TIDMOCN
RNS Number : 9516S
Ocean Wilsons Holdings Ld
15 March 2019
Ocean Wilsons Holdings Limited
Preliminary results for the year ended 31 December 2018
Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the
"Company") today announces its preliminary results for the year
ended 31 December 2018.
Highlights
-- Revenue in Brazilian Real terms grew 6%. In US dollars
reported sales were 7% lower at US$460.2 million (2017: US$496.3
million).
-- Operating profit fell 9.1% to US$99.5 million (2017: US$109.5
million) mainly due to lower revenue and softer operating margins
at our towage business.
-- Operating margins* were a healthy 21.6%, albeit slightly
lower than the prior year (2017: 22.1%) due to poorer towage
margins.
-- Net cash inflow from operating activities for the year of
US$113.7 million (2017: US$103.0 million).
-- The Investment portfolio (including cash under management)
decreased US$15.8 million to US$258.9 million (2017: US$274.7
million).
-- Proposed dividend unchanged at 70 cents per share (2017: 70 cents per share).
-- EPS fell to 37.6 cents per share (2017: 221.5 cents per
share) due to a fall in value of the investment portfolio, lower
operating profit, foreign exchange losses and a reduction in the
share of results from joint ventures.
*Operating margins are defined as operating profit divided by
revenue.
About Ocean Wilsons Holdings Limited
Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the
"Company") is a Bermuda based investment holding company which,
through its subsidiaries, operates a maritime services company in
Brazil and holds a portfolio of international investments. The
Company is listed on both the Bermuda Stock Exchange and the London
Stock Exchange. It has two principal subsidiaries: Wilson Sons
Limited and Ocean Wilsons (Investments) Limited (together with the
Company and their subsidiaries, the "Group").
Wilson Sons Limited ("Wilson Sons") is a Bermuda company listed
on the São Paulo Stock Exchange (BOVESPA) and Luxembourg Stock
Exchange. Ocean Wilsons holds a 58.17% interest in Wilson Sons
which is fully consolidated in 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
employees and activities including harbour and ocean towage,
container terminal operation, offshore oil and gas support
services, small vessel construction, logistics and ship agency.
Ocean Wilsons (Investments) Limited is a wholly owned Bermuda
investment company and holds a portfolio of international
investments.
Objective
Ocean Wilsons is run with a long-term outlook. This applies to
both the investment portfolio and our investment in Wilson Sons.
The long-term view 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 value creation. The same view
allows our Investment Manager to make investment decisions that
create long-term capital growth.
Chairman's Statement
Introduction
In a highly competitive environment the Group's overall
performance in 2018 has been robust. Revenue in Brazilian Real
"BRL" terms grew 6% in the year however revenue growth was affected
by lower towage revenue and the higher average US Dollar "USD"
USD/BRL exchange rate. The key operational indicators at our
container terminals increased against 2017 comparative while our
towage and offshore businesses both fell due to strong market
competition and the weak offshore oil and gas market.
Operating volumes 2018 2017 % Change
----------------------------------------- ------- ------- --------
Container Terminals
(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%)
Offshore Vessels (days in operation) 5,126 6,035 (15.1%)
----------------------------------------- ------- ------- --------
*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. Container
volumes handled at Tecon Salvador in 2018 grew 5% over the prior
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 leading supplier of towage services in Brazil with
a fleet of seventy-six 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 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 incorporates design changes from the WS Titan
built by the Group in 2015, which permits a greater bollard pull
while using the same engines and fuel consumption). WS Sirius is
currently operating in the port of Açu in the state of Rio De
Janeiro. Demand for towage special operations improved with ocean
towage, shipyard support and a salvage assistance performed in the
year. In addition to the WS Sirius, our shipyard successfully
delivered two tugboats to third parties and continued to perform
maintenance for both third parties and on our own tugboat and
offshore fleets.
Weak demand from the offshore oil and gas industry resulted in
operating 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 vessels. During the
year the platform supply vessel ("PSV") Fragata 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).
Group Results
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 with 221.5 cents in 2017.
Investment portfolio performance
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 in the period were
mainly due to the poor performance of global equity markets, which
fell 9.4% in the year (MSCI ACQI +FM NR Index) and in particular
emerging markets, towards which the portfolio has an over-weight
bias, decreasing by 14.6% (MSCI Emerging Markets NR Index). We are
not proposing any changes to our investment strategy which we
consider sound in the context of what was a difficult year given
our long-term investment horizon. Emerging markets account for 33%
of the investment portfolio net asset value at year end. The
investment portfolio remains weighted towards global equities,
which at year end accounted for 52% of the portfolio valuation
(US$134.8 million), with private equity investments accounting for
36% (US$78.1 million) and the balance invested in diversifying
hedge funds, cash and bonds. The principal sector exposures in the
portfolio are information technology (18%), consumer discretionary
(14%) and financials (13%).
During the year, our private equity investments returned US$13.7
million in capital and profit distributions with a net cash inflow
to the portfolio of 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 with the majority of
contributions coming from emerging markets and technology
sectors.
At 31 December 2018, the top ten investments account for 38% of
the investment portfolio valuation (US$98.9 million).
Investment Manager
Ocean Wilson (Investments) Limited ("OWIL"), a wholly owned
subsidiary registered in Bermuda, holds the Group's investment
portfolio. OWIL has appointed Hanseatic Asset Management LBG, a
Guernsey registered and regulated investment group, as its
Investment Manager.
Investment management fee
The Investment Manager receives an investment management fee of
1% of the valuation of funds under management and an annual
performance fee of 10% of the net investment return which exceeds
the benchmark, provided that the high-water mark has been exceeded.
The portfolio performance is measured against a benchmark
calculated by reference to US CPI plus 3% per annum over rolling
three-year periods. Payment of performance fees are subject to a
high-water mark and are capped at a maximum of 2% of the portfolio
NAV. The Board considers a three-year measurement period
appropriate due to the investment mandate's long-term horizon and
an absolute return inflation-linked benchmark appropriately
reflects the company's investment objectives while having a linkage
to economic factors.
In 2018 the investment management fee paid was US$2.7 million
(2017: US$2.6 million) and no performance fee became payable to the
Investment Manager (2017: US$0.1 million).
Net asset value
At the close of business on 31 December 2018, the Wilson Sons'
share price was R$40.00, resulting in a market value for the Ocean
Wilsons holding of 41,444,000 shares (58.17% of Wilson Sons)
totalling approximately US$428.4 million which is the equivalent of
US$12.11 (GBP9.50) per Ocean Wilsons share.
Adding the market value per share of Wilsons Sons of US$12.11
and the investment portfolio at 31 December 2018 per share of
US$7.32 results in a net asset value per Ocean Wilsons Holdings
Limited share of US$19.43 (GBP15.24) per share. The Ocean Wilsons
Holdings Limited share price of GBP11.75 at 31 December 2018
represented an implied discount of 23% which is lower than the
historic long-term discount.
Dividend
The Board is recommending an unchanged dividend of 70 cents per
share to be paid on 7 June 2019, to shareholders of the Company as
of the close of business on 10 May 2019. At the current exchange
rate this represents approximately a 5% increase in Sterling terms
over the 2017 dividend. Shareholders will receive dividends in
Sterling by reference to the exchange 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
current share price and exchange rates a dividend of 70 cents per
share represents an attractive dividend yield of approximately
4.7%.
Dividends are set in US Dollars and paid annually. The Ocean
Wilsons Holdings Limited dividend policy is to pay a percentage of
the average capital employed in the investment portfolio determined
annually by the Board and the Company's full dividend received from
Wilson Sons in the period after deducting funding for the parent
company costs. The Board of Directors may review and amend the
dividend policy from time to time in light of our future plans and
other factors.
Strategic review
On 17 July 2018 we announced that our principal operating
subsidiary, Wilson Sons Limited made the following announcement to
the Brazilian and Luxembourg Stock Exchanges.
