Ocwen Financial
Annual Report 2013

Plain-text annual report

17319 Ocean Wilsons R&A 2013 Cover + 7mm SPINE_17319 Ocean Wilsons R&A 2013 Cover + 7mm SPINE 16/04/2014 10:39 Page 1 Ocean Wilsons Holdings Limited Annual Report 2013 O c e a n W i l s o n s H o d n g s i l L i m i t e d A n n u a l R e p o r t 2 0 1 3 Job No.: 17319 Customer: Ocean Wilsons Proof: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 Cover + 7mm SPINE_17319 Ocean Wilsons R&A 2013 Cover + 7mm SPINE 16/04/2014 10:40 Page 2 Contents 1 Ocean Wilsons Holdings Limited 2 Chairman’s Statement 6 Financial Review 12 Investment Portfolio 13 Investment Managers Report 20 Directors and Advisers 21 Report of the Directors 28 Independent Auditors’ Report 29 Consolidated Statement of Comprehensive Income 30 Consolidated Balance Sheet 31 Consolidated Statement of Changes in Equity 32 Consolidated Cash Flow Statement 33 Notes to the Accounts 86 Statistical Statement 2008 – 2012 87 Notice of Annual General Meeting 89 Form of Proxy Printed by Park Communications on FSC certified paper. Park is a CarbonNeutral® company and its Environmental Management System is certified to ISO 14001. This document is printed on Chorus Silk, which can be disposed of by recycling, incineration for energy recovery or is biodegradable. The mill which makes chorus, sources 90% of its pulp fibre from within a 200km radius of the mill, reducing the carbon footprint for production. Job No.: 17319 Customer Ocean Wilsons Proof: 5 Project Title Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T 020 7055 6500 F 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:41 Page 1 Ocean Wilsons Holdings Limited Ocean Wilsons Holdings Limited/Annual Report 2013 Highlights Wilson Sons Limited (“Wilson Sons”) is an autonomous Bermuda company • • • • • • • Reported sales up 8% to US$660.1 million (2012: US$610.4 million) listed on the Sao Paulo Stock Exchange (BOVESPA) and Luxembourg Stock Exchange. Ocean Wilsons holds a 58.25% interest in Wilson Sons which is Operating profit up 40% to US$119.0 million (2012: US$84.7 million) 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 Dividend declared of 60 cents per share (2012: 42 cents per share) Brazil. Wilson Sons activities include harbour and ocean towage, container up 43% Investment portfolio up US$11.3 million to US$249.0 million terminal operation, offshore support services, logistics, small vessel construction and ship agency. Wilson Sons has over six thousand employees. (2012: US$237.7 million) Ocean Wilsons Investments Limited is a wholly owned Bermuda investment company. The company holds a portfolio of international investments. Operating cash flow of US$108.4 million (2012: US$110.1 million) Objective Concluded Briclog acquisition in July 2013 for US$40.2 million Ocean Wilsons Holdings Limited is run on a long-term basis. This applies to both the investment portfolio and our investment in Wilson Sons. The Completion of second shipyard at Guarujá, Sao Paulo 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 About Ocean Wilsons Holdings Limited expense of long-term value creation. The same long-term view allows our Ocean Wilsons Holdings Limited (“Ocean Wilsons” or the “Company”) is a investment managers to make investment decisions that create long-term Bermuda based investment holding company, and, through its subsidiaries, capital growth. operates a maritime services company in Brazil and holds a portfolio of international investments. The Company is listed on both the Bermuda Stock The success of this strategy is reflected in the growth in the Ocean Wilsons Exchange and the London Stock Exchange. It has two principal subsidiaries: share price and total returns to shareholders. In the 10 years to 31 December Wilson Sons Limited and Ocean Wilsons Investments Limited (together with 2013 the share price has risen 585% from 152p to 1,042p and total returns the Company and their subsidiaries, the “Group”). to shareholders in the period (assuming dividends are reinvested in Ocean Wilsons shares) of 806% Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 1 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:41 Page 2 Ocean Wilsons Holdings Limited/Annual Report 2013 Chairman’s Statement Introduction Profit before tax at US$100.5 million was in line with 2012 (US$98.6 million). Ocean Wilsons delivered a good performance in 2013. The US$34.3 million increase in operating profit was partially offset by a Wilson Sons has progressed significantly during 2013, with our shipyard, US$11.9 million increase in finance costs and reduced gains from the US$19.0 million increase in exchange losses on monetary items, terminal and offshore businesses completing key steps in their growth investment portfolio. strategy. The year began with the successful completion of our second shipyard, Guarujá II, in Sao Paulo state. US$60 million was invested in the Higher deferred tax charges raised the income tax expense for the year to facility, doubling our shipbuilding capacity. The new 26-metre wide dry dock US$42.2 million from US$33.7 million in 2012. permits the construction of larger and more complex vessels as evidenced by our new contracts to build Oil Spill Recovery Vessels (OSRVs) and Remotely Profit per share based on ordinary activities after taxation and non-controlling Operated Vehicle Support Vessels (ROVSVs). The new shipyard is also an interests was 107.1 cents (2012: 116.7 cents). important addition in maintaining and repairing our fleet of towage and offshore vessels. Investment portfolio performance Your Board reviews the performance of the investment portfolio over the Five new vessels were added to our operating fleet during the year: four new longer-term and the longer-term performance remains solid. In the ten year period platform supply vessels (PSVs) and one new tugboat. Three of these PSVs to 31 December 2013, the portfolio returned 106.3% against the performance were built at the Wilson Sons shipyard for our offshore joint venture, Wilson benchmark of 52.7% and a MSCI cumulative world index of 99.5%. Sons Ultratug Offshore. With a top speed of thirteen knots, these vessels were specifically designed for operations in the pre-salt oil fields located over At 31 December 2013 the trading investment portfolio and cash under 300 kilometres from the Brazilian coast. Wilson Sons Ultratug Offshore now management was US$249.0 million (2012: US$237.7 million). The investment operates a fleet of eighteen PSVs and remains focused on expanding and portfolio added US$16.3 million in value during the year (after deducting developing its business. Our tugboat fleet remains the largest in Brazil with expenses) representing a time weighted return of 7.7%. During the year, 63 tugboats operating in 26 ports. capital redemptions of US$5.0 million were paid to the parent company. Dividend income received by the portfolio increased 82% to US$5.2 million Tecon Salvador successfully completed the first year of operation following the (2012: US$2.8 million). terminal expansion in 2012, moving a record 289,600 TEUs (Twenty-foot equivalent units) in the year, a 6% increase from 2012. The terminal benefited The best performing portfolio segments in 2013 were global equities, which from a significant increase in import and cabotage volumes. In July Brasco delivered an 11.4% return, and private assets, 6.7% return. Although global completed the acquisition of Brazilian Intermodal Complex S/A (“Briclog”), an equities was our best performing segment, returns were adversely impacted important step in expanding our capacity to offer onshore support base by our over weighted exposure to emerging markets and natural resources services to the offshore oil and gas industry. The demand for onshore support which both performed poorly in the year. Emerging markets accounted for base services remains strong and the availability of suitable operating areas 37% and natural resources 10% of the portfolio net asset value at year end. limited. Your Board believes the 30-year operating lease acquired will prove to be a valuable asset for the Group. In February, Wilson Sons Logistics Private assets are at a relatively immature stage of value realisation with inaugurated the Suape logistics centre in Pernambuco, an important step in approximately 80% allocated to post 2008 crisis investments. We are seeing developing our logistics operations in the North East of Brazil. The centre some distributions from earlier investments with US$8.0 million in boasts a 23,000m² warehouse and a 25,000m² yard with direct access to the distributions received in the year and cumulative distributions received of port of Suape and the surrounding area. US$20.2 million. Net cash flow to this segment for the year (US$3.6 million The investment portfolio continued to grow during the year adding yearend outstanding capital commitments were US$44.5 million. As these US$16.3 million in value, a time weighted return of 7.7%. At 31 December investments mature, we are confident that over the full cycle they will 2013, the investment portfolio was US$249.0 million representing generate valuable returns for the portfolio. To date African Development US$7.04 per share (2012: US$237.7 million and US$6.72 per share). Partners, Greenspring Global Partners, China Harvest II and Capital International Private Equity Fund have all performed particularly strongly. outflow) remained negative with US$11.6 million in capital drawdowns. At Group Results Revenue for the full year grew 8% to US$660.1 million (2012: At year end, the portfolio was invested in global equities, 62%, private assets US$610.4 million) due to increased revenue from our shipyard, terminals 23%, 8% in market neutral funds and 7% in bonds and cash. The increased and towage businesses. weighting of the portfolio in global equities (62% v 52% in 2012) is due to the outperformance of this asset class relative to the remainder of the portfolio Operating profit at US$119.0 million was US$34.3 million higher in the year and additional investments made principally in JO Hambro Japan (2012: US$84.7 million) reflecting the higher turnover, profit on the disposal Fund, Hirzel Capital Fund, BlackRock European Hedge Fund and Odey of property plant and equipment and lower employee costs. Absolute Return Fund. 2 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:41 Page 3 Ocean Wilsons Holdings Limited/Annual Report 2013 The net asset value per share at the end of December 2013 of the investment policy follows completion of the current investment cycle in 2013 and an portfolio was US$7.04, a 4.8% increase over 2012 (US$6.72). expected increase in free cash flow. Investment managers The Ocean Wilsons Holdings Limited dividend policy is to pay the Company’s The Group’s investment portfolio is held by Ocean Wilson Investments Limited full dividend to be received from Wilson Sons in the period and a percentage (“OWIL”) a wholly owned subsidiary registered in Bermuda. OWIL has of the average capital employed in the investment portfolio to be determined appointed Hanseatic Asset Management LBG a Guernsey registered and annually by the Board. Dividends are set in US Dollars and paid annually. In regulated investment group as its investment manager. During 2013, 2013, the Board decided going forward to no longer pay an interim dividend Alec Letchfield joined the Hanseatic Asset Management Group and part of his and combine the normal interim dividend payment of 4 cents a share into the remit is responsibility for managing the Ocean Wilsons’ portfolio. final dividend. This change does not affect the total dividend paid in the year. Investment management fee Shareholders receive dividends in Sterling by reference to the exchange rate The investment managers receive an investment management fee based on the applicable to the USD on the dividend record date, except for those valuation of the funds under management and an annual performance fee of shareholders who elect to receive dividends in USD. 10% of the annual performance which exceeds the benchmark, provided that the high water mark has been exceeded. The investment management fee is an The Board of Directors may review and amend the dividend policy from time to annual rate of 1% payable monthly in arrears. The performance fee is measured time in light of our future plans and other factors. The payment of dividends cannot against an absolute benchmark derived from the one year USD LIBOR, prevailing be guaranteed and may be discontinued or varied at the discretion of the Board. at the commencement of each calendar year, plus 2%. In 2013 the investment management fee was US$2.4 million and no performance fee was payable. Briclog acquisition Net asset value In July we were pleased to announce that through our subsidiary Brasco Logística Offshore Limitada ("Brasco"), we concluded the acquisition of At the close of business on the 31 December 2013, the Wilson Sons’ share Briclog for R$89.8 million (US$40.2 million) with debt of R$32.1 million price was R$30.92, resulting in a market value for the Ocean Wilsons holding (US$14.5 million) assumed on acquisition. In the business acquired, the Group of 41,444,000 shares (58.25% of Wilson Sons) of approximately obtained a 30-year lease to operate an onshore base in Guanabara Bay, US$542.5 million which is the equivalent of US$15.34 (£9.27) per Ocean Rio de Janeiro, Brazil with excellent access to the Campos and Santos oil Wilsons Holdings Limited share. producing basins. The area has been renamed Brasco Cajú. Adding together the market value per share of Wilsons Sons, US$15.34 and Brasco intends to phase investments in the expansion of Brasco Cajú by the investment portfolio US$7.07 results in a net asset value per Ocean extending the existing berth a further 428m to 500m and reforming the site. Wilsons Holdings Limited share of approximately US$22.41 (£13.53). The Civil works on the expansion commenced in the second half of this year, Ocean Wilsons Holdings Limited share price of £10.43 at 31 December 2013 which when completed will triple Brasco’s capacity and consolidate Brasco’s represented an implied discount of 23%. position as one of the largest offshore support base operators for the Oil and Gas industry in Brazil. Following completion of the civil works, up to six I am pleased to note the narrowing of the implied discount from 38% at last vessels will be able to dock at Brasco Cajú simultaneously. yearend to the current 23%. The implied discount has fluctuated significantly since the IPO in May 2007 but we do not seek to manage the discount, as we Warehouse fire believe long-term shareholder value will best benefit from the continued A fire at our new shipyard warehouse in May destroyed large parts of our strong performance of our underlying businesses. material inventory. Some delays were experienced to our vessel delivery Dividend schedule although components lost in the fire were substituted by items already included in our supply chain for future vessel construction. There were The Board is declaring a full year dividend of 60 cents per share no injuries as a result of the fire and the Group holds insurance to cover the (2012: 42 cents per share) to be paid on 6 June 2014, to shareholders of warehouse damage and materials inventory. the Company as of the close of business on 9 May 2014. This represents a 43% increase over the 2012 full year dividend. Brazilian port law The dividend cost of US$21.2 million for the year represents the full dividend increasing private investment in Brazilian ports and improving efficiency. In June this year, the Brazilian congress approved a new law aimed at to be received from Wilson Sons relating to 2013 of US$15.7 million plus US$5.5 million in distributions from the investment portfolio. Charitable donations The increased dividend to be received from Wilson Sons reflects their new Group donations for charitable purposes amounted to US$156,000 dividend policy to increase dividend payments to shareholders. This revised (2012: US$113,000). The Group’s principal contributions in 2013 were: We are pleased to support a number of local causes in Brazil during the year. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 3 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:41 Page 4 Ocean Wilsons Holdings Limited/Annual Report 2013 Chairman’s Statement Escola de Gente – raising awareness and promoting social inclusion for all considered the principles and recommendations of the 2010 and 2012 UK parts of the community. Located in Barra da Tijuca, Rio de Janeiro. Corporate Governance Code (“the Codes”) issued by the Financial Reporting http://www.escoladegente.org.br/ Council and decided to apply those aspects which are appropriate to the business. This reflects the fact that Ocean Wilsons Holdings Limited is an De Peito Aberto – Promotes social development through educational, cultural investment holding company incorporated by an act of parliament in Bermuda and sporting activities. with significant operations in Brazil. The Company complies with the Code http://www.depeitoaberto.com.br/ 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 Brigada Mirim ecologica – maintaining the ecology of Ilha Grande in the state not fully comply with the Code. The areas where the Company does not of Rio de Janeiro and raising the awareness of visitors and the local comply with the Code, and an explanation of why we do not comply, are population about the environment. http://www.brigadamirim.org.br/ contained in the section on corporate governance in the Annual Report. The position is regularly reviewed and monitored by the Board. Criando Laços – The Wilson Sons corporate programme ‘Criando Laços” Outlook (Creating ties) provides financial support and promotes voluntary employee The Group enters 2014 in a strong position with an impressive and diversified involvement in social initiatives. http://www.wilsonsons.com.br/ range of businesses. Demand from the offshore oil and gas sector remains strong. Our shipyard business has a strong order book from both in-house projects and third party orders. During the year, we expect to deliver a further Health, safety and education five new tugboats to our towage division as part of our fleet renewal The safety of our workers is of utmost importance to us. The Group programme. A further six vessels are forecast to be built in 2015 and 2016; all implemented the WS+ safety programme to promote improved safety have financing from the Fundo da Marinha Mercante. Our offshore joint throughout the Group through training of Company personnel and the venture is programmed to receive one new PSV during the year and we promotion of a safety oriented environment and culture. In conjunction with expect to expand the fleet further in future years. Wilson Sons Ultratug is DuPont, the programme was developed during 2010, before a pilot project looking to diversify its fleet away from PSVs and operate Anchor Handling Tug was implemented at our shipyard in 2011, which was then replicated to other Supply Vessels (AHTSs). We started civil works to extend the quay and reform businesses across the Group. The objective is to have the project implemented the retro area at Brasco Cajú in 2013: this work will continue throughout 2014 across the entire Group by the end of 2014. This programme has received a and is forecast to be completed in the second quarter of 2015. positive response from our workforce and produced excellent results. Between January 2010 and August 2013, the Group registered a 64% decrease in the Global equity markets performed well in 2013. We remain confident that frequency of accidents requiring a leave of absence. while the world economy will continue to recover from the financial crisis it We continue to invest in the training and development of our staff. To meet equity markets performance may continue to suffer in the short-term with the demand for labour at our new and existing shipyards, we set up an lower economic growth and uncertainty about the effects of continued US in-house training centre in collaboration with SENAI (Serviço Nacional de tapering. However, emerging markets are better placed to withstand possible Aprendizagem Industrial) at our shipyard to train boilermakers, welders and capital outflows than they were in previous crises and we remain positive on will take time and growth will be uneven. Following a poor 2013, emerging painters. Since the end of 2012 the Group has trained almost 400 their long-term prospects. professionals. Graduating workers leave with a recognised trade qualification from SENAI permitting holders to work at shipyards throughout Brazil. Your board believes that the long-term outlook for the Group is strong. Amongst our other training initiatives is a dedicated ship crew training facility in Guarujá that uses a state of the art simulator to further train ship captains Management and staff and crew. In 2013 110 ship captains and 30 ship engineers completed On behalf of your Board and shareholders, I would like to thank our courses at our facility. Corporate governance management and staff for their efforts and hard work during the year. J F Gouvêa Vieira The Board has put in place corporate governance arrangements which it Chairman believes are appropriate for the operation of your Company. The Board has 28 March 2014 4 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 5 Ocean Wilsons Holdings Limited/Annual Report 2013 Tecon Salvador container terminal in Salvador, Bahia. The terminal moved 289,600 TEUs in 2013 a 6% increase from 2012. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 5 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 6 Ocean Wilsons Holdings Limited/Annual Report 2013 Financial Review Revenue from Maritime Services Share of results of joint ventures The Group has reported an 8% increase in maritime services revenue for the The share of results of joint ventures is Wilson Sons’ 50% share of net profit year to US$660.1 million (2012: US$610.4 million) principally due to for the period mainly from our offshore joint venture. From 1 January 2013, increased revenue from our shipyard, terminals and towage businesses. the joint venture is accounted for on an equity basis (see accounting policies Shipyard revenue increased 61% to US$ 100.3 million (2012: US$62.2 million) below). Results at our joint venture improved due to increased revenue and benefiting from the additional capacity available following completion of our operating profit from our expanded fleet as four new vessels entered new dry-dock facility in the fourth quarter of 2012. A fire at the new shipyard operation during the year. warehouse in May destroyed large parts of our material inventory causing some delays to our vessel delivery schedule and impacted margins in the Investment revenue year. Demand for new vessel construction from the offshore oil and gas Investment revenue for the year at US$17.8 million was in line with 2012, industry remains robust. Revenue at our terminal business grew 6%, driven by US$18.3 million. Higher dividends from equity investments US$5.2 million strong demand for warehousing services, higher container volumes and better (2012: US$2.9 million) were offset by lower interest on bank deposits of results from our offshore oil and gas support base, Brasco. Following a slow US$11.9 million (2012: US$14.8 million). start to the year, Brasco recovered as the year progressed reflecting improved pricing plus higher waste management and tank cleaning operation revenues. Investment gains and losses Towage revenues increased 10% due to a greater number of towage Other gains of US$13.7 million arose from the Group’s portfolio of trading manoeuvres, improved harbour towage sales mix and increased special investments (2012: US$16.4 million). operations revenue. Logistics revenue was 17% lower than prior year due to a higher average USD/BRL exchange rate used to convert revenue into our Finance costs reporting currency, US Dollars and some lower margin contracts were Finance costs for the year at US$21.9 million were US$12.0 million higher concluded during 2012 and 2013. All Group revenue is derived from Wilson than prior year (2012: US$9.9 million) due to exchange losses on foreign Sons operations in Brazil. currency borrowings of US$9.6 million (2012: US$0.7 million gain) and higher interest on loans of US$11.6 million (2012: US$9.8 million) as a result of Operating profit increased debt during the year. Operating profit grew 40% to US$119.0 million (2012: US$84.7 million) principally due to the higher turnover, profit on the disposal of property plant Foreign exchange losses on monetary items and equipment, US$10.0 million (2012: US$0.5 million loss) and lower Exchange losses on monetary items of US$30.6 million (2012: employee expenses. The profit on the disposal of property, plant and US$11.6 million) arise from the Group’s foreign currency monetary items and equipment arises from the sale of surplus commercial real estate in downtown principally reflect the depreciation of the Brazilian Real against the US dollar Rio de Janeiro and Sao Paulo as well as towage and logistic equipment. during the period. Employee expenses were US$13.5 million lower at US$209.5 million (2012: US$223.0 million) mainly due to lower social security costs and the Exchange rates positive impact of the share based payment expense. The lower social security The Group reports in US Dollars “USD” and has revenue, costs, assets and costs for the year at US$33.1 million (2012: US$44.7 million) reflect a liabilities in both Brazilian Real “BRL” and USD. Therefore movements in the reduction in payroll tax rates at both our towage and shipyard businesses The USD/BRL exchange rate can impact the Group both positively and negatively share based payment expense in the period was a US$1.4 million credit, due from year to year. During 2013 the BRL depreciated 15% against the USD to foreign exchange movements compared with a charge of US$2.3 million in from R$2.04 at 1 January 2012 to R$2.34 at the year end. the previous year, a difference of US$3.7 million. The reduction in employee expense is reflected in improved operating margins for the year of 16.5% The average USD/BRL exchange rate in the period was 10% higher at which were 2.5% higher than 2012 (14%). 2.16 (2012: 1.96). A higher average exchange rate adversely affects BRL denominated revenues and benefits BRL denominated costs when converted Raw materials and consumables used rose from US$72.2 million to into our reporting currency the USD. US$94.3 million in the current year due principally to the increase in shipyard sales. The principal effects from the depreciation of the BRL against the USD on the income statement are a net exchange loss on monetary items of Depreciation and amortisation in the year increased 5% to US$58.7 million US$30.6 million (2012: US$11.6 million) and a US$9.6 million net exchange from US$55.9 million in 2012 because of the capital investment undertaken loss on USD loans in BRL functional currency businesses by the Group in recent years. (2012: US$0.7 million gain). A currency translation adjustment loss of US$4.1 million (2012: US$7.2 million) on the translation of operations with a The 8% rise in other operating expenses from US$174.0 million to functional currency other than USD is included in other comprehensive US$188.6 million in 2013 was mainly attributable to higher cost of sales as income and recognised directly in equity. a result of the increased turnover and additional service costs relating to the conclusion of the Guarujá II shipyard and Tecon Salvador expansion. 6 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 7 Ocean Wilsons Holdings Limited/Annual Report 2013 The tugboat Eridanus. Our tugboat fleet remains the largest in Brazil with 63 tugboats operating in 26 ports. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 7 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 8 Ocean Wilsons Holdings Limited/Annual Report 2013 Financial Review Accounting Policies Adoption of new standards the retranslation of non-current asset values is caused by the depreciation of the BRL against the USD at year end and reflects the difference between the In the current year, the Group adopted, amongst others, the revised IFRS 10 historical USD denominated property plant and equipment balances recorded “Consolidated Financial Statements” and IFRS 11 “Joint Arrangements”. As a in the Group’s accounts and the BRL denominated property plant and result, the Group evaluated its consolidation conclusions in respect of its joint equipment balances used in the Group’s Brazilian tax calculations. The arrangements which resulted in changes to the way joint arrangements are increased charge in 2013 is mainly because the BRL depreciated 15% against accounted for with the comparative similarly adjusted for the new treatment. the USD in 2013 compared with a 9% devaluation in 2012. The principal change under the new standards is that the Group’s offshore joint ventures, which were previously proportionally consolidated on a The US$42.2 million tax charge represents an effective tax rate for the period line-by-line basis, are now accounted for using the equity method of of 42% (2012: 34%). The corporate tax rate prevailing in Brazil is 34%. accounting with a single line item in the Income Statement and Balance Sheet to reflect the Group’s 50% participation. Allink, a 50% controlled Non-Vessel Profit for the year Operating Common Carrier (“NVOCC”) which was previously proportionally Profit attributable to equity holders of the parent is US$37.9 million after consolidated on a line by line basis is now consolidated 100% in the deducting profit attributable to non-controlling interests of US$20.4 million. Consolidated Financial Statements, with the 50% non-controlling interest identified separately from the Group’s equity. Earnings per share Basic earnings per share for the year were 107.1 cents (2012: 116.7 cents). Change in accounting policy Foreign exchange gains and losses arising from the Group’s foreign currency Cash flow monetary items (cash, debtor, creditor balances and inventory) have Net cash inflow from operations for the year at US$108.4 million was in line previously been allocated to revenues, costs and financial results in the with prior year US$110.1 million. Adverse working capital movements offset income statement based on estimated ratios. To improve transparency and the higher operating profit for the period. readability of the financial statements the Group will no longer allocate these foreign exchange gains and losses but report them in one line in the income Capital expenditure of US$106.1 million in the year was mainly invested in statement, “Foreign exchange gain/(loss) on monetary items”. The presentation towage vessel construction, the expansion of Tecon Salvador and the of prior year comparatives has been restated to reflect this change. Reporting associated empty container depot. (2012: US$103.1 million). Following of other foreign exchange impacts relating to the currency translation account, completion of the current investment cycle, Wilson Sons anticipate annual deferred tax and loans will not change as a result of this new treatment. There capital expenditure to normalise over the next three years at approximately is no impact on the Company’s Balance Sheet or Net Profit. US$100 million on organic growth and capital maintenance. The impact of the adoption of these new standards and change in accounting Capital expenditure was partially financed by new loans raised in the period policy are set out in note 2 to the accounts. of US$50.8 million (2012: US$48.9 million) Capital repayments of US$36.8 million (2012: US$30.0 million) were made on existing loans in the Profit before tax year in accordance with debt repayment schedules. Profit before tax at US$100.5 million was US$2.0 million higher than prior year, US$98.5 million. The US$34.3 million increase in operating profit was At 31 December 2013 the Group had US$106.5 million in cash and cash partially offset by the US$19.0 million increase in exchange losses on equivalents (2012: US$136.7 million). Included in the Group’s trading monetary items, US$12.0 million increase in finance costs and reduced gains investments of US$278.0 million at 31 December 2013 is US$33.0 million from the investment portfolio, US$2.7 million lower. (2012: US$20 million) in USD denominated fixed rate certificates held by Taxation Wilson Sons Limited. These investments are not part of the Group’s investment portfolio managed by Hanseatic Asset Management LBG and are intended to Income tax expense for the year was US$8.5 million higher at fund Wilson Sons Limited operations in Brazil. US$42.2 million (2012: US$33.7 million). Within this figure current taxation charges were in line with 2012 at US$33.5 million (2012: US$36.6 million), Balance sheet while deferred tax charges increased US$11.7million to US$8.7 million At 31 December 2013 the equity attributable to equity holders of the parent (2012: US$3.0 million credit). The increase in the deferred tax charge is company was US$552.2 million, an increase of US$20.3 million from mainly because the Group recognised a deferred tax asset in the prior year of 2012 (US$531.9 million) due principally to profits in the period of US$8.1 million in respect of unused tax losses from prior periods and a higher US$37.9 million, less dividends paid of US$13.4 million, a negative currency deferred tax charge in 2013 compared to 2012 arising on the retranslation of translation adjustment of US$2.0 million and employee benefits recognised in non-current asset values. equity of US$1.3 million. The currency translation adjustment arises from exchange differences on the translation of operations with a functional The unused tax losses were recognised in 2012 as there are now associated currency other than USD. On a per share basis net equity is the equivalent of foreseeable future taxable profit streams. The deferred tax charge arising on US$15.61 per share (31 December 2012: US$15.04 per share). 