Hamilton, Bermuda, October 22, 1998 - Accounts and Dividends. The unaudited accounts for the six months ended 30th June, 1998 show a profit for the period before taxation of £7,016,000 (1997 - £3,899,000) and profit after taxation of £4,296,000 (1997 - £2,247,000). Realised revaluation gains of earlier periods amounting to £7,000 (1997 - £2,326,000) have in accordance with Board policy, been taken to Profit and Loss Account so that profits for the period attributable to shareholders amount to £4,135,000 (1997 - £4,244,000). Earnings per share based on ordinary activities after taxation and minority interests of 10.40p (1997 - 4.83p) were 5.57p up on the same period in 1997. The board has resolved that an interim dividend of 1.00p per share be paid on the 20th of November, 1998 to shareholders on the register at close of business on 6th November 1998.
Group Net Assets. At 30th June, 1998 group net assets amounted to 179.10p per share (31st December, 1997 - 172.27p) of which Brazilian assets were 121.85p (31st December 1997 - 119.62p). The total value of the investment portfolio at 30th September, 1998 was £10,402,303. In addition the company currently holds cash balances outside Brazil of approximately £15 million.
Brazil. The current market turmoil continues to put pressure on Brazil and on the $Real. While the Brazilian government continues to run a large fiscal deficit the threat of an attack on the currency remains strong. Fernando Henrique the re-elected President has committed his administration to address this economic imbalance by introducing further reforms to tackle excessive government expenditure. This may lead to a recession in the near term. It is difficult to forecast the exact effect a devaluation would have on our business but some points can be noted. The low rate of interest and long maturity on our BNDES US dollar linked debt means this debt would absorb a significant currency devaluation before it's cost equaled the cost of debt in the international market place. Approximately 60% of the company's invoicing is US Dollar related. This may help to protect us in the short-term though market pressures and economic conditions will ultimately determine price levels.
Towage. Towage continued to perform well. Revenues in US Dollar terms were up on the corresponding period in 1997 as a result of increased port movements. In addition operating margins continued to improve through effective management of our costs. However competition in the towage market is intensifying and the second half of the year which is traditionally stronger than the first half is unlikely to show any improvement over the same period last year.
Shipyard. Shipyard third party revenue fell, as the market for small vessel construction is Brazil is currently weak and accordingly the shipyard concentrated on our own tug building and maintenance programs. The tugs Hydrus and Jupiter were were delivered with a further tug forecast to be delivered by yearend. Third party work included the Dersa maintenance contract and the delivery of the final two 10 metre aluminum launches to the Navy.
Shipping agency Division. Revenue was in line with 1997 but profitability improved as the expected
benefits from our systems automation appeared.
Port Operations. Container traffic at Tecon Rio Grande increased by 11% over 1997. The terminal now moves over 50% of the containers moved through the port of Rio Grande. Construction of the new berth is
forecast to commence this year. The rationalization of our container freight station operation continues. The Rio de Janeiro freight station was closed at the beginning of this year and the land has been let. The Sanos freight station is in process of closing. Stevedoring continued to perform well with the delays in port privatization helping our stevedoring business which performed better than expected this period. Two joint ventures the company is involved with, will start in October: an inland bonded warehouse (EADI) at Santo Andre, Sao Paulo and the operation of a forest product terminal in the port of Santos.
Conerj. Substantial restructuring has occurred within the Conerj ferry operations as was forecast in the business plan. However, Conerj lost money in the first half of the year and the company is now breaking even on an EBITDA basis (earnings before interest taxation, depreciation and amortisation). Conerj is treated as an investment in our accounts and shown at cost in the balance sheet.
Year 2000. The company as completed a review of its computer systems and associated risks in relation to the year 2000 issue. We are currently rectifying the problems identified. This work is forecast to be completed by June 1999. The cost of this work will not be material to the Group.
Future Prospects. Results for the third quarter are slightly down compared to the same period in 1997 and the second quarter of this year. By the end of 1998 we anticipate decisions relating to the privatization of container terminals in Suape near ReRecife, Sao Francisco do Sul and further possible bonded warehouses. We are also examining opportunities in offshore support services for the oil industry. The company as part of various consortia is involved in bidding for all these projects.
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