28th Apr 2006 15:02
Ocean Wilsons Holdings Ld28 April 2006 Ocean Wilsons Holdings Limited Preliminary Announcement Chairman's Statement Introduction I am pleased to report that the Group's performance in 2005 was in line with ourexpectations delivering another good performance. Revenue increased in all theGroup's core businesses although margins were adversely impacted by theappreciation of the Brazilian Real (R$). The Group maintained its position asthe leading supplier of maritime services in Brazil. Results In 2005 Group revenue increased by 31% to US$285.2 million (2004: US$217.7million) although operating profit decreased 6% at US$33.5 million (2004:US$35.8 million). Increased investment revenues to US$14.2 million (2004:US$10.4 million) were the main factor in profit before taxation improving by 3%to US$49.5 million (2004: US$48.2 million). Earnings per share improved 4.2cents to 93.6 cents (2004: 89.4 cents). Brazil The Brazilian economy grew by around 2.3% in 2005, lower than expected at thebeginning of the year. Brazil's external accounts have improved considerably in 2005: - Trade surplus reached US$44.8 billion; - Accumulated net foreign exchange reserves at US$61 billion; - Prepaid debt to IMF; - Retired remaining Brady Bonds; - Brazil risk premium had fallen to 311 basis points by year end and since dropped further; - Strength of Brazilian Real against US dollar Unfortunately the strength of Brazil's external position has not been matched bythe internal accounts. Government expenditures increased especially with "BolsaFamilia", minimum wage and other social programs. Domestic interest rates, after rising to 19.75% p.a., dropped by the year endand continued this trend during the first quarter of 2006 falling to 16.50%p.a.. However, further significant reductions will depend on important pendingstructural reforms, in areas such as social security, labour and tax which areregrettably unlikely to be approved by Congress in this electoral year. Exchange rates The Brazilian Real appreciated 12% against the US Dollar from R$2.66 at 1January 2005 to R$2.34 at the year end. The appreciation of the Brazilian Realagainst the US Dollar generated a net exchange gain of US$5.4 million (2004:US$3.5 million) on the Group's Real$ denominated cash balances. Dividends In light of the Group's continuing strong performance, the Board is recommendingthat the final dividend remain at 18 cents per share (2004: 18.0 cents pershare) to be paid on 16 June 2006 to shareholders on the register at the closeof business on 12 May 2006, making a total dividend for the year of 20.0 centsper share (2004: 20.0 cents per share). The Group's dividends are determined in US Dollars. Shareholders receivedividends in Sterling determined by reference to the exchange rate applicable tothe US Dollar on the dividend record date, except for those shareholders thatelect to receive dividends in US Dollars. Shareholders electing to receive adividend in US Dollars should write to the Company's UK transfer agent, CapitaRegistrars at the address set out at the end of this announcement, before thenext dividend record date, 12 May 2006. The Board's dividend policy takes into consideration all aspects of the Group'sfinancial performance and prospects, but especially profitability and free cashflow. Shareholders should also be aware that the future value of dividendpayments in Sterling terms will depend on the prevailing Sterling/US Dollarexchange rate at the relevant dividend record date. Corporate social responsibility The Board has adopted the fundamental principles of corporate socialresponsibility. We are committed to understanding the needs and interests of allstakeholders we are involved with and are concerned for the community andenvironment. We continually strive to improve our social and environmentalperformance, with the objective of ensuring that our activities contribute tothe sustainable development of the communities in which we operate. Taxes In 2005 the Group paid in excess of US$60 million (2004: US$55 million) inBrazilian income, payroll and sales taxes. Local employment At the end of 2005, the Group directly employed more than 3,000 people in Braziland created numerous employment opportunities through its suppliers andsub-contractors. We continue to have an active and constructive relationship with the local andnational trade unions in Brazil that represent our employees and negotiate wageagreements on their behalf. Best employment practice As part of our commitment to best employment practice, all employees and theirdependents receive private medical cover at a cost of US$4.1 million (2004:US$3.0 million) to the Group. In addition, the Group provided US$2.2 million(2004: US$1.6 million) of food assistance and spent a further US$400,000 (2004:US$309,000) on education and professional development for employees. The Groupwill continue to invest in these areas. Charitable donations In line with our policy to support local charities the Group made charitabledonations of US$163,000 (2004: US$93,000) during the year. The primary focus ofthe Group's charitable efforts continues to be projects helping homelesschildren and adolescents. The Group continued its support of Casa Jimmy andPastoral do Menor in Rio and Casa da Crianca in Salvador. In addition tofinancial support, the Group encourages employees