Euronav posts strong Q4 results

Euronav

Euronav reported its non-audited financial results for the fourth quarter of 2019 ended 31 December 2019.

Hugo De Stoop, CEO of Euronav said: “Tanker sector fundamentals improved further during Q4 to drive large tanker markets to their highest level since 2008. Specific catalysts have continued to influence short term freight rates – reflecting the current balance in market dynamics. Our fuel procurement strategy has delivered operational security over the key implementation period of IMO 2020. With continued limited contracting of new vessels, an order book at 25 year low and fleet expansion capital being rationed, the prospects for a sustainable cyclical upturn remain in place. The updated guidance on dividend policy provides a clear mechanism for future returns to shareholders”.

     
The most important key figures (unaudited) are:
       
(in thousands of USD)   Fourth Quarter 2019     Fourth Quarter 2018   Full Year 2019     Full Year 2018  
                     
Revenue 355,154 236,107 932,377 600,024
Other operating income 5,515 1,237 10,094 4,775
Voyage expenses and commissions (34,881) (44,492) (144,682) (141,416)
Vessel operating expenses (53,471) (53,812) (211,795) (185,792)
Charter hire expenses (604) (7,844) (604) (31,114)
General and administrative expenses (18,796) (15,977) (70,144) (66,232)
Net gain (loss) on disposal of tangible assets 9,354 (237) 24,141 18,865
Impairment on non-current assets held for sale (2,995) (2,995)
Depreciation (84,403) (78,483) (337,547) (270,693)
 
Net finance expenses (21,060) (23,828) (99,384) (74,389)
Bargain purchase (13,202) 23,059
Share of profit (loss) of equity accounted investees 4,200 3,783 16,020 16,076
Result before taxation 161,008     257   118,476     (109,832)  
                     
Tax benefit (expense) (207) 22 392 (238)
Profit (loss) for the period   160,801     279     118,868     (110,070)  
                           
Attributable to:  Owners of the company   160,801 279 118,868 (110,070)
The contribution to the result is as follows:
 
(in thousands of USD)   Fourth Quarter 2019     Fourth Quarter 2018   Full Year 2019     Full Year 2018  
 
Tankers 156,810 (3,284) 103,057 (125,930)
FSO 3,991 3,563 15,811 15,860
Result after taxation   160,801     279   118,868     (110,070)
Information per share:
 
(in USD per share) Fourth Quarter 2019     Fourth Quarter 2018   Full Year 2019     Full Year 2018  
 
Weighted average number of shares (basic) * 215,078,497 218,999,367 216,029,171 191,994,398
Result after taxation 0.75 0.00 0.55 (0.57)
         
* The number of shares issued on 31 December 2019 is 220,024,713.
     
EBITDA reconciliation (unaudited):
       
(in thousands of USD) Fourth Quarter 2019     Fourth Quarter 2018   Full Year 2019     Full Year 2018  
                     
Profit (loss) for the period 160,801 279 118,868 (110,070)
+ Net interest expenses 21,404 20,905 90,490 70,652
+ Depreciation of tangible and intangible assets 84,403 78,483 337,547 270,693
+ Income tax expense (benefit) 207 (22) (392) 238
EBITDA (unaudited) 266,815     99,645   546,513     231,513
+ Net interest expenses JV 1,184 1,322 4,587 3,635
+ Depreciation of tangible and intangible assets JV 4,944 4,555 18,460 18,071
+ Income tax expense (benefit) JV 362 354 1,581 1,598
Proportionate EBITDA 273,305     105,876   571,141     254,817
       
Proportionate EBITDA per share:
 
(in USD per share) Fourth Quarter 2019     Fourth Quarter 2018   Full Year 2019     Full Year 2018  
 
Weighted average number of shares (basic) 215,078,497 218,999,367 216,029,171 191,994,398
Proportionate EBITDA 1.27 0.48 2.64 1.33
         
All figures, except for Proportionate EBITDA, have been prepared under IFRS as adopted by the EU (International Financial Reporting Standards) and have not been audited nor reviewed by the statutory auditor.

EURONAV TANKER FLEET

On 19 November 2019 Euronav entered into a joint venture together with affiliates of Ridgebury Tankers and clients of Tufton Oceanic to acquire two Suezmaxes for USD 40.6 million with delivery later that same month. Each 50%-50% joint venture company has acquired one Suezmax vessel. Euronav provided financing for the joint ventures. Both vessels will be commercially managed by Euronav’s chartering desk.

