Corporate Governance
Eimskip is a limited liability company governed by the Public Limited Companies Act, No. 2/1995, its Articles of Association and the Board of Directors’ Rules of Procedure. Under its Articles of Association, the Company is governed by shareholders’ meetings, the Board of Directors and the Chief Executive Officer.
Corporate Governance practices are designed to ensure an open and transparent relationship between the Company's management, its Board of Directors, its shareholders and other stakeholders. The Corporate Governance Statement at Eimskip is also designed to ensure sound and effective control of the Company’s affairs and a high level of business ethics.
The Board of Directors approved an update of the Corporate Governance Statement for the Company on the 25th of February 2021. The statement declares that Eimskip complies with the accepted practices as stated in the 5th edition of the Corporate Governance Guidelines, issued by the Iceland Chamber of Commerce, SA – Business Iceland and Nasdaq Iceland. Eimskip’s Corporate Governance Statement is accessible on the Company’s website.
The Corporate Governance Guidelines, along with the Company’s Articles of Association and rules for issuers of securities listed at Nasdaq Iceland, make up the framework for the Corporate Governance practices of Eimskip.
BOARD OF DIRECTORS
The Company selects five members and two alternate members to the Board of Directors at the Annual General Meeting. Icelandic law stipulates that the gender ratio on the Board of Directors must be as even as possible, ensuring each gender represents no less than 40%. The Board of Directors holds supreme authority between shareholders’ meetings. It shall ensure that the Company’s organization and operations are in good order. It shall promote the development and long-term performance of the Company, and supervise its operations and their conformity with existing laws and regulations. Together with the CEO, the Board takes the initiative on formulating policies and setting goals and risk parameters,and has establishing an active system of internal controls that is verified regularly. The Board handles the recruitment and dismissal of the CEO.
Rules of Procedure for the Board of Directors were adopted in accordance with the fifth paragraph of Article 70 of the Public Limited Companies Act, No. 2/1995, and are supplementary to the Articles of Association. Under the Rules of Procedure, the Board of Directors selects subcommittees that operate on its behalf. The Rules of Procedure are accessible on the Company’s website.
The Board of Directors has three subcommittees: Audit Committee, Remuneration Committee and Nomination Committee.
The principal duties of the Audit Committee are to review all financial information and procedures regarding information disclosure from day-to-day management and the Company’s independent auditors, and to ensure the independence of the Company’s independent auditors. The role and main responsibilities of the Audit Committee are set out in its rules of procedure. Members of the Audit Committee are Lárus L. Blöndal, Chairman, Óskar Magnússon and Alexander G. Edvardsson.
The role of the Remuneration Committee includes preparing the Company’s Remuneration Policy, ensuring its enforcement, and negotiating with the CEO on wages and other employment terms. Eimskip’s Remuneration Policy is accessible on the Company’s website. The role and main responsibilities of the Remuneration Committee are set out in its rules of procedure. Members of the Remuneration Committee are Hrund Rudolfsdóttir, Chairman, Baldvin Thorsteinsson, and Gudrún Blöndal.
The role of the Nomination Committee is to assist the Board with the process and oversight of Board succession planning and identification and nomination of Board candidates as well as member of the Board’s committees. The Board is responsible for the appointment and activities of the Nomination Committee and it operates under the Board’s authority. The role and main responsibilities of the Nomination Committee are set out in its rules of procedure. Members of the Nomination Committee are Hrund Rudolfsdóttir, Chairman, Óskar Magnússon and Vilhjálmur Vilhjálmsson.
