Directors’ report 2020
Grieg Maritime Group (Consolidated)
With its group of companies, Grieg Maritime Group builds on more than 135 years of marine experience as part of the Grieg Group conglomerate. The Company innovates and delivers sustainability services to the maritime industry through its subsidiaries Grieg Edge and Grieg Green. Through Grieg Shipowning and Grieg Star, the Company develops world-class ship owning and ship management operations. All the Group’s vessels trade in G2 Ocean, the world largest open hatch shipping company, controlled jointly with Gearbulk. The Group focus on long-term competence development both onboard and ashore, not only in-house but also through partnerships. The Company has offices in the Philippines, China, and Oslo, with headquarters in Bergen.
Areas of operation
Owner of the commercial operator G2 Ocean
In 2017, Grieg and Gearbulk combined their two organisations’ commercial expertise, establishing G2 Ocean. Today, the joint venture is the largest deep-sea breakbulk carrier globally, with a fleet of about 125 vessels, trading in one open hatch and one dry bulk pool. With 15 locations worldwide, G2 Ocean serves 32 trade routes on six continents and makes thousands of port calls in more than 60 countries each year. Offering sustainable shipping solutions is at the heart of its operations when delivering efficient, flexible, reliable, innovative, and high-quality services to customers worldwide. The commodities transported, mainly under Contracts of Affreightments, are wood pulp and other forest products, aluminium, steels, granite, and industrial minerals. Project cargo is an expanding area on vessels ideal for transporting windmills and other non-unitised cargos.
Owner and manager of specialised open hatch and conventional dry bulk vessels
At year-end 2020, the Group controlled a fleet of 31 (30) open hatch vessels with an average age of 14 (13) years. The specialised ships, equipped with gantry or swing cranes and box-shaped holds, are constructed to offer a versatile transportation concept delivering superior cargo care through advanced handling and loading operations. At the core of the business is managing and developing the fleet, providing an efficient commercial operations toolbox. Using an extensive range of systems and digitalised tools, highly skilled and experienced employees ensure that the ships are at their very best and the operations according to all stakeholders’ requirements. Grieg Star, the Group’s internal ISO 9001 DNV certified ship management organisation, is primarily in charge of managing the open hatch ships. At the same time, the conventional dry bulk vessels have external ship managers. The dry bulk activity consisted at year-end 2020 of six (six) geared supramax/ultramax vessels, owned by GriegMaas, a 50/50 joint venture with Maas Capital, and four (three) modern ultramax vessels chartered in long term time-charter. The bulkers have an average age of 5 (4) years and are operated in the spot and period market by G2 Ocean.
Green recycling, IHM and asbestos removal
Grieg Green is one of the world’s largest providers of services associated with environmentally sound recycling of vessels and offshore rigs as well as Inventory of Hazardous Materials (“IHM”). Eight of the largest Class Societies have approved its services, and the company obtained its ISO 9001 certification from Lloyds’s Register in 2020. Grieg Green works closely with pre-approved shipyards in Europe, Turkey, India, China and Indonesia, and is committed to continuously develop its yard portfolio in other parts of the world to readily provide environmentally and safe recycling. They have completed more than 120 recycling projects as well as 1500+ IHMs.
Grieg Maritime Group established the subsidiary Grieg Edge in early 2020. Grieg Edge has a mandate and strategy to identify and develop new business opportunities within the maritime segment, emphasising the green transition and sustainability in general.
The rapid spread of Covid-19 cases and its devastating effects on human lives and livelihoods will forever define 2020.
While the pandemic’s impact has been very uneven across industries, evidence shows that businesses’ individual fates are not necessarily preordained by the industry they are in, but rather how the Company takes steps early to improve its resiliency. Grieg Maritime Group has used 2020 to restructure its operations to transform the business for future growth in a digitalised and decarbonised world. Simultaneously, the Group has worked to ensure sufficient liquidity for the Company to withstand the pandemic’s adverse effects.
