21043 Ocean Wilsons R&A 2014 Cover + 7mm SPINE_21043 Ocean Wilsons R&A 2014 Cover + 7mm SPINE 09/04/2015 17:18 Page 1 Ocean Wilsons Holdings Limited Annual Report 2014 O c e a n W i l s o n s H o d n g s l i L i m i t e d A n n u a l R e p o r t 2 0 1 4 Job No.: 21043 Customer: Ocean Wilsons Proof: 7 Project Title: Annual Report 2014 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 21043 Ocean Wilsons R&A 2014 Cover + 7mm SPINE_21043 Ocean Wilsons R&A 2014 Cover + 7mm SPINE 09/04/2015 17:18 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 31 Consolidated Statement of Comprehensive Income 32 Consolidated Balance Sheet 33 Consolidated Statement of Changes in Equity 34 Consolidated Cash Flow Statement 35 Notes to the Accounts 78 Statistical Statement 2010 – 2014 79 Notice of Annual General Meeting 81 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 C t O Wil Proof: 5 P j t Titl A l R t 2013 Park Communications Ltd Alpine Way London E6 6LA T 020 7055 6500 F 020 7055 6600 Ocean Wilsons Holdings Limited Ocean Wilsons Holdings Limited/Annual Report 2014 Highlights Wilson Sons Limited (“Wilson Sons”) is an autonomous Bermuda company • • • • • • Improvement in key operating performance indicators listed on the São Paulo Stock Exchange (BOVESPA) and Luxembourg Stock Exchange. Ocean Wilsons holds a 58.25% interest in Wilson Sons, which is Reported sales 4% lower at US$633.5 million (2013: US$660.1 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 Earnings per share for the year of 65.6 cents (2013: 107.1 cents) Brazil. Wilson Sons activities include harbour and ocean towage, container terminal operation, offshore oil and gas support services, small vessel Dividend declared increased by 5% to 63 cents per share construction, logistics and ship agency. Wilson Sons has over five thousand (2013: 60 cents per share) employees. Investment portfolio up US$2.7 million to US$251.7 million Ocean Wilsons Investments Limited is a wholly owned Bermuda investment (2013: US$249.0 million) company. The company holds a portfolio of international investments. Net cash inflow from operating activities for the year of US$105.6 million Objective (2013: US$108.4 million). Ocean Wilsons Holdings Limited is run with a long-term outlook. This applies to both the investment portfolio and our investment in Wilson Sons. The About Ocean Wilsons Holdings Limited long-term view taken by the Board allows Wilson Sons to grow and develop Ocean Wilsons Holdings Limited (“Ocean Wilsons” or the “Company”) is a its businesses without being pressured to produce short-term results at the Bermuda based investment holding company, and, through its subsidiaries, expense of long-term value creation. The same long-term view allows our operates a maritime services company in Brazil and holds a portfolio of investment managers to make investment decisions that create long-term international investments. The Company is listed on both the Bermuda Stock capital growth. Exchange and the London Stock Exchange. It has two principal subsidiaries: Wilson Sons Limited and Ocean Wilsons Investments Limited (together with The success of this strategy is reflected in the growth in the Ocean Wilsons the Company and their subsidiaries, the “Group”). share price and total returns to shareholders. In the 10 years to 31 December 2014 the share price has risen more than 250% from £2.85 to £10.00 and total returns to shareholders in the period (assuming dividends are reinvested in Ocean Wilsons shares) of more than 350%. 1 Ocean Wilsons Holdings Limited/Annual Report 2014 Chairman’s Statement Introduction Operating profit at US$89.4 million was US$29.6 million lower The overall operating performance of the Group in 2014 has been robust as (2013: US$119.0 million) reflecting the fall in turnover, lower operating reflected in our key operating performance indicators. Our key indicators show margins and a profit on the disposal of property, plant and equipment of year-on-year growth at our towage, container terminal and offshore businesses, US$10.0 million in the prior year. although container terminal volumes in the 4th quarter were impacted by the slowdown in the Brazilian economy and weakening export demand. Group profit before tax for the year at US$78.5 million was US$22.0 million 2014 2013 % Change US$29.6 million decrease in operating profit and reduced gains from the lower than prior year, US$100.5 million, principally due to the Operating volumes Container Terminals (container movements in TEU ’000) 975.1 937.5 4.0 Towage (number of harbour manoeuvres performed) 58,543 53,869 Offshore Vessels (operating days own vessels) 6,683 5,369 8.7 24.5 investment portfolio, US$7.5 million lower. These negative movements were partially offset by a US$13.0 million decrease in exchange losses on monetary items and US$4.7 million increase in the share of results of joint ventures. Income tax expense for the year at US$41.9 million was in line with prior year In September this year, we expanded our towage business by commencing (2013: US$42.2 million). towage operations in the Amazonian state of Pará, with seven tugs attending the port of Belém, as well as the Vila do Conde terminal in Barcarena and Profit per share based on ordinary activities after taxation and non-controlling Trombetas in Oriximiná. This is an important new market for us in a region interests was 65.6 cents (2013: 107.1 cents). which is growing rapidly. We also participated in the first operations at the port of Açu in Rio de Janeiro during the year. We continue to invest in Investment portfolio performance modernising and maintaining our fleet of tugboats with five new tugboats During the year, the investment portfolio and cash under management delivered in 2014. The five tugboats are 70 tons bollard pull, equipped with “investment portfolio” generated a time weighted return of 4.7% with net firefighting capability and were built at the Wilson Sons shipyards in Guarujá, earnings of the portfolio, after deducting management and other fees, of São Paulo state. Our tugboat fleet remains the largest in Brazil with US$3.2 million. The investment portfolio as at 31 December 2014 was seventy-six tugboats operating throughout Brazil. US$251.7 million (2013: US$249.0 million) after paying dividends of US$6.5 million to Ocean Wilsons Holdings Limited during the period. In the The Guarujá II shipyard successfully completed its first year of operation and in five years to 31 December 2014, the investment portfolio has returned addition to the five tugboats delivered to Wilson Sons our shipyards delivered a US$32.5 million in distributions to Ocean Wilsons Holdings Limited. new platform supply vessel (PSV) to our offshore joint venture, Wilson Sons Ultratug Offshore, and performed maintenance and repair work on our fleet of The investment portfolio remains weighted to global equities, 57% and towage and offshore vessels. The other major third party work performed in the private assets, 30%, with the balance invested in market neutral funds, 3% year was the ongoing construction of a Remotely Operated Vehicle Support and cash and bonds 10%. Private assets increased US$17.2 million in the year Vessel (ROVSV) forecast for delivery in early 2015. Wilson Sons Ultratug to US$74.7 million (2013: US$57.5 million) as a result of an increase in their Offshore had a successful year with improved pricing and expansion of our fleet unrealised net value of US$4.1 million plus new drawdowns in the period of contributing to a much improved financial result. The joint venture operates a US$23.2 million, less distributions received of US$10.1 million. To date we fleet of nineteen PSVs with a further five vessels on order. have received cumulative distributions of US$30.3 million and at year end had US$36.6 million in outstanding commitments. The private assets In September 2014, Wilson Sons Logistics inaugurated the bonded warehouse programme continues to mature and “the Investment Manager remains EADI Suape in Pernambuco which, together with the Suape logistics centre, confident that the significant capital deployed into post-crisis vintages creates a valuable integrated logistics complex in the North East of Brazil. During represents an attractive store of future value”. Private assets was the best 2014 the Group continued to develop and expand the Brasco Caju onshore performing sub-portfolio in the year returning 8.5%. support base acquired in 2013 which is forecast for completion in 2015. As part of the investment manager’s ongoing review of the investment The investment portfolio generated a time weighted return of 4.7% in the portfolio and strategy we disposed of a number of non-core investments year. As at 31 December 2014, the investment portfolio was valued at during the year, reducing the number of holdings from 58 to 52 at year end. US$251.7 million, representing US$7.12 per share (2013: US$249.0 million The investment portfolio maintains an over weighted exposure to emerging and US$7.04 per share). markets with emerging markets accounting for 34% (2013: 37%) of the portfolio net asset value at year end. Group Results Revenue for the full year declined 4% to US$633.5 million (2013: US$660.1 Investment managers million) as a result of the weaker Brazilian Real “BRL”, a slowdown in Brazilian Ocean Wilson Investments Limited (“OWIL”), a wholly owned subsidiary trade in the fourth quarter of the year and the planned contraction and registered in Bermuda, holds the Group’s investment portfolio. OWIL has increased competition in our logistics and ship agency businesses. appointed Hanseatic Asset Management LBG, a Guernsey registered and regulated investment group, as its investment manager. 2 Ocean Wilsons Holdings Limited/Annual Report 2014 Investment management fee long-term shareholder value will best benefit from the continued strong The investment managers receive an investment management fee based on performance of our underlying businesses. the valuation of the funds under management and an annual performance fee of 10% of the annual performance which exceeds the benchmark, provided Dividend that the high water mark has been exceeded. The investment management In light of an increased dividend from Wilson Sons Limited, the Board is fee is at an annual rate of 1% payable monthly in arrears. The performance increasing the dividend 5% from 60 cents per share to 63 cents per share to fee in 2014 was measured against an absolute return benchmark derived be paid on 5 June 2015, to shareholders of the Company as of the close of from the one year USD LIBOR, prevailing at the commencement of each business on 8 May 2015. The dividend of 63c per share represents the full calendar year, plus 2%. In 2014 the investment management fee was dividend to be received from Wilson Sons of 47.8c per Ocean Wilsons share US$2.5 million and a US$0.6 million performance fee was payable. relating to 2014 plus 15.2c per Ocean Wilsons share in distributions from the investment portfolio. The US$5.4 million in distributions from the share When the OWIL benchmark was originally defined as LIBOR+2% this portfolio represent 61% of the portfolio’s net earnings in the period. Despite a represented an appropriate absolute return hurdle against which to judge the fall in earnings per share at Wilson Sons, Wilson Sons is increasing the performance of the investment manager. More recently, distortions created by dividend to shareholders which exceeds their new dividend policy announced quantitative easing and the consequent material decline in interest rates have in 2013 and reflects a desire to increase dividend payments to shareholders made this benchmark less relevant to the objectives and underlying risks in following completion of the current investment cycle in 2013. the portfolio. Together with the investment manager, the Board has therefore reviewed the portfolio performance benchmark and the investment The Ocean Wilsons Holdings Limited dividend policy is to pay the Company’s management fees payable and concluded the investment management fee full dividend to be received from Wilson Sons in the period and a percentage will remain unchanged but with effect from 1 January 2015 the portfolio of the average capital employed in the investment portfolio to be determined performance will be measured against a benchmark calculated by reference to annually by the Board. Dividends are set in US Dollars and paid annually. US CPI plus 3% over rolling three-year periods. The investment managers will receive an annual performance fee of 10% of the net investment return that Shareholders receive dividends in Sterling by reference to the exchange rate exceeds the benchmark. Payment of performance fees will remain subject to a applicable to the USD on the dividend record date, except for those high water mark and will be capped at a maximum of 2% of portfolio NAV. shareholders who elect to receive dividends in USD. The Board of Directors The investment management fee will remain at an annual rate of 1% of the may review and amend the dividend policy from time to time in light of our valuation of funds under management. future plans and other factors. The payment of dividends cannot be guaranteed and may be discontinued or varied at the discretion of the Board. The Board considers the new benchmark has the advantage of simplicity, whilst the three-year measurement period is better aligned with the investment Charitable donations mandate’s long-term horizon and an absolute return inflation-linked benchmark Through our subsidiary Wilson Sons, we are pleased to support a number of appropriately reflects the company’s investment objectives while having a linkage local charities and causes in Brazil. Group donations for charitable purposes in to economic factors. Net asset value the year amounted to US$156,000 (2013: US$102,000). Amongst the Group’s principal ongoing contributions during the year were: At the close of business on 31 December 2014, the Wilson Sons’ share price Escola de Gente – raising awareness and promoting social inclusion for all was R$32.00, resulting in a market value for the Ocean Wilsons holding of parts of the community. 41,444,000 shares (58.25% of Wilson Sons) totalling approximately http://www.escoladegente.org.br/ US$499.2 million which is the equivalent of US$14.12 (£9.06) per Ocean Wilsons Holdings Limited share. De Peito Aberto – Promotes social development through educational, cultural Adding together the market value per share of Wilsons Sons, US$14.12 and http://www.depeitoaberto.com.br/ the investment portfolio US$7.12 results in a net asset value per Ocean and sporting activities. Wilsons Holdings Limited share of approximately US$21.24 (£13.63). The Brigada Mirim ecologica – maintaining the ecology of Ilha Grande in the state Ocean Wilsons Holdings Limited share price of £10.00 at 31 December 2014 of Rio de Janeiro and raising the awareness of visitors and the local represented an implied discount of 27%. population about the environment. http://www.brigadamirim.org.br/ The implied discount expanded 4% to 27% at year end, compared with the prior year end, 23%. While we are disappointed to see the implied discount Criando Laços – The Wilson Sons corporate programme “Criando Laços” widen, shareholders should realise that historically the implied discount (Creating ties) provides financial support and promotes voluntary employee fluctuates significantly. As at 17 March 2015 the implied discount had involvement in social initiatives. narrowed to 21%. Our policy regarding the implied discount as expressed http://www.wilsonsons.com.br/ before, is that we do not seek to manage the discount, as we believe 3 Ocean Wilsons Holdings Limited/Annual Report 2014 Chairman’s Statement Pro Criança Cardíaca – located in Rio de Janeiro, the charity treats children Outlook suffering from heart disease. http://www.procrianca.org.br/. Health, safety and education We remain confident in the fundamental strengths and quality of our Brazilian business but the steep fall in the price of oil and challenging economic and political environment in Brazil brings concerns for the coming year. The full impact of the fall in oil prices and uncertainty surrounding the Brazilian oil The safety of our workers is of utmost importance to us. The Group and gas industry remains unclear. Despite this uncertainty our shipyard order implemented the WS+ safety programme to promote improved safety book remains healthy with six offshore support vessels for third parties, throughout the Group with training of Company personnel and the promotion including two oil spill recovery vessels (OSRV’s), completion of a further OSRV of a safety oriented environment and culture. The programme was developed and a remotely operated vehicle support vessel, in addition to PSV’s for our in conjunction with DuPont in 2010. A pilot project was implemented at our offshore joint venture, Wilson, Sons Ultratug Participações S.A. Our offshore shipyard in 2011, which has now been replicated throughout the Group. This joint venture currently operates nineteen PSVs all under long-term contract programme has received a positive response from our workforce and with three contracts concluding in 2015. We are optimistic that these three produced excellent results. Between January 2010 and September 2014, the Brazilian flag vessels will not experience material off-hire. In addition to the Group registered a 70% decrease in the frequency of accidents and from two PSVs being built at our shipyard, Wilson Sons Ultratug is constructing a 2013 to September 2014, the number of working days lost decreased from further three PSVs in international shipyards with one programmed for 140 to 57 days per 1 million hours of risk exposure. delivery at the end of 2015 and the remaining two in the second half of 2016. The expansion of Brasco Cajú is forecast to be completed by the end of 2015. We continue to invest in the training and development of our staff. Amongst We remain optimistic regarding the long-term prospects for this business other training initiatives the Company has a dedicated ship crew training although the expected ramp up in operations may take longer to materialise facility in Guarujá that uses a state of the art simulator to train further ship than originally anticipated as international oil companies revise their future captains and crew. Corporate governance investment plans. Demand for harbour towage services remains strong with volumes growing 10% in the first two months of the year compared with 2014 while container terminal volumes continue to be sluggish. The Brazilian The Board has put in place corporate governance arrangements which it Real “BRL” has depreciated approximately 22% against the US Dollar since the believes are appropriate for the operation of your Company. The Board has year end. If the weakness in the BRL is maintained at period end this will considered the principles and recommendations of the 2012 UK Corporate again negatively impact our bottom line earnings in the year. Governance Code (“the Code”) issued by the Financial Reporting Council and decided to apply those aspects which are appropriate to the business. This Global growth remains sluggish and substantially below pre-financial crisis reflects the fact that Ocean Wilsons Holdings Limited is an investment holding levels. The fall in oil prices should boost consumption in developed markets but company incorporated by an act of parliament in Bermuda with significant will negatively impact oil producers. Stronger economic data coming out of the operations in Brazil. The Company complies with the Code where it is US raises the likelihood that the US Federal Reserve will hike interest rates beneficial for both its shareholders and its business to do so, and has done so earlier than markets are anticipating resulting in rising US bond yields although throughout the year and up to the date of this report, but it does not fully bond yields in the euro zone and Japan should remain suppressed by their comply with the Code. The areas where the Company does not comply with accommodating monetary policy. We remain positive on the long-term prospects the Code, and an explanation of why we do not comply, are contained in the for emerging markets and our portfolio although slowing growth in China, the section on corporate governance in the Annual Report. The position is decline in oil prices and the expectation that the US will raise interest rates regularly reviewed and monitored by the Board. earlier than expected may hinder market performance in the short-term. Board of Directors Management and staff At the Annual General Meeting of the Company in June 2014 we announced On behalf of your Board and shareholders, I would like to thank our the retirement of Mr Alex Cooper as a non-executive Director after 11 years management and staff for their efforts and hard work during the year. of service. We would like to thank Mr Cooper for his contribution to the Group and wish him every success for the future. On the same day, we were J F Gouvêa Vieira pleased to announce the appointment of Mr Andrey Berzins by the Board as a Chairman non-executive Director of Ocean Wilsons Holdings Limited. Mr Berzins is 55 24 March 2015 and lives in Singapore. He is currently Managing Director of Suez Asia Holdings and a Director of Aberdeen Asian Income Fund. Mr Berzins has extensive experience of the Asian investment business having lived and worked there since 1984. He has held a number of positions throughout the investment industry including Managing Director on the Asian private equity arm of the French based Compagnie de Suez (now GDF Suez) group. Mr Berzins has a BSc Honours (1st Class) in Statistics from the University of Bath and is a member of the Institute of Chartered Accountants in England and Wales. 4 Ocean Wilsons Holdings Limited/Annual Report 2014 Tecon Rio Grande in Rio Grande, Rio Grande do Sul. In 2014 Tecon Rio Grande moved 687,100 TEU’s, (twenty-foot equivalent units). 5 Ocean Wilsons Holdings Limited/Annual Report 2014 Financial Review Revenue from Maritime Services materials and consumables used in the year were US$6.3 million higher at The Group’s revenue declined 4% to US$633.5 million (2013: US$660.1 US$100.6 million (2013: US$94.3 million) principally due to the type of vessel million) due to a slowdown in Brazilian trade in the fourth quarter of the year, constructed at the shipyard in the period. The decrease in logistics margins the contraction of our logistics and ship agency businesses and the adverse was mainly attributable to restructuring costs associated with the closing of impacts of the weaker BRL. Demand for towage services remains strong with some in-house logistic operations, start-up costs associated with our new EADI the number of harbour towage manoeuvres in the year increasing 9% to in Suape, Pernambuco and increased competition at EADI Santo Andre. 