Euronav NV

F:OCW

Earnings Call Analysis

Record Profit and Fleet Expansion in Q4

With pride, we announce a record Q4 profit of $411 million since our foundation in 1997, driven by robust trade markets and a significant $323 million capital gain from selling part of the Frontline fleet. Our net annual profit reached $862 million. Q1 guidance shows a positive trend with 46% of VLCCs fixed at $50,430 per day and 54% of Suezmaxes at $55,000 per day. Our liquidity has surged to nearly $2.5 billion. Fleet expansion continues, with 4 new VLCCs and 4 Suezmaxes on order. The outlook is supported by low order book-to-fleet ratios and an aging global fleet, suggesting a tight supply. Demand is growing slowly, with a beneficial supply-demand balance anticipated.

Quarterly Profit and Underlying Strength

The company announced a quarterly profit of $411 million, bolstered by a $323 million capital gain from the sale of part of the Frontline fleet. Yet, the underlying profit of $88 million reflects a robust Q4 independent of this one-off event.

Fleet Expansion and Capital Expenditure

Euronav continued its fleet expansion in Q4 with the addition of 2 more VLCCs. They now have an order book with 4 VLCCs and 4 Suezmaxes pending delivery, representing a remaining CapEx of $700 million. Furthermore, the transaction with CMB.TECH potentially adds another $2 billion in newbuilding commitments, inflating total CapEx commitments to $2.7 billion.

Future Earnings and Dividend Policy

The guidance for Q1 is progressing positively with VLCCs fixed at $50,430 per day for 46% of available days and Suezmaxes at $55,000 for 54%. The company has decided to suspend dividend payouts for Q4 until post-merger with CMB.TECH, indicating that dividend policy will become fully discretionary based on earnings.

Strong Liquidity Post Fleet Sale

Following the sale of most of the VLCCs to Frontline, Euronav's liquidity surged dramatically, ending the year with $1.243 billion and currently standing close to $2.5 billion. This robust liquidity position grants the company strategic flexibility and financial stability.

Capital Gains and Asset Disposal

The recent sale of the Oceania vessel is expected to yield a capital gain of roughly $35 million, which will be reflected in Q1 2024 earnings. Moreover, the sale of 23 of the 24 VLCCs to Frontline is poised to further strengthen the company’s finances.

Strategic Route Changes

Due to safety concerns in the Red Sea, Euronav has chosen alternative maritime routes. This strategic change is expected to create more demand for ships because of the increase in ton miles, a measure of transportation work done. They anticipate the current situation to last several weeks with hopes of resolving in the following months.

Corporate Developments and Shareholder Voting

The company aims to close a deal with the Frederiksen Group, to break the impasse at Euronav. This agreement is subject to a shareholder vote. If approved, they hope to close the mandatory bid for Euronav by mid-March.

Fleet Ratio and Aging Profile

Despite a recent uptick in new orders, the fleet's order book-to-fleet ratio remains historically low, promising industry support for the next two years. In addition, the fleet is aging, with many vessels nearing the age of 20 years, likely leading to increased scrapping and thus potentially improved utilization rates, even if demand remains flat.

Asset Valuation in a Tight Market

The current supply-demand tightness is reflected in strong secondhand prices for both Suezmaxes and VLCCs. However, the VLCC secondhand market's performance has been somewhat lackluster, but expectations are for a catch-up if market fundamentals persist.

Earnings Call Transcript 2023-Q4

[Operator]

Dear all, welcome to the Euronav Q4 Earnings Call. [Operator Instructions] I will now give the floor to Alexander.

[Alexander Saverys, executive]

Thanks very much, Annia. Good afternoon, everyone, and welcome to our Q4 2023 earnings call. My name is Alexander Saverys. I'm the CEO of Euronav. And I'm joined by my brother, Ludovic Saverys, our CFO, and I will immediately hand over to him.

[Ludovic Saverys, executive]

Good afternoon, everybody, and thank you for dialing in on our Q4 earnings call. We'll go to the presentation of the Q4 results focusing on the financial highlights first, and then Alexander will take over on the corporate developments and the tanker markets. We're extremely pleased to say that we've had a record Q4 in the history of the company since 1997.

