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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Ocean Wilsons (holdings) Ld | LSE:OCN | London | Ordinary Share | BMG6699D1074 | ORD 20P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -15.00 | -1.08% | 1,375.00 | 1,370.00 | 1,375.00 | 1,400.00 | 1,365.00 | 1,370.00 | 5,251 | 15:42:45 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Towing And Tugboat Services | 496.7M | 67.05M | 1.8960 | 7.25 | 486.24M |
From Apr 2019 to Apr 2024
TIDMOCN
RNS Number : 0649I
Ocean Wilsons Holdings Ld
19 March 2018
Ocean Wilsons Holdings Limited
Preliminary results for the year ended 31 December 2017
Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the "Company") today announces its preliminary results for the year ended 31 December 2017.
Highlights
-- Profit after tax for the year increased 36% to US$109.4 million (2016: US$80.7 million) principally due to improved returns from the investment portfolio and higher operating profit.
-- The valuation of the Investment portfolio (including cash under management) increased US$35.8 million to US$274.7 million (2016: US$238.9 million).
-- Operating profit growth of 13% to US$109.5 million (2016: US$96.8 million) and improved operating margin from 21.2% to 22.1%.
-- Revenue grew 9% to US$496.3 million (2016: US$457.2 million). -- Earnings per share for the year up by 74% to 221.5 cents (2016: 127.4 cents). -- Proposed dividend increased by 11% to 70 cents per share (2016: 63 cents per share).
José Francisco Gouvêa Vieira, Chairman of Ocean Wilsons, commented:"The Group delivered a strong performance in 2017 from both our Brazilian and investment portfolio businesses. Profit before tax for the year increased US$28.0 million to US$145.5 million compared to US$117.5 million principally due to strong gains from the investment portfolio and increased operating profit. Revenue for the full year grew 9% to US$496.3 million principally due to higher port terminal and logistics 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 58.19% interest in Wilson Sons which is fully consolidated in the Group accounts with a 41.81% non-controlling interest. Wilson Sons is one of the largest providers of maritime services in Brazil. Wilson Sons' activities include harbour and ocean towage, container terminal operation, offshore oil and gas support services, small vessel construction, logistics and ship agency. Wilson Sons has over four thousand employees. Ocean Wilsons (Investments) Limited is a wholly owned Bermuda investment company. The company 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 Managers to make investment decisions that create long-term capital growth.
Chairman's Statement
Introduction
The Group delivered a strong performance in 2017 from both our Brazilian and investment portfolio businesses. After enduring its worse economic recession on record, the Brazilian economy grew 1% in 2017 improved by the performance of the agricultural sector with both exports and imports growing 5% in the year. The key operational indicators at our container terminal and towage businesses increased against their 2016 comparatives although our offshore businesses suffered in the depressed offshore oil and and gas market.
Operating volumes 2017 2016 % Change ----------------------------------------- ------- ------- -------- Container Terminals (container movements in TEU '000) 1,068.1 1,029.8 3.7% Towage (number of harbour manoeuvres performed) 59,796 58,376 2.4% Offshore Vessels (operating days own vessels) 6,035 6,428 (6.1%) ----------------------------------------- ------- ------- --------
1 March 2017 marked the 20(th) anniversary of the commencement of operations at the Tecon Rio Grande container terminal concession. The terminal has grown significantly in this time through the Group's substantial ongoing capital investments and management efforts. From a modest beginning in 1997 (the terminal moved 90,975 "TEUs" (twenty-foot equivalent units) in the first 10 months) the terminal has become one of the largest and most modern container terminals in the country. Container volumes in 2017 grew 6% over prior year to 760,900 TEUs (2016: 719,500 TEUs) driven principally by higher import, cabotage and transhipment movements. Transhipment volumes benefitted from the new Santa Clara terminal which enables the waterway transport of containers between the Triunfo Petrochemical hub in the state of Rio Grande do Sul and Tecon Rio Grande. Container volumes handled at our other container terminal, Tecon Salvador, at 307,100 TEUs, were marginally lower than prior year, (2016: 310,300 TEUs) mainly due to lower export and empty container volumes. Last year we were pleased to announce that the Group had signed an amendment to the Tecon Salvador concession agreement extending the term of the concession until 13 March 2050. Under the terms of the extension, the Group is required to complete minimum expansion and maintenance capital expenditure. We are currently awaiting environmental licences to begin civil works which we expect to start in the fourth quarter of 2018.
Towage continued to perform well with the number of harbour manoeuvres increasing 2% to 59,7966 (2016: 58,376) In addition to the higher volumes, results also benefitted from the market trend towards larger vessels, as harbour towage pricing is linked to vessel size. Special towage operations revenue declined reflecting the reduced demand from the Brazilian offshore oil and gas industry and the more volatile nature of this activity which includes salvage, firefighting and other operations. The Group remains the leading towage operator in Brazil with a fleet of seventy-four tugboats operating in over 30 ports throughout the country.
Operating days at our offshore joint venture, Wilson Sons Ultratug Offshore decreased 6% in the year due to market pressures. During the third quarter Petrobras negotiated new contract terms with our joint venture for eight platform supply vessels ("PSVs"). The agreement temporarily suspended six of these contracts due to current suppressed demand and reduced the vessels' daily rates, but the original contract term was extended by a period equal to the suspension. During the first quarter of 2018 five of the six suspended vessels have recommenced operations with the remaining vessel expected to resume in July 2018. At the year end, the joint venture operated a fleet of 23 PSVs of which 19 were under long-term contract, with the remainder available in the Brazilian spot market or laid up until market conditions improve. On a positive note, there were some important advances in the Brazilian oil and gas industry during the year, with an improved regulatory framework that removed the Petrobras monopoly on operating the pre-salt offshore oilfields, opening them up to foreign investment. This positive move was reflected in renewed interest by the major international oil companies who actively participated in the recent round of pre-salt auctions.
During the year the shipyard successfully delivered the first two of a four tugboat order to third parties and continued to perform maintenance on our tugboat and offshore fleets.
As at 31 December 2017, the investment portfolio including cash under management was valued at US$274.74 million, representing US$7.73 per share (2016: US$238.8 million and US$6.76 per share).
Group Results
Profit before tax for the year increased US$28.0 million to US$145.5 million compared to US$117.5 million in 2016. The improvement is principally due to a US$36.9 million movement in other gains and losses from the investment portfolio, a US$12.7 million increase in operating profit and US$3.9 million increase in investment income. These gains were partially offset by a US$21.4 million increase in finance costs, as the prior year benefitted from a US$12.8 million exchange gain on foreign currency borrowings compared with a US$0.8 million loss in the current period. Operating profit for the period was US$12.7 million higher than the comparative period in 2016 at US$109.5 million (2016: US$96.8 million) reflecting an increase in revenue and improved operating margins. Group operating margins* for the year at 22% were marginally ahead of prior year (21%). Revenue for the full year grew 9% to US$496.3 million (2016: US$457.2 million), principally due to higher port terminal and logistics revenue. Earnings per share for the year were 221.5 cents compared with 127.4 cents in 2016.
* Operating margins are defined as operating profit divided by revenue.
Investment portfolio performance
The investment portfolio produced a strong performance in the year growing US$35.8 million to US$274.7 million at year end (2016: US$238.9 million) driven by the rise in global equity markets. The portfolio produced a time weighted net return of 16.5% in the year compared with the performance benchmark of 5.1% . Over the three-year period of the performance benchmark the portfolio produced a time-weighted return of 5% per annum compared with the performance benchmark of 4.6% per annum resulting in a US$0.1 million performance fee payable to the Investment Manager.
At year end the investment portfolio was invested 56% in global equities (US$152.9 million), 34% in private assets (US$94.1 million) with the balance invested in market neutral funds, cash and bonds. The US$9.9 million increase in private assets at year end (2016: US$84.2 million) is due to new capital drawdowns of US$10.0 million, less distributions received of US$10.3 million and an increase in net value of US$10.2 million. The investment portfolio maintains an overwewight exposure to emerging markets which account for 36% of the investment portfolio net asset value at year end but 60% of the private equity value. At 31 December 2017, the top ten investments account for 39% of the investment portfolio valuation (US$108.4 million). Ocean Wilsons (Investments) Limited paid dividends of US$3.5 million to Ocean Wilsons Holdings Limited in the year.
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 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.
The current benchmark was introduced on 1 January 2015 and 2017 marks the completion of the first three-year cycle under the current benchmark. In 2017 the investment management fee paid was US$2.6 million and a US$0.1 million performance fee is payable to the Investment Manager.
Net asset value
At the close of business on 31 December 2017, the Wilson Sons' share price was R$40.00, resulting in a market value for the Ocean Wilsons holding of 41,444,000 shares (58.19% of Wilson Sons) totalling approximately US$500.8 million which is the equivalent of US$14.16 (GBP10.48) per Ocean Wilsons share.
Adding the market value per share of Wilsons Sons of US$14.16 and the investment portfolio at 31 December 2017 per share of US$7.73 results in a net asset value per Ocean Wilsons Holdings Limited share of US$21.89 (GBP16.21) per share. The Ocean Wilsons Holdings Limited share price of GBP10.95 at 31 December 2017 represented an implied discount of 32% which is higher than the historic long-term discount.
Dividend
The Board is recommending a dividend of 70 cents per share (2016: 63 cents pershare) to be paid on 8 June 2018, to shareholders of the Company as of the close of business on 11 May 2018. This represents an 11% increase over the 2016 dividend. Shareholders will receive dividends in Sterling by reference to the exchange rate applicable to the USD on the dividend record date (11 May 2018) 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 a healthy 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.
Charitable donations
The Group's subsidiary Wilson Sons continues to support several local charities and causes in Brazil. Group donations for charitable purposes in the year amounted to US$715,000 (2016: US$136,000). The focus of the Group's charitable donations are young people, promoting social inclusion and development. Among the charities the Group supports are Brigada Mirim da Ilha Grande, Escola de Gente, Passporte da Cidadania and Sonhar Acordado.
Health, safety and environmental practices (HSE)
The Group continues to invest in the training, development and safety of our staff. The Group has run the WS+ safety programme in partnership with DuPont since 2011 to promote improved safety throughout the Wilson Sons Group. The programme is based on the establishment and revision of work processes and procedures, operational discipline, management of deviations, organisational responsibility, behavioural approach and the engagement of leadership. Since its implementation the lost time injury frequency rate has decreased by 94%. In 2017 the Group achieved a world-class level of safety with a lost time injury frequency rate of 0.45 per one million man-hours worked. Wilson Sons is one of the most consistent winners of the DuPont award on Occupation, Health and Safety Management in Brazil having received four awards in the last five years.
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.
Outlook
The Brazilian economy is forecast to grow between 2.5 - 3% in 2018 with stronger growth from 2019. The container terminals business continues to perform well benefitting from the increased trade volumes that are beginning to appear. We are still awaiting the necessary environmental license approval to begin the expansion of the Tecon Salvador container terminal and do not expect to be able to start construction before the fourth quarter of 2018. Demand for towage services remains healthy despite recent increased competition in the segment. The Brazilian offshore oil and gas market will face another challenging year in 2018 although prospects for the longer-term are brighter following the investment friendly reforms implemented during 2017. Market over-capacity continues to dampen demand for both offshore vessel hire and new vessel construction although we continue to explore alternative revenue streams for our excess supply vessel capacity. Our joint venture is currently modifing one PSV to provide oil spill recovery services and two other PSVs to provide shallow-water diving support services under contracts that will start in 2018. The shipyard new buildings order book currently consists of two tugboats for third parties and two tugboats for our own fleet. In addition there are 15 dry-docking operations scheduled in the year for third parties and our own fleet. We remain confident of the strength of our businesses and look forward to the opportunities that a growing Brazilian economy will bring.
2017 was a robust year for global stock markets and, rather surprisingly, one where volatility was low. In contrast 2018 has got off to a much more turbulent start, rising strongly for most of January before giving up most of these gains in the beginning of February. We would expect this pattern to continue, reflecting the maturing nature of the current cycle. Nonetheless we continue to see upside in equity markets although one must be increasingly discerning as to positioning both from a geographic and sector perspective. Encouragingly for your investment portfolio, we believe emerging markets are looking more attractive than their developed market counterparts. Risks are however undoubtedly rising. Valuations are full in many cases, geo-political risks high and inflation appears to be rearing its head again with implications for global interest rates and bond yields. This backdrop is likely to mean that more defensive assets increasingly have a role to play in portfolios.
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.
J F Gouvêa Vieira
Chairman
16 March 2018
Financial Review
Operating profit
Operating profit for the period was US$12.7 million higher than the comparative period in 2016 at US$109.5 million (2016: US$96.8 million) reflecting the increase in revenue and improved operating margins. Group operating margins for the year at 22% were marginally ahead of prior year (21%).
Raw materials and consumables used in the year at US$37.7 million were the same as the prior year (2016: US$37.7 million). Employee expenses were 15% higher at US$166.4 million (2016: US$144.3 million) due to the effect of the lower average USD/BRL exchange rate, redundancy costs associated with corporate restructuring and additional provisions to cover potential labour claims. Employee costs were also impacted by the rollback by the Brazilian government of a temporary payroll tax exemption granted to some business sectors in Brazil on the 1 July 2017. The rollback was repealed in August following a judicial decision. Other operating expenses were 3% lower at US$122.3 million (2016: US$126.5 million), with exchange rate impacts offset by a US$4.9 million tax credit arising in the logistics busines, reduced tug rental costs (following the acquisition of six tugboats in 2016 that were previously leased) and a non-recurring US$3.9 million provision reversal.
Depreciation and amortisation for the year increased US$4.9 million to US$57.5 million from US$52.6 million in 2016 mainly due to the lower average USD/BRL exchange rate and larger towage fleet. Loss on disposal of property, plant and equipment of US$2.9 million includes a US$2.3 million write down on leasehold improvements no longer used by the Group (2016: US$0.7 million profit).
Revenue from Maritime Services
Revenue for the year increased 9% to US$496.3 million (2016: US$457.2 million), principally due to higher port terminal and logistics revenue. Port terminals and logistics revenue grew 22% to US$257.8 million (2016: US$211.1 million), mainly due to the lower average USD/BRL exchange rate used to convert revenue into our reporting currency and higher container terminal and logistics revenue. The average USD/BRL exchange rate in the period was 8% lower than the comparative period in 2016, (3.19 v 3.48). Container terminal revenue in the year was 26% higher at US$187.4 million (2016: US$148.3 million) benefitting from a more favourable sales mix with increases in import and cabotage volumes. Warehouse revenue increased driven by the higher import volumes. Container volumes handled at our container terminals were 4% higher than prior year at 1,068,100 TEUs (2016: 1,029,800 TEUs). Logistics revenue rose 26% to US$54.7 million (2016: US$43.3 million) driven by improved bonded warehouse revenue. Revenue at Brasco fell 19% to US$15.7 million (2016: US$19.4 million) as the downturn in the Brazilian offshore oil and gas industry continues to reduce demand for its services. Revenues were supported by an increase in vessel lay-up operations during the year reflecting the excess capacity available in the market.
