Ocean Wilsons Holdings Limited Annual Report 2015 Contents 1 Ocean Wilsons Holdings Limited 2 Chairman’s Statement 6 Financial Review 12 Investment Portfolio 16 Directors and Advisers 17 Report of the Directors 25 Independent Auditors’ Report 28 Consolidated Statement of Comprehensive Income 29 Consolidated Balance Sheet 30 Consolidated Statement of Changes in Equity 31 Consolidated Cash Flow Statement 32 Notes to the Accounts 76 Statistical Statement 2010 – 2014 77 Notice of Annual General Meeting 79 Form of Proxy Ocean Wilsons Holdings Limited Ocean Wilsons Holdings Limited/Annual Report 2015 Highlights Wilson Sons Limited (“Wilson Sons”) is a Bermuda company listed on the • • • • • • • Operating profit growth of 23% to US$109.8 million (2014: São Paulo Stock Exchange (BOVESPA) and Luxembourg Stock Exchange. US$89.4 million) Ocean Wilsons holds a 58.25% interest in Wilson Sons, which is fully consolidated in the Group accounts with a 41.75% non-controlling interest. Operating margins increased 8% to 22% (2014: 14%) Wilson Sons is one of the largest providers of maritime services in Brazil. Wilson Sons’ activities include harbour and ocean towage, container terminal Net cash inflow from operating activities for the year of US$145.5 million operation, offshore oil and gas support services, small vessel construction, (2014: US$105.6 million) logistics and ship agency. Wilson Sons has over five thousand employees. Ocean Wilsons (Investments) Limited is a wholly owned Bermuda investment The Brazilian Real depreciated 47% in the period against the US Dollar at company. The company holds a portfolio of international investments. year end and the average US Dollar / Brazilian Real exchange rate in the year at 3.34 was 42% higher than the comparative period in 2014, 2.35 Objective Earnings per share for the year of 43.7 cents (2014: 65.6 cents) to both the investment portfolio and our investment in Wilson Sons. The long- Dividend declared unchanged at 63 cents per share (2014: 63 cents businesses without pressure to produce short-term results at the expense of term view taken by the Board enables Wilson Sons to grow and develop its Ocean Wilsons Holdings Limited is run with a long-term outlook. This applies per share) long-term value creation. The same long-term view allows our investment managers to make investment decisions that create long-term capital growth. Investment portfolio decreased US$7.3 million to US$244.4 million (2014: US$251.7 million) The success of this strategy is reflected in the long-term growth in the value of Ocean Wilsons and dividends paid to shareholders. In the 10 years to About Ocean Wilsons Holdings Limited 31 December 2015, the share price has risen more than 118% from £3.52 Ocean Wilsons Holdings Limited (“Ocean Wilsons” or the “Company”) is a to £7.65 and in the same period, the dividend paid to shareholders has Bermuda based investment holding company, which through its subsidiaries, increased 163% from 24 cents per share to 63 cents per share. operates a maritime services company in Brazil and holds a portfolio of international investments. The Company is listed on both the Bermuda Stock Exchange and the London Stock Exchange. It has two principal subsidiaries: Wilson Sons Limited and Ocean Wilsons (Investments) Limited (together with the Company and their subsidiaries, the “Group”). 1 Ocean Wilsons Holdings Limited/Annual Report 2015 Chairman’s Statement Introduction period of US$145.5 million compared to US$105.6 million in 2014. The higher Despite the challenging economic and political environment, the Group has operating profit was offset mainly by an increase in exchange losses on foreign achieved another solid operating performance with strong improvements in both currency borrowings and negative returns from the investment portfolio so operating profit and cash flow. The 47% devaluation of the Brazilian Real “BRL” that Group profit before tax for the year was US$9.5 million lower than prior against the US Dollar “USD” was a major feature of 2015 causing our revenue year at US$69.0 million, (2014: US$78.5 million). Profit per share based on and bottom line earnings to fall while positively impacting our operating result ordinary activities after taxation and non-controlling interests was 43.7 cents and margins. Our Brazilian businesses again demonstrated their fundamental (2014: 65.6 cents). In addition to the impact on operating margins and bottom strengths and quality with key operational indicators remaining robust at our line earnings, the depreciation of the BRL against the USD negatively affected container terminal, towage and offshore businesses. revenue in the year. Although Group revenue grew 13% in BRL terms, in USD Operating volumes Container Terminals 2015 2014 % Change (container movements in TEU ’000) 1,035.2 975.1 6.2 Towage (number of harbour manoeuvres performed) 58,620 58,543 Offshore Vessels (operating days own vessels) 6,585 6,683 0.1 (1.5) terms revenue was 20% lower at US$508.9 million (2014: US$633.5 million). Investment portfolio performance The investment portfolio as at 31 December 2015 was US$244.4 million (2014: US$251.7 million) a fall of US$7.3 million in the year after paying dividends of US$7.0 million to Ocean Wilsons Holdings Limited and deducting management and other fees, of US$2.7 million. The reduced portfolio returns Tecon Rio Grande and Tecon Salvador moved over one million twenty-foot in the period were partly a result of the poor performance of global equity equivalent units “TEUs” in the year for the first time, driven by an increase in markets, which fell 2.4% in the year and in particular emerging markets, Brazilian exports and empty container movements. We continue to look to towards which the portfolio has an over-weight bias, decreasing by 14.9%. develop and improve our container terminal business, and are continuing The investment portfolio remains weighted towards global equities, which at negotiations with the relevant authorities to expand the Tecon Salvador year end accounted for 58% of the portfolio valuation (US$140.9 million), terminal further. Our towage business had a successful year aided by the high with private assets accounting for 32% (US$78.1 million) and the balance proportion of revenue linked to the USD, which provides a natural hedge invested in market neutral funds, cash and bonds. Private assets at US$78.1 against the depreciating BRL. Towage special operations performed well million were US$3.4 million higher than the prior year (2014: US$74.7 million) aided by ongoing support for the Aҫu terminal in Rio de Janeiro state and as a result of new capital drawdowns of US$10.7 million, less distributions firefighting support in the port of Santos. We continue to invest in our tugboat received of US$6.4 million and a decrease in net value of US$1.1 million. fleet with the most powerful tugboat operating in Brazil, WS Titan (80 tons The net value decreased primarily due to losses from our private asset bollard pull) built at the Wilson Sons shipyards in Guarujá, São Paulo state, exposure to the energy and commodity sectors. Total distributions from our delivered in 2015. We remain the towage market leader in Brazil operating portfolio of private assets to date are US$36.8 million. At 31 December 2015, a fleet of seventy-six tugboats, which is significantly larger than our nearest the top ten investments accounted for 43% of the investment portfolio competitor. In addition to WS Titan, our shipyards successfully delivered to valuation and total liquid investments plus cash accounted for 68%. The third parties the first Remotely Operated Vehicle Support Vessel (ROVSV) built investment portfolio retains its overweight exposure to emerging markets with in Brazil and an Oil Spill Recovery Vessel (OSRV). Construction work also emerging markets accounting for 32% (2014: 34%) of the portfolio net asset progressed on two new platform supply vessels (PSVs) to be delivered in value at year end. 2016 to our offshore joint venture, Wilson Sons Ultratug Offshore. Wilson Sons Ultratug Offshore performed well in difficult market conditions. The joint Investment managers venture operates a fleet of nineteen PSVs of which eighteen are under Ocean Wilson Investments Limited (“OWIL”), a wholly owned subsidiary long-term contract to Petrobras. During the year, three vessel charters were registered in Bermuda, holds the Group’s investment portfolio. OWIL has concluded; the associated PSVs experienced some off hire before successfully appointed Hanseatic Asset Management LBG, a Guernsey registered and contracting with Petrobras for a further two years. The PSV Mandrião, built regulated investment group, as its investment manager. in an international shipyard and delivered in 2014, has now been registered on the Brazilian special register and is available in the Brazilian spot market. Investment management fee As at 31 December 2015, the investment portfolio including cash under the valuation of the funds under management and an annual performance fee management was valued at US$244.4 million, representing US$6.91 per of 10% of the annual performance which exceeds the benchmark, provided share (2014: US$251.7 million and US$7.12 per share). that the high water mark has been exceeded. From 1 January 2015, the The investment managers receive an investment management fee based on Group Results portfolio performance is measured against a benchmark calculated by reference to US CPI plus 3% per annum over rolling three-year periods. Operating profit for the year increased by US$20.4 million from US$89.4 million The investment managers receive an annual performance fee of 10% of the to US$109.8 million due to, higher operating margins which improved from net investment return that exceeds the benchmark. Payment of performance 14% in the prior year to 22% in 2015, principally due to the weaker BRL and fees are subject to a high water mark and are capped at a maximum of 2% a lower depreciation charge. The improved operating profit was reflected in of portfolio NAV. The Board considers a three-year measurement period strong cash generation, with net cash inflows from operating activities for the appropriate due to the investment mandate’s long-term horizon and an 2 Ocean Wilsons Holdings Limited/Annual Report 2015 absolute return inflation-linked benchmark appropriately reflects the costs have been funded by dividends from the investment portfolio. Going company’s investment objectives while having a linkage to economic factors. forward part of the Wilson Son dividend received will be used to fund the parent company costs in addition to funding provided by the investment The investment management fee is at an annual rate of 1% of the valuation portfolio. of funds under management. In 2015 the investment management fee was US$2.5 million and no performance fee was payable to the investment Shareholders receive dividends in Sterling by reference to the exchange manager. Net asset value rate applicable to the USD on the dividend record date, except for those shareholders who elect to receive dividends in USD. The Board of Directors may review and amend the dividend policy from time to time in light of At the close of business on 31 December 2015, the Wilson Sons’ share price our future plans and other factors. The payment of dividends cannot be was R$33.00, resulting in a market value for the Ocean Wilsons holding guaranteed and may be discontinued or varied at the discretion of the Board. of 41,444,000 shares (58.25% of Wilson Sons) totalling approximately US$350.3 million which is the equivalent of US$9.91 (£6.72) per Ocean Charitable donations Wilsons Holdings Limited share. Our subsidiary Wilson Sons continues to support a number of local charities and causes in Brazil. Group donations for charitable purposes in the year Adding together the market value per share of Wilsons Sons, US$9.91 and amounted to US$134,000 (2014 US$156,000). Amongst the Group’s principal the investment portfolio at 31 December 2015 per share of US$6.91 results in ongoing contributions during the year were: a net asset value per Ocean Wilsons Holdings Limited share of approximately US$16.82 (£11.41). The Ocean Wilsons Holdings Limited share price of Escola de Gente – raising awareness and promoting social inclusion for all £7.65 at 31 December 2015 represented an implied discount of 33%. parts of the community. The implied discount of 33% at year end has widened since the prior year http://www.escoladegente.org.br/ end, when it was 27%. Historically the implied discount has fluctuated significantly; we believe that the increased discount at year end reflects the Salvador Esporte e Cidania – Promotes social development through political and economic uncertainty surrounding Brazil at the moment. We educational, cultural and sporting activities. do not seek to manage the discount, as we believe long-term shareholder http://www.depeitoaberto.com.br/ value will best benefit from the continued strong performance of our underlying businesses. Dividend Sonhar Acordado – non-profit volunteer organisation whose main activity is to teach children good citizenship principles and values through constructive play. The Board is recommending an unchanged dividend of 63 cents per share http://www.sonharacordado.org.br/ (2014: 63 cents per share) to be paid on 3 June 2016, to shareholders of the Company as of the close of business on 6 May 2016. The dividend of Criando Laços – The Wilson Sons corporate programme “Criando Laços” 63 cents per share represents the full dividend to be received from Wilson (Creating ties) provides financial support and promotes voluntary employee Sons of 58.6 cents per Ocean Wilsons share relating to 2015 plus 4.4 cents involvement in social initiatives. per Ocean Wilsons share in dividends from Ocean Wilsons (Investments) http://www.wilsonsons.com.br/ Limited. Wilson Sons is increasing the dividend to shareholders for the year by 23%, which reflects their strong operating performance and a desire to Health, safety and education increase dividend payments to shareholders following completion of the The Group continues to invest in the training and development of our staff. current investment cycle in 2013. In light of the increased dividend to be The WS+ safety programme implemented in conjunction with DuPont in 2011 received from Wilson Sons Limited, the fall in equity markets in 2015 and our to promote improved safety throughout the Group continues to operate emphasis on preserving the investment portfolio capital, we are reducing the effectively. The programme trains Company personnel and promotes a safety current year dividend paid by Ocean Wilsons (Investments) Limited to Ocean oriented environment and culture. In 2015 for the fourth consecutive year, Wilsons Holdings Limited. In the last five years, the Company dividend per the Group was among the winners of the DuPont prize for Health and Safety share has increased by 91%, from 33 cents per share to 63 cents per share Management in Brazil. with a total of US$92.3 million distributed to shareholders in this period. Corporate governance The Ocean Wilsons Holdings Limited dividend policy is to pay the Company’s The Board has put in place corporate governance arrangements which it full dividend received from Wilson Sons in the period and a percentage of the believes are appropriate for the operation of your Company. The Board has average capital employed in the investment portfolio determined annually by considered the principles and recommendations of the 2014 UK Corporate the Board. Dividends are set in US Dollars and paid annually. Ocean Wilsons Governance Code (“the Code”) issued by the Financial Reporting Council and will continue to pay dividends received from Wilson Sons in the period but decided to apply those aspects which are appropriate to the business. This will use part to fund the parent company which to date was previously funded reflects the fact that Ocean Wilsons Holdings Limited is an investment holding solely by dividends from the investment portfolio. To date the parent company company incorporated by an act of parliament in Bermuda with significant 3 Ocean Wilsons Holdings Limited/Annual Report 2015 Chairman’s Statement operations in Brazil. The Company complies with the Code where it is We expect global equity markets to rise in the year ahead driven by beneficial for both its shareholders and its business to do so, and has done so positive economic growth, accommodating monetary policy and fair market throughout the year and up to the date of this report, but it does not fully valuations. However there are a number of risks that could affect stock market comply with the Code. The areas where the Company does not comply with performance including an increase in US interest rates, the unwinding of the Code, and an explanation of why we do not comply, are contained in quantitative easing and the slowdown in the Chinese economy with the the section on corporate governance in the Annual Report. The position is associated fall in commodity prices. However emerging equity markets regularly reviewed and revised by the Board. may benefit from any recovery in commodity prices. We remain positive on the long-term prospects for emerging markets and our portfolio. Outlook With economists forecasting a further contraction in the Brazilian economy Management and staff this year and an uncertain political environment, the outlook for Brazil in On behalf of your Board and shareholders, I would like to thank our 2016 remains poor. However we remain confident in the resilience of our management and staff for their efforts and hard work during the year. Brazilian businesses and the performance delivered in 2015 gives us encouragement that we are well placed to face the coming challenges. Our J F Gouvêa Vieira container terminal business is beginning to benefit from a revival in Brazilian Chairman exports following the steep devaluation of the BRL, as evidenced by the 21 March 2015 record volumes moved in 2015, although we are also seeing some weakness in import cargoes. The fall in oil prices and uncertainty surrounding the Brazilian oil and gas industry continue to dampen demand for offshore support services and Brasco, our onshore support base provider faces some headwind in filling its expanded capacity. However we remain optimistic regarding the long-term prospects for this business. Our offshore joint venture, Wilson Sons Ultratug Offshore currently operates nineteen PSVs of which eighteen are under long-term contract. Wilson Sons Ultratug is due to receive two PSVs constructed at international shipyards in the second half of 2016, which we expect to operate in the Brazilian spot market and a further two constructed at our shipyard in Guarujá which already have long-term contracts. The shipyard order book is weaker than in previous years, but in addition to the two PSV’s already mentioned, the shipyard is forecast to complete two Oil Spill Recovery Vessels (OSRVs) for third parties and six tugboats for our fleet. Post year end, third parties signed contracts for two additional tugboats to be constructed in our shipyards with options for a further four vessels. Demand for harbour towage services is softer with volumes in the first two months of the year lower than the 2015 comparables. 4 Ocean Wilsons Holdings Limited/Annual Report 2015 In 2015 our shipyard in Guarujá successfully delivered to Fugro Brasil the first Remotely Operated Vehicle Support Vessel (ROVSV) built in Brazil, the Fugro Aquarius. Designed by Damen shipyards group, the vessel is 83 metres in length with a deck area of 520 square metres and accommodation for 60 people. 5 Ocean Wilsons Holdings Limited/Annual Report 2015 Financial Review Operating profit provides a natural hedge against a depreciating BRL. Towage and shipping Operating profit grew 23% to US$109.8 million (2014: US$89.4 million) as agency revenues are less sensitive to movements in the USD/BRL exchange Group operating margins for the year improved to 22% compared to 14% in rate as approximately 80% of towage and shipping agency pricing in the year 2014. Operating margins improved as total operating costs decreased 27% was denominated in USD. Higher margin special operations accounted for compared to a 20% decrease in turnover largely due to the higher average 16% of our towage revenue in the year compared with 13% in 2014. Notable USD/BRL exchange rate used to convert revenue and costs into our USD special operations during the year included ongoing support for the Aҫu reporting currency, and a lower depreciation charge. As a greater proportion terminal in Rio de Janeiro state and firefighting support in the port of Santos. of our revenue than costs is USD denominated, operating margins benefited Towage harbour manoeuvres for the year at 58,620 were in line with prior from the depreciation of the BRL against the USD. The principal improvements year, 58,543. Our shipping agency business continued to operate in a weak in operating margins were in the towage and shipping agency business where market with revenue falling 10% to US$15.4 million (2014: US$17.1 million). margins improved from 30% in 2014 to 37% in 2015 and container terminals where margins improved to 31% compared with 22% in 2015. Revenue at our port terminal and logistics business declined 25% to US$225.9 million (2014: US$302.0 million) as all businesses were adversely Raw materials and consumables used in the year were US$44.8 million lower impacted by the higher average USD/BRL exchange rate. Container terminal at US$55.8 million (2014: US$100.6 million) principally due to lower third revenue declined 20% to US$152.5 million (2014: US$189.6 million) although party shipyard activity, lower fuel costs and the currency impact. 2015 was a record year in terms of container volumes handled with volumes increasing 7% to 1,035,200 TEU’s (2014: 971,500 TEU’s) driven by higher Depreciation and amortisation for the year decreased US$11.9 million to export and empty container movements. In addition to the adverse currency US$53.2 million from US$65.1 million in 2014 as a result of the weaker BRL, effect, Brasco, our offshore oil and gas support base, continued to suffer from changes to the Tecon Rio Grande quay depreciation policy, changes to the the uncertainty surrounding the Brazilian oil and gas industry with revenue tugboat dry docking policy and the change in Tecon Rio Grande functional falling 40% to US$23.5 million (2014: US$39.0 million). The Brasco terminals currency from USD to BRL. Following a change in local regulations and an performed fewer vessel turnarounds in 2015, although the fourth quarter independent review, the Group increased the remaining economic useful life showed some improvement on prior year due to additional spot operations. of the quay and other improvements at Tecon Rio Grande from 25 years to Logistics was impacted by the adverse currency effect and our planned between 25 and 40 years. Because of this change, the depreciation expense withdrawal from our lower margin operations with revenue declining 32% for the year is US$4.0 million lower. The Group also reviewed the economic to US$49.9 million (2014: US$73.4 million). useful life of the tugboat dry dockings in accordance with the frequency conducted by the Company, and supported by the technical rules issued by Shipyard third party revenue decreased 48% to US$53.9 million (2014: the Brazilian Navy. On 1 July 2015 the management adjusted the useful life US$103.4 million) reflecting lower third party construction and a weaker order of the docking costs of its tugboats from 2.5 years to 5 years, and as result of book caused by uncertainty surrounding the Brazilian oil and gas industry. this policy change the depreciation expense was US$2.6 million lower. Had In addition to third party revenue recognised in the income statement, the these two changes to depreciation policy not occurred, the depreciation and shipyard invoiced US$49.1 million of intercompany sales in the year (2014: amortisation charge would have been US$6.6 million higher at US$59.8 US$45.6 million) relating to vessel construction and maintenance. On a million. positive note during the year, the shipyard delivered in the year the first Remotely Operated Vehicle Support Vessel (ROVSV) built in Brazil. Employee expenses were 27% lower at US$143.6 million (2014: US$195.9 million) and other operating expenses 21% lower at US$145.3 million (2014: All Group revenue is derived from Wilson Sons operations in Brazil. US$182.8 million). In addition to the exchange rate effect on these costs, other operating expenses decreased due to reductions in service and rental Share of results of joint ventures costs associated with discontinued logistics operations while employee The share of results of joint ventures is Wilson Sons’ 50% share of net expenses benefitted from a reduction in headcount, mainly at our logistics, profit for the period mainly from our offshore joint venture. Net profit from Brasco and container terminal businesses. joint ventures attributable to the Group decreased US$2.3 million from US$7.1 million in 2014 to US$4.8 million in the current year, largely due to Revenue from Maritime Services increased exchange losses on translation. Operating profit for a 50% share in Group revenue for the year fell 20% to US$508.9 million (2014: US$633.5 the joint venture in the year was US$22.7 million compared to US$21.6 million million), principally due to the higher average USD/BRL exchange rate used to in 2014 from revenue of US$71.0 million (2014: US$76.9 million). convert revenue into our reporting currency, the USD and lower revenue at our shipyard, logistics and offshore support base businesses. However, in local Investment revenue currency terms, turnover increased 13% demonstrating the resilient nature of Investment revenue for the year at US$16.9 million was in line with prior year our businesses in the tough economic environment. (2014: US$17.0 million). Higher interest on bank deposits of US$10.7 million (2014: US$6.8 million) was offset by lower income from equity investments Towage and ship agency revenue for the year remained broadly unchanged at of US$4.2 million (2014: US$5.8 million) and lower other interest at US$229.2 million (2014: US$228.1 million) helped by an increase in special US$1.9 million (2014: US$4.4 million). operations and the high proportion of revenue linked to the USD which 6 Ocean Wilsons Holdings Limited/Annual Report 2015 The tugboat WS Titan was built at the Group’s shipyard in Guarujá, São Paulo in 2015. With 80 tons bollard pull the WS Titan is the most powerful tugboat currently operating in Brazil. 