. In 2015 for the fourth consecutive year, the Group was among the winners of the DuPont prize for Health and Safety Management in Brazil.
Corporate governance
The Board has put in place corporate governance arrangements which it believes are appropriate for the operation of your Company. The Board has considered the principles and recommendations of the 2014 UK Corporate Governance Code ("the Code") issued by the Financial Reporting Council and decided to apply those aspects which are appropriate to the business. This reflects the fact that Ocean Wilsons Holdings Limited is an investment holding company incorporated by an act of parliament in Bermuda with significant operations in Brazil. The Company complies with the Code where it is beneficial for both its shareholders and its business to do so, and has done so throughout the year and up to the date of this report, but it does not fully comply with the Code. The areas where the Company does not comply with the Code, and an explanation of why we do not comply, are contained in the section on corporate governance in the Annual Report. The position is regularly reviewed and revised by the Board.
Outlook
With economists forecasting a further contraction in the Brazilian economy this year and an uncertain political environment, the outlook for Brazil in 2016 remains poor. However we remain confident in the resilience of our Brazilian businesses and the performance delivered in 2015 gives us encouragement that we are well placed to face the coming challenges. Our container terminal business is beginning to benefit from a revival in Brazilian exports following the steep devaluation of the BRL, as evidenced by the record volumes moved in 2015, although we are also seeing some weakness in import cargoes. The fall in oil prices and uncertainty surrounding the Brazilian oil and gas industry continue to dampen demand for offshore support services and Brasco, our onshore support base provider faces some headwind in filling its expanded capacity. However we remain optimistic regarding the long-term prospects for this business. Our offshore joint venture, Wilson Sons Ultratug Offshore currently operates nineteen PSVs of which eighteen are under long-term contract. Wilson Sons Ultratug is due to receive two PSVs constructed at international shipyards in the second half of 2016, which we expect to operate in the Brazilian spot market and a further two constructed at our shipyard in Guarujá which already have long-term contracts. The shipyard order book is weaker than in previous years, but in addition to the two PSV's already mentioned, the shipyard is forecast to complete two Oil Spill Recovery Vessels (OSRVs) for third parties and six tugboats for our fleet. Post year end, third parties signed contracts for two additional tugboats to be constructed in our shipyards with options for a further four vessels. Demand for harbour towage services is softer with volumes in the first two months of the year lower than the 2015 comparables.
We expect global equity markets to rise in the year ahead driven by positive economic growth, accommodating monetary policy and fair market valuations. However there are a number of risks that could affect stock market performance including an increase in US interest rates, the unwinding of quantative easing and the slowdown in the Chinese economy with the associated fall in commodity prices. However emerging equity markets may benefit from any recovery in commodity prices. We remain positive on the long-term prospects for emerging markets and our portfolio.
Management and staff
On behalf of your Board and shareholders, I would like to thank our management and staff for their efforts and hard work during the year.
J F Gouvêa Vieira
Chairman
21 March 2016.
Financial Review
Operating profit
Operating profit grew 23% to US$109.8 million (2014: US$89.4 million) as Group operating margins for the year improved to 22% compared to 14% in 2014. Operating margins improved as total operating costs decreased 27% compared to a 20% decrease in turnover largely due to the higher average USD/BRL exchange rate used to convert revenue and costs into our USD reporting currency, and a lower depreciation charge. As a greater proportion of our revenue than costs is USD denominated, operating margins benefited from the depreciation of the BRL against the USD. The principal improvements in operating margins were in the towage and shipping agency business where margins improved from 30% in 2014 to 37% in 2015 and container terminals where margins improved to 31% compared with 22% in 2014.
Raw materials and consumables used in the year were US$44.8 million lower at US$55.8 million (2014: US$100.6 million) principally due to lower third party shipyard activity, lower fuel costs and the currency impact.
Depreciation and amortisation for the year decreased US$11.9 million to US$53.2 million from US$65.1 million in 2014 as a result of the weaker BRL, changes to the Tecon Rio Grande quay depreciation policy, changes to the tugboat dry docking policy and the change in Tecon Rio Grande functional currency from USD to BRL. Following a change in local regulations and an independent review, the Group increased the remaining economic useful life of the quay and other improvements at Tecon Rio Grande from 25 years to between 25 and 40 years. Because of this change, the depreciation expense for the year is US$4.0 million lower. The Group also reviewed the economic useful life of the tugboat dry dockings in accordance with the frequency conducted by the Company, and supported by the technical rules issued by the Brazilian Navy. On 1 July 2015 the management adjusted the useful life of the docking costs of its tugboats from 2.5 years to 5 years, and as result of this policy change the depreciation expense was US$2.6 million lower. Had these two changes to depreciation policy not occurred, the depreciation and amortisation charge would have been US$6.6 million higher at US$59.8 million.
Employee expenses were 27% lower at US$143.6 million (2014: US$195.9 million) and other operating expenses 21% lower at US$145.3 million (2014: US$182.8 million). In addition to the exchange rate effect on these costs, other operating expenses decreased due to reductions in service and rental costs associated with discontinued logistics operations while employee expenses benefitted from a reduction in headcount, mainly at our logistics, Brasco and container terminal businesses.
Revenue from Maritime Services
Group revenue for the year fell 20% to US$508.9 million (2014: US$633.5 million), principally due to the higher average USD/BRL exchange rate used to convert revenue into our reporting currency, the USD and lower revenue at our shipyard, logistics and offshore support base businesses. However, in local currency terms, turnover increased 13% demonstrating the resilient nature of our businesses in the tough economic environment.
Towage and ship agency revenue for the year remained broadly unchanged at US$229.2 million (2014: US$228.1 million) helped by an increase in special operations and the high proportion of revenue linked to the USD which provides a natural hedge against a depreciating BRL. Towage and shipping agency revenues are less sensitive to movements in the USD/BRL exchange rate as approximately 80% of towage and shipping agency pricing in the year was denominated in USD. Higher margin special operations accounted for 16% of our towage revenue in the year compared with 13% in 2014. Notable special operations during the year included ongoing support for the Aҫu terminal in Rio de Janeiro state and firefighting support in the port of Santos. Towage harbour manoeuvres for the year at 58,620 were in line with prior year, 58,543. Our shipping agency business continued to operate in a weak market with revenue falling 10% to US$15.4 million (2014: US$17.1 million).
Revenue at our port terminal and logistics business declined 25% to US$225.9 million (2014: US$302.0 million) as all businesses were adversely impacted by the higher average USD/BRL exchange rate. Container terminal revenue declined 20% to US$152.5 million (2014: US$189.6 million) although 2015 was a record year in terms of container volumes handled with volumes increasing 6% to 1,035,200 TEU's (2014: 975,100 TEU's) driven by higher export and empty container movements. In addition to the adverse currency effect, Brasco, our offshore oil and gas support base, continued to suffer from the uncertainty surrounding the Brazilian oil and gas industry with revenue falling 40% to US$23.5 million (2014: US$39.0 million). The Brasco terminals performed fewer vessel turnarounds in 2015, although the fourth quarter showed some improvement on prior year due to additional spot operations. Logistics was impacted by the adverse currency effect and our planned withdrawal from our lower margin operations with revenue declining 32% to US$49.9 million (2014: US$73.4 million).
Shipyard third party revenue decreased 48% to US$53.9 million (2014: US$103.4 million) reflecting lower third party construction and a weaker order book caused by uncertainty surrounding the Brazilian oil and gas industry. In addition to third party revenue recognised in the income statement, the shipyard invoiced US$49.1 million of intercompany sales in the year (2014: US$45.6 million) relating to vessel construction and maintenance. On a positive note during the year, the shipyard delivered in the year the first Remotely Operated Vehicle Support Vessel (ROVSV) built in Brazil.
All Group revenue is derived from Wilson Sons operations in Brazil.
Share of results of joint ventures
The share of results of joint ventures is Wilson Sons' 50% share of net profit for the period mainly from our offshore joint venture. Net profit from joint ventures attributable to the Group decreased US$2.3 million from US$7.1 million in 2014 to US$4.8 million in the current year, largely due to increased exchange losses on translation. Operating profit for a 50% share in the joint venture in the year was US$22.7 million compared to US$21.6 million in 2014 from revenue of US$71.0 million (2014: US$76.9 million).
Investment revenue
Investment revenue for the year at US$16.9 million was in line with prior year (2014: US$17.0 million). Higher interest on bank deposits of US$10.7 million (2014: US$6.8 million) was offset by lower income from equity investments of US$4.2 million (2014: US$5.8 million) and lower other interest at US$1.9 million (2014: US$4.4 million).
Investment gains and losses
Other losses of US$1.4 million arise from the Group's portfolio of trading investments (2014: US$6.2 million gain) and consist of profits on the disposal of trading investments of US$3.0 million (2014: US$4.9 million) and unrealised losses on trading investments of US$4.4 million (2014: US$1.3 million gain).
Finance costs
Finance costs for the year increased by US$21.8 million from US$23.6 million to US$45.4 million principally due to higher exchange losses on foreign currency borrowings of US$32.6 million (2014: US$8.0 million) resulting from the devaluation of the BRL against the USD at yearend. Exchange losses were higher in the current year due to the greater devaluation of the BRL against the USD in 2015. Exchange losses will only be realised as loan repayments are made. Interest on loans of US$11.8 million were US$0.7 million lower than prior year (2014: US$12.5 million) due to lower outstanding borrowings during the year. Other interest mainly relates to interest on outstanding tax balances.
Foreign exchange losses on monetary items
Exchange losses on monetary items arise from the Group's foreign currency monetary items and principally reflect the depreciation of the BRL against the USD during the period. Although the BRL depreciated 47% during the year compared with a 13% devaluation in 2014, exchange losses on monetary items of US$15.8 million were US$1.8 million lower than prior year (2014: US$17.6 million). This was principally due to changes in the accounting treatment of monetary items at Tecon Rio Grande resulting from the change in functional currency from USD to BRL and also a decrease in our net exposure to BRL denominated assets.
Change in functional currency
In accordance with IAS 21, the functional currency of an entity reflects the underlying transactions, events and conditions that are relevant to the entity. Accordingly, once the functional currency is determined, it can only be changed if there is a change to those underlying transactions, events and conditions. Following trends over the recent years, there have been changes in relation to the underlying transactions, events and circumstances, mainly related to the flow and generation of revenues of some companies. As a result, the Company changed the functional currency of Tecon Rio Grande S.A, Wilson, Sons Operadores Portuários Ltda and Wilson Sons Comércio Indústria e Agência de Navegação Ltda (from USD to BRL) as at 1 April 2015. As stipulated by IAS 21, when there is a change in an entity's functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change.
Transactions other than those in the functional currency of an entity are translated at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the statement of comprehensive income for the period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. On consolidation, the statement of comprehensive income items of entities with a functional currency other than US Dollars are translated into US Dollars, the Group's presentational currency, at average rates of exchange. Balance sheet items are translated into US Dollars at year end exchange rates. Exchange differences arising on consolidation of entities with functional currencies other than US Dollars are classified as equity and are recognised in the Group's translation reserve.
Exchange rates
The Group reports in USD and has revenue, costs, assets and liabilities in both BRL and USD. Therefore movements in the USD/BRL exchange rate can influence the Group's results both positively and negatively from year to year. During 2015 the BRL depreciated 47% against the USD from R$2.66 at 1 January 2015 to R$3.90 at the year end (2014: 13% depreciation).
The principal effects from the depreciation of the BRL against the USD on the income statement are:
| 2015 | 2014 | |
| US$ million | US$ million | |
| Exchange losses on monetary items (i) | 15.8 | 17.6 |
| Exchange loss on foreign currency borrowings | 32.6 | 8.0 |
| Deferred tax on retranslation of fixed assets (ii) | 27.0 | 15.9 |
| Deferred tax on exchange variance on loans (iii) | (25.0) | (8.0) |
| Total | 50.4 | 33.5 |
(i) This arises from the translation of BRL denominated monetary items in USD functional currency entities.
(ii) The Group's fixed assets are located in Brazil and therefore future tax deductions from depreciation used in the Group's tax calculations are denominated in BRL. When the BRL depreciates against the US Dollar the future tax deduction in BRL terms remain unchanged but is reduced in US Dollar terms.
(iii) Deferred tax credit arising from the exchange losses on USD denominated borrowings in Brazil.
A currency translation adjustment loss of US$81.9 million (2014: US$7.1 million) on the translation of operations with a functional currency other than USD is included in other comprehensive income and recognised directly in equity. The large increase in the currency translation adjustment compared with 2014 is due to the significant devaluation of the BRL against the USD and the change in functional currency of Tecon Rio Grande from USD to BRL.
The average USD/BRL exchange rate in the period was 42% higher at 3.34 (2014: 2.35). A higher average exchange rate adversely affects BRL denominated revenues and benefits BRL denominated costs when converted into our reporting currency the USD.
Profit before tax
Profit before tax for the year was US$9.5 million lower than prior year at US$69.0 million (2014: US$78.5 million) mainly due to a US$21.8 million increase in finance costs, negative returns from the investment portfolio (US$7.6 million adverse movement compared to prior year), and a US$2.2 million decrease in the share of results of joint ventures. This was partially offset by the US$20.4 million improvement in operating profit and US$1.8 million decrease in foreign exchange losses on monetary items.
Taxation
The tax charge for the year at US$39.7 million was US$2.2 million lower than last year (2014: US$41.9 million). This represents an effective tax rate for the period of 58% (2014: 53%) compared with the corporate tax rate prevailing in Brazil of 34%. The difference in the effective tax rate is principally due to expenses that are not included in determining taxable profit (principally foreign exchange losses on monetary items), expenses at our Bermudian companies that are not deductible for income tax and tax losses at our Brazilian subsidiaries not recognised in deferred tax. The current year effective tax rate is higher than prior year mainly due to losses at our Bermudian companies that are not deductible for income tax (in 2014 there was a net profit in Bermuda not subject to tax) and an increase in expenses that are not included in determining taxable profit.
The deferred tax charge in the period of US$1.6 million was US$7.5 million lower than 2014, (US$9.1 million) mainly because the net impact of deferred tax items linked to the depreciation of the BRL against the USD was US$2.0 million compared with US$7.9 million in 2014. Although both the deferred tax charge arising on the retranslation of BRL denominated fixed assets in Brazil, and the deferred tax credit on the exchange losses on USD denominated borrowings were higher in 2015 than 2014, the net impact was lower due to the change in functional currency at Tecon Rio Grande from USD to BRL.
Profit for the year
Profit attributable to equity holders of the parent was US$7.7 million lower at US$15.5 million (2014: US$23.2 million) after deducting profit attributable to non-controlling interests of US$13.8 million (2014: US$13.4 million). Non-controlling interests represented a greater percentage of the Group profit for the year, 47% (2014: 37%) as profits were concentrated in companies with non-controlling interests in 2015.
Earnings per share
Basic earnings per share for the year were 43.7 cents compared with 65.6 cents in 2014.
Cash flow
The Group continued to generate strong operating cash flow with cash inflow from operating activities increasing by US$39.9 million to US$145.5 million in 2015 (2014: US$105.6 million) arising from the improved operating performance, positive working capital movements in the period and lower income tax paid. Income taxes paid at US$22.7 million (2014: US$29.5 million) were significantly lower than the current tax charge of US$38.1 million, mainly because recoverable taxes were used to compensate tax liabilities due in the year.
Capital expenditure of US$65.8 million was US$41.7 million lower than prior year (2014: US$107.5 million) and was mainly invested in towage vessel construction and new container terminal equipment. Capital expenditure in 2014 was higher as it included the expansion of the Brasco Caju Oil and Gas support terminal and Tecon Salvador. During 2015 the Group raised new loans of US$31.9 million to finance capital expenditure (2014: US$64.1 million) with capital repayments of US$49.9 million (2014: US$38.1 million) made on existing loans.