"Wilson Sons Limited (B3: WSON33) ("Wilson Sons" or "Company")
informs the market that the Board of Directors of the Company
approved on 16 July 2018 the start of a formal process involving
its investments in container terminal and logistics assets. The
process is part of the evaluation of strategic alternatives that is
being carried out by the management of the Company which may
include the divestment of such assets, as well as attracting
strategic partners. The Company informs that no final decision has
yet been taken with respect to pursuing any such alternatives and
there can be no certainty that any transaction will occur.
The Company will keep its shareholders and the market informed
about the development of such analysis, in compliance with the
provisions of Law 6,404, dated 15 December 1976, as amended, and
the Resolution 358 issued by the Brazilian Securities and Exchange
Commission ("CMV"), dated 3 January 2002, as amended.
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 assets and there can be no certainty that
any transaction will be entered into. A further announcement will
be made in due course, if it is appropriate to do so."
The Company advises that no final decision has yet been taken by
Wilson Sons Limited with respect to pursuing any such alternatives
and there can be no certainty that any transaction will occur.
Charitable donations and corporate sponsorship
The Group's subsidiary Wilson Sons continues to support several
local charities and causes in Brazil. Group donations for
charitable and sponsorship 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 Brazilian
cultural incentive laws. The Group's objective is to promote
private social investment in projects, actions and social
programmes related to respecting and valuing life with a focus on
young people, promoting social inclusion and development.
Health, safety and environmental practices (HSE)
The Group manages the areas of Occupational Health, Safety, and
Environment ("HSE") in a strategic manner as the Board consider it
of fundamental importance for the development of a sustainable
business. This is reflected in the Group's corporate values which
gives great importance to people's safety, the environment and
communities. HSE has a formal agenda within the Wilson Sons Limited
executive committee, with monthly meetings to deal exclusively with
issues related to the topic which is supported by dedicated
committees and subcommittees for each business unit.
The Group has run the WS+ safety programme in partnership with
DuPont since 2011 to promote improved safety throughout the Wilson
Sons Group. HSE guidelines are based on the concepts of continuous
improvement, relationship with stakeholders, emergency response,
risk management, training, legal compliance, leadership and
responsibility. The success of this programme is shown by the
continued improvement in our lost-time injury frequency rate which
has decreased by 95% to 0.37 per one million man-hours worked since
the programme was implemented. In 2018 Wilson Sons reduced its
lost-time injury frequency rate for the eighth consecutive year.
Despite achieving a world-class level of safety, the Group
continues to work on improving safety performance and work
practices to prevent future accidents. Our long-term goal is to
maintain the lost-time injury frequency rate below or equal to 0.5
and achieve an interdependent safety management culture in which
everyone is aware of the safety agenda and concerned not only with
their own safety but also with those around them.
Excellence in environmental management is part of the Group's
strategic objectives. In this context, excellence means using
resources rationally and efficiently, managing environmental risks
and liabilities, understanding and engaging with environmental
interests of stakeholders with integrity, as well as planning and
achieving financial performance targets aligned with environmental
commitments.
In order to improve the understanding of the environmental
aspects and impacts of its activities, the Wilson Sons Group has
developed its Environmental Management Index ("EMI") based on
current best practices. The EMI's key themes (solid waste, water
resources, environmental damage, licensing, stakeholders and
atmospheric emissions) use established criteria to promote
continuous improvement in environmental management and achieve
excellence.
The Group looks to use advanced technology to reduce our
greenhouse gas emissions. Some examples of these measures include:
updating conventional diesel-powered maritime support ships to more
efficient diesel-electric systems; using RTG (Rubber-Tyred Gantry)
electric cranes with a lower environmental impact in container
terminals; and expanding the Towage Operations Centre, making it
possible to reduce fuel consumption by optimising the movement of
vessels.
Corporate governance
The Board has put in place corporate governance arrangements
which it believes are appropriate for the operation of your
Company. The Board has considered the principles and
recommendations of the 2016 UK Corporate Governance Code ("the
Code") issued by the Financial Reporting Council and decided to
apply those aspects which are appropriate to the business. This
reflects the fact that Ocean Wilsons is an investment holding
company incorporated in Bermuda with significant operations in
Brazil. The Company complies with the Code where it is beneficial
for both its shareholders and its business to do so. It has done so
throughout the year and up to the date of this report but it does
not fully comply with the Code. The areas where the Company does
not comply with the Code, and an explanation of why, are contained
in the section on corporate governance in the Annual Report. The
position is regularly reviewed and monitored by the Board. The
Board is considering the 2018 UK Corporate Governance Code and its
application to the Group.
Outlook
Economists are expecting the economic recovery in Brazil to
accelerate in 2019 as the new government's more pro-business stance
helps boost economic growth. Following receipt of the necessary
environmental licenses, we started work on the expansion of the
Tecon Salvador container terminal in 2018 which is forecast for
completion in the second half of 2020. The completed terminal
expansion will further develop and improve this important asset and
enhance our operational capability. Demand at our container
terminals business remains firm with volumes expected to be in line
with 2018. Competition in the Brazilian towage market remains
strong, however we remain confident in the strength of our business
to face these challenges. The Brazilian offshore oil and gas market
is expected to face another difficult year with demand for both
offshore vessel hire and new vessel construction remaining sluggish
although we continue to explore alternative revenue streams for our
off-hire supply vessels. Two new contracts for the PSVs Fulmar and
Ostreiro to provide shallow-water diving support services are
scheduled to start in March 2019. The shipyard orderbook consists
of one 90-tonne bollard pull tugboat for our fleet to be delivered
in 2019. There are also 22 scheduled dry-dockings consisting of 11
tugboats for Wilson Sons, 10 tugboats for third parties and one PSV
for our offshore joint venture. While the Group faces a number of
challenges in 2019 we are confident in the resilience of our
Brazilian businesses and the solid performances delivered over many
years gives us encouragement that we are well placed to face the
coming challenges and take advantage of business opportunities as
they arise.
2018 was a poor year for world stock markets with global equity
prices falling across the board. In contrast, stocks have rallied
in 2019 on growing optimism that a trade agreement between the U.S.
and China may be imminent, as well 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 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
Financial Review
Operating profit
Operating profit at US$99.5 million was US$10.0 million lower
than prior year (2017: US$109.5 million) largely due to the
decrease in towage revenue and slightly lower operating margins.
Group operating margins for the year declined to 21.6 % (2017:
22.1%) principally due to poorer margins at the Group's towage
business.
Raw materials and consumables used in the year at US$38.1
million were in line with 2017 (US$37.7 million). Employee expenses
were 12% lower at US$146.3 million (2017: US$166.4 million) due to
the effect of the higher average USD/BRL exchange rate plus the
prior year figure included redundancy costs associated with
corporate restructuring and additional provisions to cover
potential labour claims. Employee costs were negatively impacted by
the rollback in the year of temporary payroll tax exemptions
granted to some business sectors in Brazil. Headcount was in line
with prior year. Other operating expenses were 2% lower at US$119.8
million (2017: US$122.3 million) because of the strengthening of
the US Dollar versus BRL. 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 amortisation expense at
US$56.2 million was US$1.3 million lower than the comparative
period (2017: US$57.5 million). The impact of the higher average
USD/BRL exchange rate was partially offset by capital investment
made in 2017.
The loss on disposal of property, plant and equipment in 2017
included a US$2.3 million write down on leasehold improvements no
longer used by the Group.
Revenue from Maritime Services
Group revenue for the year was 6% higher in BRL terms although
in USD terms revenue was 7% lower at US$460.2 million (2017:
US$496.3 million), principally due to a decrease in towage revenue
and the higher average 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 million (2017: US$206.8
million) as stronger competition impacted both pricing and harbour
towage volumes. Harbour towage manoeuvres performed in the period
were 6% lower at 56,114 (2017: 59,796). Towage special operations
revenue in the year increased US$1.9 million to US$13.2 million
(2017: US$11.3 million) with ocean towage, shipyard support and
salvage assistance performed during the year. Ship agency revenue
at US$10.0 million was 12% lower than the prior year (2017: US$11.3
million).
