Oslo, 31 December 2023
Oslo, 07 March 2024
Magne \u00d8vre\u00e5s
Board member
Brita Eilertsen
Board member
Winifred Patricia Johansen
Board member
G\u00f8ran Andreassen
Board member
Engebret Dahm
CEO
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with IFRS Accounting Standards as adopted by the European Union.
The Group\u2019s consolidated financial statements comprise Klaveness Combination Carriers ASA (KCC) and all subsidiaries over which the Group has control.
Significant accounting judgements,
estimates and assumptions
Preparing financial statements in conformity with IFRS requires the management to make judgments, use of estimates and assumptions which affect the application of the accounting policies and the reported amounts of assets and liabilities, revenues and expenses.
Management has made estimates and assumptions which have significant effect on the amounts recognized in the financial statements. In general, accounting estimates are considered significant if:
\u2022the estimates require assumptions about matters that are highly uncertain at the time the estimates are made
\u2022different estimates could have been used
\u2022changes in the estimates have a material impact on Klaveness Combination Carriers ASA\u2019s financial position
The areas in which the Company are particularly exposed to material uncertainty over the carrying amounts at the end of 2023 are included within the individual note outlined below:
Note 9\u2013 Useful life, residual value, cash-generating units and impairment testing.
Significant accounting judgements,
estimates and assumptions
Preparing financial statements in conformity with IFRS requires the management to make judgments, use of estimates and assumptions which affect the application of the accounting policies and the reported amounts of assets and liabilities, revenues and expenses.
Management has made estimates and assumptions which have significant effect on the amounts recognized in the financial statements. In general, accounting estimates are considered significant if:
\u2022the estimates require assumptions about matters that are highly uncertain at the time the estimates are made
\u2022different estimates could have been used
\u2022changes in the estimates have a material impact on Klaveness Combination Carriers ASA\u2019s financial position
The areas in which the Company are particularly exposed to material uncertainty over the carrying amounts at the end of 2023 are included within the individual note outlined below:
Note 9\u2013 Useful life, residual value, cash-generating units and impairment testing.
Functional and presentation currency
The presentation currency for the Group is US Dollar (USD). The Group companies, including the Parent Company, have USD as their functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
Income and expenses in NOK are converted at the rate of exchange on the transaction date. The average exchange rate was 10.5658 USD/NOK in 2023 (2022: 9.6197). At 31 December 2023 an exchange rate of USD/NOK 10.2025 (2022: 9.9066) was used for the valuation of balance sheet items.
Cash flow statements
The cash flow statements are based on the indirect method.
Standards, amendments and interpretations
The financial statements have been prepared based on standards, amendments and interpretations effective for 2023.
The Group early adopted amendments to IAS 1 and IFRS Practice Statement 2 regarding disclosure of material accounting policy information instead of significant accounting policies in the 2022 annual report.
There was no material impact of new accounting standards or amendments adopted in the period.
The Group has not early adopted other than above mentioned mandatory amendments and interpretations to existing standards that have been published and are relevant to the Group\u2019s annual accounting periods beginning on 1 January 2024 or later periods.
02
Accounting policy
The operating segments are reported in a manner consistent with the internal financial reporting provided to the chief operating decision-maker, who is responsible for allocating resources, making strategic decisions and assessing performance. The chief operating decision-maker has been iden-tified as the Board of Directors.
The reporting of the financial results separates the CABUs and CLEANBUs as two segments, to better evaluate and follow up on the performance of the different vessel concepts. The Group identifies and reports its segments based on information provided to the Management and the Board of Directors. Resources are allocated and decisions are made based on this information.
Accounting policy
The Group is in the business of transporting cargo at sea.
Contracts of affreightment
The combination carriers are employed on both long and short term contracts of affreightment (COAs) as well as in the spot market. The ambition is to have a large part of the wet exposure covered by contracts of affreightment (COA) and to a larger extent employ the vessels in the spot market when trading dry. The mix of COA and spot business creates ability to optimize the trading of the fleet and provide the COA customers with the flexibility they need in their logistics. When the COA contracts were signed, they had duration between 1-6 years. Revenue from the Group\u2019s COA commitments are classified as freight revenue in the Income Statement.
Revenue from contracts with customers is recognised when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods. The Group has concluded that the performance obligation under a voyage charter is satisfied over time, and begins from the point at which cargo is loaded until the point at which a cargo is discharged at the destination port.
Other revenue from services, such as demurrage, is recognised when earned and is included in freight revenue.
Performance obligations
IFRS 15 requires the Group to identify the performance obligations, determine the transaction price, allocate the transaction price to performance obligations for each contract with a customer to the extent that the contract covers more than one performance obligation, determine whether revenue should be recognised over time or at a point in time and recognise revenue when or as performance obligations are recognised. The Group's voyage charters and time charter (TC) contracts qualify for recognition over time. The nature of the Group\u2019s revenue from TC contracts with its customers is categorised in two groups, the leasing element of the vessel and the service element related to the leased vessel.
Expenses between discharge and load are deferred and amortised over the voyage to the extent they qualify as cost to fulfil under IFRS 15.
Time charter (TC) agreements
The time charter revenue is generated from fixed rate time charter contracts. Revenue from time charters is accounted for as lease in accordance with IFRS 16 and is classified as charter hire revenue in the Income Statement. The Group\u2019s time charter contracts normally have a duration of 1-3 months and a significant portion of the risks and rewards of ownership are retained by the lessor (KCC), hence the lease is classified as operating lease. In 2023, the Group entered into a two-year TC agreement for one of its CLEANBU vessels, as KCC remains the right to substitute the asset throughout the period of use, the TC agreement is classified as an operating lease. Payments received under operating leases are recognised as revenue on a straight line basis over the lease term.
Accounting policy
Right of use assets
The Group applies the recognising exemptions proposed by the IFRS 16 standard on lease contracts with a term of less than 12 months, and lease contracts for which the underlying asset is of low value. Lease payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Lease contracts which is not part of the exemptions are measured at the present value of remaining lease payments, discounted using the incremental borrowing rate. The right-of-use assets are measured at an amount equal to the lease liability at the date of implementation. The right-of-use asset is depreciated on a straight line basis over the lease term.
Accounting policy
Bunkers and lubricant oil on board vessels are recorded in the balance sheet at acquisition cost. Acquisition cost is based on FIFO (first in, first out principle).
Accounting policy
Fair value measurement
Derivatives are measured at fair value. The fair value of financial instru-ments traded in active markets is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. The fair value of financial instruments not traded in active markets is determined using appropriate evaluation techniques.
A fair value measurement of a non-financial asset takes into account a market participant\u2019s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market partici-pant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1\u2013 Quoted (unadjusted) market prices in active markets for identical assets and liabilities
Level 2\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instruments are included in level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. During the reporting periods there were no transfers between any of the levels.
Accounting policy
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, such as forward currency contracts, fuel contracts and interest rate swaps to hedge its foreign currency risks, interest rate risks and to reduce exposure to volatile and potentially rising fuel costs. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as:
\u2022Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment.
\u2022Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
As per 31 December 2023 all the Group hedges are classified as cash flow hedges.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
\u2022There is an economic relationship between the hedged item and the hedging instrument.
\u2022The effect of credit risk does not dominate the value changes that result from that economic relationship.
\u2022The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in profit and loss. Amounts recognised as other comprehensive income are transferred to profit and loss when the hedged transaction effects profit and loss, such as when the hedged financial income or expense is recognised or when a forecast transaction occurs. Derivative financial instruments that are designated as, and are effective hedging instruments are separated into a current and non-current portion consistent with the classification of the underlying item.
Accounting policy
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence. Related parties transactions are recorded to estimated fair value.
Accounting policy
Under the tonnage tax regime, profit from operations is tax exempt. Companies within the tonnage tax system pay a tonnage tax based on the deadweight tonnage of the vessels. The tonnage tax is recognised as an operating expense in the profit & loss. Taxable profit is calculated on the basis of financial income after deduction of a portion of financial expenses (based on financial assets in percent of total assets).
For companies subject to ordinary taxation, tax expense comprises tax payable and changes in deferred tax assets. Tax payable corresponds to the amount expected to be paid to authorities while deferred tax assets/liabilities are calculated based on temporary differences at the reporting date. Deferred tax assets are recognised to the extent that future utilisation is probable. Deferred tax liabilities/deferred tax assets within the same tax system that may be offset are recorded on a net basis. Income tax relating to items recognised directly in equity is included directly in equity and not in the statement of income.
Cash flow statements
The cash flow statements are based on the indirect method.
02
Segment reporting
The Group is an owner and operator of combination carriers and operates mainly within the dry bulk shipping industry and the product tanker industry. The Group owns eight CABU vessels, three CABU newbuild contracts and eight CLEANBU vessels.
The CABUs are from 72,456 dwt to 80,344 dwt and have the capacity to transport caustic soda solution (CSS), floating fertilizer (UAN) and molasses as well as all types of dry bulk commodities.
The CLEANBUs have approximately 82,500 dwt carrying capacity. The CLEANBUs are both full-fledged LR1 product tankers and Kamsarmax bulk carriers transporting clean petroleum products (CPP), heavy liquid cargoes such as CSS, UAN and molasses as well as all types of dry bulk products.
Operating income and operatingexpenses per segment (USD \u2018000) | 2023 | 2022 | ||||
CABU | CLEANBU | Total | CABU | CLEANBU | Total | |
Operating revenue, vessels | 145 785 | 141 380 | 287 166 | 127 455 | 132 823 | 260 278 |
Other revenue | - | - | - | - | 396 | 396 |
Voyage expenses | (50 120) | (40 242) | (90 362) | (55 018) | (41 036) | (96 054) |
Net revenue from operations of vessels | 95 665 | 101 139 | 196 805 | 72 436 | 92 183 | 164 620 |
Operating expenses, vessels | (22 138) | (28 098) | (50 237) | (22 917) | (25 657) | (48 575) |
Group commercial and administrative services | (2 381) | (3 022) | (5 403) | (1 983) | (2 220) | (4 203) |
Salaries and social expense | (1 801) | (2 285) | (4 086) | (1 631) | (1 826) | (3 458) |
Tonnage tax | (100) | (74) | (175) | (105) | (83) | (188) |
Other operating and administrative expenses | (852) | (1 081) | (1 933) | (586) | (656) | (1 242) |
Operating profit before depreciation (EBITDA) | 68 393 | 66 576 | 134 970 | 45 214 | 61 740 | 106 955 |
Depreciation | (13 476) | (18 366) | (31 842) | (12 465) | (18 880) | (31 344) |
Operating profit after depreciation (EBIT) | 54 917 | 48 210 | 103 129 | 32 749 | 42 860 | 75 611 |
Alternative performance measures (APMs)\u00a0
Average TCE earnings per onhire day is an alternative performance measure. Alternative performance measures (APMs) are defined and reconciled in the excel sheet \u201cAPM4Q2023\u201d published on the Company\u2019s homepage (www.combinationcarriers.com) Investor Relations/Reports and Presentations under the section for the Q4 2023 report.
Reconciliation of average TCE earnings per onhire day
(USD \u2018000) | 2023 | 2022 | ||||
CABU | CLEANBU | Total | CABU | CLEANBU | Total | |
Net revenue from operations of vessels | 95 665 | 101 139 | 196 805 | 72 436 | 92 183 | 164 620 |
Other revenue | - | - | - | - | (396) | (396) |
Net revenue ex adjustment | 95 665 | 101 139 | 196 805 | 72 436 | 91 787 | 164 223 |
On-hire days | 2 754 | 2 872 | 5 626 | 2 703 | 2 814 | 5 518 |
Average TCE earnings per on-hire day ($/d) | 34 742 | 35 214 | 34 983 | 26 796 | 32 614 | 29 764 |
Accounting policy
The operating segments are reported in a manner consistent with the internal financial reporting provided to the chief operating decision-maker, who is responsible for allocating resources, making strategic decisions and assessing performance. The chief operating decision-maker has been iden-tified as the Board of Directors.
The reporting of the financial results separates the CABUs and CLEANBUs as two segments, to better evaluate and follow up on the performance of the different vessel concepts. The Group identifies and reports its segments based on information provided to the Management and the Board of Directors. Resources are allocated and decisions are made based on this information.
Accounting policy
The operating segments are reported in a manner consistent with the internal financial reporting provided to the chief operating decision-maker, who is responsible for allocating resources, making strategic decisions and assessing performance. The chief operating decision-maker has been iden-tified as the Board of Directors.
The reporting of the financial results separates the CABUs and CLEANBUs as two segments, to better evaluate and follow up on the performance of the different vessel concepts. The Group identifies and reports its segments based on information provided to the Management and the Board of Directors. Resources are allocated and decisions are made based on this information.
03
Revenue from contracts with customers
Disaggregated revenue information
The Group has income from Contract of Affreightment (COA) contracts, spot voyage contracts and Time Charter (TC) contracts. Set out below is the disaggregation of the Group's revenue from different contracts with customers.
Revenue types (USD \u2019000) | Classification | 2023 | 2022 |
Revenue from COA contracts | Freight revenue | 138 880 | 92 852 |
Revenue from spot voyage contracts | Freight revenue | 108 662 | 112 917 |
Revenue from TC contracts | Charter hire revenue | 39 624 | 54 509 |
Other revenue | Other revenue | - | 396 |
Total revenue, vessels | 287 166 | 260 674 |
Other revenue of USD 0.4 million in 2022 is related to off-hire compensation for guarantee work on the CLEANBU vessels.
The Group had two (one) customers in 2023 (2022) that each represented more than ten percent of operating revenue in the Group:
-USD 34.5 million
-USD 23.5 million
Geographical information
Revenue for the shipping activities is distributed based on the port of discharge for all vessels operated by the Group, including leased vessels on time charter agreements. The table below presents revenue based on the port of discharge.
Region (USD \u2019000) | 2023 | 2022 | ||
Middle East | 31 115 | 11% | 76 237 | 29% |
Australia / Oceania | 107 041 | 37% | 67 618 | 25% |
North East Asia | 31 260 | 11% | 47 386 | 18% |
South America | 52 201 | 18% | 41 667 | 16% |
North America | 47 484 | 17% | 18 303 | 7% |
Europe | 3 479 | 1% | 9 200 | 3% |
Africa | - | 0% | 4 091 | 2% |
South East Asia | 3 879 | 1% | 2 239 | 1% |
South Asia | 10 157 | 4% | - | 0% |
Total revenue, regions | 286 616 | 266 741 | ||
Gain/(loss) on FFAs | (140) | (4 324) | ||
IFRS adjustments | 690 | (2 139) | ||
Other revenue | - | 396 | ||
Total revenue, vessels | 287 166 | 260 674 |
Contract balances
(USD \u2018000) | 31 Dec 2023 | 31 Dec 2022 |
Trade receivables from charterers (note 14) | 15 497 | 13 629 |
Contract assets (note 14) | 6 454 | 9 663 |
Contract liabilities | 3 792 | 4 485 |
03
Revenue from contracts with customers
Contract assets are accrued income related to ongoing voyages (revenue recognised from load-to-discharge). Total income related to ongoing voyages as per 31 December 2023 to be recognized in 2024 is USD 10.5 million (excludes revenue from the two year TC contract for one of the vessels which ends February 2025). Contract liabilities are prepaid revenue from customers.
Lease payments to be received from the fixed rate time charter contract with expiry February 2025 is USD 12.6 million in 2024 and 2.1 million in 2025.
For dry bulk cargo lifted, payment is generally due within 10 days after the cargo is loaded, while payment for wet cargo is generally due immediately upon discharge.
Accounting policy
The Group is in the business of transporting cargo at sea.
Contracts of affreightment
The combination carriers are employed on both long and short term contracts of affreightment (COAs) as well as in the spot market. The ambition is to have a large part of the wet exposure covered by contracts of affreightment (COA) and to a larger extent employ the vessels in the spot market when trading dry. The mix of COA and spot business creates ability to optimize the trading of the fleet and provide the COA customers with the flexibility they need in their logistics. When the COA contracts were signed, they had duration between 1-6 years. Revenue from the Group\u2019s COA commitments are classified as freight revenue in the Income Statement.
Revenue from contracts with customers is recognised when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods. The Group has concluded that the performance obligation under a voyage charter is satisfied over time, and begins from the point at which cargo is loaded until the point at which a cargo is discharged at the destination port.
Other revenue from services, such as demurrage, is recognised when earned and is included in freight revenue.
Performance obligations
IFRS 15 requires the Group to identify the performance obligations, determine the transaction price, allocate the transaction price to performance obligations for each contract with a customer to the extent that the contract covers more than one performance obligation, determine whether revenue should be recognised over time or at a point in time and recognise revenue when or as performance obligations are recognised. The Group's voyage charters and time charter (TC) contracts qualify for recognition over time. The nature of the Group\u2019s revenue from TC contracts with its customers is categorised in two groups, the leasing element of the vessel and the service element related to the leased vessel.
Expenses between discharge and load are deferred and amortised over the voyage to the extent they qualify as cost to fulfil under IFRS 15.
Time charter (TC) agreements
The time charter revenue is generated from fixed rate time charter contracts. Revenue from time charters is accounted for as lease in accordance with IFRS 16 and is classified as charter hire revenue in the Income Statement. The Group\u2019s time charter contracts normally have a duration of 1-3 months and a significant portion of the risks and rewards of ownership are retained by the lessor (KCC), hence the lease is classified as operating lease. In 2023, the Group entered into a two-year TC agreement for one of its CLEANBU vessels, as KCC remains the right to substitute the asset throughout the period of use, the TC agreement is classified as an operating lease. Payments received under operating leases are recognised as revenue on a straight line basis over the lease term.
03
Revenue from contracts with customers
Disaggregated revenue information
The Group has income from Contract of Affreightment (COA) contracts, spot voyage contracts and Time Charter (TC) contracts. Set out below is the disaggregation of the Group's revenue from different contracts with customers.
Revenue types (USD \u2019000) | Classification | 2023 | 2022 |
Revenue from COA contracts | Freight revenue | 138 880 | 92 852 |
Revenue from spot voyage contracts | Freight revenue | 108 662 | 112 917 |
Revenue from TC contracts | Charter hire revenue | 39 624 | 54 509 |
Other revenue | Other revenue | - | 396 |
Total revenue, vessels | 287 166 | 260 674 |
Other revenue of USD 0.4 million in 2022 is related to off-hire compensation for guarantee work on the CLEANBU vessels.
The Group had two (one) customers in 2023 (2022) that each represented more than ten percent of operating revenue in the Group:
-USD 34.5 million
-USD 23.5 million
Geographical information
Revenue for the shipping activities is distributed based on the port of discharge for all vessels operated by the Group, including leased vessels on time charter agreements. The table below presents revenue based on the port of discharge.
Region (USD \u2019000) | 2023 | 2022 | ||
Middle East | 31 115 | 11% | 76 237 | 29% |
Australia / Oceania | 107 041 | 37% | 67 618 | 25% |
North East Asia | 31 260 | 11% | 47 386 | 18% |
South America | 52 201 | 18% | 41 667 | 16% |
North America | 47 484 | 17% | 18 303 | 7% |
Europe | 3 479 | 1% | 9 200 | 3% |
Africa | - | 0% | 4 091 | 2% |
South East Asia | 3 879 | 1% | 2 239 | 1% |
South Asia | 10 157 | 4% | - | 0% |
Total revenue, regions | 286 616 | 266 741 | ||
Gain/(loss) on FFAs | (140) | (4 324) | ||
IFRS adjustments | 690 | (2 139) | ||
Other revenue | - | 396 | ||
Total revenue, vessels | 287 166 | 260 674 |
Contract balances
(USD \u2018000) | 31 Dec 2023 | 31 Dec 2022 |
Trade receivables from charterers (note 14) | 15 497 | 13 629 |
Contract assets (note 14) | 6 454 | 9 663 |
Contract liabilities | 3 792 | 4 485 |
03
Revenue from contracts with customers
Contract assets are accrued income related to ongoing voyages (revenue recognised from load-to-discharge). Total income related to ongoing voyages as per 31 December 2023 to be recognized in 2024 is USD 10.5 million (excludes revenue from the two year TC contract for one of the vessels which ends February 2025). Contract liabilities are prepaid revenue from customers.
Lease payments to be received from the fixed rate time charter contract with expiry February 2025 is USD 12.6 million in 2024 and 2.1 million in 2025.
For dry bulk cargo lifted, payment is generally due within 10 days after the cargo is loaded, while payment for wet cargo is generally due immediately upon discharge.
Accounting policy
The Group is in the business of transporting cargo at sea.
Contracts of affreightment
The combination carriers are employed on both long and short term contracts of affreightment (COAs) as well as in the spot market. The ambition is to have a large part of the wet exposure covered by contracts of affreightment (COA) and to a larger extent employ the vessels in the spot market when trading dry. The mix of COA and spot business creates ability to optimize the trading of the fleet and provide the COA customers with the flexibility they need in their logistics. When the COA contracts were signed, they had duration between 1-6 years. Revenue from the Group\u2019s COA commitments are classified as freight revenue in the Income Statement.
Revenue from contracts with customers is recognised when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods. The Group has concluded that the performance obligation under a voyage charter is satisfied over time, and begins from the point at which cargo is loaded until the point at which a cargo is discharged at the destination port.
Other revenue from services, such as demurrage, is recognised when earned and is included in freight revenue.
Performance obligations
IFRS 15 requires the Group to identify the performance obligations, determine the transaction price, allocate the transaction price to performance obligations for each contract with a customer to the extent that the contract covers more than one performance obligation, determine whether revenue should be recognised over time or at a point in time and recognise revenue when or as performance obligations are recognised. The Group's voyage charters and time charter (TC) contracts qualify for recognition over time. The nature of the Group\u2019s revenue from TC contracts with its customers is categorised in two groups, the leasing element of the vessel and the service element related to the leased vessel.
Expenses between discharge and load are deferred and amortised over the voyage to the extent they qualify as cost to fulfil under IFRS 15.
Time charter (TC) agreements
The time charter revenue is generated from fixed rate time charter contracts. Revenue from time charters is accounted for as lease in accordance with IFRS 16 and is classified as charter hire revenue in the Income Statement. The Group\u2019s time charter contracts normally have a duration of 1-3 months and a significant portion of the risks and rewards of ownership are retained by the lessor (KCC), hence the lease is classified as operating lease. In 2023, the Group entered into a two-year TC agreement for one of its CLEANBU vessels, as KCC remains the right to substitute the asset throughout the period of use, the TC agreement is classified as an operating lease. Payments received under operating leases are recognised as revenue on a straight line basis over the lease term.
Accounting policy
The Group is in the business of transporting cargo at sea.
Contracts of affreightment
The combination carriers are employed on both long and short term contracts of affreightment (COAs) as well as in the spot market. The ambition is to have a large part of the wet exposure covered by contracts of affreightment (COA) and to a larger extent employ the vessels in the spot market when trading dry. The mix of COA and spot business creates ability to optimize the trading of the fleet and provide the COA customers with the flexibility they need in their logistics. When the COA contracts were signed, they had duration between 1-6 years. Revenue from the Group\u2019s COA commitments are classified as freight revenue in the Income Statement.
Revenue from contracts with customers is recognised when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods. The Group has concluded that the performance obligation under a voyage charter is satisfied over time, and begins from the point at which cargo is loaded until the point at which a cargo is discharged at the destination port.
Other revenue from services, such as demurrage, is recognised when earned and is included in freight revenue.
Performance obligations
IFRS 15 requires the Group to identify the performance obligations, determine the transaction price, allocate the transaction price to performance obligations for each contract with a customer to the extent that the contract covers more than one performance obligation, determine whether revenue should be recognised over time or at a point in time and recognise revenue when or as performance obligations are recognised. The Group's voyage charters and time charter (TC) contracts qualify for recognition over time. The nature of the Group\u2019s revenue from TC contracts with its customers is categorised in two groups, the leasing element of the vessel and the service element related to the leased vessel.
Expenses between discharge and load are deferred and amortised over the voyage to the extent they qualify as cost to fulfil under IFRS 15.
Time charter (TC) agreements
The time charter revenue is generated from fixed rate time charter contracts. Revenue from time charters is accounted for as lease in accordance with IFRS 16 and is classified as charter hire revenue in the Income Statement. The Group\u2019s time charter contracts normally have a duration of 1-3 months and a significant portion of the risks and rewards of ownership are retained by the lessor (KCC), hence the lease is classified as operating lease. In 2023, the Group entered into a two-year TC agreement for one of its CLEANBU vessels, as KCC remains the right to substitute the asset throughout the period of use, the TC agreement is classified as an operating lease. Payments received under operating leases are recognised as revenue on a straight line basis over the lease term.
04
Voyage expenses
(USD \u2018000) | 2023 | 2022 |
Freight expenses | 17 381 | 21 538 |
TC-hire | - | 1 449 |
Voyage expenses | 72 949 | 72 486 |
Fuel hedge settlement | (311) | (456) |
Various expenses | 343 | 1 036 |
Total voyage costs, vessels | 90 362 | 96 054 |
Voyage expenses include bunkers cost, port costs and other voyage related expenses. TC-hire is payment for vessels hired in on short-term TCs (1-3 months).
05
Operating expenses
(USD \u2018000) | 2023 | 2022 |
Technical expenses | 18 005 | 14 387 |
Crewing expenses | 23 050 | 23 418 |
Insurance | 3 325 | 3 366 |
Crewing agency fee to Klaveness Ship Management AS | 1 469 | 1 565 |
Ship management fee to Klaveness Ship Management AS | 4 117 | 3 819 |
Other operating expenses | 271 | 2 019 |
Total operating expenses | 50 237 | 48 575 |
Technical expenses are costs related to spare parts, consumables, cargo handling, power supply, navigation and communication. Crewing expenses include sea personnel expenses such as wages, social costs, travel expenses and training. Costs related to technical management, maintenance and crewing services are recog-nised as operating expenses, see note 19for transactions with related parties.
06
Other operating and administrative expenses
Remuneration to the auditor
(USD \u2018000) | 2023 | 2022 |
Statutory audit | 156 | 135 |
Other assurance services | 39 | 34 |
Total | 196 | 169 |
Auditor\u2019s fee are stated excluding VAT.
07
Salary
(USD \u2018000) | 2023 | 2022 |
Salaries and other remuneration | 3 586 | 3 141 |
Social security tax | 376 | 200 |
Pension benefit | 96 | 79 |
Other social costs | 12 | 15 |
Other personel related expenses | 16 | 22 |
Salaries and social expense | 4 086 | 3 458 |
The Group has ten employees as per year-end 2023. Two new employees started during 2023 and one left the Group. A replacement for this position started in January 2024. From 1 August 2023, two employees from the commercial and operational teams were transferred to Dubai and are now employed by Klaveness Asia Pte. Ltd - Dubai Branch (Related Party).