The negative effect of foreign exchange rate changes in the cash flow increased US$20.4 million to US$26.9 million (2014: US$6.5 million) reflecting the significant devaluation of the BRL during the year.
At 31 December 2015 the Group had US$97.6 million in cash and cash equivalents (2014: US$103.8 million) of which US$83.3 million was denominated in BRL (2014: US$70.3 million). Included in the Group's trading investments of US$276.9 million is US$40.0 million (2014: US$24.0 million) in USD denominated fixed rate certificates held by Wilson Sons Limited which are not part of the Group's investment portfolio managed by Hanseatic Asset Management LBG and are intended to fund Wilson Sons Limited operations in Brazil.
Balance sheet
At the year end the equity attributable to shareholders of the parent company amounted to US$495.0 million (2014: US$549.8 million). The principal movements in the year were profits for the period of US$15.5 million, less dividends paid of US$22.3 million and a negative currency translation adjustment of US$47.3 million. The currency translation adjustment was US$43.3 million higher than prior year (2014: US$4.0 million) due to the higher devaluation of the BRL during the year and the change in the functional currency of Tecon Rio Grande from USD to BRL. The currency translation adjustment arises from exchange differences on the translation of operations with a functional currency other than USD. On a per share basis equity attributable to shareholders is the equivalent of US$14.00 per share (31 December 2014: US$15.55 per share).
Net debt and financing
All debt at the year end was held in the Wilson Sons Limited Group and has no recourse to the parent company, Ocean Wilsons Holdings Limited, or the investment portfolio held by Ocean Wilsons Investments Limited.
The Group's borrowings are predominantly USD denominated or linked to the USD with defined repayment schedules repayable over different periods up to 18 years and an average weighted maturity of 11.6 years. The weighted average interest rate of our debt at year end was 2.99%. Total debt at US$363.8 million was US$31.4 million lower than prior year (2014: US$395.2 million) due to net loan repayments and the weaker BRL. At 31 December 2015, The Group had net debt of US$226.2 million (2014: US$271.4 million):
| 2015 | 2014 | |
| US$ million | US$ million | |
| Debt | ||
| Short-term | 41.5 | 51.2 |
| Long-term | 322.3 | 344.0 |
| Total debt | 363.8 | 395.2 |
| Cash and cash equivalents* | (137.6) | (123.8) |
| Net debt | 226.2 | 271.4 |
* Included in cash and cash equivalents are short-term investments in Wilson Sons Limited which are intended to fund Wilson Sons Limited operations in Brazil
The Group's borrowings are used principally to finance vessel construction and the development of our terminal business. The Group's main sources of financing are the Fundo da Marinha Mercante "FMM", a Brazilian Government fund dedicated to funding vessel construction in Brazil and the International Finance Corporation. The FMM is funded by a levy on inbound freight to Brazil and the BNDES and Banco do Brasil act as lending agents for the FMM.
The Group's reported borrowings do not include US$273.8 million of debt from the Company's 50% share of borrowings in our Offshore Vessel joint venture.
Keith Middleton
Finance Director
Wilson Sons Limited
The Wilson Sons 2015 Earnings Report released on 21 March 2016 is available on the Wilson Sons Limited website: www.wilsonsons.com.br
In it Cezãr Baião, CEO of Operations in Brazil said:
"We continued the growth of Wilson Sons in 2015 with solid results in a challenging time for the Brazilian economy. The highlights of our two largest businesses included record EBITDA for our Towage business benefitting from cost reduction and efficiency gains, and over 1 million TEU for our Container Terminals. These results together with a reduction in our CAPEX, after largely completing the investment cycle, allow us to announce an increase of 23% in our proposed dividend amounting to US$35.4million.
In addition to the economic hurdles of Brazil in 2015, the substantial reduction in the oil price impacted exploration activity worldwide. For our Offshore Vessels business, although the market is very challenging, significant contract coverage and Brazilian flagged vessel priority continue to differentiate performance of our OSV business compared to international market peers.
In this environment, we will need to be even more disciplined and relentless in the pursuit of efficiency throughout the Company. Continued attention to the opportunities for utilisation of our assets and technical capacity of those who work with us are fundamental to maximising the service, security and value we provide in solutions for our clients.
We will seek to navigate the current economic headwinds in this way, as we have done so many times in the previous 179 years of the Wilson Sons history. In doing so we seek to strengthen our business and the services we provide. For this we are grateful for the continued support of all our stakeholders."
The Wilson Sons Strategy is to:
Continue to consolidate our position in all the segments in which we operate, maximising economies efficiency, quality and the range of our services we provide to customers.
Fulfilling capacity in our expanded port terminals. In order to meet demand from domestic and international trade, we have expanded our two container terminals since the inception of the concessions. By maximising utilisation of this installed capacity, we are best able to continue increases in productivity and service to our clients with economies of scale. We will diligently pursue this objective. We will evaluate new concessions and the development of new terminals in other Brazilian ports and analyse these potential investments in light of our existing operations, and their ability to provide a strong return on shareholders' equity.
Maximising capacity utilization of our Upstream Oil and Gas Support Terminals (Brasco). Additional to our operations at Brasco Niteroi, we also have a continuous 500 metres of berth at our Brasco Caju base to attend offshore support vessels with excellent access to the Campos and Santos oil producing basins. This expanded capacity positions Brasco as one of the largest offshore support base operators for the Brazilian Oil and Gas industry. We are continuously monitoring offshore operations along the Brazilian coast to meet the demand for such services.
Strengthening our position as the leading provider of towage services in the Brazilian market. We intend to continue to modernise and expand our fleet of tugboats in order to provide consistently high-quality service to our customers and consolidate our leading position in the Brazilian towage market. We regularly review our fleet deployment to optimise efficiency, and to seek out new niches in the market where we may be able to provide additional services or increase our geographical footprint of towage services to new ports in Brazil.
Maximising potential of our shipyard facilities through a mix of in-house and third-party vessel construction, repair, maintenance and dry docking services to meet the demand of national and international vessel owners in Brazil.
Solidifying our Offshore Support Vessel services to oil and natural gas platforms. Using our knowledge and experience, we intend to continue to consolidate our activities through the delivery of contracted vessels and maintain our position amongst the leading suppliers of services to the offshore oil and gas industry in Brazil.
Exploring new opportunities and strategies to provide the best and most complete set of services to our customers. We are always looking to provide new and innovative services to our customers, and to anticipate their needs. We intend to continue our strategy with shipping companies in order to provide a complete set of local and international trade-related services across a nationwide network. We also seek to make these services more efficient and cost-effective, in order to maintain our strong customer base and strengthen our relationships with those customers.
Increasing economies of scale and productivity, realisation of potential synergies and cost savings across our business segments. We continuously seek to optimise our operations and productivity and reduce our costs through synergies and the exchange of know-how among our businesses and administrative areas. We are and will continue to be focused on integrating similar activities in order to realise savings in administrative and back-office areas, especially in our branch offices. We seek to achieve economies of scale and reduce costs wherever possible. We demand that the managers of our different divisions continually develop new strategies to improve our operations and explore new businesses.
Health, Safety and the Environment are a priority for the execution of our overall strategy of sustainable ethical business. We continue programmes to promote best practice safety throughout the Group through the training of our personnel and the promotion of a safety oriented environment and culture.
Investment Portfolio
Investment Objective
The Investment Manager will seek to achieve the Investment Objective through investments in publically quoted and private (unquoted) assets across three 'silos': (i)Core regional funds which form the core of our holdings, enabling us to capture the natural beta within markets, (ii)Eclectic sector silo, represented by those sectors with long-term growth attributes, such as technology and biotechnology, and (iii)Eclectic diversifying silo, which are those asset classes and sectors which will add portfolio protection as the business cycle matures.
Investment Policy
The Investment Manager will seek to achieve the Investment Objective through investments in publically quoted and private (unquoted) assets across four 'silos': public equities, private assets (predominantly private equity), market neutral funds and bonds. Cash levels will be managed to meet future commitments (e.g. to private assets), whilst maintaining an appropriate balance for opportunistic investments.
Commensurate with the long-term horizon, it is expected that the majority of investments will be concentrated in equity, across both 'public' and 'private' markets. In most cases, investments will be made either through collective funds or limited partnership vehicles, working alongside expert managers in specialised sectors or markets to access the best opportunities.
The Investment Manager maintains a global network to find the best opportunities across the four silos worldwide. The portfolio contains a high level of investments which would not normally be readily accessible to investors without similar resources. Furthermore, a large number of holdings are closed to new investors. There is currently no gearing although the Board would, under the appropriate circumstances, be open-minded to modest levels of gearing. Likewise, the Board may, from time to time, permit the Investment Manager opportunistically to use derivative instruments (such as index hedges using call and put options) actively to protect the portfolio.
Investment Process
Manager selection is central to the successful management of the investment portfolio. Potential individual investments are considered based on their risk-adjusted expected returns in the context of the portfolio as a whole. Initial meetings are usually a result of: (i) a 'top-down' led search for exposure to a certain geography or sector, (ii) referrals from the Investment Manager's global network or (iii) relationships from sell-side institutions and other introducers. The Investment Manager reviews numerous investment opportunities each year, favouring active specialist managers who can demonstrate an ability to add value over the longer-term, often combining a conviction-based approach, an unconstrained mandate and the willingness to take unconventional decisions (e.g. investing according to conviction and not fear of short-term underperformance versus an index).
Excessive size is often an impediment to continued outperformance and the bias is therefore towards managers who are prepared to restrict their assets under management to a level deemed appropriate for the underlying opportunity set. Track records are important but transparency is an equally important consideration. Alignment of interest is essential and the Investment Manager will always seek to invest on the best possible terms. Subjective factors are also important in the decision making process - these qualitative considerations would include an assessment of the integrity, skill and motivation of a fund manager.
When the Investment Manager believes there is a potential fit, thorough due diligence is performed to verify the manager's background and identify the principal risks. The due diligence process would typically include visiting the manager in their office (in whichever country it may be located), onsite visits to prospective portfolio companies, taking multiple references and seeking a legal opinion on all relevant documentation.
All investments are reviewed on a regular basis to monitor the ongoing compatibility with the portfolio, together with any 'red flags' such as signs of 'style drift', personnel changes or lack of focus. Whilst the Investment Manager is looking to cultivate long-term partnerships, every potential repeat investment with an existing manager is assessed as if it were a new relationship.
Portfolio Characteristics
The portfolio has several similarities to the 'endowment model'. These similarities include an emphasis on generating real returns, a perpetual time horizon and broad diversification, whilst avoiding asset classes with low expected returns (such as government bonds in the current environment). This diversification is designed to make the portfolio less vulnerable to permanent loss of capital through inflation, adverse interest rate fluctuations and currency devaluation and to take advantage of market and business cycles. The Investment Manager believes that outsized returns can be generated from investments in illiquid asset classes (such as private equity). In comparison to public markets, the pricing of assets in private markets is less efficient and the outperformance of superior managers is more pronounced.
Investment Managers Report
Market Commentary
Having started the year calmly enough, stock markets wobbled for much of the second half of calendar 2015. However, rather than one key event unsettling investors a slew of factors came into play.
Europe continued to fret over the prospect of a Greek exit from the Eurozone. China initially rallied hard coming into the year but then imploded spectacularly, leading to a raft of rather desperate measures by the Chinese authorities in their efforts to shore up the market. The US played a game of 'will they won't they raise interest rates' culminating in a 25 basis point rise in December, the first for almost ten years.
The net effect of all of this was a very bumpy ride, which at the headline level will be seen as a rather disappointing year, at least from the viewpoint of equities and bonds. World equities fell 2.4% over the year as a whole versus a decline of 3.3% for the global bond index (all figures in US Dollars). Emerging Markets, towards which the portfolio has a bias, again underperformed Developed Markets over the course of the year, with the former declining by 14.9% while the latter fell just 0.9%. Intra market moves were varied, with the US, Europe, the UK and Japan returning +1.4%, -2.8%, -7.6% and +9.6%, respectively, while China, India and Brazil declined by -7.8%, -6.1% and -42.0%, respectively.
2015 will go down in history as a terrible year from the perspective of commodities. Oil continued to decline sharply, falling by 30.5% in the year as OPEC fell into disarray with the Saudi government deciding to maintain production in the face of falling demand. Industrial metals also came under pressure with copper, iron ore and tin falling by 24.6%, 38.9% and 25.1% for the year.
Outlook
Our core expectation for markets in the year ahead remains one of rising equity prices driven by a combination of acceptable valuations (though no longer cheap), ongoing positive economic growth led by developed markets, and a liquidity environment that remains accommodative. For these reasons, equities, particularly in developed markets, remain our favoured asset class (albeit we note that lower valuations are creating value in some emerging markets, we just think it's too early). However, it is also right that we acknowledge both the maturing of the business cycle and the growing list of risks. It is for this reason that we are increasingly focused on both assessing how our portfolios will perform in such an environment and identifying those assets which will provide protection in more difficult times.
Traditionally this protection would have been through government bonds and whilst they may well still prove defensive in the epicentre of a market collapse, they are uncomfortable investments for us to hold as fundamental investors given their high valuations. Rather the focus is on the identification of those funds and hedge funds that have the ability to avoid capital losses, and indeed are structured to do so. This is no mean feat with past market setbacks often highlighting flaws in their strategies and disappointing performance. However, through deep analysis, access to some of the very best managers in the market and by blending a range of different strategies, we feel confident in our ability to navigate the market ahead.
Portfolio Commentary
The portfolio ended the year with a 1.7% rise in the fourth quarter, leading to a return of 1.0% for the year. This result was behind the Performance Benchmark (3% in excess of the US CPI), which was up
3.7% for the year, although it was ahead of both the MSCI All Country World Index and the MSCI Emerging Markets Index, which declined by 2.4% and 14.9%, respectively.
The top two contributors to performance over the course of the year were both European funds, with the BlackRock European Hedge Fund and Adelphi European Select Equity Fund having very strong years with returns of 36.0% and 22.1%, respectively. The BlackRock Fund maintained a relatively low beta-adjusted net exposure throughout the year, and more recently its short book, led by positions in mining and energy-related businesses, has driven its returns. The long-only Adelphi Fund, which again outperformed its benchmark in the fourth quarter with a rise of 7.3%, has shown continued good stock selection. The Fund's performance has been helped by its lack of exposure to the energy and materials sectors, as well as to capital goods. The Fund has achieved good alpha generation in consumer staples and healthcare, with longstanding positions such as Novo Nordisk and Pandora producing excellent returns over the year.
There were strong performances in long/short Global Developed funds. Lansdowne Developed Markets was particularly pleasing, with a return of 16.9%, while Egerton European Dollar Fund and Odey Absolute Return Fund were up 9.4% and 7.3%, respectively, over the year. These funds enjoyed good performance in their short portfolios, playing themes such as weakness in industrial cyclicals, old retail and technology hardware. The Lansdowne Fund benefited from long positions in Nike, Amazon and Netflix, while specific shorts in individual retail and technology names also contributed to performance.
Among the top contributors to performance over the year were two private equity funds, L Capital Asia, LP and Greenspring Global Partners IV, LP, which are now held at 1.40x and 2.08x in the portfolio, respectively. These Funds returned more capital back to the portfolio during the year, and have now distributed 30% and 69% of paid in capital, respectively, while there is considerable value remaining in their portfolios.
It was a difficult year for many parts of the market, in particular Emerging Markets and commodity- related sectors. The biggest detractor to performance was the NTAsian Discovery Fund, which declined 21.6% during the year, following an extended period of strong performance. The Fund was hurt by a substantial fall in the share price of Silverlake Axis, its largest holding, which had previously been a key driver of outperformance. Another significant detractor for the portfolio was Pershing Square Holdings, which has declined 20.0% since it was purchased in February 2015. Pershing's largest position, Valeant Pharmaceuticals, declined significantly during the year as a result of a number of factors, including political pressure on drug pricing and being targeted by short sellers who were concerned about the company's business model, but the manager has maintained his conviction in the position.
