Euronav Q4 2023 Earnings Call Transcript

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February 1, 2024

There are 6 speakers on the call.

Operator

Dear all, welcome to the Unit Q4 earnings call. Everyone is muted

Speaker 1

and the questions can be taken after the presentation. I will now give the floor to Alexander.

Speaker 2

Thank you very much, Enya. Good afternoon, everyone, and welcome to our Q4 2023 earnings call. My name is Alexander Savries. I'm the CEO of Euronav, and I'm joined by my brother, Benoit Savries, our CFO. And I will immediately hand the word to him.

Speaker 2

Good afternoon, everybody, and thank you for dialing in on our Q4 earnings call.

Speaker 3

We'll go through 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 our records Q4 in the history of the company. Q4. In 1997, we have been able to deliver a profit for this quarter of $411,000,000 Obviously, that result has been skewed by capital gains out of the sales of part of the frontline fleet of $303,000,000 Nevertheless, the underlying profit of 88,000,000 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 older and 4 Suezmaxes.

Speaker 3

On the right hand side of the slide, you can see that the Q4 results were far above ARPU number breakevens, But also that the Q1 guidance is going in the right direction. Alexander will continue on that. We fixed for Q1 46 percent at $50,430 per day for the VLCCs. And on Asturias Max's, 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 leverage on book equity of about 30%.

Speaker 3

Obviously, with the sale of most of the VLCCs to frontline. We have strengthened our liquidity dramatically. End of the year, We ended the year with $1,243,000,000 in liquidity. As of today, as most of the vessels of the CO2 front line having delivered. We are close to $2,500,000,000 in liquidity.

Speaker 3

The net profits of $411,000,000 I've mentioned, have you also to include that for the full year, we are at $862,000,000 profit from which $490,000,000 is coming from the business and $372,000,000 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 Euronet is a standalone pure play tanker company, has aimed to dividend of 80% of its net profit.

Speaker 3

Going forward and if the transaction with CMB Tech will be consumed next week. The Board of Directors has decided that the dividend policy would be a full discretionary one. I think, let's see, the ASNOKA 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 discussion on how many dividends will be paid based on the profits. The further growth, we're happy to include in the Q4 2 new long term charters to our 1st year client Valero and expand our order book.

Speaker 3

As of today, we have a remaining CapEx of $700,000,000 to have the 4 VLCCs on order and the 4 Suezmaxes. Again, highlighting the fact, which we mentioned in the Capital Markets Day, if the transaction with CMBTech would be approved next week, CNV Tech has an outstanding capital commitments to newbuildings of $2,000,000,000 which will bring the total CapEx commitment of 2 point $7,000,000,000 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 $1,750,000,000 revenue. As CMB and UNF 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 balance.

Speaker 3

Yes.

Speaker 2

Thank you very much, Ludovic.

Speaker 3

Well, on the corporate developments,

Speaker 2

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 Q4 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.

Speaker 2

So one 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 is also being announced today. And we're going to realize a capital gain of close to 35 $1,000,000 which will be recorded in Q1 2024. Ludwig already said, very important contract done with Valero on a long term time charter of 2 new Suezmaxes for delivery in Q2 2026.

Speaker 2

And then our total order book, part of our optimization fleet renewal strategy of VLCCs at Beihai, Shequiao and Chindau is now 4 vessels, 3 of them which will deliver in 2026 and one which will deliver in 2027. So if you look at our total fleet, Apart from the 2 FSOs that we have, we have 17Vs on the water, plus 4 new buildings and 22 Suezmaxes on the water. We have the Bristol delivering very soon. There's another 4 on order, which are going to come in 2024 and 2026. We go to the next slide.

Speaker 2

We cannot have this call without mentioning the Red Sea. As you have heard, we were one 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 airport. Until that situation has become safer for our crew and for our ships.

Speaker 2

The impact of the diversions can be Q4. 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.

Speaker 2

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 October, we struck an agreement with the Fredriksen Group to get out of the deadlock for UNEV. 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.

Speaker 2

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

Speaker 3

the tanker markets as well.

Speaker 2

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 composition, 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 at some VLCC, we are still at 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.

Speaker 2

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 It's increasing, it's 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. Again, report. We have one more slide, the next slide that Q4. Zooms in on the VLCC fleetage 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 for utilization definitely has some support even if demand, and we'll speak about demand in a second, would stay relatively flat.

Speaker 2

So only positive things to say about the supply side. Going into the asset prices, the market reacts as it does report. 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 second half 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.