Port terminals and logistics revenue in BRL terms grew 16%
although due to the higher average USD/BRL exchange rate during the
year, revenue in USD terms was flat at US$203.8 million (2017:
US$203.1 million). Container volumes handled were marginally ahead
of prior year at 1,072,700 TEUs (2017: 1,068,100 TEUs) while
container terminal revenue was 2% lower at US$183.0 million (2017:
US$187.4 million) impacted by the higher average USD/BRL exchange
rate as the majority of container terminal revenue is BRL
denominated. Warehouse revenue at our container terminals continued
to grow driven by a rise in import cargo volumes. Higher import
cargo volumes 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 million (2017: US$15.7 million)
on the back of increased vessel turnarounds with the beginning of
new contracts during the year.
Third-party shipyard revenue at US$24.0 million (2017: US$21.2
million) reflected an increase in third party vessel construction
and dry-docking operations.
All Group revenue is derived from Wilson Sons' operations in
Brazil.
Share of results of joint ventures
The share of results of joint ventures is Wilson Sons' 50% share
of net profit for the period from our offshore joint venture.
Operating profit for a 50% share in the joint venture in the year
was US$4.3 million compared to US$15.9 million in 2017 from revenue
of US$58.5 million (2017: US$73.2 million). Revenue fell
principally due to fewer operating days which were 15% lower at
5,126 days against 6,035 days in 2017. The lower operating profit,
finance charges and higher exchange losses on monetary items
resulted in a loss for the year of US$4.1 million (2017: US$3.4
million profit). At the year end, our joint venture had 15 offshore
support vessels under contract out of a total fleet of 23
vessels.
Change in presentation
"Income from underlying investment vehicles" and "Other gains
and losses" are now shown on the face of the Statement of
Comprehensive Income 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.
Returns on the investment portfolio at fair value through profit
and loss
Losses on the investment portfolio of US$7.9 million arose from
the Group's 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 US$8.6 million (2017:
US$8.5 million), income from underlying investment vehicles of
US$2.1 million (2017: US$3.4 million) and unrealised losses on
financial assets at fair value through profit or loss of US$18.7
million (2017: US$30.2 million gain).
Other investment income
Other investment income for the year fell US$5.5 million to
US$4.2 million (2017: US$9.7 million) due to lower interest on bank
deposits of US$3.6 million (2017: US$5.9 million) and lower other
interest of US$0.6 million (2017: US$3.8 million). Interest on bank
deposits fell due to the lower average cash balances held during
the year. Other interest in 2017 also included US$2.6 million in
interest relating to successful tax decisions.
Finance costs
Finance costs for the year at US$23.0 million were slightly
higher than prior year (2017: US$22.0 million). Within this
exchange losses on foreign currency borrowings were US$9.2 million
higher at US$10.0 million (2017: US$0.8 million) due to the higher
BRL/USD exchange rate at year end. Other interest of US$0.6 million
was US$7.1 million lower than prior year (2017: US$7.7 million)
because 2017 other interest included US$7.4 million of fines and
interest relating to outstanding tax balances settled under a
Brazilian tax amnesty programme. Interest on overdrafts and loans
were US$ 1.0 million lower than the prior year at US$12.3 million
(2017: US$13.3 million).
Exchange rates
The Group reports in USD and has revenues, costs, assets and
liabilities in 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. During 2018 the BRL depreciated 17%
against the USD from R$3.31 at 1 January 2018 to R$3.87 at the year
end. In 2017 the BRL depreciated 2% against the USD from R$3.26 at
1 January 2017 to R$3.31 at the year end. The principal effects
from the movement of the BRL against the USD on the income
statement are set out in the table below:
2018 2017
US$ million US$ million
----------------------------------------------------- ----------- -----------
Exchange gains on monetary items (i) (8.5) 2.8
Exchange losses/gains on foreign currency borrowings (10.0) (0.8)
Deferred tax on retranslation of fixed assets (ii) (9.8) 1.4
Deferred tax on exchange variance on loans (iii) 10.1 (1.2)
----------------------------------------------------- ----------- -----------
Total (18.2) 2.2
----------------------------------------------------- ----------- -----------
(i) This arises from the translation of BRL denominated monetary
items in USD functional currency entities.
(ii) The Group's fixed assets are located in Brazil and
therefore future tax deductions from depreciation used in the
Group's tax calculations are 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.
(iii) Deferred tax credit arising from the exchange losses on
USD denominated borrowings in Brazil.
The movement of the BRL against the USD in 2018 resulted in a
negative impact of US$18.2 million on the income statement in the
year compared with a US$2.2 million positive impact in 2017.
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$36.1 million).
This represents an effective tax rate for the period of 43.9%
(2017: 24.8%) compared with the corporate tax rate prevailing in
Brazil of 34%. The difference in the effective tax rate is
principally due to deferred tax items and expenses that are not
included in determining taxable profit in Brazil and expenses or
income at our Bermudian companies that are not subject to income
tax. The current year effective tax rate is higher than prior year
mainly due to losses at our Bermudian companies that are not
deductible for income tax (in 2017 there were net profits at our
Bermudian companies) and an increase in net expenses that are not
included in determining taxable profit. The increase in net
expenses is mainly due to foreign exchange losses on monetary items
and losses at our joint ventures.
The principal impacts from these items on the tax charge in the
income statement are set out in the table below:
2018 2017
US$ % of US$ % of
million taxable profit million taxable profit
---------------------------------------------- ------- -------------- ------- --------------
Deferred tax items not included
in determining taxable profit (i) (4.6) (7.4%) (5.3) (3.6%)
Income/expenses not included
in determining taxable profit (ii) 5.8 9.2% 3.4 2.4%
Net (income)/expenses incurred outside Brazil 4.8 8.0% (11.6) (7.9%)
Total 6.0 9.9% (13.4) (9.2%)
---------------------------------------------- ------- -------------- ------- --------------
Charge/(credit) to the current period tax charge
(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 Brazilian subsidiaries not
recognised in deferred tax.
(ii) The main items not included in determining taxable profit
are the tax effect of foreign 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).
At 31 December 2018, the Group had US$43.8 million in cash and
cash equivalents (2017: US$83.8 million) of which US$28.2 million
was denominated in Brazilian Real (2017: US$59.6 million).
Financial assets at fair value through profit or loss includes
US$29.1 million (2017: US$31.6 million) in USD denominated fixed
rate certificates held by Wilson Sons Limited which are not part of
the Group's investment portfolio managed by Hanseatic Asset
Management LBG and are intended to fund Wilson Sons Limited.
Balance sheet
At 31 December 2018 equity attributable to shareholders of the
parent company was US$554.2 million, a decrease of US$33.9 million
from 2017 (US$588.2 million). The main movements in equity in the
year were profits for the period of US$13.3 million, less dividends
paid of US$24.8 million and a negative currency translation
adjustment of US$22.8 million. The currency translation adjustment
arises from exchange differences on the translation of 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 (31 December 2017: US$16.63 per share).
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.
Borrowings are long-term with defined repayment schedules
repayable over different periods of up to 18 years. At year end 80%
of the Group's total debt is long-term. The Group's borrowings are
principally USD related with 95% of borrowings USD denominated or
linked to the USD. A significant portion of the Group's pricing is
denominated in USD which acts as a natural hedge to our long-term
exchange rate exposure. Net debt at 31 December 2018 was US$234.4
million (2017: US$239.2 million) as set out in the following
table:
2018 2017
US$ million US$ million
--------------------------- ----------- -----------
Debt
Short-term 60.2 54.3
Long-term 247.1 300.4
--------------------------- ----------- -----------
Total debt 307.3 354.7
Cash and cash equivalents* (72.9) (115.5)
--------------------------- ----------- -----------
Net debt 234.4 239.2
--------------------------- ----------- -----------
* Included in cash and cash equivalents are US$29.1 million of
short-term investments held by Wilson Sons Limited which are
intended to fund Wilson Sons Limited operations in Brazil.
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
Wilson Sons Limited
The Wilson Sons 2018 Earnings Report released on 14 March 2019
is available on the Wilson Sons Limited website:
www.wilsonsons.com.br
In it Cezãr Baião, CEO of Operations in Brazil, said:
"Wilson Sons 2018 EBITDA of US$160 million was down 6.8% against
the comparative period (2017: US$172.4 million), despite solid
results in container terminals. Tecon Rio Grande improved its net
average productivity to 77 movements per hour, 22% higher than
2017. In the fourth quarter Tecon Salvador commenced 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.
The terminal signed a US$67.9 million financing agreement
denominated in Brazilian Real with BNDES for the first stage of the
expansion.