7 Ocean Wilsons Holdings Limited/Annual Report 2015 Financial Review Investment gains and losses Other losses of US$1.4 million arise from the Group’s portfolio of trading Exchange rates investments (2014: US$6.2 million gain) and consist of profits on the disposal The Group reports in USD and has revenue, costs, assets and liabilities in of trading investments of US$3.0 million (2014: US$4.9 million) and unrealised both BRL and USD. Therefore movements in the USD/BRL exchange rate losses on trading investments of US$4.4 million (2014: US$1.3 million gain). can influence the Group’s results both positively and negatively from year to Finance costs Finance costs for the year increased by US$21.8 million from US$23.6 million year. During 2015 the BRL depreciated 47% against the USD from R$2.66 at 1 January 2015 to R$3.90 at the year end (2014: 13% depreciation). to US$45.4 million principally due to higher exchange losses on foreign The principal effects from the depreciation of the BRL against the USD on the currency borrowings of US$32.6 million (2014: US$8.0 million) resulting from income statement are: the devaluation of the BRL against the USD at yearend. Exchange losses were higher in the current year due to the greater devaluation of the BRL against the USD in 2015. Exchange losses will only be realised as loan repayments are Exchange losses on monetary items (i) made. Interest on loans of US$11.8 million were US$0.7 million lower than prior Exchange loss on foreign currency borrowings year (2014: US$12.5 million) due to lower outstanding borrowings during the Deferred tax on retranslation of fixed assets (ii) year. Other interest mainly relates to interest on outstanding tax balances. Deferred tax on exchange variance on loans (iii) Foreign exchange losses on monetary items Total 2015 2014 US$ million US$ million 15.8 32.6 27.0 (25.0) 50.4 17.6 8.0 15.9 (8.0) 33.5 Exchange losses on monetary items arise from the Group’s foreign currency (i) This arises from the translation of BRL denominated monetary items in monetary items and principally reflect the depreciation of the BRL against the USD functional currency entities. USD during the period. Although the BRL depreciated 47% during the year (ii) The Group’s fixed assets are located in Brazil and therefore future tax compared with a 13% devaluation in 2014, exchange losses on monetary items of deductions from depreciation used in the Group’s tax calculations are US$15.8 million were US$1.8 million lower than prior year (2014: US$17.6 million). denominated in BRL. When the BRL depreciates against the US Dollar This was principally due to changes in the accounting treatment of monetary the future tax deduction in BRL terms remain unchanged but is reduced items at Tecon Rio Grande resulting from the change in functional currency from in US Dollar terms. USD to BRL and also a decrease in our net exposure to BRL denominated assets. (iii) Deferred tax credit arising from the exchange losses on USD denominated borrowings in Brazil. Change in functional currency In accordance with IAS 21, the functional currency of an entity reflects the A currency translation adjustment loss of US$81.9 million (2014: US$7.1 million) underlying transactions, events and conditions that are relevant to the entity. on the translation of operations with a functional currency other than USD is Accordingly, once the functional currency is determined, it can only be changed included in other comprehensive income and recognised directly in equity. if there is a change to those underlying transactions, events and conditions. The large increase in the currency translation adjustment compared with 2014 Following trends over the recent years, there have been changes in relation is due to the significant devaluation of the BRL against the USD and the change to the underlying transactions, events and circumstances, mainly related to in functional currency of Tecon Rio Grande from USD to BRL. the flow and generation of revenues of some companies. As a result, the Company changed the functional currency of Tecon Rio Grande S.A, Wilson, The average USD/BRL exchange rate in the period was 42% higher at Sons Operadores Portuários Ltda and Wilson Sons Comércio Indústria e 3.34 (2014: 2.35). A higher average exchange rate adversely affects BRL Agência de Navegação Ltda (from USD to BRL) as at 1 April 2015. As denominated revenues and benefits BRL denominated costs when converted stipulated by IAS 21, when there is a change in an entity’s functional currency, into our reporting currency the USD. the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change. Profit before tax Transactions other than those in the functional currency of an entity are translated US$69.0 million (2014: US$78.5 million) mainly due to a US$21.8 million at the exchange rate prevailing at the date of the transaction. Monetary assets increase in finance costs, negative returns from the investment portfolio and liabilities denominated in foreign currencies are retranslated at year end (US$7.6 million adverse movement compared to prior year), and a exchange rates. Exchange differences arising on the settlement of monetary US$2.2 million decrease in the share of results of joint ventures. This was items, and on the retranslation of monetary items, are included in the statement of partially offset by the US$20.4 million improvement in operating profit and comprehensive income for the period. Non-monetary items that are measured US$1.8 million decrease in foreign exchange losses on monetary items. Profit before tax for the year was US$9.5 million lower than prior year at in terms of historical cost in a foreign currency are not retranslated. On consolidation, the statement of comprehensive income items of entities with a Taxation functional currency other than US Dollars are translated into US Dollars, the The tax charge for the year at US$39.7 million was US$2.2 million lower than Group’s presentational currency, at average rates of exchange. Balance sheet last year (2014: US$41.9 million). This represents an effective tax rate for the items are translated into US Dollars at year end exchange rates. Exchange period of 58% (2014: 53%) compared with the corporate tax rate prevailing differences arising on consolidation of entities with functional currencies other in Brazil of 34%. The difference in the effective tax rate is principally due than US Dollars are classified as equity and are recognised in the Group’s to expenses that are not included in determining taxable profit (principally translation reserve. 8 foreign exchange losses on monetary items), expenses at our Bermudian Ocean Wilsons Holdings Limited/Annual Report 2015 Tecon Rio Grande in Rio Grande, Rio Grande do Sul. In 2015 Tecon Rio Grande and Tecon Salvador moved over one million TEUs (twenty-foot equivalent units) in the year for the first time. 9 Ocean Wilsons Holdings Limited/Annual Report 2015 Financial Review companies that are not deductible for income tax and tax losses at our are not part of the Group’s investment portfolio managed by Hanseatic Asset Brazilian subsidiaries not recognised in deferred tax. The current year effective Management LBG and are intended to fund Wilson Sons Limited operations in tax rate is higher than prior year mainly due to losses at our Bermudian Brazil. companies that are not deductible for income tax (in 2014 there was a net profit in Bermuda not subject to tax) and an increase in expenses that are Balance sheet not included in determining taxable profit. At the year end the equity attributable to shareholders of the parent company amounted to US$495.0 million (2014: US$549.8 million). The principal The deferred tax charge in the period of US$1.6 million was US$7.5 million movements in the year were profits for the period of US$15.5 million, less lower than 2014, (US$9.1 million) mainly because the net impact of deferred dividends paid of US$22.3 million and a negative currency translation tax items linked to the depreciation of the BRL against the USD was US$2.0 adjustment of US$47.3 million. The currency translation adjustment was million compared with US$7.9 million in 2014. Although both the deferred tax US$43.3 million higher than prior year (2014: US$4.0 million) due to the charge arising on the retranslation of BRL denominated fixed assets in Brazil, higher devaluation of the BRL during the year and the change in the and the deferred tax credit on the exchange losses on USD denominated functional currency of Tecon Rio Grande from USD to BRL. The currency borrowings were higher in 2015 than 2014, the net impact was lower due to translation adjustment arises from exchange differences on the translation of the change in functional currency at Tecon Rio Grande from USD to BRL. operations with a functional currency other than USD. On a per share basis equity attributable to shareholders is the equivalent of US$14.00 per share Profit for the year (31 December 2014: US$15.55 per share). Profit attributable to equity holders of the parent was US$7.7 million lower at US$15.5 million (2014: US$23.2 million) after deducting profit attributable to Net debt and financing non-controlling interests of US$13.8 million (2014: US$13.4 million). Non- All debt at the year end was held in the Wilson Sons Limited Group and has controlling interests represented a greater percentage of the Group profit for no recourse to the parent company, Ocean Wilsons Holdings Limited, or the the year, 47% (2014: 37%) as profits were concentrated in companies with investment portfolio held by Ocean Wilsons Investments Limited. non-controlling interests in 2015. Earnings per share The Group’s borrowings are predominantly USD denominated or linked to the USD with defined repayment schedules repayable over different periods Basic earnings per share for the year were 43.7 cents compared with up to 18 years and an average weighted maturity of 11.6 years. The weighted 65.6 cents in 2014. Cash flow average interest rate of our debt at year end was 2.99%. Total debt at US$363.8 million was US$31.4 million lower than prior year (2014: US$395.2 million) due to net loan repayments and the weaker BRL. At The Group continued to generate strong operating cash flow with cash inflow 31 December 2015, The Group had net debt of US$226.2 million (2014: from operating activities increasing by US$39.9 million to US$145.5 million US$271.4 million): in 2015 (2014: US$105.6 million) arising from the improved operating performance, positive working capital movements in the period and lower income tax paid. Income taxes paid at US$22.7 million (2014: US$29.5 million) were significantly lower than the current tax charge of US$38.1 million, mainly because recoverable taxes were used to compensate tax liabilities due in the year. Debt Short-term Long-term Total debt Capital expenditure of US$65.8 million was US$41.7 million lower than prior Cash and cash equivalents* year (2014: US$107.5 million) and was mainly invested in towage vessel Net debt construction and new container terminal equipment. Capital expenditure in 2015 2014 US$ million US$ million 41.5 322.3 363.8 (137.6) 226.2 51.2 344.0 395.2 (123.8) 271.4 2014 was higher as it included the expansion of the Brasco Caju Oil and Gas * Included in cash and cash equivalents are short-term investments in Wilson Sons Limited which support terminal and Tecon Salvador. During 2015 the Group raised new loans are intended to fund Wilson Sons Limited operations in Brazil of US$31.9 million to finance capital expenditure (2014: US$64.1 million) with capital repayments of US$49.9 million (2014: US$38.1 million) made on existing loans. The negative effect of foreign exchange rate changes in the cash flow increased US$20.4 million to US$26.9 million (2014: US$6.5 million) reflecting the significant devaluation of the BRL during the year. 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. At 31 December 2015 the Group had US$97.6 million in cash and cash equivalents (2014: US$103.8 million) of which US$83.3 million was The Group’s reported borrowings do not include US$273.8 million of debt from the Company’s 50% share of borrowings in our Offshore Vessel joint venture. denominated in BRL (2014: US$70.3 million). Included in the Group’s trading investments of US$276.9 million is US$40.0 million (2014: US$24.0 million) in USD denominated fixed rate certificates held by Wilson Sons Limited which Keith Middleton Finance Director 10 Wilson Sons Limited Ocean Wilsons Holdings Limited/Annual Report 2015 The Wilson Sons 2015 Earnings Report released on 21 March 2016 is Strengthening our position as the leading provider of towage services available on the Wilson Sons Limited website: www.wilsonsons.com.br in the Brazilian market. We intend to continue to modernise and expand In it Cezãr Baião, CEO of Operations in Brazil said: our customers and consolidate our leading position in the Brazilian towage our fleet of tugboats in order to provide consistently high-quality service to “We continued the growth of Wilson Sons in 2015 with solid results in a and to seek out new niches in the market where we may be able to provide challenging time for the Brazilian economy. The highlights of our two largest additional services or increase our geographical footprint of towage services market. We regularly review our fleet deployment to optimise efficiency, businesses included record EBITDA for our Towage business benefiting from cost to new ports in Brazil. reduction and efficiency gains, and over 1 million TEU for our Container Terminals. These results together with a reduction in our CAPEX, after largely Maximising potential of our shipyard facilities through a mix of in-house completing the investment cycle, allow us to announce an increase of 23% in and third-party vessel construction, repair, maintenance and dry docking our proposed dividend amounting to US$35.4million. services to meet the demand of national and international vessel owners In addition to the economic hurdles of Brazil in 2015, the substantial reduction in Brazil. in the oil price impacted exploration activity worldwide. For our Offshore Vessels Solidifying our Offshore Support Vessel services to oil and natural gas business, although the market is very challenging, significant contract coverage platforms. Using our knowledge and experience, we intend to continue to and Brazilian flagged vessel priority continue to differentiate performance of our consolidate our activities through the delivery of contracted vessels and OSV business compared to international market peers. maintain our position amongst the leading suppliers of services to the offshore oil and gas industry in Brazil. In this environment, we will need to be even more disciplined and relentless in the pursuit of efficiency throughout the Company. Continued attention to the Exploring new opportunities and strategies to provide the best and most opportunities for utilisation of our assets and technical capacity of those who complete set of services to our customers. We are always looking to work with us are fundamental to maximising the service, security and provide new and innovative services to our customers, and to anticipate their value we provide in solutions for our clients. needs. We intend to continue our strategy with shipping companies in order We will seek to navigate the current economic headwinds in this way, as we across a nationwide network. We also seek to make these services more have done so many times in the previous 179 years of the Wilson Sons history. efficient and cost-effective, in order to maintain our strong customer base In doing so we seek to strengthen our business and the services we provide. and strengthen our relationships with those customers. to provide a complete set of local and international trade-related services For this we are grateful for the continued support of all our stakeholders.” The Wilson Sons Strategy is to: synergies and cost savings across our business segments. We continuously Increasing economies of scale and productivity, realisation of potential seek to optimise our operations and productivity and reduce our costs through Continue to consolidate our position in all the segments in which we synergies and the exchange of know-how among our businesses and operate, maximising economies efficiency, quality and the range of administrative areas. We are and will continue to be focused on integrating our services we provide to customers. 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 Fulfilling capacity in our expanded port terminals. In order to meet and reduce costs wherever possible. We demand that the managers of our demand from domestic and international trade, we have expanded our two different divisions continually develop new strategies to improve our container terminals since the inception of the concessions. By maximising operations and explore new businesses. utilisation of this installed capacity, we are best able to continue increases in productivity and service to our clients with economies of scale. We will Health, Safety and the Environment are a priority for the execution of our diligently pursue this objective. We will evaluate new concessions and the overall strategy of sustainable ethical business. We continue programmes to development of new terminals in other Brazilian ports and analyse these promote best practice safety throughout the Group through the training of our potential investments in light of our existing operations, and their ability to personnel and the promotion of a safety oriented environment and culture. provide a strong return on shareholders’ equity. Maximising capacity utilization of our Upstream Oil and Gas Support Terminals (Brasco). Additional to our operations at Brasco Niteroi, we also have a continuous 500 metres of berth at our Brasco Caju base to attend offshore support vessels with excellent access to the Campos and Santos oil producing basins. This expanded capacity positions Brasco as one of the largest offshore support base operators for the Brazilian Oil and Gas industry. We are continuously monitoring offshore operations along the Brazilian coast to meet the demand for such services. 11 Ocean Wilsons Holdings Limited/Annual Report 2015 Investment Portfolio Investment Objective Excessive size is often an impediment to continued outperformance and the The Investment Manager will seek to achieve the Investment Objective bias is therefore towards managers who are prepared to restrict their assets through investments in publically quoted and private (unquoted) assets across under management to a level deemed appropriate for the underlying three ‘silos’: (i) Core regional funds which form the core of our holdings, opportunity set. Track records are important but transparency is an equally enabling us to capture the natural beta within markets, (ii) Eclectic sector important consideration. Alignment of interest is essential and the Investment silo, represented by those sectors with long-term growth attributes, such as Manager will always seek to invest on the best possible terms. Subjective technology and biotechnology, and (iii) Eclectic diversifying silo, which are factors are also important in the decision making process – these qualitative those asset classes and sectors which will add portfolio protection as the considerations would include an assessment of the integrity, skill and business cycle matures. Investment Policy motivation of a fund manager. When the Investment Manager believes there is a potential fit, thorough due The Investment Manager will seek to achieve the Investment Objective diligence is performed to verify the manager’s background and identify the through investments in publically quoted and private (unquoted) assets principal risks. The due diligence process would typically include visiting the across four ‘silos’: public equities, private assets (predominantly private manager in their office (in whichever country it may be located), onsite visits equity), market neutral funds and bonds. Cash levels will be managed to to prospective portfolio companies, taking multiple references and seeking a meet future commitments (e.g. to private assets), whilst maintaining an legal opinion on all relevant documentation. appropriate balance for opportunistic investments. Commensurate with the long-term horizon, it is expected that the majority of compatibility with the portfolio, together with any ‘red flags’ such as signs investments will be concentrated in equity, across both ‘public’ and ‘private’ of ‘style drift’, personnel changes or lack of focus. Whilst the Investment markets. In most cases, investments will be made either through collective Manager is looking to cultivate long-term partnerships, every potential funds or limited partnership vehicles, working alongside expert managers in repeat investment with an existing manager is assessed as if it were a new specialised sectors or markets to access the best opportunities. relationship. All investments are reviewed on a regular basis to monitor the ongoing The Investment Manager maintains a global network to find the best Portfolio Characteristics opportunities across the four silos worldwide. The portfolio contains a high The portfolio has several similarities to the ‘endowment model’. These level of investments which would not normally be readily accessible to similarities include an emphasis on generating real returns, a perpetual time investors without similar resources. Furthermore, a large number of holdings horizon and broad diversification, whilst avoiding asset classes with low are closed to new investors. There is currently no gearing although the Board expected returns (such as government bonds in the current environment). would, under the appropriate circumstances, be open-minded to modest levels This diversification is designed to make the portfolio less vulnerable to of gearing. Likewise, the Board may, from time to time, permit the Investment permanent loss of capital through inflation, adverse interest rate fluctuations Manager opportunistically to use derivative instruments (such as index hedges and currency devaluation and to take advantage of market and business using call and put options) actively to protect the portfolio. cycles. The Investment Manager believes that outsized returns can be Investment Process generated from investments in illiquid asset classes (such as private equity). In comparison to public markets, the pricing of assets in private markets is less Manager selection is central to the successful management of the investment efficient and the outperformance of superior managers is more pronounced. portfolio. Potential individual investments are considered based on their risk- adjusted expected returns in the context of the portfolio as a whole. Initial Market Commentary meetings are usually a result of: (i) a ‘top-down’ led search for exposure to a Having started the year calmly enough, stock markets wobbled for much of certain geography or sector, (ii) referrals from the Investment Manager’s global the second half of calendar 2015. However, rather than one key event network or (iii) relationships from sell-side institutions and other introducers. unsettling investors a slew of factors came into play. The Investment Manager reviews numerous investment opportunities each year, favouring active specialist managers who can demonstrate an ability to Europe continued to fret over the prospect of a Greek exit from the Eurozone. add value over the longer-term, often combining a conviction-based approach, China initially rallied hard coming into the year but then imploded spectacularly, an unconstrained mandate and the willingness to take unconventional leading to a raft of rather desperate measures by the Chinese authorities in decisions (e.g. investing according to conviction and not fear of short-term their efforts to shore up the market. The US played a game of ‘will they won’t underperformance versus an index). they raise interest rates’ culminating in a 25 basis point rise in December, the first for almost ten years. 