CHIEF EXECUTIVE OFFICER
The Company’s CEO is responsible for day-to-day operations, in accordance with law, regulations and the Company’s Articles of Association. The CEO follows the policies and instructions laid down by the Board. The CEO must at all times conduct his work with integrity and take account of the Company’s interests. Day-to-day operations do not include matters which are unusual or of great significance. The CEO shall make sure that the Company’s accounts are kept in accordance with law and best practice and that the Company’s assets are kept in a secure manner. The CEO is obligated to abide by all instructions of the Board of Directors and shall give the auditor any information requested. The CEO does not have the authority to make decisions concerning any matters that are assigned to others by law or are reserved to the Board under its Rules of Procedure. The CEO shall ensure that Directors of the Board are regularly provided with accurate information on the Company’s finances, development and operations to enable them to perform their duties. The information shall be in the form and of the quality determined by the Board. The information shall be available when needed and as up-to-date and accurate as possible. The CEO is to acquaint the Board with all major issues involving the operations of the Company or its subsidiaries and is to attend the Board meetings. He participates in the Boards of the subsidiaries within the group.
EXECUTIVE MANAGEMENT
In addition to the Chief Executive Officer (CEO), Chief Operating Officer (COO) and Chief Financial Officer (CFO), the current management team includes four Executive Vice Presidents: Sales and Business Management, International Operations, Human Resources and Communication, and Iceland Domestic Operations.
Further information on the Executive Management team is on the Company’s website.
INTERNAL CONTROL AND ACTIVE RISK MANAGEMENT
Internal control and active risk management play an important role at Eimskip and aim to ensure stable operations and earnings. The internal control and risk management procedures regarding financial processes are designed to minimize the risk of material misstatements. The Audit Committee monitors the Company’s internal control systems. The Risk Management Policy is aimed at minimizing potential negative effects on operations and earnings from marketing, operational and financial activities, and to keep risks at acceptable levels. Risk management within the Company is governed by the Board of Directors, while the Audit Committee is responsible for its review on a regular basis. Further information on risk management and risk factors can be found under Risk Management and Risk Factors.
SUSTAINABILITY AT EIMSKIP
Eimskip is a registered participant of the UN Global Compact, the United Nation’s initiative for social responsibility with respect to human rights, labor, environment and anti-corruption. With its participation, the Company has committed to managing its business operations so that the UN Global Compact and its Ten Principles become a part of the Company’s strategy, culture, and day-to-day operations.
Eimskip’s Sustainability Policy is based on the Nasdaq ESG Reporting Guide, published in March 2017. The Nasdaq reporting guide focuses on 30 environmental, social and governance (ESG) performance indicators.
Further information on Eimskip’s commitment to sustainability is on the Company’s website.
CODE OF CONDUCT
The Board of Directors approved a revision of the Company’s Code of Conduct in February 2021. The Code of Conduct is closely linked to the Company’s values: Achievement, Cooperation and Trust. The Code is also based on Eimskip’s aims to secure a good return for shareholders with profitable growth, to create value for customers with outstanding solutions and services, to be an outstanding workplace for employees with great team spirit and ambition, and to show concern for society through social responsibility and a reduced ecological footprint.
The purpose of this Code of Conduct is to support Eimskip’s mission and vision. It applies to the Board of Directors and all employees of Eimskip and its subsidiaries. It guides them in conducting the Company’s daily activities in an honest, responsible, and ethical way, based on its values and generally accepted professional standards of conduct. The Code of Conduct is accessible on the Company’s website.
Shareholder Information
Share Capital
Eimskip’s shares started trading on Nasdaq Iceland on 16 November 2012 with the ISIN number IS0000019800 and under the ticker symbol EIM.
The total number of shares is 187,000,000. Each share has a nominal value of ISK 1.00 and entitles its holder to one vote. The Company holds 6,132,757 shares in treasury, corresponding to 3.3% of the total issued share capital of the Company. Outstanding shares are 180.867.243. There were 688 shareholders at the end of 2020.
Largest shareholders
At the end of 2020, three of Eimskip’s shareholders each owned over 10% in the Company: Samherji Holding ehf. owned 28.3% of issued share capital, Lífeyrissjódur verzlunarmanna owned 15.1%, and Gildi – lífeyrissjódur was the third largest with 14.7%. The 20 largest shareholders held 95.4% of the total outstanding shares at year-end 2020.
