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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
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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.
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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
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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.
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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
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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
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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
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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.
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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).
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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.
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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
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Ocean Wilsons Holdings Limited/Annual Report 2018
Night-time operations at Tecon Rio Grande in Rio Grande, Rio Grande
do Sul.
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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
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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).
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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
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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.
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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
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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
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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
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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.
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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
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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
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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.
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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;
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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
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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.
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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.
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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
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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
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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.
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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
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Job No.: 37693
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Park Communications Ltd Alpine Way London E6 6LA
Park Communications Ltd Alpine Way London E6 6LA
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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
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Park Communications Ltd Alpine Way London E6 6LA
Park Communications Ltd Alpine Way London E6 6LA
31
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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
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Job No.: 37693
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Park Communications Ltd Alpine Way London E6 6LA
Park Communications Ltd Alpine Way London E6 6LA
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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
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Job No.: 37693
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Park Communications Ltd Alpine Way London E6 6LA
Park Communications Ltd Alpine Way London E6 6LA
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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
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Job No.: 37693
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Park Communications Ltd Alpine Way London E6 6LA
Park Communications Ltd Alpine Way London E6 6LA
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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
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Job No.: 37693
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Park Communications Ltd Alpine Way London E6 6LA
Park Communications Ltd Alpine Way London E6 6LA
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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
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Job No.: 37693
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Park Communications Ltd Alpine Way London E6 6LA
Park Communications Ltd Alpine Way London E6 6LA
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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
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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$’000
Revenue 3 460,196 496,340
Raw materials and consumables used (38,128) (37,679)
Employee benefits expense 6 (146,327) (166,395)
Depreciation & amortisation expense 5 (56,178) (57,481)
Other operating expenses (119,767) (122,310)
Loss on disposal of property, plant and equipment (296) (2,930)
Operating profit 99,500 109,545
Share of results of joint venture 17 (4,062) 3,366
Returns on investment portfolio at fair value through profit and loss 7 (7,942) 42,064
Other investment income 8 4,152 9,715
Finance costs 9 (22,951) (21,976)
Foreign exchange (losses)/gains on monetary items (8,459) 2,750
Profit before tax 5 60,238 145,464
Income tax expense 10 (26,433) (36,056)
Profit for the year 5 33,805 109,408
Other comprehensive income:
Items that will never be reclassified subsequently to profit and loss
Post-employment benefits (187) (374)
Exchange differences arising on translation of foreign operations (39,336) (6,485)
Items that are or may be reclassified subsequently to profit and loss
Effective portion of changes in fair value of derivatives 542 557
Other comprehensive expense for the year (38,981) (6,302)
Total comprehensive (expense)/income for the year (5,176) 103,106
Profit for the period attributable to:
Equity holders of parent 13,308 78,315
Non-controlling interests 20,497 31,093
33,805 109,408
Total comprehensive (expense)/income for the period attributable to:
Equity holders of parent (9,278) 74,667
Non-controlling interests 4,102 28,439
(5,176) 103,106
Earnings per share
Basic and diluted 12 37.6c 221.5c
38
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Ocean Wilsons Holdings Limited/Annual Report 2018
Consolidated Balance Sheet
as at 31 December 2018
As at As at
31 December 31 December
2018 2017
Notes US$’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
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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
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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
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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$177.0 million. The impact will principally be due to
the recognition of right-of-use assets previously recognised as operating leases in respect of the commitments expressed in Note 33.
Other standards or amendments
The following new or amended standards are not expected to have a significant impact on the Group’s consolidated financial statements:
• Insurance Contracts (IFRS 17);
• Uncertainty over Income Tax Treatments (IFRIC 23);
• Prepayment Features with Negative Compensation (Amendments to IFRS 9);
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Notes to the Accounts
2 Significant accounting policies and critical accounting judgements (continued)
• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28);
• Plan Amendment, Curtailment or Settlement (Amendments to IAS 19);
• Long-term interests in associates and joint ventures (Amendments to IAS 28); and
• Annual Improvement of IFRS 2015 to 2017 cycle.
3 Revenue
An analysis of the Group’s revenue is as follows:
Year ended Year ended
31 December 31 December
2018 2017
US$’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$’000
Towage and agency services
Harbour manoeuvres 152,376 195,479
Special operations 13,212 11,275
Ship agency 9,950 11,294
Total 175,538 218,048
Port terminals
Container handling 97,627 106,391
Warehousing 43,995 38,387
Ancillary services 24,432 26,163
Oil & Gas support base 20,813 15,678
Other services 16,920 16,504
Total 203,787 203,123
Logistics
Logistics 56,908 54,656
Total 56,908 54,656
Shipyard
Shipyard construction contracts 14,038 17,747
Technical assistance/dry-docking 9,939 3,487
Total 23,977 21,234
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3 Revenue (continued)
3.1 Disaggregated revenue information (continued)
Year ended Year ended
31 December 31 December
2018 2017
US$’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.