07
Salary
Diversity of employees | 2023 | 2022 | ||
Number | Percentage | Number | Percentage | |
Women | 5 | 50% | 3 | 27% |
Men | 5 | 50% | 8 | 73% |
Total employees in KCC at year end | 10 | 100% | 11 | 100% |
Average number of employees | 11,5 | 10,3 | ||
KCC ASA in Norway | 8 | 80% | 6 | 55% |
KCC Asia in Singapore | 2 | 20% | 5 | 45% |
Nationalities | 3 | 5 | ||
Sick leave | 0.95% | 0.25% |
Remuneration management
(USD \u2019000) | Base Salary | Bonus | Pension benefit | Total |
Engebret Dahm (CEO) | 534 | 288 | 15 | 837 |
Liv Hege Dyrnes (CFO) | 390 | 152 | 15 | 557 |
Total | 924 | 440 | 29 | 1 394 |
Base salary in 2023 includes excercised options as part of the long-term incentive program (LTIP). Bonus shown in the above table is earned in 2022 and paid in 2023.
The Company has provided loans to CEO Engebret Dahm of USD 76k in relation to the share purchase part of the LTIP. Interest on the loans is set to the Norwegian Tax Administration is normal interest rate for the taxation of low-cost loans. The loans fall due in 2028 and 2033, respectively.
The Board has established guidelines for determining remuneration to executive personnel. The remuneration is based on a base salary, bonus and share option scheme. The CEO has an agreement of 12-month severance payment including a 6-month period of notice in case of involuntary resignation or by redundancy.
Bonus scheme
The bonus scheme is based on annual distribution and is divided into two: i) Formula bonus based on return on equity for the relevant year, and ii) Discretionary element. The cap payment is set at 12 months fixed salary for the CEO and nine months for the CFO in the Remuneration Guidelines. If not employed for a full year, the cap will be pro-rated according to number of months employed. The bonus cap is reached at 20 % return on equity. The discretionary bonus is based on goal achievements and individual performance. Any discretionary bonus to the CEO is decided by the Board. The existing bonus scheme is also applicable for 2024.
The return on equity was above 20% for 2022, hence bonuses of 12 months salary for the CEO and 9 months salary for the CFO were awarded for 2022 and paid in 2023.
Bonus provision for 2023 has been made in the 2023 accounts and will be paid in 2024. Due to the exceptionally strong financial results and goal achievement in 2023, a discretionary element in addition to the formula bonus was awarded to both the management and the bonus pool for other employees. The CEO and the CFO will receive NOK 250k each in addition to the bonus of 12 months and 9 months respectively.
Long-term incentive program
In the option program granted in December 2019, the CEO and CFO were granted 38,580 and 26,700 share options respectively, which were fully vested in December 2022. The share options had an exercise price of NOK 46.14, adjusted for any distribution of dividends made before the relevant options were excercised. During 2023, both the CEO and CFO exercised all the 65,280 options in the Company against cash settlement by the Company. The option settlement in cash of in total USD 0.3 million is recognised as payroll expenses in 2023.
The Board proposed a new LTIP which was approved by the General Meeting in April 2023. See note 17for more information.
Pension scheme for all employees
The Group has defined contributions plan for all employees in Norway. The contribution plan includes full-time and part- time employees and comprises 5 % of salary up until 7.1G and 20 % of salary between 7.1G and 12G. As of 31 December 2023 there were eight members of the defined contribution plan. The expense recognised in the current financial period in relation to the contribution plan was USD 96k (2022: USD 79k). KCC does not make any pension contributions to employees in Singapore in line with national legal requirements.
Remuneration Board of Directors
(USD \u2018000) | 2023 | 2022 |
Ernst Meyer (Chair of the Board from 29 April 2022)* | 49 | 36 |
Lasse Kristoffersen (Chair of the Board until 29 April 2022)* | - | 18 |
Magne \u00d8vre\u00e5s (Board member and member of Audit Committee) | 34 | 37 |
Morten Skedsmo (Board member until 29 April 2022)* | - | 11 |
G\u00f8ran Andreassen (Board member from 29 April 2022)* | 29 | 21 |
Rebekka G. Herlofsen (Board member and Chair of Audit Committee until 29 April 2022) | - | 13 |
Winifred Patricia Johansen (Board member) | 29 | 32 |
Brita Eilertsen (Board member and Chair of Audit Committee from 29 April 2022) | 36 | 26 |
Total | 177 | 195 |
*Remuneration paid to Klaveness AS, a wholly owned subsidiary of the main shareholder Rederiaksjeselskapet Torvald Klaveness. The persons are employed by Klaveness AS. Compensation for Board work is thus included in the regular salary since such positions are a part of their regular employment.
Board remuneration is proposed by the Nomination Committee and approved by the Annual General Meeting. The Directors receive a fixed remuneration for the year based on the Board position, i.e. the Chair receives higher remuneration than the Board Members, which have an equal remuneration. The Directors do
not receive profit-related remuneration, share options or retirement benefits. Board Members participating in committees such as the Audit Committee have received extra remuneration for these tasks.
Diversity of Board of Directors | 2023 | 2022 | ||
Number | Percentage | Number | Percentage | |
Women | 2 | 40% | 2 | 40% |
Men | 3 | 60% | 3 | 60% |
In appointing members to the Board of Directors, it is emphasised that the Board shall have the required competency to independently evaluate the cases presented by the executive management team as well as the Company's operation. It is also considered important that the Board can function well as a
body of colleagues and that they meet the Company\u2019s need for expertise and diversity. An introduction to the members of the Board of Directors and their expertise can be found on www.combinationcarriers.com.
08
Financial items
Finance income (USD \u2018000) | 2023 | 2022 |
Other interest income | 4 594 | 2 109 |
Fair value changes interest rate swaps (note 13) | - | 232 |
Gain related to modification of debt (note 13) | - | 1 175 |
Gain on currency contracts | 285 | - |
Gain on terminated cross-currency swaps (note 13) | 2 652 | - |
Other financial income | 1 | - |
Finance income | 7 533 | 3 516 |
08
Financial items
Finance cost (USD \u2018000) | 2023 | 2022 |
Interest expenses mortgage debt | 13 590 | 11 769 |
Interest expenses bond loan | 5 756 | 4 767 |
Interest expenses lease liabilities | - | 66 |
Amortization capitalized fees on loans | 1 784 | 1 352 |
Other financial expenses | 2 135 | 97 |
Fair value changes and realization effects of interest rate swaps | 303 | - |
Loss on foreign exchange | 169 | 207 |
Finance cost | 23 739 | 18 257 |
Other financial expenses of USD 2.1 million include premium paid on the repurchase of bond of USD 1.9 million. Gain of USD 0.3 million on USD/NOK futures maturing during 2024.
04
Voyage expenses
(USD \u2018000) | 2023 | 2022 |
Freight expenses | 17 381 | 21 538 |
TC-hire | - | 1 449 |
Voyage expenses | 72 949 | 72 486 |
Fuel hedge settlement | (311) | (456) |
Various expenses | 343 | 1 036 |
Total voyage costs, vessels | 90 362 | 96 054 |
Voyage expenses include bunkers cost, port costs and other voyage related expenses. TC-hire is payment for vessels hired in on short-term TCs (1-3 months).
05
Operating expenses
(USD \u2018000) | 2023 | 2022 |
Technical expenses | 18 005 | 14 387 |
Crewing expenses | 23 050 | 23 418 |
Insurance | 3 325 | 3 366 |
Crewing agency fee to Klaveness Ship Management AS | 1 469 | 1 565 |
Ship management fee to Klaveness Ship Management AS | 4 117 | 3 819 |
Other operating expenses | 271 | 2 019 |
Total operating expenses | 50 237 | 48 575 |
Technical expenses are costs related to spare parts, consumables, cargo handling, power supply, navigation and communication. Crewing expenses include sea personnel expenses such as wages, social costs, travel expenses and training. Costs related to technical management, maintenance and crewing services are recog-nised as operating expenses, see note 19for transactions with related parties.
06
Other operating and administrative expenses
Remuneration to the auditor
(USD \u2018000) | 2023 | 2022 |
Statutory audit | 156 | 135 |
Other assurance services | 39 | 34 |
Total | 196 | 169 |
Auditor\u2019s fee are stated excluding VAT.
06
Other operating and administrative expenses
Remuneration to the auditor
(USD \u2018000) | 2023 | 2022 |
Statutory audit | 156 | 135 |
Other assurance services | 39 | 34 |
Total | 196 | 169 |
Auditor\u2019s fee are stated excluding VAT.
07
Salary
(USD \u2018000) | 2023 | 2022 |
Salaries and other remuneration | 3 586 | 3 141 |
Social security tax | 376 | 200 |
Pension benefit | 96 | 79 |
Other social costs | 12 | 15 |
Other personel related expenses | 16 | 22 |
Salaries and social expense | 4 086 | 3 458 |
The Group has ten employees as per year-end 2023. Two new employees started during 2023 and one left the Group. A replacement for this position started in January 2024. From 1 August 2023, two employees from the commercial and operational teams were transferred to Dubai and are now employed by Klaveness Asia Pte. Ltd - Dubai Branch (Related Party).
07
Salary
Diversity of employees | 2023 | 2022 | ||
Number | Percentage | Number | Percentage | |
Women | 5 | 50% | 3 | 27% |
Men | 5 | 50% | 8 | 73% |
Total employees in KCC at year end | 10 | 100% | 11 | 100% |
Average number of employees | 11,5 | 10,3 | ||
KCC ASA in Norway | 8 | 80% | 6 | 55% |
KCC Asia in Singapore | 2 | 20% | 5 | 45% |
Nationalities | 3 | 5 | ||
Sick leave | 0.95% | 0.25% |
Remuneration management
(USD \u2019000) | Base Salary | Bonus | Pension benefit | Total |
Engebret Dahm (CEO) | 534 | 288 | 15 | 837 |
Liv Hege Dyrnes (CFO) | 390 | 152 | 15 | 557 |
Total | 924 | 440 | 29 | 1 394 |
Base salary in 2023 includes excercised options as part of the long-term incentive program (LTIP). Bonus shown in the above table is earned in 2022 and paid in 2023.
The Company has provided loans to CEO Engebret Dahm of USD 76k in relation to the share purchase part of the LTIP. Interest on the loans is set to the Norwegian Tax Administration is normal interest rate for the taxation of low-cost loans. The loans fall due in 2028 and 2033, respectively.
The Board has established guidelines for determining remuneration to executive personnel. The remuneration is based on a base salary, bonus and share option scheme. The CEO has an agreement of 12-month severance payment including a 6-month period of notice in case of involuntary resignation or by redundancy.
Bonus scheme
The bonus scheme is based on annual distribution and is divided into two: i) Formula bonus based on return on equity for the relevant year, and ii) Discretionary element. The cap payment is set at 12 months fixed salary for the CEO and nine months for the CFO in the Remuneration Guidelines. If not employed for a full year, the cap will be pro-rated according to number of months employed. The bonus cap is reached at 20 % return on equity. The discretionary bonus is based on goal achievements and individual performance. Any discretionary bonus to the CEO is decided by the Board. The existing bonus scheme is also applicable for 2024.
The return on equity was above 20% for 2022, hence bonuses of 12 months salary for the CEO and 9 months salary for the CFO were awarded for 2022 and paid in 2023.
Bonus provision for 2023 has been made in the 2023 accounts and will be paid in 2024. Due to the exceptionally strong financial results and goal achievement in 2023, a discretionary element in addition to the formula bonus was awarded to both the management and the bonus pool for other employees. The CEO and the CFO will receive NOK 250k each in addition to the bonus of 12 months and 9 months respectively.
Long-term incentive program
In the option program granted in December 2019, the CEO and CFO were granted 38,580 and 26,700 share options respectively, which were fully vested in December 2022. The share options had an exercise price of NOK 46.14, adjusted for any distribution of dividends made before the relevant options were excercised. During 2023, both the CEO and CFO exercised all the 65,280 options in the Company against cash settlement by the Company. The option settlement in cash of in total USD 0.3 million is recognised as payroll expenses in 2023.
The Board proposed a new LTIP which was approved by the General Meeting in April 2023. See note 17for more information.
Pension scheme for all employees
The Group has defined contributions plan for all employees in Norway. The contribution plan includes full-time and part- time employees and comprises 5 % of salary up until 7.1G and 20 % of salary between 7.1G and 12G. As of 31 December 2023 there were eight members of the defined contribution plan. The expense recognised in the current financial period in relation to the contribution plan was USD 96k (2022: USD 79k). KCC does not make any pension contributions to employees in Singapore in line with national legal requirements.
Remuneration Board of Directors
(USD \u2018000) | 2023 | 2022 |
Ernst Meyer (Chair of the Board from 29 April 2022)* | 49 | 36 |
Lasse Kristoffersen (Chair of the Board until 29 April 2022)* | - | 18 |
Magne \u00d8vre\u00e5s (Board member and member of Audit Committee) | 34 | 37 |
Morten Skedsmo (Board member until 29 April 2022)* | - | 11 |
G\u00f8ran Andreassen (Board member from 29 April 2022)* | 29 | 21 |
Rebekka G. Herlofsen (Board member and Chair of Audit Committee until 29 April 2022) | - | 13 |
Winifred Patricia Johansen (Board member) | 29 | 32 |
Brita Eilertsen (Board member and Chair of Audit Committee from 29 April 2022) | 36 | 26 |
Total | 177 | 195 |
*Remuneration paid to Klaveness AS, a wholly owned subsidiary of the main shareholder Rederiaksjeselskapet Torvald Klaveness. The persons are employed by Klaveness AS. Compensation for Board work is thus included in the regular salary since such positions are a part of their regular employment.
Board remuneration is proposed by the Nomination Committee and approved by the Annual General Meeting. The Directors receive a fixed remuneration for the year based on the Board position, i.e. the Chair receives higher remuneration than the Board Members, which have an equal remuneration. The Directors do
not receive profit-related remuneration, share options or retirement benefits. Board Members participating in committees such as the Audit Committee have received extra remuneration for these tasks.
Diversity of Board of Directors | 2023 | 2022 | ||
Number | Percentage | Number | Percentage | |
Women | 2 | 40% | 2 | 40% |
Men | 3 | 60% | 3 | 60% |
In appointing members to the Board of Directors, it is emphasised that the Board shall have the required competency to independently evaluate the cases presented by the executive management team as well as the Company's operation. It is also considered important that the Board can function well as a
body of colleagues and that they meet the Company\u2019s need for expertise and diversity. An introduction to the members of the Board of Directors and their expertise can be found on www.combinationcarriers.com.
The Group has ten employees as per year-end 2023. Two new employees started during 2023 and one left the Group. A replacement for this position started in January 2024. From 1 August 2023, two employees from the commercial and operational teams were transferred to Dubai and are now employed by Klaveness Asia Pte. Ltd - Dubai Branch (Related Party).
07
Salary
Diversity of employees | 2023 | 2022 | ||
Number | Percentage | Number | Percentage | |
Women | 5 | 50% | 3 | 27% |
Men | 5 | 50% | 8 | 73% |
Total employees in KCC at year end | 10 | 100% | 11 | 100% |
Average number of employees | 11,5 | 10,3 | ||
KCC ASA in Norway | 8 | 80% | 6 | 55% |
KCC Asia in Singapore | 2 | 20% | 5 | 45% |
Nationalities | 3 | 5 | ||
Sick leave | 0.95% | 0.25% |
Remuneration management
(USD \u2019000) | Base Salary | Bonus | Pension benefit | Total |
Engebret Dahm (CEO) | 534 | 288 | 15 | 837 |
Liv Hege Dyrnes (CFO) | 390 | 152 | 15 | 557 |
Total | 924 | 440 | 29 | 1 394 |
Base salary in 2023 includes excercised options as part of the long-term incentive program (LTIP). Bonus shown in the above table is earned in 2022 and paid in 2023.
The Company has provided loans to CEO Engebret Dahm of USD 76k in relation to the share purchase part of the LTIP. Interest on the loans is set to the Norwegian Tax Administration is normal interest rate for the taxation of low-cost loans. The loans fall due in 2028 and 2033, respectively.
The Board has established guidelines for determining remuneration to executive personnel. The remuneration is based on a base salary, bonus and share option scheme. The CEO has an agreement of 12-month severance payment including a 6-month period of notice in case of involuntary resignation or by redundancy.
Bonus scheme
The bonus scheme is based on annual distribution and is divided into two: i) Formula bonus based on return on equity for the relevant year, and ii) Discretionary element. The cap payment is set at 12 months fixed salary for the CEO and nine months for the CFO in the Remuneration Guidelines. If not employed for a full year, the cap will be pro-rated according to number of months employed. The bonus cap is reached at 20 % return on equity. The discretionary bonus is based on goal achievements and individual performance. Any discretionary bonus to the CEO is decided by the Board. The existing bonus scheme is also applicable for 2024.
The return on equity was above 20% for 2022, hence bonuses of 12 months salary for the CEO and 9 months salary for the CFO were awarded for 2022 and paid in 2023.
Bonus provision for 2023 has been made in the 2023 accounts and will be paid in 2024. Due to the exceptionally strong financial results and goal achievement in 2023, a discretionary element in addition to the formula bonus was awarded to both the management and the bonus pool for other employees. The CEO and the CFO will receive NOK 250k each in addition to the bonus of 12 months and 9 months respectively.
Long-term incentive program
In the option program granted in December 2019, the CEO and CFO were granted 38,580 and 26,700 share options respectively, which were fully vested in December 2022. The share options had an exercise price of NOK 46.14, adjusted for any distribution of dividends made before the relevant options were excercised. During 2023, both the CEO and CFO exercised all the 65,280 options in the Company against cash settlement by the Company. The option settlement in cash of in total USD 0.3 million is recognised as payroll expenses in 2023.
The Board proposed a new LTIP which was approved by the General Meeting in April 2023. See note 17for more information.
Remuneration Board of Directors
(USD \u2018000) | 2023 | 2022 |
Ernst Meyer (Chair of the Board from 29 April 2022)* | 49 | 36 |
Lasse Kristoffersen (Chair of the Board until 29 April 2022)* | - | 18 |
Magne \u00d8vre\u00e5s (Board member and member of Audit Committee) | 34 | 37 |
Morten Skedsmo (Board member until 29 April 2022)* | - | 11 |
G\u00f8ran Andreassen (Board member from 29 April 2022)* | 29 | 21 |
Rebekka G. Herlofsen (Board member and Chair of Audit Committee until 29 April 2022) | - | 13 |
Winifred Patricia Johansen (Board member) | 29 | 32 |
Brita Eilertsen (Board member and Chair of Audit Committee from 29 April 2022) | 36 | 26 |
Total | 177 | 195 |
*Remuneration paid to Klaveness AS, a wholly owned subsidiary of the main shareholder Rederiaksjeselskapet Torvald Klaveness. The persons are employed by Klaveness AS. Compensation for Board work is thus included in the regular salary since such positions are a part of their regular employment.
Board remuneration is proposed by the Nomination Committee and approved by the Annual General Meeting. The Directors receive a fixed remuneration for the year based on the Board position, i.e. the Chair receives higher remuneration than the Board Members, which have an equal remuneration. The Directors do
not receive profit-related remuneration, share options or retirement benefits. Board Members participating in committees such as the Audit Committee have received extra remuneration for these tasks.
Diversity of Board of Directors | 2023 | 2022 | ||
Number | Percentage | Number | Percentage | |
Women | 2 | 40% | 2 | 40% |
Men | 3 | 60% | 3 | 60% |
In appointing members to the Board of Directors, it is emphasised that the Board shall have the required competency to independently evaluate the cases presented by the executive management team as well as the Company's operation. It is also considered important that the Board can function well as a
body of colleagues and that they meet the Company\u2019s need for expertise and diversity. An introduction to the members of the Board of Directors and their expertise can be found on www.combinationcarriers.com.
08
Financial items
Finance income (USD \u2018000) | 2023 | 2022 |
Other interest income | 4 594 | 2 109 |
Fair value changes interest rate swaps (note 13) | - | 232 |
Gain related to modification of debt (note 13) | - | 1 175 |
Gain on currency contracts | 285 | - |
Gain on terminated cross-currency swaps (note 13) | 2 652 | - |
Other financial income | 1 | - |
Finance income | 7 533 | 3 516 |
08
Financial items
Finance cost (USD \u2018000) | 2023 | 2022 |
Interest expenses mortgage debt | 13 590 | 11 769 |
Interest expenses bond loan | 5 756 | 4 767 |
Interest expenses lease liabilities | - | 66 |
Amortization capitalized fees on loans | 1 784 | 1 352 |
Other financial expenses | 2 135 | 97 |
Fair value changes and realization effects of interest rate swaps | 303 | - |
Loss on foreign exchange | 169 | 207 |
Finance cost | 23 739 | 18 257 |
Other financial expenses of USD 2.1 million include premium paid on the repurchase of bond of USD 1.9 million. Gain of USD 0.3 million on USD/NOK futures maturing during 2024.
Finance income (USD \u2018000) | 2023 | 2022 |
Other interest income | 4 594 | 2 109 |
Fair value changes interest rate swaps (note 13) | - | 232 |
Gain related to modification of debt (note 13) | - | 1 175 |
Gain on currency contracts | 285 | - |
Gain on terminated cross-currency swaps (note 13) | 2 652 | - |
Other financial income | 1 | - |
Finance income | 7 533 | 3 516 |
Finance income (USD \u2018000) | 2023 | 2022 |
Other interest income | 4 594 | 2 109 |
Fair value changes interest rate swaps (note 13) | - | 232 |
Gain related to modification of debt (note 13) | - | 1 175 |
Gain on currency contracts | 285 | - |
Gain on terminated cross-currency swaps (note 13) | 2 652 | - |
Other financial income | 1 | - |
Finance income | 7 533 | 3 516 |
Finance cost (USD \u2018000) | 2023 | 2022 |
Interest expenses mortgage debt | 13 590 | 11 769 |
Interest expenses bond loan | 5 756 | 4 767 |
Interest expenses lease liabilities | - | 66 |
Amortization capitalized fees on loans | 1 784 | 1 352 |
Other financial expenses | 2 135 | 97 |
Fair value changes and realization effects of interest rate swaps | 303 | - |
Loss on foreign exchange | 169 | 207 |
Finance cost | 23 739 | 18 257 |
Finance cost (USD \u2018000) | 2023 | 2022 |
Interest expenses mortgage debt | 13 590 | 11 769 |
Interest expenses bond loan | 5 756 | 4 767 |
Interest expenses lease liabilities | - | 66 |
Amortization capitalized fees on loans | 1 784 | 1 352 |
Other financial expenses | 2 135 | 97 |
Fair value changes and realization effects of interest rate swaps | 303 | - |
Loss on foreign exchange | 169 | 207 |
Finance cost | 23 739 | 18 257 |
09
Vessels
Vessels (USD \u2018000) | 31 Dec 2023 | 31 Dec 2022 |
Cost price 1.1 | 742 721 | 734 955 |
Dry docking | 4 959 | 5 620 |
Energy efficiency upgrade | 7 566 | 2 772 |
Technical upgrade | 319 | 1 845 |
Disposal of vessel | - | (2 472) |
Cost price end of period | 755 564 | 742 721 |
Acc. Depreciation 1.1 | 226 649 | 198 092 |
Disposal of vessel | - | (2 472) |
Depreciation vessels | 31 842 | 31 029 |
Acc. Depreciation end of period | 258 492 | 226 649 |
Carrying amounts end of period* | 497 072 | 516 072 |
*) carrying value of vessels includes dry-docking | ||
No. of vessels | 16 | 16 |
Useful life vessel | 25 | 25 |
Useful life Dry Docking | 2-3 | 2-3 |
Depreciation schedule | Straight-line | Straight-line |
Reconciliation of depreciations (USD \u2018000) | 2023 | 2022 |
Depreciation vessels | 31 842 | 31 029 |
Depreciation right of use assets | - | 315 |
Depreciations for the period | 31 842 | 31 344 |
Additions
Three CABU vessels and one CLEANBU vessel have completed scheduled dry- docking in 2023 with total cost of USD 5.0 million. Technical and energy efficiency upgrades of USD 7.9 million are related to general improvement of the technical performance of the vessels and energy efficiency initiatives, deducted by grants from ENOVA of in total USD 1.1 million recognized as per year end 2023. KCC has secured in total approximately USD 1.4 million in grants from ENOVA to finance investments in energy saving solutions for one CABU vessel and one CLEANBU vessel. The dry-dock of the CABU vessel was completed in 2023 and USD 0.8 million in funding was collected from ENOVA. The CLEANBU vessel will complete dry-dock in March 2024.
During 2022, KCC has purchased previously leased satellite equipment on board the vessels of a total value of USD 0.6 million. The equipment has from 2022 been capitalized as vessel, depreciated over the same period as each vessel\u2019s dry-dock component. The derecognition of right of use assets with corresponding lease liability had an insignificant impact on the results for the year.
Pledged vessels
All owned vessels except MV Bangor, MV Banastar and MV Barcarena are pledged to secure the various debt facilities (refer to note 13for further information).
Impairment assessment
Identification of impairment indicators is based on an assessment of development in market rates (dry bulk, MR tanker, LR1 tanker and fuel), TCE earnings for the fleet, vessel opex, operating profit, technological development, change in regulations, interest rates and discount rate. The rise in interest rates in isolation increases the discount rate used in calculation of recoverable amount. As previous sensitivity analysis of recoverable amount shows that the decrease in recoverable amount is unlikely to result in a material impairment loss, as per IAS 36.16, this has not been considered an impairment indicator. Expected future TCE earnings for both fleets of CABUs and CLEANBUs, diversified market exposure, development in secondhand prices and the combination carriers\u2019 trading flexibility support the conclusion of no impairment indicators identified as per 31 December 2023.
Accounting policy
Significant accounting estimates
Non-current assets such as vessels, the cost of dry-docking and newbuil-dings are carried at cost less accumulated depreciation and impairment charges. Cost is defined as directly attributable cost plus borrowing cost during the construction period.
Useful life and residual values
The carrying amount of vessels is based on management\u2019s assumptions of useful life. Useful life for the combination carrier vessels is reassessed on an annual basis. Useful life may change due to change in technological developments, competition, environmental and legal requirements, freight rates and steel prices. Management has also considered the impact of decarbonisation and climate related risks on the existing assets\u2019 useful lives. Such risks include new climate related legislation restricting the use of certain assets, new technology demanded by climate related legislation and customer requirements (see note 16).
Based on the updated dry docking schedule, the vessels are planned for drydocking with a limited scope during each intermediate survey, first time approximately 2.5 years after delivery. Docking depreciation has previously been based on docking every five years during the first ten years of operation and now interval will be 2.5 years. The change was effective from 1 August 2022 and impacted 2022 depreciation with approximately USD 2.6 million and is estimated to impact with approximately USD 2 million for 2023 and onwards.
KCC commits to perform recycling of its vessels in compliance with the Hong Kong Convention, the Norwegian Shipowners' Association\u2019s guidelines and when relevant the EU Ship Recycling Regulation. Annual assessment of residual value is based on observable market prices and available recycling alternatives as of today. Residual value estimates for the KCC vessels have been calculated based on average steel prices for Turkey and India, deducted by best estimate of direct costs for recycling. There is a high degree of uncertainty in net green pricing for recycling. KCC has concluded to retain a residual value of USD 3.8/5.3/5.9 million for CABUI/CABUII/CLEANBU for 2024.
