Risk management is vital to protect people, the environment and the business’ assets. Managing risk is also important for value creation and aimed to be an integrated part of the Group’s governing model.
Grieg Star’s key risks relate to its operational activities, market and financial risk, compliance and regulatory framework as well as security, cyber and climate risks. Strategy, policy development and risk-mitigating, all play vital roles in managing and reducing these risks.
During 2019, the Group carried out a top-down risk evaluation, in or order make sure that all major risk elements are identified and assessed, in addition to regular review of the more well-known risks that are a natural part of the daily job.
In respect of operational risk, adhering to the requirements of being ISO 14401 compliant is a prerequisite. Further on, the Emergency Preparedness Team convenes whenever an incident occurs, and drills are carried out regularly both onshore and onboard, to ensure that the organisation is fit for purpose.
Grieg Star’s financial and market risk are mainly composed of risks related to development in freight rates, ship values, currencies and interest rates as well as equity prices. Several of these risks are strongly correlated to macro-economic development. The open hatch fleet’s earnings are to a large extent linked to long term cargo contracts. This implies that revenues are less volatile than in the spot market and that changing market conditions generally have a delayed effect on the results. The dry bulk activity is, on the other hand, exposed to spot market movements.
Changing equity prices and interest rates affect the Group’s financial investments and loans. The financial portfolio is managed under a long-term strategy reflecting Grieg Star’s business principles and risk capacity to ensure that Group can withstand market fluctuations. There are policies in place to reduce interest rate risk related to the fleet’s funding arrangements and currency exposure. In December 2019, Grieg Star concluded a refinancing process which started late 2018. Since then, all vessels are either refinanced with longer repayment profiles or sold to the GriegMaas JV or as part of sale-leaseback transactions. In result, cash-break-even levels are lower and overall liquidity improved, consequently reducing the liquidity risk.
Grieg Star assumes counterparty risk in several areas of its business. Issues related to credit risk as well as sanctions regulations are part of the daily business. The membership in the Maritime Anti-Corruption Network (MACN) is one tool to fight and report corruption and facilitation payments actively. In 2019 an increased amount of time has also been used on Know-Your Customer compliance, as in particular financial partners have raised their reporting related to anti-money laundry.
Identifying, understanding and acting to reduce the group’s security risks, particularly cyber risks, has been high on the agenda also in 2019. A “new” risk which needs attention going forward is climate risk. Assessing Grieg Star’s physical and transitional climate risks may be paramount to safeguard the Group’s physical and intangible values under various future climate scenarios.