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
  +0.00p +0.00% 1,035.00p 1,030.00p 1,040.00p 1,035.00p 1,035.00p 1,035.00p 0 07:40:38
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Industrial Transportation 360.9 47.2 29.5 34.2 366.00

Ocean Wilsons Holdings Ld Preliminary Results

15/03/2019 7:01am

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Ocean Wilsons Holdings Ld

15 March 2019

Ocean Wilsons Holdings Limited

Preliminary results for the year ended 31 December 2018

Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the "Company") today announces its preliminary results for the year ended 31 December 2018.

Highlights

-- Revenue in Brazilian Real terms grew 6%. In US dollars reported sales were 7% lower at US$460.2 million (2017: US$496.3 million).

-- Operating profit fell 9.1% to US$99.5 million (2017: US$109.5 million) mainly due to lower revenue and softer operating margins at our towage business.

-- Operating margins* were a healthy 21.6%, albeit slightly lower than the prior year (2017: 22.1%) due to poorer towage margins.

-- Net cash inflow from operating activities for the year of US$113.7 million (2017: US$103.0 million).

-- The Investment portfolio (including cash under management) decreased US$15.8 million to US$258.9 million (2017: US$274.7 million).

   --       Proposed dividend unchanged at 70 cents per share (2017: 70 cents per share). 

-- EPS fell to 37.6 cents per share (2017: 221.5 cents per share) due to a fall in value of the investment portfolio, lower operating profit, foreign exchange losses and a reduction in the share of results from joint ventures.

*Operating margins are defined as operating profit divided by revenue.

About Ocean Wilsons Holdings Limited

Ocean Wilsons Holdings Limited ("Ocean Wilsons" or the "Company") is a Bermuda based investment holding company which, through its subsidiaries, operates a maritime services company in Brazil and holds a portfolio of international investments. The Company is listed on both the Bermuda Stock Exchange and the London Stock Exchange. It has two principal subsidiaries: Wilson Sons Limited and Ocean Wilsons (Investments) Limited (together with the Company and their subsidiaries, the "Group").

Wilson Sons Limited ("Wilson Sons") is a Bermuda company listed on the São Paulo Stock Exchange (BOVESPA) and Luxembourg Stock Exchange. Ocean Wilsons holds a 58.17% interest in Wilson Sons which is fully consolidated in the Group accounts with a 41.83% non-controlling interest. Wilson Sons is one of the largest providers of maritime services in Brazil, with over four thousand employees and activities including harbour and ocean towage, container terminal operation, offshore oil and gas support services, small vessel construction, logistics and ship agency. Ocean Wilsons (Investments) Limited is a wholly owned Bermuda investment company and holds a portfolio of international investments.

Objective

Ocean Wilsons is run with a long-term outlook. This applies to both the investment portfolio and our investment in Wilson Sons. The long-term view taken by the Board enables Wilson Sons to grow and develop its businesses without pressure to produce short-term results at the expense of long-term value creation. The same view allows our Investment Manager to make investment decisions that create long-term capital growth.

Chairman's Statement

Introduction

In a highly competitive environment the Group's overall performance in 2018 has been robust. Revenue in Brazilian Real "BRL" terms grew 6% in the year however revenue growth was affected by lower towage revenue and the higher average US Dollar "USD" USD/BRL exchange rate. The key operational indicators at our container terminals increased against 2017 comparative while our towage and offshore businesses both fell due to strong market competition and the weak offshore oil and gas market.

 
Operating volumes                             2018     2017  % Change 
-----------------------------------------  -------  -------  -------- 
Container Terminals 
(container movements in TEU '000s) *       1,072.7  1,068.1      0.4% 
Towage 
(number of harbour manoeuvres performed)    56,114   59,796    (6.2%) 
Offshore Vessels (days in operation)         5,126    6,035   (15.1%) 
-----------------------------------------  -------  -------  -------- 
 

*TEUs stands for "twenty-foot equivalent units".

In 2016, the Group signed an amendment to the Tecon Salvador container terminal concession agreement extending the term of the concession until March 2050. Under the terms of the extension, the Group is required to complete a minimum level of expansion and maintenance capital expenditure. Following receipt of the necessary environmental licenses we started work on the expansion of Tecon Salvador in the fourth quarter of 2018 with civil works to extend the principal quay from 377 metres to 800 metres, which will allow the simultaneous berthing of two super-post-Panamax ships. In December, the Group signed an agreement with the Brazilian Economic and Social Development Bank to provide BRL263.1 million in financing for the civil works during the first stage of the terminal's expansion. The expansion of Tecon Salvador reflects the Group's ongoing commitment to improve operational efficiency and will promote the development of the port of Salvador, creating jobs and reinforcing economic growth in the state of Bahia. Container volumes handled at Tecon Salvador in 2018 grew 5% over the prior year to 322,700 TEUs (2017: 307,100 TEUs) driven principally by higher cabotage and transhipment movements. Container volumes handled at our other container terminal, Tecon Rio Grande, at 750,000 TEUs, were marginally lower than the prior year, (2017: 760,900 TEUs) mainly due to lower transhipment and cabotage volumes. Albeit from a low base, our oil and gas support base Brasco posted strong revenue growth against the backdrop of a continuing constrained oil sector.

The number of harbour towage manoeuvres performed in the year declined 6% to 56,114 (2017: 59,796), due to increased competition in some ports and a 1% decrease in the total number of vessel calls in Brazil, driven by the market trend towards larger vessels. Strong competition in harbour towage continues to affect both volumes and prices due to market over-capacity as tugboats, previously supplying services to the oil and gas industry entered the harbour towage market. The Wilson Sons Group retains its position as the leading supplier of towage services in Brazil with a fleet of seventy-six tugboats operating in the principal ports and terminals of the country. We continue to invest in our tugboat fleet with the largest and most powerful tugboat operating in Brazil, WS Sirius (90 tons bollard pull) built at the Wilson Sons shipyards in Guarujá, São Paulo state, delivered in 2018. With the addition of Sirius the three most powerful tugboats and the only ones classified as escort tugs in Brazil are operated by Wilson Sons. (WS Sirius incorporates design changes from the WS Titan built by the Group in 2015, which permits a greater bollard pull while using the same engines and fuel consumption). WS Sirius is currently operating in the port of Açu in the state of Rio De Janeiro. Demand for towage special operations improved with ocean towage, shipyard support and a salvage assistance performed in the year. In addition to the WS Sirius, our shipyard successfully delivered two tugboats to third parties and continued to perform maintenance for both third parties and on our own tugboat and offshore fleets.

Weak demand from the offshore oil and gas industry resulted in operating days at our offshore joint venture, Wilson Sons Ultratug Offshore decreasing 15% in the year as eight long-term vessel contracts ended during 2018. Our joint venture continues to explore alternative revenue streams for our off-hire vessels. During the year the platform supply vessel ("PSV") Fragata commenced work with Fendercare to provide logistics support for ship-to-ship crude oil transfers in Brazilian territorial waters. Following modification at our shipyard, the PSVs Mandrião and Pardela began new three-year contracts with Petrobras for shallow-water diving support services and the PSV Gaivota entered a new two-year contract with Petrobras for oil spill recovery services. Wilson Sons Ultratug Offshore was also awarded two new three-year contracts for the PSVs Fulmar and Ostreiro to provide shallow-water diving support services forecast to commence in March 2019. At the year end, the joint venture operated a fleet of 23 offshore support vessels ("OSVs") of which 15 were under long-term contract, with the remainder available in the Brazilian spot market or laid up until market conditions improve.

As at 31 December 2018, the investment portfolio including cash under management was valued at US$258.9 million, representing US$7.32 per share (2017: US$274.7 million and US$7.73 per share).

Group Results

Operating profit at US$99.5 million was US$10.0 million lower than prior year (2017: US$109.5 million) largely due to a decrease in revenue and softer operating margins at our towage business. Group operating margins for the year remained healthy at 21.6% although lower than prior year (2017: 22.1%) principally due to the poorer margins at our towage business. In BRL terms revenue for the year grew 6% however due to the impact of lower towage revenue and a higher average USD/BRL exchange rate, group revenue in USD terms fell 7% to US$460.2 million (2017: US$496.3 million). Profit before tax for the year decreased US$85.3 million to US$60.2 million compared to US$145.5 million in 2017. The decrease in profit before tax resulted from a US$50.0 million negative movement in returns on the investment portfolio at fair value through the profit and loss, a US$8.5 million foreign exchange loss on monetary items (2017: US$2.8 million gain), the US$10.0 million decrease in operating profit and a US$7.5 million negative movement in share of results from joint ventures. Earnings per share for the year were 37.6 cents compared with 221.5 cents in 2017.

Investment portfolio performance

The investment portfolio as at 31 December 2018 was US$258.9 million (2017: US$274.7 million) a fall of US$15.8 million after paying dividends of US$4.75 million to Ocean Wilsons Holdings Limited during the year, management and other fees of US$2.9 million. The fall in the portfolio returns in the period were mainly due to the poor performance of global equity markets, which fell 9.4% in the year (MSCI ACQI +FM NR Index) and in particular emerging markets, towards which the portfolio has an over-weight bias, decreasing by 14.6% (MSCI Emerging Markets NR Index). We are not proposing any changes to our investment strategy which we consider sound in the context of what was a difficult year given our long-term investment horizon. Emerging markets account for 33% of the investment portfolio net asset value at year end. The investment portfolio remains weighted towards global equities, which at year end accounted for 52% of the portfolio valuation (US$134.8 million), with private equity investments accounting for 36% (US$78.1 million) and the balance invested in diversifying hedge funds, cash and bonds. The principal sector exposures in the portfolio are information technology (18%), consumer discretionary (14%) and financials (13%).

During the year, our private equity investments returned US$13.7 million in capital and profit distributions with a net cash inflow to the portfolio of US$3.6 million after deducting new capital drawdowns of US$10.1 million. In the three years to 31 December 2018 private equity returned US$29.6 million with the majority of contributions coming from emerging markets and technology sectors.

At 31 December 2018, the top ten investments account for 38% of the investment portfolio valuation (US$98.9 million).

Investment Manager

Ocean Wilson (Investments) Limited ("OWIL"), a wholly owned subsidiary registered in Bermuda, holds the Group's investment portfolio. OWIL has appointed Hanseatic Asset Management LBG, a Guernsey registered and regulated investment group, as its Investment Manager.

Investment management fee

The Investment Manager receives an investment management fee of 1% of the valuation of funds under management and an annual performance fee of 10% of the net investment return which exceeds the benchmark, provided that the high-water mark has been exceeded. The portfolio performance is measured against a benchmark calculated by reference to US CPI plus 3% per annum over rolling three-year periods. Payment of performance fees are subject to a high-water mark and are capped at a maximum of 2% of the portfolio NAV. The Board considers a three-year measurement period appropriate due to the investment mandate's long-term horizon and an absolute return inflation-linked benchmark appropriately reflects the company's investment objectives while having a linkage to economic factors.

In 2018 the investment management fee paid was US$2.7 million (2017: US$2.6 million) and no performance fee became payable to the Investment Manager (2017: US$0.1 million).

Net asset value

At the close of business on 31 December 2018, the Wilson Sons' share price was R$40.00, resulting in a market value for the Ocean Wilsons holding of 41,444,000 shares (58.17% of Wilson Sons) totalling approximately US$428.4 million which is the equivalent of US$12.11 (GBP9.50) per Ocean Wilsons share.

Adding the market value per share of Wilsons Sons of US$12.11 and the investment portfolio at 31 December 2018 per share of US$7.32 results in a net asset value per Ocean Wilsons Holdings Limited share of US$19.43 (GBP15.24) per share. The Ocean Wilsons Holdings Limited share price of GBP11.75 at 31 December 2018 represented an implied discount of 23% which is lower than the historic long-term discount.

Dividend

The Board is recommending an unchanged dividend of 70 cents per share to be paid on 7 June 2019, to shareholders of the Company as of the close of business on 10 May 2019. At the current exchange rate this represents approximately a 5% increase in Sterling terms over the 2017 dividend. Shareholders will receive dividends in Sterling by reference to the exchange rate applicable to the USD on the dividend record date (10 May 2019) except for those shareholders who elect to receive dividends in USD. Based on the current share price and exchange rates a dividend of 70 cents per share represents an attractive dividend yield of approximately 4.7%.

Dividends are set in US Dollars and paid annually. The Ocean Wilsons Holdings Limited dividend policy is to pay a percentage of the average capital employed in the investment portfolio determined annually by the Board and the Company's full dividend received from Wilson Sons in the period after deducting funding for the parent company costs. The Board of Directors may review and amend the dividend policy from time to time in light of our future plans and other factors.

Strategic review

On 17 July 2018 we announced that our principal operating subsidiary, Wilson Sons Limited made the following announcement to the Brazilian and Luxembourg Stock Exchanges.

"Wilson Sons Limited (B3: WSON33) ("Wilson Sons" or "Company") informs the market that the Board of Directors of the Company approved on 16 July 2018 the start of a formal process involving its investments in container terminal and logistics assets. The process is part of the evaluation of strategic alternatives that is being carried out by the management of the Company which may include the divestment of such assets, as well as attracting strategic partners. The Company informs that no final decision has yet been taken with respect to pursuing any such alternatives and there can be no certainty that any transaction will occur.

The Company will keep its shareholders and the market informed about the development of such analysis, in compliance with the provisions of Law 6,404, dated 15 December 1976, as amended, and the Resolution 358 issued by the Brazilian Securities and Exchange Commission ("CMV"), dated 3 January 2002, as amended.

As can be seen from the Wilson Sons announcement, no agreement has been entered into by Wilson Sons in relation to the container terminal and logistics assets and there can be no certainty that any transaction will be entered into. A further announcement will be made in due course, if it is appropriate to do so."

The Company advises that no final decision has yet been taken by Wilson Sons Limited with respect to pursuing any such alternatives and there can be no certainty that any transaction will occur.

Charitable donations and corporate sponsorship

The Group's subsidiary Wilson Sons continues to support several local charities and causes in Brazil. Group donations for charitable and sponsorship purposes in the year amounted to US$670,000 (2017: US$715,000). Wilson Sons sponsors a number of projects through the Brazilian sports incentive and Brazilian cultural incentive laws. The Group's objective is to promote private social investment in projects, actions and social programmes related to respecting and valuing life with a focus on young people, promoting social inclusion and development.

Health, safety and environmental practices (HSE)

The Group manages the areas of Occupational Health, Safety, and Environment ("HSE") in a strategic manner as the Board consider it of fundamental importance for the development of a sustainable business. This is reflected in the Group's corporate values which gives great importance to people's safety, the environment and communities. HSE has a formal agenda within the Wilson Sons Limited executive committee, with monthly meetings to deal exclusively with issues related to the topic which is supported by dedicated committees and subcommittees for each business unit.

The Group has run the WS+ safety programme in partnership with DuPont since 2011 to promote improved safety throughout the Wilson Sons Group. HSE guidelines are based on the concepts of continuous improvement, relationship with stakeholders, emergency response, risk management, training, legal compliance, leadership and responsibility. The success of this programme is shown by the continued improvement in our lost-time injury frequency rate which has decreased by 95% to 0.37 per one million man-hours worked since the programme was implemented. In 2018 Wilson Sons reduced its lost-time injury frequency rate for the eighth consecutive year. Despite achieving a world-class level of safety, the Group continues to work on improving safety performance and work practices to prevent future accidents. Our long-term goal is to maintain the lost-time injury frequency rate below or equal to 0.5 and achieve an interdependent safety management culture in which everyone is aware of the safety agenda and concerned not only with their own safety but also with those around them.

Excellence in environmental management is part of the Group's strategic objectives. In this context, excellence means using resources rationally and efficiently, managing environmental risks and liabilities, understanding and engaging with environmental interests of stakeholders with integrity, as well as planning and achieving financial performance targets aligned with environmental commitments.

In order to improve the understanding of the environmental aspects and impacts of its activities, the Wilson Sons Group has developed its Environmental Management Index ("EMI") based on current best practices. The EMI's key themes (solid waste, water resources, environmental damage, licensing, stakeholders and atmospheric emissions) use established criteria to promote continuous improvement in environmental management and achieve excellence.

The Group looks to use advanced technology to reduce our greenhouse gas emissions. Some examples of these measures include: updating conventional diesel-powered maritime support ships to more efficient diesel-electric systems; using RTG (Rubber-Tyred Gantry) electric cranes with a lower environmental impact in container terminals; and expanding the Towage Operations Centre, making it possible to reduce fuel consumption by optimising the movement of vessels.

Corporate governance

The Board has put in place corporate governance arrangements which it believes are appropriate for the operation of your Company. The Board has considered the principles and recommendations of the 2016 UK Corporate Governance Code ("the Code") issued by the Financial Reporting Council and decided to apply those aspects which are appropriate to the business. This reflects the fact that Ocean Wilsons is an investment holding company incorporated in Bermuda with significant operations in Brazil. The Company complies with the Code where it is beneficial for both its shareholders and its business to do so. It has done so throughout the year and up to the date of this report but it does not fully comply with the Code. The areas where the Company does not comply with the Code, and an explanation of why, are contained in the section on corporate governance in the Annual Report. The position is regularly reviewed and monitored by the Board. The Board is considering the 2018 UK Corporate Governance Code and its application to the Group.

Outlook

Economists are expecting the economic recovery in Brazil to accelerate in 2019 as the new government's more pro-business stance helps boost economic growth. Following receipt of the necessary environmental licenses, we started work on the expansion of the Tecon Salvador container terminal in 2018 which is forecast for completion in the second half of 2020. The completed terminal expansion will further develop and improve this important asset and enhance our operational capability. Demand at our container terminals business remains firm with volumes expected to be in line with 2018. Competition in the Brazilian towage market remains strong, however we remain confident in the strength of our business to face these challenges. The Brazilian offshore oil and gas market is expected to face another difficult year with demand for both offshore vessel hire and new vessel construction remaining sluggish although we continue to explore alternative revenue streams for our off-hire supply vessels. Two new contracts for the PSVs Fulmar and Ostreiro to provide shallow-water diving support services are scheduled to start in March 2019. The shipyard orderbook consists of one 90-tonne bollard pull tugboat for our fleet to be delivered in 2019. There are also 22 scheduled dry-dockings consisting of 11 tugboats for Wilson Sons, 10 tugboats for third parties and one PSV for our offshore joint venture. While the Group faces a number of challenges in 2019 we are confident in the resilience of our Brazilian businesses and the solid performances delivered over many years gives us encouragement that we are well placed to face the coming challenges and take advantage of business opportunities as they arise.

2018 was a poor year for world stock markets with global equity prices falling across the board. In contrast, stocks have rallied in 2019 on growing optimism that a trade agreement between the U.S. and China may be imminent, as well as news that the US Federal Reserve has paused any further interest rate hikes, as they have adopted a "wait-and-see" approach. While growth is slowing, at this point we do not see the factors in place which are normally associated with recession. Unemployment is low, but in general economies still appear to be operating below full capacity. Inflation has started to pick-up but the structural deflationary forces that have kept inflation low for so long look unlikely to go away anytime soon. Moreover, markets have already priced in a significant amount of bad news in 2018. We continue to see better value in a number of the emerging markets with attractive valuations by historic standards. However if global economies do slip into recession, emerging markets are typically some of the worst hit being trading based economies.

Management and staff

On behalf of the Board and shareholders, I would like to thank our management and staff for their efforts and hard work during the year. Following nine years of service Mr Andres Rozental is retiring from the Board at the next Annual General Meeting. On behalf of your Board I would like to acknowledge and express our gratitude for his valued contribution to the Group.

J F Gouvêa Vieira

Chairman

14 March 2019

Financial Review

Operating profit

Operating profit at US$99.5 million was US$10.0 million lower than prior year (2017: US$109.5 million) largely due to the decrease in towage revenue and slightly lower operating margins. Group operating margins for the year declined to 21.6 % (2017: 22.1%) principally due to poorer margins at the Group's towage business.

Raw materials and consumables used in the year at US$38.1 million were in line with 2017 (US$37.7 million). Employee expenses were 12% lower at US$146.3 million (2017: US$166.4 million) due to the effect of the higher average USD/BRL exchange rate plus the prior year figure included redundancy costs associated with corporate restructuring and additional provisions to cover potential labour claims. Employee costs were negatively impacted by the rollback in the year of temporary payroll tax exemptions granted to some business sectors in Brazil. Headcount was in line with prior year. Other operating expenses were 2% lower at US$119.8 million (2017: US$122.3 million) because of the strengthening of the US Dollar versus BRL. The prior year comparative benefitted from a US$4.9 million tax credit and a non-recurring US$3.9 million provision reversal. The depreciation and amortisation expense at US$56.2 million was US$1.3 million lower than the comparative period (2017: US$57.5 million). The impact of the higher average USD/BRL exchange rate was partially offset by capital investment made in 2017.

The loss on disposal of property, plant and equipment in 2017 included a US$2.3 million write down on leasehold improvements no longer used by the Group.

Revenue from Maritime Services

Group revenue for the year was 6% higher in BRL terms although in USD terms revenue was 7% lower at US$460.2 million (2017: US$496.3 million), principally due to a decrease in towage revenue and the higher average USD/BRL exchange rate used to convert revenue into our reporting currency. Towage revenue was US$41.2 million lower than prior year at US$165.6 million (2017: US$206.8 million) as stronger competition impacted both pricing and harbour towage volumes. Harbour towage manoeuvres performed in the period were 6% lower at 56,114 (2017: 59,796). Towage special operations revenue in the year increased US$1.9 million to US$13.2 million (2017: US$11.3 million) with ocean towage, shipyard support and salvage assistance performed during the year. Ship agency revenue at US$10.0 million was 12% lower than the prior year (2017: US$11.3 million).

Port terminals and logistics revenue in BRL terms grew 16% although due to the higher average USD/BRL exchange rate during the year, revenue in USD terms was flat at US$203.8 million (2017: US$203.1 million). Container volumes handled were marginally ahead of prior year at 1,072,700 TEUs (2017: 1,068,100 TEUs) while container terminal revenue was 2% lower at US$183.0 million (2017: US$187.4 million) impacted by the higher average USD/BRL exchange rate as the majority of container terminal revenue is BRL denominated. Warehouse revenue at our container terminals continued to grow driven by a rise in import cargo volumes. Higher import cargo volumes also contributed to a 4% increase in our logistics revenue to US$56.9 million (2017: US$54.7 million). Brasco revenue increased US$5.1 million to US$20.8 million (2017: US$15.7 million) on the back of increased vessel turnarounds with the beginning of new contracts during the year.

Third-party shipyard revenue at US$24.0 million (2017: US$21.2 million) reflected an increase in third party vessel construction and dry-docking operations.

All Group revenue is derived from Wilson Sons' operations in Brazil.

Share of results of joint ventures

The share of results of joint ventures is Wilson Sons' 50% share of net profit for the period from our offshore joint venture. Operating profit for a 50% share in the joint venture in the year was US$4.3 million compared to US$15.9 million in 2017 from revenue of US$58.5 million (2017: US$73.2 million). Revenue fell principally due to fewer operating days which were 15% lower at 5,126 days against 6,035 days in 2017. The lower operating profit, finance charges and higher exchange losses on monetary items resulted in a loss for the year of US$4.1 million (2017: US$3.4 million profit). At the year end, our joint venture had 15 offshore support vessels under contract out of a total fleet of 23 vessels.

Change in presentation

"Income from underlying investment vehicles" and "Other gains and losses" are now shown on the face of the Statement of Comprehensive Income under "Returns on investments held at fair value through profit and loss". The change was made in order to improve presentation of items of similar nature.