Impairment testing
At the end of each reporting period the Group will assess whether there is any indication of impairment. If any indication exists, the Group will estimate the recoverable amount of the asset. Recoverable amount is set as the highest of fair value less cost to sell and value in use. If carrying value exceeds the estimated recoverable amount, impairment is recognised. Impairments are reversed in a later period if recoverable amount exceeds carrying amount. Identification of impairment indicators is based on an assessment of development in market rates (dry bulk, MR tanker, LR1 tanker and fuel), TCE earnings for the fleet, vessel opex, operating profit, technological development, change in regulations, interest rates and discount rate. As per year end 2022 and 2023 no indicators for impairment were identified.
Cash-generating units
The Group operates combination carrier vessels which can switch between dry and wet cargo. The CABUs have the same characteristics in respect of what cargo to transport, number of cargo holds and appoximately size of the vessel. All the CLEANBUs are identical vessels with same characteristics. CLEANBU vessels have higher cargo carrying capacity than the CABUs, and can in addition transport other types of wet commodities. All the CABU vessels are interchangeable, same for all the CLEANBU vessels. Investment, continuance and disposal decisions are made by class of vessels. The CABU and CLEANBU vessels are operated by KCC Chartering AS (KCCC). Contracts (COAs) are normally not negotiated based on a specific vessel. It is the sum of vessel capacity at any time that determines the optimization of voyages. A portion of the voyages are also executed in the spot market, and KCCC is dependent on operating the vessels as a portfolio according to free vessel capacity and available cargos. The Group has defined the fleet of CABUs (including newbuildings) and the fleet of CLEANBUs as two separate cash generating units.
Government grants
The government grants related to assets are presented in the statement of financial position by deducting the grants from the carrying amounts of the assets. Government grants are recognized according to the percentage of completion method in the proportion to which depreciation expense of the assets are recognized. The grants are recognized in profit or loss over the life of the depreciable asset as a reduced depreciation expense.
ENOVA = A Norwegian government enterprise responsible for promotion of environmentally friendly production and consumption of energy.
10
Newbuildings
The Group has per 31 December 2023 three CABU combination carrier newbuildings on order at Jiangsu New Yangzi Shipbuilding Co., Ltd in China. The contract price is USD 56.7 million per vessel and estimated delivery costs are approximately USD 60 million per vessel. The expected delivery of the vessels is Q1-Q3 2026.
Installments of USD 17.2 million are paid as of year end 2023. The newbuildings are partly financed through an equity raise in 2023 and cash on the balance sheet, and there are no borrowings related to the newbuildings as of 31 December 2023. Project fees of USD 0.4 million have been capitalized during 2023.
Newbuildings, net carrying amount (USD \u2018000) | 31 Dec 2023 | 31 Dec 2022 |
Cost 1.1 | - | - |
Yard installments paid | 17 205 | - |
Other capitalized cost (project fee to KSM, Note 19) | 386 | - |
Net carrying amount | 17 591 | - |
Accounting policy
Newbuildings
Vessels under construction are classified as non-current assets and recognised at the cost incurred in relation to the non-current asset when paid. Newbuildings are not depreciated until delivery. Borrowing costs directly attributable to the construction of vessels are added to the cost of the vessels, until such time as the vessels are ready for their intended use.\t
Reconciliation of depreciations (USD \u2018000) | 2023 | 2022 |
Depreciation vessels | 31 842 | 31 029 |
Depreciation right of use assets | - | 315 |
Depreciations for the period | 31 842 | 31 344 |
Impairment assessment
Identification of impairment indicators is based on an assessment of development in market rates (dry bulk, MR tanker, LR1 tanker and fuel), TCE earnings for the fleet, vessel opex, operating profit, technological development, change in regulations, interest rates and discount rate. The rise in interest rates in isolation increases the discount rate used in calculation of recoverable amount. As previous sensitivity analysis of recoverable amount shows that the decrease in recoverable amount is unlikely to result in a material impairment loss, as per IAS 36.16, this has not been considered an impairment indicator. Expected future TCE earnings for both fleets of CABUs and CLEANBUs, diversified market exposure, development in secondhand prices and the combination carriers\u2019 trading flexibility support the conclusion of no impairment indicators identified as per 31 December 2023.
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Significant accounting estimates
Non-current assets such as vessels, the cost of dry-docking and newbuil-dings are carried at cost less accumulated depreciation and impairment charges. Cost is defined as directly attributable cost plus borrowing cost during the construction period.
Useful life and residual values
The carrying amount of vessels is based on management\u2019s assumptions of useful life. Useful life for the combination carrier vessels is reassessed on an annual basis. Useful life may change due to change in technological developments, competition, environmental and legal requirements, freight rates and steel prices. Management has also considered the impact of decarbonisation and climate related risks on the existing assets\u2019 useful lives. Such risks include new climate related legislation restricting the use of certain assets, new technology demanded by climate related legislation and customer requirements (see note 16).
Based on the updated dry docking schedule, the vessels are planned for drydocking with a limited scope during each intermediate survey, first time approximately 2.5 years after delivery. Docking depreciation has previously been based on docking every five years during the first ten years of operation and now interval will be 2.5 years. The change was effective from 1 August 2022 and impacted 2022 depreciation with approximately USD 2.6 million and is estimated to impact with approximately USD 2 million for 2023 and onwards.
KCC commits to perform recycling of its vessels in compliance with the Hong Kong Convention, the Norwegian Shipowners' Association\u2019s guidelines and when relevant the EU Ship Recycling Regulation. Annual assessment of residual value is based on observable market prices and available recycling alternatives as of today. Residual value estimates for the KCC vessels have been calculated based on average steel prices for Turkey and India, deducted by best estimate of direct costs for recycling. There is a high degree of uncertainty in net green pricing for recycling. KCC has concluded to retain a residual value of USD 3.8/5.3/5.9 million for CABUI/CABUII/CLEANBU for 2024.
Impairment testing
At the end of each reporting period the Group will assess whether there is any indication of impairment. If any indication exists, the Group will estimate the recoverable amount of the asset. Recoverable amount is set as the highest of fair value less cost to sell and value in use. If carrying value exceeds the estimated recoverable amount, impairment is recognised. Impairments are reversed in a later period if recoverable amount exceeds carrying amount. Identification of impairment indicators is based on an assessment of development in market rates (dry bulk, MR tanker, LR1 tanker and fuel), TCE earnings for the fleet, vessel opex, operating profit, technological development, change in regulations, interest rates and discount rate. As per year end 2022 and 2023 no indicators for impairment were identified.
Cash-generating units
The Group operates combination carrier vessels which can switch between dry and wet cargo. The CABUs have the same characteristics in respect of what cargo to transport, number of cargo holds and appoximately size of the vessel. All the CLEANBUs are identical vessels with same characteristics. CLEANBU vessels have higher cargo carrying capacity than the CABUs, and can in addition transport other types of wet commodities. All the CABU vessels are interchangeable, same for all the CLEANBU vessels. Investment, continuance and disposal decisions are made by class of vessels. The CABU and CLEANBU vessels are operated by KCC Chartering AS (KCCC). Contracts (COAs) are normally not negotiated based on a specific vessel. It is the sum of vessel capacity at any time that determines the optimization of voyages. A portion of the voyages are also executed in the spot market, and KCCC is dependent on operating the vessels as a portfolio according to free vessel capacity and available cargos. The Group has defined the fleet of CABUs (including newbuildings) and the fleet of CLEANBUs as two separate cash generating units.
Government grants
The government grants related to assets are presented in the statement of financial position by deducting the grants from the carrying amounts of the assets. Government grants are recognized according to the percentage of completion method in the proportion to which depreciation expense of the assets are recognized. The grants are recognized in profit or loss over the life of the depreciable asset as a reduced depreciation expense.
ENOVA = A Norwegian government enterprise responsible for promotion of environmentally friendly production and consumption of energy.
10
Accounting policy
Newbuildings
Vessels under construction are classified as non-current assets and recognised at the cost incurred in relation to the non-current asset when paid. Newbuildings are not depreciated until delivery. Borrowing costs directly attributable to the construction of vessels are added to the cost of the vessels, until such time as the vessels are ready for their intended use.\t
Useful life and residual values
The carrying amount of vessels is based on management\u2019s assumptions of useful life. Useful life for the combination carrier vessels is reassessed on an annual basis. Useful life may change due to change in technological developments, competition, environmental and legal requirements, freight rates and steel prices. Management has also considered the impact of decarbonisation and climate related risks on the existing assets\u2019 useful lives. Such risks include new climate related legislation restricting the use of certain assets, new technology demanded by climate related legislation and customer requirements (see note 16).
Based on the updated dry docking schedule, the vessels are planned for drydocking with a limited scope during each intermediate survey, first time approximately 2.5 years after delivery. Docking depreciation has previously been based on docking every five years during the first ten years of operation and now interval will be 2.5 years. The change was effective from 1 August 2022 and impacted 2022 depreciation with approximately USD 2.6 million and is estimated to impact with approximately USD 2 million for 2023 and onwards.
KCC commits to perform recycling of its vessels in compliance with the Hong Kong Convention, the Norwegian Shipowners' Association\u2019s guidelines and when relevant the EU Ship Recycling Regulation. Annual assessment of residual value is based on observable market prices and available recycling alternatives as of today. Residual value estimates for the KCC vessels have been calculated based on average steel prices for Turkey and India, deducted by best estimate of direct costs for recycling. There is a high degree of uncertainty in net green pricing for recycling. KCC has concluded to retain a residual value of USD 3.8/5.3/5.9 million for CABUI/CABUII/CLEANBU for 2024.
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At the end of each reporting period the Group will assess whether there is any indication of impairment. If any indication exists, the Group will estimate the recoverable amount of the asset. Recoverable amount is set as the highest of fair value less cost to sell and value in use. If carrying value exceeds the estimated recoverable amount, impairment is recognised. Impairments are reversed in a later period if recoverable amount exceeds carrying amount. Identification of impairment indicators is based on an assessment of development in market rates (dry bulk, MR tanker, LR1 tanker and fuel), TCE earnings for the fleet, vessel opex, operating profit, technological development, change in regulations, interest rates and discount rate. As per year end 2022 and 2023 no indicators for impairment were identified.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:213800ZFB2MQM3JA6K52", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "f22544": { "value": "11
Leasing
The Group as a lessee\u00a0
During 2022, KCC purchased previously leased satellite equipment on board the vessels for a total value of USD 0.6 million. The equipment was capitalized as vessel in 2022, depreciated over the same period as each vessel\u2019s dry dock component. Derecognition of right of use assets with corresponding lease liability had an insignificant impact on the results for the year.
Right-of-use assets (USD \u2018000) | 31 Dec 2023 | 31 Dec 2022 |
Cost price 1.1 | - | 2 973 |
Addition of right-of-use assets | - | - |
Disposals | - | (2 973) |
Costprice end of period | - | - |
Acc. Depreciation 1.1 | - | 1 420 |
Depreciation right of use assets | - | 382 |
Disposals | - | (1 802) |
Acc. Depreciation end of period | - | - |
Carrying amounts end of period | - | - |
Undiscounted lease liabilities and maturity of cash outflows (USD \u2018000) | 31 Dec 2023 | 31 Dec 2022 |
Less than 1 year | - | - |
1-5 years | - | - |
More than 5 years | - | - |
Total undiscounted lease liabilities at 31 December | - | - |
Accounting policy
Right of use assets
The Group applies the recognising exemptions proposed by the IFRS 16 standard on lease contracts with a term of less than 12 months, and lease contracts for which the underlying asset is of low value. Lease payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Lease contracts which is not part of the exemptions are measured at the present value of remaining lease payments, discounted using the incremental borrowing rate. The right-of-use assets are measured at an amount equal to the lease liability at the date of implementation. The right-of-use asset is depreciated on a straight line basis over the lease term.
Accounting policy
Right of use assets
The Group applies the recognising exemptions proposed by the IFRS 16 standard on lease contracts with a term of less than 12 months, and lease contracts for which the underlying asset is of low value. Lease payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Lease contracts which is not part of the exemptions are measured at the present value of remaining lease payments, discounted using the incremental borrowing rate. The right-of-use assets are measured at an amount equal to the lease liability at the date of implementation. The right-of-use asset is depreciated on a straight line basis over the lease term.
12
Inventories
Inventories (USD \u2018000) | 31 Dec 2023 | 31 Dec 2022 |
Bunkers | 10 738 | 17 254 |
Spare parts | 99 | 99 |
Luboil | 1 286 | 1 545 |
Inventories | 12 123 | 18 898 |
Inventories relate to bunkers, spare parts and luboil on board vessels.
Accounting policy
Bunkers and lubricant oil on board vessels are recorded in the balance sheet at acquisition cost. Acquisition cost is based on FIFO (first in, first out principle).
13
Accounting policy
Bunkers and lubricant oil on board vessels are recorded in the balance sheet at acquisition cost. Acquisition cost is based on FIFO (first in, first out principle).
13
Financial assets and financial liabilities
The below tables present the Group\u2019s financing arrangements as per 31 December 2023.
In June 2023 a subsidiary of KCC completed the refinancing of two mortage debt facilities falling due in December 2023 and October 2025. The two facilities were merged into one facility of USD 190 million, divided into a term loan tranche and a revolving credit tranche (50/50). The refinancing released approximately USD 38 million in additional available liquidity including undrawn capacity on the revolving credit tranche. The loan bears interest of Term SOFR + 2.1%, has a tenor of 5 years, and is repaid on a close to 18-years average age adjusted profile. The margin will be adjusted on an annual basis based on KCC's carbon intensity (EEOI) performance in relation to the trajectory in the Sustanibility-Linked Financing Framework published in June 2023.
During the first half of 2023 all relevant debt facilities were transferred from LIBOR to SOFR.
In September 2023 the Group completed a new senior unsecured sustainability-linked bond issue (KCC05) of NOK 500 million with maturity date 5 September 2028. The bond carries a coupon of 3 months NIBOR + 365 bps, and the final repayment amount is linked to the Group's carbon intensity (EEOI) performance in relation to the trajectory in the Sustainability-Linked Financing Framework published in June 2023. In conjunction with the KCC05 issue, the Group repurchased NOK 508.5 million of the KCC04 bond issue falling due in February 2025.
In December 2023 the 364-days overdraft facility was extended by additional 364 days. The commitment under the overdraft facility was reduced from USD 15 million to USD 8 million based on the Group's reevaluated need.
Mortgage debt (USD '000) | Description | Interest rate | Maturity | Carrying amount |
DNB/SEB/SR-Bank/Sparebanken Vest Facility** | Term Loan/RCF, USD 190 million | Term SOFR + 2.1 % | June 2028 | 88 518 |
Nordea/Credit Agricole Facility* | Term Loan/RCF, USD 60 million | Term SOFR + 2.25 % | March 2027 | 32 294 |
Nordea/ Danske Bank Facility**/*** | Term Loan, USD 80 million | Term SOFR + CAS + 2.1 % | December 2026 | 62 588 |
Capitalized loan fees | (3 367) | |||
Mortgage debt 31 December 2023 | 180 033 |
* Potential margin adjustments up to +/- 10 bps once every year based on emission performance.
** Potential margin adjustments up to +/- 5 bps once every year based on emission performance.
*** CAS=Credit Adjusted Spread. For three months Term SOFR, the CAS is approx 0.26%\t
The Group has available and undrawn revolving credit facility capacity of USD 113 million and USD 8 million available capacity under a 364-days overdraft facility.
Bond loan | Face value (NOK \u2019000) | Year of maturity | Carrying amount (USD \u2019000) |
KCC04 | 700 000 | 11/02/2025 | 76 390 |
Realized exchange rate gain at buyback | (7 208) | ||
Buyback KCC04 (Q3 2023) | (508 500) | (54 978) | |
Exchange rate adjustment | 4 566 | ||
Capitalized expenses | (86) | ||
Bond discount | (82) | ||
SUM KCC04 | 191 500 | 18 602 | |
KCC05 | 500 000 | 05/09/2028 | 46 971 |
Exchange rate adjustments | 2 035 | ||
Capitalized expenses | (711) | ||
SUM KCC05 | 500 000 | 48 295 | |
Total bond loan | 691 500 | 66 897 |
Interest bearing liabilities (USD '000) | Fair value 31 Dec 2023 | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 |
Mortgage debt | 158 201 | 158 201 | 159 664 |
Capitalized loan fees | - | (3 367) | (3 131) |
Bond loan | 68 798 | 67 777 | 70 660 |
Bond discount | - | (82) | (158) |
Capitalized expenses bond loan | - | (797) | (527) |
Total non-current interest bearing liabilties | 226 999 | 221 732 | 226 509 |
Mortgage debt, current | 25 199 | 25 199 | 92 769 |
Overdraft facility (Secured) | - | - | 233 |
Total interest bearing liabilities | 252 198 | 246 931 | 319 511 |
Maturity profile of financial liabilities at 31 December 2023 is presented in note 16.
Covenants
As per 31 December 2023, the Group is in compliance with all financial cove-nants. On Group level the financial covenants are minimum equity (USD 125 million), minimum equity ratio (30%), and minimum cash and cash equivalents (USD 15 million). Financial covenants on KCC Bass AS level are minimum cash and cash equivalents (USD 750k). Financial covenants on KCC Shipowning AS level are minimum cash and cash equivalents (the higher of USD 10 million and 5 % of net interest-bearing debt) and net interest-bearing debt to EBITDA (NIBD/EBITDA) of max 7x. The NIBD/EBITDA ratio can be higher than 7x for one reporting period (measured semi-annually) provided that the NIBD/EBITDA was below 7x in the prior reporting period. The loan agreements also include a dividend restriction of 50% of net profit (based on audited annual consolidated accounts) if the equity ratio is below 35%. In addition, all secured loans contain minimum value clauses related to the value of the relevant vessels compared to outstanding loan and a change of control clause. In case of KCC Shipowning AS and KCC Bass AS, a change of control event occurs if the two companies cease to be owned and/or controlled, directly or indirectly, 100% (in issued shares
and voting rights) by KCC and in case of KCC, if it ceases to be owned, directly or indirectly, 33.1/3% (in issued shares and voting rights) by Trond Harald Klaveness and/or his direct lineal descendants or if any other person or group of persons acting in concert, other than Trond Harald Klaveness and/or his direct lineal descendants, directly or indirectly, gain control of 33.1/3% or more of the shares and/or voting rights in KCC.
Securities
As security for the mortgage debt, the subsidiary KCC Shiopwning AS has provided a first priority pledge in all vessels built after 2002 (13 out of 16 vessels), security in earnings accounts, and assignment of the earnings and insurances of the vessels in favour of the creditors. As security for the overdraft facility, the subsidiary KCC Chartering AS has provided security in receivables, inventory and tangible assets.
Book value of collateral and mortgaged assets (USD \u2019000) | 2023 | 2022 |
Vessels (KCCS) | 477 828 | 500 009 |
Bunkers inventory (KCCC) | 10 738 | 17 254 |
Earning accounts (KCCS) | 3 650 | 443 |
Accounts receivables (KCCC) | 24 942 | 30 061 |
Total book value of collateral and mortgaged assets | 517 159 | 547 767 |
Risk management activities
To reduce interest rate risk, the Group has entered into various interest rate derivatives, such as interest rate swaps, caps and cross-currency interest rate swap (CCIRS). Interest rate swaps and CCIRS qualify for hedge accounting. These fixed rate interest rate derivatives had a total notional amount of USD 86 million per end of 2023 and duration until 2025-2028. Interest rate swaps qualifying for hedge accounting are recognised at fair value with changes through other comprehensive Income. The Group also held interest rate options during 2023 recognised at fair value through profit and loss. During Q2 2023 the Group terminated a total of USD 71 million of notional in fixed/float interest rate swaps and a portfolio of interest rates options with remaining duration below two years. The cash proceeds from the transactions were USD
4.0 million in Q2 2023, while the realized profit and loss from the termination of the swaps will be recognized over a period equivalent to the remaining duration.
The Group had during 2023 bunker fuel swaps and forward freight agreements (FFA) that qualify for hedge accounting. The Group uses bunker fuel swaps to hedge a portion of its floating bunkers cost to a fixed cost to reduce the Group\u2019s exposure to changes in bunker prices. Similarly, the Group can use FFAs to fix freight rates in future periods to reduce its exposure to the dry bulk or product tanker freight markets (via open capacity and index linked COA commitments).
13
Financial assets and financial liabilities
Financial assets (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 1 891 | 1 272 |
Interest rate swaps | 5 762 | 11 110 |
Fuel hedge | 87 | - |
Financial instruments at fair value through P&L | ||
Forward currency contract | 285 | - |
Interest rate swaps | - | 303 |
Financial assets | 8 024 | 12 685 |
Current | 1 699 | 4 923 |
Non-current | 6 325 | 7 762 |
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial liabilities at fair value through OCI | ||||
Cross-currency interest rate swap | 985 | 2 466 | 985 | 2 466 |
Forward freight agreements | - | 249 | - | 249 |
Total financial liabilities at fair value | 985 | 2 715 | 985 | 2 715 |
Other financial liabilities at amortised cost | ||||
Accounts payable | 3 658 | 3 940 | 3 658 | 3 940 |
Interest bearing debt, non-current | 154 835 | 156 534 | 158 201 | 159 664 |
Interest bearing debt, current | 25 199 | 92 769 | 25 199 | 92 769 |
Bond loan | 66 897 | 69 975 | 68 798 | 71 160 |
Overdraft facility | - | 233 | - | 233 |
Current debt to related parties | 1 067 | 693 | 1 067 | 693 |
Total financial liabilities at amortised cost | 251 656 | 324 144 | 256 923 | 328 460 |
Total financial liabilities | 252 640 | 326 858 | 257 908 | 328 709 |
Total current | 29 924 | 97 884 | 29 924 | 97 884 |
Total non-current | 222 716 | 228 975 | 227 984 | 230 825 |
Fair value hierarchy
The fair value of the financial assets and liabilities is recognised as the value at which they could be exchanged in a transaction between willing parties other than in forced or liquidation transactions. The following methods and assump-tions were used to estimate the fair value of each class of financial instrument:
\u2022Cash and restricted cash, trade receivables, trade payables and other current liabilities are recognised at their carrying amounts largely due to the short term maturities of these instruments.
\u2022Fair value of loans from banks and other financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.
\u2022Fair value of derivatives is based on mark to market reports receivedfrom banks.
\u2022Fair value of the bond loans is based on transaction price on Oslo Stock Exchange (bond loans listed).
Accounting policy
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, such as forward currency contracts, fuel contracts and interest rate swaps to hedge its foreign currency risks, interest rate risks and to reduce exposure to volatile and potentially rising fuel costs. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as:
\u2022Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment.
\u2022Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
As per 31 December 2023 all the Group hedges are classified as cash flow hedges.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
\u2022There is an economic relationship between the hedged item and the hedging instrument.
\u2022The effect of credit risk does not dominate the value changes that result from that economic relationship.
\u2022The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in profit and loss. Amounts recognised as other comprehensive income are transferred to profit and loss when the hedged transaction effects profit and loss, such as when the hedged financial income or expense is recognised or when a forecast transaction occurs. Derivative financial instruments that are designated as, and are effective hedging instruments are separated into a current and non-current portion consistent with the classification of the underlying item.
13
Financial assets and financial liabilities
Fair value hierarchy
The Group uses financial hierarchy under IFRS 13 for determining and disclosing the fair value of financial instruments by valuation techniques. Below table presents fair value measurements to the Group's assets and liabilities at 31 December 2023.
31 December 2023 Financial assets (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial assets at fair value through P&L | ||||
Forward currency contract | - | 285 | - | 285 |
Financial assets at fair value through OCI | ||||
Cross-currency interest rate swap | - | 1 891 | - | 1 891 |
Fuel hedge | - | 87 | - | 87 |
Interest rate swaps | - | 5 762 | - | 5 762 |
31 December 2023 Financial liabilities (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial liabilities not measured at fair value, but for which fair value is disclosed | ||||
Mortgage debt, non-current | - | - | 158 201 | 158 201 |
Mortgage debt, current | - | - | 25 199 | 25 199 |
Overdraft facility | - | - | - | - |
Bond loan | - | 68 798 | - | 68 798 |
31 December 2022 Financial assets (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial assets at fair value through P&L | ||||
Interest rate swaps | - | 303 | - | 303 |
31 December 2022 Financial liabilities (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial liabilities not measured at fair value, but for which fair value is disclosed | ||||
Mortgage debt, non-current | - | - | 159 664 | 159 664 |
Mortgage debt, current | - | - | 92 769 | 92 769 |
Overdraft facility | - | - | 233 | 233 |
Bond loan | - | 71 160 | - | 71 160 |
Financial liabilities at fair value through OCI | ||||
Forward freight agreements | - | 249 | - | 249 |
Accounting policy
Fair value measurement
Derivatives are measured at fair value. The fair value of financial instru-ments traded in active markets is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. The fair value of financial instruments not traded in active markets is determined using appropriate evaluation techniques.
A fair value measurement of a non-financial asset takes into account a market participant\u2019s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market partici-pant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1\u2013 Quoted (unadjusted) market prices in active markets for identical assets and liabilities
Level 2\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instruments are included in level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. During the reporting periods there were no transfers between any of the levels.
13
Financial assets and financial liabilities
Reconciliation of movements of liabilities and equity to cash flow arising from financing activities.