to participate in socialinitiatives of this nature. International Financial Reporting Standards The financial information contained in this report, including all comparatives,has been prepared in accordance with International Financial Reporting Standards("IFRS"). Further details are given in the IFRS interim restatement available onthe Company's website and released to the London and Bermuda stock exchanges.The Group published financial information in accordance with IFRS for the yearended 31 December 2004 on the 10 October 2005. The change to IFRS has had asignificant impact on the Group's accounts and I encourage all shareholders toread the details contained in these news releases. Management and staff On behalf of your Board, I would like to thank our management and staff fortheir hard work and loyalty during the year. The Group's performance in acompetitive market is a credit to our people who have delivered a first classservice. We will continue to invest in their future through training andincentive programmes. Strategy In September 2005 the Board of Ocean Wilsons Holdings Limited announced that ithad concluded the review of its strategic options in relation to the Company'sBrazilian operations and had decided to continue to remain focused on itscurrent operations and to invest in their future development. The acquisition of a further 33% equity interest in Tecon Rio Grande S.A.announced in August 2005 for R$55.5 million (approximately US$23.2 million) isconsistent with the Board's strategy and strengthens the Company's position inthe growing container terminal market in Brazil. In the 2004 Group accounts,Tecon Rio Grande was consolidated 100% with a 33% minority interest. The Board believes that the strength of our Brazilian business continues topresent exciting opportunities for future growth and remains committed tocreating long term value for shareholders. Outlook The Group continues to grow and establish strong positions in a range ofmarkets. We will continue to invest in our core businesses and the Group remainswell positioned to benefit from any further upturn in Brazilian trade. Civil works for the expansion of the Tecon Rio Grande container terminal willbegin in the second quarter of 2006. This is later than originally stated inlast year's annual report due to the acquisition of the minority interest inTecon RG in August 2005. Two new Portainers are currently being assembled at theterminal and are forecast to begin operation in July 2006. The outlook for the oil and gas offshore business remains positive and the Groupis actively pursuing further opportunities in this area through participation innew tenders as they arise. One of the challenges facing management is the need to maintain margins in faceof a strengthening Brazilian currency. Management remains committed to reducingcosts and improving tariffs where possible to ensure the continuingprofitability of the Group. J. F. Gouvea Vieira ChairmanOPERATING REVIEW Introduction As the leading supplier of maritime services in Brazil, the Group is the largestprovider of Towage services, as well as being a significant Ship Agent, andoperator of Ports and Logistics businesses. Towage, Shipyard and Offshore Operations Revenue in the Group's Towage, Shipyard and Offshore division rose to US$126.5million in 2005 (2004: US$ 112.2 million), an increase of 13% which reflectsconsistent growth in both towage and offshore revenues. However, operatingmargins fell due to the appreciation of the Brazilian Real with segmentoperating profit falling from US$26.2 million in 2004 to US$24.2 million in2005. Towage The towage business performed very well in 2005, with an increase of 14% in thenumber of vessels attended and a small decrease in the average dead-weighttonnage of vessels serviced. This dynamic resulted principally from a rise inthe number of liner vessels calling at Brazilian ports combined with a reductionin soya bean exports. However, an increase in service costs, due to theappreciation of the Real against the US Dollar, resulted in lower marginscompared to 2004. The Group's ocean towage operations and salvage assistance activities performedstrongly and achieved a record number of ocean tows along the Brazilian coast aswell as salvage work carried out in the ports of Paranagua and Sepetiba. Continuing the Group's fleet renewal program, the Group's shipyard in Guarujadelivered the 43 ton bollard pull tugs, Cetus and Haris, in May and July 2005respectively. To improve operating efficiency and meet market demand, theGroup's policy is to replace the fleet's smaller, older tugs with larger stateof the art vessels. Following this strategy the majority of the Group's new tugsare between 40 to 50 ton bollard pull. The older vessels in the fleet are singlescrew, 15 to 20 ton bollard pull tugs. The average age of the fleet is 17 years.The Group currently operates over 70 tugs in 19 ports throughout Brazil. The Group's towage joint venture, Consorcio Baia de Sao Marcos, also delivered astrong performance during the year, increasing revenue by 15% and operatingprofit by 24% over 2004. The joint venture fleet rose from seven to eight tugsduring the course of the year. Shipyard In addition to the Group's ongoing fleet maintenance activities, the shipyardwas busy with the Group's fleet renewal program and the starting of