Returns on the investment portfolio at fair value through profit and loss

Losses on the investment portfolio of US$7.9 million arose from the Group's portfolio of investments (2017: US$42.1 million profit) and comprise realised profits on the disposal of financial assets at fair value through profit or loss of US$8.6 million (2017: US$8.5 million), income from underlying investment vehicles of US$2.1 million (2017: US$3.4 million) and unrealised losses on financial assets at fair value through profit or loss of US$18.7 million (2017: US$30.2 million gain).

Other investment income

Other investment income for the year fell US$5.5 million to US$4.2 million (2017: US$9.7 million) due to lower interest on bank deposits of US$3.6 million (2017: US$5.9 million) and lower other interest of US$0.6 million (2017: US$3.8 million). Interest on bank deposits fell due to the lower average cash balances held during the year. Other interest in 2017 also included US$2.6 million in interest relating to successful tax decisions.

Finance costs

Finance costs for the year at US$23.0 million were slightly higher than prior year (2017: US$22.0 million). Within this exchange losses on foreign currency borrowings were US$9.2 million higher at US$10.0 million (2017: US$0.8 million) due to the higher BRL/USD exchange rate at year end. Other interest of US$0.6 million was US$7.1 million lower than prior year (2017: US$7.7 million) because 2017 other interest included US$7.4 million of fines and interest relating to outstanding tax balances settled under a Brazilian tax amnesty programme. Interest on overdrafts and loans were US$ 1.0 million lower than the prior year at US$12.3 million (2017: US$13.3 million).

Exchange rates

The Group reports in USD and has revenues, costs, assets and liabilities in both BRL and USD. Therefore movements in the USD/BRL exchange rate influence the Group's results both positively and negatively from year to year. During 2018 the BRL depreciated 17% against the USD from R$3.31 at 1 January 2018 to R$3.87 at the year end. In 2017 the BRL depreciated 2% against the USD from R$3.26 at 1 January 2017 to R$3.31 at the year end. The principal effects from the movement of the BRL against the USD on the income statement are set out in the table below:

 
                                                       2018         2017 
                                                       US$ million  US$ million 
-----------------------------------------------------  -----------  ----------- 
Exchange gains on monetary items (i)                   (8.5)        2.8 
Exchange losses/gains on foreign currency borrowings   (10.0)       (0.8) 
Deferred tax on retranslation of fixed assets (ii)     (9.8)        1.4 
Deferred tax on exchange variance on loans (iii)       10.1         (1.2) 
-----------------------------------------------------  -----------  ----------- 
Total                                                  (18.2)       2.2 
-----------------------------------------------------  -----------  ----------- 
 

(i) This arises from the translation of BRL denominated monetary items in USD functional currency entities.

(ii) The Group's fixed assets are located in Brazil and therefore future tax deductions from depreciation used in the Group's tax calculations are denominated in BRL. When the BRL depreciates against the US Dollar the future tax deduction in BRL terms remain unchanged but is reduced in US Dollar terms.

(iii) Deferred tax credit arising from the exchange losses on USD denominated borrowings in Brazil.

The movement of the BRL against the USD in 2018 resulted in a negative impact of US$18.2 million on the income statement in the year compared with a US$2.2 million positive impact in 2017.

A currency translation adjustment loss of US$39.4 million (2017: US$6.5 million) on the translation of operations with a functional currency other than USD is included in other comprehensive expense for the year and recognised directly in equity.

The average USD/BRL exchange rate during 2018 was 15% higher than prior year at 3.66 (2017: 3.19). A higher average exchange rate negatively affects BRL denominated revenues and positively impacts BRL denominated costs when converted into our USD reporting currency.

Profit before tax

Profit before tax for the year fell US$85.2 million to US$60.2 million compared to US$145.5 million in 2017. The decrease in profit before tax was principally due to the US$50.0 million negative movement in returns from the investment portfolio, the US$11.2 million negative movement in foreign exchange losses on monetary items, a US$10.0 million decrease in operating profit and a US$7.5 million negative movement in share of results from joint ventures. Also finance costs were US$1.0 million lower and investment revenues US$6.8 million lower.

Taxation

The tax charge for the year at US$26.4 million was US$9.7 million lower than last year (2014: US$36.1 million).

This represents an effective tax rate for the period of 43.9% (2017: 24.8%) compared with the corporate tax rate prevailing in Brazil of 34%. The difference in the effective tax rate is principally due to deferred tax items and expenses that are not included in determining taxable profit in Brazil and expenses or income at our Bermudian companies that are not subject to income tax. The current year effective tax rate is higher than prior year mainly due to losses at our Bermudian companies that are not deductible for income tax (in 2017 there were net profits at our Bermudian companies) and an increase in net expenses that are not included in determining taxable profit. The increase in net expenses is mainly due to foreign exchange losses on monetary items and losses at our joint ventures.

The principal impacts from these items on the tax charge in the income statement are set out in the table below:

 
                                                                   2018                     2017 
                                                    US$            % of      US$            % of 
                                                million  taxable profit  million  taxable profit 
----------------------------------------------  -------  --------------  -------  -------------- 
Deferred tax items not included 
in determining taxable profit (i)                 (4.6)          (7.4%)    (5.3)          (3.6%) 
Income/expenses not included 
in determining taxable profit (ii)                  5.8            9.2%      3.4            2.4% 
Net (income)/expenses incurred outside Brazil       4.8            8.0%   (11.6)          (7.9%) 
Total                                               6.0            9.9%   (13.4)          (9.2%) 
----------------------------------------------  -------  --------------  -------  -------------- 
 

Charge/(credit) to the current period tax charge

(i) The principal deferred tax items not included in determining taxable profit are a deferred tax credit arising on the retranslation of BRL denominated fixed assets in Brazil, the deferred tax charge on the exchange losses on USD denominated borrowings and tax losses at our Brazilian subsidiaries not recognised in deferred tax.

(ii) The main items not included in determining taxable profit are the tax effect of foreign exchange gain/(loss) on monetary items and the tax effect of the share of results of joint ventures.

A more detailed breakdown is provided in note 10.

Profit for the year

Profit attributable to equity holders of the parent for the year is US$13.3 million (2017: US$78.3 million) after deducting profit attributable to non-controlling interests of US$20.5 million (2017: US$31.1 million). Non-controlling interests at 61% are a higher percentage of the Group profit for the period (2017: 28%) because the profits or losses from the investment portfolio accrue solely to the equity holders of the parent company.

Earnings per share

Earnings per share for the year were 37.6 cents compared with 221.5 cents in 2017.

Cash flow

Net cash inflow from operating activities increased by US$10.7 million to US$113.7 million in 2018 (2017: US$103.0 million) as the decrease in operating profit was offset by better working capital movements in the year. Capital expenditure in the year was US$28.8 million higher at US$59.6 million (2017: US$30.7 million) principally due to the start of civil works for the Tecon Salvador quay extension, increased vessel construction and programmed drydocking. The Group drew down new loans of US$9.4 million (2017: US$12.6 million) to finance capital expenditure. while loan repayments of US$54.2 million (2017: US$54.7 million) were made. Dividends paid to shareholders in the period were US$24.8 million (2017: US$22.3 million) with a further US$17.9 million paid to non-controlling interests in our subsidiaries (2017: US$16.8 million).

At 31 December 2018, the Group had US$43.8 million in cash and cash equivalents (2017: US$83.8 million) of which US$28.2 million was denominated in Brazilian Real (2017: US$59.6 million). Financial assets at fair value through profit or loss includes US$29.1 million (2017: US$31.6 million) in USD denominated fixed rate certificates held by Wilson Sons Limited which are not part of the Group's investment portfolio managed by Hanseatic Asset Management LBG and are intended to fund Wilson Sons Limited.

Balance sheet

At 31 December 2018 equity attributable to shareholders of the parent company was US$554.2 million, a decrease of US$33.9 million from 2017 (US$588.2 million). The main movements in equity in the year were profits for the period of US$13.3 million, less dividends paid of US$24.8 million and a negative currency translation adjustment of US$22.8 million. The currency translation adjustment arises from exchange differences on the translation of operations with a functional currency other than USD. On a per share basis, equity attributable to shareholders was the equivalent of US$15.67 per share (31 December 2017: US$16.63 per share).

Net debt and financing

All debt at the year end was held in the Wilson Sons Limited Group with no recourse to the parent company, Ocean Wilsons Holdings Limited, or the investment portfolio held by Ocean Wilsons (Investments) Limited.

The Group's borrowings are used principally to finance vessel construction and the development of our terminal business. The Group's main sources of financing are the Fundo da Marinha Mercante "FMM", a Brazilian Government fund dedicated to funding vessel construction in Brazil and the International Finance Corporation. The FMM is funded by a levy on inbound freight to Brazil and the BNDES and Banco do Brasil act as lending agents for the FMM.

Borrowings are long-term with defined repayment schedules repayable over different periods of up to 18 years. At year end 80% of the Group's total debt is long-term. The Group's borrowings are principally USD related with 95% of borrowings USD denominated or linked to the USD. A significant portion of the Group's pricing is denominated in USD which acts as a natural hedge to our long-term exchange rate exposure. Net debt at 31 December 2018 was US$234.4 million (2017: US$239.2 million) as set out in the following table:

 
                                    2018         2017 
                             US$ million  US$ million 
---------------------------  -----------  ----------- 
Debt 
Short-term                          60.2         54.3 
Long-term                          247.1        300.4 
---------------------------  -----------  ----------- 
Total debt                         307.3        354.7 
Cash and cash equivalents*        (72.9)      (115.5) 
---------------------------  -----------  ----------- 
Net debt                           234.4        239.2 
---------------------------  -----------  ----------- 
 

* Included in cash and cash equivalents are US$29.1 million of short-term investments held by Wilson Sons Limited which are intended to fund Wilson Sons Limited operations in Brazil.

The Group's reported borrowings do not include US$242.0 million of debt from the Company's 50% share of borrowings in our Offshore Vessel joint venture.

Keith Middleton

Finance Director

14 March 2019

Wilson Sons Limited

The Wilson Sons 2018 Earnings Report released on 14 March 2019 is available on the Wilson Sons Limited website: www.wilsonsons.com.br

In it Cezãr Baião, CEO of Operations in Brazil, said:

"Wilson Sons 2018 EBITDA of US$160 million was down 6.8% against the comparative period (2017: US$172.4 million), despite solid results in container terminals. Tecon Rio Grande improved its net average productivity to 77 movements per hour, 22% higher than 2017. In the fourth quarter Tecon Salvador commenced civil works to extend the principal quay from 377 metres to 800 metres, which will allow the simultaneous berthing of two super-post-Panamax ships. The terminal signed a US$67.9 million financing agreement denominated in Brazilian Real with BNDES for the first stage of the expansion.

Towage results continued to be pressured by a very competitive environment affecting volumes and prices. In November the division received the largest and most powerful escort tug in Brazil, WS Sirius, with 90 tonnes of bollard pull.

Offshore support vessel results were negatively affected by the end of eight long-term contracts in 2018 due to weaker demand. The Company continues to seek alternative vessel solutions including four vessels under contract for shallow-water diving support, and one employed to support oil spill recovery.

Workplace safety continued to improve with an 18% year-on-year reduction in the lost-time injury frequency rate to 0.37 in 2018, in line with global best practice.

The Company remains focused on increasing cash flow and improving capacity utilisation across all businesses in order to maximise stakeholder value, maintaining our continued commitment to safety."

The Wilson Sons Strategy is:

The Wilson Sons strategy is to grow utilising our skills and existing assets while strengthening the businesses and looking for new opportunities, focusing on Brazil and Latin America. We continue to consolidate our position in all the segments in which we operate, maximising economies of scale and efficiency, quality and the range of services we provide to customers. The strategy comprises:

Expanding and utilising capacity at our container terminals. In order to meet demand from domestic and international trade, we have expanded both our container terminals since the beginning of the concessions. By maximising installed capacity utilisation, we are able to improve productivity and levels of service to our clients through economies of scale. We will diligently pursue this objective. The early renewal of the Salvador terminal concession through to 2050 includes investments in quay extension and equipment, further enhancing terminal productivity. Additionally, we will evaluate new concessions and the possible development of new terminals to provide a strong return on shareholders' equity. As noted in the Chairman's statement Wilson Sons is undertaking an evaluation of strategic alternatives that is being carried out by the management of the company which may include the divestment of such assets, as well as attracting strategic partners.

Maximising capacity utilisation of our oil & gas support terminals (Brasco). Our bases in Niterói and Rio de Janeiro have a total capacity of eight berths to provide logistics support for offshore vessels. With excellent access to the Campos and Santos petroleum basins, and close to the pre-salt region, Brasco is strategically positioned as one of the largest operators of offshore support terminals in Brazil. We continuously monitor offshore exploration and production activities along the Brazilian coast to meet the demand for such services.

Strengthening our position as the leading provider of towage services in Brazil. We continue to modernise and expand our tugboat fleet in order to consistently provide high-quality services to our customers and consolidate our leading position in the Brazilian towage market. We also look to contribute to the expansion of activities in Brazilian ports, offering state-of-the-art vessels that are suitable for operating new classes of ships, as well as for the oil and gas industry. We regularly review our fleet deployment to optimise efficiency and to seek out new market niches where we can provide additional services or expand our geographical footprint to new ports in Brazil.

Maximising potential of our shipyard facilities through a mix of in-house and third-party vessel construction, repair, maintenance, conversion, and dry-docking services to meet the demand of local and international ship owners operating in Brazil.

Solidifying our offshore support vessel services to oil and gas platforms. Using our knowledge and experience, we intend to continue to consolidate our activities maintaining our position amongst the leading suppliers of services to the offshore oil and gas industry in Brazil. We look to explore alternative revenue streams to increase utilisation of our offshore supply vessel fleet.

Exploring new opportunities and strategies to provide the best and most complete set of services to our customers. We are always looking to provide innovative services to our customers, as well as to anticipate their needs. Through a solid nationwide footprint, we will continue our strategy of providing comprehensive logistics solutions to support domestic and international trade activities, as well as the oil and gas industry. We also seek to make our services more efficient and cost-effective, in order to maintain our strong customer base and strengthen our relationships.

Increasing economies of scale and productivity, synergies and cost savings across our businesses. We continuously seek to optimise our operations, productivity and reduce costs through synergies and knowledge exchange among our businesses and administrative areas. We will continue to be focused on integrating similar activities, especially in our branch offices, to achieve economies of scale and reduce costs wherever possible. We continually develop new strategies to improve our operations and explore new businesses.

Health, Safety and the Environment ("HSE") are part of our overall strategy of sustainable and ethical businesses. We continue to promote HSE best practices throughout the Group to achieve and maintain excellence in these areas.

Investment Portfolio

Investment objective

Ocean Wilsons is run with a long-term outlook. The objective of the investment portfolio is to make investments that create long-term capital growth without pressure to produce short-term results at the expense of long-term value creation.

Investment Policy

The Investment Manager will seek to achieve the investment objective through investments in publicly quoted and private (unquoted) assets across three 'silos': (i) Core regional funds which form the core of our holdings, enabling us to capture the natural beta within markets; (ii) Sector specific silo, represented by those sectors with long-term growth attributes, such as technology and biotechnology; and (iii) Diversifying silo, which are those asset classes and sectors which will add portfolio protection as the business cycle matures. Cash levels will be managed to meet future commitments (e.g. to private assets) whilst maintaining an appropriate balance for opportunistic investments.

Commensurate with the long-term horizon, it is expected that the majority of investments will be concentrated in equity, across both 'public' and 'private' markets. In most cases, investments will be made either through collective funds or limited partnership vehicles, working alongside expert managers in specialised sectors or markets to access the best opportunities.

The Investment Manager maintains a global network to find the best opportunities across the three silos worldwide. The portfolio contains a high level of investments which would not normally be readily accessible to investors without similar resources. Furthermore, a large number of holdings are closed to new investors. There is currently no gearing although the Board would, under the appropriate circumstances, be open-minded to modest levels of gearing. Likewise, the Board may, from time to time, permit the Investment Manager opportunistically to use derivative instruments (such as index hedges using call and put options) to actively protect the portfolio.

Investment Process

Manager selection is central to the successful management of the investment portfolio. Potential individual investments are considered based on their risk-adjusted expected returns in the context of the portfolio as a whole. Initial meetings are usually a result of: (i) a 'top-down' led search for exposure to a certain geography or sector; (ii) referrals from the Investment Manager's global network; or (iii) relationships from sell-side institutions and other introducers. The Investment Manager reviews numerous investment opportunities each year, favouring active specialist managers who can demonstrate an ability to add value over the longer-term, often combining a conviction-based approach, an unconstrained mandate and the willingness to take unconventional decisions (e.g. investing according to conviction and not fearing short-term underperformance versus an index).

Excessive size is often an impediment to continued outperformance and the bias is therefore towards managers who are prepared to restrict their assets under management to a level deemed appropriate for the underlying opportunity set. Track records are important but transparency is an equally important consideration. Alignment of interest is essential and the Investment Manager will always seek to invest on the best possible terms. Subjective factors are also important in the decision making process - these qualitative considerations would include an assessment of the integrity, skill and motivation of a fund manager.

When the Investment Manager believes there is a potential fit, thorough due diligence is performed to verify the manager's background and identify the principal risks. The due diligence process would typically include visiting the manager in their office (in whichever country it may be located), onsite visits to prospective portfolio companies, taking multiple references and seeking a legal opinion on all relevant documentation.

All investments are reviewed on a regular basis to monitor the ongoing compatibility with the portfolio, together with any 'red flags' such as signs of 'style drift', personnel changes or lack of focus. Whilst the Investment Manager is looking to cultivate long-term partnerships, every potential repeat investment with an existing manager is assessed as if it were a new relationship.

Portfolio Characteristics

The portfolio has several similarities to the 'endowment model'. These similarities include an emphasis on generating real returns, a perpetual time horizon and broad diversification, whilst avoiding asset classes with low expected returns (such as government bonds in the current environment). This diversification is designed to make the portfolio less vulnerable to permanent loss of capital through inflation, adverse interest rate fluctuations and currency devaluation and to take advantage of market and business cycles. The Investment Manager believes that outsized returns can be generated from investments in illiquid asset classes (such as private equity). In comparison to public markets, the pricing of assets in private markets is less efficient and the outperformance of superior managers is more pronounced.

Investment Manager's Report

Market backdrop

Having started robustly, 2018 proved to a very poor year for world stock markets. Global equities fell by some 9.4% over the year. The US, despite the weakness exhibited at the end of the year, was the best performing major developed market, although it fell by 5.7%. Amongst the other major developed markets Japan declined by 12.9%, Europe by 14.8% and the UK by 14.1%. The emerging and frontier markets were even worse, falling by 14.6% and 16.4% respectively. A number of individual emerging markets hit bear market territory during the year, a fall of 20% or more, and notably China fell by 18.9% as it battled with slowing growth and trade wars.

Whilst these numbers are disappointing, in practice sporadic periods of weakness in equity markets are quite normal. What is not normal are falls across all asset classes and this is what we saw in 2018. The blend of deteriorating economic growth, shifting sands in monetary policy and the geo-political machinations impacted equities, bonds, real assets and commodities. This nightmare scenario for multi-asset investors resulted in their worst performance in many years.

Cumulative portfolio returns

 
                               2018  3 years p.a.  5 years p.a.  10 years p.a. 
---------------------------  ------  ------------  ------------  ------------- 
OWIL (Gross time-weighted)    -3.1%          4.6%          3.9%           5.2% 
OWIL (Net) (1)                -4.1%          3.5%          2.8%           4.1% 
Performance benchmark(2)       4.9%          5.0%          4.3%           3.7% 
MSCI ACWI + FM NR             -9.4%          6.6%          4.3%           9.4% 
MSCI Emerging Markets NR     -14.6%          9.3%          1.6%           8.0% 
---------------------------  ------  ------------  ------------  ------------- 
 
   1.     The OWIL net performance is net of investment management and performance fees 

2. The OWIL Performance Benchmark which came in to effect on the 1st January 2015 is US CPI Urban Consumers NSA +3% p.a. This has been combined with the old benchmark (USD 12 Month LIBOR +2%) for periods prior to the adoption of the current benchmark.

Portfolio Commentary

The investment portfolio was down 4.1% on a net basis over the past 12 months, underperforming its benchmark over the same period which rose by 4.9%. 2018 was a difficult year for the global economy with most markets declining which was reflected in the portfolio.

A significant contributor to performance over the year was Hudson Bay International Fund, which rose by 5.9%. This fund seeks to achieve superior risk-adjusted returns with low correlation to equity and bond markets. It is part of the diversifying silo of the portfolio and it performed its role well in 2018. There are four different strategies within this silo that are intended to produce a stable, low correlated return. The fund's convertible strategy performed particularly strongly during the year with no positions significantly detracting. The convertible positions benefited from the increased volatility the market experienced over the course of the year.

Another strong performer was LF Odey Absolute Return Fund which was up 8.6% for the year. The performance of this UK focused hedge fund was driven mainly by its short book, partly offset by negative returns in the long book and currency hedges. The top contributor from the long book was a position in Plus500 that operates in the CFD trading space. The company continued to win market share and new tighter regulations were thought likely to benefit it more than its peers. However following the year end the share price of Plus500 fell significantly after it was forced to clarify statements in its 2017 annual report. This has detracted from the fund's performance in early 2019 although the manager maintains confidence in the holding.

Indus Japan Long Only Fund was one of the weaker performers, ending down 26.4% for the year. This poor performance was mainly due to a very difficult month in December with a position in Showa Denko being one of the main negative contributors. The manager believes that the market is fundamentally overestimating the threat of a supply and/or demand shock in the chemical industry and that the company's earnings will grow in 2019. Takeda Pharmaceutical was also a negative performer as price volatility increased significantly ahead of the closure of its acquisition of Shire PLC in January 2019.

We continued to add some lower risk investments to the portfolio, with a position added in Apollo Total Return Fund which is a long-only core fixed income strategy, with low correlation to traditional fixed income. The manager has consistently produced stable returns in multiple market environments. During the year we completed the switch of the Japan holdings (Goodhart Partners: Hanjo Fund and Indus Japan Long Only Fund) from the hedged share class into the unhedged share class.

On the private asset side of the portfolio it was generally a positive year. One of the top contributors during the year was Navegar I. The Philippine focused fund has made five investments, two of which are now realised. The strong performance during the year was mainly due to the realisation of an investment in TaskUs, a technical support outsourcer for US technology companies. This business was sold in 2018 to the Blackstone Group for a 7.77x gross multiple of the investment cost with the majority of the proceeds already returned to limited partners. This has taken the total amount distributed to over 150% of invested capital and the total fund multiple to 2.1x investment cost. The remaining three businesses are all food related with two of them, Bo's Coffee and Bistronomia, proving to be more difficult investments with both currently valued below cost.

Greenspring Global Partners ("GGP") IV and GGP VI were also strong performers, being held at total fund multiples of 2.5x and 1.8x of investment cost respectively. GGP IV, a 2008 vintage fund, is now mature and is producing significant distributions. Positions in Benchmark Capital VII, which has investments in WeWork and Uber, and Bessemer Venture Partners VII Special Opps, with an investment in Pinterest, have been strong performers. The manager's base case expectation for this fund is a 2.9x multiple of investment cost with the potential that it could be significantly higher than that. In GGP VI, a significant proportion of the underlying funds increased in value over the course of the year. This fund of funds is a 2014 vintage and so many of the early investments are now starting to see growth in values. There have also been several realisations in the direct portfolio including Chewy which earned a gross multiple of 8.7x investment cost following its acquisition by PetSmart.