Towage and ship agency revenue for the year at US$218.0 million was slightly lower than 2016 (US$219.7 million). Harbour towage continued to perform well with higher volumes and handling of larger sized vessels offsetting the weaker demand for special towage operations in the period. Harbour towage manoeuvres performed in the period were 2% higher at 59,796 (2016: 58,376). Towage special operations revenue in the year were US$9.2 million lower than 2016 at US$11.2 million (2016: US$25.1 million) reflecting lower demand from the offshore oil and gas industry and the more volatile nature of this activity, which includes salvage, firefighting and other operations. Ship agency revenue declined US$2.6 million to US$11.3 million (2016: US$13.9 million).
Third-party shipyard revenue for the year was US$5.2 million lower at US$21.2 million, (2016: US$26.4 million) impacted by the weak market for vessel construction in Brazil. In addition to work performed for third-parties, the shipyard continued to provide important vessel construction and maintenance services for the Group.
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. The Group's share of results of joint ventures fell US$4.7 million from US$8.1 million in 2016 to US$3.4 million in the current year, largely due to lower operating profits and exchange losses on monetary items in the period. Operating profit for the 50% share in the joint venture in the year was US$3.4 million lower at US$15.9 million, principally due to fewer operating days which were 6% lower at 6,035 days against 6,428 days in 2016. At year end our joint venture has 23 PSVs.
Investment income
Investment revenue for the year was US$3.9 million higher at US$19.0 million (2016: US$15.1 million) principally due to higher income from underlying investment vehicles of US$9.3 million (2016: US$4.8 million) and higher other interest of US$3.8 million (2016: US$2.3 million).
Investment gains and losses
Other investment gains of US$32.8 million arose from the Group's portfolio of trading investments (2016: US$4.1 million loss) and are comprised of profits on the disposal of trading investments of US$6.9 million (2016: US$1.9 million) and unrealised gains on trading investments of US$25.9 million (2016: US$6.0 million loss).
Finance costs
Finance costs for the year were US$21.4 million higher at US$22.0 million compared with US$0.6 million for 2016, as 2016 benefitted from a US$12.8 million exchange gain on foreign currency borrowings, whilst 2017 resulted in a US$0.8 million loss. Interest on overdrafts and loans were US$ 1.0 million higher than prior year at US$13.3 million, (2016: US$12.3 million). Other interest of US$7.7 million (2016: US$0.7 million) mainly related to interest on outstanding tax balances. The large increase in 2017 is because Wilson Sons, under a Brazilian tax amnesty programme, paid US$1.0 million of cash, obtained US$7.2 million of tax relief and used US$6.9 million of unrecognised tax losses to settle US$15.1 milllion of disputed federal tax debts.
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 2017 the BRL depreciated 2% against the USD from R$3.26 at 1 January 2017 to R$3.31 at the year end. In 2016 the BRL appreciated 17% against the USD from R$3.90 at 1 January 2016 to R$3.26 at the year end. The principal effects from the movement of the BRL against the USD on the income statement are set out in the table below:
Hot Features
Premium
2017 2016
US$ million US$ million
---------------------------------- ----------- -----------
Exchange gains on monetary items
(i) 2.8 2.3
Exchange losses/gains on foreign
currency
borrowings (0.8) 12.8
Deferred tax on retranslation of
fixed assets (ii) 1.4 22.4
Deferred tax on exchange variance
on loans (iii) (1.2) (14.3)
---------------------------------- ----------- -----------
Total 2.2 23.2
---------------------------------- ----------- -----------
(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 2017 resulted in a positive impact of US$2.2 million on the income statement in the year compared with a US$23.2 million positive impact in 2016 caused by the appreciation of the BRL against the USD.
A currency translation adjustment loss of US$6.5 million (2016: US$32.7 million gain) on the translation of operations with a functional currency other than USD is included in other comprehensive income and recognised directly in equity. The positive currency translation adjustment in 2016 is due to the appreciation of the BRL against the USD.
The average USD/BRL exchange rate during 2017 was 8% lower at 3.19 than prior year (2016: 3.48). A lower average exchange rate positively affects BRL denominated revenues and adversly impacts BRL denominated costs when converted into our USD reporting currency.
Foreign exchange gains/(losses) on monetary items
Foreign exchange gains on monetary items of US$2.8 million (2016: US$2.3 million) arise from the Group's foreign currency monetary items and principally reflect the movement of the BRL against the USD during the period.
Profit before tax
Profit before tax for the year increased US$28.0 million to US$145.5 million compared to US$117.5 million in 2016. The improvement was principally due to the US$36.9 million movement in other gains and losses from the investment portfolio, the US$12.7 million increase in operating profit and US$3.9 million increase in investment income. These gains were partially offset by a US$21.4 million increase in finance costs, as the prior year benefitted from a US$12.8 million exchange gain on foreign currency borrowings compared with a US$0.8 million loss in the current period and tax interest of US$7.7 million.. Share of results from joint ventures was US$4.7 million lower and foreign exchange gains on monetary items was US$0.5 million higher.
Taxation
Income tax expense for the year at US$36.1 million was in line with prior year (2016: US$36.8 million). This represents an effective tax rate for the period of 24.8% (2016: 31.3%) compared with the corporate tax rate prevailing in Brazil of 34.0%. The difference in the effective tax rate is principally due to deferred tax items and expenses that are not included in determining taxable profit in Brazil and expenses or income at our Bermudian companies that are not subject to income tax. In 2016 net expenses were incurred outside of Brazil. The principal impacts from these items on the tax charge in the income statement are set out in the table below
2017 2016
US$ % of US$ % of
taxable taxable
million profit million profit
-------------------------------- ------- ------- ------- -------
Deferred tax items not included
in determining taxable profit
(i) (5.3) (3.6%) (2.9) (2.5%)
Income/expenses not included
in determining taxable profit
(ii) 3.4 2.4% (3.0) (2.6%)
Net (income)/expenses incurred
outside Brazil (11.6) (7.9%) 2.8 2.4%
Total (13.4) (9.2%) (3.1) (2.7%)
-------------------------------- ------- ------- ------- -------
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 is US$78.3 million (2016: US$45.1 million) after deducting profit attributable to non-controlling interests of US$31.1 million (2016: US$35.6 million). Non-controlling interests at 28% are a lower percentage of the Group profit for the period (2016: 44%) because the improved returns from the investment portfolio accrue solely to the equity holders of the parent company.
Earnings per share
Earnings per share for the year were 221.5 cents compared with 127.4 cents in 2016.
Cash flow
Net cash inflow from operating activities for the year at US$103.0 million was US$9.2 million higher than prior year. (2016: $93.8 million) principally due to higher operating profit generated in the period.
Capital expenditure in the year was US$65.5 million lower at US$30.7 million (2016: US$96.2 million) principally due due to less vessel construction and US$21.1 million of container terminal equipment delivered in the year where the financier directly paid the supplier. Capital additions per note 15 were US$51.1 million (2016: US$ 97.1 million). New loans to finance capital expenditure of US$12.6 million (2016: US$46.6 million) were raised during the year while capital repayments of US$54.7 million (2016: US$41.0 million) were made on existing loans. Dividends of US$22.3 million were paid to shareholders in the period (2016: US$22.3 million) with a further US$16.8 million paid to non-controlling interests in our subsidiaries (2016: US$15.2 million).
At 31 December 2017, the Group had US$83.8 million in cash and cash equivalents (2016: US$77.3 million). Trading investments includes US$31.6 million (2016: US$37.4 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 operations in Brazil.
Balance sheet
Equity attributable to shareholders of the parent company increased US$52.8 million to US$588.2 million at the year end (2016: US$535.3 million) due to profits for the year of US$78.3 million, less a negative currency translation adjustment of US$3.8 million and dividends paid of US$22.3 million. On a per share basis equity attributable to shareholders was the equivalent of US$16.63 per share (31 December 2016: US$15.14 per share).
Net debt and financing
All debt at the year end was held in the Wilson Sons Limited Group and has no recourse to the parent company, Ocean Wilsons Holdings Limited, or the investment portfolio held by Ocean Wilsons (Investments) Limited.
The Group's borrowings are 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 up to 18 years of which 20% is variable rate debt and 80% fixed rate debt and. The Group's borrowings are principally USD related with 93% of borrowings USD denominated or linked to the USD. As a significant portion of the Group's pricing is denominated in USD this acts as a natural hedge to our long-term exchange rate exposure. At 31 December 2017 the Group had net debt of US$239.2 million (2016: US$260.8 million):
2017 2016
US$ million US$ million
--------------------------- ----------- -----------
Debt
Short-term 54.3 49.8
Long-term 300.4 325.8
Total debt 354.7 375.5
Cash and cash equivalents* (115.5) (114.7)
Net debt 239.2 260.8
--------------------------- ----------- -----------
* Included in cash and cash equivalents are short-term investments in Wilson Sons Limited which are intended to fund Wilson Sons Limited operations in Brazil
The Group's reported borrowings do not include US$234.1 million of debt from the Company's 50% share of borrowings in our Offshore Vessel joint venture.
Keith Middleton
Finance Director
Wilson Sons Limited
The Wilson Sons 2017 Earnings Report released on 16 March 2018 is available on the Wilson Sons Limited website: www.wilsonsons.com.br
In it Cezãr Baião, CEO of Operations in Brazil, said:
"In 2017, we celebrated Wilson Sons' 180th anniversary and delivered robust results in a challenging economic environment. The Company reported annual EBITDA of US$172.4 milion, an increase of 11.8% YoY.
Container Terminals reached record annual volumes as Brazilian trade flow demonstrated some early indications of recovery by the end of the year. Both terminals deployed new equipment and upgraded their operating systems. Rio Grande posted a 39% increase in productivity, and by January 2018 its inland waterway service had sufficient volume to commence a second weekly call linking the north of the State directly to the Port of Rio Grande. After the year end, Tecon Salvador achieved a record 102 movements per hour following recent investments. We continue to take all the necessary measures to ensure the expansion of Salvador and are currently awaiting environmental licensing to begin civil works.
The Towage business reported higher harbour manoeuvres, despite increased competition. The division signed US$62 million in financing agreements with the Brazilian Development Bank (BNDES) for the construction and maintenance of tugboats in the coming years.
Despite continued stress throughout the oil industry, our Offshore Support Vessels' joint venture was awarded three new long-term contracts. Brazil's recent success in pre-salt oilfield auctions reinforces a more favourable long-term outlook, however, the short term remains challenging.
Once more we would like to thank all our stakeholders, but in particular the efforts of all our staff for their contribution to these solid results and their continued commitment to safety."
The Wilson Sons Strategy:
To grow our 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 our services we provide to customers.
Fulfilling capacity in our expanded container terminals. In order to meet demand from domestic and international trade, we have expanded both container terminals since the beginning of the concessions. By maximising installed capacity utilisation, we are best able to continue increases in productivity and level of service to our clients with economies of scale. We will diligently pursue this objective. The early extension of the Salvador terminal through to 2050 includes investments in quay extension and equipment to be installed in the coming years, further enhancing the terminal productivity. Additionally, we will evaluate new concessions and the development of new terminals, and their ability to provide a strong return on shareholders' equity.
Maximising capacity utilisation of our oil and gas support terminals (Brasco). In addition to our operations at Brasco Niterói, we have 500 metres of linear quay at the Brasco Rio base to provide logistics support for offshore vessels, with excellent access to the Campos and Santos petroleum basins. This expanded capacity positions Brasco as one of the largest operators of offshore support terminals in Brazil. We are continuously monitoring offshore operations across the Brazilian coast to meet the demand for such services.
Strengthening our position as the leading provider of towage services in the Brazilian market. We will 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 regularly review our fleet deployment to optimise efficiency and to seek out new market niches where we may be able to 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 and dry-docking services to meet the demand of local and international shipowners operating in Brazil.
Solidifying our offshore support vessel services to oil and natural gas platforms. Using our knowledge and experience, we intend to continue to consolidate our activities through the delivery of contracted vessels and maintain our position amongst the leading suppliers of services to the offshore oil and gas industry in Brazil.
Exploring new opportunities and strategies to provide the best and most complete set of services to our customers. We are always looking to provide new and innovative services to our customers, and to anticipate their needs. We intend to continue our strategy with shipping companies in order to provide a complete set of domestic and international trade-related services across a nationwide network. We also seek to make these services more efficient and cost-effective, in order to maintain our strong customer base and strengthen our relationships.
Increasing economies of scale and productivity, realisation of potential synergies and cost savings across our business segments. We continuously seek to optimise our operations, productivity and reduce costs through synergies and knowledge exchange among our businesses and administrative areas. We are and will continue to be focused on integrating similar activities in order to realise savings in administrative and back-office areas, especially in our branch offices. We seek to achieve economies of scale and reduce costs wherever possible. We demand that our managers continually develop new strategies to improve our operations and explore new businesses.
Health, Safety and the Environment are priorities for the execution of our overall strategy of sustainable and ethical businesses. We continue to offer programmes to promote safety best practices throughout the Group by training our staff, as well as fostering a safety-oriented environment and culture.
Investment Portfolio
Investment Objective
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.
Investment Policy
The Investment Manager will seek to achieve the Investment Objective through investments in publicly quoted and private (unquoted) assets across the three silos. 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........
2017 was a year that promised much to the bears but in practice saw the bulls win through. The geopolitical potholes were largely avoided with the newly elected US president, Donald Trump, and North Korea's leader, Kim Jong-un, content to verbally insult one another and not, as yet, engage in action. Asian trade wars have failed to materialise and, perversely, China's President Xi has taken on the mantle of chief advocate for the benefits of globalisation at a time when America has become more inward looking.
In Europe, whilst the populist parties grew in strength they failed in their efforts to gain power in France, the Netherlands and Germany. The region is not out of the woods though, with Germany still to agree a coalition government, the prospect of a coalition government in Italy and the ongoing threat of a Catalonian breakaway in Spain.
Rather than representing areas of disappointment, the business and economic cycles turned out to be significant positives during the year. Having been rather lacklustre post the Global Financial Crisis most economies did rather better in 2017 and, for the first time in this cycle, we actually experienced a backdrop of synchronised growth. This in turn fed through to an uptick in corporate profitability with many companies beating analyst forecasts, and whilst the monetary cycle did indeed turn, it did so in a controlled fashion helped by a subdued inflationary backdrop.
In terms of the numbers, equities, reflecting their geared nature to global economies, saw the strongest performance with world markets rising by 24.0% in US dollar terms. Within this US equities rose by 20.9%, Europe by 25.5% and Japan by 24.0%. The standout performers, however, were the emerging markets, which rose by some 37.3% with China up 54.1%, India 38.8% and Brazil 24.1%. This is particularly positive for the portfolio with its emerging market bias.
Bonds, unsurprisingly, were more muted with global treasuries up 7.3% and US Treasuries 2.3%. Credit and local currency emerging market debt fared better, rising by 9.1% and 15.2%, respectively.