12 Investment Managers Report Ocean Wilsons Holdings Limited/Annual Report 2015 The net effect of all of this was a very bumpy ride, which at the headline level respectively, while China, India and Brazil declined by -7.8%, -6.1% and will be seen as a rather disappointing year, at least from the viewpoint of -42.0%, respectively. equities and bonds. World equities fell 2.4% over the year as a whole versus a decline of 3.3% for the global bond index (all figures in US Dollars). Emerging 2015 will go down in history as a terrible year from the perspective of commodities. Markets, towards which the portfolio has a bias, again underperformed Oil continued to decline sharply, falling by 30.5% in the year as OPEC fell into Developed Markets over the course of the year, with the former declining by disarray with the Saudi government deciding to maintain production in the 14.9% while the latter fell just 0.9%. Intra market moves were varied, with face of falling demand. Industrial metals also came under pressure with copper, the US, Europe, the UK and Japan returning +1.4%, -2.8%, -7.6% and +9.6%, iron ore and tin falling by 24.6%, 38.9% and 25.1% for the year. Chart 1: Market performance 2015 (USD) 20% 10% 0% -10% -20% -30% -40% -50% s n r u t e R % 9.6% -0.9% -0.9% -2.4% -2.8% -7.6% -6.1% -7.8% -3.3% -14.9% 11.4% 5.8% 0.3% -24.7% -24.6% -25.1% -30.5% -38.9% -42.0% m o dity In dex Brazil Glo bal G overn m ent B o n ds Blo o m berg C o m Oil C o p per Iro n Tin U S D /E U R U S D /E U R U S D /JP Y Equities Fixed Income Commodities Currencies M SCI W orld D evelo ped M arkets U S A Euro pe U nited Kin gd o m Japa n E m ergin g M arkets C hin a In dia Source: Bloomberg, Morningstar Outlook investors given their high valuations. Rather the focus is on the identification Our core expectation for markets in the year ahead remains one of rising of those funds and hedge funds that have the ability to avoid capital losses, equity prices driven by a combination of acceptable valuations (though no and indeed are structured to do so. This is no mean feat with past market longer cheap), ongoing positive economic growth led by developed markets, setbacks often highlighting flaws in their strategies and disappointing and a liquidity environment that remains accommodative. For these reasons, performance. However, through deep analysis, access to some of the very best equities, particularly in developed markets, remain our favoured asset class managers in the market and by blending a range of different strategies, we (albeit we note that lower valuations are creating value in some emerging feel confident in our ability to navigate the market ahead. markets, we just think it is too early). However, it is also right that we acknowledge both the maturing of the business cycle and the growing Portfolio Commentary list of risks. It is for this reason that we are increasingly focused on both The portfolio ended the year with a 1.7% rise in the fourth quarter, leading assessing how our portfolios will perform in such an environment and to a return of 1.0% for the year. This result was behind the Performance identifying those assets which will provide protection in more difficult times. Benchmark (3% in excess of the US CPI), which was up 3.7% for the year, although it was ahead of both the MSCI All Country World Index and the Traditionally this protection would have been through government bonds MSCI Emerging Markets Index, which declined by 2.4% and 14.9%, and whilst they may well still prove defensive in the epicentre of a market respectively. collapse, they are uncomfortable investments for us to hold as fundamental 13 Ocean Wilsons Holdings Limited/Annual Report 2015 Investment Managers Report Performance 10 Year Cumulative Indexed Returns 250 200 150 100 50 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Ocean Wilson (Investments) Limited Performance Old Benchmark (2% in excess of the one year US Dollar LIBOR rate) MSCI ACWI FM NR USD US Cash Indicdes LIBOR TR 3 Month Ocean Wilson (Investments) Limited Benchmark MorningStar Global Government Bond Index MSCI Emerging Markets NR USD The top two contributors to performance over the course of the year were Among the top contributors to performance over the year were two private both European funds, with the BlackRock European Hedge Fund and Adelphi equity funds, L Capital Asia, LP and Greenspring Global Partners IV, LP, which European Select Equity Fund having very strong years with returns of 36.0% are now held at 1.40x and 2.08x in the portfolio, respectively. These Funds and 22.1%, respectively. The BlackRock Fund maintained a relatively low returned more capital back to the portfolio during the year, and have now beta-adjusted net exposure throughout the year, and more recently its short distributed 30% and 69% of paid in capital, respectively, while there is book, led by positions in mining and energy-related businesses, has driven its considerable value remaining in their portfolios. returns. The long-only Adelphi Fund, which again outperformed its benchmark in the fourth quarter with a rise of 7.3%, has shown continued good stock It was a difficult year for many parts of the market, in particular Emerging selection. The Fund’s performance has been helped by its lack of exposure to Markets and commodity-related sectors. The biggest detractor to performance the energy and materials sectors, as well as to capital goods. The Fund has was the NTAsian Discovery Fund, which declined 21.6% during the year, achieved good alpha generation in consumer staples and healthcare, with following an extended period of strong performance. The Fund was hurt by a longstanding positions such as Novo Nordisk and Pandora producing excellent substantial fall in the share price of Silverlake Axis, its largest holding, which returns over the year. had previously been a key driver of outperformance. Another significant detractor for the portfolio was Pershing Square Holdings, which has declined There were strong performances in long/short Global Developed funds. 20.0% since it was purchased in February 2015. Pershing’s largest position, Lansdowne Developed Markets was particularly pleasing, with a return of Valeant Pharmaceuticals, declined significantly during the year as a result of 16.9%, while Egerton European Dollar Fund and Odey Absolute Return Fund a number of factors, including political pressure on drug pricing and being were up 9.4% and 7.3%, respectively, over the year. These funds enjoyed targeted by short sellers who were concerned about the company’s business good performance in their short portfolios, playing themes such as weakness model, but the manager has maintained his conviction in the position. in industrial cyclicals, old retail and technology hardware. The Lansdowne Fund benefited from long positions in Nike, Amazon and Netflix, while specific Private Equity holdings were not immune from the market volatility, and those shorts in individual retail and technology names also contributed to funds with exposure to commodity assets suffered some mark-downs which performance. 14 detracted from the portfolio’s performance. These included Riverstone/Carlyle Global Energy & Power Fund IV, LP, African Development Partners I, LLC and African Minerals Exploration & Development Fund, SICAR, which are, respectively, now held at 1.10x, 1.34x and 0.97x in the portfolio. Investment Portfolio at 31 December 2015 Findlay Park American Fund Adelphi European Select Equity Fund BlackRock European Hedge Fund Egerton Long - Short Fund Lansdowne Developed Markets Fund NTAsian Discovery Fund BlueCrest AllBlue Leveraged Feeder Odey Absolute Return Fund Goodhart Partners Longitude Fund: Hanjo Fund Greenspring Global Partners IV, LP Top 10 Holdings Schroder ISF Asian Total Return Fund Helios Investors II, LP Hirzel Capital Fund L Capital Asia, LP Indus Japan Long Only Fund Gramercy Distressed Opportunity Fund II, LP Global Event Partners Ltd Select Equity Offshore, Ltd KKR Special Situations Fund, LP Hudson Bay International Fund Top 20 Holdings Hony Capital Fund V, LP Prince Street Opportunities Fund Vulcan Value Equity Fund China Harvest Fund II, LP GAM Star Technology L Capital Asia 2, LP Pershing Square Holdings Ltd Oaktree CM Value Opportunities Fund NYLIM Jacob Ballas India III, LLC Pangaea II, LP Top 30 Holdings 22 remaining holdings Cash TOTAL Ocean Wilsons Holdings Limited/Annual Report 2015 Primary Focus US equities – long-only Europe equities – long-only Europe equities – hedge Europe / US equities – hedge Europe / US equities – hedge Asia ex-Japan equities – long-only Market Neutral – multi-strategy Europe / US equities – hedge Japan equities – long-only Private Assets – US Venture Capital Asia ex-Japan equities – long-only Private Assets – Africa US equities – hedge Private Assets – Asia (Consumer) Japan equities – long-only Private Assets – distressed debt Global equities – long-short US equities – long-only Private Assets – distressed debt Market Neutral – multi-strategy) Private Assets – China Emerging Markets equities – long-only US equities – long-only Private Assets – China Technology – long-only Private Assets – Asia (Consumer) US equities – long-only US high yield corporate debt – hedge Private Assets Private Assets Market Value US$000 16,162 13,788 13,557 11,962 11,335 8,817 8,579 7,952 7,272 6,324 % of NAV 6.6 5.6 5.6 4.9 4.6 3.6 3.5 3.3 3.0 2.6 105,748 43.3 5,913 5,822 5,800 5,782 5,640 5,280 5,011 4,988 4,947 4,857 2.4 2.4 2.4 2.4 2.3 2.2 2.0 2.0 2.0 2.0 159,788 65.4 4,857 4,784 4,631 4,613 4,485 3,922 3,885 3,777 3,631 3,629 202,002 34,154 8,255 244,411 2.0 2.0 1.9 1.9 1.8 1.6 1.6 1.5 1.5 1.5 82.7 13.9 3.4 100.0 15 Ocean Wilsons Holdings Limited/Annual Report 2015 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 66 and joined the Group in 1991. UK Transfer Agent He is 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 58 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 56, 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 65, British and resident in Switzerland. He is a Director of BACIT Limited, BH Macro Limited and Abingworth BioEquities Fund Limited, Auditor and a member of the Supervisory Board of BBGI SICAV SA. KPMG LLP 15 Canada Square Mr A Rozental is Mexican, aged 70 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 a non-executive Director of Bankers HSBC Bank Mexico. He is an external advisor to AT&T, Airbus Mexico, Toyota Deutsche Bank International Limited de México and Canada's Brookfield Asset Management. Jersey Mr C Townsend is German and British and resident in Switzerland. He is aged Investment Managers 42, is a solicitor, and has an MBA from the London Business School. He is Hanseatic Asset Management LBG investment director of Hansa Capital GmbH. Guernsey, Channel Islands 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 16 Report of the Directors Ocean Wilsons Holdings Limited/Annual Report 2015 The Directors submit herewith their Report and Accounts for the year ended In accordance with the Company’s (Ocean Wilsons Holdings Limited) bye-laws, 31 December 2015. Mr J F Gouvêa Vieira, Mr C Maltby and Mr A Rozental retire at the next annual general meeting and, being eligible, offer themselves for re-election. The The Group accounts, presented under International Financial Reporting Directors who held office at 31 December 2015 had the following interest in Standards (IFRS), comprise the Consolidated Statement of Comprehensive the Company shares: Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and the related notes 1-38. Profits and Dividends As permitted by Section 84(1A) of the Bermuda Companies Act 1981 the Group’s accounts have been drawn up in accordance with International J F Gouvêa Vieira Beneficial 170,100 151,600 Interest 2015 2014 K Middleton Beneficial 30,000 30,000 Financial Reporting Standards. W Salomon* Beneficial 4,659,349 4,659,349 The Group’s profit after tax on ordinary activities attributable to equity shareholders amounted to US$15,470,000 (2014: US$23,182,000). The Directors are recommending the payment of a dividend for the year of 63.0c (2014: 63.0c) gross per share. The dividend will be paid on 3 June 2016 to all shareholders who are on the register at close of business on 8 May 2016. 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 15. Directors The present Members of the Board are as shown on page 16 C Townsend C Maltby A Berzins Beneficial Beneficial Beneficial 40,000 40,000 9,000 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 J F Gouvêa Vieira, Mr C Maltby and Mr A Rozental and the company. Employees The average number of persons, including Directors, employed by the Group was 5,439 (2014: 5,972). 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 acquisition 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 acquisition 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. 17 Ocean Wilsons Holdings Limited/Annual Report 2015 Report of the Directors Auditor The Board does not have a separate nomination committee as the KPMG LLP were reappointed auditor at the 2015 annual general meeting identification and appointment of a new Board member is a matter for and have expressed their willingness to continue in office as auditor and a the full Board. The Board evaluates the balance of skills, experience, resolution to reappoint them under the provisions of Section 89 of the independence and knowledge on the board and, in the light of this Bermuda Companies Act 1981 will be proposed at the forthcoming Annual evaluation, prepares a description of the role and capabilities required General Meeting. Substantial Shareholdings for a particular appointment. An independent external search consultant will conduct a search for appropriate candidates with the right blend of skills and experience which are then submitted to the Board for As at 11 March 2016, the Company has been notified of the following evaluation. holdings of its shares, in excess of 3% of the issued ordinary share capital: Name of holder Hansa Trust PLC Number of shares % held 9,352,770 26.45 Codan Trust Company Limited and Helen Cooper 4,435,064 12.54 Peter A S Pearman and Codan Trust Company Limited 3,929,049 11.11 Utilico Emerging Markets Utilities Limited Dynamo Adminisração de Recurso 2,471,044 1,820,354 6.99 5.15 The Company has been advised that Mr W Salomon is interested in 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 registered in the name of Peter A S Pearman and Codan Trust Company Limited. The Company has also been advised that Mr W Salomon has an interest in 26.4% and Mrs. C Townsend an interest in 25.9% of the voting • The Code states that non-executive directors who have served longer than nine years should be subject to annual re-election. Directors serving more than nine years are not subject to annual re- election as your Board considers continuity and knowledge of the Company’s investments and business acquired over time is of great value. The Directors who have served longer than nine years are Mr J F Gouvêa Vieira, Mr W Salomon and Mr K Middleton. The Board The Board currently comprises the chairman, Mr J F Gouvêa Vieira, deputy 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, Mr K Middleton. Mr Rozental, Mr Berzins and Mr Maltby are considered by the Board to be independent under the Code. The Board has appointed Mr A Rozental as the senior independent director. The directors’ biographies shares of Hansa Trust PLC. Mr C Townsend is the son of Mrs. C Townsend. appear on page 16. Contracts and agreements with substantial shareholders No contracts existed at the end of the year in which a substantial shareholder of the Company is or was materially interested. Corporate Governance The Board has put in place corporate governance arrangements that it believes are appropriate for the operation of your Company. The Board has considered the principles and recommendations of the 2014 UK Corporate Governance Code (“the Code”) issued by the Financial Reporting Council and decided to apply those aspects which are appropriate to the business. This reflects the fact that Ocean Wilsons Holdings Limited is an investment holding Company incorporated by an act of parliament in Bermuda with significant operations in Brazil. The Company complies with the Code where it is All directors are subject to election by shareholders at the first AGM following their appointment to the Board and are subject to re-election by shareholders once every three years. Mr J F Gouvêa Vieira, Mr C Maltby and A Rozental are offering themselves for re-election at the next AGM. The Board considers on a regular basis how to refresh itself. Non-executive directors hold letters of appointment. The other commitments of directors appear on page 16 as part of their biographies and the Board is satisfied that these commitments do not conflict with their ability to carry out effectively their duties as directors of the Company. The division of responsibilities between the chairman and the executive director have been clearly established, set out in writing and agreed by the beneficial for its business to do so, and has done so throughout the year and Board. The Group does not have a chief executive. up to the date of this report, but as noted below, it does not fully comply with the Code. The position is regularly reviewed and monitored by the Board. The Board has appointed an executive director, Mr K Middleton to administer Below are the areas where Ocean Wilsons Holdings Limited does not comply the Holding Company. with the 2014 UK Corporate Governance Code and the rationale for not complying: • The Code states the Company should have a Board nomination committee. 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 18 Ocean Wilsons Holdings Limited/Annual Report 2015 manages its interest in Wilson Sons Limited through the appointment of three • To approve any agreements or amendments to agreements between Ocean Wilsons Holdings Limited Directors as non-executive directors of Ocean Wilsons Holdings Limited and Wilson Sons Limited including the Wilson Sons Limited, (presently Mr J F Gouvêa Vieira, Mr W Salomon and relationship agreement; Mr A Rozental), voting on matters requiring Wilson Sons Limited shareholder approval and through the relationship agreement between Ocean Wilsons Holdings Limited and Wilson Sons Limited signed following the listing of Wilson Sons Limited on the Sao Paulo and Luxembourg Stock Exchanges. The relationship agreement details areas of co-operation between Ocean Wilsons Holdings Limited and Wilson Sons Limited in meeting accounting, reporting and compliance requirements for both companies. The Board delegates authority to manage the portfolio of investments to Hanseatic Asset Management LBG. The Ocean Wilsons Holdings Limited Board has a formal schedule of matters 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 • • • • • • To vote the shares in Wilson Sons Limited on matters presented to shareholders for shareholder approval; Appointment of Ocean Wilsons Holdings Limited directors to the Board of Wilson Sons Limited; 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. matters reserved for the Board of Ocean Wilsons Holdings Limited includes: The Board of Ocean Wilsons Investments Limited is currently constituted by the same directors as the Board of Ocean Wilsons Holdings Limited. Determining the overall strategy of the Group; Mr C Maltby an independent director was appointed chairman of the Board of Ocean Wilsons Investments Limited on the 2 June 2015 replacing the Determining the responsibilities of the chairman and directors; previous chairman Mr J F Gouvêa Viera who was chairman throughout 2014. The Board delegates authority to run the investment portfolio held by Ocean Approving changes to the capital structure of the Company or other Wilsons Investments Limited to the investment manager within certain matters relevant to its status as a listed Company; guidelines. The Board of Ocean Wilsons Investments Limited has a formal schedule of matters specifically reserved for its attention which include: Approving significant matters relating to capital expenditure, acquisitions and disposals and consideration of significant financial matters outside the Wilson Sons Limited Group; Appointment of directors to Ocean Wilsons Holdings Limited and Ocean Wilsons Investments Limited; Selection of the chairman of the Board; Appointment and removal of the company secretary; Appointment and removal of executives; To decide on potential conflicts of interest and authorize potential conflicts; Approval of annual and interim reports; Approving any dividends and dividend policy; • • • • • • • • • 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; Appointment, removal and terms of the custodian of the investment manager. Appointment of external auditor, financial advisor or corporate broker; Establishing the finance committee and their terms of reference; independent professional advice at the Company’s expense if the need arises. The Board has full and timely access to all relevant information to enable it to Determining membership and Chairmanship of Board Committees; perform its duties. The Company has directors and officers insurance in place. The Company has a procedure in place by which directors can seek • • • • • • • • • • • • • • 19 Ocean Wilsons Holdings Limited/Annual Report 2015 Report of the Directors The executive director is responsible for advising the Board on all corporate matters. Each director has access to the advice and services of the company Board Diversity Policy secretary Mr M Mitchell and the executive director. The Board considers diversity, including the balance of skills, experience, During 2015, five scheduled meetings of the Ocean Wilsons Holdings Limited appointment of new Directors. The Board does not consider it appropriate to Board were held at different locations. Details of attendance at Board establish targets or quotas in respect of Board appointments. With respect to meetings and meetings of the Board committees are set out below. In addition gender diversity, the Board considers that a merit based approach is the only to scheduled Board meetings if matters arise at short notice requiring urgent appropriate approach for determining the composition of the Board and as attention a telephone Board meeting is arranged. During 2015 no telephone such has not set specific targets for gender diversity. knowledge and nationality, amongst many other factors, when reviewing the Board meetings were held. Remuneration Directors’ attendance at Board and Finance Committee meetings: Non-executive Directors’ fees are set out within limits set in the Company’s Director Mr J F Gouvêa Vieira Mr W Salomon Mr K Middleton Mr A Rozental Mr C Townsend Mr C Maltby Mr A Berzins Articles of Association. The present limit is US$700,000 in aggregate per Finance Committee annum and the approval of shareholders in a General Meeting is required Board Meetings attended Meetings attended to change this amount. 