Ocean Wilsons Holdings Limited - Preliminary Announcement

Chairman's Interim Statement

Ocean Wilsons Holdings Limited is the majority shareholder in Wilson Sons Limited "Wilson Sons" and holds a portfolio of international investments. Wilson Sons is listed on the Luxembourg and Brazilian Stock Exchanges and is one of Brazil's largest providers of integrated port and maritime logistics and supply chain solutions.

Results 

Ocean Wilsons Holdings Limited has produced another strong financial and operational performance. Group revenue for the six months ended 30 June 2008 was up 36% at US$ 248.4 million (2007: US$ 182.7 million) driven by increases in our core businesses and the expansion of our vessel construction business

Group operating profit increased US$ 21.2million to US$40.4 million (2007: US$ 19.2 million) due principally to the strong growth in revenue, improved operating margins in towage port operations and offshore as well as lower share based payment expense, US$ 1.8 million (2007:US$ 7.8 million). Operating margins were positively impacted by favourable pricing, lower tug rentals, reversal in the provisions for doubtful debts (US$ 1.9 million) and fiscal credits (US $3.7 million). The lower share based payment expense in 2008 is principally due to a fall in the Wilson Sons share price and the 2007 charge includes additional retrospective accruals that crystallised on the implementation of the Ocean Wilsons Holdings Limited scheme.

Investment revenues in the period increased by US$ 5.7 million to US$ 15.9 million  (2007: US$ 10.2 million), principally due to higher interest receipts from bank deposits and exchange gains on cash and cash equivalents. The higher interest receipts resulted from higher average cash balances during the period compared with 2007.

Other losses of US$ 0.2 million (2007: US$ 9.9 million gain) arose from the Group's portfolio of trading investments and comprise decreases in the fair value of trading investments held at period end and profits on the disposal of trading investments.

Finance costs for the period increased US$ 1.1 million to US$ 3.9 million (2007: US$ 2.8 million) principally due to increased interest on bank overdrafts and loans and higher other interest charges.

Profit before tax fell US$ 198.1 million to US$ 52.1 million (2007: US$ 250.3 million) as the 2007 results included the profit on the sale of minority interest of US$ 213.7 million from the IPO of Wilson Sons Limited. Removing the Wilson Sons IPO profit from the 2007 result, the comparative profit before tax for 2007 would be US$ 36.6 million.

The lower Profit before tax is reflected in lower earnings per share based on ordinary activities after taxation and minority interests of 63.5 cents (2007: 669.5 cents).

Wilson Sons Limited Initial Public Offer (IPO)

On the 30 April 2007, Ocean Wilsons Holdings Limited, ("Ocean Wilsons or the Company") successfully floated Wilson Sons, the holding company of its Brazilian business, on the Sao Paulo Stock Exchange and the Luxembourg Stock Exchange.  The flotation involved the sale of 18.7 million shares by Ocean Wilsons, resulting in net proceeds to the Company of approximately US$205.6 million, and the issue of 11 million new shares by Wilson Sons, raising approximately US$119.1 million for Wilson Sons.

Following the flotation, Ocean Wilsons retained a 58.25% holding in Wilson Sons. The Company continues to fully consolidate Wilson Sons in its accounts with a 41.75% minority interest. At the close of business on the 8^th August the Wilson Sons share price was Real 18.50 resulting in a market value for the Ocean Wilsons holding of 41,444,000 shares in Wilson Sons of approximately US$ 476 million which is equivalent to US$ 13.47 per Ocean Wilsons share.

Exchange rates

In the six months to 30 June 2008 the Real appreciated 10.1% against the US Dollar from 1.77 at 1 January 2008 to 1.59 at the period end. The appreciation of the Real against the US Dollar generated a net exchange gain of US$ 6.5 million (US$3.9 million) on the Group's Real-denominated cash balances in the period. The appreciation of the Real also had an adverse affect on our Real denominated costs when converted into US Dollars which effects operating margins.

Dividend

The Board has declared an interim dividend of 4.0 cents per share (2007: 4.0 cents per share) to be paid on 26 September 2008 to shareholders on the register at close of business on 29 August 2008.

Dividend Policy

Dividends are set in US Dollars and paid twice yearly. Shareholders receive dividends in Sterling by reference to the exchange rate applicable to the US Dollar on the dividend record date, except for those shareholders that elect to receive dividends in US Dollars.

The Company's target dividend payout in respect of each financial year is to pay the Company's full dividend received from Wilson Sons in the period plus a percentage of the average capital employed in the investment portfolio including cash under management to be determined annually by the Board.