Private Equity holdings were not immune from the market volatility, and those funds with exposure to commodity assets suffered some mark-downs which detracted from the portfolio's performance. These included Riverstone/Carlyle Global Energy & Power Fund IV, LP, African Development Partners I, LLC and African Minerals Exploration & Development Fund, SICAR, which are, respectively, now held at 1.10x, 1.34x and 0.97x in the portfolio.
| Investment Portfolio at 31 December 2015 | Market Value | % of | |
| US$000 | NAV | Primary Focus | |
| Findlay Park American Fund | 16,162 | 6.6 | US equities - long-only |
| Adelphi European Select Equity Fund | 13,788 | 5.6 | Europe equities - long-only |
| BlackRock European Hedge Fund | 13,557 | 5.6 | Europe equities - hedge |
| Egerton Long - Short Fund | 11,962 | 4.9 | Europe / US equities - hedge |
| Lansdowne Developed Markets Fund | 11,335 | 4.6 | Europe / US equities - hedge |
| NTAsian Discovery Fund | 8,817 | 3.6 | Asia ex-Japan equities - long-only |
| BlueCrest AllBlue Leveraged Feeder | 8,579 | 3.5 | Market Neutral - multi-strategy |
| Odey Absolute Return Fund | 7,952 | 3.3 | Europe / US equities - hedge |
| Goodhart Partners Longitude Fund: Hanjo Fund | 7,272 | 3.0 | Japan equities - long-only |
| Greenspring Global Partners IV, LP | 6,324 | 2.6 | Private Assets - US Venture Capital |
| Top 10 Holdings | 105,748 | 43.3 | |
| Schroder ISF Asian Total Return Fund | 5,913 | 2.4 | Asia ex-Japan equities - long-only |
| Helios Investors II, LP | 5,822 | 2.4 | Private Assets - Africa |
| Hirzel Capital Fund | 5,800 | 2.4 | US equities - hedge |
| L Capital Asia, LP | 5,782 | 2.4 | Private Assets - Asia (Consumer) |
| Indus Japan Long Only Fund | 5,640 | 2.3 | Japan equities - long-only |
| Gramercy Distressed Opportunity Fund II, LP | 5,280 | 2.2 | Private Assets - distressed debt |
| Global Event Partners Ltd | 5,011 | 2.0 | Global equities - long-short |
| Select Equity Offshore, Ltd | 4,988 | 2.0 | US equities - long-only |
| KKR Special Situations Fund, LP | 4,947 | 2.0 | Private Assets - distressed debt |
| Hudson Bay International Fund | 4,857 | 2.0 | Market Neutral - multi-strategy |
| Top 20 Holdings | 159,788 | 65.4 | |
| Hony Capital Fund V, LP | 4,857 | 2.0 | Private Assets - China |
| Prince Street Opportunities Fund | 4,784 | 2.0 | Emerging Markets equities - long-only |
| Vulcan Value Equity Fund | 4,631 | 1.9 | US equities - long-only |
| China Harvest Fund II, LP | 4,613 | 1.9 | Private Assets - China |
| GAM Star Technology | 4,485 | 1.8 | Technology - long-only |
| L Capital Asia 2, LP | 3,922 | 1.6 | Private Assets - Asia (Consumer) |
| Pershing Square Holdings Ltd | 3,885 | 1.6 | US equities - long-only |
| Oaktree CM Value Opportunities Fund | 3,777 | 1.5 | US high yield corporate debt - hedge |
| NYLIM Jacob Ballas India III, LLC | 3,631 | 1.5 | Private Assets |
| Pangaea II, LP | 3,629 | 1.5 | Private Assets |
| Top 30 Holdings | 202,002 | 82.7 | |
| 22 remaining holdings | 34,154 | 13.9 | |
| Cash | 8,255 | 3.4 | |
| TOTAL | 244,411 | 100.0 |
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2015
| Year to | Year to | ||
| 31 December | 31 December | ||
| 2015 | 2014 | ||
| Notes | US$'000 | US$'000 | |
| Revenue | 3 | 508,922 | 633,520 |
| Raw materials and consumables used | (55,760) | (100,588) | |
| Employee benefits expense | 6 | (143,600) | (195,893) |
| Depreciation & amortisation expense | 5 | (53,214) | (65,120) |
| Other operating expenses | (145,259) | (182,819) | |
| (Loss) /profit on disposal of property, plant and equipment | (1,294) | 326 | |
| Operating profit | 109,795 | 89,426 | |
| Share of results of joint venture | 4,843 | 7,090 | |
| Investment revenue | 7 | 16,908 | 16,975 |
| Other gains and losses | 8 | (1,388) | 6,233 |
| Finance costs | 9 | (45,403) | (23,607) |
| Foreign exchange losses on monetary items | (15,792) | (17,621) | |
| Profit before tax | 68,963 | 78,496 | |
| Income tax expense | 10 | (39,704) | (41,928) |
| Profit for the year | 29,259 | 36,568 | |
| Other comprehensive income: | |||
| Items that are or may be reclassified subsequently to profit and loss | |||
| Employee benefits | (108) | 709 | |
| Effective portion of changes in fair value of derivatives | (1,495) | (988) | |
| Exchange differences arising on translation of foreign operations | (81,935) | (7,143) | |
| Other comprehensive loss for the year | (83,538) | (7,422) | |
| Total comprehensive (loss)/income for the year | (54,279) | 29,146 | |
| Profit for the period attributable to: | |||
| Equity holders of parent | 15,470 | 23,182 | |
| Non-controlling interests | 13,789 | 13,386 | |
| 29,259 | 36,568 | ||
| Total comprehensive (loss)/income for the period attributable to: | |||
| Equity holders of parent | (32,741) | 19,072 | |
| Non-controlling interests | (21,538) | 10,074 | |
| 5 | (54,279) | 29,146 | |
| Earnings per share | |||
| Basic and diluted | 12 | 43.7c | 65.6c |
Consolidated Balance Sheet
as at 31 December 2015
| As at | As at | ||
| 31 December | 31 December | ||
| 2015 | 2014 | ||
| Notes | US$'000 | US$'000 | |
| Non-current assets | |||
| Goodwill | 13 | 27,389 | 35,024 |
| Other intangible assets | 14 | 26,274 | 38,565 |
| Property, plant and equipment | 15 | 557,190 | 639,480 |
| Deferred tax assets | 24 | 32,128 | 31,665 |
| Trade and other receivables | 21 | 44,328 | 51,535 |
| Investment in joint venture | 17 | 18,301 | 11,500 |
| Other non-current assets | 27 | 8,018 | 11,838 |
| 713,628 | 819,607 | ||
| Current assets | |||
| Inventories | 19 | 28,285 | 32,460 |
| Trading investments | 18 | 276,878 | 260,491 |
| Trade and other receivables | 21 | 83,981 | 96,199 |
| Cash and cash equivalents | 97,561 | 103,810 | |
| 486,705 | 492,960 | ||
| Total assets | 1,200,333 | 1,312,567 | |
| Current liabilities | |||
| Trade and other payables | 26 | (78,889) | (78,879) |
| Derivatives | (1,339) | (156) | |
| Current tax liabilities | (3,732) | (1,994) | |
| Obligations under finance leases | 25 | (1,192) | (1,444) |
| Bank overdrafts and loans | 22 | (41,490) | (51,195) |
| (126,642) | (133,668) | ||
| Net current assets | 360,063 | 359,292 | |
| Non-current liabilities | |||
| Bank loans | 22 | (322,265) | (343,990) |
| Derivatives | (1,547) | (1,843) | |
| Employee benefits | (1,308) | (1,570) | |
| Deferred tax liabilities | 24 | (52,631) | (45,197) |
| Provisions | 27 | (13,922) | (15,702) |
| Obligations under finance leases | 25 | (1,536) | (3,253) |
| (393,209) | (411,555) | ||
| Total liabilities | (519,851) | (545,223) | |
| Net assets | 680,482 | 767,344 | |
| Capital and reserves | |||
| Share capital | 28 | 11,390 | 11,390 |
| Retained earnings | 501,426 | 508,298 | |
| Capital reserves | 31,760 | 31,760 | |
| Translation and hedging reserve | (49,542) | (1,677) | |
| Equity attributable to equity holders of the parent | 495,034 | 549,771 | |
| Non-controlling interests | 185,448 | 217,573 | |
| Total equity | 680,482 | 767,344 |
Consolidated Statement of Changes in Equity
as at 31 December 2015
| Attributable | |||||||
| Hedging and | to equity | Non- | |||||
| Share | Retained | Capital | Translation | holders of | controlling | Total | |
| capital | earnings | reserves | reserve | the parent | interests | equity | |
| For the year ended 31 December 2014 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
| Balance at 1 January 2014 | 11,390 | 505,922 | 31,760 | 3,128 | 552,200 | 217,875 | 770,075 |
| Currency translation adjustment | - | - | - | (3,989) | (3,989) | (3,154) | (7,143) |
| Employee benefits (note 37) | - | 412 | - | - | 412 | 297 | 709 |
| Effective portion of changes in fair value of derivatives | - | - | - | (533) | (533) | (455) | (988) |
| Profit for the year | - | 23,182 | - | - | 23,182 | 13,386 | 36,568 |
| Total income and expense for the period | - | 23,594 | - | (4,522) | 19,072 | 10,074 | 29,146 |
| Dividends | - | (21,218) | - | - | (21,218) | (13,239) | (34,457) |
| Derivatives | - | - | - | (283) | (283) | (203) | (486) |
| Share based payment expense | - | - | - | - | - | 3,066 | 3,066 |
| Balance at 31 December 2014 | 11,390 | 508,298 | 31,760 | (1,677) | 549,771 | 217,573 | 767,344 |
| For the year ended 31 December 2015 | |||||||
| Balance at 1 January 2015 | 11,390 | 508,298 | 31,760 | (1,677) | 549,771 | 217,573 | 767,344 |
| Currency translation adjustment | - | - | - | (47,342) | (47,342) | (34,593) | (81,935) |
| Employee benefits (note 37) | - | (63) | - | - | (63) | (45) | (108) |
| Effective portion of changes in fair value of derivatives | - | - | - | (806) | (806) | (689) | (1,495) |
| Profit for the year | - | 15,470 | - | - | 15,470 | 13,789 | 29,259 |
| Total income and expense for the period | - | 15,407 | - | (48,148) | (32,741) | (21,538) | (54,279) |
| Dividends | - | (22,279) | - | - | (22,279) | (14,104) | (36,383) |
| Derivatives | - | - | - | 283 | 283 | 203 | 486 |
| Share based payment expense | - | - | - | - | - | 3,314 | 3,314 |
| Balance at 31 December 2015 | 11,390 | 501,426 | 31,760 | (49,542) | 495,034 | 185,448 | 680,482 |
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 of equity are stated net of tax where applicable.
Consolidated Cash Flow Statement
for the year ended 31 December 2015
| Year to | Year to | ||
| 31 December | 31 December | ||
| 2015 | 2014 | ||
| Notes | US$'000 | US$'000 | |
| Net cash inflow from operating activities | 29 | 145,459 | 105,556 |
| Investing activities | |||
| Acquisition of Briclog less net of cash acquired | - | (26,677) | |
| Interest received | 11,702 | 9,062 | |
| Dividends received from trading investments | 4,244 | 5,786 | |
| Proceeds on disposal of trading investments | 57,783 | 103,396 | |
| Proceeds on disposal of property, plant and equipment | 987 | 6,490 | |
| Purchase of property, plant and equipment | (65,779) | (107,475) | |
| Purchase of intangible assets | (2,238) | (2,136) | |
| Purchase of trading investments | (75,558) | (79,685) | |
| Net cash used in investing activities | (68,859) | (91,239) | |
| Financing activities | |||
| Dividends paid | 11 | (22,279) | (21,218) |
| Dividends paid to non-controlling interests in subsidiary | (14,104) | (13,239) | |
| Repayments of borrowings | (49,894) | (38,076) | |
| Repayments of obligations under finance leases | (1,081) | (1,879) | |
| New bank loans raised | 31,881 | 64,086 | |
| Derivative paid | (445) | (154) | |
| Net cash from financing activities | (55,922) | (10,480) | |
| Net increase in cash and cash equivalents | 20,678 | 3,837 | |
| Cash and cash equivalents at beginning of year | 103,810 | 106,512 | |
| Effect of foreign exchange rate changes | (26,927) | (6,539) | |
| Cash and cash equivalents at end of year | 97,561 | 103,810 |
Notes to the Accounts
for the year ended 31 December 2015
1 General Information
The financial statements have been prepared on the historical cost basis except for the revaluation of financial investments. The accounting policies are consistent with those set out in the 2014 Group annual report except for new standards and interpretations adopted.
2 Significant accounting policies and critical accounting judgements
Basis of accounting
The financial information set out in this announcement does not constitute the Group's statutory financial statements for the years ended 31 December 2015 or 2014, but is derived from those accounts. The auditors have reported on those accounts and their reports were unqualified.
Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.
The Group closely monitors and manages its liquidity risk. The Group has considerable financial resources including US$97.6 million in cash and cash equivalents and the Group's borrowings have a long maturity profile. The Group's business activities together with the factors likely to affect its future development and performance are set out in the chairman's statement, operating review and investment managers report of this announcement. The financial position, cash flows and borrowings of the Group are set out in the financial review. In addition note 36 to the financial statements include details of its financial instruments and hedging activities and its exposure to credit risk and liquidity risk. Details of the Group's borrowings are set out in note 22. Based on the Group's forecasts and sensitivities run, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.
Change in functional currency
In accordance with IAS 21, the functional currency of an entity reflects the underlying transactions, events and conditions that are relevant to the entity. Accordingly, once the functional currency is determined, it can be changed only if there is a change to those underlying transactions, events and conditions.
The Group considers the following factors in determining the functional currency of each entity. The currency that mainly influences sales prices for goods and services and the currency that mainly influences costs of providing goods or services.
Following trends over the recent years, there have been changes in relation to underlying transactions, events and circumstances, mainly related to the generation of revenues by some companies. The projections made by management corroborate these trends. As a result, the Company changed the functional currency of Tecon Rio Grande S.A, Wilson, Sons Operadores Portuários Ltda and Wilson Sons Comércio Indústria e Agência de Navegação Ltda (from US Dollars to Brazilian Real) as of the first quarter of 2015.
As stipulated by IAS 21, when there is a change in an entity's functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change.
New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2015, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below.
The Group does not plan to adopt new standards in advance.
IFRS 9 Financial instruments
IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39.
IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.
IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.
3 Revenue
An analysis of the Group's revenue is as follows:
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Sales of services | 455,037 | 530,080 |
| Revenue from construction contracts | 53,885 | 103,440 |
| 508,922 | 633,520 | |
| Investment income (note 7) | 16,908 | 16,975 |
| 525,830 | 650,495 |
All revenue is derived from continuing operations.
4 Business and geographical segments
Business segments
Ocean Wilsons has two reportable segments: maritime services and investments. The maritime services segment provides towage, port terminals, ship agency, offshore, logistics and shipyard services in Brazil. The investment segment holds a portfolio of international investments.
Segment information relating to these businesses is presented below.