Towage results continued to be pressured by a very competitive
environment affecting volumes and prices. In November the division
received the largest and most powerful escort tug in Brazil, WS
Sirius, with 90 tonnes of bollard pull.
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 alternative vessel solutions including
four vessels under contract for shallow-water diving support, and
one employed to support oil spill recovery.
Workplace safety continued to improve with an 18% year-on-year
reduction in the lost-time injury frequency rate to 0.37 in 2018,
in line with global best practice.
The Company remains focused on increasing cash flow and
improving capacity utilisation across all businesses in order to
maximise stakeholder value, maintaining our continued commitment to
safety."
The Wilson Sons Strategy is:
The Wilson Sons strategy is to grow utilising our skills and
existing assets while strengthening the businesses and looking for
new opportunities, focusing on Brazil and Latin America. We
continue to consolidate our position in all the segments in which
we operate, maximising economies of scale and efficiency, quality
and the range of services we provide to customers. The strategy
comprises:
Expanding and utilising capacity at our container terminals. In
order to meet demand from domestic and international trade, we have
expanded both our container terminals since the beginning of the
concessions. By maximising installed capacity utilisation, we are
able to improve productivity and levels of service to our clients
through economies of scale. We will diligently pursue this
objective. The early renewal of the Salvador terminal concession
through to 2050 includes investments in quay extension and
equipment, further enhancing terminal productivity. Additionally,
we will evaluate new concessions and the possible development of
new terminals to provide a strong return on shareholders' equity.
As noted in the Chairman's statement Wilson Sons is undertaking an
evaluation of strategic alternatives that is being carried out by
the management of the company which may include the divestment of
such assets, as well as attracting strategic partners.
Maximising capacity utilisation of our oil & gas support
terminals (Brasco). Our bases in Niterói and Rio de Janeiro have a
total capacity of eight berths to provide logistics support for
offshore vessels. With excellent access to the Campos and Santos
petroleum basins, and close to the pre-salt region, Brasco is
strategically positioned as one of the largest operators of
offshore support terminals in Brazil. We continuously monitor
offshore exploration and production activities along the Brazilian
coast to meet the demand for such services.
Strengthening our position as the leading provider of towage
services in Brazil. We continue to modernise and expand our tugboat
fleet in order to consistently provide high-quality services to our
customers and consolidate our leading position in the Brazilian
towage market. We also look to contribute to the expansion of
activities in Brazilian ports, offering state-of-the-art vessels
that are suitable for operating new classes of ships, as well as
for the oil and gas industry. We regularly review our fleet
deployment to optimise efficiency and to seek out new market niches
where we can provide additional services or expand our geographical
footprint to new ports in Brazil.
Maximising potential of our shipyard facilities through a mix of
in-house and third-party vessel construction, repair, maintenance,
conversion, and dry-docking services to meet the demand of local
and international ship owners operating in Brazil.
Solidifying our offshore support vessel services to oil and gas
platforms. Using our knowledge and experience, we intend to
continue to consolidate our activities maintaining our position
amongst the leading suppliers of services to the offshore oil and
gas industry in Brazil. We look to explore alternative revenue
streams to increase utilisation of our offshore supply vessel
fleet.
Exploring new opportunities and strategies to provide the best
and most complete set of services to our customers. We are always
looking to provide innovative services to our customers, as well as
to anticipate their needs. Through a solid nationwide footprint, we
will continue our strategy of providing comprehensive logistics
solutions to support domestic and international trade activities,
as well as the oil and gas industry. We also seek to make our
services more efficient and cost-effective, in order to maintain
our strong customer base and strengthen our relationships.
Increasing economies of scale and productivity, synergies and
cost savings across our businesses. We continuously seek to
optimise our operations, productivity and reduce costs through
synergies and knowledge exchange among our businesses and
administrative areas. We will continue to be focused on integrating
similar activities, especially in our branch offices, to achieve
economies of scale and reduce costs wherever possible. We
continually develop new strategies to improve our operations and
explore new businesses.
Health, Safety and the Environment ("HSE") are part of our
overall strategy of sustainable and ethical businesses. We continue
to promote HSE best practices throughout the Group to achieve and
maintain excellence in these areas.
Investment Portfolio
Investment objective
Ocean Wilsons is run with a long-term outlook. The objective of
the investment portfolio is to make investments that create
long-term capital growth without pressure to produce short-term
results at the expense of long-term value creation.
Investment Policy
The Investment Manager will seek to achieve the investment
objective through investments in publicly quoted and private
(unquoted) assets across 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, represented
by those sectors with long-term growth attributes, such as
technology and biotechnology; and (iii) Diversifying silo, which
are those asset classes and sectors which will add portfolio
protection as the business cycle matures. Cash levels will be
managed to meet future commitments (e.g. to private assets) whilst
maintaining an appropriate balance for opportunistic
investments.
Commensurate with the long-term horizon, it is expected that the
majority of investments will be concentrated in equity, across both
'public' and 'private' markets. In most cases, investments will be
made either through collective funds or limited partnership
vehicles, working alongside expert managers in specialised sectors
or markets to access the best opportunities.
The Investment Manager maintains a global network to find the
best opportunities across the three silos worldwide. The portfolio
contains a high level of investments which would not normally be
readily accessible to investors without similar resources.
Furthermore, a large number of holdings are closed to new
investors. There is currently no gearing although the Board would,
under the appropriate circumstances, be open-minded to modest
levels of gearing. Likewise, the Board may, from time to time,
permit the Investment Manager opportunistically to use derivative
instruments (such as index hedges using call and put options) to
actively protect the portfolio.
Investment Process
Manager selection is central to the successful management of the
investment 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).
Excessive size is often an impediment to continued
outperformance and the bias is therefore towards managers who are
prepared to restrict their assets under management to a level
deemed appropriate for the underlying opportunity set. Track
records are important but transparency is an equally 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 considerations would include an
assessment of the integrity, skill and motivation of a fund
manager.
When the Investment Manager believes there is a potential fit,
thorough due diligence is performed to verify the manager's
background and identify the principal risks. The due diligence
process would typically include visiting the manager in their
office (in whichever country it may be located), onsite visits to
prospective portfolio companies, taking multiple references and
seeking a legal opinion on all relevant documentation.
All investments are reviewed on a regular basis to monitor the
ongoing compatibility with the portfolio, together with any 'red
flags' such as signs of 'style drift', personnel changes or lack of
focus. Whilst the Investment Manager is looking to cultivate
long-term partnerships, every potential repeat investment with an
existing manager is assessed as if it were a new relationship.
Portfolio Characteristics
The portfolio has several similarities to the 'endowment model'.
These similarities include an emphasis on generating real returns,
a perpetual time horizon and broad diversification, whilst avoiding
asset classes with low expected returns (such as government bonds
in the current environment). This diversification is designed to
make the portfolio less vulnerable to permanent loss of capital
through inflation, adverse interest rate fluctuations and currency
devaluation and to take advantage of market and business cycles.
The Investment Manager believes that outsized returns can be
generated from investments in illiquid asset classes (such as
private equity). In comparison to public markets, the pricing of
assets in private markets is less efficient and the outperformance
of superior managers is more pronounced.
Investment Manager's Report
Market backdrop
Having started robustly, 2018 proved to a very poor year for
world stock markets. Global equities fell by some 9.4% over the
year. The US, despite the weakness exhibited at the end of the
year, was the best performing major developed market, although it
fell by 5.7%. Amongst the other major developed markets Japan
declined by 12.9%, Europe by 14.8% and the UK by 14.1%. The
emerging and frontier markets were even worse, falling by 14.6% and
16.4% respectively. A number of individual emerging markets hit
bear market territory during the year, a fall of 20% or more, and
notably China fell by 18.9% as it battled with slowing growth and
trade wars.
