Investor Presentaiton
Risk factors
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1.3 Financial risks
1.3.1 Credit risk
Credit risk includes the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its
operating activities, primarily trade receivables in the form of gross freight and demurrage (waiting time paid for by the charterer/customer). and from its financing activities, including deposits with
banks and financial institutions, foreign exchange transactions and other financial instruments. At the time of this registration document, the Group has seen a build-up of outstanding amounts on
demurrage, many of which are explained by COVID-19 implemented port restrictions and the sharp reduction in oil prices causing charterers/customers wanting to delay discharge.
1.3.2 Funding availability risk
Due to the capital-intensive nature of the industries in which the Group operates, it is dependent on steady access to funding. Part of this funding comes from its ongoing cash from operations. However,
as operating cash flow fluctuates with the markets in which the Group operates, and the investments in fixed assets often happen in stages rather than being evenly spread, the Group is also dependent
on external funding from the financial debt markets. Per 30 September 2020, the Group had total nominal interest-bearing debt of USD 1,213 million with a weighted average maturity of 4.6 years. The
Group will need to refinance some or all of its indebtedness, and may also incur additional debt, in the future. To a great extent, access to external financing is dependent on the Group's overall financial
performance including its cash flow, balance sheet, expected future return on investments, and the risk perception of the industries in which the Group operates at any given time. Global economic and
political factors could impact the availability of funding and the Group's ability to finance its investments and ongoing operations. External financing is often secured by collateral assets, whose values
fluctuate in line with the volatility in the markets in which the Group operates. During periods of market weakness, when the assets have a lower market value, the Group will be restricted in the amount of
funding that can be obtained. This could lead to lower liquidity for the Group. No assurances can be made that the Group will always be able to secure additional funding on satisfactory items, and the
Group's activities may be adversely affected if it's unable to secure external financing.
1.3.3 Interest rate risk
All interest-bearing debt, except bonds in the Norwegian bond market and debt borne by tank terminals outside the USA, is denominated in USD. Most of these loans are floating rate with USD LIBOR as a
benchmark. The USD LIBOR has the past 10 years varied extensively and can affect the financial results for the Group significantly. As a best estimate example, a 1% increase in USD LIBOR will reduce
the Group's net result by approximately USD 11 million.
The Group's revenues are primarily denominated in USD. Currency risk relates mainly to the net result and cash flow from voyage related expenses, ship operating expenses, general and administrative
expenses and financial expenses denominated in non-USD currencies, mainly NOK and EUR. For the annualized year 2020, the Group's total recurring NOK and EUR exposure is approximately NOK 570
million and EUR 28 million. Where there is a mismatch between revenue and expense currencies, any depreciation of the revenue currency relative to the expense currency may decrease the Group's
profits. As a best estimate example, a 10% decrease in the USD versus the NOK will reduce the Group's net result by approximately USD 5.4 million.
1.3.4 Currency risk
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