20 LARGEST SHAREHOLDERS
As at 31 December 2020
| Shareholders | Shares | % | |
| 1. | Samherji Holding ehf.* | 51,170,175 | 28.3% |
| 2. | Lífeyrissjóður verslunarmanna | 27,235,070 | 15.1% |
| 3. | Gildi - lífeyrissjóður** | 26,643,247 | 14.7% |
| 4. | Arion banki hf. | 11,706,250 | 6.5% |
| 5. | Birta lífeyrissjóður | 10,737,477 | 5.9% |
| 6. | Lífeyrissj.starfsm.rík. A-deild*** | 9,610,000 | 5.3% |
| 7. | Stapi lífeyrissjóður | 9,581,897 | 5.3% |
| 8. | Eaton Vance Management**** | 8,283,665 | 4.6% |
| 9. | Almenni lífeyrissjóðurinn | 3,611,558 | 2.0% |
| 10. | Söfnunarsjóður lífeyrisréttinda | 3,302,823 | 1.8% |
| 11. | Lífeyrissj.starfsm.rík. B-deild*** | 2,615,160 | 1.4% |
| 12. | Lífeyrissjóður Vestmannaeyja | 1,447,800 | 0.8% |
| 13. | Akta Stokkur | 1,363,683 | 0.8% |
| 14, | Sjóvá-Almennar tryggingar hf. | 1,235,653 | 0.7% |
| 15. | Lífsverk lífeyrissjóður | 1,059,475 | 0.6% |
| 16. | ÍV Stokkur | 731,000 | 0.4% |
| 17. | Vörður tryggingar hf. | 604,075 | 0.3% |
| 18. | Kvika banki hf. | 563,074 | 0.3% |
| 19. | Íslandsbanki hf. | 546,587 | 0.3% |
| 20. | Akta HL1 | 509,970 | 0.3% |
| Other shareholders | 8,308,604 | 4.6% | |
| Total outstanding shares | 180,867,243 | 100.0% | |
| Eimskipafélag Íslands hf. - treasury shares | 6,132,757 | ||
| Total issued shares | 187,000,000 |
DISTRIBUTION OF SHARES
As at 31 December 2020
| Shareholding | Number of shareholders | % | Number of shares | % |
| 1 - 5,000 | 513 | 68.6% | 1,007,883 | 0.5% |
| 5,001 - 10,000 | 48 | 8.0% | 378,386 | 0.2% |
| 10,001 - 100,000 | 89 | 15.6% | 2,941,641 | 1.6% |
| 100,001 - 200,000 | 15 | 2.9% | 2,379,846 | 1.3% |
| 200,001 - 1,000,000 | 11 | 2.6% | 5,131,562 | 2.7% |
| 1,000,001-10,000,000 | 11 | 1.7% | 41,785,314 | 22.3% |
| 10,000,001 + | 5 | 0.8% | 127,242,611 | 68.0% |
| Total without treasury shares |
692 | 100% | 180,867,243 | 96.7% |
| Treasury shares | 6,132,757 | 3.3% | ||
| Issued shares total | 187,000,000 | 100.0% |
*) In October 2020 Samherji Holding ehf. increased its share in the Company up to 30.28% of issued shares and subsequently made a takeover bid to shareholders of Eimskipafélag Íslands hf. The 30.28% share included a forward contract for 5,480,000 shares or 2.93%. Shareholders holding a total of 20,175 shares in Eimskipafélag Íslands hf. accepted the takeover bid, equivalent to 0.011% of total issued shares in the Company. Following the takeover bid Samherji Holding ehf. owned a total of 51,170,175 shares in the Company or up to 30.29%. As of today, Samherji Holding ehf. holds a total of 63,246,425 shares or 33.82% of issued shares whereof 12,076,250 shares are held through forward contracts.
