Ocean Wilsons Holdings Ltd

Preliminary results for the year ended 31 December 2014

 

Ocean Wilsons Holdings Limited today announces its preliminary results for the year ended 31 December 2014.

 

Highlights

 

·          Improvement in key operating performance indicators

·          Reported sales 4% lower at US$633.5 million (2013: US$660.1 million)

·          Earnings per share for the year of 65.6 cents (2013: 107.1 cents).

·          Dividend declared increased by 5% to 63 cents per share (2013: 60 cents per share)

·          Investment portfolio up US$2.7 million to US$251.7 million (2013: US$249.0 million)

·          Net cash inflow from operating activities for the year of US$105.6 million (2013: US$108.4 million)

 

José Francisco Gouvêa Vieira, Chairman of Ocean Wilson's, commented: "The overall operating performance of the Group in 2014 has been robust with our key operating performance indicators showing year on year growth at our towage, container terminal and offshore businesses, although container terminal volumes in the 4^th quarter were impacted by the slowdown in the Brazilian economy and weakening export demand. Operating profit at US$89.4 million was US$29.6 million lower (2013: US$119.0 million) reflecting the fall in turnover, lower operating margins and a profit on the disposal of property plant and equipment of US$10.0 million in the prior year."

 

For further information:

 

Company Contact

Keith Middleton                                                                    001 441 295 1309

 

 

Media

David Haggie                                                                       020 7562 4444

Haggie Partners LLP

 

 

Cantor Fitzgerald Europe                                                  020 7894 7000

Rick Thompson - Corporate Finance

David Banks - Corporate Broking

 

  

 

Highlights

·       Improvement in key operating performance indicators

·       Reported sales 4% lower at US$633.5 million (2013: US$660.1 million)

·       Earnings per share for the year of 65.6 cents (2013: 107.1 cents).

·       Dividend declared increased by 5% to 63 cents per share (2013: 60 cents per share)

·       Investment portfolio up US$2.7 million to US$251.7 million (2013: US$249.0 million)

·       Net cash inflow from operating activities for the year of US$105.6 million (2013: US$108.4 million) 

 

About Ocean Wilsons Holdings Limited

Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the "Company") is a Bermuda based investment holding company, and, 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 an autonomous Bermuda company listed on the Sao 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 allows Wilson Sons to grow and develop its businesses without being pressured 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 growth in the Ocean Wilsons share price and total returns to shareholders. In the 10 years to 31 December 2014 the share price has risen more than 250% from £2.85 to £10.00 and total returns to shareholders in the period (assuming dividends are reinvested in Ocean Wilsons shares) more than 350%.

 

Chairman's Statement

Introduction

The overall operating performance of the Group in 2014 has been robust as reflected in our key operating performance indicators. Our key indicators show year on year growth at our towage, container terminal and offshore businesses, although container terminal volumes in the 4^th quarter were impacted by the slowdown in the Brazilian economy and weakening export demand.

 

Operating volumes				2014	2013	% Change
Container Terminals (container movements in TEU '000)				975.1	937.5	4.0
Towage (number of harbour manoeuvres performed)				58,543	53,869	8.7
Offshore Vessels (operating days own vessels)				6,683	5,369	24.5

In September this year, we expanded our towage business by commencing towage operations in the Amazonian state of Pará, with seven tugs attending the port of Belém, as well as the Vila do Conde terminal in Barcarena and Trombetas in Oriximiná. This is an important new market for us in a region which is growing rapidly. We also participated in the first operations at the port of Açu in Rio de Janeiro during the year. We continue to invest in modernising and maintaining our fleet of tugboats with five new tugboats delivered in 2014. The five tugboats are 70 tons bollard pull, equipped with firefighting capability and were built at the Wilson Sons shipyards in Guarujá, São Paulo state. Our tugboat fleet remains the largest in Brazil with seventy-six tugboats operating throughout the country.

 

The Guarujá II shipyard successfully completed its first year of operation and in addition to the five tugboats delivered to Wilson Sons our shipyards delivered a new platform supply vessel (PSV) to our offshore joint venture, Wilson Sons Ultratug Offshore, and performed maintenance and repair work on our fleet of towage and offshore vessels. The other major third party work performed in the year was the ongoing construction of a Remotely Operated Vehicle Support Vessel (ROVSV) forecast for delivery in early 2015. Wilson Sons Ultratug Offshore had a successful year with improved pricing and expansion of our fleet contributing to a much improved financial result. The joint venture operates a fleet of nineteen PSVs with a further five vessels on order.  

In September 2014, Wilson Sons Logistics inaugurated the bonded warehouse EADI Suape in Pernambuco which, together with the Suape logistics centre, creates a valuable integrated logistics complex in the North East of Brazil. During 2014 the Group continued to develop and expand the Brasco Caju onshore support base acquired in 2013 which is forecast for completion in 2015.

The investment portfolio generated a time weighted return of 4.7% in the year. As at 31 December 2014, the investment portfolio was valued at US$251.7 million representing US$7.12 per share (2013: US$249.0 million and US$7.04 per share).

Group Results

Revenue for the full year declined 4% to US$633.5 million (2013: US$660.1 million) as a result of the weaker Brazilian Real "BRL", a slowdown in Brazilian trade in the fourth quarter of the year and the planned contraction and increased competition in our logistics and ship agency businesses.

Operating profit at US$89.4 million was US$29.6 million lower (2013: US$119.0 million) reflecting the fall in turnover, lower operating margins and a profit on the disposal of property plant and equipment of US$10.0 million in the prior year.

Group profit before tax for the year at US$78.5 million was US$22.0 million lower than prior year, US$100.5 million, principally due to the US$29.6 million decrease in operating profit and reduced gains from the investment portfolio, US$7.5 million lower. These negative movements were partially offset by a US$13.0 million decrease in exchange losses on monetary items and US$4.7 million increase in the share of results of joint ventures.

Income tax expense for the year at US$41.9 million was in line with prior year (2013: US$42.2 million).

Profit per share based on ordinary activities after taxation and non-controlling interests was 65.6 cents (2013: 107.1 cents).

Investment portfolio performance

During the year, the investment portfolio and cash under management "investment portfolio" generated a time weighted return of 4.7% with net earnings of the portfolio, after deducting management and other fees, of US$3.2 million. The investment portfolio as at 31 December 2014 was US$251.7 million (2013: US$249.0 million) after paying dividends of US$6.5 million to Ocean Wilsons Holdings Limited during the period. In the five years to 31 December 2014, the investment portfolio has returned US$32.5 million in distributions to Ocean Wilsons Holdings Limited.

 

The investment portfolio remains weighted to global equities, 57% and private assets, 30%, with the balance invested in market neutral funds, 3% and cash and bonds 10%. Private assets increased US$17.2 million in the year to US$74.7 million (2013: US$57.5 million) as a result of an increase in their unrealised net value of US$4.1 million plus new drawdowns in the period of US$23.2 million, less distributions received of US$10.1 million. To date we have received cumulative distributions of US$30.3 million and at the year end had US$36.6 million in outstanding commitments. The private assets programme continues to mature and "the Investment Manager remains confident that the significant capital deployed into post-crisis vintages represents an attractive store of future value." Private assets was the best performing sub-portfolio in the year returning 8.5%.

As part of the investment manager's ongoing review of the investment portfolio and strategy we disposed of a number of non-core investments during the year, reducing the number of holdings from 58 to 52 at the year end. The investment portfolio maintains an over weighted exposure to emerging markets with emerging markets accounting for 34% (2013: 37%) of the portfolio net asset value at the 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. The investment management fee is at an annual rate of 1% payable monthly in arrears. The performance fee in 2014 was measured against an absolute return benchmark derived from the one year USD LIBOR, prevailing at the commencement of each calendar year, plus 2%. In 2014 the investment management fee was US$2.5 million and a US$0.6 million performance fee was payable.

 

When the OWIL benchmark was originally defined as LIBOR+2% this represented an appropriate absolute return hurdle against which to judge the performance of the investment manager. More recently, distortions created by quantitative easing and the consequent material decline in interest rates have made this benchmark less relevant to the objectives and underlying risks in the portfolio. Together with the investment manager, the Board has therefore reviewed the portfolio performance benchmark and the investment management fees payable and concluded the investment management fee will remain unchanged but with effect from 1 January 2015 the portfolio performance will be measured against a benchmark calculated by reference to US CPI plus 3% over rolling three-year periods. The investment managers will receive an annual performance fee of 10% of the net investment return that exceeds the benchmark. Payment of performance fees will remain subject to a high water mark and will be capped at a maximum of 2% of portfolio NAV. The investment management fee will remain at an annual rate of 1% of the valuation of funds under management.

 

The Board considers the new benchmark has the advantage of simplicity, whilst the three-year measurement period is better aligned with 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.

Net asset value

At the close of business on the 31 December 2014, the Wilson Sons' share price was R$32.00, resulting in a market value for the Ocean Wilsons holding of 41,444,000 shares (58.25% of Wilson Sons) totalling approximately US$499.2 million which is the equivalent of US$14.12 (£9.06) per Ocean Wilsons Holdings Limited share.

Adding together the market value per share of Wilsons Sons, US$14.12 and the investment portfolio US$7.12 results in a net asset value per Ocean Wilsons Holdings Limited share of approximately US$21.24 (£13.63). The Ocean Wilsons Holdings Limited share price of £10.00 at 31 December 2014 represented an implied discount of 27%.