Whilst these numbers are disappointing, in practice sporadic
periods of weakness in equity markets are quite normal. What is not
normal are falls across all asset classes and this is what we saw
in 2018. The blend of deteriorating economic growth, shifting sands
in monetary policy and the geo-political machinations impacted
equities, bonds, real assets and commodities. This nightmare
scenario for multi-asset investors resulted in their worst
performance in many years.
Cumulative portfolio returns
2018 3 years p.a. 5 years p.a. 10 years p.a.
--------------------------- ------ ------------ ------------ -------------
OWIL (Gross time-weighted) -3.1% 4.6% 3.9% 5.2%
OWIL (Net) (1) -4.1% 3.5% 2.8% 4.1%
Performance benchmark(2) 4.9% 5.0% 4.3% 3.7%
MSCI ACWI + FM NR -9.4% 6.6% 4.3% 9.4%
MSCI Emerging Markets NR -14.6% 9.3% 1.6% 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.
Portfolio Commentary
The investment portfolio was down 4.1% on a net basis over the
past 12 months, underperforming its benchmark over the same period
which rose by 4.9%. 2018 was a difficult year for the global
economy with most markets declining which was reflected in the
portfolio.
A significant contributor to performance over the year was
Hudson Bay International Fund, which rose by 5.9%. This fund seeks
to achieve superior risk-adjusted returns with low correlation to
equity and bond markets. It is part of the diversifying silo of the
portfolio and it performed its role well in 2018. There are four
different strategies within this silo that are intended to produce
a stable, low correlated return. The fund's convertible strategy
performed particularly strongly during the year with no positions
significantly detracting. The convertible positions benefited from
the increased volatility the market experienced over the course of
the year.
Another strong performer was LF Odey Absolute Return Fund which
was up 8.6% for the year. The performance of this UK focused hedge
fund was driven mainly by its short book, partly offset by negative
returns in the long book and currency hedges. The top contributor
from the long book was a position in Plus500 that operates in the
CFD trading space. The company continued to 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
Plus500 fell significantly after it was forced to clarify
statements in its 2017 annual report. This has detracted from the
fund's performance in early 2019 although the manager maintains
confidence in the holding.
Indus Japan Long Only Fund was one of the weaker performers,
ending down 26.4% for the year. This poor performance was mainly
due to a very difficult month in December with a position in Showa
Denko being one of the main negative contributors. The manager
believes that the market is fundamentally overestimating the threat
of a supply and/or demand shock in the chemical industry and that
the company's earnings will grow in 2019. Takeda Pharmaceutical was
also a negative performer as price volatility increased
significantly ahead of the closure of its acquisition of Shire PLC
in January 2019.
We continued to add some lower risk investments to the
portfolio, with a position added in Apollo Total Return Fund which
is a long-only core fixed income strategy, with low correlation to
traditional fixed income. The manager has consistently produced
stable returns in multiple market environments. During the year we
completed the switch of the Japan holdings (Goodhart Partners:
Hanjo Fund and Indus Japan Long Only Fund) from the hedged share
class into the unhedged share class.
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 7.77x gross
multiple of the investment cost with the majority of the proceeds
already returned to limited partners. This has taken the total
amount distributed to over 150% of invested capital and the total
fund multiple to 2.1x investment cost. The remaining three
businesses are all food related with two of them, Bo's Coffee and
Bistronomia, proving to be more difficult investments with both
currently valued below cost.
Greenspring Global Partners ("GGP") IV and GGP VI were also
strong performers, being held at total fund multiples of 2.5x and
1.8x of investment cost respectively. GGP IV, a 2008 vintage fund,
is now mature and is producing significant distributions. Positions
in Benchmark Capital VII, which has investments in WeWork and Uber,
and Bessemer Venture Partners VII Special Opps, with an investment
in Pinterest, have been strong performers. The manager's base case
expectation for this fund is a 2.9x multiple of 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 value over the course of the year. This fund of funds
is a 2014 vintage and so many of the early investments are now
starting to see growth in values. There have also been several
realisations in the direct portfolio including Chewy which earned a
gross multiple of 8.7x investment cost following its acquisition by
PetSmart.
In terms of new commitments, a EUR2.2m investment was made to
Five Arrows Principal Investments III at the end of 2018. This is a
fund from a highly experienced team within the Rothschild & Co
network and will target lower middle market European companies.
Other new commitments made in 2018 were to Triton Fund V
(EUR2.14m), PAI Europe VII (EUR2.5m), GGP IX ($1.0m), Baring Asia
Private Equity Fund VII ($4.0m) and Reverence Capital Partners
Opportunities Fund II ($2.5m).
Outlook
Clearly market sentiment has taken a significant knock in recent
months. In the short-term this likely makes share prices
particularly sensitive to newsflow, especially that which confirms
investors' worst fears. However, any signs of normalisation are
likely to lead to investors questioning whether this is indeed the
end of the current stock market cycle and with it, to reassess the
outlook for equity markets.
That's not to say we are raging bulls. What we have been
experiencing in recent months is classic late cycle performance
where volatility is the norm - undoubtedly the best of the current
cycle's returns are behind us with returns almost certainly lower
now than earlier in the cycle. Hence we remain flexible and believe
a balanced approach seems appropriate albeit with upside still on
offer through judicious country, sector and thematic investment
selection.
Investment Portfolio at 31 % of
December 2018 Market value
US $OOO NAV Primary Focus
-------------------------------- ------------------- ----- --------------------------------
Findlay Park American Fund 21,706 8.4 US equities -- Iong only
AdeIphi European Select Equity Europe equities -- Iong
Fund 11,709 4.5 only
Egerton Long -- Short Fund Europe/US equities --
Limited 11,344 4.4 hedge
BlackRock European Hedge Fund 9,511 3.7 Europe equities -- hedge
Asia ex-Japa n equ ities
NTAsian Discovery Fund 9,011 3.5 -- to ng only
Japa n equ ities -- to
Goodhart Partners: Hanjo Fund 8,958 3.5 ng only
Pangaea II. LP 7,043 2.7 Private Assets -- GEM
Lansdowne Developed Markets Europe.+U S equities --
Fund 6,654 2.6 hedqe
Helios Investors II, LP 6,595 2.5 Private Assets -- Africa
GAM Star Fund PLC -- Technoloqy 6,395 2.5 Technotoqy -- lonq only
-------------------------------- ------------------- ----- --------------------------------
Top 10 Holdings 98,926 38.3
-------------------------------- ------------------- ----- --------------------------------
Private Assets -- Latin
NG Capital Partners II . LP 6,254 2.4 America
Schroder ISF Asian Total Return Asia ex-Japan equities
Fund 6,188 2.4 -- long only
Select Equity Offshore Ltd 6,163 2.4 US equities -- Iong only
Greenspring Global Partners Private Assets -- US Venture
IV. LP 6,128 2.4 CapitaI
Hony Capital Fun d V. LP 5,730 2.2 Private Assets -- China
Private Assets -- Asia
L Capital Asia 2. LP 5,674 2.2 (Consumer)
Vulcan Value Equity Fun d 5,535 2.1 US equities -- Iong only
Global Event Partners Ltd 5,400 2.1 GlobaI equities -- long/short
Hudson Bay International Fund
Ltd 5,334 2.1 Market Neutral -- multi-strategy
Japan equities -- lonq
Indus Japan Lonq Only Fund 5,333 2.1 only
-------------------------------- ------------------- ----- --------------------------------
Top 20 Holdings 156,665 60.7
-------------------------------- ------------------- ----- --------------------------------
Prince Street Opportunities Emerging Markets equities
Fund 5,048 1.9 -- long only
Private Assets -- Global
Silver Lake Partners IV. LP 4.215 1.6 Technology
Gree nsprin g Glo bal Partn Private Assets -- US Venture
ers VI. LP 4.011 1.5 CapitaI
Grame rcy D istre sse d Opportu Private Assets -- distressed
nity Fu nd I I . LP 3.930 1.5 debt
Prima ry C apita I IV. LLP 3.862 1.5 Private Assets -- Europe
African Development Partners.