Although the annual result is impacted by the pandemic, with a lower financial result than foreseen at the outset of 2020, there were many bright spots and new learnings throughout the year which brought the Group forward; Income from green services increased more than 50% compared to 2019. Several new data processes and vessel technologies were implemented to improve competitiveness and operating capabilities. In parallel, new business concepts were assessed, of which some may be developed as essential parts of Grieg Maritime Group’s business activities going forward. These achievements were delivered by a dedicated and motivated organisation, while simultaneously managing the day-to-day business, with record low injury rates and no one infected by the Coronavirus onboard or ashore.
Grieg Maritime Group company and consolidated accounts and proforma accounts
On December 30th Grieg Maritime Group AS a newly established company in the Grieg Group, acquired all shares in Grieg Shipholding AS (previously Grieg Star Group AS), Grieg Green AS and Grieg Edge AS. Grieg Maritime Group AS’ result for 2020 is a reflection of that these transactions took place at the end of a financial year. The company profit before and after tax for 2020 is USD 4.2m, which is a dividend from subsidiaries. The consolidated profit for 2020 is USD 0.0m. The company’s total assets were USD 280.0m at year-end 2020, and with an equity ratio of 99%, which is a reflection that the company’s assets are primarily shares in daughter companies.
Although Grieg Maritime Group AS is a new holding company, its activities are a continuation of an existing business. To be able to show relevant and comparable figures over time, a proforma consolidated income statement has been prepared, as if the transactions had been completed on January 1st 2020 and 2019. This proforma income statement is shown in Note 2 of the Annual Accounts, and all references to the 2020 and 2019 result figures in the following refer to this proforma result.
Earnings, operations and result
Grieg Maritime Group’s revenues consist mainly of freight income, which is accounted for as time charter hire for its fleet of vessels. Other income is primarily related to green services. Despite all the challenges of Covid-19, the Group almost maintained its total group revenues from the previous year, with 2020 revenues reaching USD 167.8m (USD 170.3m). Whilst an increase in the number of vessel trading days is part of the explanation, both open hatch earnings and income from green services turned out far better than feared at the outset of the pandemic. With China being an important market, its lockdown was severely felt in the first quarter. Earnings improved, however, throughout the year as the world adjusted to the new normal. The Group kept the vessels run safely and ramped up on remotely delivered IHM services. It was all greatly helped by new digital tools. G2 Ocean executing their covid-19 action plan was also valuable support for the improved earnings.
Total operating costs before depreciations and write-downs increased to USD 124.5m in 2020 (USD 116.5m) due to a higher activity level in all business segments. Being the single largest cost item in the Group, the vessels’ operating expenses were unchanged at USD 67.7m (USD 67.6m), despite more vessel operating days in 2020. Included in this amount was almost USD 3m in additional costs related to Covid-19, such as increased crew travel costs and accommodation and other safety measures such as hardship allowance for personnel staying extra time onboard. On a positive note, there was less need for dry-docking provisions as fewer open hatch vessels were due for a special survey in 2020. Time charter costs increased in 2020 to USD 38.1m (USD 32.9m), mainly as the Company chartered in new vessels as part of a process of changing the composition of the bulk TC fleet into a younger and more competitively priced long-term fleet. Payroll and administration costs increased in 2020 to USD 18.6m (USD 16.0m) given the strategic decision to grow the Group’s green services and investing resources in green maritime innovation.
Based on slightly reduced revenues which did not fully reflect the higher activity level, given Corona market effects, coupled with higher operating expenses, the Group’s EBITDA decreased in 2020 to USD 43.3m (USD 53.8m).
Group depreciation charges were unchanged in 2020, at USD 40.4m (USD 40.4m). As part of the annual close, an impairment testing of the open hatch fleet was carried out using the discounted cash flow method. The impairment testing resulted in a write-down of USD 83.3m of the fleet’s book value, including a write-down of goodwill, to achieve better harmonisation with the fleet’s fair market value. The Group has also written down the book value for the 50% owned bulker with USD 5.4m. Although the write-down reduces the equity ratio to 40% (47%), it has no real material impact on the Group’s financial strength, solidity, operations, or partners’ interests. With this, Grieg Maritime Group’s operating profit decreased to minus USD 85.8m in 2020 vs USD 13.4m in 2019.