The implied discount expanded 4% to 27% compared with the last year end, 23%. While we are disappointed to see the implied discount widen, shareholders should realise that historically the implied discount fluctuates significantly. Our policy regarding the implied discount as expressed before, is that 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

In light of an increased dividend from Wilson Sons Limited, the Board is increasing the dividend 5% from 60 cents per share to 63 cents per share to be paid on 5 June 2015, to shareholders of the Company as of the close of business on 8 May 2015. The dividend of 63c per share represents the full dividend to be received from Wilson Sons of 47.8c per Ocean Wilsons share relating to 2014 plus 15.2c per Ocean Wilsons share in distributions from the investment portfolio. The US$5.4 million in distributions from the share portfolio represent 61% of the portfolio's net earnings in the period. Despite a fall in earnings per share at Wilson Sons, Wilson Sons is increasing the dividend to shareholders which exceeds their new dividend policy announced in 2013 and reflects a desire to increase dividend payments to shareholders following completion of the current investment cycle in 2013.

The Ocean Wilsons Holdings Limited dividend policy is to pay the Company's full dividend to be received from Wilson Sons in the period and a percentage of the average capital employed in the investment portfolio to be determined annually by the Board. Dividends are set in US Dollars and paid annually.

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

Through our subsidiary Wilson Sons, we are pleased to support a number of local charities and causes in Brazil. Group donations for charitable purposes in the year amounted to US$156,000 (2013: US$102,000). 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/

De Peito Aberto - Promotes social development through educational, cultural and sporting activities.

http://www.depeitoaberto.com.br/

Brigada Mirim ecologica - maintaining the ecology of Ilha Grande in the state of Rio de Janeiro and raising the awareness of visitors and the local population about the environment.

http://www.brigadamirim.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/

 

Pro Criança Cardíaca - located in Rio de Janeiro, the charity treats children suffering from heart disease

http://www.procrianca.org.br/.

 

Health, safety and education

The safety of our workers is of utmost importance to us. The Group implemented the WS+ safety programme to promote improved safety throughout the Group with training of Company personnel and the promotion of a safety oriented environment and culture. The programme was developed in conjunction with DuPont in 2010. A pilot project was implemented at our shipyard in 2011, which has now been replicated throughout the Group. This programme has received a positive response from our workforce and produced excellent results. Between January 2010 and September 2014, the Group registered a 70% decrease in the frequency of accidents and from 2013 to September 2014, the number of working days lost decreased from 140 to 57 days per 1 million hours of risk exposure.

We continue to invest in the training and development of our staff. Amongst other training initiatives the Company has a dedicated ship crew training facility in Guarujá that uses a state of the art simulator to train further ship captains and crew.

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 2012 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 monitored by the Board.

Board of Directors

At the Annual General Meeting of the Company on 3 June 2014 we announced the retirement of Mr Alex Cooper as a non-executive Director after 11 years of service. We would like to thank Mr Cooper for his contribution to the Group and wish him every success for the future. On the same day, we were pleased to announce the appointment of Mr Andrey Berzins by the Board as a non-executive Director of Ocean Wilsons Holdings Limited. Mr Berzins is 55 and lives in Singapore. He is currently Managing Director of Suez Asia Holdings and a Director of Aberdeen Asian Income Fund. Mr Berzins has extensive experience of the Asian investment business having lived and worked there since 1984. He has held a number of positions throughout the investment industry including Managing Director on the Asian private equity arm of the French based Compagnie de Suez (now GDF Suez) group. Mr Berzins has a BSc Honours (1^st Class) in Statistics from the University of Bath and is a member of the Institute of Chartered Accountants in England and Wales.

 

Outlook

We remain confident in the fundamental strengths and quality of our Brazilian business but the steep fall in the price of oil and challenging economic and political environment in Brazil brings concerns for the coming year. The full impact of the fall in oil prices and uncertainty surrounding the Brazilian oil and gas industry remains unclear. Despite this uncertainty our shipyard order book remains healthy with six offshore support vessels for third parties, including two oil spill recovery vessels (OSRV's), completion of a further OSRV and a remotely operated vehicle support vessel, in addition to two PSV's for our offshore joint venture, Wilson, Sons Ultratug Participações S.A. Our offshore joint venture currently operates nineteen PSVs all under long-term contract with three contracts concluding in 2015. We are optimistic that these three Brazilian flag vessels will not experience material off-hire. In addition to the two PSVs being built at our shipyard, Wilson Sons Ultratug is constructing a further three PSVs in international shipyards with one programmed for delivery at the end of 2015 and the remaining two in the second half of 2016. The expansion of Brasco Cajú is forecast to be completed by the end of 2015. We remain optimistic regarding the long-term prospects for this business although the expected ramp up in operations may take longer to materialise than originally anticipated as international oil companies revise their future investment plans. Demand for harbour towage services remains strong with volumes growing 10% in the first two months of the year compared with 2014 while container terminal volumes continue to be sluggish. The Brazilian Real "BRL" has depreciated approximately 22% against the US Dollar since the year end. If the weakness in the BRL is maintained at period end this will again negatively impact our bottom line earnings in the year.

Global growth remains sluggish and substantially below pre-financial crisis levels. The fall in oil prices should boost consumption in developed markets but will negatively impact oil producers. Stronger economic data coming out of the US raises the likelihood that the US Federal Reserve will hike interest rates earlier than markets are anticipating resulting in rising US bond yields although bond yields in the euro zone and Japan should remain suppressed by their accommodating monetary policy. We remain positive on the long-term prospects for emerging markets and our portfolio although slowing growth in China, the decline in oil prices and the expectation that the US will raise interest rates earlier than expected may hinder market performance in the short-term.

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

24 March 2015

 

Financial Review

Revenue from Maritime Services

The Group's revenue declined 4% to US$633.5 million (2013: US$660.1 million) due to a slowdown in Brazilian trade in the fourth quarter of the year, the contraction of our logistics and ship agency businesses and the adverse impacts of the weaker BRL. Demand for towage services remains strong with the number of harbour towage manoeuvres in the year increasing 8% to 58,543 from 53,869 in 2013, and towage revenue increasing 7% to US$211.0 million (2013: US$196.6 million).  Towage volumes benefitted from new port operations in the Amazonian state of Pará, and increased market share in São Paulo state resulting from the growth of our operating fleet in the region. Our ship agency business continued to suffer from the industry trend for liner operators to insource this activity with revenue falling 30% to US$17.1 million (2013: US$24.5 million).

 

Shipyard third party revenue increased 3% to US$103.4 million (2013: US$100.3 million) following the significant increase in 2013 resulting from the completion of our new dry-dock facility in the fourth quarter of 2012. In addition to third party revenue recognised in the income statement the shipyard invoiced US$45.6 million of intercompany sales in the year (2013: US$70.8 million). The shipyard order book remains healthy for 2015 although the impact from the fall in oil prices and uncertainty surrounding the Brazilian oil and gas industry on medium and longer-term demand for new vessel construction is unclear. Revenue at our terminal and logistics business fell 11% to US$302.0 million (2013: US$338.7 million). Logistics revenue declined 24% to US$73.4 million (2013: US$96.8 million) due to a higher average USD/BRL exchange rate used to convert revenue into our reporting currency, US Dollars and the planned withdrawal from our lower margin operations. Terminal revenue at US$228.6 million was US$13.3 million lower than prior year (2013: US$241.9 million). Revenue at Brasco, our offshore oil and gas support base, fell as a result of the impact of the higher average USD/BRL exchange rate and fewer vessel turnarounds that is largely explained by the completion of four support operations, two in Bahia and two at our base in Rio de Janeiro. Container terminal revenue declined due to the higher average USD/BRL exchange rate and a less favourable sales mix despite higher container volumes handled at Tecon Rio Grande and Tecon Salvador, increasing 4% to 971,500 TEU's (2013: 937,500 TEU's). All Group revenue is derived from Wilson Sons operations in Brazil.

Operating profit

Operating profit at US$89.4 million was US$29.6 million lower than prior year (2013: US$119.0 million) largely due to the fall in turnover, lower operating margins and a profit on the disposal of property plant and equipment of US$10.0 million in the prior year (2014: US$0.3 million). The profit on the disposal of property, plant and equipment in 2013 arose from the sale of surplus commercial real estate in downtown Rio de Janeiro and São Paulo as well as towage and logistic equipment.

Group operating margins for the year declined to 14.1 % (2013: 16.5%). The fall in operating margins was principally due to higher depreciation and amortisation expense in the period, increased raw material consumption and poorer margins at our logistics business. Depreciation and amortisation increased US$6.4 million to US$65.1million from US$58.7 million in 2013 as a result of capital investment in our terminal and towage businesses. Raw materials and consumables used in the year were US$6.3 million higher at US$100.6 million (2013 US$94.3 million) principally due to the type of vessel constructed at the shipyard in the period. The decrease in logistics margins was mainly attributable to restructuring costs associated with the closing of some in-house logistic operations, start-up costs associated with our new EADI in Suape, Pernambuco and increased competition at EADI Santo Andre.

 

Employee expenses were US$13.6 million lower at US$195.9 million (2013: US$209.5 million) mainly due to a reduced headcount, lower social security costs and the positive impact of the higher average USD/BRL exchange rate when converting BRL denominated expenses into USD. The fall in social security costs for the year, reflects the reduction in payroll tax rates at both our towage and shipyard businesses. Other operating expenses fell from US$188.6 million to US$182.8 million in 2014 mainly as a result of the decrease in turnover and higher average USD/BRL exchange rate.

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 which grew US$4.7 million from US$2.4 million in 2013 to US$7.1 million in the current year due to a 24% increase in our own fleet operating days and improved pricing. Our new PSVs enjoy higher daily contract rates. During the period, the offshore joint venture repaid US$13.0 million in intergroup loans.