58,543 from 53,869 in 2013, and towage revenue increasing 7% to US$211.0 million (2013: US$196.6 million). Towage volumes benefited from Employee expenses were US$13.6 million lower at US$195.9 million new port operations in the Amazonian state of Pará, and increased market (2013: US$209.5 million) mainly due to a reduced headcount, lower social share in São Paulo state resulting from the growth of our operating fleet in the security costs and the positive impact of the higher average USD/BRL region. Our ship agency business continued to suffer from the industry trend exchange rate when converting BRL expenses into USD. The fall in social for liner operators to insource this activity with revenue falling 30% to security costs for the year, reflects the reduction in payroll tax rates at both US$17.1 million (2013: US$24.5 million). our towage and shipyard businesses. Other operating expenses fell from US$188.6 million to US$182.8 million in 2014 mainly as a result of the Shipyard third party revenue increased 3% to US$103.4 million decrease in turnover and higher average USD/BRL exchange rate. (2013: US$100.3 million) following the significant increase in 2013 resulting from the completion of our new dry-dock facility in the fourth quarter of 2012. Share of results of joint ventures In addition to third party revenue recognised in the income statement the The share of results of joint ventures is Wilson Sons’ 50% share of net profit shipyard invoiced US$45.6 million of intercompany sales in the year for the period mainly from our offshore joint venture, which grew US$4.7 (2013: US$70.8 million). The shipyard order book remains healthy for 2015 million from US$2.4 million in 2013 to US$7.1 million in the current year, due although the impact from the fall in oil prices and uncertainty surrounding the to a 24% increase in our own fleet operating days and improved pricing. Our Brazilian oil and gas industry on medium and longer-term demand for new new PSVs enjoy higher daily contract rates. During the period, the offshore vessel construction is unclear. Revenue at our terminal and logistics business joint venture repaid US$13.0 million in intergroup loans. fell 11% to US$302.0 million (2013: US$338.7 million). Logistics revenue declined 24% to US$73.4 million (2013: US$96.8 million) due to a higher Investment revenue average USD/BRL exchange rate used to convert revenue into our reporting Investment revenue for the year decreased to US$17.0 million (2013: US$17.8 currency, US Dollars and the planned withdrawal from our lower margin million). Higher dividends from equity investments of US$5.8 million operations. Terminal revenue at US$228.6 million was US$13.3 million lower (2013: US$5.2 million) were offset by lower interest on bank deposits of than prior year (2013: US$241.9 million). Revenue at Brasco, our offshore oil US$11.2 million (2013: US$11.9 million). and gas support base, fell as a result of the impact of the higher average USD/BRL exchange rate and fewer vessel turnarounds that is largely Investment gains and losses explained by the completion of four support operations, two in Bahia and two Other gains of US$6.2 million arise from the Group’s portfolio of trading at our base in Rio de Janeiro. Container terminal revenue declined due to the investments (2013: US$13.7 million) and reflect unrealised gains in trading higher average USD/BRL exchange rate and a less favourable sales mix investments of US$1.4 million (2013: US$14.6 million) and profits on the despite higher container volumes handled at Tecon Rio Grande and Tecon disposal of trading investments of US$4.9 million (2013: US$0.9 million loss). Salvador, increasing 4% to 971,500 TEU’s (2013: 937,500 TEU’s). All Group revenue is derived from Wilson Sons operations in Brazil. Finance costs Operating profit The Group’s finance charge for the year increased to US$23.6 million (2013: US$21.9 million) principally due to higher other interest costs of Operating profit at US$89.4 million was US$29.6 million lower than prior year US$2.2 million (2013: nil). Other interest relates mainly to interest on (2013: US$119.0 million) largely due to the fall in turnover, lower operating outstanding tax balances. Higher interest on bank loans of US$12.5 million margins and a profit on the disposal of property, plant and equipment of (2013: US$11.6 million) was offset by lower exchange losses on foreign US$10.0 million in the prior year (2014: US$0.3 million). The profit on the currency borrowings of US$8.0 million (2013: US$9.6 million). disposal of property, plant and equipment in 2013 arose from the sale of surplus commercial real estate in downtown Rio de Janeiro and São Paulo as Foreign exchange losses on monetary items well as towage and logistic equipment. Exchange losses on monetary items of US$17.6 million (2013: US$30.6 million) arise from the Group’s foreign currency monetary items and Group operating margins for the year declined to 14.1% (2013: 16.5%). The principally reflect the depreciation of the BRL against the USD during the fall in operating margins was principally due to higher depreciation and period. Although the depreciation of the BRL of 13% during the year was amortisation expense in the period, increased raw material consumption and similar to the 15% devaluation in 2013, exchange losses on monetary poorer margins at our logistics business. Depreciation and amortisation items was lower in 2014 largely due to the decrease in our net exposure to increased US$6.4 million to US$65.1 million from US$58.7 million in 2013 as BRL denominated assets and the exchange rate fluctuations that occurred in a result of capital investment in our terminal and towage businesses. Raw the year. 6 Ocean Wilsons Holdings Limited/Annual Report 2014 The tugboat Uranus manoeuvring a vessel in Guanabara Bay, Rio de Janeiro. The Uranus was built in our shipyard in Guarujá in 2009. 7 Ocean Wilsons Holdings Limited/Annual Report 2014 Financial Review Exchange rates subject to income or capital gains tax, higher tax losses at our Brazilian The Group reports in USD and has revenue, costs, assets and liabilities in both subsidiaries not recognised in deferred tax and in 2013 the Group benefited BRL and USD. Therefore movements in the USD/BRL exchange rate can from fiscal planning relating to the sale of fixed assets. impact the Group both positively and negatively from year to year. During 2014 the BRL depreciated 13% against the USD from R$2.34 at 1 January The deferred tax charge in the period of US$9.1 million was consistent with 2014 to R$2.66 at the year end, (2013: 15% depreciation). 2013 (US$8.7 million) due to a comparable devaluation of the BRL against the USD in both years, 13% in 2014 against 15% in 2013. As explained in the The principal effects from the depreciation of the BRL against the USD on the section on exchange rates above, the depreciation of the BRL against the USD income statement are: generates a deferred tax charge arising on the retranslation of BRL 2014 2013 US$ million US$ million denominated fixed assets in Brazil and a deferred tax credit on the exchange losses on USD denominated borrowings. Exchange losses on monetary items (i) Exchange loss on foreign currency borrowings Deferred tax on retranslation of fixed assets (ii) Deferred tax on exchange variance on loans (iii) Total 17.6 8.0 15.9 (8.0) 33.5 30.3 9.6 18.8 (11.8) 46.9 Profit for the year After deducting profit attributable to non-controlling interests of US$13.4 million (2013: US$20.4 million), profit attributable to equity holders of the parent is US$23.2 million (2013: US$37.9 million). (i) This arises from the translation of BRL denominated monetary items in Earnings per share USD functional currency entities. Basic earnings per share for the year were 65.6cents (2013: 107.1 cents). (ii) The Group’s fixed assets are located in Brazil and therefore future tax deductions from depreciation used in the Group’s tax calculations are Cash flow denominated in BRL. When the BRL depreciates against the US Dollar the Net cash inflow from operating activities for the year at US$105.6 million is future tax deduction in BRL terms remain unchanged but is reduced in marginally lower than 2013, US$108.4 million. The decrease in operating US Dollar terms. profit was offset by an increase in non-cash expenses and lower profit on the (iii) Deferred tax credit arising from the exchange losses on USD disposal of property, plant and equipment. The working capital movement denominated borrowings in Brazil. in the year includes US$7.1 million in payments to settle the Wilson Sons long-term incentive plan. A currency translation adjustment loss of US$7.1 million (2013: US$4.1 million) on the translation of operations with a functional currency other than USD is Capital expenditure of US$107.5 million was in line with prior year included in other comprehensive income and recognised directly in equity. (2013: US$106.1 million) and was mainly invested in towage vessel The average USD/BRL exchange rate in the period was 9% higher at 2.35 and the expansion of the warehouse at Tecon Salvador. New loans to finance (2013: 2.16). A higher average exchange rate adversely affects BRL capital expenditure of US$64.1 million were raised in the period denominated revenues and benefits BRL denominated costs when converted (2013: US$50.8 million) and capital repayments of US$38.1 million into our reporting currency the USD. (2013: US$36.8 million) made on existing loans. construction, the expansion of the Brasco Caju Oil and Gas support terminal Profit before tax At 31 December 2014 the Group had US$103.8 million in cash and cash Group profit before tax for the year at US$78.5 million was US$22.0 million equivalents (2013: US$106.5 million) of which US$70.3 million was lower than prior year, US$100.5 million, principally due to the US$29.6 denominated in Brazilian Real (2013: US$84.0 million). Included in the million decrease in operating profit and reduced gains from the investment Group’s trading investments of US$278.0 million at 31 December 2014 is portfolio, US$7.5 million lower. This was partially offset by a US$13.0 million US$24.0 million (2013: US$33.0 million) in USD denominated fixed rate decrease in exchange losses on monetary items and US$4.7 million increase certificates held by Wilson Sons Limited. These investments are not part of the in the share of results of joint ventures. Taxation Group’s investment portfolio managed by Hanseatic Asset Management LBG and are intended to fund Wilson Sons Limited operations in Brazil. Income tax expense for the year at US$41.9 million was in line with prior year Balance sheet (2013: US$42.2 million). This represents an effective tax rate for the period of At 31 December 2014 the equity attributable to shareholders of the parent 53% (2013: 42%). The corporate tax rate prevailing in Brazil is 34%. The company was US$549.8 million, a decrease of US$2.4 million from 2013 difference in the effective tax rate is due to expenses that are not included (US$552.2 million). The principal movements in the year were profits for the in determining taxable profit (principally foreign exchange losses on period of US$23.2 million, less dividends paid of US$21.2 million and a monetary items) and a deferred tax charge in the period of US$9.1 million negative currency translation adjustment of US$4.0 million. The currency (2013: US$8.7 million). The current year effective tax rate is higher than prior translation adjustment arises from exchange differences on the translation of year mainly due to lower profits at our Bermudian companies that are not operations with a functional currency other than USD. On a per share basis 8 Ocean Wilsons Holdings Limited/Annual Report 2014 The Wilson Sons Towage Operations Centre was implemented to improve efficiency and safety in our towage operations. The centre currently monitors in real time 51 tugboats in 14 ports throughout Brazil. 9 Ocean Wilsons Holdings Limited/Annual Report 2014 Financial Review net equity is the equivalent of US$15.55 per share (31 December 2013: US$15.61 per share). Net debt and financing All debt at the year end was held in the Wilson Sons Limited Group and has no recourse to the parent company, Ocean Wilsons Holdings Limited, or the investment portfolio held by Ocean Wilsons Investments Limited. The Group’s borrowings are long-term with defined repayment schedules repayable over different periods up to 18 years and an average weighted maturity of 11 years. At 31 December 2014, 91% of the Group’s borrowings are USD denominated or linked to the USD with a favourable weighted average interest rate of 3.00%. A significant portion of the Group’s pricing is denominated in US Dollars and acts as a natural hedge to our long-term exchange rate exposure. At 31 December 2014, 87% of our debt was non-current. At 31 December 2014, The Group had net debt of US$271.4 million (2013: US$239.2 million): Debt Short-term Long-term Total debt Cash and cash equivalents* Net debt 2014 2013 US$ million US$ million 51.2 344.0 395.2 (123.8) 271.4 39.5 339.2 378.7 (139.5) 239.2 * Included in cash and cash equivalents are short-term investments in Wilson Sons Limited which are intended to fund Wilson Sons Limited operations in Brazil The Group’s borrowings are used principally to finance vessel construction and the development of our terminal business. The Group’s main sources of financing are the Fundo da Marinha Mercante “FMM”, a Brazilian Government fund dedicated to funding vessel construction in Brazil and the International Finance Corporation. The FMM is funded by a levy on inbound freight to Brazil and the BNDES and Banco do Brasil act as lending agents for the FMM. The Group’s reported borrowings do not include US$257.4 million of debt from the Company’s 50% share of borrowings in our Offshore Vessel joint venture. Keith Middleton Finance Director 10 Wilson Sons Limited Ocean Wilsons Holdings Limited/Annual Report 2014 The Wilson Sons 2014 Earnings Report released on 24 March 2015 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 modernise and expand our In it Cezãr Baião, CEO of Operations in Brazil said: customers and consolidate our leading position in the Brazilian towage fleet of tugboats in order to provide consistently high-quality service to our “Wilson Sons’ soft EBITDA and Operating Profit in the fourth quarter are a to seek out new niches in the market where we may be able to provide consequence of a negative backdrop with challenging economic environment additional services. Consistent with our focus on operating on a national scale, including weak international demand and low local GDP growth pressuring the we seek to increase our geographical footprint of towage services to new Container Terminals business and particularly Tecon Salvador. ports in Brazil. market. We regularly review our fleet deployment to optimise efficiency, and Subsequent to the year end, the fall in the oil price has created some uncertainty Maximising potential of our expanded shipyard facilities and future and stimulated revision by clients for their future investment plans. Beyond projects through a mix of in-house and third-party vessel construction, as well existing contracts in the Offshore Support Vessels joint venture and our as providing repair, maintenance and dry docking services to meet the Shipyards, this scenario reduces visibility of medium term demand particularly demand of national and international vessel owners in Brazil. for our new Oil & Gas Terminal. We are still positive with long-term growth, but, in order to enhance platforms. Using our knowledge and experience, we intend to continue to competitiveness, we will be diligently looking at ways to increase the services to consolidate our activities through the delivery of contracted vessels and customers, utilising a greater proportion of installed capacity, reducing costs and maintain our position amongst the leading suppliers of services to the improving efficiency.” offshore oil and gas industry in Brazil. Solidifying our Offshore Support Vessel services to oil and natural gas The Wilson Sons Strategy is to: Exploring new opportunities and strategies to provide the best and most Continue to consolidate our position in all the segments in which we provide new and innovative services to our customers, and to anticipate their operate, maximising economies and efficiency, quality and the range of needs. We intend to continue our strategy with shipping companies in order our services we provide to customers. to provide a complete set of local and international trade-related services complete set of services to our customers. We are always looking to across a nationwide network. We also seek to make these services more Fulfilling capacity in our expanded port terminals. In order to meet efficient and cost-effective, in order to maintain our strong customer base and demand from domestic and international trade, we have expanded our two strengthen our relationships with those customers. container terminals since the inception of the concessions. By maximising utilisation of this installed capacity, we are best able to continue increases in Increasing economies of scale and productivity, realisation of potential productivity and service to our clients with economies of scale. We will synergies and cost savings across our business segments. We continuously diligently pursue this objective. We will evaluate new concessions and the seek to optimise our operations and productivity and reduce our costs through development of new terminals in other Brazilian ports and analyse these synergies and the exchange of know-how among our businesses and potential investments in light of our existing operations, and their ability to administrative areas. We are and will continue to be focused on integrating provide a strong return on shareholders’ equity. similar activities in order to realise savings in administrative and back-office areas, especially in our branch offices. We seek to achieve economies of scale Increasing capacity of our Upstream Oil and Gas Support Terminals and reduce costs wherever possible. We demand that the managers of our (Brasco). We are completing the development of a continuous 500 metres of different divisions continually develop new strategies that may improve our berth in the Brasco Caju (Briclog) base to attend offshore support vessels with operations and explore new businesses. excellent access to the Campos and Santos oil producing basins. When completed, this expanded capacity will consolidate Brasco’s position as one of Health, Safety and the Environment are a priority for the execution of our the largest offshore support base operators for the Brazilian Oil and Gas overall strategy of sustainable ethical business. We continue programmes to industry. We are continuously monitoring offshore operations along the promote best practice safety throughout the Group through the training of our Brazilian coast to meet the demand for such services. personnel and the promotion of a safety oriented environment and culture. 11 Ocean Wilsons Holdings Limited/Annual Report 2014 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 ongoing 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 opportunistically to use derivative instruments (such as index hedges diversification is designed to make the portfolio less vulnerable to permanent using call and put options) actively to 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 Investment Managers Report Ocean Wilsons Holdings Limited/Annual Report 2014 Hanseatic Asset Management LBG, the manager of the Group’s investment Amongst the Developed markets, US equities rose sharply, increasing by portfolio report as follows: 13.7% in US dollar terms. In contrast, European, Japanese and UK equities fell Market Commentary by -8.7%, -3.0% and -4.8%, respectively. Emerging markets declined by -2.2% for the year. However the composition of this was very varied at the On the surface, markets appeared relatively stable in 2014, with world equities country level. Indian equities rose by 27.1% and China by some 8.0% (the rising by 4.2% in US dollar terms. Below the surface, though, life was a little local Chinese A share market produced an extremely strong 52.0% with more frantic, with notable dispersions in performance at a regional level. 42.6% coming in the last quarter alone). In contrast, the commodity-exposed Latin American markets fell by -12.3% and Russia by some -45.2%. Chart 1: Market performance (year-to-date/USD terms) 14% 14% 4% 5% 5% 4% 7% 7% 27% 27% 27% 8% 8% 1 4 return Bars represent Y Bars represent YTD 2014 return represent QTD return represent QTD return represent QTD return represent QTD return TD 20 TD 20 14% 14% 14% 13% 14% 13% 11% 11% 4% 4% 3% 3% 0% 0% 6% 6% 6% 6% 6% 6% -2% -2% -3% -3% -3% -5% -5% -1% -1% -1% -1% -1% -2% -2% -2% -6% -6% -9% -9% -10% -10% -10% -10% -10% -13% -13% 17% 17% 1-1 -17% 16%-16% -16% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% -10% -10% -20% -20% -30% -30% -40% -40% s s s n n n r r r u u u t t t e e e R R R % % % -45% -45% U S U S U K U K Japa nn Japa n Euro pe Euro pee E G er m a n G er m a nn G Fra nce Fra nce F Brazil Brazil R ussia R ussia )M ) FF M MM /F M ///F EE M M ///E MM /E M pe M arkets Fro ntier M arkets M arkets E m ergin g M arkets D evelo ped M arkets arkets ts M /E M /F M) D evelo ped M ark ntier M M g M in g gin Fro n E m erg F D D (D Glo bal M arkets (D Glo bal M arkets (D M arkets (D In dia In dia A d d d d l Tr C hin a C hin a E M BI Glo bal Glo bal ury reasury yry y y Glo bal Treasury Africa ca Africa m o dity In dex m o dity In dex ity In dex Glo bal Hig h Yield Yield sified E M Glo bal Diversified Glo bal A ggregate C orp orate B o n d ate B o n d versified C E M BI Diversified Hig h Y o bal Diversi I G m o dity ate I Dive Glo bal Hig BI BBI I Glo bal T iv regate C orp orarat at B M B a E M M E E BI M B B Blo o m berg C o m Blo o m berg C o m o m erg C o m M Glo b C o M E M C E E Gl C EE M Blo o m be Glo bal A gggr G m -46% -46% G old G oldd W TI C ushin g TI C ushin g C o p per per U S D /G B P G B P U S D /E U R /E U R C o p p //G U S DD / S DD / U S D W T C U S D /B RL /B RL D /JP Y U S D /JP Y JP J D / U S DD / SS D UU S U U S D /C H F C H F //C U S DD / Equities Equities Fixed Income Fixed Income Commodities Commodities Commodities Currencies Currenc ies Currenc Underlying this divergence in performance is the maturing of the stock market Chart 2: Diverging economic performance cycle. In the early stages of the cycle, when valuations were low, most risk asset-classes rose as investors recognised that economies were not plummeting into oblivion and valuations normalised having over-reacted on the downside. As the cycle has developed, however, the backdrop has become more nuanced. Economic growth has started to diverge with the US clearly leading the way with robust, almost normal, growth coming through. The UK is lagging a little behind and Europe is teetering dangerously on the brink of persistent 110 105 100 95 90 85 ) 0 0 1 = 7 0 0 2 4 Q ( P D G l a e R deflation in what some are terming the ‘Japanification of Europe’. 7 0 - c e D 8 0 - r p A 8 0 - g u A 8 0 - c e D 9 0 - r p A 9 0 - g u A 9 0 - c e D 0 1 - r p A 0 1 - g u A 0 1 - c e D 1 1 - r p A 1 1 - g u A 1 1 - c e D 2 1 - r p A 2 1 - g u A 2 1 - c e D 3 1 - r p A 3 1 - g u A 3 1 - c e D 4 1 - r p A 4 1 - g u A Euro area United Kingdom United States Emerging markets, having initially bounced strongly after the global financial crisis, are now exhibiting very varied performance. On the one hand, those oil importing countries (benefiting from the falling oil price) that are managing their economies in a sensible fashion and adopting progressive, market friendly policies are being rewarded. Sitting firmly in this camp is India with the new Prime Minister, Narendra Modi, promising significant change. Conversely, those emerging market economies which are exporters of oil, have poor financial positions and whose governments are unwilling to modernise are being punished. The leading member of this group is clearly Russia, being heavily dependent on oil and the subject of painful sanctions as President Putin pursues an increasingly nationalistic mandate. 