Alternatives and commodity investments were a more mixed bag with the composite hedge fund index rising by 8.7%, oil (WTI) by 12.5% and industrial metals by some 31%.
Portfolio Commentary
The portfolio returned some 16.5%, on a net basis, over the past 12 months, significantly outperforming its benchmark over the same period which rose by 5.1%. The portfolio saw good performances from many of its investments, including positions in Japan, Asia, North America and Frontier Markets.
A significant contributor to performance over the year was Findlay Park American Fund, which rose by 23.0%. The investment environment has been favourable for the fund as its large allocations to financial services and technology stocks have benefited from the continued growth of the US equity market. The fund's performance in beating the market this year has been particularly impressive given the manager's cautious view on valuation levels, which has led the fund to have a 15% allocation to cash.
Prominent among the strongest performers this year have been the portfolio's Japanese long-only equity funds. Goodhart Partners: Hanjo Fund which has risen by 47.3% over the year. The manager is encouraged by recent government proposals to reform corporate tax, which will attempt to stop companies hoarding cash. The government will find it challenging to implement these changes, but Prime Minister Abe has been strengthened by his convincing victory in the recent general election. Indus Japan Long Only Fund also produced a good performance, rising by 32.7% over the year.
Another strong performer was Schroder ISF Asian Total Return Fund, an Asian focused fund which has seen a 40.8% increase over the year. This Fund has benefited from its exposure to large technology stocks including Samsung, Tencent and Alibaba which account for circa 15% of its portfolio. In recent months, however, the manager has trimmed its internet and technology exposure and used the proceeds to add to Hong Kong property which he believes to be attractive from a risk/return perspective.
Amongst the detractors, Pershing Square Holdings, an activist US hedge fund run by Bill Ackman, fell 5.7% in the past 12 months in spite of positive performance in the last quarter of 5.7%. Pershing Square saw a number of stock specific challenges and whilst we keep a close eye on this fund and its portfolio, we recognise that it is not normally sensible to sell good investment managers following a period of poor performance.
As the market cycle matures we have been introducing a number of more defensive investments into the portfolio to manage the risk profile. Whilst equities remain the favoured asset class and have performed well during the year, there are risks associated with being fully invested in equities with valuations rising. In August 2017, we switched our position from Cantab CCP Core Macro Fund into GAM Systematic Core Macro Fund, which is run by the same manager. This latter fund is UCITS compliant with daily liquidity, and runs the same strategy as the Cantab fund by trading algorithmically and seeks to exploit persistent statistical relationships between markets. Whilst the performance figures across diversified funds have been mixed the combined holdings in this strategy have performed well this year producing a 15.4% return for the year.
The private asset holdings had generally positive performances over the year. Top contributers for the year were L Capital Asia II, Pangaea II and Navegar I. These three funds were able to capitalise on the growth in emerging markets and are currently held at 1.37x, 1.34x and 1.44x (multiples of their original investment costs), respectively. Among the detractors in private assets in 2017 was NYLIM Jacobs Ballas India III which experienced unfavourable currency conditions and faced legal challenges relating to Religare Finvest. The fund is held at a 0.81x multiple.
In terms of new commitments, a $3m investment was made in Windjammer Senior Equity Fund V at the end of 2017. Following the successes of funds III and IV, we believe the team, with a proven record of controlled buyout investing in resilient, non-cyclical and niche US mid-market businesses, is still able to invest in attractive opportunities. Other new commitments in 2017 were made to Apollo Overseas Partners IX ($2.3m), Greenspring Global Partners VIII ($750k), KKR Americas XII ($4.0m) and Silver Lake Partners V ($3.0m).
Outlook.........
Looking to 2018, we see no reason why the current economic picture should deteriorate in the near-term. Admittedly the scope for positive surprises is now more limited which in itself should cap returns from here and there will undoubtedly be some blackspots (the UK?) but on the whole there are no obvious warning signs of an impending downturn. Valuations are certainly not cheap but equally they are not in must sell territory. Again they are also varied across regions with the US looking relatively fully valued but Europe, Japan and Emerging Markets being somewhat cheaper. We also reiterate the point that whilst high valuations make markets more vulnerable to disappointments, they are not sufficient in themselves to cause a downturn.
From a policy perspective, we expect monetary policy to continue tightening but not so aggressively that it kills off the recovery (yet!). Overall monetary policy is still incredibly accommodative and policymakers appear to be erring on the side of not tightening too soon, helped by an inflation backdrop that is still subdued.
In terms of what could derail this scenario, clearly the Trump/Kim Jong-un axis remains a wildcard, as do developments in the Middle East. Unfortunately, positioning for geopolitical problems is challenging for fund managers given their rather binary nature. They typically don't escalate into real action but if they do they can be catastrophic.
A more aggressive tightening in monetary policy may also kill off the recovery. As highlighted above, policymakers are currently not under pressure to raise interest rates due to the muted inflationary backdrop. They may, however, be behind the curve. With unemployment low and falling in many countries the seeds for future inflation may already be in place. Having been too pessimistic on inflation for a number of years it would not be surprising if policymakers ended up being too optimistic. Looking back through history, inflation has a nasty habit of being a persistent and enduring feature of both developed and developing economies.
Perversely, there is also a risk that stock markets surge up from here. Stock market cycles rarely end in a whimper. Rather, the animal spirits of investors typically take hold, exuberance comes to the fore and valuations become very expensive. We do not think we have seen this yet. Yes, there are some pockets of exuberance - most notably in the bitcoin frenzy - but the scars of the previous bear markets have tempered excesses at this stage. Our approach is to progressively sell down equity exposure as valuations become unjustifiable and increase exposure to diversified assets that display lower correlation to the wider markets.
Investment Portfolio at 31 December 2017
Market
value % of
US$000 NAV Primary Focus
-------------------------------- ------- ----- ----------------------
Findlay Park American US equities - long
Fund 21,542 7.8 only
Adelphi European Select Europe equities -
Equity Fund 13,265 4.8 long only
Egerton Long - Short Fund Europe/US equities
Limited 12,189 4.4 - hedge
Asia ex-Japan equities
NTAsian Discovery Fund 10,890 4.0 - long only
Goodhart Partners: Hanjo Japan equities -
Fund 10,398 3.8 long only
BlackRock European Hedge Europe equities -
Fund 9,966 3.6 hedge
Lansdowne Developed Markets Europe/US equities
Fund 8,533 3.1 - hedge
Schroder ISF Asian Total Asia ex-Japan equities
Return Fund 7,284 2.7 - long only
Indus Japan Long Only Japan equities -
Fund 7,178 2.6 long only
Private Assets -
Helios Investors II, LP 7,141 2.6 Africa
Top 10 Holdings 108,386 39.4
-------------------------------- ------- ----- ----------------------
Private Assets -
Pangaea II, LP 6,806 2.5 GEM
Private Assets -
L Capital Asia 2, LP 6,740 2.5 Asia (Consumer)
Prince Street Opportunities Emerging Markets
Fund 6,458 2.4 equities - long only
Select Equity Offshore, US equities - long
Ltd 6,373 2.3 only
Technology - long
GAM Star Fund PLC - Technology 6,249 2.3 only
Private Assets -
Hony Capital Fund V, LP 6,212 2.3 China
US equities - long
Vulcan Value Equity Fund 6,017 2.2 only
Greenspring Global Partners Private Assets -
IV, LP 5,897 2.1 US Venture Capital
Global Event Partners Global equities -
Ltd 5,311 1.9 long/short
Private Assets -
Navegar I, LP 5,110 1.9 Philippines
Top 20 Holdings 169,559 61.8
-------------------------------- ------- ----- ----------------------
Hudson Bay International Market Neutral -
Fund Ltd 5,035 1.8 multi-strategy
Gramercy Distressed Opportunity Private Assets -
Fund II, LP 4,819 1.8 distressed debt
NG Capital Partners II, Private Assets -
LP 4,476 1.6 Latin America
Private Assets -
China Harvest II, LP 4,310 1.6 China
Private Assets -
AMED Fund, SICAR 4,237 1.5 Africa
KKR Special Situations Private Assets -
Fund, LP 4,145 1.5 distressed debt
Private Assets -
L Capital Asia, LP 3,732 1.4 Asia (Consumer)
Silver Lake Partners IV, Private Assets -
LP 3,410 1.2 Global Technology
BlackRock Frontiers Investment Frontier Markets
Trust PLC 3,345 1.2 - long only
MCP Private Capital Fund Private Assets -
II, LP 3,144 1.1 European Credit
Top 30 Holdings 210,212 76.5
-------------------------------- ------- ----- ----------------------
37 Remaining Holdings 57,438 21.0
-------------------------------- ------- ----- ----------------------
Cash 7,009 2.5
-------------------------------- ------- ----- ----------------------
TOTAL 274,659 100.0
-------------------------------- ------- ----- ----------------------
Hanseatic Asset Management LBG
March 2018
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
Year to Year to
31 December 31 December
2017 2016
Notes US$'000 US$'000
-------------------------------------------- ----- ----------- -----------
Revenue 3 496,340 457,161
Raw materials and consumables used (37,679) (37,741)
Employee benefits expense 6 (166,395) (144,274)
Depreciation & amortisation expense 5 (57,481) (52,585)
Other operating expenses (122,310) (126,470)
(Loss)/profit on disposal of property,
plant and equipment (2,930) 745
Operating profit 109,545 96,836
Share of results of joint venture 17 3,366 8,073
Investment income 7 19,004 15,065
Other gains and losses 8 32,775 (4,134)
Finance costs 9 (21,976) (599)
Foreign exchange gains on monetary
items 2,750 2,286
-------------------------------------------- ----- ----------- -----------
Profit before tax 5 145,464 117,527
Income tax expense 10 (36,056) (36,836)
-------------------------------------------- ----- ----------- -----------
Profit for the year 5 109,408 80,691
-------------------------------------------- ----- ----------- -----------
Other comprehensive income:
Items that will never be reclassified
subsequently to profit and loss
Employee benefits (374) 1,130
Items that are or may be reclassified
subsequently to profit and loss
Effective portion of changes in fair
value of derivatives 557 1,513
-------------------------------------------- ----- ----------- -----------
Exchange differences arising on translation
of foreign operations (6,485) 32,679
-------------------------------------------- ----- ----------- -----------
Other comprehensive (expense)/income
for the year (6,302) 35,322
-------------------------------------------- ----- ----------- -----------
Total comprehensive income for the
year 103,106 116,013
-------------------------------------------- ----- ----------- -----------
Profit for the period attributable
to:
Equity holders of parent 78,315 45,060
-------------------------------------------- ----- ----------- -----------
Non-controlling interests 31,093 35,631
-------------------------------------------- ----- ----------- -----------
109,408 80,691
-------------------------------------------- ----- ----------- -----------
Total comprehensive income for the
period attributable to:
Equity holders of parent 74,667 65,576
Non-controlling interests 28,439 50,437
-------------------------------------------- ----- ----------- -----------
103,106 116,013
-------------------------------------------- ----- ----------- -----------
Earnings per share
Basic and diluted 12 221.5c 127.4c
-------------------------------------------- ----- ----------- -----------
*
Consolidated Balance Sheet
as at 31 December 2017
As at As at
31 December 31 December
2017 2016
Notes US$'000 US$'000
-------------------------------------- ----- ----------- -----------
Non-current assets
Goodwill 13 30,319 30,607
Other intangible assets 14 30,592 30,444
Property, plant and equipment 15 634,881 646,926
Deferred tax assets 23 28,639 29,055
Trade and other receivables 21 58,104 55,070
Investment in joint venture 17 26,644 22,230
Other non-current assets 26 9,535 13,408
-------------------------------------- ----- ----------- -----------
818,714 827,740
-------------------------------------- ----- ----------- -----------
Current assets
Inventories 19 13,773 15,427
Trading investments 18 305,070 276,181
Trade and other receivables 21 98,570 81,265
Cash and cash equivalents 83,827 77,314
-------------------------------------- ----- ----------- -----------
501,240 450,187
-------------------------------------- ----- ----------- -----------
Total assets 1,319,954 1,277,927
-------------------------------------- ----- ----------- -----------
Current liabilities
Trade and other payables 25 (64,465) (68,257)
Derivatives 36 (1,108) (712)
Current tax liabilities (3,201) (3,299)
Obligations under finance leases 24 (846) (1,211)
Bank overdrafts and loans 22 (54,288) (49,780)
-------------------------------------- ----- ----------- -----------
(123,908) (123,259)
-------------------------------------- ----- ----------- -----------
Net current assets 377,332 326,928
-------------------------------------- ----- ----------- -----------
Non-current liabilities
Bank loans 22 (300,436) (325,750)
Derivatives 36 (395) (1,182)
Employee benefits (1,083) (648)
Deferred tax liabilities 23 (51,531) (48,974)
Provisions 26 (18,232) (20,037)
Obligations under finance leases 24 (309) (1,085)
-------------------------------------- ----- ----------- -----------
(371,896) (397,676)
-------------------------------------- ----- ----------- -----------
Total liabilities (495,894) (520,935)
-------------------------------------- ----- ----------- -----------
Net assets 824,060 756,992
-------------------------------------- ----- ----------- -----------
Capital and reserves
Share capital 27 11,390 11,390
Retained earnings 578,126 521,878
Capital reserves 31,760 31,760
Translation and hedging reserve (33,115) (29,685)
-------------------------------------- ----- ----------- -----------
Equity attributable to equity holders
of the parent 588,161 535,343
Non-controlling interests 235,899 221,649
-------------------------------------- ----- ----------- -----------
Total equity 824,060 756,992
-------------------------------------- ----- ----------- -----------
The accounts on pageswere approved by the Board on 16 March 2018. 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 2017
Attributable
Hedging to equity Non-
and
Share Retained Capital Translation holders controlling Total
of
capital earnings reserves reserve the interests equity
parent
For the year ended 31 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
December 2016
------------------------------- ------- -------- -------- ----------- ------------ ----------- --------
Balance at 1 January
2016 11,390 501,426 31,760 (49,542) 495,034 185,448 680,482
------------------------------- ------- -------- -------- ----------- ------------ ----------- --------
Currency translation
adjustment - - - 18,953 18,953 13,726 32,679
Employee benefits (note
37) - 659 - - 659 471 1,130
Effective portion of
changes in fair value
of derivatives - - - 904 904 609 1,513
Profit for the year - 45,060 - - 45,060 35,631 80,691
------------------------------- ------- -------- -------- ----------- ------------ ----------- --------
Total income and expense
for the period - 45,719 - 19,857 65,576 50,437 116,013
Dividends - (22,279) - - (22,279) (15,235) (37,514)
Acquisition of non-controlling
interest - (2,988) - - (2,988) (2,411) (5,399)
Share based payment
expense - - - - - 3,410 3,410
------------------------------- ------- -------- -------- ----------- ------------ ----------- --------
Balance at 31 December
2016 11,390 521,878 31,760 (29,685) 535,343 221,649 756,992
------------------------------- ------- -------- -------- ----------- ------------ ----------- --------
For the year ended 31
December 2017
------------------------------- ------- -------- -------- ----------- ------------ ----------- --------
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
------------------------------- ------- -------- -------- ----------- ------------ ----------- --------
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 2017
Year to Year to
31 December 31 December
2017 2016
Notes US$'000 US$'000
-------------------------------------- ----- ----------- -----------
Net cash inflow from operating
activities 29 102,968 93,812
Investing activities
Acquisition of non-controlling
interest 38 - (1,855)
Interest received 7,008 7,460
Dividends received from trading
investments 9,289 4,811
Proceeds on disposal of trading
investments 81,161 63,664
Purchase of trading investments (77,275) (67,101)
Proceeds on disposal of property,
plant and equipment 1,431 3,174
Purchase of property, plant
and equipment (30,746) (96,209)
Purchase of intangible assets (4,196) (5,277)
-------------------------------------- ----- ----------- -----------
Net cash used in investing activities (13,328) (91,333)
-------------------------------------- ----- ----------- -----------
Financing activities
Dividends paid 11 (22,279) (22,279)
Dividends paid to non-controlling
interests in subsidiary (16,836) (15,235)
Repayments of borrowings (54,690) (40,965)
Repayments of obligations under
finance leases (847) (1,086)
New bank loans raised 12,611 46,604
Derivative paid (529) (1,016)
Net cash inflow arising from
sale of non-controlling interest 28 746 -
-------------------------------------- ----- ----------- -----------
Net cash used in financing activities (81,824) (33,977)
-------------------------------------- ----- ----------- -----------
Net increase/(decrease) in cash and cash equivalents 7,816 (31,498) -------------------------------------- ----- ----------- ----------- Cash and cash equivalents at beginning of year 77,314 97,561 -------------------------------------- ----- ----------- ----------- Effect of foreign exchange rate changes (1,303) 11,251 -------------------------------------- ----- ----------- ----------- Cash and cash equivalents at end of year 83,827 77,314 -------------------------------------- ----- ----------- -----------
Notes to the Accounts
for the year ended 31 December 2017
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 2016 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 values. The principal accounting policies adopted are set out below.