Investment revenue

Investment revenue for the year decreased slightly to US$17.0 million (2013: US$17.8 million). Higher dividends from equity investments of US$5.8 million (2013: US$5.2 million) were offset by lower interest on bank deposits of US$11.2 million (2013: US$11.9 million).

Investment gains and losses

Other gains of US$6.2 million arise from the Group's portfolio of trading investments (2013: US$13.7 million) and reflect unrealised gains in trading investments of US$1.4 million (2013: US$14.6 million) and profits on the disposal of trading investments of US$4.9 million (2013: US$0.9 million loss).

Finance costs

The Group's finance charge for the year increased to US$23.6 million (2013: US$21.9 million) principally due to higher other interest costs of US$2.2 million (2013: nil). Other interest relates mainly to interest on outstanding tax balances.

Higher interest on bank loans of US$12.5 million (2013: US$11.6 million) was offset by lower exchange losses on foreign currency borrowings of US$8.0 million (2013: US$9.6 million).

Foreign exchange losses on monetary items

Exchange losses on monetary items of US$17.6 million (2013: US$30.6 million) 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 depreciation of the BRL of 13% during the year was similar to the 15% devaluation in 2013, exchange losses on monetary items was lower in 2014 largely due to the decrease in our net exposure to BRL denominated assets and the exchange rate fluctuations that occurred in the year.

Exchange rates

The Group reports in USD and has revenue, costs, assets and liabilities in both BRL and USD. Therefore movements in the USD/BRL exchange rate can impact the Group both positively and negatively from year to year. During 2014 the BRL depreciated 13% against the USD from R$2.34 at 1 January 2014 to R$2.66 at the year end, (2013: 15% depreciation).

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

 

				2014	2013
				US$ million	US$ million
Exchange losses on monetary items (i)				17.6	30.3
Exchange loss on foreign currency borrowings				8.0	9.6
Deferred tax on retranslation of fixed assets (ii)				15.9	18.8
Deferred tax on exchange variance on loans (iii)				(8.0)	(11.8)
Total				33.5	46.9

(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$7.1 million (2013: US$4.1 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 average USD/BRL exchange rate in the period was 9% higher at 2.35 (2013: 2.16). 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

Group profit before tax for the year at US$78.5 million was US$22.0 million lower than prior year, US$100.5 million, principally due to the US$29.6 million decrease in operating profit and reduced gains from the investment portfolio, US$7.5 million lower. This was partially offset by a US$13.0 million decrease in exchange losses on monetary items and US$4.7 million increase in the share of results of joint ventures.

Taxation

Income tax expense for the year at US$41.9 million was in line with prior year (2013: US$42.2 million). This represents an effective tax rate for the period of 53% (2013: 42%). The corporate tax rate prevailing in Brazil is 34%.The difference in the effective tax rate is due to expenses that are not included in determining taxable profit (principally foreign exchange losses on monetary items) and a deferred tax charge in the period of US$9.1 million (2013: US$8.7 million). The current year effective tax rate is higher than prior year mainly due to lower profits at our Bermudian companies that are not subject to income or capital gains tax, higher tax losses at our Brazilian subsidiaries not recognised in deferred tax and in 2013 the Group benefited from fiscal planning relating to the sale of fixed assets.

  

The deferred tax charge in the period of US$9.1 million was consistent with 2013 (US$8.7 million) due to a comparable devaluation of the BRL against the USD in both years, 13% in 2014 against 15% in 2013. As explained in the section on exchange rates above, the depreciation of the BRL against the USD generates a deferred tax charge arising on the retranslation of BRL denominated fixed assets in Brazil and a deferred tax credit on the exchange losses on USD denominated borrowings.

Profit for the year

After deducting profit attributable to non-controlling interests of US$13.4 million (2013: US$20.4 million), profit attributable to equity holders of the parent is US$23.2 million (2013: US$37.9 million).

Earnings per share

Basic earnings per share for the year were 65.6cents (2013: 107.1 cents).

Cash flow

Net cash inflow from operating activities for the year at US$105.6 million is marginally lower than 2013, US$108.4 million. The decrease in operating profit was offset by an increase in non-cash expenses and lower profit on the disposal of property, plant and equipment. The working capital movement in the year includes US$7.1 million in payments to settle the Wilson Sons long-term incentive plan.

Capital expenditure of US$107.5 million was in line with prior year (2013: US$106.1 million) and was mainly invested in towage vessel construction, the expansion of the Brasco Caju Oil and Gas support terminal and the expansion of the warehouse at Tecon Salvador. New loans to finance capital expenditure of US$64.1 million were raised in the period (2013: US$50.8 million) and capital repayments of US$38.1 million (2013: US$36.8 million) made on existing loans.

At 31 December 2014 the Group had US$103.8 million in cash and cash equivalents (2013: US$106.5 million) of which US$70.3 million was denominated in Brazilian Real (2013: US$84.0 million). Included in the Group's trading investments of US$278.0 million at 31 December 2014 is US$24.0 million (2013: US$33.0 million) in USD denominated fixed rate certificates held by Wilson Sons Limited. These investments 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 31 December 2014 the equity attributable to shareholders of the parent company was US$549.8 million, a decrease  of US$2.4 million from 2013 (US$552.2 million). The principal movements in the year were profits for the period of US$23.2 million, less dividends paid of US$21.2 million and a negative currency translation adjustment of US$4.0 million. 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 net equity is the equivalent of US$15.55 per share (31 December 2013: US$15.61 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 long-term with defined repayment schedules repayable over different periods up to 18 years and an average weighted maturity of 11 years. At 31 December 2014, 91% of the Group's borrowings are USD denominated or linked to the USD with a favourable weighted average interest rate of 3.00%. A significant portion of the Group's pricing is denominated in US Dollars and acts as a natural hedge to our long-term exchange rate exposure.  At 31 December 2014, 87% of our debt was non-current.

At 31 December 2014, The Group had net debt of US$271.4 million (2013: US$239.2 million):

 

		2014	2013
		US$ million	US$ million
Debt
Short-term		51.2	39.5
Long-term		344.0	339.2
Total debt		395.2	378.7
Cash and cash equivalents*		(123.8)	(139.5)
Net debt		271.4	239.2

*          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$257.4 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 2014 Earnings Report released on 24 March 2015 is available on the Wilson Sons Limited website: www.wilsonsons.com.br

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

 

"Wilson Sons' soft EBITDA and Operating Profit in the fourth quarter are a consequence of a negative backdrop with challenging economic environment including weak international demand and low local GDP growth pressuring the Container Terminals business and particularly Tecon Salvador.

 

Subsequent to the year end, the fall in the oil price has created some uncertainty and stimulated revision by clients for their future investment plans. Beyond existing contracts in the Offshore Support Vessels joint venture and our Shipyards, this scenario reduces visibility of medium term demand particularly for our new Oil & Gas Terminal.

 

We are still positive with long-term growth, but, in order to enhance competitiveness, we will be diligently looking at ways to increase the services to customers, utilising a greater proportion of installed capacity, reducing costs and improving efficiency."

 

The Wilson Sons Strategy

Continue to consolidate our position in all the segments in which we operate, maximising economies and 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.

Increasing capacity of our Upstream Oil and Gas Support Terminals (Brasco). We are completing the development of a continuous 500 metres of berth in the Brasco Caju (Briclog) base to attend offshore support vessels with excellent access to the Campos and Santos oil producing basins. When completed, this expanded capacity will consolidate Brasco's position 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. Consistent with our focus on operating on a national scale, we seek to increase our geographical footprint of towage services to new ports in Brazil.

Maximising potential of our expanded shipyard facilities and future projects through a mix of in-house and third-party vessel construction, as well as providing 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 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 that may 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 practise 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 Objective is to achieve real returns through long-term capital growth, whilst emphasising preservation of capital. Investment views are expressed through an unconstrained globally diversified portfolio, without regard to short-term moves in equity markets or any benchmark allocation.  An individual opportunity is considered on the contribution that the investment's expected return would make to the overall portfolio set against the potential impact of a permanent loss of capital.

 

Performance is measured against an absolute benchmark of one-year US Dollar LIBOR (prevailing on 1 January each year) plus 2%. This benchmark reflects the portfolio's long-term time horizon and unconstrained mandate where there is no compulsion to invest in any specific asset class or geographic region.  Moreover, the Investment Manager is more concerned about absolute loss of capital rather than any short-term underperformance versus an index.

 

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 on-going 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

Hanseatic Asset Management LBG, the manager of the Group's investment portfolio report as follows:

 

MARKET COMMENTARY

On the surface, markets appeared relatively stable in 2014, with world equities rising by 4.2% in US dollar terms. Below the surface, though, life was a little more frantic, with notable dispersions in performance at a regional level.

 

Amongst the Developed markets, US equities rose sharply, increasing by 13.7% in US dollar terms. In contrast, European, Japanese and UK equities fell by -8.7%, -3.0% and -4.8%, respectively. Emerging markets declined by -2.2% for the year. However the composition of this was very varied at the country level. Indian equities rose by 27.1% and China by some 8.0% (the local Chinese A share market produced an extremely strong 52.0% with 42.6% coming in the last quarter alone). In contrast, the commodity-exposed Latin American markets fell by -12.3% and Russia by some -45.2%.

 

Underlying this divergence in performance is the maturing of the stock market cycle. In the early stages of the cycle, when valuations were low, most risk asset-classes rose as investors recognised that economies were not plummeting into oblivion and valuations normalised having over-reacted on the downside. As the cycle has developed, however, the backdrop has become more nuanced. Economic growth has started to diverge with the US clearly leading the way with robust, almost normal, growth coming through. The UK is lagging a little behind and Europe is teetering dangerously on the brink of persistent deflation in what some are terming the 'Japanification of Europe'.