For the year ended 31 December 2015
| Maritime | ||||
| Services | Investment | Unallocated | Consolidated | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2015 | 2015 | 2015 | 2015 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Revenue | 508,922 | - | - | 508,922 |
| Result | ||||
| Segment result | 114,780 | (2,681) | (2,304) | 109,795 |
| Share of results of joint ventures | 4,843 | - | - | 4,843 |
| Investment revenue | 12,660 | 4,248 | - | 16,908 |
| Other gains and losses | - | (1,388) | - | (1,388) |
| Finance costs | (45,403) | - | - | (45,403) |
| Foreign exchange losses on monetary items | (15,883) | (46) | 137 | (15,792) |
| Profit before tax | 70,997 | 133 | (2,167) | 68,963 |
| Tax | (39,704) | - | - | (39,704) |
| Profit after tax | 31,293 | 133 | (2,167) | 29,259 |
| Other information | ||||
| Capital additions | (69,889) | - | - | (69,889) |
| Depreciation and amortisation | (53,213) | - | (1) | (53,214) |
| Balance Sheet | ||||
| Assets | ||||
| Segment assets | 953,236 | 245,302 | 1,795 | 1,200,333 |
| Liabilities | ||||
| Segment liabilities | (519,224) | (242) | (385) | (519,851) |
For the year ended 31 December 2014
| Maritime | ||||
| Services | Investment | Unallocated | Consolidated | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2014 | 2014 | 2014 | 2014 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Revenue | 633,520 | - | - | 633,520 |
| Result | ||||
| Segment result | 94,942 | (3,258) | (2,258) | 89,426 |
| Share of results of joint ventures | 7,090 | - | - | 7,090 |
| Investment revenue | 11,187 | 5,788 | - | 16,975 |
| Other gains and losses | - | 6,233 | - | 6,233 |
| Finance costs | (23,607) | - | - | (23,607) |
| Foreign exchange losses on monetary items | (17,590) | (170) | 139 | (17,621) |
| Profit before tax | 72,022 | 8,593 | (2,119) | 78,496 |
| Tax | (41,928) | - | - | (41,928) |
| Profit after tax | 30,094 | 8,593 | (2,119) | 36,568 |
| Other information | ||||
| Capital additions | (111,186) | - | - | (111,186) |
| Depreciation and amortisation | (65,119) | - | (1) | (65,120) |
| Balance Sheet | ||||
| Assets | ||||
| Segment assets | 1,057,586 | 252,678 | 2,303 | 1,312,567 |
| Liabilities | ||||
| Segment liabilities | (544,055) | (815) | (353) | (545,223) |
Finance costs and associated liabilities have been allocated to reporting segments where interest costs arise from loans used to finance the construction of fixed assets in that segment.
Geographical Segments
The Group's operations are located in Bermuda, Brazil, and Guernsey.
All of the Group's sales are derived in Brazil.
The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located.
| Additions to | ||||
| Carrying amount of | property, plant and equipment | |||
| segment assets | and intangible assets | |||
| Year ended | Year ended | |||
| 31 December | 31 December | 31 December | 31 December | |
| 2015 | 2014 | 2015 | 2014 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Brazil | 909,652 | 1,018,380 | 69,889 | 111,186 |
| Bermuda | 290,681 | 294,187 | - | - |
| 1,200,333 | 1,312,567 | 69,889 | 111,186 |
5 Profit for the year
Profit for the year has been arrived at after charging:
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Depreciation of property, plant and equipment | 47,562 | 58,179 |
| Amortisation of intangible assets | 5,651 | 6,941 |
| Operating lease rentals | 11,313 | 17,835 |
| Auditor's remuneration for audit services (see below) | 481 | 516 |
| Non-executive directors emoluments | 446 | 439 |
| A more detailed analysis of auditor's remuneration is provided below: | ||
| Financial statement audit of group and subsidiaries | 481 | 516 |
| Other services | - | 11 |
| 481 | 527 | |
| 6 Employee benefits expense | ||
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Aggregate remuneration comprised: | ||
| Wages and salaries | 120,540 | 170,984 |
| Share based payment (credit) | 3,346 | (652) |
| Social security costs | 18,716 | 24,588 |
| Other pension costs | 998 | 973 |
| 143,600 | 195,893 |
| 7 Investment revenue | ||
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Interest on bank deposits | 10,725 | 6,777 |
| Income from equity investments | 4,244 | 5,786 |
| Other interest | 1,939 | 4,412 |
| 16,908 | 16,975 | |
| 8 Other gains and losses | ||
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| (Decrease)/increase in fair value of trading investments held at year end | (4,396) | 1,360 |
| Profit on disposal of trading investments | 3,008 | 4,873 |
| (1,388) | 6,233 |
Other gains and losses form part of the movement in trading investments as outlined in note 18.
9 Finance costs
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Interest on bank overdrafts and loans | 11,833 | 12,547 |
| Exchange loss on foreign currency borrowings | 32,604 | 8,014 |
| Interest on obligations under finance leases | 596 | 872 |
| Other interest | 370 | 2,174 |
| 45,403 | 23,607 |
Borrowing costs incurred on qualifying assets of US$1.5 million (2014: US$1.0 million) were capitalised in the year at an average interest rate of 3.00% (2014: 2.97%).
10 Taxation
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Current | ||
| Brazilian taxation | ||
| Corporation tax | 27,004 | 22,835 |
| Social contribution | 11,055 | 10,037 |
| Total current tax | 38,059 | 32,872 |
| Deferred tax | ||
| Credit for the year in respect of deferred tax liabilities | (29,069) | (7,242) |
| Charge for the year in respect of deferred tax assets | 30,714 | 16,298 |
| Total deferred tax | 1,645 | 9,056 |
| Total taxation | 39,704 | 41,928 |
Brazilian corporation tax is calculated at 25% (2014: 25%) of the assessable profit for the year. Brazilian social contribution tax is calculated at 9% (2014: 9%) of the assessable profit for the year.
At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the company has received an undertaking from the Bermuda Government exempting it from all such taxes until 31 March 2035.
The charge for the year can be reconciled to the profit per the statement of comprehensive income as follows:
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Profit before tax | 68,963 | 78,496 |
| Tax at the standard Brazilian tax rate of 34% (2014: 34%) | 23,447 | 26,689 |
| Deferred tax | 1,645 | 9,056 |
| Tax effect of foreign exchange losses on monetary items | 5,369 | 5,685 |
| Change in unrecognised deferred tax assets | 2,026 | 509 |
| Tax effect of share of results of joint ventures | (1,647) | (2,411) |
| Tax relating to prior year | 849 | 1,840 |
| Share option scheme | 1,127 | (242) |
| Tax effect of other items that are not included in determining taxable profit | 4,890 | 2,453 |
| Effect of different tax rates of subsidiaries operating in other jurisdictions | 1,998 | (1,651) |
| Tax expense and effective rate for the year | 39,704 | 41,928 |
| Effective rate for the year | 58% | 53% |
The Group earns its profits primarily in Brazil. Therefore, the tax rate used for tax on profit on ordinary activities is the standard rate in Brazil of 34%, consisting of corporation tax, 25% and social contribution 9%.
11 Dividends
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Amounts recognised as distributions to equity holders in the period: | ||
| Final dividend paid for the year ended 31 December 2014 of 63c (2013: 60c) per share | 22,279 | 21,218 |
| Proposed final dividend for the year ended 31 December 2015 of 63c (2014: 63c) per share | 22,279 | 22,279 |
12 Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Earnings: | ||
| Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent | 15,470 | 23,182 |
| Number of shares: | ||
| Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share | 35,363,040 | 35,363,040 |
13 Goodwill
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Cost and carrying amount attributed to: | ||
| Tecon Rio Grande | 11,704 | 13,132 |
| Tecon Salvador | 2,480 | 2,480 |
| Brazilian Intermodal Complex (Brasco Caju) | 13,205 | 19,412 |
| Total | 27,389 | 35,024 |
The goodwill associated with each cash-generating unit (Brasco Caju, Tecon Salvador and Tecon Rio Grande) is attributed to the Maritime segment.
As part of the annual impairment test review the carrying value of goodwill has been assessed with reference to its value in use reflecting the projected discounted cash flows of each cash-generating unit to which goodwill has been allocated. The cash flows are based on the remaining life of the concession. Future cash flows are derived from the most recent financial budget and for the period of concession remaining.
The key assumptions used in determining value in use relate to growth rate, discount rate, inflation and interest rate. Further projections include sales and operating margins, which are based on past experience, taking into account the effect of known or likely changes in market or operating conditions. Each cash-generating unit is assessed for impairment annually and whenever there is an indication of impairment.
An estimated average growth rate used does not exceed the historical average for Tecon Rio Grande and Tecon Salvador. A growth rate of 5.5% has been estimated for Brasco Caju, and a discount rate of 9.5% for all business units has been used. These growth rates reflect the products, industries and countries in which the operating segments operate. These medium- to long-term growth rates have been reviewed by management during 2015 and are considered to be appropriate.
After testing goodwill as mentioned above, no impairment losses were recognised for the periods presented.
The goodwill of Tecon Rio Grande consists of goodwill on the acquisition of Tecon Rio Grande and goodwill incorporated in Tecon Rio Grande upon acquisition. With the change in the functional currency of Tecon Rio Grande, the incorporated goodwill is subject to an exchange rate effect.
14 Other intangible fixed assets
| US$'000 | |
| Cost | |
| At 1 January 2014 | 66,851 |
| Additions | 2,136 |
| Write off | (90) |
| Exchange differences | (4,549) |
| At 1 January 2015 | 64,348 |
| Additions | 2,238 |
| Write off | (58) |
| Exchange differences | (12,579) |
| At 31 December 2015 | 53,949 |
| Amortisation | |
| At 1 January 2014 | 20,201 |
| Charge for the year | 6,941 |
| Write off | (89) |
| Exchange differences | (1,270) |
| At 1 January 2015 | 25,783 |
| Charge for the year | 5,651 |
| Write off | (52) |
| Exchange differences | (3,707) |
| At 31 December 2015 | 27,675 |
| Carrying amount | |
| 31 December 2015 | 26,274 |
| 31 December 2014 | 38,565 |
Intangible fixed assets arose from (i) the acquisition of concession rights for the container and heavy cargo terminal in Salvador in 2000, and the Ponta Norte expansion at Tecon Salvador in 2010 (ii) the implementation of integrated management software (SAP) (iii) the Briclog acquisition in 2013 (Brasco Caju). The additions to intangible assets in the period are mainly attributable to computer software.
The breakdown of intangibles by type is as follows:
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Brasco Caju | 11,998 | 18,280 |
| Tecon Salvador | 4,624 | 7,483 |
| Computer software | 3,025 | 5,630 |
| Other | 6,627 | 7,172 |
| Total | 26,274 | 38,565 |
Lease concessions are amortised over the remaining terms of the concessions at the time of acquisition, which for Tecon Salvador is 25 years and Ponta Norte is 15 years. The computer software is amortised over 5 years following completion of the installation.
15 Property, plant and equipment
| Land and | Vehicles, plant | Assets under | |||
| buildings | Floating Craft | and equipment | construction | Total | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| Cost or valuation | |||||
| At 1 January 2014 | 299,497 | 321,162 | 251,659 | 23,054 | 895,372 |
| Additions | 46,907 | 14,085 | 13,843 | 34,215 | 109,050 |
| Transfers | 1,032 | 45,799 | (1,032) | (45,799) | - |
| Exchange differences | (20,353) | - | (10,454) | - | (30,807) |
| Disposals | (420) | (11,459) | (12,019) | - | (23,898) |
| At 1 January 2015 | 326,663 | 369,587 | 241,997 | 11,470 | 949,717 |
| Additions | 15,296 | 12,394 | 8,665 | 31,296 | 67,651 |
| Transfers | 59 | 13,440 | (59) | (13,440) | - |
| Exchange differences | (86,226) | - | (68,690) | - | (154,916) |
| Disposals | (98) | (3,264) | (4,715) | - | (8,077) |
| At 31 December 2015 | 255,694 | 392,157 | 177,198 | 29,326 | 854,375 |
| Accumulated depreciation and impairment | |||||
| At 1 January 2014 | 60,209 | 119,670 | 98,569 | - | 278,448 |
| Charge for the year | 19,897 | 13,908 | 24,374 | - | 58,179 |
| Transfers | (65) | - | 65 | - | - |
| Elimination on construction contracts | - | 1,977 | - | - | 1,977 |
| Exchange differences | (4,394) | - | (6,321) | - | (10,715) |
| Disposals | (303) | (11,056) | (6,293) | - | (17,652) |
| At 1 January 2015 | 75,344 | 124,499 | 110,394 | - | 310,237 |
| Charge for the year | 12,095 | 15,434 | 20,033 | - | 47,562 |
| Elimination on construction contracts | - | 2,553 | - | - | 2,553 |
| Exchange differences | (23,755) | - | (33,753) | - | (57,508) |
| Disposals | (88) | (2,655) | (2,916) | - | (5,659) |
| At 31 December 2015 | 63,596 | 139,831 | 93,758 | - | 297,185 |
| Carrying Amount | |||||
| At 31 December 2015 | 192,098 | 252,326 | 83,435 | 29,326 | 557,190 |
| At 31 December 2014 | 251,319 | 245,088 | 131,603 | 11,470 | 639,480 |
The carrying amount of the Group's vehicles, plant and equipment includes an amount of US$12.9 million (2014: US$19.7 million) in respect of assets held under finance leases.
Land and buildings with a net book value of US$0.2 million (2014: US$0.2 million) and tugs with a value of US$0.5 million (2014: US$1.8 million) have been given in guarantee of various legal processes.
The Group has pledged assets having a carrying amount of approximately US$254.1 million (2014: US$214.7 million) to secure loans granted to the Group.
In December 2015, management considered a number of property, plant and equipment to be discontinued in the logistics division. Local management hired an independent firm to measure the market value of the remaining asset related to dedicated operations amounting to US$871,000, and an impairment loss of US$729,000 was recognised for write-downs to the lower of its carrying amount and its fair value less cost to sell. The impairment loss has been applied to reduce the carrying amount of property, plant and equipment, and been included in profit/(loss) on disposal of property, plant and equipment.
At 31 December 2015, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$4.6 million (2014: US$13.5 million).
16 Principal subsidiaries
| Place of | Method used | ||
| incorporation | Effective | to account | |
| and operation | interest* | for investment | |
| OCEAN WILSONS (INVESTMENTS) LIMITED | Bermuda | 100%** | Consolidation |
| Investment holding and dealing company | |||
| WILSON SONS LIMITED | Bermuda | 58.25%** | Consolidation |
| Holding company | |||
| WILSON SONS DE ADMINISTRAÇÃO E COMÉRCIO LTDA | Brazil | 58.25% | Consolidation |
| Holding company | |||
| SAVEIROS CAMUYRANO SERVIÇOS MARÍTIMOS LTDA | Brazil | 58.25%*** | Consolidation |
| Tug operators | |||
| WILSON, SONS S.A., COMÉRCIO, INDÚSTRIA, E AGÉNCIA DE NAVEGAÇÃO LTDA | Brazil | 58.25% | Consolidation |
| Shipbuilders | |||
| WILSON, SONS ESTALEIRO LTDA | Brazil | 58.25% | Consolidation |
| Shipbuilders | |||
| WILSON SONS AGENCIA MARÍTIMA LTDA | Brazil | 58.25% | Consolidation |
| Ship Agents | |||
| WILSON, SONS NAVEGAÇÃO LTDA | Brazil | 58.25% | Consolidation |
| Ship Agents | |||
| WILSON, SONS LOGÍSTICA LTDA | Brazil | 58.25% | Consolidation |
| Logistics | |||
| WILSON, SONS TERMINAIS DE CARGAS LTDA | Brazil | 58.25% | Consolidation |
| Transport services | |||
| EADI SANTO ANDRÉ TERMINAL DE CARGA LTDA | Brazil | 58.25% | Consolidation |
| Bonded warehousing | |||
| VIS LIMITED | Guernsey | 58.25% | Consolidation |
| Holding company | |||
| WS PARTICIPAҪÕES S.A. | Brazil | 58.25% | Consolidation |
| Holding company | |||
| WS PARTICIPACIONES S.A. | Uruguay | 58.25% | Consolidation |
| Holding company | |||
| TECON RIO GRANDE S.A. | Brazil | 58.25% | Consolidation |
| Port operator | |||
| WILSON, SONS APOIO MARITIMO LTDA | Brazil | 58.25% | Consolidation |
| Tug operator | |||
| BRASCO LOGÍSTICA OFFSHORE LTDA | Brazil | 58.25% | Consolidation |
| Port operator | |||
| TECON SALVADOR S.A. | Brazil | 53.88% | Consolidation |
| Port operator |
* Effective interest is the net interest of Ocean Wilsons Holdings Limited after non-controlling interests.