5 5 5 4 5 5 5 4 4 – 4 4 4 4 The Board of Wilson Sons Limited is responsible for all remuneration matters relating to Wilson Sons Limited and its subsidiaries. Mr J F Gouvêa Vieira, Mr W Salomon and Mr A Rozental receive directors fees from Wilson Sons Limited in addition to their fees as directors of Ocean Wilsons Holdings Limited. Board Committees The formal agenda for each scheduled Board meeting is set by the chairman in consultation with the executive director. The Board of Ocean Wilsons Holdings Limited is invited to attend Wilson Sons Limited Board meetings where appropriate to receive operational updates, including one meeting a year in Brazil where the Board of Ocean Wilsons Holdings Limited is invited to attend the Wilson Sons Limited Board meeting to meet business unit directors and receive detailed management reports on the Brazilian business. The non-executive directors also meet informally, without any executives present, to discuss matters in respect of the business. 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 A Berzins an independent director was appointed chairman of the finance committee on the 2 June 2015 replacing the previous chairman Mr C Maltby who was chairman throughout 2014. 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. 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. 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. 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. 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. 20 Ocean Wilsons Holdings Limited/Annual Report 2015 Finance Committee report The finance committee comprises all non-executive directors, three of whom are considered by the Board to be independent during 2015. The Board • • to determine bonuses payable under the Company Bonus scheme; and to review arrangements by which staff of the company may, in is satisfied that during 2015 four directors, Mr C Maltby, Mr W Salomon, confidence, raise concerns about possible improprieties in matters of Mr A Berzins and Mr A Rozental, have recent and relevant financial experience financial reporting or other matters. as all have served on the audit committees of other listed companies. Mr W Salomon also has considerable experience in finance and investment Overview of the actions taken by the Finance Committee to discharge banking and Mr C Maltby and Mr A Berzins both hold accounting its duties qualifications. Since the beginning of 2015 the finance committee has: The finance committee met four times in 2015. At the request of the finance • reviewed the December 2014 report and financial statements, the June committee the chief executive of Wilson Sons Limited, the finance director of 2015 half yearly financial report and the quarterly update issued in May Wilson Sons Limited and the executive director of Ocean Wilsons Holdings and November 2015. As part of the review of the December 2014 report, Limited attended each of these meetings. The external auditor attended two the Committee received a report from the external auditor on their audit meetings. of the annual report and financial statements; The finance committee meets with the external auditor without the executive • reviewed the functional currencies of the Wilson Sons Limited businesses. present. As a result the Group has approved that two businesses (TECON Rio Grande and WSCI) are currently determined as functional currency The finance committee is chaired by Mr A Berzins, an independent director. US Dollar be reclassified as functional currency Brazilian Real effective The committee has defined terms of reference. The principal responsibilities from the 1 January 2015; of the committee are: • to review the integrity of the interim and full year financial statements continuing review of the useful economic life of vessels, during the period of the company, reviewing significant financial reporting judgements the Group concluded an assessment of the economic useful life of the contained in them; dry-docking of its fleet of tugboats. • reviewed the change in dry docking economic useful life. As part of the • • to review the Company’s internal control and risk management systems; • reviewed arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of to make recommendations to the Board, for it to put to the shareholders financial reporting or other matters; for their approval in general meeting, in relation to the appointment, reappointment and removal of the external auditor and to approve the • reviewed the effectiveness of the Group’s internal controls and disclosures remuneration and terms of engagement of the external auditor; made in the annual report and financial statements on this matter. As part of this review, the Committee considered a report on internal controls • to review and monitor the external auditor’s independence and and the Group’s risk register and suggested amendments; 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 the subsidiary companies, regarding any matters arising in the course of the annual audit which should be brought to the attention of the Board; • • • • 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; • • • • • • 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 December 2014 financial statements including consideration of the levels of non-audit fees which the committee concluded were immaterial; assessed the qualification, expertise and resources, and independence of the external auditor; and reviewed the need for an internal audit function. reviewed and approved a company remuneration policy. reviewed the economic useful life of the quay and other improvements at Tecon Rio Grande. Following an independent review the Group increased the remaining economic useful life of the quay and other improvements at Tecon Rio Grande from 25 years to between 25 and 40 years. 21 Ocean Wilsons Holdings Limited/Annual Report 2015 Report of the Directors To fulfil its responsibility regarding the independence of the external auditor, was satisfied that the significant assumptions used were appropriate and the finance committee reviewed: sufficiently robust. The Committee was further satisfied with the impairment disclosures in the financial statements. • the external auditor plan for the current year, noting the role of the audit partner, who signs the audit report and who, in accordance with • Revenue recognition – The revenue recognition risk could arise from professional rules, has not held office for more than five years and any inappropriate revenue recognition policies, incorrect application of changes in key audit staff; policies or cut-off errors surrounding year end. The committee considered a report from the external auditor describing their arrangements to compared to previous periods. The committee reviewed external auditor identify, report and manage any conflicts of interest; and reports on revenue recognition and discussed their findings and the the Group’s revenue recognition policies and the level of transactions potential risks with the external auditor and management. the overall extent of non-audit services provided by the external auditor, in addition to approving the provision of significant non-audit services by Internal Controls • • the external auditor. The Board is responsible for the system of internal control and reviewing its effectiveness. The internal controls are designed to cover material risks to In addition the Group does not currently employ any former external audit achieving the Group’s objectives and include business, operational, financial staff. KPMG LLP have been the Group’s auditor since 31 December 2012 and compliance risks. These controls have been in place throughout the year. following a competitive tender. The internal controls are designed to identify, evaluate and manage rather than eliminate risk of failure to meet business objectives. The internal control After discussion with management, the Board of Wilson Sons Limited and the process distinguishes between the parent group and the principal operating external auditor, the committee determined that the key risks of misstatement subsidiary, Wilson Sons Limited, which is managed by an autonomous board. of the Group’s financial statements relate to: • Provisions – Legal claims against the Brazilian operations comprise civil “BOVESPA” and Luxembourg Stock Exchange, whose rules are different from and environmental cases, tax cases and labour claims. The reporting the London Stock Exchange. The company’s internal control procedures, risk relates to the completeness of claims recorded and the estimation whilst sufficient for the Board of Wilson Sons Limited to identify, manage and of the provisions held against these exposures. There remain a control the principal risks, may differ from the requirements of the Turnbull significant number of contingent liabilities, particularly concerning Committee. The Board of the principal operating subsidiary is responsible for labour and taxation claims. Provisions are based on prior experience, identifying key business risks and establishing and reviewing internal control Wilson Sons Limited is listed on both the Sao Paulo Stock Exchange management’s best knowledge of the relevant facts and circumstances procedures. and expert legal advice relative to each case. The committee questioned management on their assumptions used in determining provisions and The Board reviews the need for an internal audit department annually and the procedure for classification of legal liabilities as probable, possible or considers that the parent group is not sufficiently large to justify an internal remote loss by the external lawyers. The committee reviewed quarterly audit function. Wilson Sons Limited operates an internal audit function and legal reports from management on contingencies and asked questions the Wilson Sons Limited board monitors their internal financial control on the background and progress of material claims. The committee systems through reports received from the internal audit function. evaluated the current level of provisions in light of historical trends and claim history to ensure provisions were adequate. The committee further In reviewing Wilson Sons Limited, the Board receives reports from the Wilson ensured that adequate resources are allocated to recording, evaluating Sons Limited internal audit department, legal department and the Wilson Sons and monitoring legal claims to ensure the completeness of claims Limited external auditor. recorded and provisions made. The parent group (including Ocean Wilsons Investments Limited) has an • Impairment Risk to Goodwill and Intangibles – The Group has significant ongoing process for identifying, evaluating and managing key risks including Goodwill and Intangibles balances. The reporting risk is that these financial, operational and compliance controls. A risk register is maintained balances may be overstated. Management perform impairment reviews detailing business risks, together with controls and responsibilities. The risk for Intangibles and tests goodwill as required by IAS 36, Impairment of register is regularly reviewed by the finance committee. Assets. The impairment test is performed by comparing the carrying value of goodwill to its value in use, calculated using the discounted cash flow The systems operated both by the parent group and principal operating forecasts under the principles of IAS 36. The Committee examined and subsidiary are reviewed annually. The Board is satisfied that these systems are challenged management’s key assumptions used in the impairment tests operating effectively. to understand their impact on the recoverable amounts. The Committee 22 Ocean Wilsons Holdings Limited/Annual Report 2015 The Ocean Wilsons Holdings Limited employee whistle blowing policy is Whilst the directors have no reason to believe the Company will not be designed to enable employees of the Company to raise concerns internally viable over a longer period, given the uncertainties involved in longer and at a high level and to disclose information which the individual believes term forecasting the directors have determined that a three year period shows malpractice or impropriety. The Wilson Sons Limited Group whistle to 31 December 2018 is an appropriate period over which to provide its blowing policy and procedures enable employees who have concerns about viability statement. The three year period also aligns with the rolling three the application of the Group’s Code of Ethics to raise them with the Wilson year investment portfolio performance benchmark. Sons Limited ethics committee. The ethics committee will maintain their anonymity and report back to the employee on actions taken. In making the assessment, the directors have considered a number of factors Relations with Shareholders that affect the Group, including the principal risks and mitigating factors. The directors also took account that the Group has two distinctly separate Communications with shareholders are important to the Board. Ocean Wilsons investments, Wilson Sons Limited, a maritime services company in Brazil and Holdings Limited sends both its annual report and accounts and half year Ocean Wilsons (Investments) Limited which holds a portfolio of international accounts to all shareholders. To ensure Board members develop an investments. There is no recourse between the two investments. In addition understanding of the views of major shareholders there is regular dialogue the Company holds no external debt. with major institutional shareholders. The Deputy Chairman and executive director usually attend a number of these meetings. A report of meetings with Wilson Sons Limited shareholders is distributed to all directors. All broker reports are distributed to The assessment considered that the Wilson Sons Group business model has all Board members. The Annual General Meeting of the Company will be held proven to be strong in the long term with a range of businesses that have in Bermuda. When a significant proportion of the votes have been cast against consistently demonstrated their ability to trade, even in challenging market a resolution at an Annual General Meeting the Board will contact significant conditions. For instance the Group produced a solid performance in 2015 shareholders to understand the reasons behind their vote. The Company when the Brazilian Real depreciated 47% against the US Dollar in the year. website www.oceanwilsons.bm contains copies of the annual and interim Operational activities are funded by cash generated from operations, while report and stock exchange announcements. Wilson Sons Group borrowings are used to finance capital expenditure. Going Concern The Wilson Sons Group borrowings are long-term with defined repayment schedules repayable over different periods up to 18 years and an average The Group closely monitors and manages its liquidity risk. The Group has weighted maturity of 11 years. There is no recourse from Wilson Sons to the considerable financial resources including US$97.6 million in cash and cash Company or Ocean Wilsons (Investments) Limited in respect of the Wilson equivalents and the Group’s borrowings have a long maturity profile. The Sons Limited borrowings. The Wilson Sons Group is not reliant on one Group’s business activities together with the factors likely to affect its future particular customer, its largest customer constituted approximately 5% of development and performance are set out in the chairman’s statement, the Group’s revenue in 2015. (and including joint venture revenue 16%). operating review and investment managers report on pages 1 to 15. The financial position, cash flows and borrowings of the Group are set out in Whilst the Board considered all the principal risks identified the following were the Financial review in pages 6 to 10. In addition note 36 to the financial selected by the Group for stress testing using the Wilson Sons Limited long- statements include details of its financial instruments and hedging activities term model, exchange rate risk, exposure to the offshore oil and gas industry and its exposure to credit risk and liquidity risk. Details of the Group’s and customer concentration risk. In testing we assumed that Petrobras borrowings are set out in note 22. Based on the Group’s forecasts and remained a going concern. sensitivities run, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational Ocean Wilsons (Investments) Limited existence for the foreseeable future. For this reason, they continue to adopt In making the assessment for the investment portfolio, the Board has the going concern basis in preparing the accounts. considered matters such as significant stock market volatility, changes in Viability statement exchange rate and a significant reduction in the liquidity of the portfolio. The investment portfolio and cash under management at 31 December In accordance with provision C.2.2 of the UK Corporate Governance Code, the 2015 was US$244.5 million with outstanding capital commitments of Directors have assessed the viability of the Group over a three year period to US$35.2 million and no external debt. 31 December 2018, taking into account the Group’s current position and potential impact of the principal risks and uncertainties. Based on this We believe that if severe but plausible downside scenarios were to crystallise, assessment, the directors confirm that they have a reasonable expectation many of the individual risks disclosed would be likely to be confined to either that the Company will be able to continue in operation and meet its liabilities Wilson Sons Limited or Ocean Wilsons Investments Limited. The risk is to the as they fall due over the period to 31 December 2018. valuation of the Group’s balance sheet rather than the viability of the Group. In addition, Wilson Sons has opportunities to mitigate any adverse impacts given the flexible cost base of some of their business. 23 Ocean Wilsons Holdings Limited/Annual Report 2015 Report of the Directors Directors’ responsibilities The Directors are responsible for preparing the annual report in accordance with applicable laws and regulations. The Directors are required by Bermuda company law to lay financial statements before the Company in a general meeting. In doing this the Directors prepare accounts on a going concern basis for each financial year which give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing those accounts, the Directors have considered whether: • • • 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 material departures disclosed and explained in the accounts. The Board consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s performance, business model and strategy. By Order of the Board Malcolm Mitchell Secretary 21 March 2016 24 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only Ocean Wilsons Holdings Limited/Annual Report 2015 Opinions and conclusions arising from our audit challenged senior operation, commercial and financial management 1. Our opinion on the financial statements is unmodified personnel on the judgements underlying those papers. We evaluated the We have audited the Group financial statements (“the financial statements”) financial performance of contracts against budget and historical trends to of Ocean Wilsons Holdings Limited (“the Group”) for the year ended assess historical forecasting accuracy. We also undertook site visits to 31 December 2015 which comprise the Consolidated Statement of physically inspect the stage of completion of individual projects through Comprehensive Income, the Consolidated Balance Sheet, the Consolidated observation and discussion with site personnel. In addition, we Statement of Changes in Equity, the Consolidated Cash Flow Statement challenged the Group’s judgements in respect of forecast contract out- and the related notes. turn costs via agreement to third party certifications and confirmations and with reference to our own assessments, historical outcomes and In our opinion the financial statements give a true and fair view of the state industry norms. We also inspected the selected contracts for key clauses of the Group’s affairs as at 31 December 2015 and of its profit for the year and assessed whether these key clauses have been appropriately then ended in accordance with International Financial Reporting Standards reflected in the amounts recognised in the financial statements. as issued by the International Accounting Standards Board. In evaluating the timing of the recognition of other maritime services revenue, 2. Our assessment of risks of material misstatement we visited a number of sites, including one of the Group’s operational port In arriving at our audit opinion above on the financial statements the risks of terminals (Tecon Salvador) and assessed the Group’s revenue recognition material misstatement that had the greatest effect on our audit, in decreasing policies against the relevant accounting standards. Our procedures included order of audit significance, were as follows (unchanged from 2014). testing controls in all segments, testing the appropriateness of a sample of Maritime services revenue recognition (US$508.9m) Risk vs 2014: ◄► terms and performing substantive analytical procedures at each of the revenue accrued and deferred at year end based on the specific contract Refer to page 22 (Finance Committee Report), page 38 (accounting policy) and operating terminals. page 40 (financial disclosures). We also considered the adequacy of the Group’s accounting policy disclosures • The risk – we considered two principal risks of material misstatement: in respect of revenue recognition. Determining the percentage of completion on shipbuilding contracts; and determining when services or obligations have been delivered to assess Impairment risk to goodwill and intangible assets relating to business whether revenue from port terminals, towage operations, logistics and combinations (US$27.4m and US$16.6m respectively) Risk vs 2014: ◄► offshore businesses have been recognised in the correct period. The Refer to page 22 (Finance Committee Report), pages 39 (accounting policy) and Group recognises shipbuilding revenue based on the stage of completion 45 and 46 (financial disclosures). of contracts, which is assessed by reference to the proportion of contract costs incurred for the work performed to the balance sheet date relative • The risk – The Group’s investments in Tecon Rio Grande, Tecon Salvador to the estimated total contract costs to completion. The recognition of and Brasco Caju (Briclog) all gave rise to intangible assets and goodwill revenue therefore relies on estimates in relation to the final out-turn of on acquisition. Due to the inherent risk and uncertainty involved in costs on each contract, which are inherently judgemental and could be forecasting and discounting future cash flows in this industry in a susceptible to a material misstatement. developing economy, which are the basis of the assessment of recoverability, this is one of the key judgemental areas that our audit The Group also recognises revenue when services in its port terminals, concentrated on. There is a risk of recoverability of the Group’s significant towage operations, logistics and offshore businesses have been