a new PSV(Platform Supply Vessel). Third party work centred on completion of theconversion of the PSV's for Companhia Brasileira de Offshore (CBO) and DelbaMaritima, work which started in 2004. In addition to the delivery of the tugs,Cetus and Haris, work commenced on two new 70 ton bollard pull tugs. Dragaport Our associate dredging company Dragaport had a poor year. Dredging work wascarried out at the ports of Santos and Fortaleza and at the Ponta da MadeiraTerminal (CVRD). However, contracts for dredging services in 2006 have alreadybeen negotiated and market conditions are showing some modest signs ofimprovement. Platform Supply Vessels Under time charter to Petrobras, the Group's two offshore vessels continued toperform well during 2005, with no off hire periods and excellent operationalrecords. Operating profit and cash flow remain in line with expectations. TheGroup's strategy is to increase market share in this area of activity. A thirdvessel, that is also to be time chartered to Petrobras, is being built and theGroup will examine the viability of participating in further tenders as they areannounced. Ship Agency The division again exceeded expectations for the year, attending 5,902 shipcalls, up 7 % over 2004. Revenues increased 44% to US$20.7 million. Thepartnership agency with CMA-CGM continued to expand its business within Braziland the hub agency contract with Gulf Agency Company provided extra ship calls. The division's Centralised Service Centre was successfully implemented. As aresult, productivity improved with higher volumes being handled by the samenumber of staff. Service quality improvements were also achieved as a result ofa review of internal processes, resulting in an improvement in customersatisfaction. In 2006, the division intends to achieve Quality Assurance certification byLloyds Register. Ports and Logistics Tecon Rio Grande The terminal moved 670,000 TEU's (Twenty foot Equivalent Units), an increase of9% over 2004. The number of container vessels attended increased 16% to 1,131.Productivity at 44 moves per hour is in line with the prior year (2004: 46 movesper hour), only marginally affected by the terminal's current capacityconstraints. To increase capacity and attend the increased demand fortranshipment cargo, two Super Post Panamax Gantry Cranes and four Rubber TiredGantries, will commence operation in the third quarter of 2006. Work on theplanned expansion of the terminal involving construction of a new berth willbegin in the second quarter of 2006. The terminal at Tecon Rio Grande moves adiversified range of cargoes, with the main emphasis on tobacco, frozen chicken,resin, shoes and furniture. Tecon Rio Grande services more than 20 shippinglines. Tecon Salvador Container volumes handled at Tecon Salvador reached 221,000 TEU's, an increaseof 25% over 2004. The number of container vessels attended increased by 32%,reaching 607. This rate of growth resulted from increased volumes in the portand a rise in market share achieved by the terminal. Tecon Salvador now accountsfor 100% of the containers moved through the port. The volumes achieved in 2005were originally forecast for some ten years hence. The high volume of containers handled by Tecon Salvador in 2005 requires carefullogistical planning. New equipment went into service at the beginning of 2006 soas to improve operational capacity and to mitigate limitations on yard capacity.Improvements to the depot area for empty containers will be completed in 2006,which will also help to release storage space in the terminal. Tecon Salvadorprincipally handles exports of chemical and petrochemical products, metals andfruits. Logistics The Logistics division provides storage, distribution and transportationsolutions. A relatively new area for the Group, Logistics achieved another yearof substantial growth, with turnover increasing 100% over 2004. The division nowundertakes the logistics operations of a number of large Brazilian companies andmultinationals within Brazil including, Votorantim Pulp and Paper, Frangosul(frozen chicken), Embelleze (cosmetics), Merck, Monsanto and Petroflex. Thegrowth achieved in 2005 resulted largely from increases in the operations ofMonsanto and Petroflex, as well as road transportation and bonded warehousing inEadi Santo Andre, located near Sao Paulo. As part of our strategy to developthis business, management focus is moving from revenue growth to improvingmargins and profits. WRC Operadores Portuarios Limitada (WRC) Our joint venture, WRC, operating in the port of Sao Francisco do Sul, SantaCatarina had another good year. Volumes handled by the joint venture in 2005 at261,000 TEU's were in line with 2004 at 280,000 TEU's. On the 7th April 2006 theGroup sold its interest in WRC for US$4.3 million. The Group is currentlyanalysing other terminal operation and logistic opportunities in the state ofSanta Catarina. Brasco Brasco operates onshore bases, and provides logistical support for the offshoreoil and gas industry. Following a slow 2004, activity increased significantly in2005 with Shell operating from the base. Prospects for 2006 remain limited asclients' drilling schedules maybe delayed by a shortage of oil rigs foroperations. However the longer-term outlook is positive as fields move fromexploration to the development phase. In March 2006 the Group acquired