Ocwen Financial
Annual Report 2018

Plain-text annual report

O c e a n W i l s o n s H o l d i n g s L i m i t e d A n n u a l R e p o r t 2 0 1 8 A n n u a l R e p o r t 2 0 1 8 Cover: A white stepped roof, a feature of the architecture of Bermuda. Contents 1 Ocean Wilsons Holdings Limited 2 Chairman’s Statement 6 Financial Review 12 Wilson Sons Limited 13 Investment Portfolio 14 Investment Manager’s Report 18 Directors and Advisers 19 Report of the Directors 29 Independent Auditors’ Report 38 Consolidated Statement of Comprehensive Income 39 Consolidated Balance Sheet 40 Consolidated Statement of Changes in Equity 41 Consolidated Cash Flow Statement 42 Notes to the Accounts 93 Statistical Statement 2013 – 2017 94 Notice of Annual General Meeting 95 Form of Proxy Printed by Park Communications on FSC® certified paper. Park is a CarbonNeutral® company and its Environmental Management System is certified to ISO 14001. This document is printed on Chorus Silk, which can be disposed of by recycling, incineration for energy recovery or is biodegradable. The mill which makes chorus, sources 90% of its pulp fibre from within a 200km radius of the mill, reducing the carbon footprint for production. 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 1 Ocean Wilsons Holdings Limited/Annual Report 2018 Ocean Wilsons Holdings Limited Highlights About Ocean Wilsons Holdings Limited • Revenue in Brazilian Real terms grew 6%. In US dollars reported sales Ocean Wilsons Holdings Limited (“Ocean Wilsons” or the “Company”) is a were 7% lower at US$460.2 million (2017: US$496.3 million). Bermuda based investment holding company which, through its subsidiaries, operates a maritime services company in Brazil and holds a portfolio of • Operating profit fell 9.1% to US$99.5 million (2017: US$109.5 million) international investments. The Company is listed on both the Bermuda Stock mainly due to lower revenue and softer operating margins at our towage Exchange and the London Stock Exchange. It has two principal subsidiaries: business. Wilson Sons Limited and Ocean Wilsons (Investments) Limited (together with the Company and their subsidiaries, the “Group”). • Operating margins* were a healthy 21.6%, albeit slightly lower than the prior year (2017: 22.1%) due to poorer towage margins. Wilson Sons Limited (“Wilson Sons”) is a Bermuda company listed on the São Paulo Stock Exchange (BOVESPA) and Luxembourg Stock Exchange. Ocean • Net cash inflow from operating activities for the year of US$113.7 million Wilsons holds a 58.17% interest in Wilson Sons which is fully consolidated in (2017: US$103.0 million). the Group accounts with a 41.83% non-controlling interest. Wilson Sons is one of the largest providers of maritime services in Brazil, with over four thousand • The Investment portfolio (including cash under management) decreased employees and activities including harbour and ocean towage, container US$15.8 million to US$258.9 million (2017: US$274.7 million). terminal operation, offshore oil and gas support services, small vessel construction, logistics and ship agency. Ocean Wilsons (Investments) Limited is • Proposed dividend unchanged at 70 cents per share (2017: 70 cents a wholly owned Bermuda investment company and holds a portfolio of per share). international investments. • EPS fell to 37.6 cents per share (2017: 221.5 cents per share) due to a fall Objective in value of the investment portfolio, lower operating profit, foreign Ocean Wilsons is run with a long-term outlook. This applies to both the exchange losses and a reduction in the share of results from joint investment portfolio and our investment in Wilson Sons. The long-term view ventures. taken by the Board enables Wilson Sons to grow and develop its businesses without pressure to produce short-term results at the expense of long-term * Operating margins are defined as operating profit divided by revenue. value creation. The same view allows our Investment Manager to make investment decisions that create long-term capital growth. Job No.: 37693 Proof Event: 1 Park Communications Ltd Alpine Way London E6 6LA 1 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 2 Ocean Wilsons Holdings Limited/Annual Report 2018 Chairman’s Statement Introduction incorporates design changes from the WS Titan built by the Group in 2015, In a highly competitive environment the Group’s overall performance in 2018 which permits a greater bollard pull while using the same engines and fuel has been robust. Revenue in Brazilian Real “BRL” terms grew 6% in the year consumption). WS Sirius is currently operating in the port of Açu in the state however revenue growth was affected by lower towage revenue and the of Rio De Janeiro. Demand for towage special operations improved with ocean higher average US Dollar “USD” USD/BRL exchange rate. The key operational towage, shipyard support and a salvage assistance performed in the year. In indicators at our container terminals increased against 2017 comparative addition to the WS Sirius, our shipyard successfully delivered two tugboats to while our towage and offshore businesses both fell due to strong market third parties and continued to perform maintenance for both third parties and competition and the weak offshore oil and gas market. on our own tugboat and offshore fleets. Operating volumes Container Terminals 2018 2017 % Change Weak demand from the offshore oil and gas industry resulted in operating (container movements in TEU ‘000s)* 1,072.7 1,068.1 0.4% Towage (number of harbour manoeuvres performed) 56,114 59,796 (6.2%) days at our offshore joint venture, Wilson Sons Ultratug Offshore decreasing 15% in the year as eight long-term vessel contracts ended during 2018. Our joint venture continues to explore alternative revenue streams for our off-hire Offshore Vessels (days in operation) 5,126 6,035 (15.1%) vessels. During the year the platform supply vessel (“PSV”) Fragata *TEUs stands for “twenty-foot equivalent units”. In 2016, the Group signed an amendment to the Tecon Salvador container terminal concession agreement extending the term of the concession until March 2050. Under the terms of the extension, the Group is required to complete a minimum level of expansion and maintenance capital expenditure. Following receipt of the necessary environmental licenses we started work on the expansion of Tecon Salvador in the fourth quarter of 2018 with civil works to extend the principal quay from 377 metres to 800 metres, which will allow the simultaneous berthing of two super-post-Panamax ships. In December, the Group signed an agreement with the Brazilian Economic and Social Development Bank to provide BRL263.1 million in financing for the civil works during the first stage of the terminal’s expansion. The expansion of Tecon Salvador reflects the Group’s ongoing commitment to improve operational efficiency and will promote the development of the port of Salvador, creating jobs and reinforcing economic growth in the state of Bahia. commenced work with Fendercare to provide logistics support for ship-to-ship crude oil transfers in Brazilian territorial waters. Following modification at our shipyard, the PSVs Mandrião and Pardela began new three-year contracts with Petrobras for shallow-water diving support services and the PSV Gaivota entered a new two-year contract with Petrobras for oil spill recovery services. Wilson Sons Ultratug Offshore was also awarded two new three-year contracts for the PSVs Fulmar and Ostreiro to provide shallow-water diving support services forecast to commence in March 2019. At the year end, the joint venture operated a fleet of 23 offshore support vessels (“OSVs”) of which 15 were under long-term contract, with the remainder available in the Brazilian spot market or laid up until market conditions improve. As at 31 December 2018, the investment portfolio including cash under management was valued at US$258.9 million, representing US$7.32 per share (2017: US$274.7 million and US$7.73 per share). Container volumes handled at Tecon Salvador in 2018 grew 5% over the prior Group Results year to 322,700 TEUs (2017: 307,100 TEUs) driven principally by higher cabotage and transhipment movements. Container volumes handled at our other container terminal, Tecon Rio Grande, at 750,000 TEUs, were marginally lower than the prior year, (2017: 760,900 TEUs) mainly due to lower transhipment and cabotage volumes. Albeit from a low base, our oil and gas support base Brasco posted strong revenue growth against the backdrop of a continuing constrained oil sector. The number of harbour towage manoeuvres performed in the year declined 6% to 56,114 (2017: 59,796), due to increased competition in some ports and a 1% decrease in the total number of vessel calls in Brazil, driven by the market trend towards larger vessels. Strong competition in harbour towage continues to affect both volumes and prices due to market over-capacity as tugboats, previously supplying services to the oil and gas industry entered the harbour towage market. The Wilson Sons Group retains its position as the Operating profit at US$99.5 million was US$10.0 million lower than prior year (2017: US$109.5 million) largely due to a decrease in revenue and softer operating margins at our towage business. Group operating margins for the year remained healthy at 21.6% although lower than prior year (2017: 22.1%) principally due to the poorer margins at our towage business. In BRL terms revenue for the year grew 6% however due to the impact of lower towage revenue and a higher average USD/BRL exchange rate, group revenue in USD terms fell 7% to US$460.2 million (2017: US$496.3 million). Profit before tax for the year decreased US$85.3 million to US$60.2 million compared to US$145.5 million in 2017. The decrease in profit before tax resulted from a US$50.0 million negative movement in returns on the investment portfolio at fair value through the profit and loss, a US$8.5 million foreign exchange loss on monetary items (2017: US$2.8 million gain), the US$10.0 million decrease in operating profit and a US$7.5 million negative movement in share of results from joint ventures. Earnings per share for the year were 37.6 cents compared leading supplier of towage services in Brazil with a fleet of seventy-six with 221.5 cents in 2017. tugboats operating in the principal ports and terminals of the country. We continue to invest in our tugboat fleet with the largest and most powerful Investment portfolio performance tugboat operating in Brazil, WS Sirius (90 tons bollard pull) built at the Wilson Sons shipyards in Guarujá, São Paulo state, delivered in 2018. With the addition of Sirius the three most powerful tugboats and the only ones classified as escort tugs in Brazil are operated by Wilson Sons. (WS Sirius The investment portfolio as at 31 December 2018 was US$258.9 million (2017: US$274.7 million) a fall of US$15.8 million after paying dividends of US$4.75 million to Ocean Wilsons Holdings Limited during the year, management and other fees of US$2.9 million. The fall in the portfolio returns 2 Job No.: 37693 Proof Event: 1 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 3 Ocean Wilsons Holdings Limited/Annual Report 2018 in the period were mainly due to the poor performance of global equity Adding the market value per share of Wilsons Sons of US$12.11 and the markets, which fell 9.4% in the year (MSCI ACQI +FM NR Index) and in investment portfolio at 31 December 2018 per share of US$7.32 results in a particular emerging markets, towards which the portfolio has an over-weight net asset value per Ocean Wilsons Holdings Limited share of US$19.43 bias, decreasing by 14.6% (MSCI Emerging Markets NR Index). We are not (£15.24) per share. The Ocean Wilsons Holdings Limited share price of £11.75 proposing any changes to our investment strategy which we consider sound in at 31 December 2018 represented an implied discount of 23% which is lower the context of what was a difficult year given our long-term investment than the historic long-term discount. horizon. Emerging markets account for 33% of the investment portfolio net asset value at year end. The investment portfolio remains weighted towards Dividend global equities, which at year end accounted for 52% of the portfolio The Board is recommending an unchanged dividend of 70 cents per share to valuation (US$134.8 million), with private equity investments accounting for be paid on 7 June 2019, to shareholders of the Company as of the close of 36% (US$78.1 million) and the balance invested in diversifying hedge funds, business on 10 May 2019. At the current exchange rate this represents cash and bonds. The principal sector exposures in the portfolio are approximately a 5% increase in Sterling terms over the 2017 dividend. information technology (18%), consumer discretionary (14%) and financials Shareholders will receive dividends in Sterling by reference to the exchange (13%). rate applicable to the USD on the dividend record date (10 May 2019) except for those shareholders who elect to receive dividends in USD. Based on the During the year, our private equity investments returned US$13.7 million in current share price and exchange rates a dividend of 70 cents per share capital and profit distributions with a net cash inflow to the portfolio of represents an attractive dividend yield of approximately 4.7%. US$3.6 million after deducting new capital drawdowns of US$10.1 million. In the three years to 31 December 2018 private equity returned US$29.6 million Dividends are set in US Dollars and paid annually. The Ocean Wilsons with the majority of contributions coming from emerging markets and Holdings Limited dividend policy is to pay a percentage of the average capital technology sectors. employed in the investment portfolio determined annually by the Board and the Company’s full dividend received from Wilson Sons in the period after At 31 December 2018, the top ten investments account for 38% of the deducting funding for the parent company costs. The Board of Directors may investment portfolio valuation (US$98.9 million). review and amend the dividend policy from time to time in light of our future Investment Manager Ocean Wilson (Investments) Limited (“OWIL”), a wholly owned subsidiary Strategic review plans and other factors. registered in Bermuda, holds the Group’s investment portfolio. OWIL has On 17 July 2018 we announced that our principal operating subsidiary, appointed Hanseatic Asset Management LBG, a Guernsey registered and Wilson Sons Limited made the following announcement to the Brazilian and regulated investment group, as its Investment Manager. Luxembourg Stock Exchanges. Investment management fee “Wilson Sons Limited (B3: WSON33) (“Wilson Sons” or “Company”) informs the The Investment Manager receives an investment management fee of 1% of market that the Board of Directors of the Company approved on 16 July 2018 the valuation of funds under management and an annual performance fee of the start of a formal process involving its investments in container terminal 10% of the net investment return which exceeds the benchmark, provided and logistics assets. The process is part of the evaluation of strategic that the high-water mark has been exceeded. The portfolio performance is alternatives that is being carried out by the management of the Company measured against a benchmark calculated by reference to US CPI plus 3% per which may include the divestment of such assets, as well as attracting annum over rolling three-year periods. Payment of performance fees are strategic partners. The Company informs that no final decision has yet been subject to a high-water mark and are capped at a maximum of 2% of the taken with respect to pursuing any such alternatives and there can be no portfolio NAV. The Board considers a three-year measurement period certainty that any transaction will occur. appropriate due to the investment mandate’s long-term horizon and an absolute return inflation-linked benchmark appropriately reflects the The Company will keep its shareholders and the market informed about the company’s investment objectives while having a linkage to economic factors. development of such analysis, in compliance with the provisions of Law 6,404, dated 15 December 1976, as amended, and the Resolution 358 issued In 2018 the investment management fee paid was US$2.7 million (2017: by the Brazilian Securities and Exchange Commission ("CMV"), dated US$2.6 million) and no performance fee became payable to the Investment 3 January 2002, as amended. Manager (2017: US$0.1 million). Net asset value As can be seen from the Wilson Sons announcement, no agreement has been entered into by Wilson Sons in relation to the container terminal and logistics At the close of business on 31 December 2018, the Wilson Sons’ share price assets and there can be no certainty that any transaction will be entered into. was R$40.00, resulting in a market value for the Ocean Wilsons holding of A further announcement will be made in due course, “if it is appropriate to do 41,444,000 shares (58.17% of Wilson Sons) totalling approximately US$428.4 so.” million which is the equivalent of US$12.11 (£9.50) per Ocean Wilsons share. Job No.: 37693 Proof Event: 1 Park Communications Ltd Alpine Way London E6 6LA 3 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 4 Ocean Wilsons Holdings Limited/Annual Report 2018 Chairman’s Statement The Company advises that no final decision has yet been taken by Wilson The Group looks to use advanced technology to reduce our greenhouse gas Sons Limited with respect to pursuing any such alternatives and there can be emissions. Some examples of these measures include: updating conventional no certainty that any transaction will occur. diesel-powered maritime support ships to more efficient diesel-electric Charitable donations and corporate sponsorship environmental impact in container terminals; and expanding the Towage The Group’s subsidiary Wilson Sons continues to support several local Operations Centre, making it possible to reduce fuel consumption by systems; using RTG (Rubber-Tyred Gantry) electric cranes with a lower charities and causes in Brazil. Group donations for charitable and sponsorship optimising the movement of vessels. purposes in the year amounted to US$670,000 (2017: US$715,000). Wilson Sons sponsors a number of projects through the Brazilian sports incentive and Corporate governance Brazilian cultural incentive laws. The Group’s objective is to promote private The Board has put in place corporate governance arrangements which it social investment in projects, actions and social programmes related to believes are appropriate for the operation of your Company. The Board has respecting and valuing life with a focus on young people, promoting social considered the principles and recommendations of the 2016 UK Corporate inclusion and development. Governance Code (“the Code”) issued by the Financial Reporting Council and decided to apply those aspects which are appropriate to the business. This Health, safety and environmental practices (HSE) reflects the fact that Ocean Wilsons is an investment holding company The Group manages the areas of Occupational Health, Safety, and incorporated in Bermuda with significant operations in Brazil. The Company Environment (“HSE”) in a strategic manner as the Board consider it of complies with the Code where it is beneficial for both its shareholders and its fundamental importance for the development of a sustainable business. This business to do so. It has done so throughout the year and up to the date of is reflected in the Group’s corporate values which gives great importance to this report but it does not fully comply with the Code. The areas where the people’s safety, the environment and communities. HSE has a formal agenda Company does not comply with the Code, and an explanation of why, are within the Wilson Sons Limited executive committee, with monthly meetings contained in the section on corporate governance in the Annual Report. The to deal exclusively with issues related to the topic which is supported by position is regularly reviewed and monitored by the Board. The Board is dedicated committees and subcommittees for each business unit. considering the 2018 UK Corporate Governance Code and its application to The Group has run the WS+ safety programme in partnership with DuPont since 2011 to promote improved safety throughout the Wilson Sons Group. Outlook the Group. HSE guidelines are based on the concepts of continuous improvement, Economists are expecting the economic recovery in Brazil to accelerate in relationship with stakeholders, emergency response, risk management, 2019 as the new government’s more pro-business stance helps boost training, legal compliance, leadership and responsibility. The success of this economic growth. Following receipt of the necessary environmental licenses, programme is shown by the continued improvement in our lost-time injury we started work on the expansion of the Tecon Salvador container terminal in frequency rate which has decreased by 95% to 0.37 per one million man- 2018 which is forecast for completion in the second half of 2020. The hours worked since the programme was implemented. In 2018 Wilson Sons completed terminal expansion will further develop and improve this important reduced its lost-time injury frequency rate for the eighth consecutive year. asset and enhance our operational capability. Demand at our container Despite achieving a world-class level of safety, the Group continues to work terminals business remains firm with volumes expected to be in line with on improving safety performance and work practices to prevent future 2018. Competition in the Brazilian towage market remains strong, however we accidents. Our long-term goal is to maintain the lost-time injury frequency rate remain confident in the strength of our business to face these challenges. The below or equal to 0.5 and achieve an interdependent safety management Brazilian offshore oil and gas market is expected to face another difficult year culture in which everyone is aware of the safety agenda and concerned not with demand for both offshore vessel hire and new vessel construction only with their own safety but also with those around them. remaining sluggish although we continue to explore alternative revenue streams for our off-hire supply vessels. Two new contracts for the PSVs Fulmar Excellence in environmental management is part of the Group’s strategic and Ostreiro to provide shallow-water diving support services are scheduled to objectives. In this context, excellence means using resources rationally and start in March 2019. The shipyard orderbook consists of one 90-tonne bollard efficiently, managing environmental risks and liabilities, understanding and pull tugboat for our fleet to be delivered in 2019. There are also 22 scheduled engaging with environmental interests of stakeholders with integrity, as well dry-dockings consisting of 11 tugboats for Wilson Sons, 10 tugboats for third as planning and achieving financial performance targets aligned with parties and one PSV for our offshore joint venture. While the Group faces a environmental commitments. number of challenges in 2019 we are confident in the resilience of our Brazilian businesses and the solid performances delivered over many years In order to improve the understanding of the environmental aspects and gives us encouragement that we are well placed to face the coming impacts of its activities, the Wilson Sons Group has developed its challenges and take advantage of business opportunities as they arise. Environmental Management Index (“EMI”) based on current best practices. The EMI’s key themes (solid waste, water resources, environmental damage, 2018 was a poor year for world stock markets with global equity prices falling licensing, stakeholders and atmospheric emissions) use established criteria to across the board. In contrast, stocks have rallied in 2019 on growing optimism promote continuous improvement in environmental management and achieve that a trade agreement between the U.S. and China may be imminent, as well excellence. 4 as news that the US Federal Reserve has paused any further interest rate hikes, as they have adopted a “wait-and-see” approach. While growth is Job No.: 37693 Proof Event: 1 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 5 Ocean Wilsons Holdings Limited/Annual Report 2018 slowing, at this point we do not see the factors in place which are normally associated with recession. Unemployment is low, but in general economies still appear to be operating below full capacity. Inflation has started to pick-up but the structural deflationary forces that have kept inflation low for so long look unlikely to go away anytime soon. Moreover, markets have already priced in a significant amount of bad news in 2018. We continue to see better value in a number of the emerging markets with attractive valuations by historic standards. However if global economies do slip into recession, emerging markets are typically some of the worst hit being trading based economies. Management and staff On behalf of the Board and shareholders, I would like to thank our management and staff for their efforts and hard work during the year. Following nine years of service Mr Andres Rozental is retiring from the Board at the next Annual General Meeting. On behalf of your Board I would like to acknowledge and express our gratitude for his valued contribution to the Group. J F Gouvêa Vieira Chairman 14 March 2019 Job No.: 37693 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA 5 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 6 Ocean Wilsons Holdings Limited/Annual Report 2018 Financial Review Operating profit Third-party shipyard revenue at US$24.0 million (2017: US$21.2 million) Operating profit at US$99.5 million was US$10.0 million lower than prior year reflected an increase in third party vessel construction and dry-docking (2017: US$109.5 million) largely due to the decrease in towage revenue and operations. slightly lower operating margins. Group operating margins for the year declined to 21.6% (2017: 22.1%) principally due to poorer margins at the All Group revenue is derived from Wilson Sons’ operations in Brazil. Group’s towage business. Share of results of joint ventures Raw materials and consumables used in the year at US$38.1 million were in The share of results of joint ventures is Wilson Sons’ 50% share of net profit line with 2017 (US$37.7 million). Employee expenses were 12% lower at for the period from our offshore joint venture. Operating profit for a 50% US$146.3 million (2017: US$166.4 million) due to the effect of the higher share in the joint venture in the year was US$4.3 million compared to average USD/BRL exchange rate plus the prior year figure included US$15.9 million in 2017 from revenue of US$58.5 million (2017: redundancy costs associated with corporate restructuring and additional US$73.2 million). Revenue fell principally due to fewer operating days which provisions to cover potential labour claims. Employee costs were negatively were 15% lower at 5,126 days against 6,035 days in 2017. The lower impacted by the rollback in the year of temporary payroll tax exemptions operating profit, finance charges and higher exchange losses on monetary granted to some business sectors in Brazil. Headcount was in line with prior items resulted in a loss for the year of US$4.1 million (2017: US$3.4 million year. Other operating expenses were 2% lower at US$119.8 million (2017: profit). At the year end, our joint venture had 15 offshore support vessels US$122.3 million) because of the strengthening of the US Dollar versus BRL. under contract out of a total fleet of 23 vessels. The prior year comparative benefitted from a US$4.9 million tax credit and a non-recurring US$3.9 million provision reversal. The depreciation and Change in presentation amortisation expense at US$56.2 million was US$1.3 million lower than the “Income from underlying investment vehicles” and “Other gains and losses” comparative period (2017: US$57.5 million). The impact of the higher average are now shown on the face of the Statement of Comprehensive Income under USD/BRL exchange rate was partially offset by capital investment made in “Returns on investments held at fair value through profit and loss”. The change 2017. was made in order to improve presentation of items of similar nature. The loss on disposal of property, plant and equipment in 2017 included a Returns on the investment portfolio at fair value through profit and loss US$2.3 million write down on leasehold improvements no longer used by the Losses on the investment portfolio of US$7.9 million arose from the Group’s Group. portfolio of investments (2017: US$42.1 million profit) and comprise realised profits on the disposal of financial assets at fair value through profit or loss of Revenue from Maritime Services US$8.6 million (2017: US$8.5 million), income from underlying investment Group revenue for the year was 6% higher in BRL terms although in USD vehicles of US$2.1 million (2017: US$3.4 million) and unrealised losses on terms revenue was 7% lower at US$460.2 million (2017: US$496.3 million), financial assets at fair value through profit or loss of US$18.7 million (2017: principally due to a decrease in towage revenue and the higher average US$30.2 million gain). USD/BRL exchange rate used to convert revenue into our reporting currency. Towage revenue was US$41.2 million lower than prior year at US$165.6 Other investment income million (2017: US$206.8 million) as stronger competition impacted both Other investment income for the year fell US$5.5 million to US$4.2 million pricing and harbour towage volumes. Harbour towage manoeuvres performed (2017: US$9.7 million) due to lower interest on bank deposits of US$3.6 in the period were 6% lower at 56,114 (2017: 59,796). Towage special million (2017: US$5.9 million) and lower other interest of US$0.6 million operations revenue in the year increased US$1.9 million to US$13.2 million (2017: US$3.8 million). Interest on bank deposits fell due to the lower average (2017: US$11.3 million) with ocean towage, shipyard support and salvage cash balances held during the year. Other interest in 2017 also included assistance performed during the year. Ship agency revenue at US$10.0 million US$2.6 million in interest relating to successful tax decisions. was 12% lower than the prior year (2017: US$11.3 million). Finance costs Port terminals and logistics revenue in BRL terms grew 16% although due to Finance costs for the year at US$23.0 million were slightly higher than prior the higher average USD/BRL exchange rate during the year, revenue in USD year (2017: US$22.0 million). Within this exchange losses on foreign currency terms was flat at US$203.8 million (2017: US$203.1 million). Container borrowings were US$9.2 million higher at US$10.0 million (2017: US$0.8 volumes handled were marginally ahead of prior year at 1,072,700 TEUs million) due to the higher BRL/USD exchange rate at year end. Other interest (2017: 1,068,100 TEUs) while container terminal revenue was 2% lower at of US$0.6 million was US$7.1 million lower than prior year (2017: US$7.7 US$183.0 million (2017: US$187.4 million) impacted by the higher average million) because 2017 other interest included US$7.4 million of fines and USD/BRL exchange rate as the majority of container terminal revenue is BRL interest relating to outstanding tax balances settled under a Brazilian tax denominated. Warehouse revenue at our container terminals continued to amnesty programme. Interest on overdrafts and loans were US$1.0 million grow driven by a rise in import cargo volumes. Higher import cargo volumes lower than the prior year at US$12.3 million (2017: US$13.3 million). also contributed to a 4% increase in our logistics revenue to US$56.9 million (2017: US$54.7 million). Brasco revenue increased US$5.1 million to US$20.8 Exchange rates million (2017: US$15.7 million) on the back of increased vessel turnarounds The Group reports in USD and has revenues, costs, assets and liabilities in with the beginning of new contracts during the year. both BRL and USD. Therefore movements in the USD/BRL exchange rate influence the Group’s results both positively and negatively from year to year. 6 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 7 Ocean Wilsons Holdings Limited/Annual Report 2018 WS Sirius, a 90 ton bollard pull tugboat built at the Wilson Sons shipyards in Guarujá, São Paulo state, delivered in 2018. WS Sirius is the most powerful tugboat currently operating in Brazil. Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 7 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 8 Ocean Wilsons Holdings Limited/Annual Report 2018 Financial Review During 2018 the BRL depreciated 17% against the USD from R$3.31 at due to losses at our Bermudian companies that are not deductible for income 1 January 2018 to R$3.87 at the year end. In 2017 the BRL depreciated 2% tax (in 2017 there were net profits at our Bermudian companies) and an against the USD from R$3.26 at 1 January 2017 to R$3.31 at the year end. increase in net expenses that are not included in determining taxable profit. The principal effects from the movement of the BRL against the USD on the The increase in net expenses is mainly due to foreign exchange losses on income statement are set out in the table below: monetary items and losses at our joint ventures. 