fulfilled. goodwill and intangible balances due to possible weakening demand or The recognition of this revenue could be susceptible to timing errors the variability of the cost base in this industry. in determining when services or obligations have been delivered, particularly given the Group’s large volume and geographical spread of • Our response – In this area our audit procedures included testing the transactions in progress at year end. This could result in revenue being Group’s forecasting by considering the historical accuracy of previous recognised in the incorrect period. forecasts. We compared actual results in the current year to forecasts prepared in previous periods and substantiated significant variances. • Our response – In evaluating shipbuilding revenue, our audit procedures We compared the Group’s port terminal cash-flow assumptions against included using both quantitative and qualitative factors to select a sample underlying contracts to agree revenue streams and contract end dates. of contracts and then assessing and challenging the most significant and In addition, we used our own experience and discussions with a range of complex contract estimates, all of which are incorporated within forecast operational personnel to assess the probability of contracts being won, contract out-turn costs. We obtained the detailed project management renewed or lost, which are included as future cash flows in the forecasts. review papers from the Group to support the estimates made and We used our own corporate finance valuation specialists to assist us 25 Ocean Wilsons Holdings Limited/Annual Report 2015 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only in evaluating the Directors’ assumptions and judgements relating to US$5.35m (2014: US$7m), determined with reference to a benchmark of projected economic growth, inflation, exchange rates, cost base, terminal average Group profit before taxation excluding foreign exchange gains or values and discount rates used to derive recoverable amounts. We losses over four years, of US$107.1m, of which it represents 5%, reflecting compared the Group’s assumptions to externally derived data, industry industry consensus levels (2014: 7% of 2014 profit before tax). norms and our expectations based on our knowledge of the client and experience of the industry in which it operates. As part of this procedure, We reported to the finance committee any corrected or uncorrected identified sensitivities over each of the assumptions and judgements were misstatements exceeding US$265,000, in addition to other identified evaluated. misstatements that warranted reporting on qualitative grounds. We considered the adequacy of the Group’s disclosures in respect of Of the Group’s 25 reporting components (2014: •), we subjected 9 to audits impairment testing and whether disclosures about the sensitivity of the for Group reporting purposes (2014: •) and 16 to specified risk-focused audit outcome of the impairment assessment to changes in key assumptions procedures (2014: X). The latter were not individually financially significant properly reflected the risks inherent in the key assumptions and the enough to require an audit for group reporting purposes, but did present requirements of accounting standards. specific individual risks that needed to be addressed. Provisions (US$13.9m) Risk vs 2014: ◄► The components within the scope of our work accounted for the following Refer to page 22 (Finance Committee Report), pages 37 and 38 (accounting percentages of the group’s results: policy) and page 59 (financial disclosures). • The risk – As is common for businesses in Brazil, the Group receives a high volume of legal claims from general civil proceedings, labour claims and changing tax legislation. These resultant contingent liabilities are potentially significant and the application of accounting standards to determine the amount, if any, to be provided as a liability, is inherently subjective. In making these decisions, the Directors use their judgement and where appropriate receive external advice, in order to make their best estimate of provisions to be recorded in the financial statements. This is one of the key areas that our audit concentrated on as a result of the impact that a material claim could have on the Group’s financial position and result for the year. • Our response – Our audit procedures included obtaining an understanding 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 corroborative information, and an assessment of correspondence with the Group’s external counsel on all significant legal cases and discussions with them when further clarity was deemed necessary. In addition, we obtained direct formal confirmations from the Group’s external counsel for all significant litigation. With regard to open tax cases, in addition to the above we used our own tax specialists to assess the Group’s tax positions and its correspondence with the relevant tax authorities. We analysed and challenged the assumptions used to determine tax provisions based on our tax specialists’ knowledge and experiences of the application of the international and local legislation by the relevant authorities and courts. We also assessed whether the Group’s disclosures detailing significant legal proceedings adequately disclose the contingent liabilities of the Group. Group Number profit Group of Group before total components revenue tax assets Audits for Group reporting purposes Audit procedures over significant accounts Total 9 16 25 84% 16% 78% 93% 22% 7% 100% 100% 100% The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which were US$2.5m for the component in the Channel Islands and a range of US$1.3m to US$5.0m for the components in Brazil. The work on 24 of the 25 components in the Group were performed by the component auditor in Brazil and the rest by the Group team. The Group team visited Brazil twice in the year, including to assess the audit risk and strategy. Telephone conference meetings were also held with the component auditor. At these visits and meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor. 4. We have nothing to report on the disclosures of principal risks Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to: • the directors’ viability statement on page 23, concerning the principal risks, their management, and, based on that, the directors’ assessment and expectations of the Group’s continuing in operation over the 3 years to 2018; or 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 disclosures in note 2 of the financial statements concerning the use of the going concern basis of accounting. 26 Ocean Wilsons Holdings Limited/Annual Report 2015 5. We have nothing to report in respect of the matters on which we are on that website, which are incorporated into this report as if set out in full and required to report by exception should be read to provide an understanding of the purpose of this report, the Under ISAs (UK and Ireland) we are required to report to you if, based on the work we have undertaken and the basis of our opinions. knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that The purpose of this report and restrictions on its use by persons other knowledge or the financial statements, a material misstatement of fact, or that than the Company’s members as a body is otherwise misleading. This report is made solely to the Company’s members, as a body, in In particular, we are required to report to you if: work has been undertaken so that we might state to the Company’s members • we have identified material inconsistencies between the knowledge we no other purpose. To the fullest extent permitted by law, we do not accept or acquired during our audit and the directors’ statement that they consider assume responsibility to anyone other than the Company and the Company’s that the annual report and financial statements taken as a whole is fair, 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 balanced and understandable and provides the information necessary for have formed. shareholders to assess the Group’s position and performance, business model and strategy; or John Luke • the finance committee report does not appropriately address matters for and on behalf of KPMG LLP communicated by us to the finance committee. Chartered Accountants 15 Canada Square, London E14 5GL Under the Listing Rules we are required to review: 21 March 2016 • • the directors’ statements, set out on page 23, in relation to going concern and longer-term viability; and the part of the Corporate Governance Statement on pages 18 to 23 relating to the company’s compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review. We have nothing to report in respect of the above responsibilities. Respective responsibilities of Directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 24, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of accounts is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company’s members as a body and subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions. Scope of an audit of financial statements performed in accordance with ISAs (UK and Ireland) A description of the scope of an audit of financial statements is provided on our website at www.kpmg.com/uk/auditscopeother 2014. This report is made subject to important explanations regarding our responsibilities, as published 27 Ocean Wilsons Holdings Limited/Annual Report 2015 Consolidated Statement of Comprehensive Income for the year ended 31 December 2015 Revenue Raw materials and consumables used Employee benefits expense Depreciation & amortisation expense Other operating expenses (Loss)/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 (loss)/income for the year Profit for the period attributable to: Equity holders of parent Non-controlling interests Total comprehensive (loss)/income for the period attributable to: Equity holders of parent Non-controlling interests Earnings per share Basic and diluted 28 Year to Year to 31 December 31 December 2015 US$’000 508,922 (55,760) (143,600) (53,214) (145,259) (1,294) 109,795 4,843 16,908 (1,388) (45,403) (15,792) 68,963 (39,704) 29,259 (108) (1,495) (81,935) (83,538) (54,279) 15,470 13,789 29,259 (32,741) (21,538) (54,279) 2014 US$’000 633,520 (100,588) (195,893) (65,120) (182,819) 326 89,426 7,090 16,975 6,233 (23,607) (17,621) 78,496 (41,928) 36,568 709 (988) (7,143) (7,422) 29,146 23,182 13,386 36,568 19,072 10,074 29,146 Notes 3 6 5 7 8 9 10 5 12 43.7c 65.6c Consolidated Balance Sheet as at 31 December 2015 Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Trade and other receivables Investment in joint venture Other non-current assets Current assets Inventories Trading investments Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Derivatives Current tax liabilities Obligations under finance leases Bank overdrafts and loans Net current assets Non-current liabilities Bank loans Derivatives Employee benefits Deferred tax liabilities Provisions Obligations under finance leases Total liabilities Net assets Capital and reserves Share capital Retained earnings Capital reserves Translation and hedging reserve Equity attributable to equity holders of the parent Non-controlling interests Total equity Ocean Wilsons Holdings Limited/Annual Report 2015 As at As at 31 December 31 December 2015 US$’000 2014 US$’000 Notes 13 14 15 24 21 17 27 19 18 21 27,389 26,274 557,190 32,128 44,328 18,301 8,018 35,024 38,565 639,480 31,665 51,535 11,500 11,838 713,628 819,607 28,285 276,878 83,981 97,561 486,705 32,460 260,491 96,199 103,810 492,960 1,200,333 1,312,567 26 (78,889) (78,879) 25 22 (1,339) (3,732) (1,192) (41,490) (156) (1,994) (1,444) (51,195) (126,642) (133,668) 360,063 359,292 22 (322,265) (343,990) 24 27 25 28 (1,547) (1,308) (52,631) (13,922) (1,536) (1,843) (1,570) (45,197) (15,702) (3,253) (393,209) (411,555) (519,851) (545,223) 680,482 767,344 11,390 501,426 31,760 (49,542) 495,034 185,448 680,482 11,390 508,298 31,760 (1,677) 549,771 217,573 767,344 The accounts on pages 28 to 75 were approved by the Board on 21 March 2016. The accompanying notes are part of this Consolidated Balance Sheet. J. F. Gouvêa Vieira Chairman K. W. Middleton Director 29 Ocean Wilsons Holdings Limited/Annual Report 2015 Consolidated Statement of Changes in Equity as at 31 December 2015 For the year ended 31 December 2014 Balance at 1 January 2014 Currency translation adjustment Employee benefits (note 37) Effective portion of changes in fair value of derivatives Profit for the year Total income and expense for the period Dividends Derivatives Share based payment expense Balance at 31 December 2014 For the year ended 31 December 2015 Balance at 1 January 2015 Currency translation adjustment Employee benefits (note 37) Effective portion of changes in fair value of derivatives Profit for the year Total income and expense for the period Dividends Derivatives Share based payment expense Balance at 31 December 2015 Share capital Attributable Hedging and to equity Non- Share capital US$’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 11,390 505,922 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 11,390 508,298 31,760 (1,677) 549,771 217,573 767,344 – – – – – – – – – (63) – 15,470 15,407 (22,279) – – – – – – – – – – (47,342) (47,342) (34,593) (81,935) – (806) (63) (806) (45) (689) (108) (1,495) – 15,470 13,789 29,259 (48,148) (32,741) (21,538) (54,279) – (22,279) (14,104) (36,383) 283 – 283 – 203 3,314 486 3,314 11,390 501,426 31,760 (49,542) 495,034 185,448 680,482 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. 30 Consolidated Cash Flow Statement for the year ended 31 December 2015 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 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 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 Ocean Wilsons Holdings Limited/Annual Report 2015 Year to Year to 31 December 31 December 2015 US$’000 2014 US$’000 145,459 105,556 Notes 29 – (26,677) 11 11,702 4,244 57,783 987 (65,779) (2,238) (75,558) (68,859) (22,279) (14,104) (49,894) (1,081) 31,881 (445) 9,062 5,786 103,396 6,490 (107,475) (2,136) (79,685) (91,239) (21,218) (13,239) (38,076) (1,879) 64,086 (154) (55,922) (10,480) 20,678 3,837 103,810 106,512 (26,927) (6,539) 97,561 103,810 31 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts for the year ended 31 December 2015 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 16. The nature of the Group’s operations and its principal activities are set out in the operating and financial review on pages 6 to 17. 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 Group closely monitors and manages its liquidity risk. The Group has considerable financial resources including US$97.6 million in cash and cash equivalents and the Group’s borrowings have a long maturity profile. The Group’s business activities together with the factors likely to affect its future development and performance are set out in the chairman’s statement, operating review and investment managers report on pages 1 to 15. 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 statements include details of its financial instruments and hedging activities and its exposure to credit risk and liquidity risk. Details of the Group’s borrowings are set out in note 22. Based on the Group’s forecasts and sensitivities run, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. Change in functional currency In accordance with IAS 21, the functional currency of an entity reflects the underlying transactions, events and conditions that are relevant to the entity. Accordingly, once the functional currency is determined, it can be changed only if there is a change to those underlying transactions, events and conditions. The Group considers the following factors in determining the functional currency of each entity. The currency that mainly influences sales prices for goods and services and the currency that mainly influences costs of providing goods or services. Following trends over the recent years, there have been changes in relation to underlying transactions, events and circumstances, mainly related to the generation of revenues by some companies. The projections made by management corroborate these trends. As a result, the Company changed the functional currency of Tecon Rio Grande S.A, Wilson, Sons Operadores Portuários Ltda and Wilson Sons Comércio Indústria e Agência de Navegação Ltda (from US Dollars to Brazilian Real) as of the first quarter of 2015. As stipulated by IAS 21, when there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company an 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. 32 Ocean Wilsons Holdings Limited/Annual Report 2015 2 Significant accounting policies and critical accounting judgements (continued) Basis of consolidation (continued) 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. 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 A 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. 33 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) Investments in joint ventures (continued) 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. 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; 34 Ocean Wilsons Holdings Limited/Annual Report 2015 2 Significant accounting policies and critical accounting judgements (continued) Taxation (continued) • • 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. 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 Improvements: Lower of the rental period or useful life considering residual values Floating Craft: Vehicles: 25 to 35 years 5 years Plant and Equipment: 5 to 20 years The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. 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, except when there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term in which the asset shall be fully depreciated over the shorter of the lease term and its useful life. Dry docking costs are capitalised and depreciated over the period in which the economic benefits are received, or until the next scheduled dry dock. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. 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. 35 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) 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 the income statement 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 the income statement. 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 the income statement 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 the income statement. 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. 36 Ocean Wilsons Holdings Limited/Annual Report 2015 2 Significant accounting policies and critical accounting judgements (continued) 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 income statement. • 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 income statement 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 as 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 in 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. 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 the income statement. 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 the income statement. 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. 37 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) Provisions (continued) 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 managements’ 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 balance sheet 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 balance sheet. 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 services is recognised when the work in proportion to the stage of completion of the transaction contracted has been performed in accordance with contracted terms. Revenue from construction contracts is recognised 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 on 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. 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. 38 Ocean Wilsons Holdings Limited/Annual Report 2015 2 Significant accounting policies and critical accounting judgements (continued) 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 could be susceptible to impairment and 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. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs 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. 39 Ocean Wilsons Holdings Limited/Annual Report 2015 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. The Group also recognises remaining maritime revenue when services have been fulfilled. The recognition of this revenue could be susceptible to timing errors in determining when services or obligations have been delivered, particularly given the Group’s large volume and geographical spread of transactions in progress at year end. 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 2015, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt new standards in advance. IFRS 9 Financial instruments IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. 3 Revenue An analysis of the Group’s revenue is as follows: Sales of services Revenue from construction contracts Investment income (note 7) All revenue is derived from continuing operations. 40 Year ended Year ended 31 December 31 December 2015 US$’000 455,037 53,885 508,922 16,908 525,830 2014 US$’000 530,080 103,440 633,520 16,975 650,495 Ocean Wilsons Holdings Limited/Annual Report 2015 4 Business and geographical segments Business segments Ocean Wilsons has two reportable segments: maritime services and investments. The maritime services segment provides towage, port terminals, ship agency, offshore, logistics and shipyard services in Brazil. The investment segment holds a portfolio of international investments. Segment information relating to these businesses is presented below. For the year ended 31 December 2015 Revenue Result Segment result Share of results of joint ventures Investment revenue Other gains and losses Finance costs Foreign exchange losses on monetary items Profit before tax Tax Profit after tax Other information Capital additions Depreciation and amortisation Balance Sheet Assets Segment assets Liabilities Segment liabilities Maritime Services Investment Unallocated Consolidated Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2015 US$’000 508,922 114,780 4,843 12,660 – (45,403) (15,883) 70,997 (39,704) 31,293 (69,889) (53,213) 2015 US$’000 – 2015 US$’000 2015 US$’000 – 508,922 (2,681) (2,304) 109,795 – 4,248 (1,388) – (46) 133 - 133 – – – – – – 137 (2,167) - (2,167) – (1) 4,843 16,908 (1,388) (45,403) (15,792) 68,963 (39,704) 29,259 (69,889) (53,214) 953,236 245,302 1,795 1,200,333 (519,224) (242) (385) (519,851) 41 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 4 Business and geographical segments (continued) For the year ended 31 December 2014 Revenue Result Segment result Share of results of joint ventures Investment revenue Other gains and losses Finance costs Foreign exchange losses on monetary items Profit before tax Tax Profit after tax Other information Capital additions Depreciation and amortisation Balance Sheet Assets Segment assets Liabilities Segment liabilities Maritime Services Investment Unallocated Consolidated Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2014 US$’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) 2014 US$’000 633,520 94,942 7,090 11,187 – (23,607) (17,590) 72,022 (41,928) 30,094 (111,186) (65,119) 1,057,586 252,678 2,303 1,312,567 (544,055) (815) (353) (545,223) Finance costs and associated liabilities have been allocated to reporting segments where interest costs arise from loans used to finance the construction of fixed assets in that segment. Geographical Segments The Group’s operations are located in Bermuda, Brazil, and Guernsey. All of the Group’s sales are derived in Brazil. The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located. Additions to Carrying amount of property, plant and equipment segment assets and intangible assets Year ended Year ended 31 December 31 December 31 December 31 December 2015 US$’000 909,652 290,681 2014 US$’000 1,018,380 294,187 2015 US$’000 69,889 – 2014 US$’000 111,186 – 1,200,333 1,312,567 69,889 111,186 Brazil Bermuda 42 5 Profit for the year Profit for the year has been arrived at after charging: Depreciation of property, plant and equipment Amortisation of intangible assets Operating lease rentals Auditor’s remuneration for audit services (see below) Non-executive directors emoluments A more detailed analysis of auditor’s remuneration is provided below: Financial statement audit of group and subsidiaries Other services 6 Employee benefits expense Aggregate remuneration comprised: Wages and salaries Share based payment (credit) Social security costs Other pension costs 7 Investment revenue Interest on bank deposits Dividends from equity investments Other interest 8 Other gains and losses (Decrease)increase in fair value of trading investments held at year end Profit on disposal of trading investments Other gains and losses form part of the movement in trading investments as outlined in note 18. Ocean Wilsons Holdings Limited/Annual Report 2015 Year ended Year ended 31 December 31 December 2015 US$’000 47,562 5,651 11,313 481 446 481 – 481 2014 US$’000 58,179 6,941 17,835 516 439 516 11 527 Year ended Year ended 31 December 31 December 2015 US$’000 2014 US$’000 120,540 170,984 3,346 18,716 998 (652) 24,588 973 143,600 195,893 Year ended Year ended 31 December 31 December 2015 US$’000 10,725 4,244 1,939 16,908 2014 US$’000 6,777 5,786 4,412 16,975 Year ended Year ended 31 December 31 December 2015 US$’000 (4,396) 3,008 (1,388) 2014 US$’000 1,360 4,873 6,233 43 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 9 Finance costs Interest on bank overdrafts and loans Exchange loss on foreign currency borrowings Interest on obligations under finance leases Other interest Year ended Year ended 31 December 31 December 2015 US$’000 11,833 32,604 596 370 2014 US$’000 12,547 8,014 872 2,174 45,403 23,607 Borrowing costs incurred on qualifying assets of US$1.5 million (2014: US$1.0 million) were capitalised in the year at an average interest rate of 3.00% (2014: 2.97%). 