MACRO RISK AND ECONOMIC INSTABILITY
Economic uncertainty or a slowdown and the resulting impact on trade could impact our volume growth and profitability.
Uncertainty surrounding the resilience of the global economy and the ongoing effectiveness of fiscal stimulus and monetary measures continue to impact consumer confidence and present a difficult trading outlook across the supply chain sector. Some economic stagnation, including downgrading of Eurozone’s growth potential may result in declining consumer spending and industry confidence.
- Measures have been taken to minimise exposures and mitigate any downturn in the macroeconomic environment. Our business focus is on origin and destination cargo which is less susceptible to economic instability and we are predominantly focused on the faster growing emerging markets. We have a continuous focus on delivering high levels of service that meet our customers’ expectations and we proactively manage costs.
- We also have a well-diversified global portfolio of investments across a number of jurisdictions which spreads our risk.
Principal financial risks include liquidity needs, availability of capital to achieve our growth objectives, foreign currency and exchange rate volatility.
The outlook for the banking and capital markets, particularly in the context of emerging markets, remains uncertain. This is in large part due to differing albeit somewhat coordinated policy by the various Central Banks (including the Federal Reserve) on the quantitative easing policy and the tapering thereof.
- Our Balance Sheet remains strong with a net debt to adjusted EBITDA of 1.7 times in 2013 and the only major refinancing due in 2017.
- With our tariffs being predominantly USD based, we have a natural hedge against FX risk and our internal policy is to mitigate all asset-liability mismatch risk where possible and hedge against interest rate risk.
PROJECT RISK – DEVELOPMENT AND PLANNING
We are involved in large, long-term projects that can take months or years to complete which can expose the Group to the risk of reduced profitability and potential losses. These projects may be subject to delays and cost overruns due to delays in technology development, equipment deliveries, engineering problems, work stoppages, unanticipated cost increases, shortages of materials or skilled labour or other unforeseen problems.
- We have an established internal process with clear delegated authorities for the approval of major contracts, which includes a review for approval of bids submitted by vendors. Contracts with large monetary value require Board approval. Systems are in place to monitor risk metrics in the execution of such contracts.
- Skilled technical teams are also assigned to oversee large projects and actively monitor risks throughout the process.
- Additionally, where multilateral or bank finance is a source of funding, the projects are also required to meet internationally established project financing requirements. Where appropriate, financing packages are structured and covenants set to ensure sufficient headroom to accommodate non-material delays.
POLITICAL STABILITY RISK
Political instability or direct/indirect interference in some of the emerging markets creates a risk to the Group’s operations in those countries in terms of operations, service, revenues and volumes.
- We have a well-diversified global portfolio of investments across a number of geographical jurisdictions which spreads our risk.
- Our experienced business development team undertakes initial due diligence and we analyse current and emerging issues and maintain business continuity plans to respond to threats and safeguard our operations and assets.
- Ongoing security assessments and continuous monitoring of geopolitical developments worldwide and engagement with governments, local authorities and joint venture partners ensures we are well positioned to respond to changes in the political environments in which we operate.