In terms of new commitments, a EUR2.2m investment was made to Five Arrows Principal Investments III at the end of 2018. This is a fund from a highly experienced team within the Rothschild & Co network and will target lower middle market European companies. Other new commitments made in 2018 were to Triton Fund V (EUR2.14m), PAI Europe VII (EUR2.5m), GGP IX ($1.0m), Baring Asia Private Equity Fund VII ($4.0m) and Reverence Capital Partners Opportunities Fund II ($2.5m).

Outlook

Clearly market sentiment has taken a significant knock in recent months. In the short-term this likely makes share prices particularly sensitive to newsflow, especially that which confirms investors' worst fears. However, any signs of normalisation are likely to lead to investors questioning whether this is indeed the end of the current stock market cycle and with it, to reassess the outlook for equity markets.

That's not to say we are raging bulls. What we have been experiencing in recent months is classic late cycle performance where volatility is the norm - undoubtedly the best of the current cycle's returns are behind us with returns almost certainly lower now than earlier in the cycle. Hence we remain flexible and believe a balanced approach seems appropriate albeit with upside still on offer through judicious country, sector and thematic investment selection.

 
Investment Portfolio at 31                              % of 
 December 2018                           Market value 
                                              US $OOO    NAV                     Primary Focus 
--------------------------------  -------------------  -----  -------------------------------- 
Findlay Park American Fund                     21,706    8.4          US equities -- Iong only 
AdeIphi European Select Equity                                         Europe equities -- Iong 
 Fund                                          11,709    4.5                              only 
Egerton Long -- Short Fund                                               Europe/US equities -- 
 Limited                                       11,344    4.4                             hedge 
BlackRock European Hedge Fund                   9,511    3.7          Europe equities -- hedge 
                                                                      Asia ex-Japa n equ ities 
NTAsian Discovery Fund                          9,011    3.5                     -- to ng only 
                                                                        Japa n equ ities -- to 
Goodhart Partners: Hanjo Fund                   8,958    3.5                           ng only 
Pangaea II. LP                                  7,043    2.7             Private Assets -- GEM 
Lansdowne Developed Markets                                            Europe.+U S equities -- 
 Fund                                           6,654    2.6                             hedqe 
Helios Investors II, LP                         6,595    2.5          Private Assets -- Africa 
GAM Star Fund PLC -- Technoloqy                 6,395    2.5           Technotoqy -- lonq only 
--------------------------------  -------------------  -----  -------------------------------- 
Top 10 Holdings                                98,926   38.3 
--------------------------------  -------------------  -----  -------------------------------- 
                                                                       Private Assets -- Latin 
NG Capital Partners II . LP                     6,254    2.4                           America 
Schroder ISF Asian Total Return                                         Asia ex-Japan equities 
 Fund                                           6,188    2.4                      -- long only 
Select Equity Offshore Ltd                      6,163    2.4          US equities -- Iong only 
Greenspring Global Partners                                       Private Assets -- US Venture 
 IV. LP                                         6,128    2.4                           CapitaI 
Hony Capital Fun d V. LP                        5,730    2.2           Private Assets -- China 
                                                                        Private Assets -- Asia 
L Capital Asia 2. LP                            5,674    2.2                        (Consumer) 
Vulcan Value Equity Fun d                       5,535    2.1          US equities -- Iong only 
Global Event Partners Ltd                       5,400    2.1     GlobaI equities -- long/short 
Hudson Bay International Fund 
 Ltd                                            5,334    2.1  Market Neutral -- multi-strategy 
                                                                        Japan equities -- lonq 
Indus Japan Lonq Only Fund                      5,333    2.1                              only 
--------------------------------  -------------------  -----  -------------------------------- 
Top 20 Holdings                               156,665   60.7 
--------------------------------  -------------------  -----  -------------------------------- 
Prince Street Opportunities                                          Emerging Markets equities 
 Fund                                           5,048    1.9                      -- long only 
                                                                      Private Assets -- Global 
Silver Lake Partners IV. LP                     4.215    1.6                        Technology 
Gree nsprin g Glo bal Partn                                       Private Assets -- US Venture 
 ers VI. LP                                     4.011    1.5                           CapitaI 
Grame rcy D istre sse d Opportu                                   Private Assets -- distressed 
 nity Fu nd I I . LP                            3.930    1.5                              debt 
Prima ry C apita I IV. LLP                      3.862    1.5          Private Assets -- Europe 
African Development Partners. 
 LLC                                            3.464    1.3           Private Assets - Africa 
AMED Fund. SICAR                                3.441    1.3          Private Assets -- Africa 
                                                                        Private Assets -- Asia 
L Capital Asia. LP                              3.394    1.3                        (Consumer) 
China Harvest II . LP                           3.114    1.2           Private Assets -- China 
MCP Private Capita I Fund I                                          Private Assets -- Eurpean 
 I LP                                           3.069    1.2                            Credit 
--------------------------------  -------------------  -----  -------------------------------- 
Top 30 Holdings                               194,213   75.0 
--------------------------------  -------------------  -----  -------------------------------- 
37 Remaininq Holdinqs                          57,117   22.1 
--------------------------------  -------------------  -----  -------------------------------- 
Cash                                            7,581    2.9 
--------------------------------  -------------------  -----  -------------------------------- 
Cash                                          258,911  100.0 
--------------------------------  -------------------  -----  -------------------------------- 
 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2018

 
                                                                                   Year to      Year to 
                                                                               31 December  31 December 
                                                                                      2018         2017 
                                                                        Notes      US$'000      US$'000 
----------------------------------------------------------------------  -----  -----------  ----------- 
Revenue                                                                     3      460,196      496,340 
Raw materials and consumables used                                                (38,128)     (37,679) 
Employee benefits expense                                                   6    (146,327)    (166,395) 
Depreciation & amortisation expense                                         5     (56,178)     (57,481) 
Other operating expenses                                                         (119,767)    (122,310) 
Loss on disposal of property, plant and equipment                                    (296)      (2,930) 
----------------------------------------------------------------------  -----  -----------  ----------- 
Operating profit                                                                    99,500      109,545 
Share of results of joint venture                                          17      (4,062)        3,366 
Returns on investment portfolio at fair value through profit and loss       7      (7,942)       42,064 
Other investment income                                                     8        4,152        9.715 
Finance costs                                                               9     (22,951)     (21,976) 
Foreign exchange (losses)/gains on monetary items                                  (8,459)        2,750 
----------------------------------------------------------------------  -----  -----------  ----------- 
Profit before tax                                                           5       60,238      145,464 
Income tax expense                                                         10     (26,433)     (36,056) 
----------------------------------------------------------------------  -----  -----------  ----------- 
Profit for the year                                                         5       33,805      109,408 
----------------------------------------------------------------------  -----  -----------  ----------- 
Other comprehensive income: 
Items that will never be reclassified subsequently to profit and loss 
Post-employment benefits                                                             (187)        (374) 
Exchange differences arising on translation of foreign operations                 (39,336)      (6,485) 
Items that are or may be reclassified subsequently to profit and loss 
Effective portion of changes in fair value of derivatives                              542          557 
Other comprehensive expense for the year                                          (38,981)      (6,302) 
----------------------------------------------------------------------  -----  -----------  ----------- 
Total comprehensive (expense)/income for the year                                  (5,176)      103,106 
----------------------------------------------------------------------  -----  -----------  ----------- 
Profit for the period attributable to: 
Equity holders of parent                                                            13,308       78,315 
Non-controlling interests                                                           20,497       31,093 
----------------------------------------------------------------------  -----  -----------  ----------- 
                                                                                    33,805      109,408 
----------------------------------------------------------------------  -----  -----------  ----------- 
Total comprehensive (expense)/income for the period attributable to: 
Equity holders of parent                                                           (9,278)       74,667 
Non-controlling interests                                                            4,102       28,439 
----------------------------------------------------------------------  -----  -----------  ----------- 
                                                                                   (5,176)      103,106 
----------------------------------------------------------------------  -----  -----------  ----------- 
Earnings per share 
Basic and diluted                                                          12        37.6c       221.5c 
----------------------------------------------------------------------  -----  -----------  ----------- 
 

Consolidated Balance Sheet

as at 31 December 2018

 
                                                                      As at        As at 
                                                                31 December  31 December 
                                                                       2018         2017 
                                                         Notes      US$'000      US$'000 
-------------------------------------------------------  -----  -----------  ----------- 
Non-current assets 
Goodwill                                                    13       27,515       30,319 
Other intangible assets                                     14       25,468       30,592 
Property, plant and equipment                               15      602,451      634,881 
Deferred tax assets                                         24       28,223       28,639 
Related party loans                                         36       29,804       29,472 
Recoverable taxes                                           22       25,603       28,067 
Investment in joint ventures                                17       26,528       26,644 
Other non-current assets                                    27        7,446        9,535 
Other trade receivables                                     21          483          565 
-------------------------------------------------------  -----  -----------  ----------- 
                                                                    773,521      818,714 
-------------------------------------------------------  -----  -----------  ----------- 
Current assets 
Inventories                                                 19       10,875       13,773 
Financial assets at fair value through profit and loss      18      287,298      305,070 
Trade and other receivables                                 21       73,671       73,558 
Recoverable taxes                                           22       23,283       25,012 
Cash and cash equivalents                                            43,801       83,827 
-------------------------------------------------------  -----  -----------  ----------- 
                                                                    438,928      501,240 
-------------------------------------------------------  -----  -----------  ----------- 
Total assets                                                      1,212,449    1,319,954 
-------------------------------------------------------  -----  -----------  ----------- 
Current liabilities 
Trade and other payables                                    26     (57,640)     (64,465) 
Derivatives                                                 37        (422)      (1,108) 
Current tax liabilities                                               (719)      (3,201) 
Obligations under finance leases                            25         (46)        (846) 
Bank overdrafts and loans                                   23     (60,209)     (54,288) 
-------------------------------------------------------  -----  -----------  ----------- 
                                                                  (119,036)    (123,908) 
-------------------------------------------------------  -----  -----------  ----------- 
Net current assets                                                  319,892      377,332 
-------------------------------------------------------  -----  -----------  ----------- 
Non-current liabilities 
Bank loans                                                  23    (247,097)    (300,436) 
Derivatives                                                 37            -        (395) 
Employee benefits                                           38      (1,190)      (1,083) 
Deferred tax liabilities                                    24     (50,023)     (51,531) 
Provisions                                                  27     (17,335)     (18,232) 
Obligations under finance leases                            25         (59)        (309) 
-------------------------------------------------------  -----  -----------  ----------- 
                                                                  (315,704)    (371,896) 
-------------------------------------------------------  -----  -----------  ----------- 
Total liabilities                                                 (434,740)    (495,894) 
-------------------------------------------------------  -----  -----------  ----------- 
Net assets                                                        (777,709)      824,060 
-------------------------------------------------------  -----  -----------  ----------- 
Capital and reserves 
Share capital                                               28       11,390       11,390 
Retained earnings                                                   566,678      578,126 
Capital reserves                                                     31,760       31,760 
Translation and hedging reserve                                    (55,603)     (33,115) 
-------------------------------------------------------  -----  -----------  ----------- 
Equity attributable to equity holders of the parent                 554,225      588,161 
Non-controlling interests                                           223,484      235,899 
-------------------------------------------------------  -----  -----------  ----------- 
Total equity                                                        777,709      824,060 
-------------------------------------------------------  -----  -----------  ----------- 
 

The accounts were approved by the Board on 14 March 2019. The accompanying notes are part of this Consolidated Balance Sheet.

   J. F. Gouvêa Vieira                                       K. W. Middleton 
   Chairman                                                     Director 

Consolidated Statement of Changes in Equity

as at 31 December 2018

 
                                                                          Hedging  Attributable 
                                                                              and     to equity         Non- 
                                           Share  Retained   Capital  Translation    holders of  controlling     Total 
                                         capital  earnings  reserves      reserve    the parent    interests    equity 
For the year ended 31 December 2017      US$'000   US$'000   US$'000      US$'000       US$'000      US$'000   US$'000 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
Balance at 1 January 2017                 11,390   521,878    31,760     (29,685)       535,343      221,649   756,992 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
Currency translation adjustment                -         -         -      (3,754)       (3,754)      (2,731)   (6,485) 
Employee benefits (note 37)                    -     (218)         -            -         (218)        (156)     (374) 
Effective portion of changes in fair 
 value of derivatives                          -         -         -          324           324          233       557 
Profit for the year                            -    78,315         -            -        78,315       31,093   109,408 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
Total income and expense for the period        -    78,097         -      (3,430)        74,667       28,439   103,106 
Dividends                                      -  (22,279)         -            -      (22,279)     (16,836)  (39,115) 
Share options exercised in subsidiary          -       430         -            -           430          316       746 
Share based payment expense                    -         -         -            -             -        2,331     2,331 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
Balance at 31 December 2017               11,390   578,126    31,760     (33,115)       588,161      235,899   824,060 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
For the year ended 31 December 2018 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
Balance at 1 January 2018                 11,390   578,126    31,760     (33,115)       588,161      235,899   824,060 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
Currency translation adjustment                -         -         -     (22,803)      (22,803)     (16,533)  (39,336) 
Employee benefits (note 37)                    -      (98)         -            -          (98)         (89)     (187) 
Effective portion of changes in fair 
 value of derivatives                          -         -         -          315           315          227       542 
Profit for the year                            -    13,308         -            -        13,308       20,497    33,805 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
Total income and expense for the period        -    13,210         -     (22,488)       (9,278)        4,102   (5,176) 
Dividends                                      -  (24,754)         -            -      (24,754)     (17,914)  (42,668) 
Share options exercised in subsidiary          -        96         -            -            96           94       190 
Share based payment expense                    -         -         -            -             -        1,303     1,303 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
Balance at 31 December 2018               11,390   566,678    31,760     (55,603)       554,225      223,484   777,709 
---------------------------------------  -------  --------  --------  -----------  ------------  -----------  -------- 
 

Share capital

The Group has one class of ordinary share which carries no right to fixed income.

Capital reserves

The capital reserves arise principally from transfers from revenue to capital reserves made in the Brazilian subsidiaries arising in the following circumstances:

(a) profits of the Brazilian subsidiaries and Brazilian holding company which in prior periods were required by law to be transferred to capital reserves and other profits not available for distribution; and

(b) Wilson Sons Limited bye-laws require the company to credit an amount equal to 5% of the company's net profit to a retained earnings account to be called legal reserve until such amount equals 20% of the Wilson Sons Limited share capital.

Hedging and translation reserve

The hedging and translation reserve arises from exchange differences on the translation of operations with a functional currency other than US Dollars and effective movements on hedging instruments.

Amounts in the statement of changes of equity are stated net of tax where applicable.

Consolidated Cash Flow Statement

for the year ended 31 December 2018

 
                                                                           Year to      Year to 
                                                                       31 December  31 December 
                                                                              2018         2017 
                                                                Notes      US$'000      US$'000 
--------------------------------------------------------------  -----  -----------  ----------- 
Net cash inflow from operating activities                          30      113,710      102,968 
Investing activities 
Interest received                                                            5,031        7,008 
Dividends received from trading investments                                  2,133        3,361 
Proceeds on disposal of trading investments                                 63,922       87,089 
Purchase of trading investments                                           (56,225)     (77,275) 
Proceeds on disposal of property, plant and equipment                          600        1,431 
Purchase of property, plant and equipment                                 (59,554)     (30,746) 
Purchase of intangible assets                                              (2,033)      (4,196) 
Capital increase - WSUT                                            17      (4,003)            - 
--------------------------------------------------------------  -----  -----------  ----------- 
Net cash used in investing activities                                     (50,129)     (13,328) 
--------------------------------------------------------------  -----  -----------  ----------- 
Financing activities 
Dividends paid                                                     11     (24,754)     (22,279) 
Dividends paid to non-controlling interests in subsidiary                 (17,914)     (16,836) 
Repayments of borrowings                                                  (54,223)     (54,690) 
Repayments of obligations under finance leases                               (665)        (847) 
New bank loans raised                                                        9,381       12,611 
Derivative paid                                                              (771)        (529) 
Net cash inflow arising from sale of non-controlling interest      29          190          746 
--------------------------------------------------------------  -----  -----------  ----------- 
Net cash used in financing activities                                     (88,756)     (81,824) 
--------------------------------------------------------------  -----  -----------  ----------- 
Net (decrease)/increase in cash and cash equivalents                      (25,175)        7,816 
--------------------------------------------------------------  -----  -----------  ----------- 
Cash and cash equivalents at beginning of year                              83,827       77,314 
--------------------------------------------------------------  -----  -----------  ----------- 
Effect of foreign exchange rate changes                                   (14,851)      (1,303) 
--------------------------------------------------------------  -----  -----------  ----------- 
Cash and cash equivalents at end of year                                    43,801       83,827 
--------------------------------------------------------------  -----  -----------  ----------- 
 

Notes to the Accounts

for the year ended 31 December 2018

   1       General Information 

The financial statements have been prepared on the historical cost basis except for the revaluation of financial investments. The accounting policies are consistent with those set out in the 2017 Group annual report except for new standards and interpretations adopted.

   2       Significant accounting policies and critical accounting judgements 

Basis of accounting

The financial statements have been prepared in accordance with IFRSs adopted for use by the International Accounting Standards Board ("IASB").

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments and share-based payments liabilities that are measured at fair value. The principal accounting policies adopted are set out below.

Going concern

The directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group closely monitors and manages its liquidity risk. The Group has considerable financial resources including US$43.8 million in cash and cash equivalents and the Group's borrowings have a long maturity profile. The Group's business activities together with the factors likely to affect its future development and performance are set out in the Chairman's statement, Operating review and Investment Manager's report. The financial position, cash flows and borrowings of the Group are set out in the financial review. In addition note 37 to the financial statements include details of its financial instruments and hedging activities and its exposure to credit risk and liquidity risk. Details of the Group's borrowings are set out in note 23. Based on the Group's forecasts and sensitivities run, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year (collectively the "Group"). The Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interest's share of changes in equity since the date of the combination.

Where a change in percentage of interests in a controlled entity does not result in a change of control, the difference between the consideration paid for the additional interest and the book value of the net assets in the subsidiary at the time of the transaction is taken direct to equity.

Foreign currency

The functional currency for each Group entity is determined as the currency of the primary economic environment in which it operates (its functional currency). Transactions other than those in the functional currency of the entity are translated at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the statement of comprehensive income for the period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

On consolidation, the statement of comprehensive income of entities with a functional currency other than US Dollars are translated into US Dollars, the Group's presentational currency, at average rates of exchange. Balance sheet items are translated into US Dollars at year end exchange rates. Exchange differences arising on consolidation of entities with functional currencies other than US Dollars are classified as equity and are recognised in the Group's translation reserve.

Investments in entities accounted for using the equity method

The Group's investments in entities accounted for using the equity method include its interests in jointly controlled (joint ventures) ventures.

A jointly controlled entity is in a contractual agreement whereby the Group has joint control, where the Group is entitled to the net assets of the contractual agreement, and not entitled to specific assets and liabilities arising from the agreement.

Investments in jointly controlled entities are accounted for using the equity method. Such investments are initially recognised at cost, which includes expenses for the transaction. After initial recognition, the financial statements include the Group's share in the profit or loss for the year and other comprehensive income of the investee until the date that significant influence or joint control ceases.

Investments in joint ventures

Interests in joint ventures

A joint venture is a contractual agreement where the Group has rights to the net assets of the contractual arrangement and is not entitled to specific assets and liabilities arising from the agreement. Investments in joint venture entities are accounted for using the equity method. After initial recognition, the financial statements include the Group's share in the profit or loss for the year and other comprehensive income of the investee until the date that significant influence or joint control ceases.

Interests in joint operations

Joint operation is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control which is when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. The joint operations assets and any liabilities incurred jointly with other ventures are recognised in the financial statements of the relevant entity and classified according to their nature. The Group's share of the assets, liabilities, income and expenses of joint operation entities are combined with the equivalent items in the consolidated financial statements on a line-by-line basis.

The consolidated financial statements include the accounts of joint ventures and joint operations which are listed in Note 17.

Employee Benefits

Short-term employee benefits

Obligations of short-term employee benefits are recognised as personnel expenses as the corresponding service is provided. The liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Stock option plan

For equity-settled share-based payment transactions, the Group measures the options granted, and the corresponding increase in equity, directly, at the fair value of the option grant. Subsequent to initial recognition and measurement the estimate of the number of equity instruments for which the service and non-market performance conditions are expected to be satisfied is revised during the vesting period. The cumulative amount recognised is based on the number of equity instruments for which the service and non-market conditions are expected to be satisfied. No adjustments are made in respect of market conditions.

Share-Based payment transactions

The fair value of the amount payable to employees regarding the rights on the valuation of the shares, which are settled in cash, is recognised as an expense with a corresponding increase in liabilities during the period that the employees are unconditionally entitled to payment. The liability is remeasured at each balance sheet date and at settlement date based on the fair value of the rights on valuation. Any changes in the fair value of the liability are recognised in income as personnel expenses.

Defined health benefit plans

The Group's net obligation regarding defined health benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees receive in return for their service in the current period and prior periods. That health benefit is discounted to determine its present value.

The calculation of the liability of the defined health benefit plan is performed annually by a qualified actuary using the projected unit credit method. Remeasurements of the net defined health benefit obligation, which include actuarial gains and losses, are immediately recognised in other comprehensive income. The Group determines the net interest on the net amount of defined benefit liabilities for the period by multiplying them by the discount rate used to measure the defined health benefit obligation. Defined benefit liabilities for the period take into account the balance at the beginning of the period covered by the financial statements and any changes in the defined health benefit net liability during the period due to the payment of contributions and benefits. Net interest and other expenses related to defined health benefit plans are recognised in income.

When the benefits of a plan are increased, the portion of the increased benefit relating to past services rendered by employees is recognised immediately in income. The Group recognises gains and losses on the settlement of a defined health benefit plan when settlement occurs.

Other long-term employee benefits

The Group's net obligation in respect of other long-term employee benefits is the amount of future benefit that employees receive in return for the service rendered in the current year and previous years. That benefit is discounted to determine its present value. Remeasurements are recognised in the income statement.

Benefits of termination of employment relationship

The benefits of termination of employment relationship are recognised as an expense when the Group can no longer withdraw the offer of such benefits and when the Group recognizes the costs of restructuring. If payments are settled after 12 months from the balance sheet date, then they are discounted to their present values.

Taxation

Tax expense for the period comprises current tax and deferred tax.

The current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes or includes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's current tax expense is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is the tax expected to be payable or recoverable on temporary differences and tax losses (i.e. differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit). Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences and tax losses to the extent that it is probable that taxable profits will be available against which those assets can be utilised.

Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The Company offsets current tax assets against current tax liabilities when these items are in the same entity and relate to income taxes levied by the same taxation authority and the taxation authority permits the company to make or receive a single net payment. In the consolidated financial statements, a deferred tax asset of one entity in the Group cannot be offset against a deferred tax liability of another entity in the Group as there is no legally enforceable right to offset tax assets and liabilities between Group companies.

Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items charged or credited directly to equity, in which case the tax is also taken directly to equity. Current tax is based on assessable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is charged so as to write off the cost or valuation of assets, other than land and assets under construction, over their estimated useful lives, using the straight-line method as follows:

 
Freehold Buildings:      25 to 60 years 
Leasehold Improvements:  Lower of the rental period or useful life considering residual values 
Floating Craft:          25 to 35 years 
Vehicles:                5 years 
Plant and Equipment:     5 to 30 years 
 

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Assets in the course of construction are carried at cost, less any recognised impairment loss. Costs include professional fees and borrowing costs for qualifying assets. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for intended use.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, except when there is no reasonable certainty that the Group will obtain ownership by the end of the lease term in which the asset shall be fully depreciated over the shorter of the lease term and its useful life.

