GOGL Profitable Despite Capesize Freight Rates Decline in Q4
Norway-based shipping company Golden Ocean Group Limited (GOGL) managed to remain profitable in 2018 despite weaker Capesize dry bulk market.
For the full year 2018, GOGL posted net income of USD 84.5 million, against net loss of USD 2.3 million in 2017.
In addition, the company reported net income of USD 23.6 million in the fourth quarter of 2018, compared to net income of USD 35.3 million in the corresponding period a year earlier.
As a result of a softer market environment for the company’s Capesize vessels, operating revenues decreased to USD 176 million in Q4 2018 from USD 189.3 million seen in Q4 2017.
“Golden Ocean generated strong cash flow during the fourth quarter, despite a softening Capesize market,” Birgitte Ringstad Vartdal, Chief Executive Officer of Golden Ocean Management AS, commented.
The deadly dame collapse in Brumadinhoas, Brazil has significantly impacted market expectations for 2019. Combined with uncertainties created by trade tensions and a seasonally weaker first quarter, the spot market and the forward curve have worsened.
“The start of 2019 has been marked by uncertainty created by trade tensions and by the tragic dam accident in Brazil. The company’s low cash breakeven levels and strong balance sheet are vitally important as we navigate through current market volatility,” Ringstad Vartdal added.
However, expectations can change quickly, and a confluence of negative factors are currently priced into the market, according to GOGL. Any prolonged period of weakness will likely trigger vessel recycling. This would help to offset the increased number of new vessels scheduled to be delivered this year. Although orders are still being placed at shipyards, a weaker market should eventually result in downward revisions of fleet growth forecasts hence provide some support to the market, as explained by GOGL.
“Although sentiment is surely negative in the short term, we believe most scenarios have been priced into the forward freight curve, and if this market continues we should see adjustments to supply,” Ringstad Vartdal concluded.
The company entered into an agreement to purchase 20 scrubbers with options to purchase five additional scrubbers to be installed on certain of its Capesize vessels. The company’s current intention is to install the scrubbers at the same time as routine dry dockings, the majority of which are scheduled for 2019 or early 2020.
During the fourth quarter of 2018, GOGL secured financing for up to 11 scrubber installations in combination with a 3-year extension and upsizing of an existing loan facility.
What is more, GOGL announced in Q4 a share buy-back program to purchase up to 6 million of the company’s common shares. The buy-back program ends on December 20, 2019.
The company also repaid the outstanding balance of the convertible bond at maturity in January 2019.
As of December 31, 2018, GOGL’s fleet consisted of 77 vessels, with an aggregate capacity of approximately 10.7 million dwt.
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