Liabilities
Equity
Total
(USD '000) | Interest payable | Current lease liabilites | Interest bearing short-term debt | Interest bearing long-term debt | Share capital/ premium/ reserve | Other equity | Total |
Balance at 1 January 2023 | - | - | 93 002 | 226 509 | 159 820 | 137 725 | 560 204 |
Repayment of mortgage debt | - | - | (80 533) | (83 500) | - | - | (164 033) |
Proceeds from mortgage debt | - | - | - | 95 000 | - | - | 95 000 |
Repayment bond loans | - | - | - | (55 478) | - | - | (55 478) |
Proceeds from bond loan | - | - | - | 47 112 | - | - | 47 112 |
Reclassification as short-term debt | - | - | 12 963 | (12 963) | - | - | - |
Transaction costs on issuance of loans | - | - | - | (2 303) | - | - | (2 303) |
Interest paid | (21 894) | - | - | - | - | - | (21 894) |
Paid in registered capital increase | - | - | - | - | 49 828 | - | 49 828 |
Transaction costs on capital increase | - | - | - | - | (1 093) | - | (1 093) |
Repayment of overdraft facility | - | - | (233) | - | - | - | (233) |
Dividends | - | - | - | - | - | (66 836) | (66 836) |
Total Changes from financing cash flow | (21 894) | - | (67 803) | (12 132) | 48 735 | (66 836) | (119 930) |
Liability- related | |||||||
Expensed capitalised borrowing costs | - | - | - | 1 784 | - | - | 1 784 |
Non-cash movement | - | - | - | 5 571 | - | - | 5 571 |
Total liability- related changes | - | - | - | 7 355 | - | - | 7 355 |
Total equity-related other changes | - | - | - | - | 1 176 | 81 077 | 82 253 |
Balance at 31 December 2023 | - | - | 25 199 | 221 732 | 209 732 | 151 966 | 529 882 |
Liabilities
Equity
Total
(USD '000) | Interest payable | Current lease liabilites | Interest bearing short-term debt | Interest bearing long-term debt | Share capital/ premium/ reserve | Other equity | Total |
Balance at 1 January 2022 | - | 618 | 26 345 | 328 198 | 159 819 | 94 597 | 568 104 |
Repayment of mortgage debt | - | - | - | (24 049) | - | - | (24 049) |
Proceeds from mortgage debt | - | - | - | - | - | - | - |
Reclassificationas short-term debt | - | - | 68 833 | (68 833) | - | - | - |
Transaction costs on issuance of loans | - | - | - | (193) | - | - | (193) |
Interest paid | (15 378) | - | - | - | - | - | (15 378) |
Paid in registered capital increase | - | - | - | - | - | - | - |
Transaction costs on capital increase | - | - | - | - | - | - | - |
Repayment of overdraft facility | - | - | (2 176) | - | - | - | (2 176) |
Repayment of lease | - | (382) | - | - | - | - | (382) |
Interest paid lease | - | (66) | - | - | - | - | (66) |
Dividends | - | - | - | - | - | (42 421) | (42 421) |
Total Changes from financing cash flow | (15 378) | (448) | 66 657 | (93 075) | - | (42 421) | (84 665) |
Liability- related | |||||||
Expensed capitalised borrowing costs | - | - | - | (1 352) | - | - | (1 352) |
Gain related to modification of debt | - | - | - | 1 175 | - | - | 1 175 |
Non-cash movement | - | (170) | - | (8 437) | - | - | (8 607) |
Total liability- related changes | - | (170) | - | (8 614) | - | - | (8 784) |
Total equity-related other changes | - | - | - | - | 1 | 85 549 | 85 550 |
Balance at 31 December 2022 | - | - | 93 002 | 226 509 | 159 820 | 137 725 | 560 204 |
14
16
Financial risk management
Capital management
The Group intends to maintain an efficient capital structure, provide financial ability to execute on the strategy and ensure the Group has sufficient liquidity to meet liabilities and commitments as they fall due. KCC targets to have an equity ratio above 40% and gearing ratio (NIBD/EBITDA adjusted for delivery/sale of vessels) of below 5x with flexibility to stretch key ratios in some periods, for example in periods with growth. Furthermore, KCC shall have sufficient funds to withstand at least twelve months of weak markets/ earnings. The equity ratio as of 31 December 2023 was 58% (2022: 46%) and cash was USD 68.1 million (2022: USD 64.9 million). In addition, the Group had USD 121 million in undrawn revolving and overdraft credit facilities available as of 31 December 2023. The Group's covenants are described in note 13.
The capital structure and dividend payments are considered in view of debt service ability, capital commitments and expectations of future cash flows. Available cash, loan covenants and the balance sheet composition are moni-tored to make sure that the Group has the necessary financial strength to continue operating as a going concern.
The Group aims to spend free cash flows as follows:
\u2022Maintain sufficient financial capacity. To accommodate the business\u00a0strategy KCC must maintain sufficient financial capacity, prepare for future\u00a0uncertainty and see through the cycle by having a solid capital structure and\u00a0available liquidity position and active and strong risk management.
\u2022Maintain an attractive dividend policy and when relevant share\u00a0repurchase programs: KCC intends on a quarterly basis to distribute a\u00a0minimum 80% of free cash flow generation to equity after debt service and\u00a0maintenance capex to its shareholders, provided that all known, future capital\u00a0and debt commitments are accounted for, and the Company\u2019s financial\u00a0standing remains acceptable. The main way of distribution\u00a0is through\u00a0dividends, but the Board of Directors will evaluate if share buy-back programs should be\u00a0part of the mix under the 80% policy.
The Group's capital structure consists of mortgage debt (note 13), bond loan (note 13), overdraft facility (note 13), cash and cash equivalents (note 15) and equity attributable to the shareholders.
Risk Management
The objective for the Company\u2019s risk management and internal control is to manage, rather than eliminate exposure to risks to successfully conduct the Group\u2019s business and to support the quality of its financial reporting. The Group is exposed to a variety of risks from its operations in shipping markets e.g., freight rate risk, bunker fuel price risk, as well as risks relating to foreign currency exchange rates, interest rate, counterparties (including credit), operations, technical, geopolitical, regulations and other risks. Financial risk management is handled by the Group as part of its operations. The management team identifies, evaluates and manages financial risks in close co-operation with all operating units. The Board of Directors reviews and approves policies for overall risk management, as well as for specific areas, such as foreign exchange risk, interest rate risk, credit risk and use of derivative and non-derivative financial instruments.
Risk management activities to reduce interest rate risk, freight rate risk and bunker fuel risk are further described innote 13.
The risk assessment is a multi-disciplinary process generally performed several times throuh the year. The value chain is assessed both upstream and downstream in addition to direct effects on KCC\u2019s business activities. All relevant risks are assessed based on defined impact and probability levels and focus for the next 12 months.
In addition to the specific assessment for the rolling 12 months period, an assessment of the long-term risk is included from time to time and at least on an annual basis.
The risk management process includes the following:
*The finance team (in close corporation with commercial, technical and management) assesses the overall risk development with focus on main risks and new risks discovered, including assessing impact and probability for each risk and define potential mitigating actions for the main risks
*The main risks are reported and discussed with the Audit Committee and the Board of Directors. A main risk is a risk already identified and well understood that could materially impact the financial results, reputation, business model, or strategy
*When the combination of probability and impact is higher than what is acceptable, mitigating actions are implemented either based on management decision or if relevant, after discussions with the Board of Directors.
Main risks
The following table presents the risks considered to be the main risks for KCC over the next 12 months and the main longer-term risks.
Risk | Description | Risk type |
Main risks next 12 months | ||
Weak freight rates and changes in trade flows | ||
The Group's primary revenue driver is freight rates. A decline in freight rates for dry bulk commodities, caustic soda, or clean petroleum products can significantly impact the financial performance of the Group. Strong product tanker outlook for 2024 implies substantial downside risk assuming reversion to mean. However, the impact of lower freight rates is somewhat mitigated by the historically low correlation between dry bulk and product tanker freight rates. The product tanker market exposure for the next 12 months is partly mitigated by a ~40% coverage through fixed-rate contracts for the CABU vessels for 2024, and one CLEANBU vessel employed on a time charter contract through 2024. The Group is dependent on certain trade flows to obtain efficient combination trading. Production issues at plants, mines, and refineries in export or import regions, difference in regional commodity prices (arbitrage opportunities) as well as regional and global wars, conflicts and sanctions may impact these trade flows. Unfavourable changes in trade flows and volumes may adversely affect the Group\u2019s earnings and financial position. This is exemplified by the ongoing conflict between Russia and Ukraine, which has significantly influenced trade flows for both dry bulk commodities and clean petroleum products. Faced with trade sanctions from Europe, Russia has adjusted fuel prices to remain competitive in alternative markets. Consequently, Russia emerged as the primary foreign supplier of diesel to Brazil this year, adversely affecting non-Russian importers like KCC. To mitigate this risk, the Group relies on maintaining flexibility in its trade flows. In this particular instance, the Group successfully redirected its trade flows from Brazil to the US Gulf. Moreover, an Australian alumina producer, has revealed its intention to cease production at one of its alumina refineries in Western Australia in 2024. This could potentially impact the Group's caustic soda freight volume to Australia and hence its ability to employ all CABU vessel capacity in efficient combination trades. | Market | |
CLEANBU commercial and technical performance\t | ||
Introduction of new vessel concepts such as the CLEANBUs entails commercial and technical risks. Acceptance and/or exemptions are required in relation to the CLEANBU vessels from clients and terminals where policies may require clean petroleum products (CPP) as the last cargo or the three last cargoes to avoid cargo contamination or where policies may exclude the use of combination carriers like the CLEANBU vessels. Should the Group not obtain the relevant acceptances or exemptions from clients or terminals, this may have a material adverse effect on the operations of the CLEANBU vessels and consequently the Group's operations and results. Although CLEANBU commercial and technical performance was strong and continued to improve in 2023, among other things due to increased experience in transitioning between wet and dry cargoes and gaining wider acceptance from new customers and type of cargoes, it is important to acknowledge that commercial and technical risks still remain, which may adversely affect the Group\u2019s earnings and financial position. | Operational & technical | |
Vessel age | ||
Due to stricter environmental regulations and customer requirements, older tonnage is in danger of both being rerated, has a higher risk of being detained and losing competitiveness to more modern tonnage. The consequences can be lower utilization due to more waiting time, risk of increased discounts and in worst case not being accepted by some customers. For the Group this can result in less flexibility and lower net revenue for the oldest vessels in the fleet. As per year-end 2023, the Group owns three CABU vessels above 20 year age. Two of the CABU vessels built 2001 were detained by Australian Maritime Safety Authority in Q4 2023 partly due to the age of the vessels. So far, the detentions have not had financial impact, but this might have consequences for the trading efficiency and customer acceptance going forward and hence have financial impact. | Operational & technical |
16
Financial risk management
Risk | Description | Risk type |
Main risks next 12 months | ||
Retrofit project | ||
In 2023, the Group retrofitted one vessel an air lubrication system and a shaft generator to reduce fuel consumption. The second vessel will be completed during Q1 2024 and additional four vessels will go through the same procedure in 2024/2025. One of the main pillars of the Group's strategy is to improve the energy efficiency of the existing vessels, aligned with its emission reduction ambition. Success depends on the ability to deliver on retrofit/energy saving device projects at the budgeted cost and time, and that the retrofits deliver the estimated fuel/emission savings. The emission reduction from the initial retrofitted vessel align with expectations, although costs and time somewhat exceeded the budget. However, the experience gained has significantly reduced this risk for similar retrofit projects in the future. Moving forward, the Group faces due diligence risk as it considers new investments in energy efficiency. Being an early adopter of certain measures, there is a lack of large-scale testing prior to installation, introducing an element of risk. | Operational & technical | |
Increased geopolitical tension | ||
The Group faces geopolitical risks arising from territorial and other disputes between countries, war, political instability, terrorism and pircay, as exemplified by the war in Ukraine, the war in Gaza and the Houthi attacks in the Red Sea as well as acts of piracy affecting ocean-going vessels in regions such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia. Such risks might impact KCC's costs e.g. crew cost and insurance premiums, as well as revenue both through indirect effects on the markets KCC operates in and directly through the ability to trade in certain areas or the Group's ability to employ the vessels in efficient combination trades which may have a material adverse effect on the Group's business, financial results and operations. | Market | |
CABU caustic soda contracts | The Group is, to a certain degree, dependent on a limited number of key customers and renewal of key/material contracts with these customers, particularly related to caustic soda transportation. Lack of renewal of such contracts and unfavorable changes in trade flows and volumes may adversely affect the Group\u2019s earnings and financial position. | Market |
Risk | Description | Risk type |
Main long-term risks | ||
Global economic growth and the impact on energy and commodity markets | ||
The general development of the global economy, in particular the oil and commodities markets, may affect demand and the profitability of the Group companies. Furthermore, the demand for seaborne transportation is dependent on open economies and low barriers to trade. There has historically been a strong link between the development of the world economy and demand for dry bulk and oil commodities. A period of deterioration in the outlook for the world economy could reduce the overall demand for these commodities and for the Group's services. Trade restrictions such as tariffs and embargos can have a negative impact on the demand for seaborne transportation.\u00a0This may lead to a downturn in the future prospects of the sectors the Group has invested in and, impact revenues negatively and may also make it more difficult to raise equity or loan capital. | Market | |
Impact of a low-carbon future with introduction of emission regulations, zero-emission vessels and lower demand for transportation of fossil fuels | ||
A move to a low-carbon economy can potentially have material negative impact on the Group through several ways: \u2022 Emerging propulsion technologies and fuels might have a material negative impact on the competitiveness of the Group\u2019s existing fleet and might result in lower revenue and/or impairment of vessel values. The diversity in alternatives increases the risk of selecting the wrong technology. \u2022 New regulations can lead to material cost related to upgrades and retrofits to comply with regulations and / or material impairment of operational flexibility and / or operational limitations. Ultimately, it could lead to higher vessel recycling activity and/or stranded vessels for vessels that are not compliant. \u2022 Increased pressure on financial institutions to incentivize reduction in CO2-emissions and new regulations, such as the EU taxonomy, can reduce and restrict access to capital or increase the cost of capital and breakeven levels. \u2022 The demand for transportation of fossil fuels might be materially negatively impacted and hence the demand for dry bulk and product tanker vessels. \u2022 New customer requirements can have a negative impact on the Group\u2019s competitive position. \u2022 New carbon price regulations, such as the EU ETS, may lead to increased operating cost. | Climate- related | |
Newbuilds | ||
The CABU newbuilds are an upgraded design based on the existing CABU design for vessels built 2016-2017 and experience gained through the design and construction of the CLEANBU vessels built at the same shipyard in 2019-2021. There is technical, operational and commercial risk that the CABU newbuilds are not working as intended, negatively impacting the earnings capacity of the vessels and/or the vessel values. | Operational and technical |
Risk types
The risks have been divided into the following categories
Operational and technical risk
Operational risks are mainly related to the operation of vessels. The Group\u2019s vessels are on technical management to Klaveness Ship Management AS (affil-iated company) which ensures compliance with IMO, flag, class and port state regulations. Quality and safety audits are performed regularly and the crew and officers onboard are trained to ensure that regulatory requirements are met.
Operational risk is managed through quality assurance procedures and systematic training of crew and land-based employees. All vessels sailing through piracy exposed areas take necessary steps to mitigate the threat of such attacks. Operational risk is also covered by insurance where relevant to cover loss of assets, revenues and contract commitments. The vessels are insured for loss of hire, war risk, protection and indemnity (P&I), physical damage to vessel and its equipment (Hull and Machinery) and total loss. The latter is aligned with vessel values and loan agreements. The financial impact of a total loss of a vessel will not be material for the Group.
Market risk
The Group is exposed to the volatile nature of the dry bulk and product tanker shipping markets. Fluctuations in freight rates, vessel values, profitability, and cash flow, along with the risk of impairment of book values and breaches of financial covenants, are inherent in cyclical shipping markets. These fluctuations are influenced by imbalances in supply of vessel capacity and demand for global seaborn transportation of commodities. Since these dynamics are beyond the Group's control and unpredictable, their impact on business conditions is uncertain. A downturn in the relevant markets could significantly impact the Group's operations, financials, and cash flow. To manage these risks, the Group uses contracts of affreightment (COA) and forward freight agreements (FFA) to cover part of its future exposure.
The Group faces exposure to fluctuating bunker fuel prices, which are unpredictable and influenced by factors beyond the Group's control, including geopolitical events, oil and gas supply and demand, OPEC actions, regional unrest, production patterns, and environmental considerations. To manage this risk, the Group may hedge bunker fuel exposure or incorporate bunker adjustment factors (BAF) into contracts. However, quantifying future bunker fuel needs for specific voyages and obtaining hedges for non-standard volumes pose challenges, introducing risk. While the Group's size and diversification mitigate this risk overall, it may impact the Group's financials.
From 1 January 2024, shipping is part of EU's emission trading system (EU ETS). The Group must submit allowances for 100% of emissions for voyages within EU, and 50% of voyages in and out of EU (including ballast leg). The\u00a0share of emissions that must be covered by allowances gradually increases each year from 40% of emissions reported for 2024, 70% of emissions reported for 2025 and from 2026 100% of reported emissions. The Group has a limited exposure as KCC's vessels have a limited part of their trading in and out of EU (2 voyages in 2023, estimated to be approximately USD 110k exposure if these two voyages were performed in 2024). The cost will in most cases be covered by the customer. The Group had no allowances per year-end 2023.
Foreign currency risk and interest rate risk
The Groups's functional currency is USD, including all significant entities in the Group. The Group's operating revenue, the majority of its interest-bearing debt and contractual obligations for vessels under construction are denominated in USD. The Group is exposed to foreign currency exchange risks for adminis-trative and operational expenses incurred by offices, vessel operations or agents globally, predominantly in NOK, EUR and AUD. Further, the Group is required to pay dividends and tax payable in NOK. In connection with energy efficiency investments, where some of the payments are EUR, there may also be a currency risk. As such, KCC may from time to time, enter into derivative contracts in order to hedge currency risk related to its fixed expenses. As of year end, these risks are considered to be limited.
All interest-bearing debt is denominated in USD, except for bonds issued in NOK. Loans have various amortization profiles, but the majority are floating rate with CME Term SOFR as a benchmark. The Group's bond loans denomi-nated in NOK are also swapped to USD with fixed interest rate or floating interest rate with CME Term SOFR as benchmark. The Group uses financial interest rate derivatives, mainly interest rate swaps, to reduce the unwanted variability of interest expenses due to changes in the benchmark. As of 31 December 2023, 29% of the floating interest mortage debt loans are hedged including undrawn RCF commitments and 42% on drawn amount per year-end 2023. The Group evaluates on an ongoing basis the need to adjust interest rate exposure and coverage rate.
The table below shows estimated changes in profit before tax for the Group from changes in interest rates in 2023 and 2022, with all other variables held constant. The changes are estimated based on a change in variable interest rate benchmarks given capital structure excluding drawdown on available RCF capacity net of hedges as of year-end 2023 and year-end 2022. In 2023 for every 100 bps increase in index interest rate, interest costs on debt increases by approx. USD 0.7 million.
Change in bps (effect in USD\u2019000) | 2023 | 2022 |
+100 | -743 | -1041 |
+50 | -371 | -521 |
-50 | 371 | 521 |
-100 | 743 | 1041 |
Counterparty/credit risk
Counterparty risk is managed by mandates approved by the Board of Directors and know your counterparty (KYC) procedures. The counterparty mandates set out the exposure (amount and duration) permitted for a given counterparty based on that counterparty\u2019s credit standing.
The Group is exposed to counterparty risk, inter alia and in particular under fixed-rate contract of affreightments (COAs). For various reasons, including (but not limited to) adverse market conditions, decrease in demand, increase in competition, cost saving schemes, force majeure situations, accidents and governmental or political restrictions, counterparties may seek to cancel or
renegotiate COAs, or invoke suspension of periods, at their discretion. A downturn in the dry bulk and/or product tanker markets may result in an increase in occurrences of renegotiations, suspension or termination of contracts. The cash flows and financial conditions of the Group may be materially adversely affected should its counterparties terminate, renegotiate or suspend their obligations under such contract. Further, the ability of the Group\u2019s customers to meet their obligations towards the Group is affected by the customers\u2019 financial and liquidity position. If a key customer declares bankruptcy, insolvency or files for a similar protection under the customer\u2019s jurisdiction, it may have a material adverse effect on revenues, profitability,
16
Financial risk management
cash flows and the financial position of the Group. The key customers for the CABUs are mainly investment grade aluminium companies. The key target customers for the CLEANBUs are large oil and petrochemical companies and trading companies, many with investment grade ratings. If the Group has a legal right to insurance coverage, the Group will make provision for the deductible amount. As such, default by an insurance institution may have material financial consequences.
On 23 June 2023, the Company announced that a 100% owned subsidiary had concluded a shipbuilding contract for the construction of three third generation CABU vessels with Jiangsu New Yangzi Shipbuilding Co. Ltd. and Jiangsu Yangzi Xinfu Shipbuilding Co. The Group is exposed to counterparty risk under the shipbuilding contract, mitigated to a large extent through a refund guarantee from a Tier I Chinese bank.
Further, the Group is exposed to credit risk through its deposits. Deposits are currently made with investment grade financial institutions with A rating or higher from public rating agencies. However, there is concentration risk as deposits are held with only a few institutions.
Total unrisked credit exposure at 31 December 2023 amounts to USD 93.8 million, 2022: USD 95.0 million (book value of trade receivables, other current assets and bank deposits).
Liquidity risk
Liquidity risk is the risk that the Group may not be able to fulfil its liabilities when they fall due. Volatility in freight rates, daily settlement of cleared derivatives and the potential need for posting collateral related to certain OTC derivatives are significant sources to liquidity risk. To address these risks, the Group maintains sufficient cash for its daily operations in short-term cash deposits with banks and has access to the unutilised portions of long-term revolving credit facilities and a short-term overdraft facility. Additionally, the Group monitors and regularly forecasts the Group's liquidity reserve on the basis of expected cash flows, including stress tests in case of weaker markets.
The Group has capital commitments relating to borrowings and investments. The liquidity risk is considered to be limited as the deposits, committed bank debt and estimated cash flow are considered sufficient for all needs in the foreseeable future. The Group\u2019s bank financing is subject to financial and non-financial covenants.
The table below summarises the maturity profile of the Group\u2019s financial liabilities based on contractual undiscounted payments. Interest bearing debt includes interest payments and is net of interest rate and cross currency derivative hedges.
Maturity profile financial liabilities 31 Dec 2023 | < 1 year | 1-3 years | 3-5 years | > 5 years | Total |
Mortgage debt (incl interests) | 36 246 | 100 892 | 74 239 | - | 211 377 |
Bond loan (incl interest) | 5 266 | 25 861 | 54 015 | - | 85 142 |
Trade and other payables | 17 052 | - | - | - | 17 052 |
Current debt to related parties | 1 067 | - | - | - | 1 067 |
59 631 | 126 754 | 128 253 | - | 314 638 |
Loan facilities to be refinanced during the next 12 months are included in <1 year.
Maturity profile financial liabilities 31 Dec 2022 | < 1 year | 1-3 years | 3-5 years | > 5 years | Total |
Mortgage debt (incl interests) | 105 989 | 87 133 | 88 196 | - | 281 317 |
Bond loan (incl interest) | 4 757 | 81 867 | - | - | 86 624 |
Other interest bearing liabilities | 233 | - | - | - | 233 |
Trade and other payables | 22 250 | - | - | - | 22 250 |
Current debt to related parties | 693 | - | - | - | 693 |
133 923 | 169 000 | 88 196 | - | 391 118 |
Climate-related risks
Climate-related risks include both transition risks and physical risks with focus on transition risks as this is considered to have a larger impact and probability for KCC. Transition risks mainly relate to effect of reduced demand for the Group\u2019s services and the risk of stranded assets and new regulations as the global fleet moves to low-carbon fuel. The Group assesses transition risk in strategic planning, fleet development and capital expenditure plans for next-generation and existing fleet transition planning. Physical risks from climate events influence the Group's voyage planning and operation strategies. For 2023 (2022), total fossil fuel shipments accounted for 35% (25%) of the Group\u2019s transported volumes in metric tons.
Compliance risk
The legal and regulatory requirements of the Group are increasingly challenging and complex. The Group has established systems and processes to ensure that all relevant laws and regulations are met, such as tax-laws, anti-corruption laws, securities laws, anti-trust laws, laws related to human rights and working conditions and international sanctions. Three of the Group\u2019s subsidiaries are subject to the Norwegian tonnage tax regime. Non-compliance with the qualifying rules of this regime will have material negative impact on the Group\u2019s financial position.
13
Financial assets and financial liabilities
The below tables present the Group\u2019s financing arrangements as per 31 December 2023.
In June 2023 a subsidiary of KCC completed the refinancing of two mortage debt facilities falling due in December 2023 and October 2025. The two facilities were merged into one facility of USD 190 million, divided into a term loan tranche and a revolving credit tranche (50/50). The refinancing released approximately USD 38 million in additional available liquidity including undrawn capacity on the revolving credit tranche. The loan bears interest of Term SOFR + 2.1%, has a tenor of 5 years, and is repaid on a close to 18-years average age adjusted profile. The margin will be adjusted on an annual basis based on KCC's carbon intensity (EEOI) performance in relation to the trajectory in the Sustanibility-Linked Financing Framework published in June 2023.
During the first half of 2023 all relevant debt facilities were transferred from LIBOR to SOFR.
In September 2023 the Group completed a new senior unsecured sustainability-linked bond issue (KCC05) of NOK 500 million with maturity date 5 September 2028. The bond carries a coupon of 3 months NIBOR + 365 bps, and the final repayment amount is linked to the Group's carbon intensity (EEOI) performance in relation to the trajectory in the Sustainability-Linked Financing Framework published in June 2023. In conjunction with the KCC05 issue, the Group repurchased NOK 508.5 million of the KCC04 bond issue falling due in February 2025.
In December 2023 the 364-days overdraft facility was extended by additional 364 days. The commitment under the overdraft facility was reduced from USD 15 million to USD 8 million based on the Group's reevaluated need.
Mortgage debt (USD '000) | Description | Interest rate | Maturity | Carrying amount |
DNB/SEB/SR-Bank/Sparebanken Vest Facility** | Term Loan/RCF, USD 190 million | Term SOFR + 2.1 % | June 2028 | 88 518 |
Nordea/Credit Agricole Facility* | Term Loan/RCF, USD 60 million | Term SOFR + 2.25 % | March 2027 | 32 294 |
Nordea/ Danske Bank Facility**/*** | Term Loan, USD 80 million | Term SOFR + CAS + 2.1 % | December 2026 | 62 588 |
Capitalized loan fees | (3 367) | |||
Mortgage debt 31 December 2023 | 180 033 |
* Potential margin adjustments up to +/- 10 bps once every year based on emission performance.
** Potential margin adjustments up to +/- 5 bps once every year based on emission performance.
*** CAS=Credit Adjusted Spread. For three months Term SOFR, the CAS is approx 0.26%\t
The Group has available and undrawn revolving credit facility capacity of USD 113 million and USD 8 million available capacity under a 364-days overdraft facility.
Bond loan | Face value (NOK \u2019000) | Year of maturity | Carrying amount (USD \u2019000) |
KCC04 | 700 000 | 11/02/2025 | 76 390 |
Realized exchange rate gain at buyback | (7 208) | ||
Buyback KCC04 (Q3 2023) | (508 500) | (54 978) | |
Exchange rate adjustment | 4 566 | ||
Capitalized expenses | (86) | ||
Bond discount | (82) | ||
SUM KCC04 | 191 500 | 18 602 | |
KCC05 | 500 000 | 05/09/2028 | 46 971 |
Exchange rate adjustments | 2 035 | ||
Capitalized expenses | (711) | ||
SUM KCC05 | 500 000 | 48 295 | |
Total bond loan | 691 500 | 66 897 |
Interest bearing liabilities (USD '000) | Fair value 31 Dec 2023 | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 |
Mortgage debt | 158 201 | 158 201 | 159 664 |
Capitalized loan fees | - | (3 367) | (3 131) |
Bond loan | 68 798 | 67 777 | 70 660 |
Bond discount | - | (82) | (158) |
Capitalized expenses bond loan | - | (797) | (527) |
Total non-current interest bearing liabilties | 226 999 | 221 732 | 226 509 |
Mortgage debt, current | 25 199 | 25 199 | 92 769 |
Overdraft facility (Secured) | - | - | 233 |
Total interest bearing liabilities | 252 198 | 246 931 | 319 511 |
Maturity profile of financial liabilities at 31 December 2023 is presented in note 16.