2018 2017 US$ million US$ million The principal impacts from these items on the tax charge in the income Exchange gains on monetary items (i) (8.5) 2.8 statement are set out in the table below Exchange losses/gains on foreign currency 2018 2017 borrowings (10.0) (0.8) US$ % of US$ % of Deferred tax on retranslation of fixed assets (ii) (9.8) 1.4 million taxable profit million taxable profit Deferred tax on exchange variance on loans (iii) 10.1 (1.2) Deferred tax items not included Total (18.2) 2.2 in determining taxable profit (i) (4.6) (7.4%) (5.3) (3.6%) Income/expenses not included (i) This arises from the translation of BRL denominated monetary items in USD functional in determining taxable profit (ii) 5.8 9.2% 3.4 2.4% currency entities. Net (income)/expenses incurred (ii) The Group’s fixed assets are located in Brazil and therefore future tax deductions from outside Brazil 4.8 8.0% (11.6) (7.9%) depreciation used in the Group’s tax calculations are denominated in BRL. When the BRL depreciates against the US Dollar the future tax deduction in BRL terms remain unchanged but is reduced in US Dollar terms. Total 6.0 9.9% (13.4) (9.2%) (iii) Deferred tax credit arising from the exchange losses on USD denominated borrowings in Brazil. Charge/(credit) to the current period tax charge The movement of the BRL against the USD in 2018 resulted in a negative (i) The principal deferred tax items not included in determining taxable profit are a deferred tax credit arising on the retranslation of BRL denominated fixed assets in Brazil, the deferred tax charge on the exchange losses on USD denominated borrowings and tax losses at our impact of US$18.2 million on the income statement in the year compared Brazilian subsidiaries not recognised in deferred tax. with a US$2.2 million positive impact in 2017. (ii) The main items not included in determining taxable profit are the tax effect of foreign A currency translation adjustment loss of US$39.4 million (2017: US$6.5 million) on the translation of operations with a functional currency other than USD is included in other comprehensive expense for the year and recognised directly in equity. The average USD/BRL exchange rate during 2018 was 15% higher than prior year at 3.66 (2017: 3.19). A higher average exchange rate negatively affects BRL denominated revenues and positively impacts BRL denominated costs when converted into our USD reporting currency. Profit before tax Profit before tax for the year fell US$85.2 million to US$60.2 million compared to US$145.5 million in 2017. The decrease in profit before tax was principally due to the US$50.0 million negative movement in returns from the investment portfolio, the US$11.2 million negative movement in foreign exchange losses on monetary items, a US$10.0 million decrease in operating profit and a US$7.5 million negative movement in share of results from joint ventures. Also finance costs were US$1.0 million lower and investment revenues US$6.8 million lower. Taxation The tax charge for the year at US$26.4 million was US$9.7 million lower than last year (2014: US$36.1 million). This represents an effective tax rate for the period of 43.9% (2017: 24.8%) compared with the corporate tax rate prevailing in Brazil of 34%. The difference in the effective tax rate is principally due to deferred tax items and expenses that are not included in determining taxable profit in Brazil and expenses or income at our Bermudian companies that are not subject to income tax. The current year effective tax rate is higher than prior year mainly 8 exchange gain/(loss) on monetary items and the tax effect of the share of results of joint ventures. A more detailed breakdown is provided in note 10. Profit for the year Profit attributable to equity holders of the parent for the year is US$13.3 million (2017: US$78.3 million) after deducting profit attributable to non- controlling interests of US$20.5 million (2017: US$31.1 million). Non- controlling interests at 61% are a higher percentage of the Group profit for the period (2017: 28%) because the profits or losses from the investment portfolio accrue solely to the equity holders of the parent company. Earnings per share Earnings per share for the year were 37.6 cents compared with 221.5 cents in 2017. Cash flow Net cash inflow from operating activities increased by US$10.7 million to US$113.7 million in 2018 (2017: US$103.0 million) as the decrease in operating profit was offset by better working capital movements in the year. Capital expenditure in the year was US$28.8 million higher at US$59.6 million (2017: US$30.7 million) principally due to the start of civil works for the Tecon Salvador quay extension, increased vessel construction and programmed drydocking. The Group drew down new loans of US$9.4 million (2017: US$12.6 million) to finance capital expenditure. While loan repayments of US$54.2 million (2017: US$54.7 million) were made. Dividends paid to shareholders in the period were US$24.8 million (2017: US$22.3 million) with a further US$17.9 million paid to non-controlling interests in our subsidiaries (2017: US$16.8 million). Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 9 Ocean Wilsons Holdings Limited/Annual Report 2018 Tecon Salvador in Salvador, Bahia. In 2018 we started work on the expansion of Tecon Salvador with civil works to extend the principal quay from 377 metres to 800 metres, which will allow the simultaneous berthing of two super-post-Panamax ships. Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 9 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 10 Ocean Wilsons Holdings Limited/Annual Report 2018 Financial Review At 31 December 2018, the Group had US$43.8 million in cash and cash Borrowings are long-term with defined repayment schedules repayable over equivalents (2017: US$83.8 million) of which US$28.2 million was different periods of up to 18 years. At year end 80% of the Group’s total debt denominated in Brazilian Real (2017: US$59.6 million). Financial assets at fair is long-term. The Group’s borrowings are principally USD related with 95% of value through profit or loss includes US$29.1 million (2017: US$31.6 million) borrowings USD denominated or linked to the USD. A significant portion of in USD denominated fixed rate certificates held by Wilson Sons Limited which the Group’s pricing is denominated in USD which acts as a natural hedge to are not part of the Group’s investment portfolio managed by Hanseatic Asset our long-term exchange rate exposure. Net debt at 31 December 2018 was Management LBG and are intended to fund Wilson Sons Limited. US$234.4 million (2017: US$239.2 million) as set out in the following table: Balance sheet 2018 2017 US$ million US$ million At 31 December 2018 equity attributable to shareholders of the parent Debt company was US$554.2 million, a decrease of US$33.9 million from 2017 Short-term 60.2 54.3 (US$588.2 million). The main movements in equity in the year were profits for Long-term 247.1 300.4 the period of US$13.3 million, less dividends paid of US$24.8 million and a Total debt 307.3 354.7 negative currency translation adjustment of US$22.8 million. The currency Cash and cash equivalents* (72.9) (115.5) translation adjustment arises from exchange differences on the translation of Net debt 234.4 239.2 operations with a functional currency other than USD. On a per share basis, equity attributable to shareholders was the equivalent of US$15.67 per share * Included in cash and cash equivalents are US$29.1 million of short-term investments held by (31 December 2017: US$16.63 per share). Wilson Sons Limited which are intended to fund Wilson Sons Limited operations in Brazil. Net debt and financing All debt at the year end was held in the Wilson Sons Limited Group with no recourse to the parent company, Ocean Wilsons Holdings Limited, or the investment portfolio held by Ocean Wilsons (Investments) Limited. The Group’s borrowings are used principally to finance vessel construction and the development of our terminal business. The Group’s main sources of financing are the Fundo da Marinha Mercante “FMM”, a Brazilian Government fund dedicated to funding vessel construction in Brazil and the International Finance Corporation. The FMM is funded by a levy on inbound freight to Brazil and the BNDES and Banco do Brasil act as lending agents for the FMM. The Group’s reported borrowings do not include US$242.0 million of debt from the Company’s 50% share of borrowings in our Offshore Vessel joint venture. Keith Middleton Finance Director 14 March 2019 10 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 11 Ocean Wilsons Holdings Limited/Annual Report 2018 Night-time operations at Tecon Rio Grande in Rio Grande, Rio Grande do Sul. Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 11 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 12 Ocean Wilsons Holdings Limited/Annual Report 2018 Wilson Sons Limited The Wilson Sons 2018 Earnings Report released on 14 March 2019 is Maximising capacity utilisation of our oil & gas support terminals available on the Wilson Sons Limited website: www.wilsonsons.com.br (Brasco). Our bases in Niterói and Rio de Janeiro have a total capacity of eight In it Cezãr Baião, CEO of Operations in Brazil, said: to the Campos and Santos petroleum basins, and close to the pre-salt region, berths to provide logistics support for offshore vessels. With excellent access “Wilson Sons 2018 EBITDA of US$160 million was down 6.8% against the support terminals in Brazil. We continuously monitor offshore exploration and comparative period (2017: US$172.4 million), despite solid results in container production activities along the Brazilian coast to meet the demand for such Brasco is strategically positioned as one of the largest operators of offshore terminals. Tecon Rio Grande improved its net average productivity to 77 services. movements per hour, 22% higher than 2017. In the fourth quarter Tecon Salvador commenced civil works to extend the principal quay from 377 metres Strengthening our position as the leading provider of towage services in to 800 metres, which will allow the simultaneous berthing of two super-post- Brazil. We continue to modernise and expand our tugboat fleet in order to Panamax ships. The terminal signed a US$67.9 million financing agreement consistently provide high-quality services to our customers and consolidate denominated in Brazilian Real with BNDES for the first stage of the expansion. our leading position in the Brazilian towage market. We also look to Towage results continued to be pressured by a very competitive environment art vessels that are suitable for operating new classes of ships, as well as for affecting volumes and prices. In November the division received the largest and the oil and gas industry. We regularly review our fleet deployment to optimise most powerful escort tug in Brazil, WS Sirius, with 90 tonnes of bollard pull. efficiency and to seek out new market niches where we can provide contribute to the expansion of activities in Brazilian ports, offering state-of-the- additional services or expand our geographical footprint to new ports in Brazil. Offshore support vessel results were negatively affected by the end of eight long- term contracts in 2018 due to weaker demand. The Company continues to seek Maximising potential of our shipyard facilities. Through a mix of in-house alternative vessel solutions including four vessels under contract for shallow- and third-party vessel construction, repair, maintenance, conversion, and water diving support, and one employed to support oil spill recovery. dry-docking services to meet the demand of local and international ship Workplace safety continued to improve with an 18% year-on-year reduction in owners operating in Brazil. the lost-time injury frequency rate to 0.37 in 2018, in line with global best Solidifying our offshore support vessel services to oil and gas platforms. practice. Using our knowledge and experience, we intend to continue to consolidate our activities maintaining our position amongst the leading suppliers of The Company remains focused on increasing cash flow and improving capacity services to the offshore oil and gas industry in Brazil. We look to explore utilisation across all businesses in order to maximise stakeholder value, alternative revenue streams to increase utilisation of our offshore supply maintaining our continued commitment to safety.” vessel fleet. The Wilson Sons Strategy is: Exploring new opportunities and strategies to provide the best and most The Wilson Sons strategy is to grow utilising our skills and existing assets complete set of services to our customers. We are always looking to while strengthening the businesses and looking for new opportunities, provide innovative services to our customers, as well as to anticipate their focusing on Brazil and Latin America. We continue to consolidate our position needs. Through a solid nationwide footprint, we will continue our strategy of in all the segments in which we operate, maximising economies of scale and providing comprehensive logistics solutions to support domestic and efficiency, quality and the range of services we provide to customers. The international trade activities, as well as the oil and gas industry. We also seek strategy comprises: to make our services more efficient and cost-effective, in order to maintain our strong customer base and strengthen our relationships. Expanding and utilising capacity at our container terminals. In order to meet demand from domestic and international trade, we have expanded both Increasing economies of scale and productivity, synergies and cost our container terminals since the beginning of the concessions. By maximising savings across our businesses. We continuously seek to optimise our installed capacity utilisation, we are able to improve productivity and levels of operations, productivity and reduce costs through synergies and knowledge service to our clients through economies of scale. We will diligently pursue exchange among our businesses and administrative areas. We will continue to this objective. The early renewal of the Salvador terminal concession through be focused on integrating similar activities, especially in our branch offices, to to 2050 includes investments in quay extension and equipment, further achieve economies of scale and reduce costs wherever possible. We enhancing terminal productivity. Additionally, we will evaluate new continually develop new strategies to improve our operations and explore concessions and the possible development of new terminals to provide a new businesses. strong return on shareholders’ equity. As noted in the Chairman’s statement Wilson Sons is undertaking an evaluation of strategic alternatives that is being Health, Safety and the Environment (“HSE”) are part of our overall strategy carried out by the management of the company which may include the of sustainable and ethical businesses. We continue to promote HSE best divestment of such assets, as well as attracting strategic partners. practices throughout the Group to achieve and maintain excellence in these areas. 12 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 13 Ocean Wilsons Holdings Limited/Annual Report 2018 Investment Portfolio Investment objective Excessive size is often an impediment to continued outperformance and the Ocean Wilsons is run with a long-term outlook. The objective of the bias is therefore towards managers who are prepared to restrict their assets investment portfolio is to make investments that create long-term capital under management to a level deemed appropriate for the underlying growth without pressure to produce short-term results at the expense of long- opportunity set. Track records are important but transparency is an equally term value creation. Investment Policy important consideration. Alignment of interest is essential and the Investment Manager will always seek to invest on the best possible terms. Subjective factors are also important in the decision making process – these qualitative The Investment Manager will seek to achieve the investment objective considerations would include an assessment of the integrity, skill and through investments in publicly quoted and private (unquoted) assets across motivation of a fund manager. three ‘silos’: (i) Core regional funds which form the core of our holdings, enabling us to capture the natural beta within markets; (ii) Sector specific silo, When the Investment Manager believes there is a potential fit, thorough due represented by those sectors with long-term growth attributes, such as diligence is performed to verify the manager’s background and identify the technology and biotechnology; and (iii) Diversifying silo, which are those asset principal risks. The due diligence process would typically include visiting the classes and sectors which will add portfolio protection as the business cycle manager in their office (in whichever country it may be located), onsite visits matures. Cash levels will be managed to meet future commitments (e.g. to to prospective portfolio companies, taking multiple references and seeking a private assets) whilst maintaining an appropriate balance for opportunistic legal opinion on all relevant documentation. 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 of investments will be concentrated in equity, across both ‘public’ and ‘private’ ‘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 repeat funds or limited partnership vehicles, working alongside expert managers in 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 three 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). This would, under the appropriate circumstances, be open-minded to modest levels diversification is designed to make the portfolio less vulnerable to permanent of gearing. Likewise, the Board may, from time to time, permit the Investment loss of capital through inflation, adverse interest rate fluctuations and currency Manager opportunistically to use derivative instruments (such as index hedges devaluation and to take advantage of market and business cycles. The using call and put options) to actively protect the portfolio. Investment Manager believes that outsized returns can be generated from Investment Process investments in illiquid asset classes (such as private equity). In comparison to public markets, the pricing of assets in private markets is less efficient and the Manager selection is central to the successful management of the investment 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 meetings are usually a result of: (i) a ‘top-down’ led search for exposure to a certain geography or sector; (ii) referrals from the Investment Manager’s global network; or (iii) relationships from sell-side institutions and other introducers. The Investment Manager reviews numerous investment opportunities each year, favouring active specialist managers who can demonstrate an ability to add value over the longer-term, often combining a conviction-based approach, an unconstrained mandate and the willingness to take unconventional decisions (e.g. investing according to conviction and not fearing short-term underperformance versus an index). Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 13 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 14 Ocean Wilsons Holdings Limited/Annual Report 2018 Investment Manager’s Report Market backdrop developed markets Japan declined by 12.9%, Europe by 14.8% and the UK Having started robustly, 2018 proved to a very poor year for world stock by 14.1%. The emerging and frontier markets were even worse, falling by markets. Global equities fell by some 9.4% over the year. The US, despite the 14.6% and 16.4% respectively. A number of individual emerging markets hit weakness exhibited at the end of the year, was the best performing major bear market territory during the year, a fall of 20% or more, and notably developed market, although it fell by 5.7%. Amongst the other major China fell by 18.9% as it battled with slowing growth and trade wars. Asset Class performance (in USD) 20% 10% 0% 17% 6% 5% 1% -3% -2% 0% -2% -2% -8% -7% -4% -4% -5% -6% -11% -10% -9% -9% -6% -15% -16% -14% -13% -15% -12% n r u t e R % -22% -19% -24% -22% -25% -20% -30% -40% -50% N orth A m erica D evelo ped M arkets E m ergin g M arkets Fro ntier M arkets M /E M /F M ) U K Japa n Euro pe G er m a ny Fra nce Brazil R ussia In dia Equities Commodities Fixed Income Currencies Glo bal M arkets (D Source: Bloomberg. C hin a Africa C E M BI Diversified E M BI Glo bal Glo bal Hig h Yield m o dity In dex Glo bal Treasury Glo bal A ggregate C orp orate B o n d E M Glo bal Diversified Blo o m berg C o m G old W TI C ushin g C o p per U S D /E U R U S D /G B P U S D /JP Y U S D /B RL U S D /C H F Bars represent YTD to end December 2018 Represent quarterly returns to end December 2018 Whilst these numbers are disappointing, in practice sporadic periods of This nightmare scenario for multi-asset investors resulted in their worst weakness in equity markets are quite normal. What is not normal are falls performance in many years. The table below highlights just how unusual this across all asset classes and this is what we saw in 2018. The blend of is and the stark contrast between 2018 and 2017 with the latter almost deteriorating economic growth, shifting sands in monetary policy and the geo- entirely positive across all asset classes for the year. political machinations impacted equities, bonds, real assets and commodities. 14 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 15 Ocean Wilsons Holdings Limited/Annual Report 2018 Source: Bloomberg. Cumulative portfolio returns OWIL (Gross time-weighted) OWIL (Net)1 Performance benchmark2 MSCI ACWI + FM NR MSCI Emerging Markets NR 2018 -3.1% -4.1% 4.9% -9.4% -14.6% 3 years p.a. 5 years p.a. 10 years p.a. 4.6% 3.5% 5.0% 6.6% 9.3% 3.9% 2.8% 4.3% 4.3% 1.6% 5.2% 4.1% 3.7% 9.4% 8.0% 1. The OWIL net performance is net of investment management and performance fees. 2. The OWIL Performance Benchmark which came in to effect on the 1st January 2015 is US CPI Urban Consumers NSA +3% p.a. This has been combined with the old benchmark (USD 12 Month LIBOR +2%) for periods prior to the adoption of the current benchmark. 10 Year Cumulative Indexed Returns 300 280 260 240 220 200 180 160 140 120 100 80 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Ocean Wilson (Investments) Limited Performance Ocean Wilson (Investments) Limited Benchmark MSCI ACWI FM NR USD Bloomberg Barclays Global Treasury TR (Unhedged) Barclays 3 month USD Libor Cash MSCI Emerging Markets NR USD Source: Barclays, Bloomberg, MSCI. 15 Job No.: 37693 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 16 Ocean Wilsons Holdings Limited/Annual Report 2018 Investment Manager’s Report Portfolio Commentary 7.77x gross multiple of the investment cost with the majority of the proceeds The investment portfolio was down 4.1% on a net basis over the past 12 already returned to limited partners. This has taken the total amount months, underperforming its benchmark over the same period which rose by distributed to over 150% of invested capital and the total fund multiple to 4.9%. 2018 was a difficult year for the global economy with most markets 2.1x investment cost. The remaining three businesses are all food related with declining which was reflected in the portfolio. two of them, Bo’s Coffee and Bistronomia, proving to be more difficult investments with both currently valued below cost. A significant contributor to performance over the year was Hudson Bay International Fund, which rose by 5.9%. This fund seeks to achieve superior Greenspring Global Partners (“GGP”) IV and GGP VI were also strong risk-adjusted returns with low correlation to equity and bond markets. It is part performers, being held at total fund multiples of 2.5x and 1.8x of investment of the diversifying silo of the portfolio and it performed its role well in 2018. cost respectively. GGP IV, a 2008 vintage fund, is now mature and is There are four different strategies within this silo that are intended to produce producing significant distributions. Positions in Benchmark Capital VII, which a stable, low correlated return. The fund’s convertible strategy performed has investments in WeWork and Uber, and Bessemer Venture Partners VII particularly strongly during the year with no positions significantly detracting. Special Opps, with an investment in Pinterest, have been strong performers. The convertible positions benefited from the increased volatility the market The manager’s base case expectation for this fund is a 2.9x multiple of experienced over the course of the year. investment cost with the potential that it could be significantly higher than that. In GGP VI, a significant proportion of the underlying funds increased in Another strong performer was LF Odey Absolute Return Fund which was up value over the course of the year. This fund of funds is a 2014 vintage and so 8.6% for the year. The performance of this UK focused hedge fund was driven many of the early investments are now starting to see growth in values. There mainly by its short book, partly offset by negative returns in the long book have also been several realisations in the direct portfolio including Chewy and currency hedges. The top contributor from the long book was a position which earned a gross multiple of 8.7x investment cost following its acquisition in Plus500 that operates in the CFD trading space. The company continued to by PetSmart. win market share and new tighter regulations were thought likely to benefit it more than its peers. However following the year end the share price of In terms of new commitments, a €2.2m investment was made to Five Plus500 fell significantly after it was forced to clarify statements in its 2017 Arrows Principal Investments III at the end of 2018. This is a fund from a annual report. This has detracted from the fund’s performance in early 2019 highly experienced team within the Rothschild & Co network and will target although the manager maintains confidence in the holding. lower middle market European companies. Other new commitments made in 2018 were to Triton Fund V (€2.14m), PAI Europe VII (€2.5m), GGP IX Indus Japan Long Only Fund was one of the weaker performers, ending ($1.0m), Baring Asia Private Equity Fund VII ($4.0m) and Reverence down 26.4% for the year. This poor performance was mainly due to a very Capital Partners Opportunities Fund II ($2.5m). difficult month in December with a position in Showa Denko being one of the main negative contributors. The manager believes that the market is Outlook fundamentally overestimating the threat of a supply and/or demand shock in Clearly market sentiment has taken a significant knock in recent months. In the chemical industry and that the company’s earnings will grow in 2019. the short-term this likely makes share prices particularly sensitive to newsflow, Takeda Pharmaceutical was also a negative performer as price volatility especially that which confirms investors’ worst fears. However, any signs of increased significantly ahead of the closure of its acquisition of Shire PLC in normalisation are likely to lead to investors questioning whether this is indeed January 2019. the end of the current stock market cycle and with it, to reassess the outlook We continued to add some lower risk investments to the portfolio, with a for equity markets. position added in Apollo Total Return Fund which is a long-only core fixed That’s not to say we are raging bulls. What we have been experiencing in income strategy, with low correlation to traditional fixed income. The manager recent months is classic late cycle performance where volatility is the norm – has consistently produced stable returns in multiple market environments. undoubtedly the best of the current cycles returns are behind us with returns During the year we completed the switch of the Japan holdings (Goodhart almost certainly lower now than earlier in the cycle. Hence we remain flexible Partners: Hanjo Fund and Indus Japan Long Only Fund) from the hedged and believe a balanced approach seems appropriate albeit with upside still on share class into the unhedged share class. offer through judicious country, sector and thematic investment selection. On the private asset side of the portfolio it was generally a positive year. One of the top contributors during the year was Navegar I. The Philippine focused fund has made five investments, two of which are now realised. The strong performance during the year was mainly due to the realisation of an investment in TaskUs, a technical support outsourcer for US technology companies. This business was sold in 2018 to the Blackstone Group for a 16 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 17 Ocean Wilsons Holdings Limited/Annual Report 2018 Investment Portfolio at 31 December 2018 Findlay Park American Fund Adelphi European Select Equity Fund Egerton Long – Short Fund Limited BlackRock European Hedge Fund NTAsian Discovery Fund Goodhart Partners: Hanjo Fund Pangaea II, LP Lansdowne Developed Markets Fund Helios Investors II, LP GAM Star Fund PLC – Technology Top 10 Holdings NG Capital Partners II, LP Schroder ISF Asian Total Return Fund Select Equity Offshore, Ltd Greenspring Global Partners IV, LP Hony Capital Fund V, LP L Capital Asia 2, LP Vulcan Value Equity Fund Global Event Partners Ltd Hudson Bay International Fund Ltd Indus Japan Long Only Fund Top 20 Holdings Prince Street Opportunities Fund Silver Lake Partners IV, LP Greenspring Global Partners VI, LP Gramercy Distressed Opportunity Fund II, LP Primary Capital IV, LLP African Development Partners, LLC AMED Fund, SICAR L Capital Asia, LP China Harvest II, LP MCP Private Capital Fund II, LP Top 30 Holdings 37 Remaining Holdings Cash TOTAL Market value US$000 21,706 11,709 11,344 9,511 9,011 8,958 7,043 6,654 6,595 6,395 98,926 6,254 6,188 6,163 6,128 5,730 5,674 5,535 5,400 5,334 5,333 156,665 % of NAV 8.4 4.5 4.4 3.7 3.5 3,5 2.7 2.6 2.5 2.5 38.3 2,4 2.4 2.4 2.4 2.2 2.2 2.1 2.1 2.1 2.1 60.7 Primary Focus US equities – long only Europe equities – long only Europe/US equities – hedge Europe equities – hedge Asia ex-Japan equities – long only Japan equities – long only Private Assets – GEM Europe/US equities – hedge Private Assets – Africa Technology – long only Private Assets – Latin America Asia ex-Japan equities – long only US equities – long only Private Assets – US Venture Capital Private Assets – China Private Assets – Asia (Consumer) US equities – long only Global equities – long/short Market Neutral – multi-strategy Japan equities – long only 5,048 1.9 Emerging Markets equities – long only Private Assets – Global Technology Private Assets – US Venture Capital Private Assets – distressed debt Private Assets – Europe Private Assets – Africa Private Assets – Africa Private Assets – Asia (Consumer) Private Assets – China Private Assets – European Credit 4,215 4,011 3,930 3,862 3,464 3,441 3,394 3,114 3,069 194,213 57,117 7,581 258,911 1.6 1.5 1.5 1.5 1.3 1.3 1.3 1.2 1.2 75.0 22.1 2.9 100.0 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 17 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 18 Ocean Wilsons Holdings Limited/Annual Report 2018 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 M Mitchell Profiles of Non-executive Directors Bermuda Office PO Box HM 2250 Richmond House 12 Par-la-Ville Road Hamilton HM JX Bermuda Website: www.oceanwilsons.bm Registered Office PO Box HM 1022 Clarendon House Church Street Hamilton HM DX Bermuda Mr J F Gouvêa Vieira is Brazilian, aged 69 and joined the Group in 1991. He is a partner of the Brazilian law firm of Gouvêa Vieira Advogados. He is Registrars chairman of Wilson Sons Limited. Mr Gouvêa Vieira is also a member of the Conyers Corporate Services (Bermuda) Limited Corporate Governance Committee for the American Chamber of Commerce in São Paulo. Mr W Salomon is German and British, aged 61 and joined the Group in 1995. He is senior partner of Hansa Capital Partners LLP. He is also a non-executive director of Hansa Trust PLC and Wilson Sons Limited. Mr A Berzins is aged 59 and joined the Group in 2014. He is British and resident in Singapore. He is a non-executive director of Aberdeen Global SICAV, Aberdeen Islamic SICAV, Aberdeen Liquidity Fund (Lux) SICAV and Aberdeen Alpha SICAV- FIS. Mr C Maltby is aged 68 and joined the Group in 2013. He is British and resident in Switzerland. He is a Director of Abingworth BioEquities Fund Limited, B H Macro Limited and Chairman of the Supervisory Board of BBGI SICAV SA. Mr A Rozental is Mexican and joined the Group in 2010. He is aged 73 and is the founding partner of Rozental & Asociados. He is a non-executive director of Wilson Sons Limited and HSBC Bank Mexico. He is an external advisor to AT&T, Airbus Mexico, Toyota de México and Canada's Brookfield Asset Management. Mr C Townsend is German and British and resident in Switzerland. He is aged 45 and joined the Group in 2011. He is a solicitor and has an MBA from the Clarendon House Church Street Hamilton HM 11 Bermuda UK Transfer Agent Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Ocean Wilsons Dividend Address Ocean Wilsons Dividend Election Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Auditor Ernst & Young LLP 1 More London Place London SE1 2AF London Business School. He is investment director of Hansa Capital GmbH. Bankers HSBC Bank Bermuda Limited Investment Manager Hanseatic Asset Management LBG Guernsey, Channel Islands 18 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 19 Ocean Wilsons Holdings Limited/Annual Report 2018 Report of the Directors The Directors submit herewith their Report and Accounts for the year ended The Directors who held office at 31 December 2018 had the following interest 31 December 2018. in the Company shares: The Group accounts, presented under International Financial Reporting Standards (IFRS), comprise the Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Interest 2018 2017 J F Gouvêa Vieira Beneficial 170,100 170,100 K Middleton Beneficial 30,000 30,000 Equity, Consolidated Cash Flow Statement and the related notes 1-38. W Salomon* Beneficial 4,659,349 4,659,349 Profits and Dividends C Townsend* Beneficial 3,969,049 3,969,049 As permitted by Section 84(1A) of the Bermuda Companies Act 1981 the C Maltby Beneficial 9,000 9,000 Group’s accounts have been drawn up in accordance with International Financial Reporting Standards. The Group’s profit after tax on ordinary activities attributable to equity shareholders amounted to US$13,308,000 (2017: US$78,315,000). The Directors are recommending the payment of a dividend for the year of 70c (2017: 70c) per share. The dividend will be paid on 7 June 2019 to all shareholders who are on the register at close of business on 10 May 2019. 