Your Board of Directors may review and amend the dividend policy from time to time in light of our future plans and other factors. The payment of dividends cannot be guaranteed and may be discontinued or varied at the discretion of the Board.

Cash flow and debt

Net cash inflow from operating activities was US$ 22.0 million in the first six months of 2008 compared with US$ 18.7 million in the same period last year. The higher operating profit in the period of US$ 40.4 million (2007: US$ 19.2 million) was partially offset by adverse working capital movements and a decrease in non-cash expenses. (Share based payment expense, US$ 1.8 million, 2007: US$ 7.8 million).

Capital expenditure in the period amounted to US$36.4 million (2007: US$ 27.2 million). The major elements were the expansion of Tecon Rio Grande, equipment for Tecon Salvador, the towage fleet renewal program and offshore vessel construction.

The Group's fourth Platform Supply Vessel (PSV), Pelicano was launched in May 2008.

Net cash outflow during the period was US$4.6 million (2007: US$321.6 million inflow). The large inflow in 2007 was principally due to the disposal of the minority interest in Wilson Sons, (US$ 324.7 million inflow). 

Group borrowings increased US$ 12.0 million at 30 June 2008 to US$161.5 million. Additional funds were released by the BNDES and IFC, to finance vessel construction and equipment for Tecon Salvador. During the period the Group made capital repayments on existing loans in accordance with repayment schedules of US$ 7.2 million

At 30 June 2008 the Company and its subsidiaries had US$229.5 million in cash and cash equivalents (31 December 2007: US$227.6 million). In addition at the balance sheet date the investment portfolio included US$120.1 million in liquidity funds.

Balance sheet

At 30 June 2008, the Company's consolidated net assets (excluding minority interests) amounted to US$ 495.2 million (31 December 2007:  US$ 478.8 million).  This is the equivalent of US$ 14.00 per share (31 December 2007: US$ 13.54). Of this, trading investments of US$ 269.0 million equates to US$7.61 per share. Minority interests increased US$10.2 million to US$ 144.5 million at period end.

At 30 June 2008 the investment portfolio including cash under management amounted to US$272 million. This is the equivalent of US$ 7.70 per share.

Wilson Sons Limited operating review

We have summarised the following highlights from the Wilson Sons 2^nd quarter 2008 earnings results released on 11 August 2008. The full report is available on the Wilson Sons Limited website: www.wilsonsons.com:

Strong Earnings performance

For the six months to 30 June 2008 Wilson Sons reported strong earnings results across its leading business segments. Consolidated revenues grew by 36% and EBITDA (Earnings before interest, tax, depreciation and amortisation) reached US$ 52.6 million, a 49% increase over the same period in 2007. Our overall positive performance supports our optimistic view of Wilson Sons' integrated business model, despite the challenging environment of a weakening US Dollar, (the "Real", has appreciated 16% against the US Dollar since 30 June 2007), and rising inflation.    

A positive outlook going forward

Wilson, Sons is determined to take advantage of its main growth drivers. The combination of financial health and opportunities arising from increased trade flows, stable macroeconomic fundamentals in Brazil and a booming oil and gas industry, position us to grow while taking advantage of our IPO proceeds and available funding opportunities.

Going forward, we intend to expand our shipyard, which will allow us to take advantage of opportunities in the offshore oil and gas and towage industries. The expanded shipyard will provide additional capacity to build new offshore support vessels, compete in the new Petrobras public tenders, and explore opportunities arising in the spot market for oil supply vessels (OSVs). We intend to deliver at least one new tugboat and one platform supply vessel (PSV) by the end of the year. 

As part of our tugboat fleet renewal programme, we intend to build more powerful tugboats to attend higher deadweight vessels and improve margins, and offer alternative solutions for the support of oil platform offloading activities.

We are set to expand our container terminal capacity and continue to assess new terminal projects, both domestically and within South America. Our logistics business is seeking to broaden its portfolio of clients and to improve margins and accelerate growth.

Port Terminals

Our port terminals business includes two container terminals in Brazil (Tecon Rio Grande and Tecon Salvador), offering assistance in port operations for loading and unloading of vessels, storage, and auxiliary services. We also operate Brasco, a terminal in Rio de Janeiro which provides support services for the oil and gas industry.

Revenue

Revenue increased 24% compared to 2007 to US$44.8 million, benefiting from a recovery in tariffs, increased warehousing activity and improved sales mix. The positive impact from the type of container traffic handled in the period (full deep sea) compensated for the lower volumes handled. Warehousing-related services generated higher revenues, due to increased imports in the period and delayed cargo clearance from the terminals due to industrial action by the Customs and Excise officers. Growth in cabotage services positively impacted results.