13 W Ocean Wilsons Holdings Limited/Annual Report 2014 Investment Managers Report Chart 3: Equity performance of oil exporting versus importing Emerging market countries Market Outlook rise at some point in 2015/16, capital is likely to flow from Emerging Markets As the business cycle matures and valuations increase this naturally raises the back into the US, reversing a significant source of liquidity. Many Emerging question as to the outlook for equities. Whilst we think that the markets will markets are also oil producers whereas the West tends to be consumers, again become increasingly choppy, we ultimately think that they will continue to transferring wealth back into developed markets. rise. The global economic backdrop continues to improve albeit at a more subdued pace compared to previous cycles and, as discussed earlier, with Much has been written about Europe’s slide into deflation and inflation is increasing differentiation between markets. Valuations have lifted to average falling in the developing world as well. The collapse in oil prices has sparked a or even higher in some classes with the US looking notably full. This however plunge in bond yields as inflation expectations have fallen, with some arguing is normal at this stage of the cycle and typically leads to company profitability that the UK’s latest 0.5% inflation level is a portent of a damaging and being a more important driver of market performance rather than valuations sustained period of deflation. However, deflation is damaging when spending, being further increased. The liquidity picture also remains positive albeit again wages, prices and asset values are all falling in money terms (i.e. falling now varying on a country-by-country basis with the US and UK likely to move nominal demand), but this is clearly not the current UK situation. Central to a tightening phase as the year progresses (but importantly still a very loose banks will find it hard to raise interest rates at a time of falling inflation, so an monetary policy picture overall), while Europe starts its QE programme. interest rate hike in the UK and US is becoming a dimmer prospect for 2015, while the ECB has only just started QE. Within equities, one’s investment horizon is key. For an investor with a 10 year horizon, it looks increasingly likely that emerging markets will do Overall, we are encouraged by the progress made in 2014 with your Fund somewhat better than developed markets as the valuation differential well positioned for the year ahead in what is likely to be a period of volatility becomes stretched in favour of emerging. However, over the next couple of and more modest, but ultimately positive, returns. years, developed markets look the more attractive option with their economic growth improving whilst emerging market growth is still under pressure in Hanseatic Asset Management LBG many cases (we watch China very closely). With US interest rates expected to March 2015 14 Ocean Wilsons Holdings Limited/Annual Report 2014 Portfolio Construction investments in market neutral funds. In addition, based on conservative The net asset value at the end of December 2014 was $251.7million. The estimates, distributions from the current private assets portfolio should portfolio is comprised of four ‘sub-portfolios’ as detailed below: enable this sub-portfolio to become self-funding. $m % NAV • To date, cumulative distributions received total $30.3 million. Sub-Portfolio Global Equities Private Assets Market Neutral Funds Bonds/Other Total 144.6 74.7 8.4 24.0 57.4 29.7 3.3 9.6 $251.7m 100.0% 1) ‘Global Equities’ is comprised of holdings that are sensitive to stock market movements and may take the form of ‘long-only’ or ‘long/short’ funds, as well as direct quoted equities. There is a strong bias towards fundamental, research-driven stock-pickers with a proven ability to produce attractive compounded returns. 2) ‘Private Assets’ contains fixed life investments typically with lives of approximately ten years and often structured through commitments to limited partnership vehicles that make investments in private equity, real assets (such as property and natural resources) and private debt. These investments are driven by a ‘bottom-up’ analysis of the manager’s value creation attributes, regardless of the prevailing economic climate. Managers dependent on financial engineering as a primary driver of returns are avoided. Moreover, it is essential that the manager provides more than capital to its portfolio companies – e.g. strong operational capabilities. Investments should be made into companies where there is a clearly defined exit route, which is not solely reliant on IPO markets. By investing in Private Assets it is often possible to access differentiated opportunities and fast growing businesses that are not normally available through public markets. For example, many Emerging Market countries have relatively immature capital markets, which can make it difficult to access the most attractive sectors in the public markets at reasonable valuations. Furthermore, Private Assets often exhibit low correlation to public security markets and the phased drawdown of capital helps to reduce market timing risk. 3) ‘Market Neutral Funds’ contains generally lower volatility investments in a small number of funds that engage in a variety of trading strategies across asset classes. Each market neutral fund has a different investment mandate and it is expected that their collective performance will not be dependent on the direction of global security markets. What they have in common is a focus on generating positive absolute returns while providing downside protection in volatile markets. In addition, Market Neutral Funds act as a secondary backstop to cash in covering long-term capital commitments (thus helping to avoid excessive cash drag – especially in the current environment of near-zero interest rates) and other opportunistic investments. In short, the Investment Manager believes that they provide a better risk/reward allocation than other investments that are perceived to be ‘lower risk’ such as government bonds. 4) ‘Bonds/Other’ – Bonds, both sovereign and credit, are comprised of two constituents: (i) Investment Grade Bonds and (ii) High Yield Bonds. Returns may be generated from rising capital value and coupons as well as currency exposure. Investment Grade Bonds (0% of NAV) would contain investments in sovereign (government) bonds as well as corporate bonds with high credit ratings (typically at least ‘BBB’ as defined by Standard & Poor’s). High Yield Bonds $9.1 million, (3.6% of NAV) include investments in Emerging Market (sovereign and corporate debt) and other Developed Market high yield corporate debt. ‘Other’ is comprised of cash valued at $14.9 million (6.0% of NAV). Cumulative Portfolio Returns Performance (Time-weighted) 1 Year p.a. p.a. p.a. p.a. (i) 3 Year 5 Year 10 Year Inception Since • • • 28 commitments (totalling $120.7 million) have been made as at Portfolio Performance 4.7% 7.1% 4.3% 6.1% 7.5% 31 December 2014. $95.4 million has been drawn down. Outstanding commitments of $36.6 million (the majority of which will be drawn down over the next five years) are covered by cash and Performance Benchmark 2.6% 2.9% 2.9% 4.5% 3.9% MSCI World (Developed) Index 4.9% 15.5% 10.2% 6.0% 4.0% MSCI All Country World Index 4.2% 14.1% 9.2% 6.1% n/a MSCI Emerging Markets Index (6.5%) 4.0% 1.8% 8.4% 9.7% 15 Ocean Wilsons Holdings Limited/Annual Report 2014 Investment Managers Report Performance 10 Year Cumulative Returns 400 350 300 250 200 150 100 50 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Ocean Wilson Benchmark Ocean Wilson Investments Limited MSCI Emerging Markets NR USD MSCI World (Developed) Index MSCI All Country World Index Notes: (i) Inception on 1 November 2000. (ii) Performance is measured against an absolute benchmark of one-year US Dollar LIBOR (prevailing on 1 January each year) plus 2%. (iii) MSCI All Country World Index includes Developed, Emerging and Frontier Markets (weighted by market capitalisation). Inception date for the index was 31 May 2002. Performance Commentary (-29.2%). The largest detractors to performance were concentrated in Sub-Portfolio 31 December 2014 Global Equities Private Assets Market Neutral Funds Bonds/Other Total Valuation Weighting Performance Contribution commodity-related geographies and sectors: Prosperity Quest Fund (-40.7%), $m % YTD % YTD $m 144.6 74.7 8.4 24.0 57.4 29.7 3.3 9.6 251.7 100.0 4.1 8.5 6.9 (2.1) 4.7 6.0 5.2 1.0 (0.3) 11.9 Phaunos Timer Fund Limited (-27.5%), Hupomone Capital Fund (-86.9%), Prusik Asian Smaller Companies Fund (-8.0%), and Schroder ISF Global Energy (-33.5%). The energy sector experienced significant volatility, with the oil price falling by - 40.0% over the year amidst increasing disconnect between supply/demand fundamentals, and with further evidence of a slowdown in China. The Russian During 2014, the portfolio generated a time weighted return of +4.7%. This economy was negatively impacted by the oil price fall, while ongoing political compares favourably to a +2.6% gain for the Performance Benchmark and a tensions produced an extremely difficult environment for investors. However, +4.2% return for the MSCI All Country World Index. Prosperity emphasize the healthy balance sheets across the corporate landscape, which has resulted in an increase in strategic M&A in Russia. They also point 2014 saw a continuation of gains in the regions that posted the strongest towards attractive valuations, which are currently lower than those seen in 1999. returns in the prior year, albeit returns were less robust. Notable gains in the portfolio came from North America (+11.0%), Europe ex UK (+15.7%) and The large loss recorded at Hupomone reflects the new valuation that Borelli Global Developed (+6.1%). The largest contributors to the portfolio’s Walsh, the replacement Manager, has produced following a full audit and review performance came from: Findlay Park American Fund (+11.2%), of the portfolio. Borelli Walsh were appointed on 16 August 2013, following the Greenspring Global Partners IV, LP (+31.7%), NTAsian Discovery Fund unanimous decision of the LP Advisory Board to remove Hupomone Capital. A (+15.6%), Adelphi European Select Equity Fund (+13.0%) and BlackRock significant write-down had been expected, and it is now hoped that Borelli European Hedge Fund (+13.0%). Walsh will be able to work hard to produce the best results for investors. Losses were generated primarily by the portfolio’s exposure to Emerging In aggregate, Macro/Market Neutral Funds posted strong performance of Markets ex-Asia (-29.2%), Commodities (-27.5%) and Commodity Equity +6.9%, primarily owing to strong performance from BlueCrest All Blue 16 Ocean Wilsons Holdings Limited/Annual Report 2014 Leveraged Feeder (+8.2%). On the other hand, the portfolio’s exposure to The top five contributors to the overall portfolio performance were: Corporate and Global High Yield generated negative returns of -0.9% and -2.8% respectively. Oaktree Value Opportunities Fund fell -4.7% over the Top Five Contributors (in USD) Contribution Performance fourth quarter, ending the year down -2.4%. Poor performance was attributed to significant mark-to-market losses in energy and power related names as oil prices collapsed in the latter half of the year, as well as a slowdown in Findlay Park American Fund Greenspring Global Partners IV, LP Chinese coal imports which impacted the portfolio’s exposure to dry NTAsian Discovery Fund bulk shipping. Adelphi European Select Equity Fund BlackRock European Hedge Fund Private Assets (29.7% of net asset value) – Private Assets generated robust Total performance of +8.º4% during the year, outperforming Global Equities, Market Neutral, Bonds/Other and Cash. The private assets programme is *Notes: %/x 11.2% 1.9x 15.6% 13.0% 13.0% % 0.7 0.6 0.6 0.5 0.5 2.9 Gain $m 1.8 1.5 1.5 1.3 1.2 7.3 maturing, with 56.5% of the overall programme having completed their (i) Performance for Private Assets Investments is measured as a multiple (since inception of the investment period. 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 + During the year, there were drawdowns of $23.2 million, the largest coming from KKR Special Situations Fund ($5.2 million), Gramercy Distressed Distributions) – (Initial Costs + Taxes). (ii) Partially sold during the period. Opportunity Fund II ($3.0 million) and Hony Capital Fund V ($2.4 million). Portfolio Activity* – for the year ended 31 December 2014 The portfolio received distributions of $10.1 million, the largest inflows being During 2014, there were total purchases of $33.7 million, including purchases from African Development Partners I ($1.8 million), Greenspring Global of new positions totalling $27.3 million and total sales of $66.0 million. Partners IV ($1.4 million) and Oaktree Principal V ($1.0 million). African New Positions Development Partners (‘ADP’) achieved their first two exits in 2014. Libstar (fast-moving consumer goods) was sold to the Abraaj Group in October 2014, generating an IRR of 21% and a 1.7x multiple of cost. During the period of ADP’s ownership (June 2011 – October 2014), sales and EBITDA increased by 64% and 44% respectively. The sale of Mansard (insurance) to the AXA Group occurred in December 2014. Together with previous distributions, the Mansard investment achieved an IRR of 40% and a 2.8x multiple of cost. The remaining portfolio is performing well and the General Partner will continue to focus on achieving realisations. Adelphi European Select Equity Fund Select Equity Offshore, Ltd Vulcan Value Equity Fund GAM Star Technology Goodhart Partners Longitude Fund: Hanjo Fund Additions to Existing Investments Odey Absolute Return Fund BlackRock European Hedge Fund Total Greenspring Global Partners IV was one of the strongest performers in the overall portfolio for the year. The Fund is being carried at a net IRR of 20.2% Purchases $m 10.0 4.5 4.5 4.5 3.8 3.5 2.9 33.7 and a 1.9x multiple of invested capital. An exit of note worth highlighting in Adelphi European Select Equity Fund – The Fund invests long-only in the portfolio is Zulily, which underwent an IPO in 2013. As the Fund’s Pan-European equities, with a fundamental bottom-up approach. holdings were in lock-up until May 2014, partial sales were completed on the open market in May, September and October, with the final realisation being Select Equity Offshore, Ltd – The Fund invests long-only in North American made in November. Collectively, the Fund generated $59.3 million in equities, focusing on quality stocks, with a value consideration, across small proceeds, with represented a 5.3x multiple of cost. and mid-capitalisations. On the other hand, Capital International Private Equity Fund V was a poor Vulcan Value Equity Fund – The Fund invests long-only in North American performer over the year. The portfolio currently consists of eight remaining equities, focusing on value plays with a quality bias across all market investments. The Portfolio Manager highlighted that sanctions on Russia, capitalisations. combined with the falling rouble and the oil price decline have had a material effect on QGOG Constellation (Brazil’s leading offshore drilling company), GAM Star Technology – The Fund invests long-only in global technology Seven Energy International (Nigerian oil and gas exploration and companies, with a focus on intrinsic valuations derived by the team’s analysis. production) and Danone-Unimilk (largest dairy producer in Russia). Goodhart Partners Longitude Fund: Hanjo Fund – The Fund invests Overall, the underlying limited partnerships are showing increasing visibility long-only in smaller capitalisation Japanese stocks. on their potential for value creation. The Investment Manager remains confident that the significant capital deployed into post-crisis vintages Sales represents an attractive store of future value. There were sales totalling $65.9 million in 2014. 17 Ocean Wilsons Holdings Limited/Annual Report 2014 Investment Managers Report Private Assets – Commitments MCP Private Capital Fund II, LP – the manager will make 12 to 18 privately There were three new commitments to private assets in 2014, totalling negotiated senior debt investments in middle market companies operating in $13.0 million: New Commitments Primary Capital IV, LLP MCP Private Capital Fund II, LP Greenspring Global Partners VI, LP Total Northern Europe. The Fund’s investment strategy will be to deploy capital to finance management buy-outs, buy-ins, build-ups, roll-outs, re-financings and acquisition financings of middle market companies that face difficulty in securing traditional forms of financing and where stakeholders are not looking for pure private equity capital. Whilst the investments will primarily be in senior secured debt, the manager will structure the deals with equity upside often granted on a zero cost basis. $m 5.0 5.0 3.0 13.0 Primary Capital IV, LLP – will continue the strategy of the predecessor Primary funds. It will invest in eight to 12 privately negotiated investments in lower middle-market management buy-outs and buy-ins with a deal size focus of between £20 million – £100 million and equity commitments of between £10 million – £40million. The geographical focus will be on businesses headquartered or with substantial operations in the UK. Greenspring Global Partners VI, LP – will continue the strategy of the predecessor Greenspring funds, investing approximately 75% in Venture funds and 25% in later stage Direct Investments. As such the Fund will provide an appropriately diversified exposure to Venture Private Equity in North America. *For the purpose of the Investment Management report, Private Asset cash movements and dividend reinvestments have been excluded from the purchases and sales. Asset Allocation (as at 31 December 2014) Private Equity 20.1% Cash 6.0% Private Real Assets 3.9% Market Neutral 3.3% High Yield Corporate (DM) 3.6% Long/Short Hedge Funds 20.7% Private Debt 5.7% Long Only Equities 36.7% Geographical Distribution (as at 31 December 2014) Underlying Liquidity* (as at 31 December 2014) Distressed Debt 1.6% Cash 6.0% Global High Yield 3.6% GEM Debt 2.2% Commodities 0.9% Macro Funds 3.3% Commodity Equity 4.3% Technology 5.0% GEM 4.6% North America 14.0% Fixed Life Investment Period Complete 16.8% > 1 year 1.0% Redemption outstanding 0.2% Fixed Life in Investment Period 12.9% Japan 4.7% Europe 8.6% UK 0.2% Daily 28.1% Half yearly 3.6% Quarterly 8.2% Monthly 23.2% Weekly 6.0% *Frequency at which underlying investments track does not include notice periods, lock in periods or settlement terms. Emerging Markets (ex Asia) 6.9% Asia Pacific ex Japan 18.3% Global (Dev) 15.8% 18 Investment Portfolio at 31 December 2014 Findlay Park American Fund Egerton European Dollar Fund Adelphi European Select Equity Fund NTAsian Discovery Fund Lansdowne Developed Markets Fund Odey Absolute Return Fund BlackRock European Hedge Fund Oaktree CM Value Opportunities Fund BlueCrest AllBlue Leveraged Feeder JO Hambro Japan Fund Top 10 Holdings Hirzel Capital Fund Schroder ISF Asian Total Return Fund China Harvest Fund II, LP Greenspring Global Partners IV, LP Gramercy Distressed Opportunity Fund II, LP Prince Street Opportunities Fund Vulcan Value Equity Fund Helios Investors II, LP Select Equity Offshore, Ltd L Capital Asia, LP Top 20 Holdings KKR Special Situations Fund, LP African Development Partners I, LLC GAM Star Technology African Minerals Exploration & Develop Fund Oaktree Principal Fund V, LP Prosperity Quest Fund Goodhart Partners Longitude Fund: Hanjo Fund Hony Capital Fund V, LP Prusik Asian Smaller Companies Fund Riverstone/Carlyle Global Energy & Power Fund, LP IV, LP Top 30 Holdings 22 remaining holdings Cash TOTAL Ocean Wilsons Holdings Limited/Annual Report 2014 Primary Focus US equities – long-only Europe/US equities – hedged Europe – equities Asia ex-Japan equities – long-only Europe/US equities – hedged Europe/US equities – hedged Europe equities – hedged US high yield corporate debt – hedged Market Neutral – multi-strategy Japan equities – long-only US equities – hedged Asia ex-Japan equities – long-only Private Assets – China Private Assets – US Venture Capital Private Assets – distressed debt Emerging Markets equities – long-only US equities – long-only Private Assets – Africa US equities – long-only Private Assets – Asia (Consumer) Private Assets – distressed debt Private Assets – Africa Technology – long-only Private Assets – Mining Private Assets – US distressed debt Russian equities – long-only Japan equities – long-only Private Assets – China Asia ex-Japan equities – long-only Private Assets – Energy Market Value $000 18,090 13,415 11,295 11,245 11,045 10,589 9,966 9,078 8,374 7,909 % of NAV 7.2 5.3 4.5 4.5 4.4 4.2 4.0 3.6 3.3 3.1 111,006 44.1 6,666 6,067 5,603 5,544 5,481 5,348 5,144 5,114 4,919 4,814 2.7 2.4 2.2 2.2 2.2 2.1 2.0 2.0 2.0 1.9 165,706 65.8 4,661 4,578 4,559 4,102 4,081 4,060 3,813 3,771 3,747 3,494 206,572 30,204 14,966 251,742 1.9 1.8 1.8 1.6 1.6 1.6 1.5 1.5 1.5 1.4 82.0 12.0 6.0 100.0 19 Ocean Wilsons Holdings Limited/Annual Report 2014 Directors and Advisers Directors J F Gouvêa Vieira* (Chairman) W Salomon* (Deputy Chairman) K Middleton A Berzins* 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 65 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 Banco PSA Finance Brasil S.A. and a number of other Companies. Mr Gouvêa 34 Beckenham Road Vieira is also a member of the Corporate Governance Committee for the Beckenham American Chamber of Commerce in São Paulo. Kent BR3 4TU Mr W Salomon is German and British, aged 57 and joined the Group in 1995. Ocean Wilsons Dividend Address He is senior partner of Hansa Capital Partners LLP. He is also a non-executive Ocean Wilsons Dividend Election director of Hansa Trust PLC and Wilson Sons Limited. Capita Asset Services The Registry Mr A Berzins is aged 55, British and resident in Singapore and joined the Group 34 Beckenham Road in 2014. He is a non-executive director of Aberdeen Asian Income Fund. Beckenham Kent BR3 4TU Mr C Maltby is aged 64, British and resident in Switzerland. He is a Director of BACIT Limited and Abingworth BioEquities Fund Limited, and a member of the Auditor Supervisory Board of BBGI SICAV SA. KPMG LLP 15 Canada Square Mr A Rozental is Mexican, aged 69 and is the founding partner of Rozental & London E14 5GL Asociados. He is a non-executive director of Wilson Sons Limited, chairman of the Board of Directors of ArcelorMittal Mexico and an independent Director of Bankers ArcelorMittal Brazil. He serves on the advisory boards of Kansas City Southern Deutsche Bank International Limited de México, EADS de México, Toyota de México and is a non-executive Board Jersey member of HSBC Bank of Mexico. Mr C Townsend is German and British and resident in Switzerland. He is aged Hanseatic Asset Management LBG 41 and is a solicitor and has an MBA from the London Business School. He is Guernsey, Channel Islands investment director of Hansa Capital GmbH. Investment Managers Brazilian Business Website www.wilsonsons.com.br Bermuda Office PO Box HM 2250 Richmond House 12 Par-la-Ville Road Hamilton HM JX Bermuda Website: www.oceanwilsons.bm 20 Report of the Directors Ocean Wilsons Holdings Limited/Annual Report 2014 The Directors submit herewith their Report and Accounts for the year ended (1st Class) in Statistics from the University of Bath and is a member of the 31 December 2014. Institute of Chartered Accountants in England and Wales. In the last five years Mr Berzins was previously a non-executive director of the Cubit Long/Short The Group accounts, presented under International Financial Reporting Commodity Fund. Standards (IFRS), comprise the Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in In accordance with the Company’s (Ocean Wilsons Holdings Limited) bye-laws, Equity, Consolidated Cash Flow Statement and the related notes 1-37. Mr A Berzins, Mr W Salomon and Mr C Townsend retire at the next annual Profits and Dividends general meeting and, being eligible, offer themselves for re-election. The Directors who held office at 31 December 2014 had the following interest in As permitted by Section 84(1A) of the Bermuda Companies Act 1981 the the Company shares: Group’s accounts have been drawn up in accordance with International Financial Reporting Standards. Interest 2014 2013 The Group’s profit after tax on ordinary activities attributable to equity shareholders amounted to US$23,182,000 (2013: US$37,873,000). The Directors are declaring the payment of a dividend for the year of 63.0c (2013: 60.0c) gross per share. The dividend will be paid on 5 June 2015 to all shareholders who are on the register at close of business on 8 May 2015. 