Ocean Wilson Holdings Limited Releases Chairman's Statement Relating To 2002 Annual Results

"I am pleased to report another strong performance by the Group in 2002. Despite the challenging economic environment the Group maintained the level of revenue in sterling and grew its operating profit for the year ended 31 December 2002 by 59% to £18.1 million (2001 £11.4 million) reflecting a general strengthening in operating margins. This improved result demonstrates the excellent progress being made in our core businesses.

Regrettably the result was again impacted by exchange losses on foreign currency borrowings which increased to £23.4 million (2001 £8.6 million) as a result of the devaluation of the $Real in the year. Profit for the financial year at £0.8 million was £2.8 million lower than last year (£ 3.6 million).

Earnings per share were 2.34 pence per share compared to 9.95 pence per share in 2001.

Exchange losses on foreign currency borrowings

As in the prior years the Group's Brazilian subsidiaries have significant US dollar loans and $Real denominated loans that are monetarily corrected by the movement in the US dollar / $Real exchange rate. The devaluation of the $Real against the US dollar has generated a large $Real denominated loss on the Group's US dollar and US dollar linked loans of £23.4 million (2001 £ 8.6 million.). Under UK GAAP the Group is required to recognise this result in the profit and loss account in the period it occurs.

The cash flow effect of these exchange movements will only be realised over the life of the loans when repayments are made. Whilst the value of the loans remained unchanged in US Dollars, repayments need to be made out of local currency. The Board, in internally evaluating the Group's performance, spreads the exchange loss on borrowings over the remaining life of the loans. On this basis of spreading the exchange losses, the portion of current and past exchange losses attributable to 2002 would be £3.8 million as compared to the reported exchange loss of £23.4 million.

Dividends

In recognition of the strong trading performance and the Group's significant cash reserves, the Board is recommending that the final dividend remain unchanged at 5.00 pence per share (2001 5.00 pence per share), which makes a total of 6.00 pence per share for 2002 (2001 6.00 pence per share). If approved by shareholders, the final dividend will be paid on the 6 June 2003 to shareholders on the register at the 2 May 2003.

Cash flow

The Group continued to generate strong operating cash flow reflecting the solid trading performance during the period. Cash generation was excellent with operating cash flow increasing by £6.7 million to £24.7 million in 2002 (2001 £18.0 million). Operating cash flow continues to exceed operating profit. The Group's Brazilian subsidiaries remitted £6.0 million in dividends to the holding company in Bermuda during the year.

Capital expenditure of £13.2 million was invested mainly in the construction of two PSV's (platform supply vessels) at our shipyard in Guaruja, of which £10.4 million was financed by new loans received in the period. Repayments of £5.8 million were made on existing loans in accordance with loan repayment schedules.

£1.7 million was received in dividends from our joint ventures. £4.6 million was paid in corporation and social contribution tax in the period of which £0.8 million related to 2001.

Year end cash balances amounted to £33.3 million (2001 £31.9 million) of which £11.9 million (2001 £8.9 million) was held outside Brazil, representing 33.6 pence per share. At 31 December 2002 the investment portfolio was £16.2 million (2001 £19.6 million), representing 45.8 pence per share.

Borrowings and Interest

The Group's borrowings decreased £3.5 million from £67.4 million to £63.9 million as a consequence of the strengthening of sterling against the US Dollar.

The majority of the Group's debt, £43.1 million, has been used to finance vessel construction and is repayable over periods up to 16 years with an average maturity of 13.8 years.

In the five years to 2002, new borrowings of £63.8 million were arranged by the Group to finance capital expenditure on $Real denominated assets. During the same period, £20.3 million in capital repayments were made in accordance with debt repayment schedules. The table below shows the forecast capital and interest repayments for the next five years based on the Group's debt profile at 31 December 2002 and using year end interest and exchange rates.

2003 - Capital and Interest Repayments Total= 7.9

2004 - Capital and Interest Repayments Total= 9.1

2005 - Capital and Interest Repayments Total= 8.5

2006 - Capital and Interest Repayments Total= 8.3

2007 - Capital and Interest Repayments Total= 8.2

The Group's net interest receivable in the profit and loss was £1.1 million (2001 £0.1 million interest paid). This excludes the net exchange movements on foreign currency borrowings held by the Brazilian subsidiaries, which are shown separately in the profit and loss account.

The Group's Brazilian subsidiaries have significant US dollar loans and $Real denominated loans that are monetarily corrected by the movement in the US dollar / $Real exchange rate. The Group assumes this risk as there is no long-term financing denominated in $Real available to us for capital expenditure. Current interest rates on $Real commercial borrowings in Brazil are 32% per annum. Due to the prohibitive cost of hedging the $Real the Group does not hedge its long term net exposure, although management use available instruments to manage the short term cash flow exchange risk on the current repayments.

Exchange rates

During 2002, the $Real showed significant volatility against the US dollar, falling as low as 3.95 before recovering to 3.54 at year end. In the year to 31 December 2002, the $Real devalued 53% against the US dollar (from 2.31 to 3.54) and 70% against sterling (from 3.36 to 5.70). In 2001 the $Real devalued 18% against the US dollar (from 1.95 to 2.31) and 15% against sterling (from 2.91 to 3.36).

Balance Sheet

At 31 December 2002, the Group's net assets amounted to £42.0 million (2001 £60.3 million). The decrease in the Group's net assets is attributable to the devaluation of the $Real as the greater part of the Group's net assets are $Real denominated and financed in US Dollars.

Since 1998 tangible fixed assets increased through investment from $Real 124 million to $Real 298 million in 2002. The same figures when translated into sterling, decreased from £61.5 million to £52.3 million. The Group's Brazilian assets generate significant positive operating cash flow and a substantial part of the income in 2002 generated by these assets is linked to the US Dollar.

The Group's net assets represent 118.9p per share (2001 170.5p). Net assets located in Brazil account for 47.6p (2001 97.4p) and net assets outside Brazil 71.3p (2001 73.1p).

Accounting

During the year the Group adopted Financial Reporting Standard 19 - Deferred Tax, and changed the exchange rate basis used to translate the profit and loss account from the year end exchange rate to the average rate for the year. The Board considers that translating the profit and loss account using average exchange rates provides a fairer presentation of the Group's results, as income is earned throughout the year. Comparative figures for 2001 have been restated accordingly.

Future Prospects

The underlying business remains strong with results for the first quarter in 2003 significantly ahead of the corresponding period in 2002. Management is succeeding in linking the necessary portion of invoicing to the US Dollar exchange rate to service the Group's capital investment.

The Brazilian economy is showing encouraging signs of improvement. Investors have responded positively to the new government prompting a sharp rally in Brazilian assets. The monetary and fiscal policy decisions adopted so far have smoothed market concerns. As a result the $Real is undergoing a revaluation trend since year end, strengthening 16% against the US Dollar to 3.04. Were this level to be maintained at year end, this would generate significant exchange gains in the profit and loss account and increase the tax payable. Lastly, I would like to thank all who work for the Group, our partners and clients for their support during the period."