Net financial items were minus USD 19.3m in 2020 (USD -20.7m). The positive development was mainly a result of lower interest expenses which decreased to USD 19.7m (USD 22.4m) based on debt repayments but also due to a positive effect of a lower Libor rate.
In total, Grieg Maritime Group’s result before tax in 2020 was minus USD 105.1m versus minus USD 7.3m in 2019. The after-tax result is minus USD 105.3m for 2020 (USD -8.0m).
Balance sheet, financial situation and cash flow
Based on net cash flows from operations of USD 26.6m, cash flow from investments of USD 5.1m and a net cash flow of minus USD 27.3m from financing activities, net change in liquid funds in 2020 was minus USD 4.5m (all figures based on the proforma 2020 result). Long-term interest-bearing debt year-end 2020 was USD 377.5m (USD 401.0m). The Group refinanced some of the credit facilities financing the open hatch fleet in late 2020, which increased its liquidity buffer. This was done at the same main terms and conditions as usual for Grieg’s shipping operations. While open hatch managed through Covid-19 without any need of financial assistance, with its financial covenants met at all times, the bulkers gained from being granted some flexibility in its debt repayments.
Group book equity was USD 272.8m at year-end 2020 (USD 381.8m). By the end of 2020, Grieg Maritime Group had total assets of USD 674.3m (USD 806.7m). The reduction is mainly related to fixed assets, which were reduced from USD 738.5m in 2019 to USD 612.1m in 2020. Current assets accounted for USD 62.2m (USD 68.1m) at year-end 2020, where liquid funds constituted USD 44.4m (USD 51.7m).
Working environment and occupational health
The Board considers conditions related to the working environment and health to be good. The workforce is stable, and absence rates and the number of injuries are low.
Grieg Maritime Group has carefully followed governmental advice throughout the pandemic, being swift to set up its employees with home offices, which still is the normal working practice for shore personnel. During the pandemic period, the management has worked to ensure that its leaders have regular team meetings with their employees. The administration has also set up recurring and short network training sessions with an external coach and a working environment survey. The management’s focus has been on communicating with the leaders and collaborating with the employee representatives to improve the overall working environment.
Although 2020 brought increased activities in Grieg Green, which continued to grow, and the establishment of Grieg Edge, the total number of employees in Grieg Maritime Group was reduced by year-end 2020 to 744 employees (829) as the Group outsourced ship management for 13 out of 36 vessels. This affected both the shipping organisation onshore in the Philippines and Norway and, not least, sailing personnel. At the end of 2020, 640 (720) were at sea, and 104 (109) were shore-based, of which 57 (59) in Norway and 47 (50) abroad.
Health, environment and safety
Grieg Maritime Group maintains an overview of sick leave per laws and regulations. In 2020, the registered sick leave for the global onshore organisation was 0.8% (1.6%). Sick leave for the Norwegian based employees went from 2.7% down to 0.3%, and from 0.4% to 0.2% in the offices abroad. There were no cases of onshore employees infected by the Coronavirus. Many where, however, from time to time in quarantine as part of precautionary measures, but they could still work from home.
Records also showed no (0) injuries onshore in 2020. Besides medical follow-ups, the Group encourages and facilitates participation in physical activities for its personnel to stay fit. Input from employee surveys and appraisal dialogues serve as one of many inputs to management. In 2020, this resulted in, amongst others, increased internal communications as Town Hall Meetings on Teams and online physical training.
As in the six previous years, there were no fatal accidents at sea in 2020. The positive Lost Time Injury (LTIF) and Total Recordable Cases (TRCF) trend in 2019 continued throughout 2020. In 2020 there were no (3) serious injuries that led to repatriation in Grieg Star’s managed fleet, while 8 (5) persons were sent home because of illness. They had only report of one lost-time injury where the crew could not work the next day. The injury statistic in 2020 is historic low, with an LTIF of 0.21 (0.87) and a TRCF of 2.14 (5.5).