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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$’000
Revenue 460,196 – – 460,196
Result
Segment result 104,453 (2,902) (2,051) 99,500
Share of results of joint ventures (4,062) – – (4,062)
Return on investment portfolio at fair value through P&L – (7,942) – (7,942)
Other investment income 4,060 16 76 4,152
Finance costs (22,951) – – (22,951)
Foreign exchange losses on monetary items (8,807) (22) 370 (8,459)
Profit/(loss) before tax 72,693 (10,850) (1,605) 60,238
Tax (26,433) – – (26,433)
Profit/(loss) after tax 46,620 (10,850) (1,605) 33,805
Other information
Capital additions (61,706) – – (61,706)
Depreciation and amortisation (56,175) – (3) (56,178)
Balance Sheet
Assets
Segment assets 950,272 258,985 3,192 1,212,449
Liabilities
Segment liabilities (434,151) (256) (333) (434,740)
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4 Business and geographical segments (continued)
For the year ended 31 December 2017
Maritime
Services Investment Unallocated Consolidated
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2017 2017 2017 2017
US$’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$’000
Brazil 909,385 990,689 61,706 55,345
Bermuda 303,064 329,265 – –
1,212,449 1,319,954 61,706 55,345
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Notes to the Accounts
5 Profit for the year
Profit for the year has been arrived at after charging:
Year ended Year ended
31 December 31 December
2018 2017
US$’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$’000
Interest on bank deposits 3,565 5,916
Other interest 587 3,799
4,152 9,715
The prior year comparatives have been represented in order to match the current year presentation.
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9 Finance costs
Year ended Year ended
31 December 31 December
2018 2017
US$’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$’000
Current
Brazilian taxation
Corporation tax 20,764 27,794
Social contribution 8,270 9,978
Total current tax 29,034 37,772
Deferred tax
Charge for the year in respect of deferred tax liabilities 16,044 19,933
Credit for the year in respect of deferred tax assets (18,645) (21,649)
Total deferred tax (2,601) (1,716)
Total taxation charge 26,433 36,056
Brazilian corporation tax is calculated at 25% (2017: 25%) of the assessable profit for the year. Brazilian social contribution tax is calculated at 9% (2017: 9%) of
the assessable profit for the year.
At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the
Company. In the event that such taxes are levied, the company has received an undertaking from the Bermuda Government exempting it from all such taxes
until 31 March 2035.
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Notes to the Accounts
10 Taxation (continued)
The charge for the year can be reconciled to the profit per the statement of comprehensive income as follows:
Year ended Year ended
31 December 31 December
2018 2017
US$’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$’000
Earnings:
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 13,308 78,315
Number of shares:
Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share 35,363,040 35,363,040
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13 Goodwill
31 December 31 December
2018 2017
US$’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.
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Notes to the Accounts
14 Other intangible fixed assets
Software Lease-rights Other Total
US$’000 US$’000 US$’000 US$’000
Cost
At 1 January 2017 39,052 25,797 73 64,922
Additions 4,192 2 2 4,196
Disposals (84) – – (84)
Exchange differences (263) (381) – (644)
At 1 January 2018 42,897 25,418 75 68,390
Additions 2,033 – – 2,033
Disposals (553) – – (553)
Exchange differences (2,028) (3,694) (11) (5,733)
At 31 December 2018 42,349 21,724 64 64,137
Amortisation
At 1 January 2017 27,657 6,821 – 34,478
Charge for the year 2,900 730 – 3,630
Disposals (84) – – (84)
Exchange differences (101) (125) – (226)
At 1 January 2018 30,372 7,426 – 37,798
Charge for the year 2,784 637 – 3,421
Disposals (551) – – (551)
Exchange differences (897) (1,102) – (1,999)
At 31 December 2018 31,708 6,961 – 38,669
Carrying amount
31 December 2018 10,641 14,763 64 25,468
31 December 2017 12,525 17,992 75 30,592
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15 Property, plant and equipment
Land and Vehicles, plant Assets under
buildings Floating Craft and equipment construction Total
US$’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
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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.
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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$’000
Property, plant and equipment 2,688 2,841
Intangible assets 24 35
Inventories 385 353
Trade and other receivables 2,418 2,054
Cash and cash equivalents 796 904
Total assets 6,311 6,187
Trade and other payables (6,172) (6,153)
Deferrred tax liabilities (139) (34)
Total liabilities (6,311) (6,187)
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Notes to the Accounts
17 Joint ventures (continued)
Joint ventures
The aggregated Group’s interests in joint ventures are equity accounted.