We have been able to deliver a profit for this quarter of $411 million. Obviously, that result has been skewed by capital gains out of the sales of part of the Frontline fleet of $323 million. Nevertheless, the underlying profit of $88 million puts forward a strong Q4 based on the robust trade markets. We're happy also to include that in Q4, we've continued our fleet expansion within Euronav with another 2 VLCCs, which today still puts us with an order book of 4 VLCCs on order and 4 Suezmaxes.

On the right-hand side of the slide, you can see that the Q4 results were far above our P&L breakeven, but also that the Q1 guidance is growing in the right direction. Alexander will continue on that. We fixed for Q1, 46% at $50,430 per day for the VLCCs. And on the Suezmaxes, we have 54%, fixed at $55,000.

If you look on the next slide, we are highlighting obviously the key metrics of our company. We still have a leverage on book equity of about 30%. Obviously, with the sale of most of the VLCCs to Frontline, we have strengthened our liquidity dramatically. End of year, we ended the year with $1.243 billion in liquidity. As of today, as most of the vessels of the sale to Frontline have been delivered. We are close to $2.5 billion in liquidity.

The net profit of $411 million, I've mentioned. Happy also to include that for the full year, we are at the $862 million profit, from which $490 million is coming from the business and $372 million from capital gains. Q4 has also been highlighted by a new chapter for Euronav, which Alexander will continue to explain. We have decided not to do a dividend for Q4 until the mandatory offer is over.

Many of the stakeholders within Euronav, investors, analysts, and others, have asked us in the last couple of weeks what the dividend policy would be for the company. Previous management and Euronav, as a stand-alone pure-play tanker company, has aimed to dividend of 80% of its net profit going forward. And if the transaction with CMB.TECH will be consumed next week, the Board of Directors has decided that the dividend policy will be a full discretionary one.

I think CMB.TECH, as a shareholder, has a track record of rewarding its shareholders, but in terms to give clarity to our investors, the Board of Directors will keep a full discretion on how many dividends will be paid based on the products. The further growth, we were happy to include in the Q4, 2 new long-term charters to our first tier client, Valero, and expand our order book.

As of today, within Euronav, we have a remaining CapEx of $700 million throughout the 4 VLCCs on order and 4 Suezmaxes. Again, highlighting the fact, which we mentioned in the Capital Markets Day, if the transaction with CMB.TECH would be approved next week, CMB.TECH has an outstanding capital commitments to newbuildings of $2 billion, which would bring the total CapEx commitment of $2.7 billion.

One metric we haven't highlighted and we hope to be able to grow further in the future is the contract backlog on our Marine division, today stands at a $1.75 billion revenue. As CMB and Euronav have stated, it is our intention to continue to find attractive opportunities to be able to lock in long-term cash flow.

Without further ado, I'll pass on the word to Alex on the corporate developments.

[Alexander Saverys, executive]

Thank you very much, Ludovic. Well, on corporate developments, a lot has already been said over the last couple of weeks. I think if we zoom in on the Frontline transaction, I think the first thing we can highlight today is that 23 out of the 24 VLCCs have already been delivered to Frontline. You have seen in the Q4 what the result impact is. And we've also projected the impact of the sale of the 24 vessels -- or the remaining 24 vessels in Q1. So 1 vessel still needs to be delivered, but we're expecting that to be within Q1.

We also sold the Oceania, our oldest ship in the fleet. This has also been announced today, and we're going to realize a capital gain of close to $35 million, which will be recorded in Q1, 2024. Ludovic already said, very important contract done with Valero on a long-term time charter of 2 new Suezmaxes for delivery in Q2, 2026.

And then our total order book, part of our optimization strategy -- fleet renewal strategy of VLCCs at Beihai shipyard in Qingdao is now 4 vessels, 3 of them which we'll deliver in 2026 and 1 which we'll deliver in 2027. So if you look at our total fleet, apart from the 2 FSOs that we have, we have 17 Vs on the water plus 4 newbuildings and 22 Suezmaxes on the water. We have the Bristol delivering very soon. There is another 4 on order, which are going to come in 2024 and 2026.