**) Gildi lífeyrissjódur, Gildi lífeyrissjódur/Framtídarsýn 1 and 2 with total shareholding of 14.73%
***) Lífeyrissjódur starfsmanna ríkisins A and B with total shareholding of 6.76%
****) The shareholders are Global Macro Portfolio, Global Opportunities Portfolio and Global Macro Absolute Return Advantage Fund.
SHARE PRICES
2020 and 2021
The closing price of Eimskip’s shares on 19 March 2021 was ISK 293.0 per share with market capitalization based on outstanding shares in the amount of ISK 52.9 billion, equal to EUR 350.9 million.
DIVIDEND POLICY
The policy of Eimskipafélag Íslands hf. is to pay an annual dividend that equals an amount in the range of 10-65% of net earnings. Decisions on dividend payments and their exact amount are subject to the Company’s future investment plans, market outlook, and satisfactory capital structure at any given time. The dividend policy is accessible on the Company’s website.
The Board of Directors proposed to the Annual General Meeting 2021 that the Company pays a dividend of ISK 2.47 per share to shareholders for the year 2020. The proposed total amount is ISK 446.7 million, corresponding to approximately 64.9% of the Company’s net earnings.
INVESTOR RELATIONS POLICY
Eimskip recognizes the value of transparent and open communication with the Company’s stakeholders, consistent with commercial confidentiality and regulatory considerations. Stakeholders include investors, employees, customers, suppliers, the media, local communities and authorities.
The Board has issued an Investor Relations (IR) Policy, which outlines the objectives and processes for effective communication between Eimskip and its various audiences. The IR Policy is available on the Company’s website.
OTHER SHAREHOLDER INFORMATION
Eimskip’s Investor Relations website provides information for investors, market participants and others. The website contains information about the Company, such as Corporate Governance documents, financial reports and presentations, Annual Reports, documents relating to Annual General Meetings, a general presentation on Eimskip, share information, news releases, and investor contacts.
Risk Management and Risk Factors
Risk management is the process of analyzing and assessing risk factors that could prevent the Company from achieving its set goals. It also includes any necessary remedial action to minimize the anticipated effects of such risk factors.
Eimskip’s internal control and risk management procedures regarding financial processes are designed to minimize the risk of material misstatements. The Company does not have an internal audit function, but uses internal control systems that are monitored by the Audit Committee.
An independent auditing firm is elected at the Annual General Meeting each year. The auditors are tasked with reviewing Eimskip’s accounting records and material related to the Company’s operations and financial position. As such, they have access to the Company’s books and documents at all times. They must examine the Company’s Consolidated Financial Statements in accordance with International Standards on Auditing (ISAs). Significant findings regarding accounting and internal control deficiencies are reported to the Board of Directors through the Audit Committee. Independent auditors are not allowed to own shares in the Company.
The Company goes through a detailed strategic and budgeting process each year and a strategy and budget report is prepared, which is then approved by The Board of Directors. Deviations from the strategy and budget are carefully monitored on a monthly basis.
Active risk management plays an important role at Eimskip. Its purpose is to ensure stable operations and earnings. The risk management policy aims to minimize potential negative effects on operations and earnings from marketing, operational and financial activities, and to keep risk at acceptable levels.
The Board of Directors regularly communicates with the CEO regarding the identification of, description of, and response to business risks that the Company could potentially face. Risk management within Eimskip is governed by the Board of Directors, while the Audit Committee is responsible for its review on a regular basis.
Executive Management is responsible for identifying material risks and developing the Company’s risk management strategy. The Company’s risk exposure is discussed at Board meetings and its risk management and risk factors are outlined in the Annual Report.
Eimskip monitors its financial risk factors and has defined treasury policies and procedures that set acceptable risk limits and stipulate how to identify, measure and manage financial risk exposure. The Company has a financial reporting manual to which the group entities must adhere.