EBITDA

Although Brazilian exports in the period were adversely affected by the weakening US Dollar, volumes of full containers handled were in line with 2007. The reduction in total container volumes handled was attributable to a fall in lower margin empty container movements. EBITDA for the period at US$28.4 million also benefited from the increased revenue and fiscal credits.

Outlook going forward

Capacity at Tecon Rio Grande will increase by 60% in the second half of 2008. All necessary equipment is in place and ready to start operations, including gantry cranes and RTGs (rubber tire gantry). The challenge we now face is to implement our strategy to expand capacity at our Salvador terminal and to improve our equipment and infrastructure, so as to take advantage of market growth prospects in the northeastern region of the country.

Towage

Wilson Sons offers harbour towage, ocean towage, salvage support and maritime support to the offshore oil and gas industry.

Revenue

Net revenues improved 19% to US$77.0 million in the period, mainly due to higher tariffs, a better sales mix in harbour towage, higher average deadweight of vessels attended and an increase in the number of special operations (Offshore support, salvage and ocean towage).

EBITDA

The combination of a successfully implemented pricing strategy and increase in higher margin business (special operations) positively impacted margins in the period. EBITDA rose 30% to US$ 27.4 million in 2008 from US$ 21.0 million in 2007. We recovered US$900,000 of doubtful debts in the period and fiscal credits of US$ 1.6 million also contributed to the improvement in margins.

Removing the effects of the contingency provisions and fiscal credit, EBITDA would have been US$ 24.9 million, 19% higher than the comparable 2007 figure.

Outlook going forward

We intend to continue to take advantage of the premium prices available in the offshore oil & gas spot market, using the tug-boats Volans and Aquarius.  

Logistics

We provide solutions for our customers' supply chain and product distribution, including general services in storage, bonded warehousing, distribution systems, road & multimodal transportation, and Non Vessel Operating Common Carrier ("NVOCC").

Revenues

Revenues increased 52% to US$ 44.6 million in the period principally due to the appreciation of the Real against the US Dollar, new operations and increased revenue from EADI Santo André (our bonded terminal). As the majority of Logistics revenue is Real denominated, any appreciation of the Real against the US Dollar increases revenue in US Dollar terms. Our bonded terminal in Santo André (EADI) contributed through higher import and storage volumes.

EBITDA

EBITDA at US$2.8 million was in line with 2007.

Outlook going forward

New and strategic operations are beginning in the second semester of 2008. We anticipate improved margins and profitability, in the near to medium term as new businesses mature.

Shipping Agency

Wilson Sons acts as the ship-owners representative as well as providing ship agency, commercial representation, cargo documentation and container control for ship-owners

Revenues

Revenue at US$9.9 million was in line with the same period in 2007. A 10% increase in the number of vessels calls attended by the ship agency division was offset by a decrease in the number of containers controlled.

To reduce our exposure to foreign exchange rate movements, we further aligned revenue with costs during the period by repricing some agency fees in Real that were previously denominated in US Dollars. The Group also increased Bill of Lading fees in the period.

EBITDA

The weakening US Dollar and higher personnel costs from collective labour agreements adversely impacted margins in the period.  EBITDA at US$1.8 million was 47% lower than the first half 2007.

Outlook going forward

The shipping agency segment faces a challenging business environment. However, we believe that our nationwide presence, combined with longstanding expertise in operating with both liner and tramp vessels, will contribute to broadening our portfolio of clients, while focusing on efforts to rebuild margins.

Offshore

Wilson Sons operates platform supply vessels (PSVs), to transport equipment and supplies to and from offshore oil and gas installations.

Revenues

Net revenue reached US$ 7.6 million in the period helped principally by improved tariffs, the positive impact from a weakening US Dollar and the start of operations of our fourth PSV, Pelicano in mid-May. The Pelicano is delivering premium daily rates by operating on a renewable spot contract, in place since May.

EBITDA

EBITDA at US$ 3.2million (2007: US$ 1.7 million) benefited from the improved tariffs and the early delivery to market of the PSV Pelicano.

Outlook going forward

Our fifth PSV, the Atobá, is expected to be operational by September 2008 and we expect to deliver a further two PSVs by 2010. The expansion plan at our shipyard in Guaruja allows the Group to compete for additional contracts, including new Petrobras bids for PSVs and AHTSs (anchor handlers).

Non-segmented activities

Non-segmented activities include shipyard and our joint venture dredging company Dragaport and unallocated corporate costs

Revenues

In late 2007, we initiated construction of four new PSVs for third parties at our shipyard, under a US$ 100.0 million contract. Net revenues from our non-segmented activities in the period were derived solely from shipyard operations, and amounted to US$ 26.7 million.