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 Manager 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 180 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 Manager’s report and Financial review on pages 6 to 17. Directors and Directors’ Interests The present Members of the Board are as shown on page 18. A Berzins Beneficial 5,000 5,000 * Additional indirect interests of Mr W Salomon and Mr C Townsend in the Company are set out in substantial shareholdings below. Mr W Salomon is Chairman of Hanseatic Asset Management LBG. Mr C Townsend is a director of Hansa Capital GmbH, a wholly owned subsidiary of Hanseatic Asset Management LBG. Fees paid to Hanseatic Asset Management LBG amounted to US$2,742,000 (2017: US$2,597,000) for acting as investment managers of the Group’s investment portfolio. No performance fee is payable to the Investment Manager in 2018, (2017: US$113,000). Service Contracts Regarding the Directors proposed for re-election at the Annual General Meeting there are no service contracts between Mr J F Gouvea Vieira or Mr C Maltby and the Company. Employees The average number of persons, including Directors, employed by the Group was 4,103 (2017: 4,164). Share option plan On 13 November 2013, the board of Wilson Sons Limited approved a Share Option Plan, which allowed for the grant of options to eligible participants to be selected by the board. The shareholders in special general meeting approved the plan on the 8 January 2014 including an increase in the authorised capital of the company through the creation of up to 4,410,927 new shares. The options provide participants with the right to acquire shares via Brazilian Depositary Receipts (“BDR”) in Wilson Sons Limited at a pre- determined fixed price not less than the three-day average mid-price for the days preceding the date of option issuance. In accordance with the Company’s (Ocean Wilsons Holdings Limited) bye-laws, The following grants have been issued under the Stock Option Plan. Mr J F Gouvea Vieira, Mr C Maltby and Mr A Rozental retire at the next Annual Number of Exercise General Meeting and, being eligible Mr J F Gouvea Vieira and Mr C Maltby Date of Grant options price offer themselves for re-election until the following Annual General Meeting. January 2014 2,914,100 R$ 31.23 November 2014 139,000 R$ 33.98 August 2016 250,000 R$ 34.03 May 2017 61,000 R$ 38.00 November 2017 72,000 R$ 40.33 Further details are provided in note 32. 19 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 20 Ocean Wilsons Holdings Limited/Annual Report 2018 Report of the Directors Auditor conduct a search for appropriate candidates with the right blend of skills Ernst & Young LLP were appointed auditor at the 2018 Annual General and experience which are then submitted to the Board for evaluation. Meeting and have expressed their willingness to continue in office as auditor and a resolution to reappoint Ernst & Young LLP under the provisions of • The Code states that non-executive directors who have served longer Section 89 of the Bermuda Companies Act 1981 will be proposed at the than nine years should be subject to annual re-election. forthcoming Annual General Meeting. Substantial Shareholdings Directors serving more than nine years are not subject to annual re- election as the Board considers continuity and knowledge of the As at 1 March 2019 the Company was aware of the following holdings of its Company’s investments and business acquired over time is of great value. shares, in excess of 3% of the issued ordinary share capital: The non-executive Directors who have served longer than nine years are Name of holder Number of shares % held Hansa Trust PLC 9,352,770 26.45 Victualia Limited Partnership 4,435,064 12.54 C Townsend 3,969,049 11.22 Utilico Emerging Markets Utilities Limited 2,019,344 5.71 Mr J F Gouvêa Vieira and Mr W Salomon. The Board is considering the 2018 UK Corporate Governance Code which was published in July 2018 and takes effect for the financial year commencing 1 January 2019. The Board is considering the implications of the new code to the Group and taking action where appropriate. Dynamo Administração de Recurso 1,728,854 4.89 The Board Canaccord Genuity Group Inc 1,537,953 4.35 The Board currently comprises the chairman, Mr J F Gouvêa Vieira, deputy The Company has been advised that Mr W Salomon is interested in 4,435,064 shares registered in the name of Victualia Limited Partnership. The Company has also been advised that Mr W Salomon has an interest in 26.4% and Mr C Townsend an interest in 25.9% of the voting shares of Hansa Trust PLC. 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 the Company. The Board has considered the principles and recommendations of the 2016 UK Corporate Governance Code (“the Code”) issued by the Financial Reporting Council (available on the FRC website www.frc.org.uk) and decided to apply those aspects which are appropriate to the business. This reflects the fact that Ocean Wilsons Holdings Limited is an investment holding company incorporated by an act of parliament in Bermuda with significant operations in Brazil. The Company complies with the Code where it is beneficial for its business to do so and has done so throughout the year and up to the date of this report, but as noted below, it does not fully comply with the Code. The position is regularly reviewed and monitored by the Board. Below are the areas where Ocean Wilsons Holdings Limited does not comply with the 2016 UK Corporate Governance Code and the rationale for not complying: • The Code states the Company should have a Board nomination committee. The Board does not have a separate nomination committee as the identification and appointment of a new Board member is a matter for the full Board. The Board evaluates the balance of skills, experience, independence and knowledge on the Board and, in the light of this evaluation, prepares a description of the role and capabilities required for a particular appointment. An independent external search consultant will 20 chairman Mr W Salomon, a further four non-executive directors, Mr A Berzins, Mr C Maltby Mr A Rozental and Mr C Townsend and one executive director, Mr K Middleton. Mr Berzins, Mr Maltby and Mr Rozental 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 appear on page 18. 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 and Mr C Maltby 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 18 as part of their biographies and the Board is satisfied that these commitments do not conflict with their ability to carry out effectively their duties as directors of the Company. The division of responsibilities between the chairman and the executive director have been clearly established, set out in writing and agreed by the Board. The Group does not have a chief executive. The Board has appointed an executive director, Mr K Middleton, to administer Ocean Wilsons Holdings Limited. Our subsidiary, Wilson Sons Limited (an autonomous listed company) is supervised by the board of Wilson Sons Limited who have appointed Mr C Baião as chief executive to run the business in Brazil. The chief executive in turn delegates responsibility to senior executives, in particular strategic business unit directors. Ocean Wilsons Holdings Limited manages its interest in Wilson Sons Limited through the appointment of three Ocean Wilsons Holdings Limited directors as non-executive directors of Wilson Sons Limited, (presently Mr J F Gouvêa Vieira, Mr W Salomon and Mr A Rozental), voting on matters requiring Wilson Sons Limited shareholder approval and through the relationship agreement between Ocean Wilsons Holdings Limited and Wilson Sons Limited signed following the listing of Wilson Sons Limited on the Sao Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 21 Ocean Wilsons Holdings Limited/Annual Report 2018 Paulo and Luxembourg Stock Exchanges. The relationship agreement details • Appointment of Ocean Wilsons Holdings Limited directors to the Board of areas of co-operation between Ocean Wilsons Holdings Limited and Wilson Wilson Sons Limited; Sons Limited in meeting accounting, reporting and compliance requirements for both companies. • To approve changes in Wilson Sons Limited auditor or accounting The Board delegates authority to manage the portfolio of investments to Hanseatic Asset Management LBG. • Agree the strategy of Wilson Sons Limited; policies; The Ocean Wilsons Holdings Limited Board has a formal schedule of matters • Undertaking a formal and rigorous annual evaluation of its own specifically reserved for its attention. As previously stated, autonomy is given performance and that of its committees and individual directors; and to the Wilson Sons Limited board to supervise the Wilson Sons Limited business and decisions taken by the Wilson Sons board do not require • Review of the Company’s overall corporate governance arrangements. ratification by the Board of Ocean Wilsons Holdings Limited. The schedule of matters reserved for the Board of Ocean Wilsons Holdings Limited includes: The Board of Ocean Wilsons (Investments) Limited is currently constituted by • Determining the overall strategy of the Group; Maltby, an independent director is the chairman of the Board of Ocean Wilsons (Investments) Limited. The Board delegates authority to run the • Determining the responsibilities of the chairman and directors; investment portfolio held by Ocean Wilsons (Investments) Limited to the • Approving changes to the capital structure of the Company or other (Investments) Limited has a formal schedule of matters specifically reserved matters relevant to its status as a listed Company; for its attention which include: Investment Manager within certain guidelines. The Board of Ocean Wilsons the same directors as the Board of Ocean Wilsons Holdings Limited. Mr C • Approving significant matters relating to capital expenditure, acquisitions • Appointment, removal and terms of the Investment Manager; and disposals and consideration of significant financial matters outside the Wilson Sons Limited Group; • Determine investment guidelines and restrictions in conjunction with the • Appointment of directors to Ocean Wilsons Holdings Limited and Ocean Wilsons (Investments) Limited; • Approval of the investment objective and benchmark; Investment Manager; • Selection of the chairman of the Board; • To approve and set borrowing limits; • Appointment and removal of the company secretary; • To approve and set limits on the use of derivative instruments; • Appointment and removal of executives; • Review the performance of the Investment Manager; • To decide on potential conflicts of interest and authorise potential • Approval of the annual accounts for Ocean Wilsons (Investments) Limited; conflicts; • Approval of annual and interim reports; • Approving any dividends; and • Appointment, removal and terms of the custodian of Ocean Wilsons • Proposing any dividends and dividend policy; (Investments) Limited. • Appointment of external auditor, financial advisor or corporate broker; The Company has a procedure in place by which directors can seek • Establishing the finance committee and their terms of reference; The Board has full and timely access to all relevant information to enable it to independent professional advice at the Company’s expense if the need arises. • Determining membership and Chairmanship of Board Committees; perform its duties. The Company has directors and officers insurance in place. The executive director is responsible for advising the Board on all corporate • To approve any agreements or amendments to agreements between matters. Each director has access to the advice and services of the company Ocean Wilsons Holdings Limited and Wilson Sons Limited including the secretary Mr M Mitchell and the executive director. relationship agreement; • To vote the shares in Wilson Sons Limited on matters presented to Board were held at different locations. Details of attendance at Board shareholders of Wilson Sons for shareholder approval; meetings and meetings of the Board committees are set out below. In addition During 2018, four scheduled meetings of the Ocean Wilsons Holdings Limited 21 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 22 Ocean Wilsons Holdings Limited/Annual Report 2018 Report of the Directors to scheduled Board meetings if matters arise at short notice requiring urgent Remuneration attention a telephone Board meeting is arranged. During 2018 one telephone Non-executive Directors’ fees are set out within limits set in the Company’s Board meeting was held. Articles of Association. The present limit is US$700,000 in aggregate per annum and the approval of shareholders in a General Meeting is required to Directors’ attendance at Board and finance committee meetings: change this amount. Finance Committee The Board of Wilson Sons Limited is responsible for all remuneration matters Board Meetings Meetings Director attended attended Mr J F Gouvêa Vieira 5 4 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 Mr W Salomon 5 4 Limited. Mr K Middleton 5 – Mr A Rozental 5 4 Board Committees Mr C Townsend 5 4 Mr C Maltby 5 4 Mr A Berzins 4 4 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 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 finance committee acts as the audit and remuneration committee. The committee’s terms of reference are available at the Company’s registered office. Mr A Berzins, an independent director, is the chairman of the finance committee. The Board reviews 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. The non-executive directors also meet informally, without any executives present, to discuss matters in respect of the business. All new directors participate in an induction program 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. Directors make periodic operational site visits. 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 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 The Board undertakes an annual formal performance evaluation for the Board one other director. 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. Board Diversity Policy The Board considers diversity, including the balance of skills, experience, knowledge and nationality, amongst many other factors, when reviewing the appointment of new Directors. The Board does not consider it appropriate to establish targets or quotas in respect of Board appointments. With respect to gender diversity, the Board considers that a merit based approach is the only appropriate approach for determining the composition of the Board and as such has not set specific targets for gender diversity. (c) If thought fit, a resolution will be submitted to the Board for the appointment of the candidate. Finance Committee report The Finance Committee comprises all non-executive directors, three of whom are considered by the Board to be independent during 2018. The Board is satisfied that during 2018 four directors, Mr C Maltby, Mr W Salomon, Mr A Berzins and Mr A Rozental, have recent and relevant financial experience as all have served on the audit committees of other listed companies. Mr W Salomon also has considerable experience in finance and investment banking and Mr C Maltby and Mr A Berzins both hold accounting qualifications. 22 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 23 Ocean Wilsons Holdings Limited/Annual Report 2018 The Finance Committee met four times in 2018. At the request of the Finance • reviewed the assumptions used in the impairment test on Brasco goodwill Committee the chief executive of Wilson Sons Limited, the finance director of including long-term operating assumptions, capital expenditure Wilson Sons Limited and the executive director of Ocean Wilsons Holdings assumptions and discount rate. Based on these assumptions and Limited attended each of these meetings. The external auditor attended one sensitivities tested no impairment was made in 2018; meeting. The Finance Committee meets with the external auditor without the executive present. • reviewed a study carried out by the Group on impacts resulting from the application of IFRS 16 – Leases. As a result of the implementation of IFRS The Committee has defined terms of reference. The principal responsibilities of 16 on the 1 January 2019, the Group will recognise a right of use asset the Committee are: and a lease liability at a present value of US$176.4 million. The impact is principally due to the recognition of lease liabilities and associated right- • to review the integrity of the interim and full year financial statements of of-use assets for leases previously recognised as operating leases; the Company, reviewing significant financial reporting judgements contained in them; • reviewed the impacts resulting from the application of IFRS 15 – Revenue • to review the Company’s internal control and risk management systems; changes introduced by the new standard and concluded that its adoption • to make recommendations to the Board, for it to put to the shareholders customers, or on the measurement. The new standard impacted the for their approval in general meeting, in relation to the appointment, presentation and disclosure in the financial statements, requiring the reappointment and removal of the external auditor and to approve the Group to disaggregate revenue recognition into categories and disclose remuneration and terms of engagement of the external auditor; information about its performance obligations from contracts with will not impact the timing for revenue recognition from contracts with from Contracts with Customers. The Group assessed the principles and • to review and monitor the external auditor’s independence and customers; objectivity and the effectiveness of the audit process, taking into • reviewed the impacts resulting from the application of IFRS 9 – Financial consideration relevant professional and regulatory requirements; Instruments. IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables and contract • to consult with the Group’s auditor and, where necessary the auditor of assets, either on a 12-month or lifetime basis. The Group applied the the subsidiary companies, regarding any matters arising in the course of simplified approach and records lifetime expected losses on all trade the annual audit which should be brought to the attention of the Board; receivables. • to monitor the Group’s risk exposure; • reviewed and approved the scope of audit work to be undertaken by the • to consider the need for an internal audit function; auditor; • to determine the remuneration for all executives, the chairman and non- December 2018 financial statements including consideration of the levels executive directors; of non-audit fees which the committee concluded were immaterial; • agreed the fees to be paid to the external auditor for the audit of the • to determine the level of awards made under the Company long-term • assessed the qualification, expertise and resources, and independence of incentive plan and performance conditions and vesting periods that the external auditor; apply; • to determine bonuses payable under the Company Bonus scheme; and • reviewed the need for an internal audit function and; • received a report on aspects of the Brazilian legal environment and • to review arrangements by which staff of the Company may, in labour market reforms enacted in November 2017 and the implications confidence, raise concerns about possible improprieties in matters of for the Wilson Sons Group. financial reporting or other matters. To fulfil its responsibility regarding the independence of the external auditor, Overview of the actions taken by the Finance Committee to discharge the finance committee reviewed: its duties Since the beginning of 2018 the Finance Committee has: • the external auditor plan for the current year, noting the role of the audit • reviewed the December 2017 report and financial statements, the June professional rules, has not held office for more than five years and any partner, who signs the audit report and who, in accordance with 2018 half yearly financial report and the quarterly updates issued in May changes in key audit staff; and November 2018. As part of the review of the December 2017 report, the Committee received a report from the external auditor on their audit • a report from the external auditor describing their arrangements to of the annual report and financial statements; identify, report and manage any conflicts of interest; 23 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 24 Ocean Wilsons Holdings Limited/Annual Report 2018 Report of the Directors • the overall extent of non-audit services provided by the external auditor, Assets. The impairment test is performed by comparing the carrying value in addition to approving the provision of significant non-audit services by of goodwill to its value in use, calculated using the discounted cash flow the external auditor; forecasts under the principles of IAS 36. The committee examined and challenged management’s key assumptions used in the impairment tests • The last audit tender process was performed in 2016 to select a new to understand their impact on the recoverable amounts. The committee external auditor for 2017. The Finance Committee selected Ernst & Young was satisfied that the significant assumptions used were appropriate and LLP who were appointed by members at the Annual General Meeting sufficiently robust. The committee was further satisfied with the held in June 2017; impairment disclosures in the financial statements. • the external auditor provided non-audit services during the year to • Revenue recognition – The revenue recognition risk could arise from Wilson Sons Limited in relation to a remuneration structure analysis for inappropriate revenue recognition policies, the estimation of the logistics. Auditor objectivity and independence was safeguarded as the proportion of the stage of completion of construction contracts, incorrect team performing the work was separate and independent of the audit application of policies or cut-off errors surrounding year end. The team. No person involved in a financial reporting oversight role was committee considered the Group’s revenue recognition policies and the covered by this assignment; level of transactions compared to previous periods. The committee receives quarterly management reports on revenue and financial • The Committee has conducted its review of the performance of the performance with comparisons to budget and prior year. The committee external auditors and the effectiveness of the external audit process for reviews and questions management explanations for variances and the year ended 31 December 2018. The review was based on a survey of revenue performance. The committee also discusses potential risks key stakeholders across the Group, the quality of the auditors’ reporting surrounding revenue recognition with the external auditor and reviews to and interaction with the finance committee. Based on the information their audit findings. currently available and this review, the finance committee was satisfied with the performance of the auditors and the effectiveness of the audit • Investment valuation – The investment valuation risk arises from the process. valuation of the level 2 and 3 investments which requires significant judgements and estimates by management and external inputs. The In addition the Group does not currently employ any former external audit committee receives quarterly reports from the Investment Manager on staff. investment performance which includes historical performance analysis and management outlook for investment and market performance. The After discussion with management, the Board of Wilson Sons Limited and the committee reviews and questions the Investment Manager and obtains external auditor, the Committee determined that the key risks of misstatement explanations for investment performance and variations from market of the Group’s financial statements relate to: performance, investment expectations and potential risks to future performance. This information is considered in the valuation of level 2 • Provisions – Legal claims against the Brazilian operations comprise civil and 3 investments. The committee examined and challenged and environmental cases, tax cases and labour claims. The reporting risk management’s key assumptions used in the valuation of investments. The relates to the completeness of claims recorded and the estimation of the committee was satisfied that the significant assumptions used were provisions held against these exposures. There remain a significant appropriate. The committee was further satisfied with the disclosures in number of contingent liabilities, particularly concerning labour and the financial statements. The committee also discusses potential risks taxation claims. Provisions are based on prior experience, management’s surrounding investment valuation with the external auditor and reviews best knowledge of the relevant facts and circumstances and expert legal their audit findings. advice relative to each case. The committee questioned management on their assumptions used in determining provisions and the procedure for Internal Controls classification of legal liabilities as probable, possible or remote loss by the The Board is responsible for the system of internal control and reviewing its external lawyers. The committee reviewed quarterly legal reports from effectiveness. The internal controls are designed to cover material risks to management on contingencies and asked questions on the background achieving the Group’s objectives and include business, operational, financial and progress of material claims. The committee evaluated the current and compliance risks. These controls have been in place throughout the year. level of provisions in light of historical trends and claim history to ensure The internal controls are designed to identify, evaluate and manage rather provisions were adequate. The committee further ensured that adequate than eliminate risk of failure to meet business objectives. The internal control resources are allocated to recording, evaluating and monitoring legal process distinguishes between the parent group and the principal operating claims to ensure the completeness of claims recorded and provisions subsidiary, Wilson Sons Limited, which is managed by an autonomous board. made. • Impairment Risk to Goodwill and Intangibles – The Group has significant “BOVESPA” and Luxembourg Stock Exchange, whose rules are different from Goodwill and Intangibles balances. The reporting risk is that these the London Stock Exchange. The Wilson Sons Limited internal control balances may be overstated. Management perform impairment reviews procedures, whilst sufficient for its board to identify, manage and control the for Intangibles and tests goodwill as required by IAS 36, Impairment of principal risks, may differ from the requirements of the FRC’s Guidance on Risk Wilson Sons Limited is listed on both the Sao Paulo Stock Exchange 24 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 25 Ocean Wilsons Holdings Limited/Annual Report 2018 Management, Internal Control and Related Financial and Business Reporting. The principal risks and uncertainties faced by the Company are described The board of the principal operating subsidiary is responsible for identifying below and note 37 to the financial statements provides detailed explanations key business risks and establishing and reviewing internal control procedures. of the risks associated with the Company’s financial instruments. Description of risk Summary of implication Risk mitigation and management There is the risk of increased competition across all The industries in which we operate are highly We maintain sustained levels of capital our businesses as we operate in markets with competitive. If competitors are able to supply expenditure and investment in our assets and significant competition. services to our customers at a lower price, then we personnel to ensure we provide a high-quality may have to reduce our rates which would reduce service that meets our customers’ requirements our revenues as our industry is sensitive to price and continuously look to improve operational discounting. Competitors may take steps aimed at efficiency. We continue to invest in new improving the efficiency and competitiveness of technologies to enable us to maintain our their operations. Failure to invest in our businesses competitiveness. and the latest technology may result in lower demand, loss of market share and lower margins. Our Brazilian businesses operate in a highly Our businesses and markets are subject to We dedicate a significant amount of time and regulated environment and are subject to complex complex laws and regulations which significantly resources to understanding laws and regulations laws and regulations. impact how we operate. It is possible that and analyse the potential impacts of changes in regulations or laws may change in the future and laws or regulations on our business operations. may increase our costs or affect the manner in This is so we can react in an efficient and timely which we operate which could have an adverse manner and ensure compliance with laws and effect on us. regulations. Demand for the majority of our services is The majority of our revenue is derived from We are a market leader in many of our businesses substantially dependent upon the overall volume services linked to Brazilian trade volumes. Most of which helps to protect market share. We also of Brazilian domestic and international trade. our Brazilian businesses are sensitive to the rate of diversify our risk exposure by obtaining a growth in Brazilian GDP and trade flows. Decreases significant portion of our revenue from the in Brazilian growth or trade volumes could Brazilian offshore oil and gas industry. adversely affect our financial condition or results of operations. We are partially dependent on the Brazilian Changes in the level of exploration and production The majority of our businesses are not exposed to offshore oil and gas industry. expenditures and in oil and gas prices and industry the Brazilian offshore oil and gas industry. We aim perceptions about future oil and gas prices could to operate our offshore vessels under long-term materially decrease demand for our services. contracts to reduce volatility in revenue streams. Movements in the USD/BRL exchange rate. We are exposed to foreign exchange risk by virtue The Group’s borrowings are principally USD related of the fact that the Group reports in USD and has with 95% of borrowings USD denominated or revenues, costs, assets and liabilities in both BRL linked to the USD. A significant portion of the and USD. Therefore, movements in the USD/BRL Group’s pricing is denominated in USD which acts exchange rate influence the Group’s results both as a natural hedge to our long-term exchange rate positively and negatively from year to year. A exposure. higher average exchange rate negatively affects BRL denominated revenues and positively impacts BRL denominated costs when converted into our USD reporting currency. Contingent liabilities We are defendants in lawsuits where we In the normal course of business in Brazil, the understand, based on counsel’s opinions, that Group remains exposed to numerous local legal there is a possibility of loss, and for which we have claims. It is the Group’s policy to vigorously contest not made provision. Losing lawsuits for which we such claims, many of which appear to have little have not made provision may adversely affect our substance or merit, and to manage such claims financial results. through its legal counsel. 