Focus on pro-active safety of managing the Group’s vessels have had a high focus in 2020, and several necessary improvements have been made to support this task. Examples of this are restructuring the categorisation for pro-active reporting in the Safety Management System and introducing Pro-Active Safety Dashboards, enabling monitoring of status and acting on potential situations before escalation. Any report of conditions or incidents with high negative potential has been subject to investigation for learning, improvement and experience sharing. Finally, monthly Safety Focus reports from the HSEQ department on Injuries and Inspections with all reports containing tutorial with examples on good pro-active reporting routines have been valuable.
With the Covid-19 pandemic starting already in January, ship management has put much effort into implementing effective barriers to protect the seafarers against the Coronavirus. Robust procedures were made both for pro-active measures but also for contingency situations in case of disease onboard. During 2020 there was not a single incident of Covid-19 outbreak onboard any Grieg Maritime Group controlled vessels. Unfortunately, several seafarers were infected, either in the Philippines or during travel, but the robust crew change routines prevented them from bringing the virus onboard. There are no reports of any of these crew members taking seriously ill.
To Grieg Maritime Group, innovation is the key to sustainability. This is why the Group is involved in several research initiatives as it may result in more sustainable ways to build and operate ships in the future. Part of this is also to develop the company culture into embrace thinking differently, based on a belief that it is the human capital that will make businesses sustainable in the future. To achieve this, investment in competence development and diversity has been crucial. The Group has established Grieg Star Academy, with, amongst others, training for innovation with a course called “Dare Disrupt” and “The next step of Microsoft 365”.
Grieg Maritime Group does not accept discrimination in any form. The business operations are to be conducted based on principles of equality and respect. At year-end 2020, the land-based workforce reflected a gender distribution of 46% (47%) women and 54% (53%) men. 35% (33%) of the onshore management positions is held by females, and 38% (40%) within the top management team are women. Grieg Star trains female cadets for officer positions on its vessels. In 2020, 18 (14) out of the 640 (720) seafarers were women, with one (1) holding a senior management position.
Partly as inspiration from participating in the SHE Index, the Group endorsed a gender equity policy in late 2019. In 2020 principles were set out to ensure that the Group maintains a gender equity-based approach to its operations. This will be communicated internally and externally vs partners and suppliers.
Grieg Maritime Group envisions a future with no harmful emissions to air, sea, and land. The path to this is long, but, as a responsible business, the Group is committed to walking the talk. Shipping, transporting about 90% of world trade, is statistically the least environmentally damaging mode of transport when taking productivity into the equation. Still, emissions of greenhouse gases (GHG) from shipping constitutes about 2.5% of global emissions. In 2018, the IMO’s Marine Environment Protection Committee (MEPC) adopted a new strategy to reduce GHG emissions from ships. Their vision is to reduce total annual GHG emissions by at least 50% by 2050, compared to 2008. The IMO targets align with the Group’s environmental strategy and long-term goals towards 2030, aiming to be compliant or exceed any regulations before their due dates.
Four vessels had ballast water treatment plants installed during the year, which increases the number of completed installations to 11 ships so far. This project will be completed for all ships by the end of 2023, while the entire fleet has obtained their IHM. After implementing measures to eliminate single-use plastic on board, a 30% reduction of plastic disposal was also achieved in 2020.
Grieg Maritime Group’s participation in ongoing R&D programs is part of meeting its environmental ambitions. An example of this is the SFI Smart Maritime project, enabling the Norwegian maritime cluster to be world-leading in 2025 in environmentally friendly shipping. The project has eight years duration, with expected completion in 2023. Exploration of new technologies and digitalisation is encouraged, as it enables better insight and more efficient operations. Several applications and initiatives were launched in 2020, as the Rayven contingency reporting tool, a process for remote dockings and the “red team” project together with G2 Ocean and Gearbulk, resulting in a significant reduction of fuel oil use.
Grieg Green’s environmentally sound recycling service includes strict compliance with the Hong Kong International Convention and the EU Ship Recycling Regulation. Both ensure that working conditions are according to ethical standards, that safety and quality procedures are established for all processes, and not least that the environment is protected from hazardous dismantling and waste and warrant equipment suitability and verification.