the remaining 60% share of Brasco from ourpartner, ASCO for US$1.2 million. In the same month the Group subsequently solda 25% minority interest to Brasco management for US$0.5 million. Cezar BaiaoChief Executive Brazilian Operations FINANCIAL REVIEW Revenue Group revenue, as reported for the year, was US$285.2 million, up 31% on 2004(US$217.7 million) with growth achieved in all business segments. Operating margins and profit Group operating margin for the year declined to 11.8% (2004: 16.4%). The fall inoperating margins was principally due to the appreciation of the Brazilian Realagainst the US Dollar over the period, which reduces revenue and increases costsin Brazilian Real terms. Additionally Brazilian Real denominated operating costscontinued to be driven higher by domestic inflation and increased personnelcosts. As a result of the fall in operating margins, Group operating profit decreasedcompared with the prior year at US$33.5 million (2004: US$35.8 million), despitethe increase in turnover. Investment revenues Investment revenue for the Group for the year was up US$3.8 million to US$14.2million, (2004: US$10.4 million) principally due to increased investmentrevenues from insurance underwriting activities, US$2.2 million (2004: US$0.3million) and exchange gains on cash and cash equivalents, US$5.4 million (2004:US$3.5 million). Other gains and losses Other gains of US$7.8 million (2004: US$8.5 million) arise from the Group'sportfolio of trading investments. Unrealised gains in trading investments ofUS$10.7 million (2004: US$6.1 million) and profits on the disposal of tradinginvestments of US$1.3 million (2004: US$0.5 million) were partially offset byexchange losses on trading investments of US$4.2 million (2004: US$1.8 milliongain) resulting from the appreciation of the US Dollar against major currencies. Finance costs Finance costs for the Group for the year were US$6.0 million compared withUS$6.5 million for 2004, due to increased exchange gains on foreign currencyborrowings, US$ 1.2 million (2004: US$0.7 million). Exchange gains deriveprincipally from US Dollar borrowings in Brazilian Real functional currencybusinesses. Interest on bank loans and overdrafts remained in line with prioryear at US$5.5 million (2004: US$5.6 million). Profit before tax Group profit before tax for the year was US$49.5 million, US$1.3 million aheadof 2004. Taxation The tax charge for the year was US$14.9 million, US$ 1.0 million higher thanlast year reflecting the increased profit before tax. The underlying effectivetax rate for the Group rose to 30% (2004: 29%). This is lower than the corporatetax rate prevailing in Brazil of 34%. The effective tax rate reflects thebenefit of income arising in subsidiaries operating in jurisdictions with lowertax rates. Earnings per share Basic earnings per share for the year were 93.6 cents, compared with 89.4 centsin 2004. Cash flow Net cash inflow from operating activities for 2005 was US$ 24.9 million, US$4.5million below prior year. The difference is principally lower operating profitand working capital movements. Investing activities for 2005 resulted in anoutflow of US$46.8 million, which was US$ 29.6 million higher than thecorresponding outflow last year. This was due to the acquisition of the minorityinterest in Tecon Rio Grande US$ 23.2 million, and higher spending on propertyplant and equipment of US$ 36.2 million, up from US$20.2 million last year.Capital expenditure was invested mainly in vessel construction and containerterminal equipment. At 31 December 2005, the Group had US$ 50.9 million in cash and cashequivalents, (2004: US$70.9 million). Balance sheet At 31 December 2005, the Group's net assets amounted to US$171.4 million (2004:US$147.4 million). This increase is attributable to the combination of strongunderlying profits and the appreciation of the Brazilian Real. This translatesinto net assets per share of 485 cents per share (31 December 2004: 417 cents).Net assets located in Brazil amounted to 303 cents per share (31 December 2004:261 cents) and net assets outside Brazil to 182 cents per share (31 December2004: 156 cents). Debt The Group has net debt (defined as bank loans, overdrafts and obligations underfinance leases less cash and cash equivalents) of US$ 58.5 million (2004: US$34.9 million). During the year additional loans of US$ 18.3 million were drawndown principally to finance vessel construction and equipment for Tecon RioGrande. In 2005 the Group made capital repayments on existing loans inaccordance with repayment schedules of US$11.4 million (2004: US$11.0 million). US$103.1 million of Group debt is held in US Dollar term loans or linked to theUS Dollar with long maturity profiles for debt repayments. The Group iscurrently able to borrow at competitive rates and therefore considers this to bethe most effective means of raising finance. The weighted average cost of debtis 5.5%. Risk management Treasury The Group has a centralised Treasury operation in Brazil, which manages theinvestment of surplus funds and borrowings. Clear guidelines have beenestablished relating to cash management authority levels and investment limits.The guidelines prohibit taking speculative financial instrument positions andregular financial management reports are supplied to senior management. The main financial risks facing the Group