 

Emerging markets, having initially bounced strongly after the global financial crisis, are now exhibiting very varied performance. On the one hand, those oil importing countries (benefiting from the falling oil price) that are managing their economies in a sensible fashion and adopting progressive, market friendly policies are being rewarded. Sitting firmly in this camp is India with the new Prime Minister, Narendra Modi, promising significant change. Conversely, those emerging market economies which are exporters of oil, have poor financial positions and whose governments are unwilling to modernise are being punished. The leading member of this group is clearly Russia, being heavily dependent on oil and the subject of painful sanctions as President Putin pursues an increasingly nationalistic mandate. 

 

 

Portfolio Construction

 

The net asset value at the end of December 2014 was $251.7million. The portfolio is comprised of four 'sub-portfolios' as detailed below:

 

Sub-Portfolio	$million	% NAV
Global Equities	144.6	57.4
Private Assets	74.7	29.7
Market Neutral Funds	8.4	3.3
Bonds/Other	24.0	9.6
Total	251.7	100.0

 

 

1)  'Global Equities' is comprised of holdings that are sensitive to stock market movements and may take the form of 'long-only' or 'long / short' funds, as well as direct quoted equities. There is a strong bias towards fundamental, research-driven stock-pickers with a proven ability to produce attractive compounded returns.

 

2)  'Private Assets' contains fixed life investments typically with lives of approximately ten years and often structured through commitments to limited partnership vehicles that make investments in private equity, real assets (such as property and natural resources) and private debt.

 

These investments are driven by a 'bottom-up' analysis of the manager's value creation attributes, regardless of the prevailing economic climate. Managers dependent on financial engineering as a primary driver of returns are avoided.  Moreover, it is essential that the manager provides more than capital to its portfolio companies - e.g. strong operational capabilities.  Investments should be made into companies where there is a clearly defined exit route, which is not solely reliant on IPO markets.

 

By investing in Private Assets it is often possible to access differentiated opportunities and fast growing businesses that are not normally available through public markets. For example, many Emerging Market countries have relatively immature capital markets, which can make it difficult to access the most attractive sectors in the public markets at reasonable valuations. Furthermore, Private Assets often exhibit low correlation to public security markets and the phased drawdown of capital helps to reduce market timing risk.

 

·      28 commitments (totalling $120.7 million) have been made as at 31 December 2014.

·      $95.4 million has been drawn down.

·      Outstanding commitments of $36.6 million (the majority of which will be drawn down over the next five years) are covered by cash and investments in market neutral funds.  In addition, based on conservative estimates, distributions from the current private assets portfolio should enable this sub-portfolio to become self-funding.

·      To date, cumulative distributions received total $30.3 million.

 

3)  'Market Neutral Funds' contains generally lower volatility investments in a small number of funds that engage in a variety of trading strategies across asset classes. Each market neutral fund has a different investment mandate and it is expected that their collective performance will not be dependent on the direction of global security markets.  What they have in common is a focus on generating positive absolute returns while providing downside protection in volatile markets.

 

In addition, Market Neutral Funds act as a secondary backstop to cash in covering long-term capital commitments (thus helping to avoid excessive cash drag - especially in the current environment of near-zero interest rates) and other opportunistic investments. In short, the Investment Manager believes that they provide a better risk/reward allocation than other investments that are perceived to be 'lower risk' such as government bonds.

 

4)  'Bonds / Other' - Bonds, both sovereign and credit, are comprised of two constituents: (i) Investment Grade Bonds and (ii) High Yield Bonds. Returns may be generated from rising capital value and coupons as well as currency exposure.

 

Investment Grade Bonds (0% of NAV) would contain investments in sovereign (government) bonds as well as corporate bonds with high credit ratings (typically at least 'BBB' as defined by Standard & Poor's).

 

High Yield Bonds $9.1 million, (3.6% of NAV) include investments in Emerging Market (sovereign and corporate debt) and other Developed Market high yield corporate debt.

 

'Other' is comprised of cash valued at $14.9 million (6.0% of NAV).

 

CUMULATIVE PORTFOLIO RETURNS   

 

Performance (Time-weighted)	1 Year	3 Year p.a.	5 Year p.a.	10 Year p.a.	Since inception  p.a. (i)
Portfolio Performance	4.7%	7.1%	4.3%	6.1%	7.5%
Performance Benchmark	2.6%	2.9%	2.9%	4.5%	3.9%
MSCI World (Developed) Index	4.9%	15.5%	10.2%	6.0%	4.0%
MSCI All Country World Index	4.2%	14.1%	9.2%	6.1%	n/a
MSCI Emerging Markets Index	(6.5%)	4.0%	1.8%	8.4%	9.7%

 

*Notes:

(i)   Inception on 1 November 2000

(ii)   Performance is measured against an absolute benchmark of one-year US Dollar LIBOR (prevailing on 1 January each year) plus 2%.

(iii)  MSCI All Country World Index includes Developed, Emerging and Frontier Markets (weighted by market capitalisation). Inception date for the index was 31 May 2002.

 

Performance Commentary

 

Sub-Portfolio			Valuation	Weighting	Performance	Contribution
31 December 2014			$million	%	YTD%	YTD $million
Global Equities			144.6	57.4	4.1	6.0
Private Assets			74.7	29.7	8.5	5.2
Market Neutral Funds			8.4	3.3	6.9	1.0
Bonds/Other			24.0	9.6	(2.1)	(0.3)
Total			251.7	100.0	4.7	11.9

 

 

During 2014, the portfolio generated a time weighted return of +4.7%. This compares favourably to a +2.6% gain for the Performance Benchmark and a +4.2% return for the MSCI All Country World Index.

 

2014 saw a continuation of gains in the regions that posted the strongest returns in the prior year, albeit returns were less robust. Notable gains in the portfolio came from North America (+11.0%), Europe ex UK (+15.7%) and Global Developed (+6.1%). The largest contributors to the portfolio's performance came from: Findlay Park American Fund (+11.2%), Greenspring Global Partners IV, LP (+31.7%), NTAsian Discovery Fund (+15.6%), Adelphi European Select Equity Fund (+13.0%) and BlackRock European Hedge Fund (+13.0%).

 

Losses were generated primarily by the portfolio's exposure to Emerging Markets ex-Asia (-29.2%), Commodities (-27.5%) and Commodity Equity (-29.2%). The largest detractors to performance were concentrated in commodity-related geographies and sectors: Prosperity Quest Fund (-40.7%), Phaunos Timer Fund Limited (-27.5%), Hupomone Capital Fund (-86.9%), Prusik Asian Smaller Companies Fund (-8.0%), and Schroder ISF Global Energy (-33.5%).

 

The energy sector experienced significant volatility, with the oil price falling by -40.0% over the year amidst increasing disconnect between supply/demand fundamentals, and with further evidence of a slowdown in China. The Russian economy was negatively impacted by the oil price fall, while ongoing political tensions produced an extremely difficult environment for investors. However, Prosperity emphasize the healthy balance sheets across the corporate landscape, which has resulted in an increase in strategic M&A in Russia. They also point towards attractive valuations, which are currently lower than those seen in 1999.

 

The large loss recorded at Hupomone reflects the new valuation that Borelli Walsh, the replacement Manager, has produced following a full audit and review of the portfolio. Borelli Walsh were appointed on 16 August 2013, following the unanimous decision of the LP Advisory Board to remove Hupomone Capital. A significant write-down had been expected, and it is now hoped that Borelli Walsh will be able to work hard to produce the best results for investors.

 

In aggregate, Macro/Market Neutral Funds posted strong performance of +6.9%, primarily owing to strong performance from BlueCrest All Blue Leveraged Feeder (+8.2%). On the other hand, the portfolio's exposure to Corporate and Global High Yield generated negative returns of -0.9% and -2.8% respectively. Oaktree Value Opportunities Fund fell -4.7% over the fourth quarter, ending the year down -2.4%. Poor performance was attributed to significant mark-to-market losses in energy and power related names as oil prices collapsed in the latter half of the year, as well as a slowdown in Chinese coal imports which impacted the portfolio's exposure to dry bulk shipping.

 

Private Assets (29.7% of net asset value) - Private Assets generated robust performance of +8.4% during the year, outperforming Global Equities, Market Neutral, Bonds/Other and Cash. The private assets programme is maturing, with 56.5% of the overall programme having completed their investment period. 

 

During the year, there were drawdowns of $23.2 million, the largest coming from KKR Special Situations Fund ($5.2 million), Gramercy Distressed Opportunity Fund II ($3.0 million) and Hony Capital Fund V ($2.4 million). The portfolio received distributions of $10.1 million, the largest inflows being from African Development Partners I ($1.8 million), Greenspring Global Partners IV ($1.4 million) and Oaktree Principal V ($1.0 million). African Development Partners ('ADP') achieved their first two exits in 2014. Libstar (fast-moving consumer goods) was sold to the Abraaj Group in October 2014, generating an IRR of 21% and a 1.7x multiple of cost. During the period of ADP's ownership (June 2011 - October 2014), sales and EBITDA increased by 64% and 44% respectively. The sale of Mansard (insurance) to the AXA Group occurred in December 2014. Together with previous distributions, the Mansard investment achieved an IRR of 40% and a 2.8x multiple of cost. The remaining portfolio is performing well and the General Partner will continue to focus on achieving realisations.