The financial information set out in this report does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 31 December 2016. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report in respect of the accounts for 2017 and 2016.
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$83.8 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 36 to the financial statements include details of its financial instruments and hedging activities and its exposure to credit risk and liquidity risk. Details of the Group's borrowings are set out in note 22. Based on the Group's forecasts and sensitivities run, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.
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 associates and jointly controlled (joint ventures) ventures.
Associates are those entities in which the Group, directly or indirectly, has significant influence but not control or joint control, over the financial and operating policies. A jointly controlled entity is in a contractual agreement whereby the Group has joint control, where the Group is entitled to the net assets of the contractual agreement, and not entitled to specific assets and liabilities arising from the agreement.
Investments in associates and jointly controlled entities are accounted for using the equity method. Such investments are initially recognised at cost, which includes expenses for the transaction. After initial recognition, the financial statements include the Group's share in the profit or loss for the year and other comprehensive income of the investee until the date that significant influence or joint control ceases.
Investments in 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.
Current tax is based on assessable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on temporary differences (i.e. differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit). Deferred tax is accounted for using the balance sheet liability method and is provided on all temporary differences with certain limited exceptions as follows. Deferred tax is not provided:
-- in respect of tax payable on undistributed earnings of subsidiaries, associates and joint ventures where the Group is able to control the remittance of profits and it is probable that there will be no remittance of past profits earned in the foreseeable future;
-- on the initial recognition of an asset or liability in a transaction that does not affect accounting profit or taxable profit and is not a business combination; nor is deferred tax provided on subsequent changes in the carrying value of such assets and liabilities, for example where they are depreciated; or
-- on the initial recognition of any non-tax deductible goodwill.
Deferred tax assets are recognised only to the extent that it is probable that they will be recovered through sufficient future taxable profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also taken directly to equity.
A company will normally have a legally enforceable right to set off a deferred tax asset against a deferred tax liability when they relate to income taxes levied by the same taxation authority and the taxation authority permits the company to make or receive a single net payment. In the consolidated financial statements, a deferred tax asset of one entity in the Group cannot be offset against a deferred tax liability of another entity in the Group, as there is no legally enforceable right to offset tax assets and liabilities between Group companies.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is charged so as to write off the cost or valuation of assets, other than land and assets under construction, over their estimated useful lives, using the straight-line method as follows:
Freehold Buildings: 25 to 60 years
Leasehold Improvements: Shorter of the rental period or
useful life considering residual
values
Floating Craft: 25 to 35 years
Vehicles: 5 years
Plant and Equipment: 5 to 20 years
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets in the course of construction are carried at cost, less any recognised impairment loss. Costs include professional fees 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.
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
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rate, growth rates and expected changes to selling prices and costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the cash generating unit. Growth rates are based on management's forecasts and historical trends. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.
Business combinations
Business combinations are accounted using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated considering the sum of the acquisition-date fair values of assets, liabilities and the equity interests transferred to the Group when the control of the acquisition is transferred. Acquisition-related costs are recognised in the income statement as incurred. Any goodwill that arises is tested annually for impairment. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments is recognised in the income statement.
Sale of non-controlling interest
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interest's share of changes in equity since the date of the combination.
Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. There is no indefinite life intangible asset.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the income statement when the asset is derecognised.
Impairment of tangible and other intangible assets
Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows.
Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating unit ("CGU") are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials, spare parts and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
-- Trade Receivables: Trade receivables, loans and other amounts receivable are stated at the initial fair value of the amounts due, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is recognised in the income statement.
-- Investments: (Financial assets at fair value through profit and loss) Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at the fair value, plus directly attributable transaction costs. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in the income statement for the period. The fair value of financial instruments traded in active markets are based on their quoted price (bid price for long only positions) without any deduction for transaction costs. Unquoted investments held for trading purposes are stated at fair value through profit and loss as determined by using various valuation techniques, except where fair value cannot be reliably measured, when the investment is held at cost less any provision for impairment. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the income statement for the period. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The financial assets held by the company are categorised as financial instruments designated as at FVPL upon initial recognition on the basis that they are part of a group of financial assets that are managed and have their performance evaluated on a fair value basis, in accordance with risk management and investment strategies of the Company.
-- Cash and Cash Equivalents: Cash and cash equivalents comprise cash on hand and other short-term highly liquid investments with an original maturity of less than 3 months that are convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
-- Bank Borrowings: Interest-bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the statement of comprehensive income using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Derivatives
The Group periodically uses derivative financial instruments to reduce exposure to foreign exchange and interest rate movements. Derivatives are measured at each balance sheet date at fair value. Gains and losses arising from changes in fair value for exchange and interest derivatives are included in the income statement for the period within investment revenue or finance costs. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value, with gains or losses reported in the statement of comprehensive income.
Hedge Accounting (Cash flow hedge)
The Group seeks to apply hedge accounting (cash flow hedge) in order to manage volatility in the income statement. When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in the income statement.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the balance sheet date and discounted where the effect is material. In the normal course of business in Brazil, the Group is exposed to local legal cases. Provisions for legal cases are made when the Group's management, together with their legal advisors, consider the probable outcome is a financial settlement against the Group. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation based upon legal advice received. For labour claims, the provision is based on prior experience and management's best knowledge of the relevant facts and circumstances. For tax cases, the provision is based on management's best knowledge of the relevant facts and circumstances and legal advice received.
Construction contracts
Shipyard construction contracts in progress represents the gross amount expected to be collected from customers for contract work performed to date. Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. 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
Construction contracts in progress is presented as part of trade and other receivables in the balance sheet for all contracts in which costs incurred plus recognised profits exceed progress billings and recognised losses. If progress billings and recognised losses exceed costs incurred plus recognised profits, then the difference is presented as deferred income/revenue in the statement of financial position. Customer advances are presented as deferred income/revenue in the balance sheet.
Revenue
Revenue is measured at fair value of the consideration received or receivable for goods and services provided in the normal course of business net of trade discounts and other sales related taxes.
Maritime revenue
Revenue related to services is recognised when the work in proportion to the stage of completion of the transaction contracted has been performed in accordance with contracted terms. Revenue from construction contracts is recognised by reference to the stage of completion of the contract, Revenue from providing containerised and associated services is recognised on the date in which the services have been performed. Revenue from providing towage services is recognised on the date on which the services have been performed. Revenue from providing agency and logistics services is recognised when the services have been agreed and the transaction has occurred.
Investment income
Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.
Dividend income from investments is recognised when the shareholders rights to receive payment have been established.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease, or if lower the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the statement of comprehensive income. Rentals payable under finance leases are charged to income on a straight-line basis over the term of the relevant lease.
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.
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.
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$30.3 million (2016: US$30.6 million). Details are disclosed in Note 13. There are no impairment losses recognised for the years presented.
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.
Valuation of unquoted investments
The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The 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.
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 9 - Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory.
The Group plans to adopt the new standard on the required effective date and will not restate comparative information.
During 2017, the Group has performed a detailed impact assessment of all three aspects of IFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018 when the Group will adopt IFRS 9.
Overall, the Group expects no significant impact on its statement of financial position and equity.
Classification and measurement
The Group does not expect a significant impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value.
Loans as well as trade receivables are held to collect contractual cash flows and are expected to 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 and the comparative between classification applied to IAS 39 and IFRS 9 are detailed in the table below:
Asset category Asset
category
Financial Assets FS Group IAS 39 IFRS 9
Cash and bank Cash and cash Loans and Amortised
equivalents receivables Cost
Fixed income Cash and cash FVPL FVPL
investments equivalents
Exchange funds Cash and cash FVPL FVPL
equivalents
Time deposits Short-term investments Loans and Amortised
receivables Cost
Time deposits Cash and cash Loans and Amortised
equivalents receivables Cost
Receivable for Operational Loans and Amortised
services rendered trade receivables receivables Cost Related parties Other trade Loans and Amortised loans receivables receivables Cost
Impairment
IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on all debt securities, loans and trade receivables.
The Group assessed changes introduced by IFRS 9 with respect to the loss allowance and concluded that potential impacts will not be material.
Hedge accounting
The Group has chosen to defer applying the IFRS 9 general hedging model until the standard resulting from the IASB's project on accounting for dynamic risk management is completed.
The Group will continue to apply IAS 39's hedge accounting requirements in their entirety to all of their hedging relationships.
IFRS 15 - Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is 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.
The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group plans to adopt the new standard on the required effective date using the full retrospective method.
The Group assessed the principles and changes introduced by the new standard and concluded that its adoption will not bring significant impacts on the timing for the revenue recognition from contracts with customers, as well on the measurement.
The existing impacts are related to requirements of the presentation and disclosure in the financial statements. Further considerations about these impacts are detailed below:
Disaggregation of revenue
The Group will disaggregate revenue recognised from contracts with customers into categories that depict the nature, amount, timing and uncertainty of revenue and cash flows. In addition, the Group will provide information about the relationship between the disclosure of disaggregated revenue and revenue information that is disclosed for each reportable segment.
Considering the currently available information, the Group summarises a proposal of disaggregated revenue as below:
Currently Proposed disclosure Segment information
disclosure (IFRS 15)
Sales of services Container Handling Port Terminals
Sales of services Warehousing Port Terminals
Sales of services O&G Support Base Port Terminals
Sales of services Harbour Manoeuvres Towage and agency
services
Sales of services Special Operations Towage and agency
services
Sales of services Ship Agency Towage and agency
services
Sales of services Logistics Logistics
Sales of services Other services Several segments
Construction Ship construction Shipyards
contracts contracts
Performance obligations
The Group will disclose information about its performance obligations in contracts with customers, including a description of the following items: (i) when the entity typically satisfies its performance obligations, (ii) the significant payment terms, (iii) the nature of the goods or services that the entity has promised to transfer, (iv) obligations for returns, refunds and other similar obligations and (e) types of warranties and related obligations.
IFRS 16 - Leases
IFRS 16 introduces a single on-balance lease sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases.
IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The assessment is being conducted in several areas of the Group in order to identify the existing contracts, as well as the environment of internal controls and systems impacted by the adoption of the new standard. The Group expects a potential impact in the consolidated financial statement, but Group has not yet quantified the impact of adopting IFRS 16 on its assets and liabilities.
The quantitative effect of the adoption of IFRS 16 will depend specifically on the Group's decision related to the method of transition, the use of practical expedients approach and exemptions for recognition, and any additional leases that Company will hold.
The Group expects to disclose its transition approach and quantitative information prior to adoption, planned for 1 January 2019.
Other amendments
The following new or amended standards are not expected to have a significant impact on the Group's consolidated financial statements:
-- Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2);
-- Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28);
-- Insurance Contracts (IFRS 17); -- Transfers of Investment Property (Amendments to IAS 40); -- Foreign Currency Transactions and Advance Consideration (IFRIC 22); -- Uncertainty over Income Tax Treatments (IFRIC 23); -- Amendments to IFRS 9; -- Amendments to IAS 19; 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
2017 2016
US$'000 US$'000
------------------------------------ ----------- -----------
Sales of services 475,106 430,753
Revenue from construction contracts
(note 20) 21,234 26,408
------------------------------------ ----------- -----------
496,340 457,161
Investment income (note 7) 19,004 15,065
------------------------------------ ----------- -----------
515,344 472,226
------------------------------------ ----------- -----------
All revenue is derived from continuing operations.
4 Business and geographical segments
Business segments
Ocean Wilsons has two reportable segments: maritime services and investments. The maritime services segment provides towage, port terminals, ship agency, offshore, logistics and shipyard services in Brazil. The investment segment holds a portfolio of international investments. Segment information relating to these businesses is presented below.