LLC 3.464 1.3 Private Assets - Africa
AMED Fund. SICAR 3.441 1.3 Private Assets -- Africa
Private Assets -- Asia
L Capital Asia. LP 3.394 1.3 (Consumer)
China Harvest II . LP 3.114 1.2 Private Assets -- China
MCP Private Capita I Fund I Private Assets -- Eurpean
I LP 3.069 1.2 Credit
-------------------------------- ------------------- ----- --------------------------------
Top 30 Holdings 194,213 75.0
-------------------------------- ------------------- ----- --------------------------------
37 Remaininq Holdinqs 57,117 22.1
-------------------------------- ------------------- ----- --------------------------------
Cash 7,581 2.9
-------------------------------- ------------------- ----- --------------------------------
Cash 258,911 100.0
-------------------------------- ------------------- ----- --------------------------------
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
---------------------------------------------------------------------- ----- ----------- -----------
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 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
Consolidated Statement of Changes in Equity
as at 31 December 2018
Hedging Attributable
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 37) - (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 37) - (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.
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
-------------------------------------------------------------- ----- ----------- -----------
Notes to the Accounts
for the year ended 31 December 2018
1 General Information
The financial statements have been prepared on the historical
cost basis except for the revaluation of financial investments. The
accounting policies are consistent with those set out in the 2017
Group annual report except for new standards and interpretations
adopted.
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. The financial position,
cash flows and borrowings of the Group are set out in the financial
review. 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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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$177.0 million. The
impact will principally be due to the recognition of right-of-use
assets previously recognised as operating leases in respect of the
commitments expressed in Note 33.
Other standards or amendments
The following new or amended standards are not expected to have
a significant impact on the Group's consolidated financial
statements:
-- Insurance Contracts (IFRS 17);
-- Uncertainty over Income Tax Treatments (IFRIC 23);
-- Prepayment Features with Negative Compensation (Amendments to IFRS 9);
-- Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture (Amendments to IFRS 10 and IAS 28);
-- Plan Amendment, Curtailment or Settlement (Amendments to IAS 19);
-- Long-term interests in associates and joint ventures (Amendments to IAS 28); and
-- Annual Improvement of IFRS 2015 to 2017 cycle.
3 Revenue
An analysis of the Group's revenue is as follows:
Year ended Year ended
31 December 31 December
2018 2017
US$'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$'000
--------------------------- ----------- -----------
Towage and agency services
Harbour manoeuvres 152,376 195,479
Special operations 13,212 11,275
Ship agency 9,950 11,294
Total 175,538 218,048
--------------------------- ----------- -----------
Port terminals
Container handling 97,627 106,391
Warehousing 43,995 38,387
Ancillary services 24,432 26,163
Oil & Gas support base 20,813 15,678
Other services 16,920 16,504
Total 203,787 203,123
----------------------- ------- -------
Logistics
Logistics 56,908 54,656
Total 56,908 54,656
---------- ------ ------
Shipyard
Shipyard construction contracts 14,038 17,747
Technical assistance/dry-docking 9,939 3,487
Total 23,977 21,234
--------------------------------- ------ ------
Other services
Other services (14) (721)
Total (14) (721)
--------------- ---- -----
Total 460,196 496,340
------ ------- -------
Year ended Year ended
31 December 31 December
2018 2017
US$'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.
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$'000
--------------------------------------------------------- ----------- ----------- ----------- ------------
Revenue 460,196 - - 460,196
Result
Segment result 104,453 (2,902) (2,051) 99,500
Share of results of joint ventures (4,062) - - (4,062)
Return on investment portfolio at fair value through P&L - (7,942) - (7,942)
Other investment income 4,060 16 76 4,152
Finance costs (22,951) - - (22,951)
Foreign exchange losses on monetary items (8,807) (22) 370 (8,459)
--------------------------------------------------------- ----------- ----------- ----------- ------------
Profit/(loss) before tax 72,693 (10,850) (1,605) 60,238
Tax (26,433) - - (26,433)
--------------------------------------------------------- ----------- ----------- ----------- ------------
Profit/(loss) after tax 46,620 (10,850) (1,605) 33,805
--------------------------------------------------------- ----------- ----------- ----------- ------------
Other information
Capital additions (61,706) - - (61,706)
Depreciation and amortisation (56,175) - (3) (56,178)
Balance Sheet
Assets
Segment assets 950,272 258,985 3,192 1,212,449
--------------------------------------------------------- ----------- ----------- ----------- ------------
Liabilities
Segment liabilities (434,151) (256) (333) (434,740)
--------------------------------------------------------- ----------- ----------- ----------- ------------
For the year ended 31 December 2017
Maritime
Services Investment Unallocated Consolidated
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2017 2017 2017 2017
US$'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 re-presented 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$'000
-------- ----------- ----------- --------------- --------------
Brazil 909,385 990,689 61,706 55,345
Bermuda 303,064 329,265 - -
-------- ----------- ----------- --------------- --------------
1,212,449 1,319,954 61,706 55,345
-------- ----------- ----------- --------------- --------------
5 Profit for the year
Profit for the year has been arrived at after charging:
Year ended Year ended
31 December 31 December
2018 2017
US$'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$'000
----------------------------------------------------------------------------------- ----------- -----------
Unrealised (losses)/gains on financial assets at fair value through profit or loss (18,654) 30,196
Income from underlying investment vehicles 2,133 3,361
Profit on disposal of financial assets at fair value through profit or loss 8,579 8,507
----------------------------------------------------------------------------------- ----------- -----------
(7,942) 42,064
----------------------------------------------------------------------------------- ----------- -----------
The prior year comparatives have been re-presented in order to
match the current year presentation.
8 Other investment income
Year ended Year ended
31 December 31 December
2018 2017
US$'000 US$'000
-------------------------- ----------- -----------
Interest on bank deposits 3,565 5,916
Other interest 587 3,799
-------------------------- ----------- -----------
4,152 9,715
-------------------------- ----------- -----------
The prior year comparatives have been re-presented in order to
match the current year presentation.
9 Finance costs
Year ended Year ended
31 December 31 December
2018 2017
US$'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$'000
------------------------------------------------------------- ----------- -----------
Current
Brazilian taxation
Corporation tax 20,764 27,794
Social contribution 8,270 9,978
------------------------------------------------------------- ----------- -----------
Total current tax 29,034 37,772
------------------------------------------------------------- ----------- -----------
Deferred tax
Charge for the year in respect of deferred tax liabilities 16,044 19,933
Credit for the year in respect of deferred tax assets (18,645) (21,649)
------------------------------------------------------------- ----------- -----------
Total deferred tax (2,601) (1,716)
------------------------------------------------------------- ----------- -----------
Total taxation charge 26,433 36,056
------------------------------------------------------------- ----------- -----------
Brazilian corporation tax is calculated at 25% (2017: 25%) of
the assessable profit for the year. Brazilian social contribution
tax is calculated at 9% (2017: 9%) of the assessable profit for the
year.
At the present time, no income, profit, capital or capital gains
taxes are levied in Bermuda and accordingly, no provision for such
taxes has been recorded by the Company. In the event that such
taxes are levied, the company has received an undertaking from the
Bermuda Government exempting it from all such taxes until 31 March
2035.
The charge for the year can be reconciled to the profit per the
statement of comprehensive income as follows:
Year ended Year ended
31 December 31 December
2018 2017
US$'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$'000
-------------------------------------------------------------------------------------------- ----------- -----------
Earnings:
Earnings for the purposes of basic earnings per share being net profit attributable to
equity
holders of the parent 13,308 78,315
Number of shares:
Weighted average number of ordinary shares for the purposes of basic and diluted earnings
per share 35,363,040 35,363,040
-------------------------------------------------------------------------------------------- ----------- -----------
13 Goodwill
31 December 31 December
2018 2017
US$'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.