 

Greenspring Global Partners IV was one of the strongest performers in the overall portfolio for the year. The Fund is being carried at a net IRR of 20.2% and a 1.9x multiple of invested capital. An exit of note worth highlighting in the portfolio is Zulily, which underwent an IPO in 2013. As the Fund's holdings were in lock-up until May 2014, partial sales were completed on the open market in May, September and October, with the final realisation being made in November. Collectively, the Fund generated $59.3 million in proceeds, with represented a 5.3x multiple of cost.

 

On the other hand, Capital International Private Equity Fund V was a poor performer over the year. The portfolio currently consists of eight remaining investments. The Portfolio Manager highlighted that sanctions on Russia, combined with the falling rouble and the oil price decline have had a material effect on QGOG Constellation (Brazil's leading offshore drilling company), Seven Energy International (Nigerian oil and gas exploration and production) and Danone-Unimilk (largest dairy producer in Russia). 

 

Overall, the underlying limited partnerships are showing increasing visibility on their potential for value creation. The Investment Manager remains confident that the significant capital deployed into post-crisis vintages represents an attractive store of future value. 

 

The top five contributors to the overall portfolio performance were:

 

	Contribution	Performance	Gain
Top Five Contributors (in USD)	%	% / X	$million
Findlay Park American Fund	0.7	11.2%	1.8
Greenspring Global Partners IV, LP	0.6	1.9X	1.5
NTAsian Discovery Fund	0.6	15.6%	1.5
Adelphi European Select Equity Fund	0.5	13.0%	1.3
BlackRock European Hedge Fund	0.5	13.0%	1.2
Total	2.9		7.3

 

*Notes:

(i)            Performance for Private Assets Investments is measured as a multiple (since inception of the investment) based on the following equation: Cash Multiple = (Profit / Loss + Drawn Capital) / Drawn Capital (since inception not for the period) where Profit / Loss = (Investment Value + Distributions) - (Initial Costs + Taxes).

(ii)           Partially sold during the period.

 

PORTFOLIO ACTIVITY* - for the year ended 31 December 2014

 

During 2014, there were total purchases of $33.7 million, including purchases of new positions totalling $27.3 million and total sales of $66.0 million.

 

New Positions	$million
Adelphi European Select Equity Fund	10.0
Select Equity Offshore, Ltd	4.5
Vulcan Value Equity Fund	4.5
GAM Star Technology	4.5
Goodhart Partners Longitude Fund: Hanjo Fund	3.8
Additions to Existing Investments
Odey Absolute Return Fund	3.5
BlackRock European Hedge Fund	2.9
Total	33.7

 

Purchases

 

Adelphi European Select Equity Fund - The Fund invests long-only in Pan-European equities, with a fundamental bottom-up approach.

 

Select Equity Offshore, Ltd - The Fund invests long-only in North American equities, focusing on quality stocks, with a value consideration, across small and mid-capitalisations.

 

Vulcan Value Equity Fund - The Fund invests long-only in North American equities, focusing on value plays with a quality bias across all market capitalisations.  

 

GAM Star Technology - The Fund invests long-only in global technology companies, with a focus on intrinsic valuations derived by the team's analysis.

 

Goodhart Partners Longitude Fund: Hanjo Fund - The Fund invests long-only in smaller capitalisation Japanese stocks.

 

Sales

 

There were sales totalling $65.9 million in 2014.

 

Private Assets - Commitments

 

There were three new commitments to private assets in 2014, totalling $13.0 million:

 

New Commitments	$million
Primary Capital IV, LLP	5.0
MCP Private Capital Fund II, LP	5.0
Greenspring Global Partners VI, LP	3.0
Total	13.0

 

Primary Capital IV, LLP - will continue the strategy of the predecessor Primary funds. It will invest in eight to 12 privately negotiated investments in lower middle-market management buy-outs and buy-ins with a deal size focus of between £20 million - £100 million and equity commitments of between £10 million - £40million. The geographical focus will be on businesses headquartered or with substantial operations in the UK.

 

MCP Private Capital Fund II, LP - the manager will make 12 to 18 privately negotiated senior debt investments in middle market companies operating in Northern Europe. The Fund's investment strategy will be to deploy capital to finance management buy-outs, buy-ins, build-ups, roll-outs, re-financings and acquisition financings of middle market companies that face difficulty in securing traditional forms of financing and where stakeholders are not looking for pure private equity capital. Whilst the investments will primarily be in senior secured debt, the manager will structure the deals with equity upside often granted on a zero cost basis.

 

Greenspring Global Partners VI, LP - will continue the strategy of the predecessor Greenspring funds, investing approximately 75% in Venture funds and 25% in later stage Direct Investments. As such the Fund will provide an appropriately diversified exposure to Venture Private Equity in North America.

 

* For the purpose of the Investment Management report, Private Asset cash movements and dividend reinvestments have been excluded from the purchases and sales.

 

 

Investment Portfolio at 31 December 2014

 

	Market Value	% of
	US$'000	NAV	Primary Focus
Findlay Park American Fund	18,090	7.2	US equities - long-only
Egerton European Dollar Fund	13,415	5.3	Europe / US equities - hedged
Adelphi European Select Equity Fund	11,295	4.5	Europe - equities
NTAsian Discovery Fund	11,245	4.5	Asia ex-Japan equities - long-only
Lansdowne Developed Markets Fund	11,045	4.4	Europe / US equities - hedged
Odey Absolute Return Fund	10,589	4.2	Europe / US equities - hedged
BlackRock European Hedge Fund	9,966	4.0	Europe equities - hedged
Oaktree CM Value Opportunities Fund	9,078	3.6	US high yield corporate debt - hedged
BlueCrest AllBlue Leveraged Feeder	8,374	3.3	Market Neutral - multi-strategy
JO Hambro Japan Fund	7,909	3.1	Japan equities - long-only
Top 10 Holdings	111,006	44.1
Hirzel Capital Fund	6,666	2.7	US equities - hedged
Schroder ISF Asian Total Return Fund	6,067	2.4	Asia ex-Japan equities - long-only
China Harvest Fund II, LP	5,603	2.2	Private Assets - China
Greenspring Global Partners IV, LP	5,544	2.2	Private Assets - US Venture Capital
Gramercy Distressed Opportunity Fund II, LP	5,481	2.2	Private Assets - distressed debt
Prince Street Opportunities Fund	5,348	2.1	Emerging Markets equities - long-only
Vulcan Value Equity Fund	5,144	2.0	US equities - long-only
Helios Investors II, LP	5,114	2.0	Private Assets - Africa
Select Equity Offshore, Ltd	4,919	2.0	US equities - long-only
L Capital Asia, LP	4,814	1.9	Private Assets - Asia (Consumer)
Top 20 Holdings	165,706	65.8
KKR Special Situations Fund, LP	4,661	1.9	Private Assets - distressed debt
African Development Partners I, LLC	4,578	1.8	Private Assets - Africa
GAM Star Technology	4,559	1.8	Technology - long-only
African Minerals Exploration & Develop Fund	4,102	1.6	Private Assets - Mining
Oaktree Principal Fund V, LP	4,081	1.6	Private Assets - US distressed debt
Prosperity Quest Fund	4,060	1.6	Russian equities - long-only
Goodhart Partners Longitude Fund: Hanjo Fund	3,813	1.5	Japan equities - long-only
Hony Capital Fund V, LP	3,771	1.5	Private Assets - China
Prusik Asian Smaller Companies Fund	3,747	1.5	Asia ex-Japan equities - long-only
Riverstone/Carlyle Global Energy & PowerFund, LP IV, LP	3,494	1.4	Private Assets - Energy
Top 30 Holdings	206,572	82.0
22 remaining holdings	30,204	12.0
Cash	14,966	6.0
TOTAL	251,742	100.0

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2014

 

		Year to 31 December  2014	Year to 31 December  2013
	Notes	US$'000	US$'000
Revenue	3	633,520	660,106
Raw materials and consumables used		(100,588)	(94,330)
Employee benefits expense	6	(195,893)	(209,459)
Depreciation & amortisation expense	5	(65,120)	(58,674)
Other operating expenses		(182,819)	(188,569)
Profit on disposal of property, plant and equipment		326	9,966
Operating profit		89,426	119,040
Share of results of joint venture		7,090	2,392
Investment revenue	7	16,975	17,838
Other gains and losses	8	6,233	13,684
Finance costs	9	(23,607)	(21,863)
Foreign exchange losses on monetary items		(17,621)	(30,589)
Profit before tax		78,496	100,502
Income tax expense	10	(41,928)	(42,216)
Profit for the year		36,568	58,286
Other comprehensive income:
Items that are or maybe reclassified subsequently to profit and loss
Employee benefits		709	(2,251)
Effective portion of changes in fair value of derivatives		(988)	(1,269)
Exchange differences arising on translation of foreign operations		(7,143)	(4,088)
Other comprehensive loss for the year		(7,422)	(7,608)
Total comprehensive income for the year		29,146	50,678
Profit for the period attributable to:
Equity holders of parent		23,182	37,873
Non-controlling interests		13,386	20,413
		36,568	58,286
Total comprehensive income for the period attributable to:
Equity holders of parent		18,914	34,580
Non-controlling interests		10,232	18,349
	5	29,146	52,929
Earnings per share
Basic and diluted	12	65.6c	107.1c

 

Consolidated Balance Sheet

as at 31 December 2014

 