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 Group’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. Wilson Sons Limited 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. Directors The present Members of the Board are as shown on page 20. Mr A Berzins was appointed as a non-executive Director of Ocean Wilsons Holdings Limited on the 3 June 2014. Mr Berzins is 55 and lives in Singapore. He is currently Managing Director of Suez Asia Holdings and a Director of Aberdeen Asian Income Fund. Mr Berzins has extensive experience of the Asian investment business having lived and worked there since 1984. He has held a number of positions throughout the investment industry including Managing Director of the Asian private equity arm of the French based Compagnie de Suez (now GDF Suez) group. Mr Berzins has a BSc Honours J F Gouvêa Vieira Beneficial 151,600 146,600 K Middleton Beneficial 30,000 10,000 W Salomon* Beneficial 4,659,349 4,659,349 C Townsend C Maltby A Berzins Beneficial Beneficial Beneficial 40,000 40,000 5,000 5,000 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 there are no service contracts between Mr A Berzins, Mr W Salomon or Mr C Townsend and the company. Employees The average number of persons, including Directors, employed by the Group was 5,972 (2013: 6,363). Long-term incentive plan Share option plan On 13 November 2013, the board of Wilson Sons Limited approved a Share Option Plan, which allowed for the grant of options to eligible participants to be selected by the board. The shareholders in special general meeting approved the plan on the 8 January 2014 including an increase in the authorized capital of the company through the creation of up to 4,410,927 new shares. The options provide participants with the right to acquire shares via Brazilian Depositary Receipts (“BDR”) in Wilson Sons Limited at a predetermined fixed price not less than the three-day average mid-price for the days preceding the date of option issuance. On 10 January, 2014 options for the acquistion of 2,914,100 BDR’s were granted under the Stock Option Plan with an exercise price of R$31.23 and on 13 November, 2014 options for the acquistion of 139,000 BDR’s were granted under the Stock Option Plan with respective exercise prices of R$31.23 and R$33,98 as detailed in note 31. 21 Ocean Wilsons Holdings Limited/Annual Report 2014 Report of the Directors Auditor independence and knowledge on the board and, in the light of this KPMG LLP were reappointed auditor at the 2014 annual general meeting and evaluation, prepares a description of the role and capabilities required for have expressed their willingness to continue in office as auditor and a a particular appointment. An independent external search consultant will resolution to reappoint them under the provisions of Section 89 of the conduct a search for appropriate candidates with the right blend of Bermuda Companies Act 1981 will be proposed at the forthcoming Annual skills and experience which are then submitted to the Board for General Meeting. evaluation. Substantial Shareholdings • The Code states that non-executive directors who have served longer As at 5 March 2015, the Company has been notified of the following holdings than nine years should be subject to annual re-election. of its shares, in excess of 3% of the issued ordinary share capital: Number of shares % held re-election as your Board considers continuity and knowledge of the Directors serving more than nine years are not subject to annual 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 2,365,838 26.4 12.5 11.1 6.7 Company’s investments and business acquired over time is of great value. The Directors who have served longer than nine years are Mr J F Gouvêa Vieira, Mr W Salomon and Mr K Middleton. • The Code requires that there should be a formal and transparent procedure for developing policy on executive remuneration and for fixing The Company has been advised that Mr W Salomon is interested in the remuneration packages of individual directors. 4,435,064 shares registered in the name of Codan Trust Company Limited and Helen Cooper and Mrs C Townsend is interested in 3,929,049 shares As there is only one employee outside the Wilson Sons Limited Group the registered in the name of Peter A S Pearman and Codan Trust Company group does not have a formal procedure for developing policy on Limited. The Company has also been advised that Mr W Salomon has an executive remuneration and for fixing the remuneration packages of interest in 26.4% and Mrs. C Townsend an interest in 25.9% of the voting individual directors. The Board of Wilson Sons Limited is responsible for shares of Hansa Trust PLC. Mr C Townsend is the son of Mrs. C Townsend. all remuneration matters relating to Wilson Sons Limited and its Contracts and agreements with substantial shareholders No contracts existed at the end of the year in which a substantial shareholder The Board subsidiaries. of the Company is or was materially interested. The Board currently comprises the chairman, Mr J F Gouvêa Vieira, deputy Corporate Governance chairman Mr W Salomon, a further four non-executive directors, Mr A Berzins, Mr A Rozental, Mr C Townsend and Mr C Maltby and one executive director, The Board has put in place corporate governance arrangements that it Mr K Middleton. Mr Rozental, Mr Berzins and Mr Maltby are considered by the believes are appropriate for the operation of your Company. The Board has Board to be independent under the Code. The Board has appointed considered the principles and recommendations of the 2012 UK Corporate Mr A Rozental as the senior independent director. The directors’ biographies Governance Code (“the Code”) issued by the Financial Reporting Council and appear on page 20. decided to apply those aspects which are appropriate to the business. This reflects the fact that Ocean Wilsons Holdings Limited is an investment holding All directors are subject to election by shareholders at the first AGM following Company incorporated by an act of parliament in Bermuda with significant their appointment to the Board and are subject to re-election by shareholders operations in Brazil. The Company complies with the Code where it is once every three years. Mr A Berzins, Mr W Salomon and Mr C Townsend are beneficial for its business to do so, and has done so throughout the year and offering themselves for re-election at the next AGM. The Board considers on a up to the date of this report, but as noted below, it does not fully comply with regular basis how to refresh itself. the Code. The position is regularly reviewed and monitored by the Board. Below are the areas where Ocean Wilsons Holdings Limited does not comply with directors appear on page 20 as part of their biographies and the Board is the 2012 UK Corporate Governance Code and the rationale for not complying: satisfied that these commitments do not conflict with their ability to carry out Non-executive directors hold letters of appointment. The other commitments of • The Code states the Company should have a Board nomination committee. 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 The Board does not have a separate nomination committee as the Board. The Group does not have a chief executive. identification and appointment of a new Board member is a matter for the full Board. The Board evaluates the balance of skills, experience, 22 Ocean Wilsons Holdings Limited/Annual Report 2014 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 • • • • • • • 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 requirements for both companies. The Board of Ocean Wilsons Investments Limited is currently constituted by the The Board delegates authority to manage the portfolio of investments to delegates authority to run the investment portfolio held by Ocean Wilsons Hanseatic Asset Management LBG. Investments Limited to the investment manager within certain guidelines. The Board of Ocean Wilsons Investments Limited has a formal schedule of matters The Ocean Wilsons Holdings Limited Board has a formal schedule of matters specifically reserved for its attention which include: same directors as the Board of Ocean Wilsons Holdings Limited. The Board specifically reserved for its attention. As previously stated, autonomy is given to the Wilson Sons Limited Board to supervise the Wilson Sons Limited 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: 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, removal and terms of an investment manager Determine investment guidelines and restrictions in conjunction with the investment manager Approval of the investment objective and benchmark To approve and set borrowing limits To approve and set limits on the use of derivative instruments Review the performance of the investment manager Approval of the annual accounts for Ocean Wilsons Investments Limited Approving any dividends The Company has a procedure in place by which directors can seek Appointment of directors to Ocean Wilsons Holdings Limited and Ocean independent professional advice at the Company’s expense if the need arises. Wilsons Investments Limited The Board has full and timely access to all relevant information to enable it to perform its duties. The Company has directors and officers insurance in place. Appointment and removal of the company secretary 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 Appointment and removal of executives secretary Mr M Mitchell and the executive director. To decide on potential conflicts of interest During 2014, five scheduled meetings of the Ocean Wilsons Holdings Limited Board were held at different locations. Details of attendance at Board meetings Approval of annual and interim reports and meetings of the Board committees are set out below. In addition to 23 • • • • • • • • • • Ocean Wilsons Holdings Limited/Annual Report 2014 Report of the Directors scheduled Board meetings if matters arise at short notice requiring urgent Board Diversity Policy attention a telephone Board meeting is arranged. During 2014 two telephone The Board considers diversity, including the balance of skills, experience, Board meetings were held. knowledge and nationality, amongst many other factors, when reviewing the appointment of new Directors. The Board does not consider it appropriate to Directors’ attendance at Board and Finance Committee meetings: establish targets or quotas in respect of Board appointments. With respect to Director Mr J F Gouvêa Vieira Mr W Salomon Mr A Cooper Mr K Middleton Mr A Rozental Mr C Townsend Mr C Maltby Mr A Berzins gender diversity, the Board considers that a merit based approach is the only Finance Committee appropriate approach for determining the composition of the Board and as Board Meetings attended Meetings attended such has not set specific targets for gender diversity. 6 5 4 7 5 6 7 4 4 4 2 – 4 4 4 3 Remuneration Non-executive Directors’ fees are set out within limits set in the Company’s Articles of Association. The present limit is US$700,000 in aggregate per annum and the approval of shareholders in a General Meeting is required to change this amount. 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. Mr A Berzins attended the Board meetings following his appointment. The formal agenda for each scheduled Board meeting is set by the chairman Board Committees 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 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 attend the Wilson Sons Limited Board meeting to meet business unit directors committee. and receive detailed management reports on the Brazilian business. The non-executive directors also meet informally, without any executives present, to discuss matters in respect of the business. All new directors receive an induction on joining the Company. This covers such matters as strategy, operation and activities of the Group and corporate governance matters. Site visits and meetings with senior management are also arranged. The Board as a whole make periodic operational site visits. Directors are encouraged to visit other sites. Directors are also provided with industry 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. 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 other directors. Board Evaluation The Board undertakes an annual formal performance evaluation for the Board and individual directors. The process involves completion of internally prepared questionnaires. The chairman discusses their responses with each director and then reports the results of the process to the Board which discusses the results highlighting any areas for improvement. The Board will review Board composition on an ongoing basis (including as part of the formal Board evaluation process) and regularly consider whether any skill gap exists. The Board will evaluate the balance of skills, experience, independence and knowledge on the Board. If the Board considers that a skill gap exists in either the Board or its committees a description of the role and capabilities required for a particular appointment will be prepared and passed to an independent external search consultant. The 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. Any director may suggest a person to be appointed a non-executive director of the Company. The procedure to be followed is: (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. 24 Ocean Wilsons Holdings Limited/Annual Report 2014 Following an internal review of our Board composition and evaluation of the balance of skills, the Board considered it appropriate to appoint an additional Board member in 2014. A description of the role and candidate capabilities required for the appointment was prepared and passed to an independent external search consultant. The external search consultant (Trust Associates) conducted a search for appropriate candidates with the right blend of skills and experience which were then submitted to the Board. Mr A Berzins was appointed as a non-executive Director of Ocean Wilsons Holdings Limited effective from the 3 June 2014. Finance Committee report The finance committee comprises all non-executive directors, three of whom are considered by the Board to be independent during 2014. The Board is satisfied that during 2014 four directors, Mr C Maltby, Mr W Salomon, • • • • • • 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; to determine bonuses payable under the Company Bonus scheme; and The finance committee to review arrangements by which staff of the Mr A Berzins and Mr A Rozental, have recent and relevant financial experience company may, in confidence, raise concerns about possible improprieties as all have served on the audit committees of other listed companies. in matters of financial reporting or other matters. Mr W Salomon also has considerable experience in finance and investment banking and Mr C Maltby and Mr A Berzins both hold accounting Overview of the actions taken by the Finance Committee to discharge its qualifications. duties The finance committee met four times in 2014. At the request of the finance committee the chief executive of Wilson Sons Limited, the finance director of • reviewed the December 2013 report and financial statements, the June Wilson Sons Limited and the executive director of Ocean Wilsons Holdings 2014 half yearly financial report and the interim management statement Limited attended each of these meetings. The external auditor attended two issued in May and quarterly update issued in November. As part of the Since the beginning of 2014 the Finance committee has: meetings. review of the December 2013 report, the Committee received a report from the external auditor on their audit of the annual report and financial The finance committee meets with the external auditor without the executive statements; present. The finance committee is chaired by Mr C Maltby, an independent director. As a result the Group has approved that two businesses (TECON Rio The committee has defined terms of reference. The principal responsibilities of Grande and WSCI) are currently determined as functional currency the committee are: US Dollar be reclassified as functional currency Brazilian Real effective • reviewed the functional currencies of the Wilson Sons Limited businesses. • to review the integrity of the interim and full year financial statements of the company, reviewing significant financial reporting judgements • reviewed arrangements by which staff of the company may, in from the 1 January 2015; contained in them; confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. As part of this review the committee to review the Company’s internal control and risk management systems; considered a proposed “whistle blowing policy” and following discussion to make recommendations to the Board, for it to put to the shareholders approved its adoption; • • for their approval in general meeting, in relation to the appointment, • reviewed the effectiveness of the Group’s internal controls and disclosures reappointment and removal of the external auditor and to approve the made in the annual report and financial statements on this matter. As remuneration and terms of engagement of the external auditor; part of this review, the Committee considered a report on internal controls • to review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements; • to consult with the Group’s auditor and, where necessary the auditor of and the Group’s risk register and suggested amendments; • • reviewed and approved the scope of audit work to be undertaken by the auditor; agreed the fees to be paid to the external auditor for the audit of the the subsidiary companies, regarding any matters arising in the course of December 2013 financial statements including consideration of the levels the annual audit which should be brought to the attention of the Board; of non-audit fees which the committee concluded were immaterial; 25 Ocean Wilsons Holdings Limited/Annual Report 2014 Report of the Directors • • assessed the qualification, expertise and resources, and independence of • Impairment Risk to Goodwill and Intangibles – The Group has significant the external auditor; and Goodwill and Intangibles balances. The reporting risk is that these balances may be overstated. Management perform impairment reviews reviewed the need for an internal audit function. for Intangibles and tests goodwill as required by IAS 36, Impairment of Assets. The impairment test is performed by comparing the carrying value To fulfil its responsibility regarding the independence of the external auditor, of goodwill to its value in use, calculated using the discounted cash flow the finance committee reviewed: forecasts under the principles of IAS 36. The Committee examined and challenged management’s key assumptions used in the impairment tests • the external auditor plan for the current year, noting the role of the audit to understand their impact on the recoverable amounts. The Committee partner, who signs the audit report and who, in accordance with was satisfied that the significant assumptions used were appropriate and professional rules, has not held office for more than five years and any sufficiently robust. The Committee was further satisfied with the changes in key audit staff; impairment disclosures in the financial statements. • • a report from the external auditor describing their arrangements to • Revenue recognition – The revenue recognition risk could arise from identify, report and manage any conflicts of interest; and inappropriate revenue recognition policies, incorrect application of the overall extent of non-audit services provided by the external auditor, the Group’s revenue recognition policies and the level of transactions in addition to approving the provision of significant non-audit services by compared to previous periods. The committee reviewed external auditor policies or cut-off errors surrounding year end. The committee considered the external auditor. reports on revenue recognition and discussed their findings and the potential risks with the external auditor and management. In addition the Group does not currently employ any former external audit staff. KPMG LLP have been the Group’s auditor since 31 December 2012 Internal Controls following a competitive tender. The Board is responsible for the system of internal control and reviewing its effectiveness. The internal controls are designed to cover material risks to After discussion with management, the Board of Wilson Sons Limited and the achieving the Group’s objectives and include business, operational, financial external auditor, the committee determined that the key risks of misstatement and compliance risks. These controls have been in place throughout the year. of the Group’s financial statements relate to: The internal controls are designed to identify, evaluate and manage rather than eliminate risk of failure to meet business objectives. The internal control • Provisions – Legal claims against the Brazilian operations comprise civil and process distinguishes between the parent group and the principal operating environmental cases, tax cases and labour claims. The reporting risk relates subsidiary, Wilson Sons Limited, which is managed by an autonomous board. to the completeness of claims recorded and the estimation of the provisions held against these exposures. There remains a significant number of Wilson Sons Limited is listed on both the Sao Paulo Stock Exchange “BOVESPA” contingent liabilities, particularly concerning labour and taxation claims. and Luxembourg Stock Exchange, whose rules are different from the London Provisions are based on prior experience, management’s best knowledge of Stock Exchange. The company’s internal control procedures, whilst sufficient for the relevant facts and circumstances and expert legal advice relative to the Board of Wilson Sons Limited to identify, manage and control the principal each case. The committee questioned management on their assumptions risks, may differ from the requirements of the Turnbull Committee. The Board of used in determining provisions and the procedure for classification of legal the principal operating subsidiary is responsible for identifying key business risks liabilities as probable, possible or remote loss by the external lawyers. The and establishing and reviewing internal control procedures. committee reviewed quarterly legal reports from management on contingencies and asked questions on the background and progress of The Board reviews the need for an internal audit department annually and material claims. The committee evaluated the current level of provisions in considers that the parent group is not sufficiently large to justify an internal light of historical trends and claim history to ensure provisions were audit function. Wilson Sons Limited operates an internal audit function and adequate. The committee further ensured that adequate resources are the Wilson Sons Limited board monitors their internal financial control allocated to recording, evaluating and monitoring legal claims to ensure the systems through reports received from the internal audit function. completeness of claims recorded and provisions made. 26 Ocean Wilsons Holdings Limited/Annual Report 2014 In reviewing Wilson Sons Limited, the Board receives reports from the Wilson statements include details of its financial instruments and hedging activities Sons Limited internal audit department, legal department and the Wilson Sons and its