** Ocean Wilsons Holdings Limited holds direct interests in Ocean Wilsons (Investments) Limited and Wilsons Sons Limited.
*** On 1 December 2015, the Sobrare-Servemar Ltda. was incorporated by Saveiros Camuyrano Serviços Marítimos S.A.
The Group also has a 58.25% effective interest in a private investment fund Hydrus Fixed Income Private Credit Investment Fund. This private fund is administrated by Itaú bank and the investment policy and objectives are determined by the Group's treasury department in line with Group policy.
17 Joint ventures
The Group holds the following significant interests in joint operations and joint ventures at the end of the reporting period:
| Place of | Proportion of ownership | ||
| incorporation | 31 December | 31 December | |
| and operation | 2015 | 2014 | |
| Towage | |||
| Consórcio de Rebocadores Barra de Coqueiros | Brazil | 50% | 50% |
| Consórcio de Rebocadores Baia de São Marcos | Brazil | 50% | 50% |
| Logistics | |||
| Porto Campinas, Logística e Intermodal Ltda | Brazil | 50% | 50% |
| Offshore | |||
| Wilson, Sons Ultratug Participações S.A.* | Brazil | 50% | 50% |
| Atlantic Offshore S.A.** | Panamá | 50% | 50% |
* 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 the company.
The Group's interests in joint ventures are equity accounted.
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Revenue | 141,975 | 153,760 |
| Raw materials and consumables used | (4,835) | (6,098) |
| Employee benefits expense | (40,226) | (47,959) |
| Depreciation and amortisation expenses | (35,460) | (35,273) |
| Other operating expenses | (15,534) | (21,268) |
| Loss on disposals of property, plant & equipment | (576) | - |
| Results from operating activities | 45,344 | 43,162 |
| Finance income | 1,117 | 1,354 |
| Finance costs | (18,362) | (18,316) |
| Foreign exchange losses on monetary items | (15,799) | (4,807) |
| Profit before tax | 12,300 | 21,393 |
| Income tax expense | (2,613) | (7,213) |
| Profit for the period | 9,687 | 14,180 |
| Participation | 50% | 50% |
| Equity result | 4,843 | 7,090 |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Other non-current Assets | 835 | 1,566 |
| Property, plant and equipment | 666,656 | 598,497 |
| Long-term investment | 2,041 | 2,140 |
| Other current assets | 1,635 | 1,367 |
| Trade and other receivables | 32,415 | 35,782 |
| Derivatives | - | 79 |
| Cash and cash equivalents | 21,011 | 37,061 |
| Total assets | 724,593 | 676,492 |
| Bank overdrafts and loans | 547,550 | 514,861 |
| Other non-current liabilities | 21,819 | 16,596 |
| Trade and other payables | 81,126 | 81,596 |
| Equity | 74,098 | 63,439 |
| Total liabilities | 724,593 | 676,492 |
Guarantees
Wilson Sons Offshore S.A. loan agreements with BNDES are guaranteed by a lien on the financed supply vessels, and in the majority of the contracts, a corporate guarantee from both Wilson Sons de Adminisração e Comércio and Rebocadores Ultratug Ltda, each guaranteeing 50% of its subsidiary's debt balance with BNDES.
Magallanes Navegação Brasileira's loan agreement with Banco do Brasil is guaranteed by a lien on the financed supply vessels. The security package also includes a standby letter of credit issued by Banco de Crédito e Inversiones - Chile for part of the debt balance, assignment of Petrobras' long-term contracts and a corporate guarantee issued by Inversiones Magallanes Ltda - Chile. A cash reserve account, accounted for under long-term investments, funded with US$2.0 million (R$8.0 million) should be maintained until full repayment of the loan agreement.
Covenants
The joint venture Magallanes Navegação Brasileira S.A. has to comply with specific financial covenants. At 31 December 2015, the company was in compliance with all clauses in the loans contracts.
Provisions for tax, labour and civil risks
In the normal course of business in Brazil, the joint venture remains exposed to numerous local legal claims. It is the joint venture'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 joint venture has made a provision, there are other tax, civil and labour disputes amounting to US$9.7 million (2014: US$12.6 million), whose probability of loss was estimated by the legal counsel as possible.
The breakdown of possible losses is described as follows:
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Civil cases | 1 | 2 |
| Tax cases | 7,600 | 9,189 |
| Labour claims | 2,089 | 3,387 |
| Total | 9,690 | 12,578 |
18 Investments
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Trading investments | ||
| At 1 January | 260,491 | 277,969 |
| Additions, at cost | 75,558 | 79,685 |
| Disposals, at market value | (57,783) | (103,396) |
| (Decrease)/increase in fair value of trading investments held at year end | (4,396) | 1,360 |
| Profit on disposal of trading investments | 3,008 | 4,873 |
| At 31 December | 276,878 | 260,491 |
| Ocean Wilsons (Investment) Limited Portfolio | 236,155 | 236,491 |
| Wilson Sons Limited | 40,723 | 24,000 |
| Trading investments held at fair value at 31 December | 276,878 | 260,491 |
Wilson Sons Limited
The Wilson Sons Limited investments are held and managed separately from the Ocean Wilsons (Investments) Limited portfolio and consist of US Dollar denominated depository notes.
Ocean Wilsons (Investment) Portfolio
The Group has not designated any financial assets that are not classified as trading investments as financial assets at fair value through profit or loss.
Trading investments above represent investments in listed equity securities, funds and unquoted equities that present the Group with opportunity for return through dividend income and capital appreciation.
Included in trading investments are open ended funds whose shares may not be listed on a recognised stock exchange but are redeemable for cash at the current net asset value at the option of the Company. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available. Where quoted market prices are not available, fair values are determined by third parties using various valuation techniques that include inputs for the asset or liability that are not based in observable market data (unobservable inputs).
19 Inventories
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Operating materials | 8,657 | 11,498 |
| Raw materials and spare parts | 19,628 | 20,962 |
| Total | 28,285 | 32,460 |
Inventories are expected to be recovered in less than one year and there were no obsolete items.
20 Construction contracts
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Contract costs incurred plus recognised profits less recognised losses to date | 72,019 | 123,483 |
| Less progress billings | (89,877) | (129,821) |
| Amounts due to contract customers included in trade and other payables | (17,858) | (6,338) |
21 Trade and other receivables
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Trade and other receivables | ||
| Amount receivable for the sale of services | 48,163 | 50,617 |
| Allowance for doubtful debts | (846) | (1,154) |
| 47,317 | 49,463 | |
| Income taxation recoverable | 5,732 | 9,352 |
| Other recoverable taxes and levies | 25,340 | 34,000 |
| Loans to related parties | 28,392 | 31,314 |
| Prepayments | 11,360 | 12,431 |
| Other | 10,168 | 11,174 |
| 128,309 | 147,734 | |
| Total current | 83,981 | 96,199 |
| Total non-current | 44,328 | 51,535 |
| 128,309 | 147,734 |
Non-current trade receivables relate to: recoverable taxes with maturity dates in excess of one year, which comprise mainly PIS, COFINS, ISS and INSS, and intergroup loans. There are no indicators of impairment related to these receivables.
As a matter of routine, the Group reviews taxes and levies impacting its business to ensure that payments of such amounts are correctly made and that no amounts are paid unnecessarily. The Group is developing a plan to use its tax credits, respecting the legal term for using tax credits from prior years and, if unable to recover by compensation, requesting reimbursement of these values from the Receita Federal do Brasil (Brazilian Inland Revenue Service).
Included in the Group's trade receivable balances are debtors with a carrying amount of US$9.0 million (2014: US$8.8 million) which are past due but not impaired at the reporting date for which the Group has not provided as there has not been a change in credit quality and the Group believes the amounts are still recoverable. The Group does not hold any collateral over these balances.
| 31 December | 31 December | |
| 2015 | 2014 | |
| Ageing of past due but not impaired trade receivables | US$'000 | US$'000 |
| From 0 - 30 days | 6,004 | 6,942 |
| From 31 - 90 days | 1,491 | 1,086 |
| From 91 - 180 days | 1,523 | 791 |
| more than 180 days | - | - |
| Total | 9,018 | 8,819 |
The average credit period taken on services ranges from zero to 30 days. Interest is charged at up to 1% per month on the outstanding balances with an additional fine of up to 2% per month. The Group has provided in full for all receivables over 180 days because historical experience is such that receivables that are past due 180 days are generally not recoverable.
Included in the Group's allowance for doubtful debts are individually impaired trade receivables with a balance of US$1.2 million, which are aged, greater than 180 days. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected settlement proceeds.
The Group does not hold any collateral over these balances.
| 31 December | 31 December | |
| 2015 | 2014 | |
| Ageing of impaired trade receivables | US$'000 | US$'000 |
| From 0 - 30 days | - | - |
| From 31 - 90 days | - | - |
| From 91 - 180 days | - | - |
| more than 180 days | 846 | 1,154 |
| Total | 846 | 1,154 |
| 2015 | 2014 | |
| Movement in the allowance for doubtful debts | US$'000 | US$'000 |
| Balance at the beginning of the year | 1,154 | 1,718 |
| Amounts written off as uncollectable | (3,329) | (3,106) |
| Increase in allowance recognised in profit or loss | 3,405 | 2,743 |
| Exchange differences | (384) | (201) |
| Balance at the end of the year | 846 | 1,154 |
In determining recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. The directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
22 Bank loans and overdrafts
| Annual | 31 December | 31 December | |
| interest rate | 2015 | 2014 | |
| % | US$'000 | US$'000 | |
| Secured borrowings | |||
| BNDES - FMM linked to US Dollar¹ | 2.07% to 6% | 184,083 | 200,022 |
| BNDES - Real | 8.76% to 9.19% | 23,232 | 26,796 |
| BNDES - linked to US Dollar | 5.07% to 5.36% | 7,239 | 9,410 |
| BNDES - FINAME Real | 4.00% to 13.00% | 1,952 | 4,461 |
| BNDES - FMM Real¹ | 7.40% to 10.21% | 1,684 | 2,692 |
| Total BNDES | 218,190 | 243,381 | |
| IFC - US Dollar | 5.25% | 58,971 | 67,815 |
| BB - FMM linked to US Dollar¹ | 2.00% - 3.00% | 75,387 | 54,985 |
| Itaú - US Dollar linked to Real | 11.89% | - | 12,233 |
| Eximbank - US Dollar | 2.05% | 7,356 | 9,462 |
| Finimp - US Dollar | 4.26% | 3,503 | 6,287 |
| IFC - Real | 14.09% | 348 | 1,022 |
| Total others | 145,565 | 151,804 | |
| Total | 363,755 | 395,185 |
1. As an agent of Fundo da Marinha Mercante's (FMM), BNDES finances the construction of tugboats and shipyard facilities.
The breakdown of bank overdrafts and loans by maturity is as follows:
| 31 December | 31 December | ||||
| 2015 | 2014 | ||||
| US$'000 | US$'000 | ||||
| Within one year | 41,490 | 51,195 | |||
| In the second year | 40,231 | 39,926 | |||
| In the third to fifth years (inclusive) | 107,996 | 120,389 | |||
| After five years | 174,038 | 183,675 | |||
| Total | 363,755 | 395,185 | |||
| Amounts due for settlement within 12 months | 41,490 | 51,195 | |||
| Amounts due for settlement after 12 months | 322,265 | 343,990 |
The analysis of borrowings by currency is as follows:
| US Dollars | BRL | ||||
| linked to | linked to | ||||
| BRL | BRL | US Dollars | US Dollars | Total | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| 31 December 2015 | |||||
| Bank loans | 27,216 | - | 266,709 | 69,830 | 363,755 |
| Total | 27,216 | - | 266,709 | 69,830 | 363,755 |
| 31 December 2014 | |||||
| Bank loans | 34,971 | 12,233 | 264,417 | 83,564 | 395,185 |
| Total | 34,971 | 12,233 | 264,417 | 83,564 | 395,185 |
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) a pledge of the respective financed tugboat, (ii) a lien over the logistics and port operations equipment financed.
Loans with Banco do Brasil rely on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda. and a pledge of the respective financed tugboat.
The loans that Tecon Salvador holds with IFC are guaranteed by shares of the company, projects' cash flows, equipment and buildings.
The loan agreement that Tecon Rio Grande has with the Export-Import Bank of China for equipment acquisition is guaranteed by a standby letter of credit issued by Itaú BBA S.A, which in turn has the pledge on the financed equipment.
Undrawn credit facilities
At 31 December 2015, the Group had available US$51.1 million of undrawn borrowing facilities. For each disbursement, there is a set of conditions precedent that must be satisfied.
Covenants
The Wilson, Sons de Administração e Comércio Ltda. ("WSAC") holding company, as corporate guarantor, has to comply with financial covenants in both Wilson Sons Estaleiros Ltda and Brasco Logística Offshore Ltda loan agreements signed with BNDES.
The subsidiary Tecon Salvador has to observe affirmative and negative covenants stated in its loan agreement with the International Finance Corporation - IFC, including the maintenance of specific liquidity ratios and a capital structure.
As a result of the devaluation of the Brazilian Real against the US Dollar at 30 September 2015 Tecon Salvador S.A. was in excess of the maximum covenant of financial debt to tangible net worth ratio in Brazilian Real in its loan agreement with the IFC. Tecon Salvador S.A. was granted a waiver for compliance valid until 30 September 2016. The value of the Loan affected at 31 December 2015 was US$59.0 million.
The subsidiary Tecon Rio Grande has to comply with financial covenants in its loan agreement with BNDES, such as a minimum liquidity ratio and capital structure.
Fair value
Management estimates the fair value of the Group's borrowings as follows:
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Bank loans | ||
| BNDES | 218,190 | 243,381 |
| BB | 59,319 | 68,837 |
| IFC | 75,387 | 54,985 |
| Itaú | - | 12,233 |
| Eximbank | 7,356 | 9,462 |
| Finimp | 3,503 | 6,287 |
| Total | 363,755 | 395,185 |
23 Derivative financial instruments
The Group may enter into derivatives contracts to manage risks arising from interest rate fluctuations. All such transactions are carried out within the guidelines set by the Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.
The Group uses cash flow hedges to limit its exposure that may result from the variability of floating interest rates. On 16 September 2013, its subsidiary, Tecon Salvador, entered into an interest rate swap agreement with a notional amount of US$74.4 million to hedge a portion of its outstanding floating-rate debt with IFC. On 31 December 2015 the notional amount was US$58.4 million, equivalent to the outstanding debt amount on that date. This swap converts floating interest rate based on the London Interbank Offered Rate, or LIBOR, into fixed-rate interest and expires in March 2020.The derivatives were entered into with Santander Brasil as counterparty, whose credit rating was AAA, as of 31 December 2015, according to Standard & Poor's Brazilian local rating scale.