relate to funding, interest rates,currency fluctuations and movements in the market price of securities. Funding risk The Group conducts business principally in Brazil and holds a portfolio ofinternational investments outside Brazil. The Group borrows to fund capitalprojects and looks to cash flow from these projects to meet repayments. Workingcapital is funded through cash generated by operating revenues. There is limited long term commercial funding available in Brazil except fromthe Banco Nacional de Desenvolvimento Economico e Social (BNDES). All long termfunding is obtained by our Brazilian subsidiaries from the BNDES or theInternational Finance Corporation (IFC, part of the World Bank) except forspecific equipment supplier financing when available at favourable terms. At the year end, the Group had US$104.9 million in borrowings repayable overperiods of up to 16 years. The Group also held approximately US$43.0 million in Brazilian Real denominatedcash deposits in Brazil and the equivalent of US$7.9 million in Sterling and USDollar denominated deposits outside Brazil. The Group maintains large cashbalances to fund investment opportunities in Brazil and to manage short termfluctuations in cash flow. Interest rate risk During 2005 the Group did not use interest rate swaps, options or forward rateagreements to manage interest rate exposure on its debt positions. However, theGroup actively reviews risk profiles and considers undertaking interest rateswaps, if necessary, subject to Board approval. The Group has three main types of borrowings, Brazilian Real denominated,Brazilian Real denominated linked to the US Dollar and US Dollar borrowings. Currency risk The Group operates principally in Brazil with a substantial proportion of theGroup's revenue, expenses and assets denominated in Brazilian Real. Due to theprohibitive cost of hedging the Brazilian Real, the Group does not normallyhedge its net exposure to the Brazilian Real as the Board considers ituneconomic. The Group's US Dollar debt has defined repayments during the life ofthe loans. The Group hedges these repayments for periods of up to one year byinvesting surplus funds in US Dollar linked Brazilian Government bonds or bypurchasing foreign exchange options. The Group has significant long-term borrowings in US Dollars and in BrazilianReal denominated loans linked to the US Dollar. These are used to financeBrazilian Real denominated capital projects. This exposes the Group to apotential currency mismatch of costs and revenues. The Group accepts this risk,as there are few sources of long term financing denominated in Brazilian Realavailable. Cash and investments held outside Brazil are principally in US Dollar, Sterlingand Euro denominated assets. Market price risk The Group invests in internationally listed securities or funds principally forthe long-term. The Group's exposure to market price risk arises mainly frompotential loss the Group may suffer through holding market positions due toprice movements or currency fluctuations. Investment portfolio Hanseatic Asset Management LBG that manages the Group's investment portfolioreports as follows: General After a flat first half, 2005 turned out to be another good year for investors,the third positive year in a row. Returns on equities comfortably exceeded thoseon cash and bonds. The increase in share values occurred despite a backgroundthat included New Orleans and the US Gulf States being battered by hurricanes,eight increases in the Fed Funds rate, a further increase of 40% in the cost ofoil and alarming pronouncements from the new leadership in Iran. The MSCI World Index appreciated by 9.5% in US Dollar terms with the largestgains coming from Japan and the emerging markets. The increases in the indexoccurred despite a stronger dollar, which rose by approximately 15% against theYen and Euro and 12% against Sterling. Even with a stronger dollar, non-USmarkets outperformed. It was another good year for commodities. In addition to spiking energy prices,copper increased by nearly 40% and gold breached the US$500 per ounce level. The key economic themes were the revival in the Japanese and European economies.The impact of continuing high level of demand from China for commodities andcapital goods and the ongoing imbalances in the US economy, both of which havebeen features of the investment landscape for some time, continued to dominatemuch macro economic analysis. Apart from a setback at the time of the Gulf of Mexico hurricanes, the marketsremained well bid and volatility fell to very low levels. Performance The portfolio benefited from this favourable market environment rising by 12.3%,which exceeded the return on the MSCl World Index of 9.5%. In the five yearsthat Hanseatic Asset Management has managed this portfolio there have been twoyears of sharp market declines followed by three years of rising markets. Overthis period the portfolio has returned 35.2%, significantly ahead of the MSCIIndex increase of 14.3% in the same period. The overweight position in Emerging Markets and good performance in Japan werethe two major sources of added value relative to the index. The best performinginvestments were the Merrill Lynch World Mining Trust (+47.8%), JO Hambro Japan(+37.6%) and SR Emerging (+31.2%). The largest drag on performance came from the European portfolio