Covenants
As per 31 December 2023, the Group is in compliance with all financial cove-nants. On Group level the financial covenants are minimum equity (USD 125 million), minimum equity ratio (30%), and minimum cash and cash equivalents (USD 15 million). Financial covenants on KCC Bass AS level are minimum cash and cash equivalents (USD 750k). Financial covenants on KCC Shipowning AS level are minimum cash and cash equivalents (the higher of USD 10 million and 5 % of net interest-bearing debt) and net interest-bearing debt to EBITDA (NIBD/EBITDA) of max 7x. The NIBD/EBITDA ratio can be higher than 7x for one reporting period (measured semi-annually) provided that the NIBD/EBITDA was below 7x in the prior reporting period. The loan agreements also include a dividend restriction of 50% of net profit (based on audited annual consolidated accounts) if the equity ratio is below 35%. In addition, all secured loans contain minimum value clauses related to the value of the relevant vessels compared to outstanding loan and a change of control clause. In case of KCC Shipowning AS and KCC Bass AS, a change of control event occurs if the two companies cease to be owned and/or controlled, directly or indirectly, 100% (in issued shares
and voting rights) by KCC and in case of KCC, if it ceases to be owned, directly or indirectly, 33.1/3% (in issued shares and voting rights) by Trond Harald Klaveness and/or his direct lineal descendants or if any other person or group of persons acting in concert, other than Trond Harald Klaveness and/or his direct lineal descendants, directly or indirectly, gain control of 33.1/3% or more of the shares and/or voting rights in KCC.
Securities
As security for the mortgage debt, the subsidiary KCC Shiopwning AS has provided a first priority pledge in all vessels built after 2002 (13 out of 16 vessels), security in earnings accounts, and assignment of the earnings and insurances of the vessels in favour of the creditors. As security for the overdraft facility, the subsidiary KCC Chartering AS has provided security in receivables, inventory and tangible assets.
Book value of collateral and mortgaged assets (USD \u2019000) | 2023 | 2022 |
Vessels (KCCS) | 477 828 | 500 009 |
Bunkers inventory (KCCC) | 10 738 | 17 254 |
Earning accounts (KCCS) | 3 650 | 443 |
Accounts receivables (KCCC) | 24 942 | 30 061 |
Total book value of collateral and mortgaged assets | 517 159 | 547 767 |
Risk management activities
To reduce interest rate risk, the Group has entered into various interest rate derivatives, such as interest rate swaps, caps and cross-currency interest rate swap (CCIRS). Interest rate swaps and CCIRS qualify for hedge accounting. These fixed rate interest rate derivatives had a total notional amount of USD 86 million per end of 2023 and duration until 2025-2028. Interest rate swaps qualifying for hedge accounting are recognised at fair value with changes through other comprehensive Income. The Group also held interest rate options during 2023 recognised at fair value through profit and loss. During Q2 2023 the Group terminated a total of USD 71 million of notional in fixed/float interest rate swaps and a portfolio of interest rates options with remaining duration below two years. The cash proceeds from the transactions were USD
4.0 million in Q2 2023, while the realized profit and loss from the termination of the swaps will be recognized over a period equivalent to the remaining duration.
The Group had during 2023 bunker fuel swaps and forward freight agreements (FFA) that qualify for hedge accounting. The Group uses bunker fuel swaps to hedge a portion of its floating bunkers cost to a fixed cost to reduce the Group\u2019s exposure to changes in bunker prices. Similarly, the Group can use FFAs to fix freight rates in future periods to reduce its exposure to the dry bulk or product tanker freight markets (via open capacity and index linked COA commitments).
13
Financial assets and financial liabilities
Financial assets (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 1 891 | 1 272 |
Interest rate swaps | 5 762 | 11 110 |
Fuel hedge | 87 | - |
Financial instruments at fair value through P&L | ||
Forward currency contract | 285 | - |
Interest rate swaps | - | 303 |
Financial assets | 8 024 | 12 685 |
Current | 1 699 | 4 923 |
Non-current | 6 325 | 7 762 |
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial liabilities at fair value through OCI | ||||
Cross-currency interest rate swap | 985 | 2 466 | 985 | 2 466 |
Forward freight agreements | - | 249 | - | 249 |
Total financial liabilities at fair value | 985 | 2 715 | 985 | 2 715 |
Other financial liabilities at amortised cost | ||||
Accounts payable | 3 658 | 3 940 | 3 658 | 3 940 |
Interest bearing debt, non-current | 154 835 | 156 534 | 158 201 | 159 664 |
Interest bearing debt, current | 25 199 | 92 769 | 25 199 | 92 769 |
Bond loan | 66 897 | 69 975 | 68 798 | 71 160 |
Overdraft facility | - | 233 | - | 233 |
Current debt to related parties | 1 067 | 693 | 1 067 | 693 |
Total financial liabilities at amortised cost | 251 656 | 324 144 | 256 923 | 328 460 |
Total financial liabilities | 252 640 | 326 858 | 257 908 | 328 709 |
Total current | 29 924 | 97 884 | 29 924 | 97 884 |
Total non-current | 222 716 | 228 975 | 227 984 | 230 825 |
Fair value hierarchy
The fair value of the financial assets and liabilities is recognised as the value at which they could be exchanged in a transaction between willing parties other than in forced or liquidation transactions. The following methods and assump-tions were used to estimate the fair value of each class of financial instrument:
\u2022Cash and restricted cash, trade receivables, trade payables and other current liabilities are recognised at their carrying amounts largely due to the short term maturities of these instruments.
\u2022Fair value of loans from banks and other financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.
\u2022Fair value of derivatives is based on mark to market reports receivedfrom banks.
\u2022Fair value of the bond loans is based on transaction price on Oslo Stock Exchange (bond loans listed).
Accounting policy
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, such as forward currency contracts, fuel contracts and interest rate swaps to hedge its foreign currency risks, interest rate risks and to reduce exposure to volatile and potentially rising fuel costs. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as:
\u2022Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment.
\u2022Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
As per 31 December 2023 all the Group hedges are classified as cash flow hedges.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
\u2022There is an economic relationship between the hedged item and the hedging instrument.
\u2022The effect of credit risk does not dominate the value changes that result from that economic relationship.
\u2022The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in profit and loss. Amounts recognised as other comprehensive income are transferred to profit and loss when the hedged transaction effects profit and loss, such as when the hedged financial income or expense is recognised or when a forecast transaction occurs. Derivative financial instruments that are designated as, and are effective hedging instruments are separated into a current and non-current portion consistent with the classification of the underlying item.
13
Financial assets and financial liabilities
Fair value hierarchy
The Group uses financial hierarchy under IFRS 13 for determining and disclosing the fair value of financial instruments by valuation techniques. Below table presents fair value measurements to the Group's assets and liabilities at 31 December 2023.
31 December 2023 Financial assets (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial assets at fair value through P&L | ||||
Forward currency contract | - | 285 | - | 285 |
Financial assets at fair value through OCI | ||||
Cross-currency interest rate swap | - | 1 891 | - | 1 891 |
Fuel hedge | - | 87 | - | 87 |
Interest rate swaps | - | 5 762 | - | 5 762 |
31 December 2023 Financial liabilities (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial liabilities not measured at fair value, but for which fair value is disclosed | ||||
Mortgage debt, non-current | - | - | 158 201 | 158 201 |
Mortgage debt, current | - | - | 25 199 | 25 199 |
Overdraft facility | - | - | - | - |
Bond loan | - | 68 798 | - | 68 798 |
31 December 2022 Financial assets (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial assets at fair value through P&L | ||||
Interest rate swaps | - | 303 | - | 303 |
31 December 2022 Financial liabilities (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial liabilities not measured at fair value, but for which fair value is disclosed | ||||
Mortgage debt, non-current | - | - | 159 664 | 159 664 |
Mortgage debt, current | - | - | 92 769 | 92 769 |
Overdraft facility | - | - | 233 | 233 |
Bond loan | - | 71 160 | - | 71 160 |
Financial liabilities at fair value through OCI | ||||
Forward freight agreements | - | 249 | - | 249 |
Accounting policy
Fair value measurement
Derivatives are measured at fair value. The fair value of financial instru-ments traded in active markets is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. The fair value of financial instruments not traded in active markets is determined using appropriate evaluation techniques.
A fair value measurement of a non-financial asset takes into account a market participant\u2019s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market partici-pant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1\u2013 Quoted (unadjusted) market prices in active markets for identical assets and liabilities
Level 2\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instruments are included in level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. During the reporting periods there were no transfers between any of the levels.
13
Financial assets and financial liabilities
Reconciliation of movements of liabilities and equity to cash flow arising from financing activities.
Liabilities
Equity
Total
(USD '000) | Interest payable | Current lease liabilites | Interest bearing short-term debt | Interest bearing long-term debt | Share capital/ premium/ reserve | Other equity | Total |
Balance at 1 January 2023 | - | - | 93 002 | 226 509 | 159 820 | 137 725 | 560 204 |
Repayment of mortgage debt | - | - | (80 533) | (83 500) | - | - | (164 033) |
Proceeds from mortgage debt | - | - | - | 95 000 | - | - | 95 000 |
Repayment bond loans | - | - | - | (55 478) | - | - | (55 478) |
Proceeds from bond loan | - | - | - | 47 112 | - | - | 47 112 |
Reclassification as short-term debt | - | - | 12 963 | (12 963) | - | - | - |
Transaction costs on issuance of loans | - | - | - | (2 303) | - | - | (2 303) |
Interest paid | (21 894) | - | - | - | - | - | (21 894) |
Paid in registered capital increase | - | - | - | - | 49 828 | - | 49 828 |
Transaction costs on capital increase | - | - | - | - | (1 093) | - | (1 093) |
Repayment of overdraft facility | - | - | (233) | - | - | - | (233) |
Dividends | - | - | - | - | - | (66 836) | (66 836) |
Total Changes from financing cash flow | (21 894) | - | (67 803) | (12 132) | 48 735 | (66 836) | (119 930) |
Liability- related | |||||||
Expensed capitalised borrowing costs | - | - | - | 1 784 | - | - | 1 784 |
Non-cash movement | - | - | - | 5 571 | - | - | 5 571 |
Total liability- related changes | - | - | - | 7 355 | - | - | 7 355 |
Total equity-related other changes | - | - | - | - | 1 176 | 81 077 | 82 253 |
Balance at 31 December 2023 | - | - | 25 199 | 221 732 | 209 732 | 151 966 | 529 882 |
Liabilities
Equity
Total
(USD '000) | Interest payable | Current lease liabilites | Interest bearing short-term debt | Interest bearing long-term debt | Share capital/ premium/ reserve | Other equity | Total |
Balance at 1 January 2022 | - | 618 | 26 345 | 328 198 | 159 819 | 94 597 | 568 104 |
Repayment of mortgage debt | - | - | - | (24 049) | - | - | (24 049) |
Proceeds from mortgage debt | - | - | - | - | - | - | - |
Reclassificationas short-term debt | - | - | 68 833 | (68 833) | - | - | - |
Transaction costs on issuance of loans | - | - | - | (193) | - | - | (193) |
Interest paid | (15 378) | - | - | - | - | - | (15 378) |
Paid in registered capital increase | - | - | - | - | - | - | - |
Transaction costs on capital increase | - | - | - | - | - | - | - |
Repayment of overdraft facility | - | - | (2 176) | - | - | - | (2 176) |
Repayment of lease | - | (382) | - | - | - | - | (382) |
Interest paid lease | - | (66) | - | - | - | - | (66) |
Dividends | - | - | - | - | - | (42 421) | (42 421) |
Total Changes from financing cash flow | (15 378) | (448) | 66 657 | (93 075) | - | (42 421) | (84 665) |
Liability- related | |||||||
Expensed capitalised borrowing costs | - | - | - | (1 352) | - | - | (1 352) |
Gain related to modification of debt | - | - | - | 1 175 | - | - | 1 175 |
Non-cash movement | - | (170) | - | (8 437) | - | - | (8 607) |
Total liability- related changes | - | (170) | - | (8 614) | - | - | (8 784) |
Total equity-related other changes | - | - | - | - | 1 | 85 549 | 85 550 |
Balance at 31 December 2022 | - | - | 93 002 | 226 509 | 159 820 | 137 725 | 560 204 |
14
The below tables present the Group\u2019s financing arrangements as per 31 December 2023.
In June 2023 a subsidiary of KCC completed the refinancing of two mortage debt facilities falling due in December 2023 and October 2025. The two facilities were merged into one facility of USD 190 million, divided into a term loan tranche and a revolving credit tranche (50/50). The refinancing released approximately USD 38 million in additional available liquidity including undrawn capacity on the revolving credit tranche. The loan bears interest of Term SOFR + 2.1%, has a tenor of 5 years, and is repaid on a close to 18-years average age adjusted profile. The margin will be adjusted on an annual basis based on KCC's carbon intensity (EEOI) performance in relation to the trajectory in the Sustanibility-Linked Financing Framework published in June 2023.
During the first half of 2023 all relevant debt facilities were transferred from LIBOR to SOFR.
In September 2023 the Group completed a new senior unsecured sustainability-linked bond issue (KCC05) of NOK 500 million with maturity date 5 September 2028. The bond carries a coupon of 3 months NIBOR + 365 bps, and the final repayment amount is linked to the Group's carbon intensity (EEOI) performance in relation to the trajectory in the Sustainability-Linked Financing Framework published in June 2023. In conjunction with the KCC05 issue, the Group repurchased NOK 508.5 million of the KCC04 bond issue falling due in February 2025.
In December 2023 the 364-days overdraft facility was extended by additional 364 days. The commitment under the overdraft facility was reduced from USD 15 million to USD 8 million based on the Group's reevaluated need.
Mortgage debt (USD '000) | Description | Interest rate | Maturity | Carrying amount |
DNB/SEB/SR-Bank/Sparebanken Vest Facility** | Term Loan/RCF, USD 190 million | Term SOFR + 2.1 % | June 2028 | 88 518 |
Nordea/Credit Agricole Facility* | Term Loan/RCF, USD 60 million | Term SOFR + 2.25 % | March 2027 | 32 294 |
Nordea/ Danske Bank Facility**/*** | Term Loan, USD 80 million | Term SOFR + CAS + 2.1 % | December 2026 | 62 588 |
Capitalized loan fees | (3 367) | |||
Mortgage debt 31 December 2023 | 180 033 |
* Potential margin adjustments up to +/- 10 bps once every year based on emission performance.
** Potential margin adjustments up to +/- 5 bps once every year based on emission performance.
*** CAS=Credit Adjusted Spread. For three months Term SOFR, the CAS is approx 0.26%\t
The Group has available and undrawn revolving credit facility capacity of USD 113 million and USD 8 million available capacity under a 364-days overdraft facility.
Bond loan | Face value (NOK \u2019000) | Year of maturity | Carrying amount (USD \u2019000) |
KCC04 | 700 000 | 11/02/2025 | 76 390 |
Realized exchange rate gain at buyback | (7 208) | ||
Buyback KCC04 (Q3 2023) | (508 500) | (54 978) | |
Exchange rate adjustment | 4 566 | ||
Capitalized expenses | (86) | ||
Bond discount | (82) | ||
SUM KCC04 | 191 500 | 18 602 | |
KCC05 | 500 000 | 05/09/2028 | 46 971 |
Exchange rate adjustments | 2 035 | ||
Capitalized expenses | (711) | ||
SUM KCC05 | 500 000 | 48 295 | |
Total bond loan | 691 500 | 66 897 |
Interest bearing liabilities (USD '000) | Fair value 31 Dec 2023 | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 |
Mortgage debt | 158 201 | 158 201 | 159 664 |
Capitalized loan fees | - | (3 367) | (3 131) |
Bond loan | 68 798 | 67 777 | 70 660 |
Bond discount | - | (82) | (158) |
Capitalized expenses bond loan | - | (797) | (527) |
Total non-current interest bearing liabilties | 226 999 | 221 732 | 226 509 |
Mortgage debt, current | 25 199 | 25 199 | 92 769 |
Overdraft facility (Secured) | - | - | 233 |
Total interest bearing liabilities | 252 198 | 246 931 | 319 511 |
Maturity profile of financial liabilities at 31 December 2023 is presented in note 16.
Covenants
As per 31 December 2023, the Group is in compliance with all financial cove-nants. On Group level the financial covenants are minimum equity (USD 125 million), minimum equity ratio (30%), and minimum cash and cash equivalents (USD 15 million). Financial covenants on KCC Bass AS level are minimum cash and cash equivalents (USD 750k). Financial covenants on KCC Shipowning AS level are minimum cash and cash equivalents (the higher of USD 10 million and 5 % of net interest-bearing debt) and net interest-bearing debt to EBITDA (NIBD/EBITDA) of max 7x. The NIBD/EBITDA ratio can be higher than 7x for one reporting period (measured semi-annually) provided that the NIBD/EBITDA was below 7x in the prior reporting period. The loan agreements also include a dividend restriction of 50% of net profit (based on audited annual consolidated accounts) if the equity ratio is below 35%. In addition, all secured loans contain minimum value clauses related to the value of the relevant vessels compared to outstanding loan and a change of control clause. In case of KCC Shipowning AS and KCC Bass AS, a change of control event occurs if the two companies cease to be owned and/or controlled, directly or indirectly, 100% (in issued shares
and voting rights) by KCC and in case of KCC, if it ceases to be owned, directly or indirectly, 33.1/3% (in issued shares and voting rights) by Trond Harald Klaveness and/or his direct lineal descendants or if any other person or group of persons acting in concert, other than Trond Harald Klaveness and/or his direct lineal descendants, directly or indirectly, gain control of 33.1/3% or more of the shares and/or voting rights in KCC.
Securities
As security for the mortgage debt, the subsidiary KCC Shiopwning AS has provided a first priority pledge in all vessels built after 2002 (13 out of 16 vessels), security in earnings accounts, and assignment of the earnings and insurances of the vessels in favour of the creditors. As security for the overdraft facility, the subsidiary KCC Chartering AS has provided security in receivables, inventory and tangible assets.
Book value of collateral and mortgaged assets (USD \u2019000) | 2023 | 2022 |
Vessels (KCCS) | 477 828 | 500 009 |
Bunkers inventory (KCCC) | 10 738 | 17 254 |
Earning accounts (KCCS) | 3 650 | 443 |
Accounts receivables (KCCC) | 24 942 | 30 061 |
Total book value of collateral and mortgaged assets | 517 159 | 547 767 |
Risk management activities
To reduce interest rate risk, the Group has entered into various interest rate derivatives, such as interest rate swaps, caps and cross-currency interest rate swap (CCIRS). Interest rate swaps and CCIRS qualify for hedge accounting. These fixed rate interest rate derivatives had a total notional amount of USD 86 million per end of 2023 and duration until 2025-2028. Interest rate swaps qualifying for hedge accounting are recognised at fair value with changes through other comprehensive Income. The Group also held interest rate options during 2023 recognised at fair value through profit and loss. During Q2 2023 the Group terminated a total of USD 71 million of notional in fixed/float interest rate swaps and a portfolio of interest rates options with remaining duration below two years. The cash proceeds from the transactions were USD
4.0 million in Q2 2023, while the realized profit and loss from the termination of the swaps will be recognized over a period equivalent to the remaining duration.
The Group had during 2023 bunker fuel swaps and forward freight agreements (FFA) that qualify for hedge accounting. The Group uses bunker fuel swaps to hedge a portion of its floating bunkers cost to a fixed cost to reduce the Group\u2019s exposure to changes in bunker prices. Similarly, the Group can use FFAs to fix freight rates in future periods to reduce its exposure to the dry bulk or product tanker freight markets (via open capacity and index linked COA commitments).
13
Financial assets and financial liabilities
Financial assets (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 1 891 | 1 272 |
Interest rate swaps | 5 762 | 11 110 |
Fuel hedge | 87 | - |
Financial instruments at fair value through P&L | ||
Forward currency contract | 285 | - |
Interest rate swaps | - | 303 |
Financial assets | 8 024 | 12 685 |
Current | 1 699 | 4 923 |
Non-current | 6 325 | 7 762 |
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial liabilities at fair value through OCI | ||||
Cross-currency interest rate swap | 985 | 2 466 | 985 | 2 466 |
Forward freight agreements | - | 249 | - | 249 |
Total financial liabilities at fair value | 985 | 2 715 | 985 | 2 715 |
Other financial liabilities at amortised cost | ||||
Accounts payable | 3 658 | 3 940 | 3 658 | 3 940 |
Interest bearing debt, non-current | 154 835 | 156 534 | 158 201 | 159 664 |
Interest bearing debt, current | 25 199 | 92 769 | 25 199 | 92 769 |
Bond loan | 66 897 | 69 975 | 68 798 | 71 160 |
Overdraft facility | - | 233 | - | 233 |
Current debt to related parties | 1 067 | 693 | 1 067 | 693 |
Total financial liabilities at amortised cost | 251 656 | 324 144 | 256 923 | 328 460 |
Total financial liabilities | 252 640 | 326 858 | 257 908 | 328 709 |
Total current | 29 924 | 97 884 | 29 924 | 97 884 |
Total non-current | 222 716 | 228 975 | 227 984 | 230 825 |
Fair value hierarchy
The fair value of the financial assets and liabilities is recognised as the value at which they could be exchanged in a transaction between willing parties other than in forced or liquidation transactions. The following methods and assump-tions were used to estimate the fair value of each class of financial instrument:
\u2022Cash and restricted cash, trade receivables, trade payables and other current liabilities are recognised at their carrying amounts largely due to the short term maturities of these instruments.
\u2022Fair value of loans from banks and other financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.
\u2022Fair value of derivatives is based on mark to market reports receivedfrom banks.
\u2022Fair value of the bond loans is based on transaction price on Oslo Stock Exchange (bond loans listed).
Accounting policy
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, such as forward currency contracts, fuel contracts and interest rate swaps to hedge its foreign currency risks, interest rate risks and to reduce exposure to volatile and potentially rising fuel costs. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as:
\u2022Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment.
\u2022Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
As per 31 December 2023 all the Group hedges are classified as cash flow hedges.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
\u2022There is an economic relationship between the hedged item and the hedging instrument.
\u2022The effect of credit risk does not dominate the value changes that result from that economic relationship.
\u2022The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in profit and loss. Amounts recognised as other comprehensive income are transferred to profit and loss when the hedged transaction effects profit and loss, such as when the hedged financial income or expense is recognised or when a forecast transaction occurs. Derivative financial instruments that are designated as, and are effective hedging instruments are separated into a current and non-current portion consistent with the classification of the underlying item.
13
Financial assets and financial liabilities
Fair value hierarchy
The Group uses financial hierarchy under IFRS 13 for determining and disclosing the fair value of financial instruments by valuation techniques. Below table presents fair value measurements to the Group's assets and liabilities at 31 December 2023.
31 December 2023 Financial assets (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial assets at fair value through P&L | ||||
Forward currency contract | - | 285 | - | 285 |
Financial assets at fair value through OCI | ||||
Cross-currency interest rate swap | - | 1 891 | - | 1 891 |
Fuel hedge | - | 87 | - | 87 |
Interest rate swaps | - | 5 762 | - | 5 762 |
31 December 2023 Financial liabilities (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial liabilities not measured at fair value, but for which fair value is disclosed | ||||
Mortgage debt, non-current | - | - | 158 201 | 158 201 |
Mortgage debt, current | - | - | 25 199 | 25 199 |
Overdraft facility | - | - | - | - |
Bond loan | - | 68 798 | - | 68 798 |
31 December 2022 Financial assets (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial assets at fair value through P&L | ||||
Interest rate swaps | - | 303 | - | 303 |
31 December 2022 Financial liabilities (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial liabilities not measured at fair value, but for which fair value is disclosed | ||||
Mortgage debt, non-current | - | - | 159 664 | 159 664 |
Mortgage debt, current | - | - | 92 769 | 92 769 |
Overdraft facility | - | - | 233 | 233 |
Bond loan | - | 71 160 | - | 71 160 |
Financial liabilities at fair value through OCI | ||||
Forward freight agreements | - | 249 | - | 249 |
Accounting policy
Fair value measurement
Derivatives are measured at fair value. The fair value of financial instru-ments traded in active markets is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. The fair value of financial instruments not traded in active markets is determined using appropriate evaluation techniques.
A fair value measurement of a non-financial asset takes into account a market participant\u2019s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market partici-pant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1\u2013 Quoted (unadjusted) market prices in active markets for identical assets and liabilities
Level 2\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instruments are included in level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. During the reporting periods there were no transfers between any of the levels.
13
Financial assets and financial liabilities
The below tables present the Group\u2019s financing arrangements as per 31 December 2023.
In June 2023 a subsidiary of KCC completed the refinancing of two mortage debt facilities falling due in December 2023 and October 2025. The two facilities were merged into one facility of USD 190 million, divided into a term loan tranche and a revolving credit tranche (50/50). The refinancing released approximately USD 38 million in additional available liquidity including undrawn capacity on the revolving credit tranche. The loan bears interest of Term SOFR + 2.1%, has a tenor of 5 years, and is repaid on a close to 18-years average age adjusted profile. The margin will be adjusted on an annual basis based on KCC's carbon intensity (EEOI) performance in relation to the trajectory in the Sustanibility-Linked Financing Framework published in June 2023.
During the first half of 2023 all relevant debt facilities were transferred from LIBOR to SOFR.
In September 2023 the Group completed a new senior unsecured sustainability-linked bond issue (KCC05) of NOK 500 million with maturity date 5 September 2028. The bond carries a coupon of 3 months NIBOR + 365 bps, and the final repayment amount is linked to the Group's carbon intensity (EEOI) performance in relation to the trajectory in the Sustainability-Linked Financing Framework published in June 2023. In conjunction with the KCC05 issue, the Group repurchased NOK 508.5 million of the KCC04 bond issue falling due in February 2025.
In December 2023 the 364-days overdraft facility was extended by additional 364 days. The commitment under the overdraft facility was reduced from USD 15 million to USD 8 million based on the Group's reevaluated need.
Mortgage debt (USD '000) | Description | Interest rate | Maturity | Carrying amount |
DNB/SEB/SR-Bank/Sparebanken Vest Facility** | Term Loan/RCF, USD 190 million | Term SOFR + 2.1 % | June 2028 | 88 518 |
Nordea/Credit Agricole Facility* | Term Loan/RCF, USD 60 million | Term SOFR + 2.25 % | March 2027 | 32 294 |
Nordea/ Danske Bank Facility**/*** | Term Loan, USD 80 million | Term SOFR + CAS + 2.1 % | December 2026 | 62 588 |
Capitalized loan fees | (3 367) | |||
Mortgage debt 31 December 2023 | 180 033 |
* Potential margin adjustments up to +/- 10 bps once every year based on emission performance.