25 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 26 Ocean Wilsons Holdings Limited/Annual Report 2018 Report of the Directors Description of risk Summary of implication Risk mitigation and management The Group’s investment portfolio is exposed to The group’s activities expose it to losses arising The Board of Ocean Wilsons (Investments) Limited losses arising from equity price movements and from movements in equity prices and changes to determines investment guidelines and restrictions changes to foreign exchange and interest rates. foreign exchange and interest rates. in conjunction with the Investment Manager, these together with the Investment Managers reports are reviewed at the Ocean Wilsons (Investments) Limited board meetings. Investment guidelines are reviewed on a periodic basis by the Board. The investment portfolio is invested in a diversified range of asset classes and markets so the group is not exposed to one particular market or asset class. Poor long-term investment performance. Investment returns may not meet the group’s The Investment Manager performs due diligence investment objectives. on all potential investments prior to investing. The investment portfolio is managed by professional investment managers with extensive industry experience under agreed guidelines. The Board monitors the investment portfolio performance through the review of quarterly reports from the Investment Manager containing a detailed analysis of performance and comparison with relevant indices. The group requires funding in order to support its The risk is that Wilson Sons or Ocean Wilsons The Group remains soundly funded with sufficient business operations. The holding company is (Investments) Limited will not have access to cash resources, positive cash generation and funded from dividends received from Wilson Sons sufficient funding to finance their operational and access to borrowing to support its operations. The and Ocean Wilsons (Investments) Limited. investment activities Board monitors the performance of Wilson Sons and the investment portfolio through the review of quarterly reports. The Group has two distinctly separate investments: Wilson Sons, a maritime services company in Brazil and Ocean Wilsons (Investments) Limited which holds a portfolio of international investments. There is no recourse between the two investments. In addition, the Company holds no external debt. The Board reviews the need for an internal audit department annually and The systems operated both by the parent group and principal operating considers that the parent group is not sufficiently large to justify an internal subsidiary are reviewed annually. The Board is satisfied that these systems are audit function. Wilson Sons Limited operates an internal audit function and operating effectively. During the 2018 year end audit the external auditors the Wilson Sons Limited board monitors their internal financial control noted a number of control deficiencies in IT controls which have been systems through reports received from the internal audit function. reported to the finance committee. These deficiencies relate to access management, change management and IT operations management in Brazil. In reviewing Wilson Sons Limited, the Board receives reports from the Wilson These deficiencies and the improved controls implemented by management to Sons Limited legal department and the Wilson Sons Limited external auditor. address these issues were noted by the Committee. The parent group (including Ocean Wilsons (Investments) Limited) has an The Ocean Wilsons Holdings Limited employee whistle blowing policy is ongoing process for identifying, evaluating and managing key risks including designed to enable employees of the Company to raise concerns internally financial, operational and compliance controls. A risk register is maintained and at a high level and to disclose information which the individual believes detailing business risks, together with controls and responsibilities. The risk shows malpractice or impropriety. The Wilson Sons Limited Group whistle register is regularly reviewed by the finance committee. blowing policy and procedures enable employees who have concerns about the application of the Group’s Code of Ethics to raise them with the Wilson Sons Limited ethics committee. The ethics committee will maintain their anonymity and report back to the employee on actions taken. 26 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 27 Ocean Wilsons Holdings Limited/Annual Report 2018 Relations with Shareholders Wilson Sons Limited Communications with shareholders are important to the Board. Ocean Wilsons The assessment considered that the Wilson Sons Group business model has Holdings Limited sends both its annual report and accounts and half year proven to be strong in the long-term with a range of businesses that have accounts to all shareholders. To ensure Board members develop an consistently demonstrated their ability to trade, even in challenging market understanding of the views of major shareholders there is regular dialogue conditions, as evidenced in 2015 when the Group produced a solid with major institutional shareholders. The Deputy Chairman and executive performance despite the Brazilian Real depreciating 47% against the US director usually attend a number of these meetings. A report of meetings with Dollar in the year. Operational activities are funded by cash generated from shareholders is distributed to all directors. All broker reports are distributed to operations, while the Wilson Sons Group borrowings are used to finance all Board members. The Annual General Meeting of the Company is held in capital expenditure. The Wilson Sons Group borrowings are long-term with Bermuda. When a significant proportion of the votes have been cast against a defined repayment schedules repayable over different periods up to 18 years. resolution at an Annual General Meeting the Board will contact significant There is no recourse from Wilson Sons to the Company or Ocean Wilsons shareholders to understand the reasons behind their vote. The Company (Investments) Limited in respect of the Wilson Sons Limited borrowings. The website www.oceanwilsons.bm contains copies of the annual and interim Wilson Sons Group is not reliant on one particular customer: its largest report and stock exchange announcements. customer constituted approximately 5% of the Group’s revenue in 2018 (and Going Concern including joint venture revenue, 16%). In addition, Wilson Sons has opportunities to mitigate any adverse impacts given the flexible cost base of The Group closely monitors and manages its liquidity risk. The Group has some of their businesses. considerable financial resources including US$43.8 million in cash and cash equivalents and the Group’s borrowings have a long maturity profile. The Ocean Wilsons (Investments) Limited Group’s business activities together with the factors likely to affect its future In making the assessment for the investment portfolio, the Board has development and performance are set out in the Chairman’s Statement, considered matters such as significant stock market volatility, changes in Financial review and Investment Manager report on pages 1 to 17. The exchange rate and a significant reduction in the liquidity of the portfolio. The financial position, cash flows and borrowings of the Group are set out in the investment portfolio and cash under management at 31 December 2018 was Financial review on pages 6 to 10. In addition, note 37 to the financial US$258.9 million with outstanding capital commitments of US$35.6 million statements includes details of its financial instruments and hedging activities and no external debt. and its exposure to credit risk and liquidity risk. Details of the Group’s borrowings are set out in note 23. Based on the Group’s forecasts and We believe that if severe but plausible downside scenarios were to crystalise, sensitivities run, the directors have a reasonable expectation that the many of the individual risks disclosed would be likely to be confined to either Company and the Group have adequate resources to continue in operational Wilson Sons Limited or Ocean Wilsons (Investments) Limited. The risk is to the existence for the foreseeable future. For this reason, they continue to adopt valuation of the Group’s balance sheet rather than to the viability of the the going concern basis in preparing the accounts. Group. Viability statement Directors’ responsibilities In accordance with provision C.2.2 of the UK Corporate Governance Code, the The Directors are responsible for preparing the annual report in accordance directors have assessed the viability of the Group over a three year period to with applicable laws and regulations. 31 December 2021, taking into account the Group’s current position and potential impact of the principal risks and uncertainties. Based on this The Directors are required by Bermuda company law to lay financial assessment, the directors confirm that they have a reasonable expectation statements before the Company in a general meeting. In doing this the that the Company will be able to continue in operation and meet its liabilities Directors prepare accounts on a going concern basis for each financial year as they fall due over the period to 31 December 2021. 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 Whilst the directors have no reason to believe the Company will not be viable accounts, the Directors are required to: over a longer period, given the uncertainties involved in longer term forecasting the directors have determined that a three year period to • ensure suitable accounting policies have been adopted and applied 31 December 2021 is an appropriate period over which to provide its viability consistently; statement. The three year period also aligns with the rolling three year investment portfolio performance benchmark. • make judgements and estimates that are reasonable and prudent; In making the assessment, the directors have considered a number of factors • state that applicable accounting standards have been followed, subject to that affect the Group, including the principal risks and mitigating factors. The any material departures disclosed and explained in the accounts; directors also took account that the Group has two distinctly separate investments: Wilson Sons Limited, a maritime services company in Brazil and • provide additional disclosure when compliance with the specific Ocean Wilsons (Investments) Limited which holds a portfolio of international requirements of IFRS is insufficient to enable users to understand the investments. There is no recourse between the two investments. In addition impact of particular transactions, other events and conditions on the the Company holds no external debt. Company and Group financial position and financial performance; and 27 Job No.: 37693 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 28 Ocean Wilsons Holdings Limited/Annual Report 2018 Report of the Directors • present information, including accounting policies in a manner that provides relevant, reliable, comparable and understandable information. 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 Company Secretary 14 March 2019 28 Job No.: 37693 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 29 Ocean Wilsons Holdings Limited/Annual Report 2018 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only Opinion In our opinion: • the directors’ confirmation, set out on page 26, in the annual report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future • Ocean Wilsons Holdings Limited group financial statements (the “financial performance, solvency or liquidity; statements”) give a true and fair view of the state of the group’s affairs as at 31 December 2018 and of the group’s profit for the year then ended; • the directors’ statement, set out on page 27, in the financial statements about whether they considered it appropriate to adopt the going concern • the financial statements have been properly prepared in accordance with basis of accounting in preparing them, and their identification of any International Financial Reporting Standards (“IFRS”) as issued by the material uncertainties to the entity’s ability to continue to do so over a International Accounting Standards Board (“IASB”); and period of at least twelve months from the date of approval of the financial statements; We have audited the financial statements of Ocean Wilsons Holdings Limited (the “group”) which comprise: • whether the directors’ statement in relation to going concern required Consolidated statement of comprehensive income for the year then ended materially inconsistent with our knowledge obtained in the audit; or under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is Consolidated balance sheet as at 31 December 2018 • the directors’ explanation, set out on page 27, the annual report as to Consolidated statement of changes in equity for the year then ended how they have assessed the prospects of the entity, over what period Consolidated statement of cash flows for the year then ended Related notes 1 to 38 to the financial statements, including a summary of significant accounting policies they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or The financial reporting framework that has been applied in their preparation is assumptions. applicable law and IFRS as issued by the IASB. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Use of our report This report is made solely to the group’s members, as a body, in accordance Overview of our audit approach Key audit matters • Revenue recognition • Impairment risk to goodwill and intangible assets • Provisions and contingencies • Valuation of Level 2 and Level 3 investments Audit scope • We performed an audit of the complete financial information of 10 components and audit procedures on specific balances for a further 15 components. • The components where we performed full or specific audit procedures accounted for 88% of Profit before tax adjusted for foreign exchange losses, 90% of Revenue and 95% of Total assets. with Sections 90 and 98B of the Bermuda Companies Act 1981. Our audit Materiality • Overall group materiality was US$4.1m which work has been undertaken so that we might state to the group’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the group and the group’s members as a body, for our audit work, for this report, or for the opinions we have formed. Conclusions relating to principal risks, going concern and viability statement We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to: • the disclosures in the annual report, set out on page 25, that describe the principal risks and explain how they are being managed or mitigated; represents 5% of Profit before tax adjusted for foreign exchange losses. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. 29 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 30 Ocean Wilsons Holdings Limited/Annual Report 2018 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only Risk Our response to the risk Key observations communicated to the Finance Committee Revenue recognition risk • We walked through an understood the Based on the procedures performed we did not (2018: US$460.2 million; 2017: US$496.3 controls designed and implemented by the identify any evidence of material misstatement in million) group related to revenue recognition. the revenues recognised in the year. Refer to the Finance Committee Report (page 24); effectiveness of the controls, adopting a Accounting policies (page 49); and Note 3 of the substantive audit approach; However, we did not test the operating Financial Statements (pages 54 and 55). • We have executed a data analytics revenue Recognition of fictitious revenue or inappropriate testing approach, analysing the relationship revenue recognition for towage, containers between revenue, accounts receivable and handling and port operations services not yet cash using the entire population of journal rendered. The recognition of revenue could be entries affecting the revenue accounts. We susceptible to timing errors in determining when investigated and tested unusual postings services or performance obligations have been between the above accounts and corroborated provided or fulfilled, particularly given the group’s any exceptions to our expectations; many revenue streams and geographical spread and transactions in progress at year end. • We inspected significant new or renewed contracts, and/or changes to significant The risk has a decrease in focus in some existing contracts; components in the current year due significantly reduced amounts of accrued unbilled revenues at • We have obtained direct confirmation from the year end for agency, logistics, warehousing customers of contractual terms; services. In addition, there was no revenue related to shipbuilding contracts in progress at the year • We understood clauses such as those containing minimum volumes guarantees, surcharges, or rebate arrangements to consider and challenge whether these are appropriately accounted for including any estimation relevant to recognition decisions; • We have tested the appropriateness of revenue recognition, particularly with regard to cargo and vessel movements around the year end particularly those recorded as unbilled (accrued income) and reviewed and challenged estimates which may impact revenue recognition; and • We used substantive analytical procedures to identify and investigate unusual trading patterns and performing additional audit procedures where actual results are not in line with our expectations. end. 30 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 31 Ocean Wilsons Holdings Limited/Annual Report 2018 Risk Our response to the risk Key observations communicated to the Finance Committee Impairment risk to goodwill and intangible • We walked through and understood the Based on the results of the audit procedures, we assets controls designed and implemented by the consider that the estimates and assumptions used group over the impairment review. However, to derive the recoverable amount of goodwill and (2018: US$11.7 million goodwill and US$10.8 we did not test the operating effectiveness of intangible assets are reasonable and no million lease rights respectively; 2017: the controls, adopting a substantive audit impairment is required at the year end. There is US$12.3 million goodwill and lease rights approach; significant headroom when we compare the value US$13.1 million respectively) Refer to the Finance Committee Report (page 24); Accounting policies (pages 46 and 50); and Note 13 • We obtained management’s impairment model and reviewed and challenged the forecast discounted cash flows and of the Financial Statements (page 61) assumptions; in use with the carrying value of the assets. We have also assessed adequacy of the disclosures made by management in the financial statements and found them to be appropriate. The group’s investment in Brasco (Caju location) gave rise to goodwill and intangibles on acquisition. We continue to view the impairment risk related to Brasco as elevated due to its operating results and the continued depressed oil and gas market which it serves. The recoverable amount of the group’s goodwill and intangibles assets acquired from the acquisitions is tested at CGU level annually or when there is an indication of impairment. Due to the inherent uncertainty involved in forecasting and discounting future cash flows, which are the basis of assessing recoverability, this is one of the key judgmental areas that our audit is concentrated on as there is a risk that future performance may not achieve the levels required • We sensitised the assumptions to ascertain the most sensitive assumptions and noted the future forecast revenues, EBITDA margin and the discount rate used to discount the cash flows to be the most sensitive assumptions. In doing so we ascertained the extent of changes that individually, or in combination, would be required for goodwill to be impaired; • We tested whether the forecasts are in line with current approved budgets and forecasts; • We considered and assessed differences between past cash flow projections and actual cash flows (estimation reliability record) which might indicate management bias or excessive optimism in forecasting cash flows; to support their carrying value. • We involved our business valuation specialists The risk has decreased in focus, compared to the including assessing specific inputs into the prior year in relation to Tecon Rio Grande and Tecon Salvador as these assets have significant headroom in their impairment assessments. determination of the discount rate. Such inputs were benchmarked against those observable in the markets in which the group to assist us in our impairment testing, Therefore we have no longer considered the operates; impairment of the assets of such components as an area of significant or higher inherent audit risk. • We tested the mathematical accuracy of the impairment models; and • We reviewed the completeness of required disclosures. Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 31 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 32 Ocean Wilsons Holdings Limited/Annual Report 2018 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only Risk Our response to the risk Key observations communicated to the Finance Committee Provisions and contingencies • We walked through and understood the Based on the results of our audit procedures, we controls designed and implemented by the consider that the judgements made and estimates (2018: US$17.3 million, 2017: US$18.2 million) group over claims and litigation. However, we prepared by the group and the related disclosures The unprovided amounts for possible losses are did not test the operating effectiveness of the are materially correct and appropriate. We consider US$120.2 million (2017: US$140.5 million). controls, adopting a substantive audit the claims provided and disclosed are supported Refer to the Finance Committee Report (page 24); Accounting policies (page 50); and Note 27 of the Financial Statements (page 75) approach; by evidence and capable of reasonably reliable estimation. • We obtained a listing of all live claims and litigation, including details of quantum, appointed advisors, provided and disclosed In the normal course of business the group amounts; receives legal claims arising from: general civil proceedings, labour claims, changing tax legislation and environmental issues. Such claims are particularly prevalent in Brazil. The amounts involved are material and potentially material for provided and un-provided amounts. The application of accounting standards to determine the amount, if any, to be provided or disclosed as a liability or potential liability is inherently subjective and requires management to make judgements and estimates. • We obtained an understanding from management and in-house legal counsel of the basis for their judgements and best estimates of financial amounts. We challenged the basis of those judgements and estimates with reference to the latest available corroborative information, and assessed correspondence with the group’s external counsel on all significant legal cases and held discussions with them when further clarity was deemed necessary; • We obtained direct formal confirmations from the group’s external counsel for all litigation; • We engaged tax specialists to assist with assessing the reasonableness of the group’s material uncertain tax positions including reviewing correspondence with the relevant tax authorities and determination of quantum; • We considered cases settled or litigation concluded in the year and whether management’s previous judgements and estimates were proven to be reasonable and materially correct; and • We tested and reviewed the accuracy and completeness of disclosures in the financial statements. 32 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:18 Page 33 Ocean Wilsons Holdings Limited/Annual Report 2018 Risk Our response to the risk Key observations communicated to the Finance Committee Valuation of Level 2 and 3 investments • We walked through and understood the Based on the results of our audit procedures, we controls designed and implemented by the consider that the judgements made and estimates (2018: US$247.1 million, 2017: US$258.6 million) group over valuation of level 2 and 3 prepared by the group in valuing level 2 and level Refer to the Finance Committee Report (page 24); operating effectiveness of the controls, Accounting policies (page 51); and Notes 18 and 37 adopting a substantive audit approach; Management provided appropriate disclosures of the Financial Statements (pages 68 and 86) in the financial statements related to level 3 • We assessed the accounting policy for investments. investments. However, we did not test the 3 investments are acceptable. Valuation of the Level 2 and 3 investments requires significant judgements and estimates by management and external inputs. Any input inaccuracies or unreasonable basis used in these judgements could result in a misstatement of the income statement and balance sheet. investment valuation for compliance with accounting standards and performed testing to check that investment valuations were consistent with the stated accounting policy had been consistently applied; • We have determined and challenged the appropriateness of the valuation methodologies and techniques applied to the unquoted Level 2 and 3 investments and obtained independent support to corroborate the stated values for the same; • We have agreed valuation inputs to supporting documentation and tested the arithmetical accuracy of the group’s valuation calculations for its unquoted investments; • Where appropriate we tested the mathematical accuracy of any models used; and • We tested and reviewed the accuracy and completeness of disclosures in the financial statements. An overview of the scope of our audit Of the 13 components selected, we performed an audit of the complete Tailoring the scope financial information of 10 components (“full scope components”) which were selected based on their size or risk characteristics. For the remaining 3 Our assessment of audit risk, our evaluation of materiality and our allocation components (“specific scope components”), we performed audit procedures on of performance materiality determine our audit scope for each entity within specific accounts within that component that we considered had the potential the group. Taken together, this enables us to form an opinion on the financial for the greatest impact on the significant accounts in the financial statements statements. We take into account size, risk profile, the organisation of the either because of the size of these accounts or their risk profile. group and effectiveness of group-wide controls, changes in the business environment and other factors such as recent internal audit results when The reporting components where we performed full or specific scope audit assessing the level of work to be performed at each entity. procedures accounted for 88% of the group’s Profit before tax adjusted for foreign exchange losses (2017: 95% of group’s Profit before tax), 90% (2017: In assessing the risk of material misstatement to the group‘s financial 88%) of the group’s Revenue and 95% (2017: 95%) of the group’s Total statements, and to ensure we had adequate quantitative coverage of assets. For the current year, the full scope components contributed 88% of the significant accounts in the financial statements, of the 22 reporting group’s Profit before tax adjusted for foreign exchange losses (2017: 95% of components of the group, we selected 13 components covering entities in group’s Profit before tax), 81% (2017: 81%) of the group’s Revenue and 83% Bermuda, Brazil and Panama, which represent the principal business units (2017: 92%) of the group’s Total assets. The specific scope component within the group. contributed 9% (2017: 7%) of the group’s Revenue and 9% (2017: 3%) of the group’s Total assets. The audit scope of these components may not have 33 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:19 Page 34 Ocean Wilsons Holdings Limited/Annual Report 2018 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only included testing of all significant accounts of the component but will have greater than 1% of the group’s Profit before tax adjusted for foreign exchange contributed to the coverage of significant tested for the group. We also losses. For these components, we performed other procedures, including risk performed specified procedures on 5 locations over certain aspects of their focused analytical review, testing of consolidation journals and intercompany accounts, such as revenues, expenses and assets, when these were eliminations and foreign currency translation recalculations to respond to any individually material to the group’s financial statements. potential risks of material misstatement to the group’s financial statements. Of the remaining 4 components that together represent 1% of the group’s Profit before tax adjusted for foreign exchange losses, none are individually The charts below illustrate the coverage obtained from the work performed by our audit teams. Profit before tax adjusted for foreign exchange losses Revenue 88% Full scope components 0% Specific scope components 11% Specified procedures 81% Full scope components 9% Specific scope components 10% Specified procedures 1% Other procedures 0% Other procedures Total assets 86% Full scope components 9% Specific scope components 5% Specified procedures 0% Other procedures Involvement of the integrated team interacted regularly with the other location based teams where appropriate All audit work performed for the purposes of the audit was undertaken by an during various stages of the audit, reviewing key working papers and were audit team with individuals based out of United Kingdom (London and responsible for the scope and direction of the audit process. This, together Guernsey) and Brazil (Rio de Janeiro). with the additional procedures performed at group level, gave us appropriate evidence for our opinion on the group’s financial statements. The audit team continued to follow a programme of planned visits that has been designed to ensure that the Lead Audit Partner and the London based Our application of materiality team visits Brazil, being the key country of operation, three times during the We apply the concept of materiality in planning and performing the audit, in audit process. During the current year’s audit cycle, visits were undertaken by evaluating the effect of identified misstatements on the audit and in forming the London based team and the Lead Audit Partner to Brazil. These visits our audit opinion. involved involvement in planning, determining and directing the audit approach, reviewing and understanding issues arising from the audit work Materiality performed, meeting with local management, attending planning and closing The magnitude of an omission or misstatement that, individually or in the meetings and reviewing key audit working papers. In addition, the London aggregate, could reasonably be expected to influence the economic decisions of based team and the Lead Audit Partner visited 1 operational location in Brazil the users of the financial statements. Materiality provides a basis for determining during the audit process, being Tecon Salvador in addition to the head office the nature and extent of our audit procedures. in Rio de Janeiro. The London based team and the Lead Audit Partner 34 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:19 Page 35 Ocean Wilsons Holdings Limited/Annual Report 2018 We determined materiality for the group to be US$4.5 million (2017: Other information US$7.3 million), which is 5% of group’s Profit before tax adjusted for foreign The other information comprises the information included in the annual report exchange losses (2017: 5% of group’s Profit before tax). During the course of set out on pages 1 to 28, including Highlights, Chairman’s Statement, the audit, we reassessed initial materiality and decreased materiality from Financial Review, Wilson Sons Limited, Investment Portfolio, Investment original assessment determined at the planning stage to US$4.1 million due to Manager’s Report and Report of the Directors, other than the financial lower than anticipated results for the year. statements and our auditor’s report thereon. The directors are responsible for We believe that the group’s Profit before tax adjusted for foreign exchange the other information. losses provides us with a more appropriate reflection of the group’s activity Our opinion on the financial statements does not cover the other information and operational results in the year: and, except to the extent otherwise explicitly stated in this report, we do not Profit before tax • Profit before tax – US$60.2 million Adjustments • Foreign exchange losses – US$18.5 million • Correction of audit adjustments – US$2.6 million express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially Materiality • Profit before tax adjusted for foreign exchange misstated. If we identify such material inconsistencies or apparent material losses: US$81.3 million misstatements, we are required to determine whether there is a material • Materiality of US$4.1 million (5% of materiality misstatement in the financial statements or a material misstatement of the basis) other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to Performance materiality report that fact. The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the We have nothing to report in this regard. aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement was that performance In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements in the other information where materiality was 75% (2017: 50%) of our planning materiality, namely we conclude that those items meet the following conditions: US$3.1 million (2017: US$3.7 million). We have set performance materiality at this percentage based on our understanding of the business, professional • Fair, balanced and understandable set out on page 28 – the statement scepticism and prior year experience as we have reasonable assurance level of the low probability of material misstatement being present in the financial statements, unlike our first year audit. given by the directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s performance, business model and strategy, is materially inconsistent with Audit work at component locations for the purpose of obtaining audit our knowledge obtained in the audit; coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set • Finance Committee reporting set out on page 22 to 25 – the section for each component is based on the relative scale and risk of the component to the group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was US$0.9 million to US$2.3 million (2017: US$0.6 million to US$1.9 million). Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. describing the work of the Finance Committee does not appropriately address matters communicated by us to the Finance Committee; or • Directors’ statement of compliance with the UK Corporate Governance Code set out on page 20 – the parts of the directors’ statement required under the Listing Rules relating to the group’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. We agreed with the Finance Committee that we would report to them all uncorrected audit differences in excess of US$0.21 million (2017: Responsibilities of directors US$0.36 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. As explained more fully in the directors’ responsibilities statement set out on pages 27 and 28, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable We evaluate any uncorrected misstatements against both the quantitative the preparation of financial statements that are free from material measures of materiality discussed above and in light of other relevant misstatement, whether due to fraud or error. qualitative considerations in forming our opinion. 35 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:19 Page 36 Ocean Wilsons Holdings Limited/Annual Report 2018 Independent Auditor’s Report to the Members of Ocean Wilsons Holdings Limited Only In preparing the financial statements, the directors are responsible for • We assessed the susceptibility of the group’s financial statements to assessing the group and parent company’s ability to continue as a going material misstatement, including how fraud might occur by making an concern, disclosing, as applicable, matters related to going concern and using assessment of the key fraud risks to the group and the manner in which the going concern basis of accounting unless the directors either intend to such risks may manifest themselves in practice, including considering liquidate the group or to cease operations, or have no realistic alternative but management incentive schemes, areas of judgement and estimation, and to do so. internal controls. Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Auditor’s responsibilities for the audit of the financial statements Our procedures included testing journals and were designed to provide Our objectives are to obtain reasonable assurance about whether the financial reasonable assurance that the financial statements were free of fraud or statements as a whole are free from material misstatement, whether due to error. We evaluated the design and operational effectiveness of controls fraud or error, and to issue an auditor’s report that includes our opinion. put in place to address the risks identified, or that otherwise prevent, Reasonable assurance is a high level of assurance, but is not a guarantee that deter and detect fraud. We also considered performance targets and their an audit conducted in accordance with ISAs (UK) will always detect a material influence on efforts made by management to manage earnings. misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could • No instances of non-compliance or alleged non-compliance with laws reasonably be expected to influence the economic decisions of users taken on were identified other than those dealt with in note 27 to the financial the basis of these financial statements. statements, in responding to those matters the details of our audit work are set out earlier in this report. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud A further description of our responsibilities for the audit of the financial The objectives of our audit, in respect to fraud, are; to identify and assess the statements is located on the Financial Reporting Council’s website at risks of material misstatement of the financial statements due to fraud; to https://www.frc.org.uk/auditorsresponsibilities. This description forms part of obtain sufficient appropriate audit evidence regarding the assessed risks of our auditor’s report. material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected Other matters we are required to address fraud identified during the audit. However, the primary responsibility for the • We were appointed by the group on 31 August 2017 to audit the prevention and detection of fraud rests with both those charged with financial statements for the year ending 31 December 2017 and governance of the entity and management. subsequent financial periods. The period of total uninterrupted Our approach was as follows: engagement including previous renewals and reappointments is 2 years, covering the years ending 31 December 2017 to 31 December 2018. • We obtained an understanding of the legal and regulatory frameworks • The non-audit services prohibited by the FRC’s Ethical Standard were not that are applicable to the group and determined that the most significant provided to the group and we remain independent of the group in are: conducting the audit. – Those that relate to the form and content of the financial statements, • The audit opinion is consistent with the additional report to the Finance such as the group accounting policies, International Financial Committee. Reporting Standards (IFRS), Brazilian and Bermuda Company Law and the UK Corporate Governance Code; and – those that relate to the taxation law, labour law, and civil and environmental law in Brazil where the group has the majority of its operations. Steven Lunn • We understood how Ocean Wilsons Holdings Limited is complying with for and on behalf of Ernst & Young LLP, Statutory Auditor those frameworks by considering the potential for override of controls or other inappropriate influence over the financial reporting process, such as London 14 March 2019 efforts by management to manage earnings in order to influence the perceptions of analysts as to the entity’s performance and profitability, the culture of honesty and ethical behaviour and whether a strong emphasis is placed on fraud prevention, which may reduce opportunities for fraud to take place, and fraud deterrence, which could persuade individuals not to commit fraud because of the likelihood of detection and punishment. 36 Job No.: 37693 Job No.: 37693 Proof Event: 1 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp1-37.qxp_37693 U Ocean Wilsons R&A 2018 pp1-7 04/04/2019 11:19 Page 37 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes: 1. The maintenance and integrity of the Ocean Wilsons Holding Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site. 2. Legislation in Bermuda and the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Job No.: 37693 Proof Event: 5 Park Communications Ltd Alpine Way London E6 6LA 37 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 38 Ocean Wilsons Holdings Limited/Annual Report 2018 Consolidated Statement of Comprehensive Income for the year ended 31 December 2018 Year to Year to 31 December 31 December 2018 2017 Notes US$’000 US$’000 Revenue 3 460,196 496,340 Raw materials and consumables used (38,128) (37,679) Employee benefits expense 6 (146,327) (166,395) Depreciation & amortisation expense 5 (56,178) (57,481) Other operating expenses (119,767) (122,310) Loss on disposal of property, plant and equipment (296) (2,930) Operating profit 99,500 109,545 Share of results of joint venture 17 (4,062) 3,366 Returns on investment portfolio at fair value through profit and loss 7 (7,942) 42,064 Other investment income 8 4,152 9,715 Finance costs 9 (22,951) (21,976) Foreign exchange (losses)/gains on monetary items (8,459) 2,750 Profit before tax 5 60,238 145,464 Income tax expense 10 (26,433) (36,056) Profit for the year 5 33,805 109,408 Other comprehensive income: Items that will never be reclassified subsequently to profit and loss Post-employment benefits (187) (374) Exchange differences arising on translation of foreign operations (39,336) (6,485) Items that are or may be reclassified subsequently to profit and loss Effective portion of changes in fair value of derivatives 542 557 Other comprehensive expense for the year (38,981) (6,302) Total comprehensive (expense)/income for the year (5,176) 103,106 Profit for the period attributable to: Equity holders of parent 13,308 78,315 Non-controlling interests 20,497 31,093 33,805 109,408 Total comprehensive (expense)/income for the period attributable to: Equity holders of parent (9,278) 74,667 Non-controlling interests 4,102 28,439 (5,176) 103,106 Earnings per share Basic and diluted 12 37.6c 221.5c 38 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 39 Ocean Wilsons Holdings Limited/Annual Report 2018 Consolidated Balance Sheet as at 31 December 2018 As at As at 31 December 31 December 2018 2017 Notes US$’000 US$’000 Non-current assets Goodwill 13 27,515 30,319 Other intangible assets 14 25,468 30,592 Property, plant and equipment 15 602,451 634,881 Deferred tax assets 24 28,223 28,639 Related party loans 36 29,804 29,472 Recoverable taxes 22 25,603 28,067 Investment in joint ventures 17 26,528 26,644 Other non-current assets 27 7,446 9,535 Other trade receivables 21 483 565 773,521 818,714 Current assets Inventories 19 10,875 13,773 Financial assets at fair value through profit and loss 18 287,298 305,070 Trade and other receivables 21 73,671 73,558 Recoverable taxes 22 23,283 25,012 Cash and cash equivalents 43,801 83,827 438,928 501,240 Total assets 1,212,449 1,319,954 Current liabilities Trade and other payables 26 (57,640) (64,465) Derivatives 37 (422) (1,108) Current tax liabilities (719) (3,201) Obligations under finance leases 25 (46) (846) Bank overdrafts and loans 23 (60,209) (54,288) (119,036) (123,908) Net current assets 319,892 377,332 Non-current liabilities Bank loans 23 (247,097) (300,436) Derivatives 37 – (395) Employee benefits 38 (1,190) (1,083) Deferred tax liabilities 24 (50,023) (51,531) Provisions 27 (17,335) (18,232) Obligations under finance leases 25 (59) (309) (315,704) (371,896) Total liabilities (434,740) (495,894) Net assets (777,709) 824,060 Capital and reserves Share capital 28 11,390 11,390 Retained earnings 566,678 578,126 Capital reserves 31,760 31,760 Translation and hedging reserve (55,603) (33,115) Equity attributable to equity holders of the parent 554,225 588,161 Non-controlling interests 223,484 235,899 Total equity 777,709 824,060 The accounts on pages 38 to 92 were approved by the Board on 14 March 2019. The accompanying notes are part of this Consolidated Balance Sheet. J. F. Gouvêa Vieira K. W. Middleton Chairman Director 39 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 40 Ocean Wilsons Holdings Limited/Annual Report 2018 Consolidated Statement of Changes in Equity as at 31 December 2018 Attributable Hedging and to equity Non- Share Retained Capital Translation holders of controlling Total capital earnings reserves reserve the parent interests equity For the year ended 31 December 2017 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Balance at 1 January 2017 11,390 521,878 31,760 (29,685) 535,343 221,649 756,992 Currency translation adjustment – – – (3,754) (3,754) (2,731) (6,485) Employee benefits (note 38) – (218) – – (218) (156) (374) Effective portion of changes in fair value of derivatives – – – 324 324 233 557 Profit for the year – 78,315 – – 78,315 31,093 109,408 Total income and expense for the period – 78,097 – (3,430) 74,667 28,439 103,106 Dividends – (22,279) – – (22,279) (16,836) (39,115) Share options exercised in subsidiary – 430 – – 430 316 746 Share based payment expense – – – – – 2,331 2,331 Balance at 31 December 2017 11,390 578,126 31,760 (33,115) 588,161 235,899 824,060 For the year ended 31 December 2018 Balance at 1 January 2018 11,390 578,126 31,760 (33,115) 588,161 235,899 824,060 Currency translation adjustment – – – (22,803) (22,803) (16,533) (39,336) Employee benefits (note 38) – (98) – – (98) (89) (187) Effective portion of changes in fair value of derivatives – – – 315 315 227 542 Profit for the year – 13,308 – – 13,308 20,497 33,805 Total income and expense for the period – 13,210 – (22,488) (9,278) 4,102 (5,176) Dividends – (24,754) – – (24,754) (17,914) (42,668) Share options exercised in subsidiary – 96 – – 96 94 190 Share based payment expense – – – – – 1,303 1,303 Balance at 31 December 2018 11,390 566,678 31,760 (55,603) 554,225 223,484 777,709 Share capital The Group has one class of ordinary share which carries no right to fixed income. Capital reserves The capital reserves arise principally from transfers from revenue to capital reserves made in the Brazilian subsidiaries arising in the following circumstances: (a) profits of the Brazilian subsidiaries and Brazilian holding company which in prior periods were required by law to be transferred to capital reserves and other profits not available for distribution; and (b) Wilson Sons Limited bye-laws require the company to credit an amount equal to 5% of the company’s net profit to a retained earnings account to be called legal reserve until such amount equals 20% of the Wilson Sons Limited share capital. Hedging and translation reserve The hedging and translation reserve arises from exchange differences on the translation of operations with a functional currency other than US Dollars and effective movements on hedging instruments. Amounts in the statement of changes of equity are stated net of tax where applicable. 40 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 41 Ocean Wilsons Holdings Limited/Annual Report 2018 Consolidated Cash Flow Statement for the year ended 31 December 2018 Year to Year to 31 December 31 December 2018 2017 Notes US$’000 US$’000 Net cash inflow from operating activities 30 113,710 102,968 Investing activities Interest received 5,031 7,008 Dividends received from trading investments 2,133 3,361 Proceeds on disposal of trading investments 63,922 87,089 Purchase of trading investments (56,225) (77,275) Proceeds on disposal of property, plant and equipment 600 1,431 Purchase of property, plant and equipment (59,554) (30,746) Purchase of intangible assets (2,033) (4,196) Capital increase - WSUT 17 (4,003) – Net cash used in investing activities (50,129) (13,328) Financing activities Dividends paid 11 (24,754) (22,279) Dividends paid to non-controlling interests in subsidiary (17,914) (16,836) Repayments of borrowings (54,223) (54,690) Repayments of obligations under finance leases (665) (847) New bank loans raised 9,381 12,611 Derivative paid (771) (529) Net cash inflow arising from sale of non-controlling interest 29 190 746 Net cash used in financing activities (88,756) (81,824) Net (decrease)/increase in cash and cash equivalents (25,175) 7,816 Cash and cash equivalents at beginning of year 83,827 77,314 Effect of foreign exchange rate changes (14,851) (1,303) Cash and cash equivalents at end of year 43,801 83,827 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 41 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 42 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts for the year ended 31 December 2018 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 18. The nature of the Group’s operations and its principal activities are set out in the operating and financial review on pages 1 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 value. 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. The Group closely monitors and manages its liquidity risk. The Group has considerable financial resources including US$43.8 million in cash and cash equivalents and the Group’s borrowings have a long maturity profile. The Group’s business activities together with the factors likely to affect its future development and performance are set out in the Chairman’s statement, Operating review and Investment Manager’s report on pages 1 to 17. 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 37 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 23. 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. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year (collectively the “Group”). The Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interest’s share of changes in equity since the date of the combination. Where a change in percentage of interests in a controlled entity does not result in a change of control, the difference between the consideration paid for the additional interest and the book value of the net assets in the subsidiary at the time of the transaction is taken direct to equity. Foreign currency The functional currency for each Group entity is determined as the currency of the primary economic environment in which it operates (its functional currency). Transactions other than those in the functional currency of the entity are translated at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the statement of comprehensive income for the period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. On consolidation, the statement of comprehensive income 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. 42 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 43 Ocean Wilsons Holdings Limited/Annual Report 2018 2 Significant accounting policies and critical accounting judgements (continued) Investments in entities accounted for using the equity method The Group’s investments in entities accounted for using the equity method include its interests in jointly controlled (joint ventures) ventures. 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 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 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. 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. Stock option plan For equity-settled share-based payment transactions, the Group measures the options granted, and the corresponding increase in equity, directly, at the fair value of the option grant. Subsequent to initial recognition and measurement the estimate of the number of equity instruments for which the service and non-market performance conditions are expected to be satisfied is revised during the vesting period. The cumulative amount recognised is based on the number of equity instruments for which the service and non-market conditions are expected to be satisfied. No adjustments are made in respect of market conditions. Share-Based payment transactions 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 are 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. Defined health benefit plans The Group’s net obligation regarding defined health benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees receive in return for their service in the current period and prior periods. That health benefit is discounted to determine its present value. The calculation of the liability of the defined health benefit plan is performed annually by a qualified actuary using the projected unit credit method. Remeasurements of the net defined health benefit obligation, which include actuarial gains and losses, are immediately recognised in other comprehensive income. The Group determines the net interest on the net amount of defined benefit liabilities for the period by multiplying them by the discount rate used to measure the defined health benefit obligation. Defined benefit liabilities for the period take into account the balance at the beginning of the period covered by the financial statements and any changes in the defined health benefit net liability during the period due to the payment of contributions and benefits. Net interest and other expenses related to defined health benefit plans are recognised in income. 43 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 44 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) When the benefits of a plan are increased, the portion of the increased benefit relating to past services rendered by employees is recognised immediately in income. The Group recognises gains and losses on the settlement of a defined health benefit plan when settlement occurs. 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. The current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes or includes 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 current tax expense is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is the tax expected to be payable or recoverable on temporary differences and tax losses (i.e. differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit). Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences and tax losses to the extent that it is probable that taxable profits will be available against which those assets can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. The Company offsets current tax assets against current tax liabilities when these items are in the same entity and 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. Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items charged or credited directly to equity, in which case the tax is also taken directly to equity. 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. 44 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 45 Ocean Wilsons Holdings Limited/Annual Report 2018 2 Significant accounting policies and critical accounting judgements (continued) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost or valuation of assets, other than land and assets under construction, over their estimated useful lives, using the straight-line method as follows: Freehold Buildings: 25 to 60 years Leasehold Improvements: Lower of the rental period or useful life considering residual values Floating Craft: 25 to 35 years Vehicles: 5 years Plant and Equipment: 5 to 30 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 and borrowing costs 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 Group 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. 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. Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. 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 the profit or loss in the period in which they are incurred. Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. 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 as follows. Lease rights: 10 to 33 years Computer software: 3 to 5 years Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 45 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 46 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) 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 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 is tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or cash-generating unit (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 generate 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. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials, spare parts and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Financial instruments Financial assets and liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. a. Financial assets Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through profit or loss (FVTPL), and fair value through other comprehensive income (OCI). The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow and the Group’s business model for managing them. In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. 46 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 47 Ocean Wilsons Holdings Limited/Annual Report 2018 2 Significant accounting policies and critical accounting judgements (continued) Financial assets at amortised cost The following instruments have been classified and measured at amortised cost using the effective interest method, less any impairment loss: • Cash and Cash Equivalents/Investments: Cash and cash equivalents comprise cash on hand and other short-term highly liquid cash equivalents with maturities of less than 90 days which are subject to an insignificant risk of changes in value; and Investments comprise cash in hand and other investments with more than 90 days of maturity. • Trade Receivables: Trade receivables and other amounts receivable are stated at the present value of the amounts due, reduced by any impairment loss. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss. Changes in fair value are recognised in the profit or loss under “financial income” or “financial expenses”, depending on the results obtained. Impairment of financial assets Financial assets that are measured at amortised cost are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. Objective evidence of impairment could include: • Significant financial difficulty of the issuer or counterparty; • Default or delinquency in interest or principal payments; • It becoming probable that the borrower will enter bankruptcy or financial re-organisation, or • The disappearance of an active market for that financial asset due to financial difficulties. For trade receivables, the Group applies a simplified approach in calculation an allowance for expected credit losses (ECLs). Details are disclosed in Note 21. For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, reflecting the impact of collateral and guarantees, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralized borrowing for the proceeds received. 47 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 48 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) b. Financial liabilities Financial liabilities are classified as either “FVTPL” or “other financial liabilities”. Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL. Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortisation cost, using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. There are no financial liabilities classified at FVTPL. Other financial liabilities • Bank loans: Interest-bearing bank loans, obligations under finance leases are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on the accruals basis to the income statement 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. • Trade Payables: Trade payables and other amounts payable are measured at fair value, net of transaction costs. Derivatives One of the Group’s subsidiaries holds derivatives to hedge foreign currency exposure arising from capital expenditure denominated in Real. These derivatives are marked to market at the end of every month. 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 income statement. The Group does not have embedded derivatives for the periods presented. Hedge Accounting (Cash flow hedge) The Group seeks to apply hedge accounting (cash flow hedge) in order to manage volatility in profit or loss. When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the derivatives reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, plant and equipment purchases) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial carrying amount of the asset or liability. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic benefits will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. 48 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 49 Ocean Wilsons Holdings Limited/Annual Report 2018 2 Significant accounting policies and critical accounting judgements (continued) When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 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. Shipyard revenue Revenue related to services and construction contracts is recognised throughout the period of the project when the work in proportion to the stage of completion of the transaction contracted has been performed. Port terminals revenue Revenue from providing container movement and associated services is recognised on the date that the services have been performed. O&G Support Base revenue Revenue from providing vessel turnarounds is recognised on the date that the services have been performed. Towage revenue Revenue from towage services is recognised on the date that the services have been performed. Ship agency and logistics revenues Revenue from providing agency and logistics services is recognised when the agreed services have been performed. Interest income Interest income 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. Dividend income Dividend income from investments is recognised when the shareholders rights to receive payment have been established. Construction contracts Construction contracts in progress represent the gross amount expected to be collected from customers for contract work performed to date. When 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. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably, has been agreed with the customer and consequently is considered probable. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent it is probable contract costs incurred will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Construction contracts in progress are presented as part of trade and other payables and trade and other receivables in the statement of financial position for all contracts in which costs incurred plus recognised profits exceed progress billings and recognised losses. 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. The Group as lessee: 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, at 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. 49 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 50 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised. Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. This will be the case if the following two criteria are met: • The fulfilment of the arrangement is dependent on the use of a specific asset or assets. • The arrangement contains a right to use the asset(s). At inception or on reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group’s incremental borrowing rate. 2.1 Finance income and finance costs Finance income comprises interest income on funds invested; fair value gains on financial assets recognised through profit or loss and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and deferred consideration, fair value losses on financial assets at fair value through profit or loss and contingent consideration, losses on hedging instruments that are recognised in profit or loss. 2.2 Critical accounting judgements and key sources of estimation uncertainty The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. 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 as mentioned below. a. Provisions for tax, labour and civil risks – Judgement 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. The amount of provisions for tax, labour and civil risks at the end of the reporting period was US$17.3 million (2017: US$18.2 million). Details are disclosed in Note 27. b. Impairment of goodwill – Judgement and estimation Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The recoverable amount calculation requires the entity’s management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the end of the reporting period was US$27.5 million (2017: US$30.3 million). Details are disclosed in Note 13. There are no impairment losses recognised for the years presented. 50 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 51 Ocean Wilsons Holdings Limited/Annual Report 2018 2 Significant accounting policies and critical accounting judgements (continued) c. Fair value of derivatives – Estimation The Company may use derivative contracts to manage risk. For derivative financial instruments, assumptions are made based on quoted market rates adjusted for specific features of the instruments. The amount of fair value of derivates at the end of the reporting period was US$0.4 million (2017: US$1.5 million). Details are disclosed in note 37. d. Provision for expected credit losses of trade receivables and contract assets - Estimation The Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns. The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate, when appropriate, the matrix to adjust the historical credit loss experience with forward-looking information. The Group’s management will update the default rate per business every six months. The amount of provision for expected credit losses of trade receivables and contract assets at the end of the reporting period was US$1.5 million (2017: US$1.0 million). Details are disclosed in note 21. e. Valuation of unquoted investments – Judgement and estimation The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Group 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. Through the Investment Manager management has considered the valuation of investments in particular level 3 assets and they consider that the position taken represents the best estimate at the balance sheet date (note 37). The amount of Level 3 assets at the end of the reporting period was US$111.3m (2017: US$112.1m). Details are disclosed in note 37. 