Tecon Salvador is required to pay the counterparty a stream of fixed interest payments at rates fixed from 0.553% to 4.250%, according to the schedule agreement, and in turn, receives variable interest payments based on 6-month LIBOR. The net receipts or payments from the swap are recorded as a financial expense.
| US$'000 | ||
| Outflows | Net effect | |
| Within one year | (1,339) | (1,339) |
| In the second year | (482) | (482) |
| In the third to fifth years (inclusive) | (1,065) | (1,065) |
| After five years | - | - |
| (2,886) | (2,886) | |
| Fair Value | (2,886) |
The fair value of the swap was estimated based on the yield curve as of 31 December 2015, and represents its carrying value. As of 31 December 2015, the interest rate swap balance in other non-current liabilities was US$2.9 million; and the balance in accumulated other comprehensive income on the consolidated balance sheet was US$3.8 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the year ended 31 December 2015 was an after-tax loss of US$1.5 million.
| Notional | |||
| Amount | Fair Value | ||
| 31 December 2015 | US$000's | Maturity | US$000's |
| Financial Assets | |||
| Interest Rates Swap | 58,400 | March 2020 | (2,886) |
| Total | (2,886) |
Derivative Sensitivity Analysis
This analysis is based on 6-month Libor interest rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular foreign exchange rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of reduction of 25% (Possible) and 50% (Remote) in the interest rate. Even if the Group has to pay adjustments in future fixings, the swap contract fixes the total interest amount that the Group will pay is equal as the rate agreed. In this case in both scenarios the risk associated on 31 December 2015 is US$2.9 million.
Cash Flow Hedge
The Group applies hedge accounting for transactions in order to manage the volatility in earnings. The swap is designated and qualifies as a cash flow hedge. As such, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheet at fair value. The effective portion of changes in fair value of the derivative is recognized in other comprehensive income and presented as an asset revaluation reserve in equity. Any ineffective portion of changes in fair value of the derivative is recognised immediately in the income statement.
If the hedging instrument no longer meets the criteria for hedge accounting operations, expires or is sold, terminated or exercised, or the designation is revoked, the model accounting hedges (hedge accounting) is discontinued prospectively when there is no more expectation for the forecasted transaction, and then the amount stated in the equity is reclassified to the income statement.
On the initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the hedging instrument and the hedged transaction, including the risk management objective and strategy on the implementation of the hedge and the hedged risk, together with the methods that will be used to evaluate the effectiveness of the hedging relationship. The Group is utilizing the dollar offset method to assess the effectiveness of the swap, analysing whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of the respective hedged items attributable to the hedged risk, and if the actual results for each coverage are within the range from 80 - 125%.
Under this methodology, the swap was deemed to be highly effective for the period ended 31 December 2015. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2015.
24 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period.
| Exchange | Retranslation of | ||||
| Accelerated tax | variance on | Other | non-current asset | ||
| depreciation | loans | differences | valuation | Total | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| At 1 January 2014 | (19,193) | 17,007 | 24,337 | (25,813) | (3,662) |
| (Charge)/credit to income | (717) | 7,959 | (426) | (15,872) | (9,056) |
| Exchange differences | - | (366) | (448) | - | (814) |
| At 1 January 2015 | (19,910) | 24,600 | 23,463 | (41,685) | (13,532) |
| (Charge)/credit to income | 4,070 | 24,999 | (3,711) | (27,003) | (1,645) |
| Deferred taxes transferred to current taxes | - | (3,859) | - | - | (3,859) |
| Exchange differences | 43 | (4,693) | 3,183 | - | (1,467) |
| At 31 December 2015 | (15,797) | 41,047 | 22,935 | (68,688) | (20,503) |
Certain tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes.
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Deferred tax liabilities | (52,631) | (45,197) |
| Deferred tax assets | 32,128 | 31,665 |
| (20,503) | (13,532) |
At the balance sheet date the Group had unused tax losses of US$17.9 million (2014: US$48.9 million) available for offset against future profits in the company in which they arose. No deferred tax asset has been recognised in respect of US$6.1 million (2014: US$7.1 million) due to the unpredictability of future profit streams.
Retranslation of non-current asset valuation deferred tax arises on Brazilian property, plant and equipment held in US dollar functional currency businesses. Deferred tax is calculated on the difference between the historical US Dollar balances recorded in the Groups accounts and the Brazilian Real balances used in the Group's Brazilian tax calculations.
Deferred tax on exchange variance on loans arises from exchange gains or losses on the Group's US Dollar and Brazilian Real denominated loans linked to the US Dollar that are not deductible or payable for tax in the period they arise. Exchange gains on these loans are taxable when settled and not in the period in which gains arise.
25 Obligations under finance leases
| Minimum lease payments | ||
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Amounts payable under finance leases | ||
| Within one year | 1,517 | 1,859 |
| In the second to fifth years inclusive | 2,399 | 4,604 |
| After five years | - | - |
| 3,916 | 6,463 | |
| Less future finance charges | (1,188) | (1,766) |
| Present value of lease obligations | 2,728 | 4,697 |
| Less: Amounts due for settlement within 12 months (shown under current liabilities) | (1,192) | (1,444) |
| Amount due for settlement after 12 months | 1,536 | 3,253 |
| Present value of Minimum lease payments | ||
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Amounts payable under finance leases | ||
| Within one year | 1,192 | 1,444 |
| In the second to fifth years inclusive | 1,536 | 3,253 |
| After five years | - | - |
| 2,728 | 4,697 | |
| Less future finance charges | - | - |
| Present value of lease obligations | - | - |
| Less: Amounts due for settlement within 12 months (shown under current liabilities) | 1,192 | 1,444 |
| Amount due for settlement after 12 months | 1,536 | 3,253 |
It is the Group's policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 5 years. The average outstanding lease term at 31 December 2015 was 26 months.
For the year ended 31 December 2015, the average effective borrowing rate was 16.75% (2014: 13.94%). Interest rates are set at contract date. All leases are denominated in Brazilian Real and include a fixed repayment and a variable finance charge linked to the Brazilian interest rate. Interest rates range from 15.39% to 17.76%.
There is a non-significant difference between the fair value and the present value of the Group's lease obligations. The present value is calculated with its own interest rate over the future installments of each contract.
The Group's obligations under finance leases are secured by the lessors' rights over the leased assets.
26 Trade and other payables
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Trade creditors | 39,975 | 46,007 |
| Amounts due to construction contract customers (note 20) | 17,858 | 6,338 |
| Other taxes | 7,704 | 11,064 |
| Accruals and deferred income | 13,259 | 15,409 |
| Share based payment liability | 93 | 61 |
| Total | 78,889 | 78,879 |
Trade creditors and accruals principally comprise amounts outstanding for trade purposes and ongoing costs.
The average credit period for trade purchases is 61 days (2014: 40 days). For most suppliers interest is charged on outstanding trade payable balances at various interest rates. The Group has financial risk management policies in place to ensure that payables are paid within the credit timeframe.
The directors consider that the carrying amount of trade payables approximates their fair value.
27 Provisions
| US$'000 | ||
| At 1 January 2014 | 10,262 | |
| Increase in provisions in the year | 9,118 | |
| Utilisation of provisions | (3,683) | |
| Exchange difference | 5 | |
| At 31 December 2014 | 15,702 | |
| Increase in provisions in the year | 7,697 | |
| Utilisation of provisions | (3,991) | |
| Exchange difference | (5,486) | |
| At 31 December 2015 | 13,922 |
Provisions comprise legal claims relating to civil cases, tax cases and legal claims by former employees.
Analysis of provisions by type:
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Civil and environmental cases | 2,219 | 3,119 |
| Tax cases | 2,492 | 3,818 |
| Labour claims | 9,211 | 8,765 |
| 13,922 | 15,702 |
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 booked the provision there are other tax, civil and labour disputes amounting to US$84.1 million (2014: US$112.3 million) with probability of loss was estimated by the legal counsels as possible.
The breakdown of possible claims is described as follows:
The analysis of possible losses by type:
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Civil and environmental cases | 4,453 | 4,292 |
| Tax cases | 63,056 | 82,416 |
| Labour claims | 16,609 | 25,582 |
| 84,118 | 112,290 |
The main probable and possible claims against the Group are described below:
Civil and environmental cases - Indemnification claims involving material damages, environmental and shipping claims and other contractual disputes.
Labour claims - Most claims involve payment of health risks, additional overtime and other allowances.
Tax cases - The Group litigates against governments in respect of assessments considered inappropriate.
Procedure for classification of legal liabilities as probable, possible or remote loss is by the external lawyers:
Upon receipt of the notification of a new judicial lawsuit, the external lawyer generally classifies it as a possible claim, recording the total amount involved. From 2014, the Group is using the estimated value at risk and not the total amount involved in each process. Exceptionally, if there is sufficient knowledge from the beginning that there is very high or very low risk of loss, the lawyer may classify the claim as probable loss or remote loss. During the course of the lawsuit and considering, for instance, its first judicial decision, legal precedents, arguments of the claimant, thesis under discussion, applicable laws, documentation for the defence and other variables, the lawyer may re-classify the claim as probable loss or remote loss. When classifying the claim as probable loss, the lawyer estimates the amount at risk for such claim.
The Group considers as relevant causes involving amounts, assets or rights over US$1.3 million
28 Share capital
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Authorised | ||
| 50,060,000 ordinary shares of 20p each | 16,119 | 16,119 |
| Issued and fully paid | ||
| 35,363,040 ordinary shares of 20p each | 11,390 | 11,390 |
The company has one class of ordinary share which carries no right to fixed income.
Share capital is converted at the exchange rate prevailing at 31 December 2002, the date at which the Group's presentational currency changed from Sterling to US Dollars, being US$1.61 to £1.
29 Notes to the cash flow statement
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Reconciliation from profit before tax to net cash from operating activities | ||
| Profit before tax | 68,963 | 78,496 |
| Share of results of joint venture | (4,843) | (7,090) |
| Investment revenues | (16,908) | (16,975) |
| Other gains and losses | 1,388 | (6,233) |
| Finance costs | 45,403 | 23,607 |
| Foreign exchange losses on monetary items | 15,792 | 17,621 |
| Operating profit | 109,795 | 89,426 |
| Adjustments for: | ||
| Depreciation of property, plant and equipment | 47,563 | 58,179 |
| Amortisation of intangible assets | 5,651 | 6,941 |
| Share based payment credit | 3,346 | (652) |
| Gain on disposal of property, plant and equipment | 1,294 | (326) |
| (Decrease)/increase in provisions | (2,088) | 5,713 |
| Operating cash flows before movements in working capital | 165,561 | 159,281 |
| Decrease/(increase) in inventories | 4,175 | (3,370) |
| Decrease in receivables | 12,525 | 21,227 |
| Decrease in payables | (5,953) | (25,027) |
| Decrease/(increase) in other non-current assets | 5,988 | (1,629) |
| Cash generated by operations | 182,296 | 150,482 |
| Income taxes paid | (22,690) | (29,518) |
| Interest paid | (14,147) | (15,408) |
| Net cash from operating activities | 145,459 | 105,556 |
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.
Private investment funds
Wilson Sons Limited has investments in private investment funds that are consolidated in the financial statements as cash equivalents.
The Group has investments in a private investment fund called Hydrus Fixed Income Private Credit Investment Fund that are consolidated in these financial statements. This private investment fund comprises deposit certificates, financial notes and debentures, with final maturities ranging from January 2016 to September 2021. The Private Investment Fund is marked to fair value on a daily basis against current earnings. This private investment fund does not have significant financial obligations. Any financial obligations are limited to service fees to the asset management company employed to execute investment transactions, audit fees and other similar expenses. The fund´s investments are highly liquid which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Additionally, US Dollar linked investments are made through Itaú Exchange FICFI, whose purpose is to preserve the US dollar value of the investment.
Cash and cash equivalents held in Brazil amount to US$83.3 million (2014: US$70.3 million).
Cash equivalents are held for the purpose of meeting short-term cash commitments and not for cash investment purposes.
Additions to plant and equipment during the year amounting to US$0.4 million (2014: US$0.5 million) were financed by new finance leases.
30 Contingent liabilities
In the normal course of business in Brazil, the Group continues to be exposed to numerous local legal claims. It is the Group's policy to contest such claims vigorously, many of which appear to have little substance in merit, and to manage such claims through its legal advisers. The total estimated contingent claims at 31 December 2015 are US$84.1 million (2014: US$112.3 million). These have not been provided for as the Directors and the Group's legal advisors do not consider that there is any probable loss. Contingent liabilities relate to labour, civil and environmental, and tax claims.
31 Share options
Stock option scheme
On 13 November 2013, the board of Wilson Sons Limited approved a Stock Option Plan, which allowed for the grant of options to eligible participants to be selected by the board. The shareholders in special general meeting approved such plan on the 8 January 2014 including increase in the authorized capital of the company through the creation of up to 4,410,927 new shares. The options provide participants with the right to acquire shares via Brazilian Depositary Receipts ("BDR") in Wilson Sons Limited at a predetermined fixed price not less than the three day average mid-price for the days preceding the date of option issuance. The Stock Option Plan is detailed below:
| Options series | Grant date | Original vesting date | Expiry date | Exercise price | Number | Expired | Vested | Outstanding not Vested | Total Subsisting |
| (R$) | |||||||||
| 07 ESO - 3 Year | 10/1/2014 | 10/1/2017 | 10/1/2024 | 31.23 | 961,653 | (34,353) | - | 927,300 | 927,300 |
| 07 ESO - 4 Year | 10/1/2014 | 10/1/2018 | 10/1/2024 | 31.23 | 961,653 | (34,353) | - | 927,300 | 927,300 |
| 07 ESO - 5 Year | 10/1/2014 | 10/1/2019 | 10/1/2024 | 31.23 | 990,794 | (35,394) | - | 955,400 | 955,400 |
| 07 ESO - 3 Year | 13/11/2014 | 13/11/2017 | 13/11/2024 | 33.98 | 45,870 | - | 11,880 | 33,990 | 45,870 |
| 07 ESO - 4 Year | 13/11/2014 | 13/11/2018 | 13/11/2024 | 33.98 | 45,870 | - | 11,880 | 33,990 | 45,870 |
| 07 ESO - 5 Year | 13/11/2014 | 13/11/2019 | 13/11/2024 | 33.98 | 47,260 | - | 12,240 | 35,020 | 47,260 |
| Total | 3,053,100 | (104,100) | 36,000 | 2,913,000 | 2,949,000 |
The options terminate on the expiry date or immediately on the resignation of the director or senior employee, whichever is earlier. Options lapse if not exercised within 6 months of the date that the participant ceases to be employed or hold office within the Group by reason of, amongst others: injury, disability or retirement; or dismissal without just cause.
The following Fair Value expense of the grant to be recorded as a liability in future accounting periods was determined using the Binomial model based on the assumptions detailed below:
| Period | Projected IFRS2 |
| Fair Value expense | |
| US$'000* | |
| 10 January 2014 | 3,171 |
| 10 January 2015 | 3,296 |
| 10 January 2016 | 3,296 |
| 10 January 2017 | 1,936 |
| 10 January 2018 | 883 |
| Total | 12,582 |
*Amounts in Dollars converted at R$2.3819/US$1.00.
| 10 January | |
| 2014 | |
| Closing share price (in Real) | R$30.05 |
| Expected volatility | 28% |
| Expected life | 10 years |
| Risk free rate | 10.8% |
| Expected dividend yield | 1.7% |
Expected volatility was determined by calculating the historical volatility of the Group's share price. The expected life used in the model has been adjusted based on management´s best estimate for exercise restrictions and behavioural considerations.
32 Operating lease arrangements
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| The Group as lessee | ||
| Minimum lease payments under operating leases recognised in income for the year | 4,800 | 17,835 |
At the balance sheet date, the minimum amount due in 2015 by the Group for future minimum lease payments under cancellable operating leases was US$7.8 million (2014: $11.6 million).
