Finance Division The Finance Division undertakes a significant role in the Company’s strategic plan. It carries out various financial activities such as the preparation of estimated annual budgets as per the directives of Management and the objectives of all business units and departments. It updates them regularly according to variables resulting from modern monitoring and financial supervision on all Company financial activity. The Finance Division prepares various internal and external financial reports to support the Executive Management in fundamental decision making based on financial performance and projections. The Finance Department discloses the Company’s operations through quarterly and annual financial reports developed in accordance with the accepted accounting standards. It adheres to standards and requirements of the Capital Market Authority and duly responds to inquiries received by the Company from General Auditing Bureau, the Government Auditors or the Internal Auditors.
Financing and Investment Department The Treasury Department undertakes the management of cash and the provision of finance for the Company’s various projects. Cash is managed daily, and the surplus is invested in short-term Murabaha agreements Investment in shipbuilding requires significant capital; thus, Bahri finances 30% of any shipbuilding-related cost from its own resources and the other 70% from external sources.
Bahri’s takes into consideration that investment and finance policies are in line and compliant to Islamic Sharia. Currently 99% of its loans are Sharia compliant and it is expected that by the end of 2014 the Company investment will be 100% Sharia compliant. Furthermore, the Company has adopted a hedging policy against the risk of fluctuating cost in finance through regularly defining an adequate cap to mitigate an unexpected increase.
depending on the Company’s financial requirements and obligations. In case the Company is in need of cash, it uses working capital finance or liquidates short-term investments. With focus on low risk secure investments in 2013, Bahri invested part of its cash surplus in Sukuk and Murabaha agreements and divested from the equity market leaving investment in only one mutual fund for an additional year.
On 20 November, 2013, Bahri Dry Bulk signed a Murabaha agreement with Bank AlBilad to finance part of the cost to build five dry bulk cargo transportation ships at a specialized company in Japan. The total amount financed was SAR 420 million, which will be repaid quarterly in equal installments for 10 years beginning from the date of vessel delivery. At the end of 2013, the finance provided for the assets of the Company’s and its subsidiaries
reported in the consolidated financial statements totaled SAR 4.71 billion.
Operating Risk Management Bahri’s concept of risk management lies in the provision of safety and secondary accident risk control within the framework of internal regulatory controls and strategic objectives.
The Company has memberships in protection and indemnity clubs (non-profitable associations providing insurance on 90% of the cargo shipped by member vessels). There are 13 such clubs, in which the key issues related to the shipping industry are discussed. The clubs participate in drafting regulations and international conventions through coordination with international agencies and governments such as International Maritime Organization, the European Union, the Organization for Economic Co-operation and Development (OECD), United Nations Commission on International Trade Law (UNCITRL) among others. The clubs act as a communications platform for members whereby subjects of operational and environmental risk can be discussed freely. Risk topics include oil pollution, maritime security and locations of reduced risk for travelling vessels in the case of distress. In line with Company’s plan to issue the best insurance cover with S&P “A” rating, the Company covers its fleet with insurance policies against damage to vessel hulls,
machinery and machinery operation, collisions and other marine accidents insurers. The Company expanded the insurance coverage to include demurrage and defense, an insurance policy covering Company representation with various entities such as shipyards as well as sale and purchase and repair of ships. Pursuant to the Company’s vision to provide due care to its employees, the company provides medical insurance for employees and their dependents with best benefits, and Takaful insurance is provided to all employees covering death or disability. The Company insures its other assets such as buildings, offices, electronic equipment and affiliated vehicles. The Company constantly seeks to minimize and avoid risk as much as possible while conducting periodic examination of the insurance quotes offered by the service providers to minimize costs without affecting the insurance benefits and the effective participation to improve the quality of services provided by Bahri.
The shipping industry exposes itself to varying risk factors, including terrorist attacks, wars, piracy, ship accidents, cargo damage, sailor injuries etc. In response to risk factors, the Company has implemented appropriate risk management systems to avoid and mitigate risk, classified equipment and safety procedures and provided training in the area of safety to ensure the safety of crew and cargo and to achieve optimal utilization of available resources. Based on the foregoing, the Company hedged against the risk associated to its vessels, cargo and crews and employees by concluding insurance policies. The insurance providers were selected after monitoring and assessing financial adequacy, technical capacity and verification that the Company would receive the best insurance offers and benefits prior to and during the period of insurance.
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