For the year ended 31 December 2017
Maritime
Services Investment Unallocated Consolidated
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2017 2017 2017 2017
US$'000 US$'000 US$'000 US$'000
------------------------------------------ ----------- ----------- ----------- ------------
Revenue 496,340 - - 496,340
Result
Segment result 114,875 (2,949) (2,381) 109,545
Share of results of joint ventures 3,366 - - 3,366
Investment revenue 9,687 9,294 23 19,004
Other gains and losses - 32,775 - 32,775
Finance costs (21,976) - - (21,976)
Foreign exchange losses on monetary items 2,876 (63) (63) 2,750
------------------------------------------ ----------- ----------- ----------- ------------
Profit/(loss) before tax 108,828 39,057 (2,421) 145,464
Tax (36,056) - - (36,056)
------------------------------------------ ----------- ----------- ----------- ------------
Profit/(loss) after tax 72,772 39,057 (2,421) 109,408
------------------------------------------ ----------- ----------- ----------- ------------
Other information
Capital additions (55,345) - - (55,345)
Depreciation and amortisation (57,480) - (1) (57,481)
Balance Sheet
Assets
Segment assets 1,042,782 274,659 2,513 1,319,954
------------------------------------------ ----------- ----------- ----------- ------------
Liabilities
Segment liabilities (495,134) (388) (372) (495,894) ------------------------------------------ ----------- ----------- ----------- ------------
For the year ended 31 December 2016
Maritime
Services Investment Unallocated Consolidated
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016 2016 2016 2016
US$'000 US$'000 US$'000 US$'000
------------------------------------------ ----------- ----------- ----------- ------------
Revenue 457,161 - - 457,161
Result
Segment result 101,536 (2,559) (2,141) 96,836
Share of results of joint ventures 8,073 - - 8,073
Investment revenue 10,236 4,824 5 15,065
Other gains and losses - (4,134) - (4,134)
Finance costs (599) - - (599)
Foreign exchange losses on monetary items 2,623 35 (372) 2,286
------------------------------------------ ----------- ----------- ----------- ------------
Profit before tax 121,869 (1,834) (2,508) (117,527)
Tax (36,836) - - (36,836)
------------------------------------------ ----------- ----------- ----------- ------------
Profit after tax 85,033 (1,834) (2,508) 80,691
------------------------------------------ ----------- ----------- ----------- ------------
Other information
Capital additions (102,418) - - (102,418)
Depreciation and amortisation (52,584) - (1) (52,585)
Balance Sheet
Assets
Segment assets 1,036,829 238,898 2,200 1,277,927
------------------------------------------ ----------- ----------- ----------- ------------
Liabilities
Segment liabilities (520,341) (244) (350) (520,935)
------------------------------------------ ----------- ----------- ----------- ------------
Finance costs and associated liabilities have been allocated to reporting segments where interest costs arise from loans used to finance the construction of fixed assets in that segment.
Geographical Segments
The Group's operations are located in Bermuda, Brazil, Panama and Uruguay.
All of the Group's sales are derived in Brazil.
The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located.
Carrying amount of Additions to property, plant and
segment assets equipment and intangible assets
Year ended Year ended
31 December 31 December 31 December 31 December
2017 2016 2017 2016
US$'000 US$'000 US$'000 US$'000
-------- ----------- ----------- ---------------- ----------------
Brazil 990,689 985,329 55,345 102,418
Bermuda 329,265 292,598 - -
-------- ----------- ----------- ---------------- ----------------
1,319,954 1,277,927 55,345 102,418
-------- ----------- ----------- ---------------- ----------------
5 Profit for the year
Profit for the year has been arrived at after charging:
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------------------------------ ----------- -----------
Depreciation of property, plant and equipment 53,851 47,337
Amortisation of intangible assets 3,630 5,248
Operating lease rentals 19,231 17,178
Auditor's remuneration for audit services (see below) 653 460
Non-executive directors emoluments 536 491
2016 auditors remuneration was paid to KPMG LLP and 2017 remuneration paid to Ernst & Young LLP.
6 Employee benefits expense
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
---------------------------------- ----------- -----------
Aggregate remuneration comprised:
Wages and salaries 133,524 117,597
Share based payments 2,386 3,420
Social security costs 29,405 22,253
Other pension costs 1,080 1,004
---------------------------------- ----------- -----------
166,395 144,274
---------------------------------- ----------- -----------
7 Investment income
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------------------- ----------- -----------
Interest on bank deposits 5,916 7,919
Income from underlying investment vehicles 9,289 4,811
Other interest 3,799 2,335
------------------------------------------- ----------- -----------
19,004 15,065
------------------------------------------- ----------- -----------
8 Other gains and losses
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------------------------------------------ ----------- -----------
Unrealised gains/(losses) on trading investments held at year end 25,886 (6,030)
Profit on disposal of trading investments 6,889 1,896
------------------------------------------------------------------ ----------- -----------
32,775 (4,134)
------------------------------------------------------------------ ----------- -----------
Other gains and losses form part of the movement in trading investments as outlined in note 18.
9 Finance costs
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
---------------------------------------------------- ----------- -----------
Interest on bank overdrafts and loans 13,274 12,277
Exchange loss/(gain) on foreign currency borrowings 774 (12,806)
Interest on obligations under finance leases 200 414
Other interest 7,728 714
---------------------------------------------------- ----------- -----------
21,976 599
---------------------------------------------------- ----------- -----------
In 2017 other interest includes US$7.4 million of fines and interest relating to taxes.
Borrowing costs incurred on qualifying assets of US$0.4 million (2016: US$0.8 million) were capitalised in the year at an average interest rate of 3.38% (2016: 3.12%).
10 Taxation
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
---------------------------------------------- ----------- -----------
Current
Brazilian taxation
Corporation tax 27,794 26,900
Social contribution 9,978 10,924
---------------------------------------------- ----------- -----------
Total current tax 37,772 37,824
---------------------------------------------- ----------- -----------
Deferred tax
Charge for the year in respect of deferred
tax liabilities 19,933 20,661
Credit for the year in respect of deferred
tax assets (21,649) (21,649)
---------------------------------------------- ----------- ----------- Total deferred tax (1,716) (988) ---------------------------------------------- ----------- ----------- Total taxation charge 36,056 36,836 ---------------------------------------------- ----------- -----------
Brazilian corporation tax is calculated at 25% (2016: 25%) of the assessable profit for the year. Brazilian social contribution tax is calculated at 9% (2016: 9%) of the assessable profit for the year.
At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the company has received an undertaking from the Bermuda Government exempting it from all such taxes until 31 March 2035.
The charge for the year can be reconciled to the profit per the statement of comprehensive income as follows:
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
---------------------------------------------- ----------- -----------
Profit before tax 145,464 117,527
Tax at the aggregate Brazilian tax
rate of 34% (2016: 34%) 49,458 39,959
Utilisation of net operating losses (11,367) (2,363)
Net operating losses in the period 7,932 7,442
Amortisation of goodwill (1,818) (1,672)
Exchange variance on loans (454) 14,397
Tax effect of share of results of joint
ventures (1,144) (2,745)
Tax effect of foreign exchange gain
or losses on monetary items (454) (2,325)
Retranslation of non-current asset
valuation (1,372) (22,376)
Share option scheme 793 1,159
Non-deductible expenses 1,340 638
Termination of tax litigation 3,290 (138)
Other 2,209 3,190
Effect of different tax rates of subsidiaries
operating in other jurisdictions (12,357) 1,670
---------------------------------------------- ----------- -----------
Tax expense for the year 36,056 36,836
---------------------------------------------- ----------- -----------
Effective rate for the year 25% 31%
---------------------------------------------- ----------- -----------
The Group earns its profits primarily in Brazil. Therefore, the tax rate used for tax on profit on ordinary activities is the standard rate in Brazil of 34%, consisting of corporation tax, (25%) and social contribution (9%).
11 Dividends
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
----------------------------------------------------------------------------------------- ----------- -----------
Amounts recognised as distributions to equity holders in the period:
Final dividend paid for the year ended 31 December 2016 of 63c (2015: 63c) per share 22,279 22,279
----------------------------------------------------------------------------------------- ----------- -----------
Proposed final dividend for the year ended 31 December 2017 of 70c (2016: 63c) per share 24,754 22,279
----------------------------------------------------------------------------------------- ----------- -----------
12 Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
-------------------------------------------------------------------------------------------- ----------- -----------
Earnings:
Earnings for the purposes of basic earnings per share being net profit attributable to
equity
holders of the parent 78,315 45,060
Number of shares:
Weighted average number of ordinary shares for the purposes of basic and diluted earnings
per share 35,363,040 35,363,040
-------------------------------------------------------------------------------------------- ----------- -----------
13 Goodwill
31 December 31 December
2017 2016
US$'000 US$'000
---------------------------------------- ----------- -----------
Cost and carrying amount attributed to:
Tecon Rio Grande 15,587 15,821
Brasco 12,252 12,306
Tecon Salvador 2,480 2,480
---------------------------------------- -----------
Total 30,319 30,607
---------------------------------------- ----------- -----------
The goodwill associated with each cash-generating unit (Brasco, Tecon Salvador and Tecon Rio Grande) is attributed to the Maritime segment.
As part of the annual impairment test, the carrying value of goodwill has been assessed with reference to its value in use reflecting the projected discounted cash flows of each cash-generating unit to which goodwill has been allocated. The cash-flows are based on the remaining life of the concession. Future cash flows are derived from the most recent financial budget and the remaining period of the concession.
The key assumptions used in determining value in use relate to growth rate, discount rate, inflation and interest rate. Further projections include sales and operating margins, which are based on past experience, taking into account the effect of known or likely changes in market or operating conditions.
Each cash-generating unit is assessed for impairment annually.. Having completed the annual impairment test, the level of head room of the business unit is significant and no reasonable change in any of the forecast assumptions would give rise to any impairment.
The estimated average growth rate used does not exceed the historical average for Tecon Rio Grande and Tecon Salvador. Growth rate of 6% has been estimated for Brasco, and a discount rate of 7.3% for all business units has been used. These growth rates reflect the products, industries and country in which the businesses operate. These medium to long-term growth rates have been reviewed by management during the annual impairment test for 2017 and are considered to be appropriate for the period.
14 Other intangible fixed assets
US$'000
------------------------ -------
Cost
At 1 January 2016 53,949
Additions 5,277
Write off (292)
Exchange differences 5,988
------------------------
At 1 January 2017 64,922
Additions 4,196
Write off (84)
Exchange differences (644)
------------------------ -------
At 31 December 2017 68,390
------------------------ -------
Amortisation
At 1 January 2016 27,675
Charge for the year 5,248
Write off (291)
Exchange differences 1,846
------------------------ -------
At 1 January 2017 34,478
Charge for the year 3,630
Write off (84)
Exchange differences (226)
------------------------ -------
At 31 December 2017 37,798
------------------------ -------
Carrying amount
31 December 2017 30,592
------------------------ -------
31 December 2016 30,444
------------------------ -------
Intangible fixed assets arose from (i) the acquisition of concession rights for the container and heavy cargo terminal in Salvador in 2000, and the Ponta Norte expansion at Tecon Salvador in 2010 (ii) the implementation of integrated management software (SAP) and (iii) the Briclog acquisition in 2013 (Brasco). The additions to intangible assets in the period are mainly attributable to computer software.
The breakdown of intangibles by type is as follows:
31 December 31 December
2017 2016
US$'000 US$'000
----------------------------- ----------- -----------
Lease right - Brasco 13,133 13,853
Lease right - Tecon Salvador 4,825 5,049
Computer software - SAP 1,042 1,970
Other computer software 11,484 9,371
Other intangibles 108 201
----------------------------- ----------- -----------
Total 30,592 30,444
----------------------------- ----------- -----------
The computer software is amortised over 5 years following completion of the installation. In November 2016 Tecon Salvador signed the second amendment to the terminal lease agreement, which extends the concession period until March 2050. Therefore, the amortisation expense for the lease right will be measured considering the validity of the lease contract (2050). Details are disclosed in Note 15.
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 2016 255,694 392,157 177,198 29,326 854,375
Additions 7,259 29,874 36,602 23,406 97,141
Transfers (187) 53,071 (152) (52,732) -
Exchange differences 38,581 - 30,148 - 68,729
Disposals (209) (17,227) (9,811) - (27,247)
----------------------------------------- --------- -------------- --------------- ------------ ---------
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 31 December 2017 301,306 462,105 259,518 2,760 1,025,689
-----------------------------------------
Accumulated depreciation and impairment
At 1 January 2016 63,596 139,831 93,758 - 297,185
Charge for the year 10,824 19,809 16,704 - 47,337
Elimination on construction contracts - 1,068 - - 1,068
Exchange differences 11,356 - 14,817 - 26,173
Disposals (169) (16,808) (8,714) - (25,691)
----------------------------------------- --------- -------------- --------------- ------------ ---------
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 31 December 2017 91,919 167,158 131,731 - 390,808
-----------------------------------------
Carrying Amount
----------------------------------------- --------- -------------- --------------- ------------ ---------
At 31 December 2017 209,387 294,947 127,787 2,760 634,881
----------------------------------------- ========= ============== =============== ============ =========
At 31 December 2016 215,531 313,975 117,420 - 646,926
----------------------------------------- --------- -------------- --------------- ------------ ---------
The carrying amount of the Group's vehicles, plant and equipment includes an amount of US$2.6 million (2016: US$3.2 million) in respect of assets held under finance leases.
Land and buildings with a net book value of US$0.2 million (2016: US$0.2 million) and tugs with a value of US$0.2 million (2016: US$0.3 million) have been given in guarantee of various legal processes.
The Group has pledged assets having a carrying amount of approximately US$279.7 million (2016: US$290.5 million) to secure loans granted to the Group.
The amount of borrowing costs capitalised in 2017 is US$0.4 million (2016: US$0.8 million) at an average interest rate of 3.38% (2016: 3.12%).
In November 2016 Tecon Salvador S.A signed the second amendment to the terminal lease agreement, which extends the lease term until March 2050. Based on management's expectation and expert technical advice the estimated useful lives of the quay, terminal area, administrative building, warehouse, electrical substation, office and storage building are longer than the lease contract period. Therefore these assets will be depreciated over the remaining period of the lease contract until 2050. The useful life of the ship to shore cranes is 20 years, according to management's expectation and builder's technical specifications.
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 58.19%** Consolidation
Holding company
WILSON SONS DE ADMINISTRAÇÃO E COMÉRCIO LTDA Brazil 58.19% Consolidation
Holding company
SAVEIROS CAMUYRANO SERVIÇOS MARÍTIMOS LTDA Brazil 58.19% Consolidation
Tug operators
WILSON, SONS S.A., COMÉRCIO, INDÚSTRIA, E AGÉNCIA DE
NAVEGAÇÃO LTDA Brazil 58.19% Consolidation
Shipbuilders
WILSON, SONS ESTALEIRO LTDA Brazil 58.19% Consolidation
Shipbuilders
WILSON SONS AGENCIA MARÍTIMA LTDA Brazil 58.19% Consolidation
Ship Agents
WILSON, SONS NAVEGAÇÃO LTDA Brazil 58.19% Consolidation
Ship Agents
WILSON, SONS LOGÍSTICA LTDA Brazil 58.19% Consolidation
Logistics
WILSON, SONS TERMINAIS DE CARGAS LTDA Brazil 58.19% Consolidation
Transport services
EADI SANTO ANDRÉ TERMINAL DE CARGA LTDA Brazil 58.19% Consolidation
Bonded warehousing
WS PARTICIPA ÕES S.A. Brazil 58.19% Consolidation
Holding company
WS PARTICIPACIONES S.A. Uruguay 58.19% Consolidation
Holding company
TECON RIO GRANDE S.A. Brazil 58.19% Consolidation
Port operator
WILSON, SONS APOIO MARITIMO LTDA Brazil 58.19% Consolidation
Tug operator
BRASCO LOGÍSTICA OFFSHORE LTDA Brazil 58.19% Consolidation
Port operator
TECON SALVADOR S.A. Brazil 58.19% 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 58.19% 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 2017 2016
-------------------------------------------------------- -------------- ------------ -----------
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
2017 2016
US$'000 US$'000
----------- ----------- -----------
Income 18,126 14,190
Expenses (8,792) (7,315)
----------- ----------- -----------
Net income 9,334 7,175
----------- ----------- -----------
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------ ----------- -----------
Property, plant and equipment 2,841 2,798
Intangible assets 35 47
Inventories 353 340
Trade and other receivables 2,054 2,615
Cash and cash equivalents 904 6146,187
------------------------------ ----------- -----------
Total assets 6,187 6,414
------------------------------ ----------- -----------
Trade and other payables (6,153) (6,362)
Deferrred tax liabilities (34) (52)
------------------------------ ----------- -----------
Total liabilities (6,187) (6,414)
------------------------------ ----------- -----------
Joint ventures
The aggregated Group's interests in joint ventures are equity accounted.