Lease commitments for land and buildings over 5 years comprise the minimum contractual lease obligations between Tecon Rio Grande and the Rio Grande port authority the Group and the Salvador port authority. The Tecon Rio Grande concession expires in 2022 and Tecon Salvador in 2025. Both have an option to renew the concession for a maximum period of 25 years.
In respect of the option to renew the lease of Tecon Rio Grande, the port authority of Rio Grande has, in consideration of investments made, ensured the Company the right to renew the contract, provided the State government remains the delegated authority of the area or has in other legal way, ownership of the same. In respect of the option to renew the lease of Tecon Salvador, Wilson Sons has requested renewal in consideration of and investment project currently awaiting technical approval and contractual agreement
Tecon Rio Grande guaranteed payments consist of two elements; a fixed rental, plus a fee per 1000 containers moved based on forecast volumes. The amount shown in the accounts is based on the minimum volume forecast. Volumes are forecast to rise in future years. If container volumes moved through the terminal exceed forecast volumes in any given year, additional payments will be required. Tecon Salvador guaranteed payments consists of three elements; a fixed rental, a fee per container moved based on minimum forecast volumes and a fee per ton of non-containerised cargo moved based on minimum forecast volumes.
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable/operating leases, which fall due as follows:
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Within one year | 15,655 | 23,268 |
| In the second to fifth year inclusive | 51,660 | 78,072 |
| After five years | 47,751 | 82,614 |
| 115,066 | 183,954 |
Non-cancellable lease payments represent rental payments by the Group for the bonded warehouse used by EADI Santo Andre. The unexpired lease term at 31 December 2015 is 2 years and 2 months and rental payments are corrected by a Brazilian general inflation index.
33 Commitments
At 31 December 2015 the Group had entered into the following commitment agreements with respect to trading investments. These commitments relate to capital subscription agreements entered into by Ocean Wilsons Investments Limited.
The details of these commitments are as follows:
| Year ended | Year ended | ||
| Outstanding | Outstanding | ||
| At 31 December | At 31 December | ||
| Commitment | 2015 | 2014 | |
| $'000 | US$'000 | US$'000 | |
| 31 December 2016 | 3,000 | 68 | 68 |
| 22 February 2017 (a) | 4,994 | 122 | 135 |
| 05 December 2017 | 5,000 | 575 | 434 |
| 30 March 2018 | 5,000 | 855 | 899 |
| 4 June 2018 | 5,000 | 1,468 | 1,538 |
| 18 July 2018 | 5,000 | 700 | 738 |
| 21 December 2018 | 5,000 | 185 | 364 |
| 31 December 2018 | 4,650 | 279 | 445 |
| 21 June 2019 | 5,000 | - | 3,374 |
| 22 November 2019 | 5,000 | 550 | 550 |
| 08 December 2019 | 5,000 | 427 | 1,044 |
| 31 December 2019 | 3,000 | 90 | 240 |
| 01 January 2020 | 4,500 | 288 | 469 |
| 18 December 2021 | 5,000 | 916 | 1,200 |
| 17 February 2022 | 3,000 | 869 | 1,170 |
| 30 April 2022 | 7,500 | 3,781 | 4,547 |
| 11 July 2022 (b) | 4,972 | 2,833 | 3,917 |
| 01 February 2023 | 5,000 | 500 | 700 |
| 01 April 2023 | 5,000 | 3,578 | 3,723 |
| 05 June 2023 | 3,200 | 2,259 | 2,474 |
| 21 August 2024 (c ) | 5,005 | 3,577 | 4,129 |
| 22 August 2024 | 5,000 | 921 | 2,235 |
| 12 March 2025 (d) | 2,954 | 1,892 | - |
| 21 June 2025 | 1,800 | 1,800 | - |
| 11 April 2029 | 3,000 | 1,410 | 2,160 |
| 19 October 2030 | 500 | 465 | - |
| To be confirmed | 2,500 | 2,500 | - |
| Total | 119,566 | 35,193 | 36,553 |
(a) Commitment made in Euro. Total commitment €3,350,000 with amounts outstanding at 31 December 2015 €111,935 (2014: €111,935).
(b) Commitment made in Euro. Total commitment €3,650,000 with amounts outstanding at 31 December 2015 €2,607,070 (2014: €3,237,059l).
(c) Commitment made in pounds sterling. Total commitment £3,000,000 with amounts outstanding at 31 December 2014 £2,428,045 (2014: £2,650,030).
(d) Commitment made in Euro. Total commitment €2,500,000 with amounts outstanding at 31 December 2015 €1,740,970 (2014: nil)
There may be situations when commitments may be extended by the manager of the underlying structure beyond the initial expiry date dependent upon the terms and conditions of each individual structure.
34 Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all qualifying employees of its Brazilian business. The assets of the scheme are held separately from those of the Group in funds under the control of independent managers.
The total cost charged to the income statement of US$1.0 million (2014: US$1.0 million) represents contributions payable to the scheme by the Group at rates specified in the rules of the plan.
35 Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and its associates, joint ventures and others investments are disclosed below:
| Dividends received/ | Amounts paid/ | |||
| Revenue from services | Cost of services | |||
| 31 December | 31 December | 31 December | 31 December | |
| 2015 | 2014 | 2015 | 2014 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Joint ventures | ||||
| 1. Allink Transportes Internacionais Limitada | 36 | 31 | - | - |
| 2. Consórcio de Rebocadores Barra de Coqueiros | 149 | 321 | - | - |
| 3. Consórcio de Rebocadores Baía de São Marcos | 183 | 96 | (2) | (26) |
| 4. Wilson Sons Ultratug and subsidiaries | 20,438 | 5,745 | - | - |
| 5. IntermaritimaTerrminais Ltda | 1,370 | - | - | - |
| Others | ||||
| 6. Hanseatic Asset Management | - | - | (2,490) | 3,054 |
| 7. Gouvêa Vieira Advogados | - | - | (92) | (121) |
| 8. CMMR Intermediacão Comercial Limitada | - | - | (221) | (238) |
| 9. Jofran Services | - | - | (165) | (165) |
| Amounts owed | Amounts owed | |||
| by related parties | to related parties | |||
| 31 December | 31 December | 31 December | 31 December | |
| 2015 | 2014 | 2015 | 2014 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Joint ventures | ||||
| 1. Allink Transportes Internacionais Limitada | - | 4 | (12) | - |
| 2. Consórcio de Rebocadores Barra de Coqueiros | 130 | 118 | - | - |
| 3. Consórcio de Rebocadores Baía de São Marcos | 1,767 | 2,285 | - | - |
| 4. Wilson Sons Ultratug | 1,927 | 23,135 | - | - |
| 5. Intermaritima Terminais Ltda | 2,940 | - | - | - |
| Others | ||||
| 6. Hanseatic Asset Management | - | - | (203) | (773) |
| 7. Gouvêa Vieira Advogados | - | - | - | - |
| 8. CMMR Intermediacão Comercial Limitada | - | - | - | - |
| 9. Jofran Services | - | - | - | - |
1. Mr A C Baião is a shareholder and Director of Allink Transportes Internacionais Limitada. Allink Transportes Internacionais Limitada is 50% owned by the Group and rents office space from the Group.
5. Intermarítima Terminais Ltda has a 7.5% participation in Tecon Salvaldor and contracts terminal services on an arms length basis. Intermarítima has outstanding loans paying interest at CDI advanced from Wilson Sons Limited, secured by Intermarítimas participation in Tecon Salvador
6. Mr W H Salomon is chairman of Hanseatic Asset Management. Fees were paid to Hanseatic Asset Management for acting as investment managers of the Group's investment portfolio and administration services.
7. Mr J F Gouvêa Vieira is a partner in the law firm Gouvêa Vieira Advogados. Fees were paid to Gouvêa Vieira Advogados for legal services.
8. Mr C M Marote is a shareholder and Director of CMMR Intermediacao Comercial Limitada. Fees were paid to CMMR Intermediacao Comercial Limitada for consultancy services.
9. Mr J F Gouvêa Vieira is a Director of Jofran Services. Directors' fees were paid to Jofran Services.
Remuneration of key management personnel
The remuneration of the executive directors and other key management of the Group, is set out below in aggregate for the categories specified in IAS 24 Related Party Disclosures.
| Year ended | Year ended | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Short-term employee benefits | 9,094 | 12,128 |
| Other long-term employee benefits | 1,173 | 1,503 |
| Share options issued | 3,314 | 3,066 |
| Share-based payment | 32 | (3,719) |
| 13,613 | 12,978 |
36 Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 22, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings disclosed in the consolidated statement of changes in equity.
The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated by operating revenues.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Significant accounting policies
Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expense are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.
Categories of financial instruments
| Year ended | Year ended | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Financial assets | ||
| Designated as fair value through profit or loss | 236,155 | 236,491 |
| Receivables (including cash and cash equivalents and other non-current assets) | 287,180 | 289,530 |
| Financial liabilities | ||
| Financial instruments classified as amortised cost | (437,668) | (467,697) |
| Financial instruments classified as cash flow hedge (Derivatives) | (2,886) | (1,999) |
Financial risk management objectives
The Group's Corporate Treasury function provides services to the business, co-ordinates access to domestic and international financial markets and manages the financial risks relating to the operations of the Group through internal reports. The primary objective is to keep a minimum exposure to those risks by using financial instruments and by assessing and controlling the credit and liquidity risks according to the rules and procedures established by management. These risks include market risk, (including currency risk, interest rate risk and price risk) credit risk and liquidity risk.
The Group may use derivative financial instruments to hedge these risk exposures, with Board approval. The Group does not enter into trading financial instruments, including derivative financial instruments for speculative purposes.
Credit risk
The Group's principal financial assets are cash, trade and other receivables and trading investments. The Group's credit risk is primarily attributable to its bank balances, trade receivables and investments. The amounts presented as receivables in the balance sheet are net of allowances for doubtful receivables as outlined above.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The credit risk on investments held for trading is limited because the counterparties with whom the Group transacts are regulated institutions or banks with high credit ratings. The Company's appointed investment manager, Hanseatic Asset Management LBG, evaluates the credit risk on trading investments prior to and during the investment period.
In addition, the Company invests in Limited Partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The board reviews all investments at its regular meetings from reports prepared by the company's investment managers.
The Group has no significant concentration of credit risk. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
Market risk
The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
Foreign currency risk management
The Group undertakes certain transactions denominated or linked to foreign currencies and therefore exposures to exchange rate fluctuations arise. The Group operates principally in Brazil with a substantial proportion of the Group's revenue, expenses, assets and liabilities denominated in the Real. Due to the cost of hedging the Real, the Group does not normally hedge its net exposure to the Brazilian Real, as the Board does not consider it economically viable.
Cash flows from investments in fixed assets are denominated in Brazilian Real and US Dollars. These investments are subject to currency fluctuations between the time that price of goods or services are settled and the actual payment date. The resources and their application are monitored with purpose of matching the currency cash flows and due dates. The Group has contracted US Dollar-denominated and Brazilian Real-denominated debt, and the cash and cash equivalents balances are also US Dollar-denominated and Brazilian Real-denominated.
In general terms, for operating cash flows, the Group seeks to neutralise the currency risk by matching assets (receivables) and liabilities (payments). Furthermore, the Group seeks to generate an operating cash surplus in the same currency in which the debt service of each business is denominated.
The carrying amount of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
| Liabilities | Assets | |||
| 2015 | 2014 | 2015 | 2014 | |
| US$'000 | US$'000 | US$'000 | US$'000 | |
| Real | 315,553 | 140,415 | 372,009 | 324,549 |
| Sterling | 26 | 27 | 1,975 | 9,931 |
| Euro | - | - | 5,522 | 6,662 |
| Singapore dollar | - | - | - | 3,747 |
| 315,579 | 140,442 | 379,506 | 344,889 |
Foreign currency sensitivity analysis
The Group is primarily exposed to unfavourable movements in the Brazilian Real on its Brazilian liabilities held by US Dollar functional currency entities.
The sensitivity analysis presented in the following sections, which refer to the position on 31 December 2015, estimates the impacts of the Brazilian Real devaluation against the US Dollar. A baseline scenario is determined based both on the carrying value of the operations, and the "PTAX" rate as of 31 December 2015. Then, three additional, exchange rate scenarios are contemplated: the likely scenario (Probable) and two possible scenarios of deterioration of 25% (Possible) and 50% (Remote) in the exchange rate. The Group uses the Brazilian Central Bank's "Focus" report to determine the probable scenario.
| 31 December 2015 | ||||||
| Exchange rates | ||||||
| Possible | Remote | |||||
| Probable | scenario | scenario | ||||
| scenario | 25% | 50% | ||||
| 4.30 | 5.38 | 6.45 | ||||
| Possible | Remote | |||||
| Amount | Probable | scenario | scenario | |||
| Operation | Risk | US Dollars | Result | scenario | (25%) | (50%) |
| Total assets | BRL | 370,096 | Exchange Effects | (34,014) | (101,231) | (146,042) |
| Total liabilities | BRL | 315,553 | Exchange Effects | 29,001 | 86,312 | 124,519 |
| Net Effect | (5,013) | (14,919) | (21,523) | |||
| 31 December 2014 | ||||||
| Exchange rates | ||||||
| Possible | Remote | |||||
| Probable | scenario | scenario | ||||
| scenario | 25% | 50% | ||||
| R$2.80/US$1.00 | R$3.50/US$1.00 | R$4.20/US$1.00 | ||||
| Possible | Remote | |||||
| Amount | Probable | scenario | scenario | |||
| Operation | Risk | US Dollars | Result | scenario | (25%) | (50%) |
| Total assets | BRL | 324,549 | Exchange Effects | (16,473) | (78,244) | (119,295) |
| Total liabilities | BRL | 140,415 | Exchange Effects | 7,211 | 33,852 | 51,613 |
| Net Effect | (9,262) | (44,392) | (67,682) |
The Brazilian Real foreign currency impact is mainly attributable to the exposure of outstanding Brazilian Real receivables and payables at year end in the Group. The Sterling currency impact is mainly attributable to the exposure of sterling denominated investments.
In management's opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk, as the yearend exposure does not reflect the exposure during the year.
Interest rate risk management
The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The Group holds most of its debts linked to fixed rates. Most of the Group's fixed rates loans are with the FMM (Fundo da Marinha Mercante).
Other loans exposed to floating rates are as follows:
TJLP (Brazilian Long-Term Interest Rate) for Brazilian Real-denominated funding through FINAME credit line to Port Operations and Logistics operations.
DI (Brazilian Interbank Interest Rate) for Brazilian Real-denominated funding in Logistics operations, and
6-month Libor (London Interbank Offered Rate) for US Dollar-denominated funding for Port Operations.
The Brazilian Real-denominated investments yield interest rates corresponding to the DI daily fluctuation for privately issued securities and/or "Selic-Over" government-issued bonds. The US Dollar-denominated investments are part in time deposits, with short-term maturities.
The Group's strategy for managing interest rate risk is to maintain a balanced portfolio of fixed and floating interest rates in order to balance both cost and volatility. The Group may use derivative instruments to reduce cash flow interest rate attributable to interest rate volatility.
The Group has floating rate financial assets consisting of bank balances principally denominated in US Dollars and Brazilian Real that bear interest at rates based on the banks floating interest rate.