8 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 9 Ocean Wilsons Holdings Limited/Annual Report 2013 The Brasco offshore base in Rio de Janeiro, which provides support services to the offshore oil and gas industry. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 9 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 10 Ocean Wilsons Holdings Limited/Annual Report 2013 Financial Review Net debt and financing All debt at year end is 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. At 31 December 2013, The Group had net debt of US$239.2 million (2012: US$207.0 million): Debt Short-term Long-term Total debt Cash and cash equivalents* Net debt 2013 2012 2011 US$ millions US$ millions US$ millions (39.5) (339.2) (378.7) 139.5 (239.2) (36.7) (327.0) (363.7) 156.7 (207.0) (29.0) (307.8) (336.8) 113.6 (223.2) *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 with defined repayment schedules repayable over different periods up to 18 years. The Group’s main sources of financing are the Fundo da Marinha Mercante, a Brazilian Government fund dedicated to funding vessel construction in Brazil and the International Finance Corporation. At 31 December 2013, 90% of our debt is non-current with 51% due within 5 years. 92% of our borrowings are USD denominated or linked to the USD with a favourable weighted average interest rate of 3.05%. The Group’s reported borrowings do not include US$250.9 million of debt from the Company’s 50% share of borrowings in our Offshore Vessels joint venture. Keith Middleton Finance Director 10 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 11 Wilson Sons Limited Ocean Wilsons Holdings Limited/Annual Report 2013 The Wilson Sons 2013 Earnings Report released on 28 March 2014 is Strengthening our position as the leading provider of towage services in available on the Wilson Sons Limited website: www.wilsonsons.com.br the Brazilian market. We intend to continue to modernize and maintain our fleet of tugboats in order to provide consistently high-quality service to our In it Cezãr Baião, CEO of Operations in Brazil said: customers and consolidate our leading position in the Brazilian towage services market. We regularly review our fleet deployment to optimize “The significant growth in EBITDA this year was a natural reflection of the efficiency, and to seek out new niches in the market where we may be able to US$1 billion invested since our IPO in 2007 by our business lines and provide additional services. Consistent with our focus on operating on a consequently, the development of Brazilian port and maritime infrastructure. national scale, we seek to increase our geographical footprint of towage services to ports in Brazil where we currently do not provide services. This investment included an additional of 900,000 TEU of capacity in our two Container Terminals, the Brasco-Cajú (Briclog) terminal to support the Upstream Maximising potential of our expanded shipyard facilities and future Oil & Gas industry, doubling the activity of shipbuilding at the Guarujá Shipyard projects through a mix of in-house and third-party vessel construction, as well and delivery of 39 vessels for the operating fleets of the Company, being 16 as providing repair, maintenance and dry docking services to meet the demand PSVs and 23 azimuthal tugboats. The conclusion of these projects, and many of national and international oil and gas companies operating in Brazil. others of great importance, puts us on a new level of service excellence for the benefit of our clients, staff and other stakeholders. Continuing to expand services to offshore oil and natural gas platforms. Using our knowledge and experience we intend to continue expanding our With the continued growth of the Company's cash flow, we are proposing to the activities to maintain our position amongst the leading suppliers of services to Annual General Meeting, dividends of US$27 million, an increase of 50% over the offshore oil and gas industry in Brazil. In addition to the supply vessels the previous year.” Wilson Sons Ultratug currently operates for Petrobrás, we plan to aggressively bid to provide supply vessels to other international and local oil companies. The Wilson Sons Strategy is to: We will also seek opportunities to diversify our portfolio of equipment and Continue to grow and expand the quantity and range of our services in services. all of the segments in which we operate. Exploring new opportunities and strategies to provide the best and most complete set of services to our customers. We are always looking to Expansion of our operations in port terminals. In order to meet growing provide new and innovative services to our customers, and to anticipate their international trade demand, we have expanded our two container terminals. needs. We intend to continue our strategy with shipping companies in order In Rio Grande do Sul, we built a third berth and commissioned ship to shore to provide a complete set of local and international trade-related services (STS) and rubber tyred gantry (RTG) cranes. In Salvador, we expanded our across a nationwide network. We also seek to make these services more terminal and invested in yard equipment including RTGs and STSs. Where efficient and cost-effective, in order to maintain our strong customer base and opportunities arise, we will also seek new concessions in other Brazilian ports strengthen our relationships with those customers. and focus on developing new terminals. We will evaluate these potential investments in light of our existing operations, and their ability to provide a Increasing economies of scale and productivity, realization of potential strong return on shareholders equity. synergies and cost savings across our business segments. We continuously seek to optimize our operations and productivity and reduce our costs through Increasing capacity of our Upstream Oil and Gas Support Terminals synergies and the exchange of know-how among our businesses and (Brasco). We are developing a continuous 500 metres of berth in the administrative areas. We are and will continue to be focused on integrating Brasco-Caju (Briclog) base with excellent access to the Campos and Santos oil similar activities in order to realize savings in administrative and back-office producing basins. When completed this will triple Brasco’s capacity to attend areas, especially in our branch offices. We seek to achieve economies of scale offshore support vessels and consolidate Brasco’s position as one of the and reduce costs wherever possible. We demand that the managers of our largest offshore support base operators for the Oil and Gas industry in Brazil. different divisions continually develop new strategies that may improve our We are continuously monitoring offshore operations along the Brazilian coast operations and explore new businesses. to meet the demand for such services and create additional support bases in order to increase our coverage area. Health, Safety and the Environment are a priority for the execution of our overall strategy of sustainable ethical business. We continue programmes to promote best practice safety throughout the Group through training of our personnel and the promotion of a safety oriented environment and culture. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 11 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 12 Ocean Wilsons Holdings Limited/Annual Report 2013 Investment Portfolio Investment Objective Initial meetings are usually a result of: (i) a ‘top-down’ led search for exposure The Investment Objective is to achieve real returns through long-term capital to a certain geography or sector, (ii) referrals from the Investment Manager’s growth, whilst emphasising preservation of capital. Investment views are global network or (iii) relationships from sell-side institutions and other expressed through an unconstrained globally diversified portfolio, without introducers. The Investment Manager reviews numerous investment regard to short-term moves in equity markets or any benchmark allocation. opportunities each year, favouring active specialist managers who can An individual opportunity is considered on the contribution that the demonstrate an ability to add value over the longer-term, often combining a investment’s expected return would make to the overall portfolio set against conviction-based approach, an unconstrained mandate and the willingness to the potential impact of a permanent loss of capital. take unconventional decisions (e.g. investing according to conviction and not fear of short-term underperformance versus an index). Performance is measured against an absolute benchmark of one-year US Dollar LIBOR (prevailing on 1 January each year) plus 2%. This benchmark Excessive size is often an impediment to continued outperformance and the reflects the portfolio’s long-term time horizon and unconstrained mandate bias is therefore towards managers who are prepared to restrict their assets where there is no compulsion to invest in any specific asset class or under management to a level deemed appropriate for the underlying geographic region. Moreover, the Investment Manager is more concerned opportunity set. Track records are important but transparency is an equally about absolute loss of capital rather than any short-term underperformance important consideration. Alignment of interest is essential and the Investment versus an index. Investment Policy 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 The Investment Manager will seek to achieve the Investment Objective motivation of a fund manager. through investments in publically quoted and private (unquoted) assets across four ‘silos’: public equities, private assets (predominantly private equity), When the Investment Manager believes there is a potential fit, thorough due market neutral funds and bonds. Cash levels will be managed to meet future diligence is performed to verify the manager’s background and identify the commitments (e.g. to private assets), whilst maintaining an appropriate principal risks. The due diligence process would typically include visiting the balance for opportunistic investments. manager in their office (in whichever country it may be located), onsite visits to prospective portfolio companies, taking multiple references and seeking a Commensurate with the long-term horizon, it is expected that the majority of legal opinion on all relevant documentation. investments will be concentrated in equity, across both ‘public’ and ‘private’ markets. In most cases, investments will be made either through collective All investments are reviewed on a regular basis to monitor the on-going funds or limited partnership vehicles, working alongside expert managers in compatibility with the portfolio, together with any ‘red flags’ such as signs of specialised sectors or markets to access the best opportunities. ‘style drift’, personnel changes or lack of focus. Whilst the Investment Manager is looking to cultivate long-term partnerships, every potential repeat investment The Investment Manager maintains a global network to find the best with an existing manager is assessed as if it were a new relationship. opportunities across the four silos worldwide. The portfolio contains a high level of investments which would not normally be readily accessible to Portfolio Characteristics investors without similar resources. Furthermore, a large number of holdings The portfolio has several similarities to the ‘endowment model’. These are closed to new investors. There is currently no gearing although the Board similarities include an emphasis on generating real returns, a perpetual time would, under the appropriate circumstances, be open-minded to modest levels horizon and broad diversification, whilst avoiding asset classes with low of gearing. Likewise, the Board may, from time to time, permit the Investment expected returns (such as government bonds in the current environment). This Manager to opportunistically use derivative instruments (such as index hedges diversification is designed to make the portfolio less vulnerable to permanent using call and put options) to actively protect the portfolio. loss of capital through inflation, adverse interest rate fluctuations and currency Investment Process devaluation and to take advantage of market and business cycles. The Investment Manager believes that outsized returns can be generated from Manager selection is central to the successful management of the investment investments in illiquid asset classes (such as private equity). In comparison to portfolio. Potential individual investments are considered based on their public markets, the pricing of assets in private markets is less efficient and the risk-adjusted expected returns in the context of the portfolio as a whole. outperformance of superior managers is more pronounced. 12 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 13 Investment Managers Report Ocean Wilsons Holdings Limited/Annual Report 2013 Hanseatic Asset Management LBG, the manager of the Group’s investment stimulus led to a substantial fall in the Yen against the Dollar, which ended portfolio report as follows: the year at ¥105 down from ¥87 at the start of the year. Market background Emerging Markets suffered throughout 2013, with the MSCI Emerging Markets 2013 was characterised by a mostly positive market environment, with a Index falling 2.6%, with particularly weak performance from the Ibovespa broadly linear appreciation of the major equity indices. This owed much to the (-26.8%). The Brazilian market’s poor performance was in large part due to perception of steadily improving macroeconomic conditions as well as (in the the performance of the Real, which weakened 13.2% against the US Dollar near term at least) a continuation of supportive monetary policy. In addition to following two weak years in 2011 and 2012. Investors’ appetite for Emerging the improving US macroeconomic environment, risk markets were buoyed by Markets has fallen steadily over recent years, due to a moderating growth an improved outlook for the Japanese economy, the perception of reduced trajectory, as well as substantial structural and political obstacles to their political risk within the Eurozone, the diminished likelihood of foreign military continued expansion. involvement in Syria and a thawing of relations with Iran. Furthermore, investors were able to look past both sequestration in January and the Fixed income markets saw a pronounced divergence in returns, with high US government shutdown in September with minimal impact on financial yield and investment grade corporates generating positive returns of 7.3% markets. and 0.4% respectively. Government bonds, as measured by the Barclays Capital Global Treasury Index, fell 4.3% (the first annual fall since 2009) with The summer saw a temporary jump in volatility, as investors reacted to Ben yields ending the year at 3.0% having fallen to 1.6% in May, as investors Bernanke’s comments in his testimony to Congress on 21 May, which implied began to anticipate the eventual withdrawal of implicit central bank support a “tapering” in the Federal Reserve’s $85bn monthly bond purchase for bond markets. In Emerging Markets, the JP Morgan Emerging Markets programme as early as September 2013. These concerns prompted a sharp Bond Index (US denominated sovereign / quasi-sovereign bonds) performed rise in bond yields, which in turn triggered a liquidity withdrawal from poorly, falling 6.6%, whilst local currency bonds performed even worse, Emerging Markets and commodities. falling 9.0%. Emerging Markets suffered a pronounced sell-off during the summer, owing to There were substantial falls across the commodity complex, due to a a combination of factors, including the potential tightening in US monetary combination of over-supply following several years of substantial investment in policy, a slowdown in Chinese economic growth and a sharp increase in new extraction projects as well as a more depressed demand environment as Chinese inter-bank lending rates. There was a dispersion of returns in Emerging the rampant Emerging Market growth of the last decade has decelerated. Gold Markets, with those countries that have current account and budget deficits, was the weakest of the commodities, falling 28.0%, and finishing the year such as India, South Africa, Turkey and Indonesia, badly impacted as foreign 37.8% off its 2011 high at $1,201. The price of copper fell 8.0% whilst iron ore capital began to exit in anticipation of tightening global liquidation conditions. fell 7.0%. Energy markets were more mixed, with WTI Cushing rising 7.2% and European Brent falling 1.0% ending the year at $98 and $110 respectively. One notable absentee from the list of positive events during the year was the anticipated improvement in corporate earnings. Whilst balance sheets remain Notes: strong, companies failed to grow their earnings significantly, with the result that the entirety of the equity market performance was a result of a re-rating (i) All index performance numbers are in US Dollar terms, unless specifically stated in local currency terms. (ii) See following pages for further details on index returns over various periods. rather than earnings growth. The MSCI All Country World Index rose 22.8% over the year. The US was a notable strong performer, with the MSCI North America Index rising 29.6%. The S&P 500 rose 32.4%, recording its best calendar year performance since 1997 and ending the year at an all-time high, whilst the Dow Jones Industrial Average increased 26.5%. European equity markets shrugged off the ongoing structural issues within the Eurozone to record strong performance, with the MSCI Europe ex UK Index rising 27.6%, driven in large part by the performance of the German and French bourses, which rose 31.0% and 27.7% respectively. Unlike their US counterparts, however, the European market, as measured by the Euro Stoxx 50 Index, remains 30% below its level of 2007 and 40% below its peak in 2000. Japanese stocks performed strongly, with the TOPIX rising 26.5% (54.4% in Yen terms), driven by Prime Minister Abe’s drive to combat decades of Portfolio Construction The net asset value at the end of December 2013 was $249.0m. The portfolio is comprised of four ‘sub-portfolios’ as detailed below: Sub-Portfolio Global Equities Private Assets Market Neutral Funds Bonds/Other Total $m % NAV 153.4 57.5 20.0 18.1 61.6 23.1 8.0 7.3 $249.0m 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 deflation with an unprecedented programme of monetary stimulus. The produce attractive compounded returns. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 13 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 14 Ocean Wilsons Holdings Limited/Annual Report 2013 Investment Managers Report 2) ‘Private Assets’ contains fixed life investments typically with lives of Investment Grade Bonds (0% of NAV) would contain investments in sovereign approximately ten years and often structured through commitments to (government) bonds as well as corporate bonds with high credit ratings limited partnership vehicles that make investments in private equity, real (typically at least ‘BBB’ as defined by Standard & Poor’s). assets (such as property and natural resources) and private debt. These investments are driven by a ‘bottom-up’ analysis of the manager’s value Market (sovereign and corporate debt) and other Developed Market high yield High Yield Bonds $14.1m, (5.7% of NAV) include investments in Emerging creation attributes, regardless of the prevailing economic climate. Managers corporate debt. 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 ‘Other’ is comprised of cash valued at $4.0m (1.6% of NAV). portfolio companies – e.g. strong operational capabilities. Investments should be made into companies where there is a clearly defined exit route, which is Cumulative portfolio returns 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. • • • 25 commitments (totalling $107.8m) have been made as at 31 December 2013. $72.2m has been drawn down. Outstanding commitments of $44.5m (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 $20.2m. 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 Performance (Time-weighted) Portfolio Performance Performance Benchmark 1 Year 7.7% 2.8% 3 Year 6.2% 9.0% 5 Year 10 Year 38.2% 106.3% 16.8% 52.7% MSCI World (Developed) Index 26.7% 38.6% 101.4% 96.3% MSCI Emerging Markets Index (2.6%) (6.5%) 99.3% 188.3% MSCI All Country World Index 22.8% 32.0% 100.2% 99.5% ‘Other’ is comprised of cash valued at $4.0m (1.6% of NAV). 2013 Returns Performance (Time-weighted) Portfolio Performance MSCI World (Developed) Index MSCI All Country World Index MSCI Emerging Markets Index Performance Benchmark* 2013 7.7% 26.7% 22.8% (2.6%) 2.8% * Note: Performance is measured against an absolute benchmark of one-year US Dollar LIBOR (prevailing on 1 January each year) plus 2%. Performance Commentary See below performance breakdown of the four ‘sub-portfolios’ over (i) the fourth quarter (Q4) and (ii) the year ended 31 December 2013 (YTD): Sub-Portfolio Valuation Weighting Performance Contribution Performance Contribution mandate and it is expected that their collective performance will not be 31 December 2013 $m % Q4% Q4 $m YTD% YTD $m 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 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. Global Equities 153.4 Private Assets 57.5 Market Neutral Funds Bonds/Other 20.0 18.1 61.6 23.1 8.0 7.3 4.5 0.4 2.6 2.8 6.5 0.2 0.5 0.5 11.4 6.7 (2.3) 0.5 14.8 3.5 (0.5) (0.0) Total $249.0m 100% 3.2% $7.7m 7.7% $17.8m During 2013, the portfolio generated a time weighted return of +7.7%. This compares with a +2.8% gain for the Performance Benchmark and +22.8% for the MSCI All Country World Index. 2013 saw a divergence of performance across the portfolio’s geographic exposures, with strong returns generated in Japan (+47.5%), Developed Europe ex UK (+25.0%) and North America (+21.4%). However, losses were generated by the portfolio’s exposure to Latin America, Emerging Europe and the Middle East, which declined by 1.6%, 1.1% and 0.6% respectively. In 14 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 15 Ocean Wilsons Holdings Limited/Annual Report 2013 Performance 500 450 400 350 300 250 200 150 100 50 0 Jan-04 10 Year Cumulative Returns Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Ocean Wilson Benchmark Ocean Wilson Investments Limited MSCI Emerging Markets NR USD MSCI World (Developed) Index MSCI All Country World Index *Note: Performance information for the MSCI All Country World Index, which includes Developed, Emerging and Frontier Markets (weighted by market capitalisation), is only available from 31 May 2002. addition the portfolio’s exposure to Natural Resources was detrimental to Distressed Opportunity Fund II, LP followed by $1.2m to NG Capital performance, declining by 4.2%. Partners II, LP). The largest contributors to the portfolio’s performance were dominated by holdings 2013 PERFORMANCE BY SILO exposed to Developed Market equities: Findlay Park America Fund +30.2%, Egerton European Dollar Fund +25.7%, Lansdowne Developed Markets Fund +33.1% and Instinct Dark Horse Fund +46.3%. In addition, a number of the portfolio’s private asset holdings performed strongly, with Africa Development Partners I +37.2% and Greenspring Global Partners IV +28.1%. Cash Bonds Market Neutral Global Equities Private Assets At the other end, the weakest performances came from holdings in the Emerging Markets and Natural Resources: BSF Mining Opportunities Fund -27.7%, BlackRock World Mining Trust -15.8%, Atlantis China Fund -18.1%, Avigo SME Fund III -19.1% and Gramercy EMD Allocation Fund -9.4%. The top contributors were: Top Five Contributors (in USD) Contribution Performance In aggregate, holdings in Market Neutral Funds recorded a loss of 2.3%, due Findlay Park American Fund to the disappointing performance of one holding, QFR Victoria (-13.3%), Egerton European Dollar Fund which has subsequently been redeemed. Private Assets (23.1% of net asset value) – the underlying limited partnerships are showing increasing visibility on their potential for value creation and the Investment Manager remains confident that the significant capital deployed into post-crisis vintages represent an attractive store of future Lansdowne Developed Markets Fund Instinct Dark Horse Fund African Development Partners I, LLC *(i) Total *Notes: % / X 30.2% 25.7% 33.1% 46.3% 1.5x % 1.7 1.1 1.1 1.0 0.7 5.6 value. During 2013, the portfolio received distributions of $8.0m (the largest (i) Performance for Private Assets Investments is measured as a multiple (since inception inflows being $2.2m from Gramercy Distressed Opportunities Fund Ltd) against drawdowns of $11.6m (the largest outflows being $1.7m to Gramercy 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). % (0.5) 1.9 (2.3) 11.4 6.7 Gain $m 4.0 2.6 2.5 2.4 1.7 13.2 15 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 16 Ocean Wilsons Holdings Limited/Annual Report 2013 Investment Managers Report Portfolio activity – for the year ended 31 December 2013 Hirzel Capital Fund – research driven long/short hedge fund manager During 2013, there were total purchases of $29.8m, including purchases of investing in US companies, with an emphasis on mid-caps. This Fund is new positions totalling $16.0m and total sales of $28.9m. currently closed to new investors. Within the portfolio’s private assets silo, there were new commitments made BlackRock European Hedge Fund – is a European (including UK) of $22.7m and drawdowns of $11.6m. During 2013, investments in private long/short equities hedge fund. Reduced fees were negotiated. This Fund is assets generated distributions of $8.0m. currently closed to new investors. Odey Absolute Return Fund – is a Developed Market long/short equities hedge fund. Sales There were sales totalling $28.9m in 2013. Purchases New Positions Hirzel Capital Fund BlackRock European Hedge Fund Odey Absolute Return Fund Additions to Existing Investments JO Hambro Japan Fund NTAsian Discovery Fund Prusik Asian Smaller Companies Fund Phaunos Timber Fund Ltd Prince Street Opportunities Fund Total $m 6.0 5.0 5.0 7.5 2.0 2.0 1.8 0.5 29.8 Asset Allocation (as at 31 December 2013) Private Equity 16.2% Deposits 1.6% Private Real Assets 3.4% Private Debt 3.5% Market Neutral – Other Liquidity 8.0% High Yield Corporate (DM) 3.8% Emerging Market Debt (Sovereign & Corporate) 1.9% Long Only Equities 36.3% Long/Short Hedge Funds 25.3% Geographical Distribution (as at 31 December 2013) Underlying Liquidity (as at 31 December 2013)) Natural Resources 10.4% EM – Middle East 0.7% EM – Africa 4.5% Cash/Liquidity Funds 1.6% Market Neutral 8.0% EM – Emerging Europe 4.5% EM – Latin America 6.0% EM – Emerging Asia 16.6% 16 EM – Developed Asia ex Japan 4.6% Japan 6.4% North America 24.4% Developed Europe ex UK 5.4% UK 6.9% Fixed Life Investment Period Complete 9.6% > 1 year 4.9% Redemption outstanding 4.2% Daily 25.2% Fixed Life in Investment Period 13.4% Weekly 2.0% Quarterly 10.0% Monthly 30.7% Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 17 Ocean Wilsons Holdings Limited/Annual Report 2013 Private Assets – Commitments L Capital Asia 2, LP (sponsored by LVMH Group, the French luxury There were five new commitments to private assets in 2013: conglomerate) will be a continuation of the strategy of L Capital Asia’s New Commitments Navegar I, LP NG Capital Partners II, LP L Capital Asia 2, LP KKR Special Situations Fund, LP Silver Lake Partners IV, LP Total predecessor fund, investing in businesses that are direct beneficiaries of discretionary consumer spending in Asia with a focus on the ‘Aspirational, Affordable and Alternative’ market segment. The manager will target investment opportunities primarily in Greater China, Southeast Asia and India, and on a more opportunistic basis, businesses in developed Asia (e.g. Australia, South Korea and Japan), particularly where such businesses may benefit from expansion into Emerging Asia. The Fund is expected to make between 12 and 15 growth equity investments. $m 5.0 5.0 5.0 4.5 3.2 22.7 Navegar I, LP will make minority growth capital investments in private companies operating in the Philippines. The country has seen considerable economic and political progress, which provides a solid backdrop for investment in the Philippines. The young population is a central driver to the country’s projected multi-year growth and offers a powerful tailwind for local consumer businesses. NG Capital Partners II, LP will make control investments in private companies operating in Peru. In many respects, Peru is a catch-up story as it traces the economic path of Chile. The investment case is supported by a strong Peruvian economy, which remains at an early stage of its development. In particular, businesses engaged in the provision of goods and services to the emerging consumer are expected to exhibit strong growth. KKR Special Situations Fund, LP – will invest across the capital structure with a credit orientation, with the focus primarily being on corporate opportunities where balance sheet distress or broader market dislocation has created mispricing of assets. The manager expects to invest approximately two-thirds of the Fund’s assets in Europe, with the remainder being invested in the US, Asia and Australia. The Fund is expected to make 20-25 core investments, which will be supplemented with a number of toe-hold positions. Silver Lake Partners IV, LP will invest globally in businesses operating in the technology, technology-enabled and technology-related sectors. The manager will take both minority and control positions. Typical investments will be in large market leading companies with strong growth characteristics. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 18 Ocean Wilsons Holdings Limited/Annual Report 2013 Investment Managers Report Investment Portfolio at 31 December 2013 Findlay Park American Fund Egerton European Dollar Fund Lansdowne Developed Markets Fund NTAsian Discovery Fund Oaktree CM Value Opportunities Fund AR New Asia Fund JO Hambro Japan Fund BlueCrest AllBlue Leveraged Feeder Instinct Dark Horse Fund BlackRock UK Emerging Companies HF Top 10 Holdings BlueBay Macro Fund Prosperity Quest Fund Schroder ISF Asian Total Return Odey Absolute Return Fund Hirzel Capital Fund BlackRock European Hedge Fund African Development Partners I, LLC CCI Technology Partners II China Harvest Fund II, LP Artemis Global Energy Fund Top 20 Holdings Prince Street Opportunities Fund Greenspring Global Partners IV, LP QFR Victoria Fund Prusik Asian Smaller Companies Fund BlueBay EM Corporate Alpha Fund Oaktree CM Principal Fund V, LP Helios Investors II, LP R/C Global Energy and Power Fund IV, LP Schroder ISF Global Energy Fund L Capital Asia, LP Top 30 Holdings 28 remaining holdings Cash TOTAL Primary Focus US equities – long-only Europe/US equities – hedged Europe/US equities – hedged Asia ex-Japan equities – long-only US high yield corporate debt – hedged Asia ex-Japan equities – long-only Japan equities – long-only Market Neutral – multi-strategy Japan equities – hedged UK equities – hedged Market Neutral – EM-biased macro Russian equities – long-only Asia ex-Japan equities – long-only Europe/US equities – hedged US equities – hedged Europe equities – hedged Private Assets – Africa Technology equities – hedged Private Assets – China Energy equities – long-only Emerging Markets equities – long-only Private Assets – US Venture Capital Market Neutral – EM-biased macro Asia ex-Japan equities – long-only EM high yield corporate debt – hedged Private Assets – US distressed debt Private Assets – Africa Private Assets – Energy Energy equities – long-only Private Assets – Asia (Consumer) Market Value $000 17,156 12,980 9,922 9,728 9,338 8,498 7,908 7,739 7,712 7,648 % of NAV 6.9 5.2 4.0 3.9 3.7 3.4 3.2 3.1 3.1 3.1 98,629 39.6 7,118 6,846 6,523 6,517 6,192 5,903 5,758 5,688 5,634 5,551 2.9 2.7 2.6 2.6 2.5 2.4 2.3 2.3 2.3 2.2 160,359 64.4 5,147 5,145 5,102 4,995 4,772 4,129 3,769 3,672 3,620 3,302 204,012 40,958 4,013 248,983 2.1 2.1 2.0 2.0 1.9 1.7 1.5 1.5 1.4 1.3 81.9 16.5 1.6 100.0 18 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 19 Ocean Wilsons Holdings Limited/Annual Report 2013 Market outlook developed markets, historic trough valuations have been lower. In all 2013 was a robust year for global stock markets. Recovering economies and likelihood we are not at the end of the process but remain acutely aware that growing confidence saw investors ascribing higher ratings to many developed such times often provide the greatest opportunities. market equities despite the poor earnings backdrop. It was a classic recovery phase in the stock-market cycle. Underlying this performance, however, the At the market level, the US is now at its 10 year price/earnings average but scene is being set for a more challenging, muted phase of the cycle, albeit more expensive compared to many other global stock markets. However, this one which is ultimately positive. reflects the uncanny ability for the US economy to surprise through productivity gains and entrepreneurship. Buoyed by this, and the likelihood One of the most notable features of markets in recent years has been the that US oil and gas production will match or even exceed domestic demand, unprecedented levels of liquidity being injected by Central Banks. Through a the manufacturing industry has undergone a renaissance and helped drive combination of low interest rates and novel measures such as quantitative growth ahead. Assuming this feeds through to earnings growth, this should easing (QE), asset prices were forced up as this money percolated through the help sustain stock market performance. financial system. Unfortunately, markets required more and more money to be injected into the system amid a sense that the money was having less of In contrast, Europe is still mired in structural concerns. Whilst the risk of a full an impact. Central Bankers’ worst fears that the process of stopping QE would scale collapse has been averted for now, there is still considerable work to be lead to a disorderly market decline were brought to the fore when Ben done in strengthening the banking sector, and in many of the Southern Bernanke, Chairman of the US Federal Reserve, raised the prospect of such an European economies despite the progress made to date. Unlike the US event in May of 2013. Government bond yields rose rapidly, risk assets sold though, the valuation is lower and corporate profitability is still some way off off and emerging markets, in particular, were impacted as investors its historic peak, resulting in a difficult landscape, albeit one which is likely to repatriated their money back to the developed world. prove fruitful for the skilled stock-picker. Subsequent to this, investors’ nerves have been somewhat soothed by the Japan, as is so often the case, is dancing to a rather different tune. Having promise of a period of prolonged low interest rates, enabling the US to start its finally grasped the nettle and acknowledged the need to address the programme of exiting QE. Whilst it is true that rates may well stay low for an deflationary pressure and structural challenges, it is implementing an extended period of time – it seems likely that Central Bankers will shift their aggressive quantitative easing programme (indeed larger than the US one on focus from inflation to the broad employment picture – it seems clear that the a relative basis). Unlike the US, however, the Japanese QE programme is tide is turning. Hence whilst liquidity undoubtedly remains very expected to be sustained for some time and is being combined with other accommodative globally, markets are typically more concerned by the measures such as the introduction of Japanese Individual Savings Accounts direction of travel and that direction has now changed. This has important and encouraging public pension plans to reduce bonds in favour of equities. implications for markets. We feel that the situation is likely to sustain equity market performance, albeit the jury is still out as to whether or not the long awaited structural changes From a developed market perspective the progress in markets has been all will be successfully completed. about valuations being re-rated as liquidity dominated despite a backdrop of disappointing earnings. This has broadly increased market valuations to fair Linked to the emerging market debate is the outlook for commodities. value (and even fully valued in the case of the US). This is fairly typical for this Commodities experienced a prolonged period of strong demand as emerging stage of the investment cycle but, importantly, it also means that further markets, and China in particular, surprised the world with their growth and progress becomes increasingly dependent on improving profitability. Without urbanisation aspirations. As is often the case, supply initially failed to keep up such an improvement, markets will be pushed into expensive territory and with this demand, resulting in a period of feverish investment and capital become a sell. Typically this stage is also characterised by more volatility and expenditure. Unfortunately these periods rarely end well and with the recent opportunities for stock pickers, as those companies which disappoint are reduction in emerging market growth, coinciding with now excessive levels of punished and those that exceed expectations are rewarded. investment and production, a period of retrenchment has been inevitable. At the company level, significant cuts in spending are now being made which The outlook for emerging markets is much more nuanced. Whilst remaining should support the cash positions of the major firms but one has to suspect believers in the long-term structural case for the ongoing development of the that the number of smaller miners will need to decline in the future. emerging economies, which should translate into strong equity market performance, we are sufficiently realistic to recognise that such processes are In many ways our current view feels fairly consensual, which makes us almost always interrupted by the occasional speed-bump. Undoubtedly we are slightly uncomfortable in light of our contrarian nature. Even so, this probably going through such a process at present and the challenge as always is to reflects the current mid-cycle positioning where it typically pays not to fight determine the length and scale of the bump! Our suspicion is that the process the consensus. It also has to be acknowledged that a market setback would will serve to bifurcate investor opinion between those structurally strong not come as a surprise following such a prolonged period of strong market emerging markets and those suffering from deficits, poor governance, political performance. We would view such an event as a buying opportunity. uncertainty, pursuing growth at the expense of returns and an over-reliance on commodity exports. Valuations have been falling to reflect these Hanseatic Asset Management LBG challenges but it must be recognised that whilst they look attractive versus March 2014 19 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 20 Ocean Wilsons Holdings Limited/Annual Report 2013 Directors and Advisers Directors J F Gouvêa Vieira* (Chairman) W H Salomon* (Deputy Chairman) K W Middleton C F A Cooper* C Maltby* A Rozental* C Townsend* *Non-executive Secretary Malcolm S Mitchell Registered Office PO Box HM 1022 Clarendon House Church Street Hamilton HM DX Bermuda Registrars Codan Services Limited Clarendon House Church Street Hamilton HM 11 Bermuda Profiles of Non-executive Directors Mr J F Gouvêa Vieira is Brazilian, aged 64 and joined the Group in 1991. He is UK Transfer Agent a partner of the Brazilian law firm of Gouvêa Vieira Advogados. He is Capita Asset Services chairman of Wilson Sons Limited, a member of the Board of Concremat The Registry Engenharia and a number of other Companies. 34 Beckenham Road Beckenham Mr W H Salomon is German and British, aged 56 and joined the Group in Kent BR3 4TU 1995. He is senior partner of Hansa Capital Partners LLP. He is also a non- executive director of Hansa Trust PLC, Wilson Sons Limited and chairman of Ocean Wilsons Dividend Address New India Trust. Ocean Wilsons Dividend Election Capita Asset Services Mr C F A Cooper is Bermudian, aged 71 and joined the Group in 1994. He The Registry was a partner of Conyers, Dill & Pearman. He is also a non-executive director 34 Beckenham Road of Polaris Holding Company Limited. Beckenham Kent BR3 4TU Mr C Maltby is aged 63, British and resident in Switzerland. He is chairman of BlackRock Absolute Return Strategies Limited and of HarbourVest Senior Loans Auditor Europe Limited, a Director of BACIT Limited and Abingworth BioEquities Fund KPMG LLP Limited, and a member of the Supervisory Board of Bilfinger Berger Global 15 Canada Square Infrastructure SICAV SA. London E14 5GL Mr A Rozental is Mexican, aged 68 and is the founding partner of Rozental & Bankers Asociados. He is a non-executive director of Wilson Sons Limited, chairman of Deutsche Bank International Limited the Board of Directors of ArcelorMittal Mexico and an independent Director of Jersey ArcelorMittal Brazil. He serves on the advisory boards of Kansas City Southern de México, EADS de México, Toyota de México and is a non-executive Board Investment Managers member of HSBC Bank of Mexico. Hanseatic Asset Management LBG Guernsey, Channel Islands Mr C Townsend is German and British and resident in Switzerland. He is aged 40 and is a solicitor and has an MBA from the London Business School. He is investment director of Hansa Capital GmbH. Bermuda Office PO Box HM 2250 Richmond House 12 Par-la-Ville Road Hamilton HM JX Bermuda Website: www.oceanwilsons.bm Brazilian Business Website www.wilsonsons.com.br 20 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 21 Report of the Directors Ocean Wilsons Holdings Limited/Annual Report 2013 The Directors submit herewith their Report and Accounts for the year ended Directors 31 December 2013. The present Members of the Board are as shown on page 20. The Group accounts, presented under International Financial Reporting In accordance with the Company’s bye-laws, Mr A Cooper and Mr K Middleton Standards (IFRS), comprise the Consolidated Statement of Comprehensive retire at the next annual general meeting and, being eligible, Mr K Middleton Income, Consolidated Balance Sheet, Consolidated Statement of Changes in offers himself for re-election. The Directors who held office at 31 December Equity, Consolidated Cash Flow Statement and the related notes 1-38. 2013 had the following interest in the Company shares: Profits and Dividends As permitted by Section 84(1A) of the Bermuda Companies Act 1981 the Group’s accounts have been drawn up in accordance with International C F A Cooper Interest Beneficial 2013 2012 46,450 46,450 J F Gouvêa Vieira Beneficial 146,600 146,600 Financial Reporting Standards. K W Middleton Beneficial 10,000 10,000 The Group’s profit after tax on ordinary activities attributable to equity shareholders amounted to US$37,873,000 (2012: US$41,264,000). The Directors are declaring the payment of a dividend for the year of 60.0c (2012: 42.0c) gross per share. The dividend will be paid on 6 June 2014 to all shareholders who are on the register at close of business on 9 May 2014. Principal Activities The Group’s principal activities during the year were the holding of investments and the provision of maritime and logistics services in Brazil. The investment strategy agreed with the Company’s investment managers is to maximise the total return on assets, by investing in a portfolio of diversified assets including global equities, fixed income and alternative assets with a particular emphasis on emerging markets. Investments are intended to add value over the medium to longer-term through a non-market correlated, conviction based investment style. Our subsidiary, Wilson Sons Limited, has provided maritime services in Brazil for over 175 years. The Group’s strategy is to provide maritime and logistics services to the domestic economy, international trade and the oil and gas market. Details of our activities are set out in the Investment Managers report and Financial review on pages 6 to 19. W H Salomon* Beneficial 4,659,349 4,659,349 C Townsend C Maltby Beneficial Beneficial 40,000 33,208 5,000 – *Additional indirect interests of W H Salomon in the Company are set out in substantial shareholdings below. Service Contracts Regarding the Directors proposed for re-election at the Annual General Meeting Mr K Middleton has terms of service, which can be terminated by the company on not less than twelve months’ notice in writing and by the Director on not less than six months’ notice in writing. Employees The average number of persons, including Directors, employed by the Group was 6,363 (2012: 6,762). Long-term incentive plan On 9 April 2007, the boards of Ocean Wilsons Holding Limited and Wilson Sons Limited approved a stock option plan that allows for the granting of phantom options to eligible employees selected by the Wilson Sons Limited Board. The options will provide 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 is a Brazilian Real denominated scheme. An accrual of US$10,898,000 (2012: US$12,328,000) has been included in the 2013 accounts for benefits accruing under the plan. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 21 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 22 Ocean Wilsons Holdings Limited/Annual Report 2013 Report of the Directors Auditor KPMG LLP were appointed auditor at the 2013 annual general meeting and • The Code states that the Board should appoint one independent director have expressed their willingness to continue in office as auditor and a to be the senior independent director. resolution to reappoint them under the provisions of Section 89 of the Bermuda Companies Act 1981 will be proposed at the forthcoming Annual Due to the small size of the Board and the fact that Ocean Wilsons General Meeting. Substantial Shareholdings Holdings Limited is a holding company, the Board does not consider it appropriate to appoint a senior independent non-executive director. If a shareholder feels it is inappropriate to relay views through the chairman As at 24 March 2014 the Company has been notified of the following or executive director, all non-executive directors are available. holdings of its shares, in excess of 3% of the issued ordinary share capital: Number of shares % held • The Code states the Company should have a Board nomination Name of holder Hansa Trust PLC 9,352,770 Codan Trust Company Limited and Helen Cooper 4,435,064 Peter A S Pearman and Codan Trust Company Limited 3,929,049 Utilico Emerging Markets Utilities Limited Montanaro Asset Management 2,365,838 1,399,599 26.4 12.5 11.1 6.7 3.9 The Company has been advised that Mr W H Salomon is interested in 4,435,064 shares registered in the name of Codan Trust Company Limited and Helen Cooper and Mrs C A Townsend is interested in 3,929,049 shares registered in the name of Peter A S Pearman and Codan Trust Company Limited. The Company has also been advised that Mr W H Salomon has an interest in 26.4% and Mrs C A Townsend an interest in 25.9% of the voting shares of Hansa Trust PLC. Mr C Townsend is the son of Mrs C A Townsend. Contracts and agreements with substantial shareholders No contracts existed at the end of the year in which a substantial shareholder of the Company is or was materially interested. Corporate Governance committee. The Board does not have a separate nomination committee as the identification and appointment of a new Board member is a matter for the full Board. The Board evaluates the balance of skills, experience, independence and knowledge on the board and, in the light of this evaluation, prepares a description of the role and capabilities required for a particular appointment. An independent external search consultant will conduct a search for appropriate candidates with the right blend of skills and experience which are then submitted to the Board for evaluation. • The Code states that non-executive directors who have served longer than nine years should be subject to annual re-election. Directors serving more than nine years are not subject to annual re-election as your Board considers continuity and knowledge of the Company’s investments and business acquired over time is of great value. • The Code requires the audit committee should review arrangements by which staff of the company may raise concerns about possible The Board has put in place corporate governance arrangements that it improprieties. believes are appropriate for the operation of your Company. The Board has considered the principles and recommendations of the 2010 and 2012 UK Corporate Governance Codes (“the Codes”) 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 Codes where it is beneficial for its business to do so, and has done so throughout the year and up to the date of this report, but as noted below, it does not fully comply with the Codes. The position is regularly reviewed and monitored by the Board. Ocean Wilsons Holdings Limited does not have a whistle blowing policy, as there is only one employee outside the Wilson Sons Limited Group. The Wilson Sons Limited Group whistle blowing policy and procedures enable employees who have concerns about the application of the Group’s Code of Ethics to raise them with the Ethics Committee. The Ethics Committee will maintain their anonymity and report back to the employee on actions taken. • The Code requires that there should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. Below are the areas where Ocean Wilsons Holdings Limited does not comply with the 2012 UK Corporate Governance Code and the rationale for not complying: As there is only one employee outside the Wilson Sons Limited Group the group does not have a formal procedure for developing policy on 22 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 23 Ocean Wilsons Holdings Limited/Annual Report 2013 executive remuneration and for fixing the remuneration packages of The Ocean Wilsons Holdings Limited Board has a formal schedule of matters individual directors. The Board of Wilson Sons Limited is responsible for specifically reserved for its attention. As previously stated, autonomy is given all remuneration matters relating to Wilson Sons Limited and its to the Wilson Sons Limited Board to supervise the Wilson Sons Limited subsidiaries. The Board business and decisions taken by the Wilson Sons Board do not require ratification by the Board of Ocean Wilsons Holdings Limited. The schedule of matters reserved for the Board of Ocean Wilsons Holdings Limited includes: The Board currently comprises the chairman, Mr J F Gouvêa Vieira, deputy chairman Mr W Salomon, a further four non-executive directors, Mr A Cooper, Mr A Rozental, Mr C Townsend and Mr C Maltby and one executive director, Mr K Middleton. Mr Rozental and Mr Maltby are considered by the Board to be independent under the Code. The directors’ biographies appear on page 20. All directors are subject to election by shareholders at the first AGM following their appointment to the Board and are subject to re-election by shareholders once every three years. Mr K Middleton is offering himself for re-election at the next AGM. The Board considers on a regular basis how to refresh itself. Non-executive directors hold letters of appointment. The other commitments of directors appear on page 20 as part of their biographies and the Board is satisfied that these commitments do not conflict with their ability to carry out effectively their duties as directors of the Company. The division of responsibilities between the chairman and the executive director have been clearly established, set out in writing and agreed by the Board. The Group does not have a chief executive. The Board has appointed an executive director, Mr K Middleton to administer the Holding Company. Our maritime services subsidiary, Wilson Sons Limited (an autonomous listed company) is supervised by the Board of Wilson Sons Limited who have appointed Mr C Baião as chief executive to run the business in Brazil. The chief executive in turn delegates responsibility to senior executives, in particular strategic business unit directors. Ocean Wilsons Holdings Limited manages its interest in Wilson Sons Limited through the appointment of three Ocean Wilsons Holdings Limited Directors as non-executive directors of Wilson Sons Limited, (presently Mr J F Gouvêa Vieira, Mr W Salomon and Mr A Rozental) voting on matters requiring Wilson Sons Limited shareholder approval and through the relationship agreement between Ocean Wilsons Holdings Limited and Wilson Sons Limited signed following the listing of Wilson Sons Limited on the Sao Paulo and Luxembourg Stock Exchanges. The relationship agreement details areas of co-operation between Ocean Wilsons Holdings Limited and Wilson Sons Limited in meeting accounting, reporting and compliance requirements for both companies. The Board delegates authority to manage the portfolio of investments to Hanseatic Asset Management LBG. • • • • • • • • • • • • • • • • • Determining the overall strategy of the Group Establishing the finance committee and their terms of reference Determining the responsibilities of the chairman and directors Approving changes to the capital structure of the Company or other matters relevant to its status as a listed Company Approving significant matters relating to capital expenditure, acquisitions and disposals and consideration of significant financial matters outside the Wilson Sons Limited Group Appointment of directors to Ocean Wilsons Holdings Limited and Ocean Wilsons Investments Limited Appointment and removal of the company secretary Appointment and removal of executives To decide on potential conflicts of interest Approval of annual and interim reports Approving any dividends and dividend policy Appointment of external auditor, financial advisor or corporate broker To vote the shares in Wilson Sons Limited on matters presented to shareholders for shareholder approval To approve changes in Wilson Sons Limited auditor or accounting policies Agree the strategy of Wilson Sons Limited Undertaking a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors Review of the Company’s overall corporate governance arrangements Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 23 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 24 Ocean Wilsons Holdings Limited/Annual Report 2013 Report of the Directors The Board of Ocean Wilsons Investments Limited is currently constituted by The non-executive directors also meet informally, without any executives the same directors as the Board of Ocean Wilsons Holdings Limited. The present, to discuss matters in respect of the business. Board delegates authority to run the investment portfolio held by Ocean Wilsons Investments Limited to the investment manager within certain All new directors receive an induction on joining the Company. This covers guidelines. The Board of Ocean Wilsons Investments Limited has a formal such matters as strategy, operation and activities of the Group and corporate schedule of matters specifically reserved for its attention which include: governance matters. Site visits and meetings with senior management are also Appointment, removal and terms of an investment manager are encouraged to visit other sites. Directors are also provided with industry arranged. The Board as a whole make periodic operational site visits. Directors Determine investment guidelines and restrictions in conjunction with the investment manager and regulatory updates. The Board has in place a procedure for the consideration and authorisation of conflicts or possible conflicts of interest with the Company’s interests annually. Review the performance of the investment manager If a director has a conflict of interest he leaves the meeting prior to discussion unless requested to remain and leaves determination of such matters to the Approval of the annual accounts for Ocean Wilsons Investments Limited other directors. Approving any dividends Board Evaluation • • • • • The Company has a procedure in place by which directors can seek and individual directors. The process involves completion of internally independent professional advice at the Company’s expense if the need arises. prepared questionnaires. The chairman discusses their responses with each The Board has full and timely access to all relevant information to enable it to director and then reports the results of the process to the Board which perform its duties. The Company has directors and officers insurance in place. discusses the results highlighting any areas for improvement. The Board undertakes an annual formal performance evaluation for the Board The executive director is responsible for advising the Board on all corporate matters. Each director has access to the advice and services of the company Board Diversity Policy secretary Mr M Mitchell and the executive director. The Board considers diversity, including the balance of skills, experience, During 2013, four scheduled meetings of the Ocean Wilsons Holdings Limited appointment of new Directors. The Board does not consider it appropriate to Board were held at different locations. Details of attendance at Board establish targets or quotas in respect of Board appointments. With respect to meetings and meetings of the Board committees are set out below. In addition gender diversity, the Board considers that a merit based approach is the only to scheduled Board meetings if matters arise at short notice requiring urgent appropriate approach for determining the composition of the Board and as attention a telephone Board meeting is arranged. During 2013 two telephone such has not set specific targets for gender diversity. knowledge and nationality, amongst many other factors, when reviewing the Board meetings were held. Remuneration Directors’ attendance at Board and Finance Committee meetings: Non-executive Directors’ fees are set out within limits set in the Company’s Articles of Association. The present limit is US$600,000 in aggregate per Finance Committee annum and the approval of shareholders in a General Meeting is required to Board Meetings attended Meetings attended change this amount. We are proposing to increase this amount at the next annual general meeting to US$700,000 to allow the appointment of further 6 6 6 6 6 5 6 3 3 3 – 3 3 3 Directors if necessary. The Board of Wilson Sons Limited is responsible for all remuneration matters relating to Wilson Sons Limited and its subsidiaries. Mr J F Gouvêa Vieira, Mr W Salomon and Mr A Rozental receive directors fees from Wilson Sons Limited in addition to their fees as directors of Ocean Wilsons Holdings Limited. Board Committees The Board has established a finance committee which has formal terms of reference approved by the Board and are reviewed on an ongoing basis by the Board. The committee’s terms of reference are available at the Company’s registered office. Mr C Maltby an independent director is chairman of the committee. The Board will review Board composition on an ongoing basis (including as part of the formal Board evaluation process) and regularly consider whether Director Mr J F Gouvêa Vieira Mr W Salomon Mr A Cooper Mr K Middleton Mr A Rozental Mr C Townsend Mr C Maltby The formal agenda for each scheduled Board meeting is set by the chairman in consultation with the executive director. The Board of Ocean Wilsons Holdings Limited is invited to attend Wilson Sons Limited Board meetings where appropriate to receive operational updates, including one meeting a year in Brazil where the Board of Ocean Wilsons Holdings Limited is invited to attend the Wilson Sons Limited Board meeting to meet business unit directors and receive detailed management reports on the Brazilian business. 24 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 25 Ocean Wilsons Holdings Limited/Annual Report 2013 any skill gap exists. The Board will evaluate the balance of skills, experience, • to make recommendations to the Board, for it to put to the shareholders independence and knowledge on the Board. for their approval in general meeting, in relation to the appointment, reappointment and removal of the external auditor and to approve the If the Board considers that a skill gap exists in either the Board or its remuneration and terms of engagement of the external auditor; committees a description of the role and capabilities required for a particular appointment will be prepared and passed to an independent external search • to review and monitor the external auditor’s independence and consultant. The external search consultant will conduct a search for objectivity and the effectiveness of the audit process, taking into appropriate candidates with the right blend of skills and experience which are consideration relevant professional and regulatory requirements; then submitted to the Board for evaluation. Any director may suggest a person to be appointed a non-executive director the subsidiary companies, regarding any matters arising in the course of of the Company. The procedure to be followed is: the annual audit which should be brought to the attention of the Board; • to consult with the Group’s auditor and, where necessary the auditor of (a) The C.V. and qualifications of the candidate for the position will be submitted to the chairman who will discuss the proposal with at least two other directors. (b) The candidate will be interviewed by the chairman, sponsor and at least one other director. (c) If thought fit, a resolution will be submitted to the Board for the appointment of the candidate. Finance Committee report • • • • to monitor the Group’s risk exposure; to consider the need for an internal audit function; to determine the remuneration for all executives, the chairman and non-executive directors; to determine the level of awards made under the Company long-term incentive plan and performance conditions and vesting periods that apply; and The finance committee comprises all non-executive directors, two of whom • to determine bonuses payable under the Company Bonus scheme. are considered by the Board to be independent during 2013. The Board is satisfied that during 2013 three directors, Mr C Maltby, Mr W Salomon and Overview of the actions taken by the Finance Committee to discharge its Mr A Rozental, have recent and relevant financial experience as all have duties served on the audit committees of other listed companies. Mr Salomon Since the beginning of 2013 the Finance committee has: also has considerable experience in finance and investment banking and Mr C Maltby holds an accounting qualification. • reviewed the December 2012 report and financial statements, the June 2013 half yearly financial report and the interim management statements The finance committee met three times in 2013. At the request of the finance issued in May and November. As part of the review of the December committee the chief executive of Wilson Sons Limited, the finance director of 2012 report, the Committee received a report from the external auditor Wilson Sons Limited and the executive director of Ocean Wilsons Holdings on their audit of the annual report and financial statements; Limited attended each of these meetings. The external auditor attended one meeting. • reviewed the adoption of new standards and changes in accounting policy in the period. In the current year the Group adopted the revised The finance committee meets with the external auditor without the executive IFRS 10 “Consolidated Financial Statements” and IFRS 11 “Joint present. Arrangements”. As a result, the Group has evaluated its consolidation conclusions in respect of its joint arrangements, which resulted in The finance committee is chaired by Mr C Maltby, an independent director. changes to the way joint arrangements are accounted for. The principal The committee has defined terms of reference. The principal responsibilities of change under the new standards is that the Group’s offshore joint the committee are: ventures which were previously proportionally consolidated on a line-by-line basis are now accounted for using the equity method; • to review the integrity of the interim and full year financial statements of the company, reviewing significant financial reporting judgements • approved a change in the accounting policy of foreign exchange gains contained in them; and losses arising from the Group’s foreign currency monetary items. These were previously allocated to revenues, costs, and financial results • to review the Company’s internal control and risk management systems; in the income statement. To improve transparency and readability of the financial statements the Group now report them in one line in the income statement, “Foreign exchange gain/(loss) on monetary items”; Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 25 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 26 Ocean Wilsons Holdings Limited/Annual Report 2013 Report of the Directors • reviewed and agreed the accounting treatment adopted for the Briclog each case. The