In 2008, the Group committed to the ten principles of the UN Global Compact. In 2019 the Company became a participant of the same and joined the UNGC Action Platform for Sustainable Ocean Business. All in the recognition that no one is big enough to solve all these challenges themselves but need to work together with partners. Through the Company’s 2020 strategy process, management further reinforced that sustainability is not a separate policy with its own benchmarks but an integrated part of developing the future business. This is the only way Grieg Maritime Group can contribute to the Grieg Group’s ambitious purpose: “We shall restore our oceans”.
Grieg Maritime Group has for several years worked with the UN’s Sustainable Development Goals. Particularly high on the agenda are the seven SDGs targeted as material to the Group’s business activities as: “4. Quality Education”, “5. Gender Equality”, “9. Industry, Innovation and Infrastructure”, “12. Responsible Consumption and Production”, “13. Climate Action”, “14. Life Below Water” and “15. Life on Land”. For reporting on progress for 2020, the Group has continued to apply the Norwegian Shipowners Association guidelines on sustainability reporting, aiming to show relevant and consistent reporting over time.
Risk and compliance
Risk management is vital to protect people, the environment and the business’ assets.
Managing risk is also essential for value creation and an integrated part of the Group’s governing model. Grieg Maritime Group’s key risks relate to its operational activities, market and financial risk, compliance and regulatory framework, as well as security, cyber and climate risks. Strategy, policy development and risk-mitigating, all play vital roles in managing and reducing these risks.
During 2020, a sharp focus has been to be prepared to handle various Covid-19 related challenges. Several rounds of risk assessments were carried out throughout the year, resulting in multiple measures.
In respect of operational risk, adhering to the requirements of being ISO 14401 compliant for both ship management and green services is a prerequisite. An Emergency Preparedness Team convenes whenever an incident occurs. The team carry out drills regularly to ensure that the organisation is fit for its purpose. Carrying out safe crew changes has been a top priority in 2020 and avoiding unwanted contact when loading and discharging the vessels around the world. The same goes for providing IHMs, which made Grieg Green turn around its service model due to travel restrictions.
The Group’s financial and market risk are mainly composed of risks related to development in freight rates, ship values, currencies, and interest rates. Several of these risks are strongly correlated to macro-economic development. The open hatch fleet’s earnings are, to a large extent, linked to long term cargo contracts. This implies that revenues are less volatile than in the spot market and that changing market conditions generally have a delayed effect on the results. The dry bulk activity is exposed to spot market movements.
Changing equity prices and interest rates affect the Group’s financial investments and loans. The financial portfolio is managed under a long-term strategy reflecting Grieg Maritime Group’s business principles and risk capacity to ensure that Group can withstand market fluctuations. There are policies to reduce interest rate risk related to the fleet’s funding arrangements and currency exposure. Continued focus on cost reduction by lowering financial gearing continues to pay-off as the vessels’ cash-break-even level was reduced further in 2020. However, with the pandemic taking its toll on earnings, liquidity risk is still high on the Board’s attention list.
Grieg Maritime Group assumes counterparty risk in several areas of its business. Issues related to credit risk as well as sanctions regulations are part of the daily business. The Maritime Anti-Corruption Network (MACN) membership is one tool to fight and report corruption and facilitation payments actively.
Identifying, understanding, and acting to reduce the Group’s security risks, particularly cyber threats, has been in focus also in 2020. The Group’s IT department exposed all employees to a phishing attempt exercise, which gave valuable learning. Going forward, strong attention will be given to climate transition risk, where assessing and defining a decarbonisation roadmap for the Group’s vessels will be central.
The market and outlook
2020 was a year for the history books where Covid-19 materially affected private behaviour and consumption, and general business cycles.