Dry docking costs are capitalised and depreciated over the period in which the economic benefits are received.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.

Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the profit or loss in the period in which they are incurred.

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

Sale of non-controlling interest

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interest's share of changes in equity since the date of the combination.

Intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives as follows.

 
Lease rights:       10 to 33 years 
Computer software:  3 to 5 years 
 

The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. There is no indefinite life intangible asset.

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the income statement when the asset is derecognised.

Impairment

The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

Goodwill is tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or cash-generating unit (CGU) exceeds its recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to an operating segment ceiling test, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials, spare parts and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Financial instruments

Financial assets and liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

   a.      Financial assets 

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through profit or loss (FVTPL), and fair value through other comprehensive income (OCI). The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow and the Group's business model for managing them.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Financial assets at amortised cost

The following instruments have been classified and measured at amortised cost using the effective interest method, less any impairment loss:

-- Cash and Cash Equivalents / Investments: Cash and cash equivalents comprise cash on hand and other short-term highly liquid cash equivalents with maturities of less than 90 days which are subject to an insignificant risk of changes in value; and Investments comprise cash in hand and other investments with more than 90 days of maturity.

-- Trade Receivables: Trade receivables and other amounts receivable are stated at the present value of the amounts due, reduced by any impairment loss.

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss. Changes in fair value are recognised in the profit or loss under "financial income" or "financial expenses", depending on the results obtained.

Impairment of financial assets

Financial assets that are measured at amortised cost are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

Objective evidence of impairment could include:

   --        Significant financial difficulty of the issuer or counterparty; 
   --        Default or delinquency in interest or principal payments; 

-- It becoming probable that the borrower will enter bankruptcy or financial re-organisation, or

-- The disappearance of an active market for that financial asset due to financial difficulties.

For trade receivables, the Group applies a simplified approach in calculation an allowance for expected credit losses (ECLs). Details are disclosed in Note 21.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset's carrying amount and the present value of estimated future cash flows, reflecting the impact of collateral and guarantees, discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.

When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralized borrowing for the proceeds received.

   b.      Financial liabilities 

Financial liabilities are classified as either "FVTPL" or "other financial liabilities".

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.

Other financial liabilities are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortisation cost, using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

There are no financial liabilities classified at FVTPL.

Other financial liabilities

-- Bank loans: Interest-bearing bank loans, obligations under finance leases are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on the accruals basis to the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

-- Trade Payables: Trade payables and other amounts payable are measured at fair value, net of transaction costs.

Derivatives

One of the Group's subsidiaries holds derivatives to hedge foreign currency exposure arising from capital expenditure denominated in Real. These derivatives are marked to market at the end of every month.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value, with gains or losses reported in the income statement. The Group does not have embedded derivatives for the periods presented.

Hedge Accounting (Cash flow hedge)

The Group seeks to apply hedge accounting (cash flow hedge) in order to manage volatility in profit or loss. When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the derivatives reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.

However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, plant and equipment purchases) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial carrying amount of the asset or liability. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic benefits will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Revenue

Revenue is measured at fair value of the consideration received or receivable for goods and services provided in the normal course of business net of trade discounts and other sales related taxes.

Shipyard revenue

Revenue related to services and construction contracts is recognised throughout the period of the project when the work in proportion to the stage of completion of the transaction contracted has been performed.

Port terminals revenue

Revenue from providing container movement and associated services is recognised on the date that the services have been performed.

O&G Support Base revenue

Revenue from providing vessel turnarounds is recognised on the date that the services have been performed.

Towage revenue

Revenue from towage services is recognised on the date that the services have been performed.

Ship agency and logistics revenues

Revenue from providing agency and logistics services is recognised when the agreed services have been performed.

Interest income

Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Dividend income

Dividend income from investments is recognised when the shareholders rights to receive payment have been established.

Construction contracts

Construction contracts in progress represent the gross amount expected to be collected from customers for contract work performed to date. When the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably, has been agreed with the customer and consequently is considered probable.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent it is probable contract costs incurred will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Construction contracts in progress are presented as part of trade and other payables and trade and other receivables in the statement of financial position for all contracts in which costs incurred plus recognised profits exceed progress billings and recognised losses.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessee:

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term.

Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. This will be the case if the following two criteria are met:

   --        The fulfilment of the arrangement is dependent on the use of a specific asset or assets. 
   --        The arrangement contains a right to use the asset(s). 

At inception or on reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group's incremental borrowing rate.

Finance income and finance costs

Finance income comprises interest income on funds invested; fair value gains on financial assets recognised through profit or loss and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and deferred consideration, fair value losses on financial assets at fair value through profit or loss and contingent consideration, losses on hedging instruments that are recognised in profit or loss.

2.2 Critical accounting judgements and key sources of estimation uncertainty

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

In the process of applying the Group's accounting policies, which are described above, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements as mentioned below.

   a.   Provisions for tax, labour and civil risks - Judgement 

In the normal course of business in Brazil the Group is exposed to local legal cases. Provisions for legal cases are made when the Group's management, together with their legal advisors, consider the probable outcome is a financial settlement against the Group. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation based upon legal advice received. For labour claims, the provision is based on prior experience and management's best knowledge of the relevant facts and circumstances.

The amount of provisions for tax, labour and civil risks at the end of the reporting period was US$17.3 million (2017: US$18.2 million). Details are disclosed in Note 27.

   b.   Impairment of goodwill - Judgement and estimation 

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The recoverable amount calculation requires the entity's management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

The carrying amount of goodwill at the end of the reporting period was US$27.5 million (2017: US$30.3 million). Details are disclosed in Note 13. There are no impairment losses recognised for the years presented.

   c.   Fair value of derivatives - Estimation 

The Company may use derivative contracts to manage risk. For derivative financial instruments, assumptions are made based on quoted market rates adjusted for specific features of the instruments.

The amount of fair value of derivates at the end of the reporting period was US$0.4 million (2017: US$1.5 million). Details are disclosed in note 37.

   d.   Provision for expected credit losses of trade receivables and contract assets - Estimation 

The Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns.

The provision matrix is initially based on the Group's historical observed default rates. The Group will calibrate, when appropriate, the matrix to adjust the historical credit loss experience with forward-looking information.

The Group's management will update the default rate per business every six months.

The amount of provision for expected credit losses of trade receivables and contract assets at the end of the reporting period was US$1.5 million (2017: US$1.0 million). Details are disclosed in note 21.

   e.   Valuation of unquoted investments - Judgement and estimation 

The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.

Through the Investment Manager management has considered the valuation of investments in particular level 3 assets and they consider that the position taken represents the best estimate at the balance sheet date (note 37).

The amount of Level 3 assets at the end of the reporting period was US$111.3m (2017: US$112.1m). Details are disclosed in note 37.

   2.3.   Changes in accounting policies and disclosures 

The Group applied IFRS 15 and IFRS 9 for the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below.

Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued, but are not yet effective.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with customers. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires extensive disclosures.

The Group adopted IFRS 15 using the modified retrospective method of adoption with the date of initial application of 1 January 2018. Under this method, the standard can be applied either to all contracts at the date of initial application or only to contracts that are not completed at this date. The Group elected to apply the standard to all contracts as at 1 January 2018.

The Company's main revenues are related to services. An evaluation was carried out in the prior year of the five steps of the requirements of IFRS 15, the Company did not identify changes or impacts in the current recognition of its income, since they are recognised through transfer of control upon the delivery of the service.

In relation to the Shipyard revenue, management's review concluded that the timing of revenue recognition is over time, since the client has the right to suggest changes on the initial design throughout the period of the project and the customer derives benefits from the work completed (after a certain point in the construction process) and controls the asset, conceptually the customer could move the vessel to another shipyard to continue construction, subject to agreeing appropriate compensation with the Group.

Therefore, in 2018, the Group did not present effects and changes in income recognition and there were no adjustments needed to be made to the opening balance of retained earnings. Only revenue disaggregation disclosures adjustments were made and are detailed in Note 3.

Change in presentation

"Trade and other receivables", "Recoverable taxes" and "Related party loans" are now shown as separate line items on the face of the balance sheet (they were previously included in one line, "Trade and other receivables"). The change was made in order to improve presentation.

"Income from underlying investment vehicles" and "Other gains and losses" are now shown on the face of the profit and loss under "Returns on investments held at fair value through profit and loss". The change was made in order to improve presentation of items of similar nature.

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment, and hedge accounting.

The Group applied IFRS 9 prospectively, with an initial application date of 1 January 2018. The Group has not restated the comparative information which continues to be reported under IAS 39.

There were no material effects of adopting IFRS 9 as at 1 January 2018.

   a.      Classification and measurement 

Loans as well as trade receivables are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9. Therefore reclassification for these instruments is not required.

The assessment of financial assets under the IFRS 9 is detailed in the table below:

Financial Assets FS Group Asset category

   Cash and bank                               Cash and cash equivalents           Amortised Cost 
   Fixed income investment                Cash and cash equivalents          FVPL 
   Exchange funds                              Cash and cash equivalents          FVPL 
   Time deposit                                   Short-term investments                Amortised Cost 
   Time deposit                                   Cash and cash equivalents          Amortised Cost 
   Receivable for services rendered   Operational trade receivables      Amortised Cost 
   Related parties' loans                     Other trade receivables                Amortised Cost 
   Insurance indenisation receivable  Other trade receivables               Amortised Cost 
   Other trade receivables                  Other trade receivables               Amortised Cost 
   b.      Impairment 

The adoption of IFRS 9 has fundamentally changed the Group's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss (ECL) approach. IFRS 9 requires the Group to recognise an allowance for ECLs for all debt instruments not held at fair value through profit or loss and contract assets.

   c.      Hedge accounting 

At the date of initial application, all of the Group's existing hedging relationships were eligible to be treated as continuing hedging relationships. IFRS 9 provides an accounting policy choice: entities can either continue to apply the hedge accounting requirements of IAS 39, or they can apply IFRS 9 (with the scope exception only for fair value macro hedges of interest rate risk). This accounting policy choice will apply to all hedge accounting and cannot be made on a hedge-by-hedge basis. The Group continues applying the requirements of IAS 39. Under IAS 39, all gains and losses arising from the Group's cash flow hedging relationships were eligible to be subsequently reclassified to profit or loss.

If an entity initially decides to continue applying IAS 39 hedge accounting, it can subsequently decide to change its accounting policy and commence applying the hedge accounting requirements of IFRS 9 at the beginning of any reporting period (subject to the other transition requirements of IFRS 9).

New standards and interpretations not yet adopted

The Group has listed all new standards and interpretations issued by the IASB but not yet effective, regardless of whether these have any material impact on the Group's financial statement. Based on a preliminary assessment made by the Company, the impacts are detailed below:

IFRS 16 - Leases

The pronouncement replaces IAS 17 - Leases, and related interpretations (IFRIC 4, SIC 15 and SIC 27). It eliminates the accounting for operating lease agreements for the lessee, presenting only one lease model that consists of: (a) initially recognising all leased assets (Right-of-use assets) and liabilities (Other liabilities) at present value; and (b) recognising depreciation of the right-of-use assets and interest from the lease separately in the profit and loss. This standard is effective for annual periods beginning on 1 January 2019. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less).

During 2018, the Group has performed a detailed impact assessment of IFRS 16 identifying existing contracts, as well as the environment of internal controls and systems impacted by the adoption of the new standard. The assessment was divided into stages, such as:

   i)       Identification of contracts; 
   ii)       Transition approach; 
   iii)      Effects of first-time adoption. 

Identification of contracts

Management prepared a full lease contract inventory identifying the types of contracts that would be in the scope of the standard. The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value.

Transition approach

The modified retrospective transition method will be applied which does not require the presentation of comparative information and liabilities and the right-of-use asset are stated at present value of remaining instalments.

Effects in first-time adoption

Management concluded that lease's amounts which are currently recorded as operational leasing expenses will start to be recognised under "Depreciation" and "Financial expenses".

Although this new pronouncement does not introduce any change to total amount that shall be taken to net income over the contract's useful life, it is correct to state that a temporal effect will occur mainly in net income due to the method adopted for recognition of interest and monetary restatements associated to leases.

On 1 January 2019, the Group will recognise a right-of-use asset and a lease liability at present value of US$177.0 million. The impact will principally be due to the recognition of right-of-use assets previously recognised as operating leases in respect of the commitments expressed in Note 33.

Other standards or amendments

The following new or amended standards are not expected to have a significant impact on the Group's consolidated financial statements:

   --        Insurance Contracts (IFRS 17); 
   --        Uncertainty over Income Tax Treatments (IFRIC 23); 
   --        Prepayment Features with Negative Compensation (Amendments to IFRS 9); 

-- Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28);

   --        Plan Amendment, Curtailment or Settlement (Amendments to IAS 19); 
   --        Long-term interests in associates and joint ventures (Amendments to IAS 28); and 
   --        Annual Improvement of IFRS 2015 to 2017 cycle. 
   3       Revenue 

An analysis of the Group's revenue is as follows:

 
                                                       Year ended   Year ended 
                                                      31 December  31 December 
                                                             2018         2017 
                                                          US$'000      US$'000 
----------------------------------------------------  -----------  ----------- 
Sales of services                                         446,158      475,106 
Revenue from construction contracts                        14,038       21,234 
----------------------------------------------------  -----------  ----------- 
                                                          460,196      496,340 
Income from underlying investment vehicles (note 7)         2,133        3,361 
Other Investment income (note 8)                            4,152        9,715 
                                                          466,481      509,416 
----------------------------------------------------  -----------  ----------- 
 

The following is an analysis of the Group's revenue from continuing operations for the period (excluding investment income - note 7 and 8).

   3.1    Disaggregated revenue information 

Set out below is the disaggregation of the Group's revenue from contracts with customers

 
                              Year ended   Year ended 
                             31 December  31 December 
                                    2018         2017 
                                 US$'000      US$'000 
---------------------------  -----------  ----------- 
Towage and agency services 
Harbour manoeuvres               152,376      195,479 
Special operations                13,212       11,275 
Ship agency                        9,950       11,294 
Total                            175,538      218,048 
---------------------------  -----------  ----------- 
 
 
Port terminals 
Container handling        97,627  106,391 
Warehousing               43,995   38,387 
Ancillary services        24,432   26,163 
Oil & Gas support base    20,813   15,678 
Other services            16,920   16,504 
Total                    203,787  203,123 
-----------------------  -------  ------- 
 
 
Logistics 
Logistics   56,908  54,656 
Total       56,908  54,656 
----------  ------  ------ 
 
 
Shipyard 
Shipyard construction contracts    14,038  17,747 
Technical assistance/dry-docking    9,939   3,487 
Total                              23,977  21,234 
---------------------------------  ------  ------ 
 
 
Other services 
Other services   (14)  (721) 
Total            (14)  (721) 
---------------  ----  ----- 
 
 
Total   460,196  496,340 
------  -------  ------- 
 
 
                                 Year ended   Year ended 
                                31 December  31 December 
                                       2018         2017 
                                    US$'000      US$'000 
------------------------------  -----------  ----------- 
Timing of revenue recognition 
At a point of time                  436,219      475,106 
Over time                            23,977       21,234 
------------------------------  -----------  ----------- 
                                    460,196      496,340 
------------------------------  -----------  ----------- 
 

3.2 Contract balance

Trade receivables are generally received between 30 and 45 days. The carrying amount of operational trade receivables at the end of reporting period was US$57.7 million (2017: US$58.0 million). These amounts including US$15.3 million (2017: US$18.3 million) of contract assets (unbilled accounts receivables). Details are disclosed in Note 21.

The balance of construction contracts are presented in Note 20. The contract liability balance as at the beginning of the period was recognised as revenue in the reporting period. There are no other contract assets and liabilities recognised for the years presented.

3.3 Performance obligations

Information about the Group's performance obligations are summarised below:

 
                                    When performance obligation 
Performance obligation                is typically satisfied 
 
Towage and agency services 
Harbour Manoeuvres                      At a point in time 
Special Operations                      At a point in time 
Ship Agency                             At a point in time 
 
Port Terminals 
Container Handling                      At a point in time 
Warehousing                             At a point in time 
Ancillary services                      At a point in time 
Oil & Gas Support Base                  At a point in time 
Other services                          At a point in time 
 
Logistics 
Logistics                               At a point in time 
 
Shipyard 
Ship construction contracts                  Over time 
Technical assistance / dry-docking           Over time 
 

The majority of the Group's performance obligations are satisfied at a point in time, upon delivery of the service, and payment is generally due within 30 to 45 days upon completion of services.

The performance obligation of ship construction contracts is satisfied over time and the revenue related to services and construction contracts is recognised when the work in proportion to the stage of completion of transactions contracted has been performed.

There are no significant judgements in the determination of when performance obligations are typically satisfied.

All revenue is derived from continuing operations.

   4       Business and geographical segments 

Business segments

Ocean Wilsons has two reportable segments: maritime services and investments. The maritime services segment provides towage, port terminals, ship agency, offshore, logistics and shipyard services in Brazil. The investment segment holds a portfolio of international investments. Segment information relating to these businesses is presented below.

For the year ended 31 December 2018

 
                                                              Maritime 
                                                              Services   Investment  Unallocated  Consolidated 
                                                            Year ended   Year ended   Year ended    Year ended 
                                                           31 December  31 December  31 December   31 December 
                                                                  2018         2018         2018          2018 
                                                               US$'000      US$'000      US$'000       US$'000 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Revenue                                                        460,196            -            -       460,196 
Result 
Segment result                                                 104,453      (2,902)      (2,051)        99,500 
Share of results of joint ventures                             (4,062)            -            -       (4,062) 
Return on investment portfolio at fair value through P&L             -      (7,942)            -       (7,942) 
Other investment income                                          4,060           16           76         4,152 
Finance costs                                                 (22,951)            -            -      (22,951) 
Foreign exchange losses on monetary items                      (8,807)         (22)          370       (8,459) 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Profit/(loss) before tax                                        72,693     (10,850)      (1,605)        60,238 
Tax                                                           (26,433)            -            -      (26,433) 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Profit/(loss) after tax                                         46,620     (10,850)      (1,605)        33,805 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Other information 
Capital additions                                             (61,706)            -            -      (61,706) 
Depreciation and amortisation                                 (56,175)            -          (3)      (56,178) 
Balance Sheet 
Assets 
Segment assets                                                 950,272      258,985        3,192     1,212,449 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Liabilities 
Segment liabilities                                          (434,151)        (256)        (333)     (434,740) 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
 

For the year ended 31 December 2017

 
                                                              Maritime 
                                                              Services   Investment  Unallocated  Consolidated 
                                                            Year ended   Year ended   Year ended    Year ended 
                                                           31 December  31 December  31 December   31 December 
                                                                  2017         2017         2017          2017 
                                                               US$'000      US$'000      US$'000       US$'000 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Revenue                                                        496,340            -            -       496,340 
Result 
Segment result                                                 114,875      (2,949)      (2,381)       109,545 
Share of results of joint ventures                               3,366            -            -         3,366 
Return on investment portfolio at fair value through P&L             -       42,064            -        42,064 
Other investment income                                          9,687            5           23         9,715 
Finance costs                                                 (21,976)            -            -      (21,976) 
Foreign exchange losses on monetary items                        2,876         (63)         (63)         2,750 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Profit/(loss) before tax                                       108,828       39,057      (2,421)       145,464 
Tax                                                           (36,056)            -            -      (36,056) 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Profit/(loss) after tax                                         72,772       39,057      (2,421)       109,408 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Other information 
Capital additions                                             (55,345)            -            -      (55,345) 
Depreciation and amortisation                                 (57,480)            -          (1)      (57,481) 
Balance Sheet 
Assets 
Segment assets                                               1,042,782      274,659        2,513     1,319,954 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
Liabilities 
Segment liabilities                                          (495,134)        (388)        (372)     (495,894) 
---------------------------------------------------------  -----------  -----------  -----------  ------------ 
 

The prior year comparatives have been re-presented in order to match the current year presentation

Finance costs and associated liabilities have been allocated to reporting segments where interest costs arise from loans used to finance the construction of fixed assets in that segment.

Geographical Segments

The Group's operations are located in Bermuda, Brazil, Panama and Uruguay.

All of the Group's sales are derived in Brazil.

The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located.

 
                                             Additions to 
             Carrying amount of      property, plant and equipment 
               segment assets            and intangible assets 
                                         Year ended      Year ended 
          31 December  31 December      31 December     31 December 
                 2018         2017             2018            2017 
              US$'000      US$'000          US$'000         US$'000 
--------  -----------  -----------  ---------------  -------------- 
Brazil        909,385      990,689           61,706          55,345 
Bermuda       303,064      329,265                -               - 
--------  -----------  -----------  ---------------  -------------- 
            1,212,449    1,319,954           61,706          55,345 
--------  -----------  -----------  ---------------  -------------- 
 
   5       Profit for the year 

Profit for the year has been arrived at after charging:

 
                                                 Year ended   Year ended 
                                                31 December  31 December 
                                                       2018         2017 
                                                    US$'000      US$'000 
----------------------------------------------  -----------  ----------- 
Depreciation of property, plant and equipment        52,757       53,851 
Amortisation of intangible assets                     3,421        3,630 
Operating lease rentals                              22,104       19,231 
Auditor's remuneration (see below)                      735          653 
Non-executive directors' emoluments                     536          536 
----------------------------------------------  -----------  ----------- 
 
 
A more detailed analysis of auditor's remuneration is provided below: 
Auditor's remuneration for audit services                               721  653 
Other services                                                           14    - 
                                                                        735  653 
----------------------------------------------------------------------  ---  --- 
 
   6       Employee benefits expense 
 
                                     Year ended   Year ended 
                                    31 December  31 December 
                                           2018         2017 
                                        US$'000      US$'000 
----------------------------------  -----------  ----------- 
Aggregate remuneration comprised: 
Wages and salaries                      119,402      133,524 
Share based payments                      1,331        2,386 
Social security costs                    24,507       29,405 
Other pension costs                       1,087        1,080 
----------------------------------  -----------  ----------- 
                                        146,327      166,395 
----------------------------------  -----------  ----------- 
 
   7       Returns on investment portfolio at fair value through profit and loss 
 
                                                                                      Year ended   Year ended 
                                                                                     31 December  31 December 
                                                                                            2018         2017 
                                                                                         US$'000      US$'000 
-----------------------------------------------------------------------------------  -----------  ----------- 
Unrealised (losses)/gains on financial assets at fair value through profit or loss      (18,654)       30,196 
Income from underlying investment vehicles                                                 2,133        3,361 
Profit on disposal of financial assets at fair value through profit or loss                8,579        8,507 
-----------------------------------------------------------------------------------  -----------  ----------- 
                                                                                         (7,942)       42,064 
-----------------------------------------------------------------------------------  -----------  ----------- 
 

The prior year comparatives have been re-presented in order to match the current year presentation.

   8       Other investment income 
 
                             Year ended   Year ended 
                            31 December  31 December 
                                   2018         2017 
                                US$'000      US$'000 
--------------------------  -----------  ----------- 
Interest on bank deposits         3,565        5,916 
Other interest                      587        3,799 
--------------------------  -----------  ----------- 
                                  4,152        9,715 
--------------------------  -----------  ----------- 
 

The prior year comparatives have been re-presented in order to match the current year presentation.