committee questioned management on their assumptions acquisition under IFRS 3 “Business Combinations” as detailed in note 2 used in determining provisions and the procedure for classification of legal and note 29 to the consolidated financial statements; liabilities as probable, possible or remote loss by the external lawyers. The committee reviewed quarterly legal reports from management on • reviewed the effectiveness of the Group’s internal controls and disclosures contingencies and asked questions on the background and progress of made in the annual report and financial statements on this matter. As material claims. The committee evaluated the current level of provisions in part of this review, the Committee considered a report on internal controls light of historical trends and claim history to ensure provisions were and the Group’s risk register and suggested amendments; adequate. The committee further ensured that adequate resources are allocated to recording, evaluating and monitoring legal claims to ensure the • • • • reviewed and approved the scope of audit work to be undertaken by the completeness of claims recorded and provisions made. auditor; agreed the fees to be paid to the external auditor for the audit of the Equipment – The Group has significant Goodwill, Intangibles and December 2013 financial statements including consideration of the levels Property, Plant and Equipment balances. The reporting risk is that these of non-audit fees which the committee concluded were immaterial; balances may be overstated. Management perform impairment reviews for Intangibles and Property, Plant and Equipment and tests goodwill as assessed the qualification, expertise and resources, and independence of required by IAS 36, Impairment of Assets. The impairment test is • Impairment Risk to Goodwill, Intangibles and Property, Plant and the external auditor; and performed by comparing the carrying value of goodwill to its value in use, calculated using the discounted cash flow forecasts under the reviewed the need for an internal audit function. principles of IAS 36. The Committee examined and challenged management’s key assumptions used in the impairment tests to To fulfil its responsibility regarding the independence of the external auditor, understand their impact on the recoverable amounts. The Committee was the finance committee reviewed: satisfied that the significant assumptions used were appropriate and sufficiently robust. The Committee was further satisfied with the • the external auditor plan for the current year, noting the role of the audit impairment disclosures in the financial statements. partner, who signs the audit report and who, in accordance with professional rules, has not held office for more than five years and any • Briclog Acquisition – The Group made a substantial acquisition in the changes in key audit staff; reporting period (Briclog). The reporting risk is that not all assets and liabilities acquired are identified and recognised. Management reported to • • a report from the external auditor describing their arrangements to the Committee on the procedures undertaken to determine all assets and identify, report and manage any conflicts of interest; and liabilities acquired are identified and recognised including fair valuing the operating lease contract acquired. As part of this process, management the overall extent of non-audit services provided by the external auditor, contracted an independent external specialist to determine the fair value in addition to approving the provision of significant non-audit services by of assets and liabilities. The committee reviewed the procedures used, the external auditor. questioned management on their assumptions in determining fair value and considered the expertise of the external specialist. The committee In addition the Group does not currently employ any former external audit was satisfied as to the completeness and measurement used in staff. KPMG LLP have been the Group’s auditor since 31 December 2012 determining fair value and was further satisfied with the accounting following a competitive tender. treatment used and disclosures made. After discussion with both management, the Board of Wilson Sons Limited and • Revenue recognition – The revenue recognition risk could arise from the external auditor, the committee determined that the key risks of inappropriate revenue recognition policies, incorrect application of misstatement of the Group’s financial statements relate to: policies or cut-off errors surrounding year-end. The committee considered • Provisions – Legal claims against the Brazilian operations comprise civil and compared to previous periods. The committee reviewed external auditor environmental cases, tax cases and labour claims. The reporting risk relates reports on revenue recognition and discussed their findings and the to the completeness of claims recorded and the estimation of the provisions potential risks with the external auditor and management. the Groups’ revenue recognition policies and the level of transactions held against these exposures. There remains a significant number of contingent liabilities, particularly concerning labour and taxation claims. Internal Controls Provisions are based on prior experience, management’s best knowledge of The Board is responsible for the system of internal control and reviewing its the relevant facts and circumstances and expert legal advice relative to effectiveness. The internal controls are designed to cover material risks to 26 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 27 Ocean Wilsons Holdings Limited/Annual Report 2013 achieving the Group’s objectives and include business, operational, financial Going Concern and compliance risks. These controls have been in place throughout the The Group closely monitors and manages its liquidity risk. The Group has year. The internal controls are designed to identify, evaluate and manage considerable financial resources including US$106.5 million in cash and cash rather than eliminate risk of failure to meet business objectives. The internal equivalents and the Group’s borrowings have a long maturity profile. The control process distinguishes between the parent group and the principal Group’s business activities together with the factors likely to affect its future operating subsidiary, Wilson Sons Limited, which is managed by an development and performance are set out in the chairman’s statement, autonomous Board. operating review and investment managers report on pages 1 to 19. The financial position, cash flows and borrowings of the Group are set out in the Wilson Sons Limited is listed on both the Sao Paulo Stock Exchange Financial review in pages 6 to 10. In addition note 37 to the financial “BOVESPA” and Luxembourg Stock Exchange, whose rules are different from statements include details of its financial instruments and hedging activities the London Stock Exchange. The company’s internal control procedures, whilst and its exposure to credit risk and liquidity risk. Details of the Group’s sufficient for the Board of Wilson Sons Limited to identify, manage and control borrowings are set out in note 22. Based on the Group’s forecasts and the principal risks, may differ from the requirements of the Turnbull sensitivities run, the directors have a reasonable expectation that the Committee. The Board of the principal operating subsidiary is responsible for Company and the Group have adequate resources to continue in operational identifying key business risks and establishing and reviewing internal control existence for the foreseeable future. For this reason, they continue to adopt procedures. the going concern basis in preparing the accounts. The Board reviews the need for an internal audit department annually and Directors’ responsibilities considers that the parent group is not sufficiently large to justify an internal The Directors are responsible for preparing the annual report in accordance audit function. Wilson Sons Limited operates an internal audit function and with applicable laws and regulations. the Wilson Sons Limited Board monitors their internal financial control systems through reports received from the internal audit function. The Directors are required by Bermuda company law to lay financial statements before the Company in a general meeting. In doing this the In reviewing Wilson Sons Limited, the Board receives reports from the Wilson Directors prepare accounts on a going concern basis for each financial year Sons Limited internal audit department, legal department and the Wilson Sons which give a true and fair view of the state of affairs of the Company and the Limited external auditor. Group and of the profit or loss of the Group for that period. In preparing those accounts, the Directors have considered whether: The parent group (including Ocean Wilsons Investments Limited) has an ongoing process for identifying, evaluating and managing key risks including financial, operational and compliance controls. A risk register is maintained detailing business risks, together with controls and responsibilities. The risk register is regularly reviewed by the finance committee. • • • suitable accounting policies have been adopted and applied consistently; judgements and estimates are reasonable and prudent; and applicable accounting standards have been followed, subject to any The systems operated both by the parent group and principal operating material departures disclosed and explained in the accounts. subsidiary are reviewed annually. The Board is satisfied that these systems are operating effectively. The Board consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Relations with Shareholders shareholders to assess the company’s performance, business model and Communications with shareholders are important to the Board. Ocean Wilsons strategy. Holdings Limited sends both its annual report and accounts and half year accounts to all shareholders. To ensure Board members develop an understanding of the views of major shareholders there is regular dialogue By Order of the Board with major institutional shareholders. The chairman and executive director usually attend a number of these meetings. A report of meetings with shareholders is distributed to all directors. All broker reports are distributed to Malcolm Mitchell all Board members. The Annual General Meeting of the Company will be held Secretary in Bermuda. The Company website oceanwilsons.bm contains copies of the 28 March 2014 annual and interim report and stock exchange announcements. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 27 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 28 Ocean Wilsons Holdings Limited/Annual Report 2013 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only Opinions and conclusions arising from our audit intended. We also considered the accuracy and adequacy of disclosures 1. Our opinion on the financial statements is unmodified made to allow users to evaluate the financial effects of adjustments We have audited the Group financial statements (“the financial statements”) of recognised. Ocean Wilsons Holdings Limited (“the Group”) for the year ended 31 December 2013 which comprise the Consolidated Statement of Comprehensive Income, Shipbuilding revenue recognition in Maritime Services segment the Consolidated Balance Sheet, the Consolidated Statement of Changes in (US$100.3m) Equity, the Consolidated Cash Flow Statement and the related notes. Refer to page 26 (Finance Committee Report), page 40 (accounting policy) and page 46 (financial disclosures). In our opinion the financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2013 and of its profit for the year • The risk – The Group recognises shipbuilding revenue based on the then ended in accordance with International Financial Reporting Standards as stage of completion of contracts, which is assessed by reference to the issued by the International Accounting Standards Board. proportion of contract costs incurred for the work performed to the balance sheet date relative to the estimated total contract costs to 2. Our assessment of risks of material misstatement completion. The recognition of revenue therefore relies on estimates in In arriving at our audit opinion above on the financial statements the risks relation to the final out-turn of costs on each contract. Changes to these of material misstatement that had the greatest effect on our audit were as estimates could give rise to material variances in the amount of revenue follows: recognised. Cost contingencies may also be included in these estimates to take account of specific uncertain risks, or disputed claims against the Business combinations – acquisition of Brazilian Intermodal Complex Group, arising within each contract. These contingencies are reviewed by (“Briclog”) (US$40.2m) the Group on a regular basis throughout the contract life and adjusted Refer to page 26 (Finance Committee Report), page 38 (accounting policy) and where appropriate. There is therefore a high degree of management pages 68 and 69 (financial disclosures). judgement in estimating the amount of revenue to be recognised by the Group with respect to the final out-turn on contracts, and assessing the • The risk – On 1 July 2013, the Group completed the acquisition of Briclog level of the contingencies that are appropriate in estimating the total cost. for a total consideration of US$40.2m. Accounting for this significant acquisition required the identification of all assets and liabilities that • Our response – In this area our audit procedures included, among others, existed in the acquired business and to measure them at fair value. using both quantitative and qualitative factors to select a sample of This involved significant judgement around the assumptions applied to contracts and then to assess and challenge the most significant and forecasting and discounting future cash flows, particularly in reference complex contract estimates. We obtained the detailed project to valuing the lease concession intangible asset. Due to the inherent management review papers from the Group to support the estimates uncertainty involved in these future cash flows, which form an integral made and challenged the judgements underlying those papers with part of the fair value model, this is one of the key judgemental areas senior operational, commercial and financial management. Our audit that our audit concentrated on. procedures on this sample included, among others: • Our response – In this area, our audit procedures included, among others, – evaluating the financial performance of contracts against budget and challenging the Directors on their assumptions and judgements used historical trends; in compiling the fair value model for the lease concession intangible asset. We assessed the completeness and measurement of the fair – site visits, physically inspecting the stage of completion of individual value adjustments made by the Directors against our own expectations. projects and identifying areas of complexity through observation and This was compared against our knowledge and experience of the industry discussion with site personnel; and understanding of Briclog’s particular circumstances. The Group employed an external expert in order to assist them with calculating – challenging the Group’s judgement in respect of forecast contract the fair value adjustments associated with the acquisition of Briclog. out-turn and the recoverability of contract balances via agreement to We used our own corporate finance valuation specialists to assist us in third party certifications and confirmations and with reference to our evaluating the assumptions and judgements used by the Group and own assessments, historical outcomes and industry norms; the expert employed by them, in particular, the projected economic growth, inflation, exchange rates and discount rates. We compared the – inspecting the selected contracts for key clauses, identifying relevant Group's assumptions to externally derived data, industry norms and our contractual mechanisms such as liquidated damages and success fees expectations based on our knowledge of the client and experience of and assessing whether these key clauses have been appropriately the industry in which it operates. In addition to testing the sensitivity reflected in the amounts recognised in the financial statements; and of the values produced by the model to changes in certain inputs and assumptions, in order to derive comfort over the principles underpinning – considering the adequacy of the Group’s disclosures in respect of the model, we performed procedures over the integrity of the design contract accounting and the key risks relating to these amounts. and build of the model, including verifying that formulae operated as 28 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 29 Ocean Wilsons Holdings Limited/Annual Report 2013 Goodwill and intangible assets relating to acquisitions (US$37.6m and best estimate of provisions to be made in the financial statements. This is US$30.7m respectively) one of the key areas that our audit concentrated on as a result of the Refer to page 26 (Finance Committee Report), pages 38 and 39 (accounting impact that a material claim could have on the Group’s financial position policy) and pages 51 and 52 (financial disclosures). and result for the year. • The risk – The Group’s investment in Tecon Rio Grande, Tecon Salvador • Our response – Our audit procedures included, among others, obtaining and Briclog all gave rise to goodwill and intangible assets on acquisition. an understanding from the Directors and in-house legal counsel of the These are all held in Wilson Sons Limited. The recoverable amount of basis for their best estimates, challenging the basis used with reference the Group’s goodwill and intangible assets relating to the acquisitions is to the latest available corroborative information and an assessment of assessed at a cash generating unit (“CGU “) level annually or when there correspondence with the Group's external counsel on all significant legal is an indication of impairment through production of a discounted future cases and discussions with them when further clarity was deemed cash flow model. Due to the inherent uncertainty involved in forecasting necessary. In addition, we obtained formal confirmations from the and discounting future cash flows, which are the basis of the assessment Group's external counsel for all significant litigation. With regard to open of recoverability, this is one of the key judgemental areas that our audit tax cases, in addition to the above we used our own tax specialists to is concentrated on. There is also a risk of irrecoverability of the Group's assess the Group's tax positions and its correspondence with the relevant significant goodwill and intangible balances due to possible weakening tax authorities. We analysed and challenged the assumptions used to demand or the variability of the cost base in this industry. determine tax provisions based on our knowledge and experiences of the application of the international and local legislation by the relevant • Our response – In this area our audit procedures included, among others, authorities and courts. testing the Group’s forecasting process by considering the historical accuracy of previous forecasts. We compared actual results in the current We also assessed whether the Group's disclosures detailing significant legal year to forecasts prepared in previous periods. We compared the Group's proceedings adequately disclose the contingent liabilities of the Group. assumptions to externally derived data which included contract renewal dates, profitability, and probability of contracts being won, renewed or 3. Our application of materiality and an overview of the scope of our audit lost. These inputs were agreed to underlying contracts and financial The materiality for the Group financial statements as a whole was set at analysis provided by management by the audit team. US$7m. This has been calculated with reference to a benchmark of Group profit before taxation (of which it represents 7%), which we consider to be We used our own corporate finance valuation specialists to assist us in one of the principal considerations for members of the company in assessing evaluating the Directors’ assumptions and judgements relating to projected the financial performance of the Group. economic growth, inflation, exchange rates and discount rates used to derive fair values. We compared the Group's assumptions to externally derived data, We agreed with the finance committee to report to it all corrected and industry norms and our expectations based on our knowledge of the client uncorrected misstatements we identified through our audit with a value in and experience of the industry in which it operates. excess of US$325,000, in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds. We considered the adequacy of the Group’s disclosures in respect of impairment testing and whether disclosures about the sensitivity of the Audits for Group reporting purposes were performed by component auditors outcome of the impairment assessment to changes in key assumptions at the key reporting component in Brazil and by the Group audit team in the properly reflected the risks inherent in the key assumptions and the UK, Brazil and the Channel Islands. These Group procedures covered 79% requirements of accounting standards. of total Group revenue; 83% of Group profit before taxation; and 90% of total Group assets. The segment disclosures in Note 4 set out the individual Provisions (US$10.3m) significance of a specific segment and country. Refer to page 26 (Finance Committee Report), page 40 (accounting policy) and pages 66 and 67 (financial disclosures). The audits undertaken for Group reporting purposes at the key reporting components of the company were all performed to materiality levels set by, • The risk – Provisions are measured at the Directors’ best estimate of or agreed with, the Group audit team. These materiality levels were set the Group’s liability to settle an obligation arising from a past event. individually for each component and ranged from US$1.4m to US$6.6m. In the normal course of business in Brazil, legal claims against the Group may arise from general civil proceedings, labour claims, changing tax Detailed audit instructions were sent to the component audit team in Brazil. legislation and environmental issues. The amounts involved are These instructions covered the significant audit areas that should be covered potentially significant and the application of accounting standards to by this audit (which included the relevant risks of material misstatement determine the amount, if any, to be provided as a liability, is inherently detailed above) and set out the information required to be reported back to subjective. In making these decisions, the Directors use their judgement the Group audit team. The Group audit team visited Brazil in the year and and where appropriate receive external advice, in order to make their telephone meetings were also held with the auditors in this location. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 29 17319 Ocean Wilsons R&A 2013 pp1-30_17319 Ocean Wilsons R&A 2013 pp1-30 16/04/2014 10:42 Page 30 Ocean Wilsons Holdings Limited/Annual Report 2013 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only 4. We have nothing to report in respect of the matters on which we are Scope of an audit of financial statements performed in accordance with required to report by exception ISAs (UK and Ireland) Under ISAs (UK and Ireland) we are required to report to you if, based on the A description of the scope of an audit of financial statements is provided on knowledge we acquired during our audit, we have identified other information our website at www.kpmg.com/uk/auditscopeother2013. This report is made in the annual report that contains a material inconsistency with either that subject to important explanations regarding our responsibilities, as published knowledge or the financial statements, a material misstatement of fact, or that on that website, which are incorporated into this report as if set out in full and is otherwise misleading. should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions. In particular, we are required to report to you if: • we have identified material inconsistencies between the knowledge we than the Company’s members as a body acquired during our audit and the directors’ statement that they consider This report is made solely to the Company’s members, as a body, in that the annual report and financial statements taken as a whole is fair, accordance with section 90 of the Bermudan Companies Act 1981. Our audit balanced and understandable and provides the information necessary for work has been undertaken so that we might state to the Company’s members shareholders to assess the Group’s performance, business model and those matters we are required to state to them in an auditor’s report and for The purpose of this report and restrictions on its use by persons other strategy; or no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s • the finance committee report does not appropriately address matters members as a body, for our audit work, for this report, or for the opinions we communicated by us to the finance committee. have formed. Under the Listing Rules we are required to review: • the directors’ statement, set out on page 27, in relation to going concern; John Luke and for and on behalf of KPMG LLP Chartered Accountants • the part of the Corporate Governance Statement on pages 22 to 27 15 Canada Square, London E14 5GL relating to the company’s compliance with the nine provisions of the UK 28 March 2014 Corporate Governance Code specified for our review. We have nothing to report in respect of the above responsibilities. Respective responsibilities of Directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page •, the Directors are responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and international Standards of Auditing (UK and Ireland). Those standards require us to comply with the UK Ethical Standards for Auditors. 30 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 31 Consolidated Statement of Comprehensive Income for the year ended 31 December 2013 Revenue Raw materials and consumables used Employee benefits expense Depreciation & amortisation expense Other operating expenses Profit/(loss) on disposal of property, plant and equipment Operating profit Share of results of joint venture Investment revenue Other gains and losses Finance costs Foreign exchange losses on monetary items Profit before tax Income tax expense Profit for the year Other comprehensive income: Items that maybe reclassified subsequently to profit and loss Employee benefits Items that maybe reclassified subsequently to profit and loss Effective portion of changes in fair value of derivatives Exchange differences arising on translation of foreign operations Other comprehensive loss for the year Total comprehensive income for the year Profit for the period attributable to: Equity holders of parent Non-controlling interests Total comprehensive income for the period attributable to: Equity holders of parent Non-controlling interests Earnings per share Basic and diluted Ocean Wilsons Holdings Limited/Annual Report 2013 Year to 31 December 2012 (restated – see note 2) US$’000 610,354 (72,207) Year to 31 December 2013 US$’000 660,106 (94,330) (209,459) (223,031) (58,674) (188,569) 9,966 119,040 2,392 17,838 13,684 (21,863) (30,589) 100,502 (42,216) 58,286 (2,251) (1,269) (4,088) (7,608) 50,678 37,873 20,413 58,286 34,580 18,349 52,929 (55,897) (173,951) (534) 84,734 689 18,255 16,394 (9,948) (11,572) 98,552 (33,671) 64,881 – – (7,211) (7,211) 57,670 41,264 23,617 64,881 37,269 20,401 57,670 Notes 3 6 5 7 8 9 10 5 12 107.1c 116.7c Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 31 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 32 Ocean Wilsons Holdings Limited/Annual Report 2013 Consolidated Balance Sheet as at 31 December 2013 Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Trade and other receivables Investment in joint venture Other non-current assets Current assets Inventories Trading investments Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Derivatives Current tax liabilities Obligations under finance leases Bank overdrafts and loans Net current assets Non-current liabilities Trade and other payables Bank loans Derivatives Employee Benefits Deferred tax liabilities Provisions Obligations under finance leases Total liabilities Net assets Capital and reserves Share capital Retained earnings Capital reserves Translation and hedging reserve Equity attributable to equity holders of the parent Non-controlling interests Total equity Notes 13 14 15 24 21 17 27 19 18 21 As at 31 December 2012 (restated – see note 2) US$’000 15,612 29,345 As at 1 January 2012 (restated – see note 2) US$’000 15,612 28,463 594,877 538,682 29,647 16,923 27 9,210 29,507 27,965 7,661 8,429 As at 31 December 2013 US$’000 37,622 46,650 616,924 30,099 23,998 2,577 10,209 768,079 695,641 656,319 29,090 277,969 150,819 106,512 564,390 37,453 241,582 199,486 136,680 615,201 25,371 251,297 160,553 113,643 550,864 1,332,469 1,310,842 1,207,183 26 (135,920) (173,219) (125,454) 25 22 26 22 24 27 25 28 (110) (210) (1,547) (37,997) (175,784) 388,606 – (3,234) (1,234) (35,497) (213,184) 402,017 – (3,545) (3,804) (25,185) (157,988) 392,876 – (1,134) (2,471) (334,394) (324,138) (304,586) (1,130) (2,251) (33,761) (10,262) (4,812) – – (15,043) (10,966) (2,809) – – (17,260) (13,378) (3,293) (386,610) (354,090) (340,988) (562,394) (567,274) (498,976) 770,075 743,568 708,207 11,390 505,922 31,760 3,128 552,200 217,875 770,075 11,390 482,799 31,760 5,966 531,915 211,653 743,568 11,390 453,205 31,760 9,831 506,186 202,021 708,207 The accounts on pages 31 to 87 were approved by the Board on 28 March 2014. The accompanying notes are part of this Consolidated Balance Sheet. J. F. Gouvêa Vieira Chairman 32 K. W. Middleton Director Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 33 Ocean Wilsons Holdings Limited/Annual Report 2013 Consolidated Statement of Changes in Equity as at 31 December 2013 For the year ended 31 December 2012 Attributable Hedging and to equity Non Share capital US$’000 Retained earnings US$’000 Capital Translation holders of controlling reserves US$’000 reserve the parent US$’000 US$’000 interests US$’000 Total equity US$’000 As previously reported balance at 1 January 2012 11,390 453,205 31,760 9,831 506,186 200,570 706,756 Impact of new standards Restated balance at 1 January 2012 Currency translation adjustment Profit for the year Total income and expense for the period Dividends Derivatives – – – – – 1,451 1,451 11,390 453,205 31,760 9,831 506,186 202,021 708,207 – – – – – – 41,264 41,264 (11,670) – – – – – – (3,995) (3,995) (3,216) (7,211) – 41,264 (3,995) 37,269 23,617 20,401 64,881 57,670 – 130 (11,670) (10,862) (22,532) 130 93 223 Balance at 31 December 2012 11,390 482,799 31,760 5,966 531,915 211,653 743,568 For the year ended 31 December 2013 Balance at 1 January 2013 Currency translation adjustment Employee benefits (note 38) Effective portion of changes in fair value of derivatives Profit for the year Total income and expense for the period Dividends Derivatives 11,390 482,799 31,760 5,966 531,915 211,653 743,568 – – – – – – – – (1,312) – 37,873 36,561 (13,438) – – – – – – – – (2,024) (2,024) (2,064) (4,088) – (684) (1,312) (684) (939) (585) (2,251) (1,269) – 37,873 20,413 58,286 (2,708) 33,853 16,825 50,678 – (13,438) (10,510) (23,948) (130) (130) (93) (223) Balance at 31 December 2013 11,390 505,922 31,760 3,128 552,200 217,875 770,075 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. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 33 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 34 Ocean Wilsons Holdings Limited/Annual Report 2013 Consolidated Cash Flow Statement for the year ended 31 December 2013 Net cash inflow from operating activities Investing activities Acquisition of Briclog less net of cash acquired Interest received Dividends received from trading investments Proceeds on disposal of trading investments Proceeds on disposal of property, plant and equipment Purchase of property, plant and equipment Purchase of intangible asset Purchase of trading investments Additional investment in joint venture Net cash used in investing activities Financing activities Dividends paid Dividends paid to non-controlling interests in subsidiary Repayments of borrowings Repayments of obligations under finance leases New bank loans raised Decrease in bank overdrafts Derivative paid Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes Cash and cash equivalents at end of year Notes 30 11 Year to 31 December 2012 (restated – see note 2 US$’000 110,091 – 9,564 2,854 134,624 1,659 Year to 31 December 2013 US$’000 108,416 (10,153) 9,938 4,664 53,701 17,912 (106,148) (103,155) (2,960) (75,874) (4,000) (7,209) (108,515) – (112,920) (70,178) (13,438) (10,511) (36,772) (1,540) 50,752 – (39) (11,548) (11,670) (10,862) (30,037) (3,331) 48,925 (132) – (7,107) (16,052) 32,806 136,680 113,643 (14,116) (9,769) 106,512 136,680 34 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 35 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts for the year ended 31 December 2013 1 General Information Ocean Wilsons Holdings Limited is a company incorporated in Bermuda under the Companies Act 1981 and the Ocean Wilsons Holdings Limited Act, 1991. The address of the registered office is given on page 20. The nature of the Group’s operations and its principal activities are set out in the operating and financial review on pages 6 to 19. These financial statements are presented in US Dollars because that is the currency of the primary economic environment in which the Group operates. Entities with a functional currency other than US Dollars are included in accordance with the policies set out in note 2. 