14 Other intangible fixed assets
Software Lease-rights Other Total
US$'000 US$'000 US$'000 US$'000
----------------------- -------- ------------ ------- -------
Cost
At 1 January 2017 39,052 25,797 73 64,922
Additions 4,192 2 2 4,196
Disposals (84) - - (84)
Exchange differences (263) (381) - (644)
----------------------- -------- ------------ ------- -------
At 1 January 2018 42,897 25,418 75 68,390
Additions 2,033 - - 2,033
Disposals (553) - - (553)
Exchange differences (2,028) (3,694) (11) (5,733)
----------------------- -------- ------------ ------- -------
At 31 December 2018 42,349 21,724 64 64,137
----------------------- -------- ------------ ------- -------
Amortisation
At 1 January 2017 27,657 6,821 - 34,478
Charge for the year 2,900 730 - 3,630
Disposals (84) - - (84)
Exchange differences (101) (125) - (226)
----------------------- -------- ------------ ------- -------
At 1 January 2018 30,372 7,426 - 37,798
Charge for the year 2,784 637 - 3,421
Disposals (551) -- - (551)
Exchange differences (897) (1,102) - (1,999)
----------------------- -------- ------------ ------- -------
At 31 December 2018 31,708 6,961 - 38,669
----------------------- -------- ------------ ------- -------
Carrying amount
31 December 2018 10,641 14,763 64 25,468
----------------------- -------- ------------ ------- -------
31 December 2017 12,525 17,992 75 30,592
----------------------- -------- ------------ ------- -------
15 Property, plant and equipment
Land and Vehicles, plant Assets under
buildings Floating Craft and equipment construction Total
US$'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%).
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 PARTICIPA ÕES 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.
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$'000
------------------------------ ----------- -----------
Property, plant and equipment 2,688 2,841
Intangible assets 24 35
Inventories 385 353
Trade and other receivables 2,418 2,054
Cash and cash equivalents 796 904
------------------------------ ----------- -----------
Total assets 6,311 6,187
------------------------------ ----------- -----------
Trade and other payables (6,172) (6,153)
Deferred tax liabilities (139) (34)
------------------------------ ----------- -----------
Total liabilities (6,311) (6,187)
------------------------------ ----------- -----------
Joint ventures
The aggregated Group's interests in joint ventures are equity
accounted.
Year ended Year ended
31 December 31 December
2018 2017
US$'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.
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
-------------------------------------- -------
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 re-presented 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)
------------------------------------------------------------------------------- ----------- -----------
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.
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
------------------------------------ ------- -------
2018 2017
US$'000 US$'000
----------------------------------------------- ------- -------
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 Dollar(1) 2.07% to 5% 152,002 156,831
BNDES - Real 6.56% to 8.75% 14,267 20,982
BNDES - FMM Real(1) 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 Dollar(1) 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.
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$116.2 million of
undrawn borrowing facilities. For each disbursement there is a set
of conditions precedent that must be satisfied.
Covenants
Wilson, Sons de Administração e Comércio Ltda. ("WSAC") as
corporate guarantor has to comply with annual loan covenants for
both Wilson Sons Estaleiros and Brasco Logística Offshore in
respect of loan agreements signed with BNDES.
Wilport Operadores Portuários Ltda as corporate guarantor for
loan agreements signed between the BNDES e Tecon Salvador S.A, has
to comply with annual loan covenants including ratios of debt
service coverage, net debt ratio over EBITDA and equity over total
assets. For the same agreements Tecon Salvador has to comply with
the debt service coverage ratio covenant.
Tecon Rio Grande S.A. has to comply with loan covenants from
Santander, including a minimum liquidity ratio and capital
structure.
At 31 December 2018, the Group was in compliance with all
clauses in the above mentioned loan contracts.
Fair value
Management estimates the fair value of the Group's borrowings as
follows:
31 December 31 December
2018 2017
US$'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.
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$'000
--------------------------------------------------------------------------- -------------------- -------------------
Amounts payable under finance leases
Within one year 46 846
In the second to fifth years inclusive 59 309
After five years - -
--------------------------------------------------------------------------- -------------------- -------------------
Present value of lease obligations 105 1,155
--------------------------------------------------------------------------- -------------------- -------------------
Less: Amounts due for settlement within 12 months (shown under current
liabilities) (46) (846)
Amount due for settlement after 12 months 59 309
--------------------------------------------------------------------------- -------------------- -------------------
It is the Group's policy to lease certain of its fixtures and
equipment under finance leases. The average original lease term is
60 months. The average outstanding lease term at 31 December 2018
was 26 months.
For the year ended 31 December 2018, the average effective
borrowing rate was 10.80% (2017: 9.79%). All leases are denominated
in Brazilian Real and include a fixed repayment and a variable
finance charge linked to the Brazilian interest rate.
There is a non-significant difference between the fair value and
the present value of the Group's lease obligations. The present
value is calculated with its own interest rate over the future
instalments of each contract.
The Group's obligations under finance leases are secured by the
lessors' rights over the leased assets.
26 Trade and other payables
31 December 31 December
2018 2017
US$'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$'000
------------------------------------ ------- -------
INSS payable 4,125 2,001
PIS and COFINS payable 2,768 3,091
ISS payable 1,956 2,059
Income tax payable 1,342 1,866
FGTS payable 643 800
Other payable taxes 381 2,175
------------------------------------ ------- -------
Total recoverable taxes non-current 11,215 11,992
------------------------------------ ------- -------
27 Provisions for tax, labour and civil cases
Labour claims Tax cases Civil cases Total
US$'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$'000
------------------------------ ----------- -----------
Tax cases 86,204 96,890
Labour claims 18,839 28,931
Civil and environmental cases 15,156 14,686
------------------------------ ----------- -----------
120,199 140,507
------------------------------ ----------- -----------
The main probable and possible claims against the Group are
described below:
Tax cases - The Group defends against government tax assessments
considered inappropriate.
Labour claims - Most claims involve payment of health risks,
additional overtime and other allowances.
Civil and environmental cases - Indemnification claims involving
material damages, environmental and shipping claims and other
contractual disputes.
Procedure for classification of legal liabilities identifies
claims as probable, possible or remote, as assessed by the external
lawyers:
-- Upon receipt of notices of new judicial lawsuits, external
lawyers generally classify the claim as possible, recorded at the
total amount involved. Wilson Sons uses the criteria of the
estimated value at risk and not the total claim value involved in
each process.
-- Exceptionally, if there is sufficient knowledge from the
beginning that there is very high or very low risk of loss, the
lawyer may classify the claim as a probable loss or remote
loss.
-- During the course of the lawsuit and considering, for
instance, its first judicial decision, legal precedents, arguments
of the claimant, thesis under discussion, applicable laws,
documentation for the defence and other variables, the lawyer may
re-classify the claim as a probable loss or remote loss.
-- When classifying the claim as a probable loss, the lawyer
estimates the amount at risk for such claim.
Management are not able to give an indication when the
provisions are likely to be utilised as the majority of provisions
involve litigations the resolution of which is highly uncertain as
to timing.
28 Share capital
2018 2017
US$'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$1.61 to
GBP1.
29 Exercise of stock options in subsidiary
During 2018 participants of the Wilson Sons Limited stock option
scheme exercised 23,760 options. As a result the non-controlling
interest in Wilson Sons Limited increased from 41.81% at 31
December 2017 to 41.83% at 31 December 2018.
2018 2017
US$'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 62,843 145,464
Share of results of joint venture 4,062 (3,366)
Investment income (17,099) (19,004)
Other gains and losses 18,284 (32,775)
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
---------------------------------------------------------------------------- ----------- -----------
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$140.5 million). These have not been
provided for as the directors and the Group's legal advisors do not
consider that there are any probable losses. Contingent liabilities
relate to labour, civil and environmental and tax claims.
32 Share options
Stock option scheme
On 13 November 2013 the board of Wilson Sons Limited approved a
Stock Option Plan which allowed for the grant of options to
eligible participants to be selected by the board. The shareholders
in special general meeting approved such plan on the 8 January 2014
including an increase in the authorised capital of the Company
through the creation of up to 4,410,927 new shares. The options
provide participants with the right to acquire shares via Brazilian
Depositary Receipts ("BDR") in Wilson Sons Limited at a
predetermined fixed price not less than the three day average
mid-price for the days preceding the date of option issuance. The
Stock Option Plan is detailed below:
Original Exercise
Grant vesting Expiry price Outstanding Total
Options
series date date date (R$) 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
---------------- ------------------
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$97 million) related to the maintenance
of the operating area and replacement of equipment that will be
completed up to 2050.