** Potential margin adjustments up to +/- 5 bps once every year based on emission performance.
*** CAS=Credit Adjusted Spread. For three months Term SOFR, the CAS is approx 0.26%\t
The Group has available and undrawn revolving credit facility capacity of USD 113 million and USD 8 million available capacity under a 364-days overdraft facility.
Bond loan | Face value (NOK \u2019000) | Year of maturity | Carrying amount (USD \u2019000) |
KCC04 | 700 000 | 11/02/2025 | 76 390 |
Realized exchange rate gain at buyback | (7 208) | ||
Buyback KCC04 (Q3 2023) | (508 500) | (54 978) | |
Exchange rate adjustment | 4 566 | ||
Capitalized expenses | (86) | ||
Bond discount | (82) | ||
SUM KCC04 | 191 500 | 18 602 | |
KCC05 | 500 000 | 05/09/2028 | 46 971 |
Exchange rate adjustments | 2 035 | ||
Capitalized expenses | (711) | ||
SUM KCC05 | 500 000 | 48 295 | |
Total bond loan | 691 500 | 66 897 |
Interest bearing liabilities (USD '000) | Fair value 31 Dec 2023 | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 |
Mortgage debt | 158 201 | 158 201 | 159 664 |
Capitalized loan fees | - | (3 367) | (3 131) |
Bond loan | 68 798 | 67 777 | 70 660 |
Bond discount | - | (82) | (158) |
Capitalized expenses bond loan | - | (797) | (527) |
Total non-current interest bearing liabilties | 226 999 | 221 732 | 226 509 |
Mortgage debt, current | 25 199 | 25 199 | 92 769 |
Overdraft facility (Secured) | - | - | 233 |
Total interest bearing liabilities | 252 198 | 246 931 | 319 511 |
Maturity profile of financial liabilities at 31 December 2023 is presented in note 16.
Covenants
As per 31 December 2023, the Group is in compliance with all financial cove-nants. On Group level the financial covenants are minimum equity (USD 125 million), minimum equity ratio (30%), and minimum cash and cash equivalents (USD 15 million). Financial covenants on KCC Bass AS level are minimum cash and cash equivalents (USD 750k). Financial covenants on KCC Shipowning AS level are minimum cash and cash equivalents (the higher of USD 10 million and 5 % of net interest-bearing debt) and net interest-bearing debt to EBITDA (NIBD/EBITDA) of max 7x. The NIBD/EBITDA ratio can be higher than 7x for one reporting period (measured semi-annually) provided that the NIBD/EBITDA was below 7x in the prior reporting period. The loan agreements also include a dividend restriction of 50% of net profit (based on audited annual consolidated accounts) if the equity ratio is below 35%. In addition, all secured loans contain minimum value clauses related to the value of the relevant vessels compared to outstanding loan and a change of control clause. In case of KCC Shipowning AS and KCC Bass AS, a change of control event occurs if the two companies cease to be owned and/or controlled, directly or indirectly, 100% (in issued shares
and voting rights) by KCC and in case of KCC, if it ceases to be owned, directly or indirectly, 33.1/3% (in issued shares and voting rights) by Trond Harald Klaveness and/or his direct lineal descendants or if any other person or group of persons acting in concert, other than Trond Harald Klaveness and/or his direct lineal descendants, directly or indirectly, gain control of 33.1/3% or more of the shares and/or voting rights in KCC.
Book value of collateral and mortgaged assets (USD \u2019000) | 2023 | 2022 |
Vessels (KCCS) | 477 828 | 500 009 |
Bunkers inventory (KCCC) | 10 738 | 17 254 |
Earning accounts (KCCS) | 3 650 | 443 |
Accounts receivables (KCCC) | 24 942 | 30 061 |
Total book value of collateral and mortgaged assets | 517 159 | 547 767 |
Risk management activities
To reduce interest rate risk, the Group has entered into various interest rate derivatives, such as interest rate swaps, caps and cross-currency interest rate swap (CCIRS). Interest rate swaps and CCIRS qualify for hedge accounting. These fixed rate interest rate derivatives had a total notional amount of USD 86 million per end of 2023 and duration until 2025-2028. Interest rate swaps qualifying for hedge accounting are recognised at fair value with changes through other comprehensive Income. The Group also held interest rate options during 2023 recognised at fair value through profit and loss. During Q2 2023 the Group terminated a total of USD 71 million of notional in fixed/float interest rate swaps and a portfolio of interest rates options with remaining duration below two years. The cash proceeds from the transactions were USD
4.0 million in Q2 2023, while the realized profit and loss from the termination of the swaps will be recognized over a period equivalent to the remaining duration.
The Group had during 2023 bunker fuel swaps and forward freight agreements (FFA) that qualify for hedge accounting. The Group uses bunker fuel swaps to hedge a portion of its floating bunkers cost to a fixed cost to reduce the Group\u2019s exposure to changes in bunker prices. Similarly, the Group can use FFAs to fix freight rates in future periods to reduce its exposure to the dry bulk or product tanker freight markets (via open capacity and index linked COA commitments).
13
Financial assets and financial liabilities
Financial assets (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 1 891 | 1 272 |
Interest rate swaps | 5 762 | 11 110 |
Fuel hedge | 87 | - |
Financial instruments at fair value through P&L | ||
Forward currency contract | 285 | - |
Interest rate swaps | - | 303 |
Financial assets | 8 024 | 12 685 |
Current | 1 699 | 4 923 |
Non-current | 6 325 | 7 762 |
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
Fair value hierarchy
The fair value of the financial assets and liabilities is recognised as the value at which they could be exchanged in a transaction between willing parties other than in forced or liquidation transactions. The following methods and assump-tions were used to estimate the fair value of each class of financial instrument:
\u2022Cash and restricted cash, trade receivables, trade payables and other current liabilities are recognised at their carrying amounts largely due to the short term maturities of these instruments.
\u2022Fair value of loans from banks and other financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.
\u2022Fair value of derivatives is based on mark to market reports receivedfrom banks.
\u2022Fair value of the bond loans is based on transaction price on Oslo Stock Exchange (bond loans listed).
Fair value hierarchy
The Group uses financial hierarchy under IFRS 13 for determining and disclosing the fair value of financial instruments by valuation techniques. Below table presents fair value measurements to the Group's assets and liabilities at 31 December 2023.
31 December 2023 Financial assets (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial assets at fair value through P&L | ||||
Forward currency contract | - | 285 | - | 285 |
Financial assets at fair value through OCI | ||||
Cross-currency interest rate swap | - | 1 891 | - | 1 891 |
Fuel hedge | - | 87 | - | 87 |
Interest rate swaps | - | 5 762 | - | 5 762 |
31 December 2023 Financial liabilities (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial liabilities not measured at fair value, but for which fair value is disclosed | ||||
Mortgage debt, non-current | - | - | 158 201 | 158 201 |
Mortgage debt, current | - | - | 25 199 | 25 199 |
Overdraft facility | - | - | - | - |
Bond loan | - | 68 798 | - | 68 798 |
31 December 2022 Financial assets (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial assets at fair value through P&L | ||||
Interest rate swaps | - | 303 | - | 303 |
31 December 2022 Financial liabilities (USD \u2019000) | Level 1 | Level 2 | Level 3 | Total |
Financial liabilities not measured at fair value, but for which fair value is disclosed | ||||
Mortgage debt, non-current | - | - | 159 664 | 159 664 |
Mortgage debt, current | - | - | 92 769 | 92 769 |
Overdraft facility | - | - | 233 | 233 |
Bond loan | - | 71 160 | - | 71 160 |
Financial liabilities at fair value through OCI | ||||
Forward freight agreements | - | 249 | - | 249 |
13
Financial assets and financial liabilities
Financial assets (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 1 891 | 1 272 |
Interest rate swaps | 5 762 | 11 110 |
Fuel hedge | 87 | - |
Financial instruments at fair value through P&L | ||
Forward currency contract | 285 | - |
Interest rate swaps | - | 303 |
Financial assets | 8 024 | 12 685 |
Current | 1 699 | 4 923 |
Non-current | 6 325 | 7 762 |
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
14
Trade receivables and other current assets
(USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Trade receivables from charterers | 15 497 | 13 629 |
Contract assets | 6 454 | 9 663 |
Prepaid expenses | 2 749 | 3 437 |
Claims | 70 | 165 |
Other short term receivables | 173 | 3 167 |
Trade receivables and other current assets | 24 942 | 30 061 |
Accounts receivable comprise all items that fall due for payment within one year after the balance sheet date. For dry bulk cargo lifted, payment is generally due within 10 days after the cargo is loaded, while payment for wet cargo is due immediately upon discharge. Trade receivables are non-interest bearing.
13
Financial assets and financial liabilities
Financial assets (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 1 891 | 1 272 |
Interest rate swaps | 5 762 | 11 110 |
Fuel hedge | 87 | - |
Financial instruments at fair value through P&L | ||
Forward currency contract | 285 | - |
Interest rate swaps | - | 303 |
Financial assets | 8 024 | 12 685 |
Current | 1 699 | 4 923 |
Non-current | 6 325 | 7 762 |
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
14
Trade receivables and other current assets
(USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Trade receivables from charterers | 15 497 | 13 629 |
Contract assets | 6 454 | 9 663 |
Prepaid expenses | 2 749 | 3 437 |
Claims | 70 | 165 |
Other short term receivables | 173 | 3 167 |
Trade receivables and other current assets | 24 942 | 30 061 |
Accounts receivable comprise all items that fall due for payment within one year after the balance sheet date. For dry bulk cargo lifted, payment is generally due within 10 days after the cargo is loaded, while payment for wet cargo is due immediately upon discharge. Trade receivables are non-interest bearing.
13
Financial assets and financial liabilities
Financial assets (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 1 891 | 1 272 |
Interest rate swaps | 5 762 | 11 110 |
Fuel hedge | 87 | - |
Financial instruments at fair value through P&L | ||
Forward currency contract | 285 | - |
Interest rate swaps | - | 303 |
Financial assets | 8 024 | 12 685 |
Current | 1 699 | 4 923 |
Non-current | 6 325 | 7 762 |
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
13
Financial assets and financial liabilities
Financial assets (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 1 891 | 1 272 |
Interest rate swaps | 5 762 | 11 110 |
Fuel hedge | 87 | - |
Financial instruments at fair value through P&L | ||
Forward currency contract | 285 | - |
Interest rate swaps | - | 303 |
Financial assets | 8 024 | 12 685 |
Current | 1 699 | 4 923 |
Non-current | 6 325 | 7 762 |
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial liabilities at fair value through OCI | ||||
Cross-currency interest rate swap | 985 | 2 466 | 985 | 2 466 |
Forward freight agreements | - | 249 | - | 249 |
Total financial liabilities at fair value | 985 | 2 715 | 985 | 2 715 |
Other financial liabilities at amortised cost | ||||
Accounts payable | 3 658 | 3 940 | 3 658 | 3 940 |
Interest bearing debt, non-current | 154 835 | 156 534 | 158 201 | 159 664 |
Interest bearing debt, current | 25 199 | 92 769 | 25 199 | 92 769 |
Bond loan | 66 897 | 69 975 | 68 798 | 71 160 |
Overdraft facility | - | 233 | - | 233 |
Current debt to related parties | 1 067 | 693 | 1 067 | 693 |
Total financial liabilities at amortised cost | 251 656 | 324 144 | 256 923 | 328 460 |
Total financial liabilities | 252 640 | 326 858 | 257 908 | 328 709 |
Total current | 29 924 | 97 884 | 29 924 | 97 884 |
Total non-current | 222 716 | 228 975 | 227 984 | 230 825 |
Fair value hierarchy
The fair value of the financial assets and liabilities is recognised as the value at which they could be exchanged in a transaction between willing parties other than in forced or liquidation transactions. The following methods and assump-tions were used to estimate the fair value of each class of financial instrument:
\u2022Cash and restricted cash, trade receivables, trade payables and other current liabilities are recognised at their carrying amounts largely due to the short term maturities of these instruments.
\u2022Fair value of loans from banks and other financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.
\u2022Fair value of derivatives is based on mark to market reports receivedfrom banks.
\u2022Fair value of the bond loans is based on transaction price on Oslo Stock Exchange (bond loans listed).
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial liabilities at fair value through OCI | ||||
Cross-currency interest rate swap | 985 | 2 466 | 985 | 2 466 |
Forward freight agreements | - | 249 | - | 249 |
Total financial liabilities at fair value | 985 | 2 715 | 985 | 2 715 |
Other financial liabilities at amortised cost | ||||
Accounts payable | 3 658 | 3 940 | 3 658 | 3 940 |
Interest bearing debt, non-current | 154 835 | 156 534 | 158 201 | 159 664 |
Interest bearing debt, current | 25 199 | 92 769 | 25 199 | 92 769 |
Bond loan | 66 897 | 69 975 | 68 798 | 71 160 |
Overdraft facility | - | 233 | - | 233 |
Current debt to related parties | 1 067 | 693 | 1 067 | 693 |
Total financial liabilities at amortised cost | 251 656 | 324 144 | 256 923 | 328 460 |
Total financial liabilities | 252 640 | 326 858 | 257 908 | 328 709 |
Total current | 29 924 | 97 884 | 29 924 | 97 884 |
Total non-current | 222 716 | 228 975 | 227 984 | 230 825 |
Financial liabilities (USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Financial instruments at fair value through OCI | ||
Cross-currency interest rate swap | 985 | 2 466 |
Forward freight agreements (FFA) | - | 249 |
Financial liabilities | 985 | 2 715 |
Current | 328 | 249 |
Non-current | 657 | 2 466 |
Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial assets and liabilities included in the financial statements.
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial assets at fair value through OCI | ||||
Interest rate swaps | 5 762 | 11 110 | 5 762 | 11 110 |
Fuel hedge | 87 | - | 87 | - |
Cross-currency interest rate swap | 1 891 | 1 272 | 1 891 | 1 272 |
Financial assets at fair value through P&L | ||||
Forward currency contract | 285 | - | 285 | - |
Interest rate swaps | - | 303 | - | 303 |
Total financial assets at fair value | 8 024 | 12 685 | 8 024 | 12 685 |
Financial assets measured at amortised costs | ||||
Accounts receivable | 15 497 | 13 629 | 15 497 | 13 629 |
Receivables from related parties | 110 | 202 | 110 | 202 |
Total financial assets measured at amortised costs | 15 607 | 13 831 | 15 607 | 13 831 |
Cash and cash equivalents | 68 071 | 64 918 | 68 071 | 64 918 |
Total financial assets | 91 703 | 91 434 | 91 703 | 91 434 |
Total current | 85 271 | 83 602 | 85 271 | 83 602 |
Total non-current | 6 432 | 7 832 | 6 432 | 7 832 |
(USD \u2018000) | Carrying amount 31 Dec 2023 | Carrying amount 31 Dec 2022 | Fair value 31 Dec 2023 | Fair value 31 Dec 2022 |
Financial liabilities at fair value through OCI | ||||
Cross-currency interest rate swap | 985 | 2 466 | 985 | 2 466 |
Forward freight agreements | - | 249 | - | 249 |
Total financial liabilities at fair value | 985 | 2 715 | 985 | 2 715 |
Other financial liabilities at amortised cost | ||||
Accounts payable | 3 658 | 3 940 | 3 658 | 3 940 |
Interest bearing debt, non-current | 154 835 | 156 534 | 158 201 | 159 664 |
Interest bearing debt, current | 25 199 | 92 769 | 25 199 | 92 769 |
Bond loan | 66 897 | 69 975 | 68 798 | 71 160 |
Overdraft facility | - | 233 | - | 233 |
Current debt to related parties | 1 067 | 693 | 1 067 | 693 |
Total financial liabilities at amortised cost | 251 656 | 324 144 | 256 923 | 328 460 |
Total financial liabilities | 252 640 | 326 858 | 257 908 | 328 709 |
Total current | 29 924 | 97 884 | 29 924 | 97 884 |
Total non-current | 222 716 | 228 975 | 227 984 | 230 825 |
Accounting policy
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, such as forward currency contracts, fuel contracts and interest rate swaps to hedge its foreign currency risks, interest rate risks and to reduce exposure to volatile and potentially rising fuel costs. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as:
\u2022Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment.
\u2022Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
As per 31 December 2023 all the Group hedges are classified as cash flow hedges.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
\u2022There is an economic relationship between the hedged item and the hedging instrument.
\u2022The effect of credit risk does not dominate the value changes that result from that economic relationship.
\u2022The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in profit and loss. Amounts recognised as other comprehensive income are transferred to profit and loss when the hedged transaction effects profit and loss, such as when the hedged financial income or expense is recognised or when a forecast transaction occurs. Derivative financial instruments that are designated as, and are effective hedging instruments are separated into a current and non-current portion consistent with the classification of the underlying item.
Accounting policy
Fair value measurement
Derivatives are measured at fair value. The fair value of financial instru-ments traded in active markets is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. The fair value of financial instruments not traded in active markets is determined using appropriate evaluation techniques.
A fair value measurement of a non-financial asset takes into account a market participant\u2019s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market partici-pant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1\u2013 Quoted (unadjusted) market prices in active markets for identical assets and liabilities
Level 2\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instruments are included in level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. During the reporting periods there were no transfers between any of the levels.
Accounting policy
Fair value measurement
Derivatives are measured at fair value. The fair value of financial instru-ments traded in active markets is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. The fair value of financial instruments not traded in active markets is determined using appropriate evaluation techniques.
A fair value measurement of a non-financial asset takes into account a market participant\u2019s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market partici-pant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1\u2013 Quoted (unadjusted) market prices in active markets for identical assets and liabilities
Level 2\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instruments are included in level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. During the reporting periods there were no transfers between any of the levels.
Accounting policy
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, such as forward currency contracts, fuel contracts and interest rate swaps to hedge its foreign currency risks, interest rate risks and to reduce exposure to volatile and potentially rising fuel costs. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as:
\u2022Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment.
\u2022Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
As per 31 December 2023 all the Group hedges are classified as cash flow hedges.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
\u2022There is an economic relationship between the hedged item and the hedging instrument.
\u2022The effect of credit risk does not dominate the value changes that result from that economic relationship.
\u2022The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in profit and loss. Amounts recognised as other comprehensive income are transferred to profit and loss when the hedged transaction effects profit and loss, such as when the hedged financial income or expense is recognised or when a forecast transaction occurs. Derivative financial instruments that are designated as, and are effective hedging instruments are separated into a current and non-current portion consistent with the classification of the underlying item.
Accounting policy
Fair value measurement
Derivatives are measured at fair value. The fair value of financial instru-ments traded in active markets is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. The fair value of financial instruments not traded in active markets is determined using appropriate evaluation techniques.
A fair value measurement of a non-financial asset takes into account a market participant\u2019s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market partici-pant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1\u2013 Quoted (unadjusted) market prices in active markets for identical assets and liabilities
Level 2\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instruments are included in level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. During the reporting periods there were no transfers between any of the levels.
Accounting policy
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, such as forward currency contracts, fuel contracts and interest rate swaps to hedge its foreign currency risks, interest rate risks and to reduce exposure to volatile and potentially rising fuel costs. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as:
\u2022Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment.
\u2022Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
As per 31 December 2023 all the Group hedges are classified as cash flow hedges.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
\u2022There is an economic relationship between the hedged item and the hedging instrument.
\u2022The effect of credit risk does not dominate the value changes that result from that economic relationship.
\u2022The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in profit and loss. Amounts recognised as other comprehensive income are transferred to profit and loss when the hedged transaction effects profit and loss, such as when the hedged financial income or expense is recognised or when a forecast transaction occurs. Derivative financial instruments that are designated as, and are effective hedging instruments are separated into a current and non-current portion consistent with the classification of the underlying item.
Accounting policy
Fair value measurement
Derivatives are measured at fair value. The fair value of financial instru-ments traded in active markets is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. The fair value of financial instruments not traded in active markets is determined using appropriate evaluation techniques.
A fair value measurement of a non-financial asset takes into account a market participant\u2019s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market partici-pant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1\u2013 Quoted (unadjusted) market prices in active markets for identical assets and liabilities
Level 2\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instruments are included in level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. During the reporting periods there were no transfers between any of the levels.
Accounting policy
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, such as forward currency contracts, fuel contracts and interest rate swaps to hedge its foreign currency risks, interest rate risks and to reduce exposure to volatile and potentially rising fuel costs. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as:
\u2022Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment.
\u2022Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
As per 31 December 2023 all the Group hedges are classified as cash flow hedges.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
\u2022There is an economic relationship between the hedged item and the hedging instrument.
\u2022The effect of credit risk does not dominate the value changes that result from that economic relationship.
\u2022The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in profit and loss. Amounts recognised as other comprehensive income are transferred to profit and loss when the hedged transaction effects profit and loss, such as when the hedged financial income or expense is recognised or when a forecast transaction occurs. Derivative financial instruments that are designated as, and are effective hedging instruments are separated into a current and non-current portion consistent with the classification of the underlying item.
Accounting policy
Fair value measurement
Derivatives are measured at fair value. The fair value of financial instru-ments traded in active markets is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. The fair value of financial instruments not traded in active markets is determined using appropriate evaluation techniques.
A fair value measurement of a non-financial asset takes into account a market participant\u2019s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market partici-pant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1\u2013 Quoted (unadjusted) market prices in active markets for identical assets and liabilities
Level 2\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3\u2013 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instruments are included in level 2.
If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. During the reporting periods there were no transfers between any of the levels.
14
Trade receivables and other current assets
(USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Trade receivables from charterers | 15 497 | 13 629 |
Contract assets | 6 454 | 9 663 |
Prepaid expenses | 2 749 | 3 437 |
Claims | 70 | 165 |
Other short term receivables | 173 | 3 167 |
Trade receivables and other current assets | 24 942 | 30 061 |
Accounts receivable comprise all items that fall due for payment within one year after the balance sheet date. For dry bulk cargo lifted, payment is generally due within 10 days after the cargo is loaded, while payment for wet cargo is due immediately upon discharge. Trade receivables are non-interest bearing.
15
Cash and cash equivalents
The Group has bank deposits in the following currencies:
(USD '000) | 31 Dec 2023 | 31 Dec 2022 |
Bank deposits, NOK | 1 045 | 1 861 |
Bank deposits, USD | 63 784 | 58 782 |
Bank deposits, EUR | 2 662 | 3 730 |
Bank deposits, other | 11 | 65 |
Cash | 391 | 410 |
Payroll withholding tax account (restricted cash, NOK) | 178 | 69 |
Total cash and cash equivalents | 68 071 | 64 918 |
Cash includes cash in hand, bank deposits and other highly liquid investments with original maturities of three months or less.
16
Financial risk management
Capital management
The Group intends to maintain an efficient capital structure, provide financial ability to execute on the strategy and ensure the Group has sufficient liquidity to meet liabilities and commitments as they fall due. KCC targets to have an equity ratio above 40% and gearing ratio (NIBD/EBITDA adjusted for delivery/sale of vessels) of below 5x with flexibility to stretch key ratios in some periods, for example in periods with growth. Furthermore, KCC shall have sufficient funds to withstand at least twelve months of weak markets/ earnings. The equity ratio as of 31 December 2023 was 58% (2022: 46%) and cash was USD 68.1 million (2022: USD 64.9 million). In addition, the Group had USD 121 million in undrawn revolving and overdraft credit facilities available as of 31 December 2023. The Group's covenants are described in note 13.
The capital structure and dividend payments are considered in view of debt service ability, capital commitments and expectations of future cash flows. Available cash, loan covenants and the balance sheet composition are moni-tored to make sure that the Group has the necessary financial strength to continue operating as a going concern.
The Group aims to spend free cash flows as follows:
\u2022Maintain sufficient financial capacity. To accommodate the business\u00a0strategy KCC must maintain sufficient financial capacity, prepare for future\u00a0uncertainty and see through the cycle by having a solid capital structure and\u00a0available liquidity position and active and strong risk management.
\u2022Maintain an attractive dividend policy and when relevant share\u00a0repurchase programs: KCC intends on a quarterly basis to distribute a\u00a0minimum 80% of free cash flow generation to equity after debt service and\u00a0maintenance capex to its shareholders, provided that all known, future capital\u00a0and debt commitments are accounted for, and the Company\u2019s financial\u00a0standing remains acceptable. The main way of distribution\u00a0is through\u00a0dividends, but the Board of Directors will evaluate if share buy-back programs should be\u00a0part of the mix under the 80% policy.
The Group's capital structure consists of mortgage debt (note 13), bond loan (note 13), overdraft facility (note 13), cash and cash equivalents (note 15) and equity attributable to the shareholders.
Risk Management
The objective for the Company\u2019s risk management and internal control is to manage, rather than eliminate exposure to risks to successfully conduct the Group\u2019s business and to support the quality of its financial reporting. The Group is exposed to a variety of risks from its operations in shipping markets e.g., freight rate risk, bunker fuel price risk, as well as risks relating to foreign currency exchange rates, interest rate, counterparties (including credit), operations, technical, geopolitical, regulations and other risks. Financial risk management is handled by the Group as part of its operations. The management team identifies, evaluates and manages financial risks in close co-operation with all operating units. The Board of Directors reviews and approves policies for overall risk management, as well as for specific areas, such as foreign exchange risk, interest rate risk, credit risk and use of derivative and non-derivative financial instruments.
Risk management activities to reduce interest rate risk, freight rate risk and bunker fuel risk are further described innote 13.
The risk assessment is a multi-disciplinary process generally performed several times throuh the year. The value chain is assessed both upstream and downstream in addition to direct effects on KCC\u2019s business activities. All relevant risks are assessed based on defined impact and probability levels and focus for the next 12 months.
In addition to the specific assessment for the rolling 12 months period, an assessment of the long-term risk is included from time to time and at least on an annual basis.
The risk management process includes the following:
*The finance team (in close corporation with commercial, technical and management) assesses the overall risk development with focus on main risks and new risks discovered, including assessing impact and probability for each risk and define potential mitigating actions for the main risks
*The main risks are reported and discussed with the Audit Committee and the Board of Directors. A main risk is a risk already identified and well understood that could materially impact the financial results, reputation, business model, or strategy
*When the combination of probability and impact is higher than what is acceptable, mitigating actions are implemented either based on management decision or if relevant, after discussions with the Board of Directors.
Main risks
The following table presents the risks considered to be the main risks for KCC over the next 12 months and the main longer-term risks.