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
-------------------------------------------------- ----------- -----------
Revenue 146,453 141,728
Raw materials and consumables used (9,152) (7,522)
Employee benefits expense (47,001) (41,382)
Depreciation and amortisation expenses (39,606) (34,912)
Other operating expenses (18,881) (17,063)
Loss on disposals of property, plant & equipment (1) (2,202)
-------------------------------------------------- ----------- -----------
Results from operating activities 31,812 38,647
-------------------------------------------------- ----------- -----------
Finance income 2,930 2,661
Finance costs (20,408) (21,218)
Foreign exchange (losses)/gains on monetary items (1,129) 9,591
-------------------------------------------------- ----------- -----------
Profit before tax 13,205 29,681
-------------------------------------------------- ----------- -----------
Income tax expense (6,473) (13,535)
Profit for the year 6,732 16,146
-------------------------------------------------- ----------- -----------
Participation 50% 50%
Equity result 3,366 8,073
-------------------------------------------------- ----------- -----------
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------ ----------- -----------
Property, plant and equipment 647,659 674,476
Long-term investment 2,142 2,066
Other assets 4,740 3,752
Trade and other receivables 26,302 42,494
Derivatives 381 261
Cash and cash equivalents 30,575 10,859
------------------------------ ----------- -----------
Total assets 711,799 733,908
------------------------------ ----------- -----------
Bank overdrafts and loans 500,987 533,771
Other non-current liabilities 35,604 30,295
Trade and other payables 82,654 82,114
Equity 92,554 87,728
------------------------------ ----------- -----------
Total liabilities and equity 711,799 733,908
------------------------------ ----------- -----------
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 the 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 Adminisração 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$2.1 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
The joint venture Magallanes Navegação Brasileira S.A. has to comply with specific financial covenants. At 31 December 2017, the company was in compliance with all clauses in the loans contracts.
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". Atlantic Offshore S.A is in compliance with all loan covenants.
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$0.2 million (2016: US$0.02 million), whose probability of loss was estimated as probable.
In addition to the cases for which the joint ventures has made a provision, there are other tax, civil and labour disputes amounting to US$17.5 million (2016: US$13.9 million), whose probability of loss was estimated by the legal counsel as possible.
The breakdown of aggregated possible losses is described as follows:
31 December 31 December
2017 2016
US$'000 US$'000
-------------- ----------- -----------
Tax cases 10,639 10,066
Labour claims 5,625 3,784
Civil cases 1,230 -
-------------- ----------- -----------
Total 17,494 13,850
-------------- ----------- -----------
The reconciliation of the investment in joint ventures recognised in the balance sheet, including the impact of profit recognised by joint ventures:
US$'000
At 1 January 2016 18,301
Share of result of joint ventures 8,073
Elimination on construction contracts (4,278)
Derivatives 134
--------------------------------------
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 31 December 2017 26,644
-------------------------------------- -------
18 Investments
2017 2016
US$'000 US$'000
-------------------------------------------------------------------------- -------- --------
Trading investments
At 1 January 276.181 276,878
Additions, at cost 77,275 67,101
Disposals, at market value (81,161) (63,664)
Increase/(decrease) in fair value of trading investments held at year end 25,886 (6,030)
Profit on disposal of trading investments 6,889 1,896
-------------------------------------------------------------------------- -------- --------
At 31 December 305,070 276,181
-------------------------------------------------------------------------- -------- --------
Ocean Wilsons (Investment) Limited Portfolio 273,434 238,781
Wilson Sons Limited 31,636 37,400
-------------------------------------------------------------------------- -------- --------
Trading investments held at 31 December 305,070 276,181
-------------------------------------------------------------------------- -------- --------
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.
Trading investments above represent investments in listed equity securities, funds and unquoted equities that present the Group with opportunity for return through dividend income and capital appreciation.
Included in trading investments are open ended funds whose shares may not be listed on a recognised stock exchange but are redeemable for cash at the current net asset value at the option of the Company. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available. Where quoted market prices are not available, fair values are determined by third parties using various valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
19 Inventories
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------ ----------- -----------
Operating materials 9,618 10,278
Raw materials and spare parts 4,155 5,149
------------------------------ ----------- -----------
Total 13,773 15,427
------------------------------ ----------- -----------
Inventories are expected to be recovered in less than one year and there were no obsolete items.
20 Construction contracts
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------------------- ----------- -----------
Contract costs incurred plus recognised
profits less recognised losses to date 3,178 3,925
Less progress billings (5,323) (8,505)
------------------------------------------- ----------- -----------
Amounts due to contract customers included
in trade and other payables (2,145) (4,580)
------------------------------------------- ----------- -----------
21 Trade and other receivables
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------------------- ----------- -----------
Trade and other receivables
Recoverable taxes and levies 28,067 24,250
Related party loans (note 35) 29,472 28,995
Other trade receivables 565 1,825
------------------------------------------- ----------- -----------
Total other non-current trade receivables 58,104 55,070
------------------------------------------- ----------- -----------
Amount receivable for the sale of services 58,945 55,434
Allowance for doubtful debts (958) (1,187)
------------------------------------------- ----------- -----------
Total current trade receivables 57,987 54,247
------------------------------------------- ----------- -----------
Income taxation recoverable 6,752 7,466
Other recoverable taxes and levies 18,260 12,321
Prepayments 7,323 4,031
Other receivables 8,248 3,200
------------------------------------------- ----------- -----------
Total other current trade receivables 40,583 27,018
------------------------------------------- ----------- -----------
Total 156,674 136,335
------------------------------------------- ----------- -----------
Non-current trade receivables relate to recoverable taxes with maturity dates in excess of one year, which comprise mainly PIS, COFINS, ISS and INSS, and intergroup loans. There are no indicators of impairment related to these receivables.
As a matter of routine, the Group reviews taxes and levies impacting its business to ensure that payments of such amounts are correctly made and that no amounts are paid unnecessarily. The Group has a plan to use its tax credits and if unable to recover by compensation, requesting reimbursement of these values from the Receita Federal do Brasil (Brazilian Inland Revenue Service).
Included in the Group's trade receivable balances are debtors with a carrying amount of US$12.7 million (2016: US$9.2 million) which are past due but not impaired at the reporting date for which the Group has not provided as there has not been a change in credit quality and the Group believes the amounts are still recoverable. The Group does not hold any collateral over these balances.
31 December 31 December
2017 2016
Ageing of past due but not impaired
trade receivables US$'000 US$'000
------------------------------------ ----------- -----------
From 0 - 30 days 10,450 6,177
From 31 - 90 days 1,368 2,178
From 91 - 180 days 929 844
More than 180 days - -
------------------------------------ ----------- -----------
Total 12,747 9,199
------------------------------------ ----------- -----------
The average credit period taken on services ranges from zero to 30 days. Generally, interest of one percent per month plus a two-percent penalty is charged on overdue balances. The Group has provided in full for all receivables over 180 days because historical experience is such that receivables that are past due 180 days are generally not recoverable. There are no expected material changes in the allowance for bad debts recognition due to the applicaton of IFRS 9 in January 2018. Details are disclosed in Note 2.3.
Included in the Group's allowance for doubtful debts are individually impaired trade receivables with a balance of US$1.0 million, which are aged greater than 180 days. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected settlement proceeds.
The Group does not hold any collateral over these balances.
31 December 31 December
2017 2016
Ageing of impaired trade receivables US$'000 US$'000
------------------------------------- ----------- -----------
From 0 - 30 days - -
From 31 - 90 days - -
From 91 - 180 days - -
More than 180 days (958) 1,187
------------------------------------- ----------- -----------
Total (958) 1,187
------------------------------------- ----------- -----------
2017 2016
Movement in the allowance for doubtful
debts US$'000 US$'000
--------------------------------------- ------- -------
Balance at 1 Janury 2017 1,187 846
Amounts written off as uncollectable (4,322) (3,128)
Increase in allowance recognised in
profit or loss 4,096 3,291
Exchange differences (3) 178
--------------------------------------- ------- -------
Balance at 31 December 2017 958 1,187
--------------------------------------- ------- -------
In determining recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. The directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
22 Bank loans and overdrafts
Annual 31 December 31 December
interest
rate 2017 2016
% US$'000 US$'000
----------------------------------- ------------- ----------- -----------
Secured borrowings
2.07% to
BNDES - FMM linked to US Dollar(1) 6% 156,831 168,385
7.50% to
BNDES - Real 9.19% 20,982 25,466
4.50% to
BNDES - FINAME Real 12.90% 1,834 1,133
8.40% to
BNDES - FMM Real(1) 10.21% 1,635 1,838
5.07% to
BNDES - linked to US Dollar 5.36% - 5,069
----------------------------------- ------------- ----------- -----------
Total BNDES 181,282 201,891
----------------------------------- ------------- ----------- -----------
Banco do Brasil - FMM linked
to US Dollar(1) 2.00% - 3.00% 90,750 85,576
IFC - US Dollar 7.00% 35,640 48,571
Santander - US Dollar 3.59% 31,173 14,005
China Construction Bank - US
Dollar 5.11% 12,708 19,047
Eximbank - US Dollar 3.36% 3,171 5,270
Finimp - US Dollar 4.81% - 1,170
Total others 173,442 173,639
----------------------------------- ------------- ----------- -----------
Total 354,724 375,530
----------------------------------- ------------- ----------- -----------
1. As an agent of Fundo da Marinha Mercante's (FMM), BNDES finances the construction of tugboats and shipyard facilities.
The breakdown of bank overdrafts and loans by maturity is as follows:
31 December 31 December
2017 2016
US$'000 US$'000
---------------------------------------- ----------- -----------
Within one year 54,288 49,780
In the second year 52,123 49,029
In the third to fifth years (inclusive) 93,745 105,953
After five years 154,568 170,768
---------------------------------------- ----------- -----------
Total 354,724 375,530
---------------------------------------- ----------- -----------
Amounts due for settlement within 12
months 54,288 49,780
---------------------------------------- ----------- -----------
Amounts due for settlement after 12
months 300,436 325,750
---------------------------------------- ----------- -----------
The analysis of borrowings by currency is as follows:
BRL
linked
to
BRL US Dollars US Dollars Total
US$'000 US$'000 US$'000 US$'000
----------------- ------- ---------- ---------- -------
31 December 2017
Bank loans 24,451 247,581 82,692 354,724
----------------- ------- ---------- ---------- -------
Total 24,451 247,581 82,692 354,724
----------------- ------- ---------- ---------- -------
31 December 2016
Bank loans 28,437 259,030 88,063 375,530
----------------- ------- ---------- ---------- -------
Total 28,437 259,030 88,063 375,530
----------------- ------- ---------- ---------- -------
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 loans that Tecon Salvador holds with the IFC are guaranteed by shares of the company, projects' cash flows, equipment and buildings.
The loan agreement that Tecon Rio Grande has with the Export-Import Bank of China for equipment acquisition is guaranteed by a standby letter of credit issued by Itaú BBA S.A which in turn has the pledge on the financed equipment.
The loan agreement between Tecon Rio Grande and Santander for equipment acquisition relies on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda.
Undrawn credit facilities
At 31 December 2017, the Group had available US$51.0 million of undrawn borrowing facilities. For each disbursement there is a set of conditions precedent that must be satisfied.
Covenants
Wilson, Sons de Administração e Comércio Ltda. ("WSAC") as corporate guarantor has to comply with annual loan covenants for both Wilson Sons Estaleiros and Brasco Logística Offshore in respect of loan agreements signed with BNDES.
Tecon Salvador S.A. has to comply with loan covenants including the maintenance of specific liquidity and capital structure ratios in respect of its loan agreement with the International Finance Corporation (IFC).
Tecon Rio Grande S.A. has to comply with loan covenants from Santander, including a minimum liquidity ratio and capital structure.
At 31 December 2017, the Company was in compliance with all clauses in the above mentioned loan contracts.
Fair value
Management estimates the fair value of the Group's borrowings as follows:
31 December 31 December
2017 2016
US$'000 US$'000
--------------------------- ----------- -----------
Bank loans
BNDES 181,282 201,891
Banco do Brasil 90,750 85,576
IFC 35,640 48,571
Santander 31,173 14,005
China Construction Bank 12,708 19,047
Eximbank China 3,171 5,270
Finimp - 1,170
--------------------------- ----------- -----------
Total 354,724 375,530
--------------------------- ----------- -----------
23 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period.
Exchange Retranslation
Accelerated variance of non-current
tax depreciation on loans Other differences asset valuation Total
US$'000 US$'000 US$'000 US$'000 US$'000
--------------------- ----------------- --------- ----------------- ---------------- --------
At 1 January 2016 (19,087) 41,047 22,935 (68,688) (20,503)
(Charge)/credit
to income (10,124) (14,305) (727) 22,376 988
Exchange differences (900) 1,437 (1,841) - (404)
--------------------- ----------------- --------- ----------------- ---------------- --------
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 31 December 2017 (38,108) 26,684 33,473 (44,941) (22,892) --------------------- ----------------- --------- ----------------- ---------------- --------
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
2017 2016
US$'000 US$'000
------------------------- ----------- -----------
Deferred tax liabilities (51,531) (48,974)
Deferred tax assets 28,639 29,055
------------------------- ----------- -----------
(22,892) (19,919)
------------------------- ----------- -----------
At the balance sheet date the Group had unused tax losses of US$47.6 million (2016: US$42.5 million) available for offset against future profits in the company in which they arose. No deferred tax asset has been recognised in respect of US$6.8 million (2016: US$12.4 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 programn 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.
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$15.1 million in disputed federal tax debts.
24 Obligations under finance leases
Minimum lease
payments
31 December 31 December
2017 2016
US$'000 US$'000
--------------------------------------------- ------------- -----------
Amounts payable under finance leases
Within one year 1,178 1,669
In the second to fifth years inclusive 434 1,721
After five years - -
--------------------------------------------- ------------- -------------
1,612 3,390
Less future finance charges (457) (1,094)
--------------------------------------------- ------------- -------------
Present value of lease obligations 1,155 2,296
--------------------------------------------- ------------- -------------
Less: Amounts due for settlement within
12 months (shown under current liabilities) (846) (1,211)
Amount due for settlement after 12 months 309 1,085
--------------------------------------------- ------------- -------------
Present value
of Minimum lease
payments
31 December 31 December
2017 2016
US$'000 US$'000
--------------------------------------------- ----------- -----------
Amounts payable under finance leases
Within one year 846 1,211
In the second to fifth years inclusive 309 1,085
After five years - -
--------------------------------------------- ----------- -----------
Present value of lease obligations 1,155 2,296
--------------------------------------------- ----------- -----------
Less: Amounts due for settlement within
12 months (shown under current liabilities) (846) 1,211
Amount due for settlement after 12 months 309 1,085
--------------------------------------------- ----------- -----------
It is the Group's policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 5 years. The average outstanding lease term at 31 December 2017 was 20 months.