Tecon Salvador guaranteed payments consist of three elements: a
fixed rental, a fee per container handled based on minimum forecast
volumes and a fee per tonne of non-containerized cargo handled
based on minimum forecast volumes.
Logistics
Logistics lease commitments mainly refer to the bonded terminals
and distribution centres located in Santo André and Suape with
terms between eighteen and twenty-four years.
Brasco
Brasco lease commitments mainly relate to a 30-year lease right
to operate a sheltered area at Guanabara Bay, Rio de Janeiro,
Brazil with a well situated location to service the Campos and
Santos oil producing basins.
At the balance sheet date the Group had outstanding commitments
for future minimum lease payments under operating leases, which
fall due as follows:
2018 2017
US$'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$1.1 million) represents contributions payable to the
scheme by the Group at rates specified in the rules of the
plan.
36 Related party transactions
Transactions between the company and its subsidiaries which are
related parties have been eliminated on consolidation and are not
disclosed in this note. Transactions between the group and its
associates, joint ventures and other investments are disclosed
below:
Revenue from services Amounts paid/Cost of services
31 December 31 December 31 December 31 December
2018 2017 2018 2017
US$'000 US$'000 US$'000 US$'000
--- ---------------------------------------------------- ----------- ----------- --------------- --------------
Joint ventures
1. Allink Transportes Internacionais Limitada(1) 8 1 (376) (19)
2. Consórcio de Rebocadores Barra de Coqueiros - - - -
Consórcio de Rebocadores Baía de São 26
3. Marcos 444 - -
4. Wilson Sons Ultratug and subsidiaries(7) 2,250 1,379 - -
5. Atlantic offshore S.A. (8) - - - -
Others
6. Hanseatic Asset Management LBG(2) - - (2,742) (2,597)
7. Gouvêa Vieira Advogados(3) - - (66) (73)
8. CMMR Intermediacão Comercial Limitada(4) - - (87) (157)
9. Jofran Services(5) - - (173) (173)
10. Hansa Capital GMBH(6) - - (93) (93)
--- ---------------------------------------------------- ----------- ----------- --------------- --------------
Amounts owed Amounts owed
by related parties to related parties
31 December 31 December 31 December 31 December
2018 2017 2018 2017
US$'000 US$'000 US$'000 US$'000
--- ---------------------------------------------------------- ----------- ----------- ----------- -----------
Joint ventures
1. Allink Transportes Internacionais Limitada(1) - - (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 subsidiaries(7) 10,072 11,848 - -
5. Atlantic offshore S.A. (8) 20,167 17,767 - -
Others
6. Hanseatic Asset Management LBG(2) - - (256) (347)
7. Gouvêa Vieira Advogados(3) - - - -
8. CMMR Intermediacão Comercial Limitada(4) - - - -
9. Jofran Services(5) - - - -
10. Hansa Capital GMBH(6) - - - -
--- ---------------------------------------------------------- ----------- ----------- ----------- -----------
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$'000
---------------------------------- ---------- ----------
Short-term employee benefits 9,798 11,674
Other long-term employee benefits 1,132 1,671
Share options issued 1,303 2,331
Share-based payment 28 55
---------------------------------- ---------- ----------
12,261 15,731
---------------------------------- ---------- ----------
37 Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern. The capital
structure of the Group consists of debt, which includes the
borrowings disclosed in note 23, cash and cash equivalents and
equity attributable to equity holders of the parent comprising
issued capital, reserves and retained earnings disclosed in the
consolidated statement of changes in equity.
The Group borrows to fund capital projects and looks to cash
flow from these projects to meet repayments. Working capital is
funded through cash generated by operating revenues.
Externally imposed capital requirement
The Group is not subject to externally imposed capital
requirements.
Significant accounting policies
Details of significant accounting policies and methods adopted,
including the criteria for recognition, the basis of measurement
and the basis on which income and expense are recognised, in
respect of each class of financial asset, financial liability and
equity instrument are disclosed in note 2 to the financial
statements.
Categories of financial instruments
Year ended Year ended
2018 2017
US$'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.
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$'000
--------- ------- ------- ------- -------
Real 109,764 180,468 179,031 212,457
Sterling 59 18 11,373 10,934
Euro - - 21,590 21,177
Yen - - 5,333 -
--------- ------- ------- ------- -------
109,823 180,486 217,327 244,568
--------- ------- ------- ------- -------
Foreign currency sensitivity analysis
The Group is primarily exposed to unfavourable movements in the
Real on its Brazilian liabilities held by US Dollar functional
currency entities.
The sensitivity analysis presented in the following sections,
which refer to the position on 31 December 2017, estimates the
impacts of the Real devaluation against the US Dollar. Three
exchange rate scenarios are contemplated: the likely scenario
(Probable) and two possible scenarios of deterioration of 25%
(Possible) and 50% (Remote) in the exchange rate. The Group uses
the Brazilian Central Bank's "Focus" report to determine the
probable scenario.
31 December 2018
Exchange rates
Operation Risk Amount Result Probable Possible Remote
US Dollars scenario scenario scenario
(25%) (50%)
------------------------ ---------- ---------------- -------- -------- --------
Exchange rate 3.75 4.69 5.63
------------------------- ---------- ---------------- -------- -------- --------
US$'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.
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 Possible Remote
US Dollars Probable 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 Possible Remote
Probable 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%
-------------------- -------- -------- --------
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. Libor - Information source: Bloomberg, report 16 January 2018.
2. CDI - Information source: BM&F (Bolsa de Mercadorias e
Futuros), report from 15 January 2018.
3. Selic - Information source: Banco Central do Brasil report from 16 January 2018
4. 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$0.5 million.
Amount Fair Value
31 December 2018 US$'000's Maturity US$'000's
-------------------- --------- -------- ----------
Financial Liability
Interest Rates Swap 21,547 Jan/2019 (422)
-------------------- --------- -------- ----------
Total
-------------------- --------- -------- ----------
Derivative Sensitivity Analysis
This analysis is based on 6-month LIBOR interest rate variances
that the Group considered to be reasonably possible at the end of
the reporting period. The analysis assumes that all other
variables, in particular foreign exchange rates, remain constant
and ignores any impact of forecast sales and purchases. Three
scenarios were simulated: the likely scenario (Probable) and two
possible scenarios of reduction of 25% (Possible) and 50% (Remote)
in the interest rate.
31 December
2018
-----------------------------------------
Possible Remote
Probable
scenario scenario (25%) scenario (50%)
US$'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 0r 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$'000
--------------- ----------- ------------ ------------
Profit or loss 13,040 26,079 52,159
Total equity 13,040 26,079 52,159
------------------ ----------- ------------ ------------
31 December 2017
5% scenario 10% scenario 20% scenario
--------------- ----------- ------------ ------------
US$'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.
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
-------------------------------------------- ------- ------- ------- -------
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.
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$'000
--------------------------------------- ----------- -----------
Present value of actuarial liabilities 1,200 1,100
--------------------------------------- ----------- -----------
Actuarial assumptions
The calculation of the liability generated by the
post-employment commitment involves actuarial assumptions. The
following are the principal actuarial assumptions at the reporting
date:
Economic and Financial Assumptions
31 December 31 December
2018 2017
------------------------------------------ ------------------------------------------ -----------
Annual interest rate 9.20% 10.46%
Estimated inflation rate in the long-term 4.00% 4.75%
Ageing Factor Based on the experience of Wilson Sons (1) 2.50% p.a.
Medical cost trend rate 6.60% a.a 2.50% p.a.
------------------------------------------ ------------------------------------------ -----------
(1) The amount of current contributions of retirees and medical
costs used in the actuarial valuation, both in monthly amounts per
health care provider, may vary between R$ 106.42 and R$4.023,74
(absolute value).
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
-------------------------------------------------- -------------------------------- --------------------------------
Enquiries:
Company Contact
Keith Middleton 1 441 295 1309
Media
David Haggie 020 7562 4444
Haggie Partners LLP
Cantor Fitzgerald Europe 020 7894 7000
David Foreman, Will Goode - Corporate Finance
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GGUGUWUPBGBC
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