Led by BoD, Risk Management is a central part of Augustea strategic management and organization addressed to achieve sustained benefits within each business unit and across the portfolio of all group activities.
Risk management is intended as a continuous and developing process aimed at adding sustainable value to all activities.
The BoD is ultimately responsible for overseeing the effective risk management.
The CEO has overall responsibility for governance and risk management, while the ICC ensures, on behalf of the BoD, that appropriate risk management processes are in place.
Senior management has the primary responsibility for managing risk on a day-to-day basis and for promoting risk awareness within their operations.
- Use of Financial Derivatives
The use of financial derivatives is only allowed for hedging purpose, in order to minimize net risks related to freight rates, commodities’ price, exchange rates and interest rates.
Financial derivatives must accurately replicate the amount of the underlying risk and the timing distribution of the related cash flows.
Any speculative operation is forbidden, except for those explicitly authorized by the BoD. At the same extent, financial derivatives quoted on a regulated market are always preferred to those over-the-counter, and “plain vanilla” structures are preferred to more complex, whose negotiation is anyway restricted to extraordinary situations and for a limited time.
Financial derivatives must lead to a reduction of the overall risk exposure.
Financial derivatives must be negotiated mainly with banking counterparties with solid financial reliability.
Each derivative negotiation must involve different counterparties, deals signed based on the best cost/counterparty risk combination.
Risk management provides the BoD with a marked to market evaluation of financial derivatives at least twice each year, promptly reporting to the CEO and the Internal Audit those structures resulting in a M2M loss higher than 1% of the notional amount or differing from the above stated characteristics.
- Counterparty risk
Augustea Group adopted a specific procedure to manage the counterparty risk: potential charterers are rated in an internal process involving the chartering, financial controlling, legal and holding departments.
Chartering can only deal with accepted counterparties, except for:
Both in 2009 and 2010 the Group insured most of its counterparty risk of non-payment with an AA-rated insurance company.