Speaker 2

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 that the only new VLCC of the year has already been delivered. So there are no more fees coming in 2024. And you can see on the slide that the order book for 2025 is indeed very low or non existent.

Speaker 2

Effort. With a slight growth in demand in oil, this should tighten the balance of supply demand further. So I'm already at 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 is a pure play.

Speaker 2

If the transaction of C&P Tech on Wednesday is ratified, is agreed by the shareholders, then obviously the next earnings call report. We'll zoom in a lot more on all the different divisions that we will have added. But for now, we are open for questions.

Speaker 1

Dear all, if you would like to ask a question, please raise the hand, and I will tell you your name and tell you to unmute when you can ask your question. So the first person who can ask a question is Christophe Sammois. You may unmute and ask your question, please.

Speaker 4

Hello. Good afternoon, Alexandra and Ludovic. 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 4. So we need a qualified majority.

Speaker 4

And then secondly, best case scenario, 1, when would we see the 1st consolidation of CMB Tech if the transaction is approved. And then secondly, regarding the sale of VLCCs to Frontline. The delivery is spread in Q4 and Q1. Can you give more detail on how this impacts the cash flow statement in the Q4 and the Q1? How many sale of vessels in the Q4 in your cash flow statement and how much repayment of borrowing is C4C late to lease sales in Q1 Q4 of last year.

Speaker 4

And then 3rd question, if I may, on Tankers International. The VLCC vessels, Which have been sold to frontline or 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?

Speaker 4

Thank you.

Speaker 2

Okay. Thank you, Christoph. I'll take the last question and then I'll hand over to Ludovic. So on TI, as we've stated before, as far as we're concerned, this business as usual. As you know, we're a fifty-fifty shareholder together with INSW.

Speaker 2

The fleet has obviously reduced, but operations are still growing as they were before. And actually, in recent weeks months, we've even added new vessels to the pool from other third party owners. For the other questions, I'll

Speaker 3

hand over to Ludovic. Yes, Great. Christophe, thanks for the questions. On the SGM next week, it's simple majority, I. E, CNB can vote as well.

Speaker 3

So hence, there's a highlight that the transaction will go through. On the consolidation of CNV 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 and on the water CEMETEK will be passed on at book value in EurNav. But so you will see a full consolidation in the Q1 set of results.

Speaker 3

On the sale of the VLCCs, 11 VLCCs have been sold to frontline in Q4 With a capital gain of $323,000,000 13 VLCCs will be sold to frontline, I. E. 12 have been sold in Q1 and one will be sold around mid March with a total capital gain of $372,000,000 for Q1. The total sales amount was €2,350,000,000 The exact detail on the net the full proceeds in Q1, Q4. There, I have to come at you on that.

Speaker 3

If you just take arithmetic Average on 11 of 24 vessels. It will be around 1,100,000,000 in Q4 and then 1,250,000,000 in Q1. 1, there was no debt on the ships while being delivered to frontline. That is because 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.

Speaker 3

And we've used excess cash of debt to take out the debt on the vessels being sold to Frontline, Which means that the DKK2.35 billion came in as net cash proceeds. Does that answer your question? Yes. Thank you.

Speaker 1

Okay. Thank you. Then the next person who can ask His question is Thijs Berkelder. You can unmute and ask your question, please.

Speaker 5

Yes. Dijs Berkeller, Avian Amro, ODDO BHF. Three questions. First, you presented a breakeven P and L breakeven for your tankers. Is that presale of the fleet or post sale of the fleet or somewhere in between?

Speaker 5

Then second question is, given the situation with the Houthis, etcetera, 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?

Speaker 3

Okay, Thijs, thanks. I'll take the first one and I'll take the next two ones. The breakeven and the tanker has protected as the projected are of the remaining fleets. So this is going forward, these are the PMO breakevens on both Suezmaxes and VLCCs. Yes.

Speaker 3

And then on

Speaker 2

the protective measures for the Houthis, 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 airport. And we are not doing anything that maybe was done in the past of buying bunkers beforehand and loading it on board of the Oceania because now the vessel is gone.

Speaker 2

So we basically go back to the normal strategy of staying on the spot market and not taking any cover.

Speaker 3

Does that answer your question, please?

Speaker 5

Yes, thank you.

Speaker 3

Thank you. Maybe, before we go back to the question on Christophe, it is what I thought is 1.1

Speaker 1

If there is anyone who still has a question, you can now raise your hand, please. Okay. I see no further questions, Alexander and Dominik.

Speaker 2

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

Speaker 3

bye. Thanks. Bye.

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Euronav Q4 2023
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