exposure to credit risk and liquidity risk. Details of the Group’s Limited external auditor. borrowings are set out in note 22. Based on the Group’s forecasts and sensitivities run, the directors have a reasonable expectation that the The parent group (including Ocean Wilsons Investments Limited) has an Company and the Group have adequate resources to continue in operational ongoing process for identifying, evaluating and managing key risks including existence for the foreseeable future. For this reason, they continue to adopt financial, operational and compliance controls. A risk register is maintained the going concern basis in preparing the accounts. detailing business risks, together with controls and responsibilities. The risk register is regularly reviewed by the finance committee. Directors’ responsibilities The systems operated both by the parent group and principal operating with applicable laws and regulations. The Directors are responsible for preparing the annual report in accordance subsidiary are reviewed annually. The Board is satisfied that these systems are operating effectively. The Directors are required by Bermuda company law to lay financial statements before the Company in a general meeting. In doing this the During 2014 Ocean Wilsons Holdings Limited adopted an employee whistle Directors prepare accounts on a going concern basis for each financial year blowing policy.This policy is designed to enable employees of the Company to which give a true and fair view of the state of affairs of the Company and the raise concerns internally and at a high level and to disclose information which Group and of the profit or loss of the Group for that period. In preparing those the individual believes shows malpractice or impropriety. The Wilson Sons accounts, the Directors have considered whether: 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. Relations with Shareholders • • • 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 Communications with shareholders are important to the Board. Ocean Wilsons material departures disclosed and explained in the accounts. Holdings Limited sends both its annual report and accounts and half year accounts to all shareholders. To ensure Board members develop an The Board consider the annual report and accounts, taken as a whole, is fair, understanding of the views of major shareholders there is regular dialogue balanced and understandable and provides the information necessary for with major institutional shareholders. The chairman, Deputy Chairman and shareholders to assess the company’s performance, business model and executive director usually attend a number of these meetings. A report of strategy. meetings with shareholders is distributed to all directors. All broker reports are distributed to all Board members. The Annual General Meeting of the Company will be held in Bermuda. The Company website oceanwilsons.bm By Order of the Board contains copies of the annual and interim report and stock exchange announcements. Going Concern Malcolm Mitchell Secretary The Group closely monitors and manages its liquidity risk. The Group has 24 March 2015 considerable financial resources including US$103.8 million in cash and cash equivalents and the Group’s borrowings have a long maturity profile. The Group’s business activities together with the factors likely to affect its future development and performance are set out in the chairman’s statement, operating review and investment managers report on pages 1 to 19. The financial position, cash flows and borrowings of the Group are set out in the Financial review in pages 6 to 10. In addition note 36 to the financial 27 Ocean Wilsons Holdings Limited/Annual Report 2014 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only Opinions and conclusions arising from our audit site personnel. In addition, we challenged the Group’s judgement in respect 1. Our opinion on the financial statements is unmodified of forecast contract out-turn and the recoverability of contract balances via We have audited the Group financial statements (“the financial statements”) agreement to third party certifications and confirmations and with reference of Ocean Wilsons Holdings Limited (“the Group”) for the year ended to our own assessments, historical outcomes and industry norms and 31 December 2014 which comprise the Consolidated Statement of inspected the selected contracts for key clauses and assessing whether Comprehensive Income, the Consolidated Balance Sheet, the Consolidated these key clauses have been appropriately reflected in the amounts Statement of Changes in Equity, the Consolidated Cash Flow Statement and recognised in the financial statements. the related notes. In evaluating the timing of the recognition of other maritime services revenue, In our opinion the financial statements give a true and fair view of the state we visited a number of sites, including both of the Group’s operational port of the Group’s affairs as at 31 December 2014 and of its profit for the year terminals (Tecon Salvador and Tecon Rio Grande) and discussed the revenue then ended in accordance with International Financial Reporting Standards as recognition policies with operational and financial management. Our issued by the International Accounting Standards Board. procedures included control procedures in all segments, specific sample testing on revenue accrued and deferred at year end based on the specific 2. Our assessment of risks of material misstatement contract terms, IT sampling of transactions, and performing substantive In arriving at our audit opinion above on the financial statements the risks of analytical procedures at each of the operating terminals. material misstatement that had the greatest effect on our audit were as follows: We also considered the adequacy of the Group’s accounting policy disclosures Maritime services revenue recognition (US$633.5m) in respect of revenue recognition. Refer to page 26 (Finance Committee Report), page 40 (accounting policy) and page 42 (financial disclosures). Impairment risk to goodwill and intangible assets relating to business combinations (US$35.0m and US$25.8m respectively) The risk – Revenue is made up from various sources of maritime shipping Refer to page 26 (Finance Committee Report), pages 38 to 39 (accounting policy) services where we considered two principal risks of material misstatement: and pages 47 to 48 (financial disclosures). determining the percentage of completion on shipbuilding contracts; and determining when services or obligations have been delivered to assess • The risk – The Group’s investment in Tecon Rio Grande, Tecon Salvador whether other revenue in this segment has been recognised in the correct and Brasco Caju (Briclog) all gave rise to intangible assets and goodwill period. The Group recognises shipbuilding revenue based on the stage of on acquisition. Due to the inherent risk and uncertainty involved in completion of contracts, which is assessed by reference to the proportion of forecasting and discounting future cash flows in this industry in a contract costs incurred for the work performed to the balance sheet date developing economy, which are the basis of the assessment of relative to the estimated total contract costs to completion. The recognition of recoverability, this is one of the key judgemental areas that our audit is revenue therefore relies on estimates in relation to the final out-turn of costs concentrated on. There is a risk of recoverability of the Group's significant on each contract. Changes to these estimates could give rise to material goodwill and intangible balances due to possible weakening demand or variances in the amount of revenue recognised. the variability of the cost base in this industry. The recoverable amount of the Group’s goodwill and intangible assets relating to the acquisitions is The Group also recognises revenue when services in its port terminals, towage assessed at a cash generating unit (“CGU”) level annually (for goodwill) or operations, logistics and offshore businesses have been fulfilled. The when there is an indication of impairment (for intangible assets and recognition of this revenue could be susceptible to timing errors in goodwill) through production of a discounted future cash flow model. determining when services or obligations have been delivered resulting in revenue being recognised in the incorrect period. • Our response – In this area our audit procedures included, among others, testing the Group’s forecasting process by: • Our response – In evaluating shipbuilding revenue, our audit procedures included using both quantitative and qualitative factors to select a sample – considering the historical accuracy of previous forecasts. We of contracts and then to assess and challenge the most significant and compared actual results in the current year to • forecasts prepared in complex contract estimates. We obtained the detailed project management previous periods and substantiated significant variances; review papers from the Group to support the estimates made and challenged the judgements underlying those papers with senior operational, – comparing the Group's port terminal cash-flow assumptions against commercial and financial management. We evaluated the financial underlying contracts to agree revenue streams and contract end performance of contracts against budget and historical trends, undertook dates. In addition, we used our own experience and discussions with site visits to physically inspect the stage of completion of individual projects a range of operational personnel to assess the probability of and to identify areas of complexity through observation and discussion with contracts being won, renewed or lost with respect to future contracts. 28 Ocean Wilsons Holdings Limited/Annual Report 2014 – using our own corporate finance valuation specialists to assist us in before taxation (of which it represents 8.3%). In assessing the appropriateness of evaluating the Directors’ assumptions and judgements relating to the selected materiality level regard was given to the impact on reported results projected economic growth, inflation, exchange rates and discount of foreign exchange movements in the last quarter of the year. For comparison, rates used to derive recoverable amount. We compared the Group's the prior year materiality was $7m (7% of profit before tax). assumptions to externally derived data, industry norms and our expectations based on our knowledge of the client and experience We agreed with the finance committee to report to it all corrected and of the industry in which it operates. uncorrected misstatements we identified through our audit with a value in excess of US$325,000, in addition to other audit misstatements below that We considered the adequacy of the Group’s disclosures in respect of threshold that we believe warranted reporting on qualitative grounds. impairment testing and whether disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions There are two key components in the Group, one audited by KPMG Brazil and properly reflected the risks inherent in the key assumptions and the the other by the Group team. Group procedures covered 100% of total Group requirements of accounting standards. revenue; 97% of Group profit before taxation; and 99% of total Group assets. The segment disclosures in Note 4 set out the individual significance of a Provisions (US$15.7m) specific segment and country. Refer to page 26 (Finance Committee Report), page 40 (accounting policy) and pages 61 and 62 (financial disclosures). The audits undertaken for Group reporting purposes at the key components of • The risk – Provisions are measured at the Directors’ best estimate of the the Group audit team. These materiality levels were set individually for each Group’s liability to settle an obligation arising from a past event. As is component and were US$5.0m for the component in the Channel Islands to the company were all performed to materiality levels set by, or agreed with, common for businesses in Brazil, the Group receives a high volume of legal US$6.0m for the component in Brazil. claims from general civil proceedings, labour claims and changing tax legislation. These resultant contingent liabilities are potentially significant Detailed audit instructions were sent to the component audit team in Brazil. and the application of accounting standards to determine the amount, if These instructions included the significant audit areas that should be covered any, to be provided as a liability, is inherently subjective. In making these by this audit (which included the relevant risks of material misstatement decisions, the Directors use their judgement and where appropriate receive detailed above) and set out the information required to be reported back to external advice, in order to make their best estimate of provisions to be the Group audit team. The Group audit team visited Brazil twice in the year, made in the financial statements. This is one of the key areas that our audit including to assess the audit risk and strategy. Telephone conference meetings concentrated on as a result of the impact that a material claim could have were also held with these component auditors. At these visits and meetings, on the Group’s financial position and result for the year. the findings reported to the Group audit team were discussed in more detail, and any further work required by the Group audit team was then performed • Our response – Our audit procedures included, obtaining an understanding by the component auditor. from the Directors and in-house legal counsel of the basis for their best estimates, challenging the basis used with reference to the latest available 4. We have nothing to report in respect of the matters on which we are corroborative information and an assessment of correspondence with the required to report by exception Group's external counsel on all significant legal cases and discussions with Under ISAs (UK and Ireland) we are required to report to you if, based on the them when further clarity was deemed necessary. In addition, we obtained knowledge we acquired during our audit, we have identified other information direct formal confirmations from the Group's external counsel for all in the annual report that contains a material inconsistency with either that significant litigation. With regard to open tax cases, in addition to the above knowledge or the financial statements, a material misstatement of fact, or that we used our own tax specialists to assess the Group's tax positions and its is otherwise misleading. correspondence with the relevant tax authorities. We analysed and challenged the assumptions used to determine tax provisions based on our In particular, we are required to report to you if: knowledge and experiences of the application of the international and local legislation by the relevant authorities and courts. • we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they consider that We also assessed whether the Group's disclosures detailing significant legal the annual report and financial statements taken as a whole is fair, balanced proceedings adequately disclose the contingent liabilities of the Group. and understandable and provides the information necessary for shareholders 3. Our application of materiality and an overview of the scope of our audit The materiality for the Group financial statements as a whole was set at • the finance committee report does not appropriately address matters US$6.5m. This has been calculated with reference to a benchmark of Group profit communicated by us to the finance committee. to assess the Group’s performance, business model and strategy; or 29 Ocean Wilsons Holdings Limited/Annual Report 2014 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only Under the Listing Rules we are required to review: subject to important explanations regarding our responsibilities, as published • the directors’ statement, set out on page 27, in relation to going concern; should be read to provide an understanding of the purpose of this report, the and work we have undertaken and the basis of our opinions. on that website, which are incorporated into this report as if set out in full and • the part of the Corporate Governance Statement on pages 22 to 27 The purpose of this report and restrictions on its use by persons other relating to the company’s compliance with the ten provisions of the 2012 than the Company’s members as a body UK Corporate Governance Code specified for our review. This report is made solely to the Company’s members, as a body, in We have nothing to report in respect of the above responsibilities. work has been undertaken so that we might state to the Company’s members Respective responsibilities of Directors and auditor no other purpose. To the fullest extent permitted by law, we do not accept or As explained more fully in the Directors’ Responsibilities Statement set out on assume responsibility to anyone other than the Company and the Company’s page 27, the Directors are responsible for the preparation of financial members as a body, for our audit work, for this report, or for the opinions we those matters we are required to state to them in an auditor’s report and for accordance with section 90 of the Bermudan Companies Act 1981. Our audit statements which give a true and fair view. Our responsibility is to audit, and have formed. 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. John Luke Scope of an audit of financial statements performed in accordance with Chartered Accountants ISAs (UK and Ireland) 15 Canada Square, London E14 5GL A description of the scope of an audit of financial statements is provided on 24 March 2015 our website at www.kpmg.com/uk/auditscopeother2014. This report is made for and on behalf of KPMG LLP 30 Consolidated Statement of Comprehensive Income for the year ended 31 December 2014 Revenue Raw materials and consumables used Employee benefits expense Depreciation & amortisation expense Other operating expenses Profit 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 are or may be reclassified subsequently to profit and loss Employee benefits 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 2014 Year to Year to 31 December 31 December 2014 US$’000 633,520 (100,588) (195,893) (65,120) 2013 US$’000 660,106 (94,330) (209,459) (58,674) (182,819) (188,569) 326 89,426 7,090 16,975 6,233 (23,607) (17,621) 78,496 (41,928) 36,568 709 (988) (7,143) (7,422) 29,146 23,182 13,386 36,568 19,072 10,074 29,146 9,966 119,040 2,392 17,838 13,684 (21,863) (30,589) 100,502 (42,216) 58,286 (2,251) (1,269) (4,088) (7,608) 50,678 37,873 20,413 58,286 33,853 16,825 50,678 Notes 3 6 5 7 8 9 10 5 12 65.6c 107.1c 31 Ocean Wilsons Holdings Limited/Annual Report 2014 Consolidated Balance Sheet as at 31 December 2014 Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Trade and other receivables Investment in joint venture Other non-current assets Current assets Inventories Trading investments Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Derivatives Current tax liabilities Obligations under finance leases Bank overdrafts and loans Net current assets Non-current liabilities Bank loans Derivatives Employee benefits Deferred tax liabilities Provisions Obligations under finance leases Total liabilities Net assets Capital and reserves Share capital Retained earnings Capital reserves Translation and hedging reserve Equity attributable to equity holders of the parent Non-controlling interests Total equity Notes 13 14 15 24 21 17 27 19 18 21 As at As at 31 December 31 December 2014 US$’000 35,024 38,565 639,480 31,665 51,535 11,500 11,838 2013 US$’000 37,622 46,650 616,924 30,099 23,998 2,577 10,209 819,607 768,079 32,460 260,491 96,199 103,810 492,960 29,090 277,969 150,819 106,512 564,390 1,312,567 1,332,469 26 (78,879) (135,920) 25 22 (156) (1,994) (1,444) (51,195) (133,668) 359,292 (110) (210) (1,547) (37,997) (175,784) 388,606 22 (343,990) (334,394) 24 27 25 28 (1,843) (1,570) (45,197) (15,702) (3,253) (1,130) (2,251) (33,761) (10,262) (4,812) (411,555) (386,610) (545,223) (562,394) 767,344 770,075 11,390 508,298 31,760 (1,677) 549,771 217,573 767,344 11,390 505,922 31,760 3,128 552,200 217,875 770,075 The accounts on pages 31 to 77 were approved by the Board on 24 March 2015. The accompanying notes are part of this Consolidated Balance Sheet. J. F. Gouvêa Vieira Chairman 32 K. W. Middleton Director Consolidated Statement of Changes in Equity as at 31 December 2014 Ocean Wilsons Holdings Limited/Annual Report 2014 For the year ended 31 December 2013 Balance at 1 January 2013 Currency translation adjustment Employee benefits (note 37) Effective portion of changes in fair value of derivatives Profit for the year Total income and expense for the period Dividends Derivatives Attributable Hedging and to equity Non- Share capital US$’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 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 For the year ended 31 December 2014 Balance at 1 January 2014 Currency translation adjustment Employee benefits (note 37) Effective portion of changes in fair value of derivatives Profit for the year Total income and expense for the period Dividends Derivatives Share based payment expense Balance at 31 December 2014 Share capital 11,390 505,922 31,760 3,128 552,200 217,875 770,075 – – – – – – – – – 412 – 23,182 23,594 (21,218) – – – – – – – – – – (3,989) (3,989) (3,154) (7,143) – (533) 412 (533) 297 (455) 709 (988) – 23,182 13,386 36,568 (4,522) 19,072 10,074 29,146 – (21,218) (13,239) (34,457) (283) – (283) (203) – 3,066 (486) 3,066 11,390 508,298 31,760 (1,677) 549,771 217,573 767,344 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. 33 Year to Year to 31 December 31 December 2014 US$’000 2013 US$’000 105,556 108,416 Notes 29 11 (26,677) (10,153) 9,062 5,786 103,396 6,490 9,938 4,664 53,701 17,912 (107,475) (106,148) (2,136) (79,685) – (2,960) (75,874) (4,000) (91,239) (112,920) (21,218) (13,239) (38,076) (1,879) 64,086 (154) (10,480) (13,438) (10,511) (36,772) (1,540) 50,752 (39) (11,548) 3,837 (16,052) 106,512 136,680 (6,539) (14,116) 103,810 106,512 Ocean Wilsons Holdings Limited/Annual Report 2014 Consolidated Cash Flow Statement for the year ended 31 December 2014 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 assets 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 Derivative paid Net cash from financing activities Net increase/(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 34 Notes to the Accounts for the year ended 31 December 2014 Ocean Wilsons Holdings Limited/Annual Report 2014 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 liabilities 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 (collectively the “Group”). 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. 35 Ocean Wilsons Holdings Limited/Annual Report 2014 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 Ocean Wilsons Holdings Limited/Annual Report 2014 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 no further adjustments are made 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. 37 Ocean Wilsons Holdings Limited/Annual Report 2014 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 Ocean Wilsons Holdings Limited/Annual Report 2014 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 Ocean Wilsons Holdings Limited/Annual Report 2014 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 of the consideration received or receivable for goods and services provided in the normal course of business net of trade discounts and other sales related taxes. Maritime revenue Revenue related to of services is recognised when the work in proportion to the stage of completion of transaction contracted has been performed in accordance with contracted terms. Revenue from construction contracts is recognized by reference to the stage of completion of the contract, in accordance with the Group’s aforementioned accounting policy on construction contracts. Revenue from providing containerised and associated services is recognised on the date in which the services have been performed. Revenue from providing towage services is recognised on the date in which the services have been performed. Revenue from providing agency and logistics services is recognised when the services have been agreed and the transaction has occurred. Investment revenue Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. 