6. Risks and risk management
The company’s business operations are exposed to risks in many areas, and the Board has a high focus on risk analysis and mitigation.
Market risks in the shipping markets relate primarily to changes in the daily rates and vessel values in relevant shipping markets as well as counterparty risk. These risks are managed and monitored according to mandates given by the Board. The company has a portfolio of currency futures maturing in 2014 and have entered into forward starting interest rate swaps, converting floating interest payments to fixed rate, as a risk mitigating activity. At year-end 2013, the fixed debt portion of total debt was close to 70%.
Operational risks in the shipping and trading activities are managed through quality assurance procedures and systematic training of seafarers and land based employees. To ensure compliance with ethical guidelines, all employees have been through a tailor-made in-house dilemma training program. Quarterly company-wide risk reviews ensure attention to risk management. The learning from the Bareli accident in 2012 led to the implementation of measures to strengthen the in-house induction program for newly recruited seafarers and to establish clearer guidelines for passage planning and through this further develop the strong safety culture.
Vessels operated by Torvald Klaveness sail in waters that are exposed to piracy attacks. All vessels sailing through exposed areas take necessary steps to mitigate the threat of such attacks.
At year end Klaveness had seven vessels under construction and is therefore exposed to the risk of delay or failure of the yards to complete the vessels. The newbuilding program reduces to four vessels following the delivery of three container vessels in the first quarter of 2014, and is split between two yards. These yards have been chosen for their track record and financial standing and the planning process is well underway. Klaveness will have dedicated personnel on site supervising all building processes, and tier one Chinese banks have provided refund guarantees.
There were no major unforeseen events of a financial nature during 2013. With a large part of the financing in place and a steady cash flow from the specialised vessels the liquidity risk of the company is deemed acceptable and current cash and projected operating cash flow is considered sufficient to cover the company’s current liabilities.
Investigations are still ongoing by Norwegian authorities for possible irregular commission payments to a broker in the late 1990’s and early 2000’s related to renewals of a freight contract entered into in 1995. There is still no conclusion in this matter. At the same time Klaveness and the customer in question have agreed to settle their disputes and entered into a new long term commercial freight agreement.