   9       Finance costs 
 
                                                Year ended   Year ended 
                                               31 December  31 December 
                                                      2018         2017 
                                                   US$'000      US$'000 
---------------------------------------------  -----------  ----------- 
Interest on bank overdrafts and loans               12,300       13,274 
Exchange loss on foreign currency borrowings        10,009          774 
Interest on obligations under finance leases            62          200 
Other interest                                         580        7,728 
---------------------------------------------  -----------  ----------- 
                                                    22,951       21,976 
---------------------------------------------  -----------  ----------- 
 

In 2017 other interest includes US$7.4 million of fines and interest relating to taxes (see note 24)

Borrowing costs incurred on qualifying assets of US$0.1 million (2017: US$0.4 million) were capitalised in the year at an average interest rate of 3.38% (2017: 3.38%).

   10     Taxation 
 
                                                                Year ended   Year ended 
                                                               31 December  31 December 
                                                                      2018         2017 
                                                                   US$'000      US$'000 
-------------------------------------------------------------  -----------  ----------- 
Current 
Brazilian taxation 
Corporation tax                                                     20,764       27,794 
  Social contribution                                                8,270        9,978 
-------------------------------------------------------------  -----------  ----------- 
  Total current tax                                                 29,034       37,772 
-------------------------------------------------------------  -----------  ----------- 
Deferred tax 
  Charge for the year in respect of deferred tax liabilities        16,044       19,933 
  Credit for the year in respect of deferred tax assets           (18,645)     (21,649) 
-------------------------------------------------------------  -----------  ----------- 
Total deferred tax                                                 (2,601)      (1,716) 
-------------------------------------------------------------  -----------  ----------- 
Total taxation charge                                               26,433       36,056 
-------------------------------------------------------------  -----------  ----------- 
 

Brazilian corporation tax is calculated at 25% (2017: 25%) of the assessable profit for the year. Brazilian social contribution tax is calculated at 9% (2017: 9%) of the assessable profit for the year.

At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda and accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the company has received an undertaking from the Bermuda Government exempting it from all such taxes until 31 March 2035.

The charge for the year can be reconciled to the profit per the statement of comprehensive income as follows:

 
                                                                                  Year ended   Year ended 
                                                                                 31 December  31 December 
                                                                                        2018         2017 
                                                                                     US$'000      US$'000 
-------------------------------------------------------------------------------  -----------  ----------- 
Profit before tax                                                                     60,238      145,464 
Tax at the aggregate Brazilian tax rate of 34% (2017: 34%)                            20,481       49,458 
 
Utilisation of net operating losses                                                  (4,839)     (11,367) 
Net operating losses in the period                                                     1,336        7,932 
Amortisation of goodwill                                                             (1,093)      (1,818) 
Exchange variance on loans                                                          (10,988)        (454) 
Tax effect of share of results of joint ventures                                       1,381      (1,144) 
Tax effect of foreign exchange gain or losses on monetary items                        3,397        (454) 
Retranslation of non-current asset valuation                                           9,826      (1,372) 
Share option scheme                                                                      443          793 
Non-deductible expenses                                                                  952        1,340 
Leasing                                                                                  730            - 
Termination of tax litigation                                                             35        3,290 
Other                                                                                    404        2,209 
Effect of different tax rates of subsidiaries operating in other jurisdictions         4,368     (12,357) 
-------------------------------------------------------------------------------  -----------  ----------- 
Tax expense for the year                                                              26,433       36,056 
-------------------------------------------------------------------------------  -----------  ----------- 
Effective rate for the year                                                              44%          25% 
-------------------------------------------------------------------------------  -----------  ----------- 
 

The Group earns its profits primarily in Brazil. Therefore, the tax rate used for tax on profit on ordinary activities is the standard rate in Brazil of 34%, consisting of corporation tax (25%) and social contribution (9%).

   11     Dividends 
 
                                                                                        Year ended   Year ended 
                                                                                       31 December  31 December 
                                                                                              2018         2017 
                                                                                           US$'000      US$'000 
-------------------------------------------------------------------------------------  -----------  ----------- 
Amounts recognised as distributions to equity holders in the period: 
Final dividend paid for the year ended 31 December 2017 of 70c (2016: 63c) per share        24,754       22,279 
-------------------------------------------------------------------------------------  -----------  ----------- 
Proposed final dividend for the year ended 31 December 2018 of 70c (2017: 70c) 
 per share                                                                                  24,754       24,754 
-------------------------------------------------------------------------------------  -----------  ----------- 
 
   12     Earnings per share 

The calculation of the basic and diluted earnings per share is based on the following data:

 
                                                                                               Year ended   Year ended 
                                                                                              31 December  31 December 
                                                                                                     2018         2017 
                                                                                                  US$'000      US$'000 
--------------------------------------------------------------------------------------------  -----------  ----------- 
Earnings: 
Earnings for the purposes of basic earnings per share being net profit attributable to 
 equity 
 holders of the parent                                                                             13,308       78,315 
Number of shares: 
Weighted average number of ordinary shares for the purposes of basic and diluted earnings 
 per share                                                                                     35,363,040   35,363,040 
--------------------------------------------------------------------------------------------  -----------  ----------- 
 
   13     Goodwill 
 
                                          31 December  31 December 
                                                 2018         2017 
                                              US$'000      US$'000 
----------------------------------------  -----------  ----------- 
Cost and carrying amount attributed to: 
  Tecon Rio Grande                             13,307       15,587 
  Brasco                                       11,728       12,252 
  Tecon Salvador                                2,480        2,480 
----------------------------------------  -----------  ----------- 
Total                                          27,515       30,319 
----------------------------------------  -----------  ----------- 
 

The goodwill associated with each cash-generating unit (Brasco, Tecon Salvador and Tecon Rio Grande) is attributed to the Maritime services segment. The movement in goodwill balances in the year is due to the depreciation of the Brazilian Real against the US Dollar.

As part of the annual impairment test, the carrying value of goodwill has been assessed with reference to its value in use reflecting the projected discounted cash flows of each cash-generating unit to which goodwill has been allocated. The cash-flows are based on the remaining life of the concession. Future cash flows are derived from the most recent financial budget and the remaining period of the concession.

The key assumptions used in determining value in use relate to growth rate, discount rate and inflation rate. Further projections include sales and operating margins, which are based on past experience, taking into account the effect of known or likely changes in market or operating conditions.

Projections include sales and operating margins, which are based on past experience, taking into account the effect of known or likely changes in market or operating conditions. Brazilian economy and Oil and Gas sector recovery drives volume increase during projected years for Tecon Rio Grande, Tecon Salvador and Brasco, until reaching operating capacity. The discount rate assumes the cost of capital, whereas the growth rate for perpetuity projection is based on inflation rate only.

The estimated average growth rate used does not exceed the historical average for Tecon Rio Grande and Tecon Salvador. Growth rate is equal to projected inflation (4.5%) for Brasco and discount rate of 10.6% for all business units has been used. These growth rates reflect the products, industries and countries in which the businesses operate.

Each cash-generating unit is assessed for impairment annually and whenever there is an indication of impairment.

Having completed the annual impairment test, the level of head room for each of the business unit is significant and no reasonable change in any of the forecast assumptions would give rise to any impairment.

   14     Other intangible fixed assets 
 
                         Software  Lease-rights    Other    Total 
                          US$'000       US$'000  US$'000  US$'000 
-----------------------  --------  ------------  -------  ------- 
Cost 
At 1 January 2017          39,052        25,797       73   64,922 
  Additions                 4,192             2        2    4,196 
  Disposals                  (84)             -        -     (84) 
  Exchange differences      (263)         (381)        -    (644) 
-----------------------  --------  ------------  -------  ------- 
At 1 January 2018          42,897        25,418       75   68,390 
  Additions                 2,033             -        -    2,033 
  Disposals                 (553)             -        -    (553) 
  Exchange differences    (2,028)       (3,694)     (11)  (5,733) 
-----------------------  --------  ------------  -------  ------- 
At 31 December 2018        42,349        21,724       64   64,137 
-----------------------  --------  ------------  -------  ------- 
Amortisation 
At 1 January 2017          27,657         6,821        -   34,478 
  Charge for the year       2,900           730        -    3,630 
  Disposals                  (84)             -        -     (84) 
  Exchange differences      (101)         (125)        -    (226) 
-----------------------  --------  ------------  -------  ------- 
At 1 January 2018          30,372         7,426        -   37,798 
  Charge for the year       2,784           637        -    3,421 
  Disposals                 (551)            --        -    (551) 
  Exchange differences      (897)       (1,102)        -  (1,999) 
-----------------------  --------  ------------  -------  ------- 
At 31 December 2018        31,708         6,961        -   38,669 
-----------------------  --------  ------------  -------  ------- 
Carrying amount 
31 December 2018           10,641        14,763       64   25,468 
-----------------------  --------  ------------  -------  ------- 
31 December 2017           12,525        17,992       75   30,592 
-----------------------  --------  ------------  -------  ------- 
 
   15     Property, plant and equipment 
 
                                           Land and                  Vehicles, plant  Assets under 
                                          buildings  Floating Craft    and equipment  construction      Total 
                                            US$'000         US$'000          US$'000       US$'000    US$'000 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
Cost or valuation 
At 1 January 2017                           301,138         457,875          233,985             -    992,998 
  Additions                                   8,250           5,717           34,011         3,171     51,149 
  Transfers                                     265             588            (442)         (411)          - 
  Exchange differences                      (3,692)               -          (4,573)             -    (8,265) 
  Disposals                                 (4,655)         (2,075)          (3,463)             -   (10,193) 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
At 1 January 2018                           301,306         462,105          259,518         2,760  1,025,689 
  Additions                                  16,827          12,620            8,856        21,370     59,673 
  Transfers                                   1,163          13,997          (1,163)      (13,997)          - 
  Exchange differences                     (35,009)               -         (33,782)             -   (68,791) 
  Disposals                                 (1,781)               -          (2,865)             -    (4,646) 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
At 31 December 2018                         282,506         488,722          230,564        10,133  1,011,925 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
Accumulated depreciation and impairment 
At 1 January 2017                            85,607         143,900          116,565             -    346,072 
  Charge for the year                         9,417          24,644           19,790             -     53,851 
  Elimination on construction contracts           -              81                -             -         81 
  Exchange differences                      (1,352)               -          (2,012)             -    (3,364) 
  Disposals                                 (1,753)         (1,467)          (2,612)             -    (5,832) 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
At 1 January 2018                            91,919         167,158          131,731             -    390,808 
  Charge for the year                         8,589          25,499           18,669             -     52,757 
  Elimination on construction contracts           -             163                -             -        163 
  Exchange differences                     (11,968)               -         (17,461)             -   (29,429) 
  Disposals                                 (1,405)               -          (3,420)             -    (4,825) 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
At 31 December 2018                          87,135         192,820          129,519             -    409,474 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
Carrying Amount 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
At 31 December 2018                         195,371         295,902          101,045        10,133    602,451 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
At 31 December 2017                         209,387         294,947          127,787         2,760    634,881 
----------------------------------------  ---------  --------------  ---------------  ------------  --------- 
 

The carrying amount of the Group's vehicles, plant and equipment includes an amount of US$1.8 million (2017: US$2.6 million) in respect of assets held under finance leases.

Land and buildings with a net book value of US$0.2 million (2017: US$0.2 million) and plant and machinery with a value of US$0.2 million (2017: US$0.2 million) have been given in guarantee of various legal processes.

The Group has pledged assets having a carrying amount of approximately US$293.8 million (2017: US$279.7 million) to secure loans granted to the Group.

The amount of borrowing costs capitalised in 2017 is US$0.1 million (2017: US$0.4 million) at an average interest rate of 3.38% (2017: 3.38%).

   16     Principal subsidiaries 
 
                                                                                   Place of                Method used 
                                                                              incorporation  Effective      to account 
                                                                              and operation  interest*  for investment 
----------------------------------------------------------------------------  -------------  ---------  -------------- 
OCEAN WILSONS (INVESTMENTS) LIMITED                                                 Bermuda     100%**   Consolidation 
  Investment holding and dealing company 
WILSON SONS LIMITED                                                                 Bermuda   58.17%**   Consolidation 
  Holding company 
WILSON SONS DE ADMINISTRAÇÃO E COMÉRCIO LTDA                          Brazil     58.17%   Consolidation 
  Holding company 
SAVEIROS CAMUYRANO SERVIÇOS MARÍTIMOS LTDA                                 Brazil     58.17%   Consolidation 
  Tug operators 
WILSON, SONS S.A., COMÉRCIO, INDÚSTRIA, E AGÉNCIA DE 
NAVEGAÇÃO LTDA                                                             Brazil     58.17%   Consolidation 
  Shipbuilders 
WILSON, SONS ESTALEIRO LTDA                                                          Brazil     58.17%   Consolidation 
  Shipbuilders 
WILSON SONS AGENCIA MARÍTIMA LTDA                                               Brazil     58.17%   Consolidation 
  Ship Agents 
WILSON, SONS NAVEGAÇÃO LTDA                                                Brazil     58.17%   Consolidation 
  Ship Agents 
WILSON, SONS LOGÍSTICA LTDA                                                     Brazil     58.17%   Consolidation 
  Logistics 
WILSON, SONS TERMINAIS DE CARGAS LTDA                                                Brazil     58.17%   Consolidation 
  Transport services 
EADI SANTO ANDRÉ TERMINAL DE CARGA LTDA                                         Brazil     58.17%   Consolidation 
  Bonded warehousing 
WS PARTICIPA ÕES S.A.                                                           Brazil     58.17%   Consolidation 
  Holding company 
WS PARTICIPACIONES S.A.                                                             Uruguay     58.17%   Consolidation 
  Holding company 
TECON RIO GRANDE S.A.                                                                Brazil     58.17%   Consolidation 
  Port operator 
WILSON, SONS APOIO MARITIMO LTDA                                                     Brazil     58.17%   Consolidation 
  Tug operator 
BRASCO LOGÍSTICA OFFSHORE LTDA                                                  Brazil     58.17%   Consolidation 
  Port operator 
TECON SALVADOR S.A.                                                                  Brazil     58.17%   Consolidation 
  Port operator 
----------------------------------------------------------------------------  -------------  ---------  -------------- 
 

* Effective interest is the net interest of Ocean Wilsons Holdings Limited after non-controlling interests.

** Ocean Wilsons Holdings Limited holds direct interests in Ocean Wilsons (Investments) Limited and Wilsons Sons Limited.

The Group also has a 58.17% effective interest in a private investment fund Hydrus Fixed Income Private Credit Investment Fund. This private fund is administrated by Itaú bank and the investment policy and objectives are determined by the Wilson Sons treasury department in line with their policy.

   17     Joint ventures 

The Group holds the following significant interests in joint operations and joint ventures at the end of the reporting period:

 
                                                                Place of    Proportion of ownership 
                                                                           ------------------------- 
                                                           incorporation    31 December  31 December 
                                                           and operation           2018         2017 
--------------------------------------------------------  --------------   ------------  ----------- 
Towage 
  Consórcio de Rebocadores Barra de Coqueiros                 Brazil           50%          50% 
  Consórcio de Rebocadores Baia de São Marcos            Brazil           50%          50% 
Logistics 
  Porto Campinas, Logística e Intermodal Ltda                 Brazil           50%          50% 
Offshore 
  Wilson, Sons Ultratug Participações S.A.*              Brazil           50%          50% 
  Atlantic Offshore S.A.**                                    Panamá           50%          50% 
--------------------------------------------------------  ---------------  ------------  ----------- 
 

* Wilson, Sons Ultratug Participações S.A. controls Wilson, Sons Offshore S.A. and Magallanes Navegação Brasileira S.A. These latter two companies are indirect joint ventures of the Company.

** Atlantic Offshore S.A. controls South Patagonia S.A. This company is an indirect joint venture of the company.

Joint operations

The following amounts are included in the Group's financial information as a result of proportional consolidation of joint operations listed above:

 
              Year ended   Year ended 
             31 December  31 December 
                    2018         2017 
                 US$'000      US$'000 
-----------  -----------  ----------- 
Income            14,598       18,126 
Expenses         (7,544)      (8,792) 
-----------  -----------  ----------- 
Net income         7,054        9,334 
-----------  -----------  ----------- 
 
 
                                31 December  31 December 
                                       2018         2017 
                                    US$'000      US$'000 
------------------------------  -----------  ----------- 
Property, plant and equipment         2,688        2,841 
Intangible assets                        24           35 
Inventories                             385          353 
Trade and other receivables           2,418        2,054 
Cash and cash equivalents               796          904 
------------------------------  -----------  ----------- 
Total assets                          6,311        6,187 
------------------------------  -----------  ----------- 
 
Trade and other payables            (6,172)      (6,153) 
Deferred tax liabilities              (139)         (34) 
------------------------------  -----------  ----------- 
Total liabilities                   (6,311)      (6,187) 
------------------------------  -----------  ----------- 
 

Joint ventures

The aggregated Group's interests in joint ventures are equity accounted.

 
                                                      Year ended   Year ended 
                                                     31 December  31 December 
                                                            2018         2017 
                                                         US$'000      US$'000 
---------------------------------------------------  -----------  ----------- 
Revenue                                                  117,055      146,453 
Raw materials and consumables used                       (9,758)      (9,152) 
Employee benefits expense                               (40,396)     (47,001) 
Depreciation and amortisation expenses                  (41,907)     (39,606) 
Other operating expenses                                (16,390)     (18,881) 
Loss on disposals of property, plant and equipment          (26)          (1) 
---------------------------------------------------  -----------  ----------- 
Results from operating activities                          8,578       31,812 
Finance income                                               302        2,930 
Finance costs                                           (17,318)     (20,408) 
Foreign exchange (losses)/gains on monetary items        (9,160)      (1,129) 
---------------------------------------------------  -----------  ----------- 
(Loss)/profit before tax                                (17,598)       13,205 
Income tax credit /(expense)                               9,474      (6,473) 
---------------------------------------------------  -----------  ----------- 
(Loss)/profit for the year                               (8,124)        6,732 
---------------------------------------------------  -----------  ----------- 
 
Participation                                                50%          50% 
Equity result                                            (4,062)        3,366 
---------------------------------------------------  -----------  ----------- 
 
 
                                31 December  31 December 
                                       2018         2017 
                                    US$'000      US$'000 
------------------------------  -----------  ----------- 
Property, plant and equipment       628,135      647,659 
Long-term investment                  2,171        2,142 
Other assets                          8,821        4,740 
Trade and other receivables          24,223       26,302 
Derivatives                             507          381 
Cash and cash equivalents            18,145       30,575 
------------------------------  -----------  ----------- 
Total assets                        682,002      711,799 
------------------------------  -----------  ----------- 
 
Bank overdrafts and loans           484,009      500,987 
Other non-current liabilities        31,468       35,604 
Trade and other payables             77,746       82,654 
Equity                               88,779       92,554 
------------------------------  -----------  ----------- 
Total liabilities and equity        682,002      711,799 
------------------------------  -----------  ----------- 
 

We have not given separated disclosure of our material Joint Ventures because they belong to the same economic group. Wilson Sons Limited holds a non-controlling interest in Wilson, Sons Ultratug Particpações S.A and Atlantic Offshore S.A. Wilson, Sons Ultratug Participações S.A is a controlling shareholder of Wilson, Sons Offshore S.A. and Magallanes Navegação Brasileira S.A, while Atlantic Offshore S.A. is a controlling shareholder of South Patagonia S.A.

Guarantees

Wilson Sons Offshore S.A. loan agreements with BNDES are guaranteed by a lien on the financed supply vessel and, in the majority of the contracts, a corporate guarantee from both Wilson Sons de Administração e Comércio Ltda and Rebocadores Ultratug Ltda, each guaranteeing 50% of its subsidiary's debt balance with BNDES.

Magallanes Navegação Brasileira S.A.'s loan agreement with Banco do Brasil is guaranteed by a lien on the financed supply vessels. The security package also includes a standby letter of credit issued by Banco de Crédito e Inversiones - Chile for part of the debt balance, assignment of Petrobras' long-term contracts and a corporate guarantee issued by Inversiones Magallanes Ltda - Chile. A cash reserve account, accounted for under long-term investments and funded with US$2.2 million, should be maintained until full repayment of the loan agreement.

The loan agreement that Atlantic Offshore S.A. has with Deutsche Verkehrs-Bank "DVB" and Norddeutsche Landesbank Girozentrale Trade "Nord/LB" for the financing of the offshore support vessel "Pardela" is guaranteed by a pledge on the vessel, the shares of Atlantic Offshore S.A. and a corporate guarantee for half of the credit from Wilson Sons de Administração Ltda e Comércio. Remolcadores Ultratug Ltda, which is the partner in the business, guarantee the other half of the loan.

Covenants

On 31 December 2018, Wilson, Sons Ultratug Participações S.A.'s subsidiary was not in compliance with one of the covenants ratios. On the assumption of a non-compliance the joint venture's subsidiary has to increase its capital within a year, in the amount necessary to reach the ratio. As the capital will be increased, the management's understanding is that there is no breach of a clause or event that prompts negotiation or a waiver letter from the Banco do Brasil.

Atlantic Offshore S.A. has to comply with specific financial covenants on its two loan agreements with Deutsche Verkehrs-Bank "DVB" and Norddeutsche Landesbank Girozentrale Trade "Nord/LB". In December 2018 the subsidiary was not in compliance with the debt service coverage ratio of 115% on a forward four quarter rolling basis but had received forbearance letters until it signed the amendment to the financing renegotiating the service of the debt and obtaining a waiver for the debt service coverage ratio in February 2019. The subsidiary was in compliance with all other clauses in the loan agreements.

Provisions for tax, labour and civil risks

In the normal course of business in Brazil, the joint ventures remain exposed to numerous local legal claims. It is the joint ventures' policy to vigorously contest such claims, many of which appear to have little merit, and to manage such claims through its legal counsel.

Wilson, Sons Ultratug Participações S.A booked provisions related to labour claims amounting to US$50,000 (2017: US$0.2 million), whose probability of loss was estimated as probable.

In addition to the cases for which the joint ventures have made a provision, there are other tax, civil and labour disputes amounting to US$14.5 million (2017: US$17.5 million), whose probability of loss was estimated by legal counsel as possible.

The breakdown of aggregated possible losses is as follows:

 
                31 December  31 December 
                       2018         2017 
                    US$'000      US$'000 
--------------  -----------  ----------- 
Tax cases             6,901       10,639 
Labour claims         7,629        5,625 
Civil cases               -        1,230 
--------------  -----------  ----------- 
Total                14,530       17,494 
--------------  -----------  ----------- 
 

The reconciliation of the investment in joint ventures recognised in the balance sheet, including the impact of profit recognised by joint ventures:

 
                                        US$'000 
--------------------------------------  ------- 
At 1 January 2017                        22,230 
Share of result of joint ventures         3,366 
Capital increase                            847 
Elimination on construction contracts       145 
Derivatives                                  56 
--------------------------------------  ------- 
At 1 January 2018                        26,644 
Share of result of joint ventures       (4,062) 
Capital increase                          4,032 
Elimination on construction contracts      (86) 
Post employment benefits                   (10) 
Derivatives                                  58 
Exchange movements                         (48) 
--------------------------------------  ------- 
At 31 December 2018                      26,528 
--------------------------------------  ------- 
 
   18     Financial assets at fair value through profit or loss 
 
                                                                                                 2018      2017 
                                                                                              US$'000   US$'000 
-------------------------------------------------------------------------------------------  --------  -------- 
Financial assets at fair value through profit or loss 
At 1 January                                                                                  305,070   276.181 
Additions, at cost                                                                             56,225    77,275 
Disposals, at market value                                                                   (63,992)  (81,161) 
(Decrease)/increase in fair value of financial assets at fair value through profit or loss   (18,654)    30,196 
Profit on disposal of financial assets at fair value through profit or loss                     8,579     8,507 
-------------------------------------------------------------------------------------------  --------  -------- 
At 31 December                                                                                287,298   305,070 
-------------------------------------------------------------------------------------------  --------  -------- 
Ocean Wilsons (Investment) Limited Portfolio                                                  258,188   273,434 
Wilson Sons Limited                                                                            29,110    31,636 
-------------------------------------------------------------------------------------------  --------  -------- 
Financial assets at fair value through profit or loss held at 31 December                     287,298   305,070 
-------------------------------------------------------------------------------------------  --------  -------- 
 

The prior year comparatives have been re-presented in order to match the current year presentation.

