Accounts.
The results for the first half 2002 show an improvement in the Brazilian operating performance over the comparative period in 2001. In $Reais terms turnover increased 20%, however the growth in the operating business results in local currency has been eroded by a further weakening of the $Real against the US dollar and sterling. In the six months to 30 June 2002 the $Real devalued 23% against the US dollar (from 2.31 to 2.85) and 29% against sterling (from 3.36 to 4.35).
The unaudited accounts for the six months ended 30 June, 2002 show an operating profit for the period of £5,113,000 (2001 - £4,954,000). Excluding non-recurring items operating profit improved 18% to £5.1 million (2001 £4.3 million). The share of operating profit from joint ventures and associates decreased by £263,000 to £1,101,000 (2001 - £1,364,000).
Operating margins at our towage business continued to improve in the first half of 2002, benefiting from a partial recovery in towage tariffs although revenue in sterling terms was lower than the comparative period in 2001. A decrease in the number of vessel calls at Ponta da Madeira in the period, adversely affected results at our towage joint venture, Consorcio Baia de São Marcos, although we expect volumes to recover in the second half.
Ship Agency produced a solid first half performance, handling 5% more ship calls than in the comparative period in 2001. This improved performance was principally due to a greater participation in the tramp market and the addition of a new liner service.
Container volumes at Tecon Rio Grande increased 24% over the first half 2001 to 204,478 TEUs (twenty foot equivalent units). In sterling terms, revenue was 5 % lower reflecting the impact of the devaluation of the $Real against sterling. Results at Tecon Salvador were encouraging, with both turnover and cargo volumes showing improvement over 2001. Profits at our joint venture bonded warehouse, Eadi Santo Andre, fell reflecting the decrease in Brazilian imports.
Construction of the Group's two PSVs (platform supply vessels) at our shipyard in Guaruja is progressing well with delivery of the first vessel expected in early 2003.
The Group's Brazilian subsidiaries have significant borrowings in US dollars 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 $Reais available to us for capital expenditure. Due to the prohibitive cost of hedging the $Real the Group does not hedge its long-term net exposure. 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 £10,338,000 (2001 - £8,826,000). The cashflow effect of these losses in $Reais is only realised when repayments are made over the life of the loans, up to 16 years. Subject to competitive pressures management is striving to ensure that revenues will compensate for the US dollar related component of our costs, principally debt and energy.
Due to the significant exchange losses on foreign currency borrowings in the period, the Group incurred a loss before taxation for the six months ended 30 June 2002 of £3.6 million (2001 - £2.4 million). The loss per share based on ordinary activities after taxation and minority interests was 5.57p (2001 - 2.97p).
Dividend.
The board has resolved that an interim dividend of 1.00p per share be paid on 1 of November, 2002 to shareholders on the register at close of business on 11 October 2002. At the Annual General Meeting held in June 2002, the board in reply to shareholders questions stated that the company's dividend was not a promise to pay but a distribution of profits. I wish to restate that future dividend payments will be determined by the board taking into consideration all aspects of the company's business, but especially profitability and free cashflow.
Cash flow.
Net cash inflow from operating activities during the period was £7.2 million (2001 - £7.0 million). Free cashflow was approximately £2.5 million allowing for debt and interest payments of £4.7 million
Group Net Assets.
At 30 June 2002 Group net assets amounted to 129.92p per share (31 December, 2001 - 159.89p) of which 52.76p (31 December 2001 - 86.82p) was attributable to assets located in Brazil and 77.16p (31 December 2001 - 73.07p) in other, primarily financial assets outside Brazil. The significant decrease in Brazilian assets is due to the devaluation of the $Real. At 18 September 2002 the total of the investment portfolio and cash balances held outside Brazil was approximately £28.9 million (81.6p per share).
Future Prospects.
The underlying operating businesses continues to perform well. Operating results for July and August were ahead of the same period in 2001. However the uncertain economic situation both within Brazil, due to the presidential election in October, and externally, is adversely impacting the $Real exchange rate. Since the period end the $Real has devalued a further 27% to 5.53. The Group's results remain exposed to fluctuations in the $Real exchange rate.
The board will review the level of the final dividend payment to be announced in April 2003 in the light of trading conditions and the performance of the $Real.
Signed by:
J F Gouvea Vieira
24 September 2002