10 Taxation Current Brazilian taxation Corporation tax Social contribution Total current tax Deferred tax Credit for the year in respect of deferred tax liabilities Charge for the year in respect of deferred tax assets Total deferred tax Total taxation Year ended Year ended 31 December 31 December 2015 US$’000 2014 US$’000 27,004 11,055 38,059 (29,069) 30,714 1,645 39,704 22,835 10,037 32,872 (7,242) 16,298 9,056 41,928 Brazilian corporation tax is calculated at 25% (2014: 25%) of the assessable profit for the year. Brazilian social contribution tax is calculated at 9% (2014: 9%) of the assessable profit for the year. At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the company has received an undertaking from the Bermuda Government exempting it from all such taxes until 31 March 2035. The charge for the year can be reconciled to the profit per the statement of comprehensive income as follows: Profit before tax Tax at the standard Brazilian tax rate of 34% (2014: 34%) Deferred tax Tax effect of foreign exchange losses on monetary items Change in unrecognised deferred tax assets Tax effect of share of results of joint ventures Tax relating to prior year Share option scheme Tax effect of other items that are not included in determining taxable profit Effect of different tax rates of subsidiaries operating in other jurisdictions Tax expense and effective rate for the year Effective rate for the year Year ended Year ended 31 December 31 December 2015 US$’000 68,963 23,447 1,645 5,369 2,026 (1,647) 849 1,127 4,890 1,998 39,704 58% 2015 US$’000 78,496 26,689 9,056 5,685 509 (2,411) 1,840 (242) 2,453 (1,651) 41,928 53% The Group earns its profits primarily in Brazil. Therefore, the tax rate used for tax on profit on ordinary activities is the standard rate in Brazil of 34%, consisting of corporation tax, 25% and social contribution 9%. 44 Ocean Wilsons Holdings Limited/Annual Report 2015 11 Dividends Year ended Year ended 31 December 31 December 2015 US$’000 2014 US$’000 Amounts recognised as distributions to equity holders in the period: Final dividend paid for the year ended 31 December 2014 of 63c (2013: 60c) per share 22,279 21,218 Proposed final dividend for the year ended 31 December 2015 of 63c (2014: 63c) per share 22,279 22,279 12 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Year ended Year ended 31 December 31 December 2015 US$’000 2014 US$’000 Earnings: Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 15,470 23,182 Number of shares: Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share 35,363,040 35,363,040 13 Goodwill Cost and carrying amount attributed to: Tecon Rio Grande Tecon Salvador Brazilian Intermodal Complex (Brasco Caju) Total 31 December 31 December 2015 US$’000 11,704 2,480 13,205 27,389 2014 US$’000 13,132 2,480 19,412 35,024 The goodwill associated with each cash-generating unit (Brasco Caju, Tecon Salvador and Tecon Rio Grande) is attributed to the Maritime segment. As part of the annual impairment test review the carrying value of goodwill has been assessed with reference to its value in use reflecting the projected discounted cash flows of each cash-generating unit to which goodwill has been allocated. The cash flows are based on the remaining life of the concession. Future cash flows are derived from the most recent financial budget and for the period of concession remaining. The key assumptions used in determining value in use relate to growth rate, discount rate, inflation and interest rate. Further projections include sales and operating margins, which are based on past experience, taking into account the effect of known or likely changes in market or operating conditions. Each cash-generating unit is assessed for impairment annually and whenever there is an indication of impairment. An estimated average growth rate used does not exceed the historical average for Tecon Rio Grande and Tecon Salvador. A growth rate of 5.5% has been estimated for Brasco Caju, and a discount rate of 9.5% for all business units has been used. These growth rates reflect the products, industries and countries in which the operating segments operate. These medium- to long-term growth rates have been reviewed by management during 2015 and are considered to be appropriate. After testing goodwill as mentioned above, no impairment losses were recognised for the periods presented. The goodwill of Tecon Rio Grande consists of goodwill on the acquisition of Tecon Rio Grande and goodwill incorporated in Tecon Rio Grande upon acquisition. With the change in the functional currency of Tecon Rio Grande, the incorporated goodwill is subject to an exchange rate effect. 45 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 14 Other intangible fixed assets Cost At 1 January 2014 Additions Write off Exchange differences At 1 January 2015 Additions Write off Exchange differences At 31 December 2015 Amortisation At 1 January 2014 Charge for the year Write off Exchange differences At 1 January 2015 Charge for the year Write off Exchange differences At 31 December 2015 Carrying amount 31 December 2015 31 December 2014 US$’000 66,851 2,136 (90) (4,549) 64,348 2,238 (58) (12,579) 53,949 20,201 6,941 (89) (1,270) 25,783 5,651 (52) (3,707) 27,675 26,274 38,565 Intangible fixed assets arose from (i) the acquisition of concession rights for the container and heavy cargo terminal in Salvador in 2000, and the Ponta Norte expansion at Tecon Salvador in 2010 (ii) the implementation of integrated management software (SAP) (iii) the Briclog acquisition in 2013 (Brasco Caju). The additions to intangible assets in the period are mainly attributable to computer software. The breakdown of intangibles by type is as follows: Brasco Caju Tecon Salvador Computer software Other Total 31 December 31 December 2015 US$’000 11,998 4,624 3,025 6,627 2014 US$’000 18,280 7,483 5,630 7,172 26,274 38,565 Lease concessions are amortised over the remaining terms of the concessions at the time of acquisition, which for Tecon Salvador is 25 years and Ponta Norte is 15 years. The computer software is amortised over 5 years following completion of the installation. 46 15 Property, plant and equipment Land and buildings US$’000 Vehicles, plant Floating Craft and equipment US$’000 US$’000 Assets under construction US$’000 Ocean Wilsons Holdings Limited/Annual Report 2015 299,497 46,907 1,032 (20,353) (420) 326,663 15,296 59 (86,226) 321,162 14,085 45,799 – (11,459) 369,587 12,394 13,440 - (98) (3,264) 255,694 392,157 60,209 19,897 (65) – (4,394) (303) 75,344 12,095 – (23,755) 119,670 13,908 – 1,977 – (11,056) 124,499 15,434 2,553 – (88) (2,655) 63,596 139,831 251,659 13,843 (1,032) (10,454) (12,019) 241,997 8,665 (59) (68,690) (4,715) 177,198 98,569 24,374 65 – (6,321) (6,293) 110,394 20,033 – (33,753) (2,916) 93,758 Total US$’000 895,372 109,050 – (30,807) (23,898) 949,717 67,651 – (154,916) (8,077) 23,054 34,215 (45,799) – – 11,470 31,296 (13,440) – – 29,326 854,375 – – – – – – – – – – – – 278,448 58,179 – 1,977 (10,715) (17,652) 310,237 47,562 2,553 (57,508) (5,659) 297,185 Cost or valuation At 1 January 2014 Additions Transfers Exchange differences Disposals At 1 January 2015 Additions Transfers Exchange differences Disposals At 31 December 2015 Accumulated depreciation and impairment At 1 January 2014 Charge for the year Transfers Elimination on construction contracts Exchange differences Disposals At 1 January 2015 Charge for the year Elimination on construction contracts Exchange differences Disposals At 31 December 2015 Carrying Amount At 31 December 2015 At 31 December 2014 192,098 251,319 252,326 245,088 83,435 131,603 29,326 11,470 557,190 639,480 The carrying amount of the Group’s vehicles, plant and equipment includes an amount of US$12.9 million (2014: US$19.7 million) in respect of assets held under finance leases. Land and buildings with a net book value of US$0.2 million (2014: US$0.2 million) and tugs with a value of US$0.5 million (2014: US$1.8 million) have been given in guarantee of various legal processes. The Group has pledged assets having a carrying amount of approximately US$254.1 million (2014: US$214.7 million) to secure loans granted to the Group. In December 2015, management considered a number of property, plant and equipment to be discontinued in the logistics division. Local management hired an independent firm to measure the market value of the remaining asset related to dedicated operations amounting to US$871,000, and an impairment loss of US$729,000 was recognised for write-downs to the lower of its carrying amount and its fair value less cost to sell. The impairment loss has been applied to reduce the carrying amount of property, plant and equipment, and been included in profit/(loss) on disposal of property, plant and equipment. At 31 December 2015, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$4.6 million (2014: US$13.5 million). 47 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 16 Principal 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 Brazil 58.25% Consolidation WILSON SONS AGENCIA MARÍTIMA LTDA Brazil 58.25% Consolidation Ship Agents WILSON, SONS NAVEGAÇÃO LTDA Ship Agents 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 WS PARTICIPAҪÕES S.A. Holding company WS PARTICIPACIONES S.A. Holding company TECON RIO GRANDE S.A. Port operator WILSON, SONS APOIO MARITIMO LTDA Tug operator BRASCO LOGÍSTICA OFFSHORE LTDA Port operator TECON SALVADOR S.A. Port operator Brazil 58.25% Consolidation Brazil 58.25% Consolidation Brazil 58.25% Consolidation Brazil 58.25% Consolidation Guernsey 58.25% Consolidation Brazil 58.25% Consolidation Uruguay 58.25% Consolidation Brazil 58.25% Consolidation Brazil 58.25% Consolidation 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. ***On 1 December 2015, the Sobrare-Servemar Ltda. was incorporated by Saveiros Camuyrano Serviços Marítimos S.A. The Group also has a 58.25% effective interest in a private investment fund Hydrus Fixed Income Private Credit Investment Fund. This private fund is administrated by Itaú bank and the investment policy and objectives are determined by the Group’s treasury department in line with Group policy. 48 Ocean Wilsons Holdings Limited/Annual Report 2015 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 2015 2014 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 before tax Income tax expense Profit for the period Participation Equity result Year ended Year ended 31 December 31 December 2015 US$’000 141,975 (4,835) (40,226) (35,460) (15,534) (576) 45,344 1,117 (18,362) (15,799) 12,300 2014 US$’000 153,760 (6,098) (47,959) (35,273) (21,268) – 43,162 1,354 (18,316) (4,807) 21,393 (2,613) (7,213) 9,687 14,180 50% 50% 4,843 7,090 49 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 17 Joint ventures (continued) Other non-current Assets Property, plant and equipment Long-term investment Other current assets Trade and other receivables Derivatives Cash and cash equivalents Total assets Bank overdrafts and loans Other non-current liabilities Trade and other payables Equity Total liabilities Guarantees 31 December 31 December 2015 US$’000 835 2014 US$’000 1,566 666,656 598,497 2,041 1,635 32,415 – 21,011 724,593 2,140 1,367 35,782 79 37,061 676,492 547,550 514,861 21,819 81,126 74,098 16,596 81,596 63,439 724,593 676,492 Wilson Sons Offshore S.A. loan agreements with BNDES are guaranteed by a lien on the financed supply vessels, and in the majority of the contracts, a corporate guarantee from both Wilson Sons de Adminisração e Comércio and Rebocadores Ultratug Ltda, each guaranteeing 50% of its subsidiary’s debt balance with BNDES. Magallanes Navegação Brasileira’s loan agreement with Banco do Brasil is guaranteed by a lien on the financed supply vessels. The security package also includes a standby letter of credit issued by Banco de Crédito e Inversiones – Chile for part of the debt balance, assignment of Petrobras’ long-term contracts and a corporate guarantee issued by Inversiones Magallanes Ltda – Chile. A cash reserve account, accounted for under long-term investments, funded with US$2.0 million (R$8.0 million) should be maintained until full repayment of the loan agreement. Covenants The joint venture Magallanes Navegação Brasileira S.A. has to comply with specific financial covenants. At 31 December 2015, the company was in compliance with all clauses in the loans contracts. Provisions for tax, labour and civil risks In the normal course of business in Brazil, the joint venture remains exposed to numerous local legal claims. It is the joint venture’s policy to vigorously contest such claims, many of which appear to have little substance in merit, and to manage such claims through its legal counsel. In addition to the cases for which the joint venture has made a provision, there are other tax, civil and labour disputes amounting to US$9.7 million (2014: US$12.6 million), whose probability of loss was estimated by the legal counsel as possible. The breakdown of possible losses is described as follows: Civil cases Tax cases Labour claims Total 50 31 December 31 December 2015 US$’000 1 7,600 2,089 9,690 2014 US$’000 2 9,189 3,387 12,578 Ocean Wilsons Holdings Limited/Annual Report 2015 2015 US$’000 2014 US$’000 260,491 75,558 (57,783) (4,396) 3,008 276,878 236,155 40,723 276,878 277,969 79,685 (103,396) 1,360 4,873 260,491 236,491 24,000 260,491 18 Investments Trading investments At 1 January Additions, at cost Disposals, at market value (Decrease)/increase in fair value of trading investments held at year end Profit on disposal of trading investments At 31 December Ocean Wilsons (Investment) Limited Portfolio Wilson Sons Limited Trading investments held at fair value at 31 December Wilson Sons Limited The Wilson Sons Limited investments are held and managed separately from the Ocean Wilsons (Investments) Limited portfolio and consist of US Dollar denominated depository notes. Ocean Wilsons (Investment) Portfolio The Group has not designated any financial assets that are not classified as trading investments as financial assets at fair value through profit or loss. Trading investments above represent investments in listed equity securities, funds and unquoted equities that present the Group with opportunity for return through dividend income and capital appreciation. Included in trading investments are open ended funds whose shares may not be listed on a recognised stock exchange but are redeemable for cash at the current net asset value at the option of the Company. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available. Where quoted market prices are not available, fair values are determined by third parties using various valuation techniques that include inputs for the asset or liability that are not based in observable market data (unobservable inputs). 19 Inventories Operating materials Raw materials and spare parts Total Inventories are expected to be recovered in less than one year and there were no obsolete items. 31 December 31 December 2015 US$’000 8,657 19,628 28,285 2014 US$’000 11,498 20,962 32,460 51 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 20 Construction contracts Contract costs incurred plus recognised profits less recognised losses to date Less progress billings Amounts due to contract customers included in trade and other payables 21 Trade and other receivables Trade and other receivables Amount receivable for the sale of services Allowance for doubtful debts Income taxation recoverable Other recoverable taxes and levies Loans to related parties Prepayments Other Total current Total non-current 31 December 31 December 2015 US$’000 72,019 (89,877) (17,858) 2014 US$’000 123,483 (129,821) (6,338) 31 December 31 December 2015 US$’000 48,163 (846) 47,317 5,732 25,340 28,392 11,360 10,168 2014 US$’000 50,617 (1,154) 49,463 9,352 34,000 31,314 12,431 11,174 128,309 147,734 83,981 44,328 96,199 51,535 128,309 147,734 Non-current trade receivables relate to: recoverable taxes with maturity dates in excess of one year, which comprise mainly PIS, COFINS, ISS and INSS, and intergroup loans. There are no indicators of impairment related to these receivables. As a matter of routine, the Group reviews taxes and levies impacting its business to ensure that payments of such amounts are correctly made and that no amounts are paid unnecessarily. The Group is developing a plan to use its tax credits, respecting the legal term for using tax credits from prior years and, if unable to recover by compensation, requesting reimbursement of these values from the Receita Federal do Brasil (Brazilian Inland Revenue Service). Included in the Group’s trade receivable balances are debtors with a carrying amount of US$9.0 million (2014: US$8.8 million) which are past due but not impaired at the reporting date for which the Group has not provided as there has not been a change in credit quality and the Group believes the amounts are still recoverable. The Group does not hold any collateral over these balances. Ageing of past due but not impaired trade receivables From 0 – 30 days From 31 – 90 days From 91 – 180 days More than 180 days Total 31 December 31 December 2015 US$’000 6,004 1,491 1,523 – 9,018 2014 US$’000 6,942 1,086 791 – 8,819 The average credit period taken on services ranges from zero to 30 days. Interest is charged at up to 1% per month on the outstanding balances with an additional fine of up to 2% per month. The Group has provided in full for all receivables over 180 days because historical experience is such that receivables that are past due 180 days are generally not recoverable. Included in the Group’s allowance for doubtful debts are individually impaired trade receivables with a balance of US$1.2 million, which are aged, greater than 180 days. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected settlement proceeds. 52 Ocean Wilsons Holdings Limited/Annual Report 2015 31 December 31 December 2015 US$’000 2014 US$’000 – – – 846 846 2015 US$’000 1,154 (3,329) 3,405 (384) 846 – – – 1,154 1,154 2014 US$’000 1,718 (3,106) 2,743 (201) 1,154 21 Trade and other receivables (continued) The Group does not hold any collateral over these balances. Ageing of impaired trade receivables From 0 – 30 days From 31 – 90 days From 91 – 180 days More than 180 days Total Movement in the allowance for doubtful debts Balance at the beginning of the year Amounts written off as uncollectable Increase in allowance recognised in profit or loss Exchange differences Balance at the end of the year In determining recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. The directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. The directors consider that the carrying amount of trade and other receivables approximates their fair value. 22 Bank loans and overdrafts Secured borrowings BNDES – FMM linked to US Dollar¹ BNDES – Real BNDES – linked to US Dollar BNDES – FINAME Real BNDES – FMM Real¹ Total BNDES IFC – US Dollar BB – FMM linked to US Dollar¹ Itaú – US Dollar linked to Real Eximbank – US Dollar Finimp – US Dollar IFC – Real Total others Total 1. As an agent of Fundo da Marinha Mercante’s (FMM), BNDES finances the construction of tugboats and shipyard facilities. Annual 31 December 31 December interest rate % 2015 US$’000 2014 US$’000 2.07% to 6% 8.76% to 9.19% 5.07% to 5.36% 4.00% to 13.00% 7.40% to 10.21% 5.25% 2.00% – 3.00% 11.89% 2.05% 4.26% 14.09% 184,083 23,232 7,239 1,952 1,684 200,022 26,796 9,410 4,461 2,692 218,190 243,381 58,971 75,387 – 7,356 3,503 348 67,815 54,985 12,233 9,462 6,287 1,022 145,565 151,804 363,755 395,185 53 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 22 Bank loans and overdrafts (continued) The breakdown of bank overdrafts and loans by maturity is as follows: Within one year In the second year In the third to fifth years (inclusive) After five years Total Amounts due for settlement within 12 months Amounts due for settlement after 12 months The analysis of borrowings by currency is as follows: 31 December 2015 Bank loans Total 31 December 2014 Bank loans Total Guarantees 31 December 31 December 2015 US$’000 41,490 40,231 107,996 174,038 363,755 41,490 322,265 2014 US$’000 51,195 39,926 120,389 183,675 395,185 51,195 343,990 US Dollars linked to BRL US$’000 – – BRL linked to US Dollars US$’000 266,709 266,709 BRL US$’000 27,216 27,216 US Dollars US$’000 Total US$’000 69,830 69,830 363,755 363,755 34,971 34,971 12,233 12,233 264,417 264,417 83,564 83,564 395,185 395,185 Loans with BNDES rely on a corporate guarantee from Wilson Sons de Administração e Comércio Ltda. For some contracts, the corporate guarantee is additional to: (i) a pledge of the respective financed tugboat, (ii) a lien over the logistics and port operations equipment financed. Loans with Banco do Brasil rely on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda. and a pledge of the respective financed tugboat. The loans that Tecon Salvador holds with IFC are guaranteed by shares of the company, projects’ cash flows, equipment and buildings. The loan agreement that Tecon Rio Grande has with the Export-Import Bank of China for equipment acquisition is guaranteed by a standby letter of credit issued by Itaú BBA S.A, which in turn has the pledge on the financed equipment. Undrawn credit facilities At 31 December 2015, the Group had available US$51.1 million of undrawn borrowing facilities. For each disbursement, there is a set of conditions precedent that must be satisfied. 