2 Significant accounting policies and critical accounting judgements Basis of accounting The financial statements have been prepared in accordance with IFRSs adopted for use by the International Accounting Standards Board (“IASB”). The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments and share-based payments liability that are measured at fair values. The principal accounting policies adopted are set out below. 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. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. The Group controls and entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interest’s share of changes in equity since the date of the combination. Where a change in percentage of interests in a controlled entity does not result in a change of control, the difference between the consideration paid for the additional interest and the book value of the net assets in the subsidiary at the time of the transaction is taken direct to equity. Foreign currency The functional currency for each Group entity is determined as the currency of the primary economic environment in which it operates (its functional currency). Transactions other than those in the functional currency of the entity are translated at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the statement of comprehensive income for the period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. On consolidation, the statement of comprehensive income items of entities with a functional currency other than US Dollars are translated into US Dollars, the Group’s presentational currency, at average rates of exchange. Balance sheet items are translated into US Dollars at year end exchange rates. Exchange differences arising on consolidation of entities with functional currencies other than US Dollars are classified as equity and are recognised in the Group’s translation reserve. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 36 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) Investments in entities accounted for using the equity method The Group’s investments in entities accounted for using the equity method include its interests in associates and jointly controlled (joint ventures) ventures. Associates are those entities in which the Group, directly or indirectly, has significant influence but not control or joint control, over the financial and operating policies. A jointly controlled entity is in a contractual agreement whereby the Group has joint control, where the Group is entitled to the net assets of the contractual agreement, and not entitled to specific assets and liabilities arising from the agreement. Investments in associates and jointly controlled entities are accounted for using the equity method. Such investments are initially recognised at cost, which includes expenses for the transaction. After initial recognition, the financial statements include the Group’s share in the profit or loss for the year and other comprehensive income of the investee until the date that significant influence or joint control ceases. Investments in associates An associate is an entity over which the Group is in a position to exert significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under this method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are not recognised. Where a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. Investments in joint ventures Interests in joint ventures Joint venture is a contractual agreement where the Group has rights to the net assets of the contractual arrangement and is not entitled to specific assets and liabilities arising from the agreement. Investments in joint venture entities are accounted for using the equity method. After initial recognition, the financial statements include the Group’s share in the profit or loss for the year and other comprehensive income of the investee until the date that significant influence or joint control ceases. Interests in joint operations Joint operation is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control which is when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. The joint operations assets and any liabilities incurred jointly with other ventures are recognised in the financial statements of the relevant entity and classified according to their nature. The Group’s share of the assets, liabilities, income and expenses of joint operation entities are combined with the equivalent items in the consolidated financial statements on a line-by-line basis. The consolidated financial statements include the accounts of joint ventures and joint operations which are listed in Note 17. Employee Benefits Short-term employee benefits Obligations of short-term employee benefits are recognised as personnel expenses as the corresponding service is provided. The liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. 36 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 37 Ocean Wilsons Holdings Limited/Annual Report 2013 2 Significant accounting policies and critical accounting judgements (continued) Employee Benefits (continued) Share-Based payment transactions The fair value at grant date of share-based payments granted to employees is recognised as a personnel expense with a corresponding increase in equity over the period that the employees unconditionally become entitled to the equity instruments. For the award of share-based payments that do not contain vesting conditions (non-vesting conditions), the fair value at grant date of share-based payment is measured to reflect such conditions and are not made further adjustments for differences between the expected and actual results. The fair value of the amount payable to employees regarding the rights on the valuation of the shares, which are settled in cash, is recognised as an expense with a corresponding increase in liabilities during the period that the employees unconditionally entitled to payment. The liability is remeasured at each balance sheet date and at settlement date based on the fair value of the rights on valuation. Any changes in the fair value of the liability are recognised in income as personnel expenses. Other long-term employee benefits The Group’s net obligation in respect of other long-term employee benefits is the amount of future benefit that employees receive in return for the service rendered in the current year and previous years. That benefit is discounted to determine its present value. Remeasurements are recognised in the income statement. Benefits of termination of employment relationship The benefits of termination of employment relationship are recognised as an expense when the Group can no longer withdraw the offer of such benefits and when the Group recognizes the costs of restructuring. If payments are settled after 12 months from the balance sheet date, then they are discounted to their present values. Taxation Tax expense for the period comprises current tax and deferred tax. Current tax is based on assessable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on temporary differences (i.e. differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit). Deferred tax is accounted for using the balance sheet liability method and is provided on all temporary differences with certain limited exceptions as follows. Deferred tax is not provided: • • • in respect of tax payable on undistributed earnings of subsidiaries, associates and joint ventures where the Group is able to control the remittance of profits and it is probable that there will be no remittance of past profits earned in the foreseeable future; on the initial recognition of an asset or liability in a transaction that does not affect accounting profit or taxable profit and is not a business combination; nor is deferred tax provided on subsequent changes in the carrying value of such assets and liabilities, for example where they are depreciated; and on the initial recognition of any non-tax deductible goodwill. Deferred tax assets are recognised only to the extent that it is probable that they will be recovered through sufficient future taxable profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also taken directly to equity. A company will normally have a legally enforceable right to set off a deferred tax asset against a deferred tax liability when they relate to income taxes levied by the same taxation authority and the taxation authority permits the company to make or receive a single net payment. In the consolidated financial statements, a deferred tax asset of one entity in the Group cannot be offset against a deferred tax liability of another entity in the Group, as there is no legally enforceable right to offset tax assets and liabilities between Group companies. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 37 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 38 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost or valuation of assets, other than land and assets under construction, over their estimated useful lives, using the straight-line method as follows: Freehold Buildings: 25 years Leasehold Buildings: Period of the lease Floating Craft: Vehicles: 25 to 35 years 5 years Plant and Equipment: 5 to 20 years Assets in the course of construction are carried at cost, less any recognised impairment loss. Costs include professional fees for qualifying assets. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for intended use. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. Dry docking costs are capitalised and depreciated over the period in which the economic benefits are received, or until the next scheduled dry dock. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Goodwill The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rate, growth rates and expected changes to selling prices and costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value money and the risks specific to the cash generating unit. Growth rates are based on management’s forecasts and historical trends. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Business combinations Business combinations are accounted using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated considering the sum of the acquisition-date fair values of assets, liabilities and the equity interests transferred to the Group when the control of the acquisition is transferred. Acquisition-related costs are recognised in profit or loss as incurred. Any goodwill that arises is tested annually for impairment. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively. When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments is recognised in profit or loss. 38 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 39 Ocean Wilsons Holdings Limited/Annual Report 2013 2 Significant accounting policies and critical accounting judgements (continued) Sale of non-controlling interest Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interest’s share of changes in equity since the date of the combination. Intangible assets Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. There is no indefinite life intangible asset. An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. Impairment of tangible and other intangible assets Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash generating unit (“CGU”) are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials, spare parts and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. • • • • Trade Receivables: Trade receivables, loans and other amounts receivable are stated at the initial fair value of the amounts due, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is recognised in the statement of comprehensive income. Investments: Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at the fair value, plus directly attributable transaction costs. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in the income statement for the period. The fair value of financial assets traded in active markets are based on the mid market price the close of trading on the reporting date. Unquoted investments held for trading purposes are stated at fair value through profit and loss as determined by using various valuation techniques, except where fair value cannot be reliably measured, when the investment is held at cost less any provision for impairment. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Cash and Cash Equivalents: Cash and cash equivalents comprise cash on hand and other short-term highly liquid investments that are convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank Borrowings: Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the statement of comprehensive income using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. 39 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 40 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) Derivatives The Group periodically uses derivative financial instruments to reduce exposure to foreign exchange and interest rate movements. Derivatives are measured at each balance sheet date at fair value. Gains and losses arising from changes in fair value are included in the income statement for the period within investment revenue or finance costs for exchange and interest derivatives. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value, with gains or losses reported in the statement of comprehensive income. Hedge Accounting (Cash flow hedge) The Group seeks to apply hedge accounting (cash flow hedge) in order to manage volatility in profit or loss. When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and discounted where the effect is material. In the normal course of business in Brazil, the Group is exposed to local legal cases. Provisions for legal cases are made when the Group’s management, together with their legal advisors, consider the probable outcome is a financial settlement against the Group. Provisions are measured at the director’s best estimate of the expenditure required to settle the obligation based upon legal advice received. For labour claims, the provision is based on prior experience and management’s best knowledge of the relevant facts and circumstances. For tax cases, the provision is based on managements’ best knowledge of the relevant facts and circumstances and legal advice received. Construction contracts Construction contracts in progress represents the gross amount expected to be collected from customers for contract work performed to date. It is measured at costs incurred plus profits recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity. Construction contracts in progress is presented as part of trade and other receivables in the statement of financial position for all contracts in which costs incurred plus recognised profits exceed progress billings and recognised losses. If progress billings and recognised losses exceed costs incurred plus recognised profits, then the difference is presented as deferred income/revenue in the statement of financial position. Customer advances are presented as deferred income/revenue in the statement of financial position. Revenue Revenue is measured at fair value and represents amounts receivable for goods and services provided in the normal course of business net of trade discounts, VAT and other sales related taxes. If the Group is acting solely as an agent, amounts billed to customers are offset against relevant costs. Revenue from construction contracts is recognised in accordance with the Group’s accounting policy on construction contracts (see above). Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease, or if lower the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the statement of comprehensive income. 40 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:43 Page 41 Ocean Wilsons Holdings Limited/Annual Report 2013 2 Significant accounting policies and critical accounting judgements (continued) Leasing (continued) Rentals payable under finance leases are charged to income on a straight-line basis over the term of the relevant lease. Critical accounting judgements and key sources of estimation uncertainty In the process of applying the Group’s accounting policies, which are described above, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements. Provisions In the normal course of business in Brazil, the Group is exposed to local legal cases. Provisions for legal cases are made when the Group’s management, together with their legal advisors, consider the probable outcome is a financial settlement against the Group. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation based upon legal advice received. For labour claims, the provision is based on prior experience and management’s best knowledge of the relevant facts and circumstances. For tax cases the provision is based on management’s best knowledge of the relevant facts and circumstances and legal advice received. Brazilian taxes There are uncertainties regarding the interpretation of complex tax regulations and the value and timing of future taxable results. Given the long-term nature and the complexity of existing contracts, differences between the actual results and the assumptions adopted or future changes in such assumptions could require future adjustments to the tax income and expense already recorded. The Group forms provisions, based on applicable estimates, for possible consequences of auditing by tax authorities of the respective jurisdictions where it operates. The amount of such provisions is based on several factors, such as prior experiences with fiscal audits and different interpretations of the tax regulations by the taxable entity and by the tax authority in question. Such differences in interpretation may arise for the most diverse matters, depending on the conditions in force in the respective domicile of the Group’s entity. Deferred and recoverable income tax and social contribution The Group records assets related to deferred taxes resulting from temporary differences and tax losses between the book value of assets and liabilities and their tax bases. Deferred tax assets are recognised to the extent that the Group expects to generate sufficient taxable profit based on projections and forecasts prepared by Management. Such projections and forecasts include several assumptions regarding the Group’s performance, foreign exchange rates, volume of services, other rates and factors that may differ from present estimates. Under the current Brazilian tax legislation, tax losses do not expire for utilization. However, cumulative tax losses can only be offset by up to 30.0% of the annual taxable profit. Impairment of goodwill and intangibles The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and indefinite-lived intangible assets are tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to an operating segment ceiling test, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. Business combinations Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values of assets given and liabilities incurred or assumed in exchange for control of the acquiree at the date of acquisition. The fair value of assets and liabilities are based on management’s best knowledge and expert advice. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 41 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 42 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) Revenue recognition Construction contracts in progress represents the gross amount expected to be collected from customers for contract work performed to date. Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Valuation of unquoted investments The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs. 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 (2010) and IFRS 9 Financial Instruments (2009) The new standard uses a single approach to determine whether a financial asset is measured at amortised cost or fair value. The approach in IFRS 9 (2009) is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. IFRS 9 (2010) incorporates new requirements on accounting for financial liabilities. The IASB intends to expand IFRS 9 to add new requirements for impairment of financial assets measured at amortised cost and include limited amendments to the classification and measurement requirements. The IFRS 9 (2010 and 2009) is effective for annual periods beginning on or after 1 January 2015. The adoption of IFRS 9 (2010) might have an effect on the classification and measurement of the Group’s financial assets, but will not have an impact on classification and measurements of financial liabilities. New standards and interpretations adopted In the current year the following new and revised standards and interpretations have been adopted which have affected the amounts reported in these consolidated financial statements. New standards issued by the IASB were effective for annual periods beginning on or after 1 January 2013 as set out in Note 2 (New standards and interpretations) of our consolidated financial statements for the year ended 31 December 2012. IFRS 13 Fair Value Measurement IFRS 13 establishes a single framework for measuring and disclosure about fair value when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the price that would be received to sell an asset or would be paid for the transfer of a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements included in other IFRSs, including the IFRS 7. As a result, the Group has included additional disclosures in this regard (see note 23). IAS 1 Presentation of Items in Other Comprehensive Income As a result of the revision of IAS 1, the Group has changed the presentation of items in its statement of comprehensive income to present items that will not be reclassified to profit and loss and those items that maybe subsequently reclassified to profit and loss. There was no information from the previous year that required restatement for comparison purposes. The company implemented the new standards related to the matters regarding subsidiaries and joint arrangements. IFRS 10 introduces a single control model to determine whether an investee should be consolidated. Under IFRS 11, the structure of joint arrangement, although still an important consideration, is no longer the main factor in determining the type of joint arrangement and therefore the related accounting. 42 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 43 Ocean Wilsons Holdings Limited/Annual Report 2013 2 Significant accounting policies and critical accounting judgements (continued) New standards and interpretations adopted (continued) The Group’s interest in a joint operation, which is an arrangement in which the parties have rights to the assets and obligations for the liabilities, will be accounted for on the basis of the Group’s interest in those assets and liabilities. The Group’s interest in a joint venture, which is an arrangement in which the parties have rights to the net assets, will be equity accounted. The new standard applied by the Company includes the effect of recognising the profit/loss of Wilson Sons Ultratug Offshore and Atlantic Offshore S.A. on a single line in the Income Statement and the Balance Sheet to reflect Company’s 50% participation rather than the previous treatment with proportional consolidation line by line. Additionally, Allink, the Company’s 50% Non-Vessel Operating Common Carrier (“NVOCC”), which previously included only 50% share in both the Income Statement and the balance sheet, are now 100% consolidated in the financial statements, with a 50% non-controlling interest. For further details of these entities, refer to notes 16 and 17. The impacts of the adoption of these new standards are set out below: Consolidated Statement of Comprehensive Income for the year ended 31 December 2012 Revenue Raw materials and consumables used Employee benefits expense Depreciation & amortisation expense Other operating expenses Loss on disposal of property, plant and equipment Operating profit Share of results of joint ventures Investment revenue Other gains and losses Finance costs Exchange losses on monetary items Profit before tax Income tax expense Profit for the year Other comprehensive income Items that will not be reclassified to profit and loss Exchange differences arising on translation of foreign operations Other comprehensive loss for the year Total comprehensive income/(loss) for the year Profit for the period attributable to: Equity holders of parent Non-controlling interests Total comprehensive income for the period attributable to: Equity holders of parent Non-controlling interests Earnings per share Basic and diluted As previously Impact of new Change in standards accounting policy reported US$’000 645,327 (77,719) (240,427) (66,619) (180,591) (546) 79,425 – 6,526 16,394 (15,120) – 87,225 (25,540) 61,685 (6,987) (6,987) 54,698 41,263 20,422 61,685 37,268 17,430 54,698 US$’000 (38,062) 1,981 17,396 10,722 6,826 12 (1,125) 689 6,591 – 5,172 – 11,327 (8,131) 3,196 (224) (224) 2,972 1 3,195 3,196 1 2,971 2,972 116.7c – US$’000 3,089 3,531 – – (186) – 6,434 – 5,138 – – (11,572) – – – – – – – – – – – – – Restated US$’000 610,354 (72,207) (223,031) (55,897) (173,951) (534) 84,734 689 18,255 16,394 (9,948) (11,572) 98,552 (33,671) 64,881 (7,211) (7,211) 57,670 41,264 23,617 64,881 37,269 20,401 57,670 116.7c 43 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 44 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) Consolidated Balance Sheet as at 31 December 2012 Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Trade and other receivables Long-term investments Investment in joint ventures Other non-current assets Current assets Inventories Trading investments Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Current tax liabilities Obligations under finance leases Bank overdrafts and loans Net current assets Non-current liabilities Trade and other payables Bank loans Deferred tax liabilities Provisions Obligations under finance leases Total liabilities Net assets Capital and reserves Share capital Retained earnings Capital reserves Translation and hedging reserve Equity attributable to equity holders of the parent Non-controlling interests Total equity 44 As previously Impact of new reported US$’000 15,612 29,899 standards US$’000 – (554) Restated US$’000 15,612 29,345 828,764 (233,887) 594,877 29,827 18,015 1,072 – 9,197 (180) (1,092) (1,072) 27 13 29,647 16,923 – 27 9,210 932,386 (236,745) 695,641 27,697 241,582 168,267 141,335 578,881 9,756 – 31,219 (4,655) 36,320 37,453 241,582 199,486 136,680 615,201 1,511,267 (200,425) 1,310,842 (163,762) (9,457) (173,219) (3,124) (1,222) (43,179) (211,287) 367,594 (110) (12) 7,682 (1,897) 34,423 (3,234) (1,234) (35,497) (213,184) 402,017 (1,134) – (1,134) (524,908) 200,770 (324,138) (17,802) (10,872) (2,800) (557,516) (768,803) 742,464 11,390 482,798 31,760 5,966 531,914 210,550 742,464 2,759 (94) (9) 203,426 201,529 (15,043) (10,966) (2,809) (354,090) (567,274) 1,104 743,568 – 1 – – 1 1,103 1,104 11,390 482,799 31,760 5,966 531,915 211,653 743,568 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 45 2 Significant accounting policies and critical accounting judgements (continued) Consolidated Balance Sheet as at 1 January 2012 Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Trade and other receivables Long-term investments Investment in joint ventures Other non-current assets Current assets Inventories Trading investments Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Current tax liabilities Obligations under finance leases Bank overdrafts and loans Net current assets Non-current liabilities Trade and other payables Bank loans Deferred tax liabilities Provisions Obligations under finance leases Total liabilities Net assets Capital and reserves Share capital Retained earnings Capital reserves Translation and hedging reserve Equity attributable to equity holders of the parent Non-controlling interests Total equity Ocean Wilsons Holdings Limited/Annual Report 2013 As previously Impact of new reported US$’000 15,612 28,546 standards US$’000 – (83) Restated US$’000 15,612 28,463 725,869 (187,187) 538,682 28,525 28,240 1,072 – 8,412 982 (275) (1,072) 7,661 17 29,507 27,965 – 7,661 8,429 836,276 (179,957) 656,319 21,142 251,297 135,574 119,323 527,336 4,229 – 24,979 (5,680) 23,528 25,371 251,297 160,553 113,643 550,864 1,363,612 (156,429) 1,207,183 (120,324) (5,130) (125,454) (3,472) (3,787) (32,672) (160,255) 367,081 (73) (17) 7,487 2,267 25,795 (3,545) (3,804) (25,185) (157,988) 392,876 (2,471) – (2,471) (451,381) 146,795 (304,586) (26,093) (13,378) (3,278) (496,601) (656,856) 706,756 11,390 453,205 31,760 9,831 506,186 200,570 706,756 8,833 – (15) 155,613 157,880 (17,260) (13,378) (3,293) (340,988) (498,976) 1,451 708,207 – – – – – 1,451 1,451 11,390 453,205 31,760 9,831 506,186 202,021 708,207 45 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 46 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) Consolidated Cash Flow Statement for the year ended 31 December 2012 Net cash inflow from operating activities Investing activities Interest received Dividends received from trading investments Proceeds on disposal of trading investments Proceeds on disposal of property, plant and equipment Purchases of property, plant and equipment Purchase of intangible asset Purchases of trading investments Net cash used in investing activities Financing activities Dividends paid Dividends paid to non-controlling interests in subsidiary Repayments of borrowings Repayments of obligations under finance leases New bank loans raised Decrease in bank overdrafts Derivative paid Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes Cash and cash equivalents at end of period 3 Revenue An analysis of the Group’s revenue is as follows: Sales of services Revenue from construction contracts Investment income (note 7) All revenue is derived from continuing operations. As previously Impact of new reported US$’000 115,597 9,320 2,854 134,624 2,238 standards US$’000 (5,506) 244 – – (579) Restated US$’000 110,091 9,564 2,854 134,624 1,659 (162,481) 59,326 (103,155) (7,761) (108,515) (129,721) (11,670) (7,543) (37,559) (3,331) 108,121 (132) (139) 47,747 33,623 119,323 (11,611) 141,335 552 – 59,543 – (3,319) 7,522 – (59,196) – 139 (54,854) (817) (5,680) 1,842 (4,655) (7,209) (108,515) (70,178) (11,670) (10,862) (30,037) (3,331) 48,925 (132) – (7,107) 32,806 113,643 (9,769) 136,680 Year ended Year ended 31 December 31 December 2013 US$’000 559,825 100,281 660,106 17,838 677,944 2012 (Restated) US$’000 548,575 61,779 610,354 18,255 628,609 46 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 47 Ocean Wilsons Holdings Limited/Annual Report 2013 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 2013 Revenue Result Segment result Share of results of joint ventures Investment revenue Other gains and losses Finance costs Foreign exchange losses on monetary items Profit before tax Tax Profit after tax Other information Capital additions Depreciation and amortisation Balance Sheet Assets Segment assets Liabilities Segment liabilities Maritime Services Investment Unallocated Consolidated Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2013 US$’000 660,106 2013 US$’000 – 2013 US$’000 2013 US$’000 – 660,106 124,080 (2,609) (2,431) 119,040 2,392 12,621 – (21,863) (31,018) 86,212 (42,216) 43,996 – 5,217 13,684 – 53 – – – – 376 2,392 17,838 13,684 (21,863) (30,589) 16,345 (2,055) 100,502 – – 16,345 (2,055) (42,216) 58,286 (136,947) (58,673) – – – (1) (136,947) (58,674) 1,079,017 249,971 3,481 1,332,469 (561,791) (259) (344) (562,394) Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 47 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 48 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 4 Business and geographical segments (continued) For the year ended 31 December 2012 Revenue Result Segment result Share of results of joint venture Investment revenue Other gains and losses Finance costs Foreign exchange losses on monetary items Profit before tax Tax Profit after tax Other information Capital additions Depreciation and amortisation Balance Sheet Assets Segment assets Liabilities Segment liabilities Maritime Services Year ended Investment Year ended Unallocated Consolidated Year ended Year ended 31 December 31 December 31 December 31 December 2012 (Restated) US$’000 – 2012 (Restated) US$’000 2012 (Restated) US$’000 – 610,354 (2,666) (2,887) – 2,851 16,394 – (73) 16,506 – 16,506 – – – 7 – – 136 (2,744) – (2,744) 84,734 689 18,255 16,394 (9,948) (11,572) 98,552 (33,671) 64,881 (5) (1) (128,921) (55,897) 2012 (Restated) US$’000 610,354 90,287 689 15,397 – (9,948) (11,635) 84,790 (33,671) 51,119 (128,916) (55,896) 1,068,826 238,904 3,112 1,310,842 (566,592) (320) (362) (567,274) 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 31 December Year ended 31 December Year ended 31 December 2012 31 December 2013 US$’000 1,032,017 300,392 60 (Restated) US$’000 999,944 309,872 1,026 2013 US$’000 2012 (Restated) US$’000 136,947 128,921 – – – – 1,332,469 1,310,842 136,947 128,921 Brazil Bermuda Other 48 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 49 Ocean Wilsons Holdings Limited/Annual Report 2013 5 Profit for the year Profit for the year has been arrived at after charging: Net foreign exchange losses Depreciation of property, plant and equipment Amortisation of intangible assets Operating lease rentals Auditor’s remuneration for audit services (see below) Non-executive directors emoluments A more detailed analysis of auditor’s remuneration is provided below: Financial statement audit of group and subsidiaries Other services 6 Employee benefits expense Aggregate remuneration comprised: Wages and salaries Share based payment (credit)/expense Social security costs Other pension costs 7 Investment revenue Interest on bank deposits Dividends from equity investments Other interest 8 Other gains and losses Increase in fair value of trading investments held at year end (Loss)/profit on disposal of trading investments Other gains and losses form part of the movement in trading investments as outlined in note 18. Year ended Year ended 31 December 31 December 2013 US$’000 – 52,372 6,302 13,966 586 446 586 – 586 2012 (Restated) US$’000 (10,885) 50,639 5,258 14,128 625 380 625 – 625 Year ended Year ended 31 December 31 December 2013 US$’000 2012 (Restated) US$’000 176,308 174,656 (1,430) 33,070 1,511 2,262 44,663 1,450 209,459 223,031 Year ended Year ended 31 December 31 December 2013 US$’000 11,891 5,193 754 17,838 (Restated) 2012 US$’000 14,769 2,854 632 18,255 Year ended Year ended 31 December 31 December 2013 US$’000 14,594 (910) 13,684 (Restated) 2012 US$’000 3,005 13,389 16,394 49 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 50 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 9 Finance costs Interest on bank overdrafts and loans Exchange loss/(gain) on foreign currency borrowings Interest on obligations under finance leases Year ended Year ended 31 December 31 December 2013 US$’000 11,572 9,576 715 21,863 2012 (Restated) US$’000 9,791 (707) 864 9,948 Borrowing costs incurred on qualifying assets of US$1.5 million (2012: US$4.3 million) were capitalised in the year at an average interest rate of 3.05% (2012: 3.18%). 