2.3 Changes in accounting policies and disclosures The Group applied IFRS 15 and IFRS 9 for the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below. Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued, but are not yet effective. IFRS 15 Revenue from Contracts with Customers IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with customers. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires extensive disclosures. The Group adopted IFRS 15 using the modified retrospective method of adoption with the date of initial application of 1 January 2018. Under this method, the standard can be applied either to all contracts at the date of initial application or only to contracts that are not completed at this date. The Group elected to apply the standard to all contracts as at 1 January 2018. The Company’s main revenues are related to services. An evaluation was carried out in the prior year of the five steps of the requirements of IFRS 15, the Company did not identify changes or impacts in the current recognition of its income, since they are recognised through transfer of control upon the delivery of the service. 51 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 52 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) In relation to the Shipyard revenue, management’s review concluded that the timing of revenue recognition is over time, since the client has the right to suggest changes on the initial design throughout the period of the project and the customer derives benefits from the work completed (after a certain point in the construction process) and controls the asset, conceptually the customer could move the vessel to another shipyard to continue construction, subject to agreeing appropriate compensation with the Group. Therefore, in 2018, the Group did not present effects and changes in income recognition and there were no adjustments needed to be made to the opening balance of retained earnings. Only revenue disaggregation disclosures adjustments were made and are detailed in Note 3. Change in presentation “Trade and other receivables”, “Recoverable taxes” and “Related party loans” are now shown as separate line items on the face of the balance sheet (they were previously included in one line, "Trade and other receivables"). The change was made in order to improve presentation. “Income from underlying investment vehicles” and “Other gains and losses” are now shown on the face of the profit and loss under “Returns on investments held at fair value through profit and loss”. The change was made in order to improve presentation of items of similar nature. IFRS 9 Financial Instruments IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment, and hedge accounting. The Group applied IFRS 9 prospectively, with an initial application date of 1 January 2018. The Group has not restated the comparative information which continues to be reported under IAS 39. There were no material effects of adopting IFRS 9 as at 1 January 2018. a. Classification and measurement Loans as well as trade receivables are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9. Therefore reclassification for these instruments is not required. The assessment of financial assets under the IFRS 9 is detailed in the table below: Financial Assets FS Group Asset category Cash and bank Cash and cash equivalents Amortised Cost Fixed income investment Cash and cash equivalents FVPL Exchange funds Cash and cash equivalents FVPL Time deposit Short-term investments Amortised Cost Time deposit Cash and cash equivalents Amortised Cost Receivable for services rendered Operational trade receivables Amortised Cost Related parties’ loans Other trade receivables Amortised Cost Insurance indenisation receivable Other trade receivables Amortised Cost Other trade receivables Other trade receivables Amortised Cost b. Impairment The adoption of IFRS 9 has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. IFRS 9 requires the Group to recognise an allowance for ECLs for all debt instruments not held at fair value through profit or loss and contract assets. 52 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 53 Ocean Wilsons Holdings Limited/Annual Report 2018 2 Significant accounting policies and critical accounting judgements (continued) c. Hedge accounting At the date of initial application, all of the Group’s existing hedging relationships were eligible to be treated as continuing hedging relationships. IFRS 9 provides an accounting policy choice: entities can either continue to apply the hedge accounting requirements of IAS 39, or they can apply IFRS 9 (with the scope exception only for fair value macro hedges of interest rate risk). This accounting policy choice will apply to all hedge accounting and cannot be made on a hedge-by-hedge basis. The Group continues applying the requirements of IAS 39. Under IAS 39, all gains and losses arising from the Group’s cash flow hedging relationships were eligible to be subsequently reclassified to profit or loss. If an entity initially decides to continue applying IAS 39 hedge accounting, it can subsequently decide to change its accounting policy and commence applying the hedge accounting requirements of IFRS 9 at the beginning of any reporting period (subject to the other transition requirements of IFRS 9). New standards and interpretations not yet adopted The Group has listed all new standards and interpretations issued by the IASB but not yet effective, regardless of whether these have any material impact on the Group’s financial statement. Based on a preliminary assessment made by the Company, the impacts are detailed below: IFRS 16 – Leases The pronouncement replaces IAS 17 – Leases, and related interpretations (IFRIC 4, SIC 15 and SIC 27). It eliminates the accounting for operating lease agreements for the lessee, presenting only one lease model that consists of: (a) initially recognising all leased assets (Right-of-use assets) and liabilities (Other liabilities) at present value; and (b) recognising depreciation of the right-of-use assets and interest from the lease separately in the profit and loss. This standard is effective for annual periods beginning on 1 January 2019. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). During 2018, the Group has performed a detailed impact assessment of IFRS 16 identifying existing contracts, as well as the environment of internal controls and systems impacted by the adoption of the new standard. The assessment was divided into stages, such as: i) Identification of contracts; ii) Transition approach; iii) Effects of first-time adoption. Identification of contracts Management prepared a full lease contract inventory identifying the types of contracts that would be in the scope of the standard. The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value. Transition approach The modified retrospective transition method will be applied which does not require the presentation of comparative information and liabilities and the right-of- use asset are stated at present value of remaining instalments. Effects in first-time adoption Management concluded that lease’s amounts which are currently recorded as operational leasing expenses will start to be recognised under “Depreciation” and “Financial expenses”. Although this new pronouncement does not introduce any change to total amount that shall be taken to net income over the contract’s useful life, it is correct to state that a temporal effect will occur mainly in net income due to the method adopted for recognition of interest and monetary restatements associated to leases. On 1 January 2019, the Group will recognise a right-of-use asset and a lease liability at present value of US$177.0 million. The impact will principally be due to the recognition of right-of-use assets previously recognised as operating leases in respect of the commitments expressed in Note 33. Other standards or amendments The following new or amended standards are not expected to have a significant impact on the Group’s consolidated financial statements: • Insurance Contracts (IFRS 17); • Uncertainty over Income Tax Treatments (IFRIC 23); • Prepayment Features with Negative Compensation (Amendments to IFRS 9); 53 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 54 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 2 Significant accounting policies and critical accounting judgements (continued) • Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28); • Plan Amendment, Curtailment or Settlement (Amendments to IAS 19); • Long-term interests in associates and joint ventures (Amendments to IAS 28); and • Annual Improvement of IFRS 2015 to 2017 cycle. 3 Revenue An analysis of the Group’s revenue is as follows: Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Sales of services 446,158 475,106 Revenue from construction contracts 14,038 21,234 460,196 496,340 Income from underlying investment vehicles (note 7) 2,133 3,361 Other Investment income (note 8) 4,152 9,715 466,481 509,416 The following is an analysis of the Group’s revenue from continuing operations for the period (excluding investment income – note 7 and 8). 3.1 Disaggregated revenue information Set out below is the disaggregation of the Group’s revenue from contracts with customers Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Towage and agency services Harbour manoeuvres 152,376 195,479 Special operations 13,212 11,275 Ship agency 9,950 11,294 Total 175,538 218,048 Port terminals Container handling 97,627 106,391 Warehousing 43,995 38,387 Ancillary services 24,432 26,163 Oil & Gas support base 20,813 15,678 Other services 16,920 16,504 Total 203,787 203,123 Logistics Logistics 56,908 54,656 Total 56,908 54,656 Shipyard Shipyard construction contracts 14,038 17,747 Technical assistance/dry-docking 9,939 3,487 Total 23,977 21,234 54 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 55 Ocean Wilsons Holdings Limited/Annual Report 2018 3 Revenue (continued) 3.1 Disaggregated revenue information (continued) Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Other services Other services (14) (721) Total (14) (721) Total 460,196 496,340 Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Timing of revenue recognition At a point of time 436,219 475,106 Over time 23,977 21,234 460,196 496,340 3.2 Contract balance Trade receivables are generally received between 30 and 45 days. The carrying amount of operational trade receivables at the end of reporting period was US$57.7 million (2017: US$58.0 million). These amounts including US$15.3 million (2017: US$18.3 million) of contract assets (unbilled accounts receivables). Details are disclosed in Note 21. The balance of construction contracts are presented in Note 20. The contract liability balance as at the beginning of the period was recognised as revenue in the reporting period. There are no other contract assets and liabilities recognised for the years presented. 3.3 Performance obligations Information about the Group’s performance obligations are summarised below: When performance obligation Performance obligation is typically satisfied Towage and agency services Harbour Manoeuvres At a point in time Special Operations At a point in time Ship Agency At a point in time Port Terminals Container Handling At a point in time Warehousing At a point in time Ancillary services At a point in time Oil & Gas Support Base At a point in time Other services At a point in time Logistics Logistics At a point in time Shipyard Ship construction contracts Over time Technical assistance/dry-docking Over time The majority of the Group’s performance obligations are satisfied at a point in time, upon delivery of the service, and payment is generally due within 30 to 45 days upon completion of services. The performance obligation of ship construction contracts is satisfied over time and the revenue related to services and construction contracts is recognised when the work in proportion to the stage of completion of transactions contracted has been performed. There are no significant judgements in the determination of when performance obligations are typically satisfied. All revenue is derived from continuing operations. 55 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 56 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 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 2018 Maritime Services Investment Unallocated Consolidated Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2018 2018 2018 2018 US$’000 US$’000 US$’000 US$’000 Revenue 460,196 – – 460,196 Result Segment result 104,453 (2,902) (2,051) 99,500 Share of results of joint ventures (4,062) – – (4,062) Return on investment portfolio at fair value through P&L – (7,942) – (7,942) Other investment income 4,060 16 76 4,152 Finance costs (22,951) – – (22,951) Foreign exchange losses on monetary items (8,807) (22) 370 (8,459) Profit/(loss) before tax 72,693 (10,850) (1,605) 60,238 Tax (26,433) – – (26,433) Profit/(loss) after tax 46,620 (10,850) (1,605) 33,805 Other information Capital additions (61,706) – – (61,706) Depreciation and amortisation (56,175) – (3) (56,178) Balance Sheet Assets Segment assets 950,272 258,985 3,192 1,212,449 Liabilities Segment liabilities (434,151) (256) (333) (434,740) 56 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 57 Ocean Wilsons Holdings Limited/Annual Report 2018 4 Business and geographical segments (continued) For the year ended 31 December 2017 Maritime Services Investment Unallocated Consolidated Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2017 2017 2017 2017 US$’000 US$’000 US$’000 US$’000 Revenue 496,340 – – 496,340 Result Segment result 114,875 (2,949) (2,381) 109,545 Share of results of joint ventures 3,366 – – 3,366 Return on investment portfolio at fair value through P&L – 42,064 – 42,064 Other investment income 9,687 5 23 9,715 Finance costs (21,976) – – (21,976) Foreign exchange losses on monetary items 2,876 (63) (63) 2,750 Profit/(loss) before tax 108,828 39,057 (2,421) 145,464 Tax (36,056) – – (36,056) Profit/(loss) after tax 72,772 39,057 (2,421) 109,408 Other information Capital additions (55,345) – – (55,345) Depreciation and amortisation (57,480) – (1) (57,481) Balance Sheet Assets Segment assets 1,042,782 274,659 2,513 1,319,954 Liabilities Segment liabilities (495,134) (388) (372) (495,894) The prior year comparatives have been represented in order to match the current year presentation. Finance costs and associated liabilities have been allocated to reporting segments where interest costs arise from loans used to finance the construction of fixed assets in that segment. Geographical Segments The Group’s operations are located in Bermuda, Brazil, Panama and Uruguay. All of the Group’s sales are derived in Brazil. The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located. Additions to Carrying amount of property, plant and equipment segment assets and intangible assets Year ended Year ended 31 December 31 December 31 December 31 December 2018 2017 2018 2017 US$’000 US$’000 US$’000 US$’000 Brazil 909,385 990,689 61,706 55,345 Bermuda 303,064 329,265 – – 1,212,449 1,319,954 61,706 55,345 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 57 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 58 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 5 Profit for the year Profit for the year has been arrived at after charging: Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Depreciation of property, plant and equipment 52,757 53,851 Amortisation of intangible assets 3,421 3,630 Operating lease rentals 22,104 19,231 Auditor’s remuneration (see below) 735 653 Non-executive directors emoluments 536 536 A more detailed analysis of auditor’s remuneration is provided below: Auditor’s remuneration for audit services 721 653 Other services 14 – 735 653 6 Employee benefits expense Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Aggregate remuneration comprised: Wages and salaries 119,402 133,524 Share based payments 1,331 2,386 Social security costs 24,507 29,405 Other pension costs 1,087 1,080 146,327 166,395 7 Returns on investment portfolio at fair value through profit and loss Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Unrealised (losses)/gains on financial assets at fair value through profit or loss (18,654) 30,196 Income from underlying investment vehicles 2,133 3,361 Profit on disposal of financial assets at fair value through profit or loss 8,579 8,507 (7,942) 42,064 The prior year comparatives have been represented in order to match the current year presentation. 8 Other investment income Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Interest on bank deposits 3,565 5,916 Other interest 587 3,799 4,152 9,715 The prior year comparatives have been represented in order to match the current year presentation. 58 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 59 Ocean Wilsons Holdings Limited/Annual Report 2018 9 Finance costs Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Interest on bank overdrafts and loans 12,300 13,274 Exchange loss on foreign currency borrowings 10,009 774 Interest on obligations under finance leases 62 200 Other interest 580 7,728 22,951 21,976 In 2017 other interest includes US$7.4 million of fines and interest relating to taxes (see note 24) Borrowing costs incurred on qualifying assets of US$0.1 million (2017: US$0.4 million) were capitalised in the year at an average interest rate of 3.38% (2017: 3.38%). 10 Taxation Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Current Brazilian taxation Corporation tax 20,764 27,794 Social contribution 8,270 9,978 Total current tax 29,034 37,772 Deferred tax Charge for the year in respect of deferred tax liabilities 16,044 19,933 Credit for the year in respect of deferred tax assets (18,645) (21,649) Total deferred tax (2,601) (1,716) Total taxation charge 26,433 36,056 Brazilian corporation tax is calculated at 25% (2017: 25%) of the assessable profit for the year. Brazilian social contribution tax is calculated at 9% (2017: 9%) of the assessable profit for the year. At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the company has received an undertaking from the Bermuda Government exempting it from all such taxes until 31 March 2035. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 59 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 60 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 10 Taxation (continued) The charge for the year can be reconciled to the profit per the statement of comprehensive income as follows: Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Profit before tax 60,238 145,464 Tax at the aggregate Brazilian tax rate of 34% (2017: 34%) 20,481 49,458 Utilisation of net operating losses (4,839) (11,367) Net operating losses in the period 1,336 7,932 Amortisation of goodwill (1,093) (1,818) Exchange variance on loans (10,988) (454) Tax effect of share of results of joint ventures 1,381 (1,144) Tax effect of foreign exchange gain or losses on monetary items 3,397 (454) Retranslation of non-current asset valuation 9,826 (1,372) Share option scheme 443 793 Non-deductible expenses 952 1,340 Leasing 730 – Termination of tax litigation 35 3,290 Other 404 2,209 Effect of different tax rates of subsidiaries operating in other jurisdictions 4,368 (12,357) Tax expense for the year 26,433 36,056 Effective rate for the year 44% 25% The Group earns its profits primarily in Brazil. Therefore, the tax rate used for tax on profit on ordinary activities is the standard rate in Brazil of 34%, consisting of corporation tax (25%) and social contribution (9%). 11 Dividends Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Amounts recognised as distributions to equity holders in the period: Final dividend paid for the year ended 31 December 2017 of 70c (2016: 63c) per share 24,754 22,279 Proposed final dividend for the year ended 31 December 2018 of 70c (2017: 70c) per share 24,754 24,754 12 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Earnings: Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 13,308 78,315 Number of shares: Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share 35,363,040 35,363,040 60 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 61 Ocean Wilsons Holdings Limited/Annual Report 2018 13 Goodwill 31 December 31 December 2018 2017 US$’000 US$’000 Cost and carrying amount attributed to: Tecon Rio Grande 13,307 15,587 Brasco 11,728 12,252 Tecon Salvador 2,480 2,480 Total 27,515 30,319 The goodwill associated with each cash-generating unit (Brasco, Tecon Salvador and Tecon Rio Grande) is attributed to the Maritime services segment. The movement in goodwill balances in the year is due to the depreciation of the Brazilian Real against the US Dollar. As part of the annual impairment test, 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 the remaining period of the concession. The key assumptions used in determining value in use relate to growth rate, discount rate and inflation 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. 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. Brazilian economy and Oil and Gas sector recovery drives volume increase during projected years for Tecon Rio Grande, Tecon Salvador and Brasco, until reaching operating capacity. The discount rate assumes the cost of capital, whereas the growth rate for perpetuity projection is based on inflation rate only. The estimated average growth rate used does not exceed the historical average for Tecon Rio Grande and Tecon Salvador. Growth rate is equal to projected inflation (4.5%) for Brasco and discount rate of 10.6% for all business units has been used. These growth rates reflect the products, industries and countries in which the businesses operate. Each cash-generating unit is assessed for impairment annually and whenever there is an indication of impairment. Having completed the annual impairment test, the level of head room for each of the business unit is significant and no reasonable change in any of the forecast assumptions would give rise to any impairment. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 61 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 62 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 14 Other intangible fixed assets Software Lease-rights Other Total US$’000 US$’000 US$’000 US$’000 Cost At 1 January 2017 39,052 25,797 73 64,922 Additions 4,192 2 2 4,196 Disposals (84) – – (84) Exchange differences (263) (381) – (644) At 1 January 2018 42,897 25,418 75 68,390 Additions 2,033 – – 2,033 Disposals (553) – – (553) Exchange differences (2,028) (3,694) (11) (5,733) At 31 December 2018 42,349 21,724 64 64,137 Amortisation At 1 January 2017 27,657 6,821 – 34,478 Charge for the year 2,900 730 – 3,630 Disposals (84) – – (84) Exchange differences (101) (125) – (226) At 1 January 2018 30,372 7,426 – 37,798 Charge for the year 2,784 637 – 3,421 Disposals (551) – – (551) Exchange differences (897) (1,102) – (1,999) At 31 December 2018 31,708 6,961 – 38,669 Carrying amount 31 December 2018 10,641 14,763 64 25,468 31 December 2017 12,525 17,992 75 30,592 62 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 63 Ocean Wilsons Holdings Limited/Annual Report 2018 15 Property, plant and equipment Land and Vehicles, plant Assets under buildings Floating Craft and equipment construction Total US$’000 US$’000 US$’000 US$’000 US$’000 Cost or valuation At 1 January 2017 301,138 457,875 233,985 – 992,998 Additions 8,250 5,717 34,011 3,171 51,149 Transfers 265 588 (442) (411) – Exchange differences (3,692) – (4,573) – (8,265) Disposals (4,655) (2,075) (3,463) – (10,193) At 1 January 2018 301,306 462,105 259,518 2,760 1,025,689 Additions 16,827 12,620 8,856 21,370 59,673 Transfers 1,163 13,997 (1,163) (13,997) – Exchange differences (35,009) – (33,782) – (68,791) Disposals (1,781) – (2,865) – (4,646) At 31 December 2018 282,506 488,722 230,564 10,133 1,011,925 Accumulated depreciation and impairment At 1 January 2017 85,607 143,900 116,565 – 346,072 Charge for the year 9,417 24,644 19,790 – 53,851 Elimination on construction contracts – 81 – – 81 Exchange differences (1,352) – (2,012) – (3,364) Disposals (1,753) (1,467) (2,612) – (5,832) At 1 January 2018 91,919 167,158 131,731 – 390,808 Charge for the year 8,589 25,499 18,669 – 52,757 Elimination on construction contracts – 163 – – 163 Exchange differences (11,968) – (17,461) – (29,429) Disposals (1,405) – (3,420) – (4,825) At 31 December 2018 87,135 192,820 129,519 – 409,474 Carrying Amount At 31 December 2018 195,371 295,902 101,045 10,133 602,451 At 31 December 2017 209,387 294,947 127,787 2,760 634,881 The carrying amount of the Group’s vehicles, plant and equipment includes an amount of US$1.8 million (2017: US$2.6 million) in respect of assets held under finance leases. Land and buildings with a net book value of US$0.2 million (2017: US$0.2 million) and plant and machinery with a value of US$0.2 million (2017: US$0.2 million) have been given in guarantee of various legal processes. The Group has pledged assets having a carrying amount of approximately US$293.8 million (2017: US$279.7 million) to secure loans granted to the Group. The amount of borrowing costs capitalised in 2017 is US$0.1 million (2017: US$0.4 million) at an average interest rate of 3.38% (2017: 3.38%). Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 63 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 64 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 16 Principal subsidiaries Place of Method used incorporation Effective to account and operation interest* for investment OCEAN WILSONS (INVESTMENTS) LIMITED Bermuda 100%** Consolidation Investment holding and dealing company WILSON SONS LIMITED Bermuda 58.17%** Consolidation Holding company WILSON SONS DE ADMINISTRAÇÃO E COMÉRCIO LTDA Brazil 58.17% Consolidation Holding company SAVEIROS CAMUYRANO SERVIÇOS MARÍTIMOS LTDA Brazil 58.17% Consolidation Tug operators WILSON, SONS S.A., COMÉRCIO, INDÚSTRIA, E AGÉNCIA DE NAVEGAÇÃO LTDA Brazil 58.17% Consolidation Shipbuilders WILSON, SONS ESTALEIRO LTDA Brazil 58.17% Consolidation Shipbuilders WILSON SONS AGENCIA MARÍTIMA LTDA Brazil 58.17% Consolidation Ship Agents WILSON, SONS NAVEGAÇÃO LTDA Brazil 58.17% Consolidation Ship Agents WILSON, SONS LOGÍSTICA LTDA Brazil 58.17% Consolidation Logistics WILSON, SONS TERMINAIS DE CARGAS LTDA Brazil 58.17% Consolidation Transport services EADI SANTO ANDRÉ TERMINAL DE CARGA LTDA Brazil 58.17% Consolidation Bonded warehousing WS PARTICIPAҪÕES S.A. Brazil 58.17% Consolidation Holding company WS PARTICIPACIONES S.A. Uruguay 58.17% Consolidation Holding company TECON RIO GRANDE S.A. Brazil 58.17% Consolidation Port operator WILSON, SONS APOIO MARITIMO LTDA Brazil 58.17% Consolidation Tug operator BRASCO LOGÍSTICA OFFSHORE LTDA Brazil 58.17% Consolidation Port operator TECON SALVADOR S.A. Brazil 58.17% Consolidation Port operator ** ** Effective interest is the net interest of Ocean Wilsons Holdings Limited after non-controlling interests. Ocean Wilsons Holdings Limited holds direct interests in Ocean Wilsons (Investments) Limited and Wilsons Sons Limited. The Group also has a 58.17% 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 Wilson Sons treasury department in line with their policy. 64 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 65 Ocean Wilsons Holdings Limited/Annual Report 2018 17 Joint ventures The Group holds the following significant interests in joint operations and joint ventures at the end of the reporting period: Place of Proportion of ownership incorporation 31 December 31 December and operation 2018 2017 Towage Consórcio de Rebocadores Barra de Coqueiros Brazil 50% 50% Consórcio de Rebocadores Baia de São Marcos Brazil 50% 50% Logistics Porto Campinas, Logística e Intermodal Ltda Brazil 50% 50% Offshore Wilson, Sons Ultratug Participações S.A.* Brazil 50% 50% Atlantic Offshore S.A.** Panamá 50% 50% ** ** Wilson, Sons Ultratug Participações S.A. controls Wilson, Sons Offshore S.A. and Magallanes Navegação Brasileira S.A. These latter two companies are indirect joint ventures of the Company. Atlantic Offshore S.A. controls South Patagonia S.A. This company is an indirect joint venture of the company. Joint operations The following amounts are included in the Group’s financial information as a result of proportional consolidation of joint operations listed above: Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Income 14,598 18,126 Expenses (7,544) (8,792) Net income 7,054 9,334 31 December 31 December 2018 2017 US$’000 US$’000 Property, plant and equipment 2,688 2,841 Intangible assets 24 35 Inventories 385 353 Trade and other receivables 2,418 2,054 Cash and cash equivalents 796 904 Total assets 6,311 6,187 Trade and other payables (6,172) (6,153) Deferrred tax liabilities (139) (34) Total liabilities (6,311) (6,187) Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 65 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 66 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 17 Joint ventures (continued) Joint ventures The aggregated Group’s interests in joint ventures are equity accounted. Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Revenue 117,055 146,453 Raw materials and consumables used (9,758) (9,152) Employee benefits expense (40,396) (47,001) Depreciation and amortisation expenses (41,907) (39,606) Other operating expenses (16,390) (18,881) Loss on disposals of property, plant and equipment (26) (1) Results from operating activities 8,578 31,812 Finance income 302 2,930 Finance costs (17,318) (20,408) Foreign exchange (losses)/gains on monetary items (9,160) (1,129) (Loss)/profit before tax (17,598) 13,205 Income tax credit /(expense) 9,474 (6,473) (Loss)/profit for the year (8,124) 6,732 Participation 50% 50% Equity result (4,062) 3,366 31 December 31 December 2018 2017 US$’000 US$’000 Property, plant and equipment 628,135 647,659 Long-term investment 2,171 2,142 Other assets 8,821 4,740 Trade and other receivables 24,223 26,302 Derivatives 507 381 Cash and cash equivalents 18,145 30,575 Total assets 682,002 711,799 Bank overdrafts and loans 484,009 500,987 Other non-current liabilities 31,468 35,604 Trade and other payables 77,746 82,654 Equity 88,779 92,554 Total liabilities and equity 682,002 711,799 We have not given separated disclosure of our material Joint Ventures because they belong to the same economic group. Wilson Sons Limited holds a non-controlling interest in Wilson, Sons Ultratug Particpações S.A and Atlantic Offshore S.A. Wilson, Sons Ultratug Participações S.A is a controlling shareholder of Wilson, Sons Offshore S.A. and Magallanes Navegação Brasileira S.A, while Atlantic Offshore S.A. is a controlling shareholder of South Patagonia S.A. Guarantees Wilson Sons Offshore S.A. loan agreements with BNDES are guaranteed by a lien on the financed supply vessel and, in the majority of the contracts, a corporate guarantee from both Wilson Sons de Administração e Comércio Ltda and Rebocadores Ultratug Ltda, each guaranteeing 50% of its subsidiary’s debt balance with BNDES. Magallanes Navegação Brasileira S.A.’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 and funded with US$2.2 million, should be maintained until full repayment of the loan agreement. 