		As at 31 December 2014	As at 31 December  2013
	Notes	US$'000	US$'000
Non-current assets
Goodwill	13	35,024	37,622
Other intangible assets	14	38,565	46,650
Property, plant and equipment	15	639,480	616,924
Deferred tax assets	21	31,665	30,099
Trade and other receivables	19	51,535	23,998
Investment in joint venture	16	11,500	2,577
Other non-current assets		11,838	10,209
		819,607	768,079
Current assets
Inventories	18	32,460	29,090
Trading investments	17	260,491	277,969
Trade and other receivables	19	96,199	150,819
Cash and cash equivalents		103,810	106,512
		492,960	564,390
Total assets		1,312,567	1,332,469
Current liabilities
Trade and other payables	22	(78,879)	(135,920)
Derivatives		(156)	(110)
Current tax liabilities		(1,994)	(210)
Obligations under finance leases		(1,444)	(1,547)
Bank overdrafts and loans	20	(51,195)	(37,997)
		(133,668)	(175,784)
Net current assets		359,292	388,606
Non-current liabilities
Bank loans	20	(343,990)	(334,394)
Derivatives		(1,843)	(1,130)
Employee Benefits		(1,570)	(2,251)
Deferred tax liabilities	21	(45,197)	(33,761)
Provisions	23	(15,702)	(10,262)
Obligations under finance leases		(3,253)	(4,812)
		(411,555)	(386,610)
Total liabilities		(545,223)	(562,394)
Net assets		767,344	770,075
Capital and reserves
Share capital		11,390	11,390
Retained earnings		508,298	505,922
Capital reserves		31,760	31,760
Translation and hedging reserve		(1,677)	3,128
Equity attributable to equity holders of the parent		549,771	552,200
Non-controlling interests		217,573	217,875
Total equity		767,344	770,075

 

 

Consolidated Statement of Changes in Equity

as at 31 December 2014

 

	Share capital	Retained earnings	Capital reserves	Hedging and  Translation  reserve	Attributable to equity  holders of  the parent	Non-  controlling  interests	Total equity
For the year ended 31 December 2013	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Balance at 1 January 2013	11,390	482,799	31,760	5,966	531,915	211,653	743,568
Currency translation adjustment	-	-	-	(2,024)	(2,024)	(2,064)	(4,088)
Employee benefits (note 38)	-	(1,312)	-	-	(1,312)	(939)	(2,251)
Effective portion of changes in fair value of derivatives	-	-	-	(684)	(684)	(585)	(1,269)
Profit for the year	-	37,873	-	-	37,873	20,413	58,286
Total income and expense for the period	-	36,561	-	(2,708)	33,853	16,825	50,678
Dividends	-	(13,438)	-	-	(13,438)	(10,510)	(23,948)
Derivatives	-	-	-	(130)	(130)	(93)	(223)
Balance at 31 December 2013	11,390	505,922	31,760	3,128	552,200	217,875	770,075
For the year ended 31 December 2014
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 38)	-	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

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 2014

 

		Year to 31 December  2014	Year to  31 December  2013
	Notes	US$'000	US$'000
Net cash inflow from operating activities	24	105,556	108,416
Investing activities
Acquisition of Briclog less net of cash acquired		(26,677)	(10,153)
Interest received		9,062	9,938
Dividends received from trading investments		5,786	4,664
Proceeds on disposal of trading investments		103,396	53,701
Proceeds on disposal of property, plant and equipment		6,490	17,912
Purchase of property, plant and equipment		(107,475)	(106,148)
Purchase of intangible assets		(2,136)	(2,960)
Purchase of trading investments		(79,685)	(75,874)
Additional investment in joint venture		-	(4,000)
Net cash used in investing activities		(91,239)	(112,920)
Financing activities
Dividends paid	11	(21,218)	(13,438)
Dividends paid to non-controlling interests in subsidiary		(13,239)	(10,511)
Repayments of borrowings		(38,076)	(36,772)
Repayments of obligations under finance leases		(1,879)	(1,540)
New bank loans raised		64,086	50,752
Derivative paid		(154)	(39)
Net cash from financing activities		(10,480)	(11,548)
Net increase / (decrease) in cash and cash equivalents		3,837	(16,052)
Cash and cash equivalents at beginning of year		106,512	136,680
Effect of foreign exchange rate changes		(6,539)	(14,116)
Cash and cash equivalents at end of year		103,810	106,512

 

Notes to the Accounts

for the year ended 31 December 2014

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 2013 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 2014 or 2013, 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 directors' assessment of going concern is included in the Report of the Directors.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs

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 2014, and have not been applied in preparing these consolidated financial statements. That which may be relevant to the Group is 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 2017, with early adoption permitted, but still under discussion.

3 Revenue

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

 

		Year ended	Year ended
		31 December	31 December
		2014	2013
		US$'000	US$'000
Sales of services		530,080	559,825
Revenue from construction contracts		103,440	100,281
		633,520	660,106
Investment revenue (note 7)		16,975	17,838
		650,495	677,944

All revenue is derived from continuing operations.

 

4 Business and geographical segments

 

Business segments

Ocean Wilsons Holdings 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 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)

 

 

 

 

 

 

For the year ended 31 December 2013

 

	Maritime
	Services	Investment	Unallocated	Consolidated
	Year ended	Year ended	Year ended	Year ended
	31 December	31 December	31 December	31 December
	2013	2013	2013	2013
	US$'000	US$'000	US$'000	US$'000
Revenue	660,106	-	-	660,106
Result
Segment result	124,080	(2,609)	(2,431)	119,040
Share of results of joint ventures	2,392	-	-	2,392
Investment revenue	12,621	5,217	-	17,838
Other gains and losses	-	13,684	-	13,684
Finance costs	(21,863)	-	-	(21,863)
Foreign exchange losses on monetary items	(31,018)	53	376	(30,589)
Profit before tax	86,212	16,345	(2,055)	100,502
Tax	(42,216)	-	-	(42,216)
Profit after tax	43,996	16,345	(2,055)	58,286
Other information
Capital additions	(136,947)	-	-	(136,947)
Depreciation and amortisation	(58,673)	-	(1)	(58,674)
Balance Sheet
Assets
Segment assets	1,079,017	249,971	3,481	1,332,469
Liabilities
Segment liabilities	(561,791)	(259)	(344)	(562,394)

 

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
	2014	2013	2014	2013
	US$'000	US$'000	US$'000	US$'000
Brazil	1,018,380	1,032,017	111,186	136,947
Bermuda and other	294,187	300,452	-	-
	1,312,567	1,332,469	111,186	136,947

 

5 Profit for the year

Profit for the year has been arrived at after charging:

 

	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Depreciation of property, plant and equipment	58,179	52,372
Amortisation of intangible assets	6,941	6,302
Operating lease rentals	17,835	13,966
Auditor's remuneration for audit services (see below)	516	586
Non-executive directors emoluments	439	446
A more detailed analysis of auditor's remuneration is provided below:
Financial statement audit of group and subsidiaries	516	586
Other services	11	-
	527	586
6 Employee benefits expense
	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Aggregate remuneration comprised:
Wages and salaries	170,984	176,308
Share based payment (credit)	(652)	(1,430)
Social security costs	24,588	33,070
Other pension costs	973	1,511
	195,893	209,459

 

7 Investment revenue
	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Interest on bank deposits	11,189	11,891
Dividends from equity investments	5,786	5,193
Other interest	-	754
	16,975	17,838
8 Other gains and losses
	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Increase in fair value of trading investments held at year end	1,360	14,594
Profit / (loss) on disposal of trading investments	4,873	(910)
	6,233	13,684

 

Other gains and losses form part of the movement in trading investments as outlined in note 17.

 

9 Finance costs

 

	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Interest on bank overdrafts and loans	12,547	11,572
Exchange loss on foreign currency borrowings	8,014	9,576
Interest on obligations under finance leases	872	715
Other interest	2,174	-
	23,607	21,863

 

Borrowing costs incurred on qualifying assets of US$1.0 million (2013: US$1.5 million) were capitalised in the year at an average interest rate of 2.97% (2013: 3.05%).

 

10 Taxation

 

	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Current
Brazilian taxation
Corporation tax	22,835	23,610
Social contribution	10,037	9,898
Total current tax	32,872	33,508
Deferred tax
Credit for the year in respect of deferred tax liabilities	(7,242)	(10,448)
Charge for the year in respect of deferred tax assets	16,298	19,156
Total deferred tax	9,056	8,708
Total taxation	41,928	42,216

 

Brazilian corporation tax is calculated at 25% (2013: 25%) of the assessable profit for the year. Brazilian social contribution tax is calculated at 9% (2013: 9%) of the assessable profit for the year.

 

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

 

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
	2014	2013
	US$'000	US$'000
Profit before tax	78,496	100,502
Tax at the standard Brazilian tax rate of 34% (2013: 34%)	26,689	34,171
Deferred tax	9,056	8,708
Tax effect of foreign exchange losses on monetary items	5,685	10,258
Change in unrecognised deferred tax assets	509	(943)
Tax effect of share of results of joint ventures	(2,411)	(813)
Tax effect of calculating tax on presumed profit	(81)	(2,891)
Tax effect relating to legal claims	1,842	(348)
Tax effect of other items that are not included in determining taxable profit	2,290	(1,995)
Effect of different tax rates of subsidiaries operating in other jurisdictions	(1,651)	(3,931)
Tax expense and effective rate for the year	41,928	42,216
Effective rate for the year	53%	42%

 

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
	2014	2013
	US$'000	US$'000
Amounts recognised as distributions to equity holders in the period:
Final dividend paid for the year ended 31 December 2013 of 60c (2012: 38c) per share	21,218	13,438
Proposed final dividend for the year ended 31 December 2014 of 63c (2013: 60c) per share	22,279	21,218
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
	2014	2013
	US$'000	US$'000
Earnings:
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent	23,182	37,873
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
		2014	2013
		US$'000	US$'000
Cost and carrying amount attributed to:
Tecon Rio Grande		13,132	13,132
Tecon Salvador		2,480	2,480
Brazilian Intermodal Complex (Brasco Caju)		19,412	22,010
Total		35,024	37,622

 

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. Growth rate of 7% has been estimated for Brasco Caju, and a discount rate of 8.2% 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 2014 and are considered to be appropriate.

