Euronav announces final year results 2021; suspends operations with Russian customers

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Euronav NV reported its final financial results today for the full year to 31 December 2021.

The return of oil consumption at a global scale was going to be a key driver to freight market recovery in 2021. When COVID vaccinations started being administered throughout the world, this recovery seemed to be imminent. Unfortunately, this did not evolve at the pace desired or expected.

The first half of 2021 was still impacted by a static and relatively low oil and related product consumption averaging just 96 million barrels per day. This compared to pre-COVID highs of more than 105 million barrels for Q4 2019. Some control over the virus from Q3 2021 onwards delivered small but sequential improvement in freight rates. Demand for oil was also boosted during Q4 by extreme price increases and volatility in energy and fuel prices. This prompted some substitution into oil and an increase in oil demand. While estimates vary, this event has resulted in an additional oil demand of 1 million barrels per day.

In early 2021, Euronav took the opportunity to counter cyclically invest by taking over a number of resale contracts for new vessels and proactively ordering new tonnage. This totalled 8 new vessels during 2021, with all vessels to be scrubber fitted and “future proofed” via investment in vessel infrastructure allowing later retrofitting of new technologies as and when they become available. Prices today are 25% higher for such tonnage and this investment represents a 15% increase in our fleet size on an underlying basis.

The year also saw global oil inventories decline significantly, and all major OECD hubs saw commercial crude oil stocks fall below the 5-year range. Replenishment of these reserves is necessary at a time when energy security has become a key issue following the Russian invasion of Ukraine at the end of the year.

Oil supply is another important factor in the recovery of the freight market. Production cuts began to taper in May 2021 and the OPEC alliance has gradually added more oil supply to the market progressively. This started to become visible to the tanker market going into the fourth quarter of 2021, as cargo numbers started to reflect the recovery in the oil market. The Arabian Gulf in particular is seeing crude cargo liftings on VLCCs approach the levels seen before the pandemic.
On the vessel supply side of the equation, the market remained oversupplied of tonnage. Historical precedents suggest that during periods of challenging freight rates, tanker owners are induced to recycle their older tonnage, therefore reducing the global trading fleet. While we saw some fleet exits during the year, this was not to the extent that history may have predicted. Some analysts suggest that older tonnage has instead been used for ‘illicit trade’ that has developed around sanctioned cargoes, therefore no longer being accessible for the regular commercial trade. A question remains as to whether these vessels will ever rejoin the commercial fleet, be it due to old age or because of now being earmarked as unlawful tonnage.

As for the contracting of new tonnage, the dual-fuel commitment from owners reflects the growing structural focus on emissions reduction from participants across the industry, from investors to charterers, to financiers. This will in turn increase pressure on older, higher emission tonnage with the potential to drive a strong phaseout programme at some point. In the second half of the year no new orders were placed in either segment. Alternative shipping sectors, such as container liners and dry bulk carriers, have experienced an earnings boom through 2021 and much of the extra cash has been invested in new tonnage of these types. This left tanker owners unable to compete with increasing newbuilding prices and many yards are now full into 2025. The new supply picture until then is therefore very clear and supportive of an improving tonnage balance in the near to medium term

2021 Key figures
In order to improve the relevancy of the accounting information of the income statement, the Company reclassified certain cost elements without impact on the profit (loss) for the period. These changes have been adopted in 2021 to improve comparability within the sector. It has been applied retrospectively and comparative information has been revised.

For the fourth quarter of 2021, the Company realized a net loss of USD 72.2 million or USD
0.36 per share (fourth quarter 2020: a net loss of USD 58.2 million or USD 0.29 per share). Proportionate EBITDA (a non-IFRS measure) for the same period was USD 38.8 million (fourth quarter 2020: USD 50.3 million).