EBITDA

US$ 2.4 million in profit recognized in the period consisted of profits on completed PSVs and partially completed PSVs.

Outlook going forward

Our shipyard is a strategic asset to the Company and plays an important role in the growth of our integrated businesses. The expansion of our shipyard will allow the Company's to expand its level of activity.

Investment Portfolio

Hanseatic Asset Management LBG that manages the Groups investment portfolio reports at the period end as follows:

Market Background

"The world's share markets suffered sharp declines during the first half of 2008. In US dollar terms the MSCI World Index fell by 10.6% and the MSCI Emerging Market Index by 12.7%.  In particular there were dramatic declines in the major emerging markets of Asia with the Sensex index of Indian equities falling by 39% and the Shanghai A share index for China falling by 45%. Of the developed markets Continental Europe was particularly weak with the CAC index in France declining by 14.8% and the DAX index in Germany declining by 14.2%.  of the major markets Japan proved the most defensive declining by a relatively modest 5.5% as measured by MSCI Japan.

In the currency markets there was further weakness in the US dollar which declined by 7.3% against the Euro, 5% against the Yen and 10.3% against the Brazilian Real.  Ten year bond yields for US treasuries declined during the first quarter from 3.5% to 2.5% but retraced that decline during the second quarter. Yields on 10 year Euro bonds also declined in the first quarter but then rose to 4.6% having started the year at 4.2%.

In the commodity complex the exponential rise in energy prices continued with a barrel of West Texas Intermediate rising by 45.6%, the copper price rose by a further 31% and an ounce of gold increased by 10.9%.  In the agricultural sector there were some sharp increases with the futures price for corn rising by 51.5%, soybean by 27.5% and rice by 36%.

Two themes dominated the market background during the first half of the year - the escalating credit crisis and its impact on the financial system and the seemingly relentless rise in the oil price.

The year started with announcements of massive write downs from Citigroup ($18.0bn) and UBS ($18.4bn) as a result of sub prime losses.  Both institutions announced further large write downs in the period and the headlines were dominated by rumours of troubled institutions and forced bailouts such as Bear Stearns' rescue by JP Morgan with the support of the US Federal Reserve.  Banks sought to shore up battered balance sheets with injections of capital through rights issues.  In April the IMF predicted that the scale of global write downs could reach US$950bn.  The Federal Reserve reacted to this deteriorating background with a series of aggressive cuts in the Federal Funds rate.  Consumer confidence plummeted, undermined by falling property prices as real estate values reflected the crisis in credit.

On its own the "credit crisis" would have been bad enough for equity markets to digest but to complete what commentators have referred to as a "perfect storm" for financial markets, oil prices continued to confound expectations and move relentlessly to record highs.  A combination of moribund credit (stagnation) and out of control input costs (inflation) creates a toxic background for investment termed "stagflation". Both the credit crisis and record oil prices can be seen as direct consequences of excessively accommodative monetary policy since the turn of the century.  Energy demand has been a leveraged function of GDP growth in countries like China and India and domestic subsidy policies have reduced price sensitivity.  Ultimately demand will be constrained implying recession like conditions in developed economies and significantly lower growth in developing ones.

Performance

Against such a negative market background it is relatively reassuring to report that the   investment portfolio declined in value by only 0.26% after deduction of expenses.  In part the decision to hold back a substantial portion of liquid reserves from deployment helped to prevent capital losses.  However the invested portfolio performed relatively well, only declining by 2.1% as opposed to a decline of 10.6% for the MSCI World and 12.7% for the MSCI Emerging Market Index. 

The top performing investments were the Harbinger Capital Partners Special Situations Fund LP (+25.1%), Gazprom ADR (+21.1%), UFG Russia Select (+15.5%) and Lansdowne UK Equity (+15.3%).  The Harbinger Fund benefited from long positions in iron-ore mining, power generation and steel production.  Performance on the short side has been through positions related to the fallout following the sub-prime crisis, including shorts on mortgage and monoline insurers.  Both Gazprom and UFG benefited from favourable energy prices and the improving prospects for the Russian economy.  The Lansdowne UK Equity Fund has been very successful in pursuing a strategy of having long exposure to natural resources and short exposure to the financial sector. 

The worst performing area of the portfolio occurred in Asia.  Historically the portfolio has had an overweight exposure here owing to the favourable long term growth prospects for the region. However a combination of higher risk aversion and worries over rising fuel and food costs generated particularly severe setbacks in several of the Asian markets.

Overall, a combination of broad diversification and added value at the individual security selection level generated good relative performance.