World seaborne trade with shipping of wet and dry cargo remained surprisingly strong. According to BIMCO, in the full year of 2020, global container shipping volumes fell by only 1.2% compared with 2019, much less than feared. Overall, total dry bulk tonnes transported fell by 1.3% to 5.49 billion tonnes. However, with strong growth in Chinese imports, which on average has a longer sailing distance than the rest of the world, the overall tonne-mile demand grew by 0.9%. Most challenging for the shipping sector in 2020 has been the operational handling and change of crew for the vessels, which affected vessel efficiency and thus earnings.
China’s share of dry bulk commodity imports increases and the activity level going into 2021 is high. Due to the low order book and a post-Corona surge for raw materials and minerals, a market recovery is expected to occur in 2021,
Regarding open hatch, the negative impact on global trade was less severe in 2020 than initially thought. Some key commodities like market pulp and paper & board faired well, whereas others like soda ash and steel suffered. Going forward, the overall outlook for world market pulp demand looks solid and is expected to continue with stable growth in seaborne volumes, primarily from the Americas to Asia. With increased project cargo volumes, the vessels’ commercial manager G2 Ocean remains optimistic about current and next years’ performance. Therefore, Grieg Maritime Group expects improved earnings in its core business in 2021 and beyond.
With the increased concern of environmental issues, the focus on the use of non-hazardous materials in ship design, building and operation is growing. IHM has, due to regulations, become a market of its own and is now one of Grieg Green’s primary activities. Despite the challenges brought on by the pandemic as travel restrictions, projected IHM was completed with the help of an in-house designed application, customer portal and a fully integrated system generated by Salesforce. On-premise surveys were made possible due to the Company’s hubs of experienced surveyors in key locations worldwide.
On the forefront to provide a more comprehensive array of environmental services, Grieg Green delivered its first Asbestos Maintenance and Management Plan and Asbestos Removal in 2020. Environmental Mapping, Radiation Surveys and Decommissioning Services are areas currently being developed. In 2021, Grieg Green is also taking an essential role in recycling its first naval vessel, the frigate Helge Ingstad, including the IHM.
Grieg Edge’s focus and capacity were somewhat lower than expected in 2020 due to the effects the pandemic had on the overall shipping markets. Several exciting opportunities and business concepts did nevertheless emerge during the year, with several developed ship concepts. One of the initiatives is the Berlevåg project and MS Green Ammonia. The project was in December 2020 awarded a total of MNOK 46 in government support from Innovasjon Norge and Forskningsrådet. The funds will be allocated to the continued development of a green ammonia tanker, distributing green ammonia to end users along the Norwegian coast and using green ammonia as fuel. The vessel, MS Green Ammonia, is currently planned for delivery in 2024. Another focus area during 2020 was the development of compressed hydrogen concepts, mainly related to the short sea bulk segment. Grieg Edge is experiencing a significant inflow of relevant projects and investment opportunities and expects several to materialise in 2021.
A part of the Grieg Group
Grieg Maritime Group is part of the Grieg Group, established in 1884. The Grieg Group is family-owned, where the Grieg family owns 75% and the Grieg Foundation 25%. The Grieg Group focuses on three core business areas: Shipping and logistics, seafood and investments. Structured as a family-owned business, together with strong company culture and dedicated employees, gives the Grieg Group the ability to view their business from a long-term perspective and be responsive to changes in the business environment. Through the benevolent Grieg Foundation, the Grieg Group contributes substantial amounts to a wide range of activities, creating economic and social values.
The Board of Directors confirms that the annual accounts have been prepared based on the going concern assumption and that this assumption is valid. The consideration is based on the Group’s financial position and expectations of future earnings. The Board believes that the submitted annual accounts give a correct picture of the results, cash flows and economic situation.
No events that affect Grieg Maritime Group’s financial position have taken place after the balance sheet date.
The Board would like to thank all employees for their extraordinary efforts during a very challenging year. The true value of the business is dependent on the world-class performance of its people on land and sea. The Board is particularly impressed with the velocity, positivity and curiosity showed right across the organisation, in finding and working in new and quite often digital ways. Their tremendous efforts have ensured that Grieg Maritime Group is well-positioned to take advantage of the market upturn experienced at the start of 2021 and remained safe and secure during the darkest moments of 2020.
Read the whole Annual Report
as a PDF by clicking here.