Risk management & Internal Control

Containerships Group’s business is exposed mainly to risks relating to the global economic situation and its impact on cargo volumes, nature and shipping directions, and on the competition environment and oil prices. Fluctuations in the global economy can quickly impact shipping volumes.

Containerships seeks to manage market risks especially by operating in several shipping areas and by maintaining a diverse and balanced customer base so that no one sector, customer or geographical region grows to account for too large a share of the Group’s business.

Containerships Group’s risk management aims to identify and analyse risks potentially affecting the Group, to impose appropriate risk levels and controls, and to monitor the materialisation of risks in relation to the risk levels. Risk management also includes internal control, which is aimed at ensuring profitable business, compliance with laws, regulations and contracts and at ensuring the correctness of information and financial reporting.

The Board of Directors oversees and approves the principles of the Group’s risk management and evaluates the adequacy of risk management. The CEO and Management Team are responsible for the organisation and implementation of risk management, which is part of Containerships Group’s management, monitoring and reporting systems.

Containerships Group’s risks can be classified into strategic risks, operational risks, including geopolitical risks, and economic and financial risks.

Strategic risks

Containerships Group aims to be a reliable and forward-looking logistics company that offers personal service and is an industry leader in environmental responsibility. The growth target is to double revenue during the next five years. To achieve our goals, the strategy and associated risks are reviewed each year or more frequently where necessary. Strategic risk management is an essential element in operating and the diversity of modes of transport in a number of shipping areas such as the Baltics, Finland, the UK, Central Europe, Russia and the Mediterranean. Risk management also includes the breadth and diversity of the customer base.

Operational risks

Operational risks include risks relating to technology and security, geopolitical, personnel, partner and contractual risks, risks relating to internal processes and legal and hazard risks.

Risks relating to security may arise as a result of unstable political and economic conditions, wars and terrorism, the forces of nature and actions by the personnel in countries in which we operate. The Company has ISO 9001 quality management system and ISO 14001 environmental management system certification to ensure the well-functioning of internal processes and systems and technology and security.

Personal and partner risks relate to the availability and turnover of competent employees and local agents. We focus on supervisory skills and good leadership. The promotion of wellbeing at work, capacity for work and work safety constitutes a key element in Company leadership and the management of HR risks. Good supervisory work and wellbeing at work reduce employee turnover and absence. This in turn reduces the costs arising from sickness, accidents at work and recruiting new people.

Regarding geopolitical risks, especially the situation in Ukraine and economic woes in Russia have increased economic uncertainty in Containerships Group’s activities. Political changes, such as Brexit, in Europe, can also have implications for economic development and consequently demand for logistics services. The political and economic situation in North Africa has become slightly more stable, but this may rapidly change. As risks grow, the Company has prepared to change its own business model by changing the countries in which it operates and shipping routes. The Company has its own agency in Algeria, but operates in Tunisia and Libya through local agents.

Contractual risks relate particularly to chartering vessels, the use of subcontractors and contracts with ports. Efforts are made to minimise contractual risks by careful preparation and by working with contract lawyers who know the Company’s business.

Legal risks arise from amendments to legislation in countries in which we operate and, for example, smuggling and bribery attempts. Containerships has a person in each country who is responsible for ensuring operations comply with local legislation. The Group also has an internal Code of Conduct, which prohibits all forms of bribery and other malpractices and unlawful activities.

Regarding information system risks, a data security policy has been drawn up for these and special projects in 2016 addressed the security of critical enterprise resource planning systems and the confidentiality and availability of information. Physical risks have been minimised by migrating to reliable cloud-based solutions.

Containerships operates in an industry where the nature of operations causes emissions that are harmful to the environment. Natural phenomena and accidents in particular expose the Company to environmental risks. If they materialise, environmental risks also often expose the Company to a reputational risk, irrespective of whether the Company itself has contributed to the cause of environmental damage. The Company has identified the most significant environmental risks and their impacts and works actively to minimise such risks. The Company’s ISO 9001 quality management and ISO 14001 environmental management systems, together with regular training in compliance with these, are the main ways to minimise environmental risks. The four LNG vessels ordered by Containerships will considerably reduce harmful environmental impacts in the long term. More information about Containerships Group’s environmental matters and actions to reduce harmful environmental impacts are discussed in the Responsibility section.

Significant hazard risks are those involving the personnel, property, business disruption and liabilities. In addition to statutory insurance, the Group has comprehensive property, business disruption and liability insurance cover in the event of hazard risks.

Financial risks

Containerships Group’s main financial risks are foreign exchange risk, interest rate risk, credit risk, liquidity risk and oil price risk. Management is responsible for monitoring financial risks relating to business activities. The objective of financial risk management is to reduce volatility relating to earnings, the balance sheet and cash flows, whilst ensuring effective, competitive funding for the Group. In risk management, the Group uses currency forwards and options, interest rate swaps, oil derivatives and customer contracts including fuel clauses and currency clauses. In addition, in some countries in which we operate, we try to price services in euros instead of in local currency to mitigate currency risks.

The objective of internal control and risk management relating to the financial reporting process is to ensure the reliability of financial reporting. Containerships Group has common internal guidelines on financial management, approval and signing procedures, transactions with related parties and other governance matters. Each supervisor in the Group must read and sign these Management Guidelines. Companies operating in the different countries have their own persons responsible for ensuring that operations are in compliance with the legislation and practices in each country and that the Company has all the valid permits and document required to operate in each country. The legislation applying to company operations in each country is reviewed with the Management Team each year.

Containerships Group’s common reporting system supports consistent reporting in Group subsidiaries and legal units. The objective is for all subsidiaries to share the same business and financial reporting processes.

Containerships Group has no separate internal audit section and internal auditing is part of the Group’s financial management. Internal audit measures and results are regularly reported to the Board of Directors, the CEO and the Management Team. Local auditors audit internal control processes in accordance with the audit plan. Where required, the services of external specialists may be used.

Market risk arises from changes in market prices such as changes in exchange rates, interest rates and equity investments which impact the Group’s performance or the value of the investments it holds. When managing market risks it is important to optimise yields in the market conditions at any given time.

The Group is an international player and as such is exposed to transaction risks arising from different foreign currency positions. The major foreign currencies used by the Group are the US dollar (USD), Russian rouble (RUB), the British pound (GBP) and the Turkish lira (TRY). Other exchange rates used by the Group are the Algerian dinar (DZD) and the Ukrainian hryvnia (UAH). Exchange rate risks arise in commercial transactions, monetary items in the balance sheet and net investments in subsidiaries abroad. The Company uses sensitivity analyses to monitor the impact of any movements in USD, GBP, RUB, DZD, TRY and UAH exchange rates on the valuation of items denominated in foreign currency and thus on equity and the income statement.