For the year ended 31 December 2017, the average effective borrowing rate was 9.79% (2016: 16.43%). Interest rates are set at contract date. All leases are denominated in Brazilian Real and include a fixed repayment and a variable finance charge linked to the Brazilian interest rate. Interest rates range from 9.12% to 11.29%.
There is a non-significant difference between the fair value and the present value of the Group's lease obligations. The present value is calculated with its own interest rate over the future installments of each contract.
The Group's obligations under finance leases are secured by the lessors' rights over the leased assets.
25 Trade and other payables
31 December 31 December
2017 2016
US$'000 US$'000
--------------------------------------------------------- ----------- -----------
Trade creditors 42,290 44,664
Amounts due to construction contract customers (note 20) 2,145 4,580
Other taxes 11,992 12,583
Accruals and deferred income 7,250 6,327
Share based payment liability 158 103
--------------------------------------------------------- ----------- -----------
Total 64,465 68,257
--------------------------------------------------------- ----------- -----------
Trade creditors and accruals principally comprise amounts outstanding for trade purposes and ongoing costs.
The average credit period for trade purchases is 50 days (2016: 58 days). For most suppliers interest is charged on outstanding trade payable balances at various interest rates. The Group has financial risk management policies in place to ensure that payables are paid within the credit timeframe.
The directors consider that the carrying amount of trade payables approximates their fair value.
26 Provisions
US$'000
At 1 January 2016 13,922
Increase in provisions in the year 7,348
Utilisation of provisions (3,987)
Exchange difference 2,754
----------------------------------- -------
At 1 January 2017 20,037
Increase in provisions in the year 6,946
Utilisation of provisions (8,402)
Exchange difference (349)
----------------------------------- -------
At 31 December 2017 18,232
----------------------------------- -------
The increase in provisions in the year was principally related to labour claims (US$6.1 million) and tax claims (US$0.9 million). Utilisation of provisions in the year relate to labour claims (US$4.5 million) and tax claims (US$3.3 million).
Provisions comprise legal claims relating to civil cases, tax cases and legal claims by former employees.
Analysis of provisions by type:
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------ ----------- -----------
Labour claims 14,942 13,612
Tax cases 2,468 4,816
Civil and environmental cases 822 1,609
18,232 20,037
------------------------------ ----------- -----------
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 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$9.5 million (2016: US$13.4 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$137.6 million (2016: US$129.9 million) where the probability of loss was estimated by the legal counsels as possible.
The analysis of possible losses by type:
31 December 31 December
2017 2016
US$'000 US$'000
------------------------------ ----------- -----------
Tax cases 96,890 93,271
Labour claims 28,931 25,232
Civil and environmental cases 14,686 11,411
140,507 129,914
------------------------------ ----------- -----------
The main probable and possible claims against the Group are described below:
Tax cases - The Group litigates against governments in respect of 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.
The procedure for classification of legal liabilities as probable, possible or remote loss is undertaken by external lawyers. Upon receipt of the notification of a new judicial lawsuit, the external lawyer generally classifies it as a possible claim, recording the total amount involved. From 2014, the Group is using the estimated value at risk and not the total amount involved in each process. Exceptionally, if there is sufficient knowledge from the beginning that there is very high or very low risk of loss, the lawyer may classify the claim as probable loss or remote loss. During the course of the lawsuit and considering, for instance, its first judicial decision, legal precedents, arguments of the claimant, thesis under discussion, applicable laws, documentation for the defence and other variables, the lawyer may re-classify the claim as probable loss or remote loss. When classifying the claim as probable loss, the lawyer estimates the amount at risk for such claim.
Management are not able to give an indication when provisions are likely to be utilised as the majority of provisions involve litigation where the timing of resolution is highly uncertain.
As a consequence of the application to the PERT (Tax Amnesty Program), as disclosed at note 23, there was a reduction of possible claims of US$14.2 million and probable claims of US$0.2 million in the year.
27 Share capital
2017 2016
US$'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$1.61 to GBP1.
28 Exercise of stock options in subsidiary
During 2017 participants of the Wilson Sons Limited stock option scheme exercised 75,900 options. As a result the non-controlling interest in Wilson Sons Limited increased from 41.75% at 31 December 2016 to 41.81% at 31 December 2017.
US$'000
----------------------------------------------------- -------
The following amounts have been recognised in equity
Movement attributable to equity holders of parent 430
Movement attributable to non-controlling interest 316
----------------------------------------------------- -------
29 Notes to the cash flow statement
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
---------------------------------------------------------------------------- ----------- -----------
Reconciliation from profit before tax to net cash from operating activities
Profit before tax 145,464 117,527
Share of results of joint venture (3,366) (8,073)
Investment income (19,004) (15,065)
Other gains and losses (32,775) 4,134
Finance costs 21,976 599
Foreign exchange losses on monetary items (2,750) (2,286)
---------------------------------------------------------------------------- ----------- -----------
Operating profit 109,545 96,836
Adjustments for:
Depreciation of property, plant and equipment 53,851 47,337
Amortisation of intangible assets 3,630 5,248
Share based payment credit 2,386 3,420
Gain/(loss) on disposal of property, plant and equipment 2,930 (745)
(Decrease)/increase in provisions (7,064) 6,456
---------------------------------------------------------------------------- ----------- -----------
Operating cash flows before movements in working capital 165,278 158,552
Decrease in inventories 1,654 12,858
Increase in receivables (22,967) (17,853)
Decrease in payables (1,699) (7,187)
Decrease/(increase) in other non-current assets 3,873 (5,390)
---------------------------------------------------------------------------- ----------- -----------
Cash generated by operations 146,139 140,980
Income taxes paid (29,698) (34,412)
Interest paid (13,473) (12,756)
---------------------------------------------------------------------------- ----------- -----------
Net cash from operating activities 102,698 93,812
---------------------------------------------------------------------------- ----------- -----------
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.
Private investment funds
Wilson Sons Limited has investments in private investment funds that are consolidated in the financial statements as cash equivalents.
The Group has investments in an exclusive investment fund called Hydrus Fixed Income Private Credit Investment Fund managed by Itaú bank that is consolidated in this financial information. The fund portfolio is marked to fair value on a daily basis against current earnings. 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 is subjected to insignificant risk of changes in value. Additionally, US Dollar linked investments are made through Itaú Exchange FICFI to preserve the US dollar value of the investment.
Cash and cash equivalents held in Brazil amount to US$59.6 million (2016: US$52.7 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 (2016: US$0.2 million) were financed by new finance leases. Additions to plant and equipment during the year amounting to US$21.1 million (2016: US$0.0 million) were financed by bank loans paid direct to the supplier.
30 Contingent liabilities
In the normal course of business in Brazil, the Group continues to be exposed to numerous local legal claims. It is the Group's policy to contest such claims vigorously, many of which appear to have little merit, and to manage such claims through its legal advisers. The total estimated contingent claims at 31 December 2017 are US$140.5million (2016: US$129.9 million). These have not been provided for as the directors and the Group's legal advisors do not consider that there are any probable losses. Contingent liabilities relate to labour, civil and environmental and tax claims.
31 Share options
Stock option scheme
On 13 November 2013 the board of Wilson Sons Limited approved a Stock Option Plan which allowed for the grant of options to eligible participants to be selected by the board. The shareholders in special general meeting approved such plan on the 8 January 2014 including an increase in the authorized capital of the company through the creation of up to 4,410,927 new shares. The options provide participants with the right to acquire shares via Brazilian Depositary Receipts ("BDR") in Wilson Sons Limited at a predetermined fixed price not less than the three day average mid-price for the days preceding the date of option issuance. The Stock Option Plan is detailed below:
Original
Grant vesting Expiry Exercise Outstanding Total
Options Price Vested
series date date date (R$) Number Expired Exercised not Vested Subsisting
-------- ----------- ----------- ----------- -------- --------- ---------- --------- -------- ----------- ----------
07 ESO -
3 Year 10/1/2014 10/1/2017 10/1/2024 31.23 961,653 (178,695) (21,417) 761,541 - 761,541
07 ESO -
4 Year 10/1/2014 10/1/2018 10/1/2024 31.23 961,653 (178,695) (21,417) - 761,541 761,541
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) (75,900) 790,911 1,988,789 2,779,700
----------------------------------------------- -------- --------- ---------- --------- -------- ----------- ----------
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 R$30.05 R$33.50 R$32.15 R$38.00 R$38.01
(in Real)
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.
32 Operating lease arrangements
The lease payments under operating leases recognised in net income at 31 December 2017 was US$19.2 million (2016: US$17.2 million). At the balance sheet date, the minimum amount due in 2017 by the Group for future minimum lease payments under cancellable operating leases was US$19.4 million (2016: $17.0 million).
Tecon Rio Grande
The Tecon Rio Grande minimum period extends to 2022 and has an option to renew the concession for a maximum period of 25 years. Due to investments made by the Group in the container terminal, the port authority of Rio Grande has confirmed that the Group has the right to renew the concession period provided the State government remains the authority responsible for this area.
The Tecon Rio Grande guaranteed payments consist of two elements: a fixed rental and a fee per 1,000 containers moved based on minimum forecast volumes. The amount shown in the accounts is based on the minimum volume forecast. 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 obligated 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 of base date 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 construction is expected to commence as soon as the environmental licenses are granted after the Amendment signature and will be completed within twenty-four months after the commencement of the works (total gross investment of R$255 million (US$78 million) using values of base date December 2013). The limit for the second phase of construction is 2030 (total gross investment of R$29 million (US$9 million) using values of base date December 2013). And the third phase construction limit is by 2034 (total gross investment of R$114 million (US$35 million) using values of base date December 2013). Additionally, there are investments totalling R$317 million (US$97 million) related to the maintenance of the operating area and replacement of equipment that will be completed up to 2050.
Tecon Salvador guaranteed payments consist of three elements: a fixed rental, a fee per container handled based on minimum forecast volumes and a fee per tonne of non-containerized cargo handled based on minimum forecast volumes.
Brasco
Brasco lease commitments mainly relate to a 30-year lease right to operate a sheltered area at Guanabara Bay, Rio de Janeiro, Brazil with privileged location to attend Campos and Santos oil producing basins.
At the balance sheet date the Group had outstanding commitments for future minimum lease payments under operating leases, which fall due as follows:
2017 2016
US$'000 US$'000
-------------------------------------- ------- -------
Within one year 19,447 16,968
In the second to fifth year inclusive 61,667 54,136
After five years 201,939 198,725
-------------------------------------- ------- -------
283,053 269,829
-------------------------------------- ------- -------
33 Commitments
At 31 December 2016 the Group had entered into commitment agreements with respect to trading investments. These commitments relate to capital subscription agreements entered into by Ocean Wilsons (Investments) Limited. The expiry dates of the oustanding commitments in question maybe analysed as follows:
2017 2016
US$'000 US$'000
-------------------------------------- ------- -------
Within one year 4,250 1,044
In the second to fifth year inclusive 8,792 4,638
After five years 22,579 28,274
-------------------------------------- ------- -------
35,621 33,956
-------------------------------------- ------- -------
.
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 2017, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$14.1 million (2016: US$20.4 million). The amount mainly refers to investments in Tecon Salvador, Tecon Rio Grande and raw materials for shipyard construction.
34 Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all qualifying employees of its Brazilian business. The assets of the scheme are held separately from those of the Group in funds under the control of independent managers.
The total cost charged to the income statement of US$1.1 million (2016: US$1.0 million) represents contributions payable to the scheme by the Group at rates specified in the rules of the plan.
35 Related party transactions
Transactions between the company and its subsidiaries which are related parties have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and its associates, joint ventures and other investments are disclosed below:
Amounts paid/
Revenue from services Cost of services
31 December 31 December 31 December 31 December
2017 2016 2017 2016
US$'000 US$'000 US$'000 US$'000
--------------------------------- ----------- ----------- ----------- -----------
Joint ventures
1. Allink Transportes
Internacionais Limitada 1 9 (19) (108)
2. Consórcio de Rebocadores
Barra de Coqueiros - - - -
3. Consórcio de Rebocadores
Baía de São
Marcos 444 623 - (5)
4. Wilson Sons Ultratug
and subsidiaries 1,379 19,640 - -
5. Atlantic offshore S.A. - - - -
Others
6. Hanseatic Asset Management
LBG - - (2,597) (2,385)
7. Gouvêa Vieira
Advogados - - (73) (79)
8. CMMR Intermediacão
Comercial Limitada - - (157) (182)
9. Jofran Services - - (173) (169)
10. Hansa Capital GMBH - - (93) (85)
--------------------------------- ----------- ----------- ----------- -----------
Amounts owed Amounts owed
by related parties to related parties
31 December 31 December 31 December 31 December
2017 2016 2017 2016
US$'000 US$'000 US$'000 US$'000
--------------------------------- ----------- ----------- ----------- -----------
Joint ventures
1. Allink Transportes
Internacionais Limitada - 5 (2) -
2. Consórcio de Rebocadores
Barra de Coqueiros 77 145 - -
3. Consórcio de Rebocadores
Baía de São
Marcos 2,483 2,483 - -
4. Wilson Sons Ultratug 11,848 15,529 - -
5. Atlantic offshore S.A. 17,767 13,622 - -
Others
6. Hanseatic Asset Management
LBG - - (347) (202)
7. Gouvêa Vieira
Advogados - - - -
8. CMMR Intermediacão
Comercial Limitada - - - -
9. Jofran Services - - - -
10. Hansa Capital GMBH - - - -
--------------------------------- ----------- ----------- ----------- -----------
1. Mr A C Baião is a shareholder and Director of Allink Transportes Internacionais Limitada. Allink Transportes Internacionais Limitada is 50% owned by the Group and rents office space from the Group.
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 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
2017 2016
US$'000 US$'000
---------------------------------- ---------- ----------
Short-term employee benefits 11,674 10,897
Other long-term employee benefits 1,671 1,470
Share options issued 2,331 3,410
Share-based payment 55 10
---------------------------------- ---------- ----------
15,731 15,787
---------------------------------- ---------- ----------
36 Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 22, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings disclosed in the consolidated statement of changes in equity.
The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated by operating revenues.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Significant accounting policies
Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expense are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.