Wilson Sons Limited

The Wilson Sons Limited investments are held and managed separately from the Ocean Wilsons (Investments) Limited portfolio and consist of US Dollar denominated depository notes.

Ocean Wilsons (Investments) Limited portfolio

The Group has not designated any financial assets that are not classified as trading investments as financial assets at fair value through profit or loss.

Financial assets at fair value through profit or loss above represent investments in listed equity securities, funds and unquoted equities that present the Group with opportunity for return through dividend income and capital appreciation.

Included in financial assets at fair value through profit or loss are open ended funds whose shares may not be listed on a recognised stock exchange but are redeemable for cash at the current net asset value at the option of the Company. They have no fixed maturity or coupon rate. The fair values of these securities are based on quoted market prices where available. Where quoted market prices are not available, fair values are determined by third parties using various valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

   19     Inventories 
 
                                31 December  31 December 
                                       2018         2017 
                                    US$'000      US$'000 
------------------------------  -----------  ----------- 
Operating materials                   8,906        9,618 
Raw materials and spare parts         1,969        4,155 
------------------------------  -----------  ----------- 
Total                                10,875       13,773 
------------------------------  -----------  ----------- 
 

Inventories are expected to be recovered in less than one year and there were no obsolete items.

   20     Construction contracts 
 
                                                                                 31 December  31 December 
                                                                                        2018         2017 
                                                                                     US$'000      US$'000 
-------------------------------------------------------------------------------  -----------  ----------- 
Contract costs incurred plus recognised profits less recognised losses to date             -        3,178 
Less progress billings                                                                     -      (5,323) 
-------------------------------------------------------------------------------  -----------  ----------- 
Amounts due to contract customers included in trade and other payables                     -      (2,145) 
-------------------------------------------------------------------------------  -----------  ----------- 
 
   21     Trade and other receivables 
 
                                             31 December  31 December 
                                                    2018         2017 
                                                 US$'000      US$'000 
-------------------------------------------  -----------  ----------- 
Trade and other receivables 
Other trade receivables                              483          565 
-------------------------------------------  -----------  ----------- 
Total other non-current trade receivables            483          565 
-------------------------------------------  -----------  ----------- 
 
Amount receivable for the sale of services        59,224       58,945 
Allowance for doubtful debts                     (1,490)        (958) 
-------------------------------------------  -----------  ----------- 
Total current trade receivables                   57,734       57,987 
-------------------------------------------  -----------  ----------- 
 
Prepayments                                       10,917        7,323 
Insurance claim receivable                         3,314        2,289 
Other receivables                                  1,706        5,959 
-------------------------------------------  -----------  ----------- 
Total other current trade receivables             15,937       15,571 
-------------------------------------------  -----------  ----------- 
 
Total current trade and other receivables         73,671       73,558 
-------------------------------------------  -----------  ----------- 
 
 
                              31 December  31 December 
                                     2018         2017 
Ageing of trade receivables       US$'000      US$'000 
----------------------------  -----------  ----------- 
Current                            45,243       45.240 
From 0 - 30 days                    9,325       10,450 
From 31 - 90 days                   2,405        1,368 
From 91 - 180 days                  1,276          929 
More than 180 days                    973          958 
----------------------------  -----------  ----------- 
Total                              59,224       58,945 
----------------------------  -----------  ----------- 
 

Generally, interest of one percent per month plus a two percent penalty is charged on overdue balances. Allowances for bad debts are recognised as a reduction of receivables and are recognised whenever a loss is identified. As of 1 January 2018, due to the application of IFRS 9, the Group has recognised an allowance for bad debts taking into account an expected credit loss model that involves historical evaluation of effective losses over billing cycles. The period of review will be 3.5 years, being reassessed every 180 days. The measurement of the default rate shall consider the recoverability of receivables and will apply according to the payment profile of debtors. The Group will calibrate, when appropriate, the matrix to adjust the historical credit loss experience with forward-looking information. Until 2017, the Group recognised an allowance for bad debts considering all receivables over 180 days because historical experience had shown that receivables that were past due beyond 180 days were not recoverable.

 
                                                        2018     2017 
Movement in the allowance for doubtful debts         US$'000  US$'000 
---------------------------------------------------  -------  ------- 
Balance at 1 January 2018                                958    1,187 
Amounts written off as uncollectable                 (5,171)  (4,322) 
Increase in allowance recognised in profit or loss     5,861    4,096 
Exchange differences                                   (158)      (3) 
---------------------------------------------------  -------  ------- 
Balance at 31 December 2018                            1,490      958 
---------------------------------------------------  -------  ------- 
 

The directors consider that the carrying amount of trade and other receivables approximates their fair value and that no additional accrual is required for the allowance for bad debts.

   22     Recoverable taxes 
 
                                         2018     2017 
                                      US$'000  US$'000 
------------------------------------  -------  ------- 
PIS and COFINS recoverable             17,306   19,503 
FUNDAF recoverable                      3,828    4,287 
Judiciary bond recoverable              3,681    4,274 
Other recoverable taxes                   788        3 
------------------------------------  -------  ------- 
Total recoverable taxes non-current    25,603   28,067 
------------------------------------  -------  ------- 
 
 
                                                    2018     2017 
                                                 US$'000  US$'000 
-----------------------------------------------  -------  ------- 
PIS and COFINS recoverable                        12,993   12,939 
Income tax and social contribution recoverable     5,718    6,852 
FUNDAF recoverable                                 2,819    3,188 
ISS recoverable                                    1,303    1,357 
INSS recoverable                                     409      632 
Other recoverable taxes                               41       44 
-----------------------------------------------  -------  ------- 
Total recoverable taxes current                   23,283   25,012 
-----------------------------------------------  -------  ------- 
 
 
Total   48,886  53,079 
------  ------  ------ 
 

As a matter of routine, the Group reviews taxes and levies impacting its business to ensure that payments are accurately made. In the event that tax credits arise, the Group intends to use them in future years within their legal term. If the Company does not utilise the tax credit within their legal term, a reimbursement of such amounts will be requested from the Brazilian Internal Revenue Service ("Receita Federal do Brasil").

   23     Bank loans and overdrafts 
 
                                                       Annual  31 December  31 December 
                                                interest rate         2018         2017 
                                                            %      US$'000      US$'000 
---------------------------------------------  --------------  -----------  ----------- 
Secured borrowings 
BNDES - FMM linked to US Dollar(1)                2.07% to 5%      152,002      156,831 
BNDES - Real                                   6.56% to 8.75%       14,267       20,982 
BNDES - FMM Real(1)                                    10.44%        1,250        1,635 
BNDES - FINAME Real                            4.50% to 6.00%          150        1,834 
---------------------------------------------  --------------  -----------  ----------- 
Total BNDES                                                        167,669      181,282 
---------------------------------------------  --------------  -----------  ----------- 
Banco do Brasil - FMM linked to US Dollar(1)    2.00% - 3.00%       85,142       90,750 
Santander - US Dollar                                   4.64%       25,523       31,173 
IFC - US Dollar                                         7.00%       21,547       35,640 
China Construction Bank - US Dollar                     6.14%        6,364       12,708 
Eximbank - US Dollar                                    6.22%        1,061        3,171 
---------------------------------------------  --------------  -----------  ----------- 
Total others                                                       139,637      173,442 
---------------------------------------------  --------------  -----------  ----------- 
Total                                                              307,306      354,724 
---------------------------------------------  --------------  -----------  ----------- 
 

1. As an agent of Fundo da Marinha Mercante's (FMM), BNDES finances the construction of tugboats and shipyard facilities.

The breakdown of bank overdrafts and loans by maturity is as follows:

 
                                              31 December  31 December 
                                                     2018         2017 
                                                  US$'000      US$'000 
--------------------------------------------  -----------  ----------- 
Within one year                                    60,209       54,288 
In the second year                                 30,504       52,123 
In the third to fifth years (inclusive)            79,460       93,745 
After five years                                  137,133      154,568 
--------------------------------------------  -----------  ----------- 
Total                                             307,306      354,724 
--------------------------------------------  -----------  ----------- 
Amounts due for settlement within 12 months        60,209       54,288 
--------------------------------------------  -----------  ----------- 
Amounts due for settlement after 12 months        247,097      300,436 
--------------------------------------------  -----------  ----------- 
 

The analysis of borrowings by currency is as follows:

 
                                   BRL 
                             linked to 
                       BRL  US Dollars  US Dollars    Total 
                   US$'000     US$'000     US$'000  US$'000 
-----------------  -------  ----------  ----------  ------- 
31 December 2018 
Bank loans          15,667     237,144      54,495  307,306 
-----------------  -------  ----------  ----------  ------- 
Total               15,667     237,144      54,495  307,306 
-----------------  -------  ----------  ----------  ------- 
31 December 2017 
Bank loans          24,451     247,581      82,692  354,724 
-----------------  -------  ----------  ----------  ------- 
Total               24,451     247,581      82,692  354,724 
-----------------  -------  ----------  ----------  ------- 
 

Loan agreement for civil works

In December 2018, the subsidiary Tecon Salvador S.A. signed a US$67.9 million financing agreement with BNDES, to be used for civil works during the terminal's expansion. Due to the new financing contract, the loan agreement with the IFC was prepaid on 30 January 2019.

Guarantees

Loans with BNDES and Banco do Brasil rely on a corporate guarantee from Wilson Sons de Administração e Comércio Ltda. For some contracts, the corporate guarantee is additional to: (i) a pledge of the respective financed tugboat or (ii) a lien over the logistics and port operations equipment financed.

The loan agreement for Tecon Salvador from International Finance Corporation ("IFC") was guaranteed by the totality of the subsidiary's shares, along with receivables, plant and equipment until its prepayment in full on 30 January 2019.

The loan agreement for Tecon Rio Grande from the Export-Import Bank of China for equipment acquisition is guaranteed by a standby letter of credit issued by Itaú BBA S.A, which in turn has a pledge on the equipment financed.

The loan agreement for Tecon Rio Grande from Santander for equipment acquisition relies on a corporate guarantee from Wilson, Sons de Administração e Comércio Ltda.

Undrawn credit facilities

At 31 December 2018, the Group had available US$116.2 million of undrawn borrowing facilities. For each disbursement there is a set of conditions precedent that must be satisfied.

Covenants

Wilson, Sons de Administração e Comércio Ltda. ("WSAC") as corporate guarantor has to comply with annual loan covenants for both Wilson Sons Estaleiros and Brasco Logística Offshore in respect of loan agreements signed with BNDES.

Wilport Operadores Portuários Ltda as corporate guarantor for loan agreements signed between the BNDES e Tecon Salvador S.A, has to comply with annual loan covenants including ratios of debt service coverage, net debt ratio over EBITDA and equity over total assets. For the same agreements Tecon Salvador has to comply with the debt service coverage ratio covenant.

Tecon Rio Grande S.A. has to comply with loan covenants from Santander, including a minimum liquidity ratio and capital structure.

At 31 December 2018, the Group was in compliance with all clauses in the above mentioned loan contracts.

Fair value

Management estimates the fair value of the Group's borrowings as follows:

 
                            31 December  31 December 
                                   2018         2017 
                                US$'000      US$'000 
--------------------------  -----------  ----------- 
Bank loans 
  BNDES                         167,669      181,282 
  Banco do Brasil                85,142       90,750 
  Santander                      25,523       31,173 
  IFC                            21,547       35,640 
  China Construction Bank         6,364       12,708 
  Eximbank China                  1,061        3,171 
Total                           307,306      354,724 
--------------------------  -----------  ----------- 
 
   24     Deferred tax 

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period.

 
                                                 Exchange                Retranslation of 
                             Accelerated tax  variance on        Other  non-current asset 
                                depreciation        loans  differences          valuation     Total 
                                     US$'000      US$'000      US$'000            US$'000   US$'000 
---------------------------  ---------------  -----------  -----------  -----------------  -------- 
At 1 January 2017                   (30,111)       28,179       28,325           (46,312)  (19,919) 
(Charge)/credit to income            (8,743)      (1,175)       10,263              1,371     1,716 
Compensation of tax losses                 -            -      (5,023)                  -   (5,023) 
Exchange differences                     746        (320)         (92)                  -       334 
---------------------------  ---------------  -----------  -----------  -----------------  -------- 
At 1 January 2018                   (38,108)       26,684       33,473           (44,941)  (22,892) 
---------------------------  ---------------  -----------  -----------  -----------------  -------- 
(Charge)/credit to income            (6,218)       10,137        8,508            (9,826)     2,601 
Compensation of tax losses                 -            -      (1,679)                  -   (1,679) 
Exchange differences                   5,998      (4,647)      (1,181)                  -       170 
---------------------------  ---------------  -----------  -----------  -----------------  -------- 
At 31 December 2018                 (38,328)       32,174       39,121           (54,767)  (21,800) 
---------------------------  ---------------  -----------  -----------  -----------------  -------- 
 

Certain tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes.

 
                           31 December  31 December 
                                  2018         2017 
                               US$'000      US$'000 
-------------------------  -----------  ----------- 
Deferred tax liabilities      (50,023)     (51,531) 
Deferred tax assets             28,223       28,639 
-------------------------  -----------  ----------- 
                              (21,800)     (22,892) 
-------------------------  -----------  ----------- 
 

At the balance sheet date the Group had unused tax losses of US$46.2 million (2017: US$47.6 million) available for offset against future profits in the company in which they arose. No deferred tax asset has been recognised in respect of US$4.4 million (2017: US$6.8 million) due to the unpredictability of future profit streams. In Brazil a tax asset of one entity in the Group cannot be offset against a tax liability of another entity in the Group as there is no legally enforceable right to offset tax assets and liabilities between Group companies.

Retranslation of non-current asset valuation deferred tax arises on Brazilian property, plant and equipment held in US dollar functional currency businesses. Deferred tax is calculated on the difference between the historical US Dollar balances recorded in the Group's accounts and the Brazilian Real balances used in the Group's Brazilian tax calculations.

Deferred tax on exchange variance on loans arises from exchange gains or losses on the Group's US Dollar and Brazilian Real denominated loans linked to the US Dollar that are not deductible or payable for tax in the period they arise. Exchange gains on these loans are taxable when settled and not in the period in which gains arise.

Deferred taxes over the utilization of unrecognised net operating losses

On 31 May 2017, the Brazilian Internal Revenue Service ("IRS") and the Brazilian Attorney General of National Treasury ("PGFN") published the Provisional Measure 783/2017 concerning a special tax amnesty program known as PERT. Under this program, taxpayers are allowed to settle Federal tax debts. However as a condition they must abstain from administrative and judicial disputes with the Brazilian IRS regarding the tax debts settled in the PERT.

The Group applied to the program under the following conditions: (i) a down payment in cash of 7.5% of the total tax debt; (ii) 90% reduction in late payment interest; (iii) 50% reduction in fines, and (iv) the balance by utilising the Group's 31 December 2015 net operating losses carried forwards for companies that are directly or indirectly controlled and domiciled in Brazil.

Subsequently, with the publication of Law 13.496/2017, in October 2017, the Group included in the programme new administrative and judicial disputes under the following conditions: (i) a down payment in cash of 5% of the total tax debt; (ii) 90% reduction in late payment interest; (iii) 70% reduction in fines, and (iv) the balance by utilising the Group's 31 December 2015 net operating loss carry forwards for companies that are directly or indirectly controlled and domiciled in Brazil.

In 2017 the Group paid US$1.0 million in cash; obtained tax relief of US$7.2 million and used US$6.9 million of unrecognised tax losses to settle US$15.1 million in disputed federal tax debts.

   25     Obligations under finance leases 
 
                                                                                       Minimum lease payments 
                                                                                      31 December  31 December 
                                                                                             2018         2017 
                                                                                          US$'000      US$'000 
------------------------------------------------------------------------------------  -----------  ----------- 
Amounts payable under finance leases 
Within one year                                                                                67        1,178 
In the second to fifth years inclusive                                                         86          434 
After five years                                                                                -            - 
------------------------------------------------------------------------------------  -----------  ----------- 
                                                                                              153        1,612 
Less future finance charges                                                                  (48)        (457) 
------------------------------------------------------------------------------------  -----------  ----------- 
Present value of lease obligations                                                            105        1,155 
------------------------------------------------------------------------------------  -----------  ----------- 
Less: Amounts due for settlement within 12 months (shown under current liabilities)          (46)        (846) 
Amount due for settlement after 12 months                                                      59          309 
------------------------------------------------------------------------------------  -----------  ----------- 
 
 
                                                                              Present value of Minimum lease payments 
                                                                                      31 December          31 December 
                                                                                             2018                 2017 
                                                                                          US$'000              US$'000 
---------------------------------------------------------------------------  --------------------  ------------------- 
Amounts payable under finance leases 
Within one year                                                                                46                  846 
In the second to fifth years inclusive                                                         59                  309 
After five years                                                                                -                    - 
---------------------------------------------------------------------------  --------------------  ------------------- 
Present value of lease obligations                                                            105                1,155 
---------------------------------------------------------------------------  --------------------  ------------------- 
Less: Amounts due for settlement within 12 months (shown under current 
 liabilities)                                                                                (46)                (846) 
Amount due for settlement after 12 months                                                      59                  309 
---------------------------------------------------------------------------  --------------------  ------------------- 
 

It is the Group's policy to lease certain of its fixtures and equipment under finance leases. The average original lease term is 60 months. The average outstanding lease term at 31 December 2018 was 26 months.

For the year ended 31 December 2018, the average effective borrowing rate was 10.80% (2017: 9.79%). All leases are denominated in Brazilian Real and include a fixed repayment and a variable finance charge linked to the Brazilian interest rate.

There is a non-significant difference between the fair value and the present value of the Group's lease obligations. The present value is calculated with its own interest rate over the future instalments of each contract.

The Group's obligations under finance leases are secured by the lessors' rights over the leased assets.

   26     Trade and other payables 
 
                                                           31 December  31 December 
                                                                  2018         2017 
                                                               US$'000      US$'000 
---------------------------------------------------------  -----------  ----------- 
Trade creditors                                                 21,510       23,437 
Amounts due to construction contract customers (note 20)             -        2,145 
Other taxes                                                     11,215       11,992 
Salaries, provisions and social contribution                    16,585       19,483 
Accruals and deferred income                                     8,145        7,250 
Share based payment liability                                      185          158 
---------------------------------------------------------  -----------  ----------- 
Total                                                           57,640       64,465 
---------------------------------------------------------  -----------  ----------- 
 

Trade creditors and accruals principally comprise amounts outstanding for trade purposes and ongoing costs.

The average credit period for trade purchases is 26 days (2017: 29 days). For most suppliers interest is charged on outstanding trade payable balances at various interest rates. The Group has financial risk management policies in place to ensure that payables are paid within the credit timeframe.

The directors consider that the carrying amount of trade payables approximates their fair value.

Taxes Payable

 
                                         2018     2017 
                                      US$'000  US$'000 
------------------------------------  -------  ------- 
INSS payable                            4,125    2,001 
PIS and COFINS payable                  2,768    3,091 
ISS payable                             1,956    2,059 
Income tax payable                      1,342    1,866 
FGTS payable                              643      800 
Other payable taxes                       381    2,175 
------------------------------------  -------  ------- 
Total recoverable taxes non-current    11,215   11,992 
------------------------------------  -------  ------- 
 
   27     Provisions for tax, labour and civil cases 
 
                                     Labour claims  Tax cases  Civil cases    Total 
                                           US$'000    US$'000      US$'000  US$'000 
-----------------------------------  -------------  ---------  -----------  ------- 
Cost 
At 1 January 2017                           13,612      4,816        1,609   20,037 
Increase in provisions in the year           6,078        868                 6,946 
Utilisation of provisions                  (4,475)    (3,259)        (668)  (8,402) 
Exchange difference                          (273)         43        (119)    (349) 
-----------------------------------  -------------  ---------  -----------  ------- 
At 1 January 2018                           14,942      2,468          822   18,232 
Increase in provisions in the year           3,297        754           15    4,066 
Utilisation of provisions                  (2,197)          -         (14)  (2,211) 
Exchange difference                        (2,229)      (384)        (139)  (2,752) 
-----------------------------------  -------------  ---------  -----------  ------- 
At 31 December 2018                         13,813      2,838          684   17,335 
-----------------------------------  -------------  ---------  -----------  ------- 
 

In the normal course of business in Brazil, the Group remains exposed to numerous local legal claims. It is the Group's policy to vigorously contest such claims, many of which appear to have little substance or merit, and to manage such claims through its legal counsel. Both provisions and contingent liabilities can take a significant amount of time to resolve.

Other non-current assets of US$7.4 million (2017: US$9.5 million) represent legal deposits required by the Brazilian legal authorities as security to contest legal actions.

In addition to the cases for which the Group booked the provision, there are other tax, civil and labour disputes amounting to US$120.2 million (2017: US$140.5 million) where the probability of loss was estimated by the legal counsels as possible.

The analysis of possible losses by type:

 
                                31 December  31 December 
                                       2018         2017 
                                    US$'000      US$'000 
------------------------------  -----------  ----------- 
Tax cases                            86,204       96,890 
Labour claims                        18,839       28,931 
Civil and environmental cases        15,156       14,686 
------------------------------  -----------  ----------- 
                                    120,199      140,507 
------------------------------  -----------  ----------- 
 

The main probable and possible claims against the Group are described below:

Tax cases - The Group defends against government tax assessments considered inappropriate.

Labour claims - Most claims involve payment of health risks, additional overtime and other allowances.

Civil and environmental cases - Indemnification claims involving material damages, environmental and shipping claims and other contractual disputes.

Procedure for classification of legal liabilities identifies claims as probable, possible or remote, as assessed by the external lawyers:

-- Upon receipt of notices of new judicial lawsuits, external lawyers generally classify the claim as possible, recorded at the total amount involved. Wilson Sons uses the criteria of the estimated value at risk and not the total claim value involved in each process.

-- Exceptionally, if there is sufficient knowledge from the beginning that there is very high or very low risk of loss, the lawyer may classify the claim as a probable loss or remote loss.

-- During the course of the lawsuit and considering, for instance, its first judicial decision, legal precedents, arguments of the claimant, thesis under discussion, applicable laws, documentation for the defence and other variables, the lawyer may re-classify the claim as a probable loss or remote loss.

-- When classifying the claim as a probable loss, the lawyer estimates the amount at risk for such claim.

Management are not able to give an indication when the provisions are likely to be utilised as the majority of provisions involve litigations the resolution of which is highly uncertain as to timing.

   28     Share capital 
 
                                            2018     2017 
                                         US$'000  US$'000 
---------------------------------------  -------  ------- 
Authorised 
50,060,000 ordinary shares of 20p each    16,119   16,119 
---------------------------------------  -------  ------- 
Issued and fully paid 
---------------------------------------  -------  ------- 
35,363,040 ordinary shares of 20p each    11,390   11,390 
---------------------------------------  -------  ------- 
 

The Company has one class of ordinary share which carries no right to fixed income.