66 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 67 Ocean Wilsons Holdings Limited/Annual Report 2018 17 Joint ventures (continued) The loan agreement that Atlantic Offshore S.A. has with Deutsche Verkehrs-Bank “DVB” and Norddeutsche Landesbank Girozentrale Trade “Nord/LB” for the financing of the offshore support vessel “Pardela” is guaranteed by a pledge on the vessel, the shares of Atlantic Offshore S.A. and a corporate guarantee for half of the credit from Wilson Sons de Administração Ltda e Comércio. Remolcadores Ultratug Ltda, which is the partner in the business, guarantee the other half of the loan. Covenants On 31 December 2018, Wilson, Sons Ultratug Participações S.A.’s subsidiary was not in compliance with one of the covenants ratios. On the assumption of a non- compliance the joint venture’s subsidiary has to increase its capital within a year, in the amount necessary to reach the ratio. As the capital will be increased, the management’s understanding is that there is no breach of a clause or event that prompts negotiation or a waiver letter from the Banco do Brasil. Atlantic Offshore S.A. has to comply with specific financial covenants on its two loan agreements with Deutsche Verkehrs-Bank “DVB” and Norddeutsche Landesbank Girozentrale Trade “Nord/LB”. In December 2018 the subsidiary was not in compliance with the debt service coverage ratio of 115% on a forward four quarter rolling basis but had received forbearance letters until it signed the amendment to the financing renegotiating the service of the debt and obtaining a waiver for the debt service coverage ratio in February 2019. The subsidiary was in compliance with all other clauses in the loan agreements. Provisions for tax, labour and civil risks In the normal course of business in Brazil, the joint ventures remain exposed to numerous local legal claims. It is the joint ventures’ policy to vigorously contest such claims, many of which appear to have little merit, and to manage such claims through its legal counsel. Wilson, Sons Ultratug Participações S.A booked provisions related to labour claims amounting to US$50,000 (2017: US$0.2 million), whose probability of loss was estimated as probable. In addition to the cases for which the joint ventures have made a provision, there are other tax, civil and labour disputes amounting to US$14.5 million (2017: US$17.5 million), whose probability of loss was estimated by legal counsel as possible. The breakdown of aggregated possible losses is as follows: 31 December 31 December 2018 2017 US$’000 US$’000 Tax cases 6,901 10,639 Labour claims 7,629 5,625 Civil cases – 1,230 Total 14,530 17,494 The reconciliation of the investment in joint ventures recognised in the balance sheet, including the impact of profit recognised by joint ventures: US$’000 At 1 January 2017 22,230 Share of result of joint ventures 3,366 Capital increase 847 Elimination on construction contracts 145 Derivatives 56 At 1 January 2018 26,644 Share of result of joint ventures (4,062) Capital increase 4,032 Elimination on construction contracts (86) Post employment benefits (10) Derivatives 58 Exchange movements (48) At 31 December 2018 26,528 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 67 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 68 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 18 Financial assets at fair value through profit or loss 2018 2017 US$’000 US$’000 Financial assets at fair value through profit or loss At 1 January 305,070 276,181 Additions, at cost 56,225 77,275 Disposals, at market value (63,992) (81,161) (Decrease)/increase in fair value of financial assets at fair value through profit or loss (18,654) 30,196 Profit on disposal of financial assets at fair value through profit or loss 8,579 8,507 At 31 December 287,298 305,070 Ocean Wilsons (Investment) Limited Portfolio 258,188 273,434 Wilson Sons Limited 29,110 31,636 Financial assets at fair value through profit or loss held at 31 December 287,298 305,070 The prior year comparatives have been represented in order to match the current year presentation. 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 (Investments) Limited 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. Financial assets at fair value through profit or loss 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 financial assets at fair value through profit or loss 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 on observable market data (unobservable inputs). 19 Inventories 31 December 31 December 2018 2017 US$’000 US$’000 Operating materials 8,906 9,618 Raw materials and spare parts 1,969 4,155 Total 10,875 13,773 Inventories are expected to be recovered in less than one year and there were no obsolete items. 20 Construction contracts 31 December 31 December 2018 2017 US$’000 US$’000 Contract costs incurred plus recognised profits less recognised losses to date – 3,178 Less progress billings – (5,323) Amounts due to contract customers included in trade and other payables – (2,145) 68 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 69 Ocean Wilsons Holdings Limited/Annual Report 2018 21 Trade and other receivables 31 December 31 December 2018 2017 US$’000 US$’000 Trade and other receivables Other trade receivables 483 565 Total other non-current trade receivables 483 565 Amount receivable for the sale of services 59,224 58,945 Allowance for doubtful debts (1,490) (958) Total current trade receivables 57,734 57,987 Prepayments 10,917 7,323 Insurance claim receivable 3,314 2,289 Other receivables 1,706 5,959 Total other current trade receivables 15,937 15,571 Total current trade and other receivables 73,671 73,558 31 December 31 December 2018 2017 Ageing of trade receivables US$’000 US$’000 Current 45,243 45.240 From 0 – 30 days 9,325 10,450 From 31 – 90 days 2,405 1,368 From 91 – 180 days 1,276 929 More than 180 days 973 958 Total 59,224 58,945 Generally, interest of one percent per month plus a two percent penalty is charged on overdue balances. Allowances for bad debts are recognised as a reduction of receivables and are recognised whenever a loss is identified. As of 1 January 2018, due to the application of IFRS 9, the Group has recognised an allowance for bad debts taking into account an expected credit loss model that involves historical evaluation of effective losses over billing cycles. The period of review will be 3.5 years, being reassessed every 180 days. The measurement of the default rate shall consider the recoverability of receivables and will apply according to the payment profile of debtors. The Group will calibrate, when appropriate, the matrix to adjust the historical credit loss experience with forward-looking information. Until 2017, the Group recognised an allowance for bad debts considering all receivables over 180 days because historical experience had shown that receivables that were past due beyond 180 days were not recoverable. 2018 2017 Movement in the allowance for doubtful debts US$’000 US$’000 Balance at 1 January 2018 958 1,187 Amounts written off as uncollectable (5,171) (4,322) Increase in allowance recognised in profit or loss 5,861 4,096 Exchange differences (158) (3) Balance at 31 December 2018 1,490 958 The directors consider that the carrying amount of trade and other receivables approximates their fair value and that no additional accrual is required for the allowance for bad debts. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 69 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 70 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 22 Recoverable taxes 2018 2017 US$’000 US$’000 PIS and COFINS recoverable 17,306 19,503 FUNDAF recoverable 3,828 4,287 Judiciary bond recoverable 3,681 4,274 Other recoverable taxes 788 3 Total recoverable taxes non-current 25,603 28,067 PIS and COFINS recoverable 12,993 12,939 Income tax and social contribution recoverable 5,718 6,852 FUNDAF recoverable 2,819 3,188 ISS recoverable 1,303 1,357 INSS recoverable 409 632 Other recoverable taxes 41 44 Total recoverable taxes current 23,283 25,012 Total 48,886 53,079 As a matter of routine, the Group reviews taxes and levies impacting its business to ensure that payments are accurately made. In the event that tax credits arise, the Group intends to use them in future years within their legal term. If the Company does not utilise the tax credit within their legal term, a reimbursement of such amounts will be requested from the Brazilian Internal Revenue Service (“Receita Federal do Brasil”). 23 Bank loans and overdrafts Annual 31 December 31 December interest rate 2018 2017 % US$’000 US$’000 Secured borrowings BNDES – FMM linked to US Dollar¹ 2.07% to 5% 152,002 156,831 BNDES – Real 6.56% to 8.75% 14,267 20,982 BNDES – FMM Real¹ 10.44% 1,250 1,635 BNDES – FINAME Real 4.50% to 6.00% 150 1,834 Total BNDES 167,669 181,282 Banco do Brasil – FMM linked to US Dollar¹ 2.00% – 3.00% 85,142 90,750 Santander – US Dollar 4.64% 25,523 31,173 IFC – US Dollar 7.00% 21,547 35,640 China Construction Bank – US Dollar 6.14% 6,364 12,708 Eximbank – US Dollar 6.22% 1,061 3,171 Total others 139,637 173,442 Total 307,306 354,724 1. As an agent of Fundo da Marinha Mercante’s (FMM), BNDES finances the construction of tugboats and shipyard facilities. 70 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 71 Ocean Wilsons Holdings Limited/Annual Report 2018 23 Bank loans and overdrafts (continued) The breakdown of bank overdrafts and loans by maturity is as follows: 31 December 31 December 2018 2017 US$’000 US$’000 Within one year 60,209 54,288 In the second year 30,504 52,123 In the third to fifth years (inclusive) 79,460 93,745 After five years 137,133 154,568 Total 307,306 354,724 Amounts due for settlement within 12 months 60,209 54,288 Amounts due for settlement after 12 months 247,097 300,436 The analysis of borrowings by currency is as follows: BRL linked to BRL US Dollars US Dollars Total US$’000 US$’000 US$’000 US$’000 31 December 2018 Bank loans 15,667 237,144 54,495 307,306 Total 15,667 237,144 54,495 307,306 31 December 2017 Bank loans 24,451 247,581 82,692 354,724 Total 24,451 247,581 82,692 354,724 Loan agreement for civil works In December 2018, the subsidiary Tecon Salvador S.A. signed a US$67.9 million financing agreement with BNDES, to be used for civil works during the terminal’s expansion. Due to the new financing contract, the loan agreement with the IFC was prepaid on 30 January 2019. Guarantees Loans with BNDES and Banco do Brasil 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 or (ii) a lien over the logistics and port operations equipment financed. The loan agreement for Tecon Salvador from International Finance Corporation (“IFC”) was guaranteed by the totality of the subsidiary’s shares, along with receivables, plant and equipment until its prepayment in full on 30 January 2019. The loan agreement for Tecon Rio Grande from 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 a pledge on the equipment financed. The loan agreement for Tecon Rio Grande from Santander for equipment acquisition relies on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda. Undrawn credit facilities At 31 December 2018, the Group had available US$116.2 million of undrawn borrowing facilities. For each disbursement there is a set of conditions precedent that must be satisfied. Covenants Wilson, Sons de Administração e Comércio Ltda. (“WSAC”) as corporate guarantor has to comply with annual loan covenants for both Wilson Sons Estaleiros and Brasco Logística Offshore in respect of loan agreements signed with BNDES. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 71 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 72 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 23 Bank loans and overdrafts (continued) Wilport Operadores Portuários Ltda as corporate guarantor for loan agreements signed between the BNDES e Tecon Salvador S.A, has to comply with annual loan covenants including ratios of debt service coverage, net debt ratio over EBITDA and equity over total assets. For the same agreements Tecon Salvador has to comply with the debt service coverage ratio covenant. Tecon Rio Grande S.A. has to comply with loan covenants from Santander, including a minimum liquidity ratio and capital structure. At 31 December 2018, the Group was in compliance with all clauses in the above mentioned loan contracts. Fair value Management estimates the fair value of the Group’s borrowings as follows: 31 December 31 December 2018 2017 US$’000 US$’000 Bank loans BNDES 167,669 181,282 Banco do Brasil 85,142 90,750 Santander 25,523 31,173 IFC 21,547 35,640 China Construction Bank 6,364 12,708 Eximbank China 1,061 3,171 Total 307,306 354,724 24 Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period. Exchange Retranslation of Accelerated tax variance on Other non-current asset depreciation loans differences valuation Total US$’000 US$’000 US$’000 US$’000 US$’000 At 1 January 2017 (30,111) 28,179 28,325 (46,312) (19,919) (Charge)/credit to income (8,743) (1,175) 10,263 1,371 1,716 Compensation of tax losses – – (5,023) – (5,023) Exchange differences 746 (320) (92) – 334 At 1 January 2018 (38,108) 26,684 33,473 (44,941) (22,892) (Charge)/credit to income (6,218) 10,137 8,508 (9,826) 2,601 Compensation of tax losses – – (1,679) – (1,679) Exchange differences 5,998 (4,647) (1,181) – 170 At 31 December 2018 (38,328) 32,174 39,121 (54,767) (21,800) Certain tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes. 31 December 31 December 2018 2017 US$’000 US$’000 Deferred tax liabilities (50,023) (51,531) Deferred tax assets 28,223 28,639 (21,800) (22,892) At the balance sheet date the Group had unused tax losses of US$46.2 million (2017: US$47.6 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$4.4 million (2017: US$6.8 million) due to the unpredictability of future profit streams. In Brazil a tax asset of one entity in the Group cannot be offset against a tax liability of another entity in the Group as there is no legally enforceable right to offset tax assets and liabilities between Group companies. 72 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 73 Ocean Wilsons Holdings Limited/Annual Report 2018 24 Deferred tax (continued) 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. Deferred taxes over the utilization of unrecognised net operating losses On 31 May 2017, the Brazilian Internal Revenue Service (“IRS”) and the Brazilian Attorney General of National Treasury (“PGFN”) published the Provisional Measure 783/2017 concerning a special tax amnesty program known as PERT. Under this program, taxpayers are allowed to settle Federal tax debts. However as a condition they must abstain from administrative and judicial disputes with the Brazilian IRS regarding the tax debts settled in the PERT. The Group applied to the program under the following conditions: (i) a down payment in cash of 7.5% of the total tax debt; (ii) 90% reduction in late payment interest; (iii) 50% reduction in fines, and (iv) the balance by utilising the Group’s 31 December 2015 net operating losses carried forwards for companies that are directly or indirectly controlled and domiciled in Brazil. Subsequently, with the publication of Law 13.496/2017, in October 2017, the Group included in the programme new administrative and judicial disputes under the following conditions: (i) a down payment in cash of 5% of the total tax debt; (ii) 90% reduction in late payment interest; (iii) 70% reduction in fines, and (iv) the balance by utilising the Group’s 31 December 2015 net operating loss carry forwards for companies that are directly or indirectly controlled and domiciled in Brazil. In 2017 the Group paid US$1.0 million in cash; obtained tax relief of US$7.2 million and used US$6.9 million of unrecognised tax losses to settle US$15.1 million in disputed federal tax debts. 25 Obligations under finance leases Minimum lease payments 31 December 31 December 2018 2017 US$’000 US$’000 Amounts payable under finance leases Within one year 67 1,178 In the second to fifth years inclusive 86 434 After five years – – 153 1,612 Less future finance charges (48) (457) Present value of lease obligations 105 1,155 Less: Amounts due for settlement within 12 months (shown under current liabilities) (46) (846) Amount due for settlement after 12 months 59 309 Present value of minimum lease payments 31 December 31 December 2018 2017 US$’000 US$’000 Amounts payable under finance leases Within one year 46 846 In the second to fifth years inclusive 59 309 After five years – – Present value of lease obligations 105 1,155 Less: Amounts due for settlement within 12 months (shown under current liabilities) (46) (846) Amount due for settlement after 12 months 59 309 It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average original lease term is 60 months. The average outstanding lease term at 31 December 2018 was 26 months. 73 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 74 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 25 Obligations under finance leases (continued) For the year ended 31 December 2018, the average effective borrowing rate was 10.80% (2017: 9.79%). All leases are denominated in Brazilian Real and include a fixed repayment and a variable finance charge linked to the Brazilian interest rate. There is a non-significant difference between the fair value and the present value of the Group’s lease obligations. The present value is calculated with its own interest rate over the future instalments of each contract. The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets. 26 Trade and other payables 31 December 31 December 2018 2017 US$’000 US$’000 Trade creditors 21,510 23,437 Amounts due to construction contract customers (note 20) – 2,145 Other taxes 11,215 11,992 Salaries, provisions and social contribution 16,585 19,483 Accruals and deferred income 8,145 7,250 Share based payment liability 185 158 Total 57,640 64,465 Trade creditors and accruals principally comprise amounts outstanding for trade purposes and ongoing costs. The average credit period for trade purchases is 26 days (2017: 29 days). For most suppliers interest is charged on outstanding trade payable balances at various interest rates. The Group has financial risk management policies in place to ensure that payables are paid within the credit timeframe. The directors consider that the carrying amount of trade payables approximates their fair value. Taxes Payable 2018 2017 US$’000 US$’000 INSS payable 4,125 2,001 PIS and COFINS payable 2,768 3,091 ISS payable 1,956 2,059 Income tax payable 1,342 1,866 FGTS payable 643 800 Other payable taxes 381 2,175 Total recoverable taxes non-current 11,215 11,992 74 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 75 Ocean Wilsons Holdings Limited/Annual Report 2018 27 Provisions for tax, labour and civil cases Labour claims Tax cases Civil cases Total US$’000 US$’000 US$’000 US$’000 Cost At 1 January 2017 13,612 4,816 1,609 20,037 Increase in provisions in the year 6,078 868 – 6,946 Utilisation of provisions (4,475) (3,259) (668) (8,402) Exchange difference (273) 43 (119) (349) At 1 January 2018 14,942 2,468 822 18,232 Increase in provisions in the year 3,297 754 15 4,066 Utilisation of provisions (2,197) – (14) (2,211) Exchange difference (2,229) (384) (139) (2,752) At 31 December 2018 13,813 2,838 684 17,335 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 or merit, and to manage such claims through its legal counsel. Both provisions and contingent liabilities can take a significant amount of time to resolve. Other non-current assets of US$7.4 million (2017: US$9.5 million) represent legal deposits required by the Brazilian legal authorities as security to contest legal actions. In addition to the cases for which the Group booked the provision, there are other tax, civil and labour disputes amounting to US$120.2 million (2017: US$140.5 million) where the probability of loss was estimated by the legal counsels as possible. The analysis of possible losses by type: 31 December 31 December 2018 2017 US$’000 US$’000 Tax cases 86,204 96,890 Labour claims 18,839 28,931 Civil and environmental cases 15,156 14,686 120,199 140,507 The main probable and possible claims against the Group are described below: Tax cases – The Group defends against government tax assessments considered inappropriate. Labour claims – Most claims involve payment of health risks, additional overtime and other allowances. Civil and environmental cases – Indemnification claims involving material damages, environmental and shipping claims and other contractual disputes. Procedure for classification of legal liabilities identifies claims as probable, possible or remote, as assessed by the external lawyers: • Upon receipt of notices of new judicial lawsuits, external lawyers generally classify the claim as possible, recorded at the total amount involved. Wilson Sons uses the criteria of the estimated value at risk and not the total claim value 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 a 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 a probable loss or remote loss. • When classifying the claim as a probable loss, the lawyer estimates the amount at risk for such claim. Management are not able to give an indication when the provisions are likely to be utilised as the majority of provisions involve litigations the resolution of which is highly uncertain as to timing. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 75 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 76 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 28 Share capital 2018 2017 US$’000 US$’000 Authorised 50,060,000 ordinary shares of 20p each 16,119 16,119 Issued and fully paid 35,363,040 ordinary shares of 20p each 11,390 11,390 The Company has one class of ordinary share which carries no right to fixed income. Share capital is converted at the exchange rate prevailing at 31 December 2002, the date at which the Group’s presentational currency changed from Sterling to US Dollars, being US$1.61 to £1. 29 Exercise of stock options in subsidiary During 2018 participants of the Wilson Sons Limited stock option scheme exercised 23,760 options. As a result the non-controlling interest in Wilson Sons Limited increased from 41.81% at 31 December 2017 to 41.83% at 31 December 2018. 2018 2017 US$’000 US$’000 The following amounts have been recognised in equity Movement attributable to equity holders of parent 96 430 Movement attributable to non-controlling interest 94 316 30 Notes to the cash flow statement Year ended Year ended 31 December 31 December 2018 2017 US$’000 US$’000 Reconciliation from profit before tax to net cash from operating activities Profit before tax 60,238 145,464 Share of results of joint venture 4,062 (3,366) Returns on investment portfolio at FVTPL 7,942 (42,064) Other investment income (4,152) (9,715) Finance costs 22,951 21,976 Foreign exchange losses on monetary items 8,459 (2,750) Operating profit 99,500 109,545 Adjustments for: Depreciation of property, plant and equipment 52,757 53,851 Amortisation of intangible assets 3,421 3,630 Share based payment credit 1,331 2,386 Gain on disposal of property, plant and equipment 296 2,930 Decrease in provisions (418) (7,064) Operating cash flows before movements in working capital 156,887 165,278 Decrease in inventories 2,898 1,654 Increase in receivables 1,228 (22,967) Decrease in payables (7,219) (1,699) Decrease in other non-current assets 2,089 3,873 Cash generated by operations 155,883 146,139 Income taxes paid (30,079) (29,698) Interest paid (12,094) (13,473) Net cash from operating activities 113,710 102,698 76 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 77 Ocean Wilsons Holdings Limited/Annual Report 2018 30 Notes to the cash flow statement (continued) Cash and cash equivalents Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. Exclusive investment fund The Group has investments in an exclusive investment fund managed by Itaú BBA S.A. that is consolidated in this financial information. The fund portfolio is marked to fair value on a daily basis. This fund’s 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 insignificant risk of changes in value. Additionally, US Dollar linked investments are made through Itaú Cambial FICFI to preserve the US Dollar value of the investment. Cash and cash equivalents held in Brazil amount to US$28.2 million (2017: US$59.6 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$0.0 million (2017: US$21.1 million) were financed by bank loans paid direct to the supplier. 31 Contingent liabilities In the normal course of business in Brazil, the Group continues to be exposed to numerous local legal claims. It is the Group’s policy to contest such claims vigorously, many of which appear to have little merit, and to manage such claims through its legal advisers. The total estimated contingent claims at 31 December 2018 are US$120.2 million (2017: US$140.5 million). These have not been provided for as the directors and the Group’s legal advisors do not consider that there are any probable losses. Contingent liabilities relate to labour, civil and environmental and tax claims. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 77 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 78 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 32 Share options Stock option scheme On 13 November 2013 the board of Wilson Sons Limited approved a Stock Option Plan which allowed for the grant of options to eligible participants to be selected by the board. The shareholders in special general meeting approved such plan on the 8 January 2014 including an increase in the authorised capital of the Company through the creation of up to 4,410,927 new shares. The options provide participants with the right to acquire shares via Brazilian Depositary Receipts (“BDR”) in Wilson Sons Limited at a predetermined fixed price not less than the three day average mid-price for the days preceding the date of option issuance. The Stock Option Plan is detailed below: Original Exercise Options series Grant vesting Expiry price Outstanding Total date date date (R$) Number Expired Exercised Vested not Vested Subsisting 07 ESO – 3 Year 10/1/2014 10/1/2017 10/1/2024 31.23 961,653 (178,695) (33,297) 749,661 – 749,661 07 ESO – 4 Year 10/1/2014 10/1/2018 10/1/2024 31.23 961,653 (178,695) (33,297) 749,661 – 749,661 07 ESO – 5 Year 10/1/2014 10/1/2019 10/1/2024 31.23 990,794 (184,110) (22,066) – 784,618 784,618 07 ESO – 3 Year 13/11/2014 13/11/2017 13/11/2024 33.98 45,870 (12,870) (3,630) 29,370 – 29,370 07 ESO – 4 Year 13/11/2014 13/11/2018 13/11/2024 33.98 45,870 (12,870) (3,630) 29,370 – 29,370 07 ESO – 5 Year 13/11/2014 13/11/2019 13/11/2024 33.98 47,260 (13,260) (3,740) – 30,260 30,260 07 ESO – 3 Year 11/08/2016 11/08/2019 11/08/2026 34.03 82,500 – – – 82,500 82,500 07 ESO – 4 Year 11/08/2016 11/08/2020 11/08/2026 34.03 82,500 – – – 82,500 82,500 07 ESO – 5 Year 11/08/2016 11/08/2021 11/08/2026 34.03 85,000 – – – 85,000 85,000 07 ESO – 3 Year 16/05/2017 16/05/2020 15/05/2027 38.00 20,130 – – – 20,130 20,130 07 ESO – 4 Year 16/05/2017 16/05/2021 15/05/2027 38.00 20,130 – – – 20,130 20,130 07 ESO – 5 Year 16/05/2017 16/05/2022 15/05/2027 38.00 20,740 – – – 20,740 20,740 07 ESO – 3 Year 09/11/2017 09/11/2020 09/11/2027 40.33 23,760 – – – 23,760 23,760 07 ESO – 4 Year 09/11/2017 09/11/2021 09/11/2027 40.33 23,760 – – – 23,760 23,760 07 ESO – 5 Year 09/11/2017 09/11/2022 09/11/2027 40.33 24,480 – – – 24,480 24,480 Total 3,436,100 (580,500) (99,660) 1,558,062 1,197,878 2,755,940 The options terminate on the expiry date or immediately on the resignation of the director or senior employee, whichever is earlier. Options lapse if not exercised within 6 months of the date that the participant ceases to be employed or hold office within the Group by reason of, amongst others: injury, disability or retirement; or dismissal without just cause. The following Fair Value expense of the grant to be recorded as a liability in the respective accounting periods was determined using the Binomial model based on the assumptions detailed below: Projected IFRS2 Fair Value expense Period US$’000 10 January 2014 2,826 10 January 2015 3,296 10 January 2016 3,409 10 January 2017 2,331 10 January 2018 1,303 10 January 2019 370 10 January 2020 206 10 January 2021 99 10 January 2022 27 Total 13,867 78 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 79 Ocean Wilsons Holdings Limited/Annual Report 2018 32 Share options (continued) 10 January 13 November 11 August 16 May 9 November 2014 2014 2016 2017 2017 Closing share price (in Real) R$30.05 R$33.50 R$32.15 R$38.00 R$38.01 Expected volatility 28.00% 29.75% 31.56% 31.82% 31.82% Expected life 10 years 10 years 10 years 10 years 10 years Risk free rate 10.8% 12.74% 12.03% 10.17% 10.17% Expected dividend yield 1.7% 4.8% 4.8% 4.8% 4.8% Expected volatility was determined by calculating the historical volatility of the Wilson Son’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. 33 Operating lease arrangements The lease payments under operating leases recognised in net income at 31 December 2018 was US$21.1 million (2017: US$19.2 million). At the balance sheet date, the minimum amount due in 2018 by the Group for future minimum lease payments under cancellable operating leases was US$20.0 million (2017: US$19.4 million). Tecon Rio Grande The Tecon Rio Grande lease was signed on 3 February 1997 for a period of 25 years renewable for a further 25 and, in view of the compliance with the contractual requirements and advanced investments in the expansion works of the terminal, construction of a third berth and the annual volume handled together with other considerations, Tecon Rio Grande was granted the right to renew the lease as set forth in the first amendment to the lease signed on 7 March 2006. The Tecon Rio Grande guaranteed payments consist of two elements: a fixed rental, and fee per 1,000 containers moved based on minimum forecast volumes. If container volumes moved through the terminal exceed forecast volumes in any given year, additional payments will be required. Tecon Salvador On 16 November 2016 Tecon Salvador S.A signed the second amendment to the lease agreement which extends the term of the lease for an additional period of 25 years until March 2050. The Company is obliged to complete minimum expansion and maintenance capital expenditure through to the end of the concession. Minimum expansion civil work investments were budgeted at approximately R$398 million (US$122 million) using values based on December 2013. These investments will be completed in three phases expanding the terminal’s dynamic capacity to 925,000 TEUs per year. The first phase of construction commenced during 2018 after the environmental licenses were granted and will be completed within twenty-four months following the commencement of work (total estimated gross investment is R$255 million (US$78 million) using values based on December 2013). The deadline for the second phase of construction to be completed is 2030 (total gross investment of R$29 million (US$9 million) using values based on December 2013). The deadline for the third phase of construction to be completed is by 2034 (total gross investment of R$114 million (US$35 million) using values based on December 2013). Additionally, there are investments totalling R$317 million (US$97 million) related to the maintenance of the operating area and replacement of equipment that will be completed up to 2050. Tecon Salvador guaranteed payments consist of three elements: a fixed rental, a fee per container handled based on minimum forecast volumes and a fee per tonne of non-containerized cargo handled based on minimum forecast volumes. Logistics Logistics lease commitments mainly refer to the bonded terminals and distribution centres located in Santo André and Suape with terms between eighteen and twenty-four years. Brasco Brasco lease commitments mainly relate to a 30-year lease right to operate a sheltered area at Guanabara Bay, Rio de Janeiro, Brazil with a well situated location to service the Campos and Santos oil producing basins. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 79 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 80 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 33 Operating lease arrangements (continued) At the balance sheet date the Group had outstanding commitments for future minimum lease payments under operating leases, which fall due as follows: 2018 2017 US$’000 US$’000 Within one year 21,763 19,447 In the second to fifth year inclusive 73,916 61,667 After five years 339,032 201,939 434,711 283,053 34 Commitments At 31 December 2018 the Group had entered into commitment agreements with respect to the investment portfolio. These commitments relate to capital subscription agreements entered into by Ocean Wilsons (Investments) Limited. The expiry dates of the outstanding commitments in question may be analysed as follows: 2018 2017 US$’000 US$’000 Within one year 4,416 4,250 In the second to fifth year inclusive 5,305 8,792 After five years 25,903 22,579 35,624 35,621 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. At 31 December 2018, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$52.1 million (2017: US$14.1 million). The amount mainly refers to investments in Tecon Salvador, Tecon Rio Grande and raw materials for shipyard activities. 35 Retirement benefit schemes Defined contribution schemes The Group operates defined contribution retirement benefit schemes for all qualifying employees of its Brazilian business. The assets of the scheme are held separately from those of the Group in funds under the control of independent managers. The total cost charged to the income statement of US$1.1 million (2017: US$1.1 million) represents contributions payable to the scheme by the Group at rates specified in the rules of the plan. 36 Related party transactions Transactions between the company and its subsidiaries which are related parties have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and its associates, joint ventures and other investments are disclosed below: Amounts paid/ Revenue from services Cost of services 31 December 31 December 31 December 31 December 2018 2017 2018 2017 US$’000 US$’000 US$’000 US$’000 Joint ventures 1. Allink Transportes Internacionais Limitada1 8 1 (376) (19) 2. Consórcio de Rebocadores Barra de Coqueiros – – – – 3. Consórcio de Rebocadores Baía de São Marcos 26 444 – – 4. Wilson Sons Ultratug and subsidiaries7 2,250 1,379 – – 5. Atlantic offshore S.A.8 – – – – Others 6. Hanseatic Asset Management LBG2 – – (2,742) (2,597) 7. Gouvêa Vieira Advogados3 – – (66) (73) 8. CMMR Intermediacão Comercial Limitada4 – – (87) (157) 9. Jofran Services5 – – (173) (173) 10. Hansa Capital GMBH6 – – (93) (93) 80 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 81 Ocean Wilsons Holdings Limited/Annual Report 2018 36 Related party transactions (continued) Amounts owed Amounts owed by related parties to related parties 31 December 31 December 31 December 31 December 2018 2017 2018 2017 US$’000 US$’000 US$’000 US$’000 Joint ventures 1. Allink Transportes Internacionais Limitada1 – – (1) (2) 2. Consórcio de Rebocadores Barra de Coqueiros 85 77 – – 3. Consórcio de Rebocadores Baía de São Marcos 2,199 2,483 – – 4. Wilson Sons Ultratug and subsidiaries7 10,072 11,848 – – 5. Atlantic offshore S.A.8 20,167 17,767 – – Others 6. Hanseatic Asset Management LBG2 – – (256) (347) 7. Gouvêa Vieira Advogados3 – – – – 8. CMMR Intermediacão Comercial Limitada4 – – – – 9. Jofran Services5 – – – – 10. Hansa Capital GMBH6 – – – – 1. Mr A C Baião, a Director of Wilson Sons Limited 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. 