The Board of Management reviews frequently the effects of the crisis on the outstanding trade receivables.
Local management is requested to take additional precaution in working with affected clients.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures for clients or countries, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics.
Guarantees
In principle the Company does not provide parent company guarantees to its subsidiaries, unless significant commercial reasons exist. The Company has deposited declarations of joint and several liability for a number of subsidiaries at the Chambers of Commerce. The Company has deposited a list with the Chamber of Commerce, which includes all financial interests of the Group in subsidiaries as well as a reference to each subsidiary for which such a declaration of liability has been deposited. At 31 December 2009 and at 31 December 2008 no significant guarantees were outstanding.
5.50.3 Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group monitors cash flow on a regular basis. Consolidated cash flow information including a six months projection is reported on a monthly basis to the Executive Committee, ensuring that the Group has sufficient cash on demand (or available lines of credit) to meet expected operational expenditures for the next half-year, including the servicing of financial obligations from lease commitments not included in the statement of financial position and investment programs in vessels. Cash flows exclude the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters and currently unpredictable further negative consequences resulting from the current worldwide economic crisis. The Group maintains the following lines of credit:
– Revolving line of credit with ABN AMRO Bank N.V., ING Groep N.V. and Rabobank of each EUR 100 million maturing on 1 April 2012. The average interest rate is currently EURIBOR plus 180 base points. At 31 December 2009 (EUR 275 million) and 2008 (EUR 275 million) the facilities are almost fully drawn.
– Revolving line of credit with BNP Paribas of EUR 50 million maturing on 1 April 2012. The average interest rate is currently EURIBOR plus 185 base points. The facility has not been used at year-end 2009.
– Revolving lines of credit with Rabobank as of 31 December 2009 of EUR 100 million, maturing in May 2013. The Rabobank facility is fully drawn at 31 December 2009. The facility is being repaid in equal quarterly instalments.
– A variety of unsecured overdraft facilities in various currencies totalling around EUR 425 million of which EUR 62.3 million has been drawn at 31 December 2009 (2008: around EUR 300 million with EUR 123.5 million drawn).
5.50.4 Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
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Currency risk
The global nature of the business of the Group exposes the operations and reported financial results and cash flows to the risks arising from fluctuations in exchange rates. The Group’s business is exposed to currency risk whenever it has revenues in a currency that is different from the currency in which it incurs the costs of generating those revenues. In the case that the revenues can be offset against the costs incurred in the same currency, the balance may be affected if the value of the currency in which the revenues and costs are generated varies relative to the Euro. This risk exposure primarily affects those operations of the Group that generate a portion of their revenue in foreign currencies and incur their costs primarily in Euros.
Cash inflows and outflows of the operating segments are offset if they are denominated in the same currency. This means that revenue generated in a particular currency balance out costs in the same currency, even if the revenues arise from a different transaction than that in which the costs are incurred. As a result, only the unmatched amounts are subject to currency risk.
To mitigate the impact of currency exchange rate fluctuations, the Group continually assesses the exposure to currency risks and if deemed necessary a portion of those risks is hedged by using derivative financial
instruments. The principal derivative financial instruments used to cover foreign currency exposure are forward foreign currency exchange contracts. Given the current investment program in vessels and the fact that the majority of the investments is denominated in US dollar, the Group is currently not using derivative financial instruments as positive cash flow in US dollar from operations is offset to a large extent by these investments. Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily Euro and US dollar. This substantially provides an economic hedge and no derivatives are entered into.
The Group’s investment in its subsidiaries in the United States of America is partly hedged by means of the US dollar Private Placement loans, which mitigates the currency risk arising from the subsidiary’s net assets. The hedge on the investment is fully effective. Consequently all exchange differences relating to this hedge have been accounted for in other comprehensive income.
Interest rate risk
The Group’s liabilities bear both fixed and variable interests. The Group’s objective is to limit the effect of interest rate changes on the results by matching long term investment with long term (fixed interest) financing as much as possible. The Group continuously considers interest rate swaps to limit significant (short term) interest exposures.
5.50.5 Capital Management
The Board of Management’s policy is to maintain a strong capital base in order to maintain investor, creditor and market confidence and to sustain future development of the business; the Board of Management manages only equity as capital. The Board of Management monitors the geographic spread of shareholders. The Board strives for a dividend pay-out ratio of 35 to 55% of the net result. The Board also strives to maintain a healthy financial position with a target solvency between 30 and 35%.
The Board of Management seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The Group’s target is to achieve a healthy return on shareholders’ equity; the return was 24.9% (2008: 35.9%). In comparison the weighted average interest expense on interest-bearing borrowings was 3.7% (2008: 4.1%).
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