Year ended Year ended
31 December 31 December
2018 2017
US$’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.
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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
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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)
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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.
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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.
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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$116.2 million of undrawn borrowing facilities. For each disbursement there is a set of conditions precedent
that must be satisfied.
Covenants
Wilson, Sons de Administração e Comércio Ltda. (“WSAC”) as corporate guarantor has to comply with annual loan covenants for both Wilson Sons Estaleiros and
Brasco Logística Offshore in respect of loan agreements signed with BNDES.
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Notes to the Accounts
23 Bank loans and overdrafts (continued)
Wilport Operadores Portuários Ltda as corporate guarantor for loan agreements signed between the BNDES e Tecon Salvador S.A, has to comply with annual loan
covenants including ratios of debt service coverage, net debt ratio over EBITDA and equity over total assets. For the same agreements Tecon Salvador has to
comply with the debt service coverage ratio covenant.
Tecon Rio Grande S.A. has to comply with loan covenants from Santander, including a minimum liquidity ratio and capital structure.
At 31 December 2018, the Group was in compliance with all clauses in the above mentioned loan contracts.
Fair value
Management estimates the fair value of the Group’s borrowings as follows:
31 December 31 December
2018 2017
US$’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.
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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$’000
Amounts payable under finance leases
Within one year 46 846
In the second to fifth years inclusive 59 309
After five years – –
Present value of lease obligations 105 1,155
Less: Amounts due for settlement within 12 months (shown under current liabilities) (46) (846)
Amount due for settlement after 12 months 59 309
It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average original lease term is 60 months. The average outstanding
lease term at 31 December 2018 was 26 months.
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Notes to the Accounts
25 Obligations under finance leases (continued)
For the year ended 31 December 2018, the average effective borrowing rate was 10.80% (2017: 9.79%). All leases are denominated in Brazilian Real and
include a fixed repayment and a variable finance charge linked to the Brazilian interest rate.
There is a non-significant difference between the fair value and the present value of the Group’s lease obligations. The present value is calculated with its own
interest rate over the future instalments of each contract.
The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets.
26 Trade and other payables
31 December 31 December
2018 2017
US$’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$’000
INSS payable 4,125 2,001
PIS and COFINS payable 2,768 3,091
ISS payable 1,956 2,059
Income tax payable 1,342 1,866
FGTS payable 643 800
Other payable taxes 381 2,175
Total recoverable taxes non-current 11,215 11,992
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27 Provisions for tax, labour and civil cases
Labour claims Tax cases Civil cases Total
US$’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$’000
Tax cases 86,204 96,890
Labour claims 18,839 28,931
Civil and environmental cases 15,156 14,686
120,199 140,507
The main probable and possible claims against the Group are described below:
Tax cases – The Group defends against government tax assessments considered inappropriate.
Labour claims – Most claims involve payment of health risks, additional overtime and other allowances.
Civil and environmental cases – Indemnification claims involving material damages, environmental and shipping claims and other contractual disputes.
Procedure for classification of legal liabilities identifies claims as probable, possible or remote, as assessed by the external lawyers:
• Upon receipt of notices of new judicial lawsuits, external lawyers generally classify the claim as possible, recorded at the total amount involved. Wilson Sons
uses the criteria of the estimated value at risk and not the total claim value involved in each process.
• Exceptionally, if there is sufficient knowledge from the beginning that there is very high or very low risk of loss, the lawyer may classify the claim as a
probable loss or remote loss.
• During the course of the lawsuit and considering, for instance, its first judicial decision, legal precedents, arguments of the claimant, thesis under discussion,
applicable laws, documentation for the defence and other variables, the lawyer may re-classify the claim as a probable loss or remote loss.
• When classifying the claim as a probable loss, the lawyer estimates the amount at risk for such claim.
Management are not able to give an indication when the provisions are likely to be utilised as the majority of provisions involve litigations the resolution of
which is highly uncertain as to timing.
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Notes to the Accounts
28 Share capital
2018 2017
US$’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
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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$140.5 million). These have not been provided for as the directors and the Group’s legal advisors do not
consider that there are any probable losses. Contingent liabilities relate to labour, civil and environmental and tax claims.
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Notes to the Accounts
32 Share options
Stock option scheme
On 13 November 2013 the board of Wilson Sons Limited approved a Stock Option Plan which allowed for the grant of options to eligible participants to be
selected by the board. The shareholders in special general meeting approved such plan on the 8 January 2014 including an increase in the authorised capital of
the Company through the creation of up to 4,410,927 new shares. The options provide participants with the right to acquire shares via Brazilian Depositary
Receipts (“BDR”) in Wilson Sons Limited at a predetermined fixed price not less than the three day average mid-price for the days preceding the date of option
issuance. The Stock Option Plan is detailed below:
Original Exercise
Options series Grant vesting Expiry price Outstanding Total
date date date (R$) 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
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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$97 million) related to the maintenance of the operating area and replacement of equipment that will be completed up to
2050.