where returnswere undermined by weakness in the Euro combined with sub par returns from HedgeFunds. Portfolio Activity The major themes behind portfolio activity included increasing the Japaneseweighting and exposure to energy and mining. The major reduction in exposureoccurred in Lloyds Underwriters where long term profits were realised. Theportfolio however still has a significant exposure to the insurance market viaits unquoted holding in Cathedral Capital. New investments in the portfolio were as follows: ACP Capital is a London listed company which manages alternative investments andfunds in niche product sectors, such as asset backed mezzanine financing andreal estate. Ark Therapeutics, is also London listed and develops medicinal gene-based andbiological therapies and diagnostic products. Herald Ventures is a limited partnership investing primarily in early stageunquoted companies operating in the information technology, media andcommunications sectors in the UK. Investec Energy is a fund that invests internationally in companies involved inthe exploration, production and distribution of oil, gas and other energysources. Lansdowne Macro is an absolute return fund investing in global market and sectorstrategies. North American Banks Fund is an AIM listed company that invests in banking startups in the US operating in niche regional markets. SR Phoenicia (Carthaginian) is a hedge fund that invests in global equitiesoutside North America. Market Outlook Much of the current backdrop to markets remains positive. Growth in the globaleconomy is more broadly based following economic revival in Europe and Japan aswell as ongoing momentum in China. The risks therefore posed by a mid-cyclecorrection in the US that may follow a cooling off period in house prices andsome consumer retrenchment, are unlikely to be as significant as would have beenthe case earlier in the decade. Despite higher interest rates in the US, theglobal monetary environment remains stimulative. As long as inflation remainslow, the sort of monetary squeeze that would derail stock and bond markets lookshighly unlikely. Despite the severe price shocks in energy, overall inflationhas remained subdued. So far the impact of new technologies such as the internettogether with the massive transfer of production from the developed world tolower cost bases in the developing world has held inflation in check. Thecombination of reasonable growth, ample liquidity and low inflation remainssupportive for risk assets. Furthermore valuations for most equity markets,including the US after a protracted period of underperformance, remainattractive in the context of short and long term interest rates. Share priceshave tracked corporate earnings. Corporate profitability remains robust, as dotheir balance sheets. Prospective price earnings multiples for most markets arealmost the same as they were three years ago. Against this positive background there are several concerns for investors.Firstly, the current rally in equity markets has been running for three yearsand certainly in a historical context can be said to be rather "long in thetooth." With the MSCI World Equity Index having almost doubled since March 2003investors have meaningful gains to protect, should fear once again replacegreed. Secondly, the notion that a slowdown in the US would be modest, in terms ofscale and be offset in any case by higher economic activity globally, may be toosanguine. There is the risk that the lagged effect of higher interest rates andhigher energy costs and utility bills may bite harder than expected. The USconsumer has been the principal source of end demand for the world's economy foran extended period and spending habits particularly in Asia would have to adjustmeaningfully to offset a period of prolonged hibernation. Potential disruption to the supply of energy and further price hikes also pose asignificant threat to the outlook. It was turmoil in Iran following theoverthrow of the Shah in the late 1970s that led to a massive leap in oil priceswhich brought about recession and severe bear markets. The current rhetoriccoming from Iran about Israel and its nuclear ambitions is clearly a majorgeopolitical concern. Any disruption in the supply of oil from Iran could tipthe global oil market into chaos. In addition to these tangible concerns there is a general unease among some morebearish commentators that there is a "day of reckoning" to come and that thenatural order of things has been tampered with due to the Federal Reserve'smassive monetary stimulus and refusal to countenance a recession. As Schumpeterobserved "any revival which is merely due to artificial stimulus leaves part ofthe work of depressions undone and adds, to an undigested remnant ofmaladjustments, new maladjustments of its own." The portfolio remains significantly exposed to the emerging markets and Japan.The attractive trade off in emerging markets between valuation and growthprospects has been highlighted in these reports before and remains in place.Although the asset class has recently broken out of its former trading range, ithas done so in response to underlying earnings growth. Valuations have barelymoved and remain very attractive in an historical context. Prospects for arecovery in domestic Chinese shares, lower interest rates in Brazil, strongcommodity markets