Interest rate sensitivity analysis
The Group uses two important information sources to estimate the probable scenarios in determining interest rate scenarios, BM&F (Bolsa de Mercadorias e Futuros) and Bloomberg. The following analysis concerns a possible fluctuation of revenue or expenses linked to the transactions and scenarios shown, without considering their fair value. For floating rate liabilities and investments, the analysis is prepared assuming the amount of the liability outstanding or cash invested at balance sheet date was outstanding or invested for the whole year.
| 31 December 2015 | ||||||
| Possible | Remote | |||||
| Probable | scenario | scenario | ||||
| Transaction | scenario | 25% | 50% | |||
| Loans - Libor | 1.03% | 1.29% | 1.55% | |||
| Loans - CDI | 15.20% | 19.00% | 22.80% | |||
| Loans - TJLP | 7.50% | 9.38% | 11.25% | |||
| Investments - Libor | 1.04% | 1.30% | 1.56% | |||
| Investments - CDI | 15.20% | 19.00% | 22.80% | |||
| Possible | Remote | |||||
| Amount | Probable | scenario | scenario | |||
| Transaction | Risk | US Dollars | Result | scenario | (25%) | (50%) |
| Loans - Libor | Libor | 69,830 | Interest | (239) | (362) | (485) |
| Loans - TJLP | TJLP | 25,329 | Interest | - | (303) | (601) |
| Loans - Fixed | None | 268,596 | None | - | - | - |
| Total loans | 363,755 | (239) | (665) | (1,086) | ||
| Investments - Libor | Libor | 43,639 | Income | - | 108 | 217 |
| Investments - CDI | CDI | 80,387 | Income | 1,420 | 4,650 | 7,880 |
| Total investments | 124,026 | 1,420 | 4,758 | 8,097 | ||
| Net Income | 1,181 | 4,093 | 7,011 |
The net effect was obtained by assuming a 12-month period starting 31 December 2015 in which interest rates vary and all other variables are held constant. The scenarios express the difference between the scenario rate and actual rate. The investment rate risk mix in Brazil is 37.34% Libor, 62.66% CDI.
| 31 December 2014 | ||||||
| Possible | Remote | |||||
| Probable | scenario | scenario | ||||
| Transaction | scenario | 25% | 50% | |||
| Loans - Libor | 0.62% | 0.78% | 0.93% | |||
| Loans - CDI | 12.40% | 15.50% | 18.60% | |||
| Loans - TJLP | 5.50% | 6.88% | 8.25% | |||
| Investments - Libor | 0.62% | 0.78% | 0.93% | |||
| Investments - CDI | 12.40% | 15.50% | 18.60% | |||
| Possible | Remote | |||||
| Amount | Probable | scenario | scenario | |||
| Transaction | Risk | US Dollars | Result | scenario | (25%) | (50%) |
| Loans - Libor | Libor | 83,564 | Interest | (177) | (272) | (366) |
| Loans - CDI | Libor | 12,233 | Interest | (58) | (170) | (280) |
| Loans - TJLP | Libor | 30,858 | Interest | - | (278) | (553) |
| Loans - fixed | Libor | 268,530 | None | - | - | - |
| Total loans | 395,185 | (235) | (720) | (1,199) | ||
| Investments - Libor | Libor | 39,206 | Income | 44 | 106 | 168 |
| Investments - CDI | CDI | 65,777 | Income | 829 | 2,823 | 4,816 |
| Total investments | 873 | 2,929 | 4,984 | |||
| Net Income | 638 | 2,209 | 3,785 |
The net effect was obtained by assuming a 12-month period starting 31 December 2015 in which interest rates vary and all other variables are held constant. The scenarios express the difference between the scenario rate and actual rate. The interest rate mix is 37.28% Libor and 62.72% CDI.
Investment portfolio
Interest rate changes will always impact equity prices. The level and direction of change in equity prices is subject to prevailing local and world economics as well as market sentiment all of which are very difficult to predict with any certainty.
Derivative financial instruments
The Group may enter into derivatives contracts to manage risks arising from interest rate fluctuations. All such transactions are carried out within the guidelines set by the Wilson Sons Limited Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.
The Group uses cash flow hedges to limit its exposure that may result from the variation of floating interest rates. On 16 September 2013, its subsidiary, Tecon Salvador, entered into an interest rate swap agreement with an initial notional amount of $74.4 million to hedge a portion of its outstanding floating-rate debt with IFC. On 31 December 2015, the notional amount was $58.4 million, equivalent to the outstanding debt amount on that date. This swap converts floating interest rate based on the London Interbank Offered Rate, or LIBOR, into fixed-rate interest and expires in March 2020.The derivatives were entered into with Santander Brasil as counterparty, whose credit rating was AAA, as of 31 December 2015, according to Standard& Poor's Brazilian local rating scale.
Tecon Salvador is required to pay the counterparty a stream of fixed interest payments at rates fixed from 0.553% to 4.250%, according to the schedule agreement, and in turn, receives variable interest payments based on 6-month LIBOR. The net receipts or payments from the swap are recorded as financial expense.
| Outflows | Net effect | |
| Within one year | (1,339) | (1,339) |
| In the second year | (482) | (482) |
| In the third to fifth years (including) | (1,065) | (1,065) |
| After five years | - | - |
| (2,886) | (2,886) | |
| Fair Value | (2,886) |
The fair value of the swap was estimated based on the yield curve as of 31 December 2015, and represents its carrying value. As of 31 December 2015, the interest rate swap balance in other current and non-current liabilities was US$2.9 million; and the balance in accumulated other comprehensive income on the consolidated balance sheets was US$3.8 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the year ended 31 December 2015 was an after-tax loss of US$1.5 million.
| Notional | US$ | ||
| 31 December 2015 | Amount US$ | Maturity | Fair Value |
| Financial Assets | |||
| Interest Rates Swap | 58,400 | Mar/2020 | (2,886) |
| Total | (2,886) |
Derivative Sensitivity Analysis
This analysis is based on 6-month Libor interest rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular foreign exchange rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of reduction of 25% (Possible) and 50% (Remote) in the interest rate. Even if the Group has to pay adjustments in future fixings, the swap contract fixes the total interest amount that the Group will pay is equal as the rate agreed. In this case in both scenarios the risk associated on 31 December 2015 is US$2.9 million.
Cash Flow Hedge
The Group applies hedge accounting for transactions in order to manage the volatility in earnings. The swap is designated and qualifies as a cash flow hedge. As such, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheets at fair value. The effective portion of changes in fair value of the derivative is recognised in other comprehensive income and presented as an asset revaluation reserve in equity. Any ineffective portion of changes in fair value of the derivative is recognised immediately in the profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting operations, expires or is sold, terminated or exercised, or the designation is revoked, the model accounting hedges (hedge accounting) is discontinued prospectively when there is no more expectation for the forecasted transaction, and then the amount stated in the equity is reclassified to the profit or loss.
On the initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the hedging instrument and the hedged transaction, including the risk management objective and strategy on the implementation of the hedge and the hedged risk, together with the methods that will be used to evaluate the effectiveness of the hedging relationship. The Group is utilizing the dollar offset method to assess the effectiveness of the swap, analysing whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of the respective hedged items attributable to the hedged risk, and if the actual results for each coverage are within the range from 80 - 125%.
Under this methodology, the swap was deemed to be highly effective for the period ended 31 December 2015. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2015.
Market price sensitivity
By the nature of its activities, the Company'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.
The sensitivity analysis below has been determined based on the exposure to market price risks at the year end and shows what the impact would be if market prices had been 10 per cent higher or lower at the end of the financial year. The amounts below indicate an increase in profit or loss and total equity where market prices increase by 10 per cent, assuming all other variables are constant. A fall in market prices of 10 per cent would give rise to an equal fall in profit or loss and total equity.
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Profit or loss | 23,616 | 23,649 |
| Total equity | 23,616 | 23,649 |
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. Ongoing credit evaluation is performed on the financial condition accounts receivable. Trade and other receivables disclosed in the balance sheet are shown net of the allowance for doubtful debts. The allowance is booked whenever a loss is identified, which based on past experience is an indication of impaired cash flows.
Ocean Wilsons (Investments) Limited primarily transacts with regulated institutions on normal market terms which are trade date plus one to three days. The levels of amounts outstanding from brokers are regularly reviewed by the Investment Manager. The duration of credit risk associated with the investment transaction is the period between the date the transaction took place, the trade date and the date the stock and cash are transferred, and the settlement date. The level of risk during the period is the difference between the value of the original transaction and its replacement with a new transaction.
In addition the Ocean Wilsons (Investments) Limited invests in Limited Partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The board reviews all investments at its regular meetings from reports prepared by the company's investment managers
Liquidity risk management
Liquidity risk is the risk that the Group will encounter difficulty in fulfilling obligations associated with its financial liabilities that are settled with cash payments or other financial asset. The Group's approach in managing liquidity is to ensure that the Group always has sufficient liquidity to fulfil the obligations that expire, under normal and stress conditions, without causing unacceptable losses or risk damage to the reputation of the Group.
Ultimate responsibility for liquidity risk management rests with the Board 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 uses costing based on activities to price the products and services, which assist in monitoring cash flow requirements and optimizing the return on cash investments.
Normally, the Group ensures it has sufficient cash reserves to meet the expected operational expenses, including financial obligations. This practice excludes the potential impact of extreme circumstances that cannot be reasonably foreseen, such as natural disasters.
The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.
| Weighted | |||||
| average | |||||
| effective | Less than | ||||
| interest rate | 12 months | 1-5 years | 5+ years | Total | |
| % | US$'000 | US$'000 | US$'000 | US$'000 | |
| 31 December 2015 | |||||
| Non-interest bearing | - | 82,621 | - | - | 82,621 |
| Finance lease liability | 16.75% | 1,192 | 1,536 | - | 2,728 |
| Variable interest rate instruments | 3.22% | 17,292 | 68,460 | 9,407 | 95,159 |
| Fixed interest rate instruments | 2.91% | 24,198 | 79,767 | 164,631 | 268,596 |
| 125,303 | 149,763 | 174,038 | 449,104 | ||
| 31 December 2014 | |||||
| Non-interest bearing | - | 80,873 | - | - | 80,873 |
| Finance lease liability | 13.61% | 1,444 | 3,253 | - | 4,697 |
| Variable interest rate instruments | 2.93% | 28,592 | 79,200 | 18,863 | 126,655 |
| Fixed interest rate instruments | 2.98% | 22,603 | 81,114 | 164,813 | 268,530 |
| 133,512 | 163,567 | 183,676 | 480,755 |
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.
The fair value of financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading on 31 December 2015. The quoted market price used for financial assets held by the Company utilise the last traded market price financial assets.
Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which fair value is observable:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 Inputs for the asset that are not based on observable market data. Fair value measurements are those derived from valuation techniques that include inputs for the assets or liability that are not based on observable data (unobservable inputs).
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
If one of more of the significant inputs is not based on observable market data, the instrument is included in level 3.
| Level 1 | Level 2 | Level 3 | Total | |
| 31 December 2015 | US$'000 | US$'000 | US$'000 | US$'000 |
| Financial assets at FVTPL | ||||
| Non-derivative financial assets for trading | 3,885 | 138,100 | 94,170 | 236,155 |
| Level 1 | Level 2 | Level 3 | Total | |
| 31 December 2014 | US$'000 | US$'000 | US$'000 | US$'000 |
| Financial assets at FVTPL | ||||
| Non-derivative financial assets for trading | 70,795 | 90,489 | 75,207 | 236,491 |
Valuation Process
Investments whose values are based on quoted market prices in active markets and are classified within Level I include active listed equities. The Company does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include certain private investments that are traded over the counter. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include holdings in Limited Partnerships and other funds. As observable prices are not available for these securities, the Company values these based on an estimate of their fair value, which is determined as follows:
(i) For entities that have recently begun trading, and for which detailed financial information is not available, the valuation will be determined with reference to the original cost plus any further drawdowns less any distributions received. This will be adjusted by reference to more recent benchmark subscriptions and investments which give a guide to fair value, or where there are other factors that indicate there has been a significant change in fair value.
(ii) For more established investments, the valuation will be determined by reference to recent financial information received from the underlying entity. This underlying information is determined in accordance with International Private Equity and Venture Capital Guidelines and is determined using methodologies that include applying an average sector earnings multiple to operating profits, reference to the valuation of the underlying net asset base and discounted cash flows.
Level 3 valuations are reviewed on a quarterly basis by the Company's investment manager who reports to the Board of Directors quarterly. The investment manager considers the appropriateness of the valuation model inputs used and the basis of the techniques used to ensure they are in line with industry standards. In selecting the most appropriate valuation model the investment manager considers historical alignment to actual market transactions.
None of the Company's investments have moved between classification levels in the year and therefore no reconciliation is necessary. Sensitivity analysis in relation to Level 3 investments has been included in the market price risk management analysis where the Company has shown impacts to the value of investments if markets prices had been 10% higher or lower at the end of the financial year.
| 2015 | 2014 | |
| Reconciliation of Level 3 fair value measurements of financial assets: | US$'000 | US$'000 |
| Balance at 1 January | 75,207 | 57,173 |
| Total (losses)/profit in statement of comprehensive income | (5,950) | 2,368 |
| Purchases and drawdowns of financial commitments | 27,366 | 25,740 |
| Sales and repayments of capital | (2,453) | (10,074) |
| Balance at 31 December | 94,170 | 75,207 |
37 Post-employment benefits
The Group operates a private medical insurance scheme for its employees which require the eligible employees to pay fixed monthly contributions. In accordance with Brazilian law, eligible employees with greater than ten years service acquire the right to remain in the plan following retirement or termination of employment, generating a post-employment commitment for the Group. Ex-employees remaining in the plan will be liable for paying the full cost of their continued scheme membership. The future actuarial liability for the Group relates to the potential increase in plan costs resulting from additional claims as a result of the expanded membership of the scheme
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$'000 | US$'000 | |
| Present value of actuarial liabilities | 1,300 | 1,570 |
Actuarial assumptions
The calculation of the liability generated by the post-employment commitment involves actuarial assumptions. The following are the principal actuarial assumptions at the reporting date:
Economic and Financial Assumptions
| 31 December | 31 December | |
| 2015 | 2014 | |
| Annual interest rate | 14.17% | 12.78% |
| Estimated inflation rate in the long-term | 6.50% | 6.00% |
| Ageing Factor | 2.50% p.a. | 2.50% a.a |
| Medical cost trend rate | 2.50% p.a. | 2.50% a.a |
Biometric and Demographic Assumptions
| 31 December | 31 December | |
| 2015 | 2014 | |
| Employee turnover | 22.7% | 22.7% |
| Mortality table | AT-2000 | AT-2000 |
| Mortality table for disabled | IAPB-1957 | IAPB-1957 |
| Disability table | Álvaro Vindas | Álvaro Vindas |
| Retirement Age | 100% at 62 | 100% at 62 |
| Employees who opt to keep the health plan after retirement and termination | 23% | 23% |
| Family composition before retirement | ||
| Probability of marriage | 90% of the participants | 90% of the participants |
| Age difference for active participants | Men 4 years older than the woman | Men 4 years older than the woman |
| Family composition after retirement | Composition of the family group | Composition of the family group |
Sensitivity analysis
The present value of future liabilities may change depending on market conditions and actuarial assumptions. Changes on a relevant actuarial assumption, keeping the other assumptions constant, would have affected the defined benefit obligation as shown below:
| 31 December | 31 December | |
| 2015 | 2014 | |
| US$ | US$ | |
| CiPBO (*) - discount rate + 0.5% | (96) | (90) |
| CiPBO (*) - discount rate - 0.5% | 108 | 99 |
| CiPBO (*) - Health Care Cost Trend Rate + 1.0%(*) | 239 | 213 |
| CiPBO (*) - Health Care Cost Trend Rate - 1.0% | (190) | (176) |
(*) CiPBO means Change in projected benefit obligation.
38 Subsequent event
On 2 February 2016, the Group, through its subsidiaries, completed the acquisition of the 7.5% non-controlling interest in Tecon Salvador S.A for consideration of US$4.73 million from Intermaritima Terminais Ltda. The consideration included US$1.88 million in cash and the settlement of US$2.85 million in debt. The transaction also includes an additional US$0.75 million that is conditional upon future contractual events. Following completion of the transaction the Group now holds 100% of the shares of the subsidiary.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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