Share capital is converted at the exchange rate prevailing at 31 December 2002, the date at which the Group's presentational currency changed from Sterling to US Dollars, being US$1.61 to GBP1.

   29     Exercise of stock options in subsidiary 

During 2018 participants of the Wilson Sons Limited stock option scheme exercised 23,760 options. As a result the non-controlling interest in Wilson Sons Limited increased from 41.81% at 31 December 2017 to 41.83% at 31 December 2018.

 
                                                          2018     2017 
                                                       US$'000  US$'000 
-----------------------------------------------------  -------  ------- 
The following amounts have been recognised in equity 
Movement attributable to equity holders of parent           96      430 
-----------------------------------------------------  -------  ------- 
Movement attributable to non-controlling interest           94      316 
-----------------------------------------------------  -------  ------- 
 
   30     Notes to the cash flow statement 
 
                                                                               Year ended   Year ended 
                                                                              31 December  31 December 
                                                                                     2018         2017 
                                                                                  US$'000      US$'000 
----------------------------------------------------------------------------  -----------  ----------- 
Reconciliation from profit before tax to net cash from operating activities 
Profit before tax                                                                  62,843      145,464 
Share of results of joint venture                                                   4,062      (3,366) 
Investment income                                                                (17,099)     (19,004) 
Other gains and losses                                                             18,284     (32,775) 
Finance costs                                                                      22,951       21,976 
Foreign exchange losses on monetary items                                           8,459      (2,750) 
----------------------------------------------------------------------------  -----------  ----------- 
Operating profit                                                                   99,500      109,545 
Adjustments for: 
Depreciation of property, plant and equipment                                      52,757       53,851 
Amortisation of intangible assets                                                   3,421        3,630 
Share based payment credit                                                          1,331        2,386 
Gain on disposal of property, plant and equipment                                     296        2,930 
Decrease in provisions                                                              (418)      (7,064) 
----------------------------------------------------------------------------  -----------  ----------- 
Operating cash flows before movements in working capital                          156,887      165,278 
Decrease in inventories                                                             2,898        1,654 
Increase in receivables                                                             1,228     (22,967) 
Decrease in payables                                                              (7,219)      (1,699) 
Decrease in other non-current assets                                                2,089        3,873 
----------------------------------------------------------------------------  -----------  ----------- 
Cash generated by operations                                                      155,883      146,139 
Income taxes paid                                                                (30,079)     (29,698) 
Interest paid                                                                    (12,094)     (13,473) 
----------------------------------------------------------------------------  -----------  ----------- 
Net cash from operating activities                                                113,710      102,698 
----------------------------------------------------------------------------  -----------  ----------- 
 

Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.

Exclusive investment fund

The Group has investments in an exclusive investment fund managed by Itaú BBA S.A. that is consolidated in this financial information. The fund portfolio is marked to fair value on a daily basis. This fund's financial obligations are limited to service fees to the asset management company employed to execute investment transactions, audit fees and other similar expenses. The fund's investments are highly liquid which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

Additionally, US Dollar linked investments are made through Itaú Cambial FICFI to preserve the US Dollar value of the investment.

Cash and cash equivalents held in Brazil amount to US$28.2 million (2017: US$59.6 million).

Cash equivalents are held for the purpose of meeting short-term cash commitments and not for cash investment purposes. Additions to plant and equipment during the year amounting to US$0.0 million (2017: US$21.1 million) were financed by bank loans paid direct to the supplier.

   31     Contingent liabilities 

In the normal course of business in Brazil, the Group continues to be exposed to numerous local legal claims. It is the Group's policy to contest such claims vigorously, many of which appear to have little merit, and to manage such claims through its legal advisers. The total estimated contingent claims at 31 December 2018 are US$120.2 million (2017: US$140.5 million). These have not been provided for as the directors and the Group's legal advisors do not consider that there are any probable losses. Contingent liabilities relate to labour, civil and environmental and tax claims.

   32     Share options 

Stock option scheme

On 13 November 2013 the board of Wilson Sons Limited approved a Stock Option Plan which allowed for the grant of options to eligible participants to be selected by the board. The shareholders in special general meeting approved such plan on the 8 January 2014 including an increase in the authorised capital of the Company through the creation of up to 4,410,927 new shares. The options provide participants with the right to acquire shares via Brazilian Depositary Receipts ("BDR") in Wilson Sons Limited at a predetermined fixed price not less than the three day average mid-price for the days preceding the date of option issuance. The Stock Option Plan is detailed below:

 
                          Original               Exercise 
                Grant      vesting       Expiry     price                                              Outstanding       Total 
Options 
series           date         date         date      (R$)     Number    Expired  Exercised     Vested   not Vested  Subsisting 
--------  -----------  -----------  -----------  --------  ---------  ---------  ---------  ---------  -----------  ---------- 
07 ESO - 
 3 Year     10/1/2014    10/1/2017    10/1/2024     31.23    961,653  (178,695)   (33,297)    749,661            -     749,661 
07 ESO - 
 4 Year     10/1/2014    10/1/2018    10/1/2024     31.23    961,653  (178,695)   (33,297)    749,661            -     749,661 
07 ESO - 
 5 Year     10/1/2014    10/1/2019    10/1/2024     31.23    990,794  (184,110)   (22,066)          -      784,618     784,618 
07 ESO - 
 3 Year    13/11/2014   13/11/2017   13/11/2024     33.98     45,870   (12,870)    (3,630)     29,370            -      29,370 
07 ESO - 
 4 Year    13/11/2014   13/11/2018   13/11/2024     33.98     45,870   (12,870)    (3,630)     29,370            -      29,370 
07 ESO - 
 5 Year    13/11/2014   13/11/2019   13/11/2024     33.98     47,260   (13,260)    (3,740)          -       30,260      30,260 
07 ESO - 
 3 Year    11/08/2016   11/08/2019   11/08/2026     34.03     82,500          -          -          -       82,500      82,500 
07 ESO - 
 4 Year    11/08/2016   11/08/2020   11/08/2026     34.03     82,500          -          -          -       82,500      82,500 
07 ESO - 
 5 Year    11/08/2016   11/08/2021   11/08/2026     34.03     85,000          -          -          -       85,000      85,000 
07 ESO - 
 3 Year    16/05/2017   16/05/2020   15/05/2027     38.00     20,130          -          -          -       20,130      20,130 
07 ESO - 
 4 Year    16/05/2017   16/05/2021   15/05/2027     38.00     20,130          -          -          -       20,130      20,130 
07 ESO - 
 5 Year    16/05/2017   16/05/2022   15/05/2027     38.00     20,740          -          -          -       20,740      20,740 
07 ESO - 
 3 Year    09/11/2017   09/11/2020   09/11/2027     40.33     23,760          -          -          -       23,760      23,760 
07 ESO - 
 4 Year    09/11/2017   09/11/2021   09/11/2027     40.33     23,760          -          -          -       23,760      23,760 
07 ESO - 
 5 Year    09/11/2017   09/11/2022   09/11/2027     40.33     24,480          -          -          -       24,480      24,480 
--------  -----------  -----------  -----------  --------  ---------  ---------  ---------  ---------  -----------  ---------- 
Total                                                      3,436,100  (580,500)   (99,660)  1,558,062    1,197,878   2,755,940 
-----------------------------------------------  --------  ---------  ---------  ---------  ---------  -----------  ---------- 
 

The options terminate on the expiry date or immediately on the resignation of the director or senior employee, whichever is earlier. Options lapse if not exercised within 6 months of the date that the participant ceases to be employed or hold office within the Group by reason of, amongst others: injury, disability or retirement; or dismissal without just cause.

The following Fair Value expense of the grant to be recorded as a liability in the respective accounting periods was determined using the Binomial model based on the assumptions detailed below:

 
                     Projected IFRS2 
                  Fair Value expense 
Period                       US$'000 
----------------  ------------------ 
10 January 2014                2,826 
10 January 2015                3,296 
10 January 2016                3,409 
10 January 2017                2,331 
10 January 2018                1,303 
10 January 2019                  370 
10 January 2020                  206 
10 January 2021                   99 
10 January 2022                   27 
----------------  ------------------ 
Total                         13,867 
----------------  ------------------ 
 
 
                                10 January  13 November  11 August    16 May  9 November 
                                      2014         2014       2016      2017        2017 
------------------------------  ----------  -----------  ---------  --------  ---------- 
Closing share price (in Real)      R$30.05      R$33.50    R$32.15   R$38.00     R$38.01 
Expected volatility                 28.00%       29.75%     31.56%    31.82%      31.82% 
Expected life                     10 years     10 years   10 years  10 years    10 years 
Risk free rate                       10.8%       12.74%     12.03%    10.17%      10.17% 
Expected dividend yield               1.7%         4.8%       4.8%      4.8%        4.8% 
------------------------------  ----------  -----------  ---------  --------  ---------- 
 

Expected volatility was determined by calculating the historical volatility of the Wilson Son's share price. The expected life used in the model has been adjusted based on management's best estimate for exercise restrictions and behavioural considerations.

   33     Operating lease arrangements 

The lease payments under operating leases recognised in net income at 31 December 2018 was US$21.1 million (2017: US$19.2 million). At the balance sheet date, the minimum amount due in 2018 by the Group for future minimum lease payments under cancellable operating leases was US$20.0 million (2017: US$19.4 million).

Tecon Rio Grande

The Tecon Rio Grande lease was signed on 3 February 1997 for a period of 25 years renewable for a further 25 and, in view of the compliance with the contractual requirements and advanced investments in the expansion works of the terminal, construction of a third berth and the annual volume handled together with other considerations, Tecon Rio Grande was granted the right to renew the lease as set forth in the first amendment to the lease signed on 7 March 2006.

The Tecon Rio Grande guaranteed payments consist of two elements: a fixed rental, and fee per 1,000 containers moved based on minimum forecast volumes. If container volumes moved through the terminal exceed forecast volumes in any given year, additional payments will be required.

Tecon Salvador

On 16 November 2016 Tecon Salvador S.A signed the second amendment to the lease agreement which extends the term of the lease for an additional period of 25 years until March 2050. The Company is obliged to complete minimum expansion and maintenance capital expenditure through to the end of the concession. Minimum expansion civil work investments were budgeted at approximately R$398 million (US$122 million) using values based on December 2013. These investments will be completed in three phases expanding the terminal's dynamic capacity to 925,000 TEUs per year. The first phase of construction commenced during 2018 after the environmental licenses were granted and will be completed within twenty-four months following the commencement of work (total estimated gross investment is R$255 million (US$78 million) using values based on December 2013). The deadline for the second phase of construction to be completed is 2030 (total gross investment of R$29 million (US$9 million) using values based on December 2013). The deadline for the third phase of construction to be completed is by 2034 (total gross investment of R$114 million (US$35 million) using values based on December 2013). Additionally, there are investments totalling R$317 million (US$97 million) related to the maintenance of the operating area and replacement of equipment that will be completed up to 2050.

Tecon Salvador guaranteed payments consist of three elements: a fixed rental, a fee per container handled based on minimum forecast volumes and a fee per tonne of non-containerized cargo handled based on minimum forecast volumes.

Logistics

Logistics lease commitments mainly refer to the bonded terminals and distribution centres located in Santo André and Suape with terms between eighteen and twenty-four years.

Brasco

Brasco lease commitments mainly relate to a 30-year lease right to operate a sheltered area at Guanabara Bay, Rio de Janeiro, Brazil with a well situated location to service the Campos and Santos oil producing basins.

At the balance sheet date the Group had outstanding commitments for future minimum lease payments under operating leases, which fall due as follows:

 
                                           2018     2017 
                                        US$'000  US$'000 
--------------------------------------  -------  ------- 
Within one year                          21,763   19,447 
In the second to fifth year inclusive    73,916   61,667 
After five years                        339,032  201,939 
--------------------------------------  -------  ------- 
                                        434,711  283,053 
--------------------------------------  -------  ------- 
 
   34     Commitments 

At 31 December 2018 the Group had entered into commitment agreements with respect to the investment portfolio. These commitments relate to capital subscription agreements entered into by Ocean Wilsons (Investments) Limited. The expiry dates of the outstanding commitments in question may be analysed as follows:

 
                                           2018     2017 
                                        US$'000  US$'000 
--------------------------------------  -------  ------- 
Within one year                           4,416    4,250 
In the second to fifth year inclusive     5,305    8,792 
After five years                         25,903   22,579 
--------------------------------------  -------  ------- 
                                         35,624   35,621 
--------------------------------------  -------  ------- 
 

There may be situations when commitments may be extended by the manager of the underlying structure beyond the initial expiry date dependent upon the terms and conditions of each individual structure.

At 31 December 2018, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to US$52.1 million (2017: US$14.1 million). The amount mainly refers to investments in Tecon Salvador, Tecon Rio Grande and raw materials for shipyard activities.

   35     Retirement benefit schemes 

Defined contribution schemes

The Group operates defined contribution retirement benefit schemes for all qualifying employees of its Brazilian business. The assets of the scheme are held separately from those of the Group in funds under the control of independent managers.

The total cost charged to the income statement of US$1.1 million (2017: US$1.1 million) represents contributions payable to the scheme by the Group at rates specified in the rules of the plan.

   36     Related party transactions 

Transactions between the company and its subsidiaries which are related parties have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and its associates, joint ventures and other investments are disclosed below:

 
                                                            Revenue from services       Amounts paid/Cost of services 
                                                           31 December  31 December        31 December     31 December 
                                                                  2018         2017               2018            2017 
                                                               US$'000      US$'000            US$'000         US$'000 
---  ----------------------------------------------------  -----------  -----------    ---------------  -------------- 
Joint ventures 
1.   Allink Transportes Internacionais Limitada(1)                   8            1              (376)            (19) 
2.   Consórcio de Rebocadores Barra de Coqueiros                -            -                  -               - 
     Consórcio de Rebocadores Baía de São            26 
3.   Marcos                                                                     444                  -               - 
4.   Wilson Sons Ultratug and subsidiaries(7)                    2,250        1,379                  -               - 
5.   Atlantic offshore S.A. (8)                                      -            -                  -               - 
Others 
6.   Hanseatic Asset Management LBG(2)                               -            -            (2,742)         (2,597) 
7.   Gouvêa Vieira Advogados(3)                                 -            -               (66)            (73) 
8.   CMMR Intermediacão Comercial Limitada(4)                   -            -               (87)           (157) 
9.   Jofran Services(5)                                              -            -              (173)           (173) 
10.  Hansa Capital GMBH(6)                                           -            -               (93)            (93) 
---  ----------------------------------------------------  -----------  -----------    ---------------  -------------- 
 
 
                                                                       Amounts owed                Amounts owed 
                                                                    by related parties          to related parties 
                                                                 31 December  31 December    31 December  31 December 
                                                                        2018         2017           2018         2017 
                                                                     US$'000      US$'000        US$'000      US$'000 
---  ----------------------------------------------------------  -----------  -----------    -----------  ----------- 
     Joint ventures 
1.   Allink Transportes Internacionais Limitada(1)                         -            -            (1)          (2) 
2.   Consórcio de Rebocadores Barra de Coqueiros                     85           77              -            - 
3.   Consórcio de Rebocadores Baía de São Marcos        2,199        2,483              -            - 
4.   Wilson Sons Ultratug and subsidiaries(7)                         10,072       11,848              -            - 
5.   Atlantic offshore S.A. (8)                                       20,167       17,767              -            - 
Others 
6.   Hanseatic Asset Management LBG(2)                                     -            -          (256)        (347) 
7.   Gouvêa Vieira Advogados(3)                                       -            -              -            - 
8.   CMMR Intermediacão Comercial Limitada(4)                         -            -              -            - 
9.   Jofran Services(5)                                                    -            -              -            - 
10.  Hansa Capital GMBH(6)                                                 -            -              -            - 
---  ----------------------------------------------------------  -----------  -----------    -----------  ----------- 
 

1. Mr A C Baião, a Director of Wilson Sons Limited is a shareholder and Director of Allink Transportes Internacionais Limitada. Allink Transportes Internacionais Limitada is 50% owned by the Group and rents office space from the Group.

2. Mr W H Salomon is chairman of Hanseatic Asset Management LBG. Fees were paid to Hanseatic Asset Management LBG for acting as Investment Managers of the Group's investment portfolio and administration services.

3. Mr J F Gouvêa Vieira is a partner in the law firm Gouvêa Vieira Advogados. Fees were paid to Gouvêa Vieira Advogados for legal services.

   4.         Mr C M Marote, a Director of Wilson Sons Limited is a shareholder and Director of CMMR Intermediacão Comercial Limitada. Fees were paid to CMMR Intermediacão Comercial Limitada for consultancy services. 

5. Mr J F Gouvêa Vieira is a Director of Jofran Services. Directors' fees were paid to Jofran Services.

6. Mr C Townsend is a Director of Hansa Capital GMBH. Directors' fees were paid to Hansa Capital GmbH.

7. Related parties loan with Wilson, Sons Ultratug (interest - 0.3% per month with no maturity) and other trade payables and receivables from Wilson, Sons Offshore and Magallanes.

8. Related parties loan with Atlantic Offshore S.A. (with no interest and with no maturity).

Remuneration of key management personnel

The remuneration of the executive directors and other key management of the Group is set out below in aggregate for the categories specified in IAS 24 Related Party Disclosures.

 
                                    Year ended  Year ended 
                                          2018        2017 
                                       US$'000     US$'000 
----------------------------------  ----------  ---------- 
Short-term employee benefits             9,798      11,674 
Other long-term employee benefits        1,132       1,671 
Share options issued                     1,303       2,331 
Share-based payment                         28          55 
----------------------------------  ----------  ---------- 
                                        12,261      15,731 
----------------------------------  ----------  ---------- 
 
   37     Financial instruments 

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 23, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings disclosed in the consolidated statement of changes in equity.

The Group borrows to fund capital projects and looks to cash flow from these projects to meet repayments. Working capital is funded through cash generated by operating revenues.

Externally imposed capital requirement

The Group is not subject to externally imposed capital requirements.

Significant accounting policies

Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expense are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.

Categories of financial instruments

 
                                                                    Year ended  Year ended 
                                                                          2018        2017 
                                                                       US$'000     US$'000 
------------------------------------------------------------------  ----------  ---------- 
Financial assets 
Designated as fair value through profit or loss                        258,188     273,434 
Receivables (including cash and cash equivalents)                      167,895     212,457 
Financial liabilities 
Financial instruments classified as amortised cost                   (353,836)   (408,352) 
Financial instruments classified as cash flow hedge (Derivatives)        (422)     (1,503) 
------------------------------------------------------------------  ----------  ---------- 
 

Financial risk management objectives

The Group's corporate treasury function provides services to the business, co-ordinates access to domestic and international financial markets and manages the financial risks relating to the operations of the Group through internal reports. The primary objective is to keep a minimum exposure to those risks by using financial instruments and by assessing and controlling the credit and liquidity risks according to the rules and procedures established by management. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.

The Group may use derivative financial instruments to hedge these risk exposures with Board approval. The Group does not enter into trading financial instruments including derivative financial instruments for speculative purposes.

Credit risk

The Group's principal financial assets are cash, trade and other receivables, related party loans and financial assets designated as fair value through profit or loss. The Group's credit risk is primarily attributable to its bank balances, trade receivables, related party loans and investments. The amounts presented as receivables in the balance sheet are shown net of allowances for bad debts.

The Wilson Sons Group invests temporary cash surpluses in government and private bonds, according to regulations approved by management, which follow the Group policy on credit risk concentration. Credit risk on investments in non-government backed bonds is mitigated by investing only in assets issued by leading financial institutions.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The credit risk on investments held for trading is limited because the counterparties with whom the Group transacts are regulated institutions or banks with high credit ratings. The Company's appointed Investment Manager, Hanseatic Asset Management LBG, evaluates the credit risk on trading investments prior to and during the investment period.

In addition the Group invests in limited partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The Board reviews all investments at its regular meetings from reports prepared by the Group's Investment Manager.

The Group has no significant concentration of credit risk. Ongoing credit evaluation is performed on the financial condition of accounts receivable.

Operational trade receivables

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision matrix is initially based on the Group's historical observed default rates. The Group evaluates the concentration of risk with respect to trade receivables and contract assets as low, as historically trade receivables are generally received between 30 and 45 days.

 
                                      1 - 30  31 - 90  91 - 180  More than 
                            Current     days     days      days   180 days    Total 
                            US$'000  US$'000  US$'000   US$'000    US$'000  US$'000 
--------------------------  -------  -------  -------  --------  ---------  ------- 
Expected credit loss rate     0.25%    0.25%    8.07%    32.01%     74.20% 
Receivables for services     45,138    9,325    2,405     1,276        973   59,117 
Accumulated credit loss       (141)     (24)    (194)     (409)      (722)  (1,490) 
 
 

Market risk

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and market prices.

Foreign currency risk management

The Group undertakes certain transactions denominated or linked to foreign currencies and therefore exposures to exchange rate fluctuations arise. The Group operates principally in Brazil with a substantial proportion of the Group's revenue, expenses, assets and liabilities denominated in the Real. Due to the high cost of hedging the Real, the Group does not normally hedge its net exposure to the Real, as the Board does not consider it economically viable.

Cash flows from investments in fixed assets are denominated in Real and US Dollars. These investments are subject to currency fluctuations between the time that the price of goods or services are settled and the actual payment date. The resources and their application are monitored with purpose of matching the currency cash flows and due dates. The Group has contracted US Dollar-denominated and Real-denominated debt, and the cash and cash equivalents balances are also US Dollar-denominated and Real-denominated.

In general terms, for operating cash flows, the Group seeks to neutralise the currency risk by matching assets (receivables) and liabilities (payments). Furthermore the Group seeks to generate an operating cash surplus in the same currency in which the debt service of each business is denominated.

The carrying amount of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

 
             Liabilities          Assets 
              2018     2017     2018     2017 
           US$'000  US$'000  US$'000  US$'000 
---------  -------  -------  -------  ------- 
Real       109,764  180,468  179,031  212,457 
Sterling        59       18   11,373   10,934 
Euro             -        -   21,590   21,177 
Yen              -        -    5,333        - 
---------  -------  -------  -------  ------- 
           109,823  180,486  217,327  244,568 
---------  -------  -------  -------  ------- 
 

Foreign currency sensitivity analysis

The Group is primarily exposed to unfavourable movements in the Real on its Brazilian liabilities held by US Dollar functional currency entities.

The sensitivity analysis presented in the following sections, which refer to the position on 31 December 2017, estimates the impacts of the Real devaluation against the US Dollar. Three exchange rate scenarios are contemplated: the likely scenario (Probable) and two possible scenarios of deterioration of 25% (Possible) and 50% (Remote) in the exchange rate. The Group uses the Brazilian Central Bank's "Focus" report to determine the probable scenario.