RISK FACTORS
The risk factors and uncertainties described in the following text are not the only risks that the Company as a whole faces, nor are they listed in order of priority or with regard to significance or likelihood of occurrence.
MARKET RISK
Demand for transportation services has historically been highly cyclical and closely correlates with global economic activity. Eimskip is thus exposed to a possible economic downturn or recession, either globally or in one or more of the Company’s main markets. The Company is also sensitive to foreign exchange fluctuations and changes in its competitive position.
OPERATIONAL RISK
Eimskip’s operations are dependent upon many factors, e.g. access to terminals, IT systems, operation and ownership of vessels, supply of and demand for fuel, international and EU regulations on lower sulphur emissions, inflation, the reputation of the Company, and its ability to retain key personnel and customer contracts. Furthermore, refugees and stowaways, and incidents involving significant damage, loss or environmental pollution are risk factors for the Company. Changes in the legislative, political, governmental and economic framework may have a material impact on the Company’s business. The Company is dependent on various licenses relating to its operations and is subject to contractual risk in relation to its obligations to fulfil various provisions of its contracts.
FINANCIAL RISK
Eimskip is exposed to financial risk factors, including currency risk, risk related to availability of funding, interest rate risk, liquidity risk, credit risk, tax risk, fuel price risk, risk related to the financial reorganization of A1988 hf., and risk in relation to potential amendments to International Financial Reporting Standards (IFRS).
Some of the financial risk factors are addressed as follows:
CURRENCY RISK
Eimskip is exposed to currency risk on sales, expenses and borrowings that are denominated in currencies other than the functional currencies of the Company and its entities. The majority of the Company’s revenue and assets, obligations and interest-bearing debt are denominated in currencies other than the Icelandic Krona.. Subsidiaries use the local currency where they are based, with the exception of Eimskip Ísland ehf., where the functional currency is the EUR.
As can be seen from the graphs below, the revenue and expenses of Eimskip provide, to a certain degree, a natural currency hedge. The Company believes that the natural currency balance of its operations provides hedging and is investing in some external hedging instruments, such as derivatives. When planning for large investments in a non-EUR currency, due consideration is given to whether hedging is prudent. Decisions on this are made on a case-by-case basis.
Assets and liabilities in the balance sheet are mostly denominated in EUR or the relevant operating currency of the entities. The mismatch of other non-operating currencies on the balance sheet is mainly related to the US Dollar, as is shown in a table under note 21 in the Consolidated Financial Statements 2020.
REVENUE 2020
EXPENSES 2020
ACCESS TO CREDIT RISK
Eimskip is exposed to risks related to the availability of funding. The Company is, to some extent, dependent on access to sufficient funding at acceptable terms and may not be able to secure new sources of liquidity or funding, should projected or actual liquidity fall below the levels it requires. These factors could also impact the ability of Eimskip’s shareholders to provide it with liquidity and there can be no assurance that the Company could obtain additional shareholder funding. To manage this risk factor, the Company seeks long-term borrowings where applicable, maintains a healthy and stable current ratio, and produces internal short-term cash flow reports on a regular basis. In 2019, the Company introduced a target capital structure with the aim of keeping an equity ratio around 40% and leverage ratio in the range of two to three times net interest-bearing debt to EBITDA.
INTEREST RATE RISK
Interest rate risk is the risk borne by an interest-bearing liability, such as a loan or a bond, due to variability of interest rates. Eimskip’s interest rate risk exposure is due to its debt and lease liabilities, which are mainly denominated in EUR. The Company’s long-term debt is primarily based on floating interest rates, and, consequently, Eimskip is exposed to fluctuations in the general level of interest rates. However, to some extent, the Company’s current funding structure limits risk against an increase in interest rates. The Company currently holds an interest rate swap to fix parts of its interest rates denominated in the USD and EUR. Its interest rate exposure is carefully monitored and reviewed in line with interest rate developments on financial markets. For further information on Eimskip’s nominal interest rates, reference is made to note 18 in the Consolidated Financial Statements 2020.