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 asset’s net carrying amount on initial recognition. Dividend income from investments is recognised when the shareholders rights to receive payment have been established. 40 Ocean Wilsons Holdings Limited/Annual Report 2014 2 Significant accounting policies and critical accounting judgements (continued) 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. 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 (including provision for Brazilian taxes) 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. 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. Current and deferred tax 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. 41 Ocean Wilsons Holdings Limited/Annual Report 2014 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 IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2017, with early adoption permitted, but still under discussion. Year ended Year ended 31 December 31 December 2014 US$’000 530,080 103,440 633,520 16,975 650,495 2013 US$’000 559,825 100,281 660,106 17,838 677,944 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. 42 Ocean Wilsons Holdings Limited/Annual Report 2014 4 Business and geographical segments Business segments Ocean Wilsons Holdings has two reportable segments: maritime services and investments. The maritime services segment provides towage, port terminals, ship agency, offshore, logistics and shipyard services in Brazil. The investment segment holds a portfolio of international investments. Segment information relating to these businesses is presented below. For the year ended 31 December 2014 Maritime Services Investment Unallocated Consolidated Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 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 2014 US$’000 633,520 94,942 7,090 11,187 – (23,607) (17,590) 72,022 (41,928) 30,094 (111,186) (65,119) 2014 US$’000 – 2014 US$’000 2014 US$’000 – 633,520 (3,258) (2,258) – 5,788 6,233 – (170) 8,593 – 8,593 – – – – – – 139 (2,119) – (2,119) 89,426 7,090 16,975 6,233 (23,607) (17,621) 78,496 (41,928) 36,568 – (1) (111,186) (65,120) 1,057,586 252,678 2,303 1,312,567 (544,055) (815) (353) (545,223) 43 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 4 Business and geographical segments (continued) 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 Year ended Investment Year ended Unallocated Consolidated 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) Finance costs and associated liabilities have been allocated to reporting segments where interest costs arise from loans used to finance the construction of fixed assets in that segment. Geographical Segments The Group’s operations are located in Bermuda, Brazil, and Guernsey. All of the Group’s sales are derived in Brazil. The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located. Additions to Carrying amount of property, plant and equipment segment assets and intangible assets Year ended Year ended 31 December 31 December 31 December 31 December 2014 US$’000 2013 US$’000 1,018,380 1,032,017 294,187 300,452 2014 US$’000 111,186 – 2013 US$’000 136,947 – 1,312,567 1,332,469 111,186 136,947 Brazil Bermuda 44 5 Profit for the year Profit for the year has been arrived at after charging: 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) 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 Profit/(loss) on disposal of trading investments Other gains and losses form part of the movement in trading investments as outlined in note 18. Ocean Wilsons Holdings Limited/Annual Report 2014 Year ended Year ended 31 December 31 December 2014 US$’000 58,179 6,941 17,835 516 439 516 11 527 2013 US$’000 52,372 6,302 13,966 586 446 586 – 586 Year ended Year ended 31 December 31 December 2014 US$’000 2013 US$’000 170,984 176,308 (652) 24,588 973 (1,430) 33,070 1,511 195,893 209,459 Year ended Year ended 31 December 31 December 2014 US$’000 11,189 5,786 – 16,975 2013 US$’000 11,891 5,193 754 17,838 Year ended Year ended 31 December 31 December 2014 US$’000 1,360 4,873 6,233 2013 US$’000 14,594 (910) 13,684 45 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 9 Finance costs Interest on bank overdrafts and loans Exchange loss on foreign currency borrowings Interest on obligations under finance leases Other interest Year ended Year ended 31 December 31 December 2014 US$’000 12,547 8,014 872 2,174 2013 US$’000 11,572 9,576 715 – 23,607 21,863 Borrowing costs incurred on qualifying assets of US$1.0 million (2013: US$1.5 million) were capitalised in the year at an average interest rate of 2.97% (2013: 3.05%). 10 Taxation Current Brazilian taxation Corporation tax Social contribution Total current tax Deferred tax Credit for the year in respect of deferred tax liabilities Charge for the year in respect of deferred tax assets Total deferred tax Total taxation Year ended Year ended 31 December 31 December 2014 US$’000 2013 US$’000 22,835 10,037 32,872 (7,242) 16,298 9,056 41,928 23,610 9,898 33,508 (10,448) 19,156 8,708 42,216 Brazilian corporation tax is calculated at 25% (2013: 25%) of the assessable profit for the year. Brazilian social contribution tax is calculated at 9% (2013: 9%) of the assessable profit for the year. At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the company. In the event that such taxes are levied, the company has received an undertaking from the Bermuda Government exempting it from all such taxes until 31 March 2035. The charge for the year can be reconciled to the profit per the statement of comprehensive income as follows: Profit before tax Tax at the standard Brazilian tax rate of 34% (2013: 34%) Deferred tax Tax effect of foreign exchange losses on monetary items Change in unrecognised deferred tax assets Tax effect of share of results of joint ventures Tax effect of calculating tax on presumed profit Tax effect relating to legal claims Tax effect of other items that are not included in determining taxable profit Effect of different tax rates of subsidiaries operating in other jurisdictions Tax expense and effective rate for the year Effective rate for the year Year ended Year ended 31 December 31 December 2014 US$’000 78,496 26,689 9,056 5,685 509 (2,411) (81) 1,842 2,290 (1,651) 41,928 53% 2013 US$’000 100,502 34,171 8,708 10,258 (943) (813) (2,891) (348) (1,995) (3,931) 42,216 42% The Group earns its profits primarily in Brazil. Therefore, the tax rate used for tax on profit on ordinary activities is the standard rate in Brazil of 34%, consisting of corporation tax, 25% and social contribution 9%. 46 Ocean Wilsons Holdings Limited/Annual Report 2014 11 Dividends Year ended Year ended 31 December 31 December 2014 US$’000 2013 US$’000 Amounts recognised as distributions to equity holders in the period: Final dividend paid for the year ended 31 December 2013 of 60c (2012: 38c) per share 21,218 13,438 Proposed final dividend for the year ended 31 December 2014 of 63c (2013: 60c) per share 22,279 21,218 12 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Year ended Year ended 31 December 31 December 2014 US$’000 2013 US$’000 Earnings: Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 23,182 37,873 Number of shares: Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share 35,363,040 35,363,040 13 Goodwill Cost and carrying amount attributed to: Tecon Rio Grande Tecon Salvador Brazilian Intermodal Complex (Brasco Caju) Total 31 December 31 December 2014 US$’000 13,132 2,480 19,412 35,024 2013 US$’000 13,132 2,480 22,010 37,622 The goodwill associated with each cash-generating unit (Brasco Caju, Tecon Salvador and Tecon Rio Grande) is attributed to the Maritime segment. As part of the annual impairment test review the carrying value of goodwill has been assessed with reference to its value in use reflecting the projected discounted cash flows of each cash-generating unit to which goodwill has been allocated. The cash flows are based on the remaining life of the concession. Future cash flows are derived from the most recent financial budget and for the period of concession remaining. The key assumptions used in determining value in use relate to growth rate, discount rate, inflation and interest rate. Further projections include sales and operating margins, which are based on past experience, taking into account the effect of known or likely changes in market or operating conditions. Each cash-generating unit is assessed for impairment annually and whenever there is an indication of impairment. An estimated average growth rate used does not exceed the historical average for Tecon Rio Grande and Tecon Salvador. Growth rate of 7% has been estimated for Brasco Caju, and a discount rate of 8.2% for all business units has been used. These growth rates reflect the products, industries and countries in which the operating segments operate. These medium- to long-term growth rates have been reviewed by management during 2014 and are considered to be appropriate. The Directors have considered the following individual sensitivities and are confident that no impairment would arise in any of the cash-generating units in any of the following two circumstances: • • if the discount rate was increased by 30%; or if the cash flow projections of all businesses were reduced by 25% After testing goodwill as mentioned above, no impairment losses were recognised for the periods presented. Brasco Caju’s goodwill arose from the acquisition of Briclog, and is composed partly of expectation for future profitability and partially for deferred tax on intangibles. This goodwill´s historical value is equivalent to US$19.4 million (R$51.6 million), with negative foreign exchange impact of US$3.7 million (2013: US$1.3 million) due to the translation effect. 47 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 14 Other intangible fixed assets Cost At 1 January 2013 Additions Acquired with acquisition of Briclog Write off Exchange differences At 1 January 2014 Additions Write off Exchange differences At 31 December 2014 Amortisation At 1 January 2013 – (Restated) Acquired with acquisition of Briclog Charge for the year Write off Exchange differences At 1 January 2014 Charge for the year Write off Exchange differences At 31 December 2014 Carrying amount 31 December 2014 31 December 2013 US$’000 44,056 26,028 266 (30) (3,469) 66,851 2,136 (90) (4,549) 64,348 14,711 206 6,302 (23) (995) 20,201 6,941 (89) (1,270) 25,783 38,565 46,650 Intangible fixed assets arose from (i) the acquisition of concession rights for the container and heavy cargo terminal in Salvador in 2000, and the Ponta Norte expansion at Tecon Salvador in 2010 (ii) the implementation of integrated management software (SAP) (iii) the Briclog acquisition in 2013 (Brasco Caju). The breakdown of intangibles by type is as follows: Brasco Caju Tecon Salvador Computer software Other Total 31 December 31 December 2014 US$’000 18,280 7,483 5,630 7,172 38,565 2013 US$’000 21,454 9,263 7,613 8,320 46,650 Lease concessions are amortised over the remaining terms of the concessions at the time of acquisition, which for Tecon Salvador is 25 years and Ponta Norte is 15 years. The computer software is amortised over 5 years following completion of the installation. 48 Ocean Wilsons Holdings Limited/Annual Report 2014 Land and buildings US$’000 Vehicles, plant Floating Craft and equipment US$’000 US$’000 Assets under construction US$’000 272,359 313,861 38,153 12,687 (5,033) (16,663) (2,006) 299,497 46,907 1,032 (20,353) 7,197 – 11,913 – (11,809) 321,162 14,085 45,799 – (420) (11,459) 243,491 30.234 3,291 5,033 (14,108) (16,282) 251,659 13,843 (1,032) (10,454) (12,019) 15,876 19,091 – (11,913) – – 23,054 34,215 (45,799) – – 326,663 369,587 241,997 11,470 45,932 17,584 530 – (3,188) (649) 60,209 19,897 (65) – (4,394) (303) 75,344 115,758 11,523 – 3,744 – (11,355) 119,670 13,908 – 1,977 – (11,056) 124,499 89,020 23,265 1,489 – (6,015) (9,190) 98,569 24,374 65 – (6,321) (6,293) 110,394 – – – – – – – – – – – – – Total US$’000 845,587 94,675 15,978 – (30,771) (30,097) 895,372 109,050 – (30,807) (23,897) 949,717 250,710 52,372 2,019 3,744 (9,203) (21,194) 278,448 58,179 – 1,977 (10,715) (17,652) 310,237 251,319 239,288 245,088 201,492 131,603 153,090 11,470 23,054 639,480 616,924 15 Property, plant and equipment Cost or valuation At 1 January 2013 Additions Additions – Briclog Transfers Exchange differences Disposals At 1 January 2014 Additions Transfers Exchange differences Disposals At 31 December 2014 Accumulated depreciation and impairment At 1 January 2013 Charge for the year Additions – Briclog Elimination on construction contracts Exchange differences Disposals At 1 January 2014 Charge for the year Transfers Elimination on construction contracts Exchange differences Disposals At 31 December 2014 Carrying Amount At 31 December 2014 At 31 December 2013 The carrying amount of the Group’s vehicles, plant and equipment includes an amount of US$19.7 million (2013: US$22.3 million) in respect of assets held under finance leases. Land and buildings with a net book value of US$0.2 million (2013: US$0.2 million) and tugs with a value of US$1.8 million (2013: US$2.0 million) have been given in guarantee of various legal processes. The Group has pledged assets having a carrying amount of approximately US$214.7 million (2013: US$234.1 million) to secure loans granted to the Group. At 31 December 2014, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$13.5 million (2013: US$5.5 million). 49 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 16 Subsidiaries OCEAN WILSONS (INVESTMENTS) LIMITED Investment holding and dealing company WILSON SONS LIMITED Holding company Place of incorporation and operation Bermuda Method used Effective to account interest* for investment 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. 50 Ocean Wilsons Holdings Limited/Annual Report 2014 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 Proportion of ownership incorporation 31 December 31 December and operation 2014 2013 Brazil Brazil Brazil Brazil Panamá 50% 50% 50% 50% 50% 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 2014 US$’000 2013 US$’000 153,760 108,837 (6,098) (47,959) (35,273) (21,268) – 43,162 1,354 (18,316) (4,807) 21,393 (5,190) (42,192) (26,249) (15,240) (72) 19,894 1,292 (15,391) 1,890 7,685 (7,213) (2,900) 14,180 4,785 50% 50% 7,090 2,392 51 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 17 Joint ventures (continued) Other non-current Assets Property, plant and equipment Long-term investment Other current assets Trade and other receivables Derivatives Cash and cash equivalents Total assets Bank overdrafts and loans Other non-current liabilities Trade and other payables Equity Total liabilities Guarantees 31 December 31 December 2014 US$’000 1,566 2013 US$’000 465 598,497 603,137 2,140 1,367 35,782 79 37,061 676,492 514,861 16,596 81,596 63,439 676,492 2,131 864 33,607 – 23,401 663,605 501,713 8,878 102,782 50,232 663,605 Wilson Sons Offshore's loan agreements with BNDES are guaranteed by a lien on the financed supply vessels, and in the majority of the contracts, a corporate guarantee from both Wilson Sons Adminisração e Comércio and Remolcadores Ultratug Ltda, each guarantteeing 50% of its subsidiary's debt balance with BNDES. Magallanes Navegação Brasileira's loan agreement with Banco do Brasil is guaranteed by a lien on the financed supply vessels. The security package also includes a standby letter of credit issued by Banco de Crédito e Inversiones – Chile for part of the debt balance, assignment of Petrobras' long-term contracts and a corporate guarantee issued by Inversiones Magallanes Ltda – Chile. A cash reserve account, accounted for under long term investments, funded with US$2.1 million (R$5.7 million) should be maintained until full repayment of the loan agreement. Covenants The joint venture Magallanes Navegação Brasileira S.A. has to comply with specific financial covenants. Tax, labour and civil risks In the normal course of business in Brazil, the Group remains exposed to numerous local legal claims. It is the Group's policy to vigorously contest such claims, many of which appear to have little substance in merit, and to manage such claims through its legal counsel. In addition to the cases for which the Group booked the provision, there are other tax, civil and labour disputes amounting to US$12.6 million (2013: US$1.9 million), whose probability of loss was estimated by the legal counsel as possible. The breakdown of possible losses is described as follows: Civil cases Tax cases Labour claims Total 52 31 December 31 December 2014 US$’000 2 9,189 3,387 12,578 2013 US$’000 9 639 1,231 1,879 Ocean Wilsons Holdings Limited/Annual Report 2014 2014 US$’000 2013 US$’000 277,969 79,685 (103,396) 1,360 4,873 260,491 236,491 24,000 260,491 241,582 77,879 (55,176) 14,594 (910) 277,969 244,969 33,000 277,969 18 Investments Trading investments At 1 January Additions, at cost Disposals, at market value Increase in fair value of trading investments held at year end Profit/(loss) on disposal of trading investments At 31 December Ocean Wilsons Investment Limited Portfolio Wilson Sons Limited Trading investments held at fair value at 31 December Wilson Sons Limited The Wilson Sons Limited investments are held and managed separately from the Ocean Wilsons Investment Portfolio and consist of US Dollar denominated depository notes. Ocean Wilsons Investment Portfolio The Group has not designated any financial assets that are not classified as trading investments as financial assets at fair value through profit or loss. Trading investments above represent investments in listed equity securities, funds and unquoted equities that present the Group with opportunity for return through dividend income and capital appreciation. Included in trading investments are open ended funds whose shares may not be listed on a recognised stock exchange but are redeemable for cash at the current net asset value at the option of the company. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available. Where quoted market prices are not available, fair values are determined by third parties using various valuation techniques that include inputs for the asset or liability that are not based in observable market data (unobservable inputs). 19 Inventories Operating materials Raw materials and spare parts Total Inventories are expected to be recovered in less than one year and there were no obsolete items. 31 December 31 December 2014 US$’000 11,498 20,962 32,460 2013 US$’000 13,433 15,657 29,090 53 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 20 Construction contracts Contract costs incurred plus recognised profits less recognised losses to date Less progress billings Amounts due to contract customers included in trade and other payables 21 Trade and other receivables Trade and other receivables Amount receivable for the sale of services Allowance for doubtful debts Income taxation recoverable Other recoverable taxes and levies Loans to related parties Prepayments Other Total current Total non-current 31 December 31 December 2014 US$’000 123,483 2013 US$’000 81,995 (129,821) (110,540) (6,338) (28,545) 31 December 31 December 2014 US$’000 50,617 (1,154) 49,463 9,352 34,000 31,314 12,431 11,174 147,734 96,199 51,535 147,734 2013 US$’000 65,542 (1,718) 63,824 15,082 32,760 42,200 7,089 13,862 174,817 150,819 23,998 174,817 Non-current trade receivables relate to: recoverable taxes with maturity dates in excess of one year, which comprise mainly PIS, COFINS, ISS and INSS, customers with maturities over one year, receivables from Intermarítima relating to the sale of the non-controlling interest in Tecon Salvador, intergroup loans. There are no indicators of impairment related to these receivables. Included in the Group’s trade receivable balances are debtors with a carrying amount of US$8.8 million (2013: US$12.8 million) which are past due but not impaired at the reporting date for which the Group has not provided as there has not been a change in credit quality and the Group believes the amounts are still recoverable. The Group does not hold any collateral over these balances. Ageing of past due but not impaired trade receivables From 0 – 30 days From 31 – 90 days From 91 – 180 days more than 180 days Total 31 December 31 December 2014 US$’000 6,942 1,086 791 – 8,819 2013 US$’000 9,046 3,015 771 – 12,832 The average credit period taken on services ranges from zero to 30 days. Interest is charged at up to 1% per month on the outstanding balances with an additional fine of up to 2% per month. The Group has provided in full for all receivables over 180 days because historical experience is such that receivables that are past due 180 days are generally not recoverable. Included in the Group’s allowance for doubtful debts are individually impaired trade receivables with a balance of US$1.2 million, which are aged, greater than 180 days. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected settlement proceeds. The Group does not hold any collateral over these balances. 54 Ocean Wilsons Holdings Limited/Annual Report 2014 31 December 31 December 2014 US$’000 – – – 1,154 1,154 2014 US$’000 1,718 (3,106) 2,743 (201) 1,154 2013 US$’000 – – – 1,718 1,718 2013 US$’000 2,506 (10,332) 9,682 (138) 1,718 21 Trade and other receivables (continued) Ageing of impaired trade receivables From 0 – 30 days From 31 – 90 days From 91 – 180 days more than 180 days Total Movement in the allowance for doubtful debts Balance at the beginning of the year Amounts written off as uncollectable Increase in allowance recognised in profit or loss Exchange differences Balance at the end of the year In determining recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. The directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. The directors consider that the carrying amount of trade and other receivables approximates their fair value. 