Portfolio Activity

At the beginning of the year the portfolio had cash of $167.7m available for investment.  During the period approximately $46m of this cash was deployed.  Of this approximately $30m were new investments (as opposed to additions to existing holdings).  At the end of June 2008 cash represented 45% of total assets, equities represented 40% with 10% in alternative assets and 5% in fixed income.

Amongst the significant new positions was Harbinger Capital Partners Special Situations Fund LP which pursues superior absolute returns through investments in a variety of instruments including distressed and high yield debt, credit default swaps and control equity stakes in special situations.  Harbinger takes long and short positions. Neptune Russia Fund invests in liquid Russian equities.  Russia is clearly a major beneficiary of very high world prices for energy, industrial metals, timber, fertilisers, grains and precious metals.  The domestic economy is booming, appears immune to the credit crisis unfolding internationally and equity ratings are generally attractive.  Riverstone/Carlyle Global Energy and Power Fund IV, LP is a limited partnership with a ten year life making investments in exploration and production, midstream, oilfield services and power generation and transmission globally.  EFG Hermes Middle East and Developing Africa Fund and BlackRock Middle East and North Africa Opportunities are both vehicles offering exposure to the burgeoning economic opportunities in the MENA region.  The increasing adoption of secular, market based principles in addressing the economies of this region together with massive budget surpluses accruing from high energy prices has created investment opportunities in a broad range of sectors.

Other new investments during the period included American Depositary Receipts in Gazprom, Russia's leading energy company.  An initial position was established in Atlantis China with a view to adding during the correction underway in the Chinese market. Contrarian buying into weakness was also the thinking behind investments in Aberforth Smaller Companies and Jupiter Financial Opportunities.

As well as these new investments in the portfolio there were a number of additions to existing holdings in order to scale up their unit size in relation to the enlarged portfolio. These included BlackRock World Mining Trust, BlackRock Agriculture, Investec Global Energy, Jupiter European Opportunities and Finsbury Income & Growth Trust. 

Investment Outlook

Since the end of the reporting period the US Administration has announced a series of measures to safeguard the operations of Fannie Mae and Freddie Mac, the key mortgage institutions in the US.  This commitment to stand by these major financial institutions, despite the scale of losses and write downs of value that has occurred has put, at least for now, some kind of floor under the crisis of confidence in the financial sector.  The severity and duration of the "credit crisis" has exceeded most commentators expectations and there may now be a period of respite.  Any return to "normality" in the banking system combined with any setbacks that may occur in oil prices as demand declines would be very welcome by equity markets.  In particular some of the more severely depressed bourses in Asia may rally from oversold levels. 

Beyond this however the managers are cautious in their outlook for investment returns.  The impact in the real economy of the contraction in credit together with higher input costs that has already occurred is likely to constrain growth for some time to come.   Furthermore room for manoeuvre on the policy front appears extremely limited.  Any further loosening of monetary policy is likely to be self defeating and cause oil and the other commodities to set new highs to offset excessive paper money creation.  Recession cannot be postponed indefinitely and with property prices declining in the developed world consumer confidence is likely to remain fragile for some time to come.

The emerging markets will not remain unscathed in this difficult period for the world economy. Some, such as the energy producers like Russia and the Middle Eastern countries, will continue to benefit from the wealth transfer that is occurring between energy producers and energy consumers.  Cost pressures are likely to be present everywhere and those markets with manufacturing bases that export to Western consumers will inevitably experience a reduction in demand.  However the major themes which have driven growth in emerging markets - urbanisation, a backlog of infrastructure spending, favourable demographics, competitive labour costs and the need to diversify economically into value added goods and services - remain in place.  They underpin the long term case for investment in emerging markets. 

It will take time for recent economic shocks to be absorbed and for imbalances in the world economy to be corrected.  A period of slower economic activity seems inevitable.  Such a period will however generate many opportunities to invest on terms more favourable to investors than have been the case in recent times.  Ocean Wilsons Holdings Limited is well placed with ample cash at its disposal to exploit such opportunities and generate good returns in the medium term." 

Responsibility statement

The Directors confirm that to the best of our knowledge:

(a)    the condensed set of financial statements has been prepared in accordance with IAS 34;

(b)   the interim management report includes a fair review of the information required by DTR 4.2.7R; and

(c)    the interim management report includes a fair review of the information required by DTR 4.2.8R

By order of the Board

Jose Francisco Gouvea Vieira

11 August 2008

This report contains certain forward looking statements with respect of the financial condition and results of Ocean Wilsons Holdings Limited. These should be treated with caution due to the inherent uncertainties, including both economic and business risk factors. Nothing in this statement should be construed as a profit forecast.