TCE
The average daily time charter equivalent rates (TCE, a non IFRS-measure) can be summarized as follows:

Difference between the preliminary results and final results
The final result of USD (338.8) million reported is USD 0.4 million better than the preliminary results reported on 3 February 2022 of USD (339.2) million. This difference is related to the integration of 2021 results of our joint ventures TI LLC and TUKA Ltd. Furthermore, some balance sheet reclassifications have been processed without impact on the net result to improve presentation

Procedures of the independent auditor
The statutory auditor, KPMG Bedrijfsrevisoren – Réviseurs d’Entreprises, represented by Herwig Carmans, has confirmed that the audit procedures, which have been substantially completed, have not revealed any material misstatement in the accounting information included in the Company’s annual announcement.

Euronav highlights in 2021 January
On 11 January 2021 Euronav became a signatory of the ‘Neptune Declaration on Seafarer Wellbeing and Crew Change’.

On 27 January 2021, Euronav was included in the Bloomberg Gender-Equality Index
(“GEI”) for the fourth consecutive year and managed to improve her score.

February
On 3 February 2021 Euronav entered into an agreement for the acquisition through resale of two eco-Suezmax newbuilding contracts.

On 23 February 2021 Euronav announced that it has entered into a sale and leaseback agreement for the VLCC Newton (2009 – 307,284 dwt).

On 24 February 2021 Euronav held its second virtual naming ceremony for the inauguration of Doris and Dickens.

March
On 1 March 2021, Euronav became a member of the Maritime Anti-Corruption Network.

April
On 12 April 2021 Euronav signed an EUR 80 million unsecured revolving credit facility.

On 22 April 2021 Euronav entered into an agreement for the acquisition through resale of two VLCC newbuilding contracts (with the option to add a third).

June
On 7 June 2021, Euronav announced that the Suezmax Filikon (2002 – 149,989 dwt) was sold for USD 16.3 million and delivered to her new owners on June 4th.

July
On 6 July 2021 Euronav announced a Joint Development Program to help accelerate the development of dual fuel Ammonia (NH3) fitted VLCC and Suezmax vessels.
On 6 July 2021 Euronav confirmed that it has entered into new contracts for the construction of 3 Suezmax newbuildings and that it had lifted the option to build a third VLCC.

September
On 2 September 2021 Euronav Luxembourg S.A., a wholly owned subsidiary of Euronav NV, announced a successful placement of USD 200 million senior unsecured bonds.

On 28 September 2021 Euronav became a signatory of the ‘Call to Action for Shipping Decarbonization’.

October
On 7 October 2021 Euronav successfully completed a B30 biofuel test on the Suezmax Statia (2006 – 150,205 dwt).

November
On 18 November 2021 Euronav successfully concluded a four-month trial of a B50 biofuel blend on the Suezmax Marlin Sardinia (2019 – 156,607 dwt).

December
On 2 December 2021 Euronav signed an EUR 73.45 million unsecured revolving credit facility.

On 9 December 2021 Euronav obtained a ‘B’-score for taking coordinated action on climate issues by the Carbon Disclosure Project (CDP).

On 14 December 2021 Euronav held its virtual naming ceremony to welcome Cedar and Cypress.

Events occurred after the end of the financial year ending 31 December 2021
In January, two newbuilding Suezmaxes, Cedar and Cypress, joined our fleet. Cedar was delivered on the 7th of January and Cypress on the 20th of January. Both were constructed at Daehan Shipbuilding (DHSC) in South Korea.

On 26 January 2022, Euronav announced that the company will book a USD 18 million capital gain on disposal of assets upon the redelivery of 4 VLCCs, which occurs at the maturity of a five-year sale and leaseback agreement. The four VLCCs are: the Nautilus (2006; 307,284 dwt), Navarin (2007; 307,284 dwt), Neptun (2007; 307,284 dwt) and the Nucleus (2007; 307,284 dwt). As the first ship was redelivered on 15 December 2021, USD 4.5 million was booked in the fourth quarter of 2021, whereas the remaining USD 13.5 million will be booked in the first quarter of 2022.