54 Ocean Wilsons Holdings Limited/Annual Report 2015 22 Bank loans and overdrafts (continued) Covenants The Wilson, Sons de Administração e Comércio Ltda. (“WSAC”) holding company, as corporate guarantor, has to comply with financial covenants in both Wilson Sons Estaleiros Ltda and Brasco Logística Offshore Ltda loan agreements signed with BNDES. The subsidiary Tecon Salvador has to observe affirmative and negative covenants stated in its loan agreement with the International Finance Corporation – IFC, including the maintenance of specific liquidity ratios and a capital structure. As a result of the devaluation of the Brazilian Real against the US Dollar at 30 September 2015 Tecon Salvador S.A. was in excess of the maximum covenant of financial debt to tangible net worth ratio in Brazilian Real in its loan agreement with the IFC. Tecon Salvador S.A. was granted a waiver for compliance valid until 30 September 2016. The value of the Loan affected at 31 December 2015 was US$59.0 million. The subsidiary Tecon Rio Grande has to comply with financial covenants in its loan agreement with BNDES, such as a minimum liquidity ratio and capital structure. Fair value Management estimates the fair value of the Group's borrowings as follows: Bank loans BNDES BB IFC Itaú Eximbank Finimp Total 31 December 31 December 2015 US$’000 218,190 59,319 75,387 – 7,356 3,503 2014 US$’000 243,381 68,837 54,985 12,233 9,462 6,287 363,755 395,185 23 Derivative financial instruments The Group may enter into derivatives contracts to manage risks arising from interest rate fluctuations. All such transactions are carried out within the guidelines set by the Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. The Group uses cash flow hedges to limit its exposure that may result from the variability of floating interest rates. On 16 September 2013, its subsidiary, Tecon Salvador, entered into an interest rate swap agreement with a notional amount of US$74.4 million to hedge a portion of its outstanding floating-rate debt with IFC. On 31 December 2015 the notional amount was US$58.4 million, equivalent to the outstanding debt amount on that date. This swap converts floating interest rate based on the London Interbank Offered Rate, or LIBOR, into fixed-rate interest and expires in March 2020. The derivatives were entered into with Santander Brasil as counterparty, whose credit rating was AAA, as of 31 December 2015, according to Standard & Poor’s Brazilian local rating scale. Tecon Salvador is required to pay the counterparty a stream of fixed interest payments at rates fixed from 0.553% to 4.250%, according to the schedule agreement, and in turn, receives variable interest payments based on 6-month LIBOR. The net receipts or payments from the swap are recorded as a financial expense. 55 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 23 Derivative financial instruments (continued) Within one year In the second year In the third to fifth years (including) After five years Fair Value US$’000 Outflows (1,339) (482) (1,065) – Net effect (1,339) (482) (1,065) – (2,886) (2,886) (2,886) The fair value of the swap was estimated based on the yield curve as of 31 December 2015, and represents its carrying value. As of 31 December 2015, the interest rate swap balance in other non-current liabilities was US$2.9 million; and the balance in accumulated other comprehensive income on the consolidated balance sheet was US$3.8 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the year ended 31 December 2015 was an after-tax loss of US$1.5 million. 31 December 2015 Financial Assets Interest Rates Swap Total Derivative Sensitivity Analysis Notional Amount US$000’s Maturity 58,400 March 2020 Fair Value US$000’s (2,886) (2,886) This analysis is based on 6-month Libor interest rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular foreign exchange rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of reduction of 25% (Possible) and 50% (Remote) in the interest rate. Even if the Group has to pay adjustments in future fixings, the swap contract fixes the total interest amount that the Group will pay is equal as the rate agreed. In this case in both scenarios the risk associated on 31 December 2015 is US$2.9 million. Cash Flow Hedge The Group applies hedge accounting for transactions in order to manage the volatility in earnings. The swap is designated and qualifies as a cash flow hedge. As such, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheet at fair value. The effective portion of changes in fair value of the derivative is recognized in other comprehensive income and presented as an asset revaluation reserve in equity. Any ineffective portion of changes in fair value of the derivative is recognised immediately in the income statement. If the hedging instrument no longer meets the criteria for hedge accounting operations, expires or is sold, terminated or exercised, or the designation is revoked, the model accounting hedges (hedge accounting) is discontinued prospectively when there is no more expectation for the forecasted transaction, and then the amount stated in the equity is reclassified to the income statement. On the initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the hedging instrument and the hedged transaction, including the risk management objective and strategy on the implementation of the hedge and the hedged risk, together with the methods that will be used to evaluate the effectiveness of the hedging relationship. The Group is utilizing the dollar offset method to assess the effectiveness of the swap, analysing whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of the respective hedged items attributable to the hedged risk, and if the actual results for each coverage are within the range from 80 – 125%. Under this methodology, the swap was deemed to be highly effective for the period ended 31 December 2015. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2015. 56 Ocean Wilsons Holdings Limited/Annual Report 2015 24 Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period. At 1 January 2014 (Charge)/credit to income Exchange differences At 1 January 2015 (Charge)/credit to income Deferred taxes transferred to current taxes Exchange differences At 31 December 2015 Accelerated tax variance on Other non-current asset Exchange Retranslation of depreciation US$’000 (19,193) (717) – (19,910) 4,070 – 43 (15,797) loans US$’000 17,007 7,959 (366) 24,600 24,999 (3,859) (4,693) 41,047 differences US$’000 24,337 (426) (448) 23,463 (3,711) – 3,183 22,935 valuation US$’000 (25,813) (15,872) – (41,685) (27,003) – – Total US$’000 (3,662) (9,056) (814) (13,532) (1,645) (3,859 (1,467) (68,688) (20,503) Certain tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes. Deferred tax liabilities Deferred tax assets 31 December 31 December 2015 US$’000 (52,631) 32,128 (20,503) 2014 US$’000 (45,197) 31,665 (13,532) At the balance sheet date the Group had unused tax losses of US$17.9 million (2014: US$48.9 million) available for offset against future profits in the company in which they arose. No deferred tax asset has been recognised in respect of US$6.1 million (2014: US$7.1 million) due to the unpredictability of future profit streams. Retranslation of non-current asset valuation deferred tax arises on Brazilian property, plant and equipment held in US dollar functional currency businesses. Deferred tax is calculated on the difference between the historical US Dollar balances recorded in the Group’s accounts and the Brazilian Real balances used in the Group’s Brazilian tax calculations. Deferred tax on exchange variance on loans arises from exchange gains or losses on the Group’s US Dollar and Brazilian Real denominated loans linked to the US Dollar that are not deductible or payable for tax in the period they arise. Exchange gains on these loans are taxable when settled and not in the period in which gains arise. 25 Obligations under finance leases Amounts payable under finance leases Within one year In the second to fifth years inclusive After five years Less future finance charges Present value of lease obligations Less: Amounts due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months Minimum lease payments 31 December 31 December 2015 US$’000 1,517 2,399 – 3,916 (1,188) 2,728 (1,192) 1,536 2014 US$’000 1,859 4,604 – 6,463 (1,766) 4,697 1,444 3,253 57 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 25 Obligations under finance leases (continued) Amounts payable under finance leases Within one year In the second to fifth years inclusive After five years Less future finance charges Present value of lease obligations Less: Amounts due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months Present value of Minimum lease payments 31 December 31 December 2015 US$’000 2014 US$’000 1,192 1,536 – 2,728 – – 1,192 1,536 1,444 3,253 – 4,697 – – 1,444 3,253 IIt is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 5 years. The average outstanding lease term at 31 December 2015 was 26 months. For the year ended 31 December 2015, the average effective borrowing rate was 16.75% (2014: 13.94%). Interest rates are set at contract date. All leases are denominated in Brazilian Real and include a fixed repayment and a variable finance charge linked to the Brazilian interest rate. Interest rates range from 15.39% to 17.76%. There is a non-significant difference between the fair value and the present value of the Group's lease obligations. The present value is calculated with its own interest rate over the future installments of each contract. The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets. 26 Trade and other payables Trade creditors Amounts due to construction contract customers (note 20) Other taxes Accruals and deferred income Share based payment liability Total 31 December 31 December 2015 US$’000 39,875 17,858 7,704 13,259 93 78,889 2014 US$’000 46,007 6,338 11,064 15,409 61 78,879 Trade creditors and accruals principally comprise amounts outstanding for trade purposes and ongoing costs. The average credit period for trade purchases is 61 days (2014: 40 days). For most suppliers interest is charged on outstanding trade payable balances at various interest rates. The Group has financial risk management policies in place to ensure that payables are paid within the credit timeframe. The directors consider that the carrying amount of trade payables approximates their fair value. 58 27 Provisions At 1 January 2014 Increase in provisions in the year Utilisation of provisions Exchange difference At 31 December 2014 Increase in provisions in the year Utilisation of provisions Exchange difference At 31 December 2015 Provisions comprise legal claims relating to civil cases, tax cases and legal claims by former employees. Analysis of provisions by type: Civil and environmental cases Tax cases Labour claims Ocean Wilsons Holdings Limited/Annual Report 2015 US$’000 10,262 9,118 (3,683) 5 15,702 7,697 (3,991) (5,486) 13,922 31 December 31 December 2015 US$’000 2,219 2,492 9,211 13,922 2014 US$’000 3,119 3,818 8,765 15,702 In the normal course of business in Brazil, the Group remains exposed to numerous local legal claims. It is the Group's policy to vigorously contest such claims, many of which appear to have little substance in merit, and to manage such claims through its legal counsel. In addition to the cases for which the Group booked the provision there are other tax, civil and labour disputes amounting to US$84.1 million (2014: US$112.3 million) with probability of loss was estimated by the legal counsels as possible. The breakdown of possible claims is described as follows: The analysis of possible losses by type: Civil and environmental cases Tax cases Labour claims 31 December 31 December 2015 US$’000 4,453 63,056 16,609 84,118 2014 US$’000 4,292 82,416 25,582 112,290 The main probable and possible claims against the Group are described below: Civil and environmental cases – Indemnification claims involving material damages, environmental and shipping claims and other contractual disputes. Labour claims – Most claims involve payment of health risks, additional overtime and other allowances. Tax cases – The Group litigates against governments in respect of assessments considered inappropriate. Procedure for classification of legal liabilities as probable, possible or remote loss is by the external lawyers: Upon receipt of the notification of a new judicial lawsuit, the external lawyer generally classifies it as a possible claim, recording the total amount involved. From 2014, the Group is using the estimated value at risk and not the total amount involved in each process. Exceptionally, if there is sufficient knowledge from the beginning that there is very high or very low risk of loss, the lawyer may classify the claim as probable loss or remote loss. During the course of the lawsuit and considering, for instance, its first judicial decision, legal precedents, arguments of the claimant, thesis under discussion, applicable laws, documentation for the defence and other variables, the lawyer may re-classify the claim as probable loss or remote loss. When classifying the claim as probable loss, the lawyer estimates the amount at risk for such claim. The Group considers as relevant causes involving amounts, assets or rights over US$1.3 million. 59 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 28 Share capital Authorised 50,060,000 ordinary shares of 20p each Issued and fully paid 35,363,040 ordinary shares of 20p each 2015 US$’000 2014 US$’000 16,119 16,119 11,390 11,390 The company has one class of ordinary share which carries no right to fixed income. Share capital is converted at the exchange rate prevailing at 31 December 2002, the date at which the Group’s presentational currency changed from Sterling to US Dollars, being US$1.61 to £1. 29 Notes to the cash flow statement Reconciliation from profit before tax to net cash from operating activities Profit before tax Share of results of joint venture Investment revenues Other gains and losses Finance costs Foreign exchange losses on monetary items Operating profit Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Share based payment credit Gain on disposal of property, plant and equipment (Decrease)/increase in provisions Operating cash flows before movements in working capital Decrease/(increase) in inventories Decrease in receivables Decrease in payables Decrease/(increase) in other non-current assets Cash generated by operations Income taxes paid Interest paid Net cash from operating activities Cash and cash equivalents Year ended Year ended 31 December 31 December 2015 US$’000 2014 US$’000 68,963 (4,843) (16,908) 1,388 45,403 15,792 109,795 47,563 5,651 3,346 1,294 (2,088) 165,561 4,175 12,525 (5,953) 5,988 182,296 (22,690) (14,147) 145,459 78,496 (7,090) (16,975) (6,233) 23,607 17,621 89,426 58,179 6,941 (652) (326) 5,713 159,281 (3,370) 21,227 (25,027) (1,629) 150,482 (29,518) (15,408) 105,556 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. 60 Ocean Wilsons Holdings Limited/Annual Report 2015 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 2016 to September 2021. The Private Investment Fund is marked to fair value on a daily basis against current earnings. This private investment fund does not have significant financial obligations. Any financial obligations are limited to service fees to the asset management company employed to execute investment transactions, audit fees and other similar expenses. The fund´s investments are highly liquid which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Additionally, US Dollar linked investments are made through Itaú Exchange FICFI, whose purpose is to preserve the US dollar value of the investment. Cash and cash equivalents held in Brazil amount to US$83.3 million (2014: US$70.3 million). Cash equivalents are held for the purpose of meeting short-term cash commitments and not for cash investment purposes. Additions to plant and equipment during the year amounting to US$0.4 million (2014: US$0.5 million) were financed by new finance leases. 30 Contingent liabilities In the normal course of business in Brazil, the Group continues to be exposed to numerous local legal claims. It is the Group’s policy to contest such claims vigorously, many of which appear to have little substance in merit, and to manage such claims through its legal advisers. The total estimated contingent claims at 31 December 2015 are US$84.1 million (2014: US$112.3 million). These have not been provided for as the Directors and the Group’s legal advisors do not consider that there is any probable loss. Contingent liabilities relate to labour, civil and environmental, and tax claims. 31 Share options Stock option scheme On 13 November 2013, the board of Wilson Sons Limited approved a Stock Option Plan, which allowed for the grant of options to eligible participants to be selected by the board. The shareholders in special general meeting approved such plan on the 8 January 2014 including increase in the authorized capital of the company through the creation of up to 4,410,927 new shares. The options provide participants with the right to acquire shares via Brazilian Depositary Receipts (“BDR”) in Wilson Sons Limited at a predetermined fixed price not less than the three day average mid-price for the days preceding the date of option issuance. The Stock Option Plan is detailed below: Options series 07 ESO – 3 Year 07 ESO – 4 Year 07 ESO – 5 Year 07 ESO – 3 Year 07 ESO – 4 Year 07 ESO - 5 Year Total Grant date Original vesting date Expiry date 10/1/2014 10/1/2017 10/1/2024 10/1/2014 10/1/2018 10/1/2024 10/1/2014 10/1/2019 10/1/2024 13/11/2014 13/11/2017 13/11/2024 13/11/2014 13/11/2018 13/11/2024 13/11/2014 13/11/2019 13/11/2024 Exercise price (R$) 31.23 31.23 31.23 33.98 33.98 33.98 Outstanding Total Number Expired Vested not Vested Subsisting 961,653 (34,353) 961,653 (34,353) 990,794 (35,394) – – – 927,300 927,300 927,300 927,300 955,400 955,400 45,870 45,870 47,260 – – – 11,880 11,880 33,990 33,990 45,870 45,870 12,240 35,020 47,260 3,053,100 (104,100) 36,000 2,913,000 2,949,000 The options terminate on the expiry date or immediately on the resignation of the director or senior employee, whichever is earlier. Options lapse if not exercised within 6 months of the date that the participant ceases to be employed or hold office within the Group by reason of, amongst others: injury, disability or retirement; or dismissal without just cause. 61 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 31 Share options (continued) 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 10 January 2014 10 January 2015 10 January 2016 10 January 2017 10 January 2018 Total * Amounts in Dollars converted at R$2.3819/US$1.00. Closing share price (in Real) Expected volatility Expected life Risk free rate Expected dividend yield Projected IFRS2 Fair Value expense US$’000* 3,171 3,296 3,296 1,936 883 12,582 10 January 2014 R$30.05 28% 10 years 10.8% 1.7% Expected volatility was determined by calculating the historical volatility of the Group’s share price. The expected life used in the model has been adjusted based on management´s best estimate for exercise restrictions and behavioural considerations. 32 Operating lease arrangements The Group as lessee 2015 US$’000 2014 US$’000 Minimum lease payments under operating leases recognised in income for the year 4,800 17,835 At the balance sheet date, the minimum amount due in 2015 by the Group for future minimum lease payments under cancellable operating leases was US$7.8 million (2014: $11.6 million). Lease commitments for land and buildings over 5 years comprise the minimum contractual lease obligations between Tecon Rio Grande and the Rio Grande port authority the Group and the Salvador port authority. The Tecon Rio Grande concession expires in 2022 and Tecon Salvador in 2025. Both have an option to renew the concession for a maximum period of 25 years. In respect of the option to renew the lease of Tecon Rio Grande, the port authority of Rio Grande has, in consideration of investments made, ensured the Company the right to renew the contract, provided the State government remains the delegated authority of the area or has in other legal way, ownership of the same. In respect of the option to renew the lease of Tecon Salvador, Wilson Sons has requested renewal in consideration of and investment project currently awaiting technical approval and contractual agreement. Tecon Rio Grande guaranteed payments consist of two elements; a fixed rental, plus a fee per 1,000 containers moved based on forecast volumes. The amount shown in the accounts is based on the minimum volume forecast. Volumes are forecast to rise in future years. If container volumes moved through the terminal exceed forecast volumes in any given year, additional payments will be required. Tecon Salvador guaranteed payments consists of three elements; a fixed rental, a fee per container moved based on minimum forecast volumes and a fee per ton of non-containerised cargo moved based on minimum forecast volumes. 62 Ocean Wilsons Holdings Limited/Annual Report 2015 32 Operating lease arrangements (continued) At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable/operating leases, which fall due as follows: Within one year In the second to fifth year inclusive After five years 2015 US$'000 15,655 51,660 47,751 2014 US$'000 23,268 78,072 82,614 115,066 183,954 Non-cancellable lease payments represent rental payments by the Group for the bonded warehouse used by EADI Santo Andre. The unexpired lease term at 31 December 2015 is 2 years and 2 months and rental payments are corrected by a Brazilian general inflation index. 33 Commitments At 31 December 2015 the Group had entered into the following commitment agreements with respect to trading investments. These commitments relate to capital subscription agreements entered into by Ocean Wilsons Investments Limited. The details of these commitments are as follows: 31 December 2016 22 February 2017 (a) 05 December 2017 30 March 2018 4 June 2018 18 July 2018 21 December 2018 31 December 2018 21 June 2019 22 November 2019 08 December 2019 31 December 2019 01 January 2020 18 December 2021 17 February 2022 30 April 2022 11 July 2022 (b) 01 February 2023 01 April 2023 05 June 2023 21 August 2024 (c) 22 August 2024 12 March 2025 (d) 21 June 2025 11 April 2029 19 October 2030 To be confirmed Total Year ended Outstanding Year ended Outstanding At 31 December At 31 December 2015 US$’000 68 122 575 855 2014 US$’000 68 135 434 899 1,468 1,538 700 185 279 – 550 427 90 288 916 869 3,781 2,833 500 3,578 2,259 3,577 921 1,892 1,800 1,410 465 2,500 738 364 445 3,374 550 1,044 240 469 1,200 1,170 4,547 3,917 700 3,723 2,474 4,129 2,235 – – 2,160 – – Commitment $’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 3,000 7,500 4,972 5,000 5,000 3,200 5,005 5,000 2,954 1,800 3,000 500 2,500 119,566 35,193 36,553 (a) Commitment made in Euro. Total commitment ⇔3,350,000 with amounts outstanding at 31 December 2015 ⇔111,935 (2014: ⇔111,935). (b) Commitment made in Euro. Total commitment ⇔3,650,000 with amounts outstanding at 31 December 2015 ⇔2,607,070 (2014: ⇔3,237,059). (c) Commitment made in pounds sterling. Total commitment £3,000,000 with amounts outstanding at 31 December 2014 £2,428,045 (2014: £2,650,030). (d) Commitment made in Euro. Total commitment ⇔2,500,000 with amounts outstanding at 31 December 2015 ⇔1,740,970 (2014: nil). 63 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 33 Commitments (continued) There may be situations when commitments may be extended by the manager of the underlying structure beyond the initial expiry date dependent upon the terms and conditions of each individual structure. 34 Retirement benefit schemes Defined contribution schemes The Group operates defined contribution retirement benefit schemes for all qualifying employees of its Brazilian business. The assets of the scheme are held separately from those of the Group in funds under the control of independent managers. The total cost charged to the income statement of US$1.0 million (2014: US$1.0 million) represents contributions payable to the scheme by the Group at rates specified in the rules of the plan. 35 Related party transactions Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and its associates, joint ventures and others investments are disclosed below: Joint ventures 1. Allink Transportes Internacionais Limitada 2. Consórcio de Rebocadores Barra de Coqueiros 3. Consórcio de Rebocadores Baía de São Marcos 4. Wilson Sons Ultratug and subsidiaries 5. Intermaritima Terrminais Ltda Others 6. Hanseatic Asset Management 7. Gouvêa Vieira Advogados 8. CMMR Intermediacão Comercial Limitada 9. Jofran Services Joint ventures 1. Allink Transportes Internacionais Limitada 2. Consórcio de Rebocadores Barra de Coqueiros 3. Consórcio de Rebocadores Baía de São Marcos 4. Wilson Sons Ultratug 5. Intermaritima Terminais Ltda Others 6. Hanseatic Asset Management 7. Gouvêa Vieira Advogados 8. CMMR Intermediacão Comercial Limitada 9. Jofran Services Dividends received/ Revenue from services Amounts paid/ Cost of services 31 December 31 December 31 December 31 December 2015 US$’000 36 149 183 20,438 1,370 – – – – 2014 US$’000 31 321 96 5,745 – – – – – 2015 US$’000 2014 US$’000 – – (2) – – – – (26) – – (2,490) 3,054 (92) (221) (165) (121) (238) (165) Amounts owed by related parties Amounts owed to related parties 31 December 31 December 31 December 31 December 2015 US$’000 – 130 1,767 1,927 2,940 – – – – 2014 US$’000 4 118 2,285 23,135 – – – – – 2015 US$’000 2014 US$’000 (12) – – – – – – – – – (203) (773) – – – – – – 1. Mr A C Baião is a shareholder and Director of Allink Transportes Internacionais Limitada. Allink Transportes Internacionais Limitada is 50% owned by the Group and rents office space from the Group. 