 
                                                               31 December 2018 
                                                                Exchange rates 
Operation            Risk      Amount            Result  Probable  Possible    Remote 
                           US Dollars                    scenario  scenario  scenario 
                                                                      (25%)     (50%) 
 ------------------------  ----------  ----------------  --------  --------  -------- 
Exchange rate                                                3.75      4.69      5.63 
-------------------------  ----------  ----------------  --------  --------  -------- 
                                                          US$'000   US$'000   US$'000 
------------------  -----  ----------  ----------------  --------  --------  -------- 
Total assets          BRL     176,477  Exchange effects     5,873  (30,597)  (54,910) 
Total liabilities     BRL     109,764  Exchange effects   (3,653)    19,030    34,153 
------------------  -----  ----------  ----------------  --------  --------  -------- 
                                             Net effect     2,220  (11,567)  (20,757) 
 ------------------------  ----------  ----------------  --------  --------  -------- 
 
 
                                                               31 December 2017 
                                                                Exchange rates 
Operation            Risk      Amount            Result  Probable  Possible    Remote 
                           US Dollars                    scenario  scenario  scenario 
                                                                      (25%)     (50%) 
 ------------------------  ----------  ----------------  --------  --------  -------- 
Exchange rate                                                3.34      4.17      5.01 
-------------------------  ----------  ----------------  --------  --------  -------- 
                                                          US$'000   US$'000   US$'000 
------------------  -----  ----------  ----------------  --------  --------  -------- 
Total assets          BRL     244,568  Exchange Effects   (2,545)  (55,209)  (98,306) 
Total liabilities     BRL     180,468  Exchange Effects     1,729    37,477    61,309 
------------------  -----  ----------  ----------------  --------  --------  -------- 
                                             Net Effect     (816)  (17,732)  (36,997) 
 ------------------------  ----------  ----------------  --------  --------  -------- 
 

The Real foreign currency impact is mainly attributable to the exposure of outstanding Real receivables and payables of the Group at year end. In management's opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk, as the year end exposure does not reflect the exposure during the year.

Interest rate risk management

The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The Group holds most of its debts linked to fixed rates. Most of the Group's fixed rates loans are with the FMM (Fundo da Marinha Mercante).

Other loans exposed to floating rates are as follows:

-- TJLP (Brazilian Long-Term Interest Rate) for Brazilian Real denominated funding through FINAME credit line to Port and Logistics operations.

-- DI (Brazilian Interbank Interest Rate) for Brazilian Real denominated funding in Logistics operations, and

-- 6-month LIBOR (London Interbank Offered Rate) for US Dollar denominated funding for Port Operations (Eximbank).

The Group's Brazilian Real-denominated investments yield interest rates corresponding to the DI daily fluctuation for privately issued securities and/or "Selic-Over" government-issued bonds. The US Dollar-denominated investments are partly in time deposits, with short-term maturities.

The Group has floating rate financial assets consisting of bank balances principally denominated in US Dollars and Real that bear interest at rates based on the banks floating interest rate.

Interest rate sensitivity analysis

The following analysis concerns a possible fluctuation of income or expenses linked to the transactions and scenarios shown, without considering their fair value. For floating rate liabilities and investments, the analysis is prepared assuming the amount of the liability outstanding or cash invested at balance sheet date was outstanding or invested for the whole year.

 
                            31 December 2018 
Transaction           Probable  Possible    Remote 
                      scenario  scenario  scenario 
                                     25%       50% 
--------------------  --------  --------  -------- 
Loans - LIBOR            3.01%     3.76%     4.52% 
Loans - TJLP             6.98%     8.73%    10.47% 
Investments - LIBOR      2.62%     3.38%     4.13% 
Investments - CDI        6.55%     8.19%     9.83% 
--------------------  --------  --------  -------- 
 
 
Transaction             Risk      Amount      Result            Possible    Remote 
                              US Dollars              Probable  scenario  scenario 
                                                      scenario     (25%)     (50%) 
                                                       US$'000   US$'000   US$'000 
--------------------  ------  ----------  ----------  --------  --------  -------- 
Loans - LIBOR          LIBOR      32,948    Interest      (11)      (69)     (126) 
Loans - TJLP            TJLP      15,517    Interest         -     (164)     (325) 
Loans - Fixed            N/A     258,841        None         -         -         - 
--------------------  ------  ----------  ----------  --------  --------  -------- 
Total loans                      307,306                  (11)     (233)     (451) 
----------------------------  ----------  ----------  --------  --------  -------- 
 
Investments - LIBOR    LIBOR      35,273      Income         -       290       579 
Investments - CDI        CDI      27,015      Income       273     1,150     2,028 
--------------------  ------  ----------  ----------  --------  --------  -------- 
Total investments                 62,288                   273     1,440     2,607 
----------------------------  ----------  ----------  --------  --------  -------- 
 
                                          Net Income       262     1,207     2,156 
 ---------------------------  ----------  ----------  --------  --------  -------- 
 
   1.        LIBOR - Information source: Bloomberg, report from 16 January 2019. 

2. CDI - Information source: BM&F (Bolsa de Mercadorias e Futuros), report from 17 January 2019.

3. TJLP - Information source: BNDES (Banco Nacional de Desenvolvimento Economico e Social), report from October to December 2018.

The net effect was obtained by assuming a 12-month period starting 31 December 2018 in which interest rates vary and all other variables are held constant. The scenarios express the difference between the weighted scenario rate and actual rate.

 
                            31 December 2017 
Transaction                     Possible    Remote 
                      Probable  scenario  scenario 
                      scenario       25%       50% 
--------------------  --------  --------  -------- 
Loans - LIBOR            2.17%     2.72%     3.26% 
Loans - Selic            6.90%     8.61%    10.34% 
Loans - TJLP             7.00%     8.75%    10.50% 
Investments - LIBOR      2.17%     2.71%     3.25% 
Investments - CDI        6.89%     8.61%    10.34% 
--------------------  --------  --------  -------- 
 
 
 
Transaction             Risk      Amount      Result  Probable  Possible    Remote 
                              US Dollars              scenario  scenario  Scenario 
                                                                   (25%)     (50%) 
                                                       US$'000   US$'000   US$'000 
--------------------  ------  ----------  ----------  --------  --------  -------- 
Loans - LIBOR          LIBOR      47,052    Interest      (71)     (157)     (243) 
Loans - Selic          Selic         321    Interest         -       (4)       (8) 
Loans - TJLP            TJLP      23,422    Interest         -     (254)     (505) 
Loans - Fixed            N/A     283,929        None         -         -         - 
--------------------  ------  ----------  ----------  --------  --------  -------- 
Total loans                      354,724                  (71)     (415)     (756) 
----------------------------  ----------  ----------  --------  --------  -------- 
 
Investments - LIBOR    LIBOR      45,080      Income         -       236       471 
Investments - CDI        CDI      56,987      Income       229     1,297     2,366 
--------------------  ------  ----------  ----------  --------  --------  -------- 
Total investments                102,067                   229     1,533     2,837 
----------------------------  ----------  ----------  --------  --------  -------- 
 
                                          Net Income       158     1,118     2,081 
 ---------------------------  ----------  ----------  --------  --------  -------- 
 
   1.        Libor - Information source: Bloomberg, report 16 January 2018. 

2. CDI - Information source: BM&F (Bolsa de Mercadorias e Futuros), report from 15 January 2018.

   3.        Selic - Information source: Banco Central do Brasil report from 16 January 2018 

4. TJLP - Information source: BNDES (Banco Nacional de Desenvolvimento Economico e Social), report from October to December 2017.

The net effect was obtained by assuming a 12-month period starting 31 December 2017 in which interest rates vary and all other variables are held constant. The scenarios express the difference between the weighted scenario rate and actual rate.

Investment portfolio

Interest rate changes will always impact equity prices. The level and direction of change in equity prices is subject to prevailing local and world economics as well as market sentiment all of which are very difficult to predict with any certainty.

Derivative financial instruments

The Group may enter into derivatives contracts to manage risks arising from interest rate fluctuations. All such transactions are carried out within the guidelines set by the Wilson Sons Limited Risk Management Committee. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.

The Group uses cash flow hedges to limit its exposure that may result from the variation of floating interest rates. On 16 September 2013, Tecon Salvador entered into an interest rate swap agreement to hedge a portion of its outstanding floating-rate debt with IFC. On 31 December 2018 the notional amount was US$21.5 million. This swap converts floating interest rate based on the London Interbank Offered Rate (LIBOR) into fixed-rate interest and expires in March 2020. The derivatives were entered into with Santander Brasil as counterparty and its Standard & Poor's credit rating was AA at 31 December 2018.

Tecon Salvador is required to pay the counterparty interest at 4.250%, according to the schedule agreement and receives variable interest payments based on 6-month LIBOR. The net receipts or payments from the swap are recorded as financial expense.

 
                                          Outflows  Net effect 
                                           US$'000     US$'000 
----------------------------------------  --------  ---------- 
Within one year                              (422)       (422) 
In the second year                               -           - 
In the third to fifth years (including)          -           - 
After five years                                 -           - 
----------------------------------------  --------  ---------- 
Fair Value                                   (422)       (422) 
----------------------------------------  --------  ---------- 
 

The swap fair value was estimated based on the yield curve at 31 December 2018 and represents its carrying value. On 31 December 2018 the interest rate swap liability was US$0.4 million and the balance in accumulated other comprehensive income on the consolidated balance sheet was US$1.1 million. The net change in fair value of the interest rate swap recorded as other comprehensive income for the period ended 31 December 2018 was an after tax loss of US$0.5 million.

 
                         Amount            Fair Value 
31 December 2018      US$'000's  Maturity   US$'000's 
--------------------  ---------  --------  ---------- 
Financial Liability 
Interest Rates Swap      21,547  Jan/2019       (422) 
--------------------  ---------  --------  ---------- 
Total 
--------------------  ---------  --------  ---------- 
 

Derivative Sensitivity Analysis

This analysis is based on 6-month LIBOR interest rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular foreign exchange rates, remain constant and ignores any impact of forecast sales and purchases. Three scenarios were simulated: the likely scenario (Probable) and two possible scenarios of reduction of 25% (Possible) and 50% (Remote) in the interest rate.

 
                31 December 
                    2018 
 ----------------------------------------- 
                  Possible          Remote 
  Probable 
  scenario  scenario (25%)  scenario (50%) 
   US$'000         US$'000         US$'000 
 ---------  --------------  -------------- 
     (419)           (557)           (695) 
 ---------  --------------  -------------- 
 

Cash Flow Hedge

The Group applies hedge accounting for transactions in order to manage the volatility in earnings. If a swap is designated and qualifies as a cash flow hedge, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheet at fair value. The effective portion of changes in fair value of the derivative is recognised in other comprehensive income and presented as an asset revaluation reserve in equity. Any ineffective portion of changes in fair value of the derivative is recognised immediately in the profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting operations, expires or is sold, terminated or exercised, or the designation is revoked, the model accounting hedges (hedge accounting) is discontinued prospectively when there is no more expectation for the forecasted transaction and any amount included in equity is reclassified to the profit or loss.

On the initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the hedging instrument and the hedged transaction, including the risk management objective and strategy on the implementation of the hedge and the hedged risk, together with the methods that will be used to evaluate the effectiveness of the hedging relationship. The Group is utilising the dollar offset method to assess the effectiveness of the swap, analysing whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of the respective hedged items attributable to the hedged risk and if the actual results for each coverage are within the range from 80-125 percent.

Under this methodology, the swap was deemed to be highly effective for the period ended 31 December 2018. There was no hedge ineffectiveness recognised in profit or loss for the year ended 31 December 2018.

Market price sensitivity

By the nature of its activities, the Group's investments are exposed to market price fluctuations. However the portfolio as a whole does not correlate exactly to any Stock Exchange Index as it is invested in a diversified range of markets. The Investment Manager and the Board monitor the portfolio valuation on a regular basis and consideration is given to hedging the portfolio against large market movements.

The sensitivity analysis below has been determined based on the exposure to market price risks at the year end and shows what the impact would be if market prices had been 5, 10 or 20 percent higher or lower at the end of the financial year. The amounts below indicate an increase in profit or loss and total equity where market prices increase by 5,10 0r 20 percent, assuming all other variables are constant. A fall in market prices of 10 percent would give rise to an equal fall in profit or loss and total equity.

 
                                31 December 2018 
                    5% scenario  10% scenario  20% scenario 
---------------     -----------  ------------  ------------ 
                        US$'000       US$'000       US$'000 
---------------     -----------  ------------  ------------ 
Profit or loss           13,040        26,079        52,159 
Total equity             13,040        26,079        52,159 
------------------  -----------  ------------  ------------ 
 
 
                                31 December 2017 
                    5% scenario  10% scenario  20% scenario 
---------------     -----------  ------------  ------------ 
                        US$'000       US$'000       US$'000 
---------------     -----------  ------------  ------------ 
Profit or loss           13,672        27,343        54,687 
Total equity             13,672        27,343        54,687 
------------------  -----------  ------------  ------------ 
 

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults.

The Group's sales policy is subordinated to the credit sales rules set by management, which seeks to mitigate any loss from customers' delinquency.

Trade receivables consist of a large number of customers. Ongoing credit evaluation is performed on the financial condition of accounts receivable. Trade and other receivables disclosed in the balance sheet are shown net of the allowance for doubtful debts. The allowance is booked whenever a loss is identified, which based on past experience is an indication of impaired cash flows.

Ocean Wilsons (Investments) Limited primarily transacts with regulated institutions on normal market terms which are trade date plus one to three days. The levels of amounts outstanding from brokers are regularly reviewed by the Investment Manager. The duration of credit risk associated with the investment transaction is the period between the date the transaction took place, the trade date and the date the stock and cash are transferred, and the settlement date. The level of risk during the period is the difference between the value of the original transaction and its replacement with a new transaction.

In addition Ocean Wilsons (Investments) Limited invests in Limited Partnerships and other similar investment vehicles. The level of credit risk associated with such investments is dependent upon the terms and conditions and the management of the investment structures. The Board reviews all investments at its regular meetings from reports prepared by the company's Investment Manager.

Operational trade receivables

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision matrix is initially based on the Group's historical observed default rates. The Group evaluates the concentration of risk with respect to trade receivables and contract assets as low, as historically trade receivables are generally received between 30 and 45 days.

Liquidity risk management

Liquidity risk is the risk that the Group will encounter difficulty in fulfilling obligations associated with its financial liabilities that are settled with cash payments or other financial asset. The Group's approach in managing liquidity is to ensure that the Group always has sufficient liquidity to fulfil the obligations that expire, under normal and stress conditions, without causing unacceptable losses or risk damage to the reputation of the Group.

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The Group ensures it has sufficient cash reserves to meet the expected operational expenses, including financial obligations. This practice excludes the potential impact of extreme circumstances that cannot be reasonably foreseen.

The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

 
                                          Weighted 
                                           average 
                                         effective  Less than 
                                     interest rate  12 months  1-5 years  5+ years    Total 
                                                 %    US$'000    US$'000   US$'000  US$'000 
-----------------------------------  -------------  ---------  ---------  --------  ------- 
31 December 2018 
Non-interest bearing                             -     58,539          -         -   58,539 
Finance lease liability                      7.06%         46         59         -      105 
Variable interest rate instruments           4.78%     17,057     30,875       533   48,465 
Fixed interest rate instruments              3.12%     43,152     79,089   136,600  258,841 
-----------------------------------  -------------  ---------  ---------  --------  ------- 
                                                      118,614    110,023   137,133  365,770 
-----------------------------------  -------------  ---------  ---------  --------  ------- 
31 December 2017 
Non-interest bearing                             -     67,666          -         -   67,666 
Finance lease liability                      9.79%        846        399         -    1,155 
Variable interest rate instruments           3.72%     19,090     47,192     4,513   70,795 
Fixed interest rate instruments              3.29%     35,198     98,676   150,055  283,929 
-----------------------------------  -------------  ---------  ---------  --------  ------- 
                                                      122,800    146,177   154,568  423,545 
-----------------------------------  -------------  ---------  ---------  --------  ------- 
 

The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.

Fair value of financial instruments

The fair value of financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading on 31 December 2018. The quoted market price used for financial assets held by the Company utilise the last traded market prices.

Fair value measurements recognised in the statement of financial position

IFRS 13 requires the disclosure of fair value measurements by the level of the following fair value measurement hierarchy:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;

Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability.

The following table provides an analysis of financial instruments recognised in the statement of financial position by the level of hierarchy:

 
                                              Level 1  Level 2  Level 3    Total 
31 December 2018                              US$'000  US$'000  US$'000  US$'000 
--------------------------------------------  -------  -------  -------  ------- 
Financial assets at FVTPL 
Non-derivative financial assets for trading    13,729  133,150  111,309  258,188 
--------------------------------------------  -------  -------  -------  ------- 
 
 
                                              Level 1  Level 2  Level 3    Total 
31 December 2017                              US$'000  US$'000  US$'000  US$'000 
--------------------------------------------  -------  -------  -------  ------- 
Financial assets at FVTPL 
Non-derivative financial assets for trading    15,831  145,515  112,088  273,434 
--------------------------------------------  -------  -------  -------  ------- 
 

Valuation Process

Investments whose values are based on quoted market prices in active markets and are classified within Level 1 include active listed equities. The Group does not adjust the quoted price for these instruments.

Financial instruments that trade in markets that are not considered active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include certain private investments that are traded over the counter.

Investments classified within Level 3 have significant unobservable inputs as they trade infrequently and are not quoted in an active market. The Group investments include holdings in Limited Partnerships and other private equity funds which may be subject to restrictions on redemptions such as lock up periods, redemption gates and side pockets.

Valuations are the responsibility of the board of directors of the Group. The Group's Investment Manager considers the valuation techniques and inputs used in valuing these funds as part of its due diligence prior to investing, to ensure they are reasonable and appropriate. Therefore, the Net Asset Value ("NAV") of these funds may be used as an input into measuring their fair value. In measuring this fair value, the NAV of the funds is adjusted, if necessary, for other relevant factors known of the fund. No such adjustments were identified in the year. In measuring fair value, consideration is also paid to any clearly identifiable transactions in the shares of the fund.

Depending on the nature and level of adjustments needed to the NAV and the level of trading in the fund, the Group classifies these funds as either Level 2 or Level 3.

As observable prices are not available for these securities, the Company values these based on an estimate of their fair value, which is determined as follows:

The Group obtains the fair value of their holdings from valuation statements provided by the managers of the invested funds.

Where the valuation statement is not stated as at the reporting date, the Group adjusts the most recently available valuation for any capital transactions made up to the reporting date.

When considering whether the NAV of the underlying managed funds represent fair value the Group's Investment Manager considers the valuation techniques and inputs used by the managed funds in determining their NAV.

The underlying funds use a blend of methods to determine the value of their own NAV by valuing underlying investments using methodology consistent with the International Private Equity and Venture Capital Valuation Guidelines ('IPEV'). IPEV guidelines generally provides five ways to determine the fair market value of an investment:

   (i)         binding offer on the company 
   (ii)         transaction multiples 
   (iii)        market multiples 
   (iv)        net assets 
   (v)         discounted cash flows. 

Such valuations are necessarily dependent upon the reasonableness of the valuations by the fund managers of the underlying investments. In the absence of contrary information the values are assumed to be reliable.

Periodically the Investment Manager considers historical alignment to actual market transactions for a sample of disposals realised.

Investment in private equity funds require a long-term commitment with no certainty of return and our intention is to hold level 3 investments to maturity. In the unlikely event that we are required to liquidate these investments then the proceeds received maybe less than the carrying value due to their illiquid nature. The following table summarises the sensitivity of the Company's level 3 investments to changes in fair value due to illiquidity at 31 December 2018. The analysis is based on the assumptions that the proceeds realised will be decreased by 5%,10% or 20%, with all other variables held constant. This represents management's best estimate of a reasonable possible impact that could arise from a disposal and illiquidity.

 
                                31 December 2018 
                    5% scenario  10% scenario  20% scenario 
---------------     -----------  ------------  ------------ 
                        US$'000       US$'000       US$'000 
---------------     -----------  ------------  ------------ 
Profit or loss            5,696        11,391        22,783 
Total equity              5,696        11,391        22,783 
------------------  -----------  ------------  ------------ 
 
 
                                31 December 2017 
                    5% scenario  10% scenario  20% scenario 
---------------     -----------  ------------  ------------ 
                        US$'000       US$'000       US$'000 
---------------     -----------  ------------  ------------ 
Profit or loss            5,604        11,209        22,418 
Total equity              5,604        11,209        22,418 
------------------  -----------  ------------  ------------ 
 

None of the Group's investments have moved between classification levels in the year and therefore no reconciliation is necessary. Sensitivity analysis in relation to Level 3 investments has been included in the market price risk management analysis where the Group has shown impacts to the value of investments if market prices had been 5, 10% or 20% higher or lower at the end of the financial year.

 
                                                                            2018     2017 
Reconciliation of Level 3 fair value measurements of financial assets:   US$'000  US$'000 
-----------------------------------------------------------------------  -------  ------- 
Balance at 1 January                                                     112,088  100,524 
Total (losses)/profits in the Statement of Comprehensive Income          (9,682)    4,281 
Purchases and drawdowns of financial commitments                          10,002   15,358 
Sales and repayments of capital                                          (1,099)  (8,075) 
-----------------------------------------------------------------------  -------  ------- 
Balance at 31 December                                                   111,309  112,088 
-----------------------------------------------------------------------  -------  ------- 
 
   38     Post-employment benefits 

The Group operates a private medical insurance scheme for its employees which require the eligible employees to pay fixed monthly contributions. In accordance with regulation of the Brazilian law, eligible employees with greater than ten years' service acquire the right to remain in the plan following retirement or termination of employment, generating a post-employment commitment for the Group. Ex-employees remaining in the plan will be liable for paying the full cost of their continued scheme membership. The present value of actuarial liabilities in 31 December 2018 is US$1.2 million (2017: US$1.1 million). The future actuarial liability for the Group relates to the potential increase in plan costs resulting from additional claims as a result of the expanded membership of the scheme.

 
                                         31 December  31 December 
                                                2018         2017 
                                             US$'000      US$'000 
---------------------------------------  -----------  ----------- 
Present value of actuarial liabilities         1,200        1,100 
---------------------------------------  -----------  ----------- 
 

Actuarial assumptions

The calculation of the liability generated by the post-employment commitment involves actuarial assumptions. The following are the principal actuarial assumptions at the reporting date:

Economic and Financial Assumptions

 
                                                                           31 December  31 December 
                                                                                  2018         2017 
------------------------------------------  ------------------------------------------  ----------- 
Annual interest rate                                                             9.20%       10.46% 
Estimated inflation rate in the long-term                                        4.00%        4.75% 
Ageing Factor                               Based on the experience of Wilson Sons (1)   2.50% p.a. 
Medical cost trend rate                                                      6.60% a.a   2.50% p.a. 
------------------------------------------  ------------------------------------------  ----------- 
 

(1) The amount of current contributions of retirees and medical costs used in the actuarial valuation, both in monthly amounts per health care provider, may vary between R$ 106.42 and R$4.023,74 (absolute value).

Biometric and Demographic Assumptions

 
                                                                         31 December                       31 December 
                                                                                2018                              2017 
--------------------------------------------------  --------------------------------  -------------------------------- 
Employee turnover                                                             21.27%                             22.7% 
Mortality table                                                              AT-2000                           AT-2000 
Mortality table for disabled                                                       -                         IAPB-1957 
Disability table                                                  Álvaro Vindas                Álvaro Vindas 
Retirement Age                                                            100% at 62                        100% at 62 
Employees who opt to keep the health plan after 
 retirement and termination                                                      23%                               23% 
Family composition before retirement 
Probability of marriage                                      80% of the participants           90% of the participants 
Age difference for active participants              Men 3 years older than the woman  Men 4 years older than the woman 
Family composition after retirement                  Composition of the family group   Composition of the family group 
--------------------------------------------------  --------------------------------  -------------------------------- 
 

Enquiries:

Company Contact

   Keith Middleton                                       1 441 295 1309 

Media

   David Haggie                                          020 7562 4444 

Haggie Partners LLP

   Cantor Fitzgerald Europe                        020 7894 7000 

David Foreman, Will Goode - Corporate Finance

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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