We go to the next slide. We cannot have this call without mentioning the Red Sea. As you have heard, we were 1 of the very first companies to avoid the area after the Houthi rebel attacks on merchant shipping. We have not changed our viewpoint so far. So we will continue until further notice to go and choose other routes than through the Red Sea until that situation has become safer for our crew and for our ships.

The impact of the diversions can be seen every day in shipping in general. And I would say crude oil and product tanker shipping in specific. It is indeed creating more demand for ships because of the longer ton miles. And we're expecting the situation, unfortunately, to last at least for the next couple of weeks. Hoping for this to be resolved in the following months.

We can go to the next slide. Making a little recap what we already did on the Capital Markets Day presentation of what has happened over the past months and what will happen in the next couple of weeks. On the 9th of October, we struck an agreement with the [ Frederiksen Group ] to get out of the deadlock for Euronav.

That deal -- that agreement was ratified in November at a special General Meeting of Shareholders. Just before Christmas, we announced the CMB.TECH transaction. And next week on Wednesday, we will have a special general meeting to vote on that specific transaction.

Shortly thereafter, we hope to open the mandatory bid for Euronav, and we hope to close it by the middle of March. I want to say a few words about the tanker markets as well. As we are in shipping, there's things we know and things we don't know. If we zoom in on the [ supply side ] and the fleet curb position, which are things that should be relatively certain. I can only say that the signals are still very positive.

If we look at the order book to fleet, even though there has been some recent increase in ordering activity, specifically for Suezmaxes and some VLCC, we are still at a very low order book-to-fleet ratios from a historical point of view. And this definitely for the next 2 years will be very supportive for our industry.

Zooming in on the age of the vessels, stating the obvious with a fleet that is hardly getting scrapped, the age profile of the vessels is increasing, is going up. And we are now looking at ages -- average ages of the fleet that we haven't seen for a very, very long time, and again, should be a very positive signal going forward.

We have 1 more slide, the next slide, that zooms in on the VLCC fleet age profile and order book. Basically, you can see there that a big chunk of the vessels is going to reach the age of 20 years in the following years, which means a lot of potential to scrap, which means that utilization definitely has some support even if demand, I will speak about demand in a second, would stay relatively flat. So only positive things to say about the supply side.

Going into the asset prices, the market reacts as it does when the supply/demand balance is tight. We are seeing very, very healthy secondhand prices for both Suezmaxes and VLCCs. If we have to say something negative, I would say that the VLCC secondhand market has not gone up, as the underlying sentiment would have it. It's been underwhelming a little bit, but we're expecting this to catch up, as the year proceeds if the fundamentals stay as they are.

On the next slide, we have a few graphs on demand. Again, even though demand is growing slowly, it's the supply-demand balance, which is still looking very, very healthy. It's well publicized, the only new VLCC of the year has already been delivered. So there are no more Vs coming in 2024. And you can see on the slide that the order book for 2025 is indeed very low or nonexistent. With a slight growth in demand in oil, this should tighten the balance of supply-demand further.

So I already have my concluding remarks before we go and take some questions. Obviously, for Ludovic and I, this is a Euronav Q4 earnings call, maybe the last one as a pure-play. If the transaction of CMB.TECH on Wednesday is ratified, is agreed by the shareholders, then obviously, the next earnings call will zoom in a lot more on all the different divisions that we will have added. But for now, we are open for questions.

[Operator]

[Operator Instructions] So the first person who can ask a question is Christophe [indiscernible].

[Unknown Analyst]

I have a few questions, if I may. The upcoming SGM, the approval of the acquisition, is that by a simple majority vote that it needs to be approved because we need a qualified majority? And then secondly, best case scenario, one, when would we see the first consolidation of CMB.TECH if the transaction is approved? And then secondly, regarding the sale of VLCCs to Frontline, the delivery is spread in the fourth quarter and first quarter. Can you give more detail on how this impacts the cash flow statement in the fourth quarter and the first quarter? How many sale of vessels in the fourth quarter in your cash flow statement? And how much repayment of borrowings you foresee linked to the sales in the first quarter and fourth quarter of last year? And then third question, if I may, that is international. The VLCC vessels, which have been sold to Frontline, are no longer part of the pool? How do you see this for Tankers International? What's the impact there? And, yes, how do you see the position of Euronav in Tankers International going forward?