The Directors have considered the following individual sensitivities and are confident that no impairment would arise in any of the cash-generating units in any of the following two circumstances:

• if the discount rate was increased by 30%; or
• if the cash flow projections of all businesses were reduced by 25%

After testing goodwill as mentioned above, no impairment losses were recognised for the periods presented.

 

Brasco Caju's goodwill arose from the acquisition of Briclog, and is composed partly of expectation for future profitability and partially for deferred tax on intangibles. This goodwill´s historical value is equivalent to US$19.4 million (R$51.6 million), with negative foreign exchange impact of US$3.7 million (2013: US$1.3 million) due to the translation effect.

 

14 Other intangible fixed assets

 

	US$'000
Cost
At 1 January 2013	44,056
Additions	26,028
Acquired with acquisition of Briclog	266
Write off	(30)
Exchange differences	(3,469)
At 1 January 2014	66,851
Additions	2,136
Write off	(90)
Exchange differences	(4,549)
At 31 December 2014	64,348
Amortisation
At 1 January 2013 - (Restated)	14,711
Acquired with acquisition of Briclog	206
Charge for the year	6,302
Write off	(23)
Exchange differences	(995)
At 1 January 2014	20,201
Charge for the year	6,941
Write off	(89)
Exchange differences	(1,270)
At 31 December 2014	25,783
Carrying amount
31 December 2014	38,565
31 December 2013	46,650

 

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 breakdown of intangibles by type is as follows:

 

		31 December	31 December
		2014	2013
		US$'000	US$'000
Brasco Caju		18,280	21,454
Tecon Salvador		7,483	9,263
Computer software		5,630	7,613
Other		7,172	8,320
Total		38,565	46,650

 

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 2013	272,359	313,861	243,491	15,876	845,587
Additions	38,153	7,197	30,234	19,091	94,675
Additions -Briclog	12,687	-	3,291	-	15,978
Transfers	(5,033)	11,913	5,033	(11,913)	-
Exchange differences	(16,663)	-	(14,108)	-	(30,771)
Disposals	(2,006)	(11,809)	(16,282)	-	(30,097)
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)	-	(23,897)
At 31 December 2014	326,663	369,587	241,997	11,470	949,717
Accumulated depreciation and impairment
At 1 January 2013	45,932	115,758	89,020	-	250,710
Charge for the year	17,584	11,523	23,265	-	52,372
Additions -Briclog	530	-	1,489	-	2,019
Elimination on construction contracts	-	3,744	-	-	3,744
Exchange differences	(3,188)	-	(6,015)	-	(9,203)
Disposals	(649)	(11,355)	(9,190)	-	(21,194)
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 31 December 2014	75,344	124,499	110,394	-	310,237
Carrying Amount
At 31 December 2014	251,319	245,088	131,603	11,470	639,480
At 31 December 2013	239,288	201,492	153,090	23,054	616,924

 

The carrying amount of the Group's vehicles, plant and equipment includes an amount of US$19.7 million (2013: US$22.3 million) in respect of assets held under finance leases.

 

Land and buildings with a net book value of US$0.2 million (2013: US$0.2 million) and tugs with a value of US$1.8 million (2013: US$2.0 million) have been given in guarantee of various legal processes.

 

The Group has pledged assets having a carrying amount of approximately US$214.7 million (2013: US$234.1 million) to secure loans granted to the Group.

 

At 31 December 2014, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$13.5 million (2013: US$5.5 million).

 

16 Joint ventures

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

 

		Proportion of ownership interest
	Place of
	incorporation		31 December	31 December
	and operation		2014	2013
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 on joint ventures are equity accounted.

 

	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Revenue	153,760	108,837
Raw materials and consumables used	(6,098)	(5,190)
Employee benefits expense	(47,959)	(42,192)
Depreciation and amortisation expenses	(35,273)	(26,249)
Other operating expenses	(21,268)	(15,240)
Loss on disposals of property, plant & equipment	-	(72)
Results from operating activities	43,162	19,894
Finance income	1,354	1,292
Finance costs	(18,316)	(15,391)
Foreign exchange gains/(losses) on monetary items	(4,807)	1,890
Profit/(loss) before tax	21,393	7,685
Income tax expense	(7,213)	(2,900)
Profit for the period	14,180	4,785
Participation	50%	50%
Equity result	7,090	2,392

 

 

		31 December	31 December
		2014	2013
		US$'000	US$'000
Other non-current Assets		1,566	465
Property, plant and equipment		598,497	603,137
Long-term investment		2,140	2,131
Other current assets		1,367	864
Trade and other receivables		35,782	33,607
Derivatives		79	-
Cash and cash equivalents		37,061	23,401
Total assets		676,492	663,605
Bank overdrafts and loans		514,861	501,713
Other non-current liabilities		16,596	8,878
Trade and other payables		81,596	102,782
Equity		63,439	50,232
Total liabilities		676,492	663,605

 

 

Guarantees

Wilson Sons Offshore's 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 Adminisração e Comércio and Remolcadores Ultratug Ltda, each guarantteeing 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$2.1 million (R$5.7 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.

 

Tax, labour and civil risks

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

 

In addition to the cases for which the Group booked the provision, there are other tax, civil and labour disputes amounting to US$12.6 million (2013: US$1.9 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
		2014	2013
		US$'000	US$'000
Civil cases		2	9
Tax cases		9,189	639
Labour claims		3,387	1,231
Total		12,578	1,879

 

 

17 Investments

 

	2014	2013
	US$'000	US$'000
Trading investments
At 1 January	277,969	241,582
Additions, at cost	79,685	77,879
Disposals, at market value	(103,396)	(55,176)
Increase in fair value of trading investments held at year end	1,360	14,594
Profit/(loss) on disposal of trading investments	4,873	(910)
At 31 December	260,491	277,969
Ocean Wilsons Investment Limited Portfolio	236,491	244,969
Wilson Sons Limited	24,000	33,000
Trading investments held at fair value at 31 December	260,491	277,969

 

Wilson Sons Limited

The Wilson Sons Limited investments are held and managed separately from the Ocean Wilsons Investment 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).

 

18 Inventories

 

		31 December	31 December
		2014	2013
		US$'000	US$'000
Operating materials		11,498	13,433
Raw materials and spare parts		20,962	15,657
Total		32,460	29,090

 

Inventories are expected to be recovered in less than one year and there were no obsolete items.

19 Trade and other receivables
		31 December	31 December
		2014	2013
		US$'000	US$'000
Trade and other receivables
Amount receivable for the sale of services		50,617	65,542
Allowance for doubtful debts		(1,154)	(1,718)
		49,463	63,824
Income taxation recoverable		9,352	15,082
Other recoverable taxes and levies		34,000	32,760
Loans to related parties		31,314	42,200
Prepayments		12,431	7,089
Other		11,174	13,862
		147,734	174,817
Total current		96,199	150,819
Total non-current		51,535	23,998
		147,734	174,817

 

Non-current trade receivables relate to: recoverable taxes with maturity dates in excess of one year, which comprise mainly PIS, COFINS, ISS and INSS, customers with maturities over one year, receivables from Intermarítima relating to the sale of the non-controlling interest in Tecon Salvador, intergroup loans. There are no indicators of impairment related to these receivables.

 

Included in the Group's trade receivable balances are debtors with a carrying amount of US$8.8 million (2013: US$12.8 million) which are past due but not impaired at the reporting date for which the Group has not provided as there has not been a change in credit quality and the Group believes the amounts are still recoverable. The Group does not hold any collateral over these balances.

 

		31 December	31 December
		2014	2013
Ageing of past due but not impaired trade receivables		US$'000	US$'000
From 0 - 30 days		6,942	9,046
From 31 - 90 days		1,086	3,015
From 91 - 180 days		791	771
more than 180 days		-	-
Total		8,819	12,832

 

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
		2014	2013
Ageing of impaired trade receivables		US$'000	US$'000
From 0 - 30 days		-	-
From 31 - 90 days		-	-
From 91 - 180 days		-	-
more than 180 days		1,154	1,718
Total		1,154	1,718
		2014	2013
Movement in the allowance for doubtful debts		US$'000	US$'000
Balance at the beginning of the year		1,718	2,506
Amounts written off as uncollectable		(3,106)	(10,332)
Increase in allowance recognised in profit or loss		2,743	9,682
Exchange differences		(201)	(138)
Balance at the end of the year		1,154	1,718

 

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

 

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

 

20 Bank loans and overdrafts

 

	Annual		31 December	31 December
	Interest rate		2014	2013
	%		US$'000	US$'000
Secured borrowings
BNDES - FMM linked to US Dollar¹	2.07% to 6%		200,022	214,826
BNDES - Real	6.76% to 7.16%		26,796	9,849
BNDES - linked to US Dollar	5.07% to 5.36%		9,410	11,591
BNDES - FINAME Real	3.5% to 12.00%		4,461	10,366
BNDES - FMM Real¹	5.90% to 8.71%		2,692	3,247
Total BNDES			243,381	249,879
IFC - US Dollar	3.08%		67,815	75,296
BB - FMM linked to US Dollar¹	2.00% - 3.00%		54,985	24,387
Itaú - US Dollar linked to Real	11.89%		12,233	-
Eximbank - US Dollar	2.03%		9,462	11,563
Finimp - US Dollar	1.96% - 4.13%		6,287	9,528
IFC - Real	14.09%		1,022	1,738
Total others			151,804	122,512
Total secured borrowings			395,185	372,391
Total			395,185	372,391

 

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
			2014	2013
			US$'000	US$'000
Within one year			51,195	37,997
In the second year			39,926	37,370
In the third to fifth years (inclusive)			120,389	110,115
After five years			183,675	186,909
Total			395,185	372,391
Amounts due for settlement within 12 months			51,195	37,997
Amounts due for settlement after 12 months			343,990	334,394

 

The analysis of borrowings by currency is as follows	:
		US Dollars	$Real
		linked to	linked to
	$Real	$Real	US Dollars	US Dollars	Total
	US$'000	US$'000	US$'000	US$'000	US$'000
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
31 December 2013
Bank loans	25,200	-	250,804	96,387	372,391
Total	25,200	-	250,804	96,387	372,391

Guarantees

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

 

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

 

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

 

The loan with "The Export-Import Bank of China" is guaranteed by a "Standby Letter of Credit" issued for Tecon Rio Grande by Itaú BBA S.A., with the financing bank as beneficiary, as counter-guarantee, Tecon Rio Grande pledged the equipment funded by "The Export-Import Bank of China" to Itaú BBA S.A.