On 30 December 2019 Euronav delivered three VLCC vessels to Taiping & Sinopec Financial Leasing Ltd Co as part of a sale and leaseback transaction. The three VLCCs are the Nautica (2008 – 307,284), Nectar (2008 – 307,284) and Noble (2008 – 307,284). The vessels were sold for a net en-bloc purchase price of USD 126 million.

The transaction produced a capital gain of about USD 23.0 million. Following IFRS 16 only USD 9.3 million which corresponds to the gain related to the rights transferred to the buyer and, as a result, has impacted the financial statements as per 31 December 2019 positively. After repayment of the existing debt, the transaction generated USD 66.6 million free cash.

Euronav has leased back the three vessels under a 54-months bareboat contract at an average rate of USD 20,681 per day per vessel. At the end of the bareboat contract, the vessels will be redelivered to their new owners.

UPDATED RETURNS TO SHAREHOLDERS GUIDANCE

Total return to shareholders policy targeting 80% of net income
As from first quarter 2020 results, dividends will be paid quarterly
Guidance will already apply to the 2019 final results
In practical terms, the 2019 final dividend proposal from the board to the shareholders will be confirmed with the announcement of the final year results for 2019 on 31st March 2020. This dividend, as with previous years, will then have to be approved by shareholders at the AGM in May with payment thereafter.

The first application of the new Belgian company code allowing quarterly dividends will be with the Q1 2020 results due to be announced in early May 2020. The ex-date and payment profile will follow within a month of the announcement. Going forward the company will announce results on a quarterly basis with dividends following the same pattern of ex-date and payment date.

GUIDANCE ON HOW CURRENT POLICY WILL BE APPLIED

The following guidance on the current policy will be applicable as of the first quarter 2020 results:

Each quarter Euronav will target to return 80% of net income (including the fixed element of USD 3 cents per quarter) to shareholders
This return to shareholders will primarily be in the form of a cash dividend and the Company will always look at share buyback as an alternative if it believes more value can be created for shareholders
In line with the current policy, the calculation will not include capital gains (reserved for fleet renewal) but will include capital losses and the policy will at all times be subject to freight market outlook, company balance sheet and cyclicality along with other factors and regulatory requirements.

Euronav believes this approach has the flexibility to manage the Company through the cycle, retaining sufficient capital for fleet renewal whilst simultaneously rewarding our shareholders.

FINAL 2019 DIVIDEND PROPOSED

Management is therefore pleased to announce that it intends to recommend to the Board of Directors, subject to final audited results being identical to the preliminary ones presented herewith and absent of material adverse circumstances that the Board proposes for approval of the AGM a final full year dividend of USD 0.35 per share.

Taking into account the interim dividend distributed in 2019 in the amount of USD 0.06 per share, the expected dividend payable after the AGM should be USD 0.29 per share.

The total final USD 0.35 dividend per share is in line with the target return guidance when compared to underlying earnings for the full year 2019 of USD 0.44 per share (after stripping out capital gains).

Therefore, taking into account the share buybacks executed over the course of 2019, the total return of capital to shareholders related to the full year 2019 is USD 105 million or USD 0.49 per share.

CLIMATE AND ESG COMMITTEE

In December 2019 Euronav held its first meeting with a new committee – the ESG and Climate Committee. This committee will meet on a regular basis and consists of members of the executive management team and non-executive directors from the board.

This initiative reflects the commitment by Euronav to fully engage on climate and ESG matters and ensure the secure transportation of crude oil is a core part of the energy transition to a cleaner future with lower emissions. Euronav is also committed to gaining a rating from CDP (Climate Disclosure Program) during 2020 from which it intends to develop challenging emission reduction targets. Euronav has already been providing full scope carbon emissions data since 2017.

Euronav was a key party of the drafting of the Poseidon Principles formally launched in June 2019. Euronav is a founding partner of the Global Maritime Forum from which many sustainable initiatives were, and are expected, to be created. One of which is the Getting to Zero coalition which aims to develop zero emissions vessels by 2030 and to which Euronav is one of the signatories.

INCLUSION IN BLOOMBERG GENDER EQUALITY INDEX FOR 2020

Euronav remains committed to applying the highest corporate governance standards possible. This was reflected during 2019 with gender equality being a key orientation, which is visible in all layers of the Company, including Board and Management level.

In addition Euronav has been included in the Bloomberg Gender-Equality Index 2020 (“GEI”). This is the third year Euronav has been included in this index. The 2020 Index is a reference index which measures gender representation across internal company statistics, employee policies, external community support and engagement, and gender-conscious product offerings. The 2020 GEI expands globally to represent 42 countries and a combined market capitalization of USD 12 trillion.