[Alexander Saverys, executive]

Christophe, I'll take the last question, and then I'll hand over to Ludovic. So on TI, as we stated before, as far as we're concerned, it is business as usual. As you know, we're a 50-50 shareholder together with INSW. The fleet has obviously reduced, but operations are still going as they were before. And actually, in recent weeks and months, we've even added new vessels to the pool from other third-party owners. For the other questions, I'll hand over to Ludovic.

[Ludovic Saverys, executive]

Yes. Great. Christophe, thanks for the questions. On the SGM next week, it's simple majority, i.e., CMB can vote as well, so hence, there is a high likelihood that transaction will go through. On the consolidation of CMB.TECH, we have -- the simple answer is that you will see that in the Q1 figures, which obviously will be announced in May.

We have put an illustrative balance sheet in the Capital Markets Day, where the main point to be pointed out is that we do not take any goodwill, i.e., the vessels on the water in CMB.TECH will be passed on at book value in Euronav. But so you will see a full consolidation in the Q1 set of results.

On the sale of the VLCCs, 11 VLCCs have been sold to Frontline in Q4 with a capital gain of $323 million. 13 VLCCs will be sold to Frontline, i.e., 12 have been sold in Q1 and 1 is being -- will be sold around mid-March, with a total capital gain of $372 million for Q1.

The total sales amount was $2.350 billion. The exact detail on the net -- the full proceeds in Q1, Q4, I have to come back to you on that. If you just take an arithmetic average on 11 of 24 vessels, it will be around $1.1 billion in Q4 and then $1.25 billion in Q1.

There was no debt on the ships while being delivered to Frontline. That is because within Euronav, we have refinanced all the remaining fleets that still remains today in our ownership. And we've releveraged those vessels to 55% of fair market value. And we've used excess cash of that to take out the debt on the vessels being sold to Frontline, which means that the $2.35 billion came in as net cash proceeds. Does that answer your question?

[Unknown Analyst]

Yes. Thank you.

[Operator]

Then the next person who can ask his question is Thijs Berkelder.

[Thijs Berkelder, analyst]

Yes, Thijs Berkelder, ABN AMRO, ODDO BHF. Three questions. First, you presented P&L breakeven for your tankers? Is that presale of the fleet or post sale of the fleet or somewhere in between? Then second question is given the situation with Houthi's, et cetera, are you making extra costs for protecting your vessels now? And if so, what amount should we think of? And third question is on the bunker volumes. What is your bunker strategy going forward?

[Ludovic Saverys, executive]

Okay, Thijs, thanks. I'll take the first 1 and Alex will take the next 2 ones. The breakeven of the tanker as projected are of the remaining fleet. So this is -- going forward, these are the P&L breakevens on both Suezmaxes and VLCCs.

[Alexander Saverys, executive]

Yes. And then on the protective measures for the Houthi's, we don't need to take any measures because the best measure is not going there. We are basically sailing around and not crossing the area. In terms of the bunker strategy, Thijs, we are basically keeping a strategy of being full floating, so market-related.

There's not any significant hedging, and we are not doing anything that maybe was done in the past of buying bunkers beforehand and loading it onboard of the Oceania because now the vessel is gone. So we basically go back to the normal strategy of staying on the spot market and not taking any cover. Does that answer your question, Thijs?

[Thijs Berkelder, analyst]

Yes. Thank you.

[Ludovic Saverys, executive]

Maybe Annia before, we go back to the question of Christophe, it is what I thought, is $1.1 billion in cash came in, in Q4 and $1.25 billion in Q1.

You can go ahead, Annia.

[Operator]

If there is anyone who still has a question, you can now raise your hand, please.

Okay. I see no further questions, Alexander and Ludovic.

[Ludovic Saverys, executive]

All right. Great. But we're always there to answer any questions you might have after this call. Thanks for joining us, and see you next week on Wednesday at the General Assembly. Bye-bye.

[Alexander Saverys, executive]

Thanks. Bye.