generally and undervalued currencies in Asia are allpotentially bullish drivers for these asset classes in 2006. Japan remains attractive despite the gains last year as companies there arehighly leveraged to nominal sales growth. Earnings prospects are encouraging for2006 and domestic investors remain underweight with their home market implying afurther source of demand. On balance the outlook appears positive but the difference may be more marginalimplying lower levels of gains than last year, although we do expect marketvolatility to increase. Insurance Our underwriting subsidiary, Ascension Underwriting has now completed five yearsof active underwriting in the Lloyd's Insurance Market. In October 2005Ascension Underwriting disposed of all its investments in Lloyds underwritingsyndicates through the annual Lloyds auctions and will not be underwritinginsurance in 2006, although part of the previous underwriting business remainson risk. The sale of our underwriting investments is consistent with the Board'sstrategy to generate additional income using the non-Brazilian assets ascollateral for insurance underwriting when the Board feels that marketconditions are favourable. The Group may return to underwriting if marketconditions improve. Investment revenue from underwriting activities in 2005 was US$2.2 millionagainst US$0.3 million in 2004. Prior to 2005 the traditional accounting for Lloyds insurance market was threeyears in arrears. In 2005 the Lloyds insurance market moved to annual accountingand the Group's 2005 income statement reflects this change in accountingapproach. Consequently the Group's 2005 income statement includes underwritingprofits for 2002, 2003, 2004 and a forecast loss for 2005. Results for 2003,2004 and 2005 reflect best estimates and consequently may be subject to changein the future. As forecast last year, the 2003 Year of Account has generated strong profits.The 2004 Year of Account will be modestly profitable, notwithstanding theplethora of natural disasters that occurred in that particular year. The lastyear of underwriting, the 2005 Year of Account, started promisingly but in thelatter part of the year was hit by three widely documented storms (in particularHurricane Katrina which devastated New Orleans) making landfall on the US GulfCoast. Keith MiddletonGroup Finance Director Ocean Wilsons Holdings Limited Consolidated income statement At a board meeting held on 28 April 2006 the following announcement of theunaudited results of the Company and its subsidiary companies for the yearended 31 December 2005 were approved by the Directors. Unaudited Audited year to 31 year to 31 December 2005 December 2004 US$'000 US$'000 Notes Revenue 285,227 217,713 Raw materials and consumables used (50,398) (27,027) Employee benefits expense (71,719) (56,501) ------- -------- Depreciation and amortisation (13,959) (11,523) expense Other operating expenses (116,207) (89,056) Profit on disposal of property, 565 1,635 plant and equipment Share of profit of associate 39 515 ------- -------- Operating profit 33,548 35,756 Investment revenues 14,212 10,394 Other gains and losses 7,764 8,537 Finance costs (6,002) (6,499) ------- -------- Profit before tax 49,522 48,188 Income tax expense 3 (14,865) (13,926) ------- -------- Profit for the year 34,657 34,262 ------- -------- Attributable to: Equity holders of parent 33,086 31,599 Minority interests 1,571 2,663 ------- -------- 34,657 34,262 ------- -------- Earnings per share Basic and diluted 93.6c 89.4c Ocean Wilsons Holdings Limited Consolidated balance sheet as at 31 December 2005 Unaudited Audited 31 December 31 December 2005 2004 US$'000 US$'000 Non current assets Goodwill 13,132 - Other intangible assets 2,288 2,314 Property, plant and equipment 147,651 123,829 Deferred tax assets 7,462 9,454 Interest in associate 365 568 Available for sale investments 4,821 4,272 Other non-current assets 5,657 3,465 ----------- ---------- 181,376 143,902 ----------- ---------- Current assets Inventories 6,669 5,031 Trading investments 64,563 57,938 Trade and other receivables 45,295 37,977 Cash and cash equivalents 50,881 70,915 ----------- ---------- 167,408 171,861 ----------- ---------- Total assets 348,784 315,763 ----------- ---------- Current liabilities Trade and other payables (54,266) (48,375) Current tax liabilities (971) (860) Obligations under finance leases (3,893) (3,034) Bank overdrafts and loans (16,431) (13,502) ----------- ---------- (75,561) (65,771) ----------- ---------- Net current assets 91,847 106,090 ----------- ---------- Non-current liabilities Bank loans (88,515) (86,171) Deferred tax liabilities (8,455) (10,621) Provisions (4,317) (2,641) Obligations under finance leases (566) (3,132) ----------- ---------- (101,853) (102,565) ----------- ---------- Total liabilities (177,414) (168,336) ----------- ---------- Net assets 171,370 147,427 ----------- ---------- Capital and reserves Share capital 11,390 11,390 Retained earnings 126,331 101,137 Capital reserves 23,942 23,122 Investment revaluation reserve 1,856 1,353 Translation reserve 6,538 1,406 ----------- ---------- Equity attributable to equity holders 170,057 138,408 of the parent Minority interests 1,313 9,019 ----------- ---------- Total equity 171,370 147,427 ----------- ---------- OCEAN WILSONS HOLDINGS LIMITED Consolidated statement of