Categories of financial instruments
Year ended Year ended
2017 2016
US$'000 US$'000
---------------------------------------------- ---------- ----------
Financial assets
Designated as fair value through profit
or loss 273,434 238,781
Receivables (including cash and cash
equivalents) 212,457 233,594
Financial liabilities
Financial instruments classified as amortised
cost (408,352) (433,500)
Financial instruments classified as cash
flow hedge (Derivatives) (1,503) (1,894)
---------------------------------------------- ---------- ----------
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 trading investments. 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 net of allowances for doubtful receivables.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The credit risk on investments held for trading is limited because the counterparties with whom the Group transacts are regulated institutions or banks with high credit ratings. The Company's appointed Investment Manager, Hanseatic Asset Management LBG, evaluates the credit risk on trading investments prior to and during the investment period.
In addition the Company invests in limited partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The Board reviews all investments at its regular meetings from reports prepared by the Company's Investment Manager.
The Group has no significant concentration of credit risk. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
Market risk
The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates, 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
2017 2016 2017 2016
US$'000 US$'000 US$'000 US$'000
--------- ------- ------- ------- -------
Real 180,468 206,286 212,457 233,594
Sterling 18 17 10,934 1,430
Euro - - 21,177 17,576
--------- ------- ------- ------- -------
180,486 206,303 244,568 252,600
--------- ------- ------- ------- -------
Foreign currency sensitivity analysis
The Group is primarily exposed to unfavourable movements in the Real on its Brazilian liabilities held by US Dollar functional currency entities.
The sensitivity analysis presented in the following sections, which refer to the position on 31 December 2017, estimates the impacts of the Real devaluation against the US Dollar. Three exchange rate scenarios are contemplated: the likely scenario (Probable) and two possible scenarios of deterioration of 25% (Possible) and 50% (Remote) in the exchange rate. The Group uses the Brazilian Central Bank's "Focus" report to determine the probable scenario.
31 December 2017
Exchange rates
Operation Risk Amount Result Probable Possible Remote
US Dollars scenario scenario scenario
(25%) (50%)
------------------------ ---------- ---------- -------- -------- --------
3.34 4.17 5.01
------------------------ ---------- ---------- -------- -------- --------
US$'000 US$'000 US$'000
------------------ ----- ---------- ---------- -------- -------- --------
Exchange
Total assets BRL 265,863 Effects (2,545) (55,209) (98,306)
Exchange
Total liabilities BRL 180,468 Effects 1,729 37,477 61,309
------------------ ----- ---------- ---------- -------- -------- --------
Net Effect (816) (17,732) (36,997)
------------------------ ---------- ---------- -------- -------- --------
31 December 2016
Exchange rates
Operation Risk Amount Result Probable Possible Remote
US Dollars scenario scenario scenario
(25%) (50%)
------------------------ ---------- ---------- -------- -------- --------
3.50 4.37 5.25
------------------------ ---------- ---------- -------- -------- --------
US$7000 US$'000 US$'000
------------------ ----- ---------- ---------- -------- -------- --------
Exchange
Total assets BRL 256,549 Effects (17,658) (65,436) (97,288)
Exchange
Total liabilities BRL 202,286 Effects 14,198 52,616 78,288
------------------ ----- ---------- ---------- -------- -------- --------
Net Effect (3,460) (12,820) (19,060)
------------------------ ---------- ---------- -------- -------- --------
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 part in time deposits, with short-term maturities.
The Group's strategy for managing interest rate risk is to maintain a balanced portfolio of fixed and floating interest rates in order to balance both cost and volatility. The Group may use cash flow hedges to limit its exposure that may result from the variation of floating interest rates.
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 Group uses two important information sources to estimate the probable scenarios in determining interest rate scenarios, BM&F (Bolsa de Mercadorias e Futuros) and Bloomberg. The following analysis concerns a possible fluctuation of revenue or expenses linked to the transactions and scenarios shown, without considering their fair value. For floating rate liabilities and investments, the analysis is prepared assuming the amount of the liability outstanding or cash invested at balance sheet date was outstanding or invested for the whole year.
31 December 2017
Transaction Probable Possible Remote
scenario scenario scenario
25% 50%
-------------- -------- -------- --------
Loans - LIBOR 2.17% 2.72% 3.26%
Loans - Selic 6.90% 8.61% 10.34%
Loans - TJLP 7.00% 8.75% 10.50%
Investments
- LIBOR 2.17% 2.71% 3.25%
Investments
- CDI 6.89% 8.61% 10.34%
----------------- -------- -------- --------
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 (1,274) (582) 111
------------------ ------ ---------- ---------- --------- --------- ---------
Total investments 102,067 (1,274) (346) 582
-------------------------- ---------- ---------- --------- --------- ---------
Net Income (1,345) (761) (174)
------------------------- ---------- ---------- --------- --------- ---------
(1) LIBOR - Information source: Bloomberg, report from 16 January 2018.
(2) CDI - Information source: BM&F (Bolsa de Mercadorias e Futuros), report from 15 January 2018.
(3) Selic - Information source: BC (Banco Central do Brasil), report from 16 January 2018.
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.
31 December 2016
Transaction Probable Possible Remote
scenario scenario scenario
25% 50%
------------------------- ---------- ---------- -------- -------- --------
Loans - LIBOR 1.70% 2.13% 2.55%
Loans - CDI 11.14% 13.93% 16.71%
Loans - TJLP 7.50% 9.38% 11.25%
Investments
- LIBOR 1.88% 2.31% 2.73%
Investments
- CDI 11.14% 13.93% 16.71%
-------------------------- ---------- ---------- -------- -------- --------
Transaction Risk Amount Result Probable Possible Remote
US Dollars scenario scenario scenario
(25%) (50%)
------------------------- ---------- ---------- -------- -------- --------
US$'000 US$'000 US$'000
------------------ ------ ---------- ---------- -------- -------- --------
Loans - LIBOR LIBOR 88,041 Interest (217) (420) (623)
Loans - TJLP TJLP 27,441 Interest - (324) (643)
Loans - Fixed None 260,026 None - - -
------------------ ------ ---------- ---------- -------- -------- --------
Total loans 375,508 (217) (744) (1,266)
-------------------------- ---------- ---------- -------- -------- --------
Investments
- LIBOR LIBOR 51,500 Income - 195 390
Investments
- CDI CDI 51,112 Income (1,650) (232) 1,187
------------------ ------ ---------- ---------- -------- -------- --------
Total investments 102,612 (1,650) (37) 1,577
-------------------------- ---------- ---------- -------- -------- --------
Net Income (1,867) (781) 311
------------------------- ---------- ---------- -------- -------- --------
(1) Information source: Bloomberg, report 11 January 2017.
(2) Information source: BM&F (Bolsa de Mercadorias e Futuros), report from 10 January 2017.
The net effect was obtained by assuming a 12-month period starting 31 December 2016 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 2017 the notional amount was US$35.6 million. This swap converts floating interest rate based on the London Interbank Offered Rate (LIBOR) into fixed-rate interest and expires in March 2020. The derivatives were entered into with Santander Brasil as counterparty and its Standard & Poor's credit rating was AA at 31 December 2017.
Tecon Salvador is required to pay the counterparty interest at 4.250%, according to the schedule agreement and receives variable interest payments based on 6-month LIBOR. The net receipts or payments from the swap are recorded as financial expense.
Outflows Net effect
US$'000 US$'000
---------------------------------------- -------- ----------
Within one year (1,108) (1,108)
In the second year (337) (337)
In the third to fifth years (including) (58) (58)
After five years - -
Fair Value (1,503) (1,503)
---------------------------------------- -------- ----------
The swap fair value was estimated based on the yield curve at 31 December 2017 and represents its carrying value. On 31 December 2017 the interest rate swap liability was US$1.5 million and the balance in accumulated other comprehensive income on the consolidated balance sheet was US$1.9 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the period ended 31 December 2017 was an after tax loss of US$0.5 million.
Amount Fair Value
31 December 2017 US$'000's Maturity US$'000's
-------------------- --------- -------- ----------
Financial Liability
Interest Rates Swap 35,640 Mar/2020 (1,503)
-------------------- --------- -------- ----------
Total (1,503)
-------------------- --------- -------- ----------
Derivative Sensitivity Analysis
This analysis is based on 6-month LIBOR interest rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular foreign exchange rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of reduction of 25% (Possible) and 50% (Remote) in the interest rate.
31 December
2017
Probable Possible Remote
scenario scenario
scenario (25%) (50%)
US$'000 US$'000 US$'000
-------- -------- --------
(1,500) (1,748) (2,004)
-------- -------- --------
Cash Flow Hedge
The Group applies hedge accounting for transactions in order to manage the volatility in earnings. The swap is designated and qualifies as a cash flow hedge. As such, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheets at fair value. The effective portion of changes in fair value of the derivative is recognised in other comprehensive income and presented as an asset revaluation reserve in equity. Any ineffective portion of changes in fair value of the derivative is recognised immediately in the profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting operations, expires or is sold, terminated or exercised, or the designation is revoked, the model accounting hedges (hedge accounting) is discontinued prospectively when there is no more expectation for the forecasted transaction and 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%.
Under this methodology, the swap was deemed to be highly effective for the period ended 31 December 2017. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2017.
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 10 per cent higher or lower at the end of the financial year. The amounts below indicate an increase in profit or loss and total equity where market prices increase by 10 per cent, assuming all other variables are constant. A fall in market prices of 10 per cent would give rise to an equal fall in profit or loss and total equity.
2017 2016
US$'000 US$'000
--------------- ------- -------
Profit or loss 27,343 23,878
Total equity 27,343 23,878
--------------- ------- -------
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.
Liquidity risk management
Liquidity risk is the risk that the Group will encounter difficulty in fulfilling obligations associated with its financial liabilities that are settled with cash payments or other financial asset. The Group's approach in managing liquidity is to ensure that the Group always has sufficient liquidity to fulfil the obligations that expire, under normal and stress conditions, without causing unacceptable losses or risk damage to the reputation of the Group.
Ultimate responsibility for liquidity risk management rests with the Board of directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group uses costing based on activities to price the products and services which assist in monitoring cash flow requirements and optimizing the return on cash investments.
Normally the Group ensures it has sufficient cash reserves to meet the expected operational expenses, including financial obligations. This practice excludes the potential impact of extreme circumstances that cannot be reasonably foreseen.
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 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
------------------------ --------- --------- --------- -------- -------
31 December 2016
Non-interest bearing - 71,556 - - 71,556
Finance lease liability 16.43% 1,211 1,085 - 2,296
Variable interest
rate instruments 3.73% 27,762 75,307 12,435 115,504
Fixed interest rate
instruments 2.85% 22,018 79,675 158,333 260,026
------------------------ --------- --------- --------- -------- -------
122,547 156,067 170,768 449,382
------------------------ --------- --------- --------- -------- -------
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 2017. 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 hierachy:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 Inputs for the asset that are not based on observable market data. Fair value measurements are those derived from valuation techniques that include inputs for the assets or liability that are not based on observable data (unobservable inputs).
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
If one of more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The following table provides an analysis of financial instruments recognised in the statement of financial position by the level of hierachy:
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
-------------------------- ------- ------- ------- -------
Level 1 Level 2 Level 3 Total
31 December 2016 US$'000 US$'000 US$'000 US$'000
-------------------------- ------- ------- ------- -------
Financial assets at FVTPL
Non-derivative financial
assets for trading 10,028 128,229 100,524 238,781
-------------------------- ------- ------- ------- -------
Valuation Process
Investments whose values are based on quoted market prices in active markets and are classified within Level I include active listed equities. The 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. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Investments classified within Level 3 have significant unobservable inputs as they trade infrequently. Level 3 instruments include holdings in Limited Partnerships and other funds. As observable prices are not available for these securities, the Company values these based on an estimate of their fair value, which is determined as follows:
When considering the values of managed funds, including private equity funds, that are not quoted in an active market and that may be subject to restrictions or redemptions such as lock up periods,redemption gates and side pockets, the company'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 NAV of these funds is used as an input into measuring their fair value. Depending on the nature and level of adjustments needed to the NAV and the level of trading in the fund, the Company classifies these funds as either level 2 or level 3.
Our intention is to hold level 3 investments to maturity however 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. The analysis is based on the assumptions that the proceeds realised will be decreased by 10%, 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.
2017 2016
US$'000 US$'000
--------------- ------- -------
Profit or loss 11,208 10,052
Total equity 11,208 10,052
--------------- ------- -------
Level 3 valuations are reviewed on a quarterly basis by the Investment Manager who reports to the Board quarterly. The Investment Manager considers the appropriateness of the valuation model inputs used and the basis of the techniques used to ensure they are in line with industry standards. In selecting the most appropriate valuation model the Investment Manager considers historical alignment to actual market transactions.
None of the 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 markets prices had been 10% higher or lower at the end of the financial year.
2017 2016
Reconciliation of Level 3 fair value
measurements of financial assets: US$'000 US$'000
---------------------------------------- ------- ----------------
Balance at 1 January 100,524 94,170
Total profits/(losses) in the Statement
of Comprehensive Income 4,281 (2,264)
Purchases and drawdowns of financial
commitments 15,358 10,372
Sales and repayments of capital (8,075) (1,754)
---------------------------------------- ------- --------------
Balance at 31 December 112,088 100,524
----------------------------------------
37 Post-employment benefits
The Group operates a private medical insurance scheme for its employees which require the eligible employees to pay fixed monthly contributions. In accordance with Brazilian law, eligible employees with greater than ten years service acquire the right to remain in the plan following retirement or termination of employment, generating a post-employment commitment for the Group. Ex-employees remaining in the plan will be liable for paying the full cost of their continued scheme membership. The future actuarial liability for the Group relates to the potential increase in plan costs resulting from additional claims as a result of the expanded membership of the scheme.
31 December 31 December
2017 2016
US$'000 US$'000
Present value of actuarial liabilities 1,100 600
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
2017 2016
Annual interest rate 10.46% 11.35%
Estimated inflation rate in the long-term 4.75% 5.00%
Ageing Factor 2.50% a.a 2.50% p.a.
Medical cost trend rate 2.50% a.a 2.50% p.a.
Biometric and Demographic Assumptions
31 December 31 December
2017 2016
Employee turnover 22.7% 22.7%
Mortality table AT-2000 AT-2000
Mortality table for disabled IAPB-1957 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 90% of the participants 90% of the participants
Age difference for active participants Men 4 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
38 Acquisition of non-controlling interest
On 2 February 2016, the Wilson Sons Group, through its subsidiaries, completed the acquisition of the 7.5% non-controlling interest in Tecon Salvador S.A for a consideration of US$4.7 million from Intermaritima Terminais Ltda. The consideration included US$1.9 million in cash and the settlement of US$2.9 million in debt. The transaction also included an additional US$0.8 million payment that is conditional upon future contractual events which were subsequently fulfilled. Following completion of the transaction the Wilson Sons Group holds 100% of the shares of Tecon Salvador S.A. and the Ocean Wilsons Holdings Group has a 58.25% effective interest.
The following amounts have been recognised in equity in 2016
US$'000
Movement attributable to equity holders of parent 2,988 Movement attributable to non-controlling interest 2,411
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
FR GGUBPWUPRGBR
(END) Dow Jones Newswires
March 19, 2018 03:00 ET (07:00 GMT)
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