5. Intermarítima Terminais Ltda has a 7.5% participation in Tecon Salvaldor and contracts terminal services on an arms length basis. Intermarítima has outstanding loans paying interest at CDI advanced from Wilson Sons Limited, secured by Intermarítimas participation in Tecon Salvador. 64 Ocean Wilsons Holdings Limited/Annual Report 2015 35 Related party transactions (continued) 6. Mr W H Salomon is chairman of Hanseatic Asset Management. Fees were paid to Hanseatic Asset Management for acting as investment managers of the Group’s investment portfolio and administration services. 7. Mr J F Gouvêa Vieira is a partner in the law firm Gouvêa Vieira Advogados. Fees were paid to Gouvêa Vieira Advogados for legal services. 8. Mr C M Marote is a shareholder and Director of CMMR Intermediacao Comercial Limitada. Fees were paid to CMMR Intermediacao Comercial Limitada for consultancy services. 9. Mr J F Gouvêa Vieira is a Director of Jofran Services. Directors’ fees were paid to Jofran Services. Remuneration of key management personnel The remuneration of the executive directors and other key management of the Group, is set out below in aggregate for the categories specified in IAS 24 Related Party Disclosures. Short-term employee benefits Other long-term employee benefits Share options issued Share-based payment 36 Financial instruments Capital risk management Year ended Year ended 2015 US$'000 9,094 1,173 3,314 32 13,613 2014 US$'000 12,128 1,503 3,066 (3,719) 12,978 The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 22, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings disclosed in the consolidated statement of changes in equity. The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated by operating revenues. Externally imposed capital requirement The Group is not subject to externally imposed capital requirements. Significant accounting policies Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expense are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. Categories of financial instruments Financial assets Designated as fair value through profit or loss Receivables (including cash and cash equivalents and other non-current assets) Financial liabilities Financial instruments classified as amortised cost Financial instruments classified as cash flow hedge (Derivatives) Financial risk management objectives Year ended Year ended 2015 US$’000 2014 US$’000 236,155 287,180 236,491 289,530 (437,668) (467,697) (2,886) (1,999) 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. 65 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 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: Liabilities Assets 2015 US$’000 2014 US$’000 2015 US$’000 2014 US$’000 315,553 140,415 372,009 324,549 26 – – 27 – – 1,975 5,522 – 9,931 6,662 3,747 315,579 140,442 379,506 344,889 Real Sterling Euro Singapore dollar 66 Ocean Wilsons Holdings Limited/Annual Report 2015 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 Dollar functional currency entities. The sensitivity analysis presented in the following sections, which refer to the position on 31 December 2015, estimates the impacts of the Brazilian Real devaluation against the US Dollar. A baseline scenario is determined based both on the carrying value of the operations, and the “PTAX” rate as of 31 December 2015. Then, three additional, exchange rate scenarios are contemplated: the likely scenario (Probable) and two possible scenarios of deterioration of 25% (Possible) and 50% (Remote) in the exchange rate. The Group uses the Brazilian Central Bank’s “Focus” report to determine the probable scenario. Amount US Dollars Result 370,096 Exchange Effects 315,553 Exchange Effects Net Effect Probable scenario 4.30 Probable scenario (34,014) 29,001 (5,013) Probable scenario 31 December 2015 Exchange rates Possible scenario 25% 5.38 Possible scenario (25%) (101,231) 86,312 (14,919) 31 December 2014 Exchange rates Possible scenario 25% Remote scenario 50% 6.45 Remote scenario (50%) (146,042) 124,519 (21,523) Remote scenario 50% R$2.80/US$1.00 R$3.50/US$1.00 R$4.20/US$1.00 Amount US Dollars Result 324,549 Exchange Effects 140,415 Exchange Effects Net Effect Probable scenario (16,473) 7,211 (9,262) Possible scenario (25%) (78,244) 33,852 (44,392) Remote scenario (50%) (119,295) 51,613 (67,682) Operation Total assets Total liabilities Operation Total assets Total liabilities Risk BRL BRL Risk BRL BRL 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. 67 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 36 Financial instruments (continued) DI (Brazilian Interbank Interest Rate) for Brazilian Real-denominated funding in Logistics operations, and 6-month Libor (London Interbank Offered Rate) for US Dollar-denominated funding for Port Operations. The Brazilian Real-denominated investments yield interest rates corresponding to the DI daily fluctuation for privately issued securities and/or “Selic-Over” government-issued bonds. The US Dollar-denominated investments are part in time deposits, with short-term maturities. The Group’s strategy for managing interest rate risk is to maintain a balanced portfolio of fixed and floating interest rates in order to balance both cost and volatility. The Group may use derivative instruments to reduce cash flow interest rate attributable to interest rate volatility. The Group has floating rate financial assets consisting of bank balances principally denominated in US Dollars and Brazilian Real that bear interest at rates based on the banks floating interest rate. Interest rate sensitivity analysis The Group uses two important information sources to estimate the probable scenarios in determining interest rate scenarios, BM&F (Bolsa de Mercadorias e Futuros) and Bloomberg. The following analysis concerns a possible fluctuation of revenue or expenses linked to the transactions and scenarios shown, without considering their fair value. For floating rate liabilities and investments, the analysis is prepared assuming the amount of the liability outstanding or cash invested at balance sheet date was outstanding or invested for the whole year. Transaction Loans – Libor Loans – CDI Loans – TJLP Investments – Libor Investments – CDI Transaction Loans – Libor Loans – TJLP Loans – Fixed Total loans Investments – Libor Investments – CDI Total investments Probable scenario 1.03% 15.20% 7.50% 1.04% 15.20% Probable scenario (239) – – (239) – 1,420 1,420 1,181 31 December 2015 Possible scenario 25% 1.29% 19.00% 9.38% 1.30% 19.00% Possible scenario (25%) (362) (303) – (665) 108 4,650 4,758 4,093 Remote scenario 50% 1.55% 22.80% 11.25% 1.56% 22.80% Remote scenario (50%) (485) (601) – (1,086) 217 7,880 8,097 7,011 Risk Libor TJLP None Libor CDI Amount US Dollars 69,830 25,329 268,596 363,755 43,639 80,387 124,026 Result Interest Interest None Income Income Net Income The net effect was obtained by assuming a 12-month period starting 31 December 2015 in which interest rates vary and all other variables are held constant. The scenarios express the difference between the scenario rate and actual rate. The investment rate risk mix in Brazil is 37.34% Libor, 62.66% CDI. 68 Ocean Wilsons Holdings Limited/Annual Report 2015 36 Financial instruments (continued) 31 December 2014 Transaction Loans – Libor Loans – CDI Loans – TJLP Investments – Libor Investments – CDI Transaction Loans – Libor Loans – CDI Loans – TJLP Loans – Fixed Total loans Investments – Libor Investments – CDI Total investments Probable scenario 0.62% 12.40% 5.50% 0.62% 12.40% Probable scenario (177) (58) – – (235) 44 829 873 638 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 2015 in which interest rates vary and all other variables are held constant. The scenarios express the difference between the scenario rate and actual rate. The interest rate mix is 37.28% Libor and 62.72% CDI. Investment portfolio Interest rate changes will always impact equity prices. The level and direction of change in equity prices is subject to prevailing local and world economics as well as market sentiment all of which are very difficult to predict with any certainty. Derivative financial instruments The Group may enter into derivatives contracts to manage risks arising from interest rate fluctuations. All such transactions are carried out within the guidelines set by the Wilson Sons Limited Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. The Group uses cash flow hedges to limit its exposure that may result from the variation of floating interest rates. On 16 September 2013, its subsidiary, Tecon Salvador, entered into an interest rate swap agreement with an initial notional amount of $74.4 million to hedge a portion of its outstanding floating-rate debt with IFC. On 31 December 2015, the notional amount was $58.4 million, equivalent to the outstanding debt amount on that date. This swap converts floating interest rate based on the London Interbank Offered Rate, or LIBOR, into fixed-rate interest and expires in March 2020. The derivatives were entered into with Santander Brasil as counterparty, whose credit rating was AAA, as of 31 December 2015, according to Standard & Poor’s Brazilian local rating scale. 69 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 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 (1,339) (482) (1,065) – (2,886) Net effect (1,339) (482) (1,065) – (2,886) (2,886) The fair value of the swap was estimated based on the yield curve as of 31 December 2015, and represents its carrying value. As of 31 December 2015, the interest rate swap balance in other current and non-current liabilities was US$2.9 million; and the balance in accumulated other comprehensive income on the consolidated balance sheets was US$3.8 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the year ended 31 December 2015 was an after-tax loss of US$1.5 million. 31 December 2015 Financial Assets Interest Rates Swap Total Derivative Sensitivity Analysis Notional Amount US$ Maturity Fair Value US$ 58,400 Mar/2020 (2,886) (2,886) This analysis is based on 6-month Libor interest rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular foreign exchange rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of reduction of 25% (Possible) and 50% (Remote) in the interest rate. Even if the Group has to pay adjustments in future fixings, the swap contract fixes the total interest amount that the Group will pay is equal as the rate agreed. In this case in both scenarios the risk associated on 31 December 2015 is US$2.9 million. Cash Flow Hedge The Group applies hedge accounting for transactions in order to manage the volatility in earnings. The swap is designated and qualifies as a cash flow hedge. As such, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheets at fair value. The effective portion of changes in fair value of the derivative is recognised in other comprehensive income and presented as an asset revaluation reserve in equity. Any ineffective portion of changes in fair value of the derivative is recognised immediately in the profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting operations, expires or is sold, terminated or exercised, or the designation is revoked, the model accounting hedges (hedge accounting) is discontinued prospectively when there is no more expectation for the forecasted transaction, and then the amount stated in the equity is reclassified to the profit or loss. On the initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the hedging instrument and the hedged transaction, including the risk management objective and strategy on the implementation of the hedge and the hedged risk, together with the methods that will be used to evaluate the effectiveness of the hedging relationship. The Group is utilizing the dollar offset method to assess the effectiveness of the swap, analysing whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of the respective hedged items attributable to the hedged risk, and if the actual results for each coverage are within the range from 80–125%. Under this methodology, the swap was deemed to be highly effective for the period ended 31 December 2015. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2015. 70 Ocean Wilsons Holdings Limited/Annual Report 2015 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 2015 US$’000 23,616 23,616 2014 US$’000 23,649 23,649 Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Group’s sales policy is subordinated to the credit sales rules set by management, which seeks to mitigate any loss from customers’ delinquency. Trade receivables consist of a large number of customers except for one large customer, which makes up 12% of revenue. Ongoing credit evaluation is performed on the financial condition accounts receivable. Trade and other receivables disclosed in the balance sheet are shown net of the allowance for doubtful debts. The allowance is booked whenever a loss is identified, which based on past experience is an indication of impaired cash flows. Ocean Wilsons (Investments) Limited primarily transacts with regulated institutions on normal market terms which are trade date plus one to three days. The levels of amounts outstanding from brokers are regularly reviewed by the Investment Manager. The duration of credit risk associated with the investment transaction is the period between the date the transaction took place, the trade date and the date the stock and cash are transferred, and the settlement date. The level of risk during the period is the difference between the value of the original transaction and its replacement with a new transaction. In addition the Ocean Wilsons (Investments) Limited invests in Limited Partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The board reviews all investments at its regular meetings from reports prepared by the company's investment managers. Liquidity risk management Liquidity risk is the risk that the Group will encounter difficulty in fulfilling obligations associated with its financial liabilities that are settled with cash payments or other financial asset. The Group's approach in managing liquidity is to ensure that the Group always has sufficient liquidity to fulfil the obligations that expire, under normal and stress conditions, without causing unacceptable losses or risk damage to the reputation of the Group. Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group uses costing based on activities to price the products and services, which assist in monitoring cash flow requirements and optimizing the return on cash investments. Normally, the Group ensures it has sufficient cash reserves to meet the expected operational expenses, including financial obligations. This practice excludes the potential impact of extreme circumstances that cannot be reasonably foreseen, such as natural disasters. 71 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 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 2015 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments 31 December 2014 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments Weighted average effective interest rate % – 16.75% 3.22% 2.91% – 13.61% 2.93% 2.98% Less than 12 months US$’000 82,621 1,192 17,292 24,198 1-5 years US$’000 – 1,536 68,460 79,767 125,303 149,763 80,873 1,444 28,592 22,603 – 3,253 79,200 81,114 133,512 163,567 5+ years US$’000 Total US$’000 – – 9,407 164,631 174,038 – – 18,863 164,813 183,676 82,621 2,728 95,159 268,596 449,104 80,873 4,697 126,655 268,530 480,755 The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. Fair value of financial instruments The fair value of non-derivative financial assets traded on active liquid markets are determined with reference to quoted market prices. The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair value. The fair value of financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading on 31 December 2015. The quoted market price used for financial assets held by the Company utilise the last traded market price financial assets. Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which fair value is observable: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 Inputs for the asset that are not based on observable market data. Fair value measurements are those derived from valuation techniques that include inputs for the assets or liability that are not based on observable data (unobservable inputs). The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one of more of the significant inputs is not based on observable market data, the instrument is included in level 3. 72 Ocean Wilsons Holdings Limited/Annual Report 2015 36 Financial instruments (continued) 31 December 2015 Financial assets at FVTPL Level 1 US$’000 Level 2 US$’000 Level 3 US$’000 Total US$’000 Non-derivative financial assets for trading 3,885 138,100 94,170 236,155 31 December 2014 Financial assets at FVTPL Level 1 US$’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 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 (losses)/profit in statement of comprehensive income Purchases and drawdowns of financial commitments Sales and repayments of capital Balance at 31 December 2015 US$’000 75,207 (5,950) 27,366 (2,453) 94,170 2014 US$’000 57,173 2,368 25,740 (10,074) 75,207 73 Ocean Wilsons Holdings Limited/Annual Report 2015 Notes to the Accounts 37 Post-employment benefits The Group operates a private medical insurance scheme for its employees which require the eligible employees to pay fixed monthly contributions. In accordance with Brazilian law, eligible employees with greater than ten years service acquire the right to remain in the plan following retirement or termination of employment, generating a post-employment commitment for the Group. Ex-employees remaining in the plan will be liable for paying the full cost of their continued scheme membership. The future actuarial liability for the Group relates to the potential increase in plan costs resulting from additional claims as a result of the expanded membership of the scheme. Present value of actuarial liabilities Actuarial assumptions 31 December 31 December 2015 US$’000 1,300 2014 US$’000 1,570 The calculation of the liability generated by the post-employment commitment involves actuarial assumptions. The following are the principal actuarial assumptions at the reporting date: Economic and Financial Assumptions Annual interest rate Estimated inflation rate in the long-term Ageing Factor Medical cost trend rate Biometric and Demographic Assumptions Employee turnover Mortality table Mortality table for disabled Disability table Retirement Age Employees who opt to keep the health plan after retirement and termination Family composition before retirement Probability of marriage Age difference for active participants Family composition after retirement Sensitivity analysis 31 December 31 December 2015 14.17% 6.50% 2014 12.78% 6.00% 2.50% p.a. 2.50% a.a 2.50% p.a. 2.50% a.a 31 December 2014 22.7% AT-2000 IAPB-1957 Álvaro Vindas 100% at 62 23% 31 December 2015 22.7% AT-2000 IAPB-1957 Álvaro Vindas 100% at 62 23% 90% of the participants 90% of the participants Men 4 years older than the woman Men 4 years older than the woman Composition of the family group Composition of the family group The present value of future liabilities may change depending on market conditions and actuarial assumptions. Changes on a relevant actuarial assumption, keeping the other assumptions constant, would have affected the defined benefit obligation as shown below: CiPBO (*) – discount rate + 0.5% CiPBO (*) – discount rate – 0.5% CiPBO (*) – Health Care Cost Trend Rate + 1.0%(*) CiPBO (*) – Health Care Cost Trend Rate – 1.0% (*) CiPBO means Change in projected benefit obligation 74 31 December 31 December 2015 US$ (96) 108 239 (190) 2014 US$ (90) 99 213 (176) Ocean Wilsons Holdings Limited/Annual Report 2015 38 Subsequent event On 2 February 2016, the Group, through its subsidiaries, completed the acquisition of the 7.5% non-controlling interest in Tecon Salvador S.A for consideration of US$4.73 million from Intermaritima Terminais Ltda. The consideration included US$1.88 million in cash and the settlement of US$2.85 million in debt. The transaction also includes an additional US$0.75 million that is conditional upon future contractual events. Following completion of the transaction the Group now holds 100% of the shares of the subsidiary. 75 Ocean Wilsons Holdings Limited/Annual Report 2015 Statistical Statement (Unaudited) 2010 – 2015 (in US$’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 (Loss)/profit on disposal of property, plant and equipment Group 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 Profit for the period attributable to: Equity holders of parent Non-controlling interests 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 Year to Year to 31 December Year to 31 December 31 December 31 December 2012 31 December 2015 US$’000 3.90 2014 US$’000 2.66 2013 US$’000 2.34 (Restated) US$’000 2.04 2011 US$’000 1.88 508,922 633,520 (55,760) (100,588) 660,106 (94,330) 610,354 (72,207) 698,044 (82,889) (143,600) (195,893) (209,459) (223,031) (239,543) (53,214) (65,120) (58,674) (145,259) (182,819) (188,569) (1,294) 109,795 4,843 16,908 (1,388) (45,403) (15,792) 68,963 (39,704) 29,259 15,470 13,789 29,259 326 89,426 7,090 16,975 6,233 (23,607) (17,621) 78,496 (41,928) 36,568 23,182 13,386 36,568 9,966 119,040 2,392 17,838 13,684 (21,863) (30,589) 100,502 (42,216) 58,286 37,873 20,413 58,286 (55,897) (173,951) (534) 84,734 689 18,255 16,394 (9,948) (11,572) 98,552 (33,671) 64,881 41,264 23,617 64,881 (59,479) (221,159) 1,959 96,933 – 10,203 (27,818) (20,741) – 58,577 (51,615) 6,962 (8,639) 15,601 6,962 US$’000 US$’000 US$’000 US$’000 US$’000 394,807 236,155 49,520 680,482 11.16 8.08 19.24 43.7c 63c 765p 1,127c 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 1,042p 1,725c 461,479 221,582 60,507 743,568 13.05 7.98 21.03 116.7c 33c 970p 1,512c 426,760 226,797 54,650 708,207 12.07 7.96 20.03 (24.4c) 42c 1,065p 1,650c 1. The year to 31 December 2011 have not been restated as a result of adopting new accounting standards in 2013. 76 Notice of Annual General Meeting Ocean Wilsons Holdings Limited/Annual Report 2015 Notice is hereby given that the 23rd 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 1 June 2016 at 10:00 am for the following purposes. 1 2 3 4 5 6 7 8 To receive and, if approved, adopt the Directors’ Report and Accounts for the year ended 31 December 2015. To declare a dividend To determine the maximum number of Directors for the ensuing year as eight and authorise the Board of Directors to elect or appoint on the Members’ behalf a person or persons to act as additional Directors up to such maximum number to serve until the conclusion of the next Annual General Meeting. To re-elect Mr A Rozental as a Director. To re-elect Mr C Maltby as a Director. To re-elect Mr J F Gouvêa Vieira 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 2015. By Order of the Board Malcolm Mitchell Secretary Clarendon House, Church Street, Hamilton HM 11, Bermuda 21 March 2016 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. 77 Ocean Wilsons Holdings Limited/Annual Report 2015 78 Ocean Wilsons Holdings Limited/Annual Report 2015 Form of Proxy *I/We *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 1 June 2016 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 2015. 2 To declare a dividend. 3 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. 4 To re-elect Mr A Rozental as a Director. 5 To re-elect Mr C Maltby as a Director. 6 To re-elect Mr J F Gouvêa Vieira as a Director. 7 To reappoint KPMG LLP as the Auditor and authorise the Directors to fix the remuneration of the Auditor. 8 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 2015. Signature Notes Dated 2016 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. ✂ 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.