Tecon Salvador guaranteed payments consist of three elements: a fixed rental, a fee per container handled based on minimum forecast volumes and a fee per
tonne of non-containerized cargo handled based on minimum forecast volumes.
Logistics
Logistics lease commitments mainly refer to the bonded terminals and distribution centres located in Santo André and Suape with terms between eighteen and
twenty-four years.
Brasco
Brasco lease commitments mainly relate to a 30-year lease right to operate a sheltered area at Guanabara Bay, Rio de Janeiro, Brazil with a well situated location
to service the Campos and Santos oil producing basins.
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Notes to the Accounts
33 Operating lease arrangements (continued)
At the balance sheet date the Group had outstanding commitments for future minimum lease payments under operating leases, which fall due as follows:
2018 2017
US$’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$’000
Joint ventures
1. Allink Transportes Internacionais Limitada1 8 1 (376) (19)
2. Consórcio de Rebocadores Barra de Coqueiros – – – –
3. Consórcio de Rebocadores Baía de São Marcos 26 444 – –
4. Wilson Sons Ultratug and subsidiaries7 2,250 1,379 – –
5. Atlantic offshore S.A.8 – – – –
Others
6. Hanseatic Asset Management LBG2 – – (2,742) (2,597)
7. Gouvêa Vieira Advogados3 – – (66) (73)
8. CMMR Intermediacão Comercial Limitada4 – – (87) (157)
9.
Jofran Services5 – – (173) (173)
10. Hansa Capital GMBH6 – – (93) (93)
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36 Related party transactions (continued)
Amounts owed Amounts owed
by related parties to related parties
31 December 31 December 31 December 31 December
2018 2017 2018 2017
US$’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$’000
Short-term employee benefits 9,798 11,674
Other long-term employee benefits 1,132 1,671
Share options issued 1,303 2,331
Share-based payment 28 55
12,261 15,731
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Notes to the Accounts
37 Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt,
which includes the borrowings disclosed in note 23, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital,
reserves and retained earnings disclosed in the consolidated statement of changes in equity.
The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated by
operating revenues.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Significant accounting policies
Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income
and expense are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.
Categories of financial instruments
Year ended Year ended
2018 2017
US$’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.
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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$’000
Real 109,764 180,468 179,031 212,457
Sterling 59 18 11,373 10,934
Euro – – 21,590 21,177
Yen – – 5,333 –
109,823 180,486 217,327 244,568
Foreign currency sensitivity analysis
The Group is primarily exposed to unfavourable movements in the Real on its Brazilian liabilities held by US Dollar functional currency entities.
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Notes to the Accounts
37 Financial instruments (continued)
The sensitivity analysis presented in the following sections, which refer to the position on 31 December 2017, estimates the impacts of the Real devaluation
against the US Dollar. Three exchange rate scenarios are contemplated: the likely scenario (Probable) and two possible scenarios of deterioration of 25%
(Possible) and 50% (Remote) in the exchange rate. The Group uses the Brazilian Central Bank’s “Focus” report to determine the probable scenario.
31 December 2018
Exchange rates
Operation Risk Amount Result Probable Possible Remote
US Dollars scenario scenario scenario
(25%) (50%)
Exchange rate 3.75 4.69 5.63
US$’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.
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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%
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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$0.5
million.
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37 Financial instruments (continued)
Amount Fair Value
31 December 2018 US$’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$’000
Profit or loss 13,040 26,079 52,159
Total equity 13,040 26,079 52,159
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Notes to the Accounts
37 Financial instruments (continued)
31 December 2017
5% scenario 10% scenario 20% scenario
US$’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.
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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
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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.
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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$4.023,74 (absolute
value).
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Notes to the Accounts
38 Post-employment benefits (continued)
Biometric and Demographic Assumptions
31 December 31 December
2018 2017
Employee turnover 21.27% 22.7%
Mortality table AT-2000 AT-2000
Mortality table for disabled – IAPB-1957
Disability table Álvaro Vindas Álvaro Vindas
Retirement Age 100% at 62 100% at 62
Employees who opt to keep the health plan after retirement and termination 23% 23%
Family composition before retirement
Probability of marriage 80% of the participants 90% of the participants
Age difference for active participants Men 3 years older than the woman Men 4 years older than the woman
Family composition after retirement Composition of the family group Composition of the family group
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Ocean Wilsons Holdings Limited/Annual Report 2018
Statistical Statement (Unaudited)
2014 – 2018 (in US$’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.
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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.
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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.
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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.
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