FUEL PROCUREMENT PROJECT AND IMPLEMENTATION OF IMO 2020

During 2019 Euronav purchased sufficient fuel to cover more than half of its compliant fuel requirements for calendar 2020. The key driver behind this strategy was to provide security of fuel supply and ensure a smooth transition into IMO 2020. The compliant fuel has been deployed since end of Q4. The inventory, which has been fully tested, was purchased at a very competitive price well below the current spot price for compliant fuel.

Following implementation of IMO 2020 a dynamic fuel oil market will provide numerous and sustained challenges for shipowners. Euronav has a dedicated fuel procurement team coupled with a strong balance sheet and operational capability to meet these challenges. The fuel procurement strategy implemented so far has provided Euronav adequate protection against higher fuel prices and a high degree of optionality going forward regarding fuel strategies. This includes the potential to install scrubber technology. Management will continue to closely monitor fuel market dynamics and update stakeholders when necessary.

For more details on our IMO strategy: https://www.euronav.com/investors/company-news-reports/presentations/2019/euronav-imo-2020-webinar/

TANKER MARKET

Demand and ton-mile

Demand for crude oil recovered strongly during Q4 (IEA estimate 1.9 bpd for Q4 2019) on factors other than seasonality with a prolonged period of refinery maintenance reversing ahead of IMO 2020 coupled with GDP growth from improving trade conditions.

The OPEC production cuts were extended in early December into 2020 but the impact on the tanker market has been negligible as longer ton mile trading routes principally from the Atlantic (US Gulf, Brazil and the new Johan Sverdrup field from Norway) shipping crude to the Far East. The US crude export phenomenon continues to deliver with a new high of 4.4 million bpd recorded in December (source EIA).

Periodic geo-political tensions, primarily in the Middle East, also contributed to a stronger freight environment during the quarter and into Q1. Other potential disruptions from vessels leaving the fleet to install scrubbers were far less intrusive than anticipated during Q4 as half the planned 98 installations were deferred into 2020. On an annualized basis consensus estimates that a further 96 VLCCs plan to retrofit scrubbers during 2020 reducing the fleet capacity by 1.9% – thus providing a further positive driver to already robust fundamentals.

Supply

Contracting of new vessels has continued to remain benign with the order book (new orders as % of existing fleet) static at 25 year lows and the run rate of new tanker orders over the past 12 months below the level of new VLCCs required per year from IEA demand projections.

Two key factors are driving such reluctance to order; (1) increasingly restricted access to capital from traditional shipping banks as regulatory pressures build (e.g. Basel IV) and historical asset price volatility drives some policy decisions (source: Petrofin) (2) owners reluctance to invest capital in current technology whilst the sector is targeting substantial reductions in carbon emissions by the end of the new decade which is likely to require new propulsion technologies and/or fuels.

The world large tanker fleet will also come back as of this year to a more regular fleet age profile across all vintages. This means, that should the freight markets show weakness, there will be a healthy number of vessels old enough to be recycled and therefore reduce the supply of ships available for crude oil transportation.

Recent market activity

The fundamentals that underpinned a robust freight rate market through most of Q4 2019 were augmented by IMO related disruption to fleet supply and increased geopolitical risk as the calendar year closed. Combined with seasonal strength during the winter period this pushed freight rates temporarily to elevated levels between mid-December and mid-January. As expected seasonal trading patterns have reduced earnings and activity since then to more normalized levels. Concerns over the potential impact of the Coronavirus, a serious respiratory virus, on freight rates and capital market activity are at a very early stage but will require monitoring.

OUTLOOK

Q1 2020 has begun very strongly with some short term factors driving freight rates to highly elevated if temporary levels. Robust underlying fundamentals of vessel supply and demand are supportive to a stronger freight market of some duration. The effects of IMO 2020 should be a positive overlay during the current and subsequent quarters but are also likely to provide some short term disruption to the global shipping network. The recent trade deal (first phase trade agreement) between US and China requires over USD 50 billion of Chinese purchasing of energy product including crude oil.

Whilst the fundamentals remain very good, management acknowledge that it is premature to assess the impact of the outbreak of the Coronavirus in China.

So far in the first quarter of 2020, the Euronav VLCC fleet operated in the Tankers International Pool has earned about USD 89,200 per day and 60% of the available days have been fixed. Euronav’s Suezmax fleet trading on the spot market has earned about USD 57,500 per day on average with 51% of the available days fixed.

LEAVE A COMMENT

×

Comments are closed.