LIQUIDITY RISK
Eimskip has liabilities and obligations that arise over time and the Company may not have the liquidity to meet its liabilities as they fall due. Eimskip’s approach to managing liquidity, i.e. cash on hand or short-term marketable securities, is to ensure, as far as possible, that it will always have access to sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. For further information on liquidity status, reference is made to note 21 in the Consolidated Financial Statements 2019.
CREDIT RISK
Credit risk is the risk of financial loss to the Company if a customer or counterparty in a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and its investment in securities.
Eimskip’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, no single customer accounts for more than 5% of the Company’s revenue.
Eimskip has established a credit policy under which each new customer is individually analyzed for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings when available, and, in some cases, bank references. Customers that fail to meet the Company’s benchmark may transact business with the Company on a pre-payment basis only.
In spite of these precautionary measures, a general downturn in financial markets and economic activity may result in a higher volume of late payments and outstanding receivables. Eimskip’s sales will depend on the financial position of its counterparties and there can be no guarantee that the financial position of the Company’s customers and other contract parties will be sufficient to honor their obligations under their contracts with the Company. Even though the Company seeks to recover all outstanding receivables, the amounts of write-offs may increase. Trade and other receivables of Eimskip amounted to EUR 115.5 million at the end of 2020, which represents 17.3% of the Company’s revenue.
FUEL PRICE RISK
The supply and demand of fuel is unpredictable and price fluctuations are based on events that are outside of Eimskip’s control. Therefore, the Company cannot accurately predict the future availability or price of fuel. A number of issues, including geopolitical developments, supply of and demand for oil, actions by the Organization of Petroleum Exporting Countries (OPEC) and other oil producers, war and unrest in oil-producing countries and regions, regional production patterns, environmental concerns, and other unpredictable events can affect the availability and price of fuel. That may result in future fuel supply shortages and price increases.
Fuel costs accounted for 5.2% of Eimskip’s expenses in 2020. The Company is exposed to fluctuations in price of crude oil and oil products. In order to minimize its exposure to fluctuations in oil prices, the Company adds a surcharge to its prices, commonly referred to as the Bunker Adjustment Factor (BAF) and the Bunker Adjustment Trucking (BAT) depending on the oil prices at the time of transport. The Company is also investing in some hedging instruments to further minimize fuel price risk. The BAF, BAT and other pricing adjustments compensate for approximately 80% of Eimskip’s risk relating to fluctuations in oil prices. However, significant increases in oil prices could lead to downward pressure on the Company’s tariffs from its customers.
The majority of Eimskip’s sailing routes lie through Emission Control Areas (ECAs). Within ECAs, shipping companies are obliged to use fuel with a sulphur content no higher than 0.1%. New regulations were implemented as of 1 January 2020, changing the sulphur limit to 0.5% for all ocean areas outside ECAs. The new rules for 2020 will increase the bunker cost for the Company, and in order to compensate for higher cost, the Company increased its Low Sulphur Surcharge (LSS) paid by customers. Furthermore, the Company has invested in an exhaust gas cleaning system (scrubbers) for three of its vessels to further lower the cost.
COVID-19 PANDEMIC
The Company has, during the year 2020, strived to secure the safety and health of employees and to maintain and secure the logistic chain and customer services.
At the beginning of the second quarter of 2020 a temporary amended sailing system was introduced to provide efficiency and lower costs during the pandemic. At the end of the third quarter a more permanent sailing system was announced, preserving the cost benefit from the temporary amendments, as well as improving service levels. Implementation plans for co-operation with Royal Arctic Line were also finalized.. The impact of the COVID 19 pandemic on global economies, including those in the North-Atlantic region (Eimskip’s core market), is still uncertain. Please refer to note 27 in the Consolidated Financial Statements for 2020 for further information regarding COVID 19.