 

Loan with Itaú BBA S.A. is guaranteed by the corporate guarantee from Wilson Sons de Administração e Comércio Ltda and the pledge of the respective financed equipment. One contract is additionally guaranteed by a promissory note.

 

Undrawn credit facilities

At 31 December 2014, the Group had available US$89.7 million of undrawn borrowing facilities. For each disbursement, there is a set of conditions precedent that must be satisfied.

 

In June 2014, the Group signed a termination of Rio Grande Shipyard's loan agreement with BNDES, reducing the amount of undrawn borrowing facilities by US$106.2 million.

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 and Brasco Logística Offshore loan agreements signed with BNDES.

 

The subsidiary Tecon Salvador has to observe affirmative and negative covenants stated in its loan agreement with the Internantional Finance Corporation - IFC, including the maintenance of specific liquidity ratios and a capital structure.

 

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
		2014	2013
		US$'000	US$'000
Bank loans
BNDES		243,381	249,879
BB		68,837	24,387
IFC		54,985	77,034
Itau		12,233	-
Eximbank		9,462	11,563
Finimp		6,287	9,528
Total bank loans		395,185	372,391
Total		395,185	372,391

21 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 2013	(17,873)	5,405	34,145	(7,073)	14,604
(Charge)/credit to income	(1,320)	11,768	(416)	(18,740)	(8,708)
Deferred tax from acquisitions	-	-	(7,793)	-	(7,793)
Exchange differences	-	(166)	(1,599)	-	(1,765)
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 31 December 2014	(19,910)	24,600	23,463	(41,685)	(13,532)

 

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
		2014	2013
		US$'000	US$'000
Deferred tax liabilities		(45,197)	(33,761)
Deferred tax assets		31,665	30,099
		(13,532)	(3,662)

At the balance sheet date the Group had unused tax losses of US$48.9 million (2013: US$42.0 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$7.1 million (2013: US$7.2 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 $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 $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.

 

22 Trade and other payables

 

		31 December	31 December
		2014	2013
		US$'000	US$'000
Trade creditors		46,007	73,908
Amounts due to construction contract customers (note 20)		6,338	28,545
Other taxes		11,064	12,437
Accruals and deferred income		15,409	10,132
Share based payment liability		61	10,898
Total current		78,879	135,920

 

Trade creditors and accruals principally comprise amounts outstanding for trade purposes and ongoing costs.

 

The average credit period for trade purchases is 40 days (2013: 76 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.

 

23 Provisions

 

			US$'000
At 1 January 2013			10,966
Increase in provisions in the year			4,252
Utilisation of provisions			(1,239)
Exchange difference			(3,717)
At 31 December 2013			10,262
Increase in provisions in the year			9,118
Utilisation of provisions			(3,683)
Exchange difference			5
At 31 December 2014			15,702

 

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
		2014	2013
		US$'000	US$'000
Civil and environmental cases		3,119	2,078
Tax cases		3,818	1,822
Labour claims		8,765	6,362
		15,702	10,262

 

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$112.3 million (2013: US$133.4 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
		2014	2013
		US$'000	US$'000
Civil and environmental cases		4,292	10,174
Tax cases		82,416	56,799
Labour claims		25,582	66,416
		112,290	133,389

 

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 in 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.

 

24 Notes to the cash flow statement

 

	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Reconciliation from profit before tax to net cash from operating activities
Profit before tax	78,496	100,502
Share of results of joint venture	(7,090)	(2,392)
Investment revenues	(16,975)	(17,838)
Other gains and losses	(6,233)	(13,684)
Finance costs	23,607	21,863
Foreign exchange losses on monetary items	17,621	30,589
Operating profit	89,426	119,040
Adjustments for:
Depreciation of property, plant and equipment	58,179	52,372
Amortisation of intangible assets	6,941	6,302
Share based payment credit	(652)	(1,430)
Gain on disposal of property, plant and equipment	(326)	(9,966)
Increase/(decrease) in provisions	5,713	(2,528)
Operating cash flows before movements in working capital	159,281	163,790
(Increase) in inventories	(3,370)	(3,085)
Decrease in receivables	21,227	62,154
(Decrease) in payables	(25,027)	(73,194)
(Increase) in other non-current assets	(1,629)	(999)
Cash generated by operations	150,482	148,666
Income taxes paid	(29,518)	(27,306)
Interest paid	(15,408)	(12,944)
Net cash from operating activities	105,556	108,416

 

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 2014 to January 2019. About 67.62% of the securities included in the portfolio of the Private Investment Fund have daily liquidity and are 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.

 

Cash and cash equivalents held in Brazil amount to US$70.3 million (2013: US$84.3 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$0.5 million (2013: US$4.2 million) were financed by new finance leases.

 

25 Share options and share based payments

 

Wilson Sons Limited LTIP

On 9 April 2007, the boards of Ocean Wilsons Holding Limited and Wilson Sons Limited approved a stock option plan which allows for the grant of phantom options to eligible employees selected by the Wilson Sons Limited Board. The options provided cash payments, on exercise, based on the number of options multiplied by the growth in the price of a Wilson Sons Limited Brazilian Depositary Receipt "BDR" between the date of grant (the Base Price) and the date of exercise (the "Exercise Price"). The plan was a Brazilian Real denominated scheme and options were issued at R$23.74 during 2007. A further 135,000 options were issued under the plan at R$18.70 in 2008 and 2009 and a further 148,000 at R$24.58 in 2011. The awards vested in four tranches from two to six years from date of issue.

 

As at 31 December 2014 the scheme was closed and there were no outstanding options.

 

Details of the share options outstanding during the year as follows:

 

	2014	2013
	Number of	Number of
	share options	share options
Outstanding at the beginning of the period	2,541,260	2,541,260
Exercised during the period	(2,541,260)	-
Outstanding at the end of the period	-	2,541,260
The movement of the accrual relating to the plan is as follows:
	2014	2013
	US$'000	US$'000
Liability at 1 January	10,898	12,328
(Credit)/charge for the year	(3,780)	(1,430)
Exercise of options	(7,118)	-
Liability at 31 December	-	10,898

 

The group has recorded no liability (2013: US$10.9 million) in respect of the scheme. Fair value was determined by using the Binomial model using the assumptions noted in the table below.

 

		2014	2013
Weighted average option price for awards made in 2007		n/a	R$23.74
Weighted average option price for awards made in 2008 and 2009		n/a	R$18.70
Weighted average option price for awards made in 2011		n/a	R$24.58
Expected volatility		n/a	26% - 29%
Expected life		n/a	10 years
Risk free rate		n/a	10.40%
Expected dividend yield		n/a	1.60%

 

Expected volatility was determined with reference to the historical volatility of the OWHL Group share price. The expected life used in the model was adjusted, based on management's best estimate for exercise restrictions and behavioural considerations. There were no exercisable options at period end.

 

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 the plan on the 8 January 2014 including an 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.

 

On 10 January 2014 options for the acquistion of 2,914,100 BDR´s were granted under the Stock Option Plan with an exercise price of R$ 31.23 and on 13 November 2014 options for the acquistion of 139,000 BDR´s were granted under the Stock Option Plan with respective exercise prices of R$ 31.23 and R$ 33,98 as detailed below:  

 

					Exercise price
Options series	Number	Grant date	Vesting date	Expiry date	(R$)
07 ESO - 3 Year	931,920	10/1/2014	10/1/2017	10/1/2022	31.23
07 ESO - 4 Year	931,920	10/1/2014	10/1/2018	10/1/2023	31.23
07 ESO - 5 Year	960,160	10/1/2014	10/1/2019	10/1/2024	31.23
07 ESO - 3 Year	45,870	13/11/2014	13/11/2017	10/1/2022	33.98
07 ESO - 4 Year	45,870	13/11/2014	13/11/2018	10/1/2023	33.98
07 ESO - 5 Year	47,260	13/11/2014	13/11/2019	10/1/2024	33.98

 

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. In the period between granting and 31 December 2014 a total of 90,100 options lapsed.

 

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:

 

		Projected IFRS2
		Fair Value expense
Period		US$'000*
2014		2,826
2015		2,826
2016		2,826
2017		1,660
2018		757
Total		10,895

 

*          Amounts in Dollars converted at R$2.6562/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.