On January 27, Euronav was included in the annual Bloomberg Gender-Equality Index (GEI), for the fifth consecutive year. The GEI provides transparency in gender-based

practices and policies at publicly listed companies, increasing the breadth of environmental, social, governance (ESG) data available to investors.

Euronav is one of 414 companies with a combined market capitalization of USD 1 trillion, headquartered in 45 countries and regions across 11 sectors, that are included in this year’s index. The Company’s score is 62.84%, which is higher than the average score of the Transportation and Logistics sector of 47.61%.

On March 18, 2022, the Company announced that the Financial Supervisory Authority of Norway has approved the base prospectus with appendices prepared by Euronav Luxembourg S.A. (“Euronav Luxembourg”) in connection with the listing on the Oslo Stock Exchange of Euronav Luxembourg’s USD 200 million senior unsecured bonds, due September 2026. The USD 200 million senior unsecured bonds, issued by Euronav Luxembourg and guaranteed by the Company, are listed on the Oslo Stock Exchange as of March 22, 2022

Recent developments in the Ukraine region have contributed to further economic instability in the global financial markets and international commerce. At the time of writing this press release, the outcome was not clear and the Company acknowledges that any escalation could potentially affect the shipping industry.

In February 2022, US and EU led economic sanctions against Russia in connection with the aforementioned conflicts in the Ukraine region. These sanctions may adversely impact our business, given Russia’s role as a major global exporter of crude oil and natural gas. Our business could also be adversely impacted by trade tariffs, trade embargoes or other economic sanctions that limit trading activities.

The invasion and subsequent war between Russia and Ukraine will impact our business in the following areas:

Freight rates – due to the self-sanctioning being performed by oil traders, refiners, and shippers of Russian petroleum products, the market has evolved short term towards longer tonnage and different cargo specifications. The longer-term prognosis is that ton miles may increase due to the adjustment of trade flows to compensate refineries and markets for the lack of Russian oil flows. The Company has suspended its operations with Russian customers, which represents an insignificant portion of the Company’s turnover (below 5%).

Bunker Fuel Cost – the price of marine fuels has increased as a consequence of the conflict and is anticipated to remain elevated for the foreseeable future. This is due to Russia supplying bunker markets with 20% of the global fuel demand in HSFO, VLSFO and MGO markets. These price increases will negatively impact the cost structure of the vessels, making it more expensive to ship freight on long haul voyages. The spread between HSFO and VLSFO was at a high level pre-invasion, but has begun to correct as the removal of Russian origin HSFO from the market has begun to tighten up supplies in Europe and in the Mediterranean.

Cybersecurity risks have increased, and the Company took additional measures.

Crew issues – the current conflict makes the ability to perform regular crew changes problematic, as travel may not be available nor the ability to repatriate a crew member to his or her home. This could impact operations of vessels as new officers and crews which may not have the familiarity of the vessel are joining. This could result in an extra crew cost on a yearly basis of max USD 500000.

Going forward, it remains difficult to estimate the future impact of this war situation in the economies where we are active, and hence difficult to quantify the impact these factors might have on our financial results.

COVID-19 update and impact on oil demand
The COVID-19 outbreak from early 2020 impacted many countries around the world and disrupted the lives of many millions of people. The Company has been taking the risks associated with the outbreak extremely seriously, and the safety and wellbeing of its employees is of paramount importance.

In that respect, the biggest operational challenge was to conduct crew changes. Apart from serious humanitarian and crew welfare concerns, there is an increasing risk that fatigue will lead to serious maritime accidents. To resolve the difficult situation, Euronav’s management decided to accommodate deviations by ships to facilitate crew changes.

Many Euronav employees shifted from office to remote working in no time. We explicitly want to mention and are proud of the reaction of our people, where our global workforce bonded together to support one another.

Going forward, it remains difficult to estimate the future impact of the pandemic on the economies where we are active, and hence the impact these factors might have on the financial results.