Improved market conditions and reduced costs in the Group’s main business segment, contributed to a stronger result in 2019, as open hatch freight earnings ended up close to initial expectations for the year.
The conventional dry bulk activities were, on the other hand, hit by weaker spot markets, resulting in lower earnings and results compared to 2018. The green service and recycling business continued to grow and contributed noteworthy to the Group’s 2019 bottom line. Also, the financial portfolio had a good year return-wise. Although most business areas improved in 2019, Grieg Star still recorded a deficit, albeit less than in the previous year. More positive is the Group’s liquidity development, as liquid assets remained intact from 2018 to 2019.
Earnings, operations and result: Grieg Star’s revenues consist mainly of freight income, which is accounted for as time charter hire on the open hatch and dry bulk fleet. Total revenues increased only marginally in 2019, to USD 170.3m (USD 170.0m) as the increase in open hatch income was offset by weaker dry bulk earnings. Total operating costs did, however, decrease to USD 156.8m in 2019 (USD 163.8m), primarily as a result of lower charter and administration costs. The vessels’ operating expenses at USD 67.6m, were unchanged compared to 2018, also when adjusting for changes in the open hatch and dry bulk fleets during 2018 and 2019. Bareboat and particularly time charter costs decreased in 2019 to USD 32.9m (USD 35.5m). Depreciation charges were down to USD 40.4m (USD 41.2m), which was mainly due to the establishing of the GriegMaas JV. For Grieg Star, this involved the sale of 50% of four dry bulk vessels, previously owned 100%, and subsequent joint acquisition of two ultramax ships. Offsetting part of the reduced depreciation costs related to dry bulk was, however, the full-year effect for a semi-open hatch vessel purchased autumn 2018, as well as deprecation costs related to the installation of Ballast Water Treatment Systems on six open hatch vessels completing drydocking in 2019. Payroll and administration costs decreased in 2019 to USD 16.0m (USD 19.7m), mainly as a result of currency effects given a weaker NOK vs the USD.
Based on unchanged revenues, but lower operating costs, Grieg Star’s operating profit doubled from USD 6.2m in 2018 to USD 13.4m in 2019 while adjusted EBITDA (i.e. before depreciations, write-downs and loss provision) increased to USD 53.8m (USD 44.4m).
Net financial items were minus USD 20.7m in 2019 (USD -22.5m). The positive development was mainly a result of a strong result on the Group’s financial portfolio, which achieved a return of USD 1.9m (USD 0.9). In addition, interest expenses decreased to USD 22.4m (USD 23.5m) as outstanding loans were reduced through debt repayments and effects of a lower Libor rate. The result from Grieg Star’s 35% holding in G2 Ocean, which is accounted for applying the equity method, was USD 0.5m in 2019 (USD 0.7m) .
In total, Grieg Star’s result before tax in 2019 was minus USD 7.3m, an improvement of USD 8.6m compared to the 2018 result. The after-tax result is minus USD 7.8.m for 2019 (USD -16.1m). 2
Balance sheet, financial situation and cash flow: Based on net cash flows from operations of USD 36.2m, cash flow from investments of USD 27.7m and net cash flow of minus USD 48.7m from financing activities, the Group’s net change in liquid funds in 2019 was USD 15.1m. Long-term interest-bearing debt by year-end 2019 was USD 399.4m (USD 443.8m). Several of the Group’s revolving credit facilities and lease arrangements financing the Group’s vessels were refinanced during 2019. This reduces the Group’s funding costs going forward.
Group book equity was USD 382.0m at year-end 2019 (USD 397.4m), which improved the Group equity ratio to 47% (45%). By end of 2019, Grieg Star had total assets of USD 806.7m (USD 886.76m). The reduction is mainly related to fixed assets, which were reduced from USD 811.0m in 2018 to USD 738.5m in 2019. Besides annual deprecation on the vessels’ book values, the reduction is explained by Grieg Star’s delivering of its bulk activity. Current assets accounted for USD 68.1m (USD 71.6m) at year-end 2019, where liquid funds constituted USD 51.7M (USD 51.5m). 3
2 The 2019 result is when applying NGAAP, which is Grieg Star’s accounting standard, while the 2018 figure was based on G2 Ocean’s standard which is USGAAP. If using USGAAP also in 2019, the result would be an improvement of USD 1.7m which is mainly related to goodwill depreciations which are not applicable in the USGAAP accounts.
3 Grieg Star Group AS’ company accounts for 2019 shows a result before tax of minus USD 4.8m vs. minus USD 3.2m in 2018. The negative results were mainly due write down of shares in subsidiaries, both in 2018 and 2019. Total assets per year end 2019 is USD 429.5m (USD 424.2m). The 86% equity ratio (89%) reflects that the company’s main assets are shares in subsidiaries.