changes in equity As at 31 December 2005 Attributable Investment to equity Share Retained Capital revaluation Translation holders of Minority Capital earnings reserves reserve reserve the parent interests US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 --------- --------- --------- --------- --------- --------- --------- --------- Balance at1 January 11,390 76,360 22,665 1,353 - 111,768 6,306 118,0742004Transfer tocapitalreserves - (457) 457 - - - - -Currencytranslationadjustment - - - - 1,406 1,406 50 1,456Totalrecognisedincome forthe - 31,599 - - - 31,599 2,663 34,262periodDividends - (6,365) - - - (6,365) - (6,365) ------ ------- ------- ------- ------- ------- ------- ------Balance at1 January 11,390 101,137 23,122 1,353 1,406 138,408 9,019 147,4272005(Audited)Transfer tocapitalreserves - (820) 820 - - - - -Gains onavailablefor sale - - - 503 - 503 - 503investmentCurrencytranslationadjustment - - - - 5,132 5,132 - 5,132Totalrecognisedincome forthe - 33,086 - - - 33,086 1,571 34,657periodDividends - (7,072) - - - (7,072) - (7,072)Acquisitionof minority - - - - - - (9,277) (9,277)interest ------ ------- ------- ------- ------- ------- ------- ------Balance at31 December 11,390 126,331 23,942 1,856 6,538 170,057 1,313 171,3702005 ------ ------- ------- ------- ------- ------- ------- ------(Unaudited) Ocean Wilsons Holdings Limited Consolidated cash flow statement for the year ended 31 December 2005 Unaudited Audited Year to Year to 31 December 31 December 2005 2004 US$'000 US$'000 Net cash inflow from operating activities 24,871 29,344 Investing activitiesInterest received 5,997 5,952Dividends received from associate 323 -Dividends received from trading investments 642 597Proceeds on disposal of trading investments 12,843 9,171Income from underwriting activities 1,530 324Proceeds on disposal of property, plant andequipment 3,077 3,873Purchase of property, plant and equipment (36,245) (20,190)Acquisition of investment in an associate - (17)Acquisition of minority interest in subsidiary (23,222) -Purchase of trading investments (11,704) (15,669)Acquisition of subsidiary - (1,174) --------- --------Net cash used in investing activities (46,759) (17,133) --------- -------- Financing activitiesDividends paid (7,072) (6,365)Repayment of borrowings (11,389) (11,024)Repayment of obligations under finance leases (2,932) (1,097)New bank loans 18,295 9,413(Decrease)/increase in bank overdrafts (409) 289 --------- --------Net cash used in from financing activities (3,507) (8,784) --------- -------- Net (decrease)/increase in cash and cashequivalents (25,395) 3,427 Cash and cash equivalents at beginning of year 70,915 61,734 Effect of foreign exchange rate changes 5,361 5,754 --------- --------Cash and cash equivalents at end of year 50,881 70,915 --------- -------- Ocean Wilsons Holdings LimitedPreliminary Announcement Notes to the Preliminary Accounts 1. Basis of Accounting The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs) for the first time. The financialstatements have also been prepared in accordance with IFRSs adopted for use inthe European Union and also IFRSs adopted for use by the InternationalAccounting Standards Board ("IASB"). The financial statements have been prepared on the historical cost basis, exceptfor the revaluation of certain properties and financial instruments. Theaccounting policies applied are consistent with those set out in the Group'sIFRS restatement published on 10 October 2005. 2. Basis of Preparation The financial information set out in this announcement does not constitute theGroup's statutory financial statements for the years ended 31 December 2005 or2004. The information for the comparative period has been restated from thatwhich was reported in the Group's statutory financial statements for thatperiod. The Group's statutory financial statements for the year ended 31December 2005 will be finalised on the basis of the financial informationpresented by the directors in the preliminary announcement. The audit report onthe full financial statements has yet to be signed. Whilst the financial information included in this preliminary announcement hasbeen prepared in accordance with International Financial Reporting Standards(IFRSs), this announcement does not itself contain sufficient information tocomply with IFRSs. The Company expects to publish full financial statements thatcomply with IFRSs in May 2006. 3. Taxation Unaudited Audited year to 31 year to 31 December 2005 December 2004 US$ '000 US$ '000 UK tax 380 -Overseas tax 14,485 13,926 ---------- ----------- 14,865 13,926 ---------- ----------- 4. Dividends The proposed final dividend of 18.0 cents per share will be paid on the 16 June2006, to shareholders on the register at close of business on 12 May 2006 ifapproved by shareholders at the annual general meeting to be held on 16 June2006. 5. Other information Additional copies of this announcement can be obtained from the Company'sregistered office, Clarendon House, Church Street, Hamilton, Bermuda or from theCompany's UK transfer agent, Capita Registrars Group Plc, The Registry 34Beckenham Road, Beckenham, Kent BR3 4TU. Address for dividend currency election Ocean Wilsons Dividend election Capita RegistrarsThe Registry34 Beckenham RoadBeckenhamKent, BR3 4TU This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Ocean Wilsons