2. Mr W H Salomon is chairman of Hanseatic Asset Management LBG. Fees were paid to Hanseatic Asset Management LBG for acting as Investment Managers of the Group’s investment portfolio and administration services. 3. 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. 4. Mr C M Marote, a Director of Wilson Sons Limited is a shareholder and Director of CMMR Intermediacão Comercial Limitada. Fees were paid to CMMR Intermediacão Comercial Limitada for consultancy services. 5. Mr J F Gouvêa Vieira is a Director of Jofran Services. Directors’ fees were paid to Jofran Services. 6. Mr C Townsend is a Director of Hansa Capital GMBH. Directors’ fees were paid to Hansa Capital GmbH. 7. Related parties loan with Wilson, Sons Ultratug (interest – 0.3% per month with no maturity) and other trade payables and receivables from Wilson, Sons Offshore and Magallanes. 8. Related parties loan with Atlantic Offshore S.A. (with no interest and with no maturity). Remuneration of key management personnel The remuneration of the executive directors and other key management of the Group is set out below in aggregate for the categories specified in IAS 24 Related Party Disclosures. Year ended Year ended 2018 2017 US$’000 US$’000 Short-term employee benefits 9,798 11,674 Other long-term employee benefits 1,132 1,671 Share options issued 1,303 2,331 Share-based payment 28 55 12,261 15,731 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 81 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 82 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 37 Financial instruments Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 23, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings disclosed in the consolidated statement of changes in equity. The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated by operating revenues. Externally imposed capital requirement The Group is not subject to externally imposed capital requirements. Significant accounting policies Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expense are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. Categories of financial instruments Year ended Year ended 2018 2017 US$’000 US$’000 Financial assets Designated as fair value through profit or loss 258,188 273,434 Receivables (including cash and cash equivalents) 167,895 212,457 Financial liabilities Financial instruments classified as amortised cost (353,836) (408,352) Financial instruments classified as cash flow hedge (Derivatives) (422) (1,503) Financial risk management objectives The Group’s corporate treasury function provides services to the business, co-ordinates access to domestic and international financial markets and manages the financial risks relating to the operations of the Group through internal reports. The primary objective is to keep a minimum exposure to those risks by using financial instruments and by assessing and controlling the credit and liquidity risks according to the rules and procedures established by management. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group may use derivative financial instruments to hedge these risk exposures with Board approval. The Group does not enter into trading financial instruments including derivative financial instruments for speculative purposes. Credit risk The Group’s principal financial assets are cash, trade and other receivables, related party loans and financial assets designated as fair value through profit or loss. The Group’s credit risk is primarily attributable to its bank balances, trade receivables, related party loans and investments. The amounts presented as receivables in the balance sheet are shown net of allowances for bad debts. The Wilson Sons Group invests temporary cash surpluses in government and private bonds, according to regulations approved by management, which follow the Group policy on credit risk concentration. Credit risk on investments in non-government backed bonds is mitigated by investing only in assets issued by leading financial institutions. 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 Group 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 Group’s Investment Manager. The Group has no significant concentration of credit risk. Ongoing credit evaluation is performed on the financial condition of accounts receivable. 82 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 83 Ocean Wilsons Holdings Limited/Annual Report 2018 37 Financial instruments (continued) Operational trade receivables An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision matrix is initially based on the Group’s historical observed default rates. The Group evaluates the concentration of risk with respect to trade receivables and contract assets as low, as historically trade receivables are generally received between 30 and 45 days. 1 – 30 31 – 90 91 –180 More than Current days days days 180 days Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Expected credit loss rate 0.25% 0.25% 8.07% 32.01% 74.20% Receivables for services 45,138 9,325 2,405 1,276 973 59,117 Accumulated credit loss (141) (24) (194) (409) (722) (1,490) Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and market prices. Foreign currency risk management The Group undertakes certain transactions denominated or linked to foreign currencies and therefore exposures to exchange rate fluctuations arise. The Group operates principally in Brazil with a substantial proportion of the Group’s revenue, expenses, assets and liabilities denominated in the Real. Due to the high cost of hedging the Real, the Group does not normally hedge its net exposure to the Real, as the Board does not consider it economically viable. Cash flows from investments in fixed assets are denominated in Real and US Dollars. These investments are subject to currency fluctuations between the time that the price of goods or services are settled and the actual payment date. The resources and their application are monitored with purpose of matching the currency cash flows and due dates. The Group has contracted US Dollar-denominated and Real-denominated debt, and the cash and cash equivalents balances are also US Dollar-denominated and Real-denominated. In general terms, for operating cash flows, the Group seeks to neutralise the currency risk by matching assets (receivables) and liabilities (payments). Furthermore the Group seeks to generate an operating cash surplus in the same currency in which the debt service of each business is denominated. The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Liabilities Assets 2018 2017 2018 2017 US$’000 US$’000 US$’000 US$’000 Real 109,764 180,468 179,031 212,457 Sterling 59 18 11,373 10,934 Euro – – 21,590 21,177 Yen – – 5,333 – 109,823 180,486 217,327 244,568 Foreign currency sensitivity analysis The Group is primarily exposed to unfavourable movements in the Real on its Brazilian liabilities held by US Dollar functional currency entities. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 83 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 84 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 37 Financial instruments (continued) The sensitivity analysis presented in the following sections, which refer to the position on 31 December 2017, estimates the impacts of the Real devaluation against the US Dollar. Three exchange rate scenarios are contemplated: the likely scenario (Probable) and two possible scenarios of deterioration of 25% (Possible) and 50% (Remote) in the exchange rate. The Group uses the Brazilian Central Bank’s “Focus” report to determine the probable scenario. 31 December 2018 Exchange rates Operation Risk Amount Result Probable Possible Remote US Dollars scenario scenario scenario (25%) (50%) Exchange rate 3.75 4.69 5.63 US$’000 US$’000 US$’000 Total assets BRL 176,477 Exchange effects 5,873 (30,597) (54,910) Total liabilities BRL 109,764 Exchange effects (3,653) 19,030 34,153 Net effect 2,220 (11,567) (20,757) 31 December 2017 Exchange rates Operation Risk Amount Result Probable Possible Remote US Dollars scenario scenario scenario (25%) (50%) Exchange rate 3.34 4.17 5.01 US$’000 US$’000 US$’000 Total assets BRL 244,568 Exchange Effects (2,545) (55,209) (98,306) Total liabilities BRL 180,468 Exchange Effects 1,729 37,477 61,309 Net Effect (816) (17,732) (36,997) The Real foreign currency impact is mainly attributable to the exposure of outstanding Real receivables and payables of the Group at year end. In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk, as the year end 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 and Logistics operations. • DI (Brazilian Interbank Interest Rate) for Brazilian Real denominated funding in Logistics operations, and • 6-month LIBOR (London Interbank Offered Rate) for US Dollar denominated funding for Port Operations (Eximbank). The Group’s 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 partly in time deposits, with short-term maturities. The Group has floating rate financial assets consisting of bank balances principally denominated in US Dollars and Real that bear interest at rates based on the banks floating interest rate. 84 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 85 Ocean Wilsons Holdings Limited/Annual Report 2018 37 Financial instruments (continued) Interest rate sensitivity analysis The following analysis concerns a possible fluctuation of income or expenses linked to the transactions and scenarios shown, without considering their fair value. For floating rate liabilities and investments, the analysis is prepared assuming the amount of the liability outstanding or cash invested at balance sheet date was outstanding or invested for the whole year. 31 December 2018 Transaction Probable Possible Remote scenario scenario scenario 25% 50% Loans – LIBOR 3.01% 3.76% 4.52% Loans – TJLP 6.98% 8.73% 10.47% Investments – LIBOR 2.62% 3.38% 4.13% Investments – CDI 6.55% 8.19% 9.83% Transaction Risk Amount Result Probable Possible Remote US Dollars scenario scenario scenario (25%) (50%) US$’000 US$’000 US$’000 Loans – LIBOR LIBOR 32,948 Interest (11) (69) (126) Loans – TJLP TJLP 15,517 Interest – (164) (325) Loans – Fixed N/A 258,841 None – – – Total loans 307,306 (11) (233) (451) Investments – LIBOR LIBOR 35,273 Income – 290 579 Investments – CDI CDI 27,015 Income 273 1,150 2,028 Total investments 62,288 273 1,440 2,607 Net Income 262 1,207 2,156 1. LIBOR – Information source: Bloomberg, report from 16 January 2019. 2. CDI – Information source: BM&F (Bolsa de Mercadorias e Futuros), report from 17 January 2019. 3. TJLP – Information source: BNDES (Banco Nacional de Desenvolvimento Economico e Social), report from October to December 2018. The net effect was obtained by assuming a 12-month period starting 31 December 2018 in which interest rates vary and all other variables are held constant. The scenarios express the difference between the weighted scenario rate and actual rate. 31 December 2017 Transaction Probable Possible Remote scenario scenario scenario 25% 50% Loans – LIBOR 2.17% 2.72% 3.26% Loans – Selic 6.90% 8.61% 10.34% Loans – TJLP 7.00% 8.75% 10.50% Investments – LIBOR 2.17% 2.71% 3.25% Investments – CDI 6.89% 8.61% 10.34% Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 85 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 86 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 37 Financial instruments (continued) Transaction Risk Amount Result Probable Possible Remote US Dollars scenario scenario scenario (25%) (50%) US$’000 US$’000 US$’000 Loans – LIBOR LIBOR 47,052 Interest (71) (157) (243) Loans – Selic Selic 321 Interest – (4) (8) Loans – TJLP TJLP 23,422 Interest – (254) (505) Loans – Fixed N/A 283,929 None – – – Total loans 354,724 (71) (415) (756) Investments – LIBOR LIBOR 45,080 Income – 236 471 Investments – CDI CDI 56,987 Income 229 1,297 2,366 Total investments 102,067 229 1,533 2,837 Net Income 158 1,118 2,081 1. 2. 3. 4. Libor – Information source: Bloomberg, report 16 January 2018. CDI – Information source: BM&F (Bolsa de Mercadorias e Futuros), report from 15 January 2018. Selic – Information source: Banco Central do Brasil report from 16 January 2018. TJLP – Information source: BNDES (Banco Nacional de Desenvolvimento Economico e Social), report from October to December 2017. The net effect was obtained by assuming a 12-month period starting 31 December 2017 in which interest rates vary and all other variables are held constant. The scenarios express the difference between the weighted scenario rate and actual rate. 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, Tecon Salvador entered into an interest rate swap agreement to hedge a portion of its outstanding floating-rate debt with IFC. On 31 December 2018 the notional amount was US$21.5 million. This swap converts floating interest rate based on the London Interbank Offered Rate (LIBOR) into fixed-rate interest and expires in March 2020. The derivatives were entered into with Santander Brasil as counterparty and its Standard & Poor’s credit rating was AA at 31 December 2018. Tecon Salvador is required to pay the counterparty interest at 4.250%, according to the schedule agreement and receives variable interest payments based on 6- month LIBOR. The net receipts or payments from the swap are recorded as financial expense. Outflows Net effect US$’000 US$’000 Within one year (422) (422) In the second year – – In the third to fifth years (including) – – After five years – – Fair Value (422) (422) The swap fair value was estimated based on the yield curve at 31 December 2018 and represents its carrying value. On 31 December 2018 the interest rate swap liability was US$0.4 million and the balance in accumulated other comprehensive income on the consolidated balance sheet was US$1.1 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the period ended 31 December 2018 was an after tax loss of US$0.5 million. 86 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 87 Ocean Wilsons Holdings Limited/Annual Report 2018 37 Financial instruments (continued) Amount Fair Value 31 December 2018 US$’000’s Maturity US$’000’s Financial Liability Interest Rates Swap 21,547 Jan/2019 (422) Total Derivative Sensitivity Analysis This analysis is based on 6-month LIBOR interest rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular foreign exchange rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of reduction of 25% (Possible) and 50% (Remote) in the interest rate. 31 December 2018 Probable Possible Remote scenario scenario (25%) scenario (50%) US$’000 US$’000 US$’000 (419) (557) (695) Cash Flow Hedge The Group applies hedge accounting for transactions in order to manage the volatility in earnings. If a swap is designated and qualifies as a cash flow hedge, 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 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 any amount included in 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 utilising 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 percent. Under this methodology, the swap was deemed to be highly effective for the period ended 31 December 2018. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2018. Market price sensitivity By the nature of its activities, the Group’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 5, 10 or 20 percent 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 5,10 or 20 percent, assuming all other variables are constant. A fall in market prices of 10 percent would give rise to an equal fall in profit or loss and total equity. 31 December 2018 5% scenario 10% scenario 20% scenario US$’000 US$’000 US$’000 Profit or loss 13,040 26,079 52,159 Total equity 13,040 26,079 52,159 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 87 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 88 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 37 Financial instruments (continued) 31 December 2017 5% scenario 10% scenario 20% scenario US$’000 US$’000 US$’000 Profit or loss 13,672 27,343 54,687 Total equity 13,672 27,343 54,687 Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Group’s sales policy is subordinated to the credit sales rules set by management, which seeks to mitigate any loss from customers’ delinquency. Trade receivables consist of a large number of customers. Ongoing credit evaluation is performed on the financial condition of 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 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 Manager. Operational trade receivables An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision matrix is initially based on the Group’s historical observed default rates. The Group evaluates the concentration of risk with respect to trade receivables and contract assets as low, as historically trade receivables are generally received between 30 and 45 days. 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. 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 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. 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. 88 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 89 Ocean Wilsons Holdings Limited/Annual Report 2018 37 Financial instruments (continued) Weighted average effective Less than interest rate 12 months 1-5 years 5+ years Total % US$’000 US$’000 US$’000 US$’000 31 December 2018 Non-interest bearing – 58,539 – – 58,539 Finance lease liability 7.06% 46 59 – 105 Variable interest rate instruments 4.78% 17,057 30,875 533 48,465 Fixed interest rate instruments 3.12% 43,152 79,089 136,600 258,841 118,614 110,023 137,133 365,770 31 December 2017 Non-interest bearing – 67,666 – – 67,666 Finance lease liability 9.79% 846 399 – 1,155 Variable interest rate instruments 3.72% 19,090 47,192 4,513 70,795 Fixed interest rate instruments 3.29% 35,198 98,676 150,055 283,929 122,800 146,177 154,568 423,545 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 financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading on 31 December 2018. The quoted market price used for financial assets held by the Company utilise the last traded market prices. Fair value measurements recognised in the statement of financial position IFRS 13 requires the disclosure of fair value measurements by the level of the following fair value measurement hierarchy: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability. The following table provides an analysis of financial instruments recognised in the statement of financial position by the level of hierarchy: Level 1 Level 2 Level 3 Total 31 December 2018 US$’000 US$’000 US$’000 US$’000 Financial assets at FVTPL Non-derivative financial assets for trading 13,729 133,150 111,309 258,188 Level 1 Level 2 Level 3 Total 31 December 2017 US$’000 US$’000 US$’000 US$’000 Financial assets at FVTPL Non-derivative financial assets for trading 15,831 145,515 112,088 273,434 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 89 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 90 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 37 Financial instruments (continued) Valuation Process Investments whose values are based on quoted market prices in active markets and are classified within Level 1 include active listed equities. The Group 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. Investments classified within Level 3 have significant unobservable inputs as they trade infrequently and are not quoted in an active market. The Group investments include holdings in Limited Partnerships and other private equity funds which may be subject to restrictions on redemptions such as lock up periods, redemption gates and side pockets. Valuations are the responsibility of the board of directors of the Group. The Group’s Investment Manager considers the valuation techniques and inputs used in valuing these funds as part of its due diligence prior to investing, to ensure they are reasonable and appropriate. Therefore, the Net Asset Value (“NAV”) of these funds may be used as an input into measuring their fair value. In measuring this fair value, the NAV of the funds is adjusted, if necessary, for other relevant factors known of the fund. No such adjustments were identified in the year. In measuring fair value, consideration is also paid to any clearly identifiable transactions in the shares of the fund. Depending on the nature and level of adjustments needed to the NAV and the level of trading in the fund, the Group classifies these funds as either Level 2 or Level 3. 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: The Group obtains the fair value of their holdings from valuation statements provided by the managers of the invested funds. Where the valuation statement is not stated as at the reporting date, the Group adjusts the most recently available valuation for any capital transactions made up to the reporting date. When considering whether the NAV of the underlying managed funds represent fair value the Group’s Investment Manager considers the valuation techniques and inputs used by the managed funds in determining their NAV. The underlying funds use a blend of methods to determine the value of their own NAV by valuing underlying investments using methodology consistent with the International Private Equity and Venture Capital Valuation Guidelines (‘IPEV’). IPEV guidelines generally provides five ways to determine the fair market value of an investment: (i) binding offer on the company (ii) transaction multiples (iii) market multiples (iv) net assets (v) discounted cash flows. Such valuations are necessarily dependent upon the reasonableness of the valuations by the fund managers of the underlying investments. In the absence of contrary information the values are assumed to be reliable. Periodically the Investment Manager considers historical alignment to actual market transactions for a sample of disposals realised. Investment in private equity funds require a long-term commitment with no certainty of return and our intention is to hold level 3 investments to maturity. In the unlikely event that we are required to liquidate these investments then the proceeds received maybe less than the carrying value due to their illiquid nature. The following table summarises the sensitivity of the Company’s level 3 investments to changes in fair value due to illiquidity at 31 December 2018. The analysis is based on the assumptions that the proceeds realised will be decreased by 5%, 10% or 20%, with all other variables held constant. This represents management’s best estimate of a reasonable possible impact that could arise from a disposal and illiquidity. 90 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 91 Ocean Wilsons Holdings Limited/Annual Report 2018 37 Financial instruments (continued) 31 December 2018 5% scenario 10% scenario 20% scenario US$’000 US$’000 US$’000 Profit or loss 5,696 11,391 22,783 Total equity 5,696 11,391 22,783 31 December 2017 5% scenario 10% scenario 20% scenario US$’000 US$’000 US$’000 Profit or loss 5,604 11,209 22,418 Total equity 5,604 11,209 22,418 None of the Group’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 Group has shown impacts to the value of investments if market prices had been 5%, 10% or 20% higher or lower at the end of the financial year. 2018 2017 Reconciliation of Level 3 fair value measurements of financial assets: US$’000 US$’000 Balance at 1 January 112,088 100,524 Total (losses)/profits in the Statement of Comprehensive Income (9,682) 4,281 Purchases and drawdowns of financial commitments 10,002 15,358 Sales and repayments of capital (1,099) (8,075) Balance at 31 December 111,309 112,088 38 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 regulation of the 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 present value of actuarial liabilities in 31 December 2018 is US$1.2 million (2017: US$1.1 million). The future actuarial liability for the Group relates to the potential increase in plan costs resulting from additional claims as a result of the expanded membership of the scheme. 31 December 31 December 2018 2017 US$’000 US$’000 Present value of actuarial liabilities 1,200 1,100 Actuarial assumptions The calculation of the liability generated by the post-employment commitment involves actuarial assumptions. The following are the principal actuarial assumptions at the reporting date: Economic and Financial Assumptions 31 December 31 December 2018 2017 Annual interest rate 9.20% 10.46% Estimated inflation rate in the long-term 4.00% 4.75% Ageing Factor Based on the experience of Wilson Sons1 2.50% p.a. Medical cost trend rate 6.60% p.a 2.50% p.a. 1 The amount of current contributions of retirees and medical costs used in the actuarial valuation, both in monthly amounts per health care provider, may vary between R$106.42 and R$4.023,74 (absolute value). Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 91 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 92 Ocean Wilsons Holdings Limited/Annual Report 2018 Notes to the Accounts 38 Post-employment benefits (continued) Biometric and Demographic Assumptions 31 December 31 December 2018 2017 Employee turnover 21.27% 22.7% Mortality table AT-2000 AT-2000 Mortality table for disabled – IAPB-1957 Disability table Álvaro Vindas Álvaro Vindas Retirement Age 100% at 62 100% at 62 Employees who opt to keep the health plan after retirement and termination 23% 23% Family composition before retirement Probability of marriage 80% of the participants 90% of the participants Age difference for active participants Men 3 years older than the woman Men 4 years older than the woman Family composition after retirement Composition of the family group Composition of the family group 92 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 93 Ocean Wilsons Holdings Limited/Annual Report 2018 Statistical Statement (Unaudited) 2014 – 2018 (in US$’000) Year to Year to Year to Year to Year to 31 December 31 December 31 December 31 December 31 December 2014 2018 2017* 2016* 2015* (Restated) US$’000 US$’000 US$’000 US$’000 US$’000 Closing rates of exchange – R$ to US$ 3.86 3.31 3.26 3.90 2.66 Income Statement Group revenue 460,194 496,340 457,161 509,268 633,520 Raw materials and consumables used (38,128) (37,679) (37,741) (55,760) (100,588) Employee benefits expense (146,327) (166,395) (144,274) (147,279) (195,893) Depreciation & amortisation expense (56,178) (57,481) (52,585) (53,214) (65,120) Other operating expenses (119,767) (122,310) (126,470) (142,175) (182,819) (Loss)/profit on disposal of property, plant and equipment (296) (2,930) 745 (1,294) 326 Group operating profit 99,500 109,545 96,836 109,546 89,426 Share of results of joint venture (4,062) 3,366 8,073 4,843 7,090 Returns on investment portfolio at fair value through P&L (7,942) 42,064 677 2,856 12,019 Other investment income 4,152 9,715 10,254 12,664 11,189 Finance costs (22,951) (21,976) (599) (45,403) (23,607) Foreign exchange losses on monetary items (8,459) 2,750 2,286 (15,792) (17,621) Profit before tax 60,238 145,464 117,527 68,714 78,496 Income tax expense (26,433) (36,056) (36,836) (39,455) (41,928) Profit for the year 33,805 109,408 80,691 29,259 36,568 Profit for the period attributable to: Equity holders of parent 13,308 78,315 45,060 15,470 23,182 Non-controlling interests 20,497 31,093 35,631 13,789 13,386 33,805 109,408 80,691 29,259 36,568 US$’000 US$’000 US$’000 US$’000 US$’000 Balance Sheet Net assets Brazilian interests 463,211 494,745 464,988 394,807 474,127 Investments held for trading 258,188 273,434 238,781 236,155 236,491 Other net assets 56,310 55,881 53,223 49,520 56,726 777,709 824,060 756,992 680,482 767,344 Attributable net assets – per share Brazilian interests – book amount 13.10 13.99 13.15 11.16 13.41 Other assets – book and market amount 8.89 9.31 8.26 8.08 8.29 21.99 23.30 21.41 19.24 21.70 Key Statistics Earnings per share 37.6c 221.5c 127.4c 43.7c 65.6c Cash dividends per share paid 70c 63c 63c 63c 60c Mid-market quotation at end of period £11.70 £10.95 £10.22 £7.65 £10.00 Mid-market quotation at end of period in US Dollars $14.92 $14.79 $12.50 $11.27 $15.58 * The 2014 to 2017 comparative for “Income from underlying investment vehicles” and “Other gains and losses” have been shown under “Returns on investments held at fair value through profit and loss”. The change was made in order to improve presentation of items of similar nature. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 93 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 94 Ocean Wilsons Holdings Limited/Annual Report 2018 Notice of Annual General Meeting Notice is hereby given that the 26th 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 4 June 2019 at 10:00 am for the following purposes. 1 To receive and, if approved, adopt the Directors’ Report and Accounts for the year ended 31 December 2018. 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 C Maltby as a Director until the next Annual General Meeting. 5 To re-elect Mr J F Gouvea Vieira as a Director until the next Annual General Meeting. 6 To re-appoint Ernst & Young LLP as the Auditor and the Directors to determine the remuneration of the Auditor. 7 Ratification and confirmation of all and any actions taken by the Board of Directors and the persons entrusted with Company’s management in the year ended 31 December 2018. By Order of the Board Malcolm Mitchell Company Secretary Clarendon House, Church Street, Hamilton HM 11, Bermuda 14 March 2019 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. 94 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 95 Ocean Wilsons Holdings Limited/Annual Report 2018 Form of Proxy *I/We *of being a Member of Ocean Wilsons Holdings Limited, hereby appoint Mr J F Gouvêa Vieira, or failing him any Director of the Company 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 4 June 2019 and at any adjournment thereof. The proxy will vote on the Resolutions as indicated opposite. 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 4 June 2018 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 2018. 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 C Maltby as a Director until the next Annual General Meeting. 5 To re-elect Mr J F Gouvea Vieira as a Director until the next Annual General Meeting. 6 To re-appoint Ernst & Young LLP as the Auditor and authorise the Directors to fix the remuneration of the Auditor. 7 Ratification and confirmation of all and any actions taken by the Board of Directors and the persons entrusted with Company’s management in the year ended 31 December 2018. Signature Notes Dated 2019 1 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. 2 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. 3 To be valid, the proxy should be deposited at the Transfer Agents of the Company, Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4ZF, no less than 48 hours before the time for the Meeting. 4 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. 5 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. Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA 95 37693 U Ocean Wilsons R&A 2018 pp38-96.qxp_37693 U Ocean Wilsons R&A 2017 pp38-96 01/04/2019 16:55 Page 96 Ocean Wilsons Holdings Limited/Annual Report 2018 96 Job No.: 37693 Proof Event: 6 Park Communications Ltd Alpine Way London E6 6LA Cover: A white stepped roof, a feature of the architecture of Bermuda. Contents 1 Ocean Wilsons Holdings Limited 2 Chairman’s Statement 6 Financial Review 12 Wilson Sons Limited 13 Investment Portfolio 14 Investment Manager’s Report 18 Directors and Advisers 19 Report of the Directors 29 Independent Auditors’ Report 38 Consolidated Statement of Comprehensive Income 39 Consolidated Balance Sheet 40 Consolidated Statement of Changes in Equity 41 Consolidated Cash Flow Statement 42 Notes to the Accounts 93 Statistical Statement 2013 – 2017 94 Notice of Annual General Meeting 95 Form of Proxy Printed by Park Communications on FSC® certified paper. Park is a CarbonNeutral® company and its Environmental Management System is certified to ISO 14001. This document is printed on Chorus Silk, which can be disposed of by recycling, incineration for energy recovery or is biodegradable. The mill which makes chorus, sources 90% of its pulp fibre from within a 200km radius of the mill, reducing the carbon footprint for production. O c e a n W i l s o n s H o l d i n g s L i m i t e d A n n u a l R e p o r t 2 0 1 8 A n n u a l R e p o r t 2 0 1 8 

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