10 Taxation Current Brazilian taxation Corporation tax Social contribution Total current tax Deferred tax Credit for the year in respect of deferred tax liabilities Charge for the year in respect of deferred tax assets Total deferred tax Total taxation Year ended Year ended 31 December 31 December 2013 US$’000 2012 (Restated) US$’000 23,610 9,898 33,508 (10,448) 19,156 8,708 42,216 26,416 10,231 36,647 (3,288) 312 (2,976) 33,671 Brazilian corporation tax is calculated at 25% (2012: 25%) of the assessable profit for the year. Brazilian social contribution tax is calculated at 9% (2012: 9%) of the assessable profit for the year. At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the company. In the event that such taxes are levied, the company has received an undertaking from the Bermuda Government exempting it from all such taxes until 31 March 2035. The charge for the year can be reconciled to the profit per the statement of comprehensive income as follows: Profit before tax Tax at the standard Brazilian tax rate of 34% (2012: 34%) Tax effect of expenses/income that are not included in determining taxable profit Effect of different tax rates of subsidiaries operating in other jurisdictions Tax expense and effective rate for the year Effective rate for the year Year ended Year ended 31 December 31 December 2013 US$’000 100,502 34,171 11,976 (3,931) 42,216 42% 2012 (Restated) US$’000 98,552 33,508 2,091 (1,928) 33,671 34% The Group earns its profits primarily in Brazil. Therefore, the tax rate used for tax on profit on ordinary activities is the standard rate in Brazil of 34%, consisting of corporation tax, 25% and social contribution 9%. 50 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 51 Ocean Wilsons Holdings Limited/Annual Report 2013 11 Dividends Amounts recognised as distributions to equity holders in the period: Final dividend paid for the year ended 31 December 2012 of 38c (2011: 29c) per share First interim dividend paid for the year ended 31 December 2013 of 0c per share (2012: 4c) Proposed final dividend for the year ended 31 December 2013 of 60c (2012: 38c) per share 12 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Year ended Year ended 31 December 31 December 2013 US$’000 13,438 – 13,438 21,218 2012 (Restated) US$’000 10,255 1,415 11,670 13,438 Year ended Year ended 31 December 31 December 2013 US$’000 2012 (Restated) US$’000 Earnings: Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 37,873 41,264 Number of shares: Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share 35,363,040 35,363,040 13 Goodwill Cost and carrying amount attributed to: Tecon Rio Grande Tecon Salvador Brazilian Intermodal Complex (Briclog) Total 31 December 31 December 2013 US$’000 13,132 2,480 22,010 37,622 2012 US$’000 13,132 2,480 – 15,612 1 January 2012 US$’000 13,132 2,480 – 15,612 For the purposes of testing goodwill for impairment losses, the Group makes use its updated valuation model, for the relevant cash-generating units (Tecon Rio Grande and Tecon Salvador) derived from the most recent financial budget for the following year, extrapolates cash flows for the remaining life of the concession based on an estimated average growth rate of 6% annually and a discount rate of 10.07% (31 December 2012: 10.07% and 1 January 2012: 12%) for both business units. This rate does not exceed the average long-term historical growth rate for the relevant market. After testing goodwill as mentioned above, no impairment losses were recognised for the periods presented. Briclog’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$23.3 million, with negative foreign exchange impact of US$1.3 million due to the translation effect, on 31 December 2013. The goodwill will be tested for impairment annually; details of the Briclog acquisition are shown in note 29. The directors consider that no reasonable change in their assumptions regarding their goodwill impairment testing would result in impairment Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 51 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 52 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 14 Other intangible fixed assets Cost At 1 January 2012 – (Restated) Additions Write off Exchange differences At 1 January 2013 – (Restated) Additions Acquired with acquisition of Briclog Write off Exchange differences At 31 December 2013 Amortisation At 1 January 2012 – (Restated) Charge for the year Write off Exchange differences At 1 January 2013 – (Restated) Acquired with acquisition of Briclog Charge for the year Write off Exchange differences At 31 December 2013 Carrying amount 31 December 2013 31 December 2012 – (Restated) 1 January 2012 – (Restated) US$’000 39,041 7,209 (684) (1,510) 44,056 26,028 266 (30) (3,469) 66,851 10,578 5,258 (627) (498) 14,711 206 6,302 (23) (995) 20,201 46,650 29,345 28,463 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) and the implementation of integrated management software (SAP) (iii) the Briclog acquisition in 2013. The breakdown of intangibles by type is as follows: Briclog Tecon Salvador Computer software Other Total 31 December 2013 US$’000 21,454 9,263 7,613 8,320 46,650 31 December 2012 (Restated) US$’000 – 11,509 9,724 8,112 29,345 1 January 2012 (Restated) US$’000 – 13,509 6,774 8,180 28,463 The additions to Intangible assets in the period are attributable mainly to the 30-year lease right acquired through the Briclog acquisition as detailed in Note 29. Lease concessions are amortised over the remaining terms of the concessions at the time of acquisition, which for Tecon Salvador is 25 years and Ponta Norte is 15 years. The computer software is amortised over 5 years following completion of the installation. 52 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 53 Ocean Wilsons Holdings Limited/Annual Report 2013 15 Property, plant and equipment Cost or valuation At 1 January 2012 – (Restated) Additions Transfers Exchange differences Disposals Land and buildings US$’000 Vehicles, plant Floating Craft and equipment US$’000 US$’000 Assets under construction US$’000 213,951 68,049 15 (8,482) (1,174) 296,644 3,474 13,743 – – At 1 January 2013 – (Restated) 272,359 313,861 Additions Additions – Briclog Transfers Exchange differences Disposals At 31 December 2013 Accumulated depreciation and impairment At 1 January 2012 – (Restated) Charge for the year Elimination on construction contracts Exchange differences Disposals At 1 January 2013 – (Restated) Charge for the year Additions – Briclog Elimination on construction contracts Exchange differences Disposals At 31 December 2013 Carrying Amount At 31 December 2013 At 31 December 2012 – (Restated) At 1 January 2012 – (Restated) 38,153 12,687 (5,033) (16,663) (2,006) 299,497 34,972 12,759 – (1,254) (545) 45,932 17,584 530 – (3,188) (649) 60,209 239,288 226,427 178,979 7,197 – 11,913 – (11,809) 321,162 98,783 14,350 2,628 – (3) 115,758 11,523 – 3,744 – (11,355) 119,670 201,492 198,103 197,861 Total US$’000 745,883 121,715 – (15,522) (6,489) 845,587 94,675 15,978 – (30,771) (30,097) 2,667 26,952 (13,743) – – 15,876 19,091 – (11,913) – – 23,054 895,372 – – – – – – – – – – – – 207,201 50,639 2,628 (5,405) (4,353)) 250,710 52,372 2,019 3,744 (9,203) (21,194) 278,448 232,621 23,240 (15) (7,040) (5,315) 243,491 30.234 3,291 5,033 (14,108) (16,282) 251,659 73,446 23,530 – (4,151) (3,805) 89,020 23,265 1,489 – (6,015) (9,190) 98,569 153,090 154,471 159,175 23,054 15,876 2,667 616,924 594,877 538,682 The carrying amount of the Group’s vehicles, plant and equipment includes an amount of US$22.3 million (2012: US$20.5 million) in respect of assets held under finance leases. Land and buildings with a net book value of US$0.2 million (2012: US$0.2 million) and tugs with a value of US$2.0 million (2012: US$2.2 million) have been given in guarantee of various legal processes. The Group has pledged assets having a carrying amount of approximately US$234.1 million (2012: US$588.6 million) to secure loans granted to the Group. At 31 December 2013, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$5.5 million (2012: US$15.8 million). Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 53 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 54 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 16 Subsidiaries OCEAN WILSONS (INVESTMENTS) LIMITED Investment holding and dealing company ASCENSION UNDERWRITING LIMITED Corporate underwriting member of Lloyds WILSON SONS LIMITED Holding company Place of incorporation and operation Bermuda Method used Effective to account interest* for investment 100%** Consolidation UK 100% Consolidation Bermuda 58.25%** Consolidation WILSON SONS DE ADMINISTRAÇÃO E COMÉRCIO LTDA Brazil 58.25% Consolidation Holding company SAVEIROS CAMUYRANO SERVIÇOS MARÍTIMOS LTDA Brazil 58.25% Consolidation Tug operators WILSON, SONS S.A., COMÉRCIO, INDÚSTRIA, E AGÉNCIA DE NAVEGAÇÃO LTDA Brazil 58.25% Consolidation Shipbuilders WILSON, SONS ESTALEIRO LTDA Shipbuilders WILSON SONS AGENCIA MARÍTIMA LTDA Ship Agents WILSON, SONS NAVEGAÇÃO LTDA Ship Agents SOBRARE-SERVEMAR LTDA Tug operator Brazil 58.25% Consolidation Brazil 58.25% Consolidation Brazil 58.25% Consolidation Brazil 58.25% Consolidation WILPORT OPERADORES PORTUÁRIOS LTDA Brazil 58.25% Consolidation Stevedoring WILSON, SONS LOGÍSTICA LTDA Logistics WILSON, SONS TERMINAIS DE CARGAS LTDA Transport services EADI SANTO ANDRÉ TERMINAL DE CARGA LTDA Bonded warehousing VIS LIMITED Holding company TECON RIO GRANDE S.A. Port operator WILSON, SONS APOIO MARITIMO LTDA Tug operator Brazil 58.25% Consolidation Brazil 58.25% Consolidation Brazil 58.25% Consolidation Guernsey 58.25% Consolidation Brazil 58.25% Consolidation Brazil 58.25% Consolidation WILSON SONS OPERACOES MARÍTIMAS ESPECIAS LTDA Brazil 58.25% Consolidation Tug operator BRASCO LOGÍSTICA OFFSHORE LTDA Port operator TECON SALVADOR S.A. Port operator Brazil 58.25% Consolidation Brazil 53.88% Consolidation * Effective interest is the net interest of Ocean Wilsons Holdings Limited after non-controlling interests. ** Ocean Wilsons Holdings Limited holds direct interests in Ocean Wilsons Investments Limited and Wilsons Sons Limited. The Group also has a 58.25% effective interest in a private investment fund Hydrus Fixed Income Private Credit Investment Fund. This private fund is administrated by Itau bank and the investment policy and objectives are determined by the Group’s treasury department in line with Group policy. 54 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 55 Ocean Wilsons Holdings Limited/Annual Report 2013 17 Joint ventures The Group holds the following significant interests in joint operations and joint ventures at the end of the reporting period: Towage Consórcio de Rebocadores Barra de Coqueiros Consórcio de Rebocadores Baia de São Marcos Logistics Porto Campinas, Logística e Intermodal Ltda Offshore Wilson, Sons Ultratug Participações S.A.* Atlantic Offshore S.A.** Place of 31 December 31 December Proportion of ownership interest incorporation and operation Brazil Brazil Brazil Brazil Panamá 2013 50% 50% 50% 50% 50% 2012 (Restated) 50% 50% 50% 50% 50% 1 January 2012 (Restated) 50% 50% 50% 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. Revenue Raw materials and consumables used Employee benefits expense Depreciation and amortisation expenses Other operating expenses Loss on disposals of property, plant & equipment Results from operating activities Finance income Finance costs Foreign exchange gains/(losses) on monetary items Profit/(loss) before tax Income tax expense Profit for the period Participation Equity result Year ended Year ended 31 December 31 December 2013 US$’000 108,837 (5,190) (42,192) (26,249) (15,240) (72) 19,894 1,292 (15,391) 1,890 7,685 2012 (Restated) US$’000 93,900 (3,983) (41,180) (21,540) (16,682) – 10,515 1,243 (11,609) (12,874) (12,725) (2,900) 14,104 4,785 1,379 50% 2,392 50% 689 55 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 56 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 17 Joint ventures (continued) Other non-current Assets Property, plant and equipment Long-term investment Other current assets Trade and other receivables Derivatives Cash and cash equivalents Total assets Bank overdrafts and loans Other non-current liabilities Trade and other payables Equity Total liabilities Guarantees 31 December 31 December 2013 US$’000 465 2012 (Restated) US$’000 876 1 January 2012 (Restated) US$’000 554 603,137 510,316 410,986 2,131 864 33,607 – 23,401 2,144 380 24,906 985 10,488 663,605 550,095 2,145 21 22,464 – 12,641 448,811 501,713 8,878 102,782 50,232 416,905 308,562 5,537 89,774 37,879 19,629 84,561 36,059 663,605 550,095 448,811 Loans from the BNDES are guaranteed by a pledge over the financed supply vessels and corporate guarantee from Wilson Sons Adminisração e Comércio and/or Remolcadores Ultratug Ltda. Loans with Banco do Brasil are guaranteed by a pledge over the financed supply vessels, “Standby Letter of Credit”, fiduciary assignment of Petrobras long-term contracts and corporate guarantee from Remolcadores Ultratug Ltda. The Magallanes Navegação Brasileira S.A. subsidiary, in accordance to this Financing Agreement with Banco do Brasil, constituted a restricted cash account, accounted for under Long-term investments, in the amount of US$2.1 million. This reserve will be retained until financing settlement, with minimum remuneration as savings account or by other financial instrument with similar risk, at the financial institution’s discretion, and operated exclusively by the financial institution. Covenants The joint venture Magallanes Navegação Brasileira S.A. has to comply with specific financial covenants. Provisions for tax, labour and civil risks The provisions below are included in other non-current liabilities above. The breakdown of the provision by type of risk is as follows: 31 December 31 December 2013 US$’000 9 639 1,231 1,879 2012 (Restated) US$’000 10 712 1,223 1,945 1 January 2012 (Restated) US$’000 – 739 17 756 Civil cases Tax cases Labour claims Total 56 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 57 Ocean Wilsons Holdings Limited/Annual Report 2013 2013 US$’000 2012 US$’000 241,582 77,879 (55,176) 14,594 (910) 277,969 244,969 33,000 277,969 251,297 114,458 (140,567) 3,005 13,389 241,582 221,582 20,000 241,582 18 Investments Trading investments At 1 January Additions, at cost Disposals, at market value Increase in fair value of trading investments held at year end (Loss)/profit on disposal of trading investments At 31 December Ocean Wilsons Investment Limited Portfolio Wilson Sons Limited Trading investments held at fair value at 31 December Wilson Sons Limited During 2013 Wilson Sons Limited invested in Real denominated and US Dollar denominated fixed rate certificates. The Wilson Sons Limited investments are held and managed separately from the Ocean Wilsons Investment Portfolio. Ocean Wilsons Investment Portfolio The Group has not designated any financial assets that are not classified as trading investments as financial assets at fair value through profit or loss. Trading investments above represent investments in listed equity securities, funds and unquoted equities that present the Group with opportunity for return through dividend income and capital appreciation. Included in trading investments are open ended funds whose shares may not be listed on a recognised stock exchange but are redeemable for cash at the current net asset value at the option of the company. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available. Where quoted market prices are not available, fair values are determined using various valuation techniques that include inputs for the asset or liability that are not based in observable market data (unobservable inputs). 19 Inventories Operating materials Raw materials and spare parts Total Inventories are expected to be recovered in less than one year and there were no obsolete items. 31 December 31 December 2013 US$’000 13,433 15,657 29,090 2012 (Restated) US$’000 12,902 24,551 37,453 1 January 2012 (Restated) US$’000 11,533 13,838 25,371 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 57 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 58 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 20 Construction contracts Contract costs incurred plus recognised profits less recognised losses to date Less progress billings Amounts due to contract customers included in trade and other payables 21 Trade and other receivables Trade and other receivables Amount receivable for the sale of services Allowance for doubtful debts Income taxation recoverable Other recoverable taxes and levies Prepayments Other Total current Total non-current 31 December 31 December 2013 US$’000 81,995 2012 (Restated) US$’000 77,029 (110,540) (152,366) (28,545) (75,337) 31 December 31 December 2013 US$’000 65,542 (1,718) 63,824 15,082 32,760 7,089 56,062 174,817 150,819 23,998 174,817 2012 (Restated) US$’000 66,026 (2,506) 63,520 11,239 44,819 43,211 53,620 216,409 199,486 16,923 216,409 1 January 2012 (Restated) US$’000 63,425 (87,232) (23,807) 1 January 2012 (Restated) US$’000 67,858 (927) 66,931 9,262 41,283 16,319 54,723 188,518 160,553 27,965 188,518 Non-current trade receivables relate to: recoverable taxes with maturity dates in excess of one year, which comprise mainly PIS, COFINS, ISS and INSS, customers with maturities over one year, and receivables from Intermarítima relating to the sale of the non-controlling interest in Tecon Salvador. There are no indicators of impairment related to these receivables. Included in the Group’s trade receivable balances are debtors with a carrying amount of US$12.8 million (2012: US$16.3 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. Included in other debtors is US$15.4 million relating to insurance receivables for the damage to the warehouse and materials inventory used in the shipbuilding process by the fire at the Guarujá II shipyard warehouse during the year (property, plant and equipment US$1.5 million and inventories US$13.9 million). 58 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 59 Ocean Wilsons Holdings Limited/Annual Report 2013 31 December 31 December 2013 US$’000 9,046 3,015 771 – 2012 (Restated) US$’000 8,670 4,043 3,549 – 1 January 2012 (Restated) US$’000 13,720 996 622 – 12,832 16,262 15,338 21 Trade and other receivables (continued) Ageing of past due but not impaired trade receivables From 0 – 30 days From 31 – 90 days From 91 – 180 days more than 180 days Total 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$2.5 million, which are aged, greater than 180 days. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected settlement proceeds. The Group does not hold any collateral over these balances. Ageing of impaired trade receivables From 0 – 30 days From 31 – 90 days From 91 – 180 days more than 180 days Total Movement in the allowance for doubtful debts Balance at the beginning of the year (Restated) Amounts written off as uncollectable Increase in allowance recognised in profit or loss Exchange differences Balance at the end of the year 31 December 31 December 2013 US$’000 – – – 1,718 1,718 2012 (Restated) US$’000 – – – 2,506 2,506 2013 US$’000 2,506 (10,332) 9,682 (138) 1,718 1 January 2012 (Restated) US$’000 – – – 927 927 2012 US$’000 927 (5,643) 7,348 (126) 2,506 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. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 59 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 60 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 22 Bank loans and overdrafts Unsecured borrowings Bank overdrafts – Real Total unsecured borrowings Secured borrowings BNDES – FINAME Real ¹ BNDES – FMM linked to US Dollar ² BNDES – FMM Real ² BNDES – FINEM Real ³ BNDES – linked to US Dollar ³ Total BNDES BB – FMM linked to US Dollar 4 IFC – US Dollar 5IFC – linked to Real 5 BB – FMM linked to US Dollar 4 China Eximbank – US Dollar 6 Itaú – Finimp – US Dollar 7 Caterpillar – Supplier´s Credit Real Total others Total secured borrowings Total 31 December 31 December Annual Interest rate 2013 % US$’000 12.4% – – 3.0% to 12.00% 2.07% to 6% 9.71% 6.76% – 6.89% 5.07% to 5.36% 2.00% to 3.00% 3.14% 14.09% 2.19% 2.02% to 4.30% 4.41% to 7.44% 10,366 214,826 3,247 9,849 11,591 249,879 24,387 75,296 1,738 11,563 9,528 – 2012 (Restated) US$’000 – – 19,401 213,999 3,994 3,604 13,821 254,819 – 77,606 2,655 13,686 10,605 264 1 January 2012 (Restated) US$’000 132 132 30,591 198,827 4,540 – 15,447 249,405 – 57,208 3,618 15,769 3,152 487 122,512 104,816 80,234 372,391 359,635 329,639 372,391 359,635 329,771 1. 2. 3. FINAME credit line, through a variety of financial agents, finances Logistics and Port Operation equipment. As an agent of Fundo da Marinha Mercante’s (FMM), Banco Nacional De Desenvolvimento Economico e Social (BNDES) finances the construction of tugboats and shipyard facilities. Through FINEM credit line, BNDES is also financing improvements in Tecon Rio Grande, modernisation of support bases of Brasco in Niterói and Guaxindiba, Logistics equipment, implementation of Wilport’s yard and enlargement of the container storehouse in Salvador Depot. The debt amount is repayable over different periods up to 18 years. 4. Banco do Brasil (“BB”) as a Fundo da Marinha Mercante’s (FMM) agent, finances the construction of tugboats. The contract shall be repaid in 18 years starting in March 2015, with monthly amortisation and interest payment. 5. 6. International Finance Corporation (IFC) finances projects in container terminal -Tecon Salvador. The amortisation and interest payment are semi-annual. The Export-Import Bank of China (Eximbank) finances Tecon Rio Grande’s equipment acquisition. As per loan agreement principal shall be repaid in 9 years (5.1 years on 31 December 2013), with semi-annual amortisation and interest payment. There is a 2.0% p.a. guarantee fee paid to Banco Itaú BBA. 7. Banco Itaú BBA S.A finances Tecon Rio Grande’s equipment acquisition through an Import Finance Facility (“FINIMP”). As per the loan agreement the principal will be repaid in 5.5 years (1.1 years on 31 December 2013) with semi-annual amortisation and interest payments. The second loan was signed on 6 January 2012. As per the loan agreement the principal will be repaid in 5 years (3.0 years on 31 December 2013) with semi-annual amortisation and interest payments. 60 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 61 Ocean Wilsons Holdings Limited/Annual Report 2013 22 Bank loans and overdrafts (continued) The breakdown of bank overdrafts and loans by maturity is as follows: 31 December 31 December Within one year In the second year In the third to fifth years (including) After five years Total Amounts due for settlement within 12 months Amounts due for settlement after 12 months The analysis of borrowings by currency is as follows: 31 December 2013 Bank overdrafts Bank loans Total 31 December 2012 (Restated) Bank overdrafts Bank loans Total 1 January 2012 (Restated) Bank overdrafts Bank loans Total Guarantees 2013 US$’000 37,997 37,370 110,115 186,909 372,391 37,997 334,394 $Real linked to US Dollars US$’000 – 250,804 250,804 – 227,820 227,820 – 214,274 214,274 $Real US$’000 – 25,200 25,200 – 29,919 29,919 132 39,236 39,368 2012 (Restated) US$’000 35,497 38,358 102,608 183,172 359,635 35,497 324,138 1 January 2012 (Restated) US$’000 25,185 33,927 98,092 172,567 329,771 25,185 304,586 US Dollars US$’000 Total US$’000 – 96,387 96,387 – 101,896 101,896 – 76,129 76,129 – 372,391 372,391 – 359,635 359,635 132 329,639 329,771 Loans with BNDES rely on a corporate guarantee from Wilson Sons de Administração e Comércio Ltda. For some contracts, the corporate guarantee is additional to: (i) pledge of the respective financed tugboat or platform supply vessel, (ii) lien of logistics and port operations equipment financed. Loans with BB rely on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda. and pledge of the respective financed tugboat. The loans that Tecon Salvador holds with IFC are guaranteed by shares of Tecon Salvador, projects’ cash flows, equipment and buildings. The loan with “The Export-Import Bank of China” is guaranteed by a “Standby Letter of Credit” issued for Tecon Rio Grande by Banco Itaú BBA S.A., with the financing bank as beneficiary, as counter-guarantee, Tecon Rio Grande pledged the equipment funded by “The Export-Import Bank of China” to Banco Itaú BBA S.A. Loan with Itaú BBA S.A. is guaranteed by the corporate guarantee from Wilson Sons de Administração e Comércio Ltda and the pledge of the respective financed equipment. One contract is additionally guaranteed by a promissory note. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 61 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 62 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 22 Bank loans and overdrafts (continued) Undrawn credit facilities At 31 December 2013 the Group had available US$218.5 million (R$512.0 million) of undrawn borrowing facilities. For each disbursement there is a set of precedent conditions that must be satisfied. Fair value Management estimates the fair value of the Group's borrowings as follows: Bank overdrafts Bank loans BNDES BB IFC Eximbank Finimp Caterpillar Total bank loans Total The weighted average interest rates paid were as follows: Bank loans in US$ and linked to the US$ Bank loans in $Real 31 December 31 December 2013 US$’000 – 2012 (Restated) US$’000 – 1 January 2012 (Restated) US$’000 132 249,879 254,819 249,405 24,387 77,034 11,563 9,528 – – 80,352 13,686 10,605 264 – 60,934 15,769 3,152 487 372,391 359,726 329,747 372,391 359,726 329,879 Year ended Year ended 2013 3.2% 7.9% 2012 3.2% 8.5% At 31 December 2013, the Group had available US$218.5 million of undrawn committed borrowings facilities available. For each disbursement, there is a set of conditions precedent that must be met (2012: US$500.5 million). 23 Derivative financial instruments The Group may enter into derivatives contracts to manage risks arising from exchange rate fluctuations. The derivatives are entered into with bank and financial institution counterparties, which are rated AAA, based on rating agency Standard & Poor’s ratings. The Group buys and sells derivatives, in order to manage market risks. All such transactions are carried out within the guidelines set by the Wilson Sons Limited Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. The Group entered into currency put-options contracts during the years ended 31 December 2013 (31 December 2012: nil). Options are derivative financial instruments that give the buyer, in exchange for a premium payment, the right, but not the obligation, to either purchase from (call option) or sell to (put option) the writer a specified underlying instrument at a specific price on or before a specified date. The premium paid on acquired put options are recorded initially as an asset and adjusted to their respective fair values using valuation techniques as Black and Scholes option model. The model used to price option contracts includes observables inputs available on market. At 31 December 2013 the notional value of outstanding derivative put contracts was US$• million. The fair value was US$1.2 million. 62 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 63 Ocean Wilsons Holdings Limited/Annual Report 2013 23 Derivative financial instruments (continued) Cash flow hedge The Group seeks to apply hedge accounting in order to manage volatility in profit or loss. The put option contracts described are designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a highly probable forecast transaction that could affect profit or loss. The effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur then the balance in equity is reclassified to profit or loss. On initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80 – 125%. Derivatives are recognised initially at fair value; any attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. The hedged item and the risk associated is the foreign currency exposure in BRL of payments to the shipyard. The Group uses cash flow hedges to limit its exposure that may result from the variability of floating interest rates. On 16 September 2013, its subsidiary, Tecon Salvador, entered into an interest rate swap agreement with a notional amount of $74.4 million to hedge a portion of its outstanding floating-rate debt with IFC. This swap converts floating interest rate based on the London Interbank Offered Rate, or LIBOR, into fixed-rate interest and expires in March 2020.The derivatives were entered into with Santander Brasil as counterparty, whose credit rating was AAA, as of 31 December 2013, according to Standard& Poor’s Brazilian local rating scale. Tecon Salvador is required to pay the counterparty a stream of fixed interest payments at rates fixed from 0.553% to 4.250%, according to the schedule agreement, and in turn, receives variable interest payments based on 6-month LIBOR. The net receipts or payments from the swap are recorded as financial expense. Within one year In the second year In the third to fifth years (including) After five years Fair Value Outflows (110) (58) (1,118) (46) (1,332) US$’000 Inflows – 58 34 – 92 Net effect (110) – (1,084) (46) (1,240) (1,240) The fair value of the swap was estimated based on the yield curve as of 31 December 2013, and represents its carrying value. As of 31 December 2013, the interest rate swap balance in current liabilities and other non-current liabilities was US$1.2 million; and the balance in accumulated other comprehensive income on the consolidated balance sheets was US$1.2 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the year ended 31 December 2013 was an after-tax loss of US$1.2 million. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 63 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 64 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 23 Derivative financial instruments (continued) 31 December 2013 Financial Assets Interest Rates Swap Total Derivative Sensitivity Analysis Notional Amount US$000’s Maturity 74,400 Mar/2020 Fair Value US$000’s (1,240) (1,240) This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of deterioration of 25% (Possible) and 50% (Remote) in the exchange rate, the risk in buying an options contracts is that the Group pays a premium whether or not the option is exercised. In this case in both scenarios the risk associated on 31 December 2013 is US$1.2 million. Cash Flow Hedge The Group applies hedge accounting for transactions in order to manage the volatility in earnings. The swap is designated and qualifies as a cash flow hedge. As such, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheets at fair value. The effective portion of changes in fair value of the derivative is recognized in other comprehensive income and presented as an asset revaluation reserve in equity. Any ineffective portion of changes in fair value of the derivative is recognised immediately in the profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting operations, expires or is sold, terminated or exercised, or the designation is revoked, the model accounting hedges (hedge accounting) is discontinued prospectively when there is no more expectation for the forecasted transaction, and then the amount stated in the equity is reclassified to the profit or loss. On the initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the hedging instrument and the hedged transaction, including the risk management objective and strategy on the implementation of the hedge and the hedged risk, together with the methods that will be used to evaluate the effectiveness of the hedging relationship. The Group is utilizing the dollar offset method to assess the effectiveness of the swap, analysing whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of the respective hedged items attributable to the hedged risk, and if the actual results for each coverage are within the range from 80 – 125%. Under this methodology, the swap was deemed to be highly effective for the period ended 31 December 2013. There was no hedge ineffectiveness recognized in profit or loss for the year ended 31 December 2013. 24 Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period. Accelerated tax variance on Other non-current asset Exchange Retranslation of depreciation US$’000 (16,203) (1,670) – (17,873) (1,320) – – loans US$’000 508 4,958 (61) 5,405 11,768 – (166) (19,193) 17,007 differences US$’000 24,790 9,913 (558) 34,145 (416) (7,793) (1,599) 24,337 valuation US$’000 3,152 (10,225) – (7,073) (18,740) – – (25,813) Total US$’000 12,247 2,976 (619) 14,604 (8,708) (7,793) (1,765) (3,662) At 1 January 2012 – (Restated) (Charge)/credit to income Exchange differences At 1 January 2013 – (Restated) (Charge)/credit to income Deferred tax from acquisitions Exchange differences At 31 December 2013 64 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 65 Ocean Wilsons Holdings Limited/Annual Report 2013 24 Deferred tax (continued) Certain tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes. Deferred tax liabilities Deferred tax assets 31 December 31 December 2013 US$’000 (33,761) 30,099 (3,662) 2012 (Restated) US$’000 (15,043) 29,647 14,604 1 January 2012 (Restated) US$’000 (17,260) 29,507 12,247 At the balance sheet date the Group had unused tax losses of US$42.0 million (2012: US$66.5 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$7.2 million (2012: US$6.9 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 $Real denominated loans linked to the US Dollar that are not deductible or payable for tax in the period they arise. Exchange gains on these loans are taxable when settled and not in the period in which gains arise. 25 Obligations under finance leases Amounts payable under finance leases Within one year In the second to fifth years inclusive After five years Less future finance charges Present value of lease obligations Less: Amounts due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months Amounts payable under finance leases Within one year In the second to fifth years inclusive After five years Less future finance charges Present value of lease obligations Less: Amounts due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months Minimum lease payments 31 December 31 December 2013 US$’000 2,042 6,546 – 8,588 (2,229) 6,359 1,547 4,812 2012 (Restated) US$’000 1,666 3,564 – 5,230 (1,187) 4,043 1,234 2,809 1 January 2012 (Restated) US$’000 4,568 4,305 – 8,873 (1,776) 7,097 3,804 3,293 Present value of Minimum lease payments 31 December 31 December 2013 US$’000 1,547 4,812 – 6,359 – – 1,547 4,812 2012 (Restated) US$’000 1,234 2,809 – 4,043 – – 1,234 2,809 1 January 2012 (Restated) US$’000 3,804 3,293 – 7,097 – – 3,804 3,293 65 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 66 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 25 Obligations under finance leases (continued) It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 4.5 years. For the year ended 31 December 2013, the average effective borrowing rate was 13.61% (2012: 14.94%). Interest rates are fixed at contract date. All leases are denominated in Brazilian Real and include a fixed repayment and a variable finance charge linked to the Brazilian interest rate. Interest rates range from 12.11% to 17.32%. The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets. 26 Trade and other payables Trade creditors Amounts due to construction contract customers (note 20) Other taxes Accruals and deferred income Share based payment liability Total current Total non-current 31 December 31 December 2013 US$’000 73,908 28,545 12,437 10,132 10,898 135,920 135,920 – 2012 (Restated) US$’000 58,671 75,337 15,199 12,818 12,328 174,353 173,219 1,134 1 January 2012 (Restated) US$’000 55,977 23,807 16,709 13,397 18,035 127,925 125,454 2,471 Trade creditors and accruals principally comprise amounts outstanding for trade purposes and ongoing costs. The average credit period for trade purchases is 76 days (2012: 104 days). For most suppliers interest is charged on outstanding trade payable balances at various interest rates. The Group has financial risk management policies in place to ensure that payables are paid within the credit timeframe. The directors consider that the carrying amount of trade payables approximates their fair value. 27 Provisions At 1 January 2012 – (Restated) Increase in provisions in the year Utilisation of provisions Exchange difference At 31 December 2012 – (Restated) Increase in provisions in the year Utilisation of provisions Exchange difference At 31 December 2013 Provisions comprise legal claims relating to civil cases, tax cases and legal claims by former employees. Analysis of provisions by type: Civil and environmental cases Tax cases Labour claims 66 US$’000 13,378 1,658 (3,452) (618) 10,966 4,252 (1,239) (3,717) 10,262 1 January 2012 (Restated) US$’000 1,910 169 11,299 13,378 31 December 31 December 2013 US$’000 2,078 1,822 6,362 10,262 2012 (Restated) US$’000 1,747 1,764 7,455 10,966 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 67 Ocean Wilsons Holdings Limited/Annual Report 2013 27 Provisions (continued) Civil and environment cases: these comprise indemnification for environmental damages caused by floating craft accidents and contract disputes. Labour claims: These claims relate to additional payments for health risks, overtime and other allowances. Tax cases: Brazilian taxes that the Group and its advisors consider have been incorrectly applied against the Group and are contesting in legal actions. Other non-current assets of US$10.2 million (2012: US$9.2 million) represent legal deposits required by the Brazilian legal authorities as security to contest legal actions. In addition to the cases for which the Group booked the provision there are other tax, civil and labour disputes amounting to US$131.6 million (2012: US$91.6 million) included in note 31, contingent liabilities, whose probability of loss was estimated by the legal counsel as possible. The analysis of possible losses by type: Civil and environmental cases Tax cases Labour claims 31 December 31 December 2013 US$’000 10,174 56,799 66,416 133,389 2012 (Restated) US$’000 7,140 40,479 43,961 91,580 1 January 2012 (Restated) US$’000 6,261 25,036 37,365 68,662 Procedure for classification of legal liabilities as probable, possible or remote loss by the external lawyers: Upon receipt of the notification of a new judicial lawsuit, the external lawyers, in general, classify it as a possible claim, recording the total amount involved, not the amount at risk which is not known at this stage. Exceptionally, if there is sufficient knowledge from the beginning that there are 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 defense 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. 28 Share capital Authorised 50,060,000 ordinary shares of 20p each Issued and fully paid 35,363,040 ordinary shares of 20p each 2013 US$’000 2012 (Restated) US$’000 16,119 16,119 11,390 11,390 The company has one class of ordinary shares which carry no right to fixed income. Share capital is converted at the exchange rate prevailing at 31 December 2002, the date at which the Group’s presentational currency changed from Sterling to US$, being US$1.61 to £1. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 67 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 68 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 29 Acquisition of subsidiary Business combinations Brasco Logística Offshore Ltda ("Brasco"), completed the acquisition of all the shares representing the capital of Brazilian Intermodal Complex S/A (“Briclog”), concluding the acquisition on 1 July 2013. The closing price of the acquisition of shares was R$89.8 million (equivalent to US$40.5 million at the transaction date) with debt of R$32.1 million (equivalent to US$14.5 million at transaction date) assumed on acquisition these values were subsequently adjusted to R$89.2 million regarding the acquisition of shares (equivalent to US$40.2 million at the transaction date) with debt of R$32.7 million (equivalent to US$14.8 million at transaction date) due to an update on the commercial agreement. The acquisition of shares is payable in three amounts, including R$10 million (equivalent to US$4.5 million at transaction date) paid in June 2011, R$22.5 million (US$10.2 million at transaction date) paid on the closing and R$57.3 million (equivalent to US$25.9 million at transaction date) that will be paid 300 days from the closing adjusted for movement in the Brazilian index of consumer prices (IPCA) from the date of closing. The major asset of the acquisition is a 30-year lease to operate in an area of Guanabara Bay, Rio de Janeiro, Brazil with excellent access to the Campos and Santos oil producing basins. In the 6 month-period ended 31 December 2013, Briclog accrued revenues of US$3.9 million and profit of US$790,000. If the acquisition had occurred on 1 January 2013, management estimates that revenue contribution would amount to US$11.0 million and the loss for the year would have been US$3.0 million. In determining these amounts, management considered that the provisional fair value adjustments, which arose on the acquisition date, would have been the same if the acquisition had occurred on 1 January 2013. Included in the Group’s accounts payable at 31 December 2013 is US$25.5 million for amounts outstanding in relation to the purchase of Briclog. Contingent consideration There is no contingent consideration involved in the purchase agreement. Identifiable assets acquired and liabilities assumed Assets Cash and cash equivalents Trade and other receivables Recoverable taxes Other assets Property, plant and equipment Identifiable intangible assets Total identifiable assets Liabilities Trade and other payables Advances Tax payable Provisions for tax, labour and civil risks Deferred tax on intangible assets Other payables Total identifiable liabilities Total net identifiable assets Goodwill for expected future profitability Total consideration US$’000 19 434 357 274 13,990 23,413 38,487 6,156 1,785 3,580 1,036 8,131 844 21,532 16,955 23,272 40,227 Lease operations were recognised at fair value on the acquisition date If any new information is obtained within one year from the date of purchase regarding facts and circumstances that existed at the acquisition date which indicate adjustments to the amounts described above or any additional provision that existed at the acquisition date, the accounting for the acquisition will be reviewed. 68 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 69 Ocean Wilsons Holdings Limited/Annual Report 2013 29 Acquisition of subsidiary (continued) Goodwill and other intangible assets Goodwill and other intangible assets recognised as a result of the acquisition are as follows: Lease concession intangible asset Goodwill for expected future profitability US$’000 23,353* 23,272** 46,625 * The intangible asset is attributable mainly to the 30-year lease to operate in a sheltered area of Guanabara Bay, Rio de Janeiro, Brazil with privileged access to attend the Campos and Santos oil producing basins and the fair value of the customer portfolio. The intangible asset calculation is supported by an independent expert valuation. ** Goodwill is attributable to Briclog’s expected future profitability and deferred tax on the lease concession intangible asset and is disclosed in the consolidated balance sheet and assessed for impairment (see note 13). Acquisition costs There are no material acquisition costs incurred by the Group including legal fees and due diligence costs. 30 Notes to the cash flow statement Reconciliation from profit before tax to net cash from operating activities Profit before tax Share of results of joint venture Investment revenues Other gains and losses Finance costs Foreign exchange losses on monetary items Operating profit Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Share based payment (credit)/expense Gain on disposal of property, plant and equipment Decrease in provisions Operating cash flows before movements in working capital Increase in inventories Decrease/(increase) in receivables (Decrease)/increase in payables Increase in other non-current assets Cash generated by operations Income taxes paid Interest paid Net cash from operating activities Cash and cash equivalents Year ended Year ended 31 December 31 December 2013 US$’000 100,502 (2,392) (17,838) (13,684) 21,863 30,589 119,040 2012 (Restated) US$’000 98,552 (689) (18,255) (16,394) 9,948 11,572 84,734 52,372 50,639 6,302 (1,430) (9,966) (2,528) 163,790 (3,085) 62,154 (73,194) (999) 148,666 (27,306) (12,944) 108,416 5,258 2,262 534 (2,412) 141,015 (12,082) (27,891) 54,650 (781) 154,911 (31,921) (12,899) 110,091 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. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 69 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 70 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 30 Notes to the cash flow statement (continued) 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$84.3 million (2012: US$110.5 million and 2011: US$106.1 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$4.2 million (2012: US$0.7 million) were financed by new finance leases. 31 Contingent liabilities In the normal course of business in Brazil, the Group continues to be exposed to numerous local legal claims. It is the Group’s policy to contest such claims vigorously, many of which appear to have little substance in merit, and to manage such claims through its legal advisers. The total estimated contingent claims at 31 December 2013 are US$131.6 million (2012: US$91.6 million). These have not been provided for as the Directors and the Group’s legal advisors do not consider that there is any probable loss. Contingent liabilities relate to labour, civil and environmental, and tax claims. 32 Cash-settled share-based payments The Group issues to certain employees share appreciation rights in respect of the Group’s long-term incentive plan “LTIP” that require the Group to pay the intrinsic value to the employee at the date of exercise. The Group operates two long-term incentive plans, the Ocean Wilsons Holdings scheme and the Wilson Sons Limited scheme. Ocean Wilsons Holdings Limited LTIP The Company implemented a cash-settled phantom option scheme that was approved by shareholders at a Special General Meeting held on 19 April 2007. The scheme was for selected senior management and the options provide for the option holder to receive on exercise the difference between the option price of US$5.66 and the lower of US$19.98, being the market capitalisation of the Wilson Sons at the date of the IPO per OWHL share and the market value of Wilson Sons per OWHL share at the time of exercise. The awards vested in four tranches from April 2009 to April 2012 and expire in April 2016. As at 31 December 2013 the scheme was closed and there were no outstanding options. Details of the share options outstanding during the year as follows: Outstanding at the beginning of the period Exercised during the period Outstanding at the end of the period 2013 2012 Number of Number of share options share options – – – 296,038 (296,038) – 70 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 71 Ocean Wilsons Holdings Limited/Annual Report 2013 32 Cash-settled share-based payments (continued) The movement of the accrual relating to the plan is as follows: Liability at 1 January Charge for the year Exercise of options Liability at 31 December 2013 US$’000 – – – – 2012 (Restated) US$’000 3,664 572 (4,236) – The group has recorded no liability (2012: zero) in respect of this scheme. There were no exercisable options at period end. 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 will provide 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 is 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$24.58 in 2011. The awards vest in four tranches from two to six years from date of issue. Details of the share options outstanding during the year as follows: Outstanding at the beginning of the period Granted during the period Exercised during the period Forfeited during the period Outstanding at the end of the period The movement of the accrual relating to the plan is as follows: Liability at 1 January (Credit)/charge for the year Exercise of options Liability at 31 December 2013 2012 Number of Number of share options share options 2,541,260 3,826,260 – – – – (1,232,000) (53,000) 2,541,260 2,541,260 2013 US$’000 12,328 (1,430) – 10,898 2012 (Restated) US$’000 14,371 1,690 (3,733) 12,328 The group has recorded liabilities of US$10.9 million (2012: US$12.3million). Fair value is determined by using the Binomial model using the assumptions noted in the table below. Weighted average option price for awards made in 2007 Weighted average option price for awards made in 2008 and 2009 Weighted average option price for awards made in 2011 Expected volatility Expected life Risk free rate Expected dividend yield 2013 R$23.74 R$18.70 R$24.58 2012 R$23.74 R$18.70 R$24.58 2011 R$23.74 R$18.70 R$24.58 26% – 29% 26% – 30% 30% – 33% 10 years 10.40% 1.60% 10 years 10 years 3.90% 1.50% 7.10% 1.47% Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 71 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 72 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 32 Cash-settled share-based payments (continued) Expected volatility was determined with reference to the historical volatility of the OWHL Group share price. The expected life used in the model has been adjusted, based on management’s best estimate for exercise restrictions and behavioural considerations. The options terminate on the expiry date or immediately on resignation of the Director or senior employee, whichever is earlier. Share options outstanding at the end of the period had a weighted average exercise price of R$23.56 (2012: R$23.56) and a weighted average remaining contractual life of 2,031 days (2012: 1,667 days). At period end there were 2,453,510 exercisable options (2012: 2,390,510). On the 10 January 2014 eligible participants exercised a total of 2,338,750 options at a price of R$30.23 generating a payment liability of R$15.7 million (US$6.6 million). 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 acquisition 2,914,100 were granted under the Stock Option Plan with an exercise price of R$31.23 as detailed below: Options series 07 ESO – 3 Year 07 ESO – 4 Year 07 ESO – 5 Year Number Grant date Vesting date Expiry date Exercise price 961,653 961,653 10/1/2014 10/1/2017 10/1/2022 10/1/2014 10/1/2018 10/1/2023 990,794 10/1/2014 10/1/2019 10/1/2024 (R$) 31.23 31.23 31.23 The options terminate on the expiry date or immediately on the resignation of the director or senior employee, whichever is earlier. The following Fair Value expense of the grant to be recorded as a liability in future accounting periods was determined using the Binomial model based on the assumptions detailed below: Period 2014 2015 2016 2017 2018 Total * Amounts in Dollars converted at R$2.3426/US$1.00. Projected IFRS2 Projected IFRS2 Fair Value expense Fair Value expense R$’000 7,507 7,506 7,506 4,408 2,011 US$’000* 3,205 3,204 3,204 1,882 858 28,938 12,353 72 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 73 Ocean Wilsons Holdings Limited/Annual Report 2013 10 January 2014 R$30.05 28% 10 years 10.8% 1.7% 32 Cash-settled share-based payments (continued) Closing share price (in Real) Expected volatility Expected life Risk free rate Expected dividend yield Expected volatility was determined by calculating the historical volatility of the Group’s share price. The expected life used in the model has been adjusted based on management´s best estimate for exercise restrictions and behavioural considerations. The Group has recorded no liability in respect of this scheme at the balance sheet date. 33 Operating lease arrangements The Group as lessee 2013 US$’000 2012 (Restated) US$’000 Minimum lease payments under operating leases recognised in income for the year 13,966 14,128 At the balance sheet date, the minimum amount due in 2013 by the Group for future minimum lease payments under cancellable operating leases was US$12.5 million (2012: $13.4 million). Lease commitments for land and buildings over 5 years comprise the minimum contractual lease obligations between Tecon Rio Grande and the Rio Grande port authority the Group and the Salvador port authority. The Tecon Rio Grande concession expires in 2022 and Tecon Salvador in 2025. Tecon Rio Grande guaranteed payments consist of two elements; a fixed rental, plus a fee per 1000 containers moved based on forecast volumes. The amount shown in the accounts is based on the minimum volume forecast. Volumes are forecast to rise in future years. If container volumes moved through the terminal exceed forecast volumes in any given year, additional payments will be required. Tecon Salvador guaranteed payments consists of three elements; a fixed rental, a fee per container moved based on minimum forecast volumes and a fee per ton of non-containerised cargo moved based on minimum forecast volumes. At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable/operating leases, which fall due as follows: Within one year In the second to fifth year inclusive After five years 2013 US$'000 25,223 90,634 108,516 224,373 2012 (Restated) US$'000 26,698 95,380 98,055 220,133 Non-cancellable lease payments represent rental payments by the Group for the bonded warehouse used by EADI Santo Andre. The unexpired lease term at 31 December 2013 is 4 years and 11 months and rental payments are corrected by a Brazilian general inflation index. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 73 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 74 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 34 Commitments At 31 December 2013 the Group had entered into fifteen commitment agreements with respect to fifteen separate trading investments. These commitments relate to capital subscription agreements entered into by Ocean Wilsons Investments Limited. The details of these commitments are as follows: 31 March 2014 15 May 2014 03 August 2014 22 November 2014 08 December 2013 23 February 2015 31 December 2016 17 February 2017 (a) 21 May 2013 28 March 2017 30 April 2017 05 December 2017 30 March 2018 21 December 2018 31 December 2018 21 June 2019 01 January 2020 18 December 2021 01 February 2023 01 April 2023 05 June 2023 22 August 2023 Total Year ended Outstanding Year ended Outstanding At 31 December At 31 December Commitment $’000 5,000 3,000 3,000 5,000 5,000 5,000 3,000 3,000 4,994 5,000 7,500 5,000 5,000 5,000 4,650 5,000 4,500 5,000 5,000 5,000 3,200 5,000 2013 US$’000 1,700 68 810 1,175 1,356 949 271 1,652 267 4,884 5,226 394 914 623 739 3,000 4,500 3,544 1,000 3,824 3,048 4,607 2012 US$’000 2,100 68 1,410 1,550 2,274 1,823 271 2,253 411 – 6,304 473 641 1,013 1,766 4,392 – 4,228 1,250 – – – 101,844 44,551 32,227 (a) Commitment made in Euro. Total commitment €3,350,000 with amounts outstanding at 31 December 2013 €193,987 (2012: €311,086). There may be situations when commitments may be extended by the manager of the underlying structure beyond the initial expiry date dependent upon the terms and conditions of each individual structure. 35 Retirement benefit schemes Defined contribution schemes The Group operates defined contribution retirement benefit schemes for all qualifying employees of its Brazilian business. The assets of the scheme are held separately from those of the Group in funds under the control of independent managers. The total cost charged to income of US$1.5 million (2012: US$1.2 million) represents contributions payable to the scheme by the Group at rates specified in the rules of the plan. 74 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 75 Ocean Wilsons Holdings Limited/Annual Report 2013 36 Related party transactions Transactions between this company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and its associates, joint ventures and others investments are disclosed below: Joint ventures 1. Allink Transportes Internacionais Limitada 2. Consórcio de Rebocadores Barra de Coqueiros 3. Consórcio de Rebocadores Baía de São Marcos 4. Wilson Sons Ultratug and subsidiaries Others 5. Hanseatic Asset Management 6. Gouvêa Vieira Advogados 7. CMMR Intermediacao Comercial Limitada 8. Jofran Services Joint ventures 1. Allink Transportes Internacionais Limitada 2. Consórcio de Rebocadores Barra de Coqueiros 3. Consórcio de Rebocadores Baía de São Marcos 4. Wilson Sons Ultratug Others 5. Hanseatic Asset Management 6. Gouvêa Vieira Advogados 7. CMMR Intermediacao Comercial Limitada 8. Jofran Services Dividends received/ Revenue of services Amounts paid/ Cost of services 31 December 31 December 31 December 31 December 2013 US$’000 2012 US$’000 2013 US$’000 2012 US$’000 31 313 12 36 351 108 55,687 127,411 – – (1,124) – – – (573) – – – – – – – – – (2,420) (2,478) (245) (244) (165) (199) (279) (165) Amounts owed by related parties Amounts owed to related parties 31 December 31 December 31 December 31 December 2013 US$’000 – 134 2,165 20,350 – – – – 2012 US$’000 1 64 2,497 – – – – – 2013 US$’000 2012 US$’000 (2) – – – – – – (12,909) (211) (204) – – – – – – 1. Mr A C Baião is a shareholder and Director of Allink Transportes Internacionais Limitada. Allink Transportes Internacionais Limitada is 50% owned by the Group and rents office space from the Group. 5. Mr W H Salomon is chairman of Hanseatic Asset Management. Fees were paid to Hanseatic Asset Management for acting as investment managers of the Group’s investment portfolio and administration services. 6. Dr J F Gouvêa Vieira is a partner in the law firm Gouvêa Vieira Advogados. Fees were paid to Gouvêa Vieira Advogados for legal services. 7. Mr C M Marote is a shareholder and Director of CMMR Intermediacao Comercial Limitada. Fees were paid to CMMR Intermediacao Comercial Limitada for consultancy services. 8. Mr J F Gouvêa Vieira is a Director of Jofran Services. Directors’ fees were paid to Jofran Services. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 75 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 76 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 36 Related party transactions (continued) Remuneration of key management personnel The remuneration of the executive directors and other key management of the Group, is set out below in aggregate for the categories specified in IAS 24 Related Party Disclosures. Short-term employee benefits Other long-term employee benefits Post-employment benefits Share-based payment 37 Financial instruments Capital risk management Year ended Year ended 2013 US$'000 9,265 1,807 1,541 (1,430) 11,183 2012 (Restated) US$'000 9,013 2,316 1,450 2,262 15,041 The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 22, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings and the consolidated statement of changes in equity. The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated by operating revenues. Externally imposed capital requirement The Group is not subject to externally imposed capital requirements. Significant accounting policies Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expense are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. Categories of financial instruments Financial assets Designated as fair value through profit or loss Receivables (including cash and cash equivalents and other non-current assets) Financial liabilities Financial instruments classified as amortised cost Financial instruments classified as cash flow hedge (Derivatives) Financial risk management objectives Year ended Year ended Year ended 2013 US$’000 244,969 312,033 2012 (Restated) US$’000 221,582 371,060 2011 (Restated) US$’000 226,797 325,828 (502,233) (521,698) (445,613) (1,240) – – The Group’s Corporate Treasury function provides services to the business, co-ordinates access to domestic and international financial markets and manages the financial risks relating to the operations of the Group through internal reports. The primary objective is to keep a minimum exposure to those risks by using financial instruments and by assessing and controlling the credit and liquidity risks according to the rules and procedures established by management. These risks include market risk, (including currency risk, interest rate risk and price risk) credit risk and liquidity risk. The Group may use derivative financial instruments to hedge these risk exposures, with Board approval. The Group does not enter into trading financial instruments, including derivative financial instruments for speculative purposes. 76 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 77 Ocean Wilsons Holdings Limited/Annual Report 2013 37 Financial instruments (continued) Credit risk The Group’s principal financial assets are cash, trade and other receivables and trading investments. The Group’s credit risk is primarily attributable to its bank balances, trade receivables and investments. The amounts presented as receivables in the balance sheet are net of allowances for doubtful receivables as outlined above. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The credit risk on investments held for trading is limited because the counterparties with whom the Group transacts are regulated institutions or banks with high credit ratings. The company’s appointed investment manager, Hanseatic Asset Management LBG, evaluates the credit risk on trading investments prior to and during the investment period. In addition, the Company invests in Limited Partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The board reviews all investments at its regular meetings from reports prepared by the company's investment managers The Group has no significant concentration of credit risk. Ongoing credit evaluation is performed on the financial condition of accounts receivable. Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. Foreign currency risk management The Group undertakes certain transactions denominated or linked to foreign currencies and therefore exposures to exchange rate fluctuations arise. The Group operates principally in Brazil with a substantial proportion of the Group’s revenue, expenses, assets and liabilities denominated in the Real. Due to the cost of hedging the Real, the Group does not normally hedge its net exposure to the Brazilian Real, as the Board does not consider it economically viable. Cash flows from investments in fixed assets are denominated in Brazilian Real and US Dollars. These investments are subject to currency fluctuations between the time that price of goods or services are settled and the actual payment date. The resources and their application are monitored with purpose of matching the currency cash flows and due dates. The Group has contracted US Dollar-denominated and Brazilian Real-denominated debt, and the cash and cash equivalents balances are also US Dollar- denominated and Brazilian Real-denominated. In general terms, for operating cash flows, the Group seeks to neutralize the currency risk by matching assets (receivables) and liabilities (payments). Furthermore, the Group seeks to generate an operating cash surplus in the same currency in which the debt service of each business is denominated. The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Real Sterling Euro Yen Singapore dollar Liabilities (Restated) 2012 US$’000 2013 US$’000 (Restated) 2111 US$’000 2013 US$’000 Assets (Restated) 2012 US$’000 168,913 236,867 168,323 262,387 368,524 39 – – – 108 446 – – – – –– – 168,952 236,975 168,769 18,573 5,854 4,995 291,809 16,108 4,509 – 11,232 400,373 (Restated) 2011 US$’000 303,828 27,279 3,355 3,887 2,183 340,532 77 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 78 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 37 Financial instruments (continued) Foreign currency sensitivity analysis The Group is primarily exposed to unfavourable movements in the Brazilian Real on its Brazilian liabilities held by US$ functional currency entities. The sensitivity analysis presented in the following table simulates how movements in the exchange rate may impact the Group. The analysis uses a baseline scenario, represented by the carrying value of the operations, considering the exchange rate prevailing at 31 December 2013. The following table details the Group’s sensitivity to three possible scenarios: the likely scenario (Probable) and two possible scenarios of deterioration of 25% (Possible) and 50% (Remote) in the exchange rate. The Group uses the focus reports published by the Brazilian Central Bank (BACEN) to determine the exchange rate used in the probable scenario which is also used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonable possible change in foreign exchange rates. Amount US Dollars Result 259,404 Exchange Effects 168,913 Exchange Effects Net Effect Amount US Dollars Result 365,269 Exchange effects 236,867 Exchange effects Net effect Probable scenario 31 December 2013 Exchange rates Possible scenario 25% Remote scenario 50% R$2.500/US$1.00 R$3.125/US$1.00 R$3.750/US$1.00 Probable scenario (16,332) 10,635 (5,697) Probable scenario Possible scenario (25%) (64,946) 42,290 (22,656) 31 December 2012 – Restated Exchange rates Possible scenario 25% Remote scenario (50%) (97,356) 63,394 (33,962) Remote scenario 50% R$2.070/US$1.00 R$2.588/US$1.00 R$3.105/US$1.00 Probable scenario (4,676) 3,032 (1,644) Probable scenario Possible scenario (25%) (76,795) 49,799 (26,996) 1 January 2012 – Restated Exchange rates (i) Possible scenario 25% Remote scenario (50%) (124,874) 80,977 (43,897) Remote scenario 50% R$1.800/US$1.00 R$2.250/US$1.00 R$2.700/US$1.00 Amount US Dollars Result 303,828 Exchange effects 168,323 Exchange effects Net effect Probable scenario 12,795 (7,088) 5,707 Possible scenario (25%) (50,530) 27,994 (22,536) Remote scenario (50%) (92,746) 51,382 (41,364) Risk BRL BRL Risk BRL BRL Risk BRL BRL Operation Total assets Total liabilities Operation Total assets Total liabilities Operation Total assets Total liabilities The Brazilian Real foreign currency impact is mainly attributable to the exposure of outstanding Brazilian Real receivables and payables at year end in the Group. The Sterling currency impact is mainly attributable to the exposure of sterling denominated investments. In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk, as the yearend exposure does not reflect the exposure during the year. 78 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 79 Ocean Wilsons Holdings Limited/Annual Report 2013 37 Financial instruments (continued) Interest rate risk management The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The Group holds most of its debts linked to fixed rates. Most of the Group's fixed rates loans are with the FMM (Fundo da Marinha Mercante). Other loans exposed to floating rates are as follows: TJLP (Brazilian Long-Term Interest Rate) for Brazilian Real-denominated funding through FINAME credit line to Port Operations and Logistics operations. DI (Brazilian Interbank Interest Rate) for Brazilian Real-denominated funding in Logistics operations. 6-month Libor (London Interbank Offered Rate) for US Dollar-denominated funding for Port Operations. The Brazilian Real-denominated investments yield interest rates corresponding to the DI daily fluctuation for privately-issued securities and/or “Selic-Over” government-issued bonds. The US Dollar-denominated investments are part in time deposits, with short-term maturities. The Group’s strategy for managing interest rate risk is to maintain a balanced portfolio of fixed and floating interest rates in order to balance both cost and volatility. The Group may use derivative instruments to reduce cash flow interest rate attributable to interest rate volatility. The Group has floating rate financial assets consisting of bank balances principally denominated in US Dollars and Brazilian Real that bear interest at rates based on the banks floating interest rate. Interest rate sensitivity analysis The Group uses two important information sources to estimate the probable scenarios in determining interest rate scenarios, BM&F (Bolsa de Mercadorias e Futuros) and Bloomberg. The following analysis concerns a possible fluctuation of revenue or expenses linked to the transactions and scenarios shown, without considering their fair value. For floating rate liabilities and investments, the analysis is prepared assuming the amount of the liability outstanding or cash invested at balance sheet date was outstanding or invested for the whole year. Transaction Loans Investments Transaction IFC loan Eximbank loan Finimp loan Investments 31 December 2013 Libor Possible scenario 25% 0.72% 0.42% Possible scenario (25%) 107 6 18 (45) 86 Probable scenario 0.57% 0.33% Probable scenario 146 13 23 (105) 77 Risk Libor Libor Libor Libor Amount US Dollars 73,658 11,663 9,799 46,944 Result Interest Interest Interest Income Net Income Remote scenario 50% 0.86% 0.50% Remote scenario (50%) 69 (1) 13 14 95 79 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 80 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 37 Financial instruments (continued) Transaction Investments Transaction Investments CDI Risk BRL Probable scenario 10.95% Probable scenario Principle US Dollars Result 79,125 Income 2,590 31 December 2013 CDI Possible scenario 25% 13.69% Possible scenario (25%) 5,178 Remote scenario 50% 16.43% Remote scenario (50%) 7,766 The net effect was obtained by assuming a 12 month period starting 31 December 2013 in which interest rates vary and all other variables are held constant. Other loans have fixed interest rates and represent a total of 81.50%. The investment rate risk mix in Brazil is 37.24% Libor, 62.76% CDI. Transaction Loans Investments Transaction IFC loan Eximbank loan Finimp loan Investments Transaction Investments Risk BRL BRL BRL BRL Amount US Dollars 75,750 13,686 10,588 23,000 Probable scenario 0.81% 0.48% Result Probable scenario Interest Interest Interest Income Net effect (75) (9) (4) 246 158 Probable scenario 7.09% Probable scenario 31 December 2012 – Restated Libor Possible scenario 25% 1.01% 0.60% Possible scenario (25%) (191) (33) (14) 214 (24) 31 December 2012 – Restated CDI (ii) Possible scenario 25% 8.86% Possible scenario (25%) 1,832 Remote scenario 50% 1.21% 0.72% Remote scenario (50%) (308) (56) (23) 188 (199) Remote scenario 50% 10.64% Remote scenario (50%) 3,633 Transaction Risk Principle US Dollars Result Investments BRL 108,428 Income 30 The net effect was obtained by assuming a 12 month period starting 31 December 2012 in which interest rates vary and all other variables are held constant. The investment rate mix in Brazil is 18% Libor, 82% CDI. 80 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 81 Ocean Wilsons Holdings Limited/Annual Report 2013 1 January 2012 – Restated Libor (i) Possible scenario 25% 1.39% 0.99% Possible scenario (25%) (301) (106) (17) 148 (276) 1 January 2012 – Restated CDI (ii) Possible scenario 25% 12.08% Possible scenario (25%) 2,060 Remote scenario 50% 1.66% 1.19% Remote scenario (50%) (410) (137) (22) 98 (471) Remote scenario 50% 14.49% Remote scenario (50%) 4,911 37 Financial instruments (continued) Transaction Loans Investments Transaction IFC loan Eximbank loan Finimp loan Investments Transaction Investments Risk BRL BRL BRL BRL Amount US Dollars 54,323 15,769 3,134 24,500 Result Interest Interest Interest Income Net effect Transaction Risk Principal US Dollars Result Probable scenario 1.11% 0.79% Probable scenario (193) (76) (12) 199 (82) Probable scenario 9.66% Probable scenario Investments BRL 103,447 Income (791) The net effect was obtained by assuming a 12 month period starting 1 January 2012 in which interest rates vary and all other variables are held constant. The investment rate risk mix in Brazil is 18.2% Libor, 81.8% CDI. Investment portfolio Interest rate changes will always impact equity prices. The level and direction of change in equity prices is subject to prevailing local and world economics as well as market sentiment all of which are very difficult to predict with any certainty. Derivative financial instruments The Group may enter into derivatives contracts to manage risks arising from interest rate fluctuations. All such transactions are carried out within the guidelines set by the Wilson Sons Limited Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. On 16 September 2013, Tecon Salvador, entered into an interest rate swap agreement with a notional amount of $74.4 million to hedge a portion of its outstanding floating-rate debt with the IFC. This swap converts the floating interest rate liability based on the London Interbank Offered Rate, or LIBOR, into a fixed interest rate liability and expires in March 2020.The derivatives were entered into with Santander Brasil as counterparty, whose credit rating was AAA, as of 31 December 2013, according to Standard& Poor’s Brazilian local rating scale. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 81 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 82 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 37 Financial instruments (continued) Tecon Salvador is required to pay the counterparty a stream of fixed interest payments at rates fixed from 0.553% to 4.250%, according to the schedule agreement, and in turn, receives variable interest payments based on 6-month LIBOR. The net receipts or payments from the swap are recorded as financial expense. Within one year In the second year In the third to fifth years (including) After five years Fair Value Outflows Inflows Net effect (110) (58) (1.118) (46) 1.332) – 58 34 – 92 (110) – (1.084) (46) (1.240) (1.240) The fair value of the swap was estimated based on the yield curve as of 31 December 2013, and represents its carrying value. As of 31 December 2013, the interest rate swap balance in other non-current liabilities was $1.2 million; and the balance in accumulated other comprehensive income on the consolidated balance sheets was $1.2 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the year ended 31 December 2013 was an after-tax loss of $1.2 million. 31 December 2013 Financial Assets Interest Rates Swap Total Derivative Sensitivity Analysis Notional Amount US$ Maturity Fair Value US$ 74,400 Mar/2020 (1,240) (1,240) This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of deterioration of 25% (Possible) and 50% (Remote) in the exchange rate, the risk in buying an options contracts is that the Group pays a premium whether or not the option is exercised. In this case, in both scenarios the risk associated on 31 December 2013 is US$1.2 million. Cash Flow Hedge The Group applies hedge accounting for transactions in order to manage the volatility in earnings. The swap is designated and qualifies as a cash flow hedge. As such, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheets at fair value. The effective portion of changes in fair value of the derivative is recognised in other comprehensive income and presented as an asset revaluation reserve in equity. Any ineffective portion of changes in fair value of the derivative is recognised immediately in the profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting operations, expires or is sold, terminated or exercised, or the designation is revoked, the model accounting hedges (hedge accounting) is discontinued prospectively when there is no more expectation for the forecasted transaction, and then the amount stated in the equity is reclassified to the profit or loss. On the initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the hedging instrument and the hedged transaction, including the risk management objective and strategy on the implementation of the hedge and the hedged risk, together with the methods that will be used to evaluate the effectiveness of the hedging relationship. The Group is utilizing the dollar offset method to assess the effectiveness of the swap, analysing whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of the respective hedged items attributable to the hedged risk, and if the actual results for each coverage are within the range from 80 – 125%. Under this methodology, the swap was deemed to be highly effective for the period ended 31 December 2013. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2013. 82 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 83 Ocean Wilsons Holdings Limited/Annual Report 2013 37 Financial instruments (continued) Market price sensitivity By the nature of its activities, the Company's investments are exposed to market price fluctuations. However the portfolio as a whole does not correlate exactly to any Stock Exchange Index as it is invested in a diversified range of markets. The investment manager and the board monitor the portfolio valuation on a regular basis and consideration is given to hedging the portfolio against large market movements. The sensitivity analysis below has been determined based on the exposure to market price risks at the year end and shows what the impact would be if market prices had been 10 per cent higher or lower at the end of the financial year. The amounts below indicate an increase in profit or loss and total equity where market prices increase by 10 per cent, assuming all other variables are constant. A fall in market prices of 10 per cent would give rise to an equal fall in profit or loss and total equity. Profit or loss Total equity Credit risk management 2013 US$’000 24,497 24,497 2012 (Restated) US$’000 22,158 22,158 2011 (Restated) US$’000 22,680 22,680 Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Group’s sales policy is subordinated to the credit sales rules set by management, which seeks to mitigate any loss from customers’ delinquency. Trade receivables consist of a large number of customers except for one large customer, which makes up 12% of revenue. Ongoing credit evaluation is performed on the financial condition accounts receivable. Liquidity risk management Liquidity risk is the risk that the Group will encounter difficulty in fulfilling obligations associated with its financial liabilities that are settled with cash payments or other financial asset. The Group's approach in managing liquidity is to ensure that the Group always has sufficient liquidity to fulfil the obligations that expire, under normal and stress conditions, without causing unacceptable losses or risk damage to the reputation of the Group. Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group uses costing based on activities to price the products and services, which assist in monitoring cash flow requirements and optimizing the return on cash investments. Normally, the Group ensures it has sufficient cash reserves to meet the expected operational expenses, including financial obligations. This practice excludes the potential impact of extreme circumstances that cannot be reasonably foreseen, such as natural disasters. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 83 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 84 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 37 Financial instruments (continued) The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. 31 December 2013 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments 31 December 2012 (Restated) Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments 1 January 2012 (Restated) Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments Weighted average effective interest rate % – 13.61% 3.02% 3.06% Less than 12 months US$’000 136,130 1,547 16,354 21,646 1-5 years US$’000 – 4,812 68,708 78,775 175,677 152,295 – 173,219 14.9% 3.18% 3.16% 1,654 13,511 21,986 1,134 3,555 64,102 76,864 210,370 145,655 – 128,999 14.9% 3.18% 3.16% 4,607 6,268 18,917 2,471 4,365 52,184 76,835 158,791 135,855 5+ years US$’000 Total US$’000 – – 25,518 161,391 186,909 – – 35,408 147,764 183,172 – – 27,723 144,844 172,567 136,130 6,359 110,580 261,812 514,881 174,353 5,209 113,021 246,614 539,197 131,470 8,972 86,175 240,596 467,213 The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. Fair value of financial instruments The fair value of non-derivative financial assets traded on active liquid markets are determined with reference to quoted market prices. The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair value. The fair value of financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading on 31 December. Prior to 1 January 2013, the quoted market price used for financial assets held by the Company was the current bid price. From 1 January 2013 and changed its fair valuation inputs to utilise the last traded market price financial assets. Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which fair value is observable: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 Inputs for the asset that are not based on observable market data. Fair value measurements are those derived from valuation techniques that include inputs for the assets or liability that are not based on observable data (unobservable inputs). 84 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 85 Ocean Wilsons Holdings Limited/Annual Report 2013 37 Financial instruments (continued) The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one of more of the significant inputs is not based on observable market data, the instrument is included in level 3. 31 December 2013 Financial assets at FVTPL Level 1 US$’000 Level 2 US$’000 Level 3 US$’000 Total US$’000 Non-derivative financial assets for trading 65,831 121,965 57,173 244,969 31 December 2012 (Restated) Financial assets at FVTPL Level 1 US$’000 Level 2 US$’000 Level 3 US$’000 Total US$’000 Non-derivative financial assets for trading 61,445 113,185 46,952 221,582 1 January 2012 (Restated) Financial assets at FVTPL Level 1 US$’000 Level 2 US$’000 Level 3 US$’000 Total US$’000 Non-derivative financial assets for trading 80,567 110,373 35,857 226,797 Valuation Process Investments whose values are based on quoted market prices in active markets and are classified within Level I include active listed equities. The Company does not adjust the quoted price for these instruments. Financial instruments that trade in markets that are not considered active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include certain private investments that are traded over the counter. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include holdings in Limited Partnerships and other funds. As observable prices are not available for these securities, the Company values these based on an estimate of their fair value, which is determined as follows: (i) For entities that have recently begun trading, and for which detailed financial information is not available, the valuation will be determined with reference to the original cost plus any further drawdowns Jess any distributions received. This will be adjusted by reference to more recent benchmark subscriptions and investments which give a guide to fair value, or where there are other factors that indicate there has been a significant change in fair value. (ii) For more established investments, the valuation will be determined by reference to recent financial information received from the underlying entity. This underlying information is determined in accordance with International Private Equity and Venture Capital Guidelines and is determined using methodologies that include applying an average sector earnings multiple to operating profits, reference to the valuation of the underlying net asset base and discounted cash flows. Level 3 valuations are reviewed on a quarterly basis by the Company's investment manager who reports to the Board of Directors quarterly. The investment manager considers the appropriateness of the valuation model inputs used and the basis of the techniques used to ensure they are in line with industry standards. In selecting the most appropriate valuation model the investment manager considers historical alignment to actual market transactions. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 85 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 86 Ocean Wilsons Holdings Limited/Annual Report 2013 Notes to the Accounts 37 Financial instruments (continued) None of the Company’s investments have moved between classification levels in the year and therefore no reconciliation is necessary. Sensitivity analysis in relation to Level 3 investments has been included in the market price risk management analysis where the Company has shown impacts to the value of investments if markets prices had been 10 per cent higher or lower at the end of the financial year. Reconciliation of Level 3 fair value measurements of financial assets: Balance at 1 January Transfer into Level 3 Total profit/(losses) in statement of comprehensive income Purchases and drawdowns of financial commitments Sales and repayments of capital Balance at 31 December 2013 US$’000 46,952 – 1,643 14,256 (5,678) 57,173 2012 (Restated) US$’000 35,857 91 (1,660) 14,042 (1,378) 46,952 38 Post-employment benefits The Brazilian Group operates a private medical insurance scheme for its employees that requires eligible employees to pay fixed monthly contributions. Under Brazilian law, eligible employees acquire the right to remain in the plan following retirement or termination of employment, in accordance with articles 30 and 31 of law 9.656/98, generating a post-employment commitment for the Group. Ex-employees remaining in the plan will be liable for paying the full cost of their continued scheme membership. The future actuarial liability for the Group relates to the potential increase in plan costs resulting from additional claims due to the expanded scheme membership. Present value of actuarial liabilities Actuarial assumptions 31 December 31 December 2013 US$’000 2,251 2012 US$’000 – 1 January 2012 US$’000 – The calculation of the liability generated by the post-employment commitment involves actuarial assumptions. The following are the principal actuarial assumptions at the reporting date: Economic and Financial Assumptions Annual interest rate Estimated inflation rate in the long-term Aging Factor Medical cost trend rate 31 December 2013 12.38% 5.50% 2.50% a.a 2.50% a.a 86 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 87 Ocean Wilsons Holdings Limited/Annual Report 2013 31 December 2013 22% AT-2000 IAPB-1957 Álvaro Vindas 100% at 62 23% 90% of the participants Man 4 years older than the woman Composition of the family group 38 Post-employment benefits (continued) Biometric and Demographic Assumptions Employee turnover Mortality table Mortality table for disabled Disability table Retirement Age Employees who opt to keep the health plan after retirement and termination Family composition before retirement Probability of marriage Age difference for active participants Family composition after retirement Sensitivity analysis The present value of future liabilities may change materially depending on market conditions. Fair values are calculated based on rates that are linked to government bonds available in the Brazilian bond market (government bonds in the long-term – NTN-B). Brazil is an emerging market with greater interest rate volatility, which may cause volatility in the fair value of the liability recorded in the balance sheet. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 87 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 88 Ocean Wilsons Holdings Limited/Annual Report 2013 Statistical Statement 2009 – 2013 (in US$’000) Closing rates of exchange – R$ to US$ Income Statement Group revenue Raw materials and consumables used Employee benefits expense Depreciation & amortisation expense Other operating expenses Profit/(loss) on disposal of property, plant and equipment Group operating profit Profit realised on formation of joint venture Share of results of joint venture Investment revenue Other gains and losses Finance costs Foreign exchange losses on monetary items Profit before tax Income tax expense Profit for the year Profit for the period attributable to: Equity holders of parent Non-controlling interests Group operating profit Less share based payment (credit)/expense Adjusted group operating profit Balance Sheet Net assets Brazilian interests Investments held for trading Other net assets Attributable net assets – per share Brazilian interests – book amount Other assets – book and market amount Key Statistics Earnings per share Cash dividends per share paid Mid-market quotation at end of period Mid-market quotation at end of period in US Dollars Year to Year to 31 December Year to Year to Year to 31 December 2012 31 December 31 December 31 December 2013 US$’000 2.34 (Restated) US$’000 2.04 2011 US$’000 1.88 2010 US$’000 1.67 2009 US$’000 1.74 660,106 (94,330) 610,354 (72,207) 698,044 (82,889) 575,551 (67,222) 477,888 (49,570) (209,459) (223,031) (239,543) (205,486) (162,367) (58,674) (188,569) 9,966 119,040 – 2,392 17,838 13,684 (21,863) (30,589) 100,502 (42,216) 58,286 37,873 20,413 58,286 119,040 (1,430) 117,610 (55,897) (173,951) (534) 84,734 – 689 18,255 16,394 (9,948) (11,572) 98,552 (33,671) 64,881 41,264 23,617 64,881 84,734 2,262 86,996 (59,479) (221,159) 1,959 96,933 – – 10,203 (27,818) (20,741) – 58,577 (51,615) 6,962 (8,639) 15,601 6,962 96,933 (7,880) 89,053 (42,923) (32,066) (192,090) (155,042) 90 67,920 20,407 – 17,982 22,460 (11,611) – 117,158 (30,564) 86,594 56,879 29,715 86,594 67,920 16,545 84,465 470 79,313 – – 35,613 34,305 (9,411) – 139,820 (31,228) 108,592 70,200 38,392 108,592 79,313 17,174 96,487 US$’000 US$’000 US$’000 US$’000 US$’000 476,626 244,969 48,480 770,075 1,348c 830c 2,178c 107.1 42c 1042p 1,725c 461,479 221,582 60,507 743,568 1305c 798c 2103c 116.7c 33.0c 970p 1512c 426,760 226,797 54,650 708,207 1207c 796c 2003c (24.4c) 42.0c 1065p 1650c 389,744 260,544 78,932 729,220 960c 1102c 2062c 160.8c 42.0c 1382p 2155c 297,835 238,662 136,748 673,245 842c 1062c 1904c 198.5c 30.0c 865p 1378c 1. Share based payment expenses are included in employee benefits expense and arise from the Ocean Wilsons Holdings Limited and Wilson Sons Limited cash settled phantom accounting date. Movements in the Wilsons Sons Limited can result in significant movements in the fair value of the two schemes significantly impacting operating profit in the period and causing significant fluctuations in earnings. 2. The year to 31 December 2009, 31 December 2010 and 31 December 2011 have not been restated as a result of adopting new accounting standards in 2013. 88 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 89 Notice of Annual General Meeting Ocean Wilsons Holdings Limited/Annual Report 2013 Notice is hereby given that the 21st Annual General Meeting of the Company will be held at the offices of Conyers Dill & Pearman Limited, Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda on 3 June 2014 at 10:00 am for the following purposes. 1 2 3 4 5 To receive and, if approved, adopt the Directors’ Report and Accounts for the year ended 31 December 2013. To determine the maximum number of Directors for the ensuing year as eight and authorise the Board of Directors to elect or appoint on the Members’ behalf a person or persons to act as additional Directors up to such maximum number to serve until the conclusion of the next Annual General Meeting. To re-elect Mr K Middleton as a Director. To reappoint KPMG LLP as the Auditor and authorise the Directors to fix the remuneration of the Auditor. To amend Bye-law 23 of the Bye-laws of the Company to increase the maximum aggregate fees to be paid yearly to Directors (other than Directors appointed to an executive office) from US$600,000 to US$700,000. 6 Ratification and confirmation of all and any actions taken by the Board of Directors and the persons entrusted with Company’s management in the year ended 31 December 2013. By Order of the Board Malcolm Mitchell Secretary Clarendon House, Church Street, Hamilton HM 11, Bermuda 28 March 2014 Any member of the Company entitled to attend and vote at the meeting may appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company. Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 89 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 90 Ocean Wilsons Holdings Limited/Annual Report 2013 90 Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 10:44 Page 91 Ocean Wilsons Holdings Limited/Annual Report 2013 Form of Proxy *I/We *of *of being a Member of Ocean Wilsons Holdings Limited, hereby appoint Mr J F Gouvêa Vieira, or failing him Mr W H Salomon both Directors of the Company. Or as my/our proxy to vote for me/us and on my/our behalf at the Annual General Meeting of the company to be held on 3 June 2014 and at any adjournment thereof. The proxy will vote on the Resolutions as indicated opposite. For Against Withheld 1 To receive and, if approved, adopt the Directors’ Report and Accounts for the year ended 31 December 2013. 2 To determine the maximum number of Directors for the ensuing year as eight and authorise the Board of Directors to elect or appoint on the Members’ behalf a person or persons to act as additional Directors up to such maximum number to serve until the conclusion of the next Annual General Meeting. 3 To re-elect Mr K Middleton as a Director. 4 To reappoint KPMG LLP as the Auditor and authorise the Directors to fix the remuneration of the Auditor. 5 To amend Bye-law 23 of the Bye-laws of the Company to increase the maximum aggregate fees to be paid yearly to Directors (other than Directors appointed to an executive office) from US$600,000 to US$700,000. 6 Ratification and confirmation of all and any actions taken by the Board of Directors and the persons entrusted with Company’s management in the year ended 31 December 2013. Signature Notes Dated 2014 1 2 3 4 5 If any other proxy is preferred, delete the names inserted above and add the name of the proxy whom you wish to appoint, and initial the alteration. Please indicate by a cross in the appropriate box how you wish your proxy to vote. If no indication is given your proxy will abstain or vote as he/she thinks fit. To be valid, the proxy should be deposited at the Transfer Agents of the Company, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, no less than 48 hours before the time for the Meeting. In the case of a corporation, this proxy must be under its Common Seal or under that of an Officer or Attorney duly authorised in writing. In the case of joint holders the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members, in respect of the joint holding. * Please insert your full name and address in BLOCK CAPITALS. (cid:0) Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 pp31-92_17319 Ocean Wilsons R&A 2013 pp31-92 16/04/2014 19:34 Page 92 Third Fold and Tuck in Business Reply Plus Licence Number RLUB-TBUX-EGUC FDFDTTFATDDATADTTDFDFTDATADFAADFTADF PXS 1 34 Beckenham Road BECKENHAM BR3 4ZF Second Fold l d o F t s r i F Job No.: 17319 Customer: Ocean Wilsons Proof Event: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 17319 Ocean Wilsons R&A 2013 Cover + 7mm SPINE_17319 Ocean Wilsons R&A 2013 Cover + 7mm SPINE 16/04/2014 10:40 Page 2 Contents 1 Ocean Wilsons Holdings Limited 2 Chairman’s Statement 6 Financial Review 12 Investment Portfolio 13 Investment Managers Report 20 Directors and Advisers 21 Report of the Directors 28 Independent Auditors’ Report 29 Consolidated Statement of Comprehensive Income 30 Consolidated Balance Sheet 31 Consolidated Statement of Changes in Equity 32 Consolidated Cash Flow Statement 33 Notes to the Accounts 86 Statistical Statement 2008 – 2012 87 Notice of Annual General Meeting 89 Form of Proxy Printed by Park Communications on FSC certified paper. Park is a CarbonNeutral® company and its Environmental Management System is certified to ISO 14001. This document is printed on Chorus Silk, which can be disposed of by recycling, incineration for energy recovery or is biodegradable. The mill which makes chorus, sources 90% of its pulp fibre from within a 200km radius of the mill, reducing the carbon footprint for production. Job No.: 17319 Customer Ocean Wilsons Proof: 5 Project Title Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T 020 7055 6500 F 020 7055 6600 17319 Ocean Wilsons R&A 2013 Cover + 7mm SPINE_17319 Ocean Wilsons R&A 2013 Cover + 7mm SPINE 16/04/2014 10:39 Page 1 Ocean Wilsons Holdings Limited Annual Report 2013 O c e a n W i l s o n s H o d n g s i l L i m i t e d A n n u a l R e p o r t 2 0 1 3 Job No.: 17319 Customer: Ocean Wilsons Proof: 8 Project Title: Annual Report 2013 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 

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