22 Bank loans and overdrafts Secured borrowings BNDES – FMM linked to US Dollar¹ BNDES – Real BNDES – linked to US Dollar BNDES – FINAME Real BNDES – FMM Real¹ Total BNDES IFC – US Dollar BB – FMM linked to US Dollar¹ Itaú – US Dollar linked to Real Eximbank – US Dollar Finimp – US Dollar IFC – Real Total others Total secured borrowings Total 1. As an agent of Fundo da Marinha Mercante’s (FMM), BNDES finances the construction of tugboats and shipyard facilities. Annual 31 December 31 December interest rate % 2014 US$’000 2013 US$’000 2.07% to 6% 6.76% to 7.16% 5.07% to 5.36% 3.50% to 12.00% 5.90% to 8.71% 200,022 26,796 9,410 4,461 2,692 214,826 9,849 11,591 10,366 3,247 243,381 249,879 3.08% 2.00% – 3.00% 11.89% 2.03% 1.96% – 4.13% 14.09% 67,815 54,985 12,233 9,462 6,287 1,022 75,296 24,387 – 11,563 9,528 1,738 151,804 122,512 395,185 372,391 395,185 372,391 55 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 22 Bank loans and overdrafts (continued) The breakdown of bank overdrafts and loans by maturity is as follows: Within one year In the second year In the third to fifth years (inclusive) After five years Total Amounts due for settlement within 12 months Amounts due for settlement after 12 months The analysis of borrowings by currency is as follows: 31 December 2014 Bank loans Total 31 December 2013 Bank loans Total Guarantees 31 December 31 December 2014 US$’000 51,195 39,926 120,389 183,675 395,185 51,195 343,990 2013 US$’000 37,997 37,370 110,115 186,909 372,391 37,997 334,394 US Dollars linked to $Real US$’000 12,233 12,233 $Real linked to US Dollars US$’000 264,417 264,417 US Dollars US$’000 Total US$’000 83,564 83,564 395,185 395,185 – – 250,804 250,804 96,387 96,387 372,391 372,391 $Real US$’000 34,971 34,971 25,200 25,200 Loans with BNDES rely on a corporate guarantee from Wilson Sons de Administração e Comércio Ltda. For some contracts, the corporate guarantee is additional to: (i) pledge of the respective financed tug boat, (ii) lien of logistics and port operations equipment financed. Loans with Banco do Brasil rely on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda. and pledge of the respective financed tug boat. The loans that Tecon Salvador holds with IFC are guaranteed by shares of the company, projects’ cash flows, equipment and buildings. The loan with “The Export-Import Bank of China” is guaranteed by a “Standby Letter of Credit” issued for Tecon Rio Grande by Itaú BBA S.A., with the financing bank as beneficiary, as counter-guarantee, Tecon Rio Grande pledged the equipment funded by “The Export-Import Bank of China” to Itaú BBA S.A. Loan with Itaú BBA S.A. is guaranteed by the corporate guarantee from Wilson Sons de Administração e Comércio Ltda and the pledge of the respective financed equipment. One contract is additionally guaranteed by a promissory note. 56 Ocean Wilsons Holdings Limited/Annual Report 2014 22 Bank loans and overdrafts (continued) Undrawn credit facilities At 31 December 2014, the Group had available US$89.7 million of undrawn borrowing facilities. For each disbursement, there is a set of conditions precedent that must be satisfied. In June 2014, the Group signed a termination of Rio Grande Shipyard's loan agreement with BNDES, reducing the amount of undrawn borrowing facilities by US$106.2 million. Covenants The Wilson, Sons de Administração e Comércio Ltda. (“WSAC”) holding company, as corporate guarantor, has to comply with financial covenants in both Wilson Sons Estaleiros and Brasco Logística Offshore loan agreements signed with BNDES. The subsidiary Tecon Salvador has to observe affirmative and negative covenants stated in its loan agreement with the Internantional Finance Corporation – IFC, including the maintenance of specific liquidity ratios and a capital structure. The subsidiary Tecon Rio Grande has to comply with financial covenants in its loan agreement with BNDES, such as a minimum liquidity ratio and capital structure. Fair value Management estimates the fair value of the Group's borrowings as follows: Bank loans BNDES BB IFC Itau Eximbank Finimp Total bank loans Total 31 December 31 December 2014 US$’000 2013 US$’000 243,381 249,879 68,837 54,985 12,233 9,462 6,287 24,387 77,034 – 11,563 9,528 395,185 372,391 395,185 372,391 23 Derivative financial instruments The Group may enter into derivatives contracts to manage risks arising from interest rate fluctuations. All such transactions are carried out within the guidelines set by the Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. The Group uses cash flow hedges to limit its exposure that may result from the variability of floating interest rates. On 16 September 2013, its subsidiary, Tecon Salvador, entered into an interest rate swap agreement with a notional amount of $74.4 million to hedge a portion of its outstanding floating-rate debt with IFC. This swap converts floating interest rate based on the London Interbank Offered Rate, or LIBOR, into fixed-rate interest and expires in March 2020.The derivatives were entered into with Santander Brasil as counterparty, whose credit rating was AAA, as of 31 December 2014, according to Standard & Poor’s Brazilian local rating scale. Tecon Salvador is required to pay the counterparty a stream of fixed interest payments at rates fixed from 0.553% to 4.250%, according to the schedule agreement, and in turn, receives variable interest payments based on 6-month LIBOR. The net receipts or payments from the swap are recorded as financial expense. 57 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 23 Derivative financial instruments (continued) Within one year In the second year In the third to fifth years (including) After five years Fair Value US$’000 Outflows (156) (763) (1,039) (41) (1,999) Net effect (156) (763) (1,039) (41) (1,999) (1,999) The fair value of the swap was estimated based on the yield curve as of 31 December 2014, and represents its carrying value. As of 31 December 2014, the interest rate swap balance in other non-current liabilities was US$2.0 million; and the balance in accumulated other comprehensive income on the consolidated balance sheet was US$2.0 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the year ended 31 December 2014 was an after-tax loss of US$2.0 million. 31 December 2014 Financial Assets Interest Rates Swap Total Derivative Sensitivity Analysis Notional Amount US$000’s Maturity 74,400 Mar/2020 Fair Value US$000’s (1,999) (1,999) This analysis is based on 6-month Libor interest rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular foreign exchange rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of reduction of 25% (Possible) and 50% (Remote) in the interest rate. Even if the Group has to pay adjustments in future fixings, the swap contract fixes the total interest amount that the Group will pay is equal as the rate agreed. In this case in both scenarios the risk associated on 31 December 2014 is US$2.0 million. Cash Flow Hedge The Group applies hedge accounting for transactions in order to manage the volatility in earnings. The swap is designated and qualifies as a cash flow hedge. As such, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheet at fair value. The effective portion of changes in fair value of the derivative is recognized in other comprehensive income and presented as an asset revaluation reserve in equity. Any ineffective portion of changes in fair value of the derivative is recognised immediately in the 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 2014. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2014. 58 Ocean Wilsons Holdings Limited/Annual Report 2014 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 loans differences At 1 January 2013 (Charge)/credit to income Deferred tax from acquisitions Exchange differences At 1 January 2014 (Charge)/credit to income Exchange differences At 31 December 2014 US$’000 (17,873) (1,320) – – (19,193) (717) – (19,910) US$’000 5,405 11,768 – (166) 17,007 7,959 (366) 24,600 US$’000 34,145 (416) (7,793) (1,599) 24,337 (426) (448) valuation US$’000 (7,073) (18,740) – – (25,813) (15,872) – Total US$’000 14,604 (8,708) (7,793) (1,765) (3,662) (9,056) (814) 23,463 (41,685) (13,532) Certain tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes. Deferred tax liabilities Deferred tax assets 31 December 31 December 2014 US$’000 (45,197) 31,665 (13,532) 2013 US$’000 (33,761) 30,099 (3,662) At the balance sheet date the Group had unused tax losses of US$48.9 million (2013: US$42.0 million) available for offset against future profits in the company in which they arose. No deferred tax asset has been recognised in respect of US$7.1 million (2013: US$7.2 million) due to the unpredictability of future profit streams. Retranslation of non-current asset valuation deferred tax arises on Brazilian property, plant and equipment held in US dollar functional currency businesses. Deferred tax is calculated on the difference between the historical US Dollar balances recorded in the Groups accounts and the $Real balances used in the Group’s Brazilian tax calculations. Deferred tax on exchange variance on loans arises from exchange gains or losses on the Group’s US Dollar and $Real denominated loans linked to the US Dollar that are not deductible or payable for tax in the period they arise. Exchange gains on these loans are taxable when settled and not in the period in which gains arise. 25 Obligations under finance leases Amounts payable under finance leases Within one year In the second to fifth years inclusive After five years Less future finance charges Present value of lease obligations Less: Amounts due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months Minimum lease payments 31 December 31 December 2014 US$’000 1,859 4,604 – 6,463 (1,766) 4,697 1,444 3,253 2013 US$’000 2,042 6,546 – 8,588 (2,229) 6,359 1,547 4,812 59 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 25 Obligations under finance leases (continued) Amounts payable under finance leases Within one year In the second to fifth years inclusive After five years Less future finance charges Present value of lease obligations Less: Amounts due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 5 years. Present value of Minimum lease payments 31 December 31 December 2014 US$’000 2013 US$’000 1,444 3,253 – 4,697 – – 1,444 3,253 1,547 4,812 – 6,359 – – 1,547 4,812 For the year ended 31 December 2013, the average effective borrowing rate was13.94% (2013: 13.61%). Interest rates are fixed at contract date. All leases are denominated in Brazilian Real and include a fixed repayment and a variable finance charge linked to the Brazilian interest rate. Interest rates range from 13.04% to 17.78%. The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets. 26 Trade and other payables Trade creditors Amounts due to construction contract customers (note 20) Other taxes Accruals and deferred income Share based payment liability Total current 31 December 31 December 2014 US$’000 46,007 6,338 11,064 15,409 61 2013 US$’000 73,908 28,545 12,437 10,132 10,898 78,879 135,920 Trade creditors and accruals principally comprise amounts outstanding for trade purposes and ongoing costs. The average credit period for trade purchases is 40 days (2013: 76 days). For most suppliers interest is charged on outstanding trade payable balances at various interest rates. The Group has financial risk management policies in place to ensure that payables are paid within the credit timeframe. The directors consider that the carrying amount of trade payables approximates their fair value. 60 27 Provisions At 1 January 2013 Increase in provisions in the year Utilisation of provisions Exchange difference At 31 December 2013 Increase in provisions in the year Utilisation of provisions Exchange difference At 31 December 2014 Provisions comprise legal claims relating to civil cases, tax cases and legal claims by former employees. Analysis of provisions by type: Civil and environmental cases Tax cases Labour claims Ocean Wilsons Holdings Limited/Annual Report 2014 US$’000 10,966 4,252 (1,239) (3,717) 10,262 9,118 (3,683) 5 15,702 31 December 31 December 2014 US$’000 3,119 3,818 8,765 15,702 2013 US$’000 2,078 1,822 6,362 10,262 In the normal course of business in Brazil, the Group remains exposed to numerous local legal claims. It is the Group's policy to vigorously contest such claims, many of which appear to have little substance in merit, and to manage such claims through its legal counsel. In addition to the cases for which the Group booked the provision there are other tax, civil and labour disputes amounting to US$112.3 million (2013: US$133.4 million) with probability of loss was estimated by the legal counsels as possible. The breakdown of possible claims is described as follows: The analysis of possible losses by type: Civil and environmental cases Tax cases Labour claims 31 December 31 December 2014 US$’000 4,292 82,416 25,582 112,290 2013 US$’000 10,174 56,799 66,416 133,389 The main probable and possible claims against the Group are described below: Civil and environmental cases – Indemnification claims involving material damages, environmental and shipping claims and other contractual disputes. Labour claims – Most claims involve payment of health risks, additional overtime and other allowances. Tax cases – The Group litigates against governments in respect of assessments considered inappropriate. Procedure for classification of legal liabilities as probable, possible or remote loss is by the external lawyers: Upon receipt of the notification of a new judicial lawsuit, the external lawyer generally classifies it as a possible claim, recording the total amount involved. From 2014, the Group is using the estimated value in risk and not the total amount involved in each process. Exceptionally, if there is sufficient knowledge from the beginning that there is very high or very low risk of loss, the lawyer may classify the claim as probable loss or remote loss. 61 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 27 Provisions (continued) During the course of the lawsuit and considering, for instance, its first judicial decision, legal precedents, arguments of the claimant, thesis under discussion, applicable laws, documentation for the defence and other variables, the lawyer may re-classify the claim as probable loss or remote loss. When classifying the claim as probable loss, the lawyer estimates the amount at risk for such claim. 28 Share capital Authorised 50,060,000 ordinary shares of 20p each Issued and fully paid 35,363,040 ordinary shares of 20p each 2014 US$’000 2013 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$1.61 to £1. 29 Notes to the cash flow statement Reconciliation from profit before tax to net cash from operating activities Profit before tax Share of results of joint venture Investment revenues Other gains and losses Finance costs Foreign exchange losses on monetary items Operating profit Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Share based payment credit Gain on disposal of property, plant and equipment Increase/(decrease) in provisions Operating cash flows before movements in working capital (Increase) in inventories Decrease in receivables (Decrease) in payables (Increase) in other non-current assets Cash generated by operations Income taxes paid Interest paid Net cash from operating activities Cash and cash equivalents Year ended Year ended 31 December 31 December 2014 US$’000 78,496 (7,090) (16,975) (6,233) 23,607 17,621 89,426 58,179 6,941 (652) (326) 5,713 2013 US$’000 100,502 (2,392) (17,838) (13,684) 21,863 30,589 119,040 52,372 6,302 (1,430) (9,966) (2,528) 159,281 163,790 (3,370) 21,227 (25,027) (1,629) (3,085) 62,154 (73,194) (999) 150,482 148,666 (29,518) (15,408) 105,556 (27,306) (12,944) 108,416 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. 62 Ocean Wilsons Holdings Limited/Annual Report 2014 29 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$70.3 million (2013: US$84.3 million). Cash equivalents are held for the purpose of meeting short-term cash commitments and not for cash investment purposes. Additions to plant and equipment during the year amounting to US$0.5 million (2013: US$4.2 million) were financed by new finance leases. 30 Contingent liabilities In the normal course of business in Brazil, the Group continues to be exposed to numerous local legal claims. It is the Group’s policy to contest such claims vigorously, many of which appear to have little substance in merit, and to manage such claims through its legal advisers. The total estimated contingent claims at 31 December 2014 are US$112.3 million (2013: US$133.4 million). These have not been provided for as the Directors and the Group’s legal advisors do not consider that there is any probable loss. Contingent liabilities relate to labour, civil and environmental, and tax claims. 31 Share options and share based payments Wilson Sons Limited LTIP On 9 April 2007, the boards of Ocean Wilsons Holding Limited and Wilson Sons Limited approved a stock option plan which allows for the grant of phantom options to eligible employees selected by the Wilson Sons Limited Board. The options provided cash payments, on exercise, based on the number of options multiplied by the growth in the price of a Wilson Sons Limited Brazilian Depositary Receipt “BDR” between the date of grant (the Base Price) and the date of exercise (the “Exercise Price”). The plan was a Brazilian Real denominated scheme and options were issued at R$23.74 during 2007. A further 135,000 options were issued under the plan at R$18.70 in 2008 and 2009 and a further 148,000 at R$24.58 in 2011. The awards vested in four tranches from two to six years from date of issue. As at 31 December 2014 the scheme was closed and there were no outstanding options. Details of the share options outstanding during the year as follows: Outstanding at the beginning of the period Exercised during the period Outstanding at the end of the period The movement of the accrual relating to the plan is as follows: Liability at 1 January (Credit)/charge for the year Exercise of options Liability at 31 December 2014 2013 Number of Number of share options share options 2,541,260 2,541,260 (2,541,260) – – 2,541,260 2014 US$’000 10,898 (3,780) (7,118) 2013 US$’000 12,328 (1,430) – – 10,898 63 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 31 Share options and share-based payments (continued) The group has recorded no liability (2013: US$10.9 million) in respect of the scheme. Fair value was determined by using the Binomial model using the assumptions noted in the table below. 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 2014 n/a n/a n/a n/a n/a n/a n/a 2013 R$23.74 R$18.70 R$24.58 26% – 29% 10 years 10.40% 1.60% Expected volatility was determined with reference to the historical volatility of the OWHL Group share price. The expected life used in the model was adjusted, based on management’s best estimate for exercise restrictions and behavioural considerations. There were no exercisable options at period end. Stock option scheme On 13 November 2013, the board of Wilson Sons Limited approved a Stock Option Plan, which allowed for the grant of options to eligible participants to be selected by the board. The shareholders in special general meeting approved the plan on the 8 January 2014 including an increase in the authorized capital of the company through the creation of up to 4,410,927 new shares. The options provide participants with the right to acquire shares via Brazilian Depositary Receipts (“BDR”) in Wilson Sons Limited at a predetermined fixed price not less than the three-day average mid-price for the days preceding the date of option issuance. On 10 January 2014 options for the acquistion of 2,914,100 BDR’s were granted under the Stock Option Plan with an exercise price of R$ 31.23 and on 13 November 2014 options for the acquistion of 139,000 BDR’s were granted under the Stock Option Plan with respective exercise prices of R$ 31.23 and R$ 33,98 as detailed below: Options series 07 ESO – 3 Year 07 ESO – 4 Year 07 ESO – 5 Year 07 ESO – 3 Year 07 ESO – 4 Year 07 ESO – 5 Year Number Grant date Vesting date Expiry date Exercise price 931,920 931,920 960,160 45,870 45,870 47,260 10/1/2014 10/1/2017 10/1/2022 10/1/2014 10/1/2018 10/1/2023 10/1/2014 10/1/2019 10/1/2024 13/11/2014 13/11/2017 10/1/2022 13/11/2014 13/11/2018 10/1/2023 13/11/2014 13/11/2019 10/1/2024 (R$) 31.23 31.23 31.23 33.98 33.98 33.98 The options terminate on the expiry date or immediately on the resignation of the director or senior employee, whichever is earlier. Options lapse if not exercised within 6 months of the date that the participant ceases to be employed or hold office within the Group by reason of, amongst others: injury, disability or retirement; or dismissal without just cause. In the period between granting and 31 December 2014 a total of 90,100 options lapsed. The following Fair Value expense of the grant to be recorded as a liability in future accounting periods was determined using the Binomial model based on the assumptions detailed below: Period 2014 2015 2016 2017 2018 Total * Amounts in Dollars converted at R$2.6562/US$1.00. 64 Projected IFRS2 Fair Value expense US$’000* 2,826 2,826 2,826 1,660 757 10,895 Ocean Wilsons Holdings Limited/Annual Report 2014 31 Share options and share-based payments (continued) Closing share price (in Real) Expected volatility Expected life Risk free rate Expected dividend yield 10 January 2015 R$30.05 28% 10 years 10.8% 1.7% Expected volatility was determined by calculating the historical volatility of the Group’s share price. The expected life used in the model has been adjusted based on management´s best estimate for exercise restrictions and behavioural considerations. 32 Operating lease arrangements The Group as lessee 2014 US$’000 2013 (Restated) US$’000 Minimum lease payments under operating leases recognised in income for the year 17,835 13,966 At the balance sheet date, the minimum amount due in 2014 by the Group for future minimum lease payments under cancellable operating leases was US$11.6 million (2013: $12.5 million). Lease commitments for land and buildings over 5 years comprise the minimum contractual lease obligations between Tecon Rio Grande and the Rio Grande port authority the Group and the Salvador port authority. The Tecon Rio Grande concession expires in 2022 and Tecon Salvador in 2025. Both have an option to renew the concession for a maximum period of 25 years. Tecon Rio Grande guaranteed payments consist of two elements; a fixed rental, plus a fee per 1000 containers moved based on forecast volumes. The amount shown in the accounts is based on the minimum volume forecast. Volumes are forecast to rise in future years. If container volumes moved through the terminal exceed forecast volumes in any given year, additional payments will be required.Tecon Salvador guaranteed payments consists of three elements; a fixed rental, a fee per container moved based on minimum forecast volumes and a fee per ton of non-containerised cargo moved based on minimum forecast volumes. At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable/operating leases, which fall due as follows: Within one year In the second to fifth year inclusive After five years 2014 US$'000 23,268 78,072 82,614 183,954 20123 US$'000 25,223 90,634 108,516 224,373 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 2014 is 3 years and 11 months and rental payments are corrected by a Brazilian general inflation index. 65 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 33 Commitments At 31 December 2014 the Group had entered into the following commitment agreements with respect to trading investments. These commitments relate to capital subscription agreements entered into by Ocean Wilsons Investments Limited. The details of these commitments are as follows: Year ended Outstanding Year ended Outstanding At 31 December At 31 December 4 June 2018 31 December 2015 17 February 2017 22 February 2017 (a) 28 March 2017 05 December 2017 30 March 2018 18 July 2018 21 December 2018 31 December 2018 21 June 2019 22 November 2019 08 December 2019 31 December 2019 01 January 2020 18 December 2021 30 April 2022 11 July 2022 (b) 01 February 2023 01 April 2023 05 June 2023 22 August 2023 21 August 2024 (c ) 11 April 2029 Total Commitment $’000 5,000 3,000 3,000 4,994 5,000 5,000 5,000 5,000 5,000 4,650 5,000 5,000 5,000 3,000 4,500 5,000 7,500 4,972 5,000 5,000 3,200 5,000 4,999 3,000 2014 US$’000 1,538 68 1,170 135 3,374 434 899 738 364 445 – 550 1,044 240 469 1,200 4,547 3,917 700 3,723 2,474 2,235 4,129 2,160 2013 US$’000 1,700 68 1,652 267 4,884 394 914 949 623 739 3,000 1,175 1,356 810 4,500 3,544 5,226 – 1,000 3,824 3,048 4,607 – – 114,815 36,553 44,551 (a) Commitment made in Euro. Total commitment €3,350,000 with amounts outstanding at 31 December 2014 €111,935 (2013: €193,987). (b) Commitment made in Euro. Total commitment €3,650,000 with amounts outstanding at 31 December 2014 €3,237,059 (2013: nil). (c) Commitment made in pounds sterling. Total commitment £3,000,000 with amounts outstanding at 31 December 2014 £2,650,030 (2013: nil). There may be situations when commitments may be extended by the manager of the underlying structure beyond the initial expiry date dependent upon the terms and conditions of each individual structure. 