Risk | Description | Risk type |
Main risks next 12 months | ||
Weak freight rates and changes in trade flows | ||
The Group's primary revenue driver is freight rates. A decline in freight rates for dry bulk commodities, caustic soda, or clean petroleum products can significantly impact the financial performance of the Group. Strong product tanker outlook for 2024 implies substantial downside risk assuming reversion to mean. However, the impact of lower freight rates is somewhat mitigated by the historically low correlation between dry bulk and product tanker freight rates. The product tanker market exposure for the next 12 months is partly mitigated by a ~40% coverage through fixed-rate contracts for the CABU vessels for 2024, and one CLEANBU vessel employed on a time charter contract through 2024. The Group is dependent on certain trade flows to obtain efficient combination trading. Production issues at plants, mines, and refineries in export or import regions, difference in regional commodity prices (arbitrage opportunities) as well as regional and global wars, conflicts and sanctions may impact these trade flows. Unfavourable changes in trade flows and volumes may adversely affect the Group\u2019s earnings and financial position. This is exemplified by the ongoing conflict between Russia and Ukraine, which has significantly influenced trade flows for both dry bulk commodities and clean petroleum products. Faced with trade sanctions from Europe, Russia has adjusted fuel prices to remain competitive in alternative markets. Consequently, Russia emerged as the primary foreign supplier of diesel to Brazil this year, adversely affecting non-Russian importers like KCC. To mitigate this risk, the Group relies on maintaining flexibility in its trade flows. In this particular instance, the Group successfully redirected its trade flows from Brazil to the US Gulf. Moreover, an Australian alumina producer, has revealed its intention to cease production at one of its alumina refineries in Western Australia in 2024. This could potentially impact the Group's caustic soda freight volume to Australia and hence its ability to employ all CABU vessel capacity in efficient combination trades. | Market | |
CLEANBU commercial and technical performance\t | ||
Introduction of new vessel concepts such as the CLEANBUs entails commercial and technical risks. Acceptance and/or exemptions are required in relation to the CLEANBU vessels from clients and terminals where policies may require clean petroleum products (CPP) as the last cargo or the three last cargoes to avoid cargo contamination or where policies may exclude the use of combination carriers like the CLEANBU vessels. Should the Group not obtain the relevant acceptances or exemptions from clients or terminals, this may have a material adverse effect on the operations of the CLEANBU vessels and consequently the Group's operations and results. Although CLEANBU commercial and technical performance was strong and continued to improve in 2023, among other things due to increased experience in transitioning between wet and dry cargoes and gaining wider acceptance from new customers and type of cargoes, it is important to acknowledge that commercial and technical risks still remain, which may adversely affect the Group\u2019s earnings and financial position. | Operational & technical | |
Vessel age | ||
Due to stricter environmental regulations and customer requirements, older tonnage is in danger of both being rerated, has a higher risk of being detained and losing competitiveness to more modern tonnage. The consequences can be lower utilization due to more waiting time, risk of increased discounts and in worst case not being accepted by some customers. For the Group this can result in less flexibility and lower net revenue for the oldest vessels in the fleet. As per year-end 2023, the Group owns three CABU vessels above 20 year age. Two of the CABU vessels built 2001 were detained by Australian Maritime Safety Authority in Q4 2023 partly due to the age of the vessels. So far, the detentions have not had financial impact, but this might have consequences for the trading efficiency and customer acceptance going forward and hence have financial impact. | Operational & technical |
16
Financial risk management
Risk | Description | Risk type |
Main risks next 12 months | ||
Retrofit project | ||
In 2023, the Group retrofitted one vessel an air lubrication system and a shaft generator to reduce fuel consumption. The second vessel will be completed during Q1 2024 and additional four vessels will go through the same procedure in 2024/2025. One of the main pillars of the Group's strategy is to improve the energy efficiency of the existing vessels, aligned with its emission reduction ambition. Success depends on the ability to deliver on retrofit/energy saving device projects at the budgeted cost and time, and that the retrofits deliver the estimated fuel/emission savings. The emission reduction from the initial retrofitted vessel align with expectations, although costs and time somewhat exceeded the budget. However, the experience gained has significantly reduced this risk for similar retrofit projects in the future. Moving forward, the Group faces due diligence risk as it considers new investments in energy efficiency. Being an early adopter of certain measures, there is a lack of large-scale testing prior to installation, introducing an element of risk. | Operational & technical | |
Increased geopolitical tension | ||
The Group faces geopolitical risks arising from territorial and other disputes between countries, war, political instability, terrorism and pircay, as exemplified by the war in Ukraine, the war in Gaza and the Houthi attacks in the Red Sea as well as acts of piracy affecting ocean-going vessels in regions such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia. Such risks might impact KCC's costs e.g. crew cost and insurance premiums, as well as revenue both through indirect effects on the markets KCC operates in and directly through the ability to trade in certain areas or the Group's ability to employ the vessels in efficient combination trades which may have a material adverse effect on the Group's business, financial results and operations. | Market | |
CABU caustic soda contracts | The Group is, to a certain degree, dependent on a limited number of key customers and renewal of key/material contracts with these customers, particularly related to caustic soda transportation. Lack of renewal of such contracts and unfavorable changes in trade flows and volumes may adversely affect the Group\u2019s earnings and financial position. | Market |
Risk | Description | Risk type |
Main long-term risks | ||
Global economic growth and the impact on energy and commodity markets | ||
The general development of the global economy, in particular the oil and commodities markets, may affect demand and the profitability of the Group companies. Furthermore, the demand for seaborne transportation is dependent on open economies and low barriers to trade. There has historically been a strong link between the development of the world economy and demand for dry bulk and oil commodities. A period of deterioration in the outlook for the world economy could reduce the overall demand for these commodities and for the Group's services. Trade restrictions such as tariffs and embargos can have a negative impact on the demand for seaborne transportation.\u00a0This may lead to a downturn in the future prospects of the sectors the Group has invested in and, impact revenues negatively and may also make it more difficult to raise equity or loan capital. | Market | |
Impact of a low-carbon future with introduction of emission regulations, zero-emission vessels and lower demand for transportation of fossil fuels | ||
A move to a low-carbon economy can potentially have material negative impact on the Group through several ways: \u2022 Emerging propulsion technologies and fuels might have a material negative impact on the competitiveness of the Group\u2019s existing fleet and might result in lower revenue and/or impairment of vessel values. The diversity in alternatives increases the risk of selecting the wrong technology. \u2022 New regulations can lead to material cost related to upgrades and retrofits to comply with regulations and / or material impairment of operational flexibility and / or operational limitations. Ultimately, it could lead to higher vessel recycling activity and/or stranded vessels for vessels that are not compliant. \u2022 Increased pressure on financial institutions to incentivize reduction in CO2-emissions and new regulations, such as the EU taxonomy, can reduce and restrict access to capital or increase the cost of capital and breakeven levels. \u2022 The demand for transportation of fossil fuels might be materially negatively impacted and hence the demand for dry bulk and product tanker vessels. \u2022 New customer requirements can have a negative impact on the Group\u2019s competitive position. \u2022 New carbon price regulations, such as the EU ETS, may lead to increased operating cost. | Climate- related | |
Newbuilds | ||
The CABU newbuilds are an upgraded design based on the existing CABU design for vessels built 2016-2017 and experience gained through the design and construction of the CLEANBU vessels built at the same shipyard in 2019-2021. There is technical, operational and commercial risk that the CABU newbuilds are not working as intended, negatively impacting the earnings capacity of the vessels and/or the vessel values. | Operational and technical |
Risk types
The risks have been divided into the following categories
Operational and technical risk
Operational risks are mainly related to the operation of vessels. The Group\u2019s vessels are on technical management to Klaveness Ship Management AS (affil-iated company) which ensures compliance with IMO, flag, class and port state regulations. Quality and safety audits are performed regularly and the crew and officers onboard are trained to ensure that regulatory requirements are met.
Operational risk is managed through quality assurance procedures and systematic training of crew and land-based employees. All vessels sailing through piracy exposed areas take necessary steps to mitigate the threat of such attacks. Operational risk is also covered by insurance where relevant to cover loss of assets, revenues and contract commitments. The vessels are insured for loss of hire, war risk, protection and indemnity (P&I), physical damage to vessel and its equipment (Hull and Machinery) and total loss. The latter is aligned with vessel values and loan agreements. The financial impact of a total loss of a vessel will not be material for the Group.
Market risk
The Group is exposed to the volatile nature of the dry bulk and product tanker shipping markets. Fluctuations in freight rates, vessel values, profitability, and cash flow, along with the risk of impairment of book values and breaches of financial covenants, are inherent in cyclical shipping markets. These fluctuations are influenced by imbalances in supply of vessel capacity and demand for global seaborn transportation of commodities. Since these dynamics are beyond the Group's control and unpredictable, their impact on business conditions is uncertain. A downturn in the relevant markets could significantly impact the Group's operations, financials, and cash flow. To manage these risks, the Group uses contracts of affreightment (COA) and forward freight agreements (FFA) to cover part of its future exposure.
The Group faces exposure to fluctuating bunker fuel prices, which are unpredictable and influenced by factors beyond the Group's control, including geopolitical events, oil and gas supply and demand, OPEC actions, regional unrest, production patterns, and environmental considerations. To manage this risk, the Group may hedge bunker fuel exposure or incorporate bunker adjustment factors (BAF) into contracts. However, quantifying future bunker fuel needs for specific voyages and obtaining hedges for non-standard volumes pose challenges, introducing risk. While the Group's size and diversification mitigate this risk overall, it may impact the Group's financials.
From 1 January 2024, shipping is part of EU's emission trading system (EU ETS). The Group must submit allowances for 100% of emissions for voyages within EU, and 50% of voyages in and out of EU (including ballast leg). The\u00a0share of emissions that must be covered by allowances gradually increases each year from 40% of emissions reported for 2024, 70% of emissions reported for 2025 and from 2026 100% of reported emissions. The Group has a limited exposure as KCC's vessels have a limited part of their trading in and out of EU (2 voyages in 2023, estimated to be approximately USD 110k exposure if these two voyages were performed in 2024). The cost will in most cases be covered by the customer. The Group had no allowances per year-end 2023.
Foreign currency risk and interest rate risk
The Groups's functional currency is USD, including all significant entities in the Group. The Group's operating revenue, the majority of its interest-bearing debt and contractual obligations for vessels under construction are denominated in USD. The Group is exposed to foreign currency exchange risks for adminis-trative and operational expenses incurred by offices, vessel operations or agents globally, predominantly in NOK, EUR and AUD. Further, the Group is required to pay dividends and tax payable in NOK. In connection with energy efficiency investments, where some of the payments are EUR, there may also be a currency risk. As such, KCC may from time to time, enter into derivative contracts in order to hedge currency risk related to its fixed expenses. As of year end, these risks are considered to be limited.
All interest-bearing debt is denominated in USD, except for bonds issued in NOK. Loans have various amortization profiles, but the majority are floating rate with CME Term SOFR as a benchmark. The Group's bond loans denomi-nated in NOK are also swapped to USD with fixed interest rate or floating interest rate with CME Term SOFR as benchmark. The Group uses financial interest rate derivatives, mainly interest rate swaps, to reduce the unwanted variability of interest expenses due to changes in the benchmark. As of 31 December 2023, 29% of the floating interest mortage debt loans are hedged including undrawn RCF commitments and 42% on drawn amount per year-end 2023. The Group evaluates on an ongoing basis the need to adjust interest rate exposure and coverage rate.
The table below shows estimated changes in profit before tax for the Group from changes in interest rates in 2023 and 2022, with all other variables held constant. The changes are estimated based on a change in variable interest rate benchmarks given capital structure excluding drawdown on available RCF capacity net of hedges as of year-end 2023 and year-end 2022. In 2023 for every 100 bps increase in index interest rate, interest costs on debt increases by approx. USD 0.7 million.
Change in bps (effect in USD\u2019000) | 2023 | 2022 |
+100 | -743 | -1041 |
+50 | -371 | -521 |
-50 | 371 | 521 |
-100 | 743 | 1041 |
Counterparty/credit risk
Counterparty risk is managed by mandates approved by the Board of Directors and know your counterparty (KYC) procedures. The counterparty mandates set out the exposure (amount and duration) permitted for a given counterparty based on that counterparty\u2019s credit standing.
The Group is exposed to counterparty risk, inter alia and in particular under fixed-rate contract of affreightments (COAs). For various reasons, including (but not limited to) adverse market conditions, decrease in demand, increase in competition, cost saving schemes, force majeure situations, accidents and governmental or political restrictions, counterparties may seek to cancel or
renegotiate COAs, or invoke suspension of periods, at their discretion. A downturn in the dry bulk and/or product tanker markets may result in an increase in occurrences of renegotiations, suspension or termination of contracts. The cash flows and financial conditions of the Group may be materially adversely affected should its counterparties terminate, renegotiate or suspend their obligations under such contract. Further, the ability of the Group\u2019s customers to meet their obligations towards the Group is affected by the customers\u2019 financial and liquidity position. If a key customer declares bankruptcy, insolvency or files for a similar protection under the customer\u2019s jurisdiction, it may have a material adverse effect on revenues, profitability,
16
Financial risk management
cash flows and the financial position of the Group. The key customers for the CABUs are mainly investment grade aluminium companies. The key target customers for the CLEANBUs are large oil and petrochemical companies and trading companies, many with investment grade ratings. If the Group has a legal right to insurance coverage, the Group will make provision for the deductible amount. As such, default by an insurance institution may have material financial consequences.
On 23 June 2023, the Company announced that a 100% owned subsidiary had concluded a shipbuilding contract for the construction of three third generation CABU vessels with Jiangsu New Yangzi Shipbuilding Co. Ltd. and Jiangsu Yangzi Xinfu Shipbuilding Co. The Group is exposed to counterparty risk under the shipbuilding contract, mitigated to a large extent through a refund guarantee from a Tier I Chinese bank.
Further, the Group is exposed to credit risk through its deposits. Deposits are currently made with investment grade financial institutions with A rating or higher from public rating agencies. However, there is concentration risk as deposits are held with only a few institutions.
Total unrisked credit exposure at 31 December 2023 amounts to USD 93.8 million, 2022: USD 95.0 million (book value of trade receivables, other current assets and bank deposits).
Liquidity risk
Liquidity risk is the risk that the Group may not be able to fulfil its liabilities when they fall due. Volatility in freight rates, daily settlement of cleared derivatives and the potential need for posting collateral related to certain OTC derivatives are significant sources to liquidity risk. To address these risks, the Group maintains sufficient cash for its daily operations in short-term cash deposits with banks and has access to the unutilised portions of long-term revolving credit facilities and a short-term overdraft facility. Additionally, the Group monitors and regularly forecasts the Group's liquidity reserve on the basis of expected cash flows, including stress tests in case of weaker markets.
The Group has capital commitments relating to borrowings and investments. The liquidity risk is considered to be limited as the deposits, committed bank debt and estimated cash flow are considered sufficient for all needs in the foreseeable future. The Group\u2019s bank financing is subject to financial and non-financial covenants.
The table below summarises the maturity profile of the Group\u2019s financial liabilities based on contractual undiscounted payments. Interest bearing debt includes interest payments and is net of interest rate and cross currency derivative hedges.
Maturity profile financial liabilities 31 Dec 2023 | < 1 year | 1-3 years | 3-5 years | > 5 years | Total |
Mortgage debt (incl interests) | 36 246 | 100 892 | 74 239 | - | 211 377 |
Bond loan (incl interest) | 5 266 | 25 861 | 54 015 | - | 85 142 |
Trade and other payables | 17 052 | - | - | - | 17 052 |
Current debt to related parties | 1 067 | - | - | - | 1 067 |
59 631 | 126 754 | 128 253 | - | 314 638 |
Loan facilities to be refinanced during the next 12 months are included in <1 year.
Maturity profile financial liabilities 31 Dec 2022 | < 1 year | 1-3 years | 3-5 years | > 5 years | Total |
Mortgage debt (incl interests) | 105 989 | 87 133 | 88 196 | - | 281 317 |
Bond loan (incl interest) | 4 757 | 81 867 | - | - | 86 624 |
Other interest bearing liabilities | 233 | - | - | - | 233 |
Trade and other payables | 22 250 | - | - | - | 22 250 |
Current debt to related parties | 693 | - | - | - | 693 |
133 923 | 169 000 | 88 196 | - | 391 118 |
Climate-related risks
Climate-related risks include both transition risks and physical risks with focus on transition risks as this is considered to have a larger impact and probability for KCC. Transition risks mainly relate to effect of reduced demand for the Group\u2019s services and the risk of stranded assets and new regulations as the global fleet moves to low-carbon fuel. The Group assesses transition risk in strategic planning, fleet development and capital expenditure plans for next-generation and existing fleet transition planning. Physical risks from climate events influence the Group's voyage planning and operation strategies. For 2023 (2022), total fossil fuel shipments accounted for 35% (25%) of the Group\u2019s transported volumes in metric tons.
Compliance risk
The legal and regulatory requirements of the Group are increasingly challenging and complex. The Group has established systems and processes to ensure that all relevant laws and regulations are met, such as tax-laws, anti-corruption laws, securities laws, anti-trust laws, laws related to human rights and working conditions and international sanctions. Three of the Group\u2019s subsidiaries are subject to the Norwegian tonnage tax regime. Non-compliance with the qualifying rules of this regime will have material negative impact on the Group\u2019s financial position.
Capital management
The Group intends to maintain an efficient capital structure, provide financial ability to execute on the strategy and ensure the Group has sufficient liquidity to meet liabilities and commitments as they fall due. KCC targets to have an equity ratio above 40% and gearing ratio (NIBD/EBITDA adjusted for delivery/sale of vessels) of below 5x with flexibility to stretch key ratios in some periods, for example in periods with growth. Furthermore, KCC shall have sufficient funds to withstand at least twelve months of weak markets/ earnings. The equity ratio as of 31 December 2023 was 58% (2022: 46%) and cash was USD 68.1 million (2022: USD 64.9 million). In addition, the Group had USD 121 million in undrawn revolving and overdraft credit facilities available as of 31 December 2023. The Group's covenants are described in note 13.
The capital structure and dividend payments are considered in view of debt service ability, capital commitments and expectations of future cash flows. Available cash, loan covenants and the balance sheet composition are moni-tored to make sure that the Group has the necessary financial strength to continue operating as a going concern.
The Group aims to spend free cash flows as follows:
\u2022Maintain sufficient financial capacity. To accommodate the business\u00a0strategy KCC must maintain sufficient financial capacity, prepare for future\u00a0uncertainty and see through the cycle by having a solid capital structure and\u00a0available liquidity position and active and strong risk management.
\u2022Maintain an attractive dividend policy and when relevant share\u00a0repurchase programs: KCC intends on a quarterly basis to distribute a\u00a0minimum 80% of free cash flow generation to equity after debt service and\u00a0maintenance capex to its shareholders, provided that all known, future capital\u00a0and debt commitments are accounted for, and the Company\u2019s financial\u00a0standing remains acceptable. The main way of distribution\u00a0is through\u00a0dividends, but the Board of Directors will evaluate if share buy-back programs should be\u00a0part of the mix under the 80% policy.
The Group's capital structure consists of mortgage debt (note 13), bond loan (note 13), overdraft facility (note 13), cash and cash equivalents (note 15) and equity attributable to the shareholders.
Market risk
The Group is exposed to the volatile nature of the dry bulk and product tanker shipping markets. Fluctuations in freight rates, vessel values, profitability, and cash flow, along with the risk of impairment of book values and breaches of financial covenants, are inherent in cyclical shipping markets. These fluctuations are influenced by imbalances in supply of vessel capacity and demand for global seaborn transportation of commodities. Since these dynamics are beyond the Group's control and unpredictable, their impact on business conditions is uncertain. A downturn in the relevant markets could significantly impact the Group's operations, financials, and cash flow. To manage these risks, the Group uses contracts of affreightment (COA) and forward freight agreements (FFA) to cover part of its future exposure.
The Group faces exposure to fluctuating bunker fuel prices, which are unpredictable and influenced by factors beyond the Group's control, including geopolitical events, oil and gas supply and demand, OPEC actions, regional unrest, production patterns, and environmental considerations. To manage this risk, the Group may hedge bunker fuel exposure or incorporate bunker adjustment factors (BAF) into contracts. However, quantifying future bunker fuel needs for specific voyages and obtaining hedges for non-standard volumes pose challenges, introducing risk. While the Group's size and diversification mitigate this risk overall, it may impact the Group's financials.
From 1 January 2024, shipping is part of EU's emission trading system (EU ETS). The Group must submit allowances for 100% of emissions for voyages within EU, and 50% of voyages in and out of EU (including ballast leg). The\u00a0share of emissions that must be covered by allowances gradually increases each year from 40% of emissions reported for 2024, 70% of emissions reported for 2025 and from 2026 100% of reported emissions. The Group has a limited exposure as KCC's vessels have a limited part of their trading in and out of EU (2 voyages in 2023, estimated to be approximately USD 110k exposure if these two voyages were performed in 2024). The cost will in most cases be covered by the customer. The Group had no allowances per year-end 2023.
Weak freight
rates and
changes in
trade flows
The Group's primary revenue driver is freight rates. A decline in freight rates for dry bulk commodities, caustic soda, or clean petroleum products can significantly impact the financial performance of the Group. Strong product tanker outlook for 2024 implies substantial downside risk assuming reversion to mean. However, the impact of lower freight rates is somewhat mitigated by the historically low correlation between dry bulk and product tanker freight rates. The product tanker market exposure for the next 12 months is partly mitigated by a ~40% coverage through fixed-rate contracts for the CABU vessels for 2024, and one CLEANBU vessel employed on a time charter contract through 2024. The Group is dependent on certain trade flows to obtain efficient combination trading. Production issues at plants, mines, and refineries in export or import regions, difference in regional commodity prices (arbitrage opportunities) as well as regional and global wars, conflicts and sanctions may impact these trade flows. Unfavourable changes in trade flows and volumes may adversely affect the Group\u2019s earnings and financial position.
This is exemplified by the ongoing conflict between Russia and Ukraine, which has significantly influenced trade flows for both dry bulk commodities and clean petroleum products. Faced with trade sanctions from Europe, Russia has adjusted fuel prices to remain competitive in alternative markets. Consequently, Russia emerged as the primary foreign supplier of diesel to Brazil this year, adversely affecting non-Russian importers like KCC. To mitigate this risk, the Group relies on maintaining flexibility in its trade flows. In this particular instance, the Group successfully redirected its trade flows from Brazil to the US Gulf.
Moreover, an Australian alumina producer, has revealed its intention to cease production at one of its alumina refineries in Western Australia in 2024. This could potentially impact the Group's caustic soda freight volume to Australia and hence its ability to employ all CABU vessel capacity in efficient combination trades.
Increased
geopolitical
tension
The Group faces geopolitical risks arising from territorial and other disputes between countries, war, political instability, terrorism and pircay, as exemplified by the war in Ukraine, the war in Gaza and the Houthi attacks in the Red Sea as well as acts of piracy affecting ocean-going vessels in regions such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia.
Such risks might impact KCC's costs e.g. crew cost and insurance premiums, as well as revenue both through indirect effects on the markets KCC operates in and directly through the ability to trade in certain areas or the Group's ability to employ the vessels in efficient combination trades which may have a material adverse effect on the Group's business, financial results and operations.
Market
CABU caustic
soda contracts
The Group is, to a certain degree, dependent on a limited number of key customers and renewal of key/material contracts with these customers, particularly related to caustic soda transportation. Lack of renewal of such contracts and unfavorable changes in trade flows and volumes may adversely affect the Group\u2019s earnings and financial position.
Global economic growth and the impact on energy and commodity markets
The general development of the global economy, in particular the oil and commodities markets, may affect demand and the profitability of the Group companies. Furthermore, the demand for seaborne transportation is dependent on open economies and low barriers to trade. There has historically been a strong link between the development of the world economy and demand for dry bulk and oil commodities. A period of deterioration in the outlook for the world economy could reduce the overall demand for these commodities and for the Group's services. Trade restrictions such as tariffs and embargos can have a negative impact on the demand for seaborne transportation.\u00a0This may lead to a downturn in the future prospects of the sectors the Group has invested in and, impact revenues negatively and may also make it more difficult to raise equity or loan capital.
Foreign currency risk and interest rate risk
The Groups's functional currency is USD, including all significant entities in the Group. The Group's operating revenue, the majority of its interest-bearing debt and contractual obligations for vessels under construction are denominated in USD. The Group is exposed to foreign currency exchange risks for adminis-trative and operational expenses incurred by offices, vessel operations or agents globally, predominantly in NOK, EUR and AUD. Further, the Group is required to pay dividends and tax payable in NOK. In connection with energy efficiency investments, where some of the payments are EUR, there may also be a currency risk. As such, KCC may from time to time, enter into derivative contracts in order to hedge currency risk related to its fixed expenses. As of year end, these risks are considered to be limited.
All interest-bearing debt is denominated in USD, except for bonds issued in NOK. Loans have various amortization profiles, but the majority are floating rate with CME Term SOFR as a benchmark. The Group's bond loans denomi-nated in NOK are also swapped to USD with fixed interest rate or floating interest rate with CME Term SOFR as benchmark. The Group uses financial interest rate derivatives, mainly interest rate swaps, to reduce the unwanted variability of interest expenses due to changes in the benchmark. As of 31 December 2023, 29% of the floating interest mortage debt loans are hedged including undrawn RCF commitments and 42% on drawn amount per year-end 2023. The Group evaluates on an ongoing basis the need to adjust interest rate exposure and coverage rate.
The table below shows estimated changes in profit before tax for the Group from changes in interest rates in 2023 and 2022, with all other variables held constant. The changes are estimated based on a change in variable interest rate benchmarks given capital structure excluding drawdown on available RCF capacity net of hedges as of year-end 2023 and year-end 2022. In 2023 for every 100 bps increase in index interest rate, interest costs on debt increases by approx. USD 0.7 million.
Counterparty/credit risk
Counterparty risk is managed by mandates approved by the Board of Directors and know your counterparty (KYC) procedures. The counterparty mandates set out the exposure (amount and duration) permitted for a given counterparty based on that counterparty\u2019s credit standing.
The Group is exposed to counterparty risk, inter alia and in particular under fixed-rate contract of affreightments (COAs). For various reasons, including (but not limited to) adverse market conditions, decrease in demand, increase in competition, cost saving schemes, force majeure situations, accidents and governmental or political restrictions, counterparties may seek to cancel or
renegotiate COAs, or invoke suspension of periods, at their discretion. A downturn in the dry bulk and/or product tanker markets may result in an increase in occurrences of renegotiations, suspension or termination of contracts. The cash flows and financial conditions of the Group may be materially adversely affected should its counterparties terminate, renegotiate or suspend their obligations under such contract. Further, the ability of the Group\u2019s customers to meet their obligations towards the Group is affected by the customers\u2019 financial and liquidity position. If a key customer declares bankruptcy, insolvency or files for a similar protection under the customer\u2019s jurisdiction, it may have a material adverse effect on revenues, profitability,
16
Financial risk management
cash flows and the financial position of the Group. The key customers for the CABUs are mainly investment grade aluminium companies. The key target customers for the CLEANBUs are large oil and petrochemical companies and trading companies, many with investment grade ratings. If the Group has a legal right to insurance coverage, the Group will make provision for the deductible amount. As such, default by an insurance institution may have material financial consequences.
On 23 June 2023, the Company announced that a 100% owned subsidiary had concluded a shipbuilding contract for the construction of three third generation CABU vessels with Jiangsu New Yangzi Shipbuilding Co. Ltd. and Jiangsu Yangzi Xinfu Shipbuilding Co. The Group is exposed to counterparty risk under the shipbuilding contract, mitigated to a large extent through a refund guarantee from a Tier I Chinese bank.
Further, the Group is exposed to credit risk through its deposits. Deposits are currently made with investment grade financial institutions with A rating or higher from public rating agencies. However, there is concentration risk as deposits are held with only a few institutions.
Total unrisked credit exposure at 31 December 2023 amounts to USD 93.8 million, 2022: USD 95.0 million (book value of trade receivables, other current assets and bank deposits).
Liquidity risk
Liquidity risk is the risk that the Group may not be able to fulfil its liabilities when they fall due. Volatility in freight rates, daily settlement of cleared derivatives and the potential need for posting collateral related to certain OTC derivatives are significant sources to liquidity risk. To address these risks, the Group maintains sufficient cash for its daily operations in short-term cash deposits with banks and has access to the unutilised portions of long-term revolving credit facilities and a short-term overdraft facility. Additionally, the Group monitors and regularly forecasts the Group's liquidity reserve on the basis of expected cash flows, including stress tests in case of weaker markets.
The Group has capital commitments relating to borrowings and investments. The liquidity risk is considered to be limited as the deposits, committed bank debt and estimated cash flow are considered sufficient for all needs in the foreseeable future. The Group\u2019s bank financing is subject to financial and non-financial covenants.
17
Long-term incentive plan
In the option program granted in December 2019, the CEO and CFO were granted 38,580 and 26,700 share options respectively, which were fully vested in December 2022. During 2023, both the CEO and CFO exercised in total 65,280 options in the Company (see note 7for more information).
In April 2023, the Board proposed a new Long Term Incentive Program (LTIP) that was approved by the General Meeting. The new LTIP program consists of two elements:
1)A share purchase program where Senior Executives are offered to purchase shares at a discount of 20 % to the market price, and with the possibility for optional loan financing of up to 50 % of the purchase price. The share purchase program includes a three-year lock-up period. If a Senior Executive resigns within the lock-up period, the Company will have an option to purchase the shares at a price equal to the lower of the purchase price (after discount) and the market value.
2)A share option program with a strike price equal to market price at the time of grant. Participation in the share option program is subject to purchase of shares under the share purchase program. The share options will vest 1/3 each year. Vested options may be excercised at any time after three years from the grant date but no later than five years after the date of grant. Options that vest in 2024 may be exercised one year thereafter, in 2025. The share options have no voting or other shareholder rights.
In June 2023, Senior Executives of the Company purchased in total 13 500 shares in KCC as part of the Company's long term incentive program (of which the CEO, Engebret Dahm purchased 10 000 of the total shares). The shares were acquired at a price of NOK 55.60 per share.
In connection with the share purchase in June 2023, and in accordance with the terms of the long term incentive program, Senior Executives were awarded 40 500 share options in KCC (of which the CEO, Engebret Dahm was awarded 30 000 share options) at a strike price of NOK 69.50, adjusted for any distribution of dividends made before the relevant options are exercised.
The fair value of the share options granted in 2023 were calculated based on the Black-Scholes-Merton method at the time of grant. The significant assumptions used to estimate the fair value of the share options are set out below:
Model inputs | |
Dividend yield (%) | - |
Expected volatility (%)* | 37% |
Risk-free interest rate (%)** | 3.69 % |
Expected life of share options (year) | 5 |
Weighted average share price (NOK) | 66.72 |
*The expected volatility reflects the assumption that the historical shipping industry average is indicative of future trends, which may not necessarily be the actual outcome.
**Average five-year Norwegian Government bond risk-free yield-to-maturity rate of 3.69 % as of 2023 was used as an estimate for the risk-free rate to match the expected five year term of the share options.
Number of shares | Average exercise price | 2023 | 2022 |
Outstanding at 1 January | 65 280 | 65 280 | |
Granted during the year | NOK 69.5 | 40 500 | - |
Exercised during the year | NOK 46.14 | (65 280) | - |
Forfeited during the year | - | - | |
Expired during the year | - | - | |
Outstanding at 31 December | 40 500 | 65 280 |
The fair value of the share options granted is calculated to USD 119k, i.e. USD 1.19 per share option. The cost incurred of the share options programs in 2023 is USD 16k (2022: USD 35k).
Accounting policy
Equity-settled share-based payments are treated as an increase in equity at fair value. The purchase price is recognized as a capital increase immediately, and the discount is periodized as a wage/equity increase over the vesting period.
Employee share options are calculated at fair value at the time they are granted and charged to expense over the vesting period as payroll cost with a corresponding increase in equity. The market value of the employee share options are estimated based on the Black-Scholes-Merton model.
18
18
Share capital, shareholders, dividends and reserves
Dividends of in total USD 66.8 million were paid to the shareholders in 2023 (in average USD 1.2 per share).
A capital increase of USD 49.8 million was completed on 30 May 2023 through a private placement to primarly fund three CABU newbuildings. The Board approved the allocation of 7 857 143 shares in the private placement at a price of NOK 70.00 per share.
In an Extraordinary General Meeting held on 24 September 2018, the Company issued 229,088 non-transferable warrants, each of which entitled the holder to subscribe one new share in the Company at a subscription price of NOK 44.38 per share. All warrants were excercised in 2023. The exercise price and the threshold trading prices which triggered the right to exercise warrants were adjusted for paid dividends or other distributions to the shareholders. The excercise of warrants increased the Company's equity by USD 0.5 million. As of 31 December 2023, there are no outstanding warrants.
Share capital
Date | Shares | Notional (NOK) | Share capital (NOK) |
Shares and share capital at 31 December 2021 | 52 372 000 | 52 372 000 | |
Shares and share capital at 31 December 2022 | 52 372 000 | 52 372 000 | |
Shares issued 30 May 2023 | 7 857 143 | 1 | 7 857 143 |
Shares issued 11 August 2023 (warrants) | 14 020 | 1 | 14 020 |
Shares issued 6 September 2023 (warrants) | 215 068 | 1 | 215 068 |
Shares and share capital at 31 December 2023 | 60 458 231 | 60 458 231 |
All shares have equal voting rights and equal rights to dividends. The shares are listed on Oslo Stock Exchange. KCC owns a total of 26,578 treasury shares, corresponding to 0.044% of the total number of issued shares.
Basic Earnings Per Share (EPS) in income statment are calculated based on the weighted average number of ordinary shares for the period, whereas diluted Earnings Per Share (EPS) is based on weighted average number of ordinary share including dilutive shares if all convertible shares were excercised.
2023 | 2022 | |
Weighted average number of ordinary shares for basic EPS | 56 996 430 | 52 331 922 |
Effects of dilution from: | ||
Share options | 43 717 | 65 280 |
Warrants | 155 255 | 229 088 |
Weighted average number of ordinary shares for the effect of dilution | 57 195 402 | 52 626 290 |
Largest shareholders at 31 December 2023 | Ownership Number of shares | Ownership In % |
Rederiaksjeselskapet Torvald Klaveness | 32 537 608 | 53,8 % |
EGD Shipping Invest AS | 5 860 819 | 9,7 % |
Goldman Sachs & Co. LLC (nominee) | 2 386 560 | 4,0 % |
Hundred Roses Corporation | 2 364 698 | 3,9 % |
J.P. Morgan SE (nominee) | 1 426 693 | 2,4 % |
Verdipapirfondet Nordea Norge Verd | 980 137 | 1,6 % |
SEB CMU/SECFIN Pooled Account | 616 388 | 1,0 % |
Verdipapirfondet Nordea Avkastning | 540 766 | 0,9 % |
Verdipapirfondet KLP Aksjenorge | 537 500 | 0,9 % |
Surfside Holding AS | 500 000 | 0,8 % |
Hausta Investor AS | 500 000 | 0,8 % |
Other | 12 207 062 | 20,2 % |
Total | 60 458 231 | 100% |
Management and members of the Board which hold shares in the Company are set out below.
Name | Position | Number of shares |
Engebret Dahm | Chief Executive Officer | 30 532 (held through E Dahm Invest AS) |
Liv Hege Dyrnes | Chief Financial Officer | 6 500 |
Magne \u00d8vre\u00e5s | Board member | Indirectly owns 9.9 % of EGD Shipping Invest AS which holds 5 860 819 shares |
G\u00f8ran Andreassen | Board member | 4 300 |
Brita Eilertsen | Board member | 2 000 |
Ernst Meyer | Board member | 5 000 |
Weighted average number of ordinary shares for basic EPS
56 996 430
52 331 922
Effects of dilution from:
Share options
43 717
65 280
Warrants
155 255
229 088
Weighted average number of ordinary shares for the effect of dilution
57 195 402
52 626 290
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Transactions with related parties
The ultimate owner of the Group is Rederiaksjeselskapet Torvald Klaveness (RASTK), which owns 53.81 % of the shares in Klaveness Combination Carriers ASA. Companies listed below are all part of the Torvald Klaveness Group.
Net revenue from operation of vessels
Type of service/transaction (USD \u2019000) | Provider* | Receiver* | Price method | 2023 | 2022 |
Pool Participation | BAU | KCCC | Standard pool agreement** | - | 49 |
Dry bulk chartering | KDB | KCCC | 1.25% of transaction value*** | - | (472) |
Total net revenue from related parties | - | (423) |
Relets of dry bulk cargoes between KCC Chartering AS and AS Klaveness Chartering (related party in the Torvald Klaveness Group) are made at spot pricing without any compensation either way.
** Hire from BAU to KCCC less pool managememnt fee. MV Bangor entered the pool in August 2021 and exited the pool agreement on 3 January 2022.
*** Fixture fee applicable for fixtures in 1H 2022. From 1 July 2022 the service fee is based on time spent (cost + 7.5%) and included in \"Total group commercial and administrative services\".
Group commercial and administrative services
Type of service/transaction (USD \u2019000) | Provider* | Receiver* | Price method | 2023 | 2022 |
Business administration services | KAS | KCC ASA, on behalf of KCC companies | Cost + 5%/Per employee | 1 944 | 1 641 |
Business administration services | KA Ltd | KCCA Ltd | Cost + 5% | 139 | 160 |
Business administration services | KD | KCCC | |||
Priced as other CargoValue services | 5 | - | |||
Commercial services** | KAD | KCCC | Cost + 7.5% | 381 | - |
Commercial services*** | KDB | KCCC | Cost + 7.5% | 293 | 279 |
Commercial services | KSM | KCCC | Cost + 7.5% | 990 | 825 |
Board member fee | KD | KCC ASA | |||
Fixed fee as per annual general meeting | (24) | - | |||
Subscription Cargo Value | CIA | KCC | Fixed fee | - | 60 |
Project management | KSM | KCCS, KCC | Cost + 7.5% | 1 674 | 1 237 |
Total group commercial and administrative services | 5 403 | 4 202 |
**Two employees were transferred from Singapore to Dubai from 1 August 2023. KCC does not have set-up in Dubai and they have hence been transferred from a KCC company to a related company in the Torvald Klaveness Group and are hired back by a KCC company at cost + 7.5%. The amount includes salary and employee bonus for 2023. ***Some bunkers purchases are done through AS Klaveness Chartering (KC), which holds the bunker contracts with the suppliers in some regions. No profit margin is added to the transactions, but a service fee is charged based on time spent (cost + 7.5 %) reflecting the time spent by the bunkering team and charged as part of the Commercial Services from KDB.
19
Transactions with related parties
Other services/transactions
Type of service/transaction (USD \u2019000) | Provider* | Receiver* | Price method | 2023 | 2022 |
Technical management fee (opex) | KSM | KCCS | Fixed fee per vessel | 4 117 | 3 819 |
Crewing and IT fee (opex) | KSM | KCCS | Fixed fee per vessel | 1 496 | 1 565 |
Project management fee (newbuilding) | KSM | KCCS | Cost + 7.5% | 386 | - |
Board member fee (administrative expenses) | KAS | KCC | Fixed fee as per annual general meeting | 80 | 85 |
Total other services/ transactions | 6 079 | 5 468 |
Short term assets and debt related parties (USD \u2019000) | 31 Dec 2022 | 31 Dec 2021 |
Klaveness Ship Management AS | 82 | 137 |
Klaveness AS | 24 | - |
Klaveness Drybulk AS | 4 | 65 |
Short-term receivables from related parties | 110 | 202 |
AS Klaveness Chartering (bunker derivatives) | - | 250 |
Short- term financial liabilities | - | 250 |
Klaveness AS | 35 | 197 |
Klaveness Ship Management AS | 549 | 273 |
Klaveness Drybulk AS | 1 | - |
Klaveness Asia -Dubai | 208 | - |
Klaveness Digital AS | 15 | - |
AS Klaveness Chartering | 228 | 201 |
Klaveness Asia Pte.Ltd | 32 | 21 |
Short-term debt to related parties | 1 067 | 693 |
Accounting policy
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence. Related parties transactions are recorded to estimated fair value.
*Klaveness AS (KAS), Klaveness Ship Management AS (KSM), Klaveness Asia Pte.Ltd (KA Ltd), Klaveness Asia Pte. Ltd- Dubai Branch (KAD), Klaveness Combination Carrier ASA (KCC), KCC Shipowning AS (KCCS), KCC Chartering AS (KCCC), Klaveness Dry Bulk AS (KDB), Klaveness Combination Carriers Asia Pte.Ltd (KCCA Ltd), Baumarine AS (BAU),and Klaveness Digital AS (KD).
Accounting policy
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence. Related parties transactions are recorded to estimated fair value.
20
List of subsidiaries
The merger of Klaveness Combination Carriers ASA and the 100% owned subsidiary, KCC KBA AS, was registered and finalized on 4 August 2022. The subsidiary had no activities, and the merger has no effect on the consolidated figures.
Klaveness Combination Carriers ASA purchased KCC Bass AS in February 2023. Purchase price of NOK 80k represented cash in the company with no other business activities at the purchase date.
Klaveness Combination Carriers ASA Group comprises of several subsidiaries. Below is a list of subsidiaries within the Group.
Company name | Location | Ownership interest per 31 Dec 2023 | Ownership interest per 31 Dec 2022 |
KCC Shipowning AS* | Oslo, Norway | 100% | 100% |
KCC Bass AS | Oslo, Norway | 100% | 0% |
KCC Chartering AS | Oslo, Norway | 100% | 100% |
Klaveness Combination Carriers Asia Pte. Ltd | Singapore | 100% | 100% |
* Direct and indirect ownership
21
Taxes
Tonnage tax
The vessel owning companies (KCC Shipowning AS, KCC Bass AS) and KCC Chartering AS are subject to taxation under the Norwegian tonnage tax regime. For the financial year 2023 KCC Shipowning AS, KCC Bass AS and KCC Chartering AS have payable tonnage taxes of USD 183k.
Ordinary taxation
The Parent Company (Klaveness Combination Carriers ASA) is under ordinary taxation rules in Norway. The ordinary rate of corporation tax in Norway is 22 % for 2023 (2022: 22 %). The subsidiary Klaveness Combination Carriers Asia Pte. Ltd is subject to ordinary taxation in Singapore. The ordinary tax rate in Singapore is 17 % for 2023. For the financial year 2023 Klaveness Combination Carriers Asia Pte Ltd has a tax income of USD 0.2k.
Deferred tax assets
Deferred tax assets are only recognised to the extent that future utilisation within the Group can be justified as per 31 December 2023. As a consequence, a tax position of USD 12.0 million per 31 December 2023 has not been recognised in the balance sheet. The tax position is mainly due to accumulated financial costs deductible under the tonnage tax regime as well as a tax loss on the internal vessel sales which will be deductible at a rate of 20 % annually going forward.
Income taxes for the year (USD \u2018000) | 31 Dec 2023 | 31 Dec 2022 |
Income taxes payable | - | - |
Change in deferred tax | - | - |
Total tax expense / income (-) reported in the income statement | - | - |
Tax on net (gain)/loss on revaluation of cash flow hedges | - | - |
Deferred tax charged to OCI | - | - |
(USD \u2018000) Tax payable | Income | 31 Dec 2023 Tax effect | Income | 31 Dec 2022 Tax effect |
Profit / loss (-) before taxes, incl OCI | 81 102 | 17 842 | 85 515 | 18 813 |
Income from shipping activity, tonnage tax system | (116 808) | (25 698) | (62 064) | (13 654) |
Change in temporary differences | (529) | (116) | (9 221) | (2 029) |
Change in tax losses carried forward | 13 769 | 3 029 | 6 905 | 1 519 |
Exchange rate differences / Other permanent differences | 22 465 | 4 942 | (21 136) | (4 650) |
Tax payable in the balance sheet | - | - | - | - |
Effective tax rate | 0% | 0% | ||
Tonnage tax (included in operating profit) | 183 | 188 | ||
Total tax payable in the balance sheet | 183 | 188 |
(USD \u2018000) Temporary differences - ordinary taxation | Temporary difference | 31 Dec 2023 Tax effect | Temporary difference | 31 Dec 2022 Tax effect |
Temporary differences | (5 149) | (1 133) | (5 678) | (1 249) |
Tax losses carried forward | (49 730) | (10 941) | (35 961) | (7 911) |
Deferred tax asset not recognised in the balance sheet | 54 880 | 12 074 | 41 639 | 9 161 |
Net temporary differences - deferred tax liability/asset (-) | - | - | - | - |
Deferred tax asset in balance sheet | - | - | ||
Deferred tax liability in balance sheet | - | - |
Accounting policy
Under the tonnage tax regime, profit from operations is tax exempt. Companies within the tonnage tax system pay a tonnage tax based on the deadweight tonnage of the vessels. The tonnage tax is recognised as an operating expense in the profit & loss. Taxable profit is calculated on the basis of financial income after deduction of a portion of financial expenses (based on financial assets in percent of total assets).
For companies subject to ordinary taxation, tax expense comprises tax payable and changes in deferred tax assets. Tax payable corresponds to the amount expected to be paid to authorities while deferred tax assets/liabilities are calculated based on temporary differences at the reporting date. Deferred tax assets are recognised to the extent that future utilisation is probable. Deferred tax liabilities/deferred tax assets within the same tax system that may be offset are recorded on a net basis. Income tax relating to items recognised directly in equity is included directly in equity and not in the statement of income.
Companies subject to tonnage tax regimes are exempt from ordinary tax on their shipping income. Within the Group, the subsidiaries KCC Shipowning AS, KSS Bass AS and KCC Chartering AS are subject to tonnage taxation. Companies within the tonnage tax system pay a tonnage fee based on the deadweight
tonnage of the vessels. The fee is recognized as an operating expense. Financial income is taxed under the Norwegian tonnage tax regime, however only a portion of the interest cost and net currency expenses are deductible.
21
Taxes
Tonnage tax
The vessel owning companies (KCC Shipowning AS, KCC Bass AS) and KCC Chartering AS are subject to taxation under the Norwegian tonnage tax regime. For the financial year 2023 KCC Shipowning AS, KCC Bass AS and KCC Chartering AS have payable tonnage taxes of USD 183k.
Ordinary taxation
The Parent Company (Klaveness Combination Carriers ASA) is under ordinary taxation rules in Norway. The ordinary rate of corporation tax in Norway is 22 % for 2023 (2022: 22 %). The subsidiary Klaveness Combination Carriers Asia Pte. Ltd is subject to ordinary taxation in Singapore. The ordinary tax rate in Singapore is 17 % for 2023. For the financial year 2023 Klaveness Combination Carriers Asia Pte Ltd has a tax income of USD 0.2k.
Deferred tax assets
Deferred tax assets are only recognised to the extent that future utilisation within the Group can be justified as per 31 December 2023. As a consequence, a tax position of USD 12.0 million per 31 December 2023 has not been recognised in the balance sheet. The tax position is mainly due to accumulated financial costs deductible under the tonnage tax regime as well as a tax loss on the internal vessel sales which will be deductible at a rate of 20 % annually going forward.
Income taxes for the year (USD \u2018000) | 31 Dec 2023 | 31 Dec 2022 |
Income taxes payable | - | - |
Change in deferred tax | - | - |
Total tax expense / income (-) reported in the income statement | - | - |
Tax on net (gain)/loss on revaluation of cash flow hedges | - | - |
Deferred tax charged to OCI | - | - |
(USD \u2018000) Tax payable | Income | 31 Dec 2023 Tax effect | Income | 31 Dec 2022 Tax effect |
Profit / loss (-) before taxes, incl OCI | 81 102 | 17 842 | 85 515 | 18 813 |
Income from shipping activity, tonnage tax system | (116 808) | (25 698) | (62 064) | (13 654) |
Change in temporary differences | (529) | (116) | (9 221) | (2 029) |
Change in tax losses carried forward | 13 769 | 3 029 | 6 905 | 1 519 |
Exchange rate differences / Other permanent differences | 22 465 | 4 942 | (21 136) | (4 650) |
Tax payable in the balance sheet | - | - | - | - |
Effective tax rate | 0% | 0% | ||
Tonnage tax (included in operating profit) | 183 | 188 | ||
Total tax payable in the balance sheet | 183 | 188 |
(USD \u2018000) Temporary differences - ordinary taxation | Temporary difference | 31 Dec 2023 Tax effect | Temporary difference | 31 Dec 2022 Tax effect |
Temporary differences | (5 149) | (1 133) | (5 678) | (1 249) |
Tax losses carried forward | (49 730) | (10 941) | (35 961) | (7 911) |
Deferred tax asset not recognised in the balance sheet | 54 880 | 12 074 | 41 639 | 9 161 |
Net temporary differences - deferred tax liability/asset (-) | - | - | - | - |
Deferred tax asset in balance sheet | - | - | ||
Deferred tax liability in balance sheet | - | - |
Accounting policy
Under the tonnage tax regime, profit from operations is tax exempt. Companies within the tonnage tax system pay a tonnage tax based on the deadweight tonnage of the vessels. The tonnage tax is recognised as an operating expense in the profit & loss. Taxable profit is calculated on the basis of financial income after deduction of a portion of financial expenses (based on financial assets in percent of total assets).
For companies subject to ordinary taxation, tax expense comprises tax payable and changes in deferred tax assets. Tax payable corresponds to the amount expected to be paid to authorities while deferred tax assets/liabilities are calculated based on temporary differences at the reporting date. Deferred tax assets are recognised to the extent that future utilisation is probable. Deferred tax liabilities/deferred tax assets within the same tax system that may be offset are recorded on a net basis. Income tax relating to items recognised directly in equity is included directly in equity and not in the statement of income.
Companies subject to tonnage tax regimes are exempt from ordinary tax on their shipping income. Within the Group, the subsidiaries KCC Shipowning AS, KSS Bass AS and KCC Chartering AS are subject to tonnage taxation. Companies within the tonnage tax system pay a tonnage fee based on the deadweight
tonnage of the vessels. The fee is recognized as an operating expense. Financial income is taxed under the Norwegian tonnage tax regime, however only a portion of the interest cost and net currency expenses are deductible.
Deferred tax assets
Deferred tax assets are only recognised to the extent that future utilisation within the Group can be justified as per 31 December 2023. As a consequence, a tax position of USD 12.0 million per 31 December 2023 has not been recognised in the balance sheet. The tax position is mainly due to accumulated financial costs deductible under the tonnage tax regime as well as a tax loss on the internal vessel sales which will be deductible at a rate of 20 % annually going forward.
(529)
(116)
(9 221)
(2 029)
Change in tax losses carried forward
13 769
3 029
6 905
1 519
Exchange rate differences / Other permanent differences
22 465
4 942
(21 136)
(4 650)
Tax payable in the balance sheet
-
-
-
-
Effective tax rate
0%
0%
Tonnage tax (included in operating profit)
183
188
Total tax payable in the balance sheet
183
188
(USD \u2018000) Temporary differences - ordinary taxation | Temporary difference | 31 Dec 2023 Tax effect | Temporary difference | 31 Dec 2022 Tax effect |
Temporary differences | (5 149) | (1 133) | (5 678) | (1 249) |
Tax losses carried forward | (49 730) | (10 941) | (35 961) | (7 911) |
Deferred tax asset not recognised in the balance sheet | 54 880 | 12 074 | 41 639 | 9 161 |
Net temporary differences - deferred tax liability/asset (-) | - | - | - | - |
Deferred tax asset in balance sheet | - | - | ||
Deferred tax liability in balance sheet | - | - |
Accounting policy
Accounting policy
Under the tonnage tax regime, profit from operations is tax exempt. Companies within the tonnage tax system pay a tonnage tax based on the deadweight tonnage of the vessels. The tonnage tax is recognised as an operating expense in the profit & loss. Taxable profit is calculated on the basis of financial income after deduction of a portion of financial expenses (based on financial assets in percent of total assets).
For companies subject to ordinary taxation, tax expense comprises tax payable and changes in deferred tax assets. Tax payable corresponds to the amount expected to be paid to authorities while deferred tax assets/liabilities are calculated based on temporary differences at the reporting date. Deferred tax assets are recognised to the extent that future utilisation is probable. Deferred tax liabilities/deferred tax assets within the same tax system that may be offset are recorded on a net basis. Income tax relating to items recognised directly in equity is included directly in equity and not in the statement of income.
Accounting policy
Under the tonnage tax regime, profit from operations is tax exempt. Companies within the tonnage tax system pay a tonnage tax based on the deadweight tonnage of the vessels. The tonnage tax is recognised as an operating expense in the profit & loss. Taxable profit is calculated on the basis of financial income after deduction of a portion of financial expenses (based on financial assets in percent of total assets).
For companies subject to ordinary taxation, tax expense comprises tax payable and changes in deferred tax assets. Tax payable corresponds to the amount expected to be paid to authorities while deferred tax assets/liabilities are calculated based on temporary differences at the reporting date. Deferred tax assets are recognised to the extent that future utilisation is probable. Deferred tax liabilities/deferred tax assets within the same tax system that may be offset are recorded on a net basis. Income tax relating to items recognised directly in equity is included directly in equity and not in the statement of income.
Accounting policy
Under the tonnage tax regime, profit from operations is tax exempt. Companies within the tonnage tax system pay a tonnage tax based on the deadweight tonnage of the vessels. The tonnage tax is recognised as an operating expense in the profit & loss. Taxable profit is calculated on the basis of financial income after deduction of a portion of financial expenses (based on financial assets in percent of total assets).
For companies subject to ordinary taxation, tax expense comprises tax payable and changes in deferred tax assets. Tax payable corresponds to the amount expected to be paid to authorities while deferred tax assets/liabilities are calculated based on temporary differences at the reporting date. Deferred tax assets are recognised to the extent that future utilisation is probable. Deferred tax liabilities/deferred tax assets within the same tax system that may be offset are recorded on a net basis. Income tax relating to items recognised directly in equity is included directly in equity and not in the statement of income.
22
Events after the balance sheet date
On 15 February 2024, the Company's Board of Directors declared to pay a cash dividend to the Company's shareholders of USD 0.35 per share for fourth quarter 2023, in total approximately USD 21.2 million.
Based on the escalating situation in the Red Sea area, KCC has decided to not trade any of its vessels through the Red Sea until the situation improves. The
CABUs do not trade in the area, while the CLEANBUs from time-to-time transit through the Red Sea. The decision is expected to have limited impact on KCC business activities and financial performance.
There are no other events after the balance sheet date that have material effect on the financial statement as of 31 December 2023.