34 Retirement benefit schemes Defined contribution schemes The Group operates defined contribution retirement benefit schemes for all qualifying employees of its Brazilian business. The assets of the scheme are held separately from those of the Group in funds under the control of independent managers. The total cost charged to income of US$1.0 million (2013: US$1.5 million) represents contributions payable to the scheme by the Group at rates specified in the rules of the plan. 66 Ocean Wilsons Holdings Limited/Annual Report 2014 35 Related party transactions Transactions between this company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and its associates, joint ventures and others investments are disclosed below: Joint ventures 1. Allink Transportes Internacionais Limitada 2. Consórcio de Rebocadores Barra de Coqueiros 3. Consórcio de Rebocadores Baía de São Marcos 4. Wilson Sons Ultratug and subsidiaries 5. Atlantic offshore Others 6. Hanseatic Asset Management 7. Gouvêa Vieira Advogados 8. CMMR Intermediacão Comercial Limitada 9. Jofran Services Joint ventures 1. Allink Transportes Internacionais Limitada 2. Consórcio de Rebocadores Barra de Coqueiros 3. Consórcio de Rebocadores Baía de São Marcos 4. Wilson Sons Ultratug 5. Atlantic offshore Others 6. Hanseatic Asset Management 7. Gouvêa Vieira Advogados 8. CMMR Intermediacão Comercial Limitada 9. Jofran Services Dividends received/ Revenue of services Amounts paid/ Cost of services 31 December 31 December 31 December 31 December 2014 US$’000 2013 US$’000 2014 US$’000 2013 US$’000 31 321 96 31 313 12 5,745 55,687 – – – – – – – – – – – – (26) – – – – (1,124) – – 3,054 (2,420) (121) (238) (165) (245) (244) (165) Amounts owed by related parties Amounts owed to related parties 31 December 31 December 31 December 31 December 2014 US$’000 4 118 2,285 23,135 5,997 – – – – 2013 US$’000 – 134 2,165 20,350 – – – – – 2014 US$’000 2013 US$’000 – – – – – (2) – – – – (773) (211) – – – – – – 1. Mr A C Baião is a shareholder and Director of Allink Transportes Internacionais Limitada. Allink Transportes Internacionais Limitada is 50% owned by the Group and rents office space from the Group. 6. Mr W H Salomon is chairman of Hanseatic Asset Management. Fees were paid to Hanseatic Asset Management for acting as investment managers of the Group’s investment portfolio and administration services. 7. Dr J F Gouvêa Vieira is a partner in the law firm Gouvêa Vieira Advogados. Fees were paid to Gouvêa Vieira Advogados for legal services. 8. Mr C M Marote is a shareholder and Director of CMMR Intermediacao Comercial Limitada. Fees were paid to CMMR Intermediacao Comercial Limitada for consultancy services. 9. Mr J F Gouvêa Vieira is a Director of Jofran Services. Directors’ fees were paid to Jofran Services. 67 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 35 Related party transactions (continued) Remuneration of key management personnel The remuneration of the executive directors and other key management of the Group, is set out below in aggregate for the categories specified in IAS 24 Related Party Disclosures. Short-term employee benefits Other long-term employee benefits Share options issued Share-based payment 36 Financial instruments Capital risk management Year ended Year ended 2014 US$'000 12,128 1,503 3,066 (3,719) 12,978 2013 US$'000 9,265 1,807 – (1,430) 11,183 The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 22, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings and the consolidated statement of changes in equity. The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated by operating revenues. Externally imposed capital requirement The Group is not subject to externally imposed capital requirements. Significant accounting policies Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expense are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. Categories of financial instruments Financial assets Designated as fair value through profit or loss Receivables (including cash and cash equivalents and other non-current assets) Financial liabilities Financial instruments classified as amortised cost Financial instruments classified as cash flow hedge (Derivatives) Financial risk management objectives Year ended Year ended 2014 US$’000 2013 US$’000 236,491 289,530 244,969 312,033 (467,697) (502,233) (1,999) (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. 68 Ocean Wilsons Holdings Limited/Annual Report 2014 36 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 neutralise the currency risk by matching assets (receivables) and liabilities (payments). Furthermore, the Group seeks to generate an operating cash surplus in the same currency in which the debt service of each business is denominated. The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Real Sterling Euro Singapore dollar Liabilities Assets 2014 US$’000 140,415 27 – – 2013 US$’000 2014 US$’000 168,913 324,549 39 – – 9,931 6,662 3,747 2013 US$’000 262,387 18,573 5,854 4,995 140,442 168,952 344,889 291,809 69 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 36 Financial instruments (continued) Foreign currency sensitivity analysis The Group is primarily exposed to unfavourable movements in the Brazilian Real on its Brazilian liabilities held by US$ 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 2014. 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 324,549 Exchange Effects 140,415 Exchange Effects Net Effect Probable scenario 31 December 2014 Exchange rates Possible scenario 25% Remote scenario 50% R$2.80/US$1.00 R$3.50/US$1.00 R$4.20/US$1.00 Probable scenario (16,473) 7,211 (9,262) Probable scenario Possible scenario (25%) (78,244) 33,852 (44,392) 31 December 2013 Exchange rates Possible scenario 25% Remote scenario (50%) (119,295) 51,613 (67,682) Remote scenario 50% R$2.500/US$1.00 R$3.125/US$1.00 R$3.750/US$1.00 Amount US Dollars Result 259,404 Exchange Effects 168,913 Exchange Effects Net Effect Probable scenario (16,332) 10,635 (5,697) Possible scenario (25%) (64,946) 42,290 (22,656) Remote scenario (50%) (97,356) 63,394 (33,962) Risk BRL BRL Risk BRL BRL 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. Interest rate risk management The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The Group holds most of its debts linked to fixed rates. Most of the Group's fixed rates loans are with the FMM (Fundo da Marinha Mercante). Other loans exposed to floating rates are as follows: TJLP (Brazilian Long-Term Interest Rate) for Brazilian Real-denominated funding through FINAME credit line to Port Operations and Logistics operations. DI (Brazilian Interbank Interest Rate) for Brazilian Real-denominated funding in Logistics operations, and 6-month Libor (London Interbank Offered Rate) for US Dollar-denominated funding for Port Operations. The Brazilian Real-denominated investments yield interest rates corresponding to the DI daily fluctuation for privately issued securities and/or “Selic-Over” government-issued bonds. The US Dollar-denominated investments are part in time deposits, with short-term maturities. 70 Ocean Wilsons Holdings Limited/Annual Report 2014 36 Financial instruments (continued) 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 – Libor Loans – CDI Loans – TJLP Investments – Libor Investments – CDI Transaction Loans – Libor Loans – CDI Loans – TJLP Loans – fixed Investments – Libor Investments – CDI Probable scenario 0.62% 12.40% 5.50% 0.62% 12.40% Probable scenario (177) (58) – – (235) 44 829 873 638 31 December 2014 Possible scenario 25% 0.78% 15.50% 6.88% 0.78% 15.50% Possible scenario (25%) (272) (170) (278) – (720) 106 2,823 2,929 2,209 Remote scenario 50% 0.93% 18.60% 8.25% 0.93% 18.60% Remote scenario (50%) (366) (280) (553) – (1,199) 168 4,816 4,984 3,785 Risk Libor Libor Libor Libor Libor CDI Amount US Dollars 83,564 12,233 30,858 268,530 395,185 39,206 65,777 Result Interest Interest Interest None Income Income Net Income The net effect was obtained by assuming a 12 month period starting 31 December 2014 in which interest rates vary and all other variables are held constant. The scenarios express the difference between the scenario rate and actual rate. The investment rate risk mix in Brazil is 37.34% Libor, 62.66% CDI. 71 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 36 Financial instruments (continued) 31 December 2013 Transaction Loans – Libor Loans – CDI Loans – TJLP Investments – Libor Investments – CDI Transaction Loans – Libor Loans – CDI Loans – TJLP Loans – fixed Investments – Libor Investments – CDI Probable scenario 0.57% 10.95% 0.00% 0.33% 10.95% Probable scenario (128) – – – (128) (105) 2,590 2,485 2,357 Possible scenario 25% 0.72% 13.69% 0.00% 0.42% 13.69% Possible scenario (25%) (231) – (113) – (344) (45) 5,178 5,133 4,789 Remote scenario 50% 0.86% 16.43% 0.00% 0.50% 16.43% Remote scenario (50%) (334) – (225) – (559) 14 7,766 7,780 7,221 Risk Libor Libor Libor Libor Libor CDI Amount US Dollars 96,387 – 14,191 261,813 372,391 39,206 65,777 Result Interest Interest Interest None Income Income Net Income 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. The scenarios express the difference between the scenario rate and actual rate. The interest rate mix is 37.24% Libor and 62.76% CDI. Investment portfolio Interest rate changes will always impact equity prices. The level and direction of change in equity prices is subject to prevailing local and world economics as well as market sentiment all of which are very difficult to predict with any certainty. Derivative financial instruments The Group may enter into derivatives contracts to manage risks arising from interest rate fluctuations. All such transactions are carried out within the guidelines set by the Wilson Sons Limited Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. The Group uses cash flow hedges to limit its exposure that may result from the 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 2014, according to Standard& Poor’s Brazilian local rating scale. 72 Ocean Wilsons Holdings Limited/Annual Report 2014 36 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 Net effect (156) (763) (1,039) (41) (1,999) (156) (763) (1,039) (41) (1,999) (1,999) 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 2014, the interest rate swap balance in other non-current liabilities was $2.0 million; and the balance in accumulated other comprehensive income on the consolidated balance sheets was $2.0 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the year ended 31 December 2014 was an after-tax loss of $2.0 million. 31 December 2014 Financial Assets Interest Rates Swap Total Derivative Sensitivity Analysis Notional Amount US$ Maturity Fair Value US$ 74,400 Mar/2020 (1,999) (1,999) This analysis is based on 6-month Libor interest rate variances that the Group considered reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular foreign exchange rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of reduction of 25% (Possible) and 50% (Remote) in the interest rate. Even if the Group has to pay adjustments in future fixings, the swap contract fixes the total interest amount that the Group will pay is equal as the rate agreed. In this case in both scenarios the risk associated on 31 December 2014 is US$2.0 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 2014. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2014. 73 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 36 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 2014 US$’000 23,649 23,649 2013 US$’000 24,497 24,497 Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Group’s sales policy is subordinated to the credit sales rules set by management, which seeks to mitigate any loss from customers’ delinquency. Trade receivables consist of a large number of customers except for one large customer, which makes up 12% of revenue. Ongoing credit evaluation is performed on the financial condition accounts receivable. Trade and other receivables disclosed in the balance sheet are shown net of the allowance for doubtful debts. The allowance is booked whenever a loss is identified, which based on past experience is an indication of impaired cash flows. 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. 74 Ocean Wilsons Holdings Limited/Annual Report 2014 36 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 2014 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments 31 December 2013 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments Weighted average effective interest rate % – 13.61% 2.93% 2.98% Less than 12 months US$’000 80,873 1,444 28,592 22,603 1-5 years US$’000 – 3,253 79,200 81,114 133,512 163,567 – 136,130 13.61% 3.02% 3.06% 1,547 16,354 21,646 – 4,812 68,708 78,775 175,677 152,295 5+ years US$’000 Total US$’000 – – 18,863 164,813 183,676 – – 25,518 161,391 186,909 80,873 4,697 126,655 268,530 480,755 136,130 6,359 110,580 261,812 514,881 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. The quoted market price used for financial assets held by the Company utilise the last traded market price financial assets. Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which fair value is observable: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 Inputs for the asset that are not based on observable market data. Fair value measurements are those derived from valuation techniques that include inputs for the assets or liability that are not based on observable data (unobservable inputs). 75 Ocean Wilsons Holdings Limited/Annual Report 2014 Notes to the Accounts 36 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 2014 Financial assets at FVTPL Level 1 US$’000 Level 2 US$’000 Level 3 US$’000 Total US$’000 Non-derivative financial assets for trading 70,795 90,489 75,207 236,491 31 December 2013 Financial assets at FVTPL Level 1 US$’000 Level 2 US$’000 Level 3 US$’000 Total US$’000 Non-derivative financial assets for trading 65,831 121,965 51,173 244,969 Valuation Process Investments whose values are based on quoted market prices in active markets and are classified within Level I include active listed equities. The Company does not adjust the quoted price for these instruments. Financial instruments that trade in markets that are not considered active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include certain private investments that are traded over the counter. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include holdings in Limited Partnerships and other funds. As observable prices are not available for these securities, the Company values these based on an estimate of their fair value, which is determined as follows: (i) For entities that have recently begun trading, and for which detailed financial information is not available, the valuation will be determined with reference to the original cost plus any further drawdowns less any distributions received. This will be adjusted by reference to more recent benchmark subscriptions and investments which give a guide to fair value, or where there are other factors that indicate there has been a significant change in fair value. (ii) For more established investments, the valuation will be determined by reference to recent financial information received from the underlying entity. This underlying information is determined in accordance with International Private Equity and Venture Capital Guidelines and is determined using methodologies that include applying an average sector earnings multiple to operating profits, reference to the valuation of the underlying net asset base and discounted cash flows. Level 3 valuations are reviewed on a quarterly basis by the Company's investment manager who reports to the Board of Directors quarterly. The investment manager considers the appropriateness of the valuation model inputs used and the basis of the techniques used to ensure they are in line with industry standards. In selecting the most appropriate valuation model the investment manager considers historical alignment to actual market transactions. None of the Company’s investments have moved between classification levels in the year and therefore no reconciliation is necessary. Sensitivity analysis in relation to Level 3 investments has been included in the market price risk management analysis where the Company has shown impacts to the value of investments if markets prices had been 10% higher or lower at the end of the financial year. Reconciliation of Level 3 fair value measurements of financial assets: Balance at 1 January Total profit/(losses) in statement of comprehensive income Purchases and drawdowns of financial commitments Sales and repayments of capital Balance at 31 December 76 2014 US$’000 57,173 2,368 25,740 (10,074) 75,207 2013 US$’000 46,952 1,643 14,256 (5,678) 57,173 Ocean Wilsons Holdings Limited/Annual Report 2014 37 Post-employment benefits The Group operates a private medical insurance scheme for its employees which require the eligible employees to pay fixed monthly contributions. In accordance with Brazilian law, eligible employees with greater than ten years service acquire the right to remain in the plan following retirement or termination of employment, generating a post-employment commitment for the Group. Ex-employees remaining in the plan will be liable for paying the full cost of their continued scheme membership. The future actuarial liability for the Group relates to the potential increase in plan costs resulting from additional claims as a result of the expanded membership of the scheme Present value of actuarial liabilities Actuarial assumptions 31 December 31 December 2014 US$’000 1,570 2013 US$’000 2,251 The calculation of the liability generated by the post-employment commitment involves actuarial assumptions. The following are the principal actuarial assumptions at the reporting date: Economic and Financial Assumptions Annual interest rate Estimated inflation rate in the long-term Ageing Factor Medical cost trend rate Biometric and Demographic Assumptions Employee turnover Mortality table Mortality table for disabled Disability table Retirement Age Employees who opt to keep the health plan after retirement and termination 31 December 31 December 2014 12.78% 6.00% 2013 12.38% 5.50% 2.50% a.a 2.50% a.a 2.50% a.a 2.50% a.a 31 December 2013 22% AT-2000 IAPB-1957 Álvaro Vindas 100% at 62 23% 31 December 2014 22.7% AT-2000 IAPB-1957 Álvaro Vindas 100% at 62 23% Family composition before retirement Probability of marriage Age difference for active participants Family composition after retirement Sensitivity analysis 90% of the participants 90% of the participants Men 4 years older than the woman Men 4 years older than the woman Composition of the family group Composition of the family group The present value of future liabilities may change depending on market conditions and actuarial assumptions. Changes on a relevant actuarial assumption, keeping the other assumptions constant, would have affected the defined benefit obligation as shown below: CiPBO (*) – discount rate + 0.5% CiPBO (*) – discount rate – 0.5% CiPBO (*) – Health Care Cost Trend Rate + 1.0%(*) CiPBO (*) – Health Care Cost Trend Rate – 1.0% (*) CiPBO means Change in projected benefit obligation. 31 December 31 December 2014 US$ (90) 99 213 (176) 2013 US$ (273) 325 732 (520) 77 Ocean Wilsons Holdings Limited/Annual Report 2014 Statistical Statement 2010 – 2014 (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 31 December 31 December 2012 31 December 31 December Year to 2014 US$’000 2.66 633,520 (100,588) (195,893) (65,120) 2013 US$’000 2.34 (Restated) US$’000 2.04 2011 US$’000 1.88 2010 US$’000 1.67 660,106 (94,330) 610,354 (72,207) 698,044 (82,889) 575,551 (67,222) (209,459) (223,031) (239,543) (205,486)) (58,674) (182,819) (188,569) 326 89,426 – 7,090 16,975 6,233 (23,607) (17,621) 78,496 (41,928) 36,568 23,182 13,386 36,568 89,426 (652) 88,774 9,966 119,040 – 2,392 17,838 13,684 (21,863) (30,589) 100,502 (42,216) 58,286 37,873 20,413 58,286 119,040 (1,430) 117,610 (55,897) (173,951) (534) 84,734 – 689 18,255 16,394 (9,948) (11,572) 98,552 (33,671) 64,881 41,264 23,617 64,881 84,734 2,262 86,996 (59,479) (221,159) 1,959 96,933 – – 10,203 (27,818) (20,741) – 58,577 (51,615) 6,962 (8,639) 15,601 6,962 96,933 (7,880) 89,053 (42,923) (192,090) 90 67,920 20,407 – 17,982 22,460 (11,611) – 117,158 (30,564) 86,594 56,879 29,715 86,594 67,920 16,545 84,465 US$’000 US$’000 US$’000 US$’000 US$’000 474,127 236,491 56,726 767,344 13.41 8.29 21.70 65.6c 60c 1,000p 1,558c 476,626 244,969 48,480 770,075 13.48 8.30 21.78 107.1c 42c 1042p 1,725c 461,479 221,582 60,507 743,568 13.05 7.98 21.03 116.7c 33.0c 970p 1512c 426,760 226,797 54,650 708,207 12.07 7.96 20.03 (24.4c) 42.0c 1065p 1650c 389,744 260,544 78,932 729,220 9.60 11.02 20.62 160.8c 42.0c 1382p 2155c 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 2010 and 31 December 2011 have not been restated as a result of adopting new accounting standards in 2013. 78 Notice of Annual General Meeting Ocean Wilsons Holdings Limited/Annual Report 2014 Notice is hereby given that the 22nd 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 2 June 2015 at 10:00 am for the following purposes. 1 2 3 4 5 6 7 To receive and, if approved, adopt the Directors’ Report and Accounts for the year ended 31 December 2014. 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 elect Mr A Berzins as a Director. To re-elect Mr W Salomon as a Director. To re-elect Mr C Townsend as a Director. To reappoint KPMG LLP as the Auditor and authorise the Directors to fix the remuneration of the Auditor. 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 2014. By Order of the Board Malcolm Mitchell Secretary Clarendon House, Church Street, Hamilton HM 11, Bermuda 24 March 2015 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. 79 Ocean Wilsons Holdings Limited/Annual Report 2014 80 Ocean Wilsons Holdings Limited/Annual Report 2014 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 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 2 June 2015 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 2014. 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 elect Mr A Berzins as a Director. 4 To re-elect Mr W Salomon as a Director. 5 To re-elect Mr C Townsend as a Director. 6 To reappoint KPMG LLP as the Auditor and authorise the Directors to fix the remuneration of the Auditor. 7 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 2014. Signature Notes Dated 2015 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 Asset Services, PXS, 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. ✂ 21043 Ocean Wilsons R&A 2014 pp31-82_21043 Ocean Wilsons R&A 2014 pp31-92 08/04/2015 19:35 Page 82 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.: 21043 Customer: Ocean Wilsons Proof Event: 4 Project Title: Annual Report 2014 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 21043 Ocean Wilsons R&A 2014 Cover + 7mm SPINE_21043 Ocean Wilsons R&A 2014 Cover + 7mm SPINE 09/04/2015 17:18 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 31 Consolidated Statement of Comprehensive Income 32 Consolidated Balance Sheet 33 Consolidated Statement of Changes in Equity 34 Consolidated Cash Flow Statement 35 Notes to the Accounts 78 Statistical Statement 2010 – 2014 79 Notice of Annual General Meeting 81 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 C t O Wil Proof: 5 P j t Titl A l R t 2013 Park Communications Ltd Alpine Way London E6 6LA T 020 7055 6500 F 020 7055 6600 21043 Ocean Wilsons R&A 2014 Cover + 7mm SPINE_21043 Ocean Wilsons R&A 2014 Cover + 7mm SPINE 09/04/2015 17:18 Page 1 Ocean Wilsons Holdings Limited Annual Report 2014 O c e a n W i l s o n s H o d n g s l i L i m i t e d A n n u a l R e p o r t 2 0 1 4